<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---- ---- ---- ---- ----
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------------- --------------
Commission file number 1-8176
LITTLEFIELD, ADAMS & COMPANY
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey #22-1469846
- -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6262 Executive Blvd., Huber Heights, OH 45424
- -------------------------------------------------------------------------------
(Address of principal executive offices, and Zip Code)
Registrant's telephone number, including area code (937) 236-0660
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
-- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 12, 1998
----- ---------------------------
Common Stock, par value 2,780,057 shares
$1.00 per share
<PAGE> 2
LITTLEFIELD ADAMS & COMPANY
---------------------------
<TABLE>
<CAPTION>
INDEX Page No.
-------
<S> <C> <C>
Part I. Financial Information
Item 1. Condensed Financial Statements (Unaudited)
Condensed Balance Sheets -
March 31, 1998 and December 31, 1997 3
Condensed Statements of Operations -
for the three months ended
March 31, 1998 and 1997 4
Condensed Statements of Cash Flows -
for the three months ended
March 31, 1998 and 1997 5
Notes to Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Part II. Other Information
Item 1. Legal Proceedings 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 2
<PAGE> 3
LITTLEFIELD, ADAMS & COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
(Unaudited)
March 31, December 31,
1998 1997
---------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets:
Cash $ 66 $ 57
Accounts receivable:
Trade, less allowances of $0 at 3/31/98 and
$11 at 12/31/97 -- 5
Due from factor, less allowances of $10 at
3/31/98 and $0 at 12/31/97 319 182
Other 33 33
Inventories 444 641
Prepaid expenses and other 351 155
---------------- ------------------
Total current assets 1,213 1,073
Property, plant and equipment, net 387 416
Other assets 9 9
---------------- ------------------
TOTAL ASSETS $ 1,609 $ 1,498
================ ==================
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Notes payable $ 10 $ 17
Factor borrowing 216 11
Current portion of long-term debt 553 570
Short-term loans payable 240 --
Accounts payable 171 117
Accrued expenses 350 337
---------------- -----------------
Total current liabilities 1,540 1,052
Long-term debt, less current portion 14 18
Deferred compensation 44 44
Commitments and contingencies -- --
Shareholders' investment:
Common stock, $1.00 par; authorized 25,000,000;
issued 2,798,221 for 1998 and 1997;
outstanding 2,780,057 for 1998 and 1997 2,798 2,798
Capital in excess of par value 6,318 6,318
Accumulated deficit (8,992) (8,619)
---------------- -----------------
124 497
Treasury stock, at cost - shares of 18,164
for 1998 and 1997. (113) (113)
---------------- -----------------
11 384
---------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT $ 1,609 $ 1,498
================ =================
</TABLE>
The accompanying notes are an intergral part of these condensed financial
statements.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on
Form 10-Q; Page 3
<PAGE> 4
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
------------------------------------------------
1998 1997
--------------------- ---------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Revenues:
Net product sales $ 416 $ 1,309
--------------------- ---------------------
Costs and expenses:
Cost of products sold 427 1,228
Selling and administrative 345 623
--------------------- ---------------------
Total costs and expenses 772 1,851
--------------------- ---------------------
Loss from operations (356) (542)
Other expense:
Interest 17 54
--------------------- ---------------------
Loss before provision for income taxes (373) (596)
Provision for income taxes -- --
--------------------- ---------------------
Net loss $ (373) $ (596)
===================== =====================
Weighted average common shares for:
Basic earnings per share 2,780,057 2,780,057
Diluted earnings per share 2,780,057 2,780,057
Basic earnings per common share:
Net loss per share $ (0.13) $ (0.21)
===================== =====================
Diluted earnings per common share:
Net loss per share $ (0.13) $ (0.21)
===================== =====================
</TABLE>
The accompanying notes are an intergral part of these condensed financial
statements.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on
Form 10-Q; Page 4
<PAGE> 5
LITTLEFIELD, ADAMS & COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended March 31,
-----------------------------------------
1998 1997
----------------- ------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (373) $ (596)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 30 51
Changes in operating assets and liabilities:
Accounts and other receivables, net (132) 502
Inventories, net 197 527
Prepaid expenses and other current assets (196) 12
Accounts payable 54 (636)
Accrued expenses 13 (330)
----------- -----------
Net cash used in operating activities (407) (470)
----------- -----------
Cash flows from investing activities:
Purchase of property, plant and equipment (1) (9)
Other -- 15
----------- -----------
Net cash provided by (used in) investing activities (1) 6
----------- -----------
Cash flows from financing activities:
Proceeds from line of credit and factor borrowings, net 205 510
Proceeds from bank and other notes 254 27
Payments of bank and other notes (42) (35)
----------- -----------
Net cash provided by financing activities 417 502
----------- -----------
Net increase in cash 9 38
Cash at beginning of period 57 54
----------- -----------
Cash at end of period $ 66 $ 92
=========== ===========
Supplemental disclosure of cash flows information:
Cash paid during the period for interest $ 17 $ 54
Cash paid during the period for income taxes $ -- $ 16
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 5
<PAGE> 6
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1: BASIS OF PRESENTATION
The accompanying condensed financial statements include the accounts of
Littlefield, Adams & Company (the "Company," "Littlefield" and the
"Registrant").
The condensed balance sheet at March 31, 1998, and the condensed
statements of operations and cash flows for the three months ended March 31,
1998 and 1997, have been prepared by the Company without audit. In the opinion
of management, all adjustments, consisting only of normal recurring adjustments,
necessary to fairly present the financial position, results of operations and
cash flows have been made. However, it should be understood that accounting
measurements at interim dates may be less precise than at year end. The results
of operations for the interim periods are not necessarily indicative of the
operating results for a full year or of future operations.
Certain information normally included in financial statements prepared
in accordance with generally accepted accounting principles has been condensed
or omitted. The accompanying condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1997.
This report contains various forward looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in this report, the
words "anticipate", "estimate", "expect", "predict", "project", "believe" and
similar expressions are intended to identify forward looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected or projected.
Certain prior period amounts have been reclassified for comparative
purposes.
NOTE 2: FUTURE OPERATIONS
In years prior to 1997, the Company was substantially dependent on
sales of Harley-Davidson Motor Co. (Harley-Davidson) licensed products to
generate cash flow from operations and provide funds to meet the Company's
obligations as they became due. The Company's Harley-Davidson license agreement
expired on December 31, 1996 and was not renewed by Harley-Davidson.
Consequently, the Company's product sales in 1997 were dramatically reduced from
levels attained in 1996 and 1995, and the Company incurred a net loss of $1,937
for the year ended December 31, 1997. Sales of Harley-Davidson licensed products
accounted for 90% and 89% of total net product sales for the years ended
December 31, 1996 and 1995. Approximately 29% of total revenues for the year
ended December 31, 1997, related to 1996 Harley-Davidson revenues, representing
sales that were contractually consummated prior to December 31, 1996, but the
accounting recognition of which was deferred to the first quarter of 1997 in
accordance with generally accepted accounting principles. For the three months
ended March 31, 1998, the Company incurred a net loss of $373, and has a working
capital deficit of $327 at March 31, 1998. The diminished revenues experienced
by the Company subsequent to 1996 has had, and continues to have, a material
adverse effect on the results of operations and financial condition. The Company
completed a private offering of $1.2 million in principal amount of 7%
Convertible Subordinated Debentures on April 24, 1998. However, the Company has
limited financial resources available, other than the proceeds of the Debenture
offering, to support existing operations until such time, if ever, that sales
are sufficient to generate positive cash flow from operations at levels
necessary to meet the Company's obligations as they become due. In the event
that the Company cannot generate sufficient additional funds from product sales
or other sources, it is probable that the Company will not be able to continue
as a going concern. 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
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 6
<PAGE> 7
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
creditors and its abilitiy to generate sufficient sales to substain its
existing operations and meet the Company's obligations as they become
due. The accompanying financial statements have been prepared assuming the
Company will continue as a going concern which contemplated the realization of
assets and the satisfaction of liabilities in the normal course of business.
Management's efforts to improve the business have included obtaining
new licenses, trimming overhead, developing sales of non-licensed products, and
raising working capital with a private offering of convertible debentures.
During April 1998, the Company and World Championship Wrestling, Inc. a Time
Warner Company, finalized a license agreement for the names, likenesses,
characters, trademarks and/or copyrights of World Championship Wrestling ("WCW")
and New World Order ("nWo"). The license agreement runs through March 15, 2001.
The Company began shipping WCW licensed products in April 1998. Initial customer
response to WCW and nWo licensed products has been very encouraging, with
purchase orders and commitments for orders from retail buyers totaling
approximately $4,000 as of April 30, 1998, with scheduled deliveries through
August 1998. The $4,000 includes approximately $3,500 of buyers' commitments,
which do not represent binding purchase orders, but are a normal part of the
Company's sales process. Accordingly, there can be no assurance that such
commitments will not be postponed, modified, or canceled.
The Company also entered into two licensing agreements with Twentieth
Century Fox ("Fox") during 1997. In August 1997, the Company signed a license
agreement with Fox for the trademark, characters and other distinctive elements
of the animated television series, "The Simpsons". The Simpsons license expires
December 31, 1999. Shipments of Simpsons licensed products began in the 1997
third quarter. The retail sales data from 1997 shipments was very encouraging,
and sales of Simpsons' products during the 1998 first quarter accounted for 50%
of total sales in the quarter. Purchase orders and commitments for orders for
Simpsons' products scheduled for delivery in the 1998 second quarter amount to
approximately $600. The 200th original episode of The Simpsons aired on April
26, 1998, and the 1998 fall television season will mark the tenth anniversary of
the Simpsons. Based on informal discussions with representatives of Fox,
management anticipates Fox will unveil several planned promotions of the
Simpsons tenth anniversary during 1998 and that these promotions will favorably
impact the Company's sales of Simpsons licensed products. There are no
assurances, however, that such promotions will in fact be conducted, or that the
impact, if any, on the Company's sales of Simpsons licensed products will be
favorable. The Company also obtained a license agreement for the trademark,
characters and other distinctive elements of Fox's other prime time animated
television series, "King of the Hill". The King of the Hill license, signed in
November 1997, expires on December 31, 2000. The agreement allows the Company to
begin shipping King of the Hill products on March 1, 1998. A small order was
shipped in March, and the Company has approximately $350 in purchase orders and
commitments for orders scheduled for delivery in the 1998 second quarter.
During 1997, the Company introduced a proprietary line of screen
printed sportswear called Stix-n-Stones. Developed primarily for the youth
market, Stix-n-Stones products have received positive sales reports from
retailers based on test orders that the Company shipped in 1997. During 1997,
the Company sold approximately $47 of Stix-n-Stones products, and shipped an
additional $4 in the first quarter of 1998. In late 1997, the Company began
discussions with certain customers in regards to developing a recurring program
for a low cost product line utilizing generic artwork. The first shipments of
this program were delivered in March 1998. Sales of shirts printed with generic
artwork represented approximately 28% of total sales for the 1998 first quarter.
Due to the low profit margins inherent in this type of generic artwork program,
management has decided to discontinue the program. In total, the Company had
approximately $1,000 in purchase orders plus approximately $4,000 in non-binding
buyers' commitments as of April 30, 1998. While management considers that each
of the above products has sales potential, there are no assurances that the
Company will be successful in its efforts to generate sufficient sales of any or
all of these products to sustain the Company for any particular period.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 7
<PAGE> 8
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENDSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The availability of cash flow from operations subsequent to March 31,
1998 is dependent on the ability of the Company to acquire and sell licensed and
proprietary products throughout 1998 and beyond. In order to generate the funds
needed to acquire and develop the Company's new license with WCW and support
general operations, management raised $1.2 million with a private offering of 7%
Convertible Subordinated Debentures (the "Debentures") completed on April 24,
1998. Based on the Company's estimates which include the funds from the
Debentures, the sales backlog and the non-binding commitments for orders
discussed above, the Company believes it can sustain itself for the remainder of
1998.
The Company manufactures and sells imprinted apparel primarily to
national and regional retail discount chains. The success of the Company's
licensed product sales with World Championship Wrestling, The Simpsons, King of
the Hill, Pepsi and Mountain Dew, Miller Brewing Company, Hershey Foods
Corporation and Kawasaki Motors Corp., U.S.A. is an integral part of that
effort. Additionally, the Company has entered into the boxer shorts segment of
the apparel industry with the delivery of approximately $160 of Simpsons' boxer
shorts in May 1998. Sales programs utilizing products featuring proprietary
artwork are still considered to have potential, but management is currently
giving priority to the development of licensed products. Marketing strategies
include the development of programs which center around promotional milestones
for customers. An example would be the Company's Father's day program focusing
on Homer Simpson (from "The Simpsons") and Hank Hill (from "King of the Hill").
Special in-store promotions that would include live appearances by professional
wrestlers are being planned with WCW. There can be no assurance, however, that
sales of any or all of these products will be sufficient to sustain the
Company's operations.
NOTE 3: INVENTORIES
Inventories are stated at 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.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials $ 414 $ 700
Finished goods 52 46
Allowance for inventory obsolescence (22) (105)
------- --------
$ 444 $ 641
======= ========
</TABLE>
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 8
<PAGE> 9
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Note 4: DEBT
Long-term debt balances are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- ------------
<S> <C> <C>
Note payable to a bank, principal callable on demand, interest at 9.50%,
payable monthly at 0.25% of the outstanding principal balance plus
accrued interest, collateralized by machinery and equipment and
furniture and fixtures $ 452 $ 455
Note payable to a bank, principal callable on demand, due September 1, 1999,
interest at 9.50%, payable monthly, collateralized by machinery and
equipment and furniture and fixtures 82 96
Other 33 37
--------- ---------
Total debt 567 588
Less - current portion (553) (570)
--------- ---------
$ 14 $ 18
========= =========
</TABLE>
In March, 1998, certain individuals, which included some officers and
shareholders of Littlefield, loaned an aggregate of $240 to the Company. These
loans were non-interest bearing and payable on demand. The individuals making
these loans were offered the opportunity to participate in a private offering of
7% Convertible Subordinated Debentures (the "Debentures") which was completed on
April 24, 1998. In April, 1998, all of the loans were either converted into
Debentures or repaid.
Short-term loans payable are as follows:
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
--------- -----------
<S> <C> <C>
Loans payable - officers $ 115 $ --
Loans payable - shareholders 100 --
Loans payable - other 25 --
--------- ----------
Total $ 240 $ --
========= ==========
</TABLE>
NOTE 5: COMMON STOCK
As of March 31, 1998 the Company had issued a total of 2,798,221 shares
of its common stock. Treasury stock consisted of 18,164 shares, making a total
of 2,780,057 shares outstanding.
Included in the weighted average common shares outstanding used to
calculate net loss per common share for the three months ended March 31, 1997
are 485,000 and 17,076 shares of common stock issued in May 1997 in connection
with the class action and derivative action settlements, respectively. Such
shares were considered to be outstanding during all of 1997 for purposes of
determining net loss per share (Note 6).
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 9
<PAGE> 10
LITTLEFIELD, ADAMS & COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
As of September 8, 1997, the Company's Common Stock trades on the
NASD's OTC Electronic Bulletin Board under the symbol "FUNW". The symbol
reflects FUNWEAR, a registered trademark used by the Company. Prior to September
8, 1997, the Company's Common Stock was traded on the American Stock Exchange
(the "AMEX") under the symbol "LFA".
NOTE 6: EARNINGS PER SHARE
Effective October 1, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share". All periods prior to October 1, 1997, have been restated to conform
with the requirements of SFAS No. 128. The adoption of SFAS No. 128 had no
effect on previously reported earnings per share presented in these condensed
financial statements.
Diluted earnings per share have been calculated as follows:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 (A) 1997 (A)
---------- ----------
<S> <C> <C>
Earnings:
Net loss applicable to common stock $ (373) $ (596)
========== ==========
Shares:
Weighted average number of shares
of common stock outstanding 2,780,057 2,277,981
Weighted average common stock
equivalents applicable to stock options -- --
Weighted average common stock equivalents
applicable to shares to be issued
in settlement of litigation -- 502,076
---------- ----------
Weighted average shares used for computation 2,780,057 2,780,057
========== ==========
Diluted loss per common share:
Net loss per share $ (0.13) $ (0.21)
========== ==========
</TABLE>
(A) The stock options have an antidilutive effect on net loss per share and
are, therefore, excluded from the computation of diluted earnings per
share.
Certain securities that could potentially dilute basic earnings per
share in the future that were not included in the computation of dilutive
earnings per share because to do so would have been antidilutive were as
follows:
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
1998 1997
------------- --------------
<S> <C> <C>
Outstanding options to purchase common stock 759,000 830,312
Range of exercise prices per share $1.00 to $6.88 $1.00 to $6.88
</TABLE>
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 10
<PAGE> 11
NOTE 7: COMPREHENSIVE INCOME
In July 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of financial statements.
The objective of SFAS 130 is to report a measure of all changes in the equity of
an enterprise that result from transactions and other economic events of the
period other than transactions with shareholders. Comprehensive income is the
total of net income and all other non-shareholder changes in equity. Effective
January 1, 1998, the Company adopted SFAS 130. The Company has no items of other
comprehensive income in any period presented in these condensed financial
statements.
