SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
KLEINERT'S, INC.
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(Name of Issuer)
KLEINERT'S, INC.
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(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
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(Title of Class of Securities)
498552 10 8
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(CUSIP Number of Class of Securities)
Mr. Gerald E. Monigle, Vice President - Finance
Kleinert's, Inc.
120 West Germantown Pike - Suite 100, Plymouth Meeting, PA 19462
610-828-7261
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(Name, Address and Telephone Number of Person Authorized to Receive Notice and
Communications on Behalf of Person(s) Filing Statement)
Copy to:
Steven N. Haas, Esquire
Cozen and O'Connor
1900 Market Street, Philadelphia, PA 19103
(215) 665-2000
This statement is filed in connection with (check the appropriate box):
a. / / The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C, or Rule 13e-3(c) under
the Securities Exchange Act of 1934.
b. / / The filing of a registration statement under the Securities Act
of 1933.
c. /X/ A tender offer.
d. / / None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies. / /
<PAGE>
Calculation of Filing Fee
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Transaction Valuation* Amount of Filing Fee
$3,449,844 $690.00
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[X ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
Amount previously paid: $690.00 Filing party: Kleinert's, Inc.
Form or registration No.: Schedule 13E-4 Date filed: April 15, 1997
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* For purpose of calculation of a filing fee only. The amount of the filing
fee equals 1/50 of 1% of the value of the securities to be acquired.
<PAGE>
INTRODUCTION
This Schedule relates to the offer by Kleinert's, Inc. to purchase from
each record holder of its Common Stock, par value $1.00 per share ("Common
Stock" or "Shares"), and from each beneficial holder of Shares who holds such
Shares in "street name" through a broker, dealer, commercial bank, trust company
or other nominee (individually, a "Record Holder" and collectively, "Record
Holders"), up to 1,000 Shares owned by such Record Holder (the "Maximum Tender
Amount"), for $18.00 per Share, net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase dated April 15,
1997 (the "Offer to Purchase") and related Letter of Transmittal (the
"Transaction"). The Transaction is subject to Rule 13E-4 under the Securities
Exchange Act of 1934, as amended, and the information contained in the Schedule
13E-4 being filed with the Commission concurrent with this Schedule, a copy of
which is being filed herewith as Exhibit (g), is incorporated herein by
reference in answer to the items in this Schedule.
CROSS REFERENCE SHEET
ITEM IN WHERE LOCATED
SCHEDULE 13E-3 IN SCHEDULE 13E-4
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Item 1.
(a) ...................................................Item 1(a)
(b) ...................................................Item 1(b)
(c) ...................................................Item 1(c)
(d) ................................................... *
(e) ................................................... *
(f) ................................................... *
Item 2.
(a) ................................................... *
(b) ................................................... *
(c) ................................................... *
(d) ................................................... *
(e) ................................................... *
(f) ................................................... *
(g) ................................................... *
Item 3.
(a) ................................................... *
(b) ................................................... *
Item 4.
(a) ................................................... *
(b) ................................................... *
Item 5.
(a)-(g) ...............................................Item 3(a)-(j)
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<PAGE>
ITEM IN WHERE LOCATED
SCHEDULE 13E-3 IN SCHEDULE 13E-4
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Item 6.
(a) ...................................................Item 2(a)
(b) ................................................... *
(c) ................................................... *
(d) ................................................... *
Item 7.
(a) ................................................... Item 3
(b) ................................................... *
(c) ................................................... *
(d) ................................................... *
Item 8.
(a) ................................................... *
(b) ................................................... *
(c) ................................................... *
(d) ................................................... *
(e) ................................................... *
(f) ................................................... *
Item 9.
(a) ................................................... *
(b) ................................................... *
(c) ................................................... *
Item 10.
(a) ................................................... *
(b) ................................................... Item 4
Item 11. ................................................... Item 5
Item 12.
(a) ................................................... *
(b) ................................................... *
Item 13.
(a) ................................................... *
(b) ................................................... *
(c) ................................................... *
Item. 14
(a) ................................................... Item 7
(b) ................................................... *
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<PAGE>
ITEM IN WHERE LOCATED
SCHEDULE 13E-3 IN SCHEDULE 13E-4
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Item 15.
(a) ................................................... *
(b) ...................................................Item 6
Item 16. ...................................................Item 8(e)
Item 17.
(a) ................................................... *
(b) ................................................... *
(c) ...................................................Item 9(c)
(d) ...................................................Item 9(a)
(e) ................................................... *
(f) ...................................................Item 9(f)
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<PAGE>
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) The name of the issuer is Kleinert's, Inc., a Pennsylvania corporation
(the "Company"), which has its principal executive offices at 120 West
Germantown Pike, Suite 100, Plymouth Meeting, Pennsylvania 19462 (telephone
number 610-828-7261).
(b) This Schedule relates to the Company's Common Stock. As of April 11,
1997, there were outstanding 3,692,835 Shares and 240 record holders. Reference
is hereby made to the information set forth in the Offer to Purchase under the
captions "Introduction," "Special Factors - Certain Effects of the Offer" and
"The Offer - Number of Shares; Extension of Offer," which information is
incorporated herein by reference.
(c) The trading of Shares is currently reported on the Nasdaq Stock Market
National Market ("NNM") under the symbol "KLRT." Reference is hereby made to the
information set forth in the Offer to Purchase under the caption "The Offer -
Price Range of Shares; Dividend Policy," which information is incorporated
herein by reference.
(d) Reference is hereby made to the information set forth in the Offer to
Purchase under the captions "Special Factors - Purpose of the Offer" and "The
Offer - Price Range of Shares; Dividend Policy," which information is
incorporated herein by reference.
(e) Not applicable.
(f) Reference is hereby made to the information set forth in the Offer to
Purchase under the captions "Special Factors - Background of the Offer" and "The
Offer - Transactions and Arrangements Concerning the Shares," which information
is incorporated herein by reference.
Item 2. Identity and Background.
The Schedule is being filed by the Company who is the issuer of the shares
that are the subject of this Transaction.
(a) - (d) Reference is hereby made to the information set forth on Annex A
hereto, which information is incorporated herein by reference.
(e) During the last five years, none of the persons listed on Annex A has
been convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(f) During the last five years, none of the persons listed on Annex A was a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction which resulted in or caused such person to be subject to, a
judgment, decree or final order enjoining further violations of, or prohibiting
activities subject to, federal or state securities laws, or finding any
violation of such law.
<PAGE>
(g) All of the persons listed above are citizens of the United States.
Item 3. Past Contacts, Transactions or Negotiations.
(a) Not applicable.
(b) Reference is hereby made to the information set forth in the Offer to
Purchase under the captions "Special Factors - Background of the Offer" and "The
Offer - Transactions and Arrangements Concerning the Shares," which information
is incorporated herein by reference.
Item 4. Terms of the Transaction.
(a) Reference is hereby made to the information set forth in the Offer to
Purchase on the front cover page therof and under the captions "Introduction,"
"Special Factors - Purpose of the Offer" and "The Offer" (excluding the
information set forth in Sections 6 and 7 thereunder), which information is
incorporated herein by reference.
(b) None.
Item 5. Plans or Proposals of the Issuer or Affiliate.
(a) - (d) Not applicable.
(e) - (g) Reference is hereby made to the information set forth in the
Offer to Purchase on the front cover page thereof and under the captions
"Introduction," "Special Factors - Purpose of the Offer," "Special Factors -
Certain Effects of the Offer" and "The Offer - Effects of the Offer on the
Market for Shares; Registration Under the Exchange Act," which information is
incorporated herein by reference.
Item 6. Source and Amount of Funds or Other Consideration.
(a) - (b) Reference is hereby made to the information set forth in the
Offer to Purchase under the captions "The Offer - Source and Amount of Funds"
and "The Offer - Fees and Expenses," which information is incorporated herein by
reference.
(c) - (d) Reference is hereby made to information set forth in Offer to
Purchase under the caption "The Offer - Source and Amount of Funds," which
information is incorporated herein by reference.
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) - (c) The purpose of the Offer is to enable shareholders of the Company
to sell their Shares at a fair price and without the usual transaction costs
associated with market sales, before the Shares are delisted from the NNM and
deregistered under the Exchange Act.
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<PAGE>
Reference is hereby made to the information set forth in the Offer to Purchase
under the captions "Introduction," "Special Factors - Background of the Offer,"
"Special Factors - Purpose of the Offer" and "Special Factors - Position of the
Board of Directors," which information is incorporated herein by reference.
(d) Reference is hereby made to the information set forth in the Offer to
Purchase under the captions "Special Factors - Certain Effects of the Offer,"
"The Offer - Certain Federal Income Tax Consequences," and "The Offer - Effects
of the Offer on the Market for the Shares; Registration under the Exchange Act,"
which information is incorporated herein by reference.
Item 8. Fairness of the Transaction.
(a) - (b) Reference is hereby made to the information set forth in the
Offer to Purchase under the captions "Introduction," "Special Factors -
Background of the Offer," "Special Factors - Position of the Board" and "Special
Factors - Opinion of the Financial Advisor," which information is incorporated
herein by reference.
(c) The Transaction does not require the approval of the shareholders of
the Company. Reference is hereby made to the information set forth in the Offer
to Purchase under the caption "Special Factors - Position of the Board," which
information is incorporated herein by reference.
(d) Reference is hereby made to the information set forth in the Offer to
Purchase under the caption "Special Factors - Opinion of the Financial Advisor,"
which information is incorporated herein by reference.
(e) Reference is hereby made to the information set forth in the Offer to
Purchase under the caption "Special Factors - Position of the Board," which
information is incorporated herein by reference.
(f) Not applicable.
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a) - (b) Reference is hereby made to the information set forth in the
Offer to Purchase under the captions "Introduction," "Special Factors -
Background of the Offer," "Special Factors - Position of the Board of
Directors," "Special Factors - Opinion of the Financial Advisor," which
information is incorporated herein by reference.
(c) Reference is hereby made to the Opinion of the Financial Advisor
attached as Annex A to the Offer to Purchase, which opinion is incorporated
herein by reference.
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<PAGE>
Item 10. Interest in Securities of the Issuer.
(a) - (b) Reference is hereby made to the information set forth in the
Offer to Purchase under the captions "Introduction," "Special Factors -
Background of the Offer," "Special Factors - Potential Conflicts of Interest"
and "The Offer - Transactions and Arrangements Concerning the Shares," which
information is incorporated herein by reference.
Item 11. Contracts, Arrangements or Understandings With Respect to the Issuer's
Securities.
Reference is hereby made to the information set forth in the Offer to
Purchase under the captions "Special Factors - Background of the Offer" and "The
Offer - Transactions and Arrangements Concerning the Shares," which information
is incorporated herein by reference.
Item 12. Present Intention and Recommendations of Certain Persons With Regard to
the Transaction.
(a) Reference is hereby made to the information set forth in the Offer to
Purchase on the front cover page thereof and under the captions "Introduction,"
"Special Factors - Position of the Board of Directors," "Special Factors -
Potential Conflicts of Interest" and "The Offer - Transactions and Arrangements
Concerning the Shares," which information is incorporated herein by reference.
(b) Reference is hereby made to the information set forth in the Offer to
Purchase on the front cover page and under the captions "Introduction," "Special
Factors - Position of the Board of Directors," "Special Factors - Position of
the Board" and "The Offer - Transactions and Arrangements Concerning the
Shares," which information is incorporated herein by reference.
Item 13. Other Provisions of the Transaction.
(a) Reference is hereby made to the information set forth in the Offer to
Purchase under the caption "The Offer - Certain Legal Matters; Regulatory
Approvals; No Appraisal Rights," which information is incorporated herein by
reference.
(b) No provision has been made by the Company in connection with the
Transaction to allow unaffiliated security holders to obtain access to the
corporate files of the Company or to obtain counsel or appraisal services at the
expense of the Company.
(c) Not applicable.
Item 14. Financial Information.
(a) Reference is hereby made to the summary historical financial
information set forth in the Offer to Purchase under the caption "The Offer -
Certain Information Concerning the Company," and the information set forth in
the Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1996 and the Quarterly Report on Form 10-Q for the fiscal
-4-
<PAGE>
quarter ended March 1, 1997 which are attached to the Offer to Purchase as Annex
B and Annex C, respectively, and which are incorporated herein by reference.
(b) Not applicable.
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) No officer, employee, class of employees or corporate asset of the
Company (except to the extent disclosed in Item 6 of this Schedule) has been or
is proposed to be employed, availed or utilized by the Company in connection
with this Transaction.
(b) No person has been retained to make solicitations or recommendations
with respect to the Transaction. Reference is hereby made to the information set
forth in the Offer to Purchase under the caption "The Offer - Fees and
Expenses," which information is incorporated herein by reference.
Item 16. Additional Information.
Reference is hereby made to the information set forth in the Offer to
Purchase and the Annexes thereto, and the Letter of Transmittal, copies of which
are filed herewith as Exhibits (d)(1) and (d)(2), and which are incorporated
herein by reference.
Item 17. Material to be Filed as Exhibits.
(a)(1) Line of Credit Demand Note dated March 1, 1995 between Kleinert's,
Inc. of Alabama and PNC Bank (incorporated by reference to Exhibit
(ac) to the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1996 (the "Form 10-K")).
(a)(2) Demand Grid Note dated April 20, 1995 between Republic National
Bank of New York and Kleinert's, Inc. of Alabama and Guaranty of
Kleinert's, Inc. dated April 20, 1995 (incorporated by reference to
Exhibit (ad) to the Form 10-K).
(a)(3) Fourth Amendment and Restated Term Loan Note dated February 29,
1996 between Kleinert's, Inc. of Alabama, Kleinert's, Inc. of
Florida and CoreStates Bank, N.A.(incorporated by reference to
Exhibit (am) to the Form 10-K).
(a)(4) Line of Credit dated June 17, 1996 by and among Kleinert's, Inc. of
Alabama, Brown Brothers, Harriman and Co.(incorporated by reference
to Exhibit (aw) to the Form 10-K).
(b)(1) Fairness Opinion of Compass Capital Advisors.
(c) Not Applicable.
-5-
<PAGE>
(d)(1) Offer to Purchase dated April 15, 1997.
(d)(2) Letter of Transmittal dated April 15, 1997.
(d)(3) Notice of Guaranteed Delivery.
(d)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees dated April 15, 1997.
(d)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(d)(6) Letter to Shareholders of the Company.
(d)(7) Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number.
(e) Not Applicable.
(f) Not Applicable.
(g) Kleinert's, Inc. Schedule 13E-4 dated April 15, 1997
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
KLEINERT'S, INC.
Dated: April 15, 1997
By: /s/ Gerald E. Monigle
-------------------------------
Name: Gerald E. Monigle
Title: Vice President - Finance
-6-
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
99(b)(1) Fairness Opinion of Compass Capital Advisors.
99(d)(1) Offer to Purchase dated April 15, 1997.
99(d)(2) Letter of Transmittal dated April 15, 1997.
99(d)(3) Notice of Guaranteed Delivery.
99(d)(4) Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees dated
April 15, 1997.
99(d)(5) Form of Letter to Clients for use by Brokers,
Dealers, Commercial Banks, Trust Companies and
Other Nominees.
99(d)(6) Letter to Shareholders of the Company.
99(d)(7) Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number.
99(g) Kleinert's, Inc. Schedule 13E-4 dated April 15, 1997
<PAGE>
KLEINERT'S, INC.
ANNEX A TO SCHEDULE 13E-3
The following sets forth the name, age, business address, and current and
past principal occupation or employment of the directors and executive officers
of the Company.
Jay B. Andrews A director since February 1988. In June 1996,
120 West Germantown Pike Mr. Andrews became President of Kleinert's,
Suite 100 Inc. of Alabama, the Company's wholly-owned
Plymouth Meeting, PA 19462 subsidiary. Prior to 1996, Mr. Andrews was
employed as Executive Vice President of Sales
and Marketing for the Company. Prior to his
employment with the Company, Mr. Andrews was
employed by Health-tex, Inc. for 16 years
where he held several positions, the last of
which was Senior Vice President and General
Sales Manager.
Jack Brier Chairman of the Board and Chief Executive
120 West Germantown Pike Officer of the Company since 1969.
Suite 100
Plymouth Meeting, PA 19462
Kenneth Brier A director since January 1985. Since December
120 West Germantown Pike 1991, Mr. Brier has been the President and
Suite 100 Chairman of the Board of Mountbatten, Inc., a
Plymouth Meeting, PA 19462 standard Pennsylvania domiciled surety
company. Mr. Brier also has been President of
Hammarskjold of Jonkoping Incorporated, a
real estate development corporation, since
July 1985. Mr. Brier is the son of Jack
Brier.
Nathan Greenberg A director since March 1992. Mr. Greenberg
120 West Germantown Pike founded the accounting firm of Greenberg,
Suite 100 Rosenblatt, Kull & Bitsoli, P.C. in Worcester
Plymouth Meeting, PA 19462 and Springfield, Massachusetts in 1958, and
has been a member of that firm since its
founding. He also is a director of Advanced
Detectors, Inc.
Marvin Grossman A director since December 1981. In June 1996,
120 West Germantown Pike Mr. Grossman became Vice Chairman of
Suite 100 Kleinert's, Inc. of Alabama. From 1982
Plymouth Meeting, PA 19462 through 1996, Mr. Grossman served as
President of Kleinert's, Inc. of Alabama.
<PAGE>
E. Gerald Riesenbach A director since April 1989. Since February
120 West Germantown Pike 1995, Mr. Riesenbach has been a partner in
Suite 100 the law firm of Cozen and O'Connor, general
Plymouth Meeting, PA 19462 counsel to the Company. Previously, and for
more than five years, he had been a partner
in the law firm of Wolf, Block, Schorr and
Solis-Cohen. Mr. Riesenbach also serves on
the Board of Directors of AutoLend Group,
Inc.
Joseph J. Connors Executive Vice President and Assistant
120 West Germantown Pike Secretary of the Company since December 1993.
Suite 100 Previously, Mr. Connors was Vice President --
Plymouth Meeting, PA 19462 Finance from December 1986 to November 1993,
and Treasurer from January 1983 to November
1986. Mr. Connors is also a director of
Mountbatten Surety, Inc.
Gerald E. Monigle Has been employed as Vice President --
120 West Germantown Pike Finance of the Company since February 1995.
Suite 100 Prior to his employment with the Company, Mr.
Plymouth Meeting, PA 19462 Monigle was employed by Tasty Baking Company
for 15 years as Controller and Chief
Accounting Officer.
April 14, 1997
Board of Directors
Kleinert's Inc.
120 W. Germantown Pike
Suite 100
Plymouth Meeting, PA 19462-1420
Dear Board Members:
You have asked us to render our opinion as to whether a proposed offer to
the shareholders of Kleinert's, Inc. (the "Company") to purchase up to 1,000
shares of common stock from each record holder at $18.00 cash per share (the
"Transaction") is fair, from a financial point of view, to the shareholders of
the Company who receive cash for their shares in the Transaction.
Compass Capital Advisors ("CCA") as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, employee benefit plans,
and valuations for corporate, estate, and other purposes. Neither CCA nor any of
its officers or employees has any interest in the Company or in the securities
which are the subjects of this opinion, and all of such persons are otherwise
independent with respect to the Transaction.
In arriving at our opinion, we have:
1. reviewed a draft of the proposed tender offer;
2. reviewed the Company's Annual Reports to Shareholders containing
financial information for the three fiscal years ending with the fiscal year
ended November 30, 1996;
3. reviewed projections of the Company's operating results for calendar
years 1997 through 2001 prepared by management and discussed the operations and
prospects of the Company with senior management;
4. reviewed trading activity in the Company's stock for 1996 and 1997 to
date;
Board of Directors
April 14, 1997
Page 2
5. reviewed and analyzed trading and financial information regarding public
companies in the Company's industry;
6. reviewed available information relating to purchases of the Company's
common stock from 1993 to date by the Company;
7. prepared a discounted future earnings analysis of the Company's
projected operating results;
8. reviewed publicly reported acquisitions in the Company's industry from
October 1994 through September 1996, the last month for which we were able to
find such information;
9. reviewed the liquidation values of the Company's assets with management;
and
10. reviewed all of the foregoing with you before forming our opinion.
In arriving at our opinion, we have not independently verified any of the
information we reviewed and our opinion is given in reliance on the accuracy and
completness of the information furnished to us. We have not made an independent
evaluation or appraisal of the assets of the Company, nor are we aware of any
current independent appraisals thereof. Should any of the information provided
to us be inaccurate or incomplete in any material respect, our opinion may
change; however, we have no reason to believe that any information we received
is materially inaccurate or incomplete.
Board of Directors
April 14, 1997
Page 3
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Transaction is fair, from a financial point of view, to the
shareholders of the Company who receive cash for their shares in the
Transaction.
COMPASS CAPITAL ADVISORS
/s/ Gabriel F. Nagy
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Gabriel F. Nagy, A.S.A.
Principal
GFN: kas
OFFER TO PURCHASE FOR CASH
BY
KLEINERT'S, INC.
SHARES OF ITS COMMON STOCK
AT $18.00 NET PER SHARE
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THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, PHILADELPHIA
TIME, ON FRIDAY, MAY 30, 1997, UNLESS THE OFFER IS EXTENDED.
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Kleinert's, Inc., a Pennsylvania corporation (the "Company"), is offering
to purchase from each record holder of its Common Stock, par value $1.00 per
share ("Common Stock" or "Shares"), and from each beneficial holder of Shares
who holds such Shares in "street name" through a broker, dealer, commercial
bank, trust company or other nominee (individually a "Record Holder" and
collectively, "Record Holders"), up to 1,000 Shares owned by such Record Holder
(the "Maximum Amount"), for $18.00 per Share, net to the seller in cash, upon
the terms and subject to the conditions set forth in this Offer to Purchase and
in the related Letter of Transmittal (which together constitute the "Offer").
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THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS.
SEE SECTION 5.
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The Shares are traded on the Nasdaq Stock Market's National Market ("NNM")
under the symbol "KLRT." On April 14, 1997, the last reported sale on the NNM
before announcement of the Offer was $16.75 per Share. On April 14, 1997, the
last full trading day prior to commencement of the Offer, the closing bid price
for the Shares on the NNM was $15.50 per Share. Shareholders are urged to obtain
a current market quotation for the Shares.
UPON TERMINATION OF THE OFFER, THE SHARES WILL CEASE TO BE LISTED ON THE NNM
AND THE COMPANY WILL CEASE TO BE A REPORTING COMPANY UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ACCORDINGLY, NO
PUBLIC MARKET FOR THE SHARES WILL EXIST AFTER THE OFFER. SEE SECTION 12.
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NEITHER THE COMPANY NOR THE BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO ANY SHAREHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING
SHARES IN THE OFFER. EACH SHAREHOLDER MUST MAKE HIS OWN DECISION WHETHER
TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. THE COMPANY HAS
BEEN INFORMED THAT NONE OF ITS EXECUTIVE OFFICERS OR DIRECTORS (SOME OF
WHOM HOLD A SUBSTANTIAL NUMBER OF SHARES) INTEND TO TENDER ANY SHARES IN
THE OFFER. SEE "SPECIAL FACTORS-BACKGROUND OF THE OFFER" AND "POTENTIAL
CONFLICTS OF INTEREST."
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THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
April 15, 1997
<PAGE>
This Offer to Purchase does not constitute an offer or solicitation by the
Company or any other person for the purchase of any securities other than the
securities covered by this Offer to Purchase. The Offer is not being made to,
and tenders will not be accepted from or on behalf of, holders of Shares in any
jurisdiction in which the making of the Offer or acceptance thereof would not be
in compliance with the laws of such jurisdiction. However, the Company may, in
its sole discretion, take such action as it may deem necessary to make the Offer
in any such jurisdiction and to extend the Offer to holder of Shares in such
jurisdiction.
----------
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF THE
COMPANY AS TO WHETHER SHAREHOLDERS SHOULD TENDER OR REFRAIN FROM TENDERING
SHARES PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER OTHER
THAN THOSE CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL.
IF MADE OR GIVEN, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
----------
IMPORTANT
Any shareholder desiring to tender all or any portion of such shareholder's
Shares up to the Maximum Amount should either (1) complete and sign the Letter
of Transmittal or a facsimile copy thereof in accordance with the instructions
in the Letter of Transmittal, mail or deliver it and any other documents
required by the Letter of Transmittal to American Stock Transfer and Trust
Company, the depositary for the Offer (the "Depositary"), and either mail or
deliver the certificates for such Shares to the Depositary along with the Letter
of Transmittal, or follow the procedure for book-entry transfer set forth in
Section 2, or (2) request such shareholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for the shareholder. A
shareholder having Shares registered in the name of a broker, dealer, commercial
bank, trust company or other nominee must contact such broker, dealer,
commercial bank, trust company or other nominee if such shareholder desires to
tender such Shares.
A shareholder who desires to tender Shares and whose certificates for such
Shares are not immediately available (or who cannot follow the procedure for
book-entry transfer on a timely basis) or who cannot transmit the Letter of
Transmittal and all other required documents to the Depositary before the
Expiration Date (as defined in Section 1) should tender such Shares by following
the procedure for guaranteed delivery set forth in Section 2.
Any questions or requests for assistance may be directed to the Company at
its address and telephone number set forth on the back cover of this Offer to
Purchase and requests for additional copies of this Offer to Purchase, the
Letter of Transmittal and the Notice of Guaranteed Delivery may be directed to
the Depositary. Shareholders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Offer.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, DC 20549, and at its regional offices located at 7
World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, DC 20549 at prescribed rates. The Company has filed with the
Commission a Statement on Schedule 13e-4 and a Statement on Schedule 13e-3 that
contain additional information with respect to the Offer.
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Such Schedules may be examined and copies may be obtained at the same places and
in the same manner as set forth above (except that such Schedules may not be
available in the regional offices of the Commission).
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TABLE OF CONTENTS
INTRODUCTION................................................................. 1
SPECIAL FACTORS.............................................................. 2
BACKGROUND OF THE OFFER................................................. 2
PURPOSE OF THE OFFER.................................................... 2
CERTAIN EFFECTS OF THE OFFER............................................ 3
POTENTIAL CONFLICTS OF INTEREST......................................... 4
POSITION OF THE BOARD OF DIRECTORS...................................... 5
OPINION OF THE FINANCIAL ADVISOR........................................ 5
THE OFFER.................................................................... 8
1. NUMBER OF SHARES; EXTENSION OF THE OFFER....................... 8
2. PROCEDURE FOR TENDERING SHARES................................. 9
3. WITHDRAWAL RIGHTS.............................................. 11
4. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE
PRICE.......................................................... 11
5. CERTAIN CONDITIONS OF THE OFFER................................ 12
6. PRICE RANGE OF SHARES; DIVIDEND POLICY......................... 13
7. CERTAIN INFORMATION CONCERNING THE COMPANY..................... 14
8. SOURCE AND AMOUNT OF FUNDS..................................... 15
9. CERTAIN FEDERAL INCOME TAX CONSEQUENCES........................ 15
10. TRANSACTIONS AND ARRANGEMENTS CONCERNING THE SHARES............ 17
11. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS; NO APPRAISAL
RIGHTS......................................................... 18
12. EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION
UNDER THE EXCHANGE ACT......................................... 18
13. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS............ 19
14. FEES AND EXPENSES.............................................. 20
15. MISCELLANEOUS.................................................. 21
ANNEXES
Opinion of Compass Capital Advisors.......................................... A
Annual Report on Form 10-K................................................... B
Quarterly Report on Form 10-Q................................................ C
Information Regarding Directors and Executive Officers of the Company........ D
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To the Holders of Common Stock of Kleinert's, Inc.:
INTRODUCTION
Kleinert's, Inc., a Pennsylvania corporation (the "Company"), is offering
to purchase, upon the terms and subject to the conditions set forth in this
Offer to Purchase and in the related Letter of Transmittal (which together
constitute the "Offer"), up to 1,000 shares (the "Maximum Amount") of its Common
Stock, par value $1.00 per share (the "Shares"), at the price of $18.00 per
Share (the "Purchase Price"), net to the seller in cash, from each record holder
of Shares and from each beneficial holder of Shares who holds such Shares in a
street name account at a broker, dealer, commercial bank, trust company or other
nominee (individually, a "Record Holder" and collectively, "Record Holders").
The Board of Directors has determined that it is no longer in the Company's
best interest that it remain a public company subject to the reporting
obligations imposed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). Although the Company could immediately deregister under the
Exchange Act and delist the Shares from the Nasdaq Stock Market National Market
(the "NNM") without any further action, since there would be no public market
for the Shares, the Company is making the Offer to afford the Company's
shareholders an opportunity to sell their Shares at a price which the Company
believes is fair to its shareholders prior to the date when a public market for
the Shares will no longer exist.
Upon termination of the Offer, the Company will delist the Shares from
the NNM and to cease being a reporting company under the Exchange Act.
Accordingly, no public market for the Shares will exist after the Offer. See
Section 12.
The Board of Directors of the Company has retained Compass Capital Advisors
(the "Financial Advisor") to assist the Board in determining the fair price to
be paid to the Company's shareholders. Based upon the opinion of the Financial
Advisor, and on the basis of other factors described herein, the Board of
Directors, by majority vote, has determined that the Company make the Offer and
that the $18.00 per Share price is fair to the Company's shareholders. Neither
the Company nor the Board of Directors makes any recommendation to any
shareholder as to whether to participate or refrain from participating in the
Offer.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 5.
As of April 11, 1997, there were 3,692,835 Shares outstanding and 515,000
Shares reserved for issuance upon exercise of outstanding stock options granted
under the Company's stock option plan. As of April 11, 1997, the Company's
directors and executive officers as a group beneficially owned 1,927,331 Shares,
or approximately 50.7% of the total Shares outstanding, including 425,000 Shares
issuable upon exercise of stock options which are exercisable within sixty days
of April 11, 1997.
Based upon the Company's review of a shareholder list certified by American
Stock Transfer and Trust Company, the Company's transfer agent, as of March 13,
1997, and upon the Company's review of a non-objecting beneficial owner list as
to the number of shareholders who hold their Shares in "street name" accounts,
the Company estimates that there are approximately 358 Record Holders entitled
to participate in the Offer. The Company estimates that it is offering to
purchase a total of 191,658 Shares (on the basis of 1,000 shares tendered by
each Record Holder or the total number of Shares owned by a Record Holder if
less than 1,000 Shares are owned), or 5.2% of the Shares outstanding as of April
11, 1996.
The Company has been informed by its executive officers and directors
(including Jack Brier, the Company's Chairman and Chief Executive Officer and
beneficial owner of 1,264,554 Shares, representing approximately 33% of the
outstanding Shares at April 11, 1997), that none intend to participate in the
Offer. After giving effect to the repurchase of the Shares in the Offer, and
assuming that each Record Holder, other than the executive officers and
directors, tenders the Maximum Amount (or the total number of Shares owned if
less than the Maximum Amount), the executive officers and directors would
<PAGE>
beneficially own approximately 53.4% of the outstanding Shares as a group (and
Mr. Brier would beneficially own approximately 34.6% of the outstanding Shares).
Shareholders who tender Shares in the Offer will not be obligated to pay
brokerage commissions, solicitation fees or, except as provided in Instruction 6
of the Letter of Transmittal, stock transfer taxes on the purchase of Shares by
the Company. The Company will pay all fees of American Stock Transfer and Trust
Company, which has been retained by the Company to serve as Depositary in
connection with the Offer (the "Depositary"). See Section 14.
The Shares are traded on the NNM under the symbol "KLRT." On April 14,
1997, the last reported sale on the NNM before announcement of the terms of the
Offer was $16.75 per Share. On April 14, 1997, the last full trading day before
commencement of the Offer, the closing bid price of the Shares on the NNM was
$15.50 per Share. See Section 6. Shareholders are urged to obtain a current
market quotation for their Shares.
SPECIAL FACTORS
BACKGROUND OF THE OFFER
On June 21, 1996, the Company announced the commencement of a common stock
repurchase program in which the Company would purchase Shares both on the public
market and through privately negotiated transactions, using up to $5,000,000 in
total consideration. During fiscal year 1996, the Company repurchased 46,500
Shares at an average price of $16.125, using funds provided by operations. The
common stock repurchase program was terminated on April 4, 1997. See Section 10.
The Company undertook the repurchase of its Shares because the Board of
Directors believed that the market price for the Shares did not reflect the true
value of the Company and that the repurchase of Shares would prove to be an
attractive investment opportunity for the Company and its remaining shareholders
in that it would increase per share earnings and book value.
