<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 6, 1997.
REGISTRATION NO. 33-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PIVOT RULES, INC.
(Name of small business issuer in its charter)
<TABLE>
<S> <C> <C>
NEW YORK 5136 13-3612110
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
80 WEST 40TH STREET
NEW YORK, NEW YORK 10018
(212) 944-8000
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
E. KENNETH SEIFF, CHIEF EXECUTIVE OFFICER
PIVOT RULES, INC.
80 WEST 40TH STREET
NEW YORK, NEW YORK 10018
(212) 944-8000
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<CAPTION>
<S> <C>
RICHARD A. GOLDBERG, ESQ. DAVID ALAN MILLER, ESQ.
Shereff, Friedman, Hoffman & Goodman, LLP Graubard Mollen & Miller
919 Third Avenue 600 Third Avenue
New York, New York 10022 New York, New York 10016
(212) 758-9500 (212) 818-8800
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration
Statement.
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>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE OFFERING PRICE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PER SHARE (2) (2) FEE
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Shares of Common Stock, $.01 par value
("Common Stock") (3) ......................... 1,725,000 $6.00 $10,350,000 $3,136.36
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
Warrants (3) .................................. 1,725,000 0.10 172,500 52.27
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
Shares of Common Stock underlying the Warrants
(3)(4) ....................................... 2,325,000 6.00 13,950,000 4,227.27
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
Underwriter's Purchase Option ................. 1 100 100 (5)
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
Shares of Common Stock issuable upon exercise
of the Underwriter's Purchase Option (6) .... 150,000 6.60 990,000 300.00
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
Warrants included as part of the Underwriter's
Purchase Option (6) .......................... 150,000 .11 16,500 (5)
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
Shares of Common Stock underlying the Warrants
issuable upon exercise of the Underwriter's
Purchase Option (6) .......................... 150,000 6.00 900,000 272.73
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
Warrants issued in connection with Bridge
Financing (7) ................................ 600,000 .10 60,000 18.18
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
Total Registration Fee ...................... $8,006.81
- ---------------------------------------------- -------------- ---------------- ---------------- --------------
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act of 1933, as amended,
there are also being registered such indeterminable number of
additional securities as may be issued as a result of the antidilution
provisions of the Warrants.
(2) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of
1933, as amended.
(3) Includes 225,000 shares of Common Stock, 225,000 Warrants and 225,000
shares of Common Stock underlying such Warrants which may be issued
upon exercise of a 45-day option granted to the Underwriter to cover
over-allotments, if any. See "Underwriting."
(4) Includes 600,000 shares of Common Stock underlying the Warrants issued
in connection with the Bridge Financing.
(5) Pursuant to Rule 457(g) under the Securities Act of 1933, as amended,
no registration fee is payable.
(6) Such shares of Common Stock and Warrants are being registered for sale
to and for resale by the Underwriter and its assigns and transferees on
a delayed or continuous basis, pursuant to Rule 415 under the
Securities Act of 1933, as amended.
(7) Such Warrants are being registered for resale by certain
securityholders on a delayed or continuous basis, pursuant to Rule 415
under the Securities Act of 1933, as amended. The Warrants were issued
to such securityholders in connection with the Bridge Financing.
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 OF 1933 OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<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.
SUBJECT TO COMPLETION, DATED MARCH 6, 1997
PROSPECTUS
[PIVOT RULES LOGO]
1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
All of the 1,500,000 shares of common stock ("Common Stock") and 1,500,000
Redeemable Common Stock Purchase Warrants ("Warrants") offered hereby
(collectively, "Securities") are being sold by Pivot Rules, Inc. ("Company").
Each Warrant entitles the holder to purchase one share of Common Stock for
$ [100% of the per-share offering price] during the four-year period
commencing one year after the date of this Prospectus. The Company may redeem
the Warrants, at any time after they become exercisable, at a price of $.01
per Warrant upon not less than 30 days' prior written notice if the last sale
price of the Common Stock has been at least 165% of the then exercise price
of the Warrants (initially $ ) on 20 out of the 30 consecutive trading
days ending on the third day prior to the day on which such notice is given.
See "Description of Securities."
Prior to this offering ("Offering"), there has been no public market for the
Securities and there can be no assurance that any such market will develop.
It is currently anticipated that the initial public offering price of the
Common Stock will be between $5 and $6 per share and that the initial public
offering price of the Warrants will be $.10 per Warrant. See "Underwriting"
for information relating to the factors considered in determining the initial
public offering price of the Securities and the exercise price of the
Warrants. The Company has applied for quotation of the Common Stock and
Warrants on the Nasdaq Small Cap Market under the symbols "PVTR" and "PVTRW,"
respectively, and for listing of the Common Stock and Warrants on the Boston
Stock Exchange under the trading symbols "PVR" and "PVRW," respectively.
This prospectus also relates to the offer and sale by certain persons
("Selling Securityholders") of Warrants ("Bridge Warrants") issued to the
Selling Securityholders in connection with the Company's January 1997 bridge
financing ("Bridge Financing"). The securities offered by the Selling
Securityholders are not part of the underwritten Offering and the Company
will not receive any proceeds from the sale of the Bridge Warrants. The
Selling Securityholders may not sell such securities for a period of one year
from the date of this Prospectus without the prior consent of the
Underwriter.
THE SECURITIES OFFERED HEREBY ARE SPECULATIVE IN NATURE AND INVOLVE A HIGH
DEGREE OF RISK AND SUBSTANTIAL DILUTION. SEE "RISK FACTORS" AT PAGE 7 AND
"DILUTION" AT PAGE 13.
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>
PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
- --------------- --------------- ----------------- ---------------
<S> <C> <C> <C>
Per Share ...... $ $ $
- --------------- --------------- ----------------- ---------------
Per Warrant ... $ $ $
- --------------- --------------- ----------------- ---------------
Total(3) ....... $ $ $
- --------------- --------------- ----------------- ---------------
</TABLE>
- -----------------------------------------------------------------------------
(1) Does not include a 3% nonaccountable expense allowance which the
Company has agreed to pay to the Underwriter. The Company has also
agreed to sell to the Underwriter an option to purchase 150,000 shares
of Common Stock and/or 150,000 Warrants ("Underwriter's Purchase
Option") and to indemnify the Underwriter against certain liabilities,
including liabilities under the Securities Act of 1933, as amended
("Securities Act"). See "Underwriting."
(2) Before deducting expenses payable by the Company, including the
nonaccountable expense allowance of $ ($ , if the
Underwriter's over-allotment option is exercised in full), estimated at
approximately $ .
(3) The Company has granted the Underwriter an option, exercisable within
45 days from the date of this Prospectus, to purchase up to an
additional 225,000 shares of Common Stock and/or 225,000 Warrants on
the same terms as set forth above, solely for the purpose of covering
over-allotments, if any. If such over-allotment option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to the Company will be $ , $ and $ ,
respectively. See "Underwriting."
The Securities are being offered by the Underwriter subject to prior sale,
when, as and if delivered to and accepted by the Underwriter and subject to
the approval of certain legal matters by counsel and certain other
conditions. The Underwriter reserves the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected
that delivery of certificates representing the Securities will be made
against payment therefor at the offices of the Underwriter in New York City
on or about , 1997.
[GKN SECURITIES LOGO]
, 1997
<PAGE>
[ARTWORK]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OR WARRANTS, INCLUDING SYNDICATE SHORT COVERING TRANSACTIONS AND PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
------------------------------
"Pivot Rules"(Registered Trademark), "The Rules Have Changed"(Registered
Trademark), "Clothes To Play A Round In"(Registered Trademark), the "Three
Golfer" design mark and the "Three Golfer and Flag" design mark are
registered trademarks of Pivot Rules, Inc.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and
financial statements (including the notes thereto) appearing elsewhere in
this Prospectus. Each prospective investor is urged to read this Prospectus
in its entirety. Unless otherwise indicated, all information in this
Prospectus has been adjusted to reflect an 8,862.6292-to-1 stock split
effected on January 2, 1997.
THE COMPANY
The Company designs, sources and markets a full collection of golf
lifestyle sportswear for men under the Pivot Rules brand name and registered
trademark. Its current products include knit and woven shirts, sweaters,
sweatshirts, pants, shorts, outerwear, hats and socks, many of which carry
the Company's distinctive "Three Golfer" logo. The Company focuses its design
efforts on creating products with updated styling, innovative design and
superior comfort and fit, utilizing natural fibers and bright colors. The
Company seeks to distinguish its products from its competitors' products by
incorporating many unique details into its garments, thereby creating a
"branded" look. The Company believes that by integrating its marketing,
packaging and in-store fixturing programs, it will be able to build a
lifestyle image that consumers will link with the Pivot Rules brand name.
Historically, golf apparel has been marketed largely to avid golfers and
has been sold primarily at country clubs and pro shops. In recent years,
however, these products increasingly have appealed to a broader group of
consumers. As golf apparel has become more fashionable, a new market segment
has developed--golf lifestyle sportswear. The Company believes that this new
market segment results from the confluence of several trends, including (i)
the increased interest among the general population in quality of life and
leisure activities, (ii) the general success of lifestyle-oriented
sportswear, (iii) the increasing prominence of both professional and
celebrity golfers, (iv) the increased media coverage of golf, and (v) the
advent of "casual Fridays" and the increasing acceptance of casual apparel in
the workplace. Golf lifestyle sportswear is now sold not only to avid golfers
but also to consumers who identify with the lifestyle associated with golf
and similar leisure activities. As a result, department stores, catalogs,
sporting goods stores, discounters and specialty stores have joined country
clubs and pro shops as popular places to purchase golf apparel.
In 1991, having recognized these changes in the golf apparel market in
their incipience, the Company became one of the pioneers in selling golf
lifestyle apparel collections through these new channels of distribution.
Initially, the Company sold its products in the "upper moderate" price
segment, primarily to better department stores, specialty stores and
catalogs. Because such retailers typically purchased small quantities of a
given product style, the Company utilized small production runs and its
profitability was dependent upon high margins. Based on this strategy, the
Company's net sales grew from approximately $2.2 million in 1992 to $6.3
million in 1995.
By 1996, an increasing number of new market entrants had begun to sell
golf lifestyle apparel collections in the "upper moderate" price segment and
the Company determined that a disproportionate amount of competition existed
in this market. As a result, the Company decided to refocus its marketing
efforts on the "moderate" price segment of the golf lifestyle apparel market.
Based upon the superior design and quality of its products and its ability to
offer the fully integrated golf lifestyle concept and brand image that it had
developed in the "upper moderate" price segment of the market, the Company
believed that it could achieve significant competitive advantages by
repositioning its products into the "moderate" price segment. Accordingly,
the Company reduced its prices and redirected its sales efforts to focus on
the higher-volume retailers and other customers in the "moderate" price
segment, such as department stores, sporting goods stores, catalogs and
corporations, as well as discounters, including warehouse clubs. Based on
this new strategy, the Company's net sales increased to $8.6 million in 1996.
The Company believes that this strategy will lead to further increased sales
volume and that the increased purchasing leverage resulting from this sales
growth will allow it to reduce sourcing costs while maintaining product
quality.
3
<PAGE>
The Company's goal is to become the leading golf lifestyle apparel
collection in the "moderate" price segment. The Company has planned several
marketing and advertising initiatives in order to reinforce its strategic
shift in product positioning. These initiatives consist of a trade market
campaign that commenced in October 1996, a national consumer advertising
campaign that will be launched in the Spring of 1997, the expansion of the
categories of "Pivot Rules" products offered, and the installation of concept
shops and/or concept areas within targeted retailers' stores. The Company may
develop or acquire new labels in order to take advantage of opportunities in
a variety of other segments of the retail market.
The Company's executive offices are located at 80 West 40th Street, New
York, New York 10018 and its phone number is (212) 944-8000. The Company was
founded in 1991 as Pivot Corporation and in 1994 changed its name to Pivot
Rules, Inc.
4
<PAGE>
THE OFFERING
Securities Offered ............ 1,500,000 shares of Common Stock and
1,500,000 Warrants. Each Warrant entitles
the holder to purchase one share of Common
Stock for $ [100% of the per-share
offering price] during the four year period
commencing one year after the date of this
Prospectus. The Company may redeem the
Warrants, at any time after they become
exercisable, at a price of $.01 per Warrant
on not less than 30 days' prior written
notice if the last sale price of Common
Stock has been at least 165% of the then
exercise price of the Warrants (initially
$ ) on 20 out of the 30 consecutive trading
days ending on the third day prior to the
date on which such notice is given. See
"Description of Securities."
Common Stock Outstanding Prior
to the Offering .............. 1,200,000 shares
Common Stock to be Outstanding
After the Offering ........... 2,700,000 shares
Proposed Nasdaq Small Cap
Market Symbols ............... Common Stock: PVTR
Warrants: PVTRW
Proposed Boston Stock
Exchange Symbols ............. Common Stock: PVR
Warrants: PVRW
USE OF PROCEEDS
The Company intends to apply approximately $3,000,000 of the net proceeds
of this Offering to its marketing and advertising activities, approximately
$2,029,000 to repay indebtedness and obligations of the Company and
approximately $500,000 to the installation of concept shops and/or concept
areas within targeted retailers' stores. The remaining proceeds will be used
for working capital and general corporate purposes. See "Use of Proceeds."
RISK FACTORS
An investment in the Securities offered hereby involves a high degree of
risk, including, without limitation, risks related to uncertainties in
apparel retailing and unexpected changes in fashion trends; the acceptance of
the Company's efforts to reposition its products and the risk of loss of
existing and targeted retailers as a result of such repositioning; the
potential failure of the Company's advertising and marketing initiatives; and
the Company's limited working capital and possible need for additional
financing. An investment in the Securities offered hereby should be
considered only by investors who can afford the loss of their entire
investment. See "Risk Factors."
5
<PAGE>
SUMMARY FINANCIAL INFORMATION
The summary financial data presented below as of and for the year ended
December 31, 1996 is derived from the financial statements audited by Grant
Thornton LLP. The summary financial data for the year ended December 31, 1995
is derived from the financial statements audited by Richard A. Eisner &
Company, LLP. The summary financial data for the years ended December 31,
1994, 1993, and 1992 are derived from the unaudited financial statements of
the Company. In the opinion of management, such unaudited financial
statements include all adjustments necessary for the fair presentation of
such data. The summary financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of the Company, including
the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ....................... $2,247 $4,488 $6,417 $6,337 $8,596
Gross profit .................... 768 1,604 2,383 2,341 2,025
Selling, marketing, design and
administrative expenses ........ 646 1,231 1,661 2,288 1,502
Operating profit ................ 122 373 722 53 523
Net income (loss) ............... $ 41 $ 159 $ 355 $ (208) $ 135
Net earnings (loss) per share .. $ .03 $ .09 $ .22 $ (.17) $ .11
Weighted average number of
shares of Common Stock and
common stock equivalents
outstanding .................... 1,317,253 1,772,526 1,629,394 1,200,000 1,200,000
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------
PRO FORMA
ACTUAL AS ADJUSTED (1)
-------- ---------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital .... $ 175 $6,688
Total current assets 1,255 7,259
Total assets ........ 1,636 7,510
Total liabilities .. 1,227 583
Shareholders' equity $ 409 $6,927
</TABLE>
- ------------
(1) The pro forma as adjusted balance sheet information gives effect to the
(i) receipt of the $1,500,000 gross proceeds of the Bridge Financing,
(ii) the consummation of this Offering at an assumed public offering
price of $5.50 per share of Common Stock and $.10 per Warrant, net of
underwriting discounts and commissions and other expenses of this
Offering, and the use of a portion of the net proceeds thereof to repay
approximately $2,029,000 in indebtedness and certain other obligations,
and (iii) the write-off of $138,000 of debt discount and $287,000 of
debt issuance costs incurred in connection with the Bridge Financing.
Unless otherwise indicated, the information in this Prospectus does not
give effect to the exercise of the Warrants, the Underwriter's over-allotment
option or the Underwriter's Purchase Option, and does not include: (i)
200,000 shares of Common Stock reserved for issuance upon exercise of stock
options which may be granted under the Company's 1997 Stock Option Plan
("Plan"), of which options to purchase 75,000 shares of Common Stock have
been granted to date, and (ii) 600,000 shares of Common Stock reserved for
issuance upon the exercise of the Bridge Warrants. See "Management--Executive
Compensation" and "--Stock Option Plan" and "Description of
Securities--Warrants."
6
<PAGE>
RISK FACTORS
The Securities offered hereby are speculative in nature and involve a high
degree of risk. Accordingly, in analyzing an investment in these securities,
prospective investors should carefully consider, along with the other matters
referred to herein, the following risk factors. No investor should
participate in this Offering unless such investor can afford a complete loss
of his or her investment.
Uncertainties in Apparel Retailing; Unexpected Changes in Fashion Trends.
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 business,
financial condition and operating results. In addition, some of the retailers
to whom the Company sells or may sell are highly leveraged and some are
currently operating under the protection of the federal bankruptcy laws. To
date, these developments have not had a material adverse effect on the
Company. However, any material financial or other difficulties encountered by
the Company's major customers could have a material adverse effect on the
Company's business, financial condition and operating results. Fashion trends
can change rapidly, and the Company's business is particularly sensitive to
such changes because the Company typically designs and contracts for the
manufacture of its products substantially in advance of sales. 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
or higher markdowns, either of which would have a material adverse effect on
the Company's business, financial condition and operating results. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Sourcing" and "--Product and Design."
Acceptance of Repositioning. The Company has commenced a new strategy
entailing the repositioning of its products at a lower price level and the
marketing of its products to higher-volume retailers. In order for this
strategy to succeed, the Company must sell its products to several of such
retailers. The business of these retailers is extremely large in comparison
to that of the Company and there can be no assurance that the Company's
products will impact the retailers' business in a favorable manner, and,
therefore, that such retailers will continue to carry the Company's products,
even if there is a high consumer demand for such products. Accordingly, there
can be no assurance that the Company's new strategy will be successful.
Moreover, it is anticipated that, even if the strategy is successful, it will
take some time to affect the Company's operating results. See
"Business--Corporate Strategy."
Risk of Loss of Existing and Targeted Retailers. It is likely that some or
all of the Company's existing high-end retail customers will cease to do
business with the Company as it moves into the higher-volume distribution
channels. Moreover, the Company has recently begun testing the sale of its
products to certain other discounters, including warehouse clubs. While such
sales may generate significant revenue for the Company, some or all of the
Company's existing or targeted retailers may refuse to purchase the Company's
products if it sells to such discounters on a regular basis. Any such refusal
could have a material adverse effect on the Company's business, financial
condition and operating results. See "Business--Corporate Strategy."
Potential Failure of Advertising and Marketing Initiatives. In conjunction
with the Company's efforts to reposition its products, it has instituted new
advertising and marketing initiatives. These initiatives are likely to
require continuous expenditures to be effective. There can be no assurance
that such initiatives will be successful, and even if successful, it may take
some time for their effects to translate into increased sales. The failure of
these advertising and marketing initiatives could have a material adverse
effect on the Company's efforts to reposition its products and, consequently,
the Company's business, financial condition and operating results. See
"Business--Corporate Strategy."
Limited Working Capital; Possible Need for Additional
Financing. Historically, the Company has been undercapitalized. To date, the
Company has obtained working capital through cash flow from operations,
private financing and a revolving credit facility from Heller Financial, Inc.
("Heller"), to
7
<PAGE>
whom it has granted a senior security interest in substantially all of its
assets. The Company anticipates, based on current plans and assumptions
relating to its operations, that the proceeds of the Offering, together with
existing resources and cash generated from operations, should be sufficient
to satisfy the Company's contemplated cash requirements for at least 18
months after completion of the Offering. There can be no assurance, however,
that the Company will not require additional financing during or after such
18-month period. The Company's current borrowing arrangements substantially
limit the Company's flexibility in obtaining additional financing. There can
be no assurance that any additional financing or other sources of capital
will be available to the Company upon acceptable terms, if at all. The
inability to obtain additional financing if and when needed would have a
material adverse effect on the Company's business, financial condition and
operating results. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
Risk of Retailer's Refusal to Place Concept Shops. A significant component
of the Company's corporate strategy is the installation of concept shops
and/or concept areas within stores of the Company's targeted retailers. There
can be no assurance, however, that such retailers will be willing to place
the Company's concept shops and/or concept areas in their stores, or that, if
such shops and/or areas are installed, their performance will meet the
Company's expectations. The Company's failure to persuade such retailers to
place concept shops and/or concept areas in their stores, or the failure of
such shops and/or areas to perform up to expectations, could have a material
adverse effect on the Company's future business. See "Business--Corporate
Strategy."
Significant Reduction in Sales of Women's Sportswear
Collection. Historically, the Company has experienced a significant amount of
sales of its women's sportswear collection, including approximately 33.4% of
net sales in 1995 and 12.8% of net sales in 1996. Due to limited retailer
interest in continuing to carry the women's sportswear collection on a
year-round basis, the Company has made a strategic decision to discontinue
the development of the collection and to consolidate the remainder of its
women's design operations into its men's operations. The Company may continue
to produce a limited amount of women's apparel on a contract basis as
requested by certain retailers. Although the decrease in sales of the women's
sportswear collection in 1996 was offset by increased sales of the men's
sportswear collection, there can be no assurance that sales of the men's
collection will continue to increase at a rate sufficient to offset the
reduction in sales of the women's collection. See "Management's Discussion
and Analysis of Financial Condition and Results of Operation."
Competition. The men's sportswear segment of the apparel market is highly
competitive. The Company encounters substantial competition at a variety of
price points from a number of apparel brands, including Polo, Tommy Hilfiger,
Nautica, Chaps, Izod, Gant, Dockers, Nike, Munsingwear, Grand Slam, Greg
Norman, Ashworth, Cross Creek and Jack Nicklaus. Virtually all of the
Company's targeted retailers also offer their own private label brands which
compete at significantly lower prices. Moreover, the current success of
golf-inspired lines leaves open the possibility of new entrants into the
market. For example, Nike recently signed a $40 million contract with Tiger
Woods and is developing a line of clothing under his name. In addition to
competing with golf-apparel manufacturers, the Company competes with
manufacturers of high quality men's sportswear and general leisure wear. The
Company competes primarily on the basis of design, image, value and quality.
Many of the Company's competitors are significantly larger than the Company,
have substantially greater financial, marketing and other resources and have
achieved greater recognition for their brand names than the Company. See
"Business--Competition."
Dependence on Foreign Sourcing; Future Status of Hong Kong &
China. Substantially all of the Company's products are manufactured by third
parties in the Far East and India. The use of contractors and the resulting
lack of direct control could make it difficult for the Company to obtain
timely delivery of products of acceptable quality. Delays in shipments to the
Company, inconsistent or inferior garment quality and other factors beyond
the Company's control could adversely affect the Company's relationships with
its customers, its reputation in the industry and its sales and operating
results. Moreover, foreign manufacturing is subject to numerous risks,
including work stoppages, transportation delays, political instability,
foreign currency fluctuations, the imposition of tariffs and import and
export controls, customs laws, changes in governmental policies and other
factors that could have a material adverse effect
8
<PAGE>
on the Company's business, financial condition and operating results. In
particular, 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. In addition, since the Company's
sourcing activities are based in Hong Kong, such activities may be affected
by the return of Hong Kong to Chinese control in July 1997. Furthermore,
because the Company's foreign manufacturers are located at great distances
from the Company, the Company must generally allow for a significant amount
of lead time for the delivery of products. This reduces the Company's
manufacturing flexibility, which increases the risks associated with changes
in fashion trends and consumer preferences. These risks will increase as the
Company seeks to source some of its products through manufacturers in areas
where labor and fabric costs are lower than those in areas where the
Company's products are currently produced. See "Business--Sourcing."
Responsibility for Markdowns. In the apparel industry, the prices of
products that are not sold by retailers in a timely manner are often marked
down. It is customary in the industry for the seller of such products to
share markdown costs with the retailers. The Company has in the past shared
such costs with its major customers in order to maintain its relationships
with such customers. The Company establishes reserves as a deduction from
gross sales for such markdown expenses. In 1996, markdown expenses were
approximately 2% of gross sales. Although the Company believes that its
reserves have been adequate to date, there can be no assurance that markdown
expenses in the future will not exceed historical levels or that the actual
markdown expenses will not exceed the amount of reserves. In the event that
the amount of reserves proves to be materially inadequate, the Company's
business, financial condition and operating results will be adversely
affected. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Dependence on Limited Number of Customers. In 1996, the Company stopped
using independent sales representatives and consolidated all selling efforts
to its New York showroom. This consolidation, coupled with the Company's
focus on higher-volume retailers, resulted in a 44.6% concentration of gross
sales among its four largest customers in 1996, including Sam's Club, which
accounted for approximately 24.7% of the Company's gross sales during 1996.
The Company does not have long-term sales agreements with any of its
customers. The loss or significant decrease in business from any of these
customers could have a material adverse effect on the Company's business,
financial condition and operating results. See "Business--Corporate
Strategy."
Management of Growth. The Company intends to expand its operations
substantially following the completion of this Offering. This expansion may
place a significant strain on the Company's management, financial and other
resources. In order to manage its growth effectively, the Company will be
required to hire additional management personnel to improve its operational,
financial and management information systems, to accurately forecast sales
demand and calibrate manufacturing to match such demand, to improve its
design capability, to oversee the installation of concept shops and/or
concept areas, to manage its advertising and marketing programs, and to
attract, train, motivate and manage its employees effectively. If the Company
is unable to manage growth effectively, the Company's business, financial
condition and operating results will be adversely affected. See "Business"
and "Management."
Recent Loss. Although the Company was profitable in 1992, 1993, 1994 and
1996, and had operating profits in 1995, it incurred a net loss of
approximately $208,000 in 1995. The loss in 1995 was attributable primarily
to the costs associated with a test advertising campaign for the Company's
Father's Day collection which failed to have a significant effect on the
Company's sales and, to a lesser extent, to an increase in interest expense
resulting from financing the repurchase of stock from certain shareholders in
September 1994. Notwithstanding the Company's profits in 1996, there can be
no assurance that the Company will be able to maintain profitability as its
business grows. See Financial Statements and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Use of Proceeds to Repay Indebtedness; Benefit to Insiders. The Company
intends to use approximately $2,029,000 to repay indebtedness and other
obligations. Approximately $75,000 of such amount will be used to prepay the
remaining outstanding indebtedness due under a note issued by the Company in
favor of Edward H. Mank ("Mank") in the original principal amount of $240,000
("Mank
9
<PAGE>
Note"). E. Kenneth Seiff, the Company's Chief Executive Officer, has granted
Mank a security interest in 177,253 shares of Common Stock held by Mr. Seiff
in order to secure the Company's obligations under the Mank Note. Such
security interest will be released upon the repayment of such obligations out
of the proceeds of this Offering. See "Use of Proceeds."
Broad Discretion in Application of Net Proceeds. At an assumed public
offering price of $5.50 per share of Common Stock and $.10 per Warrant,
approximately $1,329,000, or 19.4%, of the net proceeds of this Offering will
be allocated to working capital and general corporate purposes. Accordingly,
management will have broad discretion as to how and when such proceeds will
be applied and may use a portion of such proceeds to pay salaries, including
salaries of its executive officers. See "Use of Proceeds."
Uncertainty and Expense of Intellectual Property Litigation. The Company
currently has several registered trademarks, and has been assigned a design
patent, and may seek additional legal protection for its products and trade
names. The Company has invested substantial resources in developing several
distinctive trademarks as well as branded products and product lines. There
can be no assurance that the steps taken by the Company to protect its rights
will be sufficient to deter misappropriation. Failure to protect these
intellectual property assets could have a material adverse effect on the
Company's business operations. Moreover, although the Company is not aware of
any pending or threatened action alleging the Company's infringement of
intellectual property rights that could have a material adverse effect on the
Company's business, there can be no assurance that any such action will not
be commenced against the Company in the future or, if such action is
commenced, that the Company would ultimately prevail. See "Legal
Proceedings."
Seasonality and Quarterly Fluctuations. Historically, the Company's sales
and operating results fluctuate by quarter, with most sales occurring in the
Company's second and fourth quarters. It is in these quarters that the
Company's Father's Day and Holiday product lines, which traditionally have
had the highest volume of net sales, are shipped to customers. The Company
can exercise very little control over the timing of customer orders; thus,
orders anticipated in the second calendar quarter, for example, may fall into
the third calendar quarter, thereby affecting both quarters' results. Due to
the long manufacturing cycle of apparel (three to six months), the Company
sometimes enters into manufacturing commitments prior to having firm orders.
In any quarter in which sales fall below the Company's expectations, the
Company's financial results will be negatively impacted because certain costs
will have been incurred in advance of actual receipt of orders. As a result,
there can be no assurance that the Company can maintain sufficient
flexibility with respect to its working capital needs and its ability to
arrange for the manufacture of products to be able to minimize the adverse
effects of an unanticipated shortfall or increase in the demand for its
products. Failure to predict accurately and respond to consumer demand may
reduce profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Dependence On Key Personnel. The Company believes its success will depend
to a significant extent on the efforts and abilities of E. Kenneth Seiff, its
Chief Executive Officer. The Company has entered into an employment agreement
with Mr. Seiff which expires on January 1, 2000. The loss of the services of
Mr. Seiff could have a material adverse effect on the Company. The Company
maintains a $1.2 million key person life insurance policy on the life of Mr.
Seiff. See "Management."
Immediate and Substantial Dilution. Purchasers of the Securities offered
hereby will incur an immediate and substantial dilution of approximately 56%
of their investment in the Common Stock because the net tangible book value
of the Common Stock after the Offering will be approximately $2.48 per share
as compared with the assumed initial public offering price of $5.50 per share
of Common Stock and $.10 per Warrant. See "Dilution."
Dividends Unlikely. The Company has never declared or paid cash dividends
on its Common Stock and does not intend to pay such dividends in the
foreseeable future. The payment of dividends in the future will be at the
discretion of the Company's Board of Directors. See "Dividend Policy."
No Prior Market; Potentially Limited Trading Market; Potential Effects of
"Penny Stock" Rules. There has been no prior market for the Common Stock or
Warrants and there can be no assurance that
10
<PAGE>
a public market for the Common Stock or Warrants will develop or be sustained
after the Offering. Although the Company has applied to have the Common Stock
and Warrants approved for quotation on the Nasdaq SmallCap Market, in order
to maintain such quotation, the Company must satisfy certain maintenance
criteria. The failure to meet these maintenance criteria may result in the
Common Stock and Warrants no longer being eligible for quotation on Nasdaq
and trading, if any, of the Common Stock and Warrants would thereafter be
conducted in the non-Nasdaq over-the-counter market. As a result of such
delisting, an investor may find it more difficult to dispose of or to obtain
accurate quotations as to the market value of the Company's securities. If
the Common Stock was to become delisted from trading on Nasdaq and the
trading price of the Common Stock was less than $5.00 per share, trading in
the Common Stock would also be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended ("Exchange
Act"), which require additional disclosure by broker-dealers in connection
with any trades involving a stock defined as a penny stock (generally, any
non-Nasdaq equity security that has a market price of less than $5.00 per
share, subject to certain exceptions). Such rules require the delivery, prior
to any penny stock transaction, of a disclosure schedule explaining the penny
stock market and the risks associated therewith, and impose various sales
practice requirements on broker-dealers who sell penny stocks to persons
other than established customers and accredited investors (generally
institutions). For these types of transactions, the broker-dealer must make a
special suitability determination for the purchaser and must have received
the purchaser's written consent to the transaction prior to the sale. The
additional burdens imposed upon broker-dealers by such requirements may
discourage them from effecting transactions in the Common Stock and Warrants,
which could severely limit the liquidity of the Common Stock and Warrants and
the ability of purchasers in this Offering to sell the Common Stock and
Warrants in the secondary market. See "Underwriting."
Possible Volatility of Stock Price. The public offering prices of the
Securities and the exercise price and other terms of the Warrants being
offered hereby were established by negotiation between the Company and the
Underwriter and may not be indicative of prices that will prevail in the
trading market. In the absence of an active trading market, purchasers of the
Common Stock or the Warrants may experience substantial difficulty in selling
their securities. The trading price of the Company's Common Stock and
Warrants is expected to be subject to significant fluctuations in response to
variations in quarterly operating results, changes in analysts' earnings
estimates, general conditions in the general retail apparel and golf apparel
industries and other factors. In addition, the stock market is subject to
price and volume fluctuations that affect the market prices for companies and
that are often unrelated to operating performance. See "Underwriting."
Shares Eligible for Future Sale. Sales of the Company's Common Stock in
the public market after this Offering could adversely affect the market price
of the Common Stock or the Warrants. See "Securities Eligible for Future
Sale."
Current Prospectus and State Blue Sky Registration Required to Exercise
Warrants. The Company will be able to issue shares of its Common Stock upon
exercise of the Warrants only if there is then a current prospectus relating
to such Common Stock and only if such Common Stock is qualified for sale or
exempt from qualification under applicable state securities laws of the
jurisdictions in which the various holders of the Warrants reside. The
Company has undertaken to file and keep current a prospectus which will
permit the purchase and sale of the Common Stock underlying the Warrants, but
there can be no assurance that the Company will be able to do so. Although
the Company intends to seek to qualify for sale the shares of Common Stock
underlying the Warrants in those states in which the securities are to be
offered, no assurance can be given that such qualification will occur. The
Warrants may be deprived of any value and the market for the Warrants may be
limited if a current prospectus covering the Common Stock issuable upon the
exercise of the Warrants is not kept effective or if such Common Stock is not
qualified or exempt from qualification in the jurisdictions in which the
holders of the Warrants then reside. See "Underwriting."
Potential Adverse Effect of Redemption of Warrants. The Warrants may be
redeemed by the Company at any time after they become exercisable for a
redemption price of $.01 per Warrant on not less than 30 days' prior written
notice if the last sale price of the Common Stock has been at least 165% of
the then exercise price of the Warrants (initially $ ) on 20 out of the
30 consecutive trading days
11
<PAGE>
ending on the third day prior to the day on which such notice is given.
Notice of a redemption of the Warrants could force the holders thereof to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, to sell the Warrants at the current market
price when they might otherwise wish to hold the Warrants, or to accept the
redemption price which would be substantially less than the market value of
the Warrants at the time of redemption. See "Description of
Securities--Warrants."
Effect of Outstanding Warrants and Underwriter's Purchase Option. As of
the date of this Prospectus, there are outstanding Bridge Warrants to
purchase 600,000 shares of Common Stock and options to purchase 75,000 shares
of Common Stock issued under the Plan. In addition, in connection with this
Offering, the Company will issue the Warrants and the Underwriter's Purchase
Option. The exercise of such outstanding warrants and options would dilute
the then-existing shareholders' percentage ownership of the Company's stock,
and any sales in the public market of Common Stock underlying such securities
could adversely affect prevailing market prices for the Common Stock.
Moreover, the terms upon which the Company would be able to obtain additional
equity capital could be adversely affected since the holders of such
securities can be expected to exercise them at a time when the Company would,
in all likelihood, be able to obtain any needed capital on terms more
favorable to the Company than those provided by such securities. See "Selling
Securityholders," "Description of Securities" and "Underwriting."
Anti-takeover Matters; Potential Adverse Effect of Future Issuances of
Authorized Preferred Stock. The Company's certificate of incorporation, as
restated ("Restated Certificate"), and by-laws, as amended and restated
("Restated By-Laws"), will contain certain provisions that may delay, defer
or prevent a takeover of the Company. The Company's Board of Directors will
have the authority to issue up to 2,000,000 shares of preferred stock, par
value $.01 per share ("Preferred Stock"), and to determine the price, rights,
preferences and restrictions, including voting rights, of those shares,
without any further vote or action by the shareholders. Accordingly, the
Board of Directors will be empowered, without shareholder approval, to issue
Preferred Stock, for any reason and at any time, with such rates of
dividends, redemption provisions, liquidation preferences, voting rights,
conversion privileges and other characteristics as the Board of Directors may
deem necessary. The rights of holders of Common Stock will be subject to, and
may be adversely affected by, the rights of holders of any Preferred Stock
that may be issued in the future. In addition, the Company's Restated
Certificate and Restated By-Laws will include provisions establishing a
classified Board of Directors. The Company is also subject to the
anti-takeover provisions of Section 912 of the Business Corporation Law of
the State of New York ("BCL"), which could have the effect of delaying or
preventing a change of control of the Company. See "Description of
Securities."
12
<PAGE>
DILUTION
The difference between the initial public offering price per share of
Common Stock (attributing no value to the Warrants) and the pro forma net
tangible book value per share of Common Stock after the Offering constitutes
the dilution per share of Common Stock to investors in the Offering. Net
tangible book value per share is determined by dividing the net tangible book
value (total tangible assets less total liabilities) by the number of
outstanding shares of Common Stock. As of December 31, 1996, based on
1,200,000 shares of Common Stock outstanding, the Company had a pro forma net
tangible book value of $40,000, or approximately $.03 per share of Common
Stock. After giving effect to the sale of the Securities offered hereby at an
assumed initial offering price of $5.50 per share of Common Stock and $.10
per Warrant (less underwriting discounts and estimated expenses of this
Offering) and the application of the net proceeds therefrom, the pro forma
net tangible book value at that date would have been $6,687,000, or
approximately $2.48 per share of Common Stock. This represents an immediate
increase in net tangible book value of approximately $2.45 per share to
existing shareholders and an immediate dilution of approximately $3.12 per
share or approximately 56% to investors in this Offering.
The following table illustrates the per share dilution without giving
effect to operating results of the Company subsequent to December 31, 1996.
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed public offering price ........................ $5.60
Pro forma net tangible book value before Offering .. $ .03
Increase attributable to investors in this Offering $2.45
-------
Pro forma net tangible book value after Offering .... 2.48
-------
Dilution to investors in this Offering ............... $3.12
=======
</TABLE>
The following table summarizes the number and percentage of shares of
Common Stock purchased from the Company, the amount and percentage of
consideration paid, and the average price per share paid by existing
shareholders and by investors pursuant to this Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ------------------------ PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
----------- --------- ------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Existing shareholders 1,200,000 44.4% $ 629,874 7.0% $ .52
New investors ......... 1,500,000 55.6% 8,400,000 93.0% $5.60
----------- --------- ------------- ---------
Total ................ 2,700,000 100.0% $ 9,029,874 100.0%
=========== ========= ============= =========
</TABLE>
The foregoing analysis assumes no exercise of the Bridge Warrants, the
Warrants, outstanding options, the Underwriter's Purchase Option or the
Warrants included in the Underwriter's Purchase Option. In the event any such
securities are exercised, the percentage ownership of the investors in this
Offering will be reduced and the dilution per share of Common Stock to
investors in this Offering may increase.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Securities offered
hereby, after deducting underwriting discounts and commissions and estimated
expenses payable by the Company in connection with this Offering (assuming an
initial public offering price of $5.50 per share of Common Stock and $.10 per
Warrant), are estimated to be approximately $6,858,000 (approximately
$7,954,200 if the Underwriter's over-allotment option is exercised in full).
The Company intends to apply the net proceeds approximately as follows:
<TABLE>
<CAPTION>
APPLICATION OF PROCEEDS AMOUNT PERCENT
- ------------------------------------- ------------ ---------
<S> <C> <C>
Marketing and advertising ............ $3,000,000 43.7%
Repayment of indebtedness and other
obligations ......................... 2,029,000 29.6
Installation of concept shops and/or
concept areas ....................... 500,000 7.3
Working capital and general corporate
purposes ............................ 1,329,000 19.4
------------ ---------
Total .............................. $6,858,000 100.0%
============ =========
</TABLE>
Approximately $3,000,000 of the net proceeds will be used for marketing
and advertising purposes, including the continued implementation of the
Company's national advertising campaign. Such expenses may include costs
relating to consumer research, the development and placement of
advertisements in various forms of media including print and direct mail, and
payments to professional and/or celebrity golfers in consideration of their
endorsement of the Company's products. See "Business--Corporate Strategy."
Approximately $2,029,000 of the net proceeds will be used to repay
indebtedness and other obligations of the Company, as follows:
Approximately $1,550,000 of the net proceeds will be used to repay the
notes issued by the Company in connection with the Bridge Financing in
January 1997 ("Bridge Notes"). The Bridge Notes consist of 45 notes in the
aggregate principal amount of $1,500,000, bearing interest at the rate of 10%
per annum through April 30, 1997 and 12% per annum thereafter, and are
payable upon the consummation of this Offering. Assuming the Offering is
consummated by April 30, 1997, the interest to be paid on the Bridge Notes
will be approximately $50,000. The net proceeds from the sale of the Bridge
Notes are being used for the development of a national advertising campaign
and the continuation of the Company's trade campaign, the hiring of key
personnel, the development and installation of concept shops and/or concept
areas in various targeted retail stores, the payment of expenses in
connection with this Offering, the payment of approximately $60,000 to Leisure
Wear Inc., David M. Goldblatt Inc. Profit Sharing Plan, David Goldblatt,
Anita Goldblatt and Jeffrey Goldstein (collectively, the "Leisure Wear Group")
in accordance with the terms of a Stock Purchase Agreement by and between the
Leisure Wear Group and the Company dated September 30, 1994 and an amendment
to such agreement dated September 24, 1996 (collectively, the "Stock Purchase
Agreement"), pursuant to which the Company repurchased 572,526 shares of
Common Stock from the Leisure Wear Group, and for working capital and general
corporate purposes. See "Certain Transactions."
Approximately $219,000 of the net proceeds will be paid to the Leisure
Wear Group pursuant to the terms of the Stock Purchase Agreement, which
obligates the Company to make certain cash incentive payments to the Leisure
Wear Group, including, but not limited to, payments equal to 5% of the net
cash proceeds to the Company resulting from the issuance of securities of the
Company in any public offering or private placement, up to an aggregate of
$279,000. The Company paid the Leisure Wear Group cash incentive payments
equal to approximately $60,000 of the net cash proceeds of the Bridge
Financing. Under the terms of the Stock Purchase Agreement, the Company is
also obligated to use its best efforts to allow the Leisure Wear Group to
invest an amount equal to the cash incentive payments to be paid as a result
of this Offering in the Securities to be sold in this Offering.
14
<PAGE>
Approximately $185,000 of the net proceeds will be used to prepay the
remaining outstanding indebtedness under a term loan in the principal amount
of $325,000 from Heller to the Company, dated December 8, 1994 ("Heller Term
Loan"). Principal on the Heller Term Loan is payable in monthly installments
of $5,420 through and including December 1997 and a balloon payment of
$135,300 is due on January 1, 1998. Interest on the unpaid principal of the
Heller Term Loan is payable monthly in arrears at 2% above the prime rate.
The proceeds of the Heller Term Loan were used to make certain payments to
the Leisure Wear Group pursuant to the Stock Purchase Agreement.
Approximately $75,000 of the net proceeds will be used to prepay the
remaining outstanding indebtedness under the Mank Note. Interest on the
unpaid principal of the Mank Note accrues at the rate of 12% per year.
Principal and interest under the Mank Note are payable in monthly
installments of $25,339.70 through and including July 1997. The proceeds of
the Mank Note were used to make certain payments to the Leisure Wear Group
pursuant to the Stock Purchase Agreement.
Approximately $500,000 of the net proceeds will be used for the
installation of concept shops and/or concept areas within targeted retailers'
stores. The Company anticipates that the cost of installing a typical concept
area will be approximately $15,000. Initial installation costs will be paid
by the Company and subsequent installation costs may be shared by the
retailer and the Company.
The balance of the net proceeds of this Offering will be used for working
capital and general corporate purposes, which may include, among other
things, payment of expenses incurred or to be incurred by the Company in
connection with its operations and the payment of general corporate expenses,
including the costs of being a publicly-held company, consulting fees and
salaries payable to additional officers and financial and management
personnel. If the Underwriter exercises the over-allotment option in full the
Company will realize additional net proceeds of approximately $1,096,000
which also will be added to working capital.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the Company's currently
contemplated operations and business plans, as well as current economic and
industry conditions, and is subject to reapportionment among the categories
listed above in response to, among other things, changes in the Company's
plans, unanticipated future revenues and expenditures, and unanticipated
industry conditions. The amount and timing of expenditures will vary
depending on a number of factors, including, without limitation, the results
of operations and changing industry conditions. To the extent deemed
appropriate by management, the Company may acquire fully developed products
or businesses which, in the opinion of management, facilitate the growth of
the Company and/or enhance the market penetration or reputation of its
products. To the extent that the Company identifies any such opportunities,
an acquisition may involve the expenditure of significant cash and/or the
issuance of capital stock of the Company. Any expenditure of cash will reduce
the amount of cash available for working capital or marketing and advertising
purposes. The Company currently has no commitments, understandings or
arrangements with respect to any such acquisition.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996, and (ii) pro forma as adjusted to give effect to the sale
of the Securities offered hereby and the application of the estimated net
proceeds therefrom. See "Use of Proceeds." This table should be read in
conjunction with the audited financial statements of the Company, including
the notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------
PRO FORMA
ACTUAL AS ADJUSTED(1)
-------- --------------
(IN THOUSANDS)
<S> <C> <C>
Notes payable, current portion ..................... $230 $ --
Short-term debt .................................... 279 --
-------- --------------
Total short-term debt ............................ $509 $ --
======== ==============
Notes payable, less current portion ................ 135 --
-------- --------------
Shareholders' equity:
Preferred Stock: $.01 par value, 2,000,000 shares
authorized, pro forma, as adjusted
Common Stock: $.01 par value, 10,000,000 shares
authorized; 15,000,000 shares authorized, pro
forma, as adjusted; 1,200,000 shares issued and
outstanding, actual; 2,700,000 shares issued and
outstanding, pro forma, as adjusted .............. 12 27
Additional paid-in capital ......................... 397 7,325
Accumulated deficit ................................ -- (425)
-------- --------------
Total shareholders' equity ......................... 409 6,927
-------- --------------
Total capitalization ............................. $544 $6,927
======== ==============
</TABLE>
- ------------
(1) The pro forma as adjusted balance sheet information gives effect to the
(i) receipt of the $1,500,000 gross proceeds of the Bridge Financing,
(ii) the consummation of this Offering at an assumed public offering
price of $5.50 per share of Common Stock and $.10 per Warrant, net of
underwriting discounts and commissions and other expenses of this
Offering, and the use of a portion of the net proceeds thereof to repay
approximately $2,029,000 in indebtedness and certain other obligations,
and (iii) the write-off of $138,000 of debt discount and $287,000 of
debt issuance costs incurred in connection with the Bridge Financing.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and it is currently the intention of the Company not to pay cash
dividends on its Common Stock in the foreseeable future. Management intends
to reinvest earnings, if any, in the development and expansion of the
Company's business. Any future declaration of cash dividends will be at the
discretion of the Board of Directors and will depend upon the earnings,
capital requirements and financial position of the Company, general economic
conditions and other pertinent factors.
16
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below as of and for the year ended
December 31, 1996 is derived from the financial statements audited by Grant
Thornton LLP. The selected financial data for the year ended December 31,
1995 is derived from the financial statements audited by Richard A. Eisner &
Company, LLP. The selected financial data for the years ended December 31,
1994, 1993, and 1992 are derived from the unaudited financial statements of
the Company. In the opinion of management, such unaudited financial
statements include all adjustments necessary for the fair presentation of
such data. The selected financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the audited financial statements of the Company, including
the notes thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1992 1993 1994 1995 1996
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ............................ $2,247 $4,488 $6,417 $6,337 $8,596
Cost of sales ........................ 1,479 2,884 4,034 3,996 6,571
----------- ----------- ----------- ----------- -----------
Gross profit ......................... 768 1,604 2,383 2,341 2,025
Selling, marketing, design and
administrative expenses ............. 646 1,231 1,661 2,288 1,502
----------- ----------- ----------- ----------- -----------
Operating profit ..................... 122 373 722 53 523
Other income ......................... -- -- -- 68 125
Interest expense and factoring
charges ............................. (78) (108) (176) (418) (443)
----------- ----------- ----------- ----------- -----------
Income (loss) before taxes ........... 44 265 546 (297) 205
Net income (loss) .................... $ 41 $ 159 $ 355 $ (208) $ 135
Net earnings (loss) per share ....... $ .03 $ .09 $ .22 $ (.17) $ .11
Weighted average number of shares of
Common Stock and Common Stock
equivalents outstanding ............. 1,317,253 1,772,526 1,629,394 1,200,000 1,200,000
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
PRO FORMA
1992 1993 1994 1995 1996 AS ADJUSTED (1)
------- ------- ------- ------- ------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital .... $ 747 $ 919 $ 974 $ 620 $ 175 $6,688
Total assets ........ 1,071 1,472 2,232 2,287 1,636 7,510
Long-term debt ...... -- -- 745 608 135 --
Shareholders' equity $ 840 $ 999 $ 482 $ 274 $ 409 $6,927
</TABLE>
- ------------
(1) The pro forma as adjusted balance sheet information gives effect to the
(i) receipt of the $1,500,000 gross proceeds of the Bridge Financing,
(ii) the consummation of this Offering at an assumed public offering
price of $5.50 per share of Common Stock and $.10 per Warrant, net of
underwriting discounts and commissions and other expenses of this
Offering, and the use of a portion of the net proceeds thereof to repay
approximately $2,029,000 in indebtedness and certain other obligations,
and (iii) the write-off of $138,000 of debt discount and $287,000 of
debt issuance costs incurred in connection with the Bridge Financing.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements, including the notes thereto, and the Selected Financial Data
included elsewhere in this Prospectus.
OVERVIEW
The Company designs, sources and markets a full collection of golf
lifestyle sportswear for men under the Pivot Rules brand name and registered
trademark. Its current products include knit and woven shirts, sweaters,
sweatshirts, pants, shorts, outerwear, hats and socks, many of which carry
the Company's distinctive "Three Golfer" logo. The Company focuses its design
efforts on creating products with updated styling, innovative design and
superior comfort and fit, utilizing natural fibers and bright colors.
Although the Company was increasingly profitable during 1992, 1993 and
1994, it had losses of approximately $208,000 in 1995. During 1996, as a
result of increasing competition in the "upper moderate" price segment of the
golf lifestyle apparel market, the Company initiated a strategy of
repositioning its products into the "moderate" price segment and expanding
distribution to focus on higher-volume retailers. As a result of this new
strategy, net sales increased by approximately $2,259,000, or 35.6%, from
approximately $6,337,000 in 1995 to approximately $8,596,000 in 1996. The
Company recorded net income of approximately $135,000 during the fiscal year
ended December 31, 1996.
Historically, the Company sold its products in the "upper moderate" price
segment, to better department stores, specialty stores and catalogs. Because
such retailers typically purchased small quantities of a given product style,
the Company utilized small production runs and its profitability was
dependent upon high margins. By refocusing its marketing efforts on the
"moderate" price segment of the golf lifestyle apparel market, the Company is
taking advantage of the greater distribution opportunities available and the
resulting larger order sizes to increase profitability through improved
sourcing. The Company is also seeking to reduce sourcing costs in some cases
by sourcing materials for a garment separately from the production of the
garment. The Company retained an experienced sourcing director to capitalize
on this opportunity. Since the beginning of 1996, the Company has reduced the
sourcing costs of its largest volume product style by approximately 20%.
The Company has not historically incurred significant marketing and
advertising expenditures with the exception of the Company's test campaign in
1995. Although the Company believes the test campaign generated a higher
level of awareness in its target market area, the campaign's duration and
geographic scope were too limited to impact the Company's financial
performance favorably. The Company has instituted new advertising and
marketing initiatives that will require increased and continuous expenditures
to be effective. If sales do not increase in proportion to the costs of the
Company's new marketing and advertising initiatives, these increased
expenditures could have a material adverse effect on the Company's business,
financial condition and operating results.
The Company's net sales consist of gross sales less the amount of returns,
allowances and markdowns. It is customary in the industry for the producer of
apparel to share markdown costs with the retailers.
RESULTS OF OPERATIONS
1996 COMPARED TO 1995
The Company's net sales increased by $2,259,000, or 35.6%, from $6,337,000
in 1995 to $8,596,000 in 1996 due to increased unit volume of its men's
sportswear collection, which more than offset the decrease in the Company's
prices. Net sales attributable to the men's sportswear collection increased
by 77.5%, primarily due to purchases by new customers, while net sales
attributable to the women's sportswear collection decreased by 47.9%. This
decrease resulted from the Company's decision to discontinue development of
its women's sportswear collection. The Company continues to sell a limited
amount of women's apparel on a contract basis.
Gross profit decreased by $316,000, or 13.5%, from $2,341,000 in 1995 to
$2,025,000 in 1996. Consistent with the change in strategy, gross margin as a
percentage of net sales decreased from 36.9% in
18
<PAGE>
1995 to 23.6% in 1996, primarily due to the decrease in average sales prices,
as well as the close-out of women's sportswear inventory and commissions
incurred pursuant to a contract with a purchasing agent.
Selling, marketing, design and administrative expenses decreased by
$786,000, or 34.3%, from $2,288,000 in 1995 to $1,502,000 in 1996. As a
percentage of net sales, selling, marketing, design and administrative
expenses declined from 36.1% in 1995 to 17.5% in 1996. This decrease was due
in part to a reduction of $472,000, or 72.8%, in advertising expense,
primarily as a result of the costs of a test advertising campaign conducted
in 1995. In addition, salaries and sales commissions decreased by $196,000,
or 20.9%, due primarily to the discontinuation of the women's sportswear
collection.
Net interest expense and bank fees increased by $25,000, or 6.0%, from
$418,000 in 1995 to $443,000 in 1996, as a result of the Company's increased
working capital requirements.
Other income increased by $57,000, or 83.8%, from $68,000 in 1995 to
$125,000 in 1996, primarily as a result of an increase in licensing royalties
received by the Company and proceeds from lawsuit settlements, net of related
costs.
