<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
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Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 27, 1997
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Commission File No. 0-23234
L.A. T SPORTSWEAR, INC.
A Georgia Corporation
(IRS Employer Identification No. 58-1724902)
1200 Airport Drive
Ball Ground, Georgia 30107
(770) 479-1877
Securities Registered Pursuant to Section 12(b)
of the Securities Exchange Act of 1934:
None
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Securities Registered Pursuant to Section 12(g)
of the Securities Exchange Act of 1934:
Common Stock, without par value
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the registrant held by
nonaffiliates of the registrant (1,311,602 shares) on March 6, 1998 was
$737,763. For the purposes of this response, officers, directors and holders of
5% or more of the registrant's common stock are considered the affiliates of the
registrant at that date.
The number of shares outstanding of the registrant's Common Stock, without par
value, as of March 6,1998: 4,200,001 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Stockholders to be held in 1998 are incorporated by reference into Part III
of this Report, with the exception of information regarding executive officers
required under Item 10 of Part III, which information is included in Part I,
Item 1.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
L.A. T Sportswear, Inc. (the "Company") is a national distributor and
manufacturer of quality imprintable and decorable knitted sportswear. Through
its distribution operations (which are carried out under the name Full Line
Distributors), the Company is a national distributor of undecorated garments for
the imprinted sportswear industry, carrying one of the broadest product lines in
the industry, including basic t-shirts and sweatshirts, golf shirts, baseball
and golf caps, athletic jackets, athletic jerseys and shorts, bags and aprons.
The Company carries the products and brands of nationally recognized
manufacturers, including Fruit of the Loom(R), Hanes(R), Russell(R) and Jonathan
Corey(R), as well as its own line of manufactured apparel. Through its
manufacturing operations (which are carried out under the name L.A. T
Sportswear), the Company designs, manufactures and markets decorable sportswear,
primarily for the infant and toddler, youth and fashion adult markets. The
Company's products, which include basic t-shirts and sweatshirts, one-piece
rompers, dresses and fashion coordinates, are marketed under the following brand
names: Rabbit Skins(R) (infant and toddler wear); L.A. T For Kids(R) (youth
wear, ages five to ten); and L.A. T Sportswear(R) (adult fashion wear).
As a national sportswear distributor, the Company targets the small
independent imprinter and decorator and seeks to provide that customer with one
of the broadest product offerings in the industry, carried in-depth at multiple
locations to ensure that the customer's order is filled and received on a "just
in time" basis. The Company's strategy as a manufacturer is to focus on market
and product niches, such as infant and toddler sportswear and fashion adult
sportswear; to provide a high level of customer order support through the
maintenance of substantial product inventories and flexible production
scheduling; and to design innovative products for both the adult and children's
market segment.
The Company's executive offices are located at 1200 Airport Drive, Ball
Ground, Georgia 30107 and its telephone number is (770) 479-1877.
OPERATIONS
The Company is a national wholesaler of decorable sportswear and
accessories. The imprinted sportswear industry is highly fragmented and includes
a wide variety of businesses such as screen printers, embroiderers, advertising
specialty companies, crafters and sporting goods and uniform companies. The
majority of the Company's distribution customers are small, independent
companies that lack the capitalization and space requirements to warehouse their
product needs, instead relying on wholesalers such as the Company to supply
their products. The Company believes that for these customers, breadth of
product line, immediate availability of product and superior customer service
are as important as price. For these reasons, the Company's distribution
operations are geared to breadth of product line, depth of inventory and prompt
order filling, as well as competitive pricing. While management believes that
most of its competitors carry only basic items such as t-shirts and sweatshirts,
the Company carries these items as well as a wide variety of specialty products
from bags and aprons to golf shirts in over 100 colors and sizes ranging from
small to triple-extra large.
In addition to its distribution operations, the Company also designs,
manufactures and markets its own lines of imprintable and decorable sportswear
for the infant and toddler, youth and fashion adult markets for sale to mass
merchants and specialty retailers and private label garments for selected
distributors, screen printers and retailers. In its manufacturing operations,
the Company seeks market niches in the imprinted sportswear industry where it
has a competitive advantage by virtue of its ability to manufacture on a shorter
product run basis than fully integrated mills, and where innovative product
design or fabric introductions can differentiate it from its competitors.
<PAGE> 3
Products
The Company's distribution philosophy is to provide its customers the
broadest selection of imprintable sportswear in the industry, carried in depth
in inventory, and available to the customer within the most responsive time. To
accomplish this goal, the Company avoids duplicating the product offerings of
multiple manufacturers, and instead, generally carries the garment of only one
or two manufacturers in any given product. By not carrying the same product of
multiple manufacturers, the Company is able to carry deeper inventories and a
broader selection of products as a whole.
At December 27, 1997, the Company's inventory included approximately
300 styles of products from 13 garment and accessories manufacturers. This
inventory included approximately 5,800 individual items (SKUs) including all
color and size variations. The Company's primary suppliers are Fruit of the
Loom(R), Hanes(R) and Russell(R) (t-shirts and sweatshirts), Print-Ons(R) and
Jonathan Corey(R) (golf shirts and sports shirts), Auburn Sportswear(R)
(athletic jackets), Yupoong(R) (baseball and golf caps), Augusta(R) Sportswear
(athletic jerseys, shorts, aprons and bags), Rabbit Skins(R) (toddler and infant
wear), Fieldcrest/Cannon(TM) (golf and beach towels) and L.A. T For Kids(R) and
L.A. T Sportswear(R) (youth and adult sportswear). Product offerings are
reviewed annually in connection with the preparation of customer catalogs, new
and expanded lines are routinely added and slow moving or discontinued products
are deleted.
The Company generally enters into non-exclusive oral distribution
agreements with the vendors of the products it distributes which are cancelable
by either party upon notice. Management believes that the current relationship
with its vendors is satisfactory.
Distribution and Warehousing
As of March 6, 1998, the Company operated six distribution centers
located in the metropolitan areas of Atlanta, Cleveland, Houston, Los Angeles,
Miami and St. Louis. Each distribution center is leased and ranges from
approximately 41,000 to 59,000 square feet. Each facility is supervised by a
location manager and includes a support staff of office and warehouse personnel.
A customer order entered by a customer service representative on the
centralized inventory control computer system automatically generates a picking
ticket in the warehouse. Each customer order is then hand picked, checked and
packed, and the shipment staged in the warehouse for customer pick-up or
shipment by UPS or other carrier. In the event the order-entering distribution
center is out of stock on all or any portion of a customer's order, the order
may be completed for same day shipment from any of the Company's other
distribution centers.
Customers and Customer Service
The Company's customers are predominantly small independent imprinters,
embroiderers, advertising specialty companies, crafters and sporting goods and
uniform companies which purchase their requirements on an as needed basis for
immediate delivery. At December 27, 1997, the Company had an active customer
list of over 26,000 customers (customers who had placed an order within the
preceding year). In 1997, the largest customer accounted for less than 2% of the
Company's $72.6 million in sales and the Company's ten largest customers
accounted for less than 8% of sales. By contrast, approximately 85% of sales
were to customers who purchased less than $100,000 worth of merchandise during
the year. All credit decisions are handled by the Company's centralized credit
staff at its Atlanta facility. For 1997, the Company experienced credit losses
of 1.0% of sales.
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The Company has a centralized customer service department located in
Atlanta. Customer service lines are answered Monday through Friday from 8:00
a.m. to 6:00 p.m., local time. The distribution operations offer same day
shipping on all orders placed before 4:00 p.m. and 24-hour shipping on all other
orders.
Customer service representatives are required to be familiar with the
entire product line and able to answer customer questions concerning the
Company's product offerings. The Company utilizes a comprehensive training
program for new customer service representatives. Each service representative
spends time training in the warehouse, pulling customer orders and learning the
product lines. Trainees are provided with a training manual which details each
style with complete line sketches of each product highlighting all features and
detailing all colors and sizes, dimensions and fabric content. The manual also
outlines telephone and order entry procedures, both computerized and manual, and
provides tests to ensure that service representatives are trained to the
Company's standards.
Marketing and Advertising
The Company primarily markets its products through its catalog, trade
shows, major trade magazines and direct mail flyers. The Company produces and
distributes approximately 200,000 catalogs annually and exhibits at several
trade shows. The advertisements and flyers are designed to educate the customer
about the Company's business by highlighting its multiple locations, extended
operating hours, excellent service and product availability.
The Company exhibited at four shows in 1997. The participation in these
trade shows provides L.A. T with excellent opportunities to display its
collection of imprintable apparel and solicit new customers.
Product Development
The Company's imprintable knitted sportswear products (blanks) are
focused in the areas of infant and toddler, youth and fashion adult sportswear.
Under its registered label Rabbit Skins(R), the Company produces a full line of
activewear for infants and toddlers, including basic t-shirts and sweatshirts,
one-piece rompers, dresses and fashion coordinates. The Company's 1998 Rabbit
Skins(R) line consists of approximately 54 styles and 595 SKUs including all
color and size variations. Garments in this line are manufactured using a
variety of fabrics including 100% cotton and 50% cotton/50% polyester.
Rabbit Skins(R) infant and toddler wear was the first product line
developed by the Company and the Company believes it is a major manufacturer in
this category of imprintable garments. For 1997, sales of Rabbit Skins(R)
products accounted for 9.4% of the Company's net sales.
The Company also produces a line of imprintable youth garments under
the label L.A. T For Kids(R) (ages five to ten years) with product offerings
such as basic t-shirts, dresses, fashion coordinates and shorts. For 1998, the
youth line consists of approximately 12 styles and 113 SKUs including all color
and size variations.
The Company designs and manufactures a line of adult activewear under
the label L.A. T Sportswear(R). Offerings in this line consist of shorts,
fashion t-shirts and tops, and cover-ups. The adult line consists of
approximately 33 styles and 500 SKUs. The L.A. T Sportswear(R) line tends to be
more upscale and fashion oriented, avoiding the commodity-type garment
offerings. Although all L.A. T
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Sportswear(R) garments are sold as separates, the Company makes available many
products in the line as top/bottom coordinates.
Product development and new product design are the primary
responsibility of the Company's merchandising department, with new product ideas
and proposals subject to review by the Company's marketing personnel and
executive officers at regularly scheduled meetings. The Company considers itself
an innovator in new product style development.
Sales and Marketing
The Company utilizes both independent commissioned sales
representatives and its own sales staff to sell its blank products to
distributors in the imprintable sportswear industry, to larger screen printers,
craft chain stores and to retailers who buy direct and perform their own screen
printing. The Company's President coordinates the activities of both its
independent sales representatives, as well as its own sales staff. In 1997, 3.8%
of the Company's net sales were to craft stores and other retailers such as
Wal-Mart, Michaels Stores, Garden Ridge Pottery, Hobby Lobby and Fabri-Centers.
Manufacturing Operations
The Company's product lines are manufactured at three facilities in
Georgia. Management believes that the manufacturing of its products domestically
permits it to have greater control over production, enhances the quality of the
finished product and facilitates greater responsiveness to its customers' needs.
Management also believes that the Company's ability to accommodate orders in
varying quantities while controlling production costs and maintaining consistent
quality provides it with a competitive advantage.
For approximately 90% of the fabric used in its garments, the Company
purchases yarn which is knitted, dyed and finished (curing and color fixation)
on a contract basis. The remainder of fabric used in its garments (primarily
fleece goods) is purchased in a fully finished state from several outside
suppliers. All incoming fabric is received and inspected at the centralized
cutting facility in Ball Ground, Georgia. The fabric storage operations are
likewise located in this facility, which also houses production control,
inventory management and purchasing personnel.
Cut and sew operations involve several stages. Patterns are created and
cutting templates are produced by a fully computerized Lectra Systems(R) marking
and grading system, which allows the Company to produce more accurate patterns
and grading between sizes. Using computerized equipment to ensure consistency of
fit, the initial patterns are adjusted to produce patterns for each size to be
manufactured in a particular style. The computerized equipment creates markers
in order to efficiently produce a specified number of garments in designated
sizes. The markers are placed over layers of fabric and the pattern pieces are
cut, checked and prepared for sewing manually by cutting teams. These pieces are
then sewn together to form the completed product.
The Company's sewing operations are currently located at two
facilities, one in Ball Ground, Georgia and one in Roberta, Georgia. Sewing
operators in all facilities are compensated on a piece work incentive basis. The
sewing operators are cross-trained on a variety of garments and operations,
which tends to maximize the flexibility of the plants, permitting shorter sewing
cycles and allowing quick change in the production of other garments, as sales
demands dictate.
The finished garments are counted and packed at the individual sewing
plants and then shipped to the centralized warehouse and shipping facility in
Ball Ground, Georgia. All inventory of finished
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goods in full cases is bar coded for inventory tracking. Inventory, production,
labor and other cost items are maintained for each individual plant on the
Company's centralized management information and inventory tracking computer
located at the corporate headquarters facility. In the past, the Company's
commitment to customer service has required it to maintain substantial
inventories of finished goods. The Company's current focus, consistent with this
commitment to customer service, is to maximize the responsiveness and
flexibility of its cutting and sewing operations enabling it to reduce finished
goods inventory levels.
All of the Company's manufacturing facilities are currently operated on
a single shift basis. Management believes that the physical capacity of its own
facilities is currently adequate to meet the Company's manufacturing needs for
the foreseeable future.
Raw Materials and Supplies
The primary raw materials used in the Company's manufacturing
operations are cotton and synthetic yarns which are purchased on a contractual
basis (usually 12 months in advance) from a small number of suppliers. The
Company also contracts for the conversion of its yarn to finished fabric,
primarily through a single knitting source and two contract finishing houses.
Approximately 10% of the Company's total fabric needs (primarily fleece
material) is purchased from a small number of outside sources. The Company
currently utilizes limited supply sources on the theory that the loyalty and
commitment generated by the long standing business relationship between supplier
and customer outweighs the risk inherent in dependency on limited sources of
supply. At the same time, the Company believes that alternative sources of
supply, both for raw materials and conversion services, are readily available at
competitive prices and its reliance on limited supply sources causes no
significant risk to the business.
Backlog
As of December 27, 1997 and December 28, 1996, the Company had a
backlog of orders believed to be firm of approximately $1,905,404 and
$1,556,227, respectively, for products to be delivered during the respective
fiscal years.
