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, 1998
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
$15,704,889.
The aggregate market value of the shares of Common Stock held by
non-affiliates as reported by NASDAQ on February 8, 1999 was
approximately $2,879,436.
As of January 25, 1999, the registrant had outstanding 1,871,681
shares of Common Stock, par value $.0002 per share.
The Proxy Statement of the registrant to be filed on or before
February 28, 1999 is incorporated herein by reference.
Transitional Small Business Disclosure Format: Yes No X
PART I
Item 1. Description of Business.
(a) Background. JLM Couture, Inc. and subsidiary (the
"Company"), a Delaware corporation whose name was changed from Jim
Hjelm's Private Collection, Ltd. in July 1997, was organized in
April 1986 to design, manufacture and market high quality bridal
wear and related accessories, including bridesmaid gowns.
In May 1997, the Company acquired Alvina Valenta Couture
Collection, Inc. ("Alvina"), a New York corporation. Alvina
designs, manufactures and markets couture-quality bridal wear.
(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 during its fiscal year ended October 31,
1997. The Company also produces a 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
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 bridal boutiques or bridal
departments in women's clothing stores to market its products.
Since the Company's acquisition of Alvina, distribution of the
Alvina line has increased from 25 stores to over 55 stores. During
fiscal 1998 and 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.
Mr. Lazaro Perez is another 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. For both 1997 and 1998, he was
awarded the 1997 Distinctive Excellence in the Bridal Industry
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. Ms. McMillan has been the
designer for Alvina since 1989.
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.
The Company also markets its products through its five
internet sites and generates customer demand through distribution
of its bridal and bridesmaids catalogs.
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 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.
In an effort to establish a presence in Europe, the Company
hired a sales representative located in England to market its
Occasions Bridesmaids and Lazaro and Visions bridal gowns to the
European community.
The Company employs approximately 60 full-time employees.
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
primarily 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.
The Company's Annual Meeting of Shareholder's (the "Meeting")
was held on October 30, 1998. At the Meeting, the Company's
Shareholders voted on a proposal to amend the Company's 1996 Stock
Option Plan (the "1996 Plan") to increase the number of shares of
Common Stock of the Company for which options are authorized to be
granted under the 1996 Plan from 100,000 to 250,000 shares, par
value $.0002 per share (the "Amendment"). The following table sets
forth the results of the vote:
Proposal For Against Abstain
Approval of Amendment 1,050,033 208,426 3,900
<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 its 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 1998
January 31, 1998 $6.625 $3.75
April 30, 1998 4.3125 3.375
July 31, 1998 4.15625 2.375
October 31, 1998 3.00 2.125
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 January 25, 1999, the closing bid and ask prices in the
Over-the-Counter market for the Common Stock as reported by NASDAQ
were $3.00 and $3.25, respectively.
(b) At January 25, 1998, there were approximately 158 holders
of record of the Company's 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" names.
(c) No cash dividends have been paid on the Common Stock, and
the Company does not anticipate paying cash dividends in the
foreseeable future.
ITEM 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Disclosure Regarding Forward Looking Statements
The following discussion should be read in conjunction with
the Company's financial statements and notes thereto appearing
elsewhere in this Form 10-KSB. In addition to the historical
information contained herein, the discussion in this Form 10-KSB
contains certain forward looking statements that involves risks and
uncertainties, such as statements of the Company's plans,
objectives, expectations and intentions. The Company's actual
results could differ materially from management's current
expectations.
Results of Operations - Fiscal year ended October 31, 1998 ("Fiscal
1998") as Compared to Fiscal 1997.
For fiscal 1998, revenues were $15,704,889 as compared to
$14,028,791 in fiscal 1997, an increase of $1,676,098 or 11.9%.
The increase is attributable to a full year of revenues in fiscal
1998 from Alvina which was acquired during fiscal 1997. In fiscal
1997, sales totaled approximately $470,000 for the six months that
JLM owned Alvina. For fiscal 1998, Alvina contributed
approximately $1,200,000 to sales. The fiscal 1997 results of
operations of Alvina prior to its acquisition were not material to
the Company's consolidated results of operations. Increases in
sales volume for the Lazaro line and the Occasions line accounted
for the balance of the increase.
The Company's gross profit margin decreased in fiscal 1998 to
39.7% from 43.2% in fiscal 1997. The Company attributes the
decline in its gross profit margin to increased salary costs that
were not passed on to customers.
Selling, general and administrative ("SG&A") expenses
increased to 33.2% of net sales in fiscal 1998 as compared to 31.4%
of sales in fiscal 1997. This was primarily due to an aggressive
marketing strategy that the Company employed during fiscal 1998,
which resulted in increased marketing and advertising costs, as
well as increased salary costs.
The Company generated net income of $547,108, or $0.30 per
share ($0.28 on a diluted basis), for fiscal 1998 as compared to
net income of $789,923, or $0.45 per share ($0.41 on a diluted
basis) for fiscal 1997. The decrease in net income for fiscal 1998
was due primarily to the increased salary and marketing costs
discussed above and costs incurred related to the opening of the
Company's European sales office.
Liquidity and Capital Resources
The Company's working capital increased to $3,192,265 at
October 31, 1998 from $2,929,325 at October 31, 1997, an increase
of $262,940. The Company's current ratio was 2.2 to 1 at both
October 31, 1998 and October 31, 1997.
During fiscal 1998, net cash used in the Company's operating
activities was $280,193 as compared to cash provided by operating
activities of $392,404 in fiscal 1997. Cash flow from operations
decreased in fiscal 1998 primarily due to the reduction in the
amount of net income ($242,815), an increase in prepaid expenses
and other current assets ($265,780) and a decrease in income taxes
payable ($516,914) offset by an increase in accrued expenses and
other current liabilities ($467,986).
Cash used in investing activities in fiscal 1998 was
$57,315 as compared to $304,763 in fiscal 1997. In fiscal 1997,
the Company acquired Alvina and used $193,800 to acquire the
business.
Cash used in financing activities in fiscal 1998 was $28,473
as compared to cash provided by financing activities of $302,246 in
fiscal 1997. 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.
In March 1998, the Company entered into a $2,000,000 loan
agreement with Israel Discount Bank of New York (the "Credit
Line"). The loan agreement calls for interest to be charged at the
prime interest rate. The loan is secured by a first lien on all of
the Company's accounts receivable, cash, securities, deposits and
general intangibles.
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 from operations along with the Credit Line are
expected to be sufficient for the Company to meet its cash flow
requirements.
Introduction Of The Euro
On January 1, 1999, eleven of the fifteen member countries of
the European Union established fixed conversion rates between their
existing sovereign currencies and a new currency called the "Euro."
These countries agreed to adopt the Euro as their common legal
currency on that date. The Euro trades on currency exchanges and
is available for non-cash transactions. Until January 1, 2002, the
existing sovereign currencies will remain legal tender in these
countries. On January 1, 2002, the Euro is scheduled to replace
the sovereign legal currencies of these countries. The Company's
initial international expansion will be in the United Kingdom,
which has not adopted the Euro. The Company will evaluate the
impact the implementation of the Euro will have on its business
operations and no assurances can be given that the implementation
of the Euro will not have material adverse affect on the Company's
business, financial condition and results of operations. However,
the Company does not expect the Euro to have a material effect on
its competitive position. In addition, the Company cannot
accurately predict the impact the Euro will have on currency
exchange rates or the Company's currency exchange risk.
Year 2000 Compliance
The Company is on schedule with a project that addresses the
Year 2000 (Y2K) issue of computer systems and other equipment with
embedded chips or processors not being able to properly recognize
and process date-sensitive information after December 31, 1999.
The Company has completed all programming changes required to make
its computer system Y2K complaint. JLM's computer systems are able
to recognize date sensitive information with dates after December
31, 1999. The total cost incurred to convert the system had a
minimal impact on earnings. Many systems use only two digits
rather than four to define the year and these systems will not be
able to distinguish between the year 1900 and the year 2000. This
may lead to disruption in the operations of business and
governmental entities resulting from miscalculations or system
failures. This project is designed to ensure the compliance of all
of the Company's applications, operating systems and hardware
platforms, and to address the compliance of key business partners.
Key business partners are those customers and vendors that have a
material impact on the Company's operations. The total estimated
cost of the required modifications to become Y2K compliant should
not be material to the Company's financial position.
Failure to make all internal business systems Y2K compliant
could result in an interruption in, or failure of, some of the
Company's business activities or operations. Y2K disruption in the
operations of key vendors could impact the Company's ability to
obtain components necessary for the manufacture of products and
fulfillment of contractual obligations. If one or more of these
situations occur, the Company's results of operations, liquidity
and financial conditions could be materially and adversely
affected. The Company is unable to determine the readiness of its
key business partners at this time and is therefore unable to
determine whether the consequences of Y2K failures will have a
material impact on the Company's result of operations, liquidity or
financial condition. The Y2K project is expected to reduce the
Company's level of uncertainty about the Y2K problem and reduce the
possibility of significant interruptions of normal business
operations.
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
purpose 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
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.
In June 1997, the Financial Accounting Standards Board issued
SFAS No. 131, "Disclosures About Segments of an Enterprise and
Related Information," ("SFAS 131"). This pronouncement establishes
standards for companies to report information about operating
segments in financial statements based on the approach that
management utilizes to organize the segments within the company for
management reporting and decision making. In addition, SFAS No.
131 requires that companies report disclosures about products and
services, geographic areas and major customers. SFAS No. 131 is
effective for the Company's fiscal year beginning November 1, 1998.
Financial statement disclosures for prior periods are required to
be restated. As this statement relates solely to disclosure
provisions, the Company believes that the adoption of this
statement will not have an effect on its financial position or
results of operations.
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.
ITEM 7. Financial Statements.
The financial statements listed below are included on pages-F-
1 through F-23 following the signature page.
Title of Document Page
Report of Independent Public Accountants F-1
Balance Sheets as of October 31, 1998 F-2 - F-3
and 1997
Consolidated Statements of Operations for the
Years Ended October 31, 1998 and 1997 F-4
Consolidated Statements of Shareholders' Equity
for the Years Ended October 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the
Years Ended October 31, 1998 and 1997 F-6 - F-7
Notes to Consolidated Financial Statements F-8 - F-23
ITEM 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
None.
