<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1998
REGISTRATION NO. 333-56401
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PERISCOPE SPORTSWEAR, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
DELAWARE 2330 13-4006463
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NUMBER)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
1407 BROADWAY, SUITE 620
NEW YORK, NEW YORK 10018
(212) 382-3660
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S EXECUTIVE OFFICES)
---------------
GLENN SANDS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PERISCOPE SPORTSWEAR, INC.
1407 BROADWAY, SUITE 620
NEW YORK, NEW YORK 10018
(212) 382-3660
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE
OF AGENT FOR SERVICE)
---------------
WITH A COPY TO:
GEORGE LANDER KENNETH J. BARONSKY
MORSE, ZELNICK, ROSE & LANDER, LLP MILBANK, TWEED, HADLEY & MCCLOY
450 PARK AVENUE 601 SOUTH FIGUEROA STREET, 30TH FLOOR
NEW YORK, NEW YORK 10022 LOS ANGELES, CA 90017
(212) 838-1177 (213) 892-4000
(212) 838-9190 (FAX) (213) 629-5063 (FAX)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
---------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462 (b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
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,
check the following box. [_]
---------------
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT TO MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SECURITY(1) OFFERING PRICE(1) REGISTRATION FEE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share...... 3,674,480 $13.50 $49,605,480 $14,633.62
- ------------------------------------------------------------------------------------------
Representatives'
Warrants.............. 319,520 $ 0 $ 0 (2)
- ------------------------------------------------------------------------------------------
Common Stock issuable
upon exercise of
Representatives'
Warrants.............. 319,520 $16.20 $ 5,176,224 $ 1,526.99(3)
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C>
Total............................................................. $54,781,704 $16,160.61(4)
</TABLE>
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- -------------------------------------------------------------------------------
(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457 under the Securities Act.
(2) No registration fee required pursuant to Rule 457(g) under the Securities
Act.
(3) Pursuant to Rule 416 of the Securities Act, there are also being
registered hereby such additional indeterminate number of shares of Common
Stock as may become issuable pursuant to the anti-dilution provisions of
the Representatives' Warrants.
(4) $55.40 is being paid in connection with this filing, representing an
incremental filing fee associated with an increase in the number of
securities being offered.
---------------
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 THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE
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 AUGUST 10, 1998
PROSPECTUS
3,195,200 SHARES
[LOGO OF PERISCOPE SPORTSWEAR, INC.]
COMMON STOCK
-----------
Of the 3,195,200 shares (the "Shares") of Common Stock, par value $.001 per
share (the "Common Stock") offered hereby (the "Offering"), 2,600,000 shares
are being offered by Periscope Sportswear, Inc., a Delaware corporation (the
"Company") and 595,200 shares are being offered by the Selling Stockholders.
See "Principal and Selling Stockholders." The Company will not receive any
proceeds from the sale of shares by the Selling Stockholders.
Prior to this Offering, there has been no public market for the Common Stock.
The Common Stock has been approved for quotation on the Nasdaq National Market
under the symbol "PSCP." It is currently anticipated that the initial public
offering price will be between $11.50 and $13.50 per share. For a discussion of
the factors considered in determining the initial public offering price of the
Shares, see "Underwriting."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 HEREIN FOR A DISCUSSION OF CERTAIN
RISK FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-----------
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.
- --------------------------------------------------------------------------------
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<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
DISCOUNTS AND PROCEEDS TO TO SELLING
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
- -----------------------------------------------------------------------------------
Total(3).................. $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Excludes the value of warrants to purchase up to 319,520 shares of Common
Stock at an exercise price per share equal to 120% of the initial public
offering price per share issuable upon exercise of warrants to be issued to
Sutro & Co. Incorporated and L. H. Friend, Weinress, Frankson & Presson,
Inc. upon the closing of this Offering (the "Representatives' Warrants").
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company estimated
to be $825,000.
(3) The Underwriters have been granted the option, exercisable within 45 days
after the date of this Prospectus, to purchase up to an aggregate of
479,280 additional shares of Common Stock, on the same terms as set forth
above, solely to cover over-allotments, if any (the "Over-Allotment
Option"). The first 280,000 of such shares will be purchased from Glenn
Sands, the Company's President and Chief Executive Officer, and the balance
of such shares will be purchased from the Company. If the Over-Allotment
Option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to the Selling
Stockholders will be $ , $ , $ and $ , respectively. See
"Underwriting."
-----------
The Shares are being offered by the Underwriters named herein subject to
prior sale and when, as and if delivered to and accepted by the Underwriters.
It is expected that the Shares will be ready for delivery through the offices
of Sutro & Co. Incorporated, Los Angeles, California, or through the facilities
of The Depository Trust Company in New York, New York, on or about , 1998,
against payment therefor in immediately available funds.
SUTRO & CO. INCORPORATED
L. H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
SCOTT & STRINGFELLOW, INC.
The date of this Prospectus is , 1998
<PAGE>
Bi-fold inside front cover contains photographs of women's and children's
clothing displayed in showrooms and on models as well as photographs
documenting the Company's production process. The photographs are accompanied
by the following descriptive captions:
PERISCOPE
What America wears today.
Periscope Sportswear provides an extensive line of high-quality women's and
children's clothing in the moderate price category, primarily for sale under
private labels.
The Company's design team creates, develops and coordinates an extensive
range of updated basics for women and children. The Company works closely with
each customer to refine styles that suit its specific market requirements.
By entering the knit garment production process at the design and creation
phase rather than purchasing finished fabrics, the Company achieves production
cost savings, maintains control over fabric quality and variety, and offers
rapid turnaround time.
Comprehensive quality control procedures and manufacturer site inspections
ensure that the Company's fabrics, materials and finished goods meet its
exacting standards.
Aside from a small in-house cutting facility, the Company utilizes third-
party contract manufacturers. Approximately 65% of the Company's sewing
production is done in Mexico, and the Company intends to shift more production
to Mexico to take advantage of significant cost savings, while continuing to
maintain high quality. Outsourcing manufacturing allows the Company to respond
quickly to changing production requirements, while eliminating the significant
capital investment requirements and potential labor problems associated with
maintaining facilities and a manufacturing workforce.
Sold in an estimated 11,000 stores, the Company's finished products are
delivered by Company-owned trucks or shipped nationwide by common carrier.
Buyers include major department stores and specialty store chains such as
Charming Shoppes (Fashion Bug), Cato Stores and Sears; mass merchants such as
Kmart; and wholesale clubs such as Costco Wholesale.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY OVER-ALLOTMENT, THE ENTERING OF STABILIZING BIDS, EFFECTING
SYNDICATE COVERING TRANSACTIONS OR THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated, all
information contained in this Prospectus (i) assumes that the Over-Allotment
Option has not been exercised, (ii) reflects the reincorporation of the Company
in Delaware and the concurrent 124,000-for-one stock split and (iii) assumes
that 4,490,000 shares of Common Stock were outstanding before the Offering
after giving effect to the contribution by BancBoston Ventures, Inc. to the
capital of the Company of 569,200 shares of Common Stock in consideration of
the prepayment of certain indebtedness by the Company. All references to the
Company in this Prospectus refer to Periscope Sportswear, Inc., a Delaware
corporation, and its subsidiaries.
THE COMPANY
The Company provides an extensive line of high-quality women's and children's
clothing in the moderate price category to major retailers, primarily for sale
under private labels. The Company has been able to achieve attractive profit
margins on its knit products by controlling all aspects of the production
process. The Company believes that it differentiates itself by entering the
knit garment production process at the fabric design and creation phase, unlike
many of the Company's competitors who enter the garment production process
later by purchasing finished fabrics. The Company believes that control over
the knit production process enables it to capitalize on its design and garment
production expertise to produce quality apparel for its customers on shorter
lead times and at attractive profit margins. In 1997, approximately 80% of the
Company's sales were of knit products. In addition to knit products, the
Company also produces (i) woven products of the Company's design where the
Company purchases dyed and printed fabric and then controls all cutting, sewing
and finished goods production and (ii) imported finished knit and woven
products. The Company's products are sold nationwide through department and
specialty store chains, including Charming Shoppes (Fashion Bug), Cato Stores,
Montgomery Ward, Goody's and Sears; mass merchants, including Kmart and Wal-
Mart; and wholesale clubs, including Costco Wholesale.
In 1996, the Company made a strategic decision to relocate a portion of its
sewing production from the United States to Mexico, where the Company believed
that it could produce high-quality goods at significant cost savings because
labor costs in Mexico are significantly lower than in the United States. In
addition, goods produced in Mexico are exempt from U.S. import duties under the
North American Free Trade Agreement ("NAFTA"). In 1997, the Company established
a firm manufacturing base in Mexico, during which time the Company conducted
approximately 25% of the sewing portion of its production process in Mexico.
Currently, approximately 65% of the sewing portion of the Company's production
process is conducted in Mexico and the Company intends to continue to shift its
sewing production to Mexico. The remaining 35% of sewing and all other stages
of production occur domestically. The Company believes that a significant
contributor to its recent increase in gross profit margins is related to the
shift of a majority of its sewing operations to Mexico.
The Company's net sales increased 12.2% to $38.5 million in the first six
months of 1998 from $34.3 million in the first six months of 1997, and
increased 11.8% to $88.0 million in 1997 from $78.7 million in 1996. In late
1997, the Company made the strategic decision to restructure its children's
division, which included the discontinuation of the sale of certain less
profitable lines of children's clothing to focus on its higher margin
children's lines. The implementation of the Company's new children's division
strategy, coupled with the increased employment of lower cost Mexican
contractors, resulted in improved gross profit margins from 19.7% in the first
six months of 1997 to 22.7% in the first six months of 1998. The Company's
backlog of orders at June 30, 1998 was approximately $48.6 million, as compared
to approximately $25.3 million at June 30, 1997, representing an increase of
approximately 92%. The Company expects to ship all of its existing backlog
prior to the end of 1998.
1
<PAGE>
The Company's products are updated versions of basic, recurring styles that
have a proven record of sales success and that the Company believes are less
susceptible to fashion obsolescence and less seasonal in nature than fashion
styles. The Company's merchandisers and designers regularly update these basic
styles to reflect current fashion trends by using new color schemes, fabrics
and decorative trim and by incorporating nuances of existing popular styles.
The Company's products primarily consist of knit tops, bottoms, related
separates, dresses, short sets, and woven products (e.g., corduroy, twill,
denim), including bottoms, jumpers, dresses, coordinates, short sets and tops.
The Company manufactures products only on the basis of firm orders received
from its customers. After an order has been placed, the Company contracts with
a broad base of manufacturers at each stage of the production process, allowing
the Company to maximize production flexibility, speed and efficiency, while
eliminating the significant capital investment requirements and potential labor
problems associated with maintaining manufacturing facilities and a
manufacturing workforce. The Company contracts with its manufacturers on an
order-by-order basis, further contributing to the Company's production
flexibility by allowing the Company to select the manufacturers best suited to
fill a given order. The Company believes that its long-standing relationships
with many contract manufacturers, certain of which have committed their entire
facilities to the Company on a priority basis, contribute to its ability to
produce quality apparel products on a timely and cost effective basis. Although
no long-term contractual obligations exist between the Company and its
manufacturers, approximately 80% of the Company's major contract manufacturers
in 1997 had been conducting business with the Company for over five years.
OPERATING STRATEGY
The Company's operating strategy consists of the following key elements:
. Produce Only on a Firm Commitment Basis. The Company purchases raw
materials and produces goods only upon receipt of a firm commitment from
a customer.
. Focus on an "Updated Basics" Product Line. The Company's products are
updated versions of basic, recurring styles that have a proven record of
sales success and that the Company believes are less susceptible to
fashion obsolescence and less seasonal in nature than fashion styles.
. Maintain Control Over the Entire Production Process. The Company is able
to provide superior customer service and achieve attractive profit
margins by controlling the entire production process of its knit
products.
. Outsource Manufacturing. Outsourcing allows the Company to respond
quickly to changing production requirements, while eliminating the
significant capital investment requirements and potential labor problems
and other risks associated with maintaining manufacturing facilities and
a manufacturing workforce.
. Provide Value to Customers. The Company works closely with its customers
to develop coordinated products and distinctive product lines at their
particular price points.
. Develop Long-Term Customer Relationships. The Company emphasizes
developing long-term relationships with its customers by providing a
high level of customer service through its sales force.
GROWTH STRATEGY
The Company intends to grow its business by: (i) increasing sales to existing
customers, (ii) expanding the Company's customer base, (iii) expanding ladies'
product offerings, (iv) expanding the children's apparel division and (v)
pursuing select acquisitions. The Company believes a number of current industry
trends will increase demand for its apparel products. First, the Company
believes that increasing numbers of consumers regard private label products as
less expensive than brand name products, but of equal or better quality.
Retailers also find private label products attractive as they provide higher
profit margins than brand name products. Second, the Company also believes that
there has been a trend in recent years toward the purchase of casual,
2
<PAGE>
moderately priced apparel, driven by the popularity of casual dress-down
Fridays and increasing numbers of casual social activities. Third, in recent
years there has also been significant growth in the children's apparel market.
Finally, the Company believes that the general consolidation of major retailers
and department stores has created a preference among retailers for doing
business with a limited number of large, well-capitalized suppliers that can
provide large product volumes quickly and efficiently. The Company believes its
focus on casual, moderately priced, private label apparel for women and
children positions it to capitalize on these trends.
RECAPITALIZATION
In May 1996, the Company completed a leveraged recapitalization (the
"Recapitalization") whereby the Company borrowed an aggregate of $18.0 million
from BankBoston, N.A. (formerly known as The First National Bank of Boston) and
BancBoston Ventures, Inc. ("BBV"). Substantially all of the proceeds from these
loans were used to repurchase the stock holdings of a former stockholder of the
Company and for a distribution to the Company's then remaining stockholder,
Glenn Sands, the Company's President and Chief Executive Officer. The
Recapitalization was undertaken to consolidate management control under the
Company's current President and Chief Executive Officer, Glenn Sands. In
connection with the Recapitalization, BBV acquired a 35% equity interest in the
Company from Glenn Sands for $2.0 million. See "Principal Stockholders."
The Company was incorporated in Delaware on May 19, 1998, as the successor,
by merger, to Periscope I Sportswear, Inc., a New York corporation organized in
1975. The Company's principal executive offices are located at 1407 Broadway,
Suite 620, New York, New York 10018, and its telephone number is (212) 382-
3660.
RISK FACTORS
The Common Stock offered hereby involves certain risks, including the
Company's dependence on (i) its private label relationships, (ii) its contract
manufacturers, (iii) its key customers and (iv) its access to working capital.
In addition, the Company's operations are subject to the risks associated with
foreign operations and the price and availability of the raw materials used by
the Company to produce its products. For a complete discussion of the risk
factors that should be considered by prospective investors, see "Risk Factors."
THE OFFERING
<TABLE>
<S> <C>
Shares Offered by:
The Company 2,600,000 shares
The Selling Stockholders 595,200 shares
Common Stock to be Outstanding
after this Offering 7,090,000 shares (1)
Use of Proceeds To repay approximately $27.0 million of
indebtedness with the balance to be used
for working capital. See "Use of Proceeds."
Nasdaq National Market Symbol for
the Common Stock "PSCP"
</TABLE>
- --------
(1) Does not include (i) 319,520 shares of Common Stock reserved for issuance
upon exercise of the Representatives' Warrants and (ii) 750,000 shares of
Common Stock reserved for issuance under the Company's Stock Option Plan,
none of which are subject to outstanding options exercisable within 60 days
of the date hereof. See "Underwriting" and "Management--Stock Option Plan."
3
<PAGE>
SUMMARY FINANCIAL DATA
The summary financial data of the Company presented below as of December 31,
1995, 1996 and 1997, and June 30, 1998, and for the years ended December 31,
1995, 1996 and 1997, and for the six months ended June 30, 1997 and 1998, have
been derived from the consolidated financial statements of the Company and
unaudited pro forma financial data. The consolidated financial statements as of
December 31, 1997 and for the year then ended have been audited by Arthur
Andersen LLP, independent public accountants, and the consolidated financial
statements as of December 31, 1995 and 1996, and for each of the two years then
ended have been audited by Friedman Alpren & Green LLP independent public
accountants. The financial statements as of June 30, 1998, and for the six
months ended June 30, 1997 and 1998, and the pro forma data have been derived
from the unaudited consolidated financial statements of the Company, which have
been prepared on the same basis as the audited financial statements, and in the
opinion of management, reflect all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of such data. The historical and
pro forma results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for any future
period. The financial data set forth below is qualified by reference to, and
should be read in conjunction with, the Company's Consolidated Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
Prospectus.
CONSOLIDATED INCOME DATA (IN THOUSANDS EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ ------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.......................... $67,317 $78,706 $87,957 $ 34,257 $ 38,502
Cost of sales...................... 50,669 62,902 70,610 27,499 29,762
------- ------- ------- -------- --------
Gross profit..................... 16,648 15,804 17,347 6,758 8,740
Operating expenses................. 9,253 14,230 12,519 6,092 5,544
------- ------- ------- -------- --------
Income from operations............. 7,395 1,574 4,828 666 3,196
Factor and financing costs......... 1,047 3,245 4,743 2,080 2,485
------- ------- ------- -------- --------
Income (loss) before income tax
provision (benefit)............. 6,348 (1,671) 85 (1,414) 711
Income tax provision (benefit)..... 253 (15) 60 -- 359
------- ------- ------- -------- --------
Net income (loss)................ $ 6,095 $(1,656) $ 25 $ (1,414) $ 352
======= ======= ======= ======== ========
Basic and diluted net income(loss)
per share......................... $ -- $ (0.28) $ 0.07
======= ======== ========
Weighted average shares outstand-
ing(1)............................ 5,059 5,059 5,059
======= ======== ========
PRO FORMA NET INCOME DATA
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE
DATA) (2)
Income before income tax provision,
as reported....................... $ 6,348
Pro forma income tax provision..... 2,730
-------
Pro forma net income............. $ 3,618
=======
</TABLE>
- --------
(1) Before giving effect to the contribution by BancBoston Ventures, Inc. to
the capital of the Company of 569,200 shares of Common Stock, to be made
concurrently with the closing of the Offering. Such shares, upon such
contribution, will no longer be outstanding.
(2) Reflects a pro forma provision for income taxes as if the Company had been
a C Corporation for Federal and state income tax purposes during 1995.
4
<PAGE>
The unaudited Pro Forma Consolidated Statements of Operations represent the
historical results of operations of the Company for the year ended December 31,
1997, and the six months ended June 30, 1997 and 1998, adjusted to reflect a
reduction in interest expense and amortization of debt issuance costs following
the use of approximately $27.0 million of net proceeds of the Offering to repay
indebtedness as if such transactions had occurred at the beginning of such
periods. The Pro Forma Consolidated Statements of Operations are not
necessarily indicative of what the Company's results of operations would have
been had such transactions occurred at the beginning of such period. The
Company expects to recognize an extraordinary gain on the early retirement of
certain debt to be repaid from the proceeds of this Offering totaling
approximately $3.6 million.
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)(1)(2)
------------------------------
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -----------------
1997 1997 1998
------------ -------- --------
<S> <C> <C> <C>
Net sales....................................... $87,957 $ 34,257 $ 38,502
Cost of sales................................... 70,610 27,499 29,762
------- -------- --------
Gross profit.................................. 17,347 6,758 8,740
Operating expenses.............................. 12,519 6,092 5,544
------- -------- --------
Income from operations.......................... 4,828 666 3,196
Factor and financing costs...................... 1,443 657 1,079
------- -------- --------
Income (loss) before income tax provision
(benefit).................................... 3,385 9 2,117
Income tax provision (benefit).................. 1,170 -- 663
------- -------- --------
Net income (net loss)......................... $ 2,215 $ 9 $ 1,454
======= ======== ========
Basic and diluted net income (loss) per
share(3)....................................... $ 0.31 $ -- $ 0.21
======= ======== ========
Weighted average number of shares outstand-
ing(3)......................................... 7,090 7,090 7,090
======= ======== ========
</TABLE>
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
ACTUAL JUNE 30, 1998
----------------------- -----------------------
1995 1996 1997 ACTUAL AS ADJUSTED(4)
------ ------- ------- ------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Working capital(deficit)...... $5,606 $ (629) $ 444 $ 829 $8,987
Total assets.................. 9,961 12,976 15,383 22,956 24,617
Total debt, including due to
factor....................... -- 22,288 24,839 28,101 1,254
Stockholders' equity (defi-
ciency)...................... 5,840 (15,843) (15,818) (15,466) 10,453
====== ======= ======= ======= ======
</TABLE>
- --------
(1) The pro forma information gives effect to the Offering and application of
the net proceeds therefrom, resulting in a reduction of interest expense
and the elimination of amortization of debt issuance costs upon completion
of this Offering, all as if this Offering had occurred at the beginning of
the periods indicated. Interest expense has been reduced to reflect the
repayment of $27.0 million of indebtedness as of the beginning of each
period presented and the utilization of the remaining net proceeds to fund
seasonal cash needs during the periods presented. Interest expense has also
been reduced to utilize actual principal and interest payments on debt to
be repaid with a portion of the proceeds of this Offering to reduce
borrowings outstanding under the Company's factoring agreement.
(2) The pro forma information has not been adjusted to reflect an expected
extraordinary gain on the early retirement of certain debt to be prepaid
from the proceeds of this Offering. The extraordinary gain primarily
results from the contribution of 569,200 shares of the Company's Common
Stock (valued at the assumed offering price of $12.50 per share) by
BancBoston Ventures, Inc. as consideration for the early repayment of debt
due to BancBoston Ventures, Inc.
(footnotes continued on following page)
5
<PAGE>
(2) Continued
The pro forma extraordinary gain is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR MONTHS ENDED
ENDED JUNE 30,
DECEMBER 31, ----------------
1997 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Pro forma net income before extraordinary
item........................................ $ 2,215 $ 9 $ 1,454
Extraordinary item:
Gain on early retirement of debt 7,115 7,115 7,115
Less: Expensing of related deferred financ-
ing costs.................................. (1,125) (1,125) (868)
Less: Provision for income taxes............ (2,576) (2,576) (2,686)
------- ------- -------
Pro forma net income......................... $ 5,629 $ 3,423 $ 5,015
======= ======= =======
Basic and diluted pro forma income per share. $ 0.79 $ 0.48 $ 0.71
======= ======= =======
</TABLE>
(3) The computation of pro forma basic and diluted earnings per share for the
year ended December 31, 1997 and for the six months ended June 30, 1997 and
1998, is based upon (i) giving effect to the 124,000-for-1 stock split
effective on July 21, 1998, (ii) 4,490,000 shares of Common Stock
outstanding prior to the Offering (after giving effect to the concurrent
contribution by BancBoston Ventures, Inc. to the capital of the Company of
569,200 shares of Common Stock in consideration of the prepayment of
certain indebtedness of the Company) and (iii) 2,600,000 shares of Common
Stock sold by the Company in the Offering. There is no difference between
pro forma basic and diluted earnings per share for the year ended December
31, 1997 and for the six months ended June 30, 1997 and 1998, since the
conversion of the stock options and warrants issued in connection with the
Offering is antidilutive.
(4) As adjusted to reflect the sale of Shares offered hereby and the
anticipated use of the net proceeds therefrom. See "Use of Proceeds."
6
<PAGE>
RISK FACTORS
An investment in the Shares offered hereby is speculative and involves a
high degree of risk. In addition to the other information contained in this
Prospectus, the following risk factors should be considered carefully in
evaluating the Company and its business before purchasing the Shares offered
hereby.
DEPENDENCE ON PRIVATE LABEL RELATIONSHIPS; LACK OF TRADE NAME RECOGNITION
For 1997 and 1996, approximately 75% and 70%, respectively, of the Company's
net sales were derived from product sales to retailers of private label
apparel. All sales made under a private label relationship are made on a
purchase order basis and there are no long-term contracts with respect to any
private label relationships. There can be no assurance that existing private
label relationships will continue in the future or that the Company will be
able to obtain new private label relationships on an ongoing basis, if at all.
If the Company's private label sales were substantially reduced, the Company
would have to seek to offset such reductions through the development and sale
of trade name products, which is not the primary focus of the Company's
business as currently conducted.
DEPENDENCE ON CONTRACT MANUFACTURERS
The Company manufactures substantially all of its knit products, which
accounted for approximately 80% of its product sales in 1997, through third
party contract manufacturers at every stage of production. The Company does
not have long-term contracts or formal arrangements with any of its contract
manufacturers or suppliers. Competition for production capacity of apparel
manufacturers is significant. Because the Company does not have long-term
contracts for mill production or for the cutting and sewing of products, the
Company competes with other companies for production capacity. In the event
any of the Company's suppliers or manufacturers are unable or unwilling to
produce the Company's products in a timely manner, the Company would have to
rely on other current sources or identify new contractors. In such event,
there can be no assurance that the Company would be able to switch to such new
contractors in a timely manner or that such contractors would allocate
sufficient capacity to the Company in order to meet its production
requirements. Delays in shipments to the Company or inconsistent or inferior
apparel quality as a result of the required switch to new contractors could
adversely affect the Company's relationships with its customers. There can be
no assurance that the supply of alternate manufacturing facilities will be
available on commercially reasonably terms, if at all, if required. Any
substantial delay in locating, or the inability to locate, acceptable
alternate sources of manufacturing could have a material adverse affect on the
Company's business, financial condition and results of operations. See
"Business--Manufacturing."
RISKS ASSOCIATED WITH FOREIGN OPERATIONS
Approximately 65% of the sewing portion of the Company's manufacturing
process occurs in Mexico. Foreign manufacturing is subject to a number of
risks, including transportation delays and interruptions, political and
economic disruptions, tariffs, import and export controls and changes in
governmental policies. These operations could be adversely affected by
political instability in Mexico, other changes in the regulatory climate in
Mexico or changes in U.S. or Mexican tariff or trade policy. There can be no
assurance that trade relations between Mexico and the United States will not
adversely change. If that were to occur, there can be no guarantee that the
Company will be able to locate and utilize alternatively located facilities on
the same cost basis. In addition, stringent controls, such as review and
inspection of fabrics, samples, specifications, fit and completed garments and
factory visits, must be undertaken in Mexico to ensure the production of
quality products. There can be no assurance that events will not occur in the
future which will result in increased production costs or delays of product
deliveries which, in turn, may result in losses of revenue and goodwill.
Currently, sales of finished garments imported from China and Taiwan
represent, in the aggregate, approximately 12% of the Company's gross sales.
Should the Company wish to increase its sales of imported goods significantly,
such increase will be subject to increased risk, such as political
instability, resulting in the
7
<PAGE>
disruption of trade from China and Taiwan and other foreign countries in which
the Company now manufactures or in the future may manufacture its products and
in which the Company now has or in the future may have suppliers. In addition,
the imposition of additional regulations relating to imports or duties from
countries not covered by NAFTA and any significant decline in the value of the
dollar against foreign currencies and restrictions on the transfer of funds
could also adversely affect the Company. In addition, the Company's import
operations are subject to constraints imposed by bilateral textile agreements
between the United States and China. These agreements impose quotas on the
amount and type of goods which can be imported into the United States from
China and are subject to changes in U.S./Chinese trade policy. Recently there
have been a number of 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"
trading status. A significant disruption in the operations of the Company's
agents located in China or the loss of most favored nation trading status for
China could have a material adverse effect on the Company's business,
financial condition and results of operations.
Certain foreign garment manufacturers have been found to operate under
conditions which are commonly referred to as "sweat shops," in some cases
employing children in violation of local law or otherwise diverging from labor
practices generally accepted as ethical in the United States. Recently, some
United States distributors have been adversely affected by their association
with such operations. The Company does not control its contract manufacturers
or their labor practices. The violation of labor or other laws by any
manufacturer used by the Company, or the divergence of an independent
manufacturer's labor practices from those generally accepted as ethical in the
United States, could result in adverse publicity for the Company and retailers
carrying the Company's products, which, in turn, could have a material adverse
effect on the Company's business, financial condition or results of
operations.
RELIANCE ON KEY CUSTOMERS
The Company's customer base has been and continues to be relatively
concentrated. Sales of the Company's products to each of Kmart, Sears, Costco
Wholesale, Charming Shoppes, Cato Stores, Montgomery Ward and Shopko Stores
accounted for approximately 30.1%, 13.3%, 10.5%, 10.4%, 5.4%, 4.7% and 4.0% of
gross sales, respectively, for the six months ended June 30, 1998. Sales of
the Company's products to each of Charming Shoppes, Sears, Kmart, Wal-Mart,
Cato Stores, Shopko Stores, Montgomery Ward and Lerner accounted for
approximately 13.4%, 12.1%, 9.4%, 7.2%, 6.5%, 5.3%, 4.4% and 4.3% of gross
sales, respectively, during 1997. In addition, sales of the Company's products
to each of Charming Shoppes, Sears, Cato Stores, Kmart, Wal-Mart and Lerner
accounted for 15.9%, 11.8%, 10.3%, 8.5%, 8.1% and 8.0% of gross sales,
respectively, during 1996, while sales of the Company's products to each of
Charming Shoppes, Lerner and Cato Stores accounted for 16.0%, 14.9% and 9.6%
of gross sales, respectively, during 1995. Based upon historical and recent
results and existing relationships with customers, the Company believes that a
substantial portion of its net sales and gross profits will continue to be
derived from a small number of large customers. There can be no assurance that
the Company's larger customers will continue to place orders with the Company,
that orders by such customers will continue at their previous levels or that
the Company can replace any such lost business. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Merchandising" and "--Backlog."
PRICE AND AVAILABILITY OF RAW MATERIALS
The principal raw materials used in the Company's products are cotton, wool,
rayon and polyester. The price and availability of such raw materials and, in
turn, the yarns used by the Company to manufacture its knit apparel products
and fabrics used by the Company to manufacture its woven and knit apparel
products may fluctuate significantly, depending on a variety of factors,
including crop yields and weather patterns. The Company currently does not
engage in any hedging activities intended to offset the risk of raw material
price fluctuations. In the event that the Company is required to obtain yarn
or fabrics from sources other than its current suppliers, the quality of such
raw materials available may also fluctuate significantly. Fluctuations in the
price, availability and quality of the yarn, fabrics or other raw materials
used by the Company could have a material adverse effect on the Company's cost
of sales or its ability to meet its customers' demands and, as a result, could
have a
8
<PAGE>
material adverse effect on the Company's business and results of operations.
There also can be no assurance that the Company will be able to pass along to
its customers all, or any portion of, any future increase in the prices paid
for the raw materials used in the manufacture of the Company's products. See
"Business--Operations."
DEPENDENCE ON ACCESS TO WORKING CAPITAL
Historically, the Company has relied heavily on its access to credit
facilities to fund its operations. Substantially all of the Company's assets
are subject to security interests granted by the Company to its lenders. There
can be no assurance that the Company will be able to retain its current access
to credit or successfully obtain alternative sources of credit or working
capital on commercially reasonable terms in the future. The failure of the
Company to retain current access to credit or obtain alternative sources of
credit or working capital on commercially reasonable terms could adversely
effect the Company's business, financial condition and results of operations.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent upon the personal efforts and
abilities of Glenn Sands, its President, Chief Executive Officer and principal
stockholder. The Company has entered into an employment agreement with Mr.
Sands for a three year term expiring December 31, 2000. The Company believes
that the loss of the services of Mr. Sands may have an adverse effect on the
Company. The Company maintains key man life insurance on the life of Mr. Sands
in the amount of $18.0 million. See "Management--Employment Agreements."
In addition, the Company believes that its future success depends upon its
ability to attract and retain qualified personnel. Competition to attract and
retain such personnel within the apparel industry is intense. There can be no
assurance that the Company will be successful in attracting and retaining
high-quality personnel in the future. See "Management."
CONTROL BY PRINCIPAL STOCKHOLDERS
Following the completion of this Offering, Glenn Sands, Scott Pianin and
BancBoston Ventures, Inc. will beneficially own an aggregate of approximately
52.9% of the Company's outstanding Common Stock. See "Principal and Selling
Stockholders" and "Certain Transactions." As a result of this stock ownership,
Messrs. Sands and Pianin and BancBoston Ventures, Inc. have sufficient voting
power together to determine the direction and policies of the Company, the
election of the directors of the Company, the outcome of any other matter
submitted to a vote of stockholders, and to prevent or cause a change in
control of the Company.
RISKS ASSOCIATED WITH SIGNIFICANT GROWTH
During the last three years, the Company has experienced substantial growth
which has strained the Company's administrative and operational resources and
need for working capital. The Company remains vulnerable to a variety of
business risks generally associated with rapidly growing companies. The
Company's past growth cannot be assumed to be indicative of its future results
of operations. Any future growth will require, among other things, increasing
amounts of working capital and financing, and may place a significant strain
on the Company's management and on its financial information processing
systems. In addition, future growth may depend upon the Company's ability to
contract with additional manufacturers. The failure to obtain additional
financing, to maintain or upgrade its information processing systems, to
recruit additional staff and key personnel, to locate additional contract
manufacturers or the failure to respond effectively to difficulties
encountered during expansion could have a material adverse effect on the
Company's business, financial condition and results of operations.
VARIATIONS IN OPERATING RESULTS; SEASONALITY
The Company has not historically experienced seasonable variations in its
business; instead, the Company typically experiences significant shifts in its
net sales on a customer by customer and quarter by quarter basis. Since most
of the Company's sales are derived from large bulk orders, a change in the
timing of receipt or shipment, or
9
<PAGE>
the number of orders received by the Company, could result in a significant
shift in the timing or amount of the Company's revenues. Additionally,
misjudgment by the Company of the market for the products that it designs may
result in decreased orders and sales. Further, sales of children's apparel is
seasonal with sales reaching their peak during the "back to school" period. If
sales of the Company's children's apparel increases, the Company may
experience greater variations in operating results from quarter to quarter.
The variations in the operating results of the Company's business affects
borrowings under the Company's lines of credit and its level of backlog, which
fluctuate in response to demand for the Company's products. Therefore, the
results of any interim period are not necessarily indicative of the results
that may be achieved for an entire year. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CYCLICALITY AND TRENDS IN THE APPAREL INDUSTRY
The apparel industry is subject to rapidly changing consumer demands and
preferences. There can be no assurance that consumers will continue to favor
the products designed and produced by the Company under private label
relationships or its own brands, and a significant shift in consumer
preferences could have a material adverse effect on the Company's business,
financial condition and results of operations. The apparel industry is a
cyclical industry heavily dependent upon the overall level of consumer
spending, with purchases of apparel and related goods tending to decline
during recessionary periods when disposable income declines. A difficult
retail environment could result in downward price pressure which could
adversely impact the Company's gross profit margins. Additionally, all of the
Company's customers are in the retail industry, which industry has experienced
significant changes and difficulties over the past several years, including
consolidation of ownership, increased centralization of buying decisions,
restructuring, bankruptcies and liquidations. Additionally, financial problems
of a retailer could cause the Company's factor to limit the amount of credit
extended to such retailer. If the Company's factor were to impose such
limitation, the Company could be required to curtail business with such
retailer or to assume additional credit risk relating to such customer's
receivables. The Company cannot predict what effect, if any, continued or
additional changes within the retail industry will have on its business,
financial condition or results of operations.
COMPETITION
There is intense competition in the apparel industry in general and in the
private label apparel market in which the Company does business. The Company
competes with numerous apparel manufacturers, including brand name and private
label producers, and retailers that have established, or may establish,
internal product development and sourcing capabilities. The Company's products
also compete with a substantial number of designer and non-designer product
lines. Many of the Company's competitors have greater financial, manufacturing
and distribution resources than the Company. Any increased competition from
manufacturers or retailers, or any increased success by existing competition,
could result in reductions in unit sales or prices, or both, which could have
a material adverse effect on the Company's business and results of operations.
See "Business--Competition."
ANTI-TAKEOVER PROVISIONS
The Company's Restated Articles of Incorporation and Restated Bylaws include
provisions that may have the effect of discouraging persons from pursuing a
non-negotiated takeover of the Company and preventing certain changes of
control. Certain of these provisions may also discourage a future acquisition
of the Company not approved by the Company's Board of Directors in which
stockholders might receive maximum value for their shares or which a
substantial number and perhaps even a majority of the Company's non-management
stockholders believe to be in the best interest of all stockholders. The
Certificate of Incorporation provides for the Board of Directors to be divided
into three classes and Directors may be removed only for cause upon the
affirmative vote of at least two-thirds of the shares of capital stock of the
Company entitled to vote. The Board of Directors is authorized to issue up to
5,000,000 shares of the Company's undesignated Preferred Stock in one or more
series, to determine the powers, preferences and rights, and the
qualifications, limitations or restrictions, granted to or imposed upon any
wholly unissued series of undesignated Preferred Stock, and to fix the number
of shares constituting any series and the designation of such series, without
any further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deferring or preventing a change
10
<PAGE>
in control of the Company and may adversely affect the voting and other rights
of the holders of Common Stock. See "Description of Capital Stock--Certain
Provisions of the Company's Certificate of Incorporation and Bylaws."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Shares offered hereby will experience immediate and
substantial dilution in net tangible book value of $11.03 (88%) per share from
the assumed initial public offering price of $12.50 per share. See "Dilution."
ABSENCE OF DIVIDENDS
The Company does not expect to pay cash or stock dividends on its Common
Stock in the foreseeable future. Additionally, the terms of the Company's
Factoring Line restrict the Company from paying cash dividends on its Common
Stock, and the Company may in the future enter into other loan or financing
arrangements that restrict the payment of cash dividends on the Common Stock.
See "Dividend Policy."
NO PRIOR PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
OF SHARE PRICE.
Prior to this Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Shares
has been determined by negotiations between the Company and the
Representatives. See "Underwriting" for a discussion of the factors considered
in determining the initial public offering price. The Common Stock has been
approved for quotation on the Nasdaq National Market. There can be no
assurance that an active trading market in the Common Stock will develop or,
if developed, that it will be sustained. The market price of the Company's
securities following this Offering also may be highly volatile. There have
been periods of extreme fluctuation in the stock market that, in many cases,
were unrelated to the operating performance of, or announcements concerning,
the issuers of the affected securities. Securities of issuers having
relatively limited capitalization or securities recently issued in a public
offering are particularly susceptible to fluctuation based on short-term
trading strategies of certain investors. In addition, the market price of the
Common Stock could fluctuate significantly due to variations in the Company's
anticipated or actual results of operations or conditions in the apparel
industry, in general. Although the initial public offering price of the Shares
reflects the Company's and the Representatives' assessment of current market
conditions, there can be no assurance that the price of the Company's Common
Stock will be maintained following the Offering. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial number of shares of the Company's Common Stock in
the public market after this Offering or the perception that such sales may
occur could adversely affect the market price of the Common Stock. The
4,490,000 shares of Common Stock presently outstanding are "restricted
securities" within the meaning of Rule 144 under the Securities Act of 1933,
as amended (the "Securities Act"), and may be sold under the conditions of
such rule, including satisfaction of certain holding period requirements.
Except for the sale by the Selling Stockholders of 595,200 shares of Common
Stock offered hereby (875,200 if the Over-Allotment Option is exercised in
full with respect to Mr. Sands' shares), holders of the shares have executed
agreements pursuant to which they may not sell or otherwise dispose of such
shares for a period of 270 days after the closing of this Offering without the
prior written consent of Sutro & Co. Incorporated (the "Lock-Up Agreements").
After giving effect to the sale of shares offered by the Selling Stockholders,
212,700 shares of Common Stock presently outstanding, which shares are subject
to Lock-Up Agreements, will become eligible for sale in the public market in
reliance on Rule 144 beginning 90 days after the date of this Prospectus,
taking into account the volume limitations imposed upon the sale of
"restricted securities" by "affiliates." The sale or availability for sale of
significant quantities of Common Stock could adversely affect the market price
of the Common Stock. See "Shares Eligible for Future Sale."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,600,000 shares of
Common Stock offered by the Company (at the assumed initial public offering
price of $12.50 per share and after deducting estimated underwriting discounts
and commissions and offering expenses) are estimated to be approximately $29.4
million ($31.7 million if the Underwriters' over-allotment option is exercised
in full).
The Company expects to use approximately $27.0 million of the net proceeds
from the Offering to repay outstanding indebtedness, including (i) the
repayment in full of a term loan (the "BankBoston Note") from BankBoston, N.A.
($13.5 million as of June 30, 1998), (ii) the repayment in full of a term loan
(the "BBV Note") from BancBoston Ventures, Inc. ($3.0 million as of June 30,
1998), (iii) the repayment in full of a subordinated note (the "Sands Note")
from Glenn Sands ($2.0 million as of June 30, 1998), (iv) the repayment in
full of a term loan (the "CIT Note") from CIT ($500,000 as of June 30, 1998),
and (v) the repayment of a portion of the net amount then outstanding under
its accounts receivable factoring line (the "Factoring Line") with CIT ($8.8
million as of June 30, 1998). In consideration of the prepayment of the BBV
Note, BBV has agreed to contribute 569,200 shares of Common Stock to the
capital of the Company. The balance of the net proceeds will be used for
working capital.
The BankBoston Note bears interest at the greater of the lender's base rate
or the federal funds effective rate plus 1.25% per annum (9.75% as of June 30,
1998) and is due May 15, 2001. The BBV Note bears interest at 7% per annum and
is due May 15, 2001. The Sands Note bears interest at prime plus 0.5% (9.0% as
of June 30, 1998) and is due January 1, 2000. The CIT Note bears interest at
prime plus 1% (9.5% as of June 30, 1998) and is due November 1, 1998. The
Factoring Line bears interest at prime plus 0.5% (9.0% as of June 30, 1998)
and expires May 31, 2000. Borrowings under the Factoring Line have been used
for working capital purposes, and after completion of the Offering, the
Company intends to borrow from time to time under the Factoring Line to meet
its working capital needs. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
DIVIDEND POLICY
Since May 17, 1996, when the Company changed its tax payer status from an S
Corporation to a C Corporation, the Company has not declared or paid any cash
dividends on its Common Stock and does not anticipate paying any such
dividends in the foreseeable future. The Company intends to retain future
earnings, if any, to fund ongoing operations and future capital requirements
of its business. Additionally, the terms of the Company's Factoring Line
restrict the Company from paying cash dividends on its Common Stock, and the
Company may in the future enter into other loan or financing arrangements that
restrict the payment of cash dividends on the Common Stock. See "Management's
Discussion and Analysis of Financial Conditions and Results of Operations--
Liquidity and Capital Resources."
12
<PAGE>
CAPITALIZATION
The following table sets forth the current portion of long-term debt and
capitalization of the Company as of June 30, 1998 (i) on an actual basis and
(ii) as adjusted, giving effect to the sale of 2,600,000 shares offered by the
Company and the application of the estimated net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction
with the Company's financial statements and the notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Short-term debt and capital lease obligation(1)....... $ 547,973 $ 47,973
=========== ===========
Long-term debt and capital lease obligation (less cur-
rent portion)(1)..................................... $18,731,205 $ 231,205
----------- -----------
Stockholders' equity (deficiency):
Preferred Stock, $.001 par value; 5,000,000 shares
authorized; no shares issued....................... -- --
Common Stock, $.001 par value;
Authorized 30,000,000 shares; issued and outstand-
ing 4,490,000 shares, actual; and 7,090,000 shares
as adjusted(2)(3)................................. 40,000 7,090
Additional paid-in capital.......................... (3,311,963) 7,625,947
Treasury Stock(4)................................... (11,380,000) --
Accumulated deficit(5).............................. (814,271) 2,820,020
----------- -----------
Total stockholders' equity (deficiency)........... (15,466,234) 10,453,057
----------- -----------
Total capitalization............................ $ 3,264,971 $10,684,262
=========== ===========
</TABLE>
- --------
(1) See Notes 6 and 7 to the Company's Financial Statements for information
concerning the Company's indebtedness.
(2) Does not include (i) 319,520 shares of Common Stock reserved for issuance
upon exercise of the Representatives' Warrants and (ii) 750,000 shares of
Common Stock reserved for issuance under the Company's Stock Option Plan,
none of which are subject to outstanding options exercisable within 60
days of the date hereof. See "Underwriting" and "Management--Stock Option
Plan."
(3) Reflects the 124,000-for-1 stock split effected on July 21, 1998, in
connection with the reincorporation of the Company in Delaware and the
change in par value of the Company's Common Stock to $.001 per share.
(4) Reflects the retirement of the Company's Treasury Stock in connection with
the reincorporation of the Company in Delaware.
(5) Reflects an expected extraordinary gain on the early retirement of certain
debt to be prepaid from the proceeds of the Offering of $3.6 million. The
extraordinary gain results primarily from the contribution of 569,200
shares of the Company's Common Stock (valued at the assumed offering price
of $12.50 per share) by BancBoston Ventures, Inc. as consideration for the
early repayment of debt due to BancBoston Ventures, Inc. The extraordinary
gain has been reduced by (i) the expensing of the unamortized portion of
deferred financing costs related to the above debt totaling $739,000 and
(ii) the related provision for income taxes of $2.7 million.
13
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1998, was
approximately negative $16.2 million or negative $3.61 per share of Common
Stock. Net tangible book value per share is equal to the Company's total
tangible assets less total liabilities, divided by the total number of shares
of Common Stock outstanding immediately prior to the Offering after giving
effect to the concurrent contribution by BancBoston Ventures, Inc. to the
capital of the Company of 569,200 shares of Common Stock in consideration of
the prepayment of certain indebtedness by the Company. After giving effect to
the sale of 2,600,000 Shares offered by the Company at an assumed initial
public offering price of $12.50 per share (after deducting the underwriting
discount and estimated expenses of this Offering), the pro forma net tangible
book value of the Company as of June 30, 1998, would have been approximately
$10.5 million or $1.47 per share. This represents an immediate increase in pro
forma net tangible book value of $5.08 per share to existing stockholders and
an immediate dilution of $11.03 per share (88%) to new investors. Dilution is
determined by subtracting (i) pro forma net tangible book value per share
after this Offering from (ii) the amount of cash paid by a new investor for a
share of Common Stock. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Proposed public offering price per share..................... $12.50
Net tangible book value per share before Offering.......... $(3.61)
Increase per share attributable to new investors........... $ 5.08
------
Pro forma net tangible book value per share after Offering
(1)......................................................... $ 1.47
------
Dilution to new investors.................................... $11.03
======
</TABLE>
- --------
(1) Does not give effect to the issuance of (i) 319,520 shares of Common Stock
upon exercise of the Representatives' Warrants and (ii) 750,000 shares of
Common Stock reserved for issuance under the Company's Stock Option Plan,
none of which are subject to outstanding options exercisable within 60
days of the date hereof. See "Underwriting" and "Management--Stock Option
Plan."
The following table sets forth as of June 30, 1998, the number and
percentage of shares purchased, and the amount and percentage of consideration
paid, by existing stockholders for shares of Common Stock purchased from the
Company for cash and by new investors at the assumed initial public offering
price of $12.50 per share (before deduction of the underwriting discount and
estimated offering expenses) as adjusted to give effect to the concurrent
contribution by BancBoston Ventures, Inc. to the capital of the Company of
569,200 shares of Common Stock in consideration of the prepayment of certain
indebtedness of the Company.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION(2)
----------------- --------------------------AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------------- ------------------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders
(1).................... 4,490,000 63.3% $ 2,069,835 6.0% $ 0.46
Public Investors (1).... 2,600,000 36.7% 32,500,000 94.0% $12.50
--------- ----- -------------- --------
Total................. 7,090,000 100.0% $ 34,569,835 100.0%
========= ===== ============== ========
</TABLE>
- --------
(1) Does not give effect to the exercise of warrants and options described in
footnote 1 to the immediately preceding table.
(2)Does not reflect deduction of the underwriting discount or estimated
Offering expenses.
14
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data of the Company presented below as of December
31, 1993, 1994, 1995, 1996 and 1997, and June 30, 1998, and for the years
ended December 31, 1993, 1994, 1995, 1996 and 1997, and for the six months
ended June 30, 1997 and 1998, have been derived from the consolidated
financial statements of the Company. The consolidated financial statements as
of December 31, 1997, and for the year then ended have been audited by Arthur
Andersen LLP, independent public accountants, and the consolidated financial
statements as of December 31, 1993, 1994, 1995 and 1996, and for each of the
four years then ended have been audited by Friedman Alpren & Green LLP,
independent public accountants. The financial statements as of June 30, 1998,
and for the six months ended June 30, 1997 and 1998, have been derived from
the unaudited consolidated financial statements of the Company, which have
been prepared on the same basis as the audited financial statements, and in
the opinion of management, reflect all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of such data. The
historical results of operations for the six months ended June 30, 1998 are
not necessarily indicative of the results that may be expected for any future
period. The financial data set forth below is qualified by reference to, and
should be read in conjunction with, the Company's Consolidated Financial
Statements and the notes thereto and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained elsewhere in this
Prospectus.
CONSOLIDATED INCOME DATA (IN THOUSANDS EXCEPT PER SHARE DATA):
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $72,924 $51,930 $67,317 $78,706 $87,957 $34,257 $38,502
Cost of sales........... 55,773 39,015 50,669 62,902 70,610 27,499 29,762
------- ------- ------- ------- ------- ------- -------
Gross profit.......... 17,151 12,915 16,648 15,804 17,347 6,758 8,740
Operating expenses...... 7,912 7,233 9,253 14,230 12,519 6,092 5,544
------- ------- ------- ------- ------- ------- -------
Income from operations.. 9,239 5,682 7,395 1,574 4,828 666 3,196
Factor and financing
costs.................. 923 417 1,047 3,245 4,743 2,080 2,485
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income tax provision
(benefit)............ 8,316 5,265 6,348 (1,671) 85 (1,414) 711
Income tax provision
(benefit).............. 564 292 253 (15) 60 -- 359
------- ------- ------- ------- ------- ------- -------
Net income (loss)..... $ 7,752 $ 4,973 $ 6,095 $(1,656) $ 25 $(1,414) $ 352
======= ======= ======= ======= ======= ======= =======
Basic and diluted net
income (loss)
per share.............. $ 0.78 $ 0.50 $ 0.61 $ (0.24) $ -- $ (0.28) $ 0.07
======= ======= ======= ======= ======= ======= =======
Weighted average number
of shares
outstanding(1)......... 9,920 9,920 9,920 6,820 5,059 5,059 5,059
======= ======= ======= ======= ======= ======= =======
Cash dividends per
common share........... $ 0.52 $ 0.54 $ 0.55 $ 0.94 $ -- $ -- $ --
======= ======= ======= ======= ======= ======= =======
PRO FORMA NET INCOME
DATA (IN THOUSANDS
EXCEPT PER SHARE DATA)
(UNAUDITED) (2)
Income before income tax
provision, as
reported............... $ 8,316 $ 5,265 $ 6,348
Pro forma income tax
provision.............. 3,576 2,264 2,730
------- ------- -------
Pro forma net income.. $ 4,740 $ 3,001 $ 3,618
======= ======= =======
Pro forma basic and di-
luted net income per
share.................. $ 0.48 $ 0.30 $ 0.36
======= ======= =======
Pro forma weighted
average shares
outstanding............ 9,920 9,920 9,920
======= ======= =======
</TABLE>
15
<PAGE>
- --------
(1) Weighted average shares outstanding are determined before giving effect to
the contribution by BancBoston Ventures, Inc. to the capital of the
Company of 569,200 shares of Common Stock to be made concurrent with the
closing of the Offering, which shares, upon such contribution, will no
longer be outstanding.
(2) Reflects pro forma provision for income taxes as if the Company had been a
C Corporation for Federal and state income tax purposes during 1993, 1994
and 1995. The Company did not record a deferred tax asset in connection
with the losses incurred for the period January 1, 1996 to May 16, 1996
because such assets could not be realized by utilization of such losses in
the Company's income tax returns filed for the period May 17, 1996 to
December 31, 1996.
CONSOLIDATED BALANCE SHEET DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1998
---------------------------------------- -------------------------
ACTUAL
----------------------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED (1)
------- ------ ------ -------- -------- -------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Working capital (defi-
cit)................... $ 5,167 $4,902 $5,606 $ (629) $ 444 $ 829 $ 8,987
Total assets............ 11,464 9,444 9,961 12,976 15,383 22,956 24,617
Total debt, including
due to factor.......... -- -- -- 22,288 24,839 28,101 1,254
Stockholders' equity
(deficiency)........... 5,492 5,155 5,840 (15,843) (15,818) (15,466) 10,453
======= ====== ====== ======== ======== ======== =======
</TABLE>
- --------
(1) As adjusted to reflect the sale of Shares offered hereby and the
application of the net proceeds therefrom. See "Use of Proceeds."
16
<PAGE>
PRO FORMA INFORMATION
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
The unaudited Pro Forma Consolidated Statements of Operations represent the
historical results of operations of the Company for the year ended December
31, 1997, and the six months ended June 30, 1997 and 1998, adjusted to reflect
a reduction in interest expense and amortization of debt issuance costs
following the use of approximately $27.0 million of net proceeds of the
Offering to repay indebtedness as if such transactions had occurred at the
beginning of such periods. The Pro Forma Consolidated Statements of Operations
are not necessarily indicative of what the Company's results of operations
would have been had such transactions occurred at the beginning of such period
(see note 2 below).
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, 1997 JUNE 30, 1997 JUNE 30, 1998
------------------------- -------------------------- --------------------------
AS ADJUST- PRO AS ADJUST- PRO AS ADJUST- PRO
REPORTED MENTS FORMA REPORTED MENTS FORMA REPORTED MENTS FORMA
-------- ------- ------- -------- ------- ------- --------- ------- -------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales..................... $87,957 $ -- $87,957 $34,257 $ -- $34,257 $38,502 $ -- $38,502
Cost of Sales................. 70,610 -- 70,610 27,499 -- 27,499 29,762 -- 29,762
------- ------ ------- ------- ------ ------- ------- ------ -------
Gross Profit................. 17,347 -- 17,347 6,758 -- 6,758 8,740 -- 8,740
Operating expenses:
Selling, shipping general and
administrative.............. 12,519 -- 12,519 6,092 -- 6,092 5,544 -- 5,544
------- ------ ------- ------- ------ ------- ------- ------ -------
Operating income............. 4,828 4,828 666 -- 666 3,196 -- 3,196
Factoring and
Financing Costs(1)(2)....... 4,743 (3,300) 1,443 2,080 (1,423) 657 2,485 (1,406) 1,079
------- ------ ------- ------- ------ ------- ------- ------ -------
Income (loss) before income
taxes....................... 85 3,300 3,385 (1,414) 1,423 9 711 1,406 2,117
Income taxes(3)............... 60 1,110 1,170 -- -- -- 359 304 663
------- ------ ------- ------- ------ ------- ------- ------ -------
Net income (loss)(4)...........$....25 $2,190 $ 2,215 $(1,414) $1,423 $ 9 $ 352 $1,102 $ 1,454
======= ====== ======= ======= ====== ======= ======= ====== =======
Pro forma basic and diluted
net
income (loss) per share...... $ 0.31 $ -- $ 0.21
======= ======= =======
Pro forma weighted average
shares outstanding(5)........ 7,090 7,090 7,090
======= ======= =======
</TABLE>
- -------
(1) Reflects the elimination of the amortization of debt issuance costs which
will be written off in connection with the repayment of debt. The original
assigned value of debt issuance costs was approximately $1.3 million and
such costs were being amortized on a straight-line basis over the terms of
the related debt. See "Use of Proceeds."
(2) Reduction of interest expense related to the repayment of $27.0 million of
indebtedness as of the beginning of each period presented and the
utilization of the remaining net proceeds to fund seasonal cash needs
during the periods presented. Interest expense has also been reduced to
utilize actual principal and interest payments on debt to be repaid with a
portion of the proceeds of this Offering to reduce borrowings outstanding
under the Company's factoring agreement. See "Use of Proceeds."
(3) The differences in Federal income taxes provided and the amounts
determined by applying the Federal statutory tax rate to pro forma income
(loss) before income taxes result from the following (in thousands):
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR MONTHS ENDED
ENDED JUNE 30,
DECEMBER 31, -------------
1997 1997 1998
------------ ------ -----
<S> <C> <C> <C>
Tax at statutory rate........................... $1,151 $ 3 $ 720
Add (deduct) the effect of:
State income taxes............................. 314 14 192
Nondeductible expenses......................... 95 51 45
Change in valuation allowance.................. (390) (68) (294)
------ ------ -----
$1,170 $ -- $ 663
====== ====== =====
</TABLE>
(footnotes continued on following page)
17
<PAGE>
(footnotes continued from previous page)
(4) Net income (loss) has not been adjusted to reflect an expected
extraordinary gain on the early retirement of certain debt to be prepaid
from the proceeds of this Offering. The extraordinary gain primarily
results from the contribution of 569,200 shares of the Company's Common
Stock (valued at the assumed offering price of $12.50 per share) by
BancBoston Ventures, Inc. as consideration for the early repayment of debt
due to BancBoston Ventures, Inc.
The pro forma extraordinary gain is comprised of the following:
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEAR MONTHS ENDED
ENDED JUNE 30,
DECEMBER 31, ----------------
1997 1997 1998
------------ ------- -------
<S> <C> <C> <C>
Pro forma net income before extraordinary
item........................................ $ 2,215 $ 9 $ 1,454
Extraordinary item:
Gain on early retirement of debt............ 7,115 7,115 7,115
Less: Expensing of related deferred financ-
ing costs.................................. (1,125) (1,125) (868)
Less: Provision for income taxes............ (2,576) (2,576) (2,686)
------- ------- -------
Pro forma net income......................... $ 5,629 $ 3,423 $ 5,015
======= ======= =======
Basic and diluted pro forma income per share. $ 0.79 $ 0.48 $ 0.71
======= ======= =======
</TABLE>
(5) The computation of pro forma basic and diluted earnings per share for the
year ended December 31, 1997 and for the six months ended June 30, 1997
and 1998, is based upon (i) giving effect to the 124,000-for-1 stock split
effected on July 21, 1998 (ii) 4,490,000 shares of Common Stock
outstanding prior to the Offering (after giving effect to the concurrent
contribution by BancBoston Ventures, Inc., to the capital of the Company
of 569,200 shares of Common Stock in consideration of the prepayment of
certain indebtedness of the Company) and (iii) 2,600,000 shares of Common
Stock sold by the Company in the Offering. There is no difference between
pro forma basic and diluted earnings per share for the year ended December
31, 1997 and for the six months ended June 30, 1997 and 1998, since the
conversion of the stock options and warrants issued in connection with the
Offering is antidilutive.
18
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
The unaudited Pro Forma Consolidated Balance Sheet at June 30, 1998, is
adjusted to reflect the issuance by the Company of 2,600,000 shares of Common
Stock at the assumed initial public offering price of $12.50 per share and the
application of approximately $27.0 million of net proceeds of this Offering to
repay debt.
<TABLE>
<CAPTION>
JUNE 30, 1998
------------------------------------
PRO FORMA
AS REPORTED ADJUSTMENTS AS ADJUSTED
----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents, including re-
stricted cash equivalents(1)............. $ 80 $ 2,400 $ 2,480
Receivables, net.......................... 161 -- 161
Merchandise inventories................... 17,168 -- 17,168
Prepaid expenses and other current as-
sets..................................... 3,111 -- 3,111
-------- ------- -------
Total current assets.................... 20,520 2,400 22,920
Property and equipment.................... 709 -- 709
Other assets(2)........................... 1,727 (739) 988
-------- ------- -------
$ 22,956 $ 1,661 $24,617
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIENCY)
Current portion of long-term debt and cap-
ital lease obligation(3)................. $ 548 $ (500) $ 48
Accounts payable.......................... 9,542 -- 9,542
Due to factor(3).......................... 8,822 (7,847) 975
Accrued expenses and other liabili-
ties(2).................................. 779 2,589 3,368
-------- ------- -------
Total current liabilities............... 19,691 (5,758) 13,933
Long-term debt and capital lease obliga-
tion(3).................................. 18,731 (18,500) 231
Stockholders' equity (deficiency)(1)(2)... (15,466) 25,919 10,453
-------- ------- -------
$ 22,956 $ 1,661 $24,617
======== ======= =======
</TABLE>
- --------
(1) Estimated net proceeds from the sale by the Company of 2,600,000 shares of
Common Stock after repayment of certain indebtedness, factor borrowings
and related accrued interest. See "Use of Proceeds."
(2) Reflects an expected extraordinary gain on the early retirement of certain
debt to be prepaid from the proceeds of the Offering of $3.6 million. The
extraordinary gain results primarily from the contribution of 569,200
shares of the Company's Common Stock (valued at the assumed offering price
of $12.50 per share) by BancBoston Ventures, Inc. as consideration for the
early repayment of debt due to BancBoston Ventures, Inc. The extraordinary
gain has been reduced by (i) the expensing of the unamortized portion of
deferred financing costs related to the above debt totaling $739,000 and
(ii) the related provision for income taxes of $2.7 million.
(3) Reflects the repayment from the proceeds of the Offering of $27.0 million
of certain indebtedness, factor borrowings and related accrued interest of
the Company.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company's
financial statements and notes thereto appearing elsewhere in this Prospectus.
In addition to the historical information contained herein, the discussion in
this Prospectus contains certain forward-looking statements that involve risks
and uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as applicable to all forward-looking statements wherever they
appear in this Prospectus. The Company's actual results could differ
materially from those discussed herein. See "Special Note Regarding Forward
Looking Statements." Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this section
and in "Risk Factors."
OVERVIEW
The Company provides an extensive line of high-quality women's and
children's clothing in the moderate price category to major retailers,
primarily for sale under private labels. In 1997, approximately 80% of the
Company's sales were of knit products. The Company has been able to achieve
attractive profit margins on its knit products by controlling all aspects of
the production process. The Company believes that it differentiates itself by
entering the knit garment production process at the fabric design and creation
phase, unlike many of the Company's competitors who enter the garment
production process later by purchasing finished fabrics. The Company believes
that control over the knit production process enables it to capitalize on its
design and garment production expertise to produce quality apparel for its
customers on shorter lead times and at higher profit margins than its
competitors. In addition to knit products, the Company also produces (i) woven
products of the Company's design where the Company purchases dyed and printed
fabric and then controls all cutting, sewing and finished goods production and
(ii) imported finished knit and woven products. The Company's products are
sold nationwide through department and specialty store chains, including
Charming Shoppes (Fashion Bug), Cato Stores, Montgomery Ward, Goody's and
Sears; mass merchants, including Kmart and Wal-Mart; and wholesale clubs,
including Costco Wholesale.
In 1996, the Company made a strategic decision to shift a substantial
portion of its sewing production from the United States to Mexico where the
Company believes that pricing from contract manufacturers is more favorable
due to lower Mexican labor costs compared to U.S. labor costs. Although the
shift to Mexico for certain of the Company's production has increased the
length of the Company's inventory production and turn cycle, the Company
believes that its shift of sewing production to Mexico allows the Company to
maintain its competitive product pricing and attractive profit margins. The
Company estimates that approximately 25% of its knit sewing production was
performed by contract manufacturers in Mexico in 1997 and that approximately
65% of knit production is currently performed in Mexico. All transactions with
international suppliers currently are denominated in U.S. dollars and are not
subject to exchange rate fluctuations.
In the fourth quarter of 1997, the Company decided to restructure its
children's division, which consisted of (i) the discontinuation of certain of
the children's division's basic commodity products which have traditionally
provided the Company with lower gross margins, (ii) the reduction of
management personnel employed by the children's division and (iii) the use of
Mexican contract manufacturing for certain portions of the production process.
As part of the restructuring of the children's division, the Company also
reduced production and design management personnel in 1997. The Company's
reduction in management personnel, coupled with its shift in sewing production
to Mexico (for its ladies' and children's products), have contributed to the
Company's lower operating expense for 1997 and the first six months of 1998.
The Company realized gross profit margins of 22.7% and operating margins of
8.3% for the first six months of 1998 compared to 19.7% and 1.9% for the first
six months of 1997, largely as a result of utilizing lower cost Mexican
contract sewing and the restructuring of the children's division.
20
<PAGE>
In May 1996, the Company completed a leveraged recapitalization (the
"Recapitalization") whereby the Company borrowed an aggregate of $18.0 million
from BankBoston, N.A and BBV. Substantially all of the proceeds from these
loans were used to repurchase the stock holdings of a former stockholder of
the Company and for a distribution to the Company's then remaining
stockholder, Glenn Sands, the Company's President and Chief Executive Officer.
The Recapitalization was undertaken to consolidate management control under
the Company's current President and Chief Executive Officer, Glenn Sands. In
connection with the Recapitalization, BBV acquired an equity interest in the
Company. See "Principal Stockholders." The addition of $18.0 million of debt
incurred in connection with the Recapitalization in May 1996 increased the
Company's factor and financing costs from approximately $1.0 million in 1995
to $3.2 million and $4.7 million in 1996 and 1997, respectively. The Company
believes that its incurrence of additional debt in connection with the
Recapitalization, coupled with the increase in inventory turn time as a result
of shifting certain of the Company's contract manufacturing to Mexico, have
also constrained the Company in its ability to grow as (i) the financing of
orders under its receivables factoring arrangements have been limited due to
the Company's higher debt levels and (ii) order production cycles under such
factoring arrangements have lengthened (extending the length of time such
related debt remains outstanding) due to the use of Mexican contract
manufacturers. The Company intends to pay down its outstanding debt incurred
in connection with the Recapitalization with the proceeds of the Offering. See
"Use of Proceeds."
RESULTS OF OPERATIONS--RATIOS
The following tables set forth, for the periods indicated, certain items for
the Company's Statements of Operations presented as a percentage of revenues.
The operating results for any period are not necessarily indicative of results
that can be expected for any future period.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1995 1996 1997 1997 1998
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales....................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.............. 75.3% 79.9% 80.3% 80.3% 77.3%
------- ------- ------- -------- --------
Gross profit.................... 24.7% 20.1% 19.7% 19.7% 22.7%
Operating expense............... 13.7% 18.1% 14.2% 17.8% 14.4%
------- ------- ------- -------- --------
Income from operations.......... 11.0% 2.0% 5.5% 1.9% 8.3%
Factoring and financing costs... 1.6% 4.1% 5.4% 6.1% 6.5%
------- ------- ------- -------- --------
Income (loss) before income tax
(benefit) provision............ 9.4% (2.1%) 0.1% (4.2%) 1.8%
======= ======= ======= ======== ========
</TABLE>
RESULTS OF OPERATIONS
First Six Months of 1998 Compared to First Six Months of 1997
Net sales for the first six months of 1998 were $38.5 million, compared to
$34.3 million for the first six months of 1997, an increase of $4.2 million or
12.2%. Sales increased $7.3 million for ladies sportswear due to increases in
the volume of ladies sportswear sales. The increase in ladies sportswear sales
was offset by a decrease in children's division sales of approximately $3.1
million due to the Company's decision in late 1997 to discontinue certain less
profitable children's division product lines resulting in lower sales volume.
As of June 30, 1998, backlog in the children's division was $7.5 million,
compared with $5.0 million as of June 30, 1997.
Gross profit increased to $8.7 million, or 22.7% of net sales for the first
six months of 1998, compared to $6.8 million or 19.7% of net sales for the
first six months of 1997. This increase in gross profit margin as a percentage
of sales was primarily due to the substantial increase in the utilization of
Mexican contractors whose pricing to the Company reflects lower labor costs in
Mexico relative to United States labor costs and, to a lesser extent, the
discontinuation of certain less profitable children's lines.
21
<PAGE>
Operating expenses decreased to $5.5 million, or 14.4% of net sales for the
first six months of 1998, from $6.1 million, or 17.8% of net sales for the
first six months of 1997. The decrease resulted primarily from a reduction in
officers' compensation of approximately $600,000. During 1998, the Company's
President agreed to an amendment to his employment agreement which resulted in
the lower compensation expense.
Income from operations increased to $3.2 million for the first six months of
1998, compared to $666,000 for the first six months of 1997. This increase was
due primarily to (i) an increase in gross profit margins of 3.0% resulting
from the shift in sewing production to Mexico; (ii) an increase in sales
volume for ladies sportwear; and (iii) a decrease in general and
administrative expenses resulting from lower officers' compensation expense.
Factor and financing costs increased to $2.5 million for the first six
months of 1998 compared to $2.1 million for the first six months of 1997. This
increase of $404,000 was primarily due to increased factoring costs associated
with higher sales volumes.
The Company earned $711,000 during the six months ended June 30, 1998, and
has reflected a provision for income taxes of $359,000. The Company's policy
in evaluating the realizability of deferred tax assets is to consider only
those conditions that are within the Company's control. Accordingly, in
evaluating such realizability, the Company did not consider the benefit of any
proposed capital financings. The Company had a net loss of approximately $1.7
million in 1996 and was marginally profitable in 1997 after a reduction in
compensation payable to the Company's chief executive officer. These factors,
coupled with the production resources available to the Company based on its
current financial position, indicated that realization of the deferred tax
assets was not likely at that time. However, the Company concluded that based
on its current results, it would not increase the valuation allowance relating
to the increase in deferred tax assets for the six months ended June 30, 1998.
Accordingly, a benefit of $153,000 has been reflected in the results of
operations for the six months ended June 30, 1998. The Company had a net loss
of approximately $1.7 million in 1996 and a net loss of approximately $1.4
million for the six months ended June 30, 1997. Accordingly the Company did
not record a benefit in the consolidated financial statements for the six
months ended June 30, 1997.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales were $88.0 million in 1997, compared to $78.7 million in 1996,
representing an increase of $9.3 million or 11.8%. This increase was primarily
due to an increase in sales volume of ladies' woven sportswear products and an
increase in the volume of children's division sales in 1997, partially offset
by a slight decrease in the volume of ladies' knit sportswear sales.
Gross profit increased to $17.3 million, or 19.7% of net sales in 1997,
compared to $15.8 million, or 20.1% of net sales in 1996. This decrease in
gross profit as a percentage of net sales was primarily due to children's
division sales, which sales carried a lower gross profit margin due to the
nature of the products sold and which products carried higher costs due to the
exclusive use of domestic contractors.
Operating expenses decreased to $12.5 million in 1997, compared to $14.2
million in 1996, representing a decrease of $1.7 million. This decrease was
due primarily to a buy-out of a former owner and officer of the Company during
1996 in connection with the Recapitalization and the elimination of
compensation related thereto, partially offset by an increase in selling
commissions earned in 1997.
Income from operations increased to $4.8 million in 1997, compared to $1.6
million in 1996. This increase resulted primarily from increased sales volumes
coupled with lower compensation expense, offset for slightly lower gross
profit margins and increased selling commissions.
Factoring and financing costs increased to $4.7 million in 1997, compared to
$3.2 million in 1996. The increase of $1.5 million was primarily due to
interest expense incurred of approximately $550,000 related to the
Recapitalization. The balance of the increase was attributable to an increase
in factoring costs due to increased sales.
22
<PAGE>
For the year ended December 31, 1997, the Company had income before income
taxes of $85,000 and a tax provision of $60,000. The higher effective tax rate
related to the income tax provision in 1997 resulted from the significance of
the amount of nondeductible expenses for tax purposes when compared to the
level of income before income taxes earned in 1997. The Company's policy in
evaluating the realizability of deferred tax assets is to consider only those
conditions that are within the Company's control. Accordingly, in evaluating
such realizability, the Company did not consider the benefit of any proposed
capital financings. The Company had a net loss of approximately $1.7 million
in 1996 and was marginally profitable in 1997 after a reduction in
compensation payable to the Company's chief executive officer. These factors,
coupled with the production resources available to the Company based on its
financial position, indicated that realization of the deferred tax assets was
not likely. Accordingly, the Company did not record a benefit in the
consolidated financial statements for the years ended December 31, 1996 and
1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales were $78.7 million in 1996, compared to $67.3 million in 1995,
representing an increase of 16.9%. This increase was primarily due to an
increase in net sales of $5.9 million attributable to increased volume in the
newly created children's division and an increase in net sales of $7.0 million
attributable to volume increases experienced by the Company's woven products
division.
Gross profit decreased to $15.8 million, or 20.1% of net sales in 1996,
compared to $16.6 million, or 24.7% of net sales in 1995. Reduced gross profit
margins were a result of competitive pricing related to off-shore production
utilized by certain of the Company's competitors. This industry trend required
management to evaluate various off-shore production alternatives prior to
management's decision to move certain portions of manufacturing to Mexico.
Thus, this decrease was primarily due to the Company's decision to maintain
its market share by reducing its prices while evaluating off-shore production
alternatives.
Operating expenses increased to $14.2 million in 1996, compared to $9.3
million in 1995, representing an increase of $4.9 million. This increase was
primarily due to increased officer compensation and selling and shipping
costs.
Income from operations decreased to $1.6 million in 1996, compared to $7.4
million in 1995. This decrease resulted primarily from lower gross profit
margins coupled with increased officer compensation and increased selling and
shipping costs, partially offset by an increase in sales volumes.
Factoring and financing costs increased to $3.2 million in 1996, compared to
$1.0 million in 1995. The increase of $2.2 million was due to interest expense
related to the Recapitalization and, to a lesser extent, increased factoring
costs due to increased sales.
The Company's policy in evaluating the realizability of deferred tax assets
is to consider only those conditions that are within the Company's control.
Accordingly, in evaluating such realizability, the Company did not consider
the benefit of any proposed capital financings. The Company had a net loss of
approximately $1.7 million in 1996. This factor, coupled with the production
resources available to the Company based on its financial position, indicated
that realization of the deferred tax assets was not likely. Accordingly, the
Company did not record a significant benefit in the consolidated financial
statements for the year ended December 31, 1996. For the year ended December
31, 1995, the Company recorded an income tax provision of $253,000. The lower
effective rate in 1995 resulted from the Company's S Corporation election for
Federal and state income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Working capital increased by $1.1 million from a deficit of $629,000 at
December 31, 1996 to working capital of $444,000 at December 31, 1997. The
change results primarily from a reduction in payables and an increase in
advances to officer. Working capital increased by $385,000 from $444,000 at
December 31, 1997 to
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<PAGE>
$829,000 at June 30, 1998. At December 31, 1997 and June 30, 1998, amounts due
to factor and vendors totaled $10.9 million and $18.4 million, respectively.
The increase in outstanding borrowings under the Factoring Line was due to
increased production requirements to support sales volumes during that period.
In addition, advances totaling approximately $700,000 and $585,000 were made
during the six months ended June 30, 1998 to a sewing production vendor and an
officer of the Company.
At June 30, 1998, the Company's working capital plus its anticipated cash
flow from operations and available financing arrangements were sufficient to
meet its anticipated cash requirements.
Capital expenditures amounted to $51,000, $205,000 and $218,000 for the
years ended December 31, 1995, 1996 and 1997, respectively, and $89,000 and
$111,000 for the six months ended June 30, 1997 and 1998, respectively. These
expenditures were made primarily to upgrade and expand capabilities of
computer equipment and to maintain Company facilities in the ordinary course
of business.
