<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996
Commission file number: 0-19298
RIDDELL SPORTS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 22-2890400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
900 THIRD AVENUE, NEW YORK, NEW YORK, 10022
(Address of principal executive offices) (Zip code)
(212) 826-4300
(Registrant's telephone number, including area code)
NOT APPLICABLE
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.Yes [ X ]No [ ]
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
8,067,985 Common Shares as of May 14, 1996
1
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RIDDELL SPORTS INC.
INDEX
Page
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Form 10-Q Cover Page . . . . . . . . . . . . . . . . . . . 1
Form 10-Q Index . . . . . . . . . . . . . . . . . . . . . . 2
Part I. Financial Information:
Item 1. Financial Statements:
Consolidated Balance Sheets . . . . . . . . . . 3
Consolidated Statements of Operations . . . . . 4
Consolidated Statements of Shareholders' Equity 5
Consolidated Statements of Cash Flows . . . . . 6
Notes to Consolidated Financial Statements . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . 12
Part II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . 15
Item 2. Changes in Securities . . . . . . . . . . . . . 17
Item 3. Defaults upon Senior Securities . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . 18
2
<PAGE> 3
Part 1. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 243,257 $ 615,081
Accounts receivable, trade, less allowance for doubtful
accounts ($721,000 and $620,000 respectively) . . . . . . . . . . . 20,415,475 14,099,028
Inventories (Note 3) . . . . . . . . . . . . . . . . . . . . . . . . . 14,781,597 14,425,882
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,890,090 6,815,009
Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . 327,836 358,769
------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . 41,658,255 36,313,769
Property, plant and equipment, less accumulated
depreciation ($3,374,361 and $3,278,807, respectively) . . . . . . . . 3,299,795 2,966,494
Intangibles and deferred charges, less accumulated
amortization ($8,946,585 and $8,548,485, respectively) . . . . . . . . 34,343,431 34,741,533
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102,693 102,893
------------- --------------
$ 79,404,174 $ 74,124,689
============= ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt . . . . . . . . . . . . . . . . . . $ 5,170,199 $ 1,141,572
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,175,502 6,304,289
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 7,821,355 9,581,548
------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . 19,167,056 17,027,409
Long-term debt, less current portion:
Shareholders and related parties . . . . . . . . . . . . . . . . . . . 1,309,834 1,309,834
Banks and other . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,154,893 22,290,398
------------- --------------
25,464,727 23,600,232
Deferred taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,050,000 1,990,000
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,530,151 6,605,206
Contingent liabilities (Note 4)
Shareholders' equity
Preferred stock, $.01 par; authorized 1,000,000 shares; none issued
Common stock, $.01 par; authorized 20,000,000 shares; issued
and outstanding 8,067,985 and 8,067,985 shares, respectively . . . . 80,680 80,680
Capital in excess of par . . . . . . . . . . . . . . . . . . . . . . . 31,456,912 31,456,912
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . . . (5,345,352) (6,635,750)
------------- --------------
26,192,240 24,901,842
------------- --------------
$ 79,404,174 $ 74,124,689
============= ==============
See notes to consolidated financial statements
</TABLE>
3
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<TABLE>
<CAPTION>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31,
---------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Net revenues:
Net sales $ 19,036,101 $ 15,975,676
Royalty income . . . . . . . . . . . . . . . . . . . . . 807,585 1,039,580
-------------- --------------
19,843,686 17,015,256
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . 10,210,492 8,494,301
-------------- --------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . 9,633,194 8,520,955
Selling, general and administrative expenses . . . . . . . 6,991,449 6,095,926
Product liability expense . . . . . . . . . . . . . . . . . 664,133 661,250
-------------- --------------
Income from operations . . . . . . . . . . . . . . . . . . 1,977,612 1,763,779
Interest expense . . . . . . . . . . . . . . . . . . . . . 627,214 621,383
-------------- --------------
Income before taxes . . . . . . . . . . . . . . . . . . . . 1,350,398 1,142,396
Income taxes . . . . . . . . . . . . . . . . . . . . . . . 60,000 51,000
-------------- --------------
Net income $ 1,290,398 $ 1,091,396
============== ==============
Net earnings per share . . . . . . . . . . . . . . . . . . $ 0.15 $ 0.14
============== ==============
See notes to consolidated financial statements
</TABLE>
4
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<TABLE>
<CAPTION>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Retained
Common Stock Capital earnings Total
-------------------- in excess (Accumulated Shareholders'
Shares Amount of par deficit) equity
---------- -------- -------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
For the three months ended March 31, 1995:
Balance, December 31, 1994 . . . 8,039,742 $80,397 $31,457,195 $(7,106,284) $24,431,308
Shares issued in connection
with a 1994 acquisition . . . 28,243 283 (283) -0-
Net income for the period . . . 1,091,396 1,091,396
---------- -------- -------------- ------------- ---------------
Balance, March 31, 1995 . . . . 8,067,985 $80,680 $31,456,912 $(6,014,888) $25,522,704
========== ======== ============== ============= ===============
For the three months ended March 31, 1996:
Balance, December 31, 1995 . . . 8,067,985 $80,680 $31,456,912 ($6,635,750) $24,901,842
Net income for the period . . . 1,290,398 1,290,398
---------- -------- -------------- ------------- ---------------
Balance, March 31, 1996 . . . . 8,067,985 $80,680 $31,456,912 ($5,345,352) $26,192,240
========== ======== ============== ============= ===============
See notes to consolidated financial statements
</TABLE>
5
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<TABLE>
<CAPTION>
RIDDELL SPORTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
March 31,
--------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . $ 1,290,398 $ 1,091,396
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization . . . . . . . . . . . 493,656 549,915
Provision for losses on accounts receivable . . . . 153,651 65,100
Deferred taxes . . . . . . . . . . . . . . . . . . . 60,000 51,000
Changes in assets and liabilities (net
of effects from acquisitions):
(Increase) decrease in:
Accounts receivable, trade . . . . . . . . . . (6,470,098) ( 6,972,009)
Inventories . . . . . . . . . . . . . . . . . . (355,715) (1,415,335)
Prepaid expenses . . . . . . . . . . . . . . . 924,919 930,707
Other receivables . . . . . . . . . . . . . . . 30,933 625,514
Other assets . . . . . . . . . . . . . . . . . 200 (17,091)
Increase (decrease) in:
Accounts payable . . . . . . . . . . . . . . . (128,787) (420,189)
Accrued liabilities . . . . . . . . . . . . . . (1,760,193) (1,464,769)
Other liabilities . . . . . . . . . . . . . . . (75,055) (64,764)
-------------- --------------
Net cash used in operating activities . . . (5,836,091) (7,040,525)
-------------- --------------
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . (428,855) (63,687)
Acquisitions . . . . . . . . . . . . . . . . . . . . . . - (631,670)
-------------- --------------
Net cash used in investing activities . . . (428,855) (695,357)
-------------- --------------
Cash flows from financing activities:
Net borrowings under line-of-credit agreement . . . . . 6,034,693 8,361,218
Principal payments on long-term debt:
Banks and other . . . . . . . . . . . . . . . . . . . (141,571) (554,094)
-------------- --------------
Net cash provided by financing activities . 5,893,122 7,807,124
-------------- --------------
Net increase in cash . . . . . . . . . . . . . . . . . . . (371,824) 71,242
Cash, beginning . . . . . . . . . . . . . . . . . . . . . . 615,081 190,325
-------------- --------------
Cash, ending $ 243,257 $ 261,567
============== ===============
<FN>
Supplemental cash flow information:
In January 1995, in connection with an acquisition, the Company incurred
liabilities of $330,000. Cash paid for interest was $618,211 and $401,227 for
the three month periods ended March 31, 1996 and 1995, respectively. Income
tax payments, or refunds, were not significant for the periods ended March 31,
1996 and 1995.