NOTE 8: SUBSEQUENT EVENTS
(A). License Agreement with World Championship Wrestling, Inc.
In April 1998, the Company entered into a Merchandising License
Agreement (the "Agreement") with World Championship Wrestling,
Inc., a Time Warner Company, and Leisure Concepts, Inc. (LCI) the
licensing division of 4 Kids Entertainment, Inc., for the names
likenesses, characters, trademarks and/or copyrights of World
Championship Wrestling ("WCW") and New World Order ("nWo").
Wrestlers featured in the Agreement include Bill Goldberg,
"Sting," "Diamond" Dallas Page, "Giant," and Brett "Hit Man" Hart
under WCW. The nWo wrestlers include the likes of "Hollywood"
Hogan, Randy "Macho Man" Savage, "Buff" Bagwell, and Kevin "Big
Sexy" Nash. The Agreement, which runs through March 15, 2001,
covers various apparel categories. Distribution includes national
and mass market retail outlets throughout the United States,
Puerto Rico, and U.S. military base exchanges worldwide.
(B). Private Offering of 7% Convertible Subordinated Debentures
On April 24, 1998, Littlefield completed a private offering of
$1.2 million in principal amount of 7% Convertible Subordinated
Debentures (the "Debentures"). The participants in the private
offering included four officers and directors of the Company and
several accredited investors. General terms of the Debentures
include the right to convert, after a period of one year, into
shares of Littlefield common stock at a rate of one and one-third
shares of stock for each dollar of principal amount of the
Debentures. Any unconverted Debentures are payable on demand
after eighteen months. Interest is payable semi-annually on the
last day of March and September. The Company, with sixty days
notice, may call the Debentures for a premium after one year. If
all of the Debentures are converted into stock, the additional
1,600,000 shares of common stock would represent an increase of
58% in the number of shares currently outstanding. As of April
24, 1998, the Company has 2,780,057 shares of common stock
outstanding. During the sixty days prior to April 24, 1998,
Littlefield's common stock traded for as low as $0.21 per share
and as high as $2.00 per share on the NASD's Electronic Bulletin
Board.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 11
<PAGE> 12
LITTLEFIELD, ADAMS, & COMPANY
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 results of
operations and financial condition. This discussion should be read in
conjunction with the condensed financial statements included in this Quarterly
Report on Form 10-Q and their accompanying notes, and also in conjunction with
the Registrant's 1997 Annual Report on Form 10-K.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items related to the Company's results of operations as a percentage of net
product sales.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31,
1998 1997
-------------- --------------
<S> <C> <C>
Net product sales (in thousands) $ 416 $ 1,309
100.0% 100.0%
Less: Cost of products sold 102.6% 93.8%
Selling and administrative expenses 82.9% 47.6%
------ -------
Income (loss) from operations (85.5)% (41.4)%
====== =======
</TABLE>
In years prior to 1997, the Company was substantially dependent on
sales of Harley-Davidson Motor Co. (Harley-Davidson) licensed products to
generate cash flow from operations and provide funds to meet the Company's
obligations as they became due. The Company's Harley-Davidson license agreement
expired on December 31, 1996 and was not renewed by Harley-Davidson.
Consequently, the Company's product sales in 1997 were dramatically reduced from
levels attained in 1996 and 1995, and the Company incurred a net loss of
$1,937,000 for the year ended December 31, 1997. Sales of Harley-Davidson
licensed products accounted for 90% and 89% of total net product sales for the
years ended December 31, 1996 and 1995. Approximately 29% of total revenues for
the year ended December 31, 1997, related to 1996 Harley-Davidson revenues,
representing sales that were contractually consummated prior to December 31,
1996, but the accounting recognition of which was deferred to the first quarter
of 1997 in accordance with generally accepted accounting principles. For the
three months ended March 31, 1998, the Company incurred a net loss of $373,000,
and has a working capital deficit of $327,000 at March 31, 1998. The diminished
revenues experienced by the Company subsequent to 1996 has had, and continues to
have, a material adverse effect on the results of operations and financial
condition. The Company completed a private offering of $1.2 million in principal
amount of 7% Convertible Subordinated Debentures on April 24, 1998. However, the
Company has limited financial resources available, other than the proceeds of
the Debenture offering, to support existing operations until such time, if ever,
that sales are sufficient to generate positive cash flow from operations at
levels necessary to meet the Company's obligations as they become due. In the
event that the Company cannot generate sufficient additional funds from product
sales or other sources, it is probable that the Company will not be able to
continue as a going concern. 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 to sustain its existing operations and meet the Company's obligations as
they become due. The accompanying 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.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 12
<PAGE> 13
LITTLEFIELD, ADAMS & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINACIAL CONDITION
AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDING MARCH 31: 1998 COMPARED TO 1997
Net Product Sales
First quarter net product sales for 1998 were $416,000, a decline of
$893,000 (68%) compared to 1997. This substantial decrease is due primarily to
the discontinuation of sales of Harley-Davidson licensed products and the
difficulty the Company has faced when trying to gain customer acceptance of its
currently licensed products. Customers have been reluctant to place orders for
licensed apparel products which were previously unproven at their stores. Orders
for the post-Christmas season were weak. Buyers at the Company's major customers
delayed making purchasing decisions as they continued to evaluate the
point-of-sale results of 1997 test orders. Only products which perform well
statistically in their test are generally reordered by the customer. Sales of
Simpsons licensed products constituted 50% of first quarter sales while shirts
with generic artwork accounted for another 28%. Having few first quarter sales
of fleece and long-sleeved goods, which traditionally sell for higher prices,
and selling the lower priced generic goods, continued to push the Company's
average selling price downward. The average selling price for goods sold in the
1998 first quarter was 29.7% lower than the average selling price in the first
quarter of 1997.
Management's efforts to improve the business have included obtaining
new licenses, trimming overhead, developing sales of non-licensed products, and
raising working capital with a private offering of convertible debentures.
During April 1998, the Company and World Championship Wrestling, Inc. a Time
Warner Company, finalized a license agreement for the names, likenesses,
characters, trademarks and/or copyrights of World Championship Wrestling ("WCW")
and New World Order ("nWo"). The license agreement runs through March 15, 2001.
The Company began shipping WCW licensed products in April 1998. Initial customer
response to WCW and nWo licensed products has been very encouraging, with
purchase orders and commitments for orders from retail buyers totaling
approximately $4,000,000 as of April 30, 1998, with scheduled deliveries through
August 1998. The $4,000,000 includes approximately $3,500,000 of buyers'
commitments, which do not represent binding purchase orders, but are a normal
part of the Company's sales process. Accordingly, there can be no assurance that
such commitments will not be postponed, modified, or canceled.
The Company also entered into two licensing agreements with Twentieth
Century Fox ("Fox") during 1997. In August 1997, the Company signed a license
agreement with Fox for the trademark, characters and other distinctive elements
of the animated television series, "The Simpsons". The Simpsons license expires
December 31, 1999. Shipments of Simpsons licensed products began in the 1997
third quarter. The retail sales data from 1997 shipments was very encouraging,
and sales of Simpsons' products during the 1998 first quarter accounted for 50%
of total sales in the quarter. Purchase orders and commitments for orders for
Simpsons' products scheduled for delivery in the 1998 second quarter amount to
approximately $600,000. The 200th original episode of The Simpsons aired on
April 26, 1998, and the 1998 fall television season will mark the tenth
anniversary of the Simpsons. Based on informal discussions with representatives
of Fox, management anticipates Fox will unveil several planned promotions of the
Simpsons tenth anniversary during 1998 and that these promotions will favorably
impact the Company's sales of Simpsons licensed products. There are no
assurances, however, that such promotions will in fact be conducted, or that the
impact, if any, on the Company's sales of Simpsons licensed products will be
favorable. The Company also obtained a license agreement for the trademark,
characters and other distinctive elements of Fox's other prime time animated
television series, "King of the Hill". The King of the Hill license, signed in
November 1997, expires on December 31, 2000. The agreement allows the Company to
begin shipping King of the Hill products on March 1, 1998. A small order was
shipped in March, and the Company has approximately $350,000 in purchase orders
and commitments for orders scheduled for delivery in the 1998 second quarter.
During 1997, the Company introduced a proprietary line of screen
printed sportswear called Stix-n-Stones. Developed primarily for the youth
market, Stix-n-Stones products have received positive sales reports from
retailers based on test orders that the Company shipped in 1997. During 1997,
the Company sold approximately $47,000 of Stix-n-Stones products, and shipped an
additional $4,000 in the first quarter of 1998. In late 1997, the Company began
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 13
<PAGE> 14
discussions with certain customers in regards to developing a recurring program
for a low cost product line utilizing generic artwork. The first shipments of
this program were delivered in March 1998. Sales of shirts printed with generic
artwork represented approximately 28% of total sales for the 1998 first quarter.
Due to the low profit margins inherent in this type of generic artwork program,
management has decided to discontinue the program. In total, the Company had
approximately $1,000,000 in purchase orders plus approximately $4,000,000 in
non-binding buyers' commitments as of April 30, 1998. While management considers
that each of the above products has sales potential, there are no assurances
that the Company will be successful in its efforts to generate sufficient sales
of any or all of these products to sustain the Company for any particular
period.
Cost of Products Sold
Due to the significantly diminished sales volume in the 1998 first
quarter, the cost of products sold exceeded net product sales due to unabsorbed
overhead. Certain expenses required to be included in cost of products sold are
more fixed in nature, and do not necessarily increase or decrease with changes
in sales volume. Gross profit margin, as a percentage of net sales, was (3)% in
the first quarter of 1998 as compared to 6% in the first quarter of 1997. This
decline is reflective of the sizable decrease in sales volume and resultant lack
of leverage on fixed costs and a much lower average selling price.
Selling and Administrative Expenses
Selling and administrative expenses dropped $278,000 (45%) to $345,000
primarily due to the reduction in royalties and overhead. Royalty expenses
decreased because of the fall in sales volume and the sale of generic goods
which have no royalties. Additionally, professional fees declined 37% to $24,000
for the quarter ended March 31, 1998 compared to the first quarter of last year
due to the settlement of litigation. Selling and administrative expenses, as a
percentage of net sales, were 83% in 1998, up from 48% in 1997 due to the lack
of sales leverage.
Interest Expense
Decreased average borrowings because of lower inventory levels and
reduced selling and administrative spending allowed interest expense to fall to
$17,000 for 1998, compared to $54,000 in 1997, a decrease of 69%. Variance in
the interest rates experienced by the Company in the first quarters of 1998 and
1997 did not play a significant role in the reduction of interest expense.
Inventories
Management continued its efforts to reduce inventories during the first
quarter of 1998. The balance of net inventories fell $197,000 (31%) from
December 31, 1997 to March 31, 1998. Purchases of new inventories were tightly
controlled and unneeded blank goods were sold to provide working capital for
operations. The annualized inventory turnover rate for the three months ended
March 31, 1998 decreased to 3.8 turns per year compared to an annualized rate of
4.7 turns per year for the three months ended March 31, 1997. The 68% decline in
sales volume was primarily responsible for the decrease in annualized inventory
turns.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 14
<PAGE> 15
LITTLEFIELD, ADAMS, & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL SOURCES
Effective February 1, 1996, the Company entered into a discount
factoring agreement with Merchant Factors Corp., which was to expire in August
1997. On July 15, 1997, the Company renewed and amended both its factoring and
accounts receivable financing agreements with Merchant Factors Corp., extending
the renewal dates to December 31, 1998. 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%. Accounts that are credit approved by Merchant
Factors Corp. are at its risk, which minimizes the Company's credit risk. 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. The servicing of all
factored accounts is done by Merchant Factors Corp. Under the factoring
agreement, the Company may borrow up to 75% of the net accounts receivable at an
annual interest rate of prime plus 2.5%. By letter dated March 24, 1998,
Merchant Factors Corp. informed the Company that the Company may borrow up to
85% of the net accounts receivable. Borrowings are secured by the Company's
accounts receivable and inventories. At March 31, 1998 and December 31, 1997,
the Company had net factored receivables amounting to $319,000 and $182,000,
respectively, most of which had been approved for credit by Merchant Factors
Corp.
In addition, the Company has an accounts receivable financing
arrangement with Merchant Factors Corp. covering only its accounts receivable
from Wal-Mart, which amounted to $0 and $14,000, respectively, at March 31, 1998
and December 31, 1997. 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%.
Borrowings are secured by the Company's accounts receivable and inventories. The
Company does not pay any factoring fees for the financing of the Wal-Mart
accounts receivable.
At March 31, 1998, the combined remaining borrowing availability from
Merchant Factors Corp. was approximately $31,000, as compared to $138,000 at
December 31, 1997.
For the quarter ended March 31, 1998, operating activities used cash of
$407,000, while $1,000 was used in investing activities. The Company borrowed a
total of $729,000 during the three months ended March 31, 1998, and repaid
$312,000. This resulted in net cash provided by financing activities of
$417,000. During the first quarter of 1998, there was a net increase in cash of
$9,000.
At March 31, 1998, the Company had a working capital deficit of
$327,000 and a working capital ratio of 0.79/1. This compares to December 31,
1997, when the Company had net working capital of $21,000 and a working capital
ratio of 1.02/1.
During the first quarter of 1998, the Company sold raw materials from
its inventories, consisting principally of blank T-shirts, in order to generate
additional working capital and reduce the on-hand quantity of inventory
identified as difficult to use in production. In the aggregate, sales of blank
inventory amounted to approximately 11% of total net product sales for the three
months ended March 31, 1998.
The availability of cash flow from operations subsequent to March 31,
1998 is dependent on the ability of the Company to acquire and sell licensed and
proprietary products throughout 1998 and beyond. In order to generate the funds
needed to acquire and develop the Company's new license with WCW and support
general operations, management raised $1.2 million with a private offering of 7%
Convertible Subordinated Debentures (the "Debentures") completed on April 24,
1998. Based on the Company's estimates which include the funds from the
Debentures, the sales backlog and the non-binding commitments for orders
discussed above, the Company believes it can sustain itself for the remainder of
1998.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 15
<PAGE> 16
LITTLEFIELD, ADAMS, & COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company manufactures and sells imprinted apparel primarily to
national and regional retail discount chains. The success of the Company's
licensed product sales with World Championship Wrestling, The Simpsons, King of
the Hill, Pepsi and Mountain Dew, Miller Brewing Company, Hershey Foods
Corporation and Kawasaki Motors Corp., U.S.A. is an integral part of that
effort. Additionally, the Company has entered into the boxer shorts segment of
the apparel industry with the delivery of approximately $160,000 of Simpsons'
boxer shorts in May 1998. Sales programs utilizing products featuring
proprietary artwork are still considered to have potential, but management is
currently giving priority to the development of licensed products. Marketing
strategies include the development of programs which center around promotional
milestones for customers. An example would be the Company's Father's day program
focusing on Homer Simpson (from "The Simpsons") and Hank Hill (from "King of the
Hill"). Special in-store promotions that would include live appearances by
professional wrestlers are being planned with WCW. There can be no assurance,
however, that sales of any or all of these products will be sufficient to
sustain the Company's operations.
This report contains various forward looking statements and information
that are based on management's beliefs as well as assumptions made by and
information currently available to management. When used in this report, the
words "anticipate", "estimate", "expect", "predict", "project", "believe" and
similar expressions are intended to identify forward looking statements. Such
statements are subject to certain risks, uncertainties and assumptions. Should
one or more of these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially from those
anticipated, expected or projected.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 16
<PAGE> 17
LITTLEFIELD, ADAMS & COMPANY
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The Company is currently not involved in any litigation or other
reportable legal proceedings.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-K
10.1 Letter from Merchant Factors Corp. dated March
24, 1998, informing the Company that Merchant
Factors Corp. will advance up to 85% of net
accounts receivable as part of its factoring
arrangement with the Company.
10.2 Merchandising License Agreement with World
Championship Wrestling, Inc. dated February 27, 1998.
10.3 Form of Subscription Agreement for private
offering of $1.2 million in principal amount of
7% Convertible Subordinated Debentures.
10.4 Form of 7% Convertible Subordinated Debenture dated
April 24, 1998.
10.5 Consent Agreement from The Bank of Floyd, Floyd
VA, relating to the 7% Convertible Subordinated
Debentures.
27. Financial Data Schedule
(b) Reports on Form 8-K
None.
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LITTLEFIELD, ADAMS & COMPANY
(Registrant)
Date: May 13, 1998 /s/ Stanley I. Halbreich /s/
-----------------------------
Stanley I. Halbreich
Chairman, President and Chief
Executive Officer
(principal executive officer)
Date: May 13, 1998 /s/ Warren L. Rawls /s/
------------------------
Warren L. Rawls
Chief Financial Officer,
Treasurer and Secretary
(principal financial &
accounting officer)
Littlefield, Adams & Company, March 31, 1998 Quarterly Report on Form 10-Q;
Page 18
<PAGE> 1
EXHIBIT 10.1
[MERCHANT FACTORS CORP. LOGO]
-----------------------------------------------------------------------------
1430 Broadway, New York, New York 10018 (212) 840-7575 FAX (212) 869-1752
March 24, 1998
Littlefield, Adams & Co.