During 1995, the Company used $3.2 million in financing activities. In 1995,
the Company used $5.4 million in financing activities to fund dividends to
stockholders and the Factoring Line provided $2.2 million in financing to the
Company. During 1996, the Company's financing activities provided $4.1 million
in cash. In 1996, proceeds from long-term debt, the Factoring Line and the
payment of advances by officers totaled $20.0 million, $5.4 million and
$980,000, respectively. Such proceeds were reduced by the use of funds to
acquire treasury stock ($11.4 million), to pay dividends to stockholders ($9.3
million), to repay long-term debt ($1.0 million) and for costs incurred in
connection with obtaining financing ($600,000). During 1997 and the six months
ended June 30, 1997, cash provided from financing activities totaled $2.0
million and $4.6 million, respectively, and resulted primarily from the
proceeds of long-term debt and the Factoring Line. Such proceeds were slightly
offset by repayments of long-term debt. For the six months ended June 30,
1998, cash provided from financing activities totaled $3.2 million. Repayments
of long-term debt of $200,000 were offset by proceeds under the Factoring Line
of $3.2 million and payments of $230,000 on advances due from an officer.
The Company has historically met its cash requirements through cash flow
from operations, borrowings from various lenders, including affiliates, and
factoring of its accounts receivable and letters of credit under the Factoring
Line. After application of the net proceeds to the Company from the sale of
the Shares offered hereby to repay indebtedness, the Company expects that the
only indebtedness outstanding will be approximately $1,254,000 under the
Factoring Line and a capital lease obligation of the Company (or approximately
$279,000 if the Underwriters' over-allotment is exercised in full). See "Use
of Proceeds." The Company intends to borrow from time to time under the
Factoring Line to meet its working capital needs. Due to the cyclical nature
of its sales, the Company's working capital requirements peak during the
second and third quarters.
The addition of $18.0 million of debt incurred in connection with the
Recapitalization in May 1996 increased the Company's factor and financing
costs from approximately $1.0 million in 1995 to $3.2 million and $4.7 million
in 1996 and 1997, respectively. The Company believes that its incurrence of
additional debt in connection with the Recapitalization, coupled with the
increase in inventory turn time as a result of shifting certain of the
Company's contract manufacturing to Mexico, have also constrained the Company
in its ability to grow as (i) the financing of orders under its receivables
factoring arrangements have been limited due to the Company's higher debt
levels and (ii) order production cycles under such factoring arrangements have
lengthened (extending the length of time such related debt remains
outstanding) due to the use of Mexican contract manufacturers. The Company
intends to pay down its outstanding debt incurred in connection with the
Recapitalization with the proceeds of the Offering. See "Use of Proceeds."
The Company's Factoring Line permits daily working capital borrowings of
90.0% of accounts receivable (non-recourse), plus 50.0% of letters of credits
outstanding issued by the Company not to exceed $10.0 million. The outstanding
debt is collateralized by the Company's inventory, receivables and is
personally guaranteed by Glenn Sands, the Company's President and Chief
Executive Officer. The Factoring Line expires on May 31, 2000, and is subject
to annual renewal. Borrowings are subject to a monthly processing charge equal
to 0.7% on gross sales up to $25 million, 0.65% on gross sales between $25
million and $75 million and 0.6% of gross sales
24
<PAGE>
over $75 million. In addition, an interest charge is applied on the total
outstanding debt equal to prime plus 0.5% or 9.0% at December 31, 1997. At
June 30, 1998, the Company had a net outstanding balance of $8.8 million under
the Factoring Line.
At December 31, 1996 and 1997 and June 30, 1998, the Company was not in
compliance with certain financial ratio covenants relating to dilution and
minimum earnings before interest, income taxes, depreciation and amortization
ratios, as defined. The Company obtained waivers related to such noncompliance
through July 1999.
The Company anticipates that it will be able to satisfy its cash
requirements for the next 12 months, primarily with cash flow from operations
and available borrowings.
YEAR 2000 COMPLIANCE
The Company is currently in the process of evaluating its information
technology for Year 2000 compliance. The Company does not expect that the cost
to modify its information technology infrastructure to be Year 2000 compliant
will be material to its financial condition or results of operations. The
Company does not anticipate any material disruption in its operations as a
result of any failure by the Company to be in compliance. The Company has
purchased new information technology platforms which, among other things, are
Year 2000 compliant. Hardware and software costs will be capitalized by the
Company and all other costs associated with Year 2000 compliance will be
expensed as incurred. The Company has had discussions with its customers and
vendors and although the Company believes that the information systems of its
major customers and vendors (insofar as they relate to the Company's business)
comply with Year 2000 requirements, there can be no assurance that the Year
2000 issue will not affect the information systems of such customers and
vendors as they relate to the Company's business, or that any such impact on
such customers and vendors' information systems would not have a material
adverse effect on the Company's business, financial condition or results of
operations. The remediation of Year 2000 issues involving the Company's
information systems is expected to be completed in time to prevent any
material adverse consequences to the Company's business, financial condition
or results of operations.
INFLATION
As of the date hereof, inflation has not had and is not expected to have a
significant impact on the Company's business.
RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information,"
introduces a new model for segment reporting, called the "management
approach." The management approach is based on the way that management
organizes segments within a company for making operating decisions and
assessing performance. Reportable segments can be based on products and
services, geography, legal structure, management structure--any manner in
which management disaggregates a company. The management approach replaces the
notion of industry and geographic segments in current accounting standards.
SFAS 131 is effective for fiscal years beginning after December 15, 1997.
However, SFAS 131 need not be applied to interim statements in the initial
year of application. SFAS 131 requires restatement of all prior period
information reported. The Company intends to adopt this standard when required
and is in the process of determining the effect of SFAS 131 on the Company's
financial statement disclosures.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The statement is intended to eliminate the diversity in
practice in accounting for internal-use software costs and improve financial
reporting. The statement is effective for fiscal years beginning after
December 15, 1998. The Company is in the process of determining the effect of
this statement on the Company's consolidated financial position and results of
operations.
25
<PAGE>
BUSINESS
GENERAL
The Company provides an extensive line of high-quality women's and
children's clothing in the moderate price category to major retailers,
primarily for sale under private labels. The Company has been able to achieve
attractive profit margins on its knit products by controlling all aspects of
the production process. The Company believes that it differentiates itself by
entering the knit garment production process at the fabric design and creation
phase, unlike many of the Company's competitors who enter the garment
production process later by purchasing finished fabrics. The Company believes
that control over the knit production process enables it to capitalize on its
design and garment production expertise to produce quality apparel for its
customers on shorter lead times and at attractive profit margins. In 1997,
approximately 80% of the Company's sales were of knit products. In addition to
knit products, the Company also produces (i) woven products of the Company's
design where the Company purchases dyed and printed fabric and then controls
all cutting, sewing and finished goods production and (ii) imported finished
knit and woven products. The Company's products are sold nationwide through
department and specialty store chains, including Charming Shoppes (Fashion
Bug), Cato Stores, Montgomery Ward, Goody's and Sears; mass merchants,
including Kmart and Wal-Mart; and wholesale clubs, including Costco Wholesale.
INDUSTRY
Apparel Sales Growth. The Company believes that the U.S. apparel industry
totaled approximately $170.0 billion in retail sales in 1997. The industry
grew approximately 2.2% and 4.9% in 1996 and 1997, respectively. According to
Standard & Poor's Apparel and Footwear Industry Survey, in 1997 small brands
and private label goods accounted for approximately 70% of U.S. wholesale
apparel sales while national brands accounted for approximately 30% of U.S.
wholesale apparel sales. The Company believes, further, that in 1997 women's
apparel accounted for approximately 53% of all U.S. apparel sales, while
children's clothing accounted for approximately 17% of all U.S. apparel sales.
The U.S. children's apparel industry increased in market size from $24.7
billion in 1994 to approximately $28.9 billion in 1996, a 17% increase.
Trend Toward Casual Dress. The Company believes there is a growing trend in
the United States toward casual dress, as reflected in the growing number of
companies which have implemented policies such as "dress-down Fridays," and
the increasing number of people who work at home. In addition, the Company
believes that outside of the workplace, social activities are focusing on a
more casual lifestyle. The Company also believes that in recent years, apparel
consumers have become more cost conscious and are bypassing premium or
designer products in favor of more casual, moderately-priced products.
Trend Toward Private Label Apparel. The Company believes that there is a
growing trend, on the part of both retailers and consumers, toward private
label apparel. Private label apparel bears the retailer's own name or a
proprietary brand name exclusive to the retailer. Producers are able to sell
these garments to retailers at lower wholesale prices due to certain economies
of scale, including lower advertising and promotional costs, lack of brand
name license fees and royalties, and other risks and expenses customary in the
brand-name apparel industry. As a result of the lower wholesale prices,
private label apparel generally provides higher margins for the retailer than
brand name or designer products. Industry sales of small brands and private
label apparel represented approximately 70% of total U.S. apparel sales in
1997. The Company believes that this shift is due primarily to the education
of consumers and retailers as to the benefits of private label products. The
Company believes increasing numbers of consumers regard private label products
as less expensive than brand name products, but of equal or better quality.
This increase in consumer demand for private label garments, coupled with
retailers' demands for higher margins, has resulted in retailers allocating
more space to private label products.
Trend Toward Retail Consolidation. Over the last few years, the retail
apparel industry has been consolidating. This consolidation has produced
larger retailers and department stores that, on an individual basis, demand
larger quantities of high-quality products from their suppliers.
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OPERATING STRATEGY
The Company's operating strategy consists of the following key elements:
Produce Only on a Firm Commitment Basis. The Company purchases raw materials
and produces goods only upon receipt of a firm commitment from a customer.
Once a product is shipped to a customer, the Company generally does not accept
returns unless the product is defective or delivered late. These practices
minimize the Company's need to carry unsold inventories.
Focus on an "Updated Basics" Product Line. The Company's products are
updated versions of basic, recurring styles that have a proven record of sales
success and that the Company believes are less susceptible to fashion
obsolescence and less seasonal in nature than fashion styles. The Company
regularly updates these proven styles to reflect current fashion trends which
it believes enhances sales by providing its product line a new and fresh look.
In addition, the Company believes this practice also allows it to capitalize
on higher profit margins associated with updated basics apparel, compared to
those of more generic apparel priced on a commodity basis.
Maintain Control Over the Entire Production Process. The Company is able to
provide superior customer service and achieves attractive profit margins by
controlling the entire production process of its knit products. By controlling
the production process, the Company has the ability to tailor products to a
customer's specific needs, offer customers rapid order turn around time,
maintain flexible scheduling unconstrained by a finite production capacity,
maximize fabric yields by knitting fabrics to the Company's own specifications
and maintain higher standards of quality control.
Outsource Manufacturing. Outsourcing allows the Company to respond quickly
to changing production requirements, while eliminating the significant capital
investment requirements and potential labor problems and other risks
associated with maintaining manufacturing facilities and a manufacturing
workforce. The Company does not own any manufacturing facilities except for a
limited in-house cutting facility located within its warehouse in North
Bergen, New Jersey. The Company maintains cost-efficiency and flexibility by
outsourcing at nearly all stages of production to the lowest cost provider
able to maintain the Company's timing and quality requirements.
Provide Value to Customers. The Company seeks to add value to customers'
overall merchandising effort by helping them maximize sales and profit
margins. The Company works closely with its customers to develop coordinated
products and distinctive product lines at their particular price points. This
process allows the Company's customers to achieve a degree of differentiation
from their retail competitors. The Company believes its ability to design and
offer distinctive product lines is a competitive advantage and leads to large
volume orders. The Company's sales force also consults with customers
concerning optimal delivery schedules, floor presentation, pricing and other
merchandising considerations. In addition, the Company provides its customers
with competitive market intelligence gathered through discussions with its
contract manufacturers. By integrating its sales force, design capabilities
and manufacturing capabilities, the Company's customers receive up-to-date,
high-quality products at competitive prices.
Develop Long-Term Customer Relationships. The Company emphasizes the
development of long-term relationships with its customers by providing a high
level of customer service through its sales force. Each sales person is
responsible for all aspects of a customer's order, including design
assistance, the development and approval of product samples and regular order
status updates until the delivery of finished goods. The Company seeks to
capitalize on its knowledgeable and experienced sales force by maintaining
regular interaction with its customers which provides the Company a thorough
understanding of which products will meet their particular needs.
GROWTH STRATEGY
The Company believes a number of current industry trends will increase
demand for private label apparel products. First, the Company believes that
increasing numbers of consumers regard private label products as
less expensive than brand name products, but of equal or better quality.
Retailers also find private label products attractive as they provide higher
profit margins than brand name products. Second, the Company believes that
27
<PAGE>
there has been a trend in recent years toward the purchase of casual,
moderately priced apparel, driven by the popularity of casual dress-down
Fridays and increasing numbers of casual social activities. Third, in recent
years there has also been significant growth in the children's apparel market.
Finally, the Company believes, that the general consolidation of major
retailers and department stores has created a preference among retailers for
doing business with a limited number of large, well-capitalized suppliers that
can provide large product volumes quickly and efficiently. The Company
believes its focus on casual, moderately priced, private label apparel for
women and children positions it to capitalize on these trends. The Company
intends to grow its business by pursuing the following strategies:
Increase Sales to Existing Customers. The Company seeks to increase sales to
existing customers by expanding sales to individual buyers of additional
products within a particular product line and selling to additional buyers
within the same organization. Certain of the Company's customers began their
relationship with the Company by purchasing only one of the Company's
products. Since these initial purchases, the Company has been able to expand
its sales to such customers to multiple products and often to multiple lines.
This strategy has enabled the Company to expand its product sales to its
existing customers over time. In addition, retailers typically employ a number
of buyers who focus on different product lines including, among other things,
types of fabric, gender and product sizes. To capitalize on this industry
dynamic, the Company seeks to leverage its strong relationships with
individual buyers to gain access to additional buyers of different product
lines within the same organization. The Company aggressively pursues these
cross-selling opportunities by offering, for example, woven bottoms to
customers which currently purchase only knit tops. The Company's broad product
line enables it to pursue many of these cross-selling opportunities.
Expand the Company's Customer Base. The Company intends to leverage its
proven track record of sales success, reputation for quality products and
superior customer service to expand its customer base. The Company utilizes
such qualities to establish test programs whereby new customers can evaluate
the quality of the Company's products and sales success before placing large
orders. In addition, the Company's sales force places great importance on
maintaining its relationships with individual buyers as a way of gaining
access to new customers if such buyers change employers.
Expand Ladies' Product Offerings. The Company seeks to increase sales to
customers by offering ladies' products in categories outside of the Company's
traditional knit product offerings. The Company's goal is to be considered by
its customers as providing a "one-stop shopping" opportunity, where such
customers can easily and quickly fill all of their buying needs. The Company
has already begun expansion of its ladies woven product line from pants to
skirts, tops, shorts and jumpers. Sales of the Company's woven products
increased from $8.2 million in 1996 to $16.2 million in 1997. Additionally,
the Company is seeking to develop other ladies' lines, such as sweaters, and
to import moderately-priced finished goods.
Expand Children's Apparel Division. The Company began selling children's
apparel in 1995. Since that time, revenues from the sale of children's apparel
have grown from $6.6 million in 1995 to $17.8 million in 1997. In the last
quarter of 1997, the Company made the strategic decision to discontinue its
lines of children's basic, commodity products in favor of developing new
children's lines utilizing the Company's "updated basics" strategy. In
connection with this decision, the Company hired a new management team and
additional personnel for its children's division. The Company believes that
its updated products will differentiate it from typical children's apparel
producers and has already begun to realize sales growth and gross margin
improvement from its new lines currently in production. The Company will seek
to expand product offerings in its updated basics children's line.
Pursue Select Acquisitions. The Company may, from time to time on an
opportunistic basis, acquire apparel companies with significant private label
business and/or underdeveloped apparel brands or licensed trademarks. The
Company will primarily focus on acquisition candidates that provide the
Company with certain operational or manufacturing synergies in order to
realize enhanced economies of scale in the Company's sales and production
processes. The Company has no current plans or agreements to acquire any other
companies.
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PRODUCTS
The Company provides an extensive line of high-quality women's and
children's clothing in the moderate price category. The Company's products are
updated versions of basic, recurring styles which have a proven record of
sales success with its customers and that the Company believes are less
susceptible to fashion obsolescence and less seasonal in nature than fashion
styles. The Company employs merchandisers and designers to regularly update
these basic styles to reflect current fashion trends by using new color
schemes, fabrics, decorative trim and by incorporating nuances of existing
popular styles.
The Company believes its product line diversity and custom design
capabilities provide a competitive advantage because it makes the Company a
"one-stop shop" for its customers whereby an individual buyer can purchase
substantially all the products necessary to complete its private label line
without having to shop additional suppliers. The Company has developed an
extensive product line in its primary market, ladies' casual wear, which
includes knit tops, bottoms, related separates, dresses and short sets, and
woven (e.g., corduroy, twill, denim) bottoms, jumpers, dresses, coordinates,
short sets and tops. In addition to its standard production garments, the
Company also produces, on a limited basis, custom designed merchandise for
certain of its customers. In addition to the Company's existing knit product
lines, which accounted for approximately 80% of the Company's sales in 1997,
the Company expanded its product offerings to include ladies' woven bottoms
and children's apparel in 1995. Since 1995, the Company has expanded its
ladies woven products to also include tops, shorts, overalls and jumpers.
Sales of the Company's woven products increased from $8.2 million in 1996 to
$16.2 million in 1997.
The Company began selling children's knit apparel in 1995. Since that time,
revenues from children's apparel sales have grown from $6.6 million in 1995 to
$17.8 million in 1997. In order to increase profit margins on growing sales of
children's apparel, the Company hired a new management team and additional
personnel for its children's division in the first quarter of 1998. The new
management team has focused on developing new children's lines utilizing the
Company's "updated basics" strategy instead of continuing to offer commodity
basic goods as the children's division had done prior to 1998. Such updated
basics have typically enabled the Company to achieve higher profit margins on
its product lines.
The Company sells its products primarily under private labels; however, the
Company also sells a limited number of products under its own labels. During
1997, approximately 75% and 25% of the Company's products were sold under
private labels and the Company's proprietary brand names, respectively.
CUSTOMERS
The Company's products are sold nationwide in an estimated 11,000 stores
operated by approximately 154 department and specialty store chains, mass
merchandisers, and other retail outlets. For the year ended December 31, 1997,
sales to department and specialty stores accounted for approximately 79.5% of
the Company's net sales, while sales to mass merchandisers, wholesale clubs
and mail order catalogues accounted for approximately 17.3%, 2.9% and 0.3% of
the Company's sales, respectively. The Company does not currently have any
long-term commitments or contracts with any of its customers.
The following table presents data on the Company's gross sales, in thousands
of dollars and in the percentage of gross sales, to its largest customers for
each of the last three years and for the six months ended June 30, 1998.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
1995 1996 1997 JUNE 30, 1998
------------------ ------------------ ------------------ ------------------
DOLLARS PERCENTAGE DOLLARS PERCENTAGE DOLLARS PERCENTAGE DOLLARS PERCENTAGE
------- ---------- ------- ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Cato Stores............. $ 6,748 9.6% $ 8,617 10.3% $ 6,065 6.5% $ 2,291 5.4%
Charming Shoppes........ 11,212 16.0 13,306 15.9 12,584 13.4 4,390 10.4
Costco Wholesale........ -- -- -- -- 1,451 1.5 4,434 10.5
Kmart................... 5,025 7.2 7,126 8.5 8,844 9.4 12,714 30.1
Lerner.................. 10,464 14.9 6,749 8.0 3,985 4.3 297 0.7
Montgomery Ward......... -- -- -- -- 4,104 4.4 1,986 4.7
Sears................... 1,822 2.6 9,922 11.8 11,347 12.1 5,610 13.3
Shopko Stores........... -- -- 2,569 3.1 4,964 5.3 1,688 4.0
Wal-Mart................ 3,207 4.6 6,814 8.1 6,744 7.2 414 1.0
</TABLE>
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MERCHANDISING
The Company employs an interactive approach to merchandising. Throughout the
design and production process, the Company's sales and marketing staff works
closely with the design and production team from order taking to shipping, to
ensure that goods are produced to its customers' exact specifications in an
efficient and timely manner. The Company's sales and marketing staff
participates in the production process by checking samples of work-in-process
goods at various stages to verify that these goods meet customer
specifications. In many cases, sample items are presented to customers at
designated points of the production process to obtain feedback and effectively
ensure that the finished goods meet customer expectations.
The Company also works closely with its customers to develop coordinated
products and distinctive product lines to serve their customers more
effectively. Rather than offering goods only from shelf lines, the Company
seeks to add value to its customers' overall merchandising efforts by helping
them maximize sales and profit margins at their respective price points and
achieve a degree of differentiation from their retail competitors. The Company
believes its ability to design and offer distinctive product lines is a
competitive advantage and leads to large volume orders.
Design
The Company believes that its customers rely on its ability to design,
produce and deliver, on a timely basis, commercially successful apparel lines.
The Company's design team is responsible for the creation, development and
coordination of an extensive range of products and product lines and regularly
updates existing styles to mirror changing fashion trends. In particular, the
Company's design team seeks to enhance consumer demand for its products by
combining functional fabrics with creative designs and color schemes. The
Company's design and merchandising teams continually monitor and evaluate the
ladies' and children's markets for styles and trends in fabrics, trims and
accessories, and analyze sales information provided by its customers. The
Company's design teams work closely with its customers to help identify such
customers' design needs and revise designs as necessary to reflect the style,
image and value that each customer wishes to offer to its consumers.
The Company has developed an expertise in fabric design, dyeing and printing
over the past seven years which enables it to rapidly update its products. The
Company maintains an in-house art department which develops printed fabrics
which eliminates the need to buy standard printed or dyed fabrics from
suppliers. The Company's art department, using state-of-the-art CAD systems,
redesigns art work purchased from various art studios by altering colors,
backgrounds, graphics, shapes and other items to make it suitable for printed
fabrics which it believes will fit the fashion tastes of the Company's
customers. The Company currently catalogues its printed fabrics in an
extensive print library which encompasses approximately 2,000 different
designs. The Company believes its print library is an important resource
because it greatly reduces its need to regularly source new fabric patterns,
colors and designs. In addition, these distinctive patterns and designs are
copyrighted by the Company which helps to ensure that its updated and
distinctive products are not readily imitated by competitors.
Sales and Marketing
The Company's selling operation is highly centralized. Sales to the
Company's customers are made by an in-house sales force of 10 people,
primarily through the Company's New York City showrooms. Senior management
actively participates in the planning of the Company's marketing and selling
efforts. The Company does not employ independent sales representatives or
operate regional sales offices, but does participate in various regional
merchandise marts, industry marketplaces at which numerous vendors rent space
in order to display their products to regional buyers. This sales structure
enables management to effectively control the Company's sales effort and to
deal directly with, and be readily accessible to, the Company's major
customers. Products are generally marketed to department and specialty store
customers four to five months in advance of each of the Company's selling
seasons.
The Company emphasizes the development of long-term relationships with its
customers. The Company has established strong relationships with individual
buyers at each of its customers, and more importantly, it has
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<PAGE>
also established relationships with senior management of its key customers.
The Company believes multiple tier relationships help to insulate it from
changes in individual buyers at its various customers as is common in the
apparel business.
A key component of the Company's ability to achieve its long-term
relationships is the high level of services that the Company's sales force
provides to its customers. Each sales person is responsible for all aspects of
a customer's needs, including design assistance, developing product samples,
obtaining orders, coordinating fabric choices, monitoring production and
delivering finished products. During the production process, such salesperson
is responsible for informing the customer about the progress of an order,
including any difficulties that might affect delivery time. In this way, the
Company and its customer can make appropriate arrangements regarding any delay
or other change in the order. Further, the Company ensures that multiple
salespersons are familiar with each customer account so that they can work
cooperatively to assist one another on a reciprocal basis. The Company
believes that this sales management technique provides an advantage over its
competitors because it ensures that its customers always have a knowledgeable
salesperson available to discuss product orders and related issues.
The Company's sales force is in constant contact with its customers to
develop an understanding of the customers' retail strategies, style
preferences and production requirements, as well as to identify prevailing
fashion trends. The Company then utilizes this information to provide its
customers with products that meet their particular requirements efficiently.
The Company's sales and design team works with certain of its customers to
custom design garments which incorporate current industry fashion trends that
will reflect the style and image that a buyer intends to project to consumers.
In order to facilitate this process the Company requires that its sales force
be knowledgeable about all aspects of the design and garment production
process. The Company believes its knowledgeable sales force enables it to
provide its customers immediate feedback as to the various costs of creating
and changing designs, the costs and availability of various fabrics, and
production times.
The Company also consults with its customers concerning the style and
coordination of the clothing they purchase, optimal delivery schedules, floor
presentation, pricing and other merchandising considerations. Frequent
communications between the Company's senior management and other sales
personnel and their counterparts at various levels in the buying organizations
of the Company's customers is an essential element of the Company's marketing
and sales efforts. These contacts allow the Company to closely monitor retail
sales volume to maximize sales at favorable profit margins for both the
Company and its customers. The Company and its largest customers discuss
retail trends and their plans regarding anticipated levels of purchases of
Company products for future seasons. These discussions are intended to assist
the Company in planning the production and timely delivery of its products.
CONTRACT MANUFACTURING AND DISTRIBUTION
Overview
The Company manufacturers substantially all of its knit products, which
accounted for approximately 80% of its product sales in 1997, through
designing and creating fabric and contracting with select manufacturers at
every stage of both fabric and finished goods production. The balance of the
Company's products consists primarily of (i) woven products of the Company's
design where the Company purchases dyed and printed fabric and then controls
all cutting, sewing and finished goods production and (ii) imported finished
knit and woven products.
A significant component of the Company's operating strategy is the
utilization of third party contract manufacturers throughout the entire
production process from yarn purchasing through product delivery. The Company
believes this is a significant competitive advantage because it provides the
Company with the flexibility to choose the lowest cost provider available at
each stage of the production process that can meet the Company's delivery and
quality requirements. In addition, outsourcing of production eliminates
significant capital investment requirements and minimizes the risk of labor
problems and other risks associated with maintaining manufacturing facilities
and a manufacturing workforce. The Company does not own any manufacturing
facilities except for limited in-house cutting capacity located within its
warehouse in North Bergen, New Jersey. The Company does not engage in any
hedging activities intended to offset the risk of raw material price
fluctuations. The
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<PAGE>
Company supplies its main contractors with a high volume of business on a
consistent basis, making the Company an important customer of these
contractors. In certain instances, the Company provides these contractors with
100% of their business. This strategy enables the Company to leverage its
position as a key customer to negotiate favorable pricing, and to receive
production priority and preferential treatment. The Company believes that this
manufacturing model allows it to maximize production flexibility, speed and
efficiency without sacrificing product quality.
The Company believes its production model helps it to achieve attractive
gross profit margins. Whereas substantially all apparel companies begin the
manufacturing process by purchasing finished fabric from a converter, the
Company enters the production process for its knit products at the stage of
purchasing yarn for its fabrics. By utilizing contract manufacturers at an
earlier stage of the production process, the Company avoids certain mark-ups
normally passed on to the Company's competitors that purchase finished fabrics
from converters. In addition, in 1996, the Company made a strategic decision
to shift the majority of its sewing operations from the United States to
Mexico. The enactment of NAFTA, whereby goods produced in Mexico are generally
exempt from U.S. import duties as long as they meet certain guidelines, made
it economically feasible for the Company to take advantage of Mexico's large
and skilled labor pool. See "--Imports and Import Restrictions." The Company
believes that by having its products sewn in Mexico, it can produce high-
quality goods at significant cost savings because labor costs in Mexico are
significantly lower than in the United States.
The Company has developed long-standing relationships with many of its
contract manufacturers and believes that these relationships contribute to its
ability to produce quality apparel products on a timely and cost effective
basis. In 1997, approximately 80% of the Company's major contract
manufacturers had been conducting business with the Company for over five
years. In addition, the Company has in the past loaned start-up capital to an
existing manufacturer to assist such manufacturer with the development of
manufacturing facilities in Mexico where the Company's products are sewn. In
exchange for such loan, the Company has first priority over work performed in
such factory for the foreseeable future so long as the Company continues to
send work to such manufacturer. The Company believes that it has ready access
to numerous contractors. The Company determines which of its contractors to
utilize based on, among other factors, the price charged by each contractor
and each contractor's available production capacity to complete the order, the
transportation lead times required to deliver goods, the availability of quota
for the product from various countries and the contractor's ability to produce
goods on a timely basis subject to customers' quality specifications. The
Company regularly visits its contractors and communicates with governmental
authorities to ensure that such contractors are in compliance with federal,
state and local labor laws. If any contractor is found to be in violation of
such laws, the Company immediately terminates its relationship with such
contractor.
The Company believes it is well-positioned to take advantage of the trend
toward shorter lead times among retailers, and to continue to increase its
market share because of its control over the entire production process and its
ability to control production schedules at its contractors. The Company has
the ability, through its contract manufacturers, to operate on production
schedules with lead times ranging from as few as 30 days to several months to
accommodate its customers' requirements. Typically the Company's specialty
retail customers attempt to respond quickly to changing fashion trends and are
increasingly less willing to assume the risk that goods ordered on long lead
times will be out of fashion when delivered. The Company maintains its sewing
facilities in New Jersey for orders with shorter lead times. While mass
merchandisers such as Kmart are beginning to operate on shorter lead times,
they are also occasionally able to estimate their needs as much as six months
to one year in advance for products that do not change in style significantly
from season to season.
Yarn Sourcing
The manufacturing process for knit products begins with yarn purchasing. The
Company buys yarns of various qualities and characteristics from six primary
domestic suppliers as well as from overseas sources through brokers. With
additional capital from the Offering, the Company will be positioned to
purchase yarn directly from foreign mills at a substantial cost savings. The
Company purchases its own yarn to ensure the quality of the raw materials used
in its garment production.
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Knitting
A key component of the Company's ability to produce goods at attractive
profit margins is its ability to control the knitting process. The Company has
an in-depth knowledge of the technical aspects of the knitting process which
allows it to produce its knit fabrics efficiently and cost effectively.
Controlling the knitting process allows the Company to specify the exact
technical specifications and widths at which its fabrics are produced. This
allows the Company to design its patterns to maximize the yields it receives
from each yard of fabric produced. In addition, the mills convert the yarn
into rolls of fabric meeting the Company's specifications as to yarn content,
weight, width and knitting design. This allows the Company to control the
quality of the fabric for flaws, weight deficiencies or other problems earlier
in the production process, thereby increasing customer satisfaction with its
finished products. The Company utilizes approximately ten primary knitting
mill contractors which it believes can be supplemented by an equal number of
secondary knitting mills to increase capacity. Mills are selected, in part,
based on their ability to produce fabric at different custom widths, as well
as their cost and timing of production. Knitted fabric is sent to one of the
Company's finishers for dyeing, bleaching or printing and preparing the fabric
for cutting. The Company also purchases, primarily from domestic sources,
finished fabric (both dyed and printed) for its woven products as well as, on
an occasional basis, for its knit products.
Dyeing and Printing
Fabric rolls are delivered to one of two primary outside dyers and/or to one
of two primary outside printers who create, respectively, solid colors or
print patterns, as specified by the Company. Of the finished products sold by
the Company, approximately 60% are solid colors, and 40% are printed fabrics.
By working closely with its manufacturers over the past seven years, the
Company has developed an expertise in fabric design, dyeing and printing. The
Company currently catalogues its printed fabrics in an extensive print library
which encompasses approximately 2,000 different styles. If patterns from the
Company's library are not used, outside design studios are employed to create
new printing patterns to the Company's specifications. See "Merchandising--
Design."
Cutting
Printed or dyed rolls of fabric are shipped directly to third party
manufacturers for cutting. The Company uses five primary cutting facilities
for knits which are located in New Jersey. Wovens are cut in South Carolina as
well as in factories in Mexico. The duty on woven and knit fabrics cut in
Mexico is 2% and 4% , respectively, of the cost of the fabric, the fabric
cutting and insurance cost for products cut and sewn in Mexico. The ultimate
cost of cutting certain woven goods in Mexico is still less expensive than
cutting wovens in the United States. Under NAFTA, duties on wovens or knit
goods cut in Mexico will be eliminated by January 1, 2002. As duties on
cutting wovens and knits in Mexico decrease over time, the Company expects to
shift an increasing amount of its cutting to Mexico. See "--Import
Restrictions."
The Company's technical production support staff, located in New York City,
produces patterns for cutting piece goods and, using state-of-the-art computer
equipment, marks and grades the patterns onto templates in a manner to
minimize fabric waste. The Company achieves a low rate of waste of
approximately 10%, while the Company believes that the industry average is
approximately 20%. The Company attributes this low level of waste to its
sophisticated computer grading equipment as well as to the fact that it can
have fabric rolls manufactured in customized widths, according to the garments
to be produced from the fabric. The Company cuts approximately 6% of its goods
in an in-house facility located in its New Jersey warehouse to expedite
certain orders.
Sewing
Cut garments are delivered to the Company's distribution facility in North
Bergen, New Jersey and are packaged with various trim to be attached to the
garments, product labels and tags and, in some cases, clothing
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<PAGE>
hangers specified by a retailer. Before these cut garments are shipped to the
sewing contractor, a finished product sample, including a stitching diagram as
well as garment specifications, are sent to the sewing contractor.
Before the sewing contractor begins work on the main order, it produces a
sample garment for inspection and approval by the Company's production support
staff. The Company sends the sample garment to its customer for inspection and
approval before commencing full-scale production. Once begun, the sewing
process generally takes two to eight weeks. In 1997, the Company engaged the
services of approximately 25 sewing contractors. Approximately 65% of the
Company's sewing is currently performed in Mexico, with the balance performed
by domestic sewing contractors for product orders which are requested on an
accelerated basis. Pursuant to NAFTA-enabling legislation, garments cut in the
United States, sewn in Mexico and imported into the United States are not
subject to tariffs or quotas. See "--Import Restrictions." The Company
believes that its recent increase in gross profit margins is directly related
to lower labor costs because of the shift of its sewing operations from the
United States to Mexico.
Asian Production
In 1997, approximately 15% of the Company's gross sales (across all
divisions) were of finished products imported from China and Taiwan. The
Company believes that foreign contract manufacturing allows it to take
advantage of lower manufacturing costs for products which require more labor
to produce and to avail itself of a skilled labor force which is better
equipped and trained to produce certain products, particularly certain kinds
of knitwear. The Company anticipates that in 1998, an aggregate of
approximately 10% of its sales will be of products imported from China and
Taiwan. Compared to production in the United States or Mexico, foreign
sourcing of products requires a significant lead time between order and
receipt, ranging from six to ten months in the case of Far Eastern sourced
manufacturing. Thus, the Company continues to import foreign goods primarily
on an opportunistic basis.
Shipping and Delivery of Finished Products
Upon completion of the manufacturing process, the Company's products,
whether produced domestically or imported, are shipped from the contract
manufacturers by sea, air or land either to the Company's distribution
facility in North Bergen, New Jersey or directly to customers. Products are
packaged to the specifications of the customer. Products shipped from the
Company's distribution center are shipped on one of five Company-owned trucks
or by common carrier. Most finished goods are delivered to the customer's
consolidators, many of which are located in Northern New Jersey. All shipping,
bills of lading, invoices, etc. are controlled by the Company from the North
Bergen facility.
Quality Control
The Company has in place comprehensive quality control procedures to ensure
that fabrics, materials and finished goods meet the Company's exacting quality
standards. The Company regularly visits and inspects each of its domestic and
foreign contract manufacturers to ensure compliance with the Company's quality
standards. The Company oversees testing of yarns, fabrics and trim for
colorfastness, washability and other standards. Sample garments are randomly
subjected to quality control tests by the Company for fit and appearance.
Finished garments are subject to final inspection in the Company's
distribution facility for general appearance and quality prior to shipment to
customers. Products which are manufactured in foreign countries are tested to
ensure that they comply with customer specifications. The Company verifies
that those products shipped from foreign manufacturers meet United States
customs import requirements.
BACKLOG
At June 30, 1998, unfilled orders believed to be firm were approximately
$48.6 million, compared to approximately $25.3 million of unfilled orders
believed to be firm at June 30, 1997. The Company believes that all of its
backlog of firm orders as of June 30, 1998, will be filled within six months.
Firm orders include
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<PAGE>
purchase orders placed but not yet filled. The amount of unfilled firm orders
at a particular time is affected by a number of factors, including the
scheduling of manufacture and shipment of finished goods, which, in some
instances, is dependent on the desires of the customer. Accordingly, a
comparison of unfilled firm orders from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments or the
Company's ability to fill orders. Although the Company's orders typically
contain cancellation provisions, the Company's experience has been that the
cancellations, rejections or returns of firm orders have not materially
reduced the amount of sales realized from its backlog.
MANAGEMENT INFORMATION SYSTEMS
The Company believes that advanced information processing is important to
maintain its competitive position. The Company continues to upgrade its
management information systems in order to maintain better control of its
inventory and to provide management with information that is both more current
and more accurate than was available previously. To this end, the Company has
purchased a new ACS Optima computer system from Computer Generated Solutions
("CGS"). This system is widely used in the apparel industry. It is a complete
corporate system, which includes modules for, among other things, order entry,
accounts receivable, customer service, finished goods inventory, credit
management, invoicing and shipping, sales and management analysis, master
production scheduling systems, raw material management and fabric management.
The new CGS core operating system will be integrated with the Company's new
Stewart Sinclair Warehouse Management system and will allow for scanning
inbound bar-coded finished goods inventory. As finished goods inventory is
processed for shipping, it will be scanned as it is placed into a carton for
shipment. The system will check the carton's contents against the order for
shipment accuracy. Only when the carton's contents match the order will the
shipping label be printed. The order information will then be used to produce
a master Bill of Lading, an Advanced Ship Notice and an invoice which will be
transmitted via Electronic Data Interchange ("EDI") to the customer. The
Company's new computer systems will be run in parallel with the Company's
current computer system until the Company is assured that the new system is
running properly. The new computer systems will also allow the Company to link
to its contractors via the Internet and enable it to monitor its finished
goods inventory remotely. As a result, the Company will be able to ship its
finished goods directly to its customers from its sewing contractors in Mexico
and its domestic remote packing facilities.
The Company has expanded its EDI program to include the majority of its
major customers and allow the Company to comply with customers' specific
requirements. This technology allows the electronic exchange of purchase
orders, invoices, and advanced shipping notices.
IMPORT RESTRICTIONS
The Company presently imports garments under two separate scenarios having
distinct customs and trade consequences: (i) imports of goods sewn (and
sometimes cut) in Mexico and (ii) imports of finished goods, primarily from
China and Taiwan.
The North American Free Trade Agreement ("NAFTA") became effective on
January 1, 1994. NAFTA provides that tariffs on goods imported into the United
States from Mexico are accorded reduced or duty-free access, depending upon
the type of goods imported. With respect to the apparel industry, NAFTA has
effectively eliminated or substantially reduced tariffs on garments imported
into the United States from Mexico if such goods are made from fabric
originating from sources located in the United States, Canada or Mexico. The
key requirement for NAFTA qualification is that the yarn and cloth for a
garment, and the cutting, sewing and finishing of a garment, must take place
within North America. Merchandise produced pursuant to these requirements is
entitled to enter the United States at a preferential or zero rate tariff and
is not subject to any quota. In addition, pursuant to legislation adopted by
Congress to enact NAFTA in the United States, immediate, duty-free and quota-
free entry into the United States from Mexico is permitted for garments sewn
from components which are cut in the United States from United States knit,
woven or formed cloth. NAFTA's tariff on the value of finished knit goods of
4% and a 2% tariff on the value of finished woven goods is charged if
35
<PAGE>
such goods are cut in Mexico and then imported into the United States. Tariffs
on goods cut in Mexico, pursuant to NAFTA tariff schedules, are expected to
decline to zero over three years.
Garments imported directly (mostly from the Pacific Rim) are normally taxed
at most favored nation ("MFN") tariffs and are subject to a series of
bilateral quotas that regulate the number of garments that may be imported
annually into the United States. The tariffs for most of the countries from
which the Company currently imports or intends to import have been set by
international negotiations under the auspices of the World Trade Organization
("WTO"). These tariffs generally range between 17% and 35%, depending upon the
nature of the garment (e.g., shirt, pant), its construction and its chief
weight by fiber.
In addition to these tariff rates, merchandise from the countries from which
the Company imports is also subject to bilateral quota restraints, pursuant to
U.S. domestic law or the multi-lateral Agreement of Textile and Clothing,
which is under the auspices of the WTO. Most bilateral quotas are negotiated
on a calendar year basis. After the United States and a particular country
agree to a particular level of exports in a particular quota category, the
country that receives the quota has the right to determine the method by which
such quota is assigned to its manufacturers. Most countries, however, assign
it to the factories that actually produce the garments. Shipments which are
exported to the United States must, in addition to the usual commercial
documentation, have appropriate and official textile visas, in either an
electronic or paper format, which confirm their quota status. This
documentation must be filed prior to the admission and clearance of the
merchandise into the United States. Accordingly, the Company usually requires
that this paperwork be submitted prior to payment.
COMPETITION
The apparel industry is highly competitive and the Company competes with
numerous apparel manufacturers, including brand name and private label
producers, and retailers which have established, or may establish, internal
product development and sourcing capabilities. The Company's products also
compete with a substantial number of designer and non-designer product lines.
Many of the Company's competitors and potential competitors have greater
financial, manufacturing, distribution and marketing resources than the
Company. The Company believes that it competes favorably on the basis of
quality and value of its apparel lines and products, price, the production
flexibility, efficiency and speed that it enjoys as a result of its control
over the entire production process, and its long-term relationships with
contract manufacturers and customers. Nevertheless, any increased competition
from manufacturers or retailers, or any increased success by existing
competition, could result in reductions in unit sales or prices, or both,
which could have a material adverse effect on the Company's business and
results of operations.
TRADEMARKS
The Company's primary business has been the production of private label
goods for its customers. However, long-term trademarks and trade names which
have been used by the Company are listed below. Each is owned by the Company
and registered in its name.
PERISCOPE(R) was launched for use in department and specialty stores.
ASHLY BRENT(R) which has been used on all specialty store products.
JUST DAWN(R) which has been used mainly on discount store products.
ANOTHER NAME(R) which has been used on discount store products with
decreasing frequency since 1981.
CURIOSITY'S CAT(R) which has been used on all import goods.
DIRECTIVES(R) which has been used on department and specialty store
products.
DNA(R) which has been used on a junior's/young women's apparel line.
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<PAGE>
EMPLOYEES
At June 30, 1998, the Company employed 145 persons on a full-time basis,
comprised of 15 executive and management employees, 10 sales employees and 120
administrative and warehouse employees. None of the Company's employees is a
member of any labor union or is subject to a collective bargaining agreement.
The Company considers its relations with its employees to be good.
PROPERTIES
The Company's executive offices, showrooms and sales offices as well as its
design facilities are located in approximately 9,000 square feet on the sixth
and tenth floors at 1407 Broadway, New York, New York. The floors are leased
pursuant to a single lease for a term expiring in April 2002, at a current
annual base rent of $305,600. The Company's accounting offices, in-house
cutting and sample production facilities, fabric marking and grading facility,
label making facility, as well as its in-house quality control facility and
warehousing and distribution center are located in approximately 50,000 square
feet at 2075 91st Street, North Bergen, New Jersey. The facility is leased for
a term expiring September 2000 at a current annual base rent of $266,116. The
Company believes that its existing facilities are adequate to meet its current
and foreseeable needs and that it can successfully negotiate new leases when
its current leases expire.
LEGAL PROCEEDINGS
The Company is not involved in any pending or threatened legal proceedings
that could have a material impact on the Company's consolidated financial
statements.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Company's executive officers and directors, and their ages as of July
15, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Glenn Sands............. 42 President and Chief Executive Officer, Chairman of the Board
Scott Pianin............ 39 Executive Vice President and Chief Operating Officer, Director
Raymond Kuslansky....... 48 Vice President, Chief Financial Officer, Treasurer and Secretary
</TABLE>
GLENN SANDS founded the Company in 1977 and since its inception has been its
President and Chief Executive Officer. Mr. Sands oversees every major aspect
of the Company's operations, including sales and marketing, production and
manufacturing, financial reporting, converting of raw materials, costing,
designing, contract negotiating, Far Eastern operations and personnel
management.
SCOTT PIANIN has served as Executive Vice President and Chief Operating
Officer of the Company since May 1998. Mr. Pianin has been an executive
officer of the Company since 1994 and has been employed by the Company since
1991 in various sales capacities. He is responsible for all sales, marketing
and merchandising activities of the Company. From 1984 through 1991, Mr.
Pianin served as Sales Manager of Apparel America Inc., an apparel company
that manufactures and markets licensed T-shirts. From 1982 to 1984, Mr. Pianin
was Sales Manager--Knit Products of Cheri-Alan, Ltd., a ladies' sportswear
manufacturer.
RAYMOND KUSLANSKY has served as the Company's Vice President, Chief
Financial Officer, Treasurer and Secretary since May 1998. Mr. Kuslansky has
been an executive officer of the Company since August 1987. Among other
responsibilities, Mr. Kuslansky oversees the Company's banking and vendor
relations, insurance, office administration, electronic data processing and
accounting and audit functions. From 1983 to 1987, Mr. Kuslansky was the
controller of Craftex Creations, Inc., a ladies' sleepwear manufacturer and
marketer. From 1981 to 1983, Mr. Kuslansky was the controller of Rob Roy,
Inc., a manufacturer of children's wear. Mr. Kuslansky is a Certified Public
Accountant.
Shortly after the completion of this Offering, the Company intends to
identify three individuals who will serve as independent directors.
Upon the consummation of the Offering, the Board of Directors of the Company
will be divided into three classes, as nearly equal in number as possible.
Thereafter, each year the stockholders will elect the members of one of the
three classes to a three year term of office. The classification of the
directors will be determined upon the consummation of the Offering. Officers
are elected to serve, subject to the discretion of the Board of Directors,
until their successors are appointed.
COMMITTEES OF THE BOARD OF DIRECTORS
Following the completion of this Offering, the Company's Board of Directors
will appoint an Audit Committee. The members of the Audit Committee will be
determined by the Board of Directors upon the appointment of the Company's
independent directors. The Audit Committee will recommend to the Board of
Directors the appointment of independent auditors, review and approve the
scope of the annual audit of the
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Company's financial statement reviews and approve any non-audit services
performed by the independent auditors and periodically review and approve
major accounting policies and significant internal accounting control
procedures.
Following the completion of this Offering, the Company's Board of Directors
will appoint a Compensation Committee. The members of the Compensation
Committee will be determined by the Board of Directors upon the appointment of
the Company's independent directors. The Compensation Committee will review
and recommend to the Board of Directors compensation arrangements for officers
and directors, administer stock option plans and review major personnel
matters.
OTHER KEY PERSONNEL
The persons listed below are also key employees of the Company.
<TABLE>
<CAPTION>
PERIOD WITH
NAME AGE THE COMPANY CURRENT POSITION
---- --- ----------- ----------------
<S> <C> <C> <C>
Jeffrey Sirchio..................... 41 9 mos. Vice President--Operations
Leo Ashkinadze...................... 48 10 yrs. General Manager--Production
Steven Schatzberg................... 48 2 yrs. Vice President--Sales
Paul Schwartz....................... 48 8 yrs. Kidswear--Vice President
Richard Roth........................ 39 8 mos. Kidswear--Vice President
Scott Tunis......................... 42 9 yrs. Vice President--Production
Mei-Ling Ku......................... 45 11 yrs. General Manager--Imports
</TABLE>
JEFFREY W. SIRCHIO, VICE PRESIDENT--OPERATIONS. Mr. Sirchio has served as
Vice President--Operations of the Company since November 1997. Prior to
joining the Company, Mr. Sirchio was Vice President--Operations of UMI
Collections, Inc., a designer dress manufacturer, from 1987 to 1997.
LEO ASHKINADZE, GENERAL MANAGER--PRODUCTION. Mr. Ashkinadze joined the
Company in 1988 and has served as General Manager--Production of the Company
since 1990.
STEVEN SCHATZBERG, VICE PRESIDENT--SALES. Mr. Schatzberg has served as Vice
President--Sales of the Company since June 1995 and has been employed by the
Company since October 1994. From 1987 to 1994, Mr. Schatzberg was the owner of
Certified Buying, Inc., a buying office which acted as the liaison between
major U.S. retail chains and apparel manufacturers in the United States,
Canada and Europe.
PAUL SCHWARTZ, KIDSWEAR--VICE PRESIDENT. Mr. Schwartz joined the Company in
1990 and has been Kidswear--Vice President since 1996. Prior to joining the
Company, Mr. Schwartz held positions at several clothing importing and
manufacturing companies as well as at retail apparel chains, where he worked
primarily in the junior's and children's divisions.
RICHARD J. ROTH, KIDSWEAR--VICE PRESIDENT. Mr. Roth has served as Kidswear--
Vice President since he joined the Company in November 1997. From 1994 through
October 1997, Mr. Roth worked at House of Perfection, Inc. (d/b/a Stepping
Stones), a manufacturer of children's sportswear and infant and toddler
clothing, where he served first as the Head of Fashion Division and later as
Head of Product Development--Infants and Toddler Division. From 1982 until
1994, he worked at Wonderland Fashions, Inc., a manufacturer of children's
dresses and sportswear, where he served as Vice President--Production, Finance
commencing in 1989.
SCOTT TUNIS, VICE PRESIDENT--PRODUCTION. Mr. Tunis has served as Vice
President--Production of the Company since 1996 and has been employed by the
Company since 1989. Mr. Tunis is responsible for various aspects of production
including sales, fabric printing, converting, costing, designing, production
scheduling and yield analyzing.
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<PAGE>
MEI-LING KU, GENERAL MANAGER--IMPORTS. Ms. Ku joined the Company in 1987 and
since 1989 has served as General Manager--Imports. Ms. Ku is responsible for
sourcing, merchandising, price negotiating and overseeing the production flow
of imported finished garments from Asia. Ms. Ku received professional training
in clothing technology in Germany and served as the Director of Planning
Division of the Garment Industry Association in Taipei, Taiwan.
DIRECTOR COMPENSATION
The Company will pay each director who is not a full-time employee of the
Company an annual retainer the amount of which shall be determined by the
Compensation Committee of the Board of Directors and will be payable
quarterly. The Company will reimburse each such director for reasonable travel
expenses incurred in connection with his or her activities on behalf of the
Company. In addition, each director who is not an employee of the Company,
upon first taking office, will receive options to purchase shares of Common
Stock of the Company. The number of options to be granted will be determined
by the Compensation Committee of the Board of Directors. Such options will
vest over a three year period. See "--Stock Option Plan."
EXECUTIVE COMPENSATION
The following table summarizes the compensation earned during the last three
fiscal years by the Company's Chief Executive Officer and each of its
executive officers who received compensation in excess of $100,000 for
services rendered in all capacities to the Company for the fiscal year ended
December 31, 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)
------------------ ---- ---------- ----------
<S> <C> <C> <C>
Glenn Sands...................................... 1997 $1,195,379 --
President and Chief Executive Officer 1996 $1,640,924 --
1995 $3,710,029 --
Scott Pianin..................................... 1997 $ 147,290 $1,025,491(1)
Executive Vice President and Chief Operating Of-
ficer 1996 $ 140,800 $ 570,702(1)
1995 $ 145,800 $ 381,867(1)
Raymond Kuslansky................................ 1997 $ 168,424 --
Vice President, and Treasurer and Secretary 1996 $ 162,122 $ 10,000
1995 $ 150,592 $ 10,000
</TABLE>
- --------
(1) Consists of performance compensation paid to Mr. Pianin and S.R.P. Sales,
Inc., a corporation controlled by Mr. Pianin.
EMPLOYMENT AGREEMENTS
In May 1998, the Company entered into an employment agreement with Glenn
Sands, providing for his employment as the Company's President and Chief
Executive Officer for a three year term commencing as of January 1, 1998. The
agreement provides, on an annual basis, for a base salary of $500,000, a
$450,000 performance based bonus and a $50,000 business expense allowance. The
agreement also provides for the participation by Mr. Sands in all executive
benefit plans.
In May 1998, the Company entered into an employment agreement with Scott
Pianin, providing for his employment as the Company's Executive Vice President
and Chief Operating Officer of the Company for a three year term commencing
July 1, 1998. The agreement provides, on an annual basis, for a base salary of
$184,000, additional compensation based on achieving certain performance
criteria and the right to participate in all executive benefit plans.
40
<PAGE>
In May 1998, the Company entered into an employment agreement with Raymond
Kuslansky. The Agreement is for a five year term and provides for an annual
base salary of $168,000 and the right to participate in all executive benefit
plans.
STOCK OPTION PLAN
On May 28, 1998, in order to attract and retain qualified personnel
necessary for the success of the Company, the Company adopted a Stock Option
Plan (the "Stock Option Plan") covering up to 750,000 shares of the Company's
Common Stock, pursuant to which officers, directors, key employees and
consultants to the Company are eligible to receive incentive stock options and
non-qualified stock options. The Stock Option Plan, which expires on May 15,
2008 is currently administered by the entire Board of Directors. Upon the
appointment of a Compensation Committee, the Stock Option Plan will be
administered by the Compensation Committee. The selection of participants,
grant of options, determination of price and other conditions relating to the
exercise of options is determined by the entire Board of Directors, and will
be determined by the Compensation Committee upon its appointment by the Board
of Directors. The selection of participants, grant of options, determination
of price and other conditions relating to the exercise of options is
determined by the entire Board of Directors, in its sole discretion, and will
be determined by of the Compensation Committee, in its sole discretion, upon
its appointment. Incentive stock options granted under the Stock Option Plan
are exercisable for a period of up to 10 years from the date of grant at an
exercise price which is not less than the fair market value of a share of
Common Stock on the date of the grant, except that the term of an incentive
stock option granted under the Stock Option Plan to a stockholder owning more
than 10% of the outstanding Common Stock may not exceed five years and its
exercise price may not be less than 110% of the fair market value of a share
of Common Stock on the date of the grant.
OPTION GRANTS
The Company anticipates that it will grant, prior to the effective date of
this Offering stock options under the Stock Option Plan to certain of its
employees, including executive officers. The amount of any such grant has not
yet been determined by the Company.
Subsequent to the Offering, under the Stock Option Plan, each director who
is not an employee of the Company, upon first taking office, is to be granted
options to purchase shares of Common Stock exercisable ratably over three
years at the fair market value of such shares on the date of grant. The number
of options to be granted will be determined by the Compensation Committee of
the Board of Directors. See "Management--Director Compensation."
41
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of the date of the
Offering, with respect to the beneficial ownership of the Company's Common
Stock held by (i) each stockholder known by the Company to be the beneficial
owner of more than 5% of its outstanding shares, (ii) each director and
executive officer named in the Summary Compensation Table, (iii) the directors
and executive officers of the Company as a group and (iv) each Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING OWNED AFTER OFFERING
----------------------- -----------------------
SHARES TO BE
NAME NUMBER PERCENT SOLD NUMBER PERCENT
- ---- -------------- ------------------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS
Glenn Sands(1).......... 2,628,800 58.6 -- 2,628,800 37.1
Scott Pianin(2)......... 99,200 2.2 -- 99,200 1.4
ALL DIRECTORS AND EXECU-
TIVE OFFICERS
AS A GROUP (3 PER-
SONS).................. 2,728,000 60.8 -- 2,728,000 38.5
OTHER PRINCIPAL STOCK-
HOLDERS:
BancBoston Ventures,
Inc(3)................. 1,018,000 22.7 -- 1,018,000 14.4
OTHER SELLING STOCKHOLD-
ERS:(4)
Jay Botchman............ 173,600 3.9 99,200 74,400 1.0
Michael Covino.......... 186,000 4.1 148,800 37,200 *
Shirley Gibbons......... 198,400 4.4 198,400 -- --
Sylvester Miniter....... 186,000 4.1 148,800 37,200 *
</TABLE>
- --------
* Less than 1%.
(1) The address of Mr. Sands is c/o the Company, 1407 Broadway, Suite 620, New
York, NY 10018. Mr. Sands has granted the Representatives a 45-day option
to purchase up to 280,000 additional shares of Common Stock, solely for
the purpose of covering over-allotments, if any. If such option is
exercised in full, the number of shares held by Mr. Sands will be reduced
to 2,348,800 and his percentage of the outstanding shares will be reduced
to 33.1%.
(2) The address of Mr. Pianin is c/o the Company, 1407 Broadway, Suite 620,
New York, NY 10018.
(3) The address of BancBoston Ventures, Inc. is 100 Federal Street, Boston, MA
02110.
(4) None of the Selling Stockholders listed in the above table except for Mr.
Sands has held any position, office or has had any other material
relationship with the Company or any of its predecessors or affiliates
within the past three years.
42
<PAGE>
CERTAIN TRANSACTIONS
On May 17, 1996, the Company borrowed $3.0 million from BBV. The loan bears
interest at 7% per annum and matures on May 15, 2001. During 1997, the Company
made interest payments on this loan aggregating $159,250. This loan is to be
prepaid from the proceeds of this Offering. See "Use of Proceeds."
On May 17, 1996, the Company entered into a Term Loan Agreement with
BankBoston, N.A., an affiliate of BBV. Pursuant to this agreement, as amended,
BankBoston, N.A. loaned the Company $15.0 million, payable in quarterly
principal installments of $100,000 through December 31, 1998, increasing
thereafter to $500,000 a quarter through March 2001, with the balance of $8.7
million due in May 2001. This loan bears interest at the greater of the
lender's base rate or the federal funds effective rate plus 1.25% (9.75% at
December 31, 1997). During 1997, the Company made interest payments on this
loan aggregating $1.3 million. At June 30, 1998, the outstanding principal
amount due was $13.5 million. This loan is to be prepaid from the proceeds of
this Offering. See "Use of Proceeds."
Substantially all of the proceeds from the loans described above were used
to purchase from a former executive of the Company 50% of the then outstanding
shares of Common Stock of the Company for $11.4 million and to fund a $6.0
million dividend distribution to the Company's then remaining stockholder and
principal executive, Glenn Sands. In addition, in connection with these
transactions, Glenn Sands sold 1,736,000 shares of Common Stock (after giving
pro forma effect to the reincorporation of the Company in Delaware and the
concurrent stock split) to BBV (representing 35% of the then outstanding
shares of the Company) for $2.0 million.
In June 1998, the Company agreed with BBV that the loan from BBV described
above will be prepaid if the Company completes an equity financing from which
it realizes net proceeds of at least $19.0 million and, in consideration
thereof, BBV agreed that upon such prepayment it will contribute 569,200
shares of Common Stock to the capital of the Company.
On May 17, 1996, the Company loaned $950,000 to Glenn Sands, its President
and Chief Executive Officer. The loan, as amended, bears interest at prime
plus 0.5% (9% at December 31, 1997) and is due January 2000. In April 1997,
Mr. Sands loaned the Company $2.0 million. The loan is evidenced by a
subordinated demand note bearing interest at the rate of prime plus 0.5% (9%
at December 31, 1997). The loan is due January 2000. This loan is to be repaid
from the proceeds of this Offering. See "Use of Proceeds."
The Company purchases transportation related services from Global Air, Inc.
("Global"), a company wholly-owned by Mr. Sands. Fees paid by the Company to
Global for travel related to the Company's business for the year ended
December 31, 1997 totaled $64,101.
Future transactions with affiliated parities will be approved by the
Company's Board of Directors only after the interest of any director or
affiliate is fully disclosed to the Board of Directors and it is established
that such transaction is fair and reasonable to the Company and is on terms no
less favorable than those that could be obtained from unaffiliated parties.
43
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value of $.001 per share ("Common Stock"), and 5,000,000
shares of Preferred Stock, par value $.001 per share ("Preferred Stock"). Upon
completion of the Offering, there will be 7,090,000 shares of Common Stock
outstanding and no shares of Preferred Stock outstanding. As of June 30, 1998,
there were outstanding 4,490,000 shares of Common Stock after giving pro forma
effect to the contribution by BBV to the capital of the Company of 569,200
shares of Common Stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. Subject to the
preferences that may be applicable to any outstanding Preferred Stock, the
holders of Common Stock are entitled to receive dividends as and when declared
by the Board of Directors out of funds legally available for dividends, and,
in the event of liquidation, dissolution or winding up of the Company, to
share ratable in all assets remaining after the payment of liabilities. The
Common Stock has no preemptive, conversion or other subscription rights.
Upon completion of this Offering, the directors and executive officers of
the Company will beneficially own approximately 38.5% of the Company's
outstanding shares and accordingly will be in a position to effectively elect
all of the Company's directors and control the affairs of the Company.
PREFERRED STOCK
The Board of Directors is authorized to issue the Company's undesignated
Preferred Stock in one or more series, to determine the powers, preferences
and rights, and the qualifications, limitations or restrictions, granted to or
imposed upon any wholly unissued series of undesignated Preferred Stock, and
to fix the number of shares constituting any series and the designation of
such series, without any further vote or action by the stockholders. The
issuance of Preferred Stock may have the effect of delaying, deferring or
preventing a change in control of the Company and may adversely affect the
voting and other rights of the holders of Common Stock. The Company has no
current plans to issue any shares of Preferred Stock.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
The Company's Certificate of Incorporation limits the liability of directors
of the Company to the fullest extent permitted under Section 102(b)(7) of the
Delaware General Corporation Law (the "DGCL"). To this end, no director of the
Company will be liable to the Company or to its stockholders for monetary
damages for breach of fiduciary duty as a director, except for liability for
(i) any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law, (iii) any willful or
negligent payment of an unlawful dividend, stock purchase, or redemption, or
(iv) any transaction from which the director derived an improper personal
benefit.
The Certificate of Incorporation provides that the Board of Directors
consist of three classes of directors serving for staggered three-year terms.
As a result, one-third of the Company's Board of Directors will be elected
each year. In accordance with the DGCL, directors serving on classified boards
of directors may only be removed from office for cause. The Certificate of
Incorporation provides that stockholders may take such action only by the
affirmative vote of at least two-thirds of the voting stock outstanding and
that there shall be no cumulative voting. However, upon completion of this
Offering, the Certificate of Incorporation provides that stockholders may not
take action by written consent in lieu of a meeting. The Certificate of
Incorporation also provides that special meetings may be called at any time,
but only by the Chairman of the Board. Both such provisions may not be amended
or repealed except by the affirmative vote of at least 75% of the shares of
stock of the Company issued and outstanding.
The Company's Bylaws provide that only the Board of Directors may call a
special meeting of stockholders and that stockholders must follow an advance
notification procedure for certain stockholder nominations of
44
<PAGE>
candidates and for certain other stockholder business to be conducted at the
annual meeting. These provisions could, under certain circumstances, operate
to delay, defer or prevent a change in control of the Company.
These provisions could delay or frustrate the removal of incumbent directors
or a change in control of the Company. The provisions also could discourage,
impede or prevent a merger, tender offer or proxy contest, even if such event
would be favorable to the interests of stockholders.
SECTION 203 OF DGCL
As a corporation organized under the laws of the State of Delaware, the
Company is subject to Section 203 of the DGCL which restricts certain business
combinations between the Company and an "interested stockholder" (in general,
a stockholder owning 15% or more the Company's outstanding voting stock) or
its affiliates or associates for a period of three years following the date on
which the stockholder becomes an "interested stockholder." The restrictions do
not apply if (i) the corporation has elected in its certificate of
incorporation not to be governed by the Delaware anti-takeover law (the
Company has not made such an election), (ii) prior to a person qualifying as
an "interested stockholder," the Board of Directors approves either the
business combination or the transaction which would cause such individual to
become an "interested stockholder," (iii) upon consummation of the transaction
in which any person becomes an "interested stockholder," such person owns at
least 85% of the voting stock of the Company outstanding at the time the
transaction commences (excluding shares owned by certain employee stock
ownership plans and persons who are both directors and officers of the
Company) or (iv) on or subsequent to the date on which a person becomes an
"interested stockholder," the business combination is both approved by the
Board of Directors and authorized at an annual or special meeting of the
Company's stockholder, without written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock not owned by the "interested
stockholder."
INCLUSION ON THE NASDAQ NATIONAL MARKET
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "PSCP."
TRANSFER AGENT
The transfer agent for the Common Stock is the American Stock Transfer &
Trust Company, New York, New York.
45
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this Offering, there has been no public market for the Common
Stock. The Company cannot predict the effect, if any, that sales of Common
Stock or the availability of such shares for sale will have on the market
price of the Common Stock prevailing from time-to-time. Future sales of
substantial amounts of Common Stock in the public market, including shares
issued upon the exercise of options to be granted pursuant to the Company's
Stock Option Plan, could adversely affect the prevailing market price of the
Common Stock.
Upon completion of this Offering, the Company will have 7,090,000 shares of
Common Stock outstanding. The 4,490,000 shares of Common Stock presently
outstanding are "restricted securities" within the meaning of Rule 144 under
the Securities Act of 1933, as amended (the "Securities Act"), and may be sold
under the conditions of such rule, including satisfaction of certain holding
period requirements. Except for the sale by the Selling Stockholders of
595,200 shares of Common Stock offered hereby (875,200 if the Over-Allotment
Option is exercised in full with respect to Mr. Sands' shares), holders of the
shares have executed agreements pursuant to which they may not sell or
otherwise dispose of such shares for a period of 270 days after the closing of
this Offering, without the prior written consent of Sutro & Co. Incorporated
(the "Lock-Up Agreements"). After giving effect to sale of the shares offered
by the Selling Stockholders, 212,700 shares of Common Stock presently
outstanding, which shares are subject to Lock-Up Agreements, will become
eligible for sale in the public market in reliance on Rule 144 beginning 90
days after the date of this Prospectus, taking into account the volume
limitations imposed upon the sale of "restricted securities" by "affiliates."
In general, under Rule 144 as currently in effect, beginning 90 days after
the Offering, a person (or persons whose shares are aggregated) who
beneficially owns shares as to which at least one year has elapsed since the
date of acquisition in a transaction not involving a registered public
offering is entitled to sell within any three-month period a number of shares
that does not exceed the greater of one percent of the then outstanding shares
of Common Stock (70,900 shares immediately after this Offering) or the average
weekly trading volume of the Common Stock on over-the-counter market during
the four calendar weeks preceding the date on which notice of the sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
under Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. Any person (or persons whose shares are aggregated) who is not deemed
to have been an affiliate of the Company at any time during the 90 days
preceding a sale, and who beneficially owns shares as to which at least one
year has elapsed since the later of the date of the acquisition of the
securities from the Company or from an affiliate of the Company, would be
entitled to sell such shares under Rule 144 without regard to the volume
limitations, manner-of-sale provisions, public information requirements or
notice requirements.
46
<PAGE>
UNDERWRITING
The Underwriters named below, acting through their representatives, Sutro &
Co. Incorporated, L.H. Friend, Weinress, Frankson & Presson, Inc. and Scott &
Stringfellow, Inc. (the "Representatives"), have severally agreed, subject to
the terms and conditions of the Underwriting Agreement with the Company and
the Selling Stockholders, to purchase from the Company and the Selling
Stockholders the number of shares of Common Stock set forth opposite their
respective names. The Underwriters are committed to purchase and pay for all
such shares if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS OF COMMON STOCK
------------ ----------------
<S> <C>
Sutro & Co. Incorporated....................................
L.H. Friend, Weinress, Frankson & Presson, Inc..............
Scott & Stringfellow, Inc...................................
---------
Total..................................................... 3,195,200
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the initial public offering,
the price and concessions and reallowances to dealers may be changed by the
Representatives. The Common Stock is offered subject to receipt and acceptance
by the Underwriters and to certain other conditions, including the right to
reject orders in whole or part.
The Underwriters have been granted an option exercisable for 45 days after
the date of the Underwriting Agreement to purchase up to a maximum of 479,280
additional shares of Common Stock to cover over-allotments, if any. The first
280,000 of such shares will be purchased from Glenn Sands, the Company's
President and Chief Executive Officer, and the balance of such shares will be
purchased from the Company. If the Underwriters exercise such option, the
Underwriters have severally agreed, subject to certain conditions, to purchase
such additional shares in approximately the same proportion as set forth in
the foregoing table.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and certain related persons against certain liabilities relating
to the offering contemplated by this Prospectus, including liabilities under
the Securities Act, or to contribute to payments which the Underwriters may be
required to make in respect thereof.
Except with respect to the 595,200 shares offered by the Selling
Stockholders (875,200 if the Over-Allotment Option is exercised in full with
respect to Mr. Sands' shares), the Company and each of its directors, officers
and stockholders have agreed not to issue, offer, sell, transfer or otherwise
dispose of any shares of Common Stock or any securities convertible into or
exchangeable for shares of Common Stock of the Company for a period of
270 days after the date of this Prospectus without the prior written consent
of Sutro & Co. Incorporated, subject to certain limited exceptions, including
(i) for the Company, the issuance of Common Stock of the Company pursuant to
the exercise of options under the Company's Stock Option Plan and the granting
of stock options under such Stock Option Plan and (ii) for the directors,
officers and stockholders of the Company, the transfers during such person's
lifetime, or on death or by will or intestacy, to his or her immediate family
for trust established on behalf of any such persons, provided that the
recipient(s) thereof agree in writing to be bound by the terms of the lock-up
agreement to which such stockholder is bound. See "Shares Eligible For Future
Sale."
The Underwriters may engage in stabilizing bids, cover syndicate short
positions or impose penalty bids. If the Underwriters create a short position
in the Common Stock in connection with this Offering (i.e., if they sell more
shares of Common Stock than are set forth on the cover page of this
Prospectus), the Representatives may reduce that short position by purchasing
Common Stock in the open market. The Representatives also may elect to reduce
any short position by exercising all or part of the over-allotment option
described herein.
The Representatives also may impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the
47
<PAGE>
Underwriters' short position or to stabilize the price of the Common Stock,
they may reclaim the amount of the selling concession from the Underwriters
and selling group members who sold those shares as part of this Offering. In
general, purchases of a security for the purpose of stabilization or to reduce
a syndicate short position could cause the price of the security to be higher
than it might otherwise be in the absence of such purchases. The imposition of
a penalty bid may have an effect on the price of a security to the extent that
it were to discourage resales of the security by purchasers in this offering.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of, or any effect that the
transactions described above may have on, the price of the Common Stock. In
addition, neither the Company nor any of the Underwriters makes any
representation that the Representatives will engage in such transactions or,
once commenced, will not be discontinued at any time without notice.
The Company has agreed to sell to Sutro & Co. Incorporation and L.H. Friend,
Weinress, Frankson & Presson, Inc. warrants to purchase from the Company up to
319,520 shares of Common Stock at an exercise price per share equal to 120% of
the initial public offering price per share (the "Representatives' Warrants").
Sutro & Co. Incorporated and L.H. Friend, Weinress, Frankson & Presson, Inc.
shall each pay $1.00 to the Company for their respective Representatives'
Warrants. The Representatives' Warrants may not be sold, transferred,
assigned, pledged or hypothecated for a period of twelve months from the
effective date of the Registration Statement of which the prospectus is a
part, except to officers and partners (but not directors) of the
Representatives and other members of the underwriting or selling group and
officers or partners (but not directors) thereof in compliance with the
applicable provisions of the Corporate Financing Rules of the National
Association of Securities Dealers, Inc. The Representatives' Warrants will be
exercisable for a 5-year period beginning one year from the effective date of
the Registration Statement of which the prospectus is a part. In addition, the
Company has granted certain demand and piggyback registration rights to the
holders of the Representatives' Warrants, which enable them to register the
Common Stock underlying the Representatives' Warrants under the Securities
Act.
Prior to this offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price for the Common Stock was
determined by negotiations between the Company and the Representatives. Among
the factors considered in such negotiations were the history of, and the
prospects for, the Company and the industry in which it competes, an
assessment of the Company's management, its past and present operations, its
past and present earnings and the trend of such earnings, the prospects for
future earnings, the present state of the Company's development, the general
conditions of the securities market at the time of the Offering, and the
market prices of publicly-traded common stocks of comparable companies in
recent periods. The Representatives have informed the Company that the
Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Common Stock has been approved for listing on the Nasdaq National Market
under the symbol "PSCP."
48
<PAGE>
LEGAL MATTERS
The validity of the Shares being offered hereby will be passed upon for the
Company by Morse, Zelnick, Rose & Lander, LLP, New York, New York. Certain
matters will be passed upon for the Underwriters by Milbank, Tweed, Hadley &
McCloy, Los Angeles, California.
EXPERTS
The consolidated financial statements and schedule included in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Arthur Andersen
LLP and Friedman Alpren & Green LLP, independent public accountants, and are
included herein in reliance upon the authority of said firms as experts in
giving said reports.
CHANGE IN ACCOUNTANTS
On January 15, 1998, the Company's Board of Directors terminated the
engagement of Friedman Alpren & Green LLP and appointed Arthur Andersen LLP as
the independent public accountants for the Company. During the period Friedman
Alpren & Green LLP was retained by the Company and up to the date of
termination, there were no disagreements between Friedman Alpren & Green LLP
and the Company on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of Friedman Alpren & Green LLP, would have
caused them to make reference to the disagreement in any of their reports to
the Company. In addition, no report on the financial statements of the Company
rendered by Friedman Alpren & Green LLP contained an adverse opinion or a
disclaimer of opinion or was qualified or modified as to uncertainty, the
scope of the audit performed or accounting principles.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement on Form S-1 under the
Securities Act with the Commission with respect to the Shares offered hereby.
This Prospectus filed as a part of the Registration Statement does not contain
all of the information contained in the Registration Statement and the
exhibits thereto, certain portions of which have been omitted in accordance
with the rules and regulations of the Commission. For further information with
respect to the Company and the Shares offered hereby, reference is made to
such Registration Statement including the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract,
agreement or other documents are not necessarily complete, and in each
instance, reference is made to such contract, agreement or other documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement and
exhibits may be inspected without charge and copied at the public reference
facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, as well as at the New York
regional office of the Commission at Seven World Trade Center, 13th Floor, New
York, New York 10048 and at Northwest Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such material can be obtained
from the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains an Internet web site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the Commission. The address of that site is
http://www.sec.gov.
The Company intends to furnish its stockholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants.
49
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained herein under "Prospectus Summary," "Risk
Factors," "Summary Financial Data," "Selected Financial Data," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business," including, without limitation, those concerning (i) the Company's
strategy, (ii) the Company's expansion plans and (iii) the Company's capital
expenditures contain forward-looking statements concerning the Company's
operations, economic performance and financial condition. Because such
statements involve risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
Factors that could cause such differences include, but are not limited to,
those discussed under "Risk Factors." The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking
statements that may be made to reflect any future events or circumstances.
50
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................. F-2
Independent Auditors' Report............................................. F-3
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 30,
1998 (Unaudited)........................................................ F-4
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and for the Six Months Ended June 30, 1997 and 1998
(Unaudited)............................................................. F-5
Consolidated Statements of Stockholders' Equity (Deficiency) for the
Years Ended December 31, 1995, 1996 and 1997 and for the Six Months
Ended June 30, 1998 (Unaudited)......................................... F-6
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and for the Six Months Ended June 30, 1997 and 1998
(Unaudited)............................................................. F-7
Notes to Consolidated Financial Statements............................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Periscope I Sportswear, Inc.:
We have audited the accompanying consolidated balance sheet of Periscope I
Sportswear, Inc. and subsidiaries as of December 31, 1997, and the related
consolidated statements of operations, stockholders' equity (deficiency) 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Periscope
I Sportswear, Inc. and subsidiaries as of December 31, 1997, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
New York, New York
June 8, 1998, except
with respect to certain matters
discussed in Note 15, as to which
the date is July 24, 1998
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Periscope I Sportswear, Inc.:
We have audited the accompanying consolidated balance sheet of Periscope I
Sportswear, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, stockholders' equity (deficiency) and
cash flows for each of the years in the two-year period ended December 31,
1995 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Periscope
I Sportswear, Inc. and Subsidiaries as of December 31, 1996, and the results
of their operations and their cash flows for each of the years in the two-year
period ended December 31, 1995 and 1996, in conformity with generally accepted
accounting principles.
