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, 1997
OR
[ ] Transition Report under Section 13 or 15(d)
of the Securities Exchange Act of 1934
Commission File No.: 0-19000
JLM COUTURE, INC.
(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
$14,028,791.
The aggregate market value of the shares of Common Stock held
by non-affiliates as reported by NASDAQ on February 3, 1998 was
approximately $5,172,739.
As of February 3, 1998, the Registrant had outstanding
1,828,973 shares of Common Stock, par value $.0002 per share.
The Proxy Statement of the registrant to be filed on or before
February 28, 1998 is incorporated herein by reference.<PAGE>
PART I
Item 1. Description of Business.
(a) Background. JLM Couture, Inc. (the "Company"), a Delaware
corporation whose name was changed from Jim Hjelm's Private
Collection, Ltd. on July 17, 1997, 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.
On May 1, 1997, the Company acquired all of the outstanding
shares of stock of Alvina Valenta Couture Collection, Inc.
("Alvina"), a New York corporation that designs, manufactures and
markets couture-quality bridal wear, in exchange for shares of
common stock of the Company (the "Common Stock") and cash pursuant
to an agreement and plan of reorganization dated May 1, 1997, a
copy of which agreement is filed as an exhibit to this Report and
is incorporated herein by this reference. (See Note 3 to the
Consolidated Financial Statements.)
(b) Business. The Company is engaged in the design,
manufacture and distribution of bridal gowns, veils and bridesmaid
gowns.
The Company's couture lines of bridal gowns, bridesmaid gowns,
veils and related items (the "Private Collection," "Lazaro" and
"Alvina Valenta" lines) 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 its emphasis on quality and
design originality. Wholesale prices for 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 added the Alvina Valenta line through its
acquisition of Alvina on May 1, 1997. The Company also produces a
secondary line of less expensive bridal gowns called "Visions,"
which is styled similar 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<PAGE>
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. Since the Company's acquisition of Alvina, distribution
of the Alvina line has increased from 25 stores to approximately 55
to 60 stores. During its fiscal year ended October 31, 1997
("Fiscal 1997"), no customer accounted for more than ten percent of
the Company's sales.
The Company's lines of gowns for its new seasons are generally
introduced at fashion shows held at the Company's showroom or at
fashion shows held at a New York City hotel. There are generally
two seasons per year, the Spring Season and the Fall Season. The
Company also displays its products at regional markets and periodic
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 one of the Company's bridal gown
designers. 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. During Fiscal 1997, he was
awarded the 1997 Distinctive Excellence in the Bridal Industry
(DEBI) Award in the category of Style Innovator for Bridal Gowns.
This award recognized Lazaro as a leading designer of contemporary-
classic bridal styling, which represents one of the fastest growing
sectors of the bridal industry. Lazaro's dresses are marketed by
the Company under the name "Lazaro."
Victoria McMillan is the designer for the Company's Alvina
Valenta line of upscale wedding gowns since May 1997, when the
Company acquired Alvina. Ms. McMillan has been the designer for
Alvina since 1989.
<PAGE>
The Company's 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 Alvina Valenta, 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, Victoria McMillan and other
recognized designers that the Company employs.
The Company employs approximately 60 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 March 31, 2001, 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 quarter of Fiscal 1997, 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 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 1996
January 31, 1996 1.375 .875
April 30, 1996 2.875 .875
July 31, 1996 3.375 1.75
October 31, 1996 6.375 1.875
Fiscal 1997
January 31, 1997 5.875 4.125
April 30, 1997 6.00 4.375
July 31, 1997 6.25 4.25
October 31, 1997 6.125 4.625
On February 3, 1998, the closing bid and asked prices in the
Over-the-Counter market for the Common Stock as reported by NASDAQ
were $4.1875 and $4.25, respectively.
(b) At February 3, 1998, there were approximately 161 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 1997 as Compared to fiscal year
ended October 31, 1996 ("Fiscal 1996").
For Fiscal 1997, revenues were $14,028,791 as compared to
$12,642,141 in Fiscal 1996, an increase of $1,386,650 or 11.0%.
The increase is attributable to the following factors. The
revenues from Alvina Valenta Couture Collection, Inc. which was
acquired during the year totaled approximately $472,500. The
balance of the increase is due to the Company's existing bridesmaid
and bridal gowns.
The Company's gross profit margin increased in Fiscal 1997 to
43.2% from 38.9% in Fiscal 1996. The Company attributes this
increase to economies of scale from increased sales and a change in
product mix.
Selling, general and administrative ("SG&A") expenses
increased to 31.4% of sales in Fiscal 1997 as compared to 29.9% of
sales in Fiscal 1996. This was primarily due to increased
marketing and payroll costs to support increased sales. Payroll
costs were offset by a decrease in bonuses during Fiscal 1997 of
approximately $285,000.
The Company generated net income of $789,923, or $0.41 per
share ($0.41 on a fully diluted basis), for Fiscal 1997 as compared
to net income of $470,710, or $0.30 per share ($0.29 on a fully
diluted basis), for Fiscal 1996. The increase in net income for
Fiscal 1997 was due primarily to the factors mentioned above.
Liquidity and Capital Resources
The Company's working capital increased to $2,929,325 at
October 31, 1997 from $1,985,167 at October 31, 1996, an increase
of $920,605. Its current ratio was 2.2 to 1 at October 31, 1997 as
compared to 1.7 to 1 at October 31, 1996.
During Fiscal 1997, net cash provided by the Company's
operating activities was $392,404 as compared to $264,878 in Fiscal
1996. Cash flow in Fiscal 1997 was generated primarily by the
increased net income and increased accounts receivables.
Cash used in investment activities in Fiscal 1997 was $304,763
as compared to $83,488 in Fiscal 1996. This increase was due to
the acquisition of Alvina Valenta Couture Collection, Inc.
Cash provided by financing activities in Fiscal 1997 was
$302,246 as compared to cash used of $134,228 in Fiscal 1996. In
Fiscal 1997, the Company issued common stock in connection with the
acquisition of Alvina Valenta Couture Collection, Inc. which
generated cash of $172,900. The Company also generated $330,979
from the sale of Common Stock during Fiscal 1997 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. The Company has no reason to believe that the Bank
will not renew the Credit Line and believes, if it does not, that
it would be able to obtain a substitute line of credit to replace
the Credit Line. In the event the Bank does not renew the Credit
Line on February 16, 1998 when it becomes due, the Company would
likely experience serious working capital shortages. No assurance
can be given that the Company will be able to replace the credit
line on similar terms to its current agreement.
In November 1996, the Company, through a private placement,
raised $300,979 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.
Funds generated through the private placement discussed above
along with the Credit Line are expected to be sufficient for the
Company to meet its cash flow requirements.
Based on a preliminary study by management, the Company does
not anticipate replacing its current information systems to become
Year 2000 compliant. Rather, the Company intends to make
modifications to its current information systems to become Year
2000 compliant. Such costs to modify its current information
systems will be expensed as incurred. Management expects that the
costs to convert the Company's information systems to Year 2000
compliance will not have a material impact on the Company's
consolidated financial statements.
Safe Harbor Statement
Statements which are not historical facts, including
statements about the Company's confidence and strategies and its
expectations about new and existing products, technologies and
opportunities, market and industry segment growth, demand and
acceptance of new and existing products are forward looking
statements that involve risks and uncertainties. These include,
but are not limited to, product demand and market acceptance risks;
the impact of competitive products and pricing; the results of
financing efforts; the loss of any significant customers of any
business; the effect of the Company's accounting policies; the
effects of economic conditions and trade, legal, social, and
economic risks, such as import, licensing, and trade restrictions;
the results of the Company's business plan and the impact on the
Company of its relationship with its lenders.
<PAGE>
ITEM 7. Financial Statements.
The financial statements listed below are included on pages-F-
1 through F-22 following the signature page.
Title of Document Page
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of October 31, 1997 F-2 - F-3
and 1996
Consolidated Statements of Operations for the
years ended October 31, 1997 and 1996 F-4
Consolidated Statements of Shareholders' Equity
for the years ended October 31, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the
years ended October 31, 1997 and 1996 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-22
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
<PAGE>
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, 1998.
<PAGE>
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-8.
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 incorporated by reference to
Exhibit 10.6 of the Company's 1996 10-K.
10.7 Form of Subscription Agreement issued in the private
placement that ended October 31, 1996, with form of
Registration Rights Agreement incorporated by reference
to Exhibit 10.7 of the Company's 1996 10-K.
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 incorporated by reference to Exhibit
10.8 of the Company's 1996 10-K.
10.9 Amendment No. 1 dated February 16, 1996 to Employment
Agreement dated February 9, 1993 between the Company and
Mr. Jim Hjelm incorporated by reference to Exhibit 10.9
of the Company's 1996 10-K.
10.10 Loan and Security Agreement dated February 2, 1996
between CBC of New York Inc., trading as Continental
Business Credit, and the Company incorporated by
reference to Exhibit 10.10 of the Company's 1996 10-K.
10.11 Agreement and Plan of Reorganization dated May 1, 1997
among the Company, Victoria McMillan and Daniel McMillan.
10.12 Employment Agreement dated May 1, 1997 between the
Company and Victoria McMillan.
10.13 Composition Agreement dated December 31, 1997 between I.
Kleinfeld & Son, Inc. and the Unofficial Creditors'
Committee.
23.1 Consent of Arthur Andersen LLP dated February 12, 1998.
(b) Reports on Form 8-K.
During the last quarter of Fiscal 1997, the Company filed no
reports on Form 8-K.<PAGE>
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.
JLM COUTURE, INC.
Dated: February 13, 1998 By: /s/ Joseph L. Murphy
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 capacities and on the dates indicated:
Name Capacity Date
/s/ Daniel M. Sullivan Chairman of the Board February 13, 1998
Daniel M. Sullivan of Directors
/s/ Joseph L. Murphy President and Director February 13, 1998
Joseph L. Murphy (principal executive and
financial officer)
/s/ Joseph E. O'Grady Secretary and Director February 13, 1998
Joseph E. O'Grady
hjelm\10KSB-97.d15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
JLM Couture, Inc.
We have audited the accompanying consolidated balance sheets of JLM
Couture, Inc. (a Delaware corporation, formerly Jim Hjelm's Private
Collection, Ltd.) and subsidiary as of October 31, 1997 and 1996, and
the related consolidated 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 disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of JLM
Couture, Inc. and subsidiary as of October 31, 1997 and 1996, and the
results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
New York, New York
January 29, 1998
F-1<PAGE>
JLM COUTURE, INC.
Consolidated Balance Sheets as of
October 31, 1997 and 1996
1997 1996
---- ----
Current assets:
Cash $ 473,694 $ 83,807
Accounts receivable, net of
allowance for doubtful
accounts, trade discounts
and sales returns of $355,000
at October 31, 1997 and $196,308
at October 31, 1996 2,542,782 2,590,706
Inventories 1,912,049 1,734,491
Prepaid expenses and other
current assets 364,991 289,522
---------- ----------
Total current assets 5,293,516 4,698,526
Equipment and leasehold
improvements, net 286,439 231,244
Goodwill 281,693 0
Other assets 361,653 194,695
---------- ----------
$ 6,223,301 $ 5,124,465
========== ==========
F-2<PAGE>
JLM COUTURE, INC.
Consolidated Balance Sheets as of
October 31, 1997 and 1996
(continued)
1997 1996
---- ----
Current liabilities:
Revolving line of credit $ 792,707 $1,064,955
Current portion of long-term debt 19,428 -
Accounts payable 956,849 850,596
Accrued expenses and
other current liabilities 164,722 533,862
Income taxes payable 430,485 263,946
--------- ---------
Total current liabilities 2,364,191 2,713,359
Long-term debt 64,523 -
Other liabilities 61,581 71,937
Commitments and contingencies
(Note 11)
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 - 1,828,973 at October 31,
1997 and 1,637,823 at
October 31, 1996 365 328
Additional paid-in capital 2,678,774 2,071,572
Retained earnings 1,120,932 331,009
--------- ----------
3,800,071 2,402,909
Less: Note receivable and
accrued interest (62,075) (58,750)
Treasury stock, at cost:
1,667 shares in 1997
and 1996 (4,990) (4,990)
--------- ---------
Total shareholders' equity 3,733,006 2,339,169
--------- ---------
$6,223,301 $5,124,465
========= =========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-3<PAGE>
JLM COUTURE, INC.
