As filed with the Securities and Exchange Commission on July 2, 1998
Registration No. 333-52729
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
Form S-4
Registration Statement
Under
The Securities Act of 1933
----------
Candie's, Inc.
(Exact name of registrant as specified in its charter)
Delaware 11-2481903
(State or other (I.R.S. employer
jurisdiction of identification
incorporation or number)
organization)
2975 Westchester Avenue
Purchase, New York 10577
(914) 694-8600
(Address, including zip code, and telephone
number, including area code, of
registrant's principal executive offices)
Neil Cole
President and Chief Executive Officer
Candie's, Inc.
2975 Westchester Avenue
Purchase, New York 10577
(914) 694-8600 (Name,
address, including zip code, and
telephone number, including area code
of agent for service)
----------
Copies to:
Robert J. Mittman, Esq. Mitchell Littman, Esq.
Tenzer Greenblatt LLP Littman Krooks, P.C.
405 Lexington Avenue 655 Third Avenue
New York, New York 10174 New York, New York 10017
Telephone: (212) 885-5000 Telephone: (212) 490-2020
Telecopier: (212) 885-5001 Telecopier: (212) 490-2990
Approximate date of commencement of proposed sale to the public: Upon
consummation of the Merger described herein.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. |_|
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities At
registration statement number of the earlier effective registration statement
for the same offering. |_|
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box |_|
----------
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
============================================================================================
Title of
Each Class Proposed Proposed
of Maximum Maximum
Securities Amount to offering Aggregate Amount of
to be be Price Offering Registration
Registered Registered Per Share Price Fee
---------- ---------- --------- --------- ------------
<S> <C> <C> <C> <C>
Common 2,326,174(1) $6.99 $16,259,956.26 $4,796.69
Stock shares
($.001 Par
Value)
Common 662,175(2)(3) $2.51 $1,662,059 $ 490.31(4)
Stock
($.001 Par
Value)
TOTAL $5,287.00
PREVIOUSLY PAID $5,190.82(4)
---------
AMOUNT DUE $ 96.18
============================================================================================
</TABLE>
(1) Represents the number of shares of the Common Stock of the Registrant which
may be issued to former stockholders of New Retail Concepts, Inc. ("NRC")
in connection with the Merger. Each share of Common Stock of NRC will be
converted into 0.405 of a share of Common Stock of the Registrant pursuant
to the Merger described herein. Pursuant to Rule 457(f) under the
Securities Act of 1933, as amended, the registration fee has been
calculated based on the average of the bid and asked prices per share of
the Common Stock of NRC to be received by the Registrant as reported on the
Electronic Bulletin Board of the NASD for June 26, 1998.
(2) Represents shares of Common Stock of the Registrant issuable upon exercise
of options to be issued by the Registrant in the Merger to holders of NRC
options in exchange for their options.
(3) Pursuant to Rule 416 of the Act, there are also being registered hereunder
such additional shares as may be issued to the optionholders because of
future stock dividends, stock distributions, stock splits or similar
capital readjustments including any adjustments due to anti-dilution
provisions contained in the options.
(4) The registration fee with respect to the 662,175 shares of the Registrant's
Common Stock issuable upon exercise of the options is based upon the prices
at which the holders may exercise their options subsequent to the Merger.
<PAGE>
Candie's, Inc.
2975 Westchester Avenue
Purchase, New York 10577
July 2, 1998
To Our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
which will be held on August 17, 1998 at 11:00 A.M. local time at the offices of
Candie's, Inc., 2975 Westchester Avenue, Purchase, New York 10577 (the "Candie's
Annual Meeting")
At the Candie's Annual Meeting you will be asked to consider and approve
the Agreement and Plan of Merger, dated April 6, 1998 by and between Candie's
and New Retail Concepts, Inc. ("NRC"), as amended (the "Merger Agreement"). The
accompanying Joint Proxy Statement/Prospectus presents the details of the Merger
Agreement. You are urged to review the information contained therein carefully
prior to making your voting decision.
After careful consideration, Candie's Board of Directors has approved the
Merger Agreement and recommends that you vote FOR approval and adoption of the
Merger Agreement. The adoption of the Merger Agreement will require the
affirmative vote of a majority of the shares of Candie's common stock, $.001 par
value, issued and outstanding at the close of business on June 19, 1998.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Annual Meeting and Joint Proxy Statement/Prospectus, may I urge you to complete,
sign, date and return your proxy card in the envelope provided. If the address
on the accompanying material is incorrect, please advise our Transfer Agent,
Continental Stock Transfer & Trust Company, in writing, at 2 Broadway, New York,
New York 10004.
Your vote is very important, and we will appreciate a prompt return of your
signed proxy card. We hope to see you at the meeting. Cordially,
Neil Cole, Chairman of the Board
and President
<PAGE>
Candie's, Inc.
2975 Westchester Avenue
Purchase, New York 10577
----------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 17, 1998
----------
To the Stockholders of Candie's, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Candie's,
Inc. ("Candie's") will be held on August 17, 1998, at 11:00 a.m. local time at
the offices of Candie's, 2975 Westchester Avenue, Purchase, New York 10577, for
the following purposes:
1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger dated April 6, 1998 by and between Candie's and New Retail
Concepts, Inc. ("NRC"), as amended, and the transactions contemplated thereby,
pursuant to which NRC will be merged with and into Candie's and each outstanding
share of common stock of NRC will be converted into 0.405 shares of common stock
of Candie's and each outstanding option to purchase one share of common stock of
NRC will be converted into an option to purchase 0.405 shares of common stock of
Candie's;
2. To elect four directors of Candie's for the ensuing year and until their
respective successors are elected and have qualified; and
3. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on June 19, 1998 are
entitled to notice of and to vote at the Annual Meeting or any adjournments
thereof.
By Order of the Board of Directors,
Neil Cole, Chairman of the Board
and President
July 2, 1998
- --------------------------------------------------------------------------------
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING:
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE
PRESENT AT THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
<PAGE>
New Retail Concepts, Inc.
2975 Westchester Avenue
Purchase, New York 10577
July 2, 1998
To Our Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders which
will be held on August 17, 1998 at 1:00 P.M. local time at the offices of New
Retail Concepts, Inc., 2975 Westchester Avenue, Purchase, New York 10577 (the
"NRC Special Meeting").
At the NRC Special Meeting you will be asked to consider and approve the
Agreement and Plan of Merger, dated April 6, 1998 by and between NRC and
Candie's, Inc., as amended (the "Merger Agreement"). The accompanying Joint
Proxy Statement/Prospectus presents the details of the Merger Agreement. You are
urged to review the information contained therein carefully prior to making your
voting decision.
After careful consideration, NRC's Board of Directors has approved the
Merger Agreement and recommends that you vote FOR approval and adoption of the
Merger Agreement. The adoption of the Merger Agreement will require the
affirmative vote of a majority of the shares of NRC common stock, $.01 par
value, issued and outstanding at the close of business on June 26, 1998.
Whether or not you plan to attend the meeting in person, it is important
that your shares be represented and voted. After reading the enclosed Notice of
Special Meeting and Joint Proxy Statement/Prospectus, may I urge you to
complete, sign, date and return your proxy card in the envelope provided. If the
address on the accompanying material is incorrect, please advise our Transfer
Agent, American Stock Transfer & Trust Company, in writing, at 40 Wall Street,
New York, New York 10005.
Your vote is very important, and we will appreciate a prompt return of your
signed proxy card. We hope to see you at the meeting.
Cordially,
Neil Cole, Chairman of the Board
and President
<PAGE>
New Retail Concepts, Inc.
2975 Westchester Avenue
Purchase, New York 10577
----------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD AUGUST 17, 1998
----------
To the Stockholders of New Retail Concepts, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of New Retail
Concepts, Inc. ("NRC") will be held on August 17, 1998 at 1:00 p.m. local time
at the offices of NRC, 2975 Westchester Avenue, Purchase, New York 10577, for
the following purposes:
1. To consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger dated April 6, 1998 by and between NRC and Candie's, Inc.
("Candie's"), as amended, and the transactions contemplated thereby, pursuant to
which NRC will be merged with and into Candie's and each outstanding share of
common stock of NRC will be converted into 0.405 shares of common stock of
Candie's and each outstanding option to purchase one share of common stock of
NRC will be converted into an option to purchase 0.405 shares of common stock of
Candie's; and
2. To transact such other business as may properly come before the meeting
or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on June 26, 1998 are
entitled to notice of and to vote at the Special Meeting or any adjournments
thereof.
By Order of the Board of Directors,
Neil Cole, Chairman of the Board
and President
July 2, 1998
- --------------------------------------------------------------------------------
IF YOU DO NOT EXPECT TO BE PRESENT AT THE MEETING:
PLEASE FILL IN, DATE, SIGN AND RETURN THE ENCLOSED PROXY CARD IN THE ENVELOPE
PROVIDED FOR THAT PURPOSE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED
STATES. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO EXERCISE, AND IF YOU ARE
PRESENT AT THE MEETING YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AT THAT TIME AND
EXERCISE THE RIGHT TO VOTE YOUR SHARES PERSONALLY.
<PAGE>
CANDIE'S, INC.
PROXY STATEMENT/PROSPECTUS
----------
CANDIE'S, INC. AND NEW RETAIL CONCEPTS, INC.
JOINT PROXY STATEMENT
This Joint Proxy Statement/Prospectus (the "Joint Proxy
Statement/Prospectus") is being furnished to the stockholders of each of
Candie's, Inc. ("Candie's") and New Retail Concepts, Inc. ("NRC"), in connection
with the solicitation of proxies by the respective Board of Directors of
Candie's and NRC for use at the Annual Meeting of Stockholders of Candie's (the
"Candie's Annual Meeting") to be held at its executive offices located at 2975
Westchester Avenue, Purchase, New York 10577, on August 17, 1998, at 11:00 A.M.
local time, including any adjournment or postponements thereof and the Special
Meeting of Stockholders of NRC (the "NRC Special Meeting") to be held at its
executive offices located at 2975 Westchester Avenue, Purchase, New York 10577
on August 17, 1998 at 1:00 P.M. local time, including any adjournment or
postponements thereof.
At the Candie's Annual Meeting, the holders of shares of Candie's (the
"Candie's Stockholders") common stock, par value $.001 per share, (the "Candie's
Common Stock"), will be asked to consider and vote upon a proposal to approve
and adopt the Agreement and Plan of Merger, dated April 6, 1998, as amended (the
"Merger Agreement"), by and between Candie's and NRC, pursuant to which, among
other matters, NRC will be merged with and into Candie's (the "Merger") with
Candie's continuing as the surviving corporation after the consummation of the
Merger (the "Surviving Corporation"). Thereafter, each share of common stock,
$.01 par value, of NRC (the "NRC Common Stock") outstanding immediately prior
to the Effective Time (as defined below) will be converted into 0.405 shares of
Candie's Common Stock (the "Exchange Ratio") and each outstanding option to
purchase one share of NRC Common Stock will be converted into an option to
purchase 0.405 shares of Candie's Common Stock. Candie's Stockholders will also
consider and vote upon a proposal to elect four (4) directors of Candie's for
the ensuing year and until their respective successors are elected and have
qualified, and such other matters as may properly come before the Candie's
Annual Meeting or any adjournment or postponements thereof.
At the NRC Special Meeting, the holders of shares of NRC Common Stock (the
"NRC Stockholders") will be asked to consider and vote upon a proposal to
approve and adopt the Merger Agreement, and such other matters as may properly
come before the NRC Special Meeting or any adjournment or postponements thereof.
Proxies in the accompanying form, duly executed and returned to the
management of Candie's and NRC, respectively, and not revoked, will be voted at
the Candie's Annual Meeting and the
<PAGE>
NRC Special Meeting, respectively. Any proxy given pursuant to such solicitation
may be revoked by the stockholder at any time prior to the voting of the proxy
by a subsequently dated proxy, by written notification to the Secretary of
Candie's or NRC, respectively, or by personally withdrawing the proxy at the
meeting and voting in person.
The consummation of the Merger is subject to, among other things, the
approval of the Merger Agreement by the holders of a majority of the outstanding
shares of Candie's Common Stock at the Candie's Annual Meeting and the approval
of the Merger Agreement by the holders of a majority of the outstanding shares
of NRC Common Stock at the NRC Special Meeting. A conformed copy of the Merger
Agreement is attached hereto as Annex A. The summaries of portions of the Merger
Agreement set forth in this Joint Proxy Statement/Prospectus do not purport to
be complete and are subject to, and are qualified by reference to, the text of
the Merger Agreement.
The respective Boards of Directors of Candie's and NRC, by the affirmative
vote of a majority of its disinterested members, after careful consideration,
have each approved the Merger Agreement and determined that the Merger is fair
to and in the best interests of each of Candie's and NRC, respectively. The
Board of Directors of each of Candie's and NRC recommends that you vote FOR
approval and adoption of the Merger Agreement.
This Joint Proxy Statement/Prospectus constitutes (a) the Prospectus of
Candie's filed as part of a registration statement filed by Candie's under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
issuance of approximately 2,326,000 shares of Candie's Common Stock which will
be issued to the NRC Stockholders pursuant to the Merger Agreement and 662,175
shares of Candie's Common Stock which will be issued upon exercise of options
granted to the current holders of options to purchase NRC Common Stock pursuant
to the Merger, (b) the Proxy Statement of Candie's relating to the Candie's
Annual Meeting called to vote on the approval and adoption of the Merger
Agreement and election of its directors, and (c) the Proxy Statement of NRC
relating to the NRC Special Meeting called to vote on the approval and adoption
of the Merger Agreement.
This Joint Proxy Statement/Prospectus is first being mailed to the Candie's
Stockholders and the NRC Stockholders on or about July 7, 1998.
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement at either the Candie's Annual Meeting or the NRC Special
Meeting, it is expected that such meeting will be postponed or adjourned to a
later time in order to permit additional time for further solicitation of
proxies or votes by Candie's or NRC, respectively.
THE ABOVE MATTERS ARE DISCUSSED IN DETAIL IN THIS
JOINT PROXY STATEMENT/PROSPECTUS. THE PROPOSED
MERGER IS A COMPLEX TRANSACTION. CANDIE'S
<PAGE>
STOCKHOLDERS AND NRC STOCKHOLDERS
ARE STRONGLY URGED TO READ AND CAREFULLY
CONSIDER THIS JOINT PROXY STATEMENT/
PROSPECTUS IN ITS ENTIRETY, PARTICULARLY
THE INFORMATION UNDER "RISK FACTORS"
BEGINNING ON PAGE 14.
THE SECURITIES TO BE ISSUED IN CONNECTION WITH THE
MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION
OR ANY STATE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
----------
The date of this Joint Proxy Statement/Prospectus is July 2, 1998.
AVAILABLE INFORMATION
Candie's and NRC each are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). The reports, proxy
statements and other information filed by Candie's and NRC with the SEC can be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and should be
available for inspection at the SEC's Regional Office located at 7 World Trade
Center, New York, New York 10048. Copies of such material also can be obtained
from the Public Reference Section of the SEC, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The SEC maintains a website (the
"SEC Website") that contains reports, proxy and information statements and other
information regarding Candie's and NRC. The address of the SEC Website is
http://www.sec.gov. Candie's Common Stock is quoted on The Nasdaq National
Market under the symbol "CAND" and NRC's Common Stock is traded in the
over-the-counter market on the Electronic Bulletin Board of the National
Association of Securities Dealers ("NASD") under the symbol "NRCX".
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY...................................................................... 1
Parties to the Merger............................................... 1
The Meetings and Votes Required..................................... 2
The Merger.......................................................... 3
Effective Time...................................................... 3
Appraisal Rights.................................................... 3
Recommendations of the Boards of Directors; Reasons for
the Merger........................................................ 4
Fairness Opinions .................................................. 4
Conditions to the Merger............................................ 5
No Solicitation..................................................... 5
Termination......................................................... 5
Material Federal Income Tax Consequences............................ 6
Accounting Treatment................................................ 6
Stock Listings...................................................... 6
Comparison of Stockholder Rights.................................... 6
Regulatory Requirements............................................. 6
Indemnification of Officers and Directors........................... 7
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA OF CANDIE'S AND NRC........................................... 8
COMPARATIVE HISTORICAL AND UNAUDITED PRO
FORMA CONSOLIDATED FINANCIAL INFORMATION..................................... 12
MARKET INFORMATION........................................................... 13
RISK FACTORS................................................................. 14
Risks Relating to the Merger........................................ 14
Risks Relating to Candie's.......................................... 15
THE MEETINGS................................................................. 22
Date, Time and Place of the Candie's Annual Meeting................. 22
Purpose of the Candie's Annual Meeting.............................. 22
Record Date......................................................... 22
Voting Procedures and Proxy Information............................. 22
Solicitation of Proxies............................................. 23
Date, Time and Place of the NRC Special Meeting..................... 24
Purpose of the NRC Special Meeting.................................. 24
Record Date......................................................... 24
Voting Procedures and Proxy Information............................. 24
Solicitation of Proxies............................................. 26
THE MERGER................................................................... 27
Background.......................................................... 27
Recommendations of the Boards of Directors of Candie's
and NRC........................................................... 29
Joint Reasons for the Merger........................................ 30
Candie's Reasons for the Merger..................................... 30
NRC Reasons for the Merger.......................................... 32
Fairness Opinions................................................... 34
-i-
<PAGE>
Page
----
Interest of Certain Persons in the Merger .......................... 43
Employment Agreements............................................... 44
Management Agreement................................................ 44
Affiliate Transactions Agreement.................................... 44
Indemnification of Directors and Officers........................... 45
Federal Income Tax Consequences of the Merger....................... 45
Appraisal Rights of Dissenting NRC Stockholders..................... 47
Accounting Treatment of the Merger.................................. 48
Comparison of Rights of Candie's Stockholders and NRC
Stockholders...................................................... 48
Number and Election of Directors.................................... 48
Limitation of Personal Liability of Directors....................... 49
AGREEMENT AND PLAN OF MERGER................................................. 50
The Merger.......................................................... 50
Vote Required....................................................... 50
The Effective Time.................................................. 51
Certain Effects of the Merger....................................... 51
Exchange of Certificates Representing NRC Common Stock.............. 51
Conditions to the Merger............................................ 52
Amendment of the Merger Agreement................................... 52
Termination of the Merger Agreement................................. 52
Conduct of Business of NRC and Candie's, Prior to the
Effective Time................................................... 53
No Solicitation..................................................... 53
INFORMATION CONCERNING CANDIE'S.............................................. 54
Properties.......................................................... 59
Legal Proceedings................................................... 60
CANDIE'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 61
MANAGEMENT................................................................... 66
Directors and Executive Officers of Candie's........................ 67
Executive Compensation.............................................. 69
Security Ownership of Certain Beneficial Owners and
Management........................................................ 75
Certain Relationships and Related Transactions...................... 77
DESCRIPTION OF CANDIE'S SECURITIES........................................... 77
INFORMATION CONCERNING NRC................................................... 79
Current Business.................................................... 79
Background.......................................................... 79
Employees........................................................... 81
Transactions and Relationship with Candie's......................... 81
NRC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................... 82
MANAGEMENT................................................................... 83
Directors and Officers of NRC....................................... 83
-ii-
<PAGE>
Page
----
Executive Compensation.............................................. 84
Security Ownership of Certain Beneficial Owners and
Management........................................................ 86
Certain Relationships and Related Transactions...................... 87
DESCRIPTION OF NRC SECURITIES................................................ 88
MARKET PRICES AND DIVIDEND DATA OF CANDIE'S AND NRC.......................... 90
LEGAL MATTERS................................................................ 91
EXPERTS...................................................................... 91
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS.................. 93
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION.................................................................. 97
INDEX TO FINANCIAL STATEMENTS OF CANDIE'S, INC. AND NRC..................... F-1
ANNEX A -- AGREEMENT AND PLAN OF MERGER..................................... A-1
ANNEX B -- OPINION OF LADENBURG THALMANN & CO. INC.......................... B-1
ANNEX C -- OPINION OF COVIEW CAPITAL, INC................................... C-1
ANNEX D -- SECTION 262 OF THE DELAWARE GENERAL
CORPORATION LAW ................................. D-1
-iii-
<PAGE>
SUMMARY
The following is a summary of certain information in this Joint Proxy
Statement/Prospectus. It is qualified in its entirety by reference to the more
detailed information contained elsewhere herein in the accompanying Annexes and
in the documents referred to herein. Candie's Stockholders and NRC Stockholders
are urged to read this Joint Proxy Statement/Prospectus in its entirety.
Parties to the Merger
The parties to the Merger are Candie's and NRC.
Candie's
Candie's is engaged primarily in the design, marketing and importation of a
variety of moderately-priced women's and girls' casual and fashion footwear and
handbags under the CANDIE'S(R) and BONGO(R) trademarks for distribution to
better department and specialty stores worldwide. Candie's also markets and
distributes, under the CANDIE'S(R) and BONGO(R) trademarks, children's footwear
designed by it. Candie's also arranges for the manufacture of footwear products,
similar to those produced under the CANDIE'S(R) trademark, for mass market and
discount retailers, under one of Candie's other trademarks or under the private
label brand of the retailer. Moreover, Candie's distributes a variety of men's
workboots, hiking boots, winter boots and outdoor casual shoes designed and
marketed by Candie's wholly-owned subsidiary, Bright Star Footwear, Inc.
("Bright Star"), under private labels and a brand name licensed by Candie's from
third parties (ASPEN(R)).
Candie's was incorporated in Delaware in December 1978. Candie's principal
executive offices are located at 2975 Westchester Avenue, Purchase, New York and
its telephone number is (914) 694-8600.
NRC
NRC has historically been involved in the manufacture, distribution and the
sale of various fashion items, and more recently, in the licensing and
sublicensing of fashion trademarks.
NRC currently maintains license agreements with WalMart Stores, Inc.
("WalMart"), with respect to the No Excuses(R) trademark, and with Montgomery
Ward & Co., Incorporated ("Montgomery Ward") with respect to the use of the
CRAYONS(R) trademark. A license agreement with Mamiye Sales, Inc. ("Mamiye") has
been assigned to No Excuses Sportswear Ltd. ("NES") effective August 1, 1997.
The WalMart license agreement, which provided NRC with $546,000 and $320,000 in
royalties during
<PAGE>
NRC's 1997 and 1998 fiscal years, respectively, expires on July 31, 2002.
Pursuant to its agreement with NES, NRC is obligated to pay NES 20% of the
royalties received from WalMart, subject to a $40,000 per annum minimum. To
date, NRC has received approximately $25,000 in royalties pursuant to the
Montgomery Ward license.
In addition, as a result of a number of transactions with Candie's, NRC
owns (i) 1,227,696 shares of Candie's Common Stock, (ii) warrants to purchase
700,000 additional shares of Candie's Common Stock at a price of $1.2375 per
share, and (iii) an option to purchase 100,000 additional shares of Candie's
Common Stock for $1.15 per share.
NRC was incorporated in Delaware in 1986. NRC's principal executive offices
are also located at 2975 Westchester Avenue, Purchase, New York, and the
telephone number at that address is (914) 694-8888.
The Meetings and Votes Required
This Joint Proxy Statement/Prospectus is being furnished to stockholders of
Candie's and NRC in connection with solicitation of proxies by the respective
Boards of Directors of Candie's and NRC for the Candie's Annual Meeting and the
NRC Special Meeting, respectively. The Candie's Annual Meeting will be held at
its executive offices located at 2975 Westchester Avenue, Purchase, New York
10577, on August 17, 1998, at 11:00 A.M. local time, for the purpose of voting
on a proposal to approve and adopt the Merger Agreement and for the election of
four directors for the ensuing year, and the NRC Special Meeting will be held at
its executive offices located at 2975 Westchester Avenue, Purchase, New York
10577, on August 17, 1998 at 1:00 P.M. local time, for the purpose of voting on
a proposal to approve the Merger Agreement.
The approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of Candie's Common Stock and NRC
Common Stock, respectively. The election of the Candie's directors requires a
plurality vote. The close of business on June 19, 1998 and June 26, 1998, have
been fixed as the record dates for the determination of stockholders entitled to
notice of and to vote at the Candie's Annual Meeting and the NRC Special
Meeting, respectively. As of June 19, 1998, there were outstanding and entitled
to vote 14,173,364 shares of Candie's Common Stock and 5,743,639 shares of NRC
Common Stock. The presence at the Candie's Annual Meeting and the NRC Special
Meeting, in person or by proxy, of stockholders entitled to cast a majority of
the total votes entitled to be cast at the meeting shall constitute a quorum at
such meeting. A failure to vote, either by not returning the endorsed proxy or
by checking the "Abstain" box thereon, will have the same effect as a vote
"against" approval of the Merger
-2-
<PAGE>
Agreement. See "The Meetings; Voting Procedures and Proxy Information."
The Merger
If the Merger Agreement is approved and the Merger becomes effective, NRC
will merge with and into Candie's, and Candie's will be the Surviving
Corporation. Subject to the terms and conditions of the Merger Agreement, at the
Effective Time, each share of NRC's Common Stock will be converted into 0.405
shares of Candie's Common Stock. In addition, each outstanding stock option of
NRC which currently entitles the holder to purchase one share of NRC Common
Stock, as of the Effective Time of the Merger will be converted into a stock
option to purchase 0.405 shares of Candie's Common Stock. Based on the
outstanding equity capitalization of Candie's and NRC, respectively, as of April
21, 1998, the NRC Stockholders will own approximately 15% of the outstanding
shares of Candie's Common Stock at the Effective Time. The value of the
consideration to be received by the NRC Stockholders based on the closing price
of Candie's Common Stock (as reported on the Nasdaq National Market) on April 6,
1998, the last business day preceding public announcement of the Merger
Agreement was $17,726,791 and on June 26, 1998, was $17,155,532. See "The
Merger-Agreement and Plan of Merger."
Effective Time
The Merger will be effective as of the date and time of filing of
Certificate(s) of Merger with the Secretary of State of the State of Delaware in
accordance with the Delaware General Corporation Law ("DGCL") or upon such other
time as may be specified in the Certificate of Merger (the "Effective Time").
The Merger Agreement provides that such filings will be made as soon as
practicable following approval and adoption of the Merger Agreement by the
Candie's Stockholders and the NRC Stockholders and the satisfaction or waiver of
the other conditions set forth in the Merger Agreement. See "The Merger -
Effective Time."
Appraisal Rights
NRC Stockholders entitled to vote on approval of the Merger Agreement shall
have the right to dissent from the Merger, and have an appraisal conducted by
the Delaware Court of Chancery to determine the fair value of the NRC
Stockholders' shares of NRC Common Stock. Upon consummation of the Merger and
satisfaction of certain conditions and procedures, the dissenting NRC
Stockholders shall be entitled to receive the fair value of their shares of NRC
Common Stock, in accordance with the applicable provisions of the DGCL. See
"Merger - Appraisal Rights."
-3-
<PAGE>
Recommendations of the Boards of Directors; Reasons for the Merger
On April 6, 1998, each of the respective Boards of Directors of Candie's
and NRC by the affirmative vote of a majority of its disinterested directors,
(as required by the DGCL and the Amended and Restated Affiliate Transactions
Agreement by and among Candie's and NRC) approved the Merger Agreement,
authorized its execution and delivery, determined that the Merger is fair to,
and in the best interests of, Candie's and NRC, respectively and recommended
that Candie's and NRC's Stockholders respectively, vote FOR the approval and
adoption of the Merger Agreement. Each of the Boards or Directors of Candie's
and NRC, in reaching its decision, considered a number of factors. See "The
Merger - Joint Reasons for the Merger."
Fairness Opinions
Candie's has retained Ladenburg Thalmann & Co. Inc. ("Ladenburg") to
provide to the Candie's Board of Directors its opinion with respect to the
fairness of the Exchange Ratio to Candie's Stockholders from a financial point
of view. On January 29, 1998, Ladenburg delivered its oral opinion to the
Candie's Board of Directors to the effect that, as of January 29, 1998, and
based on the assumptions made, matters considered and limits of the review
undertaken, as described in such oral opinion, the Exchange Ratio is fair to
Candie's Stockholders from a financial point of view. This oral opinion was
reaffirmed in a written fairness opinion to Candie's Board of Directors as of
April 6, 1998 (the "Ladenburg Opinion") which, as a condition to the Merger
Agreement, will be reaffirmed as of the Effective Date by Ladenburg. A copy of
the Ladenburg Opinion is attached hereto as Annex B. Candie's Stockholders are
urged to read this opinion in its entirety and consider the assumptions made,
matters considered, procedures followed and scope of review by Ladenburg in
rendering its opinion. See "The Merger - Fairness Opinions."
NRC has retained CoView Capital, Inc. ("CoView") to provide its opinion to
the NRC Board of Directors with respect to the fairness of the Exchange Ratio to
NRC's public Stockholders from a financial point of view. On January 29, 1998,
CoView delivered its oral opinion to the NRC Board of Directors to the effect
that, as of January 29, 1998, and based on the assumptions made, matters
considered and limits of the review undertaken, as described in such oral
opinion, the Merger is fair to NRC's public Stockholders from a financial point
of view. This oral opinion was reaffirmed in a written fairness opinion to NRC
as of April 6, 1998 (the "CoView Opinion") which, as a condition to the Merger
Agreement, will be reaffirmed as of the Effective Date by CoView. A copy of the
CoView Opinion is attached hereto as Annex C. NRC Stockholders are urged to read
this opinion in its entirety and consider the assumptions made, matters
considered, procedures followed and scope of review by CoView in rendering its
opinion. See "The Merger - Fairness Opinions."
-4-
<PAGE>
Conditions to the Merger
The respective obligations of Candie's, on the one hand, and NRC, on the other
hand, to consummate the Merger are subject to the satisfaction or waiver of
certain conditions, including the receipt of requisite stockholder approval, the
absence of any injunction or other legal restraint preventing the consummation
of the Merger, the effectiveness of the registration statement on Form S-4 of
Candie's, and the approval of Nasdaq with respect to the listing of additional
shares of Candie's Common Stock to be issued in the Merger. The obligation of
Candie's to consummate the Merger is subject to the satisfaction or waiver of
certain additional conditions, including the accuracy of the representations and
warranties of NRC set forth in the Merger Agreement, the receipt by the Candie's
Board of Directors of an opinion from Ladenburg stating that the Exchange Ratio
is fair to Candie's Stockholders from a financial point of view, the receipt of
an opinion from Tenzer Greenblatt LLP stating that the Merger will be treated as
a tax free reorganization for federal income tax purposes and the absence of any
material adverse change in the financial or business condition of NRC. The
obligation of NRC to consummate the Merger is also subject to the satisfaction
or waiver of certain additional conditions, including the accuracy of the
representations and warranties of Candie's set forth in the Merger Agreement,
the receipt by NRC's Board of Directors of an opinion from CoView stating that
the Exchange Ratio is fair to the NRC Stockholders from a financial point of
view, the receipt of an opinion from Littman Krooks Roth & Ball P.C. stating
that the Merger will be treated as a tax free reorganization for federal income
tax purposes and the absence of any material adverse change in the financial
condition of Candie's. See "The Agreement and Plan of Merger - Conditions to the
Merger."
No Solicitation
During the period from the date of the Merger Agreement to the Effective
Time, each of Candie's and NRC has agreed not to initiate, solicit, encourage or
take any other action to facilitate any inquiry or the making of any proposal
regarding a merger, acquisition, consolidation or similar transaction involving,
or any purchase of all or substantially all of the assets or equity securities
resulting in, a change of control of either Candie's or NRC or any significant
subsidiary (an "Acquisition Proposal"). See "The Agreement and Plan of Merger No
Solicitation."
Termination
The Merger Agreement may be terminated and the Merger abandoned without any
fee to either party at any time prior to the Effective Time by the consent of
the Board of Directors of
-5-
<PAGE>
each of Candie's and NRC, or (i) by either Candie's or NRC if, other than due to
the willful failure of the party seeking to terminate the Merger Agreement to
perform its obligations thereunder required to be performed at or prior to the
Effective Time, the Merger is not consummated on or before September 30, 1998 or
(ii) if any governmental authority issues an order or decree permanently
restraining, enjoining or prohibiting the Merger. See "The Agreement and Plan of
Merger - Termination of the Merger Agreement."
Material Federal Income Tax Consequences
In the opinion of Tenzer Greenblatt LLP, subject to certain assumptions,
the Merger will be treated for federal income tax purposes as a tax-free
reorganization.
In the opinion of Littman Krooks Roth & Ball P.C., subject to certain
assumptions, the Merger will be treated for federal income tax purposes as a tax
free reorganization.
EACH NRC STOCKHOLDER IS ADVISED TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING
THE APPLICATION AND EFFECT OF STATE, LOCAL OR OTHER TAX LAWS. SEE "THE MERGER
AGREEMENT--MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER."
Accounting Treatment
The Merger will be treated as a purchase for accounting and financial
reporting purposes.
Stock Listings
Candie's Common Stock will continue to be quoted on Nasdaq as of the
Effective Time.
Comparison of Stockholder Rights
See "Merger Agreement -- Comparison of Rights of Candie's Stockholders and
NRC Stockholders" for summary of the material differences between the rights of
holders of Candie's Common Stock and NRC Common Stock.
Regulatory Requirements
The consummation of the Merger is not subject to any federal or state
regulatory requirements.
-6-
<PAGE>
Indemnification of Officers and Directors
The Merger Agreement provides that for a period of three (3) years after
the Effective Time, Candie's will indemnify each of the current NRC directors
and officers, to the fullest extent permissible by Section 145 of the DGCL for
damages arising out of or resulting from actions in his capacity as an officer
or director of NRC.
-7-
<PAGE>
SELECTED HISTORICAL CONSOLIDATED
FINANCIAL DATA OF CANDIE'S AND NRC
The following tables present selected historical consolidated financial
data of Candie's and NRC for the periods indicated. The selected historical
consolidated financial data for Candie's as of and for each of the five years in
the period ended January 31, 1998 is derived from the audited Consolidated
Financial Statements of Candie's and, as of and for the three months ended April
30, 1998 and 1997 is derived from the unaudited interim consolidated Financial
Statements of Candie's which in the opinion of management of Candie's include
all adjustments (consisting solely of normal recurring adjustments) necessary to
present fairly the financial information for such periods. Interim results are
not necessarily indicative of the results which may be expected for any other
interim period or for a full year. The selected historical consolidated
financial data for NRC as of and for the five years ended March 31, 1998 is
derived from the audited Financial Statements of NRC. The selected historical
consolidated financial data of Candie's and the selected historical financial
data of NRC should be read in conjunction with the accompanying Financial
Statements of Candie's and NRC, respectively, and the related Notes thereto and
Management's Discussion and Analysis of Results of Operations and Financial
Condition contained elsewhere in this Joint Proxy Statement/Prospectus. Neither
Candie's nor NRC paid any cash dividends during the periods set forth below.
-8-
<PAGE>
Candie's Selected Historical Consolidated Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Month Period
Ended April 30, Year Ended January 31,
-------------------- ---------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data:
Net revenues ................................ $ 25,693 $ 16,861 $ 92,976 $ 45,005 $ 37,914 $ 24,192 $ 13,164
Operating income (loss) ..................... 2,030 1,671 6,961 966 2,057 (1,391) (5,009)
Net income (loss)(1) ........................ 1,056 823 4,536 1,145 1,054 27 (6,321)
Earnings (loss) per share(2):
Basic ............................... .08 .08 .40 .13 .12 .00 (1.32)
Diluted ............................. .07 .06 .33 .11 .11 .00 (1.32)
Weighted average number of common
shares outstanding:
Basic ............................... 13,656 9,975 11,375 9,143 8,726 6,398 4,790
Diluted ............................. 16,015 12,730 13,788 10,152 9,427 6,461 4,790
<CAPTION>
At April 30, At January 31,
-------------------- ---------------------------------------------------------
1998 1997 1998 1997 1996 1995 1994
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets .............................. $ 30,160 $ 12,534 $ 23,408 $ 9,039 $ 5,969 $ 4,104 $ 4,407
Total assets ................................ 38,039 18,083 30,881 14,709 11,746 10,290 11,045
Long-term debt .............................. -- -- -- -- -- -- 4,027
Total stockholders' equity .................. 34,216 10,879 24,681 8,608 5,586 4,392 (570)
</TABLE>
- ----------
(1) Includes tax benefit of $1,347 and $1,100 for the fiscal years ended 1998
and 1997, respectively, resulting from a change in the valuation allowance
for net deferred taxes. Also includes a gain on extinguishment of debt of
$1,962 net of income taxes of $121 for the fiscal year ended 1995.
(2) Candie's earnings per share calculations have been restated to conform with
the requirements of SFAS No. 128.