/s/ FRIEDMAN ALPREN & GREEN LLP
New York, New York
March 3, 1997
F-3
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------- JUNE 30,
1996 1997 1998
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................ $ 103,129 $ 181,397 $ 46,949
Cash and cash equivalents--restrict-
ed................................. 31,709 315,289 33,188
Accounts receivable, less allowance
for doubtful accounts of $50,000 as
of December 31, 1996 and 1997 and
$24,028 as of June 30, 1998........ 178,148 317,834 161,101
Loan receivable--officer............ 47,500 -- --
Income tax refund receivable........ 149,747 98,572 --
Other receivable.................... -- 364,000 1,066,000
Inventories......................... 9,228,509 10,996,315 17,168,285
Advance to officer.................. -- 583,392 937,343
Deferred offering costs............. -- 10,000 377,278
Prepaid income taxes................ 389,583 -- --
Prepaid expenses and other current
assets............................. 462,009 278,098 729,936
------------ ------------ ------------
Total current assets............... 10,590,334 13,144,897 20,520,080
PROPERTY AND EQUIPMENT, at cost, less
accumulated depreciation and amorti-
zation.............................. 295,387 381,874 708,739
LOAN RECEIVABLE--Officer, less cur-
rent portion........................ 872,813 906,459 906,459
DEFERRED FINANCING COSTS, less accu-
mulated amortization of $160,662,
$417,723 and $546,252 as of December
31, 1996 and 1997 and June 30, 1998,
respectively........................ 1,124,640 867,579 739,050
SECURITY DEPOSITS.................... 92,581 81,738 81,738
------------ ------------ ------------
Total assets....................... $ 12,975,755 $ 15,382,547 $ 22,956,066
============ ============ ============
LIABILITIES AND STOCKHOLDERS' DEFI-
CIENCY
CURRENT LIABILITIES:
Current maturities of long-term
debt............................... $ 1,400,000 $ 1,200,000 $ 500,000
Current maturities of capital lease
obligation......................... -- -- 47,973
Due to factor....................... 3,288,019 5,138,996 8,821,955
Accounts payable.................... 6,234,020 5,797,206 9,541,585
Accrued expenses and other current
liabilities........................ 297,003 564,680 779,582
------------ ------------ ------------
Total current liabilities.......... 11,219,042 12,700,882 19,691,095
LONG-TERM DEBT....................... 17,600,000 18,500,000 18,500,000
CAPITAL LEASE OBLIGATION............. -- -- 231,205
------------ ------------ ------------
Total liabilities.................. 28,819,042 31,200,882 38,422,300
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Note
10)
STOCKHOLDERS' DEFICIENCY:
Common stock, no par value;
30,000,000 shares authorized,
10,019,200 shares issued and
5,059,200 shares outstanding as of
December 31, 1996 and 1997 and June
30, 1998........................... 40,000 40,000 40,000
Additional paid-in capital.......... (3,311,963) (3,311,963) (3,311,963)
Accumulated deficit................. (1,191,324) (1,166,372) (814,271)
Treasury stock (4,960,000 shares),
at cost, as of December 31, 1996
and 1997 and June 30, 1998......... (11,380,000) (11,380,000) (11,380,000)
------------ ------------ ------------
Total stockholders' deficiency..... (15,843,287) (15,818,335) (15,466,234)
------------ ------------ ------------
Total liabilities and stockholders'
deficiency........................ $ 12,975,755 $ 15,382,547 $ 22,956,066
============ ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these balance sheets.
F-4
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............... $67,316,603 $78,706,090 $87,957,306 $34,256,853 $38,502,314
COST OF SALES........... 50,668,537 62,902,505 70,610,571 27,499,147 29,762,289
----------- ----------- ----------- ----------- -----------
Gross profit........... 16,648,066 15,803,585 17,346,735 6,757,706 8,740,025
----------- ----------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling and shipping... 5,777,768 7,544,526 8,546,165 3,791,114 3,813,405
General and administra-
tive.................. 3,475,558 6,685,071 3,972,833 2,300,346 1,730,577
----------- ----------- ----------- ----------- -----------
9,253,326 14,229,597 12,518,998 6,091,460 5,543,982
----------- ----------- ----------- ----------- -----------
Income from opera-
tions................. 7,394,740 1,573,988 4,827,737 666,246 3,196,043
FACTORING AND FINANCING
COSTS.................. 1,047,034 3,244,554 4,743,107 2,080,334 2,484,682
----------- ----------- ----------- ----------- -----------
Income (loss) before
income tax provision
(benefit)............. 6,347,706 (1,670,566) 84,630 (1,414,088) 711,361
INCOME TAX PROVISION
(BENEFIT).............. 253,000 (15,000) 59,678 -- 359,260
----------- ----------- ----------- ----------- -----------
Net income (loss)...... $ 6,094,706 $(1,655,566) $ 24,952 $(1,414,088) $ 352,101
=========== =========== =========== =========== ===========
BASIC AND DILUTED
EARNINGS PER SHARE..... $ 0.61 $ (0.24) $ -- $ (0.28) $ 0.07
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE SHARES
OUTSTANDING............ 9,920,000 6,820,000 5,059,200 5,059,200 5,059,200
=========== =========== =========== =========== ===========
PRO FORMA NET INCOME
DATA (Unaudited) (Notes
2 and 9):
Income before income
tax provision, as
reported.............. $ 6,347,706
Pro forma income tax
provision............. 2,729,514
-----------
Pro forma net income... $ 3,618,192
===========
Pro forma basic and
diluted earnings per
share................. $ 0.36
===========
Pro forma weighted
average shares
outstanding........... 9,920,000
===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
<TABLE>
<CAPTION>
RETAINED TOTAL
COMMON STOCK ADDITIONAL EARNINGS TREASURY STOCK STOCKHOLDERS'
------------------ PAID-IN (ACCUMULATED ------------------------ EQUITY
SHARES AMOUNT CAPITAL DEFICIT) SHARES AMOUNT (DEFICIENCY)
---------- ------- ---------- ------------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31,
1994................... 9,920,000 $40,000 $ 29,835 $5,084,737 -- $ -- $ 5,154,572
Dividends to
stockholders.......... -- -- -- (5,409,667) -- -- (5,409,667)
Net income............. -- -- -- 6,094,706 -- -- 6,094,706
---------- ------- ---------- ---------- ---------- ------------ ------------
BALANCE, December 31,
1995................... 9,920,000 40,000 29,835 5,769,776 -- -- 5,839,611
Dividends to
stockholders.......... -- -- -- (9,348,726) -- -- (9,348,726)
Acquisition of treasury
stock................. -- -- -- -- (4,960,000) (11,380,000) (11,380,000)
Reclassification of
retained deficit...... -- -- (4,043,192) 4,043,192 -- -- --
Stockholder
contribution.......... -- -- 685,714 -- (595,200) -- 685,714
Common stock issued in
connection with
financing............. -- -- -- -- 595,200 -- --
Issuance of common
stock................. 99,200 -- 15,680 -- -- -- 15,680
Net loss............... -- -- -- (1,655,566) -- -- (1,655,566)
---------- ------- ---------- ---------- ---------- ------------ ------------
BALANCE, December 31,
1996................... 10,019,200 40,000 (3,311,963) (1,191,324) (4,960,000) (11,380,000) (15,843,287)
Net income............. -- -- -- 24,952 -- -- 24,952
---------- ------- ---------- ---------- ---------- ------------ ------------
BALANCE, December 31,
1997................... 10,019,200 40,000 (3,311,963) (1,166,372) (4,960,000) (11,380,000) (15,818,335)
Net income
(Unaudited)........... -- -- -- 352,101 -- -- 352,101
---------- ------- ---------- ---------- ---------- ------------ ------------
BALANCE, June 30, 1998
(Unaudited)............ 10,019,200 $40,000 (3,311,963) (814,271) (4,960,000) $(11,380,000) $(15,466,234)
========== ======= ========== ========== ========== ============ ============
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ------------ ---------- ----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss)...... $ 6,094,706 $ (1,655,566) $ 24,952 $(1,414,088) $ 352,101
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities--
Depreciation and
amortization.......... 58,584 242,353 402,782 196,207 195,610
Provision for doubtful
accounts.............. 102,441 17,572 196,847 47,282 63,976
Loss on sale of
property and
equipment............. 1,339 -- -- -- --
Interest income earned
on restricted cash
and cash
equivalents........... (3,046) (1,663) (1,479) (1,479) --
Issuance of common
stock as
compensation.......... -- 15,680 -- -- --
Changes in assets and
liabilities--
Accounts receivable... (214,964) 27,009 (336,533) (15,472) 92,757
Income tax refund
receivable........... -- (149,747) 51,175 11,939 98,572
Other receivable...... -- -- (364,000) -- (702,000)
Inventories........... (2,614,400) (4,227,524) (1,767,806) (6,311,940) (6,171,970)
Deferred offering
costs................ -- -- (10,000) -- (367,278)
Prepaid income
taxes................ 39,017 (389,583) 389,583 7,114 --
Prepaid expenses and
other current
assets............... (19,108) (202,875) 183,911 176,396 (1,035,789)
Security deposits..... 7,328 (30,477) 10,843 18,085 --
Accounts payable...... (350,990) 2,562,422 (436,814) 2,851,976 3,744,379
Accrued expenses and
other current
liabilities.......... 182,621 (152,872) 267,677 42,445 214,902
----------- ------------ ---------- ----------- ----------
Net cash provided by
(used in) operating
activities.......... 3,283,528 (3,945,271) (1,388,862) (4,391,535) (3,514,740)
----------- ------------ ---------- ----------- ----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Additions to property
and equipment......... (51,221) (205,083) (218,354) (89,208) (110,946)
Proceeds from sale of
property and
equipment............. 2,000 -- -- -- --
----------- ------------ ---------- ----------- ----------
Net cash used in
investing
activities.......... (49,221) (205,083) (218,354) (89,208) (110,946)
----------- ------------ ---------- ----------- ----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Proceeds from long-term
debt.................. -- 20,000,000 2,000,000 2,000,000 --
Proceeds under
Factoring agreement... 2,228,463 5,445,100 850,977 2,552,078 3,182,959
Advances from officer.. -- -- -- -- --
Principal payments on
long-term debt........ -- (1,000,000) (300,000) (100,000) (200,000)
Principal payments on
capital lease
obligation............ -- -- -- -- (3,822)
Payments on loans
receivable and
advances to officers.. -- 979,687 -- -- 230,000
Advance to officer..... -- -- (583,392) -- --
Deferred financing
costs................. -- (599,589) -- -- --
Acquisition of treasury
stock................. -- (11,380,000) -- -- --
Dividends to
stockholders.......... (5,409,667) (9,348,726) -- -- --
----------- ------------ ---------- ----------- ----------
Net cash (used in)
provided by
financing
activities.......... (3,181,204) 4,096,472 1,967,585 4,452,078 3,209,137
----------- ------------ ---------- ----------- ----------
(INCREASE) DECREASE IN
RESTRICTED CASH AND
CASH EQUIVALENTS....... -- -- (282,101) -- 282,101
----------- ------------ ---------- ----------- ----------
Net increase
(decrease) in cash.. 53,103 (53,882) 78,268 (28,665) (134,448)
CASH, beginning of
period................. 103,908 157,011 103,129 103,129 181,397
----------- ------------ ---------- ----------- ----------
CASH, end of period..... $ 157,011 $ 103,129 $ 181,397 $ 74,464 $ 46,949
=========== ============ ========== =========== ==========
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-7
<PAGE>
PERISCOPE I SPORTSWEAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.NATURE OF OPERATIONS
Periscope I Sportswear, Inc. and Subsidiaries (the "Company") designs and
manufactures apparel through contractors. The Company provides an extensive
line of high quality women's and children's clothing, in the moderate price
category to major retailers, primarily for sale under private labels. The
Company operates in a highly competitive industry that is subject to changing
consumer demands and customer preferences.
In order to improve operating results and cash flows generated from
operations, the Company has implemented several strategies during the first
six months of 1998. The Company has substantially increased the utilization of
Mexican contractors to produce its goods, which has reduced the Company's
production costs and improved gross profits. In addition, the Company made a
strategic decision to restructure its children's division with the objective
of achieving higher margins for this division.
During May 1996, the Company undertook a leveraged recapitalization whereby
the Company borrowed an aggregate of $18,000,000 (see Note 6). Substantially
all the proceeds from these loans were used to repurchase 4,960,000 shares of
the Company's common stock owned by a 50% stockholder (see Note 8) and to fund
a distribution to the remaining stockholder. In connection with the
recapitalization, the remaining majority stockholder sold 1,736,000 shares of
the Company's common stock to BancBoston Ventures, Inc. for $2,000,000, the
fair value of such stock. In addition, the remaining majority stockholder also
transferred 595,200 shares of the Company's common stock to three individuals
as consideration for services provided to the Company in connection with the
$18,000,000 financing discussed above. Accordingly, the Company recorded the
fair value of the 595,200 shares transferred and the services provided
($685,714) as deferred financing costs and as a credit to additional paid-in
capital to reflect the contribution made by the majority stockholder (see Note
8). The deferred financing costs are being amortized over the life of the
related debt as factor and financing costs in the accompanying consolidated
statements of operations.
In addition, on May 17, 1996, Periscope I Sportswear, Inc. ("Periscope I")
transferred 99% of its net assets to Periscope Sportswear, LLC, a limited
liability company ("LLC"), and 1% of its net assets to Periscope II
Sportswear, Inc. ("Periscope II"), in a tax-free exchange for a 99% ownership
interest in the LLC and all of the common stock of Periscope II. Periscope II
then transferred its net assets to the LLC in exchange for a 1% ownership
interest. The accompanying consolidated financial statements include the
accounts and results of Periscope II and the LLC since their inception (May
17, 1996).
2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries (see Note 1). All significant
intercompany accounts and transactions have been eliminated.
Unaudited Interim Consolidated Financial Information
All information with respect to the consolidated balance sheet as of June
30, 1998, the consolidated statements of operations and cash flows for the six
months ended June 30, 1997 and 1998 and the consolidated statement of
stockholders' equity (deficiency) for the six months ended June 30, 1998 is
unaudited. In addition, cost of sales included in the accompanying statements
of operations was computed using the gross profit method. In the opinion of
management, all adjustments, consisting of normal recurring adjustments
necessary for a fair presentation of the results for such periods, have been
reflected therein. The results of operations for the six months ended June 30,
1998 are not necessarily indicative of the results of operations that may be
expected for the full year.
F-8
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Property and Equipment
Property and equipment are recorded at cost and depreciated over their
estimated useful lives using the straight-line method. Leasehold improvements
are amortized over their lease terms or the estimated useful lives of the
assets, whichever is shorter. Maintenance and repairs are charged against
results of operations as incurred.
The estimated useful lives of the Company's property and equipment are as
follows:
<TABLE>
<S> <C>
Machinery and equipment.................................... 5-7 years
Furniture and fixtures..................................... 7 years
Automobiles................................................ 5 years
Computer equipment and software............................ 3-5 years
Leasehold improvements..................................... Life of the lease
</TABLE>
Long-Lived Assets
The Company reviews its long-lived assets and certain related intangibles
for impairment whenever changes in circumstances indicate that the carrying
amount of an asset may not be fully recoverable. The measurement of impairment
losses to be recognized is based on the difference between the fair values and
the carrying amounts of the assets. Impairment would be recognized in
operating results if a diminution in value occurred. The Company does not
believe that any such changes have occurred.
Deferred Financing Costs
The costs incurred for obtaining financing, including all related legal and
accounting fees, are recorded in the accompanying consolidated balance sheets
as deferred financing costs. Deferred financing costs are being amortized over
the life of the related debt (5 years).
Fair Value of Financial Instruments
Due to the short maturities of the Company's cash, receivables and payables,
the carrying values of these financial instruments approximates their fair
values. The fair value of the Company's debt is estimated based on the current
rates offered to the Company for debt with similar remaining maturities. The
Company believes that the carrying value of its debt estimates the fair value
of such debt instruments.
Transactions with International Suppliers
All transactions with international suppliers currently are denominated in
U.S. dollars and are not subject to exchange rate fluctuations.
F-9
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Revenue Recognition
The Company recognizes revenues upon shipment of merchandise to its
customers, which policy has been followed consistently in the accompanying
consolidated financial statements. In previously issued financial statements
for the period May 17, 1996 to December 31, 1996 and for the six months ended
June 30, 1997, revenue for private label/special orders was accounted for upon
completion of production and segregation of such goods for delivery. In
connection with the Company's initial offering of its equity securities to the
public, the Company revised its recognition policy to record revenue for all
merchandise when shipped as the preferable method for all sales and the
results of operations for the year ended December 31, 1996 and the six months
ended June 30, 1997 have been restated accordingly.
Income Taxes
Periscope I and Periscope II file Federal income tax returns. The LLC is not
a taxpaying entity for Federal, New York state or New Jersey state income tax
purposes and, accordingly, no provisions are made for such taxes. Periscope I
and Periscope II's allocable shares of taxable income or loss from the LLC are
reportable on their income tax returns.
Prior to May 17, 1996, Periscope I had elected S Corporation status for
Federal, New York state and New Jersey state income tax purposes. Under these
elections, Periscope I's taxable income or loss was reportable by its
stockholders on their individual income tax returns, and Periscope I made no
provision for Federal income taxes. Reflected on the consolidated statement of
operations for the year ended December 31, 1995 is a pro forma calculation of
the provision for income taxes as if the Company had been a C Corporation for
Federal and state income tax purposes. The formation of Periscope II as a
wholly owned subsidiary required Periscope I to terminate its S Corporation
status and to be taxed as a C Corporation.
The Company accounts for income taxes utilizing the liability approach.
Deferred income taxes are provided for differences in the recognition of
assets and liabilities for tax and financial reporting purposes. Temporary
differences result primarily from various accruals and reserves being
deductible for tax purposes in future periods.
Earnings (Loss) Per Share
The Company has implemented Statement of Financial Accounting Standards No.
128, "Earnings Per Share" ("SFAS 128"), which establishes standards for the
method of computation, presentation and disclosure for earnings per share
("EPS"). SFAS 128 simplifies the standards for computing EPS previously found
in APB Opinion No. 15, "Earnings Per Share," and makes them comparable to
international EPS standards. It requires the presentation of two EPS amounts,
basic and diluted, on the face of the income statement for all entities with
complex capital structures and the restatement of all prior period EPS
calculations presented. Previously reported EPS amounts were not affected by
the adoption of this new standard. Basic earnings per share represents net
income (loss) divided by the weighted average shares outstanding. Diluted
earnings per share represents net income (loss) divided by the weighted
average shares outstanding adjusted for the incremental dilution of common
stock equivalents. There were no differences between basic and diluted EPS for
1995, 1996 and 1997.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 131 ("SFAS 131"),
"Disclosures About Segments of an Enterprise and Related Information,"
introduces a new model for segment reporting, called the "management
approach." The management approach is based on the way that management
organizes segments within a company for making operating decisions and
assessing performance. Reportable segments can be based on
F-10
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
products and services, geography, legal structure, management structure--any
manner in which management disaggregates a company. The management approach
replaces the notion of industry and geographic segments in current accounting
standards. SFAS 131 is effective for fiscal years beginning after December 15,
1997. However, SFAS 131 need not be applied to interim statements in the
initial year of application. SFAS 131 requires restatement of all prior period
information reported. The Company intends to adopt this standard when required
and is in the process of determining the effect of SFAS 131 on the Company's
financial statement disclosures.
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-1,
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use." The statement is intended to eliminate the diversity in
practice in accounting for internal-use software costs and improve financial
reporting. The statement is effective for fiscal years beginning after
December 15, 1998. The Company is in the process of determining the effect of
this statement on the Company's consolidated financial position and results of
operations.
Reclassifications
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with the current year presentation.
3.INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials......................... $4,628,630 $ 4,406,475 $ 6,879,725
Work-in-process....................... 1,969,079 2,037,581 3,181,226
Finished goods........................ 2,630,800 4,552,259 7,107,334
---------- ----------- -----------
Total inventories..................... $9,228,509 $10,996,315 $17,168,285
========== =========== ===========
4.PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment............... $ 77,549 $ 117,458 $ 122,124
Furniture and fixtures................ 66,740 85,233 124,347
Automobiles........................... 10,032 12,629 12,629
Computer equipment and software....... 114,679 269,148 619,314
Leasehold improvements................ 83,844 86,730 86,730
---------- ----------- -----------
352,844 571,198 965,144
Less--Accumulated depreciation and am-
ortization........................... (57,457) (189,324) (256,405)
---------- ----------- -----------
$ 295,387 $ 381,874 $ 708,739
========== =========== ===========
</TABLE>
F-11
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5.FACTORING AND FINANCING ARRANGEMENTS
Substantially all of the Company's accounts receivable are factored on a
nonrecourse basis. Borrowings are subject to a monthly processing charge equal
to 0.7% on gross sales up to $25 million, 0.65% on gross sales between $25
million and $75 million and 0.6% of gross sales over $75 million. Interest on
advances made by the factor is charged at .5% over prime (9% at December 31,
1997) and the factoring agreement is collateralized by the Company's
receivables and inventory. The agreement expires on May 31, 2000 and may be
terminated at the option of the factor with 60 days written notice. The factor
also guarantees the Company's letters of credit. The uncollected balance of
receivables held by the factor as of December 31, 1996 and 1997 and June 30,
1998 was approximately $11.2 million, $17.5 million and $21.4 million,
respectively. Total charges, including interest expense, factoring fees and
commissions, were $1,047,034, $2,055,986, $2,764,761, $1,131,969 and
$1,376,681 for the years ended December 31, 1995, 1996 and 1997 and for the
six months ended June 30, 1997 and 1998, respectively. The weighted average
interest rate was 8.79%, 8.94%, and 9.00% at December 31, 1996, 1997 and June
30, 1998, respectively. Such charges are included in factoring and financing
costs in the accompanying consolidated financial statements.
6.DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
BankBoston, N.A. term note pay-
able--$15 million term loan bor-
rowed on May 17, 1996. The term
note bears interest at the greater
of the lender's base rate or the
federal funds effective rate plus
1.25% (9.75% at December 31,
1997). The term note is payable in
quarterly principal installments
of $100,000 through December 31,
1998. Quarterly principal payments
increase to $500,000 through March
2001 with a final payment of
$8,700,000 due in May 2001. (a)... $14,000,000 $13,700,000 $13,500,000
Term note payable--$2 million term
loan borrowed on November 20,
1996. The term note bears interest
at prime plus 1% (9.5% at December
31, 1997). The term note is pay-
able in quarterly principal pay-
ments of $250,000 through November
1, 1998........................... 2,000,000 1,000,000 500,000
BancBoston Ventures, Inc., ("BBV")
subordinated note payable--$3 mil-
lion note payable due to a stock-
holder of the Company. The note
payable bears interest at 7% per
annum and is due on May 15, 2001.
The note payable is subordinated
to the Company's term notes pay-
able. (a)......................... 3,000,000 3,000,000 3,000,000
Subordinated note payable--note
payable due to a stockholder of
the Company. The note payable
bears interest at prime plus 0.5%
(9% at December 31, 1997), is
subordinated through April 1, 1998
and is due on January 1, 2000..... -- 2,000,000 2,000,000
----------- ----------- -----------
19,000,000 19,700,000 19,000,000
Less--Current maturities of long-
term debt......................... (1,400,000) (1,200,000) (500,000)
----------- ----------- -----------
Long-term debt..................... $17,600,000 $18,500,000 $18,500,000
=========== =========== ===========
</TABLE>
F-12
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(a) During July 1998, the term note payable was amended to defer quarterly
payments due from September 1998 through June 1999 until July 1999.
These payments total $1,300,000 and have been reflected in the
accompanying consolidated financial statements at December 31, 1997 and
June 30, 1998 as long-term. In addition, the $15 million term note
payable and the $3 million subordinated note payable agreements were
also amended in June 1998 to require the prepayment of such notes if
the Company successfully completes an equity offering with net proceeds
of no less than $19.0 million. In consideration of the prepayment of
the $3.0 million Subordinated Note, BBV agreed that upon such
prepayment it will contribute 569,200 shares of Common Stock to the
capital of the Company.
Under the provisions of the term notes, the Company is required to maintain
certain financial ratios and comply with other financial conditions. The term
notes also prohibit the Company from incurring certain additional
indebtedness, limit certain investments, advances or loans and restrict
substantial asset sales. At December 31, 1996 and 1997 and June 30, 1998, the
Company was not in compliance with certain financial ratio covenants relating
to dilution and minimum earnings before interest, income taxes, depreciation
and amortization ratios, as defined. The Company obtained waivers related to
the noncompliance through July 1999.
The aggregate principal maturities of debt as of December 31, 1997 are as
follows:
<TABLE>
<S> <C>
1998............................................................. $ 1,200,000
1999............................................................. 2,300,000
2000............................................................. 2,000,000
2001............................................................. 14,200,000
-----------
$19,700,000
===========
</TABLE>
7.CAPITAL LEASE OBLIGATION
Capital lease obligation consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ -----------
1996 1997 1998
------ ----- -----------
(UNAUDITED)
<S> <C> <C> <C>
Capital lease obligation due through May 2003 with in-
terest at 8.3% and secured by the related equipment.. -- -- 279,178
Less--Current maturities of capital lease obligation.. -- -- (47,973)
------ ----- --------
Capital lease obligation.............................. $ -- $ -- $231,205
====== ===== ========
</TABLE>
Minimum annual payments under the capital lease, including interest, are as
follows at June 30, 1998:
<TABLE>
<S> <C>
1998 (remaining six months)........................................ $ 34,674
1999............................................................... 69,348
2000............................................................... 69,348
2001............................................................... 69,348
2002............................................................... 69,348
2003 and thereafter................................................ 28,891
--------
Present value of future minimum lease obligations................ 340,957
Less--Amount representing interest................................. (61,779)
--------
Net minimum payment.............................................. 279,178
Less--Current maturities of capital lease obligation............... (47,973)
--------
Capital lease obligation........................................... $231,205
========
</TABLE>
F-13
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8.STOCKHOLDERS' EQUITY (DEFICIENCY)
Recapitalization
In connection with the recapitalization in May 1996 (see Note 1), the
Company repurchased 4,960,000 shares of common stock from a former stockholder
for $11,380,000. Such shares are included in treasury stock in the
accompanying consolidated financial statements. In addition, the majority
stockholder also transferred 595,200 shares of the Company's common stock to
three individuals as compensation for services provided to the Company in
connection with the $18,000,000 financing (see Notes 1 and 6). Accordingly,
the Company recorded the fair market value of the 595,200 shares transferred
and the services provided ($685,714) as a credit to additional paid-in capital
to reflect the contribution made by the majority stockholder.
On May 16, 1996, the Company terminated its S Corporation status election
and the Company was required under Staff Accounting Bulletin 4B to reclassify
its retained deficit at that date in the amount of $4,043,192 to paid-in
capital.
Incentive Stock Plan
In November 1996, the Company adopted a Stock Incentive Plan (the "1996
Plan") covering up to 496,000 shares of the Company's Common Stock, pursuant
to which officers, directors and key employees of the Company and consultants
to the Company are eligible to receive incentive stock options, stock
appreciation rights, restricted stock and restricted stock units. The
selection of participants, grants to receive incentive stock options, stock
appreciation rights, restricted stock and restricted stock units,
determination of price and other conditions relating to the exercise of
options is determined by the Board of Directors. In 1996, 99,200 shares of
restricted stock were issued under the 1996 Plan. The accompanying
consolidated financial statements include compensation expense recorded in
1996 totaling $15,680 related to the restricted stock issued. No other grants
have been made under the 1996 Plan.
9.INCOME TAXES
Federal and state income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
------------------- -------------------
1996 1997 1997 1998
--------- -------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal:
Current........................... $(246,535) $241,103 $(275,171) $347,256
Deferred.......................... (309,091) (133,024) (98,868) (97,318)
State and local:
Current........................... (61,288) 114,509 (130,690) 164,925
Deferred.......................... (81,818) (67,235) (32,915) (55,603)
Valuation allowance................ 683,732 (95,675) 537,644 --
--------- -------- --------- --------
$(15,000) $ 59,678 $ -- $359,260
========= ======== ========= ========
</TABLE>
F-14
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The differences in federal income taxes provided and the amounts determined
by applying the Federal statutory tax rate (34%) to income (loss) before
income taxes result from the following:
<TABLE>
<CAPTION>
FOR THE YEARS
ENDED DECEMBER FOR THE SIX MONTHS
31, ENDED JUNE 30,
------------------ -------------------
1996 1997 1997 1998
--------- ------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Tax at statutory rate................ $(567,992) $28,774 $(480,790) $241,863
Add (deduct) the effect of:
State income taxes.................. (94,450) 31,201 (107,979) 72,152
Nondeductible expenses.............. (36,290) 95,378 51,125 45,245
Change in valuation allowance....... 683,732 (95,675) 537,644 --
--------- ------- --------- --------
$(15,000) $59,678 $ -- $359,260
========= ======= ========= ========
</TABLE>
During 1995, the Company had elected S Corporation status for Federal, New
York and New Jersey State income tax purposes. Accordingly, the provision for
income taxes reflected in the accompanying consolidated statements of
operations for the year ended December 31, 1995 is substantially lower than
the pro forma provision reflecting the income tax provision as if the Company
were a C Corporation for Federal and state income tax purposes. The difference
in taxes provided in 1995 and the amounts determined by applying the Federal
statutory tax rate (34%) is due to the Company's S Corporation election.
The components of deferred income tax assets and liabilities, are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1996 1997 1998
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current deferred income tax assets:
Net operating loss carryforwards.......... $ 307,823 $ -- $ --
Reserves and other, net................... 390,909 588,057 740,978
--------- --------- ---------
Total deferred income tax asset.......... 698,732 588,057 740,978
Valuation allowance...................... (683,732) (588,057) (588,057)
--------- --------- ---------
$ 15,000 $ -- $ 152,921
========= ========= =========
</TABLE>
The principal difference between the carryforwards available for tax return
purposes and financial reporting relates to reserves that have been recognized
in the financial statements that will result in future tax-deductible amounts.
The Company's policy in evaluating the realizability of deferred tax assets is
to consider only those conditions that are within its control. Accordingly, in
evaluating the available objective evidence, the Company did not consider the
benefit of any proposed capital financings. The Company concluded based on
objective evidence that it could not overcome the presumption that it was more
likely than not that it would fully realize the deferred tax assets included
in the consolidated financial statements as of December 31, 1996 and 1997.
Accordingly, a valuation allowance has been recorded to fully reserve the
Company's deferred tax assets at December 31, 1996 and 1997. The Company had
income before income taxes of $711,361 for the six months ended June 30, 1998
and has concluded that based on the current results it would not increase the
reserve relating to the deferred tax assets. Accordingly, a benefit of
$152,921 has been reflected in the results of operations for the six months
ended June 30, 1998.
10.COMMITMENTS AND CONTINGENCIES
Litigation
The Company and its subsidiaries are from time to time parties to litigation
arising in the normal course of their business. Management believes that none
of these actions will have a material adverse effect on the financial position
or results of operations of the Company and its subsidiaries.
F-15
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Lease Commitments
The Company is obligated under noncancelable operating leases for
manufacturing, showroom and administrative facilities. Approximate future
minimum annual lease payments, exclusive of required payments for increases in
real estate taxes and operating costs, as of December 31, 1997 are as follows
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
------------------------
<S> <C>
1998............................................................ $ 568,333
1999............................................................ 571,716
2000............................................................ 505,187
2001............................................................ 305,600
2002............................................................ 101,867
----------
$2,052,703
==========
</TABLE>
Rent expense was $502,250, $658,789, $653,061, $321,717 and $323,785 for the
years ended December 31, 1995, 1996 and 1997 and for the six months ended June
30, 1997 and 1998, respectively.
Consulting and Noncompetition Agreement
On May 15, 1996, the Company entered into a five-year consulting and
noncompetition agreement with a former stockholder. The agreement calls for an
annual fee of $75,000, payable in weekly installments, through May 2001.
Charges under the agreement totaled $52,768, $75,000, $37,500 and $37,500 for
the years ended December 31, 1996 and 1997 and for the six months ended June
30, 1997 and 1998, respectively.
Employment Agreements
On May 17, 1996, the Company entered into an employment agreement with its
president, which expires on May 15, 2003. The agreement provides for an annual
salary of $1,700,000 for the first contract year, adjusted in the remaining
contract years at the discretion of the Company. In addition, the president
receives an annual discretionary expense account in the amount of $300,000.
During 1997, the employment agreement was amended to reduce total annual
compensation to approximately $1,500,000. In addition, effective January 1,
1998, the employment agreement was further amended to provide for base salary
of $500,000, a $450,000 performance based bonus and a $50,000 business expense
allowance.
In May 1998, the Company also entered into employment agreements with two of
its key executives. One agreement provides for annual base compensation of
$184,000 and additional compensation based on achieving certain performance
criteria. This agreement is for a three year term commencing on July 1, 1998.
The second agreement is for a five year term expiring in April 2003 and
provides for annual compensation of approximately $168,000.
Letters of Credit
The Company had approximately $2,300,000, $1,500,000 and $950,000 of open
letters of credit outstanding as of December 31, 1996 and 1997 and June 30,
1998, respectively.
11.PROFIT SHARING PLAN
The Company has a profit sharing plan which provides retirement benefits to
substantially all employees. Contributions are discretionary on the part of
the Company and are not allowed on the part of employees. There were no
contributions for the years ended December 31, 1995, 1996 and 1997 and for the
six months ended June 30, 1997 and 1998.
F-16
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12.SIGNIFICANT CUSTOMERS
In 1995, Charming Shoppes and Lerner accounted for 16.0% and 14.9% of gross
sales, respectively. In 1996, Cato Stores, Charming Shoppes and Sears
accounted for 10.3%, 15.9% and 11.8% of gross sales, respectively. In 1997,
Charming Shoppes and Sears accounted for 13.4% and 12.1% of gross sales,
respectively. For the six months ended June 30, 1997, Charming Shoppes, Sears
and Wal-Mart accounted for 11.8%, 16.1% and 11.1% of gross sales,
respectively. For the six months ended June 30, 1998, Charming Shoppes, Costco
Wholesale, K-mart and Sears accounted for 10.4%, 10.5%, 30.1% and 13.3% of
gross sales, respectively.
13.RELATED PARTY TRANSACTIONS
On May 17, 1996, the Company converted advances totaling $950,000 due from
its president into a loan. The agreement provided for the loan to be forgiven
over a 20-year period in lieu of services provided to the Company by the
president. However, on April 17, 1997, the agreement was amended to charge
interest on the loan at a rate of prime plus 0.5% (9% at December 31, 1997)
and to provide for repayment of the loan in full in January 2000. Prior to the
amendment to the loan agreement, the Company recorded compensation expense of
$29,687, $13,854 and $13,854 for the years ended December 31, 1996 and 1997
and for the six months ended June 30, 1997, respectively.
Included in other receivable at December 31, 1997 and June 30, 1998 are
advances due from a manufacturing contractor utilized by the Company totaling
$364,000 and $1,066,000, respectively. The advances are due on demand and are
non-interest bearing.
The Company purchases manufacturing-related services from Leo Ashkinadze
Cutting ("LAC") and JC Cutting Inc. ("JC Cutting"). An employee of the Company
owns both LAC and JC Cutting. Total fees paid to LAC and JC Cutting for the
years ended December 31, 1995, 1996 and 1997 and for the six months ended June
30, 1997 and 1998 were $497,636, $179,664, $462,603, $218,841 and $333,355,
respectively.
The Company paid performance compensation to S.R.P. Sales, Inc. ("S.R.P.").
An executive officer of the Company controls S.R.P. Total fees paid to S.R.P.
for the years ended December 31, 1995, 1996 and 1997 and for the six months
ended June 30, 1997 and 1998 were $371,867, $560,702, $1,025,491, $405,993
and $317,649.
The Company purchases transportation-related services from Global Air, Inc.,
("Global"). The president of the Company is a principal shareholder of Global.
Total fees paid to Global for the years ended December 31, 1996 and 1997 and
for six months ended June 30, 1997 were $39,470, $64,101 and $36,216,
respectively. No such fees were paid to Global during the year ended December
31, 1995 and the six months ended June 30, 1998.
14.SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest and income taxes were as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER FOR THE SIX MONTHS
31, ENDED JUNE 30,
------------------------------ ---------------------
1995 1996 1997 1997 1998
-------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest............... $594,069 $2,435,538 $3,604,347 $1,654,015 $1,968,763
Income taxes........... 234,500 559,981 14,136 3,222 6,751
======== ========== ========== ========== ==========
</TABLE>
F-17
<PAGE>
PERISCOPE I SPORTSWEAR INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Noncash financing activity was as follows:
<TABLE>
<CAPTION>
FOR THE SIX
FOR THE YEARS ENDED MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Capital lease obligation incurred. $ -- $ -- $ -- $ -- $283,000
======= ======= ======= ======= ========
</TABLE>
In May 1996, the remaining majority stockholder transferred 595,200 shares
of the Company's common stock to three individuals as consideration for
services provided to the Company in connection with the $18,000,000 financing
(see Note 1 and 6). Accordingly, the Company recorded the fair value of the
595,200 shares transferred and the services provided ($685,714) as deferred
financing costs and as a credit to additional paid-in capital to reflect the
contribution made by the majority stockholder (see Note 8). The Company has
reflected this transaction as a noncash financing activity and has excluded
these amounts from the consolidated statement of cash flows for the year ended
December 31, 1996.
15.SUBSEQUENT EVENTS
Reorganization
During May 1998, Periscope Sportswear, Inc., a wholly owned subsidiary was
incorporated in the State of Delaware. On July 21, 1988, Periscope I merged
with Periscope Sportswear, Inc. with the successor company being Periscope
Sportswear, Inc. In connection with this reincorporation, the Company
effectuated a 124,000-for-1 stock split of its Common Stock. The accompanying
consolidated financial statements retroactively reflect the stock split for
all periods presented.
Initial Public Offering
The Company intends to offer shares of its common stock to the general
public in an initial public offering (the "Offering"). At December 31, 1997
and June 30, 1998, deferred offering costs total $10,000 and $377,278,
respectively, of costs incurred in connection with the Offering of the
Company's common stock. These costs will be charged against additional paid-in
capital upon the successful completion of the Offering. If the Offering is
unsuccessful, such costs will be charged to expense.
The Company intends to utilize a portion of the net proceeds of the Offering
to repay the $15,000,000 term note payable and the $3,000,000 subordinated
note payable (see Note 6). If the Offering is successful and such repayment
occurs, the Company will expense the remaining deferred financing costs at
that date in the consolidated statement of operations.
Stock Option Plan
In May 1998, the Company adopted a Stock Option Plan (the "Stock Option
Plan"), pursuant to which officers, directors and key employees of the Company
and consultants to the Company are eligible to receive incentive stock options
and nonqualified stock options. The Stock Option Plan expires in May 2008. The
number of shares available for grant under the Stock Option Plan is 750,000.
The selection of participants, grant of options, determination of price and
other conditions relating to the exercise of options is determined by the
entire Board of Directors. Incentive stock options granted under the Stock
Option Plan are exercisable for a period of up to 10 years from the date of
grant at an exercise price which is not less than the fair market value of a
share of Common Stock on the date of the grant, except that the term of an
incentive stock option granted under the Stock Option Plan to a stockholder
owning more than 10% of the outstanding Common Stock may not exceed five years
and its exercise price may not be less than 110% of the fair market value of a
share of Common Stock on the date of the grant.
F-18
<PAGE>
[ COMPANY LOGO ]
The following customer names are super-imposed on a map of the United States:
Cato Corporation
Fashion Bug
Costco Wholesale
Kmart Corporation
Montgomery Ward
Sears, Roebuck and Co.
Shopko Stores Inc.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF.
----------------
TABLE OF CONTENTS
----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Dilution.................................................................. 14
Selected Financial Data................................................... 15
Pro Forma Information..................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 20
Business.................................................................. 26
Management................................................................ 38
Principal and Selling Stockholders........................................ 42
Certain Transactions...................................................... 43
Description of Capital Stock.............................................. 44
Shares Eligible for Future Sale........................................... 46
Underwriting.............................................................. 47
Legal Matters............................................................. 49
Experts................................................................... 49
Additional Information.................................................... 49
Special Note Regarding Forward-Looking Statements......................... 50
Index to Financial Statements............................................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL BROKER-
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS, AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,195,200 SHARES
[LOGO OF PERISCOPE SPORTSWEAR, INC.]
COMMON STOCK
PERISCOPE SPORTSWEAR, INC.
----------------
PROSPECTUS
----------------
SUTRO & CO. INCORPORATED
L.H. FRIEND, WEINRESS,
FRANKSON & PRESSON, INC.
SCOTT & STRINGFELLOW, INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses of the issuance and distribution of the
securities being registered, other than underwriting commissions and expenses,
all of which will be paid by the Company. Other than the SEC registration fee
and the NASD filing fees all of such expenses are estimated.
<TABLE>
<S> <C>
Registration fee...................................................... $ 16,161
NASD fees............................................................. $ 70,877
Printing expenses..................................................... $100,000
Accounting fees and expenses.......................................... $325,000
Legal fees and expenses............................................... $275,000
State securities law fees and expenses................................ $ 10,000
Transfer agent and registrar fees and expenses........................ $ 5,000
Miscellaneous......................................................... $ 22,962
--------
Total............................................................... $825,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons, on the one hand, and the Underwriters
and their respective controlling persons, on the other hand, against certain
liabilities in connection with this Offering, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation and By-Laws provide that the
Registrant shall indemnify its directors to the full extent permitted by the
General corporation Law of the state of Delaware (the "DGCL") and may
indemnify any such person with respect to proceedings, claims or actions
initiated or brought voluntarily by any such person and not by way of defense,
or for any amounts paid in settlement of an action indemnified against by the
Registrant without the prior written consent of the Registrant. The Registrant
intends to enter into indemnity agreements with each of its directors. These
agreements may require the Registrant, among other things, to indemnify such
directors against certain liabilities that may arise by reason of their status
or service as directors, and to advance expenses to them as they incurred,
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification, and to
obtain directors' liability insurance if available on reasonable terms.
In addition, the Registrant's Certificate of Incorporation provides that a
director of the Registrant shall not be personally liable to the Registrant or
its stockholders for monetary damages for breach of his or her fiduciary duty
as director, except for liability (i) for any breach of the directors' duty or
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not
in good faith or which are intentional misconduct or a knowing violation of
law, (iii) for willful or negligent conduct in paying dividends or
repurchasing stock out of any other lawfully available funds or (iv) for any
transaction from which the director derives an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In May 1996, Glenn Sands, the Company's President and Chief Executive
Officer, sold 14 shares of Common Stock to BancBoston Ventures, Inc. for $2.0
million. At the time of such sale, Mr. Sands owned 100% of the outstanding
shares of the Company. Such shares were acquired for investment in a
transaction exempt from registration under the Securities Act of 1933 pursuant
to Section 4(2) thereof.
In May 1996, Glenn Sands, the Company's President and Chief Executive
Officer, sold 4.8 shares of Common Stock to three individuals unaffiliated
with the Company, in consideration for past services. At the time of such
sale, Mr. Sands owned 100% of the outstanding shares of the Company. Such
shares were acquired for investment in a transaction exempt from registration
under the Securities Act of 1933 pursuant to Section 4(2) thereof.
II-1
<PAGE>
On November 1, 1996, the Registrant issued .8 shares of Common Stock to
Scott Pianin, the Company's Executive Vice President and Chief Operating
Officer, in consideration for past services. Such shares were acquired for
investment in a transaction exempt from registration under the Securities Act
of 1933 pursuant to Section 4(2) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Company+
3.2 By-Laws of the Company+
4.1 Specimen Stock Certificate
5.1 Opinion of Morse, Zelnick, Rose & Lander, LLP
10.1 Stock Option Plan+
10.2 Employment Agreement between the Company and Glenn Sands
10.3 Employment Agreement between the Company and Scott Pianin
10.4 Employment Agreement between the Company and Raymond Kuslansky
10.5 Lease between the Company and Gettinger Associates
10.6 Lease between the Company and Hartz Mountain Industries, Inc. for
distribution facility
10.7 Term Loan Agreement between Periscope I Sportswear, Inc. and
BankBoston, N.A. (formerly known as The First National Bank of
Boston), together with the Seventh Amendment thereto
10.8 Securities Purchase Agreement among Periscope I Sportswear, Inc.,
Glenn Sands and BancBoston Ventures, Inc.
10.9 Agreement between the Company and BancBoston Ventures, Inc. with
respect to contribution of shares of Common Stock to the capital of
the Company
16.1 Letter regarding change in certifying accountant+
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Friedman Alpren & Green LLP
23.3 Consent of Morse, Zelnick, Rose & Lander, LLP (included in Exhibit
5.1)
23.4 Consent of Standard & Poor's Apparel and Footwear Industry Survey+
24.1 Power of Attorney (included in signature page)
27.1 Financial Data Schedule+
</TABLE>
- --------
+ Previously filed
(B) FINANCIAL STATEMENT SCHEDULES:
<TABLE>
<S> <C>
Index to Financial Statement Schedules................................... S-1
Report of Independent Public Accountants................................. S-2
Independent Auditor's Report............................................. S-3
Schedule II--Valuation and Qualifying Accounts........................... S-4
</TABLE>
All other schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the Company's Consolidated
Financial Statements or the Notes thereto.
ITEM 17. CERTAIN UNDERTAKINGS
A. The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
II-2
<PAGE>
B. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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) For the purpose of determining any liability under the Securities Act
of 1933, 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.
C. 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, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question 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>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED 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 AUGUST 7, 1998.
Periscope Sportswear, Inc.
/s/ Glenn Sands
by: _________________________________
GLENN SANDS
President
ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Glenn Sands and George Lander, or any one of them,
his true and lawful attorney-in-fact and agent, 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 pre- or post-effective amendments
to this Registration Statement, 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 requisite or necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any one of them,
or their or his substitutes, may lawfully do or cause to be done by virtue
hereof.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS
AMENDED, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON AUGUST 7, 1998.
SIGNATURE TITLE
/s/ Glenn Sands President, Chief Executive Officer
- ------------------------------------- and Director
GLENN SANDS
/s/ Raymond Kuslansky Chief Financial Officer (principal
- ------------------------------------- financial and accounting officer)
RAYMOND KUSLANSKY
/s/ Scott Pianin Director
- -------------------------------------
SCOTT PIANIN
II-4
<PAGE>
PERISCOPE I SPORTSWEAR, INC
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants................................... S-2
Independent Auditors' Report............................................... S-3
Schedule II--Valuation and Qualifying Accounts............................. S-4
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Periscope I Sportswear, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Periscope I Sportswear, Inc. and subsidiaries
included in this registration statement and have issued our report thereon
dated June 8, 1998. Our audit was made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule listed in the
index above for the year ended December 31, 1997 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and are not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
New York, New York
June 8, 1998
S-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Periscope I Sportswear, Inc.:
We have audited in accordance with generally accepted auditing standards,
the financial statements of Periscope I Sportswear, Inc. and subsidiaries
included in this registration statement and have issued our report thereon
dated March 3, 1997. Our audit was made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule listed in the
index above for the years ended December 31, 1995 and 1996 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ FRIEDMAN ALPREN & GREEN LLP
New York, New York
March 3, 1997
S-3
<PAGE>
PERISCOPE SPORTSWEAR I AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING WRITE- END OF
OF YEAR PROVISION RECOVERIES OFFS YEAR
---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31,
1995:
Allowance for doubtful
accounts............... $50,000 $102,441 $ 2,755 $(105,196) $50,000
------- -------- ------- --------- -------
Year Ended December 31,
1996:
Allowance for doubtful
accounts............... $50,000 $ 17,572 -- $ (17,572) $50,000
------- -------- ------- --------- -------
Year Ended December 31,
1997:
Allowance for doubtful
accounts............... $50,000 $196,847 $78,783 $(275,630) $50,000
------- -------- ------- --------- -------
</TABLE>
The accompanying notes to consolidated financial statements are an integral
part of these schedules.
S-4
<PAGE>
EXHIBIT 1.1
3,195,200 Shares
(Subject to increase of up to 479,280 additional
shares in the event of an oversubscription)
PERISCOPE SPORTWEAR, INC.
(A DELAWARE CORPORATION)
Common Stock
(par value $0.001 per share)
UNDERWRITING AGREEMENT
____________ ___, 1998
Sutro & Co. Incorporated
L.H. Friend, Weinress, Frankson & Presson, Inc.
Scott & Stringfellow, Inc.
As Representatives of the several Underwriters
c/o Sutro & Co. Incorporated
11150 Santa Monica Boulevard, Suite 1500
Los Angeles, California 90025
Ladies and Gentlemen:
Periscope Sportswear, Inc. , a Delaware corporation (the "Company"),
and the selling stockholders named on Schedule B hereto (the "Non-Affiliate
Selling Stockholders") propose, subject to the terms and conditions stated
herein, to issue and sell, or to sell, as the case may be, to the several
Underwriters named on Schedule A hereto (the "Underwriters"), for which you are
acting as representatives (the "Representatives"), an aggregate of 3,195,200
shares (the "Firm Common Shares") of common stock, par value $0.001 per share
(the "Common Stock"), of the Company. In addition, the Company and Glenn Sands
(the "Executive Selling Stockholder") propose to grant to the Underwriters an
option to purchase up to 479,280 additional shares of Common Stock (the
"Optional Common Shares"), as provided in Section 4 hereof, for the purpose of
covering over-allotments in connection with the sale of the Firm Common Shares.
The Firm Common Shares and, to the extent such option is exercised, the Optional
Common Shares are hereinafter collectively referred to as the "Common Shares."
The Non-Affiliate Selling Stockholders and the Executive Selling Stockholder are
referred to collectively herein as the "Selling Stockholders."
The Company and the Selling Stockholders understand that the
Underwriters propose to make a public offering of the Common Shares on the
effective date of the registration statement hereinafter referred to or as soon
thereafter as in your judgment is advisable. The Company and the Selling
Stockholders hereby confirm that the Underwriters and dealers have been
authorized to distribute or cause to be distributed each Preliminary Prospectus
(as defined below), and are authorized to distribute the Prospectus (as defined
1
<PAGE>
below), as from time to time amended or supplemented, on the effective date of
the registration statement hereinafter referred to or as soon thereafter as in
your judgment is advisable.
The Company and the Selling Stockholders confirm its agreement with
respect to the purchase of the Common Shares by the Underwriters as follows:
SECTION 1. Representations and Warranties of the Company and the Executive
---------------------------------------------------------------
Selling Stockholder.
- --------------------
The Company and the Executive Selling Stockholder, jointly and
severally, hereby represent and warrant to, and agree with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File 333-56401) with respect
to the Common Shares has been prepared by the Company in conformity in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Act"), and the rules and regulations (the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") thereunder, and has
been filed with the Commission. The Company has prepared and has filed or
proposes to file prior to the effective date of such registration statement an
amendment or amendments to such registration statement, which amendment or
amendments have been or will be similarly prepared. There have been delivered to
you signed copies of such registration statement and amendments, together with
copies of each exhibit filed therewith. Conformed copies of such registration
statement and amendments thereto and related preliminary prospectuses have been
delivered to you in such reasonable quantities as you have requested. The
Company will file with the Commission one of the following: (i) prior to
effectiveness of such registration statement, a further amendment thereto,
including the form of final prospectus or (ii) a final prospectus in accordance
with Rules 430A and 424(b) of the Rules and Regulations. As filed, the final
prospectus shall include all Rule 430A Information (as defined below) and,
except to the extent that you shall agree in writing to a modification, shall be
in all substantive respects in the form furnished to you prior to the date and
time that this Agreement was executed and delivered by the parties hereto, or,
to the extent not completed at such date and time, shall contain only such
specific additional information and other changes (beyond that contained in the
latest Preliminary Prospectus) as the Company shall have previously advised you
in writing would be included or made therein.
The term "Registration Statement" as used herein shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the First Closing Date (as defined below), shall also mean such registration
statement as so amended; provided, however, that such term shall also include
(i) all Rule 430A Information deemed to be included in such registration
statement at the time such registration statement becomes effective as provided
by Rule 430A of the Rules and Regulations and (ii) any registration statement
filed pursuant to Rule 462(b) of the Rules and Regulations relating to Common
2
<PAGE>
Shares. The term "Preliminary Prospectus" shall mean any preliminary prospectus
relating to the Common Shares and delivered to you, as well as any preliminary
prospectus included in the Registration Statement at the time it becomes
effective that omits Rule 430A Information. The term "Prospectus" shall mean:
(i) the prospectus relating to the Common Shares in the form in which it is
first filed with the Commission pursuant to Rule 424(b) of the Rules and
Regulations; or (ii) if no filing pursuant to Rule 424(b) of the Rules and
Regulations is required, the form of final prospectus included in the
Registration Statement at the time it becomes effective. The term "Rule 430A
Information" shall mean information with respect to the Common Shares and the
offering thereof permitted to be omitted from the Registration Statement when it
becomes effective pursuant to Rule 430A of the Rules and Regulations.
(b) The Commission has not issued any order preventing or suspending
the use of any Preliminary Prospectus, and each Preliminary Prospectus has
conformed in all material respects to the requirements of the Act and the Rules
and Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; at the time the Registration Statement becomes effective,
and at all times subsequent thereto, up to and including each Closing Date
hereinafter mentioned, the Registration Statement and the Prospectus, and any
amendments or supplements thereto, will contain all material statements and
information required to be included therein by the Act and the Rules and
Regulations and will in all material respects conform to the requirements of the
Act and the Rules and Regulations, and the Registration Statement will not
include any untrue statement of material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and neither the Prospectus, nor any amendment or supplement thereto,
will include any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary, in light of the circumstances
under which they were made, to make the statements therein not misleading;
provided, however, no representation or warranty contained in this subsection
1(b) shall be applicable to information contained in or omitted from any
Preliminary Prospectus, the Registration Statement, the Prospectus or any such
amendment or supplement that is described in clauses (i) and (ii) of Section 3
hereof.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity and has no subsidiaries. The Company
has been duly incorporated and is validly existing as a corporation in good
standing under the laws of its jurisdiction of incorporation, with full power
and authority (corporate and other) to own and lease its assets and properties
and conduct its business as now being conducted and as described in the
Registration Statement. The Company is duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the
ownership or leasing of its properties or the conduct of its business requires
such qualification, except for jurisdictions in which the failure to so qualify
would not have a material adverse effect upon the Company; and to the Company's
knowledge, no proceeding has been instituted in any
3
<PAGE>
such jurisdiction revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification.
(d) The Company is not in violation of any provision of its
certificate of incorporation or by-laws (or similar corporate constituent
document), in each case as amended to the date hereof, and the Company holds and
is operating in compliance with all licenses, approvals, certificates, permits,
authorizations, consents and orders from governmental and regulatory
authorities, foreign and domestic, which are material to or required in the
conduct of its business.
(e) The Company has an authorized capitalization as set forth under
the heading "Capitalization" in the Prospectus; the issued and outstanding
shares of capital stock of the Company are duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
applicable federal and state securities laws, have not been issued in violation
of or subject to any preemptive rights or other rights to subscribe for or
purchase securities, and conform in all material respects to the description
thereof contained in the Prospectus. Except as disclosed in or contemplated by
the Prospectus and the financial statements of the Company, and the related
notes thereto, included in the Prospectus, the Company does not have outstanding
any options to purchase, or any preemptive rights or other rights to subscribe
for or to purchase, any securities or obligations convertible into, or any
contracts or commitments to issue or sell, shares of capital stock of the
Company or any such options, rights, convertible securities or obligations. The
description of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
as set forth in the Prospectus, accurately and fairly presents the information
required to be shown with respect to such plans, arrangements, options and
rights.
(f) The Common Shares have been duly authorized and, when issued,
delivered and paid for, or delivered and paid for, as the case may be, in the
manner set forth in this Agreement, will be validly issued, fully paid and
nonassessable, and will conform in all material respects to the description
thereof contained in the Prospectus. No preemptive rights or other rights to
subscribe for or purchase exist with respect to the issuance and sale of the
Common Shares. No person has any right to require the Company to register the
sale of any securities of the Company owned by such person under the Act or to
include such securities with the Common Shares registered in the public offering
contemplated by this Agreement. The shares of Common Stock proposed to be issued
upon exercise of the Representatives' Warrants (as defined below) have been duly
authorized and reserved for issuance and, when issued, delivered and paid for in
the manner set forth in the Warrant Agreements (as defined below), will be
validly issued, fully paid and nonassessable. No further approval or
authorization of the stockholders or the Board of Directors of the Company is
required for the issuance and the sale of the Common Shares contemplated herein
or the shares of Common Stock proposed to be issued upon exercise of the
Representatives' Warrants.
4
<PAGE>
(g) The Company has full right, power and authority to enter into this
Agreement and the Warrant Agreements and to perform the transactions
contemplated in such agreements. This Agreement has and, prior to the First
Closing Date (as defined below), the Warrant Agreements will have been, duly
authorized, executed and delivered by the Company, and each of them constitute
valid and binding agreements of the Company enforceable against it in accordance
with their terms, except (A) as limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting creditors' rights
generally, (B) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding may be brought and (C) to
the extent that rights to indemnity or contribution under this Agreement or the
Warrant Agreements may be limited by federal, state or provincial securities
laws or the public policy underlying such laws. The execution and delivery of
this Agreement and the Warrant Agreements by the Company and the consummation of
the transactions contemplated in such agreements by the Company do not violate
any provisions of the certificate of incorporation or bylaws of the Company and
will not conflict with, result in the breach or violation of, or constitute,
either by itself or upon notice or the passage of time or both, a default under
any agreement, mortgage, deed of trust, lease, franchise, license, indenture,
permit, bank loan document, credit agreement or other instrument to which the
Company is a party or by which the Company or any of its properties may be bound
or affected, any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable to the Company or any of its properties. No
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of this Agreement or the Warrant Agreements or the consummation of
the transactions contemplated by such agreements, except for compliance with the
Act, the Blue Sky laws applicable to the public offering of the Common Shares by
the several Underwriters and the clearance of such offering with the National
Association of Securities Dealers, Inc. (the "NASD").
(h) Arthur Andersen LLP and Friedman Alpren & Green LLP, each of which
firms have expressed their opinions with respect to certain financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public accountants as required by the Act and
the Rules and Regulations.
(i) The consolidated financial statements of the Company, and the
related schedules and notes thereto, included in the Registration Statement and
the Prospectus present fairly the consolidated financial position of the
Company, as of the respective dates of such financial statements and schedules,
and the consolidated statements of operations, cash flows and stockholders'
equity (deficiency) and the other information purported to be shown therein of
the Company for the respective periods covered thereby. Such statements and
related schedules and notes have been
5
<PAGE>
prepared in accordance with generally accepted accounting principles applied on
a consistent basis as certified by the independent accountants named in
subsection 1(h). The Registration Statement includes all of the financial
statements and schedules required under the Act to be included therein. The
selected financial data set forth in the Prospectus, including without
limitation under the captions "Prospectus Summary--Summary Financial Data,"
"Capitalization," "Selected Financial Data" and "Pro Forma Information," present
fairly the information set forth therein on the basis stated in the Registration
Statement.
(j) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(k) The Company is not in violation or default of any provision of its
certificate of incorporation or bylaws, or is in breach of or default with
respect to any provision of any material agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties is
bound; and there does not exist any state of facts which constitutes an event of
default (as defined in such documents) on the part of the Company or which, with
notice or lapse of time or both, would constitute such an event of default.
(l) There are no contracts or other documents required to be described
in the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. The contracts so described in the Prospectus are
in full force and effect on the date hereof; and, except as disclosed in the
Prospectus and except as to defaults which individually or in the aggregate
would not be material to the Company; neither the Company nor, to the best of
the Company's knowledge, any other party, is in breach of or in default under
any of such contracts. There are no statutes or governmental regulations that
are required to be described in the Registration statement which have not been
described therein.
(m) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company is a party or of which property owned or leased by the Company is the
subject, including actions related to environmental or discrimination matters,
which actions, suits or proceedings (i) might reasonably be expected to,
individually or in the aggregate, prevent or materially and adversely affect the
transactions
6
<PAGE>
contemplated by this Agreement or result in a material adverse change in the
condition (financial or otherwise), properties, business, results of operations
or prospects of the Company, or (ii) questions the validity of any of the
securities of the Company, this Agreement or the Warrant Agreements, or of any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Warrant Agreements; and no labor disturbance by the
employees of the Company or any of the Company's material suppliers exists or is
imminent which might reasonably be expected to affect materially and adversely
such condition, properties, business, results of operations or prospects or the
Company's business. The Company is not a party or subject to the provisions of
any material injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body.
(n) The Company has good and valid title to all the properties and
assets reflected as owned in the financial statements hereinabove described or
as described elsewhere in the Prospectus, subject to no lien, mortgage, pledge,
charge or encumbrance of any kind except (i) those, if any, reflected in such
financial statements or as described elsewhere in the Prospectus and (ii) those
which are not material in amount and do not materially and adversely affect the
use made and proposed to be made of such property and assets by the Company. The
Company holds its leased properties under valid and binding leases, with such
exceptions as are not materially significant in relation to the business of the
Company. Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted.
(o) Since the respect dates as of which information is given in the
Registration Statement and the Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company has not incurred
any material liabilities or obligations, direct, indirect or contingent, or
entered into any material verbal or written agreement or other transaction which
is not in the ordinary course of business or which could reasonably be expected
to result in a material reduction in the future earnings of the Company; (ii)
the Company has not sustained any material loss or interference with their
business or properties from fire, flood, earthquake, windstorm, accident or
other calamity, whether or not covered by insurance; (iii) the Company has not
paid or declared any dividends or other distributions with respect to its
capital stock and the Company is not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any change
in the capital stock (other than upon the sale of the Common Shares hereunder)
or indebtedness of the Company that is material to the Company (other than in
the ordinary course of business); and (v) there has not been any material
adverse change in the condition (financial or otherwise), business, properties,
results of operations or prospects of the Company.
(p) The Company has sufficient trademarks, trade names, service marks,
patent rights, mask works, copyrights, licenses, know-how and other similar
7
<PAGE>
rights and proprietary knowledge (collectively, "Intangibles") to conduct their
respective businesses as now conducted, and the Company has no knowledge of any
material infringement by any of the Company of any Intangible of others, and
there is no claim being made against the Company regarding any Intangible which
could have a material adverse effect on the condition (financial or otherwise),
business, results of operations or prospects of the Company.
(q) The Company has not been advised, and the Company has no reason to
believe, that is not conducting its business in compliance with all applicable
laws,rules and regulations of the jurisdictions in which it is conducting
business, including, without limitation, all applicable local, state and federal
environmental laws and regulations, except where failure to be in compliance
therewith would not materially and adversely affect the condition (financial or
otherwise), business, results of operations or prospects of the Company.
(r) Neither the Company nor any material supplier to the Company is
engaged in any unfair labor practice which could have a material adverse effect
on the Company; (ii) there is, to the Company's knowledge (A) no unfair labor
practice complaint pending or threatened against the Company before the National
Labor Relations Board, and no grievance or arbitration proceeding arising out of
or under collective bargaining agreements is pending or threatened, (B) no
strike, labor dispute, slowdown or stoppage is pending or threatened against the
Company and (C) (i) no union representation question existing with respect to
the employees of the Company and, no union organizing activities are taking
place, and (ii) there has been no violation of any federal, state or local law
relating to discrimination in the hiring, promotion or pay of employees, of any
applicable wage or hour laws, nor any provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or the rules and regulations
promulgated thereunder
(s) The Company has filed, or applied in good faith for extensions of,
all necessary federal, state and foreign tax returns and have paid all taxes
shown as due thereon; and the Company has no knowledge of any tax deficiency
which has been or might be asserted or threatened against the Company which
could materially and adversely affect the business, operations or properties of
the Company.
(t) The Company is not, and upon completion of the sale of Common
Shares and the application of the proceeds thereof as described in the
Prospectus will not be, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(u) The Company has not distributed and will not distribute prior to
the First Closing Date any offering materials in connection with the offering
and sale of the Common Shares other than any Preliminary Prospectus, the
Prospectus, the Registration Statement and the other materials permitted by the
Act.
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(v) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against loss, theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
(w) The Company has not at any time during the past five years (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payments
to any federal or state governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments required
or permitted by the laws of the United States or any jurisdiction thereof.
(x) All material transactions between the Company and its officers and
directors and their affiliates have been accurately disclosed in the Prospectus
under the caption "Certain Transactions," and the terms of such transactions are
fair to the Company.
(y) There are no outstanding loans, advances (except normal advances
for business expenses in the ordinary course of business) or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of them,
except as disclosed in the Registration Statement and the Prospectus.
(z) The Common Stock has been approved for quotation, subject to
notice of issuance, on the Nasdaq National Market.
(aa) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
Any certificate signed by any officer of the Company and delivered to
you or to your counsel shall be deemed a representation and warranty by the
Company to you as to the matters covered thereby. Any certificate delivered by
the Company to its counsel for purposes of enabling such counsel to render the
opinions referred to in Section 7(e) will also be furnished to the Underwriter
as to the matters covered thereby and the Underwriter and its counsel are
entitled to rely thereon.
SECTION 2. Representations and Warranties of the Selling Stockholders.
----------------------------------------------------------
Each of the Selling Stockholders, severally and not jointly, hereby represent
and warrant to, and agree with, each of the Underwriters that:
(a) Such Selling Stockholder is the lawful owner of the Common Shares
to be sold by such Selling Stockholder pursuant to the Underwriting Agreement
and upon sale and delivery of, and payment for, such Common Shares, as
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provided in the Underwriting Agreement, such Selling Stockholder will convey
good and marketable title to such Common Shares, free and clear of all liens,
encumbrances, equities and claims whatsoever.
(b) The information in the Registration Statement under the caption
"Principal and Selling Stockholders" which relates to such Selling Stockholder
does not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; and such Selling Stockholder is familiar with the Registration
Statement and has no reason to believe that (i) the representations and
warranties of the Company contained in the Underwriting Agreement are not true
and correct or (ii) there is a material fact or condition not disclosed in the
Prospectus or any supplement thereto which has materially and adversely affected
or may materially and adversely affect the condition (financial or otherwise) or
earnings, operations, business or business prospects of the Company, and the
sale of Common Shares by such Selling Stockholder pursuant hereto is not
prompted by any information concerning the Company which is not set forth in the
Prospectus or any supplement thereto.
(c) Such Selling Stockholder has not taken and will not take, directly
or indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result, under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or otherwise, in stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Common Shares.
(d) Certificates in negotiable form for such Selling Stockholder's
Common Shares have been placed in custody for delivery pursuant to the terms of
the Underwriting Agreement, under a Custody Agreement and Power of Attorney duly
authorized, executed and delivered by such Selling Stockholder in the form
heretofore furnished to you (the "Custody Agreement") with American Stock
Transfer & Trust Company, as Custodian (the "Custodian"); the Common Shares
represented by the certificates so held in custody for such Selling Stockholder
are subject to the interests of the Underwriters, the Company and the other
Selling Stockholders set forth in the Underwriting Agreement; the arrangements
for custody and delivery of such certificates made by such Selling Stockholder
under the Underwriting Agreement and the Custody Agreement are not subject to
termination by any acts of such Selling Stockholder, or by operation of law,
whether by the death or incapacity of such Selling Stockholder or the occurrence
of any other event; and if any such death, incapacity or any other such event
shall occur before the delivery of such Common Shares under the Underwriting
Agreement, certificates for the Common Shares will be delivered by the Custodian
in accordance with the terms and conditions of the Underwriting Agreement and
the Custody Agreement as if such death, incapacity or other event had not
occurred, regardless of whether or not the Custodian shall have received notice
of such death, incapacity or other event.
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(e) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation by such Selling
Stockholder of the transactions contemplated in the Underwriting Agreement,
except such as may have been obtained under the Act and such as may be required
under the blue sky laws of any jurisdiction in connection with the purchase and
distribution of the Common Shares by the Underwriters and such other approvals
as have been obtained.
(f) Neither the sale of the Common Shares being sold by such Selling
Stockholder nor the consummation of any other of the transactions contemplated
in the Underwriting Agreement by such Selling Stockholder or the fulfillment of
the terms of the Underwriting Agreement by such Selling Stockholder will
conflict with, result in a breach or violation of, or constitute a default under
any law or the terms of any indenture, credit agreement, security agreement or
other agreement or instrument to which such Selling Stockholder is a party or
bound, or any judgement, order or decree applicable to such Selling Stockholder
of any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over such Selling Stockholder.
(g) The Underwriting Agreement and the Custody Agreement have been
duly executed and delivered by such Selling Stockholder and, assuming the due
execution and delivery by the respective other parties thereto, each is a legal,
valid and binding agreement of such Selling Stockholder, enforceable against
such Selling Stockholder in accordance with its terms, except, (i) as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
limiting enforcement of creditors' rights generally, (ii) under federal
securities laws or state securities laws respecting the enforceability of
indemnification agreements or (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceedings
therefor may be brought.
Any certificate signed by or on behalf of any Selling Stockholder and
delivered to you and your counsel should be deemed a representation and warranty
by such Selling Stockholder to you as to the matters covered thereby.
SECTION 3. Purchase, Sale and Delivery of Common Shares.
---------------------------------------------
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and the Non-Affiliate Selling Stockholders agree to sell to each
Underwriter the number of Firm Common Shares set forth herein or on Schedule A
hereto, and each Underwriter agrees, severally and not jointly, to purchase from
the Company and the Non-Affiliate Selling Stockholders the number of Firm Common
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Shares set forth opposite their respective names in Schedule A hereto. The
purchase price per share to be paid by the several Underwriters shall be $_____
per share.
(b) Delivery of certificates for the Firm Common Shares to be
purchased by the Underwriters and payments therefor shall be made at the offices
of Sutro & Co. Incorporated, 11150 Santa Monica Boulevard, Suite 1500, Los
Angeles, California (or such other place as may be agreed upon by the Company
and the Representatives) at 7:00 a.m., local time, on August __, 1998 (or at
such other time and date, not later than one week after such date, as may be
agreed upon by the Company and the Underwriters) (the "First Closing Date").
Delivery of certificates for the Firm Common Shares shall be made by
or on behalf of the Company and the Non-Affiliate Selling Stockholders to you,
for the respective accounts of the several Underwriters, against payment by you,
for the accounts of the several Underwriters, of the purchase price therefor by
wire transfers payable in same day funds to such accounts as the Company and the
Attorney-in-Fact for the Selling Stockholders (the "Attorney-in-Fact"),
appointed pursuant to the Custody Agreement, each shall have designated to the
Representatives in writing at least two business days prior to the First Closing
Date. Unless otherwise agreed, the Firm Common Shares shall be purchased by the
Underwriters in book-entry form and in authorized denominations and registered
in the name of Cede & Co., as nominee of the Depository Trust Company ("DTC").
The Firm Common Shares shall be delivered by or on behalf of the Company and the
Non-Affiliate Selling Stockholders through the facilities of DTC for the account
of the Underwriters, against payment therefor of the purchase price by wire
transfer of same day funds to the Company and the Attorney-In-Fact, or upon
their order, to an account or accounts so designated by such parties, or at such
place as shall be agreed upon by the Representatives, the Company and the
Attorney-In-Fact, on the First Closing Date. The place of the closing and the
First Closing Date may be varied by agreement among the Representatives and the
Company. Delivery of the Firm Common Shares may be made through full funds fast
transfer to accounts at DTC designated by the Underwriters.
If the Representatives elect a physical, certificate closing in lieu
of the above prior paragraph, the certificates for the Firm Common Shares shall
be registered in such names and denominations as you shall have requested, at
least two business days prior to the First Closing Date, and shall be made
available for checking and packaging on the business day preceding the First
Closing Date at such location in Los Angeles, California as may be designated by
you. Regardless of the method of delivery, time shall be of the essence, and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of the Underwriters.
(c) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company and the Executive Selling Stockholder hereby grant an option to the
several Underwriters to purchase, severally and not jointly, up to an aggregate
of 479,280 Optional Common Shares at the purchase price per share to be paid by
the
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Underwriters for the Firm Common Shares, for use solely in covering any over-
allotments made by the Underwriters for the account of the Underwriters in the
sale and distribution of the Firm Common Shares. The option granted hereunder
may be exercised at any time (but not more than once) within 45 days after the
first date that any of the Common Shares are released by you for sale to the
public, upon notice by you to the Company setting forth the aggregate number of
Optional Common Shares as to which the Underwriters are exercising the option,
the names and denominations in which the certificates for such Optional Common
Shares are to be registered and the time and place at which such certificates
are to be delivered. Such time of delivery (which may not be earlier than the
First Closing Date and being herein referred to as the "Second Closing Date")
shall be determined by you, but if at any time other than the First Closing Date
shall not be earlier than three nor later than five full business days after
delivery of such notice of exercise. The number of Optional Common Shares to be
purchased by each Underwriter shall be determined by multiplying the number of
Optional Common Shares to be sold by the Company and Executive Selling
Stockholder pursuant to such notice of exercise, by a fraction, the numerator of
which is the number of Firm Common Shares to be purchased by such Underwriter as
set forth opposite its name in Schedule A and the denominator of which is
3,195,200 (subject to such adjustments to eliminate any fractional share
purchases as you in your discretion may make). In any event, the first 280,000
Optional Common Shares to be purchased by the Underwriters shall be purchased
from the Executive Selling Stockholder. The balance of the Optional Common
Shares shall be purchased from the Company. The manner of payment for and
delivery of such Optional Common Shares (whether from the Company or the
Executive Selling Stockholder) shall be the same as for the Firm Common Shares
purchased from the Company as specified in the two preceding paragraphs, except
that with respect to Optional Common Shares purchased from the Executive Selling
Stockholder, payment for such shares shall be wired (or check mailed) to an
account (or address) provided to the Representatives no less than two days prior
to the Second Closing Date. At any time before lapse of the option, you may
cancel such option by giving written notice of such cancellation of the Company.
(d) You have advised the Company that each Underwriter has authorized
you to accept delivery of its Common Shares, to make payments and receipt
thereYou, individually and not as the Representatives of the Underwriters, may
(but shall not be obligated to) make payments for any Common Shares to be
purchased by any Underwriter whose funds shall not have been received by you by
the First Closing Date or the Second Closing Date, as the case may be, for the
account of such Underwriter, but any such payment shall not relieve such
Underwriter from any of its obligations under this Agreement.