See notes to consolidated financial statements.
</FN>
</TABLE>
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RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. These statements are unaudited, and in the
opinion of management include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation of the Company's
consolidated financial position and the consolidated results of its operations
and cash flows at March 31, 1996 and 1995 and for the periods then ended.
Certain information and footnote disclosures made in the last Annual Report on
Form 10-K have been condensed or omitted for these interim statements.
Accordingly, these consolidated financial statements should be read in
conjunction with the December 31, 1995 Annual Report on Form 10-K. Operating
results for the three months ended March 31, 1996 are not necessarily
indicative of the results to be expected during the remainder of 1996.
Tax expense for both the 1996 and 1995 periods were reduced by the
benefit of net operating loss carryforwards recognized during the periods.
The recognition of these tax benefits had the effect of decreasing tax
expense, and increasing net income, by approximately $460,000, or $0.05 per
share, and $380,000, or $0.05 per share, for the three month periods ended
March 31, 1996 and 1995, respectively.
2. Earnings per share
Earnings per share are based on the weighted average number of
outstanding common shares and the assumed exercise of dilutive common stock
options and warrants less the number of treasury shares assumed to be
purchased from the proceeds of the assumed exercise. The number of treasury
shares assumed to be purchased from the proceeds is based on the average
market price of the Company's common stock for the period in computing primary
earnings per share, and is based on the end of period market price of the
Company's common stock, if higher than the average market price, in computing
fully diluted earnings per share. For the three month period ended March 31,
1996, primary earnings per share was the same as fully diluted earnings per
share due to rounding to the nearest cent. For the period ended March 31,
1995 common stock options or warrants were not considered dilutive. The
primary weighted average number of common and equivalent shares outstanding
was 8,456,962 and 8,067,985 for the three months ended March 31, 1996 and
1995, respectively. The fully diluted weighted average number of common and
common equivalent shares outstanding was 8,597,909 and 8,067,985 for the three
months ended March 31, 1996 and 1995, respectively.
3. Inventories
Inventories consist of the following:
March 31, December 31,
1996 1995
----------- -----------
Finished goods $ 5,044,549 $ 4,904,058
Work-in-process 4,252,964 4,043,217
Raw materials 4,484,084 5,478,607
----------- -----------
$14,781,597 $14,425,882
=========== ===========
7
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RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Litigation matters and contingencies
Recorded assets and liabilities
In regards to the product liability and other litigation matters and
contingencies discussed below, the Company has recorded certain liabilities
and, in some cases, receivables for insurance recoveries. While these amounts
are discussed in the remaining sections of this note, a summary of these
amounts together with other items comprising the applicable balance sheet line
items is as follows:
<TABLE>
<CAPTION>
Other Accrued liabilities Other liabilities
Receivables (Current) (Non-Current)
------------- ----------------- -----------------
<S> <C> <C> <C>
March 31, 1996:
Product liability matters:
Future payments on settled cases $ - $ 1,200,000 $
1,750,000
Insurance recoveries and liabilities
related to above 250,000 600,000 -
Reserves for pending and other contingencies - 900,000 4,200,000
------------- ----------------- -----------------
Totals for product liability matters 250,000 2,700,000 5,950,000
Provision for proposed settlement and other costs
relating to fraudulent transfer litigation 1,900,000
Other litigation contingency reserves 100,000
Other (not related to litigation or contingencies) 77,836 3,121,355 580,151
------------- ----------------- -----------------
$ 327,836 $ 7,821,355 $ 6,530,151
============= ================= =================
December 31, 1995:
Product liability matters:
Future payments on settled cases $ - $ 1,200,000 $ 1,750,000
Insurance recoveries and liabilities
related to above 250,000 600,000 -
Reserves for pending and other contingencies - 900,000 4,200,000
------------- ----------------- -----------------
Totals for product liability matters 250,000 2,700,000 5,950,000
Provision for proposed settlement and other costs
relating to fraudulent transfer litigation 1,900,000
Other litigation contingency reserves 100,000
Other (not related to litigation or contingencies) 108,769 4,881,548 655,206
------------- ----------------- -----------------
$ 358,769 $ 9,581,548 $ 6,605,206
============= ================= =================
</TABLE>
Product liability:
At March 31, 1996, a subsidiary of the Company was a defendant in 10
product liability suits relating to personal injuries allegedly related to the
8
<PAGE> 9
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
use of Riddell helmets. The ultimate outcome of these claims, or potential
future claims, cannot presently be determined. The Company estimates that the
uninsured portion of future costs and expenses related to these claims, and
incurred but not reported claims, will amount to at least $5,100,000 and,
accordingly, a reserve in this amount is included in the Consolidated Balance
Sheet at March 31, 1996 as part of accrued liabilities and other liabilities.
These reserves are based on estimates of losses and defense costs anticipated
to result from such claims based on available information, including an
analysis of historical data such as the rate of occurrence and the settlement
amounts of past cases. However, due to the uncertainty involved with
estimates actual results have at times varied substantially from earlier
estimates and could do so in the future. Accordingly there can be no
assurance that the ultimate costs of such claims will fall within the
established reserves.
The Consolidated Balance Sheets also include liabilities related to
unpaid portions of cases settled in prior periods, as well as receivables for
related insured portions of these amounts, at March 31, 1996 and December 31,
1995.
MacGregor fraudulent transfer litigation:
In April, 1996, the Company signed an agreement to settle certain
"fraudulent transfer" litigation relating to the acquisition, made at the time
the Company was formed, in 1988 of certain core businesses of the Company as
well as a related 1989 acquisition. This litigation is described more fully in
the following paragraphs. The settlement is subject to, among other things,
approval by two bankruptcy courts. Under the proposed settlement the Company
will pay approximately $1.4 million in the aggregate in exchange for the full
settlement of all claims subject to the litigations. The Company had recorded
a $1.9 million provision, as of December 31, 1995, for the proposed settlement
as well as related expenses including anticipated costs of finalizing the
settlement and obtaining court approval. The $1.9 million liability for this
provision is reflected in the Consolidated Balance Sheets as part of accrued
liabilities at March 31, 1996 and December 31, 1995.
In 1993, MacGregor Sporting Goods, Inc. (now known as M. Holdings, Inc.)
