<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
F O R M 1 0 - K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NUMBER 1-8176
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____.
__________________________
LITTLEFIELD, ADAMS & COMPANY
(Exact name of Registrant as specified in its charter)
NEW JERSEY 22-1469846
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
253 NORTH FIRST AVENUE, STURGEON BAY, WISCONSIN 54235
(Address or principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (414) 743-8743
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
------------------------------ ------------------------------------
COMMON STOCK, $1.00 PAR VALUE AMERICAN STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
__________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (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 at March 21, 1996, was approximately $3,997,000. On such date, the
last sale price of registrant's common stock was $2.00 per share. Solely for
the purposes of this calculation, shares beneficially owned by directors and
officers of registrant have been excluded, except shares with respect to which
such directors and officers disclaim beneficial ownership. Such exclusion
should not be deemed a determination or admission by registrant that such
individuals are, in fact, affiliates of registrant.
Indicate number of shares outstanding of each of the registrant's classes
of common stock, as of March 21, 1996.
CLASS OUTSTANDING ON MARCH 21, 1996
- --------------------------------------- ------------------------------
Common Stock, par value $1.00 per share 2,279,647
DOCUMENTS INCORPORATED BY REFERENCE
PART OF THE FORM 10-K INTO WHICH
DOCUMENT THE DOCUMENT IS INCORPORATED
------------------------------------------ ----------------------------------
Definitive Proxy Statement to Shareholders Part III, Items 10, 11, 12, and 13
<PAGE> 2
LITTLEFIELD, ADAMS & COMPANY
INDEX TO FORM 10-K
------------------
<TABLE>
<CAPTION>
PART I PAGE
----
<S> <C> <C>
Item 1. Business 1
Item 2. Properties 4
Item 3. Legal Proceedings 4
Item 4. Submission of Matters to a Vote of Security Holders 4
PART II
Item 5. Market for Registrant's Common Equity & Related Stockholder Matters 5
Item 6. Selected Financial Data 6
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Item 8. Financial Statements 10
Item 9. Change in Registrant's Certifying Accountant 11
PART III
Item 10. Directors and Executive Officers of the Registrant 14
Item 11. Executive Compensation 14
Item 12. Security Ownership of Certain Beneficial Owners & Management 15
Item 13. Certain Relationships and Related Party Transactions 15
PART IV
Item 14. Financial Statements, Exhibits and Reports on Form 8-K 15
ADDITIONAL INFORMATION 17
EXHIBITS
Item 601. Exhibit Index Required by Item 601 of Regulation SK
</TABLE>
This document incorporates into a single document the requirements of the
Securities and Exchange Commission for the Annual Report to Shareholders and
the Form 10-K.
<PAGE> 3
PART I
------
ITEM 1: BUSINESS
- ------ --------
GENERAL INFORMATION
Littlefield, Adams & Company (the "Registrant", the "Company" and "LFA")
is a New Jersey corporation which was organized in 1949. The Registrant,
through its operating division, Sports Imprints, is principally engaged in the
imprinting and distribution of athletic and leisure wear products, under
various license agreements. The accompanying consolidated financial statements
include the accounts of Littlefield, Adams & Company and its subsidiaries,
Medical Sales Associates, Inc., Cornerstone Laboratories, Inc., and NUTECH,
Inc. The former wholly owned subsidiaries, Collegiate Pacific Company and
Sports Imprints, Inc., were merged into the Company effective June 30, 1995.
Subsequent to the year ended December 31, 1995, the former wholly owned
subsidiaries, Medical Sales Associates, Inc., Cornerstone Laboratories, Inc.,
and NUTECH, Inc., were dissolved. Neither Medical Sales Associates, Inc.,
Cornerstone Laboratories, Inc., nor NUTECH, Inc. conducted any business during
1995.
The Registrant's principal executive offices are located at 253 North
First Avenue, Sturgeon Bay, WI 54235. The Company's telephone number is (414)
743-8743. Its operating division, Sports Imprints, also known as "Fun Wear",
maintains its principal operating headquarters in Huber Heights, Ohio.
Effective March 1, 1995, the Company changed its principal executive
offices from 7550 Interstate Highway 10 - West, San Antonio, TX 78229, to the
present location stated above.
RESTATEMENT OF THE 1993 FINANCIAL STATEMENTS
- --------------------------------------------
Refer to Note 4 of the Notes to the Consolidated Financial Statements.
PRODUCTS
- --------
The products of LFA/Sports Imprints include imprinted and embroidered
T-shirts, sweatshirts and related sportswear. Prior to its closure on August
31, 1995, Collegiate Pacific, in addition to the above products, also produced
jackets, hats, banners and pennants. LFA/Sports Imprints produces its own art
designs which are transferred to apparel by the direct textile printing method
(application of ink directly to garments using silk screens).
LFA/Sports Imprints is continuously developing new graphics, designs,
logos and other art for its product lines, seeking new licenses, researching
different methods of applying artwork to garments, and seeking newer and faster
methods for production of the artwork. Presently, LFA/Sports Imprints is also
engaging the services of an outside contractor to do specialized printing.
However, LFA/Sports Imprints is currently developing its own machinery and
equipment to do this specialized printing in-house in the future.
The following table discloses the percentage of total revenue contributed
by any class of products which accounted for the consolidated revenue during
each of the past three fiscal years:
<TABLE>
<CAPTION>
PERCENTAGE OF CONSOLIDATED REVENUE
PRODUCT CLASS 1995 1994 1993
-------------------- ------------ ------------ ------------
<S> <C> <C> <C>
T-Shirt 82% 80% 75%
Pennants and Banners 4% 4% 4%
Fleece Wear 13% 15% 16%
</TABLE>
Littlefield, Adams & Company 1995 Form 10-K, PAGE 1
<PAGE> 4
TRADEMARKS
- ----------
Collegiate Pacific Company formerly registered the trademark "Collegiate
Pacific" with the U.S. Patent and Trademark Office, trademark registration
number 1,016,128. It was due for renewal in 1995. Renewal is currently
pending.
Collegiate Pacific is also the owner of the trademark "Deerfoot," which is
registered with the U.S. Patent and Trademark Office, trademark registration
Number 876,087. The registered trademark is currently in effect and
uncontested. It is due for renewal in 2009.
Collegiate Pacific Company also uses, but has not registered, the logo
"C-P".
On January 30, 1996, Sports Imprints received a trademark from the U.S.
Patent and Trademark Office for the name "Fun Wear."
LICENSES
- --------
Refer to Note 3 (section "Significant Licensors") of the Notes to the
Consolidated Financial Statements.
MARKETS AND CUSTOMERS
- ---------------------
The markets for the LFA/Sports Imprints' leisure wear products are
principally retail chain stores and department stores. Prior to its closure,
Collegiate Pacific sold its products primarily to college bookstores, resort
areas, theme parks, and industrial and commercial customers.
The Company sells its products primarily through Company employed sales
personnel, and, to a lesser degree, through a sales force of independent
representatives.
An important part of the Company's ability to compete in the imprinting
industry is its ability to create marketable art designs. The Company has its
own art staff for that purpose. It also employs free-lance artists in various
capacities to assist in that effort.
Sales to Wal-Mart during 1995 amounted to 66% of consolidated revenue
(refer to Note 3 of the Notes to the Consolidated Financial Statements).
Other major customers include K-Mart, J.C. Penney, Meijer, Montgomery
Ward, Shopko, Ames, Sears and Hills.
INVENTORY, BACKLOG AND PRODUCTION
- ---------------------------------
As of December 31, 1995 and 1994, the Company had a backlog of orders of
approximately $3.5 million and $5.8 million, respectively.
The Company maintained an inventory adequate to meet anticipated demands
during a 119 day period in 1995, compared to a 80 day period in 1994. The total
value of such inventory as of December 31, 1995, was $3,332,000. During
calendar years 1995 and 1994, $160,000 and $228,000, respectively, in
merchandise, was returned to the Company's subsidiaries by customers.
Generally, the Company requires payment for goods within 30 days after
delivery; however, exceptions are made on a case by case basis, depending on
circumstances such as sizes of orders, anticipated future business and past
credit experience. As of December 31, 1995, the Company had net receivables of
$1,010,000, with an average aging period, from delivery, of 31 days.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 2
<PAGE> 5
SUPPLIERS
- ---------
The Company currently purchases T-shirts, sweatshirts, sweatpants and
shorts from various mills. Availability is plentiful and good relationships
with its suppliers are very important. The Company believes that it has such
relationships.
EMPLOYEES
- ---------
As of December 31, 1995, the Company had approximately 73 full time
employees. The Company believes that employee relations are good.
COMPETITION
- -----------
The Company competes against a large number of national and regional
manufacturers of similar products and, therefore, does not have a dominant
market share in the imprinted leisure wear industry. The Company believes that
competition is based on price, quality of merchandise, artistic creativity and
service, including timeliness of delivery.
There is a significant number of major participants in the imprinted
leisure wear industry. Starter, Champion, Changes, Sun Sportswear, Freeze,
Signal Knitting Mills, Wilson and Salem Knitting Mills are among the Company's
most significant competitors.
COST & EFFECT OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
- ----------------------------------------------------------
1. Federal: To the best of management's knowledge, the Company will not be
required to directly incur material expenses in conjunction with
environmental regulations; however, like all other companies, there are
many incalculable indirect expenses associated with compliance by other
entities that affect the prices paid by the Company for goods and
services.
2. State: To the best of management's knowledge, the Company will not be
required to directly incur material expenses in conjunction with
environmental regulations at the state level.
3. Local: To the best of management's knowledge, the Company will not be
required to directly incur material expenses in conjunction with
environmental regulations at the local level.
THE MEDICAL GROUP
- -----------------
The Medical Group, which was comprised of Medical Sales Associates, Inc.,
Cornerstone Laboratories, Inc. and NUTECH, Inc., did not conduct any business
during 1995. Subsequent to the year ended December 31, 1995, Medical Sales
Associates, Inc., Cornerstone Laboratories, Inc. and NUTECH, Inc. were
dissolved. As a result, the Medical Group will not be of any further cost or
expense to the Company.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 3
<PAGE> 6
ITEM 2: PROPERTIES
- ------ ----------
The following tables set forth information with respect to the material
real property owned or leased by the Registrant, as of December 31, 1995.
<TABLE>
<CAPTION>
OWNERSHIP
GENERAL CHARACTER OR EXPIRATION
LOCATION AND USE OF PROPERTY DATE OF LEASE
- -------------- ------------------------------------------------ ---------------------------
<S> <C> <C>
*Roanoke, 32,000 square feet, used for administration and Owned subject to
Virginia graphics offices, imprinting, manufacturing and deed of trust and leased to
shipping. third party
**Gardena, 49,000 square feet, subleased to a third party. 1997
California
Huber Heights, 64,000 square feet, used for administration and 1998
Ohio graphics offices, imprinting, manufacturing and
shipping.
New York, 2,000 square feet in the Empire State Building, 2003
New York used for a sales showroom.
Sturgeon Bay, 1,600 square feet, used for general corporate Month-to-month lease
Wisconsin administrative activity.
</TABLE>
As of December 31, 1995, the Registrant's facilities and the equipment
located therein were in good working condition and adequate for its needs.
*For further discussion regarding the Roanoke, Virginia property, refer to
the Sale of Assets section of Management's Discussion and Analysis, and Notes 2
and 6 of the Notes to the Consolidated Financial Statements.
**For further discussion regarding current events involving the Gardena,
California property, refer to Note 14 of the Notes to the Consolidated
Financial Statements and the Lease Income section of Management's Discussion
and Analysis.
ITEM 3: LEGAL PROCEEDINGS
- ------ -----------------
Refer to Note 20 of the Notes to the Consolidated Financial Statements.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------ ---------------------------------------------------
No matters were submitted during the fourth quarter of 1995 to a vote of
security holders, through the solicitation of proxies or otherwise.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 4
<PAGE> 7
PART II
-------
ITEM 5: MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------ ---------------------------------------------------------------------
The Registrant's Common Stock is traded on the American Stock Exchange
under the symbol "LFA". Currently, however, the Company does not fully meet
all of the financial guidelines for continued listing on the American Stock
Exchange, and accordingly, there can be no assurance that such listing will
continue. The high and low closing prices of the Registrant's Common Stock,
as reported on the American Stock Exchange for each quarter of the last two
fiscal years, were as follows:
<TABLE>
<CAPTION>
1995 1994
High Low High Low
----- ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter 7 4 5/8 27 7/8 13 3/4
Second Quarter 7 3/8 4 3/8 10 1/4 3 3/4
Third Quarter 5 5/8 3 3/16 8 4 3/4
Fourth Quarter 3 3/4 1 1/8 7 3/8 5 3/8
</TABLE>
The Registrant has not paid any dividends on its Common Stock during the
last two fiscal years. There were approximately 200 holders of record of the
Registrant's Common Stock as of December 31, 1995, including several holders
who are nominees for an undetermined number of beneficial owners. The
Registrant believes there are approximately 1,100 beneficial owners of the
Registrant's Common Stock.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 5
<PAGE> 8
ITEM 6: SELECTED FINANCIAL DATA
- ------ -----------------------
The selected financial data presented below are derived from the audited
consolidated financial statements of the Company. The data presented below for
the fiscal years ended December 31, 1995, 1994 and 1993, should be read in
conjunction with the consolidated financial statements, the notes thereto, and
the other financial information included in this report.
<TABLE>
<CAPTION>
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
---------------------------------------------
OPERATING RESULTS(1)
CONTINUING OPERATIONS 1995 1994 1993(2) 1992(2) 1991
- ---------------------------------------- ---- ---- ------- ------- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Total revenues $14,735 $24,557 $16,722 $4,653 $5,205
Income (loss) before benefit (provision)
for income taxes (1,006) 951 (4,041) (707) (260)
Benefit (provision) for income taxes 14 (294) (129) -- --
Net income (loss) (992) 657 (4,170) (707) (260)
Net income (loss) per common share (0.44) 0.29 (2.03) (0.41) (0.15)
Weighted average common shares outstanding 2,275,701 2,230,391 2,058,731 1,711,927 1,144,978
DISCONTINUED OPERATIONS
Net loss -- -- -- -- (231)
Net loss per common share -- -- -- -- (0.22)
FINANCIAL POSITION(1)
Working capital (295) 605 838 (347) 165
Working capital ratio .94/1 1.09/1 1.12/1 .81/1 1.2/1
Property, plant and equipment, net 1,109 1,254 1,194 826 924
Total assets 6,676 9,232 10,464 2,396 2,595
Long term debt, less current portion 10 219 768 344 439
Shareholders' investment 24 1,172 205 140 642
</TABLE>
(1) Dollars in thousand except for share amounts.
(2) See Note 4 of the Notes to Consolidated Financial Statements
concerning the restatement of prior years' financial statements audited by the
Company's former independent public accountants. The opinion of such auditors
does not cover the restatement.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 6
<PAGE> 9
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
- ------ -----------------------------------------------------------
AND RESULTS OF OPERATIONS
-------------------------
The following discussion provides information which management believes is
relevant to assessing and understanding the Registrant's operations and
financial condition. This discussion should be read in conjunction with the
financial statements included in this report on Form 10-K and their
accompanying notes.
RESULTS OF OPERATIONS
- ---------------------
Revenues
--------
Net sales decreased from $24,329,000 in 1994, to $14,478,000 in 1995; a
decrease of 40%. This decrease was attributable, in part, to a downturn in
retail apparel sales, particularly in the imprinted sportswear business, and
the Company's lack of product and customer diversification. Additionally,
during the past two years, a portion of the Company's resources have, by
necessity, been directed to various significant legal matters, the successful
outcomes of which were crucial to the Company's ability to remain a viable
business.
For the period from 1993 to 1994, net sales increased 47% on a
year-to-year basis. The increase was due to the popularity of the Company's
licensed products (primarily Harley-Davidson), and the healthy environment of
retail apparel sales in general.
The gross profit margins, as a percentage of sales, for the years 1993 and
1994, increased from 31% to 33%. Such improvement was primarily due to the
increased sales volume during this period. The decrease in sales from 1994 to
1995 was chiefly responsible for the reduction in gross profit margin from 33%
in 1994 to 30% in 1995.
The Company is now working to enhance and stabilize its business
through the acquisition of significant new licenses and the development of new
product lines, in combination with the elimination of unprofitable ventures and
the reduction of overhead. However, there can be no assurance that the Company
will be successful in its efforts to acquire significant new licenses or that,
if it is able to do so, that such new licenses will result in increased revenue
or profits. In that vein, subsequent to the year ended December
31, 1995, the Company entered into a two-year license agreement with PepsiCo,
Inc. for its soft drink brands (Note 3 of the Notes to the Consolidated
Financial Statements). The Company also closed its Collegiate Pacific division
on August 31, 1995. Collegiate Pacific had not shown a profit in several years
and was requiring on-going substantial infusions of cash in order to remain in
business. By closing Collegiate Pacific, the Company was able to eliminate the
continuing drain on its resources. The Company also intends to close its
Sturgeon Bay, Wisconsin, office during 1996, and consolidate its operations in
Huber Heights, Ohio. The Company believes that the consolidation of its
operations in Ohio will, over time, result in significant cost savings.
Management believes that if sales increase or remain at levels consistent
with those for 1995, income from operations will increase in 1996 due to
reductions in certain expenses. If accomplished, this will, in management's
estimation, generate sufficient cash flow from operations during 1996 to
sustain the Company at least through the first quarter of 1997, and support the
Company's effort to achieve sufficient sales revenue from new licenses to
offset the reduction in revenue resulting from the expected expiration of the
Harley-Davidson license on December 31, 1996. There can be no assurance,
however, that the Company will be successful in its efforts to maintain or
increase sales levels or that, if it is able to do so, that the revenue from
such sales will be sufficient to sustain the Company for any particular period.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 7
<PAGE> 10
Expenses
--------
As discussed in Note 4 of the Notes to the Consolidated Financial
Statements, the Company has restated its consolidated financial statements for
1993 and has shown the effects of settling litigation, defalcation losses, and
the associated professional fees on a separate line after income from
operations on the consolidated income statement.
Selling and administrative expenses as a percentage of net sales increased
from 29% to 39% for 1995 compared to 1994, due to the decrease in sales.
Professional fees included in administrative expenses amounted to approximately
$806,000 and $853,000 in 1995 and 1994, respectively, a reduction of 6%.
Professional fees over the last three years have been exaggerated due to the
Company's involvement in numerous lawsuits, the investigation by the SEC,
failed acquisition attempts and changes in independent accountants. Management
does not believe this previous trend is indicative of expected future expense
levels.
Included in Selling and Administrative Expenses are royalty expenses
related to the sales of licensed products amounting to $1,611,000, $2,312,000
and $1,475,000 in 1995, 1994 and 1993, respectively. Interest expense for the
year 1995 was $327,000, or a decrease of 14% from 1994, which was $379,000, due
to decreased average borrowings on the Company's Merchant Factors Corp. line of
credit.
LIQUIDITY AND CAPITAL SOURCES
- -----------------------------
At December 31, 1995, the Company had an accounts receivable financing
agreement with Merchant Factors Corp., which subsequently expired January 31,
1996, and which allowed Sports Imprints, Inc. to borrow up to 75% of net
qualified accounts receivable. The balance due at December 31, 1995, was
approximately $1,269,000, and is being repaid as the receivables are collected.
The agreement bore interest at prime plus 3.5%; however Sports Imprints, Inc.
did not pay any additional financing fees. Sports Imprints' accounts
receivable were the collateral for this loan, which was also guaranteed by
Littlefield, Adams & Company. In addition, Merchant Factors Corp., when
needed, issued purchase guarantees and/or letters of credit against this line
of credit. At December 31, 1995, there were no outstanding purchase guarantees
and/or letters of credit issued by Merchant Factors Corp. At December 31,
1995, there were no additional borrowings available under this agreement (Note
9 of the Notes to the Consolidated Financial Statements).
Effective February 1, 1996, the Company entered into a new discount
factoring agreement with Merchant Factors Corp., which expires in August 1997.
All of the Company's accounts receivable which Merchant Factors Corp. approves
for credit, excluding Wal-Mart, are being factored at the rate of 1 1/8%, which
eliminates credit risk to the Company. The Company, at its option, can factor
at a rate of 1 1/8%, with recourse, accounts that Merchant Factors Corp. does
not approve for credit. Under this factoring agreement, the Company may borrow
up to 75% of the accounts receivable at an annual interest rate of prime plus
2.5%. (Notes 3 and 9 of the Notes to the Consolidated Financial Statements)
In addition, the Company has an accounts receivable financing arrangement
with Merchant Factors Corp., covering only its accounts receivable from
Wal-Mart. This agreement allows the Company to borrow up to 75% of its net
receivables from Wal-Mart at an annual interest rate of prime plus 5%. The
Company does not pay any factoring fees for the financing of the Wal-Mart
accounts receivable. (Notes 3 and 9 of the Notes to the Consolidated Financial
Statements)
For the year ended December 31, 1995, operating activities used cash of
$339,000, while $42,000 was used in investing activities. The Company borrowed
a total of $16,337,000 during 1995, and repaid $15,868,000. Additionally, the
Company utilized $68,000 to purchase treasury stock. This resulted in net cash
provided by financing activities of $401,000. During 1995, there was a net
increase in cash of $20,000.
The Company believes that cash generated from operations and borrowings
under this factoring and line of credit agreement with Merchant Factors Corp.
will be adequate to fund working capital requirements, debt service payments
and planned capital expenditures during 1996. However, the Company anticipates
that cash flow from operations could be substantially reduced or eliminated
subsequent to January 1, 1997 due to sales decreases foreseen as a result of
the termination of the Harley-Davidson license agreement.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 8
<PAGE> 11
At December 31, 1995, the Company had a working capital deficit of
$295,000, and the Company has very limited additional financial resources to
support operations in the event of a significant decline in sales subsequent to
January 1, 1997. As such, the ability of the Company to continue as a going
concern is dependent upon its ability to replace the sales of Harley-Davidson
licensed products and the support of its lenders, customers and stockholders
(Notes 2 and 3 of the Notes to the Consolidated Financial Statements).
Sale of Assets
--------------
The Company has put the Roanoke, Virginia, property up for sale through a
local real estate broker. The Company has accepted a contingent offer and is
evaluating other bids received from the broker. The property is currently
being leased to a third party for $3,280 per month on a month-to-month basis.
The proceeds from the sale of the property will be used to pay down long-term
debt.
Purchase of Property, Plant, and Equipment
------------------------------------------
During 1995, the Company acquired $248,000 of additional property, plant
and equipment, including $9,000 under capital lease arrangements. Of the total
$248,000, approximately 49% was for office furniture, fixtures and data
processing equipment, 35% was for production equipment and 16% was for
leasehold improvements.
The Company does not plan any major capital expenditures during 1996 and
has a 1996 capital expenditures budget of $50,000.
Settlement of Securities Class Action Litigation and Derivative Action
----------------------------------------------------------------------
The Company reached an agreement with the plaintiffs to settle this action
on February 21, 1995. Subject to the agreement being approved by the court,
the Company will issue $1,400,000 of its common stock and pay $210,000 in cash
to the members of the class (Note 20 of the Notes to the Consolidated Financial
Statements). The number of shares to be issued will be determined by dividing
$1,400,000 by the price of the Company's stock at the time the final order of
dismissal is entered by the court and all appeal periods have run. The Company
is uncertain that this will occur in 1996. Therefore, the actual number of
shares required to be issued cannot be determined at this time. The Company
estimates that if the matter was finally concluded at this time, approximately
700,000 shares (an increase of 31% of the shares currently outstanding) would
be issued to satisfy this obligation. The $210,000 cash portion of the
Company's settlement obligation was received by the Company from a third party
in connection with the settlement of a related matter, and was paid into the
settlement fund escrow account. In addition, upon the final conclusion of this
litigation, the Company will receive an additional $150,000 from the same third
party. As part of the settlement of the derivative action, the Company will
receive 1,000 shares of its stock from a former president of the Company. A
former president of the Company and current director will relinquish back to
the Company rights that he has to 5,000 shares of stock and rights that he has
to an option to acquire 50,000 shares of stock. A current officer and director
will relinquish back to the Company rights that he has to 5,000 shares of
stock. Management does not expect this settlement to have a material adverse
effect on the condition of the Company. The settlement costs, together with
related professional fees, have been recorded in 1993 as part of the
restatement of that year (Notes 4 and 8 of the Notes to the Consolidated
Financial Statements).
Legal Matters
-------------
See Note 20 of the Notes to the Consolidated Financial Statements for a
review of the other outstanding legal matters.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 9
<PAGE> 12
ITEM 8: FINANCIAL STATEMENTS
- ------ --------------------
The consolidated financial statements of the Company and the related
report of the Company's independent public accountants thereon are included in
this report at the page indicated.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS F-1
FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1995 and 1994 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 F-3
Consolidated Statements of Shareholders' Investment for the
Years Ended December 31, 1995, 1994 and 1993 F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
Littlefield, Adams & Company 1995 Form 10-K, Page 10
<PAGE> 13
ITEM 9: CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT.
- ------ ---------------------------------------------
(A) PREVIOUS INDEPENDENT ACCOUNTANTS
(i) On September 1, 1994, Carneiro, Chumney & Co., L.C. resigned as the
independent accountants of Littlefield, Adams & Company (the "Company" or
the "Registrant").
(ii) The report of Carneiro, Chumney & Co., L.C. included in the Registrant's
Annual Report on Form 10-K, including the subsequent amendment thereto,
for the year ended December 31, 1993, on the Registrant's financial
statements for the fiscal years ended December 31, 1993 and 1992 did not
contain an adverse opinion or disclaimer of opinion and was not qualified
or modified as to uncertainty, audit scope or accounting principle.
The report of Carneiro, Chumney & Co., L.C. included in the Registrant's
Annual Report on Form 10-K, including the two subsequent amendments
thereto, for the year ended December 31, 1992, on the Registrant's
financial statements for the fiscal years ended December 31, 1992 and 1991
did not contain an adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting
principle, except that such report did contain an explanatory paragraph
regarding the uncertainty of the Registrant's ability to continue as a
going concern.
(iii) The Registrant's Audit Committee received the resignation of Carneiro,
Chumney & Co., L.C. as independent accountants.
(iv) There were no disagreements with Carneiro, Chumney & Co., L.C. for the
fiscal years ended December 31, 1993 and 1992 or for the interim period
subsequent to December 31, 1993, through the resignation of Carneiro,
Chumney & Co., L.C. on September 1, 1994, on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope
or procedure, which disagreements, if not resolved to the satisfaction of
Carneiro, Chumney & Co., L.C. would have caused them to make reference
thereto in their reports on the financial statements for such years except
as described in the following paragraph:
By letter dated September 22, 1994, attached as an exhibit to Form 8-K/A
Amendment No. 1, Carneiro, Chumney & Co., L.C. has stated that during the
Registrant's fiscal years ended December 31, 1993 and 1992 and the interim
period subsequent to December 31, 1993, through the resignation of
Carneiro, Chumney & Co., L.C. on September 1, 1994, Carneiro, Chumney &
Co., L.C. expressed to the Registrant's former Chairman, President, and
Chief Executive Officer their "disagreement with the Company's valuation
of the stock it [the Company] received from Americare Health Group, Inc.
in March 1993 in consideration for the Company's sale to it of certain
contract rights; the Company subsequently rescinded such transaction."
Such rescission was proposed in January 1994 and was completed in May
1994. The Registrant had proposed an original valuation of $10,125,000,
which valuation was subsequently reduced to $5,296,000. The Registrant
has been orally advised by Carneiro, Chumney & Co., L.C. that they did
not express any opinion as to a valuation they deemed appropriate. In
addition, by the above-referenced letter dated September 22, 1994,
Carneiro, Chumney & Co., L.C. has stated that it expressed to the
Registrant's former Chairman, President, and Chief Executive Officer
their "disagreement (which disagreement was resolved to our [Carneiro,
Chumney & Co., L.C.] satisfaction) with the Company's intended
recognition of an approximately $1.0 million consulting fee (initially
payable in the form of common stock of the Company receiving the
consulting services) as revenue in the 1993 fiscal year." The
above-referenced letter states that the subject matter of the foregoing
disagreements were discussed by Carneiro, Chumney & Co., L.C. with the
Registrant's former Chairman, President, and Chief Executive Officer,
who was a member of the Board of Directors and of the Audit Committee of
the Board of Directors. To the best knowledge of the Registrant, the
subject matter of the foregoing disagreements were not otherwise
discussed with the Board of Directors or any audit or similar committee
of the Board of Directors. Arthur Andersen LLP has not been requested
to consult on the accounting for such transactions described above.
However, on September 29, 1994, the Registrant authorized Carneiro,
Chumney & Co., L.C. to respond fully to the inquiries of Arthur Andersen
LLP concerning the subject matter of each of such disagreements.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 11
<PAGE> 14
(v) There were no reportable events (as defined in Regulation S-K Item 304
(a) (1) (v)) for the fiscal years ended December 31, 1993 and 1992 or for
the interim period subsequent to December 31, 1993, through the resignation
of Carneiro, Chumney & Co., L.C. on September 1, 1994.
(vi) The Registrant requested Carneiro, Chumney & Co., L.C. to furnish the
Registrant with a letter addressed to the Securities and Exchange
Commission stating whether or not they agreed with the statements made in
Item 4 of the Form 8-K/A Amendment No. 1. Letters, dated September 22,
1994, and November 1, 1994, from Carneiro, Chumney & Co., L.C. are
included as exhibits to Form 8-K/A Amendment No. 1
(B) NEW INDEPENDENT ACCOUNTANTS
The Registrant engaged Arthur Andersen LLP (formerly Arthur Andersen &
Co.) as its new independent accountants as of September 1, 1994. During
the two month period prior to September 1, 1994, the Registrant consulted
with Arthur Andersen LLP regarding the accounting for previously recorded
transactions. These transactions primarily related to the $250,000 of
previously recognized consulting income, the $446,000 gain on the sale of
a stock investment, an inventory understatement of the first quarter of
1994, and the transactions between the Registrant, its former Chairman,
President and Chief Executive Officer and his affiliates. The Registrant
was orally informed by Arthur Andersen LLP that, in their opinion and at
that time, there was currently insufficient evidence underlying the
transactions available to determine whether the Registrant's prior
financial statements, insofar as they relate to the $250,000 of previously
recognized consulting income, the $446,000 gain on the sale of a stock
investment and the transactions between the Registrant, its former
Chairman, President and Chief Executive Officer and his affiliates,
required any amendment or restatement. (Subsequent to such date, the
Company has determined that the 1993 and 1992 financial statements did
require restatement. See Note 4 to the Consolidated Financial
Statements.) Further, the Registrant was orally informed by Arthur
Andersen LLP that the inventory understatement, which occurred in the
first quarter of 1994, should be corrected and reported within the first
quarter 1994 results of operations as restated for such inventory
understatement, as disclosed in footnote 3 of the Registrant's Form 10-Q
for the quarter ended June 30, 1994.
