<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1996.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
------------------------
CUTTER & BUCK INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
WASHINGTON 5130 91-1474587
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
2701 FIRST AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
(206) 622-4191
(Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Principal Executive Offices)
MARTIN J. MARKS
SENIOR VICE PRESIDENT
2701 FIRST AVENUE, SUITE 500
SEATTLE, WASHINGTON 98121
(206) 622-4191
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
--------------------------
COPIES TO:
<TABLE>
<S> <C>
MICHAEL E. MORGAN GREGORY GORDER
LAWRENCE J. STEELE LINDA A. SCHOEMAKER
Lane Powell Spears Lubersky Perkins Coie
1420 Fifth Avenue, Suite 4100 1201 Third Avenue, Suite 4000
Seattle, Washington 98101 Seattle, Washington 98101
(206) 223-7000 (206) 583-8888
</TABLE>
--------------------------
Approximate date of commencement of proposed sale to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
--------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
REGISTERED REGISTERED (1) UNIT (2) PRICE (2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock,
no par value........ 1,610,000 shares $13.6875 $22,036,875 $7,599
</TABLE>
(1) Includes 210,000 shares subject to the Underwriters' over-allotment option.
(2) Estimated, pursuant to Rule 457(c) and (h), solely for the purpose of
calculating the registration fee and based upon the average of the high and
low sale prices of the Common Stock as reported on the Nasdaq National
Market on September 19, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CUTTER & BUCK INC.
CROSS-REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEMS OF FORM S-1 HEADING IN PROSPECTUS
- ------------------------------------------------------------- --------------------------------------------------
<S> <C> <C>
Item 1 Forepart of the Registration Statement and Outside Outside Front Cover Page
Front Cover Page of Prospectus
Item 2 Inside Front and Outside Back Cover Pages of Inside Front and Outside Back Cover Pages
Prospectus
Item 3 Summary Information, Risk Factors and Ratio of Prospectus Summary; Risk Factors; Selected
Earnings to Fixed Charges Financial Data
Item 4 Use of Proceeds Prospectus Summary; Use of Proceeds
Item 5 Determination of Offering Price Not Applicable
Item 6 Dilution Not Applicable
Item 7 Selling Security Holders Principal and Selling Shareholders
Item 8 Plan of Distribution Outside Front Cover Page; Underwriting
Item 9 Description of Securities to be Registered Outside Front Cover Page; Prospectus Summary;
Description of Capital Stock
Item 10 Interests of Named Experts and Counsel Not Applicable
Item 11 Information with Respect to the Registrant
(a) Description of Business Prospectus Summary; Risk Factors; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business
(b) Description of Property Business
(c) Legal Proceedings Not Applicable
(d) Market Price of and Dividends on Registrant's Price Range of Common Stock; Description of
Common Equity and Related Stockholder Matters Capital Stock
(e) Financial Statements Consolidated Financial Statements
(f) Selected Financial Data Prospectus Summary; Selected Financial Data
(g) Supplemental Financial Information Not Applicable
(h) Management's Discussion and Analysis of Management's Discussion and Analysis of Financial
Financial Condition and Results of Operations Condition and Results of Operations
(i) Changes in and Disagreements With Accountants Not Applicable
on Accounting and Financial Disclosure
(j) Directors and Executive Officers Management
(k) Executive Compensation Management
(l) Security Ownership of Certain Beneficial Principal and Selling Shareholders
Owners and Management
(m) Certain Relationships and Related Transactions Certain Transactions
Item 12 Disclosure of Commission Position on
Indemnification for Securities Act Liabilities Not Applicable
</TABLE>
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 26, 1996
PROSPECTUS
1,400,000 Shares
[LOGO]
Common Stock
------------
Of the shares of Common Stock offered hereby, 1,300,000 are being sold by
Cutter & Buck Inc. ("Cutter & Buck" or the "Company") and 100,000 shares are
being sold by the Selling Shareholders. The Company will not receive any
proceeds from the sale of shares by the Selling Shareholders. See "Principal and
Selling Shareholders." The Company's Common Stock is traded on the Nasdaq
National Market under the symbol "CBUK." On September 25, 1996, the last
reported sale price of the Common Stock on the Nasdaq National Market was
$13.625 per share. See "Price Range of Common Stock."
-------------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS(3)
<S> <C> <C> <C> <C>
Per Share.............. $ $ $ $
Total(4)............... $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses payable by the Company, estimated at $450,000.
(3) The Company will not receive any proceeds from the sale of Common Stock by
the Selling Shareholders.
(4) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 210,000 shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If the Underwriters exercise
this option in full, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $ , $ and
$ , respectively.
-------------------
The shares of Common Stock offered by this Prospectus are offered by the
several Underwriters, subject to prior sale, when, as and if delivered to and
accepted by them, and subject to the right of the Underwriters to reject any
order in whole or in part. It is expected that certificates for the shares of
Common Stock will be available for delivery in New York, New York, on or about
, 1996.
-------------------
Needham & Company, Inc. Wedbush Morgan Securities
The date of this Prospectus is , 1996.
<PAGE>
[PHOTOGRAPHS OF COMPANY PRODUCTS]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6a UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. THIS
PROSPECTUS INCLUDES FORWARD LOOKING STATEMENTS THAT ARE SUBJECT TO RISKS AND
UNCERTAINTIES AND ACTUAL RESULTS MAY DIFFER MATERIALLY. SEE "RISK FACTORS."
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS ASSUMES NO
EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION.
THE COMPANY
The Company designs, sources and markets its distinctive Cutter & Buck brand
sportswear and outerwear predominantly through golf pro shops and resorts,
upscale men's specialty stores and corporate sales accounts. The Company has
developed a colorful, innovative collection of sportswear apparel targeted to
the affluent 30- to 55-year-old men's market, projecting an updated American
traditional design evocative of a sporting lifestyle. The products' high-quality
fabrics and detailing reinforce the premium image of the brand while the
generous fit provides a feeling of comfort and versatility. Product marketing
connected with sports and leisure activities, particularly golf, helps the
Company create a positive lifestyle image that contributes to the brand's strong
appeal for its target consumers. The Company benefits from the trend toward
greater acceptance of relaxed standards of dress in the workplace that results
in sportswear representing a growing portion of consumer wardrobes. Since its
formation on January 5, 1990, the Company has achieved consistent annual sales
increases, realizing net sales of $21.6 million and net income of $1.0 million
in fiscal 1996, and net sales of $8.0 million and net income of $142,000 in the
first quarter of fiscal 1997.
The key elements of the Company's strategy to enhance its reputation as a
leading, premium brand in the men's sportswear apparel market are to: (i)
reinforce the desirability and prestige of the Cutter & Buck brand by blending
innovative design with extensive detailing and high-quality product construction
in fresh variations season to season while maintaining its signature design
identity; (ii) expand distribution of its products through golf pro shops, where
the Company believes its time-constrained target consumers are likely to shop
before and after playing golf; and (iii) merchandise its products, including
knit and woven sport shirts, pants, shorts, sweaters, sweatshirts, outerwear and
caps, in its customers' stores as a collection rather than as isolated
categories.
The Company currently offers its customers two collections a year, spring
and fall, composed of FASHION and complementary CLASSIC products. FASHION
products incorporate the latest innovations in color, fabric and styling and
tend to remain in the line for only one season. CLASSIC products are
predominantly solid-color garments with multi-season appeal. The Company
presents each season's collections to its customers in three or four groups of
distinct, coordinated merchandise. These groups are available for delivery to
customers during sequential time periods, typically from May to October for fall
collections and from November to April for spring collections. To enhance
consistency, quality and on-time delivery of its products, the Company works
with a select group of high-quality, reliable foreign and domestic contract
manufacturers that are knowledgeable and experienced in the intricate design and
manufacturing processes required to produce the Company's products.
"CUTTER & BUCK" and the Cutter & Buck pennant logo are registered trademarks
of the Company. All other trademarks appearing in this Prospectus are the
property of their respective holders.
The Company is incorporated in Washington. Its executive offices are located
at 2701 First Avenue, Suite 500, Seattle, Washington 98121, and its telephone
number is (206) 622-4191.
3
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 1,300,000 shares
Common Stock offered by the Selling
Shareholders..................................... 100,000 shares
Common Stock to be outstanding after this
offering......................................... 4,968,241(1)
Use of proceeds................................... For working capital purposes, including repayment
of all outstanding borrowings under the Company's
revolving line of credit and increases in
inventory and trade receivables. See "Use of
Proceeds."
Nasdaq National Market symbol..................... CBUK
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
FISCAL YEAR ENDED APRIL 30, ENDED JULY 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Net sales............................. $ 5,405 $ 8,036 $ 9,882 $ 13,435 $ 21,645 $ 3,305 $ 8,000
Gross profit.......................... 1,319 2,045 3,438 4,675 7,981 1,228 2,980
License and royalty income............ -- 39 285 497 457 116 96
Net income (loss)..................... $ (730) $ (538) $ 101 $ 239 $ 996 $ (63) $ 142
Net income (loss) per share........... $ 0.05 $ 0.12 $ 0.29 $ (0.02) $ 0.04
Shares used in computation of net
income (loss) per share (2).......... 1,933 2,034 3,476 2,539 3,941
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 1996
-------------------------
ACTUAL AS ADJUSTED(3)
--------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................................................................... $ 12,065 $ 28,220
Total assets.......................................................................... 19,736 33,821
Short-term debt (4)................................................................... 2,148 77
Long-term debt........................................................................ 337 337
Total shareholders' equity............................................................ 14,175 30,330
</TABLE>
- ------------------------------
(1) Based on shares outstanding as of July 31, 1996. Excludes 270,574 shares of
Common Stock reserved for issuance pursuant to the Company's 1991 Stock
Option Plan (the "1991 Plan"), 208,140 shares of Common Stock reserved for
issuance pursuant to the Company's 1995 Employee Stock Option Plan (the
"1995 Plan"), 46,253 shares of Common Stock reserved for issuance pursuant
to the Company's 1995 Nonemployee Director Stock Incentive Plan (the "1995
Director Plan"), and 248,474 shares of Common Stock reserved for issuance
pursuant to the Company's 1995 Employee Stock Purchase Plan (the "Stock
Purchase Plan"). As of the date of this Prospectus, the Company has granted
options for an aggregate of 409,822 shares of Common Stock under these plans
at a weighted average exercise price of $5.11 per share. Also excludes
131,531 shares of Common Stock reserved for issuance pursuant to outstanding
warrants with an exercise price of $8.40 per share granted in connection
with the Company's initial public offering. See "Management -- Benefit
Plans," "Description of Capital Stock" and Note 10 of Notes to Consolidated
Financial Statements.
(2) The basis for determining the number of shares used in computing net income
(loss) per share is described in Note 1 of Notes to Consolidated Financial
Statements.
(3) Adjusted to give effect to the anticipated application of the estimated net
proceeds to the Company of this offering based on the assumed public
offering price of $13.625 per share. See "Use of Proceeds."
(4) Includes borrowings of $2.1 million under the Company's revolving line of
credit, all of which will be repaid with a portion of the net proceeds of
this offering.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK BEING OFFERED HEREBY INVOLVES A HIGH
DEGREE OF RISK. CERTAIN STATEMENTS UNDER THE CAPTIONS "PROSPECTUS SUMMARY," "USE
OF PROCEEDS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS STATEMENTS MADE IN THE
FOLLOWING RISK FACTORS AND ELSEWHERE IN THIS PROSPECTUS CONSTITUTE
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND
UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE THE ACTUAL
RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY, OR INDUSTRY RESULTS, TO BE
MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS
EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. SUCH FACTORS INCLUDE,
AMONG OTHERS, THE FOLLOWING: VOLATILITY OF THE APPAREL INDUSTRY; UNEXPECTED
CHANGES IN FASHION TRENDS; PRIOR SEASON INVENTORIES; COMPETITION; DEPENDENCE ON
KEY PERSONNEL; RELIANCE ON CONTRACTORS AND FOREIGN SOURCING; IMPORT
RESTRICTIONS; AND OTHER FACTORS REFERENCED IN THIS PROSPECTUS. IN EVALUATING AN
INVESTMENT IN THE COMMON STOCK, INVESTORS SHOULD CAREFULLY CONSIDER THE
FOLLOWING FACTORS IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS.
VOLATILITY OF APPAREL INDUSTRY. The apparel industry historically has been
subject to substantial cyclical variations. The Company and other apparel
manufacturers rely on the expenditure of discretionary income for most, if not
all, of their sales. Any downturn, whether real or perceived, in economic
conditions or prospects could adversely affect consumer spending habits and the
Company's sales and results of operations. During the past several years,
various retailers, including some of the Company's customers, have experienced
financial problems, which increases the risk of extending credit to such
retailers. The Company has historically assigned the credit risk of its customer
receivables to its factor. A customer's financial problems could cause the
Company's factor to limit the amount of customer receivables that the Company
may assign to the factor, and may cause the Company to assume more credit risk
relating to those receivables or to curtail business with the customer. The
Company has recently discontinued its use of the factor for management of its
accounts receivable credit and collection function associated with its sales to
the golf, corporate and international distribution channels. The Company plans
to use the factor's accounts receivable management exclusively for its sales to
the specialty store channel. The Company has only limited experience in managing
its credit and collection operations and there can be no assurance that the
increased assumption of this credit risk will not have a material adverse effect
on the Company's financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Domestic Distribution and Sales."
UNEXPECTED CHANGES IN FASHION TRENDS; PRIOR SEASON INVENTORIES. Fashion
trends can change rapidly, and the Company's business is particularly sensitive
to changes because the Company typically designs and arranges for the
manufacture of its apparel substantially in advance of sales of its products to
consumers. There can be no assurance that the Company will accurately anticipate
shifts in fashion trends and adjust its merchandise mix to appeal to changing
consumer tastes in a timely manner. If the Company misjudges the market for its
products or is unsuccessful in responding to changes in fashion trends or in
market demand, the Company could experience insufficient or excess inventory
levels, missed market opportunities or higher markdowns, any of which would have
a material adverse effect on the Company's financial condition and results of
operations. At the end of its fall and spring seasons, the Company has unsold
FASHION inventory as a consequence of making inventory available to satisfy
anticipated customer demand across a broad range of styles. The Company
historically has been able to sell this inventory approximately at cost through
sales to off-price retail accounts in subsequent seasons and recently, in
response to consolidation in the off-price channel, increased marketing of this
inventory to regular retail accounts. If the Company experiences increased
amounts of excess inventory, or if the Company's ability to dispose of its prior
season FASHION merchandise is impaired, due to abrupt changes in fashion trends
or for other reasons, the Company's financial condition and results of
operations could be materially adversely affected. See "Business -- Product
Development and Sourcing" and "-- Order Booking Cycle and Backlog."
5
<PAGE>
COMPETITION. The men's sportswear segment of the apparel industry is highly
competitive. The Company's future growth and financial success depend on the
Company's ability to further penetrate the golf distribution channel and
increase the size of its average annual net sales per account in that channel,
as well as its ability to penetrate and expand its four other distribution
channels. The Company encounters substantial competition in the golf
distribution channel from Ashworth, Izod Club and Polo/Ralph Lauren. Apparel
companies recently entering the golf distribution channel, such as Tommy
Hilfiger, will further increase the level of competition in that channel. During
fiscal 1996, the golf distribution channel represented approximately 53% of the
Company's net sales. Most of the Company's competitors are significantly larger
and more diversified than the Company and have substantially greater resources
available for developing and marketing their products. There can be no assurance
that the Company will be able to maintain its growth rate or to increase its
market share in the golf distribution channel at the expense of existing
competitors and other apparel manufacturers choosing to enter that market. In
addition, there can be no assurance that the Company will be able to achieve
significant growth in its other distribution channels. See "Business --
Competition."
DEPENDENCE ON KEY PERSONNEL. The Company's success largely depends on the
personal efforts and abilities of key executives and consultants, including
Harvey N. Jones, the Company's President and Chief Executive Officer, Martin J.
Marks, the Company's Senior Vice President and Chief Operating Officer, and Joey
Rodolfo, who is a former officer and employee of the Company and now provides
design services to the Company on an exclusive basis under a Consulting
Agreement. Mr. Jones and Mr. Rodolfo co-founded the Company in January 1990. The
loss of the services of any of Messrs. Jones, Marks or Rodolfo could have a
material adverse effect on the Company. The Company maintains "key man" life
insurance policies in the amount of $1.0 million on each of Mr. Jones and Mr.
Rodolfo. There can be no assurance that such insurance will continue to be
available at an acceptable cost, if at all, or would adequately compensate the
Company for a loss of services. The Company does not have an employment
agreement with either Mr. Jones or Mr. Marks. Mr. Rodolfo's Consulting Agreement
extends through July 1, 1997 and contains provisions restricting Mr. Rodolfo's
ability to compete with the Company in certain product and geographic areas
following termination of the Consulting Agreement. Although the Company and Mr.
Rodolfo have started to discuss an extension of his Consulting Agreement, there
can be no assurance that they will reach agreement on any such extension, which
may result in the Company hiring a new lead designer. See "Business -- Product
Development and Sourcing," "Management -- Directors and Executive Officers" and
"Certain Transactions."
RELIANCE ON CONTRACTORS AND FOREIGN SOURCING. The Company obtains all of
its garments from independent foreign and domestic suppliers, and does not have
formal long-term contracts with any of its suppliers or agents. Currently, the
Company's production is sourced through an agent in Thailand, two agents in Hong
Kong coordinating Chinese suppliers, an agent managing other Asian sources of
supply and direct factory relationships in Asia and California. Approximately
45% of the Company's knit shirt production is currently managed by its agent in
Thailand. Due to the concentration of production and production control with
these parties, the Company would experience difficulty satisfying its production
requirements if any of them had an interruption of business or were unable or
unwilling to meet the Company's production needs. Furthermore, the Company could
experience delays in shifting production to other manufacturers or agents
because of the complex fabrication, unique trims and extensive detailing of its
products. In addition, there can be no assurance that the Company will not
experience difficulties with third parties in the manufacture of its products.
Delays in shipments to the Company, inconsistent or inferior garment quality and
other factors beyond the Company's control would adversely affect the Company's
relationships with its customers, its reputation in the industry and its sales
and results of operations. The Company has experienced production delays in the
past, and there can be no assurance that production delays will not occur in the
future. Because a substantial portion of the Company's products are manufactured
in China and Thailand, the Company's operations may also be affected by
economic, political, governmental and labor conditions in those countries. In
addition, changes in economic policies and political conditions in those
countries could result in disruption of trade, new or additional currency or
exchange controls or the imposition of other restrictions. The Company incurred
increased expenses in its first quarter of fiscal
6
<PAGE>
1997 to expedite products from Chinese manufacturers due to threatened trade
sanctions. Furthermore, although the Company contracts to purchase its products
in United States dollars, changes in exchange rates could increase the prices
the Company pays for its products. Currently, the Company does not engage in any
hedging activities with respect to such exchange rate risk. See "Business --
Product Development and Sourcing."
IMPORT RESTRICTIONS. The Company's import operations are subject to
constraints imposed by bilateral textile agreements between the United States
and each of China and Thailand. These agreements, which have been negotiated
under the framework established by the Arrangement Regarding International Trade
in Textiles, known as the Multifiber Agreement, impose quotas on the amount and
type of goods that can be imported into the United States from these countries.
Such agreements also allow the United States to impose at any time restraints on
the importation of categories of merchandise that, under the terms of the
agreements, are not subject to specified limits. The Company's imported products
also are subject to U.S. customs duties, which are a material portion of the
Company's cost of goods, and customs inspections, which could result in delays
in delivery of the Company's products. Partly as a result of changes to customs
laws enacted in December 1994, importers such as the Company may face increasing
scrutiny for the acts of their manufacturers, suppliers and agents. While to
date the Company has experienced no material disruption of its business due to
quota or customs restrictions, there can be no assurance that it will not face
such disruptions in the future. A substantial increase in customs duties or
decrease in quotas could have an adverse effect on the Company's results of
operations. Furthermore, the United States and the countries in which the
Company's products are manufactured may, from time to time, impose new quotas,
duties, tariffs or other restrictions, or adversely adjust presently prevailing
quota, duty or tariff levels. While the Company is not aware that any current
impositions, adjustments or increased scrutiny would adversely affect the
Company or its ability to continue to import products at current levels, it
cannot predict the likelihood or frequency of any such events occurring. See
"Business -- Product Development and Sourcing."
DEPENDENCE ON INDEPENDENT SALES REPRESENTATIVES. The Company sells its
products through a network of Company-employed and independent sales
representatives. The Company's independent sales representative agreements are
terminable for any reason by either party on 30 days' notice. The Company's
independent sales representatives typically also sell other noncompeting
products that may nonetheless divert the representatives' or the customers'
attention from the Company's line. The Company intends to increase the number of
sales representatives in the future, but anticipates that an increasing
proportion of it sales representatives will be Company employees selling Cutter
& Buck merchandise exclusively. There can be no assurance, however, that the
Company will be successful in retaining existing or recruiting additional sales
representatives, or that the addition of sales representatives will be an
effective means to increase the Company's net sales. See "Business -- Domestic
Distribution and Sales."
LIMITED HISTORY OF PROFITABILITY. The Company has a limited history of
profitable operations and at July 31, 1996 had an accumulated deficit of
approximately $950,000. There can be no assurance that the Company will be
profitable on either a quarterly or annual basis. In addition, the Company's
expense levels are based in part on anticipated future revenue levels. If
revenues fall below anticipated levels, operating results would be adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
RISKS OF NEW INTERNATIONAL OPERATIONS. The Company has recently commenced
the direct distribution of its products in the United Kingdom and Continental
Europe through newly established subsidiaries. Although the Company's sales
outside of the United States totaled approximately $1.8 million in fiscal 1996,
the Company expects the amount of its international sales to increase.
International sales are subject to the inherent risks of doing business in a
foreign country, including fluctuations in local economies, fluctuating exchange
rates, difficulties in staffing and managing foreign operations, increased
difficulty of inventory management, greater difficulty in accounts receivable
collection, unexpected changes in regulatory requirements, tariffs and other
trade barriers,
7
<PAGE>
and the burdens of complying with a variety of foreign laws. In addition, the
Company relies on international distributors to distribute its products in some
foreign countries. There can be no assurance that these distributors will be
able to provide a sufficient level of support for the Company's products. The
Company's inability to achieve a sufficient level of sales from its foreign
operations or the loss or insolvency of any of its international distributors
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business -- Licensing and International
Distribution."
SEASONALITY. The Company's business has been and will continue to be highly
seasonal, and its quarterly operating results have fluctuated primarily due to
the seasonality of its sales of sportswear. The Company's sales tend to be
highest during the Company's second and fourth quarters, ending October 31 and
April 30, respectively, and lowest during the Company's first and third
quarters, ending July 31 and January 31, respectively. With the exception of the
Company's most recent fiscal quarter ended July 31, 1996, the Company has
incurred net losses in its first and third quarters, and may continue to incur
losses in these and other quarters. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Quarterly Results and
Seasonality."
FUTURE STATUS OF HONG KONG AND CHINA. On July 1, 1997, China will resume
sovereignty over Hong Kong in accordance with the 1984 Sino-British Joint
Declaration (the "Joint Declaration"), and Hong Kong will become a Special
Administrative Region of China. Although the Joint Declaration provides for the
continuation of existing economic and social systems in Hong Kong through 2047,
there can be no assurance that Hong Kong will not experience political, economic
or social disruption as a result of the resumption of Chinese sovereignty. In
addition, there have been a number of recent trade disputes between China and
the United States during which the United States threatened to impose tariffs
and duties on some products imported from China and to withdraw China's "most
favored nation" trade status. Any significant disruption in the operations of
the Company's agents located in Hong Kong or the loss of most favored nation
trade status for China, where several of the Company's manufacturing sources are
located, could have a material adverse effect on the Company.
ANTITAKEOVER CONSIDERATIONS. The Company's Board of Directors has the
authority, without action by the shareholders, to issue up to 25,000,000 shares
of Common Stock and 6,000,000 shares of Preferred Stock and to fix the rights
and preferences of the Preferred Stock. This authority, together with certain
provisions of the Company's Restated Articles of Incorporation, may have the
effect of making it more difficult for a third party to acquire, or discouraging
a third party from attempting to acquire, control of the Company. The Company is
authorized to issue Preferred Stock, without shareholder approval, with rights
senior to those of the Common Stock. In addition, Washington law contains
certain provisions that may have the effect of delaying, deterring or preventing
a hostile takeover of the Company. See "Description of Capital Stock."
CONTROL BY EXISTING SHAREHOLDERS. The Company's executive officers,
directors and holders of more than 5% of the outstanding Common Stock and their
affiliates will beneficially own an aggregate of approximately % of the
outstanding shares of Common Stock after this offering (approximately % if
the Underwriters' over-allotment option is exercised in full). If the options
outstanding and exercisable within 60 days of September 25, 1996 were exercised,
these percentages would be % and %, respectively. As a result, these
shareholders, acting together, would be able to have significant influence over
most matters requiring approval by the Company's shareholders, including the
election of a majority of the Company's directors. These shareholders would also
be able to delay or deter a change in control of the Company. See "Principal and
Selling Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE. The market price of the Common Stock could
be adversely affected by the availability for sale of shares now held by current
shareholders of the Company or shares that may be issued upon the exercise of
outstanding stock options and warrants or new options granted under the
Company's stock option plans. There will be 4,968,241 shares of Common Stock
outstanding immediately following this offering, 3,266,739 of which will be
tradeable without restriction and 224,992 of which will be eligible for sale in
the public market in reliance on Rule 144(k) under
8
<PAGE>
the Securities Act. Certain of the Company's existing shareholders and option
holders, representing currently outstanding shares (excluding the
100,000 shares to be sold by the Selling Shareholders in this offering), have
agreed with the representatives of the Underwriters not to sell or otherwise
dispose of any of their shares without the prior written consent of Needham &
Company, Inc. for a period of 120 days from the closing of this offering. On
that date, 1,245,157 shares of Common Stock will be eligible for sale in the
public market subject to the volume and other restrictions of Rule 144. In
addition, 442,470 shares of Common Stock will become eligible for sale in the
public market in reliance on Rule 144 between the expiration of the Lockup
Agreements and June 1997. Holders of 1,572,782 shares of Common Stock, and the
131,531 shares of Common Stock reserved for issuance pursuant to outstanding
warrants, have registration rights with respect to shares of Common Stock. The
Company has registered all the shares of Common Stock reserved for issuance
under the 1991 Plan, the 1995 Plan and the 1995 Director Plan. See "Management,"
"Shares Eligible for Future Sale" and "Underwriting."
9
<PAGE>
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
1,300,000 shares of Common Stock offered hereby (after deducting the estimated
offering expenses, including underwriting discounts and commissions) are
estimated to be approximately $16.2 million assuming a public offering price of
$13.625 per share (approximately $18.8 million if the Underwriters'
over-allotment option is exercised in full). The Company intends to use the net
proceeds to repay all outstanding borrowings under the Company's revolving line
of credit and to fund increases in working capital associated with continuing
sales growth, including increases in inventory and trade receivables. At
September 25, 1996, the outstanding balance on the Company's revolving line of
credit was $1.8 million, bearing interest at the bank's prime rate. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." Pending such uses, the Company
intends to invest the net proceeds in short-term, investment-grade,
interest-bearing securities. The Company will not receive any proceeds from the
sale of Common Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CBUK." The following table sets forth, for the periods indicated, the
high and low closing sale prices of the Common Stock as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
HIGH LOW
-------- -------
<S> <C> <C>
Fiscal 1996
Second Quarter (from August 15, 1995)..................... $ 8 1/2 $6
Third Quarter............................................. 9 7/8 6 3/8
Fourth Quarter............................................ 12 3/8 9 5/8
Fiscal 1997
First Quarter............................................. $15 1/2 $8 5/8
Second Quarter (through September 25, 1996)............... 14 1/8 8 7/8
</TABLE>
The closing sale price of the Common Stock as reported on the Nasdaq
National Market on September 25, 1996 was $13.625 per share. As of that date,
there were approximately 110 shareholders of record of the Common Stock.
DIVIDEND POLICY
The Company has not paid any cash dividends on the Common Stock and does not
intend to pay any cash dividends in the foreseeable future.
10
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
31, 1996, and as adjusted to give effect to the sale by the Company of the
1,300,000 shares of Common Stock offered hereby at the assumed public offering
price of $13.625 per share and the application of the estimated net proceeds
therefrom (after deducting underwriting discounts and commissions and estimated
offering expenses payable by the Company).
<TABLE>
<CAPTION>
JULY 31, 1996
----------------------------
ACTUAL AS ADJUSTED
------------ --------------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (1)................................................................ $ 2,148 $ 77
------------ --------------
------------ --------------
Long-term debt..................................................................... 337 337
Shareholders' equity:
Preferred Stock, no par value: 6,000,000 shares authorized; none outstanding..... -- --
Common Stock, no par value: 25,000,000 shares authorized; 3,668,241 shares issued
and outstanding actual; 4,968,241 shares issued and outstanding as
adjusted (2).................................................................... 15,167 31,322
Note receivable from shareholder................................................. (44) (44)
Accumulated deficit.............................................................. (948) (948)
------------ --------------
Total shareholders' equity..................................................... 14,175 30,330
------------ --------------
Total capitalization......................................................... $ 14,512 $ 30,667
------------ --------------
------------ --------------
</TABLE>
- ------------------------
(1) Includes borrowings of $2.1 million under the Company's revolving line of
credit, all of which will be repaid with a portion of the net proceeds of
this offering.
