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FORM 10-KSB
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(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 JUNE 30, 1997
OR
[ ] 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: 1-12888
SPORT-HALEY, INC.
(Exact name of registrant as specified in its charter)
COLORADO 84-1111669
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
4600 EAST 48TH AVENUE
DENVER, COLORADO 80216
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (303) 320-8800
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
COMMON STOCK, NO PAR VALUE PER SHARE PACIFIC STOCK EXCHANGE
Securities registered pursuant to section 12(g) of the Exchange Act:
NONE
Check whether the registrant (1) 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 ______
Check if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is not 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 [ ]
State issuer's revenues for its most recent fiscal year: $28.9 MILLION
As of September 23, 1997, 4,669,399 shares of the registrant's Common Stock
were outstanding. The aggregate market value of the 4,515,316 shares of
Common Stock held by non-affiliates was $66,036,496 as of September 23, 1997.
For purposes of the foregoing calculation only, each of the Registrant's
officers and directors is deemed to be an affiliate. The market value of the
shares was calculated based on the closing sale price of such shares on the
Nasdaq National Market on such date.
DOCUMENTS INCORPORATED BY REFERENCE:
NONE
Transitional Small Business Disclosure Format: Yes ______ No __X__
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Sport-Haley designs, contracts for the manufacture of, and markets men's
and women's quality fashion golf apparel under the distinctive
Haley-Registered Trademark- label. The Company's fashion golf apparel is
known for its innovative styling, high quality fabrics, generous fit and
classic appearance. The Company's apparel is sold in the premium and
mid-price market through a network of independent sales representatives and
distributors, primarily to golf professional shops, country clubs and resorts
throughout the United States and internationally. The Company targets
distribution of its apparel to higher quality golf professional shops, which
generally offer superior customer service and which enhance the appeal of the
Haley brand name. The Company has also expanded its marketing program to
include the college, university, corporate, tournament and retail markets.
The Company custom embroiders a majority of its men's apparel with a
customer's club, resort, collegiate or corporate logo, thereby promoting the
image of both Sport-Haley and its customer base and enhancing the
marketability of the Company's products. Sport-Haley's apparel is presented
semi-annually to the golf industry in spring and fall collections consisting
of a broad variety of styles of men's and women's fashion golf apparel. The
Company was incorporated in Colorado in January 1991. Its principal
executive offices are located at 4600 East 48th Avenue, Denver, Colorado
80216, and its telephone number is (303) 320-8800.
PRODUCTS AND PRODUCT DESIGN
The Company's golf apparel consists of a men's line, a women's line, the
Elements line and a headwear line, all four of which are marketed under the
distinctive Haley label. The Company introduces spring and fall collections
of its golf apparel in January and September of each year at the two major
industry trade shows. The spring collection typically accounts for between
60% and 70% of sales, with the fall collection accounting for the remaining
sales. As the Company's sales have increased, the Company has expanded the
number of items available in each of the men's and women's lines, offering a
more extensive selection of styles, colors and fabrics. Each of the men's
and women's lines currently has between 100 and 170 pieces of apparel,
including shirts, pullovers, vests, shorts, sweaters, jackets and pants.
The Company introduced the "Elements line," a collection of outerwear for
both men and women, in January 1996. The Elements line currently consists of
over 25 pieces of apparel sold separately or in sets, and includes rain
suits, casual jackets, windshirts, vests and pants. The Company also
introduced a headwear line in the fall of 1996. This line consists of high
quality fabric headwear, currently including caps and visors, designed in
popular styles and a range of colors, typically embroidered with the Company
logo or a customer logo.
The Company's golf apparel is sold in the premium and mid-price market.
Apparel designed for premium pricing features larger sizing, higher quality
materials and more detailed designs. The following table sets forth
information regarding suggested retail price ranges for various apparel items.
SUGGESTED RETAIL SUGGESTED RETAIL
MEN'S APPAREL PRICE RANGE WOMEN'S APPAREL PRICE RANGE
------------- ---------------- --------------- ----------------
Shirts $ 45 - $ 65 Tops $ 40 - $ 65
Shorts $ 50 - $ 60 Shorts $ 50 - $ 65
Pants $ 60 - $ 90 Pants $ 55 - $ 90
Pullovers/Vests $ 50 - $ 100 Jackets $ 85 - $ 125
Outerwear $ 50 - $ 380 Sweaters $ 72 - $ 90
Headwear $ 9 - $ 18 Outerwear $ 50 - $ 225
Headwear $ 9 - $ 18
The Company's golf apparel is designed in the classic style with
contemporary influences intended to develop and maintain brand recognition
and loyalty. Each product in a line of apparel is sold separately, although
the Company's designers use coordinated styles, color schemes and fabrics to
encourage purchase of multiple garments and headwear. The Company's products
use a variety of fabrics and weave patterns, including interlock, pique,
french terry and twill. Each
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garment features combed cotton, unique trims, special fabric finishes and
extra needlework. A portion of the Elements outerwear line uses
Gore-tex-Registered Trademark- products, including Gore
Windstopper-Registered Trademark- fabric, non-exclusive rights to which were
licensed by the Company.
The design function within the Company is closely attuned to both sales
and production operations. The design process for each collection is an
ongoing process of coloring, styling, manufacturing of sample products and
the selection of sewing techniques. The Company relies on in-house designers
as well as outside contract designers in the development of its apparel
collections. The Company's design staff is responsible for coordinating
pattern and sample making, negotiating price and quantity with cutting and
sewing contractors, purchasing fabric and trim, and coordinating production
schedules with the Company's production personnel. The design staff also
coordinates inspection of fabric supplies, as well as sample testing of
fabric for shrinkage and colorfastness.
A majority of the men's apparel, and a smaller percentage of women's
apparel, is custom embroidered with a customer's club or resort logo or the
Company's Haley logo. In addition, the Company custom embroiders shirts and
other garments for tournaments, promotional events, collegiate sales and
corporate sales and gifts. Custom embroidery is performed on the Company's
premises using ten computer-controlled embroidering machines which together
can embroider over 2,700 custom logos in two 8-hour shifts. The Company
currently has a library of over 3,000 custom logos. Embroidery charges are
added to the customer's wholesale cost and therefore represent an additional
source of revenue to the Company.
SALES AND MARKETING
The Company's marketing strategy is to enhance its position as a leading
provider of fashion golf apparel by capitalizing on the market awareness of
the Haley brand name and expanding distribution of existing and proposed
apparel lines. The Company intends to implement this strategy by (i)
increasing distribution through expansion of its network of independent sales
representatives and adding to its golf professional shop customer base, (ii)
extending its product lines to include new items of apparel, such as it has
done with the Elements outerwear line and the headwear line, (iii) securing
and exploiting distribution arrangements for international sales, (iv)
diversifying product lines by developing new styles and designs which are
natural variations on its existing apparel designs, and (iv) increasing
market penetration in the corporate, university, college tournament and
retail markets.
In the fiscal year ended June 30, 1997 ("fiscal 1997"), approximately 80%
of the Company's sales were made to golf course professional shops, country
clubs and resorts. No single customer accounted for 5% or more of the
Company's net sales. The balance of the Company's sales were made to
corporate, tournament, collegiate and retail customers.
The Company's sales and marketing employees are responsible for
implementing marketing plans and sales programs, coordinating with the
Company's network of independent sales representatives, customer service and
participating in the Company's attendance at industry trade shows. Domestic
sales are made primarily through a network of independent sales
representatives who sell to the Company's customers on a commission basis.
These sales representatives market the Company's fashion golf apparel
primarily to golf professional shops, country clubs and resorts. At June 30,
1997, there were approximately 35 independent sales representatives through
which the Company sells its apparel. The independent sales representatives,
many of whom may also carry other golf-related lines, are responsible for
serving targeted accounts in a specific geographic territory. In January
1997, the Company entered into a buying program agreement with VGM Golf,
which has over 800 golf professional shop members who can purchase directly
from the Company under the agreement. The Company also maintains exclusive
distributors in Canada, the Caribbean and portions of Southeast Asia, and has
nonexclusive distributors in the United Kingdom, Portugal, Singapore,
Ireland, Western Europe and Japan.
The sales efforts of the independent sales representatives and
distributors are supported by the Company's customer service personnel and
detailed catalogs for each collection which present pricing, sizing and style
options. The Company recently installed VRLink, a private electronic network
which enhances the representatives' order processing speed and accuracy.
Using notebook computers, the representatives can access current inventory
information and create and transmit orders. The system also provides
management with key sales data.
In July 1997, the Company terminated its relationship with CMS Sports,
Inc., which had agreed in July 1996 to sell the Company's apparel products to
the college, university and corporate markets. The Company expects to
implement a new strategy to more effectively address these markets during the
first half of fiscal 1998. During fiscal 1997, the Company
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secured an exclusive license agreement with General Motors Corporation
(Cadillac Division), obtained approval as a Major League Baseball licensee
and entered into its first license agreement with the Cleveland Indians. The
Company has also entered into license agreements with various colleges and
universities.
The Company introduces its apparel collections at the two major golf
industry trade shows held in January and September of each year in Orlando,
Florida, and Las Vegas, Nevada, respectively. Because many golf shop
professionals attend one or both of these trade shows, the Company will
usually receive a significant number of customer orders at or immediately
after each trade show. The Company uses attendance at trade shows to obtain
orders, secure feedback concerning popular apparel designs and styles and to
prepare more detailed sales forecasts.
In order to enhance the visibility of the Haley brand, the Company has
endorsement agreements with several PGA and LPGA professionals. The Company
also has an agreement with a Canadian Tour professional, which exemplifies
the Company's commitment to the international markets. The endorsement
agreements generally provide that the professionals will endorse and wear the
Company's apparel. The compensation received by the endorsing professionals
consists of apparel allowances and may include cash and/or stock options.
Issuance of stock options is based upon the professionals achieving certain
benchmarks at designated PGA Tour or other major tournaments.
The Company advertises its apparel in several golf industry publications
which are targeted to golf professional shop operators. The Company also
targets its advertising expenditures to support the sales efforts of its
network of independent sales representatives in their territories. The
Company anticipates increasing its advertising expenditures in future periods
as the Company seeks to continue to increase its market penetration, although
such expenditures are expected to decline as a percentage of net sales.
International distributors provide and pay for advertising in their
respective geographic territories.
The Company leases a factory outlet store in Laughlin, Nevada, which
opened in June 1996. The factory outlet store, which consists of
approximately 2,200 square feet, is used to sell close-out inventory and
discontinued styles. The factory outlet store sells the Company's apparel at
discounted retail prices, as opposed to discounted wholesale prices, enabling
the Company to maximize sales revenue attributable to close-out inventory.
The Company does not sell its apparel on consignment or accept returns of
purchased apparel other than apparel which is damaged or which is delivered
after the specified delivery date. The Company's returns and allowances were
approximately 3% of net sales in both fiscal 1996 and fiscal 1997.
COMPETITION
Competition in the golf apparel market is intense and is based primarily
on brand recognition and loyalty, quality, price, style and design,
availability of shelf space and service. Although the Company believes that
it competes favorably with respect to certain of these factors, there can be
no assurance that the Company will compete successfully with its present or
potential competition. The Company currently views Ashworth, Izod and
Polo/Ralph Lauren as its most significant competitors. While the golf
apparel market is highly fragmented, recent entries into the market by
competitors offering apparel comparable to that of the Company may intensify
competitive pressures. Many of the Company's current competitors have longer
operating histories, better name recognition and greater financial, marketing
and other resources than the Company. There can be no assurance that the
Company will be able to maintain market share as new competition develops, to
increase its market share at the expense of its existing competition, or that
the Company will not experience pricing pressures as a result of intensifying
competition within the golf apparel market.
In addition to competing with fashion golf apparel manufacturers, the
Company also competes with manufacturers of high quality men's and women's
sportswear and general leisure wear. Many of these manufacturers have
substantially greater experience, financial and marketing resources,
manufacturing capacity, distribution and design capabilities than the
Company. Increased competition in the fashion golf apparel market from these
manufacturers or others could result in price reductions, reduced margins or
loss of market share, all of which could have a material adverse effect on
the Company's results of operations and financial condition.
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RAW MATERIALS
The Company purchases its fabric in bulk from various mills in the United
States and from several foreign mills. Substantially all of the Company's
apparel is manufactured with 100% cotton fabrics, except certain women's
apparel made of silk and rayon and certain garments in the Elements outerwear
line which use the Gore Windstopper fabric. During fiscal 1997, the Company
purchased fabric from 15 different mills. The Company's seven largest fabric
suppliers accounted for approximately 68% of the Company's fabric
expenditures in fiscal 1997. The Company's raw materials also include trim
consisting principally of buttons, collars, bands, linings, labels and
zippers and headwear components such as bills and adjustable bands. The
Company purchased trim from several suppliers during fiscal 1997, with the
four largest suppliers accounting for approximately 80% of total trim
expenditures.
The Company utilizes domestic and foreign suppliers for the sourcing of
raw material for, and production of, the Elements outerwear line. Because
each of these suppliers provides different portions of the Elements line,
loss of one or more of these suppliers could potentially affect the Company's
ability to make timely delivery of outerwear. The Company believes there are
a number of other apparel manufacturers from which the Company could secure
its outerwear line, if necessary.
The Company does not have any formal contractual arrangements for the
purchase of raw materials from its suppliers, but issues purchase orders as
raw materials are required. Although the Company believes that fabric and
trim are available from a large number of domestic and foreign sources, the
inability of the Company to secure fabric or trim from existing suppliers
during periods of high seasonal demand could result in delays in deliveries
to customers, thereby adversely affecting the Company's profitability.
The Company's production personnel oversee its raw material sourcing.
Production personnel are responsible for on-time delivery of the Company's
fashion golf apparel and negotiating costs consistent with the Company's
desired profit margins on each style. Production personnel inspect samples
of each item prior to the commencement of actual production and consult with
design personnel in order to ensure that the Company's high quality standards
are maintained.
MANUFACTURING
With the exception of embroidery operations and headwear assembly, all
manufacturing activities are undertaken by independent third party
contractors. Following the purchase of raw materials, the Company arranges
for shipment of these materials directly to cutting and sewing contractors
who are located primarily in the United States and its territories. These
contractors are responsible for cutting and sewing apparel to the Company's
specifications. During fiscal 1997, the Company used nine cutting and sewing
contractors, although approximately 75% of the Company's apparel was produced
by five of these cutting and sewing contractors. The Company has no
contractual arrangements other than purchase orders with its cutting and
sewing contractors and believes that these services may be purchased by the
Company from a large number of domestic and foreign sources.
The Company utilizes a management information system designed for the
apparel industry which facilitates planning, production scheduling, product
tracking and standard cost control. The management information system
provides a perpetual inventory record and provides customer service personnel
with access to inventory availability.
The Company receives its orders for the spring or fall collections over a
period commencing when samples are first shown to customers and continuing
through the season. The Company must schedule production in advance of order
placement, although it can respond to order trends over the period by
sequencing production with reorders. Because production of the Company's
apparel collections is time-sensitive, the Company devotes considerable
efforts to the preparation of forecasts of apparel sales by item and style.
In addition to purchasing raw materials and contracting for
manufacturing, the Company has expanded its purchasing of finished goods
which are manufactured by outside suppliers to the Company's specifications.
The Company assists outside suppliers in sourcing of raw materials for these
finished products. This method of purchasing eliminates the Company's need to
purchase fabric and trim. In fiscal 1997, the Company estimates that between
25% and 30% of the Company's apparel was purchased as finished goods.
Because the Company has also adopted this method of purchasing for the
Elements outerwear line, the Company anticipates that purchase of finished
goods will account for an increasing percentage of apparel
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production in future periods. The Company purchases headwear components and
fabric inventory and assembles and sews all headwear at the Company's
facility in Denver, Colorado.
Finished apparel is shipped to the Company's warehouse facilities in
Denver, Colorado, for embroidery, final inspection by the Company's quality
assurance personnel, packaging and shipping. The Company maintains ten
computer-controlled embroidering machines on its premises which together can
embroider a minimum of 2,700 custom logos in two 8-hour shifts. One of the
Company's 15-head embroidery machines is used primarily for headwear
embroidery operations. A majority of the Company's men's shirts are custom
embroidered with a country club, resort or company logo, or with the
Company's own Haley logo. A lesser percentage of women's apparel is
similarly embroidered.
NATURE OF BUSINESS
Golf apparel sales tend to be seasonal in nature, with a disproportionate
share of sales occurring in the first and second calendar quarters, which is
the Company's third and fourth fiscal quarters, of each year.
TRADEMARK
The Company markets its products under the Haley label. The Company has
registered the Haley mark and the distinctive "H" design with the United
States Patent and Trademark Office. The Company has also registered the
Haley mark in a number of foreign countries.
EMPLOYEES
At June 30, 1997, the Company had 112 full-time employees and 18
part-time employees, including 19 administrative employees, nine marketing
employees, 62 full-time and 10 part-time personnel in inspection, packaging,
embroidering and distribution operations, three full-time and five part-time
retail employees in the factory outlet store, and 20 full-time and two
part-time employees in headwear operations. The Company's employees are not
represented by a union and the Company considers its relations with its
employees to be good.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's executive offices and warehouse facilities are located in
Denver, Colorado and consist of 96,500 square feet of floor space. The
facility is currently leased for an annual base rent of approximately
$194,000, which increases incrementally to $206,000 in 2001. The Company is
obligated to pay taxes, insurance and maintenance expenses for the leased
space through expiration of the lease in October 2001. The Company also has
leased approximately 2,200 square feet of retail space for a factory outlet
store being constructed in Laughlin, Nevada. The annual base rental for this
space is $44,000 during the first three years of the lease and $48,000 for
the remaining four years. The factory outlet store opened in June 1996.
ITEM 3. LEGAL PROCEEDINGS
At June 30, 1997, the Company was not a party to any material legal
proceeding. On August 28, 1997, the Company filed a complaint, titled
SPORT-HALEY, INC. V. NANCY HALEY, in the District Court, County of Jefferson,
State of Colorado, relating to a consulting agreement (the "Agreement")
entered into in May 1996 between the Company and Ms. Haley, a former officer,
director and principal shareholder of the Company. The Agreement provided
for Ms. Haley to render certain consulting services and contained certain
covenants by Ms. Haley which included, among others, a covenant not to
compete during the term of the Agreement and a covenant not to interfere with
any business relationship of the Company. The Agreement commenced June 1,
1996 and Ms. Haley terminated the Agreement in April 1997. The Company
alleges in its complaint that Ms. Haley breached the Agreement by forming a
competing company while she was being paid by the Company as a consultant and
by interfering and attempting to interfere with the Company's business
relationship with its sales representatives. The Company seeks such damages
as may be proven at trial for breach of the Agreement, breach of duty of
loyalty and interference with contracts as well as interest, costs and
reasonable attorneys' fees.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of fiscal 1997 to a
vote of security holders through the solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on The Nasdaq Stock
Market-Registered Trademark- under the trading symbol SPOR and on the Pacific
Stock Exchange under the symbol SHY. From April 5, 1994 until December 14,
1994, the Common Stock was quoted on the Nasdaq SmallCap Market-SM-. Since
December 14, 1994, the Common Stock has been quoted on the Nasdaq National
Market.-Registered Trademark- The following table sets forth the range of
high and low sales prices, as reported by The Nasdaq Stock Market, from July
1, 1994 through June 30, 1997. The prices set forth below reflect
interdealer quotations, without retail markups, markdowns or commissions, and
may not represent actual transactions.
