SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________
FORM 10-KSB
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended March 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from __________ to __________
Commission file number 0-17805
NEW RETAIL CONCEPTS, INC.
(Name of small business issuer in its charter)
DELAWARE 13-3275369
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
2975 Westchester Avenue
Purchase, New York 10577
(Address of principal executive (Zip Code)
offices)
(914) 694-8888
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock - $.01 par value
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes x No ___
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $626,134.
As of June 3, 1996, the aggregate market value of the voting stock held by
non-affiliates was $986,531, based on the closing sale price on the over-the-
counter market of the National Association of Securities Dealers, Inc. on that
date, and 5,842,039 shares of issuer's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
Transitional Small Business Disclosure Format (check one): Yes No x
PART I
ITEM 1. BUSINESS
New Retail Concepts, Inc., a Delaware corporation organized in 1986 ("NRC"
or the "Company"), is engaged in managing its existing corporate assets and in
seeking other business opportunities for acquisition or merger.
The Company owns 1,227,696 shares of the common stock of Candie's, Inc., a
Delaware corporation whose shares are traded on the Nasdaq National Market
System ("Candie's"), and holds warrants to purchase 700,000 additional shares
of such common stock at an initial price of $1.2375 per share and an option to
purchase 100,000 additional shares of such common stock for $1.15 per share.
Information set forth in Item 12 regarding transactions with Candies during the
past three years is incorporated herein by reference.
The Company's other corporate assets include the trademark Crayons(R), a
note receivable from No Excuses Sportswear, Ltd. ("NES") and two license
agreements calling for the payment of royalties to the Company for the use of
the No Excuses(R) trademark.
Pursuant to a Settlement Agreement dated as of November 3, 1995 (the
"Settlement Agreement") between the Company and NES, the parties have settled
certain claims and rights under the Purchase and Sale Agreement and the Master
License Agreement each dated as of December 31, 1992 (the "Sale Agreements")
between the Company and NES. The Sale Agreements provided for the sale in 1993
of the No Excuses(R) trademark (the "Trademark") by the Company to NES and the
retention by the Company of certain license and royalty rights. Under the Sale
Agreements, the Company had (i) the right to receive in perpetuity 50% of the
income received by NES in connection with certain uses of the Trademark and
(ii) the obligation to pay NES 50% of the royalties received with respect to
sales outside the United States plus certain additional fees under the
Company's existing license agreements with, among others, WalMart Stores, Inc.
("WalMart") and Mamiye Sales, Inc. ("Mamiye").
Under the Settlement Agreement, (i) the Company sold to NES for $200,000
down plus $1,000,000 payable over five years without interest the Company's
right to share in future royalty income received by NES, (ii) the Company paid
NES $200,000 in settlement of all amounts due with respect to royalties
received for the 1994 calendar year under the Company's license agreements and
(iii) the rights under the Company's existing license agreements with respect
to periods after January 1, 1995 were revised to provide for (A) the payment by
the Company of 20% of royalties under the license agreement with WalMart with
respect to sales after July 31, 1997 if the license agreement then expiring is
renewed by WalMart and (B) the payment by the Company of 20% of royalties under
the license agreement with Mamiye for the period ending July 31, 1997 and the
assignment of such license agreement to NES on August 1, 1997. The Settlement
Agreement also provides the Company with an option to acquire a license to use
the Trademark with respect to footwear products if WalMart does not renew its
license agreement with the Company.
The Company has no full-time employees and only three part-time employees.
ITEM 2. PROPERTIES
None.
ITEM 3. LEGAL PROCEEDINGS
On April 26, 1994 a First Amended Complaint was filed in the United States
District Court for the Central District of California, Los Angeles Division, in
Los Angeles, California, by Eric Y. Knipe ("Knipe"), against Washington Square
Capital, Jack Hart, the Company and Neil Co1e, claiming activities in violation
of the Racketeer Influenced and Corrupt Organizations Act ("RICO"), breach of
contract, bad faith denial of contract, fraud, conversion and conspiracy. The
Company is named as a defendant only in the RICO, conversion, and conspiracy
causes of action, with respect to the Company's activities as a buyer of jeans
manufactured at Ready Industries of Puerto Rico, Inc., of which Knipe was a
stockholder. Knipe is seeking compensatory damages in excess of $3,000,000,
punitive damages, trebling of all damages, attorney's fees, and injunctive
relief. On January 16, 1996, the Court dismissed the action against all
defendants for failure to state a cause of action with respect to the RICO
claims and for failure of diversity jurisdiction with respect to all other
claims. The plaintiff has filed an appeal to the Court's dismissal and, on
February 16, 1996, initiated a similar action in the Superior Court of the
State of California on behalf of himself and his wholly owned corporation EYK
International. The Company and Mr. Cole have filed a demurrer addressing some
of the causes of action in the state court action, but no hearing date has been
set. The Company intends to defend these actions vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock, par value $.01 per share, of the Company, is traded on
the over-the-counter market in the "pink sheets" or the "Electronic Bulletin
Board" of the National Association of Securities Dealers, Inc. (the "NASD").
The following table sets forth the high and low closing bid prices for shares
of common stock for the periods indicated, based on information received from
the "Electronic Bulletin Board" of the NASD. These quotations reflect
interdealer prices, without retail mark-up, mark-down or commission and may not
represent actual transactions.
Closing Bid Price
High Low
Fiscal Year Ended March 31, 1995
First quarter $.188 $.125
Second quarter .813 .375
Third quarter .375 .125
Fourth quarter .313 .125
Fiscal Year Ended March 31, 1996
First quarter .625 .20
Second quarter .625 .1875
Third quarter .625 .375
Fourth quarter .40625 .28125
As of June 3, 1996, there were 574 holders of record of the Company's
common stock and the closing sale price per share was $.28.
The Company has never paid a cash dividend on its common stock. The
Company anticipates that its earnings for the foreseeable future will be
retained for use in its business.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Company is engaged in managing its existing corporate assets and in
seeking other business opportunities for acquisition or merger.
The following discussion should be read in conjunction with the Company's
Financial Statements and related notes thereto.
Results of Operations
Total revenues for the fiscal year ended March 31, 1996 were $626,134, as
compared to $1,038,937 for the 1995 fiscal year. This decrease is primarily
attributable to the termination of several of the Company's license agreements
and decreased shipments by the Company's footwear licensee.
Net income for the fiscal year ended March 31, 1996 was $1,161,021 or
$.18 per share, as compared to a net loss of $(174,744) or $(.02) per share for
the 1995 fiscal year. This change is due principally to the sale of future
licensing rights completed in November of 1995.
Selling, general and administrative expenses decreased from $921,526 for
the 1995 fiscal year to $640,351 for the 1996 fiscal year. This decrease was
attributable primarily to decreases in royalty expenses and professional fees.
Interest expense for the 1996 fiscal year was $24,974, as compared with
$46,474 for the 1995 fiscal year. This decrease is due to a reduction in the
notes payable.
Liquidity and Capital Resources
At March 31, 1996 the Company had working capital of $79,944 as compared
to a working capital deficit of $677,115 at March 31, 1995. This increase in
working capital arose primarily as a result of the sale of certain licensing
rights and the collection of $600,000 in notes receivable from Candie's.
The Company anticipates that its current cash and the cash flow from the
sale of its licensing rights and from licensing royalties will be sufficient to
meet operating expenses for the next twelve months.
Since the start of the 1996 fiscal year, the Company has acquired 982,000
shares of its common stock for $259,262 in private transactions and on the open
market. The Company anticipates that it may acquire additional shares of its
common stock as opportunities arise.
Impact of Inflation and Changing Prices. The Company does not believe
that inflation will have a material adverse effect on the Company.
ITEM 7. FINANCIAL STATEMENTS
NEW RETAIL CONCEPTS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
Independent Auditors' Report.......................... 6
Financial Statements:
Balance Sheet as of March 31, 1996.................. 7
Statements of Operations for the Fiscal Years Ended
March 31, 1996 and 1995........................... 9
Statements of Stockholders' Equity for the Fiscal
Years Ended March 31, 1996 and 1995............... 10
Statements of Cash Flows for the Fiscal Years Ended
March 31, 1996 and 1995........................... 11
Notes to the Financial Statements................... 13
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
New Retail Concepts, Inc.
We have audited the accompanying balance sheet of New Retail Concepts, Inc. as
of March 31, 1996 and the related statements of operations, stockholders'
equity and cash flows for each of the two years in the period ended March 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
CANDIE'S, Inc. for the year ended January 31, 1996, the investment in which is
reflected in the accompanying financial statements using the equity method of
accounting. These statements were audited by other auditors whose report
thereon has been furnished to us and our opinion expressed herein, insofar as
it relates to such amounts included for CANDIE'S, Inc., is based solely upon
the report of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of the other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of New Retail Concepts, Inc. as of March 31,
1996 and the results of its operations and its cash flows for each of the two
years in the period ended March 31, 1996, in conformity with generally accepted
accounting principles.
GRANT THORNTON LLP
New York, New York
May 16, 1996
<TABLE>
New Retail Concepts, Inc.
BALANCE SHEET
March 31, 1996
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 245,616
Accounts receivable 83,893
Prepaid income taxes 5,117
Loan receivable - officers 107,607
Note receivable - NES 155,280
Other current assets 52,070
Total current assets 649,583
FIXED ASSETS - AT COST
Furniture and equipment 101,657
Less accumulated depreciation (101,657)
-
Investment in CANDIE'S, Inc. 1,451,074
Notes receivable - NES 669,324
2,120,398
OTHER ASSETS 3,000
$ 2,772,981
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
New Retail Concepts, Inc.
BALANCE SHEET
March 31, 1996
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
CURRENT LIABILITIES
Note payable - current $ 400,000
Accounts payable - trade 85,000
Accrued expenses and other current liabilities 84,639
Total current liabilities 569,639
DEFERRED INCOME TAXES 100,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.01; authorized,
1,000,000 shares, no shares issued
Common stock - par value $.01, authorized,
25,000,000 shares; issued 6,603,498 shares 66,035
Additional paid-in capital 3,561,734
Accumulated deficit (1,169,918)
2,457,851
Less
Common stock in treasury at cost;
736,454 shares 354,509
2,103,342
$ 2,772,981
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
New Retail Concepts, Inc.
STATEMENTS OF OPERATIONS
Year ended March 31,
<CAPTION>
1996 1995
<S> <C> <C>
License and marketing fees $ 626,134 $1,038,937
Costs and expenses
Selling, general and administrative 640,351 921,526
Interest expense 24,974 46,474
665,325 968,000
Operating (loss) income (39,191) 70,937
Other income (expense)
Equity in gains (losses) of affiliate 86,405 (392,138)
Loss on disposal of investment in
No Excuses Sportswear, Ltd. - (150,000)
Sale of licensing rights 1,062,324 -
Other, net 54,565 (52,258)
1,203,294 (594,396)
Income (loss) before provision for
income taxes and extraordinary item 1,164,103 (523,459)
Provision for income taxes 3,082 9,609
Income (loss) before extraordinary item 1,161,021 (533,068)
Extraordinary item - equity in extraordinary
gain of affiliate - 403,034
NET INCOME (LOSS) $1,161,021 $ (130,034)
Net income (loss) per share of common stock
Loss before extraordinary item $.18 $(.08)
Extraordinary item - .06
Net income (loss) $.18 $(.02)
Weighted average number of shares outstanding 6,448,573 6,844,800
</TABLE>
The accompanying notes are an integral part of these statements.