(2) Excludes 270,574 shares of Common Stock reserved for issuance pursuant to
the 1991 Plan, 208,140 shares of Common Stock reserved for issuance pursuant
to the 1995 Plan, 46,253 shares of Common Stock reserved for issuance
pursuant to the 1995 Director Plan, and 248,474 shares of Common Stock
reserved for issuance pursuant to the Stock Purchase Plan. As of the date of
this Prospectus, the Company has granted options for an aggregate of 409,822
shares of Common Stock under these plans at a weighted average exercise
price of $5.11 per share. Also excludes 131,531 shares of Common Stock
reserved for issuance pursuant to outstanding warrants with an exercise
price of $8.40 per share granted in connection with the Company's initial
public offering. See "Management -- Benefit Plans," "Description of Capital
Stock" and Note 10 of Notes to Consolidated Financial Statements.
11
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data as of April 30, 1995 and 1996, and for
each of the three years in the period ended April 30, 1996 are derived from the
consolidated financial statements of Cutter & Buck Inc., which have been audited
by Ernst & Young LLP, independent auditors, and are included elsewhere in this
Prospectus. The following selected financial data with respect to the Company's
balance sheets as of April 30, 1993 and 1994 and with respect to the statement
of operations for the year ended April 30, 1993 are derived from the Company's
financial statements that were also audited by Ernst & Young LLP and that are
not included herein. The following selected financial data with respect to the
Company's statement of operations for the year ended April 30, 1992 and with
respect to the Company's balance sheet as of April 30, 1992 are derived from the
Company's financial statements that were audited by other independent auditors
and that are not included herein. The financial data as of July 31, 1996 and for
the three-month periods ended July 31, 1995 and 1996 are derived from unaudited
consolidated financial statements that, in the opinion of the management of the
Company, reflect all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial position and results of
operations for these periods. Operating results for the three month period ended
July 31, 1996 are not necessarily indicative of the results that may be expected
for the entire year ending April 30, 1997. The data set forth below should be
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto included elsewhere in this Prospectus and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEAR ENDED APRIL 30, JULY 31,
----------------------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net sales............................................. $ 5,405 $ 8,036 $ 9,882 $ 13,435 $ 21,645 $ 3,305 $ 8,000
Cost of sales......................................... 4,086 5,991 6,444 8,760 13,664 2,077 5,020
--------- --------- --------- --------- --------- --------- ---------
Gross profit.......................................... 1,319 2,045 3,438 4,675 7,981 1,228 2,980
Operating expenses:
Design and production............................... 385 495 510 747 1,045 215 336
Selling and handling................................ 870 1,136 1,781 2,446 3,858 668 1,712
General and administrative.......................... 740 784 1,053 1,364 2,042 411 714
--------- --------- --------- --------- --------- --------- ---------
Total operating expenses.......................... 1,995 2,415 3,344 4,557 6,945 1,294 2,762
--------- --------- --------- --------- --------- --------- ---------
Operating income (loss)............................... (676) (370) 94 118 1,036 (66) 218
Other income (expense):
Factor commissions and interest expense, net of
interest income.................................... (54) (207) (278) (376) (237) (113) (111)
License and royalty income.......................... -- 39 285 497 457 116 96
--------- --------- --------- --------- --------- --------- ---------
Total other income (expense)...................... (54) (168) 7 121 220 3 (15)
--------- --------- --------- --------- --------- --------- ---------
Income (loss) before income taxes..................... (730) (538) 101 239 1,256 (63) 203
Income taxes.......................................... -- -- -- -- (260) -- (61)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)..................................... $ (730) $ (538) $ 101 $ 239 $ 996 $ (63) $ 142
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share (1)....................... $ 0.05 $ 0.12 $ 0.29 $ (0.02) $ 0.04
Shares used in computation of net income (loss) per
share (1)............................................ 1,933 2,034 3,476 2,539 3,941
</TABLE>
<TABLE>
<CAPTION>
APRIL 30,
----------------------------------------------------- JULY 31,
1992 1993 1994 1995 1996 1996
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash.......................................................... $ 455 $ 135 $ 327 $ 499 $ 2,010 $ 306
Working capital............................................... 1,555 998 1,058 3,209 12,488 12,065
Total assets.................................................. 2,435 1,818 2,488 5,693 17,170 19,736
Short-term debt (2)........................................... 120 66 580 24 114 2,148
Long-term debt................................................ 49 48 38 98 -- 337
Total shareholders' equity.................................... 1,822 1,285 1,387 3,566 14,023 14,175
</TABLE>
- --------------------------
(1) The basis for determining the number of shares used in computing net income
(loss) per share is described in Note 1 of Notes to Consolidated Financial
Statements.
(2) As of July 31, 1996, includes borrowings of $2.1 million under the Company's
revolving line of credit, all of which will be repaid with a portion of the
net proceeds of this offering.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND THE CONSOLIDATED FINANCIAL STATEMENTS AND RELATED
NOTES THERETO INCLUDED ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE
HISTORICAL INFORMATION CONTAINED HEREIN, THIS PROSPECTUS CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE
TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS." ALL REFERENCES TO FISCAL YEARS ARE REFERENCES TO THE COMPANY'S FISCAL
YEAR ENDED APRIL 30.
OVERVIEW
The Company markets its Cutter & Buck brand sportswear and outerwear
predominantly through golf pro shops and resorts, upscale men's specialty stores
and corporate sales accounts. The Company's sales to golf pro shops have
increased rapidly in the last three fiscal years to $11.4 million, representing
approximately 53% of the Company's net sales in fiscal 1996, as compared to
approximately 21% through specialty stores, the dominant channel of distribution
for the Company's products during its first few years. The Company has elected
to focus its sales effort on the golf distribution channel because (i) it
believes this is an effective way to reach its target market of affluent,
sports-minded 30- to 55-year-old men and build brand identity and (ii) golf pro
shops are receptive to the Company's distinctive product, merchandising approach
and sales support. The Company believes that many of its target consumers play
golf and frequent golf and resort pro shops while engaging in the sport. Most
golf pro shops have welcomed quality apparel that is not broadly distributed
elsewhere as an important offset to declining sales of golf equipment due to
price competition from golf discounters. The Company assists golf pro shops,
which have generally not had experience in sophisticated apparel retailing, by
training them to merchandise Cutter & Buck products.
The Company's $5.7 million increase in net sales to the golf distribution
channel in fiscal 1996 represented approximately 69% of the Company's total
increase in net sales in that year. This growth in net sales to the golf
distribution channel is attributable to (i) an increase in the number of golf
pro shops purchasing the Company's products (approximately 1,800 golf pro shops
in fiscal 1996 compared to approximately 1,200 golf pro shops in fiscal 1995)
and (ii) an increase in the average annual net sales per golf pro shop. The
Company believes that the golf distribution channel comprises approximately
13,000 U.S. golf pro shops. The increase in the number of the Company's golf pro
shop customers is due to the penetration of new accounts by the Company's golf
pro shop sales representatives and to the growth in the size of the Company's
sales force for the golf distribution channel. The increase in average annual
net sales per customer for fiscal 1996 compared to fiscal 1995 is the result of
the Company's offering more product styles and increasing the average annual net
sales per style. The Company believes these increased purchasing levels by its
customers indicate the effectiveness of its sales force in establishing
cooperative working relationships with golf pro shops, particularly in
facilitating merchandising of coordinated themes and collections, as well as
consumer acceptance of, and increasing demand for, the Company's products. By
increasing the size and effectiveness of its sales force for the golf
distribution channel and further augmenting its product offerings, the Company
anticipates further growth in net sales to the golf distribution channel through
continuing penetration of new accounts and continuing increases in the average
annual net sales per account.
The Company increased its inventory levels in fiscal 1996 to support
anticipated sales growth, reducing inventory turns. The Company expects that
higher inventory levels will enable it to improve overall merchandise
availability. This will enable the Company to better accommodate in-season
orders for its FASHION merchandise across a broad range of styles, and to
satisfy increased demand from all distribution channels for quick delivery of
its CLASSIC merchandise. The ability to provide quick delivery of CLASSIC knit
shirts is of particular importance to the golf distribution and corporate sales
channels. The Company believes that its inventory turn is comparable to other
men's branded apparel companies.
13
<PAGE>
The Company believes that its fixturing program instituted in fiscal 1996,
which facilitates merchandising coordinated collections of Cutter & Buck
products, is contributing to the Company's sales growth. In the fourth quarter
of fiscal 1996, the Company reacquired the exclusive distribution rights for its
apparel in the United Kingdom and has recently established subsidiaries in the
United Kingdom and the Netherlands for the direct sale and distribution of
Cutter & Buck sportswear in Europe.
The Company also has repurchased the license for Cutter & Buck outerwear,
effective May 1, 1996. The Company believes that by assuming direct
responsibility for the design, sourcing and distribution of Cutter & Buck
outerwear, it can increase sales while broadening the Company's product
assortment sold through present channels of distribution.
In May 1996, the Company commenced its own warehouse operations in a newly
leased facility sufficient to handle current domestic distribution of its
product, as well as accommodate an in-house embroidery operation. The Company
has options to lease additional warehouse space as needed at the same location.
Previously, the Company had used third parties for warehouse operations. The
Company believes that operating its own warehouse and embroidery facility will
improve both its control over distribution and embroidery expenses and its level
of service to its customers.
As the volume of Cutter & Buck products has increased, the Company has been
able to negotiate improved cost arrangements with its suppliers that are
expected to have a positive impact on gross profit margins. The Company also
anticipates that its overhead costs as a percentage of net sales will decline
due to operating leverage as the Company continues to grow.
The Company historically has been able to sell FASHION merchandise from
prior seasons approximately at cost through sales to off-price retail accounts
in subsequent seasons. In fiscal 1996, a lower percentage of this merchandise
was sold through off-price apparel chains because of disruptions in this channel
due to consolidation and because of the Company's election to offer a greater
percentage of this merchandise to its primary customers as part of its marketing
strategy. The Company believes the availability of this merchandise benefits its
customers by enhancing their purchase options, but the Company's ability to
successfully dispose of prior season inventories through its primary
distribution channels has not been established.
14
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain statements
of operations data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JULY
FISCAL YEAR ENDED APRIL 30, 31,
------------------------------------- ------------------------
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales.................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................................................ 65.2 65.2 63.1 62.8 62.8
----- ----- ----- ----- -----
Gross profit................................................. 34.8 34.8 36.9 37.2 37.2
Operating expenses:
Design and production...................................... 5.2 5.6 4.8 6.5 4.2
Selling and handling....................................... 18.0 18.2 17.8 20.3 21.4
General and administrative................................. 10.6 10.1 9.5 12.4 8.9
----- ----- ----- ----- -----
Total operating expenses................................. 33.8 33.9 32.1 39.2 34.5
----- ----- ----- ----- -----
Operating income............................................. 1.0 0.9 4.8 (2.0) 2.7
Other income (expense):
Factor commissions and net interest expense................ (2.8) (2.8) (1.1) (3.4) (1.4)
License and royalty income................................. 2.8 3.7 2.1 3.5 1.2
----- ----- ----- ----- -----
Total other income (expense)............................. 0.0 0.9 1.0 0.1 (0.2)
----- ----- ----- ----- -----
Income before income taxes................................... 1.0 1.8 5.8 (1.9) 2.5
Income taxes................................................. 0.0 0.0 1.2 0.0 (0.7)
----- ----- ----- ----- -----
Net income................................................... 1.0% 1.8% 4.6% (1.9)% 1.8%
----- ----- ----- ----- -----
----- ----- ----- ----- -----
</TABLE>
THREE MONTHS ENDED JULY 31, 1996 AND 1995
NET SALES
Net sales increased 142.1% in the three months ended July 31, 1996 (first
quarter of fiscal 1997) to $8.0 million from $3.3 million in the three months
ended July 31, 1995 (first quarter of fiscal 1996). For the first quarter of
fiscal 1997 compared to the first quarter of fiscal 1996, net sales in the
United States to the golf distribution channel increased $2.6 million to $4.1
million, net sales to the corporate channel increased $1.1 million to $1.6
million and net sales to the specialty store channel increased $640,000 to $1.4
million. Increases in these three channels accounted for approximately 92% of
the overall increase in net sales. In addition to these channels, for the three
months ended July 31, 1996, international distributor sales also increased and
net sales due to the Company's direct distribution in the United Kingdom and
Europe totaled $333,000.
GROSS PROFIT MARGIN
Gross profit increased 142.7% in the three months ended July 31, 1996 to
$3.0 million from $1.2 million in the three months ended July 31, 1995. Gross
profit as a percentage of net sales was 37.2% for the first quarter of fiscal
1997 and 37.1% for the first quarter of fiscal 1996. The positive effect on
gross profit resulting from economies of scale and letter of credit financing
was offset by additional expenses to expedite delivery of goods from Chinese
manufacturers due to threatened trade sanctions, costs to ensure timely
deliveries during the Company's transition to its new warehouse facility,
amortization of the cost of repurchasing the Company's outerwear license and
United Kingdom distributorship rights and start-up expenses associated with the
Company's in-house embroidery operation and its new European operations. The
Company believes that its increasing number of international sourcing options
will result in further gross margin improvement.
OPERATING EXPENSES
Operating expenses increased to $2.8 million for the three months ended July
31, 1996 from $1.3 million for the three months ended July 31, 1995, but
decreased as a percentage of net sales to 34.5% in the first quarter of fiscal
1997 from 39.1% in the first quarter of fiscal 1996. Selling and handling
expenses increased by $1.0 million, making up 71% of the overall increase in
operating expenses. The majority of the increase in selling and handling
expenses was due to increased sales
15
<PAGE>
commissions and staffing costs related to a higher sales volume and a larger
sales force. The Company has also converted more of its independent sales
representatives to employees, believing that the additional costs of direct
employment are warranted by anticipated greater productivity over time resulting
from a sales employee's exclusive focus on Cutter & Buck merchandise. The
Company has also increased the marketing component of its selling expense as a
percentage of net sales over the prior year period. In addition, the Company
incurred additional handling costs associated with establishing its own
warehouse facility in Seattle, Washington. Other increases in operating expenses
were primarily attributable to increases in management, design and facilities
costs to support the Company's expanded operations.
OTHER INCOME
License and royalty income earned under licensing contracts totaled $96,000
for the three months ended July 31, 1996 and $116,000 for the three months ended
July 31, 1995. The decline in license and royalty income is primarily due to the
Company's repurchase of its outerwear license effective May 1, 1996, which now
allows the Company to directly design and market Cutter & Buck outerwear. Factor
commissions and interest expense was $112,000 in the quarter ended July 31, 1996
compared to $113,000 in the quarter ended July 31, 1995. These costs were lower
as a percentage of net sales for the first quarter of fiscal 1997 compared to
the first quarter of fiscal 1996 due to a reduction in the proportion of sales
factored.
INCOME TAXES
The Company recorded $61,000 of income tax expense in the three months ended
July 31, 1996 and none in the three months ended July 31, 1995 due to the
operating loss incurred during that period. As of July 31, 1996, $500,000 in net
operating loss carryforwards remained available to offset future taxable income,
all of which is expected to be utilized in fiscal 1997.
YEARS ENDED APRIL 30, 1996, 1995 AND 1994
NET SALES
During fiscal 1996 and 1995, net sales increased by 61.1% and 36.0%,
respectively. The expansion of the Company's golf distribution channel business
has had a significant impact on its sales growth. Sales to this channel
increased $5.7 million, or approximately 100%, to $11.4 million in fiscal 1996,
increased $2.9 million, or approximately 104%, to $5.7 million in fiscal 1995,
and increased $2.1 million, or approximately 300%, to $2.8 million in fiscal
1994. The Company's development of a directed sales effort in its corporate
sales channel beginning in the second half of fiscal 1995 has also had a
significant impact on its sales growth. Sales to the corporate sales channel
increased $2.2 million, or approximately 261%, to $3.0 million in fiscal 1996,
and increased approximately 263% to $831,000 in fiscal 1995 from $229,000 in
fiscal 1994. During fiscal 1996, 1995 and 1994, sales to upscale men's specialty
stores remained relatively flat, consequently declining as a percentage of net
sales to approximately 21% in fiscal 1996 from 36% in fiscal 1995 and 45% in
fiscal 1994. The Company's sales of seasonal remainder merchandise to off-price
retailers was approximately 3% of net sales in fiscal 1996, compared to
approximately 7% of net sales in both fiscal 1995 and 1994. The decline in sales
to off-price retailers in fiscal 1996 was primarily attributable to two factors.
First, due to expanded market penetration, the Company believes it has greater
opportunity to sell its seasonal merchandise remaining at the end of fiscal 1996
through its golf and corporate distribution channels in fiscal 1997. Second, as
a result of consolidation within the off-price retailer channel, the Company had
reduced opportunity to sell its seasonal remainder merchandise to off-price
retailers. The Company's sales to other distribution channels, including
international, were less than 10% of net sales in each of fiscal 1996, 1995 and
1994.
GROSS PROFIT MARGIN
In fiscal 1996, the Company's gross profit margin was 36.9% of net sales,
compared to 34.8% in fiscal 1995 and 34.8% in fiscal 1994. The increase during
fiscal 1996 was primarily due to economies of scale. Higher production volumes
have given the Company increased negotiating leverage to purchase
16
<PAGE>
product at lower unit costs. Gross profit margin improvement in fiscal 1996 also
reflected cost of sales reductions resulting from greater use of letters of
credit, which eliminated financing costs previously included in product costs
charged by the Company's international sources.
The gross profit margin in fiscal 1995 was unchanged from fiscal 1994
because the improved margin due to sales channel mix and lower cost sourcing
arrangements was substantially offset by the late delivery of approximately 10
styles in the Company's spring collection that was caused by production delays
at a new foreign manufacturing resource, resulting in increased expediting costs
and markdowns.
The Company expects that its gross profit margin will improve as it
continues to achieve further cost of sales reductions through diversification of
international sourcing and increased sales through the golf distribution and
corporate sales channels. In May 1996, the Company established an in-house
embroidery operation. This facility will enable the Company to directly handle
the embroidered logo requirements of its golf, resort and corporate customers.
The Company expects to directly produce approximately 50% of its embroidery
requirements in fiscal 1997, resulting in embroidery cost savings and improved
gross margin.
DESIGN AND PRODUCTION EXPENSES
Design and production expenses increased by $298,000, or 39.8%, to $1.0
million in fiscal 1996 from $747,000 in fiscal 1995 and decreased as a
percentage of net sales to 4.8% in fiscal 1996 from 5.6% in fiscal 1995 and 5.2%
in fiscal 1994. The dollar increase in these expenses is attributable to
increased management and staffing costs associated with expansion of the
Company's product line and increased emphasis on embroidery designs and
production for the golf distribution and corporate channels. The decrease as a
percentage of net sales primarily resulted from the Company's ability to spread
its design and production development costs over increased sales volume in each
of its distribution channels and by selling the same product line across these
channels.
SELLING AND HANDLING EXPENSES
Selling and handling expenses increased by $1.4 million, or 57.7%, to $3.9
million in fiscal 1996 from $2.4 million in fiscal 1995, representing
approximately 18% of net sales in both years. The dollar amount increase was
primarily attributable to increased commissions, to management and advertising
expenses, and to increased cost of samples associated with the expanded sales
force and product line. The Company expanded the size of its golf sales force to
26 sales representatives, including regional managers, at the end of fiscal 1996
from 22 at the end of fiscal 1995. In April 1996, the Company reorganized the
management of its golf distribution sales channel by reducing its regional
managers' direct sales responsibilities to allow them to focus their attention
on sales management. This change allowed the Company to reduce the number of
regional managers from four to three. The Company believes this revised
organizational structure will provide more effective sales management in
generating the Company's planned sales growth. The Company also increased the
size of its sales force for the corporate channel to nine sales representatives
in fiscal 1996 from six in fiscal 1995 and increased the size of its sales force
for the specialty store channel to seven at the end of fiscal 1996 from five at
the end of fiscal 1995. The Company's sales representatives for the specialty
store channel also sell to the corporate channel.
Selling and handling expense increased by $665,000, or 37.3%, to $2.4
million in fiscal 1995 from $1.8 million in fiscal 1994, representing
approximately 18% of net sales in both years. The dollar amount increase
primarily resulted from increased commissions and, to a lesser extent, from
sales management and marketing expenses. The Company expanded the size of its
golf sales force to 22 sales representatives in fiscal 1995 from 17 in fiscal
1994. To provide the necessary management for this increase in sales
representatives, four of these sales representatives also assumed regional
management responsibilities, which resulted in an increase in sales management
expense. The Company also formed a sales force for the corporate channel in
fiscal 1995.
17
<PAGE>
During fiscal 1996, the Company purchased and installed $284,000 of
fixturing to enhance collection merchandising in 214 of its customers'
locations. The Company expects to purchase approximately $450,000 of fixturing
in fiscal 1997 to be targeted to an additional 300 locations, reaching a total
of 514 golf pro shop and men's upscale specialty stores by the end of fiscal
1997. Customer eligibility for the fixturing program is conditioned on minimum
order commitments for Cutter & Buck products. The investment in these fixtures
is being amortized as a marketing expense over a three-year period. This program
represents an intentional increase in the Company's level of marketing expense
as a component of selling and handling expenses and, to the extent it remains
successful, is expected to continue at comparable levels in future years.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses increased by $678,000, or 49.7%, to $2.0
million in fiscal 1996 from $1.4 million in fiscal 1995 and decreased as a
percentage of net sales to 9.5% in fiscal 1996 from 10.1% in fiscal 1995 and
10.6% in fiscal 1994. The dollar amount increase was primarily due to increased
management, staffing and facilities to support the Company's expanded
operations, along with additional insurance expense and professional fees
related to the Company's public reporting. In fiscal 1995, the increase in
general and administrative expenses was primarily due to increased management,
staffing and facilities to develop the infrastructure necessary to effectively
handle the Company's anticipated long-term sales growth.
FACTOR COMMISSIONS AND NET INTEREST EXPENSE
Factor commissions and net interest expense decreased by $139,000, or 36.9%,
to $237,000 in fiscal 1996 from $376,000 in fiscal 1995, representing 1.1% and
2.8% of net sales in fiscal 1996 and fiscal 1995, respectively. The reduction in
the dollar amount is primarily due to interest savings made possible by the
Company's ability to fund most of its working capital growth with the net
proceeds of the Company's initial public offering in August 1995. In fiscal
1995, factor commissions and net interest expense increased by $98,000, or
35.3%, to $376,000 from $278,000 in fiscal 1994, representing 2.8% of net sales
in both years. The dollar increase in fiscal 1995 was attributable to the
Company's use of credit to finance increased accounts receivable and inventories
associated with higher sales volume.
LICENSE AND ROYALTY INCOME
License and royalty income decreased by $39,000, or 7.9%, to $457,000,
representing 2.1% of net sales, in fiscal 1996, from $497,000 and 3.7% of net
sales in fiscal 1995. The reduction in royalty income reflects the Company's
shift toward direct international sales and exclusive distributor relationships
and away from licensing relationships. This decline in license and royalty
income in fiscal 1996 was also attributable to the Company's decision to
discontinue its relationship with its licensee for Central and South America.
The Company's repurchase of its outerwear license in December 1995, effective
May 1996, also resulted in a decline in outerwear sales and license income in
the transition period. In fiscal 1995, royalty income increased by $212,000, or
74.4%, to $497,000 from $285,000 in fiscal 1994. During fiscal 1995, this
increase in royalty income was directly related to increases in required annual
minimum payments and higher sales volumes achieved by the Company's licensees.
INCOME TAXES
The Company recorded $260,000 of income tax expense in fiscal 1996 and none
in fiscal 1995 and 1994 due to the utilization of net operating loss
carryforwards.
QUARTERLY RESULTS AND SEASONALITY
Historically, the Company has experienced its lowest levels of net sales in
its first and third quarters, ending July 31 and January 31, respectively.
Correspondingly, the Company's highest levels of sales are achieved in its
second and fourth quarters, ending October 31 and April 30, respectively. This
seasonality has resulted primarily from the timing of shipments to golf pro
shops and upscale men's specialty stores in the second and fourth quarters.
Other factors contributing to the variability of the Company's quarterly results
include seasonal fluctuations in consumer demand, the timing and
18
<PAGE>
amount of orders from key customers, the timing of sales of seasonal remainder
merchandise and availability of product. This pattern of sales creates seasonal
profitability, working capital financing and liquidity issues, as the Company
generally must finance higher levels of inventory during the first and third
quarters, when sales are lowest. Regardless of seasonal fluctuations, there can
be no assurance that the Company will be profitable in any particular quarter.
The following tables set forth certain operating data of the Company,
including percentages of net sales, for the nine quarters ended July 31, 1996.
<TABLE>
<CAPTION>
FISCAL 1995 QUARTER ENDED FISCAL 1996 QUARTER ENDED
---------------------------------------------------- -------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1994 1994 1995 1995 1995 1995 1996
----------- ----------- ------------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales....................... $ 2,044 $ 3,407 $ 2,316 $ 5,668 $ 3,305 $ 5,131 $ 5,210
Cost of sales................... 1,275 2,205 1,613 3,667 2,077 3,197 3,377
----------- ----------- ------------- ----------- ----------- ----------- -----------
Gross profit.................... 769 1,202 703 2,001 1,228 1,934 1,833
Operating expenses:
Design and production......... 156 198 184 209 215 230 275
Selling and handling.......... 448 591 520 887 668 980 874
General and administrative.... 312 306 336 410 411 487 510
----------- ----------- ------------- ----------- ----------- ----------- -----------
Total operating expenses.... 916 1,095 1,040 1,506 1,294 1,697 1,659
----------- ----------- ------------- ----------- ----------- ----------- -----------
Operating income (loss)......... (147) 107 (337) 495 (66) 237 174
Other income (expense):
Factor commissions and
interest expense, net of
interest income.............. (59) (107) (99) (111) (113) (28) (12)
License and royalty income.... 100 113 130 154 116 83 102
----------- ----------- ------------- ----------- ----------- ----------- -----------
Total other income
(expense).................. 41 6 31 43 3 55 90
----------- ----------- ------------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes.......................... (106) 113 (306) 538 (63) 292 264
Income taxes.................... 0 0 0 0 0 (50) (60)
----------- ----------- ------------- ----------- ----------- ----------- -----------
Net income (loss)............... $ (106) $ 113 $ (306) $ 538 $ (63) $ 242 $ 204
----------- ----------- ------------- ----------- ----------- ----------- -----------
----------- ----------- ------------- ----------- ----------- ----------- -----------
<CAPTION>
FISCAL 1995 QUARTER ENDED FISCAL 1996 QUARTER ENDED
---------------------------------------------------- -------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1994 1994 1995 1995 1995 1995 1996
----------- ----------- ------------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE OF NET SALES:
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 62.4 64.7 69.7 64.7 62.8 62.3 64.8
----------- ----------- ------------- ----------- ----------- ----------- -----------
Gross profit.................... 37.6 35.3 30.3 35.3 37.2 37.7 35.2
Operating expenses:
Design and production......... 7.6 5.8 7.9 3.7 6.5 4.5 5.3
Selling and handling.......... 21.9 17.3 22.5 15.7 20.3 19.1 16.8
General and administrative.... 15.3 9.0 14.5 7.2 12.4 9.5 9.8
----------- ----------- ------------- ----------- ----------- ----------- -----------
Total operating expenses.... 44.8 32.1 44.9 26.6 39.2 33.1 31.9
----------- ----------- ------------- ----------- ----------- ----------- -----------
Operating income (loss)......... (7.2) 3.2 (14.6) 8.7 (2.0) 4.6 3.3
Other income (expense):
Factor commissions and
interest expense, net of
interest income.............. (2.9) (3.2) (4.3) (1.9) (3.4) (0.5) (0.2)
License and royalty income.... 4.9 3.3 5.7 2.7 3.5 1.6 2.0
----------- ----------- ------------- ----------- ----------- ----------- -----------
Total other income
(expense).................. 2.0 0.1 1.4 0.8 0.1 1.1 1.8
----------- ----------- ------------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes.......................... (5.2) 3.3 (13.2) 9.5 (1.9) 5.7 5.1
Income taxes.................... 0.0 0.0 0.0 0.0 0.0 (1.0) (1.2)
----------- ----------- ------------- ----------- ----------- ----------- -----------
Net income (loss)............... (5.2)% 3.3% (13.2)% 9.5% (1.9)% 4.7% 3.9%
----------- ----------- ------------- ----------- ----------- ----------- -----------
----------- ----------- ------------- ----------- ----------- ----------- -----------
<CAPTION>
FISCAL 1997
QUARTER
ENDED
APRIL 30, JULY 31,
1996 1996
----------- -----------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net sales....................... $ 7,999 $ 8,000
Cost of sales................... 5,013 5,020
----------- -----------
Gross profit.................... 2,986 2,980
Operating expenses:
Design and production......... 325 336
Selling and handling.......... 1,336 1,712
General and administrative.... 634 714
----------- -----------
Total operating expenses.... 2,295 2,762
----------- -----------
Operating income (loss)......... 691 218
Other income (expense):
Factor commissions and
interest expense, net of
interest income.............. (84) (111)
License and royalty income.... 156 96
----------- -----------
Total other income
(expense).................. 72 (15)
----------- -----------
Income (loss) before income
taxes.......................... 763 203
Income taxes.................... (150) (61)
----------- -----------
Net income (loss)............... $ 613 $ 142
----------- -----------
----------- -----------
FISCAL 1997
QUARTER
ENDED
APRIL 30, JULY 31,
1996 1996
----------- -----------
<S> <C> <C>
AS A PERCENTAGE OF NET SALES:
Net sales....................... 100.0% 100.0%
Cost of sales................... 62.7 62.8
----------- -----------
Gross profit.................... 37.3 37.2
Operating expenses:
Design and production......... 4.1 4.2
Selling and handling.......... 16.7 21.4
General and administrative.... 7.9 8.9
----------- -----------
Total operating expenses.... 28.7 34.5
----------- -----------
Operating income (loss)......... 8.6 2.7
Other income (expense):
Factor commissions and
interest expense, net of
interest income.............. (1.1) (1.4)
License and royalty income.... 2.0 1.2
----------- -----------
Total other income
(expense).................. 0.9 (0.2)
----------- -----------
Income (loss) before income
taxes.......................... 9.5 2.5
Income taxes.................... (1.9) (0.7)
----------- -----------
Net income (loss)............... 7.6% 1.8%
----------- -----------
----------- -----------
</TABLE>
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary need for funds is to finance working capital. The
Company's increased working capital requirements during the three years ended
April 30, 1996 related to increasing accounts receivable and finished goods
inventory levels associated with growth in sales volume. To date, working
capital has been funded primarily by a combination of increased accounts
payable, accounts receivable financing through a factor, the private sale of
Preferred Stock, the public sale of Common Stock and borrowings under the
Company's revolving bank line of credit.
