U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
- - --- Act of 1934
For the quarterly period ended March 31, 1996
- - --- Transition report under Section 13 or 15(d) of the Exchange Act for the
transition period from __________ to ___________.
Commission file number 01-13470
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BIG SMITH BRANDS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 13-3005371
- - --------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
7100 West Camino Real, Suite 201, Boca Raton, Florida 33433
-----------------------------------------------------------
(Address of Principal Executive Offices)
(407) 367-8283
--------------
(Issuer's Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
---- ----
Number of shares of common stock outstanding as of May 11, 1996: 3,930,000
Transitional Small Business Disclosure Format (check one): Yes No X
---- ----
<PAGE>
INDEX
Pages
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PART I FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Balance Sheet as of March 31, 1996 3
Statements of Operations for the three
months ended March 31, 1996 and 1995 4
Statement of Stockholders' Equity for the
three months ended March 31, 1996 5
Statements of Cash Flows for the three months
ended March 31, 1996 and 1995 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II OTHER INFORMATION 11
SIGNATURE 12
EXHIBIT INDEX 13
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<PAGE>
BIG SMITH BRANDS, INC.
CONSOLIDATED BALANCE SHEET
March 31, 1996
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 10241
Temporary investments 220557
Accounts receivable, less allowance
for doubtful accounts of $49,805 3041058
Inventories 11303183
Prepaid expenses 318146
Deferred income taxes 324673
------
Total Current Assets 15217858
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PROPERTY AND EQUIPMENT, At Cost
Land 20000
Buildings 460139
Equipment 1749503
Vehicles 81511
-----
2311153
Less Accumulated depreciation 969821
------
1341332
OTHER ASSETS
Trademark, less accumulated amortization in
1996 of $22,927 492933
Other 240337
------
733270
------
$17292460
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt $ 2031809
Checks outstanding in excess of bank balance 497214
Accounts payable 2470416
Accured expenses 472520
------
Total Current Liabilities 5471959
-------
LONG-TERM DEBT 5887090
-------
DEFERRED INCOME TAXES 99305
-----
STOCKHOLDERS' EQUITY
Common stock, $.01 par value; authorized 10,000,000 shares;
issued and outstanding 1996 - 3,930,000 shares, 39300
Additional paid-in capital 6315818
Retained earnings (deficit) (521012)
------
5834106
---------
$17292460
=========
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<PAGE>
BIG SMITH BRANDS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
NET SALES 1996 1995
---- ----
Trade $ 4157993 $ 4254462
Royalties, net of related costs of
$190,603 in 1996 and $106,556 in 1995 379505 140074
------ ------
4537498 4394536
COST OF GOODS SOLD 3600874 3512348
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GROSS PROFIT 936624 882188
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OPERATING EXPENSES
Selling 464007 312286
General and administrative 539744 498392
------ ------
1003751 810678
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INCOME (LOSS) FROM OPERATIONS (67127) 71510
------ -----
OTHER INCOME (EXPENSE)
Miscellaneous income (15138) 19162
Interest expense (184861) (202139)
------- -------
(199999) (182977)
------- -------
INCOME (LOSS) BEFORE INCOME TAXES $ (267126) $ (111467)
CREDIT FOR INCOME TAXES 104178 14248
------ -----
NET INCOME (LOSS) $ (162948) $ (97219)
========= =========
NET INCOME (LOSS) PER SHARE $ (0.041) $ (0.03)
========= =========
WEIGHTED AVERAGE SHARES OUTSTANDING 3930000 2946833
======= =======
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<PAGE>
<TABLE>
<CAPTION>
BIG SMITH BRANDS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1996
(Unaudited)
Common Stock,
$.01 PAR VALUE
--------------
Additional Retained Total
paid-in earnings stockholders'
Shares Amount Capital (deficit) equity
------ ------ ------- --------- ------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 3930000 $ 39300 $ 6315818 $ (358064) $ 5997054
Net Income (loss) (162948) (162948)
------- --------- --------- --------- ---------
Balances at March 31, 1996 3930000 $ 39300 $ 6315818 $ (521012) $ 5834106
======= ========= ========= ========= =========
</TABLE>
See Notes to Financial Statements
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<PAGE>
BIG SMITH BRANDS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
---- ----
Net income (loss) $(162948) $ (97219)
Items not requiring cash:
Depreciation & amortization 52185 33000
Deferred income taxes (4800) 25880
Changes in:
Accounts receivable 455533 768716