Beginning in March 1997, the Board of Directors began to consider the
deregistration of its Shares from the Exchange Act and the delisting of its
Shares from the NNM. Although there were already sufficiently few record holders
of the Shares to permit the Company to deregister under the Exchange Act and to
delist the Shares from the NNM without any further action, the Board concluded
that since there would be no public market for the Shares, it would offer the
Company's shareholders, particularly those holding relatively few Shares who
traditionally have had difficulty liquidating their investment in the Company
given the thin trading market for Shares, the opportunity to liquidate their
investment before the delisting occurred. See "Purpose of the
Offer."
On April 4, 1997, the Board of Directors engaged the Financial Advisor to
consider and report to the Board a fair price for the repurchase of the Shares
from the public shareholders. The Board had initially advised the Financial
Advisor that the Board had considered a price of $18.00 per Share for the Offer.
On April 14, 1997, the Board of Directors received the report of the
Financial Advisor, including its procedures and the basis of its opinion that,
as of the date of the opinion, and based upon the assumptions and considerations
set forth in its report, a price of $18.00 per Share for the Shares held by the
Company's public shareholders would be fair. The Board of Directors by majority
vote (with neither Jack Brier, the Chairman, Chief Executive Officer and
beneficial owner of approximately 33% of the outstanding Shares, nor William
Forman, a director and beneficial owner of approximately 5.8% of the outstanding
Shares, participating in the vote) approved the Offer. See "SPECIAL
FACTORS-POTENTIAL CONFLICTS OF INTEREST."
PURPOSE OF THE OFFER
The purpose of the Offer is to enable public shareholders of the Company to
sell their Shares at a fair price and without the usual transaction costs
associated with market sales, before the Company's Shares are delisted from the
NNM and deregistered under the Exchange Act. Management believes that, even as a
public stock, there is a very limited market for the Shares, and that the
Company's public shareholders derive little benefit from the Company's status as
a publicly-held corporation. The limited supply of Shares traded in the public
market provides little opportunity for a public shareholder to realize the value
of his investment in the Company after payment of
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commissions and other market transaction costs. To management's knowledge, no
analysts follow the Company or provide any research with regard to the Company.
The Board of Directors believes that the public market has for several years
undervalued the outstanding Shares and it has no reason to believe that this
will change in the foreseeable future. Therefore, in recent years, the Shares
have not appeared to have been an attractive investment vehicle for the general
public. The Offer is intended to afford public shareholders the opportunity to
sell their Shares in light of the current relative illiquidity and lack of
public float of the Shares. In addition, for the past twenty-five years, the
Company has not any paid dividends and does not expect to pay dividends in the
foreseeable future. Following consummation of the Offer, the Company will delist
the Shares from the NNM and terminate registration of the Shares under the
Exchange Act as soon as possible.
The Board of Directors also believes that termination of registration as a
public company will eliminate the costs and expenses of various federal
securities filings incurred with respect to regulatory and reporting
requirements of the Company related to its status as a public reporting
corporation under the federal securities laws, and will reduce the amount of
time devoted by management in preparing and reviewing various filings,
furnishing information to shareholders and attending to other shareholder
matters.
CERTAIN EFFECTS OF THE OFFER
The trading of the Shares is currently reported on the NNM. Following the
Offer, the Company intends to delist the Shares from the NNM and deregister
under the Exchange Act. As of April 11, 1997, there were 3,692,835 Shares
outstanding and 240 shareholders of record (as determined by the rules of the
Exchange Act). Due to the foregoing number of record holders, the Shares no
longer meet the requirements for continued quotation on the NNM. Pursuant to the
NNM's published guidelines, shares of common stock are not eligible to be
included for listing if, among other things, the number of shares publicly held
falls below 200,000, the number of holders of shares falls below 400 or the
aggregate market value of such publicly held shares does not exceed $1,000,000.
If these standards are not met, quotations might continue to be published in the
Nasdaq SmallCap Market, Inc., but if the number of holders of the shares falls
below 300, or if the number of publicly held shares falls below 100,000, or
there is not at least one market maker for the shares, NASD rules provide that
the securities would no longer be "authorized" for NASDAQ reporting and Nasdaq
would cease to provide any quotations. Shares held directly or indirectly by an
officer or director of the issuer or by any beneficial owner of more than 10% of
the shares of the issuer will ordinarily not be considered as being publicly
held for this purpose. In the event the shares were no longer quoted on Nasdaq,
quotations might still be available from other sources. The extent of the public
market for the Shares and availability of such quotations would, however, depend
upon the number of holders of Shares remaining at such time, the interest in
maintaining a market in the Shares on the part of securities firms, the
termination of registration under the Exchange Act as described below and other
factors.
The Shares are currently "margin securities" under the rules of the Board
of Governors of the Federal Reserve System (the "Federal Reserve Board"). Among
other things, this has the effect of allowing brokers to extend credit on the
collateral of such Shares. Depending upon factors similar to those described
above regarding listing and market quotations, it is likely that, following the
purchase of the Shares pursuant to the Offer, the Shares will no longer
constitute "margin securities' for purposes of the Federal Reserve Board's
margin regulations. In such event, Shares could no longer be used as collateral
for margin loans made by brokers.
The Shares are currently registered under the Exchange Act which requires,
among other things, that the Company furnish certain information to its
shareholders and to the Commission and comply with the Commission's
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<PAGE>
proxy rules in connection with meetings of the Company's shareholders.
Registration of the Shares under the Exchange Act is planned to be terminated
upon application by the Company to the Commission promptly following the
termination of the Offer.
The termination of the registration of the Shares under the Exchange Act
will substantially reduce the information required to be furnished by the
Company to its shareholders and to the Commission and would render inapplicable
certain provisions of the Exchange Act, including requirements that the Company
file periodic reports (including financial statements), the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions,
requirements that the Company's officers, directors and ten-percent shareholders
file certain reports concerning ownership of the Company's equity securities and
provisions that any profit by such officers, directors and shareholders through
purchases and sales of the Company's equity securities within any six month
period may be recaptured by the Company. In addition, the ability of
"affiliates" of the Company and other persons to dispose of Shares which are
"restricted securities" under Rule 144 under the Securities Act of 1933, as
amended, may be impaired or eliminated. As stated above, when registration of
the Shares under the Exchange Act is terminated, the Shares will no longer be
"margin securities" or eligible for NNM reporting.
Except as disclosed in this section and elsewhere in this Offer to
Purchase, the Company has no other present plans or proposals that relate to or
would result in (i) the acquisition by any person of additional securities of
the Company, or the disposition of securities of the Company, (ii) an
extraordinary corporate transaction, such as a merger, reorganization,
liquidation or sale or transfer of a material amount of assets, involving the
Company, (iii) any change in the present Board of Directors of the Company or
management of the Company, including, but not limited to, a plan or proposal to
change the number or term of the directors, to fill any existing vacancy on the
Board of Directors or to change any material term of the employment contract of
any executive officer, (iv) any material change in the present dividend rate or
policy indebtedness or capitalization of the Company, (v) any other material
change in the Company's corporate structure or business or (vi) any change in
the Company's charter, by-laws or instruments corresponding thereto or any other
actions which may impede the acquisition of control of the Company by any
person.
Following the Offer and deregistration of the Shares under the Exchange
Act, the Company may take certain action to eliminate any interests in the
Shares held by remaining minority shareholders of the Company including, but not
limited to, merging out any remaining minority public shareholders of the
Company on such terms and conditions as the Company may determine or negotiating
private transactions to repurchase blocks of Shares held by such shareholders.
Although the Company will deregister from the Exchange Act and delist its
Shares from the NNM following the completion of the Offer, the Company may in
the future decide again to avail itself of certain of the benefits associated
with being a publicly traded company, including the ability to raise capital
through the equity markets if such capital is needed. The Company's decision to
remain a private company following the Offer or its decision to again register
as a public company will be dependent upon a number of factors relating to the
Company's business, prospects, opportunities and financial condition, as well as
upon factors relating to the public markets and the apparel and textile
industries in general.
POTENTIAL CONFLICTS OF INTEREST
Shareholders should be aware in considering their decision to participate
in the Offer that each of the members of the Board of Directors has, to some
degree, interests which may present such directors with an actual or potential
conflict of interest in connection with the Offer. The Company has been advised
that none of the Company's executive officers or directors intend to tender
Shares in the Offer. The directors and executive officers as a group
beneficially own 1,927,331 Shares, or approximately 50.7% of the outstanding
Shares. If all shareholders other than the executive officers and directors
tender the Maximum Amount in the Offer, (or the total number of Shares owned by
such shareholders if less than 1,000 Shares are owned) the executive officers
and directors would beneficially own approximately 53.4% of the Shares then
outstanding. In addition, Jack Brier, the Chairman and Chief Executive Officer
of the Company who beneficially owns approximately 33% of the outstanding
Shares, would beneficially own approximately 34.6% of the outstanding Shares
following the Offer. To the extent that the Offer reduces the number of Shares
outstanding, any increase in the Company's earnings will also represent an
increase in the earnings per share as to the Shares held by such directors and
executive officers.
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Each of the Company's officers and directors is currently subject to
certain disclosure requirements as to their ownership of Shares and is subject
to certain trading restrictions, most notably, the short-swing profit recovery
provisions of Section 16(b) under the Exchange Act. If the Company deregisters
the Shares under the Exchange Act, such officers and directors will be relieved
of the burden of complying with such reporting requirements and trading
restrictions.
POSITION OF THE BOARD OF DIRECTORS
Based upon the opinion of the Financial Advisor and after considering the
purposes and effect of the Offer and other factors, the Board of Directors
authorized the Offer and concluded that the Purchase Price is fair to the public
shareholders of the Company. In reaching its determination, the Board considered
a variety of factors, including, among other things, the following:
1. That the Offer will provide public shareholders with an opportunity to
receive the fair market value for their Shares (up to the Maximum Amount) prior
to the Company deregistering and delisting the Shares, without payment of
transaction costs such as brokerage fees or commissions.
2. That the relative illiquidity and thin trading market for the Shares has
prevented the Company's shareholders, particularly those with smaller interests,
from readily liquidating their Shares.
3. That based upon the opinion of the Financial Advisor, the Offer is fair
from a financial point of view.
4. That shareholders may choose not to participate in the Offer and
continue to maintain their equity investment in the Company.
5. That the costs, both economically as well as in personnel time, in
complying with the many obligations of being a public company, as well as the
competitive disadvantage of having to make public disclosures in its Exchange
Act filings, has not provided a commensurate benefit to the Company or its
shareholders, whether in having the market price of the Shares reflect the
Company's true value, or in providing capital on terms more favorable than
traditional bank financing or in generating public interest in the Company's
operations and financial results.
The Board also considered several negative factors, including further
concentration of control of the Company to its principal shareholder, Jack
Brier, the potential disadvantage of not being able to use equity to finance
potential acquisitions, and the conflicts of interest of the directors who have
advised the Company that they do not intend to participate in the Offer.
In view of the variety of factors considered by the Company's Board of
Directors in evaluating the Offer, the Board did not find it practicable to, and
did not quantify or otherwise assign relative weights to, the specific factors
considered in reaching its conclusion.
The Board of Directors, by majority vote (with neither Jack Brier nor
William Forman participating), has determined that, based upon the opinion of
the Financial Advisor, the Offer is fair to and in the best interests of the
public shareholders of the Company.
Neither the Company nor the Board of Directors makes any recommendation to
any shareholder as to whether to tender or refrain from tendering Shares in the
Offer. Each shareholder must make his own decision whether to tender Shares and,
if so, how many Shares to tender. The Company has been informed that none of its
executive officers or directors (some of whom hold a substantial number of
Shares) intend to tender any Shares in the Offer.
OPINION OF THE FINANCIAL ADVISOR
Since the members of the Board of Directors each own in excess of the
Maximum Amount and would, therefore, remain shareholders of the Company whether
or not they participated in the Offer, and since Jack Brier
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and William Forman, two directors of the Company, each beneficially owns
significant percentages of the outstanding Shares (33% and 5.8%, respectively),
the Board concluded to engage an independent financial advisor to render an
opinion to the Board of Directors as to the fairness of the Offer, from a
financial point of view, to the public shareholders of the Company. On April 4,
1997, the Board of Directors retained Compass Capital Advisors to act as
financial advisor (the "Financial Advisor") for this purpose.
The Financial Advisor delivered its oral opinion on April 14, 1997 to the
Board of Directors of the Company to the effect that, as of such date, the Offer
was fair, from a financial point of view, to the Company's public shareholders.
The Financial Advisor also has delivered an updated written opinion, dated the
date of this Offer to Purchase, to the Company's Board of Directors to the
effect that, as of such date, the Offer was fair, from a financial point of
view, to the public shareholders of the Company. No restrictions were imposed by
the Company's Board of Directors upon the Financial Advisor with respect to the
investigations made or procedures followed by the Financial Advisor in rendering
its opinions.
The full text of the Financial Advisor's fairness opinion, dated the date
of this Offer to Purchase, which sets forth certain assumptions made, certain
procedures followed and certain matters considered by the Financial Advisor, is
attached as Annex A to this Offer to Purchase. As set forth therein, the
Financial Advisor relied upon and assumed the accuracy and completeness of the
financial and other information provided to it by the Company. With respect to
the Company's estimated future financial results, the Financial Advisor assumed
that such estimates were reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of the Company as
to the estimated future performance of the Company. The Financial Advisor did
not perform any independent verification of the information or estimates
provided to it and the Financial Advisor relied upon the assurances of the
management of the Company that they are unaware of any facts that would make the
information or estimates provided to the Financial Advisor incomplete or
misleading in any material respect. In arriving at its opinion, the Financial
Advisor did not perform or obtain any independent appraisal of the assets and
liabilities of the Company, nor was it furnished with any such appraisals. The
Financial Advisor's opinion is necessarily based on economic, market and other
conditions, and the information made available to it as of the date of its
opinion. The Financial Advisor's opinion addresses only the fairness of the
Offer from a financial point of view, and does not constitute a recommendation
to any shareholder of the Company as to whether such shareholder should tender
in the Offer.
The summary of the opinion of the Financial Advisor set forth in this Offer
to Purchase is qualified in its entirety by reference to the full text of such
opinion. The Company's shareholders are urged to, and should, read this opinion
carefully in its entirety in conjunction with this Offer to Purchase for
assumptions made, matters considered and limits of the review by the Financial
Advisor.
In rendering its updated fairness opinion, the Financial Advisor, among
other things: (i) reviewed the Offer to Purchase in substantially final form;
(ii) reviewed the Company's Annual Reports to shareholders and its Annual
Reports on Form 10-K for the three fiscal years in the period ending with the
fiscal year ended November 30, 1996; (iii) reviewed certain operating and
financial information, including projections, provided to the Financial Advisor
by the management of the Company; (iv) met with certain members of the Company's
senior management to discuss the Company's operations, historical financial
statements and future prospects; (v) reviewed the historical stock prices,
trading activity and valuation parameters of the Company's common stock;
(vi) reviewed publicly available financial data and stock market performance
data of companies which the Financial Advisor deemed generally comparable to
the Company; (vii) reviewed the terms of recent acquisitions of companies which
the Financial Advisor deemed generally comparable to the Company; and
(viii) conducted such other studies, analyses, inquiries and investigations as
the Financial Advisor deemed appropriate.
The following is a brief summary of the financial valuation and comparative
analyses used by the Financial Advisor in connection with providing its opinion
to the Board of Directors of the Company.
Methodologies. The Financial Advisor reviewed price and volume information
with respect to trading of the Shares on the NNM; analyzed purchases of the
Shares by the Company since 1994; analyzed publicly available information about
trading in the stock of companies prospectively comparable to the Company;
analyzed publicly available information about acquisitions in the Company's
industry; prepared a discounted future earnings analysis; and prepared a
liquidation analysis.
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The foregoing are analyses that are customarily undertaken by investment
bankers in forming an opinion as to the fairness of a transaction such as the
Offer. The analyses and conclusions reached by the Financial Advisor are
described below.
Market Price Analysis. The Shares have only three registered market makers
and the volume reported by such firms averages less than 1,000 Shares a day
each. There are many days on which no Shares are traded. An analysis of trading
activity following press releases issued by the Company indicates little
activity following such news. Notwithstanding the Company's favorable operating
ratios in relation to industry medians, the Shares trade at multiples that are
lower than industry medians. Accordingly, the market for the Shares is thin and
the Shares are illiquid.
Analysis of Company Stock Purchased. The Company announced Share repurchase
programs in June 1993 and June 1996. It terminated its latest repurchase program
on April 4, 1997. Aggregate purchases under such programs amounted to 133,400
Shares over a period of three years and nine months, at prices ranging from
$11.25 to $17.25 per Share. Given the reaction of the market to news about the
Company, the Financial Advisor concluded that the Company's repurchase programs
had been supporting the Share's market price. The decline of the per Share price
from $17.00 in March 1997 to $15.50 on the fourth trading day following
termination of the latest repurchase program confirms this conclusion.
Accordingly, in the absence of the Company's repurchase programs, the Financial
Advisor concluded that it is unlikely that shareholders could receive more than
the current market price ($15.50) for their Shares.
Comparables Analysis. The Financial Advisor reviewed financial and market
information with respect to nine companies which were prospectively comparable
to the Company. Management noted that five of such companies sell children's
wear, of which three are direct competitors. The Financial Advisor noted that
the Company's revenue growth, net margin, return on assets, and return on equity
were all higher than the median ratios of the comparables. Nevertheless, the
Financial Advisor noted that the Company's price/earnings and price/97 earnings
multiples were lower than the median ratios for the comparables. The Financial
Advisor noted that the proposed Purchase Price represented a price/earnings
ratio approximately equal to the median of the comparables' price/earnings
ratios.
Publicly Reported Acquisitions. The Financial Advisor was able to identify
twelve publicly reported acquisitions since October 1994 of businesses
prospectively comparable to the Company. The published information with respect
to such acquisitions was insufficient for the Financial Advisor to analyze those
companies' debt levels, operating margins or growth prospects. Inasmuch as those
three factors are crucial in valuing a company, the Financial Advisor considered
the published acquisitions information to be not meaningful in analyzing the
Offer. Nevertheless, the Financial Advisor noted that nine of the listed
acquisitions were completed at price/revenues multiples that were lower than the
imputed price/revenues multiple of the Purchase Price; two of the five
acquisitions for which price/earnings ratios were available were completed at a
lower multiple than the imputed price/earnings multiple of the Purchase Price;
and four of the five acquisitions for which price/equity ratios were available
were completed at price/equity ratios that were lower than the imputed
price/equity ratio of the Purchase Price.
Discounted Future Earnings Analysis. The Financial Advisor reviewed the
Company's 1997-2001 projected operating statement. Because the Company has no
intention of paying dividends, the Financial Advisor considered a projection of
cash flows to be not meaningful, especially since the public market for the
Shares is earnings - rather than cash flow - driven. The Financial Advisor
calculated a discount rate of 30%, representing a cost of capital built up from
the risk free rate, the market premium for small capitalization stocks, and a
specific company risk factor that represents a quantification of the risk
associated with the reliability of the Company's financial projections in
comparison to its historical earnings performance. Such specific company risk
factor was discussed in detail with management, who concurred in the Financial
Advisor's quantification. The Financial Advisor then discounted the five year
projected earnings stream at 30%, and added a terminal value calculated by (i)
multiplying 2001 EBITDA (earnings before interest, taxes, depreciation and
amortization) by 8.2 (equal to the imputed EBITDA multiple of the Purchase Price
and equal to what, in the Financial Advisor's judgment, is the maximum EBITDA
multiple the Company could hope to command in a negotiated acquisition) and (ii)
discounting the terminal value to present value at 30% and subtracting the
Company's current debt. The resulting indicated value was $60.9 million, or
$16.50 per Share.
7
<PAGE>
Liquidation Analysis. The Financial Advisor prepared a liquidation analysis
to determine what proceeds would be generated for shareholders if the Company
were to liquidate its assets and pay its creditors. Inasmuch as there is no
intention to liquidate, this was purely a hypothetical exercise. While no
appraisals were available or sought, for analytic purposes, the Financial
Advisor assumed that all assets could be liquidated at 100% of original cost.
The Financial Advisor also assumed $500,000 of administrative costs in such a
liquidation. Management indicated they believed the Financial Advisor's values
were higher than they would expect could be generated in a liquidation. The
Financial Advisor noted that the imputed price/equity multiple of the Purchase
Price was 2.1, which multiple yields a substantially higher price than the
$10.71 per Share generated by the liquidation analysis.
The Financial Advisor's Opinion. In the Financial Advisor's opinion, its
discounted future earnings analysis, which generated an indicated value of
$16.50 per Share, represents the theoretically most correct calculation of the
Shares' present value based on the Company's prospects. The other indicated
values calculated and analyzed by the Financial Advisor are lower than the
Purchase Price of $18.00 per Share and, therefore, confirm the fairness, from a
financial point of view, of the Offer to the shareholders receiving cash for
their Shares.
Based on the foregoing analyses, the Financial Advisor concluded that the
Offer was fair from a financial point of view to the shareholders receiving cash
for their Shares.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analysis as a whole, could create an incomplete view of the processes
underlying the Financial Advisor's opinion. In arriving at its opinion, the
Financial Advisor considered the results of all such analyses. In its analysis,
the Financial Advisor made numerous assumptions with respect to business,
industry performance, economic conditions and other factors, many of which are
beyond the control of the Financial Advisor or the Company. No company or
transaction used in the above analysis for comparison is identical to the
Company or the proposed Offer. Accordingly, an analysis of the results of the
foregoing involves complex considerations and judgments concerning differences
in financial and operating characteristics and other factors that could affect
the public trading value of the companies being compared. Analyses based upon
forecasts of future results are not necessarily indicative of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. The analyses were prepared by the Financial Advisor solely for
purposes of providing its opinion as to the fairness of the Offer, from a
financial point of view, to the public shareholders of the Company. As described
above, the Financial Advisor's opinion and presentation to the Company's Board
of Directors was one of many factors taken into consideration by the Board of
Directors in making its determination to approve the Offer. The foregoing
summary does not purport to be a complete description of the analysis performed
by the Financial Advisor.
Pursuant to a letter agreement, dated as of April 4, 1997, the Company
agreed to pay the Financial Advisor a fee of $25,000 for rendering its opinion
in connection with the Offer. The Company has also agreed to reimburse the
Financial Advisor for its reasonable out-of-pocket expenses, including the
reasonable fees and disbursements of counsel, and to indemnify the Financial
Advisor and certain related persons against certain liabilities in connection
with the engagement of the Financial Advisor, including certain liabilities
under the federal securities laws.
THE OFFER
1. NUMBER OF SHARES; EXTENSION OF THE OFFER
Upon the terms and subject to the conditions of the Offer, the Company will
accept for payment (and will thereby purchase) up to 1,000 Shares, or such
lesser number of Shares as are properly tendered (and not withdrawn in
accordance with Section 3) before the Expiration Date, at the Purchase Price
from each holder of record of Shares identified on the shareholder list
maintained by the transfer agent for the Shares and from each beneficial owner
of Shares who holds such Shares in "street name" with a broker, dealer,
commercial bank, trust company or other nominee. The term "Expiration Date"
means 12:00 Midnight, Philadelphia time, on Friday, May 30, 1997, unless and
until the Company shall have extended the period of time for which the Offer is
open, in which event the term "Expiration Date" shall refer to the latest time
and date at which the Offer, as so extended by the Company, shall expire. For a
description of the Company's rights to extend the period of time during which
the Offer is open and to delay, terminate or amend the Offer, see Section 13.
See also Section 5.
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<PAGE>
The Company reserves the right, in its sole discretion, at any time or from
time to time, to extend the period of time during which the Offer is open by
giving oral or written notice of such extension to the Depositary and making a
public announcement thereof. See Section 13. There can be no assurance, however,
that the Company will exercise its right to extend the Offer.
The Offer is not conditioned upon any minimum number of Shares being
tendered. The Offer is, however, subject to certain other conditions. See
Section 5.
All Shares purchased pursuant to the Offer will be purchased at the
Purchase Price, net to the seller in cash. If (a) the Company (i) increases or
decreases the price to be paid for Shares or (ii) decreases the number of Shares
being sought, and (b) the Offer is scheduled to expire at any time earlier than
the expiration of a period ending on the tenth business day from and including
the date that notice of such increase or decrease is first published, sent or
given in the manner specified in Section 13, the Offer will be extended until
the expiration of such ten business day period. For the purposes of the Offer, a
"business day" means any day other than a Saturday, Sunday or federal holiday
and consists of the time period from 12:01 A.M. through 12:00 Midnight,
Philadelphia time.
All Shares not purchased pursuant to the Offer will be returned to the
tendering shareholders at the Company's expense as promptly as practicable
following the Expiration Date. The Company, upon the terms and subject to the
conditions of the Offer, will purchase at the Purchase Price all Shares tendered
and not withdrawn up to the Maximum Amount as to each shareholder.
2. PROCEDURE FOR TENDERING SHARES
Proper Tender of Shares. For Shares to be properly tendered pursuant to the
Offer:
(a) the certificates for such Shares (or confirmation of receipt of
such Shares pursuant to the procedure for book-entry transfer set forth
below), together with a properly completed and duly executed Letter of
Transmittal (or a facsimile copy thereof) with any required signature
guarantees, and any other documents required by the Letter of Transmittal,
must be received before the Expiration Date by the Depositary at its
address set forth on the back cover of this Offer to Purchase; or
(b) the tendering shareholder must comply with the guaranteed delivery
procedure set forth below.
Signature Guarantees and Methods of Delivery. No signature guarantee is
required on the Letter of Transmittal if the Letter of Transmittal is signed by
the registered owner of the Shares (which term, for purposes of this Section 2,
includes any participant in The Depository Trust Company or the Philadelphia
Depository Trust Company (collectively, the "Book-Entry Transfer Facilities")
whose name appears on a security position listing as the owner of the Shares)
tendered therewith, and payment and delivery are to be made directly to such
registered owner at such owner's address shown on the records of the Company, or
if Shares are tendered for the account of a financial institution (including
most banks, savings and loan associations, and brokerage houses) that is a
participant in the Securities Transfer Agents Medallion Program, the New York
Stock Exchange Medallion Signature Program or the Stock Exchange Medallion
Program (each such entity being hereinafter referred to as an "Eligible
Institution"). In all other cases, all signatures on the Letter of Transmittal
must be guaranteed by an Eligible Institution. See Instruction 1 of the Letter
of Transmittal. If a certificate representing Shares is registered in the name
of a person other than the person signing a Letter of Transmittal, or if payment
is to be made, or certificates for Shares not purchased or tendered are to be
issued, to a person other than the registered owner, the certificate must be
endorsed or accompanied by an appropriate stock power, in either case signed
exactly as the name of the registered owner appears on the certificate, with the
signature on the certificate or stock power guaranteed by an Eligible
Institution. In all cases, payment for Shares tendered and accepted for payment
pursuant to the Offer will be made only after timely receipt by the Depositary
of certificates for such Shares (or a timely confirmation of a book-entry
transfer of such Shares into the Depositary's account at one of the Book-Entry
Transfer Facilities), a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and any other documents required by the
Letter of Transmittal.
9
<PAGE>
The method of delivery of all documents, including stock certificates, the
Letter of Transmittal and any other required documents, is at the election and
risk of the tendering shareholder. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended.
Federal Backup Withholding. Absent an exemption applying under the
applicable law concerning "backup withholding" of federal income tax, the
Depositary will be required to withhold, and will withhold, 31% of the gross
proceeds otherwise payable to a shareholder (or other payee) pursuant to the
Offer unless the shareholder (or other payee) provides such person's tax
identification number (social security number or employer identification
number), certifies that such number is correct and certifies that such person is
not subject to backup federal income tax withholding. Each tendering
shareholder, other than a non-corporate foreign shareholder, should complete and
sign the main signature form and the Substitute Form W-9 included as part of the
Letter of Transmittal so as to provide the information and certifications
necessary to avoid backup withholding, unless an applicable exemption exists and
is proved in a manner satisfactory to the Company and the Depositary.
Non-corporate foreign shareholders generally should complete and sign a Form
W-8, Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. Backup withholding is not an
additional tax, and any taxes so withheld may be claimed as a credit against
such shareholder's federal income tax liability.
For a discussion of certain other federal income tax consequences of the
Offer, see Section 9.
Book-Entry Delivery. The Depositary will establish an account with respect
to the Shares at each of the Book-Entry Transfer Facilities for purposes of the
Offer within two business days after the date of this Offer to Purchase. Any
financial institution that is a participant in a Book-Entry Transfer Facility's
system may make book-entry delivery of the Shares by causing such facility to
transfer such Shares into the Depositary's account in accordance with such
facility's procedure for such transfer. Even though delivery of Shares may be
effected through book-entry transfer into the Depositary's account at one of the
Book-Entry Transfer Facilities, a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof), with any required signature guarantees and
other required documents, must, in any case, be transmitted to and received by
the Depositary at its address set forth on the back cover of this Offer to
Purchase before the Expiration Date, or the guaranteed delivery procedure set
forth below must be followed. Delivery of the Letter of Transmittal and any
other required documents to one of the Book-Entry Transfer Facilities does not
constitute delivery to the Depositary.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant to
the Offer and such shareholder's stock certificates are not immediately
available (or the procedure for book-entry transfer cannot be followed on a
timely basis) or time will not permit the Letter of Transmittal and all other
required documents to reach the Depositary before the Expiration Date, such
Shares may nevertheless be tendered provided that all the foregoing conditions
are satisfied:
(a) such tender is made by or through an Eligible Institution;
(b) the Depositary receives (by hand, mail or facsimile transmission)
before the Expiration Date, a properly completed and duly executed
Notice of Guaranteed Delivery substantially in the form the Company
has provided with this Offer to Purchase; and
(c) the certificates for all tendered Shares in proper form for transfer
(or confirmation of book-entry transfer of such Shares into the
Depositary's account at one of the Book-Entry Transfer Facilities),
together with a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof) and other documents required by
the Letter of Transmittal, are received by the Depositary within three
NNM trading days after the date of execution of such Notice of
Guaranteed Delivery.
Validity of Delivery; Rejection of Shares; Waiver of Defects; No Obligation
To Give Notice of Defects. All questions as to the number of Shares to be
accepted and the validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of Shares will be determined by the
Company, in its sole discretion, which determination shall be final and binding
on all parties. The Company reserves the absolute right to reject any or all
tenders determined by it not to be in proper form or the acceptance for payment
of which may, in the opinion of the Company's counsel, be unlawful. The Company
also reserves the absolute right to waive any of the conditions of the Offer
(except as otherwise provided in Section 5) and any defect or irregularity in
the tender of
10
<PAGE>
any particular Shares. No tender of Shares will be deemed properly made until
all defects or irregularities have been cured or waived. None of the Company,
the Depositary or any other person is or will be obligated to give notice of any
defects or irregularities in tenders, and none of them will incur any liability
for failure to give any such notice.
3. WITHDRAWAL RIGHTS
Except as otherwise provided in this Section 3, a tender of Shares pursuant
to the Offer is irrevocable. Shares tendered pursuant to the Offer may be
withdrawn at any time before the Expiration Date and, unless theretofore
accepted for payment by the Company, after 12:00 Midnight, Philadelphia time, on
June 10, 1997.
For a withdrawal to be effective, the Depositary must timely receive (at
its address set forth on the back cover of this Offer to Purchase) a written or
facsimile transmission notice of withdrawal. Any notice of withdrawal must
specify the name of the person having tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and, if different from the name of the person
who tendered the Shares, the name of the registered owner of such Shares. If the
certificates have been delivered or otherwise identified to the Depositary,
then, prior to the release of such certificates, the tendering shareholder must
also submit the serial numbers shown on the particular certificates evidencing
such Shares and the signature on the notice of withdrawal must be guaranteed by
an Eligible Institution (except in the case of Shares tendered by an Eligible
Institution). If Shares have been delivered pursuant to the procedure for
book-entry transfer set forth in Section 2, the notice of withdrawal must
specify the name and the number of the account at the applicable Book-Entry
Transfer Facility to be credited with the withdrawn Shares and otherwise comply
with the procedures of such facility.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Company, in its sole discretion,
which determination shall be final and binding on all parties. None of the
Company, the Depositary or any other person is or will be obligated to give any
notice of any defects or irregularities in any notice of withdrawal, and none of
them will incur any liability for failure to give any such notice. A withdrawal
of a tender of Shares may not be rescinded and Shares properly withdrawn shall
thereafter be deemed not to be validly tendered for purposes of the Offer.
Withdrawn Shares, however, may be retendered before the Expiration Date by again
following one of the procedures described in Section 2.