FISCAL YEAR 1995 HIGH LOW
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First Quarter $ 7 5/8 $ 5 7/8
Second Quarter 7 1/2 6 1/4
Third Quarter 9 6 7/8
Fourth Quarter 9 1/2 7 7/8
FISCAL YEAR 1996
----------------
First Quarter $10 1/2 $ 8 7/8
Second Quarter 10 5/8 8 7/8
Third Quarter 12 9 5/8
Fourth Quarter 16 7/8 11
FISCAL YEAR 1997
----------------
First Quarter $16 1/8 $10 7/8
Second Quarter 16 3/8 12 1/4
Third Quarter 18 1/2 12 1/2
Fourth Quarter 20 1/8 14 5/8
On September 23, 1997 the closing trade price of the Common Stock was
$14.625. As of September 23, 1997, the number of record holders of the
Company's Common Stock was approximately 105.
Holders of Common Stock are entitled to receive such dividends as may be
declared by the Company's Board of Directors. No dividends on the Common
Stock have been paid by the Company, nor does the Company anticipate that
dividends will be paid in the foreseeable future.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL
STATEMENTS AND NOTES THERETO.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by items included in or derived from the Company's
statements of income:
FISCAL YEAR ENDED JUNE 30,
--------------------------
1997 1996 1995
----- ----- -----
Net sales....................................... 100.0% 100.0% 100.0%
Cost of goods sold.............................. 58.2 57.8 59.4
----- ----- -----
Gross profit.................................... 41.8 42.2 40.6
Selling, general and administrative expenses.... 24.1 24.6 26.7
----- ----- -----
Income from operations.......................... 17.7 17.6 13.9
Interest and other, net......................... 1.3 1.8 2.2
----- ----- -----
Income before provision for income taxes........ 19.0 19.4 16.1
Income taxes.................................... 5.5 7.2 5.9
----- ----- -----
Net income...................................... 13.5% 12.2% 10.2%
----- ----- -----
----- ----- -----
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1997 AND 1996. Net sales for
the year ended June 30, 1997 ("fiscal 1997") were $28.9 million, an increase
of $8.6 million, or approximately 42%, as compared to $20.3 million for the
fiscal year ended June 30, 1996 ("fiscal 1996"). This increase was due to
many of the same factors which have contributed to increases in the prior
years, including a greater number of products offered within each line,
greater market penetration, and higher sales per account. Other factors
which contributed to the increase during fiscal 1997 were a full year's sales
of the Elements line, the introduction of the headwear line and the opening
of the factory outlet store. The men's and women's line accounted for
approximately 52% and 47%, respectively, of total net sales. Men's line and
women's line sales increased 52% and 31%, respectively, in fiscal 1997 over
fiscal 1996.
Gross profit increased by $3.5 million, or approximately 41%, from $8.6
million in fiscal 1996 to $12.1 million in fiscal 1997. The increase in
gross profit was primarily a result of the same factors as in prior years,
which were a combination of increased sales, volume purchasing of raw
materials and better pricing from outside cutting and sewing contractors.
The cost of goods sold as a percentage of net sales increased slightly due to
an increase in certain design costs and due to changes in the product sales
mix, as the various lines have different margins.
Selling, general and administrative expenses for fiscal 1997 were $7.0
million, an increase of $2.0 million, or approximately 40%, compared to $5.0
million for fiscal 1996. This increase was primarily attributable to payroll
costs associated with the additional personnel required to handle increased
sales volume, manufacturing of the headwear line and operation of the factory
outlet store. In addition, as in prior years, other factors contributing to
the increase included commissions to independent sales representatives on
higher sales levels and increased advertising and marketing expenditures.
And finally, the Company incurred lease expense for the factory outlet store
and a full years' increased costs for the additional space leased at the
Company's facility for the new headwear line. However, as a percentage of net
sales, selling, general and administrative expenses decreased from 24.6% in
fiscal 1996 to 24.1% in fiscal 1997.
Net other income and expenses increased from $353,000 in fiscal 1996 to
$389,000 in fiscal 1997, resulting primarily from an increase in interest
earned on invested funds and an income tax refund, offset by expenditures to
repurchase non-qualified stock options.
Income before provision for income taxes increased $1.6 million, or
approximately 41%, from $3.9 million in fiscal 1996 to $5.5 million in fiscal
1997. Provision for income taxes increased $136,000 from $1.5 million in
fiscal 1996 to $1.6 million in fiscal 1997. Income taxes for both of these
fiscal years were affected by certain income tax timing differences between
book and taxable income. The effective tax rate for fiscal 1996 was 37% and
for fiscal 1997 was 29%.
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Net income increased from $2.5 million in fiscal 1996 to $3.9 million in
fiscal 1997, an increase of 56%. This increase can be attributed to the
factors discussed above, but resulted primarily from increases in sales
volume and the Company's control of cost of goods sold and operating
expenditures. This represents growth in net income as a percentage of net
sales from 12.2% in fiscal 1996 to 13.5% in fiscal 1997.
COMPARISON OF FISCAL YEARS ENDED JUNE 30, 1996 AND 1995. Net sales for
fiscal 1996 were approximately $20.3 million, an increase of $7.7 million, or
approximately 61%, as compared to approximately $12.6 million for the fiscal
year ended June 30, 1995 ("fiscal 1995"). This increase was due to a
combination of factors, including a greater number of products offered within
each line, greater market penetration, and higher sales per account among a
majority of accounts. The men's and women's line each accounted for
approximately 50% of total net sales. Men's line and women's line sales
increased 58% and 67%, respectively, in fiscal 1996 over fiscal 1995.
Gross profit increased by $3.5 million, or 68%, from $5.1 million in
fiscal 1995 to $8.6 million in fiscal 1996. The decrease in cost of goods
sold as a percentage of net sales and the increase in gross profit as a
percentage of net sales was primarily a result of the combination of
increased sales, volume purchasing of raw materials and greater economies in
the utilization of outside contractors for manufacturing services.
Selling, general and administrative expenses for fiscal 1996 were $5.0
million, an increase of $1.7 million, or approximately 52%, compared to $3.3
million for fiscal 1995. This increase was primarily attributable to
personnel additions necessary to handle increased sales volume, commissions
to independent sales representatives on higher sales levels, increased
advertising and marketing expenditures, and increased costs for the
additional space leased at the Company's facility during fiscal 1996 for its
new headwear division. However, as a percentage of net sales, selling,
general and administrative expenses decreased from 26.7% in fiscal 1995 to
24.6% in fiscal 1996.
Net other income increased from $279,000 in fiscal 1995 to $353,000 in
fiscal 1996, resulting primarily from increased interest on invested funds.
Income before provision for income taxes increased $1.9 million, or
approximately 95%, from $2.0 million in fiscal 1995 to $3.9 million in fiscal
1996. Provision for income taxes increased $711,000 from $743,000 in fiscal
1995 to $1.5 million in fiscal 1996. Income taxes for both of these fiscal
years were affected by certain tax timing differences between book and
taxable income. The effective tax rate for each of the two years was 37%.
Net income increased from $1.3 million in fiscal 1995 to $2.5 million in
fiscal 1996, or 92%. This increase can be attributed to increases in sales
volume, and the Company's control of cost of goods sold and operating
expenditures. This represents growth in net income as a percentage of net
sales from 10% in fiscal 1995 to 12% in fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced significant growth since 1991, with its net
sales increasing from $4.0 million in fiscal 1993 to $28.9 million in fiscal
1997. Historically, the Company has financed its operations through a
combination of bank borrowings, related party borrowings, the private and
public sale of equity and revenue from operations.
Since April 1994, the Company has maintained an annually renewable
revolving line of credit with the same bank. The revolving line of credit
agreement, which has been renewed through October 31, 1997, provides for
interest at 1/2% below the bank's prime rate and grants the bank a lien on
substantially all of the Company's assets. At the time of its most recent
renewal, the revolving line of credit provided for a maximum loan amount of
$10.0 million. The Company has never drawn on its revolving line of credit,
but maintains such line of credit to facilitate the issuance of letters of
credit for inventory purchases from offshore suppliers.
In March and April, 1996 the Company completed a public offering of
1,020,000 shares of its Common Stock, which included an over allotment of
150,000 shares. The Common Stock was offered at $10.50 per share. The
Company realized gross proceeds of approximately $10.7 million and net
proceeds of approximately $9.6 million after deducting stock offering costs
of approximately $1.1 million. The Company used a portion of the proceeds to
fund expenditures related to its new headwear operations and has retained the
balance of the proceeds to finance, as needed, growth in inventories,
accounts receivable and other operating expenditures.
-9-
<PAGE>
Net cash provided by operating activities totalled approximately $1,000
for fiscal 1997 as compared to net cash used by operating activities of $1.2
million in fiscal 1996. As anticipated, the primary components of cash used
in operating activities was inventories and accounts receivable. Working
capital requirements are expected to grow as the Company expands its
inventory and seeks to increase sales through additional marketing activities
and extension of its product lines. Working capital was $26.3 million at
June 30, 1997, compared to $21.4 million and $10.8 million at the end of
fiscal 1996 and 1995, respectively. As of June 30, 1997, the Company had
cash and cash equivalents of $10.3 million.
The Company intends to rely on cash generated from operations and cash
from investments to finance its working capital requirements for at least the
next 12 months. To the extent such amounts are insufficient to finance the
Company's working capital requirements, the Company may also make periodic
borrowings under its revolving line of credit.
INVESTMENT BANKING RELATIONSHIPS
In May 1997, the Company engaged Dain Bosworth Incorporated and Donaldson
Lufkin Jenrette Securities Corporation to assist the Company in exploring
strategic alternatives for increasing shareholder value. The Company is
continuing to work with its investment bankers for such purposes.
ITEM 7. FINANCIAL STATEMENTS
INDEX
PAGE
----
Report of Independent Certified Public Accountants 11
Balance Sheets 12
Statements of Income 13
Statement of Shareholders' Equity 14
Statements of Cash Flows 15
Notes to Financial Statements 16-27
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-10-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Shareholders
Sport-Haley, Inc.
Denver, Colorado
We have audited the accompanying balance sheets of Sport-Haley, Inc. as of
June 30, 1997 and 1996 and the related statements of income, shareholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the 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 of the financial
statements provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sport-Haley, Inc. as of
June 30, 1997 and 1996, and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
/s/ LEVINE, HUGHES & MITHUEN, INC.
ENGLEWOOD, COLORADO
AUGUST 19, 1997
-11-
<PAGE>
SPORT-HALEY, INC.
BALANCE SHEETS
JUNE 30, 1997 AND 1996
ASSETS
<TABLE>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . $10,273,466 $ 8,647,736
Short-term investments and marketable securities . . . . 1,319,470 2,749,474
Accounts receivable, net of allowance of $71,157
and $90,243, respectively . . . . . . . . . . . . 5,756,451 4,549,201
Inventories . . . . . . . . . . . . . . . . . . . . . . 9,981,521 7,716,388
Prepaid expenses . . . . . . . . . . . . . . . . . . . . 1,060,522 1,062,071
Deferred taxes . . . . . . . . . . . . . . . . . . . . . 54,551 35,195
----------- -----------
TOTAL CURRENT ASSETS. . . . . . . . . . . . . . . . 28,445,981 24,760,065
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . . 2,408,904 1,700,016
LONG-TERM INVESTMENTS . . . . . . . . . . . . . . . . . . . - 1,273,932
OTHER ASSETS. . . . . . . . . . . . . . . . . . . . . . . . 67,262 31,645
----------- -----------
$30,922,147 $27,765,658
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Capital lease obligations maturing within one year . . . $ 1,801 $ 1,581
Accounts payable . . . . . . . . . . . . . . . . . . . . 1,319,155 2,141,455
Accrued income taxes . . . . . . . . . . . . . . . . . . - 464,483
Accrued commissions and other expenses . . . . . . . . . 874,505 725,051
----------- -----------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . 2,195,461 3,332,570
----------- -----------
LONG-TERM LIABILITIES:
Capital lease obligation, net of current maturities. . . 874 2,454
Deferred rent . . . . . . . . . . . . . . . . . . . . . 912 4,560
Deferred taxes . . . . . . . . . . . . . . . . . . . . . 18,880 60,676
----------- -----------
20,666 67,690
----------- -----------
2,216,127 3,400,260
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 10, 13, 14 and 15)
SHAREHOLDERS' EQUITY:
Preferred stock, no par value; authorized 1,500,000
shares; none issued and outstanding . . . . . . . . - -
Common stock, no par value; 15,000,000 shares
authorized; 4,651,073 and 4,419,271 shares
issued and outstanding, respectively. . . . . . . . 20,439,509 20,166,106
Additional paid-in capital . . . . . . . . . . . . . . . 285,676 62,661
Retained earnings. . . . . . . . . . . . . . . . . . . . 8,186,858 4,276,904
Unrealized loss on marketable securities . . . . . . . . (206,023) (140,273)
----------- -----------
TOTAL SHAREHOLDERS' EQUITY. . . . . . . . . . . . . 28,706,020 24,365,398
----------- -----------
$30,922,147 $27,765,658
----------- -----------
----------- -----------
</TABLE>
See accountants' audit report
and notes to fiancial statements.
-12-
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
1997 1996
----------- -----------
NET SALES $28,900,350 $20,287,277
COST OF GOODS SOLD 16,820,275 11,719,115
----------- -----------
GROSS PROFIT 12,080,075 8,568,162
Selling, general and administrative expenses 6,969,656 4,995,382
----------- -----------
INCOME FROM OPERATIONS 5,110,419 3,572,780
----------- -----------
OTHER INCOME AND EXPENSE:
Interest income, net 410,611 296,225
Other income 338,846 56,337
Other expense (360,174) -
----------- -----------
389,283 352,562
----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES 5,499,702 3,925,342
Provision for income taxes 1,589,748 1,453,507
----------- -----------
NET INCOME $ 3,909,954 $ 2,471,835
----------- -----------
----------- -----------
EARNINGS PER SHARE $ .84 $ .66
----------- -----------
----------- -----------
WEIGHTED AVERAGE SHARES OUTSTANDING 4,658,796 3,769,859
----------- -----------
----------- -----------
See accountants' audit report
and notes to financial statements.
-13-
<PAGE>
SPORT-HALEY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
COMMON STOCK ADDITIONAL UNREALIZED
------------------------ PAID-IN RETAINED LOSS ON MARKETABLE SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SECURITIES EQUITY
--------- ----------- ---------- -------- ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1995 3,118,188 $10,062,354 $ 75,161 $1,805,069 $ - $11,942,584
Issuance of common stock for cash 1,020,000 10,710,000 - - - 10,710,000
Common stock offering costs - (1,113,450) - - - (1,113,450)
Stock options exercised 313,793 872,886 - - - 872,886
Repurchase of stock options - - (12,500) - - (12,500)
Repurchase of common stock (32,710) (365,684) - - - (365,684)
Unrealized loss on securities
available for sale - - - - (140,273) (140,273)
Net income - - - 2,471,835 - 2,471,835
--------- ----------- -------- ---------- --------- -----------
BALANCE AT JUNE 30, 1996 4,419,271 20,166,106 62,661 4,276,904 (140,273) 24,365,398
Stock options exercised 319,905 1,657,967 - - - 1,657,967
Warrants exercised 39,187 240,865 - - - 240,865
Repurchase of common stock (127,290) (1,625,429) - - - (1,625,429)
Stock option compensation - - 223,015 - - 223,015
Unrealized loss on securities
available for sale - - - - (65,750) (65,750)
Net income - - - 3,909,954 3,909,954
--------- ----------- -------- ---------- --------- -----------
BALANCE AT JUNE 30, 1997
4,651,073 $20,439,509 $285,676 $8,186,858 $(206,023) $28,706,020
--------- ----------- -------- ---------- --------- -----------
--------- ----------- -------- ---------- --------- -----------
</TABLE>
See accountants' audit report
and notes to financial statements.
-14-
<PAGE>
SPORT-HALEY, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
1997 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,909,954 $ 2,471,835
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 449,862 324,543
Deferred taxes, and other (64,800) 2,592
Allowance for doubtful accounts (19,086) 24,718
Loss on disposal of assets - 7,207
Amortization of investment premiums 126,747 23,442
Stock option compensation 223,015 -
Cash provided (used) due to changes in assets and liabilities:
Accounts receivable (1,188,164) (1,391,976)
Inventory (2,265,133) (3,342,387)
Prepaid expenses 1,549 (403,207)
Other assets (35,617) (16,505)
Accounts payable (822,300) 752,299
Accrued commissions and other expenses 149,454 391,714
Accrued income taxes (464,483) (23,836)
----------- -----------
Net cash provided (used) by operating activities 998 (1,179,561)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (1,158,750) (833,881)
Purchase of short-term investments and marketable securities (4,187,120)
Sale of short-term investments and marketable securities 2,511,439 -
----------- -----------
Net cash provided (used) by investing activities 1,352,689 (5,021,001)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (1,360) (1,014)
Proceeds from issuance of common stock - 10,710,000
Proceeds from exercised stock options and warrants 1,898,832 872,886
Common stock offering costs - (1,113,450)
Repurchase of common stock (1,625,429) (365,684)
Repurchase of stock options - (12,500)
----------- -----------
Net cash provided by financing activities 272,043 10,090,238
----------- -----------
Net increase in cash and cash equivalents 1,625,730 3,889,676
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,647,736 4,758,060
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $10,273,466 $ 8,647,736
----------- -----------
----------- -----------
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 7,594 $ 4,997
----------- -----------
----------- -----------
Taxes $ 2,130,562 $ 2,361,208
----------- -----------
----------- -----------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:
At June 30, 1997 the Company has unrealized holding losses on marketable
securities of $206,023.
See accountants' audit report
and notes to financial statements.
-15-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION AND NATURE OF OPERATIONS
NATURE OF OPERATIONS:
Sport-Haley designs, markets, and contracts for the manufacture of
quality men's and women's fashion golf apparel under the
distinctive Haley-Registered Trademark- label. The Company's
fashion golf apparel is known for its innovative styling, high
quality fabrics, generous fit and classic appearance. The
Company's apparel is sold in the premium and mid-price market
through a network of independent sales representatives and
distributors to primarily golf professional shops, country clubs
and resorts throughout the United States and internationally. The
Company also sells to college, university and corporate markets.
ORGANIZATION:
The predecessor of Sport-Haley, Inc. was initially established as a
division of Haley & Company, Inc. The Company was organized as a
Colorado corporation on January 1, 1991 as Sun Daze Apparel, Inc.
(the Company's name was later changed to Sun Daze by Nancy Haley,
Inc.), a wholly owned subsidiary of Haley & Company, Inc. Effective
June 30, 1992, the Company ceased being a wholly owned subsidiary
of Haley and Company, Inc. as a result of a transaction that was
structured as a tax free spin-off. On September 18, 1992, the
Company changed its name from Sun Daze by Nancy Haley, Inc. to
Sport-Haley, Inc.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES:
Inventories are stated at the lower of cost (first-in, first-out)
or market. The Company maintains a perpetual inventory system and
adjusts inventories annually based upon the results of its physical
inventory taken at its fiscal year end. Cost includes materials,
labor and manufacturing overhead.
BAD DEBTS:
Bad debts are provided for using the allowance method based on
historical experience and evaluation of outstanding accounts
receivable at year end.
DEPRECIATION AND AMORTIZATION:
Furniture, fixtures and equipment are depreciated over the estimated
useful lives of the assets ranging from three to twelve years using
the straight-line method of depreciation. Depreciation and
amortization expense at June 30, 1997 and 1996 was $449,862 and
$324,543, respectively.
Leasehold improvements are amortized over the remaining life of the
lease, using the straight-line method.
Upon disposing of assets, the related cost and accumulated
depreciation are removed from the books and the resulting gain or loss
is recognized in the year of the disposition.