Carneiro, Chumney & Co., L.C. was consulted on the transactions
described in the preceding paragraph (excluding the first quarter 1994
inventory understatement and, as represented by Carneiro, Chumney & Co.,
L.C., excluding the conversion of 45,000 shares of Common Stock and any
action of the former Chairman in causing the Company to issue shares to
satisfy an obligation of a controlled affiliate) in connection with the
audits of the Registrant's consolidated financial statements for the years
ended December 31, 1993 and 1992. The transactions on which Carneiro,
Chumney & Co., L.C. was consulted and the accounting therefor are
disclosed in the footnotes to the Registrant's Annual Reports on Form 10-K
(including the one subsequent amendment to 1993 and two subsequent
amendments to 1992) for the years ended December 31, 1993 and 1992. The
independent accountant reports issued by Carneiro, Chumney & Co., L.C. in
connection with the audits of such years in which such transactions
occurred did not contain an adverse opinion or disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope or
accounting principle, except that the report included in the Registrant's
Annual Report on Form 10-K, including the two subsequent amendments
thereto, for the year ended December 31, 1992, did contain an explanatory
paragraph regarding the uncertainty of the Registrant's ability to
continue as a going concern.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 12
<PAGE> 15
Responsive to Item 304(b) of Regulation S-K, during the 1994 fiscal year,
there had not been any transactions or events similar to those which
involved the disagreements or reportable events described above which were
material and which were accounted for or disclosed in a manner different
from that which the Registrant believes Carneiro, Chumney & Co., L.C.
apparently would have concluded was required. However, Carneiro, Chumney &
Co., L.C. had not been consulted regarding transactions occurring during
the 1994 fiscal year and had not been granted any access to the
Registrant's 1994 records.
During the fiscal years ended December 31, 1993 and 1992 and the interim
period subsequent to December 31, 1993, the Registrant did not consult with
Arthur Andersen LLP on the type of audit opinion that might be rendered on
the Registrant's financial statements or the subject matter of a
disagreement or reportable event with the former independent accountant (as
described in Regulation S-K Item 304 (a) (2)).
The Registrant requested Arthur Andersen LLP to furnish the Registrant with
a letter addressed to the Securities and Exchange Commission stating
whether or not they agreed with the statements made in the Form 8-K/A
Amendment No. 1 concerning Arthur Andersen LLP. A letter, dated November
1, 1994, from Arthur Andersen LLP is included as an exhibit to Form 8-K/A
Amendment No. 1.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 13
<PAGE> 16
PART III
--------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
Amendment of Company By-Laws
----------------------------
On March 5, 1996, the Board of Directors amended the Company's By-Laws as
follows:
Article IV, Section 2:
(A) Chief Executive Officer(s). The office of Chief Executive Officer of
the corporation may be held by one or two persons, at the discretion of the
Board of Directors. In the event the office of Chief Executive Officer shall
be held by two persons, they shall each be the Co-Chief Executive Officer of
the corporation, one to be designated by the Board as the Chairman of the Board
and the other as the President of the corporation. The Chief Executive
Officer(s) shall, subject to the authority of the Board of Directors, have
responsibility for the general and active management of the business of the
corporation. Notwithstanding anything contained in these By-Laws to the
contrary, if there be Co-Chief Executive Officers, the Chairman of the Board,
in addition to the duties and authority set forth in these By-Laws for the
Chairman, shall have the duties and authority set forth in these By-Laws for
the President and, likewise, the President, in addition to the duties and
authority set forth in these By-Laws for the President, shall have the duties
and authority set forth in these By-Laws for the Chairman.
(F) Treasurer. The Treasurer shall be the Chief Financial Officer of the
Company and shall have charge of all the funds of the corporation and shall
keep and deposit them as required by the Board of Directors and shall keep
proper accounts of the receipts and disbursements and financial transactions of
the corporation. The Treasurer shall render to the Board of Directors an
annual statement of the financial affairs of the corporation and such other
financial statements as shall at any time be required by the directors. The
Treasurer shall perform such other duties as shall be required by the Board of
Directors. The Treasurer/Chief Financial Officer shall report directly to the
Company's Board of Directors.
Article III, Section 2:
Number of Directors. The number of directors which shall constitute the
whole Board of Directors shall be fixed as a maximum of nine (9) Directors.
The additional information required is set forth under the captions
"Directors and Executive Officers of the Registrant" in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A and is
incorporated herein by reference.
ITEM 11: EXECUTIVE COMPENSATION
- -------- ----------------------
The information required is set forth under the captions "Management
Compensation" and "Certain Transactions" in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A and is incorporated herein by
reference.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 14
<PAGE> 17
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ------- ---------------------------------------------------
MANAGEMENT
----------
The information required is set forth under the caption "Security
Ownership of Certain Beneficial Owners" in the Company's definitive Proxy
Statement to be filed pursuant to Regulation 14A and is incorporated herein by
reference.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
- ------- ----------------------------------------------------
The information required is set forth under the caption "Certain
Transactions" in the Company's definitive Proxy Statement to be filed pursuant
to Regulation 14A and is incorporated herein by reference.
PART IV
-------
ITEM 14: FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K
- ------- ------------------------------------------------------
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements
---------------------------------
Report of Independent Public Accountants
Consolidated Balance Sheets At December 31, 1995 and 1994
Consolidated Statements of Operations For Years Ended December 31, 1995,
1994 and 1993
Consolidated Statements of Shareholders' Investment For Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows For Years Ended December 31, 1995,
1994 and 1993
Notes to Consolidated Financial Statements
(2) Exhibits
--------
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 Reorganization agreement with Sports Imprints, Inc.
Incorporated by reference to exhibit 2.1 to the Registrant's 1994
Form 10-K, filed March 1995.
2.2 Settlement agreement in the Registrant's Securities Class
Action litigation. Incorporated by reference to exhibit 2.5 to
the Registrant's 1994 Form 10-K, filed March 1995.
3.1 Certificate of Incorporation of the Registrant and all
amendments thereto. Incorporated by reference to exhibit 1 to
the Registrant's Form 8-K filed November 1991.
3.2 Certificate of Amendment to the Certificate of
Incorporation of Littlefield, Adams & Company amending Article IV
to increase the number of shares of Common Stock authorized for
issuance from 3,000,000 shares, $1.00 par value, to 25,000,000
shares, $1.00 par value. Incorporated by reference to exhibit 3.2
to the Registrant's 1994 Form 10-K, filed March 1995.
3.3 Certificate of Amendment to the Certificate of
Incorporation of Littlefield, Adams & Company amending Article VI
to provide for classification of the Board of Directors into
three classes. Incorporated by reference to exhibit 3.3 to the
Registrant's 1994 Form 10-K, filed March 1995.
3.4 Composite copy of the Certificate of Incorporation of the
Registrant. Incorporated by reference to exhibit 3.4 to the
Registrant's 1994 Form 10-K, filed March 1995.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 15
<PAGE> 18
3.5 By laws of the Registrant, as amended.
10.1 Deed of trust secured by property on Rockland Avenue in
Roanoke, Virginia. Incorporated by reference to exhibit 10.1
to the Registrant's Form 8-K filed October 1990.
10.2. A. Promissory Note for $250,000, dated August 29, 1994, between
Collegiate Pacific Company and The Bank of Floyd. Incorporated
by reference to exhibit 10.2A to the Registrant's 1994 Form
10-K, filed March 1995.
B. Line of Credit of $500,000, dated August 29, 1994, between
Collegiate Pacific Company and The Bank of Floyd. Incorporated
by reference to exhibit 10.2B to the Registrant's 1994 Form
10-K, filed March 1995.
10.3 Agreements with bankruptcy creditors of Sports Imprints, Inc.,
for Purchase of Claims. Incorporated by reference to exhibit
10.3 to the Registrant's 1994 Form 10-K, filed March 1995.
10.4 Financing Agreement with Merchant Factors Corp. dated October
16, 1993. Incorporated by reference to exhibit 10.27.2. to the
Registrant's Form 8-K filed February 7, 1994.
10.5 Littlefield, Adams & Company Incentive Plan. Incorporated by
reference to exhibit 2.1 to the Registrant's 1994 Form 10-K,
filed March 1995.
10.6 Settlement Agreement between Harley-Davidson Motor Co. and
Sports Imprints division of Littlefield, Adams & Company, dated
March 1, 1996, relating to License Agreement with
Harley-Davidson Motor Co., dated January 12, 1995.
10.7 License agreement with PepsiCo, Inc., dated as of February 1,
1996.
10.8 Full and Final Release and Settlement Agreement by and among
Littlefield, Adams & Company, Jeffers, Brook, Kreager and
Gragg, Inc., David Ylitalo, and Michael Kreager.
10.9 Financing Agreement with Merchant Factors Corp., dated January
25, 1996.
16.1. A. Letter dated September 22, 1994, re: Change in Certifying
Accountant, from former independent accountant Carneiro,
Chumney & Co., L.C. Incorporated by reference to exhibit 16(i)
to Amendment No. 1 to Form 8-K/A, filed November 2, 1994.
B. Letter dated November 1, 1994, re: Change in
Certifying Accountant, from former independent accountant
Carneiro, Chumney & Co., L.C. Incorporated by reference to
exhibit 16(ii) to Amendment No. 1 to Form 8-K/A, filed
November 2, 1994.
21. N/A
27. Financial Data Schedule.
99.1. Letter dated November 1, 1994, from new independent accountant
Arthur Andersen LLP regarding Form 8-K/A Amendment No. 1.
Incorporated by reference to exhibit 99(ii) to Amendment No. 1
to Form 8-K/A, filed November 2, 1994.
(b) REPORTS ON FORM 8-K:
-------------------
No reports on Form 8-K were filed in the fourth quarter of 1995.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 16
<PAGE> 19
ADDITIONAL INFORMATION
CORPORATE HEADQUARTERS
----------------------
253 North First Avenue; Sturgeon Bay, WI 54235
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
ARTHUR ANDERSEN, LLP
70 NE Loop 410, San Antonio, Texas 78216
GENERAL COUNSEL
---------------
DAVID M. SIMMONDS, ESQ.*
P.O. Box 70091; Bellevue, WA 98007
TRANSFER AGENT
--------------
MIDLANTIC NATIONAL BANK
Corporate Trust Department
P.O. Box 600; Edison, New Jersey 08818
Exhibits to the Form 10-K will be provided to shareholders of the Company
upon written request addressed to Stanley I. Halbreich, Investor Relations,
Littlefield, Adams & Company; 253 North First Avenue; Sturgeon Bay, WI 54235.
Any exhibits furnished are subject to a reasonable photocopying charge.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF
THIS FORM 10-K AND ANNUAL REPORT TO SHAREHOLDERS NOR HAS IT PASSED UPON ITS
ACCURACY OR ADEQUACY.
* Mr. Simmonds also serves as the Company's Chairman & Co-Chief Executive
Officer.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 17
<PAGE> 20
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, this 29th day of
March 1996.
LITTLEFIELD, ADAMS & COMPANY
By: /s/ David M. Simmonds By: /s/ Jerrold Luloff
-------------------------- ---------------------
David M. Simmonds Jerrold Luloff
Chairman and Co-CEO* President and Co-CEO*
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.
<TABLE>
<S> <C> <C>
Chairman and Co-CEO* (co-principal
/S/ DAVID M. SIMMONDS executive officer), Director March 29, 1996
- ---------------------------
David M. Simmonds
President and Co-CEO* (co-principal
/S/ JERROLD LULOFF executive officer), Director March 29, 1996
- ---------------------------
Jerrold Luloff
Chief Financial Officer and Treasurer
(principal financial and accounting
/S/ STANLEY I. HALBREICH officer), Director March 29, 1996
- ---------------------------
Stanley I. Halbreich
/S/ MICHAEL J. GILSON Director March 29, 1996
- ---------------------------
Michael J. Gilson
/S/ WILLIAM E. GOETTELMAN Director March 29, 1996
- ---------------------------
William E. Goettelman
(Mr. Stuth is incapacitated
and did not sign document) Director N/A
- ---------------------------
John K. Stuth
</TABLE>
*(Refer to Item 10: Directors and Executive Officers of the Registrant.) On
March 5, 1996, David M. Simmonds was elected Chairman and Co-Chief Executive
Officer, and Jerrold Luloff was elected President and Co-Chief Executive
Officer, by the Company's Board of Directors.
Littlefield, Adams & Company 1995 Form 10-K, PAGE 18
<PAGE> 21
[ARTHUR ANDERSEN LLP LETTERHEAD]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Littlefield, Adams & Company:
We have audited the accompanying consolidated balance sheets of Littlefield,
Adams & Company (a New Jersey corporation) and subsidiaries (the Company) as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, shareholders' investment and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The financial statements of the Company for the year ended
December 31, 1993, were audited by other auditors whose report thereon dated
March 18, 1994, expressed an unqualified opinion on those statements. The
opinion of such auditors, however, does not cover the restatement of those
statements as discussed in Note 4. We do not express an opinion on the 1993
financial statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Littlefield, Adams & Company
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has been
largely dependent on sales of specific licensed products during the past three
years. The Company's license agreement relating to the right to sell such
licensed products will expire on December 31, 1996, and it is probable such
license agreement will not be renewed. Such sales represented 89%, 80% and 55%
of total consolidated sales in 1995, 1994 and 1993, respectively. In addition,
the Company incurred a net loss in 1995, has a working capital deficit at
December 31, 1995, and has limited financial resources available to support its
ongoing operations. These matters, as further discussed in Notes 2 and 3,
raise substantial doubt concerning the ability of the Company to continue as a
going concern. Management's plans regarding these matters are also discussed
in Notes 2 and 3. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result
should the Company be unable to continue as a going concern.
San Antonio, Texas /s/ ARTHUR ANDERSEN LLP
March 13, 1996
F-1
<PAGE> 22
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash $ 241 $ 221
Accounts receivable:
Trade, net of allowances of $288 and $329
for 1995 and 1994, respectively 1,010 2,792
Other 43 88
Inventories 3,332 3,624
Prepaid expenses and other current assets 163 275
------- -------
Total current assets 4,789 7,000
Property, plant and equipment, net 1,109 1,254
Goodwill, net 524 599
Notes receivable and other assets, net of allowances of
$75 and $0 for 1995 and 1994, respectively 254 379
------- -------
TOTAL ASSETS $ 6,676 $ 9,232
======= =======
<CAPTION>
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,041 $ 2,147
Accrued expenses 1,805 2,579
Notes payable 28 10
Revolving lines of credit 1,754 1,136
Current portion of long-term debt 456 523
------- -------
Total current liabilities 5,084 6,395
Creditors' debt settlement 109 205
Long-term debt, less current portion 10 14
Deferred compensation 49 46
Class action settlement payable in common stock 1,400 1,400
Commitments and contingencies -- --
Shareholders' investment:
Common stock, $1.00 par; authorized 25,000,000;
issued 2,296,145 for 1995 and 2,371,145 for 1994; outstanding
2,279,647 and 2,277,267 for 1995 and 1994, respectively 2,296 2,371
Capital in excess of par value 5,406 5,474
Accumulated deficit (7,575) (6,583)
------- -------
127 1,262
Treasury stock, at cost - shares of 16,498 and
18,878 for 1995 and 1994, respectively (103) (90)
------- -------
24 1,172
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 6,676 $ 9,232
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE> 23
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------------------
1993 (Unaudited)
1995 1994 (Note 4)
---------- ---------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Net product sales $ 14,478 $ 24,329 $ 16,541
Other revenues 257 228 181
---------- ---------- ----------
Total revenues 14,735 24,557 16,722
Costs and expenses:
Cost of products sold 10,073 16,214 11,490
Selling and administrative 5,752 7,081 5,183
---------- ---------- ----------
Total costs and expenses 15,825 23,295 16,673
---------- ---------- ----------
Income (loss) from operations (1,090) 1,262 49
Other income (expense):
Gain on sale of property 49 68 --
Interest (327) (379) (280)
Litigation costs and defalcation losses -- -- (3,810)
Litigation settlement, net 362 -- --
---------- ---------- ----------
Income (loss) before benefit (provision) for
income taxes (1,006) 951 (4,041)
Benefit (provision) for income taxes 14 (294) (129)
---------- ---------- ----------
Net income (loss) $ (992) $ 657 $ (4,170)
========== ========== ==========
Weighted average common shares outstanding 2,275,701 2,230,391 2,058,731
========== ========== ==========
Net income (loss) per common share $ (0.44) $ 0.29 $ (2.03)
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 24
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(UNAUDITED AS TO 1993 AND 1992)
<TABLE>
<CAPTION>
Capital in
Common Excess of Accumulated Treasury
Stock Par Value Deficit Stock
------ --------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1992 $1,852 $2,023 $(3,070) $(665)
Sale of 110,500 shares of common stock 111 798 -- --
Theft of 52,500 shares of common stock recorded
as a defalcation loss 52 534 -- --
Issuance of 45,000 shares of common stock to
settle litigation 45 330 -- --
Issuance of 180,000 shares of common stock to
affect acquisitions 180 588 -- --
Additional value for contingent shares to be
issued for acquisition -- 244 -- --
Issuance of 10,684 shares of common stock to
creditors of acquired company 11 107 -- --
Reissuance of 15,000 shares of treasury stock
to a director for award -- 61 -- 72
Theft of 1,800 shares of treasury stock recorded as
a defalcation loss -- 7 -- 8
Reissuance of 2,535 shares of treasury stock for
equipment -- 4 -- 12
Reissuance of 600 shares of treasury stock to
employees as stock bonus -- 7 -- 3
Sale of 25,200 shares of treasury stock -- 129 -- 121
Reissuance of 4,500 shares of treasury stock as
finder's fee -- 24 -- 22
Issuance of 120,000 shares of common stock to be
held in escrow, contingently issuable to affect
acquisition 120 (120) -- --
Theft of 45,000 shares of stock held in escrow
recorded as a defalcation loss -- 765 -- --
Net loss (Note 4) -- -- (4,170) --
------ ------ ------- -----
Balance at December 31, 1993 2,371 5,501 (7,240) (427)
Reissuance of 20,396 shares of treasury stock as
contingent acquisition consideration -- (98) -- 98
Reissuance of 35,000 shares of treasury stock as
officers' bonuses -- 47 -- 167
Reissuance of 15,000 shares of treasury stock as
directors' awards -- 24 -- 72
Net income -- -- 657 --
------ ------ ------- -----
Balance at December 31, 1994 $2,371 $5,474 $(6,583) $ (90)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 25
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(UNAUDITED AS TO 1993 AND 1992)
<TABLE>
<CAPTION>
Capital in
Common Excess of Accumulated Treasury
Stock Par Value Deficit Stock
------ ---------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31, 1994 $2,371 $5,474 $(6,583) $ (90)
Retirement of 75,000 shares previously held in
escrow as contingent acquisition consideration (75) 75 -- --
Acquisition of 7,974 shares of treasury stock -- -- -- (88)
Acquisition of 12,690 shares of treasury stock -- -- -- (68)
Reissuance of 23,044 shares of treasury stock as
contingent acquisition consideration -- (143) -- 143
Net loss -- -- (992) --
------ ------ ------- -----
Balance at December 31, 1995 $2,296 $5,406 $(7,575) $(103)
====== ====== ======= =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 26
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------
1993
1995 1994 (Unaudited)
-------------- ----------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (992) $ 657 $ (4,170)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization 545 330 270
Gain on sale of property and equipment (49) (69) (16)
Expenses paid with treasury stock -- 251 188
Class action and other litigation settled with common
stock -- -- 1,775
Defalcation losses from stock theft -- -- 1,367
Changes in operating assets and liabilities:
(Increase) decrease in accounts and notes receivable, net 1,739 1,698 (3,611)
(Increase) decrease in inventories, net 292 (149) (1,680)
(Increase) decrease in prepaid expenses and other
current assets 3 (105) 208
Increase (decrease) in accounts payable (1,106) (478) 1,734
Increase (decrease) in accrued expenses and other (771) 523 1,778
-------- -------- ----------
Net cash provided by (used in) operating activities (339) 2,658 (2,157)
Cash flows from investing activities:
Cash received with subsidiary acquisition -- -- 127
Proceeds from sale of property and equipment 127 150 45
Purchase of property, plant and equipment (239) (351) (159)
(Increase) decrease in notes receivable and other assets 70 34 (1)
-------- -------- ----------
Net cash provided by (used in) investing activities $ (42) $ (167) $ 12
Cash flows from financing activities:
Increase (decrease) in bank overdraft $ -- $ (24) $ 24
Proceeds from line of credit and short term borrowings 16,244 24,240 7,142
Repayments of line of credit and short term borrowings (15,626) (26,287) (5,833)
Payment on creditors' debt settlement (96) (269) (291)
Proceeds from bank and other notes payable 93 250 --
Repayment of bank and other notes payable (146) (180) (57)
Proceeds from sale of common stock -- -- 909
Proceeds from the sale of treasury stock -- -- 250
Purchases of treasury stock (68) -- --
-------- -------- ----------
Net cash provided by (used in) financing activities 401 (2,270) 2,144
-------- -------- ----------
Net increase (decrease) in cash 20 221 (1)
Cash at beginning of year 221 -- 1
-------- -------- ----------
Cash at end of year $ 241 $ 221 $ --
======== ======== ==========
The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
F-6
<PAGE> 27
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<S> <C> <C> <C>
Supplemental disclosures of cash flows information:
Cash paid during the year for interest $333 $376 $277
Cash paid during the year for income taxes $322 $144 $ --
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In January 1993, the Company issued 150,000 shares to acquire 100%
of the outstanding stock of another company in a stock-for-stock
transaction. The net book value of the assets of the acquired company
totaled approximately $83. The transaction which was accounted for as a
purchase resulted in a step up in basis of the acquired assets of
approximately $177 and an additional $749 recorded as goodwill associated
with the purchase transaction.
In March 1993, the Company issued 22,500 and 7,500 shares in
connection with two acquisitions accounted for as poolings of interest.
In May 1993, the Company issued 10,684 shares of common stock to
creditors of one of its subsidiaries in settlement of $117 of
subsidiary's outstanding liabilities.
In May 1995, the Company received 7,974 shares of its own stock
which satisfied a receivable of $88.
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 28
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Note 1: Summary of Significant Accounting Policies
- ------ ------------------------------------------
Basis of Presentation -
The accompanying consolidated financial statements include the
accounts of Littlefield, Adams & Company and its subsidiaries, Medical Sales
Associates, Inc., Cornerstone Laboratories, Inc., and NUTECH, Inc. ("the
Company"). The former wholly owned subsidiaries, Collegiate Pacific Company and
Sports Imprints, Inc. were merged into Littlefield, Adams & Company effective
June 30, 1995. Medical Sales Associates, Inc., Cornerstone Laboratories, Inc.,
and NUTECH, Inc., were dissolved subsequent to December 31, 1995, and had no
significant operations in each of the years ended December 31, 1995, 1994 and
1993 and had no consolidated assets or liabilities as of December 31, 1995. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Reclassifications -
Certain reclassifications have been made to prior year amounts to
conform to current year presentations.
Nature of Business -
The Company is principally engaged in the imprinting and distribution
of athletic and leisure wear products, under various license agreements. Prior
to August 31, 1995, the Company sold its products to customers in various
markets such as major nationwide retailers, college bookstores, resort areas and
theme parks across the United States. On August 31, 1995, the Collegiate
Pacific division was closed. Henceforth, the Company's distribution is
primarily to nationwide retailers.
Inventories -
Inventories are stated at the lower of cost (determined by the
first-in, first-out method) or market (net realizable value). Costs include
direct materials, direct labor and certain indirect manufacturing overhead
expenses.
Property, Plant and Equipment -
Property, plant and equipment are carried at historical cost less
accumulated depreciation and amortization. Depreciation is generally recorded
on the straight-line basis over the estimated useful lives of the related
assets. These are as follows:
<TABLE>
<S> <C>
Buildings and improvements 1-10 years
Machinery and equipment 10-30 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis, over the
shorter of the terms of the respective leases or their estimated useful lives.
Major renewals and betterments are capitalized. Maintenance, repairs and
renewals which do not extend the useful lives of property, plant and equipment
are expensed as incurred. When property, plant and equipment are retired or
otherwise disposed of, related cost and accumulated depreciation and
amortization are removed from the accounts and any gain or loss is reflected in
the determination of income.
Goodwill -
The Company has classified as goodwill the cost in excess of the fair
value of the net assets acquired of Sports Imprints, Inc., which was acquired
in a purchase transaction in early 1993. Goodwill is being amortized on a
straight-line basis over 10 years. Accumulated amortization was approximately
$225 and $150 in 1995 and 1994, respectively (Note 17A).
(Continued)
F-8
<PAGE> 29
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Income Taxes -
The Company files a consolidated federal income tax return which
includes all of its subsidiaries and divisions. Effective January 1, 1993, the
Company adopted Statement of Financial Accounting Standard (SFAS) No. 109
"Accounting for Income Taxes," which requires the use of the liability method
of accounting for deferred income taxes. The adoption of SFAS No. 109 did not
have a material effect on the financial position or results of operations of
the Company.
The provision for income taxes includes federal, state and local income
taxes currently payable and those deferred because of temporary differences
between the financial statement and tax bases of assets and liabilities.
Treasury Stock -
The purchase of the Company's treasury stock is recorded using the cost
method. Issuances of treasury stock are recorded at average cost.
Revenue Recognition -
Revenues are recognized when products are shipped and are shown net of
sales returns and allowances.
Net Income (Loss) Per Common Share -
Net income (loss) per share is computed on the income (loss)
applicable to common stock and common stock equivalents, and the weighted
average common shares outstanding during the year, which were 2,275,701 in
1995, 2,230,391 in 1994 and 2,058,731 in 1993.
Estimates in the Financial Statements -
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 and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expense during the reporting
period. Actual results could differ from those estimates.
Note 2: Future Operations
- ------ -----------------
The Company has been largely dependent on sales of Harley-Davidson
licensed products to generate cash flow from operations and provide funds to
meet the Company's obligations as they become due. As described in
Note 3, the Company's Harley-Davidson license agreement will expire on December
31, 1996, and it is probable such agreement will not be renewed. Sales of
Harley-Davidson licensed products accounted for 89%, 80% and 55% of total
consolidated net product sales for the years ended December 31, 1995, 1994 and
1993, respectively. The Company's inability to continue its relationship with
Harley-Davidson subsequent to December 31, 1996, will have a material adverse
effect on its future results of operations. In the event that the Company
cannot generate sufficient sales of other licensed products, it is probable
that the Company will not be able to continue as a going concern. The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
(Continued)
F-9
<PAGE> 30
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
The Company has also incurred a net loss of $992 for the year ended
December 31, 1995, has a working capital deficit of $295 at December 31, 1995,
and has limited financial resources available to support existing operations
until such time, if ever, sales of other licensed products are sufficient to
generate positive cash flow from operations at levels necessary to meet the
Company's obligations as they become due. These factors raise substantial
doubt concerning the ability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon the
ongoing support of its stockholders, customers and creditors and its ability to
generate sufficient sales of other licensed products subsequent to termination
of the Harley-Davidson license agreement.
In response to the matters discussed above, the Company has developed
certain new licenses as described in Note 3, and intends to pursue other new
license agreements throughout 1996 to replace the sales volume currently
attributable to the Company's Harley-Davidson licensed products. Further, as
described in Note 6, the Company closed its Collegiate Pacific Division, which
incurred an operating loss of $495 for the year ended December 31, 1995. This
loss will be non-recurring for 1996 and beyond. Closure of this division
eliminates the negative operating cash flow associated with these operations.
The sale of various Collegiate Pacific assets is expected to generate in excess
of $500 during 1996, which will be used to reduce long-term debt. The Company
also intends to close its Sturgeon Bay, Wisconsin office during 1996, and
consolidate all of its operations in Huber Heights, Ohio. The Company believes
that the consolidation of its operations in Ohio will, over time, result in
significant cost savings.
As part of its effort to enhance and stabilize its business through the
acquisition of significant new licenses and the development of new product
lines, the Company, subsequent to the year ended December 31, 1995, entered
into a two year license agreement with PepsiCo, Inc. for its soft drink brands
(Note 3). However, there can be no assurance that the Company will be
successful in its efforts to acquire significant new licenses or that, if it
is able to do so, that such new licenses will result in increased revenue or
profits.
Management believes that if sales increase or remain at levels
consistent with those for 1995, income from operations will increase in 1996
due to reductions in certain expenses. If accomplished, this will, in
management's estimation, generate sufficient cash flow from operations during
1996 to sustain the Company at least through the first quarter of 1997, and
support the Company's effort to achieve sufficient sales revenue from new
licenses to offset the reduction in revenue resulting from the expected
expiration of the Harley-Davidson license on December 31, 1996. There can be
no assurance, however, that the Company will be successful in its efforts to
maintain or increase sales levels or that, if it is able to do so, that the
revenue from such sales will be sufficient to sustain the Company for any
particular period.
Note 3: Concentration of Sales and Credit Risk
- ------ --------------------------------------
Significant Customers-
The Company manufactures and sells imprinted apparel to retailers. The
Company's customers are reputable national retail discount chains. Effective
February 1, 1996, the Company entered into a factoring arrangement for all
accounts, except the Company's largest retail customer. The Company, at its
option and its credit risk, can factor accounts receivable that the factor does
not approve for credit. Management believes that historically, bad debt
expense has been minimal.
