SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
[X] Annual Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended October 31, 1996
OR
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.: 0-19000
JIM HJELM'S PRIVATE COLLECTION, LTD.
(Name of Small Business Issuer in its charter)
Delaware 13-3337553
(State or other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification Number)
225 West 37th Street, 5th Floor, New York, New York 10018
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (212) 921-7058
Securities registered pursuant to Section 12(b) of the Exchange
Act: None
Securities registered pursuant to Section 12(g) of the Exchange
Act:
Common Stock, par value $.0002 per share
(Title of class)
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the
past 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B is contained herein, and no disclosure
will be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-KSB or any amendment to this
Form 10-KSB [X].
The issuer's revenues for its most recent fiscal year were
$12,642,141.
The aggregate market value of the shares of Common Stock held by
non-affiliates as reported by NASDAQ on February 7, 1997 was
approximately $6,602,897.
As of February 7, 1997, the Registrant had outstanding 1,722,323
shares of Common Stock, par value $.0002 per share.
The Proxy Statement of the registrant to be filed on or before
February 28, 1997 is incorporated herein by reference.
<PAGE>
PART I
Item 1. Description of Business.
(a) Background. Jim Hjelm's Private Collection, Ltd. (the
"Company"), a Delaware corporation, was organized in April 1986 to
design, manufacture and market high quality (sometimes referred to
in the industry as "couture quality"), bridal wear and related
accessories, including bridesmaid gowns.
(b) Business. The Company is engaged in the design,
manufacture and distribution of bridal gowns, veils and in the
fiscal year ended October 31, 1994 ("Fiscal 1994"), the Company
launched the "Occasions" collection of bridesmaid gowns.
Manufacturing: The Company's couture lines of bridal gowns,
bridesmaid gowns, veils and related items (the "Private Collection"
and the "Lazaro" line) emphasize contemporary and traditional
styles characterized by ankle or floor length gowns, with or
without trains, and are principally constructed in satin, silk and
lace. The Company's designs reflect the Company's emphasis on
quality and design originality. Wholesale prices for these lines
of the Company's bridesmaid and bridal gowns range from $90 to $120
and $725 to $1,250, respectively, with suggested retail prices
ranging from $180 to $240 for bridesmaid gowns and $1,500 to $2,500
for bridal gowns.
The Company also produces a secondary line of less expensive
bridal gowns called "Visions," which employs styling that is
comparable to the Company's couture lines, but is constructed from
less expensive fabrics. The wholesale prices for bridal gowns in
the "Visions" line range from $350 to $550 and the retail prices
range from $700 to $1,100.
The Company utilizes the efforts of its employees and several
independent contractors to assemble its dresses. The Company
maintains strict quality control over the contractors and supplies
the contractors with cut pattern pieces. There are no written
agreements between the Company and these contractors, enabling the
Company to utilize each contractor on an as-needed basis. The
Company also makes custom alterations on its basic designs at a
customer's request. The Company charges the customer for custom
alterations.
The Company has identified quality bridal boutiques or bridal
departments in women's high fashion clothing stores to market its
products. During its fiscal year ended October 31, 1996 ("Fiscal
1996"), no customer accounted for more than ten percent of the
Company's sales.
The Company's lines of gowns for its next season are
introduced at fashion shows held at the Company's showroom or at
fashion shows held at a New York City hotel. The Company also
displays its products at regional markets and seasonal bridal
fashion shows sponsored by its retail customers at the retail
customer's showroom, sometimes called "trunk shows." These trunk
shows are generally supported with local advertising paid for by
the Company's retail customer.
The Company has three principal designers. Mr. Jim Hjelm has
been designing bridal gowns and related items for approximately 25
years. He began his career as a bridal designer with the House of
Bianchi, and then served as the head designer of Priscilla of
Boston, for 18 years. From 1980 until he left in 1986 to co-found
the Company with Mr. Joseph L. Murphy, he was a principal designer
for Galina Bouquet, New York, another couture quality bridal gown
manufacturer. While at Priscilla of Boston, he personally designed
the wedding gowns for the daughters of President Johnson and
President Nixon.
Mr. Lazaro Perez is the Company's second bridal gown designer.
Lazaro (the name under which Mr. Perez designs) had previously
designed for Riccio, and studied at Chicago's Ray College of
Design, where he won an award for "Best New Bridal Designer."
Lazaro's designs have enabled the Company to diversify and add
depth to its product lines. Lazaro's dresses are marketed by the
Company under the name "Lazaro."
Mr. Bill Pesce, the Company's third designer, has designed the
Company's "Jim Hjelm's Occasions" collection of bridesmaid gowns
for the past four seasons and was recently awarded the Debi award
in Chicago for best design of bridesmaid gown. Mr. Pesce also
designs the Company's "Visions" bridal gowns.
All three designers are frequently featured in articles and
advertisements published in Bride's and Your New Home and Modern
Bride magazines. Major fashion department stores and bridal
boutiques have featured all three designers and their work in
advertisements, in store customer showings, and in retail area
displays.
Each designer also participates in the Company's marketing
efforts by appearing at seasonal bridal fashion shows and trunk
shows, and otherwise being available for showing the Company's
lines of bridal products. The Company also employs a full-time
sales manager and four salespeople.
The Company advertises in periodicals and other publications
dealing with the bridal industry in advance of and during each
bridal season. The Company's dresses have been advertised in
Bride's and Your New Home and Modern Bride magazines. This
advertising is directed toward displaying the Company's products in
a manner that enhances the general perception of the quality of the
Company's gowns and the Company's reputation.
The primary raw materials necessary for the Company's business
are quality fabrics, such as silks, taffetas and laces. The
Company maintains a minimum inventory of these raw materials.
Generally, the Company is able to obtain necessary materials
relatively easily.
Although the bridal industry is seasonal, with showings to
retail buyers in advance of the Spring and Fall seasons, the
Company's business has only experienced slight seasonal
fluctuations, with a slight decrease in its fourth quarter.
The couture-quality traditional bridal wear industry is highly
competitive. In marketing its bridalwear and bridesmaid gowns, the
Company competes directly with the House of Bianchi, Priscilla of
Boston, Amsale, Richard Glasgow, the Diamond Collection, Watters &
Watters, Bari Jay, and others who currently market high fashion
traditional bridal wear. Competition with these firms is intense.
Although the Company's sales represent a small percentage of the
bridal gown market (less than one percent), the Company competes on
the basis of prestige, design, quality, service and price.
In its marketing efforts, the Company emphasizes the couture
quality of its products and the public recognition of Jim Hjelm,
Lazaro, and Bill Pesce, including their experience and reputation
in the industry. In the Company's view, the ability of the Company
to continue to successfully compete is dependent upon the continued
development and maintenance of a line of high quality, fashionable
bridal wear and the promotion of the reputations of Jim Hjelm,
Lazaro, Bill Pesce and other recognized designers that the Company
employs.
The Company employs approximately 44 full-time employees,
including three of its executive officers.
ITEM 2. Description of Property.
The Company's executive offices and manufacturing facility are
located at 225 West 37th Street, New York, New York. This space is
located in Manhattan's "garment center." which primarily contains
garment manufacturers and office space. The premises are occupied
pursuant to a lease with an unaffiliated party, which expires in
January 2003. The Company's manufacturing facility consists of a
fully-equipped design and production area, which includes cutting
tables, sewing machines and other equipment required to manufacture
the Company's products. The Company also maintains showroom space
at 501 Seventh Avenue, New York, New York, pursuant to a lease with
an unaffiliated party, which expires in 2002. This space is solely
utilized to display the Company's products to buyers. The Company
maintains a permanent showroom in the Chicago bridal mart building
pursuant to a lease that runs through September 1997, with an
unaffiliated party.
ITEM 3. Legal Proceedings.
The Company is not a party to any material pending legal
proceedings, and to the best knowledge of the Company, no such
proceedings have been threatened.
ITEM 4. Submission of Matters to a Vote of Security Holders.
During the Company's fourth fiscal quarter ended October 31,
1996, no matters were submitted to a vote of the security holders
of the Company.
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
(a) The Common Stock of the Company (the "Common Stock") is
traded in the Over-the-Counter market and is quoted on the NASDAQ
System.
The following table sets forth, for the Company's last two
fiscal years, high and low bid quotations for the Common Stock.
The market quotations represent prices between dealers, do not
include retail markup, markdown, or commissions and may not
represent actual transactions.
Quarter Ended High Bid Low Bid
Fiscal 1995
January 31, 1995 1.56 .32
April 30, 1995 1.08 .56
July 31, 1995 1.00 .40
October 31, 1995 2.00 1.00
Fiscal 1996
January 31, 1996 1.24 .56
April 30, 1996 2.56 .56
July 31, 1996 3.24 1.48
October 31, 1996 6.24 1.56
On February 7, 1997, the closing bid and asked prices in the
Over-the-Counter market for the Common Stock as reported by NASDAQ
were $5.75 and $6.125, respectfully.
(b) At February 7, 1997, there were approximately 661 holders
of record of the Common Stock. The Company believes that there are
significantly more beneficial holders of the Common Stock as many
of the shares of Common Stock are held in "street" name.
(c) No cash dividends have been paid on the Common Stock, and
the Company does not anticipate paying cash dividends in the
foreseeable future.
<PAGE>
ITEM 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations - Fiscal 1996 as Compared to the fiscal year
ended October 31, 1995 ("Fiscal 1995").
For Fiscal 1996, revenues were $12,642,141 as compared to
$7,852,892 in Fiscal 1995, an increase of $4,789,249 or 61.0%.
Management attributes the increase in sales to an increase in the
sales of the Lazaro line and an increase in its "Occasions" line of
bridesmaid gowns.
The Company's gross profit margin increased in Fiscal 1996 to
38.9% from 36.0% in Fiscal 1995. The Company attributes this
increase to economies of scale from increased sales, a change in
product mix and increased account-sourcing.
Selling, general and administrative ("SG&A") expenses
decreased to 29.9% of sales in Fiscal 1996 as compared to 32.9% of
sales in Fiscal 1995. This was primarily due to increased
marketing and interest costs to support increased sales.
The Company generated net income of $470,710, or $.30 per
share ($.29 on a fully diluted basis), for Fiscal 1996 as compared
to net income of $63,586, or $.05 per share, for Fiscal 1995. The
increase in net income for Fiscal 1996 was due primarily to the
factors mentioned above.
Liquidity and Capital Resources
The Company's working capital increased to $1,985,167 at
October 31, 1996 from $1,203,642 at October 31, 1995, an increase
of $781,525. Its current ratio was 1.7 to 1 at October 31, 1996 as
compared to 1.4 to 1 at October 31, 1995.
During Fiscal 1996, net cash provided by the Company's
operating activities was $271,561 as compared to net cash used in
operating activities in Fiscal 1995 of $543,908. Cash flow in
Fiscal 1996 was generated primarily by the increase in net income.
Cash used in investment activities in Fiscal 1996 was $90,171
as compared to $18,533 in Fiscal 1995. This was due to greater
purchases of equipment during Fiscal 1996.
Cash used in financing activities in Fiscal 1996 was $134,228
as compared to cash flow provided by these activities in Fiscal
1995 of $560,000. In Fiscal 1995, the Company increased its short-
term borrowings of $330,000 as compared to the Company's decrease
in its short-term borrowings of $235,045 in Fiscal 1996.
The Company generated $230,000 from the sale of Common Stock during
Fiscal 1995 as compared to $50,000 from such activities in Fiscal
1996.
In February 1996, the Company entered into a $1,500,000
revolving loan agreement (the "Credit Line") with CBC of New York
Inc. (the "Bank"), which bears interest at the rate of 12.25% per
annum. The Credit Line was increased to $1,700,000 in July 1996.
The Bank is secured by a first lien on all of the Company's
accounts receivable and the personal guaranties of Jim Hjelm,
Joseph L. Murphy and Joseph O'Grady, officers and/or shareholders
of the Company. In December 1994, the Company obtained a short-
term line of credit of up to $200,000 from an investor to furnish
it with additional working capital. Interest under this line
accrued at the rate of six percent above the Bank's current prime
rate. This loan was paid during Fiscal 1996. In September 1995,
the Company obtained a loan from a shareholder in the amount of $100,000,
with interest accruing at the rate of 12% per annum. This loan was also
repaid during Fiscal 1996. In the event the Company defaults
under the terms of the Credit Line causing the Bank to withdraw it at
an inopportune time, the Company would likely experience serious working
capital shortages and may not be able to substitute the Credit Line with
a replacement on similar terms or at all.
In November 1966, the Company, through a private placement, raised
$328,125 in additional equity by the issuance of an aggregate of 75,000 shares
of Common Stock and an aggregate of 22,500 warrants to purchase additional
shares of Common Stock at prices ranging from $4.37 to $6.62. These funds
along with the increased Credit Line are expected to be sufficient for the
Company to meet its cash flow requirements. In the event the Bank does not
renew the Credit Line in February 1998, when it expires, and the Company is
unable to obtain a substitute line of credit, the Company would likely
experience a working capital shortage which could materially disrupt its
operations.
ITEM 7. Financial Statements.
The financial statements listed below are included on pages F-1
through F-16 following the signature page.