Inventories 204783 (1117075)
Prepaid expenses (108926) (182783)
Other assets (47373)
Accounts payable and accrued expenses (631826) (1193725)
Due to stockholder (50028)
------
Net cash used in operating activities (293400) (1763206)
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CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (31202) (2974)
Purchase of temporary investments (93782)
------ ------
Net cash used in investing activities (124984) (2974)
------- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Checks outstanding in excess of bank balance 319870 (265283)
Proceeds from issuance of stock, net of offering costs 6088117
Net borrowings under line-of-credit agreement 136975 (1532405)
Principal payments on long-term debt (32427) (214684)
Dividends paid (100000)
------- -------
Net cash provided by financing activities 424418 3975745
------ -------
INCREASE IN CASH AND CASH
EQUIVALENTS 6034 2209565
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 4207 18994
---- -----
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 10241 $2228559
======== ========
See Notes to Financial Statements
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<PAGE>
BIG SMITH BRANDS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF COMPANY
Big Smith Brands, Inc. (the "Company") manufactures and sells quality work
apparel under a variety of brand names, including Big Smith, Smith Mountain
Classics, Big Smith Vintage and the licensed brands, Caterpillar and Wolverine.
The Company markets its products to national chains and local stores worldwide.
SIGNIFICANT ACCOUNTING POLICIES
The accounting policies followed by the Company are set forth in Note 1 to the
Company's financial statements included in its Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995.
NOTE 2: INTERIM FINANCIAL STATEMENTS
The accompanying financial statements have been prepared in accordance with the
instructions to Form 10-QSB of the Securities and Exchange Commission and in
accordance with generally accepted accounting principles applicable to interim
financial statements, and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The financial statements should be read in conjunction with the
audited financial statements and accompanying notes of the Company for the year
ended December 31, 1995, which are included in its Annual Report on Form 10-KSB
for the fiscal year ended December 31, 1995.
In the opinion of management of the Company, the accompanying consolidated
financial statements reflect all adjustments necessary (consisting solely of
normal recurring adjustments) to present fairly the financial position of the
Company as of March 31, 1996 and the results of its operations, stockholders'
equity and its cash flows for the three month period then ended.
The results of operations for the period ended March 31, 1996, are not
necessarily indicative of the results to be expected for the entire year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Seasonality."
NOTE 3: INCOME PER SHARE INFORMATION
Net earnings (loss) per share is computed using the weighted average number of
shares of common stock outstanding and common stock equivalent shares from stock
options and warrants unless the effect of common stock equivalents is
anti-dilutive.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The discussion and analysis set forth below is for the three
month periods ended March 31, 1996 and March 31, 1995. It should be read in
conjunction with the Unaudited Financial Statements of the Company and the
related Notes thereto appearing elsewhere in this Form 10-QSB. The Company
believes that its business is seasonal and has experienced and expects to
continue to experience lower revenues and net income in the first half of each
fiscal year as compared to the second half of each fiscal year. This seasonality
is due to increased sales in the apparel industry during the Christmas season
and the increase in sales of the Company's winter weight garments, which sell at
higher per unit prices than the Company's other products, and back-to-school
clothes, during the months of August through November. In addition, the
Company's quarterly results may fluctuate depending upon the timing of delivery
of large orders and the introduction of new product lines or additional labels,
among other things. See "--Seasonality." The Company elected to be treated as an
S corporation for tax purposes under the Internal Revenue Code through February
8, 1995. As a result, the net income (loss) of the Company was taxed, for
federal (and some state) corporate income tax purposes, directly to the
Company's stockholders and not to the Company. Upon consummation of the
Company's initial public offering on February 8, 1995 the Company became a C
corporation for both federal and state tax purposes.