4. ACCEPTANCE FOR PAYMENT OF SHARES AND PAYMENT OF PURCHASE PRICE
Upon the terms and subject to the conditions of the Offer, as soon as
practicable after the Expiration Date, the Company will purchase and pay the
Purchase Price for up to the Maximum Amount for each Record Holder of Shares
(subject to increase or decrease as provided in Sections 1 and 13) or such
lesser number of Shares as are properly tendered and not withdrawn as permitted
in Section 3. For purposes of the Offer, the Company will be deemed to have
accepted for payment (and thereby purchased) Shares which are tendered and not
withdrawn when, as and if the Company gives oral or written notice to the
Depositary of the Company's acceptance of such Shares for payment pursuant to
the Offer.
Certificates for all Shares not purchased pursuant to the Offer will be
returned to the tendering shareholders (or, in the case of Shares delivered by
book-entry transfer, such Shares will be credited to the account maintained with
one of the Book-Entry Transfer Facilities by the participant therein who so
delivered such Shares) at the Company's expense as promptly as practicable.
Payment for Shares purchased pursuant to the Offer will be made by the
Company by depositing the Purchase Price therefor with the Depositary, which
will act as agent for tendering shareholders for the purpose of receiving
payment from the Company and transmitting payment to the tendering shareholders.
Notwithstanding any other provision hereof, payment for Shares accepted for
payment pursuant to the Offer will in all cases be made only after timely
receipt by the Depositary of certificates for such Shares (or timely
confirmation by a Book-Entry Transfer Facility of book-entry transfer of such to
the Depositary), a properly completed and executed Letter of Transmittal (or a
facsimile thereof) with any required signature guarantees and any other required
documents. Under no circumstance will interest be paid on the Purchase Price of
the Shares to be paid by the Company, regardless of any delay in making such
payment.
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<PAGE>
The Company will pay any stock transfer taxes with respect to the transfer
and sale of Shares to it or its order pursuant to the Offer. If, however,
payment is to be made to, or certificates for Shares not purchased or tendered
are to be registered in the name of, any person other than the registered
holder, or if tendered certificates are registered in the name of any person
other than the person(s) signing the letter of Transmittal, the amount of any
stock transfer taxes (whether imposed on the registered holder or such other
person) payable on account of the transfer to such person will be deducted from
the Purchase Price unless evidence satisfactory to the Company of the payment of
such taxes or an exemption therefrom is submitted. See Instruction 6 of the
Letter of Transmittal.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY AND
SIGN THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL (OR, IN THE
CASE OF A NONCORPORATE FOREIGN SHAREHOLDER, A FORM W-8, WHICH IS OBTAINABLE FROM
THE DEPOSITARY) MAY BE SUBJECT TO A FEDERAL BACKUP WITHHOLDING TAX OF 31% OF THE
GROSS PROCEEDS TO BE PAID TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE
OFFER. SEE SECTIONS 2 AND 9.
5. CERTAIN CONDITIONS OF THE OFFER
Notwithstanding any other provision of the Offer, and in addition to (and
not in limitation of) the Company's right to extend, amend or terminate the
Offer at any time in its sole discretion, the Company shall not be required to
accept for payment or pay for any Shares tendered, and may extend, amend or
terminate the Offer if, before acceptance for payment of or payment for any
Shares, any of the following shall have occurred (or shall have been determined
by the Company to have occurred):
(i) there shall have been threatened, instituted or pending any action
or proceeding by any government or governmental, regulatory or administrative
agency or authority or tribunal or any other person, domestic or foreign, or
before any court, authority, agency or tribunal which (a) challenges the making
of the Offer, the acquisition of some or all of the Shares pursuant to the Offer
or otherwise relates in any manner to the Offer; or (b) in the Company's sole
judgment, could materially affect the business, condition (financial or other),
income, operations or prospects of the Company and its subsidiaries, taken as a
whole, or otherwise materially impair in any way the contemplated future conduct
of the business of the Company or any of its subsidiaries or materially impair
the Offer's contemplated benefits to the Company;
(ii) there shall have been any action threatened, pending or taken, or
approval withheld, or any statute, rule, regulation, judgment, order or
injunction threatened, proposed, sought, promulgated, enacted, entered, amended,
enforced or deemed to be applicable to the Offer or the Company or any of its
subsidiaries, by any court or any authority, agency or tribunal which, in the
Company's sole judgment, would or might directly or indirectly (a) make the
acceptance for purchase or purchase of some or all of the Shares illegal or
otherwise restrict or prohibit consummation of the Offer; (b) delay or restrict
the ability of the Company, or render the Company unable, to accept for purchase
or purchase for some or all of the Shares; (c) materially impair the
contemplated benefits of the Offer to the Company; or (d) materially affect the
business, condition (financial or other), income, operations or prospects of the
Company and its subsidiaries, taken as a whole, or otherwise materially impair
in any way the contemplated future conduct of the business of the Company or any
of its subsidiaries;
(iii) (a) any general suspension of trading in, or limitation on
prices for, securities on any national securities exchange or in the
over-the-counter market, (b) the declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (c) the
commencement of a war, armed hostilities or other international or national
calamity directly or indirectly involving the United States, (d) any limitation
(whether or not mandatory) by any governmental, regulatory or administrative
agency or authority on, or any event which, in the Company's sole judgment,
might affect, the extension of credit by banks or other lending institutions in
the United States, (e) any significant change in the market price of the Shares,
or any change in the general political, market, economic or financial
conditions in the United States or abroad that could, in the sole judgment of
the Company, have a material adverse effect on the Company's business,
operations or prospects or the trading in the Shares or the Offer's
contemplated benefits to the Company or (f) in the case of any of the foregoing
existing at the time of the commencement of the Offer, a material acceleration
or worsening thereof; or
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<PAGE>
(iv) any change shall occur or be threatened in the business,
condition (financial or other), income, operations, Share ownership, or
prospects of the Company and its subsidiaries, taken as a whole, which, in the
sole judgment of the Company, is or may be material to the Company; or
which, in the reasonable good-faith judgment of the Company, in any such case
and regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition, makes it inadvisable to proceed with the
Offer or with such acceptance for payment or payment.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances (including any action or
inaction by the Company) giving rise to any such condition, and, except as set
forth in the next sentence, any such condition may be waived by the Company, in
whole or in part, at any time from time to time in its sole discretion. The
Exchange Act requires that all conditions to the Offer must be satisfied or
waived before the final Expiration Date. In certain cases, waiver of a condition
to the Offer would require an extension of the Offer. See Section 13.
The Company's failure at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right; the waiver of any such right
with respect to particular facts and circumstances shall not be deemed a waiver
with respect to any other facts or circumstances; and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to time.
Any determination by the Company concerning the events described above and any
related judgment by the Company regarding the inadvisability of proceeding with
the acceptance for payment or payment for any tendered Shares will be final and
binding on all parties.
6. PRICE RANGE OF SHARES; DIVIDEND POLICY
The Shares are traded on the NNM under the symbol "KLRT." The following
table sets forth for the periods indicated the high and low closing sale prices
per Share as reported by Nasdaq.
FISCAL YEAR 1996 HIGH LOW
December 3, 1995 - March 2, 1996 $17 1/2 $15 3/4
March 3, 1996 - June 1, 1996 $17 1/2 $15
June 2, 1996 - August 31, 1996 $17 1/2 $15
September 1, 1996 - November 30, 1996 $18 $16 1/8
FISCAL YEAR 1995 HIGH LOW
December 4, 1994 - March 4, 1994 $22 1/4 $15 3/4
March 5, 1995 - June 3, 1995 $21 1/2 $18
June 4, 1995 - September 2, 1995 $18 3/4 $16
September 3, 1995 - December 2, 1995 $18 $15 1/4
The Company's Common Stock is thinly traded. The average weekly trading
volume in fiscal years 1996 and 1995 were approximately 7,300 and 9,100 Shares,
respectively.
On April 14, 1997, the last reported sale on the NNM before announcement of
the Offer was $16.75 per Share. On April 14, 1997, the last full trading day
prior to commencement of the Offer, the closing sale price for the Shares was
$15.50 per Share. Shareholders are urged to obtain a current market quotation
for their Shares.
No cash dividends have been paid by the Company during the past five fiscal
years. The Company's working capital loan agreements provide that no cash
dividends may be paid on the Shares unless the Company's consolidated net worth
exceeds $15.0 million after the payment of cash dividends. Although the Company
is in
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<PAGE>
compliance with this covenant and other covenants and restrictions, the Company
does not expect to pay cash dividends in the foreseeable future, but rather,
expect to use its cash to expand its operations and become less of a seasonal
borrower for working capital.
7. CERTAIN INFORMATION CONCERNING THE COMPANY
The Company, together with its subsidiaries, is engaged in the design,
manufacture and sale of infants' and children's sleepwear and playwear,
children's sportswear and children's t-shirts. The Company also manufactures,
distributes and sells certain items of personal apparel. In September, 1996, the
Company re-entered the textile industry when it acquired Scott Mills, Inc. which
was merged into a subsidiary of the Company. As a result of the merger with
Scott Mills, Inc., the Company currently knits polyester, cotton/polyester
blend, cotton and acrylic fabrics for the children's and adult apparel markets.
The sleepwear manufactured by the Company consists primarily of blanket
sleepers made of 100% polyester fleece in sizes ranging from newborn to girls'
and boys' size 14 and knit sets made of polyester interlock, jersey, double-knit
or terrycloth fabric for infants in sizes ranging from newborn to size 24
months. Sleepwear sales accounted for approximately 48%, 50% and 51% of
children's apparel net sales in fiscal years 1996, 1995 and 1994, respectively.
Playwear consists of activewear sets and separates in sizes ranging from infant
through girls' and boys' size 14. The Company also manufactures and sells
t-shirts, primarily for children. Playwear sales, including t-shirts, accounted
for approximately 41%, 50% and 49% of children's apparel net sales in fiscal
years 1996, 1995 and 1994, respectively. Additionally, the Company's sportswear
line, manufactured mainly from woven fabrics, accounted for 11% of children's
apparel net sales in fiscal year 1996.
The Company's principal executive office is located at 120 West Germantown
Pike, Suite 100, Plymouth Meeting, Pennsylvania, 19462, and its telephone number
is (610) 828-7261. The Company also conducts its manufacturing operations from
one plant in Alabama, two plants in Florida, one plant in Honduras, C.A. and one
plant in North Carolina, and its sales, marketing, merchandising and design
functions are conducted from its offices in New York, New York.
Summary Historical Financial Information. The summary historical financial
information for the years ended November 30, 1996 and December 2, 1995 set forth
below has been derived from, and should be read in conjunction with, the audited
financial statements (including the related notes thereto) included in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1996
(the "Form 10-K"), which is attached to this Offer to Purchase as Annex "B." The
summary historical financial information for the fiscal quarters ended March 2,
1996 and March 1, 1997 set forth below has been derived from, and should be read
in conjunction with, the unaudited financial statements (including the related
notes thereto) appearing in the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended March 1, 1997 (the "Form 10-Q") which is attached to this
Offer to Purchase as Annex "C." Such summary historical financial information is
qualified in its entirety by reference to the Form 10-K and Form 10-Q and all
financial statements and notes contained therein.
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The Form 10-K and Form 10-Q are available for examination, and copies
are obtainable, in the manner set forth below under "Additional
Information."
Kleinert's, Inc.
Summary Historical Financial Information
(Dollars in Thousands, Except Per Share and Ratio Amounts)
<TABLE>
<CAPTION>
Quarter Ended Year Ended
---------------------------------- --------------------------------------
March 1, 1997 March 2, 1996 November 30, 1996 December 2, 1995
------------- ------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Income Statement:
Net sales $ 8,624 $11,720 $86,759 $75,121
Gross profit $ 2,054 $ 2,512 $15,646 $13,485
Income before income taxes $ 150 $ 750 $ 7,773 $ 6,683
Net income $ 98 $ 479 $ 4,976 $ 4,331
Balance Sheet (at end of period)
Working capital $21,854 $20,717 $22,706 $18,557
Total assets $60,578 $52,100 $62,832 $48,222
Total long-term indebtedness $ 6,534 $ 7,629 $ 6,834 $ 3,429
Shareholder's equity $31,383 $24,559 $31,753 $24,080
Per Share(s)
Net income per common share $ .03 $ .13 $ 1.31 $ 1.15
</TABLE>
8. SOURCE AND AMOUNT OF FUNDS
The Company estimates that there are approximately 358 Record Holders,
consisting of holders of record of the Shares identified on the shareholders'
list provided by the Company's transfer agent together with persons and entities
whose shares are registered in a "street name" account maintained at a broker,
dealer, commercial bank, trust company or other nominee. If all of such persons
were to tender the Maximum Amount (or the total number of Shares owned by such
persons if less than the Maximum Amount is owned), and the Company were to
purchase all of such Shares at the $18.00 Purchase Price, the maximum aggregate
cost of the Offer would be $3,449,844. The fees and expenses associated with the
Offer are estimated to be $70,000. See Section 14.
The Company has unsecured working capital lines of credit with various
lenders aggregating $42,500,000, of which $29,535,000 was outstanding at March
1, 1997. The lines of credit bear interest at rates ranging from 6.2% to 8.0%
per annum. The Company currently anticipates that the funds necessary to
purchase the Shares and to pay the fees and expenses of the Offer will be
provided by one or more of the Company's lines of credit; however, the Company
has not yet identified which of its lines of credit it will use. Subsequent to
the Offer, the Company may convert that portion of the line of credit borrowings
used to fund the Offer to a term loan on mutually acceptable terms and
conditions to be negotiated between the Company and its lenders.
9. CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary under currently applicable law of certain
federal income tax considerations applicable to the Offer. The discussion set
forth below is for general information only and the tax treatment described
herein may vary depending upon each shareholder's particular circumstances and
tax position. Certain shareholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, regulated investment
companies, foreign corporations, persons who are not citizens or residents of
the United States, shareholders who do not hold their Shares as capital assets,
shareholders who hold the Shares as part of a straddle hedging transaction or
conversion transaction, and shareholders who have acquired their Shares upon the
exercise of compensatory options or otherwise as compensation) may be subject to
special rules not discussed below. No ruling from the Internal Revenue Services
("IRS") will be applied for with respect to the federal income tax consequences
of the Offer and, accordingly, there can be no assurance that the IRS will agree
with the conclusions stated. The discussion does not consider the effect of any
applicable foreign, state, local or other tax laws. EACH SHAREHOLDER SHOULD
CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR
15
<PAGE>
TAX CONSEQUENCES TO HIM OR HER OF THE OFFER, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY FOREIGN, STATE, LOCAL OR OTHER TAX LAWS.
In General. A shareholder's exchange of Shares for cash pursuant to the
Offer will be a taxable transaction for federal income tax purposes, and may
also be a taxable transaction under applicable state, local, foreign or other
tax laws. The federal income tax consequences to a shareholder may vary
depending upon the shareholder's particular facts and circumstances.
Treatment as a Sale or Exchange. Under Section 302 of the Code, a transfer
of Shares to the Company pursuant to the Offer will, as a general rule, be
treated as a sale or exchange of the Shares if the receipt of cash upon the sale
(a) is "substantially disproportionate" with respect to the shareholder,
(b) results in a "complete redemption" of the shareholder's interest in the
Company or (c) is "not essentially equivalent to a dividend" with respect to the
shareholder. These tests (the "Section 302 tests") are explained more fully
below.
If any of the Section 302 tests is satisfied, a tendering shareholder will
recognize gain or loss equal to the difference between the amount of cash
received by the shareholder pursuant to the Offer and the shareholder's basis in
the Shares sold pursuant to the Offer. If the Shares are held as capital assets,
the gain or loss will be capital gain or loss, which will be long-term capital
gain or loss if the Shares have been held for more than one year.
Treatment as a Dividend. If none of the Section 302 tests is satisfied and
the Company has sufficient earnings and profits, a tendering shareholder will be
treated as having received a dividend taxable as ordinary income in an amount
equal to the entire amount of cash received by the shareholder pursuant to the
Offer. This amount will not be reduced by the shareholder's basis in the Shares
sold pursuant to the Offer, and (except as described below for corporate
shareholders eligible for the dividends-received deduction) the shareholder's
basis in those Shares will be added to the shareholder's basis in his or her
remaining Shares. No assurance can be given that any of the Section 302 tests
will be satisfied as to any particular shareholder, and thus no assurance can be
given that any particular shareholder will not be treated as having received a
dividend taxable as ordinary income.
Constructive Ownership of Stock. In determining whether any of the Section
302 tests is satisfied, a shareholder must take into account not only stock
actually owned by the shareholder, but also stock of the Company that is
constructively owned within the meaning of Section 318 of the Code. Under
Section 318, a shareholder may constructively own stock of the Company actually
owned, and in some cases constructively owned, by certain related individuals
and certain entities in which the shareholder has an interest, as well as any
stock of the Company which the shareholder has a right to acquire by exercise of
an option or by the conversion or exchange of a security.
The Section 302 Tests. One of the following tests must be satisfied in
order for the sale of Shares pursuant to the Offer to be treated as a sale or
exchange rather than as a dividend distribution. Because the operation of the
tests is based on a shareholder's particular situation, shareholders should
consult with their own tax advisors concerning the applicability to them of any
of the Section 302 tests.
(a) Substantially Disproportionate Test. The receipt of cash by a
shareholder will be substantially disproportionate with respect to the
shareholder if the percentage of the outstanding voting stock of the Company
actually and constructively owned by the shareholder immediately following the
sale of Shares pursuant to the Offer (treating Shares purchased pursuant to the
Offer as not outstanding) is less than 80% of the percentage of the outstanding
voting stock of the Company actually and constructively owned by the shareholder
immediately before the exchange (treating Shares purchased pursuant to the Offer
as outstanding).
(b) Complete Redemption Test. The receipt of cash by a shareholder
will constitute a complete redemption of the shareholder's interest if either
(i) all of the Shares actually and constructively owned by the shareholder are
sold pursuant to the Offer or (ii) all of the Shares actually owned by the
shareholder are sold pursuant to the Offer and the shareholder is eligible to
waive, and effectively waives, the attribution of all Shares constructively
owned by the shareholder in accordance with the procedures described in Section
302(c)(2) of the Code.
(c) Not Essentially Equivalent To A Dividend Test. The receipt of cash
by a shareholder will not be essentially equivalent to a dividend if the
shareholder's exchange of Shares pursuant to the Offer results
16
<PAGE>
in a meaningful reduction of the shareholder's proportionate interest in the
Company. Whether the receipt of cash by a shareholder will not be essentially
equivalent to a dividend will depend on a shareholder's particular facts and
circumstances. However, in certain circumstances, in the case of a shareholder
with a small, minority interest, even a modest reduction may satisfy this test.
For example, the IRS has indicated in a published ruling that in the case of a
small minority shareholder of a publicly held corporation who exercises no
control over corporate affairs, a reduction in the shareholder's proportionate
interest in the corporation from .0001118% to .0001081% (which represented only
a 3.3% reduction in the shareholder's percentage ownership of outstanding shares
for purposes of the substantially disproportionate test) would constitute a
meaningful reduction.
Under certain circumstances, it may be possible for a tendering shareholder
to satisfy one of the Section 302 tests by contemporaneously selling or
otherwise disposing of all or some of the Shares actually or constructively
owned by the shareholder but that is not purchased pursuant to the Offer.
Correspondingly, a shareholder may not be able to satisfy any of the Section 302
tests because of contemporaneous acquisitions of Shares by the shareholder or by
a related party whose stock is constructively owned by the shareholder.
Accordingly, shareholders should consult their tax advisors regarding the
consequences of such sales or acquisitions in their particular circumstances.
Special Rules for Corporate Shareholders. If the exchange of Shares by a
corporate shareholder does not satisfy any of the Section 302 tests and is
therefore treated as a dividend, the shareholder may be entitled to a
dividends-received deduction equal to 70% of the dividend. There are a number of
limitations on the availability of this deduction, however, and the
dividends-received deduction may not be available or could be limited if, for
example, the corporate shareholder does not satisfy certain holding period
requirements with respect to the Shares or the Shares are treated as "debt
financed portfolio stock." Finally, it is expected that if a dividends-received
deduction is available, the dividend will generally constitute an extraordinary
dividend under Section 1059 of the Code. As a result, a corporate shareholder
will be required to reduce its tax basis in its Shares (but not below zero) by
the non-taxed portion of the dividend (that is, the portion of the dividend
equal to the dividends-received deduction). If the non-taxed portion of the
dividend exceeds the corporate shareholder's tax basis in its Shares, the excess
must be treated as gain from the sale of the Shares for the taxable year in
which a sale or disposition of the Shares occurs.
Backup Withholding. See Section 3 concerning the potential application of
the federal backup withholding.
10. TRANSACTIONS AND ARRANGEMENTS CONCERNING THE SHARES
Based upon the Company's records and upon information provided to the
Company by its directors, executive officers and affiliates, neither the Company
nor, to the best of the Company's knowledge, any of the directors or executive
officers of the Company, any person controlling the Company, nor any associate
of any of the foregoing, has effected any transactions in the Shares during the
60 days prior to the date hereof except as set forth below.
On April 4, 1997, the Company terminated its common stock repurchase
program. During the sixty day period prior to the date hereof, the Company
repurchased 16,000 Shares on March 18, 1997, at a purchase price of $17.25 per
Share, and the Company repurchased an additional 1,400 Shares on April 4, 1997,
at a purchase price of $16.75 per Share.
Stock options to purchase an aggregate of 175,000 shares of the Company's
common stock, at an exercise price of $6.90 per share, expire on April 16, 1997,
including options to purchase 62,500 shares granted to Jay Andrews and options
to purchase 37,500 shares granted to Marvin Grossman, directors and executive
officers of the Company, and options to purchase 25,000 shares granted to Joseph
J. Connors, Executive Vice President of the Company. As the market price for the
common stock exceeds the exercise price for the foregoing options, the Company
anticipates that all or substantially all of the such options will be exercised
prior to their expiration date.
In connection with the merger of Scott Mills, Inc. with and into a
wholly-owned subsidiary of the Company on September 29, 1997, the Company
obtained written agreements from certain of the Company's stockholders,
including each of the Company's directors other than Jay Andrews, that such
persons would not sell or otherwise transfer their Shares in connection with the
Company's 1996 common stock repurchase program or in a manner
17
<PAGE>
which would violate the continuity of shareholder ownership rules under Internal
Revenue Code regulations as they pertained to the merger. These "standstill"
agreements were obtained to satisfy certain technical federal income tax
requirements associated with the tax-free nature of the merger. The parties are
no longer bound by these agreements and are, therefore, not contractually
prohibited from participating in the Offer if they choose to do so.
Except as set forth in this Offer to Purchase, neither the Company nor, to
the best of the Company's knowledge, any of its affiliates, directors or
executive officers or any person controlling the Company, is a party to any
contract, arrangement, understanding or relationship with any other person
relating, directly or indirectly, to, or in connection with, the Offer with
respect to any securities of the Company including, but not limited to, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loan or option arrangements,
puts or calls, guarantees of loans, guarantees against loss or the giving or
withholding of proxies, consents or authorizations). Except as set forth in this
Offer to Purchase, since the commencement of the Company's second full fiscal
year preceding the date of this Offer to Purchase, no contacts or negotiation
concerning a merger, consolidation, or acquisition, a tender offer for or other
acquisition of any securities of the Company, an election of directors of the
Company, or a sale or other transfer of a material amount of assets of the
Company, has been entered into or occurred between any affiliates of the Company
or between the Company or any of its affiliates and any unaffiliated person.
The Company has been informed by its directors and executive officers that
none currently intend to tender Shares owned by them pursuant to the Offer.
11. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS; NO APPRAISAL RIGHTS
The Company is not aware of any license or regulatory permit that appears
to be material to its business that might be adversely affected by its
acquisition of Shares as contemplated in the Offer or of any approval or other
action by any government or governmental, administrative or regulatory authority
or agency, domestic or foreign, that would be required for the Company's
acquisition or ownership of Shares pursuant to the Offer. Should any such
approval or other action be required, the Company currently contemplates that it
will seek such approval or other action. The Company cannot predict whether it
may determine that it is required to delay the acceptance for payment of Shares
tendered pursuant to the Offer pending the outcome of any such matter. There can
be no assurance that any such approval or other action, if needed, would be
obtained or would be obtained without substantial conditions or that the failure
to obtain any such approval or other action might not result in adverse
consequences to the Company's business. The Company intends to make all required
filings under the Exchange Act. The Company's obligation under the Offer to
accept Shares for payment is subject to certain conditions. See Section 5. No
appraisal rights are available to holders of the Shares in connection with the
Offer.
12. EFFECTS OF THE OFFER ON THE MARKET FOR SHARES; REGISTRATION UNDER THE
EXCHANGE ACT
The Company's purchase of Shares pursuant to the Offer will reduce the
number of Shares that might otherwise trade publicly and will reduce the number
of shareholders.
The trading of the Shares is currently reported on the NNM. Following the
Offer, the Company intends to delist the Shares from the NNM and deregister
under the Exchange Act. As of April 11, 1997, there were 3,692,835 Shares
outstanding and 240 shareholders of record (calculated in accordance with the
Exchange Act). Due to the foregoing number of record holders, the Shares no
longer meet the requirements for continued quotation on the NNM. Pursuant to the
NNM's published guidelines, shares of common stock are not eligible to be
included for listing if, among other things, the number of shares publicly held
falls below 200,000, the number of holders of shares falls below 400 or the
aggregate market value of such publicly held shares does not exceed $1,000,000.
If these standards are not met, quotations might continue to be published in the
NASDAQ SmallCap Market, Inc., but if the number of holders of the shares falls
below 300, or if the number of publicly held shares falls below 100,000, or
there is not at least one market maker for the shares, NASD rules provide that
the securities would no longer be "authorized" for NASDAQ reporting and NASDAQ
would cease to provide any quotations. Shares held directly or indirectly by an
officer or director of the issuer or by any beneficial owner of more than 10% of
the shares of the issuer will ordinarily not be considered as being publicly
held for this purpose. In the event the Shares were no longer quoted on NASDAQ,
quotations might still be available from other sources. The extent of the public
18
<PAGE>
market for the Shares and availability of such quotations would, however, depend
upon the number of holders of Shares remaining at such time, the interest in
maintaining a market in the Shares on the part of securities firms, the
termination of registration under the Exchange Act as described below and other
factors.
The Shares are currently "margin securities" under the rules of the Federal
Reserve Board. Among other things, this has the effect of allowing brokers to
extend credit on the collateral of such Shares. Depending upon factors similar
to those described above regarding listing and market quotations, it is likely
that, following the purchase of the Shares pursuant to the Offer the Shares will
no longer constitute "margin securities" for purposes of the Federal Reserve
Board's margin regulations. In such event, Shares could no longer be used as
collateral for margin loans made by brokers.
The Shares are currently registered under the Exchange Act which requires,
among other things, that the Company furnish certain information to its
shareholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of the Company's shareholders. Registration of the
Shares under the Exchange Act will be terminated upon application by
the Company to the Commission promptly following the termination of the Offer.
The termination of the registration of the Shares under the Exchange Act
will substantially reduce the information required to be furnished by the
Company to its shareholders and to the Commission and would render inapplicable
certain provisions of the Exchange Act, including requirements that the Company
file periodic reports (including financial statements), the requirements of Rule
13e-3 under the Exchange Act with respect to "going private" transactions,
requirements that the Company's officers, directors and ten-percent shareholders
file certain reports concerning ownership of the Company's equity securities and
provisions that any profit by such officers, directors and shareholders through
purchases and sales of the Company's equity securities within any six-month
period may be recaptured by the Company. In addition, the ability of
"affiliates" of the Company and other persons to dispose of Shares may be
impaired or eliminated. When registration of the Shares under the Exchange Act
is terminated, the Shares will no longer be "margin securities" or eligible for
NNM reporting.
Following the Offer and deregistration of the Shares under the Exchange
Act, the Company may take certain action to eliminate any interests in the
Shares held by remaining minority public shareholders of the Company including,
but not limited to, merging out any remaining minority public shareholders of
the Company on such terms and conditions as the Company may determine.
Although the Company will deregister from the Exchange Act and delist its
Shares from the NNM following the completion of the Offer, the Company may in
the future decide again to avail itself of certain of the benefits associated
with being a publicly traded company, including the ability to raise capital
through the equity markets if such capital is needed. The Company's decision to
remain a private company following the Offer or its decision to again register
as a public company will be dependent upon a number of factors relating to the
Company's business, prospects, opportunities and financial condition, as well as
upon factors relating to the public markets and the apparel and textile
industries in general.
13. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS
The Company expressly reserves the right, in its sole discretion, at any
time or from time to time and regardless of whether or not any of the events set
forth in Section 5 shall have occurred or shall be deemed by the Company to have
occurred, to extend the period of time during which the Offer is open and
thereby delay acceptance for payment of any Shares by giving oral or written
notice of such extensions to the Depositary and making a public announcement
thereof. During any such extension, all Shares previously tendered and not
purchased or withdrawn will remain subject to the Offer, except to the extent
that such Shares may be withdrawn as set forth in Section 3. The Company also
expressly reserves the right, in its sole discretion, to terminate the Offer and
not accept for payment or pay for any Shares not theretofore accepted for
payment or paid for or, subject to applicable law, to postpone payment for
Shares upon the occurrence of any of the conditions specified in Section 5 or
otherwise by giving oral or written notice of such termination or postponement
to the Depositary and making a public announcement thereof. The Company's
reservation of the right to delay payment for Shares which it has accepted for
payment is limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which
requires that the Company must pay the consideration offered or return the
Shares tendered promptly after termination or withdrawal of a tender offer.
Subject to compliance with applicable law, the Company further reserves the
right, in its sole discretion, and regardless of whether or not any of the
events set forth in Section 5 shall have occurred or shall be deemed by the
Company to have occurred, to amend the Offer in any respect (including, without
limitation, by decreasing or increasing the consideration offered in the Offer
to owners of Shares or by decreasing the number of Shares being sought in the
Offer) or to waive the limitation on the maximum number of shares to be
purchased pursuant to the Offer. Amendments to the Offer may be made at any time
in the case of an extension, to be issued no later than 9:00 a.m., Philadelphia
time, on the next business day after the previously scheduled Expiration Date.
Any disclosure of a material change in the information published, sent or given
to shareholders will be
19
<PAGE>
disseminated promptly to shareholders in a manner reasonably designed to inform
shareholders of such change. Without limiting the manner in which the Company
may choose to make a public announcement pursuant to or concerning the Offer,
except as required by applicable law, the Company shall have no obligation to
publish, advertise or otherwise communicate any such public announcement other
than by making a release to the Dow Jones News Service.
If the Company makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
the Company will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 13e-4(d)(2) and 13e-4(e)(2) promulgated
under the Exchange Act. The minimum period during which an offer must remain
open following material changes in the terms of the offer or information
concerning the offer (other than a change in price or a change in percentage of
securities sought) will depend on the facts and circumstances then existing,
including the relative materiality of the changed terms or information. If
(a) the Company (i) increases or decreases the price at which Shares may be
properly tendered or (ii) decreases the number of Shares being sought, and
(b) the Offer is scheduled to expire at any time earlier than the expiration of
a period ending on the tenth business day from and including the date that
notice of such increase or decrease is first published, sent or given, the Offer
will be extended until the expiration of such ten-business-day period.
14. FEES AND EXPENSES
The Company has retained Compass Capital Advisors as its financial advisor
in connection with the Offer. Compass Capital Advisors will receive a fee of
$25,000 for its services as financial advisor. The Company will also reimburse
Compass Capital Advisors for its reasonable out-of-pocket expenses relating to
the Offer. The Company has agreed to indemnify Compass Capital Advisors against
certain liabilities in connection with the Offer, including certain liabilities
under the federal securities laws.
The Company has retained American Stock Transfer and Trust Company as
Depositary in connection with the Offer. The Depositary will each receive
reasonable and customary compensation for customary services in connection with
the Offer and will be reimbursed for customary and reasonable out-of-pocket
expenses. The Company has agreed to indemnify the Depositary against certain
liabilities in connection with the Offer, including certain liabilities under
the federal securities laws. The Depositary has not been retained to, or is
authorized to, make solicitations or recommendations in connection with the
Offer.
The Company will not pay any fees or commissions to any broker, dealer,
commercial bank, trust company or other person for soliciting Shares pursuant to
the Offer. The Company will, however, on request, reimburse such persons for
customary handling and mailing expenses incurred in forwarding materials in
respect of the Offer to the beneficial owners for which they act as nominees. No
broker, dealer, commercial bank or trust company has been authorized to act as
an agent for the Company for the purpose of the Offer. The Company will not pay
(or cause to be paid) any stock transfer taxes on its purchase of Shares
pursuant to the Offer, except as otherwise provided in Instruction 6 of the
Letter of Transmittal.