-16-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
LONG-LIVED ASSETS:
The Company periodically evaluates whether the remaining useful life
of long-lived assets may require revision or the remaining
unamortized balance may not be recoverable. Accordingly, when
factors indicate the asset should be evaluated for possible
impairment, the Company uses an estimate of the specific asset's
cash flow in evaluating such asset's fair value.
REVENUE RECOGNITION:
The Company recognizes revenue upon shipment of its products.
DEFERRED RENT:
Deferred rent is recognized for the difference between rent expense
which the Company records applying the straight-line method over the
life of the lease and the monthly payments called for in the lease
agreement.
DEFERRED TAXES:
Deferred income taxes are recognized for the tax consequences in
future years of differences between the tax base of assets and
liabilities and their financial reporting amounts at each year end,
based on enacted tax laws and statutory tax rates applicable to the
periods in which the differences are expected to affect taxable
income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized.
Income tax expense is the tax payable for the period and the change
during the period in deferred tax assets and liabilities.
INCOME PER COMMON AND EQUIVALENT SHARE:
Income per common share amounts are computed based upon the weighted
average number of shares outstanding during the year, including
common stock equivalents resulting from dilutive stock options and
warrants.
STATEMENT OF CASH FLOWS:
For purposes of the statement of cash flows, the Company considers
all highly liquid instruments purchased with a maturity of three
months or less that are readily convertible to known amounts of cash
and present an insignificant risk of change in value because of
changes in interest rate to be cash equivalents.
RECLASSIFICATIONS:
Certain reclassifications have been made to the 1996 amounts to
conform to the current year presentation.
FINANCIAL INSTRUMENTS:
The Company periodically maintains cash balances at a commercial
bank in excess of the Federal Deposit Insurance Corporation
insurance limit of $100,000.
-17-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of the Company's financial instruments
are as follows:
<TABLE>
1997 1996
------------------------- -----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents $10,273,466 $10,273,466 $8,647,736 $8,647,736
Short-term investments
and marketable securities 1,319,470 1,319,470 2,749,474 2,749,474
Long-term investments - - 1,273,932 1,273,932
</TABLE>
The carrying amount approximates fair value of cash and cash
equivalents in short-term investments and marketable securities.
The carrying value of all other financial instruments potentially
subject to valuation risk (principally consisting of accounts
receivable and accounts payable) also approximate fair value.
NOTE 4 CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of the following:
JUNE 30,
-------------------------
1997 1996
----------- -----------
Cash in banks $ 2,039,832 $ 1,465,495
Short-term securities 8,233,634 7,182,241
----------- -----------
$10,273,466 $ 8,647,736
----------- -----------
----------- -----------
NOTE 5 USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect certain reported amounts and
disclosures. Accordingly, actual results could differ from those
estimates.
NOTE 6 INVESTMENTS AND MARKETABLE SECURITIES
The Company's investment in debt securities are generally held to
maturity and valued at amortized cost, which approximates fair
value. The fair value at June 30, 1997 was $1,291,420 for
investments in debt securities.
The Company's investments in marketable equity securities are held
for an indefinite period and are classified as available for sale.
The fair value of these securities at June 30, 1997, was $28,050.
The unrealized holding losses associated with these securities,
which were deducted from shareholders' equity, was $206,023 at June
30, 1997.
-18-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 INVENTORIES
Inventories consist of the following:
JUNE 30,
---------------------------
1997 1996
---------- ----------
Component inventory $4,751,026 $3,053,848
Finished goods 5,230,495 4,662,540
---------- ----------
$9,981,521 $7,716,388
---------- ----------
---------- ----------
NOTE 8 ADVERTISING
The Company expenses the production costs of advertising the first
time the advertising takes place, except for direct-response
advertising, which is capitalized and amortized over its expected
period of future benefits.
Direct-response advertising consists primarily of future advertising
costs incurred in association with the Company's independent sales
representatives. These capitalized costs are amortized over the
future selling seasons, generally five to seven months, the period
in which the revenue is recognized. At June 30, 1997 and 1996,
approximately $260,670 and $431,991 of advertising was capitalized.
Advertising expense was $457,542 and $544,099 for the years ended
June 30, 1997 and 1996, respectively.
NOTE 9 PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are comprised of the
following at:
JUNE 30,
-------------------------
1997 1996
---------- ----------
Plant equipment $1,797,670 $ 914,304
Furniture and equipment 985,696 999,311
Leasehold improvements 393,028 331,134
Transportation equipment 66,627 49,940
Property held under capital lease 6,685 6,685
---------- ----------
3,249,706 2,301,374
Less, accumulated depreciation
and amortization 840,802 601,358
---------- ----------
$2,408,904 $1,700,016
---------- ----------
---------- ----------
NOTE 10 LINE OF CREDIT AGREEMENT
The Company has a $10,000,000 working line of credit agreement with
a bank which expires October 31, 1997. The line of credit agreement
is collateralized by accounts receivable, inventories, machinery and
equipment and general intangibles. The interest rate on borrowings
is at one half percent below the banks prime rate (rate on note is
8.0% at June 30, 1997) with interest payable monthly. At June 30,
1997 and 1996 there were no borrowings outstanding on the line of
credit.
-19-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 11 INCOME TAXES
The components of income tax expense are as follows:
JUNE 30,
-------------------------
1997 1996
----------- -----------
Current
Federal $ 1,423,300 $ 1,253,119
State 227,600 193,906
----------- -----------
1,650,900 1,447,025
----------- -----------
Deferred
Federal (53,312) 5,651
State (7,840) 831
----------- -----------
(61,152) 6,482
----------- -----------
Total $ 1,589,748 $ 1,453,507
----------- -----------
----------- -----------
The difference between the U.S. Federal statutory rate and the Company's
effective rate is as follows:
JUNE 30,
--------------
1997 1996
---- ----
U.S. Federal statutory rate 34.0% 34.0%
State income taxes, net of federal benefits 4.1 4.9
Increase (decrease) in deferred taxes (.1) .1
Other (9.1) (2.0)
---- ----
Effective tax rate 28.9% 37.0%
---- ----
---- ----
The components of the net deferred tax asset and net deferred tax liability
recognized in the accompanying balance sheets are as follows:
JUNE 30,
------------------------------------------
1997 1996
-------------------- -------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------- ---------- ------- ---------
Deferred tax liability $ $ (100,981) $ - $ (60,676)
Deferred tax asset 54,551 82,101 35,195 -
------- --------- ------- ---------
$54,551 $ (18,880) $35,195 $ (60,676)
------- --------- ------- ---------
------- --------- ------- ---------
The types of temporary differences between the tax bases of assets and
liabilities and their financial reporting amounts that give rise to a
significant portion of the deferred tax asset and liability and their
appropriate tax effects are as follows:
<TABLE>
JUNE 30,
-----------------------------------------------------------------------
1997 1996
---------------------------------- --------------------------------
TAX EFFECT TAX EFFECT
TEMPORARY -------------------- TEMPORARY -------------------
DIFFERENCE CURRENT LONG-TERM DIFFERENCE CURRENT LONG-TERM
---------- ------- --------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts $ 71,157 $ 27,751 $ - $ 90,243 $35,195 $ -
Accumulated depreciation 258,925 (100,981) 155,580 - (60,676)
Stock options 210,515 82,101
Loss on stock 68,718 26,800
--------- --------- ------- ---------
$ 54,551 $ (18,880) $35,195 $ (60,676)
--------- --------- ------- ---------
--------- --------- ------- ---------
</TABLE>
-20-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 12 EQUIPMENT UNDER CAPITAL LEASE
The Company acquired certain equipment under a capital lease. The
future minimum lease payments as of June 30, 1997 are as follows:
ANNUAL
YEARS ENDED JUNE 30, PAYMENTS
-------------------- --------
1998 $ 2,214
1999 923
--------
Total minimum lease payments 3,137
Less amount representing interest 462
--------
Present value of future net minimum lease
payments 2,675
Less current portion 1,801
--------
$ 874
--------
--------
NOTE 13 OPERATING LEASES
The Company leases its corporate offices, production and warehouse
facilities under an operating lease which expires in fiscal year 2001.
During January 1996, the Company amended this facilities lease
agreement to provide for additional space, located within the Company's
premises, which consists of 15,860 square feet. The Company acquired
the additional space for its headwear division and commenced operations
in October 1996. The lease term and expiration of the additional
space will run concurrent with the original lease dated July 29, 1994.
During October 1994, the Company subleased its former facilities in
Lakewood, Colorado. The sublease is for the period January 1, 1995 to
September 30, 1997. Additionally, during fiscal year 1994, the Company
entered into a non-cancelable operating lease for freight systems and
folding equipment.
During March 1995, the Company entered into a lease for a factory
outlet store located in Laughlin, Nevada. The leased facility
consists of approximately 2,200 square feet and is leased for a term
of seven years, with an option to extend the lease for an additional
five year period following the initial term. The store opened in
June 1996. The lease provides for a base rental of $44,000 per year
in the first three years of the lease and $48,000 per year in the last
four years of the lease.
Rent expense for the years ended June 30, 1997 and 1996 was $289,909
and $232,558, respectively.
The future minimum lease payments under noncancelable leases with
initial terms of one year or more as of June 30, 1997 are as follows:
ANNUAL
YEARS ENDED JUNE 30, PAYMENTS
-------------------- ------------
1998 $ 261,191
1999 245,738
2000 290,325
2001 254,650
Thereafter 165,550
------------
$ 1,217,454
------------
------------
-21-
<PAGE>
SPORT-HALEY, INC
NOTES TO FINANCIAL STATEMENTS
NOTE 14 COMMITMENTS
EMPLOYMENT AGREEMENT:
Effective January, 1997 the Company, with the approval of its
Compensation Committee, entered into an Employment Agreement (the
"Agreement") with Robert G. Tomlinson ("Tomlinson") and Robert W.
Haley ("Mr. Haley") who currently serve as the Company's Chief
Executive Officer and President, respectively. Pursuant to the
terms of the Agreements, Messrs. Tomlinson and Haley will continue
to serve in their respective positions through December 31, 1999.
Annual bonuses, if any, will be determined by the Company's Board
of Directors.
CONSULTING AGREEMENT:
During May 1996, the Company entered into a consulting agreement (the
"Agreement") with Nancy Haley ("Ms. Haley") who formerly served as an
officer and director of the Company. The Agreement provided for
certain consulting services to be rendered in the areas of product
design, advertising and public relations. The Agreement commenced
June 1, 1996 with annual compensation of $90,000 per year for three
years, payable in equal monthly installments of $7,500. The Agreement
could be terminated by Ms. Haley at any time after the first ninety
(90) days of the Agreement by giving written notice at least ten (10)
days prior to the date of termination. The Agreement provided for
certain covenants by Ms. Haley during the term of the Agreement which
included among other things, a covenant not to compete. On April 2,
1997, Ms. Haley gave her notice to terminate the Agreement. Total
fees paid at June 30, 1997 and 1996 were $70,500 and $7,500,
respectively.
AGREEMENT FOR PROFESSIONAL SERVICES:
During May 1996, the Company entered into an agreement for professional
services (the "Agreement") with CLS & Associates, Inc. ("CLS").
Pursuant to the terms of the Agreement, CLS provided certain
engineering and consulting services related to the startup of the
Company's headwear division. The Agreement provides for a term of
125 working days commencing on or about June 1, 1996, for a total fee
of $93,750. Total fees and reimbursed expenses paid at June 30, 1997
and 1996 were $108,952 and $7,880, respectively.
ENDORSEMENT AGREEMENTS WITH PGA PROFESSIONALS:
The Company has endorsement agreements with certain PGA professionals.
Under the terms of these agreements, the Company is obligated to pay
cash compensation, provide apparel and issue stock options to purchase
shares of the Company's common stock. The future aggregate annual
compensation under these agreements are listed in the table below.
ANNUAL
YEAR PAYMENTS
---- --------
1998 $ 12,500
The number of options granted to purchase shares of the Company's
common stock will be issued based upon the professional's performance
in certain listed PGA events. Vesting will occur at time of
performance. The stock options are granted at the market value of
the Company's common stock at the date of the agreements. During
the fiscal year ended June 30, 1997, the Company issued 68,000 stock
option shares pursuant to endorsement agreements.
-22-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 14 COMMITMENTS (CONTINUED)
OUTSTANDING LETTERS OF CREDIT:
The Company has entered into a letter of credit arrangement with a
bank, in the ordinary course of business, to facilitate the purchase
of inventory and fabric from various offshore suppliers. At June 30,
1997 the Company has approximately $492,000 of outstanding letters of
credit.
NOTE 15 SHAREHOLDERS' EQUITY
COMPLETION OF PUBLIC OFFERING:
In March and April, 1996 the Company completed its second public
offering of 1,020,000 shares of its common stock, which included an
over allotment of 150,000 common shares. The common stock was offered
at $10.50 per share. The Company realized gross proceeds of
approximately $10.710 million and net proceeds of approximately
$9.597 million after deducting stock offering costs of approximately
$1.113 million.
REPURCHASE OF COMMON STOCK:
During December 1994, the Company's Board of Directors authorized the
repurchase of up to 150,000 shares of the Company's issued and
outstanding common stock. The repurchase of the Company's common stock
is based upon the Board of Director's belief that the Company's common
stock is underpriced given its earnings and prospect for future
operations. The shares may be purchased from time to time in open
market transactions at prevailing market prices. The Company has no
commitment or obligation to purchase all or any portion of the shares.
All shares purchased by the Company will be canceled and returned to
the status of authorized but unissued common stock. In October, 1996,
the Company's Board of Directors authorized an increase of an
additional 150,000 common shares that the Company may repurchase thus
bringing the total common shares authorized for repurchase to 300,000
shares. As of June 30, 1997 and 1996 the Company repurchased 127,290
shares and 32,710 shares of its common stock at a cost of approximately
$1.625 million and $365,684, respectively.
COMMON STOCK OPTIONS:
During March 1993, the Company, adopted a Stock Option Plan (the
"Plan"). The Plan, as originally adopted, provided for the reservation
of 750,000 shares of the Company's common stock. During January 1995,
the shareholders approved a Plan Amendment to provide for an increase
in the number of shares reserved for issuance under the Plan by 200,000
shares, effectively increasing the total shares reserved under the Plan
to 950,000 shares. Under the Plan, the Company may grant options to
purchase common stock to employees, directors and consultants of the
Company and any subsidiary thereof. Generally, the options vest over
three years, are granted at fair value on the date of grant, and expire
ten years from that date. Generally, the options are non-transferrable
and cannot be exercised for a period of six (6) months from the date
granted.
During January 1995, the Company filed a registration statement on Form
S-8 with the Securities and Exchange Commission. The purpose of this
filing was to register up to 950,000 shares of the Company's common
stock being reserved for issuance under the Company's 1993 stock option
plan, as restated. The Plan, as restated, is administered by the
Compensation Committee, and, at its discretion, determines which
parties are to be granted options, number of options granted and
exercise periods. The purchase price of the shares covered by the Plan
will be the fair market value of the stock at the date of the grant.
-23-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 15 SHAREHOLDERS' EQUITY (CONTINUED)
During March 1995, the Board of Directors approved a restatement of the
Company's 1993 Plan. The purpose of the restatement of the Plan was to
provide clarification regarding the terms, conditions and administration of
the Plan.
During May 1996, the Company's Board of Directors authorized the Company to
prepare and issue a "net issuance" offer to purchase the interests of non-
employee holders of the Company's non-qualified stock options. The Company
offered to pay the difference between the exercise price of the non-
qualified stock option and the fair market value of the Company's common
stock on the date the option holder accepted the offer. As of June 30,
1997, the Company had repurchased 30,909 options for approximately
$360,000. On April 1, 1997, the Company's Board of Directors voted to
terminate the "net issuance" offer. Accordingly, the Company will no
longer accept tendered offers to purchase non-qualified stock options from
option holders.
During February 1997, the shareholders of the Company voted to amend and
restate the Plan to increase the number of shares available under the Plans
from 950,000 to 1,200,000 and to simplify administration of the Plan in
accordance with revisions to Section 16 of the Securities Exchange Act of
1934, as amended.
During April 1997, the Company filed a registration statement on Form S-8
with the Securities and Exchange Commission. The purpose of this filing
was to register 250,000 shares of the Company's common stock being reserved
for issuance under the Company's 1993 stock option plan as amended and
restated. This Plan is the same employee benefit plan for which the Form
S-8 registration statement, registering 950,000 shares, as previously filed
during January 1995, is effective.
At June 30, 1997, the Company had 1,200,000 shares of common stock reserved
for issuance pursuant to the Plan, of which 110,878 options (181,094 at
June 30, 1996) were exercisable. During fiscal year 1997 and 1996 option
holders exercised and purchased 319,905 and 313,793 shares of the Company's
common stock and the Company realized gross proceeds of approximately
$1.657 million and $872,886, respectively.
The following activity under the Company's 1993 Amended and Restated Stock
Option Plan is set forth below:
<TABLE>
Outstanding Options
----------------------------------------------------------
Aggregate Weighted Average
Number of Range Exercise Exercise Price
Options Per Share Price Per Share
--------- ------------ ----------- ----------------
<S> <C> <C> <C> <C>
BALANCES, JUNE 30, 1995 447,331 $1.60 - 6.50 $ 1,160,158 $ 2.59
Options granted 296,505 2.50 -12.75 2,044,598 6.90
Options canceled (5,103) 2.50 - 2.50 (12,758) (2.50)
Options repurchased (1,000) 2.50 - 2.50 (2,500) (2.50)
Options exercised (313,793) 1.60 - 6.50 (940,592) (3.00)
--------- ------------ ----------- ------
BALANCES, JUNE 30, 1996 423,940 1.60 -12.75 2,248,906 5.30
Options granted 309,319 5.00 -14.25 3,224,627 10.42
Options canceled (15,892) 5.00 - 7.75 (104,913) (6.56)
Options repurchased (29,909) 2.50 - 7.75 (100,420) (3.36)
Options exercised (319,905) 1.60 -12.12 (1,589,081) (4.97)
--------- ------------ ----------- ------
BALANCES, JUNE 30, 1997 367,553 $1.60 -14.25 $ 3,679,119 $10.01
--------- ------------ ----------- ------
--------- ------------ ----------- ------
</TABLE>
The weighted average fair value of options granted during fiscal 1997 and
1996 was $10.42 and $6.90 per share respectively.
-24-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 15 SHAREHOLDERS' EQUITY (CONTINUED)
The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 123 (SFAS 123), Accounting for Stock Based Compensation
effective for fiscal year 1997 for all issuances of stock options to non-
employees of the Company. The Company will continue to apply APB Opinion
No. 25 (Opinion 25), Accounting for Stock Issued to Employees for all
issuances of stock options to its employees. Generally, all stock options
issued to the Company's employees, pursuant to the Plan, are not
compensatory. No compensation cost has been recognized for fiscal 1996
under the Plan. Had compensation cost for the Plan been determined based
upon the fair value at the grant date for options granted in fiscal 1997
and 1996 consistent with the provisions of SFAS 123, the Company's net
income and net income per share for fiscal 1997 and 1996 would have been
reduced to the pro forma amounts indicated below:
1997 1996
---------- ----------
Net income - as reported $3,909,954 $2,471,835
Net income - pro forma $3,611,462 $2,460,156
Earnings per share - as reported $ .84 $ .66
Earnings per share - pro forma $ .78 $ .65
The fair value of each option grant under the Plan is estimated on the date
of grant using the Black-Scholes option-pricing model with the following
assumptions:
Risk-free interest 5.5% - 6.0%
Expected life 3 years
Expected volatility 32% - 35%
Expected dividend $0
The expected life was determined based on the Plan's vesting period and
exercise behavior of the employees.