<TABLE>
New Retail Concepts, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 31, 1996 and 1995
<CAPTION>
Additional
Common stock paid-in Accumulated Treasury stock
Shares Amount capital deficit Shares Amount Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1994 9,067,498 $ 90,675 $3,892,821 $(2,200,905) 2,164,754 $(433,704) $1,348,887
Purchase of treasury stock 78,700 (27,270) (27,270)
Cancellation of treasury stock (1,860,000) (18,600) (209,527) (1,860,000) 228,127
Net loss (130,034) (130,034)
Balance at March 31, 199 7,207,498 72,075 3,683,294 (2,330,939) 383,454 (232,847) 1,191,583
Purchase of treasury stock 957,000 (249,262) (249,262)
Cancellation of treasury stock (604,000) (6,040) (121,560) (604,000) 127,600
Net income 1,161,021 1,161,021
Balance at March 31, 1996 6,603,498 $ 66,035 $3,561,734 $(1,169,918) 736,454 $(354,509) $2,103,342
</TABLE>
The accompanying notes are an integral part of this statement.
<TABLE>
New Retail Concepts, Inc.
STATEMENTS OF CASH FLOWS
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $1,161,021 $(130,034)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities
Depreciation and amortization 313
Provision for bad debts 1,160
Sale of licensing rights (1,062,324)
Loss on disposal of investment 150,000
Equity in income of affiliate (86,405) (10,896)
Changes in operating assets and liabilities
(Increase) decrease
Accounts receivable 185,025 81,798
Other current assets (52,070) (9,729)
Other assets 14,747 72,546
Increase (decrease)
Accounts payable (34,819) 121,820
Accrued expenses and other current liabilities (186,023) (58,564)
Income taxes payable (5,117) (62,777)
Due to CANDIE'S, Inc. (142,525)
(1,226,986) 143,146
Net cash (used in) provided by operating
activities (65,965) 13,112
Cash flows from investing activities
Increase in loan receivable - officer (46,148) (54,770)
Proceeds from sale of investment in No Excuses
Sportswear, Inc. 550,000
Payments received on note receivable 37,720 217,556
Acquisition of CANDIE'S, Inc. stock (100,000)
Loan to CANDIE'S, Inc. 600,000 (600,000)
Net cash provided by investing activities 591,572 12,786
Cash flows from financing activities
Repayment of long-term debt, including current $ (4,241) $ (8,750)
maturities
Repayment of note payable (150,000) (50,000)
Purchase of treasury stock (249,262) (27,270)
Net cash used in financing activities (403,503) (86,020)
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 122,104 (60,122)
Cash and cash equivalents at beginning of year 123,512 183,634
Cash and cash equivalents at end of year $ 245,616 $ 123,512
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest $ 9,371 $ 59,569
Income taxes 4,102 72,386
The Company offset an amount due to NES of $200,000 with an amount due from NES
of $200,000 (reference is made to Note C).
</TABLE>
The accompanying notes are an integral part of these statements.
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 1996 and 1995
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
New Retail Concepts, Inc. ("NRC") (the "Company") is engaged in managing its
existing corporate assets and seeking other business opportunities for
acquisition or merger. License and marketing fees relate to two license
agreements calling for the payment of royalties to the Company for use of the
No Excuses trademark.
The Company has no full-time employees and three part-time employees who are
the Chairman of the Board and President, the Chief Financial Officer of the
Company, and a marketing director, respectively (Note F).
A summary of the significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
1. Fixed Assets
Furniture and equipment are recorded at cost. Depreciation for furniture
and equipment is provided by the straight-line method over the estimated
useful lives of the assets.
2. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements, as well as the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
3. Revenue Recognition
The Company recognizes revenue over the terms of its licensing agreements.
4. Earnings (Loss) Per Share
Earnings (loss) per share is based on the weighted average number of
shares outstanding during the period adjusted for the dilutive effect of
common stock equivalents when applicable.
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
6. Reclassifications
Certain reclassifications have been made to the 1996 presentation.
7. Fair Value of Financial Instruments and Concentrations
The carrying amounts of cash and cash equivalents, accounts receivable,
accounts payable - trade and accrued expenses and other current
liabilities approximate fair value, principally because of the short
maturity of these items.
The carrying amount of note receivable - NES approximates fair value as
this note was discounted to its net present value. Although NES has made
all scheduled payments on the note, it is reasonably possible that the
Company may incur a loss on the NES note in the future. The carrying
amount of notes payable approximates fair value due to the interest rate
on the borrowings.
Financial instruments that are exposed to concentration of risk primarily
consist of the note receivable - NES and the Company's investment in
CANDIES.
NOTE B - INVESTMENT IN CANDIE'S, INC.
At March 31, 1996, the Company owns 1,227,696 shares of restricted common
stock of CANDIE'S, Inc. ("CANDIE'S"), a publicly-traded corporation, carried
at $1,451,074, which is recorded on the equity method of accounting. As of
May 16, 1994, a $325,000 note receivable from CANDIE'S was converted into
240,740 shares of CANDIE'S common stock. Included in the carrying amount is
approximately $743,000 of goodwill (net of amortization) which is being
amortized over ten years. The quoted market value of 1,227,696 shares of
CANDIE'S unrestricted common stock was $2,762,316 at March 31, 1996.
In addition, the Company holds warrants to purchase 700,000 additional shares
of such common stock at an initial price of $1.2375 per share and options to
purchase 100,000 additional shares at $1.15 per share. In consideration of
the execution and delivery by the Company of an Exchange Agreement dated as
of October 6, 1994, CANDIE'S granted to the Company an option to purchase
100,000 shares of common stock of CANDIE'S at $1.15 per share. Such option
is exercisable at any time, in whole or in part, through October 6, 1999. In
addition, on November 21, 1994, CANDIE'S issued to the Company an 8%
convertible note in the principal amount of $100,000. On November 29, 1994,
in accordance with the terms of the convertible note, the principal amount of
the convertible note was automatically converted into 86,956 shares of common
stock of CANDIE'S. The shares underlying the option and issued pursuant to
the conversion of the convertible note are subject to registration rights.
In February 1995, in conjunction with a loan agreement, pursuant to which the
Company loaned CANDIE'S $600,000 and extended a $200,000 line of credit,
CANDIE'S issued to the Company warrants to purchase up to 700,000 shares of
its common stock, of which 500,000 vested immediately and 200,000 vested in
June 1995 when the loan was extended through September 30, 1995, exercisable
at an initial price of $1.2375 per share of common stock, which price equals
110% of the closing bid price of the common stock on the NASDAQ National
Market System on January 31, 1995. During fiscal 1996, the $600,000 loan was
repaid in full, together with approximately $33,500 in interest.
Additionally, the $200,000 line of credit expired.
On March 3, 1993, the Company's then wholly-owned subsidiary transferred
various trademarks, including CANDIE'S+, and its right, title and interest in
certain identified license agreements with respect to the trademarks to
CANDIE'S, Inc. In consideration for the transfer, CANDIE'S issued to El
Greco 900,000 shares of restricted common stock valued at $2,250,000 by the
Company based on a valuation prepared by an investment banker. The issuer of
the restricted common stock, CANDIE'S, Inc., valued the 900,000 shares at
$1,080,000 based on a valuation prepared by a different investment banker.
If the Company would have valued the restricted common stock using the amount
assigned to the shares by the issuer, the valuation would have been reduced
by $1,170,000 and the Company's net income for the years ended March 31, 1996
and 1995 would have been increased by $117,000 per year and the net assets
and stockholders' equity as of March 31, 1996 and 1995 would have been
reduced by $926,250 and $846,600, respectively. The Company and CANDIE'S
entered into a Services Allocation Agreement with CANDIE'S, pursuant to which
CANDIE'S provides NRC with financial, marketing, sales and other business
services for which NRC is charged an allocated portion of CANDIE'S expenses,
including employees' salaries associated with such services. The service
allocation was $55,968 and $57,295 in fiscal 1996 and 1995, respectively.
The Chairman of the Board and President of the Company is also the President,
Chief Executive Officer and a director of CANDIE'S. An agreement, as amended
on January 30, 1995, was entered into among the Company and CANDIE'S, and the
Chairman of the Board and President of the Company, pursuant to which
CANDIE'S will not, directly or indirectly, other than pursuant to the terms
of the Services Allocation Agreement, conduct any business or enter into any
transaction or series of related transactions, with or for the benefit of the
Company or any subsidiary of it, having a total value per transaction or
series of related transactions in excess of $50,000, other than in the
ordinary course of business, without the approval of either a majority of the
disinterested members of CANDIE'S Board of Directors or a majority of the
CANDIE'S stockholders who are not affiliates of CANDIE'S.
The following is a condensed balance sheet of CANDIE'S, Inc. and a condensed
statement of operations for the years ended January 31, 1996 and 1995:
<TABLE>
<CAPTION>
January 31,
1996 1995
<S> <C> <C>
Current assets $ 5,968,663 $ 4,104,264
CANDIE'S trademark 4,831,466 5,114,282
Other noncurrent asset s 945,684 1,071,468
$11,745,813 $10,290,014
Total liabilities $ 6,159,459 $ 5,898,117
Total stockholders' equity $ 5,586,354 $ 4,391,897
</TABLE>
<TABLE>
<CAPTION>
January 31,
1996 1995
<S> <C> <C>
Revenues $ 37,914,127 $ 24,192,133
Costs and expenses (36,860,171) (26,127,049)
Extraordinary item (gain on
extinguishment of debt) 1,962,175
Net income $ 1,053,956 $ 27,259
</TABLE>
NOTE C - NO EXCUSES TRADEMARK
On January 7, 1993, the Company sold its No Excuses trademark and certain
identified license agreements with respect to the trademark ("Assets") to No
Excuses Sportswear, Ltd. ("Buyer" or "NES"), resulting in a gain of
$2,452,535. The purchase price for the sale of the Assets was $2,500,000
payable as follows: $750,000 in cash, $1,050,000 ($1,002,535 net of imputed
interest) payable in monthly installments through July 1994; and $700,000
payable by the issuance of 10% of the common stock of Buyer. The Buyer had
the option, exercisable through January 21, 1993, to repurchase the shares
for an aggregate of $700,000 in cash. Furthermore, the Buyer agreed to pay
to the Company: (i) on July 5, 1994 an amount equal to $350,000 multiplied
by the prime rate in effect on July 1, 1994, and (ii) on January 5, 1995 an
amount equal to $350,000 multiplied by the prime rate in effect on January 3,
1995. Thereafter, the Company had the option to require the Buyer to redeem
50% of the Buyer's shares for the price of $350,000 together with a 20% bonus
(i.e., $70,000). Finally, the Company had the option, exercisable after
January 5, 1996, of requiring the Buyer to redeem any or all of the remaining
shares of the Buyer for the original allocated value or pro rata portion
thereof. In October 1994, the Company sold its investment in the Buyer for
$550,000 in cash and realized a loss on the disposal of its investment of
$150,000.
