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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934)
NITCHES, INC.
(Name of Issuer)
NITCHES, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK
(Title of Class of Securities)
65476M109
(CUSIP Number of Class of Securities)
Steven P. Wyandt
President
Nitches, Inc.
10280 Camino Santa Fe
San Diego, California 92121
(619) 625-2633
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Person(s) Filing Statement)
Copy to:
James A. Mercer III
Luce, Forward, Hamilton & Scripps LLP
600 West Broadway, Suite 2600
San Diego, CA 92101
(619) 699-2447
AUGUST 18, 1998
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
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Transaction Valuation* Amount of Filing Fee
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$4,000,000 $800
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* Based upon $4.00 cash per share for 1,000,000 shares.
[X] Check here 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: $800 Filing Party: Nitches, Inc.
Form or Registration No.: Schedule 13E-4 Date Filed: August 18, 1998
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Item 2. Source and Amount of Funds or Other Consideration
(a) The information set forth in Section 8 "Source and Amount of Funds"
of the revised Offer to Purchase is incorporated herein by reference.
(b)(1)-(2) The information set forth in Section 8 "Source and Amount of
Funds" of the revised Offer to Purchase is incorporated herein by reference.
Item 8. Additional Information
(e) The Company is extending its tender offer to purchase up to
1,000,000 shares of its common stock at $4.00 per share until 5:00 p.m. Eastern
Daylight Time, on Wednesday, October 7, 1998.
The Company has elected to waive, in full, the condition of the
Offer appearing in Section 5(b)(9) of the Offer to Purchase as originally filed
with the SEC. Thus, despite a decline in the Dow Jones Industrial Average or the
Standard & Poor's Index of 500 Companies by an amount in excess of 10% during
the period the Offer was open, the Company will proceed with the Offer.
The Offer to Purchase as originally filed with the SEC contained a
condition in Section 5(b)(8) that consumation of the Offer not cause a default
under the Company's Credit Agreement. The Offer would have caused an event of
default under the Company's prior Credit Agreement; however, the Company has
elected to waive, in full, that condition. The Company has entered into a new
Discount Factoring Agreement with Congress Talcott Corporation, effective on
October 1, 1998, on substantially the same borrowing terms as the old Credit
Agreement. However, the net worth requirements have been reduced, and
consumation of the Offer will not, by itself cause a default under the factoring
Agreement. The Offer to Purchase has been revised to reflect that the condition
in Section 5(b)(8) now applies to the new Discount Factoring Agreement.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
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Exhibit 99.(a)-1 - Revised form of Offer to Purchase.
Exhibit 99.(a)-2 - Form of Letter of Transmittal (including Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9).(1)
Exhibit 99.(a)-3 - Form of Notice of Guaranteed Delivery.(1)
Exhibit 99.(a)-4 - Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.(1)
Exhibit 99.(a)-5 - Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.(1)
Exhibit 99.(a)-6 - Press Release issued by the Company on August 11, 1998.(1)
Exhibit 99.(a)-7 - Form of Letter to the Company's shareholders from the President of the Company,
dated August 18, 1998.(1)
Exhibit 99.(a)-8 - Form of Letter to Company's 401(k) Plan Participants.(1)
Exhibit 99.(a)-9 - Letter to Shareholders extending the Expiration Date to October 2, 1998.(1)
Exhibit 99.(a)-10 - Form of Press Release announcing the extension of the Expiration Date to October 2,
1998.(1)
Exhibit 99.(a)-11 - Form of Press Release announcing extension of the Expiration Date to October 7,
1998.
Exhibit 99.(b) - Discount Factoring Agreement (including related agreements), effective
October 1, 1998, between the Company and Congress Talcott Corporation (Western).
Exhibit 99.(g) - Annual Report on Form 10-K for the year ended August 31, 1997; Quarterly Report
on Form 10-Q for the three-month period ended May 31, 1998.(2)
Exhibit 99.(h) - Independent Auditors' Consent.(1)
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(1) Filed previously.
(2) The Company's Annual Report on Form 10-K was previously filed with the
SEC on August 28, 1997. The Company's Quarterly Report on Form 10-Q was
previously filed with the SEC on July 15, 1998.
3
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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.
NITCHES, INC.
By: /s/ Steven P. Wyandt
---------------------------------
Steven P. Wyandt, President
Dated: September 30, 1998
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Exhibit Index
99.(a)-1 Revised form of Offer to Purchase
99.(a)-11 Form of Press Release announcing extension of the Expiration Date
to October 7, 1998.
99.(b) Discount Factoring Agreement (including related
agreements), effective October 1, 1998, between the
Company and Congress Talcott Corporation (Western).
5
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Exhibit 99.(a)-1
NITCHES, INC.
Offer to Purchase for Cash Up to 1,000,000 Shares
of its Common Stock at a Purchase Price of $4.00
net per Share
THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, OCTOBER 7, 1998, UNLESS THE OFFER IS EXTENDED.
Nitches, Inc., a California corporation (the "Company"), invites its
shareholders to tender 1,000,000 shares of its Common Stock (the "Shares"), at
$4.00 per Share net to the shareholder, in cash (the "Purchase Price"), upon the
terms and subject to the conditions set forth in this Offer to Purchase and the
related Letter of Transmittal (which together constitute the "Offer"). The
Company reserves the right, in its sole discretion, to purchase more than
1,000,000 Shares pursuant to the Offer. All Shares properly tendered and not
withdrawn prior to the expiration of the Offer will be purchased at the Purchase
Price, upon the terms and subject to the conditions of the Offer, including its
proration terms.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS. SEE
SECTION 5.
The Shares are listed and principally traded on the National
Association of Securities Dealers SmallCap Market System (NASDAQ). On August 10,
1998, the last trading day before the Company announced its intention to
commence the Offer, the closing per Share sales price as reported on NASDAQ was
$2.75. The Company urges shareholders to obtain current market quotations for
the Shares prior to tendering any Shares pursuant to the Offer. See Introduction
and Section 6.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO ANY SHAREHOLDER AS TO WHETHER TO TENDER OR TO REFRAIN FROM TENDERING SHARES
PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION
WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER. SEE INTRODUCTION
AND SECTION 7 FOR INFORMATION CONCERNING THE INTENTION OF ARJUN C. WANEY, THE
COMPANY'S PRINCIPAL SHAREHOLDER, IN CONNECTION WITH THE OFFER. THE COMPANY HAS
BEEN ADVISED THAT ITS DIRECTORS AND OFFICERS INTEND TO TENDER AN AGGREGATE OF
865,806 SHARES PURSUANT TO THE OFFER. SEE INTRODUCTION AND SECTION 7.
The objective of the Offer is to deliver directly to shareholders a
portion of the Company's current value and to provide the Company's shareholders
with a means of furthering their investment objectives with respect to the
Shares. The Offer provides shareholders who wish to currently realize a portion
of, or perhaps all, their investment in the Company in cash with an opportunity
to sell a portion of, or perhaps all, their Shares at a premium over current
market prices of the Shares. The Offer also is intended to provide shareholders
with an opportunity to increase their proportionate ownership interest in the
Company, either by not participating in the Offer or by participating in the
Offer and reinvesting their after-tax proceeds in additional Shares. See
Sections 9 and 13.
IMPORTANT
Any shareholder desiring to tender all or any portion of the Shares
should either (i) complete and sign a Letter of Transmittal or a facsimile copy
thereof in accordance with the instructions in such Letter of Transmittal, mail
or deliver it and any other required documents to American Stock Transfer &
Trust Company (the "Depositary"), and either mail or deliver the certificates
for such Shares to the Depositary (with all such other documents) or follow the
procedure for book-entry transfer set forth in Section 2; or (ii) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such shareholder. A shareholder having Shares
registered in the name of a
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broker, dealer, commercial bank, trust company or other nominee must contact
that entity if such shareholder desires to tender and such Shares. Shareholders
who desire to tender Shares and whose certificates for such Shares cannot be
delivered to the Depositary or who cannot comply with the procedures for
book-entry transfer or whose other required documents cannot be delivered to the
Depositary, in any such case, prior to the expiration of the Offer must tender
such Shares by following the procedures for guaranteed delivery set forth in
Section 2.
Questions and requests for assistance or for additional copies of this
Offer to Purchase may be directed to D. F. King & Co., Inc., the Information
Agent, at the addresses and telephone numbers set forth on the back cover of
this Offer to Purchase.
August 18, 1998
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 AND IN THE LETTER OF TRANSMITTAL.
IF GIVEN OR MADE, SUCH RECOMMENDATION, INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
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TABLE OF CONTENTS
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Section Page
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INTRODUCTION 1
1. Number of Shares; Extension; Proration 2
2. Procedures for Tendering Shares 3
3. Withdrawal Rights 5
4. Purchase of Shares and Payment of Purchase Price 5
5. Certain Conditions of the Offer 6
6. Price Range of Shares; Dividends 8
7. Interest of Certain Persons; Transactions and Arrangements Concerning the Shares 8
8. Source and Amount of Funds 9
9. Background and Purpose of the Offer 9
10. Certain Information About the Company 10
11. Effects of the Offer on the Market for Shares; Registration 15
under the Exchange Act
12. Certain Legal Matters; Regulatory Approval 15
13. Certain Federal Income Tax Consequences 15
14. Certain Limitation on Purchases of Shares by the Company 17
15. Extension of the Tender Period; Termination; Amendments 18
16. Fees and Expenses 19
17. Miscellaneous 19
SCHEDULE I 20
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TO THE HOLDERS OF COMMON STOCK OF NITCHES, INC.:
INTRODUCTION
Nitches, Inc., (the "Company"), hereby offers to purchase, and invites
its shareholders to tender, up to 1,000,000 shares of its common stock (the
"Shares"), at $4.00 per Share, net to the seller, in cash, (the "Purchase
Price"), upon the terms and subject to the conditions set forth in this Offer to
Purchase and in the related Letter of Transmittal (the "Letter of Transmittal,"
which together with this Offer to Purchase, constitute the "Offer"). The Company
reserves the right, in its sole discretion, to purchase more than 1,000,000
Shares pursuant to the Offer. See Section 1. All Shares properly rendered and
not withdrawn prior to the expiration of the Offer will be purchased at the
Purchase Price, upon the terms and subject to the conditions of the Offer,
including the proration terms described below. Shares not purchased because of
proration will be returned.
THE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING
TENDERED. THE OFFER IS, HOWEVER, SUBJECT TO CERTAIN OTHER CONDITIONS, SEE
SECTION 5.
Upon the terms and subject to the conditions of the Offer, if at the
expiration of the Offer more than 1,000,000 Shares are properly tendered, the
Company will buy Shares on a pro rata basis (with appropriate adjustments to
avoid purchases of fractional Shares) from all shareholders who properly tender
Shares and do not withdraw them prior to the expiration of the Offer. See
Sections 1 and 3. The Company will return all Shares not purchased because of
proration. Tendering shareholders will not be obligated to pay brokerage
commissions, solicitation fees or, subject to Instruction 6 of the Letter of
Transmittal, stock transfer taxes because of the Company's purchase of Shares
pursuant to the Offer. In addition, the Company will pay all fees and expenses
of D. F. King & Co., Inc. (the "Information Agent") and American Stock Transfer
& Trust Company (the "Depositary") in connection with the Offer. See Section 16.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO ANY SHAREHOLDER AS TO WHETHER TO TENDER OR TO REFRAIN FROM TENDERING SHARES
PURSUANT TO THE OFFER. EACH SHAREHOLDER MUST MAKE HIS OR HER OWN DECISION
WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES TO TENDER.
The Company has been advised that each of its directors and executive
officers, in their capacity as shareholders, intend to tender all of their
Shares including shares issuable upon the exercise of outstanding options, for
an aggregate of 865,806 Shares. See Section 7.
The Shares are listed and principally traded on the National
Association of Securities Dealers SmallCap Market System (NASDAQ) under the
symbol "NICH". On August 10, 1998, the last trading day before the Company
announced its intention to commence the Offer, the closing per Share sales price
as reported on NASDAQ was $2.75. The Company urges shareholders to obtain
current market quotations of the Shares prior to tendering any Shares pursuant
to the Offer. See also Section 6 regarding entitlement to dividends.
The 1,000,000 Shares that the Company is offering to purchase pursuant
to the Offer represent approximately 49.70% of the 2,012,030 Shares issued and
outstanding as of August 18, 1998. In addition, as of such date, an aggregate of
up to 294,000 additional Shares were issuable upon exercise of outstanding stock
options. The Company's directors have indicated that they intend to exercise
those options through cashless exercise which will result in an additional
138,000 Shares being outstanding and tendered.
Shareholders whose Shares are not purchased in the Offer will obtain a
proportionate increase in their ownership interest in the Company immediately
after consummation of the Offer, depending on the number of Shares purchased as
a result of the Offer. Any Shares acquired by the Company pursuant to the Offer
will initially be cancelled and become authorized and unissued Shares and will
be available for issuance by the Company without further shareholder action
(except as required by applicable law or the rules of any securities exchange on
which the Shares are then listed) for general or other corporate purposes,
including stock splits or dividends, acquisitions, the raising of additional
capital for use in the Company's business and the implementation of employee
benefit plans. See also Section 9.
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The Offer to Purchase and the Letter of Transmittal are being mailed to
holders of record of Shares and will be furnished to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the names
of whose nominees, appear on the Company's shareholder list or, if applicable,
who are listed as participants in a clearing agency's security position listing,
for subsequent transmittal to beneficial owners of Shares.
1. NUMBER OF SHARES; EXTENSION; PRORATION.
Number of Shares. Upon the terms and subject to the conditions of the
Offer, the Company will accept for payment and pay for (and thereby purchase) up
to 1,000,000 Shares or such lesser number of Shares as are properly tendered,
and not withdrawn in accordance with Section 3, prior to the Expiration Date (as
defined below) at a price of $4.00 per Share net to the seller in cash. The term
"Expiration Date" means 5:00 P.M., New York City time, on October 7, 1998,
unless and until the Company shall have extended the period of time during which
the Offer will remain 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. If the Offer is over-subscribed, Shares tendered and not
withdrawn prior to the Expiration Date will be prorated. The proration period
also expires at the Expiration Date.
The Company reserves the right to purchase more than 1,000,000 Shares
pursuant to the Offer. In accordance with applicable regulations of the
Securities and Exchange Commission (the "Commission"), the Company may accept
for payment pursuant to the Offer an additional amount of Shares not to exceed
2% of the Shares (approximately 40,241 Shares based upon Shares outstanding as
of August 18, 1998) without extending the Offer.
See below and Section 15 for a description of the Company's rights to
extend the time during which the Offer is open and to delay, terminate or amend
the Offer. See also Section 5 for a description of certain conditions of the
Offer.
Extension. If the following events occur:
(a) the Company increases or decreases the price to be
paid for the Shares, or the Company increases the
number of Shares being sought and any such increase
in the number of Shares being sought exceeds 2% of
the outstanding Shares, or the Company decreases the
number of Shares being sought, and
(b) the Offer is scheduled to expire less than ten
business days from and including the date that notice
(the "Notice") of such increase or decrease is first
published, sent or given in the manner set forth in
Section 15.
then the Offer will be extended so that it will not expire until at least the
end of the tenth business day from and including the date of such Notice. For
purposes of the Offer, a "business day" means any day other than a Saturday,
Sunday or federal holiday until 5:00 P.M., New York City time on such day.
Acceptance in Full. Upon the terms and subject to the conditions of the
Offer, if the number of Shares properly tendered and not withdrawn prior to the
Expiration Date is less than or equal to 1,000,000 Shares (or such greater
number of Shares as the Company may elect to purchase pursuant to the Offer),
the Company will, upon the terms and subject to the conditions of the Offer,
accept for payment at the Purchase Price all Shares so tendered.
Proration. Upon the terms and subject to the conditions of the Offer,
in the event that at the Expiration Date a greater number of Shares than
1,000,000 Shares (or such greater number of Shares as the Company may elect to
purchase pursuant to the Offer) are properly tendered, the Company will accept
all Shares properly tendered and not withdrawn prior to the Expiration Date on a
pro rata basis (with appropriate adjustments to avoid purchases of fractional
shares) based upon the number of such Shares.
In the event the proration of tendered Shares is required, the Company
will determine the final proration factor as promptly as practicable following
the Expiration Date. Proration for each shareholder tendering Shares shall be
based on
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the ratio of the number of Shares tendered by such shareholder to the total
number of Shares tendered by all shareholders. Although the Company does not
expect to be able to announce the final results of any proration until
approximately seven trading days after the Expiration Date, it will announce
preliminary results of the prorations by press release as promptly as
practicable following the Expiration Date. Shareholders may obtain such
preliminary information from the Information Agent and may also be able to
obtain such information from their brokers or other nominees. All Shares not
purchased pursuant to the Offer because of proration will be returned to the
tendering shareholders at the Company's expense as promptly as practicable
following the Expiration Date.
2. PROCEDURES 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
delivery 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 facsimile thereof) including any
required signature guarantees, and any other
documents required by the Letter of Transmittal, must
be received prior to 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.
It is a violation of Section 14(e) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 14e-4 promulgated thereunder,
for a person to tender Shares for such person's own account unless the person so
tendering:
(a) owns such Shares; or
(b) owns other securities convertible into or
exchangeable for Shares or owns an option, warrant or
right to purchase Shares and intends to acquire such
Shares for tender by conversion, exchange or exercise
of such option, warrant or right.