("Mac I"), which filed for bankruptcy in March 1989, its Creditor's Committee,
and the bankruptcy trustee of MacGregor Sports, Inc. had filed a complaint
against the Company seeking rescission of, and/or monetary damages in excess
of $28.5 million plus interest relating to, the Company's acquisitions from
two of its former, second tier subsidiaries in 1988 and 1989 of the football
helmet division, MacGregor trademark licensing business, and the non-football
uses of the Riddell trademark for alleged failure to pay fair consideration at
a time when Mac I was insolvent or as a result of which Mac I became insolvent
or undercapitalized.
In October 1994, the complaint was dismissed as time-barred. The court
ordered the appointment of a trustee in Mac I's bankruptcy, but did not decide
whether the trustee would be time-barred if it decided to take a similar
<9>
<PAGE> 10
RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
complaint against the Company. In March 1995, the newly appointed trustee in
Mac I's bankruptcy, together with the bankruptcy trustee of MGS Acquisition,
Inc. (collectively the "Trustees") filed a similar complaint against the
Company. Additionally, Innovative Promotions, Inc. and certain other
purported unsecured creditors of Mac I filed a complaint under state debtor
and creditor law against the Company making similar allegations and claims as
the actions described above, seeking rescission and/or damages in excess of
$22 million. The Trustees intervened in the Mac I action and the Innovative
action as plaintiffs, purportedly to preserve their rights in the event they
lost their separate action.
While the Company believes that the MacGregor fraudulent transfer
litigation matters discussed above will be settled under the terms proposed by
the settlement agreement, and for a total cost within the $1,900,000 provision
discussed above, there can be no assurance that this will be the case. The
settlement is subject to, among other things, approval by two bankruptcy
courts. Furthermore, the Mac I creditor's committee has retained new counsel
and is opposing the proposed settlement.
Other contingencies and litigation matters:
In connection with the Company's suit against its former President,
Frederic Brooks, for alleged breaches of his consulting agreement and certain
other matters, Mr. Brooks filed counterclaims against the Company. Mr. Brooks
alleges the Company breached its indemnification obligations to him as a
former officer and director of the Company in connection with the Company's
action against Mr. Brooks, a purported class action (now settled), an action
(now settled) against Mr. Brooks brought by certain stockholders of the
Company, and the action brought by the MacGregor Bankruptcy Trustee, and seeks
damages in excess of $1.85 million plus future attorneys' fees and interest.
Mr. Brooks also seeks compensatory and punitive damages combined of at least
$15 million against the Company, two of its officers and directors and an
entity controlled by them for tortious interference with contract and
prospective advantage and prima facie tort. Mr. Brooks has impleaded the
Company's "Riddell" footwear licensee for contribution for all damages that
may be assessed against him in the Company's suit against Mr. Brooks for
certain alleged breaches of his consulting agreement relating to, among other
things, alleged attempts to disparage and take control of the Company. In
connection with a settlement of certain actions between the Company and its
"Riddell" footwear licensee in early 1994, the Company agreed to indemnify the
licensee and certain of its affiliates in the event they were so impleaded by
Mr. Brooks into the Company's suit against Mr. Brooks for breach of his
consulting agreement. In March 1996, Mr. Brooks filed a motion for summary
judgement dismissing the claims against him and requesting consulting fees of
$587,230 plus interest under his consulting agreement (which the Company has
previously deposited in an escrow type account), and the Company filed a
motion for partial summary judgement dismissing certain of Mr. Brook's claims
against it and its affiliates. The Company believes Mr. Brooks' claims against
the Company are without merit and intends to vigorously defend against them.
10
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RIDDELL SPORTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1993, certain subsidiaries and an officer of a subsidiary of the
Company were served with a complaint seeking compensatory and punitive damages
exceeding $10 million. The complaint alleges violation of privacy, unfair
competition, trademark infringement, breach of contract and other claims in
connection with the Company's sale of umpire vests. The action was dismissed
against the officer for lack of personal jurisdiction. The Company believes
this case is without merit and intends to defend vigorously against it.
In January 1995, the Company was named as a co-defendant in a complaint
which alleges wrongful death, failure to warn and other things surrounding the
death of a minor at one of the Company's facilities. The minor was involved
in a fatal accident as he trespassed on the roof of the facility after hours.
The complaint seeks unspecified monetary damages. The Company believes that
it has meritorious defenses to this action and intends to vigorously defend
against it. The defense of the matter has been assumed by the Company's
general liability insurance carrier, subject to a reservation of rights and
certain policy limits and deductibles.
As discussed in previous reports, in a prior period the Company had
established a liability reserve which represented the minimum future cost
relating to certain of these litigation matters existing at the time, other
than the MacGregor transfer litigation and product liability claims and
including other matters since resolved. Certain other costs relating to such
litigation matters has been charged against this reserve in prior periods
reducing the balance of the reserve, which is included in accrued expenses,
to $100,000 at December 31, 1995 and March 31, 1996. While the remaining
balance, together with the $1,900,000 provision relating to the MacGregor
fraudulent transfer litigation discussed above, represents an estimate of
certain minimum costs likely to result from these litigation matters, other
than product liability claims, the Company cannot estimate the full extent of
a potential range of loss related to such litigation matters as their ultimate
outcome cannot be presently determined.
11
<PAGE> 12
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Operations for the first quarter of 1996 resulted in net income of
$1,290,398, or $0.15 per share compared to first quarter 1995 net income of
$1,091,396, or $0.14 per share. Due to recent increases in the market value
of the Company's stock, per share results for the first quarter of 1996
include the impact of certain common stock options and warrants which were
considered dilutive for the quarter. The dilutive options and warrants
represented approximately 500,000 net common stock equivalents for the first
quarter of 1996, where as no options or warrants were considered dilutive for
purposes of computing earnings per share for the first quarter of 1995. Tax
expense for both the 1996 and 1995 periods were reduced by the benefit of net
operating loss carryforwards recognized during the periods. The recognition
of these tax benefits had the effect of decreasing tax expense by
approximately $460,000, or $0.05 per share, and $380,000, or $0.05 per share,
for the three month periods ended March 31, 1996 and 1995, respectively.
The Company's overall increase in profitability is due to increased sales
volume across most of the Company's product lines. These overall volume gains
were partially offset by a $200,000 decrease in royalties from Riddell
licensing. The impact of the volume gains was also offset in part by
increased selling costs relating to increased salesman head count put in place
during the second half of 1995 to support direct sales and increased
promotional costs due to early incentive programs which were not in place
during the year ago period. Also, the 1996 first quarter sales mix reflects a
relatively high proportion of the quarter's sales growth stemming from
products with lower margins than the Company's overall average.
The effect of these factors are further described in the following
discussion of operating results by line item together with other matters
having a significant effect on the Company's results of operations.
Revenues
Total revenues for the three months ended March 31, 1996 increased by 17%
to $19,843,686 from $17,015,256 for the three months ended March 31, 1995.