Net income increased by $343,000 from a loss of $208,000 for 1995 to net
income of $135,000 in 1996. The loss in 1995 was attributable primarily to
the costs associated with a test advertising campaign for the 1995 Father's
Day collection which failed to have a significant effect on the Company's
sales. The Company believes that the 1995 test advertising campaign failed
because its duration and geographic scope were too limited to impact the
Company's financial performance favorably. Management intends to take these
factors into consideration for all future advertising campaigns. The loss in
1995 was also due, to a lesser extent, to an increase in interest expense
from financing the payments made to the Leisure Wear Group pursuant to the
Stock Purchase Agreement and to higher markdown expenses resulting from
increased competition.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has been undercapitalized. The Company expends
significant amounts of working capital for advertising and inventory in
advance of revenues generated by these items. To date, the Company has
obtained working capital through cash flow from operations, private financing
and a revolving credit facility from Heller, to whom it has granted a senior
security interest in substantially all of its assets. The Company
anticipates, based on current plans and assumptions relating to its
operations, that the proceeds of the Offering, together with existing
resources and cash generated from operations, should be sufficient to satisfy
the Company's contemplated cash requirements for at least 18 months after
completion of the Offering. There can be no assurance, however, that the
Company will not require additional cash during or after such 18-month
period.
During 1996, net cash provided by operating activities was $1,406,000,
compared to net cash used in operations of $362,000 in 1995. The increase in
cash provided by operations was primarily a result of an increase in sales
and a reduction in inventory.
During 1996, the net cash used in investing activities was $42,000,
compared to $101,000 in 1995. The cash used in 1996 and 1995 was for purchase
of property and equipment. The cash used in 1995 was also attributable to
costs associated with the registration of several trademarks in the United
States and foreign countries.
During 1996, the cash used in financing activities was $1,385,000,
compared to cash provided by financing activities of $397,000 in 1995. This
change was primarily attributable to an increase in receivables factored in
excess of advances received from Heller.
Factoring Agreement. The Company is party to a Retail Collection Factoring
Agreement ("Factoring Agreement") with Heller pursuant to which the Company
sells all of its eligible accounts receivable to Heller. The Company may
borrow from Heller, at Heller's discretion, up to 80% of the net balance due
on eligible accounts receivable. At December 31, 1996 there were
approximately $3,025,000 of outstanding advances under the Factoring
Agreement, offset by $3,732,000 in gross receivables. Interest on such
advances is payable monthly in arrears at the rate of 2% above the Chase
Manhattan Bank, N.A. prime rate.
19
<PAGE>
Bridge Financing. In January 1997, in connection with the Bridge
Financing, the Company issued Bridge Notes in the aggregate principal amount
of $1,500,000, bearing interest at the rate of 10% per annum through April
30, 1997 and 12% per annum thereafter, and Bridge Warrants to purchase an
aggregate of 600,000 shares of the Company's Common Stock at an exercise
price equal to the initial public offering price per share. All amounts due
under the Bridge Notes will be paid out of the proceeds of this Offering.
Upon the date of this Prospectus, the Bridge Warrants will be automatically
converted into Warrants on a one-for-one basis. Upon repayment of the amounts
due under the Bridge Notes, the related unamortized debt issuance cost will
be expensed.
The Company estimates that it will incur additional capital expenditures
of approximately $500,000 during the twelve months following consummation of
this Offering in connection with the installation of concept shops and/or
concept areas, expansion of office and warehouse facilities and procurement
of computer systems. See "Business--Corporate Strategy".
SEASONALITY
The apparel industry is seasonal in nature and, as a result, the Company
experiences significant variability in its quarterly results and working
capital requirements. A significant portion of the Company's sales occur
during the quarters in which the Father's Day and Holiday lines are shipped.
In addition, quarterly results may vary from year to year due to the timing
of new product introductions, orders and sales, advertising expenditures,
promotional periods and shipments.
20
<PAGE>
BUSINESS
GENERAL
The Company designs, sources and markets a full collection of golf
lifestyle sportswear for men under the Pivot Rules brand name and registered
trademark. Its current products include knit and woven shirts, sweaters,
sweatshirts, pants, shorts, outerwear, hats and socks, many of which carry
the Company's distinctive "Three Golfer" logo. The Company focuses its design
efforts on creating products with updated styling, innovative design and
superior comfort and fit, utilizing natural fibers and bright colors. The
Company seeks to distinguish its products from its competitors' products by
incorporating many unique details into its garments, thereby creating a
"branded" look. The Company believes that by integrating its marketing,
packaging and in-store fixturing programs, it will be able to build a
lifestyle image that consumers will link with the Pivot Rules brand name.
Historically, golf apparel has been marketed largely to avid golfers and
has been sold primarily at country clubs and pro shops. In recent years,
however, these products increasingly have appealed to a broader group of
consumers. As golf apparel has become more fashionable, a new market segment
has developed--golf lifestyle sportswear. The Company believes that this new
market segment results from the confluence of several trends, including (i)
the increased interest among the general population in quality of life and
leisure activities, (ii) the general success of lifestyle-oriented
sportswear, (iii) the increasing prominence of both professional and
celebrity golfers, (iv) the increased media coverage of golf, and (v) the
advent of "casual Fridays" and the increasing acceptance of casual apparel in
the workplace. Golf lifestyle sportswear is now sold not only to avid golfers
but also to consumers who identify with the lifestyle associated with golf
and similar leisure activities. As a result, department stores, catalogs,
sporting goods stores, discounters and specialty stores have joined country
clubs and pro shops as popular places to purchase golf apparel.
In 1991, having recognized these changes in the golf apparel market in
their incipience, the Company became one of the pioneers in selling golf
lifestyle apparel collections through these new channels of distribution.
Initially, the Company sold its products in the "upper moderate" price
segment, primarily to better department stores, specialty stores and
catalogs. Because such retailers typically purchased small quantities of a
given product style, the Company utilized small production runs and its
profitability was dependent upon high margins. Based on this strategy, the
Company's net sales grew from approximately $2.2 million in 1992 to $6.3
million in 1995.
CORPORATE STRATEGY
By 1996, an increasing number of new market entrants had begun to sell
golf lifestyle apparel collections in the "upper moderate" price segment and
the Company determined that a disproportionate amount of competition existed
in this market. As a result, the Company decided to refocus its marketing
efforts on the "moderate" price segment of the golf lifestyle apparel market.
Based upon the superior design and quality of its products and its ability to
offer the fully integrated golf lifestyle concept and brand image that it had
developed in the "upper moderate" price segment of the market, the Company
believed that it could achieve significant competitive advantages by
repositioning its products into the "moderate" price segment. Accordingly,
the Company reduced its prices and redirected its sales efforts to focus on
the higher-volume retailers and other customers in the "moderate" price
segment, such as department stores, sporting goods stores, catalogs and
corporations, as well as discounters, including warehouse clubs. Based on
this new strategy, the Company's net sales increased to $8.6 million in 1996.
The Company believes that this strategy will lead to further increased sales
volume and that the increased purchasing leverage resulting from this sales
growth will allow it to reduce sourcing costs while maintaining product
quality.
The Company's goal is to become the leading golf lifestyle apparel
collection in the "moderate" price segment. The Company has planned several
marketing, advertising and management initiatives in order to reinforce its
strategic shift in product positioning. The following discussion summarizes
the major aspects of the Company's corporate strategy:
21
<PAGE>
Gain Access to High Volume Distribution Channels. The Company has
refocused its marketing strategy to concentrate its sales efforts on high
volume retailers. The Company believes that it has the opportunity to
increase sales substantially by marketing its products to such retailers.
Although this entails a reduction of the wholesale and retail prices of its
products, the Company believes that it can maintain product quality through
the additional purchasing leverage gained through larger production runs and
more efficient sourcing it expects to obtain.
Increase Trade Market Support. Historically, the Company has had a limited
budget to build trade and consumer awareness of its products. In October
1996, the Company launched a marketing initiative aimed at members of the
apparel trade consisting of full-page black and white advertisements in the
trade paper, the Daily News Record. These advertisements ran approximately 20
times during the important October and November selling periods. The Company
expects that the trade campaign will serve to educate targeted retailers
about the Company's products and, therefore, support the Company's overall
business strategy. The Company intends to continue running trade
advertisements frequently during key selling periods and less frequently at
other times. The Company plans to expand its trade marketing campaign in 1997
and beyond.
National Consumer Advertising Campaign. The Company is developing a
national consumer advertising print campaign built around its trademarked
slogan "The Rules Have Changed." The first two advertisements in this
campaign have already been created. The Company anticipates launching this
campaign in May 1997. The Company believes that its brand name recognition
will be significantly enhanced by its first national advertising campaign,
although there can be no assurance that the campaign will be successful.
Install Concept Shops and/or Concept Areas. The Company believes that a
key to growth in the Company's sales will be the installation of Pivot Rules
concept shops and/or concept areas within targeted retailers' stores in order
to draw greater attention to the Company's products. Concept shops and
concept areas enable the retailer to create an environment consistent with
the Company's image and encourages the retailer to display and stock a
greater volume of the Company's products. Such shops and areas foster
long-term commitment by the retailer to the Company's products. These shops
also increase consumer product recognition and loyalty because they
facilitate the retail customer's familiarity with the location of the
Company's products in the store. The Company plans to install between 10 and
20 of such concept areas during 1997. The Company anticipates that the cost
of installing a typical concept area will be approximately $15,000. Initial
installation costs will be paid by the Company and subsequent installation
costs may be shared by the retailer and the Company. In order to introduce
the design of the concept shops to targeted retailers, the Company intends to
build a prototype concept shop in its showroom.
Expand Products Offered through the Company and its Licensees. The Company
seeks to expand the types of products offered under the Pivot Rules brand
name both through its own design and sales operations and through licensing
agreements with third parties. The Company believes that the broadening of
the Company's product line will build consumer awareness, make the Company's
product line more meaningful to its targeted retailers' business operations
and enhance the Company's reputation as a leading marketer of golf lifestyle
sportswear. Moreover, to the extent that any potential licensees of the
Company advertise their products, the Company anticipates that such
advertising will augment its own advertising efforts. See
"Business--Licensing."
The Company believes that, as the appeal of golf lifestyle sportswear has
broadened to include virtually all demographic segments of the market,
opportunities will exist to increase its revenues and retail customer base
through the development or acquisition of additional labels. To take
advantage of such opportunities the Company may offer products under one or
more new labels to selected retailers.
Expand Management Team. The Company is seeking to strengthen its
management team by recruiting seasoned industry professionals. The Company
has recently hired a Chief Financial Officer, a Vice President of Operations
and a Director of Design and is seeking to hire a Director of Sales. See
"Management" and "Business--Product and Design."
Introduce Quick Response Inventory Replenishment to Targeted Retailers.
The Company is equipped to offer quick response inventory replenishment to
retailers for certain of the Company's most
22
<PAGE>
popular products. This program is designed to keep key items in stock on a
year-round basis without the need for the retailer to place advance purchase
orders. Quick response inventory allows the retailer to improve margins by
decreasing markdowns that might otherwise occur when items do not sell on a
timely basis. Because this program is offered only for the Company's most
popular items, inventory increases can be limited to products that have a
proven sales history. The Company believes that its ability to make this
program available to retailers will increase revenues and improve the
Company's ability to forecast its sales for these key items. The Company is
working with its retailers to place key items, including short-sleeve shirts,
shorts and hats, on its quick response inventory program.
PRODUCT AND DESIGN
The Company offers a full collection of golf lifestyle sportswear for men,
including knit and woven shirts, sweaters, sweatshirts, pants, shorts,
outerwear, hats and socks. The Company focuses its design efforts on creating
products with updated styling, innovative design and superior comfort and
fit, utilizing natural fibers and bright colors. The Company aims to
incorporate the newest fabrics and styles into its products. Each season, the
Company designs its products from a single color palette to enhance
retailers' presentations of the product as a "collection" and encourage the
consumer to purchase well-coordinated outfits rather than a single item. The
Company seeks to distinguish its products from its competitors' products by
incorporating many unique details into its garments in order to create a
"branded" look. For example, a cotton tape of the Company's slogan is sewn
into the neck and tail of every shirt, pants and shirts have a spare logoed
button sewn into the seam and hangtags are printed with one of several
different messages designed to convey the Company's spirit. Additionally, the
Company incorporates its trademarked and patented "Three Golfer" logo into
most of its products.
The Company recently hired Christopher DioGuardi to head its Design
Department. Mr. DioGuardi is a former Senior Menswear Designer for Izod Golf
and the U.S. Open Golf Collection, both divisions of Crystal Brands, Inc.
Prior to that, Mr. DioGuardi worked in menswear product development and
design research for Nautica International. Mr. DioGuardi and Mr. Seiff work
with freelance designers to create the Company's products.
SOURCING
Substantially all of the Company's products are manufactured by third
parties in the Far East and India. The Company sources substantially all of
its products through Textiles Network, Ltd. ("Textiles Network"), a Hong Kong
agency that oversees production and quality control. Textiles Network
negotiates prices, identifies factories to manufacture the products and
conducts quality control on the Company's behalf. The Company works closely
with Textiles Network to monitor each of these phases of the production
process. The Company makes substantially all final decisions with regard to
pricing and the selection of factories. Additionally, the Company approves
samples of each garment prior to the commencement of production. The Company
pays Textiles Network an 8% commission on the first $1 million of goods
shipped to the Company and 7% thereafter.
In May 1996, the Company entered into a purchase management agreement with
IDL International, LLC ("IDL"). David Lewis is the President and principal
owner of IDL. Under the agreement, as amended in July 1996 ("IDL Agreement"),
the Company has paid IDL a commission of 5% on the first $1 million of goods
shipped to the Company in a given year and 2.5% thereafter. In addition, IDL
received a bonus based on the Company's gross margins. The IDL Agreement has
been terminated effective as of March 1, 1997 in connection with the hiring
of David Lewis as Vice President of Operations. See "Management" and "Certain
Transactions."
The Company is not obligated to source its products at any particular
factory. However, the Company maintains consistent orders with a number of
different factories in order to encourage competitive pricing and delivery.
The Company is seeking to source some of its products through
manufacturers in areas where labor and fabric costs are lower than those in
areas where the Company's products are currently manufactured. The Company is
also seeking to reduce sourcing costs in some cases by sourcing materials for
a garment
23
<PAGE>
separately from the production of the garment. These strategies, together
with increased purchasing leverage from selling to high-volume retailers,
have enabled the Company to reduce the sourcing costs of its largest volume
product style by approximately 20% since the beginning of 1996.
PATENTS AND TRADEMARKS
The Company has trademarked many of its brand names and slogans in the
United States and in numerous countries worldwide. In the United States, the
Company owns a variety of trademarks, including "Pivot Rules," "The Rules
Have Changed" and "Clothes To Play A Round In," as well as its "Three Golfer"
design mark and "Three Golfer and Flag" design mark. The Company has also
been assigned a design patent for its Three Golfer and Flag design mark
("Design Patent"). The Design Patent covers the interaction between an
element on the chest of a garment, for example, a golfer, and a separate
related element on the sleeve of the garment, for example, a putting green.
WAREHOUSING/DISTRIBUTION
The Company leases 18,000 square feet of warehouse space in Tukwila,
Washington. The Company selected Tukwila as the site for the warehouse
because of its proximity to ports from which the Company receives shipments
from its manufacturers in the Far East. The warehouse is staffed by two full
time employees and is managed by Dean Seiff (brother of E. Kenneth Seiff).
Additional temporary personnel are hired during peak shipping periods. The
Company is linked by Electronic Data Interchange ("EDI") to several of its
largest customers and, as a result, can receive orders via computer. During
key holiday periods, the warehouse maintains a same day shipping policy for
orders received before 3:00 p.m., Eastern Standard Time. See
"Business--Properties."
LICENSING
The Company has licensing agreements with foreign licensees for the sale
of its sportswear products in a number of countries, including Japan,
Thailand, Singapore, Malaysia, Indonesia and Brunei. Although revenues from
licensing arrangements have not been material to date (approximately $58,000
in 1995 and $90,000 in 1996), the Company believes that both domestic and
foreign licensing revenues can become significant within the next several
years.
The Company has entered into a worldwide representation agreement
("Representation Agreement") with International Management Corporation
("IMC"), a member company of International Management Group ("IMG"), under
which IMC has been retained as the Company's sole and exclusive agent to
identify, qualify and negotiate with prospective international licensing
partners. IMG is a worldwide sports representation and marketing organization
with offices in 74 countries worldwide. Under the terms of the Representation
Agreement, IMC receives commissions from the Company equal to 30% of gross
income for the first $1 million of gross income covered by the agreement and
35% thereafter on all international licensing revenues generated by the
Company through licensing agreements negotiated or entered into while the
Representation Agreement remains in effect. The Representation Agreement
provides for an original term expiring on June 30, 1997, with automatic one
year renewal periods. The Company has identified several targeted categories
for future domestic licensing deals, including socks, hats, belts, cologne,
underwear, robes, golf clubs, golf accessories and eyeglasses. However, there
can be no assurance that licensing revenues will increase during this time
period or that the Company will continue to receive any licensing revenue at
all.
COMPETITION
The men's sportswear segment of the apparel market is highly competitive.
The Company encounters substantial competition at a variety of price points
from a number of apparel brands including Polo, Tommy Hilfiger, Nautica,
Chaps, Izod, Gant, Dockers, Nike, Munsingwear, Grand Slam, Greg Norman,
Ashworth, Cross Creek and Jack Nicklaus. The Company competes primarily on
the basis of design, image, value and quality. Many of the companies selling
such brands are significantly larger than the Company, have substantially
greater financial, marketing and other resources and have achieved greater
24
<PAGE>
recognition for their brand names than the Company. The Company believes that
its competitive position depends upon its ability to anticipate and respond
effectively to changing consumer demands and to offer quality conscious
sportswear at competitive prices. Virtually all of the Company's targeted
retailers also offer their own private label brands which compete at
significantly lower prices. In addition, the current success of golf-inspired
lines leaves open the possibility of new entrants into the market. For
example, Nike recently signed a $40 million contract with Tiger Woods and is
developing a line of clothing under his name. Increased competition in the
golf apparel and general sportswear apparel markets could result in price
reductions, reduced margins or loss of market share, all of which could have
a material adverse effect on the Company's business, financial condition and
operating results.
EMPLOYEES
As of March 5, 1997, the Company had nine full-time and two part-time
employees, of whom three were in management, two were in the sales
department, two were in the design department, two were in the warehouse
department, one was in the production department and one was in the finance
department. None of the Company's employees are represented by a labor union
and the Company considers its relations with its employees to be good.
PROPERTIES
The Company leases 2,400 square feet of office space in New York City and
18,000 square feet of warehouse space in Tukwila, Washington under
noncancelable operating leases. The New York City lease expires in October
1998 and the Tukwila lease expires in August 1999. The Company's total lease
payments under both leases for the current fiscal year will be approximately
$123,000. The Company anticipates either subleasing its office or reaching
some other arrangement with the landlord and moving to larger office space
sometime in 1997.
LEGAL PROCEEDINGS
The Company is, from time to time, a party to routine litigation arising
in the normal course of its business. The Company believes that none of these
actions will have a material adverse effect on the business, financial
condition or operating results of the Company.
The Company currently has several registered trademarks, and has been
assigned a design patent, and may seek additional legal protection for its
products and trade names. The Company has invested substantial resources in
registering the trademarks and developing branded products and product lines.
There can be no assurance that the steps taken by the Company to protect
these intellectual property assets will be sufficient to deter
misappropriation. Failure to protect these intellectual property assets could
have a material adverse effect on the Company's business operations.
Moreover, although the Company is not aware of any lawsuit alleging the
Company's infringement of intellectual property rights that could have a
material adverse effect on the Company's business, there can be no assurance
that any such lawsuit will not be filed against the Company in the future or,
if such a lawsuit is filed, that the Company would ultimately prevail.
25
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------ ----- ---------------------------------------------------
<S> <C> <C>
E. Kenneth Seiff .. 32 Chairman of the Board of Directors, Chief Executive
Officer, President and Treasurer
David Lewis ....... 43 Vice President of Operations
Meena N. Bhatia .. 28 Chief Financial Officer
Martin Miller ..... 66 Director
Alan G. Millstein 53 Director
Fred Rosenfeld ... 51 Director
Robert G. Stevens 43 Director
</TABLE>
E. KENNETH SEIFF, the founder of the Company, has served as the Company's
Chairman of the Board, Chief Executive Officer and Treasurer since its
inception in April 1991. He became President of the Company in October 1996.
From 1989 to 1991, Mr. Seiff was a Vice President of Founders Equity, a New
York based leveraged buyout firm. From 1988 to 1989, he was the President and
sole shareholder of EKS Capital Corp., a leveraged buyout firm. Mr. Seiff was
an associate at Lorne Weil, Inc., a New York based strategic planning and
corporate development consulting firm, from 1986 until 1988.
DAVID LEWIS has served as Vice President of Operations of the Company
since March 1997. From April 1996 to March 1997, Mr. Lewis was President of
IDL, a principal consultant to the Company. From March 1991 to March 1996,
Mr. Lewis was Vice President of Production and Sourcing at Baxter
International, Inc. ("Baxter"), a New York based apparel wholesaler. From
1987 to 1991, Mr. Lewis was a Divisional Product Manager at Federated Allied
Merchandising Services.
MEENA N. BHATIA has served as Chief Financial Officer of the Company since
January 1997. From June 1995 to January 1997, Ms. Bhatia was the Assistant
Treasurer of DVL, Inc. ("DVL"), a publicly-traded commercial real estate and
finance company, and from June 1993 to January 1997, she was the Controller
of DVL. From November 1990 to June 1993, Ms. Bhatia was a member of the audit
staff at Richard A. Eisner & Company, LLP, the Company's former accounting
firm. Ms. Bhatia is a Certified Public Accountant.
MARTIN MILLER has served as a director of the Company since July 1991.
Since September 1986, Mr. Miller has been President and a director of Baxter.
From January 1990 to April 1996, Mr. Miller was Chairman of Ocean Apparel,
Inc., a Florida based sportswear firm. From 1970 to 1986, Mr. Miller was the
President and Chief Executive Officer of RPM, Inc., a New York based apparel
wholesaler.
ALAN MILLSTEIN has served as a director of the Company since December
1996. Since 1979, Mr. Millstein has been a retail consultant and the Chairman
of the Board of Fashion Network, Inc., a consulting organization specializing
in marketing communications and the publisher of Fashion Network Report, a
monthly retail and fashion newsletter.
FRED ROSENFELD has served as a director of the Company since July 1991.
Mr. Rosenfeld currently works as a consultant in the apparel industry. From
October 1993 to December 1995, Mr. Rosenfeld was President of the Jockey
Sportswear Division of Baxter. From October 1991 to October 1993, he was a
consultant in the apparel industry. Mr. Rosenfeld was Chief Operating Officer
of Collections Clothing Corporation, a company engaged in the manufacture of
men's sportswear, from March 1990 to March 1991.
ROBERT G. STEVENS has served as a director of the Company since December
1996. Since December 1994, Mr. Stevens has been a Vice President of Mercer
Management Consulting, Inc. ("Mercer"), a management consulting firm. From
November 1992 to December 1994, Mr. Stevens was a Principal at Mercer. From
1983 to November 1992, Mr. Stevens was a consultant at Lorne Weil, Inc.
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<PAGE>
The Board of Directors has established an Audit Committee comprised of
Alan Millstein, Fred Rosenfeld and Martin Miller. Mr. Millstein serves as
chairman of the committee. The Audit Committee is responsible for
recommending to the Board of Directors the appointment of the Company's
outside auditors, examining the results of audits, reviewing internal
accounting controls and reviewing related party transactions.
The Board of Directors has also established an Option Plan/Compensation
Committee ("Option Plan/Compensation Committee") consisting of Messrs.
Stevens, Millstein and Rosenfeld. Mr. Stevens serves as chairman of this
committee. The Option Plan/Compensation Committee administers the Plan,
establishes the compensation levels for executive officers and key personnel
and oversees the Company's bonus plans. See "--Stock Option Plan."
The Company's executive officers are appointed annually by, and serve at
the discretion of, the Board of Directors. All directors hold office until
the next annual meeting of the Company or until their successors have been
duly elected and qualified. There are no family relationships among any of
the executive officers or directors of the Company.
The Company maintains a "key person" life insurance policy in the amount
of $1.2 million on the life of Mr. Seiff.
DIRECTOR COMPENSATION
The Company's directors do not receive any cash compensation for their
services as members of the Board of Directors, although they are reimbursed
for expenses incurred on behalf of the Company. Each current non-employee
director has received options to purchase 5,000 shares of Common Stock under
the Plan and is eligible to receive annual option grants to purchase 2,500
shares of Common Stock under the Plan. See "--Stock Option Plan."
EXECUTIVE COMPENSATION
The following tables sets forth information concerning the compensation
paid by the Company during the fiscal year ended December 31, 1996 to E.
Kenneth Seiff, the Company's Chief Executive Officer. No other executive
officer of the Company received a total annual salary and bonus from the
Company in excess of $100,000.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
- ------------------------------------------------------------------------------------------
NAME AND PRINCIPAL POSITIONS ANNUAL COMPENSATION
- ------------------------------------------------------- ---------------------------------
YEAR SALARY BONUS
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
E. Kenneth Seiff .................................... 1996 $89,115.42 $144,759
Chief Executive Officer, President and Treasurer
- ------------------------------------------------------- ---------------------------------
</TABLE>
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with its Chief
Executive Officer, E. Kenneth Seiff, which expires on January 1, 2000.
Pursuant to the agreement, Mr. Seiff will serve as the Company's Chief
Executive Officer and Chairman of its Board of Directors for an annual salary
of $165,000, subject to increase by the Board of Directors, and an annual
bonus to be determined by the Board of Directors but not to exceed Mr.
Seiff's annual salary for the year in question. At the discretion of the
Board of Directors, all or part of such bonus may be paid through the
issuance to Mr. Seiff of capital stock of the Company or stock options issued
pursuant to the Plan. In the event the agreement is terminated by the Company
without cause or through a Constructive Termination (as defined therein), the
Company is obligated to pay Mr. Seiff severance payments equal to the base
salary payments that Mr. Seiff would be entitled to receive over the entire
remaining term of the agreement. The employment agreement further provides
that Mr. Seiff will not engage in activities competitive with the Company for
27
<PAGE>
the term of the agreement and for two years thereafter. In the event the
agreement is terminated by the Company without cause or through a
Constructive Termination the restriction on competition will not extend
beyond the term of the agreement. Under the terms of Mr. Seiff's employment
agreement, the Company maintains a $1 million life insurance policy on the
life of Mr. Seiff for the benefit of his named beneficiaries.
The Company has also entered into an employment agreement with David
Lewis, President and principal owner of IDL. Upon execution of the employment
agreement, the IDL Agreement was terminated by mutual consent. Pursuant to
Mr. Lewis' employment agreement, he will serve as Vice President of
Operations for an annual salary of $100,000 and devote substantially all of
his business time to the affairs of the Company. The employment agreement
also provides that Mr. Lewis is entitled to an annual bonus and certain
minimum annual raises to be determined by the Board of Directors in its
discretion and an annual option grant contingent on achieving certain
specified performance objectives. The employment agreement further provides
that Mr. Lewis will not engage in activities competitive with the Company for
the term of the agreement and for two years thereafter. In the event the
employment agreement is terminated by the Company without cause or through a
Constructive Termination (as defined therein) the restriction on competition
will not extend beyond the term of the agreement. Under the terms of Mr.
Lewis' employment agreement, the Company maintains a life insurance policy on
the life of Mr. Lewis for the benefit of his named beneficiaries.
STOCK OPTION PLAN
The Plan was adopted by the Company's Board of Directors in March 1997 for
the purpose of encouraging key employees and consultants and directors who
are not employees ("Non-Employee Directors") to acquire a proprietary
interest in the growth and performance of the Company. Messrs. Miller,
Millstein, Rosenfeld and Stevens are currently Non-Employee Directors.
Options for 75,000 shares have been granted under the Plan, all of which have
an exercise price equal to the initial public offering price.
Under the Plan, the maximum number of shares with respect to which options
may be granted is 200,000. The Company may in its sole discretion grant
options to key employees and shall grant options to the Company's
Non-Employee Directors subject to specified terms and conditions and in
accordance with a specified formula ("Formula") as discussed below. Options
granted to key employees and consultants may be either incentive stock
options ("ISOs") meeting the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"), or non-qualified stock options
("NQSOs") not meeting the requirements of Section 422 of the Code. Options
granted to Non-Employee Directors and consultants shall be NQSOs. The Plan is
currently administered by the Option Plan/Compensation Committee, which is
generally empowered to interpret the Plan, prescribe rules and regulations
relating thereto and determine the individuals to whom options are to be
granted.
Under the Formula, each Non-Employee Director has been granted on the date
of this Prospectus an option to purchase 5,000 shares of Common Stock at an
exercise price equal to the initial public offering price per share. Further,
each person who subsequently becomes a Non-Employee Director will be
automatically granted an option to purchase 5,000 shares on the date such
person becomes a Non-Employee Director. In addition, each Non-Employee
Director who is a member of the Board of Directors on April 30 of a year
beginning in calendar year 1998 will be automatically granted an option to
purchase 2,500 shares of Common Stock on May 1 of the following year. All
options issued to Non-Employee Directors pursuant to the Formula will have an
exercise price equal to the Fair Market Value (as defined in the Plan) on the
date of grant and have a term of 10 years.
The Board of Directors may modify, suspend or terminate the Plan;
provided, however, that certain material modifications affecting the Plan
must be approved by the shareholders and any change in the Plan that may
adversely affect an optionee's rights under an option previously granted
under the Plan requires the consent of the optionee.
E. Kenneth Seiff, the Company's Chief Executive Officer, was not granted
any stock options by the Company during the year ended December 31, 1996.
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<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the capital stock of the Company as of the date of
this Prospectus for (i) each person who is known by the Company to own
beneficially more than 5% of the capital stock, (ii) each of the Company's
directors, (iii) the Company's Chief Executive Officer, and (iv) all
directors and executive officers as a group. Unless otherwise indicated, the
address of all persons named in the table is 80 West 40th Street, New York,
New York 10018.
<TABLE>
<CAPTION>
PERCENTAGE(1)
----------------------
NUMBER OF SHARES BEFORE AFTER
NAME BENEFICIALLY OWNED OFFERING OFFERING
- ----------------------------------------------------------- ------------------ ---------- ----------
<S> <C> <C> <C>
E. Kenneth Seiff ........................................... 502,157(2) 41.8% 18.6%
Martin Miller .............................................. 0(3) * *
Alan Millstein ............................................. 0(3) * *
Fred Rosenfeld ............................................. 0(3) * *
Robert G. Stevens .......................................... 12,939(3) 1.1 *
Joseph Boughton, Jr.(4) .................................... 207,548(5) 16.3 7.5
Jennifer Miller Symonds(6) ................................. 68,597 5.7 2.5
All directors and executive officers as a group (7 persons) 515,096(7) 42.9% 19.1%
</TABLE>
- ------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("Commission") and generally
includes voting or investment power with respect to securities. Shares
of Common Stock issuable upon the exercise of options or warrants
currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage ownership of the person
holding such options or warrants but are not deemed outstanding for
computing the percentage ownership of any other person.
(2) Does not include 3,000 shares of Common Stock underlying options
granted under the Plan to Nicole Seiff, an employee of the Company and
the wife of E. Kenneth Seiff, which options are not currently
exercisable. Mr. Seiff disclaims beneficial ownership with respect to
such shares.
(3) Does not include 5,000 shares of Common Stock underlying options
granted under the Plan which are not currently exercisable.
(4) Mr. Boughton's address is c/o Middlemarket Capital Management Co., 2627
Sandy Plains Road, Suite 201, Marietta, Georgia 30066.
(5) Includes 70,000 shares of Common Stock underlying Bridge Warrants
issued to Northstar Investment Group, Ltd. ("Northstar"). Mr. Boughton
is the President of Northstar. Does not include up to 14,052 shares of
Common Stock and 14,052 shares of Common Stock underlying Warrants
which may be purchased in the Offering by Mr. Boughton pursuant to
certain preemptive rights held by Mr. Boughton. See "Certain
Transactions."
(6) Ms. Symonds' address is 116 East 66th Street, New York, New York 10021.
Ms. Symonds is the daughter of Martin Miller.
(7) Does not include 43,000 shares underlying options granted under the
Plan which are not currently exercisable.
CERTAIN TRANSACTIONS
In February 1992, the Company and Joseph J. Boughton, Jr., an
approximately 16% shareholder in the Company, entered into a loan agreement
pursuant to which Mr. Boughton loaned the Company $100,000. Under the terms
of such loan agreement, Mr. Boughton received preemptive rights such that he
would have the opportunity to maintain at least an 8% equity interest in the
Company. In November 1996, the Company and Mr. Boughton entered into a letter
agreement pursuant to which, in return for the right to subscribe to
approximately 11.5% of the Bridge Notes and Bridge Warrants, Mr. Boughton
agreed that
29
<PAGE>
his contractual preemptive rights would terminate upon the closing of this
Offering. Pursuant to the terms of such letter agreement, Northstar, an
entity controlled by Mr. Boughton, purchased 1.75 of the 15 Units sold in the
Bridge Financing upon the same terms and conditions as the other investors in
the Bridge Financing.
In September 1994, pursuant to the Stock Purchase Agreement between the
Company and the Leisure Wear Group, the Company repurchased 572,526 shares of
Common Stock from the Leisure Wear Group for a cash payment of $50,000 and a
promissory note in the principal amount of $822,291. Prior to September 1996,
the Company paid an aggregate of $343,111 in principal, plus accrued
interest, on the promissory note. In September 1996, in lieu of any further
payments of principal or interest under the promissory note, the Company
agreed to pay the Leisure Wear Group $240,000 and to make certain cash
incentive payments to the Leisure Wear Group, including, but not limited to,
payments equal to 5% of the net cash proceeds to the Company resulting from
the issuance of securities of the Company in any public offering or private
placement, up to an aggregate of $279,000. Further, the Company agreed to pay
David Goldblatt and Jeffrey Goldstein an aggregate of $60,000 in consulting
and noncompetition fees on December 31, 1998. The Company paid the Leisure
Wear Group cash incentive payments equal to approximately $60,000 of the net
cash proceeds of the Bridge Financing and will pay the Leisure Wear Group
cash incentive payments equal to approximately $219,000 of the net proceeds
of this Offering. Under the terms of the Stock Purchase Agreement, the
Company is also obligated to use its best efforts to allow the Leisure Wear
Group to invest an amount equal to the cash incentive payments to be paid as
a result of this Offering in the Securities to be sold in this Offering.
In May 1996, the Company entered into the IDL Agreement with IDL. David
Lewis is the President and principal owner of IDL. Under the IDL Agreement,
the Company has paid IDL a commission of 5% on the first $1 million of goods
shipped to the Company in a given year and 2.5% thereafter. In addition, IDL
received a bonus based on the Company's gross margins. The IDL Agreement has
been terminated effective as of March 1, 1997 in connection with the hiring
of David Lewis as Vice President of Operations.
The Company has adopted a policy whereby all future transactions between
the Company and its officers, directors, principal shareholders or affiliates
will be approved by a majority of the Board of Directors, including all of
the independent and disinterested members of the Board of Directors or, if
required by law, a majority of disinterested shareholders, and will be on
terms no less favorable to the Company than could be obtained in arm's length
transactions from unaffiliated third parties.
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company is 17,000,000 shares,
consisting of 15,000,000 shares of Common Stock, $.01 par value per share,
and 2,000,000 shares of Preferred Stock, $.01 par value per share. As of the
date of this Prospectus, 1,200,000 shares of Common Stock are outstanding.
Upon the completion of this Offering there will be 2,700,000 shares of Common
Stock outstanding (2,925,000 if the Underwriter's over-allotment option is
exercised in full). As of the date of this Prospectus, no shares of Preferred
Stock are outstanding.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held
of record on all matters to be voted on by shareholders. There is no
cumulative voting with respect to the election of directors, with the result
that the holders of more than 50% of the shares voted can elect all of the
directors then being elected. The holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available for the payment of dividends. In the
event of a liquidation, dissolution or winding up of the Company, the holders
of Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities. Holders of shares of Common Stock, as such, have no
redemption, preemptive or other subscription rights, and there are no
conversion provisions applicable to Common Stock. All of the outstanding shares
of Common Stock are, and the shares of Common Stock to be issued upon
completion of the Offering, when issued and paid for as set forth in this
Prospectus, will be, fully paid and non-assessable.
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<PAGE>
Under Section 630 of the BCL, the 10 largest shareholders of the Company
may become personally liable for unpaid wages and debts to the Company's
employees if the Company's capital stock ceases to be listed on a national
securities exchange or regularly quoted in an over-the-counter market by one
or more members of a national or an affiliated securities association.
PREFERRED STOCK
The Company's authorized shares of Preferred Stock may be issued in one or
more series, and the Board of Directors is authorized, without further action
by the shareholders, to designate the rights, preferences, limitations and
restrictions of and upon shares of each series, including dividend, voting,
redemption and conversion rights. The Board of Directors also may designate
par value, preferences in liquidation and the number of shares constituting
any series. The Company believes that the availability of Preferred Stock
issuable in series will provide increased flexibility for structuring
possible future financings and acquisitions, if any, and in meeting other
corporate needs. It is not possible to state the actual effect of the
authorization and issuance of any series of Preferred Stock upon the rights
of holders of Common Stock until the Board of Directors determines the
specific terms, rights and preferences of a series of Preferred Stock.
However, such effects might include, among other things, restricting
dividends on the Common Stock, diluting the voting power of the Common Stock,
or impairing liquidation rights of such shares without further action by
holders of the Common Stock. In addition, under various circumstances, the
issuance of Preferred Stock may have the effect of facilitating, as well as
impeding or discouraging, a merger, tender offer, proxy contest, the
assumption of control by a holder of a large block of the Company's
securities or the removal of incumbent management. The issuance of Preferred
Stock could also adversely affect the market price of the Common Stock. The
Company has no present plan to issue any shares of Preferred Stock.
WARRANTS
Each Warrant offered hereby, including Warrants converted from Bridge
Warrants and each Warrant included in the Underwriter's Purchase Option, will
entitle the registered holder to purchase one share of the Company's Common
Stock at an exercise price of $ per share [100% of the per-share offering
price] during a four-year period commencing one year after the Effective
Date. No fractional shares of Common Stock will be issued in connection with
the exercise of Warrants. Upon exercise, the Company will pay the holder the
value of any such fractional shares in cash, based upon the market value of
the Common Stock at such time.
The Warrants will expire at 5:00 p.m., New York time, on the fifth
anniversary of the date of this Prospectus. In the event a holder of Warrants
fails to exercise the Warrants prior to their expiration, the Warrants will
expire and the holder thereof will have no further rights with respect to the
Warrants.
The Company may, with the consent of GKN Securities Corp., redeem the
Warrants, at any time after they become exercisable, at a price of $.01 per
Warrant upon not less than 30 days' prior written notice if the last sale
price of the Common Stock has been at least 165% of the then exercise price
of the Warrants (initially $ ) on 20 out of the 30 consecutive trading days
ending on the third day prior to the day on which notice is given.
No Warrants will be exercisable unless at the time of exercise there is a
current prospectus covering the shares of Common Stock issuable upon exercise
of such Warrants under an effective registration statement filed with the
Commission and such shares have been qualified for sale or are exempt from
qualification under the securities laws of the state or residence of the
holder of such Warrants. The Company has undertaken and intends to file and
keep current a prospectus which will permit the purchase and sale of the
Common Stock underlying the Warrants, but there can be no assurance that the
Company will be able to do so. Although the Company intends to seek to qualify
for sale the shares of Common Stock underlying the Warrants in those states
where the Securities are being offered, there can be no assurance that the
Company will be able to do so.
A holder of Warrants will not have any rights, privileges or liabilities
as a shareholder of the Company prior to the exercise of the Warrants. The
Company is required to keep available a sufficient number of authorized
shares of Common Stock to permit exercise of the Warrants.
31
<PAGE>
The exercise price of the Warrants and the number of shares issuable upon
exercise of the Warrants will be subject to adjustment to protect against
dilution in the event of stock dividends, stock splits, combinations,
subdivisions and reclassifications. No assurance can be given that the market
price of the Company's Common Stock will exceed the exercise price of the
Warrants at any time during the exercise period.
LIMITATION OF LIABILITY OF DIRECTORS
The Restated Certificate provides that a director will not be personally
liable for damages to the Company or its shareholders for breach of duty as a
director, except to the extent such exemption or limitation is not permitted
under the BCL (i.e, liability (i) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (ii) for
any transaction from which the director derived a financial profit or other
advantage to which he was not legally entitled, (iii) for violating certain
provisions of the BCL prohibiting the payment of dividends in certain
circumstances, prohibiting certain payments to shareholders after dissolution
and prohibiting particular types of loans), or (iv) for any act or omission
prior to the adoption of this provision.
The limitation of liability described above does not alter the liability
of directors under federal securities laws.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Restated Certificate and Restated By-Laws provides that officers and
directors of the Company shall be indemnified by the Company to the fullest
extent permissible under New York law. Insofar as indemnification for
liability under the Securities Act of 1933, as amended ("Securities Act"),
may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions or otherwise, the Company, has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act, and is, therefore,
unenforceable.
NEW YORK ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Generally, Section 912(b) of the BCL prohibits a New York corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of five years after the date of the transaction in which the person
became an interested shareholder unless the combination or the transaction in
which the person became an interested shareholder is approved by the board of
directors of the corporation before the date such person became an interested
shareholder. If the business combination is not previously approved, the
interested shareholder may effect a business combination after the five-year
period only if a majority of the shares not owned by the interested
shareholder is voted in favor of the combination or the aggregate amount of
the offer meets certain fair price criteria. A "business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the shareholder. An "interested shareholder" is a person who
beneficially owns, or is an affiliate or associate of a corporation and
within the past five years beneficially owned, 20% or more of the
corporation's voting stock.
The Restated Certificate and Restated By-Laws contains certain provisions
intended to enhance the likelihood of continuity and stability in the
composition of the Company's Board of Directors and of the policies
formulated by the Board of Directors which may discourage a future
unsolicited takeover of the Company. These provisions could have the effect
of discouraging certain attempts to acquire the Company or remove incumbent
management, including incumbent members of the Company's Board of Directors,
even if some or a majority of the Company's shareholders deemed such an
attempt to be in their best interests.
The Restated Certificate or Restated By-Laws, as applicable, among other
things (i) provides that the number of directors will be not fewer than three
nor more than seven, with the exact number of directors to be determined in
accordance with the Restated By-Laws; (ii) provides that whenever there are
at least six directors, the Board of Directors will consist of two classes of
directors having staggered terms of two
32
<PAGE>
years each, with each of the classes consisting of at least three directors;
(iii) requires any shareholder who wishes to bring any proposal before a
meeting of shareholders or to nominate a person to serve as a director to
give written notice thereof and certain related information at least 90 but
no more than 120 days prior to the date one year from the date of the
immediately preceding annual meeting, if such proposal or nomination is to
be submitted at an annual meeting, and within ten days of the giving of notice
to shareholders, if such proposal or nomination is to be submitted at a
special meeting; and (iv) provides that the Board of Directors, without
action by the shareholders, may issue and fix the rights and preferences of
shares of Preferred Stock. These provisions may have the effect of delaying,
deferring or preventing a change of control of the Company without further
action by the shareholders, 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.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's securities is American
Stock Transfer & Trust Company.
SHARES ELIGIBLE FOR FUTURE SALE
COMMON STOCK
Upon completion of this Offering, the Company will have outstanding
2,700,000 shares of Common Stock, not including shares of Common Stock
issuable upon exercise of outstanding options and warrants, and assuming no
exercise of the over-allotment option granted to the Underwriter. Of those
shares, the 1,500,000 shares of Common Stock sold to the public in the
Offering (1,725,000 if the Underwriter's over-allotment option is exercised
in full) may be freely traded without restriction or further registration
under the Securities Act, except for any shares that may be held by an
"affiliate" of the Company (as that term is defined in the rules and
regulations under the Securities Act) which may be sold only pursuant to a
registration under the Securities Act or pursuant to an exemption from
registration under the Securities Act, including the exemption provided by
Rule 144 adopted under the Securities Act. For purposes of determining when
outstanding shares of Common Stock may first be sold, it is assumed that the
amendment of Rule 144 adopted by the Commission on February 20, 1997 and
effective April 29, 1997 is in effect.
The 1,200,000 shares of Common Stock outstanding prior to this Offering
are "restricted securities" as that term is defined in Rule 144 and may not
be sold unless such sale is registered under the Securities Act or is made
pursuant to an exemption from registration under the Securities Act,
including the exemption provided by Rule 144. All of such shares may be sold
pursuant to Rule 144 beginning on the date of this Prospectus, subject to the
Lock-Up Agreements discussed below.
In general, under Rule 144, a shareholder (or shareholders whose shares
are aggregated) who has beneficially owned any restricted securities for at
least one year (including a shareholder who may be deemed to be an affiliate
of the Company), will be entitled to sell, within any three-month period,
that number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the date on
which notice of such sale is given to the Commission, provided certain public
information, manner of sale and notice requirements are satisfied. A
shareholder who is deemed to be an affiliate of the Company, including
members of the Board of Directors and executive officers of the Company, will
still need to comply with the restrictions and requirements of Rule 144,
other than the one-year holding period requirement, in order to sell shares
of Common Stock that are not restricted securities, unless such sale is
registered under the Securities Act. A shareholder (or shareholders whose
shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such shareholder,
and who has beneficially owned restricted securities for at least two years,
will be entitled to sell such restricted securities under Rule 144 without
regard to the volume limitations described above.
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<PAGE>
Of the 1,200,000 restricted shares, all of the shares held by the
Company's directors, officers and shareholders holding 1% or more of the
outstanding shares of Common Stock ("1% or Greater Holder"), 1,154,890 shares
in the aggregate, are subject to lock-up agreements ("Lock-Up Agreements")
pursuant to which each such director, officer or 1% or Greater Holder has
agreed not to offer, sell, transfer or otherwise dispose of any shares of
Common Stock (other than shares of Common Stock acquired in the Offering or
in the after market after the closing date of the Offering) without the prior
written consent of the Underwriter. Holders of 515,096 shares of Common Stock
have agreed to be subject to such restrictions for a period of 24 months from
the date of this Prospectus and holders of 639,794 shares of Common Stock
have agreed to be subject to such restrictions for a period of 18 months from
the date of this Prospectus.
Prior to this Offering, there has been no public trading market for the
Common Stock, and no predictions can be made as to the effect, if any, that
future sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market could adversely
affect the then-prevailing market price.
34
<PAGE>
UNDERWRITING
GKN Securities Corp. ("Underwriter") has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company a
total of 1,500,000 shares of Common Stock and 1,500,000 Warrants. The
obligations of the Underwriter under the Underwriting Agreement are subject
to approval of certain legal matters by counsel and various other conditions
precedent, and the Underwriter is obligated to purchase all of the Securities
offered by this Prospectus (other than the Securities covered by the
over-allotment option described below), if any are purchased.
The Underwriter has advised the Company that it proposes to offer the
Securities to the public at the initial public offering prices set forth on
the cover page of this Prospectus and to certain dealers at those prices less
a concession not in excess of $ per share of Common Stock and $ per
Warrant. The Underwriter may allow, and such dealers may reallow, a
concession not in excess of $ per share of Common Stock and $ per
Warrant to certain other dealers. After the Offering, the offering prices and
other terms may be changed by the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
also agreed to pay to the Underwriter an expense allowance on a
nonaccountable basis equal to 3% of the gross proceeds derived from the sale
of the Securities offered by this Prospectus (including the sale of any
Securities subject to the Underwriter's over-allotment option), $50,000 of
which has been paid to date. The Company also has agreed to pay all expenses
in connection with qualifying the Securities offered hereby for sale under
the laws of such states as the Underwriter may designate and registering this
Offering with the National Association of Securities Dealers, Inc. ("NASD"),
including fees and expenses of counsel retained for such purposes by the
Underwriter.
The Company has granted the Underwriter an option, exercisable during the
45-day period after the date of this Prospectus, to purchase from the Company
at the initial offering price, less underwriting discounts and the
nonaccountable expense allowance, up to an aggregate of 225,000 additional
shares of Common Stock and/or an aggregate of 225,000 additional Warrants for
the sole purpose of covering over-allotments, if any.
The Company has engaged the Underwriter, on a non-exclusive basis, as its
agent for the solicitation of the exercise of the Warrants. To the extent not
inconsistent with the guidelines of the NASD and the rules and regulations of
the Commission, the Company has agreed to pay the Underwriter for bona fide
services rendered a commission equal to 5% of the exercise price of each
Warrant exercised after one year from the date of this Prospectus if the
exercise was solicited by the Underwriter. In addition to soliciting, either
orally or in writing, the exercise of the Warrants, such services may also
include disseminating information, either orally or in writing, to warrant
holders about the Company or the market for the Company's securities, and
assisting in the processing of the exercise of the Warrants. No compensation
will be paid to the Underwriter in connection with the exercise of the
Warrants if the market price of the underlying shares of Common Stock is
lower than the exercise price, the Warrants are held in a discretionary
account, the Warrants are exercised in an unsolicited transaction, the
warrantholder has not confirmed in writing that the Underwriter solicited
such exercise or the arrangement to pay the commission is not disclosed in
the prospectus provided to warrantholders at the time of exercise. In
addition, unless granted an exemption by the Commission from Regulation M
under the Exchange Act, while soliciting the exercise of the Warrants, the
Underwriter will be prohibited from engaging in any market activities or
solicited brokerage activities with regard to the Company's securities unless
the Underwriter has waived its right to receive a fee for the exercise of the
Warrants.
In connection with this Offering, the Company has agreed to sell to the
Underwriter, for an aggregate purchase price of $100, the Underwriter's
Purchase Option, consisting of the right to purchase up to an aggregate of
150,000 shares of Common Stock and/or an aggregate of 150,000 Warrants. The
Underwriter's Purchase Option is exercisable initially at a price equal to
% of the initial public offering price of such Securities for a period of
four years commencing one year from the date hereof. The Underwriter's
Purchase Option may not be transferred, sold, assigned or hypothecated during
the one year period following the date of this Prospectus except to officers
of the Underwriter and the selected
35
<PAGE>
dealers and their officers or partners. The Underwriter's Purchase Option
grants to the holders thereof certain "piggyback" and demand rights for
periods of seven and five years, respectively, from the date of this
Prospectus with respect to the registration under the Securities Act of the
securities directly and indirectly issuable upon exercise of the
Underwriter's Purchase Option.
Pursuant to the Underwriting Agreement, all of the officers, directors and
1% or Greater Holders (collectively, "Insiders") have executed Lock-Up
Agreements pursuant to which they each have agreed not to offer, sell,
transfer or otherwise dispose of any shares of Common Stock (other than
shares of Common Stock acquired in the Offering or in the after market after
the closing date of the Offering) without the prior written consent of the
Underwriter; each 1% or Greater Holder who holds no other position with the
Company and who does not reside in the same household as any other Insider
has agreed to be subject to such restrictions for a period of 18 months and
each other Insider has agreed to be subject to such restrictions for a period
of 24 months. During the four year period following the date of this
Prospectus, the Underwriter shall have the right to purchase for the
Underwriter's account or to sell for the account of the Insiders, any
securities sold by any of such persons in the open market.
The Underwriting Agreement provides that, for a period of four years from
the date of this Prospectus, the Company will recommend and use its best
efforts to elect a designee of the Underwriter as a member of the Board of
Directors. Alternatively, the Underwriter will have the right to send a
representative to observe each meeting of the Board of Directors. The
Underwriter has not yet selected such designee or representative.
Prior to this Offering there has been no public market for any of the
Company's securities. Accordingly, the offering price of the Securities and
the terms of the Warrants have been determined by negotiation between the
Company and the Underwriter and do not necessarily bear any relation to
established valuation criteria. Factors considered in determining such prices
and terms, in addition to prevailing market conditions, include an assessment
of the prospects for the industry in which the Company competes, the
Company's management and the Company's capital structure.
In connection with this Offering, the Underwriter may engage in
transactions that stabilize or maintain the price of the Common Stock or
Warrants at levels above those which might otherwise prevail in the open
market, including syndicate short covering transactions and penalty bids. Such
transactions may be effected on Nasdaq, in the over-the-counter market or
otherwise. Such stabilizing, if commenced, may be discontinued at any time.
In January 1997, the Underwriter acted as placement agent for the Bridge
Financing and was paid a commission of $150,000 (10%) and a nonaccountable
expense allowance of $45,000 (3%).
SELLING SECURITYHOLDERS
The Company has agreed to register the Warrants converted from the Bridge
Warrants for resale under the Securities Act concurrently with this Offering
and to pay certain expenses in connection therewith. An aggregate of 600,000
Warrants may be offered and sold pursuant to this Prospectus by the holders
thereof. The securities offered by such holders ("Selling Securityholders")
are not part of the underwritten offering. The Company will not receive any
of the proceeds from the sale of such Warrants.
The investors in the Bridge Financing made loans to the Company
aggregating $1.5 million and received the Bridge Notes and an aggregate of
600,000 Bridge Warrants. Upon the consummation of this Offering, each of the
Bridge Warrants will be automatically converted into a like number of
Warrants.