Section 14(e) and Rule 14e-4 contain a similar restriction applicable to a
tender or guarantee of a tender on behalf of another person.
The acceptance of Shares by the Company for payment will constitute a
binding agreement between the tendering shareholder and the Company upon the
terms and subject to the conditions of the Offer, including the tendering
shareholder's representation that (i) such shareholder owns the Shares being
tendered within the meaning of Rule 14e-4; and (ii) the tender of such Shares
complies with Rule 14e-4.
Signature Guarantees and Method of Delivery. No signature guarantee is
required on a Letter of Transmittal (i) if such Letter of Transmittal is signed
by the registered institutional holder of the Shares (which term, for purposes
of the Offer, includes The Depository Trust Company [the "Book-Entry Transfer
Facility"] whose name appears on a security position listing as the holder of
such Shares) tendered therewith and such holder has not completed either the box
entitled "Special Delivery Instructions" or the box entitled "Special Payment
Instructions" on the Letter of Transmittal; or (ii) if Shares are tendered for
the account of a member firm of a registered national securities exchange, a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office, branch or agency in the United States
(each such entity being hereinafter referred to as an "Eligible Institution").
In all other cases, all signatures on a 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 signer of a Letter of Transmittal, or if payment is to be
made, or Shares not purchased or tendered are to be issued, to
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a person other than the registered holder, the certificate must be endorsed or
accompanied by an appropriate stock power, in either case signed exactly as the
name of the registered holder appears on the certificate, with the signature on
the certificate 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 (i) certificates for such Shares (or
timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at the Book-Entry Transfer Facility), (ii) a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) and
(iii) any other documents required by the Letter of Transmittal. 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.
Book-Entry Transfer. The Depositary will establish an account with
respect to the Shares at the Book-Entry Transfer Facility 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 transfer of 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 the
Book-Entry Transfer Facility, either (i) a properly completed and duly executed
Letter of Transmittal (or facsimile thereof) with any required signature
guarantees and any other required documents must be transmitted to and received
by the Depositary at its address set forth on the back cover of this Offer to
Purchase prior to the Expiration Date; or (ii) the guaranteed delivery procedure
set forth below must be followed. Delivery of a Letter of Transmittal and any
other required documents to the Book-Entry Transfer Facility does not constitute
delivery to the Depositary.
Guaranteed Delivery. If a shareholder desires to tender Shares pursuant
to the Offer and such shareholder's certificates cannot be delivered to the
depositary prior to the Expiration Date or the procedure for book-entry transfer
cannot be completed on a timely basis or all require documents cannot be
delivered to the Depositary prior to the Expiration Date, such Shares may
nevertheless be tendered provided that all of the following conditions are
satisfied:
(a) such tender is made by or through an Eligible
Institution;
(b) the Depositary receives (by hand, mail or facsimile
transmission) prior to 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 any Book-Entry Transfer Facility, together with a
properly completed and duly executed Letter of
Transmittal (or facsimile thereof) and any other
documents required by the Letter of Transmittal, are
received by the Depositary within five trading days
after the date the Depositary receives such Notice of
Guaranteed Delivery.
Determination of Validity, 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 form, eligibility, validity (including time of receipt)
and acceptance for payment of any tender of Shares will be determined by the
Company, in its sole discretion, which determinations shall be final and binding
on all parties. The Company reserves the absolute right to reject any or all
tenders it determines not to be in proper form or the acceptance for payment of
or payment for which may, in the opinion of the Company's counsel, be unlawful.
The Company also reserves the absolute right to waive any defect or irregularity
in the tender of any particular Shares. No tender of Shares will be deemed to be
properly made until all defects and irregularities have been cured or waived.
Neither the Company nor the Depositary nor any other person is or will be
obligated to give notice of any defects or irregularities in tenders, and
neither of them will incur any liability for failure to give such notice.
Federal Income Tax Withholding. To prevent back up federal income tax
withholding equal to 31% of the gross payments made pursuant to the Offer, each
shareholder who does not otherwise establish an exemption from such withholding
must certify to the Depositary such shareholder's correct social security number
or taxpayer identification
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number (or certify that such taxpayer is awaiting such number) and provide
certain other information by completing the Substitute Form W-9 included in the
Letter of Transmittal. A foreign shareholder who is an individual must submit a
Form W-8 (obtainable from the Depositary) in order to avoid back up withholding.
The Depositary will withhold 31% of the gross payment payable to a
foreign shareholder unless the Depositary determines that a reduced rate of
withholding or an exemption from withholding is applicable. For this purpose, a
foreign shareholder is a shareholder that is not (i) a citizen or resident of
the United States, (ii) a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, or (iii) any estate or trust the income of which is subject to United
States federal income taxation regardless of the source of such income. The
Depositary will determine a shareholder's status as a foreign shareholder and
eligibility for a reduced rate of, or an exemption from, withholding by
reference to the shareholder's address and to any outstanding certificates or
statements concerning eligibility for a reduced rate of, or exemption from,
withholding unless facts and circumstances indicate that reliance is not
warranted. A foreign shareholder who has not previously submitted the
appropriate certificates or statements with respect to a reduced rate of, or
exemption from, withholding for which such shareholder may be eligible should
consider doing so in order to avoid over-withholding. A foreign shareholder may
be eligible to obtain a refund of tax withheld if such shareholder meets one of
the tests for capital gain or loss treatment described in Section 13 or its
otherwise able to establish that no tax or a reduced amount of tax was due.
For a discussion of certain other federal income tax consequences to
tendering shareholders, see Section 13.
3. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section, a tender of Shares made
pursuant to the Offer is irrevocable. Shares tendered to the Offer may be
withdrawn at any time prior to the Expiration Date and, unless thereafter
accepted for payment by the Company, may also be withdrawn after 5:00 P.M., New
York City time, on October 17, 1998.
For a withdrawal to be effective, the Depositary must timely receive a
written, telegraphic, telex or facsimile transmission notice of withdrawal at
its address set forth on the back cover of this Offer to Purchase. Such notice
of withdrawal must specify the name of the person who tendered the Shares to be
withdrawn, the number of Shares tendered, the number of Shares to be withdrawn
and the name of the registered holder, if different from that of the person who
tendered such Shares. If the certificates for Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such certificates, the tendering shareholder must also submit the
serial numbers of 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 tendered pursuant to the procedure for book-entry transfer
set forth in Section 2, the notice of withdrawal must specify the name and the
account number 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 in all parties.
Neither the Company nor the Depositary nor any other person is or will be
obligated to give notice of any defects or irregularities in any notice of
withdrawal, and neither of them will incur any liability for failure to give
such notice. Any Shares properly withdrawn will thereafter be deemed not
tendered for purposes of the Offer. Withdrawn Shares may, however, be retendered
prior to the Expiration Date by again following any of the procedures set forth
in Section 2.
4. PURCHASE OF SHARES AND PAYMENT OF PURCHASE PRICE.
Upon the terms and subject to the conditions of the Offer, the Company
will accept for payment and pay for (and thereby purchased) Shares properly
tendered, and not withdrawn prior to the Expiration Date, as promptly as
practicable following the Expiration Date. For purposes of the Offer, the
Company will be deemed to have accepted for payment (and thereby purchase),
subject to proration, Shares which are tendered and not withdrawn prior to the
Expiration Date if and when it gives oral and written notice to the Depositary
of its acceptance of such Shares for payment pursuant to the Offer.
5
<PAGE> 9
Upon the terms and subject to the conditions of the Offer, promptly
following the Expiration Date the Company will accept for payment and pay a
single per Share Purchase Price for 1,000,000 Shares (subject to increase or
decrease as provided in Section 1 and Section 15) or such lesser number of
Shares as are properly tendered and not withdrawn as permitted in Section 3.
Payment for Shares accepted for payment pursuant to the Offer will be
made by deposit of the aggregate Purchase Price therefor with the Depositary
which will act as the agent for shareholders whose Shares have been accepted for
payment for the purpose of receiving payment from the Company and transmitting
payment to such shareholders. In all cases, payment for Shares accepted for
payment pursuant to the Offer will be made only after timely receipt by the
Depositary of certificates for such Shares (or of a timely confirmation of a
book-entry transfer of such Shares into the Depositary's account at the
Book-Entry Transfer Facility), a properly completed and duly executed Letter of
Transmittal (or duly executed photocopy thereof) and any other documents
required by the Letter of Transmittal. The Company expressly reserves the right,
in its sole discretion, to delay the acceptance for payment of or payment for
Shares in order to comply, in whole or in part, with any applicable legal
requirement or court order. See Sections 5 and 12. the Company's reservation of
the right to delay payment for Shares that the Company has accepted for payment
is limited by Rule 13e-4(f)(5) promulgated under the Exchange Act, which rule
requires that the Company pay the consideration offered or return the Shares
tendered promptly after termination or withdrawal of a tender offer.
In the event of proration, the Company will determine the final
proration factor and pay for Shares accepted for payment promptly following the
Expiration Date. However, the Company does not expect to be able to announce the
final results of any proration until approximately seven trading days after the
Expiration Date. Certificates for all Shares not purchased, including Shares not
purchased because of proration, will be returned (or, in the case of Shares
tendered by book-entry transfer, such Shares will be credited to the account
maintained with the Book-Entry Transfer Facility by the participant therein who
so delivered such Shares) as soon as practicable following the Expiration Date
without expense to the tendering shareholders. Under no circumstances will the
Company pay interest on the aggregate Purchase Price or any portion thereof.
The Company will pay the stock transfer taxes, if any, payable on
account of the transfer to it of Shares purchased pursuant to the Offer;
provided, however, that if payment of the Purchase Price is to be made to, or
(in the circumstances permitted by the Offer) if unpurchased Shares 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 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 such payment, transfer or tender will be deducted from the Purchase
Price paid to any such holder or person unless evidence satisfactory to the
Company of the Payment of such taxes or exemption therefrom is submitted. See
Instruction 6 of the Letter of Transmittal.
ANY TENDERING SHAREHOLDER OR OTHER PAYEE WHO FAILS TO COMPLETE FULLY
AND TO SIGN THE SUBSTITUTE FORM W-9 INCLUDED IN THE LETTER OF TRANSMITTAL MAY BE
SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF 31% OF THE GROSS PROCEEDS
PAYABLE TO SUCH SHAREHOLDER OR OTHER PAYEE PURSUANT TO THE OFFER. SEE SECTION 2.
5. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, the Company shall not
be required to accept for payment or pay for any Shares tendered, and may
terminate or amend the Offer or may postpone the acceptance for payment of, or
the payment for, Shares tendered, if at any time on or after August 18, 1998,
and at or before the Expiration Date, any of the following events shall have
occurred (or shall have been determined by the Company to have occurred) which,
in the Company's reasonable judgement in any such case and regardless of the
circumstances giving rise thereto (including any action or omission to act by
the Company), makes it inadvisable to proceed with the Offer or with such
acceptance for payment or payment:
6
<PAGE> 10
(a) there shall be any claim, action or proceeding
threatened, pending or instituted, or any consent,
license, authorization, permit, 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 or before any court or any
government or governmental, regulatory or
administrative authority, agency or tribunal,
domestic or foreign, which challenges the making of
the Offer or the acquisition of Shares pursuant to
the Offer or otherwise relates in any manner to the
Offer or which could directly or indirectly:
(1) make the acceptance for payment of, or payment
for, some or all of the Shares illegal or otherwise restrict
or prohibit consummation of the Offer;
(2) delay or restrict the ability of the Company, or
render the Company unable, to accept for payment or pay for
some or all of the Shares;
(3) in the Company's reasonable judgement, 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
(4) materially impair the Offer's contemplated
benefits to the Company; or
(b) there shall have occurred:
(1) the declaration of any banking moratorium or
suspension of payments in respect of banks in the United
States;
(2) any general suspension of trading in, or
limitation on prices for, securities on any United States
national securities exchange or in the over-the-counter
market;
(3) the commencement of a war, armed hostilities or
any other national or international crisis directly or
indirectly involving the United States;
(4) any limitation (whether or not mandatory) by any
governmental, regulatory or administrative agency or authority
on, or any event that in the Company's reasonable judgment
might affect, the extension of credit by banks or other
lending institutions in the United States;
(5) any significant decrease in the market price of
the Shares ($2.75 per Share at the close of business on August
10, 1998) or in the market prices of equity securities
generally in the United States or any change in the general
political, economic or financial conditions in the United
States or abroad that in the Company's reasonable judgment,
could have a material adverse effect on the business,
condition (financial or other), income operations or prospects
of the Company and its subsidiaries, taken as a whole;
(6) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material
acceleration or worsening thereof;
(7) it is publicly disclosed or the Company learns
that any person or "group" (within the meaning of section
13(d)(3) of the Exchange Act) has acquired, or proposes to
acquire, more than five percent of the outstanding Shares,
other than acquisitions of additional Shares representing not
more than two percent of the outstanding Shares by any person
or group owning more than five percent of the
7
<PAGE> 11
outstanding Shares on the date hereof, as disclosed in a
Schedule 13D or 13G on file with the Commission on that date;
(8) a default has occurred under the Discount
Factoring Agreement (as defined in Section 8), and/or a
representation or warranty thereunder of the Company is no
longer accurate; or
(9) any decline in either the Dow Jones Industrial
Average (8,574 at the close of business on August 10, 1998) or
the Standard & Poor's Index of 500 Companies (1083 at the
close of business August 10, 1998) by an amount in excess of
10% measured from the close of business in August 10, 1998; or
(c) any charge shall occur or be threatened in the
business, condition (financial or other), income,
operations or prospects of the Company and its
subsidiaries, taken as a whole, which, in the
Company's reasonable judgment, is or may be material
to the Company or its shareholders; or
(d) a tender or exchange offer for any or all of the
Shares (other than the Offer), or any merger,
business combination or other similar transaction
with or involving the Company or any of its
subsidiaries, shall have been proposed, announced or
made by any person, including the Company, or the
Company shall determine to make a disposition of all
or substantially all of its assets other than in the
regular course of its business.
The foregoing conditions are for the Company's sole benefit and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition (including any action or omission to act by the Company) or may be
waived by the Company in whole or part. The Company's failure at any time to
exercise any of the foregoing rights shall not be deemed a waiver of any such
right 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
any of the events described in this Section and any related judgment by the
Company regarding the inadvisability of proceeding with the purchase of or
payment for Shares tendered shall be final and binding on all parties.
The Company has elected to waive the condition to Offer referred to in
Section 5(b)(8), to the extent that it addresses default under the Credit
Agreement. After giving effect to the Offer, the Company's net worth and working
capital would fall below the levels specified in the Credit Agreement, resulting
in a technical default under the Credit Agreement. The Company has entered into
a Discount Factoring Agreement with Congress Talcott Corporation (Western),
effective as of October 1, 1998, which permits the Company to borrow funds on
substantially the same terms as the Credit Agreement, will provide the funds
necessary for the Company to consummate the Offer, and the Offer will not by its
terms result in any default under the Discount Factoring Agreement. Accordingly,
the Company has amended Section 5(b)(8) above to refer to an event of default
under the Discount Factoring Agreement. See Section 8 "Source and Amount of
Funds" for a more detailed discussion of the Credit Agreements and the Discount
Factoring Agreement.
With respect to the condition of the Offer referred to in Section 5(b)(9) above,
the Company has elected to waive such condition, in full. Thus, despite a
decline in the Dow Jones Industrial Average or the Standard & Poor's Index of
500 Companies by an amount in excess of 10%, the Company will proceed with the
Offer.
6. PRICE RANGE OF SHARES; DIVIDENDS.
The Shares are traded on NASDAQ. The following table sets forth for the
fiscal periods indicated the high and low closing per Share sales prices on
NASDAQ and the dividends declared per Share over the past two years as reported
in published financial sources. All per share information has been adjusted to
reflect a two-for-one stock split effective May 4, 1998:
8
<PAGE> 12
<TABLE>
<CAPTION>
High Low Dividends
---- --- ---------
<S> <C> <C> <C>
Fiscal 1998:
3rd Quarter (through May 31, 1998) 3.313 2.563
2nd Quarter 3.406 2.50
1st Quarter 3.438 2.281
Fiscal 1997:
4th Quarter 3.50 2.6875
3rd Quarter 4.125 2.50
2nd Quarter 3.375 2.50
1st Quarter 4.5625 2.6875
Fiscal 1996:
4th Quarter 4.5625 3.1875 $.50
</TABLE>
On August 10, 1998, the last trading day before the Company announced
its intention to commence the Offer, the closing per Share sales price as
reported on NASDAQ was $2.75. The Company urges shareholders to obtain current
market quotations for the Shares prior to tendering any Shares pursuant to the
Offer.
In April 1994, the Company suspended its regular quarterly dividend,
and has not declared a dividend since a special dividend of $.50 per share was
paid on September 30, 1996. Were any dividend to be announced, shareholders
would not be entitled to receive any dividend with respect to Shares tendered
and purchased by the Company prior to the record date for such dividend.
The timing and amount of future dividends declared by the Board of
Directors is at the discretion of the Board of Directors and will be dependent
upon the Company's results of operations and financial condition, cash
requirements for its business, contractual restrictions on payment of dividends,
economic and market conditions and other factors deemed relevant by the
Company's Board of Directors.
7. INTEREST OF CERTAIN PERSONS; TRANSACTIONS AND ARRANGEMENTS CONCERNING
THE SHARES.
Mr. Arjun C. Waney is the beneficial owner of approximately 21.6% of
the outstanding Shares and may be deemed to control the Company.