Net sales of the Company's sports products and services segment increased
by 19% to $19,036,101 for the three months ended March 31, 1996 from
$15,975,676 during the comparable period of 1995. The Company experienced
sales gains in most of its product lines, including overall increases in sales
of competitive athletic products, sports collectible products and
reconditioning services.
Sales of competitive athletic products increased approximately $1.8
million or 35% in comparison to the first quarter of 1995. Sales of these
products, principally football helmets and shoulder pads, to schools and other
institutions reflects increased volume and unit prices stemming from our
conversion to direct sales as discussed in prior reports. Increased first
quarter 1996 sales have occurred as the Company gains experience under the new
method of distribution and begins to benefit from several actions taken over
recent months to increase institutional sales. These actions, discussed in
prior reports, include increases in the number of salesmen calling on schools,
more intensive sales training, incremental field sales managers, new sales
12
<PAGE> 13
incentive programs, and the introduction of additional athletic products
including a more complete line of baseball equipment. The Company also
benefitted from increased volume of competitive youth products which continue
to be sold by independent dealers and distributors. The Company experienced
an anticipated decline in sales of these products in 1995 as many dealers, no
longer offered the Company's institutional product lines, stopped purchasing
Riddell youth products. Sales of these products have increased as the Company
has expanded its distribution through new dealers and distributors.
Sales of sports collectible products for the first quarter of 1996
increased by approximately 27%, or $1.0 million, in comparison to first
quarter 1995 levels. The sales increase was principally due to increased
volume in sales of the Company's line of miniature helmets, including its new
line of miniature hockey helmets which started shipping in late 1995. Sales
of sports collectible products have been the strongest area of growth for the
Company over the past two years, and these lines have become a significant
part of the Company's business. The Company is continuing to maintain a high
level of marketing emphasis on the sports collectible business.
Sales of reconditioning services increased by 4%, or approximately
$300,000, in the first quarter of 1996. This improvement was due to increased
volume as well as moderate price increases.
Royalty income from trademark licensing decreased by $231,995, or 22%, to
$807,585 for the three months ended March 31, 1996 from $1,039,580 during the
comparable period of 1995. This decrease was primarily attributable to a
decline in royalties from the licensing of the Riddell trademark. The Company
anticipates that Riddell licensing income will remain significantly below 1995
levels throughout 1996 for several reasons. As discussed in prior reports,
the Company recently terminated a license for use of the Riddell trademark on
certain athletic equipment. Second, assuming past due royalties are paid, the
Company has agreed to revise a license for Riddell branded leisure apparel,
including provisions reducing minimum royalties due under the license, in
conjunction with the licensee's restructuring of its product lines. And
finally, the Company's Riddell footwear licensee has filed for bankruptcy as
discussed in prior reports. The licensee must continue to comply with the
terms of the license, including payment of royalties. However, the Company
has agreed to allow the licensee to offset certain amounts, which could exceed
royalties otherwise due from the licensee over the next year. Royalties from
licensing of the MacGregor trademark rights decreased 4%, or approximately
$30,000, for the first quarter due to a decrease in royalties from Kmart.
Gross Profit
Gross profit for the quarter ended March 31, 1996 increased $1,112,239,
or 13%, compared to the first quarter of 1995. An increase in gross profits
from sports products and services was offset in part by the decline in royalty
income from trademark licensing discussed above. While trademark licensing
does have certain costs included in selling, general, and administrative
expenses, there are no related costs which are deducted in arriving at gross
profit. Accordingly, each increase or decrease in royalty income results in
an equal change in gross profit.
Gross profit attributable to sports products and services increased
$1,344,234, or 18%, to $8,825,609 for the first quarter of 1996 from
$7,481,375 for 1995's first quarter. The increase in gross profits is due to
the sales increases discussed above. Gross profit margin rates for the sports
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<PAGE> 14
products and services segment remained relatively stable at 46.4% of sales for
the quarter ended March 31, 1996 compared to 46.8% of sales for the quarter
ended March 31, 1995. The sales increases did not result in an increase in
margin rates which might otherwise be expected due to changes in product mix
between the two quarters. This occurred as a portion of the sales volume
increases involved products which carry lower gross margin rates than the
overall average for the Company.
The 1996 quarter had a considerably larger mix of youth products, which carry
lower gross margin rates than the Company's average. These products accounted
for a portion of the sales volume increases in the quarter.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $6,991,449 for
the quarter ended March 31, 1996 from $6,095,926 for the quarter ended March
31, 1995. The increase is attributable to higher levels of selling, marketing
and promotional expenses relating to the Company's sales of competitive
athletic products sold to schools and other institutions as well as overall
increases in variable selling expenses relating to increased sales. The
increases were incurred in taking certain actions to increase sales of
competitive athletic products as discussed above under Revenues. General and
administrative expenses were relatively stable between the periods. As a
result of the sales volume increases and the stable general and administrative
expenses, overall selling, general and administrative expenses decreased as a
percentage of revenues from 35.8% of revenues for the first quarter of 1995 to
35.2% of revenues for the first quarter of 1996.
Interest Expense
Interest expense remained stable between the periods with an increase of
under 1%. This reflects a decline in interest rates, in line with movements
in the prime rate, which was offset by increases in average indebtedness
related to the level of the Company's business volume.
CAPITAL RESOURCES AND CHANGES IN FINANCIAL CONDITION:
The Company sells a portion of its competitive football products and
reconditioning services on dated payment terms with payments from customers
(primarily high schools and colleges in these cases) generally due the
following July to October period. Accordingly, trade receivables increase
throughout the year as sales are made on these dated payment terms. The
increase in trade receivables continues throughout an annual cycle until
reduced at the end of the cycle as the dated receivables become due. In order
to finance the resulting large receivable levels, the Company maintains a
revolving line of credit. The outstanding balance on the revolving line of
credit generally follows the seasonal receivable cycle described above,
increasing as the level of receivables increase until the fall of each year
when collections of the dated receivables are used to reduce the outstanding
balance on the line. The Company's current borrowing limits under the line of
credit discussed above fluctuate throughout the year from a low of $20,000,000
to a high of $31,750,000 at predetermined points in time. The liability under
the line is reflected on the Consolidated Balance Sheets as part of long-term
debt, with the balance in excess of the annual borrowing limit low of
$20,000,000 included in the current portion of long-term debt.