PART III
The information required by Items 9, 10, 11 and 12 of this
Part will be incorporated by reference to the Proxy Statement of
the Company to be filed with the Securities and Exchange Commission
on or before February 28, 1999.
<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 (the
"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 Form of Stock Option Plan is incorporated by reference to
Exhibit 10.02 to the Form S-18.
10.2 Amendment No. 1 dated November 1, 1998 to Employment
Agreement dated January 1, 1996 between the Company and
Mr. Lazaro Perez.
10.3 Security Agreement between Israel Discount Bank of New
York and JLM Couture, Inc. dated March 1998.
10.4 Amendment No. 2 dated May 19, 1998 to Employment
Agreement dated February 1, 1995 between the Company and
Mr. Joseph L. Murphy.
23.1 Consent of Arthur Andersen LLP dated February 11, 1999.
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the last quarter of Fiscal 1998, 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 16, 1999 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 16, 1999
Daniel M. Sullivan of Directors
/s/ Joseph L. Murphy President and Director February 16, 1999
Joseph L. Murphy (principal executive and
financial officer)
/s/ Joseph E. O'Grady Director February 16, 1999
Joseph E. O'Grady
N:\RSKLAW\HJELM\10KSB-98.O31
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To JLM Couture, Inc.
We have audited the accompanying consolidated balance sheets of
JLM Couture, Inc. (a Delaware corporation) and subsidiary as of
October 31, 1998 and 1997, 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, 1998 and 1997, 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
February 5, 1999
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Balance Sheets as of
October 31, 1998 and 1997
1998 1997
Current Assets:
Cash $ 107,713 $ 473,694
Accounts receivable, net of
allowance for doubtful
accounts, trade discounts
and sales returns of $315,000
at October 31, 1998 and $355,000
at October 31, 1997 2,516,511 2,542,782
Inventories 2,464,944 1,912,049
Prepaid expenses and other
current assets 706,240 364,991
Total current assets 5,795,408 5,293,516
Equipment and leasehold
improvements, net 275,555 286,439
Goodwill, net 267,608 281,693
Samples, net of accumulated
amortization of $63,746 at
October 31, 1998 and
$64,712 at October 31, 1997 357,596 233,102
Other assets 215,116 128,551
$6,911,283 $6,223,301
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets.
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Balance Sheets as of
October 31, 1998 and 1997
(continued)
1998 1997
Current Liabilities:
Revolving line of credit $ 900,000 $ 792,707
Current portion of long-term debt - 19,428
Accounts payable 1,397,639 956,849
Accrued expenses and
other current liabilities 230,068 164,722
Income taxes payable 75,436 430,485
Total current liabilities 2,603,143 2,364,191
Long-term Debt 0 64,523
Other Liabilities 47,639 61,581
Commitments and Contingencies
(Note 12)
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 1,873,348 at
October 31, 1998 and 1,828,973
at October 31, 1997;
Outstanding 1,853,181 at
October 31, 1998 and 1,827,306 at
October 31, 1997 374 365
Additional paid-in capital 2,769,657 2,678,774
Retained earnings 1,668,040 1,120,932
4,438,071 3,800,071
Less: Note receivable and
accrued interest (69,015) (62,075)
Treasury stock, at cost:
34,443 shares at October 31,
1998 and 1,667 shares at
October 31, 1997 (108,555) (4,990)
Total shareholders' equity 4,260,501 3,733,006
$6,911,283 $6,223,301
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the Years Ended October 31, 1998 and 1997
1998 1997
Net sales $15,704,889 $14,028,791
Cost of goods sold 9,476,902 7,971,512
Gross profit 6,227,987 6,057,279
Selling, general and
administrative expenses 5,220,197 4,398,252
Operating income 1,007,790 1,659,027
Interest expense, net of interest
income of $12,856 and $12,373 for
1998 and 1997, respectively (93,739) ( 136,979)
Income before provision for
income taxes 914,051 1,522,048
Provision for income taxes 366,943 732,125
Net income $ 547,108 $ 789,923
Net income per weighted
average number of common and
common equivalent share:
Basic $0.30 $0.45
Diluted $0.28 $0.41
Weighted average number of
common and common equivalent
shares outstanding:
Basic 1,833,827 1,760,444
Diluted 1,956,093 1,940,002
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.
<TABLE>
JLM COUTURE, INC. AND SUBSIDIARY
Statements of Shareholders' Equity
For the Years Ended October 31, 1998 and 1997
<CAPTION>
Notes Total
Additional Receivable Share-
Common Stock Paid-in Retained and Accrued Treasury holders'
Shares Amount Capital Earnings Interest Stock Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance October 31, 1,637,823 $328 $2,071,572 $331,009 $(58,750) $(4,990) $2,339,169
1996
Sale of Common Stock 95,000 19 330,960 - - - 330,979
Exercise of Common 59,750 11 79,796 - - - 79,807
Stock Options
Issuance of Shares 36,400 7 172,893 - - - 172,900
for Acquisition of
Business
Accrued Interest on - - - - (3,325) - (3,325)
Notes Receivable
Tax Benefit From - - 23,553 - - - 23,553
Exercise of Common
Stock Options
Net Income - - - 789,923 - - 789,923
Balance October 31, 1,828,973 365 2,678,774 1,120,932 (62,075) (4,990) 3,733,006
1997
Purchase of Treasury - - - - - (103,565) (103,565)
Stock
Compensation Expense - - 7,109 - - - 7,109
Related to the
Issuance of Common
Stock and Stock Options
Exercise of Common 44,375 9 55,547 - - - 55,556
Stock Options
Accrued Interest on - - - - (3,134) - (3,134)
Notes Receivable
Note Receivable Due From - - - - (3,806) - (3,806)
Employees Issued
Upon Exercise
of Options
Tax Benefit From - - 28,227 - - - 28,227
Exercise of Common
Stock Options
Net Income - - - 547,108 - - 547,108
Balance October 31, 1,873,348 $374 $2,769,657 $1,668,040 $ (69,015) $(108,555) $4,260,501
1998
</TABLE>
The accompanying notes to consolidated financial statements are an
integral part of these financial statements.<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1998 and 1997
1998 1997
Cash flows from operating activities:
Net income $ 547,108 $ 789,923
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 82,283 57,416
Provision for doubtful accounts 235,570 286,261
Accrued interest income on note
receivable (3,134) (3,325)
Compensation expense on issuance
of stock options and common stock 7,109 -
Changes in assets and liabilities:
(Increase) in accounts receivable (209,299) (182,155)
(Increase) in inventories (552,895) (140,671)
(Increase) in prepaid expenses
and other current assets (341,249) (75,469)
(Increase) in samples and
other assets (211,057) (166,958)
Increase in accounts
payable 440,789 50,286
Increase (decrease) in accrued
expenses and other current
liabilities 65,346 (402,640)
(Decrease) increase in income taxes
payable (326,822) 190,092
(Decrease) in other long-term
liabilities (13,942) (10,356)
Net cash (used in) provided by
operating activities (280,193) 392,404
Cash flows from investing activities:
Purchase of property and equipment (57,315) (110,963)
Purchase of business, net of cash
acquired - (193,800)
Net cash used in investing activ-
ities $ (57,315) $(304,763)
JLM COUTURE, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the Years Ended October 31, 1998 and 1997
(Continued)
1998 1997
Cash flows from financing activities:
Net borrowings (reductions) of revolving
line of credit $ 107,293 $ (272,248)
Repayments of notes payable (83,951) (9,192)
Proceeds from sale of Common Stock - 330,979
Proceeds from stock option exercise - 79,807
Issuance of Common Stock in
connection with purchase of
business - 172,900
Purchase of Treasury Stock (51,815) -
Net cash (used in) provided by
financing activities (28,473) 302,246
Net (decrease) increase in cash (365,981) 389,887
Cash, beginning of year 473,694 83,807
Cash, end of year $107,713 $473,694
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 96,045 $144,898
Income taxes 518,034 618,000
Non-cash transactions
Tax benefit from exercise of
stock options $ 28,227 $ 23,553
Common Stock issued in exchange
for note receivable from employees 3,806 -
The accompanying notes to consolidated financial statements are an
integral part of these fi nancial statements.
<PAGE>
JLM COUTURE, INC. AND SUB SIDIARY
Notes to Consolidated Fin ancial Statements
For the Years Ended Octob er 31, 1998 and 1997
Note 1. The Company
JLM Couture, Inc. and subsidiary (the "Company") is
engaged in the design and manufacture of traditional,
high quality bridal wear and related accessories,
including bridesmaid gowns. Products are sold to
specialty bridal shops located throughout the continental
United States and England.
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 Advertising and Marketing Costs
Prepaid advertising and marketing costs include costs of
advertisements that have not been published and printed
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
catalogues that have not been distributed to its
customers. Upon publishing of an advertisement, the
related cost is expensed by the Company. Catalogue costs
are capitalized and amortized to expense over the period
of distribution (one year).
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 leased
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.
Debt Issuance Costs
The costs incurred to obtain financing are included in
other assets in the accompanying consolidated financial
statements and are being amortized over the life of the
related financing (one year).
Goodwill
Goodwill represents the excess of the purchase price over
the fair value of the net assets of the business acquired
and is being amortized on a straight-line basis over 20
years.
Samples
The Company produces samples of each dress line to be
used for displaying the Company's dresses at stores where
they are sold and at fashion shows. Samples are
amortized over their estimated useful lives (4 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
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For t he Years Ended October 31, 1998 and 1997
(cont inued)
related intangibles for impairment 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 such change
has occurred.
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 109"). Under SFAS
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.
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
continue to follow the 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.
Earnings per Share
Statement of Financial Accounting Standards No. 128,
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
"Earnings Per Share," which the Company adopted effective
November 1, 1998, establishes new standards for computing
and presenting 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 for
fiscal 1997 have been restated in the accompanying
consolidated financial statements to reflect the adoption
of this new standard.
A reconciliation of the weighted average number of shares
of common stock outstanding to the weighted average
number of shares of common stock outstanding assuming
dilution is as follows:
Years Ended October 31,
1998 1997
Basic weighted average 1,833,827 1,760,444
common shares outstanding
Effect of dilutive securities:
Stock options 121,898 178,223
Warrants 368 1,335
Diluted weighted average
common shares outstanding 1,956,093 1,940,002
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 purpose 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
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
Company will make the necessary disclosures 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.