As of August 11, 1998, the Company's directors and executive officers
as a group beneficially owned an aggregate of approximately 44.2% of the
outstanding Shares (which includes 294,000 Shares which the executive officers
of the Company have the right to acquire through exercises of stock options).
See Schedule I.
The Company has been advised that each director and executive officer,
in their capacity as Shareholders, will tender all of their Shares pursuant to
this Offer. In addition, the directors and executive officers have stated that
they intend to exercise 294,000 options in a cashless exercise and tender the
resulting 138,000 Shares pursuant to the Offer. As a result, the directors of
the Company will tender an aggregate of 865,806 Shares.
The Company engaged in no transactions involving Shares during the
forty business days prior to August 11, 1998. To the Company's knowledge, none
of the directors or executive officers of the Company, none of its associates,
nor any person controlling the Company or any executive officer or director of
any such person has effected any transactions in the Shares during the 40
business days prior to the date hereof.
Arjun Waney and Luther Henderson, each directors and principal
shareholders of the Company have entered into a Stock Purchase Agreement with
Steven P. Wyandt, a director and President of the Company, pursuant to which not
less than ten business days following the close of the Offer Messrs. Waney and
Henderson have agreed to sell, and Mr. Wyandt has agreed to purchase, all of the
shares of the Company's common stock owned by Messrs. Waney and Henderson and
not purchased pursuant to the Offer,
9
<PAGE> 13
subject to the condition that the Company close upon the Offer and purchase not
less than 1,000,000 Shares. Assuming that all of the outstanding Shares are
tendered, after giving effect to the transactions contemplated by the Offer and
the Stock Purchase Agreement, Messrs. Waney and Henderson will not have any
equity ownership in the Company and Mr. Wyandt will own approximately 32.6% of
the Company's outstanding common stock. In the event that the shareholders other
than Messrs. Waney and Henderson do not tender all of their shares, then the
portion of Mr. Waney's and Mr. Henderson's shares acquired by the Company
pursuant to the Offer will increase, and the portion acquired by Mr. Wyandt
pursuant to the Stock Purchase Agreement will decline. Messrs. Waney and
Henderson have indicated a desire to remain on the Board of Directors of the
Company following the consummation of the Offer, and Mr. Waney will continue to
serve as Chairman of the Board of Directors. Mr. Wyandt has indicated to the
Company that he intends to hold any shares he acquires pursuant to the Stock
Purchase Agreement for investment purposes and not with a view to effect a
change in the management or policies of the Company.
Under the Stock Purchase Agreement, Mr. Wyandt would acquire the shares
for cash at a price per share equal to that paid in connection with the Offer.
Mr. Wyandt has indicated that he intends to acquire the funds for the purchase
from a third party lender and will pledge the shares acquired as security for
such loan.
The Offer is not conditional upon the execution of a written Stock
Purchase Agreement or consummation of the transactions contemplated thereby.
Except as set forth in this Offer to Purchase, neither the Company nor,
to the Company's knowledge, any of its directors or executive officers, or any
person controlling the Company or any executive officer or director of any such
person, is a party to any contract, arrangement, understanding or relationship
with any other person relating, directly or indirectly, to the Offer with
respect to any securities of the Company (including, but not limited in, any
contract, arrangement, understanding or relationship concerning the transfer or
the voting of any such securities, joint ventures, loans or option arrangements,
puts or calls, guarantees of loans, guarantees against loss or the giving or
withholding of proxies, consents or authorizations).
8. SOURCE AND AMOUNT OF FUNDS.
Assuming that the Company purchases 1,000,000 Shares pursuant to the
Offer, the Company expects the maximum aggregate cost, including all fees and
expenses related to the Offer, to be approximately $4,075,000. It is anticipated
that the funds required to pay a portion of such costs will be obtained from
cash and cash equivalents of the Company.
Initially, the Company expects to borrow approximately $3 million of
such funds pursuant to a Discount Factoring Agreement, described below.
The Company had agreements (collectively, the "Credit Agreement") with
Congress Talcott Corporation ("Congress"). The Company would sell substantially
all of its trade accounts receivable on a pre-approved non-recourse basis.
Payment for such receivables was to be made at the time customers make payment
to Congress or, if a customer was financially unable to make payment, within
approximately 180 days of the invoice due date. Under the Credit Agreement, the
Company was able to request advances in anticipation of customer collections at
Congress' prime rate (currently 8.5%) less one-half percent, and open letters of
credit through Congress. The amount of such borrowings, including a portion of
outstanding letters of credit, was limited to certain percentages of outstanding
accounts receivable and finished goods inventory owned by the Company and was
collateralized by all of the assets of the Company. Under the Credit Agreement,
the Company was required to maintain $9 million of net worth and $8.5 million of
working capital. However, after giving effect to the Offer, the Company's net
worth and working capital would fall below these specified levels, thereby
resulting in a technical default under the Credit Agreement.
The Company has entered into new agreements with Congress, including a
Discount Factoring Agreement, Addendum to Discount Factoring Agreement, Trade
Financing Agreement, Inventory Security Agreement, Financial
10
<PAGE> 14
Covenant Agreement and Agreement to Issue Letter of Credit Guaranties
(collectively, the "Discount Factoring Agreement"), effective as of October 1,
1998. The terms and conditions of the Discount Factoring Agreement are
substantially the same as those contained in the Credit Agreement. Under the
Discount Factoring Agreement, the amount of borrowings by the Company, including
a portion of outstanding letters of credit, are limited to certain percentages
of outstanding accounts receivable and finished goods inventory owned by the
Company. Borrowings are collateralized by all of the assets of the Company as
well as by a $1 million personal guaranty of Mr. Wyandt. Under the Discount
Factoring Agreement, the Company is required to maintain $5 million of net worth
and $5 million of working capital as opposed to the $9 million and $8.5 million
requirements under the Credit Agreement. As a result, the consumation of the
Offer will not by itself cause a default under the Discount Factoring Agreement.
The Discount Factoring Agreement can be terminated by Congress on 60-days prior
written notice. Borrowing are under the Discount Factoring Agreement are
expected to be repaid over not more than 18 months by cash flow from operations.
The Discount Factoring Agreement has been filed with the Commission.
The foregoing description of the Discount Factoring Agreement is qualified in
its entirety by reference to such document, which may be examined and a copy of
which may be obtained as set forth in Section 10 "Certain Information About the
Company--Additional Information."
9. BACKGROUND AND PURPOSE OF THE OFFER.
Purpose of the Offer. The Objective of the Offer is to deliver to
shareholders a portion of the Company's current value and to provide the
Company's shareholders with a means of furthering their investment objectives
with respect to the Shares. The Offer provides shareholders who wish to
currently realize a portion of their investment in the Company in cash with an
opportunity to sell a portion of, or perhaps all, their Shares at a premium over
current market prices of the Shares. The Offer also is intended to provide
shareholders with an opportunity to increase their proportionate ownership
interest in the Company, either by not participating in the Offer or by
participating in the Offer and reinvesting their after-tax proceeds in
additional Shares.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO ANY SHAREHOLDER AS TO WHETHER TO TENDER OR TO REFRAIN FROM TENDERING ANY OR
ALL OF SUCH SHAREHOLDER'S SHARES AND HAS NOT AUTHORIZED ANY PERSON TO MAKE ANY
SUCH RECOMMENDATION. EACH SHAREHOLDER IS URGED TO EVALUATE CAREFULLY ALL
INFORMATION IN THE OFFER, CONSULT THE SHAREHOLDER'S OWN INVESTMENT AND TAX
ADVISORS AND MAKE SUCH SHAREHOLDER'S OWN DECISION WHETHER TO TENDER SHARES AND,
IF SO, HOW MANY SHARES TO TENDER.
Any Shares acquired by the Company pursuant to the Offer will initially
be canceled and become authorized and unissued Shares and will be available for
issuance by the Company without further shareholder action (except as required
by applicable law or the rules of any securities exchanges on which the Shares
are then listed). Such Shares could be issued for general or other corporate
purposes, including stock splits or dividends, acquisitions, the raising of
additional capital for use in the Company's business and the implementation of
employee benefit plans.
10. CERTAIN INFORMATION ABOUT THE COMPANY.
General. The Company is an importer and wholesaler of women's
sportswear; its subsidiary, Body Drama, Inc., imports and wholesales women's
intimate apparel, including daywear and sleepwear. The Company is a California
corporation founded in 1971. The Company's principal executive offices are
located at 10280 Camino Santa Fe, San Diego, California 92121, and its telephone
number is (619) 625-2633.
Recent Developments. The Company has determined to pursue a strategy of
seeking niche product markets which offer the potential for higher profit
margins. In connection with this strategy, the Company has sold or discontinued
product lines which have historically contributed to gross revenues, but have
not generated significant profits in recent years. The Company has also reduced
its overhead in connection with these dispositions. However, no assurance can be
given that the
11
<PAGE> 15
Company's efforts in this regard will result in increased profit
margins or profitability. The Company periodically evaluates acquisitions of
interests in, or combinations with, other companies engaged in businesses that
may or may not be related to the Company's current business. It will continue to
do so in the future, with an emphasis for seeking product markets in the apparel
industry which offer the potential for above average profit margins. In
connection with these activities, the Company may consider issuing additional
equity securities or incurring indebtedness.
Historical Financial Information. The following table sets forth
certain historical consolidated financial information of the Company and its
subsidiaries. The historical financial information as of and for the years ended
August 31, 1997 and 1996 has been taken from the Company's audited consolidated
financial statements included in the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1997 (the "1997 10-K"). The historical
consolidated financial information as of and for the nine-month periods ended
May 31, 1998 and 1997 has been taken from the unaudited consolidated financial
statements included in the Company's Quarterly Report on Form 10-Q for the
quarter ended May 31, 1998 (the "1998 Third Quarter 10-Q"). More comprehensive
financial information is included in the 1997 10-K and the 1998 Third Quarter
10-Q. The historical information as of and for the nine-month periods ended May
31, 1998 and 1997 has been derived from the Company's unaudited financial
statements for such periods, which statements in the opinion of the Company's
management include all adjustments (which adjustments consist of normal
recurring entries) that are necessary for a fair presentation of such
information.
The following historical financial information is qualified in its
entirety by, and should be read in conjunction with, the 1997 10-K and 1998
Third Quarter 10-Q, incorporated by reference herein.
12
<PAGE> 16
Nitches, Inc. and Subsidiaries
Consolidated Balance Sheets(1)
<TABLE>
<CAPTION>
May 31, August 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,264,000 $ 955,000
Receivables:
Trade accounts, less allowances ($402,000 at May 31,
1998 and $352,000 at August 31, 1997) 4,561,000 6,906,000
Income taxes receivable 241,000 41,000
Due from affiliates and employees 263,000 82,000
----------- -----------
5,065,000 7,029,000
Inventories, net 2,791,000 4,272,000
Deferred income taxes 769,000 769,000
Other current assets 2,274,000 860,000
----------- -----------
Total current assets 12,163,000 13,885,000
Furniture, fixtures and equipment, net 140,000 219,000
Deferred income taxes 699,000 699,000
Other assets 80,000 276,000
----------- -----------
$13,082,000 $15,079,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,842,000 $ 2,337,000
----------- -----------
Total current liabilities 1,842,000 2,377,000
Deferred income taxes 972,000 1,021,000
Shareholders' equity:
Preferred stock, no par value, 25,000,000 shares authorized Common stock, no
par value, 50,000,000 shares authorized; (2,012,030 issued and outstanding
at May 31, 1998; 2,345,192 issued and outstanding at August 31, 1997)
1,314,000 2,421,000
Retained earnings 8,954,000 9,260,000
----------- -----------
Total shareholders' equity 10,268,000 11,681,000
----------- -----------
$13,082,000 $15,079,000
=========== ===========
</TABLE>
(Notes on page 16)
13
<PAGE> 17
Nitches, Inc. and Subsidiaries
Consolidated Statements of Operations(1)
<TABLE>
<CAPTION>
Nine Months Ended May 31,
Year Ended August 31, (Unaudited)
----------------------------------- -----------------------------------
1997 1996 1998 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 48,414,000 $ 54,381,000 $ 23,740,000 37,961,000
Cost of goods sold 36,190,000 40,396,000 18,009,000 28,440,000
Gross profit 12,224,000 13,985,000 5,731,000 9,520,000
Expenses:
Selling, general and administrative 11,888,000 12,547,000 6,437,000 9,042,000
------------ ------------ ------------ ------------
Income (loss) from operations 336,000 1,437,000 (706,000) 478,000
Other income 151,000 319,000 229,000 70,000
Interest expense (167,000) (52,000) (24,000) (96,000)
------------ ------------ ------------ ------------
Income (loss) before income taxes 320,000 1,705,000 (501,000) 452,000
Provision (benefit) for income taxes 125,000 279,000 (195,000) 131,000
------------ ------------ ------------ ------------
Net income (loss) $ 195,000 $ 1,426,000 ($ 306,000) $ 321,000
============ ============ ============ ============
Earnings per share:
Basic $ .08 $ .57 ($ .14) $ .13
============ ============ ============ ============
Diluted $ .08 $ .55 ($ .14) $ .13
============ ============ ============ ============
</TABLE>
(Notes on page 16)
14
<PAGE> 18
Nitches, Inc. and Subsidiaries
Pro Forma Consolidated Balance Sheets(2)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months ended May 31, 1998
--------------------------------------------------------
Unaudited Pro Forma
Historical Adjustments Pro Forma
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents $ 1,264,000 ($ 1,264,000) $ --
Receivables 5,065,000 -- --
Inventories 2,791,000 -- 2,791,000
Other current assets 3,043,000 3,043,000
------------ ------------ ------------
Total Current Assets 12,163,000 (1,264,000) 10,899,000
Non-Current Assets 919,000 919,000
------------ ------------ ------------
$ 13,082,000 ($ 1,264,000) $ 11,818,000
============ ============ ============
Accounts Payable and accrued expenses 1,842,000 -- 1,842,000
Notes Payable -- 2,811,000 2,811,000
------------ ------------ ------------
Total current liabilities 1,842,000 2,811,000 4,653,000
Non-current liabilities 972,000 -- 972,000
Shareholders Equity 10,268,000 (4,075,000) 6,193,000
------------ ------------ ------------
$ 13,082,000 ($ 1,264,000) $ 11,818,000
============ ============ ============
Number of shares outstanding 2,012,000 1,000,000 1,012,000
============ ============ ============
Book value per share $ 5.10 $ 1.12 $ 6.12
============ ============ ============
</TABLE>
(Notes on Page 16)
15
<PAGE> 19
Nitches, Inc. and Subsidiaries
Pro Forma Consolidated Statements of Operations(2)
(Unaudited)
<TABLE>
<CAPTION>
Year ended August 31, 1997 Nine Months ended May 31, 1998
------------------------------------------- --------------------------------------
Pro Forma Pro Forma
Historical Adjustments Historical Pro Forma Adjustments Pro Forma
---------- ----------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales $48,414,000 $48,414,000 $23,740,000 $23,740,000
Cost of goods sold 36,190,000 36,190,000 18,009,000 18,009,000
---------- ---------- ---------- ----------
Gross profit 12,224,000 12,224,000 5,731,000 5,731,000
Expenses:
Selling, general and administrative 11,888,000 11,888,000 6,437,000 6,437,000
---------- ---------- ---------- ----------
Income (loss) from operations 336,000 336,000 (706,000) (706,000)
Other income 151,000 (49,000)(a) 102,000 229,000 (28,000)(a) 201,000
Interest expense (167,000) (333,000)(b) (500,000) (24,000) (277,000)(b) (301,000)
---------- ---------- ---------- ----------
Income (loss) before income taxes 320,000 (62,000) (501,000) (806,000)
Provision (benefit) for income taxes 125,000 (149,000)(c) (24,000) (195,000) (119,000)(c) (314,000)
---------- ---------- ---------- ----------
Net income (loss) $195,000 ($38,000) ($306,000) ($492,000)
========= ========= ========= =========
Weighted average number of shares
outstanding 2,536,000 (1,000,000)(d) 1,536,000 2,244,000 (1,000,000)(d) 1,244,000
========= ========= ========= =========
Earnings (loss) per share $.08 ($.02) ($.14) ($.40)
========= ========= ========= =========
</TABLE>
Notes to Pro Forma Financial Statements:
1. The Notes to financial statements appearing in the 1997 10-K and the
1998 Third Quarter 10-Q are incorporated by reference herein.
2. The unaudited pro forma consolidated statement of operations assumes
the Offer had occurred as of September 1, 1996. The unaudited pro forma
balance sheet assumes the Offer had occurred on May 31, 1998. The pro
forma financial information is not necessarily indicative of the
Company's consolidated financial position or results of operations as
they may be in the future. The pro forma financial information and
accompanying notes are qualified in their entirely by, and should be
read in conjunction with, the Company's consolidated financial
statements incorporated by reference herein.
Pro Forma Adjustments.
(a) Interest income is reduced by $49,000 for the year
ended August 31, 1997 and by $28,000 for the nine
months ended May 31, 1998. This adjustment assumes
that cash
16
<PAGE> 20
otherwise available to be invested in funds yielding
6.6% would be used in the offering and not available
for investing.
(b) Interest expense is increased by $333,000 for the
year ended August 31, 1997 and by $277,000 for the
nine months ended May 31, 1998. This adjustment
indicates additional interest at 10% on cash borrowed
to fund the offering. This rate is based on actual
rates in effect for the respective periods.