(e) Subject to the terms and conditions hereof, the Underwriters
propose to make a public offering of their respective portions of the Common
Shares as soon after the effective date of the Registration Statement as in your
judgment is
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advisable and at the public offering price per share (the "Offering Price") set
forth on the cover page of and on the terms set forth in the final prospectus.
(f) On the First Closing Date, the Company shall issue and sell to
Sutro & Co. Incorporated and to L.H. Friend, Weinress, Frankson & Presson, Inc.,
at a purchase price of $1.00 per warrant, warrants (the "Representatives'
Warrants") entitling the holder(s) thereof to purchase from the Company an
aggregate of 319,520 shares of the Common Stock (the "Warrant Shares"). The
Representatives' Warrants shall be exercisable for a period of five (5) years
commencing one (1) year from the effective date of the Registration Statement at
a price per share equal to one hundred twenty percent (120%) of the Offering
Price. The Representatives' Warrants shall be substantially in the form of the
Common Stock Purchase Warrant attached hereto as Exhibit A (the "Warrant
Agreements"), which the Company shall enter into with each of Sutro & Co.
Incorporated and L.H. Friend, Weinress, Frankson & Presson, Inc. on the First
Closing Date. On the First Closing Date, the Company shall enter into a related
Registration Rights Agreement substantially in the form attached hereto as
Exhibit B that provides for registration, under certain circumstances as set
forth therein covering all of the Warrant Shares.
SECTION 4. Covenants of the Company. The Company hereby covenants and
-------------------------
agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and will provide evidence satisfactory to you of such timely
filing. The Company will promptly advise you in writing (i) of the receipt of
any comments of the Commission, (ii) of any request of the Commission for
amendment of or supplement to the Registration Statement (either before or after
it becomes effective), any Preliminary Prospectus or the Prospectus or for
additional information, (iii) when the Registration Statement shall have become
effective and (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the institution of
any proceedings for that purpose. If the Commission shall enter any such stop
order at any time, the Company will use its commercially reasonable best efforts
to obtain the lifting of such order at the earliest possible time. The Company
will not file any amendment or supplement to the Registration Statement (either
before or after it becomes effective), any Preliminary Prospectus or the
Prospectus if you have not been furnished with a copy in reasonable time prior
to such filing, if you reasonably object to the Company filing such document or
if the document to be filed is not in compliance with the Act and the Rules and
Regulations.
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(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or the Prospectus which in your judgment may be necessary or advisable to enable
the Underwriters to continue the distribution of the Common Shares and will use
its best efforts to cause the same to become effective as promptly as possible.
The Company will fully and completely comply with the provisions of Rule 430A of
the Rules and Regulations with respect to information omitted from the
Registration Statement in reliance upon such Rule.
(c) If at any time during which a prospectus relating to the Common
Shares is required to be delivered under the Act any event occurs, as a result
of which the Prospectus, including any amendments or supplements, would include
an untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or if it is necessary at any time to amend the Prospectus, including
any amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and will use its best efforts to
cause the same to become effective as soon as possible.
(d) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company, at
its expense, will furnish to you or mail to your order copies of the
Registration Statement, the Prospectus, the Preliminary Prospectus and all
amendments and supplements to any such documents in each case as soon as
available and in such quantities as you may reasonably request, for the purposes
contemplated in the Act.
(e) As soon as practicable, but not later than 50 days after the end
of the first quarter ending after the first anniversary of the effective date of
the Registration Statement (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of Section
11(a) of the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate,
will comply with such laws and will continue such qualifications, registrations
and exemptions in effect so long as reasonably required for the distribution of
the Common Shares. The Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any such
jurisdiction where it is not presently qualified or where it would be subject to
taxation as a foreign corporation. The Company will advise you promptly of the
suspension of the
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qualification or registration of (or any such exemption relating to) the Common
Shares for offering, sale or trading in any jurisdiction or any initiation or
threat of any proceeding for any such purpose, and in the event of the issuance
of any order suspending such qualification, registration or exemption, the
Company, with your cooperation, will use its best efforts to obtain the
withdrawal thereof.
(g) For a period of five years from the First Closing Date, the
Company will furnish to the Representatives, as soon as available, copies of all
reports and other communications furnished to the record holders of the Common
Stock or furnished or filed with the Commission and such other publicly
available information concerning the Company as you may reasonably request.
(h) During the period of [270] days after the effective date of the
Registration Statement, without prior written consent of Sutro & Co.
Incorporated (which consent may be withheld at the sole discretion of Sutro &
Co. Incorporated), the Company will not issue, offer, sell or otherwise dispose
of any shares of Common Stock of the Company or any securities convertible into
or exchangeable for shares of Common Stock of the Company, other than (i) the
sale of the Common Shares hereunder; (ii) the issuance of Common Stock of the
Company pursuant to the exercise of options under the Company's stock plans
disclosed in the Prospectus; or (iii) the granting of stock options after the
date of the Prospectus under the Company's stock plans disclosed in the
Prospectus.
(i) The Company will apply the net proceeds of the sale of the Common
Shares substantially in accordance with its statements under the caption "Use of
Proceeds" in the Prospectus and shall report such use of proceeds on its first
periodic report filed pursuant to Section 13(a) of the Exchange Act, pursuant to
Rule 463 under the Act.
(j) The Company will use its best efforts to designate and maintain
the Common Stock for quotation on the Nasdaq National Market.
You, on behalf of the Underwriters, may, in your sole discretion,
waive in writing the performance by the Company of any one or more of the
foregoing Company covenants or extend the time for their performance.
SECTION 5. Payment of Expenses. Whether or not the transactions
--------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company agrees to pay all costs, fees and expenses incurred in
connection with the performance of the Company's and the Selling Stockholders'
obligations hereunder and in connection with the transactions contemplated
hereby, including without limiting the generality of the foregoing: (i) all
expenses incident to the issuance and delivery of the Common Shares (including
all printing and engraving costs); (ii) all fees and expenses of the registrar
and transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other taxes in connection with the issuance and sale of the Common Shares to the
Underwriters, (iv) all fees and expenses of counsel and independent accountants
of the Company, (v) all
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costs and expenses incurred in connection with the printing, filing, shipping
and distribution of the Registration Statement, each Preliminary Prospectus and
the Prospectus (including all exhibits and financial statements) and all
amendments and supplements provided for herein, this Agreement, the Agreement
Among Underwriters, the Master Selected Dealers Agreement, the Underwriters'
Questionnaire, the Underwriters' Power of Attorney, the Preliminary and the
Final Blue Sky Memoranda, (vi) all filing fees, attorneys' fees and expenses
incurred by the Company or the Underwriters in connection with qualifying or
registering (or obtaining exemptions from the qualification or registration of)
all or any part of the Common Shares for offer and sale under state Blue Sky
laws, (vii) all fees of the NASD and any fees and expenses relating to the
inclusion of the Common Shares on the Nasdaq National Market or other securities
exchange or stock market, and (viii) all other fees, costs and expenses referred
to in Item 13 of the Registration Statement. Except as provided in Section 5,
Section 7 and Section 9 hereof, the Underwriters shall pay all of their own
expenses, including the fees and disbursements of their counsel (excluding those
relating to qualification, registration or exemption under the securities and
Blue Sky laws and the Blue Sky Memoranda referred to above). Notwithstanding the
foregoing, the Non-Affiliate Selling Stockholders shall pay all underwriting
discounts and commissions with respect to the sale of their Common Shares and
all costs, fees and expenses of their legal counsel, including, without
limitation, such fees that arise due to preparation and review of the
Registration Statement, the Prospectus, any preliminary prospectus, this
Agreement, the Custody Agreement and the opinions and certificates contemplated
hereby or thereby.
SECTION 6. Conditions of the Obligations of the Underwriters. The
--------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholders herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the performance by the Company and the
Selling Stockholders of their obligations hereunder, and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. (or in the case of a registration statement filed pursuant to
Rule 462(a) of the Rules and Regulations relating to the Common Shares, not
later than 10:00 P.M.), Washington, D.C. time, on the date of this Agreement, or
at such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company or you, shall be contemplated by the Commission; and any request of
the Commission for inclusion of additional information in the Registration
Statement, or otherwise, shall have been complied with to your satisfaction.
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(b) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, (i) except as set forth in or
contemplated by the Registration Statement or the Prospectus, there shall not
have been any change in the capital stock of the Company or any material change
in the indebtedness (other than in the ordinary course of business) of the
Company, (ii) except as set forth in or contemplated by the Registration
Statement or the Prospectus, no material verbal or written agreement or other
transaction shall have been entered into by the Company, which is not in the
ordinary course of business or which could reasonably be expected to result in a
material reduction in the future earnings of the Company, (iii) no loss or
damage (whether or not insured) to the property of the Company shall have been
sustained which materially and adversely affects the condition (financial or
otherwise), business, properties, results of operations or prospects of the
Company, (iv) no legal or governmental action, suit or proceeding affecting the
Company which is material to the Company, or which affects or may affect the
transactions contemplated by this Agreement shall have been instituted or
threatened and (v) there shall not have been any material adverse change in the
condition (financial or otherwise), business, properties, results of operations
or prospects of the Company, which makes it impractical or inadvisable in your
reasonable judgment to proceed with the public offering or purchase the Common
Shares as contemplated hereby.
(c) There shall have been delivered to you the Firm Common Shares and,
if any Optional Common Shares are then being purchased, such Optional Common
Shares.
(d) The NASD, upon review of the terms of the public offering of the
Common Shares, shall not have objected to the fairness and reasonableness of the
underwriting terms and arrangements as proposed in this Agreement.
(e) There shall have been furnished to you, as Representatives of the
Underwriters on each Closing Date, in form and substance reasonably satisfactory
to you, except as otherwise expressly provided below:
(i) An opinion of Morse, Zelnick, Rose & Lander, LLP, counsel for
the Company, addressed to the Underwriters and dated the First Closing
Date or the Second Closing Date, as the case may be, to the effect that:
(1) The Company has been duly organized and is validly
existing and in good standing under the laws of its jurisdictions of
incorporation, with corporate power to own its properties and assets, to
carry on its business as described in the Prospectus, and to enter into
this Agreement and to perform its obligations under this Agreement.
(2) The Company is duly qualified and is in good standing as a
foreign corporation authorized to do business in each jurisdiction in
which the nature of its business or its ownership or leasing of property
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requires such qualification, except where the failure to be so qualified
would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company.
(3) The authorized and outstanding capital stock of the
Company is set forth under the caption "Capitalization" in the
Prospectus; the outstanding shares of the capital stock of the Company
(including the Common Shares to be sold by the Selling Stockholders)
have been duly authorized by all necessary corporate action on the part
of the Company and are validly issued, fully paid and non-assessable and
are not subject to any preemptive or similar rights.
(4) The Common Shares being issued and sold by the Company and
the shares of Common Stock to be issued by the Company upon exercise of
the Representatives' Warrants have been duly authorized and reserved for
issuance by all necessary corporate action on the part of the Company
and, upon payment for and delivery of such shares in accordance with
this Agreement and the Warrant Agreements and the countersigning of the
certificate or certificates representing such shares by a duly
authorized signatory of the transfer agent and registrar for the Common
Stock, such shares will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(5) The statements in the Prospectus under the captions
"Description of Capital Stock," "Business--Import Restrictions,"
"Management--Employment Agreements; and Stock Option Plan," "Shares
Eligible For Future Sale" and Items 14 and 15 of Part II of the
Registration Statement, insofar as they summarize matters of law,
documents or proceedings, fairly present such matters of law, documents
or proceedings.
(6) The Registration Statement has become effective under the
Act and, to such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued or
threatened by the Commission.
(7) The Registration Statement and each amendment thereto, on
the date it was filed, appeared on its face to comply in all material
respects with the requirements as to form for registration statements on
Form S-1 under the Act and the Rules and Regulations in effect at the
date of filing, except such counsel need express no opinion concerning
the financial statements and other financial information contained
therein.
(8) Such counsel does not know of any contract or other
document of a character required to be filed as an exhibit to the
Registration Statement which is not filed as required.
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(9) The execution, delivery and performance of this Agreement
and the Warrant Agreements have been duly authorized by all necessary
corporate action on the part of the Company, and this Agreement and the
Warrant Agreements have been duly executed and delivered by the Company.
(10) The Company is not in violation of its charter or by-laws
and, to the best of such counsel's knowledge after due inquiry, the
Company (a) is not in default in the performance of any obligation,
agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is
material to the Company, to which the Company is a party or by which the
Company or its property is bound and (b) is not in violation with any
applicable law or rule, regulation, judgment, order or decree of any
court or any governmental body or agency having jurisdiction over the
Company or its property.
(11) The execution, delivery and performance of this Agreement
and the Warrant Agreements by the Company, the compliance by the Company
with all the provisions hereof and the consummation of the transactions
contemplated hereby including, without limitation the issuance and sale
of the Common Shares being sold by the Company under this Agreement and
the issuance of the shares of Common Stock upon exercise of the
Representatives' Warrants will not (A) require any consent, approval,
permit, authorization or other order of, or qualification with, any
court of governmental body or agency (except such as have been obtained
under the Act and as may be required under applicable securities or Blue
Sky laws of the various states), (B) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
charter or by-laws of the Company or any indenture, loan agreement,
mortgage, lease or other agreement or instrument that is material to the
Company, to which the Company is a party or by which the Company or its
property is bound or (C) violate or conflict with any applicable law or
rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over the Company or its
property.
(12) The Company is not and after giving effect to the
offering and the sale of the Common Shares and the application of the
proceeds thereof as described in the Prospectus, will not be an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
(13) Each Warrant Agreement constitutes the legally valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to
20
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or affecting creditors' rights generally (including, without
limitation, fraudulent conveyance laws) and by general principals of
equity, including, without limitation, concepts of good faith and fair
dealing and the possible unavailability of specific performance or
injunctive relief, regardless of whether considered in a proceeding in
equity or at law.
(14) To the knowledge of counsel, there are no legal or
governmental proceedings pending or threatened to which the Company or
any of their respective officers or directors is a party or of which any
property of the Company is the subject, which if resolved against the
Company or any of their respective officers or directors, individually
or in the aggregate is of a character required to be disclosed in the
Prospectus which has not been properly disclosed therein.
(15) The Shares shall have been duly listed for quotation on
the Nasdaq National Market.
Such counsel shall state that in connection with such counsel's
participation in the preparation of the Registration Statement and the
Prospectus, such counsel has not independently verified the accuracy,
completeness or fairness of the statements contained therein, and the
limitations inherent in the examination made by such counsel and the
knowledge available to such counsel are such that such counsel is unable
to assume, and does not assume, any responsibility for such accuracy,
completeness or fairness (except as otherwise specifically stated in
paragraph 4 above). However, on the basis of such counsel's review and
participation in conferences in connection with the preparation of the
Registration Statement and the Prospectus, such counsel shall state that
it does not believe that the Registration Statement as of its effective
date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, and counsel shall state that it
does not believe that the Prospectus as of its date and as of the date
of such opinion, contained or contains any untrue statement of a
material fact or omitted or omits to state a material fact necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. However, such counsel need express no
opinion or belief as to the financial statements and other financial
information contained in the Registration Statement or the Prospectus.
In rendering such opinions, such counsel may rely (A) as to
matters involving the application of the laws of any jurisdiction other
than the federal laws of the United States of America, the laws of the
State of New York and the corporation laws of the State of Delaware, to
the extent deemed proper and specified in such opinion, upon the opinion
of other counsel who are satisfactory to counsel for the Underwriters
and (B) as to matters of fact, to the extent deemed proper, on
certificates of responsible officers of the Company and public
officials.
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(ii) An opinion of ______________, counsel to the Non-Affiliate
Selling Stockholders, addressed to the Underwriters and dated the First
Closing Date, to the effect that:
(1) This Agreement and the Custody Agreement has been duly
authorized, executed and delivered by each of the Non-Affiliate Selling
Stockholders and is a legal, valid and binding agreement of each such
Non-Affiliate Selling Stockholders, enforceable in accordance with its
terms, except as enforceability of the same may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or affecting creditors' rights generally (including,
without limitation, fraudulent conveyance laws) and by general
principals of equity, including, without limitation, concepts of good
faith and fair dealing and the possible unavailability of specific
performance or injunctive relief, regardless of whether considered in a
proceeding in equity or at law.
(2) Each of the Non-Affiliate Selling Stockholders has full
legal right, power and authority, and any approval required by law
(other than any approval imposed by applicable Blue Sky laws) to sell,
assign, transfer and deliver their respective shares of Common Stock to
be sold by them in the manner provided in this Agreement.
(3) To the knowledge of counsel, each of the Non-Affiliate
Selling Stockholders is the lawful owner of the Common Shares to be
sold by such Selling Stockholder and has good and clear title to such
Common Shares and, upon delivery thereof and payment therefor, each as
contemplated by this Agreement, and assuming the Underwriters are
acquiring such shares of Common Stock in good faith and without notice
of any "adverse claim" within the meaning of the Uniform Commercial
Code, good and clear title will pass to the Underwriters, severally,
free of all restrictions on transfer, liens, encumbrances, security
interests and claims whatsoever.
(4) The execution, delivery and performance of this Agreement
and the Custody Agreement by each Non-Affiliate Selling Stockholder,
the compliance by such Non-Affiliate Selling Stockholder with all the
provisions hereof and thereof and the consummation of the transactions
contemplated hereby and thereby will not (A) require any consent,
approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B)
conflict with or constitute a breach of any of the terms or provisions
of, or a default under, any indenture, loan agreement, mortgage, lease
or other agreement or instrument to which such Non-Affiliate Selling
Stockholder is a party or by which any property of such Non-Affiliate
Selling Stockholder is bound or (C) violate or conflict with any
applicable law or any rule, regulation, judgment, order or
22
<PAGE>
decree of any court or any governmental body or agency having
jurisdiction over such Non-Affiliate Selling Stockholder or any
property of such Non-Affiliate Selling Stockholder.
In rendering such opinion, such counsel for the Non-Affiliate
Selling Stockholders may rely on representations or certificates as to factual
matters of the Non-Affiliate Selling Stockholders and government officials.
(iii) If the Underwriters elect to purchase any of the Option
Common shares, an opinion of Morse, Zelnick, Rose and Lander, LLP,
counsel to the Executive Selling Stockholder, addressed to the
Underwriters and dated the Second Closing Date to the effect that:
(1) This Agreement has been duly authorized, executed
and delivered by the Executive Selling Stockholder and is a legal,
valid and binding agreement of the Executive Selling Stockholder,
enforceable in accordance with its terms, except as enforceability of
the same may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or affecting creditors' rights
generally (including, without limitation, fraudulent conveyance laws)
and by general principals of equity, including, without limitation,
concepts of good faith and fair dealing and the possible unavailability
of specific performance or injunctive relief, regardless of whether
considered in a proceeding in equity or at law.
(2) The Executive Selling Stockholder has full legal
right, power and authority, and any approval required by law (other
than any approval imposed by applicable Blue Sky laws) to sell, assign,
transfer and deliver his shares of Common Stock to be sold by him in
the manner provided in this Agreement.
(3) To the knowledge of counsel, the Executive Selling
Stockholder has good and clear title to the certificates representing
the Common Stock to be sold by such Executive Selling Stockholder
pursuant to this Agreement and, upon delivery thereof and payment
therefor, each as contemplated by this Agreement, and assuming the
Underwriters are acquiring such shares of Common Stock in good faith
and without notice of any "adverse claim" within the meaning of the
Uniform Commercial Code, good and clear title will pass to the
Underwriters, severally, free of all restrictions on transfer, liens,
encumbrances, security interests and claims whatsoever
In rendering such opinion, such counsel for the Executive
Selling Stockholder may relay on representations or certificates as to factual
matters of the Executive Selling Stockholder and government officials.
23
<PAGE>
(iv) Such customary opinion or opinions of Milbank, Tweed,
Hadley & McCloy, counsel for the Underwriters, dated the First Closing
Date or the Second Closing Date, as the case may be, as to matters you
may reasonably require, and the Company shall have furnished to such
counsel such documents and shall have exhibited to them such papers
and records as they may reasonably request for the purpose of enabling
them to pass upon such matters. In connection with such opinions, such
counsel may rely on representations or certificates of officers of the
Company, the Selling Stockholders and governmental officials.
(v) A certificate of the Company executed by the Chief
Executive Officer and the Chief Financial Officer of the Company,
dated the First Closing Date or the Second Closing Date, as the case
may be, to the effect that:
(1) The representations and warranties of the Company set
forth in Section 1 of this Agreement were true and correct as of the
date of this Agreement and are true and correct in all material
respects as of the First Closing Date or the Second Closing Date, as
the case may be, and the Company has complied in all material respects
with all the agreements and satisfied in all material respects all the
conditions on its part to be performed or satisfied on or prior to
such Closing Date.
(2) The Commission has not issued any order preventing or
suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment or
supplement thereto; no stop order suspending the effectiveness of the
Registration Statement has been issued; and to the best of the
knowledge of the respective signers, no proceedings for that purpose
have been instituted or are pending or contemplated under the Act.
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus and
has reasonably concluded that the Registration Statement and the
Prospectus and any amendments or supplements thereto contain all
statements required to be stated therein regarding the Company; and
neither the Registration Statement nor the Prospectus nor any
amendments or supplement thereto includes any untrue statement of a
material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading.
(4) Since the initial date on which the Registration
Statement was filed, no agreement, whether written or oral,
transaction or event has been agreed to or occurred which should have
been set forth in an amendment to the Registration Statement or in a
supplement to or amendment
24
<PAGE>
of any prospectus which has not been disclosed in such a supplement or
amendment.
(5) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as
disclosed in or contemplated by the Prospectus, there has not been any
material adverse change or a development involving a material adverse
change in the condition (financial or otherwise), business,
properties, results of operations, management or prospects of the
Company and no legal or governmental action, suit or proceeding is
pending or threatened against the Company which is material to the
Company, whether or not arising from transactions in the ordinary
course of business, or which may adversely affect the transactions
contemplated by this Agreement; since such dates and except as so
disclosed, the Company has not entered into any verbal or written
agreement or other transaction which could result in a material
reduction in the future earnings of the Company or incurred any
material liability or obligation, direct, contingent or indirect, made
any change in its capital stock, made any material change in its
short term debt or funded debt or repurchased or otherwise acquired
any of the Company's capital stock; and the Company has not declared
or paid any dividend, or made any other distribution, upon its
outstanding capital stock payable to stockholders of record on a date
prior to the First Closing Date or Second Closing Date; or
(6) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus and except as
disclosed in or contemplated by the Prospectus, the Company has not
sustained a material loss or damage by strike, fire, flood, windstorm,
accident or other calamity (whether or not insured).
(vi) A certificate of the Non-Affiliate Selling Stockholders,
dated as of the First Closing Date, to the effect that such Non-
Affiliate Selling Stockholders have carefully examined the
Registration Statement, the Prospectus, any supplement to the
Prospectus and this Agreement and that the representations and
warranties of such Non-Affiliate Selling Stockholders set forth in
Section 2 of this Agreement were true and correct on the date hereof
and as of the First Closing Date.
(vii) A certificate of the Executive Selling Stockholder,
dated as of the Second Closing Date, to the effect that such Executive
Selling Stockholder has carefully examined the Registration Statement,
the prospectus, any supplement to the Prospectus and this Agreement
and that the representations and warranties of such Executive Selling
Stockholder set forth in Sections 1 and 2 of this Agreement were true
and correct in all material respects on the date hereof and as of the
Second Closing Date.
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<PAGE>
(viii) On the date this Agreement is executed and also on each
Closing Date, a letter addressed to you, as Representatives of the
Underwriters, from Arthur Andersen LLP, independent accountants, the
first one to be dated the date of this Agreement, the second one to be
dated the First Closing Date and the third one (in the event of a
second closing hereunder) to be dated the Second Closing Date, in form
and substance reasonably satisfactory to you, to the effect that they
are independent public accountants with respect to the Company within
the meaning of the Act and the related Rules and Regulations, and
containing statements and information of the type ordinarily included
in accountants' "comfort letters" to underwriters with respect to the
financial statements and certain financial information contained in
the Registration Statement and the Prospectus.
(ix) On or before the First Closing Date, letters from each
stockholder, director and executive officer of the Company, in form
and substance reasonably satisfactory to you, (i) confirming that for
a period of 270 days from the date of the Prospectus, such person will
not, directly or indirectly, offer to sell, contract to sell or
otherwise sell, dispose of, loan, pledge or grant any rights or
options with respect to (each, a "Disposition") any shares of the
Common Stock, or any securities convertible into or exchangeable for
shares of Common Stock, whether then owned or thereafter acquired by
such person, otherwise than as set forth in the lock-up agreements on
terms reasonably acceptable to the Representatives as delivered by
such persons to the Underwriters in accordance with this paragraph.
(f) On or before the date any of the Common Shares are released by
the Representatives for sale to the public and on the First Closing Date, the
Common Shares shall be authorized for quotation on the Nasdaq National Market.
(g) The Common Shares shall be qualified for sale in such States
and jurisdictions as the Representatives may reasonably request, each such
qualification shall be in effect and not subject to any stop order or other
proceeding on the First Closing Date and the Second Closing Date.
(h) On or before the First Closing Date, the Company shall have
executed and delivered to each of Sutro & Co. Incorporated and L. H. Friend,
Weinress, Frankson & Presson, Inc., the Warrant Agreements, substantially in the
form of Exhibit A hereto, and on or before the First Closing Date, the Company
shall have executed and delivered to Sutro & Co. Incorporated and L. H. Friend,
Weinress, Frankson & Presson, Inc., the Registration Rights Agreement,
substantially in the form of Exhibit B hereto.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to counsel for
26
<PAGE>
the Underwriters. The Company shall furnish you with such manually signed or
conformed copies of such opinions, certificates, letters and documents as you
request.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you to the
Company without liability on the part of you or any Underwriter or the Company
except for the expenses to be paid or reimbursed by the Company pursuant to
Sections 5 and 7 hereof and except to the extent provided in Section 9 hereof.
SECTION 7. Reimbursement of Underwriters' Expenses. Notwithstanding
----------------------------------------
any other provisions hereof, if this Agreement shall be terminated by you
pursuant to Section 6 or Section 12(b)(iii) or (iv) hereof, or if the sale to
the Underwriters of the Firm Common Shares at the First Closing Date is not
consummated because of any refusal, inability or failure on the part of the
Company or the Non-Affiliate Selling Stockholders to perform any agreement
herein or to comply with any provision hereof, the Company agrees to reimburse
you and the other Underwriters upon demand for all out-of-pocket expenses that
shall have been reasonably incurred by them in connection with the proposed
purchase and the sale of the Firm Common Shares, including but not limited to
reasonable fees and disbursements of counsel, printing expenses, travel
expenses, postage and telephone charges relating directly to the offering
contemplated by the Prospectus. If the Company is required to make any payments
to the Underwriters under this Section 7 because of any Non-Affiliate Selling
Stockholder's refusal, inability or failure to satisfy any condition to the
obligations of the Underwriters set forth in Section 6, such Non-Affiliate
Selling Stockholder(s), pro rata in proportion to the percentage of Common
Shares to be sold by such parties, shall reimburse the Company on demand for all
amounts so paid. Any such termination shall be without liability of any party to
any other party except that the provisions of this Section and Section 5 and
Section 9 hereof shall at all times be effective and shall apply.
SECTION 8. Effectiveness of Registration Statement. You and the
----------------------------------------
Company will use your and its respective best efforts to cause the Registration
Statement to become effective, to prevent the issuance of any stop order
suspending the effectiveness of the Registration Statement and, if such stop
order be issued, to obtain as soon as possible the lifting thereof.
SECTION 9. Indemnification and Contribution.
---------------------------------
(a) The Company and the Executive Selling Stockholders, jointly and
severally, agree to (i) indemnify and hold harmless each Underwriter, its
directors and officers and each person, if any, who controls any Underwriter
within the meaning of the Act (the "Underwriter Indemnified Parties"), against
any losses, claims, damages, liabilities or expenses, joint or several, to which
such Underwriter Indemnified Party may become subject, under the Act, the
Exchange Act or other federal or state statutory law or regulation, or at common
law or otherwise (including in settlement of any litigation, if such settlement
is effected with the written consent
27
<PAGE>
of the Company), insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof as contemplated below) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state in any of them a material fact
required to be stated therein or necessary to make the statements in any of them
not misleading, or arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company contained herein
or any failure of the Company to perform its obligations hereunder or under law;
and (ii) reimburse each Underwriter Indemnified Party for any legal and other
expenses as such expenses are reasonably incurred by such Underwriter
Indemnified Party in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the Company and the Executive Selling
Stockholder will not be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made (i) in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with the information furnished to the Company in writing by the
Representatives or the Non-Affiliate Selling Stockholders expressly for use
therein; or (ii) in any Preliminary Prospectus if a copy of the Prospectus (or
the Prospectus as then amended or supplemented) was not sent or given by or on
behalf of the Underwriters to such person at or prior to be written confirmation
of the sale of such Common Shares to such person in any case where such delivery
is required by the Act, such untrue statement contained in or omission from such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as so
amended or supplemented) and the Company had previously furnished copies of such
corrected Prospectus to the Underwriters.
In addition to its other obligations under this Section 9(a), the
Company and the Executive Selling Stockholder agree that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any untrue statement or omission, or any
alleged untrue statement or omission, or any inaccuracy in the representations
and warranties of the Company or any failure to perform its obligations
hereunder, all as described in this Section 9(a), the Company and the Executive
Selling Stockholder will reimburse each Underwriter Indemnified Party on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
and the Executive Selling Stockholder's obligation to reimburse each Underwriter
Indemnified Party for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, each Underwriter Indemnified Party shall promptly return it to the
Company together with interest, compounded daily, determined on the basis of the
prime rate (or other commercial lending rate for borrowers of
28
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the highest credit standing) announced from time to time by Bank of America
NT&SA, San Francisco, California (the "Prime rate"). Any such interim
reimbursement payments which are not made to an Underwriter Indemnified Party
within 30 days of a request for reimbursement shall bear interest at the Prime
rate from the date of such request. This indemnity agreement will be in addition
to any liability which the Company and the Executive Selling Stockholder may
otherwise have.
(b) Each Selling Stockholder, severally and not jointly, agrees to
indemnify and hold harmless each Underwriter Indemnified Party from and against
any and all losses, claims, damages or liabilities, joint or several, to which
such Underwriter Indemnified Party may become subject under the Act or
otherwise, insofar as such losses, liabilities, claims, damages or expenses (or
actions in respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of a material fact contained in the Registration
Statement for the registration of the Common Shares, as originally filed or any
amendment thereof, or any related preliminary prospectus or the Prospectus, or
in any supplement thereto or amendment thereof, or arise out of or are based
upon an untrue statement or an alleged untrue statement or the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with information furnished to the Company and the Representatives by
the Selling Stockholders expressly for use therein. This indemnity agreement
will be in addition to any liability which the Selling Stockholders may
otherwise have.
(c) Each Underwriter agrees to severally indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, and each person, if any, who controls the Company within
the meaning of the Act, against any losses, claims, damages, liabilities or
expenses to which the Company, any such director, officer or controlling person
may become subject, under the Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of such Underwriter), insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any untrue or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
in any of them not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement thereto, in reliance
upon and in conformity with the information furnished to the Company in writing
by the Representatives expressly for
29
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use therein. This indemnity agreement will be in addition to any liability which
the Underwriters may otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section, notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under the indemnity agreement contained in this Section or to the extent it is
not prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, tot he extent that it may wish, jointly
with all other indemnifying parties similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have reasonably concluded that there may be a conflict between the positions of
the indemnifying party and the indemnified party in conducting the defense of
any such action or that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed such counsel in
connection with the assumption of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel, approved by the Underwriters in the case of paragraphs (a) and
(b) of this Section 9, representing the indemnified parties who are parties to
such action) or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the action, in
each of which cases the reasonable fees and expenses of counsel shall be at the
expense of the indemnifying party. An indemnifying party shall not be liable for
any settlement of any action, suit, proceeding or claim effected without its
written consent, which will not be unreasonably withheld.
(e) If the indemnification provided for in this Section 9 is
---------
applicable by its terms but held to be unavailable to hold harmless an
indemnified party under subsection (a), (b) or (c) above in respect of any
--------------------------
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
referred to herein, then each indemnifying party shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages,
30
<PAGE>
liabilities or expenses (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholders on the one hand and the Underwriters on the other from the
offering of the Common Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in connection
with the statements or omissions that resulted in such losses, claims, damages,
liabilities or expenses (or actions in respect thereof), as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Selling Stockholders on the one hand and the Underwriters on the other
shall be deemed to be in the same proportion as the total net proceeds from the
offering (before deducting expenses) received by the Company and the Selling
Stockholders bear to the total underwriting discounts and commissions received
by the Underwriters, in each case as set forth in the table on the cover page of
the Prospectus. The relative fault shall be determined by reference to whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company, the Selling Stockholders or the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The Company, the Selling Stockholders and the
Underwriters agree that it would not be just and equitable if contribution were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to above. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions in respect thereof) referred to above shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such claim.
Notwithstanding the provisions of this subsection (e), no Underwriter shall be
--------------
required to contribute any amount in excess of the underwriting discounts
received by it. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute are several in proportion to their
respective underwriting obligations and not joint. For purposes of this Section
-------
9(e), any person who controls a party to this Agreement within the meaning of
- ----
the Act will have the same rights to contribution as that party, and each
officer of the Company who signed the Registration Statement will have the same
rights to contribution as the Company, subject in each case to the provisions
hereof. No party will be liable for contribution with respect to any action or
claim settled without its written consent.
31
<PAGE>
SECTION 10. Default of Underwriters. It shall be a condition to this
------------------------
Agreement and the obligations of the Company and the Selling Stockholders to
sell and deliver the Common Shares hereunder, and of each Underwriter to
purchase the Common Shares in the manner as described herein, that, except as
hereinafter in this paragraph provided, each of the Underwriters shall purchase
and pay for all the Common Shares agreed to be purchased by such Underwriter
hereunder upon tender to the Underwriters of such shares in accordance with the
terms hereof. If applicable, if any Underwriter or Underwriters default in their
obligations to purchase Common Shares hereunder on either the First or Second
Closing Date, and the aggregate number of Common Shares which such defaulting
entity agreed but failed to purchase on such Closing Date does not exceed 10% of
the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the nondefaulting entities shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Common Shares which such defaulting entities agreed but failed to purchase
on such Closing Date. If any Underwriter or Underwriters so default and the
aggregate number of Common Shares with respect to which such default occurs is
more than the above percentage, and arrangements satisfactory to you and the
Company for the purchase of such Common Shares by other persons are not made
within two full business days after such default, this Agreement will terminate
without liability on the part of any nondefaulting Underwriter or the Company,
except for the expenses to be paid by the Company pursuant to Section 5 hereof
and except to the extent provided in Section 7 hereof.
If applicable, in the event that Common Shares to which a default
relates are to be purchased by a nondefaulting Underwriter or by another person
or persons, the Representatives shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus, this
Agreement and any other documents, as well as any other arrangements, may be
effected. As used in this Agreement, the term "Underwriter" includes any person
substituted for an Underwriter under this Section. Nothing herein will relieve
a defaulting Underwriter from liability for its default.
SECTION 11. Effective Date. This Agreement shall become effective
---------------
immediately upon execution. For the purposes of this Section 11, the Common
Shares shall be deemed to have been so released upon the release for publication
of any newspaper advertisement relating to the Common Shares or upon the release
by you of notices (i) advising Underwriters that the Common Shares are released
for public offering, or (ii) offering the Common Shares for sale to securities
dealers, whichever may occur first.
SECTION 12. Termination. Without limiting the right to terminate this
------------
Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company or by you by
notice to the other parties hereto at any time prior to the time this Agreement
shall become effective as to all its provisions, and any such termination shall
be without liability on the part of the Company or the Selling Stockholder to
you or any
32
<PAGE>
Underwriter (except for the expenses to be paid by the Company pursuant to
Section 5 hereof and except to the extent provided in Section 9 hereof), of you
or any Underwriter or the Selling Stockholders to the Company (except to the
extent provided in Section 9 hereof) or of the Selling Stockholders to you or
any Underwriter or the Company.
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company (i) if material governmental restrictions,
not in force and effect on the date hereof, shall have been imposed upon trading
in securities generally or minimum or maximum prices shall have been generally
established on the New York Stock Exchange or on the American Stock Exchange or
in the over the counter market by the NASD, or trading in securities generally
shall have been suspended on either such Exchange or in the over the counter
market by the NASD, or a general banking moratorium shall have been established
by federal, New York or California authorities, (ii) if an outbreak of major
hostilities or other national or international calamity or any substantial
change in political, financial or economic conditions shall have occurred or
shall have accelerated or escalated to such an extent, as, in the reasonable
judgment of the Representatives, to affect materially and adversely the
marketability of the Common Shares, (iii) if any adverse event shall have
occurred or shall exist which makes untrue or incorrect in any material respect
any statement or information contained in the Registration Statement or the
Prospectus or which is not reflected in the Registration Statement or the
Prospectus but should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect or (iv) if
there shall be any action, suit or proceeding pending or threatened, or there
shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or the
transactions contemplated by this Agreement, which, in the reasonable judgment
of the Representatives, may materially and adversely affect the Company's
business or earnings and makes it impracticable or inadvisable to offer or sell
the Common Shares. Any termination pursuant to this Section 12(b) shall be
without liability on the part of any Underwriter or Selling Stockholder to the
Company, on the part of the Company or Selling Stockholder to you or any
Underwriter or on the part of the Company or you or any of the Underwriters to
the Selling Stockholders (except for expenses to be paid or reimbursed by the
Company pursuant to Sections 5 and 7 hereof and except to the extent provided in
Section 9 hereof).
SECTION 13. Representations and Indemnities to Survive Delivery.
----------------------------------------------------
The respective indemnities, agreements, representations, warranties and other
statements of the Company, its officers and the several Underwriters set forth
in or made pursuant to this Agreement will remain in full force and effect,
regardless of any investigation made by or on behalf of any Underwriter, the
Company or the Selling Stockholders, or any of its or their partners, officers
or directors or any controlling persons, as the case may be, and will survive
delivery of and payment for the Common Shares sold hereunder.
33
<PAGE>
SECTION 14. Notices. All communications hereunder shall be in writing
--------
and, if sent to the Underwriters, shall be mailed, delivered or telecopied and
confirmed to you at 11150 Santa Monica Boulevard, Suite 1500, Los Angeles,
California 90025, with a copy to Milbank, Tweed, Hadley & McCloy, 601 S.
Figueroa, 30th Floor, Los Angeles, California 90017, Attention: Kenneth J.
Baronsky, Esq. FAX: (213) 629-5063; if sent to the Company, shall be mailed,
delivered or telecopied and confirmed to the Company at 1407 Broadway, Suite
620, New York, New York 10018, Attention: Glenn Sands, FAX (212) 382-3828, with
a copy to Morse, Zelnick, Rose & Lander LLP, 450 Park Avenue, Suite 902, New
York, New York 10022, Attention: George Lander, Esq., FAX (212) 838-9190. The
Company or you may change the address for receipt of communications hereunder by
giving notice to the others.
SECTION 15. Successors. This Agreement will inure to the benefit of
-----------
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 11 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 10 hereof, and in each case their
respective successors, personal representatives and assigns, and no other person
will have any right or obligation hereunder. No such assignment shall relieve
any party of its obligations hereunder. The term "successors" shall not include
any purchaser of the Common Shares as such from any of the Underwriters merely
by reason of such purchase.
SECTION 16. Representation of Underwriters. You will act as
-------------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you, as
Representatives, will be binding upon all the Underwriters.
SECTION 17. Partial Unenforceability. The invalidity or
-------------------------
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 18. Applicable Law. This Agreement shall be governed by and
---------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 19. General. This Agreement constitutes the entire Agreement
--------
and supersedes all prior written or oral and all contemporaneous oral
agreements, understandings and negotiations with respect to the subject matter
hereof. This Agreement may be executed in several counterparts, each one of
which shall be an original, and all of which shall constitute one and the same
document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of
34
<PAGE>
this Agreement. This Agreement may be amended or modified, and the observance of
any term of this Agreement may be waived, only by a writing signed by the
Company and you.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement between the Company and you, all in accordance
with its terms.
Very truly yours,
COMPANY:
PERISCOPE SPORTSWEAR, INC.
By:
----------------------------------------------
Glenn Sands,
President and Chief Executive Officer
SELLING STOCKHOLDERS
--------------------------------------------------
GLENN SANDS, an individual
JAY BOTCHMAN
MICHAEL COVINO
SHIRLEY GIBBONS
SYLVESTER MINITER
By:
----------------------------------------------
Name: Glenn Sands
Title: Attorney-in-Fact
35
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in Los Angeles, California as of
the date first above written.
SUTRO & CO. INCORPORATED
L. H. FRIEND, WEINRESS, FRANKSON & PRESSON, INC.
SCOTT AND STRINGFELLOW, INC.
By: Sutro & Co. Incorporated
By:
_______________________________________
Its:
___________________________________
36
<PAGE>
SCHEDULE A
SCHEDULE OF UNDERWRITERS
Name of Underwriter Number of Firm
- ------------------- Common Shares
to be Purchased
---------------
Sutro & Co. Incorporated................................
L. H. Friend, Weinress, Frankson & Presson, Inc.........
Scott & Stringfellow, Inc...............................
Total................................................ 3,195,200
=========
37
<PAGE>
SCHEDULE B
Non-Affiliate Selling Stockholders
Number of Firm
Name of Selling Stockholder Shares to be Sold
- --------------------------- ----------------
Jay Botchman 99,200
Michael Covino 148,800
Shirley Gibbons 198,400
Sylvester Miniter 148,800
-------
Total: 595,200
=======
38
<PAGE>
EXHIBIT A
WARRANT AGREEMENT
39
<PAGE>
EXHIBIT A
THE SECURITIES REPRESENTED BY THIS DOCUMENT HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
REGISTERED OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAWS IN RELIANCE UPON
EXEMPTIONS THEREFROM, THE HOLDER MAY NOT OFFER, SELL, TRANSFER, ASSIGN, PLEDGE,
HYPOTHECATE, OR OTHERWISE DISPOSE OF OR ENCUMBER THE SECURITIES REPRESENTED BY
THIS DOCUMENT EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS, OR UPON RECEIPT BY THE ISSUER
OF AN OPINION OF LEGAL COUNSEL FOR THE HOLDER REASONABLY SATISFACTORY TO THE
ISSUER AND ITS LEGAL COUNSEL THAT SUCH OFFER, SALE, TRANSFER, ASSIGNMENT,
PLEDGE, HYPOTHECATION, OR OTHER DISPOSITION OR ENCUMBRANCE IS EXEMPT FROM THE
REGISTRATION PROVISIONS OF THE SECURITIES ACT AND THE RULES AND REGULATIONS
PROMULGATED THEREUNDER AND THE REGISTRATION AND/OR QUALIFICATION PROVISIONS OF
APPLICABLE STATE SECURITIES LAWS.
Warrant to Purchase up to _____ Shares of Common Stock (subject to adjustment)
PERISCOPE SPORTSWEAR, INC.
COMMON STOCK PURCHASE WARRANT
Void after ___________, 2003
This certifies that, for value received, [Sutro & Co. Incorporated, a
Delaware corporation], [L.H. Friend, Weinress, Frankson & Presson, Inc.] or its
transferee(s) as provided herein (in any event, the "Holder") is entitled,
subject to the terms set forth below, to purchase from [five years from the
Effective Date] Periscope Sportswear, Inc., a Delaware corporation (the
"Company"), ______________________________ (_______) shares of the Company's
common stock, par value $0.001 per share (the "Common Stock"), as constituted on
the date hereof, upon surrender hereof with the Notice of Exercise attached
hereto (the "Notice of Exercise") duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the exercise price as set forth in Section 2 hereof. The number,
character, and exercise price of such shares of Common Stock are subject to
adjustment as provided below.
40
<PAGE>
1. TERM OF WARRANT. Subject to the terms and conditions set forth
----------------
herein, this Warrant shall become exercisable on ___________, 1999 [one year
from the Effective Date], and shall remain exercisable until 5:00 p.m. Pacific
time on ___________, 2003, and shall be void thereafter.
2. EXERCISE AND ADJUSTMENTS.
-------------------------
2.1 Exercise Price. The exercise price at which this Warrant
may be exercised is ______ dollars ($_____) per share of Common Stock, subject
to adjustment as set forth herein (as adjusted, the "Exercise Price").
2.2 Adjustment for Stock Splits and Combinations. If the
Company should, at any time or from time to time after the date hereof, fix a
record date for a split, subdivision, or combination of the outstanding shares
of Common Stock, then as of such record date (or the date of such stock split,
subdivision, or combination if no record date is fixed) the number of shares of
Common Stock that this Warrant is exercisable to purchase as of such time shall
be adjusted to be the same number of shares of Common Stock that the Holder
would have if this Warrant had been exercised immediately prior to such split,
subdivision, or combination. The Exercise Price shall be adjusted to be the then
Exercise Price multiplied by a fraction, the numerator of which is the number of
shares of Common Stock purchasable under this Warrant immediately prior to such
stock split, subdivision, or combination, and the denominator of which is the
number of shares of Common Stock purchasable by this Warrant immediately after
such event.
2.3 Adjustment for Dividends in Stock or Other Securities or
Property. If the Company should, at any time or from time to time after the date
hereof, fix a record date for the determination of eligible stockholders to
receive, without payment therefor, other or additional stock or other securities
or property (other than cash) of the Company by way of dividend, then and in
each case, this Warrant shall represent the right to acquire, in addition to the
number of shares of the Common Stock receivable upon exercise of this Warrant,
and without payment of any additional consideration therefor upon such exercise,
the amount of such other or additional stock or other securities or property
(other than cash) of the Company receivable upon payment of such dividend as a
holder of the number of shares of Common Stock for which this Warrant would have
been exercisable immediately prior to such record date would have had been
entitled to receive, and had such holder thereafter, during the period form the
date of payment of such dividend to and including the date of exercise of this
Warrant, retained such shares and/or all other additional stock payable in such
dividend or dividends during such period, giving effect to all adjustments
called for during such period by the provisions of this Section 2.
2.4 Adjustment for Reclassification, Exchange, or Substitution.
If the Common Stock issuable upon the exercise of this Warrant shall be changed
into the same or different number of shares of any class or classes of stock,
whether by reclassification, exchange, substitution, or otherwise (other than a
stock split, combination or dividend provided for in Sections 2.2 or 2.3 hereof,
or a reorganization, merger, consolidation, or sale
41
<PAGE>
of assets provided for in Section 2.5 hereof), then and in such event the Holder
shall have the right thereafter to receive upon exercise of this Warrant, the
kind and amount of shares of stock and other securities and property receivable
upon such reclassification, exchange, substitution, or other change as a holder
of the number of shares of Common Stock for which this Warrant would have been
exercisable immediately prior to such reclassification, exchange, substitution,
other change would have had.
2.5 Reorganization, Merger, Consolidation, or Sale of Assets.
If at any time or from time to time, there shall be a capital reorganization of
the Common Stock (other than a subdivision, combination, reclassification, or
exchange of shares provided for elsewhere in this Section 2) or a merger or
consolidation of the Company with or into another entity where the Company is
not the surviving entity, or the sale of all or substantially all of the
Company's assets to any other person, then as a part of such reorganization,
merger, consolidation, or sale, effective provision shall be made so that the
Holder shall thereafter be entitled to receive upon exercise of this Warrant the
number of shares of stock or other securities, instruments or property of the
Company or of the successor entity resulting form such merger, consolidation, or
sale to which a holder of the Common Stock issuable upon exercise of this
Warrant would have been entitled upon such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 2.5 with respect to the
rights of the Holder after such reorganization, merger, consolidation, or sale
to the end that the provisions of this Section 2 (including adjustment of the
exercise price then in effect) shall be applicable after that event as nearly
equivalent as may be practicable. The provisions of this Section 2.5 shall
similarly apply to successive reorganizations, mergers, consolidations or sale
of assets, and to the stock, securities or instruments of any other entity which
are at the time receivable upon the exercise of this Warrant.
2.6 Limits on Adjustments. No adjustment in the Exercise Price
shall be required unless such an adjustment would require an increase or
decrease of at least five cents ($0.05) in such price; provided, however, that
any adjustments which by reason of this Section 2.6 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. Notwithstanding anything in
this Section 2 to the contrary, the Exercise Price shall not be reduced to less
than the then existing par value of the Common Stock as a result of any
adjustment made hereunder.
2.7 No Impairment. The Company will not, by any voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 2.
2.8 Notice.
(a) Whenever an adjustment is to be made pursuant to
Sections 2.2, 2.3, 2.4 or 2.5 hereof, the Company shall issue and promptly
provide to the Holder a certificate signed by the Company's Secretary setting
forth, in reasonable detail, the event
42
<PAGE>
requiring the adjustment, the amount of the adjustment, the method by which such
adjustment was calculated and the exercise price and number of shares or amount
of property purchasable hereunder, after giving effect to such adjustment.
(b) In case (i) the Company shall take a record of the
holders of its Common Stock (or other stock or securities at the time receivable
upon the exercise of this Warrant) for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities, or to receive any
other right, (ii) 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 entity, or any sale, lease or
conveyance of all or substantially all of the assets of the Company to another
person, or (iii) of any voluntary dissolution, liquidation or winding-up of the
Company, then, and in each such case, the Company will promptly provide to the
Holder a notice specifying, as the case may be, (A) 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 (B)
the date on which such reorganization, reclassification, consolidation, merger,
conveyance, 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 stock or securities at the time receivable 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, conveyance,
dissolution, liquidation or winding-up. The Company shall provide such notice at
least ten (10) days prior to the date therein specified.
3. EXERCISE OF WARRANT.
--------------------
3.1 Manner or Exercise. The purchase rights represented by this
Warrant are exercisable by the Holder in whole or in part, but not for less than
one hundred (100) shares at a time (or such lesser number of shares which may
then constitute the maximum number purchasable; such number being subject to
adjustment as provided in Section 2 hereof), at any time or from time to time
during the term hereof as described in Section 1 hereof, by the surrender of
this Warrant and the Notice of Exercise annexed hereto duly completed and
executed on behalf of the Holder, at the office of the Company (or such other
office or agency of the Company as it may designate by notice in writing to the
Holder at the address of the Holder appearing on the books of the Company), upon
payment (i) in cash or other immediately available funds acceptable to the
Company, (ii) by cancellation by the Holder of indebtedness of the Company to
the Holder, or (iii) by a combination of (i) and (ii), of the purchase price of
the shares of Common Stock to be purchased.
3.2 Effect of Exercise. This Warrant shall be deemed to have
been exercised immediately prior to the close of business on the date of its
surrender for exercise as provided in Section 3.1 hereof and the persons
entitled to receive the shares of Common Stock issuable upon such exercise shall
be treated for all purposes as the holders of record of
43
<PAGE>
such shares as of the close of business of such date. As promptly as practicable
on or after such date, the Company at its expense shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of shares of Common Stock issuable upon such exercise. In the event
that this Warrant is exercised in part, the Company shall execute and deliver a
new Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
------------------------------
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional shares to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the then exercise price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On 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, on delivery of an
indemnity agreement reasonably satisfactory in form and substance to the
Company, or in the case of mutilation, on surrender and cancellation of the
remainder of this Warrant, the Company at its expense shall execute and deliver,
in lieu of this Warrant, a new warrant of like tenor and amount.
6. NO RIGHTS AS STOCKHOLDER. Nothing contained herein shall be
-------------------------
construed as conferring upon the Holder or any other person the right to vote or
to consent or to receive notice as a stockholder in respect of meetings of
stockholders for the election of directors of the Company or any other matter or
any right as a stockholder of the Company, and no dividends shall be payable or
accrued in respect of this Warrant or the interest represented hereby or the
shares of Common Stock obtainable hereunder until, and only t the extent that,
this Warrant shall have been exercised as set forth herein.
7. TRANSFERS OF THE WARRANT.
-------------------------
7.1 Company Records. The Holder may change its address
----------------
as shown on the Company records by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given to
the Holder may be delivered or given by mail to the Holder at the address shown
on the Company records. Until this Warrant is transferred on the Company
records, the Company may treat the Holder as shown on the Company records as the
absolute owner of this Warrant for all purposes, notwithstanding any notice to
the contrary.
7.2 Warrant Agent. The Company may, by written notice to
--------------
the Holder, appoint an agent for the purpose of maintaining the Company records
referred to in Section 7.1 hereof, issuing the Common Stock or other securities
then issuable upon the exercise of this Warrant, exchanging or replacing this
Warrant, or any or all of the foregoing. Thereafter, any such registration,
issuance, exchange, or replacement, as the case may be, shall be made at the
office of such agent.
7.3 Transfer of Warrant. The Holder may not transfer or
--------------------
assign this Warrant in whole or in part without compliance with all applicable
federal and state securities
44
<PAGE>
laws and the rules and regulations thereunder (the "Securities Laws") by the
Holder and the transferee (including the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, if such are
requested by the Company). In addition, this Warrant may not be sold,
transferred, assigned, pledged or hypothecated for a period of twelve (12)
months from the date set forth on the signature page hereof, except (i) to
officers or partners of Sutro & Co. Incorporated, (ii) to other members of the
underwriting or selling group for the Company's initial public offering to which
this Warrant relates, (iii) to the officers or partners of such other members,
or (iv) otherwise without compliance with the Corporate Financing Rule of the
National Association of Securities Dealers, Inc. Subject to the foregoing, title
to this Warrant may be transferred by endorsement (by the Holder executing the
Assignment Form annexed hereto) and delivery in the same manner as a negotiable
instrument transferable by endorsement and delivery.
7.4 Exchange of Warrant Upon a Transfer. On surrender of
------------------------------------
this Warrant, properly endorsed on the Assignment Form, for exchange, and
subject to compliance with the Securities Laws and the limitations on assignment
and transfer contained in this Section , the Company at its expense shall issue
to or to the order of the Holder a new warrant or warrants of like tenor, in the
name of the Holder or as the Holder may direct for the number of shares issuable
upon exercise hereof .
8. COMPLIANCE WITH SECURITIES LAWS
-------------------------------
8.1 The Holder of this Warrant, by acceptance hereof,
acknowledges that the shares of Common Stock to be issued upon exercise hereof
are being acquired solely for the Holder's own account and not as a nominee for
any other party, and for investment, and that the Holder will not offer, sell or
otherwise dispose of any shares of Common Stock to be issued upon exercise
hereof, except under circumstances that will not result in a violation of the
Securities Laws. Upon exercise of this Warrant, the Holder shall, if requested
by the Company, and subject to the applicability of the Registration Rights
Agreement between the Company and the Holder of even date herewith (the
"Registration Rights Agreement"), confirm in writing, in a form satisfactory to
the Company, that the shares of Common Stock so purchased are being acquired
solely for the Holder's own account and not as a nominee for any other party,
for investment, and not with a view toward distribution or resale.
8.2 Legend. Subject to the applicability of the
-------
Registration Rights Agreement, all shares of Common Stock issued upon exercise
hereof may be stamped or imprinted with a legend in substantially the following
form (in addition to any legend required by state securities laws):
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
45
<PAGE>
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR
QUALIFICATION IS NOT REQUIRED.
9. RESERVATION OF COMMON STOCK. The Company covenants that
----------------------------
during the term that this Warrant is exercisable, the Company will reserve from
its authorized and unissued shares of Common Stock a sufficient number of shares
to provide for the issuance of Common Stock upon the exercise of this Warrant,
and from time to time will take all steps necessary to provide sufficient
reserves of shares of Common Stock issuable upon exercise of the Warrant,
including, if necessary, amending its certificate. The Company further covenants
that all shares that may be issued upon the exercise of rights represented by
this Warrant, upon exercise of the rights represented by this Warrant and
payment of the exercise price, all as set forth herein, will be free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously or otherwise specified
herein). The Company agrees that its issuance of this Warrant shall constitute
full authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of
Common Stock upon the exercise of this Warrant.
10. INFORMATION. During the term of this Warrant, the Company shall
------------
provide the Holder with the same financial information, annual reports, notices
of stockholder meetings, and other information as and to the same extent that
the Company provides the same to its stockholders from to time.
11. GENERAL PROVISIONS.
-------------------
11.1 Amendment. Any amendment or modification of this Warrant
----------
shall be in writing and shall be signed by all of the parties hereto.
11.2 Waiver. Any waiver of any right, power, or privilege
-------
hereunder must be in writing and signed by the party being charged with the
waiver. No delay on the part of any party hereto in exercising any right, power,
or privilege hereunder shall operate as a waiver of any other right, power, or
privilege hereunder, nor shall any single or partial exercise of any right,
power, or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power, or privilege.
11.3 Notices. All notices or other communications required or
--------
permitted to be given pursuant to this Warrant shall be in writing and shall be
delivered personally or sent by overnight courier or by first-class United
States mail. Notices delivered personally or sent by overnight courier shall be
effective on the date received, while notices sent by first-class mail shall be
deemed to have been received and to be effective three (3) business days after
deposit into the United States mails. Notices shall be given to the parties at
the following respective addresses, or to such other addresses as any party
shall designate in writing:
If to the Company: Periscope Sportswear, Inc.
1407 Broadway, Suite 620
46
<PAGE>
New York, New York 10018
Attn: President
----
If to the Holder: Sutro & Co. Incorporated
11150 Santa Monica Blvd., 15th Floor
Santa Monica, California 90025
Attn: Robert Lind, Managing Director
----
11.4 Law Governing. This Warrant has been negotiated,
--------------
executed, and delivered and shall be performed in the State of California and
shall be governed by and construed and enforced in accordance with the laws of
the State of California, without regard for its conflict of laws principles.
11.5 Counterparts. This Warrant may be executed in two or
-------------
more counterparts, including by facsimile transmission, all of which together
shall constitute a single instrument.
11.6 Construction. The headings in the Sections of this
-------------
Warrant are for convenience only and shall not constitute a part hereof.
Whenever the contest so requires, the masculine shall include the feminine and
the neuter, the singular shall include the plural, and conversely. The terms and
all parts of this Warrant shall in all cases be interpreted simply and according
to their plain meaning and neither for nor against any party hereto.
IN WITNESS WHEREOF, the parties have duly executed and delivered
this Warrant as of this ______ day of __________, 1998.
PERISCOPE SPORTSWEAR, INC. [SUTRO & CO. INCORPORATED]
[L. H. FRIEND, WEINRESS, FRANKSON &
PRESSON, INC.
By: By:
___________________________________ --------------------------------
Name: Name:
_________________________________ ------------------------------
Its: Its:
__________________________________ -------------------------------
47
<PAGE>
NOTICE OF EXERCISE
To: Periscope Sportswear, Inc.
1. The undersigned hereby elects to purchase ____________ shares of
the common stock (the "Common Stock") of Periscope Sportswear, Inc. pursuant to
the terms of the attached Common Stock Purchase Warrant (the "Warrant"), and
tenders herewith payment of the purchase price for such shares in full.
2. In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of Common Stock being purchased hereby are being
acquired solely for the account of the undersigned and not as a nominee for any
other party, for investment purposes only, and that the undersigned will not
offer, sell, or otherwise dispose of any such shares of Common Stock except
under circumstances that will not result in a violation of the Securities Act of
1933, as amended, or any applicable state securities laws.
3. Please issue a certificate or certificates representing such
shares of Common Stock in the name of the undersigned or in such other name as
specified below:
____________________________________
4. Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or n such other name as is
specified below:
___________________________________
Date:
_______________________ [Sutro & Co. Incorporated]
[L. H. Friend, Weinress, Frankson
& Presson, Inc.]
By:
_______________________________
Name: (Print)
_________________
Its:
__________________________
48
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of the attached
Common Stock Purchase Warrant (the "Warrant") hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned
under the Warrant with respect to the number of shares of the common stock (the
"Common Stock") of Periscope Sportswear, Inc. (the "Company') set forth below;
Name of Assignee Address Number of Shares
---------------- ------- ----------------
and does hereby irrevocably constitute and appoint _______________________,
attorney-in-fact, to make such transfer on the books and records of the Company
maintained for this purpose, with full power of substitution and resubstitution.
The undersigned also represents that, by assignment hereof, the
Assignee acknowledges that this Warrant and the shares of Common Stock issuable
on exercise hereof are being acquired for investment and not with a view toward
distribution or resale, and that the Assignee will not offer, sell, or otherwise
dispose of this Warrant or any shares of Common Stock issuable on exercise
hereof except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any applicable state securities laws.
Further, in compliance with Section 7.3 of the Warrant, the Assignee shall, if
requested by the Company, confirm in writing n a form satisfactory to the
Company that this Warrant or any shares of Common Stock issuable on exercise
hereof are being acquired for investment and not with a view toward distribution
or resale.
Date: ________________________ __________________________________
__________________________________
__________________________________
49
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
50
<PAGE>
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of __________, 1998, by and amount Periscope Sportswear, Inc., a
Delaware corporation (the "Company"), Sutro & Co. Incorporated, a Delaware
corporation ("Sutro") and L.H. Friend, Weinress, Frankson & Presson, Inc., a
______________ corporation ("L.H. Friend").
RECITAL
The Company is issuing to the Holders (as defined below) those certain
Common Stock Purchase Warrants (the "Warrants"), of even date herewith, granting
to each of the Holders the right to purchase up to an aggregate of 260,000
shares of the Company's Common Stock (or up to 307,928 shares of Common Stock,
if the Underwriters' over-allotment is exercised), subject to adjustment. The
Company desires to grant certain demand and incidental registration rights to
the Holder in connection with the shares purchasable on exercise of the Warrant.
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
and covenants contained herein, and for other good and valuable consideration,
the receipt and adequacy of which are here-by acknowledged, the parties hereby
agree as follows:
AGREEMENT
1. DEFINITIONS. Unless the context requires otherwise, the following
-----------
underlined terms shall have the following respective meanings:
1.1 Agreement. This Registration Rights Agreement.
---------
1.2 Common Stock. The company's common stock, par
------------
value $0.001 per share.
1.3 Company. Periscope Sportswear, Inc., a Delaware
-------
corporation.
1.4 Exchange Act. The Securities Exchange Act of 1934, as
------------
amended.
1.5 Holder. Sutro & Co. Incorporated, L.H. Friend,
------
Weinress, Frankson & Presson, Inc. and each of their successors and permitted
assigns.
1.6 Registrable Securities. The shares of Common Stock
-----------------------
issued upon exercise of the Warrants.
51
<PAGE>
1.7 Registration Expenses. All expenses of registration,
----------------------
including but not limited to registration and filing fees, including filing fees
for the Nasdaq Stock Market or other stock exchanges on which the Common Stock
is traded, fees and expenses of complying with the Securities Laws, printing
expenses, transfer agent fees, and the fees and expenses of the Company's
independent certified public accountants, the Company's investment banker and
underwriter and the Company's legal counsel, but excluding the Holder's
brokerage fees, underwriting fees and discounts, transfer taxes, if any, and the
fees and expenses of any Selling Stockholder's legal counsel.
1.8 SEC. The United States Securities and Exchange Commission.
----
1.9 Securities. Each of the Warrants and the shares of Common
----------
Stock issuable or exercise thereof.
1.10 Securities Act. The Securities Act of 1933, as amended.
--------------
1.11 Securities Laws. The Securities Act, the Exchange Act and
----------------
all applicable state securities laws, and all rules and regulations promulgated
thereunder.
1.12 Selling Stockholder. With respect to any registration
-------------------
statement, any Holder whose Registrable Securities are included therein .
1.13 Warrants. The Company's Common Stock Purchase Warrants
---------
dated _______________, 1998, issued to the Holders and exercisable to purchase
up to 260,000 shares of Common Stock (or up to 307,928 shares of Common Stock if
the Underwriters' over-allotment is exercised), exercisable at the per share
price set forth therein.
2. REGISTRATION RIGHTS.
-------------------
2.1 Incidental Registration Rights.
------------------------------
(a) Notice of Registration; Registration. Whenever the
-------------------------------------
Company proposes to file a registration statement under the Securities Act to
offer publicly shares of the Common Stock (other than in connection with any
merger, acquisition, exchange offer, dividend reinvestment plan, employee
benefit plan, or stock option plan), the Company shall give each Holder written
notice of such intention at least twenty (20) days prior to the anticipated
initial filing date of such registration statement. The Company shall include in
such registration statement all Registrable Securities requested to be so
included by a Holder upon written notice to the Company within ten (10) days of
the Company's notice. If the registration statement is for an underwritten
offering, the Selling Stockholder shall sell its Registrable Securities in such
offering on the same terms and conditions as all other shares of Common Stock
being offered in such registration statement.
(b) Holdback. If the notice of registration under this
Section 2.1 is for an underwritten public offering and the Company is advised in
writing by the managing underwriter of such offering that, in its reasonable
judgment, the number of Registrable
52
<PAGE>
Securities for which incidental registration is requested pursuant to this
Agreement cannot be sold without compromising the ability to complete the
preestablished plan for distribution of the Common Stock (the grounds for which
shall be confidentially disclosed to any Selling Stockholder who so requests and
who agrees to maintain the confidentiality of such disclosure) then the number
of Registrable Securities to be sold by the Selling Stockholder shall be
reduced. The Company shall so advise all Holders proposing to distribute their
securities through such underwriting of the number of shares of securities that
may be included in the registration. The underwriting of securities (other than
on behalf of the Company) shall be allocated among all Holders and such other
holders, if any, with contractual rights to participate in such registration
which are not subordinate to the Holders, in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities or other
securities requested to be included in such registration by such Holders and
such other holders. If the number of Registrable Securities of the Selling
Stockholder is reduced, the Selling Stockholder may withdraw all or part of the
Registrable Securities from registration without affecting such Selling
Stockholder's registration rights hereunder for the Registrable Securities so
withdrawn or reduced.
(c) Underwriting Agreement. As a condition for the inclusion of any
----------------------
Registrable Securities in any registration statement, at the request of the
Company, the Selling Stockholder shall enter into an underwriting agreement with
the Company and the underwriter(s) with respect to the registration of its
Registrable Securities, in such customary form that is reasonably acceptable to
the Company, the Selling Stockholder and such underwriter(s), consistent with
the provisions of this Agreement.
(d) Withdrawal by the Company. The Company shall retain the absolute
-------------------------
right to withdraw any registration statement prior to the effective date
thereof, even if the Company shall have given notice to the Holder pursuant to
Section 2.1(a) hereof and the Selling Stockholder has requested inclusion of its
Registrable Securities therein.
(e) Expenses. The company shall pay all Registration Expenses for
--------
registration of securities under this Section 2.1. The Selling Stockholder
shall pay all brokerage fees, underwriting fees and discounts, transfer taxes,
if any, and the fees and expenses of the Selling Stockholders' legal counsel in
connection with the registration and sale of its Registrable Securities.
(f) Term. The incidental registration rights granted pursuant to this
----
Section 2.1 shall terminate on the earliest of the sale of all Registrable
Securities by the Holder or the receipt by the Holder of the written opinion of
legal counsel that all of the Registrable Securities may be publicly sold
without the need for compliance with the registration provisions of the
Securities Laws.
2.2 Demand
------
Registration.
- ------------
(a) Notice of Demand. If, any time after the date hereof, the Company
----------------
shall receive a written notice from a Holder demanding that the Company register
its Registrable Securities, then the Company shall promptly give written notice
of such
53
<PAGE>
demand to all other Holders of Registrable Securities, if any, and will,
subject to the other provisions of this Agreement, include in a registration
statement all Registrable Securities requested to be so included by Holders upon
written notice to the Company within twenty (20) days after the date of the
notice by the Company to the Holders, as long as the total of all Registrable
Securities for which registration is demanded represents a majority of the
outstanding Registrable Securities. (A) Sutro and its permitted transferees and
(B) L.H. Friend and its permitted transferees, each shall be entitled to one (1)
demand registration under this Section 2.2.
(b) Registration. Promptly after receipt of a demand for registration
------------
as set forth in Section 2.2(a) hereof, the Company shall prepare and file with
the SEC a registration statement, on the applicable form deemed appropriate by
the Company, for all the Registrable Securities for which registration is
demanded, and the Company shall use reasonable efforts to cause such
registration statement to become effective as soon as practicable and any
necessary or appropriate qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Laws and any other governmental requirements or
regulations). Notwithstanding the foregoing, the Company shall have the right
to delay the filing of the registration statement once for up to one hundred
twenty (120) days if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be materially detrimental to the Company or
its stockholders for a registration statement to be filed or become effective
during such period.
(c) Expenses. The company shall pay all Registration Expenses for
--------
registrations under this Section 2.2. The Selling Stockholders shall pay all
brokerage fees, underwriting fees and discounts, transfer taxes, if any, and the
fees and expenses of the Selling Stockholders' legal counsel in connection with
the registration and sale of its Registrable Securities.
(d) Term. The demand registration rights granted pursuant to this
----
Section 2.2 shall terminate on the earliest of the sale of all Registrable
Securities by the Holder or the receipt by the Holder of the written opinion of
legal counsel for the Company that the Registrable Securities may be publicly
sold without the need for compliance with the registration provisions of the
Securities Laws.
(e) Underwriting by Sutro. If a registration under this Section 2.2
---------------------
is requested by one or more Selling Stockholders to be in the form of an
underwritten offering, then the Company and the Selling Stockholder(s) shall
retain and cooperate with Sutro as the managing underwriter of such offering,
subject to the execution of an underwriting agreement in such customary form
that is reasonably acceptable to the Company, the Selling Stockholder(s) and
Sutro and consistent with the provisions of this Agreement; provided that Sutro
--------
maintains, at the time of such offering, all federal and state governmental and
other licenses and permits necessary to act as an underwriter of securities.
54
<PAGE>
2.3 Registration Procedures.
------------------------
(a) Selling Stockholder Information. Each Selling Stockholder shall
-------------------------------
provide the Company with such information about the Selling Stockholder and its
intended manner of distribution of the Registrable Securities, and shall
otherwise cooperate with the Company and the underwriters, if any, as may be
needed or helpful to complete any obligation of the Company hereunder.
(b) Consultation. The company shall supply drafts of any registration
------------
statement to the Selling Stockholders prior to filing the registration statement
with the SEC, and shall reasonably consult with each Selling Stockholder and its
legal counsel with respect to the form and content of such filing. The Company
will amend such registration statement to include such revisions as the Selling
Stockholders or their legal counsel shall reasonably request. If material
revisions reasonably requested by the Selling Stockholders or their legal
counsel are not effected by the Company, the Selling Stockholders may withdraw
all or part of the Registrable Securities from registration without affecting
such Selling Stockholders' registration rights hereunder for the Registrable
Securities so withdrawn or reduced.
(c) Provisions for Prospectuses. The Company shall furnish the
---------------------------
Selling Stockholder with the number of copies of a summary prospectus or other
prospectus, including a preliminary prospectus in conformity with the
requirements of the Securities Act, and such other documents as the Selling
Stockholders may reasonably request, in order to facilitate the public sale or
other disposition of the Registrable Securities.
(d) State Securities Law Compliance. The company shall use reasonable
-------------------------------
efforts to register or qualify the Registrable Securities covered by the
registration statement under the Securities Laws of such states as the Selling
Stockholders may reasonably request in light of the costs of such registration
or qualification for the Company (provided, however, that the Company shall not
be required to consent to the general service of process for all purposes in any
jurisdiction where it is not then qualified to do business or to qualify to do
business) and do any and all other acts or things that may be reasonably
necessary or advisable to enable the Selling Stockholders to consummate the
public sale or other disposition of their Registrable Securities in such states.
(e) Amendments. In the case of a demand registration pursuant to
----------
Section 2.2, the Company shall use reasonable efforts to prepare and file
promptly with the SEC such amendments and supplements to the registration
statement filed with the SEC in connection with such registration statement
continuously effective and in compliance with the Securities Act for up to six
(6) months, or until all Registrable Securities registered in such registration
statement have been sold, whichever is earlier.
(f) Prospectus Delivery. At any time when a sale or other public
-------------------
disposition of Common Stock pursuant to a registration statement is subject to a
prospectus delivery requirement, the Company shall immediately notify the
Selling Stockholders of the occurrence of any event as a result of which the
prospectus included in such registration
55
<PAGE>
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing. Upon receipt of such a notice, the Selling Stockholders shall
immediately discontinue sales or other dispositions of Registrable Securities
pursuant to such registration statement. The Selling Stockholders may resume
sales only upon receipt of an amended prospectus or after the Selling
Stockholders have been advised by the Company that use of the previous
prospectus may be legally resumed.
(g) Opinions. At the request of the Selling Stockholders, the Company
--------
shall use reasonable efforts to furnish on the date that the Registrable
Securities are delivered to the underwriter for sale in connection with an
underwritten offering registration pursuant to this Agreement (i) a letter from
the legal counsel representing the Company for the purposes of such registration
giving the Selling Stockholders the right to rely upon the opinion of such legal
counsel delivered to the underwriter(s) acting on behalf of the Company in
connection with such registration insofar as such opinion relates to the Selling
Stockholders, and (ii) a letter from the independent certified public
accountants of the Company substantially the same as the letter of such
accountants delivered to the underwriter(s) acting on behalf of the Company in
connection with such registration, provided that the Selling Stockholders
provide to such accountants the opinion or representation letter required by
Statement of Auditing Standards No. 72.
(h) Stop Orders. The company shall immediately notify the Selling
-----------
Stockholders of the issuance by the SEC of any stop order or order suspending
the effectiveness of any registration statement, the issuance by any state
regulatory authority of any order suspending the registration or qualification
of the Registrable Securities for sale in such jurisdiction, or the initiation
of any proceeding for such purposes. The Company, with the reasonable
cooperation of the Selling Stockholders, shall make every reasonable effort to
contest any such proceeding or to obtain the withdrawal of any such order at the
earliest possible date.
(i) Review of Records. The Company shall make available all financial
-----------------
and other records, pertinent corporate documents, and properties of the Company
for inspection by the Selling Stockholders or its underwriter, legal counsel, or
accountants, and shall cause the Company's officers, directors, and employees to
supply all information reasonably requested by any such person in connection
with any registration statement filed or to be filed hereunder, so long as such
person agrees to keep confidential any records, information, or documents
designated by the Company in writing as confidential.
(j) Compliance with Securities Laws. In all actions taken under this
-------------------------------
Agreement, the Company and the Selling Stockholders shall use their best efforts
to comply with all provisions of the Securities Laws.
(k) Market Stand-Off. If requested by the Company, the Holder may not
----------------
sell or otherwise transfer any Registrable Securities held by the Holder, other
than those Registrable Securities included in a registration statement, during
the one hundred
56
<PAGE>
eighty (180) day period following the effective date of a registration statement
filed by the Company under the Securities Act with Respect to any underwritten
offering. The Company may impose stop-transfer instructions with respect to the
Registrable Securities subject to the foregoing restrictions until the end of
such one hundred eighty day period.
2.5 Sales under Rule 144. With the view to making the benefits of
--------------------
Rule 144 under the Securities Act available to the Holders, the Company shall
use reasonable efforts to (a) ensure that there is adequate current public
information (as set forth in Rule 144(c)) available with respect to the Company;
(b) timely file with the SEC all reports and other documents required to be
filed by the Company under the Securities Act, the Exchange Act, and the rules
and regulations promulgated thereunder; and (c) promptly furnish to the Holders
upon request a written statement by the Company as to the Company's compliance
with those covenants and the provisions of Rule 144.