(Continued)
F-10
<PAGE> 31
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Sales to customers which individually exceeded 10% of consolidated net
product sales were as follows:
<TABLE>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer 1 66% 40% 25%
Customer 2 4% 10% 12%
---- ---- ----
Total 70% 50% 37%
==== ==== ====
</TABLE>
Trade receivable balances relating to these two customers were
approximately $713 and $197 at December 31, 1995. The trade receivable
balances relating to the two customers were $1,255 and $355 at December 31,
1994.
Significant Licensors-
The Company has one significant license, Harley-Davidson, which expires
December 31, 1996.
Other licenses and their respective expiration dates are as follows:
LICENSE EXPIRATION
--------------------- -------------
The National Pastime December 1996
PAWS, Inc. (Garfield) December 1996
MGM / United Artists December 1997
Tales of the Crypt December 1997
Laguna December 1997
Wild Wings August 1998
Harley-Davidson licensed sales accounted for 89%, 80% and 55% of total
sales for the years ended December 31, 1995, 1994 and 1993, respectively. The
Company has signed a license agreement with Harley-Davidson through December
31, 1996. The terms of the Harley-Davidson license agreement require that the
Company resign and terminate the agreement upon expiration at December 31,
1996. Therefore, the Company believes it is probable that the Harley-Davidson
license agreement will not be renewed after December 31, 1996. The Company's
inability to continue its relationship with Harley-Davidson will have a
material adverse effect on its future results of operations. In the event that
the Company cannot generate sufficient revenues from sales of other licensed
products, it is probable that the Company will not be able to continue as a
going concern (Note 2).
In response to the anticipated Harley-Davidson license termination
discussed above, the Company has developed, and will continue to pursue, new
license opportunities in order to replace the sales volume attributable to the
Company's Harley-Davidson licensed products. Subsequent to the year ended
December 31, 1995, the Company entered into a two-year license agreement with
PepsiCo, Inc., covering PepsiCo soft drink brands "Pepsi", "Pepsi-Cola", "Diet
Pepsi", "Diet Pepsi-Cola", "Mountain Dew" and "Slice", for national
distribution to mass merchandisers and department stores. However, there can
be no assurance that the Company will be successful in its efforts to acquire
significant new licenses or that, if it is able to do so, that the revenue from
such licenses will be sufficient to replace the sales volume and revenue
attributable to the Company's Harley-Davidson licensed products.
The minimum royalties to be paid in future years are:
<TABLE>
<S> <C>
1996 $269
1997 80
----
$349
====
</TABLE>
(Continued)
F-11
<PAGE> 32
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Note 4: Restatement of Prior Period Results
- ------ -----------------------------------
As a result of investigations by the Company and the Securities and
Exchange Commission and inquiries by its current independent public
accountants, the Company reviewed its accounting treatment for certain prior
year transactions and concluded that restatements were required to be made to
the previously issued financial statements for the year ended December 31,
1993, as described below.
The Company has been unable to obtain a report of independent public
accountants related to the restated consolidated financial statements for 1993
due to the class action litigation as described in Note 20 and disputes between
the Company and its former auditor concerning performance of the auditor for
such years and related unpaid professional fees.
1993-
----
In January 1993, the Company acquired 100% of the outstanding stock of
Sports Imprints, Inc. in exchange for 150,000 shares of the Company's
previously unissued common stock in a business combination accounted for as a
purchase. The original purchase transaction was recorded utilizing an 80%
discount on the market value of the Company's stock. The Company has reviewed
such valuation and determined that the 80% discount did not result in a
reasonable estimate of value of the restricted stock issued and has determined
that a 40% discount from market value results in a more accurate estimate of
valuation of the purchase transaction. The additional purchase value resulting
from the change in the discount rate utilized amounted to $505 and has been
recorded as goodwill and is being amortized over ten years, effective January
1, 1993 (Note 17A).
The purchase agreement, as amended, between the Company and the former
owners and a key employee of Sports Imprints, Inc., requires additional
contingent shares ("earn-out shares") be issued based on the performance of
Sports Imprints, Inc., for the years ended December 31, 1993, 1994 and 1995.
The earn-out shares to be issued for the performance of Sports Imprints, Inc.
during the first two years have been recorded as goodwill associated with the
purchase transaction. In November 1994, 20,396 shares were issued for the 1993
earn-out. The earn-out for 1994 was 46,088 shares. In July 1995, 23,044
shares were issued and the balance, 23,044 shares, are expected to be issued in
1996. Utilizing a 40% discount on market value, $169 and $75 of goodwill was
recorded for the 1994 and 1993 earn-out shares, respectively. There are no
earn-out shares for 1995.
A total of 15,600 shares of treasury stock issued to a director and
employees during 1993 were previously recorded utilizing a discount of 80% on
the market value at the date of issuance. In accordance with generally
accepted accounting principles, stock issued to employees and officers should
be recorded at fair market value. The restatement of these transactions
increased expense and capital in excess of par value by $114.
The Company originally recorded an expense of $15 for the issuance of
4,500 shares of treasury stock to a third party for a finder's fee. The
Company is now restating the transaction to reflect a 40% discount utilized,
versus the 80% used in the original transaction. The restatement of this
transaction increased expense and capital in excess of par value by $30.
In September 1993, the Company entered into a three-year management
agreement with Custom Orthotics, Inc. to acquire the exclusive right to
distribute Protech IV, a wheelchair seating system, in exchange for 45,000
shares of the Company's common stock. The Company has never marketed or sold
such a wheelchair system and has no plans to do so in the future. The
transaction was originally recorded as an intangible asset valued at $125
utilizing a discount of 80% on the market value. The asset was being amortized
over 36 months. The Company has since determined that the stock issued was an
inseparable part of related litigation settled in 1993 and that the
(Continued)
F-12
<PAGE> 33
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
management agreement should not have been valued as a part of such transaction.
In restating the 1993 financial statements, the Company has recorded an
expense for the litigation settlement of $375 based on a 40% discount on market
value and reversed the $125 intangible asset and related accumulated
amortization of $10. Capital in excess of par value has been increased by $250
due to the change in the discount rate utilized.
Based on supplementary information obtained, the Company has
identified and recorded additional selling and administrative expenses of $527
for 1993 related to accounting errors. Non current liabilities were increased
by $477 for previously unrecorded liabilities related to selling expenses and
current liabilities were increased by $50 for earned but unused vacation pay.
In addition, cost of goods sold decreased by $82 to correct an accounting error.
During 1993, the Company recorded the issuance of 52,500 shares of
previously unissued stock and 1,800 shares of treasury stock to directors as
compensation. Compensation expense associated with such stock issuance of $120
was recorded at market value of the common stock less a discount of 80%. The
Company has subsequently determined that the stock was not issued for services
rendered by the directors. The former Chairman, CEO and President, Curtis A.
Younts, Jr. caused the shares to be issued by the Company in settlement of his
personal or his affiliates' obligations. The Company has restated the 1993
financial statements to reflect the fair value of the stock of $602 as
defalcation losses.
After obtaining the corporate records from the former Chairman, CEO and
President, Curtis A. Younts, Jr., in June 1994, the Company determined 45,000
shares of the stock previously held by Mr. Younts as escrow agent, had been
reissued without authorization to Mr. Younts in October 1993 and subsequently
used by him to satisfy his personal obligations. The $765 market value of the
shares taken has been recorded as a defalcation loss as part of the 1993
restatement.
During 1993, the Company recognized $50 in consulting income and a
corresponding receivable for services allegedly performed by the former
Chairman, CEO and President, Curtis A. Younts. Jr., relating to oil and gas
consultation. Upon investigation, the Company believes these services were
never performed and payment for these services never received by the Company.
Accordingly, the income and receivable have been removed from the 1993
consolidated financial statements.
As part of the restatement, the Company has recorded $215 of defalcation
losses related to misappropriation of Company funds by the former Chairman, CEO
and President, Curtis A. Younts, Jr., and certain parties and affiliates
related to him. Professional fees incurred in subsequent periods but related
to this and other defalcation losses previously mentioned totaled $370 and were
restated as 1993 expenses.
On February 21, 1995, the Company reached an agreement with the plaintiffs
in the Securities Class Action litigation to settle all such claims, as well
as certain related claims involving other parties (Note 20). Under the terms
of this agreement, which is subject to court approval, the Company will issue
$1,400 in stock and pay $210 in cash to the members of the class to settle the
claims brought by the securities plaintiffs. The Company would, however,
receive $360 from the settlement of a related matter. During 1995, the Company
received $210 of the $360, and the $210 is being held in an escrow account by
the Company's attorneys. In return, the Company will receive releases from the
plaintiffs and the other defendants and has recorded a litigation loss in 1993
of approximately $1,600 which includes $336 of legal and professional fees
incurred related to the class action litigation. As part of restating the 1993
consolidated financial statements, the Company has recorded the value of the
common stock payable as a long-term liability.
(Continued)
F-13
<PAGE> 34
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
The Consolidated Balance Sheets, Statements of Operations, Shareholders'
Investment and Cash Flows have been restated to reflect the foregoing items.
The following table sets forth selected information as originally reported and
as restated for the year ended December 31, 1993.
<TABLE>
<CAPTION>
Year Ended
December 31, 1993
-----------------
<S> <C>
Net income (loss):
As originally reported ................................... $ 222
Restatement adjustment ................................... (4,392)
-----------
Restated net loss ................................ $ (4,170)
===========
Net income (loss) per share:
As originally reported ................................... $ 0.10
Restatement adjustment ................................... (2.13)
-----------
Restated net loss per share ...................... $ (2.03)
===========
Weighted average common shares outstanding:
As originally reported.......................................... 2,163,600
Restatement adjustment.................................... (104,869)
-----------
Restated weighted average common shares outstanding 2,058,731
===========
</TABLE>
Note 5: Inventories
- --------------------
Inventories at December 31 are summarized as follows:
<TABLE>
1995 1994
---- ----
<S> <C> <C>
Raw materials $1,838 $2,101
Finished goods 1,895 1,628
Allowance for inventory obsolescence (401) (105)
------ ------
$3,332 $3,624
====== ======
</TABLE>
(Continued)
F-14
<PAGE> 35
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Note 6: Property, Plant and Equipment
- --------------------------------------
Property, plant and equipment at December 31 is summarized as follows:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Land $ 95 $ 95
Building and improvements 906 902
Machinery and equipment 1,609 2,343
------- -------
2,610 3,340
Less: Accumulated depreciation and amortization (1,501) (2,086)
-------- ------
$ 1,109 $ 1,254
======= =======
</TABLE>
As a result of the Company closing its Collegiate Pacific division, the
Company has included in the balance of property, plant and equipment at December
31, 1995, assets to be disposed of with net book values of approximately $206 of
machinery and equipment and $382 related to the land and building of the
Collegiate Pacific division. Management believes the fair value of the above
assets exceeds the above stated net book values at December 31, 1995 and
anticipates disposition of these assets within the next two years. Selected
results of operations of the Collegiate Pacific division for the years ended
December 31, 1995, 1994 and 1993 and which will be non-recurring in 1996 and
beyond, are summarized below:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenues $ 1,527 $ 3,756 $ 3,104
Expenses (2,022) (3,817) (3,629)
Loss from operations (495) (61) (525)
Depreciation 103 93 101
Gain on sales of assets 34 68 --
</TABLE>
Note 7: Recoverability of Long-Lived Assets
- --------------------------------------------
During the fourth quarter of 1995, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121).
SFAS 121 requires an assessment of the recoverability of the Company's
investment in long-lived assets to be held and used in operations whenever
events or circumstances indicate that their carrying amounts may not be
recoverable. Such assessment requires that the future cash flows associated
with the long-lived assets be estimated over their remaining useful lives and
an impairment loss recognized when the future cash flows are less than the
carrying value of such assets.
(Continued)
F-15
<PAGE> 36
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
The Company has assessed the recoverability of its investment in
long-lived assets to be held and used in operations under the guidelines set
forth in SFAS 121 and determined that no impairment loss was required as of
December 31, 1995. Such assessment required the Company to make certain
estimates of future sales volumes and prices which are expected to occur over
the remaining useful lives of its long-lived assets. Such long-lived assets
primarily consist of the Company's investment in property, plant and equipment
and goodwill. The Company's estimates of these factors are based upon
management's belief that the Company will be successful in developing new
license agreements thereby generating sales of licensed products other than
Harley-Davidson products in years subsequent to 1996.
Although the Company believes it has a reasonable basis for its estimates
of future sales volumes and prices, it is reasonably possible that the
Company's actual performance could materially differ from such estimates.
Management expects that the Company's performance during 1996 will provide
additional evidence to confirm or disprove such future estimates. Management
also believes that if such estimates are not confirmed, revisions to such
estimates could result in a material impairment loss on its long-lived assets
constituting all or a material portion of the carrying value of the Company's
property, plant and equipment and goodwill which were $1,109 and $524,
respectively, at December 31, 1995.
Note 8: Accrued Expenses
- -------------------------
Included in accrued expenses at December 31, 1995 are $976 of accrued
royalties, $229 of professional fees, $95 current portion of creditors' debt
settlement and $76 accrued income taxes.
The December 31, 1994 balance of accrued expenses consists primarily of
$994 of accrued royalties, $706 of professional fees primarily relating to the
class action and defalcation losses (Notes 4 and 20), $270 current portion of
creditor's debt settlement and $294 accrued income taxes.
Note 9: Revolving Lines of Credit
- ----------------------------------
On January 17, 1992, Collegiate Pacific Company entered into a $750 line
of credit agreement with the Bank of Floyd, Virginia, payable on demand, and
providing for monthly payments of not less than .25% of the outstanding
principal balance and accrued interest. Effective August 29, 1994, the Bank of
Floyd reduced the maximum principal amount available to $500, payable on
demand. In addition, the Bank of Floyd set the interest rate on the line of
credit at prime plus 1%. The Company is required to make monthly payments of
.25% of the outstanding principal balance and accrued interest until the line
is repaid in full or until the related collateral is sold (Note 6). Collateral
consists of all of the plant equipment of Collegiate Pacific Company and is
guaranteed by Littlefield, Adams & Company. At December 31, 1995,
there were no additional borrowings available under this agreement.
On September 16, 1992, Collegiate Pacific Company signed an agreement for
a $3,000 revolving line of credit with Fremont Financial Corporation. The line
of credit was for accounts receivable and inventory financing and required
accounts receivable to be less than 90 days outstanding to be eligible
collateral. The line was secured by virtually all the assets of Collegiate
Pacific Company and was guaranteed by Littlefield, Adams & Company. The line
was carried as a current liability in the consolidated financial statements of
Littlefield, Adams & Company. In May 1994 the loan agreement was modified so
that the total line of credit was reduced to $750, with an inventory financing
limit of $150. Interest was charged on the outstanding balance at the rate of
3.75% per annum over the "Reference Rate" (as defined in the line of credit
agreement) of the Bank of America, San Francisco, California, with a minimum
monthly interest charge of approximately $7. Fremont Financial Corporation
notified the Company in May 1994, of its intention to terminate the agreement
on the scheduled expiration date of September 16, 1994. The Company continued
to utilize this line of credit under month-to-month extensions while
arrangements for replacement financing were being
(Continued)
F-16
<PAGE> 37
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
sought. As of August 1, 1995, the agreement with Fremont Financial Corporation
was terminated and the outstanding balance was repaid in full.
The Company had an accounts receivable financing agreement with Merchant
Factors Corp., which expired January 31, 1996, and which allowed Sports
Imprints to borrow up to 75% of net qualified accounts receivable. The balance
due at December 31, 1995, was approximately $1,269 and is being repaid as the
receivables are collected. The agreement bore interest at prime plus 3.5%.
Sports Imprints' accounts receivable were the collateral for this loan, as well
as the guarantee provided by Littlefield, Adams & Company. Additionally,
Merchant Factors Corp., when needed, issued purchase guarantees and/or letters
of credit against this line of credit which are collateralized by the related
inventory purchases. At December 31, 1995, there were no outstanding purchase
guarantees and/or letters of credit issued by Merchant Factors Corp. At
December 31, 1994, outstanding purchase guarantees and/or letters of credit
issued by Merchant Factors Corp. amounted to approximately $517. At December
31, 1995, there were no additional borrowings available under this agreement.
For the year ended December 31, 1995, Merchant Factors Corp., under a
special loan arrangement, lent the Company additional amounts not exceeding
$600 at any one time, secured by the Company's inventory. This arrangement was
repaid in full in January 1996.
Effective February 1, 1996, the Company entered into a new discount
factoring agreement with Merchant Factors Corp., which expires in August 1997.
All of the Company's accounts receivable which Merchant Factors Corp. approves
for credit, excluding Wal-Mart, are being factored at the rate of 1 1/8%, which
eliminates credit risk to the Company. The Company, at its option, can factor
at a rate of 1 1/8%, with recourse, accounts that Merchant Factors Corp. does
not approve for credit. Under this factoring agreement, the Company may borrow
up to 75% of the accounts receivable at an annual interest rate of prime plus
2.5%.
In addition, the Company has an accounts receivable financing arrangement
with Merchant Factors Corp., covering only its accounts receivable from
Wal-Mart. This agreement allows the Company to borrow up to 75% of its net
receivables from Wal-Mart at an annual interest rate of prime plus 5%. The
Company does not pay any factoring fees for the financing of the Wal-Mart
accounts receivable.
The weighted average interest rates on short-term borrowings were 12.33%,
10.98% and 8.20% as of December 31, 1995, 1994 and 1993, respectively.
Outstanding balances are as follows:
<TABLE>
<CAPTION>
December 31,
----------------
1995 1994
------ ------
<S> <C> <C>
The Bank of Floyd $ 485 $ 499
Fremont Financial Corporation -- 373
Merchant Factors Corp. 1,269 264
------ ------
$1,754 $1,136
====== ======
</TABLE>
(Continued)
F-17
<PAGE> 38
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Note 10: Long-Term Debt
- ------------------------
<TABLE>
<CAPTION>
December 31,
--------------
1995 1994
----- ------
<S> <C> <C>
Long-term debt balances are as follows:
Mortgage payable, principal callable after
January 1995, interest at 9.38%, due July 1, 2003,
payable monthly, collateralized by real property $253 $275
Note payable to a bank, principal callable on demand,
due September 1, 1999, interest at 8.75%, payable
monthly, collateralized by machinery and equipment 192 240
Other 21 22
----- ------
Total debt 466 537
Less - current portion 456 523
----- ------
$ 10 $ 14
===== ======
</TABLE>
Following are the maturities of long-term debt outstanding at December 31, 1995.
<TABLE>
<S> <C>
1996 $ 456
1997 9
1998 1
-----
$ 466
=====
</TABLE>
The schedule above reflects the classification of the mortgage payable and
the note payable to a bank as current maturities of long-term debt at December
31, 1995. Based on conversations between the Company and the bank, the Company
believes the likelihood of the note payable being called is remote and that the
obligation will be satisfied by net proceeds (after payment of the underlying
mortgage) from the sale of the Collegiate Pacific facility and by scheduled
payments through September 1, 1999. Regarding the mortgage payable, the
Company believes the mortgage will become due upon the earlier occurrence of
the sale of the Collegiate Pacific building (Note 6) or through scheduled
payments through July 1, 2003. The carrying value of total debt approximates
fair market value at December 31, 1995 and 1994.
Note 11: Creditors' Debt Settlement
- ------------------------------------
In December 1991 Sports Imprints, Inc. entered into a plan of
reorganization with its creditors and a bank pursuant to Chapter 11 of the U.S.
Bankruptcy Code. As a result, Sports Imprints, Inc., negotiated a payment plan
with its creditors that includes extending payments through 1996. Of the total
$204 to be repaid as of December 31, 1995, $95 is included in accrued expenses
in the accompanying consolidated financial statements and the remaining $109 is
shown as creditors' debt settlement. Early in 1993, Littlefield, Adams &
Company offered certain of these creditors cash or Littlefield, Adams & Company
common stock in full settlement of their debt. Several of these creditors
responded and, as a result, approximately 10,700 shares of company stock were
issued thereby relieving $117 of Sports Imprints, Inc.'s debt.
(Continued)
F-18
<PAGE> 39
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Note 12: Common Stock
- ----------------------
As of December 31, 1995, the Company had issued a total of 2,296,145
shares of its common stock. Treasury stock consisted of 16,498 shares, making
a total of 2,279,647 shares outstanding. As of December 31, 1994, the Company
had issued a total of 2,371,145 shares of its common stock. Treasury stock
consisted of 18,878 shares and 75,000 shares were held in escrow, making a
total of 2,277,267 shares outstanding.
On June 27, 1993, the Company approved a 50% stock dividend which was paid
on July 15, 1993. The dividend has been accounted for as a stock split. The
stock dividend has been applied retroactively in the accompanying consolidated
financial statements and all references to common stock and per share amounts
prior to June 27, 1993, have been restated to reflect this stock dividend.
Note 13: Sales and Repurchases of Treasury Stock
- -------------------------------------------------
During 1995, the Company reissued 23,044 shares as contingent
consideration for the Sports Imprints, Inc., acquisition in connection with the
earn-out agreement for 1994. Additionally, 75,000 shares previously held in
escrow as contingent acquisition consideration were retired and an additional
20,664 shares were reacquired.
In 1994, the Company reissued 20,396 shares as contingent consideration
for the Sports Imprints, Inc., acquisition in connection with the earn-out
agreement for 1993. Additionally, 35,000 shares were reissued to officers as
bonuses and 15,000 shares were reissued to directors as awards.
During 1993, 25,200 treasury shares were sold in private placements and
15,600 shares were reissued to directors and employees. The Company reissued
2,535 shares to acquire equipment and an additional 4,500 shares were issued as
a finder's fee for private placements. The Company recorded the
misappropriation of 1,800 shares of treasury stock as a defalcation loss.
Note 14: Leases
- ----------------
In March 1987, the Company shut down its Gardena, California, facility
and, in conjunction therewith, sold the machinery and equipment at that
location to an unrelated third party through a "sales type" lease agreement.
Under this agreement, the Company will receive payments of approximately $2 per
month for 10 years. The net present value of these payments is $20 and $32 as
of December 31, 1995 and 1994, respectively, of which $0 and $12, respectively,
is included in other assets. The Company also renegotiated its lease of the
California facility. The agreement provides for annual rentals of $72 over a
ten-year period beginning July 1, 1987. The Company also entered into another
agreement to sublease the facility at $188 annually over the same period of the
principal lease. Rental income under these agreements (before payments to the
lessor) was $179, $195 and $178 in 1995, 1994 and 1993, respectively.
On January 12, 1996, the sublessee notified the Company that it was
suspending its payments until an alleged structural problem with the building
is corrected. The Company believes that the sublessee's position is
unjustified and not legally supportable and has so advised the sublessee. The
sublessee has recently made a partial payment on its obligation and is
currently in discussions with the Company in an effort to resolve the
situation. While the Company has reason to believe that the financial
condition of the sublessee is tenuous, the Company believes that the financial
condition of the individual guarantor is adequate to cover the entire remaining
obligation under the sublease.
Sports Imprints leases production, office and warehouse space in Huber
Heights, Ohio. Lease payments are $183, $189 and $196 for years 1996, 1997 and
1998, respectively.
(Continued)
F-19
<PAGE> 40
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Sports Imprints leases showroom space in the Empire State Building, New
York, NY, with payments of $43 per year through 2003.
On August 1, 1994, the Company entered into a lease agreement for 450
square feet of office space in Sturgeon Bay, Wisconsin. The lease had a
one-year term and required payments of approximately $0.4 per month. In
February 1995, the Company modified this lease. The new lease is a
month-to-month lease for approximately 1,600 square feet with payments of
approximately $1 per month.
On September 1, 1995, the Company leased the Roanoke, Virginia, property
to a third party for approximately $3 per month, on a month-to-month basis.
Rent expense was $330, $342 and $308 for 1995, 1994 and 1993,
respectively.
Following are the future minimum lease payments under noncancelable
operating leases as of December 31, 1995:
<TABLE>
<S> <C>
1996 $307
1997 272
1998 239
1999 43
2000 43
Thereafter 105
------
$1,009
======
</TABLE>
Note 15: Deferred Compensation
- -------------------------------
The Company has deferred compensation agreements with certain retired
employees under which the Company agreed to pay certain amounts annually over a
ten-year period subsequent to retirement. The present value of such payments
was charged ratably to expense over the years of active employment. In
addition, the Company has incentive plans for which charges to operations have
been made generally based upon certain defined levels of income before taxes.
The plan has been frozen and no additional benefits are accruing. The accrued
but unfunded liability at December 31, 1995 and 1994 amounted to $80 and $77,
respectively. The amount currently due of $31 is included in accrued expenses
at December 31, 1995 and 1994.
Note 16: Income Taxes
- ----------------------
Composition of the benefit (provision) for income taxes consisted of the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
1995 1994 1993
---- ----- ----
<S> <C> <C> <C>
State -
Current . . . . . . $ 14 $(294) $(129)
Deferred. . . . . . -- -- --
---- ----- -----
$ 14 $(294) $(129)
==== ===== =====
</TABLE>
(Continued)
F-20
<PAGE> 41
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
The following summarizes the estimated tax effect of significant
cumulative temporary differences that are included in the deferred income tax:
<TABLE>
<CAPTION>
<S> <C> <C>
December 31,
-------------------
1995 1994
-------- ---------
Differences in depreciation and amortization. . . $ 75 $ 62
Accruals and reserves not deducted for tax
purposes until paid . . . . . . . . . . . . . . . 845 887
Net operating loss carryforwards . . . . . . . . 2,596 2,236
------- --------
Deferred tax assets. . . . . . . . . . . . . . . $ 3,516 $ 3,185
Valuation allowance. . . . . . . . . . . . . . . (3,516) (3,185)
------- --------
$ -- $ --
======= ========
</TABLE>
The Company has recorded valuation allowances for the entire amount of
deferred income tax assets and net operating loss carryforwards at December 31,
1995 and 1994. As of December 31, 1995, the Company had net operating loss
(NOL) carryforwards of approximately $7,636 for federal income tax purposes, of
which $584 are subject to separate Company income limitations, available to
reduce future taxable income. The carryforwards expire in 1999 through 2009 if
not utilized.
The Company's ability to use its NOL carryforwards to offset future
taxable income is subject to restrictions enacted in the Internal Revenue Code
of 1986 as amended (the "Code"). These restrictions provide for limitations on
the Company's utilization of its NOL carryforwards following certain ownership
changes described in the Code. As a result of ownership changes in 1993,
$2,174 of the Company's existing NOL carryforwards are subject to the
limitation of which the maximum amount which can be utilized in any one year is
approximately $1,501.
The reconciliation of the U.S. statutory tax rate to the effective income
tax rate is as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Years Ended December 31,
1995 1994 1993
------- ---------- ---------
United States statutory rate. . . . . (34.0)% 34.0% (34.0)%
Amortization of goodwill . . . . . . 3.4 0.8 8.3
State income taxes. . . . . . . . . . (1.4) 30.9 3.2
NOL benefit (recognized) unrecognized 30.6 (34.8) 25.7
------ ------- -------
(1.4)% 30.9% 3.2%
====== ======= =======
</TABLE>
(Continued)
F-21
<PAGE> 42
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Note 17: Acquisitions
- ----------------------
During 1993, the Company participated in the following acquisitions:
A. On January 19, 1993, the Company acquired 100% of the outstanding stock
of Sports Imprints, Inc. in exchange for 150,000 restricted shares of the
Company's previously unissued common stock in a business combination which
was accounted for as a purchase. The results of operations of Sports
Imprints, Inc. have been included with the results of the Company from the
date of acquisition. The Company is required to issue additional shares
to the former owners of Sports Imprints, Inc. in each of 1993, 1994 and
1995, based upon the results of such subsidiary operations. The 1993 and
1994 earn-out resulted in the Company being obligated to issue 46,088 and
20,396 restricted shares, respectively, of which 20,396 were issued in
November 1994 for the 1993 earn-out and 23,044 shares were issued in July
1995 for the 1994 earn-out. All such shares issued for the initial
purchase and for the 1993 and 1994 earn-out have been valued utilizing the
market value of the common stock at issuance less a 40% discount factor
due to the restricted nature of the shares which requires a minimum
two-year holding period. This valuation resulted in a $926 excess of fair
value of the Company's stock over the book value of assets, of which $177
was allocated to fixed assets and licenses and will be depreciated over
lives ranging from three to five years and $749 was recorded as goodwill
and will be amortized over ten years. Such amount includes the valuation
attributable to the shares issuable for the 1994 and 1993 earn-outs.
There are no earn-out shares for 1995. Therefore, no additional goodwill
will be recorded.
B. On March 15, 1993, the Company acquired 100% of Cornerstone Laboratories,
Inc. in exchange for 22,500 shares of the Company's previously unissued
common stock and 100% of NUTECH, Inc. for 7,500 shares of the Company's
previously unissued common stock. Each of these business combinations have
been accounted for as a pooling of interest. There have been no
significant operations in either company to date.
C. On October 19, 1992, the Company entered into an agreement to acquire
100% of the outstanding stock of Medical Sales Associates, Inc. (MSA),
from its owner, Conrad Bowman. MSA was provided with 15,000 shares of the
Company's common stock for purposes of obtaining working capital.
Further, the Company agreed to provide Mr. Bowman with up to 120,000
shares of its common stock, contingent upon the future operations of MSA.
The acquisition of MSA was consummated in January 1993.
During May 1993, the Company caused the above referenced 120,000 shares
of common stock to be contingently issuable in the name of Mr. Bowman, at
that time a director of the Company. The number of these shares
ultimately to have been delivered to Mr. Bowman was contingent upon the
future performance of MSA. The certificates were initially held in
escrow by Mr. Curtis A. Younts, Jr., the former Chairman, President and
Chief Executive Officer of the Company. In June 1994, Mr. Younts was
required to surrender all Company documents, including the 120,000 shares
of escrowed stock. At that time, only 75,000 such shares were surrendered
by Mr. Younts. The Company investigated the matter and found that Mr.