Consolidated Statements of Operations
For the years ended October 31, 1997 and 1996
1997 1996
---- ----
Net sales $14,028,791 $12,642,141
Cost of goods sold 7,971,512 7,729,025
---------- ---------
Gross profit 6,057,279 4,913,116
Selling, general and admin-
istrative expenses 4,398,252 3,784,093
---------- ---------
Operating income 1,659,027 1,129,023
Interest expense, net of interest
income of $12,373 and $2,625 for
1997 and 1996, respectively (136,979) (183,789)
---------- --------
Income before provision for
income taxes 1,522,048 945,234
Provision for income taxes (732,125) (474,524)
---------- -------
Net income $ 789,923 $ 470,710
========== =======
Net income per weighted
average number of common and
common equivalent share:
Primary $0.41 $0.30
======= =======
Fully diluted $0.41 $0.29
======= =======
Weighted average number of
common and common equivalent
shares outstanding:
Primary 1,940,002 1,582,910
=========== ==========
Fully diluted 1,948,039 1,634,398
=========== ==========
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-4<PAGE>
<TABLE>
JLM COUTURE, INC.
Consolidated Statements of Shareholders' Equity
For the years ended October 31, 1997 and 1996
<CAPTION>
Note
Common Common Additional Receivable Total
Stock Stock 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, 1995 1,372,803 $275 $1,652,087 ($139,701) ($52,625) ($4,990) $1,455,046
Issuance 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 Exercise
of Common Stock Options (21,005) (4) (105,028) (105,032)
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 $328 $2,071,572 $331,009 $(58,750) $(4,990) $2,339,169
========= === ========= ======= ====== ===== =========
Issuance of Common Stock 95,000 19 330,960 - - - 330,979
Exercise of Common Stock
Options 59,750 11 79,796 - - - 79,807
Shares issued in
connection with acquisition
of business 36,400 7 172,893 - - - 172,900
Accrued interest on
Note Receivable - - - - (3,325) - (3,325)
Tax Benefit from Exercise
of Common Stock Options - - 23,553 - - - 23,553
Net Income - - - 789,923 - - 789,923
-------------------------------------------------------------------------------------------
Balance October 31, 1997 1,828,973 $365 $2,678,774 $1,120,932 $(62,075) $(4,990) $3,733,006
The accompanying notes to Consolidated Financial Statements are an integral part of these financial statements.
</TABLE>
F-5<PAGE>
JLM COUTURE, INC.
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1997 and 1996
1997 1996
---- ----
Cash flows from operating activities:
Net income 789,923 $470,710
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 57,416 48,993
Provision for doubtful accounts 286,261 274,638
Accrued interest income on note
receivable (3,325) (6,125)
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 (182,155) (995,633)
(Increase) decrease in inventories (140,671) 61,349
(Increase) decrease in prepaid expenses ( 75,469) 209,169
Increase in other assets (166,958) (65,984)
Increase (decrease) in accounts
payable 50,286 (377,343)
(Decrease) increase in accrued
expenses and other current
liabilities (402,640) 293,326
Increase in income taxes
payable 190,092 253,346
Decrease in other long-term liabil-
ities (10,356) (2,119)
Net cash provided by ------- -------
operating activities 392,404 264,878
------- -------
Cash flows from investing activities:
Purchase of property and equipment (110,963) (83,488)
Purchase of business, net of cash
acquired (193,800) -
Net cash used in investing activ- ------- --------
ities (304,763) (83,488)
======== ========
F-6<PAGE>
JLM COUTURE, INC.
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1997 and 1996
(Continued)
1997 1996
---- ----
Cash flows from financing activities:
Net reductions of revolving line
of credit $(272,248) $(235,045)
Repayments of notes payable (9,192) -
Proceeds from sale of Common Stock 330,979 50,000
Proceeds from stock option exercises 79,807 50,817
Issuance of Common Stock in
connection with purchase of
business 172,900 -
Net cash provided by (used
in) financing activities 302,246 (134,228)
------- --------
Net increase in cash 389,887 47,162
Cash, beginning of year 83,807 36,645
------- --------
Cash, end of year $ 473,694 $ 83,807
======= ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 144,898 $ 178,733
Income taxes $ 618,000 $ 12,008
Non-cash transactions
Tax benefit from exercise of
stock options $ 23,553 $ 218,170
Treasury stock received and retired
upon exercise of stock options $ - $ 105,032
The accompanying notes to consolidated financial statements
are an integral part of these financial statements.
F-7<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
Note 1. The Company
JLM Couture, Inc. (formerly known as 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
Basis of Presentation
The consolidated financial statements include the
accounts of JLM Couture, Inc. and its wholly-owned
subsidiary, Alvina Valenta Couture Collection, Inc.
All significant intercompany balances and transactions
have been eliminated.
Use of Estimates
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities
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.
Allowance for Doubtful Accounts
The allowance for doubtful accounts is determined based
upon estimates made by management and maintained at a
level considered adequate to provide for future
uncollectable amounts. Actual results could differ
from these estimates.
Inventories
Inventories are valued at the lower of cost (first-in,
first-out) or market and include material, labor and
overhead.
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets of $364,991
at October 31, 1997 and $289,522 at October 31, 1996
include approximately $151,000 and $251,000,
respectively, of costs relating to the design of the
Company's new product lines which are being amortized
over a two and one-half year period.
F-8<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
Equipment and Leasehold Improvements
Depreciation of 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 and
leasehold equipment is computed using the straight-line
method over the lesser of the lease term or estimated
useful lives of the assets. Major additions and
improvements are capitalized, and repairs and
maintenance are charged to operations as incurred.
Goodwill
Goodwill represents the excess of the purchase price
over the fair value of the assets of the business
acquired and is being amortized on a straight-line
basis over 20 years.
Long-Lived Assets
During fiscal 1997, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets,"
("SFAS 121"). SFAS 121 requires, among other things,
that an entity review its long-lived assets and certain
related intangibles for impairement whenever changes in
circumstances indicate that the carrying amount of an
asset may not be fully recoverable. As a result of its
review, the Company does not believe that any
impairment exists in the recoverability of its long-
lived assets.
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,
"Accounting for Income Taxes" (SFAS No. 109). 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.
F-9 <PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
Stock-Based Compensation
In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123"). This statement
establishes a fair value based method of accounting for
an employee stock option or similar equity instrument.
However, SFAS 123 allows an entity to continue to
measure compensation cost for employee stock-based
compensation plans using the intrinsic value method of
accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees," ("Opinion
25"). Entities electing to remain with accounting
under Opinion 25 are required to make pro forma
disclosures of net income and earnings per share as if
the fair value based method of accounting under SFAS
123 had been applied. The Company has elected to
continue to account for employee stock-based
compensation under Opinion 25 and provide the required
pro forma disclosures. (See Note 9.)
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.
Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," which became effective for the
Company's fiscal year beginning November 1, 1997,
establishes new standards for computing and presenting
F-10<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
earnings per share ("EPS"). The new standard requires
the presentation of basic EPS and diluted EPS. Basic
EPS is calculated by dividing income available to
common shareholders by the weighted average number of
common shares outstanding during the period. Diluted
EPS is calculated by dividing income available to
common shareholders by the weighted average number of
common shares outstanding adjusted to reflect
potentially dilutive securities. Previously reported
EPS amounts must be restated under the new standard
when it becomes effective. Under the new standard, EPS
would have been:
For the Years Ended
October 31,
1997 1996
Basic EPS $0.45 $0.33
Diluted EPS 0.41 0.30
Recent Accounting Pronouncements
In 1997, the Financial Accounting Standards Board
issued SFAS No. 130, "Reporting Comprehensive Income."
This standard establishes requirements for the
reporting and display of comprehensive income and its
components in a full set of general purposes financial
statements. Comprehensive income is the total of net
income and all other nonowner changes in equity. The
objective of this statement is to report a measure of
all changes in equity of a company that result from
transactions and other economic events in the period
other than transactions with owners. This standard is
effective for the Company's fiscal year beginning
November 1, 1998. The Company will make the necessary
disclosures, if necessary, when required. As this
statement relates solely to disclosure provisions, the
Company believes that the adoption of this standard
will not have an effect on its financial position or
results of operations.
F-11
<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
Reclassifications
Certain amounts in the fiscal year ended 1996 financial
statements have been reclassified to conform with the
fiscal year ended 1997 presentation.
Note 3. Acquisition of Business
On May 1, 1997, the Company acquired Alvina Valenta
Couture Collection, Inc. for a combination of cash and
shares of the Company's common stock. The cash portion
of the purchase price totaled $25,000 and the stock
portion of the purchase price totaled $172,900 and
consisted of 36,400 shares of the Company's common stock
valued at $4.75 per share (market price of the Company's
common stock immediately preceding the acquisition date).
The acquisition was accounted for using the purchase
method of accounting, and, accordingly, the purchase
price has been allocated to the assets purchased and the
liabilities assumed based upon the fair values at the
date of acquisition. The results of operations of the
acquired business prior to its acquisition is not
material to the Company's consolidated statements of
operations. The table below summarizes the purchase
price allocation --
Current assets $98,000
Equipment and leasehold
improvements 2,000
Current liabilities (59,000)
Debt (93,000)
The excess purchase price over net assets acquired
(goodwill) of approximately $282,000 includes $30,000 of
transaction costs and has been reflected in the
accompanying consolidated balance sheet as of October 31,
1997. The results of the acquired business have been
reflected in the accompanying consolidated statement of
operations since May 1, 1997.
F-12<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
Note 4. Inventories
At October 31, 1997 and 1996, inventories consisted of:
1997 1996
---- ----
Raw materials $1,180,107 $ 755,536
Work-in-process 145,670 103,056
Finished goods 586,272 875,899
--------- ---------
$1,912,049 $1,734,491
========= =========
Note 5. Equipment and Leasehold Improvements
Equipment and leasehold improvements at October 31,
1997 and 1996 is summarized as follows:
1997 1996
---- ----
Furniture and equipment $ 430,721 $ 315,704
Leasehold improvements 185,922 234,878
Leased equipment 34,261 34,261
------- -------
650,904 584,843
Less: Accumulated
depreciation and
amortization (364,465) (353,599)
------- -------
Equipment and leasehold
improvements, net $ 286,439 $ 231,244
======= =======
Note 6. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities as of
October 31, 1997 and 1996 are summarized as follows:
1997 1996
---- ----
Accrued employee bonuses $ 0 $ 285,000
Payroll taxes payable 0 97,728
Other 164,722 151,134
------- -------
$ 164,722 $ 533,862
======= =======
F-13<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
Note 7. Revolving Line of Credit and Long-term Debt
Revolving Line of Credit
At October 31, 1997, the Company had an available line of
credit of up to $1,700,000 with a financial institution.
At October 31, 1997 and 1996, the Company had borrowed
$792,707 and $1,064,955, respectively, under the line of
credit.
Credit availability under the line of credit is based on
eligible amounts of accounts receivable, as defined, and
totaled approximately $473,000 at October 31, 1997. The
line of credit expires in February 1998. The Company
expects to extend this line of credit prior to its
expiration; however, if the Company were unable to renew
the line of credit when it becomes due, the Company may
experience a working capital shortage. No assurance can
be given that the Company will be able to replace the
credit line on similar terms to the current agreement.
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 October 31, 1997, the Company is in
compliance with this covenant. Interest charged to
operations under this revolving line of credit amounted
to $144,898 and $139,375 for the years ended October 31,
1997 and 1996, respectively.