Competition
Competition in the screen print garment distribution business is
intense and is based primarily on product line quality, availability and prompt
delivery of products, price, level of customer support and the ability to offer
a wide selection of products. Some of the Company's competitors have
substantially greater financial resources and larger staffs. Principal
competitors include national distributors such as Broder Brothers, Staton
Wholesale, California Shirt Sales and South Carolina Tees, as well as regional
distributors such as San Mar, Alpha Shirts and Stardust.
In some cases, the Company also competes with manufacturers that sell
directly to screen printers, sometimes at prices below those charged by the
Company for similar products. Most manufacturers, however, limit their direct
sales only to large resellers because of the costs associated with dealing with
a large number of small volume customers.
The imprinted sportswear segment of the apparel industry is highly
fragmented and includes several companies that have substantially greater
financial resources and manufacturing capabilities than the Company. The Company
believes that the primary competition for the manufacturing operations' products
comes from two brands in the infant and toddler market (Oneita and Active Edge)
and ten to
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fifteen companies in the youth and adult fashion markets. Competition from
imported products is generally not a significant factor in the imprinted
knitwear industry, since labor is a lesser component of the total cost of the
finished goods than in more complicated garments. The Company competes in this
aspect of its business primarily based on product design, quality and
responsiveness to customer service needs. In addition, price is a significant
competitive factor in the imprintable garment industry.
EMPLOYEES
At December 27, 1997, the Company employed approximately 356 full time
employees, of which 35 were salaried, 185 were paid on an hourly basis and 136
were paid on an incentive piece work basis. None of the Company's employees is
covered by a collective bargaining agreement and the Company believes that its
employee relations are satisfactory.
EXECUTIVE OFFICERS
The executive officers of the Company are as follows:
Name Position with Company
Isador E. Mitzner Chairman of the Board and Chief Executive
Officer
J. David Keller President and Secretary
John F. Hankinson Vice President, Chief Financial Officer and
Treasurer
ISADOR E. MITZNER, age 45, founded the Company and its predecessors,
and has served as its Chairman and Chief Executive Officer since its inception
in 1978.
J. DAVID KELLER, age 50, joined the Company in March 1981 and has
served as President of the L.A. T Sportswear operations since 1987. Mr. Keller
has served as a director of the Company since 1986, as President since October
1993, and as Secretary of the Company since March 1994. For three years prior to
joining the Company, Mr. Keller worked for Hanes Activewear as a sales
representative in the Southeast United States and the Caribbean.
JOHN F. HANKINSON, age 44, joined the Company in August 1988 and has
served as Vice President, Chief Financial Officer and Treasurer since May 1997.
Mr. Hankinson served as Accounting Manager of the Manufacturing Division from
August 1988 through June 1989, Controller of the Manufacturing Division from
July 1989 through December 1995 and Company Controller from January 1996 through
May 1997.
TRADEMARKS
The Company believes its trademarks have significant value and are
important to its marketing efforts. The Company has registered the trademarks
Rabbit Skins(R), L.A. T For Kids(R) and L.A. T Sportswear(R) with the United
States Patent and Trademark office. The Company's policy is to pursue
registration of its marks whenever possible and to oppose vigorously any
infringement of its marks.
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The Company sells products under various trademarks and trade names
used in this Annual Report that are the property of owners other than the
Company. The following is a list of such trademarks and tradenames that are used
in this Annual Report: Fruit of the Loom(R); Hanes(R); Russell(R); Jonathan
Corey(R); Print-Ons(R); Auburn Sportswear(R); Yupoong(R); Augusta(R); and
Fieldcrest/Cannon(TM).
ITEM 2. PROPERTIES.
The following table presents information as to the real properties and
facilities of the Company as of March 6, 1998:
<TABLE>
<CAPTION>
FACILITY AND LOCATION PRIMARY UTILIZATION SQUARE FOOTAGE NATURE OF OWNERSHIP
<S> <C> <C> <C>
Ball Ground, Georgia.......... Administration,
Sewing, Purchasing,
and Centralized
distribution 68,000 Owned
Ball Ground, Georgia.......... Production planning,
Centralized cutting
and Raw materials
warehousing 46,000 Owned
Roberta, Georgia.............. Sewing 22,000 Leased through January 2003
Atlanta, Georgia.............. Administration and 56,000 Leased through
Distribution December 1999
Cleveland, Ohio............... Distribution 49,700 Leased through
April 2000
Fullerton, California......... Distribution 43,200 Leased through
April 2000
Houston, Texas................ Distribution 59,000 Leased through
December 2002
Miami, Florida................ Distribution 41,000 Leased through
December 1999
St. Louis, Missouri........... Distribution 44,200 Leased through
March 2000
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company is a party
or to which its properties are subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders of the Company
during the fourth quarter ended December 27, 1997.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Common Stock currently trades on the OTC Bulletin Board
under the symbol LATS. From January 25, 1994 through February 20, 1997, the
Common Stock traded on the Nasdaq National Market. The following table sets
forth, by fiscal quarter, the high and low sales prices of the Common Stock
reported by The Nasdaq Stock Market during the most recent two years.
<TABLE>
<CAPTION>
Fiscal Year Ended December 28, 1996 High Sale Low Sale
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<S> <C> <C>
First Quarter ended March 30, 1996 2 3/4 2 1/4
Second Quarter ended June 29, 1996 2 3/4 1 7/8
Third Quarter ended September 28, 1996 2 3/8 7/8
Fourth Quarter ended December 28, 1996 1 1/4 1/2
Fiscal Year Ended December 27, 1997
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First Quarter ended March 29, 1997 7/8 5/16
Second Quarter ended June 28, 1997 5/8 11/32
Third Quarter ended September 27, 1997 3/4 1/2
Fourth Quarter ended December 27, 1997 7/8 1/2
</TABLE>
As of March 6, 1998, the number of shareholders of record of the
Company's Common Stock was approximately 52 and the number of beneficial holders
of the Company's Common Stock was approximately 92. The Company has not declared
or paid any cash dividends on its Common Stock. The policy of the Board of
Directors of the Company is to retain earnings, if any, for the expansion and
development of the Company's business. Future dividend policy and the payment of
dividends, if any, will be determined by the Board of Directors in light of
circumstances then existing, including the Company's earnings, financial
condition, bank and other contractual restrictions and other factors deemed
relevant by the Board.
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR(1)
1997 1996 1995 1994 1993(2)
-----------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Net sales $ 72,608 $ 94,834 $ 124,897 $ 100,356 $ 78,704
Cost of goods sold 60,732 79,136 104,941 81,279 61,931
--------- --------- --------- --------- ---------
Gross profit 11,876 15,698 19,956 19,077 16,773
Operating expenses 11,038 16,147 21,006 13,015 11,156
Restructuring charge(3) -- -- 1,700 -- --
--------- --------- --------- --------- ---------
Operating profit (loss) 838 (449) (2,750) 6,062 5,617
Other income (expense):
Interest expense (1,582) (2,047) (2,364) (962) (1,328)
Other income (expense) 19 4 (266) (15) 37
--------- --------- --------- --------- ---------
Income (loss) before income tax and
extraordinary item (725) (2,492) (5,380) 5,085 4,326
(Provision) benefit for income taxes(4) (21) (172) 1,787 (2,089) (152)
--------- --------- --------- --------- ---------
Net income (loss) before extraordinary item (746) (2,664) (3,593) 2,996 4,174
Extraordinary loss on prepayment of line of
credit, net of income tax benefit of $40 (1994)(5) -- -- -- (60) --
--------- --------- --------- --------- ---------
Net income (loss) $ (746) $ (2,664) $ (3,593) $ 2,936 $ 4,174
========= ========= ========= ========= =========
Basic and diluted net loss per share $ (0.18) $ (0.63) $ (0.86)
========= ========= =========
Weighted average shares outstanding 4,200 4,200 4,200
========= ========= =========
Distributions declared(6) -- -- -- $ 5,550 $ 1,650
========= ========= ========= ========= =========
PRO FORMA DATA:
Income before income taxes and extraordinary
item, as reported $ 5,085 $ 4,326
Pro forma provision for income taxes(4) (2,089) (1,657)
--------- ---------
Pro forma income before extraordinary item 2,996 2,669
Extraordinary loss on prepayment of line of
credit, net of income tax benefit of $40 (1994)(5) (60) --
--------- ---------
Pro forma net income $ 2,936 $ 2,669
--------- ---------
Pro forma net income per share:(7)
Income before extraordinary item $ 0.72 $ 0.74
Extraordinary loss on prepayment of line of
credit, net of income tax benefit (0.01) --
--------- ---------
Pro forma net income $ 0.71 $ 0.74
========= =========
Pro forma weighted average shares outstanding(7) 4,150 3,629
========= =========
BALANCE SHEET DATA (AT END OF YEAR):
Working capital $ 18,282 $ 25,802 $ 9,011 $ 30,624 $ 6,325
Property, plant and equipment, net 3,749 4,315 5,841 5,008 4,413
Total assets 28,739 36,519 57,032 44,567 26,713
Short-term borrowings 23 22 30,328 372 9,759
Long-term debt, net of current portion 11,732 18,929 821 18,391 1,531
Stockholders' equity 10,235 10,981 13,645 17,238 9,396
</TABLE>
footnotes on following page
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(1) Since 1994, the Company's fiscal year ends on the last Saturday in
December.
(2) In the second quarter of 1993, the Company recognized $642,000 in
compensation expense as the result of a share purchase option granted
to an officer of the Company by the major stockholder. This one-time
noncash charge reduced operating profit, pro forma net income, and pro
forma net income per share for the year ended January 1, 1994 by
$642,000, $396,000, and $.11, respectively.
(3) In December 1995, the Company decided to streamline operations by
closing certain of its facilities and discontinuing certain product
lines during 1996. The Company closed two distribution facilities in
January 1996 and closed one of its sewing operations in April 1996.
Additionally, the Company discontinued its screen printed operations in
mid-1996. The Company recorded a charge in the fourth quarter of 1995
of approximately $1,700,000 related to this restructuring.
(4) As a result of its election to be treated as an S Corporation for
income tax purposes, the Company was not subject to federal and most
state income taxes. Accordingly, the provisions for income taxes
through January 1994 include income only for those jurisdictions that
do not recognize S Corporation status. The Company terminated its S
Corporation status during January 1994. The pro forma provision for
income taxes (computed under the provisions of Statement of Financial
Accounting Standards No. 109) reflects provisions that would have been
recorded had the Company been a C Corporation for income tax purposes.
(5) In July 1994, the Company completed a new line of credit agreement and,
as a result, repaid borrowings under all of its previous lines of
credit and terminated such agreements. The Company incurred termination
costs under one of its previous credit agreements of $100,000 ($60,000
after tax).
(6) Prior to the Company's initial public offering in January 1994,
distributions (in the form of dividends) were principally to assist the
stockholders with their income tax obligations arising from the
Company's S Corporation status. However, from the proceeds of the
offering, the Company distributed to its S Corporation stockholders
previously undistributed S Corporation earnings of $5,550,000. The
Company does not anticipate paying any cash dividends in the
foreseeable future.
(7) Pro forma net income per share is computed by dividing pro forma net
income by pro forma weighted average shares outstanding. Pro forma
weighted average shares outstanding include the actual weighted average
shares outstanding plus the number of shares sold by the Company in its
initial public offering (at the price of $10.00 per share) necessary to
fund the $5,550,000 distribution to stockholders declared in January
1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor to encourage companies to provide prospective information so long as it
is identified as forward-looking and accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those discussed. Forward-looking statements are related
to the plans and objectives of management for the future operations, economic
performance, of projections of revenues, income, earnings per share, capital
expenditures, dividends, capital structure, or other financial items. In the
following discussion and elsewhere in this report, statements containing words
such as "expect," "anticipate," "believe," "goal," "objective," or similar words
are intended to identify forward-looking statements. The Company undertakes no
obligation to update such forward-looking statements, and it wishes to identify
important factors that could cause actual results to differ materially from
those projected in the forward-looking statements contained in the following
discussion and elsewhere in this report. The risks and uncertainties that may
affect the operations, performance, development, and results of the Company's
business include but are not limited to the following: (1) heightened
competition, particularly intensified price competition; (2) general economic
and business conditions which are less favorable than expected; (3)
unanticipated changes in industry trends; and (4) other risks detailed herein
and from time to time in the Company's other reports.
GENERAL
The Company expanded its business in fiscal 1993, 1994 and 1995 by (i)
increasing its manufacturing capabilities and production flexibility, (ii)
opening new distribution locations, (iii) introducing new product offerings and
(iv) expanding its distribution channels to include screen printers, craft
stores, mass merchants and other retailers and by carrying the entire
manufactured product line at all distribution locations. During 1996, the
Company streamlined operations by closing certain of its facilities and
discontinuing certain product lines. The Company closed two distribution
facilities in January 1996 and closed one of its sewing operations in April
1996. Additionally, the Company discontinued its screen printed operations in
mid-1996. The Company recorded a charge in the fourth quarter of 1995 of $1.7
million related to this restructuring. In December 1997, the Company closed its
distribution center in Hartford, Connecticut, at the expiration of its facility
lease.
-11-
<PAGE> 13
RESULTS OF OPERATIONS
The following table sets forth, for the years indicated, the components
of the Company's statements of operations expressed as a percentage of net sales
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 83.6 83.4 84.0
----- ----- -----
Gross profit 16.4 16.6 16.0
Operating expenses 15.2 17.0 16.8
Restructuring charge -- -- 1.4
----- ----- -----
Operating profit (loss) 1.2 (0.4) (2.2)
Other expense:
Interest expense (2.2) (2.2) (1.9)
Other, net -- -- (0.2)
----- ----- -----
Loss before income taxes (1.0) (2.6) (4.3)
(Provision) benefit for income taxes -- (0.2) 1.4
----- ----- -----
Net loss (1.0)% (2.8)% (2.9)%
===== ===== =====
</TABLE>
Comparison of 1997 to 1996
The Company's net sales decreased approximately $22.2 million, or
23.4%, to $72.6 million in 1997 from $94.8 million in 1996. The decrease in net
sales was primarily attributable to sluggishness in the industry and to the
impact of the Company's 1995 restructuring in which its screen print operations
were shut down during the 1996 third quarter.