In June 1997, the Financial Accounting Standards Board
issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," ("SFAS 131"). This
pronouncement establishes standards for companies to
report information about operating segments in financial
statements based on the approach that management utilizes
to organize the segments within the company for
management reporting and decision making. In addition,
SFAS No. 131 requires that companies report disclosures
about products and services, geographic areas and major
customers. SFAS No. 131 is effective for the Company's
fiscal year beginning November 1, 1998. Financial
statement disclosures for prior periods are required to
be restated. As this statement relates solely to
disclosure provisions, the Company believes that the
adoption of this statement will not have an effect on its
financial position or results of operations.
Reclassifications
Certain amounts in the fiscal 1997 financial statements
have been reclassified to conform with the fiscal 1998
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
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For t he Years Ended October 31, 1998 and 1997
(cont inued)
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 of
approximately $282,000 includes $30,000 of transaction
costs and has been reflected as goodwill in the
accompanying consolidated balance sheets. The results
of the acquired business have been reflected in the
accompanying consolidated statement of operations since
May 1, 1997.
Note 4. Inventories
Inventories consisted of the following:
October 31,
1998 1997
Raw materials $1,629,899 $1,180,107
Work-in-process 128,124 145,670
Finished goods 706,921 586,272
$2,464,944 $1,912,049
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
Note 5. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of
the following:
October 31,
1998 1997
Prepaid advertising and $ 640,488 $ 108,755
marketing costs
Deferred income taxes 0 91,313
Deferred design costs 52,180 151,285
Other 13,572 13,638
$ 706,240 $ 364,991
Note 6. Equipment and Leasehold Improvements
Equipment and leasehold improvements are summarized as
follows:
October 31,
1998 1997
Furniture and equipment $ 488,036 $ 430,721
Leasehold improvements 185,922 185,922
Leased equipment 34,261 34,261
708,219 650,904
Less: Accumulated
depreciation and
amortization (432,664) (364,465)
Equipment and leasehold
improvements, net $ 275,555 $ 286,439
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
Note 7. Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities are
summarized as follows:
October 31,
1998 1997
Payroll and related
expenses $ 85,952 $ 89,791
Deferred income taxes 97,674 0
Other 46,442 74,931
$ 230,068 $ 164,722
Note 8. Revolving Line of Credit and Long-term Debt
Revolving Line of Credit
At October 31, 1998 and 1997, the Company had lines of
credit agreements available for up to $2,000,000 and
$1,700,000, respectively. At October 31, 1998 and 1997,
the Company had borrowed $900,000 and $792,702,
respectively, under the lines of credit agreements.
In March 1998, the Company entered into a line of credit
agreement with Israel Discount Bank of New York ("IDB").
The proceeds of the credit facility were initially used
to repay amounts outstanding under the Company's previous
line of credit facility. Credit availability is based on
eligible amounts of accounts receivable, as defined, up
to a maximum of $2,000,000. Based on eligible accounts
receivable at October 31, 1998, $850,286 was available
for future borrowing. The line of credit facility is
secured by the Company's cash, accounts receivable,
securities, deposits and general intangibles. Interest
is charged at the prime rate (8% at October 31, 1998).
The line of credit agreement will automatically renew
each year unless either party provides 60 days notice to
terminate the line of credit agreement. Interest expense
charged to operations related to the IDB line of credit
facility totaled $56,412 for the year ended October 31,
1998.
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For t he Years Ended October 31, 1998 and 1997
(cont inued)
Prior to March 1998, the Company had a line of credit
agreement with another bank which also provided for
credit availability based on eligible amounts of accounts
receivable, as defined, up to a maximum of $1,700,000.
This line of credit facility was secured by the Company's
accounts receivable, chattel paper, general intangibles
and the personal guarantees of the officers and directors
of the Company. Interest was charged at prime plus 1%.
Interest expense charged to operations related to this
line of credit facility totaled $38,351 and $144,898 for
the years ended October 31, 1998 and 1997, respectively.
Long-Term Debt
Long-term debt, which was assumed in connection with
the acquisition of Alvina (see Note 3), consists of the
following:
October 31,
1998 1997
Small Business Administration
note payable dated December 20,
1996, with interest payable at
8.25% per annum. Monthly
principal payments of $952.
The note payable was repaid in
full in fiscal 1998. 0 $71,951
Small Business Administration
note payable dated May 4, 1994,
with interest payable at 8.5%
per annum. Monthly principal
payments of $667. The note
payable was repaid in full in
fiscal 1998. 0 12,000
0 83,951
Current portion of long-term
debt 0 (19,428)
Long-term debt 0 $64,523
JLM COUTURE, IN C. AND SUBSIDIARY
Notes to Consol idated Financial Statements
For the Years E nded October 31, 1998 and 1997
(continued)
Note 9. Income Taxes
The provision for income taxes for the years ended
October 31, 1998 and 1997, consist of the following:
1998 1997
Current:
Federal $153,635 $619,410
State and local 51,682 187,086
$205,317 $806,496
Deferred:
Federal $125,081 $(55,479)
State and local 36,545 (18,892)
$161,626 $(74,371)
$366,943 $732,125
A reconciliation of the statutory Federal income tax rate
to the effective income tax rate for the years ended
October 31, 1998 and 1997, is as follows:
1998 1997
Statutory Federal income tax at
applicable rates 34% 34%
State and local taxes, net of
federal tax benefit 6% 7%
Nondeductible expenses 2% 2%
Adjustment to opening valuation
allowance - 2%
Other (2%) 3%
40% 48%
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
The components of deferred income tax assets and liabilities are as
follows:
October 31,
1998 1997
Deferred Tax Assets:
Allowance for doubtful accounts $135,450 $159,530
Other liabilities and accruals 104,332 93,235
Total deferred tax assets 239,782 252,765
Deferred Tax Liabilities:
Prepaid advertising and
marketing expenses (275,410) (46,765)
Capitalized design costs (22,708) (65,053)
Total deferred tax liabilities (298,118) (111,818)
Net deferred tax (liability) asset ($58,336) $140,947
Deferred income taxes are provided on temporary
differences between financial statement and taxable
income. 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 its deferred tax
assets will be realized.
Note 10. Shareholders' Equity
During fiscal 1998, the Company repurchased 18,500 shares
of the Company's Common Stock in the open market at a
cost of $51,815 ($2.80 per share).
In November 1996, the Company, through a private
placement, issued 75,000 unregistered shares of Common
Stock, par value $.0002 per share for $328,125 to outside
parties. In addition, the Company granted to the
investors in the private placement,
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
warrants to purchase 7,500 shares of the Company's Common
Stock exercisable at $4.37 per share which expire
December 31, 2001 and warrants to purchase 15,000 shares
of the Company's Common Stock exercisable at $6.62 per
share which 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.
Stock Option Plans
On November 17, 1986, the Company adopted a Stock Option
Plan, as amended (the "1986 Plan"). The 1986 Plan
provided 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. 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. In
September 1998, the 1996 Plan was amended to increase the
number of shares available for grant to 250,000 shares.
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 is scheduled to terminate on August 26, 2006.
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
The following table summarizes data relating to
non-incentive plan options and incentive plan options:
Incentive Non-Incentive
1998 1997 1998 1997
Options outstanding
at the beginning of
the year 40,000 84,750 259,666 149,666
Options granted 110,000 0 230,000 125,000
Options expired 0 0 (8,333) 0
Options exercised (4,375) (44,750) (38,333) (15,000)
Options outstanding
at the end of the
year 145,625 40,000 443,000 259,666
Options exercisable
at the end of the
year 72,292 40,000 273,000 259,666
The exercise prices of the options outstanding at October
31, 1998 and 1997 range from $.87 to $4.625. At October
31, 1998, there are 150,000 shares available for future
grant under the incentive stock option plan.
During fiscal 1998, an employee exercised stock options
to acquire 38,333 shares of the Company's common stock at
an exercise price of $1.35 per share, The employee
tendered 14,276 shares of common stock to the Company in
exchange for the option exercised, the shares tendered by
the employee had been outstanding for many years. The
tendered shares have been included in treasury stock in
the accompanying financial statements.
As a result of individuals exercising their non-incentive
stock options in fiscal 1998 and fiscal 1997, the Company
realized an income tax benefit of $28,227 and $23,553,
respectively. The benefits were utilized to reduce
current income taxes payable and the benefits were
recorded in additional paid-in capital in the
accompanying, consolidated balance sheets as of October
31, 1998 and 1997, respectively.
Effective November 1, 1996, the Company adopted the
provisions of SFAS 123, "Accounting for Stock
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
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 1998 and fiscal 1997 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,
1998 1997
Net income --
As reported $547,108 $789,923
Pro forma $333,670 $640,942
Basic earnings
per share --
As reported $0.30 $0.45
Pro forma $0.18 $0.36
Diluted earnings
per share --
As reported $0.28 $0.41
Pro forma $0.17 $0.33
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:
<PAGE>
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
For The Years Ended
October 31,
1998 1997
Weighted average
market price at
date of grant $2.64 $4.60
Risk free interest
rate 5.6% 6.5%
Volatility factor 81% 95%
Expected life of
the stock options 3.6 yrs. 3 yrs.
Note 11. Related Party Transactions
Notes 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 prime rate
plus one percent per annum, is due on demand. The
outstanding principal and interest balance at October 31,
1998 and 1997 was $65,209 and $62,075, respectively.
Periodically, compensation expense has been recorded for
the difference between the original price and the current
fair value of the stock, which as of yet has not been
paid for by the executive.
Note 12. 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,
1999 $213,028
2000 214,426
2001 203,840
2002 136,834
2003 28,500
$796,628
JLM COUTURE, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
For the Years Ended October 31, 1998 and 1997
(continued)
Rent expense charged to operations for the foregoing
lease and short-term rentals for the years ended October
31, 1998 and 1997, amounted to $290,402 and $269,874,
respectively.
Employment Agreements
The Company has employment agreements with three of its
key employees terminating from June 2001 to December
2005. Total compensation expense under the terms of
these agreements for the years ended October 31, 1998 and
1997 was $535,630 and $428,679, respectively. Future
minimum commitments under these employment agreements are
as follows:
Year Ending October 31,
1999 $ 398,000
2000 398,000
2001 325,000
2002 155,000
2003 155,000
Thereafter 205,000
$1,636,000
Note 13. Subsequent Event
On December 22, 1998, an executive of the Company
purchased on the open market 200,000 shares of the
Company's Common Stock at a price of $2.25 per share.