The following table summarizes the stock options outstanding at June 30,
1997:
<TABLE>
Options Outstanding Options Exercisable
----------------------------------------------- ---------------------------
Weighted Average Weighted Weighted
Range of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ 2.50 33,593 6 $ 2.50 33,593 $ 2.50
5.875 - 6.50 78,630 7 6.47 55,000 6.50
7.75 - 9.25 55,330 8 8.02 13,953 8.29
12.125 -14.25 200,000 9.5 13.21 13,332 12.52
------- -------
367,553 115,878
------- -------
------- -------
</TABLE>
NOTE 16 UNDERWRITER'S WARRANTS
The Company, in connection with its initial public offering, sold to the
underwriter for a nominal amount, warrants to purchase up to 70,000 shares
of the Company's common stock at $6.50 per share. The underwriter's
warrants are exercisable for a period of four years commencing one year
from the date of the Prospectus (April 5, 1994). The underwriter's
warrants also contain antidilution provisions and certain demand and
"piggyback" registration rights. In December 1996, the holders of the
underwriter's warrants utilized their demand registration rights and the
Company filed a registration statement on Form S-3 to register the
underlying shares. Such registration statement became effective in January
1997. During the fiscal year ended June 30, 1997, the Company realized
gross proceeds of $240,865 from the exercise of 39,187 warrants.
-25-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 17 INVESTMENT BANKING AGREEMENT
During July 1995, the Company entered into an Investment Banking Agreement
(the "Agreement") with Cruttenden Roth Incorporated of Irvine, California
("Cruttenden"). The Agreement provided that Cruttenden would serve as the
Company's exclusive financial advisor for 12 months. The Company issued to
Cruttenden "Advisor's Warrants" to purchase 20,000 shares of the Company's
common stock upon execution of the Agreement. The Advisor's Warrants are
exercisable for a period of three years from the date of the Agreement.
The exercise price of the Advisor's Warrants is $8.125 per share. The
Advisor's Warrants carrys piggyback registration rights and the underlying
shares were registered on Form S-3 and became effective during January
1997. As of June 30, 1997 no Warrants have been exercised.
NOTE 18 PREFERRED STOCK
The Articles of Incorporation of the Company authorize issuance of a
maximum of 1,500,000 shares of preferred stock. The Articles of
Incorporation vest the Board of Directors of the Company with authority to
divide the class of preferred stock into series and to fix and determine
the relative rights and preferences of the shares of any such series so
established to the full extent permitted by the laws of the State of
Colorado and the Articles of Incorporation. As of June 30, 1997, the
Company had no preferred stock issued or outstanding and had no plan to
issue any preferred stock in the future.
NOTE 19 EARNINGS PER SHARE
Primary and fully diluted earnings per share amounts are computed based on
the weighted average number of shares actually outstanding plus the
shares that would be outstanding assuming exercise of dilutive stock
options and warrants. The number of shares that would be issued from the
exercise of stock options and warrants has been reduced by the number of
shares that could have been purchased from the proceeds at the average
market price of the Company's common stock. The number of shares used in
the computation of primary earnings per share were 4,658,796 and 3,769,859
in 1997 and 1996 resulting in earnings per share of $.84 and $.66,
respectively. The number of shares used in the computation of fully
diluted earnings per share were 4,627,879 and 3,787,257 in 1997 and 1996,
resulting in earnings per share of $.84 and $.65 respectively.
NOTE 20 AGREEMENTS WITH SALES REPRESENTATIVES
The Company has entered into Sales Representative Agreements (the
"Agreements") with various individuals whereby, among other things, the
Company has established an independent contractor relationship with its
sales representatives. Pursuant to the terms of the Agreements the sales
representatives' income from the Company is derived primarily from
commissions paid by the Company from sales generated directly or indirectly
by the sales representatives. The sales representatives are responsible for
and assume all income tax liabilities on commissions and other payments
received from the Company and further agree to hold the Company harmless,
without liability and to indemnify the Company for any or all claims that
may arise from the sales representative's actions or inactions. The
Agreements provide no present or future guarantee of income. The sales
representatives are paid a commission of up to 10% of the sales price of
Company products, generated by the sales representatives and delivered to
the customer. The Company reserves the right to amend the commission terms
from time to time. Total commissions expense for fiscal years 1997 and
1996 was $2,289,494 and $1,682,384, respectively.
-26-
<PAGE>
SPORT-HALEY, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 21 CONCENTRATION OF CREDIT RISK
The Company's operations consist of the design, manufacture and wholesale
of golf apparel for men and women. The Company's headquarters are located
in Colorado and its customers are located throughout the United States
and abroad. As of June 30, 1997 and 1996 the majority of the Company's
receivables are from companies in the golfing industry. No customer
accounted for 10% or more of the Company's net revenues in fiscal year 1997
and 1996. Total receivables at June 30, 1997 and 1996 were $5,827,608 and
$4,639,444 respectively.
NOTE 22 LITIGATION
At June 30, 1997 no material legal proceedings are pending.
NOTE 23 RETIREMENT PLAN
In January 1996, the Company adopted a defined contribution savings plan
(the "401(k) Plan") to provide retirement income to employees of the
Company. The 401(k) Plan is intended to be qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended. The 401(k) Plan covers
all employees who are at least age 18 and have been employed at least three
months. It is funded by voluntary pre-tax contributions from employees up
to a maximum amount equal to 15% of annual compensation. During 1997 and
1996, the Company matched $.25 for each dollar contributed by employees, up
to the first 5% of each employee's compensation contributed to the plan.
Upon leaving the Company, each participant is 100% vested with respect to
the participant's contributions and is vested based upon years of service
with respect to the Company's matching contributions. Contributions are
invested as directed by the participant in investment funds available under
the 401(k) Plan. Full retirement benefits are payable to each participant
in a single cash payment or an actuarial equivalent form of annuity on the
first day of the month following the participant's retirement. For the
year ended June 30, 1997 and 1996 the Company contributed $13,257 and
$4,457, respectively, to the 401(k) Plan on behalf of Company employees.
The Company has no defined benefit pension plan nor any other post-
retirement or post-employment benefit plan.
NOTE 24 SUBSEQUENT EVENT
Effective July 1, 1997 the Company with the approval of its Board of
Directors, entered into an Employment Agreement (the "Agreement") with
Catherine B. Blair ("Blair"). Pursuant to the terms of the Agreement,
Blair will serve as the Company's Vice-President of Merchandising and
Design for two years through June 30, 1999. Annual bonuses, if any, will
be determined by the Company's Board of Directory. The Agreement is
subject to automatic one year extensions.
-27-
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
NAME AGE POSITION
---- --- --------
Robert G. Tomlinson(1) 56 Chairman of the Board
and Chief Executive Officer
Robert W. Haley 52 President and Director
Steve S. Auger 52 Secretary, Treasurer and Controller
Catherine B. Blair 46 Vice President - Merchandising/Design
Mark J. Stevenson(1)(2) 59 Director
Ronald J. Norick(2) 56 Director
James H. Everest(1)(2) 49 Director
------------------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
Officers are appointed by and serve at the discretion of the Board of
Directors. Each directors holds office until the next annual meeting of
shareholders or until a successor has been duly elected and qualified. All of
the Company's officers devote full-time to the Company's business and affairs.
ROBERT G. TOMLINSON has served as Chairman of the Board and Chief Executive
Officer of the Company since October 1992. Mr. Tomlinson was a partner in
Tomlinson Enterprises, a real estate investment partnership, from 1972 through
1993. From 1989 until he joined the Company, Mr. Tomlinson was also engaged in
management of his personal investment portfolio.
ROBERT W. HALEY has served as President and a director of the Company since
May 30, 1996. From January 1992 until his appointment to such positions, he
served as Vice President - Marketing of the Company. From August 1991 to
January 1992, Mr. Haley served as the director of marketing for S.T.X. Golf
Company, Baltimore, Maryland, a men's and women's golf apparel manufacturer.
Mr. Haley is a Class A PGA professional golfer with 25 years experience in the
golf industry.
STEVE S. AUGER served as Controller of the Company since July 1993. In
January 1996, he was appointed Secretary and Treasurer. From September 1989 to
January 1993, Mr. Auger served as the controller of Fiber Optic Technologies,
Inc., Englewood, Colorado, where he was responsible for financial and cost
accounting, budgeting and cash management.
CATHERINE B. BLAIR has served as Vice President - Merchandising/Design
since her appointment in May 1996. Ms. Blair has been part of the Company's
design team since 1992, and was appointed Director of Design in 1995. From 1990
to 1991, she was a designer for Di Fini, Ltd., a golfwear company and prior to
such time, worked as a freelance designer for companies such as Macy's,
Bloomingdale's, Ann Taylor and The Gap.
-28-
<PAGE>
MARK J. STEVENSON has been a director of the Company since November 1993.
Since June 1, 1994, Mr. Stevenson has served as chairman of the board, president
and chief executive officer of Electronic Manufacturing Systems, Longmont,
Colorado, a contract manufacturer serving the computer, data storage,
telecommunications and medical equipment industries. From 1992 to 1994, Mr.
Stevenson served as chairman of the board of Micro Insurance Software, Inc.,
Boulder, Colorado, a manufacturer of computer software oriented to the insurance
industry. From 1990 to 1992, he served as executive vice president and a
director of Solbourne Computer, Boulder, Colorado, a wholly-owned subsidiary of
Matsushita. Mr. Stevenson was responsible for worldwide sales, marketing,
customer support and product management in this position.
RONALD J. NORICK has been a director of the Company since November 1993.
Since 1987, Mr. Norick has served as the elected Mayor of the City of Oklahoma
City, Oklahoma. His current term of office expires in April 1998. From 1960 to
1992, Mr. Norick served in various capacities, including as president from 1981
to 1992, of Norick Brothers, Inc., a closely-held printing company which was
acquired by Reynolds & Reynolds in June 1992. Mr. Norick serves on a number of
public boards and commissions, including the Mayor's Commission on Public
Education, the National League of Cities and the United States Conference of
Mayors. Mr. Norick also serves as manager of Norick Investments Company LLC, a
family-owned limited liability company which is engaged in investments.
JAMES H. EVEREST has been a director of the Company since November 1993.
Mr. Everest has served as president of the Jean I. Everest Foundation, Oklahoma
City, Oklahoma, since 1991. The Jean I. Everest Foundation was organized to
conduct charitable activities by Mr. Everest's father. Mr. Everest has been the
managing partner of Everest Brothers, a general partnership active in oil and
gas exploration and development, since 1984. Mr. Everest has also been engaged
in managing his personal investments since 1984. Mr. Everest is a member of the
Oklahoma Bar Association and the American Bar Association and serves in a number
of capacities for various civic and community organizations.
BOARD COMMITTEES
The Board of Directors has delegated certain of its authority to a
Compensation Committee and an Audit Committee. The Compensation Committee is
composed of Messrs. Stevenson, Norick and Everest. The Audit Committee is
composed of Messrs. Tomlinson, Stevenson and Everest. No member of either
committee is a former or current officer or employee of the Company with the
exception of Mr. Tomlinson.
The Compensation Committee held two meetings in fiscal 1997. The primary
function of the Compensation Committee is to review and make recommendations to
the Board with respect to the compensation, including bonuses, of the Company's
officers and to administer the Company's Stock Option Plan.
The Audit Committee did not have any meetings in fiscal 1997. The function
of the Audit Committee is to review and approve the scope of audit procedures
employed by the Company's independent auditors, to review and approve the audit
reports rendered by both the Company's independent auditors and to approve the
audit fee charged by the independent auditors. The Audit Committee reports to
the Board of Directors with respect to such matters and recommends the selection
of independent auditors.
In fiscal 1997, the Board of Directors held two meetings. All directors
attended all board and committee meetings held during fiscal 1997.
-29-
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth the annual and
long-term compensation for services in all capacities to the Company for the
three fiscal years ended June 30, 1997 of Robert G. Tomlinson, the Chief
Executive Officer, and Robert W. Haley, President, the only executive officers
of the Company whose total annual salary and bonus exceeded $100,000 during the
year ended June 30, 1997 (the "Named Officers").
<TABLE>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION ---------------------
FISCAL --------------------- SECURITIES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS/SARS(#) COMPENSATION(1)
- --------------------------- ------ --------- -------- --------------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert G. Tomlinson, 1997 $ 192,726 $ 45,000 30,000 $796
Chairman of the Board and 1996 117,308 49,419 -0- 796
Chief Executive Officer 1995 52,728 24,485 50,000 -0-
Robert W. Haley, 1997 $ 154,164 $ 36,000 30,000 $664
President 1996 112,115 98,026 18,750 664
1995 98,328 62,008 17,375 -0-
</TABLE>
- -------------------
(1) Comprised of Company contributions to the Named Officer's 401(k) plan and
$138 per year per each Named Officer for term life insurance premiums.
OPTION GRANTS TABLE. The following table sets forth information on grants
of stock options pursuant to the Company's 1993 Stock Option Plan, as amended,
during fiscal 1997 to the Named Officers.
<TABLE>
NUMBER OF SECURITIES PERCENT OF TOTAL EXERCISE OR
UNDERLYING OPTIONS/ OPTIONS/SARS GRANTED TO BASE PRICE EXPIRATION
NAME SARS GRANTED EMPLOYEES IN FISCAL YEAR(1) ($/SHARE)(2) DATE
- ------------------- -------------------- --------------------------- ------------ ----------
<S> <C> <C> <C> <C>
Robert G. Tomlinson 30,000 31.6% $ 14.25 2/13/2007
Robert W. Haley 30,000 31.6% $ 14.25 2/13/2007
</TABLE>
- ---------------
(1) Excludes options granted to the Company's independent sales representatives.
The percentage of total options granted if such sales representatives were
included would be 19.2%.
(2) The exercise price is equal to the market price of the underlying security
on the date of grant. One-third of such options vest annually on February
14, commencing February 14, 1998, subject to earlier vesting under certain
circumstances.
FISCAL YEAR-END OPTIONS/OPTION VALUES TABLE.
<TABLE>
NUMBER OF SECURITIES UNDER- VALUE OF UNEXERCISED IN-
LYING UNEXERCISED OPTIONS/ THE-MONEY OPTIONS/SARS
SHARES SARS AT FISCAL YEAR-END AT FISCAL YEAR-END($)(2)
ACQUIRED VALUE ---------------------------- ----------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert G. Tomlinson 50,000 $443,750 -0- 30,000 -0- $75,000
Robert W. Haley 41,616 $500,189 -0- 30,000 -0- $75,000
</TABLE>
- -------------------
(1) The dollar values are calculated by determining the difference between the
exercise price of the options and the closing bid price for the Common
Stock on the date of exercise.
(2) The dollar values are calculated by determining the difference between the
exercise price of the options and the closing bid price for the Common
Stock of $16.75 on June 30, 1997.
-30-
<PAGE>
No employee of the Company receives any additional compensation for his
services as a director. Non-management directors receive no salary for their
services as such, but receive a fee of $250 per meeting attended. The Board of
Directors has also authorized payment of reasonable travel or other out-of-
pocket expenses incurred by non-management directors in attending meetings of
the Board of Directors. During fiscal 1997, each of the directors who were not
employees of the Company received options to purchase 25,000 shares of Common
Stock at $12.125 per share. One-third of such options vest on each February 14,
commencing February 14, 1998.
EMPLOYMENT AGREEMENTS. Effective January 1, 1997, the Company entered into
a new employment agreement with Mr. Tomlinson. The agreement requires that he
devote his full business time to the Company as Chief Executive Officer and/or
Chairman of the Board at an annual salary of $200,000, an automobile and such
bonuses as awarded by the Board of Directors. The employment agreement extends
for a three-year term. Mr. Tomlinson has the option to convert the employment
agreement to a consulting agreement in the event of a change in control of the
Company or upon his resignation. Subject to the right of the Company to
terminate the consulting agreement for cause, Mr. Tomlinson is entitled to serve
as a consultant to the Company for the duration of the agreement and to continue
to receive compensation in the amount of 60% of his annual salary. If Mr.
Tomlinson terminates the agreement with "cause" (as defined in the agreement),
or the Company terminates the agreement for other than "cause" (as defined in
the agreement), or if there is a change in control of the Company or if Mr.
Tomlinson dies, Mr. Tomlinson or his estate, as applicable, is entitled to
receive severance compensation for three years from the date of termination in
an amount equal to his annual salary and bonus payments during the preceding 12
months. During the time he is receiving such severance compensation, he is
entitled to participate in all employee benefit plans, at the Company's expense.
The change of control provisions and death benefits entitle Mr. Tomlinson or his
estate, as applicable, to receive such amount in a lump sum. If Mr. Tomlinson
becomes totally disabled during the term of the agreement, his full salary will
be continued for one year from the date of disability. If termination is for
any reason other than by the Company with cause, all options previously granted
shall become fully vested on the date of termination. The agreement contains a
non-competition provision for one year following termination.
Effective January 1, 1997, the Company entered into an employment agreement
with Mr. Haley. The agreement requires that he devote his full business time to
the Company as President or Senior Executive Officer at an annual salary of
$160,000 and such bonuses as awarded by the Board of Directors. The employment
agreement extends through December 31, 1998. If the Company terminates the
agreement for other than "cause" (as defined in the agreement), Mr. Haley is
entitled to receive severance compensation for one year from the date of
termination in an amount equal to his annual salary and bonus payment during the
preceding 12 months. If Mr. Haley terminates the agreement with or without
cause, Mr. Haley is entitled to receive severance compensation for one year in
an amount equal to 60% of his annual salary and bonus payment during the
preceding 12 months. During the time he is receiving any such severance
compensation, he is eligible to participate in all employee benefit plans, at
the Company's expense. If there is a non-negotiated change in control of the
Company or if Mr. Haley dies, Mr. Haley or his estate, as applicable, is
entitled to lump sum severance compensation equal to three times his annual
salary and bonus payment during the preceding 12 months. If Mr. Haley becomes
disabled during the term of the agreement, his full salary will be continued for
one year from the date of disability. If termination is for any reason other
than by the Company with cause, all options previously granted shall become
fully vested on the date of termination. The agreement contains a non-
competition provision for one year following termination.
In July 1997, the Company entered into an employment agreement with
Catherine B. Blair. The agreement requires that Ms. Blair devote her full
business time to the Company as Vice President of Merchandising and Design at an
annual salary of $80,000 and such bonuses as awarded by the Board of Directors.
The employment agreement extends for a two-year term. If the Company
terminates the agreement without cause or does not renew the agreement upon
expiration or if Ms. Blair terminates the agreement with or without cause (as
defined in the agreement), she is entitled to receive severance compensation
equal to six months' salary, plus 50% of her most recent annual bonus. During
the time she is receiving any such severance compensation, she is entitled to
participate in all employee benefit plans, at the Company's expense. If there
is a non-negotiated change in control of the Company, Ms. Blair is entitled to
lump sum severance compensation equal to three times her annual salary and bonus
payment during the preceding 12 months. If Ms. Blair becomes disabled during
the term of the agreement, her full salary will be continued for one year from
the date of disability. The agreement contains a non-competition provision for
one year following termination.
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<PAGE>
STOCK OPTION PLAN
The Company adopted a stock option plan in 1993 (as amended, the "Option
Plan"). The Option Plan provides for the granting of incentive stock options
("Incentive Stock Options") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), non-qualified stock options and
stock appreciation rights ("SARs"), up to a maximum number of 1,200,000 shares.
Non-qualified stock options may be granted to employees, directors and
consultants of the Company, while Incentive Stock Options may be granted only to
employees. No options may be granted under the Option Plan subsequent to
February 28, 2003.
The Option Plan is administered by the Compensation Committee of the Board
of Directors, which determines the terms and conditions of the options and SARs
granted under the Option Plan, including the exercise price, number of shares
subject to the option and the exercisability thereof.