350 Fifth Avenue, Ste. 4213
New York, NY 10118
Attn: Mr. Stanley Halbreich
Fax (212) 563-7105
Dear Stanley:
This will confirm our factoring arrangement dated January 25, 1996. The contract
calls for advances up to 75%. We will, however, advance up to 85% in view of
your excellent customer base. The funds against your shipping is usually
available immediately and can be wire transferred to yourself or to anyone you
may designate.
Our factoring relationship has been excellent and we look forward to many more
years of a most pleasant business relationship.
Very truly yours,
/s/ Walter Kaye
WALTER KAYE
President
WK/dcb
<PAGE> 1
EXHIBIT 10.2
MERCHANDISING LICENSE AGREEMENT
---------------------------------------------------------
Date: as of February 27, 1998
Property: World Championship Wrestling
License No.: D982845
WCW LICENSEE
WORLD CHAMPIONSIIIP WRESTLING, INC. LITTLEFIELD, ADAMS & COMPANY
One CNN Center 6262 Executive Blvd.
12th Floor, South Tower Huber Heights, OH 45424
Atlanta, Georgia 30348-5366
Contact: Michael Balber
Tel: (937) 236-0660
Fax: (937) 236-1681
This Agreement is made as of the date specified above between WCW on behalf of
itself and its parent, subsidiaries and affiliates (the foregoing collectively,
"Related Entities") and Licensee, whereby WCW grants Licensee a license to
utilize certain names, likenesses, characters, trademarks and/or copyrights in
connection with the manufacture, distribution, advertising, promotion and sale
of certain articles of merchandise on the following terms and conditions:
1. Licensed Elements: See Schedule " 1 " attached below.
2. Authorized Articles: Knit Shirts, Tank Tops, Muscle Shirts, Henley Shirts,
Sweatshirts, Long Sleeve Shirts, T-Shirts
3. Licensed Territory: U.S., its territories and possessions and U.S. Military
Installations
The Authorized Articles may only be distributed in the Licensed Territory.
Licensee shall impose the obligation on its customers to sell the Authorized
Articles only within the Licensed Territory and shall not knowingly sell
Authorized Articles to persons or entities whom Licensee knows, or reasonably
should know, intend to resell or are likely to resell the Authorized Articles
outside the Licensed Territory.
4. License Period: 2/27/98 - 3/15/01
5. Exclusivity: Non-Exclusive
6. Royalty Rate: 10% - net sales
7. Advance/Guarantee: Advance: $200,000
Balance of
Guarantee: $300,000
----------- --------
Total of Guarantee: $500,000
The non-refundable Advance of $200,000 is payable in full concurrently with
WCW's receipt of copies of this Agreement (without amendments or modifications)
signed by Licensee, which in any event will be not later than the date twelve
(12) days after Licensee receives copies of this Agreement for signature.
<PAGE> 2
The balance of the Guarantee is payable in installments as follows:
$50,000 due no later than 9/30/98
$50,000 due no later than 12/31/98
$50,000 due no later than 3/31/99
$50,000 due no later than 6/30/99
$50,000 due no later than 9/30/99
$50,000 due no later than 12/31/99
(All references to "Dollar(s)" and/or "S" anywhere in this Agreement will refer
to United States Dollars.)
8. Marketing Date: Marketing of each of the Authorized Articles will begin no
later than April 8, 1998
9. Shipping Date: Shipment to retailers of each of the Authorized Articles will
begin no later than April 25, 1998
10. Authorized Channels of Distribution: Mass Merchants to include: BJ's
Wholesale Club, Dollar General, Fred's, Syms, Pamida, Venture, Ross Stores,
Stein Mart, Wal-Mart, Meyers Thrifty, Brandlees, Family Dollar, Hills, Sam's
Warehouse, Price-Costco, ShopKo, Quality Stores, TJX, Target, Burlington
Coat Factory, Caldor, Filenes Basement, K-Mart, Ames, Roses, Value City and
other Mass Merchandisers as agreed upon.
The Authorized Articles may only be distributed through the Authorized Channels
of Distribution within the Licensed Territory. Licensee shall impose the
obligation on its customers to sell the Authorized Articles only through the
Authorized Channels of Distribution and shall not knowingly sell Authorized
Articles to persons or entities whom Licensee knows, or reasonably should know,
intend to resell or are likely to resell the Authorized Articles outside of the
Authorized Channels of Distribution.
11. Sell-off Period: 90 days
12. Form of Copyright and Trademark Notice: Each Authorized Article shall bear
copyright and trademark notices in the following form (or in such other form
as WCW may hereafter designate, for prospective implementation, by notice to
Licensee):
19XX (C) & (TM) WCW, Inc.
The packaging containing the Authorized Articles described in Paragraph 2 herein
shall bear the following copyright and trademark notices:
Copyright: (C)19XX World Championship Wrestling, Inc., A Time Warner
Company, All Rights Reserved
Trademark: WCW(TM) and NWO(TM) are trademarks of World Championship
Wrestling, Inc.
All characters depicted, are trademarks of or used under License
to World Championship Wrestling, Inc.
13. Notices: Payments and statements to WCW shall be made or given to the
Atlanta address specified on the first page of this Agreement. All other notices
to WCW shall be sent to WCW at the Atlanta address specified on the first page
of this Agreement, with a copy to the same address, Attention: Legal Department.
14. Standard Terms: The attached "Exhibit 'A' (Standard Terms and Conditions)
are incorporated by this reference into the terms of this Merchandising License
Agreement (collectively referred to herein as "Agreement"). If any provision set
forth above in this Agreement conflicts (or is construed to conflict) with any
provision of the Standard Terms and Conditions, the provisions hereinabove set
forth will control.
15. Credit Terms: Execution of this Agreement by WCW is contingent upon WCW's
satisfaction with Licensee's financial ability to fulfill the Guarantee stated
herein. To this end, Licensee agrees to furnish any financial information
requested by WCW to confirm Licensee's credit status. If deemed necessary by
WCW, Licensee shall furnish a first priority lien and security interest, a
letter of credit, or any other such acceptable form of security to cover the
Guarantee. Licensee agrees to comply with WCW's request(s) pursuant to this
Paragraph before and during the entire term of this Agreement.
<PAGE> 3
16. Special Terms: If Authorized Articles are not marketed within 90 days of the
Shipping Date, WCW may remove the rights of those items.
If the forgoing proposal meets with the approval of Licensee, please sign and
return this proposal to WCW. Upon execution by WCW, this document will be a
binding agreement between Licensee and WCW as of the date first above written.
WORLD CHAMPIONSHIP WRESTLING, INC. LITTLEFIELD, ADAMS & COMPANY
("WCW") ("Licensee")
By: /s/ Michael Weber By: /s/ Michael Balber
---------------------------------- -------------------------
Title: Director of Marketing Title: Executive Vice President
-------------------------------- ------------------------
<PAGE> 4
SCHEDULE "1"
------------
1. "Licensed Elements" means only the names and static visual likenesses of the
following specific fictional characters, only as depicted in the entertainment
properties defined below as the "Program(s)" (excluding dialogue, storylines and
plot elements from the Pictures, except as specifically agreed in writing and in
advance by WCW). It is specifically understood and agreed that the character
names, likenesses and other elements referred to above (including, if
applicable, the names of actors, voice-over artists, and/or other elements
listed in this Schedule "l") are included within the definition of "Licensed
Elements" (i) only to the extent of WCW's ownership or control thereof, and (ii)
only as specifically depicted in and as part of the Program(s). Licensee
understands and acknowledges that nothing herein grants Licensee the right to
use sound bites, voices, music, or other audio effects from the Program(s). If
Licensee wishes to use any such elements, Licensee must separately procure the
necessary rights, and any rights, clearance or related fees arising from same
shall be at Licensee's sole expense. WCW reserves the right to amend the list of
Licensed Elements from time to time to keep the list current with WCW licensing
rights.
PROGRAM(S) LICENSED ELEMENTS
- ---------- -----------------
WORLD CHAMPIONSHIP WRESTLING All WCW & NWO Logos
All WCW & NWO Slogans
Adams, Brian
Adams, Chris
Armstrong, Brad
Anderson, Am (BC)
Anvil
Bagwell, Marcus
Barbarian (Faces of Fear)
Beautiful Bobby
Benoit, Chris
Ray Traylor
Bischoff, Eric
Black Magic
Black Top Bulley
Bloom, Wayne
Booty Man
British Bulldog - (Davey Boy Smith)
Cobra
Cyclope
Damien
Dibiase, Ted (Announcer)
Dillion, JJ (BC)
Disco Inferno
Dusty Rhodes (Announcer)
El Dandy
Elizabeth, Miss
Flair, Rick
Fortune, Chad
Gambler
Garza, Hector
Giant
Glacier
Goldberg, Bill
Gorgeous, George
Guerrera, Juventud
Guerrero, Chao Jr.
Guerrero, Eddie
Hacksaw Jim Dugan
<PAGE> 5
Hall, Scott
Harlem Heat - Booker T.
Harlem Heat - Stevie Ray
Hart, Bret "The Hitman"
Hart, Jimmy (Manager)
Heenan, Bobby (Announcer)
Hennig, Curt
High Voltage - Kaos
High Voltage - Ruckus
Hollywood, Johnny
Hogan, Hulk
Horowitz, Barry
Horshu
Hudson, Scott (Announcer)
Jannetty, Marty
Jericho, Chris
Kelly, Kevin
Kidman, Billy
Kimberly (Diamond Doll)
Konnan -
La Parka
Lex Lugar "The Total Package"
Lizmark, Jr.
Long, Teddy - (Manager)
Malenko, Dean -
Mally, Craig -
Marshall, Lee (Announcer)
Martel, Rick
McMichael, Steve
Meng (Faces of Fear)
Miller, Ernest -
Minton, Chip -
Vandenberg, James (Manager)
Morris, Hugh
Mortis
Mr. Wonderful - Paul Ordndorff (BC)
Mysterio, Rey
Nagata, Yuji
Nash, Kevin
Nitro Girls - Chae An
Nitro Girls - Tayo Reed
Nitro Girls - Melissa Bellin
Nitro Girls - Teri Byrne
Nitro Girls - Amy Crawford
Nitro Girls - Rebecca Curci
Nord, John
Norton, Scott
Okerlund, Mean Gene (Announcer)
Onoo, Sonny (Manager)
Page, Diamond Dallas
Poffo, Lanny
Prince Iaukea
Psychosis
Public Enemy - Johnny Grunge
Public Enemy - Rocco Rock
Queen Debra
Raven
<PAGE> 6
Renegade
Riggs, Scotty
Roberts, Bobby
Rough and Ready
Rude, Ravishing Rick (Announcer)
Saturn
Savage, Randy "Macho Man"
Schiavone, Tony (Announcer)
Sick Boy
Silver King
Steiner, Rick
Steiner, Scott
Sting
Studd, Ron
Sullivan, Kevin (BC)
Super Calo
Tenay, Mike (Announcer)
Torborg, Dale
Taylor, Terry (BC)
Ultimo Dragon
Van Hammer
Villano IV
Villano V
Wallstreet, Michael
Windham, Kendall
Wrath
Wright, Alex
Zbyszko, Larry (Announcer)
<PAGE> 7
EXHIBIT "A"
-----------------
MERCHANDISING LICENSE AGREEMENT
STANDARD TERMS AND CONDITIONS
These Standard Terms and Conditions shall be deemed fully incorporated in the
License Agreement ("Underlying Agreement") to which this Exhibit "A" is
attached, and these Standard Terms and Conditions and the Underlying Agreement
shall hereinafter be collectively referred to as the "Agreement." All terms
shall, unless expressly provided to the contrary herein, have the same
respective meanings as set forth in the Underlying Agreement. Unless expressly
provided to the contrary herein, to the extent that any provision of these
Standard Terms and Conditions conflicts with any provision of the Underlying
Agreement, the Underlying Agreement shall control.
A-1 LICENSE
WCW hereby grants to Licensee, and Licensee hereby accepts, a license to utilize
the Licensed Elements upon or in connection with the Authorized Articles, for
the purpose of the manufacture, distribution, advertising, promotion and sale of
the Authorized Articles in the Licensed Territory during the License Period,
upon and subject to all of the terms and conditions of this Agreement. Any and
all rights not expressly granted to Licensee hereunder are expressly reserved by
WCW and may be exercised and exploited freely by WCW at any time, and Licensee
covenants and agrees that it shall not exercise, or authorize or permit others
to exercise, any rights with respect to the Licensed Elements other than the
limited and specific rights licensed hereunder. It is understood that the
license granted hereunder relates to the sale of Authorized Articles and does
not grant Licensee any rights with respect to the use of the Licensed Elements
in connection with premium promotions or other giveaways.
A-2 PAYMENT AND ACCOUNTINGS
(a) Royalty. Licensee shall pay to WCW a royalty as specified in the
Underlying Agreement with respect to all Net Sales of Authorized Articles. "Net
Sales" shall mean gross sales by Licensee or any of its affiliated, associated
or subsidiary companies, without any deductions whatsoever (including, without
limitation, freight, taxes, uncollectible accounts, manufacturing, distribution,
advertising, marketing or promotion costs with the exception of trade quantity
discounts only), except for actual returns. Credit against sales shall be
allowed only for actual returns and shall not be allowed on the basis of an
accrual or reserve system. Net Sales for each Authorized Article shall be
computed on no less than Licensee's regular, full, "top-of-the-line" gross
wholesale invoice price calculated at source in the Licensed Territory, based
upon the usual billing price for items sold in the normal course of business
("Royalty Base Price"). The foregoing royalty shall be payable on all Authorized
Articles distributed by Licensee, including Authorized Articles not billed,
except for a reasonable number of samples which may be given away to the trade
in the normal course of business.
(b) Advance and Guarantee. Licensee shall pay to WCW the Advance and
Guarantee in accordance with the payment schedule specified in the Underlying
Agreement. The Advance and installments of the balance of the Guarantee
constitute a non-refundable advance against royalties to be earned as provided
above. The total Guarantee shall be deemed accrued to WCW's account as of the
date of this Agreement.
(c) Monthly Statements. Not later than thirty (30) days after the initial
shipment of the Authorized Articles and promptly on the 15th day of every month
thereafter during the License Period, Licensee shall furnish to WCW complete and
accurate statements (certified to be accurate by Licensee) showing the product
and style number, description, unit sales, Royalty Base Price, gross sales and
Net Sales of each and every Authorized Article covered by this Agreement. All
statements shall be prepared by Licensee utilizing the form attached as Exhibit
"B" hereto and incorporated by reference, as said form may be revised from time
to time by WCW. Royalty reports shall be prepared separately for each country
within the Licensed Territory, and shall include a product sales breakdown by
style number, which indicates clearly which of the Licensed Elements were
utilized in connection with each Authorized Article, including a breakdown for
each Licensed Element, by character. Reporting will be completed in such a
manner, and in sufficient detail, to enable WCW to separate royalties by the
respective elements used; including, without limitation, the contract number
present in the upper left-hand corner of the first page of this contract.
<PAGE> 8
(d) Royalty Payments. Royalty payments due hereunder shall be paid not later
than thirty (30) days after the end of each calendar month and such payments
shall accompany the statements required above. Licensee shall also include the
contract number, present in the upper left-hand corner of the first page of this
contract, on the face of the royalty check. If the License Period is extended
beyond the term specified in Paragraph 4 of the Underlying Agreement, royalty
payments which exceed the total Guarantee shall not be credited toward any
similar guarantee which is payable with respect to the extension period. All
payments shall be in U.S. funds. Licensee shall pay, and hold WCW forever
harmless from, all taxes, customs, duties, levies, imposts or any other charges
now or hereafter imposed or based upon the manufacture, delivery, license, sale,
possession or use hereunder to or by Licensee of the Authorized Articles or the
Licensed Elements (including but not limited to sales, use, inventory, income
and value added taxes on sales of Authorized Articles), which charges shall not
be deducted from WCW's royalties. All monies payable to or received by Licensee
from the exploitation of the rights granted herein shall be held by Licensee in
trust for WCW's account to the extent of WCW's entitlement to such monies as set
forth in this Agreement.
(e) Timeliness. All payments hereunder shall be made to WCW (or its
authorized representative) at the address set forth in the Underlying Agreement
within the time and in the manner specified herein, it being intended and agreed
that the time within which Licensee is required to make payment in accordance
with the terms hereof is of the essence of this Agreement and any failure so to
do on the part of Licensee shall constitute an event of default hereunder in
accordance with Paragraph A- 13 below. In addition to any other rights WCW may
have in the event of such a default, Licensee agrees to pay interest to WCW on
any sums which have not been received by WCW within thirty (30) days following
the due date. Such interest shall accrue from said date and shall be payable at
the rate of two percent (2%) over the prime rate as published in the Wall Street
Journal on the date the payment is due or the maximum rate allowed by law.