Title of Document Page
Report of Independent Public Accountants F-1
Balance Sheets as of October 31, 1996 and 1995 F-2-3
Statements of Operations for the years
ended October 31, 1996 and 1995 F-4
Statements of Shareholders' Equity for the
years ended October 31, 1996 and 1995 F-5
Statements of Cash Flow for the years
ended October 31, 1996 and 1995 F-6-7
Notes to Financial Statements F-8
ITEM 8. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
None.
PART III
The information required by Items 9, 10, 11 and 12 of this Part will
be incorporated by reference to the Proxy Statement of the Company to
be filed with the Securities and Exchange Commission on or before
February 28, 1997.
PART IV
ITEM 13. Exhibits and Reports on Form 8-K.
(a) Exhibits.
3.1 The Company's Certificate of Incorporation, as amended, dated
December 30, 1994, incorporated by reference to Exhibit 3.1
of the Company's annual report on Form 10-KSB filed for its
fiscal year ended October 31, 1995 ("1995 10-K").
3.2 The Company's By-Laws are incorporated by reference to Exhibit
3.03 of Registration Statement No. 33-10278 NY filed on Form
S-18 ("Form S-18").
10.1 Employment Agreement between Jim Hjelm and the Company dated
February 9, 1993, incorporated by reference to Exhibit 10.1
of the Company's annual report on Form 10-KSB filed for its
fiscal year ended October 31, 1992 ("1992 10-K").
10.2 Form of Stock Option Plan is incorporated by reference to
Exhibit 10.02 to the Form S-18.
10.3 Employment Agreement dated February 1, 1995 between
the Company and Mr. Joseph L. Murphy, incorporated by reference
to Exhibit 10.6 of the Company's 1995 10-K.
10.4 Form of Subscription Agreement issued in the private placement
that ended May 31, 1995, together with form of Registration
Rights Agreement, incorporated by reference to Exhibit 10.9 of
the Company's 1995 10-K.
10.5 Form of Subscription Agreement issued in the private placement
that ends April 30, 1996, with form of Registration Rights
Agreement, incorporated by reference to Exhibit 10.10 of the
Company's 1995 10-K.
10.6 Employment Agreement dated January 1, 1996 between the Company
and Mr. Lazaro Perez.
10.7 Form of Subscription Agreement issued in the private placement
that ended October 31, 1996, with form of Registration Rights
Agreement.
ITEM 13. Exhibits and Reports on Form 8-K.
(a) Exhibits. (Continued)
10.8 Amendment No. 1 dated June 17, 1996 to Employment Agreement
dated February 1, 1995 between the Company and Mr. Joseph
L. Murphy.
10.9 Amendment No. 1 dated February 16, 1996 to Employment
Agreement dated February 9, 1993 between the Company and
Mr. Jim Hjelm.
10.10 Loan and Security Agreement dated February 2, 1996 between
CBC of New York Inc., trading as Continental Business Credit,
and the Company.
23.1 Consent of Arthur Andersen LLP dated February 13, 1997.
(b) Reports on Form 8-K.
During the last quarter of Fiscal 1996, the Company filed no
reports on Form 8-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned thereunto duly
authorized.
JIM HJELM'S PRIVATE COLLECTION, LTD.
Dated: February 12, 1997 By:/s/ Joseph L. Murphy
President
Pursuant to the requirement of the Securities Exchange Act of 1934,
as amended, the Company has duly caused this report to be signed on its
behalf by the following persons on behalf of the Company and in the
capacitites and on the dated indicated:
Name Capacity Date
/s/ Daniel M. Sullivan Chairman of the Board February 12, 1997
Daniel M. Sullivan of Directors
/s/ Joseph L. Murphy President and Director February 12, 1997
Joseph L. Murphy (principal executive and
financial officer)
Secretary and Director February , 1997
Joseph E. O'Grady
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Jim Hjelm's Private Collection, Ltd.:
We have audited the accompanying balance sheets of Jim Hjelm's Private
Collection, Ltd. (a Delaware corporation) as of October 31, 1996 and
1995, and the related statements of operations, shareholders' equity
and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and dislosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Jim
Hjelm's Private Collection, Ltd. as of October 31, 1996 and 1995, and
the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
January 27, 1997
<TABLE>
<CAPTION>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Balance Sheets as of
October 31, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash $ 83,807 $ 36,645
Accounts receivable, net of
allowance for doubtful
accounts, trade discounts
and sales returns of $196,308
at October 31, 1996 and $121,670
at October 31, 1995 2,590,706 1,869,711
Inventories 1,734,491 1,795,840
Prepaid expenses and other
current assets 289,522 498,691
--------- ---------
Total current assets 4,698,526 4,200,887
Property and equipment, net 231,244 196,749
Other assets 194,695 128,711
--------- ---------
$5,124,465 $4,526,347
========= =========
F-2
<CAPTION>
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Balance Sheets as of
October 31, 1996 and 1995
(continued)
1996 1995
---- ----
<S> <C> <C>
Current liabilities:
Note payable $1,064,955 $1,300,000
Accounts payable 850,596 1,227,939
Payroll taxes payable 97,728 384,365
Income taxes payable 263,946 10,600
Accrued expenses and
other current liabilities 436,134 74,341
--------- ---------
Total current liabilities 2,713,359 2,997,245
Other liabilities 71,937 74,056
Commitments and contingencies
(Note 10)
Shareholders' equity:
Preferred stock, $.0001 par
value: Authorized 1,000,000
shares, Issued and outstanding - -
- none
Common stock, $.0002 par
value: Authorized 10,000,000
shares, Issued and outstand-
ing - 1,637,823 at October
31, 1996 and 1,372,803 at
October 31, 1995 328 275
Additional paid-in capital 2,071,572 1,652,087
Accumulated earnings (deficit) 331,009 (139,701)
--------- ----------
2,402,909 1,512,661
Less: Note receivable and
accrued interest 58,750 52,625
1,667 shares held in
treasury 4,990 4,990
------ ---------
Total shareholders' equity 2,339,169 1,455,046
--------- ---------
$5,124,465 $4,526,347
========= =========
The accompanying notes are an integral part of these
financial statements.
F-3
<CAPTION>
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Statements of Operations
For the years ended October 31, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
Net sales $12,642,141 $7,852,892
Cost of goods sold 7,729,025 5,028,570
---------- ---------
Gross profit 4,913,116 2,824,322
Selling, general and admin-
istrative expenses 3,784,093 2,584,711
---------- ---------
Operating income 1,129,023 239,611
Interest expense, net of interest
income of $2,625 and $3,450 for
1996 and 1995, respectively (183,789) (135,193)
--------- --------
Income before provision for
income taxes 945,234 104,418
Provision for income taxes (474,524) (40,832)
-------- -------
Net income $ 470,710 $ 63,586
======== =======
Net income per weighted
average number of common and
common equivalent share:
Primary $0.30 $ 0.05
======= =======
Fully diluted $0.29 $ 0.05
======= =======
Weighted average number of
common and common equivalent
shares outstanding:
Primary 1,582,910 1,254,337
========= ==========
Fully diluted 1,634,398 1,254,337
========= ==========
The accompanying notes are an integral part of these
financial statements.
F-4
<PAGE>
<CAPTION>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Statements of Shareholders' Equity
For the years ended October 31, 1996 and 1995
Note
Additional Receivable Total
Common Paid-in Accumulated and Accrued Treasury Shareholders'
Shares Amount Capital Earnings (Deficit) Interest Stock Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
November 1, 1994 1,142,803 $229 $1,422,133 ($203,287) ($49,175) ($4,990) $1,164,910
Sale of Common
Stock 230,000 46 229,954 - - - 230,000
Accrued Interest on
Note Receivable - - - - (3,450) - (3,450)
Net Income - - - 63,586 - - 63,586
---------------------------------------------------------------------------------
Balance,
October 31, 1995 1,372,803 $275 $1,652,087 ($139,701) ($52,625) ($4,990) $1,455,046
Sale of Common
Stock 50,000 10 49,990 - - - 50,000
Exercise of Common
Stock Options 185,250 37 166,687 - - - 166,724
Tax Benefit from
Exercise
of Common Stock
Options - - 218,170 - - - 218,170
Treasury Stock Received
and Retired upon Exer-
cise of Common Stock
Options (21,005) (4) (105,028) - - - (105,032)
The accompanying notes are an integral part of these financial statements.
F-5
<CAPTION>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Statements of Shareholders' Equity
For the years ended October 31, 1996 and 1995
Note
Additional Receivable Total
Common Paid-in Accumulated and Accrued Treasury Shareholders'
Shares Amount Capital Earnings (Deficit) Interest Stock Equity
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Non
Employee Common
Stock Options - - 45,000 - - - 45,000
Issuance of Common
Stock Shares For
Services 50,775 10 44,666 - - - 44,676
Accrued Interest on
Note Receivable - - - - (6,125) - (6,125)
Net Income - - - 470,710 - - 470,710
----------------------------------------------------------------------------------
Balance
October 31, 1996 1,637,823 $32 $2,071,572 $331,009 $(58,750) $(4,990) $2,339,169
========= === ========= ======= ====== ===== =========
The accompanying notes are an integral part of these
financial statements.
F-5 (Continued)
<PAGE>
<CAPTION>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Statements of Cash Flows
For the Years Ended October 31, 1996 and 1995
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $470,710 $ 63,586
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 48,993 48,114
Write-offs of accounts receivable and
allowance for doubtful accounts and
trade discounts and allowance for
sales returns 274,638 50,000
Accrued interest income on note
receivable (6,125) (3,450)
Nonemployee stock option compensation 45,000 -
Exercise of non-employee stock
options in exchange for services 10,875 -
Nonemployee and employee Common Stock
compensation 44,676 -
Changes in assets and liabilities:
(Increase) in accounts receivable (995,633) (610,891)
Decrease (increase) in inventories 61,349 (70,243)
Decrease in prepaid expenses 209,169 81,821
(Increase) decrease in other assets (59,301) 3,666
(Decrease) increase in accounts
payable (377,343) (28,611)
(Decrease) increase in payroll
taxes payable (286,637) 218
Increase (decrease) in accrued
expenses and other current
liabilities 579,963 (68,146)
Increase (decrease) in income taxes
payable 253,346 (7,217)
Decrease in other long-term liabil-
ities (2,119) (2,755)
Net cash provided by (used in) ------- -------
operating activities 271,561 (543,908)
------- -------
Cash flows from investing activities:
Purchase of property and equipment (83,488) (30,533)
(Increase) decrease in account
value of life insurance policy (6,683) 12,000
Net cash used in investing activ- ------- --------
ities (90,171) (18,533)
F-6
<PAGE>
<CAPTION>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Statements of Cash Flows
For the Years Ended October 31, 1996 and 1995
(Continued)
1996 1995
---- ----
<S> <C> <C>
Cash flows from financing activities:
Net (reductions) proceeds from
short term borrowings $(235,045) $330,000
Proceeds from sale of Common Stock 50,000 230,000
Proceeds from option exercise 50,817 -
Net cash flows (used in) provided ------- -------
by financing activities (134,228) 560,000
Net increase (decrease) in cash 47,162 (2,441)
Cash, beginning of year 36,645 39,086
------- --------
Cash, end of year $ 83,807 $ 36,645
======= ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 178,733 $ 128,706
Income taxes $ 12,008 $ 14,418
Non-cash transactions
Tax benefit from exercise of
stock options $218,170 -
Treasury stock received and retired
upon exercise of stock options $105,032 -
The accompanying notes are an integral part of these
financial statements.
</TABLE>
F-7
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
Note 1. The Company
Jim Hjelm's Private Collection, Ltd. (the "Company") is
engaged in the design and manufacture of traditional,
high quality bridal wear and accessories. Products are
sold to specialty bridal shops located throughout the
continental United States.
Note 2. Summary of Significant Accounting Policies
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those
estimates.
Inventories
Inventories are valued at the lower of cost (first-in,
first-out) or market including material, labor and
overhead.
Property and Equipment
Depreciation of property and equipment is computed
using the straight-line method over the estimated
useful lives of the respective assets, which range from
five to ten years. Amortization of leasehold
improvements is computed using the straight-line method
over the lesser of the lease term or estimated useful
lives of the improvements. Major additions and
improvements are capitalized, and repairs and
maintenance are charged to operations as incurred.
F-8
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets of $289,522
at October 31, 1996 and $498,691 at October 31, 1995
include approximately $251,000 and $294,000,
respectively of costs relating to the design of the
Company's new product lines which are being amortized
over a one year period.
Revenue Recognition
Revenue is recognized upon shipment and acceptance by
the customer.
Income Taxes
Income taxes are accounted for in accordance with
Statement of Financial Accounting Standards No. 109
(SFAS No. 109), "Accounting for Income Taxes." Under
SFAS No. 109, an asset and liability approach is
required. Such approach results in the recognition of
deferred tax assets and liabilities for the expected
future tax consequences of temporary differences
between the book carrying amounts and the tax basis of
assets and liabilities.
Earnings per Share
Primary earnings per share are based on the weighted
average number of shares outstanding during each year
and the assumed exercise of dilutive stock options less
the number of treasury shares assumed to be purchased
from the proceeds using the average market price of the
Company's common stock.
Fully diluted earnings per share are based on the
weighted average number of shares outstanding during
each year and the assumed exercise of dilutive stock
options less the number of treasury shares assumed to
be purchased from the proceeds using the greater of the
average market price or the period ending market price
of the Company's stock. In addition, for stock options
exercised, the fully diluted earnings per share
calculation assumes the market price on the date of
exercise is the effective price as of the beginning of
the period.