The Warrants registered for sale on behalf of the Selling Securityholders
under the Registration Statement of which this Prospectus forms a part may be
offered and sold from time to time in transactions (which may include block
transactions) on the Nasdaq SmallCap Market in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, or at negotiated prices. The
Selling Securityholders have advised the Company that they have not entered
into any agreements, understandings or arrangements with any underwriters or
broker-dealers regarding the sale of their securities. The Selling
Securityholders may effect such transactions by selling their securities
directly to purchasers or to or through broker-dealers (including
36
<PAGE>
GKN Securities Corp.), which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts,
concessions, or commissions from the Selling Securityholders and/or the
purchasers of the securities for whom such broker-dealers may act as agents
or to whom they sell as principal, or both (which compensation as to a
particular broker-dealer might be in excess of customary commissions). The
Selling Securityholders and any broker-dealers that act in connection with
the sale of the securities might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act. The Selling Securityholders
may agree to indemnify any agent, dealer or broker-dealer that participates
in transactions involving sales of the securities against certain
liabilities, including liabilities arising under the Securities Act.
Notwithstanding that such shares are being registered, the Selling
Securityholders have agreed that none of such securities may be sold prior to
one year following the consummation of the Offering without the prior written
consent of the Underwriter.
The following table sets forth the name of each Selling Securityholder and
the number of Warrants beneficially owned prior to sale. Except as indicated,
none of the Selling Securityholders has ever held any position or office with
the Company or had any other material relationship with the Company.
<TABLE>
<CAPTION>
NUMBER
NAME OF WARRANTS
- --------------------------------------- -------------
<S> <C>
ALSA, Inc. ............................. 30,000
Wissam Amoudi .......................... 4,000
Jan Arnett ............................. 10,000
Norma Barasch .......................... 5,000
Stanley H. Blum ........................ 15,000
Herbert Chestler ....................... 10,000
Michael Cohen .......................... 5,000
Jean Etra .............................. 10,000
Richard Etra and Kenneth Etra .......... 30,000
Steven Etra ............................ 20,000
John Franco and Donna Franco ........... 10,000
Arnold Glatter ......................... 5,000
Abraham Goldstein ...................... 8,000
Robert D. Goldstein .................... 8,000
Alan Henick ............................ 5,000
Huberfeld/Bodner Family Foundation .... 20,000
Peter K. Hunt .......................... 15,000
Irwin Schlass Enterprises, Inc ......... 8,000
Frank Joy and Charlotte Joy ............ 10,000
Daniel A. Kaplan ....................... 12,000
Lawrence A. Kestin ..................... 10,000
Konigsberg Wolf & Co., P.C. 401(k) Plan 8,000
R. Bruce LeBlanc ....................... 10,000
Stephen E. Marks ....................... 8,000
Joseph Melnick and Georgia Melnick .... 10,000
Joseph J. Messina ...................... 8,000
Irwin M. Miller ........................ 10,000
Frank Mills ............................ 10,000
Northstar Investment Group, Ltd. ...... 70,000
Salvatore Palacino and Karen Palacino . 10,000
A.C. Providenti ........................ 5,000
R.J.B. Partners L.P. ................... 10,000
Steven Rosen ........................... 5,000
Claudia C. Rouhana ..................... 8,000
William J. Rouhana, Jr. ................ 8,000
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
NUMBER
NAME OF WARRANTS
- --------------------------------------- -------------
<S> <C>
Jack P. Schleifer ...................... 10,000
Mark J. Shankman ....................... 15,000
Carl E. Siegel ......................... 10,000
Howard M. Siegel ....................... 10,000
Jonathan H. Simon ...................... 20,000
Stuart Kahn & Co. ...................... 5,000
David Thalheim ......................... 25,000
Greg Trubowitsch ....................... 5,000
Charles Warshaw ........................ 10,000
Woodland Partners ...................... 60,000
</TABLE>
CHANGES IN ACCOUNTANTS
Effective January 1997, Grant Thornton LLP was engaged as the Company's
independent auditors, replacing Richard A. Eisner & Company, LLP, the
Company's former auditors. The appointment of Grant Thornton LLP has been
approved by the Company's Board of Directors. The former auditors' report on
the Company's financial statements for the year ended December 31, 1995 is
included in the financial statements of the Company included in this
Prospectus. There were no disagreements with the former auditors on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure with respect to the Company's financial
statements for the fiscal year ended December 31, 1995 or up through the time
of replacement, which, if not resolved to the former auditors' satisfaction,
would have caused it to make reference to the subject matter of the
disagreement in connection with its report. The report of Richard A. Eisner
& Company, LLP in connection with such audit did not contain any adverse
opinion or disclaimer of opinion, and was not modified as to uncertainty,
audit scope, or accounting principles. Prior to retaining Grant Thornton
LLP, the Company had not consulted with Grant Thornton LLP regarding
accounting principles.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon for the
Company by Shereff, Friedman, Hoffman & Goodman, LLP, New York, New York.
Graubard Mollen & Miller, New York, New York, has served as counsel to the
Underwriter in connection with this Offering.
EXPERTS
The financial statements of Pivot Rules, Inc. for the year ended December
31, 1995 included herein have been audited by Richard A. Eisner & Company,
LLP, independent auditors, as set forth in their report thereon appearing
herein, and are included in reliance upon such reports given upon the
authority of such firm as experts in accounting and auditing. The Company has
agreed to indemnify Richard A. Eisner & Company, LLP against certain
liabilities, including liabilities arising under the Securities Act, provided
that such indemnification shall not be effective with regard to any liability
for professional malpractice or payment of settlement or judgment costs.
The financial statements of Pivot Rules, Inc. at December 31, 1996
included herein have been audited by Grant Thornton LLP, independent
auditors, as set forth in their report thereon appearing herein, and are
included in reliance upon such reports given upon the authority of such firm
as experts in accounting and auditing.
38
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Securities offered hereby. This
Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits thereto, certain portions having been
omitted from this Prospectus in accordance with the rules and regulations of
the Commission. For further information with respect to the Company, the
Securities offered by this Prospectus and such omitted information, reference
is made to the Registration Statement, including any and all exhibits and
amendments thereto. Statements contained in this Prospectus concerning the
provisions of any document filed as an exhibit are of necessity brief
descriptions thereof and are not necessarily complete, and in each instance
reference is made to the copy of the document filed as an exhibit to the
Registration Statement, each such statement being qualified in its entirety
by this reference.
Following the effectiveness of the Registration Statement, the Company
will be subject to the information requirements of the Exchange Act, and in
accordance therewith the Company will file reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information may be inspected and copied at public reference facilities
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549;
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661; and 7 World Trade Center, New York, New York 10048. Copies of
such material, including the Registration Statement, can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding issuers that file electronically
with the Commission.
The Company intends to furnish its shareholders annual reports containing
financial statements audited and reported on by its independent public
accounting firm and such other periodic reports as the Company may determine
to be appropriate or as may be required by law.
39
<PAGE>
PIVOT RULES, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Independent Auditors' Reports
Grant Thornton LLP ............................................................. F-2
Richard A. Eisner & Company, LLP ............................................... F-3
Financial Statements
Balance Sheet as of December 31, 1996 .......................................... F-4
Statements of Operations for the Years Ended
December 31, 1995 and 1996 ................................................... F-5
Statements of Changes in Shareholders' Equity for the Years Ended December 31,
1995 and 1996 ............................................................... F-6
Statements of Cash Flows for the Years Ended December 31, 1995 and 1996 ........ F-7
Notes to Financial Statements .................................................. F-8 -F-17
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Shareholders
PIVOT RULES, INC.
We have audited the accompanying balance sheet of Pivot Rules, Inc. as of
December 31, 1996, and the related statements of operations, changes in
shareholders' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pivot Rules, Inc. at
December 31, 1996 and the results of its operations and its cash flows for
the year then ended, in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
February 18, 1997
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
To the Shareholders
Pivot Rules, Inc.
New York, New York
We have audited the accompanying statements of operations, changes in
shareholders' equity and cash flows of Pivot Rules, Inc. for the year ended
December 31, 1995. 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 audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the results of operations and cash flows of Pivot
Rules, Inc. for the year ended December 31, 1995 in conformity with generally
accepted accounting principles.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
October 21, 1996
F-3
<PAGE>
PIVOT RULES, INC.
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CURRENT ASSETS
Cash ........................................................................ $ 33,000
Due from factor ............................................................. 176,000
Inventories ................................................................. 835,000
Prepaid expenses and other current assets ................................... 114,000
Deferred income taxes ....................................................... 97,000
------------
Total current assets ...................................................... 1,255,000
PROPERTY AND EQUIPMENT, NET .................................................. 89,000
DEFERRED COSTS AND OTHER ASSETS .............................................. 292,000
------------
Total ..................................................................... $1,636,000
============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of notes payable ............................................ $ 230,000
Short-term loan payable ..................................................... 279,000
Due to factor ............................................................... 123,000
Accounts payable, accrued expenses and other current liabilities ........... 336,000
Income taxes payable ........................................................ 112,000
------------
Total current liabilities ................................................. 1,080,000
NOTES PAYABLE, less current portion .......................................... 135,000
DEFERRED INCOME TAXES ........................................................ 12,000
------------
1,227,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock - $.01 par value; 10,000,000 shares authorized; 1,200,000 shares
issued and outstanding ..................................................... 12,000
Additional paid-in capital .................................................. 397,000
------------
409,000
------------
Total ..................................................................... $1,636,000
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
PIVOT RULES, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Sales .................................................. $7,124,000 $9,292,000
Less returns and allowances ............................ 787,000 696,000
------------ ------------
Net sales ............................................ 6,337,000 8,596,000
Cost of sales .......................................... 3,996,000 6,571,000
------------ ------------
Gross profit ......................................... 2,341,000 2,025,000
Selling, marketing, design and administrative expenses 2,288,000 1,502,000
------------ ------------
Operating profit ..................................... 53,000 523,000
Other income (expense)
License fee income .................................... 58,000 90,000
Other income .......................................... 10,000 35,000
Interest expense and factoring charges ................ (418,000) (443,000)
------------ ------------
(350,000) (318,000)
------------ ------------
Income (loss) before taxes ........................... (297,000) 205,000
Provision (benefit) for income taxes ................... (89,000) 70,000
------------ ------------
NET INCOME (LOSS) .................................... $ (208,000) $ 135,000
============ ============
Net income (loss) per share ............................ $(.17) $.11
============ ============
Weighted average shares outstanding .................... 1,200,000 1,200,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
PIVOT RULES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
COMMON STOCK, COMMON STOCK,
NO PAR VALUE $.01 PAR VALUE
--------------------- ----------------------
NUMBER NUMBER
OF OF
SHARES AMOUNT SHARES AMOUNT
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 200 $ 955,000
Net loss for the year ended
December 31, 1995 ...........
-------- -----------
Balance at December 31, 1995 200 955,000
Stock-split recapitalization (200) (955,000) 1,200,000 $12,000
Net income for the year ended
December 31, 1996 ...........
-------- ----------- ----------- ---------
Balance at December 31, 1996 -- $ -- 1,200,000 $12,000
======== =========== =========== =========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
TREASURY STOCK
----------------------
NUMBER
PAID-IN RETAINED OF
CAPITAL EARNINGS SHARES AMOUNT TOTAL
---------- ----------- -------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 399,000 (64) $(872,000) $ 482,000
Net loss for the year ended
December 31, 1995 ........... (208,000) (208,000)
---------- ----------- -------- ------------ -----------
Balance at December 31, 1995 191,000 (64) (872,000) 274,000
Stock-split recapitalization $397,000 (326,000) 64 872,000 --
Net income for the year ended
December 31, 1996 ........... 135,000 135,000
---------- ----------- -------- ------------ -----------
Balance at December 31, 1996 $397,000 $ -- -- $ -- $ 409,000
========== =========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-6
<PAGE>
PIVOT RULES, INC.
STATEMENTS OF CASH FLOWS
Years ended December 31, 1995 and 1996
<TABLE>
<CAPTION>
1995 1996
------------ -------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income .............................................. $(208,000) $ 135,000
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities
Loss on equipment disposition ............................... -- 8,000
Depreciation and amortization ............................... 43,000 55,000
Deferred income taxes ....................................... (8,000) (40,000)
Changes in operating assets and liabilities
(Increase) decrease in
Inventories ............................................... 78,000 792,000
Prepaid expenses and other current assets ................. (67,000) 89,000
Income taxes receivable ................................... (72,000) --
Increase (decrease) in
Accounts payable and accrued expenses ..................... (128,000) 183,000
Income taxes payable ...................................... -- 184,000
------------ -------------
Net cash (used in) provided by operating activities ........... (362,000) 1,406,000
------------ -------------
Cash flows from investing activities
Purchase of property and equipment ............................. (23,000) (42,000)
Trademark costs ................................................ (78,000) --
------------ -------------
Net cash used in investing activities .......................... (101,000) (42,000)
Cash flows from financing activities
Costs associated with bridge financing and initial public
offering ..................................................... -- (128,000)
Proceeds from notes payable .................................... 67,000 240,000
Payments of notes payable ...................................... (59,000) (492,000)
Net increase (decrease) in advances from factor ................ 389,000 (1,005,000)
------------ -------------
Net cash provided by (used in) financing activities ........... 397,000 (1,385,000)
------------ -------------
NET DECREASE IN CASH ........................................... (66,000) (21,000)
Cash balance--January 1 .......................................... 120,000 54,000
------------ -------------
Cash balance--December 31 ........................................ $ 54,000 $ 33,000
============ =============
Supplemental disclosure of cash flow information:
Cash paid during the year for
Interest ..................................................... $ 308,000 $ 209,000
============ =============
Income taxes ................................................. $ 15,000 $ --
============ =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES
1. COMPANY
Pivot Rules, Inc. ("Company") designs, sources and markets a full
collection of golf lifestyle sportswear for men under the Pivot Rules brand
name and registered trademark.
2. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. INVENTORIES
Inventories, which consist of finished goods, are valued at the lower of
cost or market. Cost is determined by the first-in, first-out ("FIFO")
method.
4. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Equipment is depreciated on a
straight-line basis over five to seven years. Leasehold improvements are
amortized over the shorter of their estimated useful lives or the term of the
lease. Maintenance and repairs are expensed as incurred.
5. DEFERRED COSTS
Deferred costs are composed of trademark, organization and financing
costs. The trademark and organization costs are amortized on the
straight-line basis over their estimated lives. The unamortized financing
costs were costs incurred to obtain bridge financing in January 1997 and for
costs incurred for the planned initial public offering scheduled for 1997.
The Company's policy is to defer the initial public offering costs. If the
initial public offering is successful, the Company will reduce additional
paid-in capital. If the initial public offering is not successful, all costs
pertaining to the offering will be expensed (Note O).
6. INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates in effect for the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
7. ADVERTISING EXPENSE
Advertising costs are expensed as incurred. Advertising expense for the
years ended December 31, 1995 and 1996 amounted to approximately $648,000 and
$176,000, respectively.
F-8
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE A--SUMMARY OF ACCOUNTING POLICIES (Continued)
8. PREPAID EXPENSES
Sample costs for upcoming seasons are deferred and charged to expenses in
the season to which they pertain.
9. REVENUE RECOGNITION
Revenue is recognized when merchandise is shipped to a customer.
10. STOCK SPLIT
As discussed in Note J, on January 2, 1997, the Company effected a
8,862.6292-to-1 stock split of its common stock. All share and per share
amounts included in the accompanying financial statements and footnotes have
been restated to reflect the stock split.
11. EARNINGS PER SHARE
Earnings per share are computed by dividing net income by the weighted
average number of common shares outstanding and after giving effect to the
stock split.
12. IMPACT OF NEW ACCOUNTING PRONOUNCEMENT
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No.
125"). SFAS No. 125 particularly affects the accounting for transfers of
financial assets in which the seller has some type of continuing involvement
with the transferred assets. The carrying amounts of the financial assets
transferred are allocated to the various components of the transaction based
on their relative fair values. The components are then accounted for
separately, with parties to the transaction recognizing only assets they
control and liabilities incurred, and removing from the balance sheet assets
if control is surrendered and liabilities if extinguished. If the transfer
does not qualify as a sale, it is accounted for as a secured borrowing. SFAS
No. 125 provides that a liability is removed from the balance sheet only if
the debtor either pays the creditor and is relieved of its obligation for the
liability or is legally released from being the primary obligor. Provisions
of SFAS No. 125 are generally effective for transactions occurring after
December 31, 1996. However, provisions with respect to secured borrowings and
transfers of financial assets that are part of repurchase agreement,
dollar-roll, securities lending, and similar transactions are effective for
transactions occurring after December 31, 1997. The Company has made no
assessment of the potential impact of adopting SFAS No. 125 at this time.
NOTE B--NOTES PAYABLE
Notes payable at December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Factor (a) ................ $ 195,000
Unrelated third party (b) 170,000
-----------
365,000
Less current portion ..... (230,000)
-----------
$ 135,000
===========
</TABLE>
F-9
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE B--NOTES PAYABLE (Continued)
(a) The factor's note bears interest at 2% over the prime interest rate
and requires monthly principal payments of $5,420 plus accrued interest. A
balloon payment of approximately $135,000 is due upon maturity in January
1998. The note is collateralized by accounts receivable, inventory, other
assets and 18 shares of the Company's treasury stock (159,527 after giving
effect to the stock split). Such treasury shares were retired subsequent
to December 31, 1996. In the event of a default of the factoring
agreement, this note shall become immediately due.
(b) Notes payable from unrelated third party. Proceeds from this note
were used to repay the amended treasury stock note. This loan bears
interest at 12% per annum and is payable in ten monthly equal installments
of $25,339.70, inclusive of interest. The final payment on the note is due
in July 1997. This note is collateralized by a second position in
inventory and receivables and 20 shares of a shareholder's stock (177,253
after giving effect to the stock split).
Annual principal payments required as of December 31, 1996 on the
aforementioned debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ................................ $230,000
1998 ................................. 135,000
----------
$365,000
==========
</TABLE>
NOTE C--SHORT-TERM LOAN PAYABLE
As of December 31, 1995, the Company had a note payable for the purchase
of treasury stock with interest at 12% per annum, payable in annual
installments ranging from approximately $104,000 to $243,000 each December
31, through maturity in 1999. The payments originally due on December 31,
1995 were extended and payable in three monthly installments of $25,000 in
January, February and March of 1996 and $75,000 in June of 1996. The note was
collateralized by 44 shares of treasury stock (389,956 after giving effect to
the stock split) held in escrow. Such treasury shares were retired subsequent
to December 31, 1996.
In September 1996, the agreement to purchase treasury stock was amended,
and the outstanding balance plus accrued interest, of $39,000, was reduced to
an aggregate of $240,000 plus certain contingent payments (not to exceed
$279,000) based upon future distributions to remaining shareholders, or the
sale of additional debt or equity securities.
The Company borrowed $240,000 from an unrelated third party and used the
proceeds to repay the amended treasury stock note. The new loan bears
interest at 12% per annum and is payable in ten monthly installments
commencing in October 1996 (Note B).
In January 1997, the Company paid $60,000 regarding the contingent
payments due under the above-referenced loan. The payment represented 5% of
the net proceeds from the bridge loan (Note O).
NOTE D--FACTORING AGREEMENTS
In April 1992, the Company entered into factoring and financing agreements
whereby the Company sells substantially all of its trade receivables without
recourse, to a commercial factor. Advances bear interest at 2% over the prime
interest rate. In addition, the Company will also pay the factor an annual
commission aggregating at least $30,000. Any amounts due to the factor are
collateralized by accounts receivable, inventories and other assets.
F-10
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE D--FACTORING AGREEMENTS (Continued)
The amounts due to the factor at the balance sheet date represent the
difference between charges and advances from the factor and the accounts
receivable assigned to the factor.
The Company incurred $388,000 and $415,000 of factoring commissions and
interest charges on receivables sold and on advances for the years ended
December 31, 1995 and 1996, respectively. In addition, the Company incurred
interest expense of approximately $30,000 and $25,000 for the years ended
December 31, 1995 and 1996, respectively, on the term note described in Note
B.
The amounts due to the factor as of December 31, 1996 consist of the
following:
<TABLE>
<CAPTION>
<S> <C>
Accounts receivable assigned ............. $ 3,732,000
Less allowance for credits and bad debts (256,000)
-------------
3,476,000
Accrued letters of credit ................ (574,000)
Advances from factor ..................... (3,025,000)
-------------
Due to factor ............................ $ (123,000)
=============
</TABLE>
In addition, the Company used a second factor for one customer during
1996. The net amount due from this factor amounted to approximately $176,000
as of December 31, 1996. Commissions associated with this agreement
approximated $26,000.
NOTE E--PROPERTY AND EQUIPMENT
Property and equipment as of December 31, 1996 consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Office equipment ............................... $171,000
Leasehold improvements ......................... 29,000
----------
200,000
Less accumulated depreciation and amortization 111,000
----------
$ 89,000
==========
</TABLE>
NOTE F--DEFERRED COSTS AND OTHER ASSETS
As of December 31, 1996, deferred costs and other assets consist of the
following:
<TABLE>
<CAPTION>
<S> <C>
Organization costs ............................... $ 7,000
Deferred financing costs for bridge financing and
initial public offering ......................... 129,000
Trademarks ....................................... 170,000
Deposits ......................................... 17,000
----------
323,000
Less accumulated amortization .................... (31,000)
----------
$292,000
==========
</TABLE>
F-11
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE G--ACCOUNTS PAYABLE, ACCRUED EXPENSES AND
OTHER CURRENT LIABILITIES
As of December 31, 1996, accounts payable, accrued expenses and other
current liabilities consist of the following:
<TABLE>
<CAPTION>
<S> <C>
Accrued bonuses .......... $144,000
Accrued professional fees 111,000
Accrued sample costs .... 41,000
Other .................... 40,000
----------
$336,000
==========
</TABLE>
NOTE H--INCOME TAXES
As of December 31, 1995, the Company had available approximately $212,000
of net operating loss carryforwards for state and city income tax purposes.
During 1996, the Company utilized the entire carryforward, which resulted in
a tax benefit of approximately $10,000.
The components of deferred tax assets and liabilities as of December 31,
1996 are as follows:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets
Accounts receivable
reserves ................... $ 97,000
Deferred tax liabilities
Tax over book depreciation (12,000)
----------
Net deferred tax asset ..... $ 85,000
==========
</TABLE>
The provision (benefit) for income taxes is comprised of the following:
<TABLE>
<CAPTION>
1995 1996
----------- ----------
<S> <C> <C>
Current
Federal . $(82,000) $ 92,000
State .... l,000 5,000
Foreign . 13,000
----------- ----------
(81,000) 110,000
----------- ----------
Deferred
Federal . (8,000) (45,000)
State .... 5,000
----------- ----------
(8,000) (40,000)
----------- ----------
$(89,000) $ 70,000
=========== ==========
</TABLE>
Differences between book and tax are primarily due to temporary
differences resulting from use of accelerated depreciation for income tax
purposes and using the direct write-off method for receivables for tax
purposes.
NOTE I--COMMITMENTS AND CONTINGENCIES
1. LETTERS OF CREDIT
The Company has outstanding letters of credit of approximately $952,000 as
of December 31, 1996, of which $574,000 was reflected in the year-end balance
sheet as due to factor.
F-12
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE I--COMMITMENTS AND CONTINGENCIES (Continued)
2. EMPLOYMENT CONTRACTS
The Company has an employment contract, which was amended on December 30,
1996, with the Chief Executive Officer and shareholder ("CEO"). The amended
employment agreement, which expires on January 1, 2000, provides for a base
salary plus annual bonuses at the discretion of the Board of Directors based
upon operating profits before taxes and financing costs. In addition, the
Company maintains a $1.2 million key person life insurance policy on the life
of the CEO.
3. OPERATING LEASE
The Company leases office, showroom and warehouse space under operating
leases which expire through August 1999. Rent expense aggregated
approximately $125,000 and $126,000 for the years ended December 31, 1995 and
1996.
Future minimum annual rentals are as follows:
<TABLE>
<CAPTION>
<S> <C>
1997 ........ $123,000
1998 ........ 112,000
1999 ........ 43,000
----------
$278,000
==========
</TABLE>
4. CONSULTING AGREEMENT
The Company entered into agreements with two former shareholders which
originally provided that the Company will pay each former shareholder $37,500
on December 31, 2000 for consulting services. In September 1996, the
agreements were amended so that if the Company is in compliance with the
modified stock purchase agreement, the Company will only be obligated to pay
$30,000 to each former shareholder in December 1998 for their future
services.
5. PURCHASE MANAGEMENT AGREEMENTS
In May 1996, the Company entered into a purchase management agreement with
IDL International, LLC ("IDL"). Under the agreement, as amended in July 1996,
the Company pays IDL a commission of 5% on the first $1 million of goods
shipped to the Company in a given year and 2.5% thereafter. In addition, IDL
is entitled to a bonus based on the Company's gross margins. This agreement
expires December 31, 1998, unless cancelled by either party as per the terms
of the agreement. Total fees incurred to IDL for the year ended December 31,
1996 amounted to approximately $112,000. The Company is in the process of
negotiating an employment agreement with the president and principal owner of
IDL. In the event the employment agreement is executed, the purchase
management agreement between IDL and the Company will be terminated.
The Company sources substantially all of its products through Textiles
Network, Ltd. ("Textiles Network"), a Hong Kong agency that oversees
production and quality control. Textiles Network negotiates prices,
identifies factories to manufacture the products and conducts quality control
on the Company's behalf. The Company works closely with Textiles Network to
monitor each of these phases of the production process. The Company makes
substantially all final decisions with regard to pricing and the selection of
factories. Additionally, the Company approves samples of each garment prior
to the commencement of production. The Company pays Textiles Network an 8%
commission on the first $1 million of goods shipped to the Company and 7%
thereafter. Total fees incurred to Textiles Network amounted to approximately
$168,000 and $268,000 for the years ended December 31, 1995 and 1996,
respectively.
F-13
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE I--COMMITMENTS AND CONTINGENCIES (Continued)
6. LICENSING
The Company has licensing agreements with licensees in a number of
countries for its sportswear products, including Japan, Thailand, Singapore,
Malaysia, Indonesia and Brunei. Under these licensing agreements, the Company
designs the "Pivot Rules" product and the licensee either produces the
product in accordance with the Company's quality standards or arranges for
the manufacture of the product through the Company's sourcing arrangements.
Revenues from licensing arrangements approximated $58,000 in 1995 and $90,000
in 1996.
The Company has entered into a worldwide representation agreement
("Representation Agreement") with International Management Corporation
("IMC") (a member company of International Management Group ("IMG")) under
which IMC has been retained as the Company's sole and exclusive agent to
identify, qualify and negotiate with prospective international licensing
partners. IMG is a worldwide sports representation and marketing organization
with offices in 74 countries worldwide. Under the terms of the Representation
Agreement, IMC receives commissions equal to 30% of gross income for the
first $1 million of gross income covered by the agreement and 35% thereafter
from the Company on all international licensing revenues generated by the
Company through licensing agreements negotiated or entered into while the
Representation Agreement remains in effect. The Representation Agreement
provides for an original term expiring on June 30, 1997, with automatic
one-year renewal periods.
NOTE J--SHAREHOLDERS' EQUITY
1. SHAREHOLDERS' AGREEMENT
The shareholders of the Company entered into an agreement which includes
provisions, among others, related to the purchase and sale of stock by
shareholders of the Company, granting of options, voting requirements, and
with respect to the CEO of the Company, the repurchase of his shares by the
Company upon termination, without cause, of his employment agreement. The
shareholders' agreement was amended as of December 18, 1996 to provide that
it will terminate automatically immediately before the registration statement
filed in connection with the proposed initial public offering is declared
effective by the Securities and Exchange Commission.
The Company maintains a life insurance policy on the CEO's life. The
amount of coverage provided by the policy is required to be the greater of
$1,000,000 or the fair value of the common shares owned by the CEO. The
proceeds of the policy are required to be used to purchase the shares of the
Company's common stock held by the CEO's estate.
On December 30, 1996, the CEO's employment agreement was amended such
that, in the event of constructive termination as defined in the employment
agreement, the CEO shall have the right to: (a) keep his stock; (b) require
the Company to purchase all his stock at fair market value as defined in the
agreement; or (c) sell his stock to a third party after giving the Company
the right of first refusal. In addition, the Company's obligation to purchase
shares of the Company's stock held by the CEO upon termination of CEO's
employment will terminate automatically upon consummation of the proposed
initial public offering.
2. TREASURY STOCK
During 1994, the Company entered into a stock purchase agreement to
purchase 64.6 shares of common stock (572,526 after giving effect to the
stock split) from four shareholders for a purchase price
F-14
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE J--SHAREHOLDERS' EQUITY (Continued)
of approximately $872,000, of which $50,000 was paid in cash and the balance
was financed by the former shareholders (Note B). During December 1994, the
Company borrowed approximately $325,000 under a term loan from its factor
(Note B) to make the first debt service payment on the note due to the
shareholders. As is more fully described in Note C, during 1996, the terms of
the stock purchase agreement were amended.
3. RECAPITALIZATION
In December 1996, the Board of Directors approved a plan of
recapitalization through the use of a stock split. The recapitalization,
which was effected on January 2, 1997, resulted in the authorization of
10,000,000 shares of $.01 par value common stock. Shareholders received
8,862.6292 shares for each share of the previous no par value common stock.
In connection with the recapitalization, the Company's Board of Directors
approved the retirement of the 64.6 shares of treasury stock (572,526 after
giving effect to the stock split). Of the $872,000 in treasury stock,
$546,000 was first offset against the common stock account with the
remainder, totalling $326,000, reducing retained earnings.
NOTE K--CONCENTRATIONS
The Company sells its products to department stores, sporting goods
stores, catalogs, corporations and discounters, including warehouse clubs.
The Company utilizes a factor to evaluate the creditworthiness of most of its
customers. The Company sells most of its receivables to the factor. For
approved accounts, the factor assumes all credit risk. For approved accounts,
the factor has recourse in cases of disputes, chargebacks and reserves. For
nonapproved accounts, the factor has full recourse. For nonfactored sales,
credit losses have been within management's expectations. For the year ended
December 31, 1996, four customers accounted for 45% of the Company's sales,
including one customer accounting for approximately 24.7% of the Company's
sales.
Substantially all of the Company's products are manufactured by third
parties in the Far East and India. The use of contractors and the resulting
lack of direct control could make it difficult for the Company to obtain
timely delivery of products of acceptable quality. Delays in shipments to the
Company, inconsistent or inferior garment quality and other factors beyond
the Company's control could adversely affect the Company's relationships with
its customers, its reputation in the industry and its sales and operating
results. Moreover, foreign manufacturing is subject to numerous risks,
including work stoppages, transportation delays, political instability,
foreign currency fluctuations, the imposition of tariffs and import and
export controls, customs laws, changes in governmental policies and other
factors that could have a material adverse effect on the Company's business,
financial condition and operating results. In particular, 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. In addition, since the Company's sourcing activities are based
in Hong Kong, such activities may be affected by the return of Hong Kong to
Chinese control in July 1997. Furthermore, because the Company's foreign
manufacturers are located at great distances from the Company, the Company
must generally allow for a significant amount of lead time for the delivery
of products. This reduces the Company's manufacturing flexibility, which
increases the risks associated with changes in fashion trends and consumer
preferences. These risks will increase as the Company seeks to source some of
its products through manufacturers in areas where labor and fabric costs are
lower than those in areas where the Company's products are currently
produced.
F-15
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE L--FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash, Short-term loan payable--the carrying amount approximates fair
value due to the short-term maturities of these instruments.
Letters of Credit--letters of credit collateralize the Company's
obligations to the factor and have terms ranging from 30 days to 120 days;
the face amount of the letters of credit approximate fair value since the
value for each is fixed over a relatively short period of time.
Long-term Debt--fair value is estimated based on current rates offered to
the Company for debt of the same remaining maturities.
The carrying amount and fair value of the Company's financial instruments
as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
CARRYING
AMOUNT FAIR VALUE
---------- ------------
<S> <C> <C>
Cash ................... $ 33,000 $ 33,000
Long-term debt ......... 365,000 365,000
Short-term loan payable 279,000 279,000
Letters of credit ...... 574,000 574,000
</TABLE>
NOTE M--NONCASH ACTIVITY
During 1996, the Company amended its agreement with a former shareholder
which resulted in a reclassification of approximately $279,000 from notes
payable to short-term loan payable. This transaction has been excluded on the
statement of cash flows.
NOTE N--LEGAL PROCEEDINGS
The Company is, from time to time, a party to routine litigation arising
in the normal course of its business. The Company believes that none of these
actions will have a material adverse effect on the business, financial
condition or operating results of the Company.
NOTE O--SUBSEQUENT EVENTS
BRIDGE FINANCING
On January 2, 1997, the Company issued 15 units, each consisting of one
convertible subordinated secured promissory note in the principal amount of
$100,000 per unit, ("Note") and warrants to purchase 40,000 shares of common
stock of the Company, no par value, at an exercise price of $2.50
("Warrants"). The issuance resulted in $1,500,000 of gross proceeds. Net
proceeds amounted to $1,290,000 after underwriter expenses and brokerage
fees, but before additional debt issuance costs. A portion of the gross
proceeds has been allocated to the warrants based on their estimate of fair
market value, resulting in an estimate of $138,000 of original issue discount
and a $138,000 increase in paid-in capital.
Interest on the Notes will accrue at a rate of 10% per annum from January
2, 1997 through April 30, 1997, and at the rate of 12% per annum thereafter
until maturity. Principal and interest on the Note are payable upon the
earliest of: (i) the closing of the Company's initial public offering of
securities, as
F-16
<PAGE>
PIVOT RULES, INC.
NOTES TO FINANCIAL STATEMENTS -- (Continued)
December 31, 1995 and 1996
NOTE O--SUBSEQUENT EVENTS (Continued)
described below, (ii) twenty-four months from the date of closing of the
issuance of these securities, (iii) the sale of all or substantially all of
the Company's assets, (iv) the sale or exchange (including by way of merger)
of all or substantially all of the outstanding shares of the Company's common
stock, or (v) Offering Termination, as defined in the Notes.
The Warrants are exercisable at a price of $2.50 per share, commencing on
January 1, 1998 and expiring at the close of business on December 31, 2002.
The Warrants have been valued at $.23 each. The Warrants will be registered
for public resale by the holders thereof in the registration statement to be
filed for the initial public offering. If the initial public offering is
declared effective by the Securities and Exchange Commission, the Warrants
will be converted (on a one-for-one basis) into warrants with the same terms
sold in the initial public offering ("IPO Warrants"). The IPO Warrants will
be exercisable at an anticipated price per share equal to the initial public
offering of the common stock, commencing one year after the effective date
and expiring at the closing of business on the fifth anniversary of the
effective date.
PROPOSED INITIAL PUBLIC OFFERING
On October 3, 1996, the Company entered into an agreement with an
underwriter pursuant to which the Company intends to prepare and file with
the Securities and Exchange Commission a registration statement on Form SB-2
or other appropriate form in order to permit the initial public offering of
1,500,000 shares of the Company's common stock and 1,500,000 IPO Warrants,
each warrant to purchase one share of the Company's common stock. The Company
anticipates that the registration statement will be declared effective during
the second quarter of 1997; however, there can be no assurance that a
registration statement will be declared effective.
COMMITMENTS
In February 1997, the Company committed to purchase approximately $75,000
of fixed assets.
F-17
<PAGE>
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED BY THIS PROSPECTUS, OR AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES BY ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IS
UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SHALL NOT, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary ......................... 3
Risk Factors ............................... 7
Dilution ................................... 13
Use of Proceeds ............................ 14
Capitalization ............................. 16
Dividend Policy ............................ 16
Selected Financial Data .................... 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 18
Business ................................... 21
Management ................................. 26
Principal Shareholders ..................... 29
Certain Transactions ....................... 29
Description of Securities .................. 30
Shares Eligible for Future Sale ............ 33
Underwriting ............................... 35
Selling Securityholders .................... 36
Changes in Accountants ..................... 38
Legal Matters .............................. 38
Experts .................................... 38
Available Information ...................... 39
Index to Financial Statements .............. F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OR WARRANTS, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
[PIVOT RULES
LOGO]
1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 REDEEMABLE COMMON
STOCK PURCHASE WARRANTS
PROSPECTUS
[GKN SECURITIES LOGO]
, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Certificate of Incorporation and By-Laws provide that the
Registrant shall indemnify its directors, officers, employees and agents to
the fullest extent permitted by New York law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions and the 3% nonaccountable expense
allowance payable to the Underwriter, payable by the Registrant in connection
with the sale of the Common Stock being registered. Expenses relating to the
offer and sale of the Selling Securityholders' Bridge Warrants (except
commissions or discounts and fees of the Selling Securityholders' own
professionals, if any) will be borne by the Company. All amounts are
estimates except the Commission registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
<S> <C>
Commission registration fee ................... $ 8,006.81
NASD filing fee ............................... 3,143.91
Nasdaq and Boston Stock Exchange listing fees 25,000.00
Blue sky fees and expenses .................... 50,000.00
Legal fees and expenses ....................... 135,000.00
Accounting fees and expenses .................. 60,000.00
Printing and engraving ........................ 75,000.00
Transfer agent fees ........................... 2,000.00
Miscellaneous expenses ........................ 91,849.28
------------
Total ....................................... $450,000.00
============
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Since January 1, 1994, the Registrant has issued and sold the following
securities (as adjusted to reflect an 8,862.6292-for-1 stock split effected
in January 1997):
On January 2, 1997, the Registrant sold to 45 purchasers an aggregate of
$1,500,000 principal amount of the Registrant's secured subordinated
convertible promissory notes ("Bridge Notes") due upon the earliest of (a)
the closing of the Company's initial public offering, (b) January 2, 1999,
(c) the sale of all or substantially all of the Registrant's assets, (d) the
sale or exchange (including by way of merger) of all or substantially all of
the outstanding shares of the Registrant's Common Stock, (e) the merger or
consolidation of the Registrant, or (f) an "Offering Termination" as defined
in the Bridge Notes ("Maturity Date"). Upon an Offering Termination, all
outstanding principal and interest due under the Bridge Notes is convertible
into Common Stock of the Registrant at the rate of $2.50 per share. The
Bridge Notes bear interest at 10% per annum until April 30, 1997 and 12% per
annum thereafter, payable on the Maturity Date. The Bridge Notes were sold as
Units consisting of (a) a promissory note in the principal amount of $100,000
and (b) warrants to purchase 40,000 shares of the Registrant's Common Stock
at an exercise price of $2.50 per share, exercisable during the time period
commencing on January 1, 1998 and ending on December 31, 2002 ("Bridge
Warrants"). Upon consummation of the Registrant's initial public offering,
the Bridge Warrants will automatically convert into Warrants identical to
those sold in the offering covered by this Registration Statement. The price
per Unit was $100,000 and all fifteen Units that were offered were sold. GKN
Securities Corp. acted as the Registrant's placement agent for purposes of
the offering of the Units and received a commission of $150,000 and a
non-accountable expense allowance of $45,000.
II-1
<PAGE>
The transactions described above were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) of such Act
as transactions by an issuer not involving any public offering. In addition,
the recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view
to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions.
All recipients had adequate access, through their relationships with the
Registrant, to information about the Registrant.
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- ------------------------------------------------------------------------------------
<S> <C> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Amended and Restated By-Laws of the Company.
*4.1 Specimen Common Stock certificate.
*4.2 Form of Representative's Purchase Option.
4.3 Form of Subscription Agreement, dated as of January 2, 1997, by and between the
Company and certain purchasers.
4.4 Form of Bridge Warrant.
*5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.
10.1 Loan Agreement by and between the Company and Joseph J. Boughton, Jr., dated
February 6, 1992.
10.2 Letter Agreement by and between the Company and Joseph J. Boughton, Jr., dated
November 7, 1996.
10.3 Stock Purchase Agreement, dated as of September 30, 1994, by and between the
Company, Leisure Wear Inc., David M. Goldblatt Inc. Profit Sharing Plan, David
Goldblatt, Anita Goldblatt and Jeffrey Goldstein.
10.4 Agreement, dated as of September 24, 1996, by and between the Company, Leisure Wear
Inc., David M. Goldblatt Inc. Profit Sharing Plan, David Goldblatt, Anita Goldblatt
and Jeffrey Goldstein.
10.5 Factoring Agreement by and between the Company and Heller Financial, Inc.
("Heller"), dated April 1992.
10.6 Letter of Credit Financing Agreement by and between the Company and Heller, dated as
of April 28, 1992.
10.7 Collateral Installment Note by the Company on behalf of Heller, dated December 8,
1994.
10.8 Letter Agreement by and between the Company and Heller, dated December 18, 1996.
10.9 Promissory Note dated September 30, 1996, executed by the Company in favor of Edward
H. Mank ("Mank").
10.10 Letter Agreement by and between the Company and Mank, dated December 23, 1996.
10.11 Amended and Restated Employment Agreement by and between the Company and E. Kenneth
Seiff, to be in effect as of the consummation of the Offering.
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- ------------------------------------------------------------------------------------
<S> <C>
10.12 Representation Agreement by and between the Company and International Merchandising
Corporation, dated May 10, 1994.
10.13 Lease Agreement by and between the Company and 80 West 40th Street Associates, dated
October 1992.
10.14 Lease Agreement by and between the Company and Sound Floor Coverings, Inc., dated
November 18, 1994.
10.15 Agreement by and between the Company and Textiles Network, Ltd., dated
August 1996.
*10.16 1997 Stock Option Plan.
10.17 Agreement by and between the Company and IDL International, LLC, dated May 1996.
10.18 Addendum to Agreement by and between the Company and IDL International, LLC, dated
July 1996.
*10.19 Employment Agreement by and between the Company and David Lewis, dated March 1997.
23.1 Consent of Grant Thornton LLP, Independent Auditors.
23.2 Consent of Richard A. Eisner & Company, LLP, Independent Auditors.
23.3 Consent of Shereff, Friedman, Hoffman & Goodman, LLP (included in Exhibit 5.1).
27 Financial Data Schedule.
<FN>
- ------------
* To be filed by amendment.
</TABLE>
ITEM 28. UNDERTAKINGS
The Registrant hereby undertakes that it will file, during any period in
which it offers or sells securities, a post-effective amendment to this
registration statement to:
(1) Include any prospectus required by Section 10(a)(3) of the Securities
Act;
(2) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and
(3) Include any additional or changed material information on the plan of
distribution.
The Registrant hereby undertakes to provide to the Underwriter, at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, the Registrant has been
advised that in the opinion of the 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 hereunder, 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.
II-3
<PAGE>
The Registrant hereby undertakes:
(1) that, for the 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 a 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.
(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-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form SB-2 and authorized
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of New York, State of New York, on
this 6th day of March, 1997.
PIVOT RULES, INC.
By: /s/ E. Kenneth Seiff
---------------------------
E. Kenneth Seiff
Chief Executive Officer,
President and
Treasurer (Principal
Executive Officer)
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below on this Registration Statement hereby constitutes and appoints
E. Kenneth Seiff and Meena N. Bhatia, and each of them, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities to sign any and all amendments to this Registration
Statement (including post-effective amendments and amendments thereto) and
any registration statement relating to the same Offering as this Registration
Statement that is to be effective upon filing pursuant to Rule 462(b) under
the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing, ratifying and confirming all that said attorneys-in-fact
and agents or any of them or their or his substitute or substitutes, may
lawfully do or cause to be done by virtue thereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed by the following persons
in the capacities and on this 6th day of March, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------ ----------------------------------------------------
<S> <C>
/s/ E. Kenneth Seiff
- ------------------------- Director, Chief Executive Officer, President and
E. Kenneth Seiff Treasurer (Principal Executive Officer)
/s/ Martin Miller
- -------------------------
Martin Miller Director
/s/ Alan Millstein
- -------------------------
Alan Millstein Director
/s/ Fred Rosenfeld
- -------------------------
Fred Rosenfeld Director
/s/ Robert Stevens
- -------------------------
Robert Stevens Director
/s/ Meena N. Bhatia
- ------------------------- Chief Financial Officer (Principal Financial and
Meena N. Bhatia Accounting Officer)
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- --------------- --------------------------------------------------------------------------
<S> <C>
*1.1 Form of Underwriting Agreement.
*3.1 Restated Certificate of Incorporation of the Company.
*3.2 Amended and Restated By-Laws of the Company.
*4.1 Specimen Common Stock certificate.
*4.2 Form of Representative's Purchase Option.
4.3 Form of Subscription Agreement, dated as of January 2, 1997, by and
between the Company and certain purchasers.
4.4 Form of Bridge Warrant.
*5.1 Opinion of Shereff, Friedman, Hoffman & Goodman, LLP.
10.1 Loan Agreement by and between the Company and Joseph J. Boughton, Jr.,
dated February 6, 1992.
10.2 Letter Agreement by and between the Company and Joseph J. Boughton, Jr.,
dated November 7, 1996.
10.3 Stock Purchase Agreement, dated as of September 30, 1994, by and between
the Company, Leisure Wear Inc., David M. Goldblatt Inc. Profit Sharing
Plan, David Goldblatt, Anita Goldblatt and Jeffrey Goldstein.
10.4 Agreement, dated as of September 24, 1996, by and between the Company,
Leisure Wear Inc., David M. Goldblatt Inc. Profit Sharing Plan, David
Goldblatt, Anita Goldblatt and Jeffrey Goldstein.
10.5 Factoring Agreement by and between the Company and Heller Financial, Inc.
("Heller"), dated April 1992.
10.6 Letter of Credit Financing Agreement by and between the Company and
Heller, dated as of April 28, 1992.
10.7 Collateral Installment Note by the Company on behalf of Heller, dated
December 8, 1994.
10.8 Letter Agreement by and between the Company and Heller, dated December 18,
1996.
10.9 Promissory Note dated September 30, 1996, executed by the Company in favor
of Edward H. Mank ("Mank").
10.10 Letter Agreement by and between the Company and Mank, dated December 23,
1996.
10.11 Amended and Restated Employment Agreement by and between the Company and
E. Kenneth Seiff, to be in effect as of the consummation of the Offering.
10.12 Representation Agreement by and between the Company and International
Merchandising Corporation, dated May 10, 1994.
10.13 Lease Agreement by and between the Company and 80 West 40th Street
Associates, dated October 1992.
<PAGE>
EXHIBIT NO. DESCRIPTION
- --------------- --------------------------------------------------------------------------
10.14 Lease Agreement by and between the Company and Sound Floor Coverings,
Inc., dated November 18, 1994.
10.15 Agreement by and between the Company and Textiles Network, Ltd., dated
August 1996.
*10.16 1997 Stock Option Plan.
10.17 Agreement by and between the Company and IDL International, LLC, dated May
1996.
10.18 Addendum to Agreement by and between the Company and IDL International,
LLC, dated July 1996.
*10.19 Employment Agreement by and between the Company and David Lewis, dated
March 1997.
23.1 Consent of Grant Thornton LLP, Independent Auditors.
23.2 Consent of Richard A. Eisner & Company, LLP, Independent Auditors.
23.3 Consent of Shereff, Friedman, Hoffman & Goodman, LLP (included in Exhibit
5.1).
27 Financial Data Schedule.
<FN>
- ------------
* To be filed by amendment.
</TABLE>
<PAGE>
Exhibit 4.3
Name of Subscriber ___________________
SUBSCRIPTION AGREEMENT
(FOR ACCREDITED INVESTORS ONLY)
Pivot Rules, Inc.
80 West 40th Street
New York, New York 10018
Dear Sirs:
i. Subscription. I (sometimes referred to herein as the
"Investor") hereby subscribe for and agree to purchase ____
Units (as defined below) of securities of Pivot Rules, Inc.
("Company"), a New York corporation, on the terms and
conditions described herein and in the Confidential Term
Sheet dated November __, 1996, together with all
supplements, if any ("Term Sheet"), relating to this
offering. The purchase price per Unit is $100,000 and the
aggregate amount subscribed for hereby is
$____________________. The Company and GKN Securities Corp.,
which is acting as the placement agent for this offering
("GKN" or the "Placement Agent"), have the mutual discretion
to accept offers for fractional Units.
ii. Description of Units. Each Unit consists of:
(1) a $100,000 principal amount interest-bearing secured
subordinated convertible promissory note ( "Note"),
that will have principal and interest thereon payable
upon the earliest of (i) the 24-month anniversary of
the date of the closing of this offering ("Closing"),
(ii) the date of successful consummation by the
Company of an initial public offering of its
securities, as described in Section 4.1 of the Note (
"Consummation Date"), (iii) the date of consummation
of a sale by the Company of all or substantially all
of its assets, (iv) the date of consummation of the
sale or exchange (including by way of merger) of all
or substantially all of the outstanding shares of the
Common Stock, no par value, of the Company ("Common
Stock"), (v) the date of consummation of certain
mergers or consolidations of the Company, as described
in Section 4.2 of the Note, or (vi) an "Offering
Termination" as defined in Section 5 of the Note. In
the event of an Offering Termination, the Note is
convertible, at the option of the holder, into shares
of the Company's Common Stock at a conversion rate of
$2.50 per share;
<PAGE>
(2) a warrant to purchase 40,000 shares of the Company's
Common Stock exercisable at any time or from time to
time during the period commencing January 1, 1998 and
ending December 31, 2002 at an initial exercise price
of $2.50 per share ("Warrants"); provided, however,
that on the effective date of the registration
statement with respect to the initial public offering
contemplated by the letter of intent, dated October 3,
1996 ("Letter of Intent") between the Company and GKN
("GKN Offering"), the Warrants will automatically
convert (on a one-for-one basis) into warrants bearing
identical terms to those to be issued as part of the
securities to be offered to the public in the GKN
Offering ("Public Warrants").
iii. Purchase.
(1) I hereby tender to GKN cash or a check made payable to
the order of "GKN Securities Corp.--Pivot Rules
Special Account" in the amount indicated above, two
manually executed copies of this Subscription
Agreement and an executed copy of my Purchaser
Questionnaire.
(2) This offering will continue until the earlier of the
Closing or ________ __, 1996, unless such latter date
is extended, without notice to the Investor, by mutual
consent of GKN and the Company for a period of up to
30 days ("Termination Date"). Prior to the Termination
Date, my cash or check delivered herewith will be held
by GKN in a segregated, non-interest bearing bank
account subject to the terms and conditions contained
herein. If less than fifteen (15) Units offered
pursuant to the Term Sheet are sold and paid for by
the Termination Date, my payment will be returned to
me without interest or deduction. Upon completion or
termination of this offering, I will be notified
promptly by GKN as to whether my subscription has been
accepted by the Company.
iv. Acceptance or Rejection of Subscription.
(1) I understand and agree that the Company and GKN
reserve the right to reject this subscription for the
Units, as a whole or in part and at any time prior to
the Closing or Termination Date, notwithstanding prior
receipt by me of notice of acceptance of my
subscription, if in either of their judgment they deem
such action to be in the best interests of the
Company; and
(2) In the event of rejection of this subscription, my
subscription payment will be returned promptly to me
without interest or deduction and this Subscription
Agreement shall have no force or effect. In the event
my subscription is accepted, the funds specified above
shall be released to the Company and the Note and
certificate representing the Warrants will be
delivered to GKN to hold on my behalf until otherwise
instructed.
<PAGE>
(3) Effective upon acceptance of my subscription by the
Company, I shall become a party to a security
agreement relating to all of the Company's assets (the
"Security Agreement"), a copy of which is annexed as
Exhibit B to the Term Sheet. I agree to be bound by
the terms and conditions of such Security Agreement
and acknowledge that my execution of this Subscription
Agreement shall be deemed to be the valid execution by
me of the Security Agreement.
(4) By my becoming a party to the Security Agreement, I am
(i) appointing GKN as my agent to take any and all
action that may be necessary or required to enforce my
rights under the Note and the Security Agreement, (ii)
agreeing that GKN will be reimbursed for any
out-of-pocket costs and expenses incurred by it as my
agent (such reimbursement to be either from the
collection of the Note or from me), (iii) agreeing to
indemnify GKN and hold it harmless from any
liabilities under the Security Agreement, and (iv)
acknowledging that GKN as agent shall have such
rights, duties and obligations as set forth in such
Security Agreement. I have read the Security Agreement
and understand that GKN as agent has no obligations in
any way to monitor the Company's performance.
v. Closing. The Closing of this offering will occur at the
offices of Graubard Mollen & Miller ("GM&M") upon the
receipt and acceptance by the Company of subscriptions for
fifteen (15) Units. The Units subscribed for herein shall
not be deemed issued to or owned by me until two copies of
this Subscription Agreement have been executed by me and
countersigned by the Company and a Closing has occurred. At
the Closing, my Note and the certificates representing my
Warrants shall be delivered to GM&M, as custodian, to be
held for my benefit until the consummation of the GKN
Offering or such earlier time as I may request their
delivery to me. I hereby authorize GM&M, upon the
consummation of the GKN Offering, to (i) deliver the Note to
the Company upon full payment of all principal and interest
due thereon and deliver the proceeds of such payment to the
Placement Agent for credit to my account with the Placement
Agent and (ii) deliver the certificates representing my
Warrants to the Company in exchange for certificates
representing an equal number of Public Warrants and deliver
such certificates representing the Public Warrants to the
Placement Agent for my account.
vi. Disclosure.
(1) Because this offering is limited to accredited
investors as defined in Section 2(15) of the
Securities Act of 1933, as amended ("Securities Act"),
and Rule 501 promulgated thereunder, in reliance upon
exemptions contained in Section 4(2) and Rules 505 and
506 of the Securities Act and applicable state
securities laws, the Units are being sold without
registration under the Securities Act. Accordingly,
the Company is offering the Units utilizing the Term
Sheet rather than a more detailed private offering
memorandum that contains the kind of information
specified in Rule 502(b)(2) promulgated under the
Securities Act. I acknowledge receipt of the Term
Sheet, including all
<PAGE>
exhibits listed therein, and acknowledge that I have
had an adequate opportunity to receive, and have
received, all information and materials regarding the
Company that I have requested.