2.6 Indemnification.
---------------
(a) The Company's Indemnification. The Company shall indemnify,
-----------------------------
defend, save and hold each Selling Stockholder (and any person who controls such
Selling Stockholder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act), with respect to which a registration or
qualification has been effected pursuant to this Agreement, harmless from and
against any and all liabilities, claims, damages, demands, expenses, and losses,
including but not limited to interest, penalties, court costs, attorneys' fees,
and settlements approved by the Company, which consent shall not be unreasonably
withheld, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any registration statement or
prospectus, or any amendment or supplement thereto, incident to any such
registration or qualification, or based on any omission (or alleged omission) to
state therein, a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading, or from and against any violation by the Company of the
Securities Act by the Company in connection with any such registration or
qualification, and the Company will reimburse each such Holder, each of its
officers and directors, and each person controlling such Holder for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damages, liability or action,
provided that the Company will not be liable to any such person in any case to
the extent that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission (or alleged untrue statement or
omission), made in reliance upon and in conformity with written information
furnished to the Company by such Holder or controlling person and stated to be
specifically for use therein or the preparation thereby.
(b) The Selling Stockholder's Indemnification. Each Selling
-----------------------------------------
Stockholder with Registrable Securities included in a registration statement
under this Agreement shall indemnify, defend, save, and hold (i) the Company and
its directors, officers, and controlling persons (within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act), (ii) the
underwriter(s), if any, and their controlling persons, and (iii) all other
selling stockholders participating in such offering (and their respective
57
<PAGE>
officers, directors, underwriters, and controlling persons) harmless from and
against any and all liabilities, claims, damages, demand, expenses, and losses,
including but not limited to interest, penalties, court costs, attorneys' fees,
and settlements approved by the Selling Stockholder, which consent shall not be
unreasonably withheld, arising out of (i) any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement or a related prospectus, or any amendment or supplement thereto, or
any omission (or alleged omission) to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
(ii) or any violation by such Selling Stockholder of the Securities Act in
connection with such registration or qualification, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, in the case of clause (i) above to the extent, but
only to the extent that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement or in a
related prospectus in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein or the preparation thereby. Notwithstanding the foregoing, the
liability of each Holder under this subsection (b) shall be limited to the gross
proceeds from the offering received by such Holder.
(c) Contribution. If the indemnification provided for in this Section
------------
2.6 from an indemnifying party is unavailable to an indemnified party hereunder
in respect to any liability, claim, damage, demand, expense, or loss referred to
herein, then the indemnifying party in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such liability, claim, damage, demand, expense, or loss in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and the indemnified party in connection with the statements or omissions
that resulted in such liability, claim, damage, demand, expense, or loss, as
well as any other relevant equitable consideration. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue statement of a material fact or the
omission to state a material fact relates to information supplied by such
indemnifying party or indemnified party and the parties relative intent,
knowledge, access to information, and opportunity to correct or prevent such
untrue statement or omission. The amount paid or payable by a party as a result
of the liabilities, claims, damages, demands, expenses, and losses referred to
above shall be deemed to include any court costs, attorneys' fees, and other
expenses reasonably incurred by such party in connection with investigating or
defending any action, suit, or proceeding. The parties hereto agree that it
would not be just and equitable if contribution pursuant to this Section 2.6(c)
were determined by pro rata allocation or by any other method of allocation that
does not take into account the equitable considerations referred to in this
Section 2.6(c). No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not also guilty of such fraudulent
misrepresentation.
58
<PAGE>
3. GENERAL PROVISIONS.
------------------
3.1 Amendment.
---------
All amendments or modifications of this Agreement shall be in writing and shall
be signed by all of the parties hereto.
3.2 Waiver. Any waiver of any right, power, or privilege hereunder
------
must be in writing and signed by the party being charged with the waiver. No
delay on the part of any party hereto in exercising any right, power, or
privilege hereunder shall operate as a waiver of any other right, power, or
privilege hereunder, nor shall any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power, or privilege.
3.3 Notices. All notices or other communications required or
-------
permitted to be given pursuant to this Agreement shall be in writing and shall
be delivered personally or sent by overnight courier, by telecopy with
confirmation by first-class mail, or by certified mail, return receipt
requested. Notices delivered personally or sent by overnight courier or by
telecopy with confirmation by first-class mail shall be effective on the date
first received, while notices sent by certified mail, return receipt requested,
shall be deemed to have been received and to be effective three (3) business
days after deposit into the mails. Notices shall be given to the parties at the
following respective addresses, or to such other addresses as any party shall
designate in writing:
If to the Company: Periscope Sportswear, Inc.
1407 Broadway, Suite 620
New York, New York 10018
Attn: President and
Chief Executive Officer
If to the Holders: Sutro & Co. Incorporated
11150 Santa Monica Blvd., 15th Floor
Santa Monica, California 90025
c/o Robert Lind, Managing Director
and to: L.H. Friend, Weinress, Frankson & Presson, Inc.
3333 Michelson Drive, Suite 650
Irvine, California 92512
c/o Robert Campbell, Managing Director
3.4 Successors and Assigns. This Agreement and each of its
----------------------
provisions shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, executors, administrators successors, and
assigns. The Holders may assign this Agreement and its rights hereunder only in
connection with a transfer or assignment of all or part of the Warrants or the
Registrable securities.
3.5 Law Governing. This Agreement has been negotiated, executed
-------------
and delivered and shall be performed in the State of California and shall be
governed by and
59
<PAGE>
construed and enforced in accordance with the laws of the State of California,
without regard for its conflict of laws rules.
3.6 Attorneys' Fee. In any suit to interpret or enforce the terms
--------------
and provisions of this Agreement, the prevailing party shall be entitled to
recover court costs and attorneys' fees. In addition to any other remedy or
recovery to which such party may be entitled.
3.7 Counterparts. This Agreement may be executed in two or more
------------
counterparts, including by facsimile transmission, all of which together shall
constitute a single instrument.
3.8 Severability of Provisions. In the event any one or more of the
--------------------------
provisions of this Agreement shall for any reason be held to be invalid,
illegal, or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid, illegal, or unenforceable provision had
never been contained herein.
3.9 Construction. The headings in the sections and paragraphs of
------------
this Agreement are for convenience only and shall not constitute a part hereof.
Whenever the context so requires, the masculine shall include the feminine and
the neuter, the singular shall include the plural, and conversely. The terms
and all parts of this Agreement shall in all cases be interpreted simply and
according to their plain meaning and neither for nor against any party hereto.
60
<PAGE>
IN WITNESS WHEREOF,the parties have duly executed and delivered this
Agreement as of the date first written above.
Periscope Sportswear, Inc. Sutro & Co. Incorporated
By: ____________________________ By: ________________________________
Glenn Sands Name:
President and Title:
Chief Executive Officer
L.H. Friend, Weinress, Frankson &
Presson, Inc.
By:
Name:
Title:
------------------------------
61
<PAGE>
EXHIBIT 4.1
CERTIFICATE OF STOCK
NUMBER SHARES
PS
PERISCOPE SPORTSWEAR, INC.
INCORPORATED UNDER THE LAWS CUSIP 71400R 10 7
OF THE STATE OF DELAWARE
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.001
PER SHARE OF
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
---------------------------------------------------------------------------
transferable on the books of the corporation by the holder hereof in person or
by duly authorized Attorney, upon surrender of the Certificate properly
endorsed.
This Certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar:
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers
Dated:
COUNTERSIGNED AND REGISTERED
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[CORPORATE SEAL]
SECRETARY PRESIDENT
<PAGE>
PERISCOPE SPORTSWEAR, INC.
The Corporation will furnish without charge to each stockholder who so
requests a statement of the designations, powers, preferences and relative
participating, optional or other special rights of each class of stock or series
thereof of the Corporation and the qualifications, limitations or restrictions
of such preferences and/or rights. Such request may be made to the Corporation
or the Transfer Agent.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM- as tenants in common
TEN ENT- as tenants by the entireties
JT TEN- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT _______ Custodian _______
(Cust) (Minor)
under Uniform Gifts to Minors
Act _____________
(State)
Additional abbreviations may also be used though not in the above list.
For value received, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
______________________________________
_______________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
________________________________________________________________________ shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ______________
____________________________________________
NOTICE:THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
Signature(s) Guaranteed:
________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
MORSE, ZELNICK, ROSE & LANDER, LLP
450 PARK AVENUE
NEW YORK, NEW YORK 10022
August 7, 1998
Periscope Sportswear, Inc.
1407 Broadway
Suite 620
New York, New York
Dear Sirs:
We have acted as counsel to Periscope Sportswear, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
registration statement on Form S-1 (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act of 1933, as amended
(the "Act"), to register the offering by (1) the Company of (a) 2,600,000 shares
of Common Stock, $.001 par value per share, (the "Common Stock") (2,799,280
shares of Common Stock if the over-allotment option is exercised in full), (b)
Common Stock Purchase Warrants to be issued to the underwriters (the
"Underwriters' Warrants"), (c) 260,000 shares of Common Stock underlying the
Underwriters' Warrants and (d) such additional shares of Common Stock as may be
offered by the Company and as may underlie the Underwriters' Warrants covered by
any additional registration statement filed pursuant to Rule 462 promulgated
under the Act and (2) certain Selling Stockholders of 595,200 shares of Common
Stock (875,200 shares of Common Stock if the over-allotment option is exercised
in full).
In this regard, we have reviewed the Certificate of Incorporation of the
Company, resolutions adopted by the Company's Board of Directors, the
Registration Statement, the proposed form of the Underwriters' Warrants, the
other exhibits to the Registration Statement and such other records, documents,
statutes and decisions as we have deemed relevant in rendering this opinion.
Based upon the foregoing, we are of the opinion that:
Each share of Common Stock being offered, the Underwriters' Warrants, and
the Common Stock underlying the Underwriters' Warrants have been duly and
validly authorized for issuance and when issued or transferred as contemplated
by the Registration Statement or upon exercise of the Underwriters' Warrants
will be legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement. In giving such opinion, we do not hereby admit that we
are acting within the category of persons whose consent is required under
Section 7 of the Act or the rules or regulations of the Securities and Exchange
Commission thereunder.
Very truly yours,
/s/ MORSE, ZELNICK, ROSE & LANDER, LLP
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of January 1, 1998 between GLENN SANDS (the
"Executive") and PERISCOPE SPORTSWEAR, INC., a Delaware corporation (the
"Company").
1. Term of Agreement. Subject to the terms and conditions hereof, the
------------------
term of employment of the Executive under this Employment Agreement shall be for
the period commencing on January 1, 1998 (the "Commencement Date") and
terminating on December 31, 2000, unless sooner terminated as provided in
accordance with the provisions of Section 6 hereof. (Such term of employment is
herein sometimes called the "Employment Term".)
2. Employment. As of the Commencement Date, the Company hereby agrees to
-----------
employ the Executive as President and Chief Executive Officer and the Executive
hereby accepts such employment and agrees to perform his duties and
responsibilities hereunder in accordance with the terms and conditions
hereinafter set forth.
3. Duties and Responsibilities. Executive shall be President and Chief
----------------------------
Executive Officer of the Company during the Employment Term. Executive shall
report to and be subject to the direction of the Board of Directors and shall
perform such duties consistent with his title and position as may be assigned to
him from time to time by the Board of Directors. During the Employment Term,
Executive shall devote his full time, skill, energy and attention to the
business of the Company and shall perform his duties in a diligent, trustworthy,
loyal and businesslike manner.
4. Compensation. The Company shall pay to Executive a salary at the
-------------
rate of $500,000 per year payable in such manner as it shall determine, but in
no event any less often
<PAGE>
than monthly, less withholding required by law and other deductions agreed to by
Executive. During each year of the Employment Term, the Executive shall be
entitled to a $50,000 nonaccountable expense allowance and, if the following
conditions are met, a $450,000 bonus: (i) during the first year of the
Employment Term (a) the Company consummates an initial public offering, (b) the
Company has net sales of at least $87,000,000 and (c) the Executive is
continually employed by the Company through December 31, 1998 and (ii) during
the second and third years of the Employment Term, (a) the Company has net sales
of at least $90,000,000 and $100,000,000, respectively, and (b) the Executive is
employed by the Company through December 31, 1999 and December 31, 2000,
respectively. Net sales shall mean gross sales less returns and allowances.
5. Expenses and Benefits.
----------------------
(a) The Company shall, consistent with its policy of reporting and
reimbursement of business expenses, reimburse Executive for such ordinary and
necessary business related expenses as shall be incurred by Executive in the
course of the performance of his duties under this Agreement.
(b) Executive shall be eligible to participate to the extent that he
qualifies in all benefit plans, including without limitation, pension, term life
insurance, hospitalization, medical insurance and disability plans as are made
available from time-to time to executives of the Company.
(c) Executive shall be entitled to four weeks of paid vacation
annually, which shall be taken in accordance with the procedures of the Company
in effect from time-to-time.
2
<PAGE>
6. Termination.
------------
(a) The Company shall have the right to terminate the employment of
the Executive under this Agreement for disability in the event Executive suffers
an injury, illness or incapacity of such character as to substantially disable
him from performing his duties hereunder for a period of more one hundred eighty
(180) consecutive days upon the Company giving at least thirty (30) days written
notice of termination; provided, however, that if the Executive is eligible to
receive disability payments pursuant to a disability insurance policy paid for
by the Company, the Executive shall assign such benefits to the Company for all
periods as to which he is receiving full payment under this Agreement.
(b) This Agreement shall terminate upon the death of Executive.
(c) The Company may terminate this Agreement at any time because of
(i) Executive's material breach of any term of this Agreement or (ii) the
willful engaging by the Executive in misconduct which is materially injurious to
the Company, monetarily or otherwise; provided, in each case, however, that the
Company shall not terminate this Agreement pursuant to this Section 6(c) unless
the Company shall first have delivered to the Executive a notice which
specifically identifies such breach or misconduct and the Executive shall not
have cured the same within fifteen (15) days after receipt of such notice.
(d) The Executive may terminate his employment for "Good Reason" if:
(i) he is assigned, without his express written consent, any
duties inconsistent with his positions, duties, responsibilities, authority and
status with the Company as of the date hereof, or a change in his reporting
responsibilities or titles as in effect as of the date hereof, except in
connection with the termination of his employment by him without Good Reason; or
3
<PAGE>
(ii) his compensation is reduced.
7. Liquidated Damages. It is understood that if the Executive (i) shall
-------------------
elect to terminate his employment for a Good Reason (as defined above) or (ii)
his employment is terminated by the Company otherwise than as provided in
Section 6, the Executive will suffer damages which will be difficult to
calculate. Consequently, in the event of a termination of Executive's
employment for either of these reasons, Executive shall be entitled by way of
liquidated damages and not as a penalty to receive a single lump sum payment in
an amount equal to the amount of the compensation payments that, but for his
termination of employment under this Section 7, would have been payable to the
Executive for the remainder of the Employment Term.
Such payment shall be made by the Company to the Executive within fifteen
(15) days following his termination of employment for the reason set forth in
this Section 7. The Executive shall not be required to mitigate the amount of
any payment provided in this Section 7 nor shall the amount payable under this
Section be reduced by any compensation earned by the Executive after the date of
his termination of employment.
8. Revealing of Trade Secrets, etc. Executive acknowledges the interest
--------------------------------
of the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
4
<PAGE>
9. Covenants Not to Compete. During the Employment Term the Executive
------------------------
shall not, directly or indirectly, in any manner, engage in any business which
competes with any business conduced by the Company and will not directly or
indirectly own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with any corporation, firm or business that is so engaged, (provided,
however, that nothing herein shall prohibit the Executive from owning not more
than three (3%) percent of the outstanding stock of any publicly held
corporation). In addition, during the Employment Term and for a period of one
year thereafter, the Executive shall not, directly or indirectly, in any manner
(i) persuade or attempt to persuade any employee of the Company to leave the
employ of the Company or to become employed by any other entity or (ii) persuade
or attempt to persuade any current or former customer or contractor to reduce
the amount of business it does or intends or anticipates doing with the Company.
10. Opportunities. During his employment with the Company, and for one
--------------
year thereafter, Executive shall not take any action which might divert from the
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
11. Survival. In the event that this Agreement shall be terminated, then
---------
notwithstanding such termination, the obligations of Executive pursuant to
Sections 8 and 9 of this Agreement shall survive such termination.
12. Contents of Agreement, Parties in Interest, Assignment, etc. This
------------------------------------------------------------
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter
5
<PAGE>
hereof. All of the terms and provisions of this Agreement shall be binding upon
and inure to the benefit of and be enforceable by the respective heirs,
representatives, successors and assigns of the parties hereto, except that the
duties and responsibilities of Executive hereunder which are of a personal
nature shall neither be assigned nor transferred in whole or in part by
Executive. This Agreement shall not be amended except by a written instrument
duly executed by the parties.
13. Severability. If any term or provision of this Agreement shall be
-------------
held to be invalid or unenforceable for any reason, such term or provision shall
be ineffective to the extent of such invalidity or unenforceabiltiy without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforcable term or provision had not been
contained herein.
14. Notices. Any notice, request, instruction or other document to be
--------
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
If to the Company
addressed to: Periscope Sportswear, Inc.
1407 Broadway
Suite 620
New York, New York 10018
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attn: George Lander, Esq.
6
<PAGE>
If to Executive
addressed to: Glenn Sands
2 Rio Vista Drive
Alpine, New Jersey 07620
or to such other address as the one party shall specify to the other party in
writing.
16. Counterparts and Headings. This Agreement may be executed in one or
--------------------------
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
PERISCOPE SPORTSWEAR, INC.
By: /s/ Scott Pianin
----------------------------
SCOTT PIANIN
/s/ Glenn Sands
------------------------------
GLENN SANDS
7
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated as of July 1, 1998 between SCOTT PIANIN (the
"Executive") and PERISCOPE SPORTSWEAR, INC., a Delaware corporation (the
"Company").
1. Term of Agreement. Subject to the terms and conditions hereof, the
------------------
term of employment of the Executive under this Employment Agreement shall be for
the period commencing on July 1, 1998 (the "Commencement Date") and terminating
on June 30, 2001, unless sooner terminated as provided in accordance with the
provisions of Section 6 hereof or extended in accordance with the provisions of
Section 6 hereof. (Such term of employment is herein sometimes called the
"Employment Term".
2. Employment. As of the Commencement Date, the Company hereby agrees to
-----------
employ the Executive as Vice President and Chief Operating Officer and the
Executive hereby accepts such employment and agrees to perform his duties and
responsibilities hereunder in accordance with the terms and conditions
hereinafter set forth.
3. Duties and Responsibilities. Executive shall be Executive Vice
----------------------------
President and Chief Operating Officer during the Employment Term. Executive
shall report to and be subject to the direction of the President and shall
perform such duties consistent with his title and position as may be assigned to
him from time to time by the President. During the Employment Term, Executive
shall devote his full time, skill, energy and attention to the business of the
Company and shall perform his duties in a diligent, trustworthy, loyal and
businesslike manner.
<PAGE>
4. Compensation.
-------------
(a) Base Compensation. The Company shall pay to Executive a salary at
the rate of $184,000 per year payable in such manner as it shall determine, but
in no event any less often than monthly, less withholding required by law and
other deductions agreed to by Executive.
(b) Incentive Compensation. The Company shall pay to Executive, as
additional compensation during each year of the Employment Term ("Incentive
Compensation"), the following amounts:
(i) One percent (1%) of the annual net sales of the Company up
to the sum of Five Million ($5,000,000.00) Dollars;
(ii) Two and one half percent (2 1/2%) of the annual net sales of
the Company in excess of Five Million ($5,000,000.00) Dollars; and
(iii) An additional one percent (1%) of annual net sales in excess
of $15,566,022. Should Executive's annual net sales exceed Nineteen Million
($19,000,000.00) Dollars, then the amount described in this paragraph 4(b)(iii)
shall be retroactively adjusted to reflect a two percent (2%) Incentive
Compensation rate for those annual net sales in excess of $15,566,022.
The percentage Incentive Compensation referenced herein shall not be
cumulative and shall apply only to Net Sales made to those accounts listed on
Schedule "A" annexed hereto as such schedule may be amended from time to time to
reflect additional customers of the Company secured and serviced by Executive.
Incentive Compensation shall be paid monthly. "Net Sales" as used herein
shall mean the gross invoice price of products actually sold and shipped by the
Company to its customers
2
<PAGE>
less any discounts, credits, return and chargebacks actually granted. In the
event goods are not shipped for any reason whatsoever, said goods shall not be
included within the term "net sales." All sales must be authorized by Glenn
Sands, in writing, prior to the accepting thereof. Any authorization of Glenn
Sands which is not granted or denied within seven (7) days shall be deemed
approved. In the event that goods are shipped subsequent to the expiration or
termination of this agreement for any reason whatsoever including a termination
for cause or death, Executive shall be entitled to receive any and all
compensations thereon as if this Agreement was in full force and effect for
orders received prior to said termination. In the absence of any agreement to
the contrary, any and all obligation to pay Incentive Compensation hereunder on
sales made by Executive subsequent to the expiration or termination of this
Agreement shall otherwise cease as of the date of termination.
There shall be no variance from the Incentive Compensation structure
provided by this Agreement without the express written agreement of the parties
hereto.
The Incentive Compensation rates listed herein do not apply to sales made
by the Company or its affiliates pursuant to various buying agent agreements
entered into between the Company (and/or its subsidiaries or affiliates) and its
clients. For purposes hereunder, the term "buying agent" shall reference those
situations wherein the Company in the ordinary course of business bills its
client only for a sales commission rather than for the actual goods sold. In
situations where the Company is acting as a buying agent and receiving solely a
commission, Executive shall receive a flat amount of Incentive Compensation at
the rate of one percent (1%) of the sales price of the goods sold. Such
Incentive Compensation is due and payable only when the Company itself receives
payment from the client. Incentive
3
<PAGE>
Compensation shall be limited solely to sales to those clients set forth in
Schedule "A" annexed hereto as such schedule may be amended from time to time as
set forth above.
With respect to Incentive Compensation earned under this Agreement during
1998, amounts earned and paid pursuant to Sections 6(a)(ii) and 6(c) of the
Consulting Agreement dated as of November 1, 1996 between Periscope I
Sportswear, Inc., a New York corporation, and S.R.P. Sales, Inc., a New York
corporation, shall be subtracted from amounts earned under this Section 4(b).
5. Expenses and Benefits.
----------------------
(a) The Company shall, consistent with its policy of reporting and
reimbursement of business expenses, reimburse Executive for such ordinary and
necessary business related expenses as shall be incurred by Executive in the
course of the performance of his duties under this Agreement.
(b) Executive shall be eligible to participate to the extent that he
qualifies in all benefit plans, including without limitation, pension, term life
insurance, hospitalization, medical insurance and disability plans as are made
available from time-to time to executives of the Company.
(c) Executive shall be entitled to four weeks of paid vacation
annually, which shall be taken in accordance with the procedures of the Company
in effect from time-to-time.
6. Termination.
------------
(a) The Company shall have the right to terminate the employment of
the Executive under this Agreement for disability in the event Executive suffers
an injury, illness or incapacity of such character as to substantially disable
him from performing his duties
4
<PAGE>
hereunder for a period of more one hundred eighty (180) consecutive days upon
the Company giving at least thirty (30) days written notice of termination;
provided, however, that if the Executive is eligible to receive disability
payments pursuant to a disability insurance policy paid for by the Company, the
Executive shall assign such benefits to the Company for all periods as to which
he is receiving full payment under this Agreement.
(b) This Agreement shall terminate upon the death of Executive.
(c) The Company may terminate this Agreement at any time because of
(i) Executive's material breach of any term of this Agreement or (ii) the
willful engaging by the Executive in misconduct which is materially injurious to
the Company, monetarily or otherwise.
7. Revealing of Trade Secrets, etc. Executive acknowledges the interest
--------------------------------
of the Company in maintaining the confidentiality of information related to its
business and shall not at any time during the Employment Term or thereafter,
directly or indirectly, reveal or cause to be revealed to any person or entity
the supplier lists, customer lists or other confidential business information of
the Company; provided, however, that the parties acknowledge that it is not the
intention of this paragraph to include within its subject matter (a) information
not proprietary to the Company, (b) information which is then in the public
domain, or (c) information required to be disclosed by law.
8. Covenants Not to Compete. During the Employment Term the Executive
------------------------
shall not, directly or indirectly in any manner, engage in any business which
competes with any business conduced by the Company and will not directly or
indirectly own, manage, operate, join, control or participate in the ownership,
management, operation or control of, or be employed by or connected in any
manner with any corporation, firm or business that is so
5
<PAGE>
engaged, (provided, however, that nothing herein shall prohibit the Executive
from owning not more than three (3%) percent of the outstanding stock of any
publicly held corporation). In addition, during the Employment Term and for a
period of one year thereafter, the Executive shall not, directly or indirectly,
in any manner (i) persuade or attempt to persuade any employee of the Company to
leave the employ of the Company or to become employed by any other entity or
(ii) persuade or attempt to persuade any current or former customer or
contractor to reduce the amount of business it does or intends or anticipates
doing with the Company.
9. Opportunities. During his employment with the Company, and for one
--------------
year thereafter, Executive shall not take any action which might divert from the
Company any opportunity learned about by him during his employment with the
Company (including without limitation during the Employment Term) which would be
within the scope of any of the businesses then engaged in or planned to be
engaged in by the Company.
10. Survival. In the event that this Agreement shall be terminated, then
---------
notwithstanding such termination, the obligations of Executive pursuant to
Sections 7 and 8 of this Agreement shall survive such termination.
11. Contents of Agreement, Parties in Interest, Assignment, etc. This
------------------------------------------------------------
Agreement sets forth the entire understanding of the parties hereto with respect
to the subject matter hereof. All of the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs, representatives, successors and assigns of the parties hereto,
except that the duties and responsibilities of Executive hereunder which are of
a personal nature shall neither be assigned nor transferred in whole or in part
by
6
<PAGE>
Executive. This Agreement shall not be amended except by a written instrument
duly executed by the parties.
12. Severability. If any term or provision of this Agreement shall be
-------------
held to be invalid or unenforceable for any reason, such term or provision shall
be ineffective to the extent of such invalidity or unenforceabiltiy without
invalidating the remaining terms and provisions hereof, and this Agreement shall
be construed as if such invalid or unenforcable term or provision had not been
contained herein.
13. Notices. Any notice, request, instruction or other document to be
--------
given hereunder by any party to the other party shall be in writing and shall be
deemed to have been duly given when delivered personally or five (5) days after
dispatch by registered or certified mail, postage prepaid, return receipt
requested, to the party to whom the same is so given or made:
If to the Company
addressed to: Periscope Sportswear, Inc.
1407 Broadway
Suite 620
New York, NY 10018
with a copy to: Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, New York 10022
Attn: George Lander, Esq.
If to Executive
addressed to: Scott Pianin
360 East 72nd Street
New York, New York 10021
or to such other address as the one party shall specify to the other party in
writing.
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14. Counterparts and Headings. This Agreement may be executed in one or
--------------------------
more counterparts, each of which shall be deemed an original and all which
together shall constitute one and the same instrument. All headings are
inserted for convenience of reference only and shall not affect the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
PERISCOPE SPORTSWEAR, INC.
By: /s/ Glenn Sands
-----------------------------
GLENN SANDS
/s/ Scott Pianin
----------------------------------
SCOTT PIANIN
8
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EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT, made as of this 1st day of May, 1998 by and between
Periscope Sportswear, Inc., a Delaware corporation, having a principal place of
business at 1407 Broadway, Suite 620, New York, New York 10018 (hereinafter
"Periscope") and Raymond Kuslansky having a principal place of residence at 2
Rene Drive, Marlboro, New Jersey 07746 (hereinafter "Employee") .
WITNESSETH
----------
WHEREAS, Periscope is a corporation primarily involved in the design,
manufacture and sale of women's garments; and
WHEREAS, Periscope has employed Employee in various executive capacities;
WHEREAS, the parties hereto are desirous of entering into an agreement for
Employee's continued employment pursuant to the terms and conditions set forth
herein;
NOW, THEREFORE, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the receipt whereof is hereby
acknowledged, the parties agree as follows:
1. Employment
----------
Periscope hereby agrees to retain Employee as Vice President, Chief
Financial Officer, Treasurer and Secretary under the terms and conditions set
forth herein.
2. Term
----
Subject to the provisions for termination as hereinafter provided, the
term of this Agreement shall be for five years and shall begin on the date first
above written and shall terminate on April 30, 2003.
<PAGE>
3. Employee Representations
------------------------
Employee agrees that during the term of this Agreement he will:
(a) Perform all such reasonable and lawful duties as are normally
consistent with his title and position;
(b) Devote all his time and effort to the performance of his duties as
Vice President, Treasurer and Secretary of Periscope;
(c) Not be engaged either directly or indirectly, in any other
business venture, employment or enterprise in competition with his services
hereunder except that Employee may own stock of any publicly traded corporation;
(d) Employee further represents that he is not aware of any matter or
event which would restrict in any way his right to perform the services required
of him hereunder. Specifically, Employee represents that he is not a party to
any contract of employment with any prior employer which would prohibit him from
performing the duties required hereunder. In the event Employee's employment is
so restricted and/or any former employer brings suit challenging Employee's
right to perform hereunder, Periscope retains the right to unilaterally
terminate this Agreement and all obligations hereunder shall be deemed null and
void unless Employee indemnifies Periscope, to Periscope's sole satisfaction,
for all costs and liability for said actions by prior employers.
4. Compensation
------------
Periscope agrees to pay Employee the following compensation:
(a) A base salary at the rate of $168,220.00 per annum, payable in
equal weekly installments ("base salary") subject to any and all Federal, State
or local withholding tax requirements as required by law;
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(b) Periscope shall further reimburse Employee for any and all
expenses incurred by him in conjunction and in furtherance of his employment.
(c) Periscope shall directly pay Employee's automobile related
expenses e.g. lease payments, loan payments, liability insurance, maintenance,
repair and parking. The monthly lease and/or loan payment assumed hereunder
shall not exceed $1,000.00 per month. All other automobile related expenses
shall be in the amount realized without limit.
(d) Periscope shall, in its sole and subjective discretion, reserves
the right to further compensate Employee by way of bonus at the end of each
calendar year hereunder.
5. Severance
---------
In the event Employee's employment is terminated, either voluntarily or
involuntarily during the course of or subsequent to the expiration of this
Agreement, Employee shall be entitled to two weeks severance pay at his base
salary rate for every year employed by Periscope since the commencement of his
employment. This severance compensation will be paid in one lump sum payment
within thirty (30) days of any termination.
6. Benefits
--------
Employee shall be entitled to the normal group health, medical and
pension insurance and other benefits and bonuses (if any) generally available to
executive employees of Periscope.
7. Death of Employee
-----------------
In the event of Employee's death during the term, this Agreement shall
terminate immediately and Employee's legal representative shall be entitled to
receive the base salary due Employee through the last day of the calendar month
next following the date of his death shall have occurred.
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8. Termination for Cause
---------------------
If the Employee is convicted of a felony, or any crime involving
Periscope (other than in furtherance of Periscope's business or pursuant to
actions taken at the direction or with the approval of the Company's Board of
Directors) Periscope may terminate the Employee's employment hereunder at any
time within thirty (30) days of the occurrence of said event, by written notice
to the Employee. Except as otherwise provided herein, the Employee shall have no
right to receive any compensation or benefit hereunder on and after the
effective date of the notice provided in the preceding sentence other than the
salary and other benefits accrued prior to the date of termination and
reimbursement for expenses incurred prior to the date of termination.
9. Notices
-------
Any notices required or permitted to be given under this Agreement
shall be sufficient if in writing and if sent by certified mail, return receipt
requested to the residence in case of Employee and to Periscope's business
address as hereinabove set forth or at such other addresses as the parties may
designate in writing hereafter.
10. Waiver of Breach
----------------
The waiver by Periscope of a breach or any provisions of this
Agreement by Employee shall not operate or be construed as a waiver of any
subsequent breach by Employee.
11. Assignment
---------
In the event of any corporate restructure or sale of Periscope's
assets or stock, this Agreement will be binding upon any purchaser and/or
successor entity.
4
<PAGE>
12. Entire Agreement
----------------
This instrument contains the entire Agreement of the parties. It may
not be changed orally but only by agreement in writing signed by the party
against whom enforcement of any wavier, change, modification, extension or
discharge is sought.
13. Interdependence of Provisions
-----------------------------
Each of the provisions and covenants contained herein shall be
enforceable independently of every other provision and covenant of this
Agreement and the invalidity or non enforceability of any provision or covenant
shall not invalidate or render non enforceable any other provision or covenant
contained herein. To the extent any provision herein is deemed nonenforceable by
a reviewing Court, said Court shall have the power, in its discretion, to modify
said provision to any degree necessary to make it enforceable. The foregoing
shall not be deemed to limit any other rights that Periscope may elect to
pursue.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
first above written.
PERISCOPE SPORTSWEAR, INC.
By: /s/ Glenn Sands
-------------------------------
Glenn Sands
/s/ Raymond Kuslansky
----------------------------------
Raymond Kuslansky
5
<PAGE>
EXHIBIT 10.5
LEASE dated February 14, 1997 between GETTINGER ASSOCIATES,
a limited partnership, hereinafter referred to as "Landlord" and PERISCOPE I
SPORTSWEAR, LLC., a New Jersey Corporation, having its principal place of
business at 2075 91st Street, North Bergen, New Jersey 07047,
hereinafter jointly, severally and collectively referred to as "Tenant."
WITNESSETH: The Landlord does hereby lease to Tenant, and Tenant does
hereby take from Landlord the space(s) designated as Unit "620" on the 6th floor
and Unit "1025" on the l0th floor,
substantially as outlined in red on the plan(s) attached hereto, on the sixth &
tenth floor of the building known as 1407 BROADWAY, hereinafter referred to as
"the building" in the Borough of Manhattan, City, County and State of New York,
which space, together with all the fixtures and improvements which, at the
commencement of or during the term, are thereto attached, is hereinafter
referred to as "the premises" or "the demised premises" for a term to commence
on May 1, 1997, and to end on April 30, 2002 at the annual rental of TWO
HUNDRED SIXTY FIVE THOUSAND AND NO/100 ($265,000.00) DOLLARS, which Tenant
agrees to pay in lawful money of the United States of America in equal monthly
installments in advance on the first day of each month during said term, at the
office of Landlord, except that Tenant shall pay the first monthly installment
on the execution hereof unless this lease (Lease) be a renewal.
The parties hereto, for themselves their heirs, distributees, executors,
administrators, legal representatives, successors and assigns, hereby covenant,
as follows:
1. Tenant shall pay the rent and additional rent as above and as
hereinafter provided.
2. Tenant shall use and occupy the premises for SHOWROOM AND OFFICE FOR
THE SALE (WHOLESALE ONLY) AND DISPLAY OF LADIES WEARING APPAREL, and the
premises shall be used for no other purpose.
3. Tenant for itself, its heirs, distributees, executors, administrators,
legal representatives, successors and assigns, expressly covenants that it shall
not assign, mortgage or encumber this Lease nor sublet or suffer or permit the
demised premises or any part thereof, to be used by others without the prior
written consent of Landlord in each instance. The transfer of a majority of any
class of the issued and outstanding capital stock of any corporate Tenant of
this Lease or a majority of the total interest of any partnership or individual
Tenant, however accomplished, whether in a single transaction or in a series of
related or unrelated transactions, shall be deemed an assignment of this Lease.
If this Lease be assigned or if the demised premises or any part thereof be
sublet or occupied by anyone other than Tenant, Landlord may, after default by
Tenant, collect rent, additional rent and other charges from the assignee,
sublessee or occupant, and apply the net amount so collected to the
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rent, additional rent or other charges herein provided, but no such assignment,
subletting, occupancy or collection shall be deemed a waiver of this covenant,
or the acceptance of the assignee, sublessee or occupant as tenant, or a
release of Tenant from the further performance by it of the covenants on its
part to be performed hereunder. The consent by Landlord to an assignment or
subletting shall not in any wise be construed to relieve Tenant, subtenant or
any assignee from obtaining the express consent in writing of Landlord to any
further assignment or subletting. The listing of any name other than that of the
Tenant, whether on the doors of the premises or on the building or floor
directories, or otherwise, shall not operate to vest any right or interest in
this Lease or in the premises, or be deemed to be the written consent of the
Landlord mentioned in this paragraph, it being expressly understood that any
such listing is a privilege extended by the Landlord, revocable at will by
written notice to the Tenant, subtenant or assignee where Landlord has consented
in writing to such subleasing or assignment.
4. The Tenant shall not obstruct or permit the obstruction of windows,
halls, areas, roofs, stairways or entrances to the building, and will not affix,
erect or inscribe any signs, projections, awnings, signals, lettering, painting
or advertisements of any kind to any part of the premises including the inside
or outside of the windows or doors and will not paint the inside or outside of
the windows or doors unless and until the style, size, color, construction and
location thereof have been approved in writing by the Landlord. The Landlord
shall have the right to withdraw such approval at any time and to require the
Tenant to remove any such signs, projections, awnings, signals, lettering,
painting or advertisements without being liable to the Tenant by reason thereof
and to charge the cost of doing so to the Tenant as additional rent. The
Landlord also reserves to itself the sole right to designate the person, firm or
corporation which shall do the work of lettering, painting and erecting of any
and all signs to be affixed to the premises or the building.
5. Tenant shall make no alternations, changes, repairs, decorations,
additions or improvements (structural) or non-structural), in or to the demised
premises including any and all mechanical, electrical, air conditioning, heating
and plumbing systems without Landlord's prior written consent, and then only by
contractors or mechanics approved by Landlord. All such work shall be done at
such times and in such manner as Landlord may designate. Prior to Tenant's
commencing any work in and to the premises as provided in this paragraph, Tenant
shall obtain in writing and deliver to Landlord, written and unconditional
waivers of mechanics' and materialmen's liens from the persons or parties who
are to perform such work and services in the premises, in such form as may be
approved by Landlord. Any mechanic's or other lien filed against the premises
or the building for work claimed to have been done for or materials claimed to
have been furnished to Tenant, shall be discharged by Tenant within 10 days
thereafter at Tenant's expense, by filing the bond required by law. All work
done or required to be done by the Tenant shall be done with union labor and
union made materials only and shall comply in all respects and at all times with
the rules and regulations of all municipal or other authorities having
jurisdiction thereof. Asbestos encapsulation, removal or other treatment,
respecting asbestos in the confines of the demised premises, as may be required
by law, shall at all times be at Tenant's sole cost and expense, in the manner
as approved by Landlord.
2
<PAGE>
6. All fixtures, equipment, improvements made and appurtenances attached
to or built into the space or premises at the commencement of or during the
term, whether by the Landlord at its own expense or at the expense of the
Tenant, or by the Tenant, shall be and remain part of the premises and shall not
be removed by the Tenant at any time unless otherwise expressly provided in this
Lease. All electric, plumbing, heating, sprinkling, telephone, telegraph,
communication and radio systems, fixtures and outlets, partitions, railings,
gates, doors, vaults, paneling, molding, shelving, radiator enclosures, corks,
rubber, linoleum and composition floors, ventilating, silencing, air
conditioning and cooling equipment shall be deemed to be included in such
fixtures, equipment, improvements and appurtenances. Where not built into the
space or premises and if furnished by or at the expense of the Tenant, all
removable electric fixtures, carpets, wind deflectors, electric fans, water
coolers, furniture, trade fixtures and business equipment shall not be deemed to
be included in such fixtures, equipment, improvements and appurtenances, and may
be removed by the Tenant upon condition that such removal does not render any
damage to the building or premises and upon condition also that in the event of
any damage the cost of repairing same shall be paid by the Tenant. All the
outside walls of the premises, including corridor walls and the outside entrance
doors to the premises, any balconies, terraces or roofs adjacent to the
premises, and any space in the premises used for shafts, stacks, pipes,
conduits, ducts or other building facilities and systems and the use thereof, as
well as access thereto in and through the premises for the purpose of operation,
maintenance, decoration and repair, are expressly reserved to the Landlord and
the Landlord does not convey any rights to the Tenant therein.
7. Tenant shall take good care of the premises and fixtures therein and,
subject to the provisions of paragraph 5 hereof shall make, as and when needed,
as a result of misuse or neglect by Tenant or Tenant's servants, employees,
agents, visitors, licensees, contractors, guests or invitees all repairs in and
about the demised premises necessary preserve them in good order and condition,
which repairs shall be in quality and class equal to the original work. However,
Landlord may repair, at the expense of Tenant, all damage or injury to the
demised premises or to the building or to its fixtures, appurtenances or
equipment, done or caused by Tenant or Tenant's servants, employees, agents,
visitors, licensees, contractors, guests or invitees, or caused by moving
property of Tenant in or out of the building, or by installation or removal of
furniture or other property, or resulting from fire, air-conditioning unit or
system short circuits, overflow or leakage of water, steam, illuminating gas,
sewer gas, sewage or odors, or by frost, or by bursting or leaking of pipes or
plumbing works, or gas, or from any other cause, due to the carelessness,
negligence, or improper conduct of Tenant, or Tenant's servants, employees,
agents, visitors licensees, contractors, guests or invitees. Except as provided
in paragraph 13 hereof, there shall be no allowance to Tenant for a diminution
of rental value, and no liability on the part of Landlord by reason of
inconvenience, annoyance or injury to person(s) property or business arising
from the making of any repairs, alterations, additions or improvements in or to
any portion of the building or the premises or in or to the fixtures,
appurtenances or equipment, nor shall there be any liability upon the Landlord
for failure to make any repairs, alterations, additions or improvements in or to
any portion of the building or the demised premises or in or to the fixtures,
appurtenances or equipment. The Tenant shall and does hereby indemnify and hold
the Landlord harmless and free from all liability for all injuries suffered by
any person(s), and for damages sustained to property, and for any monies paid
out by Landlord in settlement of any claims or judgements
3
<PAGE>
resulting from such damages or injuries, as well as for all expenses and
attorney's fees incurred by Landlord in connection therewith.
8. Tenant will not clean, nor require, permit, suffer or allow any window
in the premises to be cleaned, from the outside in violation of Section 202 of
the Labor Law or of the rules of the Board of Standards and Appeals, or of any
other board or body having or asserting jurisdiction.
9. Tenant, at Tenant's expense, shall comply with all laws, orders and
regulations of federal, state, county and municipal authorities, and with any
direction of any public officer or officers, pursuant to law, which shall impose
any duty upon Landlord or Tenant arising out of the Tenant's use or occupancy of
the demised premises, and shall not do or permit to be done, any act or thing
upon said premises, which will invalidate or be in conflict with fire insurance
policies covering the building, fixtures and property therein, and shall not do
or permit to be done any act or thing upon said premises which shall or might
subject the Landlord to any liability or responsibility for injury to any person
or persons or to any property by reason of any business or operation being
carried on upon said premises and shall comply with all rules, orders,
regulations or requirements of the New York Board of Fire Underwriters or any
other similar body and shall not do or permit anything to be done in or upon
said premises, or bring or keep anything therein, which shall increase the rate
of fire insurance on the building or on property located therein. If by reason
of failure of Tenant to comply with the provisions hereof, or if by reason of
the nature of the Tenant's occupancy, the fire insurance rate shall at any time
be higher than otherwise would be, then Tenant shall reimburse Landlord as
additional rent hereunder, for that part of all fire insurance premiums
thereafter paid by Landlord, which shall have been charged because of such
violation or because of such occupancy by Tenant, and shall make such
reimbursement upon the first day of the month following such outlay by Landlord.
In any action or proceeding wherein Landlord and Tenant are parties, a schedule
or "make up" of rate for the building or the premises issued by the New York
Fire Insurance Exchange or other body making fire insurance rates for said
premises, shall be conclusive evidence of the facts therein stated and of the
several items and charges in the fire insurance rate then applicable to said
premises.
10. This Lease is and shall remain subject and subordinate to all ground
or underlying leases, leasehold mortgages, and mortgages and building loan
mortgages which may now or hereafter affect the real property of which the
demised premises form a part and each and every of the advances which have
heretofore been made or which may hereafter be made thereunder, and to all
renewals, modifications, consolidations, replacements and extensions thereof. In
confirmation of such subordination, Tenant shall execute promptly any
instruments or certificate that Landlord may request. Tenant hereby irrevocably
constitutes and appoints Landlord the Tenant's attorney-in-fact to execute any
such instrument or certificate for and on behalf of Tenant. This clause shall,
nevertheless, be self-operative.
11. Tenant and Tenant's agents, employees, visitors, licensees,
contractors, guests or invitees shall faithfully comply with the Rules and
Regulations set forth on the back cover of this Lease and with such further
reasonable Rules and Regulations as Landlord at any time may make and
communicate to Tenant, which, in the Landlord's judgment, shall be necessary
4
<PAGE>
for the reputation, safety, care or appearance of the building, or the
preservation of good order therein, or the operation of the building or
maintenance of the building, its equipment, or the more useful occupancy or
comfort of the Tenants and others in the building. Landlord shall not be liable
to Tenant for the violation of any said Rules and Regulations or the breach of
any covenant or condition in any lease by any other Tenant in the building.
12. Landlord or Landlord's agents shall not be liable for any damage to
property entrusted to employees of the building nor for the loss of any property
by theft or otherwise. Landlord or Landlord's agents shall not be liable for any
injury or damage to persons or property resulting from falling plaster, steam,
gas, electricity, water, rain or snow which may leak from any part of the
building or from the pipes, appliances or plumbing works of the same, or from
the street or sub-surface, or from any other place, or by dampness or any other
cause of whatsoever nature, unless caused by or due to the negligence of
Landlord; nor shall Landlord be liable for any such damage caused by other
tenants or persons in the building, or for interference with the light or other
incorporeal hereditaments, or caused by operations in construction of any public
or quasi public work; nor shall Landlord be liable for any latent defect in the
building. Tenant shall reimburse Landlord as additional rent for all expenses,
damages or fines incurred or suffered by Landlord by reason of any breach,
violation or non-performance of any covenant or provision of this Lease by
Tenant, or Tenant's servants, employees, agents, visitors, licensees,
contractors, guests or invitees, or by reason of damage to person or property
caused by moving property in or out of the building, or by the installation or
removal of furniture or other property of or for the Tenant, or by reason of or
arising out of the occupancy or use by Tenant of the premises or of the
building, or from any other cause due to the carelessness, negligence or
improper conduct of the Tenant or the Tenant's servants, employees, agents,
visitors, licensees, contractors, guests or invitees.
13. If the demised premises shall be partially damaged by fire or other
cause without the fault or neglect of Tenant, Tenant's servants, employees,
agents, visitors, licensees, contractors, guests or invitees, the damages shall
be repaired by and at the expense of Landlord and the rent and additional rent
until such repairs shall be made shall be apportioned according to that part of
the premises which is usable by Tenant. No penalty shall accrue for reasonable
delay which may arise by reason of adjustment of fire insurance on the part of
Landlord or Tenant, and for reasonable delay on account of "labor troubles," or
any other cause beyond Landlord's control. But if the demised premises are
totally damaged or are rendered wholly untenantable by fire or other cause, and
the Landlord shall decide not to rebuild the same, or if the building of which
the demised premises are a part shall be so damaged that Landlord shall decide
to demolish it or to rebuild it, then or in any of such events Landlord may,
within ninety (90) days after such fire or other cause, give Tenant a notice in
writing of such decision, and thereupon the term of this Lease shall expire by
lapse of time upon the third day after such notice is given, and Tenant shall
vacate the demised premises and surrender the same to Landlord.
14. If the entire land and building of which the demised premises are a
part, shall be taken or condemned by any competent authority for any public or
quasi public use or purpose, then and in that event, the term of this Lease
shall cease and terminate from the date when the possession thereof shall be
required for such use or purpose. If any part of the land
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or the building of which the demised premises are a part or any part of the
demised premises shall be so acquired or condemned, then and in that event, the
term of this Lease, at the option of the Landlord, on ten (10) days notice by
Landlord to Tenant, shall cease and terminate from the date when possession of
the part so taken shall be required for such use or purpose. In the event that
Landlord shall not elect to terminate this Lease and part of the demised
premises shall be so taken or condemned, the annual rental, additional rent and
other charges, shall be apportioned from the date thereof. In no event, under
any of the circumstances described herein, shall Tenant have any claim for the
value of any part of the unexpired term of the within Lease or any portion of
the demised premises so taken or condemned and shall not share in any award that
may be made to Landlord or others.
15. As long as Tenant is not in default under any of the covenants of this
Lease, Landlord shall, if and insofar as the existing facilities provide, at
Landlord's expense: (a) run elevators on business days from 8 A.M. to 6 P.M. and
in addition on Saturdays from 8 A.M. to 1 P.M. and also provide one elevator
which will be subject to call during all other hours on business days,
Saturdays, Sundays and holidays; (b) furnish on business days from 8 A.M. to 6
P.M. heat to warm the demised premises when and as required by law; (c) cause to
be kept clean the halls, corridors and public portions of the building, which
are used, in common by all tenants. Tenant shall, at Tenant's expense, keep the
demised premises clean and in order, to the satisfaction of Landlord, and remove
its own rubbish. Landlord shall have the sole right to designate and appoint
the person or concern to be employed, at Tenant's expense, for the removal of
Tenant's refuse and rubbish from the building. Landlord reserves the right to
stop service of the heat, elevator, air conditioning, cooling, plumbing and
electric systems, when necessary by reason of accident, or for repairs,
alterations or improvements, including conversion of each and any of the
elevators from manual to automatic, in the judgement of Landlord desirable or
necessary to be made, until such repairs, alterations or improvements shall have
been completed, and shall have no responsibility or liability for failure to
supply heat, elevator, plumbing, air conditioning, cooling and electric service,
when prevented from so doing by strikes or accidents or by any cause beyond
Landlord's reasonable control, or by orders or regulations of any federal,
state, county or municipal authority or failure of coal, oil or other suitable
fuel supply, or inability by exercise of reasonable diligence to obtain coal,
oil or other suitable fuel. It is expressly understood and agreed that any
covenants on Landlord's part to furnish any service pursuant to any of the terms
or provisions of this Lease or to perform any act or thing for the benefit of
Tenant shall not be deemed breached if Landlord is unable to perform the same by
virtue of a strike or labor trouble or any other cause whatsoever beyond
Landlord's control and Tenant agrees that there shall be no abatement or
reduction of rent in the event that any of said systems or service should fail
to function for the reasons above set forth.
16. Landlord shall have the right to install a separate water meter or
meters for the demised premises or any part thereof and Tenant shall pay the
cost therefor, and if so installed, Tenant shall keep same in repair and pay the
charges made by the municipality for or in respect of the consumption of water
together with sewer rental charges based thereon as and when billed therefor. If
the building or any part thereof be supplied with water through a meter or
meters, the Tenant shall pay to the Landlord, as and when billed therefor, the
Tenant's proportionate part of all such charges together with sewer rental based
on such meter
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charges, which amount shall be determined by multiplying the percentage factor
set forth in paragraph 33(b) by the total of the water bills and sewer charges
rendered by the municipality or other public authority from time to time. All
water and sewer rental bills submitted by any public authority shall be
conclusive evidence of the amount due. All payments required to be made by the
Tenant under this paragraph shall be deemed additional rent.
17. Landlord shall furnish Tenant with electric current (subject to
discontinuance as provided herein), at no additional charge except as may be
hereinafter provided in subparagraph (a) hereof and paragraph 33(d), during
business days, consistent with the normal purposes for which the demised
premises have been leased to Tenant, subject to all the provisions as may be
herein contained.
(a) In the event there is an increase or decrease, as the case may be, in
the rate schedule or rates for the purchase of electric current or electricity,
including demand or energy charges, fuel adjustment rates, service charges or
sales taxes, hereinafter collectively referred to as "electric consumption and
demand charges" from the public utility or other supplier of electricity to the
Landlord from and after the date hereof, such increase or decrease shall at
Landlord's option, be added to and made a part of, or subtracted from the annual
rental provided for in this Lease, and if this Lease has not yet commenced, then
such increase or decrease shall be added to and made a part of, or subtracted
from the annual rental upon the commencement of the Lease. The amount of such
increase or decrease shall be computed by: ascertaining the electric consumption
and demand charges for the entire building for the 12 months immediately
preceding the effective date of the increase or decrease; then ascertaining such
electric consumption and demand charges based upon the new rates and charges;
then computing the percentage of increase or decrease, as the case may be, and
multiplying such percentage of increase or decrease by the difference between
the annual rental and the amount set forth in subdivision (c) below.
(b) Tenant shall make no changes in or additions to the electrical system,
wiring, conduits, switches, fixtures, outlets or any other electrical equipment
in the building or demised premises during the term of this Lease and any
extensions or renewals thereof without first obtaining the written consent of
the Landlord thereto. Tenant shall not, during the term of this Lease, connect
to the risers, feeders, outlets, base receptacles, wiring or installations
constituting Landlord's electrical distribution system, any electrical
machinery, electrical equipment, electrical computers or any other office or
electrical appliances without first obtaining the written consent of the
Landlord thereto. Tenant further agrees not to permit at any time during the
term of this Lease, its electrical consumption to overtax the capacity of
Landlord's existing electrical distribution system.
(c) The Landlord may discontinue the supply of electric current to the
Tenant, at any time, notwithstanding any contrary provisions of this Lease, upon
giving Tenant thirty (30) days prior written notice of Landlord's intention so
to do and thereupon Tenant may contract or otherwise arrange with any person,
firm or corporation for the purchase and supply of, such electric current, all
without affecting or changing the obligations of the Tenant under this Lease,
provided, however, that in the event of the discontinuance of the electric
current by the Landlord, the annual rental shall be reduced to the sum of $
256,429.00 and Tenant shall
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have no further rights under this Lease with respect thereto. In the event of
such discontinuance of electric current, Tenant shall have no right to use or
utilize Landlord's electrical distribution system, including its risers,
feeders, wiring or installations for the supply of Tenant's electric current.
Tenant may install, at its own cost and expense, any risers, feeders, wiring or
installations to enable it to obtain electric current, subject, however, to
there being available space, areas and facilities in the building for the
inclusion and insertion of such risers, feeders, wiring and installations, of
which availability Landlord shall be the sole judge; provided that same shall
not cause damage or injury to the building or the demised premises, or cause or
create a dangerous or hazardous condition, or interfere with or disturb other
tenants, or overtax the capacity of Landlord's existing electrical distribution
system, and provided further that any such work will at all times comply with
the laws, rules and regulations of all governmental bureaus, agencies and other
subdivisions having jurisdiction over the demised premises. The aforesaid
risers, feeders, wiring and installations to be installed by Tenant shall, at
all times, be and remain the property of Landlord.
(d) The Landlord agrees to supply electric current to the Tenant in the
manner as herein set forth, to the extent that the quality, character and
quantity of the supply of electric current shall be available to the Landlord
from the public utility company or other supplier supplying the same and the
Landlord and Tenant further agree that Landlord shall not be liable to the
Tenant for any loss, damage or expense resulting from change in the quality,
character or quantity or due to the cessation or interruption of said supply
without any fault on the part of the Landlord, or for Landlord's failure to
supply such electric current when prevented from so doing by strikes, accidents,
repairs, alterations, improvements or other causes beyond Landlord's control or
by orders or laws of any federal, state, county or municipal authorities, and
there shall be no abatement of rent upon the happening and during the period of
such event or events.
18. The Landlord has installed within the building of which the demised
premises are a part, machinery, appliances, equipment and appurtenances for the
operation and maintenance of a modern peripheral air-conditioning system which
is capable, during the summer time, when the outside temperature is 95 degrees,
of maintaining inside the building a temperature of approximately 10 degrees
less and a proportionately less difference of temperature between the inside and
outside, as the outside temperature falls to 75 degrees Fahrenheit. The Landlord
has provided main cooling system units at the windows which service the
peripheral area and has installed two or more main ducts and booster units on
all floors of the building as a part of the air-conditioning system.
(a) It is expressly understood by the Tenant that in order for the air
conditioning system to function properly, the Tenant is obliged to, and the
Tenant agrees to keep all windows in the premises closed. Tenant acknowledges
that the air-conditioning system will not function properly if the demised
premises are occupied by more than an average of one person for each 100 sq.
ft., or if Tenant installs or operates lighting loads in excess of 3 1/2 watts
per sq. ft. or if Tenant installs and operates electrical equipment which gives
off heat that cannot be adequately absorbed by Landlord's existing air-
conditioning system in the demised premises.
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(b) Subject always to events and causes, physical, mechanical and
otherwise, beyond the reasonable control of the Landlord, for the failure of
which the Landlord shall not be liable in any event whatever, the Landlord will
service and maintain said air conditioning system in such matter as to provide
air-conditioning for the premises on business days generally during the hours
of 8 A.M. to 6 P.M. during the months of June, July, August and September, when
required, consistent with the provisions hereof.
(c) Any damage caused to the appliances, equipment or appurtenances as a
result of the negligence of or the careless operation by the Tenant or the
agents, servants, employees, contractors, visitors, guests, licensees or
invitees of the Tenant, shall be repaired by the Landlord at the cost and
expense of the Tenant, which expense shall constitute additional rent.
19. (a) Tenant shall permit Landlord to erect, use and maintain, pipes
and conduits in and through the demised premises. Landlord's agents shall have
the right to enter the demised premises at all times to examine same, to show
them to prospective purchasers or lessees of the building, and to make such
decorations, repairs, alterations, improvements or additions as Landlord may
deem necessary or desirable either to the building or to the demised premises
and Landlord shall be allowed to take all material into and upon said premises
that may be required therefor without the same constituting an eviction of
Tenant in whole or in part and the rent reserved shall in no wise abate while
said decorations, repairs, alterations, improvements or additions are being
made, by reason of loss or interruption of the business of Tenant, because of
the prosecution of any such work or otherwise.
(b) The Tenant shall give prompt notice to the Landlord of any fire,
accident to or defective condition in any part of the demised premises,
including but not limited to the sanitary, electrical, heating, air
conditioning, cooling and other systems located in, or passing through the
premises, and the damage or defective condition shall be remedied by the
Landlord with due diligence, but if such damage or defective condition was
caused by the Tenant or if the system was installed for the particular use of
the Tenant and the damage or defective condition was not caused by the
negligence of the Landlord, the cost of the remedy thereof shall be paid by the
Tenant.
(c) During the six months prior to the expiration of the term of this
Lease, Landlord may exhibit the premises to prospective tenants at all
reasonable hours.
(d) If, during the last month of the Term, Tenant shall have removed all
or substantially all of Tenant's property from the premises, Landlord may
immediately enter and alter, renovate and decorate the premises or any part
thereof without affecting this Lease and without liability to Tenant for an
abatement of rent or other compensation.
(e) Landlord may permit access to the premises without incurring liability
to the Tenant, whether or not the Tenant shall be present, upon demand of any
receiver, trustee, assignee for the benefit of creditors, sheriff, marshal,
court officer or government official entitled to, or reasonably purporting to be
entitled to such access for the purpose of taking possession of or removing
Tenant's property or for any other lawful purpose. This provision and any action
by the Landlord hereunder shall not be deemed a recognition by Landlord that
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the person or official making such demand has any right or interest in or to
this Lease or on or to the premises.
(f) Landlord shall have the right to change the arrangement and location
of entrances or passageways, doors and doorways, and corridors, elevators,
stairs, toilets or other public parts of the building, and after reasonable
notice, to change the name. number or designation by which the building is
commonly known. Nothing herein contained, however, shall be deemed or construed
to impose upon the Landlord any obligation, responsibility or liability
whatsoever for the care, supervision or repair of the building or any part
thereof, unless herein otherwise provided.
(g) In the event of a refusal by the Tenant to permit an entry upon the
premises as in this paragraph provided, the Landlord and the Landlord's agents
may forcibly enter the same nevertheless without incurring any liability by
reason thereof.
20. The Tenant shall repair, at its own expense, all damage to or
destruction of any plate or window glass in the demised premises, and shall
maintain adequate plate glass insurance at its own expense for the benefit of
the Landlord. If the Tenant fails to repair the damage to any plate or window
glass in the demised premises, or fails or refuses to maintain adequate plate
glass insurance for the benefit of the Landlord, then the Landlord may repair
said damage or destruction or may insure the plate glass and charge the cost of
such repair or the cost of the premium for the plate glass insurance to the
Tenant and the amount thereof shall be deemed to be additional rent.
21. No vaults, vault space or space not within the property line of the
building is leased hereunder, anything contained in or indicated on any sketch,
blueprint or plan, or anything elsewhere in this Lease to the contrary
notwithstanding. Landlord makes no representation as to the location of the
property line of the building. All vaults and vault space and all space not
within property line of the building, which Tenant may be permitted to use and
occupy, is to be used and occupied under a revocable license, and if any such
license be revoked, or if the amount of such space be curtailed by any federal,
state or municipal authority, Landlord 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 or curtailment be deemed a constructive or actual,
total or partial eviction.
22. Tenant will not at any time use or occupy the premises in violation of
the certificate of occupancy issued for the building, and in the event that any
department of the City or State of New York shall hereafter at any time contend
that the premises are used for a purpose which is a violation of such
certificate of occupancy, in that event Tenant shall, upon 5 days written notice
from Landlord, immediately discontinue such use of said premises. Failure by
Tenant to discontinue such use after such notice shall be considered a default
in the fulfillment of a covenant of this Lease and Landlord shall have the right
to terminate this Lease immediately and in addition thereto shall have the right
to exercise any and all rights and privileges and remedies given to Landlord
pursuant to the provisions of paragraph 25 hereof. The statement in this Lease
of the nature of the business to be conducted by Tenant in the demised premises
shall not be deemed or construed to constitute a representation or
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guaranty by Landlord that such business is lawful or permissible under the
certificate of occupancy issued for the building or otherwise permitted by law.
23. The "sprinkler system" or any of its parts or appliances shall be
damaged or not in proper working order by reason of any act or omission of
Tenant. Tenant shall forthwith at its own expense restore the same to good
working condition; and if the New York Board of Fire Underwriters or the New
York Fire Insurance Exchange or any bureau, department or official of the state
or city government, require or recommend that any changes, modifications,
alterations or additional sprinkler heads or other equipment, be made or
supplied by reason of Tenant's business, or the location of partitions, trade
fixtures, or other contents of the demised premises or if any such changes,
modifications, alterations, additional sprinkler heads or other equipment,
become necessary to prevent the imposition of a penalty or charge against the
full allowance for a sprinkler system in the fire insurance rate as fixed by
said Exchange or by any fire insurance company. Tenant shall, at its expense,
promptly make and supply such changes, modifications, alterations, additional
sprinkler heads or other equipment.
24. (a) If at any time prior to the date herein fixed as the commencement
of the term of this Lease there shall be filed by or against Tenant in any court
pursuant to any statute either of the United States or of any State a petition
in bankruptcy or insolvency or for reorganization, or for the appointment of a
receiver or trustee of all or a portion of Tenant's property, or if Tenant makes
an assignment for the benefit of creditors, or petitions for or enters into an
arrangement, this Lease shall at the option of the Landlord, be cancelled and
terminated in which event neither Tenant nor any person claiming through or
under Tenant by virtue of any statute or order of any court shall be entitled to
possession of the demised premises and Landlord, in addition to the other rights
and remedies given by (c) hereof or by virtue of any other provision herein or
elsewhere in this Lease contained, or by virtue of any statute or rule of law,
may retain as liquidated damages any rent, security, deposit or monies received
by it from Tenant or others in behalf of Tenant.
(b) If at the date fixed as the commencement of the term of this Lease or
if at any time during the term hereof, there shall be filed by or against Tenant
in any court pursuant to any statute either of the United States or of any State
a petition in bankruptcy or insolvency or for reorganization or for the
appointment of a receiver or trustee of all or a portion of Tenant's property,
and within thirty (30) days thereafter Tenant fails to secure a discharge
thereof, or if Tenant makes an assignment for the benefit of creditors or
petitions for or enters into an arrangement, this Lease, at the option of
Landlord, exercised within a reasonable time after notice of the happening of
any one or more of such events, may be cancelled and terminated in which event
neither Tenant nor any person claiming through or under Tenant by virtue of any
statute or order of any court shall be entitled to possession or to remain in
possession of the premises but shall forthwith quit and surrender the premises
and Landlord, in addition to the other rights and remedies Landlord has by
virtue of any other provision herein or elsewhere in this Lease contained, or by
virtue of any statute or rule of law, may retain as liquidated damages, any
rent, security, deposit or monies received from Tenant or others in behalf of
Tenant.
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(c) In the event of the termination of this Lease pursuant to (a) or (b)
hereof, Landlord 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 rent reserved hereunder
for the unexpired portion of the term demised and the then fair and reasonable
rental value of the demised premises for the same period. In the computation of
such damages the difference between any installment of rent becoming due
hereunder after the date of 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 two per cent (2%)
per annum. If such premises or any part thereof be relet by the Landlord for the
unexpired term of this 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 prima facie to be the fair and
reasonable rental value for the part or the whole of the premises so relet
during the term of the reletting. Nothing herein contained shall limit or
prejudice the right of the Landlord to claim 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 such time 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.
25. (a) If Tenant shall make default in fulfilling any of the covenants
of this Lease other than the covenants for the payment of rent or additional
rent and such default shall continue to exist for five days after notice thereof
by Landlord to Tenant, or if the premises become vacant or deserted. Landlord
may give Tenant three days notice of intention to end the term of this Lease and
thereupon, at the expiration of said three days the term under this Lease shall
expire as fully and completely as if that day were the day herein definitely
fixed for the expiration of the term, and Tenant will then quit and surrender
the premises to Landlord but Tenant shall remain liable as hereinafter provided.
(b) If the second notice provided for in (a) hereof shall have been given
and the term shall expire as aforesaid: or (1) if Tenant shall make default in
the payment of the rent reserved herein or any item of additional rent as and
when such rent or additional rent becomes due and payable or any part of either
or in making any other payment herein provided; or (2) if any execution or
attachment shall be issued against Tenant or any of Tenant's property whereupon
the premises shall be taken or occupied or attempted to be taken or occupied by
someone other than Tenant; or (3) if Tenant shall be in default with respect to
any other lease between Landlord and Tenant; or (4) if Tenant shall fail to move
into or take possession of the premises within fifteen (15) days after the
commencement of the term of this Lease, then, and in any of such events Landlord
may without notice, re-enter the premises either by force or otherwise and
dispossess Tenant or the legal representatives of Tenant or other occupant of
the premises, by summary proceeding or otherwise. and remove their effects and
hold the premises as if this Lease had not been made and Tenant hereby waives
any notice of intention to re-enter or to institute legal proceedings to that
end. If Tenant shall be in default hereunder prior to the date fixed as the
commencement of any renewal or extension of this Lease then any renewal,
extension or other lease shall, at Landlord's sole option, be cancelled and
terminated.
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(c) In case of any such default, re-entry, expiration or dispossess by
summary proceedings or otherwise, as provided above: (1) the rent shall become
due thereupon and be paid up to the time thereof together with such expenses as
Landlord may incur for legal expenses, attorneys' fees, brokerage, and putting
the premises in good order and in preparing the same for re-rental; (2) Landlord
may re-let the premises or any part or parts thereof, either in the name of
Landlord or otherwise, for a term or terms which may at Landlord'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; (3)
Tenant or the legal representatives of Tenant shall also pay Landlord as
liquidated damages for the failure of Tenant to observe and perform said
Tenant's covenants herein contained, any deficiency between hereby reserved and
covenanted to be paid and the net amount, if any, of the rents collected on
account of the leasing of the premises for each month of the period which would
otherwise have constituted the balance of the term of this Lease. In computing
such liquidated damages there shall be added to the said deficiency such
expenses as Landlord may incur in connection with reletting, such as legal
expenses, attorneys' fees, brokerage and for keeping the premises in good order
or for preparing the same for reletting. 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 Landlord to collect the deficiency for
any subsequent month by a similar proceeding. Landlord, at its option, may make
such alterations and decorations in the premises as Landlord in its sole
judgment considers advisable and necessary for the purpose of reletting the
premises and the making of such alterations and decorations shall not operate or
be construed to release Tenant from liability hereunder as aforesaid. Landlord
shall in no event be liable in any way whatsoever for failure to relet the
premises, or in the event that the premises are relet, for failure to collect
the rent thereof under such reletting. In the event of a breach or threatened
breach by Tenant of any of the covenants or provisions hereof, Landlord 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. The mention in this Lease of any particular remedy, shall
not preclude Landlord from using any other remedy, in law or in equity.
(d) Tenant for itself and on behalf of any and all persons or parties
claiming through or under the Tenant, including creditors, hereby expressly
waives any and all rights of redemption granted by or under any present or
future laws in the event of Tenant being evicted or dispossessed for any cause,
or in the event of Landlord obtaining possession of the demised premises by
reason of the violation by Tenant of any of the covenants and conditions of this
Lease or otherwise.
26. If Tenant shall default in the performance of any covenant, term or
condition on Tenant's part to be performed in this Lease contained, Landlord may
immediately, or at any time thereafter, without notice, perform the same for the
account of Tenant. If Landlord at any time is compelled to pay or elects to pay
any sum of money, or do any act which will require the payment of any sum of
money, by reason of the failure of Tenant to comply with any provisions hereof,
or if Landlord is compelled to or does incur any expense including reasonable
attorneys' fees, instituting, prosecuting or defending any action or proceeding,
whether instituted by Landlord or Tenant, by reason of any cause whatsoever,
including a
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default of Tenant hereunder, the sum or sums so paid by Landlord with all
interest, costs and damages, shall be deemed to be additional rent hereunder and
shall be due from Tenant to Landlord on the first day of the month following the
incurring of such respective expenses or at the Landlord's option on the first
day of any subsequent month.
27. Landlord or Landlord's agents have made no representations or promises
with respect to the said building or demised premises except as herein expressly
set forth. The taking possession of the premises by Tenant shall be conclusive
evidence, as against Tenant, that the demised premises and the building were in
good and satisfactory condition at the time such possession was taken. Tenant
has inspected the building and the demised premises and is thoroughly acquainted
with their condition and agrees to take same "as is."
28. Upon the expiration or other termination of the term hereof, Tenant
shall quit and surrender to Landlord the premises, broom clean, in good order
and condition, ordinary wear excepted. Tenant shall remove all property of
Tenant as directed by Landlord. If the last day of the term of this Lease or any
renewal thereof falls on Sunday or a legal holiday this Lease shall expire at 12
noon on the business day immediately preceding. Tenant's obligation to observe
or perform this covenant shall survive the expiration or other termination of
the term of this Lease. Any personal property of the Tenant or other occupant
which shall remain in the premises or building after the expiration or other
termination of the term shall be deemed to have been abandoned by the Tenant or
other occupant and either may be retained by the Landlord as its property or may
be disposed of in such manner as the Landlord may see fit. If such personal
property or any part thereof shall be sold, the Landlord may receive and retain
the proceeds of such sale and apply the same, at its option, against the
expenses of the sale, the cost of moving and storage, any arrears of rent or
additional rent payable hereunder and any damages to which the Landlord may be
entitled under paragraph 25 hereof or pursuant to law. In the event Landlord
shall notify Tenant not later than ninety (90) days after the expiration or
other termination of this Lease, Tenant shall restore the premises to the
condition existing immediately prior to the commencement of this Lease. Such
restoration shall include demolition of walls and other structures, construction
and erection of walls, ceilings and other structures, ceiling patching, duct-
work, sprinkler-head changes, electric work and such other alterations,
decorations or repairs as may be necessary to restore the premises to the
condition existing immediately prior to the commencement of this Lease.
29. Landlord covenants and agrees with Tenant that upon Tenant paying the
rent and additional rent and performing all the covenants and conditions
aforesaid, on Tenant's part to be observed and performed, Tenant shall and may
peaceably and quietly have hold and enjoy the demised premises for the term
aforesaid, subject, however, of the terms of this Lease, the ground and
underlying leases, if any, and mortgages hereinbefore mentioned, except that the
provisions hereof shall only apply so long as Landlord or any successor to
Landlord's interest is in possession and is collecting rent from Tenant but not
thereafter.
30. If the Landlord shall be unable to give possession of the demised
premises on the date of the commencement of the term of this Lease, such failure
to give possession shall not in any way affect the obligations of the Tenant
except that the rent and additional rent, reserved and covenanted to be paid
hereunder, shall not commence until possession of the
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demised premises are made available for occupancy by the Tenant; nor shall such
failure to give or afford possession be construed in any way to extend the term
of this Lease. No liability whatever shall arise or accrue against the Landlord
by reason of its failure to deliver possession and the Tenant hereby releases
and discharges the Landlord from any claim for damage, loss or injury of every
kind whatever, for such period of time as Landlord may be unable to give or
deliver possession of the demised premises.
31. INTENTIONALLY OMITTED
32. The failure of Landlord to seek redress for violation of, or to insist
upon the strict performance of any covenant or condition of this Lease, or any
of the Rules and Regulations set forth on the inside cover of this Lease or
hereafter adopted by Landlord, 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 Landlord of rent, additional rent or
other charges, with or without knowledge of the breach of any covenant or
condition of this Lease or the Rules and Regulations, shall not be deemed a
waiver of such breach. The failure of Landlord to enforce any of the covenants,
conditions or Rules and Regulations against Tenant or any other tenant in the
building shall not be deemed a waiver of any such covenants, conditions or Rules
and Regulations. No provision of this Lease or the Rules and Regulations shall
be deemed to have been waived by Landlord, unless such waiver be in writing
signed by Landlord. No payment by Tenant or receipt by Landlord of any amount,
whether designated by Tenant as rent, past rent, additional rent, tax or
operating expense escalation charges under paragraph 33 or otherwise, shall be
binding upon Landlord and Landlord may apply any such amount, however designated
by Tenant, to rent, past rent, additional rent, tax or operating expense
escalation charges under paragraph 33 or otherwise, as Landlord in its sole
discretion may determine; nor shall any endorsement or statement on any check or
any letter or direction by Tenant or someone on its behalf, whether or not
accompanying any check or payment of any such items or charges, be deemed an
accord and satisfaction or binding upon Landlord, and Landlord may accept such
check or payment without prejudice to Landlord's right to recover the balance of
any such items or charges or pursue any other remedy provided in this Lease. The
acceptance of payment of any such items or charges by Landlord from any party
other than Tenant, or if such payment is made on behalf of Tenant by any party
other than Tenant, shall not constitute a waiver of the provisions of paragraph
3 respecting the assignment of the Lease or subletting of the premises. If the
term "Tenant" as used herein refers to more than one person, party, corporation,
company or other entity, Landlord may treat any breach of this Lease by one of
such parties as a breach by all.
33. (a) For the purposes of this paragraph, the term "tax year" shall
mean each consecutive 12-month period commencing July 1st, all or any part of
which falls within the term of this Lease; the term "lease year" shall mean each
calendar year, all or any part which falls within the term of this Lease. If the
first or the final tax year or lease year shall contain less than 12 months, the
additional rent payable under subdivisions (b) and (c) of this paragraph with
respect to such tax years or (d) with respect to such lease years shall be pro-
rated by multiplying such amount by a fraction which has as a numerator the
number of months in such tax or lease year and a denominator of 12. In the event
Landlord has not computed the operating expenses for the next-to-last or last
lease year prior to the expiration
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date of this Lease, the additional rent payable under subdivision (d) of this
paragraph for such next-to-last or last lease year shall be based upon either
the operating expenses for the last full lease year where such figures are
available, or Landlord, at its option, shall have the right to estimate the
operating expenses for such next-to-last or last lease year, and the additional
rent due, under subdivision (d) of this paragraph for such next-to-last or last
lease year shall be due and payable by Tenant to Landlord sixty (60) days prior
to the expiration or earlier termination of this Lease.