F-9
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
Reverse Stock Split
On November 15, 1994, the Company effected a reverse
stock split pursuant to which one share of Common
Stock, $.0002 par value, was exchanged for every three
shares of Common Stock, $.0001 par value, then issued
or outstanding. The share information included in the
accompanying financial statements reflect the effect of
the reverse stock split effected November 15, 1994.
Reclassifications
Certain amounts in the fiscal year ended 1995 financial
statements have been reclassified to conform with the
fiscal year ended 1996 presentation.
Recent Pronouncements
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No.
121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be
Disposed of," which is effective for financial
statements with fiscal years beginning after December
15, 1995. SFAS 121 requires that long-lived assets and
certain identifiable intangible assets held and used by
a company be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
amounts of the assets might not be recoverable. The
Company has determined that as of October 31, 1996, no
assets covered by SFAS 121 have been impaired.
In fiscal year ended October 1995, the Financial
Accounting Standards Board issued Statement of
Accounting Standard 123: "Accounting for Stock-based
Compensation" (SFAS 123). SFAS 123 allows companies to
account for stock-based compensation to employees under
either (i) the new provisions of SFAS 123 or (ii) the
provisions of Accounting Principles Bound Opinion 25:
Accounting for Stock Issued to Employees (APB 25) with
pro forma disclosure in the footnotes to the financial
statements as if the measurement provisions of SFAS 123
had been adopted. At this time, the Company intends to
continue accounting for its stock-based compensation to
employees in accordance with the provisions of APB 25.
The disclosure requirements of SFAS 123 are effective
for financial statements for fiscal years beginning
after December 15, 1995. For non-employee stock
options, the accounting requirements of SFAS 123 are
effective for all transactions after December 15, 1995.
Refer to Note 8 for the effect of SFAS 123 in the
accounting for non-employee stock options.
F-10
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
Note 3. Inventories
At October 31, 1996 and 1995, inventories consisted of:
1996 1995
---- ----
Raw materials $ 755,536 $ 580,948
Work-in-process 103,056 161,484
Finished goods 875,899 1,053,408
--------- ---------
$1,734,491 $1,795,840
Note 4. Property and Equipment, Net
Property and equipment, net at October 31, 1996 and 1995
is summarized as follows:
1996 1995
---- ----
Furniture and equip-
ment $ 315,704 $232,914
Leasehold improve-
ments 234,878 234,179
Leased equipment 34,261 34,262
------- -------
584,843 501,355
Less: Accumulated
depreciation and
amortization 353,599 304,606
------- -------
Property and equipment,
net $ 231,244 $196,749
Note 5. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of
October 31, 1996 and 1995 are summarized as follows:
1996 1995
---- ----
Accrued employee bonuses 285,000 -
Other 151,134 74,341
------- ------
436,134 74,341
F-11
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
Note 6. Notes Payable - Bank
In Fiscal 1995 the Company maintained a $1,000,000
revolving line of credit with a bank, with interest on
borrowings payable at 12.25% per annum. In February
1996, this credit facility was refinanced with a
$1,500,000 revolving line of credit with another
financial institu- tion with interest on borrowings
payable at 12.25% per annum and subsequently was raised
to $1,700,000 in July 1996. At October 31, 1996 and
1995, the Company had borrowed $1,064,955 and
$1,000,000 under the lines, respectively. Borrowings
are collateralized by the Company's accounts
receivable, chattel paper, general intangibles and the
personal guarantees of officers and directors of the
Company. Additional fees are payable for periods in
which a compensating balance of ten percent of the
average daily outstanding loan balance is not
maintained. No additional fees were due for the
periods presented. This line of credit contains a
financial covenant which requires the Company to
maintain a minimum net equity value. As of the year
ending October 31, 1996, the Company is in compliance
with this covenant. Interest charged to operations
under these revolving lines of credit amounted to
$139,375 and $107,500 for the years ended October 31,
1996 and 1995, respectively.
Other
In December, 1994 with consent of the Company's bank,
the Company obtained a short term line of credit up to
$200,000 from a shareholder. Interest accrued at a
rate of 6% above the prime rate, which was 12.75% at
October 31, 1995. As of October 31, 1995 $200,000 was
outstanding on this line of credit. During fiscal year
1996, the Company repaid this line of credit and the
related interest charges in accordance with their
original terms.
Interest charged to operations under this line of
credit amounted to approximately $29,000 and $25,000
for the years ended October 31, 1996 and 1995,
respectively.
In September, 1995 the Company borrowed $100,000 from a
shareholder and such amount was outstanding as of
October 31, 1995. The rate of interest on this loan
was 12%. During fiscal year 1996, the Company repaid
this loan and the related interest charges (which were
not material) in accordance with their original terms.
F-12
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
Note 7. Income Taxes
The provision for income taxes for the years ended
October 31, 1996 and 1995, consist of the following:
1996 1995
---- ----
Current:
Federal $250,811 $ -
State and local 83,654 10,600
------- ------
334,465 10,600
Deferred:
Federal 103,863 21,952
State and local 36,196 8,280
------- -------
$140,059 $30,232
$474,524 $40,832
======= =======
A reconciliation of the statutory Federal income tax
rate to the effective income tax rate for the years
ended October 31,1996 and 1995, is as follows:
1996 1995
---- ----
Statutory Federal income tax at 34% 34%
applicable rates
State and local taxes, net of 7% 12%
federal tax benefit
Effect of federal graduated - (12%)
tax rate
Permanent differences 3% 4%
Adjustment to opening valuation 4% -
allowance
Other 2% 1%
---- -----
50% 39%
==== =====
F-13
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
The components of the net deferred tax asset at October 31, 1996
and 1995 are as follows:
1996 1995
---- ----
Gross deferred tax asset $185,594 $250,618
Valuation Allowance - (41,000)
-------- -------
185,594 209,618
Gross deferred tax liability 107,482 (164,062)
-------- -------
Net deferred tax asset 78,112 45,556
Less long-term portion (75,968) (27,000)
-------- -------
Current deferred tax asset $ 2,144 $ 18,556
======== =======
Deferred income taxes are provided on temporary
differences between financial statement and taxable
income. The primary sources of these differences are
the allowance for doubtful accounts, depreciation,
deferred design costs and accrued expenses.
Realization of deferred income taxes is dependent on
generating sufficient taxable income in the future.
Although realization is not assured, management
believes it is more likely than not that all of the
deferred tax asset will be realized. The amount of the
deferred tax asset considered realizable, however,
could be reduced in the near term if estimates of
future taxable income are reduced.
Note 8. Shareholders' Equity
In May 1995, the Company completed a private sale of
230,000 shares for $230,000 to two existing
shareholders, one of which is the President. In
February 1996, the Company completed another private
sale of 50,000 shares of Common Stock and warrants to
purchase up to 20,000 shares of Common Stock of the
Company at $1.50 per share to expire June 30, 1997 for
$50,000 to outside parties. As of October 31, 1996,
such warrants are still outstanding.
F-14
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
Stock Options
The following table summarizes data relating to other
non-incentive options and incentive plan options:
Incentive Non-Incentive
--------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Options outstanding
at the beginning of
the year 2,500 2,500 272,500 78,333
Options granted 100,000 -0- 98,000 197,500
Options expired (2,500) -0- (50,834) (3,333)
Options exercised (15,250) -0- (170,000) -0-
------- ------ ------- ------
Options outstanding
at the end of the
year 84,750 2,500 149,666 272,500
Options exercisable
at the end of the
year 39,500 2,500 149,666 90,625
The exercise prices of the options outstanding at October
31, 1996 and 1995 range from $.87 to $2.38.
F-15
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
The Company's President exercised 100,000 non-incentive
stock options with exercise prices ranging from $.87 to $1.10.
The exercise price was satisfied by surrenduring 19,700 shares
of common stock with a fair market value of $98,500. These shares were
immediately cancelled upon receipt by the Company.
As a result of individuals exercising their non-incentive
stock options in Fiscal 1996, the Company realized a federal, state
and local income tax benefit of $218,170. Such benefit was
utilized to reduce the current income tax payable and the benefit
was recorded in additional paid-in capital in the accompanying
balance sheet as of October 31, 1996.
During Fiscal 1996, the Company issued 63,000 options to
purchase common stock with an exercise price ranging from $.87 to
$2.13 to certain non-employees. Such options were recorded at their
fair market value on the date of grant and accordingly the Company
recorded $45,000 in selling, general and administrative
expense in Fiscal 1996 in connection with these grants.
During Fiscal 1996, the Company issued to non-employees
50,775 shares of common stock with a fair market value of $44,676
for various administrative and consulting services. The Company
recorded $44,676 in selling, general and administrative expense in
Fiscal 1996 to reflect these transactions.
Note 9. Related Party Transactions
Note Receivable - Sale of Stock
On October 15, 1990, the Company's former president
exercised a stock option to purchase 36,458 shares of the Company's
common stock at a purchase price of $.96 per share. A $35,000 note
was received for the purchase. The note together with interest
accruing at a bank's prime rate plus one percent per annum, is due
on demand. The outstanding principal and interest balance at
October 31, 1996 and 1995 was $58,750 and $52,625, respectively.
F-16
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
Note 10. Commitments and Contingencies
Lease Commitments
The Company leases office, production, and retail
facilities under leases expiring in 1997 through 2003. Minimum
annual rentals under such leases are as follows:
Year Ending
October 31,
-----------
1997 167,305
1998 168,750
1999 168,600
2000 168,600
2001 168,600
Thereafter 156,150
-------
998,005
Rent expense charged to operations for the foregoing
lease and short-term rentals for the years ended October 31, 1996
and 1995, amounted to $229,011 and $302,539, respectively.
Employment Agreements
The Company has employment agreements with three of its
key employees terminating from December 1997 to January 2000.
Total compensation expensed under the terms of these agreements for
the year ended October 31, 1996 was approximately $294,800. Future
minimum commitments are as follows:
Year Ending October 31, 1996
1997 362,893
1998 327,383
1999 323,000
2000 323,000
2001 158,822
Thereafter 333,000
-------
1,828,098
F-17
<PAGE>
JIM HJELM'S PRIVATE COLLECTION, LTD.
Notes to Financial Statements
For the Years Ended October 31, 1996 and 1995
(continued)
Note 11. Subsequent Event
In November 1996, the Company, through a private
placement, issued 75,000 unregistered shares of Common Stock, par
value $.0002 per share (the "Shares") for $328,125 to outside
parties. In addition, the Company granted to the investors of the
private placement warrants to purchase 7,500 shares of the
Company's Common Stock exercisable at $4.37 per share to expire
December 31, 2001 and warrants to purchase 15,000 shares of the
Company's Common Stock exercisable at $6.62 per share to expire
December 31, 2001. The investors were granted registration rights
whereby the Company agreed to use its best efforts to include the
Shares in any registration statement filed by the Company to
publicly offer the Company's securities.
F-18
<PAGE>
Exhibit Index
10.6 Employment Agreement dated January 1, 1996 between the
Company and Mr. Lazaro Perez.
10.7 Form of Subscription Agreement issued in the private
placement that ended October 31, 1996 together with form of
Registration Rights Agreement.
10.8 Amendment No. 1 dated June 17, 1996 to Employment
Agreement dated February 1, 1995 between the Company and Mr. Joseph
L. Murphy.
10.9 Amendment No. 1 dated February 16, 1996 to Employment
Agreement dated February 9, 1993 between the Company and Mr. Jim
Hjelm.
10.10 Loan and Security Agreement dated February 2, 1996
between CBC of New York Inc., trading as Continental Business
Credit, and the Company.
23.1 Consent of Arthur Andersen LLP dated February 13, 1997.
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 1st day of January, 1996 between
JIM HJELM'S PRIVATE COLLECTION, LTD., a Delaware corporation
(hereinafter called the "Company") with offices at 501 Seventh
Avenue - 10th Floor, New York, New York 10018, and LAZARO PEREZ
residing at 66 Bowers Street, Jersey City, NJ 07307 (hereinafter
called the "Employee"). The Agreement shall control and
supersede all previous agreements entered into between the
Company and the Employee.
W I T N E S S E T H
WHEREAS, Employee is a designer of bridal gowns and related
apparel; and
WHEREAS, the Company desires to obtain the services of
Employee to design a line of bridal gowns and related apparel,
upon the terms and conditions stated herein; and
WHEREAS, Employee desires to be employed by the Company to
design a line of bridal gowns and related apparel, upon the terms
and conditions stated herein.
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and promises contained herein, the parties hereby
agree as follows:
1. Employment Term. The Company hereby agrees to employ
Employee and Employee agrees to enter the employ of the Company
on the terms and conditions set forth below for a term commencing
on January 1, 1996 (the "Commencement Date"), and terminating
December 31, 2005 unless sooner terminated as herein provided
(such initial term of this Agreement is herein referred to as the
"Term").
2. Duties. Subject to the authority of the Board of
Directors of the Company and the control and direction of the
President and Board of Directors of the Company, Employee shall
be employed as a designer of a line of bridal gowns and related
apparel for the Company, which line shall be under the Lazaro
name or an alternative name acceptable to both the Company and
Employee (the "Products"). Employee shall have direct
responsibility for the design of the Products. In addition to
designing the Products, Employee will perform such other duties
and services commensurate with his position as a designer for the
Company, as may from time to time be assigned to him by such
persons, including, but not limited to, attendance at trunk
shows, assisting with advertising programs, making first patterns
and designing traditional style bridal gowns and related apparel
to be sold under the Jim Hjelm label.