The following discussion and analysis should be read in
conjunction with the Company's financial statements appearing elsewhere in this
report.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1995
Net trade sales, for the three months ended March 31, 1996
decreased by $.09 million, or 2.1%, to $4.16 million from $4.25 million for the
three months ended March 31, 1995. Net sales for the three months ended March
31, 1996 of Caterpillar branded products, Big Smith and other branded products,
and private label products were $1.41 million, $1.65 million and $1.10 million,
respectively, as compared with $.56 million, $2.38 million and $1.31 million,
respectively, for the three months ended March 31, 1995. The increase in sales
of Caterpillar branded products resulted from the reestablishment of the
Company's distribution channels for Caterpillar branded products following a
disruption of those channels. The decrease in Big Smith and other branded
products reflects unusually high Wal-mart sales during the three months ended
March 31, 1995 due to the carryover to 1995 orders from 1994. The decrease in
private label sales resulted from the discontinued private label program for
Walls Corporation. Net royalties from distributors for the manufacture and sale
of goods under the Caterpillar labels abroad net of related costs for the three
months ended March 31, 1996 increased to $379,505 as compared with $140,074 for
the three months ended March 31, 1995. This increase was due to the increased
manufacture and sale of Caterpillar branded products by licencees, particularly
in the United Kingdom, over the same period last year, and to the receipt of an
advance against future royalties of $100,000 from a new licencee in Hong Kong.
Gross profit, excluding that from net royalties, for the three
months ended March 31, 1996 was $.56 million, or 13.5% of net trade sales,
compared to $.74 million, or 17.4% of net trade sales, for the three months
ended March 31, 1995. The decrease in gross profit was primarily due to the
unabsorbed overhead of approximately $224,000 related to the partial plant
shutdowns to facilitate the reduction of certain categories of the Company's
inventory during the first quarter which was partially offset by the increased
sales of Caterpillar branded goods and sales of Big Smith and other branded
products. For the three months ended
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<PAGE>
March 31, 1996, sales of Caterpillar branded products, Big Smith and other
branded products, and private label products accounted for 33.9%, and 39.7% and
26.4% of net trade sales, respectively, as compared with 13.2%, 56.0% and 30.8%
of net trade sales, respectively, for the three months ended March 31, 1995.
Selling expenses increased by $.15 million to $.46 million, or
11.1% of net trade sales, for the three months ended March 31, 1996, from $.31
million, or 7.3% of net trade sales, for the three months ended March 31, 1995.
This increase in selling expenses resulted principally from an increase of
$51,000 in royalty expense resulting from increased sales by the Company of
Caterpillar branded products, an increase of $62,000 in advertising and trade
shows expense and a $42,000 increase in sample expense related to the
development of new Caterpillar branded product lines. General and administrative
expenses were $.54 million, or 13.0% of net trade sales during the three months
ended March 31, 1996, compared with $.50 million, or 11.7% of net trade sales,
for the three months ended March 31, 1995. The increase in General and
administrative expense was primarily due to an increase of $30,000 in
professional fees, consulting fees, and costs associated with being a public
Company for the entire three month period ending March 31, 1996 as opposed to
only part of the period ended March 31, 1995.
The Company's interest expense for the three months ended
March 31, 1996 was $.18 million, or 4.5% of net trade sales, as compared with
$.20 million, or 4.8% of net trade sales, for the three months ended March 31,
1995.
As a result of the foregoing, the Company's net loss for the
three months ended March 31, 1996 increased to $162,944 from a net loss of
$97,219 for the three months ended March 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its growth primarily with borrowings
under its line of credit and, since the consummation of its initial public
offering, with the proceeds of such offering. Cash used in operating activities
totaled approximately $.29 million and $1.76 million in the three months ended
March 31, 1996 and 1995, respectively. During the first half of each year, the
Company typically experiences negative cash flow from operations due to the
build-up of inventory in preparation for increased sales volume in the second
half of each year however, in accordance with managements plans to reduce
inventory certain plants were partially shutdown during the first quarter
resulting in the decrease of cash used in operating activities. See
"--Seasonality." Operating cash flows for the three months ended March 31, 1996
and March 31, 1995 were also negatively impacted by increased inventory levels
resulting from the cancellation of certain orders of winter weight garments by
certain Japanese customers. The Company began to sell this excess inventory in
the third quarter of 1994 and has continued to do so.