As additional consideration for the sale of the Assets, the Buyer had agreed
to pay the Company fifty percent of all "Net Shared Income" in perpetuity.
Net Shared Income means all income received by
Buyer or its affiliates in connection with "Covered Uses" of the trademark,
as defined. On November 3, 1995, the Company and NES settled certain
disputes relating to the aforementioned agreements via a settlement agreement
(the "Settlement Agreement"), resulting in a gain of $1,062,324. Under the
Settlement Agreement, (i) the Company sold to NES for $200,000 down plus
$1,000,000 payable over five years ($862,000, net of imputed interest) the
Company's right to share in future royalty income received by NES, (ii) the
Company paid NES $200,000 in settlement of all amounts due with respect to
royalties received for the 1994 calendar year under the Company's license
agreements and (iii) the rights under the Company's existing license
agreements with respect to periods after January 1, 1995 were revised to
provide for (A) the payment by the Company of 20% of royalties under the
license agreement with WalMart with respect to sales after July 31, 1997 if
the license agreement then expiring is renewed by WalMart and (B) the payment
by the Company of 20% of royalties under the license agreement with Mamiye
for the period ending July 31, 1997 and the assignment of such license
agreement to NES on August 1, 1997. The Settlement Agreement also provides
the Company with an option to acquire a license to use the Trademark with
respect to footwear products if WalMart does not renew its license agreement
with the Company.
NOTE D - NOTE PAYABLE
Note payable represents amounts due the estate of Charles Cole, the deceased
father of the Company's Chairman of the Board and President. At March 31,
1996, the outstanding balance on this note was $400,000 and is in default.
Principal payments of $150,000 were made during the year ended March 31, 1996
and an additional $100,000 was paid through May 16, 1996. All interest
payments due at March 31, 1996 have been recorded in the Company's financial
statements at year-end and are included in accrued expenses and other current
liabilities.
NOTE E - ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities at March 31, 1996 consist of
the following:
Professional fees $27,244
Other accrued expenses 57,395
$84,639
NOTE F - COMMITMENTS AND CONTINGENCIES
1. Litigation
On April 26, 1994, a First Amended Complaint was filed in the United
States District Court for the Central District of California, Los Angeles
Division, in Los Angeles, California, by Eric Y. Knipe ("Knipe"), against
Washington Square Capital, Jack Hart, New Retail Concepts, Inc., and Neil
Cole (the Company's President), claiming that the defendants engaged in
activities in violation of the Racketeer Influenced and Corrupt
Organizations Act ("RICO"), and related claims of breach of contract, bad
faith denial of contract, fraud, conversion and conspiracy. The Company
is named as a defendant only in the RICO, conversion, and conspiracy
causes of action, with respect to the Company's activities as a buyer of
jeans manufactured at Ready Industries of Puerto Rico, Inc., of which
Knipe was a stockholder. Knipe is seeking compensatory damages in excess
of $3,000,000, punitive damages, trebling of all damages, attorney's fees,
and injunctive relief. On January 16, 1996, the Court dismissed the
action against all defendants for failure to state a cause of action with
respect to the RICO claims and for failure of diversity jurisdiction with
respect to all other claims. The plaintiff has filed an appeal to the
Court's dismissal and, on February 16, 1996, initiated a similar action in
the Superior Court of the State of California on behalf of himself and his
wholly-owned corporation, EYK International. The Company has filed a
demurrer to the state court action, but no hearing date has been set. The
Company intends to contest the above-mentioned litigation matter
vigorously, and management is of the opinion that the outcome will not
have a material effect on the financial condition of the Company.
In October of 1994, a former employee, officer, director and shareholder
of the Company commenced an action in the United States District Court for
the Southern District of New York against the Company and CANDIE'S, Inc.,
alleging the existence and breach of employment agreements with the
Company and claiming damages for unpaid compensation, bonuses and
unreimbursed expenses. The plaintiff claimed damages in excess of
$500,000. On June 21, 1995, this suit was settled for (i) $226,000,
payable in 36 equal semimonthly installments over eighteen months, which
was allocated equally to the Company and CANDIE'S, Inc., and (ii) the
Company agreed to acquire 495,000 shares of the Company's common stock
held by the plaintiff for $105,000. The Company and CANDIE'S are jointly
and severally liable for the $226,000 settlement. Provision for the
Company's pro rata share of the settlement of $113,000 was recorded in the
March 31, 1995 financial statements. As of March 31, 1996, $113,000 is
jointly due and payable under the settlement, of which $56,500 (the
Company's pro rata share) is included in accrued expenses. If CANDIE'S is
sold or merged, substantially liquidated or disposed of or files for
bankruptcy, the entire amount due under the settlement agreement becomes
immediately due and payable. Further, if any of the above conditions
happen to the Company, one-half of the amount due becomes immediately due
and payable.
2. Employment Contracts
The Company and its President are party to an employment agreement
providing that the President of the Company may spend up to 49% of his
time in furtherance of his duties to the Company and provides for an
annual salary of $125,000. In addition, the agreement provides the
President with an annual incentive bonus, pursuant to which the Company
will pay him an amount equal to 5% of the annual pretax net income of the
Company, ($63,000 for fiscal 1996), up to $2,000,000 and up to 7-1/2% of
the annual pretax net income of the Company, if any, which is in excess of
$2,000,000. The Board of Directors additionally authorized a bonus of
$125,000 paid and to be paid to the President in monthly installments of
$10,417 throughout calendar 1996. Such amounts were accrued in the
accompanying financial statements as of March 31, 1996. In July 1995, the
Board of Directors granted the President a five-year option to acquire
400,000 shares of the Company's common stock at an exercise price of $.35
per share.
On November 15, 1994, the Company and its Chief Financial Officer entered
into a two-year employment agreement. The agreement states that the Chief
Financial Officer shall devote on less than a full-time basis, his
attention and ability to his duties as Chief Financial Officer. The
agreement provides for an annual salary of $30,000 for the first year of
the agreement and $40,000 for the second year of the agreement. In
addition, the agreement provides the Chief Financial Officer a bonus equal
to 1% of the Company's pretax earnings, and a five-year option to acquire
135,000 shares of the Company's common stock at an exercise price of $.10
per share. The option was granted pursuant to the Company's incentive
stock option plan.
3. Corporate Guaranty and Related Party Transactions
In July 1994, the Company loaned its Chairman of the Board and President
$150,000, which was used to replace cash collateral advanced by the
Chairman to a senior lender of CANDIE'S. The loan was repaid in February
1996 together with interest of $3,000. During fiscal years 1995 and 1996,
the Company extended various loans to its Chairman which amounted to
$94,000 at March 31, 1996 and a loan to its Chief Financial Officer which
amounted to $13,507 as of March 31, 1996. On September 15, 1994, the
Company executed a limited corporate guaranty of certain rent payments of
CANDIE'S in the amount of $150,000, which was reduced to zero at March 31,
1995.
NOTE G - INCOME TAXES
Significant components of the Company's deferred taxes at March 31, are as
follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets
Net operating loss carryforward $6,847,000 $7,065,000
Legal and litigation accruals - 90,000
Bonus accrual 84,000 68,000
Alternative minimum tax 39,000 84,000
Other 1,000 9,000
6,971,000 7,316,000
Deferred tax liabilities
Loss in equity of affiliate $ 390,000 $ 366,000
Installment income 313,000 -
6,268,000 6,950,000
Less valuation allowance 6,368,000 (7,050,000)
Net deferred tax liability $ (100,000) $ (100,000)
</TABLE>
SFAS No. 109 requires a valuation allowance against deferred tax assets, if
based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets may not be realized. The valuation
allowance at March 31, 1996 and March 31, 1995 primarily pertains to
uncertainties with respect to future utilization of net operating loss
carryforwards.
The provision (benefit) for income taxes is comprised of the following:
1996 1995
Current
Federal $ 952
State and local $3,082 8,657
$3,082 $9,609
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial statements:
<TABLE>
<CAPTION>
1996 1995
Percent Percent
of of
Amount income Amount income
<S> <C> <C> <C> <C>
Statutory Federal income tax
rate $ 395,795 34.0% $(40,945) (34.0)%
State and city taxes - net
of Federal tax benefit 3,082 0.3 (15,100) (12.5)
Losses not available for
carryback - - 62,752 52.0
Utilization of net operating
loss carryforwards $(395,795) (34.0)%
Underaccrual (overaccrual)
of prior years' taxes - - $ 2,902 2.4%
Actual provision for income
taxes $ 3,082 0.3% $ 9,609 7.9%
</TABLE>
The Tax Reform Act of 1986 enacted a complex set of rules limiting the
utilization of net operating loss carryforwards to offset future taxable
income following a corporate "ownership change." The Company's ability to
utilize its net operating loss carryforwards may be limited because of a
change in ownership in excess of 50 percentage points.
NOTE H - STOCK OPTION PLAN AND STOCKHOLDERS' EQUITY
In May 1986, the Company's Board of Directors adopted an Incentive Stock
Option Plan. Under the Plan, the Company has reserved 600,000 shares of
common stock for issuance to officers and key employees. Options will be
granted only to persons who agree to be employed by the Company for a period
of at least one year from the date of grant and are immediately exercisable.
The maximum term of any option is ten years and the option price per share
may not be less than 100% of the fair market value of the Company's common
stock at the date of grant. Options granted to persons owning more than 10%
of the voting common stock of the Company may not exceed five years and the
option price per share may not be less than 110% of the fair market value of
common stock at the date of grant.
The table below summarizes the activity of the Plan:
<TABLE>
<CAPTION>
Option Option
1996 price 1995 price
<S> <C> <C> <C> <C>
Outstanding at beginning
of year 135,000 $0.10 $ -
Granted - 135,000 0.10
Outstanding at end of
year 135,000 0.10 135,000 0.10
Exercisable at end of
year 135,000 0.10 135,000 0.10
</TABLE>
On January 13, 1995 and June 25, 1995, as compensation for services rendered
as directors of the Company, the Company granted to each of the three
directors of the Company five-year options to acquire 25,000 (or a total of
75,000 and 75,000, respectively) shares of common stock of the Company at an
exercise price of $.20 and $.22 per share, respectively. On May 18, 1995, as
compensation for services rendered as a consultant to the Company, five-year
options to acquire 100,000 shares of common stock of the Company at an
exercise price of $.15 per share were granted. See Note F-2 as to options
granted to the President and Chief Financial Officer of the Company. None of
the aforementioned options were granted pursuant to the Incentive Stock
Option Plan.
NOTE I - MAJOR CUSTOMERS
The Company derived a significant portion of its license and marketing fees
from three major customers. Net revenues attributable to each such customer
amounted to 60%, 24% and 16%, respectively, for the year ended March 31, 1996
and 55%, 16% and 11%, respectively, for the year ended March 31, 1995.
NOTE J - NEW ACCOUNTING STANDARDS NOT YET ADOPTED
In 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS No.
121"), which provides guidance on when to assess and how to measure
impairment of long-lived assets, certain intangibles and goodwill related to
those assets to be held and used, and for long-lived assets and certain
identifiable intangibles to be disposed of. The Financial Accounting
Standards Board also issued Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"), which gives
companies a choice of the method of accounting used to determine stock-based
compensation. Companies may account for such compensation either by using
the intrinsic value-based method provided in APB Opinion 25, "Accounting for
Stock Issued to Employees" ("APB No. 25") or the fair market value-based
method provided in SFAS No. 123. These accounting standards are effective
for financial statements for fiscal years beginning after December 15, 1995.
