SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended January 5, 1996 Commission file number: 0-05083
Hyde Athletic Industries, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts 04-1465840
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Centennial Industrial Park, 13 Centennial Drive, Peabody, MA 01960
(Address of principal executive offices)
Registrant's telephone number, including area code: (508) 532-9000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $.33-1/3 par value
(Title of class)
Class B Common Stock, $.33-1/3 par value
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant, as of March 25, 1996, was approximately $5,734,795 (based on the
last sale price of the Class A Common Stock on such date as reported on the
Nasdaq National Market).
The number of shares of the registrant's Class A Common Stock, $.33-1/3 par
value, and Class B Common Stock, $.33-1/3 par value, outstanding on March 25,
1996 was 2,701,727 and 3,515,415, respectively.
Portions of the following documents are incorporated by reference in this
Report.
Documents Incorporated by Reference
-----------------------------------
Document Form 10-K Part
------- --------------
Proxy Statement for Annual Meeting of Stockholders of Part III
the Registrant to be held on May 21, 1996, to be filed
with the Securities and Exchange Commission.
<PAGE>
PART I
ITEM 1 - BUSINESS
Hyde Athletic Industries, Inc. and its subsidiaries (together, "Hyde" or the
"Company") design, develop, manufacture and market (I) a broad line of
performance oriented athletic shoes for adults under the Saucony brand name and
(II) outdoor recreational products for children and young adults under licensed
names, such as Barbie and Playskool, as well as under Brookfield and other
proprietary names of the Company ("Brookfield Products"). The Company's Saucony
athletic footwear products include running, walking, cross training and outdoor
trail shoes, and the Company's Brookfield outdoor recreational products include
roller skates, roller hockey skates and accessories. The following table sets
forth the approximate contribution to net sales (in dollars and as a percentage
of net sales) attributable to each product line for the periods and geographic
areas indicated. "Other" consists of Spot-Bilt coaches and officials shoes,
Quintana Roo bicycles and wetsuits, and sales of the Company's and other
products at retail factory outlets operated by the Company, and sales of other
branded products at the Company's subsidiary in Australia.
Net Sales
(dollars in thousands)
<TABLE>
<CAPTION>
Fiscal 1993 Fiscal 1994 Fiscal 1995
----------------------- ------------------------ -------------------------
Sales Sales Co. Sales Sales Co. Sales Sales Co.
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ % % $ % % $ % %
Saucony
Domestic $ 64,836 81% $ 53,939 71% $ 47,040 67%
International 14,740 19% 22,420 29% 23,628 33%
--------- ------ --------- ---- ---------
Total $ 79,576 100% 77% $ 76,359 100% 71% $ 70,668 100% 69%
Brookfield
Domestic $ 16,094 84% $ 19,699 80% $ 18,737 78%
International 3,160 16% 4,824 20% 5,277 22%
--------- ------ --------- ---- --------- ---
Total $ 19,254 100% 18% $ 24,523 100% 23% $ 24,014 100% 23%
Other $ 4,905 5% $ 6,696 6% 7,881 8%
--------- ---- -------- ---- --------- ----
Grand Total $ 103,735 100% $107,578 100% $ 102,563 100%
========= ==== ======== ==== ========== ====
</TABLE>
SAUCONY BRAND. The Company sells quality running, cross training, walking, and
outdoor trail shoes for adults under the Saucony brand name, which has been
marketed in the United States for over 25 years. The Company assembles most of
its Saucony footwear sold in the United States at its manufacturing facility in
Bangor, Maine, largely with components sourced from independent manufacturers
located overseas. The Company believes that assembly at its Bangor facility
assists in timely and flexible product delivery in the domestic market.
According to ASD/Target Research, Inc., an independent market research
organization ("ASD/Target Research"), the Company ranked fifth in sales of
running shoes in the United States during 1995. In addition, according to
ASD/Target Research, the Company's market share of running shoes sold in the
United States was 7.0% in 1995. The Company believes that a high percentage of
purchasers of Saucony brand footwear buy such products for athletic uses and
that such consumers have greater brand loyalty than athletic shoe purchasers who
buy for casual wear purposes. The Company has several product offerings within
each of the Saucony brand categories which have different designs and features,
resulting in different cushioning, stability, support characteristics and
prices.
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The Company builds its Saucony shoes with a high level of technological
performance characteristics to appeal to athletic users. As a result of the
Company's application of biomechanical technology in the design process, the
Company believes that its Saucony shoes have a distinctive "fit and feel" that
is attractive to athletic users. A key element in the design of Saucony shoes is
an anatomically correct toe and heel configuration that provides support and
comfort throughout the human gait cycle for the particular activity for which
the shoe is designed.
Many of the Company's top of the line running and other athletic shoes
incorporate the Company's G.R.I.D. ("Ground Reaction Inertia Device") System, an
innovative midsole system that employs molded strings engineered to create a
feeling similar to that of the "sweet spot" of a tennis racquet. In contrast
with conventional athletic shoe midsoles, the G.R.I.D. System is designed to
react to various stress forces differently and thereby simultaneously to
maximize shock absorption and minimize rear foot motion. In 1995, the Company
introduced the next generation of G.R.I.D. technology into its top of the line
shoes and incorporated the current G.R.I.D. System into its Saucony Jazz running
shoes, the Company's most popular shoes.
The Company designs and markets separate lines for men and women within most
Saucony product categories. The Company currently sells approximately the same
percentage of Saucony shoes to men and women. The suggested domestic retail
prices for most Saucony footwear products are in the range of $50 to $85 per
pair, with the Company's top of the line running shoes having suggested domestic
retail prices of up to $135 per pair.
The Company designs its Saucony cross training, walking and outdoor trail shoes
with many of the same performance features and "fit and feel" characteristics as
are found in Saucony running shoes. Currently, the Company's most popular
non-running athletic shoe is a women's traditional white leather walking shoe.
The Company believes that a line of athletic apparel bearing the Saucony name is
supportive of its athletic footwear products and enhances the visibility of the
Saucony brand. Accordingly, the Company has licensed the Saucony name for the
United States market to the Bangor Trading Company of Chula Vista, California,
for use in connection with a line of sporting apparel. The Bangor Trading
Company introduced these apparel products into the performance athletic apparel
market in 1993.
BROOKFIELD PRODUCTS. The Company markets a full range of recreational and
dedicated enthusiast sports products that provide "Outdoor Fun For Kids." The
principal products in this category includes moderately priced roller skates,
roller hockey skates and in-line skates for children and young adults. Other
products include protective accessories, such as wrist, elbow and knee pads.
These products are sold through mass merchant, toy and sporting goods
departments and, in some cases, through free-standing sporting goods outlets.
These products are sold both under names owned by the Company, including the
"Brookfield," "Hyde," and "Spot-Bilt" names, and also under brand names licensed
from third parties, including Mattel, Inc., Hasbro, Inc., Franklin Sports, Inc.,
Spalding, Inc. and the Walt Disney Company. Licensed brands include such
recognizable names as Barbie, Playskool, Nerf, Spalding and Topflite, as well as
Mickey and Minnie.
The Company's strategy for licensed products is to offer categories and families
of products under well known trademarks and children's characters that
distinguish its products from those of its competition. The Company believes use
of these licensed brand names enables it to leverage
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established consumer awareness created by licensor-implemented national and
international advertising and promotional programs.
OTHER SALES
SPOT-BILT BRAND. The Company offers Spot-Bilt shoes for coaches and officials
through the distribution channels for its Saucony brand shoes. In addition, the
Company has licensed the Spot-Bilt name to a company that distributes youth team
field sport shoes under this name. (See Note 3 of Notes to Consolidated
Financial Statements).
QUINTANA ROO. The Company manufactures and distributes the Quintana Roo
line of triathlon bicycles, road bicycles, mountain bicycles and wet suits.
FACTORY OUTLET STORES. The Company operates six retail factory outlet stores. To
avoid competing against its customers' retail outlets, the Company generally
limits the products offered at these stores to products with cosmetic defects,
products which have been discontinued and certain slow-moving products. The
Company sells Saucony, Brookfield and Spot-Bilt products at these outlets, as
well as athletic goods of third parties, such as athletic clothing and
accessories.
AUSTRALIAN PRODUCTS. The Company's Australian subsidiary holds the exclusive
license to distribute various non-Hyde products throughout Australia.
PRODUCT DEVELOPMENT
The Company believes that the technical performance (i.e., comfort, support and
stability experienced by the athlete) of its Saucony footwear is important to
purchasers of its products. The Company uses consulting services of such
professionals as podiatrists, orthopedists, athletes, trainers and coaches as
part of its Saucony product development program. In developing Brookfield
products, the Company focuses both on comfort and on the color, graphics and
design of the product and the product packaging. The Company maintains a staff
of 25 persons located in Peabody, Massachusetts and Taiwan to undertake
continuing product development and design. Product development work also is
performed for the Company by its suppliers at their overseas facilities. During
the years ended January 5, 1996, December 30, 1994, and December 31, 1993, the
Company expended $1,851,000, $1,296,000, and $1,386,000, respectively, in
connection with its product development programs.
SALES AND MARKETING
SAUCONY BRAND. The Company's Saucony athletic footwear products are sold at more
than 5,000 retail outlets in the United States, primarily higher-end, full
margin sporting goods chains, independent sporting goods stores, athletic
footwear specialty stores and department stores. Retail outlets include Foot
Locker/Lady Foot Locker, Athlete's Foot, Nordstrom's, Road Runner's Sport, Sport
Mart and United Merchandising. With the exception of certain specified "house
accounts" handled directly by the Company, the Company sells its athletic
footwear products in the United States through 10 independent manufacturer's
representatives, whose organizations employ approximately 50 individual sales
representatives. Company sales personnel directly service a limited number of
specified house accounts and sell to a number of national accounts on a joint
basis with the Company's independent representatives.
The Company sells its Saucony products outside the United States through 22
distributors located throughout the world, including joint venture subsidiaries
in which the Company holds controlling interests located in the Netherlands
(which holds the distribution rights to the Company's Saucony
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products in the Benelux countries), Australia, Germany and Canada, and
through a branch office in the United Kingdom. In 1994, the Company formed a
German subsidiary, Saucony Deutschland Vertriebs GmbH, to provide additional
sales and marketing support in Europe and to undertake sales and marketing of
Saucony products in Germany. The primary overseas markets for the Company's
Saucony products are Europe and Australia.
To accommodate its customers' requirements and plan for its own product needs,
the Company employs a futures orders program for its Saucony products under
which the Company takes orders well in advance of the selling season for a
particular product and commits to ship the product to the customer in time for
the selling season. The Company affords customers price discounts and extended
payment terms in respect of such advance orders. The Company generally requires
payment at the time that the selling season ends, which increases the Company's
working capital requirements.
The Company engages in various advertising and promotional programs for its
Saucony products. The principal media used by the Company as part of its
advertising and promotional programs are magazines, with a particular focus on
athletic and fitness magazines. The Company also uses radio and regional
television advertising. To heighten its brand presence in retail outlets, the
Company emphasizes account specific in-store promotions of its Saucony products,
such as holding special events, providing consumers with a gift upon the
purchase of specified products and employee contests. Also to heighten brand
awareness, the Company frequently employs grass roots promotional activities,
such as its "Walking Club" and "Extra Mile Club" promotions. In addition, the
Company promotes its products on a limited basis through product endorsements by
athletes and sponsorship of sporting events.
Although most of the Company's advertising and promotional programs for its
Saucony brand are directed towards ultimate consumers, the Company promotes
these products to the trade through attendance at trade shows and similar
events. The Company employs an advertising program under which it reimburses
participating retailers for a portion of the costs incurred by such retailers in
advertising the Company's Saucony products.
BROOKFIELD PRODUCTS. The Company's Brookfield products are sold to retail
purchasers primarily through leading mass merchandisers, toy chains and
wholesale clubs. Retailers of Brookfield products include Sam's Wholesale Club,
Service Merchandise, Target and Toys "R" Us. The Company sells its Brookfield
products to these retailers in the United States primarily through nine
multi-line independent manufacturers representative agencies. Company sales
personnel directly service a limited number of specified house accounts for
Brookfield products and sell jointly with the Company's independent
representatives to a limited number of national accounts. The Company has begun
to expand sales of its Brookfield products in international markets and at the
end of 1995 was selling its products in 32 foreign countries.
The Company directs most of its advertising and promotional efforts for
Brookfield products towards the trade through attendance at trade shows and
similar events. The Company also employs an advertising program under which it
reimburses participating retailers for a portion of the costs incurred by such
retailers in advertising Brookfield products.
BACKLOG; SEASONALITY; DISTRIBUTION. The Company's backlog of unfilled orders was
approximately $34,727,000 at January 5, 1996 and $31,415,000 at December 30,
1994. The Company expects that all of its backlog at January 5, 1996 will be
shipped in fiscal 1996. While the Company has not generally experienced material
cancellations of orders, orders may be cancelled by customers without financial
penalty, and backlog does not necessarily represent actual future shipments.
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Although sales of different products of the Company are subject to seasonality,
the Company as a whole is not subject to significant seasonality in its product
sales because of the different selling seasons for various products. The Company
distributes its products through its warehouses in Peabody and Brookfield,
Massachusetts, as well as through independent warehouse facilities located
throughout the world.
For information about the Company's foreign operations and export sales, see
Note 13 of Notes to Consolidated Financial Statements.
MANUFACTURING
The Company assembles most of its domestically sold Saucony footwear at the
Company's manufacturing facility in Bangor, Maine, largely with components
sourced from independent manufacturers located overseas. Independent overseas
manufacturers produce the balance of the Company's Saucony products and all of
the Company's Brookfield and Spot-Bilt products.
The overseas manufacturers that supply products and product components to the
Company are located in the Far East, primarily in China, but also in Taiwan and
Thailand. The Company seeks to develop additional overseas manufacturing sources
from time to time, both to increase its sourcing capacity and to obtain
alternative sources of supply. All products and components produced by foreign
suppliers are manufactured in accordance with product specifications furnished
by the Company. The Company carefully monitors foreign manufacturing operations
and imported products and components to assure compliance with the Company's
design, production and quality requirements.
The number of foreign suppliers and the percentage of the Company's total
foreign production requirements produced by each such supplier vary from time to
time. During fiscal 1995, the Company purchased products from 16 overseas
suppliers. One of such suppliers, located in China, accounted for approximately
31% of the Company's total overseas purchases by dollar volume.
The Company is subject to the usual risks of a business involving foreign
suppliers, such as government regulation of fund transfers, export and import
duties and political and labor instability. The Company has not been materially
affected by any of these factors to date. Substantially all purchases from
foreign suppliers to date have been denominated in United States dollars in
order to reduce the Company's risk from currency fluctuations.
Although the Company has no long-term manufacturing agreements with its overseas
suppliers and competes with other athletic shoe and recreational product
companies (including companies that are much larger than the Company) for access
to production facilities, management believes that the Company's relationships
with its footwear and other suppliers are strong and that it has the ability to
develop, over time, alternative sources in various countries for footwear,
footwear components and other products obtained from its current suppliers.
However, in the event of a supply interruption, the Company's operations could
be materially and adversely affected if a substantial delay occurred in locating
and obtaining alternative sources of supply.
Raw materials required for the manufacture of the Company's products, including
leather, rubber, nylon and other fabrics, are generally available in the country
in which the products are manufactured. The Company and its suppliers have not
experienced any difficulty in satisfying their raw material needs to date.
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TRADE POLICY
The Company's practice of sourcing products and components overseas, with
subsequent importation into the United States, exposes it to possible product
supply disruptions and increased costs in the event of actions by United States
or foreign government agencies adverse to continued trade or the enactment of
legislation that restricts trade. For example, during the Reagan and Bush
Administrations, on several occasions Congress passed bills that would have
restricted footwear imports into the United States, but such legislation was
vetoed.
The Company imports a significant amount of its products and product components
from China. The United States provides China with most-favored-nation ("MFN")
status, allowing China to receive the same tariff treatment that the United
States extends to its "most favored" trading partners. Notwithstanding this
current policy, Congress could seek to revoke MFN for China, or condition its
renewal on factors such as China's human rights record.
The administration of existing U.S. trade laws can also create adverse
consequences for trade with the Company's suppliers. In particular, under
Section 301 of the Trade Act of 1974, as well as "Special 301" and "Super 301,"
the Office of the United States Trade Representative ("USTR") can retaliate
against certain unfair foreign trading practices. For example, in early 1995
such retaliation almost occurred against China in a Special 301 investigation of
China's intellectual property regime. However, on February 26, 1995, the United
States and China reached an agreement in this Special 301 investigation,
avoiding the scheduled imposition of increased tariffs by the United States on
certain products imported from China, including certain footwear products. This
bilateral agreement has extensive compliance features, and China's compliance
with this agreement is currently under review by U.S. trade officials. The
Company is unable to predict whether USTR may decide in the future to impose
sanctions or take other actions against China under this agreement. Also, U.S./
China foreign relations have been contentious in the recent past, and the
Company cannot predict whether this tension will interfere with the ability of
the Company to import products from China in the future.
In addition, USTR has identified certain of the Asian countries in which the
Company's suppliers are located as having various foreign trade barriers. As a
result of these or other unfair trade practices as identified by USTR, such
countries could be subject to possible retaliation by the United States under
Super or regular Section 301 authority.
The Company is unable to predict whether additional U.S. customs duties, quotas
or other restrictions may be imposed in the future upon the importation of its
products and/or components as a result of any of the matters discussed above, or
because of similar U.S. or foreign government actions. Such action could result
in increases in the costs of imported footwear, footwear components or other
Company products generally, or limitations on the Company's ability to import
footwear, footwear components or such other products into the United States.
Such occurrences might adversely affect the sales or profitability of the
Company, possibly materially.
COMPETITION
Competition is intense in the markets in which the Company sells its products.
The Company competes with a large number of other companies, both domestic and
foreign. Several competitors are large organizations with diversified product
lines, well known brands and financial resources substantially greater than
those of the Company. The principal competitors for the Company's Saucony
products are Nike, Reebok, New Balance and ASICS. The principal competitors for
the Company's Brookfield products are Variflex, Roller Derby, Blade Runner and
Fisher-Price. The Company believes that the key competitive factors as to both
its Saucony and Brookfield products
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are styling, durability, product identification through promotion, brand
awareness and price. Technical performance is also an important competitive
factor with respect to the Company's Saucony products, and name identification
is an important competitive factor with respect to the Company's licensed
Brookfield products. Customer support services and E.D.I. (Electronic Data
Interchange) are also significant factors. The Company believes that it is
competitive in all of these areas.
TRADEMARKS
The Company utilizes trademarks on nearly all of its products and believes that
having distinctive marks is an important factor in marketing its goods. The
Company has federally registered its Saucony, Spot-Bilt, Hyde, G.R.I.D., and
Quintana Roo marks, among others, in the United States. The Company has also
registered some of these marks in a number of foreign countries, including
countries in Europe, the Far East, and North, Central and South America.
Although the Company is engaged in a foreign trademark registration program for
selected marks, no assurance can be given that it will be able to register or
use such marks in each foreign country in which registration is sought. The
Company also obtains licenses on a royalty-bearing basis to various marks from
third parties from time to time, generally for two- to three-year periods. The
Company currently uses Barbie, Playskool, Franklin and other marks in connection
with sales of its Brookfield products.
Although the Company has usually been able to renew its licenses upon
expiration, there can be no assurance that it will be able to do so in the
future. The loss by the Company of its license for the Barbie and Spalding marks
could have a material adverse effect on the Company's consolidated financial
position and results of operations. In addition, one or more of the Company's
licensed tradenames or likenesses may decline in popularity.
EMPLOYEES
At January 5, 1996, the Company employed approximately 362 people worldwide, of
whom approximately 128 worked at the Company's manufacturing plant in Bangor,
Maine, approximately 30 worked in the Company's Peabody, Massachusetts,
warehouse, approximately 20 were sales and marketing personnel, approximately 20
were executive and finance personnel, approximately 25 were product development
and design personnel, and the remainder were involved in various other aspects
of the Company's business. The Company employs approximately 67 people at
several international locations. The Company believes that its employee
relations are excellent. The Company has never experienced a strike or other
work stoppage. Approximately 23 employees in the Company's Peabody warehouse
were represented by a union at January 5, 1996. None of the Company's other
employees is represented by a union or subject to a collective bargaining
agreement.
ITEM 2 - PROPERTIES
The Company's general and executive offices and its main warehouse facility are
located in Peabody, Massachusetts, and are owned by the Company. This facility
consists of approximately 175,000 square feet, of which 145,000 square feet is
warehouse space.
The Company owns a factory in Bangor, Maine, containing approximately 82,000
square feet of space, substantially all of which is used for the manufacture of
the Company's Saucony running shoes, mostly with imported components. The
Company also owns a retail store in Bangor,
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containing approximately 3,000 square feet of space, and a warehouse in East
Brookfield, Massachusetts, containing approximately 100,000 square feet. The
Company's Australian subsidiary owns an office and warehouse facility in St.
Peters, Australia, containing approximately 15,000 square feet.
ITEM 3 - LEGAL PROCEEDINGS
On May 25, 1988, Stuart Meyers brought suit against the Company in the United
States District Court for the District of Massachusetts. On October 12, 1988,
the suit was consolidated with four other cases as a multi-district panel
litigation matter with discovery and related proceedings in the United States
District Court for the Southern District of New York. Defendants in other cases
included several retailers of footwear, including at least one customer of the
Company, as well as other manufacturers. The suit against the Company's customer
was filed on November 2, 1987 in the United States District Court for the
Southern District of New York. These civil actions involve allegations by the
plaintiff that the Company as well as the other defendants in the litigation,
who are major manufacturers and distributors of athletic footwear, have made and
sold footwear within the scope of several patents held and owned by the
plaintiff. Two patents are alleged to be infringed by the Company, while others
are alleged to infringe three patents. The plaintiff sought to enjoin the
Company from further alleged infringements of his patents and for treble damages
for the alleged past infringements. The District Court dismissed the complaints
pursuant to the grant of motions for summary judgment filed on behalf of the
various defendants. The plaintiff filed an appeal in the Court of Appeals for
the Federal Circuit, which rendered a judgment against Meyers, holding Meyers'
three patents invalid. On reconsideration, the Court of Appeals revised its
order with slight modifications.
A subsidiary of the Company, Saucony Shoe Manufacturing Co., Inc. ("SSM"), was
named as a third-party defendant in the case of United States v. Atlas Minerals
and Chemicals, et al., which was filed on August 9, 1991 in the United States
District Court for the Eastern District of Pennsylvania asserting liability
under the Comprehensive Environmental Response Compensation and Liability Act
for the remediation of hazardous substances contamination at a landfill in
Pennsylvania. The United States and the original defendants in this case entered
into a settlement agreement under which the original defendants will conduct or
pay for future remedial actions at the landfill, and reimburse the United States
for certain past response costs. The United States and the original defendants
estimated these remedial actions and response costs at approximately $23
million. The original defendants had initiated third-party actions against
approximately 40 parties, including SSM, seeking reimbursement or contribution
as to these costs. SSM conducted manufacturing operations from 1968 to 1983, at
which time it was phased out of business. On August 25, 1995, the court issued
an opinion and judgment, holding certain parties in the case jointly and
severally liable for response costs which had been and will be incurred, and
determined the equitable share of each liable party. The court determined that
SSM's equitable share of response costs was $89,370, or 0.44% of the total
costs. Should the estimated response costs rise, or should one or more liable
parties fail to satisfy the judgments against them, SSM's obligation would
increase. Payment of SSM's obligation is expected to occur over a number of
years. One of the parties to the case has appealed the court's decision, and
that appeal is now pending.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
-------------- ------ ---------------
John H. Fisher 48 President, Chief Executive Officer
and Director
Charles A. Gottesman 45 Executive Vice President,
Chief Operating Officer, Treasurer
and Director
Wolfgang Schweim 44 President, Saucony Athletic Footwear
Division
James A. Buchanan 49 President and General Manager of
Brookfield Athletic Co., Inc. and
Director
Roger P. Deschenes 37 Controller and Chief Accounting
Officer
Kenneth W. Graham 42 Vice President,
Research & Development/Manufacturing
Daniel J. Horgan 40 Vice President, Operations
John H. Fisher became Chief Executive Officer of the Company in 1991. He was
elected President and Chief Operating Officer in 1985 after having served as
Executive Vice President from 1981 to 1985 and as Vice President, Sales from
1979 and 1981. Mr. Fisher is a member of the World Federation of Sporting Goods
Industries, is the former Chairman of the Athletic Footwear Council of the
Sporting Goods Manufacturers Association, and is a member of various civic
associations. Mr. Fisher became a director in 1980.
Charles A. Gottesman has served as Executive Vice President and Chief Operating
Officer of the Company since 1992, and served as Executive Vice President,
Finance from 1989 to 1992, Senior Vice President from 1987 to 1989, Vice
President from 1985 to 1987, and Treasurer since 1983. Mr. Gottesman became a
director in 1983 and is the brother-in-law of John H. Fisher.
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Wolfgang Schweim became President of the Company's Saucony Athletic Footwear
Division in June 1994. From 1993 to 1994, Mr. Schweim served as Managing
Director for Saucony Europe. From 1989 to 1993, Mr. Schweim was the German
Managing Director and Marketing Sales Manager for Europe at Asics, an athletic
shoe manufacturer. Prior to 1989, Mr. Schweim worked in sales and marketing
positions with Nike International, Le Coq Sportif and Adidas AG.
James A. Buchanan joined the Company in 1989 as Vice President, Marketing and
was promoted to his present position in 1990. From 1985 to 1989, he was
President of Marketing Associates International Ltd., a company engaged in the
marketing of entertainment products, including the European introduction of the
board game Trivial Pursuit. From 1981 to 1985 he was employed by General Mills,
Inc., first as Director of Marketing for New Ventures (non-foods) and then as
European Marketing Vice President for the General Mills Fun Group. Mr. Buchanan
became a director in 1991.
Roger P. Deschenes joined the Company in 1990 as Corporate Accounting Manager
and was promoted to Controller and Chief Accounting Officer in October 1995. He
was employed at Allen-Bradley, a manufacturing company, and subsidiary of
Rockwell International, from 1987 to 1990 as Financial and Cost Reporting
Supervisor. From 1986 to 1987, Mr. Deschenes was employed at Rule Industries,
Inc., a manufacturing firm, as Accounting Manager. Mr. Deschenes is a Certified
Management Accountant.
Kenneth W. Graham joined the Company in 1984 as Manager of Research and
Development. In 1986, Mr. Graham was promoted to Vice President, Research and
Development and in 1991 he became Vice President, Research and
Development/Manufacturing. Prior to joining the Company, Mr. Graham worked for
seven years with New Balance Athletic Shoes Corporation.
Daniel J. Horgan became Vice President of Operations in September 1995 after
serving as Senior Director of Operations from September 1994 to September 1995.
He joined the Company in 1982 as Manager of Import and Export Operations and has
served as Product Procurement and Distribution Manager and Director of
International Trade for the Company.
11
<PAGE>
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock and Class B Common Stock Trade on the Nasdaq
National Market System under the symbols "HYDEA" and "HYDEB", respectively. The
following table sets forth, for the periods indicated, the actual high and low
sales prices per share of the Class A Common Stock and the Class B Common Stock
as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal Year ended January 5, 1996
First Quarter $ 5-1/2 $ 4-5/8 $ 5-1/2 $ 4-5/8
Second Quarter 5-1/2 4 5-1/8 3-7/8
Third Quarter 5-1/4 4 5 4
Fourth Quarter 5-1/4 3-5/8 4-5/8 3-5/8
Fiscal Year ended December 30, 1994
First Quarter $ 8 $ 5-1/4 $ 7-3/8 $ 5-1/4
Second Quarter 6 4-3/4 6 5
Third Quarter 6-1/2 4-1/2 6-1/2 4-1/4
Fourth Quarter 6-1/2 4-3/4 6 4-3/4
</TABLE>
There were 436 and 422 stockholders of record of the Class A Common Stock and
Class B Common Stock, respectively, on March 25, 1996.
The Company does not anticipate paying any cash dividends in the foreseeable
future on the shares of Class A Common Stock or Class B Common Stock. The
Company currently intends to retain future earnings to fund the development and
growth of its business. The Company's note agreement with an insurance company
contains certain covenants restricting the cash dividends which may be paid by
the Company. As of January 5, 1996, approximately $10,555,000 was available for
payment of cash dividends under the terms of these covenants. Additionally, the
Company's credit facility agreement with two banks further restricts the payment
or declaration of any dividend or other distributions to stockholders, in money
or property, except in shares of its own Common Stock. Each share of Class B
Common Stock is entitled to a regular cash dividend equal to 110% of the regular
cash dividend, if any, payable on a share of Class A Common Stock.
12
<PAGE>
ITEM 6 - SELECTED FINANCIAL DATA
Selected Income Statement Data
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended Year Ended Year Ended
January 5, December 30, December 31, January 1, January 3,
1996 1994 1993 1993 1992
------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Net sales $102,562,755 $107,577,873 $103,735,477 $81,302,002 $57,986,848
Income before interest, income taxes
nonrecurring charges, minority
interest and cumulative effect of
change in accounting principle 3,320,129 6,256,133 9,081,123 7,701,541 3,823,128
Nonrecurring charges(1) -- -- -- -- 737,500
Minority interest (285,820) 8,516 (46,747) (26,670) --
Cumulative effect on prior years
of change in accounting principle (2) -- -- -- (303,538) --
Net income 1,591,106 2,936,637 4,607,698 3,422,099 1,034,162
Net income per common share(3) 0.26 0.46 0.76 0.65 0.19
Weighted average number of
common shares and
equivalents outstanding (3) 6,239,557 6,437,281 6,074,238 5,238,410 5,333,754
Selected Balance Sheet Data
January 5, December 30, December 31, January 1, January 3,
1996 1994 1993 1993 1992
--------------- --------------- --------------- --------------- ---------------
Current assets $59,190,090 $61,621,756 $58,121,147 $49,032,888 $40,507,779
Current liabilities 14,728,785 15,657,860 13,372,714 13,417,951 7,094,080
Working capital 44,461,305 45,963,896 44,748,433 35,614,937 33,413,699
Total assets 69,471,289 77,082,332 73,693,786 56,691,068 48,614,636
Long-term debt and capitalized
lease obligations, net of current
portion 4,205,568 11,922,392 12,941,977 10,015,977 12,395,585
Stockholders' equity 48,365,054 46,754,828 44,709,824 30,868,287 27,116,805
- --------------------------------
</TABLE>
(1) During 1991, the Company entered into a settlement agreement to resolve
all claims arising out of the Agreement and Plan of Merger with Silvershoe.
The Company recognized a non-recurring charge of $737,500 which is included
in consolidated net income.
(2) The Company adopted Statement of Financial Accounting Standards 109
(SFAS No. 109) in fiscal 1992. SFAS No. 109 required initial application of
this statement to be reported as a change in accounting principle. Included
in 1992 consolidated net income is a charge to earnings of $303,538 or $.06
per share of Common Stock, reflecting the cumulative effect of adopting SFAS
No. 109.
(3) See Notes 1 and 10 of the Notes to Consolidated Financial Statements
regarding restatement to reflect stock dividend.
13
<PAGE>
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Selected Quarterly Financial Results
The following table sets forth certain unaudited quarterly financial data of the
Company for each of the four fiscal quarters in each of fiscal 1995, 1994 and
1993. The Company believes that this information has been prepared on the same
basis as the audited Consolidated Financial Statements and that all necessary
adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly the selected quarterly information
when read in conjunction with the audited Consolidated Financial Statements and
the Notes thereto.
