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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 3
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 8. Additional Information
(e) The Company is extending its tender offer to purchase up to
1,000,000 shares of common stock at $4.00 per share until 5:00 p.m. Eastern
Daylight Time, on Wednesday, October 21, 1998. The Offer to Purchase up to
1,000,000 shares of outstanding common stock for a cash price $4.00 per share
was to expire at 5:00 p.m. Eastern Daylight Time, October 7, 1998. The extension
is to provide investors an opportunity to review revisions to the Company's
Offer to Purchase which is being filed with this Amendment No. 3 to Schedule
13E-4.
The Offer to Purchase has been revised to reflect that as a
result of the year end audit, the Company has determined that the merger of its
wholly-owned subsidiary, Body Drama, Inc., into the Company as of August 31,
1998 resulted in the elimination of the deferred tax liability for financial
reporting purposes only. Accordingly, a $972,000 deferred tax liability has been
eliminated from the Company's pro forma balance sheet for the period ended May
31, 1998, resulting in pro forma shareholders equity of $7,165,000 and a pro
forma book value of $7.08 per share as of May 31, 1998 after giving effect to
the Offer. Similarly, the pro forma statement of operations data has been
revised to include an extraordinary tax benefit of $972,000, which results in
pro forma net income of $480,000 or $.38 per share for the period ended May 31,
1998. All other terms and conditions to the tender offer remain unchanged.
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.(1)
Exhibit 99.(a)-12 - Letter to Shareholders extending the Expiration Date to October 21, 1998.
Exhibit 99.(a)-13 - Form of Press Release announcing extension of the Expiration Date to October 21,
1998.
Exhibit 99.(b) - Discount Factoring Agreement (including related agreements), effective
October 1, 1998, between the Company and Congress Talcott Corporation (Western).(1)
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)
</TABLE>
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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 Companys Quarterly Report on Form 10-Q was
previously filed with the SEC on July 15, 1998.
2
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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: October 7, 1998
3
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Exhibit Index
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<S> <C>
99.(a)-1 Revised form of Offer to Purchase
99.(a)-12 Letter to Shareholders extending the Expiration Date.
99.(a)-13 Form of Press Release extending the Expiration Date.
</TABLE>
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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 21, 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 9
8. Source and Amount of Funds 10
9. Background and Purpose of the Offer 10
10. Certain Information About the Company 11
11. Effects of the Offer on the Market for Shares; Registration 17
under the Exchange Act
12. Certain Legal Matters; Regulatory Approval 18
13. Certain Federal Income Tax Consequences 18
14. Certain Limitation on Purchases of Shares by the Company 20
15. Extension of the Tender Period; Termination; Amendments 21
16. Fees and Expenses 21
17. Miscellaneous 22
SCHEDULE I 23
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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.
<PAGE> 5
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 21, 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
3
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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
4
<PAGE> 8
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 -- 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)(c) --
Shareholders Equity 10,268,000 (3,103,000) 7,165,000
------------ ------------ ------------
$ 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 $ 1.98 $ 7.08
============ ============ ============
</TABLE>
(See notes and pro forma adjustments 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 Pro Forma Historical 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 (1,121,000)(c) (996,000) (195,000)(1,091,000)(c) (1,286,000)
---------- ---------- ---------- ----------
Net income (loss) $195,000 $934,000 ($306,000) $480,000
========= ========= ========= =========
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 $.60 ($.14) $.38
========= ========= ========= =========
</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 and the short form merger described below in footnote (c) had
occurred as of September 1, 1996. The unaudited pro forma balance sheet
assumes the Offer and the short form merger described below in footnote
(c) 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 statements also include the effect of the
merger described in note (c) below as if the transaction had occurred
during each of the historical periods presented.
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 be
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) As a result of the year end audit, the Company has
determined that the merger of its wholly-owned
subsidiary, Body Drama, Inc., into the Company as of
August 31, 1998 resulted in the elimination of the
deferred tax liability for financial reporting
purposes only. On the Pro forma Consolidated
Statement of Operations income tax expense is reduced
by $119,000 in 1997 and $149,000 in 1998 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.
