XP Companies Corporate Profile

Company Overview

Founded in 1995, XP Companies is a privately-held company headquartered in Denver, Colorado. XP is a leading and rapidly-growing provider of authentic branded merchandise for major sports and entertainment events including the Olympics, Little League Baseball, MLB, NBA, NFL and NHL franchises, and a manager of venue retail outlets. The Company has organized its business operations under three subsidiaries, which are more fully described below: (i) XP Apparel, LLC ("XPA"); (ii) XP Retail, LLC ("XPR"); and (iii) XP Entertainment, LLC ("XPE").

As a primary licensee of the U.S. Olympic Committee's ("USOC") brands since 1999, XPA provides high-quality branded apparel and other merchandise utilizing Team USA, Beijing 2008 and USA 5-ring logos. Additionally, XPA is the primary licensee for the majority of the 39 National Governing Bodies of Olympic sports (the "NGBs") including USA Swimming and USA Volleyball. XPA has also successfully expanded its reach beyond Olympic brands and today holds 17 non-NGB sports, entertainment and festival licensing agreements including Little League Baseball, the Tour de France and FIFA World Cup Soccer. XPA distributes its merchandise at events, online and through XP's own US Olympic Shops, as well as with leading retailers including QVC and footlocker.com. As a natural extension to its U.S. Olympic-branded apparel offering, XP started operating four US Olympic Shops at the USOC training facilities in 2003. The XPR division was then created to manage the Company's retail operations. Based on its success with these four anchor stores, XPR has opened another store in the Mall of America in Bloomington, Minnesota, with more stores due to open in 2007 and beyond.

XPE provides retail venue management for consumer product concessions. XPE was started in October 2005 when the Company acquired, under very attractive terms, the retail venue management contracts in Phoenix with Chase Field (Diamondbacks), U.S. Airways Arena (Suns and RoadRunners) and the Dodge Theater. Leveraging on its success in Phoenix, XPE has continued to secure high-profile venue management contracts including the next two NBA All-Star Games, the Charlotte Bobcats and the NFL's Jacksonville Jaguars. In its first year of operation, the Company successfully acquired a total of seven retail venue management contracts and is in negotiation for more locations.

Another division of XP is a full-service light-manufacturing facility located in Denver, Colorado, providing screen printing and art design services both in-house and to third parties such as The Sports Authority. Target Markets

Target Markets

While XP offers a broad array of sports and non-sports products, the Company focuses mainly on the U.S. sports licensed market. Sales of licensed sports merchandise are a growing piece of the athletic and sports clothing market, expanding 20% between 2001 and 2004 to $12.6 billion in North America. The major sports licensing organizations credit this recent surge in sales to new business models focused on fewer licensees with targeted marketing strategies as well as a fashion trend for sports team looks. XP is well positioned in the market and will continue to capitalize on these trends.

Collegiate and major league sports dominate the sports licensed market, with $2.9 billion in collegiate sales and $7.1 billion in major league sales in 2004. However, Olympic apparel is a growing percentage of the sports licensed market, having generated retail sales of $530 million for the Athens 2004 Olympics and expected to generate over $624 million in sales for Beijing 2008. In addition, the individual sports that make up the Olympics (e.g., USA Swimming) have a strong and loyal following and represent an attractive retail market, purchasing nearly $20 million annually at sporting events.

According to industry estimates , the venue event-driven merchandise market (XPE's market) generated over $600 million in retail sales in 2005 in North America, with professional sports events (e.g., NBA) accounting for 30% of the total.

Key License Agreements

Starting with its first license with USA Cycling in 1995, the Company has continued over the years to secure licenses for high-profile and tightly-managed brands. Today, XPA holds a portfolio of 47 licenses, including the USOC license, 29 National Governing Bodies (NGB) licenses and 17 other sports and non-sports licenses. XPA is one of only three sportswear companies that hold licenses with the USOC and are permitted to use U.S. Olympic logos. The other two companies are Nike and Roots. In addition, XPR holds a retail agreement with the USOC for the exclusive rights to operate the US Olympic Shops until 2012. The table below provides an overview of the terms of XP's key licenses.

Growth Strategy

As demonstrated by its recent expansion, XP has significant growth opportunities and is well positioned to capture additional market share. The Company is pursuing the following immediate growth initiatives:

• XPA is focused on increasing the demand for current licensed products while continuing to secure new and attractive licensing agreements For example, through its NGB licenses, XPA can reach an untapped audience of over eight million loyal fans. XPA has developed the Team USA brand to promote regular demand for Olympic apparel and extend the reach of the US Olympic Shops. XPA expects to start selling the Team USA brand in the spring of 2007 through direct and indirect channels. Specifically, XPA is in final discussions to partner with major retailers, such as Federated Department Stores and Wal-Mart, to execute the concept of a Team USA store-within-a-store. In addition, XPA anticipates significant revenue opportunities with the upcoming Olympics in Beijing, as XPA will be the only licensee permitted to promote the USA 5-Ring Beijing 2008 logo in the U.S. Other new license opportunities include Cirque du Soleil and an expanded agreement with the USOC to become the exclusive provider of Beijing 2008 apparel at Olympic booths in selected malls throughout the U.S.

• XPR plans to continue growing sales at existing locations through targeted marketing efforts and new merchandise offerings (i.e., Team USA product line). Even though XPR has identified over a dozen attractive locations for expansion with significant revenue potential, the Company has halted the rollout of new stores due to a lack of internal capital. One new store is on the drawing board for 2007.

• Following on its early market wins, XPE has developed a targeted expansion strategy. XPE is concentrating its efforts in acquiring retail venue management contracts in attractive sport cities, such as Denver, Phoenix, Charlotte, and Jacksonville. In addition, XPE sees the opportunity to start introducing apparel for local teams at very attractive margins since the merchandise would be produced by XPA and would not be subject to licensing fees.