<TABLE>
<CAPTION>
Quarters Ended
(Unaudited)
March 31, June 30, September 29, January 5,
1995 1995 1995 1996
-------------- --------------- --------------- -------------
<S> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Saucony
Domestic $ 16,146,371 $ 12,777,890 $ 9,958,877 $ 8,156,455
International 7,145,958 5,775,849 5,487,042 5,219,465
------------- --------------- --------------- -------------
Saucony Total 23,292,329 18,553,739 15,445,919 13,375,920
------------- --------------- --------------- -------------
Brookfield
Domestic 4,090,634 3,933,322 6,215,743 4,497,599
International 632,771 1,181,895 1,929,266 1,533,042
------------- --------------- -------------- -------------
Brookfield Total 4,723,405 5,115,217 8,145,009 6,030,641
------------- --------------- --------------- -------------
Other 2,222,167 1,744,781 2,058,338 1,855,290
------------- --------------- --------------- -------------
Net sales 30,237,901 25,413,737 25,649,266 21,261,851
Other income 126,221 859,868 383,692 146,078
------------- --------------- --------------- -------------
Total revenue 30,364,122 26,273,605 26,032,958 21,407,929
------------- --------------- --------------- -------------
Costs and expenses
Cost of sales 20,376,734 17,380,076 17,464,091 15,639,920
Selling expenses 4,860,525 4,361,712 4,419,572 3,045,334
General and administrative
expenses 3,617,505 3,034,023 3,356,192 3,202,801
Interest expense 435,168 311,463 228,306 324,921
------------- --------------- --------------- -------------
Total costs and expenses 29,289,932 25,087,274 25,468,161 22,212,976
------------- --------------- --------------- -------------
Income (loss) before income
taxes and minority interest 1,074,190 1,186,331 564,797 (805,047)
Provision (benefit) for
income taxes 417,103 460,844 220,581 (383,543)
Minority interest in income (loss)
of consolidated subsidiaries 28,148 (113,550) 24,808 (225,226)
------------- --------------- --------------- --------------
Net income (loss) $ 628,939 $ 839,037 $ 319,408 $ (196,278)
============= =============== =============== ==============
Per share amounts:
Net income (loss) $0.10 $0.13 $0.05 $(0.03)
===== ====== ===== ========
Weighted average common shares
and equivalents outstanding 6,252,746 6,245,913 6,231,606 6,228,588
============= =============== ============ =============
</TABLE>
14
<PAGE>
SELECTED QUARTERLY FINANCIAL RESULTS
Statement of Income Data as a Percentage of Net Sales:
<TABLE>
<CAPTION>
Quarters Ended
(Unaudited)
STATEMENT OF INCOME DATA: March 31, June 30, Sept. 29, Jan. 5,
1995 1995 1995 1996
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
Saucony
Domestic 53.4% 50.3% 38.8% 38.4%
International 23.6% 22.7% 21.4% 24.5%
----- ----- ----- -----
Saucony Total 77.0% 73.0% 60.2% 62.9%
Brookfield
Domestic 13.5% 15.5% 24.3% 21.2%
International 2.1% 4.6% 7.5% 7.2%
------ ------ ------ -------
Brookfield Total 15.6% 20.1% 31.8% 28.4%
Other 7.4% 6.9% 8.0% 8.7%
------ ------ ------ -------
Net sales 100.0% 100.0% 100.0% 100.0%
Other income 0.5% 3.4% 1.5% 0.7%
------ ------ ------ ------
Total revenue 100.5% 103.4% 101.5% 100.7%
------ ------ ------ ------
Costs and expenses
Cost of sales 67.4% 68.4% 68.1% 73.6%
Selling expenses 16.1% 17.2% 17.2% 14.3%
General and administrative
expenses 12.0% 11.9% 13.1% 15.1%
Interest expense 1.4% 1.2% 0.9% 1.5%
------ ------- ------ ------
Total costs and expenses 96.9% 98.7% 99.3% 104.5%
------ ------- ------ ------
Income (loss) before taxes and
minority interest 3.6% 4.7% 2.2% (3.8%)
Provision (benefit) for income taxes 1.4% 1.8% 0.9% (1.8%)
Minority interest in income
(loss) of consolidated
subsidiaries 0.1% (0.4%) 0.1% (1.1%)
------ ------- ------- ------
Net income (loss) 2.1% 3.3% 1.2% (0.9%)
====== ======= ======= ======
</TABLE>
15
<PAGE>
STATEMENT OF INCOME DATA:
<TABLE>
<CAPTION>
Quarters Ended
(Unaudited)
April 1, July 1, Sept. 30, Dec. 30,
1994 1994 1994 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Saucony
Domestic $14,754,713 $14,153,824 $13,580,430 $11,450,127
International 6,025,409 3,679,950 5,847,618 6,867,348
------------- ------------- ------------- -------------
Saucony Total 20,780,122 17,833,774 19,428,048 18,317,475
------------ ------------ ------------ ------------
Brookfield
Domestic 3,449,622 4,640,359 3,818,867 7,789,835
International 253,649 683,519 2,329,573 1,557,237
----------- ------------- ------------- ------------
Brookfield Total 3,703,271 5,323,878 6,148,440 9,347,072
----------- ------------- ------------- ------------
Other 1,630,817 1,587,163 1,876,050 1,601,763
----------- ------------- ------------- ------------
Net sales 26,114,210 24,744,815 27,452,538 29,266,310
Other income 129,850 240,981 379,591 558,028
----------- -------------- -------------- -------------
Total revenue 26,244,060 24,985,796 27,832,129 29,824,338
----------- ------------ ------------ -----------
Costs and expenses
Cost of goods sold 17,779,333 16,879,487 18,156,065 19,678,500
Selling expenses 4,102,384 4,713,858 4,366,960 4,494,929
General and administrative
expenses 3,093,239 2,924,344 3,418,839 3,022,252
Interest expense 371,138 358,138 360,106 390,865
----------- ----------- ----------- -----------
Total costs and expenses 25,346,094 24,875,827 26,301,970 27,586,546
----------- ----------- ----------- -----------
Income before income taxes
and minority interest 897,966 109,969 1,530,159 2,237,792
Provision for income taxes 319,229 13,277 532,244 965,983
Minority interest in income
(loss) of consolidated
subsidiaries 61,912 (87,002) 42,449 (8,843)
----------- --------------- -----------------------------
Net income $ 516,825 $ 183,694 $ 955,466 $ 1,280,652
=========== =========== =========== ===========
Per share amounts:
Net income $0.08 $0.03 $0.15 $0.20
=========== ============== ============= ==============
Weighted average common
shares and equivalents
outstanding 6,501,071 6,457,466 6,423,956 6,333,950
---------- ---------- ---------- ----------
</TABLE>
16
<PAGE>
SELECTED QUARTERLY FINANCIAL RESULTS
Statement of Income Data as a Percentage of Net Sales:
Quarters Ended
(Unaudited)
April 1, July 1, Sept. 30, Dec. 30,
1994 1994 1994 1994
-------- ------- ------- --------
Saucony
Domestic 56.5% 57.2% 49.5% 39.1%
International 23.1% 14.9% 21.3% 23.5%
------- ------- ------- -------
Saucony Total 79.6% 72.1% 70.8% 62.6%
------- ------- ------- -------
Brookfield
Domestic 13.2% 18.8% 13.9% 26.6%
International 1.0% 2.7% 8.5% 5.3%
------- ------- ------- -------
Brookfield Total 14.2% 21.5% 22.4% 31.9%
------- ------- ------- -------
Other 6.2% 6.4% 6.8% 5.5%
------- ------- ------- -------
Net sales 100.0% 100.0% 100.0% 100.0%
Other income 0.4% 0.9% 1.4% 1.8%
------- ------- ------- -------
Total revenue 100.4% 100.9% 101.4% 101.8%
------- ------- ------- -------
Costs and expenses
Cost of goods sold 68.1% 68.2% 66.1% 67.2%
Selling expenses 15.7% 19.0% 16.0% 15.0%
General and administrative
expenses 11.8% 11.8% 12.4% 10.7%
Interest expense 1.4% 1.4% 1.3% 1.3%
------- ------- ------- -------
Total costs and expenses 97.0% 100.4% 95.8% 94.2%
------- ------- ------- -------
Income before taxes and
minority interest 3.4% 0.5% 5.6% 7.6%
Provision for income taxes 1.2% 0.1% 1.9% 3.3%
Minority interest in income
(loss) of consolidated
subsidiaries 0.2% (0.4%) 0.2% 0.0%
------- -------- ------- -------
Net income 2.0% 0.8% 3.5% 4.3%
======= ======= ======= =======
17
<PAGE>
SELECTED QUARTERLY FINANCIAL RESULTS
Statement of Income Data:
<TABLE>
<CAPTION>
Quarters Ended
(Unaudited)
April 2, July 2, Oct. 1, Dec. 31,
1993 1993 1993 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Saucony
Domestic $ 21,186,773 $ 18,294,845 $ 16,066,266 $ 9,288,402
International 2,822,587 3,213,964 4,776,137 3,927,478
------------ ------------ ------------ ------------
Saucony Total 24,009,360 21,508,809 20,842,403 13,215,880
------------ ------------ ------------ ------------
Brookfield
Domestic 3,657,024 3,725,655 2,950,330 5,760,693
International 530,089 1,047,489 998,885 583,574
------------ ------------ ------------ ------------
Brookfield Total 4,187,113 4,773,144 3,949,215 6,344,267
------------ ------------ ------------ ------------
Other 929,451 1,108,878 1,113,289 1,753,668
------------ ------------ ------------ ------------
Net sales 29,125,924 27,390,831 25,904,907 21,313,815
Other income 483,141 242,088 437,458 910,921
------------ ------------ ------------ ------------
Total revenue 29,609,065 27,632,919 26,342,365 22,224,736
------------ ------------ ------------ ------------
Costs and expenses
Cost of goods sold 20,356,052 18,235,365 17,235,069 15,282,662
Selling expenses 3,604,039 4,072,363 3,169,737 4,207,719
General and administrative
expenses 2,908,807 2,895,759 2,670,174 2,090,216
Interest expense 345,498 300,290 263,499 423,276
------------ ------------ ------------ ------------
Total costs and expenses 27,214,396 25,503,777 23,338,479 22,003,873
------------ ------------ ------------ ------------
Income before income taxes
and minority interest 2,394,669 2,129,142 3,003,886 220,863
Provision for income taxes 974,461 888,255 1,218,593 106,300
Minority interest in income
(loss) of consolidated
subsidiaries 44,464 43,975 20,554 (155,740)
------------ ------------ ------------ ------------
Net income $ 1,375,744 $ 1,196,912 $ 1,764,739 $ 270,303
============ ============ ============ ============
Per share amounts:
Net income $ 0.26 $ 0.21 $ 0.27 $ 0.04
============ ============ ============ ============
Weighted average common
shares and equivalents
outstanding 5,384,798 5,737,383 6,636,151 6,553,671
------------ ------------ ------------ ------------
</TABLE>
18
<PAGE>
SELECTED QUARTERLY FINANCIAL RESULTS
Statement of Income Data as a Percentage of Net Sales:
Quarters Ended
(Unaudited)
April 2, July 2, Oct. 1, Dec. 31,
1993 1993 1993 1993
------- ------- ------- --------
Saucony
Domestic 72.7% 66.8% 62.0% 43.6%
International 9.7% 11.7% 18.5% 18.4%
----- ----- ----- -----
Saucony Total 82.4% 78.5% 80.5% 62.0%
----- ----- ----- -----
Brookfield
Domestic 12.6% 13.6% 11.4% 27.0%
International 1.8% 3.9% 3.8% 2.8%
----- ----- ----- -----
Brookfield Total 14.4% 17.5% 15.2% 29.8%
----- ----- ----- -----
Other 3.2% 4.0% 4.3% 8.2%
----- ----- ----- -----
Net sales 100.0% 100.0% 100.0% 100.0%
Other income 1.7% 0.9% 1.6% 4.3%
----- ----- ----- -----
Total revenue 101.7% 100.9% 101.6% 104.3%
----- ----- ----- -----
Costs and expenses
Cost of goods sold 69.8% 66.5% 66.5% 71.7%
Selling expenses 12.4% 14.9% 12.2% 19.7%
General and administrative
expenses 10.0% 10.6% 10.3% 9.8%
Interest expense 1.2% 1.1% 1.0% 2.0%
----- ----- ----- -----
Total costs and expenses 93.4% 93.1% 90.0% 103.2%
----- ----- ----- -----
Income before taxes and
minority interest 8.3% 7.8% 11.6% 1.1%
Provision for income taxes 3.3% 3.2% 4.7% 0.5%
Minority interest in income
(loss) of consolidated
subsidiaries 0.2% 0.2% 0.1% (0.7%)
----- ----- ----- -----
Net income 4.8% 4.4% 6.8% 1.3%
===== ===== ===== =====
19
<PAGE>
This Annual Report on Form 10-K contains forward-looking statements. For this
purpose, any statements contained herein that are not statements of historical
fact may be deemed to be forward-looking statements. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects" and similar
expressions are intended to identify forward-looking statements. There are a
number of important factors that could cause the Company's actual results to
differ materially from those indicated by such forwarding-looking statements.
These factors include, without limitation, those set forth below under the
caption "Certain Factors That May Affect Future Results."
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's net sales decreased 4.7% in fiscal 1995 to $102,563,000 from
$107,578,000 in fiscal 1994. Net sales of Saucony footwear products decreased 7%
in fiscal 1995, reflecting a difficult retail environment, marginal acceptance
of certain new product offerings and increasing brand strength of a footwear
competitor. These factors resulted in a decrease of domestic net sales of
Saucony products of 13% in comparison with the fiscal 1994 level. International
sales of Saucony products increased by 5% in fiscal 1995 over the fiscal 1994
level and accounted for 33% of total net sales of Saucony products in 1995
compared with 29% in fiscal 1994. This increase in international net sales of
Saucony products reflected market gains from greater unit volume at the
Company's foreign subsidiaries. The Company currently distributes its Saucony
products in 32 countries.
Net sales of the Company's Brookfield products decreased by 2% in fiscal 1995.
Domestic net sales of Brookfield products decreased by 5% in fiscal 1995
primarily as a result of a difficult retail environment at the mass merchant
channels of distribution and absence of a promotional roller skate license for
the Christmas selling season. International net sales of Brookfield products
increased by 9% in fiscal 1995 and accounted for 22% of total net sales of
Brookfield products compared to 20% of total net sales of such products in
fiscal 1994. The increase in international net sales of Brookfield products was
attributable to increased international markets, with penetration in 31
countries in fiscal 1995 compared with 18 countries in fiscal 1994.
The Company's gross margin decreased to 30.9% in fiscal 1995 from 32.6% in
fiscal 1994, reflecting decreased gross margins for both Saucony and Brookfield
products. The decline in gross margin from sales of Saucony products resulted
from a greater proportion of sales of lower priced, lower margin footwear to
sales of higher priced, higher margin footwear in fiscal 1994. The decline in
gross margin from sales of Brookfield products resulted from a greater ratio of
lower margin international product sales to higher margin domestic product sales
compared with fiscal 1994. Increased international sales in fiscal 1995 by
Brookfield as an OEM manufacturer for certain of its licensors also caused gross
margins to contract on some specialty Brookfield product items.
Selling, general and administrative expense increased as a percentage of net
sales to 29.2% in fiscal 1995 compared with 28.0% of net sales in fiscal 1994
The increase in selling, general and administrative expenses as a percentage of
net sales in fiscal 1995 as compared to fiscal 1994 was due to the decrease in
net sales in fiscal 1995 in comparison to fiscal 1994. The absolute decrease in
the amount of selling, general and administrative expenses resulted from a
reduction in Saucony product advertising and promotional spending of $1,262,000,
This decrease was partially offset by increases in selling payroll, tradeshows
and administrative expenses to support the Company's new foreign subsidiary in
Germany and increased costs associated with the lease of a warehouse in
Australia.
Other income increased in fiscal 1995 to $1,516,000 from $1,308,000 in fiscal
1994 as a result of the gain on the sale of the Company's investment in a
limited partnership and increased royalty income.
20
<PAGE>
Royalty income increased in fiscal 1995 due to a final payment received under a
litigation settlement which amounted to $272,291.
Interest expense decreased in fiscal 1995 by $180,000 as a result of the paydown
of corporate debt during fiscal 1995 and debt reduction realized as a result of
the sale by the Company of its limited partnership investment.
The provision for income tax declined by $1,116,000 in fiscal 1995 as compared
with fiscal 1994 as a result of the decrease in the Company's pretax earnings.
The effective tax rate in fiscal 1995 was 35.4% compared with 38.3% in fiscal
1994. This rate reduction was due primarily to the relative effect of fixed tax
credits from the Company's tax related investment on lower income before tax for
fiscal 1995, as compared with fiscal 1994 and an adjustment to the Company' s
tax reserves.
FISCAL 1994 COMPARED TO FISCAL 1993
The Company's net sales increased 3.7% in fiscal 1994 to $107,578,000 from
$103,735,000 in fiscal 1993. Net sales of Saucony footwear products decreased by
approximately 4.0% in fiscal 1994, reflecting a softer domestic retail sales
environment for athletic footwear. However, international net sales of Saucony
products increased by approximately 52% in fiscal 1994 and accounted for 29% of
total net sales of Saucony products in fiscal 1994 compared to 19% of Saucony
net sales in fiscal 1993. This increase in international net sales of Saucony
products reflected the additional revenue resulting from ownership of the
Company's Australian subsidiary for a full year in fiscal 1994 compared to only
six months in fiscal 1993 and increased sales by the Company's other overseas
joint venture subsidiaries and international distributors of Saucony products.
The Company is seeking to increase the number of international distributors of
Saucony products in fiscal 1995.
Net sales of the Company's Brookfield products increased by 27% in fiscal 1994.
Domestic net sales of Brookfield products increased 22.0% in fiscal 1994
primarily as a result of increased sales of the Company's Barbie roller skating
products and increased sales of in-line roller skates. International net sales
of Brookfield products increased by 53% in fiscal 1994 and accounted for 20% of
total net sales of Brookfield products in fiscal 1994 compared to 16% of total
net sales of such products in fiscal 1993. The increase in international net
sales of Brookfield products was attributable to increased international
distribution channels, with penetration in 18 countries in fiscal 1994 compared
to 9 countries in fiscal 1993. The Company is seeking to increase the number of
international distributors of Brookfield products in fiscal 1995.
The Company's gross margin percentage increased to 32.6% in fiscal 1994 from
31.5% in fiscal 1993, reflecting increased gross margins from sales of both
Saucony and Brookfield products. The improvement in the gross margin from sales
of Saucony products resulted from greater operating efficiencies at the
Company's Bangor, Maine manufacturing facility and a change in the Company's
Saucony product mix to higher gross margin products. The improvement in the
gross margin from sales of Brookfield products was due to increased sales of
higher margin Barbie and other licensed products as well as a decrease in
product returns. The Company believes the lower product returns resulted, in
part, from the use of higher quality components manufactured by new suppliers.
Selling, general and administrative expenses increased by approximately
$4,500,000 in fiscal 1994 to 28.0% of net sales from 24.7% of net sales in
fiscal 1993. The increase in selling, general and administrative expenses
resulted primarily from an increase of approximately $1,400,000 in advertising
and promotional expenses for the Company's Saucony products as well as an
increase of approximately $1,200,000 in selling expenses related to the
Company's expanding Saucony foreign operations. In addition, general and
administrative expenses increased by approximately
21
<PAGE>
$1,900,000 in fiscal 1994 as a result of defense costs in connection with an
environmental lawsuit, a full year of expenses associated with the Company's
Australian subsidiary and increased expenses incurred by the Company's European
operations.
Interest expense increased by 11.0% in fiscal 1994 to $1,480,000 or
approximately 1.4% of net sales. This increase resulted from increased
borrowings by the Company's foreign subsidiaries to support their increased
selling and promotional expenses and a full year of interest expense on
borrowings incurred in connection with the Company's investment in a limited
partnership.
The provision for income tax declined by approximately $1,357,000 in fiscal
1994. This decline is attributable to the decrease in the Company's pretax
earnings. The effective tax rate in fiscal 1994 was 38.3% compared to 41.1% in
1993. This rate reduction was due primarily to the Company's tax credit
investment which was made in the fourth quarter of 1993.
LIQUIDITY AND CAPITAL RESOURCES
As of January 5, 1996, the Company's cash and cash equivalents totalled
$11,668,000, an increase of $8,319,000 from December 30, 1994. The increase was
primarily the result of a decrease in accounts receivable of $6,846,000 and a
decrease in inventory of $5,187,000 during fiscal 1995. The decrease in
receivables was due to reduced corporate net sales in the fiscal fourth quarter
of 1995. The Company's days sales outstanding at the year end fiscal of 1995
remained consistent with fiscal 1994's level of 74 days. The Company's inventory
turn ratio decreased to 2.4 turns at the end of fiscal 1995 from 2.7 turns at
the end of fiscal 1994. Inventories decreased due to lower inventory
requirements.
In fiscal 1995, the Company generated approximately $11,215,000 from operations,
expended $1,120,000 for capital expenditures, information technology and other
deferred charges, invested $112,000 to form a new subsidiary, expended $77,000
to repurchase shares of the Company's Common Stock, reduced long-term debt and
other long-term commitments by $2,920,000 and received $1,335,000 in cash as the
result of the sale, by the Company, of its investment in a limited partnership.
As part of the sale of this investment, the Company realized a reduction of
$4,056,000 of debt and accrued interest, of which $3,259,000 was long-term debt.
Principal factors (other than net income, accounts receivable and inventory)
affecting the Company's operating cash flows included an increase in prepaid
expenses and other current assets of $262,000 (due to advance payments for
business insurance and production molds), increase in marketable securities of
$308,000, an increase in accrued letters of credit of $1,115,000 (due to
increased in-transit inventory), a decrease in accounts payable of $865,000 (due
to lower inventory requirements and reduced operating spending in the fourth
quarter of 1995), a decrease in accrued expense of $1,605,000 (reflecting
decreased sales commissions, incentive bonuses, royalties payable, and other
operating expenses, which are attributable to the fourth quarter sales decrease
and lower interest payable as a result of the reduction in long term debt) and a
decrease in accrued income taxes of $743,000 due to lower pre-tax income and the
timing of tax payments. The declining value of the U.S. dollar decreased the
value of cash and cash equivalents by $37,000 in fiscal 1995.
As of December 30, 1994, the Company's cash and cash equivalents totalled
$3,350,000, a decrease of approximately $6,663,000 from December 31, 1993. The
decrease was primarily the result of a $5,500,000 increase in accounts
receivable and a $9,000,000 increase in inventory during fiscal 1994. The
increase in receivables was the result of increased sales during the fourth
quarter of 1994, partially offset by a decrease in the average days outstanding
(decreasing to 74 days at December 30, 1994 from 79 days at December 31, 1993).
The primary factor responsible for the increase in inventory was the Company's
creation of two new selling seasons for its Saucony brand
22
<PAGE>
in the United States. These new selling seasons changed customers' buying
patterns and resulted in an increase in the Company's inventory of Saucony core
running styles.
In fiscal 1994, the Company used $3,965,000 in net cash from operating
activities, expended $1,056,000 for capital expenditures, including information
technology, expended $2,794,000 to reduce long-term debt and other long-term
commitments, expended $923,000 to repurchase shares of the Company's Common
Stock and borrowed $2,547,000 on a short-term basis. Other factors (other than
net income, accounts receivable and inventory) affecting the Company's cash flow
from operations included the decrease of the Company's investments in marketable
securities of $4,004,000, a decrease in accrued letters of credit of $1,707,000
(due to lower inventory requirements), an increase in accounts payable of
$1,132,000 (due to increased advertising and general spending) and an increase
in accrued expenses of $1,209,000 (increased commissions payable, royalties and
bonuses, which are attributable to fourth quarter sales increases realized in
1994 and increases in unbilled legal services). The declining value of the U.S.
dollar decreased the value of cash and cash equivalents by $499,000 in fiscal
1994.
The Company has a credit facility with two banks pursuant to which a $25,000,000
credit line is available to the Company. This credit facility expires on August
1, 1996 and consists of a short-term demand line of credit in the principal
amount of up to $15,000,000, based on a borrowing formula, and a revolving term
line of credit (maturing on August 1, 1996) in the principal amount of up to
$10,000,000. Borrowings under this facility generally are made at the primary
bank's prime rate of interest. As of January 5, 1996 there were no borrowings
outstanding under this facility. The Company had open commitments at such date
related to letters of credit in the amount of $5,735,540. As of March 25, 1996,
$9,811,128 was available for borrowing under the short-term demand line and
$10,000,000 was available for borrowing under the revolving term line. Certain
of the Company's foreign subsidiaries have credit facilities, consisting of
demand and/or revolving lines of credit, in the aggregate principal amount of
approximately $7,069,900. As of March 25, 1996, an aggregate of approximately
$1,985,300 was available for borrowing under the facilities of the foreign
subsidiaries. See Note 10 of Notes to Consolidated Financial Statements.
On April 29, 1988, Hyde issued to a life insurance company $12,000,000 of 9.70%
senior notes due April 29, 1998. The notes provide for semi-annual payments of
interest, payable in April and October of each year, continuing to April 1998,
and annual payments of principal of $2,000,000 each from April 1993 to and
including April 1998. The note purchase agreement relating to the notes contains
restrictive covenants commonly found in such agreements. See Note 7 of Notes to
Consolidated Financial Statements. The Company may prepay the note at the time
of any scheduled principal or interest payment after April 29, 1995, subject to
a prepayment premium in certain circumstances.
At January 5, 1996, the Company had various commitments for capital
expenditures, including information technology systems, improvements to and
expansion of distribution facilities, both domestic and foreign. The Company
believes that these commitments are not significant.
The liquidity of the Company is contingent upon a number of factors, principally
the Company's future operating results. Management believes that the Company's
current cash and cash equivalents, credit facilities and internally generated
funds are adequate to meet its working capital requirements and to fund its
capital investment needs and debt service payments.
INFLATION AND CURRENCY RISK
The Company has experienced minimal impact of inflation over the past three
years. The Company has also experienced minimal impact due to currency
fluctuations because substantially all
23
<PAGE>
purchases from foreign suppliers and sales to customers to date have been
denominated in United States dollars.
SFAS 115
Statement of Financial Accounting Standards 115 (SFAS 115) was issued in May
1993. This statement establishes financial accounting and reporting standards
for investments in equity securities that have readily determinable fair values
and all investments in debt securities. SFAS 115 became effective for fiscal
years commencing after December 15, 1993. The Company adopted the statement in
fiscal 1994.
SFAS 123
The Financial Accounting Standards Board issued Financial Accounting Standards
No. 123 (SFAS 123) in October 1995. SFAS 123 establishes the financial
accounting and reporting standards for all stock-based compensation. SFAS 123 is
effective for fiscal years commencing after December 15, 1995, requires
companies to elect either the expense recognition for all stock-based
compensation or the disclosure-only alternative permitted under the statement.
As of January 5, 1996, the Company has not adopted SFAS 123 and has not
determined the impact of such adoption on its consolidated results of
operations.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
The following important factors, among others, could cause actual results to
differ materially from those indicated by forward-looking statements made in
this Annual Report on Form 10-K and presented elsewhere by management from time
to time.
COMPETITION. Competition is intense in the markets in which the Company sells
its products. The Company competes with a large number of other companies, both
domestic and foreign, several of which have diversified products lines,
well-known brands and financial, distribution and marketing resources
substantially greater than those of the Company. The principal competitors for
the Company's Saucony products are Nike, Reebok International, New Balance and
ASICS. The principal competitors for the Company's Brookfield products are
Variflex, Roller Derby, Blade Runner and Fisher-Price.
DEPENDENCE ON FOREIGN SUPPLIERS. A number of manufacturers located in the Far
East, primarily in China, Taiwan and Thailand, supply products and product
components to the Company. During fiscal 1995, one of such suppliers, located in
China, accounted for approximately 31% of the Company's total purchases by
dollar volume. The Company is subject to the usual risks of a business involving
foreign suppliers, such as currency fluctuations, government regulation of fund
transfers, export and import duties, trade limitations imposed by the United
States or foreign governments and political and labor instability. In
particular, there are a number of trade-related and other issues creating
significant friction between the governments of the United States and China, and
the imposition of punitive import duties on certain categories of Chinese
products has been threatened in the past and may be implemented in the future.
In addition, the Company has no long-term manufacturing agreements with its
foreign suppliers and competes with other athletic shoe and recreational product
companies including companies that are much larger than the Company for access
to production facilities.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly operating
results may vary significantly depending on a number of factors, including the
timing and shipment of individual orders, market acceptance of new athletic
footwear or outdoor recreational products for children, changes in the Company's
operating expenses, personnel changes, mix of products sold, changes in product
pricing and general economic conditions. In addition, a substantial portion of
the
24
<PAGE>
Company's revenue is realized during the last few weeks of each quarter;
therefore, any delays in orders or shipments are more likely to result in
revenue not being recognized until the following quarter, which could adversely
impact the results of operations for that quarter. The Company's current expense
levels are based in part on its expectations of future revenue and, as a result,
net income for a given period could be disproportionately affected by any
reduction in revenue. It is possible that in some future quarter the Company's
revenue or operating results will be below the expectations of stock market
securities analysts and investors; if that were to occur, the market price of
the Common Stock could be materially adversely affected.
MANAGEMENT OF GROWTH. One element of the Company's business strategy is to seek
acquisitions of businesses and products that are complementary to those of the
Company. There can be no assurance that the Company will be able to effect any
acquisitions, operate any such acquired businesses profitably or otherwise
implement its growth strategy successfully. In addition, identifying and
effecting acquisitions and integrating the acquired businesses with the
operations of the Company may place significant demands upon the current
management team and operational systems of the Company. In order to effect
acquisitions of a certain size, the Company may require additional capital,
which the Company may obtain through additional borrowings under its credit
facility.
DEPENDENCE UPON LICENSING ARRANGEMENTS. The Company sells Brookfield products
under trade names licensed from other parties. Most of the Company's licenses
are non-exclusive, have a fixed term and limit the types of products that may be
sold under the license.
DEPENDENCE ON CONSUMER PREFERENCES. The Company is susceptible to fluctuations
in its business based upon fashion trends and frequently changing consumer style
preferences and product demands, including levels of enthusiasm for athletic
activities. The Company believes that its success depends in substantial part on
its ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner. Moreover, the Company could be materially
adversely affected by conditions in the retail industry in general, including
consolidation and the resulting decline in the number of retailers and other
cyclical economic factors.
ADVERTISING AND MARKETING PROGRAMS. The Company's success in the markets in
which it competes depends in part upon the effectiveness of advertising and
marketing programs of the Company. In particular, it is imperative that the
Company periodically design and successfully execute new and effective
advertising and marketing programs.
DEPENDENCE ON MAJOR CUSTOMERS. Although the Company had no customer that
accounted for ten percent or more of the Company's consolidated revenue during
1995, the Company's business is susceptible to the loss of certain key customers
of the Company's product lines, such as Foot Locker for the Company's Saucony
products and Toys-R-Us for the Company's Brookfield products.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Index to the Company's Consolidated Financial Statements in Item 14 and
the accompanying consolidated financial statements, notes and schedules which
are filed as part of this Form 10-K following the signature page and are
incorporated herein by this reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
25
<PAGE>
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is contained in part under the caption
"Executive Officers of the Registrant" in PART I hereof, and the remainder is
contained in the Company's Proxy Statement for the Company's Annual Meeting of
Stockholders to be held on May 21, 1996 (the "1996 Proxy Statement") under the
captions "ELECTION OF DIRECTORS" and "OTHER MATTERS" and is incorporated herein
by this reference. The Company expects to file the 1996 Proxy Statement within
120 days after the close of the fiscal year ended January 5, 1996.