The purchase was financed by the executive executing a
ten year promissory note due to the Company in the amount
of $450,000. The promissory note bears interest at 5%
per annum and calls for annual principal payments of
$45,000 with accrued interest.
EXHIBIT INDEX
10.2 Amendment No. 1 dated November 1, 1998 to Employment
Agreement dated January 1, 1996 between the Company and
Mr. Lazaro Perez.
10.3 Security Agreement between Israel Discount Bank of New
York and JLM Couture, Inc. dated March 1998.
10.4 Amendment No. 2 dated May 19, 1998 to Employment
Agreement dated February 1, 1995 between the Company and
Mr. Joseph L. Murphy.
23.1 Consent of Arthur Andersen LLP dated February 11, 1999.
27 Financial Data Schedule
N:\RSKLAW\HJELM\10KSB-98.O31
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
AGREEMENT dated as of this 1st day of November, 1998 between
JLM COUTURE, INC., a Delaware corporation (hereinafter called the
"Company") with offices at 225 West 37th Street, Fifth Floor, New
York, New York 10018, and LAZARO PEREZ residing at 33-22 Southern
Drive, Fairlawn, NJ 07410 (hereinafter called the "Employee").
The Agreement shall control and supersede all previous agreements
entered into between the Company and the Employee.
W I T N E S S E T H
WHEREAS, Employee is a designer of bridal gowns and related
apparel; and
WHEREAS, the Company desires to obtain the services of
Employee to design a line of bridal gowns and related apparel, upon
the terms and conditions stated herein; and
WHEREAS, Employee desires to be employed by the Company to
design a line of bridal gowns and related apparel, upon the terms
and conditions stated herein.
WHEREAS, the Company and the Employee entered into an
agreement dated as of January 1, 1996 for the employment of the
Employee (the "Prior Employment Agreement"); and
WHEREAS, the Company and the Employee desire to extend the
term of the employment of the Employee and to modify the terms of
the Prior Employment Agreement; and
WHEREAS, the Company and the Employee desire to enter into an
agreement to memorialize their understandings with regard to the
employment of the Employee by the Company.
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and promises contained herein, the parties hereby agree
as follows:
1. The Prior Employment Agreement. Subject to the
provisions hereof, the Company and the Employee agree to terminate
in all respects the Prior Employment Agreement.
2. 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
the date hereof (the "Commencement Date"), and terminating ten
years from the date hereof, unless sooner terminated as herein
provided (such initial term of this Agreement is herein referred to
as the "Term").
3. Duties. Subject to the authority of the Board of
Directors of the Company and the control and direction of the
President and Board of Directors of the Company, Employee shall be
employed as a designer of a line of bridal gowns and related
apparel for the Company, which line shall be under the Lazaro name
or an alternative name acceptable to both the Company and Employee
(the "Products"). Employee shall have direct responsibility for
the design of the Products. In addition to designing the Products,
Employee will perform such other duties and services commensurate
with his position as a designer for the Company, as may from time
to time be assigned to him by such persons, including, but not
limited to, attendance at trunk shows, assisting with advertising
programs, making first patterns and designing traditional style
bridal gowns and related apparel to be sold under the JLM COUTURE,
INC. label.
4. Full Time. Employee agrees that he will devote his
full time and attention during regular business hours to the
business affairs of the Company and that during the period of such
employment Employee will not, without the prior permission of the
President or Board of Directors of the Company, engage in any other
business enterprise which requires the personal time or attention
of Employee. It is understood that the Employee will perform
certain of the services contemplated in this Agreement outside of
the Company's offices. The foregoing shall not prevent the
purchase, ownership or sale by Employee of investments or
securities of publicly-held companies and any other business which
is not competitive and does not have any business relations with
the Company or any subsidiary of the Company, provided the time or
attention devoted by Employee to such activities does not interfere
with the performance of his duties hereunder.
5. Compensation. For the full, prompt and faithful
performance of all of the duties and services to be performed by
Employee hereunder, the Company agrees to pay, and Employee agrees
to accept, the amounts set forth below.
(a) As a base compensation, Employee shall be paid at a
rate set forth on Schedule A attached hereto per annum during the
Term (the "Base Compensation"), payable weekly. Effective on each
anniversary date of this Agreement, the Board of Directors of
Company agrees to review the Employee's performance hereunder and,
based on such review, to increase the Base Compensation at least in
an amount equal to the Consumer Price Index.
(b) As additional compensation Employee shall receive
for each fiscal year of the Company completed during the Term an
amount set forth on Schedule B attached hereto. Notwithstanding
anything else contained in this paragraph 5(b), the maximum amount
payable to Employee under this paragraph 5(b) for each fiscal year
of the Company during the Term shall not be greater than the Base
Compensation.
(c) Net sales of the Products for the purposes of
paragraph 5(b) shall be computed separately for each fiscal year of
the Company (or part thereof, if Employee's employment shall
terminate other than at the end of a fiscal year or if Employee's
employment shall commence other than at the beginning of a fiscal
year). Such computations shall be made as soon as practicable
after the end of each such period.
(d) For the purposes of this Agreement, net sales shall
mean the Company's gross receipts for the Products less the usual
discounts and allowances to customers, refunds for returned goods,
taxes, cost of transportation and non-collectable receivables.
(e) The additional compensation to be paid pursuant to
paragraph 5(b) shall be payable not later than 120 days after the
end of the fiscal year of the Company.
(f) In connection with this agreement, the Company has
previously granted to Employee a four year plan option to purchase
10,000 shares of Common Stock of the Company exercisable at the
fair market value on date of grant ($2.75 per share of Common
Stock) (the" Option"). The Option shall be exercisable at the rate
of 3,334 shares immediately and 3,333 shares on each of the next
two yearly anniversary dates thereof.
Additionally, the Company has previously granted to Employee
a four year non-plan option to purchase 20,000 shares of Common
Stock of the Company exercisable at the fair market value on the
date of grant ($2.75 per share of Common Stock) exercisable as to
6,666 shares immediately and as to 6,667 shares on each of the next
two yearly anniversary dates thereof.
(g) The Company shall provide the Employee with health
benefits on the same terms as provided to other employees of the
Company.
(h) The Company shall provide the Employee a clothing
allowance of $5,000 per year.
(i) If the Employee is employed by the Company on
January 1, 1999, then the Company shall issue the Employee, as a
bonus for no additional compensation, the consideration set forth
on Schedule C attached hereto.
(j) The compensation provided for herein shall be in
additional to any retirement, profit sharing, insurance (including
medical) or similar benefit which may at any time be payable to
Employee pursuant to any plan or policy of the Company relating to
such benefits, which benefits shall be made available to Employee
on the same basis as they are made available to other similarly
situated employees of the Company. Such compensation shall be in
addition to any options which may be granted under any Company
stock option plan.
6. Vacation. Employee shall be entitled to three weeks of
vacation per year, which shall be taken at such time or times as
shall be mutually determined by the Company and him.
7. 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 5(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.
8. Disability. In the event that Employee shall, because
of illness or incapacity, physical or mental, be unable to perform
the duties and services to be performed by him hereunder for a
consecutive period of six (6) months, or nine (9) months during any
twelve (12) month period, the Company may terminate the employment
of Employee hereunder after the expiration of such period.
Employee shall be entitled to receive his base salary and the
additional compensation provided by paragraph 5(b) computed up to
the date of such termination. In the event of the termination of
Employee's employment due to the disability of Employee, the
provisions of paragraph 12 hereof shall continue in full force and
effect.
9. Covenant Not To Compete; Nondisclosure.
(a) The Employee covenants and agrees that for a period
of two years following the termination of his employment with the
Company other than as a result of a breach by the Company, he shall
not directly or indirectly compete with the Company in the bridal
marketplace in those areas in which the Company sells the Products,
nor induce any person associated with or employed by the Company or
any subsidiary of the Company, to leave the employ of or terminate
his association with the Company, or any subsidiary of the Company,
or solicit the employment of any such person on his own behalf or
on behalf of any other business enterprise. In the event of
termination of this Agreement by virtue of a breach by the Company,
termination without cause or expiration of the Term then the
aforesaid covenant will be applicable for a period of six months
from such event.
The Employee covenants and agrees that (i) following the
termination of his employment with the Company, other than if such
termination is without cause, Employee shall be restricted from
employment by Richard Glasgow, Inc. or an affiliate thereof for a
period of 12 years, and (ii) following the termination of his
employment with the Company without cause, Employee shall be
restricted from employment by Richard Glasgow, Inc. or an affiliate
thereof for a period of six years.
(b) The Employee covenants and agrees for a period of two
years following the termination of his employment with the Company
other than as a result of a breach by the Company, he will not,
directly or indirectly, during or after the term of employment
disclose to any person not authorized by Employer to receive or
use such information, except for the sole benefit of Employer, any
of Employer's confidential or proprietary data, information,
designs, styles, or techniques, including customer lists, or give
to any person not authorized by Employer to receive it.
Notwithstanding the foregoing, this applies solely to information
that is not generally known to anyone other than Employer.
(c) If any term of this paragraph 9 is found by any court
having jurisdiction to be too broad, then and in that case, such
term shall nevertheless remain effective, but shall be considered
amended (as to the time or area or otherwise, as the case may be)
to a point considered by said court as reasonable, and as so
amended shall be fully enforceable.
(d) In the event that Employee shall violate any
provision of this Agreement (including but not limited to the
provisions of this paragraph 9), the Employee hereby consents to
the granting of a temporary or permanent injunction against him by
any court of competent jurisdiction prohibiting him from violating
any provision of this Agreement. In any proceeding for an
injunction, Employee agrees that his ability to answer in damages
shall not be a bar or interposed as a defense to the granting of
such temporary or permanent injunction against Employee. Employee
further agrees that the Company will not have an adequate remedy at
law in the event of any breach by Employee hereunder and that the
Company will suffer irreparable damage and injury if Employee
breaches any of the provisions of this Agreement.