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<PAGE> 15
Operations during recent years have resulted in periods of increased
working capital demands due to volume growth in certain product lines and
other changes in the Company's business. As discussed in prior reports the
Company has been able to obtain modifications of its loan agreement with its
bank over the past year to increase certain seasonal borrowing limits under
the line of credit, as well as other changes the Company has required. The
Company anticipates that its capital needs will continue to increase as its
business volume grows. Accordingly, it is considering other sources of
capital which may be available to supplement its banking relationship in a
manner which would provide additional capital for growth, and has retained an
investment banker in this regard. The Company is negotiating with
institutional investors concerning a potential debt financing which would
include the issuance of warrants to purchase the Company's stock. No
assurances can be made that this additional financing will be obtained.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Mac I Fraudulent Transfer Action and State Law Debtor and Creditor Claim
In April, 1996 the Company signed an agreement to settle two fraudulent
transfer suits involving Mac I and MGS in which the Company and certain
others were named defendants. The proposed settlement requires the Company to
pay the Mac I and MGS bankruptcy trustees (collectively, the Trustees ) an
aggregate of $1.4 million, and releases the Company, its affiliates, its
principal lender and others from all claims and liabilities in the
litigations. The Company anticipates incurring significant legal and related
expenses in connection with finalizing this settlement, and took a charge
against 1995 earnings to establish a reserve for these costs. The agreement
further provides for an injunction requiring the Trustees to satisfy any and
all valid and enforceable claims arising out of or related to the Acquisitions
out of the settlement proceeds. There are no assurances a final settlement
will be reached because settlement is subject to, among other things approval
of two bankruptcy courts. The parties to the litigation agreed to adjourn a
hearing on the proposed settlement which was originally scheduled to commence
in the New Jersey Bankruptcy Court on May 13, 1996. It is anticipated that
the hearing will begin within the next few months and therefore, that the
deadline for receipt of court approval will be extended beyond its initially
scheduled date (May 30, 1996) to accommodate this adjournment. The Mac I
creditors committee has retained counsel which is opposing the proposed
settlement.
Mac I had filed for bankruptcy protection in March 1989 in the United
States Bankruptcy Court in New Jersey. Mac I, its creditors' committee and
the bankruptcy trustee of MGS jointly brought an action against the Company,
its principal lender, NBD Bank and others in the New Jersey Bankruptcy Court
(Official Unsecured Creditors' Committee of MacGregor Sporting Goods, Inc. v.
Riddell Sports Inc., No. 93-2214 (RG) (Bankr. D.N.J.)). By order dated
November 3, 1994 the court dismissed this complaint as time-barred. The court
also appointed a trustee in the bankruptcy of Mac I, but did not decide
whether the trustee would be time-barred if it decided to bring a similar
action against the Company and its lender. Plaintiffs in the action had
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<PAGE> 16
sought monetary damages and/or the rescission of the acquisitions for, among
other things, alleged failure to pay fair consideration at a time when Mac I
was insolvent or as a result of which Mac I became insolvent or
undercapitalized. The monetary damages alleged in connection with the
Acquisitions exceeded $28.5 million. In addition to seeking monetary damages
and\or rescission from the Company, the complaint sought to void the liens of
NBD Bank in the property at issue.
After the above action was dismissed, the Trustees commenced a
substantially similar action against the Company in March of 1995 entitled,
Bruce Levitt, Bankruptcy Trustee for MacGregor Sporting Goods, Inc., now known
as M. Holdings, Inc., Paul Swanson, Bankruptcy Trustee for MGS Acquisition,
Inc. v. Riddell Sports Inc., et al, No. 95-2261 (RG) (Bankr. D.N.J.) in the
Chapter 11 bankruptcy case of Mac I (the "Levitt Action"). The Trustees'
complaint sought monetary damages in an unspecified amount plus interest
and\or rescission in connection with the Company's Acquisitions on the
grounds, among others, that the Company allegedly failed to pay fair
consideration at a time when Mac I was insolvent and\or undercapitalized. In
addition to seeking monetary damages and\or rescission from the Company, the
complaint sought to void the liens of NBD Bank in the property at issue. The
complaint also seeks damages against the Board of Directors of Mac I for
breaches of fiduciary duties to Mac I for failing to obtain fair consideration
in connection with these transactions.
In the other action subject to the settlement agreement, Innovative
Promotions, Inc. and certain other purported unsecured creditors of Mac I
initiated a state law debtor and creditor action against the Company which is
now pending in the New Jersey Bankruptcy Court (Innovative Promotions, Inc. et
al. v. Riddell Sports Inc. et al. (in re MacGregor Sporting Goods, Inc.), Adv.
Proc. No. 94-2656(RG)). The plaintiffs in the Innovative action sought
rescission of, and/or monetary damages in excess of $22 million exclusive of
interest relating to the Company's Acquisitions for alleged failure to pay
fair consideration at a time when Mac I was insolvent, or as a result of which
Mac I became insolvent or undercapitalized. Plaintiffs also sought judgments
voiding the liens of NBD Bank with respect to the assets. In March 1995, the
Trustees joined as plaintiffs in the Innovative action purportedly to preserve
their rights in the event they lost the Levitt Action.
Other
The Company is also a defendant in certain product liability
proceedings. See Note 4 of "Notes to Consolidated Financial Statements".
The Company is also a defendant in certain other litigation described in
Item 3 of its Form 10-K for the year ended December 31, 1995.
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Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit index:
10.1 Employment Agreement dated as of March 7, 1996
between the Company and David Groelinger.
11 Computation of Earnings Per Share
27 Financial Data Schedule (submitted in electronic form to
SEC only)
(b) Reports on Form 8-K
1. The Company filed a Form 8-K dated March 12, 1996 reporting, under
item 5, the signing of a letter of intent to settle two fraudulent
transfer actions against the Company and the appointment of the
Chief Financial Officer.
2. The Company filed a Form 8-K dated April 10, 1996 reporting, under
item 5, that a final settlement agreement was entered into, subject
to certain conditions including court approval, in connection with
the two fraudulent transfer actions pending against the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RIDDELL SPORTS INC.
Date: May 14, 1996 By /s/ DAVID MAUER
-----------------------
David Mauer
President and
Chief Executive Officer
Date: May 14, 1996 By /s/ LAWRENCE F. SIMON
------------------------
Lawrence F. Simon
Senior Vice President
(Principal Accounting Officer)
18
<PAGE> 1 EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made as of March 7, 1996, by and between Riddell Sports Inc.,
a Delaware corporation (the "Company"), and David Groelinger (the
"Executive").
WHEREAS, the Executive wishes to become employed by the Company, and the
Company is willing to employ the Executive on the terms and conditions
hereinafter set forth;
WHEREAS, the Company desires to engage the Executive as Chief Financial
Officer ("C.F.O.") of the Company and the Executive desires to be so engaged
by the Company in such position, on the terms and conditions set forth and
described herein;
WHEREAS, the parties desire to enter into this Agreement setting forth
the terms and conditions of the employment relationship of the Executive with
the Company.
NOW, THEREFORE, the parties agree as follows:
1. Employment. The Company hereby employs the Executive, and the
Executive hereby accepts employment with the Company upon the terms and
subject to the conditions set forth herein.
2. Term. This Agreement is for the two-year period (the "Term")
commencing on the date of this Agreement and terminating on the second
anniversary of the date first written above or upon earlier termination
pursuant to Section 11.
3. Position. During the Term, the Executive shall serve as C.F.O. of
the Company. At any time that the Executive is serving as an officer of the
Company, the Company shall provide him with officer liability insurance
and/or indemnification to the same extent provided to other members of the
Company Board and other officers of the Company for all occurrences while
executive is or was a member of the Company Board or an officer of the
Company.