Officers are elected on an annual basis and serve at the discretion of the Board
of Directors.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this item is contained under the caption "ELECTION
OF DIRECTORS" in the Company's 1996 Proxy Statement and is incorporated herein
by this reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is contained in the Company's 1996 Proxy
Statement under the caption "Stock Ownership of Certain Beneficial Owners and
Management" and is incorporated herein by this reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is contained under the caption "Employment
and Consulting Agreements and Other Arrangements" appearing in the Company's
1996 Proxy Statement and is incorporated herein by this reference.
26
<PAGE>
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
(a) 1. Index to Financial Statements Page No.
The following consolidated financial statements of
Hyde Athletic Industries, Inc. and its subsidiaries
are included in this report:
Report of Independent Accountants
Consolidated balance sheets at January 5, 1996 and
December 30, 1994
Consolidated statements of income for the years ended January 5, 1996,
December 30, 1994, and December 31, 1993
Consolidated statements of stockholders' equity for the years ended
January 5, 1996, December 30, 1994, and December 31, 1993
Consolidated statements of cash flows for the years ended January 5,
1996, December 30, 1994, and December 31, 1993
Notes to the consolidated financial statements
2. Index to Consolidated Financial Statement Schedule
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
Separate financial statements of the Company have been omitted since it is
primarily an operating Company and its subsidiaries included in the consolidated
financial statements do not have a minority equity interest or indebtedness to
any person other than the Company in an amount which exceeds 5% of the total
assets as shown by the consolidated financial statements as filed herein.
3. Index to Exhibits
The exhibits filed as part of this Form 10-K are listed on the Exhibit
Index immediately preceding such exhibits, which Exhibit Index is incorporated
herein by reference.
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed in the fourth quarter of
fiscal 1995.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
HYDE ATHLETIC INDUSTRIES, INC.
(registrant)
By: /s/ John H. Fisher
---------------------------------
John H. Fisher
President and Chief Executive Officer
Date: April 4, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
NAME CAPACITY DATE
---- -------- ----
/s/ John H. Fisher
- -------------------------- President April 4, 1996
John H. Fisher Chief Executive Officer
Director
/s/ Charles A. Gottesman Executive Vice President April 4, 1996
- -------------------------- Chief Operating Officer
Charles A. Gottesman Director
(Principal Financial Officer)
/s/ Roger P. Deschenes Controller April 4, 1996
- ------------------------
Roger P. Deschenes Chief Accounting Officer
/s/ James A. Buchanan President April 4, 1996
- ------------------------- Brookfield Athletic Company
James A. Buchanan Director
/s/ John J. Neuhauser Director April 4, 1996
- --------------------------
John J. Neuhauser
/s/ Jonathan O. Lee Director April 4, 1996
- --------------------------
Jonathan O. Lee
/s/ Phyllis H. Fisher Director April 4, 1996
- --------------------------
Phyllis H. Fisher
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Hyde Athletic Industries, Inc.
We have audited the consolidated financial statements and the financial
statement schedule of Hyde Athletic Industries, Inc. and Subsidiaries listed in
Item 14(a) of this Annual Report on Form 10-K. These consolidated financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements and financial statement schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit also 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 consolidated 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 consolidated financial position of Hyde
Athletic Industries, Inc. and Subsidiaries as of January 5, 1996 and December
30, 1994, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended January 5, 1996, in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, presents fairly, in all
material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
March 22, 1996
29
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
January 5, December 30,
1996 1994
-------------- --------------
Current Assets:
Cash and cash equivalents $ 11,668,316 $ 3,349,776
Marketable securities (Note 2) 307,500 --
Accounts receivable, net of
allowance for doubtful
accounts and discounts
(1995, $940,244; 1994,
$1,147,409) (Note 3) 17,361,195 23,947,584
Inventories (Note 4) 26,831,600 31,863,443
Deferred income taxes (Note 12) 1,251,654 1,148,048
Prepaid expenses and other
current assets 1,769,825 1,312,905
-------------- --------------
Total current assets 59,190,090 61,621,756
-------------- --------------
Property, plant and equipment,
net of accumulated depreciation
and amortization (Note 5) 8,122,937 8,292,926
-------------- --------------
Other assets:
Deferred charges, net of
accumulated amortization (1995,
$1,185,319; 1994, $927,476) 999,363 774,947
Notes receivable (Note 3) 353,175 612,317
Investments in limited partnerships,
at cost (Note 6) 753,433 5,746,768
Other 52,291 33,618
-------------- --------------
Total other assets 2,158,262 7,167,650
-------------- --------------
Total assets $ 69,471,289 $ 77,082,332
============== ==============
See notes to consolidated financial statements
30
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
January 5, December 30,
1996 1994
---------------- ---------------
<S> <C> <C>
Current liabilities:
Accrued letters of credit (Note 9) $ 2,619,819 $ 1,507,548
Notes payable (Note 9) 4,336,940 2,825,120
Current portion of long-term debt and
capital lease obligations (Notes 6 & 7) 2,199,225 2,732,208
Accounts payable 2,436,148 3,210,521
Accrued expenses (Notes 9) 3,136,653 4,813,578
Accrued income taxes payable -- 542,019
Current portion of termination benefit
payable -- 26,866
-------------- --------------
Total current liabilities: 14,728,785 15,657,860
-------------- --------------
Long term obligations:
Long-term debt, net of current portion (Note 6) 4,000,000 11,617,055
Capital lease obligations, net of current
portion (Note 7) 205,568 305,337
Deferred income taxes (Note 12) 2,001,655 2,320,777
-------------- --------------
Total long-term obligations 6,207,223 14,243,169
-------------- --------------
Commitments and contingencies (Note 9)
Minority interest in consolidated subsidiaries 170,227 426,475
-------------- --------------
Stockholders' Equity (Notes 10 & 11)
Preferred stock, $1.00 par; authorized 500,000
shares; none issued and outstanding -- --
Common stock:
Class A, $.333 par; authorized 20,000,000
shares (issued 1995, 2,704,727; 1994,
2,704,027) 901,575 901,342
Class B, $.333 par; authorized 20,000,000
shares (issued 1995, 3,710,815;
1994, 3,710,115;) 1,236,939 1,236,705
Additional paid-in capital 15,521,470 15,592,805
Retained earnings 32,210,867 30,619,761
Accumulated translation (257,694) (171,471)
--------------- --------------
49,613,157 48,179,142
-------------- --------------
Less:
Common stock held in treasury, at cost
(1995, 198,400; 1994, 180,700) (1,053,790) (977,103)
Unearned compensation (194,313) (447,211)
--------------- ---------------
48,365,054 46,754,828
-------------- --------------
Total liabilities and stockholders' equity $ 69,471,289 $ 77,082,332
============== ==============
</TABLE>
See notes to consolidated financial statements.
31
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended January 5, 1996, December 30, 1994, and December 31, 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 102,562,755 $ 107,577,873 $ 103,735,477
Other income (Note 13) 1,515,859 1,308,450 2,073,608
--------------- --------------- --------------
Total revenue 104,078,614 108,886,323 105,809,085
--------------- --------------- --------------
Costs and expenses:
Cost of sales 70,860,821 72,493,385 71,109,148
Selling expenses 16,687,144 17,678,131 15,053,858
General and administrative
expenses (Note 9) 13,210,520 12,458,674 10,564,956
Interest expense 1,299,858 1,480,247 1,332,563
--------------- --------------- --------------
102,058,343 104,110,437 98,060,525
--------------- --------------- --------------
Income before income taxes and
minority interest 2,020,271 4,775,886 7,748,560
Income taxes (Note 12) 714,985 1,830,733 3,187,609
Minority interest in income (loss) of
consolidated subsidiaries (285,820) 8,516 (46,747)
---------------- ---------------- ---------------
Net income 1,591,106 2,936,637 4,607,698
=============== =============== ==============
Per share amounts: (Note 1)
Net income $ 0.26 $ 0.46 $ 0.76
=============== =============== ===============
Weighted average common shares
and equivalents outstanding 6,239,557 6,437,281 6,074,238
=============== =============== ==============
</TABLE>
See notes to consolidated financial statements
32
<PAGE>
[Start Restubbed page]
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended January 5, 1996, December 30, 1994 and December 31, 1993
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Retained Treasury Stock
Class A Class B Capital Earnings Shares Amount
------- ------- ------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $ 881,642 -- $ 6,937,306 $ 23,075,426 -- --
Stock dividend (Note 10) -- 937,898 (937,898) -- -- --
Issuance of 59,800 shares of
common stock, stock option
exercise (Note 10) 19,367 567 245,992 -- -- --
Issuance of 111,968 shares of
common stock, restricted
stock grant (Note 10) 37,323 -- 2,391,246 -- -- --
Issuance of 1,000,000 shares
of common stock, public
offering (Note 10) -- 333,334 8,575,085 -- -- --
Retirement of 134,370 shares of
common stock, issued under
restricted stock grant
(Note 10) (22,395) (22,395) (1,439,873) -- -- --
Issuance of below market
options (Note 10) -- -- 515,339 -- -- --
Amortization of unearned
compensation (Note 10) -- -- -- -- -- --
Net income, 1993 -- -- -- 4,607,698 -- --
Foreign currency translation
adjustments -- -- -- -- -- --
---------- ----------- ------------ -------------- ------------ -------------
Balance, December 31, 1993 $ 915,937 $1,249,404 $16,287,197 $ 27,683,124 -- --
========== =========== ============ ============== ============ =============
Issuance of 7,688 shares of
common stock, stock option
exercise (Note 10) 333 2,229 23,313 -- -- --
Retirement of 89,566 shares
of common stock issued
under restricted stock
grant (Note 10) (14,928) (14,928) (914,050) -- -- --
Issuance of below market
options (Note 10) -- -- 237,925 -- -- --
Cancellation of below market
options (Note 10) -- -- (41,580) -- -- --
Amortization of unearned
compensation (Note 10) -- -- -- -- -- --
Acquisition of 176,700 shares
of common stock, at cost
(Note 10) -- -- -- -- 176,700 (922,963)
Reclassification of 4,000 shares
of common stock owned by a
subsidiary (Note 10) -- -- -- -- 4,000 (54,140)
Net income, 1994 -- -- -- 2,936,637 -- --
Foreign currency translation
adjustments -- -- -- -- -- --
---------- ----------- ------------ -------------- ------------ -------------
Balance, December 30, 1994 $ 901,342 $1,236,705 $15,592,805 $ 30,619,761 $180,700 $ (977,103)
========== =========== ============ ============== ============ ==============
Issuance of 1,400 shares of
common stock, stock option
exercise (Note 10) 233 234 3,184 -- -- --
Cancellation of below market
options (Note 10) -- -- (74,519) -- -- --
33
<PAGE>
Amortization of unearned
compensation (Note 10) -- -- -- -- -- --
Acquisition of 17,700 shares
of common stock, at cost
(Note 10) -- -- -- -- 17,700 (76,687)
Net income, 1995 -- -- -- 1,591,106 -- --
Foreign currency translation
adjustments -- -- -- -- -- --
---------- ----------- ------------ -------------- ------------ -------------
Balance, January 5, 1996 $ 901,575 $1,236,939 $15,521,470 $ 32,210,867 $ 198,400 ($1,053,790)
========== =========== ============ ============== ============ ==============
</TABLE>
See notes to consolidated financial statements.
34
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended January 5, 1996, December 30, 1994 and December 31, 1993
<TABLE>
<CAPTION>
Total
Unearned Notes Accumulated Stockholders'
Compensation Receivable Translation Equity
------------ ---------- ----------- --------------
<S> <C> <C> <C> <C>
Balance, January 1, 1993 $ -- $ -- $ (26,087) $ 30,868,287
Stock dividend (Note 10) -- -- -- --
Issuance of 59,800 shares of
common stock, stock option
exercise (Note 10) -- -- -- 265,926
Issuance of 111,968 shares of
common stock, restricted
stock grant (Note 10) (1,357,613) (1,070,956) -- --
Issuance of 1,000,000 shares of
common stock, public offering
(Note 10) -- -- -- 8,908,419
Retirement of 134,370 shares of
common stock, issued under
restricted stock grant
(Note 10) 814,618 670,045 -- --
Issuance of below market options
(Note 10) (515,339) -- -- --
Amortization of unearned
compensation (Note 10) 107,980 -- -- 107,980
Net income, 1993 -- -- -- 4,607,698
Foreign currency translation
adjustments -- -- (48,486) (48,486)
-------------- -------------- ---------------- -----------------
Balance, December 31, 1993 $ (950,354) $ (400,911) $ (74,573) $ 44,709,824
=============== =============== ================ ================
Issuance of 7,688 shares of
common stock, stock option
exercise (Note 10) -- -- -- 25,875
Retirement of 89,566 shares of
common stock issued under
restricted stock grant
(Note 10) 542,995 400,911 -- --
Issuance of below market options
(Note 10) (237,925) -- -- --
Cancellation of below market
options (Note 10) 41,580 -- -- --
Amortization of unearned
compensation (Note 10) 156,493 -- -- 156,493
Acquisition of 176,700 shares
of common stock, at cost
(Note 10) -- -- -- (922,963)
Reclassification of 4,000
shares of common stock
owned by a subsidiary
(Note 10) -- -- -- (54,140)
Net income, 1994 -- -- -- 2,936,637
Foreign currency translation
adjustments -- -- (96,898) (96,898)
-------------- -------------- ---------------- -----------------
Balance, December 30, 1994 (447,211) -- (171,471) 46,754,828
Issuance of 1,400 shares
of common stock, stock
option exercise (Note 10) -- -- -- 3,651
Cancellation of below market
options (Note 10) 74,519 -- -- --
35
<PAGE>
Amortization of unearned
compensation (Note 10) 178,379 -- -- 178,379
Acquisition of 17,700 shares
of common stock, at cost
(Note 10) -- -- -- (76,687)
Net income, 1995 -- -- -- 1,591,106
Foreign currency translation
adjustments -- -- (86,223) (86,223)
-------------- -------------- ---------------- -----------------
Balance, January 5, 1996 $ (194,313) -- $ (257,694) $ 48,365,054
=============== ============== ================ ================
</TABLE>
See notes to consolidated financial statements.
36
[End restubbed page]
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended January 5, 1996, December 30, 1994, and December 31, 1993
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,591,106 $ 2,936,637 $ 4,607,698
Adjustments to reconcile net income
to net cash
Provided (used) by operating activities:
Depreciation and amortization 1,210,689 1,109,906 786,170
Provision for bad debt and discounts 5,072,962 4,754,567 4,310,019
Loss on sale of equipment 2,498 4,491 4,705
Gain on sale of marketable securities -- -- (11,525)
Deferred income tax (benefit) expense (422,737) 125,992 220,566
Minority interest in (income) loss of
consolidated subsidiaries (285,820) 8,516 (46,747)
Compensation from stock grants and
stock options 178,379 156,493 107,980
Unrealized loss on marketable securities -- -- 104,033
Notes receivable from sale and licensing
of trademarks -- -- 719,876
Gain on sale of investment in limited partnership (426,377) -- --
Changes in operating assets and liabilities,
net of effects of acquisitions and foreign
currency adjustments:
Decrease (increase) in assets:
Marketable securities (307,500) 4,003,952 --
Accounts and notes receivable 1,772,637 (9,765,650) (1,798,940)
Inventories 5,187,467 (8,523,396) 1,077,061
Prepaid expenses and other
current assets (261,598) 328,272 (1,053,493)
Increase (decrease) in liabilities:
Accrued letters of credit 1,115,229 (1,707,261) (1,033,017)
Accounts payable (865,034) 1,131,609 (205,865)
Accrued expenses (1,604,521) 1,209,458 (1,693,426)
Accrued income taxes (742,846) 261,512 34,150
--------------- ------------- --------------
Total adjustments 9,623,428 (6,901,539) 1,521,547
-------------- -------------- --------------
Net cash provided (used) by operating
activities 11,214,534 (3,964,902) 6,129,245
-------------- -------------- --------------
Cash flows from investing activities:
Purchases of property, plant and equipment (650,570) (676,371) (1,546,246)
Proceeds from sale of marketable securities -- -- 18,041
Proceeds from the sale of equipment 31,813 496 23,463
Increase in deferred charges, and other (469,257) (379,933) (591,584)
Investments in marketable securities -- -- (4,060,581)
Investment in distribution from limited
partnership 28,732 -- (37,114)
Payments for business acquisitions,
net of cash acquired (111,800) -- (572,781)
Proceeds from sale of investment in
limited partnership 1,335,289 -- --
--------------- ------------- ---------------
Net cash (used) provided by investing
activities 164,207 (1,055,808) (6,766,802)
-------------- -------------- ---------------
</TABLE>
See notes to consolidated financial statements.
37
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net short-term borrowings (30,087) 2,547,110 (225,585)
Repayment of long term debt and
capital lease obligations (2,893,098) (2,487,567) (2,991,815)
Common stock repurchases (76,687) (922,963) --
Payment of termination benefit payable (26,866) (306,075) (277,888)
Issuances of common stock, (including
options) net of issuance expenses 3,651 25,875 9,174,345
-------------- ------------ ------------
Net cash provided (used) by financing
activities (3,023,087) (1,143,620) 5,679,057
Effect of exchange rate changes on
cash and cash equivalents (37,114) (499,060) 21,720
-------------- -------------- ------------
Net increase (decrease) in cash and
cash equivalents 8,318,540 (6,663,390) 5,063,220
Cash and cash equivalents at beginning
of year 3,349,776 10,013,166 4,949,946
-------------- ------------- ------------
Cash and cash equivalents at end of year $ 11,668,316 $ 3,349,776 $ 10,013,166
============== ============= ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income taxes $ 1,935,902 $ 1,507,484 $ 2,972,095
============== ============ ============
Interest $ 1,534,015 $ 1,245,927 $ 1,279,069
============== ============ ============
</TABLE>
See notes to consolidated financial statements.
38
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS, Continued
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Non-cash Investing and Financing
Activities:
Financing of investment in limited
partnership -- -- $ 4,950,000
Property purchased under capital leases $ 137,853 $ 175,377 288,946
Reconciliation of assets acquired and
liabilities assumed, business acquisitions
Book value of assets acquired 232,232 -- 4,870,639
Liabilities assumed 120,432 -- 4,297,858
-------------- ------------- -------------
Cash paid for business acquisitions $ 111,800 -- $ 572,781
============== ============= ===========
Sale of investment in limited
partnership
Cash received, net of broker fees 1,335,289 -- --
Reduction in short-term debt,
long-term debt and accrued
liabilities 4,055,691 -- --
-------------- ------------- -------------
Total proceeds 5,390,980 -- --
Investment in limited partnership,
net of distributions 4,964,603 -- --
-------------- ------------- -------------
Gain realized on sale $ 426,377 -- --
============== ============= =============
</TABLE>
39
See notes to consolidated financial statements.
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended January 5, 1996, December 30, 1994 and December 31, 1993
1. Summary of Significant Accounting Policies:
Business Activity
The Company is an importer and manufacturer of a broad line of high
performance athletic footwear and outdoor recreational products. The
Company markets its products principally to domestic and international
retailers and distributors.
Reporting Period
The Company adopted a 52-53 week fiscal year reporting period in 1991.
The consolidated financial statements and notes for 1995, 1994 and 1993
represent the fiscal years ended January 5, 1996, December 30, 1994 and
December 31, 1993, respectively. In Management's opinion, the
consolidated financial statements for 1995, 1994 and 1993 are
comparable.
Principles of Consolidation
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of 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 from those estimates.
The consolidated financial statements include the accounts of Hyde
Athletic Industries, Inc. and its wholly-owned subsidiaries, Spot-Bilt,
Inc., Brookfield Athletic Co., Inc., Hyde Security Corp., Saucony, Inc.,
Saucony Deutschland Vertriebs GmbH (Germany), Quintana Roo, Inc. and
Hyde International Services Limited (Hong Kong), and its majority-owned
foreign subsidiary, Saucony Canada, Inc., all herein referred to as the
"Company". Hyde International Services Limited owns a controlling
interest in a subsidiary called Saucony SP Pty Limited (Australia).
Saucony, Inc. owns a majority interest in a joint venture, Saucony
Sports BV (Netherlands). The Company also operates a branch in the
United Kingdom called Saucony UK and maintains a European sales and
marketing headquarters in Germany called Saucony Europe. Saucony Sports
BV, Saucony UK, Saucony Europe, Saucony GmbH and Quintana Roo, Inc. are
included in the consolidated financial statements beginning in January
1992, September 1992, September 1993, December 1994, and August 1995,
respectively. Saucony Canada Inc. and Saucony SP Pty Limited are
included in the consolidated financial statements beginning March 1993
and July 1993, respectively. Saucony Shoe Manufacturing Co., Inc., an
inactive wholly-owned domestic subsidiary, was dissolved in 1992. The
effects of transactions among related companies are eliminated in the
consolidated financial statements.
Revenue Recognition
Sales, net of discounts, and related costs of sales are recognized upon
shipment of products.
Inventories
Inventories are stated at lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
40
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Property, Plant and Equipment
Land, buildings and equipment, including significant improvements to
existing facilities, are stated at cost. The assets are depreciated over
their estimated useful lives or capital lease terms, if shorter, using
the straight-line method for financial reporting purposes and
accelerated methods for income tax purposes. Major renewals and
betterments are capitalized. Maintenance, repairs and minor property
renewals are expensed as incurred. The cost and related accumulated
depreciation of all property, plant and equipment retired or otherwise
disposed of, are removed from the accounts. Any gain or loss is included
in consolidated net income.
Investments
The Company's investment in real estate limited partnerships is carried
at cost. It is Management's intention to retain this investment for its
long-term tax benefit.
Investments in Marketable Securities
During 1994, the Company adopted Statement of Financial Standards No.
115 (SFAS No. 115), "Accounting for Certain Investments in Debt and
Equity Securities." Under SFAS No. 115, investment in debt securities
and marketable securities are categorized as trading, held-to-maturity
or available-for-sale. Trading securities are reported at fair value,
with changes in fair value recorded in consolidated net income.
Investment securities include both available-for-sale and
held-to-maturity securities. Available-for-sale securities are reported
at fair value, with net unrealized gains and losses included as a
separate component of stockholders' equity. Held-to-maturity debt
securities are reported at amortized cost. For all investments,
unrealized losses, other than temporary losses, are recognized in
consolidated net income.
Deferred Charges
Deferred charges consist primarily of computer software, bond issuance,
trademarks, financing and organization costs. The deferred charges are
amortized on the straight-line basis over the estimated useful life of
the software and the term of the debt; organization costs and trademarks
are amortized over five years.
Income Taxes
The provision for income taxes is calculated according to the precepts
of Statement of Financial Accounting Standards No. 109 (SFAS No. 109),
"Accounting for Income Taxes". Under SFAS No. 109, income taxes are
provided for the amount of taxes payable or refundable in the current
year and for the expected future tax consequences of events that have
been recognized in the financial statements or tax returns. As a result
of recognition and measurement differences between tax laws and
financial accounting standards, temporary differences arise between the
amount of taxable income and pretax financial income for a year and the
tax bases of assets or liabilities and their reported amount in the
financial statements. The deferred tax assets and liabilities reported
as of January 5, 1996 and December 30, 1994 reflect the estimated future
tax effects attributable to temporary differences and carryforwards
based on the provisions of enacted tax law.
41
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Earnings per Share
Earnings per common share is based upon the weighted average common
shares and common equivalents (stock options) outstanding during the
year. Primary and fully diluted earnings per share are approximately the
same. All share and per share amounts have been restated to reflect the
stock dividend (Note 10) which had the same effect on the shares of
common stock outstanding as a two-for-one stock split.
Statements of Cash Flows
For purposes of these statements, cash equivalents include all short
term deposits with an original maturity of three months or less
purchased in connection with the Company's cash management program.
Foreign Currency Translation
The financial statements of the Company's foreign subsidiaries are
measured using the local currency as the functional currency. Assets and
liabilities of these subsidiaries are translated at exchange rates as of
the balance sheet date. Revenues and expenses are translated at average
rates of exchange in effect during the year. The resulting cumulative
translation adjustments have been recorded as a separate component of
stockholders' equity. Foreign currency transaction gains and losses are
included in consolidated net income. Gains from foreign currency
translation amounted to $77,409, $341,651, and $32,631 for 1995, 1994,
and 1993, respectively.
Forward Foreign Currency Exchange Contracts
The Company enters into forward foreign currency exchange contracts to
hedge certain foreign currency denominated payables. Gains and losses on
forward exchange contract are deferred and offset against foreign
currency exchange gains or losses on the underlying hedged item upon
consummation of the transaction.
Reclassifications
Certain items in the 1994 and 1993 consolidated financial statements
have been reclassified to conform to the 1995 presentation.
Advertising and Promotion
Advertising and promotion costs are expensed when incurred or expensed
ratably over the year in relation to sales. Production costs of future
media advertising are deferred until the advertising occurs. Advertising
and promotion expense amounted to $7,897,128, $9,160,105 and $7,784,147
for 1995, 1994 and 1993, respectively.
Research and Development Expenses
Expenditures for research and development of products are expensed as
incurred. Research and development expenses amounted to approximately
$1,850,521, $1,295,779 and $1,386,400 for 1995, 1994 and 1993,
respectively.
Related Party Transactions
Saucony Sports BV, a majority-owned foreign joint venture, leases office
space and office equipment from an entity controlled by the minority
stockholder of Saucony Sports BV. Rent expense amounted to $70,980,
$73,300 and $50,084 for 1995, 1994 and 1993, respectively.
42
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company issued a note payable to the minority stockholder of Saucony
Canada, Inc., a majority-owned foreign subsidiary, as part of the
consideration paid to acquire an 85% interest in the former Canadian
distributor. Interest expense incurred amounted to $7,038 and $10,353
for 1995 and 1994, respectively. See Note 6 of the Notes to Consolidated
Financial Statements for further discussion of the note agreement.
During 1995 the Company prepaid the note realizing a discount of $13,759
which is included in consolidated net income.
The Company has entered into a consulting agreement with the principal
stockholder of the Company's Class A Common Stock, beginning January 4,
1993. The agreement, as amended, is effective for a term of five years,
provides for an annual fee of $40,000 during each of the first two years
of the agreement and $90,000 for each of the remaining three years of
the agreement. Included in general and administrative expenses for 1995,
1994 and 1993 are consulting fees of $90,000, $40,000 and $40,000,
respectively.
New Accounting Pronouncements
Statement of Financial Accounting Standards 123 (SFAS 123) - Accounting
for Stock Based Compensation was issued in October 1995 by the Financial
Accounting Standards Board. This statement establishes financial
accounting and reporting standards for all stock-based compensation
arrangements. SFAS 123 will require the Company to elect either the
expense recognition or the disclosure-only alternative for stock-based
compensation. The Company is required to adopt SFAS 123 in 1996 with
comparable disclosures for the prior year. The Company has not
determined whether it will elect the expense recognition or
disclosure-only alternative permitted under SFAS 123 and therefore has
not yet determined the impact of such adoption on the consolidated
results of operations.
2. Marketable Securities:
The Company adopted Statement of Financial Accounting Standards No.
115 (SFAS No. 115) in 1994. Marketable securities consists of equity
securities and are classified as trading securities.
The cost of the securities held at January 5, 1996 was $287,500. As of
January 5, 1996, the market value of such securities was $307,500. A
gross unrealized gain of $20,000 is included in consolidated net income
and is based on quoted market prices.
Net realized losses on sales of securities included in the determination
of net income amounted to $263,267 for 1994.
3. Accounts and Notes Receivable:
In 1990, the Company sold its right, title and interest in the PF, PF
Flyer, Posture Foundation and Air Foil trademarks for a minimum of
$500,000, subject to annual upward adjustments, due in equal annual
installments through July 1994. During 1993, the Company amended the
agreement by extending the term to December 1996 and eliminating any
upward adjustments in consideration of an agreement on the part of the
buyer to pay an additional $200,000. In 1993, the Company recorded a
receivable for the present value of the additional $200,000 utilizing an
imputed interest rate of 6.5%, which equaled $170,950. As of January 5,
1996, $93,897 was outstanding on the note and is included in current
receivables.
On December 28, 1993, the Company executed an agreement whereby it
granted an exclusive, worldwide, nonassignable right and license for the
use of the "Spot-bilt" and the "single spot" logo trademarks. The
agreement, which expires in 1997 and may be renewed for up to three
additional one-year terms at the licensee's option, contains
restrictions with respect to the licensed product, its
43
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
manufacture, distribution and sale. The agreement established a minimum
cumulative guaranteed royalty of $630,000, subject to annual upward
adjustments, due in various quarterly payments, commencing in 1994. In
1993, the Company recorded a receivable based upon the minimum
guaranteed royalty for the present value of future cash flows, utilizing
an imputed interest rate of 6.0%, which equates to $548,925. At January
5, 1996, $418,421 was outstanding, of which $200,000 is due in 1996. The
Company has received all scheduled payments on a timely basis.
During 1993, the Company loaned $100,000 to an officer of the Company.
The promissory note issued to the Company by the officer is
collateralized by a mortgage from the officer on two parcels of real
estate (land and building). The note calls for semi-annual payments of
interest through maturity on the unpaid principal amount, commencing on
July 1, 1994 and five annual principal payments of $15,000 commencing
July 1, 1998 and one principal payment of $25,000 due on July 1, 2003.
The note bears interest at a rate equal to the prevailing prime rate of
interest.
4. Inventories:
Inventories at January 5, 1996 and December 30, 1994 consist of the
following:
1995 1994
---- ----
Finished goods $ 22,954,048 $ 24,722,893
Work-in-process 20,243 71,700
Raw materials and supplies 3,857,309 7,068,850
-------------- --------------
Total $ 26,831,600 $ 31,863,443
============== ==============
5. Property, Plant and Equipment:
Major classes of property, plant and equipment, at cost, at January 5,
1996 and December 30, 1994 are as follows:
1995 1994
---- ----
Land $ 745,307 $ 755,597
Buildings and improvements 7,010,015 6,995,977
Machinery and equipment 6,228,358 6,203,871
Capitalized leases 641,136 507,488
Leasehold improvements 90,770 --
--------------- --------------
14,715,586 14,462,933
Less accumulated depreciation
and amortization 6,592,649 6,170,007
--------------- --------------
Total $ 8,122,937 $ 8,292,926
=============== ==============
Accumulated amortization of the leased property is $235,475 and $119,859
at January 5, 1996 and December 30, 1994, respectively.
44
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
6. Long-Term Debt:
1995 1994
---- ----
Senior notes payable due in semiannual
installments of interest on the unpaid
principal amount through maturity and
six annual principal payments of
$2,000,000 commencing April 29, 1993.
The notes bear interest at 9.70% and are
subject to certain restrictive covenants
pertaining to consolidation or merger
with another entity, levels of working
capital, net worth, the payment of cash
dividends and various other restrictions. $ 6,000,000 $ 8,000,000
Note payable to a limited partnership,
collateralized by the Company's limited
partner interest, with imputed interest
of 7.9%, due in various annual installments
to 2000. -- 4,551,987
Note payable to the minority stockholder of
the Company's majority-owned Canadian
subsidiary, due in ten annual installments
of $16,961, commencing March 1, 1994,
with interest of 6.5% paid quarterly. -- 152,649
Note payable to a bank under a revolving line
of credit agreement, due on December 6,
1996, with interest of 11.7% paid monthly. -- 1,551,200
------------ -----------
6,000,000 14,255,836
Less current portion 2,000,000 2,638,781
------------ -----------
$ 4,000,000 $11,617,055
============ ===========
Long-term debt maturities payable for the five years and thereafter
subsequent to January 5, 1996 are as follows:
1996 .............................. $ 2,000,000
1997 .............................. 2,000,000
1998 .............................. 2,000,000
1999 .............................. --
2000 ............................. --
Thereafter ...................... --
---------
Total .............................. $ 6,000,000
============
On October 12, 1993, the Company invested as a limited partner in
Columbia Housing Partners Corporate Tax Credit II Limited Partnership, a
Massachusetts limited partnership, by acquiring five (5) units of
limited partner interest for an aggregate capital contribution of
$5,000,000. The Company issued a promissory note, collateralized by the
Company's partnership interest, in the amount of $6,392,960. The note is
recorded at the present value of future cash flows, utilizing an imputed
interest rate of 7.9% which equates to $4,950,000.