3. Full Time. Employee agrees that he will devote his
full time and attention during regular business hours to the
business affairs of the Company and that during the period of
such employment Employee will not, without the prior permission
of the President or Board of Directors of the Company, engage in
any other business enterprise which requires the personal time or
attention of Employee. It is understood that the Employee will
perform certain of the services contemplated in this Agreement
outside of the Company's offices. The foregoing shall not
prevent the purchase, ownership or sale by Employee of
investments or securities of publicly-held companies and any
other business which is not competitive and does not have any
business relations with the Company or any subsidiary of the
Company, provided the time or attention devoted by Employee to
such activities does not interfere with the performance of his
duties hereunder.
4. Compensation. For the full, prompt and faithful
performance of all of the duties and services to be performed by
Employee hereunder, the Company agrees to pay, and Employee
agrees to accept, the amounts set forth below.
(a) As a base compensation, Employee shall be paid at a
rate of $80,000 per annum during the Term (the "Base
Compensation"), payable weekly. Effective on each anniversary
date of this Agreement, the Board of Directors of Company agrees
to review the Employee's performance hereunder and, based on such
review, to increase the Base Compensation in an amount which, in
the discretion of the Board of Directors of the Company, is
deemed appropriate.
(b) As additional compensation Employee shall receive
for each fiscal year of the Company during the Term an amount
equal to 1% of the first $3,000,000 of net sales of the Products
for such fiscal year, and 1.5% of any amount over $3,000,000 of
net sales of the Products for such fiscal year. Notwithstanding
anything else contained in this paragraph 4(b), the maximum
amount payable to Employee under this paragraph 4(b) for each
fiscal year of the Company during the Term shall not be greater
than the Base Compensation.
(c) Net sales of the Products for the purposes of
paragraph 4(b) shall be computed separately for each fiscal year
of the Company (or part thereof, if Employee's employment shall
terminate other than at the end of a fiscal year or if Employee's
employment shall commence other than at the beginning of a fiscal
year). Such computations shall be made as soon as practicable
after the end of each such period.
(d) For the purposes of this Agreement, net sales
shall mean the Company's gross receipts for the Products less the
usual discounts and allowances to customers, refunds for returned
goods, taxes, cost of transportation and non-collectable
receivables.
(e) The additional compensation to be paid pursuant to
paragraph 4(b) shall be payable not later than 120 days after the
end of the fiscal year of the Company.
(f) In connection with this agreement, the Company
shall grant to Employee a three year option to purchase 30,000
shares of Common Stock of the Company exercisable at the fair
market value on the date of this agreement ($4.00 per share of
Common Stock)(the "Option"). The Option shall be exercisable at
the rate of 10,000 shares per year commencing one year from the
date hereof.
(g) The Company shall provide the Employee with health
benefits on the same terms as provided to other employees of the
Company.
(h) The Company shall provide the Employee a clothing
allowance of $4,000 per year.
(i) The compensation provided for herein shall be in
additional to any retirement, profit sharing, insurance
(including medical) or similar benefit which may at any time be
payable to Employee pursuant to any plan or policy of the Company
relating to such benefits, which benefits shall be made available
to Employee on the same basis as they are made available to other
similarly situated employees of the Company. Such compensation
shall be in addition to any options which may be granted under
any Company stock option plan.
5. Vacation. Employee shall be entitled to three weeks of
vacation per year, which shall be taken at such time or times as
shall be mutually determined by the Company and him.
6. Death. In the event of the death of Employee during
the Term or any extension thereof, the employment of Employee
hereunder shall terminate and come to an end on the last day of
the month of the death of the Employee. The estate of Employee
(or such persons as Employee shall designate in writing) shall be
entitled to receive, and the Company agrees to pay, the Base
Compensation of the Employee and the additional compensation
provided by paragraph 4(b) computed up to the end of the month in
which death occurs. Notwithstanding the death of Employee, the
provisions of Section 11 hereof shall continue in full force and
effect.
7. Disability. In the event that Employee shall,
because of illness or incapacity, physical or mental, be unable
to perform the duties and services to be performed by him
hereunder for a consecutive period of six (6) months, or nine (9)
months during any twelve (12) month period, the Company may
terminate the employment of Employee hereunder after the
expiration of such period. Employee shall be entitled to receive
his base salary and the additional compensation provided by
paragraph 4(b) computed up to the date of such termination. In
the event of the termination of Employee's employment due to the
disability of Employee, the provisions of paragraph 11 hereof
shall continue in full force and effect.
8. Covenant not to Compete; Nondisclosure.
(a) The Employee covenants and agrees that for a period
of two years following the termination of his employment with the
Company other than as a result of a breach by the Company, he
shall not directly or indirectly compete with the Company in the
bridal marketplace in those areas in which the Company sells the
Products, nor induce any person associated with or employed by
the Company or any subsidiary of the Company, to leave the employ
of or terminate his association with the Company, or any
subsidiary of the Company, or solicit the employment of any such
person on his own behalf or on behalf of any other business
enterprise. In the event of termination of this Agreement by
virtue of a breach by the Company, termination without cause or
expiration of the Term then the aforesaid covenant will be
applicable for a period of six months from such event.
The above provisions to the contrary notwithstanding, in
light of the non-exclusive license of Richard Glasgow, Inc. and
its subsidiary Riccio to use Employee's name and likeness as
referred to in paragraph 9 below, which use could result in
significant confusion with the Company's activities if the
Employee were to not be employed by the Company and be employed
by Richard Glasgow, Inc. or an affiliate thereof, the Employee
covenants and agrees that (i) following the termination of his
employment with the Company, other than if such termination is
without cause, Employee shall be restricted from employment by
Richard Glasgow, Inc. or an affiliate thereof for a period of 12
years, and (ii) following the termination of his employment with
the Company without cause, Employee shall be restricted from
employment by Richard Glasgow, Inc. or an affiliate thereof for a
period of six years.
(b) The Employee covenants and agrees for a period of
two years following the termination of his employment with the
Company other than as a result of a breach by the Company, he
will not, directly or indirectly, during or after the term of
employment disclose to any person not authorized by Employer to
receive or use such information, except for the sole benefit of
Employer, any of Employer's confidential or proprietary data,
information, designs, styles, or techniques, including customer
lists, or give to any person not authorized by Employer to
receive it. Notwithstanding the foregoing, this applies solely to
information that is not generally known to anyone other than
Employer.
(c) If any term of this paragraph 8 is found by any
court having jurisdiction to be too broad, then and in that case,
such term shall nevertheless remain effective, but shall be
considered amended (as to the time or area or otherwise, as the
case may be) to a point considered by said court as reasonable,
and as so amended shall be fully enforceable.
(d) In the event that Employee shall violate any
provision of this Agreement (including but not limited to the
provisions of this paragraph 8), the Employee hereby consents to
the granting of a temporary or permanent injunction against him
by any court of competent jurisdiction prohibiting him from
violating any provision of this Agreement. In any proceeding for
an injunction, Employee agrees that his ability to answer in
damages shall not be a bar or interposed as a defense to the
granting of such temporary or permanent injunction against
Employee. Employee further agrees that the Company will not have
an adequate remedy at law in the event of any breach by Employee
hereunder and that the Company will suffer irreparable damage and
injury if Employee breaches any of the provisions of this
Agreement.
9. Trademark. Employer shall register the name Lazaro,
Lazaro Perez or a derivation thereof (the "Trademark"), with the
United States Patent and Trademark office ("USPTO"). Except as
otherwise provided herein, the permission of the Employee to the
Employer to so register the Trademark shall be perpetual and
fully-paid. The Trademark is the exclusive property of Employer,
the Employee having consented to it being filed by the Employer
with the USPTO and the Employee shall have no right to the use
thereof as a mark used in trade or commerce except as otherwise
provided herein, without the express written consent of the
Company. The Company shall be solely permitted to license the
Trademark to a third party, other than a non-exclusive license
granted by Employee to Richard Glasgow, Inc. and its subsidiary
Riccio to use Employee's name and likeness on promotional and
sales materials including advertising, sales tickets, labels,
brochures, hang tags, announcements or correspondence, a copy of
which non-exclusive agreement is attached hereto as Exhibit A and
is specifically consented to by the Company.
10. Use of Designs. Employee hereby grants to the
Company a perpetual, royalty-free exclusive right and license to
use his designs for bridal gowns and related apparel (the
"Designs") or any variation thereof developed during the Term (or
any extension thereof). The Company shall be solely permitted to
license the Designs to a third party.
11. Use of Designs and Trademark After Term. Except as
set forth herein, Employee: (i) after such time as he is no
longer employed by the Company, grants to the Company a
perpetual, royalty-free exclusive right and license to use the
Designs or any variation thereof designed by the Employee during
the Term (or any extension thereof), (ii) upon expiration of the
Term (or the expiration of any extension thereof) or if his
employment hereunder is terminated for cause, grants to the
Company, commencing on the date he is no longer employed by the
Company, a 12 year, royalty-free exclusive right and license to
use the Trademark, and (iii) upon termination of his employment
hereunder without cause, grants to the Company, commencing on the
date he is no longer employed by the Company, a six year,
royalty-free exclusive right and license to use the Trademark.
The provisions of this paragraph 11 shall survive any termination
of employment "for cause" as provided in paragraph 12 hereof.
12. Termination.
12.1 Termination for Cause. The Company may terminate
Employee's employment without liability (other than for payments
accrued to the date of termination and as otherwise provided in
paragraph 11) if Employee's employment is terminated "for cause".
The term "for cause" shall, for the purposes of this Agreement,
mean (i) a material breach by Employee of the provisions of this
Agreement, (ii) the commission by Employee of a fraud against the
Company or the conviction of Employee for aiding or abetting, or
the commission of, a felony or of a fraud or a crime involving
moral turpitude or a business crime, (iii) the knowing possession
or use of illegal drugs or prohibited substances, the excessive
drinking of alcoholic beverages which impairs Employee's ability
to perform his duties hereunder, (iv) being under the influence
of such drugs, substances or alcohol during Employee's hours of
employment, or (v) any violation of the Company's corporate
policies described in the Company's employee handbook, which
handbook may supplemented or amended by the Company from time to
time, a copy of which has been provided to the Employee. In the
event of such termination for cause, Employee shall be entitled
to receive his base salary and the additional compensation
provided by paragraph 4(b) computed up to the date of such
termination and the provisions of paragraph 11 hereof shall
continue in full force and effect.
12.2 Termination Without Cause. The Company shall
have the right to terminate Employee's employment hereunder at
any time, without cause, on six months written notice to the
Employee. In the event the Employee's employment hereunder is
terminated by the Employer without cause, Employee shall be
entitled to receive the Base Compensation provided in paragraph
4(a) for a period of 90 days from the date such termination
becomes effective and the additional compensation provided by
paragraph 4(b) for a period of 1 year from the date such
termination becomes effective and the provisions of paragraph 11
hereof shall continue in full force and effect.
13. No Impediments. Employee warrants and represents
that he is free to enter into this Agreement and to perform the
services contemplated thereby and that such actions will not
constitute a breach of, or default under, any existing agreement.
14. No Waiver. The failure of any of the parties hereto
to enforce any provision hereof on any occasion shall not be
deemed to be a waiver of any preceding or succeeding breach of
such provision or of any other provision.
15. Entire Agreement. This Agreement constitutes the
entire agreement and understanding of the parties hereto and no
amendment, modification or waiver of any provision herein shall
be effective unless in writing, executed by the party charged
therewith.
16. Governing Law. This Agreement shall be construed,
interpreted and enforced in accordance with and shall be governed
by the laws of the State of New York applicable to agreements to
be wholly performed therein.
17. Binding Effect. This Agreement shall bind and inure
to the benefit of the parties, their successors and assigns.
18. Assignment and Delegation of Duties. This Agreement
may not be assigned by the parties hereto except that the Company
shall have the right to assign this Agreement in connection with
a sale or transfer of all or substantially all of its assets, a
merge or consolidation. This Agreement is in the nature of a
personal services contract and the duties imposed hereby are non-
delegable.
19. Paragraph Headings. The paragraph headings herein have
been inserted for convenience of reference only and shall in no
way modify or restrict any of the terms or provisions hereof.
20. Notices. Any notice under the provisions of this
Agreement shall be given by registered or certified mail, return
receipt requested, directed to the addresses set forth above,
unless notice of a new address has been sent pursuant to the
terms of this paragraph.
21. Unenforceability; Severability. If any provision of
this Agreement is found to be void or unenforceable by a court of
competent jurisdiction, the remaining provisions of this
Agreement, shall, nevertheless, be binding upon the parties with
the same force and effect as though the unenforceable part has
been severed and deleted.
22. Counterparts. This Agreement may be executed in one or
more counterparts, all of which shall be deemed to be duplicate
originals.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
JIM HJELM'S PRIVATE COLLECTION, LTD.
By:
Joseph L. Murphy, President
Lazaro Perez
<PAGE>
EXHIBIT 10.7
SUBSCRIPTION AGREEMENT
JIM HJELM'S PRIVATE COLLECTION, LTD.