Net cash used in operating activities in the first quarter of fiscal 1997
was $3.0 million, resulting primarily from a $2.8 million increase in inventory
consisting principally of merchandise for the fall season for shipment in the
second quarter. Net cash used in operating activities in fiscal 1996 was $4.3
million, resulting primarily from an increase in accounts receivable of $3.0
million, an increase in inventory of $2.8 million and an increase in prepaid
expenses and other current assets of $585,000.
Net cash provided by financing activities in the first quarter of fiscal
1997 was $1.9 million, primarily from bank borrowings. In fiscal 1996, net cash
provided by financing activities was $7.1 million, resulting primarily from the
receipt of net proceeds of $8.4 million from the Company's initial public
offering of Common Stock and the private sale of $1.0 million of Series B
Preferred Stock, offset by a $2.3 million reduction in advances from the factor.
The Company's capital expenditures in the first quarter of fiscal 1997 was
approximately $1.1 million, primarily for in-store fixtures, warehouse
improvements and embroidery equipment. Net cash used in investing activities was
$1.3 million in fiscal 1996 and was substantially the result of an increased
investment in furniture and fixtures of $655,000 and payments of $657,000 made
to reacquire licenses and distribution rights.
The Company incurred capital expenditures of $655,000, $119,000 and $67,000
in fiscal 1996, 1995 and 1994, respectively. In fiscal 1996, expenditures for
capital assets included $284,000 for in-store fixtures, $116,000 for
construction of a new trade show booth and other furniture and equipment
purchases totaling $255,000. In fiscal 1995 and 1994, capital expenditures were
primarily for the acquisition of office furniture and equipment for the
Company's corporate headquarters. Capital expenditures of $1.7 million are
planned for fiscal 1997, including investment in in-store fixturing and
embroidery equipment of $450,000 and $950,000, respectively.
The Company has a $7.0 million revolving line of credit with Bank of America
NW, N.A. d/b/a Seafirst Bank ("Seafirst Bank") for international letters of
credit, bankers' acceptances and working capital advances. Interest on
borrowings is charged and payable monthly at Seafirst Bank's prime rate. The
line of credit is collateralized by a security interest in the Company's
inventory, accounts receivable, contract rights and general intangibles. The
loan agreement contains certain restrictive covenants covering minimum working
capital, tangible net worth and accounts receivable turnover, as well as a
maximum debt-to-equity ratio. In addition, the amounts available to the Company
under the Seafirst Bank line of credit are subject to certain limitations based
on such items as the level of qualified accounts receivable and inventory. At
July 31, 1996, letters of credit outstanding totaled $2.7 million and working
capital advances totaled $2.1 million.
Pursuant to an agreement (the "Factoring Agreement") with Republic Factors
Corp. ("Republic"), Republic acts as the Company's sole factor in the United
States for its accounts receivable. The Factoring Agreement provides that the
Company can sell its qualified accounts receivable to Republic and Republic will
pay the Company an amount equal to the gross amount of the Company's accounts
receivable from customers reduced by certain offsets, including, among other
things, discounts and returns and a .95% commission payable by the Company to
Republic. An intercreditor agreement between Seafirst Bank and Republic
prohibits the Company from taking advances under the Factoring Agreement.
Subject to its credit review procedures, Republic also may decline to accept the
credit risk on certain accounts receivable. The Factoring Agreement continues in
force from year to year and may be terminated by Republic on any anniversary of
its effective date (April 7) or by the Company at
20
<PAGE>
any time, provided that in each case the terminating party gives 60 days' prior
written notice. In fiscal 1996, the Company increased its internal credit and
accounts receivable management and staffing in preparation for decreasing its
reliance on its factoring arrangements with Republic. In fiscal 1997, the
Company expects to directly manage the accounts receivable credit and collection
function associated with its sales to the golf, corporate and international
distribution channels. The Company plans to use Republic's accounts receivable
management exclusively for its sales to the specialty store channel. The Company
believes that this change in its credit management practices will enable it to
decrease its overall collection costs. The Company, however, has limited
experience in managing credit and collection operations. Consequently, there can
be no assurance that this change will ultimately benefit the Company's financial
condition and results of operations.
The Company believes that cash generated from operations, together with
borrowings under its credit line, and the net proceeds from this offering will
be sufficient to meet its working capital needs in fiscal 1997. However, the
Company's capital needs will depend on many factors, including the Company's
growth rate, the need to finance increased production and inventory levels, the
success of the Company's various sales and marketing programs and various other
factors. Depending upon its growth and working capital needs, the Company may
require additional financing in the future through debt or equity offerings,
which may or may not be available or may be dilutive. The Company's ability to
obtain additional financing will depend on its operations, financial condition
and business prospects, as well as conditions then prevailing in the relevant
capital markets.
21
<PAGE>
BUSINESS
OVERVIEW
The Company designs, sources and markets its distinctive Cutter & Buck brand
sportswear and outerwear predominantly through golf pro shops and resorts,
upscale men's specialty stores and corporate sales accounts. The Company has
developed a colorful, innovative collection of sportswear apparel targeted to
the affluent 30- to 55-year-old men's market, projecting an updated American
traditional design evocative of a sporting lifestyle. The products' high-quality
fabrics and detailing reinforce the premium image of the brand while the
generous fit provides a feeling of comfort and versatility. Product marketing
connected with sports and leisure activities, particularly golf, helps the
Company create a positive lifestyle image that contributes to the brand's strong
appeal for its target consumers. The Company benefits from the trend toward
greater acceptance of relaxed standards of dress in the workplace that results
in sportswear representing a growing portion of consumer wardrobes. Since its
formation on January 5, 1990, the Company has achieved consistent annual sales
increases, realizing net sales of $21.6 million and net income of $1.0 million
in fiscal 1996, and net sales of $8.0 million and net income of $142,000 in the
first quarter of fiscal 1997.
The Company has intentionally selected golf pro shops as its primary channel
of distribution, believing this to be an effective venue for reaching its target
consumers. Most golf pro shops have welcomed quality apparel that is not broadly
distributed elsewhere as an important offset to declining sales of golf
equipment due to price competition from golf discounters. By providing training
in merchandising Cutter & Buck products, the Company assists golf pro shops,
which have generally not had experience in sophisticated apparel retailing. More
than half of the Company's products sold to golf pro shops are embroidered with
the name or logo of the club with which the pro shop is affiliated, which
enhances the club's image due to the quality and uniqueness of the Cutter & Buck
product and simultaneously builds Cutter & Buck's exclusive brand identity. The
Company sells Cutter & Buck products to approximately 1,800 of the estimated
13,000 U.S. golf pro shops. The golf distribution channel accounted for
approximately 53% of the Company's net sales in fiscal 1996, and the Company
expects continuing growth of sales to this channel. The Company also distributes
its products primarily through four other distribution channels: upscale men's
specialty stores, corporate sales accounts, its European subsidiaries and other
international distributors. The Company believes that its other distribution
channels are synergistic with the golf distribution channel, since they have
compatible merchandising and pricing practices, sell the same product line and
create heightened awareness of the Cutter & Buck brand among the Company's
target consumers, who tend to shop in more than one of these channels.
The Company currently markets its products each year as two seasonal
collections, spring and fall, presenting each collection in three or four groups
of distinct, coordinated products available for delivery to customers during
sequential time periods.
MARKET
According to industry estimates, sales of men's apparel at retail was $46.0
billion in 1995. Within this market, the Company targets affluent men, age 30 to
55, who are sports-minded and want casual clothing that reflects an active
lifestyle. The Company believes that these consumers also want comfortable,
distinctively styled, high-quality apparel. The Company believes that, with an
increase in the number of working women, men are purchasing more of their own
clothing. Many of these men are busy professionals who prefer to spend their
limited free time pursuing sports and recreational activities such as golf,
rather than spending time shopping in traditional retail outlets, such as
department stores and shopping malls. The Company believes these
time-constrained consumers are inclined to purchase apparel relating to their
sporting interests if available at a sport location such as a golf course. The
Company believes the market for men's golf apparel is highly fragmented, with no
single brand representing more than 10% of the market.
Sportswear represents a growing portion of consumers' wardrobes as a result
of a trend toward greater acceptance of relaxed standards of dress in the
workplace. A recent independent survey
22
<PAGE>
indicated that one out of every four apparel dollars spent by white-collar male
professionals in 1995 was for casual business attire. This segment of the market
has grown faster than the overall men's apparel market in the past two years.
Knit sport shirts as a category is also showing above-average sales growth,
which the Company believes is in part attributable to this trend.
STRATEGY
The Company's goals are to continue its rapid sales growth and to enhance
its reputation as a leading, premium sportswear brand in the men's sportswear
apparel market. The key elements of its strategy to realize these goals are:
- QUALITY BRAND IDENTITY. Inherent to Cutter & Buck's brand identity are:
(i) its signature design philosophy of creating bold, original garments in
a broad range of fabrications (knits, wovens) and colors (complex prints,
dyes) that project classic themes evocative of a sporting lifestyle and
(ii) the use of extensive detailing and high-quality product construction.
The Company is committed to creating innovative designs and maintaining
quality standards from season to season.
- GOLF PRO SHOP DISTRIBUTION CHANNEL. The Company's strategy is to link not
only its product but also purchase occasions for its product to a sporting
lifestyle. The Company has selected golf pro shops as its primary
distribution channel since many of its target consumers frequent golf pro
shops and resorts while engaging in golf as a recreational activity. The
Company's focused distribution also includes selling its product line to
the upscale men's specialty retail and corporate sales channels. The
Company believes that these distribution channels are synergistic with the
golf distribution channel and create heightened awareness of the Cutter &
Buck brand among the Company's target consumers, who tend to shop in more
than one of these channels.
- COLLECTION MERCHANDISING. The Company works closely with golf pro shops,
resorts and upscale men's specialty stores to merchandise its shirts,
sweaters, sweatshirts, pants, shorts, caps and outerwear as a collection
rather than as isolated categories. Consequently, the consumer is more
likely to notice and respond to the Cutter & Buck sporting lifestyle
theme. The Company has initiated a product fixturing program to create a
Cutter & Buck display area within a store and facilitate merchandising the
products as a collection, thereby separating them from competing products.
These fixtures have been installed in 325 stores since the program's
inception in fiscal 1996, and have, the Company believes, contributed to
an increase in average order size in the golf and specialty store
distribution channels.
- EXPANSION. The Company plans to grow by increasing both the number of golf
pro shop accounts it services and the average account order size. The
Company's strategy to achieve these goals is to increase the size of its
sales force working exclusively with the Company's product, expand its
fixturing and advertising programs and maintain its product quality and
innovative designs, which the Company believes will result in increased
market penetration and heightened consumer awareness of the Cutter & Buck
brand name. Based upon changed market opportunities and increased design,
marketing and financial capabilities, the Company has made selective
extensions of its product offerings, particularly outerwear, and in fiscal
1996, assumed direct control of its product distribution in Europe, which
the Company anticipates will also contribute to the achievement of its
growth objectives.
PRODUCTS
Cutter & Buck is a lifestyle brand of outdoor-oriented, sports-inspired
men's apparel. The Company's distinctive products use strong, clear colors,
natural fiber textiles, rich detailing, innovative fabrications and trims and
specialized printing and embroidery to achieve this identity. The Company
merchandises its products as color- and design-coordinated collections
comprising knit and woven sport shirts, pants, shorts, sweaters, sweatshirts,
outerwear and caps. The Company expanded its product offerings to include
outerwear by buying back its outerwear license in December 1995, effective May
1, 1996. The Company frequently uses golf and fly-fishing as sporting themes
that evoke the Cutter & Buck lifestyle.
23
<PAGE>
Cutter & Buck's high-quality products use fine-gauge combed cotton or virgin
wool yarns, unique trims, special fabric finishes and washes, and extra
needlework. They are manufactured in factories selected for their resources and
their ability to ensure quality in the production process. The products are
generously sized, providing a feeling of comfort and versatility.
The Company offers two collections a year, spring and fall, composed of
FASHION and complementary CLASSIC products. FASHION products incorporate the
latest innovations in color, fabric and styling and tend to remain in the line
for only one season. The Company develops proprietary fabrications, artwork for
its complex prints and distinctive trim components in cooperation with
experienced sources worldwide.
CLASSIC products are predominantly solid-color garments with multi-season
appeal. The Company relies on the styling, detailing, coloration and quality of
its fabrics to distinguish its CLASSIC products from competitive products. The
Company generally prices its CLASSIC products at levels lower than its FASHION
products, which permits its customers to offer Cutter & Buck products at a range
of price points. Higher per-item volumes for CLASSIC products allow the Company
to achieve production efficiencies and lower costs. CLASSIC products are sold
throughout the year to all of the Company's distribution channels. Continuity of
demand allows the Company to maintain consistent stock levels of CLASSIC
products.
The Company presents each season's collections to its customers in three or
four groups of distinct, coordinated merchandise. These groups are available for
delivery to customers during sequential time periods, typically from May to
October for fall collections and from November to April for spring collections.
Customer-initiated product reorders can often extend the delivery period for a
season by up to three months. The product mix changes seasonally, including more
sweater styles in fall collections and more short-sleeve shirts in spring
collections. The Company's ability to offer merchandise collections is a
strategic advantage over many of its competitors since its customers generally
prefer to purchase compatible assortments rather than assembling coordinated
merchandise from various brands that do not share common colors and themes.
A substantial percentage of the Company's products that are shipped to the
golf distribution channel are embroidered with golf club names or logos. In May
1996, the Company established an in-house embroidery operation to reduce costs,
shorten delivery time and enhance quality control of its embroidered products.
The Company's increasing volume of sales to the corporate sales channel also
involves embroidery of the product with corporate logos, either performed by
Cutter & Buck or arranged by its corporate customers. The Company believes its
customers' strong interest in affiliating their identities with Cutter & Buck
brand products affirms the desirability and distinctiveness of its merchandise.
DOMESTIC DISTRIBUTION AND SALES
The Company's products are distributed in the United States predominantly
through three channels: golf pro shops and resorts, upscale men's specialty
stores and corporate sales accounts. Each of these channels uses CLASSIC and
FASHION products from the Company's seasonal collections. The Company believes
that these channels are synergistic, since they have compatible merchandising
and pricing practices, sell the same product line and create heightened
awareness of the Cutter & Buck brand among the Company's target consumers, who
tend to shop in more than one of these channels. For example, many of the
Company's corporate sales leads have come through corporate executives who have
purchased the Company's products at golf pro shops and resorts.
The Company sells to golf pro shops and resorts through a commissioned sales
force. As of the end of the first quarter of fiscal 1997, the Company's sales
force for this channel was composed of 26 sales representatives (14 of whom are
independent and 12 of whom are Company-employed) and three regional managers.
These representatives present the Company's collections to the Company's
customers with the aid of full sample lines and pictorial line sheets, which
offer critical information needed by the customer. These presentations are made
at the twice-yearly PGA Merchandise Show, at
24
<PAGE>
regional trade shows and at the customer's shop or resort. The Company's three
regional sales managers collectively cover the entire United States and report
to the Company's Vice President of Sales.
The Company employs seven additional sales representatives, who sell to
upscale men's specialty stores. These representatives present the Company's
collections each season at national and regional trade shows and at the
customers' stores. They sell both FASHION and CLASSIC products using the same
line sheets as the golf pro shop and resort representatives. These specialty
store representatives also report to the Company's Vice President of Sales.
The Company also sells its merchandise to major corporations using 11
independent, multi-line sales representatives, whose efforts are coordinated by
a manager employed by the Company. The seven specialty store sales
representatives also sell to the corporate channel. CLASSIC products and in-
stock FASHION products are sold to corporate customers, since these customers
typically demand immediate delivery. The products are used for corporate golf
events, stores, catalogs and recognition programs. Nearly all these products
include embroidery with the corporate logo, which is either performed by the
Company or arranged by its corporate customers. Corporate customers purchase
products for female as well as male employees. The Company manages its corporate
sales through a Corporate Sales Manager, who reports to the Company's Vice
President of Sales.
Each sales representative is responsible for serving targeted accounts in a
specific geographical territory through merchandise consultation and training,
and for meeting specific account growth and average-order-size goals set by
management. They are also responsible for implementing the Company's recently
instituted merchandise fixturing program with all suitable golf pro shops,
resorts and specialty stores. Sales representatives employed by the Company
receive a base salary, sales commissions and benefits. Because the Company
believes that its Company-employed sales representatives generate higher
productivity than independent sales representatives, the Company intends to
continue to increase the percentage of its sales representatives who are
Company-employed.
The Company's customer service department consists of a manager and nine
employees who support the Company's sales representatives by taking order and
reorder information from the sales representatives or directly from the
customer.
At the end of its fall and spring seasons, the Company has unsold FASHION
inventory as a consequence of making inventory available to satisfy anticipated
customer demand across a broad range of styles. The Company historically has
been able to sell this inventory approximately at cost through sales to
off-price retail accounts in subsequent seasons, but recent consolidation among
these retailers has restricted the Company's access to this channel. The Company
believes its expanded market penetration in the golf and corporate distribution
channels presents an opportunity to sell prior season FASHION merchandise
through its sales force to these channels on more favorable terms than can be
realized in the off-price retail channel.
MARKETING
The Company's marketing goal is to build a strong brand name and image with
both its customers and the end consumer, specifically targeting the 30- to
55-year-old affluent male consumer. The Company expects to build strength in its
brand name through the use of sporting theme associations favored by its target
market, lifestyle merchandising and in-store marketing techniques, endorsements
and advertising.
The Company portrays its brand image of an American sporting lifestyle by
creating seasonal merchandise collections that are theme- and color-related.
Themes commonly used by the Company are the sports of golf and fly-fishing,
which reinforce the Company's high-quality, exclusive image. The Company
believes that, by featuring these sports, its products will appeal not only to
participants, but also to those who aspire to this relaxed lifestyle.
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<PAGE>
These lifestyle merchandise presentations are sold and shipped to customers
in collection groups in order to reinforce the overall conceptual strength of
the product offerings. The Company's distinctive in-store fixturing program
showcases these collections and enhances its brand image at the point of sale.
The fixtures, which are identified with the Cutter & Buck trademark logo, are
designed to display assorted elements of the Company's collections and allow the
consumer to easily assemble and purchase coordinated outfits of shirts, pants,
shorts, sweaters, sweatshirts and outerwear. The Company also offers display
mannequins, logo signage and antique sporting props in order to complement the
fixturing and create an environment that enhances the Cutter & Buck brand image.
The Company's sales representatives are available to assist customers in
merchandising the Company's product line. This is particularly important at golf
pro shops, where the customers have generally not had experience in
sophisticated apparel merchandising and selling techniques. The Company's
representatives also organize and participate in sales contests, special event
mailings and fashion shows with their customers.
The Company is committed to responding flexibly to the special needs of pro
shops, tournament organizers and corporate customers who order the Company's
products. The Company has developed an in-house embroidery operation and also
works with independent embroiderers to service the needs of golf pro shops and
resorts, which generally prefer that the products they order be pre-embroidered
with the name or logo of the golf club or resort. This customized embroidery
creates exclusiveness that reinforces the prestige of the Cutter & Buck brand
and simultaneously enhances the customer's image through the quality and
uniqueness of the Cutter & Buck product. Virtually all of the Company's products
sold through the corporate sales channel are sold with a corporate logo, which
similarly enhances both the Cutter & Buck brand and the corporation's image. The
placement of the Cutter & Buck embroidered logo on the left sleeve or at the top
center back of its knit shirts allows the Company to accommodate more easily the
desire of pro shops, tournaments and corporations to have their name or logo
placed on the shirt's left chest.
Cutter & Buck supplies its apparel to a number of promising professional
golfers on the PGA tour, the Nike tour and other tours. It is expected that
these professional athletes will influence the golf apparel preferences of pro
shop customers and consumers. The Cutter & Buck logo is positioned prominently
on the Company's shirts and sweaters worn by these golfers, making it visible to
those watching tournament play, either on site or on television. Beyond the cost
of making its apparel available to professional golfers, the Company has not
spent, and does not expect to spend, significant marketing funds on professional
endorsement contracts due to the high cost and risks of associating the Cutter &
Buck brand with the performance of only a few top-ranked golfers.
The Company believes that it can accelerate brand recognition through
increased expenditures of targeted magazine advertising and point of sale
promotions to create consumer demand for its products. Consistent with its
expansion strategy, the Company advertises in national and regional trade
magazines and produces photographic renditions of its new product lines for
national distribution to its existing customers to expand their awareness of the
Company's product lines. The Company also produces a catalog of its CLASSIC
products to be shipped to its customers for in-stock reordering purposes. In
addition, the Company has initiated an Internet home page on the World Wide Web,
where it provides information about and pictures of its products and responds to
inquiries about the Company and its products.
LICENSING AND INTERNATIONAL DISTRIBUTION
Cutter & Buck is emerging as a desirable consumer brand for specialty
markets for products in addition to sportswear and outerwear, and in foreign
countries. As a result, the Company has been able to enter into license
agreements that broaden the product line and introduce its fashions
internationally, without making a significant capital commitment. License and
royalty income from such agreements was approximately $457,000 in fiscal 1996
and approximately $497,000 in fiscal 1995. The reduction in royalty income
reflects the Company's shift toward direct international sales and exclusive
distribution relationships and away from licensing relationships. In particular,
the
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<PAGE>
decline in license and royalty income in fiscal 1996 was primarily attributable
to the Company's decision to discontinue its relationship with its licensee for
Central and South America. In fiscal 1994, the Company had approximately
$285,000 of license and royalty income. The Company currently has licensing
agreements covering collections for the big- and tall-size market, luggage and
hosiery.
The Company works closely with each licensee on concept and color so that
the licensed products complement the Company's apparel offerings as part of the
overall lifestyle collection. The Company retains final approval over design and
quality of each licensed product. In addition to the product licensees, the
Company also has licensees that have contracted for the right to manufacture and
market Cutter & Buck designs in specified international markets, including
Japan, Hong Kong, China and Canada. Cutter & Buck license agreements generally
provide for three-year terms and provide for royalties as a percentage of sales.
Most agreements contain annual royalty minimums, and all agreements give Cutter
& Buck final control over product design and quality. These licensing
arrangements enable the Company to increase the number and geographic
distribution of products bearing the Cutter & Buck name, thereby expanding the
image and brand awareness of Cutter & Buck.
In addition, Cutter & Buck has agreements with international distributors in
Australia, Greece, Lebanon, Singapore, Malaysia and Indonesia. These
distributors buy the Company's products at reduced cost for resale in their
respective markets. The products offered for distribution in these territories
are identical to the products offered in the United States, and these
distributors often use the Company's marketing technique of offering the
products in collections, as identified on pictorial line sheets. The Company's
relationships with its distributors are managed by an International Merchandise
Manager, who reports to the Company's President.
The Company has subsidiaries in the United Kingdom and the Netherlands for
the purpose of marketing and selling its products in Europe. In fiscal 1996, the
Company repurchased the rights to distribute its products in the United Kingdom
from Re-Ward Limited. The Company believes that it can better manage its
expansion plans in the European Union through direct control and distribution of
its products rather than through third-party distributors.
PRODUCT DEVELOPMENT AND SOURCING
The Company's concept of updated traditional sportswear and outerwear is an
established category within the apparel field, relying upon historical American
design sensibilities. Changes of color, fabric and body shapes in this category
are not rapid, thereby allowing the Company's product development team to
evolve, rather than re-invent, the product each season. This provides stability
in the design environment and consistency in the Company's conceptual offerings
to its customers. The Company's product development team comprises Mr. Jones,
President and Chief Executive Officer; Jim C. McGehee, Vice President of Sales;
Patricia A. Nugent, Vice President of Merchandise and Design; Julie Snow,
International Merchandise Manager; Pamela Robinson, Senior Designer; Mr.
Rodolfo, design consultant; and the Company's design staff, all of whom have
significant product development and brand building experience for each seasonal
collection (spring and fall). The team's purpose is to determine product
strategy, color and fabric selection and assortment of styles, which is
accomplished through a series of meetings which occur over a three- to
four-month period. The team's first meeting for each season includes a review of
overall trends in the market, the Company's sales experience from the same
season of the previous year and other ideas relevant to color, fabric and
pattern. Subsequent meetings are focused on specific color, textile and style
choices within the framework of a desired seasonal assortment. These meetings
culminate in orders for sample production. Because of the length of its
production and sales cycles, the Company generally strives to complete the
design process and place orders for product samples at least 10 to 15 months
prior to delivering product to its customers. Effective management and timely
fulfillment of the Company's anticipated product development and production
schedule are important to each season's success. Deviations from the schedule
can result in delays in product delivery and in the manufacture of products that
do not meet the Company's normal quality standards, and may lead to increased
levels
27
<PAGE>
of closeout and liquidation sales, which have an adverse effect on the Company's
profitability. These deviations have occurred from time to time in the past, and
there can be no assurance that they will not occur in the future.
The design staff is responsible for generating an innovative group of
products for the Company's two seasonal collections. The design staff uses a
computer-aided design system to create products and to translate those designs
into sample prototype depictions. The designers also use the Company's growing
product and fabric libraries, especially when designing FASHION products. During
the design process the Company's manufacturing sources develop new seasonal
textiles in association with the design team. This enables the Company to source
a wide variety of textile and printed artwork designs, many of which the Company
acquires for its exclusive use. The Company's working partnerships with its key
suppliers have enhanced its ability to develop distinctive and innovative
apparel.
The Company makes a final determination concerning pricing and the
composition of the seasonal lines upon receipt of samples, which is
approximately four months after sample orders are placed. The Company's sales
representatives use the samples to market the new season's products to Company
customers. The Company then places production orders, which usually require four
months to fill, taking into account market feedback to adjust order quantities
for deliveries later in the season. To enhance consistency, quality and on-time
delivery of its products, the Company works with a select group of high-quality,
reliable domestic and foreign manufacturers who are knowledgeable and
experienced in the intricate design and manufacturing processes required to
produce the Company's products. Using these independent manufacturers allows the
Company to maximize production flexibility while avoiding significant capital
expenditures, work-in-process inventory buildups and the costs of managing a
large production work force. Currently, the Company's production is sourced
through an agent in Thailand, two agents in Hong Kong coordinating Chinese
suppliers, an agent managing other Asian sources of supply and direct factory
relationships in Asia and California.
In May 1996, the Company established an in-house embroidery operation in
order to reduce costs, shorten delivery time and enhance quality control of its
embroidered products. The Company believes that this will significantly reduce
the Company's reliance on independent embroiderers to customize its products.
The Company currently contracts with approximately five independent domestic
embroiderers during peak embroidery production and shipping periods. The Company
believes its in-house embroidery manufacturing operation will be capable of
handling approximately 50% of the embroidered logo requirements of its golf pro
shop and corporate customers in fiscal 1997. The Company is realizing embroidery
production cost savings from its in-house embroidery program.
The Company does not have formal long-term contracts with any of its
suppliers or agents. Although to date the Company has experienced only limited
difficulty in satisfying its production requirements using this outsourcing
strategy, the loss of any of the Company's suppliers or agents could have a
significant adverse effect on the Company's immediate operating results.
Approximately 45% of the Company's knit shirt production is currently managed by
its agent in Thailand. The Company has on occasion experienced significant
production delays attributable to its suppliers, and there can be no assurance
that such delays will not occur in the future.