(2) I fully understand that the Units are speculative
investments which involve a high degree of risk of
loss of my entire investment. I fully understand the
nature of the risks involved in purchasing the Units
and I am qualified by my knowledge and experience to
evaluate in- vestments of this type. I have carefully
considered the potential risks relating to the Company
and purchase of its Units and have, in particular,
reviewed each of the risks set forth in the Term
Sheet. Both my advisors and I have had the opportunity
to ask questions of and receive answers from
representatives of the Company or persons acting on
its behalf concerning the Company and the terms and
conditions of a proposed investment in the Company and
my advisors and I have also had the opportunity to
obtain additional information necessary to verify the
accuracy of information furnished about the Company.
Accordingly, I have independently evaluated the risks
of purchasing the Units.
vii. Planned Public Offering - Registration Rights; Lock-Up.
(1) The Units are being offered pursuant to the Term Sheet
to which this Subscription Agreement is Exhibit D.
Annexed as Exhibit F to the Term Sheet is a copy of
the Letter of Intent that the Company has received
from GKN with regard to the Company's proposed GKN
Offering. There can be no assurance that a
registration statement ("Registration Statement") will
be filed or, if filed, declared effective by the
Securities and Exchange Commission ("Commission") or,
if the Registration Statement is declared effective by
the Commission, that the Company successfully will be
able to consummate the GKN Offering.
(2) To facilitate the closing of the proposed GKN
Offering, I agree that the Units, the Notes and the
Warrants (and the shares of Common Stock underlying
the Warrants) included in the Units offered hereby may
not be sold or otherwise transferred until one year
after the date upon which the Registration Statement
with respect to the GKN Offering is declared effective
("Effective Date") by the Securities and Exchange
Commission ("Holding Period"), unless (i) GKN, in its
sole discretion, agrees to the sale of all or part of
such securities at an earlier date and (ii) if I am a
Pennsylvania resident, I comply with 204.011 of the
Pennsylvania Blue Sky Regulations. The parties hereto
agree that GKN is intended to be a third-party
beneficiary of this Subscription Agreement and that no
modification of the "lock-up" provisions contained in
this Section 7b may be made without the prior written
consent of GKN.
(3) Upon the Effective Date, such Warrants shall be
automatically converted (on a one-for-one basis) into
the Public Warrants to be sold
<PAGE>
to the public in the GKN Offering. I understand that
the terms of the Warrants included in the Units are
different from the terms of the Public Warrants which
have a higher exercise price, are redeemable by the
Company at a price of $.01 per Warrant if the price of
the Company's Common Stock reaches certain levels, and
may be different in other material respects.
(4) The Company, at its cost and expense (except
commissions or discounts and fees of the Investor's
own professionals, if any), agrees to include the
Public Warrants and shares of Common Stock underlying
the Public Warrants ("Registerable Securities") in the
Company's Registration Statement to be filed in
connection with the GKN Offering, and the Company
shall keep the Registration Statement or a substitute
registration statement current and effective until all
of the Registerable Securities are sold or an
exemption from the registration requirements of the
Securities Act is available.
(5) So long as the Registrable Securities are not included
in a current and effective registration statement, the
Investor shall have the right to "piggyback" the
Registerable Securities on each registration statement
filed by the Company during the seven year period
following the consummation of the GKN Offering (except
registration statements filed on Form S-4 and Form
S-8), all at the Company's cost and expense (except
commissions or discounts and fees of the Investor's
own professionals, if any); provided, however, that
this subparagraph (e) shall not apply to any
Registerable Securities if such Registerable
Securities may then be sold within a six-month period
under Rule 144, assuming the Investor's compliance
with the provisions of such Rule, and the Company
delivers an opinion of counsel to that effect to the
transfer agent; and provided, further, that if the
offering (other than the GKN Offering) with respect to
which a registration statement is filed is managed by
an independent underwriter, then (i) if in the
reasonable judgment of the managing underwriter, which
shall be evidenced by a writing delivered to such
Investor, the sale of the Registerable Securities in
connection with the proposed offering would have a
material adverse effect on the offering, the Investor
shall not sell his Registerable Securities under such
registration statement until 90 days after the
effective date of such registration statement, and
(ii) if securities are to be registered for the
benefit of any other selling security holder ("Selling
Holder"), the Investor shall be entitled to sell
immediately under such registration statement a
percentage of the total number of Registerable
Securities of a particular class of securities owned
by him equal to the highest percentage of that class
to be sold under such registration statement
(vis-a-vis the total number of securities of that
class owned) by any such Selling Holder, with the
Investor being entitled to sell the balance of his
Registerable Securities under such registration
statement commencing 90 days after the effective date
of the registration statement. The Company shall give
the Investor three weeks' notice of the intended
filing date of any
<PAGE>
registration statement, other than a registration
statement filed on Form S-4 or Form S-8, and the
Investor shall have two weeks after receipt of such
notice to notify the Company of its intent to include
the Registerable Securities in the registration
statement. The Company shall keep any registration
statement onto which the Investor has "piggybacked"
his Registerable Securities current and effective for
a period up to 180 days from the date on which the
Investor is first entitled to sell the total number of
his Registerable Securities registered thereunder.
(6) Notwithstanding the foregoing, I acknowledge and agree
that, if necessary to obtain Nasdaq listing for the
Common Stock, and with GKN's consent, (i) the Holding
Period may be made unconditional and absolute and
extended for up to one additional year, and (ii) the
Public Warrants and shares of Common Stock underlying
the Public Warrants described in Section 7d hereof may
be excluded or withdrawn from the Company's
Registration Statement to be filed in connection with
the GKN Offering.
(7) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Investor
against any and all loss, liability, claim, damage and
expense whatsoever (including but not limited to any
and all legal or other expenses reasonably incurred in
investigating, preparing or defending against any
litigation, commenced or threatened, whether arising
out of any action between the Investor and the Company
or between the Investor and any third-party or
otherwise) to which the Investor may become subject
under the Securities Act, the Securities Exchange Act
of 1934 ("Exchange Act") or any other statute or at
common law or otherwise or under the laws of foreign
countries, arising out of or based upon any untrue
statement or alleged untrue statement of a material
fact contained in (i) the Registration Statement (as
from time to time amended and supplemented); (ii) in
any post-effective amendment or amendments thereto or
any substitute registration statement in which the
Registrable Securities are included; or (iii) any
application or other document or written communication
("application") executed by the Company or based upon
written information furnished by the Company in any
jurisdiction in order to qualify the Registrable
Securities under the securities laws thereof or filed
with the Securities and Exchange Commission, any state
securities commission or agency, Nasdaq or any
securities exchange; or the omission or alleged
omission therefrom of a material fact required to be
stated therein or necessary to make the statements
therein, in the light of the circumstances under which
they were made, not misleading, unless such statement
or omission was made in reliance upon, and in strict
conformity with, written information furnished to the
Company with respect to the Investor by or on behalf
of the Investor expressly for use in the Registration
Statement, or any amendment or supplement thereof, or
in any application, as the case may be. The Company
agrees promptly to notify the Investor of the
<PAGE>
commencement of any litigation or proceedings against
the Company or any of its officers, directors or
controlling persons in connection with the issue and
sale of the Registrable Securities or in connection
with the Registration Statement or Prospectus.
(8) If any action is brought against the Investor in
respect of which indemnity may be sought against the
Company pursuant to Section 7g, the Investor shall
promptly notify the Company in writing of the
institution of such action and the Company shall
assume the defense of such action, including the
employment and reasonable fees of counsel (subject to
the reasonable approval of the Investor) and payment
of actual expenses. The Investor shall have the right
to employ its or their own counsel in any such case,
but the fees and expenses of such counsel shall be at
the expense of the Investor unless (i) the employment
of such counsel shall have been authorized in writing
by the Company in connection with the defense of such
action, or (ii) the Company shall not have employed
counsel to have charge of the defense of such action,
or (iii) such indemnified party or parties shall have
reasonably concluded that there may be defenses
available to it or them which are different from or
additional to those available to the Company (in which
case the Company shall not have the right to direct
the defense of such action on behalf of the
indemnified party or parties), in any of which events
the fees and expenses of not more than one additional
firm of attorneys selected by the Investor shall be
borne by the Company. Notwithstanding anything to the
contrary contained herein, if the Investor shall
assume the defense of such action as provided above,
the Company shall have the right to approve the terms
of any settlement of such action which approval shall
not be unreasonably withheld.
(9) The Investor agrees to indemnify and hold harmless the
Company against any and all loss, liability, claim,
damage and expense whatsoever (including but not
limited to any and all legal or other expenses
reasonably incurred in investigating, preparing or
defending against any litigation, commenced or
threatened, whether arising out of any action between
the Investor and the Company or between the Company
and any third-party or otherwise) to which the Company
may become subject under the Securities Act, the
Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries,
arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained
in (i) the Registration Statement (as from time to
time amended and supplemented); (ii) in any
post-effective amendment or amendments thereto or any
substitute registration statement in which the
Registrable Securities are included; or (iii) any
application or other document or written communication
("application") executed by the Company or based upon
written information furnished by the Company in any
jurisdiction in order to qualify the Registrable
Securities under the securities laws thereof or filed
with the Securities and Exchange Commission, any state
securities commission or
<PAGE>
agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading, but only with respect to untrue statements
or omissions, or alleged untrue statements or
omissions in the Registration Statement or any
amendment or supplement thereto or in any application
in reliance upon, and in strict conformity with,
written information furnished to the Company with
respect to the Investor by or on behalf of the
Investor expressly for use in the Registration
Statement or any amendment or supplement thereto or in
any such application.
viii. Investor Representations and Warranties. I acknowledge,
represent, and warrant to, and agree with, the Company (and
GKN may rely thereon) as follows:
(1) I am aware that my investment involves a high degree
of risk as disclosed in the Term Sheet and have
carefully read the Term Sheet including the section
thereof entitled "Risk Factors;"
(2) I acknowledge and am aware that there is no assurance
as to the future performance of the Company;
(3) I acknowledge that there may be certain adverse tax
consequences to me in connection with my purchase of
Units and the Company and GKN have advised me to seek
the advice of experts in such areas prior to making
this investment;
(4) I acknowledge that there can be no assurance that the
Company will file the Registration Statement for its
proposed GKN Offering, that such Registration
Statement will be declared effective by the Commission
or, if declared effective, that the Company
successfully will close the proposed GKN Offering. If
the proposed GKN Offering is not closed and the
Company does not receive alternative financing, which
it does not anticipate, the Company may not have the
funds to pay the Notes or to fund the Company's
operating expenses;
(5) I am purchasing the Units for my own account for
investment and not with a view to or for sale in
connection with the distribution of the Units or the
Notes or the Warrants contained in the Units nor with
any present intention of selling or otherwise
disposing of all or any part of the Units, the Notes
or the Warrants. I agree that I must bear the economic
risk of my investment for an indefinite period of time
because, among other reasons, the Units have not been
registered under the Securities Act or under the
securities laws of any state and, therefore, cannot be
resold, pledged, assigned, or otherwise disposed of
unless they are subsequently registered under the
Securities Act and under applicable securities laws of
certain states or an exemption from such registration
is available. I understand that, other than as
described herein, the Company is under no obligation
to register the
<PAGE>
Units on my behalf or to assist me in complying with
any exemption from such registration under the
Securities Act or any state securities laws.
Furthermore, I hereby acknowledge and agree that I
will not sell, transfer, give, or otherwise dispose
of, either publicly or privately, the Units or any
securities underlying the Units during the Holding
Period without the prior written consent of GKN. I
hereby authorize the Company to place a legend
denoting the restrictions on the Note and the Warrants
to be issued;
(6) I am not a member of the National Association of
Securities Dealers, Inc. ("NASD"). I have not, for a
period of 12 months prior to the date of this
Subscription Agreement, been affiliated or associated
with any company, firm, or other entity which is a
member of the NASD. I do not own stock or other
interest in, and I am not a creditor of, any member of
the NASD (other than interests acquired in open market
purchases);
(7) I have the financial ability to bear the economic risk
of my investment in the Company (including its
complete loss), have adequate means for providing for
my current needs and personal contingencies, and have
no need for liquidity with respect to my investment in
the Company;
(8) I have such knowledge and experience in financial and
business matters as to be capable of evaluating the
merits and risks of an investment in the Units and
have obtained, in my judgment, sufficient information
from the Company to evaluate the merits and risks of
an investment in the Company. I have not utilized any
person as my purchaser representative in connection
with evaluating such merits and risks;
(9) I have relied solely upon my own investigation in
making a decision to invest in the Company;
(10) I have received no representation or warranty from the
Company or the Placement Agent or any of their
respective officers, directors, employees or agents in
respect of my investment in the Company and I have
received no information (written or otherwise) from
them relating to the Company or its business other
than as set forth in the Term Sheet. I am not
participating in the offer as a result of or
subsequent to: (i) any advertisement, article, notice
or other communication published in any newspaper,
magazine or similar media or broadcast over television
or radio; or (ii) any seminar or meeting whose
attendees have been invited by any general
solicitation or general advertising;
(11) I have had full opportunity to ask questions of and to
receive satisfactory answers concerning the offering
and other matters pertaining to my investment and all
such questions have been answered to my full
satisfaction;
<PAGE>
(12) I have been provided an opportunity to obtain any
additional information concerning the offering, the
Company and all other information to the extent the
Company possesses such information or can acquire it
without unreasonable effort or expense;
(13) I am an "accredited investor" as defined in Section
2(15) of the Securities Act and in Rule 501
promulgated thereunder;
(14) I understand that (i) the Units have not been
registered under the Securities Act or the securities
laws of certain states in reliance on specific
exemptions from registration thereunder, (ii) no
securities administrator of any state or the Federal
government has recommended or endorsed this offering
or made any findings or determination relating to the
fairness of an investment in the Company, and (iii)
the Company is relying on my representations and
agreements for the purpose of determining whether this
transaction meets the requirements of the exemptions
referred to in clause (i) hereto;
(15) I understand that (i) since neither the offer nor sale
of the Units has been registered under the Securities
Act or the securities laws of any state, the Units may
not be sold, assigned, pledged or otherwise disposed
of unless they are so registered or an exemption from
such registration is available, (ii) it is not
anticipated that there will be any market for the
resale of the Units, and (iii) except as set forth
herein, the Company has no obligation or intention to
register the Notes and the Warrants (including the
Common Stock underlying the Warrants) or the Units
under the Securities Act or the securities laws of any
states, or to take action so as to permit sales of the
Units pursuant thereto;
(16) I understand that I am urged to seek independent
advice from my professional advisors relating to the
suitability of an investment in the Company in view of
my overall financial needs and with respect to the
legal and tax implications of such investment;
(17) If the Investor is a corporation, company, trust,
employee benefit plan, individual retirement account,
Keogh Plan, or other tax-exempt entity, it is
authorized and qualified to become an Investor in the
Company and the person signing this Subscription
Agreement on behalf of such entity has been duly
authorized by such entity to do so;
(18) The information contained in my Purchaser
Questionnaire, as well as any information which I have
furnished to the Company with respect to my financial
position and business experience, is correct and
complete as of the date of this Subscription
Agreement, and, if there should be any material change
in such information prior to the Closing, I will
promptly furnish such revised or corrected information
to the Company;
<PAGE>
(19) I hereby acknowledge and am aware that except for any
rescission rights that may be provided under
applicable laws, I am not entitled to cancel,
terminate, or revoke this subscription, and any
agreements made in connection herewith shall survive
my death or disability; and
(20) I acknowledge that, in order to obtain Nasdaq listing
for the Common Stock, it may be necessary for (i) the
Holding Period to be made absolute and unconditional
and extended for up to one additional year, and (ii)
the Public Warrants and Common Stock underlying the
Public Warrants held by me to be excluded or withdrawn
from any Registration Statement filed in connection
with the GKN Offering.
ix. Indemnification.
(1) I hereby agree to indemnify and hold harmless the
Company and GKN, as Placement Agent, their respective
officers, directors, shareholders, employees, agents
and attorneys against any and all losses, claims,
demands, liabilities, and expenses (including
reasonable legal or other expenses) incurred by each
such person in connection with defending or
investigating any such claims or liabilities, whether
or not resulting in any liability to such person, to
which any such indemnified party may become subject
under the Securities Act, under any other statute, at
common law or otherwise, insofar as such losses,
claims, demands, liabilities and expenses (i) arise
out of or are based upon any untrue statement or
alleged untrue statement of a material fact made by me
and contained in this Subscription Agreement or my
Purchaser Questionnaire, or (ii) arise out of or are
based upon any breach by me of any representation,
warranty, or agreement contained herein.
(2) I hereby agree to indemnify and hold harmless GKN, as
Agent under the Security Agreement, its officers,
directors, shareholders, employees, agents and
attorneys against any and all losses, claims, demands,
liabilities, and expenses (including reasonable legal
or other expenses) incurred by each such person in
connection with defending or investigating any such
claims or liabilities, whether or not resulting in any
liability to such person, to which any such
indemnified party may become subject under any
statute, at common law or otherwise, insofar as such
losses, claims, demands, liabilities and expenses,
arise out of or are based upon GKN's action or
inaction as agent under the Security Agreement (except
to the extent that the Security Agreement provides
that no such indemnification is possible).
x. Severability. In the event any part or parts of this
Subscription Agreement are found to be void, the remaining
provisions of this Subscription Agreement shall nevertheless
be binding with the same effect as though the void part or
parts were deleted.
<PAGE>
xi. Counterparts. This Subscription Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original but all of which together shall constitute one and
the same instrument. The execution of this Subscription
Agreement may be by actual or facsimile signature.
xii. Benefit. This Subscription Agreement shall be binding upon
and inure to the benefit of the parties hereto (and GKN to
the extent it is a third party beneficiary hereof or
otherwise given rights hereunder) and their legal
representatives, successors and assigns. GKN shall be deemed
to be a third party beneficiary with respect to any sections
hereof which so state or which otherwise indicate that GKN
would be entitled to rely on the representations, warranties
or covenants made by me therein.
xiii. Notices and Addresses. All notices, offers, acceptance and
any other acts under this Subscription Agreement (except
payment) shall be in writing, and shall be sufficiently
given if delivered to the addressees in person, by Federal
Express or similar receipted delivery, by facsimile delivery
or, if mailed, postage prepaid, by certified mail, return
receipt requested, as follows:
To Subscriber: At the address set forth on the signature
page of this Subscription Agreement
To The Company: Pivot Rules, Inc.
80 West 40th Street
New York, New York 10018
Attn: E. Kenneth Seiff
Chief Executive Officer
Fax: 212-354-3400
In either case
with copies to: GKN Securities Corp.
61 Broadway, 12th Floor
New York, New York 10006
Attn: Brian Coventry
Vice President
Fax: 212-509-5186
Graubard Mollen & Miller
600 Third Avenue, 31st Floor
New York, NY 10016-2097
Attn: David Alan Miller, Esq.
Fax: 212-818-8881
Shereff, Friedman, Hoffman
& Goodman, LLP
919 Third Avenue
New York, New York 10022-9998
Attn: Richard A. Goldberg, Esq.
Fax: 212-758-9526
<PAGE>
or to such other address as any of them, by notice to the others may designate
from time to time. Time shall be counted to, or from, as the case may be, the
delivery in person or five (5) days after mailing.
xiv. Governing Law. This Subscription Agreement and any dispute,
disagreement, or issue of construction or interpretation
arising hereunder, whether relating to its execution, its
validity, the obligations provided therein or performance
shall be governed by, and interpreted according to the law
of, the State of New York without regard to principles of
conflict of law.
xv. Venue. The Company (a) agrees that any legal suit, action or
proceeding arising out of or relating to this Agreement
shall be instituted exclusively in New York State Supreme
Court, County of New York or in the United States District
Court for the Southern District of New York, (b) waives any
objection to the venue of any such suit, action or
proceeding and the right to assert that such forum is not a
convenient forum, and (c) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of
New York, and the United States District Court for the
Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and
acknowledge service of any and all process which may be
served in any such suit, action or proceeding in the New
York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of
New York and agrees that service of process upon it mailed
by certified mail to its address shall be deemed in every
respect effective service of process upon it in any such
suit, action or proceeding.
xvi. Oral Evidence. This Subscription Agreement constitutes the
entire subscription agreement between the parties and
supersedes all prior oral and written agreements between the
parties hereto with respect to the subject matter hereof.
Neither this Subscription Agreement nor any provision hereof
may be changed, waived, discharged, or terminated orally,
except by a statement in writing signed by the party or
parties against which enforcement or the change, waiver,
discharge, or termination is sought.
xvii. Section Headings. Section headings herein have been inserted
for reference only and shall not be deemed to limit or
otherwise affect, in any matter, or be deemed to interpret
in whole or in part any of the terms or provisions of this
Subscription Agreement.
xviii. Survival of Representations, Warranties and Agreements. The
representations, warranties and agreements contained herein
shall survive the delivery of, and payment for, the Units.
xix. Acceptance of Subscription. The Company may accept this
Subscription Agreement at any time for all or any portion of
the Units subscribed for by executing a copy hereof as
provided and notifying me within a reasonable time
thereafter.
<PAGE>
NOTICE TO RESIDENTS OF ALL STATES
IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE ISSUER AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL
OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE
FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE
ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THESE SECURITIES ARE SUBJECT TO RESTRICTION ON TRANSFERABILITY AND
RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT
THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN
INDEFINITE PERIOD OF TIME.
NOTICE TO CALIFORNIA RESIDENTS: THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE CALIFORNIA
CORPORATIONS CODE BY REASON OF SPECIFIC EXEMPTIONS THEREUNDER RELATING TO THE
LIMITED AVAILABILITY OF THE OFFERING. THESE SECURITIES CANNOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF TO ANY PERSON OR ENTITY UNLESS
SUBSEQUENTLY REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
CALIFORNIA CORPORATIONS CODE, IF SUCH REGISTRATION IS REQUIRED.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
COMMISSIONER OF CORPORATIONS, DEPARTMENT OF CORPORATIONS, STATE OF CALIFORNIA,
NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE DEPARTMENT OF CORPORATIONS OF THE STATE OF CALIFORNIA REQUIRES
THAT THE FOLLOWING LEGEND BE PLACED ON CERTIFICATES EVIDENCING SECURITIES SOLD
TO CALIFORNIA INVESTORS: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF
THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
NOTICE TO CONNECTICUT RESIDENTS: THESE SECURITIES HAVE NOT BEEN
REGISTERED UNDER SECTION 36-485 OF THE CONNECTICUT UNIFORM SECURITIES ACT AND
HAVE BEEN SOLD PURSUANT TO AN EXEMPTION THEREFROM. THESE SECURITIES CANNOT BE
RESOLD OR TRANSFERRED UNLESS THEY ARE REGISTERED UNDER THE CONNECTICUT UNIFORM
SECURITIES ACT OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE. THESE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE BANKING COMMISSIONER OF
THE STATE OF CONNECTICUT NOR HAS THE COMMISSIONER PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
NOTICE TO FLORIDA RESIDENTS: THE SECURITIES OFFERED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT, AND
THEY THEREFORE HAVE THE STATUS OF SECURITIES ACQUIRED IN AN EXEMPT TRANSACTION
UNDER S.517.061 OF THE FLORIDA SECURITIES AND INVESTOR PROTECTION ACT. EACH
OFFEREE WHO IS A FLORIDA RESIDENT SHOULD BE AWARE THAT SECTION
517.061(11)(a)(5) OF THE FLORIDA SECURITIES ACT PROVIDES, IN RELEVANT PART, AS
FOLLOWS: "WHEN SALES ARE MADE TO FIVE OR MORE PERSONS IN (FLORIDA), ANY SALE IN
(FLORIDA) MADE PURSUANT TO... SECTION 517.061(11) SHALL BE VOIDABLE BY THE
PURCHASER IN SUCH SALE EITHER WITHIN 3 DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY THE PURCHASER TO THE ISSUER, AN AGENT OF THE ISSUER OR
AN ESCROW AGENT OR WITHIN 3 DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS
COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER."
THE AVAILABILITY OF THE PRIVILEGE TO VOID SALES PURSUANT TO SECTION
517.061(12) IS HEREBY COMMUNICATED TO EACH FLORIDA OFFEREE. EACH PERSON
ENTITLED TO EXERCISE THE PRIVILEGE TO VOID SALES GRANTED BY SECTION
517.061(11)(a)(5) AND WHO WISHES TO EXERCISE SUCH RIGHT MUST, WITHIN THREE DAYS
AFTER THE TENDER OF THE PURCHASE PRICE OF THE UNITS TO THE COMPANY OR TO ANY
AGENT OF THE COMPANY (INCLUDING ANY DEALER ACTING ON BEHALF OF THE COMPANY OR
ANY SALESMAN OF SUCH DEALER) OR AN ESCROW AGENT CAUSE A WRITTEN NOTICE OR
TELEGRAM TO BE SENT TO THE COMPANY AT THE ADDRESS PROVIDED IN THE MEMORANDUM.
SUCH LETTER OR TELEGRAM MUST BE SENT AND, IF POSTMARKED, POSTMARKED ON OR PRIOR
TO THE END OF THE AFOREMENTIONED THIRD DAY. IF A PERSON IS SENDING A LETTER, IT
IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ASSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME IT WAS MAILED. SHOULD
A PERSON MAKE THIS REQUEST ORALLY, HE MUST ASK FOR WRITTEN CONFIRMATION THAT
HIS REQUEST HAS BEEN RECEIVED.
NOTICE TO NEW YORK RESIDENTS: THIS PRIVATE PLACEMENT MEMORANDUM HAS
NOT BEEN REVIEWED BY THE ATTORNEY GENERAL PRIOR TO ITS ISSUANCE AND USE. THE
ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THIS PRIVATE PLACEMENT MEMORANDUM DOES NOT CONTAIN AN UNTRUE STATEMENT
OF MATERIAL FACT OR OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE
STATEMENTS MADE IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING. IT CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS AND DOCUMENTS
PURPORTED TO BE SUMMARIZED HEREIN.
NOTICE TO PENNSYLVANIA RESIDENTS: THE OFFER AND SALE OF THESE
SECURITIES TO PENNSYLVANIA RESIDENTS IS BEING MADE PURSUANT TO AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE PENNSYLVANIA SECURITIES ACT OF 1972
("PENNSYLVANIA ACT"), IN ACCORDANCE WITH SECTION 203(d) THEREFROM. A
REQUIREMENT OF SECTION 203(d) IS THAT THE COMPANY OBTAIN THE WRITTEN AGREEMENT
OF EACH PENNSYLVANIA INVESTOR NOT TO SELL THE SECURITIES WITHIN TWELVE MONTHS
AFTER THE DATE OF PURCHASE. UNDER THE PENNSYLVANIA ACT EACH PERSON WHO ACCEPTS
AN OFFER TO PURCHASE THESE SECURITIES MAY ELECT, WITHIN TWO BUSINESS DAYS FROM
THE DATE OF RECEIPT BY THE ISSUER OF HIS WRITTEN
<PAGE>
BINDING CONTRACT OF PURCHASE, OR, IN THE CASE OF A TRANSACTION WHERE THERE IS
NO WRITTEN BINDING CONTRACT OF PURCHASE, WITHIN TWO BUSINESS DAYS AFTER HE
MAKES THE INITIAL PAYMENT FOR THE SECURITIES BEING OFFERED, TO WITHDRAW HIS
ACCEPTANCE AND RECEIVE A FULL REFUND OF ALL MONEYS PAID, WITHOUT INCURRING ANY
LIABILITY.
TO ACCOMPLISH THIS WITHDRAWAL A SUBSCRIBER NEED ONLY SEND A LETTER OR
TELEGRAM TO THE SELLING AGENT AT THE ADDRESS SET FORTH IN THE TEXT OF THE
MEMORANDUM, INCLUDING HIS OR HER INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM
SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED SECOND
BUSINESS DAY. IT IS PRUDENT TO SEND SUCH LETTER BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE TIME
WHEN IT WAS MAILED. IF THE REQUEST IS MADE ORALLY (IN PERSON OR BY TELEPHONE,
TO THE SELLING AGENT AT THE NUMBER LISTED IN THE TEXT OF THE MEMORANDUM), A
WRITTEN CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
<PAGE>
Individual Investor Date:
------------------------------
- -------------------------- -----------------------------------
Social Security Number Print Name of Investor No. 1
-----------------------------------
Signature of Investor No. 1*
-----------------------------------
Number and Street
-----------------------------------
City, State, Zip Code
- -------------------------- -----------------------------------
Social Security Number Print Name of Investor No. 2
-----------------------------------
Signature of Investor No. 2*
-----------------------------------
Number and Street
-----------------------------------
City, State, Zip Code
- ----------
* The Investor's signature hereto shall constitute (i) the Investor's
signature, as Secured Party, of and on the Security Agreement to be executed
by the Company on the Closing of the Offering, and (ii) the Investor's
agreement to be bound by the terms of such Security Agreement.
<PAGE>
Entity Investor
Manner in which Units are to be held:
Individual Ownership
- -----
Tenants-in-Common
- -----
Joint Tenant with Right of Survivorship
- -----
Community Property
- -----
Separate Property
- -----
Partnership
- -----
Trust
- -----
Corporation
- -----
Other (please indicate)
- -----
Corporate or Other Entity Date:
----------------------------
- ---------------------------- ---------------------------------
Federal ID Number Print Name of Entity
By:
------------------------------
Signature**
Title:
---------------------------------
Number and Street
---------------------------------
City, State, Zip Code
DATED: , 1996.
---------------
- -------------------
** The Investor's signature hereto shall constitute (i) the Investor's
signature, as Secured Party, of and on the Security Agreement to be
executed by the Company on the Closing of the offering, and (ii) the
Investor's agreement to be bound by the terms of such Security Agreement.
<PAGE>
By signing below the undersigned accepts the foregoing subscription and
agrees to be bound by its terms.
PIVOT RULES, INC.
BY:
------------------------------------
E. Kenneth Seiff
Chief Executive Officer
<PAGE>
Exhibit 4.4
NEITHER THIS WARRANT NOR THE COMMON STOCK WHICH MAY BE ACQUIRED UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
WITH RESPECT THER- ETO UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW,
OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL, SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED. THE COMPANY'S SUBSCRIPTION
AGREEMENT WITH THE HOLDER OF THIS WARRANT CONTAINS ADDITIONAL PROVISIONS
RESTRICTING THE TRANSFER OF THIS WARRANT. A COPY OF SUCH AGREEMENT IS AVAILABLE
FOR INSPECTION AT THE COMPANY'S OFFICE.
For the Purchase of
________ shares of
Warrant No. __ Common Stock
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
PIVOT RULES, INC.
(A New York Corporation)
Pivot Rules, Inc., a New York corporation ("Company"), hereby certifies
that _______ ___________, or his, her or its registered assigns ("Registered
Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company, at any time or from time to time during the period commencing
January 1, 1998 and ending on December 31, 2002, ________ shares of Common
Stock, par value $.01 per share, of the Company ("Common Stock"), at an initial
exercise price equal to $2.50 per share (subject to adjustment as provided
below); provided, however, upon the effective date ("Effective Date") of the
registration statement with respect to an initial public offering ("Offering")
of the Company's securities as contemplated by the letter of intent dated
October 3, 1996 ("Letter of Intent") between the Company and GKN Securities
Corp. ("GKN"), this Warrant shall automatically convert (on a one-for-one
basis) into the warrants to be issued as part of the securities to be sold to
the public in the Offering. The number of shares of Common Stock purchasable
upon exercise of this Warrant, and the exercise price per share, each as
adjusted from time to time pursuant to the provisions of this Warrant, are
hereinafter referred to as the "Warrant Stock" and the "Exercise Price,"
respectively.
<PAGE>
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in whole or
in part, by surrendering this Warrant, with the purchase form appended hereto
as Exhibit I duly executed by such Registered Holder, at the principal office
of the Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Exercise Price payable in respect of the number of shares of Warrant Stock
purchased upon such exercise.
(b) Each exercise of this Warrant shall be deemed to have been effected
immediately prior to the close of business on the day on which the Warrant
shall have been surrendered to the Company as provided in subsection 1(a)
above. At such time, the person or persons in whose name or names any
certificates for Warrant Stock shall be issuable upon such exercise as provided
in subsection 1(c) below shall be deemed to have become the holder or holders
of record of the Warrant Stock represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in full or
in part, and in any event within 10 days thereafter, the Company at its expense
will cause to be issued in the name of, and delivered to, the Registered
Holder, or, subject to the terms and conditions hereof, as such Holder (upon
payment by such Holder of any applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full shares of
Warrant Stock to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof, and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of shares of Warrant Stock equal (without
giving effect to any adjustment therein) to the number of such shares called
for on the face of this Warrant, minus the number of such shares purchased by
the Registered Holder upon such exercise as provided in subsection 1(a) above.
2. Adjustments.
(a) If the outstanding shares of the Company's Common Stock shall be
subdivided or split into a greater number of shares, or a dividend in Common
Stock shall be paid in respect of Common Stock, the Exercise Price in effect
immediately prior to such subdivision or at the record date of such dividend
shall, simultaneously with the effectiveness of such subdivision or split or
immediately after the record date of such dividend, be proportionately reduced.
If the outstanding shares of Common Stock shall be combined or reverse-split
into a smaller number of shares, the Exercise Price in effect
-2-
<PAGE>
immediately prior to such combination or reverse-split shall, simultaneously
with the effectiveness of such combination or reverse-split, be proportionately
increased. When any adjustment is required to be made in the Exercise Price,
the number of shares of Warrant Stock purchasable upon the exercise of this
Warrant shall be changed to the number determined by dividing (i) an amount
equal to the number of shares issuable upon the exercise of this Warrant
immediately prior to such adjustment, multiplied by the Exercise Price in
effect immediately prior to such adjustment, by (ii) the Exercise Price in
effect immediately after such adjustment.
(b) If there shall occur any capital reorganization or reclassification
of the Company's Common Stock (other than a change in par value or a
subdivision or combination as provided for in subsection 2(a) above), or any
consolidation or merger of the Company with or into another corporation, or a
transfer of all or substantially all of the assets of the Company, or the
payment of a liquidating distribution, then, as part of any such
reorganization, reclassification, consolidation, merger, transfer or
liquidating distribution, lawful provision shall be made so that the Registered
Holder of this Warrant shall have the right thereafter to receive upon the
exercise hereof (to the extent, if any, still exercisable) the kind and amount
of shares of stock or other securities or property which such Registered Holder
would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger, transfer or
liquidating distribution, as the case may be, such Registered Holder had held
the number of shares of Common Stock which were then purchasable upon the
exercise of this Warrant. In any such case, appropriate adjustment (as
reasonably determined by the Board of Directors of the Company) shall be made
in the application of the provisions set forth herein with respect to the
rights and interests thereafter of the Registered Holder of this Warrant such
that the provisions set forth in this Section 2 (including provisions with
respect to adjustment of the Exercise Price) shall thereafter be applicable, as
nearly as practicable, in relation to any shares of stock or other securities
or property thereafter deliverable upon the exercise of this Warrant.
(c) No adjustment in the per share Exercise Price shall be required
unless such adjustment would require an increase or decrease in the Exercise
Price of at least $0.01; provided, however, that any adjustments which by
reason of this paragraph are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under
this Section 2 shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be. Anything in this Section 2 to the contrary
notwithstanding, the Company shall be entitled to make such reductions in the
per share Exercise Price, in addition to those required by this Section 2 as in
its discretion it shall deem to be advisable in order that any stock dividend,
subdivision of shares or distribution rights to purchase stock or securities
convertible or exchangeable for stock hereafter made by the Company to its
stockholders shall not be taxable.
(d) Upon the happening of any event requiring an adjustment of the
Exercise Price hereunder, the Company shall forthwith give written notice
thereto to the Registered Holder of this Warrant stating the adjusted
Exercise Price and the adjusted
-3-
<PAGE>
number of shares purchasable upon the exercise hereof resulting from such
event and setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
3. Fractional Shares. The Company shall not be required upon the exercise of
this Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the mean between the low bid and high asked
prices for the Warrant Stock on the over-the-counter market as reported by
Nasdaq or the closing market price of the Warrant Stock on a national
securities exchange on the trading day immediately prior to the date of
exercise, whichever is applicable, or if neither is applicable, then on the
basis of the then fair market value of the Warrant Stock as shall be reasonably
determined by the Board of Directors of the Company.
4. Limitation on Sales, etc. Each holder of this Warrant acknowledges that
this Warrant and the Warrant Stock have not been registered under the
Securities Act of 1933, as now in force or hereafter amended, or any successor
legislation ("Act"), and agrees not to sell, pledge, distribute, offer for
sale, transfer or otherwise dispose of this Warrant or any Warrant Stock issued
upon its exercise in the absence of (a) an effective registration statement
under the Act as to this Warrant and the Warrant Stock issued upon its exercise
and registration or qualification of this Warrant or such Warrant Stock under
any applicable Blue Sky or state securities law then in effect, or (b) an
opinion of counsel, satisfactory to the Company, that such registration and
qualification are not required. Notwithstanding the foregoing, the holder
acknowledges that it may not sell the Warrant or any Warrant Shares until one
year after the Effective Date without the prior written consent of GKN;
provided, however, that, if necessary for the Common Stock to obtain Nasdaq
listing, and with GKN's consent, such restriction on sale of the Warrants and
Warrant Shares may be made unconditional and extended up to one additional
year.
Without limiting the generality of the foregoing, unless the offering and
sale of the Warrant Stock to be issued upon the exercise of the Warrant shall
have been effectively registered under the Act, the Company shall be under no
obligation to issue the shares covered by such exercise unless and until the
Registered Holder shall have executed an investment letter in form and
substance reasonably satisfactory to the Company, including a warranty at the
time of such exercise that it is acquiring such shares for its own account, for
investment and not with a view to, or for sale in connection with, the
distribution of any such shares, in which event a legend in substantially the
following form shall be endorsed upon the certificate(s) representing the
Warrant Stock issued pursuant to such exercise:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), or under any
applicable state securities laws and may not be offered or sold except
pursuant to (i) an effective registration statement under the Act and such
state securities laws, (ii) to the extent applicable, Rule 144 under the Act
(or any similar rule under such Act relating to the disposition of
securities), or (iii) an opinion of counsel,
-4-
<PAGE>
if such opinion shall be reasonably satisfactory to the Corporation, that an
exemption from registration under the Act and such state securities laws is
available.
5. Certain Dividends. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Property Dividend"), then the Company will pay or distribute to the Registered
Holder of this Warrant, upon the exercise hereof, in addition to the Warrant
Stock purchased upon such exercise, the Property Dividend which would have been
paid to such Registered Holder if the Registered Holder had been the owner of
record of such shares of Warrant Stock immediately prior to the date on which a
record is taken for such Property Dividend or, if no record is taken, the date
as of which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
6. Rights of Warrant Holder.
The Company has agreed to register this Warrant (and the underlying
Warrant Stock), or its successor, on Form SB-2, S-1 or other form of
registration statement used by the Company in connection with the Offering and
in connection with certain offerings by the Company, all as set forth in
Section 7 of the Subscription Agreement between the Company and the Registered
Holder pursuant to which this Warrant has been issued. Notwithstanding the
foregoing, the holder acknowledges that, if necessary for the Common Stock to
obtain Nasdaq listing, and with GKN's consent, this Warrant and the underlying
Warrant Stock may be excluded or withdrawn from any registration statement
filed in connection with the Offering.
On the Effective Date, the Registered Holder shall have the same rights
with respect to this Warrant as the holders of the warrants issued to the
public in the Offering and the Registered Holder shall exchange this Warrant
for the form of warrant issued to the public in the Offering. Such new warrant
and the rights of the Registered Holder shall be governed by the warrant
agreement executed in connection with the Offering. Some of the rights of the
Registered Holder reflected herein will not be reflected in such warrant
agreement, since the terms of the warrants to be issued to the public in the
Offering will be different, in certain respects, from the terms of this
Warrant.
7. Notices of Record Date, etc. In case:
(a) the Company shall take a record of the holders of its Common Stock
(or other securities at the time issuable upon the exercise of this Warrant)
for the purpose of entitling or enabling them to receive any dividend or other
distribution (other than a dividend or distribution payable solely in capital
stock of the Company or out of funds legally available therefor), or to receive
any right to subscribe for or purchase any shares of stock of any class or any
other securities, or to receive any other right; or
-5-
<PAGE>
(b) of any capital reorganization of the Company, any reclassification of
the capital stock of the Company, any consolidation or merger of the Company
with or into another corporation (other than a consolidation or merger in which
the Company is the surviving entity), or any transfer of all or substantially
all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities as are
at the time issuable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date, for the event specified in such notice, provided
that the failure to mail such notice shall not affect the legality or validity
of any such action.
8. Reservation of Stock. The Company will at all times reserve and keep
available, solely for issuance and delivery upon the exercise of this Warrant,
such shares of Warrant Stock and other stock, securities and property, as from
time to time shall be issuable upon the exercise of this Warrant.
9. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and (in the case of loss, theft or destruction) upon delivery of an indemnity
agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
10. Transfers, etc. The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant and of the holders of
other warrants of like tenor issued simultaneously hereunder. Any Registered
Holder may change its, his or her address as shown on the warrant register by
written notice to the Company requesting such change.
Until any transfer of this Warrant is made in the warrant register, the
Company may treat the Registered Holder of this Warrant as the absolute owner
hereof for all purposes and shall not be bound to recognize any equitable or
other claim to or interest in this Warrant on the part of any other person;
provided, however, that if and when this Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat
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<PAGE>
the bearer hereof as the absolute owner hereof for all purposes,
notwithstanding any notice to the contrary.
11. Mailing of Notices, etc. All notices and other communications from the
Company to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, sent by reputable overnight
delivery or by facsimile to the address furnished to the Company in writing by
the last Registered Holder of this Warrant who shall have furnished an address
to the Company in writing. All notices and other communications from the
Registered Holder of this Warrant or in connection herewith to the Company
shall be mailed by first-class certified or registered mail, postage prepaid,
sent by reputable overnight delivery or by facsimile to the Company at its
offices at 80 West 40th Street, New York, New York 10018, or such other address
as the Company shall so notify the Registered Holder.
12. No Rights as Stockholders. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
13. Change or Waiver. Any term of this Warrant may be changed or waived only
by an instrument in writing signed by the party against whom enforcement of the
change or waiver is sought.
14. Headings. The headings of this Warrant are for purposes of reference
only and shall not limit or otherwise affect the meaning of any provision of
this Warrant.
15. Governing Law. This Warrant will be governed by and construed in
accordance with the law of the State of New York without regard to the
principles of conflict of law.
16. Venue. The Company (a) agrees that any legal suit, action or proceeding
arising out of or relating to this Warrant shall be instituted exclusively in
New York State Supreme Court, County of New York or in the United States
District Court for the Southern District of New York, (b) waives any objection
to the venue of any such suit, action or proceeding and the right to assert
that such forum is not a convenient forum, and (c) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of New York, and the
United States District Court for the Southern District of New York in any such
suit, action or proceeding. The Company further agrees to accept and
acknowledge service of any and all process which may be served in any such
suit, action or proceeding in the New York State Supreme Court, County of New
York, or in the United States District Court for the Southern District of New
York and agrees that service of process upon it mailed by certified mail to its
address shall be deemed in every respect effective service of process upon it
in any such suit, action or proceeding.
Dated: January 2, 1997 PIVOT RULES, INC.
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<PAGE>
By:
--------------------------------
E. Kenneth Seiff
Chief Executive Officer
<PAGE>
EXHIBIT I
PURCHASE FORM
To: Pivot Rules, Inc.
80 West 40th Street
New York, New York 10018
Dated:
In accordance with the provisions set forth in the attached Warrant (No.
_____), the undersigned hereby irrevocably elects to purchase ________ shares
of the Common Stock covered by such Warrant and herewith makes payment of
$_________, representing the full Exercise Price for such shares at the price
per share provided for in such Warrant.
The undersigned has had the opportunity to ask questions of and receive
answers from the officers of the Company regarding the affairs of the Company
and related matters, and has had the opportunity to obtain additional
information necessary to verify the accuracy of all information so obtained.
The undersigned understands that the shares have not been registered under
the Securities Act of 1933, as amended, or the securities laws of any other
jurisdiction, and hereby represents to the Company that the undersigned is
acquiring the shares for its own account, for investment, and not with a view
to, or for sale in connection with, the distribution of any such shares.
Signature
------------------------
Address
------------------------
------------------------
<PAGE>
Exhibit 10.1
LOAN AGREEMENT
AGREEMENT entered into as of the 6th day of February 1992, between
JOSEPH J. BOUGHTON, JR., residing at 400 Franklin Road, Suite 230, Marietta,
Georgia 30067 ("Boughton"), and PIVOT CORPORATION, a New York corporation
located at 990 Avenue of the Americas, New York, New York 10018 ("PIVOT").
RECITALS
A. Pivot is interested in obtaining short term financing for its
operations.
B. Boughton is interested in investing in Pivot and is willing and able
and has agreed to provide Pivot some short term financing.
TERMS AND CONDITIONS
Boughton and Pivot therefore agree as follows:
1. Boughton agrees to loan Pivot $100,000 (the "borrowed funds").
2. Pivot will repay the borrowed funds in full on or before
November 6, 1992. Pivot will pay interest on the borrowed funds at an
annual rate of 11% simple interest. The interest will be payable monthly
in arrears, commencing March 6, 1992. In the event any interest payment is
not received by the thirteenth (13th) day, one month in arrears of date
due, Pivot will pay a default rate of fifteen percent (15%) interest on
the loan until Pivot is current on the interest payments. These repayment
obligations are set forth in the annexed Promissory Note, which is to be
executed by an authorized representative of Pivot at the time this
agreement is executed.
3. Boughton understands and agrees that his loan to Pivot will be fully
subordinated
<PAGE>
to all of Pivot's existing debt obligations as well as to any debt
incurred for financing that may be provided to the company in the future
by any one banking institution.
4. Pivot will issue, immediately upon execution of this agreement, a
certificate for two (2) shares of the company's common stock. At the time
of its issuance, that stock will be the equivalent of not less than two
percent (2%) of the authorized and outstanding shares of the company.
5. If for any reason, Pivot fails to repay the loan on or before
November 6, 1992, the company will issue a certificate for one (1)
additional share of the company's common stock for each additional three
(3) month period, or portion thereof, that the loan remains unpaid, in
whole in or part.
6. Pivot assigns to Boughton any right or opportunity Pivot might have
to purchase any interest Harry Mah may have in the company. Specifically,
Harry Mah has invested $50,000 in Pivot in exchange for six (6) shares of
Pivot's common stock, or for so many shares as equal not less than 6% of
the authorized and outstanding shares of the company at the time of the
issuance of the shares (the "Mah Shares"). The Mah Shares have not been issued
and are not to be issued until sufficient equity has been invested in the
company to warrant the sale and issuance of additional shares of the company's
common stock so that the total number of authorized and outstanding shares is
one hundred (100).
7. The shares issued to Boughton pursuant to paragraph 4, and any shares
purchased by Boughton from Harry Mah pursuant to paragraph 6, will have
preemptive rights in Boughton's favor with respect to any shares to be
issued by Pivot in excess of a total of one hundred (100), such that
Boughton will have the opportunity to maintain the same
<PAGE>
percentage equity interest in the company as is represented by the shares
issued to and purchased by him pursuant to this agreement.
8. This Loan Agreement, together with the annexed Promissory Note,
constitute the entire agreement between the parties with respect to their
subject matter, and they may not be modified or amended orally.
9. This Loan Agreement and the annexed Promissory shall be construed in
accordance with and be governed by the laws of the State of New York.
10. In the event that any portion of this agreement is deemed unlawful,
all other portions will remain in force, to the extent permitted by law.
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this agreement to
be duly executed.
/s/: Joseph J. Boughton, Jr.
------------------------------
JOSEPH J. BOUGHTON, JR.
PIVOT CORPORATION
By: /s/: E. Kenneth Sieff
---------------------------
E. KENNETH SEIFF
President
<PAGE>
S23SUB.P65 DRAFT 2/14/92
SUBORDINATED
PROMISSORY NOTE
$100,000 New York, New York
February 6, 1992
FOR VALUE RECEIVED, PIVOT CORPORATION, by its president, E. Kenneth
Seiff, ("Pivot") hereby promises to pay to the order of JOSEPH J. BOUGHTON,
JR., ("Boughton"), at Lifttock International, 400 Franklin Road, Suite 230,
Marietta, Georgia, 30063, or at such other place as Boughton may from time to
time designate in writing, the principal amount of One Hundred Thousand Dollars
($100,000) payable in a lump sum on or before November 6, 1992, with interest
from February 6, 1992, at the annual rate of eleven percent (11%) simple
interest, payable monthly in arrears for nine months commencing on March 6,
1992, and ending on November 6, 1992, as set forth on the annexed schedule.
In the event Pivot fails to repay the principal amount on or before
the date specified above, Boughton shall be entitled to exercise the rights and
remedies set forth in the Loan Agreement of even date between Boughton and
Pivot.
In the event any interest payment is not received by the thirteenth
(13th) day of the date due in accordance with the attached schedule, Pivot
shall pay an annual default rate of fifteen percent (15%) simple interest
payable monthly until Pivot is no longer in arrears on the interest payments as
set forth on the attached schedule.
The principal and interest payment obligations set forth in this
Promissory Note shall be fully subordinated to all of the company's existing
debt obligations as well as to any debt incurred for financing that may be
provided to the company in the future by any one banking
<PAGE>
institution.
IN WITNESS WHEREOF the undersigned has executed and delivered this
note as of the date above written.
PIVOT CORPORATION
By: /s/: E. Kenneth Seiff
----------------------------
E. Kenneth Seiff
President
<PAGE>
Exhibit 10.2
PIVOT RULES, INC.
80 West 40th Street
New York, NY 10018
November 7, 1996
Mr. Joseph Boughton, Jr.
Middle Market Capital
Management Company
2627 Sandy Plains Road
Suite 201
Marietta, Georgia 30066
Dear Joe:
As you know, we have signed a letter of intent with GKN Securities for
a proposed bridge financing (the "Bridge Financing") and subsequent initial
public offering by Pivot Rules, Inc. ("Pivot Rules"). Pivot Rules currently has
135.4 shares of Common Stock issued and outstanding. In order to facilitate
these proposed transactions, we have agreed as follows:
Effective upon the closing of the initial public offering by Pivot
Rules and subject to Your Subscription Right (as defined below) having been
made available to you, your contractual preemptive rights (whether established
under your loan agreement dated February 1992, a related letter agreement dated
February 3, 1992, or any other agreement) ("Your Contractual Preemptive
Rights") to subscribe for equity securities of Pivot Rules will terminate. In
exchange for your agreement to terminate these rights, you will be afforded an
opportunity (which shall be held open for at least 5 business days) to
subscribe to 11.462% of such bridge financing ("Your Subscription Right") on
the same terms as are offered to other participants in the financing. Of
course, you would also have Your Contractual Preemptive Rights to participate
in any other private equity financing which is consummated by Pivot Rules prior
to the initial public offering.
You further agree that, effective upon the closing of the Bridge
Financing and subject to Your Subscription Right having been made available to
you, the Shareholders' Agreement, dated as of August 1, 1991, (the
"Shareholders Agreement") among Pivot Rules (formerly Pivot, Inc.) and its
shareholders shall, to the extent required by the investors in the
<PAGE>
Mr. Joseph Boughton, Jr.
February 28, 1997
Page 2
Bridge Financing, be terminated, amended or replaced with another shareholders
agreement on terms customarily required by bridge investors. The Shareholders
Agreement requires the approval of 80% of the Shareholders for specified
events, including the issuance of equity securities. You agree to execute any
such modified or new shareholders agreement required by investors in the Bridge
Financing so long as it is approved by at least 80% of the shareholders of
Pivot Rules. You further agree that, to the extent not earlier terminated, the
Shareholders Agreement shall be terminated, effective upon the closing of the
initial public offering.
Please acknowledge your agreement to the foregoing by signing below.
I look forward to closing these transactions and building value for
all shareholders of Pivot Rules.
Pivot Rules, Inc.
By: /s/ Kenneth Seiff
---------------------------
Kenneth Seiff
Accepted and Agreed to:
/s/ Joseph Boughton, Jr.
- ----------------------------------
Joseph Boughton, Jr.
<PAGE>
Exhibit 10.3
STOCK PURCHASE AGREEMENT
AGREEMENT made as of the 30th day of September, 1994, by and among Pivot Rules
Inc. ("Pivot"), Leisure Wear Inc. ("Leisure Wear"), David M. Goldblatt Inc.
Profit Sharing Plan, David Goldblatt, Anita Goldblatt and Jeffrey Goldstein
(collectively the "Sellers").
1. At the Closing, Pivot shall purchase (i) 51.99 shares of its common stock
owned by Leisure Wear, (ii) 4.61 shares owned by David Goldblatt, (iii) 7
shares owned by David M. Goldblatt Inc. Profit Sharing Plan and (iv) 1 share
owned by Anita Goldblatt (collectively, the "Shares") in exchange for $50,000
in cash (payable by check on the date of execution of this Agreement, receipt
of which is hereby acknowledged) plus a promissory note in the form annexed
hereto or Exhibit A (the "Note"), with an aggregate principal balance of
$822,291, payable with interest at the rate of 12% per annum, on the following
schedule:
Principal Payment Total Payment
----------------- -------------
(including interest)
January 1, 1995 $ 260,358 $ 285,500
December 31, 1995 82,753 150,000
December 31, 1996 92,498 150,000
December 31, 1997 103,598 150,000
December 31, 1998 133,530 167,500
December 31, 1999 149,554 167,500
The note shall be payable to Leisure Wear, as agent for the Sellers. Leisure
Wear agrees to allocate all payments made hereunder among the Sellers in
proportion to their share ownership.