10. Trademark. Employer shall register the name Lazaro,
Lazaro Perez or a derivation thereof (the "Trademark"), with the
United States Patent and Trademark office ("USPTO"). Except as
otherwise provided herein, the permission of the Employee to the
Employer to so register the Trademark shall be perpetual and fully-
paid. The Trademark is the exclusive property of Employer, the
Employee having consented to it being filed by the Employer with
the USPTO and the Employee shall have no right to the use thereof
as a mark used in trade or commerce except as otherwise provided
herein, without the express written consent of the Company. The
Company shall be solely permitted to license the Trademark to a
third party.
11. Use of Designs. Employee hereby grants to the Company
a perpetual, royalty-free exclusive right and license to use his
designs for bridal gowns and related apparel (the "Designs") or any
variation thereof developed during the Term (or any extension
thereof). The Company shall be solely permitted to license the
Designs to a third party.
12. Use of Designs and Trademark After Term. Except as
set forth herein, Employee: (i) after such time as he is no longer
employed by the Company, grants to the Company a perpetual,
royalty-free exclusive right and license to use the Designs or any
variation thereof designed by the Employee during the Term (or any
extension thereof), (ii) upon expiration of the Term (or the
expiration of any extension thereof) or if his employment hereunder
is terminated for cause, grants to the Company, commencing on the
date he is no longer employed by the Company, a 12 year, royalty-
free exclusive right and license to use the Trademark, and (iii)
upon termination of his employment hereunder without cause, grants
to the Company, commencing on the date he is no longer employed by
the Company, a six year, royalty-free exclusive right and license
to use the Trademark. The provisions of this paragraph 12 shall
survive any termination of employment "for cause" as provided in
paragraph 13 hereof.
13. Termination.
13.1 Termination for Cause. The Company may terminate
Employee's employment without liability (other than for payments
accrued to the date of termination and as otherwise provided in
paragraph 12) if Employee's employment is terminated "for cause".
The term "for cause" shall, for the purposes of this Agreement,
mean (i) a material breach by Employee of the provisions of this
Agreement, (ii) the commission by Employee of a fraud against the
Company or the conviction of Employee for aiding or abetting, or
the commission of, a felony or of a fraud or a crime involving
moral turpitude or a business crime, (iii) the knowing possession
or use of illegal drugs or prohibited substances, the excessive
drinking of alcoholic beverages which impairs Employee's ability to
perform his duties hereunder, (iv) being under the influence of
such drugs, substances or alcohol during Employee's hours of
employment, or (v) any violation of the Company's corporate
policies described in the Company's employee handbook, which
handbook may supplemented or amended by the Company from time to
time, a copy of which has been provided to the Employee. In the
event of such termination for cause, Employee shall be entitled to
receive his base salary and the additional compensation provided by
paragraph 5(b) computed up to the date of such termination and the
provisions of paragraph 12 hereof shall continue in full force and
effect.
13.2 Termination Without Cause. The Company shall have
the right to terminate Employee's employment hereunder at any time,
without cause, on six months written notice to the Employee. In
the event the Employee's employment hereunder is terminated by the
Employer without cause, Employee shall be entitled to receive the
Base Compensation provided in paragraph 5(a) for a period of 90
days from the date such termination becomes effective and the
additional compensation provided by paragraph 5(b) for a period of
1 year from the date such termination becomes effective and the
provisions of paragraph 12 hereof shall continue in full force and
effect.
14. No Impediments. Employee warrants and represents that
he is free to enter into this Agreement and to perform the services
contemplated thereby and that such actions will not constitute a
breach of, or default under, any existing agreement.
15. 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.
16. 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.
17. 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.
18. Binding Effect. This Agreement shall bind and inure
to the benefit of the parties, their successors and assigns.
19. Assignment and Delegation of Duties. This Agreement
may not be assigned by the parties hereto except that the Company
shall have the right to assign this Agreement in connection with a
sale or transfer of all or substantially all of its assets, a merge
or consolidation. This Agreement is in the nature of a personal
services contract and the duties imposed hereby are non-delegable.
20. 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.
21. 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.
22. 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.
23. 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.
JLM COUTURE, INC.
By:
Joseph L. Murphy, President
Lazaro Perez
N:\RSKLAW\HJELM\EMP-AG96.LP<PAGE>
Schedule A
Base Salary $85,000
Schedule B
1% of the first $3,000,000 of net sales of the Products for
such fiscal year, and 1.5% of any amount over $3,000,000 of net
sales of the Products for such fiscal year.
Schedule C
50,000 shares of Common Stock of the Company. These shares
shall not be registered under the Securities Act of 1933.
EXHIBIT 10.3
ACCOUNTS RECEIVABLE
FINANCING SECURITY AGREEMENT
[SECURITY AGREEMENT]
BETWEEN
ISRAEL DISCOUNT BANK OF NEW YORK
511 FIFTH AVENUE
NEW YORK, NY 10017
AND
JLM COUTURE, INC.
225 WEST 37TH STREET
NEW YORK, NY 10018
Israel Discount Bank of New York
511 Fifth Avenue
New York, NY 10017
Gentlemen:
This Agreement states the terms and conditions upon which,
effective as of the date of acceptance by you, we may obtain
loans and other financial accommodations from you for our general
corporate and business purposes upon the security referred to
herein. We shall be, if two or more in number, jointly and
severally bound hereunder.
Section 1. DEFINITIONS.
1.1. All terms used herein which are defined in Article 1 or
Article 9 of the Uniform Commercial Code ("UCC") shall have the
meanings given therein, unless otherwise defined in this
Agreement and all references to the plural herein shall also mean
the singular.
1.2. "Accounts" shall mean all of our present and future
accounts, contract rights, general intangibles, chattel paper,
documents and instruments, as such terms are defined in the UCC,
including, without limitation, all obligations for the payment of
money arising out of our sale, lease or other disposition of
goods or other property or rendition of services.
1.3. "Account Debtor" shall mean each debtor or obligor in any
way obligated on or in connection with any Account.
1.4. "Collateral" shall have the meaning set forth in Section 4.1
hereof.
1.5. "Eligible Accounts" shall mean Accounts created by us in the
ordinary course of business arising out of our sale of goods or
rendition of services, which are and at all times shall continue
to be acceptable to you in all respects. Standards of
eligibility may be fixed and revised from time to time solely by
you in your exclusive judgment. In determining eligibility, you
may, but need not, rely on agings, reports and schedules of
Accounts furnished by us, but reliance by you thereon from time
to time shall not be deemed to limit your right to revise
standards of eligibility at any time as to both our present and
future Accounts. In general, an Account shall not be deemed
eligible unless: (a) the Account Debtor on such Account is and at
all times continues to be acceptable to you, (b) such Account
complies in all respects with the representations, covenants and
warranties hereinafter set forth, and (c) no more than 150 days
have elapsed since the invoice date of such Account.
1.6. "Events of Default" shall have the meaning set forth in
Section 8.1 hereof.
1.7. "Maximum Credit" shall mean the amount of $ 2,000,000.
1.8. "Net Amount of Eligible Accounts" shall mean the gross
amount of Eligible Accounts less sales, excise or similar taxes,
and less returns, discounts, claims, credits and allowances of
any nature at any time issued, owing, granted, outstanding,
available or claimed.
1.9. "Obligations" shall mean any and all loans, indebtedness,
liabilities and obligations of any kind owing by us to you,
however evidenced, whether as principal, guarantor or otherwise,
whether arising under this Agreement, any supplement hereto, or
otherwise, whether now existing or hereafter arising, whether
direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated,
secured or unsecured, original, renewed or extended, and whether
arising directly or acquired from others (including, without
limitation, your participations or interests in our obligations
to others) and including, without limitation, your charges,
commissions, interest, expenses, costs and attorneys' fees
chargeable to us in connection with all of the foregoing.
1.10. "Records" shall have the meaning set forth in Section
4.l(h) hereof.
1.11. "Renewal Date" shall have the meaning set forth in Section
9.1 hereof.
Section 2. LOANS.
2.1. You shall, in your discretion, make loans to us from time to
time, at our request, of up to Eighty percent ( 80 %) of the
Net Amount of Eligible Accounts.
2.2 All loans shall be charged to a loan account
in our name on your books. You shall render to us each month a
statement of our loan account which shall be considered correct
and deemed accepted by, and conclusively binding upon, us as an
account stated. Repayments to us shall be credited to our loan
account on your books, as received.
2.3. Except in your sole discretion, the outstanding aggregate
principal amount of all loans made by you to us hereunder, under
any supplement hereto or evidenced by any promissory note, shall
not exceed the Maximum Credit at any time. Without limiting your
right to demand payment of the Obligations, or any portion
thereof, in accordance with any other terms of this Agreement, or
any supplement hereto, in the event that the outstanding
aggregate principal amount of loans made by you to us exceeds the
Maximum Credit or the formula set forth in Section 2.1 hereof, we
shall remain liable therefor and the entire amount of such
excess(es) shall, at your option, become immediately due and
payable, upon your demand.
2.4. At your option, all principal, interest, fees, commissions,
costs, expenses or other charges with respect to this Agreement
or any supplement hereto (all of which shall be cumulative and
not exclusive) and any and all loans and advances made by you to
us may be charged directly to any of our accounts maintained with
you.
2.5. All loans shall be payable at your office specified above or
at such other place as you may hereafter designate from time to
time and, at your option and upon your request, we shall execute
and deliver to you one or more promissory notes in form and
substance satisfactory to you to further evidence such loans.
Section 3. INTEREST AND FEES.
3.1. Interest shall be payable by us to you on the first day of
each month upon the closing daily balances in our loan account
for each day during the immediately preceding month, at a rate
equal to your prime loan rate (presently 8-1/2 percent per annum) from
time to time in effect, whether or not such rate is the best rate
available from you. Any change in such rate of interest shall be
effective on the date a change in your prime loan rate occurs,
without notice to us. The rate of interest in effect hereunder
on the date hereof, expressed in terms of simple interest, is
Eight and 1/2 percent ( 8-1/2 percent) per annum.
3.2. On and after the date of any Event of Default or termination
or non-renewal hereof, interest on all outstanding unpaid
Obligations shall accrue at a rate equal to two percent (2%) per
annum in excess of the pre-default rate set forth above from the
date of such Event of Default or termination or non-renewal, and
all interest accruing hereunder shall thereafter be payable on
demand.
3.3. Interest shall be calculated on the basis of a 360-day year
and actual number of days elapsed and shall be included in each
monthly statement of our loan account. You shall have the right,
at your option, to charge all interest to any of our accounts
maintained with you on the first day of each month, and such
interest shall be deemed to be paid by the first amounts
subsequently credited thereto.