Estimated costs and fees in connection with the Offer, all of which are the
obligation of the Company, are as follows:
Solicitation fees and expenses........................................ $ 2,000
Financial advisory fees............................................... $25,000
Filing fees........................................................... $ 690
Legal, accounting, and other professional fees........................ $25,000
Printing and distribution costs....................................... $15,000
Miscellaneous......................................................... $ 2,310
-------
Total............................................................ $70,000
=======
The above amounts are estimates only and actual expenditures may vary
substantially from the estimates depending on the circumstances.
20
<PAGE>
15. MISCELLANEOUS
The Offer is not being made to, nor will the Company accept tenders from or
on behalf of, holders of Shares in any jurisdiction in which the making of the
Offer or its acceptance would not be in compliance with the laws of such
jurisdiction. The Company is not aware of any jurisdiction where the making of
the Offer or the tender of Shares would not be in compliance with applicable
law. If the Company becomes aware of any jurisdiction where the making of the
Offer or the tender of Shares is not in compliance with any applicable law, the
Company will make a good faith effort to comply with such law. If, after such
good-faith effort, the Company cannot comply with such law, the Offer will not
be made to (nor will tenders be accepted from or on behalf of) the holders of
Shares residing in such jurisdiction. In any jurisdiction in which the
securities, blue sky or other laws require the Offer to be made by a licensed
broker or dealer, the Offer will be deemed to be made on the Company's behalf by
one or more registered brokers or dealers licensed under the laws of such
jurisdiction.
KLEINERT'S, INC.
APRIL 15, 1997
21
<PAGE>
Annex A
April 14, 1997
Board of Directors
Kleinert's Inc.
120 W. Germantown Pike
Suite 100
Plymouth Meeting, PA 19462-1420
Dear Board Members:
You have asked us to render our opinion as to whether a proposed offer to
the shareholders of Kleinert's, Inc. (the "Company") to purchase up to 1,000
shares of common stock from each record holder at $18.00 cash per share (the
"Transaction") is fair, from a financial point of view, to the shareholders of
the Company who receive cash for their shares in the Transaction.
Compass Capital Advisors ("CCA") as part of its investment banking
business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, employee benefit plans,
and valuations for corporate, estate, and other purposes. Neither CCA nor any of
its officers or employees has any interest in the Company or in the securities
which are the subjects of this opinion, and all of such persons are otherwise
independent with respect to the Transaction.
In arriving at our opinion, we have:
1. reviewed a draft of the proposed tender offer;
2. reviewed the Company's Annual Reports to Shareholders containing
financial information for the three fiscal years ending with the fiscal year
ended November 30, 1996;
3. reviewed projections of the Company's operating results for calendar
years 1997 through 2001 prepared by management and discussed the operations and
prospects of the Company with senior management;
4. reviewed trading activity in the Company's stock for 1996 and 1997 to
date;
Board of Directors
April 14, 1997
Page 2
5. reviewed and analyzed trading and financial information regarding public
companies in the Company's industry;
6. reviewed available information relating to purchases of the Company's
common stock from 1993 to date by the Company;
7. prepared a discounted future earnings analysis of the Company's
projected operating results;
8. reviewed publicly reported acquisitions in the Company's industry from
October 1994 through September 1996, the last month for which we were able to
find such information;
9. reviewed the liquidation values of the Company's assets with management;
and
10. reviewed all of the foregoing with you before forming our opinion.
In arriving at our opinion, we have not independently verified any of the
information we reviewed and our opinion is given in reliance on the accuracy and
completness of the information furnished to us. We have not made an independent
evaluation or appraisal of the assets of the Company, nor are we aware of any
current independent appraisals thereof. Should any of the information provided
to us be inaccurate or incomplete in any material respect, our opinion may
change; however, we have no reason to believe that any information we received
is materially inaccurate or incomplete.
Board of Directors
April 14, 1997
Page 3
Based upon and subject to the foregoing, it is our opinion that, as of the
date hereof, the Transaction is fair, from a financial point of view, to the
shareholders of the Company who receive cash for their shares in the
Transaction.
COMPASS CAPITAL ADVISORS
/s/ Gabriel F. Nagy
- -------------------------------
Gabriel F. Nagy, A.S.A.
Principal
GFN: kas
<PAGE>
ANNEX B
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1996
-----------------
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-6454
------
KLEINERT'S, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 13-0921860
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 West Germantown Pike, Suite 100
Plymouth Meeting, Pennsylvania 19462
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 828-7261
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock
----------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
---
<PAGE>
2
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-K
Continued
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate value of the voting stock held by the non-affiliates of the
registrant was $35,000,175 at February 3, 1997.
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date:
Class Outstanding at February 3, 1997
- ------------------------------------- -------------------------------
Common Stock
Par Value $1.00 per share 3,722,834
DOCUMENTS INCORPORATED BY REFERENCE: Part III-Definitive proxy statement for the
Annual Meeting of Shareholders presently scheduled to be held April 17, 1997 to
be filed pursuant to Regulation 14A.
<PAGE>
3
PART I
Item 1. Business
Kleinert's, Inc. (together with its subsidiaries, "Kleinert's" or the
"Registrant") is engaged in the design, manufacture and sale of infants' and
children's sleepwear and playwear, children's sportswear and children's
T-shirts. The Registrant also manufactures, distributes and sells certain items
of personal apparel. In September 1996, the Registrant re-entered the textile
industry when it acquired Scott Mills, Inc. which was merged into the
Registrant's Kleinert's, Inc. Of Alabama subsidiary.
The Registrant was founded in 1869 under the name of I.B. Kleinert Rubber
Company and was reincorporated in Pennsylvania under its current name in 1970.
The Registrant's principal executive offices are located at 120 West Germantown
Pike, Suite 100, Plymouth Meeting, Pennsylvania 19462 and its telephone number
is (610) 828-7261.
On December 19, 1995, Kleinert's, Inc., through its newly formed
wholly-owned subsidiary, Kleinert's, Inc. of Florida,("together, the Company"),
consummated a transaction (the "Transaction") pursuant to which the Registrant
acquired substantially all of the assets of Pixie Playmates, Inc. ("Pixie") and
Certified Sewing Services, Inc. ("Certified") two Florida corporations, and all
of the capital stock of Certified Apparel Services of Honduras, Inc., S.A., a
Honduran corporation ("CASH"). Pixie, Certified and CASH, all of which are
affiliated
<PAGE>
4
entities, are engaged in the manufacture and sale of children's apparel.
In consideration for the assets of Pixie and Certified and the shares of
CASH, the Registrant paid an aggregate purchase price of $4,650,000. The
purchase price was financed by the Registrant through an amendment to its
existing bank financing agreement to provide for an additional term debt
facility.
On September 30, 1996, the Registrant consummated the Merger (the "Merger")
of Scott Mills, Inc. ("Scott Mills"), with and into the Company's wholly-owned
subsidiary, Kleinert's, Inc. of Alabama ("Kleinert's Alabama"), pursuant to an
Agreement and Plan of Merger dated June 10, 1996 among the Company, Scott Mills
and Kleinert's Alabama (the "Merger Agreement"). Pursuant to the Merger
Agreement, each share of Scott Mills Common Stock outstanding on September 30,
1996 was converted into the right to receive $.03 in cash and .0152 of a share
of the Company's Common Stock, determined by the division of $.27 for each share
of Scott Mill's stock by $17.75 which represented the average price of the
Company's stock on the five trading days immediately preceding the consummation
of the Merger (as determined pursuant to the Merger Agreement). Cash was paid in
lieu of fractional shares. The Company has issued approximately 51,000 shares of
its Common Stock and approximately $101,000 in cash in exchange for all of the
outstanding shares of Common Stock of Scott Mills.
As used herein, unless the context otherwise indicates, the term
"Registrant" refers to Kleinert's, Inc. and its subsidiaries, Kleinert's, Inc.
of Alabama, Kleinert's, Inc. of
<PAGE>
5
Delaware, Kleinert's, Inc. of New York, Kleinert's, Inc. of Florida and
Certified Apparel Services of Honduras Inc., S.A.
To more reasonably reflect the seasonality of operations, the Registrant's
fiscal year ends the Saturday nearest November 30. Fiscal years 1996 and 1995
were fifty two week years. Fiscal year 1994 was a fifty three week year. The
following table sets forth financial information for each of the Registrant's
last three fiscal years relating to: (1) net sales; (2) operating profit; and
(3) identifiable assets.
Fiscal Year Ended
Nov. 30, Dec. 2, Dec. 3,
1996 1995 1994
-------- -------- --------
($000's omitted)
Net sales $ 86,759 $ 75,121 $ 69,262
Operating profit $ 9,705 $ 8,334 $ 7,326
Identifiable assets* $ 62,832 $ 48,222 $ 40,462
- ----------
*Includes goodwill of $3,803, $310 and $325, respectively.
1. Apparel
Children's Apparel
The sleepwear manufactured by the Registrant consists primarily of blanket
sleepers made of 100% polyester fleece in sizes ranging from newborn to girls'
and boys' size 14 and knit sets made of polyester interlock, jersey, double-knit
or terrycloth fabric for infants in sizes ranging from newborn to size 24
months. All of the Registrant's sleepwear is made of 100% polyester and complies
with the requirements of the Consumer Products Safety Commission relating to
flammability standards (See "Manufacturing"). Sales of sleepwear represented
48%, 50%
<PAGE>
6
and 51% of children's apparel net sales in fiscal year 1996, 1995 and 1994,
respectively.
The Registrant's playwear consists primarily of activewear sets and
separates in sizes ranging from infant through girls' and boys' size 14.
Activewear sets are two-piece jog sets consisting of pants and a top made of
polyester cotton blend, 100% acrylic fleece or printed interlock fabric.
Separates are the same as the jog sets, except separates consist of either the
top or the pant only. The Registrant also manufactures and sells T-shirts,
primarily for children, made of 100% cotton or polyester cotton blend, in sizes
ranging from infant through toddler. Sales of playwear including T-shirts
represented 41%, 50% and 49% of children's apparel net sales in fiscal year
1996, 1995 and 1994, respectively.
The Registrant's sportswear line is made mainly from woven fabrics
including denim and corduroy. Sizes range from infant through boys and girls
size 14. Sales of sportswear represented 11% of children's apparel net sales in
fiscal year 1996.
The Registrant has screen print and embroidery equipment which is used in
the apparel manufacturing process. The Registrant's in-house staff of artists
create designs which are meticulously engineered onto cut parts and then sewn in
the manufacturing process. Typically the screen print equipment is used in the
manufacture of jog sets and the embroidery equipment is used in the manufacture
of the Registrant's sleepwear products.
<PAGE>
7
The Registrant's apparel products are sold at retail prices generally
ranging from $7.00 to $18.00 for sleepwear, from $6.00 to $14.00 for playwear,
from $5.00 to $9.00 for T-shirts/polo shirts and from $6.00 to $18.00 for
sportswear (See "Marketing").
Personal Apparel
The Registrant manufactures and sells dress and garment shields and
distributes personal apparel and sanitary items. Dress and garment shields
protect clothing from underarm perspiration stains. The retail price of the
personal apparel items sold by the Registrant generally ranges from $4.25 to
$15.90. The Registrant distributes adult incontinence products under the names
"Safe `N Dry" and "Feel and Sure". These products are distributed in conjunction
with Hygienics Industries, Inc., in accordance with an exclusive licensing
arrangement. Sales of personal apparel items represented less than 2% of the
Registrant's consolidated net sales during each of the last three fiscal years.
Textiles
The Registrant knits polyester, cotton/polyester blend, cotton and acrylic
fabrics for the children's and women's apparel markets. The fabrics are used in
the manufacturing of the Registrant's children's apparel and are also sold to
outside apparel manufactures. Sales of textiles to third parties were less than
1% for the two months of operations included in consolidated net sales for
fiscal year 1996.
2. Manufacturing - Apparel
<PAGE>
8
Production
The Registrant's infants' and children's playwear and sleepwear is cut,
sewn, inspected, packaged and warehoused at the Registrant's 340,000 square foot
Elba, Alabama facility. The Elba facility performs the same functions with
respect to T-shirts, except for the sewing and inspection of T-shirts, which are
currently performed at the Registrant's 22,000 square foot Greenville, Alabama
facility. The 85,000 square foot facilities of the Kleinert's, Inc. of Florida
facility in the Tampa Bay area of Florida perform essentially the same functions
as the Elba facility with respect to woven children's wear products. The
Registrant's Honduras facility is primarily engaged in sewing, inspection and
packaging of sleepwear and sportswear products.
The apparel manufacturing process begins with purchased fabric, which is
then cut into specific garment parts such as sleeves, fronts, backs and collars,
and then bundled. The cut parts are sewn in an assembly line format with various
adornments, such as screen printing or embroidery added before the cut parts are
sewn. Fabric is inspected prior to cutting and each garment is inspected at
least twice, once during sewing and once after it is sewn, but before it is
warehoused. Quality control tests are also performed after cut parts are printed
or embroidered. Samples of each lot of sleepwear are tested to ensure compliance
with government flammability standards and samples from all lots of sleepwear,
playwear and T-shirts are wash tested for shrinkage and colorfastness.
<PAGE>
9
In an effort to control more closely its apparel manufacturing process, the
Registrant during the past five years has installed new equipment and upgraded
existing equipment. The Registrant has installed a completely integrated screen
print system, and a "real time" work-in-process system at its Alabama facilities
to better monitor and control the manufacturing process and additional
embroidery machines. The Registrant has also installed in its Elba, Alabama
facility a real-time computer based data collection and information warehouse
processing system which has enabled improved monitoring of the movement of
finished goods as they are warehoused and processed for shipment. This system
provides up-to-the minute information both to management and its retail
customers and permits the Registrant to ship more goods in the ever shrinking
shipping window as a result of implementation of "Quick Response" via Electronic
Data Interchange ("E.D.I.").
The Registrant's Elba facility currently operates one eight-hour shift a
day for sewing and two shifts a day (when needed) for cutting, screen print and
embroidery, five days a week. The Greenville and Florida facilities currently
operate one eight-hour shift a day, five days a week. The Honduras facility
operates on five and one-half day weeks.
During fiscal years 1996 and 1995, the Registrant spent $2,238,000 and
$5,808,000, respectively, for contract sewing of T-shirts, jog sets and basic
separates. The Registrant will continue to use outside contractors to
manufacture various products in order to meet peak season deliveries which are
in
<PAGE>
10
excess of the existing in-house manufacturing capacity of the Registrant.
Kleinert's has conducted business with several contract sewers in the past few
years depending upon the type of product to be manufactured. The principal
contractor has been Precision Textiles, Inc. (P.T.I.), which has sewn primarily
fleece sets or separates however, Kleinert's believes that there are readily
available alternate sources for contract sewing.
Raw Materials
During fiscal year 1996, approximately 21.7% of the fabric purchased for
the Registrant's children's apparel division was purchased from one vendor. The
Company also purchased $6,917,000 or 9.2% of its fabric requirements from Scott
Mills during fiscal year 1996. Vendors are selected on the basis of quality,
price and service; however, the Registrant's fabric needs could be met by other
vendors at prices that in most cases are competitive. The remaining materials
used in the manufacture of children's apparel were purchased from a variety of
sources.
Raw materials for the Registrant's personal apparel products are purchased
from a limited number of sources. The Registrant believes that alternative
sources are readily available at competitive prices.
<PAGE>
11
Manufacturing - Textiles
Production
The Registrant's fabric and textile manufacturing process since its merger
with Scott Mills during fiscal year 1996 begins with circular knitting machines
which knit various types of greige goods (undyed fabric) in a tube producing
jersey, interlock, mini jacquard, terrycloth, rib or novelty fabric. After
knitting, the fabric is batched into lots for dyeing, which is subcontracted to
third parties. The knitting facility normally operates 24 hours a day, five days
a week.
Fabric dyeing is a time consuming operation, with cycle times ranging from
four to twelve hours depending on the type of fabric and the dye color. The
finishing process sets the width and length of the fabric as it is dried. In
addition to the normal drying process, fleece fabrics such as acrylic fleece are
"napped"-fed through machines that fluff one side of the fabric using rotating
wire brushes. Subcontracting parties also mechanically compact 100% cotton
fabric in order to reduce wash shrinkage of garments without using resins.
Reducing wash shrinkage is becoming increasingly important to the retail
consumer.
All fabrics are tested for consistency of fabric color in the dye vessels
and are tested again on a random basis after the last finishing process.
In addition, a piece of every fabric lot produced is sent through a series
of quality control tests to ensure compliance with the Consumer Product Safety
Act, Flammable Fabrics Act,
<PAGE>
12
Textile Fiber Products Identification Act and other rules and regulations
promulgated by the Consumer Products Safety Commission.
Raw Materials
The principal raw materials used in the textile division are acrylic,
polyester and poly-cotton yarns. The raw materials are knit into five basic
constructions-terrycloth, interlock, jersey, mini jacquard and rib. In addition,
the Registrant makes variations of those basic constructions including fleece
and novelty fabrics.
The Registrant believes that the consistent quality of raw materials and
service provided by its vendors is very important; therefore, it relies on one
principal supplier for each of its principal raw materials rather than relying
on a diversified supplier base. While the number of potential suppliers has
decreased in recent years, the Registrant believes there are alternative sources
of raw materials should the need arise in the future.
3. Marketing
The Registrant's children's apparel products are sold primarily by an
in-house sales staff of nine people which are organized on the basis of specific
customers. In addition, there are six independent commissioned sales
representatives. The independent commissioned sales representatives account for
38% of total children's apparels sales. Sales efforts are principally conducted
from the Registrant's New York City showroom.
<PAGE>
13
The Registrant sells most of its apparel to national chain stores, mass
merchandisers, department stores and specialty stores, such as Target Stores,
J.C. Penney, Sears, Wal-Mart, Kids R'Us, K-Mart, Federated, May, Nordstrom and
Mercantile Stores. During fiscal year 1996 sales of apparel were made to
approximately 300 customers. No single customer accounted for more than 10% of
the Registrant's consolidated net sales for fiscal year 1996 other than
Wal-Mart, Target Stores and J.C. Penney, which accounted for approximately 14%,
12% and 11%, respectively, of consolidated net sales during the period.
In recent years the Registrant has received awards from its customers in
recognition of the Registrant's outstanding quality and service. The awards are
indicative of strategic partnerships which the Registrant has been successful in
developing over many years of providing quality service and merchandise,
particularly as the number of retailers continues to decrease. The result of the
Registrant's emphasis on quality is demonstrated by the Registrant's returns and
allowances being less than 3% of gross sales in each of the last three fiscal
years. This compares with an industry average exceeding 7% of gross sales.
The apparel division has quick response programs in place with major
customers and communicates with many of its vendors and customers via E.D.I.
This E.D.I. system allows customers and vendors to communicate purchase orders,
invoices, advance shipping notices and available inventory lists electronically.
The real-time, work-in-process and warehouse systems aid the Registrant in
servicing the customer by enabling the Registrant
<PAGE>
14
to monitor on a "real time" basis goods on the sewing floor and in the
warehouse, thereby permitting the Registrant to circumvent production
bottlenecks that could cause late deliveries.
The Registrant markets its personal apparel products exclusively under the
Kleinert's label through chain, variety and drug stores, wholesale distributors,
fabric centers and direct mail order.
Sales of the Registrant's textile products are directed through the
Registrant's in-house management primarily to garment manufacturers, including
children's wear manufacturers.
Backlog
The backlog of orders for apparel goods was approximately $4,598,000 at
February 3, 1997 which is consistent with the level of open orders at February
2, 1996 of $4,486,000. The amount of unfilled orders at a particular time is
affected by a number of factors including the scheduling of manufacturing and
product shipping, which in many instances is dependent on the desires of the
customer. The Registrant anticipates that all orders will be filled during the
current fiscal year.
The backlog of orders for the knitting operation was approximately
$1,800,000 at February 3, 1997. The level of orders reflects the addition of one
new salesmen in the textile division. The Registrant anticipates that all orders
will be filled during the current fiscal year.
<PAGE>
15
4. Competition
The infants' and children's apparel markets are highly competitive and
include many manufacturers from around the world in all product lines, including
some which are larger and have substantially greater market share and resources
than the Registrant. The Registrant believes that it competes with other
manufacturers in each of its markets on the basis of price, quality, service and
availability of products.
Foreign competition has been a significant factor in the children's apparel
industry. The Registrant believes that it can best compete with foreign
competition by providing superior customer service, responding quickly to
changes in customer demand and providing more timely deliveries. The benefits of
manufacturing domestically may permit retailers to reduce their inventory levels
and lower the risk that product availability will not match consumer demand.
The Registrant experiences limited competition in the personal apparel
market.
The domestic textile industry is highly competitive and no one firm
dominates the United States market. In recent years there has been a trend
toward consolidation and capacity reduction in the U.S. textile industry. A
large number of domestic and foreign producers compete with the Registrant.
Although domestic textile producers currently are the Registrant's greatest
competitors, foreign textile and apparel
<PAGE>
16
producers are significantly increasing their penetration of the domestic market.
The Registrant expects foreign producers to further expand their market share at
the expense of domestic producers in the years ahead.
The long-term prospects of the Registrant will also be affected by the
ability of its apparel customers to remain competitive in the face of foreign
competition. Textile import decisions by U.S. retailers and apparel
manufacturers are influenced by a number of factors, including raw material
costs, lead times, political instability and infrastructure deficiencies of
newly industrializing countries, fluctuating currency exchange rates, individual
government policies and international agreements regarding textile and apparel
trade.
5. Employees
As of January 1, 1997, the Registrant had 1,585 full time employees
including approximately 1,387 in manufacturing (of which 755 are in Elba,
Alabama, 76 in Greenville, Alabama, 204 in the Florida plants, 325 in Honduras,
and 27 in Gastonia, N.C.) 25 in merchandising, design and sales, 110 in
supervisory/clerical/administration and 63 in general management. Historically,
the number of employees increases during the summer and fall due to seasonal
factors. None of the Registrant's domestic employees are party to a collective
bargaining agreement and the Registrant believes its employee relations are
satisfactory. The employees in Honduras are under a collective bargaining
agreement as required by Honduras laws.
<PAGE>
17
6. Governmental and Environmental Regulation
The Registrant and its operations are subject to federal, state and local
laws, as well as Honduran law in the case of Certified Apparel Services of
Honduras, Inc., including the Occupational Safety and Health Act (OSHA), the
Consumer Product Safety Act, the Flammable Fabrics Act, the Textile Fiber
Products Identification Act and the rules and regulations promulgated
thereunder. The Registrant believes it is in substantial compliance with all
applicable governmental requirements under these laws and regulations.
The Registrant and its operations are subject to federal, state and local
laws and regulations concerning the protection of the environment including
those related to the generation and discharge of waste water, the generation,
storage, transportation and disposal of other wastes, and emissions into the
air. The Registrant is not currently the subject of any proceedings under these
laws and regulations, and believes it is in substantial compliance with all
applicable governmental requirements under these laws and regulations.
The Registrant does not anticipate that environmental or O.S.H.A. law and
regulations, or compliance with other federal, state and local laws and
regulations, will require substantial expenditures or materially affect its
results of operations or financial condition during the foreseeable future
unless
<PAGE>
18
conditions unknown to the Registrant are discovered or new or stricter
requirements are imposed.
Item 2. Properties
The Registrant conducts its manufacturing operations from three plants in
Alabama, two plants in Florida, one plant in Honduras, C.A. and one plant in
North Carolina. The Registrant's principal executive offices are located in
Plymouth Meeting, Pennsylvania, a suburb of Philadelphia. The Registrant's
sales, marketing, merchandising and design functions are conducted from its
offices located in New York, New York. The Registrant believes that its plants
and equipment are well maintained and are sufficient, when combined with
production from outside contractors, to meet expected output levels in fiscal
year 1997. In addition, the Registrant leases an office in suburban Wilmington,
Delaware for its subsidiary, Kleinert's, Inc. of Delaware.
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19
The following table sets forth a summary of the principal facilities owned
or leased by the Registrant as of January 1, 1997:
Basis of
Location Primary Use Sq. Ft. Occupancy
- -------- ----------- ------- ---------
Elba, Manufacture of children's 340,000 Owned
Alabama apparel
Elba, Finished goods warehouse 11,000 Lease expiring
Alabama November 30, 1997
Greenville, Sewing of T-shirts and 22,000 Lease expiring
Alabama activewear tops February 14, 1998(1)
New York, Marketing, merchandising 12,878 Lease expiring
New York and design of infant's March, 2001
and children's wear
Plymouth Executive offices 3,900 Lease expiring
Meeting, September, 2001
Pennsylvania
Largo, Manufacture of Children's 78,000 Lease expiring
Florida apparel December, 1998(2)
Safety Harbor, Manufacture of Children's 7,000 Lease expiring
Florida apparel July, 1997(2)
San Pedro Manufacture of Children's 42,000 Lease expiring
Sula apparel October, 2000(2)
Honduras, CA
San Pedro Visitors housing facility 1,400 Lease expiring
Sula May 1997
Honduras, CA
Gastonia, Knitting and warehouse 27,000 Lease expiring
North Carolina yarn and finished goods April, 2001
- ----------
(1) The Registrant has an option to renew the lease for an additional one year,
and has an option to purchase this facility, including approximately 5.6
acres of land, for $140,000. Certain portions of the rental payments may be
applied against the purchase price.
(2) The Registrant has options to renew these leases.
<PAGE>
20
Item 3. Legal Proceedings
The Registrant currently is not a party to any material litigation.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted to a vote of security holders through the
solicitation of proxies or otherwise during the fourth quarter of fiscal year
1996.
<PAGE>
21
PART II
Item 5. Market For The Registrant's Common Stock
And Related Stockholder Matters
The Registrant's common stock is traded in the over-the-counter market on
the NASDAQ National Market System under the symbol "KLRT". The following table
sets forth for the periods indicated the high and low closing sale prices as
reported by NASDAQ.
Stock Price Range
-----------------
High Low
---- ---
Fiscal Year 1996
----------------
Dec 3, 1995 - Mar. 2, 1996 $17 1/2 $15 3/4
Mar. 3, 1996 - June 1, 1996 $17 1/2 $15
June 2, 1996 - Aug. 31, 1996 $17 1/2 $15
Sept. 1, 1996 - Nov. 30, 1996 $18 $16 1/8
Fiscal Year 1995
----------------
Dec. 4, 1994 - Mar. 4, 1995 $22 1/4 $15 3/4
Mar. 5, 1995 - June 3, 1995 $21 1/2 $18
June 4, 1995 - Sept. 2, 1995 $18 3/4 $16
Sept. 3, 1995 - Dec. 2, 1995 $18 $15 1/4
The Registrant's common stock is thinly traded. The average weekly trading
volume in fiscal years 1996 and 1995 was approximately 7,300 and 9,100 shares,
respectively.
<PAGE>
22
On February 3, 1997, the closing sale price of the common stock was $17.50.
On that date there were in excess of 250 holders of record of the common stock
of the Registrant and there is estimated to be in excess of 500 shareholders of
the common stock of the Registrant.
No cash dividends were paid with respect to the Registrant's common stock
during the past five fiscal years. The Registrant's working capital loan
agreements provide that no cash dividends may be paid on the common stock unless
the Registrant's consolidated net worth exceeds $15,000,000 after the payment of
cash dividends. The Registrant's working capital loan agreements also require
the Registrant to maintain certain financial covenants, including requirements
on pretax income, working capital, tangible net worth, debt and capital
expenditures. The Registrant was in compliance with all such financial covenants
as of November 30, 1996. The Registrant does not expect to pay cash dividends in
the foreseeable future, but rather expects to use its cash to expand its
operations and become less of a seasonal borrower for working capital.
<PAGE>
23
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
--------------Fiscal Year Ended--------------
Nov. 30, Dec. 2, Dec. 3, Nov. 27, Nov. 28,
1996 1995 1994 (1) 1993 1992
---------- ---------- ---------- ---------- ----------
(Dollar amounts in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Operating Results:
Net sales $ 86,759 $ 75,121 $ 69,262 $ 61,428 $ 58,542
========== ========== ========== ========== ==========
Income from
continuing
operations before
cumulative effect
of change in
accounting for
income taxes $ 4,976 $ 4,331 $ 3,872 $ 3,325 $ 3,124
========== ========== ========== ========== ==========
Loss from
discontinued opera-
tions, net of tax
effect $ -- $ -- $ -- $ (1,263) $ (2,599)
========== ========== ========== ========== ==========
Cumulative effect
of change in
accounting for
income taxes $ -- $ -- $ 210 $ -- $ --
========== ========== ========== ========== ==========
Per Share:
Income from
continuing
operations before
cumulative effect
of change in
accounting for
income taxes $ 1.31 $ 1.15 $ 1.04 $ .93 $ .90
========== ========== ========== ========== ==========
Loss from
discontinued opera-
tions $ -- $ -- $ -- $ (.35) $ (.75)
========== ========== ========== ========== ==========
Cumulative effect
of change in
accounting for
income taxes $ -- $ -- $ .06 $ -- $ --
========== ========== ========== ========== ==========
Total assets $ 62,832 $ 48,222 $ 40,462 $ 41,907 $ 42,472
========== ========== ========== ========== ==========
Long-term debt $ 6,834 $ 3,429 $ 4,624 $ 5,469 $ 6,643
========== ========== ========== ========== ==========
</TABLE>
(1) Includes 53 weeks of operations.
<PAGE>
24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net Sales. The following table presents, for the periods indicated,
Kleinert's net sales by product line and segment.
Fiscal Year Ended
---------------------------------------
Nov. 30, Dec. 2, Dec. 3,
1996 1995 1994
-------- -------- --------
($000's omitted)
Sleepwear $ 40,155 $ 37,015 $ 34,601
Playwear 30,831 31,432 29,892
T-shirts 4,762 5,640 3,604
Sportswear 9,363 -- --
-------- -------- --------
Total Children's Apparel 85,111 74,087 68,097
Personal Apparel 916 1,034 1,165
Textile 732(1) -- --
-------- -------- --------
Total $ 86,759 $ 75,121 $ 69,262
======== ======== ========
(1) Includes net sales for the two months of operations included in the
Registrant's consolidated net sales from and after the effective date of the
merger of Scott Mills into Kleinert's, Inc. of Alabama.
Kleinert's business is highly seasonal the second half of the fiscal year
(June through November) typically accounts for greater than 70% of annual
sales. Retail customers typically build inventory levels prior to the
August-September "back to school" period and continue to re-stock throughout the
fall.
Net sales increased $11,638,000 or 15.5% in fiscal year 1996 compared to
fiscal year 1995. This increase was primarily due to the acquisition in December
1995 of Pixie Playmates, a woven sportswear company. Sportswear sales
represented 10.8% of the Company's net sales for 1996. In addition, Kleinert's
core business showed improved sales in sleepwear, an 8.5% or $3,140,000
increase. This increase was a result of increased market share as retail selling
prices remained relatively constant throughout both years. These increases were
offset by decreases in both the T-shirt and playwear lines; 15.6% or $878,000 in
T-shirts and 1.9% or $601,000 in playwear. The decrease in T-shirts is due to
lower sales to the Company's
<PAGE>
25
significant customer in this product line. The Company is evaluating its options
with regard to the T-shirt business due to a change in the financial stability
of its significant customer in this product line.
Net sales increased $5,859,000 or 8.4% in fiscal year 1995 compared to
fiscal year 1994. This increase was primarily due to a 7% increase or $2,414,000
in sleepwear and a 5% increase or $1,540,000 in playwear and a 56% increase or
$2,036,000 in T-shirt sales. The increase in net sales represented an increase
in market share since retail selling prices remained relatively constant
throughout both years.
A substantial portion of the increased market share during the periods
presented has resulted from the successful implementation of sleepwear and
playwear programs at some of the largest retail chains in the country.
Kleinert's has developed a well earned reputation for quality and on-time
delivery. Having been given increased opportunities to work with the successful
large retailers in an ever consolidating field, Kleinert's has proven its
reputation and received additional business. Kleinert's has supported its
product penetration primarily by expanding its design effort both by increasing
its staff and adding to its state-of-the-art computer assisted design equipment.
The years ended November 30, 1996 and December 2, 1995 were 52 week years
and the year ended December 3, 1994 contained 53 weeks. The impact of the
additional week for the year ended December 3, 1994, relative to total sales for
the entire fiscal year, was not significant.
<PAGE>
26
Gross Profit
The following table presents, for the periods indicated, Kleinert's gross
profit dollars (net sales less cost of goods sold) and gross profit as a
percentage of net sales (profit margin) for each of its segments.