4. Duties and Reporting Relationship. During the Term, the Executive
shall, on a full time basis, use his skills and render services to the best
of his abilities in supervising and conducting the financial operations of
the Company. As part of his duties the Executive shall be responsible for
and have general supervisory control over the financial matters of the
Company and shall report to, and be subject to supervision by, the CEO or
Chairman of the Company.
5. Place of Performance. The Executive shall perform his duties and
conduct his business at the principal corporate offices of the Company in New
York City except for required travel on the Company's business.
6. Inducement for Employment. (a) As an inducement for the
Executive's entering into the Agreement and undertaking to perform the
services referred to in the Agreement, the Company shall grant to the
Executive a non-qualified option (the "Option") to purchase 65,000 shares of
the common stock ("Common Stock") of the Company pursuant to the Company's
1991 Stock Option Plan and a Stock Option Agreement (the
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<PAGE> 2
"Stock Option Agreement") substantially in the form of Exhibit A hereto.
(b) The Option shall become exercisable in accordance with the provisions of
the Stock Option Agreement; provided, however that the Option shall become
fully exercisable upon the occurrence of a Change in Control of Parent (as
defined in paragraph 11(a)(v)).
(c) The Option shall expire on the earlier of the tenth anniversary of the
date it is granted or the thirtieth (30th) day following the date the
Executive's employment is terminated for any reason and may be exercised (to
the extent it has vested), at any time prior to such expiration; provided,
however, that if, (i) prior to the expiration of the Term, the Company
terminates the Executive's employment in breach of this Agreement or the
Executive terminates his employment for Good Reason (as defined below), or
(ii) subsequent to the expiration of the Term the Company terminates the
Executive's employment in a manner that would have been a breach of this
Agreement had the Term not expired or the Executive terminates his employment
on account of actions that would have constituted Good Reason had the Term
not expired, then the Option shall become and remain exercisable for a period
of one year following such termination of employment, but only to the extent
that it would have been exercisable during such year had his employment not
so terminated; and, provided further that if the Executive's employment is
terminated on account of his death or Disability (as the term is defined
herein) the Option shall be exercisable with respect to an aggregate number
of shares based upon the ratio of (A) the number of completed months that
have elapsed from March 7, 1996 to the date of such death or Disability to
(B) the number sixty (60), and shall remain exercisable for a period of one
year following such termination of employment. The Option shall become
exercisable in full upon the occurrence of a Change in Control. (defined
below).
7. Salary and Annual Bonus.
(a) Base Salary. The Executive's base salary (the "Base
Salary") hereunder shall be $180,000 a year, payable no less often than in
monthly installments.
(b) Annual Bonus. The Executive will participate in any
bonus plan established by the Company at a target level of 40% of his Base
Salary; provided, however, that the Executive is guaranteed a $25,000 bonus
for 1996, payable at such time as bonuses are paid to other senior executive
officers.
8. Vacation, Holidays and Sick Leave. During the Term, the Executive
shall be entitled to paid vacation, paid holidays and sick leave in
accordance with the Company's standard policies for its senior executive
officers, which policies shall provide the Executive with (a) benefits no
less favorable than those provided to any other senior executive officer of
the Company and (b) no fewer than four (4) weeks of paid vacation per year,
unless otherwise agreed between the Executive and the Company.
9. Business Expenses. The Executive will be reimbursed for all
ordinary and necessary business expenses incurred by him in connection with
his employment upon timely submission by the Executive of receipts and other
documentation as required by the Internal Revenue Code and in conformance
with the Company's normal procedures.
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10. Pension and Welfare Benefits. During the Term, the Executive shall
be eligible to participate fully in all health benefits, insurance programs,
pension and retirement plans and other employee benefit and compensation
arrangements (collectively, the "Employee Benefits") available to officers of
the Company generally, which Employee Benefits shall provide the Executive
with benefits no less favorable than those provided to any other senior
executive officer of the Company.
11. Termination of Employment. (a) General. The Executive's
employment hereunder may be terminated without any breach of this Agreement
only under the circumstances provided in this paragraph 11(a).
(i) Death or Disability. (A) The Executive's employment
hereunder shall automatically terminate upon the death of the Executive.
(B) If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his
duties with the Company for any six (6) months (whether or not consecutive)
during any twelve (12) month period, the Company may terminate the
Executive's employment hereunder for "Disability."
(ii) Cause. The Company may terminate the Executive's employment
hereunder for Cause. For purposes of this Agreement, "Cause" shall mean (A)
the willful failure or refusal by the Executive to perform his duties
hereunder (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness), which has not ceased within
ten (10) days after a written demand for substantial performance is delivered
to the Executive by the CEO or Chairman, which demand identifies the manner
in which the Company believes that the Executive has not performed such
duties, (B) the willful engaging by the Executive in misconduct involving
breach of duty, theft or other acts of dishonesty (but not including bad
business judgment) which is materially injurious to the Company, monetarily
or otherwise (including, but not limited to, conduct described in Section 15)
or (C) the conviction of the Executive of a felony.
(iii) Termination by the Executive. The Executive shall be
entitled to terminate his employment hereunder (A) for Good Reason or (B) if
his health should become impaired to an extent that makes his continued
performance of his duties hereunder hazardous to his physical or mental
health, provided that the Executive shall have furnished the Company with a
written statement from a qualified doctor to such effect and provided
further, that, at the Company's request, the Executive shall submit to an
examination by a doctor selected by the Company and such doctor shall have
concurred in the conclusion of the Executive's doctor.
For purposes of this Agreement, "Good Reason" shall mean the occurrence
(without the Executive's express written consent) of any one of the following
acts by the Company, or failure by the Company to act, unless, in the case of
any act or failure to act described in paragraphs (I)-(VIII) below, such act
or failure to act is corrected prior to the Date of Termination specified in
the Notice of Termination in respect thereof: (I) the assignment to the
Executive of any duties inconsistent with the Executive's status as the
C.F.O. of the Company or a material adverse alteration in the nature of
status or the Executive's responsibilities from those contemplated by Section
4 above; (II) a reduction by the Company in the Executive's annual Base
Salary as in effect on the date hereof; (III) Executive being required to
relocate to a location more than 50 miles from New York City; (IV) the
failure by the Company to pay to the Executive any material portion of the
Executive's current compensation (upon failure to cure after 15 days'
notice); (V) the failure by the Company to continue in effect any
compensation plan in which the Executive participates or any substitute plans
which failure is material to the
3
<PAGE>4
Executive's total compensation, unless the Parties agree to an equitable
alternative arrangement (embodied in an ongoing substitute or alternative
plan) on a basis consistent with Section 7(b), above; (VI) the failure by the
Company to continue to provide the Executive with Employee benefits
substantially similar to those enjoyed by the Executive under any of the
Company's pension, life insurance, medical, health and accident, or
disability plans in which the Executive was participating on a basis
consistent with the provisions of Section10, above; (VII) the taking of any
action by the Company which would directly or indirectly materially reduce or
deprive the Executive of any material fringe benefit enjoyed by the
Executive, or the failure by the Company to provide the Executive with the
number of paid vacation days to which the Executive is entitled; or (VIII)
any purported termination of the Executive's employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of Section
11(b), and, for purposes of this Agreement, no such purported termination
shall be effective.