3.4. In no event shall charges constituting interest, payable by
us under this Agreement, exceed the rate permitted under any
applicable law or regulation, and if any part or provision of
this Agreement is in contravention of any such law or regulation,
such part or provision shall be deemed amended to conform
thereto.
3.5. We shall pay to you an annual facility fee in an amount
equal to $ 20,000 initially payable simultaneously with the
execution hereof and $5,000 quarterly thereafter for the term
including all renewal terms after the Initial Term of this
Agreement or so long as any of the Obligations are outstanding.
Section 4. SECURITY INTEREST.
4.1. As security for the prompt performance, observance and
payment in full of all Obligations, we hereby grant to you a
continuing security interest in, a lien upon and a right of
setoff against, and we hereby assign, transfer, pledge and set
over to you the following (which together with any of our other
property in which you may at any time have a security interest or
lien, whether pursuant to this Agreement or any supplement
hereto, or otherwise, are herein collectively referred to as the
"Collateral"): All present and future (a) Accounts; (b) moneys,
securities and other property and the proceeds thereof, now or
hereafter held or received by, or in transit to, you from or for
us, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all of our deposits (general or
special), balances, sums and credits with you at any time
existing; (c) all of our right, title and interest, and all of
our rights, remedies, security and liens, in, to and in respect
of the Accounts and other Collateral, including, without
limitation, rights of stoppage in transit, replevin, repossession
and reclamation and other rights and remedies of an unpaid
vendor, lienor or secured party, guaranties or other contracts of
suretyship with respect to the Accounts and other Collateral,
deposits or other security for the obligation of any Account
Debtor, and credit and other insurance; (d) all of our right,
title and interest in, to and in respect of all goods relating
to, or which by sale have resulted in, Accounts including,
without limitation, all goods described in invoices, documents,
contracts or instruments with respect to, or otherwise
representing or evidencing, any Accounts or other Collateral,
including without limitation, all returned, reclaimed or
repossessed goods; (e) all deposit accounts; (f) all books,
records, ledger cards, computer programs, and other property and
general intangibles evidencing or relating to the Accounts, and
any other Collateral or any Account Debtor, together with the
file cabinets or containers in which the foregoing are stored
("Records"); (g) all other general intangibles of every kind and
description, including without limitation, trade names and
trademarks, and the goodwill of the business symbolized thereby,
patents, copyrights, licenses and Federal, State and local tax
refund claims of all kinds and (h) all products and proceeds of
the foregoing, in any form, including, without limitation,
insurance proceeds and any claims against third parties for loss
or damage to or destruction of any or all of the foregoing.
4.2. We shall keep and maintain, at our cost and expense,
satisfactory and complete books and records of all Accounts, all
payments received or credits granted thereon, and all other
dealings therewith. At such times as you may request, we shall
deliver to you all original documents evidencing the sale and
delivery of goods or the performance of services which created
any Accounts, including but not limited to all original
contracts, orders, invoices, bills of lading, warehouse receipts,
delivery tickets and shipping receipts, together with schedules
describing the Accounts and/or written confirmatory assignments
to you of each Account, in form and substance satisfactory to you
and duly executed by us, together with such other information as
you may request. In no event shall the making or the failure to
make or the content of any schedule or assignment or our failure
to comply with the provisions hereof be deemed or construed as a
waiver, limitation or modification of your security interest in,
lien upon and assignment of the Collateral or our
representations, warranties or covenants under this Agreement or
any supplement hereto.
Section 5. COLLECTION AND ADMINISTRATION.
5.1. Until our authority to do so is curtailed or terminated at
any time by you, we shall, at our expense and on your behalf,
collect, as your property and in trust for you, all remittances
and all amounts unpaid on Accounts, and we shall deposit same in
our own account. Upon our default and demand by you we shall on
the day received remit all such collections to you in the form
received duly endorsed by us for deposit with you, unless you
shall direct us otherwise. All amounts collected on Accounts
when received by you shall be credited to our loan account
immediately.
5.2. You or your representatives shall at all times have free
access to and right of inspection of the Collateral and have full
access to and the right to examine and make copies of our
Records, to confirm and verify all Accounts, to perform general
audits and to do whatever else you deem necessary to protect your
interests. You may at any time remove from our premises or
require us or any accountants and auditors employed by us to
deliver any Records and you may, without cost or expense to you,
use such of our personnel, supplies, computer equipment and space
at our places of business as may be reasonably necessary for the
handling of collections. In connection with your periodic audits
of our books and records, we agree to pay you a per diem of
$750.- (maximum of $4,500.- per year).
5.3. We shall immediately upon obtaining knowledge thereof report
to you all reclaimed, repossessed or returned goods, Account
Debtor claims and any other matter affecting the value,
enforceability or collectibility of Accounts. At your request,
any goods reclaimed or repossessed by or returned to us will be
set aside, marked with your name and held by us for your account
and subject to your security interest. All claims and disputes
relating to Accounts are to be promptly adjusted within a
reasonable time, at our own cost and expense. You may, at your
option, settle, adjust or compromise claims and disputes relating
to Accounts which are not adjusted by us within a reasonable
time.
Section 6. REPRESENTATIONS, WARRANTIES AND COVENANTS.
We hereby represent, warrant and covenant to you the following
(which shall survive the execution and delivery of this
Agreement), the truth and accuracy of which, or compliance with,
being a continuing condition of the making of loans hereunder by
you or under any supplement hereto:
6.1. We are and shall be, with respect to all Collateral now
existing or hereafter acquired, the owner of such Collateral free
from any lien, security interest, claim or encumbrance of any
kind, except in your favor and as set forth on Schedule B, if any
and as otherwise consented to in writing by you, and we shall
defend the same at our expense against the claims of all persons.
6.2. The only locations of any Collateral are those addresses
listed on Schedule C annexed hereto and made a part hereof.
Schedule C sets forth the owner and/or operator of the premises
at such addresses for all locations which we do not own and
operate and all mortgages, if any, with respect to the premises.
We shall not remove any Collateral from such locations, without
your prior written consent.
6.3. We will not directly or indirectly sell, lease, transfer,
abandon or otherwise dispose of all or any substantial portion of
our property or assets or consolidate or merge with or into any
other entity or permit any other entity to consolidate or merge
with or into us. We will at all times preserve, renew and keep
in full force and effect our existence as a corporation and the
rights and franchises with respect thereto and continue to engage
in business of the same type as we are engaged as of the date
hereof. We shall give you thirty (30) days prior written notice
of any proposed change in our corporate name which notice shall
set forth the new name.
6.4. Our Records and chief executive office are maintained at the
address referred to below. We shall
not change such location without your prior written consent and
prior to making any such change, we agree to execute any
additional financing statements or other documents or notices
which you may require.
6.5. We shall maintain our shipping forms, invoices and other
related documents in a form satisfactory to you and shall
maintain our books, records and accounts in accordance with
generally accepted accounting principles consistently applied.
We agree to furnish you monthly with accounts receivable agings,
inventory reports (if requested by you), and interim financial
statements (including balance sheet, statement of income and
surplus account, and cash flow statements), and to furnish you,
at any time or from time to time with such other information
regarding our business affairs and financial condition as you may
reasonably request, including, without limitation, balance
sheets, statements of profit and loss, financial statements, cash
flow and other projections, earnings forecasts, schedules, agings
and reports. We hereby irrevocably authorize and direct all
accountants, auditors or other third parties to deliver to you,
at our expense, copies of our financial statements, papers
related thereto, and other accounting records of any nature in
their possession and to disclose to you any information they may
have regarding our business affairs and financial conditions. We
shall furnish you with audited financial statements on an annual
basis certified by independent public accountants selected by us
and acceptable to you. All such statements and information shall
fairly present our financial condition as of the dates and the
results of our operations for the periods, for which the same are
furnished. Any documents, schedules, invoices or other papers
delivered to you may be destroyed or otherwise disposed of by you
one (l) year after the date the same are delivered to you, unless
we make written request therefor and pay all expenses attendant
to their return, in which event you shall return same when your
actual or anticipated need therefor has ceased. We will furnish
you monthly, not later than the 15th of the following month an
aging of the Accounts Receivable, in such detail as you may
require, together with a borrowing certificate in such form and
substance as you may require.
6.6. Each Eligible Account represents a valid and legally
enforceable indebtedness based upon an actual and bona fide sale
and delivery of goods or rendition of services in the ordinary
course of our business which has been finally accepted by the
Account Debtor and for which the Account Debtor is
unconditionally liable to make payment of the amount stated in
each invoice, document or instrument evidencing the Eligible
Account in accordance with the terms thereof, without offset,
defense or counterclaim and will be paid in full at maturity.
6.7. All statements made and all unpaid balances appearing in the
invoices, documents and instruments evidencing each Eligible
Account are true and correct and are in all respects what they
purport to be and all signatures and endorsements that appear
thereon are genuine and all signatories and endorsers have full
capacity to contract and each Account Debtor is solvent and
financially able to pay in full the Eligible Account when it
matures. None of the transactions underlying or giving rise to
any Account shall violate any state or federal laws or
regulations, and all documents relating to the Accounts shall be
legally sufficient under such laws or regulations and shall be
legally enforceable in accordance with their terms and all
recording, filing and other requirements of giving public notice
under any applicable law have been duly complied with.
6.8. We shall promptly notify you in writing of the details of
any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or which would result in any
material adverse change in our business, properties, assets,
goodwill or condition, financial or otherwise.
Section 7. SPECIFIC POWERS.
7.1. We hereby constitute you and any agent or designee of yours,
as our attorney-in-fact, at our own cost and expense, to exercise
at any time all or any of the following powers which, being
coupled with an interest, shall be irrevocable until all
Obligations have been paid in full: (a) to receive, take,
endorse, assign, deliver, accept and deposit, in your or our
name, any and all checks, notes, drafts, remittances and other
instruments and documents relating to the Collateral; (b) on or
after the occurrence of an Event of Default to receive, open and
dispose of all mail addressed to us and to notify postal
authorities to change the address for delivery thereof to such
address as you may designate; (c) to transmit to Account Debtors
notice of your interest therein and to request from such Account
Debtors at any time, in your or our name or that of your
designee, information concerning the Accounts and the amounts
owing thereon; (d) on or after the occurrence of an Event of
Default, to notify Account Debtors to make payment directly to
you; (e) on or after the occurrence of an Event of Default, to
take or bring, in your or our name, all steps, actions, suits or
proceedings deemed by you necessary or desirable to effect
collection of the Collateral; and (f) to execute in our name and
on our behalf any UCC financing statements or amendments thereto.