A-3 BOOKS AND RECORDS
Licensee shall keep accurate books of account and records in a form meeting the
generally accepted standards of the profession of certified public accountants
covering all transactions relating to the license hereby granted, and WCW and
its authorized representatives shall have the right at all reasonable business
hours, and upon reasonable notice, to examine and audit said books of account
and records and all other documents and materials in the possession or under the
control of Licensee with respect to the subject matter and terms of this
Agreement, and shall have free and full access thereto for said purposes and for
the purpose of taking extracts therefrom. Upon demand of WCW, but not more than
twice per calendar year, Licensee shall at its own expense furnish to WCW a
detailed statement prepared by an independent certified public accountant, or
certified to be accurate by a duly authorized official of Licensee, showing the
product and style number, description, Net Sales, itemized deductions from Net
Sales and Royalty Base Price of the Authorized Articles distributed and/or sold
by Licensee to the date of WCW's demand. If an audit reveals that Licensee has
misrepresented or underreported any item bearing upon the royalties or other
compensation due or payable to WCW, then, in addition to recomputing and making
immediate payment of the sums due based on the true items together with interest
thereon at the rate at which WCW is entitled to borrow from its principal
lending institution (after giving effect to compensating balance requirements
and any commitment fees), Licensee shall pay costs and expenses incurred by WCW
for the audit and checking and attorney's fees incurred by WCW in connection
therewith or in connection with enforcing the collection thereof if the
difference between the actual sums due hereunder is in excess of three percent
(3 %) of the sums previously paid. All books of account and records shall be
kept available for at least three (3) years after the termination of this
license in Licensee's principle place of business.
A-4 EXCLUSIVITY
(a)(i) If, and only if, the Underlying Agreement specifies that Licensee's
license hereunder is exclusive, WCW shall not, except as otherwise provided
herein, grant any other licenses effective during the License Period for the use
of the Licensed Elements in connection with the manufacture, distribution and
sale, in the Licensed Territory, of the Authorized Articles as expressly
described in the Underlying Agreement. Notwithstanding the foregoing, nothing in
this Agreement shall be construed to prevent WCW from granting any licenses for
the use of the Licensed Elements other than as provided herein, or from
utilizing the Licensed Elements in any manner whatsoever other than as provided
herein, regardless of the extent to which such use or utilization may be
competitive with the license granted hereunder.
(ii) If the Underlying Agreement specifies that Licensee's license hereunder
is non-exclusive, then WCW shall be free to utilize, or to grant any licenses to
third parties to utilize, the Licensed Elements in any manner for any purposes
whatsoever.
(b) In all cases, WCW expressly reserves all rights whatsoever relating to
the promotion, sale and other exploitation of Authorized Articles at (i) the MGM
Grand Hotel/Casino complex in Las Vegas, Nevada, and (ii) concert halls, arena
shows, circuses, stadiums, theaters, theme parks and all other public
performance venues at which television programs or motion pictures
<PAGE> 9
containing elements included in the Licensed Elements or derivative works (e.g.,
concerts, musicals and other stage plays, motion picture sequels, audio-visual
performances, etc.) based thereon are exhibited or performed, and (iii) retail
outlets or any other facilities owned, operated or controlled by WCW (or its
parent, subsidiaries or affiliates), and (iv) catalogs or similar direct mad
sales publications featuring WCW products published by WCW (or its parent,
subsidiaries, or affiliates). The foregoing venues, retail outlets, other
facilities, and catalogs are collectively referred to herein as "WCW Venues".
Licensee acknowledges that WCW Venues are expressly excluded from the Licensed
Territory and that Licensee has not been granted any rights with respect to the
exploitation of Authorized Articles at WCW Venues, it being understood that WCW
may itself exercise such rights or grant others licenses for the manufacture and
distribution of Authorized Articles for sale or other exploitation at WCW
Venues.
(c) WCW reserves the right to permit distribution of stock on hand or in
process as of termination or expiration of prior licenses, even if the exercise
of said rights may conflict with those rights granted Licensee hereunder.
A-5 QUALITY OF MERCHANDISE
(a) The Authorized Articles shall be of high standard and of such style,
appearance and quality as to be adequate and suited to their exploitation to the
best advantage and to the protection and enhancement of the Licensed Elements
and the good will pertaining thereto. The Authorized Articles shall be
manufactured, sold, distributed, promoted and advertised in accordance with all
applicable governmental, regulatory, professional and industry-wide codes,
statutes, rules and regulations.
(b) Licensee shall submit to WCW and WCW shall have absolute approval of the
Authorized Articles, and the cartons, containers, and advertising, promotional,
packaging and wrapping materials bearing any Licensed Elements ("Collateral
Materials") at all stages of the development and application thereof. Licensee
may not manufacture, use, sell, advertise, promote, or distribute any Authorized
Articles or Collateral Materials until and unless Licensee has received WCW's
prior written approval. Any and all items submitted by Licensee to WCW pursuant
to this Paragraph A-5 shall be at Licensee's expense and shall clearly indicate
the contract number associated with each such submission. After each Authorized
Article or Collateral Material has been finally approved pursuant to this
Paragraph, Licensee shall not depart therefrom in any material respect without
first submitting to WCW a prototype, layout or sample of the modified article or
material and obtaining WCW's prior written consent to such modification. Any
such approval by WCW shall not constitute waiver of WCW's rights or Licensee's
duties under any provision of this Agreement.
(c) Any item submitted to WCW shall not be deemed approved unless and until
WCW has approved it in writing; provided, however that if Licensee submits an
item to WCW using a method of providing evidence of receipt (e.g. certified
mail, Federal Express, etc.) then such item, if not disapproved by WCW within
fourteen (14) business days of its receipt thereof, shall be deemed approved.
(d) At the time of first distribution of each Authorized Article, Licensee
shall submit to WCW twelve (12) samples of each such item to WCW and a royalty
shall not be payable on such samples. Upon WCW's annual written request
thereafter, Licensee shall furnish without cost to WCW twelve (12) additional
random samples of each Authorized Article being distributed by Licensee
hereunder, together with any cartons, containers and packing and wrapping
material used in connection with such distribution for quality control by WCW.
It being agreed that WCW shall have the right, if quality problems are
encountered as a result of the examination of samples, to take such additional
samples as frequently as WCW in its sole discretion deems desirable in an effort
to assure that proper quality control has been established. Moreover, WCW shall
have the right to have its representatives visit the plant or plants where the
Authorized Articles are produced and where the Collateral Materials and the like
are printed or produced in order to determine whether or not proper quality
controls are being exercised.
(e) In the event Licensee is not the manufacturer of the Authorized
Articles, Licensee shall, subject to WCW's prior written consent, be entitled to
engage a third party manufacturer to make and produce the Authorized Articles
exclusively for Licensee, provided that Licensee will obtain from such
manufacturer and deliver to WCW a duly executed letter in the form contained in
Exhibit "C" hereto. The use by Licensee of any such manufacturer shall not
affect Licensee's obligations hereunder and Licensee shall be responsible for
ensuring that such manufacturer complies with the provisions of this Agreement.
A-6 LABELING
(a) As a condition to WCW's authorization of the public distribution of
items bearing reproductions of the Licensed Elements, including, without
limitation, Authorized Articles sold under this license and advertising,
promotional and display material therefor, all such items shall bear copyright
and trademark notices as set forth in Paragraph 11 of the Underlying Agreement
as well as any other legal notices which WCW may from time to time reasonably
direct.
<PAGE> 10
(b) In the event that any Authorized Article is marketed in a carton,
container and/or packing or wrapping material employing the Licensed Elements,
such notice shall also appear upon the said carton, container and/or packing or
wrapping material. Each and every tag, label, imprint or other device containing
any such notice and all advertising, promotional or display material bearing the
Licensed Elements shall be submitted by Licensee to WCW for its written approval
prior to use by Licensee in accordance with Paragraph A-5 above. Any such
approval by WCW shall not constitute waiver of WCW's rights or Licensee's duties
under any provision of this Agreement.
A-7 TECHNICAL AND PROMOTIONAL MATERIAL
WCW reserves the right to require Licensee to pay for film footage or other
technical materials which Licensee may requests for which WCW from time to time
might charge. All technical materials involving the Licensed Elements or any
reproduction thereof, notwithstanding their invention, creation or use by
Licensee, shall be and remain the property of WCW, and WCW shall be entitled to
use same and to license the use of same by others provided such use does not
conflict with the terms of this Agreement. "Technical materials" shall mean all
artwork and designs, pictures, separations, textual material, screens, films,
proofs and any and all materials used in the creation, production and/or
reproduction of the Authorized Articles.
A-8 DISTRIBUTION
(a) Commencing not later than the Marketing Date specified in the Underlying
Agreement, and thereafter during the License Period (including any extensions
thereof), Licensee shall diligently and continuously manufacture, sell,
distribute and promote Authorized Articles in interstate commerce throughout the
Licensed Territory and Licensee shall make and maintain adequate arrangements
for the distribution of the Authorized Articles. Licensee's failure (except as
otherwise provided herein) to commence in good faith to manufacture and
distribute in substantial commercial quantities any of the Authorized Articles
on or before the Marketing Date and to continue during the License Period
diligently and continuously to manufacture, sell, distribute and promote each
such Authorized Article throughout the Licensed Territory will result in
immediate damage to WCW. In such a case, in addition to all other remedies
available to it hereunder, WCW may remove from this Agreement any Licensed
Elements listed in the Underlying Agreement or any article or class or category
of articles included within the definition of Authorized Articles which is not
so diligently and continuously used by Licensee for a period of three (3)
consecutive months, by giving thirty (30) days' written notice to Licensee.
(b) Unless expressly provided herein otherwise, Licensee shall not, without
the express prior written consent of WCW, permit the distribution or other
marketing of any Authorized Articles on an F.O.B. or L.C. basis (as those terms
are commonly understood in the international merchandising business). All
Authorized Articles distributed or marketed (as subject to WCW's prior written
approval) on an F.O.B. or L.C. basis will be subject to a Royalty Rate in the
amount of one and one-half (1 1/2%) percent over the Royalty Rate indicated in
the Underlying Agreement.
(c) Licensee shall sell to WCW such quantities of the Authorized Articles as
WCW shall request at as low a rate and on as favorable terms as Licensee sells
similar quantities of the Authorized Articles to the general trade.
A-9 GOODWILL AND PUBLICITY
(a) Licensee acknowledges that particular and substantial good will values
are associated with the Licensed Elements and that said Licensed Elements and
names and all rights therein and good will pertaining thereto belong
exclusively to WCW. Licensee further acknowledges that said Licensed Elements
and names have secondary meanings in the mind of the public and that the value
thereof cannot readily be fixed in amounts or sums of money. Licensee shall not
by any act or omission jeopardize such good will, and any good will developed
hereunder shall accrue to the benefit of WCW. Licensee acknowledges the
necessity of protecting WCW's name, copyrights and trademarks generally and
specifically to conserve the good will and good name of WCW and the Licensed
Elements, and the right of WCW to supervise or intervene in the activities of
Licensee in connection therewith.
(b) WCW shall have the right, but shall not be under any obligation, to use
the Licensed Elements and/or the name of Licensee so as to give the Licensed
Elements, Licensee, WCW and/or WCW's television programs and/or motion pictures
full and favorable prominence and publicity. WCW shall not be under any
obligation whatsoever to broadcast or exhibit, or to continue broadcasting or
exhibiting, any television program or motion picture or use the Licensed
Elements or any person, character, symbol, design or likeness or visual
representation thereof in any medium, nor shall WCW be restricted in any way
whatsoever from producing and distributing derivative works which contain or are
derived from the Licensed Elements or any element or component part thereof.
<PAGE> 11
A-10 WARRANTIES AND REPRESENTATIONS
(a) By WCW. WCW has the right and power to enter into and perform this
Agreement, and has taken all steps necessary and appropriate to authorize the
execution and performance hereof. WCW owns or controls all rights necessary to
grant Licensee the rights granted to it hereunder.
(b) By Licensee. Licensee has the right and power to enter into and perform
this Agreement, and has taken all steps necessary and appropriate to authorize
the execution and performance hereof. Licensee will not act in any manner that
is inconsistent with the provisions hereof.
A-11 INDEMNIFICATION AND INSURANCE
Subject to the full performance by Licensee of all of its obligations hereunder,
WCW hereby indemnifies Licensee and undertakes to defend Licensee against and
hold Licensee harmless from all claims, suits, liabilities, losses, damages,
penalties, costs and expenses (including reasonable attorneys fees) which may be
suffered by or obtained against Licensee arising solely out of the use by
Licensee of the Licensed Elements in strict accordance with this Agreement.
Licensee hereby indemnifies WCW and undertakes to defend WCW against and hold
WCW harmless from any and all claims, suits, liabilities, losses, damages,
penalties, costs and expenses (including reasonable attorneys fees, which may
include, without limitation, an allocation for in-house counsel) of any nature
which may be suffered by or obtained against WCW arising from (i) any allegedly
unauthorized use of any patent, design, mark, process, idea, method or device by
Licensee (none of the same being included in the Licensed Elements) in
connection with the Authorized Articles or any other alleged action or omission
by Licensee constituting a breach by Licensee of any term or provision of, or
representation, warranty, covenant or agreement made by Licensee under, this
Agreement, and (ii) alleged defects in the Authorized Articles, any alleged
inadequacy or failure to perform any agreement or render any service, or
personal damages or injury resulting from the use of the Authorized Articles.
Licensee shall obtain, at its own expense, a comprehensive general liability
insurance policy for the entire License Period (including any extensions
thereof) including coverage for contractual liability (applying to the terms and
conditions of this Agreement), product liability, personal injury liability and
advertiser's liability, and including a vendor's liability endorsement in favor
of WCW. Said policy shall be written by a recognized insurance company which has
qualified to do business in the State of California, the State of New York and
the State of Georgia, or which has an A. M. Best Company rating of "B" or better
in the latest edition of Best's Insurance Guide and Key Ratings, and shall
provide for minimum combined single limit of liability coverage of not less than
$3,000,000 for each occurrence. As proof of such insurance, fully paid
certificates of insurance naming WCW as an insured party will be submitted by
Licensee for WCW's prior approval before any Authorized Articles are
distributed, advertised or sold, and at the latest within thirty (30) days after
the commencement of the License Period: World Championship Wrestling, Inc., One
CNN Center, Box 105366, Atlanta, GA 30348-5366, Attn: Director of Risk
Management. Any proposed change in such certificates of insurance shall be
submitted to WCW for its prior approval, and Licensee shall furnish WCW with a
copy of the then prevailing certificate of insurance. For purposes of Licensee's
indemnity and insurance policy coverage under this Paragraph, "WCW" shall also
include the officers, directors, shareholders, agents and employees of WCV and
its Related Entities, as well as any person(s) the use of whose name or likeness
may be licensed hereunder.
A-12 PROTECTION OF WCW'S RIGHTS
(a) Licensee acknowledges that WCW owns or controls the copyrighted works
which underlie this license and Licensee shall not during the term hereof or
thereafter attack the rights of WCW in the Licensed Elements or any trademarks
based thereon, regardless of the basis of such attack and regardless of whether
the same relates to tide or validity. Licensee shall at no time use or authorize
the use of any trademark, trade name or other designation identical with or
confusingly or colorably similar to the Licensed Elements.
(b) Licensee shall cooperate fully and in good faith with WCW for the
purpose of securing and preserving rights of WCW (or any grantor of WCW) in and
to the Licensed Elements. WCW may commence or prosecute any claims or suits in
its own name or in the name of Licensee or join Licensee as a party thereto.
Licensee shall immediately notify WCW in writing of any infringements or
imitations by others of the Licensed Elements on articles similar to those
covered by this Agreement, and WCW shall have the sole right to determine
whether or not any action shall be taken on account of any such infringements or
imitations. Licensee shall not institute any suit or take any actions on account
of any such infringements or imitations without first obtaining the written
consent of WCW so to do.
(c) Licensee shall utilize all necessary and adequate security measures to
prevent the loss, theft, destruction or unauthorized exploitation of the
technical materials and/or Licensed Elements delivered to Licensee, and Licensee
shall immediately report to WCW any such loss, theft, destruction or
unauthorized exploitation upon its gaining knowledge thereof. Upon the
expiration of the
<PAGE> 12
License Period (or earlier termination of this Agreement) Licensee shall, at
WCW's election, either erase or destroy all technical and advertising materials
relating to the Authorized Articles and provide WCW with satisfactory proof of
such erasure or destruction, or deliver such material to WCW via such method as
WCW specifies, on a charges collect basis.
(d) Licensee will be deemed to have simultaneously assigned, transferred and
conveyed to WCW any trade rights, trademark, service mark or copyright,
equities, good will, titles or other rights in and to the Licensed Elements,
including any copyright in an article derived from the Licensed Elements, which
may have been obtained or created by Licensee during the term hereof pursuant to
any endeavors covered hereby. Any such assignment, transfer or conveyance shall
be made without other consideration than the mutual covenants and considerations
of this Agreement. If any materials bearing the Licensed Elements (or any
element or component part thereof) utilized by Licensee hereunder on or in
connection with the Authorized Articles were not created or owned by WCW, it is
an essential condition of this Agreement that Licensee shall do all that is
necessary to ensure that such materials achieve copyright protection and that
valid title to such copyright is, at the earliest possible moment, transferred
to WCW. To this end, Licensee shall, among other things, enter into a contract
with anyone not directly in its employ who creates such materials bearing the
Licensed Elements, or any element or component part thereof, which states that
such materials are created as works made for hire, as such term is defined in
the U.S. Copyright Act, 17 U.S.C. ss. 101 et seg., or otherwise contractually
bind such person to execute all such documents as may be necessary to transfer
valid title in the copyright in such materials to WCW and shall arrange for the
execution of such documents and their transmittal to WCW at the earliest
possible moment.