At March 31, 1996 and March 31, 1995, working capital was
approximately $9.7 million and $11.0 million, respectively. Working capital may
vary from time to time as a result of seasonal inventory requirements, the level
of trade credit available and the level of accounts receivable balances.
At March 31, 1996, the Company had a $9 million line of credit
with Mercantile Business Credit Inc. ("MBCI"), with borrowing levels based upon
a specified percentage of eligible accounts receivable and inventories. The
amount outstanding under the credit line as of March 31, 1996 and March 31, 1995
was $6.9 million, and $4.9 million respectively. The line of credit bore
interest at the MBCI prime rate plus a premium interest factor. This premium
interest factor varied from 1.5 to 2.0 percent, based upon the Company's
leverage ratio. MBCI has amended the loan agreement, retroactive to February 16,
1995, to provide for interest at the MBCI prime rate plus a premium interest
factor of 0.75 percent. If the Company's pre-tax net income for the twelve month
period ending on December 31, 1996 is at least $1.5 million, no premium interest
will be charged for 1997. If the Company's pre-tax net income for the twelve
month period ending
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<PAGE>
1996 is not at least $1.5 million respectively, the premium interest factor will
remain at 0.75 percent. The line of credit also permits overadvances for up to
120 days per year, peaking at $.5 million. The overadvance portion of the line
of credit has an interest rate equal to the prime rate as published by MBCI plus
an interest premium factor of 1.75. In addition, the Company must maintain
stockholders' equity of at least $6,000,000 at December 31, 1995. The line of
credit is secured by the Company's accounts receivable, inventory, property and
equipment and general intangibles and matures on September 30, 1997 with one
year renewals. The Company believes that such time it will be able to renew such
line of credit or obtain similar working capital financing from a similar
institution.
At December 31, 1995, the Company was not in compliance with
certain financial conditions covenants; however, the lender has formally waived
the Company's noncompliance. MBCI and the Company have agreed to renegotiate the
loan covanants for periods after December 31, 1995 on or before May 15, 1996.
CAPITAL EXPENDITURES
Capital expenditures totaled $31,202 for the three months
ended March 31, 1996. These expenditures consisted of primarily from the the
purchase of computer related equipment.
INTANGIBLE ASSETS
In 1995, the Company purchased the Big Smith trademark for the
seven countries in Europe in which the Company did not previously have trademark
rights for an aggregate purchase price of $500,000 payable over four years.
SEASONALITY
The Company's sales are generally higher in the last six
months of the year as compared to the first six months of the year both in terms
of revenues generated and, to a lesser extent, total garments sold. This
seasonality is due to an increase in sales of winter weight garments, which sell
at higher prices, combined with continued sales of regular weight garments. This
seasonality impacts the cash flow of the Company significantly since the
Company's inventory levels typically tend to increase during the first half of
the year in preparation for anticipated higher sales levels in the second half
of the year. See - "Liquidity and Capital Resources"
FORWARD LOOKING STATEMENTS
Certain statements contained in this discussion may be deemed
forward looking statements that involve a number of risks and uncertainties.
Among the factors that could cause actual results to differ materially are the
following: unanticipated changes in the U.S. and international economies,
business conditions and growth in the workwear industry and the level of growth
in retail sales generally, the timely development and acceptance of new
products, the impact of competitive products and pricing, changes in the cost of
raw materials, changes in product mix, the status of relations between the
Company and its primary customers, licensors, licensees, and distributors, along
with product delays and other risks detailed from time to time in the Company's
SEC reports, including but not limited to the report on Form 10-K for the year
ended December 31, 1995.
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<PAGE>
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings.
None.
ITEM 2. Changes in Securities.
None.
ITEM 3. Defaults Upon Senior Securities.
None.
ITEM 4. Submission of Matters to a Vote of Security-Holders.
None.
ITEM 5. Other Information.
None.