Income tax expense is further reduced by $972,000 in
each period, reflecting the reversal of a deferred
income tax liability as a result of the August 31,
1998 merger of Nitches, Inc. and its wholly-owned
subsidiary Body Drama, Inc.
(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>
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<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
N:\DMS\JAM\1316435.05
25
<PAGE> 1
Exhibit 99.(a)-12
Letter to Shareholders
October 7, 1998
To Our Shareholders:
Nitches, Inc. is extending the expiration date of its recent tender offer for
its shares until 5:00 p.m., Eastern Daylight Time, Wednesday, October 21, 1998.
The Offer to Purchase up to 1,000,000 shares of outstanding common stock for a
cash price $4.00 per share was to expire at 5:00 p.m. Eastern Daylight Time,
October 7, 1998. The extension is to provide investors an opportunity to review
revisions to the Company's Offer to Purchase which is enclosed for your review.
All other terms and conditions to the tender offer remain unchanged.
The Offer to Purchase has been revised to reflect that as a result of the year
end audit, the Company has determined that the merger of its wholly-owned
subsidiary, Body Drama, Inc., into the Company as of August 31, 1998 resulted in
the elimination of the deferred tax liability for financial reporting purposes
only. Accordingly, a $972,000 deferred tax liability has been eliminated from
the Company's pro forma balance sheet for the period ended May 31, 1998,
resulting in pro forma shareholders equity of $7,165,000 and a pro forma book
value of $7.08 per share as of May 31, 1998 after giving effect to the Offer.
Similarly, the pro forma statement of operations data has been revised to
include an extraordinary tax benefit of $972,000, which results in pro forma net
income of $480,000 or $.38 per share for the period ended May 31, 1998.
The tender offer had previously been extended to October 7, 1998 to provide our
shareholders an opportunity to review other changes to the Offer to Purchase,
including revisions that resulted from the Company's new Discount Factoring
Agreement and related documents with Congress Talcott Corporation (Western).
The Offer to Purchase is part of Amendment No. 3 to the Company's Schedule 13E-4
that was filed electronically with the SEC. Copies of the complete filing 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. Additional information may be
obtained from the information agent for the offer, D.F. King & Co., Inc. at
(800) 347-4750.
Sincerely,
Steven P. Wyandt
President
<PAGE> 1
Exhibit 99.(a)-13
Form of Press Release
FOR IMMEDIATE RELEASE
SUBJECT: Expiration Date for Tender Offer extended to 5:00 p.m., Eastern
Daylight Time, Wednesday, October 21, 1998.
CONTACT: D.F. King & Co., Inc. (800) 347-4750
SAN DIEGO, CALIFORNIA, OCTOBER 7, 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 21, 1998. The Offer to Purchase up to 1,000,000
shares of outstanding common stock for a cash price $4.00 per share was
to expire at 5:00 p.m. Eastern Daylight Time, October 7, 1998. The
extension is to provide investors an opportunity to review revisions to
the Company's Offer to Purchase which was filed with the Company's
Amendment No. 3 to Schedule 13E-4.
The Offer to Purchase has been revised to reflect that as a result of
the year end audit, the Company has determined that the merger of its
wholly-owned subsidiary, Body Drama, Inc., into the Company as of August
31, 1998 resulted in the elimination of the deferred tax liability for
financial reporting purposes only. Accordingly, a $972,000 deferred tax
liability has been eliminated from the Company's pro forma balance sheet
for the period ended May 31, 1998, resulting in pro forma shareholders
equity of $7,165,000 and a pro forma book value of $7.08 per share as of
May 31, 1998 after giving effect to the Offer. Similarly, the pro forma
statement of operations data has been revised to include an
extraordinary tax benefit of $972,000, which results in pro forma net
income of $480,000 or $.38 per share for the period ended May 31, 1998.
All other terms and conditions to the tender offer remain unchanged.
Copies of the Amendment No. 3 to Schedule 13E-4, including the revised
Offer to Purchase 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. Additional
information may be obtained from the information agent for the offer,
D.F. King & Co., Inc. at (800) 347-4750.
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