Younts had caused, without authorization, the other 45,000 shares to be
reissued to himself in October 1993. Accordingly, the Company has recorded
a $765,000 defalcation loss relating to the theft of these 45,000 shares
by Curtis Younts, Jr., in the accompanying 1993 consolidated financial
statements (Note 4).
During 1994, the Company was released by Mr. Bowman from any obligation
to issue additional shares for the purchase of MSA. Accordingly, the
Company's Board of Directors adopted a resolution to have the remaining
75,000 shares canceled by the Company's transfer agent. The 75,000 shares
were held in escrow by the Company until retired in January 1995.
(Continued)
F-22
<PAGE> 43
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Note 18: Related Party Transactions
- ------------------------------------
During 1995 and 1994, the Company paid approximately $33 and $55,
respectively, in sales commissions to John Stuth Associates, Inc. (JSA, Inc.),
a sales and marketing company founded by John K. Stuth, former Chairman of the
Board of Directors, Chief Executive Officer and President of Littlefield, Adams
& Company. The relationship between the Company and JSA, Inc. has been
terminated. In January, 1996, JSA, Inc. made demand on the Company for $67 in
sales commissions allegedly owed. The Company believes that there is no legal
basis for the demand and has so advised JSA, Inc.
The Company incurred approximately $92 and $81 in legal fees and
reimbursed expenses for the years of 1995 and 1994, respectively, to David M.
Simmonds, Esquire. Mr. Simmonds, who is a member of the Board of Directors,
also serves as general counsel for the Company. Mr. Simmonds was elected
President of the Company by the Board of Directors on May 30, 1995, and Chief
Executive Officer of the Company and interim Chairman of the Board on July 12,
1995. On March 5, 1996, Mr. Simmonds was elected Chairman of the Board and
Co-Chief Executive Officer. As a result, Mr. Simmonds is now compensated as an
employee.
During May, 1995, John K. Stuth, former Chairman of the Board of
Directors, Chief Executive Officer and President, and Warren L. Rawls,
Secretary and former Chief Financial Officer, sold back to the Company 9,482
and 3,208 shares, respectively, of the Company's common stock, for
approximately $51 and $17, respectively. The shares had been received by Mr.
Stuth and Mr. Rawls as stock grants under the Company's Stock Incentive Plan,
and were returned to the Company's treasury.
During 1995, the Company recorded expense of $17 relating to fees for two
outside directors, $10 of which was paid in January, 1996.
Note 19: Incentive Plan (the "Plan")
- -------------------------------------
The Company has granted stock options to directors and employees as
follows:
<TABLE>
<CAPTION>
Number of Price Range of Shares Under
Shares Option
--------- ---------------------------
<S> <C> <C>
Outstanding, December 31, 1994 325,000
Canceled -- --
Granted 27,500 $2.19 - $6.88
Exercised -- --
---------
Outstanding, December 31, 1995 352,500
=========
Exercisable, December 31, 1995 352,500
</TABLE>
During 1995, three outside directors were granted options to purchase
5,000 shares each under the Plan. The exercise price for these options is
6.875 and are exerciseable over a ten-year period. None of these options have
been exercised.
In addition, during 1995, as part of this Plan, options to purchase 10,000
and 2,500 shares of common stock were issued to two key employees of the
Company. The exercise price for these options is $2.1875 per share and are
exerciseable over a ten-year period. During 1995, none of these options were
exercised or canceled; however, subsequent to December 31, 1995, the 2,500
options expired due to the voluntary resignation of the one employee.
(Continued)
F-23
<PAGE> 44
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
During 1994 and in accordance with the Plan, 15,000 shares of Littlefield,
Adams & Company stock were awarded to three (5,000 shares each) of the
Company's "non-employee" directors. Such shares are vested over a three year
period. Total expense recorded in 1995 and 1994 was approximately $32 and $37,
respectively.
During 1994, as a part of this Plan, 35,000 shares of treasury stock were
issued to officers of the Company: 25,000 shares to John K. Stuth, former
President, and 10,000 shares to Warren L. Rawls, former Chief Financial
Officer. The Company recorded compensation expense in 1994 of approximately
$214.
During 1994, Mr. Stuth and Mr. Rawls were granted fully vested options to
purchase 300,000 and 25,000 shares of common stock, respectively. In
accordance with the Plan, the options are exercisable at a price equal to the
quoted price on the date of the grant. The exercise price for these options is
$6.125 per share and are exercisable over a ten-year period. However, in
accordance with the Plan, Mr. Stuth's options will expire on July 12, 1996.
During 1994, no options were exercised or canceled; however, subsequent to
December 31, 1994, 50,000 options were agreed to be canceled as described
below.
As part of the class action litigation settlement reached February 21,
1995, John K. Stuth will relinquish back to the Company 5,000 shares of
Littlefield, Adams & Company stock and will cancel options to acquire 50,000
shares of Littlefield, Adams & Company stock. Stanley I. Halbreich, an
officer and director of the Company, will relinquish back to the Company 5,000
shares of Littlefield, Adams & Company stock.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation (SFAS 123)." This statement encourages entities to adopt the fair
value method of accounting for employee stock compensation plans for fiscal
years beginning after December 15, 1995, but allows an entity to continue to
measure compensation cost for those plans using the intrinsic value based
method of accounting prescribed by Accounting Principles Board ("APB") Opinion
No. 25, "Accounting for Stock Issued to Employees." The Company intends to
continue to measure compensation cost for its employee stock compensation plans
in accordance with APB Opinion No. 25.
Note 20: Litigation
- --------------------
Securities Class Action-
The Company and certain of its current and past officers and directors,
and others, have been named as defendants in three actions brought by
individual plaintiffs, purportedly representing persons who purchased
securities of the Company during a total period running from July 1, 1991
through May 17, 1994. These actions, which were filed on July 22, 1993, August
13, 1993, and March 16, 1994, have been consolidated for discovery and pretrial
purposes in the United States District Court for the Western District of Texas
and are captioned In re Littlefield, Adams & Co. Securities Litigation, Civil
Action No. SA 93 CA 0561 ("Consolidated Action"). The plaintiffs allege that
the Company and certain of its current and past officers and directors, and
others violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934
and Rule 10(b)-5 promulgated thereunder, and other law, as a result of alleged
misrepresentations and omissions in connection with the annual report for 1992,
the 1993 quarterly reports, certain press releases, and otherwise. The
complaint also alleges a claim for treble-damages under the Racketeer
Influenced and Corrupt Organization Act, 18 U.S.C. Sec. 1964. The amount of
damages sought is not specified. On February 21, 1995, the Company reached an
agreement with the plaintiffs to settle these claims, as well as certain
related claims involving other parties. Under the terms of this agreement,
which is subject to court approval, the Company will issue $1,400 in stock and
pay $210 in cash to the members of the class to settle the claims brought by
the securities plaintiffs.
(Continued)
F-24
<PAGE> 45
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
In return, the Company will receive releases from the class plaintiffs and the
other defendants. A United States Magistrate Judge has recommended to the
District Court that the settlements be preliminarily approved and that a
hearing be set for final approval.
Charlotte E. Picard, Derivatively on Behalf of Littlefield, Adams &
Company, v. Curtis A. Younts, Jr., et al.-
This action was filed in the United States District Court, Western
District of Texas on June 29, 1994, under Cause No. SA 94 CA 0544. The Company
is named as a nominal defendant. The complaint alleges that certain current
and former officers and directors of the Company, some of the Company's former
lawyers, and the Company's former auditors "damaged LFA by causing or
permitting LFA to commit securities fraud and by damaging or destroying the
Company's reputation," and otherwise. The parties to this action, with the
exception of certain of the Company's former lawyers, have agreed to settle
this action. Under the terms of this agreement, which is subject to court
approval, the Company's former auditors will pay $130 to the Company and the
Company will issue $50 in stock to those former auditors in settlement of
claims for fees. In addition, (1) John K. Stuth, the Company's former
Chairman of the Board and CEO, will relinquish to the Company rights that he
has to 5,000 shares of LFA stock and rights that he has to an option to acquire
50,000 shares of LFA stock; (2) Director Stanley Halbreich, currently the
Company's Treasurer and Chief Financial Officer, will relinquish to the Company
rights that he has to 5,000 shares of LFA stock; and (3) former President Wade
Hudman will return 1,000 shares of LFA stock to the Company. A United States
Magistrate Judge has recommended to the District Court that the settlement be
preliminarily approved and that a hearing be set for final approval.
Littlefield, Adams & Company v. Younts, et al.-
This action was filed on June 15, 1994, in the Texas District Court in the
57th Judicial District, Bexar County, Texas, Cause No. 94-CI-08575, by the
Company against its former Chairman, Curtis A. Younts, Jr., his wife and
various of their affiliated entities seeking the immediate repayment of $912
and other amounts alleged to have been misappropriated by the defendants.
Younts filed a counterclaim against the Company seeking compensation for an
unstated amount for services and expense funds he claims to have provided the
Company. The Company denies that it owes any amount to Younts. As a result of
Younts agreeing to contribute $330 to settle the class action litigation
described above, all of the parties have agreed to dismiss their claims and
provide mutual releases of liability. This agreement is subject to judicial
approval of the Class and Derivative settlements, described above.
Curtis A. Younts, Jr. v. Littlefield, Adams & Company, et al.-
This action was filed on June 16, 1994, in the Texas District Court in the
169th Judicial District, Bell County, Texas, Cause No. 148,953-C, against the
Company and one of its officers by its former Chairman, Curtis A. Younts, Jr.
Younts seeks an unspecified amount for the reasonable value of his services,
allegedly rendered on behalf of the Company since 1991. The Company denies
that it owes any amount to Younts. As a result of Younts agreeing to
contribute $330 to settle the class action litigation described above, all of
the parties have agreed to dismiss their claims and provide mutual releases of
liability. This agreement is subject to judicial approval of the Class and
Derivative settlements, described above.
Atkisson v. Littlefield, Adams & Company and Curtis A. Younts, Jr.
The Company and a former chief executive officer have been named as
defendants in an action filed on October 15, 1995 by A. Carroll Atkisson in the
United States District Court for the Western District of Virginia, Cause No.
95-1107-R. Atkisson was the owner of a company known as Personal Screening,
Inc. In approximately 1991, Atkisson transferred all of his stock in Personal
Screening, Inc. to LFA, in exchange for shares of LFA. Subsequently, Personal
Screening, Inc. was merged into Collegiate Pacific. Thereafter, Atkisson
served, for a period of time, as a director of LFA and officer of Collegiate
Pacific.
(Continued)
F-25
<PAGE> 46
LITTLEFIELD, ADAMS & COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(UNAUDITED AS TO 1993)
(DOLLARS IN THOUSANDS)
Atkisson alleges that LFA has wrongly deprived him of a total of 52,500
(post-split) shares of LFA stock, to which he claims he is entitled in
compensation for services rendered as a director, pursuant to an alleged stock
option agreement, and otherwise. He alleges that he is entitled to damages, in
lieu of the referenced stock, of approximately $370. He also alleges that he
is entitled to damages of $16, which he claims to be owed by virtue of LFA's
breach of an employment agreement under which LFA allegedly promised to pay him
$4 per month salary for four months in 1993, but failed to do so. In an
apparently separate claim, he alleges what appears to be a claim for
compensatory damages of not less than $600. Atkisson's complaint seeks
judgment of $1,000.
The Company answered and filed a counterclaim on December 22, 1995. The
Company denies Atkisson's allegations against it, denies that it is indebted to
Atkisson in any amount and contends that it is entitled to recovery against
Atkisson on its counterclaims. In its counterclaim, the Company asserts causes
of action for breach of fiduciary duty, negligence, fraud, conspiracy and
violation of the Texas Deceptive Trade Practices Act. No substantive motions
have been decided. Discovery has just commenced. No trial date has been set.
Based on the Company's belief that the plaintiff's claims against it lack
merit, the Company does not expect the outcome of this litigation will have a
material adverse effect on the Company's financial position or results of
operation.
Littlefield, Adams & Co. v. Midlantic Bank, N.A.
On October 17, 1995, the Company commenced an action against Midlantic
National Bank, N.A., in the District Court, 131st Judicial District, Bexar
County, Texas. The Company alleged that Midlantic, acting as transfer agent
for LFA, breached its contract and common law duties by facilitating the
wrongful transfer of shares of common stock, and in connection with a scheme
concocted by LFA's former chief executive officer, Curtis Younts, Jr., to steal
and convert shares of LFA's common stock which were legally and/or beneficially
owned by LFA. The Company seeks damages, from Midlantic, in a minimum amount
of $765, together with additional direct damages, and punitive damages under
applicable Texas law.
On December 15, 1995, Midlantic Bank counterclaimed on grounds that LFA's
action was brought in bad faith and for purposes of harassment. Midlantic
seeks unspecified damages, including attorneys fees and costs incurred in
defending the action, and damages under the Texas Deceptive Trade Practices
Act. The Company denies Midlantic's allegations, and will vigorously defend
against Midlantic's counterclaim. The Company does not believe the outcome of
this litigation will have a material adverse effect on the Company's financial
position or results of operation.
Littlefield, Adams & Company v. Jeffers, Brook, Kreager & Gragg
This action was filed in the United States District Court for the Western
District of Texas on May 9, 1995, by the Company against its former attorneys.
The complaint alleges, among other things, that the defendants breached
fiduciary duties owed to the Company, knowingly received Company funds for
personal legal services they provided to the Company's former Chairman, Curtis
Younts, Jr., and his family and his other companies, that the defendants
represented both the Company and other parties in litigation, at the Company's
expense, despite knowledge that a conflict of interest existed between the
Company and these other parties, and failed to disclose to the Company's Board
of Directors that Younts was using Company funds for personal purposes and that
Younts was engaged in other improper and unauthorized activity. The Company
sought damages, including damages and attorneys fees under the Texas Deceptive
Trade Practices Act, punitive damages and other relief. The defendants denied
these claims. Following a mediation, this matter was settled and formally
dismissed on January 29, 1996.
F-26
<PAGE> 47
EXHIBIT INDEX REQUIRED BY ITEM 601 OF REGULATION SK
NUMBER DESCRIPTION OF EXHIBIT
------ ----------------------
2.1 Reorganization agreement with Sports Imprints, Inc.
Incorporated by reference to exhibit 2.1 to the Registrant's 1994
Form 10-K, filed March 1995.
2.2 Settlement agreement in the Registrant's Securities Class
Action litigation. Incorporated by reference to exhibit 2.5 to the
Registrant's 1994 Form 10-K, filed March 1995.
3.1 Certificate of Incorporation of the Registrant and all
amendments thereto. Incorporated by reference to exhibit 1 to the
Registrant's Form 8-K filed November 1991.
3.2 Certificate of Amendment to the Certificate of
Incorporation of Littlefield, Adams & Company amending Article IV
to increase the number of shares of Common Stock authorized for
issuance from 3,000,000 shares, $1.00 par value, to 25,000,000
shares, $1.00 par value. Incorporated by reference to exhibit 3.2
to the Registrant's 1994 Form 10-K, filed March 1995.
3.3 Certificate of Amendment to the Certificate of
Incorporation of Littlefield, Adams & Company amending Article VI
to provide for classification of the Board of Directors into three
classes. Incorporated by reference to exhibit 3.3 to the
Registrant's 1994 Form 10-K, filed March 1995.
3.4 Composite copy of the Certificate of Incorporation of the
Registrant. Incorporated by reference to exhibit 3.4 to the
Registrant's 1994 Form 10-K, filed March 1995.
3.5 By laws of the Registrant, as amended.
10.1 Deed of trust secured by property on Rockland Avenue in
Roanoke, Virginia. Incorporated by reference to exhibit 10.1 to the
Registrant's Form 8-K filed October 1990.
10.2 A. Promissory Note for $250,000, dated August 29, 1994, between
Collegiate Pacific Company and The Bank of Floyd. Incorporated
by reference to exhibit 10.2A to the Registrant's 1994 Form
10-K, filed March 1995.
B. Line of Credit of $500,000, dated August 29,
1994, between Collegiate Pacific Company and The Bank of
Floyd. Incorporated by reference to exhibit 10.2B to the
Registrant's 1994 Form 10-K, filed March 1995.
10.3 Agreements with bankruptcy creditors of Sports Imprints, Inc., for
Purchase of Claims. Incorporated by reference to exhibit 10.3 to
the Registrant's 1994 Form 10-K, filed March 1995.
10.4 Financing Agreement with Merchant Factors Corp. dated October 16,
1993. Incorporated by reference to exhibit 10.27.2. to the
Registrant's Form 8-K filed February 7, 1994.
10.5 Littlefield, Adams & Company Incentive Plan. Incorporated by
reference to exhibit 2.1 to the Registrant's 1994 Form 10-K, filed
March 1995.
10.6 Settlement Agreement between Harley-Davidson Motor Co. and Sports
Imprints division of Littlefield, Adams & Company, dated March 1,
1996, relating to License Agreement with Harley-Davidson Motor Co.,
dated January 12, 1995.
Littlefield, Adams & Company 1995 Form 10-K
<PAGE> 48
EXHIBIT INDEX REQUIRED BY ITEM 601 OF REGULATION SK
(continued)
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.7 License agreement with PepsiCo, Inc., dated as of February 1, 1996.
10.8 Full and Final Release and Settlement Agreement by and among
Littlefield, Adams & Company, Jeffers, Brook, Kreager and
Gragg, Inc., David Ylitalo, and Michael Kreager.
10.9 Financing Agreement with Merchant Factors Corp., dated January 25,
1996.
16.1. A. Letter dated September 22, 1994, re: Change in Certifying
Accountant, from former independent accountant Carneiro,
Chumney & Co., L.C. Incorporated by reference to exhibit 16(i)
to Amendment No. 1 to Form 8-K/A, filed November 2, 1994.
B. Letter dated November 1, 1994, re: Change in Certifying Accountant,
from former independent accountant Carneiro, Chumney & Co., L.C.
Incorporated by reference to exhibit 16(ii) to Amendment No. 1 to
Form 8-K/A, filed November 2, 1994.
21. N/A
27. Financial Data Schedule.
99.1. Letter dated November 1, 1994, from new independent accountant
Arthur Andersen LLP regarding Form 8-K/A Amendment No. 1.
Incorporated by reference to exhibit 99(ii) to Amendment No. 1
to Form 8-K/A, filed November 2, 1994.
Littlefield, Adams & Company 1995 Form 10-K
<PAGE> 1
EXHIBIT 3.5
BY-LAWS
of
LITTLEFIELD, ADAMS & COMPANY
March 5, 1996
ARTICLE I
CORPORATE OFFICES
SECTION 1. Location of Office. The registered office of the corporation
shall be at 81 Adams Drive in the Borough of Totowa, County of Passaic, State
of New Jersey or at such other place in the State of New Jersey as may be
determined by the Board of Directors from time to time.
SECTION 2. Additional Offices. The corporation shall have such other
offices, within or without this State and within or without the United States,
as may be fixed by the Board of Directors from time to time.
ARTICLE II
SHAREHOLDERS
SECTION 1. Place of Meeting of Shareholders. All meetings, regular and
special, of the shareholders shall be held at the principal office of the
corporation in New Jersey or at such other place, within or without the State
of New Jersey, as may be determined by the Board of Directors and as may be
designated in the notice of such meeting.
SECTION 2. Annual Meeting of Shareholders. The annual meeting of the
shareholders for the election of directors, and the transaction of such other
business as may properly come before such meeting, shall be held on a date
selected by the Board of Directors.
SECTION 3. Special Meetings of the Shareholders. Special meetings of the
shareholders may be called by the President, a majority of the members of the
Board, the Chairman of the Board or persons holding one-third of the stock of
the corporation. Notice of such special meetings shall specify the purpose
thereof.
<PAGE> 2
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SECTION 4. Record Date. For the purpose of determining the shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, to give a written consent to any action without a meeting
or to receive payment of any dividend or allotment of any right, the Board may
fix a date as the record date for such determination. The record date shall not
be more than sixty (60) days before the shareholders' meeting or other
corporate action or event to which it relates. The record date for a
shareholders' meeting shall not be less than ten (10) days before the date of
the meeting. In the event dividends are declared, stock transfer books will
not be closed but a record date will be set by the Corporation, upon which the
transfer agent will take a record of all shareholders entitled to the dividend
without actually closing the books for transfers of stock.
SECTION 5. Notice of Meetings of Shareholders. Except as otherwise
provided by law, written notice of every shareholders' meeting shall be given,
personally or by mail, not less than ten (10) nor more than sixty (60) days
before the date of such meeting to each shareholder of record entitled to vote
at the meeting. If notice is given by mail, the notice shall be deemed to be
given when deposited in the mail addressed to the shareholder to whom it is
directed at his or her last address as it appears on the records of the
corporation, with postage prepaid thereon. Such notice shall state the time,
place and purpose of the meeting.
SECTION 6. Waiver of Notice of Shareholders Meetings. Notice of a meeting
need not be given to any shareholder who signs a waiver of such notice, in
person or by proxy, whether before or after the meeting. The attendance of any
shareholder at a meeting, in person or by proxy, without protesting prior to
the conclusion of the meeting the lack of notice of such meeting, shall
constitute a waiver of notice.
SECTION 7. Quorum of Shareholders. The holders of shares entitled to cast
a majority of the votes at a meeting shall constitute a quorum at such meeting.
The shareholders present in person or by proxy at a duly organized meeting may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. Less than a quorum may
adjourn.
SECTION 8. Proxies. Every shareholder entitled to vote at a meeting of
shareholders or to express consent without a meeting may authorize another
person or persons to act for him by proxy.
Each proxy shall be executed in writing by the shareholder or his agent,
except that a proxy may be given by a shareholder or agent by telegram or cable
or its equivalent.
<PAGE> 3
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No proxy shall be valid for more than eleven (11) months unless a longer time
is expressly provided therein, but in no event shall a proxy be valid after
three (3) years from the date of execution. Unless it is coupled with an
interest, a proxy shall be revocable at will.
A proxy shall not be revoked by the death or incapacity of the shareholder
but such proxy shall continue to force until revoked by the personal
representative or guardian of the shareholder.
The presence at any meeting of any shareholder who has given a proxy shall
not revoke such proxy unless the shareholder shall file written notice of such
revocation with the secretary of the meeting prior to the voting of such proxy.
A person named in a proxy as the attorney or agent of a shareholder may,
if the proxy so provides, substitute another person to act in his or her place,
including any other person named as an attorney or agent in the same proxy.
The substitution shall not be effective until an instrument effecting it is
filed with the secretary of the corporations.
SECTION 9. Voting Lists. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make and certify a complete
list of the shareholders entitled to vote at a shareholders' meeting or any
adjournment. Such list shall (a) be arranged alphabetically with the address
of and number of shares held by each shareholder; (b) be produced at the time
and place of the meeting; (c) be subject to the inspection of any shareholder
during the whole time of the meeting; and (d) be prima facie evidence as to who
are the shareholders entitled to examine such list or to vote at any meeting.
Unless otherwise required by law, failure to comply with the requirements of
this section shall not affect the validity of any action taken at such meeting.
SECTION 10. Voting of Shares. Each outstanding share shall be entitled
to one vote on each matter submitted to a vote at a meeting of shareholders.
SECTION 11. Inspectors of Elections. At each annual meeting the chairman
of the meeting may appoint one or more persons to act as inspectors of election
at that meeting. No person shall be elected a director in an election for
which he or she has served as inspector. Each inspector, before entering upon
the discharge of his or her duties, shall take and sign an oath to faithfully
execute the duties of inspector.
<PAGE> 4
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ARTICLE III
DIRECTORS
SECTION 1. Board of Directors. Except as otherwise provided by law, the
business and affairs of the corporation shall be managed by its Board of
Directors, each of whom shall be at least 18 years of age.
SECTION 2. Number of Directors. The number of directors which shall
constitute the whole Board of Directors shall be fixed as a maximum of nine (9)
Directors.
SECTION 3. Election, Term and Removal of Directors. At each annual
meeting the shareholders shall elect directors to hold office until the next
succeeding annual meeting. Each director shall hold office for the term of the
election and until his or her successor shall have been elected and qualified.
SECTION 4. Vacancies. The Board of Directors may fill a vacancy occurring
in the Board of Directors by the affirmative vote of the remaining directors,
even though less than a quorum of the Board of Directors, or by a sole
remaining director. A director so elected shall hold office until the next
succeeding annual meeting of shareholders and until his or her successor shall
have been elected and qualified.
SECTION 5. Resignation. A director may resign by written notice to the
corporation. The resignation shall be effective upon receipt thereof by the
corporation or at such subsequent time as shall be specified in the notice.
SECTION 6. Quorum. A majority of the entire Board of Directors, or of any
committee thereof, shall constitute a quorum for the transaction of business.
SECTION 7. Place of Meetings of Directors. The Board of Directors may
hold meetings at such place or places as the Board of Directors may from time
to time determine. Any or all directors may participate in a meeting of the
Board by means of conference telephone or any means of communication by which
all persons participating in the meeting are able to hear each other.
<PAGE> 5
- 5 -
SECTION 8. Meetings of Directors. Meetings of the Board of Directors may
be held either within or without the State of New Jersey. Regular meetings of
the Board of Directors shall be held at such times as are fixed from time to
time by resolution of the Board. Special meetings may be held at any time upon
call of the Chairman of the Board, if there be a Chairman, the President, a Vice
President or any two (2) Directors.
SECTION 9. Notice of Meetings of Directors. A meeting of the Board of
Directors may be held without notice immediately following the annual meeting
of the shareholders. Notice need not be given of regular meetings of the Board
of Directors held at times fixed by resolution of the Board of Directors.
Special meetings of the Board of Directors may be held upon written or
telegraphic notice deposited in the United States mail or delivered to the
telegraph company at least two (2) days prior to the day of the meeting.
Notice of a meeting need not be given to any director who submits a signed
waiver of notice whether before or after the meeting, or who attends the
meeting without protesting, prior to its conclusion, the lack of notice.
Neither the business to be transacted at, nor the purpose or, any meeting
of the board need be specified in the notice or waiver of notice of such
meeting.
Notice of an adjourned meeting need not be given if the time and place are
fixed at the meeting adjourning and if the period of adjournment does not
exceed ten (10) days in any one adjournment.
SECTION 10. Committees. The Board of Directors, by resolution adopted by
a majority of the entire Board of Directors, may appoint from among its members
a committee, each of which shall have one or more members. To the extent
provided in such resolution, each such committee shall have and may exercise all
the authority of the Board of Directors, except that no such committee shall
(a) make, alter or repeal any by-law of the corporation; (b) elect or appoint
any director, or remove any officer or director; (c) submit to shareholders any
action that requires shareholders' approval; or (d) amend or repeal any
resolution theretofore adopted by the Board of Directors.
<PAGE> 6
- 6 -
The Board of Directors, by resolution adopted by a majority of the entire
Board of Directors, may (a) fill any vacancy in any such committee; (b) appoint
one or more directors to serve as alternate members of any such committee, to
act in the absence or disability of members of any such committee with all the
powers of such absent or disabled members; (c) abolish any such committee at
its pleasure; and (d) remove any director from membership on such committee at
any time, with or without cause.
Actions taken at a meeting of any such committee shall be reported to the
Board of Directors at its next meeting following such committee meeting; except
that, when the meeting of the Board of Directors is held within two (2) days
after the committee meeting, such report shall, if not made at the first
meeting, be made to the Board of Directors at its second meeting following such
committee meeting.
The designation of any such committee and the delegation thereto of
authority shall not operate to relieve the Board of Directors or any member
thereof of any responsibility imposed by law.
The provisions of this Section 10 shall not apply to any committee which
acts solely in an advisory capacity to the Board of Directors. Such committee
may be appointed by the President.
SECTION 11. Action of Directors Without Meeting. Any action required or
permitted to be taken pursuant to authorization voted at a meeting of the
board, or any committee thereof, may be taken without a meeting if, prior or
subsequent to such action, all members of the Board of Directors or of the
committee, as the case may be, consent thereto in writing and such written
consents are filed with the minutes of the proceedings of the Board of
Directors or the committee.
SECTION 12. Director Emeritus. The corporation shall have directors
emeriti as shall be elected by the Board of Directors from time to time. The
directors emeriti shall have no responsibilities and shall not be entitled to
vote at any meeting but may attend any meeting. The qualifications and the
compensation for this position shall be set by the Board of Directors from time
to time.
<PAGE> 7
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ARTICLE IV
OFFICERS
SECTION 1. Offices, Term, Election, Removal. The officers of the
corporation shall be elected by the Board of Directors and shall be a
President, one or more Vice Presidents, a Secretary, a Treasurer, such
Assistant Secretaries and Assistant Treasurers as may be elected, and a
Controller. The Board of Directors may also, elect a Chairman of the Board.
Any two offices may be held by the same person but no officer shall execute,
acknowledge or verify any instrument in more than one capacity if such
instrument is required by law or by the by-laws to be executed, acknowledged or
verified by two officers. Any officer shall hold office for the term for which
he or she is elected and until a successor is elected and has qualified,
subject to earlier termination by removal as provided in these by-laws or the
certificate of incorporation or resignation. Nothing herein shall prevent the
corporation from entering into contracts with any officers employing them as
such for life or any lesser period of time.
An officer elected to fill a vacancy shall hold office for the balance of
the unexpired term for which elected.
Any officer may be removed from office, with or without cause, at any time
by the affirmative vote by the majority of the Board of Directors.
SECTION 2. Duties of Officers:
A. Chief Executive Officer(s). The office of Chief Executive Officer of
the corporation may be held by one or two persons, at the discretion of the
Board of Directors. In the event the office of Chief Executive Officer shall
be held by two persons, they shall each be the Co-Chief Executive Officer of the
corporation, one to be designated by the Board as the Chairman of the Board
and the other as the President of the corporation. The Chief Executive
Officer(s) shall, subject to the authority of the Board of Directors, have
responsibility for the general and active management of the business of the
corporation. Notwithstanding anything contained in these By-Laws to the
contrary, if there be Co-Chief Executive Officers, the Chairman of the Board,
in addition to the duties and authority set forth in these by-laws for the
Chairman, shall have the duties and authority set forth in these by-laws for
the President and, likewise, the President, in addition to the duties and
authority set forth in these By-Laws for the President, shall have the duties
and authority set forth in these by-laws for the Chairman.