2. Installment payments under the Note shall be secured by the pledge in escrow
of the Shares. The Shares shall be released from escrow as payments under the
Note are made, commencing with the January 1, 1995 installment, in proportion
to total scheduled principal payments hereunder (including the $50,000 cash
payment), e.g. upon the payment of the January 1, 1995 installment, 23 shares
shall be released to Pivot. Pivot may at any time substitute collateral of
marketable securities or cash equivalent value to the outstanding principal
balance under the Note at the time of such substitution.
3. Simultaneously with the execution of this agreement, (a) the parties hereto
will enter into an Escrow Agreement, in the form annexed hereto as Exhibit B,
pursuant to which Scoppetta &
<PAGE>
Seiff, 645 Madison Avenue, New York, NY 10022 will serve as escrow agent; (b)
Pivot shall deliver to the Sellers a check for $50,000; and (c) the Sellers
shall deliver to the Escrow Agent 64.6 Shares, free and clear of all liens,
claims or encumbrances, duly endorsed in blank, to be held by the Escrow Agent
pursuant to the terms of this agreement and the Escrow Agreement.
4. The closing under this agreement (the "Closing") shall occur as soon as
practicable following the approval by a majority of the disinterested directors
serving on the Board of Directors of Pivot (i.e. the directors other than David
Goldblatt and Jeffrey Goldstein), and the written approval of the holders of at
least 80% of the outstanding shares of Pivot; provided that Pivot shall have
the right to waive such 80% requirement and close upon the vote of a lesser
percentage if its counsel advises it that such lesser percentage is legally
sufficient. Sellers agree to vote the Shares in favor of the approval of this
agreement and the transaction contemplated hereby. Pivot shall use its best
efforts to close within 20 days of the date hereof and in any event the closing
will occur no later than thirty days from the date hereof. The Closing Date
shall be fixed by Pivot on not less than 3 business days notice to Sellers. In
the event evidence of the foregoing approvals is not delivered to the Sellers
at the Closing or the payment scheduled on January 1, 1995 is not delivered
within 5 business days of its due date, (a) this agreement shall at the option
of Sellers exercised by written notice to Pivot and the Escrow Agent, be null
and void, (b) the Escrow Agent shall return all collateral held by it to the
Sellers and (c) the Sellers shall be entitled as their sole and exclusive
remedy, to keep the $50,000.
5. At the Closing, Pivot shall enter into six-year financial consulting and
non-competition agreements, in the form annexed hereto as Exhibit C, (the
"Consulting Agreement"), with each of David Goldblatt and Jeffrey Goldstein,
pursuant to which consulting and non-competition fees of $37,500 shall be paid
to each of them on December 31, 2000 if each has fully complied with the terms
hereof. Such agreements shall provide that each of David Goldblatt and Jeffrey
Goldstein shall also be entitled to receive $1,000 worth of clothing (at
wholesale value) sold by Pivot in each calendar year from 1995 through 1997 and
that Pivot shall pay any freight charges to ship the items, which shall be
ordered no more than twice each year, to each recipient's home address.
6. The Sellers hereby waive and release, effective on the Closing date, any
claims of any kind against Pivot, its other shareholders, directors and
officers. Sellers jointly and severally represent and warrant as follows: (a)
that they have been advised that (i) Pivot has engaged an investment banker to
pursue a possible sale of the Company; (ii) Pivot is commencing discussions
with a potential acquirer which may result in a cash purchase offer per share
for Pivot which could be a multiple of the purchase price per share offered
herein; (iii) Pivot may enter into transactions with other investors or
acquirers in the future on substantially more favorable terms than offered
herein; and (iv) Pivot has made available to Sellers and each of Leisure Wear's
shareholders all financial data and any other information pertaining to a
financial restructuring, sale or investment in Pivot; (b) Sellers have had an
opportunity to ask any questions and receive any information concerning the
business or prospects of Pivot as it may have requested; (c) Sellers own the
Shares being purchased by Pivot hereunder free and clear of all liens, claims
and encumbrances and no other person has any option or similar right to acquire
any of the Shares; (d) Sellers have received
2
<PAGE>
all requisite approvals necessary to be obtained by Sellers in order to
consummate the transaction contemplated by this agreement including the
approval of the Board of Directors and shareholders of Leisure Wear; (e) the
consummation by Sellers of the transactions contemplated hereby will not breach
any agreement, judgment, order, law, rule or obligation to which the Sellers
are a party or to which their property is subject.
7. The Consulting Agreement shall contain the agreement of Messrs. Goldstein
and Goldblatt not to directly or indirectly become a shareholder, officer,
director, owner, partner, employee, consultant or beneficial owner of any
equity securities in any manufacturer or marketer of golf clothing for a six
year period.
8. Pivot agrees to indemnify David Goldblatt and Jeffrey Goldstein against any
liability incurred by them by reason of a claim made against them in their
capacity as officer and/or director of Pivot, so long as (i) such claim arises
from an authorized action taken by them while serving in such capacity and (ii)
indemnification is available to them for such claim under the New York Business
Corporate Law and the Company's Certificate of Incorporation and by-laws as
currently in effect.
9. Pivot shall not have the option to prepay indebtedness under the Note;
provided that in the event Kenneth Seiff shall case to be a full-time employee
of Pivot or a successor or affiliate to Pivot (a "Termination Event"), Sellers
shall have the option to require the prepayment, without penalty, of one half
of the then outstanding principal amount of the Note. Pivot shall provide
notice to Sellers within 10 days of the occurrence of a Termination Event which
notice shall include a copy of the latest set of "reviewed" financial
statements of Pivot. Sellers shall have 10 days from receipt of such notice to
exercise their right to require such prepayment. Upon any such prepayment, a
pro rata share of the collateral shall be returned to Pivot by the Escrow Agent
and the schedule of principal and interest payments set forth above shall be
appropriately adjusted. The prepayment shall be applied to the principal
payments due under the Note in inverse order of maturity.
10. At the Closing, the Sellers shall relinquish all rights as shareholders
under law and under Pivot's Shareholder Agreement dated August 1, 1991, as
amended, including but not limited to the right to designate members of the
Board of Directors. At the Closing, Goldblatt and Goldstein shall resign as
directors and officers of Pivot. As between the parties hereto, this agreement
shall supersede any terms of the Shareholder Agreement regarding the sale of
the Shares.
11. In the event of a prepayment default not cured within 30 days after the due
day of any installment under the Notes, Pivot shall pay a default rate of
interest at the rate of 14% per annum. If payment is not made after an
additional 60 days, the Sellers shall have an option either (i) to provide
notice to the Escrow Agent to return any remaining collateral held by it to the
Sellers in full satisfaction of the remaining amount due under the Note or (ii)
to commence
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<PAGE>
appropriate legal action for payment under the Note which shall, in such event,
continue to accrue interest at the default rate until payment is made.
12. The foregoing represents the basic agreement of the parties hereto. The
parties hereto further agree to execute such other instruments and documents as
are necessary to consummate the transaction contemplated hereby.
13. This agreement shall be governed by the laws of the State of New York,
without regard to its conflict if law provisions.
14. Any notices required to be delivered hereunder shall be sent by registered
or certified mail or by hand delivery with receipt acknowledged or by the
Express Mail service offered by the United States Post Office and addressed to
the addressee at his address below:
If to Sellers: c/o Jeffrey Goldstein
Leisure Wear Inc.
2020 Vine Drive
Merrick, New York 11566
with copy to: Robert T. Acker, Esq.
549 Broadway
Massapequa, New York 11758
If to Pivot: 80 West 40th Street
New York, New York 10018
Attention: Kenneth Seiff
with copy to: Richard A. Goldberg, Esq.
Shereff, Friedman, Hoffman & Goodman
919 Third Avenue
New York, New York 10022
Such notice shall be deemed to have been received on the date of hand delivery,
next day if by Express Mail or five (5) days after the date of deposit in the
United States mail.
15. Any action, consent or waiver required to be taken by Sellers hereunder
shall be duly evidenced by the signature of Leisure Wear.
4
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this agreement as of the date
first above written.
PIVOT RULES INC.
By: /s/ E. Kenneth Seiff
-------------------------------
Title: President
LEISURE WEAR INC.
By: /s/ Jeffrey Goldstein
-------------------------------
Title: President
/s/ David Goldblatt
----------------------------------
David Goldblatt
/s/ Anita Goldblatt
----------------------------------
Anita Goldblatt
/s/ Jeffrey Goldstein
----------------------------------
Jeffrey Goldstein
David M. Goldblatt Inc. Profit Sharing Plan
By: /s/ David Goldblatt
-------------------------------
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
$822,291.00 New York, New York
September 30, 1994
FOR VALUE RECEIVED, PIVOT RULES INC. (the "MAKER"), a New York
corporation with its principal place of business located at 80 West 40th
Street, New York, New York 10018, hereby unconditionally promises to pay, in
lawful money of the United States, to LEISURE WEAR INC. ("LEISURE WEAR"), on
behalf of itself and as agent for David M. Goldblatt Inc. Profit Sharing Plan,
David Goldblatt, Anita Goldblatt and Jeffrey Goldstein (collectively, the
"Sellers") at 2020 Vine Drive, Merrick, New York 11566 or at such other place
as may be designated in writing by LEISURE WEAR, the principal sum of EIGHT
HUNDRED TWENTY-TWO THOUSAND TWO HUNDRED NINETY-ONE U.S. DOLLARS (U.S.
$822,291.00) together with accrued interest thereon on the unpaid principal
amount thereof from time to time outstanding until the said principal sum shall
be fully paid, at a rate of interest per annum equal to twelve percent (12%).
Principal and interest shall be payable in installment as set forth below:
Principal Total
Payment Payment
--------- -------
(including interest)
January 1, 1995 $260,358 $285,500
December 31, 1995 82,753 150,000
December 31, 1996 92,498 150,000
December 31, 1997 103,598 150,000
December 31, 1998 133,530 167,500
December 31, 1999 149,554 167,500
As collateral security for the obligations of the MAKER under this
Note, the MAKER hereby grants to LEISURE WEAR a security interest by pledge in
escrow of 64.60 shares of common stock of the MAKER (the "Shares" or
"Collateral"), pursuant to an escrow agreement under which Scoppetta & Seiff,
645 Madison Avenue, New York, New York 10022 will serve as escrow agent (the
"Escrow Agent"), as set forth in the Stock Purchase Agreement dated as of
September 30, 1994, by and among the MAKER and the Sellers (the "Stock Purchase
Agreement"). The Shares shall be released from escrow as provided in the Stock
Purchase Agreement. The MAKER may at any time substitute collateral of
marketable securities or cash of equivalent value to the then outstanding debt
balance.
<PAGE>
The MAKER shall not have the right to prepay this Note; provided,
however, that in the event Kenneth Seiff shall cease to be a full-time employee
of MAKER or a successor or affiliate of the MAKER (a "Termination Event"), the
Sellers shall have the option to require the prepayment without payment of any
premium or penalty, of one-half of the then outstanding principal amount of the
Note. The MAKER shall provide notice to the Sellers within ten (10) days of the
occurrence of a Termination Event which notice shall include a copy of the
latest set of "reviewed" financial statements of the MAKER. The Sellers shall
have ten (10) days from receipt of the Sellers' notice to exercise their right
to require such prepayment. Upon such prepayment, LEISURE WEAR shall promptly
notify the Escrow Agent and a pro rata share of the Collateral shall be
returned to the MAKER by the Escrow Agent and the schedule of principal and
interest payment set forth above shall be applied to the principal payments due
hereunder in inverse order of maturity.
Notices required to be delivered hereunder shall be sent by registered
or certified mail or by hand delivery with receipt acknowledged or by the
Express Mail service offered by the United States Post Office and addressed to
the parties hereto at the address set forth above. Such notice shall be deemed
to have been received on the date of hand delivery, next day if by Express Mail
or five (5) days after the date of deposit in the United States mail.
If the due date of any payment under this Note would otherwise fall on
a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day. The term "Business Day" shall mean any day
on which commercial banks in the State of New York are not authorized or
required to close.
In the event of a payment default not cured within thirty (30) days
after the due date of any installment payment under this Note, the MAKER shall
pay a default rate of interest at the rate of fourteen percent (14%) per annum
until such default has been cured. If payment is not made after an additional
sixty (60) days, LEISURE WEAR shall have an option either (i) to provide notice
to the Escrow Agent to return any remaining Collateral held by it to the
Sellers in full satisfaction of any remaining amounts due under the Note or
(ii) to commence appropriate legal action for payment under the Note which
shall, in such event, continue to accrue interest at the default rate until
such payment is made.
This Note shall be governed by, and construed in accordance with, the
laws of the State of New York, without regard to the conflict of laws
principles thereof.
Any reference to "LEISURE WEAR" herein shall include the legal
representatives of LEISURE WEAR; and the term "MAKER" as used herein shall
include the successors and assigns, if any, of the MAKER. LEISURE WEAR shall
not assign this Note without the prior written consent of the MAKER.
2
<PAGE>
IN WITNESS WHEREOF, this Note has been duly executed by the MAKER as
of the day and year first above written.
PIVOT RULES INC
By:
------------------------------------
Name: Kenneth Seiff
Title: President
3
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
AGREEMENT made this 4th day of October, 1994, by and among Pivot Rules,
Inc., a corporation organized under the laws of the state of New York, having
its principal place of business at 80 West 40th Street, New York, New York
10018 ("Pivot"), Leisure Wear Inc., a corporation organized under the laws of
the state of New York, having its principal place of business at c/o Jeffrey
Goldstein, 2080 Vine Drive, Merrick, New York 11566, David M. Goldblatt, Inc.
Profit Sharing Plan, having its principal place of business at c/o David
Goldblatt, 401 East 80th Street, New York, New York 10021, David Goldblatt,
residing at 401 East 80th Street, New York, New York 10021, Anita Goldblatt,
residing at 401 East 80th Street, New York, New York 10021, and Jeffrey
Goldstein, residing at 2080 Vine Drive, Merrick, New York 11566, (collectively
referred to herein as the "Sellers"); and Scoppetta & Seiff, a New York
partnership, having its principal place of business at 645 Madison Avenue, New
York, New York 10022 (the "Escrow Agent").
W I T N E S S E T H
WHEREAS, Pivot has agreed to purchase a total of 64.6 shares of common
stock of Pivot Rules, Inc. (the "Shares") from the Sellers on the terms set
forth in the agreement annexed hereto as Exhibit A ("Exhibit A Agreement"); and
WHEREAS, Pivot and the Sellers have agreed to the appointment of Scoppetta
& Seiff as Escrow Agent in connection with the transaction described in the
Exhibit A Agreement, and the Escrow Agent is willing to act as such upon the
terms and subject to the conditions hereinafter set forth;
<PAGE>
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, the parties hereby agree as follows:
1. Delivery of the Shares to Escrow Agent. Upon the execution of the
Exhibit A Agreement and the payment of the amount of $50,000 by Pivot to the
Sellers, the Sellers shall deliver to the Escrow Agent 64.6 Shares, represented
by Certificates Nos. 21, 22, 25, and 34, which have been duly endorsed in
blank. From time to time, Pivot may instruct Escrow Agent by written notice
accompanied by payment in accordance with the Agreement (Annexed as Exhibit A)
in the amount and at the times provided or permitted thereunder, to release
Shares from Escrow allocable to such payment. Escrow Agent shall not be
required or permitted to release such Shares until the payment shall have been
made to Sellers in good funds in accordance with the terms of the Agreement.
2. Rights. Duties and Responsibilities of Escrow Agent. It is understood
and agreed that the duties of the Escrow Agent are purely ministerial in
nature, and that:
2.1 The Escrow Agent shall not be responsible for or be required to
enforce any of the terms or conditions of any agreement between the Sellers and
Pivot nor shall the Escrow Agent be responsible for the performance of the
Sellers or Pivot of their respective obligations under any agreement or
otherwise.
2.2 The Escrow Agent shall be entitled to rely upon the accuracy, act
in reliance upon the contents, and assume the genuineness, of any notice,
instruction, certificate, signature, instrument or document which is given to
the Escrow Agent pursuant to this Agreement without the necessity of the Escrow
Agent verifying the truth or accuracy thereof. The Escrow Agent shall not be
obligated to make any inquiry as to the authority, capacity, existence
2
<PAGE>
or identity of any person purporting to give any such notice or instruction or
to execute any such certificate, instrument or document.
2.3 In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions with respect to the
Shares which, in its sole determination, are in conflict either with other
instructions received by it or with any provision of this Agreement, it shall
be entitled to hold the Shares, or a portion thereof, pending the resolution of
such uncertainty to the Escrow Agent's sole satisfaction, by final judgment of
a court or courts of competent jurisdiction or otherwise; or the Escrow Agent,
at its sole option, may deposit the Shares with the Clerk of a court of
competent jurisdiction in a proceeding to which all parties in interest are
joined. Upon the deposit by the Escrow Agent of the Shares with the Clerk of
any court, the Escrow Agent shall be relieved of all further obligations and
released from all liability hereunder.
2.4 The Escrow Agent will use its best efforts to cause all actions
required or permitted to be performed by the Escrow Agent hereunder to be
carried out on behalf of the Escrow Agent by Eric A. Seiff, Esq. or, to the
extent that this is not feasible, by an employee of the Escrow Agent designated
in writing by said Eric A. Seiff.
2.5 The Escrow Agent shall not be liable for any action taken or
omitted hereunder, nor for the misconduct of any employee, agent or attorney
appointed by it, except in the case of willful misconduct. The Escrow Agent
shall be entitled to consult with counsel of its own choosing and shall not be
liable for any action taken, suffered or omitted by it in accordance with the
advice of such counsel.
3
<PAGE>
2.6 Promptly upon receipt thereof by the Escrow Agent, the Escrow
Agent will transmit to Pivot, the Sellers, or to any other person designated by
Pivot or the Sellers, a copy of any notice, statement or other advice with
respect to the status of the Shares, or any transaction with respect thereto.
3. Amendment; Resignation\Replacement of Escrow Agent.
3.1 This Agreement may be altered or amended only with the written
consent of Pivot, the Sellers, and the Escrow Agent.
3.2 The Escrow Agent may resign for any reason upon ten (10) business
days' written notice to the Sellers and Pivot. Should the Escrow Agent resign
as herein provided, its only duty shall be to hold the Shares for a period of
not more than ten (10) business days following the effective date of such
resignation, at which time (a) if a successor escrow agent shall have been
appointed and written notice thereof (including the name and address of such
successor escrow agent) shall have been given to the resigning Escrow Agent by
the Sellers, Pivot and such successor escrow agent, then the resigning Escrow
Agent shall deliver to the successor escrow agent the Shares, less any portion
thereof previously delivered out in accordance with this Agreement; or (b) if
the resigning Escrow Agent shall not have received written notice signed by the
Sellers, Pivot and a successor escrow agent, then the resigning Escrow Agent
shall promptly dispose of the Shares in accordance with Section 2.3 hereof;
whereupon, in either case, the Escrow Agent shall be relieved of all further
obligations and released from all liability under this Agreement.
3.3 Within three (3) business days after receipt by the Escrow Agent
of a notice signed by both Pivot and the Sellers, which notice shall designate
a successor escrow agent
4
<PAGE>
and shall be signed by such successor escrow agent to signify that such
successor escrow agent is ready, willing and able to assume the duties of
escrow agent under this Agreement, the Escrow Agent shall do all things
necessary to transfer the Shares to such successor escrow agent and to enable
such successor escrow agent to perform all of the duties of escrow agent
hereunder.
4. Representations and Warranties. Pivot hereby represents and warrants
to the Escrow Agent that:
4.1 No party other than the parties hereto have, or shall have, any
lien, claim or security interest in the Shares or any part thereof.
4.2 No financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Shares or any part thereof.
5. Fees and Expenses. Pivot agrees to reimburse the Escrow Agent for any
reasonable expenses incurred in connection with this Agreement, including, but
not limited to, reasonable counsel fees.
6. Indemnification and Contribution.
6.1 Pivot and the Sellers (referred to jointly as the "Indemnitors")
agree, jointly and severally, to indemnify the Escrow Agent and its employees
and agents (jointly and severally the "Indemnitees") against, and hold them
harmless of and from, any and all loss, liability, cost, damage and expense,
including without limitation, reasonable counsel fees, which the Indemnitees
may suffer or incur by reason of any action, claim or proceeding brought
against the Indemnitees arising out of or relating in any way to this Agreement
or any transaction to which this Agreement
5
<PAGE>
relates, unless such action, claim or proceeding is the result of the willful
misconduct of the Indemnitees.
6.2 If the indemnification provided for in this Section 6 is
applicable, but for any reason is held to be unavailable, the Indemnitors shall
pay or reimburse the Indemnitees for the aggregate of any and all losses,
liabilities, costs, damages and expenses, including counsel fees, actually
incurred by the Indemnitees as a result of or in connection with, and any
amount paid in settlement of, any action, claim or proceeding arising out of or
relating in any way to any actions or omissions of the Indemnitors.
6.3 The provisions of this Section 6 shall survive any termination of
this Agreement, whether by release and delivery of the Shares, resignation of
the Escrow Agent or otherwise.
7. Governing Law and Assignment. This Agreement shall be construed in
accordance with and governed by the laws of the State of New York and shall be
binding upon the parties hereto and their respective successors and assigns;
provided, however, that any assignment or transfer by any party of its rights
under this Agreement or with respect to the Shares shall be void as against the
Escrow Agent unless:
(a) written notice thereof shall be given to the Escrow Agent; and
(b) the Escrow Agent shall have consented in writing to such
assignment or transfer.
8. Notices. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, or by hand delivery with receipt
6
<PAGE>
acknowledged, or by the Express Mail service offered by the United States Post
Office, and addressed to the addressee at his, her or its address above.
9. Severability. If any provision of this Agreement or the application
thereof to any person or circumstance shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement or the application of
such provision to persons or circumstances other than those to which it is held
invalid or unenforceable shall not be affected thereby and shall be valid and
enforceable to the fullest extent permitted by law.
10. Execution in Several Counterparts. This Agreement may be executed in
several counterparts or by separate instruments and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
PIVOT RULES, INC.
By:
--------------------------------
LEISURE WEAR INC.
By:
--------------------------------
7
<PAGE>
DAVID M. GOLDBLATT, INC.
PROFIT SHARING PLAN
By:
--------------------------------
David Goldblatt
-----------------------------------
DAVID GOLDBLATT
-----------------------------------
ANITA GOLDBLATT
-----------------------------------
JEFFREY GOLDSTEIN
SCOPPETTA & SEIFF
By:
--------------------------------
8
<PAGE>
EXHIBIT C
PIVOT RULES INC.
80 WEST 40TH STREET
NEW YORK, NEW YORK 10018
October ___, 1994
Mr. [David Goldblatt] [Jeffrey Goldstein]
- ----------------------------------
- ----------------------------------
- ----------------------------------
Dear Mr. [Goldblatt][Goldstein]:
In connection with the Stock Purchase Agreement, dated October ___, 1994,
by and among Pivot Rules Inc., a New York corporation (the "Company"), Leisure
Wear Inc., David M. Goldblatt Inc. Profit Sharing Plan, Anita Goldblatt,
[Jeffrey Goldstein and yourself] [David Goldblatt and yourself], you hereby
agree to provide certain financial consulting services to the Company and not
to compete with the Company, on the terms and subject to the conditions set
forth herein.
1. Consulting. You hereby agree to provide such consulting services to
the Company as may be reasonably requested through October ___, 2000;
provided, that such services shall not interfere with your other
business activities or require more than two (2) hours per month.
2. Non-Competition. You agree that until October ___, 2000, you will not
directly or indirectly become a shareholder, officer, director,
owner, partner, employee, consultant or beneficial owner of any
equity securities in any manufacturer or marketer of golf clothing.
3. Confidential Information. You agree to keep confidential any
confidential or proprietary information concerning the Company which
you may now have or which you may receive in the future, except as
may be required by law.
<PAGE>
Mr. [David Goldblatt] [Jeffrey Goldstein]
October __, 1994
Page 2
4. Consideration. As consideration for your providing the consulting
services and agreeing not to compete as described herein, you shall
be entitled to receive (i) a fee equal to Thirty-Seven Thousand Five
Hundred U.S. Dollars (U.S. $37,500.00), payable on December 31, 2000;
provided, you are and have been in full compliance with all the terms
and conditions of this letter agreement and the Stock Purchase
Agreement; and (ii) clothing equal in value to One Thousand U.S.
Dollars (U.S. $1,000.00) (at wholesale value) sold by the Company in
each calendar year from and including 1995 through 1997. The Company
shall pay any freight charges to ship such items, which shall be
ordered no more than twice each year, to be shipped to your home
address.
5. Successors and Assigns. As this letter agreement is personal in
nature, neither party shall have the right to assign any or all of
its rights, duties and obligations hereunder.
6. Governing Law. This letter agreement shall be governed by and
construed in accordance with the internal laws of the State of New
York, without regard to principles of conflicts of law thereof.
This letter agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
Very truly yours,
PIVOT RULES INC.
By:
---------------------------------
Name:
Title:
The terms of the foregoing letter agreement are accepted and agreed to this ___
day of October, 1994.
- ------------------------------------
[David Goldblatt][Jeffrey Goldstein]
2
<PAGE>
Exhibit 10.4
AGREEMENT, dated as of September 24, 1996, by and among Pivot Rules, Inc.
("Pivot Rules"), on the one hand, and Leisure Wear Inc. ("Leisure Wear"), David
M. Goldblatt Inc. Profit Sharing Plan, David Goldblatt, Anita Goldblatt and
Jeffrey Goldstein (collectively, the "Sellers"), on the other hand.
WHEREAS, Pivot Rules and the Sellers entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement"), dated as of September 30, 1994,
pursuant to which Pivot Rules agreed to purchase from the Sellers the shares of
common stock of Pivot Rules owned by the Sellers (the "Shares") in exchange for
a cash payment of $50,000 and a promissory note, dated September 30, 1994, in
the principal amount of $822,291 (the "Note");
WHEREAS, in connection with the Stock Purchase Agreement, Pivot Rules
entered into a consulting and non-competition agreement with each of David
Goldblatt and Jeffrey Goldstein (the "Consulting Agreements"), pursuant to
which Pivot Rules is required to pay each of David Goldblatt and Jeffrey
Goldstein consulting and non-competition fees of $37,500 on December 31, 2000,
subject to the conditions set forth in the Consulting Agreements;
WHEREAS, in connection with the Stock Purchase Agreement, the parties
hereto entered into an escrow agreement (the "Escrow Agreement") with Scoppetta
& Seiff (the "Escrow Agent"), which provides for the Escrow Agent to hold the
Shares in escrow as security for the payment of amounts due under the Note;
WHEREAS, the parties hereto entered into a letter agreement (the "Letter
Agreement"), dated as of February 13, 1996, altering certain of the payment
terms set forth in the Note; and
WHEREAS, the parties hereto desire to adjust the purchase price under the
Stock Purchase Agreement by (i) revising certain terms and conditions of the
Consulting Agreements, (ii) causing the Note and the indebtedness evidenced
thereby to be canceled, (iii) terminating the Stock Purchase Agreement (except
as set forth herein) and the Escrow Agreement and (iv) providing for certain
incentive payments set forth herein;
NOW THEREFORE, in consideration of the foregoing, and for other good and
valid consideration, the receipt and adequacy of which is hereby acknowledged,
the parties hereto agree as follows:
1. The parties hereto acknowledge that Pivot Rules has duly made payments of
principal to the Sellers prior to the date hereof amounting to an
aggregate of $343,111, and has duly paid all interest accrued on such
principal amount, in each case in accordance with the Stock Purchase
Agreement, the Note and the Letter Agreement. In lieu of the remaining
payments which would otherwise be due and payable following the date
hereof under the Stock Purchase Agreement and the Note, Pivot Rules shall
be required to make the following payments to the Sellers:
<PAGE>
a. Pivot Rules shall pay the Sellers $240,000 in cash by certified
check, within five (5) days following the satisfaction of the
conditions set forth in Section 6 of this Agreement, but in no event
earlier than September 15, 1996 (the "Closing Date").
b. Effective after the Closing Date, Pivot Rules shall be required to
pay to the Sellers the following additional cash incentive payments:
(i) an amount equal to 5% of the dividends or loans, if any, made by
Pivot Rules from time to time to any holders of currently outstanding
common stock of Pivot Rules, (ii) an amount equal to 5% of the cash
dividends, if any, paid by Pivot Rules from time to time to any party
not currently a holder of common stock of Pivot Rules with respect to
equity securities issued by Pivot Rules following the execution of
this Agreement and (iii) an amount equal to 5% of the net cash
proceeds to Pivot Rules resulting from the issuance, if any, of
equity securities by Pivot Rules in any public offering or private
placement consummated prior to the payment of an aggregate of
$279,000 of cash incentive payments to sellers; provided however,
that (x) in no event shall the payments to be made under this
paragraph (b) exceed an aggregate amount of $279,000 and (y) payments
shall not be required to be made with respect to any events described
in clauses (i) through (iii) of this paragraph (b) which occur
following the fifth anniversary of the date of this Agreement. In the
event of a public offering or offerings described in clause (iii)
above, Pivot Rules will use its best efforts to allow the Sellers to
use all or a portion of the cash payments they are entitled to
receive out of the proceeds of any such offering pursuant to clause
(iii) above toward the purchase of shares from the underwriters in
the offering at the public offering price; provided, however, that
Sellers will notify Pivot Rules within 10 business days of their
receipt of notice that the purchase of such shares is available to
them, as to whether they intend to purchase such shares, or else
forfeit such right.
Payments made to the Sellers under this Section 1 shall be made to Leisure
Wear, as agent for the Sellers. Leisure Wear agrees to allocate all payments
made hereunder among the Sellers in proportion to their share ownership.
2. Effective as of the Closing Date, Sections 6, 8 and 10 of the Stock
Purchase Agreement shall be incorporated in their entirety herein as
though set forth in full herein, and the remainder of the Stock Purchase
Agreement shall be terminated and of no further force or effect.
3. On the Closing Date the Sellers shall return the Note to Pivot Rules, and
the Note, and the indebtedness evidenced by the Note, shall be canceled
and of no further force or effect.
4. Effective on the Closing Date, the Escrow Agreement shall be terminated.
By executing this Agreement, Pivot Rules and the Sellers are instructing
the Escrow Agent to return the remaining Shares held by it pursuant to the
Escrow Agreement to Pivot Rules as soon as practicable after the Closing
Date.
5. Effective as of the Closing Date, Section 4, clause (i) of each of the
Consulting Agreements shall be amended by deleting such clauses in their
entireties and replacing each of them with the foregoing:
2
<PAGE>
c. "(i) a fee equal to thirty thousand U.S. Dollars (U.S. $30,000),
payable on December 31, 1998; provided, you are and have been in
compliance with all the terms and conditions of this letter agreement
and the Stock Purchase Agreement;"
In all other respects the Consulting Agreements, including paragraph 5
thereof (relating to clothing), shall remain in full force and effect.
6. Pivot Rules agrees to reimburse the Sellers for actual legal fees incurred
in connection with the negotiation and execution of this Agreement up to a
maximum of $1,000.
7. The transactions contemplated by this Agreement are conditioned upon (i)
Pivot Rules obtaining the consent of Heller Financial, Inc. to the
transactions contemplated hereby, (ii) the consummation of a financing by
Pivot Rules for an amount which would enable Pivot Rules to make the cash
payment on the Closing Date pursuant to Section 1(a) above; and (iii)
requisite shareholder approval by Pivot Rules' shareholders. In the event
the conditions set forth in this Section 6 are not satisfied by September
30, 1996, this Agreement shall become null and void and of no further
force or effect.
8. Pivot Rules hereby represents and warrants that, as of the Closing Date,
(i) the unaudited financial statements of Pivot Rules as of and for the
year ended December 31, 1995 and the six months ended June 30, 1996 (the
"Financial Statements") which have been delivered to Heller Financial,
Inc. fairly present the results of operation and financial condition of
Pivot Rules as of and for the dates covered thereby (subject, in the case
of interim financial statements, to normal year-end adjustments consistent
with prior periods, and except that the Financial Statements do not
contain the footnotes required in audited financial statements), (ii)
Pivot Rules shall have received all requisite approvals necessary to be
obtained in order to consummate the transactions contemplated by this
Agreement, including the approval of the Board of Directors and
shareholders of Pivot Rules and (iii) the consummation by Pivot Rules of
the transactions contemplated by this Agreement will not breach any
agreement, judgment, order, law, rule or obligation to which Pivot Rules
is a party or to which Pivot Rules' property is subject.
9. The Sellers, jointly and severally, hereby represent and warrant that, as
of the Closing Date; (i) the Sellers shall own the Note free and clear of
all liens, claims and encumbrances and no other person shall have any
option or similar right to acquire any interest in the Note; (ii) none of
the Sellers shall have assigned, sold, transferred or hypothecated any
interest in the Note; (iii) the Sellers shall have received all requisite
approvals necessary to be obtained in order to consummate the transactions
contemplated by this Agreement, including the approval of the Board of
Directors and shareholders of Leisure Wear; (iv) the consummation by the
Sellers of the transactions contemplated by this Agreement will not breach
any agreement, judgment, order, law, rule or obligation to which any of
the Sellers is a party or to which any of the Seller's property is
subject; (v) the Sellers have been advised by Pivot Rules that Pivot Rules
has had preliminary discussions regarding various financing and other
transactions, which may include a private placement or public offering of
securities of Pivot Rules; and that Pivot has received a preliminary draft
of a letter of intent from an underwriter
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with respect to a proposed public offering; (vi) the Sellers have been
advised by Pivot Rules that Pivot Rules experienced losses for the fiscal
year ended December 31, 1995 of $208,000 and for the seven months ended
July 31, 1996 of an estimated $237,00 and incurred cumulative losses for
the twenty months ended August 31, 1996; (vii) the Sellers, either
themselves or through their respective duly authorized officers, employees
or agents, have had an opportunity to ask questions of and receive answers
and information from Pivot Rules concerning the financial condition,
business and operations of Pivot Rules, and all such questions have been
answered to the satisfaction of the Sellers. Pivot Rules represents that
(i) a third party will be extending a loan to the Company, the proceeds of
which will be used to purchase the Note, (ii) Heller Financial is
pressuring Pivot Rules to improve its balance sheet and to reduce the
amount of the indebtedness to Heller Financial within the next few months;
and (iii) the number of customers of Pivot Rules has been substantially
reduced during the 20 month period preceding the date of this Agreement.
10. Except as specifically set forth herein (including provisions incorporated
herein by reference), the parties hereto make no representations or
warranties to each other with respect to the transactions contemplated by
this Agreement.
11. The foregoing represents the basic agreement of the parties hereto. The
parties hereto further agree to execute such other instruments and
documents as are necessary to consummate the transactions contemplated
hereby.
12. This agreement shall be governed by the laws of the State of New York,
without regard to its conflict of law provisions.
13. Any notices required to be delivered hereunder shall be sent by registered
or certified mail or by hand delivery with receipt acknowledged or
overnight courier and addressed to the addressee at his address below:
If to Sellers: c/o Jeffrey Goldstein
Leisure Wear Inc.
2020 Vine Drive
Merrick, New York 11566
with a copy to:
Robert T. Acker, Esq.
544 Broadway
Massapequa, New York 11758
If to Pivot Rules: 80 West 40th Street
New York, NY 10018
Attention: Kenneth Seiff
with a copy to:
Richard Goldberg, Esq.
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Shereff, Friedman, Hoffman & Goodman, LLP
919 Third Avenue
New York, New York 10022
Such notice shall be deemed to have been received on the date of hand delivery,
next day if by overnight courier or five (5) days after the date of deposit in
the United States mail. Any action, consent or waiver required to be taken by
Sellers hereunder shall be duly evidenced by the signature of Leisure Wear.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of the
date first above written.
PIVOT RULES INC.
By: /s/ E. Kenneth Seiff
----------------------------------------
Title: Chief Executive Officer
LEISURE WEAR INC.
By: /s/ Jeffrey Goldstein
----------------------------------------
Title: President
/s/ David Goldblatt
-------------------------------------------
David Goldblatt
/s/ Anita Goldblatt
-------------------------------------------
Anita Goldblatt
/s/ Jeffrey Goldstein
-------------------------------------------
Jeffrey Goldstein
David M. Goldblatt Inc. Profit Sharing Plan
By: /s/ David Goldblatt
----------------------------------------
<PAGE>
Exhibit 10.5
HELLER FINANCIAL, INC.
RETAIL
Collection Factoring Agreement
Pivot Corporation
990 Avenue of the Americas
Suite 14R
New York, New York 10018
Gentlemen:
The following shall constitute the terms upon which we shall act as your sole
factor (see Section 12 for the definition of certain capitalized terms):
SECTION 1. Sale and Approval of Accounts
1.1 You hereby sell, assign and transfer to us and we hereby purchase from you
all of your now outstanding and hereafter created or acquired Accounts,
with full power to collect and otherwise deal therewith as the sole and
exclusive owner thereof.
1.2 (a) You will submit for our credit approval your customers' credit
requirements, a description of your normal selling terms and such other
information as we may request concerning your customers. We may, in our
sole credit judgment, establish credit lines for sales to your customers
on your normal selling terms and all sales to such customers within the
established credit line will be Approved Accounts provided that delivery
or performances completed while the credit line remains in effect. You may
also submit for credit approval, specific orders from your customers and
we may, in our sole credit judgment, approve such orders on a single order
approval basis. All of our credit approvals will be in writing.
(b) We reserve the right to amend or withdraw a credit line at any time by
advice to you, which advice will be promptly confirmed in writing. A
credit line will be automatically suspended (i.e. temporarily withdrawn)
during any period that the customer is 60 or more days past due.
(c) We may withdraw a single order credit approval by notifying you
verbally and/or writing at any time prior to the delivery of goods or
performance of services. A single order credit approval will be
automatically withdrawn: (i) in the event delivery or performance is not
made within forty-five (45) days after the date specified for delivery or
performance in your request for credit approval or within forty-five (45)
days from the date of our approval if no delivery or performance date is
specified; or (ii) in the event any change is made in the payment terms or
delivery date of the Account or in the event that the dollar amount of the
Account is increased without our prior written approval.
(d) We shall have no liability to you or to any customer for our refusal
to credit approve an Account or our withdrawal of a credit approval.
<PAGE>
1.3 We will assume the Credit Risk on all Approved Accounts. We shall have
full recourse to you for all Non-Approved Accounts.
1.4 In the event that monies shall, at any time, be owing from one of your
customers for both Approved Accounts and Non-Approved Accounts, we will
apply all payments received as follows:
(a) if we issued single order approvals, all payments received will be
first applied to the Approved Accounts;
(b) if we established a credit line for the customer, (i) provided that
the amount of outstanding Accounts did not at any time exceed twice the
established credit line and the credit line is still in effect at the time
payment is received, all payments shall first be applied to the
Non-Approved Accounts; (ii) if the amount of outstanding Accounts did at
any time exceed twice the established credit line or if prior to the
receipt of payment we have withdrawn the credit line, all payments
received shall first be applied to Approved Accounts;
(c) if an insolvency proceeding has been instituted by or against the
customer, we shall share all payments paripassu.
SECTION 2. Payment and Fees
2.1 We will purchase each Account on the longest or shortest selling terms, at
our option, and will pay you as the purchase price the net amount thereof
calculated by deducting from the gross amount of each Account the
discount, if any, our factoring commission and all credits, including,
without limitation, merchandise returns, allowances, and chargebacks and
all other charges provided for hereunder. The purchase price less
advances, interest and any other amounts due us will be paid to you on the
Collection Date.
2.2 At the time we purchase each Account, or thereafter, we may, upon your
request, and in our sole discretion, advance you up to eighty (80%)
percent of the purchase price of such Account.
2.3 You will pay us a factoring commission of one and one-quarter (1.25%)
percent of the Net Account purchased by us but in no event less than $4.00
per invoice purchased.
2.4 Commencing July 1, 1992 and every year thereafter (the 12 months
immediately following such date or any anniversary thereto you agreed to
pay to us factoring commissions aggregating at least $30,000.00 "Minimum
Annual Commission"). If during any month the aggregate of factoring
commissions paid by you is less than $2,500.00 ("Minimum Monthly
Commission"), then you shall pay to us, or we may charge your account with
an amount equal to the difference between the Minimum Monthly Commission
and the factoring commissions actually paid during that month (the
Deficiency Charge"). At such time as you exceed the Minimum Annual
Commission, the Minimum Monthly commission shall be waived for the
remainder of the contract year and the Deficiency Charges paid during said
contract year shall be applied against subsequent factoring commission
charge incurred during said contract year.
2.5 We will charge your account our standard wire transfer fee on all wire
transfers, and you will reimburse us for exchanges on checks, charges for
returned items and all
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other bank charges. We may also, at our option, charge your account for
all amounts owning by you to us under this Agreement and all other
Obligations.
SECTION 3. Interest
3.1 You will pay us interest on the daily balance of all monies remitted, paid
or otherwise advanced to you or for your account net of all payments
received from you or on your behalf including the purchase price of
Accounts purchased by us hereunder which is credited to your factoring
account on the Collection Date. Interest will be calculated daily at a
rate per annum equal to two (2%) percent plus the Base Rate (the "Interest
Rate") and will be charged to your factoring account monthly, in arrears.
The Interest Rate will also be charged to you on all other indebtedness
due by you to us under this Agreement and on all Obligations, except those
specifying a different rate, from the date incurred through the date paid.
Any publicly announced decrease or increase in the base Rate shall result
in an adjustment to the Interest Rate on the next business day. Interest
shall be calculated on the basis of a 360-day year for the actual number
of days elapsed. In no event shall the Interest Rate exceed the maximum
rate permitted by applicable law and in the event excess interest is paid,
it shall be considered a repayment of the principal.
3.2 If funds remain with us past the Collection Date ("matured funds"), we
will pay you interest on such matured funds at the rate per annum equal
tot he Base Rate minus two (2%) percent. Any change in the Base Rate shall
result in an adjustment in the matured funds rate on the next business
day.
3.3 If an Account or any payment is charged back to you after the Collection
Date, you will pay us interest at the Interest Rate on such Net Account or
such payment from the Collection Date to the chargeback date.
SECTION 4. Representations, Warranties and
Covenants
4.1 You represent, warrant and covenant as to each Account sold and assigned
hereunder that, at the time of its creation, the Account is a valid, bona
fide account, representing an undisputed indebtedness incurred by the name
account debtor for goods actually sold and delivered or for services
completely rendered; there are no setoffs, offsets or counterclaims,
genuine or otherwise, against the Account; the Account does not represent
a sale to a parent, subsidiary or affiliate or a consignment, sale or
returned or a bill and hold transactions; no agreement exists permitting
any deduction or discount (other than the discount stated on the invoice);
you are the lawful owner of the Account and have the right to sell and
assign the same to us; the Account is free of all security interests,
liens and encumbrances other than those in our favor, and the Account is
due and payable in accordance with its terms.
4.2 You shall not grant or suffer to exist any lien upon or security interest
in your inventory in favor of any party other than us without our written
consent.
4.3 You are a solvent corporation; duly incorporated and in good standing
under the laws of the State of New York and qualified in all States where
such qualification is required; the execution, delivery and performance of
this Agreement have been duly authorized and
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are not in contravention of any applicable law, your charter or by-laws or
agreement or order by which you are bound.
4.4 You shall not change your corporate name or the location of your office or
open any new officers without giving us at least thirty (30) days prior
written notice. At the present time, you carry on business only at the
above address and the addresses set forth below.
833 Jersey Avenue, Jersey City, N.J. 07310
4.5 All books and records pertaining to the Accounts or to any inventory owned
by you shall be maintained solely and exclusively at the above address or
the addresses listed in Section 4.4 hereof and no such books and records
shall be moved or transferred without giving us thirty (30) days prior
written notice.
4.6 You shall not sell, lease, transfer or otherwise dispose of all or
substantially all of your property or assets, or consolidate with or merge
into or with any corporation or entity without our prior written consent.
4.7 After our request, you shall hold all returned, replevined or reclaimed
goods coming into your possession in trust for us and all such goods shall
be segregated and identified as held in trust for our benefit and you
shall, at our request, and at your expense, deliver such goods to such
place or places as we may designate.
4.8 The tradenames or styles set forth below are the only tradenames or styles
under which you transact business; Accounts sold to us hereunder and
represented by invoices bearing such tradenames or styles are wholly owned
by you; the undertakings, representations and warranties made in
connection therewith shall be identical to and of the same force and
effect as those made with respect to invoices bearing your corporate name.
None.
4.9 No discounts, credits or allowances will be issued, granted or allowed by
you to customers and no returns will be accepted without or prior written
consent; provided, however, that until we notify you to the contrary, you
may presume our consent. Discounts, credits or allowances once issued may
be claimed only by the customer.
SECTION 5. Disputes, Chargebacks and
Reserves
5.1 With respect to any Account, upon the occurrence of a breach of any of the
representations or warranties contained in Section 4.1, or the assertion
by a customer of a Dispute or other defense to payment, other than
financial inability, an Approved Account shall automatically become a
Non-Approved Account and we may charge back such Account to you.
5.2 You shall notify us immediately in the event that a customer alleges any
Dispute, or returns or desires to return any goods purchased from you. We
may, but are not obligated to settle, compromise, adjust or litigate all
such Disputes or returns upon such terms as we deem advisable. If an
unadjusted Dispute delays the payment of any Approved Account when due,
our credit approval is automatically withdrawn and we shall have the right
to charge back to you that Account and all other amounts owing by that
customer.
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5.3 We may, at our option, charge back to you all amounts owing on
Non-Approved Accounts which are not paid when due.
5.4 We shall have the right to charge back to you any payment which we
received with respect to a Non-Approved Account if such payment is
subsequently disgorged by us, whether as a result of any proceeding in
bankruptcy or otherwise.
5.5 A chargeback shall not constitute a resale to you of said Amount; however
upon payment by you to us of all monies due with respect to such charged
back account, title thereto shall revert to you, subject, however, to our
security interest therein. You agree to indemnify and save us harmless
from and against any and all loss, costs and expenses, caused by or
arising out of disputed Accounts, including, but not limited to,
collection expenses and attorney's fees incurred with respect thereto.
5.6 We may maintain such reserves as we, in our sole discretion, deem
advisable as security for the payment and performance of all of your
Obligations.
SECTION 6. Administration
6.1 (a) You shall, from time to time, execute and deliver to us confirmatory
schedules of Accounts sold to us, together with one copy of each invoice
and upon request, acceptable evidence of shipment and such other
documentation and proofs of delivery as we may require. Each invoice shall
bear a notice, in form satisfactory to us, that it has been sold and
assigned to and is payable only to us. You agree to prepare and mail all
invoices, but we may do so at our option. You agree to execute and deliver
to us such further instruments of further assurance as we may reasonably
require. You authorize us to execute on your behalf and file such UCC
financing statements as we may deem necessary in order to perfect and
maintain the security interests granted by your in accordance with this
and any other agreement between you and us, and you further agree that we
may filed this Agreement or a copy thereof as such UCC financing
statements. You agree to bear the cost of all filing fees, filing taxes,
search reports, legal fees and other charges incurred by us in the
perfection, protection and preservation of the rights and collateral
security herein granted to us.
(b) If any remittances are made directly to you, your employees or agents,
you shall act as trustee of an express trust for our benefit, hold the
same as our property and deliver the same to us forthwith in kind. We
and/or such designee as we may from time to time appoint, are hereby
appointed your attorney-in-fact to endorse your name on any and all checks
or other forms of remittances received by us where such endorsement is
required to effect collection; this power, being coupled with an interest
is irrevocable.
(c) We may, at all times, have access to, inspect and make extracts from
all your records, files and books of account. We may, at any time after
default by you hereunder, remove from you premises all such records, files
and books relating to Accounts. You will promptly furnish with all
statements prepared by or for you showing your financial condition and the
results of your operations and such other statements as we may reasonably
require. You authorize us to communicate directly with your independent
certified public accountants and authorize such accountants
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to discuss your financial condition and statements directly with us.
6.2 If we determine that the credit standing of a customer has deteriorate
after we have assumed the Credit Risk on an Account, you shall, at our
request, exercise such rights as you may have to reclaim or stop the goods
in transit, and you hereby grant us the right to take such steps in your
name or ours.
6.3 We shall render a monthly Statement of Account to you within twenty (20)
days after the end of each month. Such Statement of Account shall
constitute an account stated unless you make written objection thereto
with thirty (30) days from the date such statement is mailed to you.
6.4 You authorize us to disclose such information as we deem appropriate to
persons making credit inquiries about you.
SECTION 7. Collateral Security
As collateral security for all Obligations, you hereby assign and grant to
us a continuing security interest in: (i) all of your presently existing
an hereafter created Accounts and generally intangibles and the proceeds
thereof; (ii) all monies, securities and other property now or hereafter
held or received by, or in transit to us from or for you, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and
all of your deposits and credit balances in our possession; (iii) all
returned, reclaimed or repossessed goods and the documents evidencing or
relating to such goods; (iv) all books, records and other property at any
time evidencing or relating to the Accounts; and (v) the proceeds of any
of insurance policies covering any of the foregoing. Recourse to the
collateral security herein provided shall not be required, and you shall
at all times remain liable for the payment and performance of all of your
Obligations upon demand by us.
SECTION 8. Events of Defaults
The occurrence of any of the following acts or events shall constitute an
Event of Default: (a) if you fail to make payment of any of your
Obligations when due, (b) if you fail to make any remittance required by
this Agreement, (c) if you commit any breach of any of the terms,
representations, warranties, covenants, conditions or provisions of this
Agreement, or of any present or future supplement or amendment hereto or
of any other Agreement between us, (d) if you become insolvent or unable
to meet your debts as they mature, (e) if you deliver to us a false
financial statement, (f) if you call, or have called by a third party, a
meeting of creditors, (g) if you have commenced by or against you any
bankruptcy proceeding, insolvency, arrangement or similar proceeding, (h)
if you suspend or discontinue doing business for any reason, (i) if a
receiver or trustee on any kind is appointed for you or any of your
property, (j) if any guarantor of your Obligations shall become insolvent
or have commenced by or against such guarantor any bankruptcy proceeding,
(k) if any guaranty of your Obligations is terminated, or (l) if any
change of ownership occurs with respect to more than forty (40%) percent
of your capital stock.
Upon the occurrence of an Event of Default, we shall have the right to
terminate this Agreement and all other arrangements existing between us
forthwith and without notice, and all of your Obligations to us shall
mature and
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<PAGE>
become immediately due and payable and we shall have the right to withhold
any further payments to you until all Obligations have been paid in full.
In addition, we shall have all the rights of a secured party under the
Uniform Commercial Code, including, without limitation, the right to take
possession of any collateral in which we have a security interest and to
dispose of same at public or private sale and you will be liable for any
deficiency. We shall not be required to proceed against any collateral but
may proceed against you directly. In the event we institute suit against
you, you Agree to pay our costs and reasonable attorney's fees.
SECTION 9. Term and Termination
This Agreement shall continue in full force and effect until terminated by
either party hereto giving the other party not less than sixty (60) days
prior written notice thereof. Notice of termination shall be given by
messenger, registers or certified mail or commercial delivery service;
provided however, that you shall not terminate this Agreement so long as
you are indebted or obligated to us in connection with any other financing
arrangements. Not withstanding such notice of termination, our respective
rights and obligations arising out of transactions having their inception
prior to the specified date of termination shall not be affected by such
termination and all terms, provisions and conditions hereof, including but
not limited to, the security interests hereinabove granted to us, shall
continue in full force and effect until all Obligations have been paid in
full. All of the representations, warranties and covenants made herein
shall survive the termination of this Agreement.
SECTION 10. Modifications
This Agreement cannot be changed or terminated orally; it constitutes the
entire Agreement between us and shall be binding upon our respective
successors and assigns, but may not be assigned by you without our prior
written consent. No delay or failure on our part in exercising any right,
privilege, or option hereunder shall operate as a waiver thereof or of any
other right, privilege or option. No waiver whatsoever shall be valid
unless in writing, signed by us, and then only to the extent therein set
forth. If any term or provision of this Agreement is held invalid under
any statute, rule or regulation of any jurisdiction competent to make such
a decision, the remaining terms and provisions shall not be affected, but
shall remain in full force and effect.
SECTION 11. Governing Law, Venue and
Waiver of Jury
This Agreement shall be governed by and interpreted in accordance with the
laws of the State of New York. You hereby consent to the jurisdiction of
any local, state or federal court located within the State of New York. If
you presently are, or in the future become, a non-resident of the State of
New York, you hereby waive personal service of any and all process and
agree that all such service of process may be made by certified or
registered mail, return receipt requested, directed to you, at your
address appearing in our records and service so made shall be complete ten
(10) days after the same has been posted as aforesaid. YOU HEREBY WAIVE
YOUR RIGHT TO TRIAL BY JURY IN ANY SUIT OR PROCEEDING ARISING UNDER OR
RELATING TO THIS AGREEMENT.
SECTION 12. Definitions
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12.1 "Accounts" - All presently existing and hereafter created accounts,
contract rights and general intangibles relating thereto, notes, drafts
and other forms of obligations owned to or owned by you arising or
resulting from the sale of goods or the rendering of service, all
proceeds thereof, all guaranties and security therefor, and all goods and
rights represented thereby or arising therefrom including, but not
limited to, the right of stoppage in transit, replevin and reclamation.