(c) Income tax expense is reduced as a result of reduced
pre-tax earnings described above in (a) and (b). The
assumed rate of 39% is the Company's incremental tax
rate for each respective period.
(d) Maximum number of shares offered to be repurchased.
Additional Information. Additional information concerning the Company
is set forth in the Company's most recent proxy statement which has previously
been provided to shareholders, in the 1997 10-K and 1998 Third Quarter 10-Q.
Additional copies of such documents are available upon request from the Company.
The Company has also filed an Issuer Tender Offer Statement on Schedule 13E-4
(the "Schedule 13E-4") and an Amendment No. 1 to Schedule 13E-4 with the
Commission which include certain additional information relating to the Offer.
The Company is subject to the informational reporting requirements of the
Exchange Act and in accordance therewith files periodic reports, proxy
statements and other information with the Commission relating to its business,
financial conditions and other matters. The Company is required to disclose in
such reports and proxy statements certain information, as of particular dates,
concerning the Company's directors and officers, their remuneration, stock
options granted to them, the principal owners of the Company's securities and
any material interest of such persons in transactions with the Company.
Such material may be inspected and copied upon payment of the
prescribed rates at the public reference facilities of the Commission, at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at its regional
offices at 7 World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies may also be obtained by mail upon payment of the prescribed rates from
the Commission's Public Reference Room, 450 Fifth Street, N.W., Washington, D.C.
20549, or by calling the Public Reference office at (202) 942-8090. The Schedule
13E-4 will not be available at the Commission's regional offices. The
Commission's Web site is located on the Internet at http://www.sec.gov. E-mail
inquiries may be sent to the Commission's Office of Investor Education and
Assistance at e-mail: [email protected].
11. 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 could reduce the number
of shareholders. Nonetheless, the Company anticipates that there will still be a
sufficient number of Shares outstanding and publicly traded following
consummation of the Offer to ensure a continued trading market in the Shares.
Based on the published guidelines of the NASD, the Company does not believe that
its purchase of Shares pursuant to the Offer will cause the remaining Shares to
be delisted from the NASD. It should be noted that there is a potential for
significant decrease in liquidity of the Shares given the high percentage of
Shares sought in this Offer and the shareholder profile. However, during the
previous two tender offers extended by this Company and the tender offer
extended by its partially-owned subsidiary nearly every shareholder accepted the
tender offer. It is on that basis that the Company believes that the number of
shareholders outstanding after the offer will not decline significantly.
17
<PAGE> 21
The Shares are currently "margin securities" under the rules of the
Federal Reserve Board. This has the effect, among other things, of allowing
brokers to extend credit on the collateral of the Shares. The Company believes
that, following the purchase of Shares pursuant to the Offer, the remaining
Shares will continue to qualify to be margin securities for purposes of the
Federal Reserve Board's margin regulations.
The Shares are 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. The Company believes that its
purchase of Shares pursuant to the Offer will not result in the Shares becoming
eligible for deregistration under the Exchange Act.
12. CERTAIN LEGAL MATTERS; REGULATORY APPROVAL.
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 pursuant to 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 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 or payment for 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 condition 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's obligation under the Offer
to accept for payment and pay for Shares is subject to certain conditions. See
Section 5.
13. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following summary is a general discussion of certain anticipated
Federal income tax consequences of a sale of Shares pursuant to the Offer. This
summary does not discuss all aspects of Federal income taxation that may be
relevant to a particular shareholder in light of personal circumstances or to
certain types of shareholders subject to special treatment under the Federal
income tax laws (for example, financial institutions, tax-exempt organizations,
foreign investors, dealers in securities and shareholders who received their
Shares pursuant to compensation arrangements with the Company) and does not
discuss any aspect of state, local or foreign tax laws. Each shareholder is
urged to consult his or her own tax advisor as to the particular tax
consequences of a sale of Shares pursuant to the Offer.
The sale of Shares pursuant to the Offer will be a taxable transaction
for Federal income tax purposes and may also be taxable under applicable state,
local, foreign or other tax laws. The Federal income tax consequences to a
shareholder will be determined under Sections 301 and 302 of the Internal
Revenue Code of 1986, as amended (the "Code") and may vary depending upon a
shareholder's particular facts and circumstances. Under Section 302 of the Code,
a sale of Shares pursuant to the Offer to Purchase will generally be treated as
a sale or exchange if such sale (i) is "substantially disproportionate" with
respect to the shareholder, (ii) results in a "complete redemption" of the
shareholder's interest in the Company, or (iii) is "not essentially equivalent
to a dividend" with respect to the shareholder.
If any one of these three tests is satisfied, the shareholder tendering
Shares pursuant to the Offer 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 tax basis in the Shares sold. The gain or loss recognized
generally will be capital gain or loss if the Shares have been held for a period
of more than one year.
In determining whether any of the three tests is satisfied, a
shareholder must take into account not only Shares actually owned but also
Shares that are "constructively owned" under Section 318 of the Code. Generally,
a shareholder will be considered to constructively own Shares which the
shareholder has an option to acquire and Shares owned (and in some cases
constructively owned) by certain related individuals or entities.
18
<PAGE> 22
The sale of Shares pursuant to the Offer will be "substantially
disproportionate" with respect to a shareholder if the percentage of the
outstanding voting stock of the Company actually and constructively owned by the
shareholder immediately after the Offer is less than 80% of the percentage of
the outstanding voting stock of the Company actually and constructively owned by
such shareholder immediately before the sale of the Shares pursuant to the
Offer. Assuming that the maximum number of Shares (1,000,000) is purchased
pursuant to the Offer, a shareholder would have to sell approximately 58.6% or
more of the Shares actually and constructively owned by the shareholder in order
to meet the "substantially disproportionate" test. Shareholders should consult
their own tax advisor to determine whether the "substantially disproportionate"
test applies to their particular facts and circumstances.
The sale of the Shares pursuant to the Offer will be treated as a
"complete redemption" of the shareholder's interest in the Company if either (i)
all 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 does effectively waive attribution of all Shares constructively owned
by the shareholder in accordance with Section 302(c) of the Code.
If the sale of Shares by a shareholder fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test, the
shareholder may nevertheless receive sale or exchange treatment in the event the
sale pursuant to the Offer is "not essentially equivalent to a dividend." A
shareholder will generally meet this test in the event the sale of Shares
pursuant to the Offer by the shareholder results in a "meaningful reduction" in
the shareholder's proportional interest in the Company. The determination as to
whether a sale of Shares by a shareholder pursuant to the Offer will be "not
essentially equivalent to a dividend" will depend on the individual
shareholder's facts and circumstances. The Internal Revenue Service has held in
a published ruling that a 3.3% reduction in the proportionate interest of a less
than 1% shareholder in a publicly held corporation who exercised no control over
corporate affairs constitutes a "meaningful reduction." Shareholders should
consult their own tax advisors as to whether the "not essentially equivalent to
a dividend test" applies to their individual circumstances.
Shareholders should be aware that their ability to satisfy any of the
tests indicated above could be affected by any proration pursuant to the Offer.
In addition, it may be possible for a shareholder to satisfy one or
more of the above tests by contemporaneously selling or otherwise disposing of
some or all of Shares that are actually or constructively owned by a shareholder
but which are not purchased pursuant to the Offer. Shareholders should also be
aware that the acquisition of additional Shares or an option to acquire
additional Shares, or the acquisition by certain related parties, could
adversely effect whether such shareholder qualifies for any of the tests set
forth above.
In the event that none of the three tests is satisfied by the selling
shareholder and the Company has "sufficient" earnings and profits, the selling
shareholder will be treated as having received a dividend that must be included
in such selling shareholder's gross income in an amount equal to the entire cash
received by the shareholder pursuant to the Offer. In such event, the selling
shareholder will not be entitled to offset the amount received by the
shareholder's basis in the redeemed Shares and the basis in the redeemed Shares
will be added to the basis in the selling shareholder's remaining Shares. In the
event there are "insufficient" earning and profits, the shareholder will have a
non-taxable return of capital to the extent of the shareholders tax basis and
thereafter, capital gain to the extent the distribution exceeds the earnings and
profits.
In the case of a corporate shareholder, any amount received which is
treated as a dividend may be eligible for the 70% "dividends received" deduction
allowable to domestic corporate shareholders under Section 243 of the Code
subject to certain limitations which would include those relating to "debt
finance portfolio stock" under Section 246A of the Code and to the holding
period requirements set forth in Section 246 of the Code. Any amount treated as
a dividend by a corporate shareholder may constitute an "extraordinary dividend"
subject to Section 1059 of the Code. In such event a corporate shareholder would
be required to reduce the tax basis of its remaining Shares (but not below zero)
by the portion of any "extraordinary dividend," which is deducted under the
dividends received deduction. In the event such portion exceeds the
shareholder's tax basis in the remaining Shares, the shareholder must treat any
such excess as additional gain or loss upon
19
<PAGE> 23
the subsequent sale or other disposition of the Shares. A dividend will be
considered extraordinary in the event (i) the dividends attributable to Shares
held for two years or less exceeds 10% of the greater of (a) the shareholder's
adjusted basis in the Shares or (b) the fair market value of the Shares, or (ii)
except as otherwise set forth in Treasury Regulations which have not yet been
promulgated, any amount treated as a dividend under Section 301 which is not
part of a pro rata redemption. It is not anticipated that the sales pursuant to
the Offer will be pro rata. Thus, it is anticipated that the extraordinary
dividend rules will apply to any amount received pursuant to the Offer which is
taxable as a dividend to a corporate shareholder. Corporate shareholders should
be aware of special aggregation rules that may apply under Section 1059.
Corporate shareholders are urged to consult their own tax advisors as to effect
of Section 1059 of the Code on their Shares.
A foreign shareholder may be subject to dividend tax withholding at
either the 30% rate or a lower applicable treaty rate on the gross proceeds of
the sale of Shares pursuant to the Offer. Foreign shareholders should consult
their tax advisors regarding application of these withholding rules.
THE FOREGOING TAX DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY.
THE TAX CONSEQUENCES OF A SALE OF SHARES PURSUANT TO THE OFFER MAY VARY
DEPENDING UPON, AMONG OTHER THINGS, THE PARTICULAR CIRCUMSTANCES OF THE
TENDERING SHAREHOLDER. NO INFORMATION IS PROVIDED HEREIN AS TO THE STATE, LOCAL,
FOREIGN OR OTHER TAX CONSEQUENCES OF THE TRANSACTION CONTEMPLATED BY THE OFFER
TO PURCHASE. EACH SHAREHOLDER IS URGED TO CONSULT WITH SUCH SHAREHOLDER'S OWN
TAX ADVISORS TO DETERMINE THE PARTICULAR FEDERAL, STATE, LOCAL, FOREIGN AND
OTHER TAX CONSEQUENCES OF SALES MADE PURSUANT TO THE OFFER AND THE EFFECT OF THE
CONSTRUCTIVE STOCK OWNERSHIP RULES MENTIONED ABOVE.
14. CERTAIN LIMITATION ON PURCHASES OF SHARES BY THE COMPANY.
Although the Company is authorized by California law to purchase or
redeem its own shares of capital stock, the Company may not do so if (i) the
amount of retained earnings immediately prior thereto does not equal or exceed
the amount of the aggregate purchase price, or (ii) immediately after giving
effect to the purchase, the sum of the Company's adjusted assets would be at
least equal to 1 1/4 times the sum of its adjusted liabilities, and its current
assets would be at least equal to 1 1/4 times its current liabilities.
Based on the Company's consolidated balance sheet as of May 31, 1998,
which balance sheet was prepared in accordance with generally accepted
accounting principles, the recorded amount of the Company's adjusted assets as
of such date exceeded the amount of the Company's adjusted liabilities and its
current assets exceeded its current liabilities, each by more than the required
amounts. The Board of Directors has determined, based upon the Board's
familiarity with the Company's management and its advisors, that after giving
effect to the purchase pursuant to the Offer, of Shares having an aggregate
purchase price of $4.0 million, such ratios will continue to be complied with.
If a court, in a lawsuit brought by an unpaid creditor of the Company
or a representative of such creditors (such as a trustee in bankruptcy or the
Company as a debtor-in-possession), were to find that the Company (i) was
insolvent at the time the Company purchased Shares pursuant to the Offer, (ii)
was rendered insolvent by reason of such purchase, (iii) was engaged, or was
about to engage, in a business or a transaction for which the assets remaining
with the Company constituted an unreasonably small capital, (iv) intended to
incur, or believed, or reasonably should have believed, that the Company would
incur, debts and other liabilities beyond its ability to pay as such debts and
liabilities matured, or (v) entered into such transaction with the actual intent
to hinder, delay or defraud creditors, then such court could, among other
remedies, avoid the purchase of Shares from shareholders and require that such
shareholders return the amount of cash received, or a portion thereof, in such
purchase to the Company, to a complaining creditor, or to a fund for the benefit
of its creditors. The measure of insolvency for purposes of the foregoing will
vary depending upon the law being applied. Generally, however, the Company would
be considered insolvent if the fair value of the Company's assets were less than
the amount of the Company's total debts and liabilities or if the present fair
saleable value of the Company's property were less than the amount that would be
required to pay the Company's probable liability on its existing debts as they
become absolute or mature. There can be
20
<PAGE> 24
no assurance that a court would value the Company's assets on the same basis as
the Board of Directors in determining whether the Company was insolvent at the
time of the purchase of Shares by the Company or that, regardless of the method
of valuation, a court would not determine that the Company was insolvent at such
time.
The Board of Directors and the Company's management believe, based on
management's internal projections and other financial information (including the
Company's historical and pro forma financial statements), that at the time of
the purchase of Shares pursuant to the Offer, the Company will be solvent, will
have sufficient capital for carrying on its business and will be able to pay its
debts as they mature.
15. EXTENSION OF THE TENDER PERIOD; AMENDMENTS.
The Company expressly reserves the right, at any time and 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. There can be no assurance that the Company will exercise
its right to extend the Offer. 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 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 Exchange Act Rule 13e-4(f)(5),
which requires that the Company pay the consideration offered or return the
Shares tendered promptly after termination or withdrawal of the Offer. Subject
to compliance with applicable law, the Company further reserves the right, in
its sole discretion, to amend the Offer in any respect or to waive the
limitation on the maximum number of Shares to be purchased pursuant to the
Offer. Amendments to and extensions of the Offer may be made at any time and
from time to time by public announcement thereof, such announcement, in the case
of an extension, to be issued no later than 12:00 noon, New York City time, on
the next business day after the previously scheduled Expiration Date. Any public
announcement made pursuant to the Offer will be disseminated promptly to
shareholders in a manner reasonably designed to inform shareholders. Without
limiting the manner in which the Company may choose to make a public
announcement, the Company shall have no obligation to publish, advertise or
otherwise communicate any such public announcement, except as required by
applicable law, other than by issuing a release to the Dow Jones News Service.
If the Company materially changes the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, the Company will disclose promptly such material change and extend the
Offer to the extent required by Exchange Act Rule 13e-4(f)(l)(ii). This Rule
requires that (other than with respect to a change in price or a change in
percentage of securities sought) the maximum period during which an offer must
remain open following material changes in the terms of an offer or the
information concerning an offer (other than with respect to a change in price or
a change in percentage of securities sought) will depend on the facts and
circumstances, including the relative materiality of such terms or information.
If (i) the Company increases or decreases the price to be paid for Shares, or
the Company increases the number of Shares being sought and any such increase in
the number of Shares being sought exceeds 2% of the outstanding Shares, or the
Company decreases the number of Shares being sought; and (ii) 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 at least the end of such tenth business day.
16. FEES AND EXPENSES.
The Company has retained D. F. King & Co., Inc. as the Information
Agent and American Stock Transfer and Trust Company as Depositary. The
Information Agent will assist shareholders who request assistance in connection
with the Offer, may contact shareholders by mail, telephone, facsimile and in
person and may request brokers, dealers and other nominee shareholders to
forward materials relating to the Offer to beneficial owners. The Depositary and
the Information Agent will receive reasonable and customary compensation for
their services. The Company will also reimburse the Depositary and the
Information Agent for out-of-pocket expenses, including reasonable attorneys'
fees.
21
<PAGE> 25
The Company will not pay fees or commissions to any broker, dealer,
commercial bank, trust company or other person (other than fees to the
Information Agent and the Depositary as described above) for soliciting tenders
of Shares pursuant to the Offer. The Company will, however, on request through
the Information Agent, reimburse such persons for customary handling and mailing
expenses incurred in forwarding material with respect to the Offer to the
beneficial owners for which they act as nominees or fiduciaries. No such broker,
dealer, commercial bank, trust company or other person has been authorized to
act as the Company's agent for purposes of this Offer. The Company will pay (or
cause to be paid) any stock transfer taxes payable because of its purchase of
Shares pursuant to the Offer, except as otherwise provided in Instruction 6 of
the Letter of Transmittal.
17. MISCELLANEOUS.
The Company is not aware of any jurisdiction where the making of the
Offer is not in compliance with applicable law. If the Company becomes aware of
any jurisdiction where the making of the Offer is not in compliance with any
valid 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 the securities or blue sky laws of which require the Offer to be
made by a licensed broker or dealer, the Offer is being made on the Company's
behalf by one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Company not contained herein or in the Letter of
Transmittal and, if given or made, such information or representation must not
be relied upon as having been authorized.
NITCHES, INC.