-9-
<PAGE>
NRC Selected Historical Financial Data
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Operating Data:
Net revenues ................................................. $ 385 $ 678 $ 626 $ 1,039 $ 1,257
Operating (loss) income ...................................... (1,001) 16 (39) 71 99
Net (loss) income ............................................ (513) 334 1,161 (130) (829)
Net (loss) income per share(1):
Basic ................................................ (.09) .06 .18 (.02) (.12)
Diluted .............................................. (.09) .05 .18 (.02) (.12)
Weighted average number of common shares outstanding:
Basic ................................................ 5,686 5,769 6,241 6,845 6,671
Diluted .............................................. 5,686 6,183 6,449 6,845 6,671
<CAPTION>
At March 31,
--------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets ............................................... $ 420 $ 758 $ 650 $ 468 $ 760
Total assets ................................................. 2,728 2,860 2,773 2,436 2,790
Long term liabilities ........................................ 100 100 100 100 104
Total stockholders' equity ................................... 1,897 2,338 2,103 1,192 1,349
</TABLE>
- ----------
(1) NRC earnings per share calculations have been restated to conform with the
requirements of SFAS No. 128.
-10-
<PAGE>
Summary Unaudited Pro Forma Condensed Combined Financial Information
The following summary unaudited pro forma condensed combined financial
information should be read in conjunction with the Unaudited Pro Forma Condensed
Combined Financial Information and related Notes included elsewhere in this
Joint Proxy Statement/Prospectus. The following summary unaudited pro forma
condensed combined financial information is based on the historical consolidated
financial statements of Candie's and NRC included elsewhere herein and has been
prepared to illustrate the effects of the Merger as though it had occurred as of
the beginning of each period presented for the pro forma condensed combined
statement of income and as if it had occurred on April 30, 1998 for the pro
forma condensed combined balance sheet. The unaudited pro forma condensed
combined statements of income for the year and three month period each include
NRC's three months results of operations for the period ended March 31, 1998.
The summary unaudited pro forma condensed combined financial information does
not take into consideration any expected beneficial synergistic revenue effects
resulting from the Merger. The summary unaudited pro forma condensed combined
financial information is not necessarily indicative of how Candie's balance
sheet and results of operations would have been presented had this Merger
actually been consummated at the assumed dates, nor is the presentation
necessarily indicative of the presentation of Candie's balance sheet and results
of operations for any future period.
<TABLE>
<CAPTION>
Unaudited Pro Forma Condensed Combined Statement of Income Data
- ------------------------------------------------------------------------------------------------------------
(in thousands, except per share amounts)
Year Ended Three Month Period
January 31, 1998 ended April 30, 1998
---------------- --------------------
<S> <C> <C>
Net revenues .................................................... $93,361 $25,763
Operating income ................................................ 5,954 1,196
Income from continuing operations ............................... 3,636 290
Income from continuing operations per common share:
Basic ...................................................... .29 .02
Diluted .................................................... .25 .02
Weighted average number of shares used in calculating income from
continuing operations per common share:
Basic ...................................................... 12,453 14,734
Diluted .................................................... 14,519 16,716
<CAPTION>
Unaudited Pro Forma Condensed Combined Balance Sheet Data
- ------------------------------------------------------------------------------------
At April 30, 1998
-----------------
Total Current Assets ..................................... $31,499
Total Assets ............................................. 40,204
</TABLE>
-11-
<PAGE>
Long term liabilities..................................... 60
Total stockholders' equity................................ 35,080
COMPARATIVE HISTORICAL AND UNAUDITED PRO
FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Comparative Per Share Data
The following table sets forth certain historical and pro forma combined
per share financial information for Candie's Common Stock and for NRC's Common
Stock for the fiscal years ended January 31, 1998 and March 31, 1998,
respectively. The following information should be read in conjunction with, and
is qualified by reference to, the selected financial data, Financial Statements
and accompanying notes of Candie's and NRC and the Unaudited Pro Forma Condensed
Combined Financial Information of Candie's and NRC respectively, included
elsewhere in this Joint Proxy Statement/Prospectus. The following information
and the Unaudited Pro Forma Condensed Combined Financial Information is not
necessarily indicative of the operating results that would have been achieved
had the transactions occurred as of the beginning of the periods presented and
should not be construed as representative of future operations.
Historical
Candie's
--------
Net income per share:
For the year ended January 31,
1998
Basic......................... $.40
Diluted....................... .33
For the three months
ended April 30, 1998
Basic......................... $.08
Diluted....................... .07
Historical
NRC
---
Net (loss) per share:
For the year ended March 31,
1998
Basic......................... $(.09)
Diluted....................... (.09)
-12-
<PAGE>
For the three months
ended March 31, 1998
Basic........................ $(.12)
Diluted...................... (.12)
Combined
Pro Forma
---------
Net income per share:
For the years ended January 31,
1998 and March 31, 1998
Basic......................... $.29
Diluted....................... .25
For the three months
ended April 30, 1998 and
March 31, 1998
Basic......................... $.02
Diluted....................... .02
MARKET INFORMATION
Candie's Common Stock is traded in the NASDAQ National Market under the
symbol "CAND". NRC Common Stock is traded on the Electronic Bulletin Board of
the National Association of Securities Dealers ("NASD") under the symbol "NRCX."
The following table sets forth the closing sales price per share of Candie's
Common Stock (as reported by NASDAQ) and the last reported bid price of NRC
Common Stock as reported by the NASD, and the equivalent per share price for
Candie's Common Stock giving effect to the Exchange Ratio on (i) April 6, 1998,
the last business day preceding public announcement of the Merger Agreement and
(ii) June 26, 1998, the last practicable date prior to the mailing of this Joint
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
===============================================================================================
Candie's NRC Equivalent Price Per
Common Stock Common Stock Company Share(1)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
April 6, 1998 $7.6875 $2.5625 $3.1134
- -----------------------------------------------------------------------------------------------
June 26, 1998 $7.3750 2.8430 $2.987
===============================================================================================
</TABLE>
(1) The equivalent price per share of NRC's Common Stock at each specified date
was determined by multiplying the last reported sale price of a share of
Candie's Common Stock on such date by the Exchange Ratio.
-13-
<PAGE>
The market price for Candie's Common Stock and NRC Common Stock will
fluctuate between the date of this Joint Proxy Statement/Prospectus and the
Effective Time. The market value per share of the Candie's Common Stock that NRC
Stockholders ultimately receive in the Merger could be more or less than its
market value on the date of this Joint Proxy Statement/Prospectus. There can be
no assurance concerning the market price of Candie's Common Stock before or
after the Effective Time. Candie's Stockholders and NRC Stockholders are advised
to obtain current market quotations for Candie's Common Stock. Because the
Exchange Ratio is fixed, the Exchange Ratio will not be adjusted to compensate
NRC Stockholders for decreases in the market price of Candie's Common Stock
which could occur before the Merger becomes effective. In the event the market
price of Candie's Common Stock decreases or increases prior to the Effective
Time, the value at the Effective Time of the Candie's Common Stock to be
received in the Merger in exchange for the NRC Common Stock would
correspondingly increase or decrease.
Following the Merger, all shares of NRC Common Stock will be cancelled and
as a result thereof, NRC Common Stock will no longer be quoted on the Electronic
Bulletin Board of the NASD.
-14-
<PAGE>
RISK FACTORS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: The statements which are not historical facts contained in this Joint
Proxy Statement/Prospectus are forward looking statements that involve a number
of known and unknown risks, uncertainties and other factors which may cause the
actual results, performance or achievements of Candie's to be materially
different from any future results, performance or achievements expressed or
implied by such forward looking statements. Such factors include, but are not
limited to, uncertainty regarding continued market acceptance of current
products and the ability to successfully develop and market new products
particularly in light of rapidly changing fashion trends, the impact of supply
and manufacturing constraints or difficulties particularly in light of Candie's
dependence on foreign manufacturers, uncertainties relating to customer plans
and commitments, competition, uncertainties relating to economic conditions in
the markets in which Candie's operates, the ability to hire and retain key
personnel, the ability to obtain additional capital if required, the risks of
uncertainty of trademark protection and other risks detailed below and in other
Candie's and NRC's Securities and Exchange Commission filings.
The following risk factors should be considered by holders of NRC Common
Stock in evaluating whether to approve and adopt the Merger Agreement and
thereby acquire shares of Candie's Common Stock and by holders of Candie's
Common Stock in evaluating whether to approve and adopt the Merger Agreement and
the issuance of shares of Candie's Common Stock pursuant to the Merger
Agreement:
Risks Relating to the Merger
Integration of Operations. Achieving the anticipated benefits of the Merger
will depend in part upon whether the integration of the two companies'
businesses is accomplished in an efficient and effective manner, and there can
be no assurance as to the extent that this will occur. NRC currently maintains
only two license agreements, one with WalMart with respect to the NO EXCUSES(R)
trademark, and one with Montgomery Ward with respect to the use of the
CRAYONS(R) trademark. No assurance can be given that Candie's will be able to
successfully integrate these license arrangements into its own business, or that
Candie's will be able to more fully exploit the NO EXCUSES name with respect to
footwear and the CRAYONS name generally.
Risks Associated with Fixed Exchange Ratio. As a result of the Merger, each
outstanding share of NRC Common Stock will be converted into 0.405 shares of
Candie's Common Stock. Because the Exchange Ratio is fixed, it will not increase
or decrease due to fluctuations in the market price of either Candie's Common
Stock or NRC's Common Stock. The specific dollar value of the consideration to
be received by NRC stockholders in the Merger will depend on the market price of
Candie's Common Stock at the Effective Time. In the event that the market price
of Candie's Common Stock decreases or increases prior to the Effective Time, the
market value at the Effective Time of the Candie's Common Stock to be received
by NRC
-15-
<PAGE>
Stockholders in the Merger would correspondingly decrease or increase. The
market prices of Candie's Common Stock and NRC Common Stock as of a recent date
are set forth herein under "Market Price and Dividend Data." Candie's and NRC
stockholders are advised to obtain recent market quotations for Candie's Common
Stock and NRC Common Stock. Candie's Common Stock and NRC Common Stock
historically have been subject to substantial price volatility. No assurance can
be given as to the market prices of Candie's Common Stock or NRC Common Stock at
any time before the Effective Time or as to the market price of Candie's Common
Stock at any time thereafter. See "Market Price and Dividend Data."
Interests of Certain Persons in the Transaction. In considering the
recommendation of the Merger by the Boards of Directors of Candie's and NRC, the
stockholders of Candie's and NRC should be aware that certain directors and
executive officers of Candie's and NRC have conflicts of interest with respect
to the Merger. Such interests, together with other relevant factors, were
considered by the respective members of the Boards in recommending the Merger to
the stockholders of Candie's and NRC and approving the Merger Agreement. See
"The Merger -- Interests of Certain Person in the Transaction."
Risks Relating to Candie's
Uncertainty of Continued Market Acceptance, Dependence on CANDIE'S
rademark(R). Prior to March 3, 1993, Candie's activities with respect to the
sale of footwear bearing the CANDIE'S(R) trademark were primarily directed
toward design, development and preliminary marketing activities. Although
Candie's has instituted an extensive advertising campaign and has been marketing
and shipping its CANDIE'S(R) footwear products for more than the past five
years, achieving continued market acceptance of Candie's existing products or
market acceptance of any future products which may be offered by Candie's and
therefore, Candie's ability to maintain or increase market share is subject to a
high degree of uncertainty. Achieving market acceptance by new customers or
continued market acceptance by existing or past customers will require
substantial additional marketing efforts and the expenditure of significant
funds to create a demand for such products. Moreover, there can be no assurance
that such additional efforts and expenditures will result in either increased
market acceptance of Candie's products or increased sales by Candie's. Inasmuch
as Candie's is materially dependent on the sale of products bearing the
CANDIE'S(R) trademark for a significant portion of its revenues, the failure of
the CANDIE'S(R) trademark or products to achieve market acceptance would have a
material adverse effect on Candie's.
Significant Capital Requirements; Possible Need for Additional Financing.
The capital requirements associated with the manufacture and sale of Candie's
products have been and will continue to be significant. Candie's has been
substantially dependent on financing from the arrangement with its factor and
sales of its securities in order to finance its working capital requirements.
Candie's currently believes that it has sufficient cash and borrowing capacity
to fund its operations as presently conducted for at least the balance of its
current fiscal year. Nevertheless, Candie's will require financing should it
seek to expand its business
-16-
<PAGE>
operations. Moreover, in the event that projected cash flow proves to be
insufficient to satisfy Candie's cash requirements, Candie's may be required to
seek additional funds through, among other means, public or private equity or
debt financing, which may result in dilution to the then existing stockholders
of Candie's. Failure of Candie's to obtain any required additional financing on
terms acceptable to it, or at all, could have a material adverse effect upon
Candie's business.
Effect of Recession on the Fashion Industry; Rapidly Changing Fashion
Trends. The fashion industry is cyclical, with purchases of apparel and related
goods tending to decline during recessionary periods when disposable income is
low. Although Candie's believes that its moderately-priced products are more
appealing to consumers in a recessionary environment, there can be no assurance
that a poor general economic climate will not have a negative impact on Candie's
ability to compete for limited consumer resources. Moreover, Candie's believes
that its future success depends in substantial part on its ability to anticipate
and respond to changing consumer demands and fashion trends in a timely manner.
The footwear and wearing apparel industries are generally subject to constantly
changing fashion trends. If Candie's misjudges the market for a particular
product or product line, it may result in an increased inventory of unsold and
outdated finished goods, which may have an adverse effect on Candie's business.
In addition, Candie's operates under substantial time constraints which require
it to have production orders in place at specified times in advance of its
customers' retail selling seasons. If Candie's suppliers fail to meet their
delivery date requirements pursuant to their purchase orders with Candie's,
Candie's will be unable to meet its delivery date requirements pursuant to its
purchase orders with its customers. This could result in the cancellation of
purchase orders both by Candie's and its customers, reducing the sales of
Candie's and having an adverse effect on revenues and earnings. There can be no
assurance that Candie's will be able to adequately meet these demands, or that
it will not be required to expend substantial funds in order to adequately
respond to such demands.
Dependence upon Unaffiliated Manufacturers and Suppliers. Candie's does not
own or operate any manufacturing facilities. All of Candie's footwear and
wearing apparel products are manufactured to its specifications by Candie's
suppliers (either directly or through third party manufacturers on a subcontract
basis). Although Candie's may from time to time enter into contracts with
certain of its suppliers, it does not intend to enter into contractual
relationships with all of them. Moreover, there can be no assurance that
Candie's will be able to enter into contracts with any of its suppliers on terms
favorable to Candie's, or at all. Candie's has no manufacturing or supply
contracts with any of the manufacturers or suppliers of its footwear products,
therefore, any or all of these companies could terminate their relationship with
Candie's at any time. In addition, the manufacturers of Candie's products have
limited production capacity and may not, in all instances, have the capability
to satisfy Candie's manufacturing requirements. Candie's believes that
alternative manufacturing sources could be located should the manufacturing
capacity required be in excess of that of its current manufacturers.
Nevertheless, there can be no assurance that, in the future, the capacity
-17-
<PAGE>
of such manufacturers will be sufficient or that alternative manufacturing
sources will be available on a cost effective basis. Accordingly, Candie's
dependence upon third parties for the manufacture of its products could have an
adverse effect on Candie's ability to deliver its products on a timely and
competitive basis and could have an adverse effect on Candie's operations.
In addition, most raw materials necessary for the manufacture of Candie's
footwear are purchased by the manufacturers from suppliers located in the
country of manufacture. Candie's does not intend to maintain contractual
relationships with any of these suppliers. Although Candie's believes that the
raw materials required will be available from various alternative sources, there
can be no assurance that any such materials will be available on a timely or
cost-effective basis.
Risks Relating to Foreign Manufacturing. Candie's is subject to various
risks associated with the manufacture of products in foreign countries,
including political and economic instability, shipping delays, restrictions on
transfer of funds, and customs duties, tariffs and import quotas, any of which
could adversely affect Candie's ability to obtain products on a timely and
competitive basis. In addition, Candie's imports certain finished products and,
therefore, assumes all risk of loss, damage or destruction from the time of
shipment from its suppliers until title passes to its customers.
Since most of Candie's suppliers are foreign, any weakening of the United
States dollar in relation to relevant foreign currencies, could result in
increased costs to Candie's if suppliers raise prices to compensate for the
weakening of the dollar. In addition, all products manufactured overseas are
subject to United States tariffs, duties and quotas. Other restrictions on the
importation of footwear and apparel are periodically considered by the United
States Congress and no assurances can be given that tariffs or duties on
Candie's goods may not be raised, resulting in higher costs to Candie's, or that
import quotas respecting such goods may not be lowered. Deliveries of products
from Candie's existing foreign suppliers could be restricted or delayed by the
imposition of lower quotas and there can be no assurance that Candie's would, in
such event, be able to obtain similar quality products, at equally favorable
prices, from domestic suppliers or from other foreign suppliers whose quotas
have not been exceeded by the supply of goods to existing customers.
Intense Competition. The footwear and apparel industries are extremely
competitive in the United States and Candie's faces intense and substantial
competition in each of its product lines. In general, competitive factors
include quality, price, style, name recognition and service. Although Candie's
believes that it can compete favorably in these areas, there can be no assurance
thereof. In addition, the presence in the marketplace of various fads and the
limited availability of shelf space can affect competition. Many of Candie's
competitors have greater financial, distribution, marketing and other resources
than Candie's and have achieved significant name recognition for their brand
names. There can be no assurance that Candie's will be able to compete
successfully.
-18-
<PAGE>
Trademark Ownership and Use. Candie's owns federal trademark registrations
for CANDIE'S(R), among others, and believes that the CANDIE'S(R) trademark,
which expires in June 2001, has significant value and is important to the
marketing of Candie's products and those of its licensees. There can be no
assurance that CANDIE'S(R) or other trademarks do not or will not violate the
proprietary rights of others, that they would be upheld if challenged or that
Candie's would not, in such an event, be prevented from using the trademarks,
any of which events could have an adverse effect on Candie's. In addition, there
can be no assurance that Candie's will have the financial resources necessary to
enforce or defend its trademarks.
Candie's also sells footwear and handbags under the BONGO(R) trademark and
footwear under the ASPEN(R) trademark, which trademarks Candie's licenses from
third parties. The BONGO(R) license expires on January 31, 2002, subject to
Candie's right to extend the license through January 31, 2006, and grants
Candie's the exclusive right to market and distribute footwear under the
BONGO(R) trademark in North America. The BONGO(R) license requires Candie's to
pay royalties based on a percentage of the sales exceeding certain minimum
royalty payments. The ASPEN(R) license expires on September 30, 1998 at which
time Candie's shall seek to renew such license. There is no assurance that
Candie's will be able to successfully renew such license on terms satisfactory
to it. The inability of Candie's to utilize the BONGO(R) trademark could have a
material adverse effect on its business.
Dependence upon Key Personnel. The success of Candie's is largely dependent
upon the efforts of Neil Cole, Candie's President, Chief Executive Officer and
Chairman. Although Candie's has entered into an employment agreement with Mr.
Cole, expiring on February 28, 2000, which requires him to commit a majority of
his business time to the affairs of Candie's, the loss of his services would
have a material adverse effect on Candie's business and prospects. Candie's has
purchased "key man" life insurance on the life of Mr. Cole in the amount of
$1,000,000. The success of Candie's is also dependent upon its ability to hire
and retain additional qualified sales and marketing personnel in connection with
Candie's design, marketing and distribution of its products. There can be no
assurance that Candie's will be able to hire or retain such necessary personnel.
Mr. Cole is also the President, Chief Executive Officer and Chairman of the
Board of NRC. As a condition to the Merger, Mr. Cole's employment agreement with
NRC will be terminated and his employment agreement with Candie's amended to
require Mr. Cole to devote all of his business time to the affairs of Candie's.
No Dividends. Candie's has not paid any cash dividends on its Common Stock
to date, and does not expect to declare or pay any dividends in the foreseeable
future.
Authorization and Discretionary Issuance of Preferred Stock. Candie's
Certificate of Incorporation authorizes the issuance of "blank check" preferred
stock with such designations, rights and preferences as may be determined from
time to time by the Board of Directors. Accordingly, the Board of Directors is
empowered, without stockholder approval, to issue additional shares of preferred
stock with dividend,
-19-
<PAGE>
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of Candie's Common Stock. In the
event of issuance, the preferred stock could be utilized, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of Candie's, which could have the effect of discouraging bids for
Candie's and thereby, prevent stockholders from receiving the maximum value for
their shares. There can be no assurance that additional preferred stock of
Candie's will not be issued at some time in the future.
Possible Delisting of Securities from NASDAQ System; Risk of Low-Priced
Stocks. Candie's Common Stock is currently listed on the NASDAQ National Market.
It is necessary for continuing inclusion of its Common Stock on the NASDAQ
National Market that Candie's continue to meet NASDAQ's maintenance
requirements. In the event that the Common Stock is no longer eligible for
listing on the NASDAQ National Market but is eligible for listing on the NASDAQ
Small-Cap Market, the Common Stock would be subject to the maintenance
requirements associated with listing on the NASDAQ Small-Cap Market. In order to
continue to be included on the NASDAQ National Market or the NASDAQ Small-Cap
Market, a company must meet certain maintenance criteria with respect to (i) the
number of its shares publicly held, (ii) the market value of its publicly held
shares, (iii) its net tangible assets, (iv) the number of its stockholders and
(v) certain corporate governance provisions.
Failure to meet these maintenance criteria in the future could result in
the delisting of Candie's securities from NASDAQ and trading, if any, in
Candie's securities would thereafter be conducted in the non-NASDAQ
over-the-counter market. As a result, an investor may find it more difficult to
dispose of, or to obtain accurate quotations as to the market value of, Candie's
securities. In addition, if the Candie's Common Stock were delisted from trading
on NASDAQ and the trading price of the Candie's Common Stock was less than $5.00
per share, trading in the Common Stock would also be subject to certain rules
promulgated under the Securities Exchange Act of 1934, which require additional
disclosure by broker-dealers in connection with any trades involving a stock
defined as a penny stock (generally, any non-NASDAQ equity security that has a
market price of less than $5.00 per share, subject to certain exceptions). Such
rules require the delivery, prior to any penny stock transaction, of a
disclosure schedule explaining the penny stock market and the risks associated
therewith, and impose various sales practice requirements on broker-dealers who
sell penny stock to persons other than established customers and accredited
investors (generally institutions). For these types of transactions, the
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transactions prior to
sale. The additional burdens imposed upon broker-dealers by such requirements
may discourage broker-dealers from effecting transactions in Candie's Common
Stock, which could severely limit the market liquidity of Candie's Common Stock
and the ability of current NRC Stockholders to sell the Candie's Common Stock
received in the Merger in the secondary market. Moreover, the Candie's Common
Stock could be delisted from the NASDAQ National Market and not be included in
the NASDAQ Small-Cap Market, immediately subjecting Candie's Common Stock to the
risks
-20-
<PAGE>
of the non-NASDAQ over-the-counter market and penny stock rules described
above.
Possible Volatility of Stock Market and Stock Price; Shares Eligible for
Future Sale. In recent years, the stock market has experienced extreme price and
volume fluctuations and market prices for securities of many companies have
experienced wide fluctuation, not necessarily related to the operating
performance of such companies. There can be no assurance that the market price
of Candie's Common Stock will not be volatile. Furthermore, there are
approximately 2,370,916 shares of Candie's Common Stock which are currently
eligible for sale under Rule 144 of the Securities Act, and approximately
4,700,000 additional shares subject to options and warrants) for which a
registration statement has been declared effective. No prediction can be made as
to the effect, if any, that sales of shares of Candie's Common Stock or the
availability of such shares for sale will have on the market prices prevailing
from time to time. Nevertheless, the possibility that substantial amounts of
Candie's Common Stock may be sold in the public market may adversely affect
prevailing market prices for the Candie's Common Stock and could impair Candie's
ability to raise capital through the sale of its equity securities.
Limitation of Tax Loss Carryforward Benefits. NRC has net operating loss
carryovers which may be utilized to offset future taxable income for the
Surviving Corporation ("NOLs") subject to separate return limitation year rules
under Section 1502 of the Internal Revenue Code of 1986, as amended (the
"Code"). These NOLs were to expire through 2006. NRC believes that transactions
effected pursuant to, and contemplated by, the Merger Agreement result in an
"ownership change" as defined in Section 382 of the Code. As a consequence, NRC
believes that the availability of its NOLs to offset taxable income and capital
gains will be significantly limited. The limitation on the utilization of the
NOLs could increase the federal income taxes payable by the Surviving
Corporation.
-21-
<PAGE>
THE MEETINGS
Date, Time and Place of the Candie's Annual Meeting
The Candie's Annual Meeting will be held at 11:00 a.m., on August 17, 1998
at its executive offices located at 2975 Westchester Avenue, Purchase, New York
10577.
Purpose of the Candie's Annual Meeting
At the Candie's Annual Meeting, the Candie's Stockholders will be asked to
consider and vote upon a proposal to approve and adopt the Merger Agreement
pursuant to which NRC will be merged with and into Candie's, and to elect four
directors of Candie's to serve for the ensuing year and until their respective
successors are elected and have qualified. If the Merger Agreement is approved
and the Merger becomes effective, NRC will merge into Candie's and Candie's will
become the Surviving Corporation.
Record Date
Candie's Board of Directors has fixed the close of business on June 19,
1998 as the record date for the determination of Candie's Stockholders who are
entitled to notice of and to vote at the Candie's Annual Meeting (the "Candie's
Record Date"). As of the Candie's Record Date, there were issued and outstanding
14,173,364 shares of Candie's Common Stock, Candie's only class of voting
securities. Each share entitles the holder to one vote in each matter submitted
to a vote at the Candie's Annual Meeting.
Voting Procedures and Proxy Information
A quorum is established if, as of the Candie's Record Date, at least a
majority of the outstanding shares of Candie's Common Stock are present in
person or represented by proxy at the Candie's Annual Meeting. Approval and
adoption of the Merger Agreement requires an affirmative vote of a majority of
the outstanding shares of Candie's Common Stock entitled to vote as of the
Candie's Record Date. The election of directors requires a plurality vote. All
other matters, if any, at the meeting will be decided by the affirmative vote of
a majority of the shares of Candie's Common Stock present in person or
represented by proxy at the meeting and entitled to vote on the subject matter,
provided a quorum exists. Votes will be counted and certified by one or more
Inspectors of Election who are expected to be employees of Continental Stock
Transfer & Trust Co., Candie's transfer agent.
Shares of Candie's Common Stock represented at the Candie's Annual Meeting
by properly executed proxies received prior to or at the Candie's Annual
Meeting, unless such proxies have been revoked, will be voted at the Candie's
Annual Meeting in accordance with the specifications in the proxies. Any person
giving a proxy has the power to revoke it at any time before its exercise. A
proxy may be revoked by filing with the
-22-
<PAGE>
Secretary of Candie's, at Candie's principal executive office as set forth
above, an instrument of revocation or a duly executed proxy bearing a later
date, or by attending the Candie's Annual Meeting and voting in person. Subject
to any such revocation, all shares of Candie's Common Stock represented by
properly executed proxies will be voted in accordance with specifications on the
enclosed proxy. If no such specifications are made, proxies will be voted FOR
approval and adoption of the Merger Agreement. Candie's management does not know
of any matters to be presented at the Candie's Annual Meeting other than those
set forth in this Joint Proxy Statement/Prospectus and the accompanying Notice.
If other matters should properly come before the Candie's Annual Meeting, the
proxy holders will vote on such matters in accordance with their best judgment.
Shares of Candie's Common Stock represented at the Candie's Annual Meeting
by a properly executed, dated and returned proxy will be treated as present at
the Candie's Annual Meeting for purposes of determining a quorum, without regard
to whether the proxy is marked as casting a vote or abstaining. Abstentions and
"broker non votes" (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
persons entitled to vote shares as to a matter with respect to which the brokers
or nominees do not have discretionary power to vote) will be treated as present
for purposes for determining the presence of a quorum. For purposes of
determining approval of a matter presented at the meeting, abstentions will be
deemed present and entitled to vote and will, therefore, have the same legal
effect as a vote "against" a matter presented at the meeting. Broker non-votes
are deemed not entitled to vote on the subject matter as to which the non-vote
is indicated. However, because of the requirement for an absolute majority of
the outstanding shares of Candie's Common Stock to authorize the Merger
Agreement, broker non-votes will also have the same effect as a vote "against"
the authorization of the Merger Agreement. In the election of directors, a
broker non vote or the withholding of a proxy's authority will have no effect on
the outcome of the vote on the matter.
If a quorum is not established, or if fewer shares of Candie's Common Stock
than the number required therefor are voted in favor of approval and adoption of
the approval and adoption of the Merger Agreement, it is expected that the
Candie's Annual Meeting will be postponed or adjourned in order to permit
additional time for soliciting and obtaining additional proxies or votes and, at
any subsequent reconvening of the Candie's Annual Meeting, all proxies will be
voted in the same manner as such proxies would have been voted at the original
convening of the Candie's Annual Meeting, except for any proxies which have
theretofore effectively been revoked or withdrawn.
Solicitation of Proxies
The cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Joint Proxy Statement/Prospectus, the
proxy and any additional soliciting material furnished to stockholders, will be
borne jointly by Candie's and NRC. Arrangements will be made with brokerage
houses and other custodians,
-23-
<PAGE>
nominees and fiduciaries to send proxies and proxy materials to the beneficial
owners of stock, and such persons will be reimbursed for their expenses by
Candie's. Candie's has retained Georgeson & Co., a proxy solicitation firm, to
solicit proxies. The amount to be paid to such proxy solicitation firm is not
expected to exceed $6,000. Any questions or requests regarding proxies or
related materials may be directed in writing to Mr. Gary Klein, Vice President -
Finance, 2975 Westchester Avenue, Purchase, New York 10577, or by telephone at
(914) 694-8600. Proxies may also be solicited by directors, officers or
employees of Candie's in person or by telephone, telegram or other means. No
additional compensation will be paid to such individuals for these services.
Date, Time and Place of the NRC Special Meeting
The NRC Special Meeting will be held at 1:00 p.m., on August 17, 1998 at
its executive offices located at 2975 Westchester Avenue, Purchase, New York,
10577.
Purpose of the NRC Special Meeting
At the NRC Special Meeting, the NRC Stockholders will be asked to consider
and vote upon a proposal to approve and adopt the Merger Agreement pursuant to
which NRC will be merged with and into Candie's. If the Merger Agreement is
approved and the Merger becomes effective, NRC will merge with Candie's and
Candie's will become the Surviving Corporation.
Record Date
NRC's Board of Directors has fixed the close of business on June 26, 1998
as the record date for the determination of NRC Stockholders who are entitled to
notice of and to vote at the NRC Special Meeting (the "NRC Record Date"). As of
the NRC Record Date, there were issued and outstanding 5,743,639 shares of NRC's
Common Stock, NRC's only class of voting securities. Each share entitles the
holder to one vote in each matter submitted to a vote at the NRC Special
Meeting.
Voting Procedures and Proxy Information
A quorum is established if, as of the NRC Record Date, at least a majority
of the outstanding shares of NRC Common Stock are present in person or
represented by proxy at the NRC Special Meeting. Approval and adoption of the
Merger Agreement requires an affirmative vote of a majority of the outstanding
shares of NRC Common Stock entitled to vote as of the NRC Record Date. All other
matters, if any, at the meeting will be decided by the affirmative vote of a
majority of the shares of NRC Common Stock present in person or represented by
proxy at the meeting and entitled to vote on the subject matter, provided a
quorum exists. Votes will be counted and certified by one or more Inspectors of
Election who are expected to be employees of American Stock Transfer & Trust
Company, NRC's transfer agent.
-24-
<PAGE>
Shares of NRC Common Stock represented at the NRC Special Meeting by
properly executed proxies received prior to or at the NRC Special Meeting,
unless such proxies have been revoked, will be voted at the NRC Special Meeting
in accordance with the specifications in the proxies. Any person giving a proxy
has the power to revoke it at any time before its exercise. A proxy may be
revoked by filing with the Secretary of NRC, at NRC's principal executive office
as set forth above, an instrument of revocation or a duly executed proxy bearing
a later date, or by attending the NRC Special Meeting and voting in person.
Subject to any such revocation, all shares of NRC Common Stock represented by
properly executed proxies will be voted in accordance with specifications on the
enclosed proxy. If no such specifications are made, proxies will be voted FOR
approval and adoption of the Merger Agreement. NRC's management does not know of
any matters to be presented at the NRC Special Meeting other than those set
forth in this Joint Proxy Statement/Prospectus and the accompanying Notice. If
other matters should properly come before the NRC Special Meeting, the proxy
holders will vote on such matters in accordance with their best judgment.
Shares of NRC Common Stock represented at the NRC Special Meeting by a
properly executed, dated and returned proxy will be treated as present at the
NRC Special Meeting for purposes of determining a quorum, without regard to
whether the proxy is marked as casting a vote or abstaining. Abstentions and
"broker non votes" (i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owner or other
persons entitled to vote shares as to a matter with respect to which the brokers
or nominees do not have discretionary power to vote) will be treated as present
for purposes for determining the presence of a quorum. For purposes of
determining approval of a matter presented at the meeting, abstentions will be
deemed present and entitled to vote and will, therefore, have the same legal
effect as a vote "against" a matter presented at the meeting. Broker non-votes
are deemed not entitled to vote on the subject matter as to which the non-vote
is indicated. However, because of the requirement for an absolute majority of
the outstanding shares of NRC Common Stock to authorize the Merger Agreement,
broker non-votes will also have the same effect as a vote "against" the
authorization of the Merger Agreement.
If a quorum is not established, or if fewer shares of NRC Common Stock than
the number required therefor are voted in favor of approval and adoption of the
approval and adoption of the Merger Agreement, it is expected that the NRC
Special Meeting will be postponed or adjourned in order to permit additional
time for soliciting and obtaining additional proxies or votes and, at any
subsequent reconvening of the NRC Special Meeting, all proxies will be voted in
the same manner as such proxies would have been voted at the original convening
of the NRC Special Meeting, except for any proxies which have theretofore
effectively been revoked or withdrawn.
-25-
<PAGE>
Solicitation of Proxies
The cost of soliciting proxies, including the costs of preparing,
assembling, printing and mailing this Joint Proxy Statement/Prospectus, the
proxy and any additional soliciting material furnished to stockholders, will be
borne jointly by Candie's and NRC. Arrangements will be made with brokerage
houses and other custodians, nominees and fiduciaries to send proxies and proxy
materials to the beneficial owners of stock, and such persons will be reimbursed
for their expenses by NRC. NRC has retained Georgeson & Co., a proxy
solicitation firm, to solicit proxies. The amount to be paid to such proxy
solicitation firm is not expected to exceed $6,000. Any questions or requests
regarding proxies or related materials may be directed in writing to Mr. Gary
Klein, Chief Financial Officer, 2975 Westchester Avenue, Purchase, New York
10577, or by telephone at (914) 694-8888. Proxies may also be solicited by
directors, officers or employees of NRC in person or by telephone, telegram or
other means. No additional compensation will be paid to such individuals for
these services.
-26-
<PAGE>
THE MERGER
The following discussion of the parties reasons for the Merger contains
forward looking statements which involve risks and uncertainties. NRC
Stockholders and Candie's Stockholders are cautioned not to place undue reliance
on these forward looking statements. The actual results of Candie's, NRC and the
combined company, respectively, could differ materially from those anticipated
in these forward looking statements as a result of certain factors including
those set forth in "Risk Factors" and elsewhere in this Joint Proxy
Statement/Prospectus.
Background.
The terms of the Merger Agreement are a result of arms-length negotiations
between representatives and financial advisors of Candie's and NRC. The
following is a brief discussion of the initiation and background of those
negotiations.
Between November 13, 1997 and December 17, 1997 three meetings were held
between officers of Candie's, including Neil Cole, Gary Klein, Larry
O'Shaughnessy, and representatives of Ladenburg to discuss the business
positioning in the footwear industry of Candie's and NRC and, on a preliminary
basis, to discuss the potential benefits and operational and financial synergies
that could be derived from a merger of Candie's and NRC. As a result of NRC's
and Candie's similar management teams, Ladenburg and Candie's discussed possible
corporate cost savings as well as strategic benefits from the ability of senior
management to focus on the growth of a single corporate entity resulting from a
strategic combination of NRC and Candie's. No outside legal or accounting
advisors were present at these preliminary meetings.
On January 15, 1998, the NRC Board of Directors met to discuss the proposed
merger with Candie's. All members of the Board were present and it was decided
to proceed with retaining an investment banker and conducting due diligence to
ascertain if a merger with Candie's was in the best interests of NRC. Management
of Candie's also discussed with the Board of Directors of NRC at such special
meeting its intention to explore a possible business combination.
On January 20, 1998, Candie's indicated to representatives of Ladenburg its
intention to engage Ladenburg to assist in evaluating the potential acquisition
of NRC. Ladenburg was asked by Candie's to analyze the various assets and
liabilities of NRC and to discuss preliminary issues relating to a potential
merger, including the type and nature of consideration to be paid, personnel
issues and operating strategies.
On January 21, 1998, representatives of Ladenburg met with Neil Cole, Chief
Executive Officer of NRC and Candie's and Gary Klein, Chief Financial Officer of
NRC and Vice President of Finance of Candie's to perform a due diligence
analysis of the assets, liabilities, business and prospects of NRC at NRC's
offices.