The Company believes that the impact of adopting SFAS No. 121 will not have a
material effect on the Company. The Company intends to use the intrinsic
value-based method provided in APB No. 25 to determine stock-based
compensation. The sole effect of the adoption of SFAS No. 123 will be the
obligation to comply with the new disclosure requirements provided
thereunder.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Information regarding the directors and executive officers of the Company
is set forth below. Each director is serving until his successor is duly
elected and qualified or until his earlier resignation or removal.
Name Age Position
Neil Cole 39 Chairman of the Board of Directors, President, Chief
Executive Officer, Chief Operating Officer and
Treasurer
Gary Klein 41 Principal Financial Officer
Barry Emanuel 54 Director
Steven Mendelow 53 Director
Neil Cole has been Chairman of the Board, President, Chief Executive
Officer, Chief Operating Officer and Treasurer since the inception of the
Company in 1986. Mr. Cole also serves as President, Chief Executive Officer
and a director of Candie's, a publicly traded company, and served as President
of El Greco from June 1991 until its merger with and into the Company in 1993.
Mr. Cole received his B.A. degree from the University of Florida and a J.D.
degree from the Hofstra University School of Law.
Gary Klein was Chief Financial Officer of the Company from May 1989 to May
1990 and was reappointed Chief Financial Officer in November 1994. Mr. Klein
was Vice President of Finance for the Company from May 1990 through November
1994. Mr. Klein is also the Vice President of Finance of Candie's and has
served as Vice President of Finance or Chief Financial Officer of Candie's
since 1992. Mr. Klein received his B.B.A. degree from George Washington
University and he is a certified public accountant.
Barry Emanuel has been a Director of the Company since April 1, 1992. Mr.
Emanuel also serves as a director of Candie's, a publicly traded company. For
more than the past five years, Mr. Emanuel has served as President of Copen
Associates, a textile manufacturer located in New York, New York. Mr. Emanuel
received his B.A. degree from the University of Rhode Island.
Steven Mendelow has been a Director of the Company since April 1, 1992.
For more than the past five years, Mr. Mendelow has been a principal with the
accounting firm of Konigsberg Wolf & Co. located in New York, New York. In
1994, Mr. Mendelow reached a settlement with the Securities and Exchange
Commission pursuant to which he, without admitting or denying the allegations,
agreed to be enjoined from violating Section 7 of the Investment Company Act of
1940 and Section 5 of the Securities Act of 1933 and to pay a fine of $50,000.
Mr. Mendelow received his B.S. degree from Bucknell University.
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth information regarding the aggregate
compensation paid by the Company for the three fiscal years ended March 31,
1996 to the Company's Chief Executive Officer, the Company's only executive
officer whose total compensation exceeded $100,000 during the last fiscal year:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Fiscal Annual Compensation (1) Stock Option
Principal Position Year Salary Bonus Other(2) Grants (3)
<S> <C> <C> <C> <C> <C>
Neil Cole 1996 $150,000 $184,129 $ - 425,000 shares
Chief Executive 1995 125,502 125,000 - 25,000 shares
Officer 1994 133,173 125,000 7,450 -
_______________
(1) The aggregate amounts of all perquisites and other personal benefits,
securities and property not included in the summary compensation table or
described below do not exceed the lesser of $50,000 or 10% of the annual
compensation.
(2) Other annual compensation consisted of 10,000 shares of common stock paid
to each of the three directors, including Mr. Cole, during the 1994 fiscal
year.
(3) During the 1996 fiscal year, Mr. Cole was granted an option to purchase
400,000 shares of common stock as an inducement to enter into a two-year
extension to his employment agreement with the Company. During the 1995 and
1996 fiscal years, each of the three directors, including Mr. Cole, was
granted an option to purchase 25,000 shares of common stock.
</TABLE>
The following table sets forth certain information relating to stock
option grants to the executive officer named above during the fiscal year ended
March 31, 1996:
<TABLE>
STOCK OPTION GRANTS DURING THE FISCAL YEAR ENDED MARCH 31, 1996
<CAPTION>
Number of Percent of
Shares Total Option
Underlying Shares Exercise
Options Granted to Price per Expiration
Name Granted Employees Share Date
<S> <C> <C> <C> <C>
Neil Cole 25,000 6% $.22 6/20/00
400,000 94% .35 7/7/00
</TABLE>
The following table sets forth information as to the unexercised options
held by the executive officer named above as of March 31, 1996:
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
Number of Value of
Shares Unexercised
Shares Underlying In-the-
Acquired on Value Unexercised Money
Name Exercise Received Options Options(1)
Neil Cole - - 450,000 $6,500
_____________
(1) Based on $.34 per share, an average of the closing bid and asked prices on
March 31, 1996 reported by the OTC Bulletin Board of The Nasdaq Stock Market,
Inc.
Employment Agreement
The Company is a party to an employment agreement with Neil Cole that
expires on December 31, 1996. Pursuant to the agreement, Mr. Cole is to devote
up to 49% of his time in furtherance of his duties to the Company and is to
receive (i) an annual salary of $125,000, (ii) an amount equal to 5% of annual
net pre-tax profits, if any, of the Company up to $2,000,000 and 7.5% of the
annual net pre-tax profits, if any, of the Company in excess of $2,000,000 and
(iii) an annual bonus in such amount, if any, as may be authorized by the Board
of Directors of the Company.
Compensation of Directors
Directors receive no cash compensation in their capacity as directors.
During the 1996 fiscal year, each of the three directors, including Mr. Cole,
was granted an option to purchase 25,000 shares of common stock for $.22 per
share.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on a review of the reports and representations furnished to
the Company during the last fiscal year, the Company believes that each of the
persons required to file reports under Section 16(a) of the Exchange Act is in
compliance with all applicable filing requirements.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information, as of June 3, 1996,
except as noted, regarding the beneficial ownership of the common stock by (i)
each person or group known to the Company to be the beneficial owner of more
than 5% of the outstanding common stock, (ii) each director of the Company,
(iii) each executive officer of the Company and (iv) all directors and
executive officers of the Company as a group. Except as otherwise specified,
the named beneficial owner has sole voting and investment power over the shares
listed.
Amount and Nature
Name and of Beneficial Percent of
Address of Beneficial Owner (1) Ownership (2) Class (3)
Neil Cole......................... 2,315,714 (4) 36.8%
Steven Mendelow................... 313,000 (5) 5.3%
Barry Emanuel..................... 175,000 3.0%
Gary Klein........................ 200,000 3.3%
All directors and executive officers
as a group....................... 3,003,714 (4)(5) 46.0%
_______________________________
(1) The address of each beneficial owner is c/o the Company, 2975 Westchester
Avenue, Purchase, New York 10577.
(2) The number of shares set forth includes the following number of shares
with respect to which each individual has the right, exercisable within 60
days, to acquire beneficial ownership upon exercise of options granted by the
Company:
Number of Shares
Mr. Cole................................ 450,000
Mr. Mendelow............................ 50,000
Mr. Emanuel............................. 50,000
Mr. Klein............................... 135,000
All directors and executive
officers as a group.................... 685,000
(3) Based on 5,842,039 shares of common stock outstanding on June 3, 1996.
(4) Includes 156,000 shares owned by The Sweet Foundation, Inc., a charitable
foundation controlled by Mr. Cole.
(5) Includes 63,000 shares owned by Westlake Foundation, a charitable
foundation, with respect to which shares Mr. Mendelow shares voting and
dispositive power, and 150,000 shares owned by C&P Associates, a limited
partnership controlled by Mr. Mendelow.
ITEM 12. CERTAIN RELATIONS AND RELATED TRANSACTIONS.
Neil Cole, the President, Chief Executive Officer and Chairman of the
Board, a director and the beneficial owner of 2,315,714 shares of the common
stock of the Company, is also the President, Chief Executive Officer, a
director and the beneficial owner of 30.3% of the common stock of Candie's.
The Company and Candie's have in effect a Services Allocation Agreement
pursuant to which Candie's provides the Company with certain business services
and the Company pays Candie's an allocable portion of the expenses, including
employees' salaries, associated with such services. Pursuant to such
agreement, the Company paid Candie's approximately $56,000 and $74,000,
respectively, for the two fiscal years ended March 31, 1996 and 1995. The
Company and Candie's also have in effect an Amended and Restated Affiliated
Transactions Agreement pursuant to which they have agreed that they will not
enter into certain transactions without the approval of either a majority of
the disinterested members of the Board of Directors of Candie's or a majority
of the stockholders of Candie's who are not affiliates of the Company.
During the 1995 and 1996 fiscal years, the Company extended various loans
to Mr. Cole. The principal amount of all outstanding loans at March 31, 1996
was $94,100.
The Company is in default on a promissory note payable to the estate of
Charles Cole, the deceased father of Neil Cole. As of May 31, 1996, the
outstanding principal amount of such note was $300,000.
On February 1, 1995, the Company entered into a Securities Purchase
Agreement with Candie's pursuant to which the Company loaned Candie's an
aggregate of $600,000, extended Candie's a $200,000 line of credit and received
in partial consideration therefor a warrant to purchase 700,000 shares of the
common stock of Candie's for $1.2375 per share. During the 1996 fiscal year,
the $600,000 loan was repaid in full, together with approximately $33,500 in
interest, and the $200,000 line of credit expired in accordance with its terms.
On October 6, 1994, in connection with a private placement offering of
common stock by Candie's, the Company entered into an Exchange Agreement
pursuant to which the Company acquired for $100,000 (i) 86,956 shares of the
common stock of Candie's and (ii) an option to purchase 100,000 additional
shares of the common stock of Candie's for $1.15 per share.
On September 15, 1994, the Company executed a limited corporate guaranty
of certain rent payments of Candie's in the amount of $150,000. Such
guaranteed amount was reduced each month to the extent that Candie's made rent
payments and was zero at March 31, 1996.
In July of 1994, the Company loaned to Mr. Cole $150,000 which was used to
replace cash collateral advanced by Mr. Cole in favor of a senior lender to
Candie's. The loan was repaid in February of 1995, together with interest of
$3,000.
Effective as of May 16, 1994, the Company accepted 240,740 shares of the
common stock of Candie's in full payment of a subordinated note of Candie's in
the principal amount of $325,000.
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Exhibits:
The exhibits listed in the accompanying Exhibit Index are filed as
part of this report.
(b) Reports on Form 8-K:
During the three months ended March 31, 1995, no reports on Form 8-K
were filed by the Company.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
NEW RETAIL CONCEPTS, INC.
by /s/ Neil Cole
Neil Cole, President
Dated: June 25, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report had been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dated indicated.