The Company's gross profit decreased approximately $3.8 million, or
24.3%, to $11.9 million for 1997 from $15.7 million in 1996. The decline in
gross profit is attributable to both the decrease in net sales and stiff
competition in the industry. Gross profit margin was further impacted by the
fact that sales of the Company's manufactured products, which have a higher
gross margin, decreased to 20.0% of net sales in 1997 from 24.3% of net sales in
1996. As a percentage of net sales, gross profit margin decreased to 16.4% in
1997 from 16.6% in 1996.
Operating expenses decreased approximately $5.1 million, or 31.7%, to
$11.0 million in 1997 from $16.1 million in 1996. The decrease in operating
expenses is due primarily to the Company's closing of its screen print
operations in the third quarter of 1996, as part of a restructuring plan
implemented during the 1995 fourth quarter, and to additional operational
streamlining. As a percentage of net sales, operating expenses decreased to
15.2% in 1997 from 17.0% in 1996.
-12-
<PAGE> 14
As a result of the decrease in operating expenses, operating profit
increased approximately $1.3 million, or 286.6% to $838,000 in 1997 from an
operating loss of $(449,000) in 1996. As a percentage of net sales, operating
profit increased to 1.2% in 1997 from (0.4)% in 1996.
Interest expense decreased approximately $465,000, or 22.7%, to $1.6
million in 1997 from $2.0 million in 1996, primarily due to reduced borrowings
under the Company's line of credit, which resulted from carrying lower accounts
receivable and inventory balances, and the advantage of deferred datings from
major vendors.
Loss before income taxes decreased approximately $1.8 million to
$(725,000) in 1997 from $(2.5) million in 1996. Loss before income taxes as a
percentage of net sales decreased to (1.0)% in 1997 from (2.6)% in 1996.
As a result of the factors described above, net loss decreased
approximately $1.9 million to $(746,000) in 1997 from $(2.7) million in 1996.
Net loss as a percentage of net sales decreased to (1.0)% in 1997 from (2.8)% in
1996.
Comparison of 1996 to 1995
The Company's net sales decreased approximately $30.1 million, or
24.1%, to $94.8 million in 1996 from $124.9 million in 1995. The decrease in net
sales was primarily attributable to sluggishness in the industry combined with
the closing of two distribution centers at the end of 1995 and the closing of
the screen print operations during the third quarter of 1996.
The Company's gross profit decreased approximately $4.3 million, or
21.3%, to $15.7 million for 1996 from $20.0 million in 1995. The decline is
primarily related to the decline in net sales. As a percentage of net sales,
gross profit margin increased to 16.6% in 1996 from 16.0% in 1995.
Operating expenses, excluding restructuring charges, decreased
approximately $4.9 million, or 23.1%, to $16.1 million in 1996 from $21.0
million in 1995. The decrease in operating expenses is due primarily to the
Company's restructuring plan implemented during the 1995 fourth quarter, in
which two distribution centers and the screen print operation were closed, and
to additional operational streamlining. The benefits of the restructuring were
partially offset by initial cost of operational and administrative improvements.
As a percentage of net sales, operating expenses, excluding restructuring
charges, increased to 17.0% in 1996 from 16.8% in 1995.
The Company's operating loss, excluding restructuring charges,
decreased approximately $601,000 to $(449,000) in 1996 from $(1.1) million in
1995. The overall operating loss, including 1995 restructuring charges of $1.7
million, decreased approximately $2.4 million to $(449,000) in 1996 from $(2.8)
million in 1995.
Interest expense decreased approximately $317,000, or 13.4%, to $2.1
million in 1996 from $2.4 million in 1995. The decrease was primarily due to
lower borrowing needs under the Company's line of credit, due to improved
working capital management, resulting from reduced inventory and accounts
receivable levels.
Loss before income taxes, excluding the 1995 restructuring charge of
$1.7 million, decreased approximately $1,118,000 to $(2.5) million in 1996 from
$(3.7) million in 1995. Overall loss before income taxes, including the 1995
restructuring charge, decreased approximately $2.9 million to $(2.5) million in
1996 from $(5.4) million in 1995. Loss before income taxes and restructuring
charges as a percentage of net sales decreased to (2.6)% in 1996 from (2.9)% in
1995. Overall loss before income
-13-
<PAGE> 15
taxes including 1995 restructuring charges as a percentage of net sales
decreased to (2.6)% in 1996 from (4.3)% in 1995.
Net loss decreased approximately $929,000 to a loss of $(2.7) million
in 1996 from $(3.6) million in 1995. Net loss as a percentage of net sales
decreased to (2.8)% in 1996 from (2.9)% in 1995. The net loss in 1995 included
an income tax benefit of approximately $1.4 million. No income tax benefit was
recorded for 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $6.5 million,
$10.5 million, and ($8.3) million in 1997, 1996, and 1995, respectively. In
operating activities, inventories decreased by $2.2 million, accounts receivable
decreased by $1.7 million, and the Company received approximately $1.9 million
in income tax refunds in 1997. Cash generated by operating activities was
primarily used to repay borrowings under the Company's credit facilities.
In April 1996, the Company entered into a new credit facility (the
"Credit Facility"). The Credit Facility was subsequently amended in November
1996, March 1997, November 1997 and March 1998. The Credit Facility, as amended
(i) provides for maximum borrowings of $16 million, reducing to $15 million in
June 1998, (subject to certain collateral restrictions based on eligible
receivables, inventories and fixed assets), (ii) expires on March 31, 2001,
(iii) bears interest at prime plus 1.00%, and (iv) is secured principally by all
the Company's assets. As of March 6, 1998, the Company had borrowings totaling
$11.3 million outstanding under the new facility and availability to borrow $2.4
million.
The Company has incurred net losses in each of the last three fiscal
years. As discussed above, the Company restructured its operations in 1996 and
1995 and in addition, the Company entered into new borrowing arrangements.
Management has developed an operating plan with the goal of improving operations
in 1997 and for subsequent years.
The Company's ability to fund its working capital and capital
expenditure requirements, make interest payments and meet its other cash
requirements depends, among other things, on internally generated funds and the
continued availability of and compliance with the terms of its Credit Facility.
Management further believes that internally generated funds and funds available
from the Company's Credit Facility will be sufficient to meet the Company's
capital requirements and operating needs in fiscal 1998. The Company's Credit
Facility currently expires in March 2001. If there is a significant reduction of
internally generated funds or the Company is unable to meet the operating
projections used in determining certain financial covenants under its credit
facility, the Company may require additional funds from other financing sources.
In such event, there can be no assurance that the Company will be able to obtain
such funding as and when required or on acceptable terms.
YEAR 2000 COMPATIBILITY
The Company is currently utilizing two computer information systems. In
its distribution operations, the Company uses a package known as VICS
(Vertically Integrated Computer Systems) which runs on an IBM RS6000 computer.
Management believes the VICS software is year 2000 compatible based upon
representations to that affect by the VICS software vendor. In its manufacturing
operations, the Company uses a software package known as AIC (Applied
Intelligence Corporation) that runs on a Wang computer. The AIC software is not
year 2000 compatible on the Wang computer.
-14-
<PAGE> 16
The Company is currently examining two options to bring its
manufacturing information system to be year 2000 compliant. The first option is
to use the current AIC software vendor who has adapted the AIC software to run
on an IBM AS400 computer and, according to the AIC software vendor, will be year
2000 compatible by December 31, 1998. The approximate cost of this option is
$100,000, which includes the company's commitment of internal resources and the
purchase of such computer hardware. The second option is to purchase a
completely new software package that would run on the IBM RS6000 currently used
in distribution operations. The Company is currently reviewing packages that are
already year 2000 compatible that would fit its manufacturing needs. This option
could cost between $250,000 to $500,000, which includes the company's commitment
of internal resources. The Company anticipates that either option chosen will be
fully operational by December 31, 1998. There can be no assurance, however, that
the Company will not encounter unanticipated delays with implementation of
either option or that the costs of such implementation will not exceed
management's current estimates.
EFFECTS OF INFLATION
The Company does not believe inflation has materially impacted earnings
during the past three years. Substantial increases in costs could have a
significant impact on the Company and the industry. If operating expenses
increase, management believes it can recover increased costs by increasing
prices but there is no assurance of such.
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
No Response is required to this item.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following financial statements are filed with this report:
Independent Auditors' Report
Balance Sheets as of December 27, 1997 and December 28, 1996
Statements of Operations for the years ended December 27, 1997,
December 28, 1996 and December 30, 1995
Statements of Stockholders' Equity for the years ended December 27,
1997, December 28, 1996 and December 30, 1995.
Statements of Cash Flows for the years ended December 27, 1997,
December 28, 1996 and December 30, 1995
-15-
<PAGE> 17
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
L.A. T Sportswear, Inc.:
We have audited the accompanying balance sheets of L.A. T Sportswear, Inc. (the
"Company") as of December 27, 1997 and December 28, 1996 and the related
statements of operations, changes in stockholders' equity, and cash flows for
each of the three years in the period ended December 27, 1997. 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 27, 1997 and
December 28, 1996 and the results of its operations and its cash flows for each
of the three years in the period ended December 27, 1997 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 6, 1998
(March 26, 1998 as to Note 5)
-16-
<PAGE> 18
L.A. T SPORTSWEAR, INC.
BALANCE SHEETS
(In thousands, except share information)
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
ASSETS 1997 1996
<S> <C> <C>
CURRENT ASSETS:
Cash $ 177 $ 938
Accounts receivable, net of allowance
for doubtful accounts of $1,133 and $1,585 5,523 7,599
Inventories 18,329 20,561
Income tax receivable 10 1,923
Other current assets 485 774
-------- --------
Total current assets 24,524 31,795
PROPERTY, PLANT AND EQUIPMENT - Net 3,749 4,315
OTHER ASSETS 466 409
-------- --------
$ 28,739 $ 36,519
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,653 $ 4,088
Accounts payable - related parties 871 1,049
Accrued expenses 676 709
Current portion of long-term debt 23 22
Restructuring reserve 19 125
-------- --------
Total current liabilities 6,242 5,993
LONG-TERM DEBT 11,732 18,929
OTHER LONG TERM LIABILITIES 530 616
COMMITMENTS (Note 8 )
STOCKHOLDERS' EQUITY:
Preferred stock, 5,000,000 shares
authorized; no shares issued
Common Stock, no par value; 25,000,000
shares authorized; 4,200,001 shares
issued and outstanding 10,825 10,825
Paid in capital 3,304 3,304
Accumulated deficit (3,894) (3,148)
-------- --------
Total stockholders' equity 10,235 10,981
-------- --------
$ 28,739 $ 36,519
======== ========
</TABLE>
See notes to financial statements.
-17-
<PAGE> 19
L.A. T SPORTSWEAR, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR
-----------------------------------------
1997 1996 1995
<S> <C> <C> <C>
NET SALES $ 72,608 $ 94,834 $ 124,897
COST OF GOODS SOLD 60,732 79,136 104,941
--------- --------- ---------
Gross Profit 11,876 15,698 19,956
OPERATING EXPENSES 11,038 16,147 21,006
RESTRUCTURING CHARGE -- -- 1,700
--------- --------- ---------
OPERATING PROFIT (LOSS) 838 (449) (2,750)
OTHER (EXPENSES) INCOME:
Interest expense (1,582) (2,047) (2,364)
Other, net 19 4 (266)
--------- --------- ---------
Total other expenses (1,563) (2,043) (2,630)
--------- --------- ---------
LOSS BEFORE INCOME TAXES (725) (2,492) (5,380)
(PROVISION FOR) BENEFIT FROM INCOME TAXES (21) (172) 1,787
--------- --------- ---------
NET LOSS $ (746) $ (2,664) $ (3,593)
========= ========= =========
BASIC AND DILUTED NET LOSS PER SHARE $ (0.18) $ (0.63) $ (0.86)
========= ========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 4,200 4,200 4,200
========= ========= =========
</TABLE>
See notes to financial statements.
-18-
<PAGE> 20
L.A. T SPORTSWEAR, INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
RETAINED
COMMON STOCK EARNINGS
------------------ PAID-IN (ACCUMULATED
SHARES VALUE CAPITAL DEFICIT)
<S> <C> <C> <C> <C>
BALANCE - January 1, 1995 4,200 $10,825 $3,304 $ 3,109
Net loss (3,593)
----- ------- ------ -------
BALANCE - December 30, 1995 4,200 10,825 3,304 (484)
Net loss (2,664)
----- ------- ------ -------
BALANCE - December 28, 1996 4,200 10,825 3,304 (3,148)
Net loss (746)
----- ------- ------ -------
BALANCE - December 27, 1997 4,200 $10,825 $3,304 $(3,894)
===== ======= ====== =======
</TABLE>
See notes to financial statements.
-19-
<PAGE> 21
L.A. T SPORTSWEAR, INC.
STATEMENTS OF CASH FLOW
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR
--------------------------------------
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (746) $ (2,664) $ (3,593)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 625 750 751
Provision for doubtful accounts 391 688 2,294
(Gain) loss on sale or write-off of fixed assets (18) 949 89
Changes in assets and liabilities providing (using) cash:
Accounts receivable 1,685 3,661 (3,451)
Inventories 2,232 12,193 (5,588)
Other 2,059 523 (2,283)
Accounts payable 387 (3,217) 1,251
Accrued expenses (33) (783) 507
Restructuring reserve (106) (1,575) 1,700
-------- -------- --------
Net cash provided by (used in) operating activities 6,476 10,525 (8,323)
INVESTING ACTIVITIES:
Purchase of property, plant and equipment (86) (193) (1,673)
Proceeds from sale of assets 44 20
-------- -------- --------
Net cash used in investing activities (42) (173) (1,673)
FINANCING ACTIVITIES:
Borrowings under line of credit, net (7,177) (10,426)
Repayments of long term borrowings (18) (1,772) (669)
Proceeds from long term borrowings 13,054
-------- -------- --------
Net cash (used in) provided by financing activities (7,195) (12,198) 12,385
-------- -------- --------
NET CHANGE IN CASH (761) (1,846) 2,389
CASH:
Beginning of year 938 2,784 395
-------- -------- --------
End of year $ 177 $ 938 $ 2,784
======== ======== ========
SUPPLEMENTAL INFORMATION:
Cash paid during the year for:
Interest $ 1,613 $ 2,058 $ 2,219
======== ======== ========
Income taxes $ 156 $ 32 $ 1,382
======== ======== ========
</TABLE>
See notes to financial statements.