225 West 37th Street
New York, New York 10018
Dear Sirs:
The undersigned (the "Investor") hereby tenders his
subscription for and offers to acquire shares of Common Stock
(the "Shares") of Jim Hjelm's Private Collection, Ltd. (the
"Company"). This subscription is tendered in connection with a
private offering of up to 250,000 Shares pursuant to a Confidential
Private Offering Memorandum dated October 14, 1996 (the
"Memorandum"). Unless sooner terminated by the Company, this
offering will terminate on or before October 31, 1996.
The Company represents and warrants to the Investor that (a)
the authorized number of shares of Common Stock (the "Common
Stock") of the Company is 10,000,000 and (b) the issued and
outstanding number of shares of Common Stock as of October 14, 1996
is 1,652,212 and the Company has reserved 213,750 shares for
issuance under the Company's stock option plans and other options.
1. Subscription Payment. As payment for this subscription,
simultaneously with the execution hereof, the Investor is either
(i) delivering herewith a check payable to the order of Jim Hjelm's
Private Collection, Ltd., or (ii) transferring funds by wire
pursuant to the instructions of the Company, in the amount of
$4.375 per Share being subscribed for with a minimum of 5,000
Shares.
2. Representations of the Investor. The Investor,
recognizing that the Company will be relying on the information and
on the representations set forth herein, hereby represents,
warrants and agrees as follows:
(a) The Investor understands that the offer and sale of the
Shares is being made by means of this Subscription Agreement,
and is aware of the high degree of risk associated with an
investment in the Shares.
(b) The Investor is a person who is able to bear economic
risks including a loss of an investment in the Shares.
(c) The Investor is purchasing the Shares issued pursuant to
this Subscription Agreement for his own account for
investment, and not with a view to or for sale in connection
with the distribution of the Shares nor with any present
intention of selling or otherwise disposing of all or any part
of the Shares; provided, however, the Investor shall have the
right to transfer the securities to third parties pursuant to
an exemption from registration under the Securities Act of
1933 (the "Act"). In connection with any such future
transfer, the Company will accept an acceptable opinion of
counsel to the Investor as to the existence of any exemption.
The Investor hereby acknowledges his understanding that the
Shares are not being registered under the Act or any state
securities laws, on the ground that the issuance and sale of
the Shares to the Investor is exempt under the Act and
relevant state securities laws, as a small offering and not
involving a public offering. The Investor agrees not to sell
the Shares unless they are subsequently registered or an
exemption from such registration is available.
The Investor further acknowledges his understanding that the
Company's reliance on such exemptions are, in part, based upon
the foregoing representations, warranties, and agreements by
the Investor and that the statutory basis for such exemptions
would not be present, if notwithstanding such representations,
warranties and agreements, the undersigned were acquiring the
Shares for resale on the occurrence or non-occurrence of some
predetermined event. In order to induce the Company to issue
and sell the Shares subscribed for hereby to the Investor, it
is agreed that the Company will have no obligation to
recognize the ownership, beneficial or otherwise, of such
Shares by anyone but the Investor, except as set forth herein.
(d) All information contained in this Subscription Agreement
and in the Confidential Purchaser Questionnaire being
simultaneously provided to the Investor, is correct and
complete. Any material change occurring in either this
Subscription Agreement or in the Confidential Purchaser
Questionnaire prior to acceptance of this subscription shall
be promptly reported to the Company. The Investor, in
connection with his investment in the Company, has sufficient
knowledge and experience in matters relating to business and
financial matters in general and he is capable of evaluating
the merits and risks of an investment in the Company and of
making an informed investment decision.
(e) The address set forth in this Subscription Agreement is
his true and correct primary residence, and he has no present
intention of becoming a resident of any other state or
jurisdiction.
(f) The Investor acknowledges and is aware that, except as
set forth herein, the Investor will not transfer or assign
this subscription, the Shares or any interest therein; if and
to the extent this subscription is accepted, the assignment
and transferability of the Shares subscribed for by the
Investor will be governed by this Subscription Agreement and
all applicable laws.
(g) The Investor acknowledges and is aware that this
subscription is voidable by the Investor within three days
after the first tender of consideration is made by the
Investor to the Company, an agent of the Company or an escrow
agent. Subsequent to this three day period, the Investor is
not entitled to cancel, terminate or revoke this subscription,
and any agreements of the Investor in connection herewith
shall survive the death or disability of the Investor.
(h) The Investor has been given access to full and fair
disclosure of all material information concerning the Company.
The Investor has also been given the opportunity to ask
questions of, and receive answers from, management of the
Company regarding the terms and conditions of this Agreement,
and the transactions contemplated thereby, as well as the
affairs of the Company and related matters.
The Investor may have access to whatever additional
information concerning the Company, its financial condition,
business, prospects, management, capitalization, and other
similar matters, that the Investor or his purchaser
representative, if any, desires, provided that the Company can
acquire such information without unreasonable effort or
expense.
(i) The Investor has received and carefully reviewed the
Memorandum, and except for the Memorandum, the Investor has
not been furnished with any other materials or literature
relating to the offer and sale of the Shares.
(j) The Investor has had the opportunity to obtain additional
information necessary to verify the accuracy of the
information referred to in subparagraphs (h) and (i) hereof.
3. Indemnification. The Investor hereby agrees to indemnify
and hold harmless the Company, its respective officers, directors,
shareholders, employees, agents and attorneys of each such entity
against any and all losses, claims, demands, liabilities and
expenses (including reasonable legal or other expenses incurred by
each such person in connection with defending or investigating any
such claims or liabilities, whether or not resulting in any
liability to such person) to which any such indemnified party may
become subject under the Act, under any other statute, at common
law or otherwise, insofar as such losses, claims, demands,
liabilities and expenses (a) arise out of or are based upon any
untrue statement or alleged untrue statement of a material fact
contained in this Subscription Agreement or (b) arise out of or are
based upon any breach of any representation, warranty or agreement
contained herein.
4. Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements contained herein
shall survive the delivery of, and payment for, the Shares.
5. Acceptance of Subscription. The Company may accept this
Subscription Agreement at any time for the Shares subscribed for by
executing a copy hereof as provided and notifying the Investor.
The Investor understands that the Company may, in its sole
discretion, reject this subscription or may accept only a portion
of this subscription.
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the undersigned has executed this
Subscription Agreement this _____ day of __________, 199 .
Organization Signature: Individual Signature:
Print Name of Subscriber
By:
Signature (s)
Print Name and Title of Print Name (s)
Person Signing
Print Name (s)
Number of Shares Subscribed for:
(Please print information below
exactly as you wish it to appear in
the records of the Company)
Name and capacity in which Social Security Number of Indi-
subscription is made -- see dividual or other Taxpayer I.D.
below for particular Number
requirements
Address: Address for notices if different:
Number and Street Number and Street
City State Zip Code City State Zip Code
Please indicate form of ownership:
TENANTS-IN-COMMON JOINT TENANTS WITH RIGHT OF
(Both Parties must sign SURVIVORSHIP
above) (Both Parties must sign above)
ACCEPTANCE OF SUBSCRIPTION
JIM HJELM'S PRIVATE COLLECTION LTD.
The foregoing subscription is hereby accepted by Jim Hjelm's
Private Collection, Ltd. this 31st day of October, 1996, for
_________ Shares.
By:
Name: Joseph L. Murphy
Title: President
<PAGE>
REGISTRATION RIGHTS AGREEMENT
AGREEMENT, dated as of the day of , 199__,
between the person whose name and address appear on the signature
page attached hereto (individually a "Holder" or collectively with
the holders of the other shares of Common Stock issued in the
offering, as defined below, the "Holders") and Jim Hjelm's Private
Collection, Ltd., a Delaware corporation having its principal place
of business at 225 West 37th Street, New York, New York 10018 (the
"Company").
WHEREAS, simultaneously with the execution and delivery
of this Agreement, the Holders are purchasing from the Company an
aggregate of up to 250,000 shares of Common Stock of the Company;
and
WHEREAS, the Company desires to grant to the Holder the
registration rights set forth herein with respect to the shares of
Common Stock issued in connection with the Offering (the
"Registrable Securities").
NOW, THEREFORE, the parties hereto mutually agree as
follows:
1. Registration. Upon the request of a majority of
the Holders at any time after January 31, 1997, the Company shall
prepare and file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission, to include
all of the Registrable Securities in the Registration Statement.
Within ten (10) days of receipt of a proper request for
registration pursuant hereto, the Company shall notify all of the
other Holders who shall have ten (10) days from such notice to
notify the Company of their desire to include their Registrable
Securities in such registration. The Company will be required to
maintain the effectiveness of the Registration Statement until the
earlier of (i) the date that all of the Registrable Securities have
been sold, or (ii) the date all of the holders thereof receive an
opinion of counsel to the Company that all of the Registrable
Securities may be freely traded without registration under the
Securities Act of 1933, as amended (the "Act").
2. Additional Terms. The following provisions shall be
applicable to the Registration Statement filed pursuant to
Paragraph 1 of this Agreement:
(a) The Company will use its best efforts to cause
the Registration Statement covering Registrable Securities to
become effective as promptly as possible and, if any stop order
shall be issued by the Securities and Exchange Commission in
connection therewith, to use its reasonable efforts to obtain the
removal of such order. Following the effective date of such
Registration Statement, the Company shall, upon the request of the
Holder forthwith supply such reasonable number of copies of the
Registration Statement, preliminary prospectus and prospectus
meeting the requirements of the Act, and other documents necessary
or incidental to the Offering, as shall be reasonably requested by
the Holder to permit the Holder to make a public distribution of
his or her Registrable Securities. The Company will use its
reasonable efforts to qualify the Registrable Securities for sale
in such states as the Holder of Registrable Securities shall
reasonably request, provided that no such qualification will be
required in any jurisdiction where, solely as a result thereof, the
Company would be subject to service of general process or to
taxation or qualification as a foreign corporation doing business
in such jurisdiction. The obligations of the Company hereunder
with respect to the Holder's Registrable Securities are expressly
conditioned on the Holder's furnishing to the Company such
appropriate information concerning the Holder, the Holder's
Registrable Securities and the terms of the Holder's offering of
such Registrable Securities as the Company may reasonably request.
(b) The Company shall bear the entire cost and
expense of any registration of the Registrable Securities;
provided, however, that the Holder shall be solely responsible for
the fees of any counsel retained by him or her in connection with
such registration and any transfer taxes or underwriting discounts
or commissions applicable to the Registrable Securities sold by him
or her pursuant thereto.
(c) The Company shall indemnify and hold harmless
the Holder and each underwriter, within the meaning of the Act, who
may purchase from or sell for the Holder, any Registrable
Securities, from and against any and all losses, claims, damages
and liabilities caused by any untrue statement of a material fact
contained in the Registration Statement, any other registration
statement filed by the Company under the Act, any post-effective
amendment to such registration statements, or any prospectus
included therein required to be filed or furnished by reason of
this Agreement or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused
by any such untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished or
required to be furnished in writing to the Company by the Holder or
underwriter expressly for use therein; which indemnification shall
include each person, if any, who controls any such underwriter
within the meaning of the Act and each officer, director, employee
and agent of such underwriter; provided, however, that the Company
shall not be obligated to so indemnify the Holder or any such
underwriter or other person referred to above unless the Holder or
underwriter or other person, as the case may be, shall at the same
time indemnify the Company, its directors, each officer signing the
Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, from and against any and all
losses, claims, damages and liabilities caused by any untrue
statement or alleged untrue statement of a material fact contained
in the Registration Statement, any registration statement or any
prospectus required to be filed or furnished by reason of this
Agreement or caused by any omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, insofar as such losses, claims,
damages or liabilities are caused by any untrue statement or
alleged untrue statement or omission based upon information
furnished in writing to the Company by the Holder or underwriter
expressly for use therein.
(d) If for any reason the indemnification provided
for in the preceding subparagraph is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect
to therein, then the indemnifying party, in lieu of indemnifying
such indemnified party thereunder, shall contribute to the amount
paid or payable by the indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to
reflect not only the relative benefits received by the indemnified
party and the indemnifying party, but also the relative fault of
the indemnified party and the indemnifying party, as well as any
other relevant equitable considerations.
(e) Neither the filing of a Registration Statement
by the Company pursuant to this Agreement nor the making of any
request for prospectuses by the Holder shall impose upon the Holder
any obligation to sell his or her Registrable Securities.
(f) The Holder, upon receipt of notice from the
Company that an event has occurred which requires a post-effective
amendment to the registration statement or a supplement to the
prospectus included therein, shall promptly discontinue the sale of
his or her Registrable Securities until the Holder receives a copy
of a supplemented or amended prospectus from the Company, which the
Company shall provide as soon as practicable after such notice.
3. Governing Law.
(a) The Registrable Securities are being delivered
in New York. This Agreement shall be deemed to have been made and
delivered in the State of New York and shall be governed as to
validity, interpretation, construction, effect and in all other
respects by the internal laws of the State of New York.
(b) The Company and the Holder (a) agree that any
legal suit, action or proceeding arising out of or relating to this
Agreement, or any other Agreement entered into pursuant to the
Offering shall be instituted exclusively in New York State Supreme
Court, County of New York, or in the United States District Court
for the Southern District of New York, (b) waives any objection
which the Company or such Holder may have now or hereafter to the
venue of such suit, action or proceeding, and (c) irrevocably
consents to the jurisdiction of the New York State Supreme Court,
County of New York and the United States District Court for the
Southern District of New York in any such suit, action or
proceeding. The Company and the Holder further agree to accept
and acknowledge service of any and all process which may be served
in any such suit, action or proceeding in the New York State
Supreme Court, County of New York or in the United States District
Court for the Southern District of New York and agrees that service
of process upon the Company or the Holder mailed by certified mail
to the Company's or, as the case may be, the Holder's address shall
be deemed in every respect effective service of process upon the
Company or the Holder, as the case may be, in any suit, action or
proceeding.