(e) No later than thirty (30) days following the date of the first
interstate shipment by Licensee of each Authorized Article, Licensee shall
provide WCW, free of cost, with sufficient evidence of the date of first
shipment of the Authorized Article in interstate commerce and a description of
the use of the Licensed Elements in relation to the Authorized Article along
with identical samples of each such Authorized Article including packaging. Such
evidence and sample shall be sent to WCW at its address at World Championship
Wrestling, Inc., c/o Legal Department - Domestic Trademarks, One CNN Center,
Atlanta, Georgia 30303.
(f) Licensee shall fully cooperate with WCW in undertaking the registration
of any copyright, trademark, service mark or other intellectual property
registration or filing with respect to the Licensed Elements and/or Authorized
Articles as requested by WCW in writing, and all such registrations shall be in
WCW's name (or such other name as WCW designates). Such registration shall be
handled by attorneys selected or approved by WCW. In the event of any
registration relating to the Licensed Elements by Licensee in its own name or
that of any third party, such registration shall be (i) deemed to be for WCW's
benefit and (ii) held in trust for WCW by Licensee, and (iii) Licensee shall
bear all costs, expenses, damages and loss occasioned by such unauthorized
registration and/or WCW's correction of same.
(g) Licensee shall execute and deliver to WCW, in such form as WCW shall
reasonably request, any and all documents which may be necessary or desirable to
assist WCW in recording Licensee as a registered user of the Licensed Elements
(as trademark and/or servicemark) in the Licensed Territory, if appropriate.
Upon or after the expiration or termination of this Agreement, Licensee shall
execute and deliver to WCW, in such form as WCW shall reasonably request, any
and all documents which may be necessary or desirable to cancel the recordation
of Licensee as a registered user of the Licensed Elements in the Licensed
Territory; provided, however, that if WCW elects first to complete the
recordation of Licensee as a registered user, Licensee shall also provide any
and all documents which may be necessary or desirable to achieve this purpose.
(h) Licensee shall not commingle on Authorized Articles manufactured
hereunder (or in the advertising and promotion thereof) names, characters and/or
likenesses from any individual motion picture or television program which are
included in the Licensed Elements with those associated with any other motion
picture or television program (whether or not containing elements included in
the Licensed Elements) without WCW's prior written consent.
(i) WCW may, in its absolute discretion, withdraw any element of the
Licensed Elements, or any component part thereof, from the terms of this
Agreement if WCW determines that the exploitation thereof hereunder would or
might violate or infringe or reasonably tend to violate or infringe the
copyright, trademark or other rights of third parties, or subject WCW to any
liability, or violate any law, court order, government regulation or other
ruling of any governmental agency, or if, on account of the expiration or sooner
termination of an agreement between WCW and a third party from whom WCW has
obtained certain underlying rights relating to the exploitation of the Licensed
Elements hereunder or otherwise, WCW shall no longer have the right to act in
the capacity herein contemplated on behalf of any third party or parties, or if
WCW determines that it cannot adequately protect its rights in the Licensed
Elements under the copyright, trademark or other laws of the Licensed Territory;
provided, however, that in the event of any such withdrawal, WCW shall reimburse
Licensee its actual, out-of-pocket cost of any Authorized Articles (bearing such
withdrawn Licensed Element) which were produced, but not sold, prior to
Licensee's receipt of notice of such withdrawal. Any such withdrawal shall not
constitute grounds for termination of this Agreement unless all elements and
component parts of the Licensed Elements are simultaneously withdrawn by WCW.
<PAGE> 13
A-13 DEFAULT
The following shall be events of default hereunder: if Licensee (i) becomes the
subject of any bankruptcy proceeding, becomes insolvent, makes an assignment for
the benefit of its creditors, or a receiver, liquidator or trustee is appointed
for its affairs, (ii) breaches any other agreement with WCW, (iii) fails to make
payment of royalties, Guarantee(s) and/or any other sums payable to WCW pursuant
to this Agreement when due or fails to perform any of its other material
obligations hereunder or otherwise breaches any representation, warranty,
covenant or agreement referred to or contained in this Agreement, and does not
fully cure such failure or breach within ten (10) business days after receipt of
written notice thereof from WCW, in the case of failure to make payments, or
within fifteen (15) business days in the case of other failure or breach, (iv)
discontinues its business or loses any license or authorization required to
permit Licensee to perform fully its obligations hereunder pursuant to an action
of any duly constituted governmental, judicial or legislative authority. Upon
any default, WCW may, in addition and without prejudice to any other rights it
may have, terminate this Agreement, in which event the entire unpaid balance of
all royalties and Guarantees accrued to WCW's account hereunder shall
immediately become due and payable. In the event this Agreement is so
terminated, Licensee, its receivers, representatives, trustees, agents,
administrators, successors, and/or assigns shall not have the right to sell,
exploit or in any way deal with or in any Authorized Articles or any carton,
container, packing or wrapping material, advertising, promotional or display
materials pertaining thereto, except with and under the special consent and
instructions of WCW in writing, which they shall be obligated to follow.
A-14 FORCE MAJEURE
This license shall terminate in the event that any act of God, fire, flood,
public disaster, or any action, rule, regulation, requirement or order of any
governmental authority or any other cause or reason beyond the control of the
parties renders performance impossible and one party so informs the other in
writing of such causes and its desire to be so released. In such event, all
royalties on sales theretofore made shall become immediately due and payable and
neither the Guarantee nor any portion thereof shall be repayable.
A-15 EFFECT OF TERMINATION OR EXPIRATION
Upon and after the expiration or sooner termination of this license, (a) all
rights licensed to Licensee hereunder shall forthwith revert to WCW, (b) if the
Underlying Agreement specifies that the license granted hereunder is an
exclusive license, WCW shall be free to license others to use the Licensed
Elements in connection with the manufacture, sale, distribution and promotion of
the Authorized Articles in the Licensed Territory (it being acknowledged that
WCW has the full and complete right so to do during the License Period if the
license granted hereunder is a non-exclusive license), and (c) Licensee shall
refrain from further use of the Licensed Elements or any further reference,
direct or indirect, thereto or to anything deemed by WCW to be similar to the
Licensed Elements, in connection with the manufacture, sale, distribution or
promotion of Licensee's products, except as permitted in Paragraph A-17 below.
It shall not be a violation of any right of Licensee if WCW should at any time
during the License Period enter into negotiations with another to license use of
the Licensed Elements in respect of the Authorized Articles within the Licensed
Territory provided that, in the event that the license granted to Licensee
hereunder is an exclusive license, it is contemplated that such prospective
license shall commence after termination of this Agreement. In the event of any
termination hereunder, no monies or other consideration which WCW may receive in
respect of any licenses of the Licensed Elements within or outside the Licensed
Territory shall be deemed in mitigation of, or be otherwise offset, credited or
applied against, any sums payable to WCW pursuant to this Agreement.
A-16 FINAL STATEMENT
Ninety (90) days before the expiration of the License Period, and, in the event
of its sooner termination, ten (10) business days after receipt of notice of
termination, a statement showing the number and description of Authorized
Articles on hand or in process shall be furnished by Licensee to WCW. WCW shall
have the right to take a physical inventory to ascertain or verify such
inventory and statement. Refusal by Licensee to submit to such physical
inventory by WCW and/or failure by Licensee to render the final statement as and
when required by this provision, shall result in a forfeiture by Licensee of
Licensee's right to dispose of its inventory (as provided by the next paragraph
hereof), WCW retaining all other legal and equitable rights WCW may have in the
circumstances.
A-17 DISPOSAL OF INVENTORY
(a) Licensee shall not at any time manufacture Authorized Articles in excess
of those reasonably anticipated to meet normal customer requirements. Provided
that Licensee is in compliance with the foregoing, after termination or
expiration of the license
<PAGE> 14
under the provisions hereof, Licensee, except as otherwise provided in this
Agreement, may dispose of Authorized Articles which are on hand or in process at
the time notice of termination is received or upon the expiration date, whatever
the case may be, during the sell-off period indicated in the Underlying
Agreement, on a non-exclusive basis, provided Guarantee and royalty payments are
up-to-date for the current period and payments and statements are made and
furnished for that period in accordance with Paragraph A-2 above. Licensee shall
not be authorized to dispose of such excess inventory to the extent that it
exceeds ten percent (10%) of the total number of Authorized Articles sold during
the License Period, without WCW's prior written consent. Notwithstanding
anything to the contrary herein, Licensee shall not manufacture, sell or dispose
of any Authorized Articles after any expiration or termination of this license
based on the failure of Licensee to affix notice of copyright, trademark or
servicemark registration or any other notice to the Authorized Articles,
cartons, containers or packing or wrapping material or advertising, promotional
or display material or because of the departure by Licensee from the quality and
style approved by WCW pursuant to Paragraph A-5 above. All applicable royalties
shall be paid on Authorized Articles sold during the sell-off period within
fifteen (15) days following the expiration of said sell-off period. Any
Authorized Articles which have not been sold as of the expiration of the
sell-off period shall, at WCW's election, be delivered to WCW or destroyed.
(b) Licensee acknowledges that its failure (except as otherwise provided
herein) to cease the manufacture, sale, distribution or promotion of the
Authorized Articles or any class or category thereof after the termination or
expiration of this Agreement or any portion thereof will result in immediate and
irremediable damage to WCW and to the rights of any subsequent licensee.
Licensee acknowledges and admits that there is no adequate remedy at law for
such failure to cease manufacture, sale, distribution or promotion, and Licensee
agrees that in the event of such failure, WCW shall be entitled to equitable
relief by way of temporary and permanent injunctions and such other and further
relief as any court with jurisdiction may deem just and proper, other provisions
to the contrary elsewhere herein notwithstanding.
A-18 ASSIGNMENT
WCW reserves the right to assign this Agreement to any third party and to
hypothecate or pledge this Agreement as collateral for any purpose. In the event
of any such assignment, Licensee shall pay the royalties and Guarantees due
hereunder as directed by WCW. This Agreement shall be binding upon and shall
inure to the benefit of the successors and assigns of WCW. The license herein
granted is personal to Licensee and this Agreement may not be assigned,
transferred, sublicensed, pledged, mortgaged or otherwise encumbered, in whole
or in part, by Licensee either voluntarily or by operation of law or as part of
a merger, consolidation or otherwise without WCW's prior written consent, which
shall not be unreasonably withheld.
A-19 NOTICES
All notices, statements, accountings and other documents required to be given or
delivered hereunder shall be given in writing either by personal delivery
(including Federal Express & Airborne Express), by certified mail which delivery
is evidenced by a signed receipt, or by facsimile transmission unless otherwise
specified. Licensee's and WCW's respective addresses for notice purposes shall
be as set forth in the Underlying Agreement unless either party notifies the
other as provided herein that notices to such party should be sent to a
different address. All such notices shall be sufficiently given when the same
shall be deposited, so addressed, postage prepaid in the mail, or when the same
shall have been sent by facsimile transmission or personally delivered to the
recipient. The date of said facsimile transmission or personal delivery, or the
date which is three (3) business days following the date of said mailing, shall
be deemed to be the date of the giving of such notice, except statements and
payments to WCW hereunder and notice of change of address, which shall be deemed
effective only upon actual receipt thereof.
A-20 FURTHER DOCUMENTS
Licensee shall execute, verify, acknowledge, deliver and file any formal
assignments, recordations and any and all other documents which WCW may prepare
and reasonably call for to give effect to any of the provisions of this
Agreement. If Licensee fails so to do within ten (10) days after WCW requests
such execution, verification, acknowledgment, delivery or filing, Licensee
hereby irrevocably appoints WCW its attorney-in-fact (which appointment shall be
deemed a power coupled with an interest), with full powers of substitution and
delegation, to execute, verify, acknowledge and deliver any such assignments,
recordations and/or such other documents.
A-21 MISCELLANEOUS PROVISIONS
In the event any provision of this Agreement shall be found to be contrary to
any law or regulation of any federal, state or municipal administrative agency
or body, the other provisions of this Agreement shall not be affected thereby
but shall notwithstanding
<PAGE> 15
continue in full force and effect. If any legal action or other proceeding is
brought for the enforcement of this Agreement or as a result of a breach,
default or misrepresentation in connection with any of the provisions of this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs incurred in such action or
proceeding, in addition to any other relief to which such party may be entitled.
No waiver by either party hereto of any breach or default by the other party
shall be construed to be a waiver of any other breach or default by such other
party. Resort to any remedies referred to herein shall not be construed as a
waiver of any other rights and remedies to which either party is entitled under
this Agreement or otherwise, nor shall an election to terminate be deemed an
election of remedies or a waiver of any claim for damages or otherwise. This
Agreement may not be altered or modified except in writing signed by the party
to be charged with such alteration or modification. This Agreement constitutes
the entire understanding between the parties with respect to the subject matter
hereof and all prior understandings, whether oral or written, have been merged
herein. Irrespective of the place of execution or performance, this Agreement
shall be governed, construed and enforced in accordance with the laws of the
State of Georgia applicable to agreements entered into and to be wholly
performed therein, and Licensee hereby consents to the exclusive jurisdiction of
the courts of the State of Georgia and United States courts located in the State
of Georgia in connection with any suit, action or proceeding brought by Licensee
arising out of or related in any manner to this Agreement. Licensee agrees that
the service of process by mail shall be effective service of same and that such
service shall have the same effect as personal service within the State of
Georgia and result in jurisdiction over Licensee in the appropriate forum in the
State of Georgia. Nothing herein contained shall constitute a partnership
between, or joint venture by, the parties hereto or constitute either party the
employee or agent of the other, and Licensee shall have no right or power to
obligate or bind WCW in any manner whatsoever. This Agreement is not for the
benefit of any third party and shall not be deemed to give any right or remedy
to any third party whether referred to herein or not. Paragraph headings as used
in this Agreement are for convenience only and are not a part hereof, and shall
not be used in any manner to interpret or otherwise modify any provision of this
Agreement. As used herein, the word "person" means any individual, firm,
partnership, association, corporation or other entity.
END OF STANDARD TERMS AND CONDITIONS
---------------------------------------
<PAGE> 1
EXHIBIT 10.3
LITTLEFIELD, ADAMS & COMPANY
__________________________
7% CONVERTIBLE SUBORDINATED DEBENTURE
SUBSCRIPTION AGREEMENT
__________________________
THE COMPANY INTENDS TO USE THE PROCEEDS OF THIS OFFERING FOR WORKING CAPITAL
PURPOSES, INCLUDING THE PAYMENT OF OPERATING EXPENSES. THE ABILITY OF THE
COMPANY TO REPAY THE DEBENTURES WHEN DUE IS DEPENDENT ON A SUBSTANTIAL AND
SUSTAINED IMPROVEMENT IN THE COMPANY'S FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OVER THE NEXT EIGHTEEN MONTHS. GIVEN THE CURRENT FINANCIAL CONDITION
OF THE COMPANY, NO ASSURANCE CAN BE GIVEN THAT MANAGEMENT WILL BE SUCCESSFUL IN
IMPROVING THE COMPANY'S PROFITABILITY. IN THE ABSENCE OF A SUBSTANTIAL AND
SUSTAINED IMPROVEMENT IN THE COMPANY'S FINANCIAL CONDITION, THE COMPANY DOES NOT
EXPECT TO HAVE THE RESOURCES TO REPAY THE DEBENTURES WHEN DUE.
AN INVESTMENT IN THESE SECURITIES IS ALSO SUBJECT TO OTHER
SUBSTANTIAL RISKS, INCLUDING WITHOUT LIMITATION THE RISKS DESCRIBED
IN APPENDIX B HERETO.
<PAGE> 2
April _____, 1998
Littlefield, Adams & Company
6262 Executive Boulevard
Huber Heights, Ohio 45425
Ladies and Gentlemen:
1. Subscription.
(a) The undersigned, whose name, address and taxpayer identification
number appears on Schedule I hereto, (the "Subscriber"), intending to be legally
bound, irrevocably subscribes to purchase from Littlefield, Adams & Company, a
corporation organized under the laws of the State of New Jersey (the "Company"),
a 7% Convertible Subordinated Debenture (the "Debenture") of the Company in the
form attached hereto as Appendix A, in the principal amount set forth on
Schedule I hereto and in accordance with the terms and subject to the conditions
of this Subscription Agreement (this "Agreement").
(b) The Debenture is one of a series of 7% Convertible Subordinated
Debentures (the "Debentures") being privately offered by the Company (the
"Offering") to certain qualified offerees without registration under the
Securities Act of 1933, as amended (the "Securities Act"). The Company is
offering a maximum of $1,200,000 in original principal amount of Debentures in
this Offering. The Debentures and the shares of Common Stock underlying the
Debentures are collectively referred to herein as the "Securities."