F-14<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
Long-Term Debt
Long-Term Debt, which was assumed in connection with
the acquisition of Alvina Valenta Couture Collection,
Inc. (See Note 3), consists of the following at
October 31, 1997 and 1996 --
October 31,
1997 1996
Small Business Administration
note payable dated December 20,
1996, with interest payable at
8.25% per annum. Monthly
principal payments of $952
through December 2003. $71,951 $ -
Small Business Administration
note payable dated May 4, 1994,
with interest payable at 8.5%
per annum. Monthly principal
payments of $667 through May
1999. 12,000 $ -
------- -------
83,951 -
Current portion of long-term
debt (19,428) -
------- -------
Long-term debt $64,523 $ -
======= =======
Annual maturies of long-term debt as of October 31,
1997 are as follows --
Fiscal Year Ended
October 31,
1998 $19,428
1999 15,420
2000 11,424
2001 11,424
2002 11,424
Thereafter 14,831
-------
$83,951
=======
F-15<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
Note 8. Income Taxes
The provision for income taxes for the years ended
October 31, 1997 and 1996, consist of the following:
1997 1996
---- ----
Current:
Federal $619,410 $250,811
State and local 187,086 83,654
------- -------
$806,496 334,465
------- -------
Deferred:
Federal $(55,479) 103,863
State and local (18,892) 36,196
------- -------
$(74,371) $140,059
------- -------
$732,125 $474,524
======= =======
A reconciliation of the statutory Federal income tax
rate to the effective income tax rate for the years
ended October 31,1997 and 1996, is as follows:
1997 1996
---- ----
Statutory Federal income tax at
applicable rates 34% 34%
State and local taxes, net of
federal tax benefit 7% 7%
Permanent differences 2% 3%
Adjustment to opening valuation
allowance 2% 4%
Other 3% 2%
--- ---
48% 50%
=== ===
F-16<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
The components of the net deferred tax asset at October 31, 1997
and 1996 are as follows:
1997 1996
-------- --------
Gross deferred tax asset $252,765 $185,594
Gross deferred tax liability (111,818) (107,482)
-------- -------
Net deferred tax asset 140,947 78,112
Less long-term portion (49,634) (75,968)
-------- -------
Current deferred tax asset $ 91,313 $ 2,144
======== =======
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 9. Shareholders' Equity
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-17
<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
In February 1996, the Company completed another private
sale of 50,000 shares of Common Stock for $50,000 to
outside parties. The private placement also included
warrants to purchase up to 20,000 shares of Common Stock
of the Company at $1.50 per share. The warrants were
exercised to purchase 20,000 shares of the Company's
stock during 1997.
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.
Stock Option Plans
On November 17, 1986, the Company adopted a Stock Option Plan, as
amended (the "1986 Plan"). The 1986 Plan provides for options and
limited stock appreciation rights ("Limited SARs") to be granted in
tandem to employees for a total of up to 100,000 shares of Common
Stock. The 1986 Plan was amended in February 1996 to increase the
authorized number of shares thereunder from 33,000 back to 100,000
due to an automatic decrease resulting from a 1 for 3 reverse stock
split that occurred in November 1994. Limited SARs may only be
granted in conjunction with related options. The exercise price of
options granted may not be less than the fair market value of the
shares on the date of the grant (110% of such fair market value for
a holder of more than 10% of the Company's voting securities), nor
may options be exercised more than ten years from date of grant (5
years for a holder of more than 10% of the Company's voting
securities). The 1986 Plan terminated in 1996 but the options
outstanding are valid pursuant to its terms.
On August 26, 1996, the Company adopted a Stock Option Plan (the
"1996 Plan"). The 1996 Plan provides for the issuance of incentive
and nonstatutory stock options to employees, consultants, advisors
and/or directors for a total of up to 100,000 shares of Common
Stock. The exercise price of options granted may not be less than
the fair market value of the shares on the date of grant (110% of
such fair market value for a holder of more than 10% of the
Company's common stock). The 1996 Plan will terminate on August
26, 2006.
F-18<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
The following table summarizes data relating to non-incentive plan
options and incentive plan options:
Incentive Non-Incentive
--------- -------------
1997 1996 1997 1996
---- ---- ---- ----
Options outstanding
at the beginning of
the year 84,750 2,500 149,666 272,500
Options granted 0 100,000 125,000 98,000
Options expired 0 (2,500) 0 (50,834)
Options exercised (44,750) (15,250) (15,000) (170,000)
-------- -------- -------- ---------
Options outstanding
at the end of the
year 40,000 84,750 259,666 149,666
====== ====== ======= =======
Options exercisable
at the end of the
year 40,000 39,500 259,666 149,666
====== ====== ======= =======
The exercise prices of the options outstanding at October 31, 1997
and 1996 range from $.87 to $4.625. At October 31, 1997, there are
no shares available for future grant under the incentive and non-
incentive stock option plans, respectively.
During fiscal 1996, 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 surrendering 19,700
shares of common stock with a fair market value of $98,500. These
shares were immediately canceled upon receipt by the Company.
As a result of individuals exercising their non-incentive stock
options in Fiscal 1997 and 1996, the Company realized a federal,
state and local income tax benefit of $23,553 and $218,170,
respectively. Such benefits were utilized to reduce the current
income tax payable and the benefits were recorded in additional
paid-in capital in the accompanying consolidated balance sheets as
of October 31, 1997 and 1996, respectively.
F-19<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
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. Stock options were
not granted to non-employees during 1997.
Effective November 1, 1996, the Company adopted the provisions of
SFAS 123, "Accounting for Stock Compensation." As permitted by the
statement, the Company has elected to continue to account for
stock-based compensation using the intrinsic value method under APB
Opinion No. 25. Accordingly, no compensation expense has been
recognized for stock-based compensation given to employees, since
the options granted were at prices that equaled or exceeded their
fair market value at the date of grant. If compensation expense
for the Company's stock options issued in fiscal 1997 and 1996 had
been determined based on the fair value method of accounting, the
Company's net income and earnings per share would have been reduced
to the pro forma amounts indicated below --
For the Years Ended
October 31,
1997 1996
Net income --
As reported $789,923 $470,710
Pro forma 640,942 434,225
Primary earnings
per share --
As reported $0.41 $0.29
Pro forma 0.33 0.27
The fair value of issued stock options was estimated at the date of
grant using the Black-Scholes option pricing model incorporating
the following assumptions for options granted --
F-20
<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
For the Years Ended
October 31,
1997 1996
Weighted average
market price at
date of grant $4.60 $1.20
Risk free interest
rate 6.50% 5.40%
Volatility factor 95% 90%
Expected life of
the stock options 3 years 3 years
Note 10. 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, 1997 and 1996 was $62,075 and $58,750, respectively.
Note 11. Commitments and Contingencies
Lease Commitments
The Company leases office, production, and retail facilities under
leases expiring through 2003. Minimum annual rentals under such
leases are as follows:
Year Ending
October 31,
1998 $ 209,262
1999 213,028
2000 214,426
2001 203,840
2002 136,834
Thereafter 28,500
---------
$1,005,890
=========
F-21<PAGE>
JLM COUTURE, INC.
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1997 and 1996
(continued)
Rent expense charged to operations for the foregoing lease and
short-term rentals for the years ended October 31, 1997 and 1996,
amounted to $269,874 and $229,011, respectively.
Employment Agreements
The Company has employment agreements with three of its key
employees terminating from June 2001 to May 2004. Total compens-
ation expensed under the terms of these agreements for the years
ended October 31, 1997 and 1996 was approximately $428,679 and
$294,800, respectively. Future minimum commitments are as follows:
Year Ending October 31, 1996
1998 $ 438,000
1999 398,000
2000 398,000
2001 348,000
2002 248,000
Thereafter 316,833
----------
$2,146,833
==========
F-22<PAGE>
Exhibit Index
10.11 Agreement and Plan of Reorganization dated May 1, 1997
among the Company, Victoria McMillan and Daniel McMillan.
10.12 Employment Agreement dated May 1, 1997 between the Company and
Victoria McMillan.
10.13 Composition Agreement dated December 31, 1997 between I. Kleinfeld
& Son, Inc. and the Unofficial Creditors' Committee.
23.1 Consent of Arthur Andersen LLP dated February 12, 1998.
WPDOCS\HJELM\10KSB-97.D15
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> OCT-31-1997 OCT-31-1997
<PERIOD-END> OCT-31-1997 OCT-31-1996
<CASH> 473,694 83,807
<SECURITIES> 0 0
<RECEIVABLES> 2,542,782 2,590,706
<ALLOWANCES> 0 0
<INVENTORY> 1,912,049 1,734,491
<CURRENT-ASSETS> 5,293,516 4,698,526
<PP&E> 286,439 231,244
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 6,223,301 5,124,465
<CURRENT-LIABILITIES> 2,364,191 2,713,359
<BONDS> 0 0
0 0
0 0
<COMMON> 365 328
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 6,223,301 5,124,465
<SALES> 14,028,791 12,642,141
<TOTAL-REVENUES> 14,028,791 12,642,141
<CGS> 7,971,512 7,729,025
<TOTAL-COSTS> 4,398,252 3,784,093
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (136,979) (183,789)
<INCOME-PRETAX> 1,522,048 945,324
<INCOME-TAX> (732,125) (474,524)
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 789,923 470,710
<EPS-PRIMARY> 0.41 0.30
<EPS-DILUTED> 0.41 0.29
</TABLE>
EXHIBIT 10.11
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement") is made as of May 1, 1997 by and among Alvina Valenta
Couture Collection, Inc., a New York corporation whose principal
place of business is located at 65 Deer Park Avenue, Babylon, New
York 11702 ("AVC"), Victoria McMillan and Daniel McMillan,
individuals residing at 40 Muncy Avenue, West Babylon, New York
11704 (collectively the "Shareholders") and Jim Hjelm's Private
Collection, Ltd., a Delaware corporation ("JHPC") whose principal
place of business is located at 225 West 37th Street, New York, New
York 10018.
WHEREAS, the Shareholders are the owners of all of the
issued and outstanding shares of stock of all classes of AVC (the
"AVC Stock");
WHEREAS, JHPC desires to acquire all of the AVC Stock
from the Shareholders, who desire to exchange all of their AVC
Stock for shares of common stock of JHPC, upon the terms and
conditions hereinafter set forth.
WHEREAS, the Shareholders, JHPC and AVC intend that the
transactions contemplated by this Agreement qualify as a tax free
Type B reorganization under Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, by reason of JHPC's acquisition of the AVC
stock solely in exchange for unregistered shares of common stock of
JHPC (the "JHPC Shares") with the result that JHPC shall have
control of AVC immediately after the Closing Date (as hereinafter
defined).
NOW, THEREFORE, the parties hereto agree as follows:
1. Agreement to Exchange Stock.
1.1 Exchange of Stock. In reliance upon the
respective warranties, representations and covenants of the parties
contained in this Agreement, and subject to the provisions of this
Agreement, JHPC agrees to acquire all of the AVC Stock from the
Shareholders, and each Shareholder agrees with JHPC to receive in
exchange for all of their respective shares of AVC Stock, the JHPC
Shares as more fully described below, effective as of the Closing
Date.
1.2 Shares to be Issued; Cash Payment; Adjustment.
(a) In consideration of the Shareholders' exchange
of AVC Stock, at Closing JHPC shall issue to the Shareholders such
number of JHPC Shares as set forth on Exhibit 1.2 annexed hereto,
JHPC shall agree to register 10,000 JHPC Shares in accordance with
the provisions of Section 9 hereof (the "Registered Shares").
(b) In addition to the issuance of the JHPC Shares,
at Closing, JHPC shall make a cash payment to the Shareholders as
set for on Exhibit 1.2; provided, however, the Shareholders shall
pledge their JHPC shares in accordance with Section 1.3 to cover
any negative book value on the Closing Balance Sheet (as defined
below).
(c) As soon as practicable (but in no event later
than 60 days) following the Closing Date, AVC shall prepare and
deliver to JHPC a balance sheet as of the Closing Date (the
"Closing Balance Sheet"). The Closing Balance Sheet shall be
prepared by AVC on a basis consistent with the balance sheet
included in the Financial Statements referred to in Section 2.6.
Following the Closing Date, JHPC shall afford AVC and its
representatives access to all books and records relating to AVC as
is necessary to enable AVC to prepare the Closing Balance Sheet. On
or before November 1, 1997, the Closing Balance Sheet shall be
adjusted by any unknown liabilities or uncollected receivables of
AVC which were incurred prior to the Closing Date, which became
known to JHPC after the Closing Date and which were not included in
the Closing Balance Sheet.
(d) JHPC may dispute any amounts reflected on the
Closing Balance Sheet by giving AVC notice specifying each of the
disputed items and setting forth in reasonable detail the basis for
such dispute. If the Closing Balance Sheet shows a deficit of
greater than $40,000 and JHPC has provided AVC notice of the
dispute, then (i) if the dispute involves less than $10,000, the
parties agree to split the disputed amount equally; or (ii) if the
disputed amount is $10,000 or more, the parties agree to submit the
items in dispute to an independent firm or person (other than a
"big six accounting firm") (the "Arbitrator"). The Arbitrator shall
determine the remaining disputed amounts, which determination shall
be final, conclusive and binding on all parties. The fees and
disbursements of the Arbitrator shall be borne equally by the
parties. If the Closing Balance Sheet shows a deficit, the
Shareholders shall either (i) promptly pay to JHPC an amount equal
to the deficit or (ii) deliver to JHPC that whole number of JHPC
Shares, which when multiplied by the greater of (A) $5.50 or (B)
the average bid and asked price of Common Stock as reported by
NASDAQ at the closing of the market at the date prior to delivery
of the JHPC Shares, equals the amount of the deficit.