4. Amendment. This Agreement may only be amended by a
written instrument executed by the Company and the Holder.
5. Entire Agreement. This Agreement constitutes the
entire agreement of the parties hereto with respect to the subject
matter hereof, and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to
the subject matter hereof.
6. Execution in Counterparts. This Agreement may be
executed in one or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the
same document.
7. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed
duly given when delivered by hand or mailed by registered or
certified mail, postage prepaid, return receipt requested, as
follows:
If to the Holder, to his or her address set forth on the
signature page of this Agreement.
If to the Company, to the address set forth on the first
page of this Agreement.
8. Binding Effect; Benefits. The Holder may not assign
his or her rights hereunder. This Agreement shall inure to the
benefit of, and be binding upon, the parties hereto and their
respective heirs, legal representatives, successors and permitted
assigns, including, without limitation, the permitted transferee of
the Registrable Securities. Nothing herein contained, express or
implied, is intended to confer upon any person other than the
parties hereto and their respective heirs, legal representatives,
successors and such permitted assigns, any rights or remedies under
or by reason of this Agreement.
9. Headings. The headings contained herein are for the
sole purpose of convenience of reference, and shall not in any way
limit or affect the meaning or interpretation of any of the terms
or provisions of this Agreement.
10. Severability. Any provision of this Agreement which
is held by a court of competent jurisdiction to be prohibited or
unenforceable in any jurisdiction(s) shall be, as to such
jurisdiction(s), ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of
this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto as of the date first above written.
JIM HJELM'S PRIVATE COLLECTION, LTD.
By:
Name: Joseph L. Murphy
Title: President
HOLDER:
Signature(s)
Print Name
Address:
<PAGE>
EXHIBIT 10.8
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
Amendment No. 1 dated June 17, 1996 to the Employment
Agreement dated February 1, 1995 between Jim Hjelm's Private
Collection, Ltd., a Delaware corporation (the "Company"), with
offices at 225 West 37th Street, New York, New York 10018 and
Joseph L. Murphy, residing at 116 West 72nd Street, New York, New
York 10023 (hereinafter called the "Executive").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, the Company has employed the Executive as its
President pursuant to the terms of an Employment Agreement between
the Company and the Executive dated February 1, 1995 (the
"Agreement"); and
WHEREAS, the Company and the Executive desire to amend
the terms of the Agreement upon the terms and conditions stated
herein.
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and promises contained herein, the parties hereby agree
as follows:
1. Employment Term. The term of the Agreement shall be
extended until June 16, 2001.
2. Time Requirements. The Executive agrees that he will
devote 100% of his business time and attention during regular
business hours to the business affairs of the Comapny and that
during the period of such employment the Executive will not,
without the prior consent of the Board of Directors of the Company,
engage in any other business enterprise or enterprises which
require the Executive's time or attention. It is understood that
the Executive will perform certain of the services contemplated in
this Agreement outside of the Company's offices. The foregoing
shall not prevent the purchase, ownership or sale by the Executive
of the investments or securities of publicly-held companies and any
other business which is not competitive and does not have any
business relations with the Company or any subsidiary of the
Company, provided the time or attention devoted by the Executive to
such activities does not interfere with the performance of his
duties hereunder.
<PAGE>
3. Compensation.
(a) Commencing June 1, 1996, the Executive shall be paid
a base salary at the rate of $150,000 per annum during the Term
(the "Base Compensation"), payable at such regular times and
intervals as the Company customarily pays its employees.
(b) Commencing June 1, 1996, the Executive shall receive
as additional compensation five percent (5%) of the Company's-pre-
tax profits to be paid quarterly, three percent (3%) of which is to
be paid in cash concurrent with the Company's filing of its Form
10-QSB Quarterly Report or within 60 days of the close of the
preceding fiscal quarter of the Company, and the remaining two
percent (2%) will accrue and be paid concurrent with the Company's
filing of its Form 10-KSB Annual Report or within 120 days of the
close of the Company's fiscal year, whichever occurs first.
(c) The Company shall provide the Executive with a
$6,000 clothing allowance per annum, to be paid $3,000 semi-
annually.
(d) The Executive shall be entitled to the use of an
automobile, the expenses related to which shall not exceed $500 per
month.
4. Notice. The Company shall provide Executive with six
(6) months prior written notice if the term of this Agreement will
not be extended on the same or better terms.
5. Supersedes Prior Agreement. The foregoing provisions
shall control and supersede the relevant provisions of the
Agreement, which, in all other respects, shall otherwise remain in
full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
JIM HJELM"S PRIVATE COLLECTION LTD.,
By:
Daniel M. Sullivan, Chairman
Joseph L. Murphy
<PAGE>
EXHIBIT 10.9
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1 dated February 16, 1996 to the Employment
Agreement dated February 9, 1993 between Jim Hjelm's Private
Collection, Ltd., a Delaware corporation (the "Company"), with
offices at 501 Seventh Avenue, 10th Floor, New York, New York 10018
and Jim Hjelm, an individual with a residence at 155 East 31st
Street, #30F, New York, New York 10036 (the "Employee").
W I T N E S S E T H
WHEREAS, the Company has employed the Employee as an
exclusive designer of bridal gowns and related apparel (the
"Products") pursuant to the terms of an Employment Agreement
between the Company and the Employee dated February 9, 1993 (the
"Agreement"); and
WHEREAS, the Company and the Employee desire to amend the
terms of the Agreement upon the terms and conditions stated herein.
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and promises contained herein, the parties hereby agree
as follows:
1. Compensation.
(a) Commencing February 9, 1996, the Employee shall
be paid a base salary at the rate of $132,000 per annum for one
year and at the rate of $133,000 per annum from February 9, 1997 to
February 9, 1998, payable weekly or in such other manner as the
parties shall determine.
(b) The Employee shall be entitled to the use of an
automobile, the expenses related to which, shall not exceed $350.00
per month. The Employee owes the Company $52,625 as of the end of
the Company's fiscal year ended October 31, 1995. Commencing
February 10, 1997, the Employee shall repay this loan plus accrued
interest to the Company at the rate of $13,000 annually, to be
deducted from the Employee's paycheck.
(c) The Company shall pay the rent on the
Employee's studio apartment located at 155 East 31st Street until
the lease expires on or about April 1, 1996.
2. Extension of Term.
(a) Commencing February 10, 1998, the date the
Agreement currently expires, the Agreement shall be extended for an
additional three (3) years and the Company shall continue to employ
the Employee and the Employee shall continue to be employed by the
Company during such period.
(b) The Company shall pay the Employee at the rate
of $93,000 annually and shall continue to pay the expenses related
to the Employee's car referred to above during such period.
<PAGE>
3. Supersedes Prior Agreement. The foregoing
provisions shall control and supersede the relevant provisions of
the Agreement, which, in all other respects, shall otherwise remain
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
JIM HJELM'S PRIVATE COLLECTION, LTD.
By: ____________________________________
Joseph L. Murphy, President
___________________________________
Jim Hjelm
<PAGE>
EXHIBIT 10.10
LOAN AND SECURITY AGREEMENT
ACCOUNTS RECEIVABLE
AGREEMENT dated as of FEBRUARY ____, 1996 between CBC of New
York Inc., trading as Continental Business Credit, 60 East 42nd
Street, New York, New York 10165 (Secured Party), and JIM HJELM'S
PRIVATE COLLECTION, LTD., 225 WEST 37TH STREET, NEW YORK, NEW
YORK 10018 (Debtor), a corporation organized under the laws of
the State of DELAWARE (as it may from time to time be amended or
supplemented, the "Agreement").
Debtor desires to obtain loans from Secured Party from time
to time on a revolving basis on the security of Debtor's
"Receivables", as herein defined, upon the following terms and
conditions:
All advances shall be disbursed by Secured Party from its
office in the City and State of New York, and shall be payable at
such office, and this Agreement and all transactions hereunder
shall be deemed to be consummated in, shall be governed by, and
shall be construed under the laws of such State.
1. Secured Party agrees to make advances to Debtor from
time to time in such amounts as may be mutually agreed upon to an
aggregate amount outstanding of up to EIGHTY PERCENT (80%) of
the outstanding net face amount of Eligible Receivables, which
shall have been assigned, pledged or transferred to Secured Party
as provided in paragraph 5 below and shall be and remain subject
to the first priority security interest of Secured Party and
shall at all times conform to the definition of "Eligible
Receivables" herein. The aggregate outstanding amount of such
advances shall not exceed ONE MILLION FIVE HUNDRED THOUSAND
DOLLARS ($1,500,000), except that Secured Party may, in its sole
discretion, make advances in excess of such amount, which excess
advances shall be repayable upon demand.All advances and other
Obligations shall be charged to Debtor's account. Secured Party,
in its sole discretion may, upon THREE (3) DAYS notice to
Debtor, change the aforesaid percentage (as it may from time to
time be in effect, the "Advance Percentage") and may, in its sole
discretion, make advances in excess of the Advance Percentage.
Any such overadvances shall be repayable upon demand. All
amounts actually received by Secured Party on Receivables shall
be credited to Debtor's account with Secured Party as herein
provided.
2. (a) If at any time the ratio of Obligations to
Eligible Receivables shall exceed the Advance Percentage, Debtor
shall on notification of such fact by Secured Party immediately
pay to Secured Party such amount as will reduce the Obligations
to the Advance Percentage of Eligible Receivables.
(b) An Eligible Receivable shall lose that status and
be deemed ineligible (i) if such Receivable was not paid WITHIN
120 DAYS FROM ITS INVOICE DATE; (ii) if the services out of which
the Receivable arises have not been performed to the satisfaction
of the Account Debtor, or the goods out of which the Receivable
arises have not been delivered to and fully accepted by the
Account Debtor, or if the Account Debtor has returned or sought
to return the goods or made any complaint or claimed any
adjustment with respect thereto; (iii) if any petition under the
Bankruptcy Code or any similar Federal or State statute or a
petition for receivership has been filed by or against the
Account Debtor or its property or if it has made an assignment
for the benefit of creditors; (iv) if more than FIFTY PERCENT
(50%) of the aggregate Receivables due from an Account Debtor are
more than ONE HUNDRED TWENTY (120) days past due or the
aggregate Receivables due from an Account Debtor exceed THIRTY
PERCENT (30%) of the then total outstanding Eligible Receivables;
or (v) if the Secured Party shall at any time reasonably have
rejected the Receivable as no longer eligible.
(c) All advances and all other Obligations of Debtor
shall be payable to the Secured Party without the necessity of
the Secured Party resorting to or having recourse to any
Receivable or other security, or at Secured Party's option such
amount may be charged against and deducted from any payment then
or thereafter due from Secured Party to Debtor.
3. Secured Party shall render to Debtor each month by
mailing to Debtor, by ordinary mail prepaid, a statement of
Debtor's account with Secured Party, which shall be deemed to be
correct and accepted by and binding upon Debtor unless Secured
Party shall have received a written statement of Debtor's
specific exceptions within thirty (30) days after the mailing
thereof, and in any event shall be deemed correct and accepted
except as to the matters stated in such exceptions.
4. Definitions:
(a) "Receivables" means open accounts whether or not
matured and whether or not executory, contract rights, chattel
paper, notes, rental receivables, tax refunds, installment
payment obligations and other obligations for the payment of
money payable to Debtor and created by Debtor, and contracts,
documents, invoices and other instruments evidencing the same,
which Receivables are created or otherwise arise out of the sale
of merchandise or the supplying of services by Debtor in the
regular course of its business or otherwise and any of Debtor's
other assets or property defined under the Uniform Commercial
Code of New York as accounts, general intangibles, chattel paper
or instruments, and all cash and non-cash proceeds thereof, and
all security therefor and guaranties and credit enhancements
(including but not limited to letters of credit) thereof, and all
of Debtor's rights present or future to any property sold or
leased which is represented thereby.
(b) "Eligible Receivables" means open Receivables
arising in the normal course of Debtor's business which are and
at all times shall continue to be acceptable to Secured Party in
all respects, as determined in its sole discretion exercised
reasonably and in good faith. No Receivable which has become
ineligible pursuant to paragraph 2(b) above or is due from an
Affiliate shall be deemed to be an Eligible Receivable.
(c) "Obligations" means all advances from time to time
made by Secured Party to Debtor and to others at Debtor's request
or for Debtor's account under this Agreement and also all other
indebtedness and obligations owing by Debtor or its Affiliates to
Secured Party or its parent corporation or its affiliates under
this Agreement, any supplement hereto, or otherwise, now existing
or hereafter arising, whether such Obligations be absolute or
contingent, joint or several, matured or unmatured, direct or
indirect, primary or secondary, due or to become due, including
without limitation the Secured Party's compensation referred to
herein, all charges and fees that Secured Party may have incurred
in filing public notices and any local taxes relating thereto,
all costs and expenses (including attorneys' fees) incurred by
Secured Party in efforts made to enforce payment or to otherwise
effect collection of any Receivables or in protecting,
maintaining, preserving, enforcing or foreclosing the rights, and
the pledge, lien and security interest in Receivables, of Secured
Party hereunder, or in defending or prosecuting any actions or
proceedings arising out of or relating to Secured Party's
transactions with Debtor, through judicial proceedings or
otherwise, all of which Debtor agrees to pay as provided herein.