ITEM 6. Exhibits and Reports on Form 8-K.
(a)
EXHIBIT TABLE
EXHIBIT
NO. DESCRIPTION
------- -----------
3(a) Form of Restated Certificate of Incorporation.
(b) By-laws.
4(a) Form of Common Stock Purchase Warrant.
(b) Form of Warrant Agreement.
10(z) Employment Agreement, dated January, 1 1996,
between the Company and S. Peter Lebowitz.
(b) No reports on Form 8-K have been filed for the quarter for
which report is being filed.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
BIG SMITH BRANDS, INC.
Registrant
Date: May 14, 1996 /s/ Terry. L. Dober
-------------------
Terry L. Dober
Vice President of Finance and
Authorized Registrant Signer
(Principal Accounting
and Financial Officer)
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<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION
------- -----------
3(a) Form of Restated Certificate of Incorporation.*
(b) By-laws.*
4(a) Form of Common Stock Purchase Warrant.*
(b) Form of Warrant Agreement.*
10(z) Employment Agreement, dated January 1, 1996, between the Company
and S. Peter Lebowitz**
- - --------------------------
* Previously filed with, and incorporated herein by reference to,
the Registrant's Registration Statement on Form SB-2 (No.
33-85302), as amended, declared effective on February 8, 1995
("Form SB-2").
** Filed herewith.
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EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT made as of the 1st day of January,
1996, by and between BIG SMITH BRANDS, INC., a Delaware corporation (the
"Company"), and S. PETER LEBOWITZ (the "Executive").
W I T N E S S E T H :
WHEREAS, the Executive is expected to continue to make
contributions to the financial strength of the Company;
WHEREAS, the Company desires to assure itself of the
continuity of management and desires to establish certain compensation rights of
the Executive; and
WHEREAS, the Company desires to continue to employ the
Executive and the Executive desires to continue such employment on the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter contained, the parties hereto hereby agree as follows:
1. Employment; Term. The Company hereby employs the Executive
as Chairman of the Board of Directors, Chief Executive Officer and President of
the Company and the Executive agrees to serve the Company in such capacities for
the period commencing on the date hereof and ending on December 31, 1998 (the
"Initial Term").
<PAGE>
2. Termination. Subject to the terms and conditions set forth
herein, the Executive's employment may be terminated by either party hereto upon
thirty (30) days' written notice to the other party hereto. The Company shall
only be entitled to terminate the Executive's employment for cause. The term
"cause" shall mean: (i) the Executive's willful failure or refusal to perform
specific reasonable written directives of the Board of Directors of the Company
(the "Board"), which directives are consistent with the scope and nature of the
Executive's duties and responsibilities under this Employment Agreement, and
which are not remedied by the Executive within thirty (30) days after being
notified, in writing, of his failure by the Board; (ii) the Executive's
conviction of a felony; (iii) any act of dishonesty involving the Company which
results in an unjust gain or enrichment to the Executive at the expense of the
Company; or (iv) any act involving moral turpitude of the Executive which
adversely affects the business of the Company.
3. Duties. The Executive shall be responsible for the
supervision, control and conduct of all the business and affairs of the Company
and shall have such additional duties and any additional responsibilities as are
normally assigned to a Chief Executive Officer, Chairman of the Board and
President or which may from time to time be reasonably designated by the Board;
provided, that in no event shall the scope of his duties and the extent of his
responsibilities be substantially different from the duties and responsibilities
usually associated with those positions in a corporation similar in size and
function to
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<PAGE>
the Company. At all times, the Executive shall be subject to the direction of
the Board. During the period the Executive is employed by the Company, the
Executive shall devote his full business time and best efforts to the business
and affairs of the Company.