(b) In the event that the real estate taxes payable with respect to the
building and the land on which it is located, for any tax year in which this
Lease shall be in effect (inclusive of any certiorari fees paid or to be paid
with respect thereto) shall be greater than the amount of such taxes due and
payable for the tax year next preceding the term commencement date (sometimes
hereinafter referred to as "base tax year") whether by reason of an increase in
either the tax rate or the assessed valuation, or by reason of the levy,
assessment or imposition of any tax on real estate as such, not now levied,
assessed or imposed, or for any other reason, Tenant shall pay to Landlord, when
billed, after the date on which the real estate taxes for such tax year shall be
fixed and determined, as additional rent for the lease year in which such date
occurs, an amount equal to .898% of the difference between the amount of such
tax or installment and the corresponding tax or installment paid for the base
tax year. The base tax year. as referred to in this subparagraph,
notwithstanding anything to the contrary otherwise contained within, shall, for
the purposes hereof, be deemed to mean the tax year 1997/98.
(c) Tenant shall also pay to Landlord, within thirty (30) days after the
same shall be payable by Landlord and as additional rent for the lease year in
which the same shall be so payable, an amount equal .898% of any assessment or
installment thereof for public betterments or improvements which may be levied
upon the said land and building.
(d) In the event that the operating expenses (as hereinafter defined)
incurred by Landlord during any lease year shall be greater than the operating
expenses incurred by Landlord during the calendar year next preceding the term
commencement date (sometimes hereinafter referred to as "base expense year"),
Tenant shall pay to Landlord, as additional rent for such lease year, when
billed, an amount equal to .898% of such increase. For the purposes of this
subparagraph, "operating expenses" shall mean any or all of the following,
either paid or incurred by Landlord with respect to the building of which the
demised premises form a part: salaries, wages, medical, surgical and general
welfare benefits (including group life insurance), pension plan contributions,
health, disability and workmen's compensation insurance and payroll taxes of
employees of Landlord engaged in the operation and maintenance of the building
of which the demised premises are a part ("labor costs"), electric consumption
and demand charges (except that only 50% of the increase in the rate schedule of
rates [which Landlord and Tenant attribute to the operation of Landlord's
electric plant, machinery or equipment and not Tenant's use of electricity in
its premises] in any lease year, as determined by an independent electrical
engineer or firm, selected by Landlord, with respect to the entire building,
shall be included herein if Tenant has had a rent increase under paragraph 17(a)
in any lease year, and the base expense year electric charge shall also be
reduced by 50%), steam, utility taxes, casualty and liability, fire, boiler or
other insurance, repairs (structural and non-structural) and maintenance,
alterations, changes, additions and
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improvements, whether made by reason of compliance with laws, regulations and
requirements of any public or administrative authorities or insurance companies
or otherwise made (except that the cost for structural repairs, alterations,
changes and additions, at Landlord's sole option, shall be charged over the
balance of Tenant's lease term or lesser period of time), building cleaning
supplies, uniforms and dry cleaning, window cleaning, management fees (whether
paid or not, if Landlord or a wholly-owned entity manages the building) at the
rate charged by independent agents for the management of first-class office
buildings in the area, service contracts with independent contractors,
telephone, telegraph, stationery, advertising, legal fees incurred in connection
with certiorari proceedings (if not previously charged under paragraph 33(b)
above) and all other expenses paid or incurred in connection with the operation
of the building and the demised premises. Landlord and Tenant acknowledge and
agree that the Repairs and Maintenance heading, as indicated in the Summary
Schedule, for the base expense year 1996, will be reduced by a total of
$500,000.00 (rounded off), to reflect Landlord's non-recurring 1996 costs in
that category, which Landlord and Tenant agree shall constitute the total of
Landlord's non-recurring expenditures for 1996 and shall be deemed final and
conclusive for the purpose hereof. The calendar year next preceding the term
commencement date, or base expense year as referred to in this subparagraph,
notwithstanding anything to the contrary otherwise contained herein shall, for
the purposes hereof, be deemed to mean the calendar year 1996.
(e) Landlord shall have the further right, at its option, to bill Tenant
monthly, in any lease year during the term of this Lease, for 1/12 of its share
of the difference between the operating expenses for the Tenant's base expense
year and the previous calendar year's operating expenses, plus the then current
calendar year's estimated expense increase which shall not be less than the
difference between the preceding two calendar years' operating expenses. At the
end of each such lease year, Landlord shall bill the Tenant for the difference
between what Tenant paid during such lease year and the amount computed to be
due for such lease year, which shall be paid when billed, or conversely, if
Tenant's payments exceeded the amount due for such lease year, Landlord shall
then refund such difference to Tenant. Landlord shall furnish Tenant with a
brief Summary Schedule in each lease year, which shall be deemed final and
conclusive if not contested by Tenant within 30 days after delivery thereof to
Tenant.
34. It is mutually agreed by and between Landlord and Tenant that the
respective parties hereto shall and they hereby do waive trial by jury in any
action, proceeding or counterclaim brought by either of the parties hereto
against the other on any matters whatsoever arising out of or in any way
connected with this Lease, any extension or renewal thereof or the Tenant's use
or occupancy of said premises.
35. Tenant shall not ship or receive goods, merchandise or inventory other
than for sample purposes, or use the public corridors of the building to ship or
receive same and Tenant shall not at any time use any hand trucks or other
wheeled vehicles in the public or other corridors of the building.
36. Except as otherwise in this Lease provided, any notice, bill or
statement by either party to the other may be given or sent and shall be deemed
to have been duly given or
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sent if either delivered personally or mailed in a post-paid envelope, addressed
to the Landlord at 1407 Broadway, New York, N.Y., and of the Tenant at the
premises (or at the Tenant's present address as above set forth, if mailed prior
to the Tenant's occupancy of the premises), or if any address for notices shall
have been truly changed as hereinafter provided, if mailed to the party at such
changed address. Either party may at any time change the address for notices,
bills or statement by delivering or mailing, as aforesaid, a notice stating the
change and setting forth the changed address.
Should the term "Tenant", as used in this Lease, refer to more than one
person, party, corporation, company or other entity, any notice, bill or
statement given or sent as aforesaid to any one of such entities shall be deemed
to have been duly given or sent to the Tenant.
37. The Tenant has deposited with the Landlord the sum of $44,166.66 as
security for the performance by the Tenant of the terms of this Lease. The
Landlord 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 other sum as to which the Tenant is in default in respect of any of the terms
of this Lease, including, but not limited to, any damages or deficiency in the
reletting of the demised premises, whether such damages or deficiency accrued
before or after summary proceedings or other reentry by the Landlord. including;
but not limited to, leasing commissions incurred in connection with the leasing
of the premises and legal or other fees which Landlord may incur. In the event
that the Tenant shall comply with all of the terms of this Lease, the security
shall be returned to the Tenant after the date fixed as the end of the Lease and
after delivery of possession of the demised premises to the Landlord. In the
event of a sale or lease of the premises of which the demised premises forms a
part, the Landlord shall have the right to transfer the security to the vendee
or lessee and the Landlord shall thereupon be released from all liability for
the return of such security and the Tenant shall look solely to the new landlord
for the return of such security. The Tenant shall not assign or encumber the
money deposited as security, and neither the Landlord nor its successors or
assigns shall be bound by any such assignment or encumbrance.
38. The marginal notes are inserted only as a matter of convenience and
for reference and in no way define, limit or describe the scope or intent of
this Lease nor in any way affect this Lease.
39. (a) The term "Landlord" as used in this Lease means only the owner
or the mortgagee in possession for the time being of the land and building (or
the owner of a lease of the building), 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 other disposition of said land and building or said leasehold, the
said Landlord be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord 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, that the purchaser or the lessee of the building has assumed and
agreed to carry out any and all covenants and obligations of Landlord hereunder
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(b) The term "business days" shall be construed to mean Monday to Friday
inclusive, excluding holidays.
The words "re-enter" and "re-entry" as used in this Lease are not
restricted to their technical legal meaning.
(d) The term "gross square feet" if and when used herein, shall be deemed
to mean and include all the space taken for stairways, stairwells, lobbies,
elevator shafts, lavatories, washrooms, utilities, air-conditioning and
mechanical equipment in building, whether or not all or any part of such space
or equipment is located in the demised premises, the determination of which is
computed by Landlord, shall be final and conclusive.
(e) The term "additional rent" as used herein, shall be deemed to mean any
and all costs, charges, expenses, adjustment rent and electricity which Tenant
assumes, agrees or is obligated to pay to Landlord or others pursuant to the
provisions of this Lease or any other agreement, and in the event of the non-
payment thereof, Landlord shall have all of the rights and remedies with respect
thereto as provided for herein or by applicable law in case of the non-payment
of annual rent.
40. The covenants, conditions and agreements contained in this Lease shall
bind and inure to the benefit of Landlord and Tenant and their respective heirs,
distributees, executors, administrators, successors, and, except as otherwise
provided in the Lease their assigns.
41. This Lease contains the entire agreement between the parties and may
not be modified or amended except by agreement in writing signed by the parties
hereto.
42. The parties herein agree that NO BROKERS brought about or had any
connection with the procuring, execution and delivery of this Lease.
43. The riders annexed hereto as paragraphs ____ to ____are incorporated
herein and made a part of this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have respectively signed and sealed
this Lease as of the day and year first above written.
GETTINGER ASSOCIATES "Landlord"
By: /s/ Robert Gettinger
--------------------------------
General Partner
PERISCOPE I SPORTSWEAR LLC
By: /s/ Glenn Sands, President
--------------------------------
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Rider to paragraph 3 hereof:
Landlord herewith consents to an assignment of this Lease by Tenant to any
corporation, person or other entity which may purchase substantially all of
Tenant's stock or assets, provided that any such assignment shall contain an
assumption by the assignee-purchaser of all of the terms, covenants and
conditions of this Lease to be performed by Tenant. Tenant agrees that no such
assignment shall be effective unless and until Tenant gives Landlord ten (10)
days prior written notice thereof, together with an original executed
counterpart copy of the assignment.
Rider to paragraph 7 hereof:
Tenant's required indemnification of Landlord shall be restricted to injury
or damage occurring in the demised premises and to injury or damage caused to
persons or property by Tenant, its servants, employees, agents, licensees or
contractors in the ordinary course of duties performed in furtherance of
Tenant's business activities within the building known as 1407 Broadway, New
York, New York.
Rider to be added at the end of paragraph 17(c) hereof:
Notwithstanding anything to the contrary contained herein, Landlord agrees
it will not discontinue the supply of electric current to Tenant unless, at the
same time, landlord disconnects electric to all tenants above the ground floor.
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GETTINGER ASSOCIATES
(A LIMITED PARTNERSHIP)
1407 BROADWAY
NEW YORK. N.Y. "10018
December 5, 1997
Periscope I Sportswear LLC
2075 91st Street
North Bergen, NJ 07047
Gentlemen:
Reference is made to that certain lease between you, as Tenant, and the
undersigned, as Landlord, dated February 14, 1997, covering premises known as
Unit "620" on the 6th floor and Unit "1025" on the 10th floor in 1407 Broadway,
New York, New York ("Lease").
You have requested and we have agreed to lease you Unit "1022" on the 10th
floor in 1407 Broadway, New York, New York, ("Additional Premises") as indicated
by the red hash marks on the floor plan annexed hereto, upon all of same terms,
conditions and provisions as contained in the Lease, except as otherwise
hereinafter provided:
1. The annual rental for the Additional Premises shall be $40,600.00,
payable at the time and in the manner as set forth in the Lease, and the term of
the lease for the Additional Premises shall be from February 1, 1998 through
April 30, 2002.
2. The base rent in paragraph 17(c) for the Additional Premises shall be
$39,440.00, from February 1, 1998 through April 30, 2002.
3. The percentage figure for the Additional Premises in paragraphs 33(b),
(c) and (d) of the Lease shall be .121%, the base tax year shall be 1997/98, and
the base expense year shall be 1997 from February 1, 1998 through April 30,
2002.
4. The security deposit in paragraph 37 for the Additional Premises shall
be 6,766.66.
5. Landlord agrees to make the following alterations and repairs in the
demised premises as per Tenant's plan: erect sheetrock partition, install one
closet with sliding door, including standards and formica shelves, install seven
electrical outlets, install building standard single glass entrance door,
install building standard carpet and base, and paint the demised premises in
standard building color.
The Lease, as modified herein, shall continue in full force and effect for
the Lease term.
Please signify your consent to the foregoing by signing in the place
provided below.
Very truly yours,
GETTINGER ASSOCIATES
APPROVED AND ACCEPTED; /s/ Robert S. Gettinger
------------------------
PERISCOPE I SPORTSWEAR LLC Robert S. Gettinger
By: /s/ Glenn Sands, Pres.
---------------------------
(Title)
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EXHIBIT 10.6
HARTZ MOUNTAIN INDUSTRIES, INC.
Landlord
and
PERISCOPE SPORTSWEAR, INC
Tenant
____________________________________
LEASE
___________________________________
PREMISES:
91ST STREET SPEC.
NORTH BERGEN, NEW JERSEY
<PAGE>
TABLE OF CONTENTS
Article Page
- ------- ----
1. Definitions ........................................................ 1
2. Demise and Term .................................................... 3
3. Rent ............................................................... 3
4. Use of Demised Premises ............................................ 4
5. Preparation of Demised Premises .................................... 4
6. Tax and Operating Expense Payments ................................. 4
7. Common Areas ....................................................... 5
8. Security ........................................................... 5
9. Subordination ...................................................... 6
10. Quiet Enjoyment .................................................... 7
11. Assignment, Subletting and Mortgaging .............................. 7
12. Compliance with Laws ............................................... 8
13. Insurance and Indemnity ............................................ 8
14. Rules and Regulations .............................................. 9
15. Alterations and Signs .............................................. 9
16. Landlord's and Tenant's Property ...................................10
17. Repairs and Maintenance ............................................10
18. Public Utility and Other Charges ...................................10
19. Access, Changes and Name ...........................................11
20. Mechanics' Liens and Other Liens ...................................11
21. Non-Liability ......................................................12
22. Damage or Destruction ..............................................12
23. Eminent Domain .....................................................13
24 Surrender ..........................................................14
<PAGE>
25. Events of Default ..................................................14
26. Landlord's Rights Upon Tenant's Default ............................15
27. Damages ...........................................................15
28. Affirmative Waivers ................................................16
29. No Waivers .........................................................16
30. Broker .............................................................16
31. Notices ............................................................17
32. Estoppel Certificates ..............................................17
33. Memorandum of Lease ................................................17
34. Ecra Compliance ....................................................18
35. Miscellaneous ......................................................18
EXHIBITS
Exhibit A - Description of Land
Exhibit B - Site Plan
Exhibit C - Work and Installations to Be Performed and Furnished in the Demised
Premises
Exhibit D - Rules and Regulations
<PAGE>
LEASE, dated February 2nd, 1990, between HARTZ MOUNTAIN INDUSTRIES, Inc., a
New York Corporation, having an office at 400 Plaza Drive (P.O. Box 1411),
Secaucus, New Jersey 07094 ("Landlord"), and PERISCOPE SPORTSWEAR, INC., a New
York Corporation, having an office at 1350 Broadway, New York, New York 10018
("Tenant").
ARTICLE 1 - DEFINITIONS
1.01. As used herein the following shall have the meanings indicated:
A. Advance Rent: $ 13,125.00
B. Additional Charges: All amounts that become payable by Tenant to
Landlord hereunder other than the Fixed Rent.
C. Architect: Kenneth Carl Bonte, or as Landlord may designate.
D. Broker: Andover Realty, Steve Pastor.
E. Building: The building or buildings located on the Land in North Bergen,
New Jersey as shown on the attached Exhibit B.
F. Commencement Date: The earlier of (a) the date on which the Demised
Premises shall be Ready for Occupancy, or (b) the date Tenant, or anyone
claiming under or through Tenant, first occupies the Demised Premises or any
part thereof for any purpose other than the performance of Tenant's Work.
G. Common Areas: All areas, spaces and improvements in the Building and on
the Land which Landlord makes available from time to time for the common use and
benefit of the tenants and occupants of the Building and which are not
exclusively available for use by a single tenant or occupant.
H. Demised Premises: The portion of the Building that is outlined in red on
the floor plan attached hereto as Exhibit B. The Demised Premises contains or
will contain approximately 30,000 square feet of Floor Space.
I. Expiration Date: The date that is the day before the Tenth (l0th)
anniversary of the Commencement Date. If the Commencement Date is not the first
day of a month, then the Tenth (10th) anniversary of the last day of the month
in which the Commencement Date occurs. Any earlier termination of this Lease
shall not affect the "Expiration Date."
J. Fixed Rent: For years one (1) through five (5) of the Lease Term at the
annual rate of Five and 25/100 Dollars ($5.25) per square foot; for years six
(6) through ten (10) of the
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Lease Term at the annual rate of Five and 90/100
Dollars per square foot multiplied by the Floor Space of the Demised Premises.
It is understood that the Fixed Rent shall be an absolutely net return to
Landlord except as otherwise expressly provided in this Lease.
K. Floor Space: The sum of the floor area stated in square feet bounded by
the exterior faces of the exterior walls, or by the exterior or Common Areas
face of any wall between the Premises and any portion of the Common Areas, or by
the center line of any wall between the Premises and space leased or available
to be leased to a tenant or occupant.
L. Guarantor: None.
M. Land: The land described on Exhibit A, upon which the Building is
located.
N. Landlord's Work: The materials and work to be furnished, installed and
performed by Landlord at its expense in accordance with the provisions of
Exhibit C.
O. Legal Requirements: Laws, ordinances, rules, regulations, orders and
directives of all governmental, public or quasi-public authorities having
jurisdiction over the Land and Building.
P. Operating Expenses: Includes (1) the cost and expense for the repair,
maintenance, policing, insurance and operation of the Building and Land. The
"Operating Expenses" shall include, without limitation, the following: (i) the
cost for rent, All-Risk, casualty, boiler and fidelity insurance, (ii)
reasonable legal, accounting and other professional fees relating to the Demised
Premises and/or Tenant's use and occupation thereof. All items included in
Operating Expenses shall be determined in accordance with generally accepted
accounting principles consistently applied.
Q. Permitted Uses: General warehouse, distribution, administrative offices,
designing and fabricating clothing models and bulk cutting.
R. Ready for Occupancy: The condition of the Demised Premises when for the
first time the Landlord's Work shall have been substantially completed and a
temporary or permanent Certificate of Occupancy shall have been issued
permitting use of the Demised Premises for the Permitted Uses. The fact that
minor or insubstantial details of construction, mechanical adjustment or
decoration remain to be performed, the noncompletion of which does not
materially interfere with Tenant's use of the Demised Premises, will not negate
substantial completion.
S. Real Estate Taxes: The real estate taxes, assessments and special
assessments (or any imposition in lieu thereof), sewer rents, water charges and
all other similar charges imposed upon the Building and Land by any federal,
state, municipal or other governmental bodies or authorities.
T. Rent: The Fixed Rent and the Additional Charges.
2
<PAGE>
U. Security Deposit: Letter of credit in the sum of $26,250.00
V. Tenant's Fraction: 45.2%. If the size of the Demised Premises or
the Building shall be changed from the initial size thereof, due to any taking,
any construction or otherwise, the Tenant's Fraction shall be changed to the
fraction the numerator of which shall be the Floor Space of the Demised Premises
and the denominator of which shall be the Floor Space of the Building.
W. Term: The period commencing on the Commencement Date and ending at
11:59 p.m. of the Expiration Date, but in any event the Term shall end on the
date when this Lease is earlier terminated.
X. Unavoidable Delays: A delay arising from or as a result of a strike,
lockout,, or labor difficulty, explosion, sabotage, accident, riot or civil
commotion, act of war, fire or other catastrophe, Legal Requirement or an act of
the other party and any cause beyond the reasonable control of that party,
provided that the party asserting such Unavoidable Delay has exercised its best
efforts to minimize such delay.
ARTICLE 2 - DEMISE AND TERM
2.01. Landlord hereby leases to Tenant, and Tenant hereby hires from
Landlord, the Demised Premises, for the Term subject to all conditions of record
provided such conditions of record do not interfere with Tenant's Permitted
Uses. The Commencement Date and the Fixed Rent payable shall be memorialized in
writing.
ARTICLE 3 - RENT
3.01. Tenant shall pay the Fixed' Rent in equal monthly installments, in
advance, on the first day of each calendar month during the Term (except that
Tenant shall pay, upon the execution and delivery of this Lease, the Advance
Rent, to be applied against the first installment(s) of Fixed Rent). If the
Commencement Date occurs on a day other than the first day of a calendar month,
the Fixed Rent for that month shall be prorated.
3.02. The Rent shall be paid to Landlord or its agent at its office, or to
such other place as Landlord shall designate by notice to Tenant. Tenant shall
pay the Rent promptly when due without notice or demand therefor and without any
abatement, deduction or setoff for any reason whatsoever.
3.03. No acceptance by Landlord of a lesser amount than the correct Rent
shall be deemed to be other than a payment on account, nor shall any endorsement
on any check or any accompanying letter be deemed an accord and satisfaction,
and Landlord may accept such payment without prejudice to Landlord's right to
recover the balance or pursue any other remedy in this Lease or at law provided.
3
<PAGE>
3.04. Any payment due Landlord under this Lease which is not paid on or
before five (5) days after written notice that same is due, shall, from the due
date, until such payment is received by Landlord, bear interest at the prime
rate of Chemical Bank of New York plus 4% (the "Late Payment Rate").
ARTICLE 4 - USE OF DEMISED PREMISES
4.01. Tenant shall use and occupy the Demised Premises for the Permitted
Uses, and shall not use or permit the use of any part thereof for any other
purpose.
4.02. If any governmental license or permit other than a Certificate of
Occupancy shall be required for the lawful conduct of Tenant's business in the
Demised Premises, Tenant shall procure, comply with and maintain such license or
permit.
ARTICLE 5 - PREPARATION OF DEMISED PREMISES
5.01. The Demised Premises shall be completed and prepared for Tenant's
occupancy in the manner described in Exhibit C. Tenant shall occupy the Demised
Premises promptly after Landlord notifies Tenant that the Demised Premises are
Ready for Occupancy. The taking of possession by Tenant of the Demised Premises
shall be evidence as against Tenant that the Demised Premises were in good and
satisfactory condition at the time such possession was taken, except for the
minor or insubstantial details of which Tenant gives Landlord notice within
thirty (30) days of the Commencement Date, specifying such details with
reasonable particularity. Landlord will promptly take steps to remedy any such
minor details.
5.02. If the substantial completion of the Landlord's Work shall be delayed
due to (a) any delay, act or omission of Tenant or any of its agents or
contractors or (b) any additional time needed for the completion of the
Landlord's Work by the inclusion of any special work or long lead time items
requested by Tenant, then the Demised Premises shall be deemed Ready for
Occupancy on the date when they would have been ready but for such delay(s).
5.03. If the Demised Premises are not Ready for Occupancy by July 1, 1990
then Tenant shall be entitled to free rent for each day by which Demised
Premises are not ready beyond July 1, 1990.
ARTICLE 6 - TAX AND OPERATING EXPENSE PAYMENTS
6.01. Tenant shall pay to Landlord, Tenant's Fraction of the Real Estate
Taxes within ten (10) days after Landlord submits an invoice therefor to Tenant,
subject however to the following:
a) For the year 1990 (hereafter the "Base Year") Tenant's Fraction will not
exceed $1.25 per square foot regardless of the actual Real Estate Taxes
assessed.
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<PAGE>
b) For the years following the Base Year, Tenant's obligation will be the
excess (if any) in Real Estate Taxes for said year over the Real Estate Taxes
for the Base Year, multiplied by Tenant's Fraction.
6.02. Tenant shall pay to Landlord Tenant's Fraction of the Operating
Expenses within ten (10) days after Landlord submits an invoice therefor to
Tenant. Upon request, Landlord shall provide to Tenant copies of all bills used
to calculate the Operating Expenses.
6.03. Each statement or invoice given by Landlord pursuant to Section 6.01
or Section 6.02 shall be conclusive and binding upon Tenant unless within thirty
(30) days after the receipt thereof and appropriate back-up documentation Tenant
shall dispute the statement, specifying the particular respects in which the
statement is claimed to be incorrect. If such dispute is not settled by
agreement, either party may submit the dispute to arbitration. Pending the
determination of such dispute, Tenant shall, within ten (10) days after receipt
of such statement, pay the Additional Charges in accordance therewith, without
prejudice to Tenant's position. If the dispute shall be determined in Tenant's
favor, Landlord shall forthwith pay to Tenant any overpayment resulting from
compliance with Landlord's statement.
ARTICLE 7 - COMMON AREAS
7.01. Landlord, or its agent, will operate, manage, equip, light, repair
and maintain, the Common Areas for their intended purposes. Landlord reserves
the right to temporarily close the Common Areas from time to time, and to add to
or make changes therein, provided same shall not unreasonably block or interfere
with Tenant's means of ingress or egress to and from the Demised Premises.
7.02. Tenant, its employees, agents, customers and invitees, shall have the
non-exclusive right, in common with Landlord and all others to whom Landlord
grants such right, but subject to the Rules and Regulations, to use the Common
Areas.
ARTICLE 8 - SECURITY
8.01. As security for the performance by Tenant of all the terms,
conditions and covenants of this Lease upon Tenant's part to be performed,
Tenant shall provide to Landlord an irrevocable Letter of Credit in the amount
of ($26,250.00) in form and substance satisfactory to Landlord. Landlord shall
have the right, upon thirty (30) days notice to Tenant (except for Tenant's non-
payment of Rent or for Tenant's failure to comply with Article 8.03 for which no
notice shall be required), and regardless of the exercise of any other remedy
the Landlord may have by reason of a default, to draw upon said Letter of Credit
to cure any default of Tenant and if Landlord does so, Tenant shall upon demand,
additionally fund the Letter of Credit with the amount so drawn so that Landlord
shall have the full deposit on hand at all times during the term of this Lease.
In the event of a sale of the Building or a lease of the Building, subject to
this Lease, Landlord shall have the right to transfer the security to the vendee
or lessee.
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8.02. The Letter of Credit shall be the type which is automatically renewed
on an annual basis (annual Renewal Date); and will contain a provision requiring
the issuer thereof to give the beneficiary (Landlord) sixty (60) day advance
written notice of its intention not to renew the Letter of Credit on the next
Annual Renewal Date.
8.03. In the event Tenant shall fail to deliver to Landlord a substitute
irrevocable Letter of Credit, in the amount stated above, on or before thirty
(30) days prior to the next Annual Renewal Date, said failure shall be deemed a
default under this Lease. Landlord may, in its discretion treat this the same as
a default in the payment of rent or any other default and pursue the appropriate
remedy. In addition, and not in limitation, Landlord shall be permitted to draw
upon the Letter of Credit as in the case of any other default by Tenant under
this Lease,
ARTICLE 9 - SUBORDINATION
9.01. This Lease is and shall be subordinate to all ground leases and
underlying leases of the Land and/or the Building now or hereafter existing and
to all Mortgages which may now or hereafter affect the Land and/or Building, to
each and every advance made or hereafter to be made under such Mortgages, and to
all renewals, modifications, replacements and extensions of such leases and such
Mortgages. The provisions of this Section 9.01 shall be self-operative and no
further instrument of subordination shall be required. In confirmation of such
subordination, Tenant shall promptly execute, acknowledge and deliver any
instrument that Landlord, the lessor under any such lease or the Mortgagee of
any such Mortgage or any of their respective successors in interest may
reasonably request to evidence such subordination.
9.02. If any act or omission of Landlord would give Tenant the right to
cancel or terminate this Lease, or to claim a partial or total eviction, Tenant
shall not exercise such right (a) until it has given written notice of such act
or omission to Landlord and each Superior Mortgagee and each Superior Lessor
whose name and address shall previously have been furnished to Tenant, and (b)
until a reasonable period for remedying such act or omission shall have elapsed
following the giving of such notice and following the time when such Superior
Mortgage or Superior Lessor shall have become entitled under such Superior
Mortgage or Superior Lease, as the case may be, to remedy the same (which
reasonable period shall in no event be less than the period to which Landlord
would be entitled under this Lease or otherwise, after similar notice, to effect
such remedy), provided such Superior Mortgagee or Superior Lessor shall with due
diligence give Tenant notice of intention to, and commence and continue to,
remedy such act or omission.
9.03. If any Superior Lessor or Superior Mortgagee shall succeed to the
rights of Landlord under this Lease, whether through possession or foreclosure
action or delivery of a new lease or deed, then at the request of such party so
succeeding to Landlord's rights ("Successor Landlord") and upon such Successor
Landlord's written agreement to accept Tenant's attornment, Tenant shall attorn
to and recognize such Successor Landlord as Tenant's Landlord under this Lease
and shall promptly execute and deliver any instrument that such
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Successor Landlord may reasonably request to evidence such attornment. Upon such
attornment this Lease shall continue in full force and effect as a direct lease
between the Successor Landlord and Tenant upon all of the terms, conditions and
covenants as are set forth in this Lease except that the Successor Landlord
shall not (a) be liable for any previous act or omission of Landlord under this
Lease; (b) be subject to any offset, not expressly provided for in this Lease,
which theretofore shall have accrued to Tenant against Landlord; or (c) be bound
by any previous modification of this Lease or any previous prepayment of more
than one month's Fixed Rent or Additional Charges, unless -such modification or
prepayment shall bays been expressly approved in writing by the Superior Lessor
of the Superior Lease or the Mortgagee of the Superior Mortgage through or by
reason of which the Successor Landlord shall have succeeded to the rights of
Landlord under this Lease.
ARTICLE 10 - QUIET ENJOYMENT
10.01. So long as Tenant pays all of the Rent and performs all of Tenant's
other obligations hereunder, Tenant shall peaceably and quietly have, hold and
enjoy the Demised Premises without hindrance, ejection or molestation by
Landlord or any person lawfully claiming through or under Landlord, subject,
nevertheless, to the provisions of this Lease and to Superior Leases and
Superior Mortgages.
ARTICLE 11 - ASSIGNMENT, SUBLETTING AND MORTGAGING
11.01. Tenant shall not, (a) assign or otherwise transfer this Lease, (b)
sublet the Demised Premises or any part thereof, or allow the same to be used,
occupied or utilized by anyone other than Tenant, it present subsidiaries or
affiliates or (c) mortgage, pledge, encumber or otherwise hypothecate this Lease
without in each instance obtaining the prior written consent of Landlord. Tenant
shall not require Landlord's permission to assign the Lease if the assignee buys
all or substantially all of Tenants assets, carries on the business and is
financially as responsible as Tenant. Tenant shall provide current audited
financial statements of itself and the assignee to Landlord.
11.02. If this Lease is assigned, whether or not in violation of this
Lease, Landlord may collect rent from the assignee. If the Demised Premises or
any part thereof are sublet or used or occupied by anybody other than Tenant,
whether or not in violation of this Lease, Landlord may, after default by
Tenant, and expiration of Tenant's time to cure such default, collect rent from
the subtenant or occupant.
11.03. Any assignment shall be made only if, and shall not be effective
until, the assignee shall execute and deliver to Landlord an agreement
satisfactory to Landlord whereby the assignee shall assume Tenant's obligations
under this Lease. Notwithstanding any assignment, 'whether or not in violation
of this Lease, and notwithstanding the acceptance of Rent by Landlord from an
assignee, or any other party, the prior Tenant(s) shall remain fully liable for
the payment of the Rent and for Tenant's other obligations under this Lease.
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ARTICLE 12 - COMPLIANCE WITH LAWS
12.01. Tenant shall comply with all Legal Requirements which shall, in
respect of the Demised Premises or the use and occupation thereof, impose any
violation, order or duty on Landlord or Tenant; and Tenant shall pay all the
costs, expenses and penalties which may be imposed upon Landlord because of
Tenant's failure to comply with the provisions of this Section 12.01.
ARTICLE 13 - INSURANCE AND INDEMNITY
13.01. Landlord shall maintain All Risk insurance in respect of the
Building and other improvements on the Land normally covered by such' insurance
(except for the property Tenant is required to cover under Section 13.02) for
the benefit of Landlord and any other parties Landlord may designate, as their
interests may appear, but not for the benefit of Tenant, and shall maintain rent
insurance as required by. any Superior Lessor or any Superior Mortgagee. The All
Risk insurance will be in amounts not less than the amount sufficient to avoid
the effect of the co-insurance provisions of the applicable policy or policies.
Landlord shall have the right to provide any insurance maintained or caused to
be maintained by it under blanket policies.
13.02. Tenant shall maintain the following insurance: (a) comprehensive
general public liability insurance in respect of the Demised Premises and the
conduct and operation of business therein, with Landlord (and its designees) as
an additional named insured(s), with limits of not less than $3,000,000 for
bodily injury or death to any one person and $5,000,000 for bodily injury or
death to any number of persons in any one occurrence, and $500,000 for property
damage, including water damage and sprinkler leakage legal liability, and (b)
All Risk insurance in respect of Tenant's stock in trade, fixtures, and all
other personal property of Tenant in the Demised Premises in not less than 80%
of the full insurable value of the property covered and not less than the amount
sufficient to avoid the effect of the co-insurance provisions of the applicable
policy or policies. Tenant shall deliver to Landlord certificates for such fully
paid-for policies at least 10 days before the Commencement Date. Tenant shall
procure and pay for renewals of such insurance before the expiration thereof,
and Tenant shall deliver to Landlord certificates therefor at least thirty (30)
days before the expiration of any existing policy. All such policies shall be
issued by companies of recognized responsibility licensed to do business in New
Jersey, and all such policies shall contain a provision whereby the same cannot
be cancelled unless Landlord and any additional insured(s) are given at least
thirty (30) days' prior written notice of such cancellation.
13.03. Tenant shall not do or permit anything to be done in respect of the
Demised Premises or conduct or operate Tenant's business in any manner
objectionable to any insurance company whereby any insurance then in effect in
respect to the Land and Building shall become void or suspended or whereby any
premiums in respect of insurance maintained by Landlord shall be higher than
those which would normally have been in effect for the occupancy contemplated
under the Permitted Uses. In case of a breach of the provisions of this Section
13.03, in addition to all other rights and remedies of Landlord hereunder,
Tenant shall
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(a) indemnify Landlord and hold Landlord harmless from and against any loss
which would have been covered by insurance which shall have become void or
suspended because of such breach by Tenant and (b) pay to Landlord any and all
increases of premiums on any insurance, including, without limitation, rent
insurance, resulting from any such breach.
13.04. Tenant shall indemnify and hold Landlord harmless from and against
any and all claims arising from or in connection with (a) the conduct of
Tenant's business, or any work done, or any condition created in the Demised
Premises (b) any act, omission or negligence of Tenant or any of its subtenants
or licensees; (c) any accident, injury or damage whatever (except to the extent
caused by Landlord's negligence) occurring in the Demised Premises; together
with all costs, expenses and liabilities incurred in or in connection with each
such claim or action or proceeding brought thereon, including, without
limitation, all attorneys' fees and expenses.
ARTICLE 14 - RULES AND REGULATIONS
14.01. Tenant and its employees and agents shall faithfully observe and
comply with the Rules and Regulations attached hereto as Exhibit D; provided,
however, that in case of any conflict or inconsistency between the provisions of
this Lease and any of the Rules and Regulations, the provisions of this Lease
shall control. Landlord shall have the right to change or amend the Rules and
Regulations.
ARTICLE 15 - ALTERATIONS AND SIGNS
15.01. Tenant shall not make any alterations or additions to the Demised
Premises, or make any cuts in the walls, ceilings, roofs, or floors thereof, or
change the exterior color or architectural treatment of the Demised Premises,
without on each occasion first obtaining the consent of Landlord. Tenant shall
submit to Landlord plans and specifications for such work at the time Landlord's
consent is sought before proceeding with any permitted alteration. For all work
which will cost more than Fifty Thousand and 00/100 Dollars ($50,000.00), Tenant
shall deliver to Landlord a performance bond and a labor and materials payment
bond (issued by a corporate surety licensed to do business in New Jersey), each
in an amount equal to 125% of such estimated cost and in form satisfactory to
Landlord.
15.02. Tenant shall obtain all necessary governmental permits and
certificates for the commencement and prosecution of permitted alterations and
for final approval thereof upon completion, and shall cause alterations to be
performed in compliance therewith and with all applicable Legal Requirements and
Insurance Requirements.
15.03. Tenant shall not place any signs on the roof, exterior walls or
grounds of the Demised Premises without first obtaining Landlord's written
consent thereto. In placing any permitted signs on or about the Demised
Premises, Tenant shall comply with the Legal Requirements and obtain all
required permits and/or licenses at its expense.
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ARTICLE 16 - LANDLORD'S AND TENANT'S PROPERTY
16.01. All fixtures, equipment, improvements and appurtenances attached to
or built into the Demised Premises at the commencement of or during the Term,
whether or not by or at the expense of Tenant, shall be and remain a part of the
Demised Premises, shall be deemed to be the property of Landlord and shall not
be removed by Tenant, except as provided in Section 16.02.
16.02. All movable partitions, business and trade fixtures, machinery and
equipment, communications equipment and office furniture, furnishings and
equipment, whether or not attached to or built into the Demised Premises, which
are installed without expense to Landlord (collectively, "Tenant's Property")
and can be removed without structural damage to the Building shall be and shall
remain the property of Tenant and may be removed by Tenant at any time during
the Term and upon the termination of this lease; provided that Tenant shall
repair or pay the cost of repairing any damage to the Demised Premises, the
Building or the Common Areas resulting from the installation and/or removal
thereof.
ARTICLE 17 - REPAIRS AND MAINTENANCE
17.01. Tenant shall be responsible for all repairs to the Demised Premises,
interior and exterior (including repairs to the roof walls and floors). In
addition, Tenant shall keep and maintain all interior portions of the Demised
Premises including, without limitation, all building equipment, windows, doors,
loading bay doors and shelters, plumbing, sanitary and electrical systems,
heating, ventilating and air conditioning ("HVAC") systems in a clean and
operating condition. Tenant shall also make all repairs to the Building and the
Common Areas the need for which arises out of (a) the performance or existence
of the Tenant's Work or alterations, (b) the installation, use or operation of
the Tenant's Property in the Demised Premises, (c) the moving of the Tenant's
Property in or out of the Building, or .(d) the act, omission, misuse or neglect
of Tenant, its subtenants or invitees. Tenant shall not permit or suffer the
over-loading of the floors of the Premises beyond Two Hundred Fifty (250) pounds
per square foot.
17.02. Except as provided in 17.01, Landlord shall be responsible for the
structural integrity of the Building.
17.03. Landlord will assign or transfer any warranties obtained from
suppliers, etc. and Tenant may enforce such warranties at its cost and expense.
ARTICLE 18 - PUBLIC UTILITY AND OTHER CHARGES
18.01. Tenant shall pay all charges for heat, air-conditioning and all
utility services supplied to the Demised Premises as measured by meters relating
to Tenant's use, and the cost of repair, maintenance, replacement, and reading
of any meters measuring Tenant's consumption thereof; provided, however, that if
the Demised Premises are not separately metered, Tenant shall pay its pro rata
share of any such charges. If Landlord is permitted by law to provide electric
energy to the Demised Premises by re-registering meters or otherwise
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and to collect any charges for electric energy, Landlord shall have the right to
do so, in which event Tenant shall pay to Landlord upon receipt of bills
therefor charges for electric energy provided the rates for such electric energy
shall not be more than the rates Tenant would be charged for electric energy if
furnished directly to Tenant by the public utility which would otherwise have
furnished electric energy.
18.02. Tenant's use of electric energy in the Demised Premises shall not at
any time exceed the capacity of .any of the electrical conductors and equipment
in or otherwise serving the Demised Premises. In order to insure that such
capacity is not exceeded and to avert possible adverse effect upon the
Building's electric service, Tenant shall not, without Landlord's prior consent
in each instance (which shall not be unreasonably withheld), connect any
fixtures, appliances or equipment to the Building's electric distribution system
or make any alteration or addition to the electric system of the Demised
Premises existing on the Commencement Date. Should Landlord grant such consent,
all additional risers or other equipment required therefor shall be provided by
Landlord, but at Tenant's cost and expense.
ARTICLE 19 - ACCESS, CHANGES AND NAME
19.01. Landlord reserves the right, to install, erect, use and maintain
pipes, ducts and conduits in and through the Demised Premises, provided such are
properly enclosed.
19.02. Landlord and its agents shall have the right to enter and/or pass
through the Demised Premises at any time or times (a) to examine the ....
Demised Premises and to show them to actual and prospective Superior Lessors,
Superior Mortgagees, or prospective purchasers of the Building, and (b) upon
reasonable prior notice, except in case of emergency, to make such repairs,
alterations, additions and improvements in or to the Demised Premises and/or in
or to the Building or its facilities and equipment as Landlord is required or
desires to make. During the period of twelve (12) months prior to the Expiration
Date, Landlord and its agents may exhibit the Demised Premises to prospective
tenants upon reasonable notice to Tenant.
19.03. Landlord reserves the right, at any time to make such changes,
alterations, additions and improvements in or to the Building as Landlord shall
deem necessary or desirable, and may adopt any name for the Building or change
its street address.
ARTICLE 20 - MECHANICS' LIENS AND OTHER LIENS
20.01. Nothing contained in this Lease implies any consent or agreement on
the part of Landlord to subject Landlord's interest to any liability under any
mechanic's or other lien law. If any mechanic's or other lien or any notice of
intention to file a lien is filed against the Land or the Demised Premises, for
any work, labor, service or materials claimed to have been performed or
furnished for or on behalf of Tenant or anyone holding through or under Tenant,
Tenant shall cause the same to be cancelled and discharged of record by payment,
bond or order of a court of competent jurisdiction within fifteen (15) days
after notice by Landlord to Tenant.
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ARTICLE 21 - NON-LIABILITY
21.01. Landlord shall not be liable to Tenant for any loss, injury or
damage to Tenant or to any other person, or to its or their property,
irrespective of the cause of Such injury, damage or loss, unless caused by or
resulting from the negligence of Landlord, its agents, servants or employees in
the operation or maintenance of the Land or Building. Landlord shall not be
liable (a) for any such damage caused by other tenants or persons in, upon or
about the Land or Building, or caused by operations in construction of any
private, public or quasi-public work; or (b) even if negligent, for
consequential damages arising out of any loss of use of the Demised Premises or
any equipment or facilities therein by Tenant or any Person claiming through or
under Tenant.
21.02. Tenant shall look solely to the estate and property of Landlord in
the Land and Building (or the proceeds received by Landlord on a sale of such
estate and property but not the proceeds of any financing or refinancing
thereof) in the event of any claim against Landlord arising out of or in
connection with this Lease, the relationship of Landlord and Tenant or Tenant's
use of the Demised Premises or the Common Areas, and Tenant agrees that the
liability of Landlord arising out of or in connection with this Lease, the
relationship of Landlord and Tenant or Tenant's use of the Demised Premises or
the Common Areas shall be limited to such estate and property of Landlord (or
sale proceeds). Nothing herein contained will prohibit or limit Tenant's
recovery under any Insurance carried by Landlord.
ARTICLE 22 - DAMAGE OR DESTRUCTION
22.01. If the Building or the Demised Premises shall be partially or
totally damaged or destroyed by fire or other casualty (and if this Lease shall
not be terminated as in this Article 22 hereinafter provided), Landlord shall
repair the damage and restore and rebuild the Building and/or the Demised
Premises (except for the Tenant's Property) with reasonable dispatch after
notice to it of the damage or destruction and the collection of the insurance
proceeds attributable to such damage.
22.02. If all or part of the Demised Premises shall be damaged or destroyed
or rendered completely or partially untenantable on account of fire or other
casualty, the Rent shall be abated or reduced, as the case may be, in the
proportion that the untenantable area bears to the total area of the Demised
Premises, for the period from the date of the damage or destruction to (a) the
date the damage to the Demised Premises shall be substantially repaired, or (b)
if the Building and not the Demised Premises is so damaged or destroyed, the
date on which the Demised Premises shall be made tenantable; provided, however,
should Tenant reoccupy a portion of the Demised Premises during the period of
repair or restoration. Tenant shall pay Rent on the reoccupied portion on a pro-
rata basis from the date of occupancy.
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22.03. If more than twenty-five percent (25%) of the Building or more than
twenty-five percent (25%) of the Demised Premises shall be totally damaged or
destroyed by fire or other casualty, then in either such case Landlord may
terminate this Lease by giving Tenant notice to such effect within ninety (90)
days after the date of the fire or other casualty.
22.04. Tenant shall not be entitled to terminate this Lease and no damages,
compensation or claim shall be payable by Landlord for inconvenience, loss of
business or annoyance arising from any repair or restoration of any portion of
the Demised Premises or of the Building pursuant to this Article 22. Landlord
shall use its best efforts to make such repair or restoration promptly and in
such manner as to not unreasonably interfere with Tenant's use and occupancy of
the Demised Premises, but Landlord shall not be required to authorize over-time
or week-end work for such repair or restoration work. Landlord shall, to the
extent comparable space is available, make such space available to Tenant during
the course of repair if said repairs require a period in excess of sixty (60)
days. Tenant shall pay no more for such space than the Rent reserved herein.
ARTICLE 23 - EMINENT DOMAIN
23.01 If the whole of the Demised Premises shall be taken by any competent
authority under the power of eminent domain or in the event of conveyance of the
whole of the Demised Premises in lieu thereof, this Lease shall terminate as of
the day possession shall be taken by such authority. If 25% or less of the Floor
Space of the Demised Premises shall be so taken or conveyed, this Lease shall
terminate only in respect of the part so taken or conveyed as of the day
possession shall be taken by such authority. If more than 25% of the Floor Space
of the Demised Premises shall be so taken or conveyed, this Lease shall
terminate only in respect of the part so taken or conveyed as of the day
possession shall be taken by such authority, but either party shall have the
right to terminate this Lease upon notice given to the other party within 30
days after such taking possession. If more than 25% of the Floor Space of the
Building shall be so taken or conveyed, Landlord may, by notice to Tenant,
terminate this Lease as of the day possession shall be taken. If so much of the
parking facilities shall be so taken or conveyed that the number of parking
spaces necessary, in Landlord's judgment, for the continued operation of the
Building shall not be available, Landlord shall, by notice to Tenant, terminate
this Lease as of the day possession shall be taken. If this Lease shall continue
in effect as to any portion of the Demised Premises not so taken or conveyed,
the Rent shall be computed as of the day possession shall be taken on the basis
of the remaining Floor Space of the Demised Premises. Except as specifically
provided herein, in the event of any such taking or conveyance there shall be no
reduction in Rent. If this Lease shall continue in effect, Landlord shall, at
its expense, but shall be obligated only to the extent of the net award or other
compensation (after deducting all expenses in connection with obtaining same)
available to Landlord for the improvements taken or conveyed (excluding any
award or other compensation for land or for the unexpired portion of the term of
any Superior Lease), make all necessary alterations so as to constitute the
remaining Building a complete architectural and tenantable unit, and Tenant
shall make all alterations or replacements to the Tenant's Property and
decorations in the Demised Premises. All awards and compensation for any taking
or conveyance, whether for the whole or a part of the Land or Building, the
Demised Premised or otherwise, shall be property of Landlord, and Tenant hereby
assigns to Landlord all of
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Tenant's right, title and interest in and to any and all such awards and
compensation, including, without limitation, any award or compensation for the
value of the unexpired portion of the Term. Tenant shall be entitled to claim,
prove and receive in the condemnation proceeding such award or compensation as
may be allowed for the Tenant's property and for loss of business, good will,
and depreciation or injury to and cost of removal of the Tenant's property, but
only if such award or compensation shall be made by the condemning authority in
addition to, and shall not result in a reduction of, the award or compensation
made by it to Landlord.
ARTICLE 24 - SURRENDER
24.01. On the Expiration Date, or upon any earlier termination of this
Lease, or upon any re-entry by Landlord upon the Demised Premises, Tenant shall
quit and surrender the Demised Premises to Landlord "broom-clean" and in good
order, condition and repair, except for ordinary wear and tear and such damage
or destruction a~ Landlord is required to repair or restore under this Lease,
and Tenant shall remove all of Tenant's property therefrom.
24.02. If Tenant remains in possession of the Demised Premises after the
expiration of the Term, Tenant shall be deemed to be occupying the Demised
Premises as a tenant from month to month at the sufferance of Landlord subject
to all of the provisions of this Lease, except that the monthly Fixed Rent shall
be twice the Fixed Rent in effect during the last month of the Term.
ARTICLE 25 - EVENTS OF DEFAULT
25.01. If, during the Term, any one of the following acts or occurrences
shall happen then Tenant shall be in default hereunder ("Event or Default"):
a) If Tenant or any Guarantor shall make an assignment for the benefit of
creditors.
b) If Tenant or any Guarantor shall file a voluntary petition in
bankruptcy or be adjudicated a bankrupt or insolvent (under any federal or state
laws).
c) If Tenant or any Guarantor shall seek or consent or acquiesce in the
appointment of any trustee, receiver, liquidator, etc. of a substantial part of
its property.
d) If an involuntary petition in bankruptcy, or a proceeding to appoint a
receiver, trustee or liquidator is filed against Tenant or any Guarantor and
such petition or proceeding is not vacated or discharged within ninety (90)
days.
e) If Tenant shall fail to pay any Rent when due and such non-payment
continues for five (5) days after Landlord gives notice of non-payment.
f) If Tenant fails to observe or perform any other covenant or condition
of this Lease and such failure continues and is not remedied within fifteen (15)
days after Landlord shall have given Tenant a notice specifying same; or, if the
condition cannot be remedied within fifteen (15) days, Tenant has not commenced
remedial action and/or is not diligently pursuing same.
g) If Tenant shall vacate or abandon the Demised Premises.
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ARTICLE 26 - LANDLORD'S RIGHTS UPON TENANT'S DEFAULT
26.01. Should any Event of Default occur then Landlord may, at its option,
and notwithstanding the fact that Landlord may have other remedies at 1~ or in
equity, give to Tenant a notice of intention to end the Term at the end of five
(5) days from the date of service of such notice, and upon the expiration of
said five (5) days, this Lease shall terminate with the same effect as if that
day were the Expiration Date of the Lease, but Tenant shall remain liable for
damages as provided in Article 27.
26.02. If this Lease shall terminate as provided above, Landlord (or
Landlord's agents) may:
a) Re-enter the Demised Premises, either by summary dispossess proceedings
or by any suitable action or proceeding at law and repossess the same, and may
remove any person(s) therefrom so Landlord may have, hold and enjoy the Demised
Premises.
b) As agent for Tenant, take possession of any furniture or fixtures of
Tenant found upon the Demised Premises after taking possession thereof pursuant
to Paragraph 26.02(a) and to store the same at Tenant's expense or sell the same
at any private or public sale and apply the proceeds to any amount due Landlord.
Tenant waives any right to notice of execution or levy in connection therewith.
c) Retain all monies paid by Tenant to Landlord under the Lease, but such
monies shall be credited by Landlord against any Rent due or against any damages
payable by Tenant under Article 27 or pursuant to any law or entry of judgment.
d) To the extent permissible by applicable law, obtain injunctive
relief or specific performance.
e) Collect damages from Tenant as set forth in Article 27.
26.03. No right or remedy reserved to Landlord in this Lease shall be
exclusive of any other right or remedy and any right and remedy shall be
cumulative and in addition to any other right or remedy hereunder or now or
hereafter existing at law.
ARTICLE 27 - DAMAGES
27.01. If this Lease is terminated as provided in Article 26.01, Tenant
shall peaceably quit and surrender the Premises to Landlord on the date
specified in the notice given, and Landlord shall be entitled to recover from
Tenant as and for liquidated damages an amount equal to all Fixed Rent and
Additional Charges (conclusively presuming the Additional Charges to be the same
as was payable for the calendar quarter immediately preceding such termination)
reserved hereunder for the unexpired portion of the Term. Such sums shall be
payable upon the due dates therefor specified herein following such termination
and until the Expiration Date, provided, however, that if Landlord shall relet
the Demised Premises during said period, Landlord shall credit Tenant with the
net rents received by Landlord from such reletting, such net rents to be
determined by first deducting from the gross rents as and when received by
Landlord from such reletting the reasonable expenses incurred or paid by
Landlord in terminating this Lease or in re-entering the Demised Premises and in
securing possession thereof, as well as the reasonable expenses of reletting,
including, without limitation, altering and preparing the Demised Premises for
new tenants, brokers'
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commissions, legal fees, and all other reasonable expenses properly chargeable
against the Demised Premises and the rental therefrom, it being understood that
any such reletting may be for a period shorter or longer than the period ending
on the Expiration Date; but in no event shall Tenant be entitled to receive any
excess of such net rents over the sums payable by Tenant to Landlord hereunder,
nor shall Tenant be entitled in any suit for the collection of damages or to a
credit in respect of any rents from a reletting, except to the extent that such
net rents are actually received by Landlord.
27.02 Suit or suits for the recovery of such damages or, any installments
thereof, may be brought by Landlord at any time and from time to time at its
election, and nothing contained herein shall be deemed to require Landlord to
postpone suit until the date when the Term would have expired if it had not been
so terminated under the provisions of Article 27, or under any provision of law,
or had Landlord not re-entered the Demised Premises.
ARTICLE 28 - AFFIRMATIVE WAIVERS
28.01. Tenant, on behalf of itself and all persons claiming under Tenant,
does hereby waive and surrender all rights and privileges which it or they might
have by reason of any present or future law, to redeem the Demised Premises or
to have a continuance of this Lease after being dispossessed or ejected from the
Demised Premises by process of law or under the terms of this Lease or after its
termination as herein provided.
ARTICLE 29 - NO WAIVERS
29.01. The failure of either party to insist in any one or more instances
upon the strict performance of any one or more of the obligations of this Lease,
or to exercise any election herein contained, shall not be construed as a waiver
or relinquishment for the future of the performance of such one or more
obligations of this Lease or of the right to exercise such election, but the
same shall continue and remain in full force and effect with respect to any
subsequent breach, act or omission. The receipt by Landlord of Fixed Rent or
Additional Charges with knowledge of breach by Tenant of any obligation of this
Lease shall not be deemed a waiver of such breach.
ARTICLE 30 - BROKER
30.01. Landlord and Tenant represent to each other that no broker except
the Broker was instrumental in bringing about or consummating this Lease and
that they had no conversations or negotiations with any broker except the Broker
concerning the leasing of the Demised Premises. Landlord and Tenant agree to
indemnify and hold the other harmless against and from any claims for any
brokerage commissions and all costs, expenses and liabilities in connection
therewith, including, without limitation, attorneys ' fees and expenses, arising
out of any conversations or negotiations had by Landlord to Tenant or as the
case may be with any broker other than the Broker. Landlord shall pay any
brokerage commissions due the Broker pursuant to a separate agreement between
Landlord and the Broker.
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ARTICLE 31 - NOTICES
31.01. Any notice, statement, demand, consent, approval or other
communication required or permitted to be given or made by either party to the
other, pursuant to this Lease or pursuant to any applicable Legal Requirement,
shall be in writing and shall be deemed to have been properly given or made only
if hand delivered (on date of delivery), sent by private courier with receipt
required (on date of delivery), or sent by United States registered or certified
mail, return receipt requested, (on the date of delivery) addressed to the other
party at the address hereinabove set forth (except that after the Commencement
Date, Tenant's address, unless Tenant shall give notice to the contrary, shall
be the Building); as to Landlord, to the attention of General Counsel with a
concurrent Notice to the attention of Controller. Either party may, by notice as
aforesaid, designate a different address or addresses for notices, statements,
demands, consents, approvals or other communications intended for it.
ARTICLE 32 - ESTOPPEL CERTIFICATES
32.01. Each party shall, at any time as requested by the other party, upon
not less than ten (10) days' prior notice, execute and deliver to the requesting
party a statement certifying that this Lease is unmodified and 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), certifying the dates to which
the Fixed Rent and Additional Charges have been paid, stating whether or not, to
the best knowledge of the party giving the statement, the requesting party is in
default in performance of any of its obligations under this Lease, and, if so,
specifying each such default of which the party giving the statement shall have
knowledge, and stating whether or not, to the best knowledge of the party giving
the statement, any event has occurred which with the giving of notice or passage
of time, or both, would constitute such a default of the requesting party, and,
if so, specifying each such event.
ARTICLE 33 - MEMORANDUM OF LEASE
33.01. Tenant shall not record this Lease. However, at the request of
either party the other shall promptly execute, acknowledge and deliver a
memorandum of lease in respect of this Lease sufficient for recording. Such
memorandum shall not be deemed to change or otherwise affect any of the
obligations or provisions of this Lease. Whichever party requests such
memorandum of Lease shall pay all recording costs and expenses, including any
taxes that are due upon such recording.
17
<PAGE>
ARTICLE 34 - ECRA COMPLIANCE
34.01. Six months before the end of the Term or prior expiration of the
Term of this Lease, Tenant shall make any filing required under the New Jersey
Environmental Cleanup Responsibilities Act (N.J.S.A. 13: 1K-6 et seq., "ECRA")
------
respecting the proposed termination of its activities at the Demised Premises at
the termination of the Lease and furnish Landlord with a copy thereof. If Tenant
fails to file Landlord may file and charge Tenant the costs thereof as
additional Rent. To the extent necessary, Landlord will execute any applications
or affidavits required for securing any such approval.
34.02. If Tenant is unable to obtain any necessary approval under ECRA
prior to the end of the Term and Landlord is deprived of the use of the Demised
Premises, this Lease shall terminate as otherwise herein provided, however,
Landlord shall continue to provide access to the Demised Premises to Tenant, its
agents and employees and the New Jersey Department of Environmental Protection
as necessary to complete the ECRA process and Tenant shall continue to pay
Landlord Fixed Rent as provided under this Lease until such time as such
approval is obtained by Tenant. Tenant shall use its best efforts to obtain any
necessary ECRA approval expeditiously, and to prevent any interference between
its ECRA compliance activities and the activities of Landlord at the Demised
Premises from arising.
34.03. Should ECRA compliance requirements be triggered by Landlord or any
transaction affecting Landlord, Tenant will cooperate in signing any necessary
applications or affidavits required for securing any necessary ECRA approval,
however, any costs of making such application shall be borne by Landlord.
34.04. Should the Lease be terminated by either Landlord or Tenant due to
damage of the Demised Premises occasioned by fire or other casualty, Tenant will
undertake the obligation to comply with ECRA for its operations upon such
termination in accordance with this paragraph.
34.05. The provisions of this Article shall survive the termination of this
Lease.
ARTICLE 35 - MISCELLANEOUS
35.01. Tenant expressly acknowledges and agrees that Landlord has not made
and is not making, and Tenant, in executing and delivering this Lease, is not
relying upon, any warranties, representations, promises or statements, except to
the extent that the same are expressly set forth in this Lease or in any other
written agreement(s) which may be made between the parties concurrently with the
execution and delivery of this Lease.
35.02. Except as otherwise expressly provided in this Lease, the
obligations under this Lease shall bind and benefit the successors and assigns
of the parties hereto with the same effect as if mentioned in each instance
where a party is named or referred to.
18
<PAGE>
35.03. Except for Tenant's obligations to pay Rent, the time for Landlord
or Tenant, as the case may be, to perform any of its respective obligations
hereunder Shall be extended if and to the extent that the performance thereof
shall be prevented due to any Unavoidable Delays.
35.04. This Lease shall be governed by and construed in accordance with
the laws of the State of New Jersey. If any provision of this Lease shall be
invalid or unenforceable, the remainder of this Lease shall not be affected and
shall be enforced to the extent permitted by law.
35.05. Within thirty (30) days after request by Landlord, Tenant shall
furnish to Landlord a copy of its then current audited financial statement which
shall be employed by Landlord only for purposes of financing the Land and
Building and not distributed otherwise without prior authorization of Tenant.
IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Lease as of
the day and year first above written.
Landlord:
HARTZ MOUNTAIN INDUSTRIES, INC.
By: /s/ Irwin A. Horowitz
-------------------------------
Irwin A. Horowitz, Vice President
[Corporate Seal]
Tenant:
PERISCOPE SPORTSWEAR, INC.
By: /s/ Glenn Sands, Pres.
-------------------------------
President
[Corporate Seal]
19
<PAGE>
RIDER TO LEASE DATED FEBRUARY 2ND, 1990 BETWEEN HARTZ MOUNTAIN INDUSTRIES, INC.,
AS LANDLORD AND PERISCOPE SPORTSWEAR, INC. , AS TENANT.
R1. If any of the provisions of this Rider shall conflict with any of the
provisions, printed or typewritten, of this Lease, such conflict shall resolve
in every instance in favor of the provisions of this Rider.
R2. Provided Tenant is in compliance with all of the terms and conditions
contained herein, Tenant shall have one (1) option to extend the Term of its
lease of the Demised Premises, from the date upon which this Lease would
otherwise expire for one (1) extended period of five (5) years ("Extended
Period"), upon the following terms and conditions:
1. If Tenant elects to exercise said option, it shall do so by giving
notice of such election to Landlord on or before the date which is one (1) year
before the beginning of the Extended Period for which the Term is to be extended
by the exercise of such option. Tenant agrees that it shall have forever waived
its right to exercise any such option if it shall fail for any reason whatsoever
to give such notice to Landlord by the time provided herein for the giving of
such notice, whether such failure is inadvertent or intentional, time being of
the essence as to the exercise of such option.
2. If Tenant elects to exercise said option, the Term shall be
automatically extended for the Extended Period covered by the option so
exercised without execution of an extension or renewal lease. However, within
ten (10) days after request of either party following the effective exercise of
any such option, Landlord and Tenant shall execute, acknowledge and deliver to
each other duplicate originals of an instrument in recordable form confirming
that such option was effectively exercised.
3. The Extended Period shall be upon the same terms and conditions as are
in effect immediately preceding the commencement of such Extended Period;
provided, however, that Tenant shall have no right or option to extend the Term
for any period of time beyond the expiration of the Extended Period and,
provided further, that in the Extended Period the Fixed Rent shall be as
follows:
(a) The Fixed Rent during the Extended Period shall be at Fair Market
Value. Fair Market Value (FMV) shall be determined by mutual agreement of the
parties. If the parties are unable to agree on the FMV, the parties shall choose
a licensed Real Estate Appraiser who shall determine the FMV. The cost of said
Real Estate Appraiser shall be borne equally by the parties. If the parties are
unable to agree on a licensed Real Estate Appraiser, each party shall select one
Appraiser to appraise the FMV. If the difference between the two appraisals is
20% or less of the lower appraisal, then the FMV shall be the average of the two
appraisals. If the difference between the two appraisals is greater than 20% of
the lower appraisal, the two Appraisers shall select a third licensed Real
Estate Appraiser to appraise the FMV. The FMV shall in such case be the average
of the three appraisals. The cost of the third appraisal shall be borne equally
by the parties.
20
<PAGE>
4. Any termination, expiration, cancellation or surrender of this Lease
shall terminate any right or option for the Extended Period not yet exercised.
5. Landlord shall have the right, for thirty (30) days after receipt of
notice of Tenant's election to exercise any option to extend the Term, to reject
Tenant's election if Tenant gave such notice while Tenant was in default in the
performance of any of its obligations under the Lease, and such rejection shall
automatically render Tenant's election to exercise such option null and void and
of no effect.
6. The option provided herein to extend the Term of the Lease may not be
severed from the Lease or separately sold, assigned or otherwise transferred.
R3. Tenant shall have the use of forty (40) unreserved parking spaces
adjacent to or in close proximity to the Building.
HARTZ MOUNTAIN INDUSTRIES, INC
(Landlord)
By: /s/ Irwin A. Horowitz
----------------------------------
Irwin A. Horowitz, Vice President
PERISCOPE SPORTSWEAR, INC.
(Tenant )
By: /s/ Glenn Sands, President
-----------------------------------
21
<PAGE>
LEASE MODIFICATION AGREEMENT
----------------------------
THIS LEASE MODIFICATION AGREEMENT, made this 31 day of March, 1992,
--
between STAR HARTZ LIMITED PARTNERSHIP, a New Jersey Limited Partnership, (by
assignment from HARTZ MOUNTAIN INDUSTRIES, INC.), having an office at 400 Plaza
Drive, P.O. Box 1411, Secaucus, New Jersey 07094 (hereinafter referred to as
"Landlord") and PERISCOPE SPORTSWEAR, INC., a New York corporation having an
office at 2075 91st Street, North Bergen, New Jersey 07047 (hereinafter referred
to as "Tenant").
WITNESSETH:
-----------
WHEREAS, by Agreement of Lease dated February 2, 1990 (the "Lease"),
which Lease will expire on September 30, 2000, Landlord leased to Tenant and
Tenant hired from Landlord 30,079 total square footage located at 2075 91st
Street in North Bergen, New Jersey (hereinafter the "Demised Premises"); and
WHEREAS, Tenant wishes to lease the vacant space adjacent to the Demised
Premises containing approximately 19,700 square feet of Floor Space, as
described on Exhibit A attached hereto (the "Additional Premises"); and
WHEREAS, Landlord and Tenant wish to modify the Lease to reflect an
increase in the area of the Demised Premises, and amend the Lease accordingly;
NOW, THEREFORE, for and in consideration of the Lease, the mutual
covenants herein contained and the consideration set forth herein, the parties
agree as follows:
1. Thirty days following the date that the Additional Premises are Ready
for Occupancy (as defined in the Lease), Tenant shall immediately occupy and
begin paying Fixed Rent on the Additional Premises at the annual rate of four
and 50/100 dollars ($4.50) per square foot multiplied by the Floor Space of the
Additional Premises. Fixed Rent on the Additional Premises shall remain at four
and 50/100 dollars per square foot until September 30, 2000. In the event Tenant
exercises its option to renew, Fixed Rent on the Additional Premises during the
renewal period shall be the same rate as Fixed Rent on the Demised Premises.
22
<PAGE>
2. On the date that the Additional Premises are Ready for Occupancy,
Tenant shall pay all Additional Charges provided for in the Lease with respect
to the Additional Premises and the Tenant's Fraction shall increase from 45.2%
to 75.08%.
3. Landlord shall, at its own cost and expense, prepare the Additional
Premises in the manner provided in the Landlord's Work Letter attached hereto as
Exhibit B.
4. Except as provided herein, all of the terms and conditions of the
Lease dated February 2, 1990 as amended above are in full force and effect and
are confirmed as if fully set forth herein.
IN WITNESS WHEREOF, the parties hereto have caused this Lease Modification
Agreement to be duly executed as of the day and year first above written.
STAR HARTZ LIMITED PARTNERSHIP
By: HARTZ MOUNTAIN INDUSTRIES, INC.
ATTEST: ("Landlord")
______________________ By: /s/ Irwin A. Horowitz
-----------------------------
Irwin A. Horowitz
Executive Vice President
PERISCOPE SPORTSWEAR,
ATTEST: ("Tenant")
________________________ By: /s/ Marian Sands, V.P.
-----------------------------
Name:
Title:
23
<PAGE>
EXHIBIT 10.7
TERM LOAN AGREEMENT
This TERM LOAN AGREEMENT is made as of the 15th day of May, 1996, by and
between PERISCOPE I SPORTSWEAR, INC. (the "Borrower"), a New York corporation
with its principal executive offices at 1407 Broadway, Suite 620, New York, New
York 10018 and THE FIRST NATIONAL BANK OF BOSTON (the "Lender").
(S)1. DEFINITIONS AND RULES OF INTERPRETATION.
---------------------------------------
(S)1.1 Definitions. The following terms shall have the meanings set forth
--------------
in this (S)1 or elsewhere in the provisions of this Agreement referred to below:
Agreement. This Term Loan Agreement, including the Schedules and Exhibits
---------- --------- --------
hereto, as amended, modified, supplemented or restated.
Applicable Margin. Initially, one and one-quarter percent (1.25%) per
-----------------
annum. The Applicable Margin shall be adjusted, as long as no Default or Event
of Default exists as of the adjustment date, based upon the Outstanding
principal balance of the Loan, as follows:
Principal Balance Applicable Margin
----------------- -----------------
Greater than $7,000,000.00
but less than $11,000,000.01 1%
Greater than $4,000,000.00
but less than $7,000,000.01 0.75%
Greater than $1,000,000.00
but less than $3,000,000.01 0.25%
Less than $1,000,000.01 0%
Balance Sheet Date. December 31, 1995
-------------------
Base Rate. The greater of (a) the annual rate of interest announced from
----------
time to time by the Lender at its head office in Boston, Massachusetts as its
"base rate" or (b) The Federal Funds Effective Rate plus 1/2 of 1% per annum
(rounded upwards, if necessary, to the next 1/8th of 1%.
Borrower. As defined in the preamble hereto.
---------
<PAGE>
Business Day. Any day, other than a Saturday, Sunday, or legal holiday, on
---------------
which banking institutions in Boston, Massachusetts are open for the transaction
of banking business.
Closing Date. The first date on which the conditions set forth in (S)8 and
------------
(S)9 have been satisfied and any Loan are to be made.
Code. The Internal Revenue Code of 1986 and the rules and regulations
----
thereunder, collectively as the same may be supplemented or amended and in
effect from time to time.
Debt Service Charges. For any fiscal period of the Borrower and its
---------------------
Subsidiaries, the sum of (i) the expenses of the Borrower and its Subsidiaries
for such period for interest payable with respect to Indebtedness for borrowed
money including, without limitation, the Obligations and all fees paid on
account of or with respect thereto, plus (ii) principal payments made or
required to be made on account of Indebtedness for borrowed money including,
without limitation, capitalized leases for such period, in each case determined
in accordance with Generally Accepted Accounting Principles.
Default. See (S)10.1.
-------
Dilution. Any events or circumstances which could have the effect of
---------
reducing the gross balance of the Borrower's and its Subsidiaries' accounts and
accounts receivable, including, without limitation, cash or non-cash chargebacks
from customers, factors and other Persons and/or claims due to damaged or
otherwise non-conforming goods.
Distribution. The declaration or payment of any dividend on or in respect
-------------
of any shares of any class of capital stock of the Borrower; the purchase,
redemption, or other retirement of any shares of any class of capital stock of
the Borrower, directly or indirectly, by the Borrower through a subsidiary of
the Borrower or otherwise; the return of capital by the Borrower to its
shareholders as such; or any other distribution on or in respect of any shares
of any class of capital stock of the Borrower.
Dollars or $. Dollars in lawful currency of the United States of America.
-------------
EBITDA. With respect to any fiscal period of the Borrower and its
------
subsidiaries, the result (determined with respect to the same period and without
duplication) of the following: (a) Net Income (or Deficit); plus (b)
depreciation, amortization ;and other noncash deductions made in calculating Net
Income(or Deficit); plus (c) all taxes included a an expense in the
determination of Net Income (or Deficit); plus (d) interest included as an
expense in the determination of Net Income (or Deficit); minus (e) extraordinary
gains; plus (f) extraordinary losses, all as determined in accordance with
Generally Accepted Accounting Principles.
2
<PAGE>
Employee Benefit Plan. Any employee benefit plan within the meaning of
----------------------
(S)3 3 of ERISA maintained or contributed to by the Borrower or any ERISA
Affiliate, other than a Multiemployer Plan.
Environment Laws. Any and all applicable foreign, federal, state and local
-----------------
environmental, health or safety statutes, laws, regulations, rules, and
ordinances (whether now existing or hereafter enacted or promulgated), of all
governmental agencies, bureaus or departments which may nor or hereafter have
jurisdiction over the Borrower or any of its Subsidiaries and all applicable
judicial and administrative and regulatory decrees, judgments and orders
relating to injury to, or the protection of, real or personal property or human
health or the environment, including, without limitation, all requirements
pertaining to reporting, licensing, permitting, investigation, redemption, and
removal of emissions, discharges, releases or threatened releases of Hazardous
Substance, whether solid, liquid or gaseous in nature, into the environment or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of such Hazardous Substances.
ERISA. The Employee Retirement Income Security Act of 1974 and the rules
-----
and regulations thereunder, collectively as the same may be supplemented or
amended and in effect from time to time.
ERISA Affiliate. Any Person which is treated as a single employer with the
----------------
Borrower under (S)414 of the Code.
ERISA Reportable Event. A reportable event (other than a reportable event
-----------------------
described in Subsections 4043(b) (2) - (4) and 4043 (b) (6)-(9), which do not
require a thirty (30) day notice to the PBGC with respect to a Guaranteed
Pension Plan within the meaning of (S)4043 of ERISA and the regulations
promulgated thereunder as to which the requirement of notice has not been
waived.
Event of Default. See (S)10.1.
----------------
Federal Funds Effective Rate. For any day, a fluctuating interest rate per
-----------------------------
annum equal to the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by federal fund
brokers, as published for such day or, if such day is not a Business Day, for
the next preceding Business Day) by the Federal Reserve Bank of New York, or, if
such rate is not so published for any day that is a Business Day, the average of
the quotations from such day on such transactions received by the Lender from
three federal funds brokers of recognized standing selected by the Lender.
Generally Accepted Accounting Principles. Principles that are (i)
-----------------------------------------
consistent with the principles promulgated or adopted by the Financial
Accounting Standards Board and its predecessors, as in effect from time to time
and (ii) consistently applied with past financial statements of the Person
adopting the same principles; provided that in each case referred to in this
definition of "Generally Accepted Accounting
3
<PAGE>
Principles' a certified public accountant would, insofar a the use of such
accounting principles is pertinent, be in a position to deliver an unqualified
opinion other than a qualification regarding changes in Generally Accepted
Accounting Principles as to financial statements in which such principles have
been properly applied.
Guaranteed Pension Plan. Any employee pension benefit plan within the
------------------------
meaning of (S)3.2 of ERISA maintained or contributed to by the Borrower or any
ERISA Affiliate the benefits of which are guaranteed on termination in full or
in part by the PBGC pursuant to Title IV of ERISA, other than a Multiemployer
Plan.
Hazardous Substances. Any substance (i) the presence or which requires or
---------------------
my hereafter require notification, investigation or remediation under any
Environmental Law; (ii) which is or becomes defined as a "hazardous waste,"
"hazardous material" or "hazardous substance" or "controlled industrial waste"
or "pollutant" or "contaminant" under any present or future Environmental Law or
amendments thereto including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act 42 U.S.C. (S)9601 et
seq.) and any applicable local statutes and the regulations promulgated
thereunder; (iii) which is toxic, explosive corrosive, flammable, infectious,
radioactive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of any foreign country, the United States, any state
of the United States, or any political subdivision thereof to the extent any of
the foregoing has or had jurisdiction over the Company; or (iv) without
limitation, which contains gasoline, diesel fuel or other petroleum products,
asbestos or polychlorinated biphenyls ("PCB's)".