45
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
On June 1, 1995, the Company sold its entire limited partnership
interest in the Columbia Housing Partners Corporate Tax Credit II
Limited Partnership for $5,501,000. Net proceeds totalled $1,335,000,
resulting in a pre-tax gain of $426,377, after transaction expenses, or
$.02 per share after tax. The after-tax gain is based upon projected tax
credits and passive losses provided by the general partner. As a result
of the sale, the Company realized reductions in current and long-term
debt and accrued interest of $4,056,000.
During 1995, the Company prepaid its note payable to the minority
stockholder of the Company's majority-owned Canadian subsidiary,
resulting in a gain of $13,759, which is included in consolidated net
income.
Under the terms of the senior notes payable, the Company may not declare
any cash dividends or make any cash distributions unless, immediately
thereafter, the aggregate amount of cash dividends and cash
distributions since December 31, 1987 would not exceed the sum of (i)
$2,000,000, (ii) 75% of cumulative consolidated net income as defined
(or minus 100% of consolidated net income in the case of a loss) for
such period and (iii) the proceeds of sales of Common Stock of the
Company. As of January 5, 1996, approximately $10,555,000 was available
for payment of cash dividends under the terms of these covenants.
7. Capital Lease Obligations
The following is a schedule by years of future minimum lease payments
under capital leases together with the present value of the net minimum
lease payments as of January 5, 1996.
1996 .................................... $ 235,052
1997 .................................... 137,593
1998 .................................... 65,008
1999 .................................... 19,890
2000 .................................... 1,250
------------
Total minimum lease payments $ 458,793
Less amounts representing interest 54,000
-------------
Present value of minimum lease payments 404,793
Less current portion 199,225
-------------
Long-term portion $ 205,568
=============
8. Employee Benefit Plans:
The Company established a 401(k) retirement plan in 1991 for the benefit
of all United States employees who have attained the age of 21,
completed one year of service, and are not members of a collective
bargaining group. The employee is eligible to defer on a pre-tax basis
up to 15% of gross wages subject to a maximum limit defined in section
402(g) of the Internal Revenue Code. The Company will match a portion of
the employee contributions, subject to profitability goals, at the
discretion of the Board of Directors. The Company matched 25% of
employee elective deferrals subject to a limitation of 1.25% of total
employee compensation. Both employee and employer contributions are
funded, on a monthly basis, to a group defined contribution plan
administered by an independent insurance company. Defined contribution
expenses for 1995, 1994, and 1993 were $57,570, $49,611 and $37,940,
respectively.
46
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
9. Commitments and Contingencies:
Lease Commitments
The Company is obligated under various leases for equipment and retail
space through 1997. Total rental expenses for 1995, 1994 and 1993 were
$673,869, $479,132 and $484,004, respectively. Future minimum rental
payments are as follows: 1996, $342,767; 1997, $316,102; 1998, $275,240;
1999, $212,968 and 2000 and thereafter, $51,610.
Licenses
The Company is obligated under various royalty licensing agreements
through December 31, 2003. Minimum guaranteed royalties for 1996, 1997,
1998, 1999, 2000 and thereafter are $553,144, $190,000, $155,000,
$70,000, $70,000 and $210,000, respectively.
Commitments
On August 31, 1993, the Company entered into a credit facility with two
banks pursuant to which up to a $25,000,000 credit line was available to
the Company as of January 5, 1996. This arrangement provides: a
short-term demand line of credit, in the principal amount of up to
$15,000,000, subject to formula, for domestic borrowings, international
borrowings, and letters of credit; and a revolving line of credit in the
principal amount of up to $10,000,000. Borrowings under the demand line
of credit are made at the bank's prime rate of interest while
borrowing's under the revolving line of credit are made at the bank's
prime rate of interest, or at the Company's option, the Eurodollar rate
(Fixed Rate Option). At January 5, 1996, there were no borrowings
outstanding under this facility. This credit facility, which was amended
in August 1994, terminates August 1, 1996. This credit facility is
subject to the bank's periodic reviews of the Company's operations. The
facility contains requirements for maintaining defined levels of working
capital, net worth, capital expenditures, net income and various
financial ratios. Additionally, the facility limits the Company's
ability to pay or declare a dividend or make other distributions to
stockholders.
Saucony Canada Inc. maintains a credit facility with a Canadian lender.
The agreement provides Saucony Canada with a $1,000,000 Canadian dollar,
subject to formula, (approximately $735,000 in U.S. dollars at January
5, 1996) line of credit. The agreement provides a demand line in the
principal amount of $300,000 (Canadian dollars), for letters of credit,
and a revolving line of credit, in the principal amount of $700,000
(Canadian dollars). Borrowings under this facility are made at the
lender's prime lending rate plus .25%. At January 5, 1996, there was
$7,348 in U.S. dollars outstanding under this credit facility. The
facility contains requirements for maintaining defined levels of net
worth, working capital and various financial ratios.
Saucony SP Pty Limited maintains a credit facility with an Australian
bank. In September 1994, the agreement was amended, whereby the
available line was increased. The principal terms and conditions of the
agreement remained unchanged. The credit facility provides Saucony SP
with a $6,000,000 Australian dollar (approximately $4,477,000 in U.S.
dollars at January 5, 1996) line of credit. The agreement provides: a
short-term demand line of credit, in the principal amount of up to
$3,000,000 (Australian dollars) for letters of credit and foreign
exchange facilities; and a revolving line of credit, in the principal
amount of $3,000,000 (Australian dollars). Borrowings under this
facility are made at market rates of interest as defined in the
agreement or at the lender's quoted rate. At January 5, 1996, there was
$2,798,250 in U.S. dollars outstanding under this credit facility. The
facility is subject to the lender's periodic reviews of the Company's
operations.
Saucony Sports BV maintains a credit facility with a Dutch lender. The
agreement provides Saucony Sports BV with a 1,500,000 Dutch Guilder
(approximately $930,000 U.S. dollars at January 5, 1996) line of credit.
Borrowings under this facility are made at the bank's discount borrowing
rate plus 1.75%. At January 5, 1996, $755,836 in U.S. dollars was
outstanding under this credit facility.
47
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
A division of Saucony, Inc. located in the United Kingdom maintains a
demand line of credit facility with a British lender. The credit
facility provides the Company with a 500,000 Pound Sterling
(approximately $775,000 in U.S. dollars at January 5, 1996) line of
credit. Borrowings under this facility are made at the bank's prime rate
of interest, plus 1.5%. At January 5, 1996, $775,506 in U.S. dollars was
outstanding under this facility.
At January 5, 1996, the Company was committed under open letters of
credit to several lenders in the amount of $5,768,715 and under foreign
exchange contracts in the amount of $600,000.
The Company is guarantor on credit facility agreements for three foreign
joint ventures. At January 5, 1996 the guarantees totalled $6,230,650,
of which $2,000,000 was collateralized by the issuance of standby
letters of credit.
The Company has entered into an employment contract with one key
employee that provides for minimum annual compensation of $211,000 in
1996. The contracts provide for annual salary, cost-of-living
adjustments, additional compensation in the form of bonuses based on
performance, life insurance coverage and options to purchase shares of
the Company's common stock. In 1995, the Company included in its general
and administrative expenses, bonus expense to four key employees of
$275,574, which is payable and is included in accrued expenses at
January 5, 1996. Bonus expense to key executives amounted to $456,903
and $681,680 for 1994 and 1993, respectively.
The Company has entered into an employment contract with the minority
stockholder of Saucony SP Pty Limited. The agreement provides for a lump
sum payment of $250,000 in Australian dollars in consideration of the
stockholder entering into an employment agreement and minimum annual
compensation of $250,000 in Australian dollars for three years
commencing November 13, 1993. The contract provides for minimum annual
salary, cost-of-living adjustments and life insurance coverage.
Included in accrued expenses at January 5, 1996 and December 30, 1994
are sales commissions payable of $813,940 and $1,000,377, respectively.
Litigation
The Company is also involved in various routine litigation incident to
its business. Many of these proceedings are covered in whole or in part
by insurance. In Management's opinion, none of these other proceedings
will have a material adverse effect on the Company's financial position
and operations and cash flows (irrespective of any potential insurance
recovery).
10. Stockholders' Equity:
At the Annual Meeting of the Stockholders of the Company, held on May
25, 1993, the stockholders approved an amendment to the Company's
Articles of Organization which increased the number of authorized shares
of common stock of the Company from 7,275,000 to 40,000,000, consisting
of 20,000,000 shares of Class A Common Stock, $.33-1/3 par value per
share, and 20,000,000 shares of Class B Common Stock, $.33-1/3 par value
per share; reclassified the then existing Common Stock ("Prior Common
Stock") as Class A Common Stock; authorized a new class of non-voting
stock designated as Class B Common Stock; and established the rights,
powers and limitations of the Class A Common Stock and the Class B
Common Stock.
The Class A Common Stock has essentially the same rights, powers and
limitations as the Prior Common Stock. The Class B Common Stock is
non-voting, except with respect to amendments to the Company's Articles
of Organization that alter or change the powers, preferences or special
rights of the Class B Common Stock so as to affect them adversely and as
otherwise required by law. The Class B Common Stock has certain
features, including a "Class B Protection" feature and a
48
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
premium on regular cash dividends, if any, which are intended to
minimize the economic reasons for the Class A Common Stock to trade at a
premium compared to the Class B Common Stock. The other terms of the
Class A Common Stock and Class B Common Stock, including rights with
respect to special cash dividends, stock dividends, stock splits,
consideration payable in a merger or consolidation and distributions
upon liquidation, generally are the same.
The Board of Directors of the Company declared a stock dividend of one
share of Class B Common Stock for each share of Class A Common Stock
outstanding on May 16, 1993. The stock dividend had the same effect on
the total number of shares of Class A Common Stock outstanding as a
two-for-one split. The ex-dividend date for the stock dividend was May
26, 1993, on which date the Class A Common Stock and the Class B Common
Stock began to trade separately. The stock dividend resulted in the
issuance of 2,813,695 shares of Class B Common Stock and the transfer of
$937,898 from Additional Paid-in Capital to Class B Common Stock. All
references in the consolidated financial statements to average number of
shares outstanding and related prices, per share amounts and stock
option plan data have been restated to reflect the dividend.
On June 18, 1993, 1,000,000 shares of Class B Common Stock were sold by
the Company in a public offering for approximately $8,908,000, net of
issuance expenses of $1,342,000.
At the May 25, 1993 Annual Meeting, the stockholders also approved the
1993 Equity Incentive Plan ("the Equity Incentive Plan") and 1993
Director Stock Option Plan, adopted by the Company's Board of Directors
on April 7, 1993. On April 20, 1993, the Compensation Committee approved
the issuance under the Equity Incentive Plan of restricted stock awards,
covering 111,968 shares of Prior Common Stock to nine executive officers
of the Company. The shares subject to each award were issued on April
27, 1993. Each award vests in equal annual installments over a five-year
period, beginning in April 1994. The purchase price for each award was
$12-1/8 per share, which represents 50% of the fair market value of the
Prior Common Stock on the date the stock was issued. The purchase price
was paid in the form of a non-recourse, non-interest bearing promissory
notes, which were payable in five equal installments, beginning in July
1994 and were collateralized by a pledge of the shares subject to the
award. The excess of the quoted market price, as of the date of the
grant, over the purchase price for each award was recorded as unearned
compensation and is shown as a separate component of stockholders'
equity.
On November 4, 1993, the Company amended the restricted stock award
agreements and repurchased and retired 67,185 shares of each of the
Class A and Class B Common Stock issued to the nine executive officers
of the Company on April 27, 1993. The purchase price of $6 1/16 per
share (reflects stock dividend) was paid by the Company by cancellation
of a portion of the promissory notes issued in conjunction with the
original stock awards. During 1994, 3,758 shares each of Class A Common
Stock and Class B Common Stock, issued to an executive officer of the
Company, were repurchased and retired as a result of the termination of
employment by the executive. On June 27, 1994, the Company further
amended the restricted stock awards and repurchased and retired 41,025
shares of each of the Class A and Class B Common Stock, thus
repurchasing and retiring all remaining restricted shares.
Unearned compensation, arising from the issuance of restricted stock and
below market options, is being amortized to expense over the vesting
period of the stock grant or option term and amounted to $178,379,
$156,493, and $107,980 for 1995, 1994, and 1993, respectively.
During 1993, the Company issued an additional 59,800 shares of its
Common Stock; 56,800 shares of its Prior Common Stock, 1,300 shares of
Class A Common Stock and 1,700 shares of Class B Common Stock. Incentive
stock options issued under the Company's 1982 stock option plan
accounted for 59,400 shares.
49
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company issued 1,000 shares of Class A Common Stock and 6,688 shares
of Class B Common Stock in 1994 and 700 shares each of Class A Common
Stock and Class B Common Stock.
Also approved at the 1993 Annual Meeting of the Company's Stockholders
was an amendment to the Company's Articles of Organization. The
amendment eliminated the requirement that Preferred Stock must
necessarily have priority over common stock with respect to dividends.
The Board of Directors has the authority by resolution to establish the
rights and designate series of Preferred Stock. The Company has
authorized 500,000 shares of Preferred Stock for issuance. No shares or
series of Preferred Stock were issued and outstanding or designated as
of January 5, 1996 and December 30, 1994.
In July 1994, the Board of Directors of the Company authorized the
repurchase of up to an aggregate of 500,000 shares of the Company's
Class A Common Stock and Class B Common Stock. The authority to purchase
the shares of Common Stock expires on the earlier of the first
anniversary date of this action of Directors, or a determination by the
Board of Directors to discontinue such repurchases. During 1994, the
Company repurchased 1,000 shares of Class A Common Stock at a cost of
$5,000 and 175,700 shares of Class B Common Stock at a cost of $917,963.
During 1995, the Company repurchased 17,700 shares of Class B Common
Stock at a cost of $76,687. At January 5, 1996, Saucony SP Pty Ltd, a
foreign subsidiary controlled by the Company, held 2,000 shares each of
the Company's Class A Common Stock and Class B Common Stock.
11. Stock Options:
At the May 25, 1993 Annual Meeting, the stockholders approved the
Company's Equity Incentive Plan and the 1993 Director Stock Option Plan
(the "Director Option Plan"), adopted by the Company's Board of
Directors on April 7, 1993. The 1993 Equity Incentive Plan provides for
the grant to officers and key employees of the Company incentive stock
options, non-statutory stock options and awards of restricted stock.
Outside consultants and advisors to the Company are eligible to receive
only non-statutory options and restricted stock awards under the Equity
Incentive Plan.
The Equity Incentive Plan is administered by the Compensation Committee
of the Board of Directors who, at its sole discretion, grant options to
purchase shares of Common Stock and make awards of restricted stock. The
plan provides that the purchase price per share of Common Stock shall be
determined by the Board of Directors, provided, however, in the case of
Incentive Stock Options, the purchase price shall not be less than 100%
of the fair market value of such stock, at the time of grant of the
option. The terms of option agreements are established by the Board of
Directors, except, in the case of Incentive Stock Options, wherein the
term cannot exceed ten years. The vesting schedule is subject to the
discretion of the Board of Directors.
Restricted stock awards which may be granted under the Equity Incentive
Plan entitle recipients to purchase shares of the Company's Common Stock
subject to restrictions concerning the sale, transfer and other
disposition of the shares issued until such shares are vested. The Board
of Directors shall determine the purchase price, which can be less than
the fair market value of the Common Stock, and the vesting schedule for
such award. The Equity Incentive Plan provides for grants of restricted
stock awards without the payment of any cash purchase price.
At the 1994 Annual Meeting of Stockholders held on May 26, 1994, the
stockholders approved an amendment of the Company's 1993 Equity
Incentive Plan (the "Equity Incentive Plan"). The amendment increased
the number of shares issuable under the Equity Incentive Plan from
400,000 to 800,000 shares and limited to 75,000 the number of shares for
which options or awards may be granted in any calendar year to any one
person. As amended, a total of 800,000 shares, in the
50
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
aggregate, of Class A Common Stock and Class B Common Stock have been
reserved by the Company and may be issued under the plan.
The Director Stock Option Plan provides for the automatic grant to
non-employee directors of non-statutory stock options upon specified
occasions. A total of 100,000 shares of Class B Common Stock have been
reserved for issuance under the plan. The option purchase price per
share shall equal the fair market value of Class B Common Stock on the
date of the grant. The options are exerciseable at any time, in whole or
in part, prior to the fifth anniversary of the date of the grant.
The following schedule summarizes the changes in employee and director
stock options for the three year reporting period:
<TABLE>
<CAPTION>
Incentive Non-qualified
Stock Stock
Options Options Option Price
------- --------- -------------
<S> <C> <C> <C>
Outstanding at January 1, 1993 76,900 --
Stock Dividend 22,700 --
Granted 9,000 148,770 $ 8.250 -10.750
Exercised (59,400) (400) $ 2.000 - 4.500
Cancelled (2,000) -- $ 2.000 -10.750
----------- ---------
Outstanding at December 31, 1993 47,200 148,370
Granted 12,750 139,050 $ 2.500 - 6.000
Exercised (2,000) (5,688) $ 2.000 - 3.688
Cancelled (4,200) (16,276) $ 3.250-10.750
----------- ----------
Outstanding at December 30, 1994 53,750 265,456
Granted 81,500 4,000 $ 4.000 - 4.875
Exercised (1,400) -- $ 2.250 - 2.750
Cancelled (8,750) (27,752) $ 2.500 -10.750
------------- ----------
Outstanding at January 5, 1996 125,100 241,704
=========== ==========
</TABLE>
At January 5, 1996, options for 11,400 shares of Class A Common Stock
and 151,270 shares of Class B Common Stock were exercisable.
12. Income Taxes:
The provision for income taxes was calculated according to the precepts
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." The objective of SFAS No. 109 is to recognize the amount
of taxes payable or refundable in the current year and to recognize the
expected future tax consequences of events that have been included in
the financial statements or tax returns. SFAS No. 109 requires the
identification of all cumulative temporary differences arising between
the tax bases of assets and liabilities and their reported amounts in
the financial statements. The tax effects of these temporary differences
are measured using enacted tax rates and are reported on the
consolidated balance sheet as deferred tax assets and liabilities.
Deferred tax assets are then reduced if it is more likely than not that
some portion of the expected future tax benefits will not be realized.
51
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The following is a summary of the components of the provision for income
taxes, current and long-term deferred tax assets and liabilities and a
reconciliation of the U.S. statutory federal income tax rate to the
effective income tax rate reflected in the consolidated income
statement.
The provision for income taxes was based on pretax income (loss) before
minority interest which was subject to taxation by the following jurisdictions.
Domestic pretax income includes the pretax income of U.S. based entities as well
as the international branches of these entities.
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic $ 2,805,549 $ 4,622,282 $ 7,713,490
Foreign (785,278) 153,604 35,070
-------------- -------------- --------------
Total $ 2,020,271 $ 4,775,886 $ 7,748,560
============== ============== ==============
The provision (credit) for income taxes consists of the following:
1995 1994 1993
---- ---- ----
Current:
Federal $ 665,961 $ 1,217,123 $ 2,106,785
State 232,664 329,813 684,675
Foreign 239,097 157,805 175,583
------------- ------------ ------------
1,137,722 1,704,741 2,967,043
------------- ------------ ------------
Deferred:
Federal (30,025) 15,065 302,153
State 24,828 50,197 76,833
Foreign (417,540) 60,730 (158,420)
-------------- ------------ -------------
(422,737) 125,992 220,566
-------------- ------------ -------------
Total $ 714,985 $ 1,830,733 $ 3,187,609
============= ============== ==============
</TABLE>
The deferred tax provision includes the recognition of a foreign
operating loss carryforwards translated at the current exchange rate in
effect at the balance sheet date.
52
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The current deferred tax asset and long-term deferred tax liability
reported on the consolidated balance sheet consist of the following
items as of January 5, 1996 and December 30, 1994.
<TABLE>
<CAPTION>
Net current deferred tax assets: 1995 1994
---- ----
<S> <C> <C>
Allowance for doubtful accounts
and discounts $ 276,877 $ 411,825
Inventory allowances and tax costing
adjustments 265,403 288,079
Deferred compensation 178,578 115,307
Accrued expenses, not currently
deductible 140,361 200,464
Untaxed installment receivables (127,189) (89,902)
Loss carryforwards 735,624 375,275
Valuation allowance (218,000) (153,000)
-------------- --------------
Total $ 1,251,654 $ 1,148,048
============= =============
Net long term deferred tax liabilities:
Property, plant and equipment $ 806,283 $ 873,363
Investments in limited partnerships 1,107,416 1,224,556
Untaxed installment receivables 87,956 222,858
------------- -------------
Total $ 2,001,655 $ 2,320,777
============= =============
Net deferred tax liability $ 750,001 $ 1,172,729
============= =============
</TABLE>
The loss carryforward amount shown above relates to foreign operating losses
of approximately $1,999,000 which may be carried forward indefinitely.
Expectations of future operating performance and tax planning strategies,
exclusive of reversing temporary differences and carryforwards, are
considered sufficient to realize deferred tax assets included in the
financial statements.
The difference between the statutory federal income tax rate on income
before income taxes and minority interest is summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. federal income tax rate 34.00% 34.00% 34.00%
State income tax, net of federal benefit 8.41 5.21 6.82
Foreign losses producing no tax benefit 3.15 2.87 0.39
Nondeductible expenses and tax exempt income 1.63 0.84 0.94
International tax rate difference 1.23 0.62 (0.32)
Low income housing tax credits (8.08) (5.21) (0.69)
Adjustment of prior years' estimated tax
liabilities (4.95) 0.00 0.00
------ ---- ----
Effective income tax rate 35.39% 38.33% 41.14%
====== ====== ======
</TABLE>
53
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The Company has not recorded deferred income taxes applicable to the
undistributed earnings of foreign subsidiaries that are indefinitely
reinvested in foreign operations. These earnings amounted to
approximately $2,785,000 at January 5, 1996.
13. Foreign Operations, Geographic Areas, and Other Income:
During 1994 and 1995, foreign operations of the Company included the
international activities of Hyde International Services, Ltd., a
wholly-owned foreign subsidiary; Saucony Canada, Ltd. and Saucony Sports
BV, majority-owned foreign subsidiaries; Saucony SP Pty Limited, a
foreign subsidiary controlled by the Company, Saucony UK and Saucony
Europe, branch operations of Saucony, Inc.; and, Saucony Deutschland
Vertriebs GmbH, a wholly-owned subsidiary of the Company.
In 1993, foreign operations of the Company included the international
activities of Hyde International Services, Ltd., a wholly-owned foreign
subsidiary; Saucony Canada Ltd. and Saucony Sports BV, majority-owned
foreign subsidiaries; Saucony SP Pty Ltd., a foreign subsidiary
controlled by the Company; and, Saucony UK and Saucony Europe, branch
operations of Saucony, Inc.
The condensed balance sheets of the Company's foreign operations as of
January 5, 1996 and December 30, 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Assets:
Current assets:
Cash $ 1,314,537 $ 1,629,409
Accounts receivable 3,993,168 3,796,541
Inventory 7,341,438 7,714,343
Other current assets 917,380 452,904
Noncurrent assets 1,187,762 1,184,602
---------------- --------------
$ 14,754,285 $ 14,777,799
================ ==============
Liabilities and Stockholders' Equity:
Current liabilities:
Notes payable $ 4,336,940 $ 1,983,465
Current portion of capital leases 72,879 17,114
Accounts payable and accrued expenses 1,404,481 1,140,566
Due to related parties 6,799,124 8,624,542
Long-term debt -- 1,551,200
Capitalized lease obligations -- 74,933
Minority interest 170,227 426,475
Stockholders' equity 1,970,634 959,504
---------------- --------------
$ 14,754,285 $ 14,777,799
================= ==============
</TABLE>
54
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
The results of foreign operations included in the consolidated
statements of income are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales to unaffiliated parties $ 21,814,016 $ 18,822,752 $ 10,168,490
Net sales to affiliated parties
(eliminated in consolidation) 137,849 43,967 18,644
---------------- --------------- ----------------
Net sales $ 21,951,865 $ 18,866,719 $ 10,187,134
================ =============== ===============
Income (loss) before income
taxes and minority interest 632,367 ($ 1,152,297) ($ 191,643)
================= ============== ==============
Net income (loss) $ 810,810 ($ 1,379,349) ($ 161,879)
================ ============== ===============
</TABLE>
The foreign operations changes in stockholders' equity from 1995 to
1994, 1994 to 1993 and 1993 to 1992 were due to the recognition of
common stock and paid-in capital amounts offset by income or losses and
accumulated translation adjustments.
Foreign sales attributed to international divisions of the United States
parent company were $11,550,486, $11,486,051 and $8,681,353, for 1995,
1994, and 1993, respectively. Foreign sales attributed to foreign
subsidiaries were $21,814,016, $18,822,752 and $10,168,490 for 1995,
1994, and 1993, respectively.
The following table summarizes the Company's operations by geographic
area:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net sales to unaffiliated parties:
United States $ 69,659,932 $ 77,269,070 $ 84,465,219
International 32,902,823 30,308,803 19,270,258
--------------- -------------- ----------------
$ 102,562,755 $ 107,577,873 $ 103,735,477
=============== ============== ================
Net sales between geographic areas:
United States $ 137,849 $ 43,967 $ 18,644
International 8,241,637 9,076,190 4,723,167
--------------- -------------- ----------------
$ 8,379,486 $ 9,120,157 $ 4,741,811
=============== ============== ================
Total net sales:
United States $ 69,797,781 $ 77,313,037 $ 84,483,863
International 41,144,460 39,384,993 23,993,425
Less: Inter-area eliminations (8,379,486) (9,120,157) (4,741,811)
---------------- -------------- ----------------
$ 102,562,755 $ 107,577,873 $ 103,735,477
=============== ============== ================
Operating profit:
United States$ 3,962,144 $ 5,934,688 $ 8,795,583
International (592,195) 417,143 987,404
Less: Inter-area eliminations (49,820) (95,698) (701,864)
-------------- -------------- -----------------
$ 3,320,129 $ 6,256,133 $ 9,081,123
=============== ============== ================
Identifiable assets:
United States $ 64,395,000 $ 74,387,496 $ 71,022,951
International 14,754,285 14,777,799 10,755,950
Less: Inter-area eliminations (9,677,996) (12,082,963) (8,085,115)
---------------- -------------- ----------------
$ 69,471,289 $ 77,082,332 $ 73,693,786
=============== ============== ================
</TABLE>
55
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
Net sales to unaffiliated customers is based on the location of the
customers. International inter-area sales represent shipment of
inventory to international subsidiaries and purchases of inventory from
international subsidiaries. These inter-area sales are generally priced
to recover cost plus an appropriate mark-up for profit and are
eliminated from the consolidated net sales. Operating profit is
comprised of revenue less related cost of sales, selling expenses,
general and administrative expenses, and does not include either
interest expense, income taxes or minority shareholders' interest.
Other income consists primarily of royalty income, income from
short-term investments, income recognized due to the sale or licensing
of trademarks, foreign currency exchange gains and losses, and gains or
losses from the sale or disposition of assets.
14. Major Customer:
For 1994 and 1995, the Company did not have a major customer account for
more than 10% of gross sales. During 1993, the Company had one major
customer that accounted for approximately 10% of gross sales.
15. Acquisitions:
On December 11, 1991, the Company entered into a joint venture with a
Dutch company to market and distribute Saucony footwear. On December 31,
1991, the Company purchased 51% of the issued and outstanding stock of
Saucony Sports BV for $413,598. On June 9, 1993, the Company increased
its majority ownership from 51% to 76% by acquiring an additional 25% of
the issued and outstanding common stock from the minority shareholder,
for $210,192, which equaled the book value of the stock.
At January 5, 1996, December 30, 1994 and December 31, 1993, Saucony
Sports BV had assets of $1,595,470, $1,853,804 and $2,080,443,
liabilities of $1,454,778, $1,551,890 and $1,458,989 and revenues of
$3,215,936, $2,988,367 and $2,641,422, respectively.
On March 1, 1993, the Company acquired 85% of the issued and outstanding
stock of a Canadian distributor, Saucony Canada, Inc. The purchase price
of $350,797 was financed with available cash of $160,954 and the
issuance of a note payable of $189,843. At January 5, 1996, December 30,
1994 and December 31, 1993, Saucony Canada, Inc. had assets of
$1,867,383, $2,293,569 and $1,562,263, liabilities of $740,380,
$1,453,913 and $898,511, and revenues of $3,776,545, $3,755,057 and
$2,663,165, respectively.
Effective July 1, 1993, the Company acquired 50% of the issued and
outstanding common stock of an Australian distributor, Saucony SP Pty.
Limited for $214,159 in cash. The agreement was completed on November
13, 1993. During 1995, the Company increased its investment in Saucony
SP Pty Ltd. by acquiring 28 shares of Cumulative Redeemable Preferred
Stock ($1 par) for $2,081,800 in exchange for an equivalent reduction in
debt owed to the Company by Saucony SP. The shares, which are redeemable
on or after January 1, 1998, provide for cumulative preferential
dividends and confer priority to the preferred shareholders., with
respect to dividends and return of share capital and share premium. As
the fair value of assets acquired equaled the carrying value of the debt
reduction, there was no impact on consolidated net income.
At January 5, 1996, December 30, 1994 and December 31, 1993, Saucony SP
had assets of $7,401,248, $7,252,590 and $4,674,254, liabilities of
$5,527,511, $6,848,537 and $4,414,133, and revenues of $11,661,122,
$10,840,627 and $3,819,165, respectively.
56
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
These acquisitions are accounted for as purchases.
16. Concentration of Credit Risk:
Financial instruments which potentially subject the Company to credit
risk consist primarily of cash, cash equivalents and trade receivables.
The Company maintains cash and cash equivalents with various major
financial institutions. Cash equivalents include investments in
commercial paper of companies with high credit ratings, investments in
money market securities and securities backed by the U.S. Government.
The Company limits the amount of credit exposure with any one financial
institution and believes that no significant concentration of credit
risk exists with respect to cash investments.
Trade receivables subject the Company to the potential for credit risk
with customers in the retail and distributor sectors. To reduce credit
risk, the Company performs ongoing evaluations of its customers
financial condition but does not generally require collateral.
Approximately 41% of the Company's gross trade receivables balance were
represented by 13 customers, at January 5, 1996, which exposes the
Company to the concentrations of credit risk.
17. Fair Value of Financial Instruments
The carrying value of cash, cash equivalents, receivables, long-term
debt and other notes payable approximates fair value. The Company
believes similar terms for current long-term debt and other notes
payable would be attainable. The fair value of marketable securities are
estimated based upon quoted market prices for these securities. At
January 5, 1996, estimated fair value of the Company's financial
instruments approximated the carrying value.