4. Compensation. The Company shall pay the Executive a salary
at the rate of three hundred thousand dollars ($300,000.00) per annum during the
first year of the Initial Term. For the remainder of the Initial Term, the
Company shall pay the Executive a salary at a rate equal to the sum of $300,000
plus the Executive's First Year Achievement Bonus (as hereinafter defined) per
annum. Such compensation shall be payable in accordance with the usual payroll
practices of the Company, as compensation to the Executive for the services
rendered by the Executive hereunder, including, but not limited to, all services
rendered by the Executive as an officer or director of the Company and its
subsidiaries. In addition, the Executive shall be entitled to a bonus in respect
of the first year of the Initial Term equal to the product obtained by
multiplying (x) $200,000 by (y) the quotient obtained by dividing (i) the
Company's pre-tax earnings for its fiscal year ended December 31, 1996, by (ii)
$712,575. During the remainder of the Initial Term, the Executive shall be
entitled to a bonus at the discretion of the Board.
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<PAGE>
5. Benefits.
(a) The Company agrees to reimburse the
Executive for all reasonable and necessary travel, business entertainment and
other business expenses incurred by the Executive in connection with the
performance of his duties under this Employment Agreement. Such reimbursements
shall be made by the Company on a timely basis upon submission by the Executive
of vouchers, in accordance with the Company's standard procedures. All such
reimbursements shall be subject to such reasonable limitations as may from time
to time be prescribed by the Board.
(b) The Executive shall be entitled to partici-
pate in any and all life insurance, medical insurance, group health, disability
insurance, and other benefit plans which are made generally available by the
Company to executives of the Company, including, but not limited to, any stock
option plan established by the Company (to the extent that the Executive
qualifies under the eligibility provisions of such plan or plans). Additionally,
the Executive shall be entitled to receive annual paid vacation and paid
holidays made available pursuant to Company policy to all of the senior
executives of the Company.
(c) In the event of the death or disability of
the Executive, the Executive's employment hereunder shall terminate and in
addition to any amounts payable at such time in accordance with the terms of
Paragraph 4 hereof (appropriately pro-rated), the Company shall, for the
remainder of the Initial Term, pay to the Executive or the Executive's personal
repre-
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<PAGE>
sentative, as the case may be, the Executive's salary at the date of such death
or disability. For the purposes hereof, the term "disability" shall mean the
absence of the Executive, due to physical or mental illness, on a full-time
basis for one hundred twenty (120) consecutive business days or for shorter
periods which aggregate more than four (4) months during any consecutive twelve
(12) month period.
6. Severance.
(a) Upon termination of the Executive's employ-
ment (i) by the Company without "cause", (ii) by the Company at any time
following a "change in control" (as defined herein), or (iii) by the Executive
during the twelve (12) months following a "change in control" (as hereinafter
defined), the Company shall be obligated to provide to the Executive (or his
estate if the Executive shall have died after termination) salary, bonus and
benefits in the amount and kind then in effect (and in the case of bonus, paid
during the most recently completed fiscal year) pursuant to Paragraphs 4 and
5(b) hereof, for three years following his discharge. Payment of such salary and
bonus to the Executive (or his estate) shall be made in a lump sum no later than
thirty (30) days after the date of such Termination; provided, however, that the
aggregate amount of such payments and benefits shall be reduced to the extent
necessary to avoid the treatment of such payments as "parachute payments" (i)
not deductible by the Company under Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and (ii) subject to the excise tax under Section
4999 of the Code.
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<PAGE>
(b) The Company acknowledges and agrees that the
Executive shall be entitled to receive all of the payments provided for herein
regardless of any income which the Executive may receive from other sources
after the termination of his employment with the Company.
(c) Nothing in this Paragraph 6 shall confer
upon the Executive the right to continue in the employ of the Company or any of
its subsidiaries or, subject to the terms hereof, shall affect any right which
the Company may have to terminate the employment of the Executive. No benefit
provided herein is intended or shall be deemed to be granted to the Executive in
lieu of any benefits, rights or privileges to which the Executive may be
entitled while he is an employee of the Company under any retirement, pension,
insurance, hospitalization, stock option, stock purchase, incentive compensation
or other plan of the Company which may now be in effect or which may hereafter
be adopted, it being understood that the Executive shall have the same rights
and privileges to participate in such plans as any other executive employee of
the Company.
(d) In the event the Executive commences litiga-
tion to enforce his rights under this Paragraph 6 and prevails in such
litigation, the Executive shall be entitled to recover his costs and expenses,
including reasonable attorneys' fees.