We hereby release you and your officers, employees and designees,
from any liability arising from any act or acts under this
Agreement or in furtherance thereof, whether of omission or
commission, and whether based upon any error of judgment or
mistake of law or fact.
Section 8. EVENTS OF DEFAULT AND REMEDIES.
8.1. All Obligations shall be, at your option, immediately due
and payable without notice or demand (notwithstanding any
deferred or installment payments allowed, if any, by any
instrument evidencing or relating to the Obligations) and any
provision of this Agreement or any supplement hereto, as to
future loans and advances by you shall, at your option, terminate
forthwith, upon the termination or non-renewal of this Agreement
or upon the occurrence of any one or more of the following
("Events of Default"): (a) if we shall fail to pay to you when
due any amounts owing to you under any Obligation, or shall
breach any of the terms, covenants, conditions or provisions of
this Agreement, any supplement hereto or any other agreement
between you and us or between any other third person or entity
and us; (b) if any guarantor, endorser or other person liable on
the Obligations shall terminate or breach any of the terms,
covenants, conditions or provisions of any guarantee, endorsement
or other agreement of such person with, or in favor of, you or
any other third person or entity; (c) if any representation,
warranty, or statement of fact made to you at any time by us or
on our behalf is false or misleading in any material respect; (d)
if we, or any guarantor, endorser or other person liable on the
Obligations, shall become insolvent, fail to meet our or their
debts as they mature, call a meeting of creditors or have a
creditors' committee appointed, make an assignment for the
benefit of creditors, commence or have commenced against us or
them any action or proceeding for relief under any bankruptcy
law, or if a judgment is rendered against us or them, or if we or
they suspend or discontinue doing business for any reason, or if
a receiver, custodian or trustee of any kind is appointed for us
or them or any of our or their respective properties; (e) if
there shall be a material adverse change in our business, assets
or condition (financial or otherwise) from the date hereof; (f)
if there is any change in our majority control or ownership; or
(g) if at any time you shall, in your sole discretion, consider
the Obligations insecure or any part of the Collateral unsafe,
insecure or insufficient and we shall not on your demand furnish
other Collateral or make payment on account, satisfactory to you.
8.2. Upon the occurrence of any Event of Default and at any time
thereafter, you shall have the right (in addition to any other
rights you may have under this Agreement, any supplement hereto
or otherwise) without notice to us, at any time and from time to
time, in your discretion, with or without judicial process or the
aid or assistance or others and without cost to you to
appropriate, set off and apply to the payment of any or all of
the Obligations, any or all Collateral, in such manner as you
shall in your sole discretion determine; to enforce payment of
any Collateral; to settle, compromise or release in whole or in
part, any amounts owing on the Collateral; to prosecute any
action, suit or proceeding with respect to the Collateral; to
extend the time of payment of any and all Collateral; to make
allowances and adjustments with respect thereto; to issue credits
in your or our name; to sell, assign and deliver the Collateral
(or any part thereof) at public or private sale, at broker's
board, for cash, upon credit or otherwise, at your sole option
and discretion, and you may bid or become purchaser at any such
sale, if public, free from any right of redemption which is
hereby expressly waived.
8.3 We shall, in the manner requested by you from time to time,
direct that all proceeds of Accounts
letters of credit, bankers? acceptances and other proceeds of
Collateral shall be payable to a lock box or post
office box designated by you and under your control and/or
deposited into a blocked account under your control
and/or deposited into an account maintained in your name and
under your control and in connection therewith
shall execute such lock box, blocked account or other agreement
as you in your sole discretion shall specify.
8.4. We agree that the giving of ten (10) days notice by you,
sent by certified mail, postage prepaid, to our address set
forth below, designating the place and time of any public sale or
of the time after which any private sale or other intended
disposition of the Collateral is to be made, shall be deemed to
be reasonable notice thereof and we waive any other notice with
respect thereto.
8.5. The net cash proceeds resulting from the exercise of any of
the foregoing rights or remedies shall be applied by you to the
payment of the Obligations in such order as you may elect, and we
shall remain liable to you for any deficiency. Without limiting
the generality of the foregoing, if you enter into any credit
transaction, directly or indirectly, in connection with the
disposition of any Collateral, you shall have the option, at any
time, in your sole discretion, to reduce the Obligations by the
principal amount of such credit transaction or to defer the
reduction thereof until actual receipt by you of cash or other
immediately available funds in connection therewith.
8.6. The enumeration of the foregoing rights and remedies is not
intended to be exclusive, and such rights and remedies are in
addition to and not by way of limitation of any other rights or
remedies you may have under the UCC or other applicable law. You
shall have the right, in your sole discretion, to determine which
rights and remedies, and in which order any of the same, are to
be exercised, and to determine which Collateral is to be
proceeded against and in which order, and the exercise of any
right or remedy shall not preclude the exercise of any others,
all of which shall be cumulative.
8.7. No act, failure or delay by you shall constitute a waiver of
any of your rights and remedies. No single or partial waiver by
you of any provision of this Agreement or any supplement hereto,
or breach or default thereunder, or of any right or remedy which
you may have shall operate as a waiver of any other provision,
breach, default, right or remedy or of the same provision,
breach, default, right or remedy on a future occasion.
8.8. We waive presentment, notice of dishonor, protest and notice
of protest of all instruments included in or evidencing any of
the Obligations or the Collateral and any and all notices or
demands whatsoever (except as expressly provided herein). You
may, at all times, proceed directly against us to enforce payment
of the Obligations and shall not be required to take any action
of any kind to preserve, collect or protect your or our
rights in the Collateral.
Section 9. EFFECTIVE DATE; TERMINATION; COSTS.
9.1. This Agreement shall become effective upon acceptance by you
and shall continue in full force and effect for a term ending one
(1) year from the date hereof (the "Initial Term") and shall
automatically renew from year to year thereafter (the ?Renewal
Term?), unless sooner terminated pursuant to the terms hereof.
Either party may terminate this Agreement on the last day of the
Initial Term at any time and thereafter by giving the other party
at least sixty (60) days prior written notice by registered or
certified mail, return receipt requested, and, in addition, you
shall have the right to terminate this Agreement immediately at
any time upon the occurrence of an Event of Default. No
termination of this Agreement, however, shall relieve or
discharge us of our duties, obligations and covenants hereunder
until all Obligations have been paid in full, and your continuing
security interest in the Collateral shall remain in effect until
such Obligations have been fully discharged.
9.2. This Agreement, any supplement hereto, and any agreements,
instruments or documents delivered or to be delivered in
connection herewith represent our entire agreement and
understanding concerning the subject matter hereof and thereof,
and supersede all other prior and contemporaneous agreements,
understandings, negotiations and discussions, representations,
warranties, commitments, offers, contracts, whether oral or
written.
9.3. No provision hereof shall be modified or amended orally or
by course of conduct but only by a written instrument expressly
referring hereto signed by both parties.
9.4. Upon your request we shall pay to you, or reimburse you for,
all sums, costs and expenses which you may pay or incur in
connection with or related to the negotiation, preparation,
consummation, administration and enforcement of this Agreement,
any supplement hereto, and all other agreements, instruments and
documents in connection herewith and therewith, and the
transactions contemplated hereunder and thereunder, together with
any amendments, supplements, consents or modifications which may
be hereafter made or entered into in respect hereof or thereof,
and all efforts made to defend, protect or enforce the security
interest granted herein or therein or in enforcing payment of the
Obligations, including without limitation, appraisal fees, filing
fees and taxes, title insurance premiums, recording taxes,
expenses for searches, expenses heretofore incurred by you and
from time to time hereafter during the course of periodic field
examinations of the Collateral and our operations, wire transfer
fees, check dishonor fees, the fees and disbursements of counsel
to you, all fees and expenses for the service and filing of
papers, premiums on bonds and undertakings, fees of marshals,
sheriffs, custodians, auctioneers and others, travel expenses and
all court costs and collection charges, all of which shall be
part of the Obligations and shall accrue interest after demand
thereof at a rate equal to the highest rate then payable on any
of the Obligations.
Section 10. NOTICES.
10.1. All notices, requests and demands to or upon the respective
parties hereto shall be deemed to have been duly given or made:
if by hand, telex, telegram or facsimile, immediately upon
sending; if by Federal Express, Express Mail or any other
overnight delivery service, one (l) day after dispatch; and if
mailed by certified mail, return receipt requested, five (5) days
after mailing. All notices, requests and demands are to be given
or made to the respective parties at the address (or to such
other addresses as either party may designate by notice in
accordance with the provisions of this paragraph) set forth
herein.
Section 11. WAIVER OF JURY TRIAL; JURISDICTION; CHOICE OF LAW.
11.1. WE AND YOU EACH HEREBY WAIVE ALL RIGHTS TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING OF ANY KIND ARISING OUT OF OR
RELATING TO THIS AGREEMENT, AND SUPPLEMENT HERETO, THE
OBLIGATIONS, THE COLLATERAL OR ANY SUCH OTHER TRANSACTION. We
hereby waive rights of setoff and rights to interpose
counterclaims in the event of any litigation with respect to any
matter connected with this Agreement, any supplement hereto, the
Obligations, the Collateral or any other transaction between the
parties and we hereby irrevocably consent and submit to the
non-exclusive jurisdiction of the Supreme Court of the State of
New York and the United States District Court for the Southern
District of New York in connection with any action or proceeding
of any kind arising out of or relating to this Agreement, any
supplement hereto, the Obligations, the Collateral or any such
other transaction.
11.2. With respect to any such action, proceeding or claim we
consent to accept service of process and any legal summons,
complaint or other process to be served upon us and consent that
same may be served by mailing a copy by certified and/or regular
mail directed to us at our address set forth below. Such mailing
shall be deemed personnel service and shall be legal and binding
upon us in any such action, proceeding or claim. Within thirty
(30) days after such mailing, we shall appear, answer, or
otherwise move in respect of such summons, complaint or other
process. If we fail to appear or answer within the thirty (30)
day period, we shall be deemed in default and judgment may be
entered by you against us for the amount of the claim and other
relief requested therein.