/s/ Neil Cole Chairman of the Board of June 25, 1996
Neil Cole Directors, President and
Treasurer (Principal Executive
and Accounting Officer)
/s/ Gary Klein Principal Financial Officer June 25, 1996
Gary Klein
/s/ Steve Mendelow Director June 25, 1996
Steve Mendelow
/s/ Barry Emanuel Director June 25, 1996
Barry Emanuel
INDEX TO EXHIBITS
Exhibit
Number Description
3.1 Certificate of Incorporation of the Company (1)
3.2 Certificate of Amendment to the Certificate of Incorporation of the
Company (2)
3.3 By-Laws of the Company (1)
10.1 1986 Incentive Stock Option Plan of the Company (1)
10.2 Employment Agreement dated as of January 1, 1989 between the
Company and Neil Cole, as amended (3)
10.3 Amendment to Employment Agreement, as amended, dated as of June 18,
1991 between the Company and Neil Cole (4)
10.4 Amendment No. 2 to Employment Agreement, as amended, dated as of
March 3, 1993 between the Company and Neil Cole (4)
10.5 Services Allocation Agreement dated as of March 3, 1993 between the
Company and Candie's, Inc. (4)
10.6 Agreement dated as of April 1, 1992, between the Company and Wal-
Mart Stores, Inc. (5)
10.7 Registration Rights Agreement between the Company and Candie's,
Inc., dated as of May 16, 1994 (6)
10.8 Amended and Restated Affiliate Transactions Agreement between the
Company and Candie's, Inc. dated January 30, 1995 (7)
10.9 Securities Purchase Agreement between the Company and Candie's,
Inc. dated February 1, 1995 (7)
10.10 Amendment No. 3 to Employment Agreement between the Company and
Neil Cole dated June 28, 1995 (6)
10.11 Employment Agreement between the Company and Gary Klein dated
November 15, 1994 (6)
10.12 Limited Corporate Guaranty of the Company in favor of Principal
Mutual Life Insurance Company dated July 27, 1994 (6)
10.13 Option Certificate issued by Candie's, Inc. in favor of the Company
dated as of October 6, 1994 (6)
10.14 8% Convertible Note issued by Candie's, Inc. in favor of the
Company dated November 21, 1994 (6)
10.15 Settlement Agreement dated as of November 3, 1995 between the
Company and No Excuses Sportswear, Ltd.
11. Computation of Earnings (Loss) Per Share.
27. Financial Data Schedule.
_________________
(1) Incorporated by reference to the Company's Registration Statement on Form
S-18 (File No. 33-7373-NY) filed with the Securities and Exchange Commission
on September 18, 1986
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1990
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1989
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1993
(5) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1992
(6) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended March 31, 1995
(7) Incorporated by reference to the Company's Current Report of the Company
on Form 8-K dated January 30, 1995
Exhibit 10.15
SETTLEMENT AGREEMENT
AGREEMENT dated as of November 3, 1995 between New Retail
Concepts, Inc. ("NRC"), a Delaware corporation with offices at 2975
Westchester Avenue, Purchase, New York 10577, and No Excuses
Sportswear, Ltd. ("NES"), a New York corporation with offices at
1411 Broadway, New York, New York 10018.
W I T N E S S E T H:
WHEREAS, NRC and NES are parties to a certain Purchase
and Sale Agreement dated as of December 31, 1992 (the "Purchase
Agreement"), pursuant to which, among other things, NES purchased
from NRC the "No Excuses" trademark (the "Trademark").
WHEREAS, in connection with the Purchase Agreement and
simultaneously therewith, the parties entered into a license
agreement (the "Master License"), pursuant to which NES licensed to
NRC the right to utilize the Trademark to sublicense the then
existing licensees of NRC under license agreements relating to the
Trademark (such licensees being herein referred to as the
"Sublicensees" and such license agreements being herein referred to
as the "Sublicenses").
WHEREAS, the parties have made certain demands and claims
against each other relating to their respective rights and
obligations under the Purchase Agreement and the Master License and
desire to settle all disputes and claims existing between them in
consideration of the payments and mutual agreements provided for
herein.
NOW, THEREFORE, the parties agree as follows:
1. Purchase Agreement; Additional Consideration.
1.1 In satisfaction of all claims by NRC for payment by
NES of Additional Consideration (as provided for and defined under
paragraph 3 of the Purchase Agreement), NES hereby purchases from
NRC, and NRC hereby sells to NES, subject to the terms and
conditions hereof, all right, title and interest of NRC in and to
such Additional Consideration.
1.2 The total purchase price payable by NES to NRC for
its right to the Additional Consideration is One Million Two
Hundred Thousand ($1,200,000.00) Dollars (the "Purchase Price"),
which shall be payable as follows:
(a) The sum of Two Hundred Thousand ($200,000.00)
Dollars has been paid simultaneously herewith, receipt of which is
hereby acknowledged by NRC, subject to collection of any checks.
(b) The balance of One Million ($1,000,000.00)
Dollars ("Balance of the Purchase Price") shall be payable, without
interest, in twenty (20) consecutive quarterly installments of
Fifty Thousand ($50,000.00) Dollars each, commencing on March 1,
1996 and continuing on the first day of each June, September,
December and March thereafter up to and including December 1, 2000
(each of the three month periods commencing on the dates referred
to are the "Quarterly Periods").
Notwithstanding the foregoing, if during any Quarterly
Period fifty (50%) percent of the Net Shared Income (as that term
is defined by paragraph 3(a)(i) of the Purchase Agreement) received
by NES during such Quarterly Period exceeds Fifty Thousand
($50,000.00) Dollars, NES will pay the amount of any such excess to
NRC as a partial prepayment of the Balance of the Purchase Price,
any such prepayment to be applied to the Balance of the Purchase
Price in inverse order of the maturity of the installments due
thereon. Any such prepayment will be made within thirty (30) days
after the Quarterly Period for which it is applicable.
1.3 The Purchase Price payable by NES for the Additional
Consideration under this Article 1 shall constitute satisfaction in
full of all obligations whatsoever of NES for payment to NRC of any
Additional Consideration provided by the Purchase Agreement. In
addition, the parties agree that in consideration of the payment of
the Purchase Price and the other mutual covenants contained herein,
all rights and obligations of the parties under the Purchase
Agreement are hereby terminated, except that the parties shall
remain liable for the Excluded Obligations hereinafter defined.
1.4 NRC represents and warrants to NES that its interest
in the Additional Consideration has been sold to NES hereunder free
and clear of all liens, encumbrances and claims whatsoever.
2. Fees Due Under Master License.
In satisfaction of all claims by NES for payment by NRC
of fees due under paragraph 6.1(a) of the Master License for all
periods through and including December 31, 1994, NRC has
simultaneously herewith paid to NES the sum of Two Hundred Thousand
($200,000.00) Dollars, receipt of which is acknowledged by NES
subject to collection of any checks. NES further agrees that NRC
will have no liability for fees due under paragraph 6.1(a) of the
Master License for periods from and after January 1, 1995, except
as otherwise provided by Section 3.1 hereof.
3. Additional Provisions Relating to Master License.
3.1 Paragraph 6.1(a) of the Master License is hereby
amended with respect to fees payable by NRC to NES from and after
January 1, i995 in connection with the Sublicenses between NRC and
the following Sublicensees: Wal-Mart Stores Inc. ("Walmart") Mamiye
Sales Inc. ("Mamiye") and Inner Secrets, Inc. ("ISI"):
(a) With respect to the Walmart Sublicense, it is
agreed that no fees will be payable to NES for payments applicable
to any period during the initial term of such Sublicense, which
expires on July 31, 1997. If the Walmart Sublicense is renewed for
any period thereafter, all payments made by Walmart for any period
or term of the renewal will be shared eighty (80%) percent by NRC
and twenty (20%) percent by NES. All payments due to NES under
this paragraph shall be accounted for and paid in accordance with
paragraph 7 of the Master License.
(b) With respect to the Mamiye Sublicense, all
payments made by Mamiye thereunder for the period from January 1,
1995 through July 31, 1997 will be shared eighty (80%) percent by
NRC and twenty (20%) percent by NES. Effective August 1, 1997, NRC
will assign to NES all of its right, title and interest in and to
the Mamiye Sublicense and all amounts payable by Mamiye thereunder
for any periods from and after August 1, 1997 will be the sole
property of NES. NRC will simultaneously herewith render to NES an
accounting as to any amounts due to it under the Mamiye Sublicense
for the period January 1, 1995 through June 30, 1995. However,
payment of any amounts due NES under the Mamiye Sublicense for the
year 1995 will be applied to the payment of the installment of the
Purchase Price payable to NRC on March 1, 1996. All payments due
to NES for subsequent periods will be first applied to reduce the
Purchase Price, as installments thereof become due, and any balance
shall be payable to NES. Whether or not any payments are made
directly to NES, NRC will continue to render accountings to NES in
accordance with paragraph 7 of the Master License.
(c) With respect to the ISI Sublicense, no fees
will be payable to NES for payments applicable to any periods
through July 31, 1997. Effective August 1, 1997, NRC will assign
to NES all of its right, title and interest in and to the ISI
Sublicense and all amounts payable by ISI thereunder for any
periods from and after August 1, 1997 will be the sole property of
NES.
3.2 Except as expressly provided by Sections 2 and 3 of
this agreement, nothing herein contained is intended to modify or
diminish the rights and obligations of the parties under the Master
License.
4. Representations and Agreements Concerning
Sublicenses.
4.1 To induce NES to agree to the provisions of Sections
2 and 3 of this agreement, NRC represents and warrants to NES that
(a) the Sublicenses with Walmart, Mamiye and ISI are the only
Sublicenses remaining in effect under the Master License, and (b)
NRC will, upon request, furnish NES with true and complete copies
of all Sublicenses and all amendments and modifications thereof.
4.2 NRC further agrees that it will not modify or amend
any existing Sublicense in any respect except as otherwise provided
by this Section 4.2. NRC shall not extend the term of any
Sublicense except for renewals which are specifically provided for
by the Sublicense. There shall be no amendment of a Sublicense
which results in the receipt by NRC of any direct or indirect
consideration in a form other than license royalties.
(a) NRC will have the right to modify or amend the
provisions of a Sublicense which do not affect the monetary terms
thereof without the consent of NES, but only if any such
modification or amendment is implemented for bona fide business
purposes, does not have any adverse effect on NES or on NES's
rights and interest with respect to the Trademark and does not
extend the term of the Sublicense. NRC will give NES prompt
written notice of any modification or amendment of a Sublicense
entered into in accordance with this paragraph, together with a
copy thereof.
(b) NRC will not modify or amend any of the
monetary terms of the Mamiye Sublicense in any respect without the
prior written consent of NES. Except as provided below, NRC shall
not modify or amend the monetary provisions of the ISI or Walmart
Sublicense without the prior written consent of NES and, in any
event, no such modification or amendment will be permitted unless
(i) it is made in good faith, (ii) it affects royalty payments only
during the term (including extensions) for which NRC is acting as
sublicensor of the Sublicensee under the Master License, and (iii)
it does not directly or indirectly provide for or create any result
which would deprive NES of its rightful share of revenues or
royalties from the Sublicensee or otherwise have an adverse
economic effect on NES. Notwithstanding the foregoing, NRC may
modify the monetary provisions of the ISI Sublease for the term
thereof expiring July 31, 1997 and may modify the monetary
provisions of the Walmart Sublicense for the existing term and any
renewal term thereof, in either case without the prior written
consent of NES, provided that in no event will the amounts payable
to NES thereunder for periods from and after August 1, 1997 be less
than the greater of (x) the amount payable to NES with respect
thereto in accordance with the terms of the Master License as the
Walmart Sublicense may be modified pursuant to this paragraph, or
(y) the sum of Forty Thousand ($40,000.00) Dollars per year. NRC
will give NES prompt written notice of any modification or
amendment of a Sublicense entered into in accordance with this
paragraph, together with a copy thereof.