Fiscal Year Ended
-----------------------------------------------------------
Nov. 30, 1996 Dec. 2, 1995 Dec. 3, 1994
------------- ------------ ------------
% of Net % of Net % of Net
Sales Sales Sales
-------- -------- --------
($000's omitted))
Children's
Apparel $15,184 18% $13,114 18% $12,039 18%
Personal Apparel 348 40% 371 36% 437 38%
Textiles 114 16% -- -- -- --
------- -- ------- -- ------- --
Total $15,646 18% $13,485 18% $12,476 18%
======= == ======= == ======= ==
Gross profit increased $2,161,000 in fiscal year 1996 compared to fiscal
year 1995 and the profit margin remained stable at 18% when compared to fiscal
year 1995. Gross profit increased $1,009,000 in fiscal year 1995 compared to
fiscal year 1994 while the profit margin remained stable at 18% when compared to
fiscal year 1994.
General corporate expenses which are included in cost of goods sold
increased $62,000 to $1,766,000 in fiscal year 1996 compared to $1,704,000 in
fiscal year 1995.
Total overhead included in cost of goods sold also included a large fixed
cost component related to Kleinert's Elba, Alabama manufacturing facility that
has remained relatively constant and has not increased in proportion to the
additional sales volume. This has served to stabilize margins in spite of
extreme competitive pressure on product pricing and the slight increase in
general corporate expenses noted between fiscal year 1996 and 1995. Kleinert's
intends to continue to maintain margins at current levels by controlling fixed
costs and seeking to lower variable costs through volume purchasing of raw
materials and sourcing of labor as required.
<PAGE>
27
General corporate expenses which are included in cost of goods sold
increased $743,000 to $1,704,000 in fiscal year 1995 compared to fiscal year
1994 principally due to increased salaries, legal expenses and reduced
reimbursement from Scott Mills to Kleinert's for certain corporate support
services in fiscal year 1995 when compared to fiscal 1994.
Depreciation and amortization expense was $1,038,000, $676,000 and $674,000
in the three fiscal years ended November 30, 1996, December 2, 1995, and
December 3, 1994, respectively.
<PAGE>
28
Selling, General and Administrative Expenses
The following table presents, for the periods indicated, Kleinert's
selling, general and administrative expenses, including design, merchandising
and related expenses, in dollars and as a percentage of net sales for each of
its segments.
Fiscal Year Ended
---------------------------------------------------------------
Nov. 30, 1996 Dec. 2, 1995 Dec. 3, 1994
------------- ------------ ------------
% of Net % of Net % of Net
Sales Sales Sales
-------- -------- --------
($000's omitted))
Children's
Apparel $5,667 6.7% $4,971 6.7% $4,967 7.3%
Personal
Apparel 195 21.3% 180 17.4% 183 15.7%
Textile 79 8% -- -- -- --
------ ---- ------ ---- ------ ----
Total $5,941 6.8% $5,151 6.9% $5,150 7.4%
====== ==== ====== ==== ====== ====
The percentage of selling, general and administrative expenses to net sales
("expense ratio") in fiscal year 1996 was 6.8% compared to 6.9% in fiscal year
1995.
The expense ratio decreased to 6.9% in fiscal year 1995 from 7.4% in fiscal
year 1994. The decrease represented increased sales volume compared to
relatively constant expenses when comparing fiscal year 1995 to fiscal 1994.
Interest Expense
Interest expense in fiscal year 1996 was $1,932,000, a $281,000 increase
when compared to fiscal year 1995. The increase was principally due to the term
debt related to the Pixie Acquisition. Interest expense in fiscal year 1995 was
$1,651,000, a $248,000 increase when compared to fiscal year 1994. The increase
was due primarily to higher short-term interest rates partially offset by lower
average short term borrowing levels.
<PAGE>
29
Income Taxes:
The effective tax rates for fiscal years 1996, 1995 and 1994 were 36.0%,
35.2% and 34.6%, respectively.
Impact of Inflation and Changing Prices
on Sales and Income from Operations
In fiscal year 1994, Kleinert's experienced an increase in raw material
prices which continued into fiscal year 1995. The impact on margins of increased
raw material prices was offset primarily by increased sales volume that
permitted the absorption of relatively stable fixed costs. Consequently, margins
remained stable without a corresponding increase in selling prices. Raw material
prices did not change significantly in 1996. Kleinert's was not able to increase
its selling prices during fiscal year 1996; therefore, Kleinert's continues to
examine all of its costs in an effort to maintain its profit margins.
Liquidity and Capital Resources
At November 30, 1996, the Registrant had working capital of
$22,706,000 compared to $18,557,000 at December 2, 1995. The ratio of current
assets to current liabilities was 1.95 to 1.0 and 1.91 to 1.0 at November 30,
1996 and December 2, 1995, respectively. The ratio of liabilities to equity was
.98 to 1.0 and 1.0 to 1.0 at November 30, 1996 and December 2, 1995,
respectively.
Net cash used in operating activities increased $111,000 from ($314,000) in
fiscal year 1995 to $(425,000) in fiscal year 1996.
Cash used in investing activities increased $4,391,000 to ($6,187,000) in
1996 from ($1,796,000) in 1995. The increase was primarily the result of the
acquisition of the assets of Pixie and the capital stock of CASH for an
aggregate cash purchase price of $4,650,000.
Net cash provided by financing activities increased by $4,375,000 to
$6,680,000 in 1996 from $2,305,000 for 1995. The increase was primarily
<PAGE>
30
the result of $1,938,000 of proceeds from the sale of common stock upon the
exercise of stock options, the addition of a $4,650,000 term debt facility to
finance the purchase of the Pixie Acquisition, offset by the purchase of
treasury stock of $749,000. The term loan is in the form of an amended and
restated term loan note with the same bank as the original term loan. The total
borrowing at November 30, 1996 was $7,449,000 which is payable in quarterly
installments of $300,000 through September 2002 with a final installment of
$249,000 due December 2002. The annual interest rate is based on LIBOR but has
been effectively fixed at 7.00% by an interest rate swap agreement with the same
bank.
Kleinert's uses its short-term borrowings to build inventory levels for
shipment in the fall season.
Kleinert's believes that cash flow generated by operations, together with
amounts available under its existing credit arrangements, should be sufficient
to fund its working capital needs in fiscal year 1997 and for the foreseeable
future.
<PAGE>
31
The Registrant anticipates spending approximately $1.6 million for capital
expenditures in fiscal year 1997 primarily for machinery improvements at the
Elba facility, leasehold improvements at the New York office and to replace old
equipment which the Registrant believes will improve its manufacturing
operations. Depreciation expense is expected to approximate $1.3 million for
fiscal year 1997.
The Registrant sold its non-operating property in June 1994 for $500,000
which required the Registrant to accept a three year $350,000 note receivable.
The sale of the property resulted in a small loss. The balance on the note
receivable at November 30, 1996 was $80,000.
Kleinert's has unsecured line of credit aggregating $42,500,000 of which
$12,871,000 was outstanding at November 30, 1996 bearing interest at rates
ranging from 6.2% to 7.0%. The maximum outstanding borrowings were $29,676,000
in fiscal year 1996.
Kleinert's expects to fund its capital needs primarily from cash flow
generated by operations over the next twelve months. Since Kleinert's uses its
short-term lines of credit to fund working capital needs, any additional
financing related to capital needs is generally provided either by lease
financing or other long-term sources. Currently, Kleinert's has no material
capital commitments.
Impact of Recently Issued Accounting Standards
In March 1995, the FASB issued Statement No. 121 Accounting for the
Impairment of Long-Lives Assets to Be disposed Of, which requires impairment
losses to be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are expected to be disposed
of. The Registrant expects the impact of adoption in 1997 will be insignificant.
<PAGE>
32
In October 1995, the Financial Accounting Standards Board issued FASB
Statement No. 123, Accounting for Stock-Based Compensation. The new standard
prescribes new accounting and reporting standard which reflect the standards'
"fair value method" to estimate expense associated with stock based
compensations plans. Companies may elect to continue to use existing accounting
rules or adopt the "fair value method" for expense recognition. Companies that
elect to continue to use existing accounting rules will be required to provide
pro-forma disclosures of what net income and earnings per share would have been
had the new "fair value method" been used. The Registrant will elect to continue
to use existing accounting rules.
Both statements are effective for fiscal years beginning after December 15,
1995 and, accordingly, will not be required until fiscal year 1997.
<PAGE>
33
Item 8. Consolidated Financial Statements
and Supplementary Data
Page
----
Report of Independent Auditors 34
Consolidated Balance Sheets at November
30, 1996, and December 2, 1995 35
Consolidated Statements of Operations
for the Fiscal Years ended November 30,
1996, December 2, 1995 and December 3, 1994 37
Consolidated Statements of Shareholders'
Equity for the Fiscal Years ended November 30,
1996, December 2, 1995, and December 3, 1994 38
Consolidated Statements of Cash Flows
for the Fiscal Years ended November 30,
1996, December 2, 1995 and December 3, 1994 39
Notes to Consolidated Financial
Statements 41
<PAGE>
34
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders of Kleinert's, Inc.
We have audited the accompanying consolidated balance sheets of Kleinert's, Inc.
as of November 30, 1996 and December 2, 1995 and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended November 30, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a text basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Kleinert's, Inc.
at November 30, 1996 and December 2, 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
November 30, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1994 the Company changed
its method for accounting for income taxes.
Philadelphia, Pennsylvania
February 14, 1997
<PAGE>
35
KLEINERT'S, INC.
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1996 AND DECEMBER 2, 1995
($000's omitted)
ASSETS 1996 1995
------ -------- --------
Current assets:
Cash $ 395 $ 327
Accounts receivable (net of allowances
for doubtful accounts of $206 and
$259, respectively) 23,552 21,899
Inventories:
Raw materials 6,451 4,222
Work-in-process 4,430 4,321
Finished goods 7,545 5,987
-------- --------
Total inventories 18,426 14,530
-------- --------
Deferred tax assets 3,101 182
Other current assets 1,067 2,198
-------- --------
Total current assets 46,541 39,136
-------- --------
Property, plant and equipment, at cost
Building and leasehold improvements 5,714 5,106
Machinery and equipment 10,825 6,070
Furniture and fixtures 621 368
Construction in progress 317 --
-------- --------
17,477 11,544
-------- --------
Less accumulated depreciation 8,287 6,051
-------- --------
Net property, plant and equipment 9,190 5,493
-------- --------
Goodwill 3,803 310
Cash surrender value (net) 2,861 2,402
Other assets 437 881
-------- --------
$ 62,832 $ 48,222
======== ========
See notes to consolidated financial statements
<PAGE>
36
KLEINERT'S, INC.
CONSOLIDATED BALANCE SHEETS
(continued)
NOVEMBER 30, 1996 AND DECEMBER 2, 1995
($000's omitted)
LIABILITIES and SHAREHOLDERS' EQUITY 1996 1995
------------------------------------ -------- --------
Current liabilities:
Notes payable and current portion of
long-term debt $ 14,768 $ 14,195
Accounts payable 6,071 5,024
Accrued expenses 2,996 1,360
-------- --------
Total current liabilities 23,835 20,579
Deferred income taxes 410 134
Long-term debt 6,834 3,429
-------- --------
Total liabilities 31,079 24,142
-------- --------
Commitments -- --
Shareholders' equity
Preferred stock - par value $1.00 per
share, 2,000,000 shares authorized,
none issued -- --
Common stock - par value $1.00 per
share, 10,000,000 shares authorized,
4,249,398 and 3,798,398 shares
issued, respectively 4,249 3,798
Capital in excess of par value 13,621 10,626
Retained earnings 17,848 12,872
-------- --------
35,718 27,296
Less:
Treasury stock, at cost, 513,467 and
466,967 common shares (3,965) (3,216)
-------- --------
Total shareholders' equity 31,753 24,080
-------- --------
$ 62,832 $ 48,222
======== ========
See notes to consolidated financial statements
<PAGE>
37
KLEINERT'S INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Fiscal Years Ended November 30, 1996,
December 2, 1995 and December 3, 1994
($000's omitted, except per share amounts)
1996 1995 1994
-------- -------- --------
Net sales $ 86,759 $ 75,121 $ 69,262
Cost of goods sold 71,113 61,636 56,786
-------- -------- --------
Gross profit 15,646 13,485 12,476
-------- -------- --------
Selling, general and administrative
expenses 5,941 5,151 5,150
Interest expense 1,932 1,651 1,403
-------- -------- --------
7,873 6,802 6,553
-------- -------- --------
Income before income taxes and cumulative
effect of change in accounting
for income taxes 7,773 6,683 5,923
Provision for income taxes 2,797 2,352 2,051
-------- -------- --------
Income before cumulative effect of change
in accounting for income taxes 4,976 4,331 3,872
Cumulative effect of change in
accounting for income taxes -- -- 210
-------- -------- --------
Net income $ 4,976 $ 4,331 $ 4,082
======== ======== ========
Earnings per share:
Income before change in accounting
for income taxes $ 1.31 $ 1.15 $ 1.04
Cumulative effect of change in
accounting for income taxes -- -- .06
-------- -------- --------
Net income $ 1.31 $ 1.15 $ 1.10
======== ======== ========
Weighted average shares outstanding 3,801 3,750 3,702
======== ======== ========
See notes to consolidated financial statements
<PAGE>
38
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Fiscal Years Ended November 30, 1996,
December 2, 1995 and December 3, 1994
($000's Omitted except share data)
<TABLE>
<CAPTION>
Number of Capital in Total
Shares Common Excess of Retained Treasury Shareholders'
Outstanding Stock Par Value Earnings Stock Equity
----------- ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance, November 27, 1993 3,367,598 $ 3,790 $ 10,513 $ 4,459 $ (2,672) $ 16,090
Exercise of incentive stock
options 8,333 8 61 69
Repurchase of common stock (44,500) (544) (544)
Tax benefit of exercise of stock
options 52 52
Net income -- -- -- 4,082 -- 4,082
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 3, 1994 3,331,431 3,798 10,626 8,541 (3,216) 19,749
Net income -- -- -- 4,331 -- 4,331
---------- ---------- ---------- ---------- ---------- ----------
Balance, December 2, 1995 3,331,431 $ 3,798 $ 10,626 $ 12,872 $ (3,216) $ 24,080
Exercise of incentive stock
options 400,000 400 1,538 1,938
Repurchase of common stock (46,500) (749) (749)
Tax benefit of exercise of stock
options 758 758
Acquisition of Scott Mills 51,000 51 699 750
Net income -- -- -- 4,976 -- 4,976
---------- ---------- ---------- ---------- ---------- ----------
Balance, November 30, 1996 3,735,931 $ 4,249 $ 13,621 $ 17,848 $ (3,965) $ 31,753
========== ========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
39
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal Years Ended November 30, 1996,
December 2, 1995 and December 3, 1994 and
($000's omitted)
1996 1995 1994
-------- -------- --------
Cash flows from operations:
Net income $ 4,976 $ 4,331 $ 4,082
Adjustments to reconcile net income
to net cash (used in) provided
by operating activities
Depreciation and amortization 1,038 676 674
Cumulative effect of change in
accounting principle -- -- (210)
Loss on disposal of fixed assets -- -- 29
Provision for losses on
accounts receivable 53 71 80
Change in assets and liabilities
net of business acquired:
Increase in accounts
receivable (1,631) (3,915) (318)
Increase in inventory (1,382) (1,834) (943)
Decrease(increase)in other
current assets 513 (767) (450)
(Decrease)increase in accounts
payable and accrued expenses (4,844) 1,186 (1,529)
Increase (decrease) in income
taxes payable 659 (73) --
Decrease (increase) in other assets (83) -- --
Increase in deferred income taxes 276 11 89
-------- -------- --------
Total adjustments (5,401) (4,645) (2,578)
-------- -------- --------
Net cash (used in) provided by
operating activities (425) (314) 1,504
-------- -------- --------
Cash flows from investing activities:
Purchase of Pixie (4,650) -- --
Purchase of Scott Mills (101) -- --
Capital expenditures (1,556) (1,012) (618)
Note receivable related party -- (500) --
Proceeds from sale of non-operating
property -- -- 185
Additions to other assets (384) (457)
Proceeds from note receivable 120 100 --
-------- -------- --------
Net cash used in investing
activities (6,187) (1,796) (890)
-------- -------- --------
See notes to consolidated financial statements
<PAGE>
40
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Fiscal Years Ended November 30, 1996,
December 2, 1995 and December 3, 1994
($000's omitted)
1996 1995 1994
-------- -------- --------
Cash flows from financing activities:
Net borrowings and (repayments) under
revolving line-of-credit agreement (129) 3,500 1,389
Proceeds from long-term debt 4,650 -- 544
Dividends paid -- -- (1,300)
Principal payments on debt 1,119 (1,195) (1,407)
Proceeds from exercise of stock options 1,939 -- 69
Payments to acquire treasury stock (749) -- (544)
Scott Mills acquisition (150) -- --
-------- -------- --------
Net cash provided by (used in)
financing activities 6,680 2,305 (1,249)
-------- -------- --------
Net increase (decrease) in cash 68 195 (635)
Cash at beginning of period 327 132 767
-------- -------- --------
Cash at end of period $ 395 $ 327 $ 132
======== ======== ========
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 1,556 $ 1,730 $ 1,150
Income taxes $ 1,215 $ 2,046 $ 2,289
Note receivable on sale of non-operating
property -- -- $ 350
See notes to consolidated financial statements
<PAGE>
41
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
1. Business of the Company and
Summary of Significant Accounting Policies
Business of the Company - The Company manufactures and sells infants' and
children's sleepwear, sportswear, activewear and personal apparel, including
such items as dress and garment shields. The Company's principal customers are
national chain stores, mass merchandisers, department stores and specialty
stores. The Company made two acquisitions during fiscal year 1996.
In December 1995, certain assets of Pixie Playmates were purchased. Pixie
is engaged in the manufacturing of children's playwear, principally the
manufacturing of woven products.
In October 1996, the Company acquired Scott Mills, Inc. ("Scott Mills") in
a merger of Scott Mills into Kleinert's, Inc. of Alabama. Scott Mills is a
knitting mill producing double knit, fleece, terrycloth and jersey fabrics. It
has been and will continue to be a large supplier of fabric for Kleinert's.
Scott Mills prior to December 1993 was a subsidiary of the Company in its
textile division. On November 27, 1993, Scott Mills was spun-off in a tax-free
distribution to Kleinert's shareholders to operate as a separate Company.
Principles of Consolidation - The consolidated financial statements include
the accounts of Kleinert's, Inc. (Kleinert's) and its wholly-owned subsidiaries,
Kleinert's, Inc. of Alabama, Kleinert's, Inc. of Delaware, Kleinert's, Inc. of
Florida, Certified Apparel Services of Honduras, Inc. and Kleinert's, Inc. of
New York.
<PAGE>
42
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
1. Business of the Company and
Summary of Significant Accounting Policies (continued)
All significant intercompany balances and transactions have been eliminated
in consolidation.
Use of estimates - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Fiscal Year - The Company utilizes a 52-53 week fiscal year ending on the
Saturday nearest November 30. Fiscal years 1996 and 1995 were fifty two week
years. Fiscal year 1994 was a fifty three week year.
Inventories - Inventories are stated at the lower of cost or market. Cost
is determined on a first-in, first-out basis. Aggregate corporate general and
administrative charges were $1,766,000, $1,704,000 and $961,000 for fiscal years
1996, 1995 and 1994, respectively. Such costs remaining in inventory at November
30, 1996 and December 3, 1995 were approximately $434,000, $390,000, and
$211,000, respectively.
Revenue Recognition - The Company's sale of product is recorded net of
returns, allowances and discounts.
<PAGE>
43
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
1. Business of the Company and
Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment - Property, plant and equipment is recorded
at cost. The Company depreciates property, plant and equipment over their
estimated useful lives, principally on a straight-line basis.
Useful Lives
------------
Buildings 30 - 40 years
Leasehold improvements Term of lease
Machinery and equipment 3 - 10 years
Furniture and fixtures 3 - 5 years
Earnings Per Share - Earnings per share has been computed based on the weighted
average number of common shares and equivalents outstanding during each period
presented.
Goodwill - Goodwill represents the excess of the cost over the fair value
of the net assets at the date of acquisition and is being amortized using the
straight-line method over 40 years.
Income Taxes - The Company accounts for income taxes under the provisions
of Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (FAS #109). This statement requires recognition of deferred tax assets
and liabilities for all timing differences resulting from reporting certain
income and expense items differently for income tax and financial accounting
purposes. Prior to fiscal year 1994, income taxes were accounted for under APB
Opinion No. 11. The impact of the adoption of the
<PAGE>
44
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
1. Business of the Company and
Summary of Significant Accounting Policies (continued)
change in accounting for income taxes during fiscal year 1994 was $210,000.
Financial Statement Reclassification - Certain prior years' amounts in the
consolidated financial statements have been reclassified to conform to the
fiscal year 1996 presentation.
Stock Based Compensation - The Company accounts for stock options according
to the provisions of Accounting Principles Board Opinion 25 (APB 25), Accounting
for Stock Issued to Employees. In October 1995, the Financial Accounting
Standards Board issued FASB Statement No. 123, Accounting for Stock-Based
Compensation. The new standard prescribes new accounting and reporting standards
which reflect the standards' "fair value method" to estimate expense associated
with stock based compensations plans. Companies may elect to continue to use
existing accounting rules (APB 25) or adopt the "fair value method" for expense
recognition. Companies that elect to continue to use existing accounting rules
(APB 25) will be required to provide pro-forma disclosures of what net income
and earnings per share would have been had the new "fair value method" been
used. The Company will elect to continue to use existing accounting rules. The
new statement is effective for
<PAGE>
45
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
1. Business of the Company and
Summary of Significant Accounting Policies (continued)
fiscal years beginning after December 15, 1995. Accordingly, the new standards
pro-forma disclosure provisions will be required for the Company for its fiscal
year ending November 29, 1997.
Accounting for the Impairment of Long-Lived Assets- In March 1995, the FASB
issued Statement No. 121 Accounting for the Impairment of Long-Lives Assets to
Be disposed Of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The statement is
effective for fiscal years beginning after December 15, 1995 and accordingly
will not be implemented until the Company's fiscal year ended November 29, 1997.
The Company expects the impact of adoption in 1997 will be insignificant.
2. Financing Arrangements
Financing arrangements consist of the following:
1996 1995
---- ----
Current Long-Term Current Long-Term
------- --------- ------- ---------
($000's omitted)
Scott Mills loan $ 450 $ -- $ -- $ --
Term loans 1,200 6,249 $ 1,000 $ 2,649
Equipment loan 52 -- -- --
Revenue bond 195 585 195 780
Revolving line
of credit 12,871 -- 13,000 --
-------- -------- -------- --------
$ 14,768 $ 6,834 $ 14,195 $ 3,429
======== ======== ======== ========
<PAGE>
46
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
2. Financing Arrangements (continued)
The following information relates to the Company's short-term revolving
lines of credit:
Weighted
Weighted Maximum Amount Average Amount
Average Outstanding At Outstanding
Interest Any Month-End During The
Rate (1) During the Period Period (2)
-------- ----------------- ----------
($000's omitted)
1996 6.4% $29,676 $17,874
1995 7.0% $23,480 $13,521
1994 6.3% $20,540 $11,388
(1) The weighted average interest rate for each period was computed by
dividing interest expense by the weighted average amount outstanding.
(2) The weighted average amount outstanding for each period was computed
by averaging the daily balances during the year.
The Company's agreement with its banks provided for a $42,500,000 unsecured
line of credit in fiscal year 1996 bearing interest between 6% and the prime
rate (8.25% as of November 30, 1996) and required compensating balances. For
fiscal year 1997, the Company also has available $42,500,000 in unsecured lines
of credit. On November 30, 1996 the unused portion of the lines of credit was
$29,629,000. Short term debt includes $450,000 assumed by the Company upon the
acquisition of Scott Mills related to subordinated five year term notes bearing
interest at 8.5% per annum. The Company repaid these loans on February 14, 1997.
On February 28, 1996, the Company amended its existing term loan and
provided for an additional term debt facility of
<PAGE>
47
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
2. Financing Arrangements (continued)
$4,650,000 to finance the Pixie Acquisition. The term loan is in the form of an
amended and restated term loan note with the same bank as the original term
loan. Total borrowing at November 30, 1996 was $7,449,000. The interest rate is
indexed by LIBOR rates plus 1.12%. The LIBOR rate at November 30, 1996 was 5.5%.
Simultaneously, the Company entered into an interest rate swap to convert
its floating rate to a fixed rate of 5.88% which effectively fixes the rate at
7.0%. This reduces the Company's risk of incurring higher interest costs due to
rising interest rates. At November 30, 1996, the interest rate swap agreement
had a notional amount of $7,449,000 which decreases $300,000 quarterly through
the September 2002 termination date. The fair value of this agreement at
November 30, 1996 was ($3,418).
The banking agreements require the Company to maintain financial statement
covenants, including requirements on pre-tax income, working capital, tangible
net worth, debt and capital expenditures. In addition, no cash dividends may be
paid on the common stock unless the Company's net worth exceeds $15,000,000
after the payment of dividends. With the exception of this net worth covenant,
retained earnings are free of restrictions and the Company had $16,753,000 of
retained earnings available for dividends at November 30, 1996. The Company
holds an industrial revenue bond from the Industrial Development Board
<PAGE>
48
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
2. Financing Arrangements (continued)
of the City of Elba, Alabama collateralized by a first mortgage on the Elba,
Alabama facility. This loan is payable in annual installments of $195,000 with
the final payment due in October 2000. Interest is payable quarterly at a
variable rate of 85% of the bank's prime rate. Prime rate was 8.25% at November
30, 1996 and 8.75% at December 2, 1995.
Aggregate maturities of long-term debt after November 30, 1996 are as
follows: 1997 - $1,897,000; 1998 - $1,395,000; 1999 - $1,395,000; 2000 -
$1,395,000; 2001 - $1,200,000; thereafter - $1,449,000
Borrowings against the cash surrender value of officers' life insurance
policies amounted to $3,754,000 and $3,450,000 as of November 30, 1996 and
December 2, 1995, respectively. These borrowings are recorded as a reduction in
the related assets and bear interest ranging from 7.11% to 7.24% in fiscal year
1996.
<PAGE>
49
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
3. Income Taxes
The provision for income taxes consists of the following:
Liability Method
----------------
1996 1995 1994
---- ---- ----
Current:
Federal $ 2,508,000 $ 2,245,000 $ 1,838,000
State 232,000 135,000 43,000
------------ ------------ ------------
2,740,000 2,380,000 1,881,000
------------ ------------ ------------
Deferred:
Federal 56,000 (30,000) 176,000
State 1,000 2,000 (6,000)
------------ ------------ ------------
57,000 (28,000) 170,000
------------ ------------ ------------
$ 2,797,000 $ 2,352,000 $ 2,051,000
============ ============ ============
Income tax expense differs from the amount computed by applying the federal
tax rate to income before income taxes are as follows:
Liability Method
----------------
1996 1995 1994
---- ---- ----
Statutory rate applied to
income before income taxes $ 2,643,000 $ 2,272,000 $ 2,014,000
State taxes, net of federal
benefit 154,000 90,000 28,000
Other -- (10,000) 9,000
------------ ------------ ------------
$ 2,797,000 $ 2,352,000 $ 2,051,000
============ ============ ============
<PAGE>
50
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
3. Income Taxes (continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets, as of November 30, 1996 and
December 2, 1995 are as follows:
1996 1995
---- ----
Deferred Tax Assets:
Benefit plans $ 170,000 $ 156,000
Inventory reserves 104,000 75,000
Bad debt expense 73,000 92,000
Vacation 23,000 15,000
Scott Mills - dyehouse closing
reserve 188,000 --
Scott Mills net operating loss 2,814,000 --
Valuation allowance (101,000) --
------------ ------------
$ 3,271,000 $ 338,000
------------ ------------
Deferred Tax Liabilities:
Depreciation $ 580,000 $ 290,000
------------ ------------
Net deferred tax asset $ 2,691,000 $ 48,000
============ ============
The Company succeeded to the tax attributes of Scott Mills, Inc. which was
acquired on September 30, 1996. Accordingly, the deferred tax accounts of Scott
Mills, Inc. have been adjusted to reflect the acquisition. Approximately,
$7,500,000 of net operating loss carryforwards of Scott Mills, Inc. are
available to be utilized to reduce federal and state income taxes. The federal
tax carryforwards begin to expire in 2009 and the state tax carryforwards begin
to expire in 1999.
<PAGE>
51
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
3. Income Taxes (continued)
A valuation allowance has been reflected to provide for state tax carryforwards
that may expire prior to utilization.
4. Retirement Plans
The Company has a defined benefit pension plan (the Plan) covering
substantially all of its employees subject to certain age and service
requirements. Normal costs and past service costs are amortized over thirty
years. The Company contributions to the Plan are made in accordance with
applicable E.R.I.S.A. and tax regulations. Assets of the Plan are invested in
equity, corporate and government bonds and short-term instruments. Pension costs
for fiscal years 1996, 1995, and 1994 are as follows:
1996 1995 1994
---- ---- ----
Benefits earned during the period $ 336,249 $ 289,688 $ 271,405
Interest cost on benefits earned
in prior years 277,855 231,054 209,540
Net investment (income) loss (388,750) (475,375) 88,677
Net amortization and deferral 71,520 207,339 (317,020)
---------- ---------- ----------
$ 296,874 $ 252,706 $ 252,602
========== ========== ==========
The projected benefit obligation below is based on the following
assumptions:
1996 1995 1994
---- ---- ----
Discount rate 7.75% 7.0% 7.75%
Weighted average expected
long-term rate of return 8.75% 8.75% 7.75%
Annual rate of increased
compensation 4.00% 4.0% 5.0%
<PAGE>
52
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
4. Retirement Plans (continued)
The following is a reconciliation of the Plan's assets and liabilities to
amounts recorded in the Company's financial statements:
1996 1995
---- ----
Present value of future benefit
payments based on service to date and
present pay levels:
Vested ................................... $ 3,549,197 $ 3,295,523
Non-vested ............................... 99,514 88,664
------------ ------------
Accumulated benefit obligation ......... 3,648,711 3,384,187
Projected pay increases ..................... 452,914 472,967
------------ ------------
Projected benefit obligation (PBO) ....... 4,101,625 3,857,154
Fair value of plan assets
available for benefits ...................... 3,983,020 3,494,944
------------ ------------
Liabilities in excess of PBO ................. (118,605) (362,210)
Items not yet recognized in the
Company's balance sheet:
Unamortized transition asset ............. (111,983) (130,646)
Unamortized prior service cost ........... 17,096 27,707
Unrecognized net actuarial and
investment losses ...................... 401,310 560,099
------------ ------------
Prepaid pension cost ......................... $ 187,818 $ 94,950
============ ============
Participants' benefits are fully vested after five years, and future
benefit accruals are 0.8% of each year's compensation.
The Company has supplemental retirement agreements with certain key
employees. The cost of these benefits, which are funded with life insurance
contracts, are expensed over the employees' service lives and amounted to
$129,000, $104,000, and $58,000 in fiscal years 1996, 1995, and 1994,
respectively.
<PAGE>
53
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
5. Property, Plant and Equipment and Lease Commitments
Depreciation expense was $1,013,000, $661,000 and $659,000 for fiscal years
1996, 1995 and 1994 respectively.
Rent expense under operating leases was $1,579,797, $1,350,000 and
$1,094,000 in fiscal years 1996, 1995 and 1994, respectively. Minimum rentals
for operating leases (principally office space, machinery and equipment) that
have initial or remaining noncancelable lease terms in excess of one year as of
November 30, 1996 are as follows:
Fiscal Year Amount
1997 - 1,445,000
1998 - 1,261,000
1999 - 833,000
2000 - 668,000
2001 - 236,000
----------
Total $4,443,000
==========
<PAGE>
54
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
5. Property, Plant and Equipment and Lease Commitments
(continued)
The Company sold its non-operating property in June 1994 for $500,000 and
accepted a 3 year, $350,000 note receivable. The sale of the property resulted
in a small loss.
6. Shareholders' Equity
The Company's 1991 stock option plan authorizes the issuance of 500,000
shares of common stock to officers, directors and key employees.
During 1996, a new stock incentive plan began authorizing the issuance of
500,000 shares of common stock to officers, directors and key employees.
<PAGE>
55
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
6. Shareholders' Equity (continued)
The information with respect to the 1991 and 1996 incentive stock option
plans related to qualified stock options is as follows:
Fiscal Year Ended
11/30/96 12/2/95 12/3/94
---------- ---------- ----------
Options outstanding beginning
of period 200,000 190,000 215,000
Granted under Plan (1) 40,000 10,000 --
Exercised -- -- (8,333)
Canceled -- -- (16,667)
---------- ---------- ----------
Options outstanding end
of period 240,000 200,000 190,000
========== ========== ==========
Exercise price per share $6.90-$18.00 $6.90-$18.00 $6.90-$12.50
Options exercisable end
of period 209,000 193,333 185,000
(1) Options granted during fiscal 1996 were granted at $15.75 per share.