1.3 Pledge. At Closing, the Shareholders shall
pledge to JHPC an aggregate of 10,000 shares of their shares of
JHPC Shares, pursuant to the provisions of a pledge agreement (the
"Pledge Agreement"), annexed hereto as Exhibit 1.3 (the "Pledged
Shares").
1.4 Closing. The closing of the sale and purchase
of the AVC Stock (the "Closing") shall take place at the offices of
Kalin & Banner, at 4:00 P.M. New York time on April 30, 1997 or at
such other time, place or date as the parties hereto may agree (the
"Closing Date").
1.5 Transfer of AVC Stock and Payment of Purchase
Price at Closing. At the Closing, subject to the terms of this
Agreement, the following transactions shall occur, and each such
transaction shall be deemed to occur simultaneously with and shall
be conditioned on the occurrence of each of the other transactions:
(a) AVC Stock Certificates. The Shareholders shall
deliver certificates to JHPC representing the AVC Stock, duly
endorsed in blank, with any required stock transfer and other
documentary stamps affixed.
(b) Delivery of JHPC Shares and Cash Payment to the
Shareholders. JHPC shall deliver or instruct JHPC's transfer
agent to deliver to the Shareholders certificates representing the
JHPC Shares, registered in the respective names of the Shareholders
and the cash payment described in Section 1.2(b).
(c) Opinions of Counsel. Each party shall cause to
be delivered to the other the opinions of counsel in accordance
with the provisions of Section 8.1 hereof.
(d) Employment Agreement. Victoria McMillan and
JHPC shall execute and deliver an employment agreement between JHPC
and Victoria McMillan (the "Employment Agreement"), in the form
attached hereto as Exhibit 1.5(d).
(e) Pledge Agreement. The Shareholders shall
execute and deliver to JHPC the Pledge Agreement in the form
attached hereto as Exhibit 1.3.
(f) Restrictive Covenant Agreement. The
Shareholders will execute the Restrictive Covenant Agreement in the
form attached hereto as Exhibit 1.5(f).
1.6 Holdback of JHPC Shares. Other than the
Registered Shares, the Shareholders agree that 50% of the balance
of the JHPC Shares shall not be sold, pledged, assigned,
transferred or hypothecated for a period of one year from the
Closing Date; and the remaining 50% shall not be sold, pledged,
assigned, transferred or hypothecated for a period of two years
from the Closing Date.
2. Representations, Warranties and Covenants of the
Shareholders and AVC. The Shareholders and AVC each hereby
represent, warrant and covenant to JHPC as follows:
2.1 Organization and Standing; Articles and Bylaws.
AVC is a corporation duly organized and validly existing under the
laws of its state of incorporation and is in good standing under
such laws. AVC has the requisite corporate power to own and
operate its properties and assets, and to carry on its business as
presently conducted and as proposed to be conducted. AVC is
qualified or licensed as a foreign corporation in all jurisdictions
where the nature of its activities or of its properties owned or
leased makes such qualification or licensing necessary at this
time. AVC has furnished JHPC with copies of its Articles of
Incorporation and Bylaws. Said copies are true, correct and
complete and contain all amendments through the date of this
Agreement.
2.2 Corporate Power. AVC and each Shareholder has,
and will have at the Closing, all requisite legal and corporate
power to enter into this Agreement, to sell the AVC Stock sold by
the Shareholders hereunder, and to carry out and perform their
obligations under the terms of this Agreement.
2.3 Subsidiaries. AVC has no subsidiaries. AVC
does not own, directly or indirectly, shares of stock or other
interests in any other corporation, association, joint venture, or
business organization.
2.4 Capitalization. AVC has the authorized number
of shares of Common Stock as set forth on Schedule 2.4. All of the
issued and outstanding shares of AVC have been duly authorized and
validly issued, and are fully paid and non-assessable and were
issued in compliance with all applicable state and federal laws
concerning the issuance of securities. The Shareholders own all of
the outstanding shares of AVC Stock, free and clear of any liens or
encumbrances. There are no outstanding options or other commitments
to issue shares of AVC.
2.5 Authorization.
(a) All corporate action on the part of AVC, its
officers, directors and stockholders necessary for the performance
by AVC of its obligations hereunder, has been taken prior to the
execution of this Agreement. This Agreement is a legal, valid, and
binding obligation of the Shareholders and AVC, enforceable against
them in accordance with its terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws of general
application affecting enforcement of creditor's rights, and
affecting the availability of equitable remedies.
(b) The AVC Stock exchanged by the Shareholders
under this Agreement, when delivered to JHPC in compliance with the
provisions of this Agreement, will be free of any liens or
encumbrances.
(c) No shareholder of AVC has any right of first
refusal or any preemptive rights in connection with the issuance of
the AVC Stock.
2.6 Financial Statements. AVC's financial
statements for the presented periods (the "Financial Statements")
are attached hereto as Schedule 2.6, are true and correct, have
been prepared in accordance with generally accepted accounting
principles consistently applied (except as disclosed therein), and
fairly present the financial condition of AVC and results of the
operations of AVC as of the date thereof.
2.7 Changes in Financial Condition. Since February
28, 1997, (a) neither the Shareholders nor AVC have entered into
any transaction, which was not in the ordinary course of business,
including, but not limited to, granting or releasing any lien,
transferring or otherwise disposing of any assets, compromising any
debt, releasing any rights of material value or granted any
material concessions; (b) there has been no material adverse change
in the condition (financial or otherwise), business, property,
assets, or liabilities of AVC; (c) there has been no damage to,
destruction of, or loss of physical property (whether or not
covered by insurance) materially adversely affecting the business
or operations of AVC; (d) AVC has not declared or paid any dividend
or made any distribution on its shares; (e) AVC has not materially
increased the compensation of any employee, or the rate of pay of
employees as a group; (f) neither the Shareholders nor AVC has
received notice that there has been a loss of any major customer of
the Shareholders or AVC, nor any material order cancellation; (g)
there has been no resignation or termination of employment of any
senior or key officer or employee of AVC, and neither the
Shareholders nor AVC (including, without limitation, the members of
AVC's board of directors and its executive officers as of the date
of this Agreement) knows of an impending resignation or termination
of employment of any officer or employee of AVC that if consummated
could have a materially adverse effect on the business of AVC; (h)
there has been no labor dispute involving AVC or its employees and
none is pending or, to the best knowledge of AVC (including,
without limitation, the members of AVC's board of directors and its
executive officer as of the date of this Agreement), threatened;
(i) neither the Shareholders nor any of the officers or employees
of AVC have lent AVC any funds; and (j) to the best of their
knowledge, there has been no other event or condition materially
adversely affecting the assets or business of AVC.
2.8 Material Contracts and Commitments. All of the
material contracts, commitments, agreements and instruments to
which AVC is a party are legal, valid, binding, and in full force
and effect in all material respects and enforceable by AVC in
accordance with their terms, except as limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws of general
application affecting enforcement of creditor's rights, and except
as limited by application of legal principles affecting the
availability of equitable remedies. AVC is not in default under
any of such contracts. All such material contracts are attached
hereto as Schedule 2.8.
2.9 Compliance with Other Instruments, etc. AVC is
not in violation of any term of its Articles of Incorporation or
Bylaws, and neither the Shareholders nor AVC are in violation in
any material respect of any mortgage, indenture, contract,
agreement, instrument, or any judgment, decree, order, statute,
rule, or regulation applicable to it or them. The execution,
delivery, and performance by the Shareholders of this Agreement,
and the exchange of the AVC Stock pursuant hereto, will not result
in any such violation or be in conflict with or constitute a
default under any such term, or cause the acceleration or maturity
of any loan or material obligation to which AVC or the Shareholders
are parties or by which the Shareholders or AVC are bound, or
result in the creation or imposition or any material lien, claim,
charge, restriction, equity, or encumbrance of any kind whatsoever
upon, or (except as contemplated herein) give to any other person
any interest or right (including any right of termination or
cancellation) in or with respect to any of the properties, assets,
business, or agreements of AVC.
2.10 Litigation, etc. There are no actions,
proceedings or investigations pending or threatened against AVC in
any way relating to AVC, any basis therefor or threat thereof,
which, either individually or in the aggregate, could result in any
material adverse change in the business, prospects, conditions,
affairs, or operations of AVC or in any of its properties or
assets, or in any impairment of the right or ability of AVC to
carry on its business as proposed to be conducted, or in any
material liability on the part of AVC, or which could affect the
validity of this Agreement or any action taken or to be taken in
connection herewith.
2.11 Governmental Consent, etc. No consent,
approval or authorization of, or designation, declaration or filing
with, any governmental unit or any other entity is required on the
part of the Shareholders or AVC in connection with the valid
execution and delivery of this Agreement, or the exchange of the
AVC Stock pursuant hereto or by this Agreement or necessary or
appropriate for consummation of the transactions contemplated
hereby.
2.12 List of Properties and Assets. Schedule 2.12
attached hereto is a complete and correct list setting forth the
following information:
(i) all real property owned of record or
beneficially by AVC and all leases of real property to which AVC is
a party, with a brief description of the property and any buildings
or structures located thereon and, in the case of each lease, the
rental terms (including rents, termination dates and renewal
conditions);
(ii) all licenses, leases and other rights to
personal property to which AVC is a party, with a brief description
of the property to which each such license, lease or other right
relates and the rental or other applicable usage terms (including
rents, termination dates and renewal conditions), other than leases
with respect to office equipment, fixtures and other incidental
personal property none of which involves payments in excess of
$5,000 per annum and all of which in the aggregate do not involve
payments in excess of $5,000 per annum;
(iii) all personal property owned of record or
beneficially by AVC other than office equipment, fixtures and other
incidental personal property having an aggregate value not in
excess of $5,000;
(iv)(A) all patents, trademarks and trade names,
trademark and trade name registrations, servicemark, brandmark and
brand name registrations, copyrights and copyright registrations,
unexpired as of the date hereof, all applications pending on said
date for patents, for trademark or trade name registrations, for
servicemark, brandmark or brand name registrations or for copyright
registrations, and all other proprietary or trade rights, used
and/or owned in whole or in part as noted thereon on said date by
AVC and (B) all other agreements to which AVC is a party which
relate in whole or in part to any items of the categories mentioned
in (A) next above or to other proprietary rights, whether owned by
AVC or otherwise;
(v) all policies of insurance in force (with a
notation as to the status of premiums paid or payable thereon)
insuring the properties, buildings, machinery, equipment, fixtures
or other assets of AVC;
(vi) all material contracts and commitments
(including, without limitation, mortgages, leases, indentures and
loan agreements) to which AVC is a party, or to which it or any of
its material assets or properties is subject;
(vii) all oral and written collective bargaining
agreements, employment and consulting agreements, executive
compensation plans, bonus plans or other incentive compensation
plans, deferred compensation agreements, employee pension plans or
retirement plans, severance pay arrangements, employee profit
sharing plans, employee stock purchase and stock option plans,
group life insurance, hospitalization insurance or other plans or
arrangements providing for benefits for employees of AVC
(indicating, with respect to each of the persons named pursuant to
Section 2.21 below, the amount received in the fiscal period ended
February 28, 1997 under each such agreement, plan or arrangement);
(viii) the name of each bank or other financial
institution from which loans, lines of credit or other credit
commitments to AVC are outstanding, the amount of each such loan or
commitment and the principal terms thereof;
(ix) all arrangements respecting loans to, or
guarantees of loans to, employees of AVC made by or to AVC.
True and complete copies of all documents and true and
complete written summaries of all oral agreements referred to in
such list have been delivered to JHPC and its counsel.
2.13 Books and Records. The books and records of
AVC are in all respects complete and correct, have been maintained
in accordance with good business practices and accurately reflect
the basis for the financial condition and results of operations of
AVC set forth in the Financial Statements referred to in Section
2.6 hereof.
2.14 Patents, Trademarks, etc. To the best
knowledge of AVC after due inquiry, AVC owns, or is licensed to
use, all patents, trade names, trademarks, copyrights, technology,
know-how and processes now used by it in connection with its
business. No trade name, trademark or service mark used by AVC is
now challenged in any way or involved in any pending or threatened
infringement proceeding. AVC is not a licensor in respect of any
service mark or trade name or registration or application therefor,
trademark, trademark registration or application, copyright,
copyright registration or application, patent or patent
registration or application. To the best knowledge of AVC, AVC is
not in violation of any service mark or trade name or registration
or application therefor, trademark, trademark registration or
application, copyright, copyright registration or application,
patent or patent registration or application of any other person.