57
<PAGE>
HYDE ATHLETIC INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended January 5, 1996, December 30, 1994 and December 31, 1993
<TABLE>
<CAPTION>
Additions
Balance, charged to Deductions Balance,
beginning costs and from end
of year expenses reserve of year
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Year ended January 5, 1996:
Allowance for doubtful accounts
and discounts $ 1,147,409 $ 5,072,962 $ 5,280,127 $ 940,244
Year ended December 30, 1994:
Allowance for doubtful accounts
and discounts $ 1,191,819 $ 4,754,567 $ 4,798,977 $ 1,147,409
Year ended December 31, 1993:
Allowance for doubtful accounts
and discounts $ 1,001,615 $ 4,310,019 $ 4,119,815 $ 1,191,819
</TABLE>
58
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ------
<S> <C> <C>
3.1 Restated Articles of Organization, as amended, of the
Registrant are incorporated herein by reference to
Exhibit 4.1 to the Registrant's Registration Statement
on Form S-8 (File No. 33-66482) *
3.2 By-Laws, as amended, of the Registrant are incorporated
herein by reference to Exhibit 3.3 to the Registrant's
Registration Statement on Form S-2, as amended
(File No. 33-61040) (the "Form S-2") *
10.1 Note Purchase Agreement between the Registrant and
the Principal Mutual Life Insurance Company is incorporated
herein by reference to Exhibit (4b) to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31,
1988 (the "1988 10-K Report") *
10.2 Credit Agreement among the Registrant, State Street Bank
and Trust Company and CoreStates Bank, N.A., dated
August 31, 1993 is incorporated herein by reference
to Exhibit 10.2 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 (the
"1993 10-K Report") *
10.3 Guarantee of the Registrant to the Bank of Nova Scotia
is incorporated herein by reference to Exhibit 10.3 to
the 1993 10-K Report *
10.4 Letter of Guarantee of the Registrant to State Street
Finance Limited is incorporated herein by reference
to Exhibit 10.4 to the 1993 10-K Report *
10.5** 1982 Employee Stock Option Plan, as amended, is incorporated
herein by reference to Exhibit 10.7 to the Form S-2 *
10.6** Amendment to the Credit Agreement among the Registrant,
State Street Bank and Trust Company and CoreStates Bank,
N.A., dated August 31, 1993, is incorporated herein by reference
to Exhibit 10.06 to the Registrant's Quarterly Report on Form
10-Q for the 39 weeks ended September 30, 1994 *
10.7** Employment Agreement, as amended, between the Registrant
and John H. Fisher is incorporated herein by reference to Exhibit
10.7 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended December 30, 1994 (the "1994 10-K Report") *
59
<PAGE>
10.8** Employment Agreement, as amended, between the Registrant
and Charles A. Gottesman is incorporated herein by reference
to Exhibit 10.8 of the 1994 10-K Report *
10.9** Employment Agreement, as amended, between the Registrant
and James A. Buchanan is incorporated herein by reference to
Exhibit 10.9 of the 1994 10-K Report *
10.10** Consulting Agreement, as amended, between the Registrant
and Phyllis H. Fisher is incorporated herein by reference to
Exhibit 10.10 of the 1994 10-K Report *
10.11+ License Agreement, dated as of January 1, 1994, between
Brookfield Athletic Co., Inc. and Mattel, Inc. is incorporated
herein by reference to Exhibit 10.11 to the 1993 10-K Report *
10.12+ License Agreement, dated as of December 30, 1993, between
Brookfield Athletic Co., Inc. and Mattel, Inc. (d/b/a Mattel Toys,
Europe) is incorporated herein by reference to Exhibit 10.12
to the 1993 10-K Report *
10.13+ License Agreement between Brookfield Athletic Co., Inc. and
Playskool, Inc., as amended, is incorporated herein by
reference to Exhibit 10.14 to the Form S-2 *
10.14+ Letter Agreement, dated June 3, 1993, between Brookfield
Athletic Co., Inc. and Playskool, Inc. is incorporated herein
by reference to Exhibit 10.14 to the 1993 10-K Report *
10.15+ Letter Agreement, dated January 26, 1995, between Brookfield
Athletic Co., Inc. and Hasbro, Inc. is incorporated herein by
reference to Exhibit 10.15 of the 1994 10-K Report *
10.16+ Patent Cross-License Agreement for In-Line Skates, dated
June 1993, and as amended September 1993, among the
Registrant, Brookfield Athletic Co., Inc., Rollerblade, Inc.
and David Wolf is incorporated herein by reference to
Exhibit 10.17 to the 1993 10-K Report *
10.17 License Agreement between the Registrant and Cal's Best,
Inc. (d/b/a Bangor Trading Company) is incorporated herein
by reference to Exhibit 10.27 to the Form S-2 *
10.18+ Trademark License Agreement, dated as of February 1, 1994,
between the Registrant and Leif J. Ostberg, Inc. is incorporated
herein by reference to Exhibit 10.21 of the 1993 10-K Report *
10.19** 1993 Equity Incentive Plan, as amended, is incorporated
herein by reference to Exhibit 10.21of the 1994 10-K Report *
60
<PAGE>
10.20** 1993 Director Option Plan is incorporated herein by reference
to Exhibit 10.2 to the Registrant's Quarterly Report on Form
10-Q for the thirteen weeks ended April 2, 1993, as amended
(the "Form 10-Q") *
10.21** VP Bonus Plan is incorporated herein by reference to
Exhibit 10.19 to the Form S-2 *
10.22** Compensation Agreement between the Registrant and
James H. Noyes, Jr. is incorporated herein by reference
to Exhibit 10.3 to the Form 10-Q *
10.23+ License and Royalty Agreement between Brookfield
Athletic Co., Inc. and Franklin Sports, Inc. is incorporated
herein by reference to Exhibit 10.25 of the 1994 10-K
Report *
10.24+ License Agreement, dated May 2, 1994, between
Brookfield Athletic Co., Inc. and The Walt Disney Company,
Inc. is incorporated herein by reference to Exhibit 10.26
of the 1994 10-K Report *
10.25++ License Agreement dated August 1, 1995 between Spalding
Sports Worldwide and Brookfield Athletic Co., Inc.
10.26++ License Agreement dated April 1, 1995 between Mattel,
Inc. and Brookfield Athletic Co., Inc.
10.27++ License Agreement dated April 1, 1995 between Hasbro,
Inc. and Brookfield Athletic Co., Inc.
10.28** Employment Agreement, dated as of June 1, 1995, betweeen
the Registrant and Wolfgang Schweim is incorporated herein by
reference to Exhibit 10.01 to the Registrant's Quarterly Report
on Form 10-Q for the twenty-six weeks ended June 30, 1995. *
10.29** Letter Agreement dated March 30, 1995, betweeen the Registrant
and Principal Mutual Life Insurance Company is incorporated herein
by reference to Exhibit 10.01 to the Registrant's Quarterly Report
on Form 10-Q for the thirteen weeks ended March 31, 1995. *
21 Subsidiaries of the Registrant
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
* Incorporated herein by reference.
** Management contract or compensatory plan or arrangement filed
herewith in response to Item 14(a)(3) of the instructions to Form
10-K.
+ Confidential treatment previously granted as to certain portions
of such document.
++ Confidential treatment requested as to certain portions of such
document.
</TABLE>
61
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
LICENSE AGREEMENT
THIS LICENSE AGREEMENT, made and entered into this 1st day of August,
1995, by and between Spalding Sports Worldwide, a division of Spalding & Evenflo
Companies Inc., a corporation organized and existing under the laws of the State
of Delaware, and having its principal place of business at 5730 North Hoover
Blvd., Tampa, Florida 33634 (hereinafter referred to as "Spalding") and
Brookfield Athletic Co., Inc., a corporation organized and existing under the
laws of Delaware, and having its principal place of business at 13 Centennial
Drive, Peabody, Massachusetts 01961 (hereinafter referred to as "Company").
SECTION 1.1: ARTICLES
The term "Articles" shall mean the following items bearing or used in
conjunction with the Trademark: Inline skates, street hockey skates, accessories
(elbow pads, knee pads, wrist protectors, positioned for inline skating or
street hockey), and other Articles as may be approved from time to time.
The Spalding product line must adhere to the product principles in Exhibit
A.
SECTION 1.2: TERRITORY
The term "Territory" shall mean: United States.
SECTION 1.3: TRADEMARK
The term "Trademark" shall mean the trademark Spalding as represented in
the attached Exhibit B: Use of Trademark shall be only as permitted in the most
current Spalding Identity Manual.
Section 1.4: NET SALES PRICE
As used herein, the term "Net Sales Price" shall mean the invoice price
charged for Articles sold and shipped by Company to the retail trade, less
allowances (other than co-op advertising), returns, quantity discounts, trade
and cash discounts, and taxes; provided, however, that in the case of Articles
sold by Company to any other individual, corporation, partnership or association
which in the opinion of Spalding is so closely allied to Company as to prevent
arms length bargaining, the Net Sales Price shall be deemed to be the Net Sales
Price charged by Company for similar articles sold in the same period to similar
customers not so closely allied. If there are no such other sales, then the Net
Sales Price shall be the Net Sales Price of such related customers of Company to
its customers. In computing Net Sales, no direct or indirect expenses or costs
incurred in manufacturing, selling, distributing, or advertising Articles shall
be deducted except as noted above, nor shall any deduction be made for
uncollected accounts.
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
SECTION 1.5: EFFECTIVE DATE
The term "Effective Date" of this Agreement shall be August 1, 1995.
SECTION 2.1: GRANT
Spalding hereby grants to Company the non-exclusive right and license to
utilize the Trademark solely upon and in conjunction with the sale and
distribution of Articles in the Territory, subject however to the restrictions
and conditions hereinafter set forth. Spalding agrees not to issue other third
party licenses for the Articles except for high performance inline skates (and
accessories) that ******. Company shall have the right of first refusal for high
performance skates that ******. Spalding shall notify Company of any such
anticipated third party agreement and provide Company with a summary of the
proposal by the third party. Company must reply affirmatively within fifteen
(15) days of Company's receipt of such notice to the effect that Company desires
to exercise the rights as presented in the proposal. Failure by Company to so
notify Spalding in the time required shall release Spalding from any further
duty to Company in regard to the proposal. Company acknowledges Spalding's
exclusive rights in the Trademark and agrees that it will use the same only so
long as and only in the manner authorized by this Agreement. The license granted
herein does not include the right to sublicense the use of the trademark.
Company shall be permitted to have the Articles manufactured solely for it
by a third party upon the prior written approval of Spalding, provided and upon
the express condition that prior to the commencement of such manufacture, said
third party shall duly execute and deliver to Spalding a letter in form and
content as attached hereto as Exhibit C. Company agrees that the utilization of
such a manufacturer shall not in any way reduce its obligations to Spalding
under this Agreement, including but not limited to the quality control and
trademark notice provisions of this Agreement. Any default by said manufacturer
of said letter or the obligations referenced therein shall constitute default of
this Agreement by Company.
SECTION 3.1: TERM
The Term of this Agreement shall be from the Effective Date to *****.
Company shall have the option of renewing this Agreement for an additional two
(2) year period upon Spalding earning and receiving on Company's actual net
sales the minimum royalties as set forth in Exhibit D for the year ended *****
and further provided that as of *****, Spalding has earned and received on
Company's actual net sales ***** of the above referenced minimum royalties for
the year ended *****, provided this agreement has not been terminated in
accordance with its provisions.
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
In the event Company exercises its right to renew this Agreement pursuant
to the above, Company must so notify Spalding in writing at least ninety days
prior to the date of expiration of this Agreement.
SECTION 4.1: ROYALTIES PAYABLE BY COMPANY
For the rights granted to Company hereunder, Company shall pay Spalding a
royalty upon all shipments of all Articles. The rate of royalty shall be in
accordance with Exhibit D and levied on the Net Sales Price of said Articles.
Royalty payments due from Company shall be determined on a monthly basis,
commencing on the Effective Date. Such royalties will be paid by Company within
fifty-five (55) days following the end of each month on all Articles sold and
shipped by Company during said month, in accordance with Exhibit E, accompanied
by a complete written report in form and content as shall be specified by
Spalding from time to time.
On September 15 of each contractual year, Company shall pay to Spalding
the actual royalties due for August shipments and shall pre-pay to Spalding an
estimate of the royalties that Company reasonably expects to be due for
September shipments.
The following November 25, Company will report to Spalding its actual
earned royalties during September, and if actual royalties due Spalding are
greater than the estimated amount paid to Spalding on September 15, then Company
will pay the difference to Spalding with its November 25 statement. If the
estimate was greater than actual royalties, Spalding will credit the difference
to the following monthly royalties due it.
All royalty payments to be made hereunder by Company shall be paid to
Spalding in United States dollars into an account as and where designated by
Spalding from time to time.
All royalty payments shall be paid *****.
The termination of this Agreement shall not discharge or release Company
from liabilities and responsibility accruing prior to such termination,
including, but not limited to, the payment of royalties in accordance with this
Agreement. Nothing in this Section shall prejudice the rights of action or
remedies which Spalding might otherwise have in connection with the enforcement
or breach of this Agreement.
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
SECTION 4.2: MINIMUM ROYALTY
Company agrees to pay Spalding a nonrefundable minimum royalty in
accordance with the schedule of Exhibit D.
Commencing on the effective date of this Agreement, and on or before the
25th day of the first month of each quarter of each year (October 25, January
25, April 25, July 25) Company shall pay Spalding ***** of the total annual
minimum royalty. However if during the course of a particular year Company's
total royalty payments to Spalding (earned and minimum royalties) exceed the
total minimum royalty for that year, then only earned royalties shall be paid to
Spalding by Company during the balance of that year (see Exhibit E).
If the shipments in any specified one-year period are not sufficient to
provide royalties equal to the minimum royalty, credit for the excess of the
minimum royalty over the actual earned royalty shall not be carried forward into
the next period.
SECTION 4.3: ROYALTY RECORDS AND AUDITS
Company shall keep full and accurate records showing the number, Net Sales
Price, and date of shipment or other transfer of all Articles shipped or
otherwise transferred by Company.
With each royalty payment, Company shall furnish Spalding a report signed
by a responsible official of Company showing the number and Net Sales of
Articles first shipped during the period covered by the report, and such other
information and detail as shall be requested by Spalding from time to time.
Furthermore, Company shall instruct its external auditors to remit to
Spalding on a yearly basis, an audited report showing the sales and pertinent
financial information referring to the licensed Articles, and Company shall make
its records available for inspection, at reasonable intervals, upon written
request, at Company's place of business during normal business hours, and on a
confidential basis, by Deloitte & Touche, or other certified public accountant
appointed by Spalding and at Spalding's sole expense except as qualified below,
who shall certify to Spalding their opinion of the amount of royalties due for
the period examined, gross and net sales (including itemized deductions),
promotional spending (measured media, point-of-sale, free goods, promotions),
reduced margin goods and current inventory levels. The findings and opinion of
said certified public accountant shall be conclusively binding upon the Company.
If the audit shows an underreporting or underpayment of more than five (5%)
percent of royalties for any year, then the Company shall reimburse Spalding for
the cost of the audit. Such remedy shall be in addition to Spalding's other
remedies under this Agreement, including termination.
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
Any adjustments requiring additional payments to Spalding as a result of
the audits will accrue interest from the date originally due at one and one-half
percent (1-1/2%) per month or the highest lawful rate, whichever is lower.
SECTION 5.1: COMPANY RELATIONSHIPS
Company represents and warrants that it will not enter into any other
license or distribution arrangement with the brands listed below in the
Territory competitive with the Articles:
***** *****
***** *****
***** *****
***** *****
***** *****
SECTION 5.2: DILIGENCE
If in any one-year period during the original term of this Agreement, or
in any renewal period, Spalding does not earn and receive royalties on Company's
sale of Articles equal to the minimum royalties as set forth in Exhibit D, then
Spalding, at its sole discretion, may terminate this Agreement upon notice given
to Company, notwithstanding anything contained in this Agreement to the
contrary.
Company will exercise all possible efforts to exploit and to promote, at
its own expense, the sale and the use of all Articles in the Territory, and to
sell the same as widely as possible and at the best price obtainable. Company
will continuously offer for sale all Articles and distribute to promptly meet
orders for all Articles.
SECTION 5.3: MARKETING PLAN
No later than ninety (90) days after the Effective Date of this Agreement,
and no later than ninety (90) days prior to each annual anniversary of this
Agreement, the Company will provide Spalding in accordance with Section 8.3 a
written marketing plan and program for Company's activities with respect to each
category of Articles in the Territory for the coming year in form, content,
detail and substance acceptable to Spalding's sole discretion per the attached
Exhibit "F". Spalding shall notify Company in writing of its approval or
disapproval of said marketing plan within 14 days of its receipt and such
approval shall not be unreasonably withheld. But in the event of said
disapproval, Spalding shall have the right to terminate this Agreement for any
or all Articles and for any or all countries in the Territory upon the giving of
written notice to Company, notwithstanding anything contained in this Agreement
to the contrary unless the plan is modified by Company to cure the reason(s) for
disapproval within 30 days of receipt of Spalding's disapproval. Spalding may,
in its sole discretion, require as a part of said marketing plan and program
that Company, at its sole cost, appoint and continuously maintain one or more of
its executives acceptable to Spalding for the sole or primary purpose of
assuring Company's establishment of, and compliance with, said marketing plan
and program. Company shall diligently use its best efforts to comply with the
provisions of said approved marketing plan and program.
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
Company agrees to attend Spalding licensing meetings which will be held no
more than four times a year.
SECTION 5.4: CUSTOMER SERVICE
Company acknowledges that the reputation and success of Spalding and the
Trademark are dependent on the excellence in levels of customer service.
Therefore, Company agrees to use best efforts to continuously provide customer
service on Spalding branded business at a high level of quality, commensurate
with the excellence normally expected from a well-known, national brand company,
including, but not limited to, the following:
1. Adequate levels of inventory to satisfy customer needs by
consistently shipping orders *****;
2. Timely schedules of shipment against customer requests by
consistently shipping ***** of customer orders within ***** days of
the due date; if the order was placed within lead times.
3. A customer service representative whose principle function is to
handle Spalding customer inquiries and who will consistently answer
a minimum of ***** of customer/consumer inquiries within *****
working days of receipt;
4. An 800 number for customer use.
SECTION 6.1: LICENSED ARTICLES APPROVAL
Company shall promptly submit to Spalding's representative first run
specimens of each Article on which the Trademark is used, together with written
specifications for each article in a form satisfactory to Spalding, and a
written request for approval of the specimen and specifications. Thereafter, at
Spalding's request, Company shall submit to Spalding for quality examination two
(2) samples of each of the Articles which are currently being marketed under the
Trademark. Company shall at the same time provide Spalding with results of
quality control testing against specifications in a form satisfactory to
Spalding. Further, at all times, Company's inventory shall be available to
Spalding for random quality control sampling with twenty-four (24) hours'
notice. Within thirty (30) days after the receipt of the specimens and
specifications or samples, as the case may be, Spalding shall notify Company of
its approval or disapproval thereof, which approval shall not be unreasonably
withheld. The production runs of each of such approved Articles shall be in
accordance with agreed-upon production specifications. Any substantial or
continuing unrectified breach of the quality control provision of this Section
shall be grounds for termination.
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
SECTION 6.2: ADVERTISING, PACKAGING AND LABELING
The Company shall submit in writing to Spalding or its authorized
representative for its approval all advertising and packaging and other material
prepared by or for it, during conceptual stages before the same is used,
circulated or displayed. In the event that Spalding does not notify Company in
writing of its disapproval within thirty (30) days of said submission, such
material shall be deemed to have been approved by Spalding. The foregoing
procedure shall also govern the approval of advertising, packaging, promotional
and other graphic material to be utilized in customer cooperative advertising.
Upon approval by Spalding, Company shall be free to utilize such material in its
approved form for the lesser of one (1) year, or the termination of this
Agreement for any reason. Company shall be solely responsible for monitoring and
maintaining its customers' compliance with the approved material. In this
regard, Company shall submit to Spalding upon request suitable proof (i.e.,
"tear sheets") that said cooperative advertising material is being properly
utilized.
Should the Company grant to a third party permission to publish or air the
Trademark, Company shall be responsible for ensuring compliance with the
aforementioned conditions.
Company further agrees to furnish upon a reasonable request by Spalding,
samples of the Articles for use in any Spalding advertising or any other
Spalding, distributor or licensee advertising, promotion, and presentation at no
cost to Spalding for such purpose.
Company shall annually expend to unrelated third parties ***** of the Net
Sales Price upon which royalties are based for advertising displays, promotional
material, and other advertising and co-op advertising of the Articles approved
by Spalding from time to time in writing. Company shall submit proof of such
expenditures as requested by Spalding.
In addition, Company shall ***** on the net sales of Articles for the
promotion of the Spalding brand. Funds are to be used for a Spalding Corporate
Campaign developed and executed solely by Spalding, however, input for the
Campaign will be gathered from licensees and reasonable attempts will be made to
include licensee's products. Payments will be made as per Exhibit "E".
SECTION 6.3: REGISTRATION AND PROTECTION OF TRADEMARK
Except as otherwise agreed in writing, in no event shall Company deviate
in any manner in its use of the Trademark from the form of the Trademark set
forth in the attached Exhibit B.
<PAGE>
Company agrees to cooperate fully and in good faith with Spalding for the
purpose of securing and preserving Spalding's right(s) in and to the Trademark.
If Spalding requests, Company shall, at Spalding's expense, file and prosecute
one or more applications for trademark registrations in the appropriate
office(s) or class(es) in the name of Spalding, or, if Spalding so requests in
writing, any other name designated by Spalding. It is agreed that nothing
contained in this Agreement shall be construed as an assignment or grant to
Company of any right, title or interest in or to the Trademark, it being
understood that all rights relating thereto are reserved by Spalding, except for
the license granted hereunder to Company. Company hereby agrees that upon
expiration or termination of this Agreement for any reason, Company will be
deemed automatically to have assigned, transferred and conveyed to Spalding any
and all copyrights, trademark or service mark rights, equities, goodwill, or
other right, title or interest in and to the Trademark and any variation thereof
which may have been obtained by Company or which may have vested in Company in
pursuance of any endeavors covered hereby. Company will execute, and hereby
irrevocably appoints Spalding its attorney-in-fact to execute, if Company
refuses to do so, any documents requested by Spalding to accomplish or confirm
the foregoing. All artwork and designs involving the Trademark, or any
reproduction thereof, shall, notwithstanding their invention or use by Company,
be and remain the sole property of Spalding and Spalding shall be entitled to
use the same and to license the use of the same by others. Spalding shall have
the sole right to determine whether or not legal or other action shall be taken
to protect the Trademark, and Spalding shall have sole control over the form of
such action and any settlement of such disputes with third parties with respect
to such action.
Company shall cooperate fully in the prosecution of any action to protect
the Trademark at Spalding's expense.
Company agrees that it will not in any way register or use the Trademark
or any similar name alone or in conjunction with any other words as a tradename
or trademark, nor will the Trademark be used by Company in the name of any
corporation, partnership or other business entity.
SECTION 6.4: TRADEMARK NOTICE
Company agrees that whenever the Trademark is used, there will be notice
of the fact that the Trademark is used under license from Spalding as follows:
"(the Trademark) is used under license from Lisco, Inc. a Spalding Company" or
such other notice as specified by Spalding from time to time in form, size and
location approved by Spalding in writing.
Company agrees that as an essential condition hereof that will cause the
foregoing appropriate notice or any other notice instructed by Spalding to so
appear. Each and every tag, label, imprint, advertising prepared by or for
Company or other usage of the Trademark shall be submitted by Company to
Spalding for its written approval prior to use by Company. Approval by Spalding
shall not constitute waiver of Spalding's rights or Company's duties under any
provision under this Agreement.
<PAGE>
SECTION 6.5: OTHER TRADEMARKS
Company shall not place or use other trademarks, tradenames, designs, logos or
endorsements in conjunction with the Articles, except as specifically authorized
by Spalding in writing before the commencement of such use. In the event of such
authorized use, Company shall, at Spalding's option, assign said other
trademarks, designs, logos, or endorsements to Spalding upon termination of this
Agreement, and in the event of such assignment Company will execute and deliver
to Spalding any documents requested by Spalding necessary to effect such
assignment.
SECTION 6.6: GOODWILL
Company recognizes the goodwill inherent in the Trademark and acknowledges
that the goodwill attached thereto belongs to Spalding and that such Trademark
has secondary meaning in the minds of the public. Company agrees that it will
not during the term of this Agreement or thereafter attack or contest property
rights of Spalding in and to the Trademark or attack or contest the validity of
the Trademark.
In order to maintain said goodwill, Company will promptly and to the
satisfaction of Spalding resolve any consumer complaints that may arise from
time to time with regard to Articles or any promotion thereof.
SECTION 6.7: PREMIUM
Company may not use Articles as prizes or in connection with contests
without prior written approval of Spalding. Company may not use the Trademark on
any Articles involved in any sweepstakes, lotteries, games of chance, or as a
premium except that Articles may be used in the promotion of or as a premium in
the sale of Articles.
SECTION 7.1: DEFAULT AND TERMINATION
This Agreement may be terminated by either party upon default or breach of
warranties of the other party, by giving said other party written notice of
intention to so terminate, which notice shall specify the default or breach upon
which the notifying party intends to rely, and such termination shall become
effective thirty (30) days from the receipt of such notice provided such default
or breach is not rectified by the notified party within that time or a time
agreed upon by the parties in writing.
Additionally, three (3) or more rectified defaults and/or breaches of the
warranties of this Agreement by Company during any twelve (12) month period
shall be grounds for immediate termination of this Agreement by Spalding.
Termination shall be without prejudice to any rights, remedies or claims
Spalding may otherwise have against Company.
<PAGE>
The license herein granted shall terminate immediately if Company ceases
to do business, makes an assignment for the benefit of creditors, enters into a
composition, becomes insolvent, or if a petition in bankruptcy is filed and said
petition is not dismissed within thirty (30) days. Spalding shall have the right
to terminate this Agreement in the event of any substantial change in the
ownership, control, officership or management of Company. Company shall
immediately notify Spalding in writing of any of the events referenced in this
Section.
Notwithstanding anything in this agreement or otherwise to the contrary,
in the event of Company's default, all unpaid royalties due on Company's actual
sales of articles shall become immediately due and payable, and all of the
minimum royalties specified in Section 4.2 and any exhibit hereto shall all
become immediately due and payable as liquidated damages, notwithstanding the
contract year otherwise specified for payment on such exhibit.
Upon termination of this Agreement, all rights of Company to manufacture,
sell and distribute Articles shall cease, and all royalties on shipments
theretofore made shall become immediately due to Spalding, notwithstanding
anything herein to the contrary.
Company understands that, in granting this license Spalding has relied
upon the information provided in the Prospective Licensee Information Form
submitted by Company. If such form contains any material misstatements, Spalding
reserves the right to terminate this Agreement immediately.
SECTION 7.2: INVENTORY AT EXPIRATION OR TERMINATION
Upon termination of this Agreement for any reason, Company shall
immediately discontinue manufacture, advertising, sale and distribution of
Articles or any use of the Trademark (including but not limited to advertising,
signs, letterheads, and packaging materials), except that if because of the
expiration of the term of this Agreement, and not because of Company's default
due to quality problems or non payment of royalties, then in such event Company
shall be permitted to sell or otherwise distribute its finished inventory of all
Articles at the time of such termination and such inventory as may be in the
process of production, for a period not to exceed two hundred seventy (270) days
after termination of this Agreement, provided that Company pays all royalties
and submits all reports in connection with such sales as required under the
terms of this Agreement. Within thirty (30) days of receipt of notice of
termination, Company shall furnish Spalding with a written statement of the
Articles in inventory and in the process of production at that point in time and
a marketing plan for the disposal of said inventory.
<PAGE>
SECTION 8.1: INDEMNIFICATION
Company shall be solely responsible for and agrees to indemnify Spalding,
its officers, directors, agents and employees, and to hold each of them harmless
from any claims, demands, causes of action or damages, including reasonable
attorney's fees, arising out of or in connection with the manufacture, sale,
distribution, advertising, promotion, labeling or use of Articles
notwithstanding any approval which may have been given by Spalding. Each party
will promptly notify the other of any such claim and shall keep the other fully
advised.
SECTION 8.2: INSURANCE
Company agrees that, throughout the term of this Agreement and for not
less than five (5) years following the termination of this Agreement, it will
maintain comprehensive general liability insurance, including blanket
contractual liability and personal injury liability, and insurance against
claims based upon products liability for the Articles and against other claims
covered by the indemnification provision of Section 8.1, in an amount of not
less than Ten Million Dollars ($10,000,000.00) combined single limit. Such
insurance shall be written on an occurrence policy form with an insurance
company with a current Best rating of A, XII or better. Company shall cause its
insurance policies to be in force from the Effective Date of this Agreement and
endorsed to include Spalding, its officers, directors, employees and agents as
additional insureds thereunder. Such endorsement shall stipulate that the
required coverages will not be reduced or cancelled without thirty (30) days
prior written notice to Spalding. Such endorsement shall also stipulate that it
is the primary coverage and any other insurance in force for the additional
insureds shall act as excess coverage only and shall not be required to
contribute in the payment of any claim made hereunder to the extent of the
limits of liability afforded by Company's insurance hereunder.
Evidence of said coverage shall be supplied to Spalding within thirty (30)
days of the Effective Date of this Agreement. If Company fails to comply with
any insurance requirement, Spalding at its election may terminate this Agreement
without further notice. In the event Spalding at any time believes Company's
existing insurance coverage does not provide adequate protection, Spalding may,
in its sole but reasonable discretion, require Company to increase the amount of
coverage required hereunder to a level deemed adequate by Spalding.
SECTION 8.3: NOTICE
All royalty reports and marketing plans and programs to Spalding provided
for herein shall be in writing and mailed to:
SPALDING SPORTS WORLDWIDE
a division of Spalding & Evenflo Companies, Inc.
425 Meadow Street
P.O. Box 901
Chicopee, MA. 01021-0901
Attn: Vice President Licensing
or to such other address as shall be designated by Spalding from time to time.
<PAGE>
All other notices, statements, and reports required or permitted to be
given under this Agreement shall be in writing and shall be by registered or
certified mail, return receipt requested, addressed to the party to whom such
notice is required to be given. All such notices shall be deemed to have been
given when mailed as evidenced by the postmark at the point of mailing.
All notices to Spalding shall be addressed as follows:
SPALDING SPORTS WORLDWIDE
a division of Spalding & Evenflo Companies, Inc.
425 Meadow Street
P.O. Box 901
Chicopee, MA. 01021-0901
Attn: Vice President Licensing
All notices to Company shall be addressed as follows:
BROOKFIELD ATHLETIC CO. INC.
13 Centennial Drive
Peabody, Massachusetts 01961
Attn: President
or to such other address as shall be designated by Company from time to time.
SECTION 8.4: ASSIGNMENT
This Agreement shall be binding upon successors and assigns of the parties
hereto; provided, however, that Company shall not delegate its duty of
performance or assign or otherwise alienate its rights or obligations under this
Agreement without first obtaining the written consent of Spalding, which
granting or withholding of consent shall be in Spalding's sole discretion, and
any attempted delegation, assignment or alienation without such written consent
shall be a default of this Agreement.
SECTION 8.5: CONFIDENTIAL INFORMATION
The parties agree to keep all confidential information so marked received
in accordance with this Agreement in confidence for the term of this Agreement.
SECTION 8.6: GOVERNING LAW
This Agreement shall be interpreted in accordance with, and governed by
the laws of the State of Florida, United States of America.
<PAGE>
SECTION 8.7: CAPTIONS
The captions of the Articles and Sections of this Agreement are for
general information and reference only, and this Agreement shall not be
construed by reference to such captions.