-20-
<PAGE> 22
L.A. T SPORTSWEAR, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
L.A. T Sportswear, Inc. (The "Company") manufactures imprintable and
decorable sportswear and distributes undecorated garments for the
imprinted garment industry. The Company also purchases merchandise from
national sportswear manufacturers for distribution currently through
six distribution facilities across the United States. The Company's
customers consist principally of local retailers in the imprintable and
decorable sportswear industry.
The Company's year ends on the last Saturday in December. Fiscal years
1997, 1996 and 1995 each contained approximately 52 weeks. The company
expects to modify its operating year in 1998 to end on the Saturday
closest to December 31.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Inventories - Inventories are stated at the lower of cost (first-in
first-out method) or market.
Property, Plant and Equipment - Property, plant and equipment are
stated at cost and are depreciated principally using the straight-line
method over the estimated asset lives. Buildings and improvements are
depreciated over 40 years, while machinery and equipment and furniture
and fixtures are depreciated over periods ranging principally from five
to ten years.
The Company periodically evaluates assets for possible impairment. In
the event that facts and circumstances indicate that the carrying value
of assets may be impaired, an evaluation of recoverability is
performed. Such evaluation would compare the estimated future
undiscounted cash flows associated with the asset to the asset's
carrying amount to determine if a write down to market value is
required.
Income Taxes - Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases
of assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and 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. The
provision for income taxes is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax
assets and liabilities.
Basic and Diluted Net Loss Per Share - In 1997, the Company adopted
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("SFAS No. 128"). SFAS No. 128 provides for new accounting
principles for the calculation of earnings per share. The adoption of
this statement did not have an impact on the Company's previously
reported loss per share calculations. Basic and diluted net loss per
share is calculated by dividing net loss by the weighted average shares
outstanding. Stock options outstanding have not been included as common
stock equivalents in 1997, 1996, or 1995 as they are antidilutive.
-21-
<PAGE> 23
Fair Value of Financial Instruments - The carrying value of the
Company's financial instruments approximate fair values.
Reclassifications - Certain prior year balances have been reclassified
to conform with current year presentation.
2. RESTRUCTURING CHARGE
During December 1995, the Company adopted a plan to streamline
operations by closing certain of its facilities and discontinuing
certain product lines during 1996. The Company closed two distribution
facilities in January 1996 and closed one of its sewing operations in
April 1996. Additionally, the Company discontinued its screen print
operations in the third quarter of 1996. The Company recorded a charge
in the fourth quarter of 1995 of $1,700,000 related to this
restructuring.
The following table presents the activity of the restructuring reserve:
<TABLE>
<S> <C> <C>
Restructuring reserve at December 30, 1995 $1,700,000
1996 activity:
Lease payments and other related charges $706,848
Severance payments 156,455
Loss on sale of property, plant and equipment 563,387
Other 148,310
--------
Total 1996 activity 1,575,000
----------
Restructuring reserve at December 28, 1996 125,000
1997 activity:
Lease payments and other related charges 16,003
Severance payments 21,142
Loss on sale of property, plant and equipment 42,063
Other 27,214
--------
Total 1997 activity 106,422
----------
Restructuring reserve at December 27, 1997 $ 18,578
==========
</TABLE>
The Company has incurred net losses in each of the last three fiscal
years. As discussed above, the Company restructured its operations in
1996 and 1995 and in addition, as noted in Note 5, the Company entered
into new borrowing arrangements in 1996, which were amended in March
1998. Management developed an operating plan with the goal of improving
operations in 1997 and improving results in subsequent years. In
addition, management believes the funds available under its current
line of credit are adequate to sustain operations through December 31,
1998.
-22-
<PAGE> 24
3. INVENTORIES
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
(In thousands)
<S> <C> <C>
Raw materials $ 855 $ 771
Work-in-process 336 307
Finished Goods 17,138 19,483
------- -------
$18,329 $20,561
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
(In thousands)
<S> <C> <C>
Land $ 140 $ 140
Buildings and improvements 2,538 2,579
Machinery and equipment 4,165 3,587
Furniture and fixtures 517 1,082
------ ------
7,360 7,388
Less accumulated depreciation 3,611 3,073
------ ------
$3,749 $4,315
====== ======
</TABLE>
-23-
<PAGE> 25
5. LONG-TERM DEBT
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
(In thousands)
<S> <C> <C>
Line of credit $11,077 $18,254
Notes payable 678 697
------- -------
11,755 18,951
Less amounts due within one year 23 22
------- -------
$11,732 $18,929
======= =======
</TABLE>
In April 1996, the Company entered into a new credit facility (the
"Credit Facility"). The Credit Facility was subsequently amended in
November 1996, March 1997, November 1997 and March 1998. The Credit
Facility, as amended (i) provides for maximum borrowings of $16
million, reducing to $15 million in June 1998, (subject to certain
collateral restrictions based on eligible receivables, inventories and
fixed assets), (ii) expires on March 31, 2001, (iii) bears interest at
prime plus 1.00%, and (iv) is secured principally by all the Company's
assets. As of December 27,1997, the Company had availability to borrow
an additional $1.3 million under the Credit Facility.
Maturities of long-term debt at December 27, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
Fiscal
<S> <C>
1998 $ 23
1999 11,101
2000 28
2001 30
2002 34
Thereafter 539
-------
$11,755
=======
</TABLE>
-24-
<PAGE> 26
6. LEASE OBLIGATIONS
The Company leases a plant facility and certain of its distribution
facilities under operating leases. The Company can, at its option,
renew most of these leases at the then fair rental value. Future
minimum rental payments under such operating leases at December 27,
1997 are as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year
<S> <C>
1998 $ 1,073
1999 890
2000 167
-------
$ 2,130
=======
</TABLE>
Rent expense was $1,307,000, $1,377,000, and $1,847,000 for fiscal
years 1997, 1996 and 1995, respectively.
7. INCOME TAXES
The provision (benefit) for income taxes includes the following (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Current:
Federal $ -- $(1,306) $ 338
State 21 (411) 70
------- ------- -------
21 (1,717) 408
Deferred:
Federal -- 1,478 (1,819)
State -- 411 (376)
------- ------- -------
-- 1,889 (2,195)
------- ------- -------
Total provision (benefit) $ 21 $ 172 $(1,787)
======= ======= =======
</TABLE>
-25-
<PAGE> 27
The provision (benefit) for income taxes differs from amounts computed by
applying the federal statutory rate to income before income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR
------------------------------------
1997 1996 1995
<S> <C> <C> <C>
Tax benefit at federal statutory rate $ (246) $ (847) $(1,829)
State taxes, net of federal benefit 33 (141) (244)
Change in valuation allowance 130 1,309 343
Other 104 (149) (57)
------- ------- -------
Total provision (benefit) $ 21 $ 172 $(1,787)
======= ======= =======
</TABLE>
The tax effects of temporary differences at December 27, 1997 and December 28,
1996 are as follows (in thousands):
<TABLE>
<CAPTION>
ASSETS (LIABILITIES)
--------------------------
DECEMBER 27, DECEMBER 28,
1997 1996
<S> <C> <C>
Accounts receivable $ 521 $ 732
Restructuring reserve 7 52
Inventory 758 638
Other 175 239
Valuation allowance (1,166) (1,159)
------- -------
Current deferred tax asset $ 295 $ 502
======= =======
Depreciation $ (478) $ (502)
Deferred compensation 169 175
Valuation allowance (726) (603)
Federal and state net operating loss carryforwards 621 317
AMT credit 117 108
Other 2 3
------- -------
Long-term deferred tax liability $ (295) $ (502)
======= =======
</TABLE>
At December 27, 1997, the Company has a net operating loss carryforward
available to offset future federal taxable income of $1,190,000 (which expires
in 2012), an AMT credit carryforward available to offset future federal taxes of
$117,000 which does not expire, and state net operating loss carryforwards
aggregating $3.68 million which begin to expire in 2001.
-26-
<PAGE> 28
8. RELATED PARTY TRANSACTIONS
The Company purchases certain merchandise for its distribution business
from businesses affiliated with a former director and current
stockholder of the Company. These purchases aggregated $11,973,000,
$8,315,000, and $18,311,000 during fiscal years 1997, 1996 and 1995,
respectively. Included in accounts payable at December 27, 1997 and
December 28, 1996 are amounts due to these businesses of $871,000 and
$1,049,000, respectively.
A business owned by one of the Company's stockholders received
commissions of approximately $29,000, $156,000, and $255,000 on the
Company's purchases of certain merchandise for its distribution
business during fiscal years 1997, 1996 and 1995, respectively. These
commissions generally average 4% of dollar purchases.
9. EMPLOYEE INCENTIVE PLAN AND OUTSIDE DIRECTORS INCENTIVE PLAN
In early 1992, the Company's Chairman granted an option to an officer
of the Company to purchase 97,500 shares of the Company's common stock
owned by the Chairman for $1.21 per share. The officer resigned in
early 1995. During March 1995 and April 1996, the Chairman purchased
option rights covering 33,000 and 45,000 shares under this option
agreement for approximately $150,000 and $54,800, respectively. As a
result, 19,500 shares remain outstanding under this option agreement.
The remaining option is currently exercisable and expires on March 1,
2002.
The Company has established the L.A. T Sportswear, Inc. 1993 Employee
Incentive Plan (the "Incentive Plan"). Awards under this plan may be
represented by (i) incentive or nonqualified stock options, (ii) stock
appreciation rights, (iii) restricted stock, or (iv) performance awards
of stock, cash or a combination of stock and cash. Stock options
granted under the Incentive Plan are nontransferable, have an exercise
price of not less than 100% of the fair market value of the stock on
the date of the grant, and may have a term of no longer than ten years.
The Company has reserved 475,000 shares of common stock for issuance
under the Incentive Plan. As of December 27, 1997, 88,800 options to
acquire shares were outstanding under this plan.
During 1994, the Company approved an Outside Directors Incentive Plan
and reserved 40,000 shares for plan issuances. As of December 27, 1997,
6,000 options to acquire shares were outstanding under this plan.
-27-
<PAGE> 29
Activity for stock options under the Incentive Plan and Outside Directors
Incentive Plan is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 382,950 $2.62 95,800 $10.00 170,750 $10.00
Grants 343,000 1.76
Forfeitures (288,150) 2.72 (55,850) 10.00 (74,950) 10.00
-------- ------- -------
Options outstanding,
end of year 94,800 2.32 382,950 2.62 95,800 10.00
======== ======= =======
Options exercisable,
end of year 36,550 4.18 22,450 10.00 46,800 10.00
======== ======= =======
</TABLE>
The options issued under the Incentive Plan and the Outside Directors Incentive
Plan have a vesting period of three to five years. The Company applies
Accounting Principle Board Opinion 25 and related interpretations in accounting
for these plans. Accordingly, no compensation costs have been recognized for
these plans.
Had compensation cost for the Company's plans been determined based on the fair
value at the grant dates for awards under that plan consistent with the method
of FASB Statement 123, "Accounting for Stock-Based Compensation," the Company's
net loss and net loss per share for the years ended December 27, 1997 and
December 28, 1996 would have changed to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 27, DECEMBER 28,
1997 1996
<S> <C> <C>
Net loss (in thousands):
As reported $ (746) $ (2,664)
=========== ===========
Pro forma $ (638) $ (2,797)
=========== ===========
Basic and diluted net loss per share:
As reported $ (0.18) $ (0.63)
=========== ===========
Pro forma $ (0.15) $ (0.67)
=========== ===========
</TABLE>
The fair value of each option grant has been estimated on the date of grant
using the Black-Scholes option pricing model using the assumption of (i) a
weighted average risk-free interest rate of 5.9%, (ii) expected lives of five to
ten years, (iii) expected volatility of approximately 48%, and (iv) no expected
dividends. The weighted average fair value of options granted in 1996 at their
grant date was $1.14 per option.
-28-
<PAGE> 30
The following table summarizes information about stock options
outstanding at December 27, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
AVERAGE
EXERCISE NUMBER OF REMAINING OPTIONS
PRICE OPTIONS LIFE(YEARS) EXERCISABLE
<S> <C> <C> <C>
$ 10.00 16,050 6.1 13,550
$ 0.75 78,750 8.7 23,000
------ ------
94,800 36,550
====== ======
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
There has been no occurrence requiring a response to this item.
-29-
<PAGE> 31
PART III
Except as to information with respect to executive officers which is
contained in a separate heading under Item 1 to this Form 10-K, the information
required by Part III of Form 10-K is, pursuant to General Instruction G(3) of
Form 10-K, incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A for the Company's Annual
Meeting of Stockholders to be held in 1998 (the "Proxy Statement"). The Company
will, within 120 days of the end of its fiscal year, file with the Securities
and Exchange Commission a definitive proxy statement pursuant to Regulation 14A.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information concerning directors and executive officers of the
Registrant is set forth in the Proxy Statement under the headings "Election of
Directors" and "Compliance with Section 16(a) of the Securities Exchange Act of
1934," which information is incorporated herein by reference. The name, age and
position of each executive officer of the Company is set forth under the heading
"Executive Officers" in Item 1 of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
The information concerning executive compensation is set forth in the
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information concerning security ownership of certain beneficial
owners and management is set forth in the Proxy Statement under the heading
"Security Ownership of Certain Beneficial Owners and Management," which
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information concerning certain relationships and related
transactions is set forth in the Proxy Statement under the headings "Certain
Transactions" and "Compensation Committee Interlocks and Insider Participation,"
which information is incorporated herein by reference.
-30-
<PAGE> 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a)(1). Financial Statements and Auditors' Report.
The following financial statements and auditors' report are included in
Item 8 of this Report:
Report of Independent Auditors
Balance Sheets as of December 27, 1997 and December 28, 1996
Statements of Operations for fiscal years ended December 27, 1997,
December 28, 1996 and December 30, 1995
Statements of Cash Flows for fiscal years ended December 27, 1997,
December 28, 1996 and December 30, 1995
Statements of Stockholders' Equity for fiscal years ended December 27,
1997, December 28, 1996 and December 30, 1995
Notes to Financial Statements
(2). Financial Statement Schedules.
All financial statement schedules of the Registrant have been omitted
as the required information is inapplicable or the information is presented in
the financial statements or related notes.
(3). Exhibits.