August 18, 1998
22
<PAGE> 26
SCHEDULE I
OWNERSHIP OF SHARES
The following table and notes set forth as of August 11, 1998 (i) the
beneficial ownership, as defined by regulations of the Commission, of Shares
held by (a) each person or group of persons known by the Company who
beneficially owns more than 5% of the outstanding Shares, (b) each director or
nominee for director of the Company and (c) by all persona who serve as
executive officers and directors of the Company as a group. All information is
taken from or based upon ownership filings made by such persons to the Company,
or upon information provided by such persons to the Company and has been
adjusted to reflect the May 5, 1998 two-for-one stock split.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF BENEFICIAL OWNER Shares Percent of Class
- ------------------------------------ ------ ----------------
<S> <C> <C>
Arjun C. Waney(1) 499,448 21.6%
10280 Camino Santa Fe
San Diego, CA 92121
Luther A. Henderson(2) 245,972 10.7%
5608 Malvey Ave., #104
Ft. Worth, TX 76107
Grace & White, Inc.(3) 213,600 9.3%
515 Madison Avenue, Suite 1700
New York, NY 10022
Steven P. Wyandt(4) 156,668 6.8%
10280 Camino Santa Fe
San Diego, CA 92121
Dimensional Fund Advisors, Inc.(5) 119,836 5.2%
1299 Ocean Avenue, Suite 650
Santa Monica, CA 90401
Eugene B. Price II(6) 67,718 2.9%
10280 Camino Santa Fe
San Diego, CA 92121
William L. Hoese, Esq.(6) 52,000 2.3%
2800 West Higgins Road, Suite 805
Hoffman Estates, IL 60195
All directors and current 1,021,806 44.3%
officers as a group (5 persons)(7)
</TABLE>
Notes:
1. Includes 13,298 shares held in a trust for the benefit of Mr. Waney's
daughter and 34,000 shares which are issuable upon the exercise of
outstanding stock options.
23
<PAGE> 27
2. 195,972 of the shares attributed to Mr. Henderson are held in the name
of Pirvest, Inc., a corporation in which Mr. Henderson owns 100% of the
outstanding common stock. Also includes 50,000 shares issuable upon the
exercise of outstanding stock options.
3. Based upon filings with the NASDAQ at March 31, 1998. Those filings
indicate that Grace & White, Inc. does not have voting authority over
any of the shares held in its name.
4. All 110,000 shares issuable upon the exercise of outstanding stock
options.
5. The Company has been advised by a filing made with the Securities and
Exchange Commission by Dimensional Fund Advisors, Inc. ("Dimensional"),
a registered investment advisor, that it is deemed to have beneficial
ownership of 119,836 shares of the Company's common stock as of March
31, 1998, all of which shares are held in portfolios of DFA Investment
Dimensions Group, Inc., a registered open-end investment company, the
DFA Investment Trust Company, a registered open-end investment company
of the DFA Group Trust and the DFA Participating Group Trust,
investment vehicles for qualified employee benefit plans, all of which
Dimensional serves as investment manager. Dimensional has advised the
Company that it disclaims beneficial ownership of all such shares.
6. Includes 50,000 shares which are issuable upon the exercise of
outstanding stock options.
7. Includes 294,000 shares issuable upon the exercise of outstanding stock
options.
Facsimile copies of the Letter of Transmittal will be accepted from
Eligible Institutions. A Letter of Transmittal and certificates for Shares and
any other required documents should be sent or delivered by each shareholder or
the shareholder's broker, dealer, commercial bank, trust company or other
nominee to the Depositary at its address set forth below.
The Depositary of the Offer is:
AMERICAN STOCK TRANSFER & TRUST COMPANY
<TABLE>
<S> <C> <C>
Facsimile Transmission By Hand or Overnight
By Mail: (for Eligible Institutions Only): Delivery:
American Stock Transfer & (718) 234-5001 American Stock Transfer &
Trust Company Trust Company
40 Wall Street, 46th Floor 40 Wall Street, 46th Floor
New York, NY 10005 New York, NY 10005
Confirm Facsimile by Telephone
at Shareholder Services:
(800) 937-5449
</TABLE>
24
<PAGE> 28
Any questions or requests for assistance or for additional copies of
this Offer to Purchase, the Letter of Transmittal or the Notice of Guaranteed
Delivery may be directed to the Information Agent at the telephone numbers and
addresses listed below. You may also contact your broker, dealer, commercial
bank, trust company or other nominee for assistance concerning the Offer. To
confirm delivery of your Shares, you are directed to contact the Depositary.
The Information Agent for the Offer is:
D. F. KING & CO., INC.
77 Water Street
New York, NY 10005
(212) 269-5550 (collect)
or
Call toll free (800) 347-4750
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Exhibit 99.(a)-11
Form of Press Release
FOR IMMEDIATE RELEASE
SUBJECT: Expiration Date for Tender Offer extended to 5:00 p.m., Eastern
Daylight Time, Wednesday, October 7, 1998.
CONTACT: D.F. King & Co., Inc. (800) 347-4750
SAN DIEGO, CALIFORNIA, SEPTEMBER 30, 1998 -- Nitches, Inc. (NASDAQ --
NICH) announced today that it has extended the expiration date of its
recent tender offer for its shares until 5:00 p.m., Eastern Daylight
Time, Wednesday, October 7, 1998. The Offer to Purchase up to 1,000,000
shares of outstanding common stock for a cash price $4.00 per share was
set to expire at 5:00 p.m. Eastern Daylight Time, Friday, October 2,
1998.
The Company has extended the expiration of the Offer to provide
investors with an opportunity to review its amended Offer to Purchase
which was filed with the Securities Exchange Commission today as part
of the Company's Amendment No. 2 to Schedule 13E-4.
The Offer to Purchase was revised to reflect the waiver by the company
of the condition of the Offer appearing in Section 5(b)(9) of the Offer
to Purchase. As a result, despite the decline in the Dow Jones
Industrial Average and the Standard & Poor's Index of 500 Companies by
more than 10% from the levels at the time the Offer commenced, the
Company will proceed with the Offer.
The Offer to Purchase was also revised to reflect that the Company has
entered into a Discount Factoring Agreement, effective October 1, 1998,
with Congress Talcott Corporation (Western) which replaces the
Company's prior Credit Agreement. The Offer would have caused an event
of default under the Credit Agreement; however the Discount Factoring
Agreement permits the Company to borrow on substantially similar terms
as the Credit Agreement but with lower net worth and working capital
requirements. Accordingly, the Offer to Purchase has been revised to
reflect that the condition to the Offer contained in Section 5(b)(8) of
the original Offer to Purchase, granting the Company the right to
withdraw the Offer in the event of a default under the Credit Agreement
now applies to the Discount Factoring Agreement. Copies of the
Amendment No. 2 to Schedule 13E-4, including the revised Offer to
Purchase and the Discount Factoring Agreement, that was filed
electronically with the SEC can be obtained through the EDGAR database
maintained on the Internet by the SEC. The address of the web site is
http://www.sec.gov.
The Company anticipates that the offer will close on October 7, 1998.
Although the Company does not expect to be able to announce the final
results of any proration until approximately seven trading days after
the close of the tender offer, it will announce preliminary results of
the total number of shares tendered and the prorations by press release
as promptly as practicable following the closing.
Additional information, including a copy of the revised Offer to
Purchase, may be obtained from the information agent for the offer,
D.F. King & Co., Inc. at (800) 347-4750.
# # #
<PAGE> 1
Exhibit 99.(b)
DISCOUNT FACTORING AGREEMENT
BETWEEN
CONGRESS TALCOTT CORPORATION (WESTERN)
5670 WILSHIRE BLVD., SUITE #1750
LOS ANGELES, CA 90036
AND
NITCHES, INC.
10280 CAMINO SANTA FE
SAN DIEGO, CA 92121
<PAGE> 2
Date: October 1, 1998
Gentlemen:
We hereby present to you this letter agreement under which we shall act
as your sole factor for all your sales of merchandise and/or rendition of
services.
1. No sales or deliveries of goods or rendition of services shall be
made without first requesting the prior written approval of our Credit Office in
each instance as to terms, amounts and credit of prospective purchasers
("customers"), and we shall have the right to withdraw such approval at any time
before actual delivery of merchandise or rendition of services, as the case may
be. The purchase price of all sales made by you shall be payable only to us as
factors, and all contracts of sale, bills and invoices sent to customers shall
so stipulate in form satisfactory to us. We shall be entitled to collect and
receive all proceeds of your sales and shall enjoy all the rights and remedies
of the seller of goods, including the rights of stoppage in transit, reclamation
and replevin, subject only to our obligation as factor to account to you in
accordance with the terms hereof. We shall not be liable to any person or in any
manner for refusing to give, or for withdrawing credit approval for any customer
or for exercising our rights and remedies as set forth herein.
2. You hereby sell and assign to us all of your accounts receivable,
contract rights, and other customer obligations for the payment of money arising
out of your sale of goods or rendition of services, now existing and hereafter
arising ("accounts"), together with all proceeds thereof, all security and
guarantees therefor, all of your rights to the goods and property represented
thereby, and all of your rights and remedies against the customers thereunder.
With respect to sales approved and accepted by us, upon delivery or performance,
and acceptance of the goods or services by the customer, without claim or
dispute, we shall purchase the accounts created thereby and shall assume the
credit risk, being responsible only for the financial inability of the customer
to pay at maturity. We shall not be responsible for any nonpayment of an account
because of the assertion of a claim or dispute of any kind by a customer
(whether or not such claim or dispute relates to the specific account) or the
assertion or exercise of any counterclaim or offset, or if any warranty made by
you to us in respect of any such account has been breached. Any sale of goods or
renditions of service made by you which is not approved in writing by us as to
credit, as well as accounts for which we are not responsible for nonpayment and
as to which credit approval is withdrawn as aforesaid, shall be known as a C.R.
(client's risk) account. All such C.R. accounts assigned to and purchased by us
are with full recourse to you and at your credit risk, but are otherwise subject
to the covenants, terms and conditions provided herein in respect of accounts on
which we have assumed the credit risk.
3. It is understood that you will promptly adjust all disputes with
customers, provided that we have not withdrawn such right to adjust from you
upon the occurrence of an Event of Default hereunder or in any event on notice
by us, and promptly advise us in writing of the same upon your receiving notice
thereof, and we shall have the right to charge back to you any account involved
in a claim, dispute or return asserted or made by a customer and other C.R.
accounts, before or after the maturity thereof, together with interest at the
then effective governing rate (as defined in paragraph 6(a) hereof) from the
date of original credit to the date of full payment. The charge-back of any such
accounts shall not be deemed a reassignment thereof, and title thereto and to
the merchandise represented thereby shall remain in us until we shall have been
fully reimbursed. We agree to reassign to you any such charged-back account upon
your payment to us, in cash, of the amount or amounts credited by us to you
thereon, together with applicable interest. As absolute owner of each account,
we may in our sole discretion enforce, effect any compromise, settle and adjust
any account, in our name or yours, without affecting or limiting your
obligations to us under this agreement and whether or not any such account shall
have been charged back. Unless we shall otherwise direct, all credit memoranda
to be issued to any customer shall be furnished by you only to us for
transmission to the customer, who shall be solely entitled to the benefit
thereof and to the benefit of any discounts and allowances. You shall indemnify
us for, and hold us harmless against, any loss, liability, claim or expense of
any kind (including attorneys' fees and disbursements) arising from any claims
of, or disputes with, your customers (or for any other persons) as to terms,
price, quality, or otherwise, directly or indirectly relating to accounts,
including any claim for a return of any payments thereunder, or pertaining to
any other matter.
<PAGE> 3
4. All goods shall be billed and invoiced upon forms of bill or invoice
satisfactory to us and, unless otherwise directed by us, the said bills and
invoices shall bear the words "Pay only to CONGRESS TALCOTT CORPORATION
(WESTERN). This account and the merchandise covered hereby is assigned and is
payable only to CONGRESS TALCOTT CORPORATION (WESTERN), to whom notice must be
given of any merchandise returns or for any claims for shortage, non-delivery or
otherwise," and shall be payable at such address as we shall direct. At our
request, invoices to customers shall be mailed by us at your expense.
5. At your own cost and expense you will keep proper books of account,
showing all sales and all claims, allowances, disputes and similar information
with respect to the accounts and the goods and services relating thereto. Such
books, records, correspondence and papers pertaining to sales and accounts shall
be open to our inspection and we shall have the right to examine and make copies
of such books, records, correspondence and papers and to perform general audits
at all reasonable times. All remittances, checks, notes receivable, instruments
and other proceeds of accounts shall be our property and, if received by you,
shall be held in trust and immediately transmitted and delivered to us in the
identical form received together with any endorsement or assignment deemed
necessary by us. We shall have the right, but not the obligation, to deposit any
checks or other remittances received on accounts regardless of notations or
conditions placed thereon by your customers or deductions reflected thereby and
to charge the amount of any such deduction to your account. You further
authorize us to endorse your name on any and all checks or other forms of
remittances and proceeds received in payment of accounts whenever we deem such
endorsement to be necessary to effect collection thereof. We may request
shipping receipts covering all sales to be promptly delivered to us and you
shall not be entitled to any credit with respect to any account until the
relevant shipping receipts have been delivered to us. You will supply us with as
many duplicate bills as we may from time to time require.
6. (a) On the last day of each month we will credit you with the
purchase price for your accounts arising during such month which have been
assigned to us and are approved, accepted and purchased by us. The purchase
price for such accounts shall be their respective invoice amounts, less our
commission as provided for herein and less all selling discounts (at our option,
calculated on any terms offered), and all credits or deductions allowed or
granted to the customer at any time, and less interests on advances against such
purchase price, as hereinafter provided, at the governing rate then in effect.
For the purpose of this agreement, "governing rate" shall mean a rate per annum
which is one-half percent (1/2%) below the prime commercial interest rate from
time to time publicly announced by First Union National Bank, and its
successors, as its prime rate, whether or not such announced rate is the best
rate available at such bank. The governing rate shall increase or decrease by an
amount equal to each increase or decrease, respectively, in such prime
commercial interest rate, effective on the first day of the month after any
change in such prime commercial interest rate based on the rate in effect on the
last day of the month in which any such change occurs. The governing rate shall
be calculated based on a three hundred sixty (360) day year and actual days
elapsed.
(b) Advances against the purchase price for the net amount of
outstanding approved accounts assigned to and accepted by us may be made upon
your request, but at our sole discretion in each instance, in any amount up to
eighty-five percent (85%)(1) of the net amount thereof, subject to our right to
maintain a reserve as described below. For the purpose of computing interest
payable under this agreement, you will be charged with interest on the average
daily balance of all sums advanced or charged to you under this agreement and
other sums owed by you to us, at the governing rate then in effect, and you will
be credited with the purchase price for each account upon our receipt of payment
thereof by a customer, plus three (3) additional business days for collection
and clearance of remittances. In the event that the amount of any sums advanced
or charged to you under this agreement exceeds the amount available to you
pursuant to the percentage of the net amount of outstanding approved accounts
assigned to and accepted by us as set forth above or any other percentage or
sublimits set forth in any supplement to this agreement, the "governing rate" on
the entire amount of such excess(es) shall be a rate per annum which is one-half
of one percent (1/2%) above the governing rate otherwise applicable under
Section 6(a) above (whether or not such excess(es) arise or are made with or
without our knowledge or consent). On and after the date of any Event of Default
or the effective date of any termination or non-renewal hereof, the "governing
rate" on all then outstanding and unpaid Obligations shall accrue at the
governing rate provided for in the preceding sentence from the date of such
Event
- -------------
(1) See attached addendum.
2
<PAGE> 4
of Default or the effective date of any termination or non-renewal until payment
in full of all Obligations. In no event shall the rate of interest agreed to or
charged to you hereunder exceed the maximum rate of interest permitted to be
agreed to or charged to you under the law of the jurisdiction whose laws are
applicable to such rate of interest. We shall have the right to withhold and
retain at all times, as a reserve, that amount of your accounts assigned to us
and still outstanding which in our sole discretion is or may be necessary to
allow for possible returns, allowances, claims or expenses, or to provide for
the payment to us of your liabilities under this agreement.
7. For our services hereunder, we shall receive a commission equal to
one-half of one percent (.50%) of the invoice amount of each account, less
selling discounts (at our option, calculated on any terms offered), which
commission shall be due and payable by you, and chargeable to your account with
us, as at the end of the month in which such account arises, but in no event
less than $4,000.00 each and every month. Such charge is based upon maximum
selling terms of sixty(60) days, and no more extended terms or additional dating
shall be granted by you to any customer without our prior written approval in
each instance. In the event that we shall give our written approval, each time
the due date on any account (whether the original due date or any previously
extended due date) is extended or further extended, as the case may be, you
shall pay to us a service fee of $5.00, which fee is due and payable on the date
of the extension. When such approval is given by us, our charge with respect to
the accounts covered thereby shall be increased at the rate of twenty-five
percent (25%) for each additional thirty (30) days or portion thereof of
extended terms or additional dating. Our assumption of credit risk shall not
include any invoice which represents the sale of samples. In addition to our
commission and any other fees provided for herein or otherwise, you shall pay to
us a closing fee for establishing the factoring arrangements provided for herein
in the amount of $2,000.00, which fee is due and payable on, and shall be fully
earned as of, the date hereof.
8. About fifteen (15) days after the end of each month, we will render
to you a statement with respect to the accounts purchased by us in the previous
month, and all advances and charges made to your account under this agreement.