None of the rights of AVC to any such patents, trademarks, trade
names, copyrights, designs and any licenses relating thereto will
be impaired in any way by the transactions contemplated by this
Agreement.
2.15 Accounts Receivable and Accounts Payable. The
accounts receivable of AVC as reflected on the Financial Statements
and on Schedule 2.15 and all accounts receivable arising thereafter
and prior to the Closing Date arose or will arise from bona fide
transactions in the ordinary course of business. To AVC's
knowledge, the accounts receivable are fully collectible, less the
applicable allowance of $10,000 for doubtful accounts and subject
to year-end adjustments consistent with practices in prior years.
No counterclaims or offsetting claims with respect to such accounts
receivable are pending or are threatened. Said applicable
allowance shall be held in escrow pursuant to the pledge agreement
described in Section 1.3. The accounts payable reflected on any
Financial Statements and on Schedule 2.15 and all accounts payable
arising thereafter and prior to the Closing Date arose from bona
fide transactions in the ordinary course of business and have been
paid or if not paid, are not in default. JHPC shall hold in
escrow, pursuant to the pledge agreement described in Section 1.3,
JHPC Shares having a value equal to $5,000 to cover any accounts
payable which arose prior to the Closing Date and were not included
in the Closing Balance Sheet.
2.16 Transactions with Management. Except for
employment agreements which are attached hereto as Schedule 2.16,
AVC is not now, nor during the period since July 1996 (its date of
incorporation) has been, a party to any contract, lease or
commitment with any officer, director or stockholder of AVC, nor
any "associate" of any such officers, directors or stockholders (as
the term "associate" is defined in Rule 405 of the Rules and
Regulations promulgated under the Securities Act of 1933) nor are
there now, or since July 1996 have there been, any loans
outstanding to any of such persons from AVC.
2.17 Disclosure. All facts material to the
financial condition, assets, business and prospects of AVC have
been disclosed (or with respect to facts arising hereafter will be
promptly disclosed prior to the Closing Date) to JHPC in writing.
No representation or warranty of AVC and the Shareholders contained
in this Agreement, and no statement, certificate, schedule, list or
other information furnished by or on behalf of AVC to JHPC in
connection with this Agreement, contains any untrue statement of a
material fact or omits to state a material fact necessary in order
to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
2.18 Title to and Condition of Properties. AVC has
good and marketable title to all of its tangible and intangible
property and assets, including those reflected in the Financial
Statements (except as such assets have been sold or otherwise
disposed of in the ordinary course of business), and such property
and assets are subject to no mortgage or security interest,
conditional sales contract, charge, lien or encumbrance (except for
the lien of current taxes not yet due and payable and such
imperfections of title, easements and encumbrances, if any, as are
not substantial in character, amount, or extent and do not detract
from the value of, or interfere with the present use of the
properties subject thereto or affected thereby, or otherwise impair
the business operations of AVC), and AVC has not sold or disposed
of any of its material property and assets or obligated itself to
do so except in the ordinary course of business. Except for such
minor defects as are not substantial in character and which do not
have a materially adverse effect upon the validity thereof, all
material real and personal property leases to which AVC is a party,
are in good standing, valid and effective, and there is not under
any such lease any existing default or event which with notice of
lapse of time or both would constitute a default and in respect of
which AVC has not taken reasonable steps to prevent such a default
from occurring.
2.19 Taxes. AVC has timely filed all tax returns
that are required to have been filed by it prior to the date of
this Agreement with appropriate federal, state, country, and local
governmental agencies or instrumentalities, and each of said
returns correctly reflects AVC's income, employee withholding and
its tax liability required to be shown therein. AVC has paid or
established reserves for all income, franchise, employee
withholding and other taxes due by it as reflected on said returns.
The provisions for taxes due by AVC as shown in the Financial
Statements are sufficient for the payment in full of all unpaid
federal, state, county, and local taxes in respect of its business
and operations for the periods then ended and all prior periods.
There is no pending dispute with any taxing authority relating to
any of said returns which if determined adversely to AVC would
result in the assertion by any taxing authority of any valid
deficiency in a material amount for taxes. No federal income tax
return of AVC has been audited nor are there any pending or
threatened audits of such returns.
2.20 Employees of AVC. Schedule 2.20 contains a
true and correct statement of the names, dates of hire, accrued
vacation and sick time and current rates of compensation of each
employee (whether in the form of salary, bonuses, commissions or
other supplemental compensation now or hereafter payable) of AVC.
JHPC shall have the right to inspect AVC's personnel and payroll
files for all such employees on or prior to the Closing Date, at
reasonable times and upon reasonable notice. AVC does not have any
pension, profit-sharing, option, or other incentive or employee
benefit plan (including obligations to or customary arrangements
with employees for incentive compensation, allowances, vacation,
severance pay or other benefits) except as listed in Schedule 2.20.
2.21 Bank Accounts and Powers of Attorney. Schedule
2.21 sets forth a true and complete list of:
(a) The name of each bank in which AVC has accounts
or safe deposit boxes and the names of all persons authorized to
draw thereon or have access thereto; and
(b) Each power of attorney granted by AVC,
identifying the nature of the power and the holder or holders
thereof.
2.22 Customers. AVC has prepared and has in its
possession a list of its customers, which list is substantially
true and correct and attached hereto as Schedule 2.22. Schedule
2.15 indicates the amounts, if any, due by such customers to AVC.
2.23 Brokers. AVC has not engaged any finder,
broker, agent, financial advisor or other intermediary who has
acted on behalf of AVC in connection with this Agreement or the
negotiation or consummation of this Agreement or the transactions
contemplated hereby who is entitled to any compensation by JHPC.
2.24 Offering. The offer, issuance and exchange of
the AVC Stock in conformity with the terms of this Agreement does
not violate the Securities Act of 1933, as amended, or the
securities laws of the State of New York.
3. Representations, Warranties and Covenants of JHPC.
JHPC hereby represents, warrants and covenants to the Shareholders
as follows:
3.1 Organization and Good Standing of JHPC. JHPC
is a corporation duly organized, validly existing and in good
standing under the laws of the state of Delaware. JHPC has the
requisite corporate power to own and operate its properties and
assets and to carry on its business as presently conducted. JHPC
is qualified as a foreign corporation in New York. JHPC has
furnished or will furnish AVC with copies of its Articles of
Incorporation and its By-laws. Said copies are true, correct and
complete and contain all amendments through the date of this
Agreement.
3.2 Authority of JHPC. JHPC has and will have at
Closing the full legal and corporate power and authority to enter
into this Agreement, issue the JHPC Shares and carry out the terms
of this Agreement. Neither the execution or delivery of this
Agreement by JHPC, nor performance hereunder will result in a
violation or breach of any term or provision nor constitute a
default under any indenture, mortgage, deed of trust or other
contract or agreement to which JHPC is a party. Except as provided
herein, no consent of any party to any such agreement or instrument
is required for the execution, delivery or performance of this
Agreement, and the consummation of the transactions contemplated
hereby will not result in a breach of, or give rise to a right of
cancellation of, any such agreement or instrument.
3.3 Changes in Financial Condition. Since January
31, 1997 (a) there has been no material adverse change in the
condition (financial or otherwise), business, property, assets, or
liabilities of JHPC; (b) JHPC has received no notice that there has
been a loss of any major customer of JHPC, nor any material order
cancellation; (c) there has been no resignation or termination of
employment of any senior or key officer or employee of JHPC, and
JHPC (including, without limitation, the members of JHPC's board of
directors and its executive officers as of the date of this
Agreement) knows of no impending resignation or termination of
employment of any officer or employee of JHPC that if consummated
could have a material adverse effect on the business of JHPC.
3.4 Compliance with Other Instruments, etc.. JHPC
is not in violation of any term of its Articles of Incorporation or
Bylaws, and is not in violation in any material respect of any
mortgage, indenture, contract, agreement, instrument, or any
judgment, decree, order, statute, rule, or regulation applicable to
it. The execution, delivery, and performance by JHPC of this
Agreement and the exchange of the JHPC Shares pursuant hereto, will
not result in any such violation or be in conflict with or
constitute a default under any such term, or cause the acceleration
or maturity of any loan or material obligation to which JHPC is a
party or by which JHPC is bound, or result in the creation or
imposition or any material lien, claim, charge, restriction,
equity, or encumbrance of any kind whatsoever upon, or (except as
contemplated herein) give to any other person any interest or right
(including any right of termination or cancellation) in or with
respect to any of the properties, assets, business, or agreements
of JHPC.
3.5 Litigation, etc. There are no material
actions, proceedings or investigations pending or threatened
against JHPC in any way relating to JHPC, any basis therefor or
threat thereof, which, either individually or in the aggregate,
could result in any material adverse change in the business,
prospects, conditions, affairs, or operations of JHPC or in any of
its properties or assets, or in any impairment of the right or
ability of JHPC to carry on its business as proposed to be
conducted, or in any material liability on the part of JHPC, or
which could affect the validity of this Agreement or any action
taken or to be taken in connection herewith.
3.6 Governmental Consent, etc. Except with respect
to the future registration of the Registered Shares, no consent,
approval or authorization of, or designation, declaration or filing
with, any governmental unit or any other entity is required on the
part of JHPC in connection with the valid execution and delivery of
this Agreement, or the exchange of the JHPC Stock pursuant hereto
or necessary or appropriate for consummation of transactions
contemplated.
3.7 Brokerage and Finder's Fees. JHPC has not
employed any broker, finder or agent, nor has JHPC become in any
way obligated for finder's, broker's, agent's or similar fee with
respect to the transactions referred to herein.
3.8 Information Correct and Complete. All
information contained in the representations and warranties made in
this Section 3 by JHPC is correct and complete and will be correct
and complete on the Closing Date.
3.9 Address. The address given for JHPC in Section
10 is its true and correct primary place of business, and it has no
present intention of moving to any other state or jurisdiction.
3.10 Opportunity to Seek Information. The
Shareholders and AVC each has been given the opportunity to ask
questions of, and receive answers from, the management of JHPC
regarding the terms and conditions of this Agreement, and the
transactions contemplated hereby, as well as the affairs of JHPC
and related matters.
3.11 Capitalization. JHPC has the authority to
issue 10,000,000 shares of stock, a single class designated as
Common Stock. There are currently issued and outstanding 1,722,323
shares of Common Stock. All of the issued and outstanding shares
of JHPC have been duly authorized and validly issued, and are fully
paid and non-assessable and were issued in compliance with all
applicable state and federal laws concerning the issuance of
securities.
3.12 JHPC Shares Duly Authorized. The shares of
Common Stock of JHPC issued to the Shareholders under this
Agreement, when issued in compliance with the provisions of this
Agreement, will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances. No shareholder of
JHPC has any right of first refusal or any preemptive rights in
connection with the issuance of the JHPC Shares. The issuance of
the JHPC Shares in conformity with this Agreement does not violate
the Securities Act of 1933, as amended, or the regulations
thereunder, or the securities laws of the State of New York.
4. Survival of Representations, Warranties and
Covenants. The representations, warranties and covenants contained
herein shall survive the delivery, and payment for, AVC Stock for
18 months from the Closing Date (except for the representations
contained in Section 2.19, which shall survive for the period
during which the statute of limitations representing such taxes
remains open).
5. Indemnification.
5.1 Indemnification by The Shareholders. The
Shareholders hereby agree to indemnify and hold harmless JHPC, its
officers and directors, against any and all losses, claims,
demands, liabilities and expenses (including reasonable legal or
other expenses incurred by JHPC in connection with defending any
such claims or liabilities) to which any such indemnified party may
become subject under the federal securities laws, under any other
statutes, at common law or otherwise, insofar as such losses,
claims, demands, liabilities or expenses (a) arise out of or are
based upon any untrue statement of a material fact made by the
Shareholders or AVC in this Agreement, or (b) arise out of an
omission of a material fact, or (c) arise out of or are based upon
any breach of any material representation, warranty or agreement
made by the Shareholders or AVC herein or (d) arise out of the
failure to disclose unaccrued trade liabilities.
5.2 Indemnification by JHPC. JHPC hereby agrees to
indemnify and hold the Shareholders harmless against any and all
losses, claims, demands, liabilities and expenses (including
reasonable legal or other expenses incurred by the Shareholders in
connection with defending any such claims or liabilities) to which
any such indemnified party may become subject under the federal
securities laws, under any such statutes, at common law or
otherwise, insofar as such losses, claims, demands, liabilities or
expenses (a) arise out of or are based upon any untrue statement of
a material fact made by JHPC in this Agreement, (b) arise out of or
are based upon any breach of any material representation, warranty
or agreement made by JHPC herein or (c) arise out of an omission of
a material fact.