The exhibits listed below are filed with or incorporated by reference
into this Report. The exhibits which are denominated with an asterisk (*) were
previously filed as part of, and are hereby incorporated by reference from
either (i) the Company's Registration Statement on Form S-1, Registration Number
33-60452, declared effective by the Securities and Exchange Commission on
January 25, 1994 (the "S-1"); (ii) the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994 (the "1994 10-K"); (iii) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 30, 1996 (the "3/30/96
10-Q"); or (iv) the Company's Annual Report on Form 10-K for the fiscal year
ended December 28, 1996 ("1996 10-K"). Unless otherwise indicated, the exhibit
number corresponds to the exhibit number in the referenced document.
-31-
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
*3(i) - Form of Amended and Restated Articles of Incorporation of L.A.
T Sportswear, Inc. (included in Exhibit 2) (S-1)
*3(ii) - Form of Amended and Restated Bylaws of L.A. T Sportswear, Inc.
(S-1)
*4 - Specimen Certificate of Common Stock (S-1)
*10.1 - 1993 Employee Incentive Plan (S-1)
10.15.1 - Lease Agreement dated February 1, 1998 between L.A. T
Sportswear, Inc. and The Development Authority of Crawford
County.
10.16.1 - Relocation and Modification Agreement dated November 25,
1997 between L.A. T Sportswear, Inc. and Security Capital
Industrial Trust.
*10.30 - Outside Directors Incentive Plan (1994 10-K)
*10.40 - Loan and Security Agreement, dated April 29, 1996, by and
among the Company, Mellon Bank, N.A., as Agent, and Mellon
Bank, N.A., as Lender (3/30/96 10-Q)
*10.40.1 - First Amendment to Loan and Security Agreement, dated November
11, 1996, by and between the Company and Mellon Bank, N.A.
(1996 10-K)
*10.40.2 - Second Amendment to Loan and Security Agreement, dated March
21, 1997, by and between the Company and Mellon Bank, N.A.
(1996 10-K)
10.40.3 - Amendment to reduce line of credit dated November 28, 1997, by
and between the Company and Mellon Bank, N.A.
10.40.4 - Third Amendment to Loan and Security Agreement, dated
March 26, 1998 by and between the Company and Mellon Bank, N.A.
23.1 - Consent of Deloitte & Touche LLP
27 - Financial Data Schedule (for SEC use only)
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the fourth quarter ended
December 27, 1997.
-32-
<PAGE> 34
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.
L.A. T SPORTSWEAR, INC.
Dated: March 23, 1998 By: /s/ Isador E. Mitzner
------------------------------------
ISADOR E. MITZNER
Chairman of the Board and Chief
Executive Officer
(principal executive officer)
Dated: March 23, 1998 By: /s/ John F. Hankinson
------------------------------------
JOHN F. HANKINSON
Chief Financial Officer
(acting principal financial and
accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
March 23, 1998 By: /s/ Isador E. Mitzner
------------------------------------
ISADOR E. MITZNER, Chairman of the
Board and Chief Executive Officer
March 23, 1998 By: /s/ J. David Keller
------------------------------------
J. DAVID KELLER, President,
Secretary and Director
March 23, 1998 By: /s/ Kenneth L. Bernhardt
------------------------------------
KENNETH L. BERNHARDT, Director
March 23, 1998 By: /s/ Irwin Lowenstein
------------------------------------
IRWIN LOWENSTEIN, Director
<PAGE> 35
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
10.15.1 Lease Agreement dated February 1, 1998 between L.A. T
Sportswear, Inc. and The Development Authority of Crawford
County
10.16.1 Relocation and Modification Agreement dated November 25, 1997
between L.A. T Sportswear, Inc. and Security Capital
Industrial Trust
10.40.3 Letter Agreement dated November 28, 1997, by and between the
Company and Mellon Bank, N.A.
10.40.4 Third Amendment to Loan and Security Agreement, dated
March 26, 1998 by and between the Company and Mellon Bank,
N.A.
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (for SEC use only)
</TABLE>
<PAGE> 1
STATE OF GEORGIA EXHIBIT 10.15.1
COUNTY OF CRAWFORD
THIS lease made this 1st day of February 1998, between the Development
Authority of Crawford County, hereinafter sometimes referred to as "Authority"
or "Lessor" and L.A. T Sportswear, Inc. hereinafter sometimes called "Lessee."
REPRESENTATIONS
The Authority is a public body corporate and politic created pursuant
to the laws of the State of Georgia. The Authority has been duly activated as
required by law and its directors have been duly appointed and are currently,
acting in that capacity. The Authority has been created to promote the public
good and general welfare, trade, commerce and industry and employment
opportunities of Crawford County, Georgia.
Anything herein to the contrary notwithstanding any obligation the
Authority may herein incur for the payment of money will not be a general debt
on its part but shall be payable solely from proceeds derived from this lease
and any other revenues deriving out of in connection with the ownership of the
leased property.
DESCRIPTION OF PROPERTY
Lessor leases to Lessee the property described in Exhibit "A" together
with all improvements thereon.
TERM
The term of this lease will be for sixty (60) months commencing
February 1, 1998, and terminating on January 31, 2003, at 12:00 Noon unless
sooner terminated under the provisions of the lease.
In addition the Lessee will have the exclusive option to renew this
lease for one consecutive 60 month period and one 24 month period. In order to
exercise these renewal options Lessee must notify Lessor in writing no later
than 60 days prior to the end of the initial lease term and no later than 60
days prior to the end of the applicable renewal terms.
RENT
The monthly lease payments will be set for 12 months at a time and will
be determined by the monthly note payments made by the Authority to the United
Bank of Milner on purchase of subject property. This note is a 144 month note
for $152,020.75 with an initial rate of 6.25 percent. This note is a variable
rate note and the interest rate will be the prime rate as set by the Wall Street
Journal and will be adjusted accordingly.
The rent for this lease for the initial 12 months term will be
$2,466.51 per month payable in advance on the first day of each month beginning
February 1, 1998, and ending January 31, 2003. The monthly rental payments for
the remaining 48 months and all renewal periods shall be determined as described
above.
Lessees shall pay a late charge of 5% of the monthly payment for any
monthly payment received by Lessor more than ten (10) days after due date.
Lessees shall pay these monthly rental payments by paying the Lessor's
note at the United Bank of Milner according to its terms.
<PAGE> 2
CONDITIONS OF PREMISES
The Lessee has examined and knows the conditions of the demised
premises and receives the premises in the present condition.
REPAIRS
Lessees shall keep the premises in good condition and repair all
damages to the premises. Lessors may enter the premises at any and all
reasonable hours to inspect the premises to insure that all necessary repairs
and maintenance functions are being performed or to make repairs.
ALTERATIONS AND MODIFICATIONS
Lessee is hereby authorized to make alterations and modifications not
amounting to structural changes in the premises but shall obtain the written
approval of Lessor prior to making any alterations or modifications to the
premises which require structural changes. All alterations or modifications
shall become part of the premises and title thereto shall vest in the Lessor.
All alterations and modifications undertaken by Lessee shall be performed and
completed in a good and workmanlike manner.
RESTRICTIONS ON USE
Lessees shall not use the demised premises for any unlawful or immoral
purpose nor shall Lessee conduct any activity on the premises that will increase
the danger from fire or the rate of insurance thereon. Lessees shall use
premises for textile manufacturing, sales, shipping, and related uses. Lessor
covenants and agrees that there are no restrictions upon the demised premises
which would prohibit such uses.
ASSIGNMENT AND SUBLEASE:
Lessees shall not have the right to assign its rights and duties under
this lease or sublease the premises or any part thereof without the prior
written consent of Lessor.
NOTICES
Any notices required or convenient to the carrying out of this
agreement will be sent by First Class Mail to the following addresses:
Lessor:
Mr. Charles Westberry
Development Authority of Crawford County
Post Office Box 394
Roberta, Georgia 31078
Lessee:
L.A. T Sportswear, Inc.
Isador Mitzner
Post Office Box 926
Canton, Georgia 30114
<PAGE> 3
UTILITIES
Lessees shall arrange for and bear the cost of all utility services
furnished to the premises during the lease term.
TAXES
Any taxes due on the leasehold estate or personally located on the
premises shall be the sole responsibility of the Lessee who shall pay any such
taxes on time and in accordance with applicable law.
DEFAULT
A. Events of Default:
Lessee covenants and agrees with Lessor that anyone or more of the
following events shall be considered events of default:
(1) Lessees shall fail to make any monthly payment of rent when it
becomes due under the terms of the lease, and such failure to pay shall continue
for a period of 10 days after due date.
(2) Lessees shall default in any of the other covenants and
agreements herein contained and such default shall continue for 30 days after
notice thereof in writing has been received by Lessee. Provided, however, that
Lessee shall be given a reasonable time within which to perform any such other
covenant or agreement herein contained, if after diligent effort by Lessee, the
same cannot be performed within said 30 day period.
B. Effect of Default:
Upon the occurrence of any Event of Default, Lessor may pursue any of
the following remedies:
(1) Lessors may declare the term of the Lease ended and may
re-enter the premises. Re-entry shall not be deemed to work a forfeiture of any
rights which Lessor has under this Lease Agreement. The Lessor may require the
Lessee to remove all personal property from the premises.
Upon termination of the lease for default, the entire balance
of rent payments due under this lease with all accrued charges, shall, at the
option of the lessor and its assignees and without notice to the undersigned
become immediately due and payable and may be collected (together with
reasonable attorneys fees) forthwith, time being the essence of this contract.
(2) The Lessor may with or without terminating this lease and
without notice to tenant, enter upon the premises or any part thereof, take
exclusive possession of same and re-let the premises, without advertisement, by
private negotiations, and for any term and rent rate which Lessor in its sole
discretion determines. Lessees shall be liable to Lessor for the deficiency, if
any, between all rent and other amounts due hereunder for the entire term hereof
and the rental paid by any new tenants applicable to the remaining term hereof
(or any part thereof) and for all Lessor's costs and expenses, including
reasonable attorneys, fees in connection with the re-letting. Upon each such
re-letting, all rent received by Lessor from such re-letting shall be applied or
attributed first to the payment of any indebtedness other than rent due
hereunder from Lessee to Lessor; secondly to the payment of any costs and
expenses of such re-letting, including reasonable attorneys I fees; and thirdly,
to the payment of rent due and unpaid hereunder; and the residue, if any, shall
be paid to Lessee. If, during any year hereunder, the net amount of re-letting
rent received and attributable to rent due from Lessee hereunder shall be less
than the total amount of the rent required to be paid by Lessee during that
year, then lessee shall pay any such deficiency to
<PAGE> 4
Lessor, such deficiency to be calculated and paid annually. No such re-entry or
taking of possession of said premises by Lessor shall be construed as an
election on its part to terminate this Lease unless a written notice expressing
such intention is given to Lessee; or unless the termination thereof is decreed
by a court of competent jurisdiction.
SURRENDER AND HOLDING OVER
Lessees shall surrender the premises to Lessor on expiration of this
lease or termination of the lease as provided for herein. At the time of
surrender, the premises shall be in the same condition as when received, normal
wear and tear excepted. Except as is provided in Section entitled Option to
Purchase herein, Lessee shall not make any claim in the demised premises against
the interest of Lessor, and if Lessee holds the premises after termination of
the lease, a tenancy from month to month shall be created thereby at a rental of
$3300 per month, and the acceptance of the rental by Lessor will not extend the
term of this lease in any manner.
DAMAGE OR DESTRUCTION OF PREMISES
The Lessee shall carry and maintain hazard insurance, with extended
coverage, at Lessee's expense, to cover loss by fire or other peril of the
leased premises at least in the amount of $290, 000. Lessor and Lessee shall
both be named as insureds and loss payees under such policy of insurance and to
the extent of their respective insurable interests hereunder. Lessee shall be
under a continuing obligation to furnish Lessor with a current copy of said
policy. Should the leased premises be damaged by fire or other casualty and
further should Lessee exercise his option to purchase as hereinafter stated, the
first $290,000.00 or so much thereof as may be necessary, of insurance proceeds
shall be applied to pay, in full the purchase money indebtedness of Lessor
Authority in favor of United Bank of Milner, plus all interest due to the date
of payment. The remaining insurance proceeds, hereunder, shall be and remain the
property of Lessee. Should the building which forms a part of the leased
premises be damaged by fire or other casualty and Lessee not exercise his option
to purchase, as hereinafter stated, then the first $290,000. Of insurance
proceeds, or so much thereof as may be necessary, shall be payable to Lessor.
Such amount shall thereafter be used by Lessor to restore and reconstruct the
building constituting a portion of the leased premises, and these insurance
proceeds shall belong to and be the property of the Lessor Authority. To the
extent that any such proceeds are not so used they shall be applied as follows:
1. To pay the purchase money note and the indebtedness
represented thereby of Lessor Authority to and in favor of United Bank of Milner
plus all interest due to the date of payment, and being that indebtedness
secured by the demised premises by Deed to Secure Debt, mortgage or other
security instrument.
2. To pay the balance of all sums due Lessor Authority under this
Agreement.
3. Any and all insurance proceeds remaining after applying 1 and
2 shall be the property of Lessee.
B. Subject to the terms and provisions of the option to purchase in favor
of Lessee, as hereinafter stated, either party may terminate this lease by
giving notice to the other party at any time within thirty (30) days after the
occurrence of any damage or destruction to the premises, if damage or
destruction:
1. Renders more than fifty (50) percent of the premises
untenantable and if the damage or destruction cannot be repaired so that it is
tenantable within 120 days of the occurrence of the damage or destruction or,
C. In the event of damage or destruction Lessor shall have no obligation
to repair or restore any part of the premises or any improvements in the
premises except those which were in place and installed immediately before the
term of this lease commenced and those which were built or installed thereafter
at Lessor's expense and then only to the extent there is insurance for that
purpose. If applicable, and subject to the provisions herein stated for
termination and Lessee's option to purchase, Lessee shall repair, restore or
replace all other parts of the premises and all other improvements to the
premises, including those originally installed by Lessee at Lessee's expense.
<PAGE> 5
NON-LIABILITY OF LESSOR FOR DAMAGES
Lessors shall not be liable for liability or damage claims for injury
to persons or property from any cause relating to the occupancy of the premises
by Lessee, including those arising out of damages or injuries occurring on the
sidewalks and other areas adjacent to the leased premises during the term of
this lease or any extension thereof. Lessees shall indemnify Lessor from all
liability, loss, or other damage claims or obligations arising from or relating
to the occupancy of the premises by Lessee or his successors and assigns.