-27-
<PAGE>
On January 22, 1998, management of NRC decided to retain an investment
banker and indicated such intent to CoView to render an opinion as to the
fairness of the contemplated transaction to the NRC Stockholders, from a
financial point of view.
On January 23, 1998, January 26, 1998 and January 28, 1998, management of
Candie's and its legal and accounting advisors, representatives of Ladenburg,
representatives of NRC and its legal and accounting advisors and representatives
of CoView held a conference call to discuss terms of a merger between Candie's
and NRC. After extensive discussions and negotiations, Candie's and NRC
determined to proceed towards execution of a letter of intent which would
contemplate NRC merging with and into Candie's, subject to final due diligence
and the execution of a definitive merger agreement.
On January 27, 1998, representatives of CoView met with Neil Cole and Gary
Klein, to perform due diligence analysis of NRC and of Candie's.
On January 29, 1998, a conference call by and among management of Candie's
and NRC and their respective legal and accounting advisors and representatives
of Ladenburg and CoView was held to discuss the final letter of intent. During
such telephonic meeting, Ladenburg delivered an oral opinion (which opinion was
confirmed in its entirety by delivery of a written opinion dated April 6, 1998)
to the effect that, as of such date, and based on matters stated in such
opinion, the Exchange Ratio was fair, from a financial point of view, to the
public stockholders of Candie's. During the aforementioned telephone conference
call, CoView delivered an oral opinion (which opinion was confirmed in its
entirety by delivery of a written opinion dated April 6, 1998) to the effect
that, as of such date, and based on matters stated in such opinion, the Exchange
Ratio was fair, from a financial point of view, to the public shareholders of
NRC.
The letter of intent was executed and announced publicly on January 30,
1998.
During February and March, following the execution of the letter of intent,
representatives of Ladenburg had a number of discussions with representatives of
Candie's and NRC to conduct further due diligence and obtain additional
information for purposes of Ladenburg reaffirming the fairness to the Candie's
Stockholders, from a financial point of view, of the Exchange Ratio.
On March 31, 1998, representatives of Ladenburg met with Mark Tucker, the
disinterested member of the Candie's Board of Directors. Ladenburg discussed
with Mr. Tucker the various valuation analyses being applied by Ladenburg in
rendering its fairness opinion, including without limitation its analysis of the
value of the Candie's securities owned by NRC, its discounted cash flow analysis
of NRC's operating assets and intellectual property rights and its analysis of
comparable public company valuations. See "Fairness Opinions." Ladenburg also
discussed with Mr. Tucker the related party aspects of the transaction, such as
the overlapping membership of the Candie's and NRC Board of Directors and
executive officers. See "Interest of Certain Persons in the Merger,"
-28-
<PAGE>
"Employment Agreements" and "Certain Relationships and Certain Transactions."
Between April 1 and 6, 1998, representatives of Ladenburg had discussions with
Mr. Tucker to conclude its valuation analyses and presentation.
On April 6, 1998, the Candie's Board of Directors held a telephonic meeting
to consider and vote upon the proposed merger with NRC. At the meeting, senior
management reported on all of the material business terms of the Merger and the
Agreement and discussed the Ladenburg Opinion. In addition, a discussion was
held concerning the status of Messrs. Cole, O'Shaughnessy and Emanuel as
"interested" directors under the DGCL. It was then agreed that Mr. Tucker being
the sole disinterested director would be the sole director eligible to vote for
or against the Merger. Discussions proceeded to confirm that Mr. Tucker was
aware of the conflicts of interest of the other three directors and to determine
if Mr. Tucker felt that the transaction was in the best interest of Candie's.
Mr. Tucker acknowledged after having reviewed both the Merger Agreement, the
Ladenburg Opinion and having spoken with senior management and representatives
of Ladenburg that the Merger was in the best interest of Candie's. A copy of the
Ladenburg Opinion is attached to this Joint Proxy Statement/Prospectus as Annex
B and Candie's Stockholders are urged to carefully review the opinion. After
further discussions, the Candie's Board approved the Merger Agreement and the
transactions contemplated thereby.
On April 6, 1998, the NRC Board of Directors held a telephonic meeting to
consider and vote upon the proposed Merger. The terms and conditions of the
Merger Agreement were reviewed and discussed in detail. There was additional
discussion considering the terms and conditions of the stock options and cash
bonuses to Messrs. Cole, Klein and O'Shaughnessy. In addition, the board
reviewed with the CoView representatives, who joined the meeting already in
progress for such purpose, the basis and analysis of CoView's Opinion, which
opinion was confirmed as of the date of such meeting. In light of Messrs. Cole's
and Emanuel's role in the transaction, Mr. Mendelow acknowledged that he would
be the sole disinterested director eligible to vote for or against the Merger.
Mr. Mendelow stated that after reviewing the Merger Agreement, discussing the
matter with members of senior management and evaluating the CoView Opinion, he
believed that the Merger was in the best interest of NRC. A copy of the CoView
Opinion is attached to this Joint Proxy Statement/Prospectus as Annex C and NRC
Stockholders are urged to carefully review the opinion. After further
discussions, the NRC Board approved the Merger Agreement and the transactions
contemplated thereby.
On April 6, 1998 Candie's and NRC executed the Merger Agreement which was
amended on May 14, and June 2, 1998. On April 7, 1998 a press release was issued
by Candie's announcing the execution of the Merger.
Recommendations of the Boards of Directors of Candie's and NRC
The respective Boards of Directors of Candie's and NRC believe that the
Merger is in the best interest of its stockholders. Accordingly, each of the
Boards have by an affirmative vote of a majority of its respective disinterested
directors approved the Merger and the Merger Agreement and recommends that its
stockholders vote for approval of the
-29-
<PAGE>
proposal concerning the adoption of the Merger Agreement described in this Joint
Proxy Statement/Prospectus.
Joint Reasons for the Merger
In reaching their decisions to approve the Merger, the Candie's Board of
Directors (the "Candie's Board") and the NRC Board of Directors (the "NRC
Board") consulted with their respective management teams and advisors and
independently considered the proposed Merger Agreement and the transactions
contemplated thereunder. Based upon their respective independent reviews of the
proposed transactions and the business and operations of the other party, the
Candie's Board and the NRC Board each have by the affirmative vote of a majority
of its respective disinterested directors approved the Merger Agreement and the
transactions contemplated thereby.
The NRC Board and the Candie's Board have identified several potential
benefits of the Merger which they believe will contribute to the success of the
combined company. These potential benefits include the following:
Maximize Management Resources. A combination of NRC and Candie's will allow
Candie's management to focus full-time on growing the newly combined business of
Candie's. A combination eliminates the demand on management resources associated
with operating two separate public companies. Additionally, as a result of the
exchange of NRC shares for Candie's shares, the deal will result in an increase
in senior management's direct ownership in Candie's.
Complimentary License Concepts. The management teams of Candie's and NRC
believe that the combined entity will be able to better utilize the assets of
NRC. By using the existing Candie's infrastructure, distribution channels,
systems and management resources, management of NRC and Candie's believe that
the combined entity will be able to realize maximum value of NRC's footwear
licenses.
Elimination of Duplicative Costs. A number of duplicative costs will be
eliminated upon consummation of the Merger. These include the elimination of NRC
management salaries, NRC consulting and professional fees and costs associated
with operating two public companies.
Candie's Reasons for the Merger
In addition to the anticipated reasons stated above, the Candie's Board
believes that the Merger will be beneficial to Candie's and Candie's
stockholders for the following reasons:
Increased Management Focus. Candie's management team will be able to devote
its entire resources to growing the Candie's business rather than focusing on
two separate public entities. Additionally, the transaction will result in
increased ownership in Candie's for each member of senior management.
-30-
<PAGE>
Ability to Leverage NRC Properties. Through its marketing expertise and
experience in the footwear industry, Candie's has the ability to add value to
and leverage NRC's licensing businesses. Additionally, Candie's intends to grow
and expand NRC licensing businesses through its existing infrastructure.
Enhance Profitability of NRC. Candie's will be able to eliminate certain
costs of NRC including NRC management salaries, professional fees as well as
costs associated with NRC being a public company. This will provide an immediate
contribution to Candie's operating performance.
The Candie's Board also considered the following factors:
(i) the effect on stockholder value of a combination with NRC, in
light of the financial condition and prospects of Candie's and NRC and the
current economic and industry environment, including, but not limited to,
(A) other possible strategic alternatives for Candie's and (B) the possible
synergy from combining Candie's and NRC's sales and marketing
organizations;
(ii) the results of the due diligence investigations by Candie's
management and legal advisors concerning the business, operations,
financial condition and prospects of NRC and the opinion of Ladenburg that
the Exchange Ratio, as of the date of such opinion, was fair to Candie's
from a financial point of view;
(iii) its knowledge of the business operations, financial condition
and operating results of NRC;
(iv) Candie's future prospects and whether such prospects could be
significantly enhanced by the Merger and the anticipated operating results
of NRC;
(v) the terms and conditions of the Merger Agreement, which were the
product of extensive arm's length negotiations;
(vi) the compatibility of the respective business philosophies and
corporate cultures of NRC and Candie's;
(vii) the management resources available to address the management
needs of the combined company; and
(viii) the impact of the Merger on Candie's and NRC's customers,
suppliers and employees.
The Candie's Board also identified and considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to:
(i) the possible adverse impact that NRC's near-term operating results
could have on Candie's;
-31-
<PAGE>
(ii) the risk that the operations of the two companies would not be
successfully integrated; and
(iii) the other risks associated with Candie's, NRC's and the combined
company's businesses and with the Merger described under "Risk Factors," as
well as certain risks identified in other recent business combinations in
the fashion industry.
The Candie's Board believed that certain of these risks were unlikely to
occur, while others could be avoided or mitigated by the combined company, and
that, overall, these risks were outweighed by the potential benefits of the
Merger.
The foregoing discussion of the information and factors considered by the
Candie's Board is not intended to be exhaustive, but is believed to include all
material factors considered by the Candie's Board. The Candie's Board did not
find it practicable to and did not quantify or otherwise assign relative weight
to the specific factors considered in reaching its determination. In addition,
individual members of the Candie's Board may have given different weight to
different factors.
NRC Reasons for the Merger
In addition to the anticipated reasons stated under Joint Reasons for the
Merger above, the NRC Board believes that the Merger will be beneficial to NRC
and NRC Stockholders for the following reasons:
(i) Although NRC remains engaged in the fashion trademark licensing
business, its operations are currently limited to a small number of license and
sub-license agreements. In light of its historic synergistic relationship with
Candie's, both in terms of business relationships and its investment in Candie's
securities, NRC believes that combining with a larger, more recognized fashion
trademark company will better exploit NRC's current license and sub-license
arrangements;
(ii) There are significant costs relating to the operation of a public
company and in light of the NRC's limited operations, it has become increasingly
more difficult for NRC to justify the expense of maintaining itself as a public
company. In addition, certain members of management are required to devote time
to both companies. By combining companies, the operations of NRC continue but
there is only one public company with a full time, dedicated management team;
(iii) NRC Common Stock currently thinly trades in the over- the-counter
market on the Electronic Bulletin Board of the NASD; however, Candie's Common
Stock trades on the NASDAQ National Market. NRC believes that there may be a
greater opportunity for liquidity for its shareholders in a larger, more
actively traded and recognized security.
The NRC Board also considered the following factors:
(i) the effect on stockholder value of a combination with Candie's, in
light of the financial condition and prospects of
-32-
<PAGE>
NRC and Candies and the current economic and industry environment,
including, but not limited to, (A) other possible strategic alternatives
for NRC and (B) the possible synergy from combining NRC's and Candie's
sales and marketing organizations;
(ii) the results of the due diligence investigations by NRC management
and legal, financial and accounting advisors concerning the business,
products, operations, financial condition and prospects of Candie's and the
opinion of CoView that the Exchange Ratio, as of the date of such opinion,
was fair to the public Stockholders of NRC from a financial point of view;
(iii) its knowledge of the business operations, properties, assets,
financial condition and operating results of Candie's;
(iv) NRC's future prospects and whether such prospects could be
significantly enhanced by the Merger and the anticipated operating results
of Candie's;
(v) the terms and conditions of the Merger Agreement, which were the
product of extensive arm's-length negotiations;
(vi) the compatibility of the respective business philosophies and
corporate cultures of Candie's and NRC;
(vii) the management resources available to address the management
needs of the combined company; and
(viii) the impact of the Merger on Candie's and NRC customers,
suppliers and employees.
The NRC Board also identified and considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but not
limited to:
(i) the risk that the operations of the two companies would not be
successfully integrated; and
(ii) the other risks associated with NRC's, Candie's and the combined
company's businesses and with the Merger described under "Risk Factors," as
well as certain risks identified in other recent business combinations in
the apparel industry.
The NRC Board believed that certain of these risks were unlikely to occur,
while others could be avoided or mitigated by the combined company, and that,
overall, these risks were outweighed by the potential benefits of the Merger.
The foregoing discussion of the information and factors considered by the
NRC Board is not intended to be exhaustive, but is believed to include all
material factors considered by the NRC Board. The NRC Board did not find it
practicable to and did not quantify or otherwise
-33-
<PAGE>
assign relative weight to the specific factors considered in reaching its
determination. In addition, individual members of the NRC Board may have given
different weight to different factors.
Fairness Opinions
Ladenburg
On January 22, 1998, Ladenburg was engaged by Candie's to render the
opinion as to whether the Exchange Ratio is fair from a financial point of view
to the Candie's Stockholders. Ladenburg is an internationally recognized
investment banking firm which, as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, merchant banking, leveraged buyouts,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. Candie's retained Ladenburg based on these
qualifications and expertise.
The full text of the Ladenburg Opinion, which sets forth assumptions made,
matters considered and limitations on the review undertaken, is attached as
Annex B to this Joint Proxy Statement/Prospectus. Although each of the analyses
employed by Ladenburg in rendering its opinion is summarized below, the summary
does not purport to be a complete description of Ladenburg's analyses and
contains those aspects of Ladenburg's analyses deemed most relevant. Candie's
Stockholders are urged to read the opinion carefully and in its entirety.
Ladenburg did not determine or make any recommendation with respect to the
amount of consideration to be paid in connection with the Merger. Ladenburg's
opinion is directed only to the fairness of the Exchange Ratio from a financial
point of view to the Candie's Stockholders and does not constitute a
recommendation to any stockholder of Candie's as to how such stockholder should
vote at the Annual Meeting. The Ladenburg Opinion is subject to certain
conditions and limitations set forth therein, and the summary of that opinion
set forth in this Joint Proxy Statement/Prospectus is qualified in its entirety
by reference to the full text of such opinion.
In connection with Ladenburg's review, it assumed, with Candie's
permission, that the documents to be prepared, used and signed by the parties to
formally effect the Merger, and the proxy or other disclosure material to be
delivered to the Candie's Stockholders to elicit any necessary consents to the
Merger, would effect the Merger on the terms set forth in the Merger Agreement
as reviewed by Ladenburg without material alteration.
Ladenburg reviewed such relevant financial and other information that was
publicly available or furnished to it by Candie's and NRC, including information
provided during discussions with each company. In addition, Ladenburg compared
certain financial and securities data of Candie's and NRC with that of various
other companies whose securities are publicly traded and conducted such other
financial analysis as it determined, based upon its judgment as investment
bankers, to be appropriate for purposes of its opinion, as discussed below.
Furthermore,
-34-
<PAGE>
Ladenburg did not negotiate the Merger or provide any legal advice or advice as
to alternatives to the Merger.
In connection with rendering its opinion, Ladenburg reviewed such
information as it deemed necessary or appropriate for the purpose of the
opinion, including but not limited to the following: (i) the Letter of Intent
dated January 30, 1998; (ii) the Merger Agreement between Candie's and NRC dated
April 6, 1998 and the draft Joint Proxy Statement/Prospectus of Candie's and NRC
dated March 20, 1998; (iii) the Annual Reports on Form 10-KSB for NRC for the
three fiscal years ended March 31, 1995, 1996 and 1997; (iv) the Quarterly
Report on Form 10-QSB for NRC for the nine months ended December 31, 1997; (v)
NRC management's projected financial statements and other financial information
for NRC for the years ending March 31, 1998 through 2002; (vii) detailed
internal financial statements for NRC for the fiscal years ended March 31, 1995,
1996 and 1997; (ix) publicly available information regarding the industry, NRC,
Candie's and their competitors; (x) the Annual Reports on Form 10-KSB for
Candie's for the fiscal years ending January 31, 1995, 1996 and 1997; (xi) the
Quarterly report on Form 10-Q for Candie's for the nine months ended October 31,
1997; (xii) Candie's management's projected financial statements and other
financial information for Candie's for the years ending January 31, 1998 through
2001; and (xiii) securities analysts research reports on Candie's including
reports published by Ladenburg.
In addition, Ladenburg met with members of senior management of NRC and
members of senior management of Candie's to discuss, among other things, the
historical and prospective industry environment, financial conditions and
operating results for Candie's and NRC, respectively, and strategic reasons for
the Merger.
In its analyses, Ladenburg made numerous assumptions with respect to
industry performance, general business, economic, market and financial
conditions and other matters, based on, among other things, information provided
to Ladenburg by Candie's and NRC, many of which are beyond the control of
Candie's and NRC. In rendering its opinion, Ladenburg relied, without
independent verification, on the accuracy and completeness of all of the
financial and other information that was publicly available or furnished or
otherwise communicated to Ladenburg by Candie's and NRC. Candie's and NRC
provided to Ladenburg certain financial projections of Candie's and NRC, and
Ladenburg reviewed those projections in light of discussions it had conducted
with analysts and other sources, and made certain adjustments where it
determined it was appropriate to do so. Independent of the foregoing, Ladenburg
assumed that the projections were reasonably prepared, based upon assumptions
reflecting the best currently available estimates and good faith judgments of
management as to the future performance of Candie's and NRC and that the
management of Candie's and NRC did not have any information or beliefs that
would make the projections misleading.
Although Ladenburg performed a valuation of NRC using a number of commonly
accepted methodologies, Ladenburg did not make an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Candie's or
NRC. Any estimates contained in Ladenburg's
-35-
<PAGE>
analyses are not necessarily indicative of actual values, which may be
significantly more or less favorable than as set forth therein. Additionally,
estimates of the value of businesses do not purport to be appraisals or
necessarily reflect the prices at which businesses actually may be sold.
Ladenburg's opinion is necessarily based upon information available to it,
and financial, stock market and other conditions and circumstances existing and
disclosed to Ladenburg, as of the date of the opinion. Ladenburg's analysis does
not reflect, among other things, changes since the date of the opinion for
Candies' business or prospects, changes in general business and economic
conditions or any other transaction or event that had occurred or that may occur
and that were not anticipated at the time such materials were prepared.
Ladenburg was not requested to and does not make any recommendation to the
Candie's Stockholders regarding the Merger. In rendering its opinion, Ladenburg
expresses no opinion as to the price or trading range at which the Candie's
Common Stock would trade following the completion of the Merger. Also, Ladenburg
was not requested to and did not analyze or give any effect to the impact of any
federal, state or local income taxes to the Candie's Stockholders arising out of
the Merger. In this regard, Ladenburg assumed that the Merger would be treated
as a tax free reorganization and/or exchange pursuant to the Code and would be
consummated pursuant to the Merger Agreement.
The preparation of the Ladenburg Opinion involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
partial analyses or summary description. Accordingly, Ladenburg believes that
its analyses must be considered as a whole and that considering any portion of
such analyses and of the factors considered, without considering all analyses
and factors, could create a misleading or incomplete view of the process
underlying its opinion.
Overview of Analyses
Ladenburg determined an implied consideration ("Implied Consideration") to
be paid for NRC using the number of shares of Candie's to be issued to NRC based
on the Exchange Ratio and the 30-day average trading price for Candie's as well
as certain cash settlements to be paid to NRC by Candie's. Ladenburg conducted a
number of valuation analyses of NRC to develop a range of equity values of NRC
based on the value of its operating and financial assets. The analyses used to
determine equity values for NRC included a valuation of the shares of Candie's
owned by NRC based on the 30-day average trading price, a Black-Scholes
valuation of the Candie's options and warrants owned by NRC, a historical market
price and trading analysis for NRC, a net current assets valuation for NRC, a
discounted cash flow analysis on the NES note receivable by NRC, a discounted
cash flow analysis on a note payable owed to third parties by NRC, an analysis
to
-36-
<PAGE>
determine the net present value to Candie's of the Net Operating Loss
Carryforward ("NOL") of NRC and a market multiples valuation and discounted cash
flow valuation of certain operating assets of NRC. Ladenburg derived a range of
equity values from each analysis to develop a range of equity values for NRC.
Ladenburg compared the Implied Consideration to paid in the Merger to the range
of equity values derived for NRC. Additionally, Ladenburg examined the
historical stock price and trading activity of NRC.
Qualitative Considerations
In addition to the quantitative analyses discussed below, Ladenburg
considered a number of qualitative factors related to NRC. Ladenburg did not
apply valuation weightings to any of these qualitative analyses. Among the
positive qualitative factors relating to NRC, Ladenburg noted (i) the increased
commitment of Candie's management to Candie's as a result of the merger by
eliminating management duties outside of Candie's; (ii) increased direct
ownership of Candie's Common Stock and options by Candie's management; (iii) the
ability of Candie's to leverage NRC's complimentary product lines through its
infrastructure and marketing expertise and; (iv) the ability to eliminate
certain duplicative expenses associated with operating two separate public
companies. Among the negative qualitative factors relating to NRC, Ladenburg
noted: (i) the risks that the operations of Candie's and NRC would not be
successfully integrated; (ii) the risks discussed herein under the heading "Risk
Factors"; (iii) risks identified in other fashion industry business
combinations; (iv) risks associated with establishing and growing footwear
brands and; (v) declining revenues and financial performance for NRC for the
past three fiscal years.
Quantitative Analyses
Ladenburg evaluated NRC, through various methods described below, to derive a
range of implied aggregate equity values for 100% of the value of NRC.
Historical Stock Price Analysis. Ladenburg examined the historical stock price
and trading volume of NRC. NRC shares are relatively illiquid securities in
the market and are traded relatively infrequently, averaging approximately
18,400 shares traded per week.
Valuation of Candie's Shares, Options and Warrants Owned by NRC. Ladenburg
examined Candie's trailing 30-day average share price as of April 6, 1998
and determined this value to be $7.42. Using this average share price,
Ladenburg determined the value of the approximately 1,228,000 shares owned
by NRC to be $9,113,000. Ladenburg used the Black-Scholes method to value
the two classes of Candie's warrants and one class of Candie's options
owned by NRC. Ladenburg assumed a current stock price of $7.42 for all
Black-Scholes valuations. The low value for the first class of warrants was
determined to be $3,153,000 and the high value was determined to be
$3,160,000. The low value for the second class of warrants was determined
to be $1,267,000 and the high value was determined to be $1,272,000. The
low value for the options was determined to be $636,000 and the high value
was determined to be $637,000. The total range for the combined value of
Candie's shares, warrants and options owned by NRC was determined to be
$14,169,000 to $14,182,000.
-37-
<PAGE>
Trademark and License Valuation
Market Multiples of Trademark and License (Operating Assets) Analysis.
Ladenburg conducted a market multiples analysis to value the earnings of
NRC generated by the trademark and license based on the market trading
multiples of comparable public companies. Ladenburg derived a projected
earnings stream for NRC based on information provided by Candie's and NRC
pro forma for the planned reduction in expenses after the transaction.
Ladenburg based its analysis upon the multiples of three universes of
public companies which Ladenburg believes are comparable to Candie's,
including comparable footwear companies, comparable branded companies and
the current market multiples of Candie's. The comparable footwear companies
universe includes Converse, Inc., Deckers Outdoors Corp., Kenneth Cole
Productions, Inc., Nine West Group, Inc., Steven Madden, Ltd., Timberland
Company, Vans, Inc. and Wolverine World Wide, Inc. The comparable branded
companies universe includes Jones Apparel Group, Inc., Nautica Enterprises,
Inc., Polo Ralph Lauren Corp. and Tommy Hilfiger Corporation.
Ladenburg performed a projected one ("FYE+1") and two ("FYE+2") year
price to earnings multiple valuation analysis, comparing NRC to each of the
three universes of public companies. The earnings estimates for the
footwear and branded company universes net income were based on information
provided by Baseline Financial Services, Inc. The Candie's comparable
universe net-income projections are based on Ladenburg estimates.
The implied equity valuations of projected net income were calculated
by multiplying NRC's projected net income for the fiscal years ending March
31, 1999 and March 31, 2000 by the median net income multiples for the
comparable companies as projected for one and two years respectively.
Ladenburg applied between no discount and a 15% discount to the median
footwear, branded and Candie's comparable company universes net-income
multiples to derive a range of market value for each projected fiscal year
end (FYE). The discount was applied to account for various qualitative
considerations including the presence of less established brands and the
size of the earnings stream. However, the discount was limited due to the
ability for Candie's to realize value for the earnings stream as part of
their operations.
Ladenburg then calculated the mean high and low values of the FYE+1
analysis for the comparable shoe, branded and Candie's universe companies
which resulted in a valuation range of $2,483,000 to $2,921,000. The same
analysis was applied to the FYE+2 valuation ranges and the result was a
valuation range of $2,967,000 to $3,490,000. The overall range of implied
valuation for the comparable universes inclusive of FYE+1 and FYE+2
valuations was $2,483,000 to $3,490,000.
Discounted Cash Flow of Trademark and License (Operating Assets) Analysis.
Ladenburg conducted a discounted cash flow analysis which derived implied
equity values based on the present value of future net cash flows. The
range of discount rates for the future cash flows was based on Candie's
weighted average cost of capital ("WACC") as the low
-38-
<PAGE>
end of the discount rate range. The final WACC was determined to be 8.9%;
Ladenburg then added one and two full percentage points to the WACC to
determine the full discount rate range of 8.9% to 10.9%. For purposes of
this analysis, annual free cash flow equals pro-forma pre-tax income, based
on management's 4-year projections adjusted for cost savings in the merger,
less an assumed 38% tax rate. The equity value ranged from $5,967,000 to
$7,428,000.
Trademark and License (Operating Assets) Valuation Summary. Ladenburg
applied an implied market valuation and discounted cash flow valuation to
the operating assets of NRC which consisted primarily of revenues generated
from trademarks and licenses owned by NRC. The market multiples valuation
was assigned a 33% weighting and the discounted cash flow valuation was
assigned a 67% weighting. These valuations gave a range of $4,805,000 to
$6,115,000 for the value of the NRC trademark and license operating assets.
NOL Valuation. Based on discussions with Candie's, Ladenburg determined the
applicable amount of NRC's NOL available to Candie's future pre-tax income
to be $2,000,000 to $7,000,000 with 4.89% annual allowable utilization.
This stream of future tax benefits was discounted at the Candie's WACC and
the Candie's WACC rate plus one and two full percentage points to determine
a range of present values.
Valuation of NES Receivable Projected Cash Flow. Ladenburg determined the
present value of the future cash flows generated by the $500,000 NES
receivable note due to NRC utilizing discounted cash flow analysis and
Candie's WACC as the low end of the discount rate range. Quarterly payments
of $50,000 were assumed to be received through December 31, 2000, and after
adding one and two full percentage points to the WACC, the discount rate
applied ranged from 8.9% to 10.9%.
Valuation of Net Current Assets. Ladenburg calculated the value of the net
current assets of NRC by deducting the current liabilities of Candie's,
including trade accounts payable, accrued expenses and other current
liabilities, from the current assets of Candie's, including cash and cash
equivalents, accounts receivable and other current assets.
Valuation of Notes Payable. Ladenburg determined the present value of future
cash flows for NRC's $150,000 notes payable. Ladenburg assumed quarterly
payments of $25,000 to be paid through December 31, 2000. The range of
discount rates for the future cash flows of the notes payable was based on
Candie's WACC as the low end of the discount rate range and after adding
one and two full percentage points to the WACC the discount rate applied
ranged from 8.9% to 10.9%.
Comparison of the Merger Consideration to the Values of NRC
Ladenburg used the range of values from each of the analyses discussed
above to develop a range of values for Candie's. Ladenburg calculated the range
of values by taking the sum of the Candie's share value, Candie's warrants and
options values, trademark and license value, NOL value, NES
-39-
<PAGE>
receivable value, NRC net current assets value and note payable value,
respectively to give a valuation range for NRC of $20,954,000 to $22,350,000.
Ladenburg compared the valuation range of NRC to the consideration to be paid
for NRC as implied by the Exchange Ratio and cash settlements payable and
concluded that the Exchange Ratio is fair, from a financial point of view to the
stockholders of Candie's.
Ladenburg's Compensation
Ladenburg was engaged by Candie's in connection with the Merger and to
render the opinion and will receive fees in connection therewith of $150,000. In
addition, Candie's has agreed to reimburse Ladenburg for its related expenses.
Candie's has also agreed, in a separate letter agreement, to indemnify
Ladenburg, its affiliates and each of their respective directors, officers,
agents, consultants and employees and each person, if any, controlling Ladenburg
or any of its affiliates against certain liabilities, including liabilities
under federal securities laws. In addition, Candie's retained Ladenburg pursuant
to a separate agreement, to perform certain investment banking services in
consideration of which it granted Ladenburg a right of first refusal (subject to
a prior right of first refusal granted to another investment bank in a unrelated
transaction) in respect of certain future corporate finance transactions
involving Candie's. In the ordinary course of its business Ladenburg may trade
the securities of Candie's for its own account and for the account of its
customers, and may at any time hold a long or short position in such securities.
Ladenburg has not rendered financial advisory services in the past to Candie's.
CoView
Pursuant to a letter agreement dated January 26, 1998 (the "CoView Capital
Engagement Letter"), CoView agreed to provide a financial fairness opinion in
connection with the Merger. CoView was selected by the NRC Board to act as NRC's
financial advisor based on CoView's qualifications, expertise and reputation. At
a conference call to discuss the final letter of intent on January 29, 1998,
CoView rendered its oral opinion, subsequently confirmed in writing as of April
6, 1998, that as of such date, based upon and subject to the various
considerations set forth in the CoView Opinion, the Exchange Ratio pursuant to
the Merger Agreement was fair from a financial point of view to the public NRC
Stockholders.
The full text of the written opinion of CoView dated April 6, 1998, as
amended, which sets forth, among other things, assumptions made, procedures
followed, matters considered and limitations on the scope of the review
undertaken by CoView in rendering its opinion, is attached as Annex C hereto.
NRC Stockholders are urged to, and should, read the opinion carefully and in its
entirety in conjunction with this Joint Proxy Statement/Prospectus. CoView's
Opinion was prepared at the request of the NRC Board and addresses only the
fairness of the Exchange Ratio pursuant to the Merger from a financial point of
view as of the date of the opinion, and does not constitute a recommendation to
any holder of NRC Common Stock as to how to vote at the NRC Special Meeting. The
summary of all of the material portions of the opinion of CoView set forth in
this Joint Proxy
-40-
<PAGE>
Statement/Prospectus is qualified in its entirety by reference to the full text
of such opinion.
In connection with rendering its opinion, CoView, among other things,
reviewed and analyzed: (i) significant developments in NRC and Candie's markets;
(ii) certain publicly available information with respect to NRC and Candie's
competitors; (iii) historical NRC and Candie's financial statements; (iv)
internal financial statements and other financial and operating data provided by
NRC's and Candie's managements; (v) NRC projections for the fiscal years 1998
through 2002; (vi) Candie's projections for the fiscal years 1998 through 2001;
(vii) securities research analysts' reports regarding Candie's; (viii)
information and market valuations pertaining to publicly-traded companies which
are engaged in activities relatively similar and comparable to those of NRC and
Candie's; and (ix) the Merger Agreement. In addition, CoView: (i) participated
in discussions with the representatives of NRC and of Candie's (ii) discussed
with the managements of NRC and Candie's the strategic logic for the Merger;
(iii) performed a Discounted Cash Flow ("DCF") analysis on future NRC operating
earnings projections using various discount rates; (iv) performed a DCF analysis
on the future earnings projections of Candie's using various discount rates; and
(v) discussed with NRC's and Candie's senior management their respective
financial statements, operations, future prospectus and financial projections.
CoView assured and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by it for the purposes of
its opinion. With respect to the internal financial statements, projections and
other data provided by NRC and Candie's, CoView has been advised by their
respective managements that such statements and other data were reasonably
prepared on bases reflecting the best then currently available estimates and
judgments of the prospects of NRC and Candie's. CoView also relied upon, without
independent verification, the assessment by the managements of NRC and Candie's
of the strategic and other benefits expected to result from the Merger. CoView
assumed that the Merger would be treated as a tax-free reorganization and/or
exchange pursuant to the Code and would be consummated in accordance with the
terms set forth in the Merger Agreement. CoView's opinion is necessarily based
on economic, market and other conditions as in effect on, and the information
made available to it as of, the date of the opinion.
The following is a brief summary of the analysis performed by CoView in
connection with the preparation of its oral opinion rendered January 29, 1998:
o CoView examined NRC's financial assets, the vast majority of which are
represented by the holdings of Candie's securities. CoView valued these
Candie's securities at market in the case of the Candie's Common Stock, and
by using the Black-Scholes option pricing model in the cases of options and
warrants. To the value of Candie's securities held by NRC, CoView added the
net book value of the remaining assets as well as a value for trademarks
and licenses, which value was derived by performing a DCF analysis based on
operating earnings projections provided by NRC
-41-
<PAGE>
management. CoView observed that the market value of the shares of Candie's
Common Stock to be received pursuant to the Merger Agreement comfortably
exceeded the total asset value measure derived in the above manner.
o CoView observed that the market value of the shares of Candie's Common
Stock to be received pursuant to the Merger Agreement represented a
substantial premium over the market value of NRC Common Stock immediately
prior to the announcement of the Merger.
o CoView compared the marketability of NRC Common Stock with that of Candie's
over the past year, based on the respective average daily dollar volumes,
and observed that a very material improvement in marketability would inure
to the benefit of the NRC Stockholders as a result of the transaction.
o While CoView's Opinion in no way addressed the market price at which shares
of Candie's Common Stock may trade at any particular future time, CoView
performed the following analyses to confirm that Candie's market price as
of the date of the offer did not appear unreasonable relative to peer group
comparisons or management's estimates of future performance:
- Selected Companies Analysis. CoView reviewed and compared certain
financial information relating to Candie's to corresponding financial
information, ratios and public market multiples for ten publicly
traded footwear corporations (the "Footwear Companies"). The Footwear
Companies were chosen because they are publicly traded companies with
operations that for purposes of analysis may be considered similar to
Candie's, although none of the Footwear Companies was identical to
Candie's. CoView calculated and compared various financial multiples.
The multiples of Candie's were calculated using the closing price of
such shares on January 28, 1998, and the multiples of the Footwear
Companies were calculated using closing market prices for such
companies on January 28, 1998. CoView considered stock price as a
multiple of earnings per share, enterprise value as a multiple of
revenue, enterprise value as a multiple of earnings before interest,
taxes, depreciation and amortization ("EBITDA"), enterprise value as a
multiple of earnings before interest and taxes ("EBIT"), and stock
price as a multiple of book value. This comparison was based on the
most recent publicly available information and showed Candie's market
valuation to be reasonable, relative to that accorded the Footwear
Companies as a group.
- Discounted Cash Flow Analysis. CoView also performed a DCF analysis of
the present value of Candie's equity based on the Candie's financial
projections for the fiscal years 1999 through 2001, on various EBITDA
exit multiples and on various discount rates. Based on this analysis
of the
-42-
<PAGE>
present value of future cash flows, Candie's stock price at the time
of the offer appeared to be reasonable.
In connection with its written opinion dated as of April 6, 1998, CoView
confirmed the appropriateness of its reliance on the analyses used to render its
oral opinion of January 29, 1998, by performing procedures to update certain of
such analyses and by reviewing the assumptions upon which said analyses were
based and the factors considered in connection therewith.
CoView performed a variety of financial and comparative analyses for
purposes of its opinion given in connection herewith. In arriving at its
opinion, CoView considered the results of all of its analyses as a whole and did
not attribute any particular weight to any analysis or factor considered by it.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Furthermore,
selecting any portion of its analyses, without considering all analyses, would
create an incomplete view of the process underlying its opinion. In performing
its analyses, CoView made assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of NRC or Candie's. The analyses performed were prepared
solely as part of CoView's analysis of the fairness of the Exchange Ratio
pursuant to the Merger, to the public holders of shares of NRC Common Stock and
were conducted in connection with the delivery of CoView's Opinion. The analyses
do not purport to be appraisals or to reflect the prices at which NRC might
actually be sold. The Exchange Ratio pursuant to the Merger was determined
through arm's-length negotiations between NRC and Candie's and was approved by
the affirmative vote of a majority of the disinterested directors of the NRC
Board. CoView Capital did not recommend that any specific Exchange Ratio
constituted the only appropriate Exchange Ratio.
The NRC Board retained CoView based upon CoView's qualifications,
experience and expertise. CoView is an investment banking and advisory firm
focused on middle market companies. CoView, as part of its investment banking
business, is regularly engaged in the valuation of businesses in connection with
mergers and acquisitions, private placements and valuations for corporate and
other purposes.