(e) For purposes of this Agreement, "change in
control" shall mean the acquisition, directly or indirectly, by any "person" or
"group" of "persons" (as these terms are used in
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Sections 13(d) and 14(d) of the Securities Exchange Act of 1934 and the rules
thereunder) of beneficial ownership of securities of the Company or of
securities of the Company's ultimate parent corporation, if any, representing
30% or more of the combined voting power of the then outstanding securities of
such corporation.
7. Notices. All notices relating to this
Employment Agreement shall be in writing and shall be deemed to have been given
at the time when delivered personally or sent in the United States by registered
or certified mail, return receipt requested, in a postpaid envelope, addressed
to the other party at the address set forth below, or to such changed address as
the other party may have fixed by notice; provided, however, that any notice of
change of address shall be effective only upon receipt:
To the Company: Big Smith Brands, Inc.
7100 West Camino Real
Boca Raton, FL 33433
To the Executive: S. Peter Lebowitz
7178 Promenade Drive, Apt. B602
Boca Raton, Florida 33433
With a Copy to: Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
919 Third Avenue
New York, New York 10022
Attn: Shari K. Krouner
8. Assignability, Binding Effect and Survival.
This Employment Agreement shall inure to the benefit of and be binding upon the
Company, its successors and assigns, including without limitation any
corporation which may acquire all or substantially all of the Company's assets
and business or with or into which
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the Company may be consolidated or merged, and shall inure to the benefit of and
be binding upon the Executive, his heirs, executors, administrators and legal
representatives; provided, that the obligations of the Executive hereunder may
not be delegated.
9. Complete Understanding; Amendment; Waiver.
This Employment Agreement constitutes the complete understanding between the
parties with respect to the employment of the Execu- tive hereunder, and no
statement, representation, warranty or covenant has been made by either party
with respect thereto except as expressly set forth herein. This Employment
Agreement shall not be altered, modified, amended or terminated except by
written instrument signed by each of the parties hereto. Any waiver of any term
or provision hereof, or of the application of any such term or provision to any
circumstances, shall be in writing signed by the party charged with giving such
waiver. Waiver by either party hereto of any breach hereunder by the other party
shall not operate as a waiver of any other breach, whether similar to or
different from the breach waived. No delay on the part of the Company or the
Executive in the exercise of any of their respective rights or remedies shall
operate as a waiver thereof, and no single or partial exercise by the Company or
the Executive of any such right or remedy shall preclude other or further
exercise thereof.
10. Severability. If any provision of this
Employment Agreement or the application of any such provision to any party or
circumstances shall be determined by any court of competent
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jurisdiction to be invalid and unenforceable to any extent, the remainder of
this Employment Agreement or the application of such provision to such person or
circumstances other than those to which it is so determined to be invalid and
unenforceable, shall not be affected thereby, and each provision hereof shall be
enforced to the fullest extent permitted by law.
11. Governing Law. This Employment Agreement
shall be governed and construed in accordance with the internal laws of the
State of Delaware without regard to conflict of laws provi- sions.
12. Indemnification. The Company shall indemnify
the Executive against judgments, fines, amounts paid in settlement and
reasonable expenses, including attorneys' fees actually and necessarily
incurred, in any action or proceeding to which the Executive is made a party by
reason of the fact that he is or was an officer or director of the Company, to
the fullest extent permitted by law, the By-laws of the Company and the
Certificate of Incorporation of the Company, as amended or restated.
13. Counterparts. This Employment Agreement may
be executed in counterparts, all of which together shall constitute one
agreement binding on all parties hereto.
14. Titles and Captions. All paragraph, article
or section titles or captions in this Employment Agreement are for convenience
only and in no way define, limit, extend or describe the scope or intent of any
provisions hereof.
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IN WITNESS WHEREOF, each of the parties hereto has duly
executed this Employment Agreement as of the date first above written.
BIG SMITH BRANDS, INC.
By:/s/ Terry L. Dober
---------------------
Name: Terry L. Dober
Title: Vice President
/s/ S. Peter Lebowitz
---------------------
S. Peter Lebowitz
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