The Company's production department oversees its sourcing arrangements. The
production department is responsible for on-time delivery of the Company's
products and negotiating costs consistent with the Company's desired profit
margins on each style. Department personnel inspect and critique prototypes of
each item prior to the commencement of actual production in order to maintain
the Company's high-quality standards. Where feasible, the production department
obtains a commitment from the sourcing manufacturer to dedicate a production
line to manufacture the Company's products from season to season. Production
department personnel travel to factories to conduct inspections of the
manufacturer prior to shipment of finished product. They also monitor tariff and
quota-related developments, where appropriate.
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<PAGE>
INFORMATION SYSTEM, INVENTORY MANAGEMENT AND WAREHOUSING
In addition to the computer-aided design system used by its product
development team, the Company has a fully integrated, real-time management
information system that is specifically designed for the apparel industry. The
system includes important features such as manufacturing resource requirements
planning, production scheduling, detailed product tracking, standard costs
system planning and control, and detailed perpetual inventory systems. As
original purchases are tracked through various factory production phases by the
Company's production personnel, sales are tracked by the Company's Vice
President of Merchandise and Design in order to compare purchases against
availability, thereby allowing the Company to react quickly to changes and
trends. Available quantities of every style offered are sent to all salespeople
weekly. Customer service personnel receive this information daily and have
access to real-time inventory availability.
This comprehensive information system serves users in every operating area
of the Company, and is also accessed by personal computers to create costing
models, specification sheets and embroidery layout sheets. The manufacturing
module integrates with the general ledger accounting and financial module. The
Company's information system also provides detailed product gross margin
information that assists the Company in managing product profitability. The
system runs on a UNIX platform with IBM's RISC 6000 hardware, which allows for
the fast processing of critical information, and has the capability of serving a
much greater number of users as the Company grows. To fully utilize the system,
the Company employs an MIS manager, who has prior experience with this
management information system at a larger apparel company.
In May 1996, the Company commenced its own warehouse operations in a newly
leased 45,720 square foot facility in Seattle, Washington, and hired an
additional 20 persons to conduct its warehouse operations.
ORDER BOOKING CYCLE AND BACKLOG
The Company receives its orders for a season over a ten-month period
beginning when samples are first shown to customers and continuing into the
season. The Company must schedule production in advance of order placement. The
Company maintains CLASSIC products in stock to enable it to quickly fill orders
for these products.
The Company begins to take orders for its fall collection in January for
delivery between May and October and for its spring collection in July for
delivery between November and April. The Company's domestic backlog, which
consists of open, unfilled customer orders from the golf and specialty stores
distribution channels, was $11.8 million as of September 25, 1996. Because of
the Company's history of accepting order cancellations in certain circumstances,
and a lack of contractual provisions prohibiting such cancellations, the Company
typically does not expect to ship all of its backlog.
COMPETITION
The men's sportswear segment of the apparel industry is highly competitive.
The Company encounters substantial competition in its primary distribution
channel, golf pro shops, from Ashworth, Izod Club and Polo/Ralph Lauren. Apparel
companies recently entering the golf distribution channel, such as Tommy
Hilfiger, will further increase the level of competition in that channel. Most
of the Company's competitors are significantly larger and more diversified than
the Company and have substantially greater resources available for developing
and marketing their products. Some of the Company's competitors primarily target
either a younger or older consumer than the Company. To maintain its growth
rate, the Company will need to increase its market share at the expense of
existing competitors and other established apparel manufacturers choosing to
enter the market. There can be no assurance, however, that the Company will be
successful in increasing its market share.
Management believes that the Company's ability to compete effectively is not
based primarily on price, but on brand image, product differentiation, product
quality and production flexibility. The
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Company's products are also differentiated from a number of others in the
industry by their updated traditional American appearance and imaginative use of
color and trimmings. In addition, the Company believes that its products are of
a higher quality than those of many of its competitors.
TRADEMARKS
"CUTTER & BUCK" and the Cutter & Buck pennant logo are trademarks of the
Company and are registered for use on apparel and other products in Argentina,
Australia, the Bahamas, Benelux, Canada, Denmark, the Dominican Republic,
France, Germany, Hong Kong, the Netherlands Antilles, Norway, Paraguay, the
United Kingdom, the United States and Uruguay. The Company also has applied for
registration in a number of other countries. The Company's name and logo are
regarded as valuable assets and critical to marketing its products. Leading
brands in the apparel industry have historically been subject to competition
from imitators that infringe the trademarks and trade dress of the brand. While
the Company to date has not been aware of a high level of imitation of the
Cutter & Buck brand, there can be no assurance that its business will not suffer
from such imitation in the future.
EMPLOYEES
As of July 31, 1996, the Company had 149 full-time and five part-time
employees, of whom 24 were primarily engaged in administration, 31 in sales, 82
in warehousing and embroidery, seven in production, five in design and six in
the operation of the Company's outlet store. None of the Company's employees is
a member of a union. The Company considers its relations with its employees to
be excellent.
PROPERTIES
The Company leases its principal executive offices, which are located in
Seattle, Washington, under a lease that covers 11,518 square feet and expires in
October 1999. The Company also leases for its warehouse and embroidery operation
approximately 45,720 square feet of space in Seattle, Washington, under a lease
that expires in April 2001. The Company's lease of its outlet store space in
Lake Oswego, Oregon, a suburb of Portland, covers 2,925 square feet and expires
in August 1996. The Company has initiated discussions with its landlord
regarding renewal of this lease. The Company leases additional office space and
uses contract warehouse facilities for its European distribution. The Company
also leases a small apartment in New York, New York that functions as a sales
showroom.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ----------------------------------------------------
<S> <C> <C>
Harvey N. Jones (1) 45 President, Chief Executive Officer and Director
Martin J. Marks 47 Senior Vice President, Chief Operating Officer,
Treasurer and Secretary
Jim C. McGehee 46 Vice President of Sales
Patricia A. Nugent 42 Vice President of Merchandise and Design
Jon P. Runkel 39 Vice President of Production
Geoffrey N. Cornish 41 Vice President -- Europe
Neil D. Johnson 40 Controller
Michael S. Brownfield (1) 56 Director
Frances M. Conley (1)(2)(3) 53 Director
Larry C. Mounger (2)(3) 59 Director
Joey Rodolfo 44 Director
James B. Slayden (2)(3) 71 Director
</TABLE>
- ------------------------
(1) Member of the Nominating Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
Mr. Jones, a co-founder of the Company, has been President, Chief Executive
Officer and a director of the Company since its inception in January 1990.
Mr. Marks, Senior Vice President, Chief Operating Officer, Treasurer and
Secretary of the Company, joined the Company as Chief Financial Officer in
January 1991. From March 1988 to November 1990, he was the Chief Financial
Officer of E-Machines, Inc., a developer and manufacturer of high-resolution
display systems for the Macintosh computer. Mr. Marks has a bachelor's degree in
business administration from Portland State University and is a certified public
accountant.
Mr. McGehee, Vice President of Sales of the Company, joined the Company in
February 1990. Mr. McGehee has a bachelor's degree in business (marketing) from
Auburn University.
Ms. Nugent, Vice President of Merchandise and Design of the Company, joined
the Company in December 1993 and served as Vice President of Production from
April 1994 to May 1995. From 1983 to 1993, she was a private consultant to
various clothing and textile firms, including Demetre Inc., a sweater company,
and Roffe Inc., a skiwear company. Ms. Nugent has a bachelor's degree in
clothing and textile design from the University of Washington and a design
certificate from the Modeschule der StadtWien in Vienna, Austria.
Mr. Runkel, Vice President of Production of the Company, joined the Company
in April 1995 and served as Operations Manager from April 1995 to June 1995.
From October 1994 to April 1995, he was a production manager of Organik
Technologies, Inc., an apparel manufacturer, producing contract work for such
names as Patagonia, Eddie Bauer, Timberland and Jantzen, and from March 1993 to
September 1994, he was a consultant on operations/production for Susan Barry
Designs, a women's "bridge" line, consulting in such areas as distribution,
sample making, contract management, finance and sales. Prior to that, he was a
private manufacturer and consultant to the apparel industry.
Mr. Cornish, Vice President -- Europe of the Company, joined the Company in
March 1996. From March 1994 to March 1996, he was a Managing Director for
Ashworth Europe B.V., a European
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subsidiary of Ashworth, a golf and sportswear apparel manufacturer. From
December 1992 to March 1994, he was International Sales and Marketing Director
for Bad Boys B.V., a textile marketing company. From February 1992 to October
1992, he was the European Marketing Director for AVIA International, a sports
footwear and active wear company. From 1982 to 1992, he was General Manager of
Neil Pryde Ltd., a Hong Kong-based sporting goods and textiles manufacturer. Mr.
Cornish has a bachelors degree in business administration from the University of
Kent, England.
Mr. Johnson has been Controller of the Company since December 1994. From
1987 to 1994, he was Controller of Union Bay Clothing Company. Mr. Johnson has a
bachelor's degree in business administration (accounting) from the University of
Washington and is a certified public accountant.
Mr. Brownfield has been a director of the Company since May 1995. He is a
private investor and has a bachelor's degree in chemistry from the University of
Oregon. Mr. Brownfield is the Chairman of Accurate Molded Plastics, a private
manufacturer of tooling and injection molded plastics, and also serves on the
boards of directors of Heartsmart, Inc., a private biomedical company, Northwest
Cascade, Inc., a private construction company, Kitsap Entertainment Corporation,
a private restaurant franchisee, Kam-Ko Bio-Pharm Trading Co., Ltd. --
Australasia, a private biomedical company, Pantheon, Inc., a private software
integration company, and Global Tel Resources, Inc., a private
telecommunications company.
Ms. Conley has been a director of the Company since July 1990. Since 1982,
she has been a shareholder, director and principal of Roanoke Capital, Ltd.
("Roanoke Capital"), the general partner of Roanoke Investors' Limited
Partnership ("Roanoke"), a venture capital limited partnership. She has a
bachelor's degree in music from Emmanuel College and a master's degree in
business administration from the Harvard Graduate School of Business
Administration. Ms. Conley serves on the boards of directors of Edmark
Corporation, a publicly held educational software developer, and Data I/O
Corporation, an electronics manufacturing company.
Mr. Mounger has been a director of the Company since July 1990. From January
1993 to October 1995, he served as President, Chief Executive Officer and a
director of Sun Sportswear, Inc., a publicly held garment screenprinter. From
June 1963 to January 1993, he held numerous positions, most recently President,
Chairman and Chief Executive Officer, at Pacific Trail, Inc., an outerwear
manufacturer. He has a bachelor's degree in business administration and a juris
doctor degree from the University of Washington. Mr. Mounger serves on the
boards of directors of Sun Sportswear, Inc., Advanced Research Management, a
clinical research management company, and Prepak, a distributor of emergency
preparedness packs.
Mr. Rodolfo, a co-founder of the Company, has been a director of the Company
since its inception in January 1990. Mr. Rodolfo was Senior Vice President and
Secretary of the Company from its inception until May 1995. He is currently an
independent consultant on design matters, working exclusively for the Company.
In 1986, he co-founded JGH, where he worked until 1989. From May 1984 to October
1986, he served as Senior Design Director of the Young Men's Division of Union
Bay Clothing Company.
Mr. Slayden has been a director of the Company since July 1990. He has been
retired since 1985. Prior to that time, he held numerous executive positions
with J. W. Robinson, Marshall Field & Co., Bullocks and The May Company. He has
a bachelor's degree in business administration from the University of Washington
and a master's degree in business administration from the University of Southern
California.
Directors hold office until the next annual meeting of shareholders of the
Company or until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors.
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BOARD COMMITTEES
The Board of Directors maintains an Audit Committee, a Compensation
Committee and a Nominating Committee. These committees do not have formal
meeting schedules, but are required to meet at least once each year. During
fiscal 1996, there were six meetings of the Board of Directors, and one meeting
each of the Audit Committee, the Compensation Committee and the Nominating
Committee.
Current members of the Audit Committee are Ms. Conley, Chair, and Messrs.
Mounger and Slayden. The Audit Committee is responsible for recommending the
Company's independent auditors and reviewing the scope, costs and results of the
audit engagement.
Current members of the Compensation Committee are Mr. Mounger, Chair, Ms.
Conley and Mr. Slayden. The Compensation Committee is responsible for
determining the overall compensation levels of the Company's executive officers
and administering the Company's stock option plans.
Current members of the Nominating Committee are Mr. Brownfield, Chair, Ms.
Conley and Mr. Jones. The Nominating Committee is primarily responsible for
recommending director nominees to the Company's Board of Directors. The
Nominating Committee will consider recommendations by shareholders for vacancies
on the Board, which recommendations may be submitted to the Company's Secretary.
DIRECTOR COMPENSATION
The Company currently pays $350 per Board meeting attended to each director
who is not an officer or employee of the Company or an affiliate of a venture
capital firm with an interest in the Company. Directors are not currently paid
any additional compensation for attending Committee meetings. All directors are
entitled to reimbursement for expenses incurred in traveling to and from Board
meetings. In each of the last four years, Messrs. Mounger and Slayden have each
been granted an option under the 1991 Plan to purchase 2,312 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock on
the date of grant. See "-- Benefit Plans -- 1991 Plan." In addition, pursuant to
the 1995 Director Plan, directors who are not officers, employees or independent
consultants of the Company are eligible to receive annual option grants to
purchase 2,312 shares of Common Stock at the fair market value of the Common
Stock on the date of grant. In fiscal 1996, Messrs. Brownfield, Mounger and
Slayden and Ms. Conley each were granted options to purchase 2,312 shares of
Common Stock pursuant to the 1995 Director Plan. See "-- Benefit Plans -- 1995
Director Plan." In addition, in October 1995, Messrs. Mounger and Slayden each
were granted one-time awards of $5,000 as compensation for services provided to
the Company.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning compensation
paid or accrued to the Company's President and Chief Executive Officer and the
other officers of the Company who earned salary and bonus of at least $100,000
(the "Named Executive Officers") for services rendered to the Company in all
capacities during fiscal 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
FISCAL ------------------------- UNDERLYING COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) OPTIONS (#) ($)(2)
- ------------------------------------------------ --------- ----------- ------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
Harvey N. Jones 1996 $ 120,000 -- 30,000 $ 552
President and Chief Executive Officer 1995 $ 117,000 -- 46,253 $ 552
Martin J. Marks 1996 $ 110,000 -- 25,000 $ 552
Senior Vice President, Chief Operating Officer, 1995 $ 105,000 -- 69,380 $ 488
Treasurer and Secretary
Jim C. McGehee 1996 $ 110,000 $ 20,774 15,000 $ 552
Vice President of Sales 1995 $ 107,667 $ 36,361 30,064 $ 539
</TABLE>
- ------------------------
(1) Bonus amounts received by Mr. McGehee represent sales commissions.
(2) Represents term life insurance premiums.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth certain information as of April 30, 1996
concerning stock options granted to the Named Executive Officers for the fiscal
year then ended. The hypothetical gains or "option spreads" that would exist for
the respective options are set forth in accordance with the rules of the
Securities and Exchange Commission (the "Commission"). These gains are based on
the assumed rates of annual compound stock price appreciation of 5% and 10% from
the date the option was granted over the full option term.
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
---------------------------------------------------------- VALUE AT ASSUMED ANNUAL
PERCENT OF RATES OF STOCK PRICE
NUMBER OF TOTAL OPTIONS APPRECIATION FOR OPTION
SECURITIES GRANTED TO EXERCISE TERM (2)
UNDERLYING OPTIONS EMPLOYEES IN PRICE EXPIRATION ------------------------
NAME GRANTED (#)(1) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- --------------------------------- ------------------- -------------- --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Harvey N. Jones 30,000 21% $10.75 3/12/06 $ 202,800 $ 513,900
Martin J. Marks 25,000 17% $10.75 3/12/06 $ 169,000 $ 428,250
Jim C. McGehee 15,000 10% $10.75 3/12/06 $ 101,400 $ 256,950
</TABLE>
- ------------------------
(1) Represents nonqualified stock options granted under the 1995 Plan. The
option exercise price is equal to the fair market value of the underlying
Common Stock on the date of grant. To the extent not already vested, the
options generally become fully vested and exercisable upon a change in
control of the Company. The options have 10-year terms. See "-- Benefit
Plans -- 1995 Plan."
(2) The actual value realized may be greater or less than the potential
realizable values set forth in the table.
34
<PAGE>
FISCAL 1996 YEAR-END OPTION VALUES
The following table sets forth certain information as of April 30, 1996
regarding options held by each of the Named Executive Officers. None of the
Named Executive Officers exercised any options during the fiscal year ended
April 30, 1996.
AGGREGATED FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE- MONEY OPTIONS
YEAR-END (#) AT FISCAL YEAR-END ($)(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Harvey N. Jones 23,126 53,126 $ 227,560 $ 265,070
Martin J. Marks 48,566 59,690 $ 477,890 $ 372,600
Jim C. McGehee 21,970 30,032 $ 216,185 $ 166,665
</TABLE>
- ------------------------
(1) Based on the closing price of the Company's Common Stock as quoted on the
Nasdaq National Market on April 30, 1996 ($12.00), less the exercise price.
The actual value realized may be greater or less than the potential
realizable values set forth in the table.
BENEFIT PLANS
1991 PLAN. The 1991 Plan was adopted by the Company's Board of Directors on
June 28, 1991. As of April 30, 1996, there were outstanding options under the
1991 Plan to purchase an aggregate of 252,074 shares of Common Stock at an
exercise price of $2.16 per share and 18,500 options to purchase shares of
Common Stock at an exercise price of $4.74 per share. Of the outstanding options
to purchase an aggregate of 270,574 shares under the 1991 Plan, options to
purchase 206,973 shares are exercisable within 60 days of September 25, 1996.
The Board of Directors has determined that no further grants will be made under
the 1991 Plan.
1995 PLAN. The 1995 Plan was adopted by the Company's Board of Directors on
June 27, 1995 and was approved by the Company's shareholders on July 20, 1995.
The Company has reserved 208,140 shares of Common Stock for issuance under the
1995 Plan. The 1995 Plan permits the granting of incentive stock options
("ISOs") or nonqualified stock options at the discretion of the Compensation
Committee, which administers the 1995 Plan. While serving on the Compensation
Committee, members are not eligible to receive any options under the 1995 Plan.
Subject to the terms of the 1995 Plan, the Compensation Committee determines the
terms and conditions of options granted, including the exercise price. The
exercise price for stock options granted may not be less than the fair market
value per share of Common Stock on the date of grant and each ISO must expire
within 10 years from the date of grant. If, however, ISOs are granted to persons
owning more than 10% of the Company's voting stock, the term of such ISOs may
not exceed five years and the exercise price must not be less than 110% of the
fair market value per share of Common Stock on the date of grant. At the
discretion of the Compensation Committee, options may be exercised by (i)
delivery to the Company of already owned Common Stock having a value equal to
the exercise price or (ii) delivery of an irrevocable order to the optionee's
broker to sell the underlying Common Stock and deliver to the Company a portion
of the sale proceeds equal to the exercise price. Unless otherwise provided by
the Compensation Committee, the 1995 Plan provides that options are to vest 20%,
40%, 60%, 80% and 100% on the first, second, third, fourth and fifth
anniversaries of the date of grant, respectively. To the extent not already
exercisable, the options generally become exercisable upon certain changes in
control of the Company pursuant to the terms of the 1995 Plan. As of the date of
this Prospectus, options to purchase 127,500 shares of Common Stock have been
granted under the 1995 Plan.
STOCK PURCHASE PLAN. The Stock Purchase Plan was adopted by the Company's
Board of Directors on October 25, 1995 and approved by the Company's
shareholders on December 1, 1995. The Stock Purchase Plan covers 250,000 shares
of the Company's Common Stock and consists of consecutive six-month offerings,
until the earlier of December 31, 2000 and the date when the shares of
35
<PAGE>
Common Stock authorized to be delivered upon exercise of options granted under
the Stock Purchase Plan have been delivered. The first offering under the Stock
Purchase Plan commenced on January 1, 1996 and ended on June 30, 1996.
Subsequent offering periods commence on each July 1 and January 1. With certain
exceptions, all employees, excluding executive officers, who have been employed
by the Company or one of its participating subsidiaries for at least six months
are eligible to participate in the Stock Purchase Plan. As of September 25,
1996, approximately 38 employees would be eligible to participate. The price at
which the employee may purchase the Common stock is 85% of the closing bid for
the Common Stock as reported by the Nasdaq National Market on the day the
offering commences or on the day the offering terminates, whichever is lower. An
employee may elect to have up to 10% of his or her base pay withheld for the
purpose of purchasing stock under the Stock Purchase Plan. Unless the
participant elects to withdraw from the offering, each participant who continues
to be employed by the Company on the date the offering terminates is deemed to
have purchased on such date the number of shares (subject to the maximum number
covered by his or her option) as may be purchased with the amount of his or her
payroll deductions at the offering price. The Board of Directors of the Company
may at any time terminate or amend the Stock Purchase Plan. Except as provided
below, no such termination or amendment may change any previously granted rights
which would adversely affect the rights of any participant. The Stock Purchase
Plan is administered by the Compensation Committee, which is authorized to make
rules and regulations for the administration and interpretation of the Stock
Purchase Plan. As of the date of this Prospectus, 1,526 shares of Common Stock
have been granted pursuant to the Stock Purchase Plan.
1995 DIRECTOR PLAN. The 1995 Director Plan was adopted by the Company's
Board of Directors on June 27, 1995 and approved by the Company's shareholders
on July 20, 1995. The Company has reserved 46,253 shares of Common Stock for
issuance under the 1995 Director Plan. Pursuant to the 1995 Director Plan, each
nonemployee director of the Company is granted an option to purchase 2,312
shares of Common Stock immediately following each annual meeting of shareholders
of the Company. The exercise price of options granted under the 1995 Director
Plan is equal to the fair market value per share of Common Stock on the date of
grant. Options granted under the 1995 Director Plan are exercisable beginning
six months after the date of grant for a 10-year period from the date of grant.
As of the date of this Prospectus, options to purchase 18,496 shares of Common
Stock have been granted under the 1995 Director Plan.
36
<PAGE>
CERTAIN TRANSACTIONS
In May 1990, Mr. Rodolfo executed a promissory note in favor of the Company
evidencing a loan in the original principal amount of $50,020 with interest at
prime (9% at April 30, 1995) in connection with his purchase of Common Stock.
The loan is secured by the pledge of 23,126 shares of Common Stock owned by Mr.
Rodolfo and is payable on demand. The maximum amount of indebtedness, including
accrued interest, outstanding under the loan during fiscal 1996 was $68,175.
In April 1995, Mr. Rodolfo resigned as the Company's Senior Vice President
and Secretary and entered into a Consulting Agreement with the Company. Under
the Consulting Agreement, the Company has retained Mr. Rodolfo as a design
consultant, working exclusively on behalf of the Company, through July 1, 1997.
The Consulting Agreement provides that Mr. Rodolfo receive a consulting fee of
$120,000 per year and a bonus, which does not depend on any performance
standards, of $15,000 on each April 30 during the term of the Consulting
Agreement, beginning April 30, 1996, and be reimbursed for his expenses in
performing his duties under the Consulting Agreement. The Consulting Agreement
contains provisions that prevent Mr. Rodolfo from engaging directly or
indirectly in the business of designing, manufacturing or selling certain
apparel products in competition with the Company in the United States and
numerous other countries for a period of 12 months after termination of the
Consulting Agreement, subject to certain limitations during that period which
would allow him to compete in all lines of women's wear, swimwear, neckwear,
shoes, men's dress shirts and men's suits. The Consulting Agreement also
contains restrictions on Mr. Rodolfo's ability to solicit or offer employment to
Company employees.
On May 12, 1995, Michael S. Brownfield, a director of the Company, and the
Brownfield 1991 Irrevocable Trust, of which Mr. Brownfield's adult children are
the sole beneficiaries, purchased securities in an equity offering of the
Company for $109,600 and $109,403, respectively. The purchases were at the same
price per share available to other investors in the equity offering.
The Company believes that the transactions between it and its officers,
directors, employees and affiliates were on terms no less favorable to the
Company than could have been obtained from unaffiliated third parties.
37
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth as of September 25, 1996 and as adjusted to
reflect the sale of the Common Stock offered hereby, certain information with
respect to the beneficial ownership of the Company's Common Stock by (i) the
Selling Shareholders, (ii) each person known by the Company to own beneficially
more than 5% of the Common Stock, (iii) each of the Named Executive Officers,
(iv) each of the Company's directors, and (v) all directors and executive
officers as a group. Except as otherwise noted, the named beneficial owner has
sole voting and investment power.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
SHARES OF COMMON STOCK
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES TO AFTER OFFERING
---------------------- BE SOLD IN ----------------------
NAME AND ADDRESS NUMBER PERCENT OFFERING NUMBER PERCENT
- --------------------------------------------------------- ----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Frances M. Conley (1) ................................... 921,507 25.1% -- 921,507
Roanoke Investors' Limited Partnership
c/o Roanoke Capital, Ltd.
1111 Third Avenue
Suite 2220
Seattle, WA 98101
Harvey N. Jones (2) ..................................... 226,658 6.2% -- 226,658
c/o Cutter & Buck Inc.
2701 First Avenue, Suite 500
Seattle, WA 98121
Joey Rodolfo (2) ........................................ 184,550 5.0%
c/o Cutter & Buck Inc.
2701 First Avenue, Suite 500
Seattle, WA 98121
Martin J. Marks (3)...................................... 65,911 1.8%
Michael S. Brownfield (4)................................ 55,813 1.5% -- 55,813
Jim C. McGehee (3)....................................... 29,486 *
Larry C. Mounger (5)..................................... 20,001 *
James B. Slayden (3)..................................... 11,560 *
All directors and executive officers as a group (12
persons)(6)............................................. 1,533,032 %
-----------
100,000
</TABLE>
- ------------------------
* Less than 1%.
(1) Of these shares, 919,195 are held of record by Roanoke. Ms. Conley, a
director of the Company, is a shareholder, director and principal of Roanoke
Capital, the general partner of Roanoke. The only other shareholder,
director and principal of Roanoke Capital is Gerald R. Conley, Ms. Conley's
husband. Ms. Conley disclaims beneficial ownership of Roanoke's shares that
exceed Roanoke Capital's interest in those shares. Includes 2,312 shares
subject to options exercisable within 60 days of September 25, 1996 held
directly by Ms. Conley.
(2) Includes 34,689 shares subject to options exercisable within 60 days of
September 25, 1996.
(3) Represents shares subject to options exercisable within 60 days of September
25, 1996.
(4) Excludes 32,141 shares held by the Brownfield 1991 Irrevocable Trust, of
which Mr. Brownfield's adult children are the sole beneficiaries. Includes
2,312 shares subject to options exercisable within 60 days of September 25,
1996.
(5) Includes 11,560 shares subject to options exercisable within 60 days of
September 25, 1996.
(6) Includes 215,065 shares subject to options exercisable within 60 days of
September 25, 1996.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 25,000,000 shares of
Common Stock, no par value, and 6,000,000 shares of Preferred Stock, no par
value.
COMMON STOCK
As of July 31, 1996, 3,668,241 shares of Common Stock were issued and
outstanding and held by approximately 110 holders of record. After completion of
this offering, there will be 4,968,241 shares of Common Stock issued and
outstanding, assuming no exercise of the Underwriters' over-allotment option or
outstanding stock options. Holders of Common Stock are entitled to one vote per
share on all matters submitted to a vote of shareholders. Holders of Common
Stock are entitled to receive ratably such dividends as may be legally declared
by the Board of Directors. In the event of liquidation, dissolution or winding
up of the Company, holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities. Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. All the outstanding
shares of Common Stock are, and all shares of Common Stock to be outstanding
upon completion of this offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 6,000,000 shares of
Preferred Stock in one or more series and to fix the powers, designations,
preferences and relative, participating, optional or other rights thereof,
including dividend rights, conversion rights, voting rights, redemption terms,
liquidation preferences and the number of shares constituting each such series,
without any further vote or action by the Company's shareholders. The issuance
of Preferred Stock could adversely affect the rights of holders of Common Stock.
The issuance of Preferred Stock in certain circumstances may have the effect of
delaying, deterring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of, and the voting and
other rights of the holders of, Common Stock. At present, the Company has no
plans to issue any shares of Preferred Stock.
COMMON STOCK PURCHASE WARRANTS
In connection with the Company's initial public offering in August 1995, the
Company issued warrants to purchase up to 131,531 shares of Common Stock at an
exercise price of $8.40 per share (equal to 120% of the initial public offering
price). See "Shares Eligible for Future Sale."
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
The authorized but unissued shares of Common Stock and Preferred Stock are
available for future issuance without shareholder approval. These additional
shares may be utilized for a variety of corporate purposes, including future
public offerings to raise additional capital, corporate acquisitions and
employee benefits.
The existence of authorized but unissued and unreserved Common Stock and
Preferred Stock may enable the Board of Directors to issue shares to persons
friendly to current management, which could render more difficult or discourage
an attempt to obtain control of the Company by means of a proxy contest, tender
offer, merger or otherwise, and thereby protect the continuity of the Company's
management.