6. Fees and Expenses. The Shareholders shall pay all
fees and expenses incurred by them and AVC incident to the
negotiation of this Agreement, carrying this Agreement into effect,
and the consummation of the transactions contemplated hereby. JHPC
shall pay all fees and expenses incurred by it incident to the
negotiation of this Agreement, carrying this Agreement into effect,
and the consummation of the transactions contemplated hereby.
7. Representation by Counsel. All parties to this
Agreement have been represented by counsel of their own selection,
which counsel participated in the drafting of this Agreement.
Accordingly, no provision of this Agreement is to be construed
against any party by reason that such party drafted such provision.
8. Conditions to Obligations of the Parties.
8.1 The obligations of the parties under this
Agreement are subject to the satisfaction of the following
conditions at or prior to the Closing Date:
(a) Opinion of AVC Counsel. The Shareholders and AVC
shall have delivered to JHPC the opinion of McMillan, Rather,
Bennett & Rigano, P.C., counsel to the Shareholders and AVC, dated
the Closing Date, and satisfactory to counsel for JHPC, to the
effect that: (i) this Agreement has been duly executed by the
Shareholders and AVC and constitutes the legal, valid and binding
agreement of the Shareholders and AVC enforceable in accordance
with its terms, subject to limitations on enforceability imposed by
bankruptcy, insolvency, reorganization, moratorium, or similar laws
of general application affecting enforcement of creditor's rights,
and affecting the availability of equitable remedies; (ii) all
corporate or other proceedings which were required to be taken by
AVC to enable the Shareholders or AVC to carry out this Agreement
have been taken; (iii) AVC is duly incorporated, validly existing
and in good standing under the laws of its state of incorporation,
with the corporate power to own or lease and operate its properties
and assets and to carry on its business in the manner in which such
business is now being conducted, and is duly qualified to do
business as a foreign corporation in every jurisdiction wherein the
character of the real properties owned or leased by it makes such
qualification necessary; (iv) all of the issued and outstanding
shares of AVC have been duly authorized and validly issued, and are
fully paid and non-assessable and none of such shares were issued
in violation of any preemptive rights of stockholders; (v) to such
counsel's knowledge, neither the execution nor delivery of this
Agreement nor the consummation of the transactions contemplated
herein will result in a violation of any judicial or governmental
decree, order or judgment or constitute a default or result in a
termination under any material agreement or other instrument to
which the Shareholders or AVC are parties or by which any of them
is bound and which is known to such counsel, and to counsel's
knowledge, no consent of any party to any such agreement or
instrument is required for the execution, delivery or performance
of this Agreement, except those which have been obtained and (vi)
to counsel's knowledge, there are no actions, suits or proceedings
pending or threatened against AVC in any court, or by or before any
arbitrator or governmental agency or authority.
(b) Opinion of JHPC Counsel. JHPC shall have
delivered to the Shareholders and AVC the opinion of Kalin &
Banner, counsel to JHPC, dated the Closing Date to the effect that:
(i) this Agreement has been duly executed by JHPC and constitutes
the legal, valid and binding agreement of JHPC enforceable in
accordance with its terms, subject to limitations on enforceability
imposed by bankruptcy, insolvency, reorganization, moratorium, or
similar laws of general application affecting enforcement of
creditor's rights, and affecting the availability of equitable
remedies; (ii) all corporate or other proceedings which were
required to be taken by JHPC to enable it to carry out this
Agreement have been taken; (iii) JHPC is duly incorporated, validly
existing and in good standing under the laws of the state of
Delaware, with the corporate power to own or lease and operate its
properties and assets and to carry on its business in the manner in
which such business is now being conducted, and is duly qualified
to do business as a foreign corporation in the state of New York;
(iv) the JHPC shares to be issued to the Shareholders have been
duly authorized and validly issued, and are fully paid and non-
assessable and none of such shares were issued in violation of any
preemptive rights of stockholders; (v) to such counsel's knowledge,
neither the execution nor delivery of this Agreement nor the
consummation of the transactions contemplated herein will result in
a violation of any judicial or governmental decree, order or
judgment or constitute a default or result in a termination under
any material agreement or other instrument to which JHPC is a party
or by which it is bound, and to counsel's knowledge, no consent of
any party to any such agreement or instrument is required for the
execution, delivery or performance of this Agreement, except those
which have been obtained.
8.2 Legal Action. There shall not have been
instituted or threatened any legal proceeding seeking to prohibit
the consummation of the transactions contemplated by this
Agreement.
8.3 Representations Remain Accurate.
(a) The Shareholders shall deliver a certificate at
the Closing setting forth that the representations and warranties
of AVC and the Shareholders contained in this Agreement shall be
true and correct in all material respects at and as of the Closing
as if made at and as of such time, except as affected by
transactions contemplated hereby and except to the extent that any
such representation or warranty is made as of a specified date in
which case such representation or warranty shall have been true and
correct as of such date.
(b) JHPC shall deliver a certificate at the Closing
setting forth that the representations and warranties of JHPC
contained in this Agreement shall be true and correct in all
material respects at and as of the Closing as if made at and as of
such time, except as affected by transactions contemplated hereby
and except to the extent that any such representation or warranty
is made as of a specified date in which case such representation or
warranty shall have been true and correct as of such date.
9. Registration Rights.
9.1 Inclusion of JHPC Shares in Registration
Statements. If during the one year period following the date of
this Agreement, JHPC shall register any shares of its Common Stock
in a registration statement, other than a Form S-8 Registration
Statement, JHPC will give the Shareholders at least ten days'
advance written notice thereof and include in such registration
statement (and any related qualification under Blue Sky laws or
other compliance), the 10,000 JHPC Shares owned by the
Shareholders. All costs of such registration shall be borne by
JHPC.
9.2 Indemnification. The respective
indemnification rights of the Shareholders and JHPC pursuant to
Section 5 of this Agreement shall apply with respect to statements
or omissions made by the Shareholders or JHPC incident to any
registration, qualification or compliance pursuant to this Section
9.
9.3 Information by the Shareholders. The
Shareholders shall furnish to JHPC such written information
regarding their proposed distribution as JHPC may reasonably
request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this
Section 9.
10. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if
delivered personally, or one business day after being sent by a
recognized national overnight carrier or five days after being
mailed (by registered or certified mail, return receipt requested,
postage prepaid), in each case addressed as follows (or at such
other address for a party as shall be specified by like notice):
(a) if to JHPC:
Jim Hjelm's Private Collection, Ltd.
225 West 37th Street
New York, New York 10018
Attention: Mr. Joseph L. Murphy, President
with a copy sent to
Richard S. Kalin, Esq.
Kalin & Banner
757 Third Avenue-7th Floor
New York, NY 10017
If to the Shareholders:
Mr. Dan McMillan
Ms. Victoria McMillan
40 Muncy Avenue
West Babylon, NY 11704
with a copy sent to:
William Cornachio, Esq.
McMillan, Rather, Bennett & Rigano, P.C.
48 South Service Road
Melville, NY 11747
11. Assignment. This Agreement may not be assigned by
any party hereto without the prior written consent of the other
parties hereto.
12. Miscellaneous. This Agreement may not be amended
except by a writing signed by the parties hereto and shall be
binding upon and incur to the benefit of the parties, their
permitted successors and assigns. Any provision of this Agreement
which is unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. The captions in this
Agreement are for convenience only and shall not define or limit
any of the terms hereof. This Agreement (including the schedules
hereto and instruments referred to herein) constitutes the entire
agreement of the parties and supersedes all prior agreements and
understandings, both written and oral, between the parties with
respect to the subject matter hereof. This Agreement shall be
governed by and construed in accordance with the substantive laws
of the State of New York without reference to the conflicts of law
rules thereof. The parties consent to the jurisdiction of any
state or federal court sitting in the Borough of Manhattan in the
State of New York and agree that any action arising out of this
Agreement or its subject matter may be heard and determined in any
such court. The parties waive any right to trial by jury in any
such action. This Agreement may be executed in one or more
counterparts which together shall constitute a single agreement.
13. Access to Properties and Records; Due Diligence.
On reasonable notice, AVC shall afford to JHPC and its accountants,
counsel and representatives full access during normal business
hours throughout the period prior to the Closing of all its
properties, books, contracts, commitments and records (including
but not limited to tax returns) and, during such period, shall
furnish promptly to JHPC information concerning its business,
properties and personnel as JHPC may reasonably request.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or have caused this Agreement to be duly executed by an
officer duly authorized, all as of the date first written above.
JIM HJELM'S PRIVATE COLLECTION, LTD.
By: /s/ Joseph L. Murphy
Joseph L. Murphy, President
/s/ Dan McMillan
Dan McMillan
/s/ Victoria McMillan
Victoria McMillan
ALVINA VALENTA COUTURE COLLECTION, INC.
By: /s/ Victoria McMillan
Victoria McMillan, President
WPDOCS\HJELM\ALVNAACQ.AG1
EXHIBIT 23.1
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-KSB, into the
Company's previously filed Registration Statement File No. 333-
2366.
Arthur Andersen LLP
New York, New York
February 12, 1998
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 1st day of May, 1997 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 VICTORIA
MCMILLAN, an individual who resides at 40 Muncy Avenue, West
Babylon, New York 11704 (hereinafter called the "Employee").
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
May 1, 1997 (the "Commencement Date"), and terminating on April 30,
2004 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, bridesmaids
gowns, and dresses, evening wear and related apparel, including
shoes and accessories, for the Company, which line shall be under
the "Alvina Valenta" name or an alternative name acceptable to the
Company (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 her position as a bridal apparel
designer for the Company, as may from time to time be assigned to
her 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 Alvina Valenta label or any existing
or future labels acceptable to the Company.
3. Full Time. Employee agrees that she will devote her
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 his designee or Board of Directors of the Company or
their designee, 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 her 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, compensation as set forth on Exhibit A.
5. Vacation. Employee shall be entitled to two weeks of
vacation for the first year of this Agreement; three weeks for each
of the next two years of this Agreement and four weeks thereafter,
which shall be taken at such time or times as shall be mutually
determined by the Company and Employee.
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 her hereunder
("Disability") for a consecutive period of six (6) months, or a
total of nine (9) months during any twelve (12) month period ("sick
leave"), the Company may terminate the employment of Employee
hereunder after the expiration of such period. Employee shall be
entitled to receive her base salary and the additional compensation
provided by paragraph 4(b) computed up to the date of such
termination. Maternity leave shall be considered a Disability
hereunder, except that in such circumstance, Employee may add to
permitted sick leave time any accrued and current vacation time.
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. Renewal; Covenant Not to Compete; Nondisclosure.
(a) The Company will give Employee at least six months'
notice prior to the conclusion of the Term of its intention to
renew this Agreement or to enter into a different employment
agreement with Employee on terms substantially the same or better
than the terms of this Agreement except that the base salary shall
be as set forth on Exhibit B (the "Renewal Terms"). If Employee
does not accept either a renewal of this Agreement or a different
agreement on equal or better terms than this Agreement including
the Renewal Terms, the Employee covenants and agrees that for a
period of one year following the termination of her employment with
the Company other than as a result of a breach by the Company, she
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 her association with the Company, or any subsidiary of
the Company, or solicit the employment of any such person on her
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, or termination by the Company without
cause, or expiration of Term without renewal as set forth above,
then the aforesaid covenant will not be applicable.
(b) The Employee covenants and agrees for a period of two
years following the termination of her employment with the Company,
she will not, directly or indirectly, during or after the term of
employment disclose to any person not authorized by the Company to
receive or use such information, except for the sole benefit of the
Company, any of the Company's confidential or proprietary data,
information, designs, styles, or techniques, including customer
lists, or give to any person not authorized by the Company to
receive it. Notwithstanding the foregoing, this applies solely to
(i) information that is not generally known to anyone other than
the Company, and which (ii) was not already in Employee's
possession prior to its disclosure to Employee by the Company,
provided that Employee can demonstrate that such information was
not subject to another confidentiality agreement with or other
obligation of secrecy to the Company.
(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 paragraph 8, the Employee hereby consents to the
granting of a temporary or permanent injunction against her by any
court of competent jurisdiction prohibiting her from violating any
provision of this Agreement. In any proceeding for an injunction,
Employee agrees that her 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. During the Term, the Company shall have
the exclusive right to use Employee's name "Victoria McMillan" and
likeness on promotional and sales materials including advertising,
sales tickets, labels, brochures, hang tags, announcements or
correspondence, but only with respect to the Products.