The exercise price of all Incentive Stock Options granted under the Option
Plan must be at least equal to the fair market value of the Common Stock of the
Company on the date of grant. In the case of an optionee who owns stock
possessing more than ten percent of the total combined voting power of all
classes of stock of the Company, the exercise price of Incentive Stock Options
shall be not less than 110% of the fair market value of the Common Stock on the
date of grant. The exercise price of all non-qualified stock options granted
under the Option Plan shall be determined by the Compensation Committee, but
shall not be less than 85% of the fair market value of the Common Stock. The
term of all non-qualified stock options granted under the Option Plan may not
exceed ten years and the term of all incentive stock options may not exceed five
years. The Option Plan may be amended or terminated by the Board of Directors.
The Option Plan provides the Board of Directors or the Compensation
Committee the discretion to determine when options granted thereunder shall
become exercisable and the vesting period of such options. Upon termination of
a participant's employment or consulting relationship with the Company, all
unvested options terminate and are no longer exercisable. Vested options shall
remain exercisable for a specified period of time following the termination
date. The length of such extended exercise period generally ranges from 30 days
to one year, depending on the nature and circumstances of the termination.
The Option Plan provides that, in the event the Company enters into an
agreement providing for the merger of the Company into another corporation or
the sale of substantially all of the Company's assets, any outstanding
unexercised option shall become exercisable at any time prior to the effective
date of such agreement. Upon the consummation of a merger or sale of assets,
such options shall terminate unless they are assumed or another option is
substituted therefor by the successor corporation.
As of June 30, 1997, a total of 367,553 non-qualified and Incentive Stock
Options were outstanding, with exercise prices ranging from $2.50 to $14.25 per
share and a weighted average exercise price per share of $10.01.
401(k) PLAN
In January 1996, the Company adopted a defined contribution savings plan
(the "401(k) Plan") to provide retirement income to employees of the Company.
The 401(k) Plan is intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended. The 401(k) Plan covers all employees who are
at least age 18 and have been employed at least three months. It is funded by
voluntary pre-tax contributions from employees up to a maximum amount equal to
15% of annual compensation and through matching contributions by the Company up
to 5% of the employee's annual compensation. Upon leaving the Company, each
participant is 100% vested with respect to the participant's contributions and
is vested based on years of service with respect to the Company's matching
contributions. Contributions are invested as directed by the participant in
investment funds available under the 401(k) Plan. Full retirement benefits are
payable to each participant in a single cash payment or an actuarial equivalent
form of annuity on the first day of the month following the participant's
retirement. Because the 401(k) Plan was not in effect prior to January 1996,
the Company incurred no administrative expense and made no contributions prior
to such time on behalf of employees of the Company.
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<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than ten percent of the
Company's Common Stock are required to report their initial ownership of the
Company's Common Stock and any subsequent changes in that ownership to the
Securities and Exchange Commission, The Nasdaq Stock Market, Inc., the Pacific
Stock Exchange and the Company. Specific due dates for these reports have been
established and the Company is required to disclose in this annual report on
Form 10-KSB any failure to file, or late filing, of such reports with respect to
the period ended June 30, 1996. Based solely on the Company's review of Forms
3, 4 and 5 and amendments thereto furnished to the Company and all written
representations with respect to filing of such Forms, the Company is aware that
a Form 5 to report the grant of 7,500 options was filed by Mr. Steve Auger, the
Treasurer of the Company, one week late.
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<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of Common Stock as of September 23, 1997 by (i) each person known by
the Company to own beneficially more than 5% of the outstanding Common Stock,
(ii) each director or nominee, and (iii) all executive officers and directors as
a group. The information on the institutional investors' statements filed with
the Commission under Section 13(d) or 13(g) of the Exchange Act. Each person
has sole voting and sole investment or dispositive power with respect to the
shares shown except as noted.
<TABLE>
SHAREHOLDINGS ON
SEPTEMBER 23, 1997
----------------------
NUMBER OF PERCENT OF
NAME AND ADDRESS (1) SHARES (2) CLASS(3)
- -------------------- ---------- ---------
<S> <C> <C>
Robert G. Tomlinson.......................................... 38,000 *
Robert W. Haley.............................................. 21,616 *
Steve S. Auger............................................... 5,000 *
Catherine Blair(4)........................................... 4,167 *
Mark J. Stevenson............................................ 8,800 *
Ronald J. Norick(5).......................................... 61,500 1.32%
James H. Everest............................................. 25,000 *
Woodland Partners, LLC....................................... 871,400 18.66%
60 South Sixth Street, Suite 3750
Minneapolis, Minnesota 55402
First Bank System, Inc. ..................................... 403,600 8.64%
601 Second Avenue South
Minneapolis, Minnesota 55402
Robertson, Stephens & Company Investment Management, L.P. ... 386,600 8.28%
555 California Street, Suite 2600
San Francisco, California 94104
Delaware Management Holdings, Inc. .......................... 236,900 5.07%
2005 Market Street
Philadelphia, Pennsylvania 19103
All directors and officers as a group
(Seven persons)(6)........................................... 164,083 3.51%
</TABLE>
- -------------
* Less than 1%
(1) Except as noted above, the address for all persons listed is 4600 E. 48th
Avenue, Denver, Colorado 80216.
(2) Ownership includes both outstanding Common Stock and shares issuable upon
exercise of options that are currently exercisable or will become
exercisable within 60 days after the date hereof.
(3) All percentages are calculated based on the number of outstanding shares in
addition to shares which a person or group has the right to acquire within
60 days of September 26, 1997.
(4) Includes 1,667 shares subject to currently exercisable options.
(5) Includes 8,333 shares subject to currently exercisable options.
(6) Includes 10,000 shares of Common Stock subject to currently exercisable
options. Excludes shares of Common Stock as to which officers and
directors disclaim beneficial ownership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has adopted a policy pursuant to which material transactions
between the Company and its executive officers, directors and principal
shareholders (i.e. shareholders owning beneficially 5% or more of the
outstanding voting securities of the Company) shall be submitted to the Board of
Directors for approval by a disinterested majority of the directors voting with
respect to the transaction. For this purpose, a transaction is deemed material
if such transaction, alone or together with a series of similar transactions
during the same fiscal year, involves an amount which exceeds $60,000.
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<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
The following documents are filed herewith or have been included as
exhibits to previous filings with the Securities and Exchange Commission and are
incorporated herein by this reference:
EXHIBIT NO. DOCUMENT
- ----------- --------
@ 3.1 Articles of Incorporation of the Company as filed on January 1,
1991, and as amended on March 25, 1991, September 18, 1992 and
September 2, 1993, with the Secretary of State of the State of
Colorado.
@ 3.1.2 Amended and Restated Articles of Incorporation of the Company as
filed on March 7, 1994 with the Secretary of State of the State
of Colorado.
- - 3.2.3 Amended and Restated By-laws of the Company as adopted
January 10, 1996.
@ 4.1 Form of Specimen Certificate for Common Stock of the Company.
@ 4.1.1 Form of Representative's Warrant issued by the Company to
Schneider Securities, Inc.
! 4.1.2 Form of Advisor's Warrant issued to Cruttenden Roth Incorporated.
# 10.1.3 1993 Stock Option Plan, effective March 1993, as amended February
14, 1997 authorizing 1,200,000 shares of Common Stock for
issuance pursuant to the Plan.
** 10.2.1 Employment Agreement, dated January 1, 1997, by and between
Robert G. Tomlinson and the Company.
+ 10.2.2 Employment Agreement, dated July 12, 1995, by and between William
J. McCabe and the Company.
+ 10.2.3 Consulting Agreement, dated July 12, 1995, by and between M-Corp.
and the Company.
** 10.2.4 Employment Agreement, dated July 1, 1997, by and between
Catherine B. Blair and the Company.
** 10.2.5 Employment Agreement, dated January 1, 1997, by and between
Robert W. Haley and the Company.
+ 10.2.7 Endorsement Agreement, dated on or about December 1, 1994, by and
between Neal Lancaster and the Company.
+ 10.2.8 Endorsement Agreement, dated on or about November 29, 1994, by
and between Hal Sutton and the Company.
! 10.2.9 Endorsement Agreement, dated on or about January 1, 1996, by and
between Jim Rutledge and the Company.
** 10.2.10 Form of standard Endorsement Agreement by and between various
golf professionals and the Company.
## 10.3.1 Business Loan Agreement, dated October 30, 1996, by and between
Colorado National Bank and the Company.
++ 10.4.1 Lease Agreement, dated July 29, 1994, by and among Thomas J.
Hilb, individually, Thomas J. Hilb, as Trustee of the Connie Hilb
Trust, and the Company.
- - 10.4.2 Amendment to Lease Agreement, dated January 12, 1996, by and
among Thomas J. Hilb, individually, Thomas J. Hilb, as Trustee of
the Connie Hilb Trust, and the Company.
+ 10.4.4 Laughlin Factory Outlet Store Lease, dated March 10, 1995,
between Horizon Outlet Centers Limited Partnership and the
Company.
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<PAGE>
@ 10.5 Form of Independent Sales Representative Agreement.
+ 10.7 Trademark Registrations, dated February 21, 1995, issued by the
United States Patent and Trademark Office to the Company.
+ 10.8 Agreement, dated July 13, 1995, by and between Rogue Golf Co.,
Ltd. and the Company.
+++ 10.9 Agreement, dated October 5, 1995, by and between Mplus & Company,
Yokohama, Japan, and the Company.
- - 10.10 Trademark Licensing Agreement, dated October 14, 1995, by and
between W.L. Gore & Associates, Inc. and the Company.
! 10.11 Distribution Agreement, dated February 22, 1996, by and between
Transview Golf Pte Ltd. and the Company.
! 10.12 Amendment to Distribution Agreement, dated May 25, 1996, by and
between Rogue Golf Co. Ltd. and the Company.
! 10.13 Distribution Agreement, dated May 7, 1996, by and between Silva
Golf and the Company.
! 10.14 Consulting Agreement, dated May 29, 1996, by and between Nancy
Haley and the Company.
** 10.15 Form of Distribution Agreement by and between the Company and
Pacsports Phils, Inc., Pacsports, Ltd. and Bossports.
** 23. Consent of Levine Hughes & Mithuen, Inc., independent certified
public accountants for the Company.
** 27. Financial Data Schedule.
* Incorporated by reference from the Company's Registration Statement on Form
SB-2 (S.E.C. File No. 333-1214).
@ Incorporated by reference from the Company's Registration Statement on
Form SB-2 (S.E.C. File No. 33-74876-D).
+ Incorporated by reference from the Company's Form 10-KSB filed October 6,
1995 (S.E.C. File No. 1-12888).
++ Incorporated by reference from the Company's Form 10-KSB filed
September 14, 1994 (S.E.C. File No. 1-12888).
+++ Incorporated by reference from the Company's Form 10-QSB filed November 14,
1995 (S.E.C. File No. 1-12888).
- - Incorporated by reference from the Company's Form 10-QSBA/1 filed
February 2, 1996 (S.E.C. File No. 1-12888).
! Incorporated by reference from the Company's Form 10-KSB filed on October
11, 1996.
# Incorporated by reference from the Company's Form 10-QSB filed on May 12,
1997 (S.E.C. File No. 1-12888).
## Incorporated by reference from the Company's Registration Statement on Form
S-3 (S.E.C. File No. 333-18831).
** Filed herewith.
(b) REPORTS ON FORM 8-K
The Company did not file any reports on Form 8-K during the last quarter of
fiscal 1997.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SPORT-HALEY, INC.
September 26, 1997 By: /s/ ROBERT G. TOMLINSON
---------------------------------
Robert G. Tomlinson, Chairman of
the Board
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ ROBERT G. TOMLINSON Chairman of the Board and September 26, 1997
- --------------------------- Chief Executive Officer
Robert G. Tomlinson (Principal Executive Officer)
/s/ ROBERT W. HALEY President and Director September 26, 1997
- ---------------------------
Robert W. Haley
/s/ STEVE S. AUGER Treasurer (Principal September 26, 1997
- --------------------------- Financial and Accounting
Steve S. Auger Officer)
/s/ MARK J. STEVENSON Director September 26, 1997
- ---------------------------
Mark J. Stevenson
/s/ RONALD J. NORICK Director September 26, 1997
- ---------------------------
Ronald J. Norick
/s/ JAMES H. EVEREST Director September 26, 1997
- ---------------------------
James H. Everest
-37-
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, effective January 1, 1997, by and between
SPORT-HALEY, INC., a Colorado corporation (the "Company") and ROBERT G.
TOMLINSON (the "Executive").
WHEREAS, the Company has, prior to the date of this Agreement, employed
the Executive as the Company's Chief Executive Officer and Chairman of the
Board; and
WHEREAS, the Company desires to continue to employ the Executive on a
full-time basis, and the Executive desires to be so employed by the Company,
from and after the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
ARTICLE I
EMPLOYMENT DUTIES AND BENEFITS
SECTION 1.1 EMPLOYMENT. The Company hereby employs the Executive in the
position described on Schedule 1 hereto as an executive officer of the Company.
The Executive accepts such employment and agrees to perform the duties and
responsibilities assigned to him pursuant to this Agreement.
SECTION 1.2 DUTIES AND RESPONSIBILITIES. The Executive shall hold the
position with the Company which is specified on Schedule 1, which is attached
hereto and incorporated herein by reference. The Executive is employed pursuant
to the terms of this Agreement and agrees to devote full-time to the business of
the Company, except as otherwise provided in Article VI herein. The Executive
shall perform the duties set forth on Schedule 1 while employed as an executive
officer, and such further duties as may be determined and assigned to him from
time-to-time by the Board of Directors of the Company.
SECTION 1.3 WORKING FACILITIES. The Executive shall be furnished with
facilities and services suitable to the position and adequate for the
performance of Executive's duties under this Agreement. The Company shall
furnish the Executive an automobile for the Executive's use during the term of
this Agreement.
SECTION 1.4 VACATIONS. The Executive shall be entitled each year to a
reasonable vacation of not less than five weeks in accordance with the
established practices of the Company now or hereafter in effect for executive
personnel, during which time the Executive's compensation shall be paid in full.
<PAGE>
SECTION 1.5 EXPENSES. The Executive is authorized to incur reasonable
expenses for promoting the domestic and international business of the Company in
all respects, including expenses for entertainment, travel and similar items.
The Company will reimburse the Executive for all such expenses upon the
presentation by the Executive, from time-to-time, of an itemized account of such
expenditures.
ARTICLE II
COMPENSATION
SECTION 2.1 BASE SALARY. The Company shall pay to the Executive a base
salary of not less than the amount specified on Schedule 1. This amount may be
adjusted for raises in salary by action of the Board of Directors, and such
raises shall thereafter be included in the Executive's base salary as defined
for purposes of this Agreement and the Company's bonus plan.
SECTION 2.2 BONUS AND BONUS PLAN PARTICIPATION. The Executive shall be
entitled to receive a bonus at such time or times as may be determined by the
Board of Directors of the Company. The Executive shall also be entitled to
receive bonuses of up to 50% of the Executive's base salary in accordance with
the provisions of the Company-wide bonus plan as in effect from time to time.
ARTICLE III
TERM OF EMPLOYMENT AND TERMINATION
SECTION 3.1 TERM. This Agreement shall be for a term which is specified
on Schedule 1, commencing on its effective date, subject, however, to
termination during such period as provided in this Article. Provided that the
Executive is in compliance with all of his obligations hereunder, the term of
the Executive's employment shall be extended automatically for one additional
year at the end of each year of the term or extended term of this Agreement on
the same terms and conditions as contained in this Agreement, unless either the
Company or the Executive shall, at least 90 days prior to the expiration of the
initial term or of any renewal term, give written notice of the intention not to
renew this Agreement. Such automatic renewals shall be effective in subsequent
years on the same day of the same month as the original effective day and month
of this Agreement.
SECTION 3.2 TERMINATION BY THE EXECUTIVE WITHOUT CAUSE. The Executive,
without cause, may terminate this Agreement upon 90 days' written notice to the
Company. In such event, the Executive shall not be required to thereafter
render the services required under this Agreement.
-2-
<PAGE>
Compensation for vacation time not taken by Executive shall be paid to the
Executive at the date of termination.
SECTION 3.3 TERMINATION BY THE COMPANY WITH CAUSE. The Company may
terminate the Executive, at any time, upon ten days' written notice and
opportunity for Executive to remedy any non-compliance with the terms of this
Agreement, by reason of fraud or gross negligence of the Executive. In such
event, the Board of Directors shall provide in writing to the Executive an
opinion of the Board of Directors, signed by each member voting in favor of
termination of the Executive, which shall specify with particularity the basis
for such termination by reason of fraud or gross negligence. Upon the date of
such termination, the Company's obligation to pay compensation shall terminate.
SECTION 3.4 TERMINATION BY THE EXECUTIVE WITH CAUSE. The Executive may
terminate his employment with the Company at any time, upon five days' written
notice and opportunity for the Company to remedy any non-compliance, by reason
of (i) the Company's material failure to perform its duties pursuant to this
Agreement, or (ii) any material diminishment in the duties and responsibilities,
working facilities, or benefits as described in Article I of this Agreement.
The Executive shall be entitled to the severance compensation and other benefits
described in Section 3.6 below in the event of termination of this Agreement
pursuant to this Section 3.4.
SECTION 3.5 TERMINATION UPON DEATH OF EXECUTIVE. In addition to any other
provision relating to termination, this Agreement shall terminate upon the
Executive's death. In such event, the severance compensation as set forth in
Section 3.6 of this Agreement (paid as if there was a non-negotiated change in
control of the Company) and compensation for vacation time not taken by
Executive shall be paid to the Executive's estate.
SECTION 3.6 SEVERANCE COMPENSATION AND CONTINUATION OF BENEFITS. In the
event (i) the Executive shall terminate this Agreement pursuant to Section 3.4
of this Agreement, (ii) the Company shall terminate this Agreement for reasons
other than those specified in Section 3.3 of this Agreement, or (iii) of a
change in control of the Company, then, in any of such events, the Executive
shall be entitled to receive the following, subject to Section 3.7 of this
Agreement:
(a) The Executive shall receive severance compensation for a term of three
(3) years from the date of termination or change in control equal to his annual
salary and incentive or bonus payments, if any, payable biweekly, as shall have
been paid to the Executive during the most recent 12-month period concluded
prior to the date of termination or change in control. In the event that the
severance payments provided for in this Section 3.6 shall be made in connection
with a change of control of the Company, and if the total amount of the change
of control compensation were to
-3-
<PAGE>
exceed three times the Executive's base compensation (the average annual
taxable compensation of the Executive for the five years preceding the year
in which the change of control occurs), the Company and the Executive may
agree to reduce the lump sum compensation to be received by Executive in
order to avoid the imposition of the golden parachute tax as provided in the
Tax Reform Act of 1984, as amended by the Tax Reform Act of 1986.
Notwithstanding any provisions to the contrary herein, in the event of a
non-negotiated change in control of the Company, the severance compensation
to be paid to the Executive shall be paid by the Company in a lump sum within
30 days of the non-negotiated change in control.
(b) In the event the Executive is required to hire counsel to negotiate on
his behalf in connection with his termination or a change in control of the
Company, or in order to enforce the rights and obligations as provided herein,
the Company shall reimburse to the Executive all reasonable attorney's fees
which may be expended by the Executive in seeking to enforce the terms hereof.
Such reimbursement shall be paid by the Company every 30 days after the
Executive provides to the Company copies of invoices from the Executive's
counsel.
(c) So long as the Executive is receiving severance compensation pursuant
to this Section 3.6 or consulting fees pursuant to Section 6.2 of this
Agreement, the Executive shall be entitled to continue to participate, at the
Company's cost, in all existing benefit plans provided to the Company's
executive employees at the time of the Executive's termination or resignation.