Pursuant to the CoView Capital Engagement Letter, CoView provided a
financial opinion in connection with the Merger and NRC has agreed to pay a fee
to CoView and to reimburse CoView for reasonable expenses as incurred. In
addition, NRC has also agreed to indemnify CoView, its directors, officers,
agents and employees against certain liabilities and expenses, including certain
liabilities under the federal securities laws, relating to CoView's engagement.
Interest of Certain Persons in the Merger
Neil Cole, Chairman of the Board, President, Chief Executive Officer and
principal shareholder of NRC is also Chairman of the Board, President, Chief
Executive Officer and the principal shareholder of Candie's. Gary Klein, Vice
President of Finance of Candie's is also Chief
-43-
<PAGE>
Financial Officer of NRC, and Barry Emanuel is a director of both Candie's and
NRC. As of the NRC Record Date, directors and officers of NRC and their
affiliates beneficially owned an aggregate of 3,070,214 shares of NRC Common
Stock (including 710,000 shares of NRC Common Stock subject to NRC options).
Based upon the last reported sales price of Candie's Common Stock on June 26,
1998 of $7.375, the aggregate dollar value of the shares of Candie's Common
Stock to be received in the Merger by the executive officers and directors of
NRC is approximately $9,170,354.
Employment Agreements
NRC has employment agreements with each of Neil Cole and Gary Klein and a
consulting arrangement with Lawrence O'Shaughnessy pursuant to which Mr. Cole,
Mr. Klein and Mr. O'Shaughnessy are obliged to dedicate a portion of their
business time to the operation of NRC business. It is a condition to the Merger
that NRC terminate such agreements prior to the Effective Time to allow Messrs.
Cole, Klein and O'Shaughnessy to dedicate their full business time to the
Surviving Corporation. In consideration for the termination of such agreements
and in consideration of foregoing certain future bonus opportunities, NRC
approved the grant effective upon closing of the Merger to Mr. Cole, Mr. Klein
and Mr. O'Shaughnessy of a cash bonus in the amount of $525,000, $25,000 and
$30,000, respectively. In addition, as of March 9, 1998, each of Mr. Cole, Mr.
Klein and Mr. O'Shaughnessy received options to purchase 626,543, 49,383 and
74,074 shares, respectively, of NRC Common Stock at $1.75 per share which
options were initially contingent upon consummation of the Merger, however, on
June 2, 1998 the terms of the options were modified such that these options will
vest and become exercisable with respect to 1/3 of such number of options in
March 1999, March 2000 and March 2001, respectively, so long as Messrs. Cole,
and Klein are employed by and Mr. O'Shaughnessy is a consultant to, NRC, or any
successor thereto, at such time. See "Directors and Officers of NRC."
Management Agreement
In March 1993, NRC and Candie's entered into a Services Allocation
Agreement pursuant to which Candie's provides an amount equal to the allocable
portion of Candie's expenses including employee's salaries, associated with such
services. As a result of the Merger, the Services Allocation Agreement will be
terminated.
Affiliate Transactions Agreement
In March 1993, NRC, Candie's and El Greco, Inc. ("El Greco") entered into
an Affiliate Transactions Agreement, which was amended and restated on January
30, 1995, pursuant to which Candie's agreed not to conduct any business or enter
into any transactions with NRC which would benefit Candie's other than (i)
transactions described in Candie's definitive prospectus dated February 23,
1993, (ii) routine transactions occurring in the ordinary course of business,
(iii) transactions which do not exceed $50,000 or (iv) transactions which have
been approved by either a majority of the disinterested members of the Board of
Directors of Candie's or a majority of the Candie's Stockholders who are not
officers,
-44-
<PAGE>
members of the Candie's Board or holders of more than 5% of the outstanding
Candie's Common Stock. In order to comply with the terms of such Agreement, each
of Candie's and NRC has elected to approve the Merger Agreement by obtaining the
affirmative vote of its disinterested directors. As a result of the Merger, the
Affiliate Transactions Agreement will be terminated.
Indemnification of Directors and Officers
Candie's will for a period of three (3) years from the Effective Time,
indemnify each of the current directors and officers of NRC to the fullest
extent permitted by Section 145 of the DGCL for damages arising out of or
resulting from actions in his capacity as an officer or director of NRC.
Federal Income Tax Consequences of the Merger
The following discussion addresses certain federal income tax
considerations of the Merger that are applicable to holders of NRC Common Stock.
NRC Stockholders should be aware that the following discussion does not deal
with all federal income tax consequences that may result from the Merger,
including the survival or availability of any tax attributes or elections of
Candie's or NRC as a result of the Merger, and does not deal with all federal
income tax considerations that may be relevant to particular NRC Stockholders in
light of their particular circumstances, such as stockholders who are dealers in
securities, who are foreign persons or who acquired their NRC Common Stock
through stock option or stock purchase programs or in other compensatory
transactions. In addition, the following discussion generally does not address
the tax consequences of other transactions effectuated prior to, at the time of
or after the merger (whether or not such transactions are in connection with the
merger) including, without limitation, the exercise of options or similar rights
to purchase stock, or the exchange, assumption or substitution of options or
similar rights to purchase NRC Common Stock for rights to purchase Candie's
Common Stock. Furthermore, no foreign, state or local tax considerations are
addressed herein. This discussion is based on legal authorities in existence as
of the date hereof. No assurances can be given that future legislation,
regulations, administrative pronouncements or court decisions will not
significantly change the law and materially affect the conclusions expressed
herein. Any such change, even though made after consummation of the Merger,
could be applied retroactively. ACCORDINGLY, ALL NRC STOCKHOLDERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
The Merger is intended to qualify as a reorganization within the meaning of
Section 368(a) of the Code. Subject to the limitations and qualifications
described herein, and assuming the Merger so qualifies, then the following
Federal income tax consequences should generally result:
(a) No gain or loss should be recognized by holders of NRC Common
Stock upon their receipt in the Merger of Candie's Common Stock in
-45-
<PAGE>
exchange therefor (except to the extent of cash received in lieu of
fractional shares);
(b) The aggregate tax basis of the Candie's Common Stock received in
the Merger (including any fractional share of Candie's Common Stock deemed
to be received and subsequently redeemed by Candie's) should be the same as
the aggregate tax basis of NRC Common Stock surrendered in exchange
therefor;
(c) The holding period of the Candie's Common Stock received in the
Merger should include the period for which the NRC Common Stock surrendered
in exchange therefor was held, provided that the NRC Common Stock is held
as a capital asset at the Effective Time;
(d) Cash payments received by NRC stockholders in lieu of receipt of
fractional shares of Candie's Common Stock should be treated as received in
redemption of such fractional shares, subject to the provisions of Code
Section 302, as if such fractional share had been issued in the Merger and
then redeemed by Candie's for cash; and
(e) Neither Candie's nor NRC should recognize gain or loss as a result
of the Merger.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") regarding the consequences of the Merger. It is a condition to the
respective obligations of the parties to consummate the Merger that NRC receive
an opinion of Littman Krooks Roth & Ball P.C. and Candie's receive an opinion of
Tenzer Greenblatt LLP to the effect that the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code. Such opinions
(the "Tax Opinions") neither bind the IRS nor preclude the IRS from adopting a
contrary position. In addition, this discussion and the Tax Opinions will be
subject to certain assumptions and qualifications and will be based on the truth
and accuracy of certain representations and warranties made by Candie's, NRC and
perhaps certain stockholders of NRC. In particular, Candie's and NRC will
represent that they have no knowledge of any plan or intention on the part of
NRC's Stockholders to engage in a sale, exchange, transfer, distribution,
pledge, disposition or any other transaction with Candie's which results in a
reduction in the risk of ownership or direct or indirect disposition of shares
of Candie's Common Stock to be issued in the Merger; and the Tax Opinions will
assume that there is in fact no such plan or intention. If that assumption were
incorrect, the Tax Opinions might be adversely affected and could not be relied
upon.
Irrespective of the reorganization status of the Merger, a recipient of
shares of Candie's Common Stock would recognize income or gain to the extent
such shares were considered to be received in exchange for services or property
other than solely NRC Common Stock. Gain would also be recognized to the extent
an NRC Stockholder was treated as receiving (directly or indirectly)
consideration other than Candie's Common Stock in exchange for his or her NRC
Common Stock.
-46-
<PAGE>
A successful IRS challenge to the reorganization status of the Merger would
result in the recognition by NRC Stockholders of gain or loss with respect to
each share of NRC Common Stock equal to the difference between the stockholder's
basis in such share and the fair market value, as of the Effective Time, of the
Candie's Common Stock received in exchange therefor. A stockholder's aggregate
basis in the Candie's Common Stock so received would equal its fair market
value, and his or her holding period for such stock would begin the day after
the Merger.
NRC Stockholders will be required to attach a statement to their tax
returns for the year of the Merger that contains the information listed in
Treasury Regulation Section 1.368-3(b). Such statement must include the
stockholder's tax basis in the stockholder's NRC Common Stock and a description
of the Candie's Common Stock received.
Appraisal Rights of Dissenting NRC Stockholders
Any NRC Stockholder who objects to the terms of the Merger may seek
appraisal of such holder's NRC Common Stock under and in compliance with the
requirements of Section 262 of the DGCL (the NRC Common Stock as to which such
appraisal rights have been asserted being referred to herein as the "Dissenting
Shares"). Section 262 of the DGCL provides a procedure by which persons who are
holders of NRC Common Stock at the Effective Time may seek an appraisal of part
of or all of their NRC Common Stock in lieu of accepting shares of Candie's
Common Stock in exchange therefor. In any such appraisal proceeding, the
Delaware Court of Chancery (the "Chancery Court") would determine the "fair
value" of the NRC Common Stock. Holders of NRC Common Stock should recognize
that such an appraisal could result in a determination of a value higher or
lower than, or equivalent to, the Exchange Ratio of 0.405 shares of Candie's
Common Stock per share of NRC Common Stock. A copy of Section 262 of the DGCL is
attached hereto as Appendix D and is incorporated herein by reference.
FAILURE TO TAKE ANY NECESSARY STEPS FULLY AND PRECISELY TO SATISFY THE
REQUIREMENTS OF SECTION 262 OF THE DGCL WILL RESULT IN A TERMINATION OR WAIVER
OF THE APPRAISAL RIGHTS OF THE NRC STOCKHOLDER UNDER SUCH SECTION.
A holder of NRC Common Stock electing to exercise appraisal rights under
Section 262 of the DGCL must (a) deliver to NRC, before the taking of the vote
on the Merger Agreement, a written demand for appraisal that is made by or on
behalf of the person who is the holder of record of the NRC Common Stock for
which is demanded and (b) not vote in favor of adoption of the Merger Agreement.
A proxy or vote against approval and adoption of the Merger Agreement does not
constitute such a demand. In addition, mere failure, after the completion of the
Merger, to execute and return a letter of transmittal to Candie's exchange agent
does not constitute a demand. A holder of NRC Common Stock electing to take such
action must do so before the taking of the vote on the Merger Agreement by a
separate written demand that reasonably informs NRC of the identity of the
holder of NRC Common Stock of record and of such holder's intention thereby to
demand the appraisal of such holder's NRC Common Stock. Written
-47-
<PAGE>
demands for appraisal should be directed to NRC, Attn: Neil Cole, President,
2975 Westchester Avenue, Purchase, New York 10577.
Any holder of NRC Common Stock who has duly demanded an appraisal in
compliance with Section 262 of the DGCL will not, after the Effective Time, be
entitled to vote the NRC Common Stock subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on such NRC
Common Stock (other than those payable or deemed to be payable to holders of NRC
Common Stock of record as of a date prior to the Effective Time) or on any
shares of Candie's Common Stock otherwise issuable, but for such appraisal
demand, in substitution therefor.
Accounting Treatment of the Merger
The Merger will be accounted for under the "purchase" method of accounting.
See "Pro Forma Financial Statements", "Candie's Consolidated Financial
Statements and NRC Financial Statements."
Comparison of Rights of Candie's Stockholders and NRC Stockholders
NRC is a Delaware corporation and the rights of its stockholders are
governed by the DGCL, the Certificate of Incorporation of NRC, as amended, (the
"NRC Certificate of Incorporation") and the Bylaws of NRC (the "NRC Bylaws").
Candie's is a Delaware corporation and the rights of its stockholders are
governed by the DGCL, the Certificate of Incorporation of Candie's, as amended,
(the "Candie's Certificate of Incorporation"), and the Bylaws of Candie's (the
"Candie's Bylaws"). If the Merger is consummated, holders of NRC Common Stock
will become holders of Candie's Common Stock, and the rights of the NRC
Stockholders will be governed by the DGCL, the Candie's Certificate of
Incorporation and the Candie's Bylaws. The rights of Candie's Stockholders under
the DGCL, the Candie's Certificate of Incorporation and the Candie's Bylaws
differ in certain respects from the rights of NRC Stockholders under the DGCL,
the NRC Certificate of Incorporation and the NRC Bylaws. Certain of these
differences are summarized below.
Under the DGCL, special meetings of stockholders of a Delaware corporation
may be called by the Board of Directors or by the persons authorized in the
corporation's certificate of incorporation or bylaws. The NRC Bylaws provide
that special meetings of stockholders may be called by the president, a majority
of the Board of Directors of NRC or a majority of the stockholders of NRC.
The Candie's Bylaws provide that special meetings of the stockholders,
unless otherwise prescribed by statute or by the Candie's Certificate of
Incorporation, may only be called by the directors.
Number and Election of Directors
Under the DGCL, the number of directors shall be fixed or determined in the
manner the bylaws provide, unless the corporation's certificate of incorporation
fixes the number of directors, in which case
-48-
<PAGE>
the number of directors may only be changed by amending the certificate of
incorporation.
The NRC Bylaws provide that the number of directors of NRC shall be fixed
from time to time by resolution of the NRC Board but in no event shall be less
than three (3).
The Candie's Bylaws provide that the authorized number of Candie's
directors shall be fixed from time to time by resolution of the Candie's Board
or its stockholders but in no event shall it be less than one (1).
Limitation of Personal Liability of Directors
The DGCL allows a corporation's certificate of incorporation to eliminate
or limit a director's personal liability to the corporation or its stockholders
for monetary damages for the director's breach of his fiduciary duty as a
director. However, the corporation may not eliminate or limit a director's
liability (a) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) for an
unlawful payment of dividends or an unlawful stock purchase or redemption or (d)
for any transaction from which the director derived any improper personal
benefit. No provision may retroactively eliminate or limit a director's
liability.
Both the Candie's Certificate of Incorporation and the NRC Certificate of
Incorporation limit a director's personal liability to Candie's or NRC,
respectively, or their respective stockholders for monetary damages to the full
extent permitted by the DGCL.
-49-
<PAGE>
AGREEMENT AND PLAN OF MERGER
The information contained in this Joint Proxy Statement/Prospectus with
respect to the Merger Agreement is qualified in its entirety by reference to the
complete text of the Merger Agreement, a copy of which is annexed to this Joint
Proxy Statement/Prospectus as Annex A, which is incorporated herein by
reference.
The Merger
Candie's and NRC have executed and delivered the Merger Agreement, which
provides that, subject to the adoption of the Merger Agreement by the Candie's
Stockholders and the NRC Stockholders, and compliance with certain other terms
and conditions, NRC will be merged with and into Candie's, and Candie's will be
the Surviving Corporation. At the Effective Date, each share of NRC Common Stock
issued and outstanding immediately prior to the Effective Date will be converted
into 0.405 shares of Candie's Common Stock. If any NRC Stockholders are entitled
to receive a number of shares of Candie's Common Stock that includes a fraction,
then, in lieu of a fractional share, such holder shall be entitled to receive
cash in an amount equal to such fractional part of a share of Candie's Common
Stock multiplied by the average of the last reported sales prices of Candie's
Common Stock on the Nasdaq National Market on the twenty (20) trading days
immediately preceding the Effective Time.
Further, each currently issued and outstanding option to purchase shares of
NRC Common Stock will be converted into and exercisable upon substantially the
same terms and conditions as were applicable prior to the Effective Date for
such whole number of Candie's Common Stock (to the nearest whole share) as the
holder of such NRC option would have been entitled to receive pursuant to the
Merger had such holder exercised such option in full immediately prior to the
Effective Date. The price for exercising an option shall be equal to the option
price per share of NRC Common Stock divided by 0.405.
Vote Required
As of the respective Candie's and NRC Record Dates, there were 14,173,364
shares of Candie's Common Stock, and 5,743,639 shares of NRC Common Stock issued
and outstanding. The affirmative vote of the holders of the majority of the
issued and outstanding shares of Candie's Common Stock and NRC Common Stock on
the respective Record Dates is required to approve the adoption of the Merger
Agreement. A holder of Candie's Common Stock on the Candie's Record Date is
entitled to one vote per share and a holder of NRC Common Stock on the NRC
Record Date is entitled to one vote per share. As of the Candie's Record Date,
Neil Cole, and affiliates owned 3,497,346 shares of Candie's Common Stock of
record or approximately 21.3% thereof and as of the NRC Record Date, Mr. Cole,
and his affiliates owned 2,340,214 shares of NRC Common Stock or approximately
37.6% thereof.
-50-
<PAGE>
The Effective Time
The Merger will become effective upon the filing of a Certificate(s) of
Merger relating to the Merger with the Secretary of State of the State of
Delaware. The filing of the Certificate of Merger is anticipated to be made as
promptly as practicable after the later of the Candie's Annual Meeting and NRC
Special Meeting, provided that the requisite stockholder approval is obtained at
such meetings. Such filing shall be made, however, only upon satisfaction or
waiver, where permissible, of certain conditions contained in the Merger
Agreement.
Certain Effects of the Merger
After the Merger is consummated, NRC will be merged with and into Candie's
and the separate corporate existence of NRC will be terminated. The officers and
directors of Candie's and each of its subsidiaries after the Effective Time
shall remain the same.
As a result of the Merger, the former stockholders of NRC will own
approximately 2,326,000 shares of Candie's Common Stock of the approximately
15,272,000 issued and outstanding shares of Candie's Common Stock, representing
approximately 15% of the equity ownership of Candie's.
Exchange of Certificates Representing NRC Common Stock
As soon as reasonably practicable after the Effective Date, Candie's shall
cause Continental Stock Transfer & Trust Company, its exchange agent, to mail to
each holder of record of NRC Common Stock prior to the Effective Date (i) a
letter of transmittal and (ii) instructions for use in effecting the surrender
of the NRC Common Stock certificates in exchange for certificates representing
shares of Candie's Common Stock and cash in lieu of fractional shares. Upon
surrender by the NRC Stockholders of their certificates for cancellation to the
exchange agent, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holders of such
certificates shall be entitled to receive (x) a certificate representing the
number of whole Candie's Common Stock shares (y) any dividends or other
distributions which the holder is entitled and (z) cash in lieu of fractional
shares, if any after giving effect to any required withholding tax. No interest
will be paid or accrued on the cash in lieu of fractional shares.
At the Effective Date, the stock transfer books of NRC shall be closed and
there shall be no further registration of transfers of NRC Common Stock
thereafter on the records of NRC. If, after the Effective Date, certificates are
presented to the Surviving Corporation, they shall be cancelled in exchange for
certificates representing the appropriate number of Candie's Common Stock and
cash in lieu of fractional shares, if any, deliverable in respect thereof.
-51-
<PAGE>
Conditions to the Merger
The consummation of the Merger is subject to the satisfaction of certain
conditions, including the following: (i) the Merger Agreement shall have been
approved and adopted by the requisite vote of holders of Candie's Common Stock
and NRC Common Stock; (ii) all governmental approvals and filings required for
the Merger, the absence of which would be reasonably likely to have a material
adverse effect on either party or on the parties' ability to complete the
Merger, shall have been obtained or made; (iii) the Candie's Registration
Statement shall have become effective under the Securities Act and shall not be
the subject of any stop order or proceedings seeking a stop order, and all
required state securities laws authorizations shall have been received; (iv)
there shall be no order, injunction or other legal or regulatory restraint or
prohibition in effect preventing or prohibiting the consummation of the Merger
or restricting the conduct of either Candie's or NRC's business after the
consummation of the Merger; (v) Candie's shall have received a letter dated as
of the date not more than five (5) days prior to the Effective Date from
Ladenburg stating that the Exchange Ratio is fair to the Candie's Stockholders
from a financial point of view; (vi) NRC shall have received a letter dated as
of a date not more than five (5) days prior to the Effective Date from CoView
stating that the Exchange Ratio is fair to the NRC Stockholders from a financial
point of view; (vii) each of Candie's and NRC shall have received opinions from
their respective counsel that the Merger will be treated as a tax free
reorganization for federal income tax purposes; (viii) the shares of Candie's
Common Stock to be issued in the Merger shall have been authorized for quotation
on Nasdaq; (ix) Candie's and NRC shall have performed, in all material respects,
all obligations they are required to perform at or prior to the closing date of
the Merger; (x) the parties' representations and warranties shall be accurate in
all material respects when made as of the closing date of the Merger and as of
the Effective Time; (xi) certain ancillary agreements shall have been executed
or terminated and delivered by executive officers of Candie's and NRC; and (xii)
no material adverse effect shall have occurred with respect to Candie's or NRC,
and no event shall have occurred and no fact or circumstance shall exist which
could reasonably be expected to result in a material adverse effect on Candie's
or NRC.
Amendment of the Merger Agreement
The Merger Agreement may be amended at any time by the parties hereto by
action taken by each of the respective Boards of Directors. After obtaining
requisite stockholder approval, no amendments shall be made which by law
requires the further approval of stockholders without obtaining such further
approval.
Termination of the Merger Agreement
The Merger Agreement may be terminated at any time prior to the Effective
Date with the mutual written consent duly authorized by the Boards of Directors
of Candie's and NRC, or by either Candie's or NRC if
-52-
<PAGE>
the Merger has not been consummated by September 30, 1998. In the event that the
Merger Agreement is terminated, provided that termination of the Merger
Agreement was not as a result of either Candie's or NRC entering into a
definitive agreement with any other person or entity with respect to an
acquisition proposal which gave rise to such termination, all obligations of the
parties under the Merger Agreement shall terminate.
Conduct of Business of NRC and Candie's, Prior to the Effective Time
Pursuant to the Merger Agreement, NRC and Candie's have each agreed that
until the Effective Date they will conduct their respective operations in
accordance with its ordinary and usual course of business consistent with past
practices and in accordance with the terms of the Merger Agreement and will use
its best efforts to preserve and protect its business organization, assets,
prospects, employees and advantageous business relationships.
No Solicitation
During the period from the date of the Merger Agreement to the Effective
Time, each of Candie's and NRC has agreed not to initiate, solicit, encourage or
take any other action to facilitate any inquiry or the making of any proposal
regarding a merger, acquisition, consolidation or similar transaction involving,
or any purchase of all or substantially all of the assets or equity securities
resulting in, a change of control of either Candie's or NRC or any significant
subsidiary.
-53-
<PAGE>
INFORMATION CONCERNING CANDIE'S
The following Information Concerning Candie's section provides information
on the business of Candie's on a stand-alone basis and does not describe the
business of Candie's if the Merger is consummated.
Business
Candie's, Inc. and its subsidiaries are currently engaged primarily in the
design, marketing and importation of a variety of moderately-priced women's and
girls' casual and fashion footwear and handbags under the CANDIE'S(R) and
BONGO(R) trademarks for distribution to better department and specialty stores
worldwide. Candie's also markets and distributes, under the CANDIE'S(R) and
BONGO(R) trademarks, children's footwear designed by it, and also arranges for
the manufacture of footwear products, similar to those produced under the
CANDIE'S(R) trademark, for mass market and discount retailers, under one of
Candie's other trademarks or under the private label brand of the retailer.
Moreover, Candie's distributes a variety of men's workboots, hiking boots,
winter boots and outdoor casual shoes designed and marketed by Candie's
wholly-owned subsidiary, Bright Star Footwear, Inc. ("Bright Star"), under
private labels and a brand name licensed by Candie's from third parties
(ASPEN(R)).
Candie's began to license the use of the CANDIE'S(R) trademark from NRC in
June 1991 and in March 1993 purchased ownership of the CANDIE'S(R) trademark
from NRC together with certain pre-existing licenses of NRC.
Products
CANDIE'S(R) Footwear Products. CANDIE'S(R) brand fashion and casual
footwear is designed primarily for girls and women, aged 8 to 40, featuring a
variety of styles for a variety of uses. The retail prices of CANDIE'S(R)
footwear generally range from $30 to $60. Four times per year, as part of its
Spring and Fall collections, Candie's generally designs and markets 30 to 40
different styles of shoes among its footwear categories. Approximately one-third
of such styles are "updates" of Candie's most popular styles from prior periods
and Candie's considers such footwear to be "core" products.
Candie's designers analyze and interpret fashion trends and translate such
trends into shoe styles consistent with the CANDIE'S(R) image and price point.
Fashion trend information is compiled by Candie's designers through various
methods, including travel to Europe and throughout the world to identify and
confirm seasonal trends, utilization of outside fashion forecasting services and
attendance at trade shows and seminars. Each season, subsequent to the final
determination of that season's line by the design team and management (including
colors, trim, fabrics, constructions and decorations), the design team travels
to Candie's manufacturers to oversee the production of the initial sample lines.
-54-
<PAGE>
CANDIE'S(R) Handbag Products. Candie's recently began to market and
distribute under the CANDIE'S(R) trademark a line of women's and girls' handbags
to the same retail outlets it markets its footwear products. The retail price
range for CANDIE'S(R) handbags will generally range from $30 to $100.
BONGO(R) Footwear and Handbag Products. Candie's designs fashion and casual
footwear and handbags for girls and women, aged 14 to 40, and markets and
distributes such footwear and handbags under the BONGO(R) trademark pursuant to
a license agreement with the owner of such trademark. The retail price range for
such footwear is between $30 to $50 and for such handbags is $15 to $30.
Candie's distributes such footwear and handbags to department and specialty
retail stores, including Burdines, Wet Seal/Contempo Casuals, Mervyns and Edison
Brothers.
Children's Footwear. In the Spring of 1997, Candie's began to market and
distribute under the CANDIE'S(R) and BONGO(R) trademarks a line of children's
footwear, primarily to the same retail outlets to which it markets its women's
brand, as well as to selected children's specialty stores. Approximately
three-quarters of the children's styles are smaller versions of the best selling
women's styles and one-quarter of the children's products are designed
specifically for the children's division. Candie's lines of children's footwear
have received favorable retailer and consumer response from across the country.
Private Label Products. In addition to sales under the CANDIE'S(R) and
BONGO(R) trademarks, Candie's arranges for the manufacture of women's footwear,
acting as agent for mass market and discount retailers, primarily under the
retailer's private label brand. Under its agency arrangements, Candie's receives
a commission based upon the purchase price of the products purchased from the
manufacturer for providing design expertise, arranging for the manufacturing of
the footwear, oversight of production, inspection of the finished goods and
arranging for the sale of the finished goods by the manufacturer to the
retailer. All of the private label footwear is presold against firm purchase
orders and is backed by letters of credit opened by such retailers.
Bright Star Footwear. Bright Star, acting principally as agent for its
customers, designs, markets and distributes a wide variety of men's workboots,
hiking boots, winter boots and leisure footwear, which is either unbranded, or
marketed under the private label brand names of Bright Star's customers, or
under Candie's licensed brand, ASPEN(R). Bright Star's customer base consists of
a broad group of retailers, including discounters, specialty retailer and better
grade accounts. Bright Star's products are directed toward the moderately-priced
market. The retail prices of Bright Star's footwear generally ranges from $25 to
$75. The majority of Bright Star's products are sold on a commission agency
basis.
Manufacturing and Suppliers
Candie's does not own or operate any manufacturing facilities. Candie's
footwear products are manufactured to its specifications by a number of
independent suppliers currently located in Brazil, China, Spain,
-55-
<PAGE>
Italy, and Taiwan. Candie's believes that such diversification permits it to
respond to customer needs and minimizes risks associated with foreign
manufacturing. Candie's has developed, and seeks to develop, long-term
relationships with manufacturers that can produce a high volume of quality
products at competitive prices.
Candie's negotiates the prices of finished products with its suppliers.
Such suppliers manufacture the products themselves or subcontract with other
manufacturers. Bright Star is responsible for identifying suppliers, planning
production schedules, supervising manufacture, inspecting samples and finished
products and arranging for the shipment of goods directly to customers in the
United States. Finished goods are purchased primarily on an open account basis,
generally payable within 7 to 45 days after shipment.
Most raw materials necessary for the manufacture of Candie's footwear are
purchased by Candie's suppliers. Although Candie's believes that the raw
materials required (which include leather, nylon, canvas, polyurethane and
rubber), are available from various alternative sources, there can be no
assurance that any such materials will continue to be available on a timely or
cost-effective basis.
Once the design of a new shoe is completed (including the production of
samples), which generally requires approximately three months, the shoe is
offered for sale to wholesale purchasers. After orders are received by Candie's,
the acquisition of raw materials, the manufacture of the shoes and shipment to
the customer each take approximately one month. If the shoes are produced in the
United States or shipped via air freight, rather than ocean freight, the
shipment time is reduced.
For the fiscal year ended January 31, 1998 ("Fiscal 1998"), and the fiscal
year ended January 31, 1997 ("Fiscal 1997"), Redwood Shoe Corp. ("Redwood"), a
buying agent for Candie's, initiated the manufacture of approximately 60% and
80%, respectively, of Candie's total footwear purchases. At June 26, 1998,
Candie's had approximately $15,000,000 of open purchase commitments with
Redwood.
There can be no assurance that, in the future, the capacity or availability
of manufacturers or suppliers will be adequate to meet Candie's product needs.
Tariffs, Import Duties and Quotas
All products manufactured overseas are subject to United States tariffs,
customs duties and quotas. In accordance with the Harmonized Tariff Schedule (a
fixed duty structure in effect since January 1, 1989), Candie's pays import
duties on its footwear products manufactured outside of the United States
ranging from approximately 3.2% to 48%, depending on whether the principal
component of the product is leather or some other material. Inasmuch as Candie's
products have differing compositions, the import duties vary with each shipment
of footwear products. Since 1981, there have not been any quotas or
restrictions, other than the duties
-56-
<PAGE>
mentioned hereinabove, imposed on footwear imported by Candie's into the United
States.
Candie's is unable to predict whether, or in what form, quotas or other
restrictions on the importation of its footwear products may be imposed in the
future. Any imposition of quotas or other import restrictions could have a
material adverse effect on Candie's. In addition, other restrictions on the
importation of footwear and apparel are periodically considered by the United
States Congress and no assurance can be given that tariffs or duties on Candie's
goods may not be raised, resulting in higher costs to Candie's, or that import
quotas respecting such goods may not be lowered which could restrict or delay
shipment of products from Candie's existing foreign suppliers.
Backlog
At April 29, 1998 Candie's had an estimated backlog of orders of its
products of approximately $75,000,000, as compared to a backlog of approximately
$49,000,000 at April 23, 1997. The backlog at any particular time is affected by
a number of factors, including seasonality, the buying policies of retailers,
scheduling, the manufacture and shipment of products. Accordingly, a comparison
of backlog from period to period is not necessarily meaningful and may not be
indicative of eventual actual shipments.
Seasonality
In previous years, demand for Candie's footwear peaked during the months of
June through August (the fall/back-to-school selling season). As a result,
shipment of Candie's products in previous years were heavily concentrated in its
second and third fiscal quarters. Accordingly, historically, operating results
have fluctuated significantly from quarter to quarter. Although there can be no
assurance that Candie's will be able to achieve consistent quarterly operating
results in future years, Candie's believes that fluctuations in its quarterly
operating results will be reduced over the next year.
Customers and Sales
During Fiscal 1998, Candie's sold its footwear products to more than 750
retail accounts consisting of department stores, including Federated Stores
(which includes Macy's and Bloomingdale's), Nordstrom's and May Company, mass
merchandisers, shoe stores and other outlets in the United States. No individual
customer accounted for more than 10% of Candie's revenues during Fiscal 1998;
although Candie's has five customers that each accounted for between
approximately 5.7% and 8.8% of Candie's net revenues in Fiscal 1998, and between
7.1% and 8.6% in Fiscal 1997.
Candie's has also entered into various long-term distribution agreements
with United Authentics, GmbH in Germany, Bata Shoe Pte. Ltd. of Singapore and
Malaysia and Cravo E. Canala of Brazil. Pursuant to the terms of such
distribution agreements, Candie's products will be distributed and marketed in
specialty stores throughout Germany, Singapore,
-57-
<PAGE>
Malaysia and Brazil. There can be no assurance that such customers will continue
to purchase products from Candie's or utilize its services in the future in the
United States or abroad.
Candie's generally requires payment for goods by its customers either by
letter of credit or by check, subject to collection, within 30 to 60 days after
delivery of the goods. In certain instances, Candie's offers its customers a
discount from the purchase price in lieu of returned goods; otherwise, goods may
be returned solely for defects in quality, in which event Candie's returns the
goods to the manufacturer for a credit to Candie's account.
Candie's currently utilizes the services of 27 full-time sales persons
(including 20 employees and 7 independent contractors), who are compensated on a
commission basis. Candie's emphasizes customer service in the conduct of its
operations and maintains a customer service department. Candie's customer
service department processes customer purchase orders and supports the sales
representatives by coordinating orders and shipments with customers.
Licensing of the CANDIE'S(R) Trademark
During Fiscal 1997, Candie's licensed the CANDIE'S(R) trademark for use in
connection with the manufacture and distribution of women's intimate apparel and
children's footwear. Candie's terminated these licenses during Fiscal 1998
because, Candie's has commenced to distribute its own line of children's
footwear under the CANDIE'S(R) trademark and, as to women's intimate apparel,
Candie's perceived a conflict between the licensee's level of retail
distribution and the current retail market for Candie's footwear.
Candie's currently intends to offer new license agreements for women's
apparel, accessories and related categories. Candie's does not intend to
aggressively market such licenses but intends to evaluate prospective licensees
based on their experience, financial stability, reputation, marketing and
distribution ability, the marketability of the proposed product line and
compatibility of such proposed product line with the product lines of then
existing CANDIE'S(R) licensees. There can be no assurance that Candie's will be
able to successfully license the CANDIE'S(R) trademark in the future.
Trademarks
Candie's believes that its federally registered trademark, CANDIE'S(R)
which expires on June 9, 2001, is of material importance in marketing Candie's
products and, accordingly, has significant value. Candie's also owns other
registered trademarks which it does not consider to be material to its current
operations. There can be no assurance that the CANDIE'S(R) trademark or any
other trademark which Candie's owns, does not, and will not, violate the
proprietary rights of others, that any such trademark would be upheld if
challenged, or that Candie's would, in such an event, not be prevented from
using such trademarks, any of which events could have a material adverse effect
on Candie's. In addition, there can
-58-
<PAGE>
be no assurance that Candie's will have the financial or other resources
necessary to enforce or defend an infringement action.
Candie's sells footwear and handbags under the BONGO(R) trademark and
footwear under the ASPEN(R) trademark, each of which Candie's licenses from
third parties. The BONGO(R) license agreement grants Candie's the exclusive
right to market and distribute footwear and handbags under the BONGO(R)
trademark in North America and certain foreign countries for a term expiring on
January 31, 2002, subject to Candie's right to extend the license through
January 31, 2006 under certain circumstances. The ASPEN(R) license agreement
grants Bright Star the exclusive right to market and distribute certain
categories of footwear under the ASPEN(R) trademark in the United States, its
territories and Puerto Rico for a term expiring on September 30, 1998. Although
Candie's will seek to renew the ASPEN(R) license, there can be no assurance that
Candie's can successfully negotiate a renewal of such license on terms
acceptable to it. The BONGO(R) and ASPEN(R) licenses require Candie's to pay
royalties based on percentages of sales exceeding certain minimum royalties.
Competition
The footwear industry is extremely competitive in the United States and
Candie's faces substantial competition in each of its product lines from
Skechers, Nine & Co. and Esprit. In general, competitive factors include
quality, price, style, name recognition and service. Although Candie's believes
that it competes favorably in these areas, there can be no assurance that it
will be able to do so in the future. In addition, the presence in the
marketplace of various fashion trends and the limited availability of shelf
space can affect competition. Many of Candie's competitors have substantially
greater financial, distribution, marketing and other resources than the Candie's
and have achieved significant name recognition for their brand names. There can
be no assurance that Candie's will be able to successfully compete with the
companies marketing these products.
Employees
At June 26, 1998, Candie's employed 108 persons, of whom 4 are executives
and 104 are management, sales, marketing, product development, administrative,
customer service representatives and retail store personnel. None of Candie's
employees are represented by a labor union. Candie's also utilizes the services
of 7 independent contractors who are engaged in sales. Candie's considers its
relations with its employees to be good.