Indebtedness. As to the Borrower or any of its Subsidiaries, all
-------------
obligations, contingent and otherwise, that in accordance with Generally
Accepted Accounting Principles should be classified upon the balance sheet of
the Borrower or any of its Subsidiaries as liabilities, or to which reference
should be made by footnote thereto, including in any event and whether or not so
classified: (a) all obligations for borrowed money or other extensions of credit
whether or not secured or unsecured, absolute or contingent, including, without
limitation, unmatured reimbursement obligations with respect to letters of
credit or guarantees issued for the account or on behalf of the Borrower or any
of its Subsidiaries and all obligations representing the deferred purchase price
of property, (b) all obligations evidenced by bonds, Note, debentures or other
similar instruments; (c) all liabilities secured by any mortgage, pledge,
security interest, lien, charge, or other encumbrance existing on property owned
or acquired subject thereto, whether or not the liability secured thereby shall
have been assumed; and (d) all guarantees, endorsements and other contingent
obligations whether direct or indirect in respect of indebtedness of others or
otherwise, including any obligations with respect to puts, swaps, and other
similar undertakings, any obligation to supply funds to or in any manner to
invest in, directly or indirectly, the debtor, to purchase indebtedness, or to
assure the owner of indebtedness against loss, through an agreement to purchase
goods, supplies, or services for the purpose of enabling the debtor to make
payment of the indebtedness held by such owner or otherwise, and the
4
<PAGE>
obligations to reimburse the issuer in respect of any letters of credit; and (e)
that portion of all obligations arising under capital leases that is required to
be capitalized on the balance sheet of the Borrower and its Subsidiaries.
Investments. All expenditures made and all liabilities and commitments
-----------
incurred continently or otherwise for the purchase or acquisition of capital
stock, partnership interests, or equity interests or securities, or Indebtedness
of, or for Loan, advances, capital contributions or transfers of property to, or
in respect of any guaranties or other commitments as described under
Indebtedness, or obligations of, any Person. In determining the aggregate
amount of Investments outstanding at any particular time: (a) the amount of any
Investment represented by a guaranty shall be taken at not less than the
principal amount of the obligations guaranteed and still outstanding; (b) there
shall be included as an Investment all interest accrued with respect to
Indebtedness constituting an Investment unless and until such interest is paid;
(c) there shall be deducted in respect of each such Investment any amount
received as a return of capital but only by repurchase, redemption, retirement,
repayment, liquidating dividend or liquidating distribution); (d) there shall
not be deducted in respect of any Investment any amounts received as earnings on
such Investment, whether as dividends, interest or otherwise, except that
accrued interest included as provided in the foregoing clause (b) may be
deducted when paid; and (e) there shall not be deducted from the aggregate
amount of Investments any decrease in the value thereof.
Junior Loan. The loan to be made by BancBoston Ventures Inc. as provided
---------------
in a certain Securities Purchase Agreement, as it may be modified, amended,
supplemented or restated.
Junior Loan Documents. The Securities Purchase Agreement between
----------------------
BancBoston Ventures Inc. and the Borrower, the Promissory Note in the principal
amount of $3,000,000 issued by the Borrower to BancBoston Ventures Inc., and all
other instruments, documents and agreements relating thereto or executed in
connection therewith, as modified, amended, supplemented or restated.
Lender. As defined in the Preamble hereto.
--------
Loan Documents. This Agreement and the Note, as each of then may be
---------------
modified, amended, supplemented or restated.
Loan. The Term Loan to be made by the Lender hereunder.
-----
Multiemployer Plan. Any multiemployer plan within the meaning of (S)3.37
----------------------
of ERISA maintained or contributed to by the Borrower or any ERISA Affiliate.
Net Income (or Deficit): With respect to any fiscal period of the
------------------------
Borrower and its Subsidiaries the net income or deficit of the Borrower and its
Subsidiaries, after
5
<PAGE>
deduction of all expenses, taxes, and other proper charges, determined in
accordance with Generally Accepted Accounting Principles.
Note. The Term Note.
----- -
Obligations. All indebtedness, obligations and liabilities of the
------------
Borrower and its Subsidiaries to the Lender under this Agreement or any of the
other Loan Documents or in respect of any of the Loan or the Note or other
instruments at any time evidencing any thereof, whether existing on the date of
this Agreement or arising or incurred hereafter, direct or indirect, joint or
several, absolute or contingent, matured or unmatured, liquidated or
unliquidated, secured or unsecured, arising by contact, operation of law or
otherwise.
Operating Cash Flow. With respect to any fiscal period of the Borrower
-------------------
and its subsidiaries, the result (determined with respect to the same period and
without duplication) of (a) EBITBA; minus (b) capital expenditures made during
such period, determined in accordance with Generally Accepted Accounting
principles; minus (c) cash payments made during such period on account of income
and other taxes.
Operating Company Periscope Sportswear, LLC, a Delaware limited liability
-----------------
company, with its principal place of business at 1407 Broadway, Suite 620, New
York, New York 10018.
Outstanding. With respect to the Loan, the aggregate unpaid principal
-----------
thereof as of any dated of determination.
PBGC. The Pension Benefit Guaranty Corporation created by (S)4002 of
-----
ERISA and any successor entity or entities having similar responsibilities.
Permitted Liens. Any individual, corporation, partnership, trust,
---------------
unincorporated association, business, or other legal entity, and any government
or any governmental agency or political subdivision thereof.
Person. Any individual, corporation, partnership, trust, unincorporated
------
association, business, or other legal entity, and any government or any
governmental agency or political subdivision thereof.
Recourse Accounts. Accounts and accounts receivable of the Borrower and
------------------
its subsidiaries for which the credit risk for non-payment has not been wholly
assumed by a factor or other Person; to the extent that the Borrower or its
Subsidiaries retains any credit risk with respect to such account or account
receivable, whether fixed or contingent, such account or account receivable
shall be deemed a Recourse Account.
Subsidiary. Any corporation, association, partnership, trust, or other
-----------
business entity of which the designated parent shall at any time own directly or
indirectly through a Subsidiary or Subsidiaries at least a majority (by number
or votes or
6
<PAGE>
controlling interests) of the outstanding Voting Interests. Without limiting the
foregoing, the Operating Company is a Subsidiary of the Borrower.
Term Loan. The loan to be made by the Lender as provided in (S)2.1 below.
----------
Term Loan Maturity Date. May 15, 2001 or such earlier date on which the
------------------------
Term Loan shall become due and payable pursuant to the terms hereof.
Term Note. See (S)2.2
----------
UCC. The Uniform Commercial Code as enacted in The Commonwealth of
---
Massachusetts, as such may be supplemented or amended and in effect from time to
time.
Voting Interests. Stock or similar ownership interests, of any class or
----------------
classes (however designated), the holders of which are at the time entitled, as
such holders, (a) to vote for the election of a majority of the directors (or
persons performing similar functions) of the corporation, association,
partnership, trust or other business entity involved, or (b) to control, manage,
or conduct the business of the corporation, partnership, association, trust or
other business entity involved.
(S)1.2. Rules of Interpretation.
-----------------------
(a) A reference to any document or agreement shall include such
document or agreement as amended, modified or supplemented from time to time in
accordance with its terms and the terms of this Agreement.
(b) The singular includes the plural and the plural includes the
singular.
(c) A reference to any law includes any amendment or modification
to such law.
(d) A reference to any Person includes its permitted successors and
permitted assigns.
(e) Accounting terms not otherwise defined herein have the meanings
assigned to them by Generally Accepted Accounting Principles.
(f) The words "include", "includes" and "including" are not
limiting.
(g) All terms not specifically defined herein or by Generally
Accepted Accounting Principles, which terms are defined in the UCC, have the
meanings assigned to them therein.
7
<PAGE>
(h) Reference to a particular "(S)" refers to that section of this
Agreement unless otherwise indicated.
(i) The words "herein", "hereof", "hereunder" and words of like import
shall refer to this Agreement as a whole and not to any particular section or
subdivision of this Agreement.
(S)2. THE LOAN.
--------
(S)2.1 Commitment to Make Term Loan. Subject to the terms and conditions set
----------------------------
forth in this Agreement, the Borrower shall borrow, and the Lender shall lend,
on the Closing Date the sum of $15,000,000.00 (the "Term Loan").
(S)2.2 The Term Note. The Term Loan shall be evidenced by a promissory note
-------------
of the Borrower, substantially in the form of Exhibit A hereto (the "Term
---------
Note"), dated as of the Closing Date and completed with appropriate insertions.
The Outstanding amount of the Term Loan set forth on the Lender's records shall
be prima facie evidence of the principal amount thereof owing and unpaid to the
Lender.
(S)2.3 Interest on Term Note.
---------------------
(a) The Term Loan shall bear interest at a per annum rate equal to the
aggregate of the Base Rate plus the Applicable Margin.
(b) The Borrower shall pay interest on the Term Loan in arrears on the
first day of each month.
(S)2.4 Repayment of Term Loan. The Outstanding principal balance of the Term
----------------------
Loan shall be payable in nineteen (19) equal consecutive quarterly installments
in the sum of $500,000.00 each, the first of which shall be due on the last day
of September, 1996, and the subsequent of which shall be due on the last day of
each calendar quarter thereafter. In all events and under all circumstances,
unless sooner paid or accelerated, the then unpaid principal balances of the
Term Note and all accrued and unpaid interest thereon shall be due and payable
on the Term Loan Maturity Date.
(S)2.5 Optional Prepayments of Term Loan.
---------------------------------
The Borrower shall have the right, at its election, to repay the Outstanding
amount of the Term Loan, as a whole or in part, at any time without penalty or
premium. Each such partial repayment shall be applied to the principal of the
Term Loan in inverse order of maturity. No prepayment hereunder shall postpone
the date for, or reduce the amount of, any subsequent payment under the Term
Loan. Any portion of the Term Loan which is prepaid may not be reborrowed.
8
<PAGE>
(S)3. CERTAIN GENERAL PROVISIONS.
--------------------------
(S)3.1 Closing Fee. The Borrower agrees to pay to the Lender on the Closing
-----------
Date a closing fee in the amount of $150,000.00.
(S)3.2 Funds for Payments.
------------------
(a) All payments of principal, interest, closing fees and any other
amounts due hereunder or under any of the other Loan Documents shall be made to
the Lender at the Lender's head office at 100 Federal Street, Boston,
Massachusetts 02110, or at such other location in the Boston, Massachusetts area
that the Lender may from time to time designate, in each case in immediately
available funds.
(b) All payments by the Borrower hereunder and under any of the other
Loan Documents shall be made without setoff or counterclaim and free and clear
of and without deduction for any taxes, levies, imposts, duties, charges, fees,
deductions, withholdings, compulsory loans, restrictions or conditions of any
nature now or hereafter imposed or levied by any jurisdiction or any political
subdivision thereof or taxing or other authority therein unless the Borrower is
compelled by law to make such deduction or withholding. If any such obligation
is imposed upon the Borrower with respect to any amount payable by it hereunder
or under any of the other Loan Documents, the Borrower will pay to the Lender,
on the date on which such amount is due and payable hereunder or under such
other Loan Document, such additional amount in dollars as shall be necessary to
enable the Lender to receive the same net amount which the Lender would have
received on such due date had no such obligation been imposed upon the Borrower.
The Borrower will deliver promptly to the Lender certificates or other valid
vouchers for all taxes or other charges deducted from or paid with respect to
payments made by the Borrower hereunder or under such other Loan Document.
(S)3.3. Computations. All computations of interest on the Loan and of other
------------
fees payable by the Borrower to the extent applicable shall be based on a 360-
day year and paid for the actual number of days elapsed. Each change in the
Base Rate shall be effective, for purposes of the determination of interest
hereunder, contemporaneously with the effectiveness of such change in the Base
Rate. Whenever a payment hereunder or under any of the other Loan Documents
becomes due on a day that is not a Business Day, the due date for such payment
shall be extended to the next succeeding Business Day, and interest shall accrue
during such extension. The Outstanding amount of the Loan as reflected on the
Lender's records from time to time shall be considered correct and binding on
the Borrower unless within ten (10) Business Days after receipt by the Borrower
from the Lender of any notice of such outstanding amount, the Borrower shall
notify the Lender to the contrary.
(S)3.4. Interest After Default. Following the occurrence of an Event of
----------------------
Default, principal and (to the extent permitted by applicable law) interest on
the Loan and all other amounts payable hereunder or under any of the other Loan
Documents, at the
9
<PAGE>
option of the Lender, shall bear interest (compounded daily payable on demand at
a rate per annum equal to the aggregate of two percent (2%) per annum plus the
then effective rate of interest set forth in (S)2.3.
(S)4. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
------------------------------
to the Lender as follows.
(S)4.1. Corporate Authority; Etc.
-------------------------
(a) Incorporation; Good Standing. (i) The Borrower (i) is a
----------------------------
corporation, validly existing and in good standing under the laws of the State
of New York (ii) has all requisite power to own its property and conduct its
business as now conducted and as presently contemplated, and (iii) is in good
standing as a foreign corporation and is duly authorized to do business in each
jurisdiction where such qualification is necessary except where a failure to be
so qualified in such other jurisdiction would not have a materially adverse
effect on the business, assets or financial condition of the Borrower.
(ii) The Operating Company (i) is a limited liability company,
validly existing and in good standing under the laws of the State of Delaware
(ii) has all requisite power to own its property and conduct its business as now
conducted and as presently contemplated, and (iii) is duly authorized and
qualified to do business in each jurisdiction where such qualification is
necessary except where a failure to be so qualified in such other jurisdiction
would not have a materially adverse effect on the business, assets or financial
condition of the Operating Company.
(b) Authorization. The execution, delivery and performance of this
-------------
Agreement and the other Loan Documents to which the Borrower is to become a
party and the transactions contemplated hereby and thereby (i) are within the
authority of the Borrower, (ii) have been duly authorized by all necessary
proceedings, (iii) do not and will not conflict with or result in any breach or
contravention of any provision of law, statute, rule, regulation or agreement to
which the Borrower is subject or any judgment, order, writ, injunction, license
or permit applicable to the Borrower, and (iv) do not and will not conflict with
any provision of the Borrower's organization documents or other charter
documents or bylaws of, or any agreement or other instrument binding upon, the
Borrower.
(c) Enforceability. The execution and delivery of this Agreement
--------------
and the other Loan Documents to which the Borrower is or is to become a party
will result in valid and legally binding obligations of the Borrower enforceable
against it in accordance with the respective terms and provisions hereof and
thereof, except as enforceability is limited by bankruptcy, insolvency,
reorganization, moratorium or other laws relating to or affecting generally the
enforcement of creditors' rights and except to the extent that availability of
the remedy of specific performance or injunctive relief is subject to the
discretion of the court before which any proceeding therefor may be brought.
10
<PAGE>
(S)4.2. Governmental Approvals. The execution, delivery and performance by
----------------------
the Borrower of this Agreement and the other Loan Documents to which the
Borrower is or is to become a party and the transactions contemplated hereby and
thereby do not require the approval or consent of, or filing with, any
governmental agency or authority other than those already obtained and the
filing of related financing statements in the appropriate records office with
respect thereto.
(S)4.3 Title to Properties. The Borrower and the Operating Company owns all
-------------------
of the assets reflected in the consolidated balance sheet of the Borrower as at
the Balance Sheet Date or acquired since that date (except property and assets
sold or otherwise disposed of in the ordinary course of business since that
date), and such assets are not subject to any mortgages, leases, conditional
sales agreements, title retention agreements, liens or other encumbrances except
Permitted Liens.
(S)4.4. Financial Statements. The following financial statements have been
--------------------
furnished to the Lender:
(a) A balance sheet of the Borrower as of the Balance Sheet Date, and
a statement of income for the fiscal year then ended, accompanied by an
auditor's report prepared without qualification by Friedman Alpren & Green
LLP. Such balance sheet and statement of income have been prepared in
accordance with Generally Accepted Accounting Principles and fairly present
the financial condition of the Borrower as at the close of business on the
date thereof and the results of operations for the fiscal year then ended.
There are no contingent liabilities of the Borrower as of such date
involving material amounts, known to the officers of the Borrower or the
Operating Company not disclosed in said balance sheet and the related Note
thereto.
(b) A balance sheet, a statement of income and a statement of cash
flow of the Borrower for each of the fiscal quarters of the Borrower for
each of the fiscal quarters of the Borrower ended since the Balance Sheet
Date certified by the Borrower's chief financial officer to have been
prepared in accordance with Generally Accepted Accounting Principles
consistent with those used in the preparation of the annual audited
statements delivered pursuant to paragraph (a) above and to fairly present
the financial condition of the Borrower as at the close of business on the
dates thereof and the results of operations for the fiscal quarters then
ended (subject to year-end adjustments). There are no contingent liabilities
of the Borrower as of such dates involving material amounts, known to the
officers of the Borrower or the Operating Company, not disclosed in such
balance sheets and the related Note thereto.
(S)4.5. No Material Changes, Etc. Since the Balance Sheet Date, except as
-------------------------
provided in the following sentence, there has occurred no materially adverse
change in the financial condition or business of the Borrower as shown on or
reflected in the balance sheet of the Borrower as of the Balance Sheet Date, or
the statement of income
11
<PAGE>
for the fiscal year then ended, other than changes in the ordinary course of
business that have not had any materially adverse effect either individually or
in the aggregate on the business or financial condition of the Borrower. Since
the Balance Sheet Date, the Borrower has made Distributions to Glenn Sands and
Marian Sands in the approximate amount of $2,100,000.00 and has forgiven
$950,000.00 of the loan receivable from officers reflected on the balance sheet
described in (S)4.4(a), above.
(S)4.6. Franchises, Patents, Copyrights, Etc. The Borrower and its
-------------------------------------
Subsidiaries possess all franchises, patents, copyrights, trademarks, trade
names, licenses and permits, and rights in respect of the foregoing, adequate
for the conduct of their respective businesses substantially as now conducted
without known conflict with any rights of others.
(S)4.7. Litigation. There are no actions, suits, proceedings or
----------
investigations of any kind pending or, to the knowledge of the Borrower,
threatened against the Borrower or any of its Subsidiaries before any court,
tribunal or administrative agency or board that, if adversely determined, might,
either in any case or in the aggregate, materially adversely affect the
properties, assets, financial condition or business of the Borrower or its
Subsidiaries or materially impair the right of the Borrower and its Subsidiaries
to carry on business substantially as now conducted by it, or result in any
substantial liability not adequately covered by insurance, or for which adequate
reserves are not maintained on the balance sheet of the Borrower or its
Subsidiaries, or which question the validity of this Agreement or any of the
other Loan Documents, or any action taken or to be taken pursuant hereto or
thereto.
(S)4.8. No Materially Adverse Contracts, Etc. Neither the Borrower nor any
-------------------------------------
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation that has or is
expected in the future to have a materially adverse effect on the business,
assets or financial condition of the Borrower or its Subsidiaries. Neither the
Borrower nor any of its Subsidiaries is a party to any contract or agreement
that has or is expected, in the judgment of the Borrower's officers, to have any
materially adverse effect on the business of the Borrower or its Subsidiaries.
(S)4.9 Compliance With Other Instruments, Laws, Etc. Neither the Borrower
---------------------------------------------
nor any of its Subsidiaries is in violation of any provision of its charter or
other organization documents, by-laws, or any agreement or instrument to which
it may be subject or by which it or any of its properties may be bound or any
decree, order, judgment, statute, license, rule or regulation, if any of the
foregoing cases in a manner that could result in the imposition of substantial
penalties or materially and adversely affect the financial condition, properties
or business of the Borrower and its Subsidiaries.
(S)4.10. Tax Status. Each of the Borrower and its Subsidiaries (a) has made
----------
or filed all federal and state income and all other tax returns, reports and
declarations required by any jurisdiction to which it is subject, (b) has paid
all taxes and other
12
<PAGE>
governmental assessments and charges shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and by appropriate proceedings and (c) has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and except for an audit of fiscal year 1992, the officers of
the Borrower know of no basis for any such claim.
(S)4.11. No Event of Default. No Default or Event of Default has occurred
-------------------
and is continuing.
(S)4.12. Holding Company and Investment Company Acts. The Borrower is not a
-------------------------------------------
"holding company", or a "subsidiary company" of a "holding Company", or an
"affiliate" of a "holding company", as such terms are defined in the Public
Utility Holding Company Act of 1935; nor is it an "investment company", or an
"affiliated company" or a "principal underwriter" of an "investment company", as
such terms are defined in the Investment Company Act of 1940.
(S)4.13. Absence of UCC Financing Statements, Etc. Except with respect to
-----------------------------------------
Permitted Liens, there is no financing statement, security agreement, or other
document filed or recorded with any filing records, registry or other public
office, that purports to cover, affect or give notice of any present or possible
future lien on, or security interest in, any assets of the Borrower or rights
thereunder.
(S)4.14. Certain Transactions. Except as described on Schedule 4.14 hereto,
-------------------- -------------
none of the officers, trustees, directors or employees of the Borrower or any of
its Subsidiaries is presently a party to any transaction with the Borrower or
any of its Subsidiaries other than for services as employees, officers and
directors, including any contract, agreement or other arrangement providing for
the furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
trustee, director or such employee or, to the knowledge of the Borrower, any
corporation, partnership, trust or other entity in which any officer, trustee,
director, or any such employee has a substantial interest or is an officer,
director, trustee or partner.
(S)4.15. Employee Benefit Plans; Multiemployer Plans; Guaranteed Pension
---------------------------------------------------------------
Plans. Neither the Borrower nor any ERISA Affiliate maintains or contributes to
- -----
any Employee Benefit Plan, Multiemployer Plan or Guaranteed Pension Plan other
than as set forth in Schedule 4.15 hereof.
-------------
(S)4.16. Environmental Compliance. Except as disclosed on Schedule 4.16.
------------------------ --------------
(a) the operations of the Borrower and each of its Subsidiaries
comply with all applicable Environmental Laws;
13
<PAGE>
(b) none of the operations of the Borrower or any of the
Subsidiaries is the subject of any judicial or administrative proceeding
alleging the violation of any Environmental Laws;
(c) none of the operations of the Borrower or any of the
Subsidiaries is the subject of any federal or state investigation evaluating
whether the Borrower or any of the Subsidiaries disposed of any hazardous or
toxic waste, substance or constituent of any site that may require remedial
action, or any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any hazardous or toxic
waste, substance or constituent into the environment;
(d) neither the Borrower nor any of the Subsidiaries has filed any
notice under any federal or state law indicating past or present treatment,
storage or disposal of a hazardous waste or reporting a spill or release of
a hazardous or toxic waste, substance or constituent into the environment;
(e) neither the Borrower nor any of the Subsidiaries has any
contingent liability of which the Borrower has knowledge or reasonably
should have knowledge in connection with any release of any hazardous or
toxic waste, substance or constituent into the environmental, nor has the
Borrower or any of the Subsidiaries received any notice, letter or other
indication of potential liability arising from the disposal of any hazardous
or toxic waste, substance or constituent into the environment.
(S)4.17. Subsidiaries. Schedule 4.17 sets forth all of the Subsidiaries of
------------ -------------
the Borrower. The Borrower is the owner, free and clear of all liens and
encumbrances, of all of the issued and outstanding capital stock of each
Subsidiary. All shares of such stock have been validly issued and are fully
paid and nonassessable and no rights to subscribe to any additional shares have
been granted, and no options, warrants, or similar rights are outstanding.
(S)4.18. Loan Documents. All of the representations and warranties of the
--------------
Borrower made in the other Loan Documents or any document or instrument
delivered to the Lender pursuant to or in connection with any of such Loan
Documents are true and correct in all material respects.
(S)5. AFFIRMATIVE COVENANTS OF THE BORROWER. The Borrower covenants and
-------------------------------------
agrees that, so long as any Obligation is Outstanding:
(S)5.1. Punctual Payment. The Borrower will duly and punctually pay or cause
----------------
to be paid the principal and interest on the Loan and all interest, fees and
other Obligations provided for in this Agreement, all in accordance with the
terms of this Agreement and the Note, as well as all other sums owing pursuant
to the Loan Documents.
14
<PAGE>
(S)5.2. Maintenance of Office. The Borrower will maintain its chief
---------------------
executive office in New York, New York, or at such other place in the United
States of America as the Borrower shall designate upon not less than forty-five
(45) days prior written notice to the Lender.
(S)5.3. Records of Accounts. The Borrower will (a) keep, and cause each of
-------------------
its Subsidiaries to keep, true and accurate records and books of account in
which full, true and correct entries will be made in accordance with Generally
Accepted Accounting Principles and (b) maintain adequate accounts and reserves
for all taxes (including income taxes), depreciation and amortization of its
properties and the properties of its Subsidiaries, contingencies, and other
reserves.
(S)5.4. Financial Statements, Certificates and Information. The Borrower will
--------------------------------------------------
deliver to the Lender:
(a) As soon as practicable, but in any event not later than ninety
(90) days after the end of each fiscal year of the Borrower, the audited
consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries at the end of each year, and the related audited consolidated and
consolidating statements of earnings and cash flows for such year, each
setting forth a comparison to the figures for the previous fiscal year and all
such statements to be in reasonable detail, prepared in accordance with
Generally Accepted Accounting Principles, and accompanied by an auditor's
report prepared without qualification by Friedman Alpren & Green LLP, or by
another independent certified public accountant acceptable to the Lender,
together with (i) the notes accompanying the financial statements (ii) a
written statement from such accountants to the effect that they have read a
copy of this Agreement, and that, in making the examination necessary to said
certification, they have obtained no knowledge of any Default or Event of
Default, or, if such accountants shall have obtained knowledge of any then
existing Default or Event of Default they shall disclose in such statement any
such Default or Event of Default, and (iii) a detailed narrative analysis of
performance for such year prepared by the principal financial or accounting
officer of the Operating Company, including a comparison to the budget for
such year.
(b) As soon as practicable, but in any event not later than thirty
(30) days after the end of each month, copies of the unaudited balance sheet
of the Operating Company as of the end of such month, and the related
unaudited statements of income and cash flow for such month and that portion
of the Operating Company's fiscal year then elapsed, all in reasonable detail
and prepared in accordance with Generally Accepted Accounting Principles,
together with a certification by the principal financial or accounting officer
of financial statements fairly presents the financial position of the
Operating Company on the date thereof (subject to year-end adjustments) and a
detailed narrative analysis of performance for such month and year to date
prepared by such principal financial or accounting officer of the Operating
Company.
15
<PAGE>
(c) Simultaneously with the delivery of the financial statements
referred to in subsections (a) and (b) above, a statement in the form of
Exhibit C hereto signed by the principal financial or accounting officer of
the Operating Company and setting forth in reasonable detail computations
evidencing compliance with the covenants contained in (S)7.1 through (S)7.4
and if applicable, reconciliations to reflect changes in Generally Accepted
Accounting Principles since the Balance Sheet Date.
(d) As soon as practicable, but in any event not later than thirty
(30) days after the end of each month, a summary of the account between the
Borrower and the Operating Company, as applicable, and its factor, in such
form and containing such information as may be reasonably satisfactory to the
Lender.
(e) As soon as practicable, but in any event not later than ten (10)
days after the end of each month, a detailed report of any Dilution during
such month, together with a narrative analysis of the basis for such Dilution
for any individual items in excess of $2,000.00.
(f) Contemporaneously with the filing or mailing thereof, copies of
all material of a financial nature filed with the Securities and Exchange
Commission or sent to the stockholders of the Borrower.
(g) Contemporaneously with the Borrower's receipt thereof, copies of
all accountants' management letters.
(h) As soon as practicable, but in any event not later than forty-five
(45) days after the end of each fiscal year, monthly projections of the
financial condition and results of operations of the Operating Company for the
following fiscal year, including, but not limited to, a projected
consolidating balance sheet, statement of operations, statement of cash flows
and statement of changes in stockholders' equity for such fiscal year.
(i) From time to time such other financial data and information as the
Lender may reasonably request.
(S)5.5. Notices.
-------
(a) Defaults. The Borrower will promptly notify the Lender in
--------
writing of the occurrence of any Default or Event of Default. If any Person
shall give any notice or take any other action in respect of a claimed default
(whether or not constituting an Event of Default) under this Agreement or under
any notice, evidence of indebtedness, indenture or other obligation to which or
with respect to which the Borrower or any of its Subsidiaries is a party or
obligor, whether as principal or surety, and such default would permit the
holder of such note or obligation or other
16
<PAGE>
evidence of indebtedness to accelerate the maturity thereof, which acceleration
would have a material adverse effect on the Borrower or any of its Subsidiaries,
the Borrower shall forthwith give written notice thereof to the Lender,
describing the notice or action and the nature of the claimed default.
(b) Environmental Events. The Borrower will promptly give notice to
--------------------
the Lender (i) of any violation of any Environmental Law that the Borrower or
any of its Subsidiaries reports in writing or is reportable by such Person in
writing to any federal, state or local environmental agency and (ii) upon
becoming aware thereof, of any inquiry, proceeding, investigation, or other
action, including a notice from any agency of potential environmental liability,
or any federal, state or local environmental agency or board, that has the
potential to materially affect the assets, liabilities, financial condition or
operations of the Borrower or any of its Subsidiaries.
(c) Notification of Claims against Assets. The Borrower will,
-------------------------------------
immediately upon becoming aware thereof, notify the Lender in writing of any
setoff, claims (including environmental claims) withholdings or other defenses
to which any of its assets are subject.
(d) Notice of Litigation and Judgments. The Borrower will give
----------------------------------
notice to the Lender in writing upon becoming aware of any litigation or
proceedings threatened in writing or any pending litigation and proceedings
affecting the Borrower or any of its Subsidiaries or to which the Borrower or
any of its Subsidiaries is or is to become a party involving an uninsured claim
against the Borrower or any of its Subsidiaries or that could reasonably be
expected to have a materially adverse effect on the Borrower or its Subsidiaries
and stating the nature and status of such litigation or proceedings. The
Borrower will give notice to the Lender, in writing, in form and detail
satisfactory to the Lender, within ten (10) days of any judgment not covered by
insurance, final or otherwise, against the Borrower or any of its Subsidiaries.
(S)5.6. Existence; Maintenance of Properties. The Borrower will do or cause
------------------------------------
to be done all things necessary to preserve and keep in full force and effect
its existence as a Delaware corporation. The Borrower will do or cause to be
done all things necessary to preserve and keep in full force all of its rights
and franchises and those of its Subsidiaries. The Borrower (a) will cause all
of its properties and those of its Subsidiaries used or useful in the conduct
of its business or the business of its Subsidiaries to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment, (b) will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Borrower may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times, and (c)
will, and will cause each of its Subsidiaries to, continue to engage primarily
in the businesses now conducted by it and in related businesses.
(S)5.7. Insurance. The Borrower will maintain with respect to its
---------
properties, and will cause each of its Subsidiaries to maintain with financially
sound and reputable
17
<PAGE>
insurers, insurance with respect to such properties and its business against
such casualties and contingencies as shall be in accordance with the general
practices of businesses engaged in similar activities in similar geographic
areas and in amounts, containing such terms, in such forms and for such periods
as may be reasonable and prudent.
(S)5.8. Taxes. The Borrower will, and will cause each of its Subsidiaries
-----
to, duly pay and discharge, or cause to be paid and discharged, before the same
shall become overdue, all taxes, assessments and other governmental charges
imposed upon it and its real properties, sales and activities, or any part
thereof, or upon the income or profits therefrom, as well as all claims for
labor, materials or supplies.
(S)5.9. Inspection of Properties and Books. The Borrower shall permit the
----------------------------------
Lender through any of the Lender's designated representatives at the Borrower's
expense) to visit and inspect any of the properties of the Borrower or any of
its Subsidiaries, to examine the books of account of the Borrower and its
Subsidiaries and to make copies thereof and extracts therefrom; and to discuss
the affairs, finances and accounts of the Borrower and its Subsidiaries with,
and to be advised as to the same by, its officers, all at such reasonable times
and intervals as the Lender may reasonably request.
(S)5.10. Compliance with Laws, Contracts, Licenses, and Permits. The
------------------------------------------------------
Borrower will comply with, and will cause each of its Subsidiaries to comply
with (a) all applicable laws and regulations now or hereafter in effect wherever
its business is conducted, including all Environmental laws, (b) the provisions
of its corporate charter and other charter documents and by-laws, (c) all
agreements and instruments to which it is a party or by which it or any of its
properties may be bound and (d) all applicable decrees, orders, and judgments
except for violations which, in the aggregate, do not have a material adverse
effect on the business, operations, properties, assets, or financial condition
of the Borrower and its Subsidiaries. If at any time while any Obligation is
Outstanding, any authorization, consent, approval, permit or license from any
officer, agency or instrumentality of any government shall become necessary or
required in order that the Borrower may fulfill any of its obligations
hereunder, the Borrower will promptly take or cause to be taken all reasonable
steps within the power of the Borrower to obtain such authorization, consent,
approval, permit or license and furnish the Lender with evidence thereof.
(S)5.11. Use of Proceeds. The Borrower will use the proceeds of the Loan
---------------
solely for the acquisition of its capital stock owned by Marian Sands and the
making of a Distribution to Glenn Sands.
(S)5.12. Interest Rate Protection. The Borrower shall maintain in effect
------------------------
interest rate protection arrangements, satisfactory in form and substance to the
Lender. The Borrower shall not, without the written consent of the Lender,
modify, terminate or transfer such arrangements until all Obligations are paid
in full. Such interest rate protection shall be collaterally assigned to the
Lender to secure the Obligations.
18
<PAGE>
(S)5.13. Further Assurances. The Borrower will cooperate with, and will
------------------
cause each of its Subsidiaries to cooperate with the Lender and execute such
further instruments and documents as the Lender shall reasonably request to
carry out to its satisfaction the transactions contemplated by this Agreement
and the other Loan Documents.
(S)6. CERTAIN NEGATIVE COVENANTS OF THE BORROWER. The Borrower covenants
------------------------------------------
and agrees that, so long as any Obligation is Outstanding:
(S)6.1. Restrictions on Indebtedness. The Borrower will not, and will not
----------------------------
permit any of its Subsidiaries to, create, incur, assume, guarantee or be or
remain liable, contingently or otherwise, with respect to any Indebtedness other
than:
(a) Indebtedness to the Lender arising under any of the Loan
Documents;
(b) current liabilities of the Borrower or its Subsidiaries incurred
in the ordinary course of business but not incurred through (i) the
borrowing of money, or (ii) the obtaining of credit except for credit on an
open account basis customarily extended and in fact extended in connection
with normal purchases of goods and services;
(c) Indebtedness in respect of taxes, assessments, governmental
charges or levies and claims for labor, materials and supplies to the
extent that payment therefor shall not at the time be required to be made
in accordance with the provisions of (S)5.8;
(d) Indebtedness in respect of judgments or awards that have been in
force for less than the applicable period for taking an appeal so long as
execution is not levied thereunder or in respect of which the Borrower or a
Subsidiary shall at the time in good faith be prosecuting an appeal or
proceedings for review and in respect of which a stay of execution shall
have been obtained pending such appeal or review;
(e) endorsements for collection, deposit or negotiation and warranties
of products or services, in each case incurred in the ordinary course of
business;
(f) Indebtedness due to Trust Company of Georgia (or any successor or
replacement factor) on account of its factoring arrangements with the
Borrower and/or the Operating Company; and
(g) Indebtedness described on Schedule 6.1 hereto.
------------
19
<PAGE>
(S)6.2. Restrictions on Liens, Etc. The Borrower will not, and will not
---------------------------
permit any of its Subsidiaries to, (a) create or incur or suffer to be created
or incurred or to exist any lien, encumbrance, mortgage, pledge, charge,
restriction or other security interest of any kind upon any of its property or
assets of any character whether now owned or hereafter acquired, or upon the
income or profits therefrom; (b) transfer any of its property or assets or the
income or profits therefrom for the purpose of subjecting the same to the
payment of Indebtedness or performance of any other obligation in priority to
payment of its general creditors; (c) acquire, or agree or have an option to
acquire, any property or assets upon conditional sale or other title retention
or purchase money security agreement, device or arrangement; (d) suffer to exist
for a period of more than thirty (30) days after the same shall have been
incurred any Indebtedness or claim or demand against it that if unpaid might by
law or upon bankruptcy or insolvency, or otherwise, be given any priority
whatsoever over its general creditors; or (e) sell, assign, pledge or otherwise
transfer any accounts, contract rights, general intangibles, chattel paper or
instruments, with or without recourse; provided that the Borrower and any
--------
Subsidiary of the Borrower may create or incur or suffer to be created or
incurred or to exist:
(i) liens in favor of the Borrower on all or part of the assets of
Subsidiaries of the Borrower securing Indebtedness owing by Subsidiaries of
the Borrower to the Borrower;
(ii) liens on properties to secure taxes, assessments and other
government charges or claims for labor, material or supplies in respect of
obligations not overdue;
(iii) deposits or pledges made in connection with, or to secure
payment of, workmen's compensation, unemployment insurance, old age
pensions or other social security obligations;
(iv) liens on properties in respect of judgments or awards, the
Indebtedness with respect to which is permitted by (S)6.1(d);
(v) liens of carriers, warehousemen, mechanics and materialmen, and
other like liens on properties in existence less than 40 days from the date
of creation thereof in respect of obligations not overdue;
(vi) encumbrances on properties consisting of easements, rights of
way, zoning restrictions, restrictions on the use of real property and
defects and irregularities in the title thereto, landlord's or lessor's
liens under leases to which the Borrower or a Subsidiary of the Borrower is
a party, and other minor liens or encumbrances none of which interferes
materially with the use of the property affected in the ordinary conduct of
the business of the Borrower and its Subsidiaries, which defects do not
individually or in the aggregate have a materially adverse effect on the
business of the Borrower individually or of the Borrower and its
Subsidiaries on a consolidated basis;
20
<PAGE>
(vii) liens in favor of the Lender under the Loan Documents;
(viii) liens in favor of Trust Company of Georgia (or any successor
or replacement factor) to secure indebtedness permitted pursuant to
(S)6.1(f) hereof; and
(ix) liens described on Schedule 6.2 hereto.
------------
(S)6.3. Restrictions on Investments. The Borrower will not, and will not
---------------------------
permit any of its Subsidiaries to, make or permit to exist or to remain
outstanding any Investment except Investments which constitute:
(i) marketable direct or guaranteed obligations of the United States
of America that mature within one (1) year from the date of purchase by the
Borrower;
(ii) demand deposits, certificates of deposit, bankers acceptances and
time deposits of United States banks having total assets in excess of
$1,000,000,000.00;
(iii) securities commonly known as "commercial paper" issued by a
corporation organized and existing under the laws of the United States of
America or any state thereof that at the time of purchase have been rated
and the ratings for which are not less than "P 1" if rated by Moody's
Investors Services, Inc., and not less than "A 1" if rated by Standard and
Poor's; and
(iv) Investments described on Schedule 6.3 hereto.
------------
(S)6.4. Merger, Consolidation. The Borrower will not, and will not permit
---------------------
any of its Subsidiaries to, become a party to any merger or consolidation, or
agree to or effect any asset acquisition or disposition or stock acquisition or
disposition (other than the acquisition or disposition of assets in the ordinary
course of business consistent with past practices).
(S)6.5. Sale and Leaseback. The Borrower will not, and will not permit any
------------------
of its Subsidiaries to, enter into any arrangement, directly or indirectly,
whereby the Borrower or any Subsidiary of the Borrower shall sell or transfer
any property owned by it in order then or thereafter to lease such property or
lease other property than the Borrower or any Subsidiary of the Borrower intends
to use for substantially the same purpose as the property being sold or
transferred.
(S)6.6. Compliance with Environmental Laws. The Borrower will not, and will
----------------------------------
not permit any of its Subsidiaries to do any of the following: (a) use any of
its real estate or any portion thereof as a facility for the handling,
processing, storage or disposal of Hazardous Substances, (b) cause or permit to
be located on any of such real
21
<PAGE>
estate any underground tank or other underground storage receptacle for
hazardous Substances except in full compliance with Environmental Laws, (c)
generate or dispose of any Hazardous Substances on any of such real estate
except in full compliance with Environmental Laws, or (d) conduct any activity
at any real estate or use any real estate in any manner so as to cause a
Release.
(S)6.7. Distributions. The Borrower will not make any Distributions.
-------------
(S)6.8. Subsidiaries. Without limiting the provisions of (S)6.___, the
------------
Borrower shall not acquire, form, or otherwise invest in any Subsidiary, without
the prior written consent of the Lender. Without limiting the foregoing, the
Borrower acknowledges that the Lender's consent may be conditioned upon, among
other things, the Lender's receipt of a security interest in the Subsidiary's
capital stock in order to secure the Obligations.
(S)6.9 Fiscal Year. The fiscal year of the Borrower and its Subsidiaries
-----------
presently ends on December 31 of each year. The Borrower and its Subsidiaries
shall not change their fiscal year end without furnishing prior written notice
thereof to, and first obtaining the consent of, the Lender, which consent shall
not be unreasonably withheld or delayed.
(S)6.10. Loan and Advances. The Borrower will not and will not permit any of
-----------------
its Subsidiaries to, make any Loan or advances to any Person or entity.
(S)6.11 Executive Compensation. The Borrower and its Subsidiaries shall not
----------------------
pay compensation and benefits to Glenn Sands in any calendar year in excess of
the amounts set forth in the employment contract annexed as Exhibit C hereto.
---------
(S)6.12. Junior Loan Documents. The Borrower shall not modify, amend,
---------------------
supplement, or restate the Junior Loan Documents, except to the extent necessary
to cause the covenants and events of default in the Junior Loan Documents to be
consistent with the Loan Documents.
(S)6.13. Affiliated Transactions. Except as described on Schedule 4.14
----------------------- -------------
hereto, none of the officers, trustees, directors, or employees of the Borrower
or any of its Subsidiaries will become a party to any transaction with the
Borrower or any of its Subsidiaries, including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, trustee, director or such employee or any corporation,
partnership, trust or other entity in which any officer, trustee, director, or
any such employee has a substantial interest or is an officer, director, trustee
or partner.
(S)6.14 Future Transactions. The Lender shall consider, in good faith, any
-------------------
requests made by the Borrower for the waiver of any of the limitations set forth
in this (S)6 in order to permit the Borrower to acquire additional assets or
business operations
22
<PAGE>
compatible with the Borrower's current business and operations. Nothing
contained herein, however, shall constitute the Lender's consent to any such
transactions or a waiver of any of the provisions hereof; any such consent or
waiver may be furnished in the Lender's sole discretion and, if so furnished,
shall not be effective unless in writing.
(S)7 FINANCIAL COVENANTS OF THE BORROWER. The Borrower covenants and agrees
-----------------------------------
that, so long as any Obligation is Outstanding:
7.1. Minimum EBITDA. The Borrower and its Subsidiaries shall achieve EBITDA
--------------
(on a consolidated basis) of at least: (a) $2,000,000.00 for each of the
Borrower's fiscal quarters ending September 30, 1996, December 31, 1996, and
June 30, 1997; (b) no less than $5,000,000.00 for the period July 1, 1996
through march 31, 1997; and (c) $2,000,000.00 (calculated on a rolling four (4)
quarters basis) as of the end of each fiscal quarter commencing with the quarter
ending September 30, 1997.
(S)7.2. Operating Cash Flow to Debt Service Ratio. The Borrower and its
-----------------------------------------
Subsidiaries shall not permit the ratio of Operating Cash Flow to Debt Service
Charges (on a consolidated basis) to be less than 1.50 to 1.00 as of the last
day of each of the Borrower's fiscal quarters, commencing with the quarter
ending September 30, 1996.
(S)7.3 Total Dilution. The Borrower and its Subsidiaries shall not permit
--------------
Dilution in any fiscal year to exceed five percent (5%) of net sales for such
year.
(S)7.4 Maximum Recourse Accounts. The Borrower and its Subsidiaries shall
-------------------------
not permit Recourse Accounts to exceed $600,000.00 at any time.
(S)8. CLOSING CONDITIONS. The obligations of the Lender make the Loan shall
------------------
be subject to the satisfaction of the following conditions precedent:
(S)8.1. Loan Documents. Each of the Loan Documents shall have been duly
--------------
executed and delivered by the respective parties thereto and, shall be in full
force and effect and shall be in form and substance satisfactory to the Lender.
(S)8.2. Certified Copies of Organization Documents. The Lender shall have
------------------------------------------
received from the Borrower a copy, certified of a recent date by the appropriate
officer of the State in which Borrower and each of its Subsidiaries is organized
to be true and complete, of the corporate charter and any other organization
documents of Borrower and each such Subsidiary as in effect on such date of
certification.
(S)8.3. By-laws; Resolutions. All action on the part of the Borrower
--------------------
necessary for the valid execution, delivery and performance by the Borrower of
this Agreement and the other Loan Documents to which it is or is to become a
party shall have been duly and effectively taken, and evidence thereof
satisfactory to the Lender shall have been provided to the Lender. The Lender
shall have received from the Borrower true
23
<PAGE>
copies of the Borrower's and each Subsidiary's by-laws and the resolutions
adopted by the Borrower's board of directors authorizing the transactions
described herein, each certified by the Borrower's secretary as of a recent date
to be true and complete.
(S)8.4. Incumbency Certificate; Authorized Signers. The Lender shall have
------------------------------------------
received from the Borrower an incumbency certificate, dated as of the Closing
Date, signed by a duly authorized officer of the Borrower and giving the name
and bearing a specimen signature of each individual who shall be authorized:
(a) to sign, in the name and on behalf of the Borrower, each of the Loan
Documents to which the Borrower is or is to become a party; and (b) to give
notices and to make other action on behalf of the Borrower under the Loan
Documents.
(S)8.5. Payment of Closing Fee and Other Fees. The Borrower shall have paid
-------------------------------------
to the Lender the Closing Fee pursuant to (S)3.1 and reimburse the Lender for
all costs and expenses pursuant to (S)12, including, without limitation,
reasonable attorneys fees and consultants fees and the premiums for the life and
disability insurance maintained and owned by the Lender with respect to Glenn
Sands.
(S)8.6. Employment Agreement. Glenn Sands shall have entered into an
--------------------
employment agreement with the Operating Company in form, and subject to terms
and conditions satisfactory to the Lender.
(S)8.7. Non-Competition Agreement. Marian Sands shall have entered into a
-------------------------
non-competition agreement with the Borrower and the Operating Company in form,
and subject to terms and conditions, satisfactory to the Lender.
(S)8.8 Additional Documents. The Borrower shall have provided such
--------------------
additional instruments and documents to the Lender as the Lender and the
Lender's counsel may have requested.
(S)9. CONDITIONS TO ALL BORROWINGS. The obligations of the Lender to make
----------------------------
any Loan, whether on or after the Closing Date, shall also be subject to the
satisfaction of the following conditions precedent:
(S)9.1 Representations True; No Event of Default. Each of the
-----------------------------------------
representations and warranties of the Borrower contained in this Agreement, the
other Loan Documents or in any document or instrument delivered pursuant to or
in connection with this Agreement shall be true as of the date as of which they
were made and shall also be true at and as of the time of the making of such
Loan, with the same effect as if made at and as of that time (except to the
extent of changes resulting from transactions contemplated and permitted by this
Agreement and the other Loan Documents and changes occurring in the ordinary
course of business that singly or in the aggregate are not materially adverse,
and except to the extent that such representations and warranties relate
expressly to an earlier date) and no Default or Event of Default shall have
occurred and be continuing. The Lender shall have received a certificate of the
Borrower signed by an authorized officer of the Borrower to such effect.
24
<PAGE>
(S)9.2. No Legal Impediment. No change shall have occurred in any law or
-------------------
regulations thereunder or interpretations thereof that in the reasonable opinion
of the Lender would make it illegal for the Lender to make such Loan.
(S)9.3. Governmental Regulation. The Lender shall have received such
-----------------------
statements in substance and form reasonably satisfactory to the Lender as the
Lender shall require for the purpose of compliance with any applicable
regulations of the Comptroller of the Currency or the Board of Governors of the
Federal Reserve System.
(S)9.4 Proceedings and Documents. All proceedings in connection with the
-------------------------
transactions contemplated by this Agreement, the other Loan Documents and all
other documents incident thereto shall be satisfactory in substance and in form
to the Lender and to the Lender's counsel, and the Lender and such counsel shall
have received all information and such counterpart originals or certified or
other copies of such documents as they may reasonably request.
(S)10. EVENTS OF DEFAULT; ACCELERATION; ETC.
------------------------------------
(S)10.1 Events of Default and Acceleration. If any of the following events
----------------------------------
("Events of Default" or, if the giving of notice or the lapse of time or both is
required, then, prior to such notice or lapse of time "Defaults") shall occur:
(a) the Borrower shall fail to pay any principal of the Loan when the
same shall become due payable, whether at the stated date of maturity or
any accelerated date of maturity or at any other date fixed for payment;
(b) the Borrower shall fail to pay any interest on the Loan or any
other sums due hereunder or under any of the other Loan Documents, when the
same shall become due and payable, whether at the stated date of maturity
or any accelerated date of maturity or at any other date fixed for payment;
(c) the Borrower or any of its Subsidiaries shall fail to comply with
any of its covenants contained in (S)5, (S)6 or (S)7 hereof or any of the
covenants contained in any other Loan Documents;
(d) the Borrower or any of its Subsidiaries shall fail to perform any
other term, covenant or agreement contained herein (other than those
specified elsewhere in this (S)11) for fifteen (15) days after written
notice of such failure has been given to the Borrower by the Lender;
(e) any representation or warranty of the Borrower or any of its
Subsidiaries in this Agreement or any of the other Loan Documents or in any
other document or instrument delivered pursuant to or in connection with
this
25
<PAGE>
Agreement is determined by the Lender to have been false in any
material respect upon the date when made or deemed to have been made or
repeated;
(f) the Borrower or any of its Subsidiaries shall fail to pay at
maturity, or within any applicable period of grace, any obligation for
borrowed money or credit received or in respect of any capitalized leases,
or fail to observe or perform any term, covenant or agreement contained in
any agreement by which it is bound, evidencing or securing borrowed money
or credit received or in respect of any capitalized leases for such period
of time as would permit assuming the giving of appropriate notice if
required, the holder or holders thereof or of any obligations issued
thereunder to accelerate the maturity thereof;
(g) the Borrower or any of its Subsidiaries shall make an assignment
for the benefit of creditors, or admit in writing its inability to pay or
generally fail to pay its debts as they mature or become due, or shall
petition or apply for the appointment of a trustee or other custodian,
liquidator or receiver of the Borrower or any of its Subsidiaries or of any
substantial part of the assets of the Borrower or any of its Subsidiaries
or shall commence any case or other proceeding relating to the Borrower or
any of its Subsidiaries under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution hereafter in effect, or shall
take any action to authorize or in furtherance of any of the foregoing, or
if any such petition or application shall be filed or any such case or
other proceeding shall be commenced against the Borrower or any of its
Subsidiaries;
(h) there shall remain in force, undischarged, unsatisfied and
unstayed, for more than thirty days, whether or not consecutive, any
uninsured final judgment against the Borrower or any of its Subsidiaries
that, with other outstanding uninsured final judgments, undischarged,
against the Borrower or any of its Subsidiaries exceeds in the aggregate
$100,000.00;
(i) if any of the Loan Documents shall be canceled, terminated,
revoked or rescinded or any action at law, suit or in equity or other legal
proceeding to cancel, revoke or rescind any of the Loan Documents shall be
commenced by or on behalf of the Borrower, or any court or any other
governmental or regulatory authority or agency of competent jurisdiction
shall make a determination that, or issue a judgment, order, decree or
ruling that, any one or more of the Loan Documents is illegal, invalid or
unenforceable in accordance with the terms thereof;
(j) with respect to any Guaranteed Pension Plan, an ERISA Reportable
Event shall have occurred and the Lender shall have determined in its
reasonable discretion that such event reasonably could be expected to
result in liability of the Borrower or any of its Subsidiaries to the PBGC
on such Guaranteed Pension Plan in an aggregate amount exceeding
$100,000.00 and (i)
26
<PAGE>
such event in the circumstances occurring reasonably could constitute
grounds for the termination of such Guaranteed Pension Plan by the PBGC or
District Court of a trustee to administer such Guaranteed Pension Plan; or
(ii) a trustee shall have been appointed by the United States District
Court to administer such Plan; or (iii) the PBGC shall have instituted
proceedings to terminate such Guaranteed Pension Plan;
(k) the Borrower or any of its Subsidiaries shall be indicted for a
federal crime, a punishment for which could include the forfeiture of any
assets of the Borrower or such Subsidiaries;
(l) there shall have occurred any material adverse change, in or to
the assets, liabilities, financial condition, or business operations of the
Borrower or any of its Subsidiaries;
(m) any change in the ownership of the capital stock of the Borrower,
other than transfers amongst the existing stockholders as of the date
hereof;
then, and in any such event, so long as the same may be continuing, the Lender
may, by notice in writing to the Borrower, declare all amounts owing with
respect to this Agreement, the Note and the other Loan Documents to be, and they
shall thereupon forthwith become, immediately due and payable without
presentment, demand protest or other notice of any kind, all of which are hereby
expressly waived by the Borrower; provided that in the event of any Event of
--------
Default specified in (S)11.1(g), all such amounts shall become immediately due
and payable automatically and without any requirement of notice from the Lender.
(S)10.2. Remedies. In case any one or more of the Events of Default shall
--------
have occurred and be continuing, and whether or not the Lender shall have
accelerated the maturity of the Loan pursuant to (S)10.1, the Lender may proceed
to protect and enforce its rights and remedies under this Agreement, the Note or
any of the other Loan Documents by suit in equity, action at law or other
appropriate proceeding, whether for the specific performance of any covenant or
agreement contained in this Agreement and the other Loan Documents or any
instrument pursuant to which the Obligations to the Lender are evidenced,
including to the full extent permitted by applicable law the obtaining of the ex
--
parte appointment of a receiver, and, if such amount shall have become due, by
- -----
declaration or otherwise, proceed to enforce the payment thereof or any other
legal or equitable right of the Lender. No remedy herein conferred upon the
Lender or the holder of any Note is intended to be exclusive of any other remedy
and each and every other remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or any other provision of law.
(S)10.3. Distribution of Proceeds. In the event that, following the
------------------------
occurrence or during the continuance of any Default or Event of Default, the
Lender receives any
27
<PAGE>
monies in connection with the enforcement of any of the Loan Documents, or
otherwise, such monies shall be distributed by the Lender for application as
follows:
a. First, to the payment of, or (as the case may be) the
reimbursement of, the Lender for or in respect of all reasonable costs,
expenses, disbursements and losses which shall have been incurred or
sustained by the Lender in connection with the collection of such monies by
the Lender, for the exercise, protection or enforcement by the Lender of
all or any of the rights, remedies, powers and privileges of the Lender
under this Agreement or any of the other Loan Documents or in support of
any provision of adequate indemnity to the Lender against any taxes or
liens which by law shall have or may have, priority over the rights of the
Lender to such monies;
b. Second, to all other Obligations in such order or preference as
the Lender may determine; provided, however, that the Lender may in is
--------
discretion make proper allowance to take into account any Obligations not
then due and payable;
c. Third, upon payment and satisfaction in full or other provision
for payment in full satisfactory to the Lender of all of the Obligations,
to the Junior Loan;
d. Fourth, the excess, if any, shall be returned to the Borrower or
to such other Persons as are entitled thereto.
(S)11. SETOFF. Regardless of the adequacy of any collateral, and whether
------
or not a Default or Event of Default has occurred, any deposits (general or
specific, time or demand, provisional or final, regardless of currency,
maturity, or the branch of where such deposits are held) or other sums credited
by or due from the Lender to the Borrower and any securities or other property
of the Borrower in the possession of the Lender may be applied to or set off
against the payment of Obligations and any and all other liabilities, direct, or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising, of the Borrower to the Lender.
(S)12. EXPENSES. The Borrower agrees to pay (a) the reasonable costs of
--------
producing and reproducing this Agreement, the other Loan Documents and the other
agreements and instruments mentioned herein, (b) any taxes (including any
interest and penalties in respect thereto) payable by the Lender (other than
taxes based upon the Lender's net income), including any recording, mortgage,
documentary or intangibles taxes in connection with the Loan Documents, or other
taxes payable on or with respect to the transactions contemplated by this
Agreement, including any taxes payable by the Lender after the Closing Date (the
Borrower hereby agreeing to indemnify the Lender with respect thereto), (c) (i)
all reasonable fees, expenses, and disbursements of the Lender's counsel or any
local counsel to the Lender in connection with the preparation of the Loan
Documents and the closing of the Loan, and other fees, expenses and
disbursements of the Lender incurred in connection with the closing of the Loan,
28
<PAGE>
including, without limitation, the fees of Coopers & Lybrand consultants and
other third parties engaged by the Lender; (ii) all appraisal fees, engineer's
fees, reasonable fees, expenses and disbursements of the Lender's counsel or any
local counsel to the Lender, and other fees, expenses and disbursements of the
Lender's counsel or any local counsel to the Lender, and other fees, expenses
and disbursements of the Lender incurred in connection with the administration
or interpretation of the Loan Documents and other instruments mentioned herein,
and amendments, modifications, approvals, consents or waivers hereto or
hereunder, but in no event to exceed $40,000.00 in any calendar year in the
aggregate (d) all reasonable out-of-pocket expenses (including reasonable
attorneys' fees and costs and the fees and costs of appraisers, engineers,
investment bankers or other experts retained by the Lender in connection with
(i) the enforcement of or preservation of rights under any of the Loan Documents
against the Borrower or the administration thereof and (ii) any litigation,
proceeding or dispute whether arising hereunder or otherwise, in any way related
to the Lender's relationship with the Borrower; (e) all premiums for life and
disability insurance maintained and owned by the Lender with respect to Glenn
Sands, and (f) all reasonable fees, expenses and disbursements of the Lender
incurred in connection with UCC searches, UCC filings or mortgage recordings.
The covenants of this (S)12 shall survive payment or satisfaction of payment of
amounts owing with respect to the Note.
(S)13. INDEMNIFICATION. The Borrower agrees to indemnify and hold harmless
----------------
the Lender from and against any and all claims, actions and suits whether
groundless or otherwise, and from and against any and all liabilities, losses,
damages and expenses of every nature and character arising out of this Agreement
or any of the other Loan Documents or the transactions contemplated hereby
including, without limitation, (a) the Borrower's entering into or performing
this Agreement or any of the other Loan Documents or (b) with respect to the
Borrower and it subsidiaries and their respective properties and assets, the
violation of any Environmental Law, the release or threatened release of any
Hazardous substances or any action, suit, proceeding or investigation brought or
threatened with respect to any Hazardous substances (including, but not limited
to claims with respect to wrongful death, personal injury or damage to
property), in each case including, without limitation, the reasonable fees and
disbursements or counsel and allocated costs of internal counsel incurred in
connection with any such investigation, litigation or other proceeding;
provided, however, that the Lender shall not be entitled to indemnification if a
court of competent jurisdiction finally determines all appeals having been
exhausted or waived that the Lender acted in bad faith or with willful
misconduct. In litigation, or the preparation therefor, the Lender shall be
entitled to select its own counsel and, in addition to the foregoing indemnity,
the Borrower agrees to pay promptly the reasonable fees and expenses of such
counsel. If, and to the extent that the obligations of the Borrower under this
(S)13 are unenforceable for any reason, the Borrower hereby agrees to make the
maximum contribution to the payment in satisfaction of such obligations which is
permissible under applicable law. The provisions of this (S)13 shall survive
the repayment of the Loan and the termination of the obligations of the Lender
hereunder.
29
<PAGE>
(S)14. SURVIVAL OF COVENANTS, ETC. All covenants, agreements,
---------------------------
representations and warranties made herein, in the Note, in any of the other
Loan Documents or in any documents or other papers delivered by or on behalf of
the Borrower pursuant hereto shall be deemed to have been relied upon by the
Lender notwithstanding any investigation heretofore or hereafter made by it, and
shall survive the making by the Lender of any of the Loan as herein
contemplated, and shall continue in full force and effect so long as any amount
due under this Agreement or the Note or any of the other Loan Documents remains
Outstanding. The indemnification obligations of the Borrower provided herein
and the other Loan Documents shall survive the full repayment of amounts due and
the termination of the obligations of the Lender hereunder and thereunder to the
extent provided herein and therein. All statements contained in any certificate
or other paper delivered to the Lender at any time by or on behalf of the
Borrower pursuant hereto or in connection with the transactions contemplated
hereby shall constitute representations and warranties by the Borrower
hereunder.
(S)15. ASSIGNMENT AND PARTICIPATION.
----------------------------
(S)15.1. Assignment by Lender. The Lender may assign all or a portion of
---------------------
its interests, rights and obligations under this Agreement at the time owing to
it, and the Note held by it. After the effective date specified in each
assignment, (i) the assignee thereunder shall be a party hereto and, to the
extent provided in such assignment, have the rights and obligations of a Lender
hereunder, and (ii) the assigning Lender shall, to the extent provided in such
assignment, be released from its obligations under this Agreement.
(S)15.2. Participations. The Lender may sell participations in all or a
--------------
portion of the Lender's rights and obligations under this Agreement and the
other Loan Documents; provided that (a) any such sale or participation shall not
affect the rights and duties of the Lender hereunder to the Borrower, and (b) no
participant shall have the right to grant further participations or assign its
rights, obligations or interests under such participation to other Persons
without the prior written consent of the Lender.
(S)15.3. Pledge by Lender. Notwithstanding the provisions of (S)16.1, the
-----------------
Lender may at any time pledge all or any portion of its interest and rights
under this Agreement (including all or any portion of its Note) to any of the
twelve Federal Reserve Lender organized under (S)4 of the Federal Reserve Act,
12. U.S.C. (S)341. No such pledge or the enforcement thereof shall release the
pledgor Lender from its obligations hereunder or under any of the other Loan
Documents.
(S)15.4. No Assignment by Borrower. The Borrower shall not assign or
--------------------------
transfer any of its rights or obligations under any of the Loan Documents
without the prior written consent of the Lender.
30
<PAGE>
(S)15.5. Disclosure. The Borrower agrees that in addition to disclosures
-----------
made in accordance with standard banking practices the Lender may disclose
information obtained by the Lender pursuant to this Agreement to assignees or
participants and potential assignees or participants hereunder.
(S)15.6 NOTICES, ETC. Except as otherwise expressly provided in this
-------------
Agreement, all notices and other communications made or required to be given
pursuant to this Agreement or the Note shall be in writing and shall be
delivered in hand, mailed by United States registered or certified first class
mail, postage prepaid, sent by overnight courier, or sent by telegraph,
telecopy, telefax or telex and confirmed by delivery via courier or postal
service, addresses as follows:
(a) if to the Borrower, at 1407 Broadway, Suite 620, New York, New
York 10018, Attention: Mr. Glenn Sands, or at such other address for
notice as the Borrower shall last have furnished in writing to the
Person giving the notice; and
(b) if to the Lender, at 100 Federal Street, Boston, Massachusetts
02110, Attention: Diversified Finance, or such other address for
notice as the Lender shall last have furnished in writing to the
Borrower.
Any such notice or demand shall be deemed to have been duly given or made and
to have become effective (i) if delivered by hand, overnight courier or
facsimile to a responsible officer of the party to which it is directed, at
the time of the receipt thereof by such officer or the sending of such
facsimile and (ii) if sent by registered or certified first-class mail,
postage prepaid, on the third Business Day following the mailing thereof.
(S)17. GOVERNING LAW; CONSENT TO JURISDICTION AND SERVICE. THIS
--------------------------------------------------
AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS, EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED THEREIN, ARE CONTRACTS UNDER THE LAWS OF THE STATE OF NEW YORK AND
SHALL FOR ALL PURPOSES BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS
OF SUCH STATE (EXCLUDING THE LAWS APPLICABLE TO CONFLICTS OR CHOICE OF LAW).
THE BORROWER AGREES THAT ANY SUIT FOR THE ENFORCEMENT OF THIS AGREEMENT OR ANY
OF THE OTHER LOAN DOCUMENTS MAY BE BROUGHT IN THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS OR THE STATE OF NEW YORK OR ANY FEDERAL COURT SITTING THEREIN AND
CONSENTS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURT AND THE SERVICE OF
PROCESS IN ANY SUCH SUIT BEING MADE UPON THE BORROWER BY MAIL AT THE ADDRESS
SPECIFIED IN (S)16. THE BORROWER HEREBY WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH SUIT OR ANY SUCH COURT OR THAT SUCH SUIT
IS BROUGHT IN AN INCONVENIENT COURT.
31
<PAGE>
(S)18. HEADINGS. The captions in this Agreement are for convenience of
--------
reference only and shall not define or limit the provisions hereof.
(S)19. COUNTERPARTS. This Agreement and any amendment hereof may be
------------
executed in several counterparts and by each party on a separate counterpart,
each of which when so executed and delivered shall be an original, and all of
which together shall constitute one instrument. In proving this Agreement it
shall not be necessary to produce or account for more than one such counterpart
signed by the party against whom enforcement is sought.
(S)20. ENTIRE AGREEMENT, ETC. The Loan Documents and any other documents
---------------------
executed in connection herewith or therewith express the entire understanding of
the parties with respect to the transactions contemplated hereby. Neither this
Agreement nor any term hereof may be changed, waived, discharged or terminated
except as provided in (S)23.
(S)21. WAIVER OF JURY TRIAL AND CERTAIN DAMAGE CLAIMS. THE BORROWER
----------------------------------------------
HEREBY WAIVES ITS RIGHT TO A JURY TRIAL WITH RESPECT TO ANY ACTION OR CLAIM
ARISING OUT OF ANY DISPUTE IN CONNECTION WITH THIS AGREEMENT, THE NOTE OR ANY OF
THE OTHER LOAN DOCUMENTS, ANY RIGHTS OR OBLIGATIONS HEREUNDER OR THEREUNDER OR
THE PERFORMANCE OF SUCH RIGHTS AND OBLIGATIONS. THE BORROWER (A) CERTIFIES THAT
NO REPRESENTATIVE, OR ATTORNEY OF THE LENDER HAS REPRESENTED EXPRESSLY OR
OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO
ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT THE LENDER HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS TO WHICH IT IS
A PARTY BY, AMONG OTHER THINGS, THE WAIVER AND CERTIFICATIONS CONTAINED HEREIN.
(S)22. CONSENTS, AMENDMENTS, WAIVERS, ETC. Any consent or approval
-----------------------------------
required or permitted by this Agreement may be given, and any term of this
Agreement or of any other instrument related hereto or mentioned herein may be
amended, and the performance or observance by the Borrower of any terms of this
Agreement or such other instrument or the continuance of any Default or Event of
Default may be waived (either generally or in a particular instance and either
retroactively or prospectively) with, and only with, the written consent of the
Lender.
No waiver shall extend to or affect any obligation not expressly waived or
impair any right consequent thereon. No course of dealing or delay or omission
on the part of the Lender in exercising any right shall operate as a waiver
thereof otherwise be prejudicial thereto. No notice to or demand upon the
Borrower shall entitle the Borrower to other or further notice or demand in
similar or other circumstances.
32
<PAGE>
(S)22. SEVERABILILTY. The provisions of this Agreement are severable,
--------------
and if any one clause or provision hereof shall be held invalid or unenforceable
in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision, or part thereof, in
such jurisdiction, and shall not in any manner affect such clause or provision
in any other jurisdiction, or any other clause or provision of this Agreement in
any jurisdiction.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as a
sealed instrument as of the date first set forth above.
PERISCOPE I SPORTSWEAR, INC.
By: /s/ Glenn Sands, President
---------------------------------------
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Robert F. Duggan, Managing Director
---------------------------------------
33
<PAGE>
SEVENTH AMENDMENT TO TERM LOAN AGREEMENT
This Seventh Amendment to Term Loan Agreement is made as of the 23rd day of
July, 1998, by and between
Periscope I Sportswear Inc. (the "Borrower"), a New York corporation with
its principal executive offices at 1407 Broadway, Suite 620, New York, New
York 10018; and
BankBoston, N.A. (the "Lender"), a national bank having its principal place of
business at 100 Federal Street, Boston, Massachusetts 02110.
in consideration of the mutual covenants herein contained and benefits to be
derived herefrom.
W I T N E S S E T H:
- - - - - - - - - --
WHEREAS, on May 15, 1996, the Borrower and the Lender entered into a Term
Loan Agreement, pursuant to which the Lender made a Term Loan to the Borrower in
the principal sum of $15,000,000 (as amended and in effect, the "Agreement");
and
WHEREAS, the Borrower and the Lender desire to further modify and amend
certain of the provisions of this Agreement.
NOW, THEREFORE, it is hereby agreed between the parties as follows:
1. Definitions. All capitalized terms used herein and not otherwise defined
-----------
shall have the same meanings herein as in the Agreement.
2. Amendments to Section 2. The provisions of Section 2.4(a) of the
------------------------
Agreement are hereby deleted in their entirety and the following substituted in
their stead:
(S)2.4 Repayment of Term Loan. (a) The Outstanding principal
----------------------
balance of the Term Loan shall be payable in quarterly installments,
as follows:
Payment Date Amount of Installment
------------ ---------------------
September 30, 1996 $500,000
December 31, 1996 $500,000
March 31, 1997 $100,000
June 30, 1997 $100,000
September 30, 1997 $100,000
December 31, 1997 $100,000
34
<PAGE>
March 31, 1998 $100,000
June 30, 1998 $ 0
September 30, 1998 $ 0
December 31, 1998 $ 0
March 31, 1999 $ 0
June 30, 1999 $ 0
July 31, 1999 $800,000
September 30, 1999 and each
calendar quarter thereafter $500,000
Each installment shall be due on the last day of each calendar quarter
(except for the payment due July 31, 1999, which shall be due on the
last day of such month). In all events and under all circumstances,
unless sooner paid or accelerated, the then unpaid principal balance
of the Term Note and all accrued and unpaid interest thereon shall be
due and payable on the Term Loan Maturity Date.
3. Miscellaneous.
--------------
(a) Except as provided herein, all terms and conditions of the
Agreement remain in full force and effect (including, without limitation, the
provisions of Section 2.4(b)). The Borrower acknowledges and agrees that it has
no offsets, defenses, or counterclaims against the Lender with respect to the
Obligations or otherwise, and to the extent that the Borrower has or had any
such offsets, defenses, or counterclaims, the Borrower hereby waives and
releases the same.
(b) This Seventh Amendment to Term Loan Agreement incorporates all of
the discussions and negotiations between the Borrower and the Lender concerning
the matters included herein. No prior discussions or negotiations, nor any
custom, usage, or course of dealings shall limit, modify, or otherwise affect
the provisions hereof.
(c) This Seventh Amendment to Term Loan Agreement may be executed in
several counterparts and by each party on a separate counterpart, each of which
once so executed and delivered shall be an original, and all of which together
shall constitute one instrument.
35
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto caused this Seventh
Amendment to be executed and their seals to be hereto affixed as of the date
first above written.
PERISCOPE I SPORTSWEAR INC.
By: /s/ Glenn Sands, Pres.
-------------------------------
Name: Glenn Sands
Title: President
BANKBOSTON, N.A.
By: /s/ Robert F. Duggan
--------------------------------
Name: Robert F. Duggan
Title: Managing Director
36
<PAGE>
EXHIBIT 10.8
SECURITITES PURCHASE AGREEMENT
PERISCOPE I SPORTSWEAR, INC.
1407 Broadway, Suite 620
New York. New York 10018
Glenn Sands
C/o Periscope I Sportswear, Inc.
1407 Broadway, Suite 620.
New York, New York 10018
May 17. 1996
BancBoston Ventures Inc.
100 Federal Street
Boston, Massachusetts 02110
Ladies and Gentlemen:
Each of the undersigned, Periscope I Sportswear, Inc., a New York
corporation (the "Company") and Glenn Sands ("Sands"), hereby agrees with you as
---------- ----------
follows:
1. DEFINITIONS.
-----------
For all purposes of this Agreement the following terms shall have the
meanings set forth herein or elsewhere in the provisions hereof:
Acquisition. Acquisition shall mean (i) the redemption by the Company of
------------
all of the Company's outstanding Common Stock issued to Marian Sands for
$11,380,000, (ii) the distribution by the Company of $6,000,000 to Sands in
respect of his outstanding Common Stock, (iii) the purchase by you and the
Investors of certain shares of Common Stock from Sands, and (iv) the acquisition
by Periscope LLC of all of the assets of the Company, in each case pursuant to
the applicable Acquisition Documents.
Acquisition Documents. Acquisition Documents shall mean, collectively, the
---------------------
Redemption Agreement, the Investor Stock Purchase Agreements, the Operating
Agreement, the Consulting Agreement, the Non-Competition Agreement, the
Employment Agreement and all other agreements and documents required to be
entered into or delivered pursuant thereto or in connection with the
Acquisition.
Affiliate. Affiliate shall mean any Person directly or indirectly
----------
controlling. controlled[ by or under direct or indirect common control with the
Company (or other specified Person) and shall include any Person who is a member
of the Managing Group, or a director or beneficial
<PAGE>
holder of at least 10% of any class of the then outstanding capital stock (or
other shares of beneficial interest) of the Company (or other specified Person)
and Family Members of any such Person; provided, however, that BBV shall not be
-----------------
an Affiliate of the Company or any of its Subsidiaries for the purposes of this
Agreement.
Bank Affiliate. See Section 15.1.
--------------
Bank Holding Company Act. See Section 15.1.
------------------------
BBV. BBV shall mean BancBoston Ventures Inc., a Massachusetts corporation.
---
Call Closing Date. See Section 11.3.
-----------------
Call Notice. See Section 11.3.
-------------
Capital Transaction. Capital Transaction shall mean any of the following:
--------------------
(i) one or more mergers, consolidations, liquidations, sales of more than 50% of
the assets of the Company or any of its Subsidiaries or other similar corporate
actions pursuant to which the Company or the holders of Common Stock receive
cash. securities or other property; (ii) at least a majority of the Common Stock
of the Company or any of its Subsidiaries is sold; or (iii) a registration
statement with respect to the Common Stock of the Company shall be filed under
the Securities Act.
Change of Control. Change of Control shall mean Sands shall cease to
------------------
control, with the power to vote, at least 51% of the outstanding shares of
----
Common Stock on a fully-diluted basis.
Charter. Charter shall include the articles or certificate of
-------
incorporation. operating: agreement, statute, constitution, joint venture or
partnership agreement or articles or other organizational document of any Person
other than an individual, each as from time to time amended or modified.
Closing. See Section 2.3.
-------
Closing Date. See Section 2.3.
------------
Code. Code shall mean the Internal Revenue Code of 1986, any successor
----
statute of similar import, and the rules and regulations thereunder,
collectively and as from time to time amended and in effect.
Commission. Commission shall mean the Securities and Exchange Commission.
----------
Common Stock. Common Stock shall mean, the common stock of the Company, par
-------------
value $.01 per share, and in addition, any capital stock or other securities
into which or for which Common Stock shall have been converted or exchanged
pursuant to any recapitalization, reorganization or merger of the Company.
Company. See preamble hereto.
--------
2
<PAGE>
Consolidated or consolidated. Consolidated or consolidated shall mean, with
-----------------------------
reference to any term defined herein, that term as applied to the accounts of
the Company, and all of its Subsidiaries, if any, consolidated in accordance
with generally accepted accounting principles.