WASHINGTON ANTITAKEOVER STATUTE
Washington law contains certain provisions that may have the effect of
delaying or discouraging a hostile takeover of the Company. Chapter 23B.17 of
the Washington Business Corporation Act prohibits, subject to certain
exceptions, a merger, sale of assets or liquidation of a corporation involving
an "Interested Shareholder" (defined as a person who owns beneficially 20% or
more of the corporation's voting securities) unless determined to be at a "fair
price" or otherwise approved by a majority of the corporation's disinterested
directors or the holders of two-thirds of the corporation's outstanding voting
securities, other than those of the Interested Shareholder. A corporation may,
in its articles of
39
<PAGE>
incorporation, exempt itself from coverage of this provision. The Company has
not done so. In addition, Chapter 23B.19 of the Washington Business Corporation
Act prohibits a corporation, with certain exceptions, from engaging in certain
significant business transactions with an "Acquiring Entity" (defined as a
person who acquires 10% or more of the corporation's voting securities without
the prior approval of the corporation's board of directors) for a period of five
years after such acquisition. The prohibited transactions include, among others,
a merger with, disposition of assets to, or issuance or redemption of stock to
or from, the Acquiring Entity, or allowing the Acquiring Entity to receive any
disproportionate benefit as a shareholder. A corporation may not "opt out" of
this statute. These provisions may have the effect of delaying, deterring or
preventing a change in control of the Company.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Articles of Incorporation include a provision
permitted by Washington law that limits the liability of the Company's
directors. Under the provision, no director shall be personally liable to the
Company or its shareholders for monetary damages for conduct as a director,
excluding, however, liability for acts or omissions involving intentional
misconduct or knowing violations of law, illegal distributions or transactions
from which the director receives benefits to which the director is not legally
entitled. In addition, Washington law provides for broad indemnification by the
Company of its officers and directors. The Company's Restated Articles of
Incorporation implement this indemnification to the extent permitted by law.
Insofar as the indemnity for liabilities arising under the Securities Act may be
permitted to directors or officers of the Company pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the Commission
such indemnification is against public policy as expressed in the Securities Act
and is therefore unenforceable.
TRANSFER AGENT
The transfer agent for the Common Stock is ChaseMellon Shareholder Services,
Ridgefield Park, New Jersey.
40
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 4,968,241 shares of
Common Stock outstanding (5,178,241 shares assuming the Underwriters'
over-allotment option is exercised in full). Of these shares, 3,266,739 shares
(including the 1,400,000 shares sold in this offering) will be freely tradable
without restriction under the Securities Act. An additional 1,954,619 shares may
be sold subject to the limitations of Rule 144 under the Securities Act,
of which are subject to lock-up agreements that expire 120 days after
the date of this Prospectus, or earlier at the discretion of Needham & Company,
Inc. (the "Lock-up Agreements").
In general, under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares (as
that term is defined in Rule 144) for at least two years, including any person
who may be deemed to be an affiliate of the Company, is entitled to sell, within
any three-month period, a number of shares that does not exceed the greater of
1% of the then-outstanding shares of Common Stock (approximately 49,700 shares
immediately after this offering) or the average weekly trading volume in the
Common Stock as reported by Nasdaq during the four calendar weeks preceding such
sale. Sales pursuant to Rule 144 also are subject to certain other requirements
relating to the volume, manner of sale, and other limitations under Rule 144 and
notice and availability of current public information about the Company.
Affiliates may publicly sell shares not constituting restricted securities under
Rule 144 in accordance with the foregoing volume limitations and other
restrictions, but without regard to the two-year holding period. Under Rule
144(k), a person who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding a sale by such person, and who
has beneficially owned restricted shares for at least three years, is entitled
to sell such shares under Rule 144 without regard to any of the limitations
described above.
As of September 25, 1996, there were stock options outstanding to purchase
an aggregate of 408,022 shares of Common Stock, 217,377 shares of which were
subject to then exercisable options. The shares issued upon exercise of these
options may be resold in the public market without restriction under the
Securities Act, in some cases subject to the expiration of the Lock-up
Agreements and/ or in accordance with Rule 144.
Roanoke, which currently holds 919,195 shares of Common Stock, is entitled
to certain rights with respect to the registration of such shares under the
Securities Act. Under the terms of an agreement between the Company and Roanoke,
Roanoke may require the Company, subject to the Lock-up Agreements, on not more
than two occasions to file a registration statement under the Securities Act at
the Company's expense with respect to Roanoke's shares of Common Stock, and the
Company is required to use commercially reasonable efforts to effect such
registration, subject to certain conditions and limitations. In addition, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of Roanoke, the holders of an
additional 653,587 shares of Common Stock are entitled to notice of such
registration and to include shares of Common Stock held by them therein,
provided, among other conditions, that the underwriters of any offering have the
right to limit the number of such shares included in such registration.
In connection with the Company's initial public offering, the Company issued
to Needham & Company, Inc. and Wedbush Morgan Securities Inc., the
representatives of the Underwriters of this offering (the "Representatives"),
certain warrants (the "Representatives' Warrants") to purchase up to 131,531
shares of Common Stock at an exercise price of $8.40 per share (equal to 120% of
the initial public offering price). The Representatives' Warrants are
exercisable until August 14, 2000. The holders of shares of Common Stock issued
upon exercise or conversion of the Representatives' Warrants will have certain
rights to obtain the registration of those shares under the Securities Act. If
the Company registers any shares of Common Stock for its own account or for the
account of other holders, the holders of shares issued upon exercise or
conversion of the Representatives' Warrants are entitled to include their shares
of Common Stock in the registration, subject to certain limitations.
41
<PAGE>
The holders of the shares issued upon exercise or conversion of the
Representatives' Warrants may on one occasion require the Company to register
such shares, subject to certain limitations. The Company will bear all fees,
costs and expenses of the registrations contemplated by this paragraph (other
than underwriting discounts and commissions), subject to certain limitations.
The Company is unable to estimate the number of shares that may be sold in
the future by its existing shareholders or the effect, if any, that sales of
shares by such shareholders will have on the market price of the Common Stock
prevailing from time to time. Sales of substantial amounts of Common Stock by
existing shareholders could adversely affect prevailing market prices.
42
<PAGE>
UNDERWRITING
The Underwriters named below, acting through the Representatives, Needham &
Company, Inc. and Wedbush Morgan Securities Inc. have severally agreed with the
Company, subject to the terms and conditions of the Underwriting Agreement, to
purchase from the Company and the Selling Shareholder the number of shares of
Common Stock set forth opposite their respective names below. The Underwriters
are committed to purchase and pay for all of such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
- --------------------------------------------------------------------------------- -----------
<S> <C>
Needham & Company, Inc...........................................................
Wedbush Morgan Securities Inc....................................................
-----------
Total.................................................................... 1,400,000
-----------
-----------
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock to the public at the initial public offering
price set forth on the cover page of this Prospectus and to certain dealers at
such price less a concession not in excess of $ per share, of which
$ may be reallowed to other dealers. After the public offering, the
public offering price, concession and reallowance to dealers may be reduced by
the Representatives. No such reduction shall change the amount of proceeds to be
received by the Company or the Selling Shareholders as set forth on the cover
page of this Prospectus.
The Company has granted the Underwriters an option, exercisable during the
30-day period after the date of this Prospectus, to purchase up to 210,000
additional shares of Common Stock at the initial public offering price, less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent the Underwriters exercise such option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of Common Stock
to be purchased by it shown in the above table represents as a percentage of the
1,400,000 shares offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the 1,400,000
shares are being sold.
The Underwriting Agreement contains covenants of indemnity among the
Underwriters, the Selling Shareholders and the Company against certain civil
liabilities, including liabilities under the Securities Act.
As of the date of this Prospectus, Needham Capital SBIC, L.P. and Needham
Emerging Growth Partners, L.P., affiliates of Needham & Company, Inc.,
beneficially owned an aggregate of 84,404 shares of Common Stock. These shares
were purchased at $5.92 per share between April 30, 1995 and August 14, 1995 in
reliance upon the exemption from registration set forth in Section 4(2) of the
Securities Act relating to sales by an issuer not involving any public offering.
Needham & Company, Inc. and certain of its affiliates may be deemed to own
14,058 of the shares held by Needham Capital SBIC, L.P. and Needham Emerging
Growth Partners, L.P. as a result of ownership interests in such partnerships.
43
<PAGE>
Pursuant to the terms of the Lock-up Agreements, the officers and directors
and certain shareholders and option holders of the Company have agreed with the
Representatives that, until 120 days after the closing date of this offering,
they will not, directly or indirectly, sell, contract to sell, make any short
sale, pledge or otherwise dispose of any shares of Common Stock, options to
acquire shares of Common Stock or securities exchangeable for or convertible
into shares of Common Stock, exclusive of securities purchased in connection
with this offering or in the public trading market, without the prior written
consent of Needham & Company, Inc. The Company has also agreed until 120 days
after the closing date of this offering not to issue, offer, sell, grant options
to purchase or otherwise dispose of any shares of the Company's equity
securities or any other securities convertible into or exchangeable for Common
Stock or any other equity security, except with the prior written consent of
Needham & Company, Inc. See "Shares Eligible for Future Sale."
In connection with the Company's initial public offering in August 1995, the
Company issued the Representatives' Warrants to purchase up to 131,531 shares of
Common Stock at an exercise price of $8.40 per share (equal to 120% of the
initial public offering price). The holders of shares of Common Stock issuable
upon exercise or conversion of the Representatives' Warrants have certain rights
with respect to registration of those shares.
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
In connection with this offering, certain Underwriters and selling group
members (if any) may engage in passive market-making transactions in the Common
Stock on the Nasdaq National Market in accordance with Rule 10b-6A under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Rule 10b-6A
permits, upon the satisfaction of certain conditions, underwriters and selling
group members participating in a distribution that are also Nasdaq market makers
in the security being distributed to engage in limited market-making
transactions during the period when Rule 10b-6 under the Exchange Act would
otherwise prohibit such activity. Rule 10b-6A prohibits underwriters and selling
group members engaged in passive market-making, generally, from entering a bid
or effecting a purchase at a price that exceeds the highest bid for those
securities displayed on Nasdaq by a market maker that is not participating in
the distribution. Under Rule 10b-6A, each underwriter or selling group member
engaged in passive market-making is subject to a daily net purchase limitation
equal to 30% of such entity's average daily trading volume during the two full
consecutive calendar months immediately preceding the date of the filing of the
registration statement under the Securities Act pertaining to the security to be
distributed.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon by Lane
Powell Spears Lubersky, Seattle, Washington. Certain legal matters will be
passed upon for the Underwriters by Perkins Coie, Seattle, Washington.
EXPERTS
The consolidated financial statements of Cutter & Buck Inc. as of April 30,
1995 and 1996, and for each of the three years in the period ended April 30,
1996, appearing in this Prospectus and the Registration Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of such
firm as experts in accounting and auditing.
44
<PAGE>
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement (the
"Registration Statement") on Form S-1 under the Securities Act with respect to
the Common Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedule thereto on file with the
Commission pursuant to the Securities Act and the rules and regulations of the
Commission thereunder. The Company also files periodic reports and proxy
material with the Commission pursuant to the Exchange Act. The Registration
Statement, including exhibits and schedule thereto, and such other materials,
may be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the following regional offices of the Commission: New York Regional Office,
Seven World Trade Center, Suite 1300, New York, New York 10048, and Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. The Common Stock is quoted on the Nasdaq National Market.
Reports and other information concerning the Company may be inspected and copied
at the National Association of Securities Dealers, Inc., 9513 Key West Avenue,
Rockville, Maryland 20850. The Commission maintains a Web site that contains
reports, proxy and information statements and other information of the Company
at http://www.sec.gov. Statements contained in this Prospectus as to the
contents of any contract, agreement or other document referred to are not
necessarily complete and in each instance reference is made to the copy of such
contract, agreement or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
45
<PAGE>
CUTTER & BUCK INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets................................................................................ F-3
Consolidated Statements of Income.......................................................................... F-4
Consolidated Statements of Shareholders' Equity............................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Cutter & Buck Inc.
We have audited the accompanying consolidated balance sheets of Cutter &
Buck Inc. as of April 30, 1995 and 1996, and the related consolidated statements
of income, shareholders' equity and cash flows for each of the three years in
the period ended April 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We 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, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cutter & Buck
Inc. at April 30, 1995 and 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
April 30, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Seattle, Washington
June 17, 1996, except for
Note 7, as to which the
date is July 8, 1996
F-2
<PAGE>
CUTTER & BUCK INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
APRIL 30,
------------------------
1995 1996
----------- -----------
JULY 31,
1996
-----------
(UNAUDITED)
Current assets:
<S> <C> <C> <C>
Cash (Note 7)................................... $ 499,417 $ 2,010,047 $ 306,011
Receivables:
Due from factors (Note 3)..................... 1,100,478 5,735,287 3,231,075
Other receivables, net of allowance for
doubtful accounts of $69,955 in 1995,
$212,314 in April 1996 and $157,795 in July
1996......................................... 1,234,680 1,917,326 4,860,265
Inventories..................................... 1,889,615 4,693,433 7,448,618
Deferred income taxes (Note 8).................. -- 180,000 180,000
Prepaid expenses and other current assets (Note
2)............................................. 514,243 1,098,972 1,262,731
----------- ----------- -----------
Total current assets........................ 5,238,433 15,635,065 17,288,700
Furniture and equipment (Note 4).................. 331,013 798,922 1,768,902
Other assets...................................... 123,853 735,931 678,874
----------- ----------- -----------
Total assets................................ $ 5,693,299 $17,169,918 $19,736,476
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 1,887,817 $ 2,313,937 $ 2,550,535
Accrued liabilities............................. 118,224 499,362 243,300
Income taxes payable............................ -- 220,000 282,600
Loan payable to bank (Note 6)................... -- 114,119 --
Borrowings under bank line of credit (Note 7)... -- -- 2,070,541
Current portion of capital lease obligations.... 23,887 -- 77,119
----------- ----------- -----------
Total current liabilities................... 2,029,928 3,147,418 5,224,095
Capital lease obligations......................... 97,676 -- 337,388
Commitments (Note 9)
Shareholders' equity (Note 10)
Convertible preferred stock, no par value,
6,000,000 shares authorized:
Series A: 2,932,000 shares authorized;
2,932,000 issued and outstanding in 1995..... 3,655,988 -- --
Series B: 1,200,000 shares authorized; 735,510
issued and outstanding in 1995............... 1,939,469 -- --
Common stock, no par value:
25,000,000 shares authorized; 327,819 issued
and outstanding in 1995, 3,666,715 in April
1996 and 3,668,241 in July 1996.............. 100,790 15,156,702 15,167,432
Note receivable from shareholder (Note 5)....... (44,520) (44,520) (44,520)
Accumulated deficit............................. (2,086,032) (1,089,682) (947,919)
----------- ----------- -----------
Total shareholders' equity.................. 3,565,695 14,022,500 14,174,993
----------- ----------- -----------
Total liabilities and shareholders'
equity..................................... $ 5,693,299 $17,169,918 $19,736,476
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes.
F-3
<PAGE>
CUTTER & BUCK INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, THREE MONTHS ENDED JULY 31,
--------------------------------------------- ----------------------------
1994 1995 1996 1995 1996
------------- -------------- -------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................... $ 9,881,663 $ 13,434,788 $ 21,645,202 $ 3,304,756 $ 7,999,639
Cost of sales...................... 6,443,209 8,759,623 13,664,607 2,077,089 5,020,064
------------- -------------- -------------- ------------- -------------
Gross profit....................... 3,438,454 4,675,165 7,980,595 1,227,667 2,979,575
Operating expenses:
Design and production............ 509,751 747,381 1,044,692 214,515 336,247
Selling and shipping............. 1,781,274 2,445,951 3,858,184 668,189 1,711,920
General and administrative....... 1,053,216 1,364,053 2,042,194 410,924 713,321
------------- -------------- -------------- ------------- -------------
Total operating expenses....... 3,344,241 4,557,385 6,945,070 1,293,628 2,761,488
------------- -------------- -------------- ------------- -------------
Operating income................... 94,213 117,780 1,035,525 (65,961) 218,087
Other income (expense):
Factor commission and interest
expense......................... (286,948) (384,181) (371,877) (112,880) (116,545)
Interest income.................. 8,434 8,538 134,915 -- --
License and royalty income....... 285,120 497,095 457,787 115,516 96,221
------------- -------------- -------------- ------------- -------------
Total other income (expense)... 6,606 121,452 220,825 2,636 (15,324)
------------- -------------- -------------- ------------- -------------
Income (loss) before income
taxes............................. 100,819 239,232 1,256,350 (63,325) 202,763
Income taxes (Note 8).............. -- -- 260,000 -- 61,000
------------- -------------- -------------- ------------- -------------
Net income (loss).................. $ 100,819 $ 239,232 $ 996,350 $ (63,325) $ 141,763
------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- ------------- -------------
Net income (loss) per share........ $ 0.05 $ 0.12 $ 0.29 $ (0.02) $ 0.04
------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- ------------- -------------
Shares used in computation of net
income (loss) per share (Note
1)................................ 1,933,438 2,034,210 3,475,581 2,538,659 3,941,213
------------- -------------- -------------- ------------- -------------
------------- -------------- -------------- ------------- -------------
</TABLE>
See accompanying notes.
F-4
<PAGE>
CUTTER & BUCK INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED STOCK
------------------------------------------------
NOTE
SERIES A SERIES B COMMON STOCK RECEIVABLE
----------------------- ----------------------- ---------------------- FROM ACCUMULATED
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHAREHOLDER DEFICIT
---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, APRIL 30,
1993.................... 2,932,000 $ 3,655,988 -- $ -- 327,473 $ 100,040 $ (44,520) $(2,426,083)
Exercise of stock
options............... -- -- -- -- 346 750 -- --
Net income............. -- -- -- -- -- -- -- 100,819
---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
BALANCE, APRIL 30,
1994.................... 2,932,000 3,655,988 -- -- 327,819 100,790 (44,520) (2,325,264)
Sale of Series B
convertible preferred
stock, net of offering
expenses of $75,828... -- -- 529,530 1,375,084 -- -- -- --
Conversion of loan and
note payable,
including accrued
interest, to Series B
preferred stock....... -- -- 205,980 564,385 -- -- -- --
Net income............. -- -- -- -- -- -- -- 239,232
---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
BALANCE, APRIL 30,
1995.................... 2,932,000 3,655,988 735,510 1,939,469 327,819 100,790 (44,520) (2,086,032)
Sale of Series B
convertible preferred
stock, net of offering
expenses of $66,288... -- -- 403,618 1,039,625 -- -- -- --
Conversion of Series A
and B convertible
preferred stock to
common stock.......... (2,932,000) (3,655,988) (1,139,128) (2,979,094) 1,883,021 6,635,082 -- --
Sale of common stock,
net of offering
expenses of
$1,770,295............ -- -- -- -- 1,455,875 8,420,830 -- --
Net income............. -- -- -- -- -- -- -- 996,350
---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
BALANCE, APRIL 30,
1996.................... -- -- -- -- 3,666,715 15,156,702 (44,520) (1,089,682)
---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
Sale of common stock
(unaudited)........... -- -- -- -- 1,526 10,730 -- --
Net income
(unaudited)........... -- -- -- -- -- -- -- 141,763
---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
BALANCE, JULY 31, 1996
(UNAUDITED)............. -- $ -- -- $ -- 3,668,241 $15,167,432 $ (44,520) $ (947,919)
---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
---------- ----------- ---------- ----------- --------- ----------- ----------- ------------
<CAPTION>
TOTAL
-----------
<S> <C>
BALANCE, APRIL 30,
1993.................... $ 1,285,425
Exercise of stock
options............... 750
Net income............. 100,819
-----------
BALANCE, APRIL 30,
1994.................... 1,386,994
Sale of Series B
convertible preferred
stock, net of offering
expenses of $75,828... 1,375,084
Conversion of loan and
note payable,
including accrued
interest, to Series B
preferred stock....... 564,385
Net income............. 239,232
-----------
BALANCE, APRIL 30,
1995.................... 3,565,695
Sale of Series B
convertible preferred
stock, net of offering
expenses of $66,288... 1,039,625
Conversion of Series A
and B convertible
preferred stock to
common stock.......... --
Sale of common stock,
net of offering
expenses of
$1,770,295............ 8,420,830
Net income............. 996,350
-----------
BALANCE, APRIL 30,
1996.................... 14,022,500
-----------
Sale of common stock
(unaudited)........... 10,730
Net income
(unaudited)........... 141,763
-----------
BALANCE, JULY 31, 1996
(UNAUDITED)............. $14,174,993
-----------
-----------
</TABLE>
See accompanying notes.
F-5
<PAGE>
CUTTER & BUCK INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED APRIL 30, JULY 31,
----------------------------------- ------------------------
1994 1995 1996 1995 1996
--------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................... $ 100,819 $ 239,232 $ 996,350 $ (63,325) $ 141,763
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization................. 102,898 133,220 231,487 40,904 179,669
Deferred income taxes......................... -- -- (180,000) -- --
Changes in assets and liabilities:
Receivables, net............................ (444,742) (2,255,894) (2,996,564) 1,302,206 (438,727)
Inventories................................. 36,831 (1,328,793) (2,803,818) (1,134,627) (2,755,185)
Prepaid expenses and other current assets... (104,156) (312,178) (584,729) (99,664) (163,759)
Accounts payable and accrued liabilities.... 57,862 1,542,453 807,258 (41,442) (19,464)
Income taxes payable........................ -- -- 220,000 -- 62,600
--------- ----------- ----------- ----------- -----------
Net cash provided by (used in) operating
activities..................................... (250,488) (1,981,960) (4,310,016) 4,052 (2,993,103)
INVESTING ACTIVITIES
Purchase of furniture and equipment............. (67,109) (119,004) (654,723) (211,723) (651,735)
Increase in trademarks, patents and marketing
rights......................................... (25,559) (4,122) (656,751) (580) (3,945)
--------- ----------- ----------- ----------- -----------
Net cash used in investing activities........... (92,668) (123,126) (1,311,474) (212,303) (655,680)
FINANCING ACTIVITIES
Proceeds from loan from principal shareholder... 500,000 -- -- -- --
Proceeds from note payable to bank.............. -- -- 114,119 -- 1,956,422
Principal payments under capital lease
obligation..................................... (29,975) (40,787) (121,563) (9,442) (22,405)
Net increase (decrease) in advances from
factor......................................... 63,742 943,642 (2,320,891) (839,199) --
Issuance of preferred stock..................... -- 1,375,084 1,039,625 1,052,871 --
Issuance of common stock........................ 750 -- 8,420,830 -- 10,730
--------- ----------- ----------- ----------- -----------
Net cash provided by financing activities....... 534,517 2,277,939 7,132,120 204,230 1,944,747
--------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash................. 191,361 172,853 1,510,630 (4,021) (1,704,036)
Cash, beginning of period....................... 135,203 326,564 499,417 499,417 2,010,047
--------- ----------- ----------- ----------- -----------
Cash, end of period............................. $ 326,564 $ 499,417 $ 2,010,047 $ 495,396 $ 306,011
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
SUPPLEMENTAL INFORMATION
Cash paid during the period for interest........ $ 283,164 $ 259,133 $ 173,502 $ 79,950 $ 53,165
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
Cash paid during the period for income taxes.... $ -- $ -- $ 40,000 $ -- $ 178,400
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
Noncash financing and investing activities:
Equipment acquired with capital leases........ $ 33,897 $ 89,184 $ -- $ -- $ 436,912
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
Conversion of loan and note payable to
shareholders, including accrued interest, to
Series B preferred stock..................... $ -- $ 564,385 $ -- $ -- $ --
--------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- -----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF JULY 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED JULY 31, 1995 AND 1996 IS UNAUDITED)
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Cutter & Buck Inc. (the "Company") designs, sources and markets men's
sportswear and outerwear apparel. The Company's trade customers are principally
golf pro shops and resorts, and upscale men's specialty stores. During 1995, the
Company changed its name from Jones/Rodolfo Corporation to Cutter & Buck Inc.
In March 1996, the Company formed a wholly owned subsidiary, Cutter & Buck
(UK) Ltd., for the purpose of direct marketing, sales and distribution of Cutter
& Buck sportswear in the United Kingdom. The accompanying consolidated financial
statements include the accounts of the Company and its wholly owned subsidiary
from the date of formation. All significant intercompany accounts and
transactions have been eliminated.
INTERIM FINANCIAL INFORMATION
The financial information as of July 31, 1996 and for the three-month
periods ended July 31, 1995 and 1996 is unaudited but includes all adjustments
(consisting only of normal recurring accruals) that the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods. Operating results for the
three months ended July 31, 1996 are not necessarily indicative of the results
that may be expected for the entire year.
INVENTORIES
Inventories, which are predominantly finished goods, are valued at the lower
of cost or market, with cost determined under the first-in, first-out method.
SAMPLE COSTS
The Company defers costs to produce samples that relate to goods to be sold
in future selling seasons. Such costs are charged to expense in the season to
which the samples relate.
FURNITURE AND EQUIPMENT
Furniture and equipment is valued at cost. Depreciation is provided on a
straight-line basis over estimated useful lives of five years. Furniture and
equipment acquired under capital leases is amortized on a straight-line basis
over the lesser of the lease term or the estimated economic useful life of the
asset. Store fixtures are depreciated on a straight-line basis over three years.
INCOME TAXES
The Company accounts for income taxes using the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities measured using
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
STOCK OPTIONS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Statement No. 123 is effective beginning fiscal 1997. Under
Statement No. 123, stock-based compensation expense is measured using either the
intrinsic value method, as prescribed by Accounting Principles Board Opinion No.
25, or the fair value method described in Statement No. 123. Companies choosing
the
F-7
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JULY 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED JULY 31, 1995 AND 1996 IS UNAUDITED)
1. DESCRIPTION OF THE BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (CONTINUED)
intrinsic value method will be required to disclose the pro forma impact of the
fair value method on net income and earnings per share. The Company plans to
implement Statement No. 123 in fiscal 1997 using the intrinsic value method.
CONCENTRATIONS OF CREDIT RISK
The Company is subject to credit risk on receivables that are not factored.
These other receivables are geographically disbursed throughout the United
States and selected foreign countries where formal distributor agreements exist.
All sales are denominated in U.S. dollars. The Company sells its products to
approved customers on an open account basis, subject to established credit
limits, cash in advance, or cash on delivery terms. Generally, the receivables
are insured or are supported by letters of credit.
REVENUE RECOGNITION
Revenue is recognized at the time the product is shipped to the customer.
There is no right to return for customers, other than for defective products.
Allowances for these estimated sales returns are provided when the related
revenue is recorded.
NET INCOME PER SHARE
Net income per share is computed based on the weighted average number of
common shares outstanding and gives effect to the following adjustments: (i)
common stock equivalents, consisting of Common Stock options, warrants and
Preferred Stock, are included in the weighted average number of shares
outstanding, except when the effect of their inclusion would be antidilutive;
(ii) pursuant to the rules of the Securities and Exchange Commission, Common
Stock and common stock equivalents issued during the 12 months immediately
preceding the filing date of the Company's initial public offering are included
in the calculation as if they were outstanding for all periods presented using
the treasury stock method and the initial public offering price; and (iii) all
outstanding shares of Preferred Stock are included on an as-converted-to-Common
Stock basis.
Historical net income per share information for fiscal 1992 and 1993 is not
presented because it is not considered meaningful.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts from the prior year financial statements have been
reclassified to conform to the current year presentation.
F-8
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JULY 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED JULY 31, 1995 AND 1996 IS UNAUDITED)
2. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------------------- JULY 31,
1995 1996 1996
----------- ------------- -------------
<S> <C> <C> <C>
Prepaid expenses............................................. $ 102,301 $ 461,524 $ 668,931
Sample costs................................................. 380,849 588,869 576,622
Other........................................................ 31,093 48,579 17,178
----------- ------------- -------------
$ 514,243 $ 1,098,972 $ 1,262,731
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
3. DUE FROM FACTORS
Pursuant to the terms of factoring agreements, the Company assigns
substantially all of its qualifying accounts receivable to factors on a
preapproved, nonrecourse basis. The factors' charges, totaling $255,393 for the
fiscal year ended April 30, 1996 ($257,829 in fiscal 1995 and $218,762 in fiscal
1994), include a commission on net sales and interest on advances at prime, plus
1 1/2% (9 3/4% at April 30, 1996). The amount due from factors consisted of the
following:
<TABLE>
<CAPTION>
APRIL 30,
----------------------------- JULY 31,
1995 1996 1996
-------------- ------------- -------------
<S> <C> <C> <C>
Unmatured receivables:
Nonrecourse............................................. $ 3,603,139 $ 5,779,659 $ 3,147,258
With recourse........................................... 40,280 55,385 50,056
Matured receivables....................................... -- 160,331 308,232
Reserve for sales returns and allowances.................. (222,050) (260,088) (274,471)
Advances.................................................. (2,320,891) -- --
-------------- ------------- -------------
$ 1,100,478 $ 5,735,287 $ 3,231,075
-------------- ------------- -------------
-------------- ------------- -------------
</TABLE>
4. FURNITURE AND EQUIPMENT
Furniture and equipment consisted of the following:
<TABLE>
<CAPTION>
APRIL 30,
--------------------------- JULY 31,
1995 1996 1996
------------ ------------- -------------
<S> <C> <C> <C>
Leasehold improvements...................................... $ 23,762 $ 33,382 $ 155,363
Equipment................................................... 358,106 534,925 1,106,812
Store fixtures.............................................. -- 284,257 635,085
Furniture and other fixtures................................ 272,079 459,621 503,573
------------ ------------- -------------
653,947 1,312,185 2,400,833
Less accumulated depreciation and amortization.............. (322,934) (513,263) (631,931)
------------ ------------- -------------
$ 331,013 $ 798,922 $ 1,768,902
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
5. NOTE RECEIVABLE FROM SHAREHOLDER
A note receivable from a shareholder of $44,520 is due upon demand, with
interest at prime (8 1/4% at April 30, 1996). Accrued interest receivable of
$19,867 and $23,655 was outstanding at April 30,
F-9
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JULY 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED JULY 31, 1995 AND 1996 IS UNAUDITED)
5. NOTE RECEIVABLE FROM SHAREHOLDER (CONTINUED)
1995 and 1996, respectively. The note is secured by 23,126 shares of the
shareholder's Common Stock. The proceeds of the note were used to purchase
Common Stock. Accordingly, the note receivable is classified as a component of
shareholders' equity.