Options granted during fiscal year 1995 were granted at $18.00.
On June 23, 1992 the Board of Directors granted three outside directors
non-qualified stock options to purchase 25,000 shares each of common stock at
$8.50 per share. Two of the options to purchase 25,000 shares were exercised,
one in November 1993 and one in April 1996. The remaining option expires in June
1997.
In May 1991, the Board of Directors granted the Company's Chairman and
Chief Executive Officer (the Chairman) a non-qualified stock option to purchase
375,000 shares of the Company's common stock at $4.60 per share. This option was
exercised during 1996.
On April 18, 1996, the Board of Directors granted four outside directors
non-qualified stock options to purchase 25,000 shares each of common stock at
$15.50 per share. In addition, the Board of Directors granted the Chairman a
non-qualified stock option to purchase 150,000
<PAGE>
56
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
6. Shareholders' Equity (continued)
shares of the Company's common stock at $15.50 per share. At November 30, 1996,
no options have been exercised.
On June 21, 1996, the Company announced the commencement of a common stock
repurchase program. Purchases under the program will occur in the public market
and in negotiated private transactions. Total purchases under the repurchase
program will not exceed $5,000,000. During 1996, the Company repurchased 46,500
shares of common stock at an average price of $16 1/8. Repurchases were funded
by cash from operations.
7. Commitments
The Company is funding life insurance contracts on behalf of the Chairman,
whose beneficiaries are designated by the Chairman. The funded amounts will be
repaid to the Company upon receipt of insurance proceeds, against which the
Company holds collateral assignments. The Company has included at November 30,
1996, as a non-current asset, $1,588,087.
The Company is party to an agreement with Precision Textile, Inc. (P.T.I.),
a related party, whereby P.T.I. provides low cost contract sewing labor for the
Company's children's apparel division. This agreement offers the Company the
exclusive use of P.T.I.'s low cost sewing labor in exchange for a guarantee by
the Company to purchase 100% of P.T.I.'s capital stock (for no more than
$400,000) if certain production levels are not maintained. Purchases from P.T.I.
included in cost of goods sold
<PAGE>
57
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
7. Commitments (continued)
were approximately $1,871,000, $2,525,000 and $2,539,000 in fiscal years 1996,
1995 and 1994, respectively. The Company is presently renewing the existing
agreement with P.T.I. on a year-to-year basis.
8. Major Customers
In 1996 three apparel customers individually accounted for 14%, 12% and 11%
each of the Company's consolidated net sales while the same three apparel
customers individually accounted for 6%, 19% and 14% in 1995 and 2% 21% and 15%
in 1994 of the Company's consolidated net sales.
<PAGE>
58
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
9. Segment Information
The Company's products are principally grouped into two industry segments:
children's apparel and other. Corporate assets include cash, pension assets,
cash surrender value of life insurance, non-trade receivables, general corporate
assets and goodwill.
Fiscal Year Ended
11/30/96 12/2/95 12/3/94
-------- -------- --------
($000's omitted)
Net sales to unaffiliated customers:
Children's apparel $ 85,111 $ 74,087 $ 68,097
Other 1,648 1,034 1,165
Operating profit:
Children's apparel 11,263 $ 9,847 $ 8,033
Other 208 191 254
-------- -------- --------
11,471 10,038 8,287
General corporate expenses (1,766) (1,704) (961)
Interest expense (1,932) (1,651) (1,403)
-------- -------- --------
Income before income taxes $ 7,773 $ 6,683 $ 5,923
======== ======== ========
Identifiable assets*:
Children's apparel $ 50,067 $ 43,082 $ 35,995
Other** 12,765 5,140 4,467
Capital expenditures:
Children's apparel $ 935 $ 989 $ 603
Other 621 23 15
Depreciation and amortization:
Children's apparel $ 986 $ 635 $ 619
Other 52 41 55
** Includes goodwill of $3,803, $310 and $325, respectively.
<PAGE>
59
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
10. Related Party Transactions
The Company had a six month note receivable of $373,920 with the Chairman
in accordance with his employment contract. This amount plus accrued interest
was paid in full on the due date of November 14, 1996.
11. Acquisitions
On December 19, 1995, Kleinert's, Inc., through its newly formed,
wholly-owned subsidiary, Kleinert's, Inc. of Florida,("together, the Company"),
consummated a transaction (the "Transaction") pursuant to which the Company
acquired substantially all of the assets of Pixie Playmates, Inc. ("Pixie") and
Certified Sewing Services, Inc. ("Certified") two Florida corporations, and all
of the capital stock of Certified Apparel Services of Honduras, Inc., S.A., a
Honduran corporation ("CASH"). Pixie, Certified and CASH, all of which were
affiliated entities, are engaged in the manufacture and sale of children's
apparel. Concurrent with the Transaction, the Company entered into a three year
lease agreement with the principal shareholder of Pixie for the Largo, Florida
premises in which Pixie was conducting business. Rent expense related to this
lease was $312,000 during fiscal year 1996. The Company intends to continue
manufacturing operations as was conducted by Pixie, Certified and CASH prior to
the Transaction.
In consideration for the assets of Pixie and Certified and the shares of
CASH, the Company paid an aggregate purchase price of $4,650,000 in cash. The
Company used the purchase method to account for the acquisition; accordingly,
the results of operation are included from date of acquisition. The purchase
price was financed by the Company through an amendment to its existing bank
financing agreement to provide for an
<PAGE>
60
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
11. Acquisition (continued)
additional term debt facility.
On September 30, 1996, the Company consummated the Merger (the "Merger") of
Scott Mills, Inc. ("Scott Mills"), with and into the Company's wholly-owned
subsidiary, Kleinert's, Inc. of Alabama ("Kleinert's Alabama"), pursuant to an
Agreement and Plan of Merger dated as of June 10, 1996 among the Company, Scott
Mills and Kleinert's Alabama (the "Merger Agreement"). Pursuant to the Merger
Agreement, each share of Scott Mills Common Stock outstanding on September 30,
1996 was converted into the right to receive $.03 in cash and .0152 of a share
of the Company's Common Stock, determined by the division of $.27 for each share
of Scott Mill's stock by $17.75 which represented the average price of the
Company's stock on the five trading days immediately preceding the consummation
of the Merger (as determined pursuant to the Merger Agreement). Cash was paid in
lieu of fractional shares. The Company issued approximately 51,000 shares of its
Common Stock and approximately $101,000 in cash in exchange for all of the
outstanding shares of Common Stock of Scott Mills.
Following is a schedule of assets and liabilities acquired as a result of
acquisitions:
Pixie Scott Mills
----- -----------
Current assets $ 1,722 $ 3,646
Property, plant and
equipment 2,010 1,144
Goodwill 875 2,640
Other assets 43 --
Current liabilities -- (5,866)
Long-term liabilities -- (558)
-------- --------
Net assets $ 4,650 $ 1,006
======== ========
<PAGE>
61
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
FISCAL YEARS ENDED NOVEMBER 30, 1996
DECEMBER 2, 1995, AND DECEMBER 3, 1994
11. Acquisition (continued)
The proforma unaudited results of operations for the year ended November 30,
1996 and December 2, 1995 after giving effect to these two acquisitions are as
follows:
Year Ended
Nov. 30, Dec. 2,
1996 1995
-------- --------
Net sales $ 87,934 $ 92,755
Pretax net income 6,778 1,184
Net income 4,338 758
Net income per common share 1.14 .20
The 1995 proforma results of operations include a charge of approximately
$2 million for the writedown of assets and other costs associated with the
ceasation of the dyeing and finishing operations of Scott Mills. In addition,
Scott Mills had an additional operating loss of $2,864 for fiscal year 1995
which related primarily to its unprofitable dyeing and finishing operations.
Scott Mills decided in September of 1995 to concentrate its business solely on
its knitting operations and to subcontract the dyeing and finishing services.
<PAGE>
62
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Company
This item is incorporated by reference from the definitive proxy statement
for the Annual Meeting of Shareholders presently scheduled to be held on April
17, 1997, to be filed pursuant to Regulation 14A.
Item 11. Executive Compensation
This item is incorporated by reference from the definitive proxy statement
for the Annual Meeting of Shareholders presently scheduled to be held on April
17, 1997, to be filed pursuant to Regulation 14A.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
This item is incorporated by reference from the definitive proxy statement
for the Annual Meeting of Shareholders presently scheduled to be held on April
17, 1997, to be filed pursuant to Regulation 14A.
Item 13. Certain Relationships and Related Transactions
This item is incorporated by reference from the definitive proxy statement
for the Annual Meeting of Shareholders presently scheduled to be held on April
17, 1997, to be filed pursuant to Regulation 14A.
<PAGE>
63
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K
The Company filed a report on Form 8-K dated October 15, 1996 disclosing the
merger of Scott Mills into Kleinert's, Inc. Of Alabama.
KLEINERT'S, INC. INDEX TO FINANCIAL STATEMENTS
Page
Report of Independent Auditors 34
Consolidated Balance Sheets at November 30, 1996
and December 2, 1995 35
Consolidated Statements of Operations
for the Fiscal Years Ended November 30, 1996,
December 2, 1995 and December 3, 1994 37
Consolidated Statements of Shareholders' Equity
for the Fiscal Years Ended November 30, 1996,
December 2, 1995 and December 3, 1994 38
Consolidated Statements of Cash Flows
for the Fiscal Years Ended November 30, 1996,
December 2, 1995 and December 3, 1994 39
Notes to Consolidated Financial Statements 41
- -----------
All other financial statements or schedules are omitted since the required
information is not present or is not present in amounts sufficient to
require submission of the financial statement or schedule, or because the
information required is included in the Consolidated Financial Statements
and notes thereto.
<PAGE>
64
INDEX TO EXHIBITS
Exhibit No. Page
- ----------- ----
(3) (a) By-Laws
(b) Articles of Incorporation Incorporated by reference to the
copy thereof filed as an Exhibit
to Registrant's Quarterly Report
on Form 10-Q for its fiscal
quarter ended February 29, 1992
(10) Material Contracts Incorporated by reference to the
(a) Property Lease Agreement copy thereof filed as an Exhibit
dated January 24, 1986 to Registrant's Annual Report
between C/N Leedon Limited on Form 10-K for its fiscal
Partnership II and year ended December 3, 1988
Kleinert's, Inc., and as
amended
(b) License Agreement dated Incorporated by reference to the
May 12, 1989 between copy thereof filed as an Exhibit
Hygienics Industries, Inc. to Registrant's Quarterly Report
and Kleinert's, Inc. of on Form 10-Q for its fiscal
Alabama quarter ended June 3, 1989
(c) Agreement dated as of Incorporated by reference to the
September 1, 1990 between copy thereof filed as an Exhibit
the Industrial Development to Registrant's Quarterly Report
Board of the City of Elba, on Form 10-Q for its fiscal
Alabama and Kleinert's, quarter ended September 1, 1990
Inc. of Alabama
(d) Guaranty Agreement dated Incorporated by reference to the
September 26, 1990 between copy thereof filed as an Exhibit
Brown Brothers Harriman to Registrant's Quarterly Report
and Co. and Kleinert's, Inc. on Form 10-Q for its fiscal
quarter ended September 1, 1990
(e) Guaranty Agreement dated Incorporated by reference to the
September 26, 1990 between copy thereof filed as an Exhibit
Brown Brothers Harriman and to Registrant's Quarterly Report
Co. and Kleinert's, Inc. of on Form 10-Q for its fiscal
Alabama quarter ended September 1, 1990
(f) Letter Agreement dated Incorporated by reference to the
September 26, 1990 between copy thereof filed as an Exhibit
Philadelphia National Bank to Registrant's Quarterly Report
and Kleinert's, Inc. of on Form 10-Q for its fiscal
Alabama quarter ended September 1, 1990
<PAGE>
65
INDEX TO EXHIBITS-Continued
Exhibit No. Page
- ----------- ----
(g) Agreement dated as of Incorporated by reference to the
November 9, 1989 between copy thereof filed as an Exhibit
Precision Textiles, Inc. and to Registrant's Quarterly Report
Kleinert's, Inc. of Alabama on Form 10-Q for its fiscal
quarter ended September 1, 1990
(h) Line of Credit Agreement Incorporated by reference to the
dated October 18, 1990 between copy thereof filed as an Exhibit
Republic National Bank and to Registrant's Annual Report
Kleinert's, Inc. of Alabama on Form 10-K for its fiscal
year ended December 1, 1990
(i) Sublease Agreement between Incorporated by reference to the
Harco Drug, Inc. and copy thereof filed as an Exhibit
Kleinert's, Inc. of Alabama to Registrant's Annual Report
dated February 14, 1991 on Form 10-K for its fiscal
year ended December 1, 1990
(j) Property Lease Agreement dated Incorporated by reference to the
February 15, 1992 between copy thereof filed as an Exhibit
Fortex and Kleinert's, Inc. of to Registrant's Annual Report
Alabama on Form 10-K for its fiscal
year ended November 30, 1991
(k) Demand Grid Note dated Incorporated by reference to the
October 22, 1990 between copy thereof filed as an Exhibit
Republic National Bank of New to Registrant's Quarterly Report
York and Kleinert's, Inc. of on Form 10-Q for its fiscal
Alabama and Guaranty of quarter ended February 29, 1992
Kleinert's, Inc. dated October
23, 1990
(l) Consent letter dated October 30, Incorporated by reference to the
1990 between Philadelphia copy thereof filed as an Exhibit
National Bank, incorporated as to Registrant's Quarterly Report
CoreStates Bank, N.A., on Form 10-Q for its fiscal
Kleinert's, Inc. of Alabama and quarter ended February 29, 1992
Kleinert's, Inc.
(m) Kleinert's, Inc. 1991 Stock Incorporated by reference to the
Option Plan copy thereof filed as an Exhibit
to Registrant's Quarterly Report
on Form 10-Q for its fiscal
quarter ended February 29, 1992
<PAGE>
66
INDEX TO EXHIBITS-Continued
Exhibit No. Page
- ----------- ----
(n) Unsecured Promissory Note dated Incorporated by reference to the
February 19, 1992 to Brown copy thereof filed as an Exhibit
Brothers, Harriman & Co. from to Registrant's Quarterly Report
Kleinert's, Inc. of Alabama and on Form 10-Q for its fiscal
Surety Agreement dated quarter ended February 29, 1992
February 19, 1992 between
Brown Brothers, Harriman and
Co. and Kleinert's, Inc.
(o) Non-Qualified Stock Option Incorporated by reference to the
Agreement with Kenneth Brier, copy thereof filed as an Exhibit
a Director for Kleinert's, Inc. to Registrant's Annual Report
dated June 23, 1992 on Form 10-K for its fiscal
year ended November 28, 1992
(p) Line of Credit and Term Loan Incorporated by reference to the
Agreement dated April 8, 1993 copy thereof filed as an Exhibit
between CoreStates Bank, N.A., to Registrant's Quarterly Report
Philadelphia National Bank, and on Form 10-Q for its fiscal
Kleinert's, Inc. of Alabama quarter ended May 29, 1993
(q) Lease Agreement dated June 6, Incorporated by reference to the
1993 between Corestates Bank, copy thereof filed as an Exhibit
N.A., and Kleinert's, Inc. of to Registrant's Quarterly Report
Alabama on Form 10-Q for its fiscal
quarter ended May 29, 1993
(r) Amended and Restated Term Loan Incorporated by reference to the
Note dated December 10, 1993 copy thereof filed as an Exhibit
between CoreStates Bank, N.A., to Registrant's Annual Report
Philadelphia National Bank and on Form 10-K for its fiscal
Kleinert's, Inc. of Alabama year ended November 27, 1993
(s) Line of credit agreement dated Incorporated by reference to the
May 16, 1994 between PNC Bank copy thereof filed as an Exhibit
and Kleinert's, Inc. of Alabama to Registrant's Quarterly Report
on Form 10-Q for its fiscal
quarter ended May 28, 1994
(t) Note Receivable agreement dated Incorporated by reference to the
May 27, 1994 between Norman copy thereof filed as an Exhibit
Katz and Marcia Katz, as to Registrant's Quarterly Report
trustees of the Katz family on Form 10-Q for its fiscal
trust quarter ended May 28, 1994
<PAGE>
67
INDEX TO EXHIBITS-Continued
Exhibit No. Page
- ----------- ----
(u) Operating lease agreement dated Incorporated by reference to the
May 26, 1994 between Corestates copy thereof filed as an Exhibit
Bank, N.A., and Kleinert's, to Registrant's Annual Report
Inc. of Alabama on Form 10-K for its fiscal
year ended December 3, 1994
(v) Property Lease agreement dated Incorporated by reference to the
November 8, 1994 between Robert copy thereof filed as an Exhibit
Clayton Hickman and Kleinert's, to Registrant's Annual Report
Inc. of Alabama on Form 10-K for its fiscal
year ended December 3, 1994
(w) Second amended and restated Incorporated by reference to the
term loan note dated November copy thereof filed as an Exhibit
10, 1994 between CoreStates to Registrant's Annual Report
Bank, N.A. and Kleinert's, Inc. on Form 10-K for its fiscal
of Alabama year ended December 3, 1994
(x) Employment agreement dated Incorporated by reference to the
November 21, 1994 between Jack copy thereof filed as an Exhibit
Brier and Kleinert's, Inc. to Registrant's Annual Report
on Form 10-K for its fiscal
year ended December 3, 1994
(y) License agreement extension Incorporated by reference to the
dated December 22, 1994 between copy thereof filed as an Exhibit
Hygienics Industries, Inc. to Registrant's Annual Report
and Kleinert's, Inc. on Form 10-K for its fiscal
year ended December 3, 1994
(z) Letter amendment dated January Incorporated by reference to the
7, 1995 to property lease copy thereof filed as an Exhibit
agreement dated February 15, to Registrant's Annual Report
1992 between Fortex and on Form 10-K for its fiscal
Kleinert's, Inc. of Alabama year ended December 3, 1994
(aa) Operating lease agreement Incorporated by reference to the
dated December 30, 1994 copy thereof filed as an Exhibit
between Corestates Bank, N.A., to Registrant's Annual Report
and Kleinert's, Inc. of Alabama on Form 10-K for its fiscal
year ended December 3, 1994
(ab) Lease agreement dated December Incorporated by reference to the
5, 1994 between Corestates copy thereof filed as an Exhibit
Bank, N.A., and Kleinert's to Registrant's Annual Report on
Inc. Form 10-K for its fiscal year
ended December 2, 1995
<PAGE>
68
INDEX TO EXHIBITS-Continued
Exhibit No. Page
- ----------- ----
(ac) Line of Credit Demand Note Incorporated by reference to the
dated March 1, 1995 between copy thereof filed as an Exhibit
Kleinert's, Inc. of Alabama and to Registrant's Annual Report on
PNC Bank Form 10-K for its fiscal year
ended December 2, 1995
(ad) Demand Grid Note dated April Incorporated by reference to the
20, 1995 between Republic copy thereof filed as an Exhibit
National Bank of New York to Registrant's Annual Report on
and Kleinert's, Inc. of Form 10-K for its fiscal year
Alabama and Guaranty of ended December 2, 1995
Kleinert's, Inc. dated April
20, 1995
(ae) License agreement dated June Incorporated by reference to the
21, 1995 between Cadtex copy thereof filed as an Exhibit
Corporation and Kleinert's to Registrant's Annual Report on
Inc. of New York. Form 10-K for its fiscal year
ended December 2, 1995
(af) Deferred compensation Incorporated by reference to the
agreement dated August 15, copy thereof filed as an Exhibit
1995 between Jack Brier and to Registrant's Annual Report on
Kleinert's, Inc. Form 10-K for its fiscal year
ended December 2, 1995
(ag) Rent agreement dated Incorporated by reference to the
August 22, 1995 between 112 copy thereof filed as an Exhibit
West 34th Street Company and to Registrant's Annual Report on
Kleinert's, Inc. of New York Form 10-K for its fiscal year
ended December 2, 1995
(ah) Guaranty agreement dated Incorporated by reference to the
November 29, 1995 between copy thereof filed as an Exhibit
Corestates Bank, N.A., and to Registrant's Annual Report on
Kleinert's, Inc. of New York Form 10-K for its fiscal year
ended December 2, 1995
(ai) Lease agreement dated Incorporated by reference to the
November 29, 1995 between copy thereof filed as an Exhibit
Corestates Bank, N.A. and to Registrant's Annual Report on
Kleinert's, Inc. of New York Form 10-K for its fiscal year
ended December 2, 1995
<PAGE>
69
INDEX TO EXHIBITS-Continued
Exhibit No. Page
- ----------- ----
(ak) Lease agreement dated December Incorporated by reference to the
15, 1995 between Jeffrey A. copy thereof filed as an Exhibit
Lopatin and Kleinert's, Inc. of to Registrant's Annual Report on
Florida Form 10-K for its fiscal year
ended December 2, 1995
(al) Purchase agreement dated Incorporated by reference to the
December 15, 1995 between Pixie copy thereof filed as an Exhibit
Playmates, Inc., Certified to Registrant's Annual Report on
Sewing Services, Inc., Form 10-K for its fiscal year
Certified Apparel Services of ended December 2, 1995
Honduras, Inc. C.A. and
Kleinert's, Inc. of Florida
(am) Fourth Amendment to Line of Incorporated by reference to the
Credit and Term Loan Agreement copy thereof filed as an Exhibit
dated February 28, 1996 by and to Registrant's Quarterly Report
among Kleinert's, Inc. of on Form 10-Q for its fiscal
Alabama, Kleinert's, Inc. of quarter ended June 1, 1996
Florida and Corestates Bank, N.A.
(an) Third Amendment and Restated Term Incorporated by reference to the
Loan Note dated February 29, copy thereof filed as an Exhibit
1996 between Kleinert's, Inc. of to Registrant's Quarterly Report
Alabama, Kleinert's, Inc. of on Form 10-Q for its fiscal
Florida and Corestates Bank, N.A. quarter ended June 1, 1996
(ao) Guaranty dated February 28, 1996 Incorporated by reference to the
between Kleinert's, Inc. and copy thereof filed as an Exhibit
Corestates Bank, N.A. to Registrant's Quarterly Report
on Form 10-Q for its fiscal
quarter ended June 1, 1996
(ap) Certificate of Corporate Incorporated by reference to the
Resolutions dated February, 1996 copy thereof filed as an Exhibit
- Kleinert's, Inc. of Florida to Registrant's Quarterly Report
on Form 10-Q for its fiscal
quarter ended June 1, 1996
(aq) Certificate of Corporate Incorporated by reference to the
Resolutions dated February, 1996 copy thereof filed as an Exhibit
- Kleinert's, Inc. of Alabama to Registrant's Quarterly Report
on Form 10-Q for its fiscal
quarter ended June 1, 1996
(ar) Schedule to Master Agreement Incorporated by reference to the
dated February 28, 1996 between copy thereof filed as an Exhibit
Kleinert's, Inc. of Alabama, to Registrant's Quarterly Report
Kleinert's, Inc. of Florida and on Form 10-Q for its fiscal
Corestates Bank, N.A. quarter ended June 1, 1996
<PAGE>
70
INDEX TO EXHIBITS-Continued
Exhibit No. Page
- ----------- ----
(as) International Swap Dealers Incorporated by reference to the
Association, Inc. Master Agreement copy thereof filed as an Exhibit
dated February 28, 1996 between to Registrant's Quarterly Report
Kleinert's, Inc. of Alabama, on Form 10-Q for its fiscal
Kleinert's, Inc. of Florida and quarter ended June 1, 1996
and Corestates Bank, N.A.
(at) Amended and Restated Employment Incorporated by reference to the
Agreement dated June 28, 1996 for copy thereof filed as an Exhibit
Jack Brier, CEO. to Registrant's Quarterly Report
on Form 10-Q for its fiscal
quarter ended August 31, 1996
(au) Lease Agreement for Cadtex Incorporated by reference to the
workstations dated March, 1996 copy thereof filed as an Exhibit
among Corestates Bank, N.A. and to Registrant's Quarterly Report
Kleinert's, Inc. on Form 10-Q for its fiscal
quarter ended August 31, 1996
(av) Lease Agreement for Cadtex Incorporated by reference to the
workstations dated July, 1996 copy thereof filed as an Exhibit
among Corestates Bank, N.A. and to Registrant's Quarterly Report
Kleinert's, Inc. on Form 10-Q for its fiscal
quarter ended August 31, 1996
(aw) Line of Credit dated June 17, 1996 Incorporated by reference to the
by and amount Kleinert's, Inc. of copy thereof filed as an Exhibit
Alabama and Brown Brothers, to Registrant's Quarterly Report
Harriman and Co. on Form 10-Q for its fiscal
quarter ended August 31, 1996
(ax) Third Amendment to lease dated
August 31, 1996 between C/N Leedom
II LP and Kleinert's, Inc.
(ay) Kleinert's, Inc. 1996 Stock Option
Plan dated April 18, 1996
(11) Statement regarding Computation
of Per Share Earnings
(21) Subsidiaries of Registrant:
Kleinert's, Inc. of Alabama,
Kleinert's, Inc. of Delaware and
Kleinert's, Inc. of New York
Kleinert's, Inc. of Florida
Certified Apparel Services of
Honduras, S.A.
<PAGE>
71
REPORTS ON FORM 8-K
The Company filed a report on Form 8-K dated October 15, 1996 disclosing
the merger of Scott Mills, Inc. into Kleinert's, Inc. of Alabama.
<PAGE>
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KLEINERT'S, INC.
By: /s/ Gerald E. Monigle
-------------------------
Gerald E. Monigle
Vice President-Finance
(Principal accounting and
financial officer)
Dated: February 28, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ Jay B. Andrews Director 2/20/97
- -------------------------
Jay B. Andrews
/s/ Jack Brier Director, Chairman
- ------------------------- (Principal Executive
Jack Brier Officer) 2/19/97
/s/ Kenneth L. Brier Director 2/17/97
- -------------------------
Kenneth L. Brier
/s/ Gerald E. Monigle Vice President-Finance
- ------------------------- (Principal Accounting
Gerald E. Monigle and Financial Officer) 2/24/97
William Forman Director
/s/ Nathan Greenberg Director 2/18/97
- -------------------------
Nathan Greenberg
/s/ Marvin Grossman Director 2/19/97
- -------------------------
Marvin Grossman
/s/E. Gerald Riesenbach Director 2/18/97
- -------------------------
E. Gerald Riesenbach
<PAGE>
ANNEX C
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
(Mark One)
X__ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 1, 1997
-------------
OR
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ___________
Commission file number 1-6454
------
KLEINERT'S, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 13-0921860
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
120 West Germantown Pike, Suite 100
Plymouth Meeting, Pennsylvania 19462
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 828-7261
--------------
-------------------------------------------------------------
Former name, former address and former fiscal year,
if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date:
Class Outstanding at March 31, 1997
------------------------- -----------------------------
Common Stock
Par Value $1.00 per share 3,692,835
<PAGE>
KLEINERT'S, INC.
INDEX
PAGE
----
Part I. Financial information
Item 1. Financial statements
Consolidated statements of operations 3
for the three months ended March 1, 1997
and March 2, 1996
Consolidated balance sheets at 4
March 1, 1997, November 30, 1996
and March 2, 1996
Consolidated statements of cash flows 6
for the three months ended March 1, 1997
and March 2, 1996
Notes to consolidated financial statements 8
Item 2. Management's discussion and analysis of 10
the financial condition and results of
operations
Part II. Other information
Item 6. Exhibits and Reports on Form 8-K 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(000's Omitted, except per share amounts)
Three Months Ended
--------------------
March 1, March 2,
1997 1996
-------- --------
Net sales $8,624 $11,720
Cost of goods sold 6,570 9,208
------ -------
Gross profit 2,054 2,512
------ -------
Selling, general and administrative expenses 1,528 1,426
Interest expense 376 336
------ -------
1,904 1,762
Income before income taxes 150 750
Provision for income taxes 52 271
------ -------
Net income $ 98 $ 479
====== =======
Earnings per share:
Net income $ .03 $ .13
====== =======
Weighted average shares outstanding 3,881 3,727
====== =======
See accompanying notes
3
<PAGE>
KLEINERT'S, INC.
CONSOLIDATED BALANCE SHEETS
(000's Omitted)
ASSETS
March 1, November 30, March 2,
1997 1996 1996
------- ------------ -------
Current assets:
Cash $ 332 $ 395 $ 47
Accounts receivable (net of
allowances for doubtful accounts
of $226, $206 and $259, respectively) 11,684 23,552 14,561
Inventories:
Raw materials 7,853 6,451 7,705
Work-in-progress 5,526 4,430 4,617
Finished goods 14,485 7,545 11,948
------- ------- -------
Total inventories 27,864 18,426 24,270
Other current assets 4,225 4,168 1,617
------- ------- -------
Total current assets 44,105 46,541 40,495
------- ------- -------
Property, plant and equipment, at cost 17,990 17,477 13,262
Less: Accumulated depreciation 8,587 8,287 6,269
------- ------- -------
Net property, plant and
equipment 9,403 9,190 6,993
Other assets 7,070 7,101 4,612
------- ------- -------
$60,578 $62,832 $52,100
======= ======= =======
See accompanying notes
4
<PAGE>
KLEINERT'S, INC.
CONSOLIDATED BALANCE SHEETS
(000's Omitted)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 1, November 30, March 2,
1997 1996 1996
------- ------------ -------
<S> <C> <C> <C>
Current liabilities:
Notes payable and current
portion of long-term debt $14,360 $14,768 $11,695
Accounts payable 6,864 6,071 7,211
Accrued expenses 1,027 2,996 813
------- ------- -------
Total current liabilities 22,251 23,835 19,778
Deferred income taxes 410 410 134
Long-term debt 6,534 6,834 7,629
------- ------- -------
Total liabilities 29,195 31,079 27,541
------- ------- -------
Shareholders' equity:
Preferred stock - par value $1.00
per share, 2,000,000 shares
authorized, none issued -- -- --
Common stock - par value $1.00 per share,
10,000,000 shares authorized,
4,249,398, 4,249,398 and 3,798,398 shares
issued, respectively 4,249 4,249 3,798
Capital in excess of par value 13,621 13,621 10,626
Retained earnings 17,946 17,848 13,351
------- ------- -------
35,816 35,718 27,775
------- ------- -------
Less:
Treasury stock, at cost, 539,217,
513,467 and 466,967 common shares (4,433) (3,965) (3,216)
------- ------- -------
Total shareholders' equity 31,383 31,753 24,559
------- ------- -------
$60,578 $62,832 $52,100
======= ======= =======
</TABLE>
See accompanying notes
5
<PAGE>
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's Omitted)
Three Months Ended
-----------------------
March 1, March 2,
1997 1996
------ -------
Cash flows from operating activities:
Net income 98 479
Adjustment to reconcile net income to
net cash provided by operating activities
Depreciation and amortization 363 223
Provision for losses on accounts receivable (20) (20)
Change in assets and liabilities:
Decrease in accounts receivable 11,853 7,359
(Increase) in inventory (9,438) (7,646)
(Increase) decrease in other current assets (105) 763
(Decrease) increase in accounts payable
and accrued expenses (497) 1,669
(Decrease) increase in income taxes payable (633) 30
Increase (decrease) in other assets 6 (10)
------ -------
Total adjustments 1,529 2,368
------ -------
Net cash provided by operating
activities 1,627 2,847
------ -------
Cash flows from investing activities:
Purchase of assets - Pixie Acquisition -- (4,150)
Capital expenditures (550) (207)
Proceeds from note receivable 35 30
------ -------
Net cash used in investing
activities (515) $(4,327)
------ -------
See accompanying notes
6
<PAGE>
KLEINERT'S, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's Omitted)
Three Months Ended
----------------------
March 1, March 2,
1997 1996
------- -------
Cash flows from financing activities:
Net (repayments) borrowing under revolving
line-of-credit agreements $ 94 $(3,200)
Principal payments on debt and capital lease (802) (250)
Payments to acquire Treasury Stock (467) --
Proceeds from long-term debt -- 4,650
------- -------
Net cash (used in) provided by
financing activities (1,175) 1,200
------- -------
Net (Decrease) in cash (63) (280)
Cash at beginning of period 395 327
------- -------
Cash at end of period 332 $ 47
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 472 $ 294
Income taxes $ 663 $ 240
See accompanying notes
7
<PAGE>
KLEINERT'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Three Months Ended March 1, 1997, and March 2, 1996
(1) Basis of presentation:
The condensed financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, the
information furnished reflects all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the results for the
interim periods. Operating results for the three months ended March 1, 1997 are
not necessarily indicative of the results that may be expected for the year
ended November 29, 1997. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The Company believes that the disclosures presented are adequate
for a fair presentation of the financial statements. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1996.