Such plans shall include, but are not limited to, then-existing medical, health,
dental, vision, disability, life insurance and death benefit plans. If the
terms of such plans expressly prohibit the Executive from continuing as a
participant in such plans following the date of resignation or termination, the
Company will provide the Executive with benefits equivalent to, or exceeding,
those offered by the then-existing benefit plans offered to the Company's
executive employees, all at the Company's cost, for the duration of the
Executive's right to severance compensation hereunder or consulting fees
pursuant to Section 6.2 of this Agreement.
SECTION 3.7 REMUNERATION UPON OTHER EMPLOYMENT OR CONSULTATION. The
following provisions will apply, notwithstanding any language to the contrary
elsewhere herein, in the event this Agreement is terminated by the Executive
under Section 3.4, is terminated by the Company for reasons other than those
specified in Section 3.3, or in the event of a negotiated change in control of
the Company.
(a) If after one year from the termination of his employment with the
Company or a change in control the Executive consults with, or is employed by, a
company or other entity which competes with the Company in the golf apparel
industry, then the Executive will no longer be
-4-
<PAGE>
entitled to the payment of consulting fees described in Section 6.2 of this
Agreement by the Company commencing on the date of such consulting or
employment.
(b) If after one year from the termination of his employment with the
Company or a negotiated change in control the Executive consults with a company
or other entity that does not compete with the Company in the golf apparel
industry, then the Executive shall be paid all consulting fees to which he is
entitled under Section 6.2 of this Agreement.
Any compensation to be paid to the Executive under the foregoing provisions
of this Section 3.7 shall be subject to the Executive complying with the
non-compete provisions of Section 4.1(c) below. In the event the Executive
does not so comply, the Company shall be released from any obligations to the
Executive under this Section 3.7.
SECTION 3.8 OPTIONS. Any options granted to the Executive to purchase
stock of the Company ("Options") shall become fully vested on the date of
termination of this Agreement except if termination is for the reasons specified
in Section 3.3 of this Agreement. Moreover, if the Executive resigns his
position as Chairman of the Board of the Company, any and all Options shall vest
on the date of such resignation. This provision shall serve as a contractual
modification of any option grants or agreements between the Executive and the
Company, whether such grants or agreements shall pre-date or postdate this
Agreement, and is hereby incorporated by reference into each such option grant
or agreement.
ARTICLE IV
CONFIDENTIALITY AND COMPETITION
SECTION 4.1 FURTHER OBLIGATIONS OF EXECUTIVE DURING AND AFTER EMPLOYMENT.
(a) The Executive agrees that during the term of his employment under this
Agreement, he will engage in no other business activities which are or may be
competitive with, or which might place him in a competing position to that of,
the Company or any subsidiary or joint venture of the Company.
(b) The Executive realizes that during the course of his employment,
Executive will have produced and/or have access to confidential business plans,
information, business opportunity records, notebooks, data, formula,
specifications, trade secrets, customer lists, account lists and inventions of
the Company and its affiliates. Therefore, during or subsequent to his
employment by the Company, or by an affiliate, the Executive agrees to hold in
confidence and not to directly or indirectly disclose or use or copy or make
lists of any such information, except to the extent authorized by the Company in
writing. All records, files, business plans, documents, equipment and
-5-
<PAGE>
the like, or copies thereof, relating to Company's business, or the business
of an affiliated company, which Executive shall prepare, or use, or come into
contact with, shall remain the sole property of the Company, or of an
affiliated company, and shall not be removed from the Company's or the
affiliated company's premises without its written consent, and shall be
promptly returned to the Company upon termination or resignation of
employment with the Company or its affiliated companies.
(c) Because of his employment by the Company, Executive will have access
to trade secrets and confidential information about the Company, its business
plans, its business accounts, its business opportunities, its expansion plans
into other geographic areas and its methods of doing business. Executive agrees
that for a period of one (1) year after termination or resignation of his
employment, he will not, directly or indirectly, compete with the Company or its
affiliates in the business of designing, marketing or contracting for the
manufacture of men's and women's golf apparel, outerwear or headwear within the
United States. This non-compete agreement shall be void and of no further force
or effect in the event the Company fails to pay the Executive amounts required
under either Section 3.6 or Section 6.2 hereof.
(d) In the event a court of competent jurisdiction finds any provision of
this Section 4.1 to be so overbroad as to be unenforceable, then such provision
shall be reduced in scope by the court, but only to the extent deemed necessary
by the court to render the provision reasonable and enforceable, it being the
Executive's intention to provide the Company with the broadest protection
possible against harmful competition.
ARTICLE V
DISABILITY AND ILLNESS
SECTION 5.1 DISABILITY AND SALARY CONTINUATION.
A. DEFINITION OF TOTAL DISABILITY. For purposes of this Agreement, the
terms "totally disabled" and "total disability" shall mean disability as defined
in any total disability insurance policy or policies, if any, in effect with
respect to the Executive. If no insurance policy is in effect, "total
disability" shall mean a medically determinable physical or mental condition
which in the opinion of two independent physicians renders the Executive unable
to perform substantially all of the duties required pursuant to this Agreement.
Total disability shall be deemed to have occurred on the date of the disabling
injury or onset of the disabling illness, as determined by the two independent
physicians.
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B. SALARY CONTINUATION. If the Executive becomes totally disabled during
the term of this Agreement, his full salary shall be continued for 360 days from
the date of the disabling injury or onset of the disability illness.
SECTION 5.2 ILLNESS. If the Executive is unable to perform the services
required under this Agreement by reason of illness or physical injury not
amounting to total disability, as defined in this Article, the compensation
otherwise payable to the Executive under this Agreement shall be continued in
full for the remaining term or renewed term of this Agreement.
ARTICLE VI
CONVERSION TO CONSULTING AGREEMENT
SECTION 6.1 CHANGE IN CONTROL AND/OR RESIGNATION. In the event of a
non-negotiated change in control of the Company, a negotiated change in
control of the Company, or in the event the Executive tenders his resignation
as an employee of the Company, the Company and the Executive agree that the
Executive may elect to continue to render consulting services to the Company
under this Agreement for the duration of the term of this Agreement as
outlined on Schedule 1 hereto, but in no event for a period exceeding three
years. The Executive shall advise the Company in writing within 30 days of
the occurrence of any of the events specified above of his desire to continue
as a consultant to the Company, in which event the Executive shall be
compensated, and shall render services, as described below.
SECTION 6.2 DUTIES AND COMPENSATION. In the event the Executive elects to
serve as a consultant to the Company as described in Section 6.1 above, the
Executive shall consult with the Company concerning matters including, but not
limited to, management organizational issues, manufacturing, pricing, marketing
and the business policies and procedures of the Company. In his capacity as a
consultant to the Company, the Executive shall be obligated to devote not less
than 100 hours, nor more than 200 hours, to the Company as a consultant during
each year in which this Agreement remains in effect as a consulting agreement.
Notwithstanding any language to the contrary set forth herein, the Company shall
not have the right to terminate the services of the Executive as a consultant to
the Company except in the event the Executive commits fraud or is grossly
negligent, in either his capacity as an employee or consultant. For such time
as this Agreement shall remain in effect as a consulting, as opposed to an
employment, agreement, the Company shall compensate the Executive, in his
capacity as a consultant, in the amount of 60% of the Executive's base salary as
set forth in Schedule 1 hereto, payable quarterly in advance, and the
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Executive shall be entitled to continue to participate, at the Company's
cost, in all plans provided to the Company's executive employees, including,
but not limited to, then-existing medical, health, dental vision, disability,
life insurance and death benefit plans; provided, however, that the
provisions of Section 3.7 shall prevail in the event of any conflict between
the provisions of this Section 6.2 and Section 3.7.
ARTICLE VII
GENERAL MATTERS
SECTION 7.1 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Colorado and shall be construed in accordance therewith.
SECTION 7.2 NO WAIVER. No provision of this Agreement may be waived
except by an agreement in writing signed by the waiving party. A waiver of any
term or provision shall not be construed as a waiver of any other term or
provision.
SECTION 7.3 AMENDMENT. This Agreement may be amended, altered or revoked
at any time, in whole or in part, by filing with this Agreement a written
instrument setting forth such changes, signed by each of the parties.
SECTION 7.4 BENEFIT. This Agreement shall be binding upon the Executive
and the Company, and shall not be assignable by the Company without the
Executive's written consent.
SECTION 7.5 CONSTRUCTION. Throughout this Agreement the singular shall
include the plural, and the plural shall income the singular, and the masculine
and neuter shall include the feminine, wherever the context so requires.
SECTION 7.6 TEXT TO CONTROL. The headings of articles and sections are
included solely for convenience of reference. If any conflict between any
heading and the text of this Agreement exists, the text shall control.
SECTION 7.7 SEVERABILITY. If any provision of this Agreement is declared
by any court of competent jurisdiction to be invalid for any reason, such
invalidity shall not affect the remaining provisions. On the contrary, such
remaining provisions shall be fully severable, and this Agreement shall be
construed and enforced as if such invalid provisions had not been included in
the Agreement.
SECTION 7.8 AUTHORITY. The officer executing this Agreement on behalf of
the Company has been empowered and directed to do so by the Board of Directors
or the Compensation Committee of the Board of Directors of the Company.
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<PAGE>
SECTION 7.9 EFFECTIVE DATE. The effective date of this Agreement shall be
January 1, 1997.
SPORT-HALEY, INC.
By: /s/ Mark J. Stevenson
------------------------------------
Mark J. Stevenson, Authorized Member
of the Compensation Committee
EXECUTIVE:
/s/ Robert G. Tomlinson
------------------------------------
Robert G. Tomlinson
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SPORT-HALEY, INC.
EMPLOYMENT AGREEMENT
SCHEDULE 1
DUTIES AND COMPENSATION
Executive: Robert G. Tomlinson
Positions: Chief Executive Officer and/or Chairman of the Board
Base Salary: $200,000 per year, payable bi-weekly
Bonus: As determined by the Board of Directors and in accordance with
Company-wide bonus plan.
Term: Three (3) year term so long as the Executive is Chief Executive
Officer or Chairman of the Board of the Company, and subject to
automatic one (1) year extensions as described in Section 3.1 of
the Executive Employment Agreement.
Duties and
Responsibilities: Supervision and coordination of all operations of the
Company; supervision of all other executive and operating
officers of the Company.
APPROVED:
THE COMPANY: EXECUTIVE:
By: /s/ Mark J. Stevenson /s/ Robert G. Tomlinson
------------------------------------- ----------------------------
Mark J. Stevenson, Authorized Member Robert G. Tomlinson
of the Compensation Committee
Date: January 1, 1997 Date: January 1, 1997
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EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, effective July 1, 1997, by and between
SPORT-HALEY, INC., a Colorado corporation (the "Company") and CATHERINE B.
BLAIR (the "Executive").
WHEREAS, the Company has, prior to the date of this Agreement, employed
the Executive as the Company's Vice President of Merchandising and Design; and
WHEREAS, the Company desires to continue to employ the Executive on a
full-time basis, and the Executive desires to be so employed by the Company,
from and after the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
ARTICLE I
EMPLOYMENT DUTIES AND BENEFITS
SECTION 1.1 EMPLOYMENT. The Company hereby employs the Executive in the
position described on Schedule 1 hereto as an executive officer of the
Company. The Executive accepts such employment and agrees to perform the
duties and responsibilities assigned to her pursuant to this Agreement.
SECTION 1.2 DUTIES AND RESPONSIBILITIES. The Executive shall hold the
position with the Company which is specified on Schedule 1, which is attached
hereto and incorporated herein by reference. The Executive is employed
pursuant to the terms of this Agreement and agrees to devote full-time to the
business of the Company. The Executive shall perform the duties set forth on
Schedule 1 while employed as an executive officer, and such further duties as
may be determined and assigned to her from time-to-time by the Chief
Executive Officer or the Board of Directors of the Company.
SECTION 1.3 WORKING FACILITIES. The Executive shall be furnished with
facilities and services suitable to the position and adequate for the
performance of the Executive's duties under this Agreement. The Executive's
duties shall be rendered at the Company's offices, or at such other place or
places as the Executive may designate with the Company's approval, which
shall not be unreasonably withheld.
SECTION 1.4 VACATIONS. The Executive shall be entitled each year to a
reasonable vacation of not less than two weeks in accordance with the
established practices of the Company now or hereafter in effect for executive
personnel, during which time the Executive's compensation shall be paid in
full. Should the Company from time-to-time require the Executive to perform
job duties during vacation periods, the Executive shall be entitled to
compensatory vacation time at a mutually agreeable time.
<PAGE>
SECTION 1.5 EXPENSES. The Executive is authorized to incur reasonable
expenses for promoting the domestic and international business of the Company
in all respects, including expenses for entertainment, travel and similar
items. The Company will reimburse the Executive for all such expenses upon
the presentation by the Executive, from time-to-time, of an itemized account
of such expenditures.
ARTICLE II
COMPENSATION
SECTION 2.1 BASE SALARY. The Company shall pay to the Executive a base
salary of not less than the amount specified on Schedule 1, subject to annual
review and raises in such base salary. The base salary may be raised by
action of the Board of Directors, and such raises shall thereafter be
included in the Executive's base salary as defined for purposes of this
Agreement and the Company's bonus plan.
SECTION 2.2 BONUS AND BONUS PLAN PARTICIPATION. The Executive shall be
entitled to receive a bonus at such time or times as may be determined by the
Board of Directors of the Company. The Executive shall also be entitled to
receive bonuses of up to 30% of the Executive's base salary in accordance
with the provisions of the Company-wide bonus plan as in effect from time to
time.
ARTICLE III
TERM OF EMPLOYMENT AND TERMINATION
SECTION 3.1 TERM. This Agreement shall be for a term which is specified
on Schedule 1, commencing on its effective date, subject, however, to
termination during such period as provided in this Article. Provided that
the Executive is in compliance with all of her obligations hereunder, the
term of the Executive's employment shall be extended automatically for one
additional year at the end of each year of the term or extended term of this
Agreement on the same terms and conditions as contained in this Agreement,
unless either the Company or the Executive shall, at least 90 days prior to
the expiration of the initial term or of any renewal term, give written
notice of the intention not to renew this Agreement. If the Company gives
such written notice of non-renewal, the provisions of Section 3.3 shall
apply; if the Executive gives such written notice of non-renewal, the
provisions of Section 3.5 shall apply. Automatic renewals shall be effective
in subsequent years on the same day of the same month as the original
effective day and month of this Agreement.
SECTION 3.2 TERMINATION BY THE COMPANY WITH CAUSE. The Company may
terminate the Executive, at any time, upon ten days' written notice and
opportunity for the Executive to remedy any non-compliance with the terms of
this Agreement, by reason of fraud or gross negligence of the Executive or
the conviction of the Executive of a felony which is not appealed and
subsequently
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reversed or vacated. In such event, the Board of Directors shall provide in
writing to the Executive an opinion of the Board of Directors, signed by each
member voting in favor of termination of the Executive, which shall specify
with particularity the basis for such termination. Upon the date of
termination of this Agreement pursuant to this Section 3.2, the Company's
obligation to pay any compensation shall terminate, at which time the Company
shall be responsible for compensating the Executive for any vacation time not
taken. Subject to this exception and the obligation of the Company to
compensate the Executive through the notice period, no other compensation
shall be payable to the Executive should this Agreement be terminated
pursuant to this Section 3.2.
SECTION 3.3 TERMINATION BY THE COMPANY WITHOUT CAUSE. The Company may
terminate the Executive's services without cause at any time upon 90 days'
written notice. In such event, in addition to compensating the Executive
during such 90-day notice period, the Company shall be obligated to
compensate the Executive with severance pay equal to 90 days' compensation as
of the date of such termination. Accordingly, in the event the Company
terminates this Agreement without cause or chooses not to renew this
Agreement upon its expiration, the Executive shall receive an aggregate of
six months' salary from and after the date of the Executive's receipt of a
notice of termination through and including the date of termination. In
addition to the foregoing, the Executive shall receive a bonus which shall be
equivalent to 50% of the annual bonus last received by the Executive. In the
event the Executive received no annual bonus within the 12 months preceding
the date of termination, the Executive shall be entitled to receive a minimum
bonus of $15,000 on the date of termination by the Company without cause.
Such bonus provision shall be in addition to the compensation and severance
package hereinabove specified.
SECTION 3.4 TERMINATION BY THE EXECUTIVE WITH CAUSE. The Executive may
terminate her employment with the Company at any time, upon ten days' written
notice and opportunity for the Company to remedy any non-compliance, by
reason of (i) the Company's material failure to perform its duties pursuant
to this Agreement, or (ii) any material diminishment in the duties and
responsibilities, working facilities, or benefits as described in Article I
of this Agreement. The Executive shall not be entitled to the severance
compensation and other benefits described in Section 3.7 below in the event
of termination of this Agreement pursuant to this Section 3.4, except as
otherwise provided in Section 3.7(a), but shall be entitled to the
compensation provided in Section 3.3 upon a determination that the Company
has failed to perform its duties pursuant to this Agreement and that such
failure is material or a determination that the duties and responsibilities,
working facilities, or benefits as described herein have been materially
diminished. Such determination shall be made by the Board of Directors in
their best good faith.
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SECTION 3.5 TERMINATION BY THE EXECUTIVE WITHOUT CAUSE. The Executive,
without cause, may terminate this Agreement upon 90 days' written notice to
the Company. In such event, the Executive shall not be required to render
the services required under this Agreement following such 90-day period.
Compensation for vacation time not taken by the Executive shall be paid to
the Executive at the date of termination. The Executive shall not be
entitled to the severance compensation and other benefits described in
Section 3.7 below in the event of termination of this Agreement pursuant to
this Section 3.5, except as described in Section 3.7(a), but shall be
entitled to the compensation provided in Section 3.3.
SECTION 3.6 TERMINATION UPON DEATH OF THE EXECUTIVE. In addition to any
other provision relating to termination, this Agreement shall terminate upon
the Executive's death. In such event, all unpaid compensation and bonuses,
compensation for vacation time not taken by the Executive and all expense
reimbursements due to the Executive shall be paid to the Executive's estate.
SECTION 3.7 SEVERANCE COMPENSATION AND CONTINUATION OF BENEFITS.
(a) Notwithstanding any other provisions hereof, in the event of a
non-negotiated change in control of the Company and either the Executive or
the Company terminate this Agreement within 60 days of such non-negotiated
change in control, the Executive shall receive severance compensation,
payable in a lump sum within 30 days of such non-negotiated change in
control, equal to three times her annual salary and incentive or bonus
payments, if any, as shall have been paid to the Executive during the most
recent 12-month period concluded prior to the date of her termination or
resignation. If the total amount of the non-negotiated change of control
compensation were to exceed three times the Executive's base compensation
(the average annual taxable compensation of the Executive for the five years
preceding the year in which the change of control occurs), the Company and
the Executive will reduce the lump sum compensation to be received by the
Executive in order to avoid the imposition of the golden parachute tax as
provided in the Tax Reform Act of 1984, as amended by the Tax Reform Act of
1986.
(b) In the event the Executive is required to hire counsel to negotiate
on her behalf in connection with her termination or a change in control of
the Company, or in order to enforce the rights and obligations as provided
herein, the Company shall reimburse to the Executive all reasonable
attorney's fees which may be expended by the Executive in seeking to enforce
the terms hereof. Such reimbursement shall be paid by the Company every 30
days after the Executive provides to the Company copies of invoices from the
Executive's counsel. Such invoices may be redacted to preserve the
attorney-client privilege or attorney-client confidentiality.