Properties
Candie's currently occupies 19,653 square feet of office and showroom space
at 2975 Westchester Avenue, Purchase, New York pursuant to a lease which expires
on April 1, 2000. The monthly rental expense pursuant to the lease is $32,755
per month through the expiration date of the lease. Candie's also occupies (i)
approximately 1,265 square feet of retail space in The Galleria shopping mall in
White Plains, New York pursuant to a lease
-59-
<PAGE>
which expires on September 30, 2006, (ii) approximately 1,265 square feet of
retail space in the Roosevelt Field shopping mall in Garden City, New York
pursuant to a lease which expires on October 22, 2004, and (iii) approximately
2,919 square feet of retail space in the Tanger Outlet shopping mall in
Riverhead, New York pursuant to a lease which expires on October 31, 2002. The
lease at The Galleria shopping mall provides for a minimum monthly rental of
approximately $3,000 through September 30, 1998, increasing to approximately
$5,000 for the 12 months ending September 30, 2006, plus additional rent as
described below. The lease at the Roosevelt Field shopping mall provides for a
minimum monthly rental of approximately $10,000 through October 31, 1999, and
increasing to approximately $12,000 for the twelve months ended October 31,
2004, plus additional rent as described below. The lease at the Tanger Outlet
shopping mall provides for a minimum monthly rental of approximately $6,300
through October 31, 2002, plus additional rent as described below. Additional
rent at all three shopping mall locations is based on percentages of annual
gross sales of the retail store exceeding certain amounts and proportionate
amounts of monthly real estate taxes, utilities and other expenses relating to
the shopping mall.
Legal Proceedings
Candie's is a party to certain legal proceedings incurred in the course of
its business. While any legal proceeding has an element of uncertainty, Candie's
believes that the final outcome of any of these matters will not have a material
adverse effect on Candie's financial position or future liquidity. Furthermore,
Candie's knows of no material legal proceedings, pending or threatened, or
judgments entered, against any director or officer of Candie's in his capacity
as such.
-60-
<PAGE>
CANDIE'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
The following information is a discussion and analysis of the operating
results of Candie's for the periods indicated. The following discussion should
be read in conjunction with the Candie's Financial Statements and Notes thereto
included elsewhere in this Joint Proxy Statement/Prospectus.
Results of Operations
Three Months Ended April 30, 1998 and 1997
Revenues. Net revenues increased by $8,800,000 or 52% to $25,700,000 in the
three months ended April 30, 1998, from $16,900,000 in the comparable period of
the prior year, primarily due to increased brand awareness and consumer
acceptance due to Candie's increased sales and marketing efforts coupled with
increased sales in all product categories, the successful introduction of
children's footwear products and increased selling prices.
Gross Profit. Gross profit margins decreased to 28.8% in the three months
ended April 30, 1998 from 30.2% in the comparable period of the prior year. The
decrease was primarily attributable to changes in product mix.
Operating Expenses. Selling, general and administrative expenses increased
by $1,900,000 or 57% to $5,400,000 in the three months ended April 30, 1998 from
$3,400,000 in the comparable period of the prior year. The increase reflects the
costs incurred in implementing Candie's strategic plan to strengthen its
management team and infrastructure, which Candie's believes has created the
foundation for future growth, coupled with costs which are directly associated
with the increase in net revenues. As a percentage of net revenues, selling,
general and administrative expenses increased 0.6% to 20.9% for the three months
ended April 30, 1998 from 20.3% for the comparable period of the prior year.
Interest Expense. Interest expense for the first quarter of Fiscal 1999 was
$274,000, compared to $275,000 for the first quarter of Fiscal 1998. The
decrease resulted from lower average borrowings and to a lesser extent lower
interest rates under Candie's credit facility.
Net Income. As a result of the foregoing, net income increased to
$1,056,000 for the three months ended April 30, 1998, compared to net income of
$823,000 for the corresponding period a year ago.
Earnings Per Share. Earnings per share was $.07 on a diluted basis, which
reflects an additional 3,300,000 weighted average shares outstanding, compared
to $.06 per diluted share in the comparable quarter of the prior year which has
been restated to comply with the requirements of SFAS No. 128 on earnings per
share. The increase in the weighted average shares outstanding was primarily the
result of the exercise of approximately 4,000,000 warrants and options since the
first quarter of Fiscal 1998.
-61-
<PAGE>
Liquidity and Capital Resources
Working capital increased approximately $9 million to $26 million at April 30,
1998 from $17 million at January 31, 1998. The current ratio increased to 8:1
compared to 3.8:1 at January 31, 1998. Inventory levels at April 30, 1998
decreased by $8.6 million to $7.6 million from $16 million at January 31, 1998.
Candie's has relied in the past primarily upon revenues generated from
operations, borrowings from its factor and sales of securities to finance its
liquidity and capital needs. Net cash used in operating activities totaled $8.4
million for the first quarter of fiscal 1999, as compared to $1.5 million for
the first quarter of Fiscal 1998. Such utilization of cash was used to repay
short-term borrowings under the factoring agreement.
Other than short-term borrowings, Candie's is virtually debt-free.
Capital expenditures were $190,000 for the first quarter of Fiscal 1999 compared
to $3,000 for the first quarter of fiscal 1998.
During the quarter ended April 30, 1998 (up to and including February 23, 1998),
substantially all of Candie's outstanding Class C warrants ("Warrants") were
exercised and Candie's received aggregate proceeds of $7.16 million from the
exercise of such Warrants. The proceeds were used to repay short-term
borrowings. Each Warrant entitled the holder thereof to purchase one share of
Candie's Common Stock at an exercise price of $5.00. In addition, subsequent to
the year ended January 31, 1998, Candie's received proceeds of $1.12 million in
connection with the issuance of common stock relating to the exercise of
outstanding stock options and certain underwriters' warrants.
On May 27, 1998, Candie's entered into a three year $35 million revolving credit
facility (the "Facility"). Under certain conditions, including the addition of a
second lender, the Facility may increase to a maximum of $50 million. Borrowings
under the Facility currently bear interest at 1.75% below the prime rate (8 1/2%
at May 27, 1998) and Candie's also has the option to borrow at either LIBOR plus
1.25% or the banker's acceptance rate plus 1%. These rates are fixed and subject
to an increase or decrease based on certain conditions beginning in November
1998. Candie's will pay a commitment fee of 1/4% on the unused portion of the
Facility.
Borrowings under the Facility are formula based and available up to the maximum
amount of the Facility. The Facility also contains certain financial covenants
including, minimum tangible net worth, certain specified ratios and other
limitations as defined. Candie's has granted the lender a security interest in
substantially all of its assets.
Simultaneously with the execution of the Facility, Candie's entered into a
new factoring agreement whereby Candie's has the option to sell any or all of
its accounts receivable to the lender, principally without recourse, subject to
maximum credit limits established by the lender for individual accounts.
Receivables in excess of such maximum credit limits are subject to recourse.
Candie's believes that it will be able to satisfy its ongoing cash requirements
for the foreseeable future, including requirements for its expansion, primarily
with cash flow from operations, supplemented by borrowings under the Facility.
Year 2000 Issues
Candie's has assessed the issues associated with its existing computer system
with respect to a two digit year value as the year 2000 approaches and is in the
process of implementing a new computer system which it believes addresses such
issues. Candie's also believes that implementation of this system is not a
material event or uncertainty that would cause expected financial information
not to be indicative of future operating results or financial condition.
Fiscal 1998 Compared with Fiscal 1997
Revenues. Net revenues increased by $47,971,000, or 106.6% to $92,976,000,
primarily due to increased brand awareness and consumer acceptance due to
Candie's increased sales and marketing efforts coupled with increased sales in
all product categories, the successful introduction of children's footwear
products and increased selling prices.
Gross Profit. Gross Profit margins increased to 26.0% from 21.9% in the
prior year. The increase is primarily attributable to changes in product mix and
the ability to source product at lower prices coupled with increases in units
sold and selling prices.
Operating Expenses. Selling, general and administrative expenses increased
by approximately $8,327,000 to $17,217,000 for Fiscal 1998 compared to
$8,890,000 for the prior year. The increase is primarily due to increased
selling, shipping and administrative expenses which are directly associated with
the increase in net revenues and an increase in marketing and advertising
expenses. As a percentage of net revenues, selling, general and administrative
expenses decreased 1.3% to 18.5% for Fiscal 1998 from 19.8% for the prior year.
Operating Income. As a result of the foregoing, operating income increased
approximately sevenfold to $6,960,000, or 7.5% of net revenues for Fiscal 1998,
compared to $966,000, or 2.1% of net revenues for the prior year.
Interest Expense. Interest expense increased by $374,000, or 49.5%,
primarily as a result of increased levels of borrowings under Candie's revolving
credit facility with its factor for seasonal working capital requirements to
fund Candie's growth.
Income Tax Expense. The relationship of the income tax provision in Fiscal
1998 and the benefit in Fiscal 1997, respectively, to income before income taxes
was significantly affected by the recognition of deferred tax assets in the
amount of $1,347,000 and $1,100,000, respectively, in each year. See Note 10 to
the Consolidated Financial Statements and Net Operating Loss Carryforward
discussion included later in this management's discussion.
Net Income. As a result of the foregoing, net income increased fourfold to
$4,536,000 or 4.9% of net revenues for Fiscal 1998, compared to $1,145,000 or
2.5% of net revenues for the prior year.
Fiscal 1997 Compared with Fiscal 1996
Revenues and Gross Profit. Net revenues increased by $7,091,000, or 18.7%
to $45,005,000, primarily due to Candie's sales and marketing efforts, including
Candie's decision to emphasize sales of casual, outdoor and fashion footwear and
sales of footwear under the CANDIE'S(R) brand and Candie's licensed brand,
BONGO(R). These efforts resulted in both an
-62-
<PAGE>
increase in the amount of footwear sold and lower profit margins due to
decreased selling prices for certain of Candies' core products, in an effort to
maintain retail market share. Accordingly, Candie's gross profit percentage
decreased to 21.9% from 27.7% for the fiscal year ended January 31, 1996
("Fiscal 1996").
Operating Expenses. Selling expenses increased by $494,000, or 9.8%,
primarily due to increases in the amount of salesmen's commissions on increases
in footwear sales and increases in advertising expenditures. General and
administrative expenses decreased by approximately $34,000, or 1.0%, principally
due to Candies' cost containment efforts. Total operating expenses increased by
5.5% or approximately $461,000. This increase is principally due to the
increases in sales commissions and advertising expense discussed above.
Accordingly, operating income decreased by $1,092,000, or 53.1%, to $966,000 for
Fiscal 1997, from operating income of $2,057,000 in Fiscal 1996.
Interest Expense. Interest expense increased by $28,000, or 3.9%, primarily
as a result of increased borrowings under Candie's revolving credit facility
with its factor.
Income Tax Expense. In Fiscal 1997, income tax expense was credited by a
$1.1 million reduction in the valuation allowance previously provided against
Candies' net deferred tax assets. In accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" net deferred tax
assets are not recognized when a company has cumulative losses in recent years.
However, as a result of its continued profitability, Candie's believes it is
more likely than not that Candie's will generate sufficient taxable income to
realize the benefits of these deferred tax assets (see Note 10 of Notes to
Consolidated Financial Statements appearing elsewhere herein). This reduction in
the valuation allowance of the deferred tax assets resulted in a net income tax
benefit for Fiscal 1997 of $1,010,000, as compared to an income tax provision of
$163,000 for Fiscal 1996.
Net Income. As a result of the foregoing, Candie's achieved net income of
$1,145,000 for Fiscal 1997, compared to net income of $1,054,000 in Fiscal 1996.
Liquidity and Capital Resources
Candie's has relied in the past primarily upon revenues generated from
operations, borrowings from its factor and sales of securities to finance its
liquidity and capital needs. Net cash used in operating activities totaled
$8,830,000 in Fiscal 1998, as compared to net cash provided by operating
activities of approximately $663,000 for Fiscal 1997. Net income of $4,536,000
and the effects of non-cash charges for depreciation and amortization of
$604,000 and deferred income taxes of $993,000 were more than offset by Candie's
requirement to finance increased inventories in the
-63-
<PAGE>
amount of $10,928,000, increased accounts receivable and factoring activity in
the amount of $2,888,000 and other changes in operating assets and liabilities,
resulting in the Fiscal 1998 use of cash from operating activities. Net cash
provided by operating activities for Fiscal 1997 resulted principally from net
income of $1,145,000, an increase in accounts payable and accrued expenses of
$2,365,000, partially offset by deferred income taxes of $1,100,000, a decrease
in due to factor of $719,000, non-cash items of depreciation and amortization of
$459,000, an increase in prepaid expenses of $235,000, and an increase in
inventories of $1,251,000.
The ratio of current assets to current liabilities increased to 3.8:1 at
January 31, 1998 from 1.5:1 at January 31, 1997. Working capital increased by
approximately $14,233,000 to $17,268,000 at January 31, 1998 compared to working
capital of $3,046,000 at January 31, 1997.
Candie's expects a continuation of the recent trend of increases in
revenues through increased sales of women's footwear and handbags under the
CANDIES(R) and BONGO(R) trademarks, and revenues from children's footwear
products under the CANDIES(R) and BONGO(R) trademarks.
Other than short-term borrowings for working capital requirements, Candie's
is virtually debt-free.
-64-
<PAGE>
Subsequent to year-end through February 23, 1998, substantially all of
Candie's outstanding Class C warrants ("Warrants") were exercised and Candie's
received aggregate proceeds of $7,157,000 from the exercise of such Warrants.
The proceeds were used to repay short-term borrowings. Each Warrant entitled the
holder thereof to purchase one share of Common Stock at an exercise price of
$5.00 on that date, at which time the right to exercise such Warrant terminated.
In addition, subsequent to January 31, 1998 and up to May 1, 1998, Candie's
received proceeds of $1,042,000, in connection with the issuance of Common Stock
relating to the exercise of outstanding stock options and certain underwriters'
warrants.
Candie's believes that it will be able to satisfy its ongoing cash
requirements for the foreseeable future, including requirements for its
expansion, primarily with cash flow from operations, supplemented by borrowings
under its existing replacement credit facility.
Candie's intends to retain its earnings to finance the development,
expansion and growth of its existing business. Accordingly, Candie's does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
The payment of any future dividends will be at the discretion of Candie's Board
of Directors and will depend upon, among other things, future earnings,
operations, capital requirements, the financial condition of Candie's and
general business conditions.
Seasonality
Candie's products are marketed primarily for Fall and Spring seasons, with
slightly higher volumes of products sold during the second and fourth quarters.
Effects of Inflation
Candie's does not believe that the relatively moderate rates of inflation
experienced over the past few years in the United States, where it primarily
competes, have had a significant effect on revenues or profitability.
Year 2000 Issues.
Candie's has assessed the issues associated with its existing computer
system with respect to a two digit year value as the year 2000 approaches and is
in the process of implementing a new computer system which it believes addresses
such issues. Candie's also believes that implementation of this system is not a
material event or uncertainty that would cause expected financial information
not to be indicative of future operating results or financial condition.
Net Operating Loss Carryforwards
-65-
<PAGE>
At January 31, 1998, Candie's had net operating losses of approximately
$5,500,000 for income tax purposes, which expire in the years 2008 through 2010.
Due to the issuance of Candie's Common Stock on February 23, 1993, an "ownership
change," as defined in Section 382 of the Internal Revenue Code, occurred.
Section 382 restricts the use of Candie's net operating loss carryforwards
incurred prior to the ownership change to $275,000 per year. Approximately
$4,600,000 of the operating loss carryforwards are subject to this restriction
and accordingly, no accounting recognition has been given to approximately $1.8
million of such losses since present restrictions preclude their utilization.
After the date of the pre-quasi reorganization the tax benefits of net
operating loss carryforwards incurred prior to the reorganization, has been
treated for financial statement purposes as direct additions to additional
paid-in capital. For Fiscal 1998 and Fiscal 1997, Candie's utilized $149,000 and
$158,000, respectively, of pre-quasi reorganization net operating loss
carryforwards. The related tax benefits of $56,000 and $60,000, at January 31,
1998 and 1997 respectively, have been recognized as increases to additional
paid-in capital. Additionally, as of January 31, 1998 and 1997, Candie's reduced
its valuation allowance for deferred tax assets by $2,392,000 and $1,083,000,
respectively, increasing paid-in capital by $1,045,000 and $200,000 and
benefiting the income tax provision by $1,347,000 and $1,100,000, respectively.
Candie's believes it is more likely than not that the operations will generate
future taxable income to realize such tax assets.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
and No. 131 "Reporting Comprehensive Income" and "Disclosures about Segments of
an Enterprise and Related Information," respectively, both of which are required
to be adopted for fiscal years beginning after December 15, 1997. SFAS No. 130
will require Candie's to report in its financial statements all non-owner
related changes in equity for the periods being reported. SFAS No. 131 will
require Candie's to disclose revenues, earnings and other financial information
pertaining to the business segments by which Candie's is managed, as well as
what factors management used to determine these segments. Candie's is currently
evaluating the effects SFAS No. 130 and No. 131 will have on its financial
statements and related disclosures.
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings Per Share". SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of option, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods presented have been
restated in accordance with the SFAS No. 128 requirements.
MANAGEMENT
----------
-66-
<PAGE>
Directors and Executive Officers of Candie's
Set forth below is a list of the directors, executive officers and key
employees of Candie's and their respective ages and positions are as follows:
Name Age Position
---- --- --------
Neil Cole 40 Chairman of the Board, President and
Chief Executive Officer
Lawrence O'Shaughnessy 48 Executive Vice President, Chief
Operating Officer and Director
David Golden 44 Senior Vice President, Chief Financial
Officer
Gary Klein 43 Vice President of Finance
Barry Emanuel 56 Director
Mark Tucker 50 Director
Neil Cole has been Chairman of the Board, President and Chief Executive
Officer of Candie's since February 23, 1993. From February through April 1992,
Mr. Cole served as director and as acting President of Candie's. Mr. Cole has
also served as Chairman of the Board, President, Treasurer and a director of NRC
since its inception in April 1985.
Lawrence O'Shaughnessy has been a director and Chief Operating Officer of
Candie's since March 1993 and Executive Vice President of Candie's since April
1995. He also served as a director of Candie's from April to June 1992. Mr.
O'Shaughnessy has served as President of O'Shaughnessy & Company, a management
consulting firm, since March 1991.
David Golden has been the Senior Vice President and Chief Financial Officer
of Candie's since March 1, 1998. From April 1994 to February 1998, Mr. Golden
was a principal at DMG Consulting Services, a management consulting firm. From
September 1991 to March 1994, Mr. Golden was Executive Vice President and Chief
Financial and Administrative Officer of Hugo Boss USA, Inc.
Gary Klein has served as Vice President of Finance of Candie's since
October 1994 and has also served in that position from February to December
1993. He also has served as Principal Accounting Officer from December 1993 to
October 1994. Mr. Klein has also served as Chief Financial Officer of NRC since
May 1990.
Barry Emanuel has been a director of Candie's since May 1993. For more than
the past five years, Mr. Emanuel has served as President of Copen Associates,
Inc., a textile manufacturer located in New York, New York.
-67-
<PAGE>
Mark Tucker has been a director of Candie's since May 1996. From August
1993 to the present, Mr. Tucker has been a principal of Mark Tucker, Inc., a
family owned business engaged in the design and import of shoes. Mr. Tucker has
also been a principal of Redwood, a manufacturer and distributor of footwear
since June 1993. From December 1992 to August 1993, he was an independent
consultant to the shoe industry. From July 1992 to December 1992, Mr. Tucker was
employed as Director of Far East Shoe Wholesale Operations for United States
Shoe Far East Limited, a subsidiary of U.S. Shoe Corp. For more than five years
prior to July 1992, Mr. Tucker was a principal of Mocambo Ltd., a family owned
shoe design and import company.
Directors are elected by Candie's stockholders. Officers are elected by
Candie's Board of Directors and serve at the discretion of Candie's Board of
Directors.
In April 1996, Candie's entered into an agreement (the "Redwood Agreement")
with Redwood under which, in consideration for the satisfaction in full of
certain accounts payable to Redwood aggregating $1,680,000, Candie's (i) issued
to Redwood 1,050,000 shares of Candie's Common Stock and an option to purchase
75,000 shares of Candie's Common Stock; (ii) paid $50,000 to Redwood; and (iii)
agreed, for the three year period ending April 3, 1999, to cause Mark Tucker (or
if he is not available, another partner of Redwood designated by it) to be
elected as director of Candie's; and (iv) agreed to register the shares and the
option shares for sale under the Securities Act. Pursuant to the Redwood
Agreement, in May 1996, Mr. Tucker was elected as a director of Candie's and in
October 1996, a registration statement covering the shares and the option shares
was declared effective under the Act. Candie's has also agreed, if so requested
by Redwood to use reasonable efforts to cause the election of Mr. Mark Tucker as
a director and continue Mr. Tucker as such until April 3, 1999. If Mr. Tucker is
not available to serve, Redwood has the right to designate one of its other
partners as a nominee for election as a director. Each of Messrs. Cole and
O'Shaughnessy and NRC have agreed to vote their shares of Candie's Common Stock
to elect and continue Redwood's nominee in office for such three year period.
Compliance with Section 16(a) of Securities Exchange Act of 1934
Section 16(a) of Securities Exchange Act of 1934 requires Candie's officers
and directors, and persons who beneficially own more than 10 percent of a
registered class of Candie's equity securities, to file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC").
Officers, directors and greater than 10 percent owners are required by certain
SEC regulations to furnish Candie's with copies of all Section 16(a) forms they
file.
Based solely on Candie's review of the copies of such forms received by it,
Candie's believes that during Fiscal 1998, filing requirements applicable to its
officers, directors and 10% stockholders of the Common Stock were complied with,
except Mr. Cole and Mr. O'Shaughnessy failed to timely file Form 4 reports with
respect to the cancellation of options to purchase 400,000 and 41,700 shares of
the Common Stock in
-68-
<PAGE>
January 1998 and September 1997, respectively, and the simultaneous grant of
options to purchase 400,000 and 100,000 shares of the Common Stock in January
1998 and September 1997, respectively.
Executive Compensation
The following table sets forth all compensation paid or accrued by Candie's
for the Fiscal 1998, 1997 and 1996, to or for the Chief Executive Officer and
for the other persons that served as executive officers of Candie's during
Fiscal 1998 whose salaries exceeded $100,000 (collectively, the "Named
Executives"):
<TABLE>
<CAPTION>
Summary Compensation Table
--------------------------
Long-Term
Annual Compensation
Compensation Awards
------------------------------------------------------------------------------------------
Securities
Name and Principal Fiscal Other Annual Underlying
Position Year Salary Bonus Compensation(2) Options
------------------ ------ ------ ----- --------------- ----------
<S> <C> <C> <C> <C> <C>
Neil Cole, 1998 $395,833 $308,909(1) $5,000 400,000
Chairman, President 1997 346,000 6,800 2,500 10,000
and Chief Executive 1996 300,000 66,500 410,000
Officer
Lawrence 1998 291,667 92,672(1) 5,000 100,000
O'Shaughnessy, 1997 246,000 2,000 2,500 10,000
Executive Vice 1996 221,500 19,966 210,000
President and Chief
Operating Officer
Gary Klein, 1998 110,000 -0- -0-
Vice President of 1997 102,000 -0- 60,000
Finance 1996 100,000 -0- 18,000
</TABLE>
- ----------------
(1) Represents bonuses accrued under employment agreements.
(2) Represents amounts earned as director's fees.
-69-
<PAGE>
The following table provides information with respect to
individual stock options granted during Fiscal 1998 to each of the Named
Executives:
<TABLE>
<CAPTION>
Option Grants in Fiscal 1998 Year
Individual Grants
--------------------------------------------------
% of Total
Shares Options Potential Realizable Value of
Underlying Granted To Exercise Assumed Annual Rates At
Options Employees in Price Expiration Stock Price Appreciation
Name Granted(#)* Fiscal Year (per share) Date or Option Term
- ---- ----------- ------------ ----------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Neil Cole 400,000 39.9% $ 5.00 1/15/03 $552,563 $1,221,020
Lawrence 100,000 10.0 5.50 9/4/02 151,955 335,781
O'Shaughnessy
Gary Klein -- -- -- -- -- --
</TABLE>
- ----------
* Stock options granted under Candie's 1997 plan; each option became
exercisable on its date of grant and expires five years from that date. The
exercisability of certain options granted to Messrs. Cole and O'Shaughnessy
is restricted upon the occurrence of certain events related to termination
of employment or death of the optionee. In addition, certain options
granted to Mr. Cole are subject to termination prior to their expiration
upon termination of employment for cause.
-70-
<PAGE>
The following table sets forth information as of January 31, 1998 with
respect to exercised and unexercised stock options held by the Named Executives.
No options were exercised by any of the Named Executives during Fiscal 1998.
Aggregated Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options
Options at January 31, 1998 at January 31, 1998*
--------------------------- --------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Neil Cole 1,430,000 -0- 3,454,750 $ -0-
Lawrence 363,300 -0- 973,769 -0-
O'Shaughnessy
Gary Klein 113,000 -0- 335,213 -0-
</TABLE>
- ----------
* An option is "in-the-money" if the year-end market value of Candie's Common
Stock exceeds the exercise price of such option. As of January 31, 1998, the
closing price per share of Candie's Common Stock as reported by NASDAQ was
$4.9375.
Employment Contracts and Termination and Change-in-Control Arrangements
Candie's has entered into an employment agreement with Neil Cole for a term
expiring on February 28, 2000 at an annual base salary of $400,000 for the 12
months ended February 28, 1998, $450,000 for the 12 months ending February 28,
1999 and $500,000 for the 12 months ending February 28, 2000, subject to annual
increases at the discretion of Candie's Board of Directors. Pursuant to the
amended employment agreement, Mr. Cole serves as President and Chief Executive
Officer of Candie's devoting a majority of his business time to Candie's and the
remainder of his business time to other business activities, including those of
NRC which is expected to be merged with and into Candie's. Under the agreement,
Mr. Cole (i) is entitled to receive a portion of an annual bonus pool equal to
5% of Candie's annual pre-tax profits, if any, as determined by Candie's Board
of Directors; and (ii) is entitled to customary benefits, including
participation in management incentive and benefit plans, reimbursement for
automobile expenses, reasonable travel and entertainment expenses and a life
insurance policy in the amount of $1,000,000. Mr. Cole is also entitled to
receive any additional bonuses as the Board of Directors may determine. If Mr.
Cole terminates his employment with Candie's for "good reason" (as defined in
the amended agreement) or Candie's terminates Mr. Cole's employment without
"cause" (as defined in the amended agreement), including by reason of a
"change-in-control" of Candie's (as defined in the employment agreement),
Candie's is obligated to pay Mr. Cole his full salary (at the annual base salary
rate then in effect) through the date of termination plus full base salary for
one year or the balance of the term of the agreement, whichever is greater.
-71-
<PAGE>
Candie's has entered into an amended employment agreement with Mr.
O'Shaughnessy for a term expiring on March 31, 2000 at an annual base salary of
$300,000 for the 12 months ended March 31, 1998 and $350,000 thereafter, subject
to annual increases at the discretion of Candie's Board of Directors. Pursuant
to the agreement, Mr. O'Shaughnessy serves as Executive Vice-President of
Candie's, devoting a majority of his business time to Candie's and the remainder
of his business time to other business activities. Under the amended agreement,
Mr. O'Shaughnessy (i) is entitled to receive an annual bonus equal to 1.5% of
Candie's annual pre-tax profits, if any; and (ii) is entitled to customary
benefits, including participation in management incentive and benefit plans,
reimbursement for automobile expenses, reasonable travel and entertainment
expenses and a life insurance policy in an amount equal to his annual base
salary.
Candie's has entered into an employment agreement, effective March 1, 1998
with David Golden which provides for his employment as Senior Vice
President-Chief Financial Officer at an annual salary of $225,000 for the twelve
months ending March 1, 1999 and $250,000 for the twelve months ending March 1,
2000. Under the agreement, Mr. Golden is entitled to receive an annual bonus
equal to 0.5% of Candie's annual pre-tax profits, if any, and is entitled to
customary benefits including participation in management incentive and benefit
plans, and reimbursement for automobile expenses, and reasonable travel and
entertainment expenses. In addition, Mr. Golden was granted options to purchase
an aggregate of 125,000 shares of Candie's Common Stock at $5.00, which options
vested with respect to one-fifth of the aggregate number on the date of grant
and thereafter will vest with respect to an additional two fifths of the
aggregate number on the first anniversary of the date of grant and an additional
one fifth of the aggregate number upon each anniversary of the date of grant
until March 1, 2001. If Mr. Golden terminates his employment with Candie's for
"good reason" (as defined in the agreement) or Candie's terminates Mr. Golden's
employment without "cause" (as defined in the agreement) Candie's is obligated
to pay Mr. Golden (i) his full salary (at the annual base salary rate then in
effect) through the date of termination and the share of his bonus for such year
pro rated for that year through the date of termination; (ii) any accrued
vacation amounts through the date of termination and (iii) a severance payment
(based upon the annual base salary rate then in effect) for the unexpired
portion of the two year term, but in no event less than six months, and all
unvested options shall be accelerated and shall vest upon the date of
termination. In the event that Mr. Golden terminates his employment with
Candie's by reason of a change of control of Candie's, Mr. Golden shall be
entitled to receive the payments specified in items (i) and (ii) in the
preceding sentence and an amount equal to twelve months of Mr. Golden's base
salary (at the annual base salary rate in effect)
-72-
<PAGE>
and all unvested options shall be accelerated and shall vest upon the date of
termination.
Candie's has entered into an employment agreement with Gary Klein which
provides for his employment as the Vice-President of Finance of Candie's at an
annual salary of $110,000 for a two year period expiring November 15, 1998,
subject to automatic renewal for successive two year periods, unless earlier
terminated by reason of Mr. Klein's death or by Candie's for "cause" (as defined
in the employment agreement). In addition, Candie's provides Mr. Klein with term
life insurance in the amount of $110,000.
Compensation of Directors
Each director received cash compensation of $5,000 for serving on Candie's
Board of Directors during Fiscal 1998. Under Candie's 1989 Stock Option Plan
(the "1989 Plan"), non-employee directors (other than non-employee directors who
are members of any Stock Option Committee that may be appointed by Candie's
Board of Directors to administer the 1989 Plan) are eligible to be granted
non-qualified stock options and limited stock appreciation rights. No stock
appreciation rights have been granted under the 1989 Plan. Under Candie's 1997
Stock Option Plan (the "1997 Plan"), non-employee directors are eligible to be
granted non-qualified stock options.
Candie's Board of Directors or the Stock Option Committee of the 1989 Plan
or the 1997 Plan, if one is appointed, had discretion to determine the number of
shares subject to each nonqualified option (subject to the number of shares
available for grant under the 1989 Plan or the 1997 Plan, as applicable), the
exercise price thereof (provided such price is not less than the par value of
the underlying shares of Candie's Common Stock), the term thereof (but not in
excess of 10 years from the date of grant, subject to earlier termination in
certain circumstances), and the manner in which the option becomes exercisable
(amounts, intervals and other conditions). No non-qualified options were granted
to non-employee directors under the 1989 Plan and 1997 Plan during Fiscal 1998.
Stock Performance Graph
The following line graph compares from February 1, 1993 to January 31,
1998, the cumulative total return among Candie's, companies comprising the
NASDAQ Market Index, and the stock of a Peer Group assuming reinvestment of all
dividends, if any, paid on such securities. Candie's has not paid any cash
dividends and, therefore, the cumulative total return calculation for Candie's
is based solely upon stock price appreciation and not upon reinvestment of cash
dividends. The Peer Group consists of K. Swiss, Inc. Penobscot Shoe Company,
Stride Rite Corporation and Track N' Trail, Inc. which is based upon companies
classified
-73-
<PAGE>
under the Footwear, except Rubber, Standard Industrial Classification number.
Historic stock price is not necessarily indicative of future stock price
performance.
<TABLE>
<CAPTION>
=====================================================================================================================
2/1/93 1/31/94 1/31/95 1/31/96 1/31/97 1/31/98
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Candie's $100.00 $ 67.42 $ 27.58 $ 55.16 $127.18 $121.05
- ---------------------------------------------------------------------------------------------------------------------
Peer Group $100.00 $ 88.09 $ 62.23 $ 65.22 $ 95.73 $ 95.03
Index
- ---------------------------------------------------------------------------------------------------------------------
NASDAQ $100.00 $125.97 $119.05 $166.69 $219.37 $258.34
Market
Index
=====================================================================================================================
</TABLE>
Report on Executive Compensation
During Fiscal 1998, Candie's did not have a compensation committee of its
Board of Directors or other equivalent committee of the Board of Directors
performing equivalent functions. Compensation of Candie's executive officers for
the Fiscal 1998 was determined by the Candie's Board of Directors based upon
recommendation by Neil Cole and Larry O'Shaughnessy. There is no formal
compensation policy of the Candie's executive officers.
During Fiscal 1998, Candie's did not have a stock option committee. Grants
of stock options made under Candie's 1989 and 1997 stock option plans were made
by the Candie's Board of Directors.
Total compensation for executive officers of Candie's consists of a
combination of salaries, bonuses and stock option awards. The base salary of the
executive officers are fixed annually pursuant to the terms of their respective
employment agreements with Candie's. Bonus compensation for Messrs. Cole,
O'Shaughnessy and Golden are also governed by the terms of their respective
employment agreements and are based upon Candie's financial performance. Bonus
compensation for Mr. Klein is based generally upon Candie's financial
performance, the availability of resources and individual performance and level
of responsibility.
Stock option awards are intended to attract, motivate and retain senior
management personnel by offering them an opportunity to receive additional
compensation based upon the performance of the Candie's Common Stock. No stock
options were granted to the executive officers of Candie's during Fiscal 1998,
except for five year options to purchase 400,000 shares of Candie's Common Stock
at $5.00 granted to Neil Cole and five year options to purchase 100,000 shares
of Candie's Common Stock at
-74-
<PAGE>
$5.50 granted to Lawrence O'Shaughnessy under Candie's 1997 Stock Option Plan.
During Fiscal 1998, Candie's earned approximately $4,536,000 on revenues of
approximately $92,976,000, compared to earnings of approximately $1,145,000 on
revenues of approximately $45,005,000 during Fiscal 1997.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of June 19, 1998,
based on information obtained from the persons named below, with respect to the
beneficial ownership of shares of Candie's Common Stock by (i) each person known
by Candie's to be the beneficial owner of more than 5% of the outstanding shares
of Candie's Common Stock; (ii) each of the Named Executives; (iii) each of
Candie's directors; and (iv) all executive officers and directors as a group:
Amount and Nature Percentage
Name and Address of of Beneficial of Beneficial
Beneficial Owner (1) Ownership (2) Ownership
- -------------------- --------------- -------------
Neil Cole 3,497,346(3)(4)(5) 21.3%
New Retail Concepts, Inc. 2,027,696(5) 13.5
2975 Westchester Avenue
Purchase, New York 10577
Redwood Shoe Corp. 825,000(6) 5.8
8F, 137 Hua Mei West Street
SEC.1, Taichung, Taiwan, R.O.C
Mark Tucker 825,000(6) 5.8
Lawrence O'Shaughnessy 417,200(7) 2.9
David Golden 25,000(8) *
Gary Klein 121,025(9) *
Barry Emanuel 30,000(10) *
All executive officers and 4,925,571(3)(4)(5) 29.1
directors as a group (six persons) (6)(7)(8)(9)(10)
- ----------
*Less than 1%.
(1) Unless otherwise indicated, each beneficial owner has an address at 2975
Westchester Avenue, Purchase, New York 10577.
-75-
<PAGE>
(2) A person is deemed to have beneficial ownership of securities that can be
acquired by such person within 60 days of June 19, 1998 upon exercise of
warrants or options. Consequently, each beneficial owner's percentage
ownership is determined by assuming that warrants or options held by such
person (but not those held by any other person) and which are exercisable
within 60 days from June 19, 1998 have been exercised. Unless otherwise
noted, Candie's believes that all persons referred to in the table have
sole voting and investment power with respect to all shares of Common Stock
reflected as beneficially owned by them.
(3) Includes 2,027,696 shares of Candie's Common Stock beneficially owned by
NRC; Neil Cole, the President and Chief Executive Officer of NRC, owns,
beneficially and of record, approximately 44% of NRC's Common Stock. In
addition, as President of NRC, Mr. Cole has or will have the right to vote
the 2,027,696 shares of Common Stock beneficially owned by NRC. Mr. Cole
disclaims beneficial ownership of these shares.
(4) Includes 1,430,000 shares of Candie's Common Stock issuable upon exercise
of immediately exercisable options owned by Neil Cole. Also includes 10,000
shares held by a charitable foundation, of which Mr. Cole and his wife are
co-trustees. Mr. Cole disclaims beneficial ownership of the shares held by
such charitable foundation.
(5) Includes 800,000 shares of Candie's Common Stock issuable upon exercise of
immediately exercisable options and warrants issued to NRC.
(6) Represents 825,000 shares of Candie's Common Stock, which shares were
issued pursuant to an agreement between Candie's and Redwood pertaining to
the settlement of certain indebtedness of Candie's to Redwood. Mr. Tucker
is an affiliate of Redwood.
(7) Includes 363,300 shares of Candie's Common Stock issuable upon exercise of
immediately exercisable options and includes 11,066 shares of Candie's
Common Stock held by Mr. O'Shaughnessy as custodian for the benefit of his
children.