5. Footwear License.
Provided that NRC is not then in default under any of the
terms and conditions of this agreement or the Master License, after
expiration of any applicable notice and grace periods, upon
expiration or termination of the Walmart Sublicense, NES will enter
into a license agreement with NRC, if NRC so elects and so desires
by notifying NES in writing on or before April 30, 1997 to utilize
the Trademark, for the manufacture and sale of men's, women's and
children's footwear products, upon the terms and conditions set
forth in Exhibit A annexed hereto (the "Footwear License"). The
Footwear License will provide for an initial term of three years,
with one three-year renewal option in favor of NRC if Walmart
renews the Walmart Sublicense beyond the present term expiring July
31, 1997, and two three-year renewal options in favor of NRC if
Walmart does not renew the Walmart Sublicense beyond the present
term existing July 31, 1997, all upon the terms and conditions set
forth in Exhibit A.
6. Release Provisions.
6.1 In consideration of the monies payable hereunder and
the other mutual promises herein contained:
(a) NES does hereby remise, release and forever
discharge, and by these presents does, for itself and its
successors and assigns, release and forever discharge each of NRC
and its subsidiaries and affiliates and their respective agents,
directors, shareholders, officers and employees, personally and as
agents, officers, directors, shareholders and employees, and all of
the respective heirs, executors, administrators, successors and
assigns of all of the foregoing (collectively, "NRC Releasees") of
and from any and all manner of action and actions, claims and
causes of actions, sums of money, covenants, contracts,
controversies, agreements, promises, damages, claims and demands
whatsoever, in law or in equity, which NES ever had, may have had,
now has or which it or its successors or assigns hereinafter can,
shall or may have, against any of the NRC Releasees at any time to
and including the date of the execution of this agreement, whether
known or unknown, asserted or unasserted, suspected or unsuspected;
provided, however, that the release set forth in this paragraph (i)
shall not apply to any claims or causes of action arising out of a
default with respect to any obligation of NRC provided by or
pursuant to this agreement or any agreement or instrument executed
in connection herewith, and (ii) excludes any release of the
Excluded Obligations defined in Section 6.2.
(b) NRC does hereby remise, release and forever
discharge, and by these presents does, for itself and its
successors and assigns, remise, release and forever discharge NES
and its subsidiaries and affiliates and their respective agents,
directors, shareholders, officers and employees, personally and as
agents, officer, directors, shareholders and employees, and all the
respective heirs, executors, administrators, successors and assigns
of each of the foregoing (collectively, "NES Releasees"), of and
from all and all manner of action and actions, claims and causes of
actions, sums of money, covenants, contracts, controversies,
agreements, promises, damages, claims and demands whatsoever, in
law or in equity, which NRC ever had, may have had, now has or
which it or its successors or assigns hereinafter can, shall or may
have against any of the NES Releasees at any time to and including
the date of the execution of this agreement, whether known or
unknown, asserted or unasserted, suspected or unsuspected;
provided, however, that the release set forth in this paragraph (i)
shall not apply to any claims or causes of action arising out of a
default with respect to any obligation provided by or pursuant to
this agreement or any agreement or instrument executed in
connection herewith, and (ii) excludes any release of the Excluded
Obligations defined in Section 6.2.
6.2 Notwithstanding the provisions of Section 6.1, the
parties acknowledge and agree that the releases provided for
therein shall not be applicable to any of the following (the
"Excluded Obligations"), arising out of any acts or state of facts
occurring prior to the date of this agreement:
(a) Any obligations of NRC arising out of any
claims by third parties against NES for which NES is entitled to
indemnification under the Purchase Agreement or relating to any
acts or omissions by NRC in connection with any activities
conducted by it under the Master License.
(b) Any obligations of NES arising out of claims by
third parties against NRC for which NRC is entitled to
indemnification under the Purchase Agreement.
(c) Any obligations of the parties arising out of
the Master License other than those payment obligations and other
obligations which are provided for in Sections 2 and 3 hereof.
7. Default Provisions.
7.1 If NES fails to pay any installment of the Purchase
Price when same becomes due and payable and if any such default
continues for a period of twenty (20) days or more after written
notice of such default from NRC, the then remaining Balance of the
Purchase Price shall, at the option of NRC, thereupon become due
and payable. Upon such acceleration of the maturity of payment,
the Balance of the Purchase Price shall bear interest from the date
of default at a rate equal to the lesser of five (5%) percent per
annum in excess of the prime rate of The Republic National Bank of
New York in effect from time to time (the "Prime Rate") or the
highest rate of interest permitted by applicable law. NES agrees
that upon any such default in payment and acceleration, NRC will
have a right of offset as to any monies owed to NES under this
agreement or the Master License or the Footwear License.
7.2 To secure the obligations of NES to pay the Balance of
the Purchase Price to NRC in accordance with the terms of this
agreement, NES hereby grants to NRC a security interest in NES'
right, title and interest in and to the Trademark, such security
interest being granted expressly subject to the terms and
conditions of this Section 7.2 (the "Subordinated Security
Interest"). NES will promptly after request, execute and deliver
to NRC UCC-1 financing statements, and any other documents
reasonably required, to enable NRC to perfect the Subordinated
Security Interest in such UCC filing offices as NRC reasonably
requests. If payment of the Balance of the Purchase Price has been
duly accelerated by NRC pursuant to Section 7.1, NES will assign to
NRC the net proceeds payable to NES pursuant to any Sublicenses
which NRC theretofore assigned to NES in accordance with Section
3.1 hereof, such assignment to remain in effect until all
obligations of NES to NRC have been satisfied.
(a) The Subordinated Security Interest is and shall
be subordinate in lien to any lien or security interest presently
held or hereafter granted to any present or future institutional or
other bona fide third-party lender of NES.
(b) Notwithstanding the granting of the
Subordinated Security Interest, NES shall have the right, without
limitation, to enter into any and all agreements with respect to
the licensing or sublicensing of the Trademark, and any and all
amendments and modifications thereto, as it deems advisable in its
sole and absolute discretion without any consent of or notice to
NRC, and the Subordinated Security Interest shall be subordinate to
such licensing or sublicensing agreements which shall remain in
effect in accordance with their terms if NRC forecloses against or
levies upon the Subordinated Security Interest in accordance with
this agreement.
(c) NES will at all times have the right to sell or
assign its interest in the Trademark, in whole or part, on such
terms and conditions as it deems advisable subject to the
Subordinated Security Interest held by NRC, and subject to any
other rights with respect to the Trademark granted by this
agreement or by the Master Lease as herein amended.
(d) Upon any default by NES in payment of the
Balance of the Purchase Price, after expiration of any applicable
notice and grace periods, NRC shall be entitled, in addition to any
other remedies available to it at law or equity, to exercise such
rights with respect to the Subordinated Security Interest as are
granted to a secured party under Article 9 of the New York Uniform
Commercial Code, provided that NRC shall not have the right to
foreclose against or levy upon the Subordinated Security Interest
at any time during which any third party holds a lien or security
interest in the Trademark which is prior in lien to the
Subordinated Security Interest under the terms hereof or pursuant
to applicable law (a "Prior Lienor") unless and until the Prior
Lienor first takes action to foreclose against or levy upon its
security interest.
(e) The provisions of this Section 7.2 and the
subordination of NRC's security interest in the Trademark shall be
self-operative and no further documents or instruments will be
necessary to effectuate such subordination. Notwithstanding the
foregoing, (i) NRC will upon request promptly execute and deliver
such documentation as may be reasonably necessary or advisable to
confirm such subordination ("Reasonable Confirmation"), and (ii)
NRC hereby appoints NES as its attorney-in-fact with full authority
to execute and deliver such Reasonable Confirmation on behalf of
NRC, such power of attorney being coupled with an interest and
irrevocable to the extent permitted by applicable law.
7.3 If NRC defaults in any of its obligations under this
agreement or the Master License or the Footwear License and if any
such default continues for a period of thirty (30) days or more
after notice by NES, NES will thereupon have the right, in addition
to all other rights and remedies available to it at law or equity,
(a) to terminate the Master License if it is then in effect, (b) to
terminate NRC's right to enter into the Footwear License pursuant
to Section 5 if it is not yet in effect, and (c) to terminate the
Footwear License if it is then in effect. In any such event all
rights of NRC with respect to the Trademark shall immediately
thereupon revert to NES, and the Subordinated Security Interest
provided by Section 7.2 shall be deemed to have terminated in all
respects. NRC will promptly upon request execute and deliver all
such documents and instruments reasonably necessary or advisable to
confirm that all rights of NRC with respect to the Trademark and
the Subordinated Security interest have been terminated. Upon any
such default, all obligations of NRC to NES shall thereupon bear
interest at an annual rate equal to two (2%) percent above the
Prime Rate in effect from time to time. In the event of any such
default by NRC, the Balance of the Purchase Price, if any, shall
nevertheless continue to be paid to NRC in accordance with Section
1.2, subject, however, to the offset rights and any other rights
provided to NES hereunder.
7.4 If either party defaults in its obligations to the
other party, the defaulting party shall be liable for all
reasonable collection costs, including attorneys fees and
disbursements incurred by the other party.
7.5 If either (a) NES is in default in payments due to
NRC on account of the Purchase Price, or (b) NRC is in default in
payments due to NES pursuant to the Master License, as hereby
amended, or the Footwear License, then the non-defaulting party
shall have the right to offset the amount of any such payment it
owes to the defaulting party by the amount which is in default. A
party exercising such offset right will promptly notify the other
party thereof, setting forth the details and amounts involved. No
such offset will be deemed to cure a default unless agreed to by
the non-defaulting party.
8. Miscellaneous.
8.1 At the request of either party, the other party will
promptly do or cause to be done, and execute and deliver all such
further documents and instruments, as may be reasonably necessary
or advisable to carry out the intents and purposes of this
agreement.
8.2 This agreement shall be binding upon and inure to
the benefit of parties and their respective successors and assigns.
None of the terms of this agreement can be waived or modified
except expressly by a writing signed by all affected parties.
Nothing contained herein shall be deemed to permit NRC to assign
its rights under the Master License or the Footwear License.
8.3 This agreement shall be construed and governed in
accordance with the laws of the State of New York, regardless of
the place or places of its physical execution and performance.
8.4 Any notice or other communication under this
agreement shall be in writing and shall be considered given when
personally delivered, sent by confirmed telefax transmission or by
a nationally recognized overnight courier service or when mailed,
registered or certified mail, return receipt requested, to the
parties at the addresses set forth at the beginning of this
agreement (or to such other address as a party may, by similar
notice, specify to the others).
Any notices hereunder to NRC shall be simultaneously sent
to Phillips Nizer Benjamin Krim & Ballon, L.L.P., 666 Fifth Avenue,
New York, New York 10103, Attention: Andrew J. Tunick, Esq. Any
notices hereunder to NES shall be simultaneously sent to Fishbach,
Hertan & Ives, 919 Third Avenue, New York, New York 10022,
Attention: Myron Fishbach, Esq.