6. LOAN PAYABLE TO BANK
At April 30, 1996, the Company had a credit facility with a United Kingdom
bank for general working capital needs of the Company's United Kingdom
subsidiary. The line expired on May 31, 1996 and was paid in full as of that
date.
7. LINE OF CREDIT
As of April 30, 1996 the Company had a $4.0 million revolving line of credit
with a bank, which was replaced on July 8, 1996 with a new $7.0 million line of
credit with another bank. The Company uses its bank line of credit for
international letters of credit, bankers' acceptances and working capital
advances. Letters of credit outstanding at April 30, 1996 totaled $2,146,378. At
April 30, 1996, the Company was required under its previous agreement to
maintain a deposit of $1,646,378 for the excess of the amount of letters of
credit and bankers' acceptances over $500,000. This requirement does not apply
under the current agreement. Under the current agreement, interest on borrowings
is charged and payable monthly at the bank's prime rate. The line of credit is
collateralized by a security interest in the Company's inventory, accounts
receivable, contract rights and general intangibles. The agreement contains
certain restrictive covenants covering minimum working capital, tangible net
worth and accounts receivable turnover, as well as a maximum debt to equity
ratio. The bank and the Company's factor have entered into an intercreditor
agreement allocating between them priority as to the Company's assets in which
both financial institutions have a security interest.
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------------------------
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current tax provision:
Federal..................................................... $ -- $ -- $ 340,000
State....................................................... -- -- 100,000
------------ ------------ ------------
-- -- 440,000
Deferred federal tax benefit.................................. -- -- (180,000)
------------ ------------ ------------
$ -- $ -- $ 260,000
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
F-10
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JULY 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED JULY 31, 1995 AND 1996 IS UNAUDITED)
8. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount of tax determined by
applying the federal statutory rate for the following reasons:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
------------------------------------
1994 1995 1996
---------- ---------- ------------
<S> <C> <C> <C>
Tax provision at federal statutory tax rate...................... $ 34,278 $ 81,338 $ 427,159
Decrease in valuation allowance.................................. (46,639) (91,838) (259,569)
State income taxes, net of federal benefit....................... -- -- 66,000
Other............................................................ 12,361 10,500 26,410
---------- ---------- ------------
$ -- $ -- $ 260,000
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The Company's deferred tax assets consist primarily of the benefit to be
derived from unused net operating tax loss carryforwards of approximately $1.1
million at April 30, 1996. The use of the carryforwards, which expire beginning
in 2006, is limited to approximately $500,000 per year pursuant to the ownership
change regulations of the Internal Revenue Code of 1986, as amended. To the
extent that any single-year loss is not utilized to the full amount of the
limitation, such remaining unused limitation is carried over to a subsequent
year prior to the expiration of the relevant carryforward period. During fiscal
1996, the Company utilized approximately $500,000 of these operating loss
carryforwards. Due to the uncertainty regarding the Company's ability to
generate taxable income in the future to realize the benefit from its net
deferred tax assets, a valuation allowance has been recorded for financial
reporting purposes to recognize the Company's net deferred tax assets at their
estimated realizable value. Significant components of the Company's deferred
income tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
APRIL 30,
--------------------------
1995 1996
------------ ------------
<S> <C> <C>
Deferred income tax assets:
Reserve for doubtful accounts............................................. $ 102,200 $ 152,616
Reserve for inventory obsolescence........................................ 45,657 68,517
Net operating loss carryforwards.......................................... 572,174 387,114
Other..................................................................... 1,334 25,588
------------ ------------
Total deferred income tax assets............................................ 721,365 633,835
Valuation reserve for deferred tax assets................................... (699,847) (440,278)
------------ ------------
Net deferred tax assets..................................................... 21,518 193,557
Deferred income tax liabilities:
Accelerated depreciation.................................................. (21,518) (13,557)
------------ ------------
Total deferred income tax liabilities....................................... (21,518) (13,557)
------------ ------------
Net deferred taxes.......................................................... $ -- $ 180,000
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JULY 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED JULY 31, 1995 AND 1996 IS UNAUDITED)
9. COMMITMENTS
The Company leases its office facilities and an outlet store under operating
leases. Total rent expense amounted to $112,924 in fiscal 1994, $154,096 in
fiscal 1995, and $217,292 in fiscal 1996. During 1996, the Company entered into
a lease for a warehouse and embroidery production facility commencing May 1,
1996.
Future minimum rental payments under noncancelable operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
- ---------------------------------------------------------------------
<S> <C>
1997................................................................. $ 346,105
1998................................................................. 387,296
1999................................................................. 286,240
2000................................................................. 197,108
2001................................................................. 186,000
-------------
$ 1,402,749
-------------
-------------
</TABLE>
10. SHAREHOLDERS' EQUITY
PREFERRED STOCK: During fiscal 1995, the Company authorized the sale of
1,200,000 shares of Series B Preferred Stock to qualified investors at $2.74 per
share. As of April 30, 1995, 735,510 shares of Series B Preferred Stock were
issued and outstanding.
During fiscal 1996, an additional 403,618 shares of Series B Preferred Stock
were sold. Of the total, 933,148 shares were sold through subscription
agreements. Proceeds to the Company, net of offering expenses of $142,117,
amounted to $2,979,094. The remaining 205,980 shares were issued as a result of
the conversion of a loan and note payable to shareholders and accrued interest,
aggregating $564,385.
Conversion of the Preferred Stock into Common Stock occurred automatically
upon the closing of the Company's initial public offering of Common Stock.
Effective as of the closing of the initial public offering, every 2.162 shares
of Preferred Stock were converted into one share of Common Stock.
COMMON STOCK: On July 20, 1995, the Company's shareholders adopted Restated
Articles of Incorporation and Bylaws affecting shareholders' equity, including
increasing the number of authorized shares of Common Stock to 25,000,000,
increasing the number of authorized shares of Preferred Stock to 6,000,000, and
implementing a 1 for 2.162 reverse stock split of the issued and outstanding
shares of Common Stock. The number of shares of Common Stock presented in the
accompanying consolidated financial statements has been restated to reflect the
stock split.
In August 1995, the Company sold 1,250,000 share of Common Stock at an
initial public offering price of $7 per share. Pursuant to the exercise of the
Underwriters' over-allotment option, the Company sold an additional 205,875
shares of Common Stock at $7 per share in September 1995. Proceeds to the
Company, net of offering expenses of $1,770,295, amounted to $8,420,830.
COMMON STOCK WARRANTS: In connection with the Company's initial public
offering, the Company issued warrants to the underwriters of the offering to
purchase 131,531 shares of Common Stock at an exercise price of $8.40 per share.
The warrants are exercisable for four years beginning August 1996.
F-12
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JULY 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED JULY 31, 1995 AND 1996 IS UNAUDITED)
10. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS: The Company has three stock option plans that provide
for the granting of nonqualified and incentive options to employees, officers
and directors of the Company to purchase up to 525,313 shares of Common Stock.
Options granted under the 1991 plan provide for 50% vesting on the first
anniversary from the date of grant and 25% vesting on each of the second and
third anniversaries. Options granted under the 1995 employee plan provide for
vesting over a five-year period with vesting at 20% each year. Options granted
under the 1995 director plan become exercisable six months after the date of
grant. Options under the plans have been granted at fair value on the date of
grant and expire after 10 years. Stock option activity and option price
information for the two years ended April 30, 1996 are as follows:
<TABLE>
<CAPTION>
RANGE OF OPTION
OPTIONS PRICES
--------- ---------------
<S> <C> <C>
Balance, April 30, 1994.......................................... 34,686 $ 2.16
Granted........................................................ 238,202 2.16
Canceled....................................................... (20,814) 2.16
---------
Balance, April 30, 1995.......................................... 252,074 2.16
Granted........................................................ 157,748 4.74 - 10.75
---------
Balance, April 30, 1996.......................................... 409,822 2.16 - 10.75
---------
---------
</TABLE>
At April 30, 1996, 142,224 options were exercisable and 115,145 shares were
available for future grant.
EMPLOYEE STOCK PURCHASE PLAN: In December 1995, the Company adopted an
Employee Stock Purchase Plan which allows eligible employees to buy Common Stock
at a 15% discount from market price utilizing payroll deductions. A total of
250,000 shares have been reserved for issuance under this plan. During fiscal
1996, no shares of Common Stock were purchased by employees under this plan.
11. CONSULTING AGREEMENT
The Company has a consulting agreement with a common shareholder. The
agreement contains, among other items, certain provisions relating to consulting
duties and responsibilities, compensation, and noncompetition terms. The
agreement expires July 1, 1997.
12. EMPLOYEE BENEFITS
Effective January 1, 1995, the Company implemented a salary deferral 401(k)
plan for substantially all of its employees. The plan allows employees to
contribute a percentage of their pretax earnings annually, subject to
limitations imposed by the Internal Revenue Service. The plan also allows the
Company to contribute an amount at its discretion. To date, the Company has made
no contributions to the plan.
F-13
<PAGE>
CUTTER & BUCK INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF JULY 31, 1996 AND FOR THE THREE-MONTH
PERIODS ENDED JULY 31, 1995 AND 1996 IS UNAUDITED)
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Financial results by quarter for the fiscal years ended April 30, 1995, 1996
and 1997 are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------
JULY 31 OCTOBER 31 JANUARY 31 APRIL 30
--------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1995
Net sales............................................... $ 2,044 $ 3,407 $ 2,316 $ 5,668
Gross profit............................................ 769 1,202 703 2,001
Net income (loss)....................................... (106) 113 (306) 538
Net income (loss) per share............................. (0.06) 0.06 (0.15) 0.25
1996
Net sales............................................... $ 3,305 $ 5,131 $ 5,210 $ 7,999
Gross profit............................................ 1,228 1,934 1,833 2,985
Net income (loss)....................................... (63) 242 204 614
Net income (loss) per share............................. (0.02) 0.07 0.05 0.16
1997
Net sales............................................... $ 8,000
Gross profit............................................ 2,980
Net income.............................................. 142
Net income per share.................................... 0.04
</TABLE>
F-14
<PAGE>
[Photographs of Company Products]
<PAGE>
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS. IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH THIS PROSPECTUS RELATES, OR AN
OFFER IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED,
OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO
SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary.................................. 3
Risk Factors........................................ 5
Use of Proceeds..................................... 10
Price Range of Common Stock......................... 10
Dividend Policy..................................... 10
Capitalization...................................... 11
Selected Financial Data............................. 12
Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 13
Business............................................ 22
Management.......................................... 31
Certain Transactions................................ 37
Principal and Selling Shareholders.................. 38
Description of Capital Stock........................ 39
Shares Eligible for Future Sale..................... 41
Underwriting........................................ 43
Legal Matters....................................... 44
Experts............................................. 44
Additional Information.............................. 45
Index to Consolidated Financial Statements.......... F-1
</TABLE>
1,400,000 Shares
[LOGO]
Common Stock
--------------
P R O S P E C T U S
--------------
Needham & Company, Inc.
Wedbush Morgan Securities
-------------
, 1996
- ---------------------------------------------
---------------------------------------------
- ---------------------------------------------
---------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a statement of estimated expenses in connection with the
distribution of the securities being registered, other than underwriting
discounts and commissions:
<TABLE>
<CAPTION>
ITEM AMOUNT
- ------------------------------------------------------------------------------------------- -----------
<S> <C>
Securities and Exchange Commission Registration Fee........................................ $ 7,599
NASD Filing Fee............................................................................ 2,704
Nasdaq Additional Listing Fee.............................................................. 17,500
Blue Sky Fees and Expenses................................................................. 5,000
Printing Expenses.......................................................................... 100,000
Legal Fees and Expenses.................................................................... 125,000
Accounting Fees and Expenses............................................................... 100,000
Transfer Agent's Fees and Expenses......................................................... 5,000
Miscellaneous Expenses..................................................................... 87,197
-----------
Total................................................................................ $ 450,000
-----------
-----------
</TABLE>
All amounts, except the Securities and Exchange Commission registration fee, the
NASD filing fee and the Nasdaq additional listing fee, are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 23B.08.500 through 23B.08.600 of the Washington Business
Corporation Act authorize a court to award, or a corporation's board of
directors to grant, indemnification to directors and officers on terms
sufficiently broad to permit indemnification under certain circumstances for
liabilities arising under the Securities Act. Article 11 of the registrant's
Restated Articles of Incorporation provides for indemnification of the
registrant's directors, officers, employees and agents to the fullest extent
permitted by Washington law. Certain of the registrant's directors, who are
affiliated with the principal shareholder of the registrant, also may be
indemnified by such shareholder against liability they may incur in their
capacity as a director of the registrant, including pursuant to a liability
insurance policy maintained by the registrant for such purpose.
Section 23B.08.320 of the Washington Business Corporation Act authorizes a
corporation to limit a director's liability to the corporation or its
shareholders for monetary damages for acts or omissions as a director, except in
certain circumstances involving intentional misconduct, self-dealing or illegal
corporate loans or distributions, or any transaction from which the director
personally receives a benefit in money, property or services to which the
director is not legally entitled. Article 10 of the registrant's Restated
Articles of Incorporation contains provisions implementing, to the fullest
extent permitted by Washington law, such limitations on a director's liability
to the registrant and its shareholders.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The share and per share numbers presented below have been adjusted to
reflect the 1-for-2.162 reverse stock split of the registrant's Common Stock
effected on July 20, 1995 and the conversion of the registrant's Series A and B
Preferred Stock to Common Stock that occurred on August 14, 1995. Upon such
conversion, every 2.162 shares of Series A and B Preferred Stock converted into
one share of Common Stock.
On April 26, 1994, the registrant issued 346 shares of Common Stock to one
employee upon the exercise of a nonqualified stock option for an aggregate
exercise price of $750.
Between December 2, 1994 and June 2, 1995, the registrant issued 526,874
shares of Series B Preferred Stock at $5.92 per share to 31 investors, all of
whom were "accredited" investors within the meaning of Rule 215 under the
Securities Act.
II-1
<PAGE>
No underwriters were engaged in connection with the foregoing sales of
securities. Such sales were made in reliance upon the exemption from
registration set forth in Section 4(2) of the Securities Act relating to sales
by an issuer not involving any public offering.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
A. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Restated Articles of Incorporation (3.1) (1)
3.2 Bylaws (3.2) (1)
4.1 Specimen Common Stock Certificate (4.1) (1)
5.1 Opinion of Lane Powell Spears Lubersky regarding legality of shares
10.1 Promissory Note dated May 17, 1990 by Joey Rodolfo to the Jones/Rodolfo
Corporation (10.1) (1)
10.2 Stock Pledge Agreement dated April 1995 by Joey Rodolfo to the
Jones/Rodolfo Corporation(10.2) (1)
10.3 Lease dated May 22, 1994 between First and Cedar Associates and Jones/
Rodolfo Corporation d/b/a Cutter & Buck (10.3) (1)
10.4 Indenture of Lease dated August 10, 1993 between Lakeplace Associates and
Jones/Rodolfo Corporation (10.4) (1)
10.5 Factoring Agreement dated March 1, 1995 between Republic Factors Corp. and
Jones/Rodolfo Corporation (10.5) (1)
10.6 Form of Registration Rights Agreement between Cutter & Buck Inc. and
Roanoke Investors' Limited Partnership, Needham Capital SBIC, L.P. and
Needham Emerging Growth Partners, L.P. (10.6) (1)
10.7 Consulting Agreement dated April 20, 1995 between Joey Rodolfo and Jones/
Rodolfo Corporation (10.7) (1)
10.8 First Amendment to Consulting Agreement dated July 6, 1995 between Joey
Rodolfo and Jones/Rodolfo Corporation (10.8) (1)
10.9 1991 Stock Option Plan (10.9) (1)
10.10 1995 Nonemployee Director Stock Incentive Plan (10.10) (2)
10.11 1995 Employee Stock Option Plan (10.11) (1)
10.12 1995 Employee Stock Purchase Plan incorporated by reference to the
Registration Statement on Form S-8 (File No. 33-80783)
10.13 Form of Representatives' Warrant (10.13) (1)
10.14 Distribution Reacquisition Agreement dated February 2, 1996 between Cutter
& Buck Inc. and Re-Ward Limited (2)
10.15 Loan Agreement dated June 26, 1996 between Cutter & Buck Inc., as Borrower,
and Bank of America NW, N.A. d/b/a Seafirst Bank, as Lender (2)
11.1 Statement of Computation of Net Income (Loss) Per Share
21.1 Subsidiaries of the registrant
23.1 Consent of Lane Powell Spears Lubersky (contained in opinion filed as
Exhibit 5.1)
23.2 Consent of Ernst & Young LLP (contained on page II-5)
24.1 Power of Attorney (contained on signature page)
</TABLE>
- ------------------------
(1) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the registrant's Registration Statement on Form SB-2 (File
No. 33-94548-LA).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1996.
B. FINANCIAL STATEMENT SCHEDULES
II -- Valuation and Qualifying Accounts
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
The undersigned hereby undertakes (1) that for purposes of determining any
liability under the Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in reliance upon Rule
430A and contained in the form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared effective;
and (2) that for the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
II-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Seattle,
State of Washington, on September 26, 1996.
CUTTER & BUCK INC.
By /S/ HARVEY N. JONES
-----------------------------------
Harvey N. Jones, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
We, the undersigned directors and officers of Cutter & Buck Inc. and each of
us, do hereby constitute and appoint Harvey N. Jones and Martin J. Marks, our
true and lawful attorneys and agents, with power of substitution, to do any and
all acts and things in our name and behalf in our capacities as directors and
officers and to execute any and all instruments for us and in our names in the
capacities indicated above, which said attorney and agent may deem necessary or
advisable to enable said corporation to comply with the Securities Act of 1933,
as amended, and any rules, regulations, and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but without limitation, power and authority to sign for us or any
of us in our names in the capacities indicated below, and any and all amendments
(including post-effective amendments) hereto, and all documents relating hereto
or thereto, including one or more registration statements that may be filed to
register additional securities for an offering pursuant to Rule 462(b) under the
Securities Act and to file the same, with all exhibits thereto; and we do hereby
ratify and confirm all that the said attorney and agent, or his substitute or
substitutes shall do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933,
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
President, Chief
/S/ HARVEY N. JONES Executive Officer and September 26,
- ----------------------------------- Director (Principal 1996
Harvey N. Jones Executive Officer)
Senior Vice President,
/S/ MARTIN J. MARKS Chief Operating Officer,
- ----------------------------------- Treasurer and Secretary September 26,
Martin J. Marks (Principal Financial and 1996
Accounting Officer)
/s/ MICHAEL S. BROWNFIELD
- ----------------------------------- Director September 26,
Michael S. Brownfield 1996
/s/ FRANCES M. CONLEY
- ----------------------------------- Director September 26,
Frances M. Conley 1996
/s/ LARRY C. MOUNGER
- ----------------------------------- Director September 26,
Larry C. Mounger 1996
/s/ JOEY RODOLFO
- ----------------------------------- Director September 26,
Joey Rodolfo 1996
/s/ JAMES B. SLAYDEN
- ----------------------------------- Director September 26,
James B. Slayden 1996
II-4
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Financial Data" and "Experts" and to the use of our reports dated June 17, 1996,
except for Note 7, as to which the date is July 8, 1996, in the Registration
Statement (Form S-1) and related Prospectus of Cutter & Buck Inc. for the
registration of 1,610,000 shares of its common stock.
ERNST & YOUNG LLP
Seattle, Washington
September 26, 1996
II-5
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Shareholders
Cutter & Buck Inc.
We have audited the consolidated financial statements of Cutter & Buck Inc.
as of April 30, 1995 and 1996, and for each of the three years in the period
ended April 30, 1996, and have issued our report thereon dated June 17, 1996,
except for Note 7, as to which the date is July 8, 1996 (included elsewhere in
this Registration Statement). Our audits also included the financial statement
schedule listed in Item 16(b) of this Registration Statement. This schedule is
the responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Seattle, Washington
June 17, 1996
S-1
<PAGE>
SCHEDULE II: VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS DEDUCTIONS
BALANCE AT ------------------ -------------- BALANCE AT
BEGINNING CHARGED TO COSTS WRITE-OFFS AND END OF
DESCRIPTION OF PERIOD AND EXPENSES RETURNS PERIOD
- --------------------------------------------------- ----------- ------------------ -------------- -----------
<S> <C> <C> <C> <C>
Year Ended April 30, 1994:
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts................ $ 65,460 $ 3,587 $ (17,485) $ 51,562
Allowance for sales returns.................... 130,000 567,347 (545,233) 152,114
Inventory reserves............................. 30,419 119,000 (41,971) 107,448
Year Ended April 30, 1995:
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts................ $ 51,562 $ 20,662 $ (2,269) $ 69,955
Allowance for sales returns.................... 152,114 861,984 (792,048) 222,050
Inventory reserves............................. 107,448 82,000 (60,132) 129,316
Year Ended April 30, 1996:
Reserves and allowances deducted from asset
accounts:
Allowance for doubtful accounts................ $ 69,955 $ 147,875 $ (5,516) $ 212,314
Allowance for sales returns.................... 222,050 1,087,161 (1,049,123) 260,088
Inventory reserves............................. 129,316 105,000 (32,795) 201,521
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ----------- -------------------------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement.......................................................
3.1 Restated Articles of Incorporation (3.1) (1).........................................
3.2 Bylaws (3.2) (1).....................................................................
4.1 Specimen Common Stock Certificate (4.1) (1)..........................................
5.1 Opinion of Lane Powell Spears Lubersky regarding legality of shares..................
10.1 Promissory Note dated May 17, 1990 by Joey Rodolfo to the Jones/ Rodolfo Corporation
(10.1) (1)..........................................................................
10.2 Stock Pledge Agreement dated April 1995 by Joey Rodolfo to the Jones/ Rodolfo
Corporation (10.2) (1)..............................................................
10.3 Lease dated May 22, 1994 between First and Cedar Associates and Jones/Rodolfo
Corporation d/b/a Cutter & Buck (10.3) (1)..........................................
10.4 Indenture of Lease dated August 10, 1993 between Lakeplace Associates and
Jones/Rodolfo Corporation (10.4) (1)................................................
10.5 Factoring Agreement dated March 1, 1995 between Republic Factors Corp. and
Jones/Rodolfo Corporation (10.5) (1)................................................
10.6 Form of Registration Rights Agreement between Cutter & Buck Inc. and Roanoke
Investors' Limited Partnership, Needham Capital SBIC, L.P. and Needham Emerging
Growth Partners, L.P. (10.6) (1)....................................................
10.7 Consulting Agreement dated April 20, 1995 between Joey Rodolfo and Jones/Rodolfo
Corporation (10.7) (1)..............................................................
10.8 First Amendment to Consulting Agreement dated July 6, 1995 between Joey Rodolfo and
Jones/Rodolfo Corporation (10.8) (1)................................................
10.9 1991 Stock Option Plan (10.9) (1)....................................................
10.10 1995 Nonemployee Director Stock Incentive Plan (10.10) (2)...........................
10.11 1995 Employee Stock Option Plan (10.11) (1)..........................................
10.12 1995 Employee Stock Purchase Plan incorporated by reference to the Registration
Statement on Form S-8 (File No. 33-80783)...........................................
10.13 Form of Representatives' Warrant (10.13) (1).........................................
10.14 Distribution Requisition Agreement dated February 2, 1996 between Cutter & Buck Inc.
and Re-Ward Limited (2).............................................................
10.15 Loan Agreement dated June 26, 1996 between Cutter & Buck Inc., as Borrower, and Bank
of America NW, N.A. d/b/a Seafirst Bank, as Lender (2)..............................
11.1 Statement of Computation of Net Income (Loss) Per Share..............................
21.1 Subsidiaries of the registrant.......................................................
23.1 Consent of Lane Powell Spears Lubersky (contained in opinion filed as Exhibit 5.1)...
23.2 Consent of Ernst & Young LLP (contained on page II-5)................................
24.1 Power of Attorney (contained on signature page)......................................
</TABLE>
- ------------------------
(1) Incorporated by reference to the exhibit shown in the preceding parentheses
and filed with the registrant's Registration Statement on Form SB-2 (File
No. 33-94548-LA).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended April 30, 1996.
<PAGE>
1,400,000 Shares
CUTTER & BUCK INC.
COMMON STOCK
UNDERWRITING AGREEMENT
______________, 1996
NEEDHAM & COMPANY, INC.
WEDBUSH MORGAN SECURITIES INC.
As Representatives of the several Underwriters
c/o Needham & Company, Inc.
445 Park Avenue
New York, New York 10022
Ladies and Gentlemen:
Cutter & Buck Inc., a Washington corporation (the "Company"), proposes to
sell 1,400,000 shares (the "Company Firm Shares") of Common Stock of the
Company, no par value (the "Common Stock"), and the shareholders named on
Schedule II hereto (each, a "Selling Shareholder" and collectively, the "Selling
Shareholders") propose severally to sell an aggregate of 100,000 shares (the
"Selling Shareholders Firm Shares") of the Company's issued and outstanding
Common Stock, to you and to the several other Underwriters (as defined below).
The Company Firm Shares and the Selling Shareholders Firm Shares are
collectively referred to herein as the "Firm Shares." The Company has agreed to
grant to you and the other Underwriters an option (the "Option") to purchase up
to an additional 210,000 shares of Common Stock (the "Option Shares") on the
terms and for the purposes set forth in Section 1(b) below. The Firm Shares and
the Option Shares are referred to collectively herein as the "Shares."
It is understood that, subject to the conditions hereinafter stated, the
Firm Shares will be sold to you and the several other Underwriters named in
Schedule I hereto (collectively, the "Underwriters"), for whom you are acting as
representatives (the "Representatives").
The Company and each of the Selling Shareholders confirm their respective
agreements with the Representatives and the several other Underwriters as
follows:
1. AGREEMENT TO SELL AND PURCHASE
a. On the basis of the representations, warranties and agreements herein
contained and subject to all the terms and conditions of this Agreement, (i) the
Company agrees to issue and sell the Company Firm Shares to the several
Underwriters, (ii) each Selling Shareholder agrees to sell to the several
Underwriters the number of the Selling Shareholders Firm Shares set forth
opposite such Selling Shareholder's name on Schedule II hereto, and (iii) each
of the Underwriters, severally and not jointly, agrees to purchase from the
Company and the Selling Shareholders, respectively, the respective number of
Firm Shares set forth opposite that Underwriter's name in Schedule I hereto, at
the purchase price of $13.6875 for each Firm Share.
- --------------------
* Plus an option to purchase up to an additional 210,000 shares to cover
over-allotments.
<PAGE>
b. Subject to all the terms and conditions of this Agreement, the Company
grants the Option to the several Underwriters to purchase, severally and not
jointly, up to the maximum number of Option Shares at the same price per share
as the Underwriters shall pay for the Firm Shares. The Company grants an
option to the several Underwriters to purchase 215,000 Option Shares (the
"Company Option Shares" and, together with the Company Firm Shares, the "Company
Shares"). The Option may be exercised only to cover over-allotments in the sale
of the Firm Shares by the Underwriters and may be exercised in whole or in part
at any time (but not more than once) on or before the 30th day after the date of
this Agreement upon written or telegraphic notice (the "Option Shares Notice")
by the Representatives to the Company, no later than 12:00 noon, New York City
time, at least two and no more than three business days before the date
specified for closing in the Option Shares Notice (the "Option Closing Date"),
setting forth the aggregate number of Option Shares to be purchased and the time
and date for such purchase. On the Option Closing Date, the Company will sell
to the Underwriters the number of Option Shares set forth in the Option Shares
Notice, and each Underwriter will purchase such percentage of the Option Shares
as is equal to the percentage of the Firm Shares that such Underwriter is
purchasing, as adjusted by the Representatives in such manner as they deem
advisable to avoid fractional shares.
2. DELIVERY AND PAYMENT
Delivery of the Firm Shares shall be made to the Representatives for the
accounts of the Underwriters against payment of the purchase price by certified
or official bank checks payable in New York Clearing House (next-day) funds to
the order of the Company and to the order of the Agent (as defined below) in
proportion to the number of Firm Shares to be sold by the Company and each
Selling Shareholder, respectively, at the offices of Lane Powell Spears
Lubersky, 1420 Fifth Avenue, Suite 4100, Seattle, WA 98101-2338, at 7:00 a.m.,
Seattle time, on the third business day following the date of this Agreement, or
at such time on such other date, not later than five business days after the
date of this Agreement, as may be agreed upon by the Company and the
Representatives (such date is hereinafter referred to as the "Closing Date").