B. Chairman of the Board. The Chairman of the Board, if there be a
Chairman of the Board, shall preside at all meetings of the shareholders and
the Board of Directors and shall perform such other duties as the Board of
Directors shall specify. Except as otherwise provided by law, the Chairman
shall possess the power to sign all certificates, contracts or other instruments
of the corporation which may be approved from time to time by the Board of
Directors or which may be in the ordinary course of business.
C. President. The President shall be the Chief Executive Officer of the
corporation and shall, in the absence of the Chairman of the Board or if there
be no
<PAGE> 8
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Chairman of the Board, preside at all meetings of the shareholders and Board of
Directors. The President shall make reports to the Board of Directors and
shareholders and shall perform such other duties as are incident to this
office or are required by the Board of Directors, One person may occupy both
the office of Chairman of the Board and President if the Board shall so
designate.
D. Vice Presidents. In the order designated by the Board of Directors,
Vice Presidents shall exercise the function of the President during the absence
or disability of the President and shall perform such other duties as are
assigned from time to time by the Board of Directors.
E. Secretary. The Secretary shall give the requisite notices of meetings
of the shareholders and directors and shall record the proceedings of such
meetings. In addition to the powers and duties prescribed by, law the Secretary
shall have such other powers and perform such other duties as shall at any time
be required by the Board of Directors.
F. Treasurer. The Treasurer shall be the Chief Financial Officer of the
Company and shall have charge of all the funds of the corporation and shall
keep and deposit them as required by the Board of Directors and shall keep
proper accounts of the receipts and disbursements and financial transactions of
the corporation. The treasurer shall render to the Board of Directors an
annual statement of the financial affairs of the corporation and such other
financial statements as shall at any time be required by the directors. The
Treasurer shall perform such other duties as shall be required by the Board of
Directors. The Treasurer/Chief Financial Officer shall report directly to the
Company's Board of Directors.
G. Other Officers. Any other officers elected by the Board of Directors
shall have such duties as the Board shall designate.
SECTION 3. Compensation. The compensation of officers shall be fixed by
the Board of Directors.
ARTICLE V
SHARES, SHARE CERTIFICATES AND TRANSFER OF SHARES
SECTION 1. Form of Certificates and Issuance. The shares of the
corporation shall be represented by certificates signed by, or in the name of
the corporation by, the Chairman
<PAGE> 9
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of the Board or the President or a Vice President, and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of
the corporation and may be sealed with the seal of the corporation or a
facsimile thereof. If the certificate is countersigned by a transfer agent or
registrar who is not an officer or employee of the corporation, any and all
other signatures may be facsimiles. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon such
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the corporation with the
same effect as if he were such officer, transfer agent or registrar at the date
of its issue.
SECTION 2. Transfers. Transfer of shares shall be made only on the books
of the corporation by the registered owner thereof or the registered owner's
duly authorized attorney, with a transfer clerk or transfer agent appointed by
the Board of Directors and on surrender of the certificate or certificates for
such shares properly endorsed and with all taxes paid thereon.
The person in whose name shares of stock stand in the books of the
corporation shall be deemed by the corporation to be the owner thereof for
all purposes.
SECTION 3. Lost, Destroyed or Stolen Certificates. No certificate for
shares of stock of the corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or stolen except on production of
evidence, satisfactory to the principal officers of the corporation, of such
loss, destruction or theft and, if said officers so require, upon the
furnishing of an indemnity bond in such amount (but not to exceed twice the
value of the shares represented by the certificate) and with such terms and such
surety as the Board of Directors may in its discretion require.
SECTION 4. Transfer Agent and Registrar. The Board of Directors may
appoint one or more transfer agents or transfer clerks or one or more
registrars and may require all certificates for shares to bear the signature of
any of them.
<PAGE> 10
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ARTICLE VI
CORPORATE SEAL
The corporation shall have a seal which will provide an impression showing
the name of the corporation, the State of New Jersey and the year of its
incorporation.
ARTICLE VII
CORPORATE ACTIONS
SECTION 1. Deposits, Checks, Notes, Etc. The Board of Directors may select
banks, trust companies or other depositories in which the funds of the
corporation not otherwise employed may be deposited to the credit of the
corporation. All notes, checks, drafts or other negotiable instruments of the
corporation shall be signed by such officer or officers as may be designated by
the Board of Directors from time to time.
SECTION 2. Voting Securities Held by the Corporation. Unless otherwise
ordered by the Board of Directors, the President shall have full power and
authority on behalf of the corporation to attend and to act and to vote at any
meeting of securityholders of other corporations in which the corporation may
hold securities. At such meeting he shall possess and may exercise any and all
rights and powers incident to the ownership of such securities which the
corporation might have possessed and exercised if it had been present. The
Board of Directors may from time to time confer like powers upon any other
person or persons.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on January 1 of each year.
<PAGE> 11
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ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare a dividend of the
whole or any part of its accumulated profits and may fix the date or dates upon
which such dividend is paid. The Board of Directors may declare dividends in
the form of shares of stock of the corporation.
ARTICLE X
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall indemnify each of its directors and officers,
whether or not then in office (and his executor, administrator and heirs),
against all reasonable expenses actually and necessarily incurred by him in
connection with the defense of any litigation to which he may have been made a
party because he is or was a director or officer of the corporation. He shall
have no right to reimbursement, however, in relation to matters as to which he
has been adjudged liable to the corporation or its stockholders for negligence
or misconduct in the performance of his duties. The right to indemnity for
expenses shall also apply to the expenses of suits which are compromised or
settled if the court having jurisdiction of the matter shall approve such
settlement.
The foregoing right of indemnification shall be in addition to, and not
exclusive of, all other rights to which such director or officer may be
entitled by law or otherwise.
ARTICLE XI
AMENDMENT OF BY-LAWS
These By-Laws may be altered, amended, rescinded, repealed or suspended by
vote of a majority of the shareholders of the corporation at any regular or
special meeting or by a vote of the majority of the entire Board of Directors
at any regular or special meeting.
<PAGE> 1
EXHIBIT 10.6
SETTLEMENT AGREEMENT (REDACTED COPY)
This Settlement Agreement is entered into in Huber Heights, Ohio this 1st
day of March 1996 by Harley-Davidson Motor Company ("Harley-Davidson") and
Sports Imprints, a Division of Littlefield, Adams & Company, d/b/a Funwear
("Sports Imprints").
RECITALS
A. Harley-Davidson and Sports Imprints are parties to a License Agreement
whereby Harley-Davidson granted Sports Imprints the nonexclusive right to apply
certain trademarks, trade dress and designs to certain articles of apparel for
resale to mass merchandisers. The current License Agreement is attached to this
Settlement Agreement as Exhibit 1.
B. Harley-Davidson desires to upgrade the quality of apparel associated
with its trademarks, trade dress and designs and to sell these licensed
products through second-tier department stores rather than mass merchandisers.
C. Sports Imprints contends that Harley-Davidson's plan to upgrade the
marketing of its trademarked apparel violates the Wisconsin Fair Dealership Law,
the Sherman Act and other laws, which contentions Harley-Davidson disputes.
Harley-Davidson contends that Sports Imprints has breached duties arising from
or relating to the License Agreement between the parties which Sports Imprints
disputes.
COMPLETE COPY OF DOCUMENT
FILED SEPARATELY WITH COMMISSION
<PAGE> 2
D. Both parties desire to settle their dispute as stated in this
Settlement Agreement, Sports Imprints acknowledges that Harley-Davidson offered
to renew the License Agreement on substantially identical terms or enter into a
new License Agreement which would have allowed Sports Imprints to move from the
mass merchandising market into the second-tier department store market, but
Sports Imprints preferred to terminate the License Agreement and accept the
termination benefits described in this Settlement Agreement.
MUTUAL COVENANTS
In consideration of the recitals above and the mutual covenants which
follow, and subject to the entry of an order by the Circuit Court for Milwaukee
County approving this Settlement Agreement in a form mutually acceptable to
Harley-Davidson and Sports Imprints, Harley-Davidson and Sports Imprints agree
as follows:
1. Restoration and Modification of License Agreement. The License
Agreement expired by its terms on December 31, 1995; however, upon execution of
and subject to the terms of this Settlement Agreement, the parties have agreed
to continue to operate under the terms of the License Agreement until December
31, 1996, except for the following modifications:
(3) All sentences except the first sentence in paragraph 8(a) of the
License Agreement are deleted and the words "except as hereinafter provided" in
the first
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<PAGE> 3
sentence of paragraph 8(a) of the License Agreement are also deleted; (4) the
words "or any ninety-day sell-off period allowed hereunder" are deleted from
paragraph 8(b) of the License Agreement; and (5) paragraph 19(a) of the License
Agreement is extinguished and the parties acknowledge they did not intend by
contract to extend application of the Wisconsin Fair Dealership Law to this
relationship.
2. Termination of License Agreement. Upon execution of this Settlement
Agreement, Sports Imprints unilaterally and irrevocably resigns and terminates
the License Agreement effective December 31, 1996. Harley-Davidson accepts
Sports Imprints' resignation and termination.
3. Sports Imprints Releases Harley-Davidson. Sports Imprints for itself,
and its predecessors or successors in interest, insurers, parents,
subsidiaries, affiliated companies, and the attorneys, assigns, agents,
representatives, partners, officers, directors, limited partners, shareholders
and employees of each of the foregoing, hereby releases Harley-Davidson, its
predecessors or successors in interest, insurers, parents, subsidiaries,
affiliated companies, and the attorneys, assigns, agents, representatives,
partners, officers, directors, limited partners, shareholders and employees of
each of the foregoing, of and from any and all claims, causes of action or
liabilities of any nature, known or unknown, accrued or unaccrued, which have
arisen or may in the future arise from any action, omission, occurrence or
transaction, or series of actions, omissions, occurrences, transactions, which
arose, occurred or were initiated at any time on or before the date of this
Settlement Agreement, including but not limited to any claims arising under the
Wisconsin Fair Dealership Law, the Sherman Act, or any other law, relating to
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<PAGE> 4
Harley-Davidson's decision to upgrade its marketing and distribution strategy
for trademarked apparel and the termination of the License Agreement effective
December 31, 1996. Notwithstanding the foregoing, upon full execution of this
Settlement Agreement, Harley-Davidson shall be obligated to perform in
accordance with its terms and in accordance with the License Agreement, as
amended by this Settlement Agreement.
4. Harley-Davidson Releases Sports Imprints. Harley-Davidson, for itself, and
its predecessors or successors in interest, insurers, parents, subsidiaries,
affiliated companies, and the attorneys, professionals, assigns agents,
representatives, partners, officers, directors, limited partners, shareholders
and employees of each of the foregoing, hereby releases Sports Imprints, its
predecessors or successors in interest, insurers, parents, subsidiaries,
affiliated companies, and the attorneys, professionals, assigns agents,
representatives, partners, officers, directors, limited partners, shareholders
and employees of each of the foregoing, of and from any and all claims, causes
of action or liabilities of any nature, known or unknown, accrued or unaccrued,
which have arisen from any action, omission, occurrence or transaction, or
series of actions, omissions, occurrences, transactions, which occurred on or
before the date this Settlement Agreement is fully executed, and including, but
not limited to, any claims whatsoever arising under or relating to the
relationship and/or the License Agreement between the parties. Sports Imprints
shall have no duty, now or in the future, to report or disclose any matters or
information pertaining to any of the claims described in this paragraph, and
any liability for any such nondisclosure is fully and forever released.
Notwithstanding the foregoing, upon full execution of this Settlement
Agreement, Sports Imprints
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<PAGE> 5
shall be obliged to perform in accordance with its terms, in accordance with
the License Agreement, as amended by this Settlement Agreement and as agreed in
the Operating Protocol attached as Exhibit 2 to this Settlement Agreement.
5. Harley-Davidson and Sports Imprints Waive Attorney's Fees.
Harley-Davidson and Sports Imprints agree that each waives any right to recover
from the other any attorney's fees, disbursements or other legal costs and
expenses which have been incurred in reaching this Settlement Agreement.
6. Breach of Settlement Agreement and Enforcement. Sports Imprints
acknowledges that in reliance upon Sports Imprints termination and resignation
of its License Agreement, Harley-Davidson is proceeding with its plan to upgrade
the quality of apparel associated with its trademarks, trade dress and designs
and to sell these licensed products through second-tier department stores
rather than mass merchandisers. Sports Imprints further acknowledges and
agrees that any attempt by it to revoke its resignation and termination of the
License Agreement or to continue selling licensed products to mass
merchandisers after December 31, 1996 will be a material breach of this
Settlement Agreement and result in immediate and irreparable damage to
Harley-Davidson and the good will it has in its trademarks, trade dress and
designs. Sports Imprints therefore agrees that should a court determine that
it attempted to revoke its resignation or termination of the license agreement
or continued selling licensed products after December 31, 1996, in violation
of this Settlement Agreement, Harley-Davidson shall be entitled to specific
performance and equitable relief including, without limitation, temporary
restraining orders and preliminary and permanent injunctions, at nominal bond,
enjoining
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<PAGE> 6
Sports Imprints from revoking its resignation and termination of the License
Agreement and from continuing to sell licensed products after December 31,
1996. Sports Imprints further agrees that in the event that it materially
breaches this Settlement Agreement, Sports Imprints shall and hereby does
indemnify Harley-Davidson against all claims, damages, losses or expenses
(including reasonable attorneys' fees, expenses and costs of defense) arising
as a consequence of the breach. The resort by Harley-Davidson to any remedy
referred to in this paragraph shall not be construed as a waiver of any other
rights and remedies Harley-Davidson is entitled to under this Settlement
Agreement, the License Agreement or otherwise.
7. Principal Place of Performance. The parties acknowledge that the
principal obligations of the License Agreement as amended by this Settlement
Agreement are intended to be performed by Licensee within the state of Ohio,
which also shall be deemed to be the state in which the License Agreement and
this Settlement Agreement were entered into.
8. Harley-Davidson and Sports Imprints Do Not Admit Any Liability. This
Settlement Agreement, and the consideration rendered by Harley-Davidson and
Sports Imprints in accordance herewith, are not to be construed as or deemed
evidence of any admission or concession on the part of either party of any
liability to the other party.
9. Complete Agreement. This Settlement Agreement constitutes the complete
agreement, compromise and accord and satisfaction between Harley-Davidson and
Sports Imprints, and replaces all other agreements, obligations or
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<PAGE> 7
understandings of any kind as to the matters dealt with herein. If any
material part of this Settlement Agreement is determined to be invalid, the
party adversely affected shall have the option to rescind this Settlement
Agreement and recover all consideration it provided hereunder together with its
attorney fees, disbursements and other legal costs and expenses. This
Settlement Agreement is binding upon and inures to the benefit of
Harley-Davidson and Sports Imprints, their heirs, personal representatives,
successors and assigns, however designated.
10. Modification or Amendment of Settlement Agreement. The terms of this
Settlement Agreement may be modified or amended only upon the written agreement
of both Harley-Davidson and Sports Imprints.
11. Headings and Interpretation. The subject headings of the sections of
this Settlement Agreement are included for purposes of convenience only, and
shall not affect the construction or interpretation of any of its provisions.
Both Harley-Davidson and Sports Imprints participated in the negotiation and
drafting of this Settlement Agreement. Neither party shall be considered the
drafter of this Settlement Agreement when construing or interpreting any
ambiguity in the terms of this Settlement Agreement.
12. Consultation With Counsel. Harley-Davidson and Sports Imprints have
reviewed this Settlement Agreement with their respective counsel and understand
it. They are entering into this Settlement Agreement voluntarily and of their
own free will. Each party has entered into this Settlement Agreement based on
its own investigation and analysis, and no representations or warranties have
been
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<PAGE> 8
made or relied on by any party in connection with this Settlement-Agreement or
its making.
13. Execution in Counterpart and Exchange By Facsimile. This Settlement
Agreement may be signed in counterpart and exchanged by facsimile for
signature, and when so signed and exchanged shall become enforceable.
Sports Imprints, a Division of
Littlefield, Adams & Company,
d/b/a Funwear
BY /s/ David M. Simmonds
------------------------------
ITS President & CEO
------------------------------
David M. Simmonds
Harley-Davidson Motor Company
BY /s/ Jeffrey Bleustein
------------------------------
ITS President
------------------------------
Jeffrey Bleustein
8
<PAGE> 9
EXHIBIT 1
LICENSE AGREEMENT
HARLEY-DAVIDSON MOTOR
COMPANY
AND
SPORTS IMPRINTS, INC.
D/B/A
FUNWEAR
<PAGE> 10
TABLE OF CONTENTS
Paragraph Page
1. Definitions 2
a. Licensed Properties 2
b. Licensee's Goods 2
c. Licensed Articles 2
d. Territory 2
e. Sale 2
f. Net Sales 2
g. Premium 3
h. Packaging 3
i. Promotional Materials 3
2. Grant of License 3
a. Grant 3
b. Licensed Product Designation 3
c. Territory 4
d. Scope of Non-Exclusive Grant 4
e. Term 5
f. Limitations on License 5
3. Royalty Rate and Terms of Payment 5
a. Rate 5
b. Minimum Payment 5
c. Statements and Payments 5
4. Quality and Approvals 6
5. Distribution Limitations and Requirements 9
6. Records 9
7. Termination 10
8. Post-Termination 12
9. Remedies 13
10. Indemnification and Insurance 14
11. Notices 16
<PAGE> 11
PARAGRAPH PAGE
12. No Joint Venture 16
13. Acknowledgement of Rights in Licensed Properties 17
14. Ownership of Marks and Copyrights 18
15. Protection of Property 19
16. Government Approvals 20
17. Combination and Premium Sales 20
18. Assignment 20
19. Choice of Law; Disputes 21
20. Severability 21
21. Miscellaneous 21
22. Rights of Owner 22
23. Survivorship of Provisions 22
<PAGE> 12
AGREEMENT
AGREEMENT made this 12th day of January, 1995, by and between
HARLEY-DAVIDSON MOTOR COMPANY, a Wisconsin corporation, with its principal place
of business at 3700 W. Juneau Avenue, Milwaukee, Wisconsin 53208 U.S.A.
(hereinafter referred to as "Licensor") and SPORTS IMPRINTS, INC., d/b/a
FUNWEAR, an Ohio corporation, with its principal place of business at 6254
Executive Boulevard, Huber Heights, Ohio 45424 (hereinafter referred to as
"Licensee");
WITNESSETH
WHEREAS, H-D Michigan, Inc., a Michigan corporation with its principal
place of business at 315 W. Huron Street, Ann Arbor, Michigan 48103
(hereinafter referred to as "Owner") owns the Licensed Properties, as defined
in Paragraph 1(a) below; and
WHEREAS, Owner has granted Licensor the exclusive right to use and
sublicense the use of the Licensed Properties in the Territory as defined in
Paragraph 1 (d) below; and
WHEREAS, Licensee desires to utilize the Licensed Properties in connection
with the manufacture and sale of certain articles of merchandise; and
WHEREAS, Licensor is willing to grant to Licensee, with the approval of
Owner, the right so to utilize the Licensed Properties;
NOW THEREFORE, in consideration of the above premises and the mutual
promises and covenants herein contained, the parties hereto agree as follows:
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<PAGE> 13
1. Definitions. For the purposes hereof:
a. "Licensed Properties" means and shall be deemed to include the
following: The trademarks identified and displayed on the attached Exhibit A;
the trade dress and/or product appearance of Harley-Davidson motorcycles and
parts thereof; and the LICENSED BY HARLEY-DAVIDSON design mark identified and
displayed on the attached Exhibit B.
b. "Licensee's Goods" means the following products or merchandise:
screened or direct-embroidered T-shirts, tank tops, and muscle shirts; knit
shorts; fleece tops and pants; and embroidered baseball caps.
c. "Licensed Articles" means Licensee's Goods which bear or display
one or more of the Licensed Properties or are sold or distributed in association
with one or more of the Licensed Properties, pursuant to this Agreement.
d. "Territory" means the following: the United States, its territories
and possessions.
e. "Sale" means (i) the sale or other permitted distribution by
Licensee or any outlet related to or affiliated with Licensee of Licensed
Articles directly to wholesale outlets unrelated and unaffiliated with Licensee,
for resale; or (ii) the sale of Licensed Articles directly to ultimate consumers
through retail outlets.
f. "Net Sales" means the total receipts paid or otherwise owing to
Licensee from the Sale of Licensed Articles, less any credits for returns
actually made or allowed. In computing Net Sales, no costs incurred in
manufacturing, selling, advertising, promoting, or distributing the Licensed
Articles covered by this Agreement shall be
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<PAGE> 14
deducted, nor shall any deduction be made for uncollectible accounts, cash
discounts, or similar allowances.
g. "Premium" means any product or article of merchandise used or
intended to be used for the purpose of promoting, publicizing, or increasing the
sale of any goods or services, including, but not limited to, incentives for
sales forces, the trade and/or consumers.
h. "Packaging" means any cartons, boxes, containers, packaging, and
wrapping material used or intended to be used in association with any Licensed
Articles.
i. "Promotional Materials" means any advertising or promotional
materials bearing or displaying any of the Licensed Properties or otherwise
relating to the Licensed Articles, including, but not limited to, brochures,
flyers, photographs, point-of-purchase displays, advertisements, banners, and
public relations releases and kits.
2. Grant of License.
a. Grant: Subject to the limitations set forth in this Agreement,
Licensor hereby grants to Licensee the right to use the Licensed Properties, on
a non-exclusive basis, solely in connection with the manufacture and Sale of
Licensee's Goods in the Territory.
b. Licensed Product Designation: Licensee shall use the LICENSED BY
HARLEY-DAVIDSON design mark as shown in the attached Exhibit B, or such other
identification as Licensor may approve or designate in writing, directly on the
Licensed Articles or tags affixed thereto and on Packaging and Promotional
Materials therefor.
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<PAGE> 15
Licensee shall not use the LICENSED BY HARLEY-DAVIDSON design mark in
Promotional Materials in a manner that would lead to the public to believe that
unlicensed products also set forth in the Promotional Materials are Licensed
Articles. Licensor, in its sole discretion, may also require Licensee to place
additional indicia or symbols on Licensed Articles, as well as Packaging and
Promotional Materials therefor, as a means of further identifying Licensee
and/or the Licensed Articles. Any change required by Licensor pursuant to
this Paragraph 2(b) shall not affect Licensed Articles already
manufactured or in process of manufacture.
c. Territory: The grant made pursuant to this Agreement extends only
to Licensee's use of the Licensed Properties, as herein prescribed, within the
Territory. Licensee agrees that it will not make nor authorize any use, direct
or indirect, of the Licensed Properties in any other territory anywhere in the
world and that it will not sell any Licensed Articles to persons who intend to
resell or distribute Licensed Articles outside the Territory.
d. Scope of Non-Exclusive Grant: Nothing in this Agreement shall be
construed to prevent or restrict Licensor in any manner from: (i) granting any
other licenses for the use of the Licensed Properties in connection with any
goods or services whatsoever, including goods identical to Licensee's Goods; or
(ii) utilizing the Licensed Properties in connection with any goods or services
whatsoever, including goods identical to Licensee's Goods, that Licensor in its
sole discretion may elect to sell to its dealers, distributors, and any other
customers; or (iii) utilizing the Licensed Properties in any other manner
whatsoever.
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<PAGE> 16
e. Term: This Agreement shall be effective as of January 1, 1995, and
shall expire automatically on December 31, 1995, unless sooner terminated in
accordance with the provisions hereof.
f. Limitations On License: No license is granted hereunder for the use
of the Licensed Properties for any purpose other than in connection with the
manufacture and Sale of Licensed Articles in the Territory.
3. Royalty Rate and Terms of Payment.
a. Rate: Licensee agrees that it will pay Licensor an amount equal
b. Minimum Payment: Licensee agrees that it will pay Licensor, during
the Term of this Agreement, Royalty Payments of no less than (hereinafter
referred to as the "Minimum Royalty Payments"). The Minimum Royalty Payments
shall be paid to Licensor in accordance with Schedule 1, attached hereto and
made a part hereof.
c. Statements and Payments: On or before the 15th day after the end of
each calendar month during the term of this Agreement, whether or not Sales of
any Licensed Articles have been made, Licensee shall submit to Licensor a full
and accurate statement showing the quantity, description, Sales, and Net Sales
of all Licensed Articles distributed and/or sold during the preceding calendar
months and, simultaneously therewith, Licensee shall make all Royalty Payments
owed to Licensor on account of such
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<PAGE> 17
Net Sales together with any other payments required by this Agreement accrued
during such time period.
4. Quality and Approvals.
a. Licensee agrees that the Licensed Articles shall be of high
standard and of such style, appearance, and quality as to be suited to their
exploitation to the best advantage and to the protection and enhancement of the
Licensed Properties and the goodwill pertaining thereto. Licensee's policies of
Sale, distribution, advertising, and promotion of the Licensed Articles shall
also be of high standard and shall in no manner reflect adversely upon the good
name of Owner or Licensor or any of their products or services or the Licensed
Properties. Licensee agrees to use the Licensed Properties in a form and manner
which may be prescribed by Licensor to promote and foster the goodwill
represented thereby. Licensee shall manufacture, sell, distribute, advertise,
and promote the Licensed Articles in accordance with all applicable federal,
state, and local laws, regulations, and industry codes and standards.
b. Before selling or distributing any Licensed Articles, Licensee
shall furnish to Licensor, without cost, two (2) samples of each Licensed
Article and each item of Packaging for each Licensed Article, and shall furnish
to Owner, without cost, one sample of each such Licensed Article and item of
Packaging. Licensee shall furnish any additional samples of the Licensed
Articles and Packaging to Licensor and Owner as Licensor may reasonably request.
It is a material requirement of this Agreement that, within sixty (60) days of
the beginning of the Term of this Agreement, Licensee shall submit to Licensor
and Owner designs and/or samples of the Licensed Articles and
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<PAGE> 18
Packaging. The quality, appearance, and style of the Licensed Articles and
Packaging must be approved by Licensor before any advertising, Sales,
distribution, or other use of the same. Any of the Licensed Articles or
Packaging submitted to and not disapproved by Licensor within thirty days after
its receipt of such items shall be deemed to have been approved. After samples
of such Licensed Articles or Packaging have been approved pursuant to this
Paragraph, Licensee shall not change any aspect thereof without the prior
written consent of Licensor.
c. From time to time after Licensee has commenced selling the Licensed
Articles, and upon Licensor's written request, Licensee shall furnish without
cost to Licensor and Owner a reasonable number of additional random samples of
each Licensed Article being manufactured and sold by Licensee hereunder,
together with any Packaging used in connection therewith. In the event Licensor
determines there is a material departure from the approved sample of any such
items, Licensor shall have the right upon written notice to revoke immediately
its approval of such item(s) and/or to terminate this Agreement upon thirty days
prior written notice; provided, however, that if Licensee cures any such breach
of its duties under this Paragraph to sell or use only approved items within
thirty days of Licensor's notice of termination, if any, then such termination
shall not be effective.
d. Any methods of promoting or advertising the Licensed Articles must
be approved in writing by Licensor prior to its adoption and use by Licensee.
Samples of all Promotional Materials shall be submitted to Licensor and Owner at
the earliest time practicable, and, in any event, prior to the production and
distribution of any
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<PAGE> 19
such Promotional Materials. Licensee shall not display, use, or distribute any
Promotional Materials until the same has been approved by Licensor. Any such
material submitted to and not disapproved by Licensor within thirty days after
its receipt shall be deemed to have been approved. After samples of such items
have been approved pursuant to this Paragraph, Licensee shall not change any
aspect thereof without the prior written consent of Licensor.
e. Licensor and Owner, or duly appointed agents or representatives
thereof; shall have the right, upon request and with reasonable notice to
Licensee, to inspect the facilities used by Licensee in manufacturing the
Licensed Articles, in order to ascertain whether the terms of this Agreement are
being followed, including, without limitation, observing Licensee's
manufacturing operations, inspecting the Licensed Articles in stock and in
process of manufacture, and inspecting the labeling, marking, and packing
methods and practices used by Licensee.
f. Licensee agrees that it (or any person controlled by Licensee or
any entity in which Licensee has a majority or controlling interest) will not,
during the term of this Agreement, make commercial use of any motorcycle-related
name, image, symbol, or trademark other than the Licensed Properties without the
prior written approval of Licensor. Furthermore, no secondary business
identification, nor any names or trademarks other than those identified on
Exhibit A and B shall appear on the Licensed Articles without the prior written
approval of Licensor.
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<PAGE> 20
5. Distribution Limitations and Requirements.
a. Sales of the Licensed Articles shall be solely through
national and regional chains of low overhead retail stores, such as Wal-Mart
and J.C. Penney, and other mass merchandisers, specifically excluding
Harley-Davidson dealerships, convenience stores, and gift stores, and, for
Licensed Articles consisting of embroidered baseball caps, also excluding
specialty stores.
b. Subject to the limitations herein, Licensee agrees to and shall use
its best efforts to sell, distribute, supply, advertise, and promote each of
the Licensed Articles in all areas of the Territory during the term of this
Agreement. Licensee further undertakes to establish and maintain facilities
for the broadest possible distribution of Licensed Articles throughout the
Territory, in accordance with the terms of this Agreement. Notwithstanding the
foregoing, Licensee agrees it shall not use direct marketing methods to sell or
promote the Licensed Articles.
c. Licensee shall submit to Licensor and Owner during the term of this
Agreement, on an annual or more frequent basis as Licensor may request,
marketing, advertising, and promotional plans, with appropriate budgets and
financial information, respecting Licensee's efforts and fulfillment of its
obligations under this Paragraph 5. All such plans shall be in writing and shall
be reasonably satisfactory to Licensor in both form and content.