8.5 The parties consent to the jurisdiction of the
Supreme Court of the State of New York, New York County, and the
United States District Court for the Southern District of New York
for all purposes in connection with any proceeding or proceeding to
be commenced hereunder or in connection with this agreement or any
document executed in connection herewith. The parties consent that
any process or notice of motion or other application to either of
said courts and any pleading or other document to be served in
connection with any proceeding may be served by certified mail,
return receipt requested or by personal service or in such other
manner as may be permissible under the rules of the applicable
court provided a reasonable time for appearance is allowed.
IN WITNESS WHEREOF, the parties have executed this agreement
on the date first above written.
NEW RETAIL CONCEPTS, INC.
By:
NO EXCUSES SPORTSWEAR, LTD
By:
EXHIBIT A
TRADEMARK LICENSE AGREEMENT
AGREEMENT dated , 19_ , by and between No
Excuses Sportswear, Ltd. ("Licensor"), a New York corporation with
offices at 1411 Broadway, New York, New York 10018, and New Retail
Concepts, Inc. ("Licensee"), a Delaware corporation with offices at
60 West 40th Street, New York, New York 10018.
W I T N E S S E T H:
WHEREAS, Licensor is the owner of a certain trademark,
which trademark and the registrations therefor are more
particularly described in Schedule A annexed hereto (Licensor's
right, title and interest in and to the said trademark being
hereinafter referred to as the "Property"), and the parties desire
to enter into an agreement with regard to the licensing to Licensee
of the rights to utilize the Property.
In consideration of the mutual covenants and agreements
hereinafter contained on the part of each of the parties hereto to
be kept, observed and performed, the parties hereto covenant and
agree as follows:
1. Grant of License.
(a) Subject to the terms and conditions set forth
herein, Licensor hereby grants to Licensee, and Licensee hereby
accepts from Licensor, the exclusive license to utilize the
Property in the Territory described herein during the term of this
agreement, solely in connection with the manufacture, distribution
and sale of men's, women's and children's footwear products (the
"Articles").
(b) Subject to the prior written consent of Licensor,
which consent will not be unreasonably withheld, Licensee shall
have the right to enter into sublicenses with one or more third
parties for the manufacture, distribution and sale of any Articles,
provided that any sublicense shall be subject to the terms,
conditions and covenants of this agreement. Any sublicense
agreement entered into by Licensee shall contain terms and
conditions which do not conflict and are not inconsistent with this
agreement, and shall require the sublicensee to comply with all
applicable terms and conditions of this agreement. Licensee shall
give notice of any proposed sublicense agreement to Licensor and
will provide to Licensor a copy of any proposed sublicense
agreement and such information concerning the proposed transaction
and the experience and financial condition of the proposed
sublicensee as Licensor may reasonably request.
(c) The license hereby granted shall be used only in the
Territory set forth in Schedule A hereto. The Licensee shall not
make use of or authorize the use of the Property outside the
Territory nor will it manufacture or sell to anyone for resale or
use outside the Territory the Property or any Articles covered by
this agreement, except that the Licensee may manufacture or cause
Articles to be manufactured outside the Territory solely for use
within the Territory.
2. Term.
This agreement shall commence on the date hereof and
shall continue for a period of three (3) years, through July ____,
_____, unless sooner terminated in accordance with the terms of
this agreement.
Provided Licensee is not in default hereunder at the time
of renewal, after expiration of any applicable notice and grace
periods, Licensee shall have the right to renew this agreement for
an additional term of three (3) years upon written notice to
Licensor which must be given at least six (6) months prior to the
expiration of the initial term hereof. Said renewal shall be on
the same terms and conditions as provided herein for the initial
term, except for the royalties provided by paragraph 3 hereof.
[NOTE: Per Section 5 of the Settlement Agreement, if Walmart does
not renew its sublicense agreement, Licensee will have one
additional three-year option to be exercised at least six months
prior to expiration of the first renewal term and provided it is
not then in default hereunder beyond any applicable notice and
grace periods.]
3. Royalties.
In consideration of the rights granted hereunder,
Licensee shall pay Licensor the following royalties:
(a) The total sum of Three Hundred Thousand
($300,000.00) Dollars for the initial three (3) year term of this
agreement, which sum has been paid to Licensor simultaneously with
the execution of this agreement.
(b) The total sum of Five Hundred Thousand
($500,000.00) Dollars for the three (3) year renewal term of this
agreement, if renewed as hereinabove provided, which sum shall be
payable to Licensor as follows: one-third thereof ($166,667) shall
be payable upon exercise by Licensee of its renewal option pursuant
to paragraph 2, and the remaining two-thirds thereof ($333,333)
shall be payable upon commencement of the renewal term.
[NOTE: Total royalty for second renewal term, if any, will be
$400,000, one-third of which ($133,333) will be payable upon
exercise of the option for the second renewal term and the balance
of which ($266,667) will be payable upon commencement of the second
renewal term.]
In no event will any portion of the royalty payable
hereunder for the initial or any renewal term hereof be refunded as
a result of any termination of this agreement, except as provided
in Schedule B with respect to a termination under paragraph 11.
(c) Notwithstanding the provisions for payments of
royalties provided by paragraph 3(b), if at commencement of the
initial term or any renewal term hereof ("Applicable Term")
Licensor is then indebted to Licensee for any portion of the
Purchase Price provided by paragraph 1.2 of that certain Settlement
Agreement dated August , 1995 between Licensor and Licensee, the
royalty payment for the Applicable Term will be made in three equal
installments, the first of which will be payable at the
commencement of the initial term and the date of the exercise of
the option for each renewal term and the remaining installments of
which shall be payable on each of the first and second
anniversaries of the commencement of the Applicable Term. If at
any time, however, during the Applicable Term the said Purchase
Price is paid in full, the unpaid balance of the royalty for that
Applicable Term will immediately thereupon become due and payable.
4. Goodwill.
Licensee agrees that it will not, during the term of this
agreement or thereafter, attack the title or any of the rights of
Licensor in and to the Property or injure or discredit such rights
of Licensor.
5. Infringement.
(a) Licensee agrees to assist Licensor at Licensor's
sole cost and expense to the extent reasonably necessary for the
protection of any of Licensor's rights in and to the Property.
Licensee shall notify Licensor in writing of any infringement or
imitations by others of the Property which may come to Licensee's
attention, and Licensee shall have the right to take action on
account of any such infringements or imitations only if Licensor
shall give its written consent thereto, which consent will not be
unreasonably withheld or delayed.
(b) Licensor shall take such action as it deems
advisable for the protection of its rights in and to the Property
and, if requested to do so by Licensor, Licensee shall cooperate
with Licensor in all respects, at Licensor's expense, including
without limitation by being a plaintiff or co-plaintiff in any
legal action brought by Licensor, and by causing its officers to
execute pleadings and other necessary documents. In no event,
however, shall Licensor be required to take any action if it deems
it inadvisable to do so. If Licensor deems it inadvisable to take
any such action, Licensee may then take such action at its own
expense provided it first obtains the written consent of Licensor,
which consent will not be unreasonably withheld or delayed. Any
award recovered by Licensor and/or Licensee in any such action or
proceeding brought by Licensor shall belong solely and exclusively
to Licensor. Any award recovered by Licensor and/or Licensee in
any action or proceeding brought by Licensee as permitted herein
shall first be applied to any out-of-pocket expenses incurred by
Licensor and Licensee in connection with the prosecution of such
action or proceeding and the balance shall be shared by the
parties, seventy five (75%) percent by Licensee and twenty five
(25%) percent by Licensor.
(c) Licensor shall have the right to defend, at its cost
and expense, and with counsel of its own choice, any action or
proceeding brought against Licensee for any alleged infringement
arising out of Licensee's use of the Property in accordance with
the provisions of this agreement.
6. Registration.
Licensee shall cooperate with Licensor at Licensor's
expense in the execution, filing and prosecution of any patent,
trademark or copyright applications that Licensor may desire or
file with respect to the Property and- any goods or products
developed in connection therewith, and for that purposes Licensee
shall supply to Licensor from time to time such samples,
containers, labels and similar material as may be reasonably
required.
7. Quality of Merchandise.
Licensee agrees that (i) the Articles covered by this
agreement, together with any promotional and display material used
in connection therewith and any advertising and packaging of the
Articles, shall be of a high standard and of such style, appearance
and quality as to be adequate and suited to their exploitation to
the best advantage of and to the protection and enhancement of the
Property and goodwill pertaining thereto; such style, appearance
and quality shall be of a standard which is at least equal to that
which has heretofore been maintained in connection with goods and
products utilizing the Property; (ii) such Articles, goods and
products will be manufactured, sold and distributed in accordance
with applicable federal, state, local and foreign laws; and (iii)
the policy of sale, distribution and exploitation by Licensee and
any persons or entities acting under or through Licensee shall be
of a high standard and to the best advantage of Licensor and that
the same shall in no manner reflect adversely upon the good name of
Licensor. The quality of all Articles manufactured and distributed
in accordance herewith shall be subject to Licensor's approval and
such right of approval may be exercised by Licensor from time to
time as reasonably requested by Licensor. Licensor will have the
right to request from Licensee, at least once in each year, a
reasonable cross section of production samples of Articles which
Licensee is offering for sale. Licensor shall also have the right
(a) to inspect samples of Articles at retail outlets to maintain
and control the quality of Articles offered for sale by Licensee,
and (b) upon not less than two (2) business days, prior notice, to
inspect the business operations and manufacturing facilities of
Licensee, any sublicensee and any manufacturer of Articles retained
by Licensee or any sublicensee in order to assure that the quality
control provisions of this agreement are being maintained.
8. Indemnification.
The Licensee shall indemnify and hold the Licensor and
its officers, directors, employees, representatives and agents
harmless against any and all settlements, judgments, damages, loss,
costs and expenses (including but not limited to attorneys' fees)
incurred by the Licensor in connection with any allegedly
unauthorized use of any patent, process, idea, method, or device in
connection with the Articles except as authorized by this agreement
and also from any claims, suits, loss and damage arising out of
alleged defects in the Articles or resulting from any failure of
Licensee to comply with the provisions of this agreement. The
Licensee shall obtain, at its own expense, product liability
insurance from a recognized insurance company providing adequate
protection (at lease in the amount of $1,000,000/$3,000,000)
against any claims, suits, loss or damage arising out of any
alleged defects in the Articles, including actions for breach of
warranty, negligence and strict liability in tort. Said product
liability insurance shall have a coverage of at least $2,000,000
combined single limit and be issued by a company reasonably
satisfactory to the Licensor, and a certificate evidencing the paid
policy naming the Licensor as an insured party will be submitted to
the Licensor by the Licensee within thirty (30) days following the
commencement of this agreement. said policy will provide that the
insurer may not terminate it or materially modify it without thirty
(30) days' prior written notice to the Licensor. Payment for any
indemnification due hereunder will be made on demand.
9. Marking.
Every Article manufactured which makes use of the
Property or any promotional materials or displays picturing any of
the articles must contain notice of the trademark rights of
Licensor and such other information as shall be necessary to
indicate and preserve the existence of such rights.