In addition to any other amounts chargeable to your account, your account shall
be charged with all discounts to customers on assigned sales and all returns,
allowances or credit. You will also be charged with interest, at the governing
rate then in effect hereunder as to advances, on the amount of any customer
credit issued on any account after the date the discounted purchase price
thereof has been credited to you, for the period from the date of crediting of
such purchase price to the date of the issuance of such customer credit. All
statements, reports or accountings rendered or issued by us to you shall be
deemed accepted by you and shall be finally conclusive and binding upon you
unless you notify us to the contrary, specifying the precise respects in which
you differ with such statement, report or accounting, by registered or certified
mail within thirty (30) days after the date such statement, report or account is
sent to you. In the event that we provide to you or on your behalf from time to
time additional statements, reports or accountings with respect to the accounts
or otherwise in connection herewith, you shall pay to us an additional fee in
the amount of $50.00 for each such additional statement, report or accounting,
which fee is due and payable on the date of the issuance by us of such
additional statement, report or accounting.
9. As collateral security for any and all of your (and your
subsidiaries' and affiliates') indebtedness and obligations to us and to each of
our subsidiaries and affiliates, whether matured or unmatured, absolute or
contingent, now existing, or that may hereafter arise (including under indemnity
or reimbursement agreements or by subrogation) and howsoever acquired by us,
whether arising directly between us or acquired by us by assignment, whether
relating to this agreement or independent hereof, including all obligations
incurred by you to any other concern factored or financed by us or by any
subsidiary or affiliate of ours (collectively, the "Obligations"), you do hereby
grant to us, for our own account and on behalf of our subsidiaries and
affiliates, a security interest in all of your accounts, contract rights,
documents, instruments, chattel paper and general intangibles (including without
limitation all federal, state and local tax refunds and claims of all kinds,
bank and other deposit accounts, trade names and trademarks and the goodwill of
the business symbolized thereby, copyrights, patents and patent applications,
trade secrets, customer lists, phone numbers, proprietary processes and
information, purchase orders, customer information, all rights as a licensor or
licensee of any kind, and all other licenses, rights, privileges and franchises)
(whether or not specifically assigned to us), nor existing and hereafter created
or acquired, and in the proceeds thereof, any security and guarantees therefor,
in the goods and property represented thereby, in all of your books and records
relating to the foregoing, all of your rights in connection with any of the
foregoing, and in all sums of money at any time to your credit with us or with
any of our subsidiaries and affiliates, and any of your property at any time in
our possession or in the possession of any of our subsidiaries and affiliates.
You hereby agree to pay all debit balances in your account on demand and
irrevocably authorize us to charge at any time to your account any Obligations,
and to pay
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any Obligation owing to any of our subsidiaries and affiliates by so charging
your account. You agree to execute financing statements and any and all other
instruments and documents that we may request to perfect, protect, establish or
enforce the security interests granted hereunder or other provisions hereof. You
do hereby authorize us to file such financing statements without your signature,
signed only by us as a secured party, or a reproduction of this agreement to
reflect the security interests granted hereunder. You hereby warrant that you
are solvent, that you have full right and authority to sell and assign to us and
to grant to us a security interest in your property as provided in this
agreement, that you have not granted a security interest therein or in any of
your inventory to any other party, and that you will not hereafter grant any
security interest therein or in any of your inventory, other than to us, at any
time during the term of this agreement and until the security interest granted
hereunder has been terminated. Immediately upon our request, you shall pay to
us, or reimburse us for, all sums, costs and expenses which we may pay or incur
in connection with or related to the negotiation, preparation, consummation,
administration and enforcement of this agreement, any supplement hereto, and all
other agreements, documents and instruments in connection herewith and
therewith, and the transactions contemplated hereunder and thereunder, together
with any amendments, supplements, consents or modifications which may be
hereafter contemplated (whether or not executed), made or entered into in
respect hereof and thereof, and all efforts made to defend, protect or enforce
the security interest and other rights granted herein or therein or enforcing
payment of the Obligations, including, without limitation, filing fees and
taxes, recording taxes, expenses for searches, expenses heretofore incurred by
us and from time to time hereafter during the course of periodic field
examinations of our collateral or your operations (plus a charge of $500 per
person per day for our examiners in addition to reimbursement for their
expenses), wire transfer fees, check dishonor fees, the fees and disbursements
of our counsel, all fees and expenses for the service and filing of papers,
premiums on bonds and undertakings, fees of marshals, sheriffs, custodians or
auctioneers and others, travel expenses and all court costs and collection
charges, all of which shall be part of the Obligations and shall accrue interest
after demand thereof at the highest governing rate payable on any of the
Obligations. At our option, all principal, interest, fees, commissions, costs,
expenses or other charges with respect to this agreement may be charged directly
to your account maintained by us.
10. Notwithstanding anything to the contrary contained herein, the
aggregate amount of the Obligations outstanding at any time shall not exceed
$13,500,000 except in our sole discretion. In the event that the outstanding
aggregate amount of the Obligations exceeds such amount, you shall remain liable
therefor and the entire amount of such excess shall, at our option, be
immediately due and payable upon demand.
11. You shall not be entitled to pledge our credit in connection with
any purchase of goods or for any other purpose whatsoever.
12. If any goods are rejected or returned by, or recovered from, a
customer on any account, you shall forthwith pay us the amount of such account,
either in cash or by the assignment of new accounts acceptable to us hereunder.
Until such repayment, such goods shall be held by you in trust for our benefit,
shall be segregated and identified by you as our property, and upon our request,
at your expense, shall be delivered to or for our account or upon our order to
such place or places as we may designate. We may sell or cause the public or
private sale of any such goods, upon five (5) days written notice to you, at
such place and upon such terms as we may deem proper, and we may be the
purchaser at any public sale. The proceeds of any such sale or sales shall first
be applied to the costs and expenses of and incident to such sale, and the
balance, if any, shall be credited to your account and your account shall be
charged with any deficiencies, costs and expenses.
13. We shall have no responsibility for, or liability in respect of,
the care, shipment, transportation of, or insurance upon, any of your inventory
or other goods, our liability being solely that of a factor purchasing the
accounts arising from sales made by you which have been approved by us and
paying you therefor as hereinabove set forth.
14. (a) This agreement shall commence and become effective as of the
date hereof and shall continue in full force and effect for a term ending two
(2) years from the date hereof and renewing automatically from year to year
thereafter, unless sooner terminated pursuant to the terms hereof. You may
terminate this agreement on the anniversary of the date hereof in any year by
giving to us at least sixty (60) days prior written notice by registered or
certified mail, return receipt requested. We may terminate this agreement at any
time by giving you at least sixty (60) days prior written notice and, in
addition, we shall have the right to terminate this agreement immediately at any
time upon the occurrence of an Event of Default. No termination of this
agreement shall relieve or discharge you of your duties, obligations and
covenants
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<PAGE> 6
hereunder until all Obligations have been fully and finally paid and satisfied
(whether contingent or otherwise) and our continuing security interest in any of
your assets or properties shall remain in effect until such Obligations have
been fully and finally paid and satisfied (whether contingent or otherwise).
(b) If we terminate this agreement upon the occurrence of an Event of
Default or at your request on any date other than the anniversary of the date
hereof after our receipt of sixty (60) days prior written notice from you as
provided above, in view of the impracticability and extreme difficulty of
ascertaining actual damages and by mutual agreement of the parties as to a
reasonable calculation of our lost profits as a result thereof, you hereby agree
that you will pay to us in cash or other immediately available funds, upon the
effective date of such termination, an early termination fee in the amount equal
to (i) the percentage for our commission set forth in Section 7 hereof
multiplied by the total aggregate amount of sales by you in the immediately
preceding twelve (12) month period, as determined by us, divided by twelve (12)
multiplied by (ii) the number of months (or any part thereof) remaining in the
then current term. Such early termination fee shall be presumed to be the amount
of damages sustained by such early termination and you agree that it is
reasonable under the circumstances currently existing. The early termination fee
shall be deemed included in the Obligations.
(c) All Obligations shall be, at our option, immediately due and
payable without notice or demand immediately upon the occurrence of any Event of
Default or the termination or non-renewal hereof and any provision of this
agreement or any supplement hereto as to future advances by us to you shall, at
our option, terminate forthwith upon the occurrence of any Event of Default or
the termination or non-renewal hereof. Upon the effective date of termination or
non-renewal of this agreement, you shall pay to us in full all outstanding and
unpaid Obligations (including, but not limited to, loans and all interest,
commissions, fees (including the early termination fees provided herein, if
applicable), charges expenses and other amounts provided for hereunder or
otherwise) and shall furnish cash collateral to us for all undrawn amounts
available pursuant to previously issued and outstanding letter of credit
accommodations (if any), by wire transfer in federal funds to such bank account,
as we may in our discretion designate for such purpose.
15. The occurrence of any one or more of the following shall constitute
an Event of Default hereunder and under any supplement hereto or other agreement
by you with, to or in favor of us: (a) you fail to pay or perform when due any
of the Obligations or you breach any of the terms, covenants, conditions or
provisions contained in this agreement or any other agreement between us; (b)
any present or future representation, warranty or statement of fact made by you
or on your behalf to us in this agreement or any other agreement, schedule or
instrument referred to herein or therein or related hereto or thereto is false
or misleading at any time; (c) we in good faith believe that, because of a
change in the conditions or affairs (financial or otherwise) of you or any
guarantor of any of the Obligations, either (i) the prospect of payment or
performance of the Obligations is impaired or (ii) the collateral is not
sufficient to fully secure the Obligations; and (d) the occurrence of any of the
following with respect to you or any guarantor of any of the Obligations;
dissolution; termination of existence; insolvency; business cessation or
suspension; calling of a meeting of creditors; appointment of a receiver for any
property; assignment for the benefit of creditors; commencement of any voluntary
or involuntary proceeding under any bankruptcy or insolvency law; entry of any
court order which enjoins or restrains the conduct of business in the ordinary
course. Upon the occurrence of any Event of Default by you hereunder, we shall
have all the rights and remedies of a secured party under the Uniform Commercial
Code and other applicable laws with respect to all collateral in which we have a
security interest. We may sell or cause to be sold any or all such collateral,
in one or more sales or parcels, at such prices and upon such terms as we may
deem best, and for cash or on credit or for future delivery and at a public or
private sale as we may deem appropriate. Unless the collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, we shall give you reasonable notice of the time and place of
any public sale of collateral owned by you or of the time after which any
private sale or any other intended disposition thereof is to be made. The
requirements of reasonable notice shall be met if any such notice is mailed,
postage prepaid, to your address shown herein, at least five (5) days before the
time of the sale or disposition thereof. We may be the purchaser at any such
public sale. The proceeds of sale of such collateral shall be applied first to
all costs and expenses of and incident to such sale, including attorneys' fees
and then to the payment, in such order as we may elect, of all sums owning to us
hereunder. We shall return any excess to you, subject to the rights of third
parties or as otherwise required by applicable law, and you shall remain liable
for any deficiency.
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<PAGE> 7
16. You agree that you will furnish to us, as soon as available, but in
any event not later than one hundred and twenty days (120) after the close of
each fiscal year, your audited financial statements for such fiscal year
(including balance sheets, statements of income and loss, statements of cash
flow and statements of shareholders' equity), and the accompanying notes
thereto, setting forth in each case in comparative form figures for the previous
fiscal year, all in reasonable detail, fairly presenting the financial position
and the results of your operations as at the date thereof and for the fiscal
year then ended and prepared in accordance with generally accepted accounting
principles consistently applied. Such audited statements shall be examined in
accordance with generally accepted auditing standards by, and accompanied by a
report thereon unqualified as to scope of, independent certified public
accountants selected by you and acceptable to us. In addition, at such time or
times as we may request, you will furnish to us such quarterly or monthly
unaudited financial statements (including balance sheets, statements of income
and loss, statements of cash flows and statements of shareholders' equity), and
the accompanying notes thereto, all in reasonable detail, fairly presenting the
financial position and results of your operation as at the date thereof and for
such periods prepared in accordance with generally accepted accounting
principles consistently applied and such other information with respect to your
business, operations and condition (financial or otherwise), as we may from time
to time reasonably request.
17. This agreement is deemed made in the State of California and shall
be governed, interpreted and constructed in accordance with the laws of said
State. Each of the parties hereto hereby irrevocably submits and consents to the
non-exclusive jurisdiction of any local, state or federal court located within
such State in any action or proceeding involving this agreement or any other
agreement, document or instrument by you with, to or in favor of us or in any
way relating to the relationship between us and each of the parties hereto
hereby waives any objection which it may have based on improper venue or forum
non conveniens to the conduct of any such action or proceeding in any such
court. In any such action or proceeding, you waive personal service of any
summons, complaint or other process and agree that service thereof may be made
by certified or registered mail, directed to you at your address set forth
herein. Within thirty (30) days after such mailing you shall appear in answer to
such summons and complaint or other process, failing which you shall be deemed
in default and judgment may be entered by us against you for the amount of the
claim and other relief requested therein. You agree that any claim or cause of
action you may now or hereafter have against us, or any of our directors,
officers, employees, agents, accountants or attorneys, based on, arising from or
relating in any way to this Agreement, or any supplement or amendment hereto, or
any other present or future agreement between us, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any matter,
whatsoever shall be barred unless asserted by you by the commencement of an
action or proceeding in a court of competent jurisdiction within Los Angeles
County, California, by the filing of a complaint within one year after the first
act, occurrence or omission upon which such claim or cause of action, or any
part thereof, is based and the service of a summons and complaint upon which
such claim or cause of action, or any part thereof, is based, and the service of
a summons and complaint upon one of our officers within thirty (30) days
thereafter. You agree that said one-year period is a reasonable and sufficient
time for you to investigate and act upon such claim or cause of action. Said
one-year period shall not be waived, tolled or extended except by specific
written consent by us. You waive the benefit of all statutes of limitations in
any action or proceeding based upon or arising out of this Agreement or any
other present or future instrument or agreement between you and us. No
modification, waiver or discharge of this agreement shall be binding upon us
unless in writing and signed by us. If at any time we should fail to exercise
any right or remedy hereunder, it shall not constitute a waiver on our part of
exercising the same or any other right or remedy at any subsequent time. If any
taxes are imposed upon, or if we shall be required to withhold or pay any tax or
penalty because of or in connection with any transactions between us under this
agreement, you agree to indemnify us and hold us harmless in respect thereof.
This agreement shall be binding upon an inure to the benefit of each of us and
our respective heirs, executors, administrators, successors and assigns,
provided that you shall not have the right to assign this agreement without our
prior written consent. All notices, requests and demands to or upon the
respective parties hereto shall be in writing and shall be deemed given or made:
(a) if by hand telex, telegram, facsimile or other telecommunication,
immediately upon sending; (b) if by overnight delivery service, one (1) day
after delivery to the overnight deliver service and (c) if mailed by certified
mail, return receipt requested, five (5) days after mailing. All notices,
requests and demands are to be given or made to the respective parties at the
address set forth herein (or to such other address as either party may designate
by notice in accordance with the provisions of this section).
18. YOU AND WE EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO, THIS
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AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN US, OR
ANY CONDUCT, ACTS OR OMISSIONS OF US OR YOU ANY OF YOUR OR OUR DIRECTORS,
OFFICERS, EMPLOYEES', AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH YOU
OR US, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE.
The foregoing is acknowledged, CONGRESS TALCOTT CORPORATION (WESTERN)
accepted and agreed to:
NITCHES, INC By: /s/ Louis J. Sulpizio
-----------------------------------
Louis J. Sulpizio,
Sr. Vice President
By: /s/ Steven P. Wyandt
-------------------------------
Steven P. Wyandt,
President and Secretary
(Seal) (Seal)
Location of Client's Books and Records: Chief Executive Office of Client
10280 Camino Sante Fe 10280 Camino Santa Fe
San Diego, CA 92121 San Diego, CA 92121
7
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ADDENDUM TO DISCOUNT FACTORING AGREEMENT
DATED OCTOBER 1, 1998
Gentlemen:
We refer to that certain Discount Factoring Agreement dated October 1,
1998 by and between Nitches, Inc. (the "Company") and Congress Talcott
Corporation (Western) ("Congress") (the "Factoring Agreement"). All capitalized
terms used herein and not otherwise defined shall have the meanings ascribed to
such terms in the Factoring Agreement.
This letter shall confirm our agreement to amend Paragraph 6 (b) of the
Factoring Agreement with regard to advances made on non-credit approved ("Client
Risk") sales as follows:
Advances against the purchase price for the net amount of the
outstanding Client Risk accounts assigned to and accepted by us may be
made upon your request, but at our sole discretion in each instance, in
an amount up to fifty percent (50%) of the net amount thereof, subject
to our right to maintain a reserve. We shall have the right to withhold
and retain at all times, as a reserve, that amount of your accounts
assigned to us and still outstanding which in our sole discretion is or
may be necessary to allow for possible returns, allowances, claims or
expenses, or to provide for the payment to us of your liabilities under
this agreement.
Except as amended above, all of the terms and conditions of the
Factoring Agreement are unchanged, and the Factoring Agreement, as amended,
shall remain in full force and effect and is hereby confirmed, affirmed and
ratified.
If the foregoing is in accordance with your understanding of our
agreement, please so indicate by signing in the place and manner provided below.
Sincerely yours,
CONGRESS TALCOTT CORPORATION NITCHES, INC.