(8) Represents 25,000 shares of Candie's Common Stock issuable upon exercise of
immediately exercisable options.
(9) Includes 113,000 shares of Candie's Common Stock issuable upon exercise of
immediately exercisable options.
(10) Includes 25,000 shares of Candie's Common Stock issuable upon exercise of
immediately exercisable options.
-76-
<PAGE>
Certain Relationships and Related Transactions
In March 1993, Candie's entered into a Services Allocation Agreement with
NRC pursuant to which Candie's provides NRC with certain services for which NRC
pays Candie's an amount equal to the allocable portion of Candie's expenses,
including employees' salaries, associated with such services. Pursuant to such
agreement, NRC paid Candie's $50,000 in each of Fiscal 1996, Fiscal 1997 and
Fiscal 1998.
On February 1, 1995 (the "Closing Date"), Candie's and NRC entered into a
securities purchase agreement (the "Purchase Agreement") pursuant to which NRC
loaned to Candie's an aggregate of $600,000, which loans were repaid to NRC,
together with interest in the amount of approximately $33,500 in Fiscal 1996. In
consideration for such loans, Candie's issued warrants to purchase up to 700,000
shares of Candie's Common Stock ("NRC Warrant Shares") to NRC, which warrants
are currently exercisable at $1.2375 per share of Candie's Common Stock (110% of
the closing bid price of the Candie's Common Stock on the NASDAQ National Market
on January 31, 1995). The shares of Candie's Common Stock underlying such
Warrants were entitled to the benefit of "piggy-back" registration rights
granted by Candie's to NRC. In consideration for NRC's forbearance from
exercising its "piggy-back" registration rights in respect of a registration
statement of Candie's that became effective in September 1996, Candie's has
agreed that, under certain circumstances, when requested to do so by NRC,
Candie's will prepare, file and cause to become effective under Section 5 of the
Securities Act of 1933 (the "Act"), a registration statement covering the
Warrant Shares.
For Fiscal 1998, Redwood, as buying agent for Candie's, initiated the
manufacture of approximately 60% of Candie's total footwear purchases. At June
26, 1998, Candie's had placed approximately $15,000,000 of open purchase
commitments with Redwood.
DESCRIPTION OF CANDIE'S SECURITIES
Common Stock
Candie's is authorized to issue an aggregate of 30,000,000 shares of Common
Stock, $.001 par value, of which as of June 26, 1998, 14,173,364 shares were
outstanding; and 4,798,300 shares are reserved for issuance for current option
holders. The holders of Candie's Common Stock are entitled to one vote for each
share held directly on all matters to be voted on by stockholders. The holders
of Candie's Common Stock are entitled to receive such dividends, if any, as may
be declared from time to time by the Board of Directors. The Candie's Common
Stock has no preemptive or other subscriptive rights and is not subject to any
future calls or assistance. There are no conversion
-77-
<PAGE>
rights or redemption or sinking funds provisions applicable to shares of
Candie's Common Stock. All of the outstanding shares of Candie's, Common Stock
are fully paid and nonassessable.
Preferred Stock
Candie's is authorized to issue 5,000,000 shares of preferred stock, $.01
par value (the "Candie's Preferred Stock"), from time to time in one or more
series upon authorization by the Candie's Board of Directors. The Candie's Board
of Directors, without further approval of the stockholders, is authorized to fix
the dividend rights and terms, conversion rights, voting rights, redemption
rights and terms, liquidation preferences, and other rights, preferences,
privileges and restrictions applicable to each series of Candie's Preferred
Stock.
Dividends
The payment by Candie's of dividends, is at the discretion of its Board of
Directors and will depend upon its earnings, its capital requirements, including
working capital needs and its financial condition, as well as other relevant
factors. Candie's has not paid any dividends since its inception.
Transfer Agent
The transfer agent for the Candie's Common Stock is Continental Stock
Transfer & Trust Company, 2 Broadway, New York 10004.
-78-
<PAGE>
INFORMATION CONCERNING NRC
The following Information Concerning NRC section provides information in
the business of NRC on a stand alone basis and does not describe the business of
NRC if the Merger is consummated.
Current Business
NRC has historically been involved in the manufacture, distribution and
sale of various fashion items and, more recently, in the licensing and
sublicensing of fashion trademarks.
NRC currently maintains license agreements with WalMart, with respect to
the NO EXCUSES(R) trademark, and with Montgomery Ward with respect to the use of
the CRAYONS(R) trademark. A license agreement with Mamiye, was assigned to NES
effective August 1, 1997. The WalMart license agreement, which provided NRC with
$320,000 and $546,000 in royalties during NRC's 1998 and 1997 fiscal years,
respectively, expires on July 31, 2002. Pursuant to its agreement with NES, NRC
is obligated to pay NES 20% of the royalties received from WalMart, subject to a
$40,000 per annum minimum. To date NRC has received $25,000 in royalties
pursuant to the Montgomery Ward license.
In addition, as a result of a number of transactions with Candie's, NRC
owns 1,227,696 shares of the common stock of Candie's and holds warrants to
purchase 700,000 additional shares of such common stock at an initial price of
$1.2375 per share and an option to purchase 100,000 additional shares of such
common stock for $1.15 per share.
Background
Prior to the fiscal year ended March 31, 1994 ("Fiscal 1994"), NRC was
primarily engaged in manufacturing, importing and selling women's and children's
jeans under the NO EXCUSES trademark. Beginning in the fiscal year ended March
31, 1992 ("Fiscal 1992"), and continuing through the fiscal year ended March 31,
1993 ("Fiscal 1992"), NRC underwent significant changes which resulted in a
movement toward the fashion licensing business.
In Fiscal 1992, NRC determined to wind down its manufacturing and importing
operations and increase its licensing activities. Accordingly, during Fiscal
1992, NRC acquired El Greco, Inc., a Delaware corporation ("El Greco"), which
owned the Candie's(R) and CRAYONS(R) trademarks, and through El Greco, licensed
those trademarks. In January 1993 NRC sold its NO EXCUSES(R) trademark to NES
(as described below) but retained certain royalty and sublicensing rights with
respect to the NO EXCUSES(R) trademark (the "NO EXCUSES(R) Transaction"). In
March 1993, El
-79-
<PAGE>
Greco transferred various trademarks, including the Candie's(R) to Candie's (the
"Candie's(R) Transaction"). As part of the consideration for the No Excuses(R)
Transaction and the Candie's(R) Transaction NRC (directly or through El Greco)
received minority equity interests in both acquiring companies. During fiscal
1995 NRC increased its equity investment in Candie's and sold all of its NES
capital stock back to NES.
As a result of the transactions which took place during Fiscal 1992 and
Fiscal 1993, NRC completely ceased its manufacturing and importing activities
and became exclusively engaged in the business of licensing and marketing the NO
EXCUSES(R) and CRAYONS(R) trademarks. During Fiscal 1995, the licensing
arrangement regarding the CRAYONS(R) trademark was terminated and NRC agreed to
terminate three of its six licenses regarding the NO EXCUSES(R) trademark.
During Fiscal 1993, NRC entered into an exclusive license with WalMart (the
"WalMart License"), whereby WalMart was granted the exclusive right, which has
been renewed through July 31, 2002 to import, manufacture, distribute and sell,
throughout North America, men's, women's and children's footwear bearing the NO
EXCUSES(R) trademark. NRC earns a royalty based on a percentage of all NO
EXCUSES(R) footwear purchased for WalMart's stores.
Prior to the consummation of the NO EXCUSES(R) Transaction and the
CANDIE'S(R) Transaction, NRC licensed several unrelated companies to
manufacture, distribute and sell various products under the NO EXCUSES(R),
CANDIE'S(R) and CRAYONS(R) labels. During Fiscal 1994 and Fiscal 1995, the
Company was primarily engaged in the marketing and licensing of its apparel and
footwear brands. During Fiscal 1995, the sole license of NRC with respect to its
CRAYONS(R) brand was terminated.
After giving effect to the termination of three NO EXCUSES(R) license
agreements, NRC maintained, in addition to the WalMart License, two other
license agreements for the NO EXCUSES(R) trademark for certain jeanswear,
sportswear, activewear, sweaters, swimwear and intimate apparel. The other NO
EXCUSES(R) licensees were with (i) Mamiye for certain infant's, toddler's boy's
and girl's jeanswear, sportswear, activewear, sweaters and swimwear and (ii)
Inner Secrets Inc. for women's and girl's intimate apparel. Both agreements were
subsequently assigned or terminated and are no longer currently in effect.
Pursuant to a Settlement Agreement dated as of November 3, 1995 (the
"Settlement Agreement") between NRC and NES, the parties settled certain claims
and rights under the Purchase and Sale Agreement and the Master License
Agreement each dated as of December 31, 1992 (the "Sale Agreements") between NRC
and NES. The Sale Agreements provided for the sale in 1993 of the No
-80-
<PAGE>
Excuses(R) trademark by NRC to NES and the retention by NRC of certain license
and royalty rights. Under the Sale Agreements, NRC had (i) the right to receive
in perpetuity 50% of the income received by NES in connection with certain uses
of the No Excuses(R) Trademark and (ii) the obligation to pay NES 50% of the
royalties received with respect to sales outside the United States plus certain
additional fees under NRC's existing license agreements with, among others,
WalMart and Mamiye.
The rights to the royalty income from these licenses were preserved by NRC
subsequent to the sale of the NO EXCUSES(R) trademark to NES pursuant to a
Master License Agreement (the "Master License Agreement"). Under the terms of
the Master License Agreement, NRC retained sublicensing rights to any category
in which the licensee at the time immediately preceding the trademark sale
remained under agreement to license the NO EXCUSES(R) trademark. Should one of
these licenses be terminated or expire without being renewed, the sublicense
rights with respect to such product category could revert to NES, but NRC could
receive certain royalties, in perpetuity, if any future NES licenses are covered
uses.
Under the Settlement Agreement, (i) NRC sold to NES for $200,000 down plus
$1,000,000 payable over five years (without interest) NRC's right to share in
future royalty income received by NES, (ii) NRC paid NES $200,000 in settlement
of all amounts due with respect to royalties received for the 1994 calendar year
under NRC's license agreements and (iii) the rights under NRC's existing license
agreements with respect to periods after January 1, 1995 were revised to provide
for (A) the payment by NRC of 20% of royalties under the license agreement with
WalMart with respect to sales after July 31, 1997 if the license agreement then
expiring were renewed by WalMart and (B) the payment by NRC of 20% of royalties
under the license agreement with Mamiye for the period ending July 31, 1997 and
the assignment of such license agreement to NES on August 1, 1997.
Employees
NRC has no full-time employees and two part-time employees.
Legal Proceedings
On April 26, 1994, a First Amended Complaint was filed in the United States
District Court for the Central District of California, Los Angeles Division, in
Los Angeles, California, by Eric Y. Knipe ("Knipe"), against Washington Square
Capital ("WSC"), Jack Hart, New Retail Concepts, Inc., and Neil Cole (NRC's
President), claiming that the defendants engaged in activities in violation of
the Racketeer Influenced and Corrupt Organization Act ("RICO"), and related
claims of breach of contract, bad faith denial of contract, fraud, conversion
and conspiracy. NRC is named as a defendant only in the RICO, conversion and
conspiracy causes of action, with respect to NRC's activities as a buyer of
jeans manufactured at Ready Industries of Puerto Rico, Inc., of which Knipe was
a stockholder. Knipe is seeking compensatory damages in excess of $3,000,000,
punitive damages, trebling of all damages, attorneys' fees, and injunctive
relief. On January 16, 1996, the Court dismissed the action against all
defendants for failure to state a cause of action with respect to the RICO
claims and for failure of diversity jurisdiction with respect to all other
claims. In 1996, Knipe and EYK International Inc. ("EYK") filed suit in Los
Angeles Superior Court against the same defendants with substantially the same
claims. In 1997, the presiding judge dismissed EYK as a party to this action. In
1998, the judge dismissed WSC, Northwestern National Life and Mr. Hart as
defendants. Knipe's appeal was denied by the court of appeals and is now pending
in the California Supreme Court. Knipe's deposition and mandatory settlement
conferences are scheduled for late summer 1998. NRC continues to vigorously
defend this action.
Transactions and Relationship with Candie's
See "Merger - Affiliate Transactions Agreement" and "Candie's - Related
Party Transactions."
-81-
<PAGE>
NRC'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of the operating results of NRC
for the periods indicated. The following discussion should be read in
conjunction with the NRC Financial Statements and Notes thereto included
elsewhere in this Joint Proxy Statement/Prospectus.
Results of Operations
Fiscal Years Ended March 31, 1998 and 1997
Revenues. Total revenues for the fiscal year ended March 31, 1998 were
$385,266 compared to $677,842 for fiscal 1997. This decrease is primarily
attributable to the decrease in the royalty percentage on the renewal of the
Walmart License agreement on August 1, 1997 and the assignment of the Mamiye
license agreement to NES at that same date.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for fiscal 1998 increased to $1,386,063 from $645,166
for the same period a year ago. This increase was principally attributable to
the compensation expense recorded during the fourth quarter of fiscal 1998
pursuant to the proposed merger with Candie's which provided for accrued bonuses
of approximately $600,000 and stock based compensation of approximately $84,000.
Interest Expense. There was no interest expense recorded for the year ended
March 31, 1998 as compared to interest expense of $16,856 for the prior year.
The decrease was due to the forgiveness of accrued interest on a note payable.
Net Loss. As a result of the foregoing, NRC incurred a net loss for fiscal
1998 of $513,007 as compared to net income of $333,780 for fiscal 1997. The net
loss is primarily attributable to a decrease in net revenues and increases in
selling, general and administrative expenses.
Fiscal Years Ended March 31, 1997 and 1996
Revenues. Total revenues for the fiscal year ended March 31, 1997 were
$677,842, as compared to $626,134 for the 1996 fiscal year. This increase is
primarily attributable to an increase in the shipments by NRC's footwear
licensee offset in part by the termination of the NRC's license agreement.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $640,351 for the 1996 fiscal year to
$645,166 for the 1997 fiscal year. This increase was attributable primarily to
increases in royalty expenses and professional fees.
-82-
<PAGE>
Interest Expense. Interest expense for the 1997 fiscal year was $16,856, as
compared with $24,974 for the 1996 fiscal year. This decrease is due to a
reduction in the notes payable.
Net Income. Net income for the fiscal year ended March 31, 1997 was
$333,780 or $.05 per share, as compared to $1,161,021 or $.18 per share for the
1996 fiscal year. This decrease is due principally to the sale of future
licensing rights completed during the 1996 fiscal year offset in part by an
increase in equity in the gains of Candie's.
Liquidity and Capital Resources
At March 31, 1998 NRC had a working capital deficit of $311,263 as compared
to working capital of $335,760 at March 31, 1997. This deficit in working
capital arose primarily as a result of an operating loss for the year ended
March 31, 1998.
NRC anticipates that its current cash and the cash flow from the sale of
its licensing rights and from licensing royalties will be sufficient to meet
operating expenses for the next twelve months.
NRC has acquired 67,500 shares of its Common Stock for $77,974 during its
1998 fiscal year in private transactions and on the open market. NRC anticipates
that it may acquire additional shares of its Common Stock as opportunities
arise.
NRC equity interest in Candie's consists of 1,227,696 shares of Candie's
Common Stock, warrants to purchase 700,000 additional shares for $1.2375 per
share and an option to purchase 100,000 additional shares for $1.15 per share.
The quoted market value of 1,227,696 shares of Candie's Common Stock was
$9,054,258 at June 26, 1998, based on the closing price of $7.375 per share.
Impact of Inflation and Changing Prices
NRC does not believe that inflation will have a material adverse effect on
NRC.
Year 2000 Issues
NRC has assessed the issues associated with its existing computer system
with respect to a two digit year value as the year 2000 approaches and is
properly addressing this issue. NRC also believes that the modification of its
system will not have a material adverse effect on its future operating results
or financial condition.
MANAGEMENT
Directors and Officers of NRC
The following table sets forth the name, municipality of residence,
position held with NRC and principal occupation of each of the officers and
directors of NRC.
-83-
<PAGE>
Name Age Position
---- --- --------
Neil Cole 40 Chairman of the Board, President and Chief
Executive Officer and Treasurer
Gary Klein 43 Chief Financial Officer
Barry Emanuel 56 Director
Steven Mendelow 54 Director
Neil Cole has been Chairman of the Board, President and Chief Executive
Officer of NRC since the inception of NRC in 1986. Mr. Cole also serves as
Chairman of the Board, President and Chief Executive Officer of Candie's.
Gary Klein, was Chief Financial Officer of NRC from May 1989 to May 1990
and was reappointed Chief Financial Officer in November 1994. Mr. Klein was Vice
President-Finance of NRC since October 1994 and has also served in that position
from May 1990 through November 1994. Mr. Klein also serves as Vice President-
Finance of Candie's.
Barry Emanuel has been a director of NRC since April 1992. Mr. Emanuel also
serves as a director of Candie's. For more than the past five years, Mr. Emanuel
has served as President of Copen Associates, Inc., a textile manufacturer
located in New York, New York. See "Directors and Officers of Candie's".
Steven Mendelow has been a director of NRC since April 1, 1992. For more
than the past five years, Mr. Mendelow has been a principal with the accounting
firm of Konigsberg Wolf & Co. located in New York, New York. In 1994, Mr.
Mendelow reached a settlement with the SEC pursuant to which he, without
admitting or denying the allegations, agreed to be enjoined from violating
Section 7 of the Investment Company Act of 1940 and Section 5 of the Securities
Act of 1933 and to pay a fine of $50,000.
Directors are elected by the NRC Stockholders. Officers are elected by the
NRC Board of Directors and serve at the discretion of the Board.
Executive Compensation
The following table sets forth all compensation earned for the years ended
March 31, 1998, March 31, 1997 and March 31, 1996, of NRC by the Chief Executive
Officer of NRC who was the only executive officer who received aggregate
compensation during the year ending March 31, 1998 equal to or greater than
$100,000 (collectively, the "Named Executive Officers"):
-84-
<PAGE>
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation(1) Long Term
Compensation
Securities
Name and Under All Other
Principal Fiscal Options Compensation
Position Year Salary Bonus Granted(#) ($)
- -------- ---- ------ ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Neil Cole 1998 $150,000 $650,000(2) 651,543(3) -0-
President and 1997 150,000 143,385 -- -0-
Chief Executive 1996 150,000 184,129 425,000(4) -0-
Officer
</TABLE>
(1) The aggregate amounts of all perquisites and other personal benefits
securities and property not included in the summary compensation table or
described below do not exceed the lesser of $50,000 or 10% of the annual
compensation.
(2) In consideration of foregoing certain future bonus opportunities from NRC
as a result of Mr. Cole's agreement to devote his full-time to Candie's
upon consummation of the Merger, NRC approved the payment to Mr. Cole of a
cash bonus in the amount of $525,000. Mr. Cole also received a $125,000
cash bonus in the 1998 fiscal year.
(3) In March 1998, Mr. Cole was granted options to purchase 626,543 shares of
NRC Common Stock at $1.75 per share which were initially to vest upon
consummation of the Merger; however, on June 2, 1998, the terms of the
options were modified such that these options will vest and become
one-third exercisable in March 1999, March 2000 and March 2001 so long as
Mr. Cole is employed with NRC or any successor thereto at such time. During
the 1998 fiscal year, Mr. Cole also received options to purchase 25,000
shares of NRC Common Stock at $.94 per share as a director's fee.
(4) During NRC's 1996 fiscal year, Mr. Cole was granted an option to purchase
400,000 shares of NRC Common Stock as an inducement to enter into a
two-year extension to his employment agreement with NRC. During NRC's 1996
fiscal year, each of the three directors, including Mr. Cole, was granted
an option to purchase 25,000 shares of NRC Common Stock.
During the NRC fiscal year ended March 31, 1998, NRC granted options to
purchase 626,543 shares of NRC Common Stock to the Named Executive Officers as
described in footnote No. 3 above.
The following table sets forth information as to the unexercised options
held by the Named Executive Officers as of March 31, 1998:
<TABLE>
<CAPTION>
Number of
Shares Value of
Shares Underlying Unexercised
Acquired on Value Unexercised In-the-Money
Name Exercise Received Options Options(1)
- ---- ----------- -------- ----------- ------------
<S> <C> <C> <C> <C>
Neil Cole -- -- 1,101,543(2) $1,896,549(3)
</TABLE>
-85-
<PAGE>
(1) Based on $2.875 per share, an average of the closing bid and asked prices
on March 31, 1998, reported by the OTC Bulletin Board of The Nasdaq Stock
Market, Inc.
(2) Includes 626,543 shares of NRC Common Stock at $1.75 per share, which are
one-third exercisable in March 1999, March 2000 and March 2001 so long as
Mr. Cole is employed with NRC or any successor thereto at such time.
(3) Includes $704,861 of Value of Unexercised In-the-Money Options with respect
to the options described in footnote (2) above.
Compensation of Directors
Directors of NRC receive no cash compensation in their capacity as
directors and received no other compensation during the 1998 fiscal year, other
than 25,000 options to each director.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely on a review of the reports and representations furnished to
NRC during the last NRC fiscal year, NRC believes that each of the persons
required to file reports under Section 16(a) of the Exchange Act is in
compliance with all applicable filing requirements except Mr. Cole and Mr.
Emanuel failed to timely file certain Form 4 reports with respect to a gift of
100,000 shares in December 1996 and a sale of 8,000 shares in October 1997,
respectively.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of June 26, 1998,
except as noted, regarding the beneficial ownership of the common stock by (i)
each person or group known to NRC to be the beneficial owner of more than 5% of
the outstanding NRC Common Stock, (ii) each director of NRC , (iii) each
executive officer of NRC and (iv) all directors and executive officers of NRC as
a group. Except as otherwise specified, the named beneficial owner has sole
voting and investment power over the shares listed.
Amount and Nature of
Name and Address Beneficial Percent of
of Beneficial Owner (1) Ownership (2) Class (3)
----------------------- --------------------- ----------
Neil Cole........................ 2,340,214(4) 37.6%
Steven Mendelow.................. 338,000(5) 5.8
Barry Emanuel.................... 192,000 3.3
Gary Klein....................... 200,000 3.4
All directors and executive 3,070,214(4) 47.6%
officers as a group ............. (5)
-86-
<PAGE>
(1) The address of each beneficial owner is c/o NRC, 2975 Westchester Avenue,
Purchase, New York 10577.
(2) The number of shares set forth includes the following number of shares with
respect to which each individual has the right, exercisable within 60 days,
to acquire beneficial ownership upon exercise of options granted by NRC:
Number of Shares
Mr. Cole................................................. 475,000
Mr. Mendelow............................................. 75,000
Mr. Emanuel.............................................. 25,000
Mr. Klein................................................ 135,000
All directors and executive officers
as a group............................................ 710,000
(3) Based on 5,693,639 shares of NRC Common Stock outstanding on June 26, 1998.
(4) Includes 155,500 shares owned by The Sweet Foundation, Inc., a charitable
foundation controlled by Mr. Cole.
(5) Includes 63,000 shares owned by Westlake Foundation, a charitable
foundation with respect to which shares Mr. Mendelow shares voting and
dispositive power, and 150,000 shares owned by C&P Associates, a limited
partnership controlled by Mr. Mendelow.
Certain Relationships and Related Transactions
Neil Cole, the President, Chief Executive Officer and Chairman of the
Board, and the beneficial owner of 2,340,214 shares of the NRC Common Stock, is
also the President, Chief Executive Officer, and Chairman of the Board and the
beneficial owner of 21.3% of the Candie's Common Stock.
As of March 9, 1998 each of Messrs. Cole, O'Shaughnessy and Klein received
options to purchase 626,543, 74,074 and 49,383 shares respectively, of NRC
Common Stock at $1.75 per share which options were initially contingent upon
consummation of the Merger, however, on June 2, 1998, the terms of the options
were modified such that these options will vest and become exercisable with
respect to 1/3 of such number of options in March 1999, March 2000 and March
2001, respectively, so long as Messrs. Cole, and Klein are employed by, and Mr.
O'Shaughnessy is a consultant to, NRC, or any successor thereto, at such time.
In addition, in consideration of foregoing certain bonus opportunities as a
result of their termination of employment with NRC upon consummation of the
Merger, NRC approved the grant to Mr. Cole, Mr. O'Shaughnessy and Mr. Klein of
cash bonuses in the amount of $525,000, $30,000 and $25,000 respectively.
NRC and Candie's have in effect a Services Allocation Agreement pursuant to
which Candie's provides NRC with certain business services and NRC pays Candie's
an allocable portion of the expenses, including employees' salaries, associated
with such services. Pursuant to such agreement, NRC paid Candie's approximately
$50,000 and $50,000, respectively, for the two NRC
-87-
<PAGE>
fiscal years ended March 31, 1997 and 1996. NRC and Candie's also have in effect
an Amended and Restated Affiliated Transactions Agreement pursuant to which they
have agreed that they will not enter into certain transactions without the
approval of either a majority of the disinterested members of the Board of
Directors of Candie's or a majority of the stockholders of Candie's who are not
affiliates of Candie's. See "Candie's Affiliate Transactions Agreement."
During the NRC 1996 and 1997 fiscal years, NRC extended various loans to
Mr. Cole all of which have been repaid. There were no outstanding loans at
December 31, 1997.
On February 1, 1995, NRC entered into a Securities Purchase Agreement with
Candie's pursuant to which NRC loaned Candie's an aggregate of $600,000,
extended Candie's a $200,000 line of credit and received in partial
consideration therefor a warrant to purchase 700,000 shares of the Candie's
Common Stock for $1.2375 per share. During the NRC 1996 fiscal year, the
$600,000 loan was repaid in full, together with approximately $33,500 in
interest, and the $200,000 line of credit expired in accordance with its terms.
DESCRIPTION OF NRC SECURITIES
Common Stock
NRC is authorized to issue an aggregate of 25,000,000 shares of Common
Stock, $.01 par value, of which as of June 26, 1998, 5,743,639 shares were
outstanding; of which 1,585,000 shares are reserved for issuance. The holders of
NRC Common Stock are entitled to one vote for each share held directly on all
matters to be voted on by stockholders. The holders of NRC Common Stock are
entitled to receive such dividends, if any, as may be declared from time to time
by the NRC Board of Directors. The NRC Common Stock has no preemptive or other
subscriptive rights and is not subject to any future calls or assistance. There
are no conversion rights or redemption or sinking funds provisions applicable to
shares of NRC Common Stock. All of the outstanding shares of NRC Common Stock
are fully paid and nonassessable.
Preferred Stock
NRC is authorized to issue 1,000,000 shares of preferred stock, $.01 par
value, (the "NRC Preferred Stock"), from time to time in one or more series upon
authorization by the NRC's Board of Directors. The NRC Board of Directors,
without
-88-
<PAGE>
further approval of the stockholders, is authorized to fix the dividend rights
and terms, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, and other rights, preferences, privileges and
restrictions applicable to each series of NRC Preferred Stock.
Dividends
The payment by NRC of dividends, is at the discretion of its Board of
Directors and will depend upon its earnings, its capital requirements, including
working capital needs and its financial condition, as well as other relevant
factors. NRC has not paid any dividends since its inception.
Transfer Agent
The transfer agent is American Stock Transfer & Trust Company.
-89-
<PAGE>
MARKET PRICES AND DIVIDEND DATA OF CANDIE'S AND NRC
Candie's Common Stock has been traded in the over-the-counter market and
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") since January 22, 1990 (under the symbol "CAND" since February
23, 1993 and, prior to such time, under the symbol "SHOE"). The Candie's Common
Stock is currently traded on the NASDAQ National Market. The following table
sets forth, for the indicated periods, the high and low sales prices for the
Candie's Common Stock as reported by NASDAQ:
High Low
---- ---
Fiscal Year Ended January 31, 1999
Second Quarter.......................... $7.69 $5.88
First Quarter........................... 8.63 4.75
Fiscal Year Ended January 31, 1998
Fourth Quarter.......................... 7.25 4.63
Third Quarter........................... 7.88 4.13
Second Quarter.......................... 5.69 3.63
First Quarter........................... 6.88 4.25
Fiscal Year Ended January 31, 1997
Fourth Quarter.......................... $5.69 $1.75
Third Quarter........................... 2.75 1.72
Second Quarter.......................... 3.06 1.59
First Quarter........................... 2.75 1.69
As of June 26, 1998, there were approximately 160 holders of record of
Candie's Common Stock. Candie's believes that, in addition, there are in excess
of 1,000 beneficial owners of its Common Stock, which shares are held in "street
name."
The NRC Common Stock has been traded on the over-the-counter market and
quoted in the "pink sheets" or the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. (the "NASD"). The following table sets
forth the high and low bid prices for shares of common stock for the periods
indicated, based on information received from the "Electronic Bulletin Board" of
the NASD. These quotations reflect interdealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
-90-
<PAGE>
Bid Prices
Fiscal Year Ended March 31, 1998 High Low
Fourth Quarter $2.9375 $1.2500
Third Quarter 2.0000 1.2500
Second Quarter 2.3750 .6875
First Quarter 1.5940 1.1250
Fiscal Year Ended March 31, 1997
Fourth Quarter $1.0312 $.1875
Third Quarter .2500 .1250
Second Quarter .2813 .1250
First Quarter .2813 .2813
As of June 26, 1998, there were approximately 850 holders of record of NRC
Common Stock and the closing sale price per share was $2.843.
LEGAL MATTERS
The validity of the shares of Candie's Common Stock offered hereby and
certain tax consequences of the Merger to Candie's have been passed upon for
Candie's by Tenzer Greenblatt LLP, New York, New York.
Certain tax consequences of the Merger to the NRC have been passed upon by
Littman Krooks Roth & Ball P.C.
EXPERTS
The consolidated financial statements of Candie's, Inc. and subsidiaries at
January 31, 1998 and 1997 and for each of the three years in the period ended
January 31, 1998, included in this Joint Proxy Statement/Prospectus, which is
referred to and made a part of this Registration Statement, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.
The financial statements of NRC as of March 31, 1998 and for each of the
two years in the period ended March 31, 1998 included elsewhere in this Joint
proxy Statement/Prospectus have been audited by Grant Thornton LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and
are
-91-
<PAGE>
included in reliance upon such reports given upon the authority of such firm as
experts in accounting and auditing.
-92-
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
------------------------------------------------------------
The following unaudited pro forma condensed combined financial information
is based on the historical consolidated financial statements of Candie's, Inc.
("Candie's") and New Retail Concepts, Inc. ("NRC") included elsewhere herein and
has been prepared to illustrate the effects of the acquisition as though it had
occurred as of the beginning of each period presented for the pro forma
condensed combined statement of income and as if it had occurred on April 30,
1998 for the pro forma condensed combined balance sheet. The unaudited pro forma
condensed combined statements of income for the year and the three month period
each include NRC's three months results of operations for the period ended March
31, 1998.
The pro forma adjustments include, in the opinion of management, all
adjustments necessary to give pro forma effect to the acquisition as though such
transactions had occurred as of the beginning of each period presented for the
pro forma condensed combined statement of income and as if they had occurred on
April 30, 1998 for the pro forma condensed combined balance sheet.
The unaudited pro forma condensed combined financial information is not
necessarily indicative of how Candie's balance sheet and results of operations
would have been presented had this acquisition actually been consummated at the
assumed dates, nor is the presentation necessarily indicative of Candie's
balance sheet and results of operations for any future period. The unaudited pro
forma condensed combined financial information should be read in conjunction
with the historical consolidated financial statements and related notes thereto
included elsewhere herein.
The pro forma adjustments are based upon available information. These
adjustments are directly attributable to the acquisition and are expected to
have a continuing impact on Candie's business, results of operations and
financial position. The acquisition will be accounted for using the purchase
method of accounting, pursuant to which the estimated purchase cost of the
acquisition is allocated to the tangible and intangible assets and liabilities
acquired based upon their estimated fair values. The final allocation of the
purchase price will be based upon the fair values of the acquired assets and the
assumed liabilities.
-93-
<PAGE>
Unaudited Pro Forma Condensed Balance Sheet
as of April 30, 1998 and March 31, 1998
(in thousands)
<TABLE>
<CAPTION>
April 30, 1998 March 31, 1998 Pro Forma Pro Forma
(Candie's) (NRC) Adjustments Candie's and NRC
-------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash $ 19 $ 188 $ 207
Accounts receivable, net 4,998 45 5,043
Note receivable - NES -- 174 174
Inventories 7,595 -- 7,595
Due from factor 13,454 -- 13,454
Deferred income taxes 653 -- 919(A) 1,572
Prepaid advertising and marketing 2,945 -- 2,945
Other current assets 496 13 -- 509
-------- -------- -------- --------
Total current assets 30,160 420 919 31,499
Property and equipment, net 944 -- 944
Other assets:
Investment in Candie's, Inc. -- 1,978 (1,978)(A) --
Note receivable - NES -- 330 330
Deferred income taxes 1,443 -- (545)(A) 898
Intangibles 4,770 1,041 (A) 5,811
Other 722 -- -- 722
-------- -------- -------- --------
Total assets $ 38,039 $ 2,728 $ (563) $ 40,204
======== ======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 3,763 $ 731 $ 570 (D) $ 5,064
-------- -------- -------- --------
Total current liabilities 3,763 731 570 5,064
Long-term liabilities 60 -- 60
Deferred income taxes -- 100 (100)(A) --
Stockholders' equity:
Preferred stock -- -- --
Common stock 14 64 (63)(A) 15
Additional paid-in-capital 31,930 3,604 4,992 (A) 40,526
Retained earnings (deficit) $ 2,272 $ (1,349) $ 1,349 (A) $ 2,272
-------- -------- -------- --------
34,216 2,319 6,278 42,813
Less: treasury stock -- (422) (7,311)(A) (7,733)
-------- -------- -------- --------
Total stockholders' equity 34,216 1,897 (1,033) 35,080
-------- -------- -------- --------
Total liabilities and stockholders' equity $ 38,039 $ 2,728 $ (563) $ 40,204
======== ======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Combined Financial Information.
94
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Income
For the years ended January 31, 1998 and March 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Year
Ended Year Ended Pro Forma
January March Pro Forma Candie's and
31, 1998 31, 1998 Adjustments NRC
(Candie's) (NRC)
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 92,976 $ 385 $ -- $ 93,361
Cost of goods sold 68,799 -- -- 68,799
-------- -------- -------- --------
Gross profit 24,177 385 -- 24,562
Selling, general and administrative
expenses 17,216 1,386 6 (B)(C) 18,608
-------- -------- -------- (E)(F) --------
Operating income (loss) 6,961 (1,001) (6) 5,954
Other expense (income) 1,228 (493) 381(G) 1,116
-------- -------- -------- --------
Income (loss) before income taxes 5,733 (508) (387) 4,838
Provision for income taxes 1,197 5 -- 1,202
-------- -------- -------- --------
Income (loss) from continuing operations $ 4,536 $ (513) $ (387) $ 3,636
======== ======== ======== ========
Income from continuing operations per common share:
Basic $ 0.40 $ (0.09) $ 0.29
======== ======== ========
Diluted $ 0.33 $ (0.09) $ 0.25
======== ======== ========
Weighted average number of common
shares used in calculating income from
continuing operations per common share:
Basic 11,375 5,686 12,453
======== ======== ========
Diluted 13,788 5,686 14,519
======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Combined Financial Information.
-95-
<PAGE>
Unaudited Pro Forma Condensed Combined Statement of Income
For the three months ended April 30, 1998 and March 31, 1998
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Three
Months Months Pro Forma
Ended April Ended March Pro Forma Candie's and
30, 1998 31, 1998 Adjustments NRC
(Candie's) (NRC)
-------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Net revenues $ 25,693 $ 70 $ -- $ 25,763
Cost of goods sold 18,295 -- -- 18,295
-------- -------- -------- --------
Gross profit 7,398 70 -- 7,468
Selling, general and administrative
expenses 5,368 950 (46)(H)(I)(J) 6,272
-------- -------- -------- --------
Operating income (loss) 2,030 (880) 46 1,196
Other expense (income) 274 (197) 105 (G) 182
-------- -------- -------- --------
Income (loss) before income taxes 1,756 (683) (59) 1,014
Provision for income taxes 700 2 -- 702
-------- -------- -------- --------
Income (loss) from continuing operations $ 1,056 $ (685) $ (59) $ 312
======== ======== ======== ========
Income from continuing operations per
common share:
Basic $ 0.08 $ (0.12) $ 0.02
======== ======== ========
Diluted $ 0.07 $ (0.12) $ 0.02
======== ======== ========
Weighted average number of common shares
used in calculating income from
continuing operations per common share:
Basic 13,656 5,694 14,734
======== ======== ========
Diluted 16,015 5,694 16,716
======== ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Combined Financial Information.