Lessees shall maintain a minimum of $250,000. Liability insurance for the entire
lease term and shall show Authority as a named insured.
OPTION TO PURCHASE
Lessors grants to Lessee the option to purchase the premises at any
time during the life of this lease (including the two renewal periods) for a
purchase price which shall equal the then principal balance on the Lessor Is
purchase money note at the United Bank of Milner plus all interest due to-date
of exercise of said option. Lessors shall convey the premises by warranty deed,
free and clear of all liens and encumbrances, except those that Lessee may have
created or suffered. on delivery of the above described deed this Lease shall
become void. The Lessee's right to exercise this option is made expressly
conditioned upon the following:
That Lessee has paid all sums due Lessor under this Lease Agreement so
that Lessee is current in all Lessee's obligations under the Lease and
no other sums are due Lessor under this Lease.
This option shall be valid for a period of thirty (30) days from the
last day of the lease term, (including the renewal periods, if applicable), and
thereafter shall be null and void.
Lessees shall pay all costs of title transfer.
IN WITNESS WHEREOF, the parties have hereunto executed this lease the day and
year above written.
Development Authority of Crawford
County on behalf of
CRAWFORD BUSINESS DEVELOPMENT CENTER
Landlord
Signed, sealed and
delivered in the presence BY: /s/ Charles Westberry, Chairman
of: -----------------------------------
AS its CHAIRMAN
/s/ Darlene Chapman ATTEST: /s/ Brenda Carroll, Secretary
------------------------------ ------------------------------
Witness As its SECRETARY
/s/ Martha Leary
------------------------------
Notary Public
<PAGE> 6
L.A. T Sportswear, Inc.
Signed, sealed and
delivered in the presence BY: /s/ J. David Keller, President
of: ------------------------------
Title
Witness: /s/ Benny Nixon ATTEST: /s/ John Hankinson, CFO
--------------------- --------------------------
Title
/s/ Dawn Trahan
- -----------------------------
Notary Public
<PAGE> 7
EXHIBIT A
All that tract or parcel of land lying and being in the City of Roberta,
Crawford County, Georgia, and in Land Lot 81 of the Second Land District of said
State and County and more particularly described by a survey by T. W. Aultman,
Crawford County Surveyor dated May 30, 1978, and entitled "A Survey For Crawford
County Board of Commissioners" as follows:
BEGIN at a point marked by an iron pin located at the intersection of the
southerly right of way line of U.S. Highway 80 and the easterly right of way
line of Industrial Park Road and from this intersection proceed South 83 12"
East a distance of 529.0 feet along the southerly right of way line of U.S.
Highway 80 to a point marked by an iron post; thence proceed South 1 15" West a
distance of 411.57 feet to a point marked by an iron post; thence proceed North
83 26' West a distance of 526.2 feet to a point marked by an iron pin which is
located on the easterly right of way line of said industrial Park Road; thence
proceed North 00 53"East along the easterly right of way line of said Industrial
Park Road a distance of 414.07 feet to the place or point of beginning.
Located on this property is a commercial or industrial building.
Plat of this property is recorded in Plat Book 5, Page 70, Clerk's Office,
Crawford Superior Court. Reference is hereby made to this plat for a more
complete description of this tract containing 5 acres according to said plat.
<PAGE> 1
EXHIBIT 10.16.1
THIS RELOCATION AND MODIFICATION AGREEMENT (this "Relocation Agreement") is to
be attached to and shall form a part of that certain Lease Agreement dated the
22nd day of October 1993, (which together with any prior amendments,
modifications and extensions thereof is hereinafter called the Lease), and is
executed
By and Between
SECURITY CAPITAL INDUSTRIAL TRUST,
as Landlord
And
L.A. T SPORTSWEAR, INC., F/K/A SPZ INC., DBA FULL LINE DISTRIBUTORS
as Tenant
covering the premises known as
1297 North Post Oak Road
Suite 100
Houston, Texas 77055
WHEREAS, Landlord and Tenant desire to amend the Lease on the terms and
conditions set forth below;
NOW THEREFORE, and in consideration of the mutual covenants and
agreements set forth in this Relocation Agreement, the sufficiency of which are
hereby acknowledged, Landlord and Tenant hereby agree as follows:
WITNESSETH, that the Lease is hereby relocated to 1297 North Post Oak
Road, Suites 150 & 190 Houston, TX 77055 for a term of sixty (60) months to
commence on the 1st day of January 1998 and to end on the 31st day of December
2002, on the condition that Landlord and Tenant comply with all of the covenants
and agreements contained in the Lease and herein, except Landlord and Tenant
further amend the lease as follows:
1. The new monthly base rental as specified in Paragraph captioned "Base
Rent" shall be as follows:
<TABLE>
<CAPTION>
Months Monthly Base Rent
------ -----------------
<S> <C>
1 - 12 $13,729.16
13 - 24 $14,100.87
25 - 36 $14,565.10
37 - 48 $15,100.00
49 - 60 $15,450.07
</TABLE>
2. Tenant's operating expense escrow's to be paid monthly with the rent in
accordance with Paragraph 6 shall be as follows:
<TABLE>
<S> <C>
Taxes: $2,967.35
Insurance: $ 148.37
CAM: $ 890.20
Management Fee: $ 544.01
--------
Total: $4,549.93
</TABLE>
-1-
<PAGE> 2
3. Upon full execution and commencement of this Relocation and
Modification Agreement for the facility located at 1297 North Post Oak
Road, Suites 150 & 190, Houston, Texas, any obligations of L.A.T.
Sportswear as successor in interest to SPZ INC., dba FULL LINE
DISTRIBUTORS which would other wise exist or accrue for the facility
located at 1297 Post Oak Road, Suite 100, Houston, Texas as a result of
the terms and conditions of the Lease Agreement dated October 22nd,
1993, modified by that certain Expansion and Modification Agreement
dated the 22nd day of September 1994 with Security Capital Industrial
Trust ("Landlord") shall be terminated.
This termination applies only to obligations of Tenant which would
exist or accrue for the facility located at 1297 North Post Oak Road,
Suite 100, Houston, Texas containing 40,160 square feet and in no way
constitutes a waiver or termination of obligations which exist or have
accrued up until commencement of the relocation premises located at
1297 North Post Oak Road, Suites 150 & 190, Houston, Texas containing
59,347 square feet.
Such relocation is contingent upon Tenant's vacating the facility
located at 1297 North Post Oak Road, Suite 100 in a clean and operable
condition in compliance with the Move-Out Conditions, attached hereto
as Addendum 2.
4. Premises square footage as described on Page one of the Lease Agreement
dated October 22, 1993 "Premises" shall be amended to read 59,347
square feet.
5. Tenant's proportionate share of the project and Tenant's proportionate
share of the building as stated in the Lease Agreement shall be amended
to 59.64%.
6. Upon commencement of this "Relocation Agreement", the payment of the
first month's rent and the occupancy of the Premises by Tenant,
Landlord shall promptly terminate all future obligations between
Landlord and Tenant covering 40,160 square feet which is located at
1297 Post Oak Road, Suite 100 Houston, Texas. Such termination is
further conditioned upon Tenant's vacating of the space in a clean and
operable condition in compliance with the Move-Out Conditions, attached
hereto as Addendum 2. Tenant shall also be responsible for any amounts
which may be due under the terms and conditions of the existing lease
up to the date of termination, but which are as yet unpaid.
7. Landlord will collect an increase in Tenant's security deposit in the
amount of $4,624 for the facility located at 1297 North Post Oak Road,
Suite 150 Houston, Texas which shall be due on January 2, 1999. Any
termination repair dollars that are due and payable by Tenant to
Landlord shall be deducted from said deposit and remaining balance
transferred to the relocation facility. Landlord will promptly bill
Tenant for any and all termination repairs deducted from said deposit.
Tenant will have a maximum of ten (10) days from receipt of invoice to
pay Landlord.
8. Any previous rental abatement shall be considered null and void.
9. The Additional Items paragraph will be replaced with the following:
Please See Addendum 4, Cap on Controllable Operating Expenses
-2-
<PAGE> 3
10. The following provision(s) contained in the original Lease Agreement
are considered fulfilled and shall henceforth be deleted and of no
further effect:
Addendum 1 - Work Letter
Addendum 2 - Paragraphs A, B, C and D
Addendum 3 - One Time Sublet Option
Addendum 4 - Right to Extend Term
11. The following Addendum's are attached hereto and made a part hereof for
all purposes.
Addendum 1 - Construction Turnkey
Addendum 2 - Move-Out Conditions
Addendum 3 - HVAC Maintenance
Addendum 4 - Cap on Controllable Operating Expenses
IN WITNESS WHEREOF, the parties hereto have signed this Extension Agreement to
be effective as of the 25th day of November, 1997.
SECURITY CAPITAL INDUSTRIAL TRUST
By: /s/ Steven K. Meyers
--------------------------
Name: Steven K. Meyers
--------------------------
Title: Senior Vice President
--------------------------
Landlord
L. A. T SPORTSWEAR INC. F/K/A SPZ INC., DBA FULL LINE DISTRIBUTORS
By: /s/ Pamela J. Smith
--------------------------
Name: Pamela J. Smith
--------------------------
Title: Vice President of Admin
--------------------------
Tenant
-3-
<PAGE> 4
ADDENDUM 1
CONSTRUCTION
(TURNKEY)
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED NOVEMBER 25, 1997, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
L.A. T SPORTSWEAR, INC. F/K/A SPZ INC., DBA FULL LINE DISTRIBUTORS
(a) Landlord agrees to furnish or perform at Landlord's
sole cost and expense those items of construction and those improvements (the
"Tenant Improvements") specified below:
Landlord agrees to:
1. Retrofit the office in Suite 150 in accordance with Exhibit
"A" including new VCT in lunchroom (see attached letter for
details).
2. Construct a battery charger in Suite 190.
3. Add 2 new strip lights to warehouse in Suite 150.
4. Lower 4 strip lights to 10 feet in warehouse in Suite 150.
(b) If Tenant shall desire any changes, Tenant shall so
advise Landlord in writing and Landlord shall determine whether such changes can
be made in a reasonable and feasible manner. Any and all costs of reviewing any
requested changes, and any and all costs of making any changes to the Tenant
improvements which Tenant may request and which Landlord may agree to shall be
at Tenant's sole cost and expense and shall be paid to Landlord upon demand and
before execution of the change order.
(c) Landlord shall proceed with and complete the
construction of the Tenant Improvements. As soon as such improvements have been
Substantially Completed, Landlord shall notify Tenant in writing of the date
that the Tenant Improvements were Substantially Completed. Such date, unless an
earlier date is specified as the Commencement Date in this Lease or otherwise
agreed to in writing between Landlord and Tenant, shall be the "Commencement
Date ," unless the completion of such improvements was delayed due to any act or
omission of, or delay caused by, Tenant including, without limitation, Tenant's
failure to approve plans, complete submittals or obtain permits within the time
periods agreed to by the parties or as reasonably required by Landlord, in which
case the Commencement Date shall be the date such improvements would have been
completed but for the delays caused by Tenant. The Tenant Improvements shall be
deemed substantially completed ("Substantially Completed") when, in the opinion
of the construction manager (whether an employee or agent of Landlord or a third
party construction manager), the Premises are substantially completed except for
punch list items which do not prevent in any material way the use of the
Premises for the purposes for which they were intended. After the Commencement
Date Tenant shall, upon demand, execute and deliver to Landlord a letter of
acceptance of delivery of the Premises.
(d) The failure of Tenant to take possession of or to
occupy the Premises shall not serve to relieve Tenant of obligations arising on
the Commencement Date or delay the payment of rent by Tenant. Subject to
applicable ordinances and building codes governing Tenant's right to occupy or
perform in the Premises, Tenant shall be allowed to install its tenant
improvements, machinery, equipment, fixtures, or other property on the Premises
during the final stages of completion of construction provided that Tenant does
not thereby interfere with the completion of construction or cause any labor
dispute as a result of such installations, and provided further that Tenant does
hereby agree to indemnify, defend, and hold Landlord harmless from any loss or
damage to such property, and all liability, loss, or damage arising from any
injury to the Project or the property of Landlord, its contractors,
subcontractors, or materialmen, and any death or personal injury to any person
or persons arising out of such installations, whether or
<PAGE> 5
not any such loss, damage, liability, death, or personal injury was caused by
Landlord's negligence. Any such occupancy or performance in the Premises shall
be in accordance with the provisions governing Tenant-Made Alterations and Trade
Fixtures in the Lease, and shall be subject to Tenant providing to Landlord
satisfactory evidence of insurance for personal injury and property damage
related to such installations and satisfactory payment arrangements with respect
to installations permitted hereunder. Delay in putting Tenant in possession of
the Premises shall not serve to extend the term of this Lease or to make
Landlord liable for any damages arising therefrom.
(e) Except for incomplete punch list items, Tenant upon
the Commencement Date shall have and hold the Premises as the same shall then be
without any liability or obligation on the part of Landlord for making any
further alterations or improvements of any kind in or about the Premises.
<PAGE> 6
RE: ADDENDUM 1, SECTION (A), ITEM 1 - RETROFIT THE OFFICE IN SUITE 150
1. NEW CARPET
2. NEW PAINT
3. NEW CEILING TILE
4. 4 NEW 2-PLUG OUTLETS (ELECTRICAL)
4 NEW 4-PLUG OUTLETS (ELECTRICAL)
1 ELECTRICAL DROP FOR COMPUTER
5. FRONT COUNTER W/BACK COUNTER AND DOOR INSTALLED.
6. 1 WALL PUT UP, 9 WALL TAKEN DOWN, 2 OFFICE DOOR INSTALLED, 2 DOOR
CLOSED OFF
7. 1 WINDOW INSTALLED, 2 SLIDING WINDOWS INSTALLED
8. NEW TILE IN LUNCHROOM & RESTROOMS.
<PAGE> 7
ADDENDUM 2
MOVE-OUT CONDITIONS
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED NOVEMBER 25, 1997 BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
L.A. T SPORTSWEAR, INC. F/K/A SPZ INC., DBA FULL LINE DISTRIBUTORS
Per Paragraph 21, Tenant is obligated to check and address prior to move-out of
the facility the following items. SCIT expects to receive the space in a well
maintained condition, with normal wear and tear of certain areas acceptable. The
following list is designed to assist you in the move-out procedures but is not
intended to be all inclusive.