(WESTERN)
By: /s/ Louis J. Sulpizio By: /s/ Steven P. Wyandt
------------------------------- ---------------------------------
Louis J. Sulpizio, Sr. Steven P. Wyandt, President
Vice President and Secretary
8
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TRADE FINANCING AGREEMENT
SUPPLEMENT TO FACTORING AGREEMENT
Congress Talcott Corporation (WESTERN)
5670 Wilshire Boulevard, Suite 1750
Los Angeles, CA 90036
Gentlemen:
This Trade Financing Agreement ("Supplement") is a supplement to the
Factoring Agreement between us dated October 1, 1998 (the "Agreement"). This
Supplement is (a) hereby incorporated into the Agreement, (b) made a part
thereof and (c) is subject to the other terms, conditions, covenants and
warranties thereof. All terms, including capitalized terms, used herein shall
have the meanings ascribed to them respectively in the Agreement, unless
otherwise defined in this Supplement.
This Supplement will confirm the terms and conditions upon which you
may, from time to time in your sole discretion, assist us in establishing or
opening foreign or domestic letters of credit and extend other financial
accommodations for our account. Accordingly, each of us hereby agrees as
follows:
Section 1. CREDIT ACCOMMODATIONS
1.1 You may, or in your sole discretion, from time to time, for our
account, at our request, provide one or more of the following financial
accommodations to us or our designee(s): (a) issue, open, or cause the issuance
or opening of letters of credit or purchase or other guaranties for the purchase
of goods and services in the ordinary course of our or any such designee's
business or for any other purpose approved by you, (b) assist us in establishing
or opening letters of credit for such purposes by indemnifying the issuer
thereof or guaranteeing our payment or performance to such issues in connection
therewith, (c) make payments for our or such designee's account in connection
with such purchases and/or (d) issue or guarantee drafts and acceptances
relating tot he foregoing or otherwise. All such letters of credit or purchase
or other guaranties and other financial accommodations are referred to herein
individually as a "Credit" and collectively as "Credits".
1.2 The opening or issuance of any Credit shall at all times and in all
respects be in your sole discretion. The amount and extent of any Credit and the
terms, conditions and provisions thereof shall in all respects be determined
solely by you and shall be subject to change, modification and revision by you,
in your sole discretion, at any time and from time to time. The maturity of each
Credit shall not exceed on hundred and eighty (180) days after opening or
issuance, except in your sole discretion.
1.3 We shall, at your request in connection with the opening, issuance,
continuance of, or any payment with respect to, any Credit deposit with you cash
or other additional collateral satisfactory to you, in such amounts as you, in
your sole discretion, may require from time to time, whether prior to the
opening or issuance of any Credit or at any time or times thereafter. Our
failure to make any such deposit within five (5) days after demand therefore
shall constitute an Event of Default. No interest shall be paid to us on any
cash or other collateral so deposited, unless otherwise agreed by you.
1.4 Without limiting your discretion, in any way, with respect to the
extension of factoring or other financial accommodations pursuant to the
Agreement, this Supplement or otherwise, as a condition to the opening or
issuance of any Credit by you, we shall have additional loans available to use
pursuant to the formulas and limitations set forth in the Agreement or any
supplement thereto, on the date of the proposed opening or issuance thereof, in
an amount equal to or greater than ONE HUNDRED percent (100%) of the amount of
the proposed Credit to be opened or issued.
1.5 Except in your sole discretion the aggregate maximum amount of
loans which might otherwise be available to us, pursuant to the formulas and
limitations set forth in the Agreement or any supplement thereto, shall be
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reduced from time to time by an amount equal to ONE HUNDRED percent (100%) of
the then outstanding aggregate amount of all Credits and all other commitments
and obligations made or incurred by you with respect thereto.
1.6 Except in your sole discretion, the amount of all Credits and all
other commitments and obligations made or incurred by you for our account in
connection therewith shall not exceed $13,500.00 in the aggregate at any time
outstanding.
1.7 All indebtedness, liabilities, expenses and obligations of any kind
paid, arising or incurred by you in connection with this Supplement, any Credit
or documents, drafts and acceptances thereunder, whether present or future,
whether arising or incurred before or after the termination or nonrenewal of
this Agreement shall be incurred solely as an accommodation to us and for our
account and constitute part of the Obligation, including without limitation: (a)
all amounts due or which may become due under any Credit or any drafts or
acceptances thereunder; (b) all amounts charged or chargeable to you or us by
any bank or other issuer of any Credit or any correspondent which opens, issues
or is otherwise involved with any Credit, including without limitation, all
fees, expenses and commissions; (c) your fees, expenses and commissions; (d)
duties, freight, taxes, costs, insurance and all such other charges and expenses
which may pertain directly or indirectly to any Obligations or to the Credits or
goods or documents relating thereto; and (e) all other indebtedness and
obligations owed by us to you pursuant to, in connection with or arising from
this Supplement, the Credits or any drafts or acceptances relating thereto.
1.8 All such Obligations shall accrue interest at the then effective
governing rate provided for in the Agreement, commencing on the date any payment
is made, or obligation incurred, by you and all such Obligation shall, together
with interest thereon and other sums owed by us to you hereunder, be payable and
evidenced as provided in the Agreement or any supplement thereto.
1.9 In addition to all other fees and expenses payable under the
Agreement and this Supplement, and any charges, fees or expenses charged by any
bank or other issuer or correspondent in connection with any Credit, we agree to
pay to you the following commissions for your services hereunder, which shall be
due and payable on the opening or issuance of each Credit or, if the original
term is extended, on the extension thereof : (a) a charge of ONE EIGHTH percent
(1/8%) of the face amount of any Credit (other than drafts or acceptances) for
up to the initial days of the term thereof and an additional charge of ONE
EIGHTH percent (1/8th%) of such face amount for each additional thirty (30)
days, or any portion thereof, or the original term or any extension there. We
also agree to pay to you, your and any bank's other issuer's or correspondents,
customary charges for amendments, extensions and administration relating to any
Credit, which charges shall be due and payable on the first day of the month
following the date of occurrence and, at your option may be charged to any of
our account(s) maintained by you.
1.10 Nothing contained herein shall be deemed or construed to grant us
any right, power or authority to pledge your credit in any manner. You shall
have no liability of any kind with respect to any Credit opened or issued by a
bank or other issuer or any draft or acceptance with respect thereto unless and
until you shall have first duly executed and delivered your guarantee or
indemnification in writing with respect thereto, as provided herein.
Section 2. ADDITIONAL SECURITY INTEREST
2.1 As additional security for the prompt performance, observance and
payment in full of all Obligations, we hereby grant to you a continuing security
interest in, a lien upon, and a right of set off against, and we hereby assign,
transfer, pledge and set over to you all of the following property acquired by
us in connection with any Credit or otherwise owned by us, whether now owned or
hereafter acquitted (which, together with other property subject to security
interests or liens in your favor pursuant to the Agreement, any supplement
thereto, or otherwise, is hereinafter referred to as the "Collateral"): (a) all
raw materials, work-in-process, finished goods and all other inventory and goods
of whatsoever kind or nature, wherever located, including inventory or goods in
transit ("Inventory"), including without limitation, all wrapping, packaging,
advertising and shipping materials, and all other goods consumed in our
business, all labels and other devices, names or marks affixed or to be affixed
thereto for purposes of selling or identifying the same or the seller or
manufacturer thereof and all of our right, title and interest therein and
thereto; (b) documents of payment, transport and title or the equivalent
thereof,
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including without limitation, original contracts, orders, invoices, checks,
drafts, notes, documents, warehouse receipts, bills of lading, shipping
receipts, dock receipts and delivery tickets and including, but not limited to,
such documents made available to us for the purpose of ultimate sale or exchange
of inventory or for the purpose of loading, unloading, strong, shipping,
transhipping, manufacturing, processing or otherwise dealing with Inventory in a
manner preliminary to their sale or exchange; (c) all books, records, other
property and general intangibles relating to the foregoing; and (d) all products
and proceeds of the foregoing in any form, including without limitation,
insurance proceeds and any claims against third parties for loss or damage to or
destruction of any or all the foregoing.
2.2 We hereby recognize and admit that until all of the Obligations
have been fully and indefeasibly paid and discharged, you may be deemed to have
absolute ownership in and unqualified right to the possession and disposal of
the following: (a) all property shipped under or pursuant to or in connection
with any Credit or in any way related thereto and, including, but not limited
to, the documents, drafts or acceptances drawn thereunder, whether or not
released to us, (b) in and to all shipping documents, warehouse receipts,
policies, or certificates of insurance and other documents accompanying or
relative to documents, drafts or acceptances drawn under or relating to any
Credit, and (c) all proceeds of each of the foregoing.
2.3 You may, at any time or times, exercise any or all of your rights
of ownership, including the rights of possession and sale or other disposition,
with or without notice to us, without liability to us and entirely at our
expense and without relieving us from any Obligations.
Section 3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
We hereby represent, warrant and covenant to you the following (which
shall survive the execution and delivery of this Supplement), the truth and
accuracy of which, or compliance with, being a continuing condition of the
making of loans by you under the Agreement or any supplement thereto and the
extension by you of each Credit and other financial accommodations pursuant
hereto.
3.1 All sales of any Inventory shall be made by us only in the ordinary
course of business and the Accounts arising from such sales and proceeds thereof
shall be and are hereby transferred and assigned to you and we confirm that your
lien and security interest extends and attaches to those Accounts and proceeds.
3.2 Except as you may otherwise specifically consent in writing prior
to the opening or issuance of any Credit, all Credit shall be opened or issued
to cover the actual purchase and delivery of Inventory solely for our account.
3.3 All shipments made under any Credit are in accordance with the
governmental laws and regulations of the countries in which the shipments
originate and terminate, and are not prohibited by any such laws and
regulations.
3.4 We assume all risk, liability and responsibility for, and agree to
pay and discharge, all present and future local, state, federal or foreign
taxes, duties or levies. Any embargo, restriction, laws, customs or regulation
of any county, state, city, or other political subdivision, where the Collateral
is or may be located, or wherein payments are to be made, or wherein drafts may
be drawn, negotiated, accepted, or paid shall be solely our risk, liability and
responsibility.
3.5 All documents, instruments, notices and statements relating to any
Credit and/or the Collateral, if any, shall at your request, be promptly
delivered to you.
3.6 We shall procure promptly, or cause to be procured, any necessary
licenses for the shipping of goods and comply or cause any drawer under, or
beneficiary of, any Credit (or any transferee or assignee thereof); to comply
with all foreign and domestic governmental laws and regulations pertaining to
transactions involving designated foreign countries or their nationals and to
furnish such certificates in that respect as you or any bank or other issuer or
correspondent may at any time require.
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3.7 The only locations of any Collateral are those addresses listed on
Schedule A annexed hereto and made a part hereof. Schedule A sets forth the
owner and/or operator of the premises at such addresses, for all locations which
we do not own and operate and all mortgages, if any, with respect to the
premises. We shall not remove any Collateral from such locations, without your
prior written consent, except for sales of inventory in the ordinary course of
our business.
3.8 We shall at all times maintain, with financially sound and
reputable insurers, casualty and hazard insurance with respect to the Collateral
for not less than its full market value and against all risks to which it may be
exposed. All such insurance policies shall be in such form, substance, amounts
and coverage as may be satisfactory to you and shall provide for ten (10) days'
minimum prior cancellation notice in writing to you. You may act as attorney for
us in obtaining, adjusting, settling, amending and canceling such insurance. We
shall promptly (a) obtain endorsements to all existing and future insurance
policies with respect to the Collateral specifying that the proceeds of such
insurance shall be payable to you as your interests may appear and further
specifying that you shall be paid regardless of any act, omission or breach of
warranty by us, (b) deliver to you an original executed copy of, or executed
certificate of the insurance carrier with respect to, such endorsement and, at
your request, the original or a certified duplicate copy of the underlying
insurance policy and (c) deliver to you such other evidence which is
satisfactory to you of compliance with the provisions hereof.
3.9 We shall promptly notify you in writing of the details of any loss,
damage, investigation, action, suit, proceeding or claim relating to the
Collateral or which would result in any material adverse change in our business,
assets, goodwill cor condition, financial or otherwise.
3.10 At your option, you may apply any insurance monies received at any
time to the cost of repairs to or replacement for the Inventory and/or to
payment of any of the Obligations, whether or not due, in any order and in such
manner as you, in you sole discretion, may determine.
3.11 Upon your request, at any time and from time to time, we shall, at
our sole cost and expense, execute and deliver to you written reports or
appraisals as to the Inventory listing all locations, items and categories
thereof, describing the condition of same and setting forth the lower of cost or
fair market value thereof, in such form as is satisfactory to you.
3.12 We shall (a) use, store and maintain the Inventory with all
reasonable care and cation and (b) use the Inventory for lawful purposes only
and in conformity with applicable laws, ordinances, regulations and insurance
policies.
3.13 We assume all responsibility and liability arising from or
relating to the use, sale or other disposition of the Inventory and other
Collateral.
Section 4. INDEMNIFICATION AND RELEASE
4.1 We shall and do hereby indemnify you and hold you harmless from and
against, and agree to pay you on demand the amount of, any and all losses,
costs, claims, demands, causes of action, liabilities or expenses (collectively,
"Liabilities") which you may suffer or incur arising from or in connection with
any transactions or occurrences relating to any Credit, the Collateral and any
documents, drafts or acceptances thereunder or relating thereto, including, but
not limited to, liabilities due to any action taken by any bank or other issuer
or correspondent with respect to any Credit. We further agree to and do hereby
release and hold you harmless for any errors, delays or omissions whether caused
by you, by any bank or other issuer or correspondent or otherwise. Our
unconditional obligation to you hereunder shall not be modified or diminished
for any reason or in any manner whatsoever. Any fees, commissions or other
charges made to you with respect to any Credit or other Obligations by any bank
or other issuer or correspondent thereof shall be conclusive and may be charged
by you to any of our account(s) maintained by you.
4.2 The drawer under or beneficiary of any Credit (or any assignee or
transferee thereof) shall be deemed our agent and we assume all risk, loss,
liabilities, charges and expenses with respect to their acts or omissions.
4.3 You shall not be responsible for and are hereby released from any
liability for; (a) the existence, character, quality, quantity, condition,
packing, value or delivery of the property purporting to be represented by any
documents; (b)
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any difference in character, quality, quantity, condition, packing, value or
delivery of the property from that expressed in documents; (c) the validity,
sufficiency or genuineness of any documents or drafts, or if any endorsements
thereon, even if such documents, rafts or endorsements should in fact prove to
be in any or all respects invalid, insufficient, altered, fraudulent or forged;
(d) the time, place, manner or order in which shipment is made; (e) any or all
transhipments, partial or incomplete shipment or failure or omission to ship any
or all of the property referred to in any Credit, documents or drafts, (f) the
character, adequacy, validity or genuiness of any insurance or the solvency or
responsibility of any insured, or for any other risk connected with insurance;
(g) any deviation from instructions, delay, default or fraud by the shipper
and/or anyone else in connection with the property or the shipping thereof; (h)
the solvency, responsibility or relationship to the property of any party
issuing any documents in connection with such property; (i) delay in arrival or
failure to arrive of either the property or any party issuing any documents in
connection with failure to give notice of arrival or any other notice; (j) any
breach of contract between the shippers or vendors and us, or any laws, customs
and regulations which may be effective in countries of negotiation and/or
payment of any Credit; (k) failure of any draft or documents to bear any
reference or adequate reference to any Credit or failure of documents to
accompany any draft at negotiation, or failure of any person to note the amount
of any document or draft on the reverse of any Credit or to surrender to take up
any Credit or to forward documents other than the amount of any document or
draft on the reverse of any Credit or surrender or take up any Credit or to
forward documents other than drafts as required by the terms of any Credit; or
(1) any other act or omission with respect to the Collateral or any Credit; each
of which provisions, if contained in any Credit itself, may be waived by you.
4.4 If any Credit provides that payment is to be made by any bank,
other issuer or correspondent, you shall not be responsible for the failure of
any of the documents specified in any Credit to come into your possession or for
any delay in connection therewith, and our obligation to make reimbursement
shall not be affected by such failure or delay in the receipt by you of any such
documents.
4.5 We agree that any action taken by you, or any action taken by any
bank or other issuer or correspondent under or in connection with any Credit,
the Collateral and any documents, drafts or acceptances thereunder, shall,
notwithstanding any judgement or instructions we may or may not express to the
contrary or inconsistent therewith, be conclusive and binding on us and shall
not create any resulting liability to you. In furtherance thereof, you shall
have the full and sole right and authority to: (a) clear and resolve any
questions of noncompliance of documents; (b) give any instructions as to
acceptance or rejection of any documents or goods; (c) execute any and all
applications for steamship or airway guaranties, indemnities or delivery orders:
(d) grant any extensions of the maturity of, time of payment for, or time of
presentation of, any drafts, acceptances, or documents; and (e) agree to any
amendments, renewals, extensions, modifications, changes or cancellations or any
of the terms or conditions of any of the applications, Credits, or documents,
drafts or acceptances thereunder or any letters of credit. Included in the
Collateral; all in your sole name, and any bank or other issuer or correspondent
shall be entitled to comply with and honor any and all such documents or
instruments executed by or received solely from you, all without notice to or
any consent from us.
4.6 Without you express consent and endorsement in writing, we agree
not to: (a) approve or resolve any questions of non-compliance of documents; (b)
give any instructions as to acceptance or rejection of any documents or goods;
(c) execute any and all applications for steamship of airway guaranties,
indemnities or delivery orders; (d) grant any extensions of the maturity of,
time of payment for, or time of presentation of, any drafts, acceptances or
documents; or (e) agree to any amendments, renewals, extensions, modifications,
changes or cancellations of any of the terms or conditions of any of the
applications, Credits, or document, drafts or acceptances thereunder.