-96-
<PAGE>
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in thousands)
(A) Candie's, Inc. ("Candie's") will acquire all of the issued and outstanding
shares of capital stock of New Retail Concepts, Inc. ("NRC") in exchange
for .405 shares of Candie's common stock, par value, $.001 per share for an
aggregate estimated consideration of approximately $13,200 in securities
and cash. The consideration consists of approximately $12,650 in securities
and $550 in transaction costs. This transaction is to be accounted for
under the purchase method of accounting, and has been allocated as follows:
Operating assets acquired $ 750
Common Stock, options and warrants of Candie's acquired 11,814
("owned by NRC")
Deferred taxes 374
Intangible assets acquired - Licenses and trademarks 1,041
Liabilities assumed (751)
(B) Includes adjustment for the elimination of duplicate accounting, legal and
insurance costs incurred by NRC of $45.
(C) Includes amortization of licenses and trademarks acquired of $136. These
intangibles are amortized on a straight-line basis over 5 and 15 years,
respectively.
(D) Includes accrual of estimated transaction costs of $550 and other assumed
liabilities of NRC.
(E) Includes adjustment for $275 as a result of the elimination of compensation
expense to an executive of NRC under existing employment contract.
(F) Includes compensation expense related to the unvested portion of stock
options granted by NRC of $190.
(G) Represents the elimination of equity earnings of Candie's.
(H) Includes adjustment for the elimination of duplicate accounting, legal and
insurance costs incurred by NRC of $11.
(I) Includes amortization of licenses and trademarks acquired of $34. These
intangibles are amortized on a straight-line basis over 5 and 15 years,
respectively.
(J) Includes adjustment of $69 as a result of the elimination of compensation
expense to an executive of NRC under an existing employment contract.
-97-
<PAGE>
INDEX TO FINANCIAL STATEMENTS OF CANDIE'S, INC. AND NRC
CANDIE'S, INC.
Report of Independent Auditors........................................... F-2
Consolidated Balance Sheets at
January 31, 1998 and 1997............................................... F-3
Consolidated Statements of Income for
the Years Ended January 31, 1998, 1997 and 1996......................... F-4
Consolidated Statements of Stockholders'
Equity for the Years Ended
January 31, 1998, 1997 and 1996......................................... F-5
Consolidated Statements of Cash Flows
for the Years Ended
January 31, 1998, 1997 and 1996......................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Condensed Consolidated Balance Sheets
at April 30, 1998 and January 31, 1998.................................. F-18
Condensed Consolidated Statements of
Income for the Three Months Ended
April 30, 1998 and 1997................................................. F-19
Condensed Consolidated Statement of
Stockholders' Equity for the
Three Months Ended April 30, 1998....................................... F-20
Condensed Consolidated Statement of
Cash Flows for the Three Months
Ended April 30, 1998 and 1997........................................... F-21
Notes to Condensed Consolidated
Financial Statements.................................................... F-22
NEW RETAIL CONCEPTS, INC.
Report of Independent Certified Public Accountants....................... F-24
Balance Sheet at March 31, 1998.......................................... F-25
Statements of Operations for the Years
Ended March 31, 1998 and 1997 ......................................... F-27
Statements of Stockholders' Equity
for the Years Ended March 31,
1998 and 1997 .......................................................... F-28
Statements of Cash Flows for the
Years Ended March 31, 1998 and 1997..................................... F-29
Notes to Financial Statements............................................ F-31
F-1
<PAGE>
Report of Independent Auditors
The Stockholders of Candie's, Inc.
We have audited the accompanying consolidated balance sheets of Candie's Inc.
and subsidiaries as of January 31, 1998 and 1997, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended January 31, 1998. 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 consolidated financial position of Candie's, Inc. and
subsidiaries at January 31, 1998 and 1997, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
January 31, 1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
White Plains, New York
April 16, 1998
F-2
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
January 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash ............................................................ $ 367,068 $ 389,517
Accounts receivable, net of allowances of
$27,000 in 1998 and $34,000 in 1997 ........................... 2,804,503 1,328,814
Inventories ..................................................... 16,179,175 5,251,091
Due from factor ................................................. 831,332 --
Deferred income taxes ........................................... 801,400 1,300,000
Prepaid advertising and marketing ............................... 1,820,659 459,120
Other current assets ............................................ 603,523 310,661
------------ ------------
Total current assets .................................................... 23,407,660 9,039,203
------------ ------------
Property and equipment, at cost:
Furniture, fixtures and equipment ............................... 1,809,971 1,104,558
Less: Accumulated depreciation and amortization ..................... 958,716 727,413
------------ ------------
851,255 377,145
------------ ------------
Other assets:
Deferred income taxes ........................................... 1,442,500 --
Intangibles ..................................................... 4,860,469 5,189,481
Other ........................................................... 319,056 103,516
------------ ------------
Total other assets ...................................................... 6,622,025 5,292,997
------------ ------------
Total assets ............................................................ $ 30,880,940 $ 14,709,345
============ ============
Liabilities and stockholders' equity
Current liabilities:
Accounts payable and accrued expenses ............................... $ 5,950,868 $ 3,788,524
Accounts payable-related party ...................................... 188,338 1,624,395
Due to factor ....................................................... -- 580,515
------------ ------------
Total current liabilities ............................................... 6,139,206 5,993,434
Long-term liabilities ................................................... 61,216 108,000
Commitments and Contingencies
Stockholders' equity:
Preferred stock, $.01 par value
--shares authorized 5,000,000;
none issued or outstanding
Common stock, $.001 par value
--shares authorized 30,000,000;
shares issued and outstanding:
12,425,014 in 1998 and
9,633,786 in 1997 ......................................... 12,425 9,634
Additional paid-in capital .......................................... 23,452,545 11,918,655
Retained earnings (deficit)* ............................................ 1,215,548 (3,320,378)
------------ ------------
Total stockholders' equity .............................................. 24,680,518 8,607,911
------------ ------------
Total liabilities and stockholders' equity .............................. $ 30,880,940 $ 14,709,345
============ ============
</TABLE>
* Accumulated since February 28, 1993, deficit eliminated of $27,696,007
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Statements of Income
<TABLE>
<CAPTION>
Year ended January 31,
-------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues ........................................ $ 92,976,416 $ 45,005,416 $ 37,914,127
Cost of goods sold .................................. 68,799,226 35,149,271 27,427,508
------------ ------------ ------------
Gross profit ........................................ 24,177,190 9,856,145 10,486,619
Selling, general and administrative expenses ........ 17,216,712 8,890,173 8,429,143
------------ ------------ ------------
Operating income .................................... 6,960,478 965,972 2,057,476
Other expenses:
Interest expense - net ...................... 1,129,552 755,657 727,210
Other - net ................................. 98,000 75,000 113,000
------------ ------------ ------------
1,227,552 830,657 840,210
------------ ------------ ------------
Income before income taxes .......................... 5,732,926 135,315 1,217,266
Provision (benefit) for income taxes ................ 1,197,000 (1,010,000) 163,310
------------ ------------ ------------
Net income .......................................... $ 4,535,926 $ 1,145,315 $ 1,053,956
============ ============ ============
Earnings per share:
Basic ............................... $ .40 $ .13 $ .12
============ ============ ============
Diluted ............................. $ .33 $ .11 $ .11
============ ============ ============
Weighted average number of common shares outstanding:
Basic ............................... 11,375,374 9,142,598 8,725,888
============ ============ ============
Diluted ............................. 13,788,136 10,151,500 9,426,634
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional Retained
Common Stock Paid-In Earnings
Shares Amount Capital (Deficit) Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1995 ........................ 8,709,465 $ 8,709 $ 9,902,837 $ (5,519,649) $ 4,391,897
Exercise of warrants ............................ 36,273 37 37,464 -- 37,501
Tax benefit from pre-quasi reorganization
carryforward losses ........................... -- -- 103,000 -- 103,000
Net income ...................................... -- -- -- 1,053,956 1,053,956
------------ ------------ ------------ ------------ ------------
Balance at January 31, 1996 ........................ 8,745,738 8,746 10,043,301 (4,465,693) 5,586,354
Purchase and retirement of treasury shares ...... (179,900) (180) (310,638) -- (310,818)
Conversion of trade payables to common
stock, net of expenses ........................ 1,050,000 1,050 1,562,950 -- 1,564,000
Exercise of warrants ............................ 174,009 174 199,935 -- 200,109
Issuance of common stock to benefit plan ........ 22,200 22 49,929 -- 49,951
Shares reserved in settlement of
litigation and never issued ................... (178,261) (178) 178 -- --
Tax benefit from pre-quasi reorganization
carryforward losses ........................... -- -- 260,000 -- 260,000
Stock option compensation ....................... -- -- 113,000 -- 113,000
Net income ...................................... -- -- -- 1,145,315 1,145,315
------------ ------------ ------------ ------------ ------------
Balance at January 31, 1997 ........................ 9,633,786 9,634 11,918,655 (3,320,378) 8,607,911
Exercise of stock options ....................... 647,889 648 1,482,246 -- 1,482,894
Exercise of warrants ............................ 2,152,561 2,152 8,028,005 -- 8,030,157
Retirement of escrow shares ..................... (20,000) (20) 20 -- --
Issuance of common stock to benefit plan ........ 10,778 11 55,901 -- 55,912
Tax benefit from pre-quasi
reorganization carryforward losses ........... -- -- 1,101,500 -- 1,101,500
Stock option compensation ....................... -- -- 36,000 -- 36,000
Tax benefit from exercise of stock options ...... -- -- 830,218 -- 830,218
Net income ...................................... -- -- -- 4,535,926 4,535,926
------------ ------------ ------------ ------------ ------------
Balance at January 31, 1998 ........................ 12,425,014 $ 12,425 $ 23,452,545 $ 1,215,548 $ 24,680,518
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Candie's, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended January 31,
1998 1997 1996
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows (used in) provided by operating activities:
Net income ...................................................................... $ 4,535,926 $ 1,145,315 $ 1,053,956
Items in net income not affecting cash:
Depreciation and amortization ............................................. 604,210 458,740 423,868
Stock option compensation ................................................. 36,000 113,000 --
Deferred income taxes ..................................................... 993,000 (1,100,000) --
Changes in operating assets and liabilities:
Restricted cash ................................................... -- -- 100,000
Accounts receivable ............................................... (1,475,689) (100,002) (644,901)
Inventories ....................................................... (10,928,084) (1,251,145) (730,788)
Prepaid advertising and marketing ................................. (1,361,539) (234,872) (383,714)
Other assets ...................................................... (552,297) (496) 27,380
Accounts payable and accrued expenses ............................. 777,017 2,364,992 (1,323,196)
Due to/from factor ................................................ (1,411,847) (718,581) 137,061
Long-term liabilities ............................................. (46,784) (14,436) (114,359)
Accounts payable trade expected to be
refinanced with common stock .................................... -- -- 1,680,000
----------------------------------------------
Net cash (used in) provided by operating activities ............................. (8,830,087) 662,515 225,307
----------------------------------------------
Cash flows used in investing activities:
Purchases of property and equipment ...................................... (705,413) (301,236) (57,812)
----------------------------------------------
Net cash used in investing activities ........................................... (705,413) (301,236) (57,812)
----------------------------------------------
Cash flows provided by (used in) financing activities:
Purchase and retirement of treasury stock ................................ -- (310,818) --
Proceeds from exercise of stock options and warrants ..................... 9,513,051 134,060 37,501
----------------------------------------------
Net cash provided by (used in) financing activities ............................. 9,513,051 (176,758) 37,501
----------------------------------------------
Net (decrease) increase in cash and cash equivalents ............................ (22,449) 184,521 204,996
Cash and cash equivalents, beginning of year ............................. 389,517 204,996 --
==============================================
Cash and cash equivalents, end of year ................................... $ 367,068 $ 389,517 $ 204,996
==============================================
Supplemental disclosure of cash flow information:
Cash paid during the year:
Interest ................................................................. $ 1,130,981 $ 755,657 $ 727,210
==============================================
Income taxes ............................................................. $ 89,000 $ 28,000 $ 59,000
==============================================
Supplemental disclosures of noncash investing and financing activities:
Common stock issued to a related party .................................. -- $ 1,680,000 --
==============================================
Tax benefit from pre-quasi reorganization
carryforward losses ................................................. $ 1,101,500 $ 260,000 $ 103,000
==============================================
Issuance of common stock to benefit plan ................................ $ 55,912 $ 49,951 --
==============================================
Tax benefit from exercise of stock options .............................. $ 830,218 -- --
==============================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
January 31, 1998
The Company
Candie's, Inc. and its subsidiaries (the "Company") are engaged primarily in the
design, marketing and importation of a variety of moderately-priced women's and
girls' casual and fashion footwear and handbags under the CANDIE'S(R) and
BONGO(R) trademarks for distribution to better department and specialty stores
worldwide. The Company also markets and distributes, under the CANDIE'S(R) and
BONGO(R) trademarks, children's footwear designed by it and also arranges for
the manufacture of women's and men's footwear products, for mass importation by
market and discount retailers, under one of the Company's trademarks or under a
private label brand for retailers.
1. Summary of Significant Accounting Policies
Principles of consolidation
The consolidated financial statements include the accounts of Candie's, Inc. and
its wholly owned subsidiaries, Bright Star Footwear, Inc. ("Bright Star"),
Ponca, Ltd. ("Ponca"), Yulong Co., Ltd. ("Yulong"), Candie's Galleria , Inc.
("Candie's Galleria") and the Company's 60% owned subsidiary Intercontinental
Trading Group, Inc. ("ITG"), (collectively, the "Company"). All significant
intercompany transactions and items have been eliminated in consolidation.
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 amounts reported in these financial statements and accompanying
footnotes. Actual results may differ from those estimates and assumptions.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
Accounts Receivable-Factored
The Company has a factoring agreement with a financial institution whereby it
may assign certain receivables generally without recourse as to credit risk.
Inventories
Inventories, which consist entirely of finished goods, are stated at the lower
of cost or net realizable value. Cost is determined by the first-in, first-out
("FIFO") method.
Property, Equipment and Depreciation
Property and equipment are stated at cost. Depreciation and amortization are
determined by the straight line and accelerated methods over the estimated
useful lives of the respective assets.
F-7
<PAGE>
Impairment of Long-Lived Assets
When circumstances mandate, the Company evaluates the recoverability of its
long-lived assets by comparing estimated future undiscounted cash flows with the
assets' carrying value to determine whether a write-down to market value,based
on discounted cash flow, is necessary.
Intangibles
The Candie's trademark is stated at cost in the amount of $5,276,722, net of
accumulated amortization of $980,572 and $697,350 at January 31, 1998 and 1997,
respectively, as determined by its fair value relative to other assets and
liabilities at February 28, 1993, the date of the quasi reorganization. In
connection with the quasi reorganization, the Company's assets, liabilities and
capital accounts were adjusted to eliminate the stockholders' deficiency. The
trademark is being amortized over twenty years.
Goodwill in the amount of $551,093, represents the excess amount paid over the
fair value of assets acquired related to the acquisition of Bright Star and is
being amortized over fifteen years. Accumulated amortization at January 31, 1998
and 1997 was approximately $282,000 and $245,000, respectively.
In connection with the acquisition of Bright Star in 1991, the Company entered
into noncompete agreements with Bright Star's former Chairman and President
whereby the Company paid $1,225,000 and issued $2,275,000 of notes to such
individuals. At February 23, 1993, in connection with the quasi reorganization,
the Company wrote down this asset by $1,718,000. The agreements are being
amortized over 15 years. Accumulated amortization related to these agreements
was $1,488,000 and $1,448,000 at January 31, 1998 and 1997, respectively.
Amortization expense amounted to $372,907, $363,581 and $359,328 in 1998, 1997
and 1996, respectively.
Revenue Recognition
Revenue is recognized upon shipment with related risk and title passing to the
customers. The Company's sales are principally derived from its U.S. operations.
Export sales accounted for 23%, 30% and 22% of the Company's revenues for the
years ended January 31, 1998, 1997 and 1996, respectively.
Taxes on Income
The Company uses the liability method of accounting for income taxes under
Statement of Financial Accounting Standards ("SFAS ") No. 109 "Accounting for
Income Taxes".
Stock-Based Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees,"
and, accordingly, recognizes no compensation expense for the stock options
granted since the exercise price of the option is the same as the market value
of the Company's common stock. As prescribed under SFAS No. 123, "Accounting for
Stock Based Compensation," the Company has disclosed in Note 4 the pro-forma
effects on net income and earnings per share of recording compensation expense
for the fair value of the options granted.
Derivative Financial Instruments
In 1995, the Company adopted SFAS No. 119. "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments" which requires
various disclosures about financial instruments and related transactions. The
Company's utilization of derivative financial instruments is substantially
limited to the use of forward exchange contracts to hedge foreign currency
transactions. Unrealized gains and losses are deferred and included in the
measurement of the related foreign currency transaction. Gains or losses on
these contracts during Fiscal 1998, 1997 and 1996 were immaterial.
Fair Value of Financial Instruments
The Company's financial instruments approximate fair value at January 31, 1998
and 1997.
F-8
<PAGE>
Foreign Currency
The Company enters into forward exchange contracts to hedge foreign currency
transactions and not to engage in currency speculation. The Company's forward
exchange contracts do not subject the Company to risk from exchange rate
movements because gains and losses on such contracts offset losses and gains,
respectively, on the assets, liabilities or transactions being hedged. The
forward exchange contracts generally require the Company to exchange U.S.
dollars for foreign currencies. If the counterparties to the exchange contracts
do not fulfill their obligations to deliver the contracted currencies, the
Company could be at risk for any currency related fluctuations. The Company
limits exposure to foreign currency fluctuations in most of its purchase
commitments through provisions that require vendor payments in U.S. dollars. As
of January 31, 1998, there were no forward exchange contracts outstanding.
Earnings Per Share
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share" which replaced the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. All earnings per
share amounts for all periods presented have been restated in accordance with
SFAS No. 128 requirements.
Advertising Campaign Costs
The company records national advertising campaign costs as an expense upon the
first showing of the related advertising and other advertising costs when
incurred. Advertising expenses for the years ended January 31, 1998, 1997 and
1996 amounted to $3,461,357, $664,000, and $533,390 respectively.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130 and
No. 131 "Reporting Comprehensive Income" and "Disclosures about Segments of an
Enterprise and Related Information," respectively, both of which are required to
be adopted for fiscal years beginning after December 15, 1997. SFAS No. 130 will
require the Company to report in its financial statements all non-owner related
changes in equity for the periods being reported. SFAS No. 131 will require the
Company to disclose revenues, earnings and other financial information
pertaining to the business segments by which the Company is managed, as well as
what factors management used to determine these segments. The Company is
currently evaluating the effects SFAS No. 130 and No. 131 will have on its
financial statements and related disclosures.
2. Investment in Joint Venture
In September 1991, the Company entered into a joint venture agreement (the "
Carousel Agreement") with Carousel Group, Inc. ("Carousel") to exploit certain
technology relating to the production of footwear soles as well as other
opportunities that may arise utilizing polyurethane technology. Carousel's
rights under the Carousel Agreement were subsequently assigned to Urethane
Technologies, Inc. ("Urethane"). The Company invested $1,000,000 as its capital
contribution for a 50% interest to fund equipment acquisition and working
capital requirements, while Carousel contributed its technical knowledge and
capabilities relating to polyurethane products manufacturing processes. The
investment had been accounted for under the equity method of accounting. The
investment was fully reserved prior to Fiscal 1996 since the Company's recovery
of its investment, if any, was indeterminable. The Company sold its share in the
joint venture to Urethane during Fiscal 1997 and recorded a gain of $16,000.
F-9
<PAGE>
3. Factoring Agreement
On April 2, 1993, the Company entered into an accounts receivable factoring
agreement to sell receivables generally without recourse. The agreement which
under its original terms was to expire on November 30, 1998 (as amended; See
Note 12), provides the Company with the ability to borrow funds from the factor,
limited to 85% of eligible accounts receivable and 50% of eligible finished
goods inventory (to a maximum of $15 million in inventory) in which the factor
has a security interest. The agreement provides for the opening of documentary
letters of credit (up to a maximum of $2.5 million) to suppliers, on behalf of
the Company. The factor reserves an amount equal to 43% of the full amount of
each letter of credit to be opened against the Company's available borrowings.
The total credit facility is limited to the lesser of (i) available borrowings
as determined pursuant to the factor agreement or (ii) $20,000,000. Borrowings
bear interest at the rate of three quarters of one percent (3/4%) over the
existing prime rate (8 1/2% at January 31, 1998) established by the CoreStates
Bank N.A. Factoring commissions on accounts receivable assigned to the factor
are at a rate of .60%. The Company's assets are pledged as collateral. The
unused portion of the credit lines at April 16, 1998 was approximately
$11,500,000. See Note 12.
At January 31, 1998 and 1997, the Company had $680,000 and $648,000,
respectively, of outstanding letters of credit, and approximately $1,820,000 and
$1,852,000, respectively, of available letters of credit.
Due from (to) factor is comprised as follows:
January 31,
-----------------------------
1998 1997
-----------------------------
Accounts receivable assigned .............. $17,415,403 $ 8,179,473
Outstanding advances ...................... 16,584,071 8,759,988
-----------------------------
Due from (to) factor ...................... $ 831,332 $ (580,515)
=============================
Concentration of credit risk is limited due to the large number of customers to
which the Company sells its products and the use of a factor to assign invoices
for sales to its customers. See Note 12. The Company's five largest customers
each accounted for between approximately 5.7% and 8.8% of the Company's net
revenues in 1998 and between 7.1% and 8.6% in 1997.
4. Stockholders' Equity
Warrants
The following schedule represents warrants outstanding at January 31, 1998, 1997
and 1996:
<TABLE>
<CAPTION>
Underwriter's Class (A) Class (B) Class (C) NRC Other
Warrants(1) Warrants(2) Warrants(3) Warrants(3) Warrants(5) Warrants(6)
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Warrants outstanding at January 31, 1995 ....... 1,023,821 54,397 1,475,000 1,475,000 -- 75,000
Warrants issued ................................. -- -- -- -- 700,000 --
Warrants exercised (1) .......................... (32,609) -- -- -- -- --
------------------------------------------------------------------------------
Warrants outstanding at January 31, 1996 ....... 991,212 54,397 1,475,000 1,475,000 700,000 75,000
Warrants exercised (1) .......................... (174,009) -- -- -- --
Adjustment of underwriter's warrants (4) ....... 40,329 -- -- -- -- --
------------------------------------------------------------------------------
Warrants outstanding at January 31, 1997 ....... 857,532 54,397 1,475,000 1,475,000 700,000 75,000
Warrants exercised (1) .......................... (650,461) -- (1,431,100) (21,000) -- (50,000)
Warrants expired or cancelled ................... -- (54,397) (43,900) -- -- (25,000)
------------------------------------------------------------------------------
Warrants outstanding at January 31, 1998 (7) .... 207,071 -- -- 1,454,000 700,000 --
==============================================================================
</TABLE>
(1) Underwriter's warrants consist of 231,325 units at an exercise price of
$3.19 per unit entitling the holder to one share of common stock, one Class
B warrant and one Class C warrant. The shares reserved represent the number
of shares issuable upon the exercise of the underwriter warrants and the
attached Class B and C warrants. During the year ended January 31, 1998,
162,301 units (representing a total of 486,904 shares of common stock) were
exercised aggregating $1,975,510. In connection with the October 1994
private placement, the Company issued additional warrants to purchase
370,175 shares at an exercise price of $1.15 per share, of which 163,557,
174,009 and 32,609 were exercised during the years ended January 31, 1998,
1997 and 1996 respectively.
F-10
<PAGE>
(2) From July 1, through December 31, 1990, the Company made an IPO warrant
exercise solicitation whereby holders of 54,397 of the Company's IPO
warrants who exercised their IPO warrants received new warrants (the "Class
A Warrants"). The Class A warrants expired during July 1997.
(3) In connection with a secondary offering, the Company issued 1,475,000
shares of common stock, 1,475,000 class B redeemable warrants and 1,475,000
class C redeemable warrants to each registered holder. Each Class B warrant
entitled the holder thereof to purchase one share of common stock at a
price of $4.00 and each Class C warrant entitles the holder thereof to
purchase one share of common stock at a price of $5.00. These warrants
expired on February 23, 1998. The Company redeemed 1,431,000 Class B
warrants and upon their exercise realized $5,686,557 net of expenses during
the fiscal year ended January 31, 1998.The remaining 43,900 warrants were
not exercised and were canceled. During the year ended January 31, 1998,
21,000 Class C Warrants were exercised aggregating $105,000.
(4) Pursuant to the warrant agreement, as a result of the issuance of
additional shares and their dilutive effect, the Company's underwriters are
entitled to exercise additional units. The exercise prices of the existing
underwriter warrants have been adjusted.
(5) On February 1, 1995, in consideration of loans extended to the Company, NRC
was granted warrants to acquire up to 700,000 shares of Company common
stock at an exercise price of $1.24 per share. The warrants expire five
years from their date of grant.
(6) The number of shares of stock purchasable upon the exercise of the warrant
is 75,000 of which 50,000 shares were vested and exercisable to date. The
exercise price was $1.50. The vested warrants were exercised during the
year ended January 31, 1998 and the unvested portion expired on November
28, 1997.
(7) See Note 12.
Stock Options
The Company has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25) and related interpretations
in accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under SFAS Statement No. 123,
"Accounting for Stock-Based Compensation," requires use of option valuation
models that were not developed for use in valuing employee stock options. Under
APB 25, because the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Effects of applying SFAS 123 for providing
pro forma disclosures are not likely to be representative of the effects on
reported net income for future years (e.g. the first year reflects expense for
only one year's vesting, while the second year reflects expense for two years'
vesting).
Pro forma information regarding net income and earnings per share is required by
SFAS 123, and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that Statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:
January 31,
------------------------------------------
1998 1997 1996
------------------------------------------
Expected Volatility............... .759-.812 .770-.904 .525-.875
Expected Dividend Yield........... 0% 0% 0%
Expected Life (Term).............. 1-3 years 2-5 years 2-3 years
Risk-Free Interest Rate........... 5.25-6.61% 5.70%-6.25% 5.30%-6.85%
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-11
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the option is
amortized to expense over the option's vesting period. The Company's pro forma
information follows:
January 31,
--------------------------------------
1998 1997 1996
--------------------------------------
Pro forma net income ............... $3,601,763 $ 922,804 $ 698,780
Pro forma earnings per share:
Basic ......................... $ .32 $ .10 $ .08
Diluted ....................... $ .29 $ .10 $ .08
The weighted-average fair value of options granted (at their grant date) during
the years ended January 31, 1998, 1997 and 1996 was $2.20, $.64 and $.37,
respectively.
In 1989, the Company's Board of Directors adopted, and its stockholders
approved, the Company's 1989 Stock Option Plan (the "1989 Plan"). The 1989 Plan,
as amended in 1990, provides for the granting of incentive stock options
("ISO's") and limited stock appreciation rights ("Limited Rights"), covering up
to 222,222 shares of common stock. The 1989 Plan terminates on August 1, 1999.
Under the 1989 Plan, ISO's are to be granted at not less than the market price
of the Company's common stock on the date of the grant. Stock options not
covered by the ISO provisions of the 1989 Plan ("Non-Qualifying Stock Options"
or "NQSO's") may be granted at prices determined by the Board of Directors.
Under the 1989 Plan 126,800, 149,300 and 179,300 of ISO's as of January 31,
1998, 1997 and 1996, respectively, were outstanding.
On September 4, 1997, the Company's shareholders approved the Company's 1997
Stock Option Plan (the "1997 Plan"). The 1997 Plan authorizes the granting of
common stock options to purchase up to 3,500,000 shares of Company common stock.
All employees, directors, independent agents, consultants and attorneys of the
Company, including those of the Company's subsidiaries, are eligible to be
granted NQSO's under the 1997 Plan. ISO's may be granted only to employees of
the Company or any subsidiary of the Company. The 1997 Plan terminates in 2007.
Under the 1997 Plan, as of January 31, 1998, ISO's covering 165,000 shares of
common stock and NQSO's covering 462,000 shares of common stock, were
outstanding.
Additionally, at January 31, 1998, 1997 and 1996, NQSO's covering 3,298,500,
4,066,311 and 2,866,311 shares of common stock, respectively, were outstanding,
which are not part of either the 1989 or 1997 Plans.
The options granted under the 1989 and 1997 Plans expire between five and ten
years from the date of grant or at the termination of either Plan, whichever
comes first.
On January 15, 1998, the Company granted 400,000 NQSO's at an exercise price of
$5.00 per share, to its Chief Executive Officer and simultaneously cancelled
400,000 NQSO's with an exercise price of $5.00 that were to expire February 23,
1998. On March 15, 1995, the Company granted 400,000 NQSO's at an exercise price
of $1.16 per share, to its Chief Executive Officer, in connection with the
renewal of an employment agreement.
On September 4, 1997, the Company granted its Executive Vice President, Chief
Operating Officer 100,000 ISO's at an exercise price of $5.50 per share and
simultaneously cancelled 41,700 NQSO's at an exercise price of $3.00 that were
to expire April 15, 1998. On April 1, 1995, the Company granted 200,000 NQSO's
at an exercise price of $1.16 per share, to its Executive Vice President, Chief
Operating Officer, in connection with an employment agreement.
A summary of the Company's stock option activity, and related information for
the years ended 1998, 1997 and 1996 follows:
Weighted-Average
Shares Exercise Price
--------------------------
Outstanding January 31, 1995 ................. 1,427,667 $3.34
Granted ...................................... 1,710,000 $1.36
Canceled ..................................... (92,056) $2.69
---------
Outstanding January 31, 1996 ................. 3,045,611 $2.25
Granted ...................................... 1,250,000 $2.17
Canceled ..................................... (80,000) $2.63
---------
Outstanding January 31, 1997 ................. 4,215,611 $2.23
Granted ...................................... 1,002,500 $5.48
Canceled ..................................... (517,922) $4.55
Exercised .................................... (647,889) $2.33
---------
Outstanding January 31, 1998 ................. 4,052,300 $2.72
---------
F-12
<PAGE>
At January 31, 1998, 1997 and 1996, exercisable stock options totaled 3,456,967,
3,702,611 and 2,782,611 and had weighted average exercise prices of $2.43, $2.25
and $2.30, respectively.
Options outstanding and exercisable at January 31, 1998 were as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------- ---------------------------
Weighted Weighted Weighted
Range of Number Average Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------------------------------------------------------------------------- ---------------------------
<S> <C> <C> <C> <C> <C>
$1.15-1.50................. 1,188,000 2.0 $1.28 1,188,000 $1.28
$1.51-2.50................. 1,535,000 3.3 $2.04 1,260,000 $2.04
$2.51-3.50................. 316,800 2.0 $2.63 316,800 $2.63
$3.51-5.00................. 605,500 4.7 $4.78 531,500 $4.82
$5.01-12.00................ 407,000 4.5 $6.51 160,667 $5.66
- --------------------------------------------------------------------------------- ------------------------
4,052,300 3.2 $2.72 3,456,967 $2.43
================================================================================= =========================
</TABLE>
At January 31, 1998, common shares reserved for issuance on exercise of stock
options and warrants consisted of:
Stock Options ........................................... 4,052,300
Underwriters' Warrants .................................. 207,071
Class C Warrants ........................................ 1,454,000
NRC Warrants ............................................ 700,000
--------
6,413,371
========
5. Earnings Per Share
The following is a reconciliation of the numerator and denominators of the basic
and diluted EPS computations and other related disclosures required by SFAS No.
128:
<TABLE>
<CAPTION>
January 31,
---------------------------------------
1998 1997 1996
---------------------------------------
<S> <C> <C> <C>
Numerator:
Numerator for basic and diluted earnings per share $ 4,535,926 $ 1,145,315 $ 1,053,956
=======================================
Denominator:
Denominator for basic earnings per share 11,375,374 9,142,598 8,725,888
Effect of dilutive securities 2,412,762 1,008,902 700,746
---------------------------------------
Denominator for diluted earnings per share 13,788,136 10,151,500 9,426,634
=======================================
Basic earnings per share $ .40 $ .13 $ .12
=======================================
Diluted earnings per share $ .33 $ .11 $ .11
=======================================
</TABLE>
Outstanding options and warrants to purchase 231,400, 5,080,300, and 4,712,000
shares of common stock for 1998, 1997 and 1996, respectively, at exercise prices
exceeding the average market price of the common stock were not included in the
computation of diluted earnings per share as the effect would have been
anti-dilutive.
F-13
<PAGE>
The Company has granted 75,000 stock options to a related party, which vest
based upon the achievement of certain targeted criteria. These shares have not
been included in the computation of diluted earnings per share as the targeted
criteria has not been met and the exercise price exceeded the market price and,
therefore, the effect would have been antidilutive.
6. Commitments and Contingencies
The Company is party to certain litigation incurred in the normal course of
business. While any litigation has an element of uncertainty, the Company
believes that the final outcome of any of these matters will not have a material
adverse effect on the Company's financial position or future liquidity.
Effective June 17, 1997, the Company is operating under an exclusive amended
licensing agreement which enables the Company to sell footwear in North America
and certain foreign territories bearing the BONGO trademark. At January 31,
1998, the Company was obligated to pay minimum royalties of $3,780,000 through
January 2002.
7. Related Party Transactions
The Company has a Service Allocation Agreement (the "Agreement") with New Retail
Concepts, Inc. ("NRC"), a significant shareholder of the Company and whose
principal shareholder is the Company's President. Pursuant to the Agreement the
Company provides NRC with business services for which NRC is charged an
allocation of the Company's expenses, including employees' salaries associated
with such services. Pursuant to such Agreement, NRC paid the Company
approximately $50,000 during each of the years ended January 31, 1998, 1997, and
1996, respectively. This Agreement terminates upon consummation of the Merger
referred to in Note 12.
The Company also granted a total of 700,000 warrants to purchase shares of the
Company's Stock (contractually valued at $6,500), at an exercise price of $1.24
per share, to NRC for loans made to the Company during fiscal 1996. As
collateral for such loans, the Company granted to NRC a security interest in all
of the assets of the Company and its subsidiaries, subject to a first lien on
such assets in favor of the Company's factor, as defined. All loans made to the
Company were fully satisfied during fiscal 1996.
On April 3, 1996, the Company entered into an agreement with Redwood (a
principal buying agent of footwear products) to satisfy in full certain trade
payables (the "Payables") amounting to $1,680,000. Under the terms of the Vendor
Agreement, the Company has; (i) issued 1,050,000 shares of the Company's Common
Stock; (ii) issued an option to purchase 75,000 shares of the Company's Common
Stock at an exercise price of $1.75 which was immediately exercisable and has a
five year life; and (iii) made a cash payment of $50,000. The Company purchased
approximately $48 million, $24 million, and $12 million in 1998, 1997, and 1996,
respectively, of footwear products through Redwood. At January 31, 1998, the
Company had approximately $21 million of open purchase commitments with Redwood.
8. Leases
Future net minimum lease payments under noncancelable operating lease agreements
as of January 31, 1998 are as follows:
1999................................... $ 572,000
2000................................... 575,000
2001................................... 322,000
2002................................... 266,000
2003................................... 247,000
Thereafter............................. 452,000
----------
Totals................................. $2,434,000
==========
Rent expense was approximately $337,000, $276,000 and $236,000 for the years
ended January 31, 1998, 1997 and 1996, respectively.
F-14
<PAGE>
9. Benefit and Incentive Compensation Plans and Other
The Company sponsors a 401(k) Savings Plan (the "Savings Plan") which covers all
eligible full-time employees. Participants may elect to make pretax
contributions subject to applicable limits. At its discretion, the Company may
contribute additional amounts to the Savings Plan. The Company made
contributions of $80,000 and $62,000 to the Savings Plan for the years ended
January 31, 1998 and 1997, respectively.
The Company has certain incentive compensation arrangements with each of its
Chief Executive Officer and its Chief Operating Officer pursuant to their
employment agreements. The incentive compensation aggregates 6.5% of pre-tax
earnings, as defined.
Included in accounts payable and accrued expenses are trade payables of
$3,097,815 in 1998 and $3,049,067 in 1997, accrued chargebacks of $1,282,000 in
1998 and $350,000 in 1997, and $372,000 of accrued bonuses and $728,000 of
accrued royalties in 1998.
10. Income Taxes
At January 31, 1998, the Company has net operating losses of approximately
$5,500,000 for income tax purposes, which expire in the years 2008 through 2010.
Due to the issuance of common stock on February 23, 1993, an "ownership change,"
as defined in Section 382 of the Internal Revenue Code, occurred. Section 382
restricts the use of the Company's net operating loss carryforwards incurred
prior to the ownership change to $275,000 per year. Approximately $4,600,000 of
the operating loss carryforwards are subject to this restriction and,
accordingly, no accounting recognition has been given to approximately $1.8
million of such losses since present restrictions preclude their utilization.
After the date of the pre quasi reorganization the tax benefits of net operating
loss carryforwards incurred prior to the reorganization, have been treated for
financial statement purposes as direct additions to additional paid-in capital.