(2) Acquisitions
On December 19, 1995, Kleinert's Inc., through its newly formed,
wholly-owned subsidiary, Kleinert's, Inc. of Florida, ("together, the Company"),
consummated a transaction (the "Pixie Acquisition") pursuant to which the
Company acquired substantially all of the assets of Pixie Playmates, Inc.
("Pixie") and Certified Sewing Services, Inc. ("Certified") two Florida
corporations, and all of the capital stock of Certified Apparel Services of
Honduras, Inc., S.A., a Honduran corporation ("CASH"). Pixie, Certified and
CASH, all of which were affiliated entities, are engaged in the manufacture and
sale of children's apparel. Concurrent with the Pixie Acquisition, the Company
entered into a three year lease agreement with the principal shareholder of
Pixie for the premises in which Pixie was conducting business.
In consideration for the assets of Pixie and Certified and the shares of
CASH, the Company paid an aggregate purchase price of $4,650,000 in cash. The
purchase price was financed by the Company through an amendment to its existing
bank financing agreement to provide for an additional term debt facility.
The acquisition has been accounted for using the purchase method, and
accordingly, the results of operations are included in the Company's results
from the date of acquisition, December 19, 1995.
8
<PAGE>
On September 30, 1996, the Company consummated the merger (the "Merger") of
Scott Mills, Inc. ("Scott Mills"), with and into the Company's wholly-owned
subsidiary, Kleinert's, Inc. of Alabama ("Kleinert's Alabama"), pursuant to an
Agreement and Plan of Merger dated as of June 10, 1996 among the Company, Scott
Mills and Kleinert's Alabama (the "Merger Agreement"). Pursuant to the Merger
Agreement, each share of Scott Mills Common Stock outstanding on September 30,
1996 was converted into the right to receive $.03 in cash and .0152% of a share
of the Company's Common Stock, determined by the division of $.27 for each share
of Scott Mill's stock by $17.75, which represented the average price of the
Company's stock on the five trading days immediately preceding the consummation
of the Merger (as determined pursuant to the Merger Agreement). Cash was paid in
lieu of fractional shares. The Company issued approximately 51,000 shares of its
Common Stock and approximately $101,000 in cash in exchange for all of the
outstanding shares of Common Stock of Scott Mills.
The Merger was consummated upon approval of the Merger Agreement and the
Merger by the Scott Mills shareholders at the Scott Mills Annual Meeting of
Shareholders held on September 27, 1996.
The Company was the largest customer of Scott Mills. The Merger of Scott
Mills with Kleinert's Alabama will permit the Company to maintain its
flexibility in servicing its retail customers in its sleepwear and activewear
products.
The proforma unaudited results of operations for the three months ended
March 1, 1997 and March 2, 1996, assuming consummation of the Merger as of
December 2, 1995, are as follows:
Three Months Ended
------------------------
March 1, March 2,
1997 1996
------ -------
Net sales $8,624 $11,862
Net income $ 98 $ 520
Net income per common share $ .03 $ .14
(3) Refinancing of Term Loan
On February 28, 1996 the Company refinanced its existing term loan and
provided for an additional term debt facility of $4,650,000 to finance the Pixie
Acquisition. The term loan is in the form of an amended and restated term loan
note with the same bank as the original term loan. Total borrowing at March 1,
1997 was $7,149,000. The interest rate is indexed by LIBOR rates plus a spread
of 1.12%.
Simultaneously, the Company entered into an interest rate swap to convert
its floating-rate to a fixed-rate of 5.88%, which effectively fixes the rate at
7.0%. This reduces the Company's risk of incurring higher interest costs due to
rising interest rates. At March 1, 1997, the interest rate swap agreement had a
notional amount of $7,149,000 which decreases by $300,000 quarterly through the
September 2002 termination date. The fair value of this agreement at March 1,
1997 was $78,150.
9
<PAGE>
(4) Stock Repurchase Program
On June 21, 1996, the Company announced the commencement of a common stock
repurchase program. Purchases under the program occurred in the public market
and in negotiated private transactions. The program was terminated on April 4,
1997. Total purchases under the repurchase program did not exceed $5,000,000.
During the three months ended March 1, 1997, the Company repurchased 25,750
shares of common stock for a total purchase price of $467,000.
(5) Related Party Transactions
The Chairman has an employment agreement which provides for an incentive
bonus in 1997 of 5% of pre-tax income if pre-tax income exceeds fiscal year 1989
pre-tax income. The employment agreement is in effect through the end of fiscal
year 1997.
In addition, the Company is funding life insurance contracts on behalf of
the Chairman, whose beneficiaries are designated by the individual.
The Company has a 270 day note receivable of $400,000 with the Chairman due
on November 25, 1997 at market interest rate, which is in accordance with his
employment agreement.
10
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Company's apparel business is highly seasonal. Consequently, the sales
and operating results for the three months ended March 1, 1997 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending November 29, 1997.
Three Months Ended
(000's omitted)
--------------------------------------------
Increase
Mar. 1, 1997 Mar. 2, 1996 (Decrease)
------------ ------------ ----------
Net Sales $8,624 $11,720 $(3,096)
Gross Profits $2,054 $ 2,512 $ (458)
Selling, general and
administrative expenses $1,528 $ 1,426 $ 102
Net sales decreased by $3,096,000, or 26%, from $11,720,000 to $8,624,000
for the three months ended March 1, 1997 compared to the three months ended
March 2, 1996. Sales in the three months ended March 1, 1997 include sales of
the Scott Mills textile division of approximately $1,267,000. Scott Mills was
acquired during the fourth quarter of 1996. The overall decrease in the first
quarter of 1997 reflects primarily reduced sales, a decrease of $2,000,000 when
compared to the first quarter of 1996, to the Company's major T-shirt customer
due to concerns regarding this customer's financial stability. On a comparative
basis the lower sales in the three months ended March 1, 1997 compared to the
three months ended March 2, 1996 reflect a major store set for a sleepwear
customer in 1996 compared to automatic replenishment in 1997.
Gross profit decreased by $458,000 as a result of the reduced sales. Gross
profit as a percentage of net sales improved primarily due to increased
production of products manufactured at the Company's production facilities in
Honduras, C.A.
Selling, general and administrative expenses increased $102,000, or 7%
primarily reflecting expenses associated with the Scott Mills textile business
which was acquired during the fourth quarter of fiscal 1996.
Interest expense in the first three months of fiscal 1997 was $376,000
compared to $336,000 in the first three months of fiscal 1996. This increase was
due to an increase in the term loan as a result of the Pixie acquisition offset
by a slightly lower average line of credit balance for the quarter.
11
<PAGE>
Impact of Inflation and Changing Prices on Sales and Income from Operations
Although the Company's costs for raw materials, labor and equipment are
influenced by inflation, management believes that inflation did not have a
material impact on the Company's operations during the three months ended March
1, 1997 and March 2, 1996. The Company has not been able to increase its selling
prices to any great extent during fiscal year 1996 or to date in 1997;
therefore, the Company continues to examine all of its costs in an effort to
maintain its profit margins.
Liquidity and Capital Resources
At March 1, 1997, Kleinert's had working capital of $21,854,000 compared to
$20,717,000 at March 2, 1996. Net cash provided by operating activities
decreased $1,220,000 from $2,847,000 in the first three months of fiscal year
1996 to $1,627,000 in the first three months of fiscal year 1997. Net cash
provided by operations during the fiscal quarter on a comparative basis was
negatively impacted by increases in inventory of approximately $1,800,000 (1997
quarter increase of $9,438,000 compared to 1996 increase of $7,646,000) and a
decrease in accounts payable of $497,000 in 1997 compared to increases in
accounts payable of $1,669,000 in 1996. These uses of cash were offset by higher
decreases in accounts receivable of $11,853,000 in the first quarter of 1997
versus $7,359,000 during the comparable period of 1996.
Cash used in investing activities decreased $3,812,000 to ($515,000) in the
first three months of 1997 from ($4,327,000) in the same period of 1996. The
decrease was primarily the result of the acquisition of the assets of Pixie and
Certified and the capital stock of CASH for an aggregate cash purchase price of
$4,650,000 during 1996.
Net cash used in financing activities was ($1,175,000) in the three months
ended March 1, 1997 compared to $1,200,000 provided by financing activities for
the comparable period in 1996, a change of $2,375,000. On a comparable basis the
decrease primarily reflected first quarter 1996 proceeds from refinancing of
existing term debt, and the addition of a $4,650,000 term debt facility to
finance the Pixie Acquisition.
12
<PAGE>
The Company used its short-term borrowings to finance operations during the
quarter.
The Company believes that cash flow generated by operations, together with
amounts available under its existing credit arrangements, should be sufficient
to fund its working capital needs for the remainder of fiscal year 1997 and for
the foreseeable future.
The Company has unsecured lines of credit aggregating $42,500,000 of which
$12,965,000 was outstanding at March 1, 1997 bearing interest at rates ranging
from 6.15% to 6.75%.
The Company expects to fund its capital expenditures primarily from cash
flow generated by operations over the next twelve months. Since the Company uses
its short-term lines of credit to fund working capital needs, any additional
financing related to capital needs is generally provided either by lease
financing or other long-term sources. Currently, the Company has no material
capital commitments.
Income Taxes
The provision for income taxes is based upon the effective tax rates
expected to be recognized for the full fiscal year 1997. The rate for the first
three months of 1997 was 34.7%, compared to the rate for the first three months
of fiscal year 1996 of 36.2%. This decrease is due to the impact of foreign
income generated by the Company's Honduras subsidiary which has a tax holiday.
Impact of Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board issued FASB
Statement No. 121 Accounting for the Impairment of Long-Lived Assets to be
disposed of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets that are expected to be disposed. The Company expects the impact of
adoption will not be significant.
In October 1995, the Financial Accounting Standards Board issued FASB
Statement No. 123, Accounting for Stock-Based Compensation. The new standard
prescribes new accounting and reporting standard which reflect the standards
"fair value method" to estimate expense associated with stock based
compensations plans. Companies may elect to continue to use existing accounting
rules or adopt the "fair value method" for expense recognition. Companies that
elect to continue to use existing accounting rules will be required to provide
pro-forma disclosures of what net income and earnings per share would have been
had the new "fair value method" been used. The Company will elect to continue to
use existing accounting rules.
Both statements are effective for fiscal years beginning after December 15,
1995 and, accordingly, will be adopted during the current year.
13
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10) Material Contracts
None
(b) Reports on Form 8-K
No Reports on Form 8K were filed during the quarter
covered by this report.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
KLEINERT'S, INC.
Date: April 11, 1997 By: /s/Gerald E. Monigle
-------------- -------------------------------
Gerald E. Monigle
Vice President--Finance
(Principal Accounting Officer)
15
<PAGE>
KLEINERT'S, INC.
ANNEX D
The following sets forth the name, age, business address, and current and
past principal occupation or employment of the directors and executive officers
of the Company.
Jay B. Andrews A director since February 1988. In June 1996,
120 West Germantown Pike Mr. Andrews became President of Kleinert's,
Suite 100 Inc. of Alabama, the Company's wholly-owned
Plymouth Meeting, PA 19462 subsidiary. Prior to 1996, Mr. Andrews was
employed as Executive Vice President of Sales
and Marketing for the Company. Prior to his
employment with the Company, Mr. Andrews was
employed by Health-tex, Inc. for 16 years
where he held several positions, the last of
which was Senior Vice President and General
Sales Manager.
Jack Brier Chairman of the Board and Chief Executive
120 West Germantown Pike Officer of the Company since 1969.
Suite 100
Plymouth Meeting, PA 19462
Kenneth Brier A director since January 1985. Since December
120 West Germantown Pike 1991, Mr. Brier has been the President and
Suite 100 Chairman of the Board of Mountbatten, Inc., a
Plymouth Meeting, PA 19462 standard Pennsylvania domiciled surety
company. Mr. Brier also has been President of
Hammarskjold of Jonkoping Incorporated, a
real estate development corporation, since
July 1985. Mr. Brier is the son of Jack
Brier.
Nathan Greenberg A director since March 1992. Mr. Greenberg
120 West Germantown Pike founded the accounting firm of Greenberg,
Suite 100 Rosenblatt, Kull & Bitsoli, P.C. in Worcester
Plymouth Meeting, PA 19462 and Springfield, Massachusetts in 1958, and
has been a member of that firm since its
founding. He also is a director of Advanced
Detectors, Inc.
<PAGE>
Marvin Grossman A director since December 1981. In June 1996,
120 West Germantown Pike Mr. Grossman became Vice Chairman of
Suite 100 Kleinert's, Inc. of Alabama. From 1982
Plymouth Meeting, PA 19462 through 1996, Mr. Grossman served as
President of Kleinert's, Inc. of Alabama.
E. Gerald Riesenbach A director since April 1989. Since February
120 West Germantown Pike 1995, Mr. Riesenbach has been a partner in
Suite 100 the law firm of Cozen and O'Connor, general
Plymouth Meeting, PA 19462 counsel to the Company. Previously, and for
more than five years, he had been a partner
in the law firm of Wolf, Block, Schorr and
Solis-Cohen. Mr. Riesenbach also serves on
the Board of Directors of AutoLend Group,
Inc.
Joseph J. Connors Executive Vice President and Assistant
120 West Germantown Pike Secretary of the Company since December 1993.
Suite 100 Previously, Mr. Connors was Vice President --
Plymouth Meeting, PA 19462 Finance from December 1986 to November 1993,
and Treasurer from January 1983 to November
1986. Mr. Connors is also a director of
Mountbatten Surety, Inc.
Gerald E. Monigle Has been employed as Vice President --
120 West Germantown Pike Finance of the Company since February 1995.
Suite 100 Prior to his employment with the Company, Mr.
Plymouth Meeting, PA 19462 Monigle was employed by Tasty Baking Company
for 15 years as Controller and Chief
Accounting Officer.
-2-
<PAGE>
KLEINERT'S, INC.
120 West Germantown Pike - Suite 100
Plymouth Meeting, PA 19462
610-828-7261
The Depositary for the Offer is:
American Stock Transfer and Trust Co.
By Mail, Overnight Courier or Hand Delivery to:
40 Wall Street, 46th Floor
New York, New York 10005
By Facsimile Transmission:
718-234-5001
To Confirm Facsimile Transmission Call:
800-937-5449
------------------------
Any questions or requests for assistance or for additional copies of
the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed
delivery may be directed to the Depositary at its address and telephone number
set forth above. Shareholders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Offer.
LETTER OF TRANSMITTAL
To Tender Shares of Common Stock
of
KLEINERT'S, INC.
Pursuant to the Offer to Purchase
Dated April 15, 1997
The Offer and Withdrawal Rights will expire at 5:00 p.m., Philadelphia,
Pennsylvania Time, on May 30, 1997, unless the Offer is extended.
--------
THE INSTRUCTIONS IN THIS LETTER OF TRANSMITTAL SHOULD BE CAREFULLY READ
BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
--------
This Letter of Transmittal should be sent to American Stock Transfer and
Trust Co., the Depositary, at the following address:
By Mail, Overnight Courier or Hand Delivery to:
40 Wall Street, 46th Floor
New York, New York 10005
By Facsimile Transmission:
718-234-5001
To Confirm Facsimile Transmission Call:
800-937-5449
------------------------------
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE TRANSMISSION NUMBER OTHER THAN THE
ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
------------------------------
This Letter of Transmittal is to be used either if certificates are to be
forwarded herewith or if delivery of Shares (as defined below) is to be made by
book-entry transfer to an account maintained by the Depositary at The Depository
Trust Company or the Philadelphia Depository Trust Company (individually, a
"Book-Entry Transfer Facility" and collectively, the "Book-Entry Transfer
Facilities") pursuant to the procedures set forth in Section 2 of the Offer to
Purchase (as defined below).
Shareholders whose certificates are not immediately available or who cannot
deliver their Shares and all other documents required hereby to the Depositary,
or who are unable to complete the procedures for book-entry transfer, prior to
the Expiration Date (as defined in the Offer to Purchase), must tender their
Shares according to the guaranteed delivery procedure set forth in Section 2 of
the Offer to Purchase. See Instruction 1. Delivery of this Letter of Transmittal
and the other required documents to a Book-Entry Transfer Facility does not
constitute delivery to the Depositary.
<PAGE>
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH A BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN A BOOK-ENTRY TRANSFER
FACILITY MAY DELIVER SHARES BY BOOK-ENTRY TRANSFER):
Name of Tendering Institution _________________________________________________
Check Box of Applicable Book-Entry Transfer Facility:
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
Account Number ____________________________________________________________
Transaction Code Number ___________________________________________________
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING:
Name(s) of Registered Owner(s) ____________________________________________
Window Ticket Number (if any) _____________________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Check Box of Applicable Book-Entry Transfer Facility, if Delivered by
Book-Entry Transfer:
/ / The Depository Trust Company
/ / Philadelphia Depository Trust Company
Account Number ____________________________________________________________
Transaction Code Number ___________________________________________________
- 2 -
<PAGE>
IMPORTANT
THE MAXIMUM NUMBER OF SHARES THAT CAN BE TENDERED BY A SHAREHOLDER IS 1,000
SHARES (THE "MAXIMUM TENDER AMOUNT"), INCLUDING ALL SHARES TENDERED FOR WHICH
THE SHAREHOLDER IS THE HOLDER OF RECORD PLUS ALL SHARES WHICH SUCH SHAREHOLDER
BENEFICIALLY OWNS IN "STREET NAME" THROUGH A BROKER, DEALER, COMMERCIAL BANK,
TRUST COMPANY OR OTHER NOMINEE. CONSEQUENTLY, MULTIPLE ACCOUNTS REGISTERED IN A
SHAREHOLDER'S NAME WILL BE CONSIDERED AS A SINGLE ACCOUNT FOR PURPOSES OF
CALCULATING WHETHER A SHAREHOLDER HAS TENDERED THE MAXIMUM TENDER AMOUNT.
HOWEVER, ACCOUNTS IN WHICH THE SHAREHOLDER IS DESIGNATED IN DIFFERENT CAPACITIES
BUT OVER WHICH THE SHAREHOLDER EXERCISES CONTROL (E.G., TRUST ACCOUNTS,
CUSTODIAL ACCOUNTS AND JOINT ACCOUNTS) WILL BE CONSIDERED SEPARATE ACCOUNTS,
EACH ENTITLED TO TENDER THE MAXIMUM TENDER AMOUNT.
ALL BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES AND OTHER NOMINEES
TENDERING ON BEHALF OF A SHAREHOLDER WHOSE SHARES THEY HOLD ON ACCOUNT MUST
COLLECTIVELY TENDER NO MORE THAN THE MAXIMUM TENDER AMOUNT FOR EACH SUCH
SHAREHOLDER.
<TABLE>
<CAPTION>
===========================================================================================================
BOX 1 DESCRIPTION OF SHARES TENDERED
===========================================================================================================
Name(s) and Address(es) of Registered Owner(s)
(Please fill in, if blank, exactly as Names(s)
appear(s) on certificate(s))
===========================================================================================================
<S> <C> <C> <C>
Certificate Total Number
Number(s) of Shares Number
Represented by of Shares
Certificate(s)(1) Tendered(2)
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
-------------------------------------------------------------
Total Shares
===========================================================================================================
</TABLE>
1. Need not be completed by Book-Entry Shareholders.
2. The Maximum Tender Amount is 1,000 Shares. If the certificates you hold
evidence more than 1,000 Shares, or if you otherwise desire to tender fewer
than all Shares evidenced by any of the certificates listed above, please
indicate in this column the number of Shares you wish to tender. Otherwise,
all Shares evidenced by such certificates, up to 1,000 Shares, will be
deemed to have been tendered.
- 3 -
<PAGE>
Ladies and Gentlemen:
Kleinert's, Inc., a Pennsylvania corporation (the "Company"), is offering
to purchase from each record holder of its Common Stock, par value $1.00 per
share ("Common Stock" or "Shares"), and from each beneficial holder of Shares
who holds such Shares in "street name" through a broker, dealer, commercial
bank, trust company or other nominee (individually a "Record Holder" and
collectively, "Record Holders"), up to 1,000 Shares owned by such Record Holder
(the "Maximum Tender Amount"), at a purchase price of $18.00 per Share, net to
the seller in cash, without interest thereon, in accordance with the terms and
conditions of the Company's Offer to Purchase dated April 15, 1997 (the "Offer
to Purchase"), receipt of which is hereby acknowledged, and this Letter of
Transmittal (which together constitute the "Offer").
The undersigned hereby tenders to the Company the Shares described in Box 1
(up to the Maximum Tender Amount), for purchase at $18.00 per Share, net to the
seller in cash, without interest thereon in accordance with the terms and
subject to the conditions of the Offer.
Subject to and effective upon acceptance for payment of the Shares tendered
herewith, in accordance with the terms and subject to the conditions of the
Offer (including, if the Offer is extended or amended, the terms and conditions
of any such extension or amendment), the undersigned hereby sells, assigns and
transfers to the Company all of the right, title and interest in and to all of
the Shares tendered hereby, or orders the registration of such Shares delivered
by book-entry transfer, and irrevocably constitutes and appoints the Depositary
the true and lawful agent and attorney-in-fact of the undersigned with respect
to such Shares, with full power of substitution, to deliver certificates for
such Shares or transfer ownership of such Shares on the account books maintained
by a Book-Entry Transfer Facility, together, in such case, with all accompanying
evidence of transfer and authenticity to the Company. The power of attorney
granted in this paragraph shall be deemed to be irrevocable and coupled with an
interest.
The undersigned hereby represents and warrants to the Company that the
undersigned has full power and authority to tender, sell, assign and transfer
the Shares tendered herewith, and that, when such Shares are accepted for
payment by the Company, the Company will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges,
encumbrances, conditional sales agreements or other obligations relating to
their sale or transfer, and not subject to any adverse claims. The undersigned
will, upon request, execute and deliver any additional documents deemed by the
Depositary or Company to be necessary or desirable to complete the exchange,
assignment and transfer of the tendered Shares.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 2 of the Offer to Purchase and in the
instructions hereto will constitute a binding agreement between the undersigned
and the Company upon the terms and subject to the conditions of the Offer.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, the Company may terminate or amend the Offer or may not
be required to accept for payment any of the Shares tendered herewith or may
accept for payment fewer than all the Shares tendered herewith.
Unless otherwise indicated herein in Box 2 under "Special Payment
Instructions," please issue the check for the purchase price of any Shares
purchased, and/or return or issue any certificates for Shares not tendered or
accepted for payment, in the name(s) of the registered holder(s) appearing in
Box 1 under "Description of Shares Tendered." Similarly, unless otherwise
indicated in Box 3 under "Special Delivery Instructions," please mail the check
for the purchase price of any Shares purchased, and/or any certificates
evidencing Shares not tendered or accepted for payment to the address(es) of the
registered holder(s) appearing in Box 1 under "Description of Shares Tendered."
In the event that both the Special Delivery Instructions and the Special Payment
Instructions are completed, please issue the check for the purchase price of any
Shares purchased, and/or issue or return any certificates evidencing Shares not
tendered or accepted for payment in the name(s) of, and mail said check and/or
any certificates to, the person or persons so indicated. In the case of a
book-entry delivery of Shares, please credit the account maintained at the
Book-Entry Transfer Facility indicated above with any Shares not accepted for
payment. The undersigned recognizes that the Company has no obligation pursuant
to the Special Payment Instructions to transfer any Shares from the name of the
registered holder(s) thereof if the Company does not accept for payment any of
the Shares so tendered.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of each of the undersigned, and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of such undersigned.
- 4 -
<PAGE>
===============================================================================
BOX 2 SPECIAL PAYMENT INSTRUCTIONS
(See Instruction 8)
===============================================================================
To be completed ONLY if the check for the purchase price and/or the
certificate(s) for Shares not accepted for payment or not tendered are to be
issued in the name of someone other than the undersigned.
Issue: |_| Check |_| Certificates
Name __________________________________________________________________________
(Please Print)
Address _______________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
_______________________________________________________________________________
(Tax Identification or Social Security Number)
===============================================================================
===============================================================================
BOX 3 SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 8)
===============================================================================
To be completed ONLY if the check for the purchase price and/or the
certificate(s) for Shares not accepted for payment or not tendered are to be
sent to someone other than the undersigned or to the undersigned at an address
other than appearing in Box 1.
Issue: |_| Check |_| Certificates
Name __________________________________________________________________________
(Please Print)
Address _______________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
_______________________________________________________________________________
(Tax Identification or Social Security Number)
===============================================================================
- 5 -
<PAGE>
===============================================================================
BOX 4 ALL SHAREHOLDERS MUST SIGN HERE
(Also complete substitute Form W-9 below)
===============================================================================
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Signature(s) of Owner(s))
(Must be signed by registered holder(s) exactly as name(s) appear(s) on stock
certificate(s) or on a security position listing or by person(s) authorized to
become registered holder(s) by certificates and documents transmitted herewith.
If signature is by trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or any other person acting in a fiduciary or
representative capacity, please set forth full title below. See Instruction 5)
Dated ___________________________________________________________________, 1997
Name(s) _______________________________________________________________________
_______________________________________________________________________________
(Please type or print)
Capacity (full title) _________________________________________________________
Address: ______________________________________________________________________
_______________________________________________________________________________
(Include Zip Code)
Daytime Area Code and Telephone Number ________________________________________
Tax Identification or
Social Security Number ________________________________________________________
(See Substitute Form W-9 Below)
===============================================================================
GUARANTEE OF SIGNATURE(S)
(If Required--See Instructions 1 and 5)
===============================================================================
Authorized Signature __________________________________________________________
Name __________________________________________________________________________
(Please Print)
Name of Firm __________________________________________________________________
Address _______________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number ________________________________________________
Date ____________________________________________________________________, 1997
===============================================================================
- 6 -
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. Guarantee of Signature. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a financial
institution (including most banks, savings and loan associations, and brokerage
houses) that is a participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program (each such entity hereinafter referred to as an
"Eligible Institution"). Signatures on this Letter of Transmittal need not be
guaranteed if (a) this Letter of Transmittal is signed by the registered owner
of the Shares (which term, for purposes of this document, shall include any
participant in one of the Book-Entry Transfer Facilities whose name appears on a
security position listing as the owner of Shares) tendered herewith and such
owner has not completed either of the boxes entitled "Special Payment
Instructions" or "Special Delivery Instructions" on this Letter of Transmittal
or (b) such Shares are tendered for the account of an Eligible Institution. See
Instruction 5.
2. Delivery of Letter of Transmittal and Shares; Guaranteed Delivery
Procedures. This Letter of Transmittal is to be used only if (a) certificates
are to be forwarded with it to the Depositary or (b) delivery of Shares is to be
made by book-entry transfer pursuant to the procedure set forth in Section 2 of
the Offer to Purchase. Certificates for all physically delivered Shares, or a
confirmation of a book-entry transfer of all Shares delivered electronically
into the Depositary's account at one of the Book-Entry Transfer Facilities,
together in each case with a properly completed and duly executed Letter of
Transmittal (or a facsimile thereof), with any required signature guarantees,
and any other documents required by this Letter of Transmittal, must be received
by the Depositary at its address set forth on the front page of this Letter of
Transmittal before the Expiration Date (as defined in Section 1 of the Offer to
Purchase). Delivery of documents to one of the Book-Entry Transfer Facilities
does not constitute delivery to the Depositary.
Shareholders whose certificates are not immediately available (or who
cannot follow the procedures for book-entry transfer on a timely basis), or who
cannot transmit this Letter of Transmittal and all other required documents to
reach the Depositary before the Expiration Date, may nevertheless tender their
Shares pursuant to the guaranteed delivery procedure set forth in Section 2 of
the Offer to Purchase. Pursuant to such procedure: (a) such tender must be made
by or through an Eligible Institution, (b) the Depositary must receive (by hand,
mail or facsimile transmission), before the Expiration Date, a properly
completed and duly executed Notice of Guaranteed Delivery substantially in the
form the Company has provided with the Offer to Purchase and (c) the
certificates for all tendered Shares in proper form for transfer (or
confirmation of a book-entry transfer of all such Shares into the Depositary's
account at one of the Book-Entry Transfer Facilities), together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and any
other documents required by this Letter of Transmittal, must be received by the
Depositary within three (3) Nasdaq Stock Market National Market trading days
after the date of execution of such Notice of Guaranteed Delivery, all as
provided in Section 2 of the Offer to Purchase.
The method of delivery of all documents, including stock certificates, this
Letter of Transmittal and any other required documents, is at the election and
risk of the tendering shareholder. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. By executing this Letter of Transmittal (or
a facsimile thereof), each tendering shareholder waives any right to receive any
notice of the acceptance of such stockholder's tender.
3. Inadequate Space. If the space provided in Box 1, entitled "Description
of Shares Tendered," is inadequate, the certificate numbers and/or the number of
Shares should be listed on a separate signed schedule and attached to this
Letter of Transmittal.
4. Partial Tenders and Unpurchased Shares. (Not applicable to shareholders
who deliver Shares by book-entry transfer.) If fewer than all the Shares
evidenced by any certificate delivered to the Depositary are to be tendered,
fill in the number of Shares that are to be tendered, up to the Maximum Tender
Amount, in Box 1 under the heading "Number of Shares Tendered." If such Shares
are purchased, a new certificate for the remainder of the Shares evidenced by
the old certificate(s) will be sent to and in the name of the registered
holder(s) (unless so otherwise specified by such holder(s) having completed
either of Box 2, "Special Payment Instructions," or Box 3, "Special Delivery
Instructions," in this Letter of Transmittal) as soon as practicable following
the expiration or termination of the Offer. All Shares represented by the
certificate(s) listed and
- 7 -
<PAGE>
delivered to the Depositary, up to the Maximum Tender Amount, will be deemed to
have been tendered unless otherwise indicated.
5. Signatures on Letter of Transmittal; Stock Powers; Endorsements; Name
Change.
(a) If this Letter of Transmittal is signed by the registered holder(s) of
the Shares tendered herewith, the signature(s) must correspond exactly with the
name(s) written on the face of the certificates without any change whatsoever.
(b) If any of the Shares tendered herewith are registered in the names of
two or more joint owners, each such owner must sign this Letter of Transmittal.
(c) If any of the Shares tendered herewith are registered in different
names on different certificates, it will be necessary to complete, sign and
submit as many separate Letters of Transmittal as there are different
registrations of certificates.
(d) If this Letter of Transmittal is signed by the registered holder(s) of
the Shares tendered herewith, no endorsements of certificates or separate stock
powers are required unless payment is to be made and/or certificates for Shares
not tendered or not purchased are to be issued to a person other than the
registered holder(s). If this Letter of Transmittal is signed by a person other
than the registered holder(s) of the Shares tendered herewith, however, the
certificates must be endorsed or accompanied by appropriate stock powers, in
either case, signed exactly as the name(s) of the registered holder(s) appear on
the certificates for such Shares. Signatures on any such certificates or stock
powers must be guaranteed by an Eligible Institution. See Instruction 1.
(e) If this Letter of Transmittal is, or any certificates or stock powers
are, signed by a trustee, executor, administrator, guardian, attorney-in-fact,
agent, officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing and proper
evidence satisfactory to the Company of the authority of such person so to act
must be submitted.
(f) For a correction of name or for a change in name which does not involve
a change in ownership, proceed as follows: For a change in name by marriage,
etc., the Letter of Transmittal should be signed, e.g., "Mary Doe, now by
marriage Mary Jones." For a correction in name, the Letter of Transmittal should
be signed, e.g., "James E. Brown, incorrectly inscribed as J.E. Brown."
6. Stock Transfer Taxes. The Company will pay any stock transfer taxes with
respect to the transfer and sale of Shares to it or its order pursuant to the
Offer. If, however, payment of the purchase price is to be made to, or
certificates for Shares not tendered or accepted for purchase are to be
registered in the name of, any person other than the registered holder, or if
tendered certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any stock transfer
taxes (whether imposed on the registered holder or such person) payable on
account of the transfer to such person will be deducted from the purchase price
unless evidence satisfactory to the Company of the payment of such taxes or an
exemption therefrom is submitted.
7. Irregularities. All questions as to the number of Shares to be accepted
and the validity, form, eligibility (including time of receipt) and acceptance
for payment of any tender of Shares will be determined by the Company, in its
sole discretion, which determination shall be final and binding on all parties.