4.7 Any rights, remedies, duties or obligations granted or undertaken
by us to any bank or other issuer or correspondent in any application for any
Credit, or any outstanding agreement relating to the opening or issuance of any
Credit or acceptances or otherwise, shall be deemed to have been granted to you
and apply in all respects to you and shall be in addition to any rights,
remedies, duties or obligations contained herein.
4.8 Any duties or obligations undertaken by you to any bank or other
issuer or correspondent in any application of or in connection with any Credit,
or any outstanding agreement relating to the opening or issuance of any Credit
or otherwise, shall be deemed to have been undertaken by us and apply in all
respects to us and shall be in addition to the duties or obligations contained
herein.
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Section 5. ADDITIONAL REMEDIES
Upon the occurrence of any Event of Default and at any time thereafter;
you shall have the right (in addition to any other rights you may have under the
Agreement, this Supplement or otherwise), without notice to us, at any time and
from time to time, in your discretion, with or without judicial process or the
aid or assistance of others and without the cost to you:
5.1 To enter upon any premises on or in which any of the Inventory may
be located and, without resistance or interference by us, take possession of the
Inventory;
5.2 To complete processing, manufacturing, repair and shipment to
customers of all or any portion of the inventory;
5.3 To sell, foreclose or otherwise dispose of any part or all of the
Inventory on or in any of our premises or premises of any other party;
5.4 To require us, at our expense, to assemble and make available to
you any part or all of the Inventory at any place and time designated by you;
5.5 To remove any or all of the Inventory from any premises on or in
which the same may be located, for the purpose of affecting the sale,
foreclosure or other disposition thereof or for any other purpose (and if any of
the Inventory consists of motor vehicles, you may use our registrations and
license plates).
IN WITNESS WHEREOF, we have caused these presents to be duly executed
this 22nd day of September 1998.
NITCHES, INC.
By: /s/ Steven P. Wyandt
--------------------------------------
Steven P. Wyandt, President and
Secretary
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SCHEDULE A
LOCATIONS OF COLLATERAL
MATS (FREIGHT FORWARD)
9060 ACTIVITY ROAD, SUITE C
SAN DIEGO, CA 92126
10280 CAMINO SANTA FE
SAN DIEGO, CA 92121
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INVENTORY SECURITY AGREEMENT
SUPPLEMENT TO FACTORING AGREEMENT
CONGRESS TALCOTT CORPORATION (WESTERN)
5670 Wilshire Boulevard, Suite 1750
Los Angeles, CA 90036
Gentlemen:
This Inventory Security Agreement ("Supplement") is a supplement to the
Factoring Agreement between us, dated October 1, 1998 (the "Agreement"). This
Supplement is (a) hereby incorporated into the Agreement, (b) made a part
thereof and (c) is subject to the other terms, conditions, covenants and
warranties thereof. All terms, including capitalized terms, used herein shall
have the meanings ascribed to them respectively in the Agreement, unless
otherwise defined in this Supplement.
SECTION 1. ADDITIONAL SECURITY INTEREST
As additional security for the prompt performance, observance and
payment in full of all obligations, we hereby grant to you a continuing security
interest in, a lien upon, and a right of setoff against, and we hereby assign,
transfer, pledge and set over to you the following:
1.1 All raw materials, work in progress, finished goods, and all other
inventory of whatsoever kind or nature, wherever located, whether now owned
thereafter existing or acquired by us ("Inventory"), including without
limitation, all wrapping, packaging, advertising, shipping materials, and all
other goods consumed in our business, all labels and other devices, names or
marks affixed or to be affixed thereto for purposes of selling or of
indentifying the same or the seller or manufacturer thereof and all of our
interest, title and interest therein and thereto,
1.2 All books, records, documents, other property and general tangibles
at any time relating to Inventory;
1.3 All products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and any claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
Section 2. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS.
We hereby represent, warrant and covenant to you the following (which
shall survive the execution and delivery of this Supplement), the depth and
accuracy of which, and compliance with, being a continuing addition of the
making of advances by you under the Agreement or any other supplement thereto.
2.1 The only locations of any Inventory are those addresses listed on
Schedule A annexed hereto and make a part hereof. Schedule A sets forth owner
and/or operator of the premises at such addresses, for all locations which we do
not own and operate and all mortgages, if any, with respect to the premises. We
shall not remove any Inventory from such locations, without our prior written
consent, except for sales of Inventory in the ordinary course of our business.
2.2 We shall at all times maintain, with financially sound and
rebuttable insurers, casualty and hazard insurance with respect to the Inventory
for not less than its full market value and against all risks to which it may be
imposed. All such insurance policies shall be in such form, substance, amounts
and coverage as may be satisfactory to you and shall provide for thirty (30)
days minimum prior cancellation notice in writing to you. You may act as
attorney for us in obtaining, adjusting, settling amending and canceling all
such insurance. We shall promptly (a) obtain endorsements to all existing and
future insurance policies with respect to the Inventory specifying that the
proceeds of such insurance shall be payable to you
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and us as interest may appear and further specifying that you shall be paid
regardless of any act, omission, or breach of warranty by us, (b) deliver to you
an original executed copy of, or executed certificate of insurance carrier with
respect to such endorsement and, at your request, (c) the original or certified
duplicate copy of the underlying insurance policy, and (d) deliver to you such
other evidence with is satisfactory to you of compliance with the provisions
hereunder.
2.3 We shall promptly notify you in writing of the details of amy loss,
damage, investigation, action, suit, proceeding or claim relating to the
Inventory or which would result in any material adverse change in our business,
properties, assets, goodwill or condition, financial or otherwise.
2.4 At your option, you may apply any insurance monies received at any
time to the cost of repairs to or replacement for the Inventory and/or to
payment of any of the Obligations, whether or not due, in any order and in any
manner as you, in your sole discretion, may determine.
2.5 Upon your request, at any time and from time to time, we shall, at
the sole cost and expense, execute and deliver to you written reports or
appraisals as to the Inventory listing all items and categories thereof,
describing the condition of same and setting forth the lower of cost or fair
market value thereof, in such form as is satisfactory to you.
2.6 We shall (a) use, store and maintain the Inventory with all
reasonable care and caution, and (b) use the Inventory for lawful purposes only
and in conformity with applicable laws, ordinances and regulations.
2.7 All Inventory shall be produced in accordance with the requirements
the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto.
2.8 We assume all responsibility and liability arising from or relating
to the use, sale, or other disposition of the Inventory.
Section 3. ADDITIONAL REMEDIES
Upon the occurrence of any Event of Default and at any time thereafter,
you shall have the right (in addition to any other rights you may have under the
Agreement, this Supplement or otherwise), without notice to us at any time and
from time to time, in your discretion, with or without judicial process or the
aid or assistance of others and without cost to you:
3.1 To enter upon any premises on or in which any of the Inventory may
be located and, without resistance or interference by us, take possession of the
Inventory,
3.2 To complete processing, manufacturing and repair of all or any
addition of the Inventory,
3.3 To sell, foreclose or otherwise dispose of any part or all of the
inventory on or in any of our premises or premises of any other party;
3.4 To require us, at our expense, to assemble and make available to
any part or all of the Inventory at any place and time designated by you;
3.5 To remove any or all of the Inventory from any premises on or in
which the same may be located, for the purpose of effecting the sale,
foreclosure or other disposition thereof or for any other purpose (and if any of
the Inventory consists of motor vehicles, you may use our registrations or
license plates).
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IN WITNESS WHEREOF, we have caused these presents to be duly executed
this 22nd day of September, 1998
NITCHES, INC.
By: /s/ Steven P. Wyandt
--------------------------------------
Steven P. Wyandt, President and
Secretary
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SCHEDULE A
INVENTORY SECURITY AGREEMENT
SUPPLEMENT TO FACTORING AGREEMENT
LOCATIONS OF INVENTORY
MATTS (FREIGHT FORWARD)
9060 ACTIVITY ROAD, SUITE C
SAN DIEGO, CA 92126
10280 CAMINO SANTA FE
SAN DIEGO ,CA 92121
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FINANCIAL COVENANTS AGREEMENT
(SUPPLEMENT TO FACTORING AGREEMENT)
October 1, 1998
NITCHES, INC.
10280 Camino Santa Fe
San Diego, CA 92121
Attn: Steven P. Wyandt
Dear Steve,
This will confirm our agreement, in conjunction with the notification
Factoring Agreement ("Contract"), dated October 1, 1998, between Nitches, Inc.
("Nitches") and Congress Talcott Corporation (Western), that Nitches agrees to
maintain certain financial covenants during the term of the contract as set
forth below:
A. "Tangible Net Worth": Not less than $5,000,000.
"As used herein, 'tangible net worth' means the excess of
total assets over total liabilities, determined in accordance
with generally accepted accounting principles, excluding
however all assets which would be classified as intangible
assets under generally accepted accounting principles,
including, without limitation, goodwill, licenses, patents,
trademarks, trade names, copyrights, and franchises."
B. "Working Capital": Not less than $5,000,000.
"As used herein, 'working capital' means the excess of current
assets over current liabilities, determined in accordance with
generally accepted accounting principles."
This letter agreement supplements the Factoring Agreement, and a breach of the
financial covenants set forth above will constitute an event of default under
the Factoring Agreement.
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This letter agreement may not be modified or amended, nor may any rights
hereunder be waived, except in a writing signed by you and us.
Sincerely,
CONGRESS TALCOTT
CORPORATION (WESTERN)
By: /s/ Louis J. Sulpizio
--------------------------------------
Louis J. Sulpizio, Sr. Vice President
ACCEPTED AND AGREED:
NITCHES, INC.
By: /s/ Steven P. Wyandt
------------------------------------------
Steven P. Wyandt, President and Secretary
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Nitches, Inc.
10280 Camino Santa Fe
San Diego, CA 92121
Re: AGREEMENT TO ISSUE LETTER OF CREDIT GUARANTIES
Gentlemen:
We refer to the various factoring arrangements between CONGRESS TALCOTT
CORPORATION (WESTERN) ("Congress") and NITCHES, INC. ("Company"), including,
without limitation, that certain Discount Factoring Agreement dated October 1,
1998, as amended from time to time (the "Factoring Agreement"). [We refer also
to those certain Continuing Guaranties (collectively, the "Guaranties") executed
by those persons on the signature page hereof (collectively, "Guarantors") with
respect to indebtedness owing by the Company to Congress.] All capitalized terms
used herein, unless otherwise defined, shall have the meanings assigned to such
terms in the Factoring Agreement.
You have requested that, from time to time, we guaranty the payment of letters
of credit ("Letters") issued by FIRST UNION ("Bank") for the benefit of certain
of your foreign suppliers covering your purchases of goods imported by you from
such suppliers ("Letters").
This letter will confirm our agreement pursuant to which we, at our sole
discretion, may guaranty the payment of Letters, subject to the terms and
conditions stated below.
Section 4. Each Letter shall be drawn for a valid purchase of merchandise and
shall be issued for payment at sight. Company shall furnish Congress with the
application for issuance of each Letter. Provided that all of the following
conditions are satisfied, Congress shall guaranty the payment of drafts (each a
"Draft") drawn and honored pursuant to the Letter issued in connection with such
application: (a) no Event of Default under the Factoring Agreement or the
Guaranties has occurred; (b) such application, including the amount and all
terms of the Letter to be issued, is acceptable to Congress, in its sole
discretion; and (c) Company has funds available for advances pursuant to the
terms of the Factoring Agreement.
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Section 5. Each Letter must have an expiry date which is on or before thirty
(30) days prior to the end of the current term of the Factoring Agreement.
Section 6. Company shall instruct Bank to deliver to Congress copies of each
Draft and all documents accompanying such Draft at the time of their
presentment.
Section 7. No extensions, modifications or amendments to Letters, the payment of
which Congress has guarantied, shall be made without Congress' prior written
consent.
Section 8. In no event shall the aggregate liability of Congress under all
guarantied Letters exceed $8,500,000.00.
SECTION 9. [COMPANY AUTHORIZES AND DIRECTS CONGRESS TO ESTABLISH RESERVES IN THE
AGGREGATE AMOUNT OF ALL GUARANTIED LETTERS OUTSTANDING FROM TIME TO TIME AGAINST
SUMS OTHERWISE AVAILABLE TO COMPANY FOR ADVANCES UNDER THE FACTORING AGREEMENT.]
Section 10. All payments made by Congress in connection with Letters guarantied
by Congress shall be considered to be part of the Obligations, shall be payable
on demand, shall bear interest at the rate provided in the Factoring Agreement
and shall be secured by all collateral now or hereafter assigned, pledged or
granted to Congress by Company under the Factoring Agreement or any other
agreement between Congress and Company including, without limitation, a purchase
money security interest in the inventory that is covered by Letters.
Section 11. For and in consideration of the issuance of the guaranties
contemplated herein, Company agrees to pay to Congress the following fees:
A. Company shall pay to Congress, concurrent with the issuance of each
Letter, a fee in an amount equal to one eighth of one percent (1/8%) of the face
amount of each Letter guarantied by Congress.
B. To the extent a Letter remains outstanding, in whole or in part, for
more than thirty (30) days, then for each additional thirty (30) day period or
part thereof, Company shall pay to Congress a monthly charge equal to one eighth
of one percent (1/8%) of the undrawn portion of such Letter.
Section 12. Company shall pay, and Congress may charge Company's account with,
all charges, fees and expenses arising from or in connection with Bank's
issuance of Letters.
Section 13. Company acknowledges that neither this Agreement nor any guaranty of
a Letter by Congress as provided hereunder shall in any way be construed to
create any liability, obligation, warranty or representation on Congress' part
with respect to any matter other than Congress' obligation to make payment of
any Letter guarantied by Congress. Neither Congress nor any Bank issuing a
Letter shall not be responsible for: (a) verifying the existence of any act,
condition or statement made by a beneficiary of a Letter in relation to its
drawing or presentment under the
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Letter or for verifying or passing judgment on the reasonableness of any
statement made by the beneficiary of the Letter; (b) the validity, sufficiency
or genuineness of documents, even if such documents should in fact prove to be
in any or all respects invalid, insufficient, fraudulent or forged; (c) failure
to give any notice; or (d) any breach of contract between the beneficiary of the
Letter and Company. Furthermore, neither Congress nor any such Bank shall be
responsible for errors, omissions, interruptions or delays in transmission or
delivery of any messages, by mail, cable, telegraph or otherwise; and none of
the above shall affect or impair any of Congress rights or powers hereunder. In
furtherance of the foregoing, Company agrees that, absent gross negligence or
willful misconduct on Congress' part, any action taken or not taken by Congress
or by any Bank, under or in connection with a Letter or the related Draft or
documents shall be binding on Company and shall not make Congress liable to
Company.
Section 14. The execution hereof by Company shall be a continuing authorization
and direction to Congress to pay Bank all amounts due with respect to each
Letter guarantied by Congress from any funds of Company in the hands of or under
the control of Congress and such payment shall be considered made for the
benefit of and at the request of Company.
Section 15. Company shall, on demand, reimburse Congress for any and all sums
paid by Congress in any way relating to Letters guarantied by Congress and for
all costs, fees and expenses, including attorneys' fees, incurred by Congress
based upon or arising under this Agreement and Company shall indemnify Congress
and hold Congress harmless from and against any and all liability, loss, costs,
fees and expenses, including attorneys' fees, that Congress may sustain or incur
based upon, arising under, or in any way relating to any Letter guarantied by
Congress. Company's obligation to reimburse and indemnify Congress shall be
conclusive but shall not prejudice any rights Company may have against any other
person in the event that Company disputes liability of any amounts owing under
any Letter guarantied by Congress.
Section 16. Company hereby authorizes Congress to debit Company's account for
all amounts due under this Agreement.
Section 17. This Agreement may be terminated by Congress at any time, and such
termination shall be effective upon Congress' giving notice of termination;
provided, however, that such termination shall not affect the rights and
obligations of the parties hereto with respect to Letters guarantied by Congress
prior to the date of such termination.
To induce Congress to enter into this Agreement, the Company represents and
warrants that no violations of the terms of the Factoring Agreement exist, that
all representations and warranties contained in the Factoring Agreement exist,
that all representations and warranties contained in the Factoring Agreement are
true, correct and complete in all material respects on and as of the date
hereof, and that said agreement shall remain in full force and effect and is
hereby confirmed affirmed and ratified.
Each of the Guarantors hereby acknowledges that it has read this Agreement and
consents to the terms thereof and further hereby confirms and agrees that the
obligations of such Guarantors under
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the Guaranties shall not be impaired or affected by the Agreement and each of
the Guaranties is, and shall continue to be, in full force and effect and is
hereby confirmed and ratified in all respects.
If the foregoing is in accordance with your understanding of our agreement,
please so indicate by signing in the place and manner provided below.
Sincerely yours,
CONGRESS TALCOTT CORPORATION (WESTERN)
By: /s/ Louis J. Sulpizio
-----------------------------------------
Louis J. Sulpizio, Senior Vice President
Accepted and Agreed:
NITCHES, INC.
By: /s/ Steven P. Wyandt
-----------------------------------------
Steven P. Wyandt, President and
Chief Executive Officer
Guarantors:
By:
-----------------------------------------
Title:
--------------------------------------
25