6. Records.
a. Licensee agrees to keep accurate books of account and records
covering all transactions relating to the Licensed Articles. Licensor and its
duly authorized
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<PAGE> 21
representatives shall have the right at all reasonable hours of the day and
during reasonable times of the year considering Licensee's business to examine
such books of account and records in Licensee's possession or under its control
with respect to the Licensed Articles and terms of this Agreement, and shall
have free and full access thereto for such purposes and for the purpose of
making extracts therefrom. All such books of account and records shall be kept
available for at least two (2) years after the termination or expiration of
this Agreement. To facilitate Licensor's examination of its books and records,
Licensee further agrees to designate a symbol or number which will be used
exclusively in connection with transactions relating to the Licensed Articles
and with no other products or services which Licensee may manufacture, provide,
sell, or distribute.
b. In the event a discrepancy between the total of Royalty Payments
received by Licensor and Royalty Payments due Licensor under the terms of this
Agreement of five percent (5%) or more is discovered pursuant to any
examination by Licensor, Licensee, upon demand, shall pay Licensor the total
cost for such examination, together with such Royalty Payments due Licensor.
Any Royalty Payments that have not been timely paid by Licensee, the cost of
any such examination and interest due on the foregoing shall accrue interest
daily from the original due date of each sum until the date of actual payment,
at the rate of three percentage points above the then-prevailing federal
discount rate for 90-day U.S. Treasury Bills.
7. Termination.
a. Licensor shall have the right to terminate this Agreement at any
time prior to its expiration upon sending written notice to Licensee: (i) if
Licensee shall
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<PAGE> 22
fail to make or deliver any payments or statements required hereunder, and if
such failure shall continue for a period of ten days after written notice of
such failure is sent by Licensor to Licensee; (ii) if Licensee transfers or
attempts to transfer any interest in or right, privilege, or obligation under
this Agreement; (iii) if any of the principal assets of Licensee that are
required for the conduct of its business are transferred, by operation of law
or otherwise; (iv) if the direct or indirect ownership or operating management
of Licensee is changed, however accomplished, without Licensor's prior written
consent; or (v) if Licensee shall fail to comply with or perform any other term
or condition of this Agreement, and if such failure shall continue for a period
of ten (10) days after written notice of such failure is sent by Licensor to
Licensee.
b. This Agreement shall terminate automatically if Licensee files a
petition in bankruptcy, is adjudicated a bankrupt or files a petition or
otherwise seeks relief under or pursuant to any bankruptcy, insolvency or
reorganization statute or proceeding, or if a petition in bankruptcy is filed
against it or it becomes insolvent or makes an assignment for the benefit of
its creditors or a custodian, receiver, or trustee is appointed for all or a
substantial portion of its business or assets, provided such circumstance shall
not be cured within thirty (30) days of the commencement of the above-stated
event. No assignee for the benefit of creditors, custodian, receiver, trustee
in bankruptcy, sheriff, or any other officer of the court or official charged
with taking over custody of Licensee's assets or business shall have any right
to continue this Agreement or to exploit or in any way use the Licensed
Properties if this Agreement terminates pursuant to this Paragraph.
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<PAGE> 23
Nothing contained herein shall be deemed to preclude or impair any rights which
Licensor may have as a creditor in any bankruptcy proceeding.
c. Licensor shall be under no obligation to terminate this Agreement on
the happening of any or all of the events set forth in this Paragraph 7, and
its failure to do so in any instance shall not be deemed a waiver of its right
to do so. Licensor's rights under this Paragraph 7 are in addition to all
rights which Licensor otherwise may have
against Licensee.
d. In the event Licensor terminates this Agreement pursuant to Paragraph
7, the entire unpaid balance, if any, of the Minimum Royalty Payment shall
become due and payable immediately.
8. Post-Termination.
a. After the expiration or termination of this Agreement, Licensee shall
immediately cease utilizing the Licensed Properties and will not adopt or use
in connection with any product or service whatsoever any trademark confusingly
similar to any of the Licensed Properties or to any other mark of Owner; and
Licensee shall not manufacture, sell, distribute, advertise, promote, or
otherwise deal in any Licensed Articles except as hereinafter provided.
Notwithstanding the foregoing, upon such expiration or termination, Licensee
shall furnish Licensor with a statement identifying its inventory of Licensed
Articles on hand and may sell such Licensed Articles for a period of ninety
(90) days after the date of termination or expiration; provided, however, that
all Royalty Payments with respect to such Sales during this ninety (90) day
period are made in accordance with Paragraph 3 hereof. Licensee shall have no
such rights under this
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<PAGE> 24
Paragraph to sell off Licensed Articles in inventory after termination or
expiration of this Agreement if this Agreement is terminated by Licensor for
any of the following reasons: Licensee's nonpayment of any amounts due Licensor
pursuant to Paragraph 3 hereof; Licensee's failure to submit royalty reports
pursuant to Paragraph 3(d) hereof; Licensee's failure to comply with any of the
provisions of Paragraphs 2(b) or 4 hereof; or Licensee's failure for any reason
to maintain the insurance required by Paragraph 10 hereof. Licensee agrees it
shall use its sell-off rights granted under this Paragraph in good faith and
shall not, for example, increase its inventory during the three-month period
prior to termination or expiration in an unreasonably excessive manner, in
relation to all prior periods of time during the Term hereof.
b. Upon the expiration or termination of this Agreement or any
ninety-day sell-off period allowed hereunder, Licensee shall immediately ship
and deliver to Licensor, without charge to Licensor, all existing inventory of
Licensed Articles and all materials bearing the Licensed Properties or related
to the Licensed Articles, including, but not limited to, artwork,
transparencies, negatives, dies, tooling, molds, screens, Packaging and
Promotional Materials for disposition by Licensor, along with copies of all
inventory records relating thereto. Licensor's receipt of such inventory,
records and other materials shall not constitute a waiver by Licensor of its
right to recover any amounts due Licensor pursuant to Paragraph 3 hereof or a
waiver of its right to exercise any other remedies which are provided by law or
this Agreement.
9. Remedies. Licensee acknowledges that its failure (except as
otherwise provided herein) to cease the manufacture, sale, distribution,
advertising, or
13
<PAGE> 25
promotion of the Licensed Articles and that its use of the Licensed Properties
or any marks confusingly similar thereto upon the termination or expiration of
this Agreement will result in immediate and irreparable damage to Owner and
Licensor. Licensee acknowledges and admits that there is no adequate remedy at
law for failure to cease such manufacture, sale, distribution, advertising,
promotion, or use, and Licensee agrees that in the event of such failure, the
Licensed Articles and any other materials bearing the Licensed Properties shall
be deemed counterfeit, and Licensor and/or Owner shall be entitled to equitable
relief including, without limitation, temporary restraining orders and
preliminary and permanent injunctions, at nominal bond, to enjoin the
manufacture, sale, distribution, advertising, or promotion of the Licensed
Articles or use of the Licensed Properties and such other and further relief as
any court with jurisdiction may deem just and proper. Resort to any remedy
referred to hereinabove shall not be construed as a waiver of any other rights
and remedies to which Licensor or Owner is entitled under this Agreement or
otherwise.
10. Indemnification and Insurance.
a. Licensee shall be solely responsible for, and defend and indemnify
Licensor and Owner, their respective affiliates, and the officers and directors
and employees of the foregoing (hereinafter collectively referred to as
"Indemnitees"), and hold such Indemnitees harmless from, any and all claims,
demands, causes of action, damages, costs and expenses whatsoever (including
but not limited to reasonable attorneys' fees and product warranty and recall
expenses, if any) arising directly or indirectly from or out of Licensee's use
of the Licensed Properties and, sale, design, manufacture, sale, distribution,
advertising, promotion, use, or misuse of the Licensed Articles or otherwise
14
<PAGE> 26
arising directly or indirectly from or out of any alleged action or omission of
Licensee, its agents, or its customers.
b. Licensee shall, at its own expense, obtain and maintain at all times
product liability insurance for the Licensed Articles in the amount of coverage
specified below. Such product liability insurance shall be in form and
substance acceptable to Licensor and shall cover any claims, demands, causes of
action, or damages, including reasonable attorneys' fees, arising from or out
of any alleged defects in the Licensed Articles or from or out of any use or
misuse of the Licensed Articles or the Licensed Properties. A copy of said
policy, along with the name, address, and telephone number of the insurance
underwriter, shall be sent to Licensor. Such insurance policy shall name the
Indemnitees as additional insureds and shall provide that it may not be
cancelled without at least thirty (30) days prior written notice to Licensor.
Licensee shall furnish Licensor with a certificate of such insurance showing
compliance with the foregoing requirements. Licensee agrees that such
insurance policy or policies for the first year of this Agreement shall contain
combined single limits of no less than one million dollars ($1,000,000) for
bodily injuries and property damage arising out of each occurrence. Licensee
further agrees that, for any subsequent years of this Agreement, Licensor shall
have the right to require Licensee from time to time to cause the limits of
such insurance policy or policies to be increased by an amount deemed
reasonable to Licensor. Licensee shall give immediate notice to Licensor of
all occurrences that might reasonably be expected to result in any claim
against it or any one or more of the Indemnitees or which could impose any
liability upon any one or more of the Indemnitees.
15
<PAGE> 27
11. Notices. All payments, notices, statements, and other
communications to be made or given hereunder shall be given or made at
the respective addresses of Licensor, Owner, and Licensee as set forth below
unless notification of a change of address is given in writing. All notices
and statements shall be in writing and shall be sent by hand delivery,
facsimile machine, telex, mailgram, or registered or certified mail. Any
notice which is posted in the United States and forwarded by registered or
certified mail, or mailgram, shall be deemed to have been given at the time it
is mailed. Any other form of notice shall be deemed given at the time of
receipt.
If to Licensor: Harley-Davidson Motor Company
3700 W. Juneau Avenue
Milwaukee, WI 53208 U.S.A.
Attention: Vice President
Marketing/Brand Management
With copies to: Harley-Davidson Motor Company
3700 W. Juneau Avenue
Milwaukee, WI 53208
Attention: Vice President and
General Counsel
If to Owner: H-D Michigan, Inc.
315 W. Huron Street
Ann Arbor, MI 48103
If to Licensee: Sports Imprints, Inc., d/b/a Funwear
6254 Executive Blvd.
Huber Heights, OH 45424
Attention: Jerry Luloff
12. No Joint Venture. Nothing herein contained shall be construed
by either party hereto or any third party as creating a relationship of
principal and agent,
16
<PAGE> 28
partnership, or joint venture, and Licensee shall have no power or right to
obligate or bind Licensor or Owner in any manner whatsoever.
13. Acknowledgement of Rights in Licensed Properties.
a. Licensee recognizes and acknowledges that the Licensed Properties
and all rights therein and goodwill pertaining thereto belong exclusively to
Owner, and that the Licensed Properties are distinctive trademarks of Owner
and have a strong secondary meaning in the minds of the public. Licensee
further acknowledges that all use of the Licensed Properties shall inure to the
benefit of Owner. Licensee agrees that it will not, during the Term of this
Agreement or thereafter, either directly or indirectly, attack or contest the
validity or ownership in Owner of the Licensed Properties or any registrations
thereof anywhere in the world. Licensee further agrees it win not, during the
Term of this Agreement or thereafter, attack or dispute Licensor's rights to
sublicense the right to use the Licensed Properties or the validity of this
Agreement.
b. It is agreed that nothing contained in this Agreement shall be
construed as an assignment or grant to Licensee of any right, title, or
interest in or to the Licensed Properties, or any registration or application
therefor, it being understood that all rights relating thereto are owned and
reserved by Owner and/or Licensor, except for Licensee's right to use the
Licensed Properties as expressly provided in this Agreement. Licensee hereby
agrees that it shall not at any time acquire any rights in the Licensed
Properties by virtue of any use it may make of the Licensed Properties.
Licensee shall not attempt to register any of the Licensed Properties, either
alone or in combination with any
17
<PAGE> 29
other mark, or any mark confusingly similar to any of the Licensed Properties
anywhere in the world.
c. Licensee agrees to cooperate with and assist Licensor and Owner
fully and in good faith for the purposes of securing and preserving Owner's
and/or Licensor's rights in and to the Licensed Properties. Licensee shall
assist in any actions in furtherance of the foregoing, including the following:
registering any of the Licensed Properties with the United States Patent and
Trademark Office or any other trademark or service mark register in the world,
in the name of Owner or, if Owner so requests, in the name of Licensor or
Licensee; recording this Agreement, registered user agreements, or any other
agreements with any governmental authority in the Territory; or performing any
other act with respect to the Licensed Properties that in the judgment of Owner
or Licensor may be necessary or desirable under any law, regulation, or decree
in the Territory. Licensee hereby grants to Owner and Licensor an irrevocable
power of attorney to sign, on behalf of Licensee, any applications, and other
documents for the purposes of the foregoing.
14. Ownership of Marks and Copyrights.
a. Licensee agrees and understands that all designs, drawings, and
graphics incorporating all or any part or variation of any of the Licensed
Properties and any stylized forms or representations thereof approved by
Licensor for use in connection with the Licensed Articles shall belong to
Owner. Licensee agrees it will upon request of Licensor or Owner execute any
document presented to it that Licensor or Owner may considerable desirable,
without further consideration other than the mutual covenants set
18
<PAGE> 30
forth in this Agreement, to assign and transfer to Owner all rights in any such
designs, drawings, graphics, and representations.
b. Licensee hereby assigns and transfers to Owner the copyrights,
worldwide, in all works of authorship created and in the future to be created,
in whole or in part, by or for Licensee that are used in connection with the
Licensed Articles and approved by Licensee pursuant to Paragraph 4 hereof,
including all designs, drawings, pictures, logos, symbols, graphics,
photographs, visual works, and/or any artwork used on or comprising the
Licensed Articles or used in connection with the Licensed Properties,
Packaging, and Promotional Materials (hereinafter collectively referred to as
the "Works"). Licensee shall execute and shall cause other persons or entities
creating such Works, in whole or in part, to execute any additional assignments
or other documents deemed necessary or desirable by Owner or Licensor to enable
Owner to register, secure, and protect in its own name such copyrights
worldwide. Upon request by Licensor, Licensee will affix to any of the Works
copyright notices in the name of Owner and use in connection with any of the
Licensed Properties an indication of trademark rights, such as the symbol
"(TM)".
15. Protection of Property.
a. Licensee shall notify Licensor in writing of any infringements,
possible infringements, or any imitations by others of the Licensed Properties
or the Works which may come to Licensee's attention. Licensor shall have the
sole right to determine whether or not any further 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
19
<PAGE> 31
infringements or imitations without first obtaining the written consent of
Licensor. Licensee shall not have any rights against Licensor by reason of
Licensor's failure to prosecute any alleged infringements or imitations of the
Licensed Properties or the Works by others.
b. If Licensor or Owner so desires, at their expense, they may
commence or prosecute any claims or suits based on infringement of rights in
the Licensed Properties or the Works in their own name or in the name of
Licensee, or join Licensee as a party thereto with Licensee's written consent,
which consent shall not be unreasonably withheld.
16. Government Approvals. Licensee agrees to make or obtain, at its
expense, all necessary or appropriate governmental filings, approvals,
applications, and/or registrations with respect to Licensee's use of the
Licensed Properties, Sale, and advertising of Licensed Articles, and rights to
manufacture, sell, distribute, advertise, and promote the Licensed Articles
throughout the Territory. Licensee shall promptly furnish copies of all such
filings, approvals, applications, and/or registrations to Licensor.
17. Combination and Premium Sales. Licensee warrants it will not use the
Licensed Articles for combination sales, premiums, giveaways, or any similar
method of merchandising without the prior written consent of Licensor, and will
refrain from distributing Licensed Articles for purposes other than their Sale
without the prior written consent of Licensor.
18. Assignment. This Agreement and all rights and duties herein are
personal to Licensee and shall not, without Licensor's prior written approval,
be assigned,
20
<PAGE> 32
mortgaged, sublicensed, or otherwise encumbered by Licensee or by operation of
law. Any attempt by Licensee to grant a sublicense or to assign or part with
possession or control of the agreement or any of Licensee's rights or duties
hereunder shall be void ab initio and shall constitute a material breach of
this Agreement. This Agreement and any or all rights and duties may be
assigned by Licensor without the consent of Licensee.
19. Choice of Law; Disputes.
a. This Agreement shall be deemed to have been accepted and
signed Milwaukee, Wisconsin, and shall be construed in accordance with the laws
of the State of Wisconsin, U.S.A.
b. In the event of any dispute arising from or in connection with this
Agreement, Licensee consents and agrees to in personam jurisdiction and to
venue exclusively in either the Circuit Court for Milwaukee County, Wisconsin,
or the United States District Court for the Eastern District of Wisconsin,
located in Milwaukee, Wisconsin.
20. Severability. The provisions of this Agreement are severable, and if
any clause or provision shall be held invalid and unenforceable in whole or in
part, then such invalidity or unenforceability shall affect only such clause or
provision or part thereof.
21. Miscellaneous.
a. This Agreement constitutes the entire agreement and
understanding between the parties hereto and terminates and supersedes any
prior agreement or understanding, written or oral, relating to the subject
matter hereof between
21
<PAGE> 33
Licensor and Licensee. There are no representations, promises, agreements,
warranties, covenants, or undertakings other than those expressly contained in
this Agreement.
b. None of the provisions of this Agreement can be waived or modified
except in a written document signed by both parties.
c. The headings on any paragraph hereof are for convenience purposes
only and shall not be used to construe or affect the meaning or interpretation
of this Agreement.
22. Rights of Owner. To the extent that any rights are granted to Owner
under any of the provisions of this Agreement, Owner shall be entitled to
enforce and protect those rights against the parties hereto and their
successors and assigns.
23. Survivorship of Provisions. Notwithstanding the expiration or
termination of this Agreement, all rights, obligations, and remedies which
accrued prior to the termination or expiration hereof shall survive such
termination or expiration. In addition, Paragraphs 1, 3, 6, 8, 9, 10, 13, 14,
15, 19, 20, 21, and 22 shall survive termination or expiration thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement through
authorized officers as of the date set forth above.
HARLEY-DAVIDSON SPORTS IMPRINTS, INC.,
MOTOR COMPANY d/b/a FUNWEAR
By /s/ ANNE M. TYNION By /s/ JERROLD LULOFF
------------------------------- ------------------------------
Title VP MARKETING/BM Title PRESIDENT
---------------------------- ---------------------------
22
<PAGE> 34
This Agreement is approved by Owner this 13th day of
January, 1995.
H-D MICHIGAN, INC.
By /s/ Thomas P. Arden
--------------------------------
Title: Vice President
23
<PAGE> 35
EXHIBIT A
PROPERTY
HARLEY-DAVIDSON
HARLEY
HD
[HARLEY-DAVIDSON MOTORCYCLES LOGO]
[HARLEY-DAVIDSON MOTORCYCLES LOGO]
<PAGE> 36
EXHIBIT B
[LICENSED BY HARLEY-DAVIDSON (R) LOGO]
<PAGE> 1
-2- EXHIBIT 10.7
LICENSE AGREEMENT
AGREEMENT made and effective as of the 1st day of February 1996 by and
between PepsiCo, Inc., a corporation of the State of North Carolina, with its
principal place of business at 700 Anderson Hill Road, Purchase, New York 10577,
U.S.A. (hereinafter referred to as "LICENSOR") and Littlefield Adams & Co, a
corporation of the State of New Jersey with its principal place of business at
6254 Executive Blvd., Huber Heights, Ohio 45424 (hereinafter referred to as
"LICENSEE").
WHEREAS, LICENSOR is the owner of certain proprietary intellectual
property, including but not limited, to trademarks, trade dress, logos, designs,
slogans, copyrights and other similar materials (the "Property") used in
connection with the brands set forth on Schedule A of this Agreement; and
WHEREAS, LICENSEE desires to obtain the right and license to use the
Property on and in connection with the manufacture, distribution and sale of
License Product(s) in the Territory (both as hereinafter defined) under certain
terms and conditions and LICENSOR is willing to grant LICENSEE such right and
license.
NOW THEREFORE, in consideration of and incorporating the above premises
and of the mutual covenants, conditions and agreements herein contained, the
parties agree as follows:
GRANT OF LICENSE
1.1 Grant. LICENSOR hereby grants to LICENSEE, and LICENSEE hereby
accepts upon the terms and conditions herein specified, the non-exclusive right
and license to utilize the Property in the Territory solely upon and in
connection with the manufacture, distribution and sale of the products shown on
Schedule B hereof (the "Licensed Product(s)"). In the event of any question
about whether any specific product or products are Licensed Products, the
determination of LICENSOR shall be conclusive.
1.2 Retail Distribution of Licensed Products. The Licensed Products
manufactured under this Agreement shall be placed in distribution by the
LICENSEE in a fully finished condition solely for immediate or eventual sale at
the retail market level or its equivalent and in that same condition and for the
use intended by LICENSOR. In no event shall the Licensed Products be sold to any
party if the LICENSEE knows, or should have known, that the Licensed Products
will be thereafter altered, modified, re-packaged, filled, made part of
something else or used in any other unauthorized manner by any party in the
chain of distribution.
1.3 Reservation of Rights
(a) LICENSOR retains all rights not expressly and exclusively
conveyed to LICENSEE hereunder, and it is acknowledged that LICENSOR may grant
licenses to others to use the Property in connection with other products.
(b) LICENSOR reserves the right to itself use, manufacture,
distribute and sell, or have others manufacture, distribute or sell for it, the
same type of product using the Property in other channels of distribution such
as, but not limited to, premiums, promotions, mail order and restricted venues,
e.g., events, concerts, theme parks. In the event, however, that LICENSEE acts
as a supplier of such products to LICENSOR or any parties authorized by
LICENSOR, such sales shall be subject to the provisions of no. 4.1 of this
Agreement regarding Royalties.
<PAGE> 2
- 3 -
(c) From time to time, opportunities of a short term nature may
arise using a particular new application of the Property wherein LICENSOR will
ask LICENSEE to produce on an expedited basis Licensed Products either for
LICENSOR to use for premium or promotional purposes, or to be sold by LICENSEE
at retail, or both, and if LICENSEE is unable or unwilling to so produce such
Licensed Products within time frames acceptable to LICENSOR as well as meeting
LICENSOR's other reasonable requisites under the circumstances, such as
sufficient distributional capability and appropriate price and quality, LICENSOR
shall have the right to seek and license other parties for this limited
opportunity only.
(d) If LICENSOR becomes aware of the inability or unwillingness
of LICENSEE to fill an order for Licensed Products for LICENSOR or any customer,
LICENSOR shall have the right to seek and license another party or parties to
fill said order(s).
1.4 No Right to Sub-License. LICENSEE has no right to sub-license the
rights granted by this Agreement.
TERRITORY
2. The rights of distribution and sale granted to LICENSEE under this
Agreement shall be limited to those jurisdictions set forth on Schedule C hereto
and LICENSEE agrees that it will not make or authorize any use, direct or
indirect, in any other area and that it will not knowingly sell Licensed
Products to persons who intend, or are likely, to resell them in any other area.
TERM
3.1 Term. The term ("Term") of this Agreement shall be a period of
two (2) years commencing on February 1, 1996, and terminating on January 31,
1998, unless sooner terminated in accordance with the provisions of this
Agreement.
3.2 Renewal. In the event this Agreement has not been terminated and
LICENSEE has faithfully performed each and every obligation of this Agreement
during the Term referred to in 3.1, LICENSOR agrees to negotiate in good faith
with LICENSEE with respect to a renewal period of the Term for such period of
time and upon such terms and conditions as the parties may mutually agree. (The
defined term "Term" as used herein shall include any renewals thereof.)
CONSIDERATION AND RELATED LICENSEE OBLIGATIONS
4.1 Royalties. In consideration of the right and license herein
granted, LICENSEE shall pay to LICENSOR a sum ("Royalties") equal to eight per
cent (8%) of all Net Sales (as defined below) by or on behalf of LICENSEE of the
Licensed Products. Royalties shall accrue when the Licensed Products are
invoiced or shipped, whichever occurs first, and shall be payable concurrently
with the periodic statements required in no. 6 herein. The term "Net Sales"
shall mean the gross invoice price billed customers less customary trade
discounts, rebates, returns actually credited, and transportation and taxes
actually charged to and paid by the customer, but with no other deductions of
any kind whatsoever, provided, however, that if LICENSEE sells Licensed Products
to a party owned, in whole or in part, or controlled by, or related to, the
LICENSEE, the invoice price used to determine Net Sales shall be the invoice
price at which the Licensed Products are re-sold by the related party to an
unrelated customer in an arms-length transaction.
<PAGE> 3
- 4 -
4.2 Advance. LICENSEE agrees to pay LICENSOR the sum of $5,000.00 upon
execution of this Agreement which shall be deemed to be a non-refundable advance
("Advance") against Royalties due, counting against the total minimum referred
to in no. 4.3 below.
4.3 Guaranteed Minimum Royalties. LICENSEE agrees that, notwithstanding
the actual amount of Net Sales, it shall be obliged to make the following total
minimum payment to LICENSOR ("Guaranteed Minimum Royalties"):
<TABLE>
<S> <C>
$50,000.00 (Includes Advance of No. 4.2)
By 6/30/96 $10,000.00
By 9/30/96 $10,000.00
By 12/31/96 $10,000.00
By 3/31/97 $10,000.00
By 6/30/97 $5,000.00
</TABLE>
4.4 Guaranteed Minimum Shipments. Notwithstanding anything to the
contrary set forth herein, LICENSEE shall maintain minimum net shipments of
Licensed Products sold and shipped in the following amount:
<TABLE>
<S> <C>
By 6/30/96 5,000 units
By 3/31/97 5,000 units
</TABLE>
4.5 First Shipment Date. LICENSEE agrees it will commence distribution
of Licensed Products in reasonable quantities through customary channels of
trade no later than June 15, 1996. If this does not occur, this Agreement will
automatically terminate and LICENSEE shall forfeit the Advance payment of no.
4.2.
REPRESENTATIVE
5. From time to time, LICENSOR may designate one or more
representative ("Representative") upon notice to LICENSEE, to generally act on
behalf of LICENSOR sometimes in conjunction with LICENSOR and sometimes in its
place and stead, such as, but not limited to, receiving payments, made payable
to LICENSOR unless otherwise specified, and statements as set forth in no. 6 and
performing the various quality control functions as set forth in no. 7. In the
event such a Representative is designated, all references to administrative
duties of the LICENSOR in this Agreement may be construed as referring to the
Representative if appropriate to carry out the purposes of this Agreement.
LICENSOR agrees that it will be bound by any authorized communications or
representations of its Representative and cannot repudiate same. LICENSOR,
at its complete discretion, may replace a Representative, upon written notice
to LICENSEE, without affecting the validity of this Agreement.
STATEMENTS, PAYMENTS AND RECORDS
6.1 Statements. Within thirty days of the end of each calendar quarter
during the Term, commencing with the calendar quarter beginning January 1, 1996,
LICENSEE shall deliver to LICENSOR, or its Representative if so specified, a
complete and accurate statement, in the format set forth in Exhibit A, certified
to be accurate by LICENSEE (if LICENSEE is a corporation, by an officer or
authorized person of LICENSEE), setting forth:
(a) LICENSEE'S net shipments, by number of each Licensed
Product, reported separately, for the preceding calendar quarter;
(b) LICENSEE'S Net Sales for each Licensed Product, reported
separately, for the preceding calendar quarter; and
<PAGE> 4
- 5 -
(c) a computation of Royalties due, taking into account any
Guaranteed Minimum Royalties which may be due to the extent that the Guaranteed
Minimum Royalties for the preceding calendar quarter exceed earned Royalties.
Such statements shall be furnished to LICENSOR whether or not any of the
Licensed Products have been shipped during the period.
6.2 Payments. Each statement delivered pursuant to no. 6.1 shall be
accompanied by a check payable to LICENSOR or other party specified by LICENSOR
in full payment of any Royalties or other payments due for the period.
6.3 Records. LICENSEE shall keep, maintain and preserve in LICENSEE'S
principal place of business during the Term and for at least two (2) years
following expiration or termination of this Agreement or any renewals, complete
and accurate records and accounts covering all transactions relating to this
Agreement including, without limitation, invoices, correspondence, banking,
financial and all other pertinent records and accounts. Such records and
accounts shall be maintained in accordance with generally accepted accounting
procedures and principles and shall be available for inspection and audit at
LICENSOR'S expense at any time or times during the Term and for two (2) years
thereafter, during reasonable business hours and upon reasonable notice by
LICENSOR or its nominees. LICENSEE agrees not to cause or permit any
interference with LICENSOR or nominees of LICENSOR in the performance of their
duties of inspection and audit. In the event any errors or discrepancies are
discovered in any records, statements or accounts or in payments resulting
therefrom, they shall immediately be rectified and the appropriate payments
made by LICENSEE, together with interest at the then Citibank, N.A. prime rate
per annum compounded from the date the payment was originally due. Should any
willful errors or discrepancies be disclosed as a result of the inspection or
audit or otherwise, then in addition to all other relief to which LICENSOR may
be entitled, including the right to immediately terminate this Agreement,
LICENSEE shall promptly reimburse LICENSOR for the full cost of such inspection
and audit, together with interest at the then Citibank, N.A. prime rate per
annum for any additional monies found to be due as a result of the inspection
or audit compounded from the date the payment was originally due.
6.4 Right to Dispute Records. Receipt or acceptance by LICENSOR or its
nominees of any of the statements furnished pursuant to this Agreement, the
exercise by LICENSOR in whole or in part at any time or times of the right to
audit and inspect records and accounts, or the receipt or deposit by LICENSOR
or its nominees of any payment tendered by or on behalf of LICENSEE shall be
without prejudice to any rights or remedies of LICENSOR and shall not prevent
LICENSOR from thereafter disputing the accuracy of any such statements,
payments, records and accounts.
QUALITY STANDARDS AND CONTROL
7.1 Quality Standards. All Licensed Products and related materials
displaying the Property, such as, but not limited to, containers, packaging,
wrapping materials, labels, hangtags, advertising materials, promotional
materials, catalogs, artwork, and other pictorial and textual materials to be
used in connection with the Licensed Products, (collectively the "Licensed
Products/Materials") must meet the standards of nature and quality prescribed
by LICENSOR. All Licensed Products/Materials, shall be of high standards and of
such quality as will, in LICENSOR'S sole judgment, protect and enhance the
Property and the substantial goodwill pertaining thereto, and in all cases the
quality shall be at least as high as the quality of samples approved by
LICENSOR.