12.2 "Approved Account" - an Account with respect to which we have issued a
credit approval which has not subsequently been withdrawn.
12.3 "Base Rate" - the rate of interest publicly announced from time to time
by The Chase Manhattan Bank, N.A. as its prime or base rate (or
equivalent).
12.4 "Collection Date" - The earlier to occur of (a) 5 business days after the
receipt by us of payment of the Account or (b) 120 days after the due
date of the Account, provided that the accounts debtor has not asserted a
Dispute.
12.5 "Credit Risk" - The risk that a customer will be financially unable to
pay an Account at maturity, provided that the merchandise has been
received or services rendered and accepted by the customer without
Dispute.
12.6 "Dispute" - A dispute or claim, bona fide or otherwise, as to price,
terms, quantity, quality or any cause or defense to payment whatsoever
other than financial inability to pay.
12.7 "Net Account" - The gross face amount of an Account less the discount
offered by you and taken by us.
12.8 "Non-Approved Account" - an Account with respect to which we have either
not issued a credit approval or have subsequently withdrawn a credit
approval as a result of a Dispute or otherwise.
12.9 "Obligations" - All loans, advances, debts, liabilities, obligations,
covenants and duties owing by you to us, direct or indirect, absolute or
contingent, due or to become due, now existing or hereafter arising,
including, without limitation, invoices for goods or services purchased
by you from any company whose accounts are factored or financed by us and
indebtedness arising under any guaranty made by you or issued by us on
your behalf.
SECTION 13. Acceptance
This proposal is submitted to you unsigned and shall constitute an
agreement between us only when signed by us.
Very truly yours,
HELLER FINANCIAL, INC,.
By: /s/ Kevin McGarry
------------------------------------
Title: SVP
---------------------------------
Effective Date: April , 1992
------------------------
ACCEPTED AND AGREED TO:
PIVOT CORPORATION
By: /s/ E. Kenneth Seiff
------------------------------------
Title: E. Kenneth Seiff, President
---------------------------------
8
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Exhibit 10.6
PIVOT CORPORATION
990 Avenue of the Americas
New York, New York 10018
April 28, 1992
Heller Financial, Inc.
101 Park Avenue
New York, New York 10178
Gentlemen:
We shall, from time to time, request you to finance the purchase of
merchandise by us by establishing Letters of Credit in favor of the sellers of
such merchandise or by issuing your Guaranty of payment in favor of such seller
or by honoring sight or term drafts drawn against you by the sellers of such
merchandise. Moreover, when such merchandise is delivered to you for our
account, we shall, from time to time, further request you, in your sole
discretion, to deliver such merchandise to us in trust and pursuant to the
Uniform Commercial Code, if applicable, for the purposes of manufacturing or
resale, or both. In connection with any and all such transactions, we agree
that the following terms and conditions shall apply:
1. We shall notify you, from time to time, that we intend to purchase
merchandise and shall request that you finance the purchase of such
merchandise by establishing Letters of Credit in favor of the sellers
thereof or by issuing your Guaranty of payment in favor of such sellers or
by agreeing to honor sight or term drafts drawn against you by the sellers
of such merchandise. Within a reasonable time thereafter, you will advise
the undersigned if you are willing to finance such purchases as aforesaid
and the terms and conditions upon which you are willing to do so, it being
understood and agreed that in all instances you shall have sole and
complete discretion to determine whether or not or to what extent you are
willing to assist in financing any such purchases of merchandise. If you
are willing to finance any such purchases, you will establish a Letter of
Credit, issue your Guaranty, or honor drafts as aforesaid, subject to
whatever terms and conditions you may specify in any such Letters of
Credit, Letters of Guaranty or other agreements.
<PAGE>
2. We unconditionally agree to indemnify you and hold you harmless for any
and all indebtedness, obligations and liabilities you may incur in
connection with any Letters of Credit which you may establish or obtain
for our account, or in connection with any Letters of Guaranty you may
issue, all such indebtedness and obligations to be repaid to you on demand
in United States currency.
3. You shall have the right at any time and without notice to us to charge to
our account on your books the amount of any and all indebtedness paid or
incurred by you in connection with any such Letters of Credit or Guaranty
including, but without limitation, all amounts which may be charged to you
by any bank or other financial institution issuing such Letters of Credit,
bank charges, fees and commissions, duties and cost of insurance and such
other charges and expenses including interest, attorneys' fees and
collection charges which may pertain either directly or indirectly to such
Letters of Credit or Guaranties, or to the merchandise referred to
therein. We further agree that any debit balance which may exist in our
account by virtue of the foregoing charges shall be repayable on demand.
4. We agree to hold you harmless for any errors or omission whether caused by
you or otherwise, except those caused by your gross negligence, and our
unconditional obligation to you hereunder shall not be modified or
diminished for any reason.
5. You shall not be responsible for the existence, character, quality,
conditions or value of the property purporting to be represented by
documents; for the validity, sufficiency or genuineness of documents, even
if such documents shall in effect prove to be in any or all respects
invalid, insufficient, fraudulent or forged; for the time, place, manner
or order in which shipments are made; for partial or incomplete shipments
or failure or omission to ship any or all of the property referred to in
the Letters of Credit or Guaranty; for any deviation from instructions,
delay, default or fraud by the shipper or anyone else in connection with
the property or the shipping thereof; for any breach of contract between
the shipper or vendors or ourselves. We agree that any action taken by you
under or in connection with the Letters of Credit or Letters of Guaranty
or the related drafts, documents or property, if taken in good faith,
shall be binding on us and shall not put you in any resulting liability to
us, and in furtherance thereof, we hereby agree and waive notice of any
extension of the maturity or time for payments or for presentation of
drafts, acceptance or documents or any other modifications of the terms of
the Letters of Credit or Guaranty.
6. We agree to procure promptly any necessary import or other licenses for
the import of the property and to comply with all foreign and domestic
governmental regulations in regard to the shipment of the property or the
financing thereof, and to furnish such certificates in that respect as you
may at anytime require. In this connection we warrant and represent that
all shipments made under Letters of Credit or of Guaranty are in
accordance with and are not prohibited by the governmental laws and
regulations of the countries in which the
2
<PAGE>
shipments originate or terminate. We assume all risks and liability
for all present and future local, state or governmental taxes, levies or
embargo of any country, state, city or other political sub-division
wherein payments are to be made or where such drafts may be drawn,
negotiated, accepted or paid; and assume all risk, liability and
responsibility for any laws, customs and regulations which may be
effective in the countries wherein payments are to be made or where such
drafts are drawn, negotiated or paid.
7. We hereby grant to you a continuing security interest in all of our now
owned and hereafter acquired imported inventory and further grant to you a
security interest in and assign to you all of our right, title and
interest in or to shipping documents, drafts, warehouse receipts, bills of
lading and other documents or instruments with respect to such inventory,
and the proceeds thereof, and the contract rights relating thereto as
collateral security for all indebtedness, obligations, sums and
liabilities (whether direct, absolute or contingent) now or hereafter owed
by us to you, including, without limitation, pursuant to this Agreement or
the Factoring Agreement between us. Until you are repaid, we agree to keep
the merchandise adequately covered by insurance in companies, in amounts
and under policies satisfactory to you but at our expense and to assign
the policies or certificates of insurance to you or to make the loss or
adjustment, if any, payable to you at your option and to furnish you, if
so demanded, with evidence of acceptance of such assignment by the
insurers.
8. All advances made by you hereunder shall bear interest at the rate set
forth in the Factoring Agreement between us. If you, in your sole
discretion shall deliver possession to us of any property shipped in
accordance with your issuance of a Letter of Credit or a Guaranty such
merchandise will continue to stand as security for the repayment of any of
our obligations or liability to you resulting from such Letters of Credit
or a Guaranty and we agree to hold such merchandise as Trustee, subject to
the terms and provisions of the Uniform Commercial Code, if applicable,
subject to the terms and provisions of this Agreement, and subject to the
terms and provisions of any Uniform Commercial Code Financing Statements
or other related documents issued by us to you, and we agree to execute
such instruments and file such instruments as are deemed necessary or
desirable by you in order that your security will not be impaired in any
such transfer of possession.
9. Upon the sale by us of any such merchandise, the accounts receivable or
other proceeds generated thereby shall be assigned and delivered to you
and shall be applied to the payment of any obligations owing to you for
which such merchandise or the documents representing same were standing at
security before such sale, or to the payment of obligations owing by us to
you.
10. In consideration of your assisting us in the financing of the purchase of
merchandise as aforesaid, we agree to pay you all bank charges incurred or
paid by you with respect to the Letters of Credit. In addition to such
bank charges, we shall pay to you one-quarter of one (1/4%) percent of
the face amount of each Letter of Credit or Guaranty upon your
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opening of same and one quarter of one (1/4%) percent of their face amount
for each month, or part thereof that said Letter of Credit or Guaranty is
outstanding.
11. The following acts or occurrences shall constitute a default on our part
under this Agreement:
a. our failure to pay any amounts owing you when due or upon
demand;
b. our sale outside the ordinary course of business or pledge or
attempted pledge of any merchandise entrusted to us;
c. our removal, outside the normal course of business, of any
merchandise entrusted to us from warehouse or from our premises
without your prior written consent;
d. our insolvency or suspension of business or the appointment of a
receiver, trustee or custodian for us or for any of our property
or our commission of any act of bankruptcy;
e. our default under this Agreement or under any other agreement
between us or under any of the terms or conditions of any Note,
financing statement or other document given by us to you.
12. If we shall be in default under this Agreement, the Factoring Agreement or
under any of the terms and conditions of any note, financing statement,
agreement or other document given to you by us, then and in any such
event, you may terminate this Agreement, demand payment from us of all
sums owing to you and exercise any rights and remedies given you hereunder
or under any such other documents or under the Uniform Commercial Code, if
applicable. We hereby waive presentment, demand, protest and notice as to
any instrument given to you hereunder and with respect to any notice to
which we might otherwise be entitled. We expressly authorize you to take
possession of any and all merchandise subject to your lien and to sell
immediately without advertisement, and without notice to us, any and all
such merchandise, whether it has arrived or will arrive, at private sale
or at public auction, or at broker's board or otherwise at your option, at
such times, at such places and for such prices, and upon such terms and
conditions as you may deem proper, and to apply the net proceeds of such
sales, after deducting the expenses thereof to our obligations and
liability to you, and we agree to be responsible for any deficiency on
demand. If any such sale be at broker's board or at public auction, you
may yourself be a purchaser at such sale free from any right of redemption
which we hereby expressly waive and release. In furtherance of such
disposition of any such merchandise, we shall execute such power of
attorney or other documents you may request. You shall be entitled to
offset and apply to our indebtedness any sums or property of ours coming
into your possession or to hold the same as
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<PAGE>
attachable security for any of our obligations to you no matter how
arising and whether under this Agreement or otherwise. Your failure to
exercise any rights hereunder shall not operate as a waiver of any of your
rights and remedies contained in this Agreement or in any other agreement
and all of such rights and remedies are cumulative and not alternative.
13. This Agreement constitutes our entire agreement and cannot be amended,
except by a writing signed by the party to be charged. This Agreement
shall be binding upon and inure to the benefit of our respective
successors and assigns. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York. If any portion of
this Agreement shall be held to be illegal and unenforceable, the
remainder of this Agreement shall, nevertheless, remain in full force and
effect. This Agreement, on acceptance by you, shall continue in effect
from year to year but may be determinated by either of us by giving to the
other thirty (30) days prior written notice, but any such termination of
this Agreement shall not terminate or otherwise affect any of our
obligations to you theretofore and such obligation shall continue until
our entire Indebtedness to you is paid in full.
ACCEPTED: April 28, 1992
PIVOT CORPORATION
By: /s/ E. Kenneth Seiff
--------------------------------
Name: E. Kenneth Seiff
------------------------------
Title: President
-----------------------------
HELLER FINANCIAL, INC.
By: /s/ Kevin McGarry
-------------------------------
Name: Kevin McGarry
-----------------------------
Title: SVP
----------------------------
5
<PAGE>
Exhibit 10.7
COLLATERAL INSTALLMENT NOTE
$325,000.00 New York, New York
December __, 1994
THE UNDERSIGNED, PIVOT RULES, INC. ("Maker"), a New York corporation,
having its chief executive offices at 80 West 40th Street, New York, New York
10018, hereby promises to pay to the order of HELLER FINANCIAL, INC.
("Heller"), a Delaware corporation, at its place of business at 101 Park
Avenue, New York, New York 10178, or at such other place as Heller may from
time to time designate, the principal sum of THREE HUNDRED TWENTY-FIVE THOUSAND
DOLLARS ($325,000.00), together with interest thereon as hereinafter provided.
The principal amount shall be used to partially finance the purchase of Maker's
common stock from certain shareholders and shall be credited to Maker's
factoring account on or prior to January 1, 1995, the date the principal
installment is payable under said stock repurchase agreement. The principal
amount hereof shall be payable in 36 consecutive, monthly installments
commencing on February 1, 1995, and the first business day each month
thereafter, with the first 35 installments of principal being in the amount of
$5,420.00 and the 36th and final amount of $135,300.00. Interest on the then
unpaid balance of principal shall be payable monthly in arrears, on the first
day of each and every month while this Note remains outstanding, commencing
with the first day of February, 1995, and the first business day each month
thereafter, at a rate which is two (2%) percent per annum above the prime rate
of interest from time to time announced by The Chase Manhattan Bank, N.A., but
in no event more than the maximum permitted by applicable law. Interest charged
hereunder shall be calculated on the basis of a 360-day year and may be charged
to Maker's factoring account with Heller. All payments received shall be first
applied to the payment of interest due hereunder and the remainder in reduction
of principal.
The Maker of this Note hereby waives presentment for payment, demand,
protest, notice of protest and notice of dishonor hereof. Heller may extend the
time of payment of this Note, postpone the enforcement hereof, grant any other
indulgences and/or release any party primarily or secondarily liable hereon
without affecting or diminishing Heller's right of recourse against the Maker
of this Note, which right is hereby expressly reserved.
In the event that an Event of Default shall have occurred under the
Factoring Agreement between Maker and Heller, or any other agreements between
Maker and Heller (collectively, the "Agreements") or in the event the
Agreements are otherwise terminated, then this Note and all other existing
obligations of every kind of the Maker to Heller shall immediately become due
and payable and Heller may proceed to collect the same at once.
<PAGE>
Heller shall not be required to look to any collateral pledged or held by
it for the payment of this Note, but may proceed against the Maker in such
manner as it deems desirable. None of the rights or remedies of Heller shall be
deemed waived or effected by the failure or delay of Heller to exercise same.
The obligations hereby evidenced are collateralized by all of the accounts
and inventory of Maker, and the common stock of Maker acquired with the
principal amount hereof as part of the stock repurchase agreement, amounting to
approximately 18.65 shares, as well as other collateral, all as more fully set
forth in the Agreements.
Upon receipt of the principal amount herein, Maker agrees to pay to Heller
a one-time, non-refundable transaction fee of Ten Thousand ($10,000) Dollars,
which fee may, at Heller's option be withheld from the principal amount or
charged to Maker's factoring account. Maker may voluntarily prepay the
obligations hereunder in full or in part at any time prior to maturity without
penalty.
This Note shall continue to bear interest at the rate hereinabove provided
until paid in full. If this Note is not paid when due and if it is placed with
an attorney for collection, the undersigned agrees to pay all costs of
collection, including reasonable attorneys' fees, which sum shall be added to
the amount due hereunder.
This Note is repayable in the State of New York and for all purposes shall
be construed in accordance with and governed by the laws of the State of New
York. Maker waives any rights it may have to a jury trial in any judicial
proceedings in connection herewith.
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
and its corporate seal affixed hereto by its officers thereunto duly authorized
on the day and year first above written.
PIVOT RULES, INC.
By: /s/ E. Kenneth Seiff
-------------------------------------
Name: E. Kenneth Seiff
Title: President
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Exhibit 10.8
HELLER FINANCIAL, INC.
101 Park Avenue
New York, New York 10178
Pivot Rules, Inc.
80 West 40th Street
New York, New York 10018
re: Amendments to Financing Agreements Between
Heller Financial, Inc. and Pivot Rules, Inc.
Gentlemen:
Reference is made to the various credit arrangements between Pivot
Rules, Inc. (the "Company") and Heller Financial, Inc. ("Heller"), i.e., the
Retail Collection Factoring Agreement, effective as of April 28, 1992 (the
"Factoring Agreement"), the Letter of Credit Financing Agreement, dated April
28, 1992 (the "Financing Agreement"), the Collateral Installment Note in the
face amount of $325,000, dated December 1994 (the "Term Loan"), the Stock
Pledge, dated December 1994 (the "Stock Pledge") and the Overformula Advance
Facility Agreement, dated August 21, 1996.
You have requested Heller to waive certain provisions contained in
such agreements and amend certain others in connection with a subordinated loan
previously provided to the Company by a third party and a contemplated bridge
financing and subsequent initial public offering by the Company. Heller hereby
(i) waives any objection to the promissory note in the face amount of $240,000,
dated September 30, 1996, executed by the Company in favor of Edward H. Mank
("Mank") in the form annexed hereto as Exhibit A and the granting of a
subordinated security interest in certain of the Company's assets referred to
therein and consents to the same as if such consent were given as of September
30, 1996; (ii) consents to the Company's issuance of certain convertible
subordinated secured promissory notes in the aggregate face amount of
$1,500,000 (the "Bridge Notes") in substantially the form annexed to the Term
Sheet, dated December 10, 1996 (the "Term Sheet"), as Exhibit A and the
granting of a subordinated security interest in all of the Company's assets,
other than accounts receivables factored to Heller, to the holders of the
Bridge Notes, as evidenced by a security agreement in substantially the form of
the security agreement annexed to the Term Sheet as Exhibit B; (iii) amends the
Term Loan and terminates the Stock Pledge to relinquish its security interest
in 18.65 shares of Common Stock, no par value, of the Company, with all other
provisions of the Term Loan remaining in full force and effect; and (iv) amends
section 8(l) of the Factoring Agreement to provide that (a) the change of
ownership threshold of 40% specified therein shall be increased
<PAGE>
to 55%, and (b) from and after consummation of an initial public offering by
the Company, no change of ownership of the Company's Capital Stock shall
constitute an event of default thereunder, unless such change of ownership
results from the acquisition, in one or a series of transactions by any
individual or "group" (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934), other than Kenneth Seiff and/or his affiliates, of 50%
or more of the outstanding capital stock of the Company, with all other
provisions of the Factoring Agreement remaining in full force and effect.
HELLER FINANCIAL, INC.
By:/s/ John D. Carlson
-----------------------------
Name: John D. Carlson
Title: SVP
Accepted And Agreed:
PIVOT RULES, INC.
By:/s/ E. Kenneth Seiff
---------------------------------
E. Kenneth Seiff
President
Dated: December 18, 1996
New York, New York
<PAGE>
Exhibit 10.9
PROMISSORY NOTE
$240,000.00 New York, New York
September 30, 1996
FOR VALUE RECEIVED, PIVOT RULES INC. (the "Maker), a New York
corporation with its principal place of business located at 80 West 40th
Street, New York, New York 10018, hereby unconditionally promises to pay, in
lawful money of the United States, to Edward H. Mank (Lender) at 1430
Massachusetts Avenue, Cambridge, Mass. 02134 the principal sum of TWO HUNDRED
FORTY THOUSAND DOLLARS ($240,000.00) together with accrued interest thereon on
the unpaid principal amount thereof from time to time outstanding until the
said principal sum shall be fully paid, at a rate of interest per annum equal
to twelve per cent (12%). Principal and interest shall be payable in ten (10)
monthly installments of TWENTY FIVE THOUSAND THREE HUNDRED THIRTY NINE DOLLARS
AND SEVENTY CENTS ($25,399.70) with the first payment due on the one month
anniversary of the date of this note.
As collateral security for the obligations of the Maker under this
Note, the Maker hereby grants to Lender a second position in inventory and
receivables and Kenneth Seiff hereby grants a security interest by pledge in
escrow of twenty shares of common stock of the Maker owned by Seiff (the
"Shares" or "Collateral"), pursuant to an escrow agreement under which Seiff &
Kretz, 645 Madison Avenue, New York, New York 10022 will serve as escrow agent
(the "Escrow Agent"). The Shares shall be released from this Escrow Agreement.
In the event that Pivot Rules obtains a bridge loan from GKN Securities, Lender
agrees to subordinate its position
<PAGE>
to GKN Securities. In this event, Maker may at any time substitute collateral
or marketable securities or cash of 125% of equivalent value to the then
outstanding debt balance.
Upon thirty (30) days written notice, the Maker shall have the right
to prepay part or all of this Note without payment of any premium or penalty.
In the event Kenneth Seiff shall cease to be a full-time employee of the Maker
or a successor or affiliate of the Maker (including by reason of the death of
Kenneth Seiff), (a "Termination Event"), the Lender shall have the option to
require full payment of the note principal balance, without payment of any
premium or penalty. The Maker shall provide notice to the Lender within ten
(10) days of the occurrence of a Termination Event which notice shall include a
copy of the latest set of "reviewed" financial statements of the Maker. The
Lender shall have ten (10) days from receipt of the Maker's notice to exercise
Lender's right to require such payment. Upon any note prepayment, Lender shall
promptly notify the Escrow Agent and the Collateral shall be returned to Seiff
by the Escrow Agent.
Maker has in excess of $240,000 of insurance on the life of Kenneth
Seiff. The proportional amount of this note outstanding at the time of Seiff's
death shall be paid to Lender from said life insurance forthwith.
Notices required to be delivered hereunder shall be sent by
registered or certified mail or by hand delivery with receipt acknowledged or
by the Express Mail service offered by the United States Post Office and
addressed to the parties hereto at the addresses set forth above. Such notice
shall be deemed to have been received on the date of hand delivery, next day if
by Express Mail or five (5) days after the date of deposit in the United States
mail.
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<PAGE>
If the due date of any payment under this Note would otherwise fall
on a day which is not a Business Day, such date will be extended to the
immediately succeeding Business Day. The term "Business Day" shall mean any day
on which commercial banks in the State of New York are not authorized or
required to be closed.
In the event of a payment default not cured within fifteen (15) days
after the due date of any installment payment under this Note, the Maker shall
pay a default rate of interest at the rate of twelve percent (12%) per annum
until such default has been cured. If payment is not made after an additional
thirty (30) days, Lender shall have an option to exercise any and all remedies
available to him under applicable law.
This Note shall be governed by, and construed in accordance with, the
laws of the Commonwealth of Massachusetts, without regard to the conflict of
laws principles thereof.
Any reference to "Lender" herein shall include the legal
representatives of Lender; and the term "Maker" as used herein shall include
the successors and assigns, if any, of the Maker. Lender shall not assign this
Note in any case without the prior written consent of the Maker.
IN WITNESS WHEREOF, this Note has been duly executed by the Maker as
of the day and year first above written.
PIVOT RULES INC.
By: /s/ Kenneth Seiff
Name: Kenneth Seiff
Title:Chief Executive Officer
By: /s/ Kenneth Seiff
Name: Kenneth Seiff
3
<PAGE>
Individually (solely in the capacity
as pledgor of the shares and not as
guarantor).
4
<PAGE>
EXHIBIT B
ESCROW AGREEMENT
AGREEMENT made this 30th day of September, 1996, by and among Kenneth Seiff
("Seiff") an individual having his principal place of business at the offices
of Pivot Rules, Inc. 80 West 40th Street, New York, New York 10018 ("Pivot
Rules"), and Edward H. Mank ("Lender") having his principal place of business
at 1430 Massachusetts Avenue, Cambridge, Massachusetts 02134, and Seiff &
Kretz, a New York law partnership, having its principal place of business at
645 Madison Avenue, New York, New York 10022 (the "Escrow Agent").
W I T N E S S E T H :
WHEREAS, Seiff has agreed to place in escrow as collateral, for a loan
being extended on the date hereof from Lender to Pivot Rules, a total of twenty
shares of common stock of Pivot Rules, Inc. owned by Seiff (the "Shares")
pursuant to the terms set forth in the Promissory Note annexed hereto; and
WHEREAS, Seiff and the Lender have agreed to the appointment of Seiff &
Kretz as Escrow Agent in connection with the transaction described in the
annexed Promissory Note, and the Escrow Agent is willing to act as such upon
the terms and subject to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained; the parties hereby agree as follows:
1. Delivery of the Shares to Escrow Agent. Upon the execution of the
annexed Promissory Note and the payment of the amount of $240,000 to Pivot
Rules by the Lender, Seiff shall deliver to the Escrow Agent 20 Shares,
represented by Certificate No. 33, which has been
<PAGE>
duly endorsed in blank. From time to time, Seiff and Lender, acting as one, may
instruct Escrow Agent by written notice to release Shares from Escrow.
2. Rights, Duties and Responsibilities of Escrow Agent. It is understood
and agreed that the duties of the Escrow Agent are purely ministerial in
nature, and that:
2.1 The Escrow Agent shall not be responsible for or be required to
endorse any of the terms or conditions of any agreement between the Lender and
Seiff nor shall the Escrow Agent be responsible for the performance of the
Lender, Seiff or Pivot Rules of their respective obligations under any
agreement or otherwise.
2.2 The Escrow Agent shall be entitled to rely upon the accuracy, act
in reliance upon the contents, and assume the genuineness, of any notice,
instruction, certificate, signature, instrument or document which is given to
the Escrow Agent pursuant to this Agreement without the necessity of the Escrow
Agent verifying the truth or accuracy thereof. The Escrow Agent shall not be
obligated to make any inquiry as to the authority, capacity, existence or
identity of any person purporting to give any such notice or instruction or to
execute any such certificate, instrument or document.
2.3 In the event that the Escrow Agent shall be uncertain as to its
duties or rights hereunder or shall receive instructions with respect to the
Shares which, in its sole determination, are in conflict either with other
instructions received by it or with any provision of this Agreement, it shall
be required to hold the Shares, or a portion thereof, pending the resolution of
such uncertainty to the Escrow Agent's sole satisfaction, by final judgment of
a court or courts of competent jurisdiction or otherwise; or the Escrow Agent,
at it sole option may deposit the Shares with the Clerk of court of competent
jurisdiction in a proceeding to which all
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<PAGE>
parties in interest are joined. Upon the deposit by the Escrow Agent of the
Shares with the Clerk of any court, the Escrow Agent shall be relieved of all
further obligations and released from all liability hereunder.
2.4 The Escrow Agent will use its best efforts to cause all actions
required or permitted to be performed by the Escrow Agent hereunder to be
carried out on behalf of the Escrow Agent by Eric A. Seiff, Esq. or, to the
extent that this is not feasible, by an employee of the Escrow Agent designated
in writing by said Eric A. Seiff.
2.5 The Escrow Agent shall not be liable for any action taken or
omitted hereunder, nor for the misconduct of any employee, agent or attorney
appointed by it, except in the case of willful misconduct. The Escrow Agent
shall be entitled to consult with counsel of its own choosing and shall not be
liable for any action taken, suffered or omitted by it in accordance with the
advice of such counsel.
2.6 Promptly upon receipt thereof by the Escrow Agent, the Escrow
Agent will transmit to Seiff, the Lender or to any other person designated by
Seiff or the Lender, information regarding the status of the Shares, or any
transaction with respect thereto.
3. Amendment; Resignation/Replacement of Escrow Agent.
3.1 This Agreement may be altered or amended only with the unanimous
written consent of Seiff, the Lender, and the Escrow Agent.
3.2 The Escrow Agent may resign for any reason upon ten (10) business
days' written notice to the Lender and Pivot Rules. Should the Escrow Agent
resign as herein provided, its only duty shall be to hold the Shares for a
period of not more than ten (10) business days following the effective date of
such resignation, at which time (a) if a successor escrow agent
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<PAGE>
shall have been appointed and written notice thereof (including the name and
address of such successor escrow agent) shall have been given to the resigning
Escrow Agent by the Lender, Seiff and such escrow agent, then the resigning
Escrow Agent shall deliver to the successor escrow agent the Shares, less any
portion thereof previously transferred in accordance with this Agreement; or
(b) if the resigning Escrow Agent has not received written notice signed by the
Lender, Seiff and a successor escrow agent, then the resigning Escrow Agent
shall promptly dispose of the Shares in accordance with Section 2.3 hereof;
whereupon, in either case, the Escrow Agent shall be relieved of all further
obligations and released from all liability under this Agreement.
3.3 Within three (3) business days after receipt by the Escrow Agent
of a notice signed by both Pivot Rules and the Lender, which notice shall
designate a successor escrow agent and shall be signed by such successor escrow
agent to signify that such successor escrow agent is ready, willing and able to
assume the duties of Escrow Agent under this Agreement, the Escrow Agent shall
do all things necessary to transfer the Shares to such successor escrow agent
and to enable such successor escrow agent to perform all of the duties of
Escrow Agent hereunder.
4. Representations and Warranties. Pivot Rules hereby represents and
warrants to the Escrow Agent that:
4.1 No party other than the parties hereto have, or shall have, any
lien, claim or security interest in the Shares or any part thereof.
4
<PAGE>
4.2 No financing statement under the Uniform Commercial Code is on
file in any jurisdiction claiming a security interest in or describing (whether
specifically or generally) the Shares or any part thereof.
Pivot Rules and Lender hereby represent and warrant that:
4.3 Because Eric A. Seiff has in the past represented each of the
parties hereto, said parties agree and acknowledge that they have not relied
upon him or his law firm in any way concerning this agreement or the annexed
Promissory Note and that accordingly they have obtained their own independent
counsel.
5. Fees and Expenses. Pivot Rules agrees to reimburse the Escrow Agent for
any reasonable expenses incurred in connection with this Agreement, including,
but not limited to, reasonable counsel fees.
6. Indemnification and Contribution.
6.1 Pivot Rules and Ken Seiff (referred to jointly as the
"Indemnitors") agree, jointly and severally, to indemnify the Escrow Agent and
its employees and agents (jointly and severally the "Indemnitee") against, and
hold them harmless of and from, any and all loss, liability, cost, damage and
expense, including without limitation, reasonable counsel fees, which the
Indemnitee may suffer or incur by reason of any action, claim or proceeding
brought against the Indemnitee arising out of or relating in any way to this
Agreement or any transaction to which this Agreement relates, unless such
action, claim or proceeding is the result of the willful misconduct of the
Indemnitee.
6.2 If the indemnification provided for in this Section 6 is
applicable, but for any reason is held to be unavailable, the Indemnitors shall
pay or reimburse the Indemnitee for the
5
<PAGE>
aggregate of any and all losses, liabilities, costs, damages and expenses,
including counsel fees, actually incurred by the Indemnitee as a result of or
in connection with, and any amount paid in settlement of, any action, claim or
proceeding arising out of or relating in any way to any actions or omissions of
the Indemnitors.
6.3 The provisions of this Section 6 shall survive any termination of
this Agreement, whether by release and delivery of the Shares, resignation of
the Escrow Agent or otherwise.
7. Governing Law and Assignment. This Agreement shall be construed in
accordance with and governed by the laws of the Commonwealth of Massachusetts
and shall be binding upon the parties hereto and their respective successors
and assigns; provided, however, that any assignment or transfer by any party of
its rights under this Agreement or with respect to the Shares shall be void as
against the Escrow Agent unless:
a. written notice thereof shall be given to the Escrow Agent;
and
b. the Escrow Agent shall have consented in writing to such
assignment or transfer.
8. Notices. All notices required to be given in connection with this
Agreement shall be sent by registered or certified mail, return receipt
requested, or by hand delivery with receipt acknowledged, or by the Express
Mail service offered by the United States Post Office, and addressed to the
addressee at his, her or its address above.
9. Severability. If any provision of this Agreement or the application
thereof to any person or circumstances shall be determined to be invalid or
unenforceable, the remaining provisions of this Agreement or the application of
such provision to persons or circumstances
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other than those to which it is held invalid or unenforceable shall not be
affected thereby and shall be valid and enforceable to the fullest extent
permitted by law.
10. Execution in Several Counterparts. This Agreement may be executed
in several counterparts or by separate instruments and all of such counterparts
and instruments shall constitute one agreement, binding on all of the parties
hereto.
11. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings (written or oral) of the
parties in connection herewith.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
PIVOT RULES INC.
By: /s/ Kenneth Seiff
-----------------------------------
Name: Kenneth Seiff
Title: Chief Executive Officer
By: /s/ Kenneth Seiff
-----------------------------------
Name: Kenneth Seiff
Individually (solely in the capacity
as pledgor of the shares and not as
guarantor).
By: /s/ Edward H. Mank
-----------------------------------
Edward H. Mank
By: /s/ Seiff & Kreitz
-----------------------------------
Seiff & Kreitz
7
<PAGE>
Exhibit 10.10
PIVOT RULES, INC.
80 West 40th Street
New York, New York 10018
Edward H. Mank
c/o Century Real Estate
1430 Massachusetts Avenue
Cambridge, Massachusetts 02138
re: Promissory Note, dated September 30, 1996
Gentlemen:
Reference is made to that certain Promissory Note, dated September
30, 1996, executed by Pivot Rules, Inc. (the "Company") in your favor in the
principal amount of $240,000 (the "Note"). This will confirm our agreement that
the Note is hereby amended to clarify that, in the event that the Company
consummates a bridge financing with GKN Securities Corp. acting as placement
agent, the Note and the security interest granted to you under the Note shall
be subordinated to the obligations of the Company to the investors in such
bridge financing and the security interest granted to such investors in
substantially all of the assets of the Company.
Please sign below to acknowledge your agreement with the foregoing.
Very truly yours,
PIVOT RULES, INC.
/s/ E. Kenneth Seiff
-----------------------------------
By: E. Kenneth Seiff
Title: Chief Executive Officer
Accepted and Agreed:
/s/ Edward H. Mank
- ---------------------------------
Edward H. Mank
<PAGE>
Exhibit 10.11
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AMENDED AND RESTATED EMPLOYMENT AGREEMENT entered into as of ___________
__, 1997, by and between Pivot Rules, Inc., a New York corporation (the
"Company") and E. Kenneth Seiff ("Seiff").
RECITALS
1. The Company desires to retain the services of Seiff as the Chief
Executive Officer and Chairman of the Board of Directors of the Company in
accordance with the terms and conditions of this Agreement.
2. Seiff will serve the Company as its Chief Executive Officer and
Chairman of the Board of Directors in accordance with the terms and conditions
of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained in this
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Seiff agree as
follows:
1. TERM
The Company hereby agrees to employ Seiff as the Chief Executive Officer
and Chairman of the Board of Directors of the Company, and Seiff hereby agrees
to serve in such capacity, for a term commencing as of August 1, 1991, and
ending January 1, 2000, upon the terms and subject to the conditions contained
in this Agreement. The terms of this Agreement may, at the option of the
Company and with the approval of Seiff, be extended from time to time in a
written memorandum signed by the Company and Seiff, after approval by the Board
of Directors.
2. DUTIES
As Chief Executive Officer and Chairman of the Board of Directors of the
Company, Seiff shall perform the following duties: negotiate and purchase
finished goods and raw materials; negotiate and sign leases; negotiate and sign
trade credit, factor credit, and other debt instruments as necessary; hire and
fire employees, including negotiating salaries, bonuses, insurance benefits and
any other reasonable and appropriate perquisites; develop and implement
marketing and advertising plans; hire consultants, advisers and agents as
necessary; negotiate contracts on behalf of the Company; negotiate and sign
insurance policies including corporate, life, health, medical, dental,
hospitalization and disability policies; and any other day to day
responsibilities commensurate with Seiff's position as Chief Executive Officer
and Chairman of the Board of Directors of the Company.
<PAGE>
The principal location of Seiff's employment shall be in New York City,
although Seiff understands and agrees that he may be required to travel from
time to time for business reasons. Seiff shall devote his full business time to
his duties as the Chief Executive Officer and Chairman of the Board of
Directors of the Company during the term of this Agreement. Seiff shall not,
directly or indirectly, render services to any other person or entity, without
the consent of the Board of Directors, which would interfere significantly with
the faithful performance of his duties under this Agreement.
3. COMPENSATION
For services rendered by Seiff to the Company during the term of this
Agreement, the Company shall pay him a base salary of $165,000 per year,
payable in accordance with the standard payroll practices of the Company,
subject to annual increases at the discretion of the Company's Board of
Directors, taking into account merit, corporate and individual performance and
general business conditions, including changes in the cost of living index."
4. BONUS
For each fiscal year during the term of this Agreement, Seiff shall
be eligible to receive a bonus set by the Board of Directors at its discretion,
based on the operating performance of the Company as compared to the
projections presented to the Board at the beginning of such fiscal year and
such other factors as the Board deems appropriate; provided that such bonus
shall not exceed 100% of Seiff's base salary for such fiscal year. At the
discretion of the Board of Directors, all or part of such bonus may be paid
through the issuance to Seiff of capital stock of the Company or stock options
under the Company's 1997 Stock Option Plan, the fair market value of which is
equal to the cash payment that Seiff would otherwise be entitled to receive as
all or part of such bonus; provided, that Seiff shall be entitled to demand
that an amount of such bonus sufficient to pay any income taxes arising from
such bonus be paid in cash rather than in capital stock of the Company. All
bonuses to be paid to Seiff pursuant to this paragraph 4 shall be paid within
30 days following completion of the audit of the annual financial statements of
the Company for the fiscal year in question.
5. EXPENSE, REIMBURSEMENT AND PERQUISITES
a. During the term of this Agreement, Seiff shall be entitled to
reimbursement of all reasonable and actual out-of-pocket expenses incurred by
him in the performance of his services to the Company, provided that the
expenses are properly accounted for.
b. During each calendar year of the term of this Agreement, Seiff
shall be entitled to reasonable vacation with full pay; provided, however, that
Seiff shall schedule such vacations in the interest of the Company.
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<PAGE>
c. The Company shall provide a life insurance policy on the life of
Seiff, for the benefit of Seiff's beneficiaries, in the amount of at least
$1,000,000. All premiums on such policy shall be paid by the Company.
d. Seiff shall be entitled to participate in all medical and dental
insurance and disability and hospitalization plans and other employee benefit
plans instituted by the Company from time to time on the same terms and
conditions as other employees of the Company, to the extent permitted by law.
6. NON-COMPETITION; NON-SOLICITATION
a. During the Non-Competition Period (as defined in paragraph 6(c)
below), Seiff, without the prior written permission of the Company, shall not,
anywhere in the world, directly or indirectly, (i) enter into the employ of or
render any services to any person, firm or corporation engaged in any business
which is directly or indirectly in competition with the Company ("Competitive
Business"); (ii) engage in any Competitive Business for his own account; (iii)
become associated with or interested in any Competitive Business as an
individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity; (iv) employ or retain, or have or cause any other person or entity to
employ or retain, any person who was employed or retained by the Company while
Seiff was employed by the Company (other than Nicole Kule, Dean Seiff, James
Hilford and Andrew Hilford); or (v) solicit, interfere with, or endeavor to
entice away from the Company, for the benefit of a Competitive Business, any of
its customers or other persons with whom the Company has a contractual
relationship. However, nothing in this Agreement shall preclude Seiff from
investing his personal assets in the securities of any corporation or other
business entity which is engaged in a Competitive Business if such securities
are traded on a national stock exchange or in the over-the-counter market and
if such investment does not result in his beneficially owning, at any time,
more than three percent (3%) of the publicly-traded equity securities of such
Competitive Business.
b. Seiff and the Company agree that the covenants of non-competition
and non-solicitation contained in this paragraph 6 are reasonable covenants
under the circumstances, and further agree that if, in the opinion of any court
of competent jurisdiction, such covenants are not reasonable in any respect,
such court shall have the right, power and authority to excise or modify such
provision or provisions of these covenants as to the court shall appear not
reasonable and to enforce the remainder of these covenants as so amended. Seiff
agrees that any breach of the covenants contained in this paragraph 6 would
irreparably injure the Company. Accordingly, Seiff agrees that the Company, in
addition to pursuing any other remedies it may have in law or in equity, may
obtain an injunction against Seiff from any court having jurisdiction over the
matter, restraining any further violation of this paragraph 6.
c. The "Non-Competition Period" shall extend for the Term of this
Agreement and for a period of two (2) years following the end of the Term;
provided that, in the
3
<PAGE>
event that the Agreement is terminated during the Term of this Agreement by the
Company without cause, or by Seiff pursuant to a Constructive Termination, the
Non-Competition Period shall expire at the end of the Term.
7. TERMINATION
a. This Agreement, the employment of Seiff, and Seiff's position as
an officer and director of the Company shall terminate upon the first to occur
of:
(i) his death;
(ii) his "permanent disability", as defined in Section 7.1 of the
Shareholders' Agreement;
(iii) a "Constructive Termination" by the Company, which, for
purposes of this Agreement, shall be deemed to have occurred
upon (A) the removal of Seiff from his position as Chief
Executive Officer of the Company and Chairman of its Board of
Directors, (B) any material diminution in the nature or scope of
the authorities, powers, functions, duties or responsibilities
attached to such positions, or (C) the material breach by the
Company of this Agreement; provided that no such removal,
diminution or breach shall be considered a Constructive
Termination unless Seiff has provided the Company with at least
sixty (60) days' prior written notice of such removal,
diminution or breach and the Company has failed to cure such
removal, diminution or breach within such sixty (60) day period;
(iv) the termination of this Agreement without cause by the Company,
which shall occur not less than 60 days after the Company has
provided Seiff prior written notice of such termination. In no
event shall termination without cause by the Company take place
prior to November 1, 1993;
(v) non-renewal of this Agreement by the Company and/or the Board of
Directors; or
(vi) the termination of this Agreement for cause, which, for purposes
of this Agreement, shall mean that (1) Seiff has been convicted
of a felony or any serious crime involving moral turpitude, or
engaged in materially fraudulent or materially dishonest actions
in connection with the performance of his duties hereunder, (2)
Seiff has willfully and materially failed to perform his duties
hereunder, or (3) the Company has suffered a substantial and
material operating loss for any two consecutive fiscal years
and, for each such fiscal year, has provided Seiff with written
notice that it considers a loss to be a substantial and material
operating loss for purposes of this
4
<PAGE>
paragraph 7(a)(vi) within thirty (30) days of the issuance of
its audited financial statements for such fiscal year; provided
that, prior to a termination for cause pursuant to subparagraphs
(1) or (2) hereof, the Company shall provide Seiff with at least
thirty (30) days' prior written notice of such cause and shall
not terminate the Agreement under this paragraph 7(a)(vi) if
Seiff cures such cause within such thirty (30) day period;
b. In the event that this Agreement is terminated without cause by
the Company pursuant to paragraph 7(a)(iv) or through a Constructive
Termination pursuant to paragraph 7(a)(iii), the Company shall pay Seiff
severance payments (the "Severance Payments") equal to the total base salary
that would be due to Seiff over the entire remaining term of the Agreement if
he were to have remained employed by the Company for such term, multiplied by
the number of full or partial fiscal years remaining at the time of such
termination; provided that the total amount of the Severance Payments shall in
no event be less than Seiff's base salary for the fiscal year in which such
termination occurs. The Severance Payments shall be payable in periodic
installments in accordance with the Company's standard payroll practices.
8. CONFIDENTIALITY
a. Seiff recognizes that the services to be performed by him are
special, unique and extraordinary in that, by reason of his employment under
this Agreement, he may acquire or has acquired confidential information and
trade secrets concerning the operation of the Company, its predecessors, and/or
its affiliates, the use or disclosure of which could cause the Company, or its
affiliates substantial loss and damages which could not be readily calculated
and for which no remedy at law would be adequate. Accordingly, Seiff covenants
and agrees with the Company that he will not at any time during the Term of
this Agreement or thereafter, except in the performance of his obligations to
the Company or with the prior written consent of the Board of Directors or as
otherwise required by court order, subpoena or other government process,
directly or indirectly disclose any secret or confidential information that he
may learn or has learned by reason of his association with the Company, or any
predecessor. If Seiff shall be required to make such disclosure pursuant to
court order, subpoena or other government process, he shall notify the Company
of the same, by personal delivery or electronic means, confirmed by mail,
within twenty-four (24) hours of learning of such court order, subpoena or
other government process and, at the Company's expense, shall (i) take all
reasonably necessary and lawful steps required by the Company to defend against
the enforcement of such subpoena, court order or government process, and (ii)
permit the Company to intervene and participate with counsel of its choice in
any proceeding relating to the enforcement thereof. The term "confidential
information" includes, without limitation, information not in the public domain
and not previously disclosed to the public or to the trade by the Company's
management with respect to the Company's or its affiliates' facilities and
methods, trade secrets and other intellectual property, designs, manuals,
confidential reports, customer names, financial information or
5
<PAGE>
business plans. Seiff understands and agrees that the rights and obligations
set forth in this paragraph 8(a) shall survive the termination or expiration of
this Agreement.
b. Seiff confirms that all confidential information is and shall
remain the exclusive property of the Company. All business records, papers and
documents kept or made by Seiff relating to the business of the Company shall
be and will remain the property of the Company. Upon the termination of his
employment with the Company, Seiff shall promptly deliver to the Company, and
shall not, without the consent of the Company, which shall not be unreasonably
withheld, retain copies of any written materials prepared by or for the Company
not previously made available to the public or records and documents made by
Seiff or coming into his possession and not in the public domain concerning the
business or affairs of the Company or any predecessors to its business, or any
of its affiliates or subsidiaries. Seiff understands and agrees that the rights
and obligations set forth in this paragraph 8(b) shall survive the termination
or expiration of this Agreement.
9. ACKNOWLEDGMENT, WAIVER
The Company acknowledges that for purposes of this Agreement, Scoppetta &
Seiff represented Seiff and did not provide legal representation or advice with
respect to this Agreement to the Company. In addition, the Company acknowledges
that it has been advised that prior to signing this Agreement it should seek
the advice of counsel, other than Scoppetta & Seiff, with respect to this
Agreement. The Company waives any objection it might have to Scoppetta &
Seiff's representation of Seiff and not the Company with respect to this
Agreement while representing Seiff and the Company with respect to the
Shareholders Agreement entered into as of August 1, 1991, on the grounds of
possible conflict of interest or for any other reason.
10. GOVERNING LAW
This Agreement shall be deemed a contract made under, and for all purposes
shall be construed in accordance with the laws of the State of New York.
11. ENTIRE AGREEMENT
This Agreement contains all of the understandings between Seiff and the
Company pertaining to Seiff's employment with the Company, and it supersedes
all undertakings and agreements, whether oral or in writing, previously entered
into between them.
12. AMENDMENT OR MODIFICATION; WAIVER
No provision of this Agreement may be amended or modified unless such
amendment or modification is agreed to in writing, signed by Seiff and by an
officer of the Company duly authorized to do so. Except as otherwise
specifically provided in this Agreement, no waiver by either party of any
breach by the other party of any condition or provision of this Agreement to be
6
<PAGE>
performed by such other party shall be deemed a waiver of a similar or
dissimilar provision or condition at the same or any prior or subsequent time.
13. NOTICES
Any notice to be given hereunder shall be in writing and delivered
personally or sent by certified mail, postage prepaid, return receipt
requested, addressed to the party concerned at the address indicated below or
to such other address as such party may subsequently designate by like notice:
If to the Company, to:
Pivot Rules, Inc.
80 West York Street
New York, NY 10018
Attn: Kenneth Seiff
With a copy to:
Scoppetta & Seiff
645 Madison Avenue
New York, NY 10022
Attn: Walter A. Kreitz, Jr., Esq.
and
Shereff, Friedman, Hoffman & Goodman LLP
919 Third Avenue
New York, New York 10022
Attn: Richard A. Goldberg, Esq.
If to Seiff, to:
E. Kenneth Seiff
52 East 72nd Street
New York, NY 10021
14. SEVERABILITY
In the event that any provision or portion of this Agreement shall be
determined to be invalid or unenforceable for any reason, the remaining
provisions or portions of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
7
<PAGE>
15. TITLES
Titles of the Sections of this Agreement are intended solely for
convenience of reference and no provision of this Agreement is to be construed
by reference to the title of any Section.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date first above written.
PIVOT RULES, INC.
-----------------------------
By:
Title:
-----------------------------
E. Kenneth Seiff
8
<PAGE>
Exhibit 10.12
May 10, 1994
Pivot Rules, Inc.
80 West 40th Street
New York, NY 10018
Re: Representation Agreement
Gentlemen:
This will confirm our agreement as follows between Pivot Rules, Inc.
("Company") and International Merchandising Corporation ("IMC"). We have
agreed as follows:
1. Exclusive Representation. During the "Representation Period" (as
hereinafter defined), Company hereby appoints IMC--and IMC agrees to serve--as
Company's sole and exclusive agent throughout the "Representation Territory"
(as hereinafter defined) for the solicitation, development, negotiation,
organization and administration of any and all contracts or agreements which
may become available to or on behalf of Company in connection with the
licensing of the PIVOT RULES name, logo and trademarks (hereinafter referred to
as the "Pivot Rules Identification") when used on and in connection with all
items of merchandise.
IMC shall not have the authority to bind or commit Company to any license
agreement or other contract without Company's prior written consent, and no
agreement shall be binding upon Company unless and until the same has been
executed by Company.
2. Representation Period. The period during which IMC shall act as
Company's exclusive agent and representative (the "Representation Period")
shall commence on the date of execution and delivery hereof, and shall continue
until June 30, 1997, and shall remain in effect thereafter from one year to the
next (from one July 1 to the next following June 30) until and unless
terminated as of June 30, 1997, or any June 30th thereafter, by written notice
delivered by one party to the other no later than the March 31st preceding the
June 30th on which termination shall take effect.
3. Representation Territory. The geographical territory wherein IMC shall
act as agent and representative of Company (the "Representation Territory")
shall mean the entire world excluding the United States of America, its
territories and possessions, Canada and Mexico.
4. Diligent Efforts. (a) During the Representation Period, IMC will
exercise diligent efforts in carrying out its obligations under this agreement.
If by June 30, 1995, there is not at least one licensing agreement executed,
Company shall have the right, at its
<PAGE>
Pivot Rules, Inc.
May 10, 1994
Page 2
election, by written notice given to IMC on or before July 31, 1995, to
terminate this Agreement as of the date of such notice with no further
liability of one party to the other hereunder.
(b) IMC agrees to provide to Company, on or about the 15th day of October,
January, April and July during the Representation Period, a quarterly status
report of IMC's efforts on behalf of Company during the immediately preceding
calendar year quarter period. Each such status report shall summarize
solicitations made on behalf of Company, responses from prospective licensees
and other customers, market conditions, and other relevant information
concerning IMC's activities on behalf of Company.
5. Solicitation Materials. IMC agrees that before publishing or
distributing any sales brochures or other sales presentation materials,
including but not limited to materials incorporating the Company Trademarks,
photographs of Company merchandise, and other materials incorporating the Pivot
Rules Identification, IMC shall first submit a copy thereof to Company for
examination and approval or disapproval thereof by Company. IMC agrees to make
use of the Pivot Rules Identification in accordance with samples thereof
provided by Company and in accordance with quality control standards designated
by Company. IMC shall immediately discontinue use of any sales solicitation
materials or promotional materials incorporating the Pivot Rules Identification
upon request by Company.
6. IMC Commission. Company agrees that IMC shall be entitled to receive
and retain a commission (at the rate described immediately below) of all
"Commissionable Income" (defined below) paid by or on behalf of licensees,
directly or indirectly, as compensation for the right to use the Pivot Rules
Identification anywhere in the Representation Territory pursuant to:
(i) any agreement which is executed during the Representation Period;
(ii) any agreement (which is executed after the end of the Representation
Period) on which substantive negotiations with the potential licensee
were commenced during the Representation Period; and
(iii) any renewal, extension or modification of any such agreement, as
aforesaid, including both those executed during the Representation
Period and those executed at any time following the last day of the
Representation Period.
The commission payable to IMC shall be calculated at the rate of thirty percent
(30%) with respect to the first US $1,000,000 of Commissionable Income, and at
the rate of thirty-five percent (35%) of all Commissionable Income in excess of
such amount. There shall be excluded from Commissionable Income any payments
made by licensees to Company in reimbursement of out-of-pocket expenses
incurred by Company for design support (for example, color copies,
transparencies, etc.) and there shall further be excluded any required payments
paid by licensees
<PAGE>
Pivot Rules, Inc.
May 10, 1994
Page 3
into a common advertising fund maintained by Company exclusively for
advertising of the Pivot Rules Identification.
With respect to substantive negotiations described in subparagraph (ii) above,
IMC agrees that it will, within thirty (30) days following the termination of
the Representation Period, submit to Company a list of potential licensees with
which negotiations were pending on the date of termination.
Commissionable Income shall be limited to amounts which are paid or payable
during or with respect to the Representation Period and during or with respect
to the three (3) year period next following the last day of the Representation
Period, provided, however, that notwithstanding the foregoing three year
limitation, as to any agreement pursuant to which Commissionable Income is
payable, IMC shall be entitled to receive a commission during the initial sixty
(60) month period of the term of any such agreement.
7. Payments. Company agrees that all Commissionable Income shall be paid
directly to IMC. IMC agrees to promptly pay to Company the balance of all
amounts received by IMC, after deduction of IMC's commission, any applicable
withholding taxes, and any deductions which are mutually agreed in writing.
Payments will be made on a current basis (within thirty (30) days after receipt
of the relevant item of income), and IMC will in each case provide Company with
details of the calculations of Commissionable Income and any agreed deductions.