(c) So long as the Executive is receiving severance compensation
pursuant to this Section 3.7, the Executive shall be entitled to continue to
participate, at the Company's cost, in all existing
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benefit plans provided to the Company's executive employees at the time of
the Executive's termination or resignation. Such plans shall include, but are
not limited to, then-existing medical, health, dental, vision, disability,
life insurance and death benefit plans. If the terms of such plans expressly
prohibit the Executive from continuing as a participant in such plans
following the date of resignation or termination, the Company will provide
the Executive with benefits equivalent to, or exceeding, those offered by the
then-existing benefit plans offered to the Company's executive employees, all
at the Company's cost, for the duration of the Executive's right to severance
compensation hereunder.
Any compensation to be paid to the Executive under the foregoing
provisions of this Section 3.7 shall be subject to the Executive complying
with the non-compete provisions of Section 4.1(c) below. In the event the
Executive does not so comply, the Company shall be released from any
obligations to the Executive under this Section 3.7.
SECTION 3.8 OPTIONS. Any options granted to the Executive to purchase
stock of the Company shall become fully vested on the date of termination of
this Agreement, except in the event termination is by the Company for reasons
specified in Section 3.3 of this Agreement. This provision shall serve as a
contractual modification of any option grants or agreements between the
Executive and the Company, whether such grants or agreements shall pre-date
or postdate this Agreement, and is hereby incorporated by reference into each
such option grant or agreement.
ARTICLE IV
CONFIDENTIALITY AND COMPETITION
SECTION 4.1 FURTHER OBLIGATIONS OF THE EXECUTIVE DURING AND AFTER
EMPLOYMENT.
(a) The Executive agrees that during the term of her employment under
this Agreement, she will engage in no other business activities which are or
may be competitive with, or which might place her in a competing position to
that of, the Company or any subsidiary of the Company.
(b) The Executive realizes that during the course of her employment, the
Executive will have produced and/or have access to confidential business
plans, information, business opportunity records, notebooks, data, formula,
specifications, trade secrets, customer lists, account lists and inventions
of the Company and its affiliates. Therefore, during or subsequent to her
employment by the Company, or by an affiliate, the Executive agrees to hold
in confidence and not to directly or indirectly disclose or use or copy or
make lists of any such information, except to the extent authorized by the
Company in writing. All records, files, business plans, documents, equipment
and the like, or copies thereof, relating to Company's business, or the
business of an affiliated company, which the Executive shall prepare, or use,
or come into contact with, shall remain the sole property
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<PAGE>
of the Company, or of an affiliated company, and shall not be removed from
the Company's or the affiliated company's premises without its written
consent, and shall be promptly returned to the Company upon termination or
resignation of employment with the Company or its affiliated companies.
(c) Because of her employment by the Company, the Executive will have
access to trade secrets and confidential information about the Company, its
business plans, its business accounts, its business opportunities, its
expansion plans into other geographic areas and its methods of doing
business. The Executive agrees that for a period of one (1) year after
termination or resignation of her employment (except if the Executive
terminates this Agreement for cause under Section 3.5 hereof), she will not,
directly or indirectly, compete with the Company or its affiliates in the
business of designing, merchandising, marketing or contracting for the
manufacture of men's and women's golf apparel, golf outerwear or golf
headwear within the United States. This non-compete agreement shall be void
and of no further force or effect in the event termination occurs under
Section 3.3 or Section 3.7 hereof and the Company fails to pay the Executive
amounts required under Section 3.3 or Section 3.7 hereof.
(d) In the event a court of competent jurisdiction finds any provision
of this Section 4.1 to be so overbroad as to be unenforceable, then such
provision shall be reduced in scope by the court, but only to the extent
deemed necessary by the court to render the provision reasonable and
enforceable, it being the Executive's intention to provide the Company with
the broadest protection possible against harmful competition.
ARTICLE V
DISABILITY AND ILLNESS
SECTION 5.1 DISABILITY AND SALARY CONTINUATION.
A. DEFINITION OF TOTAL DISABILITY. For purposes of this Agreement, the
terms "totally disabled" and "total disability" shall mean disability as
defined in any total disability insurance policy or policies, if any, in
effect with respect to the Executive. If no insurance policy is in effect,
"total disability" shall mean a medically determinable physical or mental
condition which in the opinion of two independent physicians renders the
Executive unable to perform substantially all of the duties required pursuant
to this Agreement. Total disability shall be deemed to have occurred on the
date of the disabling injury or onset of the disabling illness, as determined
by the two independent physicians.
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B. SALARY CONTINUATION. If the Executive becomes totally disabled
during the term of this Agreement, her full salary shall be continued for 360
days from the date of the disabling injury or onset of the disability illness.
SECTION 5.2 ILLNESS. If the Executive is unable to perform the services
required under this Agreement by reason of illness or physical injury not
amounting to total disability, as defined in this Article, the compensation
otherwise payable to the Executive under this Agreement shall be continued in
full for the remaining term or renewed term of this Agreement, but in no
event for a period exceeding one year.
ARTICLE VI
GENERAL MATTERS
SECTION 6.1 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Colorado and shall be construed in accordance therewith.
SECTION 6.2 NO WAIVER. No provision of this Agreement may be waived
except by an agreement in writing signed by the waiving party. A waiver of
any term or provision shall not be construed as a waiver of any other term or
provision.
SECTION 6.3 AMENDMENT. This Agreement may be amended, altered or
revoked at any time, in whole or in part, by filing with this Agreement a
written instrument setting forth such changes, signed by each of the parties.
SECTION 6.4 BENEFIT. This Agreement shall be binding upon the Executive
and the Company, and shall not be assignable by the Company without the
Executive's written consent.
SECTION 6.5 CONSTRUCTION. Throughout this Agreement the singular shall
include the plural, and the plural shall income the singular, and the
masculine and neuter shall include the feminine, wherever the context so
requires.
SECTION 6.6 TEXT TO CONTROL. The headings of articles and sections are
included solely for convenience of reference. If any conflict between any
heading and the text of this Agreement exists, the text shall control.
SECTION 6.7 SEVERABILITY. If any provision of this Agreement is
declared by any court of competent jurisdiction to be invalid for any reason,
such invalidity shall not affect the remaining provisions. On the contrary,
such remaining provisions shall be fully severable, and this Agreement shall
be construed and enforced as if such invalid provisions had not been included
in the Agreement.
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SECTION 6.8 AUTHORITY. The officer executing this Agreement on behalf
of the Company has been empowered and directed to do so by the Board of
Directors of the Company.
SECTION 6.9 EFFECTIVE DATE. The effective date of this Agreement shall
be July 1, 1997.
SPORT-HALEY, INC.
By: /s/ Robert G. Tomlinson
--------------------------------------------
Robert G. Tomlinson, Chief Executive Officer
EXECUTIVE:
/s/ Catherine B. Blair
--------------------------------------------
Catherine B. Blair
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SPORT-HALEY, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
SCHEDULE 1
DUTIES AND COMPENSATION
Executive: Catherine B. Blair
Position: Vice President of Merchandising and Design
Base Salary: $80,000 per year, payable bi-weekly
Bonus: As determined by the Board of Directors and in accordance with
Company-wide bonus plan.
Term: June 30, 1999, subject to automatic one (1) year extensions
described in Section 3.1 of the Executive Employment Agreement
Duties and
Responsibilities: Supervision and coordination of all merchandising and design
operations of the Company.
APPROVED:
THE COMPANY: EXECUTIVE:
By: /s/ Robert G. Tomlinson /s/ Catherine B. Blair
------------------------------------- ---------------------------------
Robert G. Tomlinson, Chief Executive Catherine B. Blair
Officer
Date: July 1, 1997 Date: July 1, 1997
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EXECUTIVE EMPLOYMENT AGREEMENT
EXECUTIVE EMPLOYMENT AGREEMENT, effective January 1, 1997, by and between
SPORT-HALEY, INC., a Colorado corporation (the "Company") and ROBERT W. HALEY
(the "Executive").
WHEREAS, the Company has, prior to the date of this Agreement, employed the
Executive as a Senior Executive Officer; and
WHEREAS, the Company desires to continue to employ the Executive on a full-
time basis, and the Executive desires to be so employed by the Company, from and
after the date of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the parties agree as follows:
ARTICLE I
EMPLOYMENT DUTIES AND BENEFITS
SECTION 1.1 EMPLOYMENT. The Company hereby employs the Executive in the
position described on Schedule 1 hereto as an executive officer of the Company.
The Executive accepts such employment and agrees to perform the duties and
responsibilities assigned to him pursuant to this Agreement.
SECTION 1.2 DUTIES AND RESPONSIBILITIES. The Executive shall hold the
position with the Company which is specified on Schedule 1, which is attached
hereto and incorporated herein by reference. The Executive is employed pursuant
to the terms of this Agreement and agrees to devote full-time to the business of
the Company. The Executive shall perform the duties set forth on Schedule 1,
and such further duties as may be determined and assigned to him from time-to-
time by the Chief Executive Officer or the Board of Directors of the Company.
SECTION 1.3 WORKING FACILITIES. The Executive shall be furnished with
facilities and services suitable to the position and adequate for the
performance of Executive's duties under this Agreement.
SECTION 1.4 VACATIONS. The Executive shall be entitled each year to a
reasonable vacation of not less than three weeks in accordance with the
established practices of the Company now or hereafter in effect for executive
personnel, during which time the Executive's compensation shall be paid in full.
SECTION 1.5 EXPENSES. The Executive is authorized to incur reasonable
expenses for promoting the domestic and international business of the Company in
all respects, including expenses for entertainment, travel and similar items.
The Company will reimburse the Executive for
<PAGE>
all such expenses upon the presentation by the Executive, from time-to-time,
of an itemized account of such expenditures.
ARTICLE II
COMPENSATION
SECTION 2.1 BASE SALARY. The Company shall pay to the Executive a base
salary of not less than the amount specified on Schedule 1. This amount may be
adjusted for raises in salary by action of the Board of Directors, and such
raises shall thereafter be included in the Executive's base salary as defined
for purposes of this Agreement and the Company's bonus plan.
SECTION 2.2 BONUS AND BONUS PLAN PARTICIPATION. The Executive shall be
entitled to receive a bonus at such time or times as may be determined by the
Board of Directors of the Company. The Executive shall also be entitled to
receive bonuses of up to 50% of the Executive's base salary in accordance with
the provisions of the Company-wide bonus plan as in effect from time to time.
ARTICLE III
TERM OF EMPLOYMENT AND TERMINATION
SECTION 3.1 TERM. This Agreement shall be for a term which is specified
on Schedule 1, commencing on its effective date, subject, however, to
termination during such period as provided in this Article. Provided that the
Executive is in compliance with all of his obligations hereunder, the term of
the Executive's employment shall be extended automatically for one additional
year at the end of each year of the term or extended term of this Agreement on
the same terms and conditions as contained in this Agreement, unless either the
Company or the Executive shall, at least 90 days prior to the expiration of the
initial term or of any renewal term, give written notice of the intention not to
renew this Agreement. Such automatic renewals shall be effective in subsequent
years on the same day of the same month as the original effective day and month
of this Agreement.
SECTION 3.2 TERMINATION BY THE EXECUTIVE WITHOUT CAUSE. The Executive,
without cause, may terminate this Agreement upon 90 days' written notice to the
Company. In such event, the Executive shall not be required to render the
services required under this Agreement. Compensation for vacation time not
taken by Executive shall be paid to the Executive at the date of termination.
SECTION 3.3 TERMINATION BY THE COMPANY WITH CAUSE. The Company may
terminate the Executive, at any time, upon ten days' written notice and
opportunity for Executive to remedy any non-compliance with the terms of this
Agreement, by reason of fraud or gross negligence of the Executive or the
conviction of the Executive of a felony which is not appealed and subsequently
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reversed or vacated. In such event, the Board of Directors shall provide in
writing to the Executive an opinion of the Board of Directors, signed by each
member voting in favor of termination of the Executive, which shall specify with
particularity the basis for such termination. Upon the date of such
termination, the Company's obligation to pay compensation shall terminate.
SECTION 3.4 TERMINATION BY THE EXECUTIVE WITH CAUSE. The Executive may
terminate his employment with the Company at any time, upon five days' written
notice and opportunity for the Company to remedy any non-compliance, by reason
of (i) the Company's material failure to perform its duties pursuant to this
Agreement, or (ii) any material diminishment in the duties and responsibilities,
working facilities, or benefits as described in Article I of this Agreement.
The Executive shall be entitled to severance compensation and other benefits
described in Section 3.6(b) below in the event of termination of this Agreement
pursuant to this Section 3.4.
SECTION 3.5 TERMINATION UPON DEATH OF EXECUTIVE. In addition to any other
provision relating to termination, this Agreement shall terminate upon the
Executive's death. In such event, the severance compensation as set forth in
Section 3.6 of this Agreement (paid as if there was a non-negotiated change in
control of the Company) and compensation for vacation time not taken by
Executive shall be paid to the Executive's estate.
SECTION 3.6 SEVERANCE COMPENSATION AND CONTINUATION OF BENEFITS.
(a) In the event the Company terminates this Agreement for reasons other
than those specified in Section 3.3 of this Agreement, the Executive shall
receive severance compensation, payable bi-weekly, for a term of one (1) year
from the date of termination equal to his annual salary and incentive or bonus
payments, if any, as shall have been paid to the Executive during the most
recent 12-month period concluded prior to the date of termination.
(b) In the event the Executive shall terminate this Agreement pursuant to
Section 3.2 or 3.4 of this Agreement, the Executive shall receive severance
compensation, payable bi-weekly, for a term of one (1) year from the date of his
termination or resignation equal to 60% of his annual salary and incentive or
bonus payments, if any, as shall have been paid to the Executive during the most
recent 12-month period concluded prior to the date of his termination or
resignation.
(c) Notwithstanding any other provisions hereof, in the event of a non-
negotiated change in control of the Company, the Executive shall receive
severance compensation, payable in a lump sum within 30 days of such non-
negotiated change in control, equal to three times his annual salary and
incentive or bonus payments, if any, as shall have been paid to the Executive
during the most recent 12-month period concluded prior to the date of his
termination or resignation. If the total amount of the change of control
compensation were to exceed three times the Executive's base
-3-
<PAGE>
compensation (the average annual taxable compensation of the Executive for the
five years preceding the year in which the change of control occurs), the
Company and the Executive may agree to reduce the lump sum compensation to be
received by Executive in order to avoid the imposition of the golden parachute
tax as provided in the Tax Reform Act of 1984, as amended by the Tax Reform
Act of 1986.
(d) In the event the Executive is required to hire counsel to negotiate on
his behalf in connection with his termination or a change in control of the
Company, or in order to enforce the rights and obligations as provided herein,
the Company shall reimburse to the Executive all reasonable attorney's fees
which may be expended by the Executive in seeking to enforce the terms hereof.
Such reimbursement shall be paid by the Company every 30 days after the
Executive provides to the Company copies of invoices from the Executive's
counsel.
(e) For a period of 12 months from the date of the Executive's termination
or resignation, the Executive shall be entitled to continue to participate, at
the Company's cost, in all existing benefit plans provided to the Company's
executive employees at the time of the Executive's termination or resignation.
Such plans shall include, but are not limited to, then-existing medical, health,
dental, vision, disability, life insurance and death benefit plans. If the
terms of such plans expressly prohibit the Executive from continuing as a
participant in such plans following the date of resignation or termination, the
Company will provide the Executive with benefits equivalent to, or exceeding,
those offered by the then-existing benefit plans offered to the Company's
executive employees, all at the Company's cost, for the duration of such 12-
month period.
Any compensation to be paid to the Executive under the foregoing provisions
of this Section 3.7 shall be subject to the Executive complying with the non-
compete provisions of Section 4.1(c) below. In the event the Executive does not
so comply, the Company shall be released from any obligations to the Executive
under this Section 3.6.
SECTION 3.7 OPTIONS. Any options granted to the Executive to purchase
stock of the Company shall become fully vested on the date of termination of
this Agreement, except in the event termination is by the Company for reasons
specified in Section 3.3 of this Agreement. This provision shall serve as a
contractual modification of any option grants or agreements between the
Executive and the Company, whether such grants or agreements shall pre-date or
postdate this Agreement, and is hereby incorporated by reference into each such
option grant or agreement.
-4-
<PAGE>
ARTICLE IV
CONFIDENTIALITY AND COMPETITION
SECTION 4.1 FURTHER OBLIGATIONS OF EXECUTIVE DURING AND AFTER EMPLOYMENT.
(a) The Executive agrees that during the term of his employment under this
Agreement, he will engage in no other business activities which are or may be
competitive with, or which might place him in a competing position to that of,
the Company or any subsidiary or joint venture of the Company.
(b) The Executive realizes that during the course of his employment,
Executive will have produced and/or have access to confidential business plans,
information, business opportunity records, notebooks, data, formula,
specifications, trade secrets, customer lists, account lists and inventions of
the Company and its affiliates. Therefore, during or subsequent to his
employment by the Company, or by an affiliate, the Executive agrees to hold in
confidence and not to directly or indirectly disclose or use or copy or make
lists of any such information, except to the extent authorized by the Company in
writing. All records, files, business plans, documents, equipment and the like,
or copies thereof, relating to Company's business, or the business of an
affiliated company, which Executive shall prepare, or use, or come into contact
with, shall remain the sole property of the Company, or of an affiliated
company, and shall not be removed from the Company's or the affiliated company's
premises without its written consent, and shall be promptly returned to the
Company upon termination or resignation of employment with the Company or its
affiliated companies.
(c) Because of his employment by the Company, Executive will have access
to trade secrets and confidential information about the Company, its business
plans, its business accounts, its business opportunities, its expansion plans
into other geographic areas and its methods of doing business. Executive agrees
that for a period of one (1) year after termination or resignation of his
employment, he will not, directly or indirectly, compete with the Company or its
affiliates in the business of designing, marketing or contracting for the
manufacture of men's and women's golf apparel, outerwear or headwear within the
United States. This non-compete agreement shall be void and of no further force
or effect in the event the Company fails to pay the Executive amounts required
under Section 3.6 hereof.
(d) In the event a court of competent jurisdiction finds any provision of
this Section 4.1 to be so overbroad as to be unenforceable, then such provision
shall be reduced in scope by the court, but only to the extent deemed necessary
by the court to render the provision reasonable and
-5-
<PAGE>
enforceable, it being the Executive's intention to provide the Company with
the broadest protection possible against harmful competition.
ARTICLE V
DISABILITY AND ILLNESS
SECTION 5.1 DISABILITY AND SALARY CONTINUATION.
A. DEFINITION OF TOTAL DISABILITY. For purposes of this Agreement, the
terms "totally disabled" and "total disability" shall mean disability as defined
in any total disability insurance policy or policies, if any, in effect with
respect to the Executive. If no insurance policy is in effect, "total
disability" shall mean a medically determinable physical or mental condition
which in the opinion of two independent physicians renders the Executive unable
to perform substantially all of the duties required pursuant to this Agreement.
Total disability shall be deemed to have occurred on the date of the disabling
injury or onset of the disabling illness, as determined by the two independent
physicians.
B. SALARY CONTINUATION. If the Executive becomes totally disabled during
the term of this Agreement, his full salary shall be continued for 360 days from
the date of the disabling injury or onset of the disability illness.
SECTION 5.2 ILLNESS. If the Executive is unable to perform the services
required under this Agreement by reason of illness or physical injury not
amounting to total disability, as defined in this Article, the compensation
otherwise payable to the Executive under this Agreement shall be continued in
full for the remaining term or renewed term of this Agreement, but in no event
for a period exceeding one year.
ARTICLE VI
GENERAL MATTERS
SECTION 6.1 GOVERNING LAW. This Agreement shall be governed by the laws
of the State of Colorado and shall be construed in accordance therewith.