SECTION 8.8: INDEPENDENT PARTIES
Nothing contained in this Agreement shall be construed to place the
parties in the relationship of legal representatives, partners or joint
ventures. Neither Spalding nor Company shall have any power to obligate or bind
the other in any manner whatsoever, other than as per this Agreement.
SECTION 8.9: OTHER
Company hereby waives and releases Spalding from any liability or claim
resulting from or in any way relating to either Company's dealings or
relationships with its suppliers of, or customers for Articles, or relating to
the Articles themselves, including but not limited to delays or failure of
delivery, defective or incorrect merchandise, and payment or collection matters.
Company's obligations to Spalding under this Agreement are unconditional,
notwithstanding any claim or controversy which may arise.
Company hereby waives and releases Spalding from any liability or claim
resulting from the termination of or expiration of this Agreement in accordance
with the provisions of the Agreement.
Time shall be of the essence with respect to all of Company's obligations
and duties, all of which shall be performed and honored strictly in accordance
with the terms of this Agreement notwithstanding any prior, continuing or
subsequent course of dealing, custom, or usage in trade. Company acknowledges
and irrevocably agrees that its failure to utilize the Trademark strictly in
accordance with the terms of this Agreement, and to cease the manufacture, sale
and distribution of Articles, advertising material or the Trademark at the
termination or expiration of this Agreement, will result in immediate and
irreparable damages to Spalding and to the rights of any subsequent licensee.
Company acknowledges and admits that there is no adequate remedy at law for such
failure or breach; and that in the event of such failure or breach, Spalding
shall be entitled to seek equitable relief by way of temporary and permanent
injunctions, and such other further relief as any court with jurisdiction may
deem just and proper.
Unless otherwise mutually agreed in writing, no departure from, waiver of,
omission to require compliance with any of the terms hereof, approval or
non-approval shall be deemed to authorize any other prior or subsequent
departure, waiver, omission, approval or non-approval, as the case may be.
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
This Agreement may not be modified orally, and no modifications or any
claimed waiver of any of the provisions hereof shall be binding unless in
writing and signed by the party against whom such modification or waiver is
sought. With respect to any modification specifically requested by Company, the
Company shall pay Spalding an administrative charge as determined by Spalding
and which shall reflect the internal costs necessary to complete any such
modification, but which, in no event, shall be ******.
This Agreement constitutes the entire agreement between the parties and
supersedes all prior contracts, agreements, and understandings between the
parties relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on the date first hereinabove written.
SPALDING & EVENFLO COMPANIES, INC.
By: /s/ Paul L. Whiting
Title: President
BROOKFIELD ATHLETIC CO., INC.
By: /s/ James A. Buchanan
Authorized Official
Title: President/CEO
<PAGE>
EXHIBIT "A"
SPALDING
PRODUCT PRINCIPLES
1. HERITAGE
The Spalding brand has meant sport and an active lifestyle to five
generations of active sports participants and enthusiasts. It is not an exotic
name; but rather an authentic one that means performance, quality, durability,
value, etc. Spalding products perform at high levels for their intended purpose
and generally have a reason-for-being related to consumer needs, features, and
benefits. They are mainstream products with good utility -- but typically have
that "something extra" to differentiate from the competition and promote
consumer interest. Spalding products appeal to all demographic groups and
usually cover price points from medium-high to medium-low -- always delivering
good quality.
The consumer is attracted to the product by features, cosmetics, etc. and
buys it knowing that the firm foundation of Spalding quality and service are
present.
2. THE CUSTOMER
The sports participant and enthusiast is educated, reasonably affluent,
and worldly with an active approach to all endeavors. He and she are serious
about their active lifestyle and seek authentic sports products that compliment
their involvement. They view their sports products as necessities and seek
quality, style, and value at high levels. The potential buyer is not fooled by
imitations or cosmetics. He recognizes value, and will reject any brand which
violates his trust.
3. PRODUCT LINE POSITIONING
The natural link between the Spalding sports heritage and the category is
sports participation and an active lifestyle. Whereas the casual skater who is
interested in image or style may consider a Spalding skate; the primary impetus
for purchase is expected to come from:
A. The 91% of active sports participants who know Spalding from their
participation in traditional team or individual sports.
B. The casual participant who pursues sport as a lifestyle.
The product line theme should therefore relate to sport and an active
lifestyle, including product styling and collateral elements.
Adding the Spalding name to a high quality skate will add perceived value;
but designing a unique one with links to the Spalding heritage that addresses
consumer needs will focus the attention of the active sports participant who
seeks specific benefit from his skate.
<PAGE>
4. QUALITY LEVEL
The Spalding line will contain sufficient quality and features to compare
favorably with the best competitive entries in the distribution channel. The
line will be sold on the basis of features, quality, and value. Although models
may be offered at different price levels, each entry will have meaningful
features that differentiate it from low priced unbranded products.
<PAGE>
EXHIBIT "B"
SPALDING(R)
<PAGE>
EXHIBIT "C"
Dated . 199
Gentlemen:
This letter will serve as notice to you that pursuant to the License
Agreement dated , 19 , between Spalding & Evenflo Companies, Inc. and
,(Company), we have been engaged as the manufacturer for the Company in
connection with the manufacture of the Articles as defined in the aforesaid
License Agreement. We hereby acknowledge that we have received a copy of the
quality, trademark notice, and other relevant terms and conditions set forth in
said License Agreement which are applicable to our function as manufacturer of
the Licensed Article(s), and we agree to dispose of the Articles only to the
above Company. It is understood that this engagement is on a royalty free basis.
<PAGE>
EXHIBIT "D"
Annual Royalty Rates Based On Net Sales(Section 4.1)
Skates: **** of Net Sales for all skates whose wholesale
price is *****.
**** of Net Sales for all skates whose wholesale
price is *****.
*****of Net Sales for all skates whose wholesale
price is *****.
Protective
And
Other: **** of Net Sales
Annual Minimum Royalty Payments (Section 4.2)
United States Dollars
-----------------------
******** *****
******** *****
******** *****
Option Years
--------------
******** *****
******** *****
Payment outside the U.S. are to be made by wire transfer
<PAGE>
EXHIBIT "E"
ROYALTY PAYMENT SCHEDULE
AND
CORPORATE PROMOTION PAYMENT SCHEDULE
(USE SEPARATE CHECKS)
Shipment
Month Due Date
-------- ----------
October December 25
November January 25
December February25
January March 25
February April 25
March May 25
April June 25
May July 25
June August 25
July September 25
August September 15 Pay August Actual
September September 15 Pre-Pay September Estimate; Adjust
To Actual On November 25
MINIMUM ROYALTY GUARANTEE PAYMENT SCHEDULE
Fiscal Period Due Date
1st Quarter (10/1-12/31) October 25 (25% of Annual Minimum Guarantee)
2nd Quarter ( 1/1- 3/31) January 25 (25% of Annual Minimum Guarantee)
3rd Quarter ( 4/1- 6/30) April 25 (25% of Annual Minimum Guarantee)
4th Quarter ( 7/1- 9/30) July 25 (25% of Annual Minimum Guarantee)
<PAGE>
EXHIBIT "F"
SPALDING LICENSED PRODUCTS
MARKETING PLAN OUTLINE
Total document can be from 2 to 10 pages; whatever you feel is required.
I. MARKET SIZE AND TRENDS
A wholesale sales estimate by major product class and any relevant
notes on growth, product, distribution, or other trends. Also a
recap of major market opportunities.
II. MAJOR COMPETITORS
A description of the top three competitors and their market shares.
III. SPALDING POSITION
Recap of sales history, market share, competitive advantages,
strengths, weaknesses, etc.
IV. SPALDING STRATEGY
Major strategies to continue growth, attack competition, or exploit
market opportunities.
V. PRODUCT ARRAY
Recap of major products offered plus a brief description.
VI. TRADE CHANNEL DEFINITION
Where will the product be sold.
VII. SALES STRUCTURE
Who will sell it.
VIII. RETAIL PRICE TARGETS
By product type
IX. MARKETING ELEMENT DESCRIPTION AND EXPENSE BUDGET
- Catalogs/Price Lists
- Shows
- Advertising
- Promotions
- Display Materials
- Research
- Public Relations
- Endorsements/Athletes Using Products
X. SALES GOALS BY PRODUCT CLASS AND BY DISTRIBUTION CHANNEL
<PAGE>
GUARANTEE
THIS GUARANTEE, made and entered into as of the 27th day of December,
1995, by Hyde Athletic Industries, Inc., a Delaware corporation having its
principal place of business at 13 Centennial Drive, Peabody, Massachusetts 01961
("Hyde") in favor of Spalding Sports Worldwide, a division of Spalding & Evenflo
Companies, Inc., a Delaware corporation having its principal place of business
at 5370 North Hoover Blvd., Tampa, Florida 33634 ("Spalding").
As an inducement and in consideration of Spalding granting a license for
inline skates to Brookfield Athletic Co., Inc. ("Brookfield") wholly owned
subsidiary of Hyde, the undersigned License Agreement between Apalding and
Brookfield, (dated August 1, 1995) including, but not limited to, obligations of
the licensee under Section 4.2 (Minimum Royalty) and Section 8.1
(Indeminifaction).
Further, the undersigned hereby agrees to indemnify and hold Spalding and
its successors and assigns harmless from and against all liability, loss, damage
or expense, including reasonable counsel fees, which Spalding may incur or
sustain by reason of the failure of Brookfield fully to perform and comply with
the terms and obligations of said License Agreement.
This is a continuing guarantee which shall remain in full force and effect
for the entire term of said License Agreement, regardless of any amendment
thereto.
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be duly
executed as of the date first above written.
HYDE ATHLETIC INDUSTRIES, INC.
By: /s/ James A. Buchanan
Title: President, Brookfield Athletic Co.
Director, Hyde Athletic Industries, Inc.
~
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
L I C E N S E A G R E E M E N T
042095DR01
THIS AGREEMENT is hereby made effective as of April 1, 1995 ("Effective
Date") between MATTEL, INC. ("Licensor"), a Delaware corporation, having its
principal place of business in El Segundo, California, U.S.A and the party
identified as "Licensee" in Paragraph A below (hereinafter the "Agreement").
R E C I T A L S
WHEREAS, Licensor represents and acknowledges that it:
1) owns or has acquired the rights to the property identified under
Paragraph B below, which rights, to the extent such rights are recognized in the
Territory (as defined below) include, copyrights, trademarks and other rights in
the design, style, character, likeness, and appearance of the material,
packaging, and accessories related thereto (the "Property"), and
2) is willing to grant a license to Licensee in accordance with the
terms and conditions set forth herein;
WHEREAS, Licensee represents and acknowledges that it:
1) possesses experience and skill in the business of the manufacture,
sale and distribution of the product or products identified under Paragraph C
below ("Products"), and
2) desires to obtain a license to use the Property of Licensor in
connection with the manufacture, sale and distribution of the Products in
accordance with the terms and conditions set forth herein.
The provisions in this Recitals Section do not reflect the entire
agreement between the parties hereto. This section only serves as a summary of
the Agreement between the parties and should not be construed as a contract
alone but only as a part of this Agreement. References in this Recitals Section
to the sections of this Agreement are not intended to be inclusive of all uses
of the defined term in this Agreement.
<PAGE>
A. LICENSEE: BROOKFIELD ATHLETIC COMPANY, INC.
A Subsidiary of Hyde Athletic Industries, Inc.
Located at: 13 Centennial Drive, Peabody, MA 01961
A corporation of Massachusetts, U.S.A.
B. PROPERTY is defined as: BARBIE. Excluded from the license granted to Licensee
is "NOSTALGIC BARBIE" and "CONTEMPORARY/COLLECTIBLE BARBIE", which Licensor
reserves and with respect to which Licensor has the full and exclusive right to
exploit and license others to exploit, not withstanding the foregoing.
"NOSTALGIC BARBIE" refers to the depictions of the "BARBIE" doll as used
originally for the line, i.e., the early versions of the "BARBIE" doll,
particularly for the 1959-1964 era and accompanying "KEN", "MIDGE", and "ALAN"
dolls. "CONTEMPORARY/COLLECTIBLE BARBIE" refers to high-end collectible,
specialty BARBIE dolls, such as BARBIE dolls currently depicted in Licensor's
Timeless Creations(R) catalog.
C. PRODUCTS is defined as: Adjustable roller skate, adjustable in-line skate,
traditional roller skate, molded in-line skate, knee and elbow pads, wrist
guards and skate bag.
D. TERRITORY is defined as: Mexico, Guatemala, Panama, Costa Rica, Colombia,
Venezuela, Argentina, Brazil, Chile, Bolivia, Ecuador, Paraguay, Uruguay, Peru,
Central America, Suriname, Guyana, French Guiana.
E. This License is:
{ ) exclusive as to all Products (1.2)
{X) non-exclusive as to all Products
{ ) other as follows:
F. MANUFACTURER'S AGREEMENT Attach Exhibit A (Manufacturer's Agreement) for each
manufacturing source (i.e. plant), including each subcontractor. In addition,
the form is to be submitted for each new manufacturing source during the term of
this Agreement.
2
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
G. Channels of Distribution are defined as:
{X) Mass Market
{ ) Gifts
{ ) Specialty
{X) Direct Mail (All)
{ ) Direct Mail (Catalog only)
{ ) Direct Mail (Excluding Catalog)
{X) Department Store
{X) Supermarket
{ ) Book Club
{ ) Stationery
{ ) Drug Store
{X) Warehouse Club
{ ) Duty-Free Shops
{X) Interactive Shopping (e.g.: Television Home Shopping)
{X) Other Special Market as follows: Discount Stores and Sporting Goods.
H. ENDING DATE is defined as: ***** (3.1)
MARKETING DATE is defined as: June 1995, which shall be the date(s) by
which the Products shall be available for purchase by the public at retail
outlets pursuant to Section 6.2.
I. ROYALTY RATE is defined as: *****. (4.1)
J. ADVANCE GUARANTEED ROYALTY is defined as: ***** (4.1, 4.2)
K. MINIMUM GUARANTEED ROYALTY is defined as: ***** (4.1, 4.2)
3
<PAGE>
L. MANDATORY MINIMUM ADVERTISING EXPENDITURE is defined as actual media
expenditures for advertising of the Products by the Licensee in the following
media and time periods:
Type of Media: {N/A) Print to Consumers
{N/A) Trade Print
{N/A) Trade Co-Op
{N/A) Television
{N/A) Direct Mail
{N/A) Other as follows:
Advertising Time Period: N/A
Minimum Amount Expended: N/A
M. Periodic Statements are due thirty (30) days after the close of each calendar
quarter sent with royalties to:
Mattel, Inc.
333 Continental Boulevard
El Segundo, California 90245
Attn: Mattel Consumer Products, M1-1116
N. INSURANCE: Licensee shall maintain comprehensive liability insurance,
including product and contractual liability insurance in an amount of not less
than Two Million Dollars ($2,000,000.00), naming Licensor as an additional
insured, during the term of this Agreement (11).
O. ADDITIONAL PROVISIONS: Please see Exhibit B for a listing of approved
Distributors for each country.
4
<PAGE>
NOW, THEREFORE, based on the foregoing premises and the covenants
contained herein, the parties hereto agree as follows:
1. RIGHTS
1.1 In accordance with the terms set forth herein, Licensor consents to
use of the Property by Licensee in the Territory for the life of this Agreement
solely and only upon and in connection with the manufacture, sale and
distribution of Products through the Channels of Distribution. Licensee shall
have no right to use of Licensor's corporate name or logo at any time, except as
permitted under Section 7.2.
1.2 For Products that are specifically covered by an exclusive license,
as identified in Paragraph E of the Recitals Section, Licensor agrees not to
expressly grant a license to a third party of the right to use the Property on
or in connection with said Products through the Channels of Distribution in the
Territory; PROVIDED, HOWEVER that Licensor itself use or may permit the use by
third parties of Products that are distributed solely as premium items. All
Products not specifically designated as exclusive in Paragraph E of the Recitals
Section are considered non-exclusive and, therefore, Licensor is free to license
third parties to use the Property on or in connection with the Products through
the Channels of Distribution in the Territory. Regardless of exclusivity
provisions contained herein, distribution through FAO Schwarz stores and
catalogs if applicable hereto remain non-exclusive. Licensor reserves and
retains the full right to use the Property on or in connection with any and all
Products through the Channels of Distribution in the Territory at all times. In
the event of any possible conflict in the definition of Products in this
Agreement and with the corresponding definition in any other license agreement
to which Licensor is a party, Licensor reserves the right to interpret the
language in such a manner as to resolve the conflict, and the Licensor's
decision in resolving any such conflict shall be final and binding upon the
Licensee.
1.3 Licensee agrees not to enter into any agreement relating to the
Property for commercial tie-ins or promotions with any party engaged in whole or
in part in the production of motion pictures or television shows, nor to sell
the Products for premium use or other use involving promotion of any third party
or other products or properties without the prior written consent of Licensor.
5
<PAGE>
1.4 As an exception to the scope of the rights of Licensee under this
Section 1, Licensee does not have the right to display or sell the Products at
entertainment events and shows, excluding trade shows. Licensor reserves and has
the right to grant licenses to third parties to use the Property on and in
connection with the manufacture and/or sale of the Products for sale to members
of the audience at any show or other entertainment event, including but not
limited to stage and arena shows.
1.5 With respect to each vendor or other manufacturing source, Licensee
shall have the attached Manufacturer's Agreement executed prior to manufacture
of such Products and promptly provide a fully executed copy of any such
agreement(s) to Licensor. Licensee agrees to follow the same procedures for any
additional manufacturing source used during the term of this Agreement.
1.6 Licensee agrees to meet or exceed the Mandatory Minimum
Advertising Expenditure.
1.7 Licensee agrees to sell the Products, exclusive of required free
samples specified in Section 2.3 hereof, to Licensor at as low a price as the
Licensee sells similar quantities of the same to any third party.
1.8 To the extent that the Territory is included within the European
Economic Community ("EEC") and with respect to permitted activities of the
Licensee within the EEC, the following provisions shall apply:
(a) Notwithstanding anything to the contrary herein contained,
Licensor and Licensee agree that the rights granted herein and the restrictions
herein contained shall be subject to the laws of the Territory and the Treaty of
Rome (if applicable) and all rules, regulations, directives, laws and
legislation associated therewith as the same may be in force from time to time.
(b) Nothing in this Agreement shall be construed as preventing
Licensee from accepting bona fide unsolicited orders for the Product (a) for
sale otherwise than through Licensee's permitted Channels of Distribution within
the EEC, or (b) from customers or potential customers outside the Territory but
within the EEC.
6
<PAGE>
(c) However, it is agreed that Licensee shall not establish an
office, advertise or otherwise actively seek customers for the Products outside
of the Territory or the permitted Channels of Distribution.
(d) If this Agreement is exclusive, it will not be an
infringement of Licensee's rights for Licensor to permit the sale in the
Territory or in the Channels of Distribution of Products made by licensees of
other territories in the EEC or other Channels of Distribution in the Territory.
2. CONTROL BY LICENSOR
2.1 Licensor shall have the right to control all uses of the Property on
or in connection with the Products, including but not limited to advertising,
and also have the right to control the nature and quality of the Products
associated with the Property.
2.2 Pursuant to this right of control, Licensor, through such agents or
representatives as it may designate, shall have free access to Licensee's
facilities, upon reasonable notice, at all times during business hours with the
right to full disclosure of all apparatus, methods, and materials used by
Licensee in the production of the Products and shall have the right to take
reasonable free samples of Licensee's Products and all of the materials used in
the manufacture thereof for the purpose of examination or testing. If requested
by Licensee, Licensor agrees to sign a non-disclosure agreement as necessary to
protect the secrecy of such apparatus, methods, and material.
2.3 At least one (1) representative copy or sample of all proposed
material using the Property (including the proposed Products, packaging,
advertising and all other material of any character whatsoever) together with a
description of the intended use of the material shall be submitted to Licensor
without cost for written approval prior to using the same. Licensee agrees not
to display or offer for sale to any third party any Products or sample thereof
using the Property without Licensor's prior written approval of such Products or
sample thereof. Licensor shall make every reasonable attempt to provide written
approval/disapproval of any copy or sample, submitted by Licensee for
7
<PAGE>
review, by the end of fifteen (15) business days after actual receipt of such
copy or sample by Licensor. Failure by Licensor to provide written
approval/disapproval within the specified time period shall not be deemed
approval of any copy or sample. Failure by the Licensee to comply with the
approval process identified in this Section 2.3 is grounds for immediate
termination by Licensor. The copies, sample and description may be retained by
Licensor at its option. Licensee shall not manufacture, sell or distribute any
Products or other materials that depart from Licensor-approved samples in any
material respect without a separate submission of samples with respect to such
modification and separate written approval from the Licensor. Licensor shall not
withdraw its approval of the approved samples without good cause. Licensee shall
thereafter submit to Licensor's Licensing Department, without cost to Licensor,
ten (10) samples of finished Products, as approved, upon commencement of
production and sale, and annually thereafter. Licensor reserves the right to
request additional samples of the Products at no cost to the Licensor on a
regular basis, but not more frequently than quarterly, to verify compliance of
the Products with the provisions of this Agreement. Except where Licensor's
request for samples is to monitor compliance after a prior non-conformity,
Licensee shall not be obligated to provide more than twenty (20) samples of a
Product on an annual basis without charge to the Licensor.
2.4 Licensee agrees that the Products covered by this Agreement shall be
of high standard and of such style, appearance, and quality as to be adequate
and suited to its exploitation to the best advantage and to the protection and
enhancement of the Property and the good will pertaining thereto; that such
Products will be manufactured, advertised, sold and distributed in accordance
with all applicable laws; and that the policies of sale and distribution by
Licensee shall be of high standard and to the best advantage and shall in no
manner reflect adversely upon the good will of Licensor or the Property.
2.5 Licensee agrees that the Products shall equal or exceed all industry
and government standards established in respect of safety and fitness for use.
All applicable government standards of the Territory shall apply, whether
federal, state or local. If the Territory is the U.S. or is inclusive of the
U.S., such standards shall include, but not be limited to, the Consumer Product
Safety Act and all appropriate sections of the Code of Federal Regulations, and
to the extent applicable, the Products shall equal or exceed the standards set
forth in the Hazardous Substances Act, the Flammable Fabrics Act, the Child
Safety Protection Act and the Toy Manufacturers of America Safety Standards as
contained in ASTM F963 and comparable industry standards. Prior to commencing
shipment of each Products and on a regular basis thereafter but
8
<PAGE>
no less frequently than annually, or as otherwise requested by Licensor,
Licensee agrees to provide to Licensor at Licensee's expense a certificate of an
approved independent testing laboratory certifying that the Products comply with
such standards and regulations. Each certificate that is provided must
specifically describe the Products that are covered by the certificate,
including the manufacturing source of the Products being tested. Products that
are shipped into more than one country must be certified separately with respect
to the applicable requirements of each such country. Additional certificates
shall be supplied with respect to any design or manufacturing change that may
affect the Product's compliance with applicable standards. If there is any
disagreement between Licensee and Licensor regarding compliance with safety
standards, the Licensor's decision shall be final and Licensee agrees to fully
comply with such decision.
2.6 Licensee agrees that it shall not contract with a third party
distributor for the marketing, distribution or sale of the Products without the
prior written consent of the Licensor.
3. TERM
3.1 The term of this Agreement will commence as of the Effective Date
and terminate automatically on the Ending Date, unless terminated sooner under
the other provisions of this Agreement.
3.2 Unless express renewal rights are granted herein, Licensee shall
have no right to renew this Agreement, regardless of its performance during the
term hereof. Further, Licensor shall not be required to give any notice to
Licensee of Licensor's intention not to extend the term of this Agreement. No
promise or expressed intention to renew this Agreement shall be binding upon the
Licensor unless stated in a written document, signed by the Licensor.
3.3 Nothing stated in this Agreement shall prevent the Licensor from
negotiating or entering into an agreement with any other party on or before the
expiration date of this Agreement, provided that no Products which are exclusive
under this Agreement shall be marketed or shipped under such other agreement
prior to the expiration date of this Agreement.
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"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
4. ROYALTIES
4.1 In consideration for the license granted herein, Licensee agrees to
pay royalties to Licensor. Royalties will be calculated by applying the Royalty
Rate to the "Gross Sales" of all Products sold or otherwise disposed of by
Licensee under this Agreement except that, in the event Licensee sells or
otherwise disposes of Products on an F.O.B. place of manufacture outside of the
Territory basis, the F.O.B. Royalty Rate shall be applied to the "Gross Sales"
of such Products. "Gross Sales" herein employed shall mean the gross sales
billed by Licensee *****, and sales and excise taxes separately stated, but
***** whether or not stated on invoice. No other costs incurred in the
manufacture, sale, distribution, or marketing of the Products shall be deducted
from gross sales in determining the royalty payable by Licensee. For purposes of
this Agreement, Products shall be considered sold on the date of shipment or the
date that the shipment is invoiced by the Licensee, whichever is earlier.
4.2 Licensee agrees to pay to Licensor the non-refundable Advance
Guaranteed Royalty at the time of execution of this Agreement. Licensee may
offset the Advance Guaranteed Royalty against royalties payable under Section
4.1 as they become due. Payment of the Advance Guaranteed Royalty by Licensee is
a condition precedent to Licensee's right to exercise any rights hereunder, and
Licensee's failure to promptly tender such payment shall entitle Licensor to
unilaterally and immediately rescind this Agreement.
4.3 If the Minimum Guaranteed Royalty is not otherwise paid pursuant to
Section 4.1 hereof, the balance of said Minimum Guaranteed Royalty shall be paid
to Licensor with Licensee's final quarterly royalty payment for the applicable
year or period. Licensee's failure to achieve sales of the Products for the
applicable year or period that will cause Licensor to earn royalties equal to or
greater than the Minimum Guaranteed Royalty shall give Licensor the right to
terminate this Agreement, which right shall be exercisable within sixty (60)
days after Licensee's receipt of the final royalty report for such year or
period.
4.4 If Licensee does not meet or exceed the Mandatory Minimum
Advertising Expenditure, Licensee shall pay to Licensor, within thirty (30) days
after the earlier of (a) the Ending Date or (b) the date of termination of this
Agreement, the difference between said Minimum Amount required to be expended
under Paragraph L of the Recitals Section and the actual amount expended by
Licensee.
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4.5 Royalties shall be paid to Licensor on any Products conveyed for any
purpose whatsoever by Licensee to a third party free of charge or for which only
nominal consideration was paid, including samples (other than those samples
referred to in Section 2.3 hereof, and other than sales samples, not to exceed
five percent (5%) of total production). The royalty on such Products shall be
calculated by applying the Royalty Rate or F.O.B. Royalty Rate, whichever is
higher, to the customary Gross Sales price of the Products as defined by Section
4.1.
4.6 If Licensee sells the Products to any of its subsidiaries or
affiliated organizations or companies for subsequent resale by such subsidiary
or affiliated organization or company to customary trade buyers, or sells the
Products in any way other than at arm's length, Licensee agrees that the Royalty
Rate or F.O.B. Royalty Rate, whichever is higher, will be based on the Gross
Sales, as defined above, charged by the subsidiary, affiliated organization or
company to such buyers.
4.7 Any payment not paid when due in accordance with the terms of this
Agreement, including any deficit disclosed through the audit procedures provided
for in Section 5, shall bear interest from the due date until received by
Licensor at the maximum interest rate permitted by law. The obligation to pay,
and the payment of, such interest will not operate to extend any payment due
date, and Licensor waives no rights by accepting late payment with interest.
Interest under this Section 4.8 will be due and payable on the date the
outstanding balance is paid to Licensor.
4.8 If Licensee requests and Licensor provides finished artwork for
Licensee's use, Licensee agrees to remit to Licensor its then normal and
customary charge for providing such artwork.
5. RECORDS AND REPORTS
5.1 Licensee agrees to keep such full and accurate records as are
necessary to verify Licensee's compliance with its obligations under this
Agreement, including without limitation the safety requirements of Section 2.5
and the royalty payment requirements of Section 4.1. Licensee shall maintain all
records necessary to determine the royalties payable hereunder including, but
not limited to, financial statements; general ledgers; and production, sales,
purchases and inventory records; promotional activity reports and other records
reflecting the transfer of Products whether or not full price was paid. Licensee
also agrees to keep such full and accurate
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records as are necessary to determine Licensee's compliance with the Mandatory
Minimum Advertising Expenditure required hereunder including, but not limited
to, receipts or other proof of placement of ads. Licensee agrees to permit
Licensor or its authorized representative to have full access to such records
required under this Section 5, to examine them, and to make copies of them
during normal business hours upon reasonable notice. Licensee agrees to preserve
and keep available to Licensor all such records for a period of three (3) years
after the termination of this Agreement, including any renewals thereof. If any
underpayment is identified as a result of this examination, Licensee shall pay
to Licensor within ten (10) days of demand the amount of the underpayment,
together with interest as provided under Section 4.7, which shall accrue from
the original due date. In addition, if the amount of the underpayment discovered
as a result of the examination equals or exceeds five percent (5%) of the
royalties reported and paid over the period covered by the examination,
Licensee's payment shall include the Licensor's reasonable cost of such
examination. Such costs shall include, in the case of Licensor's internal
auditors, travel expenses and the full labor costs attributable to the man-hours
related to the examination.
5.2 Licensee agrees to provide to the Licensor, at the address specified
in Paragraph M of the Recitals Section, within thirty (30) days after the close
of each calendar quarter: (1) a true and full report of advertising expenditures
during said quarter pursuant to this Agreement and (2) a true and full report in
triplicate of royalties accrued during said quarter under this Agreement.
Licensee agrees to make payment in the amount of said reported royalties with
submission of such royalty report. Such royalty reports shall show the Property
licensed, the specific Channel of Distribution, the stock number and
descriptions, and, for each country in which sold, the total Gross Sales as
calculated, showing the quantity sold and returned, the unit price of the
Products sold and all permitted deductions as set forth in Section 4.1. Each
such report shall be certified to be accurate by the Licensee. Such royalty
reports shall also include a list of sales to subsidiaries and affiliates and
all transactions not at arm's length. For this purpose, Licensee shall use the
royalty report form or forms attached hereto, additional copies of which may be
obtained by Licensee from Licensor. All quarterly reports shall be furnished to
Licensor whether or not any of the Products has been sold or advertised during
the preceding calendar quarter.
5.3 Receipt or acceptance by Licensor of any of the statements furnished
pursuant to this Agreement or of any sums paid hereunder shall not preclude
Licensor from questioning the correctness thereof at any time. In the event that
any inconsistencies or mistakes are discovered in such statements or payments,
Licensee shall immediately notify Licensor, correct such inconsistencies or
mistakes, and render the appropriate payments due, if any.
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5.4 Upon demand of Licensor, but not more than once in any twelve (12)
month period, Licensee shall furnish to Licensor at Licensee's expense a
detailed audit statement certified by an independent certified public accountant
restating or verifying the accuracy of the reports described in Section 5.2. up
to the date of Licensor's demand.
5.5 Licensee agrees to provide to the Licensor, at the address specified
in Paragraph M of the Recitals Section and for each country included in the
Territory: (1) within thirty (30) days prior to the beginning of each calendar
quarter, a forecast of the expected gross sales and royalties for the succeeding
quarter; and (2) within ninety (90) days prior to the beginning of each calendar
year, a forecast of the expected gross sales and royalties for each calendar
quarter of the succeeding year.
6. DILIGENCE AND GOOD WILL
6.1 Licensee agrees to exercise its best efforts in the performance of
this Agreement and, especially, in developing a market for the Products in
connection with the Property and supplying such market demand.