8. Expenses. IMC shall be responsible to pay all of its own normal
overhead and operating expenses incurred in connection with the discharge of
its responsibilities hereunder. If IMC shall incur additional expenses
specifically at Company's request and on its behalf, such as, by way of example
only, travel expenses with respect to trips undertaken solely at Company's
specific request, or payment for specialized professional services (such as
outside trademark lawyers retained to assist Company in protecting its
proprietary rights to the Pivot Rules Identification), then Company agrees
either to reimburse IMC therefor or pay such expenses directly provided that
such expenses are reasonable. IMC shall submit an estimate of any such costs in
writing to Company for Company's written approval prior to incurring such
expenses. Company will not be billed for any services performed by IMC's
in-house or of counsel attorneys.
9. Books and Records. Each party agrees that it will keep accurate and
complete records and books of account showing all income it receives relating
to this agreement. Each party, or its representatives, shall have the right at
all reasonable times (prior to the expiration of two years following the date
on which the relevant item of Commissionable Income was paid) to inspect and
make copies of the books and records of the other party insofar as such books
and records shall relate to the computation of amounts to be paid to IMC and
Company hereunder.
<PAGE>
Pivot Rules, Inc.
May 10, 1994
Page 4
10. Related Companies. IMC hereby represents that IMC is a corporation
incorporated in the State of Ohio, U.S.A. IMC is a member company of
International Management Group ("IMG") which is a group of companies under
common ownership and control and which is involved in sports and trademark
representation, marketing, consulting and broadcasting in North America,
Europe, Japan and elsewhere in the world. Company acknowledges that the
obligations of IMC set forth in this Agreement will, outside the United States
of America, be carried out by other member companies of IMG, and IMC hereby
guarantees the performance by such IMG companies of all of the obligations of
IMC set forth in this Agreement.
11. Arbitration. In the event of a dispute arising under this Agreement
which cannot be resolved, such dispute shall be submitted to arbitration and
resolved by a single arbitrator in accordance with the Commercial Arbitration
Rules of the American Arbitration Association then in effect. All such
arbitration shall take place at the office of the American Arbitration
Association located in New York City, New York. The award or decision rendered
by the arbitrator shall be final, binding and conclusive and judgment may be
entered upon such award by any court.
12. Ownership of Pivot Rules Identification. IMC agrees that nothing in
this Agreement shall give IMC any right, title or interest in or to the Pivot
Rules Identification other than the right to use the Pivot Rules Identification
in accordance with the terms of this Agreement. IMC acknowledges that use of
the Pivot Rules Identification by IMC shall not create in favor of IMC any
right, title or interest in or to the Pivot Rules Identification, and all such
use of the Pivot Rules Identification by IMC shall inure to the benefit of
Company.
13. Modification of Agreement. No cancellation, modification, amendment,
deletion, addition or other change in this Agreement or in any provision hereof
or waiver of any right or remedy herein provided shall be effective for any
purpose unless specifically set forth in writing and signed by the party to be
bound thereby. No waiver of any right or remedy in regard to any occurrence or
event on one occasion shall be deemed a waiver of any such right or remedy in
regard to such occurrence or event on any other occasion.
14. Special Right of Termination. If at any time during the Representation
Period of this Agreement, IMC is appointed licensing agent or representative on
behalf of any one or more of the sportswear brands listed below, within the
Representation Territory (as hereinbefore defined), in connection with products
consisting of "sportswear," then IMC shall so notify Company in writing (within
fifteen (15) days after IMC has been so appointed). Upon receipt of such
notification, Company shall have the right to elect to terminate the
Representation Period of this Agreement, by written notice delivered to IMC
within fifteen (15) days following the date of receipt of IMC's written notice.
If Company so elects to terminate the Representation Period, termination shall
be deemed to take effect on the ninetieth (90th) day following the date of
receipt by IMC of written notice of termination. Such sportswear brands are the
following:
<PAGE>
Pivot Rules, Inc.
May 10, 1994
Page 5
Izod Champion Golf Descente
LaCoste Fairway Blues Head
Bobby Jones Charter Golf EP Pro
Polo Golf LaMode Line Up for Sport
Aureus/Aurea Cross Creek Ruff Hewn
Dockers Golf Bogner Hanna Sport
Jean Belle
15. Termination. (a) Upon termination of this Agreement for any reason,
IMC agrees immediately to discontinue all use of the Pivot Rules
Identification, and to destroy all materials bearing the Pivot Rules
Identification in any form, including printed media, audio or audio/visual
media. IMC shall deliver to Company a certificate, executed by an officer of
IMC, certifying such destruction.
(b) Upon the expiration or termination of the Representation Period of
this Agreement for any reason, IMC agrees that as to any country of the
Representation Territory within which there is then in effect any license
agreement pursuant to which Commissionable Income (as defined in Paragraph 6
above) is payable, IMC shall continue to invoice and collect guaranteed
royalties and earned royalties paid by all licensees (in that particular
country), for so long a period of time as at least one of the licensees in that
particular country continues to pay compensation which constitutes
Commissionable Income (income which is commissionable to IMC) it being
understood that at such time that there is no longer Commissionable Income paid
by and licensee in that particular country, IMC shall discontinue its invoicing
and collecting obligations in that particular country. As to those countries
for which IMC continues to perform invoicing and collection, IMC shall continue
to perform the services described in Paragraphs 6 and 7 above and the
provisions of Paragraph 9 shall continue to be applicable to such services.
16. Governing Law. This Agreement shall be construed in accordance with
the laws of the State of New York. Should any part of this Agreement be deemed
invalid or contrary to existing law, the remainder of this Agreement shall be
considered in full force and effect.
17. Termination for Default. If either party at any time during the term
of this Agreement shall fail to observe or perform any of the covenants,
agreements or obligations of such party hereunder, the non-defaulting party may
terminate the Term of this Agreement if such default is not cured within thirty
(30) days after the defaulting party shall have received written notice
specifying such default. Failure to terminate the term of this Agreement
pursuant to this paragraph shall not constitute a waiver or any remedies the
non-defaulting party would have been entitled to demand in the absence of this
paragraph, whether by way of damages, termination or otherwise. Termination of
this Agreement for whatever reason shall be without prejudice to the rights and
liabilities of either party to the other in respect of any matter arising under
this Agreement.
<PAGE>
Pivot Rules, Inc.
May 10, 1994
Page 6
18. Bankruptcy. If IMC shall become bankrupt or insolvent, or if IMC's
business shall be placed in the hands of a receiver, assignee or trustee,
whether by voluntary act of IMC or otherwise, the Representation Period of this
Agreement shall, at the election of Company, immediately terminate.
19. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of both parties and the respective successors and assigns, it
being understood, however that neither party may assign its rights or
obligations hereunder without the prior written consent of the other party,
such consent not to be unreasonably withheld.
20. Entire Agreement. This writing constitutes the entire agreement
between the parties hereto and may not be changed or modified except by a
writing signed by the party to be charged thereto.
If the foregoing accurately sets forth the terms and conditions of our
agreement to your satisfaction, please indicate your acceptance by signing in
the space provided below.
Sincerely yours,
INTERNATIONAL MERCHANDISING
CORPORATION
By: /s/ International Merchandising Corporation
-------------------------------------------------
Read and Agreed:
PIVOT RULES, INC.
By: /s/ E. Kenneth Seiff
-------------------------------------------------
<PAGE>
Exhibit 10.13
COMMENCEMENT DATE AGREEMENT
BETWEEN
80 WEST 40TH STREET ASSOCIATES
AND
PIVOT CORPORATION
THIS AGREEMENT is made this 30 day of October, 1992 pursuant to a Lease
between 80 WEST 40TH STREET ASSOCIATES and PIVOT CORP. dated October 15, 1992.
1) Pursuant to the Lease, the tenant leased a portion of the third floor
(hereinafter the "Demised Premises") of the building known as 80 West
40th Street, New York, New York.
2) Owner and Tenant hereby agree to the following provisions:
(i) Initial Term - Six (6) years, pursuant to the terms of the Lease.
(ii) Commencement Date of Term - November 1, 1992 Expiration Date of
Term - October 31, 1998.
3) Tenant acknowledges that as of the 1st day of November 1992, the
Lease will commence.
IN WITNESS WHEREFOR, the parties hereto have executed this Agreement on
the day and year first above written.
LANDLORD: 80 WEST 40TH STREET ASSOCIATES, LP
by: Mountain Development Corp.
Managing Agent
by: /s/ Alan S. Moore
----------------------------------------
Alan S. Moore
Senior Vice President
<PAGE>
TENANT: PIVOT CORPORATION
by: /s/ E. Kenneth Seiff
-------------------------------------------
<PAGE>
Agreement of Lease, made as of this 15th day of October 1992, between 80 WEST
40TH STREET ASSOCIATES party of the first part, hereinafter referred to as
OWNER, and PIVOT CORPORATION, party of the second part, hereinafter referred to
as TENANT,
Witnesseth: Owner hereby leases to Tenant and Tenant hereby hires from Owner
that part of the third floor, more particularly described on the attached
Exhibit A, which, for the purposes of this lease, shall be deemed to contain
approximately 2,400 rentable square feet in the building known as 80 West 40th
Street, New York, New York 10018 in the Borough of Manhattan, City of New York,
for the term of six (6) years (or until such term shall sooner cease and expire
as hereinafter provided) to commence on the first day of October nineteen
hundred and ninety-two, and to end on the thirtieth day of September nineteen
hundred and ninety-eight, both dates inclusive, at an annual rental rate of
twenty-three ($23.00) dollars per sq. ft. during the first five (5) years of
the lease for a total of two hundred seventy-six thousand dollars during the
first five (5) years and twenty-four ($24.00) dollars per sq. ft. during the
sixth (6th) year of this lease, equal to Fifty-Seven Thousand Six Hundred
($57,600.00) Dollars during the sixth (6th) year, which Tenant agrees to pay in
lawful money of the United States which shall be legal tender in payment of all
debts and dues, public and private, at the time of payment, in equal monthly
installments in advance on the first day of each month during said term, at the
office of Owner or such other place as Owner may designate, without any set off
or deduction whatsoever, except that tenant shall pay the first monthly
installment(s) or the execution hereof (unless this lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant
as follows:
OCCUPANCY: Tenant shall pay the rent as above and as hereinafter provided.
USE: 1. Tenant shall use and occupy demised premises for a showroom, general
office and an apparel design studio. No manufacturing or industrial activities
shall be conducted on the leased premises. provided such use is in accordance
with the Certificates of Occupancy for the building, if any, and for another
purpose.
ALTERATIONS: 3. Tenant shall make no changes in or to the demised premises of
any nature without Owner's prior written consent. Subject to the prior written
consent, which consent shall not be unreasonably withheld or delayed, of Owner,
and to the provisions of this article, Tenant at
<PAGE>
Tenant's expense, may make alterations, installations, additions or
improvements which are non-structural and which do not affect utility services
or plumbing and electrical lines, in or to the interior of the demised premises
using contractors or mechanics first approved by Owner. Tenant shall, at its
expense, before making any alterations, additions, installations or
improvements obtain all permits, approval and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner. Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as
Owner may require. If any mechanic's lien is filed against the demised
premises, or the building of which the same forms a part, for work claimed to
have been done for, or materials furnished to, Tenant, whether or not done
pursuant to this article, the same shall be discharged by Tenant within thirty
days thereafter, at Tenant's expense, by filing the bond required by law or
otherwise. All fixtures and all paneling, partitions, railings and like
installations, installed in the premises at any time, either by Tenant or by
Owner on Tenant's behalf, shall, upon installation, become the property of
Owner and shall remain upon and be surrendered with the demised premises unless
Owner, by notice to Tenant no later than 40 days prior to the date fixed as the
termination of this lease, elects to relinquish Owner's right thereto and to
have them removed by Tenant, in which event the same shall be removed from the
demised premises by Tenant prior to the expiration of the lease, at Tenant's
expense. Nothing in this Article shall be construed to give Owner title to or
to prevent Tenant's removal of trade fixtures, moveable office furniture and
equipment, but upon removal of any such from the premises or upon removal of
other installations as may be required by Owner, tenant shall immediately and
at its expense, repair and restore the premises to the condition existing prior
to installation and repair any damage to the demised premises or the building
due to such removal. All property permitted or required to be removed, by
tenant at the end of the term remaining in the premises after Tenant's removal
shall be deemed abandoned and may, at the election of Owner, either be retained
as Owner's property or removed from the premises by Owner, at Tenant's expense.
REPAIRS: 4. Owner shall maintain and repair the exterior of and the public
portions of the building. Tenant shall, throughout the term of this lease, take
good care of the demised premises and the interior windows and window frames
and, the fixtures and appurtenances therein and at Tenant's sole cost and
expense promptly make all repairs thereto and to the building, whether
structural or non-structural in nature, caused by or resulting from the
carelessness, omission, neglect or improper conduct of Tenant, Tenant's
servants, employees, invitees, or licensees, and whether or not arising from
such Tenant conduct or omission, when required by other provisions of this
lease, including Article 6. Tenant shall also repair all damage to the building
and the demised premises caused by the moving of Tenant's fixtures, furniture
or equipment. All the aforesaid repairs shall be of quality or class equal to
the original work or construction. If Tenant fails, after ten days notice, to
proceed with due diligence to make repairs required to be made by Tenant, the
same may be made by the Owner at the
<PAGE>
expense of Tenant, and the expenses thereof incurred by Owner shall be
collectible, as additional rent, after rendition of a reasonable bill or
statement therefor. If the demised premises be or become infested with vermin,
Tenant shall, at its expense, cause the same to be exterminated. Tenant shall
give Owner prompt notice of any defective condition in any plumbing, heating
system or electrical lines located in the demised premises and following such
notice, Owner shall remedy the condition with due diligence, but at the expense
of Tenant if repairs are necessitated by damage or injury attributable to
Tenant, Tenant's servants, agents, employees, invitees or licensees as
aforesaid. Except as specifically provided in Article 9 or elsewhere in this
lease, there shall be no allowance to the Tenant for a diminution of rental
value and no liability on the part of Owner by reason of inconvenience,
annoyance or injury to business arising from Owner, Tenant or others making or
failing to make any repairs, alterations, additions or improvements in or to
any portion of the building or the demised premises or in and to the fixtures,
appurtenances or equipment thereof. The provisions of this Article 4 with
respect to the making of repairs shall not apply in the case of fire or other
casualty with regard to which Article 9 hereof shall apply.
WINDOW CLEANING: 5. Tenant will not clean nor require, permit, suffer or allow
any window in the demised premises to be cleaned from the outside in violation
of Section 202 of the New York State Labor Law or any other applicable law or
of the Rules of the Board of Standards and Appeals, or of any other Board or
body having or asserting jurisdiction.
REQUIREMENTS OF LAW, FIRE INSURANCE, FLOOR LOADS: 6. Prior to the commencement
of the lease term, if Tenant is then in possession, and at all times
thereafter, Tenant shall, at Tenant's sole cost and expense, promptly comply
with all present and future laws, orders and regulations of all state, federal,
municipal and local governments, departments, commissions and boards and any
direction of any public officer pursuant to law, and all order, rules and
regulations of the New York Board of Fire Underwriters, or the Insurance
Services Office, or any similar body which shall impose any violation, order or
duty upon Owner or Tenant with respect to the demised premises, whether or not
arising out of Tenant's use or manner of use thereof, or, with respect to the
building, if arising out of Tenant's use or manner of use of the demised
premises or the building (including the use permitted under the burse Owner, as
additional rent hereunder, for that portion of all fire insurance premiums
thereafter paid by Owner which shall have been charged because of such failure
by Tenant. In any action or proceeding wherein Owner and Tenant are parties, a
schedule or "make-up" or rate for the building or demised premises issued by a
body making fire insurance rates applicable to said premises shall be
conclusive evidence of the facts therein stated and of the several items and
charges in the fire insurance rates then applicable to said premises. Tenant
shall not place a load upon any floor of the demised premises exceeding the
floor load per square foot area which it was designed to carry and which is
allowed by law. Owner reserves the right to prescribe the weight and position
of all safes, business machines and mechanical equipment. Such installations
shall be placed and maintained by Tenant, at Tenant's
<PAGE>
expense, in settings sufficient, in Owner's judgement, to absorb and prevent
vibration, noise and annoyance.
SUBORDINATION: 7. This lease is subject and subordinate to all ground or
underlying leases and to all mortgages which may now or hereafter affect such
leases or the real property of which demised premises are a part and to all
renewals, modifications, consolidations, replacements and extensions of any
such underlying leases and mortgages. This clause shall be self-operative and
no further instrument or subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such
subordination, Tenant shall execute promptly any certificate that Owner may
reasonably request, and is entitled to pursuant to the terms of this paragraph.
PROPERTY LOSS, DAMAGE, REIMBURSEMENT, INDEMNITY: 8. Owner or its agents shall
not be liable for any damage to property of Tenant or of others entrusted to
employees of the building, nor for loss of or damage to any property of Tenant
by theft or otherwise, nor for any injury or damage to persons or property
resulting from any cause of whatsoever nature, unless caused by or due to the
negligence of Owner, its agents, servants or employees; Owner or its agents
shall not be liable for any damage caused by other tenants or persons in, upon
or about said building or caused by operations in connection of any private,
public or quasi public work. If at any time any windows of the demised premises
are temporarily closed, darkened or bricked up (or permanently closed, darkened
or bricked up, if required by law) for any reason whatsoever including, but not
limited to Owner's own acts, Owner shall not be liable for any damage Tenant
may sustain thereby and Tenant shall not be entitled to any compensation
therefor nor abatement or diminution of rent nor shall the same release Tenant
from its obligation hereunder nor constitute an eviction. Tenant shall
indemnify and save harmless Owner against and from all liabilities,
obligations, damages, penalties, claims, costs and expenses for which Owner
shall not be reimbursed by insurance, including reasonable attorney's fees,
paid, suffered or incurred as a result of any breach by Tenant, Tenant's
agents, contractors, employees, invitees, or licensees, of any covenant or
condition of this lease, or the carelessness, negligence or improper conduct of
the Tenant, Tenant's agents, contractors, employees, invitees or licensees.
Tenant's liability under this lease extends to the acts and omissions of any
sub-tenant, and any agent, contractor, employee, invitee or licensee of any
sub-tenant. In case any action or proceeding is brought against Owner by reason
of any such claim, Tenant, upon written notice from Owner, will, at Tenant's
expense, resist or defend such action or proceeding by counsel approved by
Owner in writing, such approval not to be unreasonably withheld.
DESTRUCTION, FIRE AND OTHER CASUALTY: 9. (a) If the demised premises or any
part thereof shall be damaged by fire or other casualty, Tenant shall give
immediate notice thereof to Owner and this lease shall continue in full force
and effect except as hereinafter set forth. (b) If the demised premises are
partially damaged or rendered partially unusable by fire or other casualty, the
damages thereto shall be repaired by and at the expense of Owner and
<PAGE>
the rent, until such repair shall be substantially completed, shall be
apportioned from the day following the casualty according to the part of the
premises which is usable. (c) If the demised premises are totally damaged or
rendered wholly unusable by fire or other casualty, then the rent shall be
proportionately paid up to the time of the casualty and thenceforth shall cease
until the date when the premises shall have been repaired and restored by
Owner, subject to Owner's right to elect not to restore the same as hereinafter
provided. (d) If the demised premises are rendered wholly unusable or (whether
or not the demised premises are damaged in whole or in part) if the building
shall be so damaged that Owner shall decide to demolish it or to rebuild it,
then, in any of such events, Owner may elect to terminate this lease by written
notice to Tenant, given within 90 days after such fire or casualty, specifying
a date for the expiration of the lease, which date shall not be more than 60
days after the giving of such notice, and upon the date specified in such
notice the term of this lease shall expire as fully and completely as if such
date were the date set forth above for the termination of this lease and Tenant
shall forthwith quit, surrender and vacate the remises without prejudice
however, to Owner's rights and remedies against Tenant under the lease
provisions in effect prior to such termination, and any rent owing shall be
paid up to such date and any payments of rent made by Tenant which were on
account of any period subsequent to such date shall be returned to tenant.
Unless Owner shall release and waiver shall be in force only if both releasors'
insurance policies contain a clause providing that such a release or waiver
shall not invalidate the insurance. If, and to the extent, that such waiver can
be obtained only by the payment of additional premiums, then the party
benefitting from the waiver shall pay such premium within ten days after
written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver of subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
EMINENT DOMAIN: 10. If the whole or any part of the demised premises shall be
acquired or condemned by Eminent Domain for any public or quasi public use or
purpose, then and in that event, the tem of this lease shall cease and
terminate from the date of title vesting in such proceeding and Tenant shall
have no claim for the value of any unexpired term of said lease.
ASSIGNMENT, MORTGAGE, ETC.: 11. Tenant, for itself, its heirs, distributees,
executors, administrators, legal representatives, successors and assigns,
expressly covenants that it shall not assign, mortgage or encumber this
agreement, nor underlet, or suffer or permit the demised premises or any part
thereof to be used by others, without the prior written consent of Owner in
each instance. Transfer of the majority of the stock of a corporate Tenant
shall be deemed an assignment. If this lease be assigned, or if the demised
premises or any part thereof be underlet or occupied by anybody other than
<PAGE>
Tenant, Owner may, after default by Tenant, collect rent from the assignee,
under-tenant or occupant, and apply the net amount collected to the rent herein
reserved, but no such assignment, underletting, occupancy or collection shall
be deemed a waiver of this covenant, or the acceptance of the assignee,
under-tenant or occupant as tenant, or a release of Tenant from the further
performance by Tenant of covenants on the part of Tenant herein contained. The
consent by Owner to an assigned or underletting shall not in any wise be
construed to relieve tenant from obtaining the express consent in writing of
Owner to any further assignment or underletting.
ELECTRIC CURRENT: 12. Rates and conditions in respect to submetering or rent
inclusion, as the case may be, to be added in RIDER attached hereto. Tenant
covenants and agrees that at all times its use of electric current shall not
exceed the capacity of existing lenders to the building or the risers or wiring
installation and Tenant may not use any electrical equipment which in Owner's
opinion, reasonably exercised, will overload such installations or interfere
with the use thereof by other tenants of the building. The change at any time
of the character of electric service shall in no wise make Owner liable or
responsible to Tenant, for any loss, damages or expenses which Tenant may
sustain.
ACCESS TO PREMISES: 13. Owner or Owner's agents shall have the right (but shall
not be obligated) to enter the demised premises in any emergency at any time,
and, at other reasonable times, to examine the same and to make such repairs,
replacements and improvements as Owner may deem necessary and reasonably
desirable to any portion of the building or which Owner may elect to perform in
the premises after Tenant's failure to make repairs or perform any work which
Tenant is obligated to perform under this lease, or for the purpose of
complying with laws regulations and other directors of governmental
authorities. Tenant shall permit Owner to use and maintain and replace pipes
and conduits in and through the demised premises and to erect new pipes and
conduits therein provided, wherever possible, they are within walls or
otherwise concealed. Owner may, during the progress of any work in the demised
premises, take all necessary materials and equipment into said premises without
the same constituting an eviction nor shall the Tenant be entitled to any
abatement of rent while such work is in progress nor to any damages by reason
of loss or interruption of business or otherwise. Throughout the term hereof
Owner shall have the right to enter the same to prospective purchasers or
mortgagees of the building, and during the last six months of the term for the
purpose of showing the same to prospective tenants and may, during said six
months period, place upon the premises the usual notices "To Let" and "For
Sale" which notices Tenant shall permit to remain thereon without molestation.
If Tenant is not present to open and permit an entry into the premises, Owner
or Owner's agents may enter the same whenever such entry may be necessary or
permissible by master key or forcibly and provided reasonable care is exercised
to safeguard Tenant's property, such entry shall not render Owner or its agents
liable therefor, nor in any event shall the obligations of Tenant hereunder be
affected. If during the last month of the term Tenant shall have removed all or
substantially all of Tenant's property therefrom, Owner may immediately enter,
alter, renovate or redecorate the demised premises without
<PAGE>
limitation or abatement of rent, or incurring liability to Tenant for any
compensation and such act shall have no effect on this lease or Tenant's
obligations hereunder.
VAULT, VAULT SPACE, AREA: 14. No Vaults, vault space or area, whether or not
enclosed or covered, not within the property line of the building is leased
hereunder, anything contained in or indicated on any sketch, blue print or
plan, or anything contained elsewhere in this lease to the contrary
notwithstanding. Owner makes no representation as to the location of the
property line of the building. All vaults and vault space and all such areas
not within the property line of the building, which Tenant may be permitted to
use and/or occupy, is to be used and/or occupied under a revocable license, and
if any such license be revoked, or if the amount of such space or area be
diminished or required by any federal, state or municipal authority or public
utility, Owner shall not be subject to any liability nor shall Tenant be
entitled to any compensation or diminution or abatement of rent, nor shall such
revocation, diminution or requisition be deemed constructive or actual
eviction. Any tax, fee or charge of municipal authorities for such vault or
area shall be paid by Tenant, if used by Tenant, whether or not specifically
leased hereunder.
OCCUPANCY: 15. Tenant will not at any time use or occupy the demised premises
in violation of the certificate of occupancy issued for the building of which
the demised premises are a part. Tenant has inspected the premises an d accepts
them as is, subject to the riders annexed hereto with respect to Owner's work,
if any. In any event, Owner makes no representation as to the condition of the
premises and Tenant agrees to accept the same subject to violations, whether or
not or record. If any governmental license or permit shall be required for the
proper and lawful conduct of Tenant's business, Tenant shall be responsible for
and shall procure and maintain such license or permit.
BANKRUPTCY: 16. (a) Anything elsewhere in this lease to the contrary
notwithstanding, this lease may be canceled by Owner by sending of a written
notice to Tenant within a reasonable time after the happening of any one or
more of the following events: (1) the commencement of a case in bankruptcy or
under the laws of any state naming Tenant as a debtor; or (2) the making by
Tenant of an assignment or any other arrangement for the benefit of creditors
under any state statute. Neither Tenant nor any person claiming through or
under Tenant, or by reason of any statute or order of court, shall thereafter
be entitled to possession of the premises demised but shall forthwith quit and
surrender the premises. If this lease shall be assigned in accordance with its
terms, the provisions of this Article 16 shall be applicable only to the party
then owning Tenant's interest in this lease.
(b) It is stipulated and agreed that in the event of the termination
of this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding
any other provisions of this Lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rental reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
<PAGE>
installment of rent becoming due hereunder after the date to termination and
the fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be relet by the Owner for the unexpired term of said Lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such reletting
shall be deemed to be the fair and reasonable rental value for the part for the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time
when, and governing the proceedings in which, such damages are to be proved,
whether or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
DEFAULT. 17. (1) If Tenant defaults in fulfilling any of the covenants of this
lease other than the covenants for the payment of rent or additional rent; or
if the demised premises becomes vacant or deserted "or if this lease be
rejected under #235 of Title 11 of the U.S. Code (bankruptcy code); or if any
execution or attachment shall be issues against Tenant or any of tenant's
property whereupon the demised premises shall be taken or occupied by someone
other than Tenant; or if Tenant shall make default with respect to any other
lease between Owner and Tenant; or ir Tenant shall have failed, after ten (10)
days written notice, to redeposit with Owner any portion of the security
deposited hereunder which Owner has applied to the payment of any rent and
additional rent due and payable hereunder or failed to move into or take
possession of the premises within twenty (20) days after the commencement of
the term of this lease, of which fact Owner shall be the sole judge; then in
any one or more of such events, upon Owner servicing a written ten (10) days
notice upon Tenant specifying the nature of said default and upon the
expiration of said ten (10) days, if Tenant shall have failed to comply with or
remedy such default, or if the said default or omission complained of shall be
of nature that the same cannot be completely cured or remedied within said ten
(10) day period, and if Tenant shall not have diligently commenced during such
default within such ten (10) day period, and shall not thereafter with
reasonable diligence and in good faith, proceed to remedy or cure such default,
then Owner may serve a written five (5) days notice of cancellation of this
lease upon Tenant, and upon the expiration of said five (5) days this lease and
the term thereunder shall end and expire as fully and completely as if the
expiration of such five (5) day period were the day herein definitely fixed for
the end and expiration of this lease and the term thereof and Tenant shall then
quit and surrender the demised premises to Owner but Tenant shall remain liable
as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given,
and the term shall expire as aforesaid: or it Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise,
<PAGE>
and the legal representative of Tenant or other occupant of demised premises,
and remove their effects and hold the premises as if this lease had not been
made, and Tenant hereby waives the service of notice of intention to re-enter
or to institute legal proceedings to that end. If Tenant shall make default
hereunder prior to the date fixed as the commencement of any renewal or
extension of this lease, Owner may cancel and terminate such renewal or
extension agreement by written notice.
REMEDIES OF OWNER AND WAIVER OF REDEMPTION: 18. In case of any such default,
re-entry, expiration and/or disposses by summary proceeding or otherwise, (a)
the rent, and additional rent, shall become due thereupon and be paid up to the
time of such re-entry, disposses and/or expiration, (b) Owner may re-let the
premises or any part or parts thereof, either in the name of Owner or
otherwise, for a term or terms, which may at Owner's option be less than or
exceed the period which would otherwise have constituted the balance of the
term of this lease and may grant concessions or free rent or charge a higher
rental than that in this lease, (c) Tenant or the legal representatives of
Tenant shall also pay Owner as liquidated damages for the failure of Tenant to
observe and perform said tenant's covenants herein contained, any deficiency
between the rent hereby reserved and or covenanted to be paid and the net
amount, if any, of the rents collected on account of the subsequent lease or
leases of the demised premises for each month of the period which would
otherwise have constituted the balance of the term of this lease. The failure
of Owner to re-let the premises or any part or parts thereof shall not release
or affect Tenant's liability for damages. In computing such liquidated damages
there shall be added to the said deficiency such expenses as Owner may incur in
connection with re-letting, such as legal expenses, attorneys' fees, brokerage,
advertising and for keeping the demised premises in good order or for preparing
the same for re-letting. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent day specified in this lease and any suit
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the deficiency for any
subsequent month by a similar proceeding. Owner, in putting the demised
premises in good order or preparing the same for re-rental may, at Owner's
option, make such alterations, repairs, replacements, and/or decorations in the
demised premises as Owner, in Owner's sole judgment, considers advisable and
necessary for the purpose of re-letting the demised premises, and the making of
such alterations, repairs, replacements, and/or decorations shall not operate
or be construed to release Tenant from liability hereunder as aforesaid. Owner
shall in no event be liable in any way whatsoever for failure to re-let the
demised premises, or in the event that the demised premises are re-let, for
failure to collect the rent thereof under such re-letting, and in no event
shall Tenant be entitled to receive any excess, if any, of such new rents
collected over the sums payable by Tenant to Owner hereunder. In the event of a
breach or threatened breach by Tenant of any of the covenants or provisions
hereof, Owner shall have the right of injunction and the right to invoke any
remedy allowed at law or in equity as if re-entry, summary proceedings and
other remedies were not herein provided for. Mention in this lease of any
particular remedy, shall not preclude Owner from any other remedy, in law or in
equity. Tenant hereby expressly waives any and all rights of
<PAGE>
redemption granted by or under any present or future laws.
FEES AND EXPENSES: 19. If Tenant shall default in the observance or performance
of any term or covenant on Tenant's part to be observed or performed under or
by virtue of any of the terms or provisions in any article of this lease, then,
unless otherwise provided elsewhere in this lease, Owner may immediately or at
any time thereafter and without notice perform the obligation of Tenant
thereunder. If Owner, in connection with the foregoing or in connection with
any default by tenant in the covenant to pay rent hereunder, makes any
expenditures or incurs any obligations for the payment of money, including but
not limited to attorney's fees, in instituting, prosecuting or defending any
action or proceedings, then Tenant will reimburse Owner for such sums so paid
or obligations incurred with reasonable interest and costs. The foregoing
expenses incurred by reason of Tenant's default shall be deemed to be
additional rent hereunder and shall be paid by Tenant to Owner within five (5)
days of rendition of any bill or statement to Tenant therefor. If Tenant's
lease term shall have expired at the time of making such expenditures or
incurring or such obligations, such sums shall be recoverable by Owner as
damages.
BUILDING ALTERATIONS AND MANAGEMENT: 20. Owner shall have the reasonable right
and without the same constituting an eviction and without incurring liability
to Tenant therefor to change the arrangement and or location of public
entrances, passageways, doors, doorways, corridors, elevators, stairs, toilets
or other public parts of the building and to change the name, number or
designation by which the building may be known. There shall be no allowance to
Tenant for diminution of rental value and no liability on the part of Owner by
reason of inconvenience, annoyance or injury to business arising from Owner or
other Tenant making any repairs in the building or any such alterations,
additions and improvements. Furthermore, Tenant shall not have any claim
against Owner by reason of Owner's imposition of any controls of the manner of
access to the building by Tenant's social or business visitors as the Owner may
deem necessary for the security of the building and its occupants provided that
said changes will not prevent the operation of Tenant's business.
NO REPRESENTAIONS BY OWNER: 21. Neither Owner nor Owner's agents have made any
representations or promises with respect to the physical condition of the
building, the land upon which it is erected or the demised premises, the rents,
leases, expenses of operation or of any other matter or thing or thing
affecting or related to the demised premises or the building except as herein
expressly set forth and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth in the provisions of
this Lease. Tenant has inspected the building and the demised premises and is
thoroughly acquainted with their condition and agrees to take the same "as is"
on the date possession is tendered and acknowledges that the taking of
possession of the demised premises by Tenant shall be conclusive evidence that
the said premises and the building of which the same form a part were in good
and satisfactory condition at the time such possession was so taken, except as
to latent defects. All understandings and agreements heretofore made between
the
<PAGE>
parties hereto at merged in this contract, which alone fully and completely
expresses the agreement between Owner and Tenant and any executory agreement
hereafter made shall be ineffective to change, modify, discharge or effect an
abandonment of it in whole or in part, unless such executory agreement is in
writing and signed by the party against whom enforcement of the change,
modification, discharge or abandonment is sought.
END OF TERM: 22. Upon the expiration term of this lease, Tenant shall quit and
surrender to Owner the demised premises, broom clean, in good order and
condition, ordinary wear and damages which Tenant is not required to repair as
provided elsewhere in this lease excepted, and tenant shall remove all its
property from the demised premises. Tenant's obligation to observe or perform
this covenant shall survive the expiration or other termination of this lease.
If the last day of the term of this Lease or any renewal thereof, falls on
Sunday, this lease shall expire at noon on the preceding Saturday unless it be
a legal holiday in which case it shall expire at noon on the preceding business
day.
QUIET ENJOYMENT: 23. Owner covenants and agrees with Tenant that upon Tenant
paying the rent and additional rent and observing and performing all the terms,
covenants and conditions, on Tenant's part to be observed and performed, Tenant
may peaceably and quietly enjoy the premises hereby demised, subject,
nevertheless, to the terms and conditions of this lease including, but not
limited to, Article 34 hereof and to the ground leases, underlying leases and
mortgages hereinbefore mentioned.
FAILURE TO GIVE POSSESSION: 24. If Owner is unable to give possession of the
demised premises on the date of the commencement of the term hereof, because of
the holding-over or retention of possession of any tenant, undertenant or
occupants or if the demised premises are located in a building being
constructed, because such building has not been sufficiently completed to make
the premises ready for occupancy or because of the fact that a certificate of
occupancy has not been procured or if Owner has not completed any work required
to be performed by Owner, or for any other reason, Owner shall not be subject
to any liability for failure to give possession on said date and the validity
of the lease shall not be impaired under such circumstances, nor shall the same
be construed in any wise to extend the term of this lease, but the rent payable
hereunder shall be abated (provided Tenant is not responsible for Owner's
inability to obtain possession or complete any work required) until after Owner
shall have given Tenant notice that the premises are substantially ready for
Tenant's occupancy. If permission is given to Tenant to enter into the
possession of the demised premises or to occupy premises other than the demised
premises prior to the date specified as the commencement of the term of this
Lease. Tenant covenants and agrees that such occupancy shall be deemed to be
under all the terms, covenants, conditions and provisions of this Lease, except
as to the covenant to pay rent. The provisions of this article are intended to
constitute "an express provision to the contrary" within the meaning of Section
223-a of the New York Real Property Law.
NO WAIVER: 25. The failure of Owner to seek redress for violation of, or to
insist upon the strict performance of any covenant or condition of this lease
or of any of
<PAGE>
the Rules or Regulations, set forth or hereafter adapted by Owner, shall not
prevent a subsequent act which would have originally constituted a violation
from having all the force and effect of an original violation. The receipt by
Owner of rent with knowledge of the breach of any covenant of this Lease shall
not be deemed a waiver of such breach and no provision of this lease shall be
deemed to have been waived by Owner unless such waiver be in writing signed by
Owner. No payment by Tenant or receipt by Owner of a lesser amount than the
monthly rent herein stipulated shall be deemed to be other than on account of
the earliest stipulated rent, nor shall any endorsement or statement of any
check or any letter accompanying any check or payment as rent be deemed an
accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. All checks tendered to Owner as and for
the rent of the demised premises shall be deemed payments for the accounts of
Tenant. Acceptance by Owner of rent from anyone other that Tenant shall not be
deemed to operate as an attornment to Owner by the payor of such rent or as a
consent by Owner to an assignment or subletting by Tenant of the demised
premises to such payor, or as a modification of the provisions of this lease.
No act or thing done by Owner or Owner's agents during the term hereby demised
shall be deemed an acceptance of a surrender of said premises and no agreement
to accept such surrender shall be valid unless in writing signed by Owner, No
employee of Owner or Owner's agent shall have any power to accept the keys of
said premises prior to the termination of the lease and the delivery of keys to
any such agent or employee shall not operate as a termination of the lease or a
surrender of the premises.
INABILITY TO PEERFORM: 27. This Lease and the obligation of Tenant to pay rent
hereunder and perform all of the other covenants and agreements hereunder on
part of Tenant to be performed shall in no wise be affected, impaired or
excused because Owner is unable to fulfill any of its obligations under supply
or is delayed in supplying any service expressly or impliedly to be supplied or
is unable to make, or is delayed in making any repair, additions, alterations
or decorations or is unable to supply or is delayed in supplying any equipment
or fixtures if Owner is prevented or delayed from so doing by reason of strike
or labor troubles or any cause whatsoever beyond Owner's sole control
including, but not limited to, government preemption in connection with a
National Emergency or by reason of any rule, order or regulation.
WATER CHARGES: 29. If Tenant requires, uses or consumes water for any purpose
in addition to ordinary lavatory purposes (of which fact Tenant constitutes
Owner to be sole judge) Owner may install a water meter and thereby measure
Tenant's water consumption for all purposes. Tenant shall pay Owner for the
cost and expense in default of which Owner may cause such meter and equipment
to be replaced or repaired and collect the cost thereof from Tenant as
additional rent. Tenant agrees to pay for water consumed, as shown of said
meter as and when bills are rendered, and no default in making such payment
Owner may pay such charges and collect the same from Tenant as additional rent.
Tenant covenants and agrees to pay, as additional rent, the sewer rent, charge
or any other tax, rent, levy or charge which now or hereafter is assessed,
imposed or a lien upon the demised premises or the realty of which they are
part pursuant to law,
<PAGE>
order or regulation made or issued in connection with the use, consumption,
maintenance or supply of water, water, water system or sewage or sewage
connection or system. If the building or the demised premises or any part
thereof is supplied with water through a meter through which water is also
supplied to other premises Tenant shall pay to Owner, as additional rent, on
the first day of each month, __________% ($ ) of the total meter charges as
Tenant's portion. Independently of and in addition to any of the remedies
reserved to Owner hereinabove or elsewhere in this lease Owner may sue for and
collect any monies to be paid by Tenant or paid by Owner for any of the reasons
or purposes hereinabove set forth.
SPRINKLERS: 30. Anything elsewhere in this lease to the contrary
notwithstanding, if the New York Board of Fire Underwriters or the New York
Fire Insurance Exchange or any bureau, department or official of the federal,
state or city government recommend or require the installation of a sprinkler
system or that any changes, modifications, alternations, or additional
sprinkler heads or other equipment be made or supplied in an existing sprinkler
system by reason of Tenant business, or the location of partitions, trade
fixtures, or other contents or the demised premises, or for any other reason,
or if any such sprinkler system installations, modifications, alterations,
additional sprinkler heads or other such equipment, become necessary to prevent
the imposition of a penalty or charge against the full allowance for a sprinkle
system in the fire insurance rate set by any said Exchange or by any fire
insurance company due to the operation of Tenant's business, Tenant shall, at
Tenant's expense, promptly make such sprinkler system installations, changes,
modifications, alteration and supply additional sprinkler heads or other
equipment as required whether the work involved shall be structural or
non-structural in nature. Tenant shall pay to Owner as additional rent the sum
of $_____________, on the first day of each month during the term of this
lease, as Tenant's portion of the contract price for sprinkler supervisory
service.
ELEVATORS, HEAT, CLEANING: 31. As long as Tenant is not in default under any
the covenants of this lease Owner shall: (a) provide necessary passenger
elevator facilities on business day from 8 a.m. to 6 p.m. and on Saturdays from
8 a.m. to 1 p.m.; (b) if freight elevator service is provided, same shall be
provided, same shall be provided only on regular business days Monday through
Friday inclusive, and on those days only between the hours of 9 a.m. and 12
noon and between ___ p.m. and 5 p.m.; (c) furnish heat, water and other
services supplied by Owner to the demised premises, when and as required by
law, on business days from 8 a.m. to 6 p.m. and on Saturdays from 8 a.m. to 1
p.m.; (to clean the public halls and the public portions of the building which
are used common by all tenants. Tenant shall, at Tenant's expense, keep the
demised premises, including the windows, clean and in order, to the
satisfaction of Owner, and for the purpose shall employ the person or persons,
or corporation reasonably acceptable to Owner. Tenant shall pay to Owner the
cost of removal of any of Tenant's refuse and rubbish from the building. Bills
for the same shall be rendered by Owner to Tenant at such time Owner may elect
and shall be due and payable hereunder, and the amount of such bill shall be
deemed to be, and be paid as, additional rent. Tenant shall, however, have the
option of independently contracting for removal of such
<PAGE>
rubbish and refuse in the event that Tenant does not want to have same done by
employees of Owner. Under such circumstances however, the removal of such
refuse and rubbish by others shall be subject to such rules and regulations as,
in the judgment of Owner, if necessary for the proper operation of the
building. Owner reserves the right to stop service of the heating, elevator,
plumbing and electric terms, when necessary, by reason of accident, or
emergency, or repairs, alterations, replacements or improvements, in the
judgment of Owner desirable or necessary to be made, and said repairs,
alterations, replacements or improvements shall have been completed. If the
building of which the demised premises are a part supplies manually operated
elevator service, Owner may proceed with alterations necessary to substitute
automatic control elevator service upon ten (10) day written notice. Tenant
without in any way affecting the obligations of Tenant hereunder provided that
the same shall be done with the minimum amount of inconvenience to Tenant, and
Owner pursues with due diligence the completion of the alterations.
SECURITY: 32. Tenant has deposited with Owner the sum of $ as security for
the faithful performance and observance by Tenant of the terms, provisions and
condition of this lease; it is agreed that in the event Tenant defaults in
respect of any of the terms, provisions and condition of this lease, including,
but not limited to, the payment of rent and additional rent, Owner may use,
apply or retain the whole or any part of the security so deposited to the
extent required for the payment of any rent and additional rent or any other
sum as to which tenant is in default or for any sum which Owner may expend or
may be required to expend by reason of Tenant's default in respect of any of
the terms, covenants and conditions of this lease, including but not limited
to, any damages or deficiency in the re-letting of the premises, whether such
damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to Owner.
In the event of a sale of the land and building or easing of the building, of
which the demised premises form a part, Owner shall have the right to transfer
the security to the vendee or lessee and Owner shall thereupon be released by
Tenant from all liability for the return of such security; and Tenant agrees to
look to the new Owner solely for the return of said security, and it is agreed
that the provisions hereof shall apply to every transfer or assignment made of
the security to a new Owner, Tenant further covenants that it will not assign
or encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successor or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted
encumbrance.
CAPTIONS: 33. The Captions are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope of this lease nor
the intent of any provisions thereof.
DEFINITIONS: 34. The term "Owner" as used in this lease means only the Owner of
the sale or of the leasehold of the building, or the mortgagee in possession,
for
<PAGE>
the time being of the land and building (or the owner of a lease of the
building or of the land and building) of which the demised premises form a
part, so that in the event of any sale or sales of said land and building or of
said lease or in the event of a lease of said building, or of the land and
building, the said Owner shall be and hereby is entirely freed and relieved of
all covenants and obligations of Owner hereunder, and it shall be deemed and
construed without further agreement between the parties or their successors in
interest, or between the parties and the purchaser, at any such sale, or the
said lessee of the building, or of the land and building, that the purchaser or
the lessee of the building has assumed and agreed to carry out any and all
covenants and obligations of Owner hereunder. The words "re-enter" and
"re-entry" as used in this lease are not restricted to their technical legal
meaning. The term "rent' includes the annual rental rate whether so-expressed
or expressed in monthly installments, and "additional rent." "Additional rent"
means all sums which shall be due to new Owner from Tenant under this lease, in
addition to the annual rental rate. The term "business days" as used in this
lease, shall exclude Saturdays (except such portion thereof as is covered by
specific hours in Article 31 hereof), Sundays and all days observed by the
State or Federal Government as legal holidays and those designated as holidays
by the applicable building service union employees service contract or by the
applicable Operating Engineers contract with respect to HVAC service.
ADJACENT EXCAVAION--SHORING: 35. If an excavation shall be Excavation-- made
upon land adjacent to the Shoring: demised premises, or shall be authorized to
be made, Tenant shall afford to the person causing or authorized to cause such
excavation, license to enter upon the demised premises for the purpose of doing
such work as said person shall deem necessary to preserve the wall or the
building of which demised premises form a part from injury or damage and to
support the same by proper foundations without any claim for damages or
indemnity against Owner, or diminution or abatement of rent.
RULES AND REGULATIONS: 36. Tenant and Tenant's servants, employees, agents,
visitors, and licensees shall observe faithfully, and comply strictly with, the
Rules and Regulations annexed hereto and such other and further reasonable
Rules and Regulations as Owner or Owner's agents may from time to time adopt.
Notice of any additional rules or regulations shall be given in such manner as
Owner may elect. In case Tenant disputes the reasonableness of any additional
Rule or Regulation hereafter made or adopted by Owner or Owner's agents, the
parties hereto agree to submit the question of the reasonableness of such Rule
or Regulation for decision to the New York office of the American Arbitration
Association, whose determination shall be final and conclusive upon the parties
hereto. The right to dispute the reasonableness of any additional Rule or
Regulation upon Tenant's part shall be deemed waived unless the same shall be
asserted by service of a notice, in writing upon Owner within ten (10) days
after giving of notice thereof. Nothing in this lease contained shall be
construed to impose upon Owner any duty or obligation to enforce the Rules and
Regulations or terms, covenants or conditions in any other lease, as against
any other tenant and Owner shall not be liable to Tenant for violation of the
same by any other tenant, its servants, employees, agents, visitors or
licensees.
<PAGE>
GLASS: 37. Owner shall replace, at the expense of the Tenant, any and all plate
and other glass damaged or broken due to the action of Tenant, its employees,
agents, guests, customers and licenses whatsoever in and about the demised
premises. Owner may insure, and keep insured, at Tenant's expense, all plate
and other glass in the demised premises for and in the name of Owner. Bills for
the premiums therefor shall be rendered by Owner to Tenant at such times as
Owner may elect, and shall be due from, and payable by, Tenant when rendered,
and the amount thereof shall be deemed to be, and be paid, as additional rent.
ESTOPPEL CERTIFICATE: 38. Tenant, at any time, and Certificate: from time to
time, upon at least 10 days' prior notice by Owner, shall execute, acknowledge
and deliver to Owner, and/or to any other person, firm or corporation specified
by Owner, a statement certifying that this Lease in unmodified in full force
and effect (or, if there have been modifications, that the same is in full
force and effect as modified and stating the modifications), stating the date
to which the rent and additional rent have been paid, and stating whether or
nor there exists any default by Owner under this Lease, and, if so, specifying
each such default.
DIRECTORY BOARD LISTING: 39. If, at the request of and as accommodation to
Tenant, Owner shall place upon the directory board in the lobby of the
building, one or more names of persons other than tenant, such directory board
listing shall not be construed as that consent by Owner to an assignment or
subletting by Tenant to such person or persons.
SUCCESSORS AND ASSIGNS: 40. The covenants, conditions and agreements contained
in this lease shall bind and inure to the benefit of Owner and Tenant and their
respective heirs, distributees, executors, administrators, successors, and
except as otherwise provided in this lease, their assigns.
SEE ATTACHED RIDER TO LEASE IN THE EVENT OF A CONFLICT BETWEEN THE FORMS AND
CONDITIONS OF THIS LEASE AND THE RIDER TO LEASE IT IS AGREED AND UNDERSTOOD
THAT THE TERMS AND CONDITIONS OF THE RIDER TO LEASE SHALL SUPERSEDE AND
PREVAIL.
<PAGE>
In Witness Whereof, Owner and Tenant have respectively signed and sealed
this lease as of the day and year first above written.
80 WEST 40TH STREET ASSOCIATES, A
NEW YORK LIMITED PARTNERSHIP
BY: MOUNTAIN DEVELOPMENT CORP.,
WITNESS FOR OWNER: LANDLORD: MANAGING AGENT
/s/ ALAN S. MOORE
- --------------------------- -------------------------------------
WITNESS FOR TENANT: TENANT: PIVOT CORPORATION
BY: /s/ E. KENNETH SEIFF
- --------------------------- -------------------------------------
<PAGE>
IMPORTANT - PLEASE READ
RULES AND REGULATIONS
ATTACHED TO AND MADE
A PART OF THIS LEASE
IN ACCORDANCE WITH
ARTICLE 36.
1. The sidewalks, entrances, driveways, passages, courts, elevators,
vestibules, stairways, corridors or halls shall not be obstructed or encumbered
by any Tenant or used for any purpose other than for ingress or egress from the
demised premises and for delivery of merchandise and equipment in a prompt and
efficient manner using elevators and passageways designated for such delivery
by Owner. There shall not be used in any space, or in the public hall of the
building, either by any Tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber
tires and side guards. If said premises are situated on the ground floor of the
building. Tenant thereof shall further, at Tenant's expense, keep the sidewalk
and curb in front of said premises clean and free from ice, snow, dirt and
rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window of
the building; and no Tenant shall sweep or throw or permit to be swept or
thrown from the demised premises any dirt or other substances into any of the
corridors or halls, elevators, or out of the doors or windows or stairways of
the building and Tenant shall not use, keep or permit to be used or kept any
foul or noxious gas or substance in the demised premises, or permit or suffer
the demised premises to be occupied or used in a manner offensive or
objectionable to Owner or other occupants of the buildings by reason of noise,
odors, and or vibrations, or interfere in any way, with other Tenants or those
having business therein, nor shall any animals or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of
the building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premises if
the same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance
door of the premises. In the event of the violation of the foregoing by any
Tenant, Owner may remove same without any liability and may charge the expense
incurred by such removal to Tenant or Tenants violating this rule. Interior
signs on doors and directory tablet shall be inscribed painted or affixed for
each Tenant by Owner at the expense of such Tenant, and shall be of a size,
color and style acceptable to Owner.
<PAGE>
6. No Tenant shall mark, paint, drill into, or in any way deface any part of
the demised premises or the building of which they form a part. No boring,
cutting or stringing of wires shall be permitted, except with the prior written
consent of Owner, and as Owner may direct. No Tenant shall lay linoleum, or
other similar floor covering, so that the same shall come in direct contact
with the floor of the demised premises, and, if linoleum or other similar floor
covering is desired to be used an interlining of builder's deadening felt shall
be first affixed to the floor, by a paste or other material, soluble in water,
the use of cement or other similar adhesive material being expressly
prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either finished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease of which these Rules and Regulations are a part.
9. No Tenant shall obtain for use upon the demised premises ice, drinking
water, towel and other similar services, or accept barbering or bootblacking
services in the demised premises, except persons authorized by Owner, and at
hours and under regulations fixed by Owner. Canvassing, soliciting and peddling
in the building is prohibited and each Tenant shall cooperate to prevent the
same.
10. Owner reserves the right to exclude from the building between the hours of
6 p.m. and 8 a.m. on business days, after 1 p.m. on Saturdays, and at all hours
on Sundays and legal holidays all persons who do not present a pass to the
building signed by Owner. Owner will furnish passes to persons for whom any
Tenant requests name in writing. Each Tenant shall be responsible for all
persons for whom he requests such pass and shall be liable to Owner for all
acts of such persons. notwithstanding the foregoing. Owner shall not be
required to allow Tenant or any person to enter or remain int he building,
except on business days from 8:00 a.m. to 6:00 p.m. and on Saturdays from 8:00
a.m. to 1:00 p.m.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a loft building, and upon written notice from Owner, Tenant
shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any inflammable, combustible or explosive fluid, material, chemical
or substance, or cause or permit any odors of cooking or other processes, or
any usual or
<PAGE>
other objectionable odors to permeate in or terminate from the demise premises.
13. Tenant shall not use the demised premises in manner which disturbs or
interferes with other Tenants in the beneficial use of their premises.
<PAGE>
RIDER TO OFFICE LEASE BETWEEN
80 WEST 40TH STREET ASSOCIATES
AND
PIVOT CORPORATION
The provisions of this Rider constitute amendments or supplements to the
printed form Lease to which this Rider is attached, and to the extent that
there are conflicts between the form Lease and this Rider, the provisions of
this Rider shall prevail.