1. All lighting is to be placed into good working order. This includes
replacement of bulbs, ballasts, and lenses as needed.
2. All truck doors and dock levelers should be serviced and placed in good
operating order. This would include the necessary replacement of any
dented truck door panels and adjustment of door tension to insure
proper operation. All door panels which are replaced need to be painted
to match the building standard.
3. All structural steel columns in the warehouse and office should be
inspected for damage. Repairs of this nature should be pre-approved by
the Landlord prior to implementation.
4. Heating/air-conditioning systems should be placed in good working
order, including the necessary replacement of any parts to return the
unit to a well maintained condition. Upon move-out, SCIT will have an
exit inspection performed by a certified mechanical contractor to
determine the condition.
5. All holes in the sheet rock walls should be repaired prior to move-out.
6. The carpets and vinyl tiles should be in a clean condition and should
not have any holes or chips in them. SCIT will accept normal wear on
these items provided they appear to be in a maintained condition.
7. Facilities should be returned in a clean condition which would include
cleaning of the coffee bar, restroom areas, windows, and other portions
of the space.
8. The warehouse should be in broom clean condition with all inventory and
racking removed. There should be no protrusion of anchors from the
warehouse floor and all holes should be appropriately patched. If
machinery/equipment is removed, the electrical lines should be properly
terminated at the nearest junction box.
9. All exterior windows with cracks or breakage should be replaced.
10. Lock to be removed and retained by Tenant.
11. Items that have been added by the Tenant and affixed to the building
will remain the property of SCIT, unless agreed otherwise. This would
include but is not limited to mini-blinds, air conditioners,
electrical, water heaters, cabinets, flooring, etc. Please note that if
modifications have been made to the space, such as the addition of
office areas, SCIT retains the right to have the Tenant remove these at
Tenant's expense.
12. Security system and alarms to be removed and retained by Tenant.
13. All plumbing fixtures should be in good working order, including the
water heater. Faucets and toilets should not leak.
14. All dock bumpers must be left in place and well secured.
<PAGE> 8
ADDENDUM 3
HVAC MAINTENANCE CONTRACT
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED NOVEMBER 25, 1997 BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
L.A. T SPORTSWEAR, INC. F/K/A SPZ INC., DBA FULL LINE DISTRIBUTORS
Per Paragraph 11, captioned "TENANT REPAIRS," is revised to include the
following:
(a) Tenant agrees to enter into and maintain through the term of the lease,
a regularly scheduled preventative maintenance/service contract for servicing
all hot water, heating and air conditioning systems and equipment within the
premises. The Landlord requires a qualified HVAC contractor perform this work. A
certificate must be provided to the Landlord upon occupancy of the lease
premises.
The service contract must become effective within thirty (30) days of occupancy,
and service visits should be performed on a quarterly basis. We suggest that you
send the following list to a qualified HVAC contractor to be assured that these
items are included in the maintenance contract:
1. Adjust belt tension;
2. Lubricate all moving parts, as necessary;
3. Inspect and adjust all temperature and safety controls;
4. Check refrigeration system for leaks and operation;
5. Check refrigeration system for moisture;
6. Inspect compressor oil level and crank case heaters;
7. Check head pressure, suction pressure and oil pressure;
8. Inspect air filters and replace when necessary;
9. Check space conditions;
10. Check condensate drains and drain pans and clean, if necessary;
11. Inspect and adjust all valves;
12. Check and adjust dampers;
13. Run machine through complete cycle.
Landlord agrees to warrant the HVAC system for a period of 30 days subsequent to
the Commencement Date.
<PAGE> 9
ADDENDUM 4
CAP ON CONTROLLABLE OPERATING EXPENSES
ATTACHED TO AND A PART OF THE LEASE AGREEMENT
DATED NOVEMBER 25, 1997, BETWEEN
SECURITY CAPITAL INDUSTRIAL TRUST
and
L. A. T SPORTSWEAR, INC. F/K/A SPZ INC., DBA FULL LINE DISTRIBUTORS
Tenant shall not be obligated to pay for Controllable Operating
Expenses in any year to the extent they have increased by more than Ten percent
(10%) per annum, compounded annually on a cumulative basis from the first
calendar year during the Lease term. For purposes of this Addendum, Controllable
Operating Expenses shall mean the following Operating Expenses:
Common area maintenance and management fees
Taxes, insurance premiums and utility costs shall not be deemed Controllable
Operating Expenses. Controllable Operating Expenses shall be determined on an
aggregate basis and not on an individual basis, and the cap on Controllable
Operating Expenses shall be determined on Operating Expenses as they have been
adjusted for vacancy or usage pursuant to the terms of the Lease.
<PAGE> 10
SECURITY CAPITAL INDUSTRIAL TRUST
November 21, 1997
Ms. Jessica Chapa
Full Line Distributors
1297 North Post Oak Road, Suite 100 and 150 Houston, TX 77055
Dear Jessica:
Please note that Security Capital Industrial Trust will place the restrooms in
the referenced suite in good working order, including but not limited to, new
flooring and paint.
Sincerely,
/s/ Tom Pardee
Tom Pardee, CCIM
Marketing Representative
4448 West 12th Street - Houston, Texas 77055 - (713)682-2292
<PAGE> 1
EXHIBIT 10.40.3
Mellon Business Credit(sm) Mellon Bank Center
1735 Market Street
6th Floor
Philadelphia, PA 19101-7899
November 28, 1997
Mr. John Hankinson
Chief Financial Officer
L.A. T Sportswear, Inc.
1200 Airport Road
Ball Ground, GA 30107
Dear John:
By your acknowledgment below and per our recent conversations, Mellon Business
Credit will, effective November 30, 1997, reduce the stated Revolving Line of
Credit available to L.A. T Sportswear, Inc. to $16,000,000 from $20,000,000. All
of the terms and conditions of the Loan and Security Agreement will remain
unchanged.
Sincerely,
/s/ Roger D. Attix
Roger D. Attix
Vice President
Acknowledged:
/s/ John Hankinson
John Hankinson, CFO
A Servicemark of Mellon Bank, N.A.
<PAGE> 1
EXHIBIT 10.40.4
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
This Third Amendment ("Amendment") to Loan and Security Agreement,
dated as of March 26, 1998, among L.A. T SPORTSWEAR, INC. ("Borrower"), MELLON
BANK, N.A., as Agent ("Agent") and MELLON BANK, N.A. ("Mellon") and the
financial institutions now or hereafter a party to the Loan Agreement (as
defined below) and listed on Schedule "A" attached thereto and made a part
thereof (as such Schedule may be amended, modified or replaced from time to
time), in their capacity as lenders (Mellon and the other financial
institutions, individually, "Lender" and collectively, "Lenders").
BACKGROUND
A. On or about April 29, 1996, the parties hereto entered into a
Loan and Security Agreement, as amended from time to time ("Loan Agreement")
and related agreements, instruments and documents, pursuant to which Lenders
established a Revolving Credit for the benefit of Borrower. All capitalized
terms not otherwise defined herein shall have the meaning ascribed thereto in
the Loan Agreement.
B. Borrower and Lenders desire to modify certain terms and
conditions of the Loan Documents as more fully set forth herein.
TERMS AND CONDITIONS
NOW, THEREFORE, with the foregoing background hereinafter incorporated
by reference as if set forth more fully below, and the parties hereto,
intending to be legally bound hereby, promise and agree as follows:
1. Section 1 of the Loan Agreement is hereby amended by deleting
the definition of Applicable Base Rate Margin in its entirety and replacing it
with the following:
Applicable Base Rate Margin - one percent (1%) per annum,
provided however, that upon receipt of Borrower's Fiscal Year End
audited financial statements, commencing with the fiscal year ending
December 27, 1998, and provided that no Event of Default has occurred,
and that Borrower has and maintains a minimum excess availability of
$1,000,000 for the ninety (90) day period immediately prior to the
delivery of Borrower's Fiscal Year End audited financial statements,
the "Applicable Base Rate Margin" shall be determined in accordance
with the ratio of Borrower's EBITDA to Interest Expense as set forth in
the following matrix:
<PAGE> 2
<TABLE>
<CAPTION>
Ratio of EBITDA to Interest Expense Applicable Base Rate Margin
- ----------------------------------- ---------------------------
<S> <C>
Less than 2.0:1 1.00%
Equal to or greater than 2.0:1 but less than 2.5:1 .75%
Equal to or greater than 2.5:1 but less than 3.0:1 .50%
Equal to or greater than 3.0:1 but less than 3.5:1 .25%
Equal to or greater than 3.5:1 0%
</TABLE>
The above pricing index shall be measured annually and shall be
effective upon receipt of the Fiscal Year End audited financial
statements referenced above.
2. Section 1 of the Loan Agreement is hereby amended by deleting
the definition of Applicable LIBOR Rate Margin in its entirety and replacing it
with the following:
Applicable LIBOR Rate Margin - three percent (3%) per annum,
provided however, that upon receipt of Borrower's Fiscal Year End
audited financial statements, commencing with the fiscal year ending
December 27, 1998, and provided that no Event of Default has occurred,
and that Borrower has and maintains a minimum excess availability of
$1,000,000 for the ninety (90) day period immediately prior to the
delivery of Borrower's Fiscal Year End audited financial statements,
the "Applicable LIBOR Rate Margin" shall be determined in accordance
with the ratio of Borrower's EBITDA to Interest Expense as set forth in
the following matrix:
<TABLE>
<CAPTION>
Ratio of EBITDA to Interest Expense Applicable LIBOR Rate Margin
- ----------------------------------- ----------------------------
<S> <C>
Equal to or greater than 2.0:1 but less than 2.5:1 3.00%
Equal to or greater than 2.5:1 but less than 3.0:1 2.75%
Equal to or greater than 3.0:1 but less than 3.5:1 2.50%
Equal to or greater than 3.5:1 but less than 4.0:1 2.25%
Equal to or greater than 4.0:1 2.00%
</TABLE>
The above pricing index shall be measured annually and shall be
effective upon receipt of the Fiscal Year End audited financial
statements referenced above.
3. Section 1 of the Loan Agreement is hereby amended by adding
the definition of Inventory Turnover Period as follows:
Inventory Turnover Period - For the period from the first day
of the then current fiscal year through the last day of the then current fiscal
year for which such calculation is made, the amount, as expressed in number of
days, equal to: (i)
2
<PAGE> 3
the quotient of the FIFO book value of Borrower's Inventory as of the
last day of the then current fiscal year being measured, divided by
Borrower's annual cost of goods sold for the then current fiscal year
being measured, multiplied by (ii) 360 days, all determined in
accordance with GAAP.
4. Section 1 of the Loan Agreement is hereby amended by deleting
the definition of Revolving Credit Limit in its entirety and replacing it with
the following:
Revolving Credit Limit - $16,000,000, reducing to
$15,000,000, as of June 30, 1998.
5. Section 1 of the Loan Agreement is hereby amended by deleting
the definition of Revolving Credit Maturity Date in its entirety and replacing
it with the following:
Revolving Credit Maturity Date - March 31, 2001.
6. Section 2.4 of the Loan Agreement is hereby amended by
deleting Subsection (b)(i) and replacing it with the following:
(i) Provided that: (A) Borrower has at least $5,000,000
in Base Rate Loans outstanding, (B) Borrower has and maintains an
EBITDA to Interest Expense equal to or greater than 2.0:1, and (C) no
Event of Default has occurred, Borrower shall have the option to have
the unpaid principal balance of Loans (in excess of $5,000,000) under
the Revolving Credit bear interest at the LIBOR Based Rate ("LIBOR Rate
Option"), provided that LIBOR Rate Loans shall be in $1,000,000
increments and in a minimum amount of Two Million Dollars ($2,000,000).
7. Section 2.6 of the Loan Agreement is hereby amended by
deleting Subsections (d) and (e) and replacing them with the following:
(d) Termination Fee: In the event there occurs any
termination of the Revolving Credit for any reason whatsoever prior to the
Revolving Credit Maturity Date, Borrower, if initiating such termination, may
only effect such termination on at least ninety (90) days prior written notice
to Agent and in all events Borrower shall pay to Agent for the benefit of
Lenders in accordance with their Revolving Credit Pro Rata Percentage, a
prepayment premium (the "Termination Fee") in an amount equal to two percent
(2%) of the Revolving Credit Limit if such termination occurs prior to or on
March 31, 1999, two percent (2%) of the Revolving Credit Limit if the
termination occurs thereafter but
3
<PAGE> 4
prior to or on March 31, 2000 and one percent (1%) of the Revolving
Credit Limit if such termination occurs at any time thereafter but
prior to the Revolving Credit Maturity Date, as well as make full
payment of all outstanding Obligations, in which case any and all
commitments of Lenders and Agent hereunder shall cease as of such date
of termination.
(e) Collateral Management Fee: So long as the Revolving
Credit is outstanding and has not been terminated pursuant to the terms
hereof, Borrower shall unconditionally pay to Agent, for its sole
benefit, a non-refundable audit and collateral management fee
("Collateral Management Fee") in the amount of $6,000 per month payable
in advance. Commencing July 1, 1998, the Collateral Management Fee
shall be reduced to $5,000 per month payable in advance. The Collateral
Management Fee is subject to change, upon receipt of Borrower's Fiscal
Year End audited financial statements commencing with the fiscal year
ending December 27, 1998, and provided that no Event of Default has
occurred, and that Borrower has and maintains a minimum excess
availability of $1,000,000 for the ninety (90) day period immediately
prior to the delivery of Borrower's Fiscal Year End audited financial
statements, based on the ratio of Borrower's EBITDA to Interest Expense
as set forth below:
<TABLE>
<CAPTION>
Ratio of EBITDA to Interest Expense Monthly Fee
----------------------------------- -----------
<C> <C>
Less than 3.5:1 $5,000
Equal to or greater than 3.5:1 but less than 4.0:1 $4,000
Equal to or greater than 4.0:1 $3,000
</TABLE>
The above index shall be measured annually and shall be effective as of
the first day of the first full month after receipt of the Borrower's
Fiscal Year End audited financial statements for the fiscal year just
ended.