2. Payment. Simultaneously with the execution and delivery to the
Company of this Agreement by the Subscriber, the Subscriber is delivering to the
Company an amount equal to the original principal amount of the Debenture to be
purchased hereby (the "Purchase Price"). Payment of the Purchase Price shall be
made to the Company (i) by wire transfer pursuant to the wire transfer
instructions set forth on Schedule II hereof, (ii) by personal or bank cashier's
check or (iii) by such other means as the parties hereto shall agree.
3. Acceptance.
(a) The Company intends to accept subscriptions on a "rolling basis",
there being no minimum amount of Debentures required to be purchased by others
in order to make this Agreement effective. The undersigned understands and
agrees that the Company, in its sole discretion, reserves the right to accept or
reject any subscription for Debentures, in whole or in part, to withdraw its
offer to sell the Debentures at any time before the acceptance of this Agreement
by the Company and to waive any of the requirements for subscription set forth
herein. A subscription shall be deemed accepted by the Company only when the
Company
<PAGE> 3
deposits either a signed copy of this Agreement or other notice of acceptance in
the United States mail, delivers such notice by hand or transmits such notice by
facsimile to the Subscriber. In the event that this subscription is rejected or
this offer is withdrawn, the Company shall return to the Subscriber, without
interest, all funds received from the Subscriber in respect hereof.
(b) Promptly following its acceptance of this Subscription, the
Company will deliver to the Subscriber a Debenture in the form attached hereto
as Appendix A in the principal amount subscribed for by the Subscriber and
registered in the name of the Subscriber or in the name of such nominee as the
Subscriber shall have requested.
4. Representations, Warranties and Covenants of Subscriber. In order
to induce the Company to sell the Securities to the Subscriber, the Subscriber
hereby represents, warrants and covenants to the Company as follows:
(a) The Subscriber is acquiring the Securities solely for the account
of the Subscriber, for investment purposes only and not with a view to, or for,
subdivision, resale or distribution, or for the account, in whole or in part, of
others. No other person has or will have a direct or indirect beneficial
interest in the Securities. The Subscriber recognizes the restrictions on the
transferability of the Securities and the interest in the Company represented
thereby. The Subscriber is able to bear the substantial economic risk of an
investment therein, including a complete loss thereof, for an indefinite period
of time. The Subscriber has no need for liquidity in this investment and no
reason to anticipate any change in circumstances, financial or otherwise, or
other particular occasion or event which might cause or require the Subscriber
to attempt to sell or transfer the Securities or any part thereof.
(b) The Subscriber understands that the sale of the Securities to the
Subscriber is intended to be exempt from registration under the Securities Act
by virtue of Section 4(2) thereof and applicable state securities laws.
Accordingly, the undersigned will not sell, hypothecate or otherwise transfer
any or all of the Securities other than in accordance with the following
provisions:
(i) pursuant to a registration statement under the Securities
Act which has become effective, and a prospectus related thereto which
is current, with respect to the securities to be disposed of, and if
required, a registration statement under applicable state securities
laws; or
(ii) pursuant to a specific exemption from registration under
the Securities Act and applicable state securities laws, provided
that, if requested by the Company, the Subscriber shall have delivered
to the Company a favorable reasoned written opinion of counsel for the
Subscriber, reasonably satisfactory in form and substance to the
Company, to the effect that the proposed sale or transfer is exempt
from registration under the Securities Act and any applicable state
securities laws.
2
<PAGE> 4
(c) The Subscriber understands that the Securities are not registered
under the Securities Act or applicable state securities laws and must be held
indefinitely, unless the subsequent disposition thereof is registered under the
Securities Act and applicable state securities laws or an exemption from such
registration is then available. The Subscriber acknowledges that the Company has
not undertaken and will have no obligation to register the Securities or to
assist the Subscriber in complying with any exemption from such registration
requirements. The undersigned understands that the exemption from registration
afforded by certain rules and regulations under the Securities Act depends upon
the satisfaction of various conditions and that, if applicable, such rules and
regulations may afford the basis for sales of the Securities only in limited
amounts.
(d) The undersigned acknowledges that the Debentures, and any
substitutions or replacements thereof, shall bear a legend referencing the
foregoing provisions.
(e) The Subscriber further represents and warrants that in order to
make an informed decision in connection with the purchase of the Securities:
(i) the Subscriber has reviewed the merits and risks of an
investment in the Securities with tax and legal counsel and with an
investment advisor to the extent deemed advisable by the Subscriber;
(ii) the Subscriber acknowledges and understands that no
federal or state agency has made any finding or determination as to
the fairness of the Offering of the Securities for investment, or any
recommendation or endorsement of the Securities;
(iii) the Subscriber recognizes that an investment in the
Securities involves a number of significant risks, including, without
limitation, the risks set forth on Appendix B hereto entitled "CERTAIN
RISKS ASSOCIATED WITH AN INVESTMENT IN LITTLEFIELD, ADAMS & COMPANY",
and the Subscriber represents that the Subscriber has such knowledge
and experience in financial and business matters as to be capable of
evaluating the merits and risks of an investment in the Securities;
and
(iv) the Subscriber: (A) has been provided with the Company's
Annual Report on Form 10-K for the year ended December 31, 1997, and
Subscriber has carefully reviewed the same, (B) has been provided with
such additional information with respect to the Company and its
business and financial condition as the Subscriber, or the
Subscriber's agent or attorney, has requested, and (C) has had access
to management of the Company and the opportunity to discuss the
information provided by management of the Company and any questions
that the Subscriber had with respect thereto have been answered to the
full satisfaction of the Subscriber.
(f) The Subscriber is not relying on the Company with respect to the
economic, tax and other considerations to the Subscriber relating to this
investment in the Company. With respect
3
<PAGE> 5
to such considerations, the Subscriber has relied on the advice of Subscriber's
own qualified advisors to the extent the Subscriber has deemed appropriate.
(g) The Subscriber represents and warrants that it is an "accredited
investor" as that term is defined in Rule 501 promulgated under the Securities
Act by virtue of one or more of the following:
(i) The undersigned is either a broker dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; or
(ii) The undersigned is a corporation, or a Massachusetts or
similar business trust or partnership, not formed for the specific
purpose of acquiring the Securities offered hereby, with total assets
in excess of $5,000,000; or
(iii) The undersigned is a director or executive officer of
the Company; or
(iv) The undersigned is a natural person whose individual net
worth, or joint net worth with that person's spouse, at the time of
the purchase, exceeds $1,000,000; or
(v) The undersigned is a natural person who had individual
income in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in each
of those years and has a reasonable expectation of reaching the same
income level in the current year; or
(vi) The undersigned is a trust, with total assets in excess
of $5,000,000, not formed for the specific purpose of acquiring the
securities offered hereby, whose purchase is directed by a
sophisticated person as described in Rule 506(b)(2)(ii) promulgated
under the Securities Act; or
(vii) The undersigned is a corporation or other entity all of
whose shareholders or other equity owners are themselves accredited
investors by virtue of this subparagraph or by subparagraphs (i),
(ii), (iii), (iv) or (v) above.
(h) The Subscriber is not subscribing to purchase the Securities as a
result of or subsequent to any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television or radio, or presented at any seminar or similar meeting, or any
solicitation of a subscription by a person not previously known to the
Subscriber in connection with investments in securities generally.
(i) (i) If this Subscription Agreement is executed by a corporation,
partnership, association, joint stock company, trust, unincorporated
organization or other entity, (i) such entity is duly authorized (x) to acquire
the Securities and to pay the Purchase Price to the Company and (y) to execute
and deliver this Agreement and consummate the transactions contemplated hereby
and has duly taken all requisite action in connection therewith; (ii) the
4
<PAGE> 6
person signing this Agreement on behalf of the entity has been duly authorized
by the entity to do so; (iii) such entity was not formed for the specific
purpose of acquiring the Securities; (iv) such entity is validly existing and in
good standing under the laws of the state of its organization; (v) the
execution, delivery and performance of this Agreement do not and will not
conflict with, violate or constitute a default under any applicable law or
regulation, its Certificate of Incorporation or By-laws (or the equivalents
thereof), or any agreement or arrangement to which such entity is a party or may
be bound; and (vi) this Agreement is a valid and binding legal obligation of the
entity, enforceable against it in accordance with its terms, except to the
extent that enforcement may be limited by applicable bankruptcy, insolvency,
reorganization or other similar laws affecting creditors' rights generally and
by general equitable principles (regardless of whether enforcement is sought in
equity or at law).
(j) (i) if the Subscriber is a natural person, he or she has full
legal capacity to execute, deliver and perform this Agreement and consummate the
transactions contemplated hereby; and (ii) this Agreement is a valid and binding
legal obligation of such person, enforceable against him or her in accordance
with its terms, except to the extent that enforcement may be limited by
applicable bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general equitable principles
(regardless of whether enforcement is sought in equity or at law).
(k) If the undersigned is acting in a fiduciary capacity in purchasing
the Securities, the fiduciary represents and warrants that he or she has
authority to execute this Agreement on behalf of the person or persons for whom
the Securities are being purchased, that such persons have been given this
Agreement and have confirmed to the fiduciary that they have reviewed the same,
and that the representations and warranties contained in this Agreement (and in
any other written statement or document delivered to the Company) shall be
deemed to have been made on behalf of such person or persons.
(l) The Subscriber agrees, within ten (10) days after receipt of a
request from the Company, to provide such information and to execute and deliver
such documents as may reasonably be necessary to comply with any federal or
state securities laws to which the Company is subject.
(m) The Subscriber agrees that the Subscriber will not dispose of all
or any part of the Securities, except as set forth herein.
(n) All information which the Subscriber has furnished and is
furnishing to the Company, including, without limitation, the representation as
to the status of the Subscriber as an "accredited investor" within the meaning
of Rule 501 promulgated under the Securities Act, and all other representations
contained in this Agreement, are true, correct and complete as of the date of
this Agreement, and if there should be any material change in such information
prior to the receipt by the Subscriber of notice of the acceptance by the
Company of this subscription, the Subscriber will immediately furnish such
revised or corrected information to the Company. The Subscriber is executing and
delivering this Agreement with full awareness of its implications
5
<PAGE> 7
and in recognition of the fact that the Company is relying on the Subscriber's
representations and warranties in selling the Securities to the Subscriber, and
that the Company and other investors may be damaged if such representations or
warranties are incorrect.
5. Representations, Warranties and Covenants of the Company. The
Company hereby represents, warrants and covenants to the Subscriber as follows:
(a) Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New Jersey and has all power and authority to own and lease its properties and
to conduct its business as presently conducted.
(b) Authorization and Validity of this Agreement. The execution,
delivery and performance by the Company of this Agreement, including the offer,
issuance and sale of the Securities, are within the Company's corporate power,
have been duly authorized by all necessary corporate action, do not require
approval of any governmental body, agency or official and do not, and will not,
conflict with, violate or contravene, or constitute a default under, any
applicable law or regulation or any agreement, judgment, injunction, order,
decree or instrument binding upon the Company, or result in the creation or
imposition of any material lien, claim or encumbrance on any asset of the
Company. This Agreement is a valid and binding legal obligation of the Company,
enforceable against it in accordance with its terms, except to the extent that
enforcement may be limited by applicable bankruptcy, insolvency, reorganization
or other similar laws affecting creditors' rights generally and by general
equitable principles (regardless of whether enforcement is sought in equity or
at law).
(c) Authorization and Issuance of the Debentures. The issuance of the
Debentures has been duly authorized and, upon the issuance thereof and payment
therefor in the manner provided herein, will be duly authorized and validly
issued. The shares of Common Stock to be issued upon conversion of any
Debenture, when issued in accordance with the terms thereof, shall be duly
authorized, validly issued, fully-paid and non-assessable shares of the Company.
6. Indemnification. The Subscriber agrees to indemnify and hold
harmless the Company and its affiliates, directors, officers, employees and
agents, against any and all losses, liabilities, claims, damages and expenses
whatsoever (including, but not limited to, reasonable attorneys' fees and any
and all expenses reasonably incurred in investigating, preparing or defending
against any litigation commenced or threatened or any claim whatsoever) arising
out of or based upon any false representation, warranty or acknowledgement or
breach or failure by the Subscriber to comply with any covenant or agreement
made by the Subscriber herein or in any other document furnished by the
Subscriber to any of the foregoing in connection with this transaction.
6
<PAGE> 8
7. Governing Law. This Agreement has been made in, and shall be
construed in accordance with, the laws of the State of New York applicable to
contracts made and to be fully performed therein.
8. Severability. Each provision of this Agreement is intended to be
severable from every other provision, and the invalidity or illegality of any
provision shall not affect the validity or legality of the remaining provisions
of this Agreement.
9. Assignability. This Agreement is not transferable or assignable by
the Subscriber.
10. Modification. Neither this Agreement nor any of its provisions
shall be waived, modified, discharged or terminated except by an instrument in
writing signed by the party against whom any such waiver, modification,
discharge or termination is sought.
11. Notices. Any notice, demand or other communication which any party
to this Agreement may be required, or may elect, to give to anyone interested
hereunder shall be sufficiently given if in writing and deposited, postage
prepaid, in a United States mail box, stamped registered or certified mail,
return receipt requested and addressed to such person at the address as may be
listed for such person on the books and records of the Company, or delivered
personally or by reputable overnight courier service to such person at such
address.
12. Entire Agreement. This Agreement, together with the Debenture,
contains the entire understanding and agreement of the parties with respect to
the subject matter hereof and supersedes all prior or contemporaneous
negotiations, representations and other agreements, either oral or written, made
by and between such parties with respect hereto.
13. Backup Withholding. The undersigned subscriber certifies under
penalties of perjury, that
(i) the Taxpayer Identification Number set forth in Schedule 1
hereto is my correct taxpayer identification number, and
(ii) that the undersigned is not subject to backup withholding
either:
(a) because the undersigned has not been notified
that the undersigned is subject to backup withholding as a
result of a failure to report all interest or dividends; or
7
<PAGE> 9
(b) because the Internal Revenue Service has notified
the undersigned that the undersigned is no longer subject to
backup withholding.1
ALL STATES
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND ARE BEING OFFERED AND
SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID ACT
AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SUCH ACT
AND LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE SECURITIES HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY,
NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF
THIS OFFERING OR THE ACCURACY OR ADEQUACY OF ANY INFORMATION PROVIDED TO THE
SUBSCRIBER IN CONNECTION WITH AN INVESTMENT IN THE SECURITIES.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
- -----------
(1) You must cross out item (ii) above if you have been notified by
the IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return and if you have not received a notice
from the IRS advising you that backup withholding has terminated.
8
<PAGE> 10
The Subscriber has read the paragraph appearing under the heading "ALL
STATES" above, and the Subscriber has carefully reviewed the Risk Factors set
forth in Appendix B.
The Subscriber acknowledges agreement to the foregoing and subscribes
to the purchase of the Debenture.
THE INTERNAL REVENUE SERVICE DOES NOT REQUIRE YOUR CONSENT TO ANY
PROVISION OF THIS DOCUMENT OTHER THAN THE CERTIFICATIONS REQUIRED TO AVOID
BACKUP WITHHOLDING.
_______________________
Name:
Agreed to and accepted as of
the ____ day of ________________, 1998.
LITTLEFIELD, ADAMS & COMPANY
By:_________________________________
Warren L. Rawls
Treasurer and Chief Financial Officer
9
<PAGE> 11
Schedule I
Name of Subscriber: __________________________________________________
Date and jurisdiction of
organization if subscriber is
a business entity or a trust:______________________________________
Address of Subscriber:________________________________________________
________________________________________________
________________________________________________
________________________________________________
Principal Amount of Debenture:_____________________________________________
Taxpayer Identification No.:)_________________________________________
<PAGE> 12
Schedule II
Instructions to Wire Transfer Payment of
Purchase Price to the Company
[INSTRUCTIONS TO WIRE TRANSFER PAYMENT PROVIDED TO SUBSCRIBERS]
<PAGE> 13
The Date of this Appendix is April 17, 1998
APPENDIX B
CERTAIN RISKS ASSOCIATED WITH AN
INVESTMENT IN LITTLEFIELD, ADAMS & COMPANY
An investment in Littlefield, Adams & Company (the "Company") is
speculative and involves an unusually high degree of risk. Only persons who are
accredited investors (as defined in Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act")) and who can afford
the risk of loss of their entire investment should purchase the Debentures (the
"Debentures") being offered hereby. Prospective purchasers of the Debentures
should carefully consider the following factors, which include some but not all
of the risks to which an investment in the Debentures are subject, before making
an investment in the Debentures.
USE OF PROCEEDS; CURRENT FINANCIAL CONDITION OF COMPANY
The company intends to use the proceeds of this offering for working capital
purposes, including the payment of operating expenses. The ability of the
company to repay the Debentures when due is dependent on the Company achieving a
substantial and sustained improvement in its financial condition and results of
operations over the next eighteen months. Given the current financial condition
of the Company, no assurance can be given that management will be successful in
improving the company's profitability. In the absence of a substantial and
sustained improvement in the company's financial condition, the Company does not
expect to have the resources to repay the debentures when due.