SECTION 6.2 NO WAIVER. No provision of this Agreement may be waived
except by an agreement in writing signed by the waiving party. A waiver of any
term or provision shall not be construed as a waiver of any other term or
provision.
SECTION 6.3 AMENDMENT. This Agreement may be amended, altered or revoked
at any time, in whole or in part, by filing with this Agreement a written
instrument setting forth such changes, signed by each of the parties.
-6-
<PAGE>
SECTION 6.4 BENEFIT. This Agreement shall be binding upon the Executive
and the Company, and shall not be assignable by the Company without the
Executive's written consent.
SECTION 6.5 CONSTRUCTION. Throughout this Agreement the singular shall
include the plural, and the plural shall income the singular, and the masculine
and neuter shall include the feminine, wherever the context so requires.
SECTION 6.6 TEXT TO CONTROL. The headings of articles and sections are
included solely for convenience of reference. If any conflict between any
heading and the text of this Agreement exists, the text shall control.
SECTION 6.7 SEVERABILITY. If any provision of this Agreement is declared
by any court of competent jurisdiction to be invalid for any reason, such
invalidity shall not affect the remaining provisions. On the contrary, such
remaining provisions shall be fully severable, and this Agreement shall be
construed and enforced as if such invalid provisions had not been included in
the Agreement.
SECTION 6.8 AUTHORITY. The officer executing this Agreement on behalf of
the Company has been empowered and directed to do so by the Board of Directors
of the Company.
SECTION 6.9 EFFECTIVE DATE. The effective date of this Agreement shall be
January 1, 1997.
SPORT-HALEY, INC.
By: /s/ Robert G. Tomlinson
-------------------------------------
Robert G. Tomlinson, Chief
Executive Officer
EXECUTIVE:
/s/ Robert W. Haley
-------------------------------------
Robert W. Haley
-7-
<PAGE>
SPORT-HALEY, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
SCHEDULE 1
DUTIES AND COMPENSATION
Executive: Robert W. Haley
Position: President or Senior Executive Officer
Base Salary: $160,000 per year, payable bi-weekly
Bonus: As determined by the Board of Directors and in accordance with
Company-wide bonus plan.
Term: December 31, 1998, subject to automatic one (1) year extensions
described in Section 3.1 of the Executive Employment Agreement
Duties and
Responsibilities: Supervision and coordination of all operations of the
Company; supervision of all operating officers of the
Company.
APPROVED:
THE COMPANY: EXECUTIVE:
By: /s/ Robert G. Tomlinson /s/ Robert W. Haley
--------------------------------- --------------------------------
Robert G. Tomlinson, Chief Robert W. Haley
Executive Officer
Date: January 1, 1997 Date: January 1, 1997
-8-
<PAGE>
ENDORSEMENT AGREEMENT
THIS ENDORSEMENT AGREEMENT is made and entered into effective this day of
___________________, 19__, by and between SPORT-HALEY, INC., a Colorado
corporation (the "Company"), and _________________ (hereinafter referred to as
the "Professional").
WHEREAS, the Professional is an active, exempt and full-time touring
professional on the Professional Golfer's Association Tour (the "PGA Tour");
and/or (the "Senior PGA Tour") and
WHEREAS, the company is in the business of designing and marketing quality
men's and women's golf and active sportswear under the Haley label and desires
to obtain the services of the Professional in endorsing, promoting and
publicizing the Company and Haley apparel;
NOW, THEREFORE, in consideration of the agreements of the parties set forth
below, and in consideration of the Company's agreement to make the payments
below described to the Professional the parties hereto agree as follows:
1. SERVICES OF THE PROFESSIONAL. The Professional agrees to perform the
following services during the term of this Agreement:
a. The Professional agrees that, with respect to men's apparel,
he will exclusively endorse and use exclusively in play, practice,
exhibits, clinics and other events open to the media or public, Haley
brand apparel which shall consist of shirts, vests, jackets, sweaters,
pants and shorts (if permitted by applicable rules).
b. The Professional grants to the Company the exclusive worldwide
right and license to use his name, autograph, likeness, photographs,
electronic media depiction, signature and any other words, symbols or
depiction's which would identify the Professional to the public in
connection with the advertising, promotion, publicizing, sale and
distribution of Haley apparel by the Company.
c. Upon reasonable written request of the Company which shall be
tendered at least 30 days prior the date requested, the Professional
shall make himself available for the purpose of posing for print ads,
making commercials and other promotional materials, or attending
promotional events organized by the Company once per calendar year. In
the event of such requests by the Company, the company shall be
responsible for the payment of all reasonable travel, lodging and
meal expenses incurred in connection with the Professional rendering
services described in this subsection. Should the services of the
Professional be required for longer than one day, the Professional
shall be entitled to his daily appearance fee, plus reasonable
expenses, for each day in excess of one day.
<PAGE>
d. The Professional shall have the opportunity to select from
the Company's semi-annual golf sportswear collections for the purposes
of obtaining a wardrobe of Haley apparel suitable to the Professional
at the Company's expense. The Company shall have the right to place on
the left chest and right sleeve of any jackets, shirts, vests, or
sweaters and above the back pocket of any pants selected by the
Professional the Company's logo and name in use by the Company at that
time.
2. RIGHTS OF USAGE. As described in Section 1(b) above, the Professional
has granted the company an exclusive worldwide right and license
to use his name, autograph, likeness, photographs, electronic media
depiction, signature and any other words, symbols or depiction's
(hereinafter the "Professional's Image") which will identify the
Professional to the public in connection with the advertising,
promotion, publicizing, sale and distribution of Haley apparel. The
Company shall have unlimited rights of utilization of the
Professional's Image in all advertising, promotion, publicity and
other forms of communication with any part during the term of this
Agreement, it being the intent of the Professional that the Company's
utilization of the Professional's Image shall be at the discretion of
the Company. The right of usage described herein shall be subject to
the requirement that the Company shall not place the Professional's
Image in an unfavorable light. The Professional or the Professional's
designated agent shall have the right to review any advertising,
promotion or publicity materials utilized by the company which
contain the Professional's Image on reasonable written or oral
request to the Company during the term of this Agreement.
3. COMPENSATION OF THE PROFESSIONAL. In consideration of the rights
granted to the Company and the services to be provided by the
Professional, the Professional shall receive the following
compensation:
<PAGE>
4. PAYMENTS. All payments to be made to the Professional pursuant to the
terms of this Agreement shall be made to the Professional and
delivered to ________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
or at such other address as shall be designated in writing by
Professional.
5. RETENTION OF ENDORSEMENT RIGHTS. Except with respect to endorsement
rights granted to the Company for the apparel described herein, the
Professional shall retain all rights in and to the professional's name
and endorsement and the Professional shall not be prevented from
using, permitting or licensing others to use the Professional name or
endorsement in connection with the advertising, promotion or sale of
any product other than golf apparel as described in Section 1 hereof.
The Professional represents and warrants that no agreement, contract
or understanding exists which would prevent or limit the performance
of any of his obligations under this Agreement.
6. TERM. The term of this Agreement shall extend from the date of
execution hereof through and until _______, unless extended by written
agreement of the parties. The parties shall use their best efforts to
reach agreement on the terms of any such extension. In the event the
Professional should for any reason become a non-exempt PGA Tour player,
the Company shall have the right to terminate this Agreement at its
discretion at any time during the initial term or any extension
thereof. Additionally, if either part shall fail to observe or
perform any of the agreements or obligations undertaken by such party
hereunder, and such failure or default shall continue for a period of
30 days following notice from the non-defaulting party to the
defaulting party during which such failure or default shall not have
been cured by the defaulting party, then the non-defaulting party
shall have the right to terminate this Agreement following the
expiration of such 30-day notice period. The non-defaulting part
hereunder. Following the expiration of 90 days from the termination or
expiration of this Agreement, the Company shall cease usage of all
publicity, promotion and advertising materials which contain the
Professional's Image, it being the understanding of the parties that
during such 90-day period the Company shall have the right to use
such remaining publicity, promotion or advertising materials as shall
then be available to the Company.
<PAGE>
7. NOTICE. All notices and communications required or permitted to be
given hereunder shall be in writing, signed by the sender, and
delivered by registered or certified mail to:
If to the Company: Robert G. Tomlinson, Chairman and CEO
Sport-Haley, Inc.
4600 East 48th Avenue
Denver, CO 80216
With a copy to: Robert W. Walter, Esq.
Berliner Zisser Walter & Gallegos, P. C.
Suite 4700
1700 Lincoln Street
Denver, CO 80203
If to the Professional:
With a copy to:
or such other address as shall have been furnished in writing by the
parties to each other.
8. ENTIRE AND SOLE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes all statements, promises
and understandings, whether oral or written, with respect to subject
matter hereof.
9. SUCCESSORS AND ASSIGNS. This Agreement may not be assigned by the
Professional under any circumstances. The Company shall not be
entitled to assign this Agreement to any other party without the
Professional's express prior written consent, except any assignment
by the Company as a result of a stock exchange, merger, consolidation,
or sale of substantially all of the assets of the Company, in which
case not such consent shall be required.
10. SEVERABILITY. Should any one or more of the provisions of this
Agreement be determined to be illegal or unenforceable, all other
provisions of this Agreement shall be given effect separately from the
provision or provisions determined to be illegal or unenforceable.
11. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with, and governed by the laws of the State of Colorado
without regard to conflicts of laws principles.
12. COUNTERPARTS. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be an original, but all of which
together shall constitute one and the same Agreement. Facsimile
signatures shall be accepted by the parties hereto as original
signatures for all purposes.
<PAGE>
13. HEADINGS. The headings in this Agreement are for purposes of
convenience and easy reference only and shall not limit or otherwise
affect the meaning hereof.
14. DISPUTES. In the event of any dispute which arises between the parties
and which relates to the subject matter of this Agreement, the parties
acknowledge and agree that any such dispute shall be submitted for
binding arbitration in accordance with the arbitration procedures
established by the American arbitration Association in Denver,
Colorado. If such association is not then in existence, an
independent association of arbitrators may be utilized which is
designated by agreement of the parties. In the event the parties are
unable to agree on an independent association of arbitrators, either
party may apply to a court of competent jurisdiction for appointment
of arbitrators.
IN WITNESS WHEREOF, the Company and the Professional have executed this
Endorsement Agreement as of the day and year first above written.
PROFESSIONAL:
----------------------------------------
COMPANY:
SPORT-HALEY, INC.
By:
-------------------------------------
<PAGE>
AGREEMENT
THIS AGREEMENT, is made and entered into this _____ day of
__________________, 1997, by and between Sport-Haley, Inc., a Colorado
Corporation ("Sport-Haley") with principal offices at 4600 East 48th Avenue,
Denver, CO 80216 and _____________________________ (Distributor) with
principal offices at:
______________________________________________________________________________
RECITALS
A. Sport-Haley is the manufacturer and supplier of women's and
men's sport apparel (collectively The Product).
B. Sport-Haley represents that, it is the exclusive manufacturer
of the Product under various tradenames or trademarks, including, but not
limited to, the tradename Haley and that it has the sole right to grant an
exclusive license and/or distributorship to sell and promote the sale of the
Product in the country/countries of ___________________________
C. Sport-Haley desires to grant to Distributor the exclusive right
to distribute the Product in the country/countries of _____________________.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, together with the mutual
promises contained herein, the parties do hereby agree as follows:
1. SALES TERRITORY. The Distributor shall be the exclusive
distributor of the Product in the country/countries of ___________________
_____________________________ (the Territory).
2. SALE. Sport-Haley shall cause to be manufactured, sold, and
delivered to Distributor, the Product.
3. PRICE. The prices to be charged to Distributor will be as set
forth on Exhibit A attached hereto and incorporated herein by reference.
4. PAYMENT. The terms of payment are as set forth on Exhibit B
attached hereto and incorporated herein by reference, entitled "Distribution
Policies and Procedures."
5. DELIVERY, FREIGHT, INSURANCE, AND EXPORT REQUIREMENTS.
Delivery shall be F.O.B. Denver. There shall be no responsibility of
Sport-Haley for delivery, freight, carriage, insurance or licenses and
official authorizations for customs compliance, and custom duties for
exporting.
6. COVENANTS OF SPORT-HALEY. Sport-Haley covenants as follows:
a. If the Distributor is not in default of payment, Sport-Haley
shall supply the Distributor with its product in the regular
course of its business in accordance with the terms and
provisions of this Agreement.
<PAGE>
b. Sport-Haley shall not knowingly supply the Product to third
parties for export to the defined Territory without the
prior written consent of the Distributor.
c. Sport-Haley shall furnish to Distributor ongoing technical
assistance as shall be reasonably necessary.
7. COVENANTS OF DISTRIBUTOR. Distributor shall maintain adequate
sales service and warehouse facilities and shall use its best efforts to
market and sell at wholesale and/or retail the Product, and shall make
adequate advertising expenditures to promote and secure the maximum sale and
distribution throughout the Territory.
a. The Distributor shall maintain facilities and a business and
sales organization to develop the distribution and sale of
the Product to retail and wholesale outlets.
b. The Distributor shall purchase and maintain an inventory of
the Product sufficient to meet the retail and wholesale
needs of the Territory.
c. Distributor shall pay promptly for the product in accordance
with the terms and provisions of this Agreement.
d. Distributor shall be solely responsible for any expense of
any kind whatsoever incurred by Distributor in the
advertising, sale, or distribution of the Product.
8. TERM OF AGREEMENT. This Agreement shall be for an initial term
of one year commencing from the date of execution of this Agreement. Such
Agreement shall be renewed automatically for successive one year periods
unless terminated in accordance with the provisions of Paragraph 9 herein.
9. TERMINATION OF AGREEMENT. This Agreement may be terminated as
follows:
a. Either party on ninety (90) days prior written notice to
the other may terminate this Agreement, for any reason,
without prejudice to any rights of either party to monies
due or to become due under this Agreement.
b. If the Distributor is in default on any payment past due for
a period of thirty (30) days, or the Distributor defaults in
performing any of the other terms of this Agreement and
continues in default for a period of thirty (30) days after
written notice thereof or, if the Distributor is adjudicated
bankrupt or insolvent, or a receiver is appointed for it,
then Sport-Haley may terminate this Agreement by giving
notice to the Distributor at least thirty (30) days before
the time when such termination is to take effect, and
thereupon, this Agreement shall become void, without
prejudicing the rights of either parties to monies due or to
become due under this Agreement.
-2-
<PAGE>
c. Upon termination of this Agreement, for any reason, the
Distributor shall discontinue the use of Sport-Haley's
tradenames, logos, labels, or other advertising media and
shall remove all advertising relating thereto and in the
event of failure to do so, Sport-Haley may take whatever
action necessary to remove such advertising at the
Distributor's expense.
d. Upon the termination of this Agreement for any reason,
Sport-Haley shall have the option to repurchase the Product
in the possession of the Distributor and available for sale,
at prices originally billed to the Distributor and with
deductions for monies due or to become due to Sport-Haley
under this Agreement. As to any of the Product not
repurchased by the company, the Distributor shall have the
right to dispose of the Product in the regular course of its
business, and for this purpose, the restrictions of
subparagraph 9(c) shall be deferred until twelve months
after termination of this Agreement.
10. CONTINGENCIES. Sport-Haley shall not be liable for any delay
in manufacture or delivery due to fires, strikes, labor disputes, or, civil
commotion, delays in transportation, shortages of labor or material, or other
causes beyond the control of Sport-Haley. The existence of such causes of
delay shall justify the suspension of manufacture, and shall extend the time
of performance on the part of Sport-Haley to the extent necessary to enable
it to make delivery in the exercise of reasonable diligence after the causes
of delay have been removed. However, in the event of the existence of any
such causes of delay, Distributor may cancel the purchase of such portion of
the Product as may have been subjected to such delay, provided such portion
of the Product has not been manufactured nor is in the process of manufacture
at the time of Distributor's notice of cancellation arrives at Sport-Haley's
business address as set forth herein.
11. IMPORTATION. The Distributor represents that the Product is
purchased for the purpose of exportation to the country/countries of
__________________________________________
12. TRADENAME. The tradenames, trademarks and logos now used or
hereafter acquired relating to the Product are the exclusive property of
Sport-Haley. Nothing in this Agreement shall be construed in any way which
would give the Distributor any interest in such name, except the right to use
it in connection with its sale by Distributor under this Agreement. Upon
termination of this Agreement, subject and terms and provisions of Paragraph
9(d), the Distributor shall abandon all use of the tradenames, trademarks,
and logos of the Product.
13. CONFIDENTIALITY; COMPETITION. The design of the Product
constitute trade secrets of Sport-Haley and are confidential. It is
understood by Distributor that the confidential nature of the design of the
Product, is a legitimate business interest of Sport-Haley and it is necessary
to protect such information by keeping it secret and confidential. To
protect Sport-Haley's trade secrets as well as their ability to operate as
competitors in the marketplace, Distributor hereby agrees not to disclose,
directly or indirectly, the trade secrets of Sport-Haley. This covenant will
be effective upon execution of this Agreement.
During the term of this Agreement, Distributor agrees to not
manufacture, carry, or distribute for sale, any product that utilizes the
design of the Product or that competes with the Product of Sport-Haley
without the prior written consent of Sport-Haley.
-3-
<PAGE>
14. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the parties, their heirs, successors, representatives, and
assigns.
15. NOTICE. Any notice to be given by either party to the other in
this Agreement shall be in writing, shall be addressed to the party, at the
address specified at the beginning of this Agreement, and shall be deemed to
be given when deposited in express overnight mail, prepaid, in the case of
Sport-Haley, in the United States, and in the case of Distributor, in
_______________________________________________________________.
16. GOVERNING LAW. This Agreement and the performance of the
parties hereunder shall be governed and interpreted in accordance with the
laws of the State of Colorado.
17. JURISDICTION. In the event of any dispute arising between the
parties in connection with the performance of this Agreement, any appropriate
state or federal court located in the City and County of Denver, State of
Colorado, USA shall have exclusive jurisdiction over any case or controversy
arising under or in connection with this Agreement and shall be a proper
forum in which to adjudicate such case or controversy.
18. ENTIRE AGREEMENT. This Agreement embodies the entire
understanding of the parties and there are no other agreements or
understandings, oral or written, between the parties relating to the subject
matter hereof.
19. ASSIGNMENT. This Agreement may be assigned by Sport-Haley in
its sole and absolute discretion. This Agreement shall not be assigned by
Distributor and the performance of its duties shall not be delegated.
Distributor shall have no right to grant sublicenses under this Agreement
without the prior written consent of Sport-Haley, which consent may be
withheld by Sport-Haley in its sole and absolute discretion.
20. MODIFICATION. No modification or amendment of this Agreement
shall be valid or binding upon the parties unless made in writing and signed
on behalf of each of such parties by their respective representatives.
Executed as of the day and year first above written.
SPORT-HALEY, INC.,
a Colorado Corporation (DISTRIBUTOR)
By: By:
-------------------------- --------------------------
Title: Title:
----------------------- -----------------------
-4-
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements No.
33-88948 and No. 333-26221 on Form S-8 and Registration Statement No. 333-18831
on Form S-3 of Sport-Haley, Inc., of our report dated August 19, 1997 on the
financial statements of Sport-Haley, Inc., appearing in this Annual Report on
Form 10-KSB of Sport-Haley, Inc. for the year ended June 30, 1997.
/s/ LEVINE, HUGHES & MITHUEN, INC.
- ----------------------------------
Englewood, Colorado
September 29, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED JUNE 30, 1997 APPEARING IN THE FORM 10-KSB
FOR SUCH PERIOD AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 10,273
<SECURITIES> 1,319
<RECEIVABLES> 5,756
<ALLOWANCES> 71
<INVENTORY> 9,982
<CURRENT-ASSETS> 28,446
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0
0
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</TABLE>