The Company reserves the absolute right to reject any or all tenders determined
by it not to be in proper form or the acceptance for payment of which may, in
the opinion of the Company's counsel, be unlawful. The Company also reserves the
absolute right to waive any of the conditions of the Offer (except as provided
in Section 5 of the Offer to Purchase) and any defect or irregularity in the
tender of any particular Shares. The Company's interpretation of the terms and
conditions of the Offer (including these instructions) shall be final and
binding on all parties. No tender of Shares will be deemed properly made until
all defects or irregularities have been cured or waived. None of the Company,
the Depositary or any other person is or will be obligated to give notice of any
defects or irregularities in tenders, and none of them will incur any liability
for failure to give any such notice.
8. Special Payment and Delivery Instructions. If a check is to be issued
to, or any Shares not tendered or not purchased are to be returned in the name
of, a person other than the person(s) signing this Letter of Transmittal or if a
check or any certificates for Shares not tendered or not purchased are to be
mailed to someone other than the person(s) signing
- 8 -
<PAGE>
this Letter of Transmittal or to the person(s) signing this Letter of
Transmittal at an address other than that shown in the Box 1, "Description of
Shares Tendered," Box 2, "Special Payment Instructions," and/or Box 3, "Special
Delivery Instructions," on this Letter of Transmittal should be completed, and
signatures must be guaranteed. See Instruction 1.
9. Request for Assistance or Additional Copies. Requests for assistance and
for additional copies of the offer to Purchase, this Letter of Transmittal and
the Notice of Guaranteed Delivery may be directed to the Depositary.
10. Substitute Form W-9. Except as provided below under "Important Tax
Information," each tendering shareholder is required to provide the Depositary
with a correct taxpayer identification number, i.e., social security number or
employer identification number ("TIN"), on Substitute From W-9 which is provided
under "Important Tax Information" below. Failure to provide the information on
the form may subject the tendering shareholder to a penalty and 31% federal
backup withholding tax imposed on the gross proceeds to be paid to such
shareholder or other payee with respect to Shares purchase pursuant to the
Offer.
Facsimile copies of this Letter of Transmittal, properly completed and duly
executed, will be accepted. This Letter of Transmittal, certificates for Shares
and any other required documents should be sent or delivered by each shareholder
of the Company or such shareholder's broker, dealer, commercial bank, trust
company or their nominee to the Depositary at its address set forth above.
IMPORTANT TAX INFORMATION
Under current U.S. federal income tax law, a shareholder whose tendered
Shares are accepted for payment is required by law to provide the Depositary
with such shareholder's correct TIN on the Substitute Form W-9 below. If the
Depositary is not provided with the correct TIN, the Internal Revenue Service
may subject the shareholder or other payee to a penalty. In addition, payments
that are made to such shareholders or other payee with respect to Shares
purchased pursuant to the Offer may be subject to 31% backup withholding for
federal income tax purposes.
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements and should indicate their status by writing "exempt" across the
face of, and by signing and dating, the Substitute Form W-9. In order for a
non-corporate foreign shareholder to qualify as an exempt recipient, such
shareholder must submit a Form W-8, Certificate of Foreign Status, signed under
penalties of perjury, attesting to that shareholder's exempt status. A Form W-8
can be obtained from the Depositary.
If backup withholding applies, the Depositary is required to withhold 31%
of such payments to be made to the shareholder or other payee. Backup
withholding is not an additional tax. Rather, the federal income tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
Purpose of Substitute Form W-9
To prevent backup federal income tax withholding in connection with
payments that are made with respect to Shares tendered in the Offer, you must
provide the Depositary with your correct TIN by completing the Substitute Form
W-9 below, certifying that the TIN provided on Substitute Form W-9 is correct
and that either (a) you have not been notified by the Internal Revenue Service
that you are subject to backup withholding or (b) the Internal Revenue Service
has notified you that you are no longer subject to backup withholding.
If you have not been issued a TIN and have applied for one, or if you
intend to apply for one in the near future, check the box in Part 3 and sign and
date both the Substitute Form W-9 and the "Certificate of Taxpayer Awaiting
Identification Number." You then have generally 60 days within which to provide
the Depositary with your TIN and a new Substitute Form W-9. If you fail to do
so, the Depositary will withhold 31% from any payments and distributions made to
you thereafter until a TIN and new Substitute Form W-9 are provided.
- 9 -
<PAGE>
What Number to Give the Depositary
The shareholder is required to give the Depositary the TIN of the record
owner of the Shares or of the last transferee appearing on the transfers
attached to, or endorsed on, the certificates evidencing the Shares. If the
Shares are registered in more than one name or are not registered in the name of
the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
- 10 -
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================================
PAYER'S NAME: AMERICAN STOCK TRANSFER AND TRUST CO.
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Part 1--PLEASE PROVIDE YOUR TIN IN
SUBSTITUTE THE BOX AT RIGHT AND CERTIFY BY ______________________________________________
SIGNING AND DATING BELOW Social Security Number
Form W-9
OR
Department of the Treasury
Internal Revenue Service ______________________________________________
Employer Identification Number
Payer's Request for Taxpayer
Identification Number (TIN)
----------------------------------------------------------------------------------------
Part 2--Certification Under Penalties Part 3 --
of Perjury, I certify that:
(1) The number shown on this form is Awaiting TIN / /
my current taxpayer identification
number (or I am waiting for a number
to be issued to me) and
(2) I am not subject to backup
withholding either because I have not
been notified by the Internal Revenue
Service (the "IRS") that I am subject
to backup withholdings as a result of
a failure to report all interest or
dividends, or the IRS has notified me
that I am no longer subject to backup
withholding.
----------------------------------------------------------------------------------------
Certificate instructions-You must cross out item (2) in Part 2 above if you have
been notified by the IRS that you are subject to backup withholding because of
under reporting interest or dividends on your tax return. However, if after being
notified by the IRS that you are subject to backup withholding you receive another
notification from the IRS stating that you are no longer subject to backup
withholding, do not cross out item (2).
SIGNATURE ___________________________________________________ DATE _______________
NAME _____________________________________________________________________________
ADDRESS __________________________________________________________________________
CITY ___________________________________________ STATE ______ ZIP CODE ___________
=================================================================================================================================
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTION FORM W-9 FOR ADDITIONAL DETAILS. PLEASE REVIEW THE ENCLOSED
INSTRUCTIONS FOR FORM W-9 FOR FURTHER GUIDANCE ON PROPERLY COMPLETING THE FORM.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU
CHECK THE BOX IN PART 3 OF SUBSTITUTION FORM W-9
-11-
<PAGE>
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver such an application in the near future. I understand that if I do not
provide a taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide such
a number.
__________________________________________________ ________________________
Signature Date
===============================================================================
- 12 -
<PAGE>
The Depositary for the Offer is:
American Stock Transfer and Trust Co.
By Mail, Overnight Courier or Hand Delivery to:
40 Wall Street, 46th Floor
New York, New York 10005
By Facsimile Transmission:
718-234-5001
To Confirm Facsimile Transmission Call:
800-937-5449
----------
Any questions or requests for assistance or for additional copies of the
Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Depositary at its address and telephone number
set forth above. Shareholders may also contact their broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Offer.
- 13 -
KLEINERT'S, INC.
Offer to Purchase for Cash
Shares of Common Stock
at $18.00 Net Per Share
THE EXPIRATION DATE
(UNLESS EXTENDED) IS 5:00 P.M., PHILADELPHIA, PENNSYLVANIA
TIME, ON FRIDAY, MAY 30, 1997
NOTICE OF GUARANTEED DELIVERY
This form or a facsimile hereof must be used to accept the Offer (as
defined below) if:
(a) certificates for shares of Common Stock, par value $1.00 per share
(the "Shares"), of Kleinert's, Inc., a Pennsylvania corporation (the
"Company"), are not immediately available; or
(b) the procedure for book-entry transfer set forth in Section 2 of the
Company's Offer to Purchase, dated April 15, 1997 (the "Offer to
Purchase") cannot be followed on a timely basis; or
(c) time will not permit the Letter of Transmittal, dated April 15, 1997,
and all other required documents to reach American Stock Transfer and
Trust Co., the Depositary for the offer (the "Depositary"), before the
Expiration Date (as defined in Section 1 of the Offer to Purchase).
To: American Stock Transfer and Trust Co.
By Hand Delivery, Overnight Courier, or Mail:
40 Wall Street, 46th Floor
New York, NY 10005
By Facsimile:
718-234-5001
To Confirm by Telephone:
800-937-5449
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS, OR TRANSMISSION OF INSTRUCTIONS VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE, DOES NOT CONSTITUTE A VALID
DELIVERY.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, at a price of $18.00 per
Share, net to the Seller in cash, upon the terms and subject to the conditions
set forth in the Offer to Purchase, and the related Letter of Transmittal (which
together constitute the "Offer"), receipt of which is hereby acknowledged, the
number of Shares (up to the Maximum Tender Amount) set forth below the signature
of the undersigned, pursuant to the guaranteed delivery procedures set forth in
Section 2 of the Offer to Purchase.
Account No. ________________ at SIGN HERE
[ ] The Depository Trust Company _____________________________________
[ ] Philadelphia Deposit
Trust Company _____________________________________
Name(s):_____________________________
_____________________________
(Please Print)
Number of Shares Tendered:___________
Address:_____________________________
Dated: _________, 1997 _____________________________________
Area Code and Tel. No.:______________
- 2 -
<PAGE>
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, an "Eligible Institution" (as defined in Section 2 of the
Offer to Purchase), guarantees that the Depositary will receive either the stock
certificates representing the Shares tendered hereby, in proper form for
transfer, or confirmation of the book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company or the Philadelphia
Depositary Trust Company, in any such case together with a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and other
documents required by the Letter of Transmittal, all within three (3) Nasdaq
National Stock Market trading days after the date of execution of this notice.
------------------------------------------
NAME OF FIRM
------------------------------------------
AUTHORIZED SIGNATURE
------------------------------------------
NAME (PLEASE PRINT)
------------------------------------------
TITLE
-----------------------------------------
ADDRESS
------------------------------------------
ZIP CODE
DATED: _________________, 1997 ------------------------------------------
(AREA CODE AND TELEPHONE NO.)
NOTE: DO NOT SEND STOCK CERTIFICATES WITH THIS FORM. YOUR STOCK
CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL.
- 3 -
KLEINERT'S, INC.
Offer to Purchase for Cash
Shares of Common Stock
at $18.00 Net Per Share
THE EXPIRATION DATE
(UNLESS EXTENDED) IS 5:00 P.M., PHILADELPHIA, PENNSYLVANIA
TIME, ON FRIDAY, MAY 30, 1997
April 15, 1997
To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees:
We are enclosing the material listed below relating to the offer by which
Kleinert's, Inc., a Pennsylvania corporation (the "Company"), is inviting each
of its shareholders to tender up to 1,000 shares (the "Maximum Tender Amount")
of its Common Stock, par value $1.00 per share ("Shares"), at a price of $18.00
per Share (the "Purchase Price"), net to the seller in cash, upon the terms and
subject to the conditions set forth in the Offer to Purchase, dated April 15,
1997 (the "Offer to Purchase"), and in the related Letter of Transmittal, dated
April 15, 1997 (which together constitute the "Offer").
The Company will purchase from each record holder of Shares and from each
beneficial holder of Shares who holds such Shares in "street name" through a
broker, dealer, commercial bank, trust company or other nominee, at the Purchase
Price, net to the seller in cash, Shares, up to the Maximum Tender Amount, that
are properly tendered (and not withdrawn in accordance with Section 3 of the
Offer to Purchase), upon the terms and subject to the conditions of the Offer.
Each shareholder will be required to represent to you and to the Company that
the total number of Shares being tendered in the Offer by the shareholder,
whether directly by the shareholder or on behalf of the shareholder by brokers,
dealers, commercial banks, trust companies and other nominees, does not exceed
the Maximum Tender Amount. However, accounts over which a shareholder exercises
control but as to which the shareholder is named in different capacities (for
example, as trustee, custodian, or in joint name) will be treated as separate
accounts, each entitled to tender up to the Maximum Tender Amount in the Offer.
The Offer is not conditioned upon any minimum number of Shares being validly
tendered. The Offer is, however, subject to certain other conditions. See
Section 5 of the Offer to Purchase.
Enclosed herewith are copies of the following documents:
(1) Offer to Purchase;
(2) Letter of Transmittal for your use and for the information of your
clients;
(3) Letter to Shareholders from the Company;
(4) Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Shares are not immediately available (or the
procedures for book-entry transfer cannot be followed on a timely
basis) or time will not permit the Letter of Transmittal and all other
required documents to reach the depositary for the Offer (the
"Depositary") before the Expiration Date (as defined in the Offer to
Purchase);
<PAGE>
(5) Letter to Clients which may be sent to your clients for whose accounts
you hold Shares registered in your name (or in the name of your
nominee), together with an Instruction Form to be completed by your
clients with regard to the Offer; and
(6) Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number.
PLEASE BRING THE OFFER TO THE ATTENTION OF YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., PHILADELPHIA,
PENNSYLVANIA TIME, ON FRIDAY, MAY 30, 1997, UNLESS THE OFFER IS EXTENDED.
No fees or commission will be payable to brokers, dealers or other persons
for soliciting tenders of Shares pursuant to the Offer. The Company will
however, upon request, reimburse you for customary mailing and handling expenses
incurred by you in forwarding materials in respect of the Offer to your clients.
The Company will not pay (or cause to be paid) any stock transfer taxes on its
purchase of Shares pursuant to the Offer, except as otherwise provided in
Instruction 6 of the Letter of Transmittal.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal and any other required documents should be sent
to the Depositary with either certificate(s) representing the tendered Shares or
confirmation of their book-entry transfer, all in accordance with the
instructions set forth in the Offer.
As described in Section 2 of the Offer to Purchase, tenders may be made
even though stock certificates are not immediately available (or the procedures
for book-entry transfer cannot be followed on a timely basis) or time will not
permit the Letter of Transmittal and all other required documents to reach the
Depositary before the Expiration Date, if such tenders are made by or through an
"Eligible Institution" (as defined in the Offer to Purchase). Certificates for
Shares so tendered in proper form for transfer (or a confirmation of a
book-entry transfer of such Shares into the Depositary's account at one of the
"Book-Entry Transfer Facilities" described in the Offer to Purchase), together
with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof) and any other documents required by the Letter of
Transmittal, must be received by the Depositary within three (3) Nasdaq Stock
Market National Market trading days after the date of execution of a properly
completed and duly executed Notice of Guaranteed Delivery.
Any questions you have with respect to the Offer should be addressed to the
Company at its address and telephone number set forth on the cover of the Offer
to Purchase. Requests for additional copies of the enclosed material may be
directed to the Depositary, American Stock Transfer and Trust Company.
Very truly yours,
Kleinert's, Inc.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY OTHER PERSON THE AGENT OF THE COMPANY OR THE DEPOSITARY OR AUTHORIZE YOU OR
ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY MATERIAL ON BEHALF OF EITHER
OF THEM WITH RESPECT TO THE OFFER, OTHER THAN THE MATERIAL ENCLOSED HEREWITH AND
THE STATEMENTS SPECIFICALLY CONTAINED IN SUCH MATERIAL.
- 2 -
KLEINERT'S, INC.
Offer to Purchase for Cash
Shares of Common Stock
at $18.00 Net Per Share
THE EXPIRATION DATE
(UNLESS EXTENDED) IS 5:00 P.M., PHILADELPHIA, PENNSYLVANIA
TIME, ON FRIDAY, MAY 30, 1997
To Our Clients:
Enclosed for your consideration is the Offer to Purchase, dated April 15,
1997, by Kleinert's, Inc. (the "Company"), and a related Letter of Transmittal
(which together constitute the "Offer"), pursuant to which the Company intends
to purchase up to 1,000 shares (the "Maximum Tender Amount") of the Company's
Common Stock, par value $1.00 per share (the "Shares"), from each record holder
of Shares and from each beneficial holder of Shares who holds such Shares in
"street name" through a broker, dealer, commercial bank, trust company or other
nominee, upon the terms and subject to the conditions set forth in the Offer.
The purchase price for each Share shall be $18.00, net to the Seller in cash.
All Shares, up to the Maximum Tender Amount, properly tendered by each
shareholder prior to the Expiration Date (as defined in Section 1 of the Offer
to Purchase) (as may be extended by the Company) and not withdrawn, will be
purchased at a purchase price of $18.00, net to the seller in cash, upon the
terms and subject to the conditions of the Offer. All Shares not purchased
pursuant to the Offer will be returned to the tendering shareholders at the
Company's expense as promptly as practicable following the Expiration Date.
We are the holder of record of Shares held for your account. As such, we
are the only ones who can tender such Shares, and then only pursuant to your
instructions. The Letter of Transmittal is for your information only and cannot
be used by you to tender Shares we hold for your account.
Please instruct us as to whether you wish us to tender any or all of the
Shares we hold for your account, up to the Maximum Tender Amount, upon the terms
and subject to the conditions of the Offer, by completing the enclosed
Instruction Form.
We call your attention to the following:
(1) You may tender any portion or all of your Shares, up to the
Maximum Tender Amount, as indicated in the attached Instruction
Form.
(2) The Maximum Tender Amount applies to ALL Shares that you own,
including Shares for which you are the registered owner, Shares
held by us in your name for your account, and Shares held for
your account by other nominees. You may, however, treat other
accounts over which you have control but for which you are named
in a different capacity (for example, trust accounts, custodial
accounts and joint accounts) as separate accounts for purposes of
tendering Shares in the Offer, and each will be entitled to
tender up to the Maximum Tender Amount in the Offer.
<PAGE>
(3) The Offer is not conditioned upon any minimum number of Shares
being tendered. The Offer is, however, subject to certain other
conditions. See Section 5 of the Offer to Purchase.
(4) The Offer and withdrawal rights will expire at 5:00 p.m.,
Philadelphia, Pennsylvania time, on Monday, June 30, 1997, unless
the Offer is extended.
(5) Tendering shareholders will not be obligated to pay any brokerage
commissions, solicitation fees, or, subject to Instruction 6 of
the Letter of Transmittal, any stock transfer taxes with respect
to the transfer and sale of Shares to the Company pursuant to the
Offer.
If you wish to have us tender any of or all your Shares, up to the Maximum
Tender Amount, please so instruct us by completing, executing and returning to
us the attached Instruction Form. An envelope to return your Instruction Form to
us is enclosed. If you authorize us to tender your Shares, we will tender all
such Shares, up to the Maximum Tender Amount, unless you specify otherwise on
the instruction form.
YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US TO
SUBMIT A TENDER ON YOUR BEHALF BEFORE THE EXPIRATION DATE. THE OFFER AND
WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., PHILADELPHIA, PENNSYLVANIA
TIME, ON MONDAY, JUNE 30, 1997, UNLESS THE OFFER IS EXTENDED.
This Offer is not being made to, nor will the Company accept tenders from
or on behalf of, owners of Shares in any jurisdiction in which the making of the
Offer or its acceptance would not be in compliance with the laws of such
jurisdiction. In any jurisdiction in which the securities, blue sky or other
laws require the Offer to be made by a licensed broker or dealer, the Offer will
be deemed to be made on the Company's behalf by one or more registered brokers
or dealers licensed under the laws of such jurisdiction.
- 2 -
<PAGE>
INSTRUCTIONS
With Respect to the
Offer to Purchase for Cash
Up to a Maximum of 1,000 Shares of Common Stock
of
KLEINERT'S, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase, dated April __, 1997, and the related Letter of Transmittal,
dated April __, 1997 (which together constitute the "Offer"), in connection with
the offer by Kleinert's, Inc., a Pennsylvania corporation (the "Company"), to
purchase for cash from each record holder of its Common Stock, par value $1.00
per Share ("Shares"), and from each beneficial holder who holds such Shares in
"street name" through a broker, dealer, commercial bank, trust company or other
nominee, up to 1,000 Shares (the "Maximum Tender Amount") at a price of $18.00
per Share, net to the seller in cash, upon the terms and subject to the
conditions of the Offer.
The undersigned hereby instruct(s) you to tender to the Company the number
of Shares indicated below or, if no number is indicated, all Shares you hold for
the account of the undersigned registered in the undersigned's name, up to the
Maximum Tender Amount, upon the terms and subject to the conditions of the
Offer.
Number of Shares to be tendered by you for the account of the undersigned:
_______ Shares
[Unless otherwise indicated, all the Shares held for the account of
the undersigned, up to the Maximum Tender Amount, will be tendered.]
The undersigned hereby represents and warrants to you and to the Company
that the total number of Shares to be tendered by you for the account of the
undersigned, together with all other Shares being tendered by the undersigned,
either directly or through other nominees who hold Shares for the account of the
undersigned, does not exceed the Maximum Tender Amount. The undersigned
understands and acknowledges that the Company is relying on this representation,
and that a misrepresentation will permit the Company, at its sole option, to
invalidate the tender of the undersigned's Shares.
SIGN HERE
Dated: ________, 1997
---------------------------------------------------
(Signature(s))
---------------------------------------------------
(Name(s)) (Please Print)
---------------------------------------------------
(Address)
---------------------------------------------------
(Zip Code)
---------------------------------------------------
(Area Code and Telephone No.)
---------------------------------------------------
(Taxpayer Identification or Social Security Number)
- 3 -
[KLEINERT'S LETTERHEAD]
April 15, 1997
Dear Shareholder:
After careful and extensive consideration, the Board of Directors of
Kleinert's, Inc. has determined that it is no longer in the Company's best
interests that it remain a public company subject to the reporting obligations
imposed under the Securities Exchange Act of 1934, as amended. Since there will
be no readily available public market for the Company's shares after the
Company deregisters from the Securities Exchange Act, the Board of Directors has
concluded to offer each of the Company's shareholders an opportunity to sell up
to 1,000 of their shares for a purchase price of $18.00 per share, net to the
shareholder in cash, a price which the Company believes is fair to its
shareholders. Upon the expiration of the Offer, the Company will delist the
shares from the Nasdaq Stock Market National Market and cease being a reporting
company under the Securities Exchange Act.
The Company's offer to purchase shares of its common stock is being made to
each of the Company's shareholders of record as well as to each of the Company's
shareholders who hold their shares in a "street name" account at a broker,
dealer, commercial bank, trust company or other nominee. The Company will
purchase all of the shares, up to a maximum of 1,000 shares, validly tendered by
each shareholder pursuant to the Offer and not withdrawn prior to the expiration
date of the Offer.
The withdrawal deadline and expiration date (unless extended) of the Offer
are at 5:00 p.m. Philadelphia time, on Friday, May 30, 1997.
Although multiple accounts registered in a shareholder's name will be
treated as one account for purposes of the 1,000 share tender limit, accounts
designated in different capacities over which the shareholder exercises control
(for example, trust accounts, custodial accounts and joint accounts) will be
treated as separate accounts, each entitled to tender up to 1,000 shares.
Neither the Company nor its Board of Directors makes any recommendation to
any shareholder as to whether to tender or refrain from tendering shares. The
Company has been advised that no officer or director of the Company intends to
tender any shares pursuant
<PAGE>
to the Offer. Each shareholder must make his own decision whether to tender
shares and, if so, how many shares to tender.
Enclosed are the Offer to Purchase and Letter of Transmittal, which
together set forth in detail the terms and conditions of the Offer. You are
urged to review the enclosed documents carefully. If you desire to tender your
shares, please either follow the instructions contained in the Offer to Purchase
and the Letter of Transmittal or contact your broker, dealer, commercial bank,
trust company or other nominee to effect the tender for you.
Sincerely,
Jack Brier
Chairman
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the
Payer-Social Security numbers have nine digits separated by two hyphens:
i.e. 000-00-0000. Employer identification numbers have nine digits separated
by only one hyphen: i.e. 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Give the
Give the EMPLOYER
SOCIAL SECURITY IDENTIFICATION
For this type of account number of For this type of account number of:
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do not furnished
pension trust. the identifying number of the
personal representative or trustee
unless the legal entity itself is not
designated in the account title.)(5)
2. Two or more individuals The actual owner of 10. Corporate account The corporation
(joint account) the account or, if
combined funds, any
one of the
individuals(1)
3. Husband and wife The actual owner of 11. Association club, The organization
(joint account) the account or, if religious, charitable,
joint funds, either educational or other
person(1) tax-exempt organization
account
4. Custodian account of a The minor(2) 12. Partnership account The partnership
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the 13. A broker or registered The broker or nominee
account) minor is the only nominee
contributor, the
minor(1)
6. Account in the name of The ward, minor, or 14. Account with the Department The public entity
guardian or committee incompetent person(3) of Agriculture in the name
for a designated ward, of a public entity (such as
minor, or incompetent a State or local government,
person school district, or prison)
that receives agricultural
program payments
7.a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(2)
account that is
not a legal or valid
trust under State
law
8. Sole proprietorship The owner(4)
account
</TABLE>
- -----------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) You must show your individual name, but you may also enter your business
or "doing business as" name. You may use your social security number or
employer identification number.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
Obtaining a Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
Payees Exempt from Backup Withholding
Payees specifically exempted from backup withholding on ALL payments include the
following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(b)(7).
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
o An international organization or any agency, or instrumentality thereof.
o A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a nonexempt trust described in
Section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of 1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
o Payments to nonresident aliens subject to withholding under section 1441.
o Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
o Payments of patronage dividends where the amount received is not paid in
money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding include
the following:
o Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600 or
more and is paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
o Payments described in section 6049(b)(5) to non-resident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR
TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM IN PART
II, SIGN AND DATE THE FORM, AND RETURN IT TO THE PAYER.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding, For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
Privacy Act Notice. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Payers must generally withhold 31% of taxable
interest, dividend, and certain other payments to a payee who does not furnish a
taxpayer identification number to a payer. Certain penalties may also apply.
Penalties
(1) Penalty for Failure to Furnish Taxpayer Identification Number. -- If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is
due to reasonable cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. -- If you fail to
include any portion of an includible payment for interest, dividends, or
patronage dividends in gross income and such failure is due to negligence,
a penalty of 20% is imposed on any portion of an under-payment attributable
to that failure.
(3) Civil Penalty for False Information With Respect to Withholding. -- If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE
ACT OF 1934)
KLEINERT'S, INC.
---------------------------------------
(Name of Issuer)
KLEINERT'S, INC.
---------------------------------------
(Name of Person(s) Filing Statement)
Common Stock, par value $1.00 per share
---------------------------------------
(Title of Class of Securities)
498552 10 8
---------------------------------------
(CUSIP Number of Class of Securities)
Mr. Gerald E. Monigle
Vice President - Finance
Kleinert's, Inc.
120 West Germantown Pike - Suite 100
Plymouth Meeting, PA 19462
610-828-7261
------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notice and
Communications on Behalf of Person(s) Filing Statement)
Copy to:
Steven N. Haas, Esquire
Cozen and O'Connor
1900 Market Street
Philadelphia, PA 19103
(215) 665-2000
April 15, 1997
(Date Tender Offer First Published, Sent or Given to Security Holders)
--------------
<PAGE>
Calculation of Filing Fee
================================================================================
Transaction Valuation* Amount of Filing Fee
$3,449,844 $690.00
- --------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the form or
schedule and the date of its filing.
Amount previously paid: N/A Filing party: N/A
Form or registration No.: N/A Date filed: N/A
================================================================================
* For purpose of calculation of a filing fee only. The amount of the filing
fee equals 1/50 of 1% of the value of the securities to be acquired.
<PAGE>
Item 1. Security and Issuer.
(a) The name of the issuer is Kleinert's, Inc., a Pennsylvania corporation
(the "Company"), which has its principal executive offices at 120 West
Germantown Pike, Suite 100, Plymouth Meeting, Pennsylvania 19462 (telephone
number 610-828-7261).
(b) This Schedule relates to the offer by the Company to purchase from each
record holder of its Common Stock, par value $1.00 per share ("Common Stock" or
"Shares"), and from each beneficial holder of Shares who holds such Shares in
"street name" through a broker, dealer, commercial bank, trust company or other
nominee (individually, a "Record Holder" and collectively, "Record Holders"), up
to 1,000 Shares owned by such Record Holder (the "Maximum Tender Amount"), for
$18.00 per Share, net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated April 15, 1997 (the "Offer
to Purchase") and related Letter of Transmittal, copies of which are attached
hereto as Exhibits (a)(1) and (a)(2), respectively. There are outstanding
3,692,835 shares of Common Stock. Reference is hereby made to the information
set forth in the Offer to Purchase under the captions "Introduction," "Special
Factors - Potential Conflicts of Interest," "The Offer - Number of Shares;
Extension of Offer" and "The Offer - Transactions and Arrangements Concerning
the Shares," which information is incorporated herein by reference.
(c) The trading of Shares is currently reported on the Nasdaq Stock Market
National Market ("NNM") under the symbol "KLRT." Reference is hereby made to the
information set forth in the Offer to Purchase under the caption "The Offer -
Price Range of Shares; Dividend Policy," which information is incorporated
herein by reference.
(d) Not applicable.
Item 2. Source and Amount of Funds or Other Consideration.
(a) - (b) Reference is hereby made to the information set forth in the
Offer to Purchase under the captions "The Offer - Source and Amount of Funds,"
and "The Offer - Fees and Expenses," which information is incorporated herein by
reference.
Item 3. Purpose of Tender Offer and Plans or Proposals of the Issuer or
Affiliate.
(a) - (j) The purpose of the Offer is to enable shareholders of the Company
to sell their Shares at a fair price and without the usual transaction costs
associated with market sales, before the Shares are delisted from the NNM and
deregistered under the Exchange Act. Reference is hereby made to the information
set forth in the Offer to Purchase on the front cover page thereof and under the
captions "Introduction," "Special Factors - Background of the Offer," "Special
Factors - Purpose of the Offer," "Special Factors - Certain Effects of the
Offer" and "The Offer - Effects of the Offer on the Market for Shares;
Registration under the Exchange Act," which information is incorporated herein
by reference.
<PAGE>
Item 4. Interest in Securities of the Issuer.
Reference is hereby made to the information set forth in the Offer to
Purchase under the captions "Introduction," "Special Factors - Background of the
Offer," "Special Factors - Potential Conflicts of Interest" and "The Offer -
Transactions and Arrangements Concerning the Shares," which information is
incorporated herein by reference.
Item 5. Contracts, Arrangements, Understandings or Relationships With Respect to
the Issuer's Securities.
Reference is hereby made to the information set forth in the Offer to
Purchase under the captions "Special Factors - Background of the Offer" and "The
Offer - Transactions and Arrangements Concerning the Shares," which information
is incorporated herein by reference.
Item 6. Persons Retained, Employed or to be Compensated.
No person has been retained to make solicitations or recommendations with
respect to the Offer. Reference is hereby made to the information set forth in
the Offer to Purchase under the caption "The Offer - Fees and Expenses," which
information is incorporated herein by reference.
Item 7. Financial Information.
(a) - (b) Reference is hereby made to the summary historical financial
information set forth in the Offer to Purchase under the caption "The Offer -
Certain Information Concerning the Company," and to the information set forth in
the Company's Annual Report on Form 10-K for the fiscal year ended November 30,
1996, and the Quarterly Report on Form 10-Q for the fiscal quarter ended March
1, 1997 which are attached to the Offer to Purchase as Annex B and Annex C,
respectively, which information is incorporated herein by reference.
Item 8. Additional Information.
(a) - (b) Not applicable.
(c) Reference is hereby made to the information set forth in the Offer to
Purchase under the caption "Special Factors - Purpose of the Offer" and "Special
Factors Certain Effect of the Offer," which information is incorporated herein
by reference.
(d) Not applicable.
(e) Reference is hereby made to the information set forth in the Offer to
Purchase and Letter of Transmittal, which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, and incorporated herein by reference.
<PAGE>
Item 9. Material to be Filed as Exhibits.
(a)(1) Offer to Purchase dated April 15, 1997.
(a)(2) Letter of Transmittal dated April 15, 1997.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees dated April 15, 1997.
(a)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6) Letter to Shareholders of the Company.
(a)(7) Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
KLEINERT'S, INC.
Dated: April 15, 1997
By: /s/ Gerald E. Monigle
------------------------------
Name: Gerald E. Monigle
Title: Vice President - Finance
<PAGE>
EXHIBIT INDEX
Sequentially
Exhibit Numbered
Number Description Page
- ------- ----------- ------------
99(a)(1) Offer to Purchase dated April 15, 1997.
99(a)(2) Letter of Transmittal dated April 15, 1997.
99(a)(3) Notice of Guaranteed Delivery.
99(a)(4) Letter to Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees
dated April 15, 1997.
99(a)(5) Form of Letter to Clients for use by Brokers,
Dealers, Commercial Banks, Trust Companies
and Other Nominees.
99(a)(6) Letter to Shareholders of the Company.
99(a)(7) Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number.