Consulting Agreement. Consulting Agreement shall mean the Consulting
--------------------
Agreement dated May 15, 1996, between the Company and Marian Sands.
Default. Default shall mean an event or condition which with the passage of
-------
time or giving of notice, or both, would become an Event of Default.
Default Rate. See Section 3.6(b).
-------------
EBITDA. EBITDA, for any period, shall mean an amount equal to the sum of
------
(a) the consolidated Net Earnings of the Company and its Subsidiaries during
such period, plus (b) all amounts deducted in the computation thereof on account
of (i) Interest Charges, (ii) amortization of intangibles and depreciation and
(iii) federal and state income taxes.
Employment Agreement. Employment Agreement shall mean the Employment
--------------------
Agreement, dated as of the date hereof, between Periscope LLC and Sands.
Events of Default. See Section 10.1.
-----------------
Family Members. Family Members shall mean, as applied to any individual,
---------------
any spouse, child, spouse of a child, brother or sister of the individual, and
each trust created for the benefit of one or more of such Persons and each
custodian of a property of one or more such Persons.
Financing Agreements. Financing Agreements shall include this Agreement,
---------------------
the Securities, the Stockholder Agreement, the Registration Rights Agreement,
and any and every other present or future instrument or agreement from time to
time entered into between the Company and you or any other holder of the
Securities which relates to this Agreement or is stated to be a Financing
Agreement, and all statements, reports or certificates delivered by or on behalf
of the Company to you or any other holder of the Securities in connection
herewith or therewith.
Formula Value. See Section 11.5(b).
--------------
Generally Accepted Accounting Principles. Generally Accepted Accounting
-----------------------------------------
Principles shall mean accounting principles which are (a) consistent with the
principles promulgated or adopted by the Financial Accounting Standards Board
and its predecessors, in effect for the fiscal year of the Company ended
December 31. 1995. (b) applied on a basis consistent with prior periods, and (c)
such that a certified public accountant would, insofar as the use of accounting
principles is pertinent, be in a position to deliver an unqualified opinion as
to financial statements in which such principles have been properly applied.
3
<PAGE>
Indebtedness for Borrowed Money. Indebtedness for Borrowed Money shall mean
--------------------------------
(a) all indebtedness of the Company and its Subsidiaries for borrowed money,
whether current or funded, or secured or unsecured, (b) all indebtedness of the
Company and its Subsidiaries for the deferred purchase price of property or
services represented by a note or other security, (c) all indebtedness of the
Company and its Subsidiaries created or arising under any conditional sale or
other title retention agreement with respect to property acquired by the Company
or its Subsidiaries (even though the rights and remedies of the seller or lender
under each agreement in the event of' default., are limited to repossession or
sale of such property), (d) all indebtedness of the Company and its Subsidiaries
secured by a purchase money mortgage; or other lien to secure all or part of the
purchase price of property subject to such mortgage or lien, (e) all obligations
under leases which shall have been or should be, in accordance with generally
accepted accounting principles, recorded as capital leases in respect of which
the Company or its Subsidiaries are liable as lessee, (f) any liability of the
Company or its Subsidiaries in respect of banker's acceptances or letters of
credit, and (g) all indebtedness referred to in clause (a), (b), (c), (d), (e)
or (f) above which is directly or indirectly guaranteed by the Company or any of
its 'Subsidiaries or which the Company or any of its Subsidiaries has agreed
(continently or otherwise) to purchase or otherwise acquire or in respect of
which it has otherwise assured a creditor against loss.
Interest Charges. Interest Charges shall mean for any period, the expenses
-----------------
of the Company and its Subsidiaries for such period for interest on Indebtedness
for Borrowed Money (including the current portion thereof) and for commitment
fees, agency fees, facility fees, balance deficiency fees, and similar expenses
in connection with Indebtedness for Borrowed Money.
Investor Stock Purchase Agreements. Investor Stock Purchase Agreements mean
-----------------------------------
the Stock Purchase Agreements, dated as of the date hereof, between Sands and
each of the Investors.
Investors. Investors shall mean Jay Botchman. Michael Covino and Sylvester
----------
Miniter.
Major Holder. Major Holder shall mean the holder or holders at the relevant
-------------
time (excluding the Company) of (a) in the case of the Notes, at least 20% of
the then outstanding principal amount of the Notes, or (b) in the case of the
Purchased Common Stock, of at least 20% of the total number of then outstanding
shares of Purchased Common Stock.
Majority Holders. Majority Holders shall mean the holder or holders at the
-----------------
relevant 'time (excluding the Company) of (a) in the case of the Notes, 51% or
more in outstanding principal amount of the Notes, or (b) in the case of the
Purchased Common Stock, 51% or more of the number of shares of the then
outstanding shares of Purchased Common Stock.
Managing Group. Managing Group shall mean Sands.
---------------
Maximum Rate. See Section 3.6(c).
-------------
4
<PAGE>
Net Earnings. Net Earnings for any period shall mean the consolidated net
------------
income from operations of the Company and its Subsidiaries during such period
determined in accordance with Generally Accepted Accounting Principles, but
excluding therefrom all extraordinary items of income or loss and excluding any
effects from changes in Generally Accepted Accounting Principles after the date
hereof.
Non-Competition Agreement. Non-Competition Agreement shall mean the Non-
--------------------------
Competition Agreement, dated May 15, 1996, among the Company, Periscope LLC and
Marian Sands.
Notes. Notes shall mean the $3,000,000 Note of the Company issued pursuant
-----
to Section 2.1 hereof and any other Notes transferred to any other holders
pursuant to Section 16 hereof.
Operating Agreement. Operating Agreement shall mean the Operating
-------------------
Agreement, of even date herewith, between the Company, Periscope LLC and
Periscope II Sportswear, Inc., a Delaware corporation.
Periscope LLC. Periscope LLC shall mean Periscope Sportswear LLC, a
-------------
Delaware limited liability company.
Permitted Transferee. Permitted Transferee shall mean any Affiliate of any
---------------------
holder of Securities, any commercial bank, insurance company or other financial
institution or Affiliate thereof, any reputable corporate or institutional
investor, or any other Person reasonably acceptable to the Company.
Person. Person shall mean an individual, partnership, corporation,
-------
association, trust, joint venture, unincorporated organization, and any
government, governmental department or agency or political subdivision thereof.
Public Sale. Public Sale shall mean any sale of Common Stock to the public
------------
(a) pursuant to a public offering registered under the Securities Act or (b) to
the public through a broker or market-maker pursuant to the provisions of Rule
144 (or any successor' rule) adopted under the Securities Act or (c) pursuant to
any other public offering not required to be registered under the Securities
Act.
Purchased Common Stock. See Section 2.2.
-----------------------
Purchased Securities. See Section 2.2.
---------------------
Put Closing Date. See Section I 1.2.
----------------
Put Notice. See Section 11.1.
-----------
Put Notice Date. See Section 11.1.
----------------
5
<PAGE>
Redemption Agreement. Redemption Agreement shall mean the Stock Purchase
--------------------
Agreement, dated May 15, 1996, between the Company and Marian Sands.
Registration Agreement. Registration Rights Agreement shall mean the
-----------------------
Registration Rights Agreement, dated as of the date hereof, among the Company,
BBV and the other initial stockholders of the Company, in the form of Exhibit B
-
hereto.
Related Agreements. Related Agreements shall mean, collectively, the
------------------
Financing Agreements, the Charter of the Company and each of its Subsidiaries,
the Acquisition Documents and the Senior Loan Documents.
Repurchase Price. See Section 11.5(a).
-----------------
Rescission Notice. See Section 11.4.
------------------
Sands. See preamble.
-----
Securities. Securities shall mean the Notes and the shares of Purchased
-----------
Common Stock.
Securities Act. Securities Act shall mean the Securities Act of 1933, as
---------------
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
Senior Lender. Senior Lender shall mean The First National Bank of Boston.
--------------
Senior Loan Agreement. Senior Loan Agreement shall mean the Term Loan
----------------------
Agreement. dated May 15, 1996, among the Company and the Senior Lender.
Senior Loan Documents. Senior Loan Documents shall mean the Senior Loan
----------------------
Agreement and the other "Loan Documents" as such term is defined in the Senior
Loan Agreement.
Shareholders Agreement. See Section 4.17.
------------------------
Stockholder Agreement. Stockholder Agreement shall mean the Stockholder
----------------------
Agreement. dated the date hereof among the Company, BBV and the other
stockholders of the Company, in the form of Exhibit C hereto.
--
Subsidiary. Subsidiary shall mean any Person of which the Company or other
-----------
specified Person now or hereafter shall at the time own directly or indirectly
through a Subsidiary at least a majority of the outstanding capital stock (or
other shares of beneficial interest) entitled to vote generally.
Transaction Costs. See Section 4.13.
------------------
Transfer Notice. See Section 16.2.
-----------------
6
<PAGE>
Unrepurchased Securities. See Section 11.4.
-------------------------
All terms of an accounting character not specifically defined herein shall
have the meanings assigned thereto under Generally Accepted Accounting
Principles. Except as otherwise specifically provided herein, references to any
agreement, instrument or document in this Agreement refer to such agreement,
instrument or document as originally executed or as subsequently amended,
extended, renewed or supplemented in accordance with the provisions of this
Agreement.
2. SALE AND PURCHASE OF PURCHASED SECURITIES FROM THE COMPANY AND SANDS.
--------------------------------------------------------------------
2.1. Sale and Purchase of Notes. On the Closing Date, the Company agrees
---------------------------
to issue and sell to you and, subject to all of the terms and conditions hereof
and in reliance on the representations and warranties set forth or referred to
herein, you agree to purchase the Promissory Note of the Company, in the
principal amount of $3,000,000, in the form of Exhibit A hereto. The purchase
--
price for the Note shall be $3,000,000.
2.2. Sale and Purchase of Common Stock. On the Closing Date. Sands agrees
----------------------------------
to sell. convey, transfer, assign and deliver to BBV and, subject to all of the
terms and conditions hereof and in reliance on the representations and
warranties set forth or referred to herein, BBV shall purchase from Sands 14
--
shares of Common Stock (the "Purchased Common Stock," and collectively with the
--------------------------
Notes, the "Purchased Securities"). The purchase price for the Purchased Common
-----------
Stock shall be $2,000,000.
2.2 Closing. The closing of the purchase and sale of the Purchased
--------
Securities (the "Closing") will take place at the offices of Kramer, Levin,
Naftalis & Frankel, at 10:00 a.m. on May 17, 1996, or at such other time, date
and place as the parties hereto may agree upon (the Closing Date"). At the
Closing, (i) the Company will deliver to you the Note against payment by you of
$3,000.000 in immediately available funds and (ii) Sands shall deliver or cause
to be delivered to you certificates representing the Purchased Common Stock,
either duly endorsed to BBV on the reverse side thereof or accompanied by a
stock power duly signed in blank, with all revenue stamps necessary, to transfer
such shares and the certificates representing such shares affixed and canceled
and all taxes on such transfer, if any, fully paid, all at Sands' expense,
against payment by you of $2,000,000 in immediately available funds. The
Purchased Common Stock shall be delivered to BBV free and clear of all liens.
security interests, options, charges, beneficial interests, claims, restrictions
and encumbrances of every kind (and any agreement to create any of the
foregoing). Sands agrees that he will cure any deficiencies with respect to the
endorsement of the certificates representing the Purchased Common Stock owned by
him or with respect to the stock powers accompanying such shares of Purchased
Common Stock. Each of the Notes will be issued by the Company to you or any
nominee specified by you on or before the Closing Date and registered in your
name or the name of such specified nominee in the records of the Company. The
Company will, on the Closing Date and upon delivery to it by BBV of the shares
representing such Purchased Common Stock. reissue the Purchased Common Stock in
your name or the name of any nominee specified by you and will register such
shares in your name or the name of such specified nominee in the records of the
Company.
7
<PAGE>
2.4. Use of Proceeds. The proceeds from the sale of the Purchased
----------------
Securities hereunder will be used solely to finance in part the Acquisition
(including the payment of Transaction Costs). The Company further agrees that it
will not use any part of the proceeds from the sale of the Purchased Securities
to purchase or carry any "margin security" or "margin stock", as such terms are
defined in any regulation, rule or interpretation of the Board of Governors of
the Federal Reserve System.
3. PRINCIPAL AND INTEREST PAYMENTS ON NOTES.
-----------------------------------------
3.1. Mandatory Principal Repayment. The Company agrees to repay the
-----------------------------
principal amount of the Notes in one installment in the amount of all unpaid
principal of the Notes on the fifth anniversary of the Closing Date.
3.2. Optional Prepayments. The Company, upon not less than one nor more
---------------------
than 30 days' prior written notice to the holders of any of the Notes of the
date and amount of optional prepayment, may prepay from time to time all or any
portion (in integral multiples of $100,000) of the principal amount of the
Notes. The principal amount of any Notes designated for prepayment in any notice
of optional prepayment permitted by this Section 3.2 shall become due and
payable on the date fixed for prepayment in such notice, together with all
accrued and unpaid interest thereon.
3.3. Application of Payments and Prepayments. Each repayment or prepayment
----------------------------------------
of less than the entire unpaid principal amount of all outstanding Notes shall
be applied pro rata to all outstanding Notes, according to the respective unpaid
---------
principal amounts thereof.
3.4. Presentation or Surrender of Notes. The Company may, as a condition
-----------------------------------
to making any prepayment of a Note, require the holder thereof to present such
Note at the place specified in the Note for payment of the principal thereof,
for notation thereon of the amount and date of such prepayment, or, if such Note
is prepaid in full, to surrender the same to the Company.
3.5. No Reborrowing or Other Prepayments. Except as expressly permitted by
------------------------------------
Section 3.2, none of the principal of the Notes may be prepaid. No amount repaid
or prepaid pursuant to Section 3.1 or 3.2 may be reborrowed under the Notes.
3.6. Interest Payments. (a) Subject to Section 3.6(b) hereof, the unpaid
------------------
principal amount of the Notes outstanding from time to time shall bear interest
from the Closing Date until and including the maturity of the Notes, at a rate
equal to 7% per annum. Interest on the Notes shall be calculated on the basis of
the actual number of days elapsed and a 360 day year, and shall be payable
monthly in arrears on the first day of each calendar month, commencing on the
first such date to occur after the Closing Date, and at the maturity of the
Notes.
(b) Overdue principal and (to the extent permitted by applicable law)
overdue interest on the Notes shall bear interest at a rate equal to 11.5% per
annum (the "Default Rate"), payable on demand and compounded monthly, until such
-----------------
overdue amounts are paid in full.
8
<PAGE>
(c) It is not intended by the holders of the Notes, and nothing contained
in this Agreement or any Note shall be deemed, to establish or require the
payment of a rate of interest in excess of the maximum rate permitted by
applicable federal, state or other law (the "Maximum Rate") and, to prevent such
-------------
an occurrence, any agreement which may now or hereafter be in effect between the
Company and the holders of the Notes regarding the payment of fees or interest
to such holders is hereby limited by the provisions of this Section 3.6(c). If,
in any month, the effective interest rate applicable to the principal
outstanding under the Notes, absent the Maximum Rate limitation contained
herein, would have exceeded the Maximum Rate, then the effective interest rate
applicable to the Notes for that month shall be the Maximum Rate, and if in any
subsequent month, the effective interest rate would otherwise be less than the
Maximum Rate, then the effective interest rate applicable to the Notes for such
month shall be increased to the Maximum Rate until such time as the amount of
interest paid hereunder equals the amount of interest which would have been paid
in respect of the Notes if the same had not been limited by the Maximum Rate. In
the event that upon payment in full of the principal outstanding under the
Notes, the total amount of interest paid or accrued in respect of the Notes
under the terms of this Agreement is less than the total amount of interest
which would have been paid or accrued in respect of the Notes had the interest
not been limited hereby to the Maximum Rate, then the Company shall, to the
extent permitted by such applicable federal, state or other law, pay to each of
the holders of the Notes an amount equal to the excess, if any, of (i) the
lesser of (A) the amount of interest which would have been charged in respect of
the Notes if the Maximum Rate had, at all times, been in effect with respect to
the Notes and (B) the amount of interest which would have accrued in respect of
the Notes had the effective interest rate applicable with respect to the Notes
at all times not been limited hereunder by the Maximum Rate over (ii) the amount
of interest actually paid or accrued in respect of the Notes held by such holder
under this Agreement. In the event that the holders of the Notes receive,
collect or apply as interest any sum in excess of the Maximum Rate, such excess
amount shall be applied in accordance with Section 3.3 hereof to the reduction
of principal outstanding under the Notes and if no such principal is then.
outstanding, such excess or part thereof remaining, shall be paid to the
Company.
4.A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
---------------------------------------------
In order to induce you to enter into this Agreement and to purchase the
Purchased Securities, the Company hereby represents and warrants that both
before and immediately after giving effect to the Closing and the Acquisition:
4.1. Incorporation of Certain Representations and Warranties. Each of the
--------------------------------------------------------
representations and warranties of the Company set forth in Sections 4.1(a) and
4.3-4.18 of the Senior Loan Agreement, as such provisions are in effect on the
date hereof, together (for the purposes of such representations and warranties)
with the definitions of the defined terms used therein as in effect on the date
hereof, are hereby incorporated herein by reference as fully as if set forth
herein at length.
4.2. Authorization. The execution, delivery and performance by the
-------------
Company of this Agreement and by each of the Company and its Subsidiaries of
each Related Agreement to which such Person is a party, and the issuance and
sale by the Company of the Notes hereunder
9
<PAGE>
(a) are within such Person's corporate (or other) power and authority, (b) have
been duly authorized by all necessary corporate (or other) proceedings, and (c)
do not conflict with or result in any breach of any provision of or the creation
of any lien upon any of the property of the Company or any of its Subsidiaries
or require any consent or approval pursuant to the Charter or bylaws of the
Company or any of its Subsidiaries or any law, regulation, order, judgment,
writ. injunction, license, permit, agreement or instrument.
4.3. Enforceabililty. The execution and delivery by the Company of this
---------------
Agreement and by each of the Company and its Subsidiaries of each of the Related
Agreements to which such Person is a party, and the issuance and sale by the
Company of the Notes hereunder, will result in legally binding obligations of
such Person enforceable against such Person in accordance with the respective
terms and provisions hereof and thereof, except to the extent that (a) such
enforceability is. limited by bankruptcy, insolvency, reorganization, moratorium
or other laws relating. to or affecting generally the enforcement of creditors'
rights, (b) the availability of the remedy of specific performance or injunctive
or other equitable relief is subject to the discretion of the court before which
any proceeding therefor may be brought and (c) the enforceability of the
indemnities and contribution provisions contained in the Registration Rights
Agreement may be limited under federal securities laws.
4.4. Government Approvals. Except as set forth in Schedule 4,4 hereto, the
--------------------- -------------
execution, delivery and performance by the Company of this Agreement and by each
of the Company and its Subsidiaries of each Related Agreement to which such
Person is a party, and, the issuance and sale of the Securities hereunder, do
not require the approval or consent of. or any filing with. any governmental
authority or agency.
4.5. Capitalization. (a) Capital Stock. At Closing, the authorized
-------------- --------------
capital stock of the Company consists solely of 200 shares of Common Stock. On
----
the Closing Date, after giving effect to the Acquisition, and the transactions
contemplated hereby and by the Related Agreements, the Company will have no
outstanding capital stock other than 40 shares of Common Stock. all of which
---
will be owned as set forth in Schedule 4.5(a) hereto and will be duly
----------------
authorized, validly issued, fully paid and non-assessable.
(b) Options, Etc. Except as disclosed on Schedule 4.5(b) hereto, the
------------- ---------------
Company has no outstanding rights (either preemptive or other) or options to
subscribe for or purchase from the Company and no warrants or other agreements
providing for or requiring the issuance by the Company of, any capital stock or
any securities convertible into or exchangeable for its capital stock.
4.6. Conduct of Business. Prior to and at the Closing Date. the Company
--------------------
will not have conducted any business or incurred any liabilities other than
those arising in connection with its organization and the transactions
contemplated hereby and by the Related Agreements.
4.7. Related Agreements. You have heretofore or simultaneously herewith
------------------
been furnished with complete and correct copies of all of the Related
Agreements. This Agreement and the Related Agreements are the only material
agreements relating to the Acquisition and the transactions contemplated hereby
to which the Company or any of its Subsidiaries is a party.
10
<PAGE>
Neither the Company nor any of its Subsidiaries is in default on any of its
obligations under this Agreement or any Related Agreement to which such Person
is a party and, to the best knowledge of the Company, no other party to any
Related Agreement is in default thereunder.
4.8. Solvency. Prior to, upon and immediately after consummation of the
---------
Acquisition and the transactions contemplated hereby and by the Related
Agreements, each of the Company and its Subsidiaries is solvent, has tangible
and intangible assets having a fair value in excess of the amount required to
pay its probable liabilities on its existing debts as they become absolute and
matured, and has access to adequate capital for the conduct of its business and
the ability to pay its debts from time to time incurred in connection therewith
as such debts mature.
4.9. Litigation. There is no litigation, at law or in equity, or any
----------
proceeding before any court, board or other governmental or administrative
agency or any arbitrator pending or, to the knowledge of the Company, threatened
which questions the validity of any of the transactions contemplated by this
Agreement or any Related Agreement.
4.10. Defaults. No Default or Event of Default exists on the date hereof.
--------
Neither the Company nor any of its Subsidiaries is in default under any
provisions of its Charter or by-laws or under any provisions of any franchise,
contract, agreement, lease or other instrument to which it is a party or by
which it or its property is bound or in violation of any law, judgment, decree
or governmental order, rule or regulation.
4.11. Representations and Warranties under Related Agreements. All
--------------------------------------------------------
representations and warranties made by the Company or any of its Subsidiaries in
any of the Related Agreements or in the certificates delivered in connection
therewith are true and correct as of the date hereof with the same force and
effect as though made on and as of the date hereof, and such representations,
and warranties are hereby confirmed to you and made representations and
warranties of the Company hereunder as fully as if set forth herein. To the best
knowledge of the Company, all representations and warranties made in this
Agreement or the Related Agreements by or on behalf of any party thereto other
than the Company or any of its Subsidiaries are true and correct in all material
respects.
4.12. Disclosure. No representation, warranty or statement made in this
-----------
Agreement, any Related Agreement, or any agreement, certificate, statement or
document furnished by or on behalf of the Company or any of its Subsidiaries in
connection herewith or therewith contains any untrue statement of material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein, in light of the circumstances in which they were
made, not misleading.
4.13. Transaction Costs. Except as set forth on Schedule 4.13, there are
------------------ ---------------
no Transaction Costs, as defined below, that will be payable by the Company with
respect to the Acquisition, the transactions contemplated hereby and by the
Related Agreements, or the offer, issue and sale of the Purchased Securities.
The term "Transaction Costs" shall mean all of the costs, fees and expenses
--------------------
payable by the Company and accrued through the date hereof in connection with
the Acquisition and the transactions contemplated hereby and by the Related
Agreements, as set forth in Schedule 4.13, including, without limitation,
--------------
broker's, finder's or placement fees or
11
<PAGE>
commissions, attorneys' fees and fees of other professionals, but excluding any
amounts payable under the Employment Agreement, the Consulting Agreement, the
Redemption Agreement or the Non-Competition Agreement.
4.14. Small Business Concern. The Company meets the criteria established
-----------------------
under the Small Business Act for classification as a "small business concern"
within the meaning of the Small Business Act, 15 U.S.C. (S)662(5).
4B. REPRESENTATIONS AND WARRANTIES OF SANDS. In order to induce you to
---------------------------------------
enter into this Agreement and to purchase the Purchased Securities, Sands hereby
represents and warrants to you as follows:
4.15. Approvals. Etc. Sands has full right, power and authority to enter
--------------
into this Agreement and to sell, assign, transfer and deliver the Purchased
Common Stock to be sold by him hereunder.
4.16. Authorization: No Conflict. This Agreement has been duly executed
---------------------------
and delivered by Sands, and this Agreement constitutes the legal, valid and
binding agreement of Sands, enforceable in accordance with its terms: the
performance of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the terms or
provisions of or constitute a default under any indenture, mortgage or deed of
trust, voting trust agreement, note agreement, lease or other agreement or
instrument to which Sands is a party or by which Sands or his properties are
bound, or under any law, rule or regulation or order of any court or
governmental agency or body applicable to Sands or his property.
4.17. Good Title. Sands has, and immediately prior to the Closing Sands
-----------
will have, good and valid title to the Purchased Common Stock to be sold by
Sands hereunder, free and clear of all liens, security interest, options,
charges, beneficial interests, restrictions, claims and encumbrances of every
kind (and any agreement to create any of the foregoing) other than pursuant to a
certain shareholders agreement dated as of December 20, 1988 among Marion Sands,
Sands, and the Company (the "Shareholders Agreement"), which Shareholders
-----------------------
Agreement shall be terminated on the Closing Date. Sands does not, and
immediately prior to the Closing will not, have any liability or be subject to
any other potential assessment on or in respect of the Purchased Common Stock.
Sands is not a party to or otherwise bound by any agreement, instrument or
commitment for the purchase or repurchase of capital stock. of the Company or
entitled to the benefit of any option, first refusal or other elective privilege
to purchase capital stock of the Company, other than pursuant to the
Shareholders Agreement.
4.18. Litigation. There are no actions, suits, proceedings or
-----------
investigations pending or, to the knowledge of Sands, threatened against Sands
which question or challenge the validity of this Agreement or any action to be
taken hereunder or which would impair the ability of Sands to perform any of
Sands' obligations hereunder.
4.19. Disclosure. The representations and warranties by Sands set forth in
-----------
this Section 4B and in any written statement or certificate furnished or to be
furnished to the Company by
12
<PAGE>
Sands in accordance with the provisions of this Agreement do not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements contained herein or therein, in the context in
which made, not misleading in any material respect.
5. INVESTMENT REPRESENTATION.
--------------------------
5.1. Purchase for Investment. You represent and warrant to Sands and the
-------------------------
Company that you are (i) an "accredited investor" as defined in Rule 501
promulgated under the Securities Act, and (ii) acquiring the Purchased
Securities for investment and not with a view to selling or otherwise
distributing the Purchased Securities; provided, however, that the disposition
-------------------
of your property shall at all times be and remain in your control, subject to
the provisions of Section 16 hereof.
5.2. Legend. So long as the Stockholder Agreement is in full force and
-------
effect, each Note will have imprinted on it the following legend:
A Holder of this Note has certain obligations under that certain
Stockholder Agreement, dated May 17, 1996, among the maker of this
Note and certain stockholders of the Company. A copy of the
Stockholder Agreement is on file at the Company's principal
offices. Upon written request to the Company's Secretary, a copy of
the Stockholder Agreement will be provided without charge to
appropriately interested persons.
6. CONDITIONS TO PURCHASE.
-----------------------
Your obligation to purchase the Purchased Securities pursuant to this
Agreement is subject to compliance by the Company and Sands with their
agreements herein contained, and to the satisfaction, on or prior to the Closing
Date, of the following conditions:
6.1. Related Agreements. Each of the Related Agreements shall have been
------------------
executed and delivered in a form satisfactory to you, and each of the Related
Agreements shall be in full force and effect and no term or condition thereof
shall have been amended, modified or waived except with your prior written
consent. All covenants, agreements and conditions contained in the Related
Agreements which are to be performed or complied with on or prior to the Closing
Date shall have been performed or complied (or waived with your prior written
consent) with in all material respects.
6.2. Charter Documents; Good Standing Certificate. You shall have
--------------------------------------------
received from each of the Company and its Subsidiaries a copy, certified by a
duly authorized officer of such Person to be true and complete as of the Closing
Date, of the Charter and the by-laws of each of such Persons; and a certificate,
dated not more than ten (10) days prior to the Closing Date, of the Secretary of
State or other appropriate official of each state in which each of the Company
and its Subsidiaries is incorporated or qualified to do business, as to such
Person's good standing or qualification to do business in such state, as the
case may be.
13
<PAGE>
6.3. Proof of Corporate Action. You shall have received from each of the
--------------------------
Company and its Subsidiaries copies, certified by a duly authorized officer
thereof to be true and complete as of the Closing Date, of the records of all
corporate or other action taken to authorize the execution, delivery and
performance of this Agreement and each of the Related Agreements to which such
Person is or is to become a party.
6.4. Incumbency Certificate. You shall have received from each of the
-----------------------
Company and its Subsidiaries an incumbency certificate, dated the Closing Date,
signed by a duly authorized officer thereof and giving the name and bearing a
specimen signature of each individual who shall be authorized to sign, in the
name and on behalf of such Person, this Agreement and each of the Related
Agreements to which such Person is or is to become a party, and to give notices
and to take other action on behalf of such Person under each of such documents.
6.5. Representations and Warranties; Officers' Certificates. The
-------------------------------------------------------
representations and warranties contained or incorporated by reference herein
shall be true and correct after completion of the Acquisition on and as of the
Closing Date; no event or condition shall have occurred or would result from the
issuance of any of the Securities which would be a Default or an Event of
Default on and as of the Closing Date, and Sands, the Company and each of its
Subsidiaries shall have performed and complied with all conditions and
agreements required to be performed or complied with by them prior to the
Closing; and you shall have received on the Closing Date certificates to these
effects signed by an authorized officer of the Company and by Sands.
6.6. Legality; Governmental Authorization. The purchase of the Purchased
------------------------------------
Securities shall not be prohibited by any law or governmental order or
regulation, and shall not subject you to any penalty, special tax, or other
onerous condition. All necessary consents, approvals, licenses, permits, orders
and authorizations of, or registrations, declarations and filings with, any
governmental or administrative agency or of or with any other Person, with
respect to any of the transactions contemplated by this Agreement or any of the
Related Agreements shall have been duly obtained or made and shall be in full
force and effect.
6.7. Senior Debt Financing. The Company shall have obtained financing, on
----------------------
terms and conditions satisfactory to you, from the Senior Lender pursuant to the
Senior Loan Documents providing a term loan of $15,000,000.
6.8. Completion of Acquisition. The Company shall have completed the
--------------------------
Acquisition pursuant to the Acquisition Documents and the other transactions
contemplated by the Acquisition Documents on terms satisfactory to you in all
respects.
6.9. Payment of Certain Fees and Disbursements. Your special counsel shall
-----------------------------------------
have received payment in full for all legal fees charged and all costs and
expenses incurred by such counsel through the Closing Date in connection with
the transactions contemplated by this Agreement and the Related Agreements. All
of the other fees. expenses and disbursements incurred by you or your
accountants and other consultants in connection with your due diligence
investigation of the Company and its Subsidiaries shall have been paid in full
by the Company.
14
<PAGE>
6.10. No Material Change. Except as set forth on Schedule 6.10 hereto,
------------------- --------------
there shall not have been, or threatened to be after giving effect to the
Acquisition, any material damage to or loss or destruction of any properties
owned or leased by the Company or any of its Subsidiaries (whether or not
covered by insurance) or any material adverse change in the business, assets or
financial condition of the Company and its Subsidiaries or imposition of any
laws, rules or regulations which would materially adversely affect the business,
assets or financial condition of the Company and any of its Subsidiaries.
6.11. No Litigation. No restraining order or injunction shall prevent the
-------------
transactions contemplated by this Agreement and no action, suit or proceeding
shall be pending or threatened before any court or administrative body in which
it will be, or is, sought to restrain or prohibit or to obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
6.12. SBIC Documentation. The Company shall have executed and delivered to
------------------
you all documents required by you in connection with the investment contemplated
hereby under the rules and regulations applicable to you by virtue of your
status as a "small business investment company".
6.13. Closing Fee. You shall have received from the Company payment in
------------
full of a closing fee in the amount of $30,000.
6.14. Release. The Company shall have received from Sands a complete
---------
release of all claims against the Company for any matter or thing occurring
prior to or at the Closing Date, including any claims with respect to the
transactions contemplated hereby, in any capacity. Such release shall not
include a release by Sands of any claims for reimbursement of expenses incurred
in the ordinary course of business and payable by the Company to Sands
consistent with past practices.
6.15. Termination of Shareholder Agreement. You shall have received
------------------------------------
evidence, in form and substance satisfactory to you that the Shareholders
Agreement, dated as of December 20, 1988 among Marian Sands, Sands and the
Company shall have been terminated.
6.16. General. All instruments and legal, governmental, administrative and
-------
corporate proceedings in connection with the transactions contemplated by this
Agreement and the Related Agreements shall be satisfactory in form and substance
to you, and you shall have received copies of all documents, including, without
limitation, records of corporate or other proceedings, consents, licenses,
approvals. permits and orders which you may have requested in connection
therewith.
7. COVENANTS APPLICABLE TO THE COMPANY WHILE NOTES ARE OUTSTANDING.
----------------------------------------------------------------
The Company covenants that, until all of the indebtedness of the Company
with respect to the Notes has been paid in full, the Company will comply and
will cause each of its
15
<PAGE>
Subsidiaries to comply with the following provisions unless otherwise consented
to in writing by the Majority Holders of the Notes.
7.1. Punctual Payment. The Company will duly and punctually pay or cause
-----------------
to be paid all principal and interest payable with respect to the Notes in
accordance with the terms thereof.
7.2. Further Assurances. Each of the Company and its Subsidiaries will
-------------------
cooperate with you and execute such further instruments and documents as you
shall reasonably request to carry out to your satisfaction the transactions
contemplated by this Agreement and the Related Agreements.
7.3. Notices. The Company will promptly notify you in writing of the
--------
occurrence of any Default or Event of Default or if any Person shall give any
notice or take any other action in respect of a claimed default (whether or not
constituting a Default or an Event of Default) under the Related Agreements.
7.4. Incorporation of Certain Covenants. The Company and its Subsidiaries
-----------------------------------
will comply with all of the covenants and provisions, as originally in effect,
applicable to them and set forth in Sections 5.2 through 5.10 of the Senior Loan
Agreement. Sections 6.1 through 6.11 of the Senior Loan Agreement; and Section 7
of the Senior Loan Agreement, all of which covenants and provisions, together
(for the purposes of such covenants and provisions) with the definitions of the
defined terms used therein (provided, that all references to the "Lender"
-----------
contained therein shall be deemed references to each Major Holder), are hereby
incorporated herein by reference as fully as if set forth herein at length. The
obligations of the Company and its Subsidiaries to you under this Section 7.4
shall not be affected by any amendment or modification of the terms of the
Senior Loan Agreement, by any payment on or discharge of the indebtedness
outstanding thereunder, by any termination thereof, or by any approval. consent,
opinion, or waiver given pursuant thereto.
7.5. Dilution Protection. At all times prior to a Qualified Public
--------------------
Offering (as such term is defined in the Stockholder Agreement), neither the
Company nor any of its Subsidiaries will after the Closing Date (a) issue, sell,
give away, transfer, pledge. mortgage, assign or otherwise dispose of, (b) grant
any rights (either preemptive or other) or options to subscribe for or purchase,
or (c) enter into any agreements, or issue any warrants, providing for the
issuance of any of. its capital stock or any stock or securities convertible
into or exchangeable for any of its capital stock. Neither the Company nor any
of its Subsidiaries will authorize any additional class or series of capital
stock or increase the number of shares of authorized capital stock from that set
forth in Section 4.5(a) hereof, except to the extent it would not violate the
immediately preceding sentence.
8. [INTENTIONALLY OMITTED]
9. COVENANTS APPLICABLE WHILE ANY SECURITIES ARE OUTSTANDING.
----------------------------------------------------------
The Company hereby agrees that, so long as any Securities are outstanding,
it will comply with and it will cause its Subsidiaries to comply with the
following provisions:
16
<PAGE>
9.1. Delivery of Financial Information. Contemporaneously with the
----------------------------------
delivery thereof, the Company will deliver to each Major Holder copies of all
material of a financial nature delivered to the Senior Lender under the Senior
Loan Agreement. Without limiting the foregoing, the Company will deliver to each
Major Holder copies of all information as and when required to be delivered to
the Senior Lender pursuant to Sections 5.4(a), (b), (c), (e) and (f) of the
Senior Loan Agreement as in effect on the date hereof, and this obligation shall
survive any payment of all outstanding indebtedness under the Senior Loan
Agreement and any termination of the Senior Loan Agreement.
9.2. Notice of Litigation, Defaults, Etc. The Company will promptly give
------------------------------------
notice to each Major Holder of any litigation or any administrative proceeding
to which the Company or any of its Subsidiaries may hereafter become a party
which may result in any material adverse change in the business, assets, or
financial condition of the Company or its Subsidiaries. Forthwith upon. any
officer of the Company obtaining knowledge of any Default or Event of Default
hereunder, any default or event of default under any Related Agreement, or any
agreement relating to any Indebtedness for Borrowed Money, the Company will
furnish a notice specifying the nature and period of existence thereof and in
the case of a Default or Event of Default hereunder, what action the Company or
any of its Subsidiaries has taken, is taking or proposes to take with respect
thereto. Promptly after the receipt thereof, the Company will provide copies of
any reports as to adequacies in accounting controls submitted by independent
accountants with respect to the Company and its Subsidiaries.
9.3. Rights to Attend Meetings.
--------------------------
(a) Board Meetings. The Company will call and hold a meeting of its
--------------
board of directors at least once each fiscal quarter. The Company will give one
representative designated by the Majority Holders of the Notes and one
representative designated by the Majority Holders of the Purchased Common Stock
at least five business days' prior written notice of the time, place and subject
matter of any proposed meeting (or action by written consent) of the board of
directors of the Company (except written consents executed solely in connection
--------
with the establishment of bank accounts or other purely administrative matters),
such notice in all cases to include true and complete copies of all documents
furnished to any director in connection with such meeting or consent, and an
invitation to attend any such meeting. Such representatives, or their respective
officers and authorized representatives, will be entitled to attend as an
observer at any such meeting or, if a meeting is held by telephone conference,
to participate therein for the purpose of listening thereto.
(b) Annual Meetings. Within 60 days after the annual financial
---------------
statements required by Section 9.1 hereof are furnished and on not less than 30
days' prior written notice, the Company will hold an annual meeting of its
stockholders at which the principal executive, financial and operations officers
of the Company will present a review of, and will discuss with those in
attendance, in reasonable detail, the general affairs, management, financial
condition, results of operations and business prospects of the Company. The
Company will give each Major Holder at least 30 days' advance written notice of
such meeting and will allow each Major Holder to attend such meeting.
17
<PAGE>
9.4. Other Information. The Company will deliver to each Person entitled
------------------
to receive notice pursuant to Section 9.3(a) of quarterly board meetings copies
of all papers which may be distributed from time to time to the directors and
stockholders of the Company at such time as such papers are so distributed to
them. In addition, from time to time upon your request or upon the request of
any representative designated by the Majority Holders of the Notes, or by the
Majority Holders of Purchased Common Stock. the Company will furnish to any
authorized officer or representative of such Person such information regarding
the business, affairs, prospects and financial condition of the Company and its
Subsidiaries as such officer or representative may reasonably request. Each such
officer or representative shall have the right during normal business hours to
examine the books and records of the Company and its Subsidiaries to make
copies, notes and abstracts therefrom, and to make an independent examination of
the books and records of the Company and its Subsidiaries.
9.5 Confidentiality. Each Major Holder will hold in confidence all
---------------
proprietary information of the Company and its Subsidiaries provided or made
available to such Major Holder pursuant to this Section 9 until such time as
such information has become publicly available other than as a consequence of
any breach by a Major Holder of its confidentiality obligations hereunder.
9.6. Amendment of Related Agreements, Etc. Neither the Company nor any of
------------------------------------
its Subsidiaries shall agree to any amendment or modification of, or grant any
waiver or fail to enforce any of its rights pursuant to, (i) any of the Related
Agreements other than the Senior Loan Documents or (ii) any of the Senior Loan
Documents which could have a material adverse effect on the holders of the Notes
or the Purchased Common Stock or on any of their rights hereunder, including
without limitation, any terms of such documents relating to the maturity,
amortization, interest or fees with respect to the Notes or any terms relating
to the Purchased Common Stock.
9.7. Charter Amendments. The Charter of the Company and its Subsidiaries
-------------------
shall not be amended or modified.
9.8 Transactions With Affiliates. Neither the Company nor any of its
-----------------------------
Subsidiaries will engage in any transaction with any Affiliate on terms more
favorable to such Affiliate than would have been obtainable on an arms-length
basis in the ordinary course of business other than payments made pursuant to
the terms of any Related Agreement as in effect on the Closing Date.
10. DEFAULTS.
---------
10.1. Events of Default. Holders of the Securities will be entitled to
-----------------
,exercise the remedies provided by Section 10.2 hereof in accordance with the
terms thereof if' any one or more of the following events ("Events of Default")
-----------------
shall occur:
(a) the Company shall fail to make any payment of interest or principal on
any of the Notes as the same shall become due, whether at maturity or by
acceleration or otherwise; or
18
<PAGE>
(b) the Company shall fail to pay when due the Repurchase Price for' any
Purchased Common Stock pursuant to Section 11 hereof; or
(c) the Company or any of its Subsidiaries shall fail to perform or observe
any of the covenants applicable to it set forth in Sections 7 or 9 hereof: or
(d) the Company or any of its Subsidiaries shall fail to perform or observe
any covenant, agreement or provision set forth in this Agreement or any
covenant, agreement, or provision to be performed or observed by it under any
Financing Agreements, other than those provisions set forth in Sections 10.1(a),
(b) and (c) above, and such failure shall not be rectified or cured to your
satisfaction within thirty (30) days after written notice from you; or
(e) any representation or warranty made by Sands, the Company or any of its
Subsidiaries to you in connection with this Agreement or any other Financing
Agreement or any amendment to this Agreement or any other Financing Agreement
shall prove to have been false in any material respect on the date as of which
it was made; or
(f) the Company or any of its Subsidiaries shall fail (i) to make any
required payment on any Indebtedness for Borrowed Money in excess of $100.000,
or (ii) to perform or observe any of the covenants or provisions required to be
performed or observed by it pursuant to any of the Related Agreements. and, in
the case of each of (i) and (ii), (x) such failure shall continue, without
having been duly cured, waived or consented to, beyond the period of grace, if
any, therein specified and so as to permit the acceleration thereof, if any
acceleration is provided for therein, or (y) any security interest in or other
lien on any property securing any such indebtedness shall be enforced through
judicial proceedings or foreclosure or repossession of collateral; or
(g) a final judgment which in the aggregate with other outstanding final
judgments against the Company or any of its Subsidiaries exceeds $100,000 shall
be rendered against the Company or any of its Subsidiaries if, within 30 days
after entry thereof, such judgment shall not have been satisfied and discharged
or stayed pending appeal or bonded, or within 30 days after expiration of such
stay such judgment shall not have been discharged; or
(h) the Company or any of its Subsidiaries shall:
(i) commence a voluntary case under Title 11 of the United States
Code as from time to time in effect, or authorize, by appropriate proceedings of
its board of directors or other governing body, the commencement of such a
voluntary case;
(ii) have filed against it a petition commencing an involuntary
case under said Title 11 and such petition shall not have been dismissed or
stayed within 60 days:
(iii) seek relief as a debtor under any applicable law, other than
said Title 11. of any jurisdiction relating to the liquidation or reorganization
of debtors or to the modification or alteration of the rights of creditors, or
consent to or acquiesce in such relief:
19
<PAGE>
(iv) have entered against it an order by a court of competent
jurisdiction (x) finding it to be bankrupt, or insolvent, (y) ordering or
approving its liquidation, reorganization or any modification or alteration of
the rights of its creditors, or (z) assuming custody of. or appointing a
receiver or other custodian for. all or a substantial part of its property;
(v) make an assignment for the benefit of, or enter into a
composition with, its creditors, or appoint or consent to the appointment of a
receiver or other custodian for all or a substantial part of its property; or
(i) the Company or any of its Subsidiaries shall fail to maintain in
full force and effect any federal, state or local license, permit or operating
right material to the operation of its business; or
(j) a Change of Control shall occur; or
(k) the employment of Sands as chief executive and chief operating
officer or-the Company shall be terminated for any reason.
10.2. Remedies. Upon the occurrence and continuance of any Event of
--------
Default. in each and every such case,
(a) the Majority Holders of the Notes may proceed to protect
and enforce its or their rights by suit in equity, action at law and/or
other appropriate proceedings either for specific performance of any
covenant, provision or condition contained or incorporated by reference in
this Agreement or in the Notes, or in aid of the exercise of any power
granted in this Agreement or in the Notes, and (unless there shall have
occurred an Event of Default under Section 10.1(h) hereof, in which case
the unpaid balance of the Notes shall automatically become due and payable)
may, by notice to the Company, declare all or any part of the unpaid
principal amount of the Notes then outstanding to be forthwith due and
payable, and thereupon such unpaid principal amount or part thereof,
together with interest accrued thereon and all other sums. if any, payable
under this Agreement or the Notes shall become so due and payable without
presentation, presentment, protest or further demand or notice of any kind,
all of which are hereby expressly waived, and such holder or holders may
proceed to enforce payment of such, amount or part thereof in such manner
as it or they may elect: and
(b) the Majority Holders of the Purchased Common Stock may
proceed to protect and enforce its or their rights by suit in equity,
action at law and/or other appropriate proceeding for specific performance
of any covenant. provision or condition contained or incorporated by
reference in this Agreement or in any Related Agreement, or in aid of the
exercise of any power granted in this Agreement or any Related Agreement,
and if any such Event of Default occurs at any time after the giving of a
Put Notice to the Company pursuant to Section 11 hereof but before payment
of the Repurchase Price therefor is made. declare all or part of such
Repurchase Price due and payable (unless there shall have occurred an Event
of Default under Section 10.1(h)
20
<PAGE>
hereof, in which case such Repurchase Price shall be automatically due and
payable), without presentation, presentment, protest or further demand or
notice of any kind. all of which are expressly waived, and any such holder
or holders may proceed to enforce payment of such amount or part thereof in
such manner as it or they may elect.
10.3. Waivers. Each of the Company and its Subsidiaries hereby
---------
waives, to the extent not prohibited by applicable law, (a) all presentments,
demands for performance and notices of nonperformance (except to the extent
specifically required by the provisions hereof), (b) any requirement of
diligence or promptness on the part of any holder of Securities in the
enforcement of its rights under the provisions of this Agreement, the Company's
Charter, or any Financing Agreement, and (c) any and all notices of every kind
and description which may be required to be given by any statute or rule of law.
10.4. Course of Dealing. No course of dealing between the Company or
-----------------
any of its Subsidiaries on the one hand, and you or any holder of Securities, on
the other hand. shall operate as a waiver of any of your or its rights under
this Agreement, the Company's Charter. or any Financing Agreement. No delay or
omission in exercising any right under this Agreement, the Company's Charter, or
any Financing Agreement shall operate as a waiver of such right or any other
right. A waiver on any one occasion shall not be construed as a bar to or waiver
of any right or remedy on any other occasion.
11. REPURCHASE OF PURCHASED COMMON STOCK.
----------------------- -------------
11.1. Right to Put Purchased Common Stock. At any time and from time
------------------------------------
to time on or after the fifth anniversary of the Closing Date, or on such
earlier date as may be determined under Section 10.2(b) hereof, you may, by
notice to the Company (a "Put Notice"), elect to sell to the Company (and the
---------------
Company hereby agrees to repurchase from you), at the Repurchase Price specified
in Section 11.5 hereof, such number of shares of Purchased Common Stock as are
specified in the Put Notice. The date on which any Put Notice is given to the
Company in accordance with this Section 11.1 is referred to herein as the "Put
----
Notice Date." Your rights under this Section 11 to require the Company to
- --------------
repurchase from you Purchased Common Stock shall terminate upon the closing of
the Company's initial public offering.
11.2. Put Closing. The put closing shall take place at the offices of
------------
the Company at I0:00 a.m. local time on a date (a) twelve (12) months after the
Put Notice Date or (b) at such other time and place as you and the Company may
agree upon (a "Put Closing Date"). At the put closing you will deliver to the
-----------------
Company a certificate or certificates evidencing the Purchased Common Stock then
to be purchased by the Company (properly endorsed or accompanied by stock
powers) against payment of the Repurchase Price to you in the manner specified
in Section 11.4 hereof (together with a certificate or certificates evidencing
any shares of Purchased Common Stock presented to the Company but not then being
purchased by the Company). Except to the extent prohibited by applicable law,
prior to the Put Closing Date, the Company will provide you with all available
information that may be material to the exercise of your rights under this
Section 11, including any plans or proposals for any mergers, sales of assets,
acquisitions and substantial sales of stock.
21
<PAGE>
11.3. Right to Call Purchased Common Stock; Call Closing. At any time
---------------------------------------------------
after the seventh anniversary of the Closing Date, the Company may, by notice to
you (the "Call Notice"), elect to purchase from you (and you hereby agree to
------
sell to the Company), at the Repurchase Price, all but not less than all of the
shares of Purchased Common Stock as are then outstanding on a date specified in
such notice, which shall be not fewer than 30 nor more than 60 days after the
date of the Call Notice. The call closing under this Section 11.3 shall take
place at the offices of the Company at 10:00 a.m. local time on the date so
specified, or at such other time and place as the Company and you may agree upon
(the "Call Closing Date"). At the call closing, you will deliver to the Company
------------------
a certificate or certificates evidencing the Purchased Common Stock to be
repurchased by the Company pursuant to such call (properly endorsed or
accompanied by stock powers)against payment of the Repurchase Price to you in
the manner specified in Section 11.4 hereof. The Company's rights under this
Section 11.3 to repurchase from you Purchased Common Stock shall terminate upon
the closing of the Company's initial public offering.
11.4. Payment. The Company shall pay the Repurchase Price at any
--------
closing under Section 11.2 or 11.3 hereof out of funds legally available
therefor in cash or immediately available funds. In the event that any portion
of the Repurchase Price is not paid as a result of any insufficiency of legally
available funds or otherwise, you shall retain all your rights hereunder and
under and in connection with the Purchased Common Stock, as to that number of
shares of Purchased Common Stock as such unpaid portion represents (the
"Unrepurchased Securities"), until such time as the unpaid portion of the
- ---------------
Repurchase Price and interest thereon, determined as set forth below, shall be
paid to you in full; and you shall, at any time prior to payment of the
Repurchase Price for any Unrepurchased Securities, be entitled, by notice to the
Company (the "Rescission Notice"), to rescind your put of such Unrepurchased
------------------
Securities pursuant to Section 11.1. Unless and until the Company receives a
Rescission Notice, the unpaid portion of the Repurchase Price allocable to the
Unrepurchased Securities shall remain an obligation of the Company and shall be
paid by the Company, in cash or immediately available funds, as soon as there
are funds legally available therefor. Interest shall accrue on any unpaid
portion of the Repurchase Price at the annual rate of 7 % from the date which is
thirty (30) days after the Put Notice Date until the Put Closing Date. Interest
shall accrue on any unpaid portion of the Repurchase Price at the Default Rate
from and after the date fixed for any closing under Section 11.2 or 11.3 hereof.
11.5. Repurchase Price for Purchased Common Stock.
--------------------------------------------
(a) Repurchase Price. The repurchase price (the "Repurchase
----------------- ----------
Price") shall be an amount per share of Common Stock to be repurchased equal to
- -------
the quotient obtained by dividing (A) the Formula Value of the Company's common
stock equity, calculated as of the date of the related Put Notice or Call Notice
given under Section 11.1 or 11.3 hereof, respectively, by (B) the aggregate
number of shares of Common Stock outstanding as of such date.
(b) Formula Value. The Formula Value of the Company's common
-------------- --------------
stock equity at any particular date of determination shall be an amount
calculated by (i) multiplying by the number 7 the Company's EBITDA for the
period of four consecutive fiscal quarters of the Company ended most recently
prior to such date and for which financial statements of the type required to be
delivered pursuant to Section 9.1 hereof are available (ii) subtracting from the
22
<PAGE>
product obtained pursuant to clause (i) the total amount of the Company's
consolidated Indebtedness for Borrowed Money outstanding on such date, and (iii)
adding to the amount obtained pursuant to clause (ii) the sum of the aggregate
cash balances of the Company and its Subsidiaries on such date and the total
value of all cash equivalents owned by the Company and its Subsidiaries on such
date.
11.6. Additional Payments Upon Merger, Etc. If at any time within six
------------------------------------
(6) months after any Put Closing Date or Call Closing Date with respect to the
repurchase of any Purchased Common Stock, the Company or any of its Subsidiaries
shall become party to any Capital Transaction or the Company or any of its
Subsidiaries or their respective stockholders enter into any agreement or letter
of intent contemplating any Capital Transaction, the Company shall,
simultaneously with the consummation of such Capital Transaction or at such
later time as any payment is received by the Company or any of its stockholders
in respect of such Capital Transaction, make an additional payment to you in an
amount per share of Purchased Common Stock repurchased from you pursuant to
Section 11.2 or 11.3 hereof equal to the excess, if any, of the value per share
of the cash, securities and other property that you would have received (or that
the Company received in which you would have had a beneficial interest as a
stockholder of the Company) had your Purchased Common Stock not been previously
repurchased pursuant to Section 11.2 or 11.3 hereof, over the payment received
by you with respect to each such share pursuant to Section 11.2 or 11.3 hereof.
Each payment to you pursuant to this Section 11.6 shall be made either in cash
or in the form of consideration received by the holders of common equity of the
Company (or the Company).
12. SUBSEQUENT HOLDERS OF SECURITIES.
---------------------------------
Whether or not any express assignment has been made in this Agreement.
the provisions of this Agreement and the Financing Agreements that are for your
benefit as the holder of any Securities are also for the benefit of, and
enforceable by, all subsequent holders of Securities.
13. REGISTRATION RIGHTS.
--------------------
You shall have certain registration rights with respect to the shares
of Purchased Common Stock as set forth in the Registration Rights Agreement.
14. REGISTRATION AND TRANSFER OF SECURITIES.
---------------------------------------
14.1. Registration, Transfer and Exchange of Notes.
---------------------------------------------
(a) The Company shall keep at its principal office a register in
which shall be entered the names and addresses of the registered holders of the
Notes issued by it and particulars of the respective Notes held by them and of
all transfers of such Notes. References to the "holder" or "holder of record" of
any Note shall mean the payee thereof unless the payee shall have presented such
Note to the Company for transfer and the ,transferee shall have been entered in
said register as a subsequent holder, in which case the terms shall mean such
23
<PAGE>
subsequent holder. The ownership of any of the Notes shall be proven by such
register and the Company may conclusively rely upon such register.
(b) The holder of any of the Notes may at any time and from time to
time prior to maturity or redemption thereof surrender any Note held by it for
exchange or (subject to compliance with the applicable provisions of Section 16
hereof) transfer at said office of the Company. Within a reasonable time
thereafter and without expense (other than transfer taxes, if any) to such
holder, the Company shall issue, at its expense, in exchange therefor another
Note or Notes, dated the date to which interest has been paid on the surrendered
Note. for the same aggregate principal amount as the unpaid principal amount of
the Note or Notes so surrendered, having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and conditions as
the Note or Notes so surrendered. Each such new Note shall be in the
denominations and registered in the name of such person or persons as the holder
of such surrendered Note or Notes may designate in writing, and such exchange
shall be made in a manner such that no additional or lesser amount of principal
or interest shall result. The Company will pay shipping and insurance charges,
from and to each holder's principal office, involved in the exchange or transfer
of any Note.
(c) Each Note issued hereunder, whether originally or in
substitution for, or upon transfer or exchange of any Note shall be registered
on the date of execution thereof by the Company. The registered holder of record
shall be deemed to be the owner of the Note for all purposes of this Agreement.
All notices given hereunder to the holder of record shall be deemed validly
given if given in the manner specified in Section 19 hereof.
14.2. Transfer and Exchange of Common Stock.
--------------------------------------
(a) The Company shall keep at its principal office a register in
which shall be entered the names and addresses of the holders of the Purchased
Common Stock and the particulars (including without limitation the class
thereof) of the respective Purchased Common Stock held by them and of all
transfers of shares of Purchased Common Stock. References to the "holder" or
"holder of record" of any Purchased Common Stock shall mean the holder thereof
unless the holder shall have presented the stock certificates evidencing same to
the Company for transfer and the transferee shall have been entered in said
register as a subsequent holder, in which case the terms shall mean such
subsequent holder. The ownership of any of the Purchased Common Stock shall be
proven by such register and the Company may conclusively rely upon such
register.
(b) Upon surrender at such office of any certificate representing
shares of Purchased Common Stock for registration of exchange or (subject to
compliance with the applicable provisions of Section 16 hereof) transfer or
conversion, the Company shall issue, at its expense, one or more new
certificates, in such denomination or denominations as may be requested, for
shares of such class of Purchased Common Stock as may be requested, and
registered as such holder may request. Any certificate representing shares of
Purchased Common Stock surrendered for registration of transfer shall be duly
endorsed, or accompanied by a written instrument of transfer duly executed by
the holder of such certificate or his attorney duly authorized in writing. The
Company will pay shipping and insurance charges, from and to each
24
<PAGE>
holder's principal office, upon any transfer, exchange or conversion provided
for in this Section 14.2.
(c) Each stock certificate evidencing Purchased Common Stock,
whether originally or in substitution for, or upon transfer, conversion or
exchange of. any Purchased Common Stock shall be registered on the date of
execution thereof by the Company. The registered holder of record shall be
deemed to be the owner of the Purchased Common Stock for all purposes of this
Agreement. All notices given hereunder to the holder of record shall be deemed
validly given if given in the manner specified in Section 19 hereof.
14.4. Replacement of Securities. Upon receipt of evidence reasonably
--------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Security and, in the case of any such loss, theft or destruction, upon delivery
of an indemnity bond in such reasonable amount as the Company may determine (or,
in the case of any Security held by you or another institutional holder, an
unsecured indemnity agreement from you or such other holder reasonably
satisfactory to the Company) or, in the case of any such mutilation, upon the
surrender of such Security for cancellation to the Company at its principal
office, the Company, at its own expense, will execute and deliver, in lieu
thereof, a new Security of like tenor, dated in the case of a Note so that there
will be no loss of interest. Any Security in lieu of which any such new Security
has been so executed and delivered by the Company shall not be deemed to be
outstanding for any purpose of this Agreement.
15. REGULATORY RESTRICTIONS.
------------------------
15.1. Bank Holding Company Act. No Person which is a bank holding company
-------------------------
or a subsidiary of a bank holding company (a "Bank Affiliate") as defined in the
--------------
Bank Holding Company Act of 1956, as amended, or other applicable banking laws
of the United States of America and the rules and regulations promulgated
thereunder (the "Bank Holding Company Act") shall acquire Common Stock, if,
---------------------------
after giving effect to such acquisition, the Bank Affiliate, together with its
Affiliates, would own more than five percent (5%) of the outstanding voting
securities the Company. Notwithstanding the foregoing, shares of Common Stock
may be acquired or held by BBV or any other Bank Affiliate which is a Small
Business Investment Company consistent with and subject to the limitations
contained in the Small Business Act and. to the extent not inconsistent with the
Bank Holding Company Act. in the event that:
(a) the Company shall vote to merge or consolidate with or into any
other Person and after giving effect to such merger or consolidation the Bank
Affiliate would not own more than five percent (5%) of the outstanding voting
securities of the surviving corporation: or
(b) said holder exercises its registration rights pursuant to the
Registration Rights Agreement and the registration statement resulting therefrom
is effective.
15.2. Small Business Act. No Person which is a Small Business Investment
-------------------
Company as defined in the Small Business Act shall exercise "put" rights as a
holder of Purchased Common Stock hereunder if the exercise thereof shall violate
any of the rules or regulations promulgated under the Small Business Act.
25
<PAGE>
15.3. Statement of Compliance. For purposes of this Agreement, a written
-----------------------
statement of BBV or any of its Affiliates acquiring Common Stock, delivered to
the Company upon acquisition of any shares of Common Stock, to the effect that
BBV or its Affiliate. as the case may be, is legally entitled to exercise its
rights to purchase securities of the Company and that such exercise will not
violate or contravene any law or regulation or any judgment, decree or order of
any governmental authority then applicable to BBV or such Affiliate, as the case
may be, shall be conclusive and binding upon the Company and shall absolutely
obligate and bind the Company to deliver, in accordance with the other terms and
provisions hereof, certificates or other appropriate instruments representing
the securities so purchased.
16. RESTRICTIONS ON TRANSFER.
------------------------
16.1. General Restriction. The Securities shall be transferable (a) only
-------------------
upon the satisfaction .of the conditions set forth below in this Section 16 and
(b) only to Permitted Transferees. In addition, BBV may not transfer any Notes
if, after giving effect to such transfer, BBV and its Affiliates would hold less
than 51% of the aggregate outstanding principal amount of the outstanding Notes.
The restrictions of the preceding sentence shall not be applicable if any
Default or Event of Default is continuing hereunder.
16.2. Notice of Transfer. Prior to any transfer of any Securities, the holder
------------------
thereof shall be required to give written notice to the Company describing in
reasonable detail the manner and terms of the proposed transfer and the identity
of the proposed transferee (the "Transfer Notice"), accompanied by (a) an
----------------
opinion of Bingham, Dana & Gould addressed to the Company, or other counsel
reasonably acceptable to the Company, that such transfer may be effected without
registration of such Securities under the Securities Act, and (b) the written
agreement of the proposed transferee to be bound by all of the provisions hereof
and of the Financing Agreements. applicable to holders of such Securities
hereunder or thereunder.
16.3. Restrictive Legends. Except as otherwise permitted by this Section 16.
-------------------
each Security shall bear the legend specified for such Security in Schedule 16.3
-------------
hereto.
` 16.4. Termination of Restrictions. The restrictions imposed by this Section
----------------------------
16 upon the transferability of Securities shall terminate as to any particular
Securities when such Securities shall have been effectively registered under the
Securities Act or sold pursuant to a Public Sale. Whenever any of such
restrictions shall terminate as to any Securities, the holder thereof shall be
entitled to receive from the Company, at the Company's expense, new Securities
without such legends.
17. EXPENSES; INDEMNITY.
--------------------
(a) The Company hereby agrees to pay on demand all reasonable out-of-
pocket expenses incurred by you, in connection with the transactions
contemplated by this Agreement and the Related Agreements and in connection with
any amendments or waivers (whether or not the same become effective) hereof or
thereof and all reasonable out-of-pocket expenses incurred by you or any holder
of any Security issued hereunder in connection with the
26
<PAGE>
enforcement of any rights hereunder, under any other Related Agreement or with
respect to any Security, including without limitation (i) the cost and expenses
of preparing and duplicating this Agreement, each other Financing Agreement and
Related Agreement and the Securities; (ii) the cost of delivering to your
principal offices, insured to your satisfaction, the Securities sold to you
hereunder and any Securities delivered to you in exchange therefor or upon any
exercise, conversion or substitution thereof; (iii) the fees, expenses and
disbursements of BBV's special counsel in connection with the transactions
contemplated by this Agreement and the Related Agreements and any amendments,
modifications. approvals, consents or waivers hereunder or thereunder; (iv) the
fees, expenses and disbursements of your accountants and other consultants, in
connection with your due diligence investigation of the Company; (v) all taxes
(other than taxes determined with respect to income), including any recording
fees and filing fees and documentary stamp and similar taxes at any time payable
in respect of this Agreement, any other Related Agreement or the issuance of any
of the Securities; (vi) the reasonable fees and disbursements of counsel for any
holder of Securities in connection with all opinions rendered by such counsel
pursuant to Section 16 hereof and (vii) all reasonable out-of-pocket expenses
(including without limitation reasonable attorneys' fees and costs, whether or
not such attorneys are your employees, all costs associated with any rights of
board attendance, observation or inspection and travel and lodging expenses
related thereto, and reasonable consulting, accounting, appraisal, investment
banking and similar professional fees and charges) incurred by you in connection
with (A) the exercise, enforcement or preservation of rights under this
Agreement or any of the Related Agreements against the Company or any of its
Subsidiaries or the administration thereof whether before or after the
occurrence of a Default or Event of Default (including engineering, appraiser
environmental consulting and investment banking charges) and (B) any litigation,
proceeding or dispute whether arising hereunder or otherwise, in any way related
to your relationship with the Company or its Subsidiaries.
(b) The Company hereby further agrees to indemnify, exonerate and hold
you and your stockholders, officers, directors, employees and agents free and
harmless from and against any and all actions, causes of action, suits, losses,
liabilities. damages and expenses (including, without limitation, .reasonable
attorneys' fees and disbursements), incurred in any capacity by any of the
indemnitees as a result of or relating to (A) any transaction financed or to be
financed in whole or in part directly or indirectly with proceeds from the sale
of any of the Securities, or (B) the execution. delivery, performance or
enforcement of this Agreement (including, without limitation, any failure by the
Company to comply with any of its covenants hereunder), the Related Agreements
or any instrument contemplated hereby or thereby, except, in each such case. for
any such liabilities arising from any indemnitee's breach of this Agreement,
gross negligence or willful misconduct.
(c) The Company hereby indemnifies you against and agrees that it will
hold you harmless from any claim, demand or liability for any broker's, finder's
or placement fees or lender's incentive fees alleged to have been incurred by it
in connection with the transactions contemplated by this Agreement or the
Related Agreements.
(d) Except to the extent otherwise expressly provided herein, the
Company shall pay on demand interest at a rate per annum equal to the lesser of
the maximum rate of
27
<PAGE>
interest permitted by law or 11.5 % (in each case, compounded monthly) on all
overdue amounts payable under this Agreement until such amounts shall be paid
in full.
(e) The obligations of the Company under this Section 17 shall survive
payment or transfer of the Securities and the termination of this Agreement.
18. INDEMNIFICATION BY SANDS WITH RESPECT TO THE PURCHASED COMMON STOCK.
--------------------------------------------------------------------
Sands agrees to indemnify, defend and hold BBV (and its successors and
assigns) harmless against and with respect to any and all claims, demands,
causes of action, proceedings, damages, losses, liabilities, fines, penalties,
deficiencies, judgments, costs and expenses (including, without limitation,
reasonable counsel fees incurred in litigation or otherwise) against BBV (and
its successors and assigns), arising out of any material misrepresentation by
Sands in this Agreement or any breach of warranty or nonfulfillment by him of
any agreement by him in Section 2.3 hereof.
19. NOTICES.
-------
Any notice or other communication in connection with this Agreement. any
other Financing Agreement or the Securities shall be deemed to be delivered if
in writing (or in the form of a telex or telecopy) addressed as provided below
(a) when actually delivered, telexed or telecopied to said address or (b) in the
case of a letter. three business days shall have elapsed after the same shall
have been deposited in the United States mails, postage prepaid and registered
or certified:
If to the Company, then to its address set forth on page 1 hereof, to the
attention of the President or at such other address as such person shall have
specified by notice actually received by the addresser.
If to BBV, then to its address set forth on page 1 hereof, to the attention
of Robert F. Duggan, Managing Director, or at such other address as BBV shall
have specified by notice actually received by the addresser, with a copy to
Frederick F. Eisenbiegler, Esq., Bingham, Dana & Gould, 150 Federal Street,
Boston, Massachusetts 02110.
If to any other holder of record of any Security, to it at its address set
forth in the applicable register referred to in Section 14 hereof.
20. SURVIVAL AND TERMINATION OF COVENANTS.
--------------------------------------
All covenants, agreements, representations and warranties made herein or in
any other document referred to herein or delivered to you pursuant hereto shall
be deemed to have been relied on by you, and shall survive the execution and
delivery to you hereof and of the Securities.
28
<PAGE>
21. AMENDMENTS AND WAIVERS.
----------------------
Any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
Company and the Majority Holders of the Notes and the Majority Holders of the
Purchased Common Stock, respectively, with respect to any provision of this
Agreement which by its terms operates for the benefit of such respective
holders. Any term of the Notes may be amended and the observance of any term of
the Notes may be waived (either generally or in a particular instance and either
retroactively or prospectively) only with the written consent of the Company and
the Majority Holders of the Notes with respect to whom such amendment or waiver
is made. Notwithstanding the foregoing, (a) without the prior written consent of
each holder of Purchased Common Stock with respect to whom such amendment or
waiver is made, no such amendment or waiver shall extend the scheduled date of
any required repurchase of such respective Securities held by such holder or
reduce the repurchase price payable thereon, (b) without the prior written
consent of each holder of Notes with respect to whom such amendment or waiver is
made. no such amendment or waiver shall extend the fixed maturity or reduce the
principal amount of, or reduce the rate or extend the time of payment of
interest on. or reduce the amount or extend the time of payment of any principal
or premium payable on any prepayment of, any Note with respect to whom such
amendment or waiver is made, (c) without the written consent of the aforesaid
percentage of Securities reduce the aforesaid percentage of Securities the
holders of which are required to consent to any such amendment or waiver, (d)
without the written consent of the percentage of the holders of each Security
required to exercise the remedies provided in Section 10.2 hereof, increase such
required percentage, and (e) without the written consent of Sands, no such
amendment or waiver shall increase the obligations of Sands under this
Agreement. Any amendment or waiver effected in accordance with this Section 21
shall be binding upon each holder of any Security, the Company and Sands.
22. CONSENT TO JURISDICTION.
------------------------
EACH OF THE COMPANY AND SANDS HEREBY AGREES TO SUBMIT TO THE NONEXCLUSIVE
JURISDICTION OF THE COURTS IN AND OF THE COMMONWEALTH OF MASSACHUSETTS AND THE
STATE OF NEW YORK, AND CONSENTS THAT SERVICE OF PROCESS WITH RESPECT TO ALL
COURTS IN AND OF THE COMMONWEALTH OF MASSACHUSETTS AND THE STATE OF NEW YORK MAY
BE MADE BY REGISTERED MAIL TO IT AT THE ADDRESS SET FORTH ON PAGE 1 HEREOF.
23. RIGHT TO PUBLICIZE.
-------------------
Each of the Company and Sands hereby acknowledges that BBV will have the
right to publicize its investment in the Company as contemplated hereby by means
of a tombstone advertisement or other customary advertisement in newspapers and
other periodicals.
29
<PAGE>
24. WAIVER OF JURY TRIAL.
--------------------
EACH OF THE COMPANY AND SANDS HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY HAVE
TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING EXISTING UNDER OR RELATING TO
THIS AGREEMENT, THE SECURITIES OR ANY OF THE OTHER FINANCING AGREEMENTS.
25. MISCELLANEOUS.
-------------
This Agreement and the other Financing Agreements set forth the entire
understanding of the parties hereto with respect to the transactions
contemplated hereby and supersede any prior written or oral understandings with
respect thereto. The invalidity or unenforceability of any term or provision
hereof shall not affect the validity or enforceability of any other term or
provision hereof. The headings in this Agreement are for convenience of
reference only and shall not alter or otherwise affect the meaning hereof. THIS
AGREEMENT IS INTENDED TO TAKE EFFECT AS A SEALED INSTRUMENT AND MAY BE EXECUTED
IN ANY NUMBER OF COUNTERPARTS WHICH TOGETHER SHALL CONSTITUTE ONE INSTRUMENT AND
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE DOMESTIC SUBSTANTIVE
LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF
LAW PROVISION OR RULE THAT WOULD CAUSE THE APPLICATION OF THE DOMESTIC
SUBSTANTIVE LAWS OF ANY OTHER STATE, AND SHALL BIND AND INURE TO THE BENEFIT OF
THE PARTIES HERETO AND THEIR RESPECTIVE SUCCESSORS AND ASSIGNS.
If the foregoing corresponds with your understanding of our agreement, kindly
sign this letter and the accompanying copies thereof in the appropriate space
below and return one counterpart of the same to the Company, at the address
first listed above.
Very truly yours,
PERISCOPE I SPORTSWEAR, INC,
By: /s/ Glenn Sands, President
--------------------------
Accepted and agreed to:
BANCBOSTON VENTURES INC.
By: /s/ Cynthia K. Duda
-------------------
Title: Director
30
<PAGE>
EXHIBIT 10.9
July 31, 1998
Periscope I Sportswear, Inc.
1407 Broadway, Suite 620
New York, New York 10018
Attention: Mr. Glenn Sands
Dear Mr. Sands:
This Letter Agreement amends and restates in its entirety our Letter
Agreement dated June 8, 1998, a copy of which is annexed hereto.
Reference is hereby made to the May 17, 1996 Note from Periscope I
Sportswear, Inc. payable to BancBoston Ventures Inc. in the principal amount of
$3,000,000.00 (the "BBV Note"). By your execution of this letter, that Note
shall be deemed amended so as to provide that such Note shall be prepaid
contemporaneously with the Company's receipt of, and in an amount equal to, the
Net Proceeds from an offering of any equity securities of the Company. Any such
prepayment shall be applied in inverse order of maturity and shall not reduce,
or postpone the time for payment, of any future payment under the Note. As used
herein, the term "Net Proceeds" shall mean the aggregate amount of cash proceeds
received or receivable by the Borrower after payment of reasonable fees and
expenses of counsel, accountants, and underwriters, other reasonable expenses
incurred by the Company in connection with the offering, and after payment in
full of the May 15, 1996 Term Note from Periscope I Sportswear, Inc. payable to
BancBoston N.A. in the original principal amount of $15,000,000.00.
Notwithstanding the foregoing, no prepayment shall be required hereunder unless
the Available Proceeds (meaning thereby the aggregate amount of cash proceeds
received or receivable by the Borrower after payment of reasonable fees and
expenses of counsel, accountants, and underwriters and other reasonable expenses
incurred by the Company in connection with the offering, but before payment in
full of the May 15, 1996 Term Note referenced above) equal or exceed
$19,000,000.00 (the "Threshold Amount'). If the Threshold Amount is attained
then the Term Loan shall be prepaid by an amount equal to all Net Proceeds (i.e.
---
the prepayment shall not be limited to those Net Proceeds in excess of the
----
Threshold Amount). Except as provided herein, all terms of the Note due to
BancBoston Ventures Inc. and associated agreements remain in full force and
effect.
In consideration of the Company's agreement to prepay the BBV Note,
BancBoston Ventures Inc. hereby agrees that after receipt of such prepayment,
BancBoston Ventures Inc. will contribute 569,200 shares of the $.001 par value
-------
common stock owned by it to the capital of the Company for no further
consideration.
<PAGE>
Periscope I Sportswear, INC.
July 31, 1998
Page 2
Please indicate your agreement with the terms of this letter by signing
below.
Very truly yours,
/s/ Cynthia K. Duda
-------------------
Cynthia K. Duda
Duly Authorized
AGREED:
PERISCOPE I SPORTSWEAR, INC.
By: /s/ Glenn Sands
-----------------------
Title: President
-----------------
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
None
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
To Periscope I Sportswear, Inc.:
As independent public accountants, we hereby consent to the use of our reports
and to all references to our Firm included in or made part of this registration
statement.
/s/ ARTHUR ANDERSEN LLP
New York, New York
August 7, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
---------------------------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 3, 1997 relating to
the consolidated financial statements of Periscope I Sportswear, Inc. and
Subsidiaries as of December 31, 1996 and for each of the years in the two-year
period ended December 31, 1996 which appears in such Prospectus. We also consent
to the use of our report dated March 3, 1997 on the financial statement schedule
for each of the years in the two-year period ended December 31, 1996, and to the
references to us under the headings "Experts", "Summary Financial Data" and
"Selected Financial Data", in such Prospectus.
/s/ FRIEDMAN ALPREN & GREEN LLP
New York, New York
August 7, 1998