10. Use of Designs. Employee hereby grants to the Company
a perpetual, royalty-free exclusive right and license to use her
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.
(a) After such time as she is no longer employed by the
Company, Employee 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).
(b) Except as set forth herein, if during the Term the
Company uses the name "Victoria McMillan" in its advertising, the
Company shall acquire exclusive rights to the name following the
Term as provided herein. The Company's exclusive rights shall
continue as long as Employee has a Disability (but not for more
than five years after the termination of this Agreement). Upon
expiration of the Term, Employee grants to the Company, commencing
on the date she is no longer employed by the Company, a five year,
royalty-free exclusive right and license to use the name "Victoria
McMillan". In the event of termination of this Agreement by virtue
of a breach by the Company, or termination by the Company without
cause, or expiration of Term without offering Renewal Terms as set
forth in Section 8(a) above, then the Company shall have no right
to Victoria McMillan's name.
12. Termination. 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
her duties hereunder, (iv) being under the influence of such drugs,
substances or alcohol during Employee's hours of employment, or (v)
violating Company's following regulations: harassment of any other
employees of the Company on the basis of age, race, color,
handicap, national origin, religion and/or sex (which may include,
but not be limited to, slurs, epithets, threats, derogatory
comments, unwelcome jokes, teasing, sexual advances, requests for
sexual favors and other similar verbal or physical contact), or
violation of the Company's safety rules. In the event of such
termination for cause, Employee shall be entitled to receive her
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. In
the case of any proposed termination pursuant to paragraph 12(i) or
(v), Employee shall be given written notice of the specific reason
underlying the termination and shall be given a reasonable
opportunity to cure.
13. No Impediments. Employee warrants and represents that
she 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. The parties consent to the jurisdiction
of any state or federal court sitting in the Borough of Manhattan
in the state of New York. The parties waive any right to trial by
jury in any such actions.
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
merger 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: /s/ Joseph L. Murphy
Joseph L. Murphy, President
/s/ Victoria McMillan
Victoria McMillan
WP51\HJELM\EMP-AG97.VM
EXHIBIT 10.13
COMPOSITION AGREEMENT
AGREEMENT, made this 31st day of December, 1997, between I.
Kleinfeld & Son, Inc., a Delaware corporation, 8206 Fifth Avenue,
Brooklyn, New York 11209 (hereinafter the "Debtor") and the
Unofficial Creditors' Committee of the Debtor, the members of which
are set forth on Exhibit "A" annexed hereto, c/o Joseph Murphy of
JLM Couture, its chairman (hereinafter the "Committee").
W I T N E S S E T H:
WHEREAS, the Debtor is engaged in the business of the
manufacture and sale, at retail, of bridal gowns, bridal-wear and
related accessories, and
WHEREAS, the Debtor has negotiated a plan with the Committee
to repay its unsecured trade and service obligations outstanding as
of December 31, 1997 (the "Claims") on an out-of-court basis, and
WHEREAS, the Debtor and the Committee agree that an out-of-
court resolution of claims against the Debtor is in everyone's best
interests for a number of reasons, including the administrative
cost and expense attendant to a court proceeding and the speed with
which distributions can be made in an out-of-court proceeding, and
WHEREAS, each of the members of the Committee have reviewed
and consented to the terms of the repayment plan as set forth in
this Agreement.
NOW, THEREFORE, IT IS MUTUALLY AGREED AS FOLLOWS:
ARTICLE I
OPERATION OF THE DEBTOR'S
BUSINESS; REPAYMENT OF CLAIMS
1.1 Operation Of Business. The Debtor may continue to incur
debts and pay its current obligations incurred subsequent to
December 31, 1997 in the ordinary course of business.
1.2 The Claims. The Claims shall be divided into 2 classes,
and treated as follows:
(a) Class I, consisting of creditors holding claims
equal to $5,000 or less shall be paid 75% of the Allowed Amount (as
defined in paragraph 7.1 hereof) of such claims, in cash, on the
Effective Date (as defined herein); and
(b) Class II, consisting of creditors holding claims in
excess of $5,000, shall be paid 100% of the Allowed Amount of such
claims, without interest, in semi-annual installments over 3 years,
as follows:
Instal
l-ment
Payment Date
%
Install-
ment
Payment Date
%
1
Effective Date
15%
5
24 months after
Effective Date
10%
2
6 months after
Effective Date
7.5%
6
30 months after
Effective Date
25%
3
12 months after
Effective Date
7.5%
7
36 months after
Effective Date
25%
4
18 months after
Effective Date
10%
(c) Creditors holding claims in excess of $5,000 may, at
their option on the acceptance form (the "Acceptance") in the form
annexed hereto as Exhibit "B", reduce their claims to $5,000 and be
treated as a Class I claim; and
(d) Payment under this Article I shall be in full
satisfaction, release, discharge and waiver of the Claims against
the Debtor.
1.3 Special Provisions For Certain Vendors. (a) Class II
Vendors
accepting this Agreement shall be entitled to receive a payment of
12-1/2% of the amount of each invoice (excluding shipping charges)
for merchandise shipped or services rendered after the Effective
Date (the "Add-Ons") paid at the time the invoice is paid, provided
all shipments are made on a credit, non-COD, basis under the
following terms:
(i) From and after the Effective Date through the
date of payment of the 2nd Installment,
vendors shall ship goods on credit in exchange
for the Company's payment of such invoice on
the Friday of the week the merchandise is
received or services rendered.
(ii) From and after the date the 2nd Installment is
paid, vendors shall ship merchandise payable
30 days after receipt of goods or rendition of
services.
vendors are not required to, but may in their sole discretion, from
time to time, in such credit limits as each vendor deems
appropriate, participate in the Add-On program, to the extent of
the credit granted.
(b) All Add-Ons shall be credited against the next semi-
annual payment due under the Agreement. On the Payment Date of
each Installment, vendors shall be entitled to retain and/or be
paid, as the case may be, the greater of:
(i) the total of the Add-Ons received during a
semi-annual period; or
(ii) the Installment then due, less the Add-Ons
received during such semi-annual period.
(c) Add-Ons received during a semi-annual period in
excess of the installment due at the end of such period shall be
credited against the last payments due under this Agreement. In no
event shall any vendor receive more than 100% of its Claim.
ARTICLE II
ACCEPTANCE BY CREDITORS; THE EFFECTIVE DATE
2.1 Promptly upon the execution and delivery of this
Agreement by the parties hereto, the Debtor shall serve upon all
holders of Claims a copy of this Agreement, the Committee's letter
recommending acceptance of the terms hereof, and the Acceptance.
2.2 The Agreement shall be effective upon the Debtor's
receipt of Acceptances from not less than 85% in the amount of the
Claims in each Class (the "Effective Date"). This Agreement shall
terminate on January 31, 1998 (the "Deadline"), unless the
necessary Acceptances have been received by that date. If the
necessary acceptances have not been received by the Debtor on or
before the Deadline, the Debtor may, at its option, by written
notice to the Committee, extend the Deadline or waive the
percentage requirement.
2.3 By its execution and delivery of an Acceptance to the
Debtor, each creditor agrees that:
(a) the amount of claim set forth in such Acceptance is
the total amount of the Debtor's obligation to such creditor as of
December 31, 1997;
(b) so long as no Event of Default (as defined herein)
has occurred and is continuing, such creditor shall accept all
payments made hereunder in satisfaction of Debtor's obligation to
such creditor and shall not commence any proceeding against Debtor
with respect to any such obligation;
(c) payment under Article I hereof shall be in full
satisfaction, release, discharge and waiver of all claims against
the Debtor;
(d) in the event the Debtor becomes the subject of a
proceeding under Chapter 11 of the Bankruptcy Code, prior to the
Effective Date, the Debtor may use the Acceptances as acceptances
of a plan of reorganization that contains the same payment and
other terms all substantially in conformance with the terms of this
Agreement, provided, only, that (i) such plan is confirmed within
sixty (60) days of the date the chapter 11 case is filed, (ii) all
material terms of this Agreement are not delayed or impaired for
more than such sixty (60) day period, and (iii) the amount due GB
Capital, except for $2.8 million, remains subordinated to the
claims of creditors who execute this Agreement and/or execute and
deliver Acceptances.
ARTICLE III
DEBTOR'S COVENANTS
Until such time as the Debtor's obligations under this
Agreement have been discharged in full, the Debtor agrees that it
will:
3.1 Maintain in full force and effect insurance policies with
reasonable and reputable insurance companies or associations on its
property and against such risks as are customarily maintained by
customers engaged in similar business and owning similar property,
including, without limitation, fire, workers compensation, and
employee fidelity insurance, and furnish to the Committee, upon
request, reasonable information as to the amounts and types of
insurance so maintained.
3.2 Preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation,
and qualify and remain qualified as a foreign corporation in each
jurisdiction which such qualification is necessary for the
operation of its business or the ownership of its property.
3.3 Comply in all material respects with the requirements of
all applicable laws, rules, regulations and orders (the "Law") of
any governmental authority relating to the business of the Debtor,
provided, however, that nothing herein contained shall require
compliance with the Law so long as said Law is being contested in
good faith and where applicable in appropriate proceedings.
3.4 Keep true, complete and accurate records and books of
account in accordance with generally accepted accounting principles
to the extent applicable.
3.5 Issue to the members of the Committee a copy of semi-
annual, unaudited, internal financial statements, within sixty (60)
days after the end of each semi-annual period commencing with the
period ended June 30, 1998, together with a statement setting forth
the payments made to each creditor pursuant to paragraph 1.2(b)
hereof.
3.6 Make no prepayment of any Claim, except as provided in
paragraph 1.3 hereof, unless such prepayment is made to all holders
of Claims. Notwithstanding the foregoing sentence, the Debtor may,
subject to the Committee's prior written consent, make such
payments with respect to the Claims as may be necessary or required
in the continued operation of its business.
3.7 Inform the Creditors' Committee of any lawsuits commenced
against the Company.
3.8 Create no liens in excess of $10,000 upon any of its
assets, exclusive of purchase money security interests, without the
written consent of the Creditors' Committee, except pursuant to
Section 5.5 of this Agreement.
ARTICLE IV
EVENTS OF DEFAULT; REMEDIES
4.1 The occurrence of any of the following shall constitute
an "Event of Default" under this Agreement:
(a) Failure of the Debtor to make any payment due to
creditors pursuant to the terms of this Agreement, including but
not limited to payments under paragraphs 1.2 and 1.3 of Article I
of this Agreement; and
(b) Failure of the Debtor to perform or observe any
other material provision of this Agreement, which failure remains
uncured for a period of ten (10) days after notice of such failure
shall have been furnished to the Debtor by the Committee.
4.2 Upon the occurrence of an Event of Default, which is not
cured following the expiration of the applicable notice and cure
periods, the Committee may exercise any and all legal and equitable
rights and remedies permitted by law and all Claims shall be
accelerated and immediately due and payable.
ARTICLE V
GE CAPITAL CORP.
5.1 Gordon Brothers Capital, LLC ("GB Capital") is the holder
of a secured claim against the Debtor in the amount of $7.981
million (the "GB Capital Debt"), secured by liens and security
interests in all of the assets of the Debtor as well as a pledge of
the Debtor's stock.
5.2 Subject to satisfactory completion of each of the
provisions of the Agreement required on behalf of the holders of
Claims, i.e., receipt by the Debtor of sufficient Acceptances, GB
Capital does hereby agree to subordinate the GB Capital Debt in
excess of $2.8 million (the "GB Capital Unsubordinated Debt") to
the Claims of creditors executing this Agreement or that deliver
the Acceptances. So long as there is no default under this
Agreement, the GB Capital Unsubordinated Debt shall be due and
payable on December 31, 2000 (the "Maturity Date"); shall accrue
interest at the rate of prime plus 1% per annum, with principal and
accrued and unpaid interest due and payable on the maturity date;
one half of such interest shall be paid monthly, with the balance
to be deferred and payable on the maturity date. The obligations
to GB Capital in respect of the GB Capital Unsubordinated Debt
shall be secured by all of the Company's assets. Upon a default
under this Agreement the GB Capital Debt shall be accelerated and
immediately due and payable, shall be secured by all of the assets
of the Debtor, and the subordination provisions hereof shall
immediately terminate and shall be of no further force and effect.