To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriters (in the manner specified above) will take
place at the offices specified above for the Closing Date at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
Certificates evidencing the Shares shall be in definitive form and shall be
registered in such names and in such denominations as the Representatives shall
request at least two business days prior to the Closing Date or the Option
Closing Date, as the case may be, by written notice to the Company. For the
purpose of expediting the checking and packaging of certificates for the Shares,
the Company agrees to make such certificates available for inspection at least
24 hours prior to the Closing Date or the Option Closing Date, as the case may
be.
The cost of original issue tax stamps, if any, in connection with the
issuance and delivery of the Shares by the Company to the respective
Underwriters shall be borne by the Company. The Company and the Selling
Shareholders will pay and save each Underwriter and any subsequent holder of the
Shares harmless from any and all liabilities regarding their respective Shares
with respect to or resulting from any failure or delay in paying federal and
state stamp and other transfer taxes, if any, which may be payable or determined
to be payable in connection with the original issuance or sale to such
Underwriter of the Shares sold by such person or entity, as the case may be.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents, warrants and covenants to each Underwriter that:
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<PAGE>
a. A registration statement (Registration No. 333-[_______]) on Form S-1
relating to the Shares, including a preliminary prospectus and such amendments
to such registration statement as may have been required to the date of this
Agreement, has been prepared by the Company under the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
(collectively referred to as the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission. The term "preliminary prospectus" as used herein means a
preliminary prospectus as contemplated by Rule 430 or Rule 430A of the Rules and
Regulations included at any time as part of the registration statement. Copies
of such registration statement, amendments and exhibits thereto and of each
related preliminary prospectus have been delivered to the Representatives. If
such registration statement has not become effective, a further amendment to
such registration statement, including a form of final prospectus, necessary to
permit such registration statement to become effective will be filed promptly by
the Company with the Commission. If the registration statement has become
effective, a final prospectus containing information permitted to be omitted at
the time of effectiveness by Rule 430A of the Rules and Regulations will be
filed promptly by the Company with the Commission in accordance with Rule 424(b)
of the Rules and Regulations. The term "Registration Statement" means the
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits and any
information deemed to be included by Rule 430A. Any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations ("Rule 462(b)") is
herein referred to as the "Rule 462(b) Registration Statement," and after such
filing the term "Registration Statement" shall include the Rule 462(b)
Registration Statement. The term "Prospectus" means the prospectus as first
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations
or, if no such filing is required, the form of final prospectus included in the
Registration Statement at the Effective Date.
b. On the Effective Date, the date the Prospectus is first filed with the
Commission pursuant to Rule 424(b) (if required), at all times subsequent to and
including the Closing Date and, if later, the Option Closing Date and when any
Rule 462(b) Registration Statement and any post-effective amendment to the
Registration Statement becomes effective or any amendment or supplement to the
Prospectus is filed with the Commission, the Registration Statement, the
Rule 462(b) Registration Statement and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included in the
Prospectus, did and will comply with all applicable provisions of the Act and
the Rules and Regulations and will contain all statements required to be stated
therein in accordance with the Act and the Rules and Regulations. On the
Effective Date and when any Rule 462(b) Registration Statement and any post-
effective amendment to the Registration Statement becomes effective, no part of
the Registration Statement, the Prospectus or any such amendment or supplement
did or will contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein not misleading. At the Effective Date, the date the
Prospectus or any amendment or supplement to the Prospectus is filed with the
Commission and at the Closing Date and, if later, the Option Closing Date, the
Prospectus did not and will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
foregoing representations and warranties in this Section 3(b) do not apply to
any statements or omissions made in reliance on and in conformity with
information relating to any Underwriter furnished in writing to the Company by
the Representatives specifically for inclusion in the Registration Statement or
Prospectus or any amendment or supplement thereto. The Company acknowledges
that the statements set forth in the first two paragraphs under the heading
"Underwriting" in the Prospectus constitute the only information relating to any
Underwriter furnished in writing to the Company by the Representatives
specifically for inclusion in the Registration Statement.
c. The Company (i) does not own, and at the Closing Date and, if later,
the Option Closing Date will not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any corporation, firm, partnership, joint venture,
association or other entity other than Cutter & Buck U.K. Ltd. and Cutter & Buck
B.V. (each, a "Subsidiary," and
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<PAGE>
collectively, the "Subsidiaries") and (ii) is not, and at the Closing Date and,
if later, the Option Closing Date will not be, engaged in any discussions or a
party to any agreement or understanding, written or oral, regarding the
acquisition of an interest in any corporation, firm, partnership, joint venture,
association or other entity where such discussions, agreements or understandings
would require amendment to the Registration Statement pursuant to applicable
securities laws. The Company and each of the Subsidiaries is, and at the
Closing Date and, if later, the Option Closing Date will be, a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation. The Company and each of the Subsidiaries has,
and at the Closing Date and, if later, the Option Closing Date will have, full
power and authority to conduct all the activities conducted by it, to own or
lease all the material assets owned by or leased by it and to conduct its
business as described in the Registration Statement and the Prospectus. The
Company and each of the Subsidiaries is, and at the Closing Date and, if later,
the Option Closing Date will be, duly licensed or qualified to do business and
in good standing as a foreign corporation in all jurisdictions in which the
nature of the activities conducted by it or the character of the assets owned or
leased by it makes such license or qualification necessary, except to the extent
that the failure to be so qualified or be in good standing would not materially
and adversely affect the Company or its business, properties, business
prospects, condition (financial or other) or results of operations. Complete
and correct copies of the articles of incorporation and of the bylaws of the
Company and all amendments thereto and all charter documents of each Subsidiary
and all amendments thereto have been delivered to the Representatives, and no
changes therein will be made subsequent to the date hereof and prior to the
Closing Date or, if later, the Option Closing Date.
d. All of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, are fully paid and nonassessable, were
issued in compliance with all applicable state and federal securities laws, were
not issued in violation of or subject to any preemptive rights or other rights
to subscribe for or purchase securities, and conform to the description thereof
contained in the Prospectus; the Company Shares have been duly authorized and
when issued and paid for as contemplated herein will be validly issued, fully
paid and nonassessable and will conform to the description thereof contained in
the Prospectus; and no preemptive rights or other rights to subscribe for or
purchase exist with respect to the issuance and sale of the Shares. The
description of the capital stock of the Company in the Registration Statement
and the Prospectus is, and at the Closing Date and, if later, the Option Closing
Date will be, complete and accurate in all respects. Except as set forth in the
Prospectus, the Company does not have outstanding, and at the Closing Date and,
if later, the Option Closing Date will not have outstanding, any options to
purchase, or any rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue or sell,
any shares of Common Stock, or any such warrants, convertible securities or
obligations. The description of the Company's stock option and other stock
plans or arrangements, and the options or other rights granted or exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights. No further approval or authority of the shareholders or the
Board of Directors of the Company will be required for the transfer and sale of
the Selling Shareholders Shares or the issuance and sale of the Company Shares
as contemplated herein.
e. All of the outstanding shares of capital stock of each Subsidiary have
been duly authorized and validly issued, are fully paid and nonassessable and
are owned by the Company, free and clear of any security interest, mortgage,
pledge, lien, encumbrance, claim or equity.
f. The financial statements and schedules included in the Registration
Statement or the Prospectus present fairly the financial condition of the
Company as of the respective dates thereof and the results of operations and
cash flows of the Company for the respective periods covered thereby, all in
conformity with generally accepted accounting principles applied on a consistent
basis throughout the entire period involved. No other financial statements or
schedules of the Company are required by the Act or the Rules and Regulations to
be included in the Registration Statement or the Prospectus. Ernst & Young LLP,
who has reported on such financial statements and schedules, are independent
accountants with respect to the Company as required by the Act and the Rules and
Regulations. The summary financial and statistical data
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<PAGE>
included in the Registration Statement present fairly the information shown
therein and have been compiled on a basis consistent with the financial
statements presented therein.
g. Subsequent to the respective dates as of which information is given in
the Registration Statement and the Prospectus and prior to the Closing Date and,
if later, the Option Closing Date, except as set forth in or contemplated by the
Registration Statement and the Prospectus, (i) there has not been and will not
have been any change in the capitalization of the Company or any of its
Subsidiaries (other than in connection with the exercise of options to purchase
the Company's Common Stock granted pursuant to the Company's stock option plans
from the reserves as described in the Registration Statement which such shares
received upon exercise will be subject to the lock-up agreements described in
Section 5(n) below), or any material adverse change in the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company or any of its Subsidiaries, arising for any reason whatsoever,
(ii) neither the Company nor any of the Subsidiaries has incurred or will incur,
except in the ordinary course of business as described in the Prospectus, any
material liabilities or obligations, direct or contingent, or entered into or
will enter into, except in the ordinary course of business as described in the
Prospectus, any material transactions other than pursuant to this Agreement and
the transactions referred to herein, and (iii) neither the Company nor any of
the Subsidiaries has paid or will pay or declare any dividends or other
distributions of any kind on any class of its capital stock.
h. The Company is not an "investment company" or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
i. There are no actions, suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company, any
Subsidiary, or any of their respective officers in their capacity as such, nor
any basis therefor, before or by any federal or state court, commission,
regulatory body, administrative agency or other governmental body, domestic or
foreign, wherein an unfavorable ruling, decision or finding would materially and
adversely affect the Company and its Subsidiaries, taken as a whole, or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole.
j. Each of the Company and the Subsidiaries has, and at the Closing Date
and, if later, the Option Closing Date will have, performed all its obligations
required to be performed by it as of such date, and each of the Company and each
of its Subsidiaries is not, and at the Closing Date and, if later, the Option
Closing Date will not be, in default, under any contract or other instrument to
which it is a party or by which its property is bound or affected, which default
might materially and adversely affect the Company and its Subsidiaries, taken as
a whole, or the business, properties, business prospects, condition (financial
or other) or results of operations of the Company and its Subsidiaries, taken as
a whole. To the Company's best knowledge, no other party under any contract or
other instrument to which any of the Company or its Subsidiaries is a party is
in default in any respect thereunder, which default would materially and
adversely affect the Company and its Subsidiaries, taken as a whole, or the
business, properties, business prospects, condition (financial or other) or
results of operations of the Company and its Subsidiaries, taken as a whole.
The Company is not, and at the Closing Date and, if later, the Option Closing
Date will not be, in violation of any provision of its articles of incorporation
or bylaws. Each Subsidiary is not, and at the Closing Date and, if later, the
Option Closing Date will not be, in violation of any provision of its charter
documents.
k. No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by the Company of the transactions on its part contemplated herein,
except such as have been obtained under the Act or the Rules and Regulations and
such as may be required under state securities or Blue Sky laws or the bylaws
and rules of the National
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<PAGE>
Association of Securities Dealers, Inc. (the "NASD") in connection with the
purchase and distribution by the Underwriters of the Shares.
l. The Company has full corporate power and authority to enter into this
Agreement. This Agreement has been duly authorized, executed and delivered by
the Company and constitutes a valid and binding agreement of the Company,
enforceable against the Company in accordance with its terms. The performance
of this Agreement and the consummation of the transactions contemplated hereby
will not result in the imposition of any lien, charge or encumbrance upon any of
the assets of the Company or any of its Subsidiaries pursuant to the terms or
provisions of, or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, or give any party a right to
terminate any of its obligations under, or result in the acceleration of any
obligation under the articles of incorporation or bylaws of the Company, the
charter documents of any of its Subsidiaries, any indenture, mortgage, deed of
trust, voting trust agreement, loan agreement, bond, debenture, note agreement
or other evidence of indebtedness, lease, contract or other agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or any of their respective
properties is bound or affected, or violate or conflict with any judgment,
ruling, decree, order, statute, rule or regulation of any court or other
governmental agency or body applicable to the business or properties of the
Company or any of its Subsidiaries presently in effect, a breach or violation of
which, a default under which, a termination of which, an acceleration under
which, or a conflict with which would materially and adversely affect the
Company and its Subsidiaries, taken as a whole, and the business, properties,
business prospects, condition (financial or other) or results of operations of
the Company and its Subsidiaries, taken as a whole.
m. Each of the Company and the Subsidiaries has good and marketable title
to all properties and assets described in the Prospectus as owned by it, free
and clear of all liens, charges, encumbrances or restrictions, except such
liens, charges, encumbrances or restrictions as are described in the Prospectus
and those which, individually and in the aggregate, are not material in amount
or which, individually and in the aggregate, do not adversely affect the use
made or proposed to be made of such properties and assets by the Company or its
Subsidiaries, as the case may be. Each of the Company and the Subsidiaries, as
lessee, has valid, subsisting and enforceable leases for the properties
described in the Prospectus as leased by it. The agreements to which any of the
Company or the Subsidiaries is a party described in the Prospectus are valid
agreements, enforceable by the Company or the Subsidiaries (as applicable),
except as the enforcement thereof may be limited by bankruptcy and laws relating
to the rights and remedies of creditors generally or by the availability of
general equitable remedies. Each of the Company and the Subsidiaries owns or
leases all such properties as are necessary to its operations as now conducted
or as proposed to be conducted, except where the failure to so own or lease
would not materially and adversely affect the Company and its Subsidiaries,
taken as a whole, or the business, properties, business prospects, condition
(financial or otherwise) or results of operations of the Company and its
Subsidiaries, taken as a whole.
n. There is no document or contract of a character required to be
described in the Registration Statement or the Prospectus or to be filed as an
exhibit to the Registration Statement which is not described or filed as
required. All such contracts to which any of the Company or its Subsidiaries is
a party have been duly authorized, executed and delivered by such party,
constitute valid and binding agreements of such party and are enforceable
against such party and by such party against the other parties thereto in
accordance with the terms thereof, except as to (i) rights to indemnity and
contribution thereunder which may be limited by applicable law, (ii) bankruptcy
and laws relating to the rights and remedies of creditors generally, and
(iii) the availability of equitable remedies.
o. No statement, representation, warranty or covenant made by the Company
in this Agreement or made in any certificate or document required by
Section 6(l) of this Agreement to be delivered to the Representatives was or
will be, when made, inaccurate, untrue or incorrect.
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<PAGE>
p. Neither the Company, any of its Subsidiaries nor any of their
respective directors, officers or controlling persons has taken, directly or
indirectly, any action designed, or which might reasonably be expected, to cause
or result, under the Act or otherwise, in, or which has constituted,
stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
q. No holder of securities of the Company has rights to the registration
of any securities of the Company because of the filing of the Registration
Statement, which rights have not been waived by the holder or otherwise
satisfied as of the date hereof.
r. The Common Stock is listed and duly admitted to trading on the Nasdaq
National Market (the "Nasdaq/NM"), and the Company has received notification
that the listing by the Nasdaq/NM of the Shares has been approved, subject to
official notice of issuance of the Shares.
s. (i) Each of the Company and the Subsidiaries has sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals and
governmental authorizations to conduct its business as now conducted, where the
failure to have any such right would have a material and adverse effect on the
Company and its Subsidiaries, taken as a whole, or the business, properties,
business prospects, condition (financial or otherwise) or results of operations
of the Company and its Subsidiaries, taken as a whole; (ii) neither the Company
nor any of the Subsidiaries is infringing any copyrights, trade secrets or other
similar rights, trademarks, trade name rights or patent rights of others, where
such infringement would have a material and adverse effect on the Company and
its Subsidiaries, taken as a whole, or the business, properties, business
prospects, condition (financial or otherwise) or results of operations of the
Company and its Subsidiaries, taken as a whole; and (iii) no claim has been made
against the Company or any of its Subsidiaries regarding trademark, trade name,
patent, copyright, license, trade secret or other infringement which would have
a material and adverse effect on the Company and its Subsidiaries, taken as a
whole, or the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole.
t. Each of the Company and the Subsidiaries has filed all federal, state
and foreign income tax returns which have been required to be filed and has paid
all taxes and assessments received by it to the extent that such taxes or
assessments have become due. Neither the Company nor any of the Subsidiaries
has any tax deficiency which has been or, to the Company's knowledge might be,
asserted or threatened against the Company or the Subsidiaries which could have
a material and adverse effect on the Company and its Subsidiaries, taken as a
whole, or the business, properties, business prospects, condition (financial or
otherwise) or results of operations of the Company and its Subsidiaries, taken
as a whole.
u. Each of the Company and the Subsidiaries owns or possesses all
authorizations, approvals, orders, licenses, registrations, customs clearances,
other certificates and permits of and from all governmental regulatory officials
and bodies necessary to conduct its business as contemplated in the Prospectus
and it is in compliance with all import quotas of such officials and bodies,
except where the failure to own or possess all such authorizations, approvals,
orders, licenses, registrations, customs clearances, other certificates and
permits or to be in compliance with such import quotas would not materially and
adversely affect the Company and its Subsidiaries, taken as a whole, or the
business, properties, business prospects, condition (financial or otherwise) or
results of operations of the Company and its Subsidiaries, taken as a whole.
There is no proceeding pending or threatened, or any basis therefor known to the
Company or any of its Subsidiaries, which may cause any such authorization,
approval, order, license, registration, customs clearances certificate or permit
to be revoked, withdrawn, canceled, suspended or not renewed; and the Company
and each of its Subsidiaries is conducting its business in compliance with all
laws, rules and regulations applicable thereto, including, without limitation,
all applicable import quotas and all applicable local, state and federal
environmental laws and regulations except where any such failure to comply would
not have a material adverse effect on the Company and its Subsidiaries, taken as
a whole.
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<PAGE>
v. The Company and each of its Subsidiaries maintains insurance of the
types and in the amounts generally deemed adequate for its business, including,
but not limited to, insurance covering real and personal property owned or
leased by it against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against and key person life insurance relating to
Harvey N. Jones and Joey Rodolfo, all of which insurance is in full force and
effect.
w. Neither the Company, any of its Subsidiaries nor, to the Company's
knowledge, any of their respective employees or agents have at any time during
the last five years (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any federal or state governmental officer or
official, or other person charged with similar public or quasi-public duties,
other than payments required or permitted by the laws of the United States or
any jurisdiction thereof.
x. Neither the Company nor any of the Subsidiaries has since the filing
of the Registration Statement, except in connection with the sale of the Shares,
(i) sold, bid for, purchased, attempted to induce any person to purchase, or
paid anyone any compensation for soliciting purchases of, the Shares or
(ii) paid or agreed to pay any person any compensation for soliciting another to
purchase any other securities of the Company.
y. (i) The Company has complied with all provisions of Florida Statutes,
Section 517,075, relating to issuers doing business with Cuba.
. (ii) Neither the Company nor any of the Subsidiaries has any liability
or obligation of any nature (absolute, accrued, contingent or otherwise) which
is not fully reflected or adequately reserved against in the balance sheet at
April 30, 1996, except (A) for liabilities incurred in the ordinary course of
business and not required under generally accepted accounting procedures to be
reflected on the balance sheet, or (B) incurred since April 30, 1996 in the
ordinary course of business and consistent with past practice, or (C) described
in the Prospectus. Each of the Company and its Subsidiaries maintains a system
of internal accounting controls sufficient to provide reasonable assurance that
(A) transactions are executed in accordance with management's general or
specific authorizations; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accounting for assets; and (C) reserves
for obsolete inventory, bad debts and sales returns and allowances are adequate.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING SHAREHOLDERS
a. Each Selling Shareholder represents and warrants to, and agrees with,
the several Underwriters that:
(i) Such Selling Shareholder has, and on the Closing Date with
respect to the Selling Shareholders Firm Shares will have, good and marketable
title to the Selling Shareholders Firm Shares to be sold by such Selling
Shareholder and full right, power and authority to enter into this Agreement and
to sell, assign, transfer and deliver the Selling Shareholders Firm Shares to be
sold by such Selling Shareholder hereunder, free and clear of all voting trust
arrangements, liens, encumbrances, equities, security interests, restrictions
and claims whatsoever; and upon delivery of and payment for the Selling
Shareholders Firm Shares hereunder, the Underwriters will acquire good and
marketable title to the Selling Firm Shareholders Shares to be sold by such
Selling Shareholders, free and clear of all liens, encumbrances, equities,
claims, restrictions, security interests, voting trusts or other defects of
title whatsoever.
(ii) Such Selling Shareholder has executed and delivered a Power of
Attorney and a Custody Agreement (hereinafter collectively referred to as the
"Shareholders Agreement") and in connection
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herewith such Selling Shareholder further represents, warrants and agrees that
such Selling Shareholder has deposited in custody, under the Shareholders
Agreement, with the agent named therein (the "Agent") as custodian, certificates
in negotiable form representing the Selling Shareholders Firm Shares to be sold
by such Selling Shareholder, for the purpose of further delivery pursuant to
this Agreement. Such Selling Shareholder agrees that the Selling Shareholders
Firm Shares on deposit with the Agent are subject to the interests of the
Company and the Underwriters, that the arrangements made for such custody are to
that extent irrevocable, and that the obligations of such Selling Shareholder
hereunder shall not be terminated, except as provided in this Agreement or in
the Shareholders Agreement, by any act of such Selling Shareholder, by operation
of law or by the occurrence of any other event. If any such event should occur,
before the delivery of the Selling Shareholders Firm Shares hereunder, the
documents evidencing Selling Shareholders Firm Shares then on deposit with the
Agent shall be delivered by the Agent in accordance with the terms and
conditions of this Agreement as if such event had not occurred, regardless of
whether or not the Agent shall have received notice thereof. This Agreement and
the Shareholders Agreement have been duly executed and delivered by or on behalf
of such Selling Shareholder and the form of such Shareholders Agreement has been
delivered to you.
(iii) The performance of this Agreement and the Shareholders
Agreement and the consummation of the transactions contemplated hereby and by
the Shareholders Agreement will not result in a breach or violation by such
Selling Shareholder of any of the terms or provisions of, or constitute a
default by such Selling Shareholder under, any indenture, mortgage, deed of
trust, trust (constructive or other), loan agreement, lease, franchise, license
or other agreement or instrument to which such Selling Shareholder or any of its
properties is bound, any statute, or any judgment, decree, order, rule or
regulation of any court or governmental agency or body applicable to such
Selling Shareholder or any of its properties.
(iv) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Shares.
(v) Each preliminary prospectus and the Prospectus, insofar as it
relates to such Selling Shareholder, has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and has not included
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made; and neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, as it relates to
such Selling Shareholder, will include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(vi) The sale of the Selling Shareholders Firm Shares to be sold by
such Selling Shareholder pursuant hereto is not prompted by any information
concerning the Company that is not set forth in the Registration Statement.
(vii) Such Selling Shareholder is not aware, and has no basis to
believe, that any of the representations and warranties of the Company set forth
in Section 3 above is untrue or inaccurate in any material respect and has
reviewed the Registration Statement and is not aware, and has no basis to
believe, that the Registration Statement contains any untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading.
b. Each Selling Shareholder agrees with the Company and the Underwriters
not to directly or indirectly offer to sell, sell or contract to sell or
otherwise dispose of any shares of Common Stock or securities convertible into
or exchangeable for any shares of Common Stock, or any right to purchase or
acquire Common Stock, for a period terminating 120 days after the date of the
Closing, without the prior written
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consent of Needham & Company, Inc., which consent may be withheld in Needham &
Company, Inc.'s sole discretion.
5. AGREEMENTS OF THE COMPANY
The Company agrees with the several Underwriters as follows:
a. The Company will not, either prior to the Effective Date or thereafter
during such period as the Prospectus is required by law to be delivered in
connection with sales of the Shares by an Underwriter or dealer, file any
amendment or supplement to the Registration Statement (including any Rule 462(b)
Registration Statement) or the Prospectus, unless a copy thereof shall first
have been submitted to the Representatives within a reasonable period of time
prior to the filing thereof and the Representatives shall not have objected
thereto in good faith.
b. The Company will use its best efforts to cause the Registration
Statement to become effective, and will notify the Representatives promptly, and
will confirm such advice in writing, (i) when the Registration Statement has
become effective and when any post-effective amendment thereto becomes
effective, (ii) of any request by the Commission for amendments or supplements
to the Registration Statement or the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose or the threat thereof, (iv) of the happening of any event
during the period mentioned in the second sentence of Section 5(e) that makes
any statement made in the Registration Statement or the Prospectus untrue or
that requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances in which they are made, not misleading, and (v) of receipt by the
Company or any representative or attorney of the Company of any other
communication from the Commission relating to the Company, the Registration
Statement, any preliminary prospectus or the Prospectus. If at any time the
Commission shall issue any order suspending the effectiveness of the
Registration Statement, the Company will make every reasonable effort to obtain
the withdrawal of such order at the earliest possible moment. If the Company
has omitted any information from the Registration Statement pursuant to
Rule 430A of the Rules and Regulations, the Company will use its best efforts to
comply with the provisions of, and make all requisite filings with the
Commission pursuant to, said Rule 430A and to notify the Representatives
promptly of all such filings. If the Company elects to rely on Rule 462(b), the
Company shall file a registration statement with the Commission in compliance
with Rule 462(b) no later than the earlier of (i) 10:00 p.m. Eastern time on the
date hereof and (ii) the time confirmations are sent or given, as specified by
Rule 462(b), and shall pay the applicable fees in accordance with Rule 111 of
the Rules and Regulations.
c. The Company will furnish to the Representatives, without charge, three
signed copies of the Registration Statement and of any post-effective amendment
thereto, including financial statements and schedules, and all exhibits thereto,
and will furnish to the Representatives, without charge, for transmittal to each
of the other Underwriters, a copy of the Registration Statement and any post-
effective amendment thereto, including financial statements and schedules, but
without exhibits.
d. The Company will comply with all the provisions of any undertakings
contained in the Registration Statement.
e. On the Effective Date, and thereafter from time to time, the Company
will deliver to each of the Underwriters, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as the Representatives may
reasonably request. The Company consents, subject to the provisions of the
following sentence, to the use of the Prospectus or any amendment or supplement
thereto by the several Underwriters and by all dealers to whom the Shares may be
sold, both in connection with the offering or sale
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<PAGE>
of the Shares and for any period of time thereafter during which the Prospectus
is required by law to be delivered in connection therewith. If during the nine
month period referred to in Section 10(a)(3) of the Act any event shall occur
which in the judgment of the Company or counsel to the Underwriters should be
set forth in the Prospectus in order to make any statement therein, in light of
the circumstances under which it was made, not misleading, or if it is necessary
to supplement or amend the Prospectus to comply with law, the Company will
forthwith prepare and duly file with the Commission an appropriate supplement or
amendment thereto, and will deliver to each of the Underwriters, without charge,
such number of copies of such supplement or amendment to the Prospectus as the
Representatives may reasonably request.
f. Prior to any public offering of the Shares, the Company will cooperate
with the Representatives and counsel to the Underwriters in connection with the
registration or qualification of the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Representatives may
request; provided that in no event shall the Company be obligated to qualify to
do business in any jurisdiction where it is not now so qualified or to take any
action which would subject it to general service of process in any jurisdiction
where it is not now so subject.
g. During the period of five years commencing on the later of the
Effective Date or the effective date of any Rule 462(b) Registration Statement,
the Company will furnish to the Representatives, and each other Underwriter who
may so request, copies of such financial statements and other periodic and
special reports as the Company may from time to time distribute generally to the
holders of any class of its capital stock, and will furnish to the
Representatives, and each other Underwriter who may so request, a copy of each
annual or other report it shall be required to file with the Commission.
h. The Company will make generally available to holders of its securities
as soon as may be practicable but in no event later than the last day of the
fifteenth full calendar month following the calendar quarter in which the
Effective Date falls, an earnings statement (which need not be audited but shall
be in reasonable detail) for the applicable 12-month period after the Effective
Date, satisfying the provisions of Section 11(a) of the Act (including Rule 158
of the Rules and Regulations).
i. Whether or not the transactions contemplated by this Agreement are
consummated or this Agreement is terminated, the Company will pay, or reimburse
if paid by the Representatives, all costs and expenses incident to the
performance of the obligations of the Company under this Agreement, including
but not limited to costs and expenses of or relating to (i) the preparation,
printing and filing by the Company of the Registration Statement and exhibits to
it, each preliminary prospectus, Prospectus and any amendment or supplement to
the Registration Statement or Prospectus, (ii) the preparation and delivery of
certificates representing the Shares, (iii) the printing of this Agreement, the
Agreement Among Underwriters, any Dealer Agreements and any Underwriters'
Questionnaires, (iv) furnishing (including costs of shipping and mailing) such
copies of the Registration Statement, the Prospectus and any preliminary
prospectus, and all amendments and supplements thereto, as may be requested for
use in connection with the offering and sale of the Shares by the Underwriters
or by dealers to whom Shares may be sold, (v) the listing of the Shares on the
Nasdaq/NM, (vi) any filings required to be made by the Underwriters with the
NASD, and the fees, disbursements and other charges of counsel for the
Underwriters in connection therewith, (vii) the registration or qualification of
the Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 5(f), including the fees,
disbursements and other charges of counsel to the Underwriters in connection
therewith, and the preparation and printing of preliminary, supplemental and
final Blue Sky memoranda, (viii) fees, disbursements and other charges to the
Company (but not those of counsel for the Underwriters, except as otherwise
provided herein), and (ix) the transfer agent for the Shares.
j. If this Agreement shall be terminated by the Company pursuant to any
of the provisions hereof (otherwise than pursuant to Section 9 hereof) or if for
any reason the Company shall be unable to perform its obligations hereunder, the
Company will reimburse the several Underwriters for all reasonable out-
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of-pocket expenses (including the fees, disbursements and other charges of
counsel to the Underwriters) reasonably incurred by them in connection herewith.
k. The Company will not at any time, directly or indirectly, take any
action designed, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the shares of Common
Stock to facilitate the sale or resale of any of the Shares.
l. The Company will apply the net proceeds from the offering and sale of
the Company Shares in the manner set forth in the Prospectus under "Use of
Proceeds."
m. During the period of 120 days commencing at the Closing Date, without
the prior written consent of the Representatives and other than pursuant to the
exercise of outstanding stock options or otherwise pursuant to the Company's
stock option or other stock plans disclosed in the Prospectus, the Company will
not issue, offer, sell, grant options to purchase or otherwise dispose of any of
the Company's equity securities or any other securities convertible into or
exchangeable with its Common Stock or other equity security. During a period of
120 days after the Closing Date, the Company will not file a registration for
the purpose of registering any securities of the Company without the prior
written consent of Needham & Company, Inc.
n. The Company will cause each of its officers, directors and
optionholders to enter into lock-up agreements with the Representatives to the
effect that they will not, without the prior written consent of Needham &
Company, Inc., sell, contract to sell or otherwise dispose of any shares of
Common Stock or rights to acquire such shares according to the terms set forth
in Exhibit A hereto.
6. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS
The obligations of each Underwriter hereunder are subject to the following
conditions:
a. Notification that the Registration Statement has become effective
shall be received by the Representatives not later than 5:00 p.m., New York City
time, on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Representatives and all filings required by
Rule 424 and Rule 430A of the Rules and Regulations shall have been made.
b. (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for the purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or registration
of the Shares under the securities or Blue Sky laws of any jurisdiction shall be
in effect and no proceeding for such purpose shall be pending before or
threatened or contemplated by the Commission or the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall have been complied with to
the satisfaction of the staff of the Commission or such authorities, and
(iv) after the date hereof no amendment or supplement to the Registration
Statement or the Prospectus shall have been filed unless a copy thereof was
first submitted to the Representatives and the Representatives do not object
thereto in good faith, and the Representatives shall have received certificates,
dated the Closing Date and the Option Closing Date and signed by the Chief
Executive Officer and the Chief Financial Officer of the Company (who may, as to
proceedings threatened, rely upon the best of their knowledge), to the effect of
clauses (i), (ii) and (iii) of this Section 6(b).
c. Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise) or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as
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<PAGE>
described in or contemplated by the Registration Statement and the Prospectus,
and (ii) the Company shall not have sustained any material loss or interference
with its business or properties from fire, explosion, flood, earthquake or other
casualty, whether or not covered by insurance, or from any labor dispute or any
court of legislative or other governmental action, order or decree, which is not
described in the Registration Statement and the Prospectus, if in the judgment
of the Representatives any such development makes it impracticable or
inadvisable to consummate the sale and delivery of the Shares by the
Underwriters at the public offering price.
d. Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or any of its officers or
directors in their capacities as such, before or by any federal, state or local
court, commission, regulatory body, administrative agency or other governmental
body, domestic or foreign, in which litigation or proceeding an unfavorable
ruling, decision or finding would materially and adversely affect the business,
properties, business prospects, condition (financial or otherwise) or results of
operations of the Company.
e. Each of the representations and warranties of the Company and each
Selling Shareholder contained herein shall be true and correct in all material
respects at the Closing Date and, with respect to the Option Shares, at the
Option Closing Date, and all covenants and agreements contained herein to be
performed on the part of the Company or the Selling Shareholders and all
conditions contained herein to be fulfilled or complied with by the Company or
the Selling Shareholders at or prior to the Closing Date and, with respect to
the Option Shares, at or prior to the Option Closing Date, shall have been duly
performed, fulfilled or complied with.
f. The Representatives shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date, from Lane
Powell Spears Lubersky, counsel to the Company and the Selling Shareholders,
which opinion shall be in the form set forth as Exhibit A hereto:
Such counsel shall state, in a letter separate from the opinion referred to
in this Section 6(f), that nothing has come to the attention of such counsel
that leads them to believe that (except for financial statements, schedules and
financial and statistical information, as to which such counsel need not express
any belief), the Registration Statement and the Prospectus, as amended, included
therein at the time the Registration Statement became effective contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
and the Prospectus, as amended or supplemented, if applicable, as of the date it
was filed pursuant to the Rules and Regulations and as of the Closing Date and
the Option Closing Date contained any untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
g. The Representatives shall have received an opinion, dated the Closing
Date and, with respect to the Option Shares, the Option Closing Date, from
Perkins Coie, counsel to the Underwriters, with respect to the Registration
Statement, the Prospectus and this Agreement, which opinion shall be in the form
set forth as Exhibit C hereto.
h. The Representatives shall have received, on or prior to the Closing
Date, agreements from all directors, officers, shareholders and optionholders of
the Company in the form of which is attached as Exhibit D hereto, stating that
each of such persons, without the prior written consent of Needham & Company,
Inc., will not offer, sell, contract to sell, or grant any option to purchase or
otherwise transfer or dispose of any Common Stock, or any securities convertible
into or exchangeable for Common Stock of the Company (including, without
limitation, Common Stock of the Company that may be deemed to be beneficially
owned by the undersigned in accordance with the rules and regulations of the
Securities and Exchange and Common Stock that may be issued upon exercise of a
stock option or warrant), or rights to acquire such Common Stock, exclusive of
any shares of Common Stock purchased in the public offering or the Shares
contemplated herein
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<PAGE>
or hereafter acquired in the public market, from the date hereof through the
dates specified in Exhibit D and in such agreements.
i. Concurrently with the execution and delivery of this Agreement,
Ernst & Young LLP shall have furnished to the Representatives a letter, dated
the date of its delivery, addressed to the Representatives and in form and
substance satisfactory to the Representatives, confirming that they are
independent accountants with respect to the Company as required by the Act and
the Rules and Regulations and with respect to certain financial and other
statistical and numerical information contained in the Registration Statement
for the fiscal years ended April 30, 1994, 1995 and 1996. At the Closing Date,
and, as to the Option Shares, the Option Closing Date, Ernst & Young LLP shall
have furnished to the Representatives a letter, dated the date of its delivery,
which shall confirm, on the basis of a review in accordance with the procedures
set forth in its letter, that nothing has come to its attention during the
period from the date of the letter referred to in the prior sentence to a date
(specified in the letter) not more than five days prior to the Closing Date and
the Option Closing Date, as the case may be, which would require any change in
the letter dated the date hereof if it was required to be dated and delivered at
the Closing Date and the Option Closing Date.
j. The Representatives shall have received, on or prior to the Closing
Date, copies of a letter to the Company from Ernst & Young LLP stating that
their review of the Company's system of internal accounting controls, to the
extent they deemed necessary in establishing the scope of their examination of
the Company's financial statements as of and at April 30, 1996, did not disclose
any weakness in internal controls that they considered to be material
weaknesses.
k. Concurrently with the execution and delivery of this Agreement and at
the Closing Date and, with respect to the Option Shares, the Option Closing
Date, there shall be furnished to the Representatives a certificate, dated the
date of its delivery, signed by the Chief Executive Officer and the Chief
Financial Officer of the Company, in form and substance satisfactory to the
Representatives, to the effect that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, the Registration Statement and the Prospectus do not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein not
misleading and (B) in the case of the certificate delivered at the Closing Date
and the Option Closing Date, since the Effective Date no event has occurred as a
result of which it is necessary to amend or supplement the Prospectus in order
to make the statements therein not untrue or misleading in any material respect.
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the time
such certificate is delivered, true and correct in all material respects.
(iii) Each of the covenants required to be performed by the Company
herein on or prior to the date of such certificate has been duly, timely and
fully performed and each condition herein required to be satisfied or fulfilled
on or prior to the date of such certificate has been duly, timely and fully
satisfied or fulfilled.
l. The Shares shall be qualified for sale in such jurisdictions as the
Representatives may, pursuant to the provisions of Section 5(f), reasonably
request, and each such qualification shall be in effect and not subject to any
stop order or other proceeding on the Closing Date or the Option Closing Date.
m. Prior to the Closing Date, the Shares shall have been duly authorized
for listing on the Nasdaq/NM upon official notice of issuance.
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<PAGE>
n. The Company shall have furnished to the Representatives such
certificates, in addition to those specifically mentioned herein, as the
Representatives may have reasonably requested as to the accuracy and completed
at the Closing Date and the Option Closing Date of any statement in the
Registration Statement or the Prospectus, as to the accuracy at the Closing Date
and the Option Closing Date of the representations and warranties of the Company
herein, as to the performance by the Company of its obligations hereunder, or as
to the fulfillment of the conditions concurrent and precedent to the obligations
hereunder of the Representatives.
7. INDEMNIFICATION
a. The Company and each Selling Shareholder, severally and not jointly,
will indemnify and hold harmless each Underwriter, the directors, officers,
employees and agents of each Underwriter and each person, if any, who controls,
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
each Underwriter, from and against any and all losses, claims, liabilities,
expenses and damages (including any and all investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted) to which
they, or any of them, may become subject under the Act, the Exchange Act or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, liabilities, expenses or damages (i) arise out
of or are based on any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus, the Registration
Statement or the Prospectus or any amendment or supplement to the Registration
Statement or the Prospectus, or the omission or alleged omission to state in
such document a material fact required to be stated in it or necessary to make
the statements in it not misleading in light of the circumstances in which they
were made, (ii) arise out of or are based in whole or in part on any inaccuracy
in the respective representations and warranties of the Company or such Selling
Shareholder contained herein, or (iii) arise out of or are based upon any
failure of the Company or such Selling Shareholder to perform its obligations
hereunder or under law in connection with the transactions contemplated hereby;
provided that neither the Company nor such Selling Shareholder will be liable to
the extent that such loss, claim, liability, expense or damage arises from the
sale of the Shares in the public offering to any person by an Underwriter and is
based on an untrue statement or omission or alleged untrue statement or omission
made in reliance on and in conformity with information relating to any
Underwriter furnished in writing to the Company by the Representatives, on
behalf of any Underwriter, expressly for inclusion in the Registration
Statement, the preliminary prospectus or the Prospectus, or any amendment or
supplement thereto, and provided further that the Company will not be liable to
any Underwriter, the directors, officers, employees or agents of such
Underwriter or any person controlling such Underwriter with respect to any loss,
claim, liability, expense, or damage arising out of or based on any untrue
statement or omission or alleged untrue statement or omission or alleged
omission to state a material fact in the preliminary prospectus which is
corrected in the Prospectus if the person asserting any such loss, claim,
liability, charge or damage purchased any of the Shares from such Underwriter
but was not sent or given a copy of the Prospectus at or prior to the written
confirmation of the sale of such Shares to such person, and provided further
that such Selling Shareholder's obligation to indemnify and hold harmless will
not exceed the proceeds he, she or it received in connection with the sale of
Shares by such Selling Shareholder to the Underwriter. The Company acknowledges
that the statements set forth in the first two paragraphs under the heading
"Underwriting" in the preliminary prospectus and the Prospectus constitute the
only information relating to any Underwriter furnished in writing to the Company
by the Representatives on behalf of the Underwriters expressly for inclusion in
the Registration Statement, the preliminary prospectus or the Prospectus. This
indemnity will be in addition to any liability that the Company or the Selling
Shareholders might otherwise have.
b. Each Underwriter will indemnify and hold harmless the Company, and
each director of the Company and each officer of the Company who signs the
Registration Statement, each Selling Shareholder and each person, if any, who
controls, within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, the Company or such Selling Shareholder, to the same extent as the
foregoing indemnity from
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the Company to each Underwriter, as set forth in Section 7(a), but only insofar
as losses, claims, liabilities, expenses or damages arise out of or are based on
any untrue statement or omission or alleged untrue statement or omission made in
reliance on and in conformity with information relating to any Underwriter
furnished in writing to the Company by the Representatives, on behalf of such
Underwriter, expressly for use in the Registration Statement, the preliminary
prospectus or the Prospectus, or any amendment or supplement thereto. The
Company acknowledges that the statements set forth in the first two
paragraphs under the heading "Underwriting" in the preliminary prospectus and
the Prospectus constitute the only information relating to any Underwriter
furnished in writing to the Company by the Representatives on behalf of the
Underwriters expressly for inclusion in the Registration Statement, the
preliminary prospectus or the Prospectus. This indemnity will be in addition to
any liability that each Underwriter might otherwise have.
c. Any party that proposes to assert the right to be indemnified under
this Section 7 shall, promptly after receipt of notice of commencement of any
action against such party in respect of which a claim is to be made against an
indemnifying party or parties under this Section 7, notify each such
indemnifying party in writing of the commencement of such action, enclosing with
such notice a copy of all papers served, but the omission so to notify such
indemnifying party will not relieve it from any liability that it may have to
any indemnified party under the foregoing provisions of this Section 7 unless,
and only to the extent that, such omission results in the loss of substantive
rights or defenses by the indemnifying party. If any such action is brought
against any indemnified party and it notifies the indemnifying party of its
commencement, the indemnifying party will be entitled to participate in and, to
the extent that it elects by delivering written notice to the indemnified party
promptly after receiving notice of the commencement of the action from the
indemnified party, jointly with any other indemnifying party similarly notified,
to assume the defense of the action, with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense, the indemnifying party will not be
liable to the indemnified party for any legal or other expenses except as
provided below and except for the reasonable costs of investigation subsequently
incurred by the indemnified party in connection with the defense. The
indemnified party will have the right to employ its own counsel in any such
action, but the fees, expenses and other charges of such counsel will be at the
expense of such indemnified party unless (i) the employment of counsel by the
indemnified party has been authorized in writing by the indemnifying party,
(ii) there are legal defenses available to it or other indemnified parties that
are different from or in addition to those available to the indemnifying party,
(iii) the indemnified party has reasonably concluded that a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party), or (iv) the indemnifying party has not in
fact employed counsel to assume the defense of such action within a reasonable
time after receiving notice of the commencement of the action, in each of which
cases the reasonable fees, disbursements and other charges of counsel will be at
the expense of the indemnifying party or parties. It is understood that the
indemnifying party or parties shall not, in connection with any proceeding or
related proceedings in the same jurisdiction, be liable for the reasonable fees,
disbursements and other charges of more than one separate firm admitted to
practice in such jurisdiction at any one time for all such indemnified party or
parties. Any indemnifying party will not be liable for any settlement of any
action or claim effected without its written consent (which consent will not
be unreasonably withheld).
d. In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms, but for
any reason is held to be unavailable from the Company, the Selling Shareholders
or the Underwriters, the indemnifying party will contribute to the total losses,
claims, liabilities, expenses and damages (including any investigative, legal
and other expenses reasonably incurred in connection with, and any amount paid
in settlement of, any action, suit or proceeding or any claim asserted, but
after deducting any contribution received by the Company from persons other than
the Underwriters, such as persons who control
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the Company within the meaning of the Act, officers of the Company who signed
the Registration Statement and directors of the Company, who also may be liable
for contribution) to which the Company and any one or more of the Selling
Shareholders or the Underwriters may be subject in such proportion as shall be
appropriate to reflect the relative benefits received by the Company, the
Selling Shareholders and the Underwriters. The relative benefits received by
the Company, the Selling Shareholders and the Underwriters shall be deemed to be
in the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholders,
respectively, bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. If, but only if, the allocation provided by the foregoing
sentence is not permitted by applicable law, the allocation of contribution
shall be made in such proportion as is appropriate to reflect not only the
relative benefits referred to in the foregoing sentence, but also the relative
fault of the Company, the Selling Shareholders and the Underwriters with respect
to the statements or omissions which resulted in such loss, claim, liability,
expense or damage, or action in respect thereof, as well as any other relevant
equitable considerations with respect to such offering. Such relative fault
shall be determined by reference to whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact relates to information supplied by the Company, the Selling Shareholders or
the Representatives on behalf of the Underwriters, the intent of the parties and
their relative knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Shareholders and
the Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 7(d) were to be determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purpose of this Section 7(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 7(d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discounts received by it and no person found guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
will be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute as
provided in this Section 7(d) are several in proportion to their respective
underwriting obligations and not joint. For purposes of this Section 7(d), any
person who controls a party to this Agreement within the meaning of the Act will
have the same rights to contribution as that party, and each officer of the
Company who signed the Registration Statement will have the same rights to
contribution as the Company, subject in each case to the provisions hereof. Any
party entitled to contribution, promptly after receipt of notice of commencement
of any action against any such party in respect of which a claim for
contribution may be made under this Section 7(d), will notify any such party or
parties from whom contribution may be sought from any other obligation it or
they may have under this Section 7(d). No party will be liable for contribution
with respect to any action or claim settled without its written consent (which
consent will not be unreasonably withheld).
e. The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company and the Selling
Shareholders contained in this Agreement shall remain operative and in full
force and effect regardless of (i) any investigation made by or on behalf of the
Underwriters, (ii) acceptance of any of the Shares and payment therefor, or
(iii) any termination of this Agreement
8. REIMBURSEMENT OF CERTAIN EXPENSES
In furtherance of its obligations under Section 7 of this Agreement, an
indemnifying party will reimburse as incurred and on at least a quarterly basis
an indemnified party for all fees, disbursements, charges and other reasonable
legal and other expenses incurred by the indemnified party in connection with
any claim, action, investigation, inquiry or other proceeding described in
Section 7,
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<PAGE>
notwithstanding the absence of a judicial determination as to the propriety
and enforceability of the obligations under Sections 7 and 8 and the
possibility that such payment might later be held to be improper; provided,
however, that, to the extent any such payment is ultimately held to be
improper, the persons receiving such payments shall promptly refund them.
9. TERMINATION
The obligations of the several Underwriters under this Agreement may be
terminated at any time on or prior to the Closing Date (or, with respect to the
Option Shares, on or prior to the Option Closing Date), by notice to the Company
from the Representatives, without liability on the part of any Underwriter to
the Company or the Selling Shareholders if, prior to delivery and payment for
the Firm Shares or Option Shares, as the case may be, in the sole judgment of
the Representatives, (a) trading in any of the equity securities of the Company
shall have been suspended by the Commission, by an exchange that lists the
Shares or by the Nasdaq/NM, (b) trading in securities generally on the New York
Stock Exchange shall have been suspended or limited or minimum or maximum prices
shall have been generally established on such exchange, or additional material
governmental restrictions, not in force on the date of this Agreement, shall
have been imposed upon trading in securities generally by such exchange or by
order of the Commission or any court or other governmental authority, (c) a
general banking moratorium shall have been declared by either Federal or New
York State authorities, (d) any material adverse change in the financial or
securities markets in the United States, or in political, financial or economic
conditions in the United States or any outbreak or material escalation of
hostilities or other calamity or crises, shall have occurred, the effect of
which is such as to make it, in the sole judgment of the Representatives,
impracticable to market the Shares, (e) there has been a material adverse change
since the respective dates as of which information is given in the Registration
Statement and the Prospectus in the general affairs, business, business
prospects, properties, management, condition (financial or otherwise) or results
of operations of the Company, whether or not arising from transactions in the
ordinary course of business, in each case other than as described in or
contemplated by the Registration Statement and the Prospectus, or (f) the
Company has sustained any material loss or interference with its business or
properties from fire, explosion, flood, earthquake or other casualty, whether or
not covered by insurance, or from any labor dispute or any court of legislative
or other government action, order or decree, which is not described in the
Registration Statement and the Prospectus, if in the judgment of the
Representatives any such development makes it impracticable or inadvisable to
consummate the sale and delivery of the Shares by the Underwriters at the public
offering price.
10. SUBSTITUTION OF UNDERWRITERS
If any one or more of the Underwriters shall fail or refuse to purchase the
Shares which it or they have agreed to purchase hereunder, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of Shares, the other Underwriters shall be obligated, severally, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase, in the proportions which the number of Shares which they
have respectively agreed to purchase pursuant to Section 1 bears to the
aggregate number of Shares which all such nondefaulting Underwriters have so
agreed to purchase, or in such other proportions as the Representatives may
specify: provided that in no event shall the maximum number of Shares which any
Underwriter has become obligated to purchase pursuant to Section 1 be increased
pursuant to this Section 10 by more than one-ninth of such number of Shares
without the prior written consent of such Underwriter. If
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<PAGE>
any Underwriter or Underwriters shall fail or refuse to purchase any Shares and
the aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase exceeds one-tenth of the aggregate
number of the Shares and arrangements satisfactory to the Representatives and
the Company for the purchase of such Shares are not made within 48 hours after
such default, this Agreement will terminate without liability on the part of any
nondefaulting Underwriter, the Selling Shareholders or the Company for the
purchase or sale of any Shares under this Agreement. In any such case either
the Representatives or the Company shall have the right to postpone the Closing
Date, but in no event for longer than seven days, in order that the required
changes, if any, in the Registration Statement and the Prospectus or in any
other documents or arrangements may be effected. Any action taken pursuant to
this Section 10 shall not relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
11. MISCELLANEOUS
Notice given pursuant to any of the provisions of this Agreement shall be
in writing and, unless otherwise specified, shall be mailed or delivered (a) if
to the Company, at the offices of the Company, 2701 First Avenue, Suite 500,
Seattle, WA 98121, with a copy to Michael Morgan, Esq., Lane Powell Spears
Lubersky, 1420 Fifth Avenue, Suite 4100, Seattle, WA 98101-2338 or (b) if to the
Underwriters, to the Representatives at the offices of Needham & Company, Inc.,
400 Park Avenue, New York, New York 10000, Attention: Corporate Finance
Department, with a copy to Gregory Gorder, Esq., Perkins Coie, 1201 Third
Avenue, 40th Floor, Seattle, WA 98101. Any such notice shall be effective only
upon receipt. Any notice may be made by telex or telephone, but if so made
shall be subsequently confirmed in writing.
This Agreement has been and is made solely for the benefit of the several
Underwriters, the Company, the Selling Shareholders and the controlling persons,
directors and officers referred to in Section 7, and their respective successors
and assigns, and no other person shall acquire or have any right under or by
virtue of this Agreement. The term "successors and assigns" as used in this
Agreement shall not include a purchaser, as such purchaser, of Shares from any
of the several Underwriter.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be performed
entirely within such State.
This Agreement may be signed in two or more counterparts with the same
effect as if the signatures thereto and hereto were upon the same instrument.
In case any provision in this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
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<PAGE>
Please confirm that the foregoing correctly sets forth the Agreement among
the Company and the several Underwriters.
Very truly yours,
CUTTER & BUCK INC.
By:
-------------------------------------
Title:
----------------------------------
SELLING SHAREHOLDERS:
By:
-------------------------------------
(Attorney-in-fact)
The foregoing Agreement is hereby confirmed and
accepted as of the date first above written.
NEEDHAM & COMPANY, INC.
WEDBUSH MORGAN SECURITIES
As Representatives of the several Underwriters
listed on Schedule I
By: NEEDHAM & COMPANY, INC.
By:
--------------------------
Title:
------------------------
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
NUMBER OF
FIRM
SHARES
UNDERWRITERS TO BE PURCHASED
- ------------ ---------------
Needham & Company, Inc.. . . . . . . . . . . . . .
Wedbush Morgan Securities. . . . . . . . . . . . .
---------------
Total 1,500,000
---------------
---------------
<PAGE>
SCHEDULE II
SCHEDULE OF SELLING SHAREHOLDERS
NUMBER OF SELLING SHAREHOLDERS NUMBER OF OPTION SHARES
SELLING SHAREHOLDERS FIRM SHARES TO BE SOLD FOR WHICH OPTION GRANTED
TOTAL
------------------------------ ------------------------
<PAGE>
EXHIBIT A
FORM OF LOCK-UP AGREEMENT
AND DIRECTORS, OFFICERS AND SHAREHOLDERS
OF THE COMPANY WHO SHALL SIGN SUCH AGREEMENT
The undersigned is a holder of securities of Cutter & Buck, Inc., a
Washington corporation (the "Company"), and wishes to facilitate the
underwritten public offering (the "Offering") of shares of the Common Stock of
the Company (the "Common Stock"). The undersigned acknowledges that such
Offering will be of benefit to the undersigned.
In consideration of the foregoing and in order to induce you to act as
underwriters in connection with the Offering, the undersigned hereby agrees that
he, she or it will not, without the prior written approval of Needham & Company,
Inc., acting on its own behalf and/or on behalf of the other underwriters,
directly or indirectly, sell, contract to sell, make any short sale, pledge, or
otherwise dispose of, any shares of the Common Stock, options to acquire shares
of the Common Stock or securities exchangeable for or convertible into shares of
the Common Stock which he, she or it may own, exclusive of any shares of Common
Stock purchased in connection with the Company's public offering or purchased in
the public trading market, for a period beginning on the date hereof and ending
on the date which is one hundred twenty (120) days after the date of the closing
of the Offering. The undersigned confirms that he, she or it understands that
the underwriters and the Company will rely upon the agreements set forth in this
Agreement in proceeding with the Offering. The undersigned further confirms
that the agreements of the undersigned are irrevocable and shall be binding upon
the undersigned's heirs, legal representatives, successors and assigns. The
undersigned agrees and consents to the entry of stop transfer instructions with
the Company's transfer agent against the transfer of securities held by the
undersigned except in compliance with this Agreement.
Dated _______________, 1996
----------------------------------------
Print Name of Holder
By:
-------------------------------------
Signature
----------------------------------------
Print Name of Person Signing
----------------------------------------
Title of Person Signing
<PAGE>
Exhibit 5.1
September 26, 1996
Cutter & Buck Inc.
2710 First Avenue, Suite 500
Seattle, Washington 98121
Dear Sir/Madam:
We have acted as counsel to Cutter & Buck Inc. (the "Company") in connection
with the preparation and filing of a registration statement on Form S-1 (the
"Registration Statement") under the Securities Act of 1933, as amended, which
the Company is filing with the Securities and Exchange Commission with
respect to 1,300,000 shares (the "Company Shares") of the Company's common
stock, no par value (the "Common Stock") to be offered by the Company and
100,000 shares (the "Selling Shareholder Shares") of the Company's Common
Stock to be offered by certain Shareholders of the Company (the "Selling
Shareholders"), together with an additional 210,000 shares if and to the
extent the Underwriters exercise an over-allotment option granted by the
Company (the "Over-Allotment Shares"). The Company Shares, Selling
Shareholder Shares and Over-Allotment Shares are together referred to as the
"Shares."
We have examined the Registration Statement and such documents and records of
the Company and other documents as we have deemed necessary for the purposes of
this opinion. Based upon the foregoing, we are of the opinion that upon the
happening of the following events:
(a) filing of any amendments to the Registration Statement and the
effectiveness of the Registration Statement, and
(b) due execution by the Company and registration by its registrar of
the Shares, and the sale of the Shares as contemplated by the
Registration Statement and in accordance with the aforesaid
governmental authorizations, and the resolutions adopted by the
Board of Directors of the Company,
the Shares will be duly authorized, validly issued, fully paid and
nonassessable.
<PAGE>
Cutter & Buck Inc.
September 26, 1996
Page 2
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and to the reference to our firm in the Prospectus of
the Registration Statement under the heading "Legal Matters."
Very truly yours,
/s/ Lane Powell Spears Lubersky LLP
LANE POWELL SPEARS LUBERSKY LLP
<PAGE>
EXHIBIT 11.1
STATEMENT OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30, THREE MONTHS ENDED JULY 31,
------------------------------------------- ----------------------------
1994 1995 1996 1995 1996
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Weighted average common shares outstanding..... 327,479 327,820 2,686,777 327,820 3,667,230
Weighted average common shares giving effect to
the conversion of Preferred Stock into Common
Stock......................................... 1,356,147 1,451,862 545,356 1,883,021 --
Net effect of stock options granted and
Preferred Stock issued during the 12-month
period prior to the Company's filing of its
initial public offering, at less than the
offering price, calculated using the treasury
stock method at the offering price of $7 per
share, and treated as outstanding for all
periods presented............................. 220,904 220,904 44,780 220,904 --
Net effect of outstanding stock options
(excluding stock options granted during the 12
months prior to the Company's filing of its
initial public offering) and warrants
calculated using the treasury stock method at
the average price for each quarter during the
year.......................................... 28,908 33,624 198,668 106,914 273,983
------------- ------------- ------------- ------------- -------------
Shares used in computation of net income (loss)
per share..................................... 1,933,438 2,034,210 3,475,581 2,538,659 3,941,213
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income (loss).............................. $ 100,819 $ 239,232 $ 996,350 $ (63,325) $ 141,763
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
Net income (loss) per share.................... $ 0.05 $ 0.12 $ 0.29 $ (0.02) $ 0.04
------------- ------------- ------------- ------------- -------------
------------- ------------- ------------- ------------- -------------
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
Cutter & Buck (UK) Ltd.,a corporation established under the laws of the United
Kingdom
Cutter & Buck (Europe) B.V.,a corporation established under the laws of The
Netherlands