Debtor authorizes Secured Party to pay to any landlord on behalf
of Debtor the amount of any statutory landlord's lien or charge
on property in which Secured Party has a security interest, but
Secured Party shall not be obligated to do so or continue to do
so.
(d) "Base Rate" means the interest rate announced by
CHEMICAL BANK from time to time as its "Prime Rate", which rate
is not necessarily the rate charged to any particular borrower or
class of borrowers of said bank.
(e) "Account Debtor" means a person (other than the
Debtor or a guarantor of the Debtor) who is obligated on an
account, chattel paper, contract right, general intangible,
instrument or other Receivable.
(f) "Affiliates" means any entity (i) that directly
or indirectly controls, is controlled by or is under common
control with Debtor or (ii) twenty percent (20%) or more of whose
voting stock or (if not a corporation) equity interest or
economic value is owned directly or beneficially or held by a
person or entity referred to above.
5. As security for the payment in full of all Obligations,
including all advances made and to be made hereunder by Secured
Party, Debtor does hereby grant to Secured Party a continuing
security interest in, and hereby assigns, transfers pledges and
sets over to Secured Party all of Debtor's right, title and
interest in and to: all the Debtor's Receivables present and
future, whether or not now or hereafter specifically assigned or
pledged to Secured Party, and whether or not constituting
Eligible Receivables, whether now existing or hereafter created;
all proceeds of such Receivables in whatever form, including,
cash, deposit accounts, negotiable instruments and other
instruments for the payment of money; the merchandise or other
property represented by such Receivables or out of which they
arise; all such property that may be reclaimed or repossessed
from Account Debtors; all other accounts due from Account Debtors
to Debtor; all of Debtor's right as an unpaid vendor or lienor
including stoppage in transit, replevin and reclamation; any
other of Debtor's property held by Secured Party or by others for
the Secured Party's account, including any deposit or other
balances standing to the Debtor's credit on Secured Party's books
or the books of Secured Party's parent or affiliates which
Secured Party may at any time, without notice, apply against
payment of any or all of the Obligations, whether or not due; and
all general intangibles pertaining to, arising from or relevant
to the enforcement of, any Receivables. The continuing general
assignment of and security interest in Receivables contained
herein shall include all documents, contracts, lien and security
instruments, guaranties and other credit enhancements, books and
records evidencing, securing or relating to the Receivables, data
processing cards, tapes, tabulating runs, programs and similar
material pertaining to the Receivables, together with all of
Debtor's rights and remedies of whatever kind or nature it may
hold or acquire for the purpose of securing and enforcing such
Receivables. Debtor will mark its ledger cards, books of account
and other records relating to Receivables with appropriate
notations satisfactory to Secured Party disclosing that such
Receivables have been pledged, transferred and assigned to
Secured Party.
6. In furtherance of the continuing assignment and
security interest herein contained, Debtor will, upon the
creation of Receivables, or at such intervals as Secured Party
may require, provide Secured Party with confirmatory schedules
and assignments in form satisfactory to Secured Party, copies of
invoices to customers, evidence of shipment and delivery, and
such further information and documentation as Secured Party may
require and Debtor, at Secured Party's request, shall deliver to
Secured Party all documents and written instruments (duly
endorsed) constituting or relating to Receivables. Without
limiting the foregoing, Debtor shall, no later than the tenth day
of each month, deliver to Secured Party an ageing of the
Receivables in such form and detail as Secured Party may require,
as of the last business day of the immediately preceding month.
Debtor will take any and all steps and observe such formalities
and will execute and deliver all papers, financing statements and
instruments and do all things necessary to effectuate this
Agreement and facilitate collections of Receivables. Debtor's
failure to do any of the foregoing shall not be deemed to limit
or affect the security interests or rights granted to Secured
Party under this Agreement.
7. (a) Debtor will pay Secured Party as its compensation,
monthly, interest at the rate of FOUR PERCENT (4%) above the Base
Rate from time to time in effect as provided in subsection "(b)"
of this paragraph (the "Contract Rate") on the outstanding
balance of all advances and other Obligations at the end of each
day in Debtor's account. Notwithstanding the foregoing, all such
balances shall bear interest from and after the occurrence of an
Event of Default as set forth in paragraph 14 below, and during
the continuance thereof, at a rate per annum of two (2)
percentage points above the Contract Rate from time to time in
effect, payable as provided in this Agreement. In no event shall
Secured Party's interest charge hereunder exceed the maximum rate
of interest permitted by applicable provisions of law.
(b) Interest payments due pursuant to subsection "(a)"
of this paragraph shall be charged into the Debtor's account by
Secured Party as of the last day of the month for which such
interest accrues. Such amount shall be deemed paid out of the
first collections in the account subsequent to the date of the
charge. If the Secured Party's Base Rate shall be increased,
the interest to be paid by Debtor to Secured Party shall be
increased by 1/4 of 1% per annum for each 1/4 of 1% per annum of
increase in said Base Rate: The Secured Party's present Base
Rate is 8.25% per annum. If the Secured Party's Base Rate shall
be decreased, the interest to be paid to Secured Party shall be
reduced by 1/4 of 1% per annum for each 1/4 of 1% per annum reduction
in the Base Rate. In no event, however, shall the compensation
to be paid by Debtor to Secured Party be less than the interest
rate first shown in subsection "(a)" of this paragraph 7. All
interest hereunder shall be computed on the basis of a 360-day
year, for the actual number of days elapsed. Increases or
decreases in interest arising from changes in the Base Rate shall
be effective as of the date of such change.
(c) Debtor will pay Secured Party a field examination
fee equal to FIVE HUNDRED DOLLARS ($500.00) per person per day
for any examination of Debtor, its books and records, the
Receivables or other security granted under this Agreement or
Debtor's property and premises, plus out-of-pocket expenses
incurred by Secured Party including, without limitation,
reasonable travel expenses, payable upon demand, not to exceed
$4,000 per year.
(d) Debtor will pay Secured Party, upon demand, all
reasonable out-of-pocket fees, costs and expenses (including but
not limited to legal fees, costs and expenses) incurred by
Secured Party in connection with, or arising under, this
Agreement including but not limited to the negotiation,
documentation, implementation and enforcement of this Agreement
or the perfecting of security interests and the monitoring,
collecting and enforcement of the Receivables, any other security
granted to Secured Party, or any guaranty or other credit
enhancement.
8. With respect to Debtor and to each Receivable, present
or future, Debtor hereby makes the following representations,
covenants and warranties, which shall be deemed to be
incorporated by reference in each confirmatory assignment and
ageing submitted by Debtor to Secured Party and shall in any
event be deemed to be repeated and confirmed with respect to each
Receivable as it is created or otherwise acquired by Debtor and
to each advance from Secured Party requested or accepted by
Debtor;
(a) Debtor's chief place of business, and the office
where its records concerning Receivables are kept, is at the
address shown at the head of this Agreement. Debtor has no other
place of business except at 501 SEVENTH AVENUE, NEW YORK, NEW
YORK. Secured Party may rely upon the foregoing until it shall
have received ten (10) days prior written notice to the contrary
from Debtor.
(b) So long as any Obligations to Secured Party shall
be outstanding, Debtor shall not, without the prior written
consent of Secured Party, pledge, assign or grant any security
interest in any Receivable or pledge, mortgage or grant a
security interest in any of its general intangibles, inventory,
equipment, or other property to anyone except Secured Party, or
permit any lien or encumbrance to attach to any of the foregoing,
or any levy to be made thereon, or any financing statement
(except the Secured Party's) to be on file with respect thereto,
or sell any Receivable, or sell any inventory otherwise than in
the ordinary course of business.
(c) Debtor is solvent and will remain so and has
induced Secured Party to make advances hereunder upon Debtor's
written representation concerning its financial responsibility,
which it agrees to renew in writing to Secured Party upon request
from time to time, but in any event not less often than once each
year. No federal tax lien has been assessed against Debtor which
remains unpaid and undischarged except as heretofore dislcosed by
Debtor. Debtor is not and will not be during the term of this
Agreement in default to the United States in payment or deposit
of any withholding taxes or F.I.C.A. taxes, and will furnish
proof in respect thereto on request.
(d) Debtor will furnish to Secured Party within ninety
(90) days after the close of Debtor's fiscal year a balance sheet
of Debtor as of the end of such fiscal year, and a profit and
loss statement and surplus statement, all certified by
independent public accountants acceptable to Secured Party.
Debtor will furnish to Secured Party within forty-five (45) days
after the close of the first, second and third quarter of each
fiscal year similar statements, certified by a principal
financial officer of Debtor, for the elapsed portion of the
fiscal year. DEBTOR WILL PROMPTLY FURISH SECURED PARTY COPIES OF
ALL 10K'S, 10Q'S AND OTHER SEC FILINGS AS ISSUED. All such
statements shall correspond to the books of account of Debtor and
such books shall have been kept and such statements prepared in
accordance with generally accepted accounting principles
consistently applied.
(e) All statements made and all unpaid balances
appearing in the invoices, documents and instruments,
representing or constituting any Receivable or in the title
retention or security agreement accompanying such Receivable, and
the nature of the transaction as indicated, are true and correct
and are in all respects what they purport to be. All signatures
and endorsements that appear thereon are genuine and all
signatories and endorsers have full capacity to contract.
(f) At the time any Receivable becomes subject to a
security interest in favor of Secured Party: Said Receivable
shall be a good and valid account representing an undisputed,
unconditional bona fide indebtedness incurred by the Account
Debtor named therein for merchandise sold and delivered, or for
services theretofore fully performed by the Debtor for said
Account Debtor. There are and shall be no setoffs or
counterclaims or rights of recoupment against any such
Receivable; no agreement under which any deduction or discount
may be claimed shall have been made by Debtor on any such
Receivable except as indicated in a written list, statement, or
invoice contemporaneously furnished to Secured Party; and Debtor
shall be the lawful owner of each such Receivable and shall have
the right to subject the same to a first and prior security
interest in favor of Secured Party, without limitation by any
agreement or document to which Debtor is a party or by which it
is bound. No such Receivable shall have been or shall thereafter
be sold, assigned or transferred to any person other than Secured
Party or in any way encumbered except to Secured Party and no
other person shall have proceeds claims thereto, and the Debtor
shall defend the same against the claims and demands of all
persons.
(g) Debtor has no Affiliates except as set forth on
Exhibit A hereto.
(h) Debtor's tangible net worth and subordinated debt
shall be not less than $1,600,000 Dollars. "Tangible net worth"
shall mean tangible assets minus liabilities and "working
capital" shall mean current assets minus current liabilities, all
as determined in accordance with generally accepted accounting
principles consistently and as presently applied.
(i) Debtor will not materially change its management,
guaranty or endorse the obligations of any person or entity
except in the ordinary course of Debtor's business, enter into
any merger or consolidation, sell or lease a substantial portion
of its assets (other than the sale of inventory or surplus or
obsolete equipment in the ordinary course of business) or
purchase or otherwise acquire the obligations, assets or capital
stock of any person or entity (other than the purchase of
inventory, equipment and other property in the ordinary course of
business).
(j) Debtor is a duly organized and validly existing
corporation in good standing under the laws of the State of
DELAWARE and is duly qualified as a foreign corporation, and is
in good standing, in New York and in all states where the nature
of its business or the ownership or use of its property requires
such qualification and where the failure to so qualify would have
a material adverse effect on the conduct of its business or the
collection of the Receivables. It has the corporate power and
authority to enter into this Agreement, to own its properties and
to transact the business in which it is engaged. The execution,
delivery and performance of this Agreement have been duly
authorized and are not in contravention of Debtor's certificate
of incorporation or bylaws, or of any indenture, agreement or
undertaking to which it is a party or by which its properties are
bound.
9. (a) Until the Debtor's authority so to do is
terminated by notice from Secured Party (which notice Secured
Party may give at any time in its discretion) Debtor will, at its
own cost and expense, but on Secured Party's behalf and for
Secured Party's account, collect and otherwise enforce as Secured
Party's property and in trust for Secured Party, all amounts
unpaid on Receivables, and shall not commingle such collections
with Debtor's own funds or use the same except to pay Debtor's
obligations to Secured Party. Debtor shall forthwith remit to
Secured Party all amounts so collected in kind, whether in the
form of cash, checks, drafts, notes, acceptances or other
evidence of payment, including all prepayments by Account Debtors
to Debtor in the form received.
(b) At Secured Party's request Debtor shall establish
and maintain at a bank reasonably designated by Secured Party a
lockbox, in accordance with such terms as Secured Party may
reasonably require, and direct all Account Debtors to make all
remittances on all Receivables to said lockbox. Any and all
remittances received in said lockbox shall be applied to the
Obligations, as of the date of actual receipt by Secured Party,
provided, however, that for the purpose of calculation of
interest due to Secured Party under this Agreement such
application shall be deemed to have occurred two (2) days after
such receipt.