6.2 If Licensee does not commence in good faith to manufacture and
distribute all of the Products in commercially substantial quantities through
each of the Channels of Distribution in each country in the Territory by the
Marketing Date, or if at any time thereafter in any calendar quarter Licensee
fails to manufacture and distribute any of the Products through each of the
Channels of Distribution in each country in the Territory, Licensor, in addition
to all other remedies available to it, may terminate this Agreement in its
entirety, or may terminate Licensee's rights under this Agreement in the
particular Products that were not manufactured and/or distributed during such
quarter, or may terminate Licensee's rights under this Agreement for the
particular Channels of Distribution through which Products were not distributed
during such quarter, or may terminate Licensee's rights under this Agreement
with respect to the country in which the Products were not manufactured and/or
distributed during such quarter by giving written notice of such termination to
Licensee.
6.3 Licensee acknowledges the importance and great value of the good
will associated with Licensor and the Property. Licensee shall uphold Licensor's
good name and protect Licensor's Property rights and associated rights or
interests during the term of this Agreement and thereafter. Licensor shall have
the right to immediately terminate this Agreement in the event that Licensee
engages in any illegal, indecent, immoral, harmful or scandalous behavior or
activities that may directly or indirectly damage Licensor's reputation or good
will.
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7. INTELLECTUAL PROPERTY
7.1 Licensee hereby acknowledges the validity of the Property and of any
copyright or trademark pertaining thereto and Licensor's exclusive rights
therein. Licensee will not make any representation or do any act which may be
taken to indicate that it has any right, title or interest in or to the
ownership or use of any of the Property except as licensed under the terms of
this Agreement, and acknowledges that nothing contained in this Agreement shall
give Licensee any continuing right, title or interest in or to the Property.
Licensee agrees not to contest the validity of Licensor's rights or perform any
act or omission adverse to the Property or to said exclusive rights, and agrees
that any use of the Property by Licensee hereunder shall inure to the benefit of
Licensor.
7.2 Licensee agrees to take whatever action is appropriate or necessary
to protect Licensor's rights in the Property including, but not limited to:
cooperating in any new domestic or foreign applications for intellectual
property registration pursued by Licensor, at Licensor's expense (including
registration of any of Licensor's trademarks to be used on the Products);
registering as a licensee of the Licensor's trademark on the Products upon
request by Licensor, at Licensor's expense; and permanently affixing on the
Products and all materials used in the advertising, packaging, sale, marketing
and distribution thereof, or other materials utilizing the Property, the
following language, and any other notice requested by Licensor:
[Name of each Property appearing on the Products]
and associated trademarks are owned by and used under
license from Mattel, Inc. (C) 19__ [year of first publication
by Licensee] Mattel, Inc. All Rights Reserved.
7.3 During and after the term of this Agreement, Licensee agrees and
warrants that it will not reproduce or use, or cause or enable another to
reproduce or use, either within or outside the Territory, any trademarks or
other related rights derived from or confusingly similar to the Property.
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7.4 Licensee agrees to promptly notify Licensor of conflicting
activities by third parties of which Licensee becomes aware. On written notice
from Licensee of such activities, Licensor may, but is not required to, take
appropriate legal action. Licensee shall take no legal action, however, without
Licensor's prior written consent. Licensee agrees to cooperate fully in any
action taken by Licensor, at Licensor's expense. Licensor may, but is not
required to, control any legal action undertaken pursuant to this provision. If
Licensor takes legal action, any settlement proceeds, damage or other recovery
shall be for the sole benefit and account of the Licensor. If Licensee takes
legal action with written permission from Licensor, any settlement proceeds,
damage or other recovery remaining, after attorneys' fees and costs are
deducted, shall be for the sole benefit and account of the Licensee.
7.5 Licensee agrees that all artwork and designs, and all copyrights
pertaining thereto, involving the Property, or derived from the Property,
created or produced by the Licensee shall be and remain the sole property of
Licensor. Licensee further agrees that it will provide to Licensor a full
assignment in favor of the Licensor of all rights, free of any claim, interest
or right, from any third party who shall have created or produced under contract
with Licensee any artwork involving the Property or derived from the Property.
All costs and expenses for the creation or production of artwork under this
Section 7.5 shall be paid by Licensee, and Licensor shall not be liable to
Licensee or any third party for any costs or expenses incurred in the creation
or production of such artwork. Licensor shall be entitled to use, and license
others to use, all artwork created or produced pursuant to this Section 7.5.
7.6 Except with respect to the rights to the Property licensed
hereunder, the Licensee shall ensure that all Products as marketed, sold and
distributed do not infringe the rights of any third party and are distributed in
compliance with all relevant copyright, trademark, design right, registered
design and other relevant laws in the Territory.
8. CONFIDENTIALITY
During and subsequent to the term of this Agreement, Licensee, its
agents and employees shall not make any unauthorized use or disclosure of any
knowledge or information of a confidential or proprietary nature concerning the
Products, or other private or confidential matters of Licensor, and shall
refrain from any acts or omissions that would reduce the value of such
confidential matters to Licensor or that would deprive or tend to deprive
Licensor of trade secret or other intellectual property protection with respect
to such confidential matters.
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9. TRANSFERABILITY
9.1 Licensor shall have the right to assign its rights and obligations
under this Agreement.
9.2 The rights and obligations of the Licensee under this Agreement are
of a personal nature, and Licensee may not assign, sublicense or otherwise
transfer any or all of its rights and/or obligations hereunder without prior
written consent of Licensor.
10. WARRANTY AND INDEMNIFICATION
10.1 Licensee warrants and represents that:
(a) Licensee is free to enter into this Agreement and has
the capability to fully perform its obligations under this Agreement;
(b) all ideas, creations, materials and intellectual property
furnished by Licensee in connection with the Products will be Licensee's own and
original creation (except for matters in the public domain or material which
Licensee is fully licensed to use); and
(c) the Products and the manufacture, advertisement, distribution
and sale thereof pursuant to this Agreement will not infringe or violate any
rights of any third party of any nature whatsoever.
10.2 Licensee agrees to indemnify Licensor, its officers, agents and employees
and to undertake to defend and hold them and each of them harmless from and
against any and all claims, demands, causes of action, damages, liabilities,
costs and expenses, including reasonable attorneys' fees, arising from the
activities of Licensee under this Agreement, or out of any breach by Licensee of
any warranty or agreement made by Licensee herein, including but not limited to
any product liability claims or actions or to the unauthorized use of any
trademark, copyright, design, patent, process, method or device by Licensee.
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10.3 Licensor warrants and represents that:
(a) Licensor is free to enter into this Agreement and has
the capability to fully perform its obligations under this Agreement; and
(b) Licensor has acquired such rights to the Property stated
in the Recitals Section of this Agreement.
10.4 Licensor agrees to indemnify Licensee, its officers, agents and
employees and to undertake to defend and hold them and each of them harmless
from and against any and all claims, demands, causes of action, damages,
liabilities, costs and expenses, including reasonable attorneys' fees, arising
from use of the Property in connection with Products under this Agreement in the
manner approved by Licensor, or arising out of any breach by Licensor of any
warranty or agreement made by Licensor herein.
11. INSURANCE
11.1 Licensee will obtain and maintain a comprehensive liability
insurance policy, including coverage for product and contractual liability,
providing, but not limited to, protection for Licensor, its officers, agents and
employees against any claims, damages, liabilities, costs and expenses
(including counsel fees) arising out of any alleged defects (whether latent or
patent) in the Products manufactured, distributed, sold or otherwise disposed of
by Licensee.
11.2 Such policy shall have a combined single coverage in the amount of
Two Million Dollars ($2,000,000.00), shall be with a qualified insurance company
currently rated A - V or better with Best's Key Rating Guide for Property
Casualty Insurers, and shall be kept in force for twelve (12) months after final
disposal of inventory.
11.3 As proof of such insurance, a fully paid certificate of insurance
naming Licensor as an insured party and indicating thereon that the insurance
may not be changed, cancelled, or allowed to lapse through non-renewal or
failure to pay the premium therefor except upon not less than thirty (30) days
written notice to Licensor will be submitted to Licensor by the Licensee within
thirty (30) days after the Effective Date of this Agreement. The Licensee's
failure to comply with the provisions regarding insurance set forth in this
Section will constitute a default giving the Licensor the right to terminate
this Agreement in accordance with the terms of Section 13.1.
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11.4 If Licensee fails to furnish proof of such insurance as required
above, or if at any time during the life of this Agreement Licensor is notified
of the change, cancellation or lapse of such insurance, which change,
cancellation or lapse Licensee does not rectify within ten (10) days of the
insurance status change, Licensor, in addition to all other remedies available
to it hereunder, may at its option obtain such insurance coverage and bill the
Licensee for the premium cost thereof. Licensee agrees to remit such premium to
Licensor within ten (10) days of receipt of notice from Licensor of the amount
of such premium cost. Such premium cost is in addition to any other payments due
under this Agreement.
12. BANKRUPTCY
In the event that Licensee makes any assignment for the benefit of
creditors, or files a petition in bankruptcy (whether voluntary or involuntary),
or becomes insolvent, or is similarly prevented from or unable to fulfill its
duties hereunder, Licensor may terminate this Agreement immediately upon giving
notice to Licensee. In the event of actual bankruptcy or receivership of
Licensee, this Agreement shall automatically terminate.
13. TERMINATION
13.1 Licensor may terminate this Agreement pursuant to any provision of
this Agreement providing for termination or in the event of any default of any
provision of this Agreement by Licensee, such as failure to make a report or a
payment required hereunder, which default Licensee does not rectify within ten
(10) days after notice thereof from Licensor.
13.2 Licensor may terminate this Agreement if there is a transfer of
twenty-five percent (25%) or more of the common capital stock of the Licensee,
in a single transaction or a series of transactions; or if there is a transfer
of the business and/or substantially all of the assets of the Licensee, subject
to the following provisions. If the Licensee has reason to believe that such a
stock transfer has occurred, or will occur in the reasonably foreseeable future,
or if the Licensee proposes to make a transfer of its business and/or
substantially all of its assets, it shall give written notice thereof to the
Licensor. Within a reasonable time after receiving such notice, the Licensor
shall give
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the Licensee written notice stating whether it approves or disapproves any such
transfer or proposed transfer, and, in the case of its disapproval thereof,
whether it exercises its right of termination hereunder if the transfer has
already occurred or will exercise its right of termination if the proposed
transfer is subsequently made. The foregoing shall not limit in any way the
right of the Licensor under Section 9.2 to disapprove assignments and other
transfers of this Agreement and the rights hereunder.
14. EFFECT OF TERMINATION
14.1 In the event of termination of this Agreement under any of its
provisions, Licensee is not relieved of its liabilities accruing up to the time
of termination. Any and all patents, trademarks, copyrights or related rights
accruing to Licensee by virtue of its activities under this Agreement shall vest
automatically at the time of accrual solely and exclusively in Licensor, and
Licensor may execute documents on behalf of Licensee to secure or effectuate
such rights; Licensee shall assist Licensor in securing and effectuating such
rights after termination as well as before termination.
14.2 Licensee agrees that upon termination of this Agreement based on
default of Licensee and provided Licensor has given the termination notice in
accordance with Section 13 hereof, Licensee shall forthwith cease and desist in
the manufacture and sale of Products.
14.3 Licensor agrees that at the termination of this Agreement for any
reason other than the default of the Licensee (including, but not limited to,
termination by reason of a variance by Licensee from the quality and style
approved by Licensor pursuant to Section 2), the Licensee shall have the
non-exclusive right for a period of not more than ninety (90) days thereafter to
dispose of all of the unsold Products that has been completed by it prior to
such termination. It is further provided under this Section 14.3 that Licensee
shall, prior to disposing of said unsold Products, give Licensor a true itemized
statement of all such unsold Products in inventory and sufficient detailed
manufacturing information to substantiate the applicability of this Section 14.3
to said Products. Licensor shall have the option to conduct a physical inventory
in order to verify such inventory statement.
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14.4 Nothing in Section 14.3 shall be construed as authorizing the
Licensee to (a) sell Products not approved by Licensor, or to sell Products in
job lots at reduced prices or otherwise than set forth or contemplated in this
Agreement or (b) manufacture, sell or dispose of any Products covered by this
Agreement after its expiration or its termination based on the failure of
Licensee to affix notice of copyright, trademark or service mark registration or
any other notice to the Products cartons, containers, packing or wrapping
material or advertising, promotional or display material.
14.5 Licensee agrees that upon termination of this Agreement under any
of its provisions, Licensee shall deliver to Licensor without cost all plates,
molds, preprints, matrices and other devices using the Property.
14.6 Licensee agrees that in the event that it engaged in any
unauthorized use of the Property in violation of any of the provisions of this
Agreement, Licensor may recover all profits derived by Licensee from such
unauthorized use, in addition to any other remedies available to Licensor.
15. REMEDIES
15.1 Licensee acknowledges that its failure (except as otherwise
provided herein) to cease the manufacture, sale or distribution of the Products
covered by this Agreement at the termination or expiration of this Agreement
will result in immediate and irreparable harm to Licensor and to the rights of
any subsequent licensee. Licensee agrees that in the event of such failure to
cease manufacture, sale, or distribution, Licensor shall be entitled to
equitable relief by way of temporary and permanent injunctions and such other
further relief as any court with jurisdiction may deem just and proper.
15.2 In the event Licensor is required to take legal action against
Licensee to recover royalties or other amounts payable to the Licensor or to
enforce the provisions of this Agreement, Licensee agrees to pay Licensor's
attorneys' fees, expenses and court costs.
15.3 Licensee agrees not to hold Licensor liable for any indirect,
punitive, special, incidental or consequential damages, including lost profits,
caused by any breach of this Agreement by Licensor.
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16. GENERAL PROVISIONS
16.1 ENTIRE AGREEMENT. This writing represents and expresses the entire
agreement of the parties hereto. It replaces and supersedes all prior contracts,
representations and understandings (written or oral) between the parties
concerning the within subject matter.
16.2 WAIVER. Any waiver, modification, or cancellation of any term or
condition of this Agreement must be in writing. Licensee further understands and
agrees that any oral representations, which have not been reduced to a formal
writing signed by both parties, cannot be construed as a promise or obligation
by Licensor to renew or extend this Agreement. No waiver by either party,
whether express or implied, of any provisions of this Agreement or of any breach
or default of either party shall constitute a continuing waiver of any other
provision of this Agreement, and no such waiver by either party shall prevent
such party from enforcing any and all provisions of this Agreement or from
acting upon the same on any subsequent breach or default of the other party.
16.3 HEADINGS. Captions and headings to sections are included solely for
convenience and are not intended to affect interpretation of any provision of
this Agreement.
16.4 FORCE MAJEURE. In the event an act of the government, war
conditions, fire, flood, or other act of God prevents either party from
performing in accordance with the provisions of this Agreement, such
nonperformance shall be excused and shall not be considered a breach or default
for so long as the said conditions prevail. However, at any time after a six (6)
month period of such nonperformance, either party may terminate this Agreement
on thirty (30) days written notice thereof to the other party.
16.5 FORM OF NOTICES AND PAYMENTS. All notices and statements shall be
in writing and, together with all payments provided for herein, shall be given
at the respective addresses of the parties set forth above, or at such changed
address as the recipient shall have provided in writing. All notices to Licensee
required hereunder shall be deemed given when mailed by certified mail, return
receipt requested, by courier or overnight delivery service, or by telex or
telecopier and addressed to Licensee at the address specified in Paragraph A of
the Recitals Section.
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16.6 GOVERNING LAW. This Agreement and the relationship of the parties
will be governed by, and interpreted in accordance with, the laws of the State
of California, U.S.A., excluding its conflict of laws rules.
16.7 JURISDICTION. With respect to any disputes arising out of this
Agreement that pertain to sales within the United States of America, the parties
hereby submit exclusively to the personal jurisdiction of the federal and state
courts located in Los Angeles County, California, U.S.A. The parties consent and
agree that each such court is a convenient forum for and has proper venue over
the resolution of all legal actions, proceedings and disputes arising out of or
relating to this Agreement. Licensee does by this Agreement appoint the
Secretary of the State of California as its agent for service of process, or in
the alternative consents to accept service of process during and after the term
of this Agreement by regular mail or any other method in accordance with
California law. Each party agrees that if so served it will raise no objection
to the personal jurisdiction of the court on any matter connected with this
Agreement that is within the court's subject matter jurisdiction. Each party
hereby waives all rights it has or which may hereafter arise to contest such
exclusive jurisdiction or venue.
16.8 SEVERABILITY. If any provision of this Agreement is found to be
illegal or unenforceable, then such provision will be deemed severable from the
remainder of this Agreement, and the remaining provisions will continue in full
force and effect. If any such unenforceability causes or may cause an injustice
to a party, then that party may terminate this Agreement upon notice to the
other party.
IN WITNESS WHEREOF, the parties hereto intending to be bound hereby execute this
Agreement by their duly authorized representatives on or about the date
indicated below in El Segundo, California.
MATTEL, INC. BROOKFIELD ATHLETIC COMPANY
By: /s/ Chris Willson-White By: /s/ James A. Buchanan
Name: Chris Willson-White Name: James A. Buchanan
Title: V.P., International Mktg. Title:President, CEO
Date: 9/2/95 Date: 6/23/95
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EXHIBIT A
MANUFACTURER'S AGREEMENT
FOR TRADEMARK LICENSE
LICENSOR: MATTEL, INC.
LICENSEE:
TERRITORY OF
MANUFACTURE:
PRODUCTS:
PROPERTY:
TO: MATTEL, INC. 333 Continental Blvd.,
El Segundo, California 90245, U.S.A.
Attn: Director of Licensing
The undersigned understands that MATTEL, INC., ("MATTEL"), has
licensed the above-named Licensee to manufacture or have manufactured for it the
above-named products (the "Products") utilizing certain designs and names owned
by MATTEL identified as ("the Property"). In order to induce MATTEL to consent
to the manufacture of the Products by the undersigned, the undersigned agrees
that it will not manufacture the Products using the Property for anyone but the
Licensee; that it will not manufacture the Products in any territory other than
the above-named Territory; that it will not (unless MATTEL otherwise consents in
writing) manufacture any other merchandise utilizing any of the Property; that
it will permit such representative as MATTEL may from time to time (but not more
than twice annually for each of the Products) designate to inspect the
activities of the undersigned with relation to its manufacture of the Products;
and that whenever the Licensee ceases to require the undersigned to manufacture
the Products, the undersigned will deliver to MATTEL or the Licensee any molds,
plates, engravings or other devices used to reproduce the said designs and
Property or will give satisfactory evidence of the destruction thereof. MATTEL
shall be entitled to invoke any remedy permitted by law for violation of this
Agreement by the undersigned.
MANUFACTURER:______________________________
Address:_____________________________________________
By:_____________________
Name:___________________
Title:__________________
Date:___________________
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Exhibit B
LIST OF DISTRIBUTORS
--------------------
1. Argentina: To be determined.
2. Brazil: Brinquedos Estrela
Rua Cabo Norberto E. Weber 222
CEP 02147-900
PQ Novo Mundo
Sao Paulo, Brazil
Contact: Adriana Adler
Tel: 55-11-951-8759 / (8803)
Fax: 55-11-951-8032 / (1080)
3. Chile: Confecciones Infantiles (Osito)
Gran Avenida 4250
Santiago, Chile
Contact: Rodrigo Vines
Tel: 56-2-556-9210 / (6343)
Fax: 56-2-556-6343
4. Colombia: SMB
Via 40 N. 76-266
Baranquilla, Colombia
Contact: Mike Bigio
Tel: 57-58-582-842
Fax: 57-58-582-842 (same)
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5. Costa Rica: Castillo de la Fantasia
Calle 30 Altos Floristeria
Natura, San Jose
Costa Rica
Contact: Carlos Acuna
Tel: 506-221-1070
Fax: 506-221-3015
6. Mexico: Hecht Comercializadora
Malagon 56
Cerro de la Estrella
D.F. Mexico 09880
Contact: Horacio Chaparro
Tel: 525-608-1798
Fax: 525-608-2198
7. Panama: Importadora Maduro, S.A.
Apartado 1078 Zona 1
Panama, Rep de Panama
Contact: Guillermo Maduro
Tel: ###-##-#### / ###-##-####
Fax: ###-##-#### / ###-##-####
8. Venezuela: Industrias Rotoplast de Venezuela
Pelota a Abanico, Edif. Don Joaquin
Mezzanina
Caracas 1010, Venezuela
Contact: Miriam Vaisman
Tel: 58-2-564-6221
Fax: 58-1-564-6855
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<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
ADDENDUM
THIS ADDENDUM ("Addendum") dated May 15, 1995 to the License Agreement
dated April 1, 1995 ("Agreement") is entered into by and between MATTEL, INC.
("Licensor") and BROOKFIELD ATHLETIC COMPANY ("Licensee").
NOW, THEREFORE, the Licensor and Licensee agree as follows:
I. Recitals, Section D. Territory, is amended to add: Singapore
Toys R Us stores only.
II. Recitals, Section H., is amended to add: The term for the
Territories Singapore and Hong Kong is: Beginning date: *****
and Ending date: *****.
III. Recitals Section J. Advanced Guaranteed Royalty, is deleted and
replaced with:
J. Advanced Guaranteed Royalty is defined as: *****.
IV. Recitals, Section K. Minimum Guaranteed Royalty, is deleted and
replaced with:
X. Minimum Guaranteed Royalty is defined as: *****.
V. Except as expressly provided herein, all other terms and conditions
of the Agreement remain unchanged and in full force and effect.
IN WITNESS WHEREOF, this Addendum is entered into as of the above written
date.
MATTEL, INC. BROOKFIELD ATHLETIC COMPANY
By: /s/ Chris Willson-White By: /s/ James A. Buchanan
Name: Chris Willson-White Name: James A. Buchanan
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
LICENSE AGREEMENT SUMMARY
LICENSED PROPERTY: NERF
This Summary is hereby incorporated into and made a part of the
attached License Agreement. The specifics detailed below, where numbered as
paragraphs or subparagraphs, relate to similarly numbered paragraphs or
subparagraphs in the attached License Agreement.
The License Agreement is between:
Licensor and Licensee
TONKA CORPORATION,
a subsidiary of Hasbro, Inc. BROOKFIELD ATHLETIC COMPANY
1027 Newport Avenue 13 Centennial Drive
Pawtucket, Rhode Island 02862 Peabody, Massachusetts 01961
l. GRANT OF LICENSE.
(a) Licensed Articles. In-line roller skates; protective equipment
including elbow, knee, and wrist pads; and street hockey equipment including
shin pads, elbow pads, gloves, helmets, goalie equipment, nets/goals, street
hockey balls, pucks and sticks.
(b) Territory. United States, its territories and possessions,
including Puerto Rico.
(c) Term.
Initial Term: April 1, 1995 through *****
2. TERMS OF PAYMENT
(a) Royalty Rate. ***** (***** of sales made F.O.B. shipping point
outside the Territory).
(b) Terms of Payment: Total
Royalty Advance Balance
Guarantee Payment Due Dates
--------- ------- ---------
Initial Term: ***** ***** *****
*****
*****
*****
*****
The advance royalty payment is due and payable upon Licensee's signing
hereof and the balance of royalty guarantee is due and payable as set forth
above.
1
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"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
(c) Periodic Statements: Within thirty (30) days after the initial
shipment of the Licensed Articles, and promptly on the twenty-fifth (25th) day
of the month following each calendar quarter thereafter, Licensee shall furnish
to Licensor complete and accurate statements. The attached form must be used for
reporting royalties.
(d) Royalty Payments: Royalties in excess of the aforementioned advance
payment shall be due on the twenty-fifth (25th) day of the month following the
calendar quarter in which earned, and payment shall accompany statements.
Licensee shall not be permitted to reduce royalty payments for any reason
without prior written approval from Licensor. The Licensee shall pay the
Licensor interest on a late royalty payment at an interest rate of 1-3/4% per
month, or the highest rate permitted by law, from the date the royalty should
have been received by the Licensor.
8. (a) Labeling: As a condition to the grant of rights hereunder, Licensee
agrees that it will cause to appear on or within each Licensed Article sold by
it and on or within all advertising, promotional or display material bearing the
Name, the notice: "(C) (year) Tonka Corporation, a subsidiary of Hasbro Inc. All
rights reserved." and any other notice desired by Licensor, and where such
article or advertising, promotional or display material bears a trademark or
service mark, appropriate statutory notice of registration thereof.
(b) Approvals: Each and every tag, label, imprint, storyboard, copy and
layout or other device containing any such notice and all advertising,
promotional or display material bearing the Name, shall be submitted by Licensee
to Licensor for its written approval prior to use by Licensee. It is imperative
that Licensee use Licensor's approval form with each submission for Licensor's
approval. Otherwise, Licensor is not under any obligation to review Licensee's
submission.
10. (b) Distribution Channels: Mass Market
12. (a) Initial on Sale Date: *****
14. Sell-off Period: Sixty (60) days.
The aforesaid terms and conditions and those set forth in the attached
License Agreement shall only be binding upon Licensor provided that Licensee
signs and returns the License Agreement Summary and License Agreement and
Licensor countersigns same.
AGREED TO AND ACCEPTED:
TONKA CORPORATION,
a subsidiary of Hasbro, Inc. BROOKFIELD ATHLETIC COMPANY
By: /s/ Tom McGrath By: /s/ James A. Buchanan
Title: Sr. V.P. - Boys Toys Title: President, CEO
Date: 9/5/95 Date: 7/27/95
2
<PAGE>
LICENSE AGREEMENT
This AGREEMENT made this 1st day of April, l995, by and between TONKA
CORPORATION, a subsidiary of Hasbro, Inc., with its principal place of business
at l027 Newport Avenue, Pawtucket, Rhode Island 02862 (hereinafter called
"Licensor") and BROOKFIELD ATHLETIC COMPANY, with its principal place of
business at 13 Centennial Drive, Peabody, Massachusetts 01961 (hereinafter
called "Licensee").
WITNESSETH:
WHEREAS, Licensor has rights to the name, characters, symbols, designs,
likenesses and visual representations of NERF, and the copyrights and trademarks
thereon, as set forth on Schedule "A" hereunto annexed (which names, characters,
symbols, designs, likenesses and visual representations and each of the
individual components thereof shall hereinafter jointly be called the "Name");
and
WHEREAS, Licensee desires to utilize the Name upon and in connection with
the manufacture, sale and distribution of articles hereinafter described.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and for other good and valuable consideration, the parties do hereby agree as
follows:
l. GRANT OF LICENSE
(a) Licensed Articles. Upon the terms and conditions hereinafter set
forth, Licensor hereby grants to Licensee and Licensee hereby accepts the right,
license and privilege of utilizing the Name solely upon and in connection with
the manufacture, sale and distribution of the articles listed in the License
Agreement Summary, Paragraph l(a), (hereinafter referred to as the "Licensed
Articles"), and no other articles of any kind. Licensor further grants to
Licensee, upon the terms and conditions hereinafter set forth, the right to use
the said trademarks only on or in connection with the Licensed Articles, but
only such trademarks and uses thereof as may be approved when the Licensed
Articles are approved and only on or in connection with the Licensed Articles.
(b) (i) Territory. The license hereby granted extends only to the
area listed in the License Agreement Summary, Paragraph l(b). Licensee agrees
that it will not make or authorize any use, direct or indirect, of the Name in
any other area, and that it will not knowingly sell Licensed Articles to persons
who intend or are likely to resell them in any other area. Notwithstanding this
territorial limitation however, Licensee shall have the right to manufacture the
Licensed Articles (or have the Licensed Articles manufactured for it as provided
in Paragraph 20 hereof) outside the licensed territory, provided, however, that
the Licensed Articles are sold and distributed only within such licensed
territory.
(ii) Licensor's Right to Eliminate Country from Territory. If
at any time during the period of this Agreement the Licensee or its subsidiaries
or affiliates are not making regular sales of more than a nominal nature of any
of the Licensed Articles in a country of the Territory, then the Licensor shall
have the right, upon giving 30 days prior written notice to the Licensee to
terminate the Licensee's rights hereunder for all Licensed Articles for said
country.
(c) Term. The Initial Term of the license hereby granted shall be
effective as shown in the License Agreement Summary, Paragraph l(c), unless
sooner terminated in accordance with the provisions hereof.
3
<PAGE>
"Confidential material omitted and filed separately with the Securities and
Exchange Commission. Asterisk denotes such omission."
2. TERMS OF PAYMENT
(a) Rate. Licensee agrees to pay to Licensor as royalty, a sum equal
to that shown in the License Agreement Summary, Paragraph 2(a), on all net sales
by Licensee or any of its affiliated, associated or subsidiary companies of the
Licensed Articles. The term "net sales" shall mean gross sales less quantity
discounts, sales taxes and returns for damaged goods only, but no deductions
shall be made for cash or other discounts or uncollectible accounts. All costs
and expenses incurred in the manufacture, sale, distribution or exploitation of
the Licensed Articles, or otherwise incurred by Licensee, shall be paid by
Licensee, and no such costs or expenses shall be deducted from any royalty
payable to Licensor. With respect, however, to all sales made hereunder direct
to customers within the Territory where the terms of the sales are f.o.b.
shipping point a place outside the United States, the said royalty shall instead
be ***** of the net selling price, unless a different rate is specifically
indicated for such f.o.b. sales on the License Agreement summary attached
hereto.
(b) Terms of Payment: Initial Term. Licensee agrees to pay as a
minimum guarantee against royalties to be paid Licensor during the Initial Term
hereof, and as an advance payment applicable to said minimum guarantee, the sums
as shown in the License Agreement Summary, Paragraph 2(b). The advance and the
balance of the minimum guarantee against royalties shall be payable as shown in
the License Agreement Summary, Paragraph 2(b). No part of such minimum royalty
shall in any event be repayable to Licensee.
(c) Periodic Statements. Within thirty (30) days after the initial
shipment of the Licensed Articles, and promptly on the twenty-fifth (25th) day
of the month following each calendar quarter thereafter, Licensee shall furnish
to Licensor complete and accurate statements certified to be accurate by
Licensee, or if a corporation, by an officer of Licensee, showing the number,
country in which manufactured, country in which sold or to which shipped,
description, gross sales price, itemized deductions from gross sales price and
net sales price of the Licensed Articles distributed and/or sold by Licensee
during the preceding calendar quarter, together with any returns made during the
preceding quarter. Such statements shall be furnished to Licensor whether or not
any of the Licensed Articles have been sold during the quarter to which such
statements refer. The form attached to this agreement must be used for reporting
royalties. Upon demand of Licensor, Licensee shall, at its own expense, furnish
to Licensor a detailed statement by an independent certified public accountant
or an officer of Licensee, showing the number, country in which manufactured,
country in which sold or to which shipped, description, gross sales price,
itemized deductions from gross sales price and net sales price of the Licensed
Articles distributed and/or sold by Licensee to the date of Licensor's demand.
(d) Royalty Payments. Royalties in excess of the aforementioned
advance payment shall be due on the 25th day of the month following the calendar
quarter in which earned, and payment shall accompany the statements furnished as
required above. The receipt or acceptance by Licensor of any of the statements
furnished pursuant to this agreement, or of any royalties paid hereunder (or the
cashing of any royalty checks paid hereunder) shall not preclude Licensor from
questioning the correctness thereof at any time within two (2) years after the
expiration and/or termination of this License Agreement, and in the event that
any inconsistencies or mistakes are discovered in such statements or payments,
they shall immediately be rectified and the appropriate payment made by
Licensee. Licensee shall not be permitted to reduce royalty payments for any
reason without prior written approval from Licensor. The Licensee shall pay the
Licensor interest on a late royalty payment at an interest rate of 1-3/4% per
month, or the highest rate permitted by law, from the date the royalty payment
should have been received by the Licensor.