HISTORY OF SUBSTANTIAL LOSSES
The Company has had net losses for three of its five most recent fiscal
years. For the year ended December 31, 1997 ("Fiscal 1997"), the Company had a
net loss of approximately $1.9 million. The Company does not currently have
sufficient revenue from operations to offset operating and other expenses.
Therefore, there is substantial doubt concerning the ability of the Company to
continue as a going concern. There can be no assurance that the Company will be
able to generate sufficient cash from operations to meet its obligations as they
become due or that the Company will continue as a going concern.
DELISTING OF SHARES FROM THE AMERICAN STOCK EXCHANGE
In 1997, because the Company did not fully satisfy all of the
guidelines of the American Stock Exchange (the "Exchange") for continued
listing, the Company consented to the removal of its Common Stock from the
Exchange.
B-1
<PAGE> 14
In addition, once the shares of Common Stock were delisted from trading
on the Exchange and the trading price of the shares of Common Stock remained
below $5.00 per share, trading in the Company's Common Stock became subject to
the requirements of certain rules promulgated under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), which require additional disclosure by
broker-dealers in connection with any trades involving a stock defined as a
penny stock (generally, any non-Nasdaq equity security that has a market price
of less than $5.00 per share, subject to certain exceptions). Such rules require
the delivery, prior to any penny stock transaction, of a disclosure schedule
explaining the penny stock market and the risks associated therewith, and impose
various sales practice requirements on broker-dealers who sell penny stocks to
persons other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and have received the
purchaser's written consent to the transaction prior to sale. The additional
burdens imposed upon broker-dealers by such requirements may discourage
broker-dealers from effecting transactions in the Company's Common Stock, which
could severely limit the market liquidity of the Company's Common Stock and the
Company's ability to obtain additional financing.
LIMITED TRADING MARKET FOR THE COMPANY'S COMMON STOCK; POSSIBLE VOLATILITY OF
MARKET PRICE OF COMMON STOCK
Shares of the Company's Common Stock currently trade over-the-counter
on the NASD's electronic bulletin board under the symbol, "FUNW", and, since
September 1997, the time that the Company's Common Stock was delisted from
trading on the Exchange, there has been only a limited trading market for the
Company's Common Stock. There can be no assurance that an active or regular
trading market will develop or, if developed, that it will be sustained.
Consequently, the holders of the Company's Common Stock may not be able to sell
their shares at any particular time or at prices that reflect the actual value
of the Company's Common Stock. Factors such as the Company's financial results
and various factors affecting the retail industry and the general economy may
have a significant impact on the market price of the Company's Common Stock.
Additionally, in recent years, the stock market has experienced a high level of
price and volume volatility and market prices for the stock of many companies
(particularly in the over-the-counter market) have experienced wide price
fluctuations which have not necessarily been related to the operating
performance of such companies.
TERMINATION OF HARLEY-DAVIDSON LICENSE
In the years prior to 1997, a majority of the Company's revenue was
derived from sales of Harley-Davidson Motor Co. ("Harley-Davidson") licensed
products. The Company's Harley- Davidson license agreement expired on December
31, 1996 and was not renewed. Sales of Harley-Davidson licensed products
accounted for approximately 90% and 89% of total consolidated net product sales
for the years ended December 31, 1996 and 1995, respectively. In addition,
approximately 29% of total revenues for Fiscal 1997 represents 1996 sales of
Harley-Davidson products that the Company recognized in the first quarter of
Fiscal 1997 in accordance with generally accepted accounting principles. The
expiration of the Harley-
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<PAGE> 15
Davidson license has had, and continues to have, a material adverse effect on
the Company's business, financial condition and results of operations.
NEED FOR ADDITIONAL CAPITAL AND UNCERTAINTY OF CURRENT FINANCING ARRANGEMENTS
The termination of the Company's Harley-Davidson license has resulted
in a material decrease in the Company's cash flow from operations. The Company
does not currently generate sufficient cash flow from operations to support its
existing operations. The availability of cash flow from operations is dependent
on the ability of the Company to acquire new licenses and sell licensed products
other than Harley-Davidson. The Company has limited financial resources
available to support existing operations until such time, if ever, that 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. In the event that the Company cannot generate sufficient sales of other
products, it is probable that the Company will not be able to continue as a
going concern.
UNCERTAINTY OF SUCCESS OF NEW LICENSE AGREEMENTS
The Company is continuing to pursue new license opportunities. There
can be no assurance, however, that the Company will be successful in acquiring
additional licenses or developing new product lines, or that the any or all of
the licenses that the Company has acquired or may acquire, or product lines that
the Company has developed or may develop, will generate sufficient sales revenue
to sustain the Company for any particular period.
SUBSTANTIAL LEVERAGE; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and following the completion of this Offering, will
continue to be, highly leveraged. Assuming that this Offering had been completed
on December 31, 1997 and assuming that the entire $1,200,000 in principal amount
of Debentures had been sold, the Company would have had on such date an
aggregate of approximately $1.9 million of indebtedness outstanding, including
an aggregate of approximately $616,000 outstanding under (i) the Company's
discount factoring agreement, as amended (the "Factoring Agreement") and the
accounts receivable financing agreement, as amended (the "Accounts Receivable
Agreement") with Merchant Factors Corp. ("Merchants") and (ii) two promissory
notes (the "Notes") executed by the Company in favor of The Bank of Floyd,
Floyd, Virginia ("Floyd").
There can be no assurance that the Company will be able to repay the
indebtedness to be incurred as a result of this Offering. If the Company is
unable to generate sufficient cash flow to meet its obligations arising under
the Factoring Agreement, the Accounts Receivable Agreement and/or the Notes (the
"Senior Debt"), the Company may be required to attempt to renegotiate the
payment terms or to seek additional financing from another source. There can be
no assurance that the Company will be able to obtain other financing to cover
such debt obligations and other cash needs, and even if such additional
financing can be obtained, there
B-3
<PAGE> 16
can be no assurance that any such financing can be effected on commercially
reasonable terms, or at all.
In addition, the Factoring Agreement and the Accounts Receivable
Agreement are secured by the Company's accounts receivable and inventories, and
the Notes are payable on demand and secured by the Company's fixed assets. If
the Company is unable to satisfy its obligations related to the Senior Debt,
Merchants and Floyd may declare all such debt immediately due and payable. No
assurance can be given that the collateral securing the Senior Debt will be
sufficient to repay all of the Senior debt following demand of payment (or upon
liquidation of the Company). In the event such collateral is insufficient to
repay all amounts due with respect to the Senior Debt, then the holders of the
Debentures would have only an unsecured claim against any remaining assets of
the Company.
SUBORDINATION OF DEBENTURES
The payment of principal and accrued and unpaid interest with respect
to the Debentures will be subordinated to the present and future Senior Debt of
the Company. Therefore, in the event of the liquidation, dissolution or
reorganization of, or any similar proceeding relating to, the Company, the
assets of the Company will not be available to pay the obligations on the
Debentures until the holders of Senior Debt have been paid in full. In that
event, it is possible that the assets of the Company will be insufficient to pay
all or a portion of the obligations arising under the Debentures.
APPLICATION OF PROCEEDS
The Company intends to use the cash net proceeds from this Offering,
after the payment of expenses incurred in connection with this Offering, for
general business purposes and operating expenses. Such expenses could exhaust or
exceed the cash realized from this Offering, and the Company may not be able to
raise additional funds to cover operating expenses or to satisfy its other cash
needs in the future. There can be no assurance that the Company will be able to
obtain other financing to cover such operating expenses and cash needs, and even
if such additional financing can be obtained, there can be no assurance that
such financing can be effected on commercially reasonable terms or at all.
LIMITATIONS ON TRANSFERABILITY OF THE DEBENTURES
Prior to the Offering, there has been no market, public or private, for
the Debentures, and it is not anticipated that a market for the Debentures will
ever develop. Neither the Debentures nor the shares of Common Stock underlying
the Debentures have been, nor is it anticipated that they will be, registered
under the Securities Act or the securities laws of any state. Consequently, the
Securities must be held indefinitely by the purchasers thereof unless they are
sold or otherwise transferred pursuant to an exemption under the Securities Act
or applicable state securities laws.
B-4
<PAGE> 17
DEPENDENCE ON CERTAIN CUSTOMERS
The Company's largest customer accounted for approximately 48% of the
Company's net sales during Fiscal 1997. The Company believes that it has good
relationships with its customers and that they will continue to do business with
the Company; however, the Company's customers purchase products from the Company
pursuant to individually placed purchase orders, and the Company has no
long-term contracts with any of its customers. Therefore, there can be no
assurance that the Company's customers, including any of its largest customers,
will continue to purchase merchandise from the Company, and the loss of a
significant volume of purchases from a number of its customers, or from the
Company's largest customer, could have a material adverse effect on the
Company's business and results of operations and the ability of the Company to
continue as a going concern.
DEPENDENCE ON CERTAIN SUPPLIERS
The Company's largest supplier of T-shirts during Fiscal 1997 and the
supplier which offered the highest credit line to the Company, ceased operations
in January 1998. Management believes that other sources of T-shirt suppliers are
available; however, there can be no assurance that the Company will be able to
obtain an alternate source of such goods on equivalent or favorable terms, or at
all, and the failure of the Company to do so could have a material adverse
effect on the Company and its ability to continue as a going concern.
RETAIL COMPETITION
The Company competes against a large number of national and regional
manufacturers of similar products and does not have a dominant market share in
the imprinted young men's and boys' active wear industry. The Company believes
that competition is based on popularity of a particular licensed brand, price,
quality of merchandise, artistic creativity and service, including timeliness of
delivery. There are a significant number of major participants in the imprinted
young men's and boys' active wear industry, and many of these participants are
substantially larger and have greater financial, marketing and other resources
than the Company.
RISKS ASSOCIATED WITH PUBLIC TRENDS IN THE RETAIL INDUSTRY
The retail industry is affected by many factors, including changes in
the national economy or in regional and local economies, changes in consumer
preferences and confidence in the overall economy, increases in the number of
retail operations and intense competition in the retail industry generally. In
addition, factors such as inflation may have a greater effect on the retail
industry than on other industries. The loss of any of the Company's substantial
customers could have a material adverse effect on the business and results of
operations of the Company and the ability of the Company to continue as a going
concern.
B-5
<PAGE> 18
DEPENDENCE ON MANAGEMENT AND KEY PERSONNEL
The success of the Company is largely dependent on the personal efforts
of Stanley I. Halbreich, Chairman of the Board, President and Chief Executive
Officer of the Company, Warren L. Rawls, the Company's Chief Financial Officer,
Treasurer and Secretary and Michael B. Balber, Executive Vice President of the
Company. The loss of services of any of such individuals could have a material
adverse effect on the Company's business and prospects.
Tax Risks
PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH
RESPECT TO THE FEDERAL, STATE AND LOCAL TAX EFFECTS OF AN INVESTMENT IN
THE COMPANY.
THE INCLUSION OF CERTAIN RISK FACTORS IN THIS APPENDIX B
DOES NOT IMPLY THE ABSENCE OF OTHER RISKS INHERENT
IN AN INVESTMENT IN THE COMPANY'S SECURITIES.
THE INFORMATION SET FORTH IN THIS APPENDIX B IS AS OF THE DATE FIRST WRITTEN
ABOVE AND DOES NOT INCLUDE FACTS OR EVENTS OCCURRING SUBSEQUENT TO SUCH DATE.
PROSPECTIVE INVESTORS ARE URGED TO CONTACT MANAGEMENT OF THE COMPANY TO
DETERMINE IF ANY MATERIAL INFORMATION RELATING TO EVENTS OCCURRING AFTER SUCH
DATE AND WHICH MAY HAVE AN IMPACT ON THE COMPANY OR AN INVESTMENT THEREIN IS
AVAILABLE.
B-6
<PAGE> 1
EXHIBIT 10.4
THIS DEBENTURE, AND THE SHARES OF COMMON STOCK OF LITTLEFIELD, ADAMS & COMPANY
(THE "COMPANY") TO BE ACQUIRED UPON THE CONVERSION OF THIS DEBENTURE, HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR WITH THE
SECURITIES COMMISSION OF ANY STATE AND MAY NOT BE PLEDGED, SOLD, HYPOTHECATED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION, UNLESS AN EXEMPTION
FROM THE REQUIREMENT OF SUCH REGISTRATION IS THEN AVAILABLE AND DEMONSTRATED BY
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY. IN ADDITION, THE TRANSFER OF
THIS DEBENTURE IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE SUBSCRIPTION
AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER HEREOF PURSUANT TO WHICH
THIS DEBENTURE WAS ISSUED, A COPY OF WHICH AGREEMENT MAY BE EXAMINED WITHOUT
CHARGE AT THE OFFICES OF THE COMPANY. THIS DEBENTURE IS ONE OF SEVERAL
DEBENTURES OF LIKE TENOR ISSUED PURSUANT TO AND GOVERNED BY CERTAIN AGREEMENTS
BY AND BETWEEN THE COMPANY AND THE PURCHASERS SUBSCRIBING THERETO.
No._________ $________
LITTLEFIELD, ADAMS & COMPANY
7% CONVERTIBLE SUBORDINATED DEBENTURE
Huber Heights, Ohio
April , 1998
THIS DEBENTURE is one of a duly authorized issue of up to $1,200,000
in Debentures of LITTLEFIELD, ADAMS & COMPANY, a corporation duly organized and
existing under the laws of the state of New Jersey (the "Company") designated as
its 7% Convertible Subordinated Debentures.
FOR VALUE RECEIVED, the Company hereby promises to pay to , the
registered holder hereof or it registered assigns (the "Holder"), the principal
sum of United States Dollars (US $ ) and to pay interest on the principal sum
outstanding from time to time at the rate of seven percent (7%) per annum
accruing from the date hereof. This Debenture is due and payable on demand;
provided, however, that demand for payment shall not be made (and this Debenture
shall not be due or payable) prior to the eighteen (18) month anniversary of the
date hereof. Interest (computed on the basis of the number of days elapsed in a
365 day year) on the principal sum outstanding from time to time shall be paid
in arrears on the last day of March and September in each year
<PAGE> 2
commencing September 30, 1998 at the rate of seven percent (7%) per annum.
Accrual of interest shall commence on the first business day to occur after the
date hereof and shall continue to accrue on the unpaid principal amount hereof
until payment in full of the principal sum has been made or duly provided for or
until this Debenture has been converted in full. Payment of principal and
interest shall be made by check mailed and addressed to the registered Holder
hereof at the address shown in the register maintained by the Company for such
purpose or, at the option of the Holder, in such manner and at such place in the
United States of America acceptable to the Company as the Holder shall have
designated to the Company in writing.
1. Conversion of Debenture.
(a) Conversion. (i) The Holder of this Debenture is entitled, at its
option, at any time from and after the first anniversary of the date hereof, to
convert the principal amount of this Debenture, in whole or in part (but if in
part, not as to less than $10,000 of the principal amount hereof), into shares
of common stock of the Company, par value $1.00 per share (the "Common Stock"),
at a conversion price for each share of Common Stock equal to seventy-five cents
(US $.75) (the "Conversion Price"). (For example, if this Debenture were in the
original principal amount of $100,000 and the Holder were to convert $75,000 in
principal amount of this Debenture, the Holder would receive 100,000 shares of
Common Stock in respect of such conversion and (as described below in this
Section 1) a new Debenture of like tenor in the principal amount of $25,000. In
addition, the Holder would receive, in cash or in shares of Common Stock valued
at $.75 per share, accrued interest on the portion of the Debenture so
converted.)
(ii) Conversion shall be effected by surrender of this Debenture, with
the form of conversion notice attached hereto as Exhibit A, duly executed by the
Holder, to the Company evidencing such Holder's intention to convert this
Debenture or a specified portion hereof, and accompanied, if required by the
Company, by proper assignment hereof in blank. Interest accrued and unpaid on
the principal amount hereof to be so converted shall, at the option of the
Company, be paid in cash or Common Stock upon conversion. No fraction of shares
or scrip representing fractions of shares will be issued on conversion. Subject
to subsection (c) hereof, the date on which notice of conversion is given shall
be deemed to be the date on which the Holder has delivered this Debenture, with
the conversion notice duly executed, to the Company, or if earlier, the date set
forth in such notice of conversion if the Debenture is received by the Company
within three (3) business days therefrom. Notwithstanding anything to the
contrary herein, if the Company elects to prepay all or a portion of this
Debenture pursuant to Section 3 hereof, the right to convert the portion of the
Debenture to be prepaid shall expire unless the Company shall have actually
received this Debenture and a duly executed notice of conversion not later than
three (3) business days preceding any Prepayment Date (as defined in Section 3).
(b) Delivery of Stock Certificates, etc. As soon as practicable after the
conversion of this Debenture in full or in part, the Company at its expense
(including the payment by it
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<PAGE> 3
of any applicable issue taxes) will cause to be issued in the name of and
delivered to the registered Holder hereof:
(i) a certificate or certificates for the number of whole shares of
Common Stock to which such Holder shall be entitled upon such
conversion (including, at the election of the Company, shares in
respect of accrued and unpaid interest on the principal amount hereof
so converted) plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash in an amount equal to the
portion of the Conversion Price representing such fractional share;
plus, if the Company so elects, cash in respect of accrued and unpaid
interest on the principal amount hereof so converted; and
(ii) in case such conversion is in part only, a new Debenture of like
tenor, in a principal amount equal to the principal amount hereof
minus the principal amount of this Debenture converted as provided in
subsection (a) of this Section 1.