5.3 In the event the Effective Date does not occur or the
Debtor becomes subject to a proceeding under any extended pursuant
to Section 2.2 of this Agreement, the amount due GB Capital shall
be reinstated to the sum of $7.981 million, plus any deferred or
unpaid interest or other charges all of which shall become
immediately due and payable, subject to Section 2.3(d) of this
Agreement.
5.4 GB Capital's agreement to subordinate a portion of its
claim to the amount of the GB Capital Unsubordinated Debt is
without prejudice to all other rights of GB Capital and shall not
be used by any holder of a Claim or other third party in any
proceeding commenced against GB Capital to affect the amount,
validity or enforceability of any amounts due to GB Capital.
5.5 GB Capital may, at its option, advance additional sums to
the Debtor from and after December 16, 1997 (the "New Advances").
All New Advances shall bear interest at the rate of prime plus one
(1%) percent, shall be secured by liens and security interests in
all of the assets of the Debtor and may incur reasonable fees,
expenses and other charges (collectively, the "Charges") payable to
GB Capital by the Debtor. The New Advances and the Charges shall
be repaid on a current basis under such terms and conditions as may
be reasonably agreed to between GB Capital and the Debtor.
5.6 By its execution of this Agreement GB Capital agrees to
the provisions of this Article V, including its Agreement to retain
any rights to recovery under section 547 (preference claims) of the
Bankruptcy Code of any payments to holders of Claims under this
Agreement, in the event a petition under any provision of the
United States Code is filed by or against the Debtor and, in the
event it receives the proceeds of preference claims, to remit to
the payors the full amounts any of such payors may have paid.
5.7 Except as specifically set forth in this Agreement,
nothing herein contained shall limit or otherwise affect the rights
of GB Capital under the GB Capital Note.
ARTICLE VI
INSIDER CLAIMS
6.1 For purposes of this Agreement:
(a) the "Schachter Family" shall mean Jack Schachter,
Hedda Schachter and their heirs and assigns.
(b) "Insider Claims" shall mean the claims of the
Schachter Family in the agreed amount of $1 million.
6.2 The Insider Claims are contractually subordinate to the
GB Capital Debt.
6.3 The Debtor has negotiated a resolution of the Insider
Claims with the Schachter Family, pursuant to which the Schachter
Family has agreed to accept as payment in full of the Insider
Claims the sum of $125,000, paid $25,000 down, with the balance
payable in forty equal monthly installments without interest. The
Schachter Family has agreed to make themselves available to consult
with and offer advice to the Debtor during the period the
Schachters receive payments.
ARTICLE VII
ALLOWED CLAIMS; DISPUTED CLAIMS
7.1 An Acceptance received from a creditor that asserts an
amount due that is consistent with the amount set forth in the
Debtor's books and records shall be an "Allowed Amount". Creditors
may contact the Debtor by fax at (718) 833-2987 to
discuss/determine the amount which the Debtor's records reflects is
due.
7.2 An acceptance received from a creditor that asserts an
amount due greater than the amount set forth in the Debtor's books
and records shall be a "Disputed Claim".
7.3 On the Effective Date, the distribution with respect to
a Disputed claim shall be equal to fifteen (15%) of the undisputed
amount of said Disputed Claim. No further distributions shall be
made with respect to the Disputed Claim until it becomes an Allowed
Amount. At such time as a Disputed Claim becomes an Allowed
Amount, the holder of said Claim shall be paid all Installments
theretofore paid to all creditors holding Claims in an Allowed
Amount.
7.4 In the event the Debtor and any particular claimant are
unable to resolve a discrepancy between (a) the Debtor's books and
records and (b) the invoice amount asserted by said claimant,
excluding interest, finance charges or penalties, but after
reflecting discounts taken by the Debtor, the dispute shall be
submitted for resolution to the American Arbitration Association.
The cost for the arbitration shall be borne equally between the
claimant the Debtor.
ARTICLE VIII
COMMITTEE
8.1 All the parties hereto who execute and deliver an
Acceptance designate and appoint those persons whose names appear
on Schedule "A" as the Creditors' Committee to act for and on
behalf of the creditors, with power, authority and right to perform
the obligations and the duties provided for in this Agreement to be
performed by the Creditor's Committee.
8.2 Every creditor whose representative is now a member of
the Creditors' Committee may, from time to time, replace such
individual by another person by its designation in writing
delivered to Creditors' Committee with a copy to Debtor and its
Counsel, Marilyn Simon & Associates. In the event a member of the
Creditors' Committee is no longer a creditor, by reason of payment,
settlement, or assignment of its claim, such creditor shall be
deemed to have resigned from the Creditors' Committee. In such
event, the Committee may select a new vendor to serve on the
Creditors' Committee from the Debtor's list of larger creditors
that hold a Claim.
8.3 The Creditors' Committee shall act by majority vote.
8.4 The members of the Creditors' Committee shall serve
without compensation.
8.5 Joseph Murphy of JLM Couture shall serve as Chairman. In
the event of the death, disability or resignation of the Chairman,
the Creditors' Committee shall elect a replacement Chairman to
serve.
8.6 The Creditors' Committee shall have the power and right
to act on behalf of the accepting creditors, including but not
limited to the right to postpone the time of payment of any of the
distributions provided for in this Agreement, in whole or in part
for one or more periods, not exceeding thirty (30) days for each
such period. No postponement shall be granted if more than two (2)
payments are currently overdue. Any such postponement shall be
binding on the creditors which have executed and delivered
Acceptances to this Agreement. Any consent to a postponement must
be in writing signed by the Chairman.
8.7 Neither the Creditors' Committee, its members nor any of
their agents or representatives, nor the firms by whom they are
employed (hereinafter referred to as "Members"), shall be liable
for the acts, default or misconduct of any Member or the Creditors'
Committee, nor shall any Member be liable for anything but his own
willful misconduct or fraud; and the Creditors' Committee and the
Members shall not be answerable or liable for the act, default,
misconduct or fraud of any agent or any other persons employed by
or acting for or on behalf of the Creditors' Committee.
8.8 Any waiver of any of the terms and conditions of this
Agreement by the Creditors' Committee shall not be considered a
waiver of any of the other terms and conditions of this Agreement.
8.9 The Creditors' Committee may consult with counsel,
accountants and agents (collectively, the "Committee's
Professionals") and any opinion of such consultants shall be full
protection and justification to the Creditors' Committee, and the
Members, for anything done or omitted or suffered to be done in
accordance with said opinion. The Debtor shall be responsible for
the payment of the reasonable fees and expenses of the Committee's
Professionals. The Creditors' Committee and the Members shall not
be required to give any bond for the faithful performance of its or
their duties hereunder.
8.10 The Creditors' Committee shall act by a majority of the
Members, with or without formal meetings. Any action by a majority
of the Creditors' Committee shall be final and binding as though it
had been the action of the entire Creditors' Committee. Written or
telegraphic notice of any meeting shall be given to all Members at
least two (2) days prior to any formal or informal meeting unless,
in the opinion of counsel to the Creditors' Committee, an emergency
exists, in which event, an immediate meeting may be called by
counsel to the Creditors' Committee on telephonic notice. Each
Member of the Creditors' Committee shall have the right to act by
properly designated proxy who shall be either another
representative of the Member or another Member of the Creditors'
Committee or its counsel.
ARTICLE IX
MISCELLANEOUS
9.1 Each of the creditors accepting this Agreement agrees
that during the period until this Agreement becomes effective
and/or while the Debtor has not defaulted in any of its obligations
imposed by this Agreement, it will not, except subject to the
provisions hereof, institute any action, proceeding or arbitration,
against the Debtor, or levy any execution, attachment or other
process against the property of the Debtor for or by reason of any
indebtedness now owing to such creditor by the Debtor, nor file, or
join in the filing of a Petition in Bankruptcy against the Debtor
or in any proceeding under the Bankruptcy Code, or any other
proceeding having as its object, the appointment of any receiver or
trustee for the Debtor or the Debtor's property, and will
discontinue without prejudice any pending action, proceeding or
arbitration against the Debtor, unless necessary to resolve the
amount of a disputed claim.
9.2 Each creditor reserves any and all of its rights and/or
remedies to enforce any security, right and/or liens, if any, other
than those obtained or which may be obtained by judicial
proceedings. Each creditor likewise reserves any and all of its
rights, if any, which it may have in and to any property of the
Debtor, including but not limited to merchandise billed and held
(whether paid for or not), in the creditor's possession, or in the
possession of any of the creditor's parent, subsidiary, affiliate,
principal or agent of the creditor, on account of such goods.
9.3 Nothing herein contained shall be deemed to discharge or
release any claims, rights and/or remedies that any of the
creditors may have now or hereafter has against any guarantor,
surety or other party who may now or hereafter be liable, or have
responsibility to any of them, and nothing herein contained shall
discharge or affect any liens, security interests, or rights or
remedies as pledgee, mortgagee, or creditor in possession, which
any creditor has or may hereafter have against the property of the
Debtor, and each such right and remedy is hereby expressly reserved
by the creditors, excepts as may herein be modified.
9.4 Each creditor accepting the offer contained in this
Agreement, in consideration of the payments referred to, agrees to
accept the Debtor's offer to settle the Claims against the Debtor,
and agrees to be bound by the terms of this Agreement.
9.5 All modifications, amendments or changes to this
Agreement shall be required to be in writing.
9.6 Any notice required to be provided for under the
Agreement shall be in writing and sent by certified mail, return
receipt requested, facsimile transmission (provided the sender's
copy contains an electronic verification that such transmission was
successfully completed to the proper facsimile number), or
overnight courier, addressed as follows:
To the Debtor: I. Kleinfeld & Son, Inc.
8202 Fifth Avenue
Brooklyn, NY 11209
Attn: Eugene Kohn
Tel: 718/833-1100 Ext. 229
Fax: 718/833-2987
with a copy to: Marilyn Simon & Associates
200 Park Avenue South
Suite 1700
New York, NY 10005-1503
Attn: Robert D. Raicht, Esq.
Tel: 212/529-4400
Fax: 212/529-4823
To the Creditors' Joseph Murphy
Committee c/o JLM Couture
its Chairman: 225 W. 37th St., 5th Fl.
New York, NY 10018
Tel: 212/764-6960
Fax: 212/768-2902
with a copy to: Angel & Frankel, P.C.
Attn: Bruce Frankel, Esq.
460 Park Avenue
New York, NY 10022
Tel: 212/752-8000
Fax: 212/752-8393
9.7 Any party may change the address at which it receives
notices by giving notice to other parties in the manner set forth
herein.
9.8 Any payment required under the Agreement shall be deemed
to have been made on the day when such payment is mailed.
9.9 This agreement contains the entire Agreement of the
parties hereto, supersedes all prior understandings and commitments
and shall be binding upon an inure to the benefits of the parties'
respective assigns, heirs and successors in interest.
9.10 This Agreement shall be interpreted under the laws of
the State of New York.
9.11 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 Agreement.
IN WITNESS WHEREOF, the parties hereunto have set their
hands and seals the day and year first above written.
GB Capital, LLC I. KLEINFELD & SON, INC.
Consents to the provisions
set forth in Article V of By:_______________________
this Agreement Eugene Kohn, President
By:_______________________ AMSALE ABERRA, INC.
By:_______________________
Amsale Aberra
CHRISTOS, INC.
By:_______________________
Christos Yiannakou
DIAMOND BRIDAL COLLECTIONS, LTD.
By:_______________________
Paul Diamond
JIM COUTURE
By:_______________________
Joseph Murphy
TOMASINA
By:_______________________
Tomasina Keremes
MILADY BRIDAL'S, INC.
d/b/a EVE OF MILADY
By:_______________________
Eve Muscio
A&M ROSENTHAL, INC.
d/b/a DESSY CREATIONS
By:_______________________
Alan Dessy
<PAGE>
ACCEPTANCE FORM
The undersigned ("Claimant"), an unsecured creditor of I.
Kleinfeld & Son, Inc. (the "Debtor"), in the amount set forth
below, hereby accepts and consents to the provisions of the
Agreement dated as of December 31, 1997 (the "Agreement"), in full
and final settlement, satisfaction, release and discharge of its
claim against the Debtor, and Claimant shall continue to be bound
by the Agreement, provided, only, that it receives the payments in
accordance with the Agreement and the Debtor and Claimant comply
with the provisions thereof.
[] Option. By its check mark in the block to the left of
this paragraph, the undersigned creditor agrees to reduce
its claim to $5,000 for treatment as a Class I creditor
under the Agreement.
Dated: _____________, 1998 ______________________________
Company Name
Claim
Amount: $__________________ ______________________________
Name:
Title:
WP51\HJELM\COMP-AGR.J09