8. Section 6.9 of the Loan Agreement is hereby deleted in its
entirety and replaced with the following:
6.9 Financial Covenants: Borrower shall maintain and
comply with the following financial covenants (calculated on the basis
of GAAP):
(a) Working Capital: Borrower shall have and
maintain Working Capital, measured quarterly at the end of each Fiscal
Quarter, of not less than: $7,000,000 as of Fiscal Quarter end
December, 1997; $6,000,000 as of Fiscal Quarter end March, 1998;
$6,500,000 as of Fiscal Quarter end June, 1998; $7,000,000 as of Fiscal
Quarter end September, 1998 and for each Fiscal Quarter end thereafter.
4
<PAGE> 5
(b) Tangible Net Worth: Borrower shall have and maintain a Tangible Net
Worth, on a consolidated basis, measured monthly at each Fiscal Month End, of
not less than:
<TABLE>
<S> <C>
$9,800,000 as of December, 1997,
$9,300,000 as of January, 1998,
$9,100,000 as of February, 1998,
$9,500,000 as of March, 1998,
$9,600,000 as of April, 1998,
$9,700,000 as of May, 1998,
$9,800,000 as of June, 1998 through August, 1998,
$10,000,000 as of September, 1998 through
November, 1999
$10,400,000 as of December, 1999 through
November, 2000,
$10,800,000 as of each Fiscal Month End
thereafter.
</TABLE>
(c) Net Income: Borrower shall have and maintain a Net Income, on a
consolidated basis, measured annually, of not less than: <$1,000,000> as of the
close of Fiscal Year End 1997; $0 as of the close of Fiscal Year End 1998;
$400,000 as of the close of Fiscal Year End 1999 and for each Fiscal Year End
thereafter.
(d) Current Ratio: Borrower shall have and maintain a Current Ratio, on a
consolidated basis, measured monthly at each Fiscal Month End, of not less
than: 1.15:1 as of December, 1997 through May, 1998; 1.20:1 as of June, 1998
through November, 1999; 1.25:1 as of December, 1999 through November, 2000; and
1.30:1 as of each Fiscal Month End thereafter.
(e) Debt to Tangible Net Worth: Borrower shall have and maintain a Debt
to Tangible Net Worth Ratio, on a consolidated basis, measured quarterly at the
end of each Fiscal Quarter, not to exceed: 3.50:1 as of Fiscal Quarter end
December, 1997; 3.25:1 as of Fiscal Quarter end March, 1998; 3.00:1
5
<PAGE> 6
as of Fiscal Quarter end June, 1998; 2.75:1 as of Fiscal Quarter end
September, 1998; 2.50:1 as of Fiscal Quarter end December, 1998 and for
each Fiscal Quarter end thereafter.
(f) Capital Expenditure: Borrower shall not expend for Capital
Expenditures in excess of $200,000 during the fiscal year ending December,
1997. Borrower shall not expend for Capital Expenditures in excess of the
following amounts as of the corresponding dates, all on a cumulative basis:
(i) $600,000 through Fiscal Quarter end March, 1998; (ii) $700,000 through
Fiscal Quarter end June, 1998; (iii) $700,000 through Fiscal Quarter end
September, 1998; and (iv) $750,000 through Fiscal Quarter end December,
1998. Borrower shall not expend for Capital Expenditures in excess of
$500,000 during each fiscal year thereafter, all on a non-cumulative basis.
Borrower shall fund at least sixty percent (60%) of Capital Expenditures
with long term debt during the fiscal year ending December, 1998, and each
fiscal year thereafter, on terms acceptable to Agent.
(g) Inventory Turnover. Borrower shall have and maintain an Inventory
Turnover Period not to exceed 120 days during fiscal year ending December,
1998, and each fiscal year thereafter.
(h) Calculation and Establishment of Financial Covenants: Borrower
shall not include the reversal of asset reserves established as of December
30, 1995 in the calculation of, and for the purposes of meeting, the
financial covenants set forth above and for determining the EBITDA to
Interest Expense calculations referred to in this Agreement.
9. Conditions to Closing: Agent's and Lenders' obligation to enter into
this Amendment are subject to the following conditions having been satisfied in
full to Agents and Lenders' satisfaction:
(a) Execution and delivery of this Amendment to Agent;
(b) Delivery of a certification by the Chief Executive Officer of
Borrower that there has not occurred any material adverse change, since
December 31, 1997, in the operations and condition (financial or otherwise) of
Borrower;
(c) Delivery of such other documentation or documents as Agent may
reasonable require;
(d) No Event of Default shall have occurred under the Loan Agreement
and be continuing and no event shall have occurred which with the passage of
time, the giving of notice or both would constitute an Event of Default under
the Loan Agreement; and
6
<PAGE> 7
(e) Payment or reimbursement to Agent for all legal expenses incurred
by Agent or Lenders to analyze, prepare and negotiate and conclude this
Amendment and all related agreements and transactions described herein.
10. Confirmation of Indebtedness: Borrower hereby acknowledges and
confirms that as of the close of business on 3-25-98, it is indebted to Lenders
under the Loan Documents, in the aggregate principal amount of eleven million
five hundred ninety two thousand four hundred thirty two and 03/100 Dollars
($11,592,432.03), comprised of $11,592,432.03 outstanding with respect to the
Revolving Credit Loans and $0 representing the face value of issued and
outstanding Letters of Credit issued for the benefit of Borrower, plus all fees,
costs and expenses (including attorneys' fees) incurred to date in connection
with the Loan Documents, without defense, setoff, claim or counterclaim, of any
nature.
11. Confirmation of Security Interest: Borrower hereby confirms that all
Collateral, liens, and security interests at any time granted by Borrower to
Agent for the benefit of Lenders, shall continue unimpaired and in full force
and effect and shall continue to cover and secure the Obligations of Borrower to
Lenders to the full extent set forth in the Loan Agreement, as amended hereby.
All Collateral remains free and clear of any Liens other than Permitted Liens or
Liens in favor of Agent for the benefit of Lenders. Nothing herein contained is
intended to in any way impair or limit the validity, priority and extent of
Agent's existing security interest in and Liens upon the Collateral.
12. Representation and Warranties: Borrower represents and warrants to
Lender that:
(a) All warranties and representations made to Agent and/or Lenders
under the Loan Agreement are true and correct as of the date hereof; except as
to certain closed locations on Schedule 5.2 which lender has been notified.
(b) The execution and delivery by Borrower of this Amendment and the
performance by it of the transactions herein contemplated (i) are and will be
within its powers, (ii) have been authorized by all necessary corporate or
partnership action, and (iii) are not and will not be in contravention of any
order of any court or other agency of government, of law or any other
indenture, agreement or undertaking to which Borrower is a party or by which the
Property of Borrower is bound, or be in conflict with, result in a breach of, or
constitute (with due notice and/or lapse of time) a default under, any such
indenture, agreement or undertaking or result in the imposition of any lien,
charge or incumbrance of any nature on any Property of Borrower;
7
<PAGE> 8
(c) This Amendment and any assignment, instrument, document, or
agreement executed and delivered in connection herewith, will be valid, legal,
binding and enforceable in accordance with the respect of terms; and
(d) No Event of Default has occurred under the Loan Agreement and that
no event has occurred which with the passage of time, the giving of notice or
both would constitute an Event of Default under the Loan Agreement.
13. Incorporation: The parties acknowledge and agree that this Amendment
is incorporated into and made a part of the Loan Agreement, the terms and
provisions of which, unless expressly modified herein, are hereby ratified and
confirmed and continue unchanged and in full force and effect. Any future
reference to the Loan Agreement shall mean the Loan Agreement as amended
hereby. To the extent that any term or provision of this Amendment is or may
be deemed expressly inconsistent with any term or provision of the Loan
Agreement, the terms and provisions hereof shall control. All other terms and
provisions of the Loan Agreement unless expressly modified herein shall
remain in full force and effect.
14. No Modification: No modification hereof or of any agreement referred to
herein shall be binding or enforceable unless in writing and signed on behalf
of the party against whom enforcement is sought.
15. Waiver: Nothing herein shall be construed to constitute a waiver of
any breach of any representation, warranty or covenant made or agreed to by
Borrower under the Loan Documents as amended hereby, and all of Agent's and
Lenders' claims and rights resulting from any such breach or misrepresentation
by Borrower, are expressly reserved by Agent and Lenders.
16. Governing Law: This terms and provisions of this Amendment shall be
governed by, construed and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
17. Counterparts: This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and such counterparts together shall constitute one and the same respective
agreement.
8
<PAGE> 9
SCHEDULE 5.2
Places of Business
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
LOCATION TYPE OF ACTIVITY OWNED OR LEASED FACILITY
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1200 Airport Drive Corporate Headquarters Owned by Debtor
Ball Ground, Georgia 30107 L.A. T Division
(Cherokee County) Manufacturing, Distribution and
Administration
- -----------------------------------------------------------------------------------------------------------------------
* closed 515 Brown Industrial Parkway Screen Printed Headquarters Leased by Debtor
Canton, Georgia 30114 L.A. T Division Lessor: Topple Higdon Partnership
(Cherokee County) Printing, Distribution and
Administration
- -----------------------------------------------------------------------------------------------------------------------
200 Industrial Park Manufacturing Leased by Debtor
Roberta, Georgia 31078 Lessor: Development Authority of
(Crawford County) Crawford County
P.O. Box 700
Roberta, Georgia 31078
- -----------------------------------------------------------------------------------------------------------------------
4850 Ballground Highway Manufacturing and Raw Material Owned by Debtor
Ballground, Georgia 30107 Storage Mortgage: Bank of Canton
(Cherokee County) P.O. Box 649
Canton, Georgia
30114
- -----------------------------------------------------------------------------------------------------------------------
521 Graves Street Manufacturing Leased by Debtor
* closed Fyffe, Alabama 35971 Lessor: Industrial
(DeKalb County) Development Board of
the Town of Fyffe,
Alabama
- -----------------------------------------------------------------------------------------------------------------------
2650 Button Gwinnett Drive #B Full Line Division Distribution Leased by Debtor
Doraville, Georgia 30340 Center and Administration Lessor: John W. Rooker
(Gwinnett County)
- -----------------------------------------------------------------------------------------------------------------------
1297 N. Post Oak #150-190 Distribution Center Leased by Debtor
Houston, Texas 77055 Lessor: Security Capital Industrial
(Harris County) Trust
- -----------------------------------------------------------------------------------------------------------------------
26150 Richmond Road Distribution Center Leased by Debtor
Bedford Heights, Ohio 44146 Lessor: The Joseph Naiman Insurance
(Cuyahoga County) Trust
- -----------------------------------------------------------------------------------------------------------------------
2356 Moore Avenue Distribution Center Leased by Debtor
Fullerton, California 92633 Lessor: TCW Realty Fund VA Holding
(Orange County) Company and TCW Realty
Fund VB
- -----------------------------------------------------------------------------------------------------------------------
115 Progress Drive Distribution Center Leased by Debtor
* closed Manchester, Connecticut 06040 Lessor: Manchester Progress
(Fairfield County) Development Corporation
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
* [closed]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Amendment
the day and year first above written.
MELLON BANK, N.A., as Agent and Lender
By: /s/ Roger Attix
-----------------------------------
Roger Attix
Vice President
L.A. T SPORTSWEAR, INC.
By: /s/ Isador E. Mitzner
-----------------------------------
Name: Isador E. Mitzner
Title: CEO
Attest: /s/ John Hankinson (Seal)
--------------------------
John Hankinson
CFO
<PAGE> 11
CERTIFICATE OF CHIEF EXECUTIVE OFFICER
This Certificate is being delivered to you pursuant to the terms of
that certain Third Amendment to Loan and Security Agreement ("Amendment"), of
even date herewith, among L.A. T SPORTSWEAR, INC. ("Borrower"), MELLON BANK,
N.A., as Agent and MELLON BANK, N.A. and the financial institutions now or
hereafter a party to the Loan Agreement and listed on Schedule "A" attached
thereto and made a part thereof (as such Schedule may be amended, modified or
replaced from time to time), in their capacity as lenders. All capitalized
terms not otherwise defined herein shall have the meaning ascribed thereto in
the Amendment.
The undersigned, to the best of his knowledge, hereby states that:
1. All representations and warranties set forth in the Amendment
are true and correct on and as of the date hereof.
2. Borrower is, on this day, in compliance with all the terms
and provisions set forth in the Amendment.
3. Other than as specifically described in the Amendment, no
Event of Default has occurred and no event or condition has occurred or is
continuing which with the giving of notice, the lapse of time, or both, will
constitute an Event of Default as defined in the Loan Agreement.
4. There has been no material adverse change in the operations
or condition of Borrower, financial or otherwise, since December 31, 1997 in
connection with this transaction.
IN WITNESS WHEREOF, the undersigned has duly executed this Certificate
as of the ___ day of March, 1998.
/s/ Isador E. Mitzner
---------------------------------------
Name: Isador E. Mitzner
Title: Chief Executive Officer
L.A. T Sportswear, Inc.
Attest: /s/ John Hankinson
--------------------------------
John Hankinson
CFO
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
333-04647 and 333-04649 of L.A. T Sportswear, Inc. on Form S-8 of our report
dated March 6, 1998 (March 26, 1998 at to Note 5), appearing in this Annual
Report on Form 10-K of L.A. T Sportswear, Inc. for the year ended December 31,
1997.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
March 26, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF LAT SPORTSWEAR, INC. FOR THE YEAR ENDED DECEMBER 27,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-27-1997
<PERIOD-START> DEC-29-1996
<PERIOD-END> DEC-27-1997
<CASH> 177
<SECURITIES> 0
<RECEIVABLES> 6,656
<ALLOWANCES> 1,133
<INVENTORY> 18,329
<CURRENT-ASSETS> 24,524
<PP&E> 7,360
<DEPRECIATION> 3,611
<TOTAL-ASSETS> 28,739
<CURRENT-LIABILITIES> 6,242
<BONDS> 11,732
0
0
<COMMON> 10,825
<OTHER-SE> (590)
<TOTAL-LIABILITY-AND-EQUITY> 28,739
<SALES> 72,608
<TOTAL-REVENUES> 72,608
<CGS> 60,732
<TOTAL-COSTS> 60,732
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 391
<INTEREST-EXPENSE> 1,582
<INCOME-PRETAX> (725)
<INCOME-TAX> 21
<INCOME-CONTINUING> (746)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (746)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