(c) Transfer; Securities Act Compliance. This Debenture has been
issued without registration under the Securities Act of 1933, as amended (the
"Act") and other applicable state securities laws in reliance upon the
investment and other representations of the original purchaser hereof. This
Debenture, and any shares of common stock issued upon conversion hereof, may be
transferred or assigned only in compliance with the provisions of the Act,
either pursuant to an effective registration statement thereunder or in
accordance with an exemption from the registration requirements thereof. In the
event of any proposed transfer of this Debenture, or the shares of Common Stock
issued or issuable upon conversion hereof, the Company may require, in its sole
and absolute discretion, prior to issuance of a new Debenture or such shares in
the name of such other person, that it receive reasonable transfer documentation
including legal opinions of counsel reasonably acceptable to the Company, that
the issuance of the Debentures or the shares in such other name does not and
will not cause a violation of the Act or any applicable state securities laws.
2. Tax Related Matters. The Company shall be entitled to withhold from all
payments of principal of, and interest on, this Debenture any amounts required
to be withheld under applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments, and the Holder shall
execute and deliver all required documentation in connection therewith.
3. Prepayment of Debenture. At any time on and after the first anniversary
of the date of this Debenture, the Company may prepay the outstanding principal
amount of this Debenture, in whole or in part, plus accrued and unpaid interest,
if any, to the applicable prepayment date (each a "Prepayment Date"), upon sixty
(60) calendar days' prior written notice from the Company to the Holder;
provided that no such notice shall be given prior to the first anniversary of
the date hereof; and provided further, that the amount to be paid by the Company
upon any such prepayment (the "Prepayment Amount") shall be equal to the sum of
(i) the principal amount of this Debenture to be prepaid (the "Prepaid Principal
Amount"), plus (ii) all accrued and unpaid interest on the Prepaid Principal
Amount to the
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<PAGE> 4
Prepayment Date, plus (iii) an additional amount (the "Premium Amount")
determined by multiplying the Prepaid Principal Amount by the amounts set forth
in the following schedule:
<TABLE>
<CAPTION>
Prepayment Date Multiple
--------------- --------
<S> <C>
June 1, 1999 - March 31, 2000 0.20
April 1, 2000 - March 31, 2001 0.15
April 1, 2001 - March 31, 2002 0.10
April 1, 2002 - March 31, 2003 0.05
From and after April 1, 2003 0.00
</TABLE>
On any Prepayment Date, upon receipt by the Company of the original Debenture,
the Company shall pay to the Holder of any Debenture which has been called for
prepayment and has not been previously converted into shares of Common Stock
pursuant to Section 1 hereof, the Prepayment Amount. After the close of business
on any Prepayment Date, whether or not this Debenture shall have been delivered
to the Company, the principal amount of this Debenture shall be reduced by the
Prepaid Principal Amount. The prepaid principal shall cease to accrue interest
and all rights of the Holder thereof with respect to such prepaid principal
amount shall cease on such date, except the right to receive the amount payable
hereunder on presentation and surrender of the original Debenture. If any such
prepayment is in part only, a new Debenture of like tenor shall be issued to the
registered holder hereof, such new Debenture to be in the principal amount equal
to the principal amount hereof minus the principal amount (but not the Premium
Amount) prepaid. Any prepayment by the Company shall be made on a pro rata basis
with all of the Company's other 7% Convertible Subordinated Debentures.
Notwithstanding the foregoing, the Company's right to prepay this Debenture is
subject to the Holder's right to convert all or a portion of this Debenture in
accordance with (and subject to the terms and conditions of) Section 1 hereof;
provided, that as set forth in such Section 1, the right to convert any portion
of the Debenture to be prepaid shall expire unless the Company shall have
actually received this Debenture and a duly executed notice of conversion not
later than three (3) business days preceding any Prepayment Date.
4. Adjustments for Consolidation, Merger, etc. If the Company merges
or consolidates with another entity or sells or transfers all or substantially
all of its assets to another entity and the holders of the Common Stock are
entitled to receive stock, securities or property in respect of or in exchange
for Common Stock, then as a condition of such merger, consolidation, sale or
transfer, the Company and any such successor, purchaser or transferee shall
amend this Debenture to provide that it may thereafter be converted on the terms
and subject to the conditions set forth herein into the kind and amount of
stock, securities or property receivable upon such merger, consolidation, sale
or transfer by a holder of the number of shares of Common Stock into which this
Debenture might have been converted immediately before such merger,
consolidation, sale or transfer, subject to adjustments which shall be as nearly
equivalent as may be practicable. The number of shares of Common Stock into
which this Debenture may be converted shall be appropriately
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<PAGE> 5
adjusted by the Company in the event of any forward or reverse stock split
declared by the Company.
5. No Impairment. The Company (a) will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of stock upon the conversion of all
Debentures from time to time outstanding, and (b) will not consolidate with or
merge into any other entity where the Company is not the continuing or surviving
person, or permit any other person to consolidate with or merge into the Company
where the Company is the continuing or surviving entity if, in connection with
such consolidation or merger, the Common Stock then issuable upon the conversion
of this Debenture shall be changed into or exchanged for stock or other
securities or property of any other person, unless, the continuing or surviving
entity after such consolidation or merger or the entity issuing or distributing
such stock or other securities or property, as the case may be, shall expressly
assume in writing and be bound by all the terms of this Debenture.
6. Reservation of Stock, etc. The Company will at all times reserve
and keep available, solely for issuance and delivery upon the conversion of this
Debenture, all shares of Common Stock from time to time issuable upon the
conversion of this Debenture. All shares of Common Stock issuable upon the
conversion of this Debenture shall be duly authorized, and when issued, validly
issued, fully paid and non-assessable with no liability on the part of the
holders thereof.
7. Replacement of Debentures. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Debenture and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond (or, in the sole discretion of the Company, an indemnity
agreement satisfactory to the Company), reasonably satisfactory in form and
amount to the Company or, in the case of any such mutilation, upon surrender and
cancellation of such Debenture, the Company at its expense will execute and
deliver, in lieu thereof, a new Debenture of like tenor.
8. Subordination. (a) General. The Holder of this Debenture by the
Holder's acceptance hereof, and each subsequent Holder, by its acceptance of any
interest in this Debenture, agree that the indebtedness represented hereby shall
be subordinate in right of payment to the prior payment in full of all
obligations of the Company in respect of indebtedness to banks or other lending
institutions now existing or hereafter incurred which may be designated as
senior indebtedness by the board of directors of the Company (hereinafter
referred to as "Senior Indebtedness"). Without limiting the generality of the
foregoing, the term "Senior Indebtedness" shall include (and the indebtedness
represented hereby shall therefore be subordinate in right of payment to), the
Company's indebtedness to the Bank of Floyd whether presently outstanding or
hereafter incurred, and including all renewals, modifications and extensions
thereof.
(b) In Furtherance of Subordination. No payments of principal of
or interest on this Debenture may be made while any event of default exists in
respect of any Senior
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<PAGE> 6
Indebtedness, and the Holder hereof agrees that any payments which would
otherwise be made pursuant hereto shall be applied to the Senior Indebtedness,
and any such payments received by the Holder hereof shall be held in trust for
the holders of the Senior Indebtedness until all such events of default have
been cured.
(c) Further Assurance. The Holder hereof agrees to take any
and all further action and to execute and deliver any further documents that any
holder or holders of Senior Indebtedness may reasonably request in order to
preserve and protect any right or interest granted or intended to be granted
hereby.
(d) Convertibility. Nothing herein shall be deemed to restrict
the right of conversion of this Debenture as elsewhere provided herein.
9. Default. The occurrence of any of the following conditions or
events shall constitute an "Event of Default" hereunder:
(a) The Company shall default in the payment of principal
hereof or of interest hereon as and when the same shall become due and payable,
which default shall continue for a period of ten (10) days or more following
written notice of such default to the Company by the Holder hereof; or
(b) The Company shall fail to perform or observe, in any
material respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under this Debenture and such failure shall continue
uncured for a period of thirty (30) calendar days following written notice by
the Holder to the Company of such failure; or
(c) The Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a voluntary petition in bankruptcy, or shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, or shall file any answer admitting or not contesting the
material allegations of a petition filed against the Company in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of the Company or of all or any substantial part
of the properties of the Company; or
(d) If, within sixty (60) days after the commencement of any
action against the Company seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, such action shall not have been dismissed or
all orders or proceedings thereunder affecting the operations or the business of
the Company stayed, or if the stay of any such order or proceeding shall
thereafter be set aside, or if, within 60 days after the appointment without the
consent or acquiescence of the Company of any trustee, receiver or liquidator of
the Company or of all or any substantial part of the properties of the Company,
such appointment shall not have been vacated.
- 6 -
<PAGE> 7
Upon the occurrence and during the continuance of any such Event of Default, the
registered holder of this Debenture may, by written notice to the Company,
declare this Debenture to be due and payable, whereupon this Debenture, and all
interest hereon accrued and unpaid to and including the date of such
declaration, shall forthwith mature and become due and payable without
presentment, demand, protest or other notice.
10. Ownership of Debenture. Until this Debenture is transferred on the
books of the Company, the Company may treat the person in whose name this
Debenture is issued as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary. A Debenture, if properly assigned,
may be converted by a new Holder without first having a new Debenture issued.
11. Notices, etc. Except as otherwise provided herein, all notices and
other communications from the Company to the Holder of this Debenture shall be
mailed by first class registered or certified mail, postage prepaid, at such
address as may have been furnished to the Company in writing by such Holder, or,
until an address is so furnished, to and at the address of the last Holder of
this Debenture who has so furnished an address to the Company.
12. Waivers. No forbearance, indulgence, delay or failure to exercise
any right or remedy with respect to this Debenture shall operate as a waiver,
nor as an acquiescence in any default, nor shall any single or partial exercise
of any right or remedy preclude any other or further exercise thereof or the
exercise of any other right or remedy.
13. Modification. This Debenture may not be modified or
discharged (other than by payment or conversion), except by a writing duly
executed by the Company and the Holder.
14. Waiver of Notice Upon Default. The Company hereby expressly waives
demand and presentment for payment, notice of nonpayment, notice of dishonor,
protest, notice of protest, bringing of suit, and diligence in taking any action
to collect amounts called for hereunder, and shall be directly and primarily
liable for the payment of all sums owing and to be owing hereon, regardless of
and without any notice, diligence, act or omission with respect to the
collection of any amount called for hereunder or in connection with any right at
any and all times which the Holder had or is existing hereunder.
15. Headings. The headings of the various sections of this
Debenture are for convenience of reference only and shall in no way modify any
of the terms or provisions hereof.
16. Date of Payments on Saturdays, Sundays and Holidays. In the event
the date for the payment of any amount payable hereunder falls due on a
Saturday, Sunday or public holiday under the laws of the State of New York, the
time for payment of such amount shall be extended to the next succeeding
business day and interest shall continue to accrue on any principal amount so
effected until the payment thereof on such extended due date.
- 7 -
<PAGE> 8
17. Governing Law. This Debenture shall be governed by and construed
under the laws of the State of New York of the United States of America
applicable to instruments made and to be performed entirely within such State.
The Holder (a) agrees that any legal suit, action or proceeding arising out of
or relating to this Debenture will be instituted exclusively in the state courts
of or the federal courts sitting in the State of New York, (b) waives any
objection which the Holder may have now or hereafter to the venue of any such
suit, action or proceeding relating to this Debenture, and (c) irrevocably
consents to the jurisdiction of such courts in any such suit, action or
proceeding relating to this Debenture. The Holder further agrees to accept and
acknowledge service of any and all process which may be served in any such suit,
action or proceeding and agrees that service of process upon the Holder, mailed
by certified mail to the Holder's address, will be deemed in every respect
effective service of process upon the Holder in any such suit, action or
proceeding. BOTH THE COMPANY AND THE HOLDER HEREOF HEREBY WAIVE TRIAL BY JURY IN
ANY ACTION TO ENFORCE THIS DEBENTURE.
IN WITNESS WHEREOF, the Company has caused this Debenture to be duly
executed by an officer thereunto duly authorized.
Dated ____________ , 1998
LITTLEFIELD, ADAMS & COMPANY
By________________________________
Name:
Title:
ATTEST:
_________________________
- 8 -
<PAGE> 9
EXHIBIT A
NOTICE OF CONVERSION
[To be Executed by the Registered Holder in order to Convert the Debenture]
To LITTLEFIELD, ADAMS & COMPANY:
The undersigned irrevocably elects to convert $_____* of the principal
amount of Debenture No. __ for conversion into shares of Common Stock, par value
$1.00 per share, of LITTLEFIELD, ADAMS & COMPANY (the "Company") in accordance
with the provisions of such Debenture and hereby requests that the certificates
for such shares be issued in the name of the undersigned Registered Holder, and
delivered to, ___, whose address is _________________________________.
Date of Conversion**_______________________________________________________
Signature__________________________________________________________________
(SIGNATURE MUST CONFORM IN ALL RESPECTS TO THE NAME OF HOLDER AS
SPECIFIED ON THE FACE OF THE DEBENTURE)
Address_____________________________________________________________________
_____________________________________________________________________
_________________
* Insert here the unpaid principal amount of the Debenture (or, in the
case of a partial conversion, the portion thereof as to which the
Debenture is being converted.
** This original Debenture and Notice of Conversion must be received by
the Company by the third business date following the date of
Conversion.
- 9 -
<PAGE> 1
EXHIBIT 10.5
AGREEMENT
THIS AGREEMENT (this "Agreement"), dated as of April 17, 1998,
is made and entered into by and between Littlefield, Adams & Company, a New
Jersey corporation ("Littlefield") and The Bank of Floyd, a bank organized under
the laws of Virginia ("Floyd").
WHEREAS, the parties have entered into certain Business Loan
Agreements (Loan Nos. 5312501 and 0105592300), dated as of January 31, 1997 and
February 1, 1997, respectively, in the original principal amounts of $468,483.83
and $142,634.32, respectively (the "Loan Agreements"), which provide, among
other things, that Littlefield shall not incur any other indebtedness than the
indebtedness arising under the Loan Agreements without the prior written consent
of Floyd; and
WHEREAS, Littlefield desires to issue a series of convertible
subordinated debentures to certain individuals and seeks to obtain the consent
of Floyd to such issuance in accordance with the terms of the Loan Agreements.
NOW THEREFORE, in consideration of the premises and
the mutual covenants herein contained and for other good and valuable
consideration the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
1. Floyd hereby consents to Littlefield's issuance of a series
of 7% convertible subordinated debentures, in substantially the form annexed
hereto as Exhibit A (the "Debentures"), for up to an aggregate of $1,200,000 in
principal amount, which debentures shall be subordinate to any and all
indebtedness of Littlefield to Floyd which now exists or which is hereafter
incurred, including without limitation the indebtedness represented by the Loan
Agreements (Loan Nos. 5312501 and 0105592300), dated as of January 31, 1997 and
February 1, 1997, respectively, in the original principal amounts of $468,483.83
and $142,634.32, and including all renewals, modifications and extensions
thereof.
2. Except as set forth herein, the Loan Agreements are hereby
in all respects ratified and confirmed by Littlefield and Floyd, and all of the
terms, provisions and covenants thereof shall be, and remain in full force and
effect.
3. This Agreement contains the entire understanding and
agreement of the parties with respect to the subject matter hereof and
supersedes all prior or contemporaneous agreements, arrangements or
understandings, either oral or written, made by and among such parties with
respect thereto.
<PAGE> 2
4. This Agreement may be executed in counterparts, each of
which shall be deemed an original, and which together shall constitute one and
the same agreement.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed and delivered as of the day and year first written
above.
LITTLEFIELD, ADAMS & COMPANY
By: /s/ WARREN L. RAWLS /s/
-------------------------------
Name: Warren L. Rawls
Title: Chief Financial Officer
THE BANK OF FLOYD
By: /s/ LAWRENCE M. RENFROE /s/
-------------------------------
Name: Lawrence M. Renfroe
Title: Executive Vice President
2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 66
<SECURITIES> 0
<RECEIVABLES> 329
<ALLOWANCES> 10
<INVENTORY> 444
<CURRENT-ASSETS> 1,213
<PP&E> 1,089
<DEPRECIATION> 702
<TOTAL-ASSETS> 1,609
<CURRENT-LIABILITIES> 1,540
<BONDS> 14
0
0
<COMMON> 2,798
<OTHER-SE> (2,787)
<TOTAL-LIABILITY-AND-EQUITY> 1,609
<SALES> 416
<TOTAL-REVENUES> 416
<CGS> 427
<TOTAL-COSTS> 427
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 17
<INCOME-PRETAX> (373)
<INCOME-TAX> 0
<INCOME-CONTINUING> (373)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (373)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
<FN>
<F1>Bad debt expense of 1 is included in the 345 reported as Selling and
Administrative expenses.
</FN>
</TABLE>