10. Any remittance received by Debtor from any Account
Debtor shall be presumed applicable to Receivables and subject to
Secured Party's security interest and shall be turned over by
Debtor to Secured Party forthwith. No check, note, draft or
other instrument for the payment of money which may be received
on any Receivable shall be considered to be payment thereof for
any purpose whatsoever hereunder, unless and until and only to
the extent that, the same has actually been finally collected by
Secured Party.
11. Secured Party shall at all reasonable times have full
access to and the right to audit Debtor's accounts, books,
records, shipping records and correspondence; to confirm orders,
and to verify all Receivables in the name of Secured Party or any
other name used by Secured Party for verifications or through any
public accountant, and to take any other steps deemed necessary
or advisable by Secured Party to protect its interests.
12. Debtor hereby irrevocably authorizes and directs all
accountants and auditors employed or engaged by Debtor at any
time during the time of this Agreement and all data processing
centers or other persons holding materials herein mentioned
relating to Debtor to exhibit to Secured Party and to deliver to
it copies of any of Debtor's financial statements, trial balances
or other accounting records of any sort in their possession, or
data processing cards, tapes, programs, tabulating runs, or
similar material (electronic or otherwise) and to disclose to
Secured Party any information they may have concerning Debtor's
financial status and business operations, whether relating to
Receivables or otherwise, and authorizes Secured Party to rely
thereon. Debtor will at the request of Secured Party execute
confirmatory letters of direction in accordance with this
paragraph.
13. Debtor shall immediately notify Secured Party of all
instances involving the return, rejection, repossession, loss of
or damage to merchandise covered by the Receivables, of any
request for credit or adjustment of any merchandise or other
dispute arising with respect to the Receivables; and generally of
all happenings and events affecting Receivables or the value or
amount thereof or affecting Debtors financial or business
condition or prospects. If any Account Debtor shall reject or
return merchandise, or if any merchandise be repossessed, Debtor
will immediately notify Secured Party and hold the same
segregated in trust for and subject to the order of Secured
Party. Secured Party may take and sell the same with five (5)
days notice upon such terms as it shall determine, applying the
net proceeds of resale, after expenses to the Obligations in such
order as Secured Party may choose. At Secured Party's option,
Debtor will pay to Secured Party the amount of the original
Receivable relating to such goods. In case any such goods should
be resold, the Receivables thereby created shall be deemed
subject to Secured Party's security interest hereunder.
14. In the event any one or more of the following Events of
Default shall occur and be continuing: if Debtor shall have
failed to pay any Obligation when due; or if Debtor shall have
breached any of the provisions, representations, warranties or
covenants of this Agreement, or any supplement hereto, or any
other agreement between the parties now existing or hereafter
entered into, or if any statements (including, without
limitation, any Receivables ageings) furnished by Debtor relating
to the Receivables or to the operations and financial condition
of Debtor shall have proved to be false in any material respect;
or if Debtor shall become insolvent; or if Debtor shall be unable
to meet its debts as they mature, or shall have suspended
operations; or if Debtor shall have discontinued its business as
a going concern, or shall have made an assignment for the benefit
of creditors; or if a meeting of Debtor's creditors shall have
been called; or if there shall have been filed by or against
Debtor a petition under any of the provisions of the Bankruptcy
Code (a "Bankruptcy Event"); or if any proceeding shall have been
commenced by or against Debtor under any insolvency law (an
"Insolvency Event"); or if a receiver or trustee shall have been
appointed to administer the assets or affairs of Debtor; or if a
judgment shall have been entered or any attachment shall have
been levied against the assets of Debtor which, in the judgment
of Secured Party, will adversely affect Debtor's ability to
perform this Agreement or which, in Secured Party's judgment,
will impair the enforceability of Secured Party's lien upon and
security interest in the Receivables or if the condition or
affairs of Debtor shall so change as, in the opinion of Secured
Party, shall increase its credit risk, or if Secured Party deems
itself insecure; or if any of the foregoing events shall have
occurred in reference to any guarantor for the Debtor or any such
guarantor shall terminate or deny or challenge the validity or
enforceability of its guaranty; then in any of such events, all
of Debtor's Obligations shall at the option of Secured Party
immediately become due and payable, without notice if the event
is a Bankruptcy Event or Insolvency Event, and immediately upon
notice as to any other event, and Secured Party shall have in any
jurisdiction where enforcement hereof is sought, in addition to
all other rights and remedies, the rights and remedies of a
secured party under the Uniform Commercial Code of New York. All
requirements of notice shall be met if Secured Party shall give
to Debtor at least [five (5)] days' prior written notice of the
time and place of any public sale of Receivables or other
property or of the time after which any private sale or any other
disposition is to be made, which period of notice Debtor agrees
is reasonable; nor shall notice be required if the property is
perishable or threatens to decline speedily in value or is of a
type customarily sold on a recognized market. The net cash
proceeds resulting from the exercise of any of the forgoing
rights, after deducting all charges, expenses, costs and
attorneys' fees relating thereto, shall be applied by Secured
Party to the payment of Obligations, whether due or to become
due, in such order as Secured Party may elect, and Debtor shall
remain liable to Secured Party for any deficiency, which shall be
paid on demand. If an attorney is used to enforce or collect the
Obligations an attorney's fee of 15% thereof shall be added
thereto.
15. Debtor shall notify Secured Party if any Receivable
includes an amount equal to any tax due to any governmental
authority. If a Receivable includes or is subject to a charge
for any tax payable to any governmental authority, Debtor hereby
indemnifies Secured Party against any liability with respect
thereto and Secured Party is authorized, in its discretion, to
pay the amount of such tax for the account of Debtor and to
charge Debtor's account therefor. If at any time Secured Party
shall be required to pay any Federal, State or local taxes of any
kind in relation to the Receivables, Secured Party may charge to
Debtor as an advance the amount of tax so paid.
16. Debtor hereby constitutes Secured Party and each of its
officers, agents or designees as Debtor's Attorney in Fact, with
power to endorse the name of Debtor upon any notes, acceptances,
checks, drafts, money orders or other evidences of payment or
collateral that may come into Secured Party's possession; to sign
Debtor's name to any invoice or bill of lading relating to any
Receivable, drafts against Account debtors, assignments,
verifications and notices to Account Debtors; to send
verifications of Receivables to any Account Debtor; to execute in
Debtor's name as well as its own name and to file financing
statements and other instruments or documents which Secured Party
deems necessary or desirable to perfect the security interests
which are intended that Secured Party have under this Agreement;
to do all other acts and things necessary to carry out this
Agreement; to receive, open and dispose of all mail addressed to
Debtor and to notify the post office authorities to change the
address for delivery of mail addressed to Debtor to such address
as Secured Party may designate. All acts of said attorney or
designee are hereby ratified and approved; and said attorney or
designee shall not be liable for any acts of commission or
omission, nor for any error of judgment or mistake of fact or
law. This power, being coupled with an interest, is irrevocable
while any Obligations shall remain unpaid.
17. Secured Party may, without notice to or consent from
Debtor, sue upon or otherwise collect, extend the time of payment
of, or compromise or settle for cash, credit or otherwise, upon
any terms, any Receivable or any security or insurance applicable
thereto, which is hereby assigned to Secured Party, and release
any Account Debtor thereon, or accept the return of any
merchandise and dispose of same, all without affecting in any way
the liability of Debtor hereunder.
18. Debtor shall not, without the consent of Secured Party
if the amount at issue exceeds SEVENTY-FIVE HUNDRED DOLLARS
($7,500.00), compromise or adjust any Receivable (or extend the
time for payment thereof) or grant any additional discounts,
allowances or credits thereon, or accept the return of any
merchandise.
19. Failure by Secured Party to exercise any right, remedy
or option under this Agreement or declare any default herein or
delay by Secured Party in exercising the same shall not operate
as a waiver thereof or as a waiver of any similar right or remedy
in any other situation. No waiver by Secured Party shall be
effective unless it is confirmed in writing and then only to the
extent specifically stated. Secured Party's rights and remedies
under this Agreement shall be cumulative and not exclusive of any
other right or remedy which Secured Party may have. No course of
dealing shall be effective to change, modify or discharge any
provision hereof. Secured Party's rights shall remain in full
force and effect notwithstanding the fact that Debtor's account
may from time to time be temporarily in a credit position, until
final payment of all Obligations in full. SECURED PARTY AND
DEBTOR WAIVE ALL RIGHT TO A TRIAL BY JURY IN ANY LITIGATION
RELATING TO ANY TRANSACTION OR MATTER ARISING UNDER THIS
AGREEMENT. To the extent that Debtor's Obligations are now or
hereafter secured by property other than the Receivables or
supported by the guaranty, endorsement or property of any other
person, firm or corporation, then Secured Party shall have the
right in its sole discretion to determine which rights, security,
liens, security interests, or remedies Secured Party may at any
time pursue, relinquish, subordinate, modify or otherwise act
with respect thereto, without in any way modifying or affecting
any of Secured Party's rights hereunder. Debtor hereby waives
presentment, notice of dishonor and protest of all instruments
included in or evidencing Receivables or collateral and, except
as specified herein, any and all other notices and demands
whatsoever, whether or not relating to such instruments. Secured
Party shall not, under any circumstances or in any event
whatsoever, have any liability for any error or omission or delay
of any kind occurring in the settlement, collection or payment of
any Receivables or any instrument received in payment thereof or
for any damage resulting therefrom. Secured Party shall not be
obligated to take any particular steps in collection in any
situation where it has taken over collection of any Receivable or
Receivables.
20. Neither this Agreement, nor any portion or provision
hereof, may be changed, modified, amended, waived, supplemented,
discharged, cancelled, or terminated orally or in any manner
other than by an agreement in writing signed by the party to be
charged. Any notices to be served hereunder must (except as
otherwise stated in this Agreement) be served by registered or
certified mail, addressed to the last known post office address
of the party to whom such notice is given and shall be deemed
served when deposited in any post office or branch post office.
Demands or notices sent to the Debtor's address at which Secured
Party customarily communicates with the Debtor by hand delivery
or by facsimile transmission shall also be effective. In the
event that any provision of this Agreement shall be held to be
invalid by any court, such invalidity shall not affect the
remainder of this Agreement.
21. This Agreement shall inure to the benefit of and shall
be binding upon the respective successors and/or assigns of
Debtor and Secured Party. It shall become effective on the day
when finally accepted by Secured Party at its office in the State
of New York. This Agreement shall remain in effect for a period
of two years from such effective date and shall be deemed
automatically renewed for successive periods of one year;
subject, however, to the right of either party to terminate it as
at the end of the second or any succeeding year, upon at least
sixty (60) days prior written notice. Should an Event of Default
as defined in paragraph 14 above have occurred and be continuing,
this Agreement shall be terminable at any time by Secured Party
as therein provided. Upon the effective date of termination of
this Agreement, or occurrence of an Event of Default as provided
in paragraph 14 above, if sooner, all Obligations shall be due
and payable by Debtor to Secured Party without further notice or
demand. Secured Party's rights and remedies hereunder,
including, without limitation, the security interests granted to
Secured Party, shall continue to be fully operative until all
transactions having their inception or entered into, rights
created or obligations incurred hereunder have been fully and
finally paid to Secured Party, concluded or liquidated.
22. This Agreement shall be deemed made in New York and
subject to the laws of the State of New York and Debtor consents
to the jurisdiction of any local, State or Federal Court located
within the State of New York, and if Debtor is presently or in
the future becomes a non-resident of the State of New York,
Debtor hereby waives personal service of any and all process and
consents that all such service of process shall be made by
certified or registered mail, return receipt requested, directed
to Debtor at its address appearing on the records of the Secured
Party and service so made shall be complete [ten (10)] days after
the same has been posted as aforesaid.
IN WITNESS WHEREOF, Secured Party and Debtor have caused
this Agreement to be executed by their respective officers duly
authorized the day and year first above written.
JIM HJELM'S PRIVATE COLLECTION, LTD.
SEAL
By:__________________________
JOSEPH L. MURPHY
Its PRESIDENT
Attest _____________________
(Secretary)
ACCEPTED at New York, New York
on FEBRUARY 16, 1996. CBC of New York, Inc.,trading as
CONTINENTAL BUSINESS CREDIT
By______________________
GERALD J. GROSSMAN
Its President
hjelm\10KSB-96.J14
<PAGE>
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation by reference in this Form 10-KSB of our report dated
January 27, 1997 included in Registration Statement File No.
333-2366. It should be noted that we have not audited any financial
statements of the company subsequent to October 31, 1996 or
performed any audit procedures subsequent to the date of our
report.
New York, New York Arthur Andersen LLP
February 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 83,807
<SECURITIES> 0
<RECEIVABLES> 2,787,014
<ALLOWANCES> 196,308
<INVENTORY> 1,734,491
<CURRENT-ASSETS> 4,698,526
<PP&E> 584,843
<DEPRECIATION> 353,599
<TOTAL-ASSETS> 5,124,465
<CURRENT-LIABILITIES> 2,713,359
<BONDS> 0
0
0
<COMMON> 328
<OTHER-SE> 2,402,581
<TOTAL-LIABILITY-AND-EQUITY> 5,124,465
<SALES> 12,642,141
<TOTAL-REVENUES> 12,642,141
<CGS> 7,729,025
<TOTAL-COSTS> 7,729,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 183,789
<INCOME-PRETAX> 945,234
<INCOME-TAX> 474,524
<INCOME-CONTINUING> 470,710
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 470,710
<EPS-PRIMARY> .30
<EPS-DILUTED> .29
</TABLE>