The Executive's right to terminate the Executive's employment for Good
Reason shall not be affected by the Executive's incapacity due to physical or
mental illness. The Executive's continued employment shall not constitute
consent to, or a waiver of rights with respect to, any act or failure to act
constituting Good Reason hereunder.
(iv) Voluntary Resignation. Should the Executive wish to resign
from his position with the Company or terminate his employment for other than
Good Reason during the Term, the Executive shall give sixty (60) days written
notice to the Company, setting forth the reasons and specifying the date as
of which his resignation is to become effective.
(v) Change in Control. The Executive shall be entitled to
terminate his employment in the event of a Change in Control. For purposes
of this Agreement, a Change in Control of the Company shall have occurred if
a majority of the members of the Company's Board are representatives or
designees of any "Person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended) other than M.L.C.
Partners Limited Partnership, its former (other than Mr. Epstein) and present
general or limited partners, or any Person affiliated with any of the
foregoing and their heirs; it being understood that it shall not be deemed to
be a Change in Control of the Company if no Person shall have designated or
nominated a majority of the members of the Company's Board.
(b) Notice of Termination. Any purported termination of the
Executive's employment by the Company or by the Executive shall be
communicated by written Notice of Termination to the other party hereto in
accordance with Section 20. "Notice of Termination" shall mean a notice that
shall indicate the specific termination provision in this Agreement relied
upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment
under the provision so indicated.
(c) Date of Termination. "Date of Termination" shall mean (i) if
the Executive's employment is terminated because of death, the date of the
Executive's death, (ii) if the Executive's employment is terminated for
Disability, the date Notice of Termination is given, (iii) if the Executive's
employment is terminated pursuant to Subsection 11(a) (ii), (iii) or (iv)
hereof or for any other reason (other than death or Disability), the date
specified in the Notice of Termination (which, in the case of a termination
for Good Reason shall not be less than fifteen (15) nor more than sixty (60)
days from the date such Notice of Termination is given, and in the case of a
termination for any other reason thirty (30) days (sixty (60) days in the
case of a termination under Subsection (11(a) (iv)) hereof ) from the date
such Notice of Termination is given.
12. Compensation During Disability, Death or Upon Termination. (a)
During any period that
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<PAGE> 5
the Executive fails to perform his duties hereunder as a result of
incapacity due to physical or mental illness, the Executive shall continue to
receive (i) his full salary at the rate then in effect until his employment
is terminated pursuant to Section 11(a)(i)(B) hereof and (ii) a pro rata
portion of his bonus that would have been payable pursuant to Section 7(b)
above with respect to the calendar year in which the termination pursuant to
Section 12(a)(i)(B) occurs; provided that such payments shall be reduced by
the sum of the amounts, if any, payable to the Executive with respect to such
period under disability benefit plans of the Company or under the Social
Security disability insurance program, and which amounts were not previously
applied to reduce any such payment.
(b) If the Executive's employment is terminated by his death or
Disability, the Company shall pay (i) any amounts due to the Executive under
Section 7 through the date of such termination (including a pro rata portion
of his bonus that would have been payable pursuant to Section 7(b) above with
respect to the calendar year in which the termination occurs) and (ii) all
such amounts that would have become due (and at the time such amounts would
have become due) to the Executive under Section 7 had the Executive's
employment hereunder continued until the last day of the calendar year in
which such termination of employment occurred, in each case in accordance
with Section 14(b), if applicable.
(c) If the Executive's employment shall be terminated by the
Company for Cause or by the Executive for other than Good Reason, the Company
shall pay the Executive his full salary through the Date of Termination at
the rate in effect at the time Notice of Termination is given, and the
Company shall have no further obligations to the Executive under this
Agreement.
(d) If (i) the Company shall terminate the Executive's employment
in breach of this agreement, or (ii) the Executive shall terminate his
employment for Good Reason or (iii) the Company undergoes a Change in Control
resulting in the termination of Executive's employment, then
(A) the Company shall pay the Executive (A) his full salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given, (B) all other unpaid amounts, if any, to which the
Executive is entitled as of the Date of Termination under any compensation
plan or program of the Company, at the time such payments are due and (c) a
pro rata portion of the bonus that would have been payable to the Executive
pursuant to Section 7(b) above with respect to the calendar year in which the
Date of Termination occurs had the Executive's employment not terminated, at
the time such bonus would otherwise have become payable; and
(B) for periods subsequent to the Date of Termination, the
Company will pay, on a monthly basis, all monies owed as if the contract had
not been terminated. In no case, however will payments be less than 1 year's
equivalent Base Salary in the event of a termination pursuant to Section
12(d)(i) or (ii) or less than 2 years' equivalent Base Salary in the event of
a termination pursuant to Section 12 (d) (iii); and
(C) the Company shall (x) continue coverage for the Executive
under the Company's life insurance, medical, health, disability and similar
welfare benefit plans (or, if continued coverage is barred under such plans,
the Company shall provide to the Executive substantially similar benefits)
for the remainder of the Term, and (y) provide the benefits which the
Executive would have been entitled to receive pursuant to any supplemental
retirement plan maintained by the Company had his employment continued at the
rate of compensation specified herein for the remainder of the Term.
Benefits otherwise receivable by the Executive
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<PAGE> 6
pursuant to clause (x) of this Subsection 12(d)(iii) shall be reduced to the
extent comparable benefits are actually received by the Executive from a
subsequent employer during the period during which the Company is required to
provide such benefits, and the Executive shall report any such benefits
actually received to the Company.
(e) If the Executive shall terminate his employment under clause
(B) of subsection 11(a)(iii)
hereof, the Company shall pay the Executive (A) his full salary through the
Date of Termination at the rate in effect at the time Notice of Termination
is given and (B) a pro rata portion of the bonus that would have been payable
to the Executive pursuant to Section 7(b) above with respect to the calendar
year in which the Date of Termination occurs had the Executive's employment
not terminated.
13. Representations. (a) The Company represents and warrants that
this Agreement has been authorized by all necessary corporate action of the
Company and is a valid and binding agreement of the Company enforceable
against it in accordance with its terms.
(b) The Executive represents and warrants that he is not a party
to any agreement or instrument which would prevent him from entering into or
performing his duties in any way under this Agreement.
14. Successors; Binding Agreement. (a) The Company will require any
successor (whether direct of indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform
it if no such succession had taken place.
(b) This Agreement is a personal contract and the rights and
interests of the Executive hereunder may not be sold, transferred, assigned,
pledged, encumbered, or hypothecated by him, except as otherwise expressly
permitted by the provisions of this Agreement. This Agreement shall inure to
the benefit of and be enforceable by the Executive and his personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisee and legatees. If the Executive should die while any amount would
still be payable to him hereunder had the Executive continued to live, all
such amounts, to the extent provided in paragraph 12(b), shall be paid in
accordance with the terms of this Agreement to his devisee, legatee or other
designee or, if there is no such designee, to his estate.