11.3. This Agreement and all transactions thereunder shall be
deemed to be consummated in the State of New York and shall be
governed by and interpreted in accordance with the laws of that
State. If any part or provision of this Agreement is invalid or
in contravention of any applicable law or regulation, such part
or provision shall be severable without affecting the validity of
any other part or provision of this Agreement.
Very truly yours,
By:
Title:
Address:
Facsimile No.:
Accepted at New York, New York
on , 199
ISRAEL DISCOUNT BANK OF NEW YORK
By: ___________________________
Title: ________________________
By: ___________________________
Title: ________________________
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the "Agreement") dated as of this 19th
day of May, 1998 between JLM Couture, Inc., a Delaware corporation
(hereinafter called the "Company") with offices at 225 West 37th
Street, Fifth Floor, New York, New York 10018, and JOSEPH L.
MURPHY, residing at 116 West 72nd Street, New York, New York 10023
(hereinafter called the "Executive").
W I T N E S S E T H
WHEREAS, the Company is a publicly-held company which
manufactures and markets bridal gowns, bridesmaids' gowns and
accessories;
WHEREAS, the Executive is experienced in the general
administration of small publicly-held companies; and
WHEREAS, the Company and the Executive entered into an
agreement dated February 1, 1995 as amended by an amendment thereto
dated June 17, 1996 for the employment of the Executive (the
"Prior Employment Agreement"); and
WHEREAS, the Company and the Executive desire to extend the
term of the employment of the Executive and to modify the terms of
the Prior Employment Agreement; and
WHEREAS, the Company and the Executive desire to enter into an
agreement to memorialize their understandings with regard to the
employment of the Executive by the Company.
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and promises contained herein, the parties hereby agree
as follows:
1. The Prior Employment Agreement. Subject to the
provisions hereof, the Company and the Executive agree to terminate
in all respects the Prior Employment Agreement.
2. Employment Term. The Company hereby agrees to employ
the Executive and the Executive agrees to enter the employ of the
Company on the terms and conditions set forth below for a term
commencing as of the date hereof (the "Commencement Date"), and
terminating five years from such date, unless sooner terminated as
herein provided (such term of this Agreement is herein referred to
as the "Term").
3. Duties. Subject to the authority, control and direction
of the Board of Directors of the Company, the Executive shall be
appointed President and Chief Executive officer ("CEO") of the
Company, and the Executive will perform such duties and services
commensurate with his position as President and CEO of the Company,
including such duties as may from time to time be assigned to him
by the Board of Directors.
4. Time Requirements. The Executive agrees that he will
devote 80% of his business time and attention during regular
business hours to the business affairs of the Company and that
during the period of such employment the Executive will not,
without the prior permission of the Board of Directors of the
Company, engage in any other business enterprise or enterprises
which require in excess of 20% of the Executive's time or
attention. It is understood that the Executive will perform certain
of the services contemplated in this Agreement outside of the
Company's offices. The foregoing shall not prevent the purchase,
ownership or sale by the Executive of investments or securities of
publicly-held companies and any other business which is not
competitive and does not have any business relations with the
Company or any subsidiary of the Company, provided the time or
attention devoted by the Executive to such activities does not
interfere with the performance of his duties hereunder.
5. Compensation. For the full, prompt and faithful
performance of all of the duties and services to be performed by
Executive hereunder, the Company agrees to pay, and the Executive
agrees to accept, the amounts set forth below.
(a) As a base compensation, the Executive shall be paid
at a rate of $200,000 per annum during the Term (the "Base
Compensation"), payable at such regular times and intervals as the
Company customarily pays its employees. On or about January 5 of
each year during the Term, the Board of Directors of Company agrees
to review the Executive's performance hereunder and, based on such
review, to grant to the Executive a bonus in an amount equal to 5
percent (5%) of pre-tax earnings of the Company for its most recent
fiscal year.
(b) As additional compensation, the Company shall grant
to the Executive a five year option to purchase 200,000 shares of
Common Stock of the Company exercisable at $2.5625 per share, which
represents the fair market value of the Company's Common Stock on
the date of this Agreement, (the "Option"). The Option shall be
exercisable at the rate of 50,000 shares per year commencing as of
the date hereof.
(c) The Company shall provide the Executive with health
benefits on the same terms as provided to other employees of the
Company.
(d) The compensation provided for herein shall be in
additional to any retirement, profit sharing, insurance (including
medical) or similar benefit which may at any time be payable to the
Executive pursuant to any plan or policy of the Company relating to
such benefits, which benefits shall be made available to the
Executive on the same basis as they are made available to other
similarly situated executives of the Company.
6. Vacation. The Executive shall be entitled to four weeks
of vacation per year during the Term, which shall be taken at such
time or times as shall be mutually determined by the Company and
the Executive.
7. Death. In the event of the death of the Executive
during the Term or any extension thereof, the employment of the
Executive hereunder shall terminate and come to an end on the last
day of the month three months following the death of the Executive.
The estate of the Executive (or such persons as the Executive shall
designate in writing) shall be entitled to receive, and the Company
agrees to pay, the Base Compensation of the Executive up to the end
of the three month period in which such death occurs.
8. Disability. In the event that the Executive shall,
because of illness or incapacity, physical or mental, be unable to
perform the duties and services to be performed by him hereunder
for a consecutive period of six months, or nine months during any
twelve month period, the Company may terminate the employment of
the Executive hereunder after the expiration of such period. The
Executive shall be entitled to receive his base salary up to the
date of such termination.
9. Administration; Expenses. The Executive shall report to
the Board of Directors of the Company, or to a person designated by
the Board of Directors, at such intervals as may be determined from
time to time. The Executive shall be reimbursed by the Company for
all expenses reasonably incurred by him on behalf of the Company in
accordance with the Company's standard policies with respect
thereto.
10. Restrictive Covenants.
10.1 Inventions. Any program, discovery, process,
design, invention or improvement which the Executive makes or
develops during his employment by the Company, whether or not
during regular working hours or in connection with the Company's
business or research activities as then conducted or contemplated,
shall belong to the Company and shall be promptly disclosed to the
Company. During the Executive's employment and for a period of two
years thereafter, the Executive shall, without additional
compensation, execute and deliver to the Company any instruments of
transfer and take such other action as the Company may request to
carry out the provisions of this Section 10.1, including without
limitation, filing, at the Company's expense, patent applications
for anything covered by this Section 10.1 and the prompt assignment
of the same to the Company.
10.2 Covenant Not to Compete. The Executive covenants
and agrees that for a period of two years following the termination
of his employment with the Company other than as a result of a
breach of this Agreement by the Company, he shall not directly or
indirectly compete with the Company in the bridal marketplace or in
any other business in which the Company may at such time be
engaged, nor induce any person associated with or employed by the
Company or any subsidiary of the Company, to leave the employ of or
terminate his association with the Company, or any subsidiary of
the Company, or solicit the employment of any such person on his
own behalf or on behalf of any other business enterprise. In the
event of termination of this Agreement by virtue of a breach by the
Company, termination without cause or expiration of the Term, the
aforesaid covenant will be applicable for a period of one year from
such event.
10.3 Nondisclosure. The Executive covenants and agrees
for a period of two years following the termination of his
employment with the Company, he 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. Notwithstanding the
foregoing, this applies solely to information that is not generally
known to anyone other than the Company, its Board of Directors or
its employees.
10.4 If any term of this Article 10 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.
10.5 In the event that the Executive shall violate any
provision of this Agreement (including but not limited to the
provisions of this Article 10) the Executive hereby consents to the
granting of a temporary or permanent injunction against him by any
court of competent jurisdiction prohibiting him from violating any
provision of this Agreement. In any proceeding for an injunction,
the Executive agrees that his ability to answer in damages shall
not be a bar or interposed as a defense to the granting of such
temporary or permanent injunction against the Executive. The
Executive further agrees that the Company will not have an adequate
remedy at law in the event of any breach by Executive hereunder and
that the Company will suffer irreparable damage and injury if the
Executive breaches any of the provisions of this Agreement.
11. Termination for Cause. The Company may terminate the
Executive's employment without liability (other than for payments
accrued to the date of termination) if the Executive's employment
is terminated "for cause". The term "for cause" shall, for the
purposes of this Agreement, mean (i) a material breach by the
Executive of the provisions of this Agreement, (ii) the commission
by the Executive of a fraud against the Company or the conviction
of the Executive 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 the Executive's ability to perform his
duties hereunder, (iv) being under the influence of such drugs,
substances or alcohol during the Executive's hours of employment,
or (v) any violation of the Company's corporate policies described
in the Company's employee handbook, which handbook may supplemented
or amended by the Company from time to time, a copy of which has
been provided to the Executive. In the event of such termination
for cause, Executive shall be entitled to receive his base salary
up to the date of such termination.
12. No Impediments. The Executive warrants and represents
that he is free to enter into this Agreement and to perform the
services contemplated thereby and that such actions will not
constitute a breach of, or default under, any existing agreement.
13. 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.
14. 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.
15. 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.
16. Binding Effect. This Agreement shall bind and inure
to the benefit of the parties, their successors and assigns.
17. 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.
18. 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.
19. 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.
20. 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.
21. 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.
JLM COUTURE, INC.
By:
Daniel M. Sullivan, Chairman
Joseph L. Murphy
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 11, 1999
N:\RSKLAW\HJELM\EXH-23.1
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-END> OCT-31-1998
<CASH> 107,713
<SECURITIES> 0
<RECEIVABLES> 2,831,511
<ALLOWANCES> 315,000
<INVENTORY> 2,464,944
<CURRENT-ASSETS> 5,795,408
<PP&E> 708,219
<DEPRECIATION> 433,664
<TOTAL-ASSETS> 6,911,283
<CURRENT-LIABILITIES> 2,603,143
<BONDS> 0
0
0
<COMMON> 374
<OTHER-SE> 4,260,127
<TOTAL-LIABILITY-AND-EQUITY> 6,911,283
<SALES> 15,704,889
<TOTAL-REVENUES> 15,704,889
<CGS> 9,476,902
<TOTAL-COSTS> 9,476,902
<OTHER-EXPENSES> 5,220,197
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,739
<INCOME-PRETAX> 914,051
<INCOME-TAX> 366,943
<INCOME-CONTINUING> 547,108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 547,108
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.28
</TABLE>