38. ADDITIONAL RENT - REAL ESTATE TAX ESCALATIONS
38.1 (a) It is understood and agreed that if the Real Estate Taxes and any
other charge, tax assessment, impost or levy, whether general or special,
ordinary or extraordinary, foreseeable or unforeseeable, imposed or levied or
assessed by any governmental power or authority whatsoever, against the demised
premises or the land and/or building upon which the premises are a part (the
foregoing being hereinafter collectively referred to as "Real Estate Taxes") in
any year during the term of this lease and any extensions or renewals thereof,
upon or against the demised premises or the land and/or building upon which the
premises are a part, shall exceed the Base Real Estate Taxes imposed, (as
hereinafter defined), Tenant covenants and agrees to pay to Landlord according
to the same schedule that Landlord makes such payments, as Additional Rent,
4.3% (which percentage is arrived at by dividing the square footage of the
leased premises by the total rentable square footage of the building of which
the leased premises are a part) of such excess in each such year within 10 days
after Landlord demands same. The tax bill for the year in question shall
constitute conclusive evidence of the amount of taxes so imposed and shall
serve as the basis for calculating the amount to be paid by Tenant hereunder.
For purposes hereof, Base Real Estate Taxes shall mean those Real Estate Taxes
for the period July 1, 1992 through June 30, 1993.
(b) In the event of any special assessment, the payment required from
Tenant hereby shall be calculated on the basis that Landlord pays such special
assessment over the longest period of time permitted by the statute in
question, without incurring any penalties or interest charges.
(c) Any payments due hereunder for the last tax year encompassing the
termination or expiration date of the term shall be apportioned according to
the number of months of the lease term which shall fall within said year.
(d) If any such tax increase is subsequently reduced, Tenant's rent
shall be reduced accordingly and Tenant shall receive a credit or refund for
prior periods affected by such tax reduction.
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39. ADDITIONAL ELECTRICAL CHARGES
39.1 Electrical energy consumed by the Tenant in the demised premises may
be separately metered and purchased by Tenant directly from the utility
supplying electricity to the Building, at Tenant's option and cost.
39.2 If Tenant desires to purchase its electricity from Landlord, then
Tenant shall pay Landlord, as Additional Rent, beginning on the Commencement
Date, an amount per month as an Electricity Charge, (based on the cost thereof
to Landlord), as computed by an independent electrical engineer or consultant,
retained by Landlord, after surveying Tenant's electrical equipment (including
lights) and the use thereof.
In determining the cost of electricity to Landlord, said engineer or
consultant shall take into consideration the Service Classification and Rate
Schedule pursuant to which Landlord purchases electricity for the building.
Said cost shall include all applicable surcharges, demand charges, energy
charges, fuel adjustment charges, time of day charges, taxes and all other sums
payable by Landlord in conjunction with its purchase of electricity. Landlord
shall, on request, promptly supply Tenant with a copy of the Service
Classification and Rate Schedule pursuant to which Landlord purchases
electricity at the time of the request.
Until such time as the above survey shall be computed, Tenant shall
pay as the Electricity Charge the sum of Six Hundred ($600.00) Dollars per
month. After completion of the survey, which shall be conducted within six (6)
months of the Commencement Date, Landlord and Tenant shall promptly and
retroactively adjust this amount, depending upon the survey's results.
In the event that Landlord's electric rates are increased, that
portion of the Additional Rent representing the Electricity charge shall be
increased as determined by the applicable public utility rate schedule in
effect after such increase, as applied to Tenant's consumption as set forth
herein.
Tenant shall immediately notify Landlord of any additional equipment
placed within the demised premises, or change in use, which would substantially
increase Tenant's use of electricity. Landlord shall then conduct a new survey,
at Tenant's expense, to ascertain the amount of the increased usage. In
addition, from time to time, Landlord may have additional surveys (not more
often then once per calendar year) conducted, for the purpose of reevaluating
Tenant's electricity usage. Such surveys will be at Tenant's expense.
39.3 Tenant covenants and agrees that at all times its use of electrical
current shall not exceed the capacity of existing feeders to the Building or
the risers, conduits, or wiring installed in the Building, and Tenant shall not
use any electrical equipment which, in Landlord's opinion reasonably exercised,
will overload such installations or interfere with the use thereof by other
tenants of the Building.
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At the inception of this Lease Landlord shall supply, at Landlord's own
cost and expense, all electric fluorescent tubing. Thereafter Tenant may
purchase from Landlord, at Landlord's option, all replacements of electric
fluorescent tubing and shall pay Landlord for installing same. Landlord's
pricing for said tubing shall be competitive with prices generally found in the
industry.
39.4 Landlord shall not be liable in any way to Tenant for any failure or
defect in the supply or character of electric service furnished to the demised
premises by reason of any requirement, act or omission of the utility company
servicing the Building or for any other reason not attributable to the willful
act or gross negligence of Landlord.
39.5 If either the quantity or character of the electrical service is
changed by the utility company supplying electrical service to the building or
is no longer available or suitable for Tenant's requirements, no such change,
unavailability or unsuitability shall constitute an actual or constructive
eviction, in whole or in part, or entitle Tenant to any abatement or diminution
of rent or Additional Rent, or relieve Tenant from any of its obligations under
this Lease or impose any liability upon Landlord, or its agents, by reason of
inconvenience or annoyance to Tenant, or injury to or interruption of Tenant's
business, or otherwise.
40. PORTER' S WAGE: ADDITIONAL RENT
40.1 Tenant covenants and agrees to pay, as Additional Rent, without
set-off or deduction, for each Lease Year (as hereinafter defined) a sum keyed
to a labor index standard and computed in the manner hereinafter provided, to
reflect presently unascertainable increases in other expenses of Landlord in
connection with the ownership, operation and/or maintenance of the land and/or
Building of which the demised premises form a part. Amounts payable under this
Article shall be due as hereinafter set forth. If the first or final Lease Year
shall contain less than twelve months, any such Additional Rent payable
pursuant to this Article for such Lease Year shall be adjusted in proportion to
the number of days in such Lease Year during which this lease is in effect. The
obligation of Tenant with respect to any Additional Rent pursuant to this
Article applicable to the last Lease Year of the term shall survive the
expiration of the term.
40.2 Definitions:
(a) "Lease Year" shall mean the period of Twelve (12) months or less
commencing with the Commencement Date and ending on the following December
31st, and each successive period of twelve (12) months or less commencing with
January 1st of each succeeding calendar year during the term hereof.
(b) "Base Wage Rate" shall mean the minimum regular hourly wage rate
(but excluding all other benefits and other sums) required to be paid to or for
the benefit of Porters in Class A office buildings in effect on January 1, 1993
pursuant to an agreement between the Realty Advisory Board on Labor Relations,
Incorporated ("RAB") and Local 32B of the Building Service Employees
International Union, AFL-CIO ("32B").
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(c) "Current Wage Rate" shall mean the most current minimum regular
hourly wage rate (but excluding all other benefits and other sums) required to
be paid to or for the benefit of Porters in Class A office buildings in effect
on or after January 1, 1993 between RAB, or any successor thereto or
replacement thereof, and 32B, or any successor thereto or replacement thereof.
(d) "Porters" shall mean the classification of employee engaged in
the general maintenance and operation of office buildings most nearly
comparable to that classification now applicable to Porters in the current
agreements between RAB and 32B (which classification is currently termed
"others" in such agreements).
(e) "Wage Rate Multiple" shall mean the figure 2400.
40.3 If during any Lease Year ending on or before the termination of this
Lease, the Current Wage Rate shall in any manner exceed the Base Wage Rate,
then Tenant shall pay, as Additional Rent, for such Lease Year an amount equal
to the product obtained by multiplying the Wage Rate Multiple by the number of
cents (including any fraction of a cent as an additional cent) of such
increase.
40.4 (a) Landlord shall render to Tenant a statement (hereinafter referred
to as "Landlord's Labor Statement") for each Lease Year containing a
computation of any Additional Rent payable by Tenant by reason of an increase
over the Base Wage Rate, as determined by the Current Wage Rate. Landlord's
failure to render Landlord's Labor Statement under the provisions of this
Article shall not prejudice its right to thereafter render said statement for
such Lease Year or any subsequent Lease Years.
(b) The amount shown upon any Landlord's Labor Statement shall be
Additional Rent and shall be payable, without setoff or deduction, in equal
monthly installments. In the event that Landlord's Labor Statement is submitted
to Tenant after the commencement of the Lease Year in question, then within
twenty (20) days of submission of said Statement to Tenant, Tenant shall pay
Landlord any amount due on account thereof for the number of months which have
elapsed since the commencement of said Lease Year. The obligation of Tenant
with respect to any Additional Rent pursuant to this Article applicable to the
last Lease Year shall survive the expiration of the term.
40.5 The parties acknowledge that the foregoing formula is not intended to
bear a direct relationship to increases in Landlord's expenses of ownership,
operation and maintenance of the Building, but that such formula is used solely
for the parties' convenience. No increases or decreases in Landlord's actual
expenses with respect to the Building will operate to require Tenant to pay
under this Article any different amount of Additional Rent than that which is
required by such formula, and regardless of the amount or existence of any
increases or decreases the parties agree that the Article will apply.
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41. PARTIAL INVALIDITY
41.1 If any provision of this Lease shall be held invalid or
unenforceable, such invalidity or unenforceability shall affect only such
provision and shall not in any manner affect or render invalid or unenforceable
any other provision of this lease, and this lease shall be enforced as if any
such invalid or unenforceable provision were not contained herein.
42. ASSIGNMENT AND SUBLETTING - ADDENDUM TO ARTICLE 11
42.1 Provided Tenant has complied with the provisions of this Article and
further provided that Tenant is not then in default beyond any applicable grace
period, Landlord agrees that it will not unreasonably withhold its consent to a
subletting of all the demised premises. Landlord may unreasonably withhold its
consent as to an assignment of the Lease, however. Notwithstanding any
subletting or an assignment of the Lease, Tenant as well as any successor and
assignee thereof and any guarantor thereof shall continue to be liable for the
obligations of Tenant hereunder.
42.2 (a) At least thirty (30) days prior to any proposed subletting or
assignment, Tenant shall furnish Landlord: (i) the name and business address of
the proposed subtenant or assignee: (ii) a counterpart of the proposed sublease
agreement or assignment (iii) satisfactory information with respect to the
nature and character of the business of the proposed subtenant or assignee;
(iv) current financial information; (v) references; and (vi) written
confirmation satisfactory to Landlord that the proposed subtenant or assignee
and its business will assume responsibility for compliance with any applicable
laws, statutes, regulations or ordinances applicable to the leased premises or
to the proposes subtenant or assignee (or its business). Landlord's consent
shall be deemed reasonably withheld on a sublet, in the event that based upon
the above information provided by Tenant, Landlord does not conclude, in its
reasonable discretion that the party in question is financially responsible,
able to perform its obligations under the Lease and is of a character and
engaged in a business which is in keeping with the standards of the Building,
or would be willing and able to assume responsibility for complying with any
applicable laws, statutes, regulations or ordinances applicable to the leased
premises or to the operations of the party in question.
(b) Landlord shall have thirty (30) business days after receipt of
all of the information set forth in Paragraph 42.2(a) to notify Tenant of its
objections thereto; the failure of Landlord to so act within the required time
period shall be deemed Landlord's withholding of consent to such subletting or
assignment.
42.3 Any assignee of this Lease shall assume the obligations of Tenant
hereunder. Any subtenant shall agree to be bound by the terms of this Lease in
proportion to the amount of space covered by such sublease as compared to the
size of the entire demised premises. An executed duplicate original of any
subleasing agreement or assignment and assumption agreement, in form
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acceptable to Landlord, shall be delivered to the Landlord at least five (5)
business days prior to the effective date thereof.
42.4 If Tenant sublets the demised premises and receives from such
subtenant rents or other payments other than payments for personal property of
Tenant and less Tenant's expenses of subletting or assignment in excess of the
minimum rent and the additional rents payable by Tenant under this Lease,
one-half (1/2) of such excess may be retained by Tenant with the balance of such
excess to be paid by Tenant to Landlord as Additional Rent hereunder. If Tenant
assigns this Lease, one-half (1/2) of all payments received by Tenant may be
retained by Tenant with the balance of all payments received by Tenant as
consideration for such assignment to be paid to Landlord as Additional Rent
hereunder. Landlord shall, at any time, have the right to require any payments
due from any subtenant or assignee to be made directly to Landlord. Tenant as
well as assignee or any subtenant shall represent and warrant to Landlord, in
writing certified by the chief executive officers of Tenant and subtenant or
assignee, as to the full amount of all payments made or required to be made in
connection with any subletting or assignment.
42.5 In the event that Tenant does sublet or assign the demised premises,
Tenant shall pay to Landlord an administrative fee of $250 and all reasonable
costs and expenses, including reasonable legal fees (not to exceed $1,000.00)
associated with Landlord's review and approval of the sublease or assignment.
However, Tenant shall not be obligated to make the payments required by this
Paragraph 42.5 if Tenant has sublet the demised premises under the
circumstances described in the first sentence of Paragraph 42.4.
42.6 Anything to the contrary set forth above notwithstanding, if Tenant
wishes to assign this Lease or sublet the whole of the demised premises,
Landlord shall have the right to elect to terminate the Lease by written notice
to Tenant. Such termination shall take place on the date the proposed
assignment or subletting was to take place, and Tenant shall surrender the
demised premises in the same manner and condition as if that date was set forth
as the termination date of this Lease, and from and after said date Tenant
shall be released from liability hereunder.
42.7 If at any time the original Tenant named herein or the then Tenant
shall be a corporation or a partnership, any transfer of voting stock or
partnership interest resulting in the person(s) who shall have owned a majority
of such corporation's shares of voting stock or the general partners' interest
in such partnership, as the case may be, immediately before such transfer,
ceasing to own a majority of such shares of voting stock or general partners'
interest, as the case may be, after such transfer (or series of transfers),
except as the result of transfers (i) by inheritance, or (ii) among
stockholders who were such on the date of the Lease, or between any such
stockholder or stockholders or their legal representatives and the Tenant
corporation, as a result of reduction, termination or increases of stockholder
interests in the corporation for any reason, including through separation from
employment, retirement, disability or death, shall be deemed to be an
assignment of this Lease as to which Landlord's consent shall have been
required, (except as otherwise permitted in Paragraph 42) and in any such event
Tenant shall so notify Landlord. Landlord's consent will be given provided
there is no change in the management control or financial credit worthiness of
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Tenant. For the purposes of this Section, the words "voting stock" shall refer
to shares of stock regularly entitled to vote for the election of directors of
the corporation or to receive dividends.
42.8 Anything in this Lease to the contrary notwithstanding, Tenant shall
not sublet or assign to any party with which Landlord has negotiated, directly
or indirectly for the rental or occupancy of space in the Building, within the
prior ninety (90) days.
43. INSURANCE
43.1 Tenant covenants to provide on or before the Commencement Date of the
term hereof and to keep in force during the term hereof for the benefit of
Landlord, the Managing Agent, and Tenant a policy of comprehensive general
liability insurance protecting Landlord and Tenant against any liability
whatsoever occasioned by accident on or about the demised premises or any
appurtenances thereto. Such policy is to be written by good and solvent
insurance companies satisfactory to Landlord, and the limits of liability
thereunder shall not be less than the amount of ONE MILLION (1,000,000.00)
DOLLARS combined single limit bodily injury and property damage coverage. Such
insurance may be carried under a blanket policy covering the demised premises
and other locations of Tenant, if any. Prior to the time such insurance is
first required to be carried by Tenant and thereafter, at least fifteen (15)
days prior to the expiration of any such policy, Tenant agrees to deliver to
Landlord either a duplicate original of the aforesaid policy or a certificate
evidencing that such insurance may not be canceled except upon ten (10) days
notice to Landlord, together with evidence of payment for the policy. Tenant's
failure to provide and keep in force the aforementioned insurance shall be
regarded as a material default hereunder, entitling Landlord to exercise any or
all of the remedies as provided in this Lease in the event of Tenant's default.
43.2 Landlord and Tenant each hereby release the other and their
respective officers, partners, directors, employees and agents from any and all
liability or responsibility of the other or anyone claiming through or under
them by way of subrogation or otherwise for any loss or damage to property
caused by fire or any of the extended coverage casualties, even if such fire or
other casualty shall have been caused by the fault or negligence of the other
party or anyone for whom such party may be responsible.
44. USE OF PREMISES - ADDITIONAL LIMITATIONS
44.1 Tenant has advised Landlord that the nature of the operations that it
intends to conduct at the Premises are such that there will be no excessive
traffic in the form of visitors, messengers or other members of the public
going to and coming from the demised premises. In addition, Landlord has
advised Tenant that for security reasons, it may well restrict access to the
upper floors of the building and require that messengers and other trades
people make deliveries or leave parcels at the Concierge Desk in the lobby (in
which case Landlord shall have the responsibility to deliver such materials
with reasonable diligence to Tenant), all for the purpose of improving the
security in the building and not overloading the elevators and other means of
ingress
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and egress. Tenant agrees to cooperate with Landlord and subject itself to such
reasonable limitations as Landlord may impose for the benefit of all tenants in
the building, including this Tenant. Tenant will also advise all of its
suppliers and materialmen that any deliveries to the building must be made
during hours other than the peak hours in the morning, at lunchtime and in the
evening.
45. LATE CHARGES - ADDITIONAL RENT
45.1 In addition to all other sums payable by Tenant to Landlord under
this Lease, Tenant shall pay to Landlord a sum equal to five (5%) of the total
monthly amount called for by the terms of the Lease, if payment is not received
by Landlord within ten (10) days of the date same is due. In addition, if
Landlord, at any time or times, commences dispossess proceedings for failure to
pay rent, for failure to pay any charges considered to be Additional Rent, or
for any other breach of the terms of this Lease, Tenant agrees to pay Landlord
reasonable attorney's fees, plus costs, same shall be deemed to be Additional
Rent.
45.2 Any monies due under this Lease from the Tenant to the Landlord for
any reason whatsoever, including, but not limited to, payment for utilities,
Real Estate Taxes, damages, additional security or the like shall be deemed to
be Additional Rent and Landlord shall be and is hereby empowered to collect
same as if it was unpaid rent.
45.3 Both parties agree that in the event that the Tenant shall make a
late payment to the Landlord of rent or Additional Rent three or more times
during any calender year during the term of this Lease, and shall not forward
the full amount of said payment in each instance within three (3) business days
of receiving notice of said late payment from Landlord, the Tenant shall be
deemed to have habitually paid its rent late, and the Landlord shall have the
right, at the Landlord's option, to terminate this Lease and seek all remedies
allowed by law.
46. LANDLORD' S WORK: INSERT TO ARTICLE 4
46.1 Landlord shall maintain all public areas, the roof, the exterior
walls of the Building, the heating system (provided that same has been supplied
by Landlord) and the plumbing and electrical system up to their entry into the
demised premises. Tenant shall be responsible for the interior portions of the
demised premises including the ceilings, walls, flooring, doors, and any window
panes which are broken by Tenant, its agents, servants, contractors or
visitors. Tenant shall also be responsible for the hallway entry door to the
demised premises. Landlord's election to make repairs on those items for which
Tenant is liable hereunder shall not be deemed a waiver by Landlord of the
foregoing and shall be done by Landlord, at Landlord's sole election, either at
Tenant's expense or at Landlord's expense. If the same is to be done at
Tenant's expense then, except in an emergency, Landlord shall notify Tenant
that if Tenant does not do said repair, then it will be done by Landlord.
Tenant must use contractors reasonably acceptable to Landlord.
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46.2 Landlord will install a fire coded decorative door for the leased
premises and will paint the leased premises. Landlord will make all existing
windows operable, repair and/or replace all damaged or missing frames, mullions
and all cracked, scratched or broken window panes. The Landlord will provide
separate light switches to Tenant, as well as an individual thermostat for
control of the air-conditioning within the leased premises.
46.3 In the event Tenant desires to install track lighting or overhead
fixtures in the leased premises, Landlord will supply any labor required for
said installation, provided that Tenant shall be responsible at its sole cost
and expense for the cost of all fixtures and bulbs required for said lighting
and provided that Tenant will arrange to have all such lighting installed
within six (6) months from the commencement of this Lease.
46.4 Landlord agrees that Tenant may utilize the attached desk and
cabinets, the enclosed glass office, the sliding glass partition, glass
entrance door, the track lighting tracks and the woodplank floor currently
located in the leased premises during the term of this Lease.
47. TENANT'S WORK: INSERT TO ARTICLE 3
47.1 Subject to the provisions of Article 46.2, Tenant agrees to accept
the demised premises in its present "As Is" condition and acknowledges that
Landlord shall have no obligation to do any work or make any improvements
thereto, unless as otherwise provided herein, notwithstanding any building code
or related violations that may be applicable to the space, provided the
conditions which form the basis of such violations do not affect Tenant's
occupancy, or cause fire, health or other hazard to Tenant's personnel or
property, or both. Landlord represents that as of the date hereof the Building
is in compliance with Local Law #5 and Local Law #10. Tenant further
acknowledges that it has carefully examined the space and knows of no
conditions, defects or potential claims regarding such space.
47.2 It is specifically understood and agreed that all permanent
improvements and air-conditioning systems, including window air conditioners,
shall become a part of the demised premises and Tenant shall surrender the
premises at the end of the term hereof together with all such improvements,
subject to the provisions of Article 3 of the Lease. All improvements and
installations shall be subject to Landlord's approval of all plans and
specifications, which approval shall not be unreasonably withheld or delayed.
47.3 As to any work performed by Tenant on the demised premises, Tenant
shall pay to Landlord a supervisory fee (which shall include the cost of review
of the Tenant's plans and specifications) equal to ten (10%) percent of the
certified cost of all of the Tenant's work done to the demised premises.
Landlord's approval of any plans, specifications or working drawings for any
work performed by the Tenant on the demised premises shall create no
responsibility or liability on the part of Landlord for their completeness,
design sufficiency, or compliance with all laws, rules and regulations of
governmental agencies or authorities, the responsibility and liability for
which shall belong solely to Tenant.
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48. BUILDING HOURS
48.1 Subject to its security regulations, Landlord shall allow access to
the Building twenty-four (24) hours a day, seven (7) days a week. This
provision shall in no way expand Landlord's obligation to provide heat and
elevator service outside the periods specified in Article 31 (a) of this Lease.
48.2 Tenant understands that (i) the Building is open only from 8:00 A.M.
to 6:00 P.M. on business days and from 8:00 A.M. to 12 noon on Saturdays
(collectively the "Building Hours") and (ii) outside the Building Hours the
Building is not staffed in any manner. Landlord agrees to provide Tenant with a
key to the Building to allow Tenant access to the Building outside the Building
Hours and Tenant agrees not to leave the Building unlocked when using the key
to enter or exit the Building.
48.3 In consideration of the right to access the Building outside Business
Hours, Tenant agrees to release Landlord (its employees, agents, partners,
officers, shareholders and directors) from all liability for any damage or loss
Tenant (or its employees, agents, contractors, guests invitees or licensees)
may incur in or about the Building and/or the demised premises as a result of
its access to the Building and/or its use or occupation of the demised premises
outside Building Hours and to indemnify and hold Landlord (its employees,
agents, partners, officers, shareholders and directors) harmless from and
against any and all claims, actions, judgments, damages, liabilities, losses or
expenses, including attorneys' fees, in connection with damage to or loss of
property or injury or death to any other persons, or any matters, arising from
or out of the acts or omissions of Tenant (its employees, agents, contractors,
guests, invitees or licensees) in connection with its access to the Building or
use or occupation of the demised premises outside Building Hours and in case
any action or proceeding be brought against Landlord by reason of any such
claim, Tenant, upon notice from Landlord, covenants to resist or defend, at
Tenant's expense, such action or proceeding by counsel reasonably satisfactory
to Landlord.
48.4 The agreements of Tenant under this Article 48 are in addition to and
not in limitation of any other provisions of this lease.
48.5 Tenant agrees that it will not make or cause to be made more than ten
duplicates of the key to the building and that it will surrender the key (and
the duplicate keys, if any) to Landlord upon termination of this Lease at the
expiration of its term or otherwise. Landlord may from time to time change the
lock to the Building and, upon Tenant's surrender of the old key(s) to the
Building, Landlord shall deliver a new key to the Building to Tenant. If Tenant
shall fail to surrender the key(s) to the Building pursuant to the terms of
this Article, Tenant shall pay, as Additional Rent hereunder, the sum of Two
Hundred Fifty ($250.00) Dollars upon demand by Landlord.
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49. TENANT'S COOPERATION:
COMMENCEMENT DATE AGREE KENT: ESTOPPEL CERTIFICATE
49.1 Tenant agrees that upon the occurrence of the Commencement Date, it
shall execute and deliver to Landlord a Commencement Date Agreement which shall
specify the Commencement and Termination Dates of the Term; upon delivery said
Commencement Date Agreement shall be deemed part of this Lease.
49.2 Landlord and Tenant agree at any time and from time to time, (but not
more than six times in any twelve month period) upon not less than ten (10)
days prior written request, that Tenant shall execute, acknowledge and deliver
to Landlord, or its designee, a statement in writing (prepared by the other
party) certifying the Commencement Date of this Lease, and that this Lease is
unmodified and is in full force and effect (or if there have been
modifications, that the same are in full force and effect as modified); the
dates to which the rent and Additional Rent have been paid and the rents paid
in advance, if any. Any such Statement delivered pursuant to this Article may
be relied upon by (i) a prospective purchaser of the Landlord's interest or of
the interest of any holder of a mortgage upon the Landlord's interest in the
Real Property. The foregoing obligation shall be deemed a substantial
obligation of this tenancy, the breach of which shall give Landlord those
remedies herein provided for in an event of default.
50. AUTHORITY TO ENTER LEASE
50.1 Landlord and Tenant each represents that with respect to their own
representative the undersigned officer(s) has(have) been duly authorized to
enter into this Lease and that the execution and consummation of this Lease by
them does not and shall not violate any provision of any by-law, agreement,
order, judgment, governmental regulation or any other obligation to which
either of them is a party or is subject.
50.2 Upon execution hereof, Tenant shall deliver an appropriate
certification by its secretary and assistant secretary or other duly authorized
officer to the above effect.
51. SIGNATURE OF BOTH PARTIES
51.1 This Lease shall not bind either party hereto unless and until it has
been executed by all of the parties hereto.
52. REMEDIES - ADDENDUM TO ARTICLE 18
In addition to all other remedies provided to Landlord upon a default
by Tenant under this Lease, all amounts credited by Landlord to Tenant under
this Lease, as well as any other amounts reimbursed, credited or rebated by
Landlord to Tenant under this Lease, including but not limited to any rent
concessions provided by Landlord to Tenant under Section 57.1, shall
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immediately become due and payable to Landlord upon the occurrence of an event
of default by Tenant under this Lease.
53. COMMENCEMENT DATE
53.1 This Lease shall commence upon substantial completion of Landlord's
work, under Section 46.2 but in any event, no later than December 31, 1992. In
the event Landlord will be unable to complete its work by December 31, 1992,
Landlord shall notify Tenant by October 31, 1992. If Landlord cannot complete
the work as stated herein and so notifies Tenant, Tenant shall have the option
to terminate the Lease within ten (10) days of said notice or to waive any
objections as to the delay in completion.
53.2 If the Commencement Date shall occur on a day other than the first
day of a calendar month then the term of this Lease shall run and be measured
from the first day of the calendar month following the Commencement Date.
54. MISCELLANEOUS
54.1 The words "Owner" and "Landlord" shall be interchangeable and both
shall mean 80 West 40th Street Associates, a New York Limited Partnership, its
successors or assigns.
54.2 Within thirty (30) days after request by Landlord, Tenant (or any
Guarantor of this Lease) shall furnish to Landlord a copy of its then current
audited financial statement or if none is available for Tenant and if Tenant
has a parent company, then the report of its parent company which shall be
employed by Landlord for purposes of selling or financing the Building and not
distributed otherwise without prior authorization of Tenant.
55. NO MATERIAL INTERFERENCE WITH TENANT'S BUSINESS
55.1 Throughout the term hereof, when performing repairs to the Building
or the demised premises, Landlord shall use all commercially reasonable efforts
to minimize interference with Tenant's business.
56. NOTICES
56.1 Any notice by either party to the other shall be sent by registered
or certified mail, or delivered by courier which delivery is evidenced by a
receipt, addressed to the parties at the address first hereinabove given or at
such other address as the parties shall so designate in writing, according to
the terms hereof. Said notices shall be deemed given two (2) business days
after mailing, or upon receipt if delivered by courier.
-15-
<PAGE>
57. RENT CONCESSION
57.1 Provided Tenant is not in default under any terms and conditions of
this lease, Tenant is to receive a credit equal to Eight Hundred Fourteen and
58/100 ($814.58) Dollars against each month's rent due for the first (lst),
third (3rd), fifth (5th), seventh (7th), ninth (9th) and eleventh (llth) months
of the first lease year, such credit being equal to receiving free rent on four
hundred twenty-five (425) square feet of the leased premises for those six (6)
monthly periods. Provided tenant is not in default under any terms and
conditions of this lease, Tenant is to receive a credit against rent equal to
Four Thousand Six Hundred ($4,600.00) Dollars against each month's rent due for
the second (2nd), fourth (4th), sixth (6th), eighth (8th), tenth (10th) and
twelfth (12th) months of the first lease year, such a credit being equal to
receiving free rent on the entire leased premises for those six (6) monthly
periods.
58. SECURITY DEPOSIT - ADDENDUM TO ARTICLE 32
58.1 Landlord shall return in the form of a rent credit to Tenant the sum
of Nine Thousand Two Hundred ($9,200.00) Dollars at the end of both the first
and second years of the lease term, as well as any interest earned thereon,
provided Tenant is not in default under any terms and conditions of this Lease.
However, no interest shall be paid on the portion of the security deposit to be
retained by Landlord. In addition, upon an increase in the fixed rent as
described in this Lease, Tenant shall be required within twenty (20) days of
the date of said increase, to deposit with Landlord an amount sufficient to
increase the security deposit to an amount equal to two (2) months base rent at
the increased rate. Therefore, on or before October 21, 1997, Tenant shall
increase the amount of its security deposit with Landlord to Nine Thousand Six
Hundred ($9,600.00) Dollars by depositing the additional sums due with
Landlord.
59. LIMITED LIABILITY OF LANDLORD
59.1 Landlord and Tenant hereby agree that the liability of Landlord for
any loss, cost, expense or damage arising from any action or omission,
including but not limited to negligent acts or omissions, on the part of
Landlord, its agents, employees, representatives or contractors, shall be
limited to Landlord's equity in the demised premises. Tenant will not seek a
judgment for money damages against, nor seek enforcement of any other judgment
against the officers, directors, employees, partners, agents, employees, or
contractors or other representatives of Landlord.
60. ENVIRONMENTAL INDEMNIFICATION
(a) Tenant hereby agrees to indemnify and hold Landlord harmless of,
from and against all claims, actions liens, demands, costs, expenses, fines and
judgments (including legal costs and attorney's fees) arising out of any acts
or omissions on the part of Tenant, its employees, agents, servants,
contractors or any other parties for whom Tenant is responsible which result in
(a) any spills or contamination of air, soil or water by oil, grease, toxic or
hazardous substances at or around
-16-
<PAGE>
the Premises or the Building or upon removal therefrom: or (b) the violation of
any current or future federal, state or municipal environmental laws, statutes,
rules or regulations. Tenant's obligations and liability under this paragraph
shall survive the term of this Lease and shall continue so long as Landlord
remains responsible for any spills or discharges of hazardous substances or
wastes at the Premises which occur as a result of Tenant's affirmative acts or
omissions during the term of this Lease.
(b) At the request of the Landlord, Tenant shall provide Landlord
with any documentation required or requested in connection with any
environmental laws, statutes, rules or regulations, or any successor statute,
and effectuate any cleanup plan which may be required to the extent such
cleanup is necessitated by actions of Tenant or anyone for whom Tenant is
responsible.
61. OPTION TO LEASE ADDITIONAL SPACE
Tenant shall have the option to lease all additional contiguous space
available on the third floor of the building of which the leased premises are a
part, as said additional contiguous space becomes vacant and available or if an
offer to lease the additional contiguous space is made to Landlord by a third
party. Upon Landlord's notification to Tenant that said additional contiguous
space is so available, Tenant shall have ten (10) days to exercise its option
to lease the additional contiguous space upon terms mutually satisfactory to
Landlord and Tenant. If Tenant fails to exercise its option within the ten (10)
day period, Tenant will be deemed to have waived said option, and Landlord will
be free to offer the space to other parties. Should Landlord instead receive a
third party offer to lease the additional contiguous space, upon Landlord's
written notification to Tenant as to the terms and conditions contained in the
offer, Tenant shall have three (3) business days from receipt of Landlord's
notice to execute a lease for the additional contiguous space on the same terms
and conditions as contained in the third party offer. If Tenant fails to
execute a lease for the additional contiguous space containing the same terms
and conditions as the third party offer, Tenant will be deemed to have waived
its rights under this paragraph, and Landlord will be free to lease the space
to the third party.
62. NONDISTURBANCE AGREEMENT
In the event of a sale or mortgage refinancing of the building of
which the leased premises is a part, Landlord will utilize reasonable efforts
to obtain a nondisturbance agreement from its purchaser or mortgagee, pursuant
to which said purchaser or mortgagee recognizes the continuing validity of this
leash and to leave Tenant undisturbed in its possession of the leased premises.
63. INABILITY TO PERFORM - ADDENDUM TO ARTICLE 27
In the event a dangerous condition is created on the demised premises
without the carelessness, omission, neglect or improper conduct of Tenant,
Tenant's servants, employees, invitees or licensees and Landlord fails to
commence correction of said dangerous condition within ten (10) days of
receiving notice of said condition from Tenant, Tenant shall have the option to
-17-
<PAGE>
remedy said condition, and deduct the reasonable cost of remedying the
condition from the amounts due from Tenant to Landlord under Sections 38.1,
40.1 and 40.3 of this Lease. This clause shall not be construed to allow Tenant
to deduct the reasonable cost of remedying the condition from any portion of
the base rent due from Tenant to Landlord.
64. Landlord agrees that to the best of its knowledge there are no current
violations in the Demised Premises.
65. Following construction landlord agrees to exterminate the premises.
IN WITNESS WHEREOF, the parties hereto have used this Lease and Rider
to be executed as of this 15 day of October, 1992.
LANDLORD:
80 WEST 40TH STREET ASSOCIATES
by: Mountain Development
Corp., Managing Agent
By:/s/ Alan S. Moore
-------------------------------
TENANT: PIVOT CORPORATION
By:/s/ E. Kenneth Seifh
-------------------------------
#203586154F
10/5/92
-18-
<PAGE>
ATTACHED EXHIBITS
A DEMISED PREMISES
<PAGE>
Exhibit 10.14
FIVE YEAR LEASE AGREEMENT
This agreement will confirm our understanding between Sound Floor Coverings,
Inc. ("Owner") and Pivot Rules, Inc., a New York corporation (hereinafter
referred to as "Pivot"), with respect to Pivot's right to use the facility at
18375 Olympic Avenue South, Tukwila, WA 98188 (Beginning at the southeast
corner of said lot 13; thence north 11o23'50" east along the east line of said
lot 13, a distance of 25.58 feet to the true point of beginning; thence north
78o36'10" west parallel to said south line of lot 13 a distance of 511.04 feet
to the west boundary of lot 13; thence along the west boundary of said lots 13
and 14 with the following bearings and distances: north 43o17'00" east 71.16
feet; thence north 34o05'00" each 99.00 feet; thence north 26o27'00" east 98.00
feet; thence north 20o26'00" east 100.00 feet; thence north 15o42'00" east
99.00 feet; thence north 11o32'00" east 100.00 feet; thence north 09o15'00"
east 97.00 feet; thence north 10o51'00" east 82.00 feet; thence leaving said
west boundary south 78o36'10" east a distance of 390.87 feet to the west margin
of Olympic Avenue South produced north; thence south 11o23'50" west along said
west margin produced north a distance of 723.10 feet to the true point of
beginning.), approximately 18,000 square feet of space ("Property") as more
specifically set forth below:
1. "Owner" hereby grants to "Pivot" and its employees permission to
enter upon and use the "Property" for the purpose of warehousing.
2. This lease shall run for a five (5) year term commencing September 1,
1994, running through August 31, 1999.
(a) Commencing September 1, 1994, and monthly thereafter for five (5)
years, "Pivot" shall deliver and set-up the product on the
"Property".
3. The consideration to be paid "Owner" in connection with "Pivot's" use
of the "Property" shall be Five Thousand Two Hundred Twenty Dollars
($5,220.00) per month including triple net expenses for 3 years; and
Five Thousand Seven Hundred Sixty Dollars ($5,760.00) per month
including triple net expenses through month 60. Rent shall be due and
payable on the First of Every Month.
(a) In Addition, a security deposit of Five Thousand Two Hundred
Twenty Dollars ($5,220.00) will be paid on September 1, 1994. This
security deposit is to be returned to "Pivot" within 5 days of
"Pivot's" vacating premises at the
<PAGE>
termination of this lease, provided property is left in same
condition as received; except for ordinary and reasonable wear and
tear.
4. Tenant Improvements: All tenant improvements requested by the tenant
will be mutually agreed upon between the tenant and the landlord. The
tenant improvement costs will be paid by the tenant.
5. Tenant shall have a one-time-only cancellation provision in this
lease such that on January 1, 1995, they may give notice of intent to
cancel this lease as of March 1, 1995 with a penalty of the
unamortized leasing commissions ($12,960.00) and tenant improvements
(if any).
6. "Pivot" shall not make any material changes in or about the
"Property" without the prior written consent of the "Owner", and
shall leave the "Property" and parking lot in as good order and
condition as when received.
7. "Pivot's" use of the "Property" shall not interfere with the coming
and going of the "Owner" or Owner's tenants or employees who may or
may not occupy a portion of the premise. Likewise, "Owner" and
Owner's tenants or employees shall not interfere with "Pivot's" use
of the "Property" in connection with "Pivot's" activities.
8. "Pivot" agrees to indemnify and hold "Owner" harmless from any and
all loss and/or liabilities incurred by "Owner", including attorney's
fees and costs for defense, as a result of or arising out of
"Pivot's" use of the premises. "Pivot" represents that it has a
policy of General Liability and Property Damage insurance in the
amount of at least One Million Dollars ($1,000,000) for each
occurrence and that it will have "Owner" named as an additional
insured on said policy, and that "Owner" will be provided with a
certified copy of such policy prior to September 1, 1994.
9. Both "Owner" and "Pivot" agree to release and relieve each other, and
waive our entire right of recovery against the other for
consequential loss or damage arising out of or incident to the perils
covered by the Liability and Property Damage Insurance carried by
each party, whether due to the negligence of either of us or our
respective agents, employees, contractors, and/or invitees. The only
damages that either of us will be able to recover are for direct
out-of-pocket actual loss.
10. "Pivot" will obtain all permits required by the city of Tukwila,
Washington, if any, in connection with the use of the "Property". If
"Pivot" is unable to obtain permits, this Lease will be terminated
and "Pivot" shall be obligated to pay "Owner" that portion of the
consideration accrued, based on the prorated daily
<PAGE>
share computed through the date of such cancellation or termination
and "Owner" shall refund to "Pivot" the balance of any advance
consideration paid.
11. "Pivot" shall comply and abide by all local laws, regulations,
covenants and restrictions of record now in effect, which relate to
the "Property" and the occupation and use by "Pivot" of the
"Property". "Pivot" further agrees that it shall conduct its business
in a lawful manner and shall not use or permit the use of the
"Property" in any manner which will violate the law or any such
regulation.
12. "Owner" shall not be entitled to any sum rights or consideration in
connection with this agreement except as specifically provided for
herein.
13. If either party named herein brings an action to enforce the terms
hereof declared hereunder, the prevailing party in such action,
trial or appeal thereof, shall be entitled to its reasonable
outside attorney's fees to be paid by the losing party as fixed
by the court in the same or separate suit, and whether or not
such action is pursued to decision or judgment. The
provisions of this paragraph shall inure to the benefit of
the party who seeks to enforce a right hereunder. The
attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be as to fully
reimburse all reasonable outside attorney's fees in good
faith. Prevailing party shall be defined as that party
receiving judgment or award equal to or more favorable
than that offered in writing prior to trial or arbitration.
14. Both parties warrant that they have full authority to enter into this
Agreement and grant the rights herein contained.
<PAGE>
o This Lease Agreement sets forth the entire understanding of the parties
and may not be altered except by writing and signed by both parties.
o An exhibit of floor plan is part of this agreement.
o An exhibit for insurance application is part of this agreement.
o The "Property" will at all times remain a "NON-SMOKING SITE".
If the foregoing is in accordance with your understanding and agreement, please
acknowledge your approval and acceptance in the spaces provided below.
State of Washington
County of ________
I certify that I know or have satisfactory evidence that Peter Chilk
is the person who appeared before me, and said person acknowledged that
(he/she) signed this instrument, on oath stated that (he/she) was authorized to
execute the instrument and acknowledged it as the President of Sound Floor
Coverings, Inc. to be the free and voluntary act of such party for the uses and
purposes mentioned in the instrument.
Dated: August 30, 1994 /s/ Peter Chilk
--------------------------------
(Signature)
(seal or stamp) President
--------------------------------------
Title
________________________________ My appointment expires: _______________
Notary signature
State of Washington
County of ________________
I certify that I know or have satisfactory evidence that Dean A.
Seiff is the person who appeared before me, and said person acknowledged that
(he/she) signed this instrument and acknowledged it as the VP Distribution of
Pivot Rules, Inc. to be the free and voluntary act of such party for the uses
and purposes mentioned in the instrument.
Dated: August 30, 1994 /s/ Dean A. Seiff
----------------------------------
(Signature)
(seal or stamp) VP Distribution
Title
- -------------------------------
Notary signature My appointment expires: _______________
<PAGE>
Exhibit 10.15
An Agreement made between Pivot Rules. Inc., 80 West 40th Street, New
York, NY 10018 (hereafter called "the Principal") of the one part and Textiles
Network, Ltd., 2/F., Yick Tai Industrial Building, 650-652 Castle Peak Road,
Kowloon, Hong Kong (hereafter called "the Agent") of the other part whereby it
is agreed as follows:
1. The Agent is hereby appointed exclusive buying agent of the Principal for
the purchase of merchandise on the terms and conditions herein contained from
Asia (hereafter called "the Territory").
2. (a) The purchase prices for merchandise shall be FOB (including quota) the
country of origin unless otherwise agreed.
(b) The Principal will pay the insurance, shipping, forwarding, handling
and other incidental charges and disbursements against shipments, and in
addition pay for samples and courier or air freight dispatch charges.
(c) Unless otherwise specifically arranged between the parties, payment
for all purchase of merchandise by the Principal shall be by transferable,
irrevocable, confirmed Banker's Letter of Credit to be established in favor of
the Agent or the factory if so required, or if Principal so elects.
3. The services to be performed by the Agent are as follows:
(a) Locate suppliers and arrange for sampling and manufacture of items
which the Principal desires to purchase in the Territory.
(b) Keep close contact with suppliers to ensure that production is running
according to the delivery schedule set by the Principal for each item.
(c) Maintain quality control on merchandise including inspection on a
random basis to ensure that items being produced conform to Principal's
requirements.
(d) Arrange for shipment of the merchandise including the preparation of
all relevant export documentation, in the case the Agent is the shipper of the
merchandise.
(e) Arrange for the purchase of export quota on the Principal's behalf if
so desired by the Principal.
(f) Handle sample yardage or bulk fabric purchased by the Principal and
distribute to the appropriate factories for sampling or production.
<PAGE>
(g) Attempt to settle possible merchandise claims to the satisfaction of
the Principal.
(h) Endeavor to keep Principal advised from time to time of new
developments in markets of the Territory which may be of interest to the
Principal.
For such service the Principal will pay the Agent eight percent commission on
the FOB including quota value of the merchandise for the first $1.5 million of
goods shipped per calendar year. The commission rate shall be reduced to seven
percent for all shipments in excess of $1.5 million for the remainder of the
calendar year.
4. Upon instructions from the Principal, the Agent shall place orders with
suppliers, but it is understood that the Agent has no authority to commit the
Principal to any purchases except upon receipt of black and white confirmation
from the Principal.
5. In the event of any claims which may have to be instituted against any
supplier, the Agent shall have authority to institute and prosecute claims
against such supplier as Agent for and on behalf of the Principal, but legal
action will be taken only after written authorization from the Principal.
6. Should the Principal fail to accept delivery of any merchandise for whatever
reasons then the Agent shall endeavor to prevent the supplier from disposing of
such merchandise without removing any labels, brand names of markings attached
to the merchandise but the Agent shall not be held responsible if the supplier
fails to do so.
7. This Agreement shall come into effect immediately and shall remain in force
until it is canceled mutually by both parties or by either party giving 90 days
prior notice to the other party.
8. The Agreement replaces the Miller & Koh Agreement of February 13, 1992.
Dated this 1st August, 1996.
Pivot Rules. Inc. Textiles Network, Ltd.
/s/ E.Kenneth Seiff /s/ Florence Koh
- ------------------------ -------------------------
E. Kenneth Seiff Florence Koh
CEO Chairperson
<PAGE>
Exhibit 10.17
PIVOT RULES COMPANY AGREEMENT WITH I D L International Llc
1. PIVOT RULES WILL PAY IDL INT'L 5% OF FOB OR IMPLIED FOB (IN CASE OF
LDP) ON ALL PRODUCTION ORDERS CONFIRMED BEGINNING APRIL 15,
1996.
2. ORDERS MUST BE 25% GROSS MARGIN BASED ON THE BELOW COSTING FORMULA IN
ORDER TO WARRANT THE FULL 5% COMMISSION RATE. COMMISSION RATE WILL BE PAID
ON A SLIDING SCALE UP TO 5% TO NET COMPANY AT 25% ON ORDERS WITH LESS THAN
25% LOADED INITIAL MARGINS. A MINIMUM OF 2.5% COMMISSION SHALL BE PAYABLE
ON ALL ORDERS.
2A. THE COSTING FORMULA WILL BE: FIRST COST + DUTY + FREIGHT + AGENT
FEE (IF APPLICABLE) + IDL INT'L COMMISSION + FINANCE (5%) + .35
DISTRIBUTION/MISC. COSTS ON ALL PROGRAM ORDERS. OPEN STOCK
PIVOT RULES PROGRAMS DISTRIBUTION COSTS WILL BE .85.
2B. FOR NON APPAREL ITEMS SUCH AS GIFT PACKS, DIRECT DESIGN COSTS
WILL BE ADDED TO THE COST SHEETS.
2C. COSTS WILL BE RECONCILED ON A QUARTERLY BASIS TO REFLECT
ADJUSTMENTS FOR VARIANCES ON FOB, DUTY, OR FREIGHT RATES.
3. BEGINNING APRIL 15, 1996 PIVOT RULES WILL PAY 50% OF COMMISSION
DUE UPON ORDER PLACEMENT AND CREDIT APPROVAL ON ALL ORDERS
UP TO $5,000.00 PER MONTH. THE BALANCE SHALL BE PAYABLE UPON THE
ORDER'S EX FACTORY.
4. IDL INTL'S RESPONSIBILITIES ARE DETAILED AS FOLLOWS:
A. NEGOTIATE ALL PRICING
B. ORDER PLACEMENT BY AGENT/FACTORY.
C. QUALITY CONTROL, APPROVAL PROCESS ON ALL WORK IN PROCESS
AS WELL AS COSTS INCURRED TO CONDUCT THIS PROCESS.
D. ORDER TRACKING FROM ORDER PLACEMENT TO EX. FACTORY.
E. CUSTOMS CLEARANCE IN CONJUNCTION WITH PIVOT RULES STAFF.
5. PIVOT RULES RESPONSIBILITIES ARE AS FOLLOWS:
A. OPEN AND ADMINISTER ALL LETTERS OF CREDIT.
B. FREIGHT CONSOLIDATION, CUSTOMS CLEARANCE AND
WAREHOUSE OPERATIONS.
C. DISTRIBUTION TO CUSTOMERS.
5A. DESIGN APPROVALS ON ALL STRIKEOFFS, EMBROIDERIES, HANDLOOMS,
LABDIPS, FABRICS, ACCESSORIES ETC. WILL BE JOINTLY HANDLED BY
PIVOT STAFF AND/OR OUTSIDE SERVICES IN CONJUNCTION WITH IDL
INTERNATIONAL.
<PAGE>
P
6. THIS AGREEMENT IS MUTUALLY EXCLUSIVE WITH RESPECT TO APPAREL.
ALL OUTSIDE PROJECTS UNDERTAKEN BY DAVID LEWIS AND/OR IDL INT'L
WILL BE DISCUSSED WITH KEN SEIFF AND REQUIRE HIS APPROVAL.
7. BOTH PARTIES AGREE TO USE BEST EFFORTS TO CONVERT COMMISSION DUE AND/OR
FUTURE COMMISSIONS INTO A NEW COMPENSATION PACKAGE TO INCLUDE SALARY
AND/OR EQUITY AND/OR INCENTIVES. BOTH PARTIES AGREE TO BEGIN THIS DIALOGUE
BY DECEMBER 31, 1996.
8. THE TERM OF THIS AGREEMENT SHALL BE FROM APRIL 15, 1996 TO APRIL
15, 1997.
9. THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK.
KEN SEIFF DAVID LEWIS PERSONALLY AND
PIVOT RULES COMPANY ON BEHALF OF IDL INTERNATIONAL LLC
/s/ E. Kenneth Seiff /s/ David Lewis
- ------------- ----------- --------------------------
5/20/96 5/20/96
<PAGE>
EXHIBIT 10.18
ADDENDUM TO AGREEMENT
FOLLOWING POINTS ARE AGREED UPON BETWEN DAVID LEWIS, REPRESENTING IDL
International LLC, AND KEN SEIFF REPRESENTING PIVOT RULES, INC. AS AN ADDENDUM
TO THEIR AGREEMENT SIGNED MAY 20, 1996 BY BOTH PARTIES.
1. THE TERM OF THE REVISED AGREEMENT SHALL RUN UNTIL DECEMBER 31,
1998.
2. TERMINATION - IMMEDIATELY WITH CAUSE BY EITHER PARTY.
- WITHOUT CAUSE 6 MONTHS NOTICE BY PIVOT RULES AND 10 WEEKS NOTICE
BY IDL OR DAVID LEWIS. FAILURE TO COMPLETE TERM OF NOTICE WILL CAUSE
FORFEITURE OF OUTSTANDING COMMISSIONS.
3. PIVOT RULES WILL PAY A BONUS TO IDL BASED ON ACHIEVED,
RECONCILED GM% OF MERCHANDISE SHIPPED AS FOLLOWS:
27% GM = 5% OF ANNUAL COMMISSIONS
28% GM = 10% " " "
29% GM = 15% " " "
30% GM = 20% " " "
GROSS MARGIN AS CALCULATED BY THE FORMULA IN THE ORIGINAL
CONTRACT AND ADJUSTED FOR ACTUAL LANDED COSTS AS DETAILED IN THE
ORIGINAL DEAL. RECONCILIATION, QUARTERLY AND AFTER YEAR END WILL
ALSO ACCOUNT FOR INVOICE PRICES ON SHIPMENTS, AND DISCOUNTS GIVEN TO
CUSTOMERS DUE TO PRODUCTION RELATED PROBLEMS.
4. COMMISSION TERMS OF THE NEW DEAL ARE 5% FOR THE 1ST ONE
MILLION DOLLARS FOB STARTING WITH EX-FACTORY DATED 1/197, AND 2.5% ON
BALANCE OF ALL ORDERS THROUGH 12/31/97 EX FACTORY DATES. 1998 TERMS
WILL BE THE SAME.
5. ANY ORDERS PLACED AFTER P.O. 196462, WITH EX. FACTORY DATES
BEFORE 12/31/96, AS WELL AS ANY UPWARD REVISIONS ON ORDERS ALREADY
PLACED, WIL BE UNDER HE NEW DEAL MEANING COMMISSION RATE IS 2.5%.
KEN SEIFF DAVID LEWIS
PIVOT RULES COMPANY IDL International LLC
LLC
/s/ E. Kenneth Seiff /s/ David Lewis
- -------------------------- --------------------------
7/1/96 7/2/96
<PAGE>
Exhibit 23.1
CONSENT
We have issued our report dated February 18, 1997 accompanying the
financial statements of Pivot Rules, Inc. contained in the Registration
Statement and Prospectus. We consent to the use of the aforementioned report
in the Registration Statement and Prospectus, and to use of our name as it
appears under the captions "Summary Financial Information", "Selected
Financial Data", "Change in Accountants", and "Experts".
/s/ Grant Thornton LLP
New York, New York
March 5, 1997
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement
on Form SB-2 of our report dated October 21, 1996 relating to the
financial statements of Pivot Rules, Inc., and to the reference
to our Firm under the captions "Summary Financial Information",
"Selected Financial Data" and "Experts" in the Prospectus.
/s/ Richard A. Eisner & Company, LLP
New York, New York
March , 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 33,000
<SECURITIES> 0
<RECEIVABLES> 45,000
<ALLOWANCES> (4,000)
<INVENTORY> 835,000
<CURRENT-ASSETS> 1,255,000
<PP&E> 200,000
<DEPRECIATION> 111,000
<TOTAL-ASSETS> 1,636,000
<CURRENT-LIABILITIES> 1,080,000
<BONDS> 0
0
0
<COMMON> 12,000
<OTHER-SE> 397,000
<TOTAL-LIABILITY-AND-EQUITY> 1,636,000
<SALES> 8,596,000
<TOTAL-REVENUES> 8,596,000
<CGS> (6,571,000)
<TOTAL-COSTS> (1,465,000)
<OTHER-EXPENSES> (318,000)
<LOSS-PROVISION> (37,000)
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 205,000
<INCOME-TAX> 70,000
<INCOME-CONTINUING> 135,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135,000
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