3. NONEXCLUSIVITY
Nothing in this agreement shall be construed to prevent Licensor
from granting any other licenses for the use of the Name or from utilizing the
Name in any manner whatsoever.
4
<PAGE>
4. GOOD WILL
Licensee recognizes the great value of the good will associated with
the Name, and acknowledges that the Name and all rights therein, including
copyright and trademark rights and good will pertaining thereto, belong
exclusively to Licensor, and that the Name has a secondary meaning in the mind
of the public. Licensee further recognizes and acknowledges that a breach by
Licensee of any of its covenants, agreements or undertakings hereunder will
cause Licensor irreparable damage, which cannot be readily remedied in damages
in an action at law, and may, in addition thereto, constitute an infringement of
Licensor's copyrights in or trademarks of the Name, thereby entitling Licensor
to equitable remedies, costs and reasonable attorney's fees.
5. LICENSOR'S TITLE AND PROTECTION OF LICENSOR'S RIGHTS
(a) Licensee agrees to assist Licensor to the extent necessary or
desirable in the procurement of any protection or to protect any of Licensor's
rights to the Name, and Licensor, if it so desires, may commence or prosecute
any claims or suits in its own name or in the name of Licensee, or join Licensee
as a party thereto. Licensee shall notify Licensor in writing of any
infringements or imitations by others of the Name on articles similar to those
covered by this agreement which may come to Licensee's attention, and Licensor
shall have the sole right to determine whether or not any action shall be taken
on account of any such infringements or imitations. Licensee shall not institute
any suit or take any action on account of any such infringements or imitations,
or otherwise institute any suit or take any action relating to the Name, without
first obtaining the written consent of the Licensor to do so.
(b) Except with Licensor's written consent, neither Licensee, its
parent or any of its subsidiaries or affiliates, will register or attempt to
register copyrights in any country or to register as a trademark, service mark,
design patent or industrial design, any of the Licensed Articles, trademarks or
derivations or adaptations thereof, or any word, symbol or design which is so
similar thereto as to suggest association with or sponsorship by Licensor or any
of its subsidiaries. In the event of breach of the foregoing, Licensee agrees,
at its expense and at Licensor's request, immediately to terminate the
unauthorized registration activity and promptly to execute and deliver, or cause
to be delivered to Licensor, such assignments and other documents as Licensor
may require to transfer to Licensor all rights to the registrations, patents or
applications involved.
6. INDEMNIFICATION BY LICENSEE AND PRODUCT LIABILITY INSURANCE
Licensee hereby indemnifies Licensor and undertakes to defend
Licensee and/or Licensor against and hold Licensor harmless from any claims,
suits, loss and damage arising out of any allegedly unauthorized use of the
Licensed Articles, the Name or any patent, process, idea, method or device by
Licensee in connection with the Licensed Articles or any other alleged action by
Licensee, and also from any claims, suits, loss and damage arising out of actual
or alleged defects in the Licensed Articles, whether defects in design,
manufacture, or otherwise. Licensee agrees that it will obtain, at its own
expense, product liability insurance from a recognized insurance company,
providing adequate product liability insurance protection (at least in the
amount of $2,000,000 combined single limit of Bodily Injury Liability and
Property Damage Liability for each occurrence and annual aggregate), naming the
Licensee as named insured and Licensor as additional named insured against any
claims, suits, loss or damage arising out of any such actual or alleged defects
in the Licensed Articles. As proof of such insurance, a certificate of insurance
naming Licensor as an additional named insured will be submitted to Licensor by
Licensee for Licensor's prior approval before any Licensed Article is
distributed or sold, and at the latest, within thirty (30) days after the date
first written above. Any proposed change in such certificate of insurance shall
be submitted to Licensor for its approval. Licensor shall be entitled to a copy
of the then prevailing certificate of insurance, which shall be furnished
Licensor by Licensee. As used in the first two sentences of this Paragraph 6,
"Licensor" shall also include the officers, directors, agents and employees of
the Licensor, or any of its subsidiaries or affiliates. The certificate of
insurance shall include a provision to notify the Licensor in writing, prior to
the effective date, of any cancellation of such insurance before the expiration
date thereof.
5
<PAGE>
7. QUALITY OF MERCHANDISE
(a) Licensee agrees that the Licensed Articles shall be of
satisfactory quality sufficient to meet consumer expectations. The Licensed
Articles will be of such style and appearance as to be appropriate for and
suited to their exploitation to the best advantage and to the protection and
enhancement of the Name and the good will pertaining thereto. The Licensee
warrants that the Licensed Articles will be designed, produced, sold and
distributed in accordance with all applicable United States laws, rules and
regulations, including, without limiting the generality of the foregoing, the
Federal Food, Drug and Cosmetic Act, the Federal Hazardous Substance Act (FHSA),
the Flammable Fabrics Act, the Consumers Products Safety Act, with all other
state and local laws and with the ASTM Standard Consumer Safety Specifications
on Toy Safety (Toy Manufacturers of America Voluntary Toy Safety Standard)
(collectively, the "Acts and Standards").
In order to insure that the Licensed Articles meet the above
standards, Licensee shall, prior to the date of first distribution of the
Licensed Articles, submit to the Licensor a "test plan" which lists all of the
applicable Acts and Standards and which contains a certification by the Licensee
that no other Acts and Standards apply to the Licensed Articles. The test plan
shall describe in detail the procedures used to test the Licensed Articles, and
Licensee shall submit certificates in writing that the Licensed Articles conform
to the applicable Acts and Standards. Upon request by the Licensor, Licensee
shall provide Licensor with specific test data or laboratory reports.
Without limiting the generality of the foregoing, all Licensed
Articles must conform to the following standards: General: Materials are not to
be toxic or corrosive, or be an irritant or strong sensitizer as defined in
Paragraph 1500.3 of the FHSA, when tested in accordance with Paragraphs 1500.40,
1500.41 and 1500.42.
Solid parts of materials, including plastic parts, are not to be
flammable as defined in Paragraph 1500.3 of the FHSA, when tested in accordance
with Paragraph 1500.44. Fabrics must pass the requirements of the Flammable
Fabrics Act 16 C.F.LR. 1610.
Lead content of surface coatings must be in accordance with
Paragraph 1500.17 of the FHSA. Heavy materials in surface coatings on toys must
be in accordance with the requirements of the ASTM Standard Consumer Safety
Specification on Toy Safety.
Licensor shall approve the test plan in writing, prior to the date
of first distribution. Tests on Licensed Articles must be performed by a
national testing laboratory or an independent laboratory that is nationally
approved unless another laboratory is otherwise approved by the Licensor. Such
testing laboratory or independent laboratory will provide written test reports
indicating that the Licensed Articles conform to the applicable Acts and
Standards.
To this end, Licensee shall, before selling and distributing any of
the Licensed Articles, furnish to Licensor free of cost for its written
approval, a reasonable number of samples of each Licensed Article, its cartons,
containers and packing and wrapping material. The quality and style of such
Licensed Articles as well as of any carton, container or packing or wrapping
material, shall be subject to the approval of Licensor. After samples have been
approved pursuant to this paragraph, Licensee shall not depart therefrom in any
material respect without Licensor's prior written consent, and Licensor shall
not withdraw its approval of the approved samples except on sixty (60) days'
prior written notice to Licensee, unless the same shall be defective or harmful,
in which event, no such prior notice shall be required. Licensee shall, without
charge, furnish Licensor with thirty-six (36) samples of each article
manufactured hereunder upon completion of the first production run thereof, and
Licensee shall not distribute same until it receives Licensor's written
approval. Any item submitted to Licensor shall not be deemed approved unless and
until the same shall be approved by Licensor in writing. From time to
6
<PAGE>
time after Licensee has commenced selling the Licensed Articles, and upon
Licensor's written request, Licensee shall furnish without cost to Licensor, not
more than ten (l0) additional random samples of each Licensed Article being
manufactured or sold by Licensee hereunder, together with any cartons,
containers and packing and wrapping material used in connection therewith.
Should Licensor require additional samples for any reason, Licensor may purchase
such at Licensee's cost. Sale of any Licensed Article by Licensee, the quality
of which has not been specifically approved by Licensor as hereinabove provided,
shall be deemed to constitute a material breach of this agreement.
(b) Manufacturing Ethics. Licensee acknowledges that Licensor has a
significant interest in ensuring that the Licensed Articles are manufactured,
distributed, and sold in accordance with the highest ethical and business
standards, and therefore confirms that its strict compliance with the following
standards and requirements shall be deemed material to this License Agreement.
(i) Licensee, as well as any third party manufacturer of the
Licensed Articles (as permitted under Paragraph 20 hereinbelow), will comply
with the national laws of any country in which the Licensed Articles, or any
component thereof, are manufactured, any local laws, regulations, or standards
applicable to such manufacturing, and any industry standards which have been
established in said location (hereinafter, collectively, "Local Manufacturing
Laws and Standards"). The Local Manufacturing Laws and Standards should include,
but not be limited to, laws concerning import, export, certificate licenses,
quota allocations, country of origin, safety (including fire code rules),
employment standards, wages and benefits, and employee health and safety.
(ii) The employment or use by Licensee, or by any Paragraph 20
third party manufacturer, of children for the manufacture, assembly, or
conversion of the Licensed Articles, or any components thereof, either directly
or indirectly, will not be permitted hereunder, except in accordance with Local
Manufacturing Laws and Standards with respect to child labor. In countries where
there are no existing Local Manufacturing Laws and Standards for child labor a
manufacturer's suitability hereunder should be evaluated carefully, taking into
account regional and United States standards.
(iii) No manufacturer of the Licensed Articles will use forced
or prison labor. Manufacturers must maintain a strict policy of employment on a
voluntary basis.
(iv) All manufacturers of the Licensed Articles shall comply
with Local Manufacturing Laws and Standards concerning working hours and
compensation. In countries where there are no such existing Manufacturing Laws
and Standards, a manufacturer's suitability hereunder should be evaluated
carefully, taking into account regional and United States standards.
(v) All manufacturers of the Licensed Articles shall ensure
that all employees have a healthy, safe working environment. All manufacturing
locations should be well-ventilated, comfortable and well lit. Fire exits should
be well-identified and training in emergency evacuation must be provided by
manufacturers to all employees. Manufacturers should maintain a written safety
policy which should be available for review by Licensor. Provision of
appropriate safety equipment and instruction in its use is strongly encouraged.
Manufacturers will provide adequate medical assistance in the case of
emergencies, and, to the extent practicable, shall train employees in first aid,
health, and hygiene. Manufacturers shall not employ unreasonable mental or
physical disciplinary practices, and shall provide employee benefits, such as
living quarters and meals which are adequate to meet the standards of the job,
if appropriate.
(vi) Manufacturers of Licensed Articles must behave and
conduct business in an ethical and proper manner, and shall not use gifts or
favors to influence employees of either Licensor or Licensee or to influence
government officials or customs agents.
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<PAGE>
(vii) Licensee shall make best efforts to choose only
manufacturers for the production of the Licensed Articles that seek to minimize
waste, recycle raw materials, properly and safely dispose of toxic material, and
otherwise maintain sound environmental programs and practices. Furthermore,
Licensee shall make best efforts to achieve all such goals in its own
manufacturing operations, if any.
(viii) In order to assure Licensor of Licensee's compliance
with the foregoing, within six (6) months of the execution of this Agreement,
and within three (3) months of the execution of any third party Manufacturer's
Agreement pursuant to Paragraph 20 hereinbelow, Licensee agrees to supply
Licensor with a notarized certification as to such compliance substantially in
the form of Exhibit 2, attached hereto.
8. TRADEMARK AND COPYRIGHT PROTECTION
(a) Labeling. As a condition to the grant of the rights hereunder,
Licensee agrees that it will cause to appear on or within each Licensed Article
sold by it and on or within all advertising, promotional or display material
bearing the Name, the notice as set forth in the License Agreement Summary,
Paragraph 8(a). In the event that any Licensed Article is marketed in a carton,
container and/or packing or wrapping material bearing the Name, such notice
shall also appear upon the said carton, container and/or packing or wrapping
material.
(b) Approval. Each and every tag, label, storyboard, copy and layout
imprint or other device containing any such notice, and all advertising,
promotional or display material bearing the Name, shall be submitted by Licensee
to Licensor for its written approval prior to use by Licensee. Approval by
Licensor shall not constitute a waiver of Licensor's rights or Licensee's duties
under any provision of this agreement. It is imperative that Licensee use
Licensor's approval form with each submission for Licensor's approval.
Otherwise, Licensor is not under any obligation to review Licensee's submission.
(c) Ownership. All right, title and interest in and to all
copyrights and trademarks embodying the Name or derived from the creation,
manufacture or sale by Licensee of the Licensed Articles, and all copyright and
trademark registrations based thereon, shall be in Licensor's name and shall be
owned exclusively by Licensor, and Licensee covenants and agrees that it shall
have no interest in or claim to the Name or to any of the copyrights and
trademarks associated therewith, except to the limited extent of the license to
use same pursuant to this agreement, and subject to its terms and conditions.
Licensee further agrees to provide Licensor with the date of the first use of
the Licensed Articles in interstate and in intrastate commerce and to provide
Licensor with all necessary documents, assignments and signatures which Licensor
may request for the purpose of perfecting Licensor's title to all such copyright
and trademark registrations. All uses of the trademarks by Licensee hereunder
shall inure to Licensor's benefit. Licensee acknowledges that Licensor is the
exclusive owner of all of the trademarks and the trademark rights created by
such uses. Without limiting the foregoing, Licensee hereby assigns to Licensor
all the trademarks and trademark rights created by such uses, together with the
good will attaching to that part of the business in connection with which the
trademarks are used. Licensee agrees to execute and deliver to Licensor, such
documents as Licensor requires to register Licensee as a Registered User or
Permitted User of the trademarks and to follow Licensor's instructions for
proper use thereof in order that protection and/or registrations for the
trademarks may be obtained or maintained.
9. PROMOTIONAL MATERIAL
(a) In all cases where Licensee desires artwork involving Licensed
Articles to be executed, the cost of such artwork and the time for the
production thereof shall be borne by Licensee. All artwork and designs involving
the Name, or any reproduction thereof, shall be subject to prior written
approval of Licensor, and notwithstanding their invention or use by Licensee, be
and remain the property of Licensor, and Licensor shall be entitled to use the
same and to license the use of the same by others.
8
<PAGE>
(b) Licensor shall have the right, but shall not be under any
obligation, to use the Name and/or the name of Licensee so as to give the Name,
Licensee, Licensor and/or Licensor's programs full and favorable prominence and
publicity.
(c) Licensee agrees not to offer for sale or advertise or publicize
any of the Licensed Articles on radio, broadcast, print or television without
the prior written approval of Licensor. Licensee also agrees to submit to
Licensor for advance approval, for the purpose of licensed character design
evaluation, designed sketches of all advertising and other publicity material
which Licensee proposes to use in connection with the promotion and sale of the
Licensed Articles.
10. DISTRIBUTION
(a) Licensee agrees that during the term of this license it will
diligently and/or continuously manufacture, distribute and sell the Licensed
Articles in Substantial Quantities and that it will make and maintain proper and
adequate arrangements for the distribution of the Licensed Articles. For
purposes of this Agreement, "Substantial Quantities" shall mean sufficient
quantities to meet at least Licensee's average order level for its regular
distributors and/or customers for similar articles of the type licensed
hereunder.
(b) Licensee agrees that it will sell and distribute the Licensed
Articles outright at a competitive price and at not more than the price
generally and customarily charged the trade by Licensee, and not on an approval,
consignment or sale or return basis, and only to jobbers, wholesalers and
distributors for sale and distribution to mass market retail stores, and to mass
market retail stores for sale and distribution direct to the public and through
no other distribution channel. Licensee shall not, without the prior written
consent of Licensor, sell or distribute Licensed Articles to jobbers,
wholesalers, distributors, retail stores or merchants whose sales or
distribution are or will be made for publicity or promotional tie-in purposes,
combination sales, premiums, give-aways, or similar methods of merchandising, or
whose business methods are questionable. Licensee is expressly prohibited from
making door to door sales. In the event any sale is made at a special price to
any of Licensee's subsidiaries or to any other person, firm or corporation
related in any manner to Licensee or its officers, directors or major
stockholders, there shall be a royalty paid on such sales based upon the price
generally charged the trade by Licensee.
(c) Licensee agrees to sell to Licensor such quantities of the
Licensed Articles at as low a rate and on as good terms as Licensee sells
similar quantities of the Licensed Articles to the general trade.
11. RECORDS
Licensee agrees to keep accurate books of account and records
covering all transactions relating to the license hereby granted, and Licensor
and its duly authorized representatives shall have the right at all reasonable
hours of the day to an examination of said books of account and records and of
all other documents and materials in the possession or under the control of
Licensee with respect to the subject matter and terms of this agreement, and
shall have free and full access thereto for said purposes and for the purpose of
making extracts therefrom. All books of account and records shall be kept
available for at least two (2) years after the termination of this license. In
the event that Licensor's duly authorized representatives shall discover a
discrepancy of 5% or more pursuant to any such examination, Licensee shall pay
to Licensor the cost of such examination. The fee for said examination shall be
One Thousand United States Dollars ($1,000.00) per day, but in no event shall
Licensee be charged in excess of Four Thousand United States Dollars ($4,000.00)
for any individual examination. Royalties found to be due as a result of
Licensor's examination of the Licensee's books of accounts should be paid
immediately with interest at an interest rate of 1-3/4% per month, or the
highest rate permitted by law, from the date the royalty amount should have been
paid to the Licensor.
9
<PAGE>
12. BANKRUPTCY, VIOLATION, ETC.
(a) If Licensee shall not have commenced in good faith to
manufacture and distribute in Substantial Quantities all the Licensed Articles
by the initial on sale date, as defined in Paragraph 12(a) of the License
Agreement Summary, or if at any time thereafter in any calendar quarter Licensee
fails to sell any of the Licensed Articles (or any class or category of the
Licensed Articles), Licensor, in addition to all other remedies available to it
hereunder, may terminate this license with respect to any Licensed Articles or
class or category thereof which have not been manufactured and distributed
during such calendar quarter, by giving notice of termination to Licensee. Such
notice shall be effective when mailed by Licensor.
(b) If Licensee becomes insolvent, or if a petition in bankruptcy or
for reorganization is filed by or against it, or if any insolvency proceedings
are instituted by or against it under any state or federal law, or if it makes
an assignment for the benefit of its creditors, or if a receiver is appointed
for its property and business and remains undischarged for a period of fifteen
(l5) days, or if it liquidates its business in any manner whatsoever, or if any
distress, execution or attachment is levied on any of its assets and remains
undischarged for a period of fifteen (l5) days, or if Licensee abandons the
manufacture of the Licensed Articles, Licensor shall have the right, if it so
elects, to terminate this agreement and the license hereby granted, upon ten
(l0) days' notice in writing to Licensee. Upon the expiration of such ten (l0)
days, this agreement and the license hereby granted shall cease and terminate,
but Licensee shall nevertheless continue to be liable to Licensor by reason of
its said default.
(c) If Licensee shall violate any of its other obligations under the
terms of this agreement, and each of such obligations shall be deemed to be
material, Licensor shall have the right to terminate the license hereby granted
upon ten (l0) days' notice in writing, and such notice of termination shall
become effective unless Licensee shall completely remedy the violation within
the ten-day period and satisfy Licensor that such violation has been remedied.
(d) Termination of the license under the provisions of Paragraph l2
shall be without prejudice to any rights which Licensor may otherwise have
against Licensee, including the right to recover for damages caused it by
Licensee's breach. Upon the termination of this license, notwithstanding
anything to the contrary herein, all royalties on sales theretofore made and all
unpaid balances of all minimum guarantees shall become immediately due and
payable and no minimum royalties shall be repayable.
13. FINAL STATEMENT UPON TERMINATION OR EXPIRATION
Sixty (60) days before the expiration of this license and again,
within ten (l0) days after such expiration (or, in the event of termination of
this license, ten (l0) days after receipt of notice of termination or the
happening of the event which terminates this agreement where no notice is
required), a statement showing the number and description of articles covered by
this agreement on hand or in process shall be furnished by Licensee to Licensor.
Licensor shall have the right to take a physical inventory to ascertain or
verify such inventory and statement, and refusal by Licensee to submit to such
physical inventory by Licensor shall forfeit Licensee's right to dispose of such
inventory as provided in Paragraph l4 hereof, Licensor retaining all other legal
and equitable rights Licensor may have in the circumstances.
14. DISPOSAL OF STOCK UPON EXPIRATION
After expiration of this agreement, Licensee, except as otherwise
provided in this agreement, may dispose of Licensed Articles which are on hand
or in process at the time of expiration, for a period of sixty (60) days after
expiration, provided advances and royalties with respect to that period are paid
and statements are furnished for that period in accordance with Paragraph 2.
Notwithstanding anything to the contrary herein, Licensee shall not manufacture,
sell or dispose of any Licensed Articles after termination hereof, based on the
failure of Licensee to affix notice of copyright, trademark or service mark
registration or any other notice to the Licensed Articles, cartons, containers,
or packing or wrapping material, or advertising, promotional or display
10
<PAGE>
material, or because of the departure by Licensee from the quality and style
approved by Licensor pursuant to Paragraph 7, or by reason of termination for
any other causes set forth in Paragraph 12 above. In the event of such
termination by Licensor by reason of any cause contained in Paragraph l2,
Licensee, its receivers, representatives, trustees, agents, administrators and
successors shall have no further right to sell, exploit or in any way deal in or
with any of the Licensed Articles or any advertising matter, packing material,
boxes, cartons or other documentation relating thereto, except after having
obtained express written consent of and instructions with reference thereto from
Licensor.
15. EFFECT OF TERMINATION OR EXPIRATION
Upon and after the expiration or termination of this license, all
rights granted to Licensee hereunder shall forthwith revert to Licensor and
Licensee will refrain from further use of the Name or any further reference to
it, direct or indirect, or anything deemed by Licensor to be similar to the Name
in connection with the manufacture, sale or distribution of Licensee's products,
except as provided in Paragraph l4.
16. LICENSOR'S REMEDIES
(a) Licensee acknowledges that its failure (except as otherwise
provided herein) to commence in good faith to manufacture, distribute and sell
in Substantial Quantities any one or more of the Licensed Articles by the
initial on sale date, and to continue during the term hereof to diligently and
continuously manufacture, distribute and sell the Licensed Articles or any class
or category thereof, will result in immediate damages to Licensor.
(b) Licensee acknowledges that its failure (except as otherwise
provided herein) to cease the manufacture, sale or distribution of the Licensed
Articles or any class or category thereof at the termination or expiration of
this agreement will result in immediate and irremediable damage to Licensor and
to the rights of any subsequent licensee. Licensee acknowledges and admits that
there is no adequate remedy at law for such failure to cease manufacture, sale
or distribution, and Licensee agrees that in the event of such failure, Licensor
shall be entitled to equitable relief by way of temporary and permanent
injunctions and such other further relief as any court with jurisdiction may
deem just and proper.
(c) Resort to any remedies referred to herein shall not be construed
as a waiver of any other rights and remedies to which Licensor is under this
agreement or otherwise.
17. EXCUSE FOR NONPERFORMANCE
Licensee shall be released from its obligations hereunder and this
license shall terminate in the event that governmental regulations or other
causes arising out of a state of national emergency or war or causes beyond the
control of the parties render performance impossible and one party so informs
the other in writing of such causes and its desire to be so released. In such
events, all royalties on sales theretofore made shall become immediately due and
payable, and no minimum royalties shall be repayable.
18. NOTICES
All notices and statements to be given, and all payments to be made
hereunder shall be given or made at the respective addresses of the parties as
set forth above, unless notification of change of address is given in writing
and the date of mailing shall be deemed the date the notice or statement is
given.
11
<PAGE>
19. NO JOINT VENTURE
Licensee shall not use the name or credit of Licensor in any manner
whatsoever, nor incur any obligation in Licensor's name. Nothing herein
contained shall be construed to constitute the parties joint venturers, nor
shall any similar relationship be deemed to exist between them. Nothing herein
contained shall be construed as constituting Licensee as Licensor's agent or as
authorizing Licensee to incur financial or other obligations in Licensor's name
without Licensor's special authorization in writing; and it is specifically
understood and agreed that under no circumstances shall any power granted, or
which may be deemed to be granted to Licensee, be deemed to be coupled with an
interest. It is specifically understood that the rights and powers retained by
Licensor to supervise or otherwise intervene in Licensee's activities and to
determine all matters of policy, all as hereinabove provided, are retained
because of the necessity of protecting Licensor's copyrights, trademarks,
properties and property rights generally, and specifically to conserve the good
will and good name of Licensor's company and of the Name.
20. NO ASSIGNMENT OR SUBLICENSE BY LICENSEE
This agreement and all rights and duties hereunder are personal to
Licensee and shall not, without the written consent of Licensor, be assigned,
mortgaged, sublicensed or otherwise encumbered by Licensee or by operation of
law. For purposes of this agreement, the term "assignment" shall, in addition to
the transfer of this agreement or the rights or obligations thereunder, whether
voluntarily, involuntarily, by operation of law or otherwise, be deemed to
include (i) a sale or other transfer by Licensee of all or substantially all of
its assets; (ii) the liquidation or dissolution of Licensee; (iii) the merger,
amalgamation, consolidation or reorganization of Licensee into or with another
corporation or other entity as a result of which Licensee is not the surviving
corporation; or (iv) any transaction (including any of the foregoing
transactions, as well as any in which Licensee is the surviving corporation)
which, whether by way of sale, gift or other transfer, whether involving the
Licensee or the record or beneficial owners of equity interests in the Licensee,
results in more than a twenty (20%) percent change in the voting control of
Licensee. Licensee shall not be entitled to sublicense any of its rights under
this agreement, except in the event Licensee is not a manufacturer of the
Licensed Articles, Licensee shall be, subject to the prior written approval of
Licensor, entitled to utilize a third-party manufacturer in connection with the
manufacture and production of the Licensed Articles, provided that such
manufacturer shall execute a letter in the form of Exhibit 1 attached hereto and
made a part hereof. In such event, Licensee shall remain primarily obligated
under all of the provisions of this agreement. In no event shall any sublicense
agreement include the right to grant any further sublicenses.
21. NO WAIVER
No waiver or modification of any of the terms of this agreement
shall be valid unless in writing and signed by the party to be charged. No
waiver by either party of a breach hereof or a default hereunder shall be deemed
a waiver by such party of a subsequent breach or default of like or similar
nature. Any approval or consent given by Licensor shall not constitute a waiver
of any of Licensor's rights or Licensee's duties under any provision of this
agreement. There are no representations, promises, warranties, covenants or
undertakings other than those contained in this agreement, which represents the
entire understanding of the parties. The failure of either party to enforce, or
the delay by either party in enforcing any of its rights under this agreement
shall not be deemed a continuing waiver or a modification thereof, and either
party may, within the time provided by applicable law, commence appropriate
legal proceedings to enforce any or all of such rights. No person, firm, group
or corporation (whether included in the Name or otherwise), other than Licensee
and Licensor, shall be deemed to have acquired any rights by reason of anything
contained in this agreement, except as provided in Paragraphs 5 and 20.
12
<PAGE>
22. GOVERNING LAW
This agreement shall be construed in accordance with the internal
laws of the State of Rhode Island. The parties agree that any dispute arising
hereunder shall be subject to the exclusive jurisdiction of the courts of such
State, including the United States District Court for the District of Rhode
Island, and consent to the jurisdiction thereof.
The aforesaid terms and conditions as set forth above shall only be
binding upon Licensor provided that Licensee signs and returns the License
Agreement Summary and License Agreement and Licensor countersigns same.
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed as of the day and year first above written.
TONKA CORPORATION,
a subsidiary of Hasbro, Inc. BROOKFIELD ATHLETIC COMPANY
By: /s/ Tom McGrath By: /s/ James A. Buchanan
Title: Sr. V.P.- Boys Toys Title: President, CEO
13
<PAGE>
EXHIBIT 1
CERTIFICATION
The undersigned, on behalf of BROOKFIELD ATHLETIC COMPANY (hereinafter,
"Licensee"), hereby certifies and affirms that Licensee has complied with all
obligations and requirements of Paragraph 7(b) of its Agreement, dated April 1,
1995, with Tonka Corporation regarding Manufacturing Ethics, and that Licensee
has taken sufficient steps reasonably calculated to ensure that any third party
manufacturers which it may have engaged pursuant to the Agreement are also in
compliance with said Paragraph 7(b).
AFFIRMED:
BROOKFIELD ATHLETIC COMPANY
By: /s/ James A. Buchanan
President / CEO
Subscribed and affirmed before me this 28th day of July, 1995
/s/ Meredith A. White
Notary Public
Meredith A. White
Notary Public
My Commission exp. Apr. 1, 1999
14
<PAGE>
SCHEDULE A
"Nerf" and its associated logo *
Max Force
Turbo Crusher
Liquidator
Dontcha get it
Nerf or Nothin
Get It
Get a Grip
Nothin Soft About It
Zerf Zone
Team Nerf
Nerf Gear
One Earth One Nerf
*and subsequent logos, product names and advertising/promotion phrases
as approved in writing from time to time by Licensor.
15
EXHIBIT 21
SUBSIDIARIES OF HYDE ATHLETIC INDUSTRIES, INC.
Jurisdiction of Percentage
Name Incorporation Ownership
- ------------------------------------- --------------- -----------
Hyde International Services, Ltd. Hong Kong 100%
Brookfield Athletic Co., Inc.* Massachusetts 100%
Hyde Security Corporation Massachusetts 100%
Spot-Bilt, Inc.** Maine 100%
Saucony Canada, Inc.*** Ontario 85%
Saucony, Inc.*** Massachusetts 100%
Saucony Sports, B.V.*** Netherlands 76%
Saucony SP Pty. Ltd.*** Australia 50%
Saucony Deutschland Vertriebs GmbH *** Germany 100%
Quintana Roo, Inc. Delaware 100%
- ----------------------
* Does business as "Brookfield."
** Does business as "Spot-Bilt."
*** Does business as "Saucony."
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Hyde Athletic Industries, Inc. on Forms S-8 (file numbers 33-50922, 33-61532,
33-66482, 33-80726) of our report dated March 22, 1996, on our audits of the
consolidated financial statements and financial statement schedule of Hyde
Athletic Industries, Inc. and Subsidiaries as of January 5, 1996 and December
30, 1994 and for the years ended January 5, 1996, December 30, 1994 and December
31, 1993 which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
April 2, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from Hyde Athletic Industries, Inc. form 10-K
for the period ended January 5, 1996 and is qualified in
its entirety by reference to such 10-K
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-05-1996
<PERIOD-START> DEC-31-1994
<PERIOD-END> JAN-05-1996
<CASH> 11,668,316
<SECURITIES> 307,500
<RECEIVABLES> 17,361,195
<ALLOWANCES> 484,247
<INVENTORY> 26,831,600
<CURRENT-ASSETS> 59,190,090
<PP&E> 14,715,586
<DEPRECIATION> 6,592,649
<TOTAL-ASSETS> 69,471,289
<CURRENT-LIABILITIES> 14,728,785
<BONDS> 4,205,568
0
0
<COMMON> 2,138,514
<OTHER-SE> 46,226,540
<TOTAL-LIABILITY-AND-EQUITY> 69,471,289
<SALES> 102,562,755
<TOTAL-REVENUES> 104,078,614
<CGS> 70,860,821
<TOTAL-COSTS> 70,860,821
<OTHER-EXPENSES> 29,897,664
<LOSS-PROVISION> 585,453
<INTEREST-EXPENSE> 1,299,858
<INCOME-PRETAX> 2,020,271
<INCOME-TAX> 714,985
<INCOME-CONTINUING> 1,591,106
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,591,106
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