7.2 Control LICENSEE shall insure at all times that the Licensed
Products/Materials meet in fact LICENSOR'S standards of nature and quality and
LICENSEE shall cooperate fully in all reasonable ways with LICENSOR in enabling
<PAGE> 5
-6-
LICENSOR to ascertain that all Licensed Products/Materials meet said standards.
By way of example rather than limitation, LICENSEE shall:
(a) permit, upon reasonable advance notice, LICENSOR or its
Representative to visit during regular working hours LICENSEE'S premises where
Licensed Products/Materials are manufactured, packaged, sold or distributed for
the purpose of inspection of the manufacturing process and related activities;
and
(b) upon request of LICENSOR or its Representative, send to
LICENSOR or its Representative reasonable quantities of samples (not exceeding
six units of any item) of Licensed Products/Materials at LICENSEE'S expense,
for the purposes of testing, inspection and review.
7.3 Prior Approval. No Licensed Product shall be manufactured,
distributed, sold or used by LICENSEE prior to LICENSOR'S written approval of
pre-production prototypes or samples of each Licensed Product/Material.
Further written approval will be necessary if there is any change proposed by
LICENSOR or LICENSEE in type, style, model, grade, description or the like from
any previously approved Licensed Products/Materials. Should approval or
disapproval of samples submitted prior to manufacture or use not be received by
LICENSEE within fifteen (15) days of the submission, LICENSEE must, in writing,
request a reply. Failure to receive a reply shall be deemed approval by
LICENSOR if LICENSOR or its Representative does not notify LICENSEE of
LICENSOR'S disapproval within an additional fifteen (15) days. Licensed
Products/Materials shall not be manufactured, distributed, sold or used which
differ from the approved samples.
7.4 Deficiency. Promptly upon receipt from LICENSOR or its
Representative of information or notice that any Licensed Products/Materials
manufactured, sold or used by LICENSEE does not or has not met the
specifications or standards of nature and quality prescribed by LICENSOR,
LICENSEE shall correct such deficiency forthwith at LICENSEE'S expense.
LICENSEE shall thereupon submit samples of the corrected Licensed
Products/Material pursuant to no. 7.3, for approval. In the event the
deficiency is that of substandard Licensed Product or that of material misuse
of the Property, all existing inventory or work in progress of Licensed
Products/Materials containing the deficiency shall, at LICENSEE'S expense,
either be corrected to LICENSOR'S satisfaction or shall be destroyed. If the
deficiency is hazardous or defective Licensed Product, LICENSOR may require
LICENSEE to effect a product recall, at LICENSEE'S expense. Notwithstanding
the foregoing, such deficiencies may also subject LICENSEE to provisions of
no. 10.
THE PROPERTY
8.1 Ownership. LICENSEE shall use the Property only in connection
with the Licensed Products and agrees that all of LICENSEE'S use under this
Agreement inures to the benefit of LICENSOR. LICENSEE acknowledges that
LICENSOR is the owner of the Property and the goodwill associated therewith and
the Property is valid. LICENSEE agrees not to contest LICENSOR'S ownership or
the validity of the Property during or after the Term. Apart from the right of
LICENSEE to use the Property pursuant to this Agreement, LICENSEE shall acquire
no right, title or interest of any kind or nature whatsoever in or to the
Property or the goodwill associated therewith.
8.2 Approval. LICENSEE shall use the Property only in such form
and manner as is specifically approved in writing by LICENSOR and, upon request
by LICENSOR, affix thereto any legends, markings and notices of trademark
registration or LICENSOR-LICENSEE relationship specified by LICENSOR, or any
other notice of LICENSOR'S ownership, including copyright. LICENSOR shall have
the right to approve all advertising, displays and other material using the
Property prepared by
<PAGE> 6
-7-
LICENSEE. LICENSEE agrees to follow LICENSOR'S instructions and guidelines
regarding proper usage of the Property in all respects.
8.3. LICENSEE Contributions. LICENSEE agrees that all artwork,
graphics, layouts slogans, names, titles or similar materials incorporating, or
being used in association with, the Property which may be created by the
LICENSEE or its subcontractors pursuant to this Agreement shall become the sole
property of LICENSOR, including trademark and copyright rights, and LICENSEE
agrees on behalf of itself, its employees, its subcontractors and any other
party with whom it may contract to create such materials, to promptly execute
any and all appropriate documents, e.g., assignments, in this regard. LICENSEE
warrants and represents that all such materials which it creates or uses are
original and to the best of its knowledge, do not infringe the copyright or
trademark rights of others.
8.4. Protection and Defense. LICENSOR agrees to protect and defend
the Property at its sole cost and expense. LICENSOR agrees to indemnify and
hold LICENSEE harmless from any and all claims, liabilities, damages, costs or
expenses arising out of, or resulting from, the proper use of the Property by
LICENSEE pursuant to this Agreement, provided that LICENSEE shall cooperate
fully with LICENSOR in the defense and protection of the Property and shall
promptly advise LICENSOR in writing of any potentially infringing uses by
others in addition to any suits brought, or claims made, against LICENSEE
involving the Property. Decisions involving the protection and defense of the
Property shall be solely in the discretion of LICENSOR; LICENSEE shall take no
actions in this regard without the express written permission of LICENSOR.
8.5 LICENSEE Cooperation. LICENSEE agrees to join with LICENSOR in
any application to enter LICENSEE as a registered or permitted user, or the
like, of the Property with any appropriate governmental agency or entity. Upon
termination or expiration of this Agreement for any reason whatsoever, LICENSOR
may immediately apply to cancel LICENSEE'S status as a registered or permitted
user and LICENSEE shall consent in writing to the cancellation and shall join
in any cancellation petition. The expense of any of the foregoing recording
activities shall be borne by LICENSOR.
8.6 Restrictions On Other Marks and Trade Names. During or after
the Term, LICENSEE shall not use any other trademarks or other property similar
to the Property. During or after the Term, LICENSEE shall not use or register,
in whole or in part, the Property or LICENSOR'S name, or anything similar
thereto, as part of LICENSEE's name or as the name of any entity directly or
indirectly associated with LICENSEE'S activities.
8.7 Changes to Property. LICENSOR shall have the right at any
time, upon notice, to make additions to, deletions from, and changes in the
Property at its complete discretion, and LICENSEE shall adopt and use any and
all such additions, deletions and changes as soon as practicable in all new
production of the Licensed Products/Materials.
8.8 Termination. Immediately upon termination or expiration of
this Agreement, subject to the provisions of no. 10, LICENSEE shall immediately
cease all use of the Property and all rights granted LICENSEE hereunder shall
revert to LICENSOR.
LICENSEE RIGHTS AND OBLIGATIONS
9.1 Subcontracting. LICENSEE shall have the right to subcontract
for the manufacture and production of the Licensed Products/Materials provided
however, that irrespective of, or in addition to any other agreements between
LICENSEE and a subcontractor, LICENSEE agrees that any such subcontractor shall:
<PAGE> 7
-8-
(i) be fully subject to, and bound by, every provision of
this Agreement;
(ii) be made aware that it may not sell any Licensed Products
manufactured by it to anyone but LICENSEE;
(iii) agree that any related designs, labels, packaging or
other materials incorporating or associated with the
Property shall become the property of LICENSOR and that
LICENSEE shall be responsible for obtaining any
relevant supporting legal documentation;
(iv) agree to immediately cease all manufacture of Licensed
Products upon notice of termination or expiration of
this Agreement; and
further provided that;
(v) a breach by a subcontractor of any provision of this
Agreement shall be considered a breach by LICENSEE;
(vi) LICENSEE shall remain primarily and completely
obligated under all of the provisions of this Agreement;
(vii) LICENSEE shall promptly furnish to LICENSOR a list of
all such subcontractors and shall update this list each
quarter; and
(viii) LICENSEE agrees to immediately notify any
sub-contractor in writing upon termination or
expiration of this Agreement, with a copy sent to
LICENSOR.
9.2 Best Efforts.
(a) LICENSEE shall use its best efforts to continuously
design, manufacture, advertise, sell and ship all of the Licensed Products in
all of the Territory in commercially reasonable quantities and shall
continuously and diligently during the Term produce an inventory of Licensed
Products and procure and maintain facilities and trained personnel sufficient
and adequate to accomplish the foregoing. In no event, once sales have
commenced shall LICENSEE allow a period of more than ninety (90) days to elapse
during which it does not manufacture, sell or distribute the Licensed Products
in commercially reasonable quantities.
(b) Failure to comply with any of the foregoing in (a) may
result in removal from this License of one or more of the unused or unexploited
brands, Licensed Products or Territories set forth on Schedules A, B or C, upon
written notice from LICENSOR.
(c) LICENSEE shall not, during the Term enter into a
license agreement for products similar to Licensed Products with any
competitor of LICENSOR'S brands set forth in Schedule A.
9.3 Compliance with Laws. LICENSEE warrants and represents that
it will comply with all laws, regulations, ordinances, governmental standards
and the like applicable to the manufacture, sale, distribution, promotion and
advertisement of the Licensed Products and agrees to indemnify and hold LICENSOR
and its Representatives harmless in this regard.
9.4 Goodwill. LICENSEE acknowledges the tremendous value and
goodwill of the Property accruing solely to LICENSOR and agrees not to use the
Property in any manner which may, in LICENSOR'S judgment, be in bad taste, be
inconsistent with LICENSOR'S public image or which may in any way disparage
LICENSOR or its
<PAGE> 8
- 9 -
reputation, including, but not limited to, types and placement of advertising
and types of channels of distribution, nor take any action which will harm or
jeopardize the Property or LICENSOR'S ownership thereof, in any way.
9.5 Confidentiality. During the Term and thereafter, LICENSEE shall
keep confidential any of LICENSOR's confidential proprietary information,
knowledge or trade secrets, such as but not limited to, marketing and
advertising plans, licensing plans, market research data and the like, of which
it becomes aware during the course of its relationship with LICENSOR. If
LICENSEE is uncertain about the status of a particular piece of information, it
shall consult with LICENSOR to determine such status. This confidentiality
obligation shall cease when the information becomes generally known to the
public.
9.6 Indemnification. LICENSEE agrees to assume the defense of, and to
indemnify and hold LICENSOR, its subsidiaries, affiliates, franchisees,
successors and assigns and its Representatives harmless from any and all
liabilities, damages, claims, judgments, awards, fines, penalties, or other
payments (including reasonable counsel fees), which may be incurred by any or
all of them arising out of any claims or suits which may be brought or made
against LICENSOR or those in privity with LICENSOR, excepting those arising
directly and solely from the use of the Property, for injuries resulting from
LICENSEE'S manufacture, advertising, packaging, labeling, promotion, sale,
distribution or use of the Licensed Products, or any unauthorized use by
LICENSEE of the Property, or out of any breach by LICENSEE of any provisions of
this Agreement, provided LICENSOR shall give prompt notice and reasonable
cooperation and assistance to LICENSEE relative to any such claim or suit
brought to its attention. This provision shall survive indefinitely the
termination or expiration of this Agreement.
9.7 Insurance. LICENSEE agrees to obtain and keep in force, at its own
expense, product liability insurance with respect to the Licensed Products, with
a thirty (30) day notice of cancellation provision, from a recognized and
responsible insurance company authorized to conduct an insurance business in New
York with an A.M. Best Company rating of no less than A-XII. Such insurance
company shall name LICENSOR as an additional insured, and provide protection in
the amount of at least $1,000,000.00. LICENSEE shall, within thirty (30) days
from the date hereof, submit to LICENSOR a copy of such insurance policy or a
copy of a fully paid certificate of insurance thereof. Maintenance of such
insurance and performance of LICENSEE of its obligations hereunder shall not
relieve LICENSEE of liability under the indemnity contained in no. 9.6. LICENSEE
agrees to maintain such product liability insurance for a period coextensive
with that for which indemnification might be required under the provisions of
this Agreement and in no event less than five (5) years beyond termination of
this Agreement.
TERMINATION
10.1 Default. LICENSOR shall have the right to terminate this Agreement
without prejudice to any other rights which it may have if:
(a) LICENSEE defaults in the performance of any of its
obligations, representations or warranties provided for in this Agreement; or
(b) any court, arbitration panel, government agency or body
finds that the Licensed Products manufactured by LICENSEE are defective in any
way, manner or form; or
(c) the LICENSEE shall be unable to pay its debts when due, or
shall make any assignment for the benefit of creditors, or shall file any
petition under the bankruptcy or insolvency laws of any jurisdiction, country or
place, or shall have or suffer
<PAGE> 9
-10-
a receiver or trustee to be appointed for its business or property, or be
adjudicated a bankrupt or an insolvent; or
(d) a subcontractor engages in conduct which, if engaged
in by LICENSEE, would entitle LICENSOR to terminate this Agreement. However,
LICENSOR will endeavor to discuss with LICENSEE what action LICENSEE must take
or cause to be taken to remedy any damages to LICENSOR resulting from such
subcontractor's conduct. The nature and extent of the action to be taken shall
be at LICENSOR'S sole and absolute discretion.
10.2 Notice of Termination and Right of Correction. In the event
any of these defaults occur, LICENSOR shall give notice of termination in
writing to LICENSEE pursuant to the provisions of no. 12. Subject to the
provisions of no. 10.3 and excepting a default in any payment due hereunder
which must be corrected within ten (10) days of receipt of the notice and can
only be corrected by payment, the LICENSEE shall have twenty (20) days after
the receipt of notice in which to correct any of these defaults or to assure to
LICENSOR'S satisfaction that appropriate corrective measures are being taken,
and failing such, this Agreement shall terminate, and any and all payments then
or later due from LICENSEE, including Guaranteed Minimum Royalties, shall then
be promptly due and payable and no portion of prior payments shall be
repayable to LICENSEE. For the purposes hereof, the cessation by LICENSEE of
all sales and distribution of the Licensed Products which shall have given rise
to a default hereunder shall be deemed a correction of such default.
10.3 Exceptions to Right of Correction. Notwithstanding the
provisions of no. 10.2 LICENSEE shall have no right of correction in the event:
(a) of willful errors or discrepancies in LICENSEE'S records
as referred to in no. 6.3;
(b) statements or payments as set forth in no. 6.1 and 6.2 are
late more than twice in any year during the Term;
(c) of the occurrence of the same default, other than
concerning statements or payments under no. 6.1 or 6.2,
more than twice during the Term, or during any renewal
period;
(d) of default of the provisions of any provision covering a
First Shipment Date obligation.
10.4 Right of Disposal.
(a) LICENSEE shall within thirty (30) days after termination
or expiration, deliver to LICENSOR a final statement certifying the number
and description of Licensed Products on hand or in process of manufacture.
LICENSOR shall also have the right to conduct a physical inventory in order to
ascertain such inventory or verify such statement.
(b) Subject to the provisions of no. 10.5, after expiration
or termination of the Agreement, provided all sums due LICENSOR have first been
paid, and statements due are furnished, LICENSEE may dispose of the Licensed
Products covered by this Agreement which are in LICENSEE'S inventory or in
process of manufacture at the time of expiration or termination for a period
of one hundred twenty (120) days after said expiration or termination;
provided further that all Royalties with respect to that disposal period are
paid and statements therefor are furnished in accordance with the terms of
this Agreement within thirty (30) days after the disposal period has ended.
<PAGE> 10
-11-
(c) Any right of disposal by LICENSEE shall not prohibit
LICENSOR from granting rights to others to use the Property on Licensed Product
during that disposal period.
10.5 Exceptions to Right of Disposal. Notwithstanding the
provisions of no. 10.4, LICENSEE shall have no right of disposal
(a) if, as set forth in no. 10.4, all sums and statements
due LICENSOR have not been paid or submitted; or
(b) if termination was effected under the provisions of no.
6.3; or
(c) if termination was effected due to the occurrence of
the same default more than twice during the Term, or
during any renewal period; or
(d) if termination was effected for:
(i) sub-standard Licensed Product;
(ii) material improper usage of the
Property;
(iii) failure to obtain prior LICENSOR
approval;
(iv) failure to deliver Royalties or
statements, or to permit an audit
or inspection of LICENSEE'S
records, or to submit quality
control samples.
10.6 Delivery of Property and Account Lists
(a) Upon termination of this Agreement without right of
disposal as set forth in No. 10.5, all labels, signs, packages, wrappers,
cartons, circulars, advertisements and other items bearing or containing any
reproduction or representation of any of the Property shall automatically and
without cost to LICENSOR become the property of LICENSOR, and LICENSEE shall
immediately deliver the same to LICENSOR'S place of business or any other
location designated by LICENSOR. The reasonable cost of such delivery shall be
paid by the LICENSOR.
(b) Upon termination of this Agreement, LICENSEE shall
promptly deliver to LICENSOR a copy of the most recent lists of all accounts
to which it sells Licensed Products and a list of all subcontractors or
manufacturers of LICENSEE.
10.7 Guaranteed Minimum Royalties. Upon termination or expiration of
this Agreement, the total amount of outstanding Guaranteed Minimum Royalties
due through the full time period during which this occurs shall become
immediately due and payable, less any Royalties or advances already paid.
ASSIGNABILITY
11. This Agreement may be freely assigned by LICENSOR without
LICENSEE'S consent or approval. This Agreement, or any of the rights therein,
may not be sold, transferred or assigned, in whole or in part by LICENSEE,
except as provided for in no. 9.1, without the express written consent of
LICENSOR. If assigned, this
<PAGE> 11
- 12 -
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
NOTICES AND PAYMENTS
12. All notices and other communications which either party hereto is
required or may desire to give to the other, except for payments and statements
which shall be sent to the party designated by LICENSOR, e.g., the
Representative referred to in no. 5, shall be given by addressing the same to
the other or to the Representative of LICENSOR at the address hereinafter set
forth in this paragraph, or at such other address as may be designated in
writing by any party in a notice to the other given in the manner prescribed in
this paragraph. All such notices shall be deemed given when sent so addressed by
certified or registered mail, postage prepaid or by hand delivery, with proof of
receipt, or by a reputable express delivery company which requires proof of
receipt, such as, but not limited to, Federal Express(R) or Airborne(R). The
addresses to which the foregoing shall be given are the following:
If To LICENSOR: If To LICENSEE:
PepsiCo, Inc. Littlefield Adams & Co.
700 Anderson Hill Road 6254 Executive Blvd.
Purchase, NY 10577 Huber Heights, Ohio 45424
Attention: Trademark Counsel Attention: Jerry Luloff
with a copy to: Bradford Licensing Associates, 209 Cooper Avenue, Upper
Montclair, NJ 07043.
MISCELLANEOUS
13.1 Remedy For Breach. LICENSEE acknowledges and agrees that a breach
of any of the covenants, agreements or undertakings hereunder will cause
LICENSOR irreparable injury which cannot be readily remedied in damages or
solely by termination of this Agreement and that LICENSOR, in addition to all
other legal and equitable remedies including costs and reasonable attorneys'
fees, shall have the right of injunction for any breach of this Agreement by
LICENSEE.
13.2 Relationship Between LICENSOR and LICENSEE. Nothing herein shall
create, be deemed to create or be construed as creating any partnership,
employer-employee, joint venture, or agency relationship between the parties
hereto or shall be deemed to render LICENSOR or its Representatives liable for
any of the debts or obligations of LICENSEE. LICENSEE shall in no way be
considered an agent or representative of LICENSOR in any dealings which LICENSEE
may have with any third party and neither of the parties hereto nor any of their
employees or agents shall have the power or authority to bind or obligate the
other party.
13.3 Survival of Provisions. The expiration or termination of this
Agreement shall not affect those provisions, and the rights and obligations
therein, set forth in this Agreement which either:
(a) by their terms state, or evidence the intent of the
parties, that the provisions survive the expiration or termination of the
Agreement, or
(b) must survive to give effect to the provisions of this
Agreement.
<PAGE> 12
-13-
13.4 Entirety of Agreement: Amendment. This Agreement constitutes
and contains the entire agreement of the parties hereto relating to the subject
matter hereof and no oral or written statements, representations, documents,
promises or any other prior materials not embodied herein shall be of any force
or effect. This Agreement cannot be amended, altered or modified except by a
written instrument executed by both parties hereto. Once so executed, such
amendments shall become an integral part of this Agreement, subject to all the
terms and conditions herein and shall have full force and effect.
13.5 No Waiver. The failure or delay of LICENSOR to exercise its
rights under this Agreement or to complain of any act, omission or default on
the part of LICENSEE, no matter how long the same may continue, or to insist
upon a strict performance of any of the terms or provisions herein, shall not
be deemed or construed to be a waiver by LICENSOR of its rights under this
Agreement or a waiver of any subsequent breach or default of the terms or
provisions of this Agreement.
13.6 Invalidity. If this Agreement is subject to the approval of
any government or government agency or similar entity, and such approval is not
obtained, or is obtained but later revoked, it is understood and agreed to by
the parties that this Agreement is immediately rendered null and void and
terminated, with neither party liable for any resultant damages, costs or
expenses of the other. But for the foregoing, if any term, covenant,
condition or provision of this Agreement or the application thereof to any
person or circumstance, shall to any extent be held to be invalid, illegal or
unenforceable in any respect, the remainder of this Agreement, or application of
such term or provision to a person or circumstance other than to those as to
which it is held invalid, illegal or unenforceable, shall not be affected
thereby, and each term, covenant, condition or provision of this Agreement
shall be valid and shall be enforced to the fullest extent provided by law.
13.7 Construction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York of the United
States of America and the Courts of the State of New York and/or the federal
courts situate in New York shall have sole and exclusive jurisdiction over all
disputes arising out of this Agreement.
13.8 Headings. The headings as to contents of particular provisions
herein are inserted only for convenience and are in no way to be construed as
part of this Agreement or as a modification of the scope of any terms or
provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the day and year first set forth hereinabove.
PepsiCo, Inc. (LICENSOR)
By: /s/ William A. Finkelstein
---------------------------
Name: William A. Finkelstein
Title: Vice President
Littlefield Adams & Co. (LICENSEE)
By: /s/ Jerrold Luloff
---------------------------
Name: Jerrold Luloff
Title: President Co-CEO
<PAGE> 13
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Schedule A
----------
Brands
------
PEPSI
PEPSI-COLA
DIET PEPSI
DIET PEPSI-COLA
MOUNTAIN DEW
SLICE
<PAGE> 14
-15-
Schedule B
Licensed Products
Men's, Women's, Boys, Girls T-shirts and Fleece
Women's Beach Cover-ups
<PAGE> 15
- 16 -
Schedule C
Territory
United States of America, its territories and
possessions not including Puerto Rico
<PAGE> 16
PepsiCo, Inc.
EXHIBIT A
---------
(U.S.A.)
STATEMENT
---------
Name: Date:
Address: For the Calendar Quarter Ending:
For the Calendar Quarter Ending
List All Products:
Net Shipments by Unit (Itemize by product):
Net $ Sales (Itemize by product):
Total (all products) Net $ Sales:
Royalty Rate %:
Royalties Due:
Minimum Royalties Due:
Minimum Royalties Already Paid:
State Advertising Expenditures (by product):
Total Payment Due:
Certification
-------------
I certify that all sales of Licensed Products
for the above period have been reported in
this Statement, that this Statement is in
accordance with our License Agreement with
PepsiCo, Inc. and that the above figures are
an accurate statement of actual figures
appearing in the relevant invoices.
------------------- ----------------
Officer of Date
Licensee
<TABLE>
<CAPTION>
(1) Original plus check made payable to (2) One copy to: (3) One copy for your files
PepsiCo, Inc.
<S> <C> <C>
Mail to: Bradford Licensing Associates Pepsi-Cola USA
209 Cooper Avenue Routes 35 and 100
Upper Montclair, NJ 07043 Somers, NY 10589-0902
Attention: Len Reiter Attention: Rick Rock
</TABLE>
<PAGE> 1
EXHIBIT 10.8
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF TEXAS
SAN ANTONIO DIVISION
LITTLEFIELD, ADAMS & COMPANY,
A NEW JERSEY CORPORATION,
PLAINTIFF,
V. CIVIL ACTION NO. SA-95-CA-0425
JEFFERS, BROOK, KREAGER &
GRAGG, INC., DAVID YLITALO, AND
MICHAEL KREAGER,
DEFENDANTS.
FULL AND FINAL RELEASE
AND SETTLEMENT AGREEMENT
(REDACTED COPY)
COMPLETE COPY OF DOCUMENT
FILED SEPARATELY WITH COMMISSION
<PAGE> 1
EXHIBIT 10.9
[MERCHANT FACTORS CORP. LETTERHEAD]
DISCOUNT FACTORING AGREEMENT
Dated: New York, New York
,19
MERCHANT FACTORS CORP. Re: LITTLEFIELD, ADAMS, & CO.
1450 Broadway -------------------------
New York, NY 10018 (Name of Client)
Gentlemen:
We hereby request you to act as our sole Factor upon the following
terms and conditions, namely:
1. We hereby agree to assign and sell, and do hereby assign and sell to you
as absolute owner thereof, and you hereby agree to purchase from us all
Receivables acceptable to you whether now existing or hereafter arising. For
all purposes hereof, the term "Receivables" shall mean and include all
accounts, contract rights, general intangibles, chattel paper, instruments,
documents and all forms of obligations owing to us including, without
limitation, those arising from or out of the sale of merchandise and/or the
rendition of services (collectively referred to herein as "sale" or "sales"),
all proceeds thereof, all of our rights to merchandise represented thereby, all
of our rights under insurance policies covering merchandise or services, all of
our rights against carriers of said merchandise, and all of our rights, title,
security interests and guarantees with respect to each Receivable, including
all rights of reclamation and stoppage in transit and all other rights of an
unpaid seller of merchandise or services except Walmart.
2. We shall submit all sales to you for your written approval of credit
and terms of sale prior to shipment. Credit approvals given by you shall be
valid only where shipments are made in compliance with the terms of any
purchase order, within 30 days from the delivery dates specified or within 30
days from the date of your approval if no performance or delivery date is
specified, whichever is earliest. You shall have the right to withdraw such
approval at any time before physical delivery of the merchandise. Accounts
which are not approved and invoices covering sample shipments shall be assigned
to you with full recourse to us. We guarantee collectibility at maturity date
of all such unapproved accounts, and all costs of collection thereof shall be
borne by us and shall be for our account. You shall not be liable to any person
or in any manner for refusing to approve the credit of any customer. We shall
execute and deliver to you written schedules of all Receivables sold or
assigned to you hereunder in form satisfactory to you. We shall furnish you
with the original and duplicates of our customers' invoices, the original
invoices to be mailed by you to our customer at our expense; and we shall
simultaneously deliver to you the original shipping or delivery receipts for
all merchandise sold, together with such other documents and proof of delivery
of merchandise or of rendition of services as you may require. All customers'
invoices shall be marked payable to you and/or the Re-Factor (as hereinafter
defined) in a manner satisfactory to you and/or the Re-Factor, and such marking
of invoices as payable to you and/or the Re-Factor, regardless of by whom done,
and/or the delivery thereof to you shall constitute an assignment thereof to
you whether or not we execute any specific instrument of assignment. All
remittances, checks, accounts and bills receivable and proceeds of sales shall
be your property and we agree to confirm your title thereto by the execution
from time to time of whatever evidence of title you may deem desirable. We
appoint you or your designee, including the Re-Factor, as our attorney-in-fact;
to endorse our name on any checks (including, without limitation, checks from
our customers), notes, acceptances, money orders, drafts or other forms of
payment or security that may come into your possession or the possession of the
Re-Factor; and to sign our name on any invoice or bill of lading relating to
any
<PAGE> 2
Receivables and on drafts against customers, schedules and assignments of
Receivables, notices of assignment, financing statements and other public
records, verifications of accounts and notices to customers and, in the event
of a default, to direct all mail to be delivered to your office with full
authority to open same and effectuate your rights under this Agreement. We
ratify and approve all acts of the attorney-in-fact. This power, being coupled
with an interest, is irrevocable until all Obligations (as hereinafter defined)
have been fully satisfied. If any remittances are made directly to us, we shall
hold the same in trust for your benefit and as your property and/or for the
benefit of or as the property of the Re-Factor and will immediately deliver to
you and/or the Re-Factor the identical checks, documents, instruments or moneys
received in the same form as received by us. We have been advised that you may
enjoy and we consent to your and/or the Re-Factor's use of a lockbox account
for the deposit of remittances received in payment of Receivables.
3. (a) In order to induce you to enter into this Agreement, we agree,
represent and warrant to you and the Re-Factor that, except as otherwise
specifically set forth on the schedule annexed hereto: (i) we are a corporation
duly organized and existing under the laws of the State of New Jersey and are
qualified to do business wherever necessary; (ii) the place where our executive
offices and all records relating to Receivables are located is and will remain
at 6254 Executive Blvd., Huber Heights, OH 45424; (iii) we have no
subsidiaries; (iv) we are solvent; (v) we are and will continue to be in full
compliance with all relevant tax laws and regulations, including those with
respect to the collection, payment and deposit of employees' income,
unemployment and Social Security taxes or with respect to pension liabilities;
(vi) there are not and will not be any liens, encumbrances or security
interests affecting any of our property except as granted to you hereunder.