15. Confidentiality. The Executive covenants and agrees that he will
not at any time during and after the end of the Term, directly or indirectly,
use for his own account, or disclose to any person, firm or corporation,
other than authorized officers, directors and employees of the Company or its
subsidiaries, Confidential Information (as hereinafter defined) of the
Company. As used herein, "Confidential Information" of the Company means
information of any kind, nature or description which is disclosed to or
otherwise known to the Executive as a direct or indirect consequence of his
association with the Company, which information is not generally known to the
public or to the businesses in which the Company is engaged or which
information relates to specific investment opportunities within the scope of
the Company's business which were considered by the Executive or the Company
during the term of this Agreement.
16. Noncompetition. During his employment with the Company or any of
its affiliates, and for a period of eighteen (18) months following the
termination of his employment for whatever reason other than by the Executive
for Good Reason, the Executive shall not, directly or indirectly, in the
Territory (defined below), enter into or engage generally in competition with
the Company, or any of its subsidiaries or otherwise engage
6
<PAGE> 7
in any business in which the Company or its subsidiaries engages
(collectively, the "Business"), whether as an individual on his own or as a
partner or joint venturer, or as an employee, salesman, agent, officer,
director, or shareholder of any business or for any person, or in any other
capacity. The term "Territory" shall mean the states in which the Company or
any of its subsidiaries currently engages in the Business or the states in
which the Company or any of its subsidiaries engages in the Business during
the Executive's employment with the Company or any of its affiliates.
17. Nonsolicitation. During his employment with the Company or any of
its affiliates, and for a period of eighteen (18) months following the
termination of his employment for whatever reason other than by the Executive
for Good Reason, the Executive shall not directly or indirectly, either on
his own or otherwise attempt to take away any of the customers of the Company
or any of its subsidiaries in the Territory or induce or solicit any other
employee of the Company or any of its subsidiaries to leave its employ.
18. Entire Agreement. This Agreement contains all the understandings
between the parties hereto pertaining to the matters referred to herein, and
supersedes all undertakings and agreements, whether oral or in writing,
previously entered into by them with respect thereto. The Executive
represents that, in executing this Agreement, he does not rely and has not
relied upon any representation or statement not set forth herein made by the
Company with regard to the subject matter, bases or effect of this Agreement
or otherwise.
19. Amendment of Modification, Waiver. No provision of this Agreement
may be amended or waived unless such amendment or waiver is agreed to in
writing, signed by the Executive and by a duly authorized officer of the
Company. No waiver by any party hereto of any breach by another party hereto
of any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of a similar or dissimilar condition or
provision at the same time, any prior time or any subsequent time.
20. Notices. Any notice to be given hereunder shall be in writing and
shall be deemed given when delivered personally, sent by courier or telecopy
or registered or certified mail, postage prepaid, return receipt requested,
addressed to the party concerned at the address indicated below or to such
other address as such party may subsequently give notice of hereunder in
writing:
To Executive at:
434 West 23rd Street
New York, New York 10011
To the Company at:
Riddell Sports, Inc.
900 Third Avenue/27th Floor
New York, New York 10022
Attn: General Counsel
Any notice delivered personally or by courier under this Section 18 shall be
deemed given on the date delivered,
7
<PAGE> 8
and any notice sent by telecopy or registered or certified mail, postage
prepaid, return receipt requested, shall be deemed given on the date
telecopied or mailed.
21. Severability. If any provision of this Agreement (including
without limitation Section 16) or the application of any such provision to
any party or circumstances shall be determined by any court of competent
jurisdiction to be invalid and unenforceable to any extent, the remainder of
this Agreement or the application of such provision to such person or
circumstances other than those to which it is so determined to be invalid and
unenforceable, shall not be affected thereby, and each provision hereof shall
be validated and shall be enforced to the fullest extent permitted by law.
22. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement to the extent
necessary to the intended preservation of such rights and obligations.
23. Governing Law; Specific Performance. This agreement will be
governed by and construed in accordance with the laws of the State of New
York, without regard to its conflicts of laws principles. The Executive
acknowledges that a violation on his part of any of the covenants contained
in Sections 15, 16 or 17 hereof would cause immeasurable and irreparable
damage to Company. The Executive accordingly agrees and hereby grants his
consent that, without limiting the remedies available to Company, any actual
or threatened violation of such covenants may be enforced by injunctive
relief or by other equitable remedies issue or ordered by any court of
competent jurisdiction.
24. Headings. All descriptive headings of sections and paragraphs in
this Agreement are intended solely for convenience, and no provision of this
Agreement is to be construed by reference to the heading of any section or
paragraph.
25. Withholdings. All payments to the Executive under this Agreement
shall be reduced by all applicable withholding required by federal, state or
local law.
26. Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
RIDDELL SPORTS INC.
By: /S/ DAVID MAUER
------------------------------
Name: David Mauer
Title: Chief Executive Officer
/S/ DAVID GROELINGER
------------------------------
David Groelinger
8
RIDDELL SPORTS INC. EXHIBIT 11
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
Three Months Ended March, 31
----------------------------
1996 1995
----------- -----------
Primary earnings per share:
-----------------------------------
Weighted average common shares
outstanding during period 8,067,985 8,067,985
Common shares equivalents of dilutive
stock options based on treasury
stock method using average market
price for quarter 388,977 0
----------- -----------
Average common shares and equivalents 8,456,962 8,067,985
=========== ===========
Net income for the period $1,290,398 $1,091,396
=========== ===========
Per share amount $0.15 $0.14
=========== ===========
Fully diluted earnings per share:
-----------------------------------
Weighted average common shares 8,067,985 8,067,985
outstanding during period
Common shares equivalents of dilutive
stock options based on treasury
stock method using quarter ending
market price which is higher than
average market price 529,924 0
----------- -----------
Average common shares and equivalents 8,597,909 8,067,985
=========== ===========
Net income for the period $1,290,398 $1,091,396
=========== ===========
Per share amount $0.15 $0.14
=========== ===========
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FILED AS PART OF THE QUARTERLY REPORT
ON FORM 10-Q FOR THE FISCAL QUARTER ENDED MARCH 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH REPORT.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 243
<SECURITIES> 0
<RECEIVABLES> 21,136
<ALLOWANCES> 721
<INVENTORY> 14,782
<CURRENT-ASSETS> 41,658
<PP&E> 6,674
<DEPRECIATION> 3,374
<TOTAL-ASSETS> 79,404
<CURRENT-LIABILITIES> 19,167
<BONDS> 25,465
0
0
<COMMON> 81
<OTHER-SE> 26,112
<TOTAL-LIABILITY-AND-EQUITY> 79,404
<SALES> 19,036
<TOTAL-REVENUES> 19,844
<CGS> 10,210
<TOTAL-COSTS> 10,210
<OTHER-EXPENSES> 664
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 627
<INCOME-PRETAX> 1,350
<INCOME-TAX> 60
<INCOME-CONTINUING> 1,290
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,290
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