10. Diligence.
Licensee agrees that during the term of this agreement
and any extensions or renewals thereof, it will use reasonable
efforts to diligently and continuously offer for sale the Articles
covered by this agreement and to sell such Articles in commercially
reasonable quantities, and to cause its sublicensees to exercise
such efforts and effect such sales.
11. Termination by Licensor.
Licensor shall have the right to terminate this agreement
without prejudice to any rights which it may have, whether pursuant
to the provisions of this agreement in law, or in equity, or
otherwise, upon the occurrence of any one or more of the following
events:
(a) Unless the same is dismissed within sixty (60)
days, if Licensee files a petition in bankruptcy or is adjudicated
a bankrupt or a petition in bankruptcy is filed against Licensee,
or if Licensee becomes insolvent or makes an assignment for the
benefit of creditors or any arrangement pursuant to any bankruptcy
law, or if Licensee discontinues its business or if a receiver is
appointed for. Licensee, this agreement and the license granted
hereby shall automatically terminate forthwith without any notice
whatsoever being necessary, to the full extent allowed by
applicable law. In the event this agreement and the license hereby
granted are so terminated, Licensee, its receivers,
representatives, trustees, agents, administrators, successors and
assigns, shall thereafter have no right to sell, exploit or in any
way deal with or in the Property 6xcept with and under the special
consent and instructions of Licensor.
Notwithstanding the provisions of this Paragraph 11(a),
in the event that pursuant to the United States Bankruptcy Code or
any amendment or successor thereto (the "Code") a trustee in
bankruptcy of Licensee or Licensee, as debtor, is permitted to
assign this agreement to a third party, which assignment satisfies
the requirements of the Code, the trustee or Licensee, as the case
may be, shall notify Licensor of same in writing. Said notice
shall set forth the name and address of the proposed assignee, the
proposed consideration for the assignment and all other relevant
details thereof. The giving of such notice shall be deemed to
constitute an offer to Licensor to have this agreement assigned to
it or to its designee for such consideration, or its equivalent in
money, and upon such terms as are specified in the notice. The
aforesaid may be accepted only by written notice given to the
trustee or Licensee, as the case may be, by Licensor within thirty
(30) days after Licensor's receipt of the notice from such party.
If Licensor fails to give its notice to such party within said
thirty (30) days, such party may complete the assignment referred
to in its notice, but only if such assignment is to the entity
named in said notice and for the consideration and upon the terms
specified therein. Nothing contained herein shall be deemed to
preclude or impair any rights which Licensor may have to contest
any proposed assignment, or as a creditor or otherwise, in any
bankruptcy proceeding.
(b) In the event Licensee shall default in the
performance of any of the material terms and conditions on the part
of Licensee to be performed hereunder, and Licensee has not cured
the same within thirty (30) days after notice to Licensee, Licensor
shall have the right to terminate this agreement on written notice
to Licensee.
(c) If Licensee shall be in default in any
agreement with Licensor other than this agreement in effect at any
time, including but not limited to the license agreement between
the parties dated as of December 31, 1992 (if such license
agreement shall be in effect upon commencement of this agreement),
and such default shall continue for a period of thirty (30) days or
more after notice to Licensee.
(d) (i) Notwithstanding the provisions of this
agreement, Licensor shall, except as provided by subparagraph
(d)(ii) below, have the right to terminate this agreement upon not
less than sixty (60) days prior notice to Licensee, provided that
(A) Licensor and/or its shareholders have entered into an agreement
for the sale of all or substantially all the business, assets or
outstanding shares of Licensor to an unaffiliated third party, and
(B) simultaneously with such termination of this agreement,
Licensor shall pay to Licensee an amount determined in accordance
with Schedule B annexed hereto. In the event of termination of
this agreement pursuant to this paragraph 11(d), Licensee shall
have the right to complete the sale of Articles on hand or in
progress in the normal course, but such right shall terminate not
later than one hundred eighty (180) days after termination of this
agreement.
(ii) Licensor will not have the right to
terminate this agreement in connection with any transaction
described in subparagraph (d) (i) above if it retains or is granted
the right to utilize the Property for manufacture or sale of
sportswear or jeanswear, unless the business as to which no rights
are retained by or granted to Licensor constitutes a substantial
portion of the business theretofore conducted by NES.
12. Effect of Expiration or Termination.
(a) In the event of expiration or termination of this
agreement under any of its provisions, neither Licensor nor
Licensee shall be relieved of their respective liabilities accruing
up to the time of such expiration or termination. Any and all
rights acquired by Licensee from its activities under this
agreement will be deemed automatically vested solely and
exclusively in Licensor upon such termination or cancellation, and
Licensee shall, without further consideration, execute any papers
necessary to effectuate this provision.
(b) Upon and after the expiration or termination of this
agreement, all rights granted to Licensee hereunder shall forthwith
revert to Licensor, who shall be free to license others to use the
Property in connection with the manufacture, sale and distribution
of Articles or otherwise. The provisions of this Section 12 shall
be subject to paragraph 11(d) and to Licensee's right to continue
to distribute and sell its remaining inventory of Articles on a
non-exclusive basis for a period of ninety (90) days after
termination, provided that this agreement was not terminated as a
result of Licensee's default.
(c) Upon and after the expiration or termination of this
agreement, Licensor shall have the right to terminate any
sublicensing agreements or arrangements entered into by Licensee
and/or the right to succeed to Licensee's interests thereunder.
13. Submission of Agreement.
Submission of this agreement to Licensee does not
constitute an offer to license; this agreement, and the license
referred to herein, shall become effective only upon the execution
thereof by Licensor and delivery to Licensee.
14. Notices.
Any notices or other communications required or permitted
hereunder shall be sufficiently given if delivered in hand to the
party addressed or if sent by certified mail, return receipt
requested, postage prepaid, addressed to the parties at the
addresses hereinabove set forth or at such other address as either
party may in a like manner from time to time notify the other party
in writing.
15. Assignment.
This agreement and the rights hereunder are personal to
Licensee and, except for sublicenses permitted with Licensor's
consent hereunder, shall not be transferred, assigned, pledged or
otherwise encumbered by Licensee or by operation of law, except to
a person or entity controlling, controlled by or under common
control with Licensee. Any transfer of shares of capital stock or
other beneficial ownership interest in Licensee held by Neil Cole
or his affiliates or members of his family (the "Cole Group"),
however accomplished and whether in one or more related or
unrelated transactions, shall constitute an assignment by Licensee
of its interest hereunder if the total ownership of the Cole Group
is at any time less than twenty (20%) percent.
16. No Joint Venture.
Nothing herein contained shall be construed to have the
effect of placing the parties hereto in the relationship of
partners or joint venturers and neither party shall have the power
to obligate or bind the other party in any manner whatsoever.
17. Modifications of Agreement.
This agreement shall be binding upon and inure to the
benefit of Licensor and Licensee and their permitted successors and
assigns. None of the terms of this agreement can be waived or
modified except expressly in writing signed by both parties. There
are no representations, promises, warranties, covenants or
undertakings other than those contained in this agreement, which
represents the entire understanding of the parties.
18. Enforcement.
Any provisions of this agreement which are unenforceable
in any jurisdiction in which this agreement is sought to be
enforced, or are invalid or contrary to the law of such juris-
diction, or the inclusion of which would affect the validity,
legality or enforcement of this agreement, shall be of no effect,
and in such case all remaining terms and provisions of this agree-
ment shall subsist and be fully effective according to the tenor of
this agreement as though no such invalid portion had ever been
included herein.
19. Jurisdiction.
This agreement shall be construed and governed in
accordance with the laws of the State of New York, regardless of
the place or places of its physical execution and performance.
Except for any arbitration proceeding instituted in accordance with
the procedures provided by Schedule B annexed hereto, Licensor and
Licensee consent to the jurisdiction of the Supreme Court of the
State of New York, New York County, and the United States District
Court for the Southern District of New York for all purposes in
connection with any action or proceeding involving a claim, dispute
or controversy between the parties with respect to any matter or
provision set forth in this agreement. The parties consent that
any process or Notice of Motion or other application to either of
said courts, and any paper or document relating to any proceeding
may be served by certified mail, return receipt requested or by
personal service or in such other manner as may be permissible
under the rules of the applicable court provided a reasonable time
for appearance is allowed.
20. Equitable Relief.
Licensee acknowledges that its performance and obliga-
tions hereunder are unique, of extraordinary value, and that a
breach by Licensee of any obligation hereunder will cause Licensor
irreparable damage which cannot be compensated with money only.
Therefore, Licensee agrees that Licensor, as a matter of right,
shall be entitled to an injunction or other equitable relief, in
addition to all other rights in law to prevent the breach by
Licensee of any term or conditions hereof, and to enforce any
rights of Licensor hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this
agreement as of the date first above written.
LICENSOR:
NO EXCUSES SPORTSWEAR, LTD.
By:
LICENSEE:
NEW RETAIL CONCEPTS, INC.
By:
SCHEDULE A
1. Trademark and Registrations
2. Territory
United States and Canada
SCHEDULE B - PURCHASE PRICE PAYABLE BY NES
ON EXERCISE OF RIGHTS UNDER PARAGRAPH 11(d)
If Licensor exercises its right to terminate this
agreement under Section 11(d)(i), the price payable by it in
consideration of such exercise will be calculated as follows:
(a) If there is only one three-year renewal term
provided by Section 2, the price will be the sum of (i) Eight
Hundred Twenty One and 92/100 ($821.92) Dollars per day for each
day, if any, of the initial term of this agreement remaining
after the effective date of termination, and (ii) Nine Hundred
Thirteen and 24/100 ($913.24) Dollars per day for each day of the
renewal term of this agreement remaining after the effective date
of termination.
(b) If there are two three-year renewal terms
provided by Section 2, the price provided by paragraph (a) above
will be increased by Three Hundred Sixty Five and 30/100
($365.30) Dollars per day for each day of the second renewal term
of this agreement remaining after the effective date of
termination.
Exhibit 11
<TABLE>
NEW RETAIL CONCEPTS, INC.
COMPUTATIONS OF NET INCOME (LOSS) PER SHARE
<CAPTION>
Fiscal Year Ended March
31,
1996 1995
<S> <C> <C>
Net income (loss)
before extraordinary item $1,161,021 $(533,068)
Net income (loss) $1,161,021 $(130,034)
Weighted average number of
shares outstanding 6,448,513 6,844,800
Net income (loss) per share $.18 $(.02)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Financial Statements of New Retail Concepts, Inc. at March 31, 1996 and for the
periods then ended and is qualified in its entirety by reference to such
Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 245,616
<SECURITIES> 0
<RECEIVABLES> 83,893
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 649,583
<PP&E> 101,657
<DEPRECIATION> (101,657)
<TOTAL-ASSETS> 2,772,981
<CURRENT-LIABILITIES> 569,639
<BONDS> 0
<COMMON> 66,035
0
0
<OTHER-SE> 2,391,816
<TOTAL-LIABILITY-AND-EQUITY> 2,772,981
<SALES> 0
<TOTAL-REVENUES> 626,134
<CGS> 0
<TOTAL-COSTS> 640,351
<OTHER-EXPENSES> (1,203,294)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 24,974
<INCOME-PRETAX> 1,164,103
<INCOME-TAX> 3,082
<INCOME-CONTINUING> 1,161,021
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,161,021
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