(b) We represent and warrant to you and to the "Re-Factor" that each and
every Receivable now or hereafter assigned to you will (i) cover a bona fide
sale and delivery of merchandise usually dealt in by us or the rendition of
services to customers in the ordinary course of business, (ii) cover
merchandise or services which have been received and accepted by our customers
without dispute or claim of any kind or nature, (iii) be for an amount certain
payable in United States funds at par in accordance with the terms of our
invoice covering said sale, which shall not be changed without your written
approval, (iv) be absolutely enforceable against our customer free and clear of
any offset, deduction, counterclaim, lien, encumbrance or any other claim or
dispute, including, without limitation, claims or disputes as to price, terms,
delivery, quantity or quality and claims of release from liability or of
inability to pay for any reason whatsoever or because of any act of God, or a
public enemy, or war, or because of the requirements of law or of rules, orders
or regulations having the force of law and that at the time of assignment of
each and every Receivable we will not be aware of anything detrimental to our
customer's credit. We will not re-date any sale or invoice without your and/or
the Re-Factor's prior written approval. We agree to indemnify you and the
Re-Factor against all liability, loss or expense caused by or arising out of
the rejection of merchandise or services or claims or deductions of every kind
and nature by our customers, other than those resulting from financial
inability of our customer (whose credit you have approved), to make payment. In
the event of our breach of any of the foregoing representations and/or
warranties, you shall have, in addition to all your other rights under this
Agreement, the right to charge back to us immediately the full amount of the
Receivables affected thereby together with interest. You shall not, however,
have the right to charge back to us any Receivable approved by you which is
unpaid solely because of such customer's financial inability to pay. We agree
that you may limit your purchase of Receivables arising from our sales to any
one customer, and in such event, and in any instance in which you do not
approve the credit of our customer or the terms of sale, you nevertheless may
purchase such Receivables from us and we shall sell and assign the same to you
hereunder, but with full recourse to us in the event of non-payment thereof for
any reason whatsoever. We agree that all invoices in the amount of $200.00 or
less shall be with full recourse to us in the event of non-payment thereof for
any reason whatsoever regardless of whether or not you have approved the credit
of our customer or the terms of the sale relating thereto. As to Receivables
purchased by you with recourse to us, you shall have the right to charge the
same back to us at any time, together with interest, if any. Advances by you
prior to the purchase date (as defined in Paragraph 6 hereof) on account of any
Receivable purchased by you with recourse to us shall be entirely in your
discretion in each and every instance. Upon occurrence of any breach of any
representation or warranty or any charge back by you, we shall promptly pay you
the full amount of the Receivable affected thereby. No charge back shall be
deemed a reassignment to us of the Receivable affected thereby and title
thereto and to the merchandise, if any, covered thereby shall remain in you
until payment to you of the full amount of the Receivable.
4. We shall immediately notify you in each instance of (i) the return,
rejection, loss of or damage to merchandise covered by any Receivable, (ii) any
request for extension of time to pay or request for credit or adjustment, (iii)
any merchandise dispute or other dispute or claim relating to any Receivable or
to the merchandise or services covered thereby, or (iv) any facts or
circumstances with respect to any Receivable which tend in any way to diminish
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the sum certain payable thereon. If any such dispute, controversy or claim is
not wholly adjusted within 15 days after it arises or if security, satisfactory
to you, is not substituted by us within the same time and accepted by you, you
or the Re-Factor may, if you or the Re-Factor so elect, but neither you nor
the Re-Factor shall have any obligation to do so, settle, compromise, adjust or
otherwise enforce or dispose of by litigation or otherwise, any such dispute,
controversy or claim, at our expense, and upon such terms and conditions as you
or the Re-Factor in your or the Re-Factor's sole and absolute discretion shall
deem proper. We agree that we shall not grant any allowances, credits or
adjustments to customers, nor accept any return of merchandise, without your
and/or the Re-Factor's prior written consent in each instance. All credit
memoranda to be issued to any customer shall be furnished by us only to you for
transmission by you to our customer who shall solely be entitled to the benefit
thereof. If any merchandise from the sale of which any Receivable arises shall
be returned by or recovered from our customer, we shall forthwith pay you the
full amount of such Receivable, either in cash or by the assignment of new
Receivables hereunder, and until such payment, the merchandise returned or
recovered shall be held by us in trust for your benefit, shall be segregated
and identified by us as property held in trust for your benefit, and upon your
request we shall, at our expense, deliver the same to you or for your account
or upon your order to such place or places as you may designate. You may sell
or cause the sale of any such returned or recovered merchandise, at such prices
and upon such terms as you may deem proper, and in the event of any public sale
thereof, you may be the purchaser. The proceeds of any such sale or sales
shall first be charged with the costs and expenses, including reasonable
attorneys' fees, of and incident to such sale, and the balance, if any, shall
be credited to our account.
5. All amounts due you hereunder may be charged to our account at any time.
You shall render to us a monthly account current as of the last day of the
preceding month. Such account shall be considered correct unless, within 30
days after the date of such account, we deliver to you written notice of any
objections which we may have to such account. In that event, only those items
expressly objected to in such notice shall be deemed to be disputed by us. All
debit balances and Obligations shall be payable by us to you on demand and shall
bear interest at the rate of interest then in effect (herein called the
"effective rate") as hereinafter provided, such interest to be payable to you
monthly. For the purposes of this agreement, "effective rate" shall mean a rate
per annum (based on a 360 day year) which is two and one half percent (2-1/2%)
in excess of the prime commercial interest rate as announced from time to time
by Israel Discount Bank of New York, in New York, N. Y. (the "prime rate"),
whether or not such announced prime rate is the best rate available at such bank
in effect from time to time. Whenever the prime rate is changed, an equal
change shall be made in the effective rate to become effective simultaneously
with such change in the prime rate. In no event, however, shall the effective
rate of interest hereunder be less than 12% per annum (based on a 360 day year)
nor exceed the maximum rate of interest permitted to be agreed to or charged to
you under the law of the jurisdiction whose laws are applicable to such rate of
interest. Any such excess amount of interest is hereby waived and shall deemed
to be a payment of the principal balance otherwise due hereunder.
6. (a) On the last day of each month, you will credit us with the purchase
price for our Receivables arising, during such month which have been assigned
to you and are approved, accepted and purchased by you. However, if any
Receivable as to which you have approved the credit standing of the customer
shall not be paid by reason of the customer's bankruptcy or insolvency, you
will credit us the purchase price thereof on the last day of the month of such
customer's bankruptcy or insolvency. The purchase price for such Receivables
shall be the net amount thereof, as herein defined, less your commission as
provided for in Paragraph 7 hereof and less interest on advances against such
purchase price, as hereinafter provided, at the effective rate then in effect.
(b) Advances against the purchase price for the net amount of outstanding
approved Receivables assigned to and accepted by you may be made upon our
request, but at your sole discretion in each instance, in an amount up to
seventy five percent (75%) of the net amount thereof, subject to our right to
maintain a reserve as described below. For the purpose of computing interest
payable under this agreement, we will be charged with interest on the average
daily balance of all sums advanced or charged to us under this agreement, at
the effective rate then in effect and we will be credited with the purchase
price for each account upon your receipt of payment thereof by a customer,
allowing ten business days for the collection of checks and other instruments
(the "Collection Days"). If, in your sole discretion you deem it necessary,
you may retain a reasonable amount of such purchase price as a reserve to
cover, among other things, customers' returns, allowances, deductions and
disputes in the future, and as security for the payment of all our Obligations.
Interest for anticipation deducted by our customers shall be debited to our
account, and proportionate readjustment will be made on the next accounting.
(c) As used herein, the term "net amount" of Receivables shall mean the
gross amount of Receivables less returns, allowances and cash or other
discounts to customers calculated upon shortest or longest selling terms, as
you
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may elect. If we use the billing terms "net ten days" or "net 10 E.O.M." or
their equivalent on our Receivables, such terms shall mean, with respect to
invoices dated from the 1st through the 20th of a month, "10 days after the end
of such month plus 30 days" and, with respect to invoices dated after the 20th
of a month, "10 days after the end of the next month plus 30 days."
7. In the account current to be rendered by you to us hereunder, you will
charge and receive for your services hereunder a commission upon the net amount
of the Receivables arising during the previous month, debited to us as of the
fifteenth of such month, as follows:
One and one eighth percent (1 1/8%)
Commissions payable to you hereunder are based upon our usual and regular
terms. which do not exceed thirty (N30) days. On all Receivables on which
additional terms or dating are granted by us, your commissions thereon shall be
increased at the rate of twenty-five (25%) percent of the basic
commission-rate, for each thirty (30) days or fraction thereof by which our
regular terms are increased. No such increase in terms, however, shall be
granted without your written approval. Your commission shall be charged to us,
and we shall pay the same, in full with regard to any Receivable for which a
credit memorandum has been issued by us, a copy of which shall be promptly
furnished to you.
In computing the commissions payable to you hereunder, we shall pay you a
minimum commission of $5.00 on each invoice constituting the Receivables.
The minimum aggregate commissions payable under this agreement for each
month hereof shall be $1,250, which, to the extent of any deficiency (after
giving effect to the commissions payable under the foregoing subparagraphs)
shall be chargeable to our account on a monthly basis.
8. Amounts owing to you or the Re-Factor in respect of our purchases from
other persons, firms or corporations factored by you or your parent, subsidiary
or affiliate or the Re-Factor are to be considered as advances against our
account with you and may be charged by you to our account with you at any time
whether before or after the maturity of such amounts. Any state, city, local
or federal sales or excise taxes on any sales or Receivables hereunder, or any
other taxes, shall be paid by us, and if you should make any payment of any
thereof, we shall repay the same to you on demand, but you shall be under no
obligation to make payment of such taxes.
9. As security for all Obligations at any time owing by us to you, we
hereby assign to you and grant to you a security interest in and lien upon all
our Receivables, whether now existing or hereafter arising, or in which we now
have or may hereafter acquire any rights, and whether or not sold by us
hereunder. From time to time, we shall provide you and/or the Re-Factor with
schedules describing all Receivables created or acquired by us; provided,
however, that any failure to deliver or execute any such schedule and/or any
assignment shall not affect or limit your and/or the Re-Factor's property,
security or other rights in and to any such Receivable. As further security
for said Obligations we grant you a security interest in and lien upon, and you
shall be entitled to hold and retain possession of, all sums standing to our
credit with you and all our property of any kind at any time in your
possession. We also grant you a security interest in and lien upon all sums at
any time standing to our credit on the books of any Affiliate, and all property
in the possession of any Affiliate or upon which such Affiliate has a lien or
security interest shall be security for all such Obligations. As used in this
Agreement, the term "Obligations" means and includes all loans, advances,
debts, liabilities, obligations, debit balances, covenants and duties, of every
kind and description, owing by us to you or any Affiliate, under this Agreement
or otherwise (whether or not evidenced by any note of other instrument and
whether or not for the payment of money), direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising, including,
without limitation, any debt, liability or obligation owing from us to others
which you may have obtained by assignment or otherwise, and further including,
without limitation, all interest, fees, charges, expenses and attorneys' fees
for which we are obligated hereunder. As used in this Agreement, the term
"Affiliate" means any corporation, company, bank, financial institution or
other entity under common control with you. We shall execute and deliver to you
all financing statements and other documents and instruments that you and/or
the Re-Factor may request to perfect, protect, or establish the security
interest(s) granted hereunder and we authorize you and/or the Re-Factor to
execute and file alone any such financing statements disclosing your and/or the
Re-Factor's security interest(s).
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Recourse to security shall not be required and we shall at all times remain
liable for the repayment on demand of all our Indebtedness arising hereunder
and for all Obligations.
10. We will pay to you and/or the Re-Factor, upon demand, all costs and
expenses, including, without limitation, the fees and disbursements of counsel
and the cost of all searches, filings, recordation or registration fees and
taxes, which you and/or the Re-Factor may incur at any time in perfecting,
protecting, enforcing, realizing upon or administering yours and/or the
Re-Factor's rights hereunder or in any collateral in which you and/or the
Re-Factor have a security interest or in the defense or prosecution of any
action or proceeding concerning any matter growing out of or in connection with
this Agreement and/or any security interest granted hereunder.
11. We shall not be entitled to pledge your credit upon any purchase by us
for any purpose whatsoever.
12. We waive presentment and protest of any instruments and all other
notices to which we might otherwise be entitled. We shall maintain, at our
expense, proper books of account in form acceptable to you. You and/or the Re-
Factor shall have the right to inspect and make extracts from such books and
all of our files, records and correspondence at all reasonable times. We shall
furnish you with as many duplicate customers' invoices as you may from time to
time require. We certify to you that our address as set forth in this
Agreement is our mailing address, our chief place of business, and the office
at which our records relating to Receivables are kept. We shall not effect any
change in our mailing address, or in our chief place of business, or in the
office in which our records relating to Receivables are kept without first
giving you written notice thereof.
13. If we shall fail to pay, when due, any Obligation owing from us to you
or to make any remittance required by this Agreement, or commit any breach of
this Agreement or any present or future supplement thereto, or any other
agreement between us, or upon the occurrence of an event of default listed in
paragraph "14" hereof, you and/or the Re-Factor shall have, with respect to all
property in which you and/or the Re-Factor have a security interest and in
addition to all other rights provided herein, all the rights and remedies of a
secured party under the Uniform Commercial Code. You and/or the Re-Factor may,
without demand and without advertisement or notice, all of which we waive
(except as may be required by law), at any time or times, sell and deliver any
or all security and collateral held by or for you at public or private sale,
for cash, upon credit or otherwise, at such prices and upon such terms as you
deem advisable, in your sole discretion. Any requirement of reasonable notice
shall be met if such notice is mailed postage prepaid to us at our address as
set forth herein at least five (5) days before the time of sale or other
disposition. You and/or the Re-Factor may be the purchaser at any such sale,
free from any right of redemption, which we also waive. Proceeds of sale shall
be applied first to all costs and expenses of sale, including the fees and
disbursements of your counsel and/or counsel to the Re-Factor, and second to
the payment (in whatever order you elect) of all Obligations. You will return
any excess to us, and we shall remain liable to you for any deficiency.
14. Subject to the foregoing, you shall have the right to terminate this
Agreement at any time upon not less than thirty (30) days prior written notice.
This Agreement shall continue in effect until one (1) year from the date hereof
and shall be automatically renewed for successive like periods of the same
duration. We shall have the right to terminate this Agreement at the end of the
first contract period, or at the end of any successive period, by giving you
ninety days prior written notice. Any notice of termination shall be given by
certified mail, return receipt requested. In addition, you shall have the right
to terminate this Agreement at any time without notice in the event that we
shall fail to pay when due any Obligation; or shall commit any breach of this
Agreement as amended or supplemented or any other agreement between you and us
or between us and any Affiliate of yours or between us and the Re-Factor or
between us and any Affiliate of the Re-Factor; or shall be in default under any
other agreement to which we are a party or by which we are bound; or if any
event shall occur which might, in your opinion, have a material adverse effect
on our financial or business condition, operations or prospects; or if there
shall be filed by or against us or any guarantor a petition in bankruptcy or for
reorganization, or if we or any guarantor shall: (i) become insolvent; (ii) be
unable to repay our respective debts as they mature: (iii) make an assignment
for the benefit of creditors; (iv) call a meeting of creditors for a composition
of debts; (v) make any misrepresentation to you or the Re-Factor in connection
with this Agreement or any transaction relating thereto; or (vi) make any
misrepresentation or fail to make any payment due to any Affiliate. Upon the
effective date of termination, all of our Obligations, whether incurred under
this Agreement or any amendment or supplement thereto or otherwise, shall become
immediately due and payable without notice or demand. Notwithstanding any
termination, until all our Obligations of every nature whatsoever shall have
been fully paid and satisfied, you and/or the Re-Factor shall retain your
security in and title to all existing and future Receivables and other
collateral held by you and/or the Re-Factor hereunder, and we shall continue to
assign Receivables to you and/or the Re-Factor and turn over all collections to
you and/or the Re-Factor, and you shall be under no obligation to make any
further advances with respect thereto.
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15. You have advised us that you, from time to time, may re-assign and
re-sell the Receivables to (i) Republic Factors Corp. (ii) another factor or
(iii) such other business entity (collectively and severally referred to herein
as the "Re-Factor") as you in your sole and absolute discretion may determine,
pursuant to the terms and provisions of agreements (the "Reassignment
Agreements") entered into with such Re-Factor, from time to time. We
acknowledge and agree that you reserve the right to re-assign or otherwise
hypothecate to such Re-Factor any lien or security interest you may hold by
virtue of this Agreement including, but without limitations, with respect to the
Receivables, and we hereby consent to any such resale, reassignment and
hypothecation.
We further agree that (i) this Agreement is and shall at all times be
subject to the terms, provisions and covenants of the Reassignment Agreements
which may now and hereafter affect this Agreement, and to any renewal,
modification, replacement and extension thereof, and (ii) the Re-Factor may
exercise all of your rights and remedies hereunder whether or not such rights
and remedies have been specifically granted herein to the Re-Factor. The prior
sentence shall be self operative and no further instrument of subordination
shall be required, except that we agree that we shall execute promptly any
certificate, document or confirmation that you may reasonably request to
confirm or enforce such subordination. In addition to the covenants, agreements
and obligations of the undersigned contained in this Agreement, we covenant and
agree that we will not do any act or omit to do any act which will result in
any violation of the terms and provisions of the Reassignment Agreements on
your part.
We hereby indemnify, defend and save you harmless from and against any and
all liability, claims, suits, demands, damages, judgments, costs, interests and
expenses (including, but not limited to counsel fees and disbursements) to
which you may be subject or suffer by reason of any liability or claim arising
or resulting from our acts or omission to do any act which results in a
violation of the terms and provisions of the Reassignment Agreements on your
part.
We covenant and agree that the Re-Factor, its employees and its agents
shall not be liable to us for any act, omission, breach or violation on its
part or on your part with respect to its or your performance or non-performance
of any of the terms and provisions of the Reassignment Agreements and with
respect to your performance or non-performance of any of the terms and
provisions of this Agreement or any other agreement between you and us and any
other obligation or indebtedness owing by you to us of any kind or nature
whatsoever, if any, and that we shall look solely to you for enforcement of our
rights under (i) this Agreement or (ii) the Reassignment Agreements.
16. This Agreement is made and is to be performed under the law of the
State of New York and shall be governed by and construed in accordance with
said law. Each of the parties to this Agreement expressly submits and consents
to the exclusive jurisdiction of the Supreme Court of the State of New York, in
the County of New York, with respect to any controversy arising out of or
relating to this Agreement or any amendment or supplement thereto or to any
transactions in connection therewith and each of the parties to this Agreement
hereby waives personal service of any summons or complaint or other process or
papers to be issued in any action or proceedings involving any such controversy
and hereby agrees that services of such summons and complaint or process may be
made by certified mail to the other party at the address appearing herein;
failure on the part of either party to appear or answer within thirty (30) days
after such mailing of such summons, complaint or process shall constitute a
default entitling the other party to enter a judgment or order as demanded or
prayed for therein to the extent that said Court or duly authorized Officer
thereof may authorize or permit. You and we do hereby knowingly, voluntarily
and intentionally waive any and all right to a trial by jury in any such action
or proceeding. No failure or delay by you in exercising any of your powers or
rights hereunder, or under any present or future supplement hereto or under any
other agreement between us, shall operate as a waiver thereof; nor shall any
single or partial exercise of any such power or right preclude other or further
exercise thereof or the exercise of any other right or power. Your rights,
remedies and benefits hereunder are cumulative and not exclusive of any other
rights, remedies or benefits which you may have. This Agreement may only be
modified in writing and no waiver by you will be effective unless in writing
and then only to the extent specifically stated. All notices and other
communications by either party hereto shall be in writing and shall be sent to
the other party at the address specified herein. You shall have the right to
assign this agreement and all of your rights hereunder shall inure to the
benefit of your successors and assigns; and this agreement shall inure to the
benefit of and shall bind our respective successors and assigns. Your books
and records all be admissible in any action between us as prima facie evidence
of the status of the account between us.
17. We shall pay you all expenses and disbursements you may incur with
respect to loans hereunder or with respect to the collateral or in protecting
your rights under this agreement. Such disbursements shall, without limiting
the generality of the foregoing, include expenses of audits (which shall
include a reasonable fee for the time expended in
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<PAGE> 7
connection therewith by the person or persons making such audit, whether or not
any such person is in your regular employ), appraisals, credit information,
bank charges for letters of credit, verifications, filing or recording any
documents given hereunder which you determine shall be filed or recorded in any
public office, retaking, holding or preparing for sale any goods purported to
be included in the collateral, finishing otherwise unfinished inventory which
may be puported to be included in the collateral, selling, leasing, settling or
otherwise realizing upon all or any part of the collateral, postage, telephone,
any charges in the nature of use and occupancy or rental you may incur for any
premises where all or any part of the collateral may be, and attorneys' fees
incurred in connection with transactions hereunder and in enforcing or
protecting your rights hereunder.
18. The term "you and/or the Re-Factor" when used herein shall be
interpreted to mean "either you or the Re-Factor or both of you."
Very truly yours,
LITTLEFIELD, ADAMS, & CO.
-----------------------------
(Name of Client)
Attest
(SEAL)
/s/ Warren Rawls By: /s/ David Simmonds
- --------------------- -------------------------
WARREN RAWLS DAVID SIMMONDS
(Secretary)
Its President
-------------------------
(Title)
ACCEPTED:
MERCHANT FACTORS CORP.
By: /s/ Walter Kaye
-------------------------
WALTER KAYE
Its President
-------------------------
(Title)
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<PAGE> 8
SECRETARY'S CERTIFICATE
RESOLVED, that the President, the Vice-President, the Secretary, the
Treasurer and each other officer and each agent of this Corporation, or any
one or more of them, be and they are hereby authorized and empowered on behalf
of this Corporation; to sell receivables to Merchant Factors Corp.
(hereinafter called the "Factor") to obtain from the Factor loans and advances
in such amounts and on such terms and conditions as such officer or agent deems
proper; to execute notes and other evidences of this Corporation's indebtness
with respect thereto; to enter into factoring and other agreements with the
Factor relating to the terms and conditions upon which any such Receivables may
be sold or loans and advances may be obtained and to the collateral security to
be furnished by this Corporation therefor; from time to time modify, supplement
or amend any such agreements, any such terms or conditions and any such
collateral security; from time to time to sell, pledge, assign, guaranty,
mortgage, consign, grant security interest in and otherwise transfer to the
Factor as collateral security for any and all debts and obligations of this
Corporation to the Factor, whenever and however arising, any and all accounts
and other forms of obligations receivable, chattel papers, chooses in action,
merchandise inventories, warehouse receipts, machinery, equipment, land,
buildings and other real, personal or mixed property now or hereafter belonging
to or acquired by this Corporation; for said purposes to execute and deliver
any and all assignments, schedules, transfers, endorsements, contracts,
guarantees, agreements, designations, consignments, deeds of trust, mortgages,
instruments of pledge or other instruments in respect thereof and to make
remittance and payments in respect thereof by checks, drafts or otherwise; to
furnish to the Factor from time to time certificates of incumbency showing the
officers and agents of the Corporation upon which certificates the Factor may
rely; and to do and perform all other acts and things deemed by such officer or
agent necessary, convenient or proper to carry out any of the foregoing; hereby
ratifying, approving and confirming all that any said officers or agents have
done or may do in the premises.
I, Warren Rawls, do hereby certify that I am the Secretary of Littlefield,
Adams, & Co. a corporation organized and existing under and by virtue of the
laws of the State of New Jersey, having its principal place of business in the
City of Huber Heights, OH; that I am the keeper of the corporate records and
the seal of said corporation; that the foregoing is a true and correct copy of
a resolution duly adopted and ratified at a special meeting of the Board of
Directors of said corporation duly convened and held in accordance with its
by-laws and the laws of said State at the office of said corporation in the
City of Chicago, State of IL, on the 1st day of December, 1995 as taken and
transcribed by me from the minutes of said meeting and compared by me with the
original of the said resolution recorded in said minutes, and that the same has
not in any way been modified, repealed or rescinded but is in full force and
effect; the within and foregoing Agreement is one of the agreements referred to
in said resolution and was duly executed pursuant thereto.
I do further certify that the following are the names and specimen
signatures of the officers and agents of said corporation, so empowered and
authorized, namely:
President David Simmonds /s/ David Simmonds
------------------------------- ----------------------------
(Print Name) (Signature)
Vice President
------------------------- ----------------------------
(Print Name) (Signature)
Secretary Warren Rawls /s/ Warren Rawls
------------------------------ ----------------------------
(Print Name) (Signature)
Treasurer Stanley Halbreich /s/ Stanley Halbreich
------------------------------ ----------------------------
(Print Name) (Signature)
Agent
---------------------------------- ----------------------------
(Print Name) (Signature)
WITNESS my hand and seal of said corporation this 25th day of January, 1996.
/s/ Warren Rawls
(Affix corporate ----------------------------
seal here) Warren Rawls
(Secretary of said corporation)
12
<PAGE> 9
TO MERCHANT FACTORS CORP.
1450 Broadway
New York, NY 10018
The following individuals whose signatures appear below are authorized to
execute assignments of sales and credits to you as well as to request
information from you on behalf of our Corporation.
PLEASE PRINT NAME SIGNATURE
Name DAVID SIMMONDS Signature /s/ David Simmonds
---------------------------------- --------------------------
Name WARREN RAWLS Signature /s/ Warren L. Rawls
---------------------------------- --------------------------
Name STANLEY HALBREICH Signature /s/ Stanley Halbreich
---------------------------------- --------------------------
Name DENNIS NERDERMAN Signature /s/ Dennis Nerderman
---------------------------------- --------------------------
Name JERRY LULOFF Signature /s/ Jerry Luloff
---------------------------------- --------------------------
LITTLEFIELD, ADAMS, & CO.
--------------------------
NAME OF CLIENT
/s/ David Simmonds
--------------------------
AUTHORIZED OFFICER
DAVID SIMMONDS
President
DATE: January 23, 1996
---------------------------------
<PAGE> 10
January 23, 1996
[MERCHANT FACTORS CORP. LETTERHEAD] VALIDITY GUARANTY
(supersedes all prior validity
guarantees)
Gentlemen:
The undersigned is a shareholder, director, partner, officer and/or
other party interested in LITTLEFIELD, ADAMS, & CO. having; its principal place
of business at 6254 Executive Blvd., Huber Heights, OH 45424 (hereinafter
referred to as "Debtor"). In connection with the execution of certain
agreements, documents and instruments creating or evidencing indebtedness or
granting collateral security by Debtor and/or related parties (the foregoing,
together with all related agreements, documents and instruments, as the same
may now exist or hereafter be amended or supplemented, are hereinafter
collectively referred to as the "Factoring Agreements"), the undersigned hereby
warrants, covenants, and guarantees to you as follows to the best of his
knowledge and belief:
1. That all "Accounts" (as defined in the Uniform Commercial Code of
the State of New York) of Debtor: (a) will be genuine and in all respects what
they purport to be; (b) will represent bona fide sales and bona fide and
existing obligations of Debtor's customers arising out of the sale and
completed delivery of merchandise manufactured and/or sold and/or the rendition
of services by the Debtor in the ordinary course of its business in accordance
with and in full and complete performance of customers' orders therefor; (c)
will not be invalid, incomplete, incorrect, defective, forged, fictitious or
imperfect; and (d) the merchandise sold will be the sole and absolute property
of the Debtor and that the Accounts and merchandise will be free and clear of
all liens, encumbrances or claims of any nature whatsoever, except in favor of
you and except for any liens which are in all respects subordinate to yours.
2. That any original checks, drafts, notes, acceptances and other
evidences of payment, in payment of and/or on account of the Accounts which
Debtor receives will be received and held by Debtor in trust, and forwarded to
you immediately upon receipt thereof in their original form, in accordance with
the terms of the Factoring Agreements.
3. That Debtor will not seek advances with respect to Accounts as to
which there are any offsets, contra accounts or counterclaims of any nature
whatsoever, and that Debtor will do nothing to impede or interfere with the
normal collection and payment of the Accounts.
4. That Debtor will promptly report to you all merchandise disputes,
rejections, returns, or resales of merchandise and all credits by the Debtor
upon, and any offsets, contra accounts or counterclaims asserted or existing
with respect to any and all of the Accounts.
5. The undersigned hereby further undertakes to save you free and
harmless from any loss, cost, damage or expense (including attorneys' fees)
which you may sustain as a result of any fraud, deceit or criminal act on the
part of any officer, employee or agent of the Debtor in its dealings with you,
of which the undersigned has actual knowledge.
Nothing herein contained shall be in any way impaired or affected by
any change in or amendment of the Factoring Agreements. The liability of the
undersigned hereunder is direct, absolute, unconditional and unlimited, and may
be enforced without requiring you first to resort to any other right, remedy or
security. It is not necessary for you to give the undersigned notice of any
changes in the Factoring Agreements or any amendments thereof, to all of which
the undersigned now hereby consents.
This Agreement and the covenants herein shall be binding upon the
undersigned and the undersigned's heirs, personal representatives, executors
and assigns, and shall benefit you and your successors, assigns and affiliates.
The undersigned waives trial by jury in any action or proceeding based on this
Agreement. One or more successive or concurrent actions may be brought hereon
against the undersigned or any other party liable to you in respect of Debtor's
obligations to you (collectively with Debtor, the "Obligors") either in the
same action or separate actions. Your decision not to proceed against or
release any Obligors or collateral shall not be deemed a waiver of your rights
against or a release of the undersigned or any other Obligor.
This Agreement shall be governed by the laws of the State of New York.
The undersigned hereby irrevocably consents to the non-exclusive jurisdiction
of the Courts of the State of New York and of any Federal Court located in such
State to hear and determine any claims or disputes between us pertaining
directly or indirectly to this Agreement or to any matter arising therefrom.
/s/ David Simmonds
------------------------------
DAVID SIMMONDS
/s/ Stanley Halbreich
------------------------------
STANLEY HALBREICH
/s/ Jerrold Luloff
------------------------------
JERROLD LULOFF
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 241
<SECURITIES> 0
<RECEIVABLES> 1,298
<ALLOWANCES> 288
<INVENTORY> 3,332
<CURRENT-ASSETS> 4,789
<PP&E> 2,610
<DEPRECIATION> 1,501
<TOTAL-ASSETS> 6,676
<CURRENT-LIABILITIES> 5,084
<BONDS> 10
0
0
<COMMON> 2,296
<OTHER-SE> (2,272)
<TOTAL-LIABILITY-AND-EQUITY> 6,676
<SALES> 14,478
<TOTAL-REVENUES> 14,735
<CGS> 10,073
<TOTAL-COSTS> 10,073
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 327
<INCOME-PRETAX> (1,006)
<INCOME-TAX> (14)
<INCOME-CONTINUING> (992)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (992)
<EPS-PRIMARY> (0.44)
<EPS-DILUTED> (0.44)
<FN>
<F1>Bad debt expense of 190 is included in the 5,752 reported as Selling and
Administrative expenses.
</FN>
</TABLE>