For the years ended January 31, 1998 and 1997, the Company utilized $149,000 and
$158,000, respectively, of pre-quasi reorganization net operating loss
carryforwards. The related tax benefits of $56,500 and $60,000, at January 31,
1998 and 1997 respectively, have been recognized as increases to additional
paid-in capital. Additionally, as of January 31, 1998 and 1997, the Company
reduced its valuation allowance for deferred tax assets by $2,392,000 and
$1,083,000, respectively, increasing paid-in capital by $1,045,000 and $200,000
and benefiting the income tax provision by $1,347,000 and $1,100,000,
respectively. The Company believes it is more than likely than not that the
operations will generate sufficient taxable income to realize such assets.
The income tax provision (benefit) for Federal and state income taxes in the
consolidated statements of income consists of the following:
January 31,
--------------------------------------------
1998 1997 1996
--------------------------------------------
Current:
Federal ....................... $ 103,000 $ -- $ 33,000
State ......................... 101,000 30,000 27,310
--------------------------------------------
Total current ................. 204,000 30,000 60,310
--------------------------------------------
Deferred:
Federal ....................... 738,000 (876,000) --
State ......................... 255,000 (164,000) 103,000
--------------------------------------------
Total deferred ................ 993,000 (1,040,000) 103,000
--------------------------------------------
Total provision (benefit) ..... $ 1,197,000 $(1,010,000) $ 163,310
============================================
F-15
<PAGE>
The following summary reconciles income tax provision at the Federal statutory
rate with the actual provision (benefit):
<TABLE>
<CAPTION>
January 31,
-----------------------------------------
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Income taxes at statutory rate ..................... $ 1,949,000 $ 46,000 $ 412,000
Non-deductible amortization ........................ 122,000 97,000 --
Utilization of net operating losses ................ -- (60,000) (300,000)
Change in valuation allowance of deferred tax assets (1,347,000) (1,100,000) --
Alternative minimum taxes .......................... -- -- 33,000
State provision, net of federal income tax benefit . 235,000 20,000 18,310
Adjustment for estimate of prior year taxes ........ 216,000
Other .............................................. 22,000 (13,000) --
-----------------------------------------
Total income tax provision (benefit) ............... $ 1,197,000 $(1,010,000) $ 163,310
=========================================
</TABLE>
The significant components of net deferred tax assets of the Company consist of
the following:
<TABLE>
<CAPTION>
January 31,
-----------------------------------------
1998 1997 1996
-----------------------------------------
<S> <C> <C> <C>
Accrued bonus....................................... $ 169,200 $ -- $ --
Compensation expense................................ 56,600 42,900 --
Alternative minimum taxes........................... 102,500 -- --
Inventory valuation................................. 411,900 118,000 226,000
Net operating loss carryforwards.................... 1,409,000 3,437,000 3,100,000
Other-net........................................... 94,700 94,100 149,000
-----------------------------------------
Total net deferred tax assets....................... 2,243,900 3,692,000 3,475,000
Valuation allowance................................. -- (2,392,000) (3,475,000)
-----------------------------------------
Total deferred tax assets........................... $ 2,243,900 $ 1,300,000 $ --
=========================================
</TABLE>
11. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Fiscal 1998:
Net revenues $16,861,264 $29,725,989 $23,780,001 $22,609,162
Gross profit 5,087,136 6,638,038 6,107,371 6,344,645
Operating income 1,671,374 2,373,451 1,618,747 1,296,965
Net income 823,338 2,194,940(b) 808,504 709,144(a)
Diluted earnings per share .06 .17 .06 .05
Weighted average number of common shares
Outstanding - diluted 12,730,331 13,150,181 14,453,665 14,690,992
</TABLE>
(a) Includes tax benefit of $447,000 resulting from a change in the
valuation allowance for net deferred tax assets.
(b) Includes tax benefit of $900,000 resulting from a change in the
valuation allowance for net deferred tax assets.
The first three quarters of fiscal 1998 have been restated to comply with the
requirements of SFAS 128.
F-16
<PAGE>
12. Subsequent Events
Subsequent to year-end through February 23, 1998, substantially all of the
Company's outstanding Class C warrants ("Warrants") were exercised and the
Company received aggregate proceeds of $7,157,025 from the exercise of such
warrants. The proceeds were used to repay short-term borrowings. Each Warrant
entitled the holder thereof to purchase one share of Common Stock at an exercise
price of $5.00 on that date, at which time the right to exercise such Warrant
terminated. In addition, subsequent to January 31, 1998, the Company received
proceeds of $1,041,867, in connection with the issuance of common stock relating
to the exercise of outstanding stock options and certain underwriter's warrants.
The Company is currently negotiating a new revolving credit and factoring
arrangement with prospective lenders. The Company anticipates that the
replacement credit facility will be in place shortly with terms and conditions
that will be more favorable than its current financial arrangement with its
factor. Accordingly, the Company has notified its factor of its intention to
terminate its factoring agreement and is currently operating on a month to month
basis. The Company has reserved its right to terminate the agreement at will, if
necessary, without any penalties or fee upon termination.
The Company and NRC have executed a Merger Agreement dated April 6, 1998, (the
"Merger Agreement") which provides that NRC will be merged with and into the
Company (the "Merger"), and the Company will be the surviving corporation. At
the effective date of the Merger (the "Effective Date"), each issued and
outstanding share of NRC common stock $.01 par value (the "NRC Common Stock"),
and each issued and outstanding option to purchase shares of NRC Common Stock
immediately prior to the Effective Date will be converted, respectively, into
0.405 shares of common stock and options of the Company (the "Common Stock").
The completion of the Merger is subject to a number of conditions, including
among other things, the approval of the stockholders of both the Company and NRC
and the registration of the Common Stock to be issued to the holders of NRC
pursuant to the Merger under the Securities Act of 1933, as amended. No
assurance can be given that the Company and NRC will be able to successfully
obtain the requisite stockholder approval or that the Company will otherwise be
able to consummate the Merger.
At April 6, 1998 there were 5,693,639 shares of NRC Common Stock issued and
outstanding and options to purchase 1,635,000 shares of NRC Common Stock. NRC
currently owns 1,227,696 shares of Common Stock and has options and warrants to
purchase an additional 800,000 shares of Common Stock of the Company, all of
which will be extinguished upon consummation of the Merger.
F-17
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30, January 31,
1998 1998
----------- -----------
(Unaudited) (Note)
(000's omitted, except share data)
<S> <C> <C>
Assets
Current Assets
Cash ............................................... $ 19 $ 367
Accounts receivable, net ........................... 4,998 2,805
Inventories ........................................ 7,595 16,179
Due from factor .................................... 13,454 831
Deferred income taxes .............................. 653 801
Prepaid advertising and marketing .................. 2,945 1,821
Other current assets ............................... 496 604
------- -------
Total Current Assets ..................................... 30,160 23,408
Property and equipment, at cost:
Furniture, fixtures and equipment .................. 2,000 1,810
Less: Accumulated depreciation and amortization .... 1,056 959
------- -------
944 851
Other assets:
Deferred income taxes .............................. 1,443 1,443
Intangibles ........................................ 4,770 4,860
Other .............................................. 722 319
------- -------
6,935 6,622
------- -------
Total Assets ............................................. $38,039 $30,881
======= =======
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses .............. $ 3,763 $ 6,139
------- -------
Total Current Liabilities ................................ 3,763 6,139
Long-term liabilities .................................... 60 61
Stockholders' Equity
Preferred stock, $.01 par value
--authorized 5,000,000 shares;
none issued and outstanding
Common stock, $.001 par value
--authorized 30,000,000 shares;
issued and outstanding:
14,170,364 and 12,425,014 shares ....... 14 12
Additional paid-in capital ............................... 31,930 23,453
Retained earnings* ....................................... 2,272 1,216
------- -------
34,216 24,681
------- -------
Total Liabilities and Stockholders' Equity ............... $38,039 $30,881
======= =======
</TABLE>
* Accumulated since February 28, 1993, deficit eliminated of $27,696
Note: The balance sheet at January 31, 1998 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
F-18
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
---------------------
April 30, April 30,
1998 1997
--------- ---------
(000's omitted, except per share data)
<S> <C> <C>
Net revenues ............................................. $25,693 $16,861
Cost of goods sold ....................................... 18,295 11,774
------- -------
Gross profit ............................................. 7,398 5,087
Selling, general and administrative expenses ............. 5,368 3,416
------- -------
Operating income ......................................... 2,030 1,671
Other expenses:
Interest expense - net ................... 274 275
Other - net .............................. -- 68
------- -------
274 343
------- -------
Income before income taxes ............................... 1,756 1,328
Income taxes ............................................. 700 505
------- -------
Net income ............................................... $ 1,056 $ 823
======= =======
Earnings per common share:
Basic ................................ $ .08 $ .08
======= =======
Diluted .............................. $ .07 $ .06
======= =======
Weighted average number of common shares outstanding:
Basic ................................ 13,656 9,975
======= =======
Diluted .............................. 16,015 12,730
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-19
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Three Months Ended April 30, 1998
(000's omitted)
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Retained
Shares Amount Capital Earnings Total
-------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at January 31, 1998 .................................. 12,425 $ 12 $23,453 $ 1,216 $24,681
Exercise of stock options and warrants .................... 1,729 2 8,197 -- 8,199
Issuance of common stock to retirement plan .............. 16 -- 78 -- 78
Tax benefit from exercise of stock options ............... -- -- 202 -- 202
Net income ................................................ -- -- -- 1,056 1,056
------- ------- ------- ------- -------
Balance at April 30, 1998 .................................... 14,170 $ 14 $31,930 $ 2,272 $34,216
======= ======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
F-20
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
April 30, April 30,
1998 1997
------------------------------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................................. $ 1,056 $ 823
Items in net income not affecting cash:
Depreciation and amortization .................................................... 193 129
Changes in operating assets and liabilities:
Accounts receivable ......................................................... (2,193) (83)
Inventories ................................................................. 8,584 (622)
Prepaid advertising and marketing ........................................... (1,016) (390)
Other assets ................................................................ (59) (4)
Accounts payable and accrued expenses ....................................... (2,376) 2,217
Due to/from factor .......................................................... (12,623) (3,545)
Long-term liabilities ....................................................... (1) (3)
------------------------------
Net cash used in operating activities .................................................. (8,435) (1,478)
------------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment .............................................. (190) (3)
------------------------------
Net cash used in investing activities .................................................. (190) (3)
------------------------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants ............................. 8,277 1,289
------------------------------
Net cash provided by financing activities .............................................. 8,277 1,289
------------------------------
DECREASE IN CASH ....................................................................... (348) (192)
Cash at beginning of period ............................................................ 367 389
------------------------------
Cash at end of period .................................................................. $ 19 $ 197
==============================
</TABLE>
See notes to condensed consolidated financial statements.
F-21
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
April 30, 1998
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended January 31, 1998.
Operating results for the three month period ended April 30, 1998 are not
necessarily indicative of the results that may be expected for a full fiscal
year.
NOTE B -- PROPOSED MERGER
The Company began to license the use of the CANDIE'S(R) trademark from New
Retail Concepts, Inc. ("NRC") in June 1991 and in March 1993 purchased ownership
of the CANDIE'S(R) trademark from NRC together with certain pre-existing
licenses of NRC. NRC is a publicly traded company engaged primarily in the
licensing and sublicensing of fashion trademarks and a significant shareholder
of the Company. NRC's principal shareholder is also the Company's President and
Chief Executive Officer.
The Company and NRC have executed a Merger Agreement dated April 6, 1998, (the
"Merger Agreement") which provides that NRC will be merged with and into the
Company (the "Merger"), and the Company will be the surviving corporation. At
the effective date of the Merger (the "Effective Date"), each issued and
outstanding share of NRC common stock $.01 par value (the "NRC Common Stock"),
and each issued and outstanding option to purchase shares of NRC Common Stock
immediately prior to the Effective Date will be converted, respectively, into
0.405 shares of common stock, $.001 par value of the Company (the "Common
Stock"), and options to purchase 0.405 shares of Common Stock respectively.
The completion of the Merger is subject to a number of conditions, including
among other things, the approval of the stockholders of both the Company and NRC
and the registration of the Common Stock to be issued to the holders of NRC
pursuant to the Merger under the Securities Act of 1933, as amended. No
assurance can be given that the Company and NRC will be able to successfully
obtain the requisite stockholder approval or that the Company will otherwise be
able to consummate the Merger.
At April 6, 1998, there were 5,693,639 shares of NRC Common Stock issued and
outstanding and options to purchase 1,635,000 shares of NRC Common Stock
outstanding. NRC currently owns 1,227,696 shares of Common Stock and has options
and warrants to purchase an additional 800,000 shares of Common Stock, all of
which will be extinguished upon consummation of the Merger.
F-22
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) - Continued
NOTE C -- EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share" SFAS No. 128 replaced the calculation of primary and fully diluted
earnings per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes any dilutive effects of
option, warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. Earnings
per share amounts and weighted average shares for April 1997 have been restated
in accordance with the SFAS No. 128 requirements.
The following is a reconciliation of the numerator and denominators of the basic
and diluted EPS computations and other related disclosures required by SFAS No.
128:
April 30,
-------------------
1998 1997
-------------------
(000's omitted)
Numerator:
Numerator for basic and diluted earnings per share ..... $ 1,056 $ 823
===================
Denominator:
Denominator for basic earnings per share ............... 13,656 9,975
Effect of dilutive securities .......................... 2,359 2,755
-------------------
Denominator for diluted earnings per share ............. 16,015 12,730
===================
Basic earnings per share ............................... $ .08 $ .08
===================
Diluted earnings per share ............................. $ .07 $ .06
===================
Outstanding options in 1998 and outstanding options of warrants in 1997 to
purchase 80,000 and 277,000 shares of common stock, respectively, at exercise
prices exceeding the average market price of the common stock were not included
in the computation of diluted earnings per share as the effect would have been
anti-dilutive.
NOTE D -- SUBSEQUENT EVENT -FINANCING AGREEMENTS
On May 27, 1998, the Company entered into a three year $35 million revolving
credit facility (the "Facility"). Under certain conditions, including the
addition of a second lender, the Facility may increase to a maximum of $50
million. Borrowings under the Facility currently bear interest at 1.75% below
the prime rate (8 1/2% at May 27, 1998) and also the Company has the option to
borrow at either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These
rates are fixed and subject to an increase or decrease based on certain
conditions beginning in November 1998. The Company will pay a commitment fee of
1/4% on the unused portion of the Facility.
Borrowings under the Facility are formula based and available up to the maximum
amount of the Facility. The facility also contains certain financial covenants
including, minimum tangible net worth, certain specified ratios and other
limitations as defined. The Company has granted the lender a security interest
in substantially all of its assets.
Simultaneously with the above, the Company entered into a new factoring
agreement whereby the Company has the option to sell any or all of its accounts
receivable to the lender, principally without recourse, subject to maximum
credit limits established by the lender for individual accounts. Receivables not
sold to the lender or in excess of such maximum credit limits are subject to
recourse.
F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
New Retail Concepts, Inc.
We have audited the accompanying balance sheet of New Retail Concepts, Inc. as
of March 31, 1998 and the related statements of operations, stockholders' equity
and cash flows for each of the two years in the period ended March 31, 1998.
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 did not audit the financial statements of CANDIE'S, Inc. for
the year ended January 31, 1998, in which the Company has an investment which is
accounted for under the equity method of accounting. The investment in CANDIE'S,
Inc. represents 72% of the total assets of the Company as of March 31, 1998, and
the equity in its earnings represents 43% and 15% of total revenues in 1998 and
1997, respectively. These statements were audited by other auditors whose report
thereon has been furnished to us and our opinion expressed herein, insofar as it
relates to such amounts included for CANDIE'S, Inc., is based solely upon the
report of other auditors.
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 and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of New Retail Concepts, Inc. as of March 31, 1998 and the
results of its operations and its cash flows for each of the two years in the
period ended March 31, 1998 in conformity with generally accepted accounting
principles.
GRANT THORNTON LLP
New York, New York
May 22, 1998 (except for Notes A
and G, as to which the date is
June 2, 1998)
F-24
<PAGE>
New Retail Concepts, Inc.
BALANCE SHEET
March 31, 1998
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 187,827
Accounts receivable 44,755
Note receivable - NES 174,336
Other current assets 13,277
-----------
Total current assets 420,195
FIXED ASSETS - AT COST
Furniture and equipment 101,657
Less accumulated depreciation (101,657)
-----------
INVESTMENT IN CANDIE'S, INC 1,977,691
NOTES RECEIVABLE - NES 330,456
-----------
2,308,147
-----------
$ 2,728,342
===========
The accompanying notes are an integral part of this statement.
F-25
<PAGE>
New Retail Concepts, Inc.
BALANCE SHEET
March 31, 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 10,000
Accrued bonuses 600,000
Accrued professional fees 100,000
Accrued expenses and other current liabilities 21,458
-----------
Total current liabilities 731,458
DEFERRED INCOME TAXES 100,000
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock - par value $.01; authorized,
1,000,000 shares, no shares issued
Common stock - par value $.01, authorized,
25,000,000 shares; issued 6,423,498 shares 64,235
Additional paid-in capital 3,603,766
Accumulated deficit (1,349,145)
-----------
2,318,856
Less
Common stock in treasury at cost;
729,854 shares 421,972
-----------
1,896,884
-----------
$ 2,728,342
===========
The accompanying notes are an integral part of this statement.
F-26
<PAGE>
New Retail Concepts, Inc.
STATEMENTS OF OPERATIONS
Year ended March 31,
1998 1997
----------- -----------
License and marketing fees $ 385,266 $ 677,842
----------- -----------
Costs and expenses
Selling, general and administrative 1,386,063 645,166
Interest expense 16,856
----------- -----------
1,386,063 662,022
----------- -----------
Operating (loss) income (1,000,797) 15,820
----------- -----------
Other income
Equity in earnings of affiliate 380,609 146,008
Interest income 42,180 60,849
Gain on sale of securities 18,366 40,410
Other, net 52,064 75,795
----------- -----------
493,219 323,062
----------- -----------
(Loss) income before provision for
income taxes (507,578) 338,882
Provision for income taxes 5,429 5,102
----------- -----------
NET (LOSS) INCOME $ (513,007) $ 333,780
=========== ===========
Net (loss) income per share of common stock
Basic $ (.09) $ .06
=========== ===========
Diluted $ (.09) $ .05
=========== ===========
Weighted average number of shares outstanding
Basic 5,686,235 5,768,860
=========== ===========
Diluted 5,686,235 6,183,489
=========== ===========
The accompanying notes are an integral part of these statements.
F-27
<PAGE>
New Retail Concepts, Inc.
STATEMENT OF STOCKHOLDERS' EQUITY
Years ended March 31, 1998 and 1997
<TABLE>
<CAPTION>
Common stock Additional Treasury stock
------------------------- paid-in Accumulated ------------------------
Shares Amount capital deficit Shares Amount Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1996 6,603,498 $66,035 $3,561,734 $(1,169,918) 736,454 $(354,509) $2,103,342
Purchase of treasury stock 205,900 (99,489) (99,489)
Cancellation of treasury stock (280,000) (2,800) (107,200) (280,000) 110,000
Net income 333,780 333,780
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1997 6,323,498 63,235 3,454,534 (836,138) 662,354 (343,998) 2,337,633
Purchase of treasury stock 67,500 (77,974) (77,974)
Exercise of stock options 100,000 1,000 14,000 15,000
Stock-based compensation 84,491 84,491
Stock options issued to 50,741 50,741
consultants
Net loss (513,007) (513,007)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 1998 6,423,498 $64,235 $3,603,766 $(1,349,145) 729,854 $(421,972) $1,896,884
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-28
<PAGE>
New Retail Concepts, Inc.
STATEMENTS OF CASH FLOWS
March 31,
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $(513,007) $ 333,780
--------- ---------
Adjustments to reconcile net (loss) income to net cash
(used in) provided by operating activities
Stock-based compensation 84,491
Stock options issued to consultants 50,741
Equity in income of affiliate (380,609) (146,008)
Changes in operating assets and liabilities
(Increase) decrease
Accounts receivable 67,271 (28,133)
Other current assets (3,919) 31,795
Other assets 3,000
Increase (decrease)
Accounts payable 508 (75,508)
Accrued expenses and other current liabilities 608,842 27,977
Income taxes payable 815 5,117
--------- ---------
428,140 (181,760)
--------- ---------
Net cash (used in) provided by operating activities (84,867) 152,020
--------- ---------
Cash flows from investing activities
Decrease in loan receivable - officer 10,102 107,607
Payments received on note receivable 164,532 155,280
--------- ---------
Net cash provided by investing activities 174,634 262,887
--------- ---------
Cash flows from financing activities
Repayment of note payable (300,000) (100,000)
Purchase of treasury stock (77,974) (99,489)
Exercise of stock options 15,000
--------- ---------
Net cash used in financing activities (362,974) (199,489)
--------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (273,207) 215,418
Cash and cash equivalents at beginning of year 461,034 245,616
--------- ---------
Cash and cash equivalents at end of year $ 187,827 $ 461,034
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Income taxes $ 11,000 $ 2,220
</TABLE>
The accompanying notes are an integral part of these statements.
F-29
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS
March 31, 1998 and 1997
NOTE A - ORGANIZATION AND SUMMARY OF ACCOUNTING POLICIES
New Retail Concepts, Inc. ("NRC" or the "Company") has historically been
involved in the manufacture, distribution and sale of various fashion items
and, more recently, in licensing and sublicensing of fashion trademarks.
License and marketing fees relate to two license agreements calling for the
payment of royalties to the Company for use of the No Excuses trademark.
On April 6, 1998, the Company and CANDIE'S, Inc. ("CANDIE'S") entered into
an Agreement and Plan of Merger, which was amended on May 14, 1998 and June
2, 1998 (the "Merger Agreement"). If the Merger Agreement is approved and
the merger becomes effective, the Company will merge with and into
CANDIE'S, and CANDIE'S will be the surviving corporation (the "Merger").
Subject to the terms and conditions of the Merger Agreement, at the
effective time, each share of the Company's common stock, par value $.01
per share (the "Common Stock") will be converted into 0.405 shares of
CANDIE'S common stock. In addition, each outstanding stock option of the
Company which currently entitles the holder to purchase one share of Common
Stock, as of the effective time of the Merger will be converted into a
stock option to purchase 0.405 shares of CANDIE'S common stock.
The Company has no full-time employees and two part-time employees who are
the Chairman of the Board and President, and the Chief Financial Officer of
the Company. (See Note E-2.)
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying financial statements follows:
1. Fixed Assets
Furniture and equipment are recorded at cost. Depreciation for
furniture and equipment is provided by the straight-line method over
the estimated useful lives of the assets.
F-30
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE A (continued)
2. Use of Estimates
In preparing financial statements in conformity with generally
accepted accounting principles, management is required 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, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
3. Revenue Recognition
The Company recognizes revenue over the terms of its licensing
agreements.
4. Earnings Per Share
Earnings per share is based on the weighted average number of shares
outstanding during the period adjusted for the dilutive effect of
common stock equivalents when applicable.
In December 1997, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share." Basic earnings per share exclude dilution and are computed by
dividing income available to common shareholders by the
weighted-average common shares outstanding for the period. Diluted
earnings per share reflect the weighted-average common shares
outstanding plus the potential dilutive effect of securities or
contracts which are convertible to common shares, such as options,
warrants, and convertible preferred stock. See Note G, for stock
options outstanding that were not included in the computation of
diluted earnings per share because they had an antidilutive effect
during the year ended March 31, 1998. SFAS No. 128 requires
restatement of all prior periods' earnings per share data presented.
The Company's financial statements reflect this adoption.
The following is an analysis of the difference between basic and
diluted weighted average number of shares outstanding:
Year ended March 31,
--------------------------
1998 1997
--------- ---------
Basic shares 5,686,235 5,768,860
Effect of dilutive securities 414,629
--------- ---------
Diluted shares 5,686,235 6,183,489
========= =========
F-31
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE A (continued)
5. Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents.
6. Reclassifications
Certain amounts in the 1997 financial statements have been
reclassified to conform to the 1998 presentation.
7. Fair Value of Financial Instruments and Concentrations
The carrying amounts of cash and cash equivalents, accounts
receivable, accounts payable - trade and accrued expenses and other
current liabilities approximate fair value, principally because of the
short maturity of these items.
The carrying amount of note receivable - NES approximates fair value
as this note was discounted to its net present value. Although NES has
made all scheduled payments on the note, it is reasonably possible
that the Company may incur a loss on the NES note in the future. The
carrying amount of notes payable approximates fair value due to the
interest rate on the borrowings.
Financial instruments that are exposed to concentration of risk
primarily consist of the note receivable - NES and the Company's
investment in CANDIE'S.
8. Future Effect of Recently Issued Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income," which is effective for the Company's fiscal year ending March
31, 1999. The statement addresses the reporting and displaying of
comprehensive income and its components. Earnings per share will only
be reported for net income and not for comprehensive income. Adoption
of SFAS No. 130 is not expected to have a material effect on the
Company's financial statement disclosures.
F-32
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE A (continued)
In June 1997, the FASB also issued SFAS No. 131, "Disclosures About
Segments of an Enterprise and Related Information," which is effective
for the Company's fiscal year ending March 31, 1999. The statement
changes the way public companies report information about segments of
their business in their annual financial statements and requires them
to report selected segment information in their quarterly reports.
Adoption of SFAS No. 131 is not expected to have a material effect on
the Company's financial statement disclosures.
NOTE B - INVESTMENT IN CANDIE'S, INC.
At March 31, 1998, the Company owns 1,227,696 shares of restricted common
stock of CANDIE'S, Inc. ("CANDIE'S"), a publicly-traded corporation,
carried at $1,977,691, which is recorded on the equity method of
accounting. Included in the carrying amount is approximately $516,000 of
goodwill (net of amortization) which is being amortized over ten years. The
quoted market value of 1,227,696 shares of CANDIE'S unrestricted common
stock was $9,975,030 at March 31, 1998.
In addition, the Company holds warrants to purchase 700,000 additional
shares of such common stock at an initial price of $1.2375 per share and an
option to purchase 100,000 additional shares at $1.15 per share. The
options are exercisable at any time, in whole or in part, through October
6, 1999. The warrants, which vested in 1995, were issued in conjunction
with a loan agreement, pursuant to which the Company loaned CANDIE'S
$600,000 and extended a $200,000 line of credit. During fiscal 1996, the
$600,000 loan was repaid in full, together with approximately $33,500 in
interest, and the $200,000 line of credit expired.
On March 3, 1993, the Company's then wholly-owned subsidiary transferred
various trademarks, including CANDIE'S(R), and its right, title and
interest in certain identified license agreements with respect to the
trademarks to CANDIE'S, Inc. In consideration for the transfer, CANDIE'S
issued to the Company 900,000 shares of restricted common stock valued at
$2,250,000 by the Company based on a valuation prepared by an investment
banker. The issuer of the restricted common stock, CANDIE'S, Inc., valued
the 900,000 shares at $1,080,000 based on a valuation prepared by a
different investment banker. If the Company would have valued the
restricted common stock using the amount assigned to the shares by the
issuer, the valuation would have been reduced by $1,170,000 and the
Company's net income for the years ended March 31, 1998 and 1997 would have
been increased by $117,000 per year and the net assets and stockholders'
equity as of March 31, 1998 and 1997 would have been reduced by
approximately $1,080,000 and $1,003,000, respectively.
F-33
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE B (continued)
The Company and CANDIE'S entered into a Services Allocation Agreement with
CANDIE'S, pursuant to which CANDIE'S provides NRC with financial,
marketing, sales and other business services for which NRC is charged an
allocated portion of CANDIE'S expenses, including employees' salaries
associated with such services. The service allocation was $50,000 in fiscal
1998 and 1997.
The Chairman of the Board and President of the Company is also the
President, Chief Executive Officer and a director of CANDIE'S. An
agreement, as amended on January 30, 1995, was entered into among the
Company and CANDIE'S, and the Chairman of the Board and President of the
Company, pursuant to which CANDIE'S will not, directly or indirectly, other
than pursuant to the terms of the Services Allocation Agreement, conduct
any business or enter into any transaction or series of related
transactions, with or for the benefit of the Company or any subsidiary of
it, having a total value per transaction or series of related transactions
in excess of $50,000, other than in the ordinary course of business,
without the approval of either a majority of the disinterested members of
CANDIE'S Board of Directors or a majority of the CANDIE'S stockholders who
are not affiliates of CANDIE'S.
The following is a condensed balance sheet of CANDIE'S, Inc. and a
condensed statement of operations for the years ended January 31, 1998 and
1997:
January 31,
--------------------------------
1998 1997
------------ ------------
Current assets $ 23,407,660 $ 9,039,203
CANDIE'S trademark 4,296,150 4,548,650
Other noncurrent assets 3,177,130 1,121,492
------------ ------------
$ 30,880,940 $ 14,709,345
============ ============
Total liabilities $ 6,200,422 $ 6,101,434
============ ============
Total stockholders' equity $ 24,680,518 $ 8,607,911
============ ============
Revenues $ 92,976,416 $ 45,005,416
Costs and expenses (88,440,490) (43,860,101)
------------ ------------
Net income $ 4,535,926 $ 1,145,315
============ ============
F-34
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE C - NO EXCUSES TRADEMARK
On January 7, 1993, the Company sold its No Excuses trademark and certain
identified license agreements with respect to the trademark ("Assets") to
No Excuses Sportswear, Ltd. ("Buyer" or "NES"). As additional consideration
for the sale of the Assets, the Buyer had agreed to pay the Company fifty
percent of all "Net Shared Income" in perpetuity. Net Shared Income means
all income received by Buyer or its affiliates in connection with "Covered
Uses" of the trademark, as defined. On November 3, 1995, the Company and
NES settled certain disputes relating to the aforementioned agreements via
a settlement agreement (the "Settlement Agreement"), resulting in a gain of
$1,062,324. Under the Settlement Agreement, (i) the Company sold to NES for
$200,000 down plus $1,000,000 payable over five years ($862,000, net of
imputed interest) the Company's right to share in future royalty income
received by NES, (ii) the Company paid NES $200,000 in settlement of all
amounts due with respect to royalties received for the 1994 calendar year
under the Company's license agreements and (iii) the rights under the
Company's existing license agreements with respect to periods after January
1, 1995 were revised to provide for (A) the payment by the Company of 20%
of royalties, with a minimum of $40,000 per annum, under the license
agreement with WalMart with respect to sales after July 31, 1997 and (B)
the payment by the Company of 20% of royalties under the license agreement
with Mamiye for the period ending July 31, 1997 and the assignment of such
license agreement to NES on August 1, 1997.
NOTE D - NOTE PAYABLE
Note payable represents amounts due the estate of Charles Cole, the
deceased father of the Company's Chairman of the Board and President. In
February 1998, the note was repaid in full and all accrued interest was
forgiven.
NOTE E - COMMITMENTS AND CONTINGENCIES
1. Litigation
On April 26, 1994, a First Amended Complaint was filed in the United
States District Court for the Central District of California, Los
Angeles Division, in Los Angeles, California, by Eric Y. Knipe
("Knipe"), against Washington Square Capital, Jack Hart, New Retail
Concepts, Inc., and Neil Cole (the Company's President), claiming that
the defendants engaged in activities in violation of the Racketeer
Influenced and Corrupt Organizations Act ("RICO"), and related claims
of breach of contract, bad faith denial of contract, fraud, conversion
and conspiracy. The
F-35
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE E (continued)
Company is named as a defendant only in the RICO, conversion, and
conspiracy causes of action, with respect to the Company's activities
as a buyer of jeans manufactured at Ready Industries of Puerto Rico,
Inc., of which Knipe was a stockholder. Knipe is seeking compensatory
damages in excess of $3,000,000, punitive damages, trebling of all
damages, attorney's fees, and injunctive relief. On January 16, 1996,
the Court dismissed the action against all defendants for failure to
state a cause of action with respect to the RICO claims and for
failure of diversity jurisdiction with respect to all other claims. In
1996, Knipe and EYK International ("EYK") filed suit in Los Angeles
Superior Court against the same defendants (with substantially the
same claims). In 1997, the judge dismissed EYK as a party to this
action. In 1998, the judge dismissed WSC, Northwestern National Life
and Jack Hart as defendants. Knipe's appeal was denied by the Court of
Appeals and is now pending in the California Supreme Court. Knipe's
deposition and mandatory settlement conferences are scheduled for late
summer 1998. The Company continues to vigorously defend this action.
2. Employment Contracts
Upon the consummation of the proposed merger between the Company and
CANDIE'S, the Company will terminate its employment agreements with
its President and Chief Financial Officer. In consideration for the
termination of these agreements, and contingent upon the closing of
the Merger (which is expected to occur in August 1998), the Company
granted the President and Chief Financial Officer options to acquire
up to 626,543 and 49,383 shares, respectively, of the Company's common
stock at an exercise price of $1.75 per share. The Company recorded
compensation expense of approximately $84,000, as it relates to the
granting of such options. These options were subsequently amended. See
Note G. In addition, the President and Chief Financial Officer were
granted cash bonuses of $525,000 and $25,000, respectively. Prior to
the termination of the employment agreement with the President, the
agreement provided that the President of the Company may spend up to
49% of his time in furtherance of his duties to the Company and
provides for an annual salary of $150,000. In addition, the agreement
provided the President with an annual incentive bonus, pursuant to
which the Company would pay him an amount equal to 5% of the annual
pretax net income of the Company, up to $2,000,000 and up to 7-1/2% of
the annual pretax net income of the Company, if any, which was in
excess of $2,000,000. The Board of Directors additionally authorized a
bonus in fiscal 1997 of $125,000 which was paid to the President in
monthly installments of $10,417 throughout calendar 1997.
F-36
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE E (continued)
The employment agreement with the Chief Financial Officer provides for
an annual salary of $40,000 and a bonus equal to 1% of the Company's
pretax earnings. In addition, in November 1994, the Chief Financial
Officer was granted a five-year option to acquire 135,000 shares of
the Company's common stock at an exercise price of $.10 per share,
pursuant to the Company's incentive stock option plan.
NOTE F - INCOME TAXES
Significant components of the Company's deferred taxes at March 31, are as
follows:
1998 1997
----------- -----------
Deferred tax assets
Net operating loss carryforward $ 6,922,000 $ 6,789,000
Bonus accrual 228,000 11,000
Alternative minimum tax 103,000 39,000
Other 32,000
----------- -----------
7,285,000 6,839,000
Deferred tax liabilities
Gain in equity of affiliate 752,000 445,000
Installment income 192,000 254,000
----------- -----------
6,341,000 6,140,000
Less valuation allowance 6,441,000 6,240,000
----------- -----------
Net deferred tax liability $ (100,000) $ (100,000)
=========== ===========
F-37
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE F (continued)
SFAS No. 109 requires a valuation allowance against deferred tax assets, if
based on the weight of available evidence, it is more likely than not that
some or all of the deferred tax assets may not be realized. The valuation
allowance primarily pertains to uncertainties with respect to future
utilization of net operating loss carryforwards.
The provision for income taxes is comprised of the following:
1998 1997
------ ------
Current
Federal $3,860
State and local $5,429 1,242
------ ------
$5,429 $5,102
====== ======
The following is a reconciliation of the normal expected statutory Federal
income tax rate to the effective rate reported in the financial statements:
1998 1997
------ ------
Statutory Federal income tax rate (34.0%) 34.0%
State and city taxes - net of
Federal tax benefit 1.0 0.4
Effect of net operating loss carryforwards
and valuation allowances 34.0 (34.0)
Other 1.1
------ ------
Effective income tax rate 1.0% 1.5%
====== ======
The Tax Reform Act of 1986 enacted a complex set of rules limiting the
utilization of net operating loss carryforwards to offset future taxable
income following a corporate "ownership change." The Company's ability to
utilize its net operating loss carryforwards may be limited because of a
change in ownership in excess of 50 percentage points.
F-38
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE G - STOCK OPTION PLAN AND STOCKHOLDERS' EQUITY
On January 13, 1995 and June 25, 1995, the Company granted to each of the
three directors of the Company five-year options to acquire 25,000 (or a
total of 75,000 and 75,000, respectively) shares of common stock of the
Company at an exercise price of $.20 and $.22 per share, respectively. On
May 18, 1995, the Company granted five-year options to acquire 100,000
shares of common stock of the Company at an exercise price of $.15 per
share to a consultant.
In July 1995, the Board of Directors granted the President a five-year
option to acquire 400,000 shares of the Company's common stock at an
exercise price of $.35 per share.
On June 30, 1997, as compensation for services rendered as directors of the
Company, the Company granted to each of the three directors of the Company
five-year options to acquire 25,000 (or a total of 75,000) shares of common
stock of the Company at an exercise price of $.94 per share. On July 7,
1997, the Company granted five-year options to acquire 100,000 shares of
common stock of the Company at an exercise price of $.75 per share.
In March 1998, the Company granted, pursuant to the merger with CANDIE'S
and the termination of their employment agreements with the Company,
options to purchase 626,543 shares and 49,383 shares, respectively, of the
Company's common stock to the President and Chief Financial Officer. The
options are exercisable at $1.75 per share and expire in ten years, and are
exercisable upon the effective date of the Merger (which is expected to be
in August 1998). The Company recorded compensation expense of approximately
$84,000 at the grant date for such options. In addition, the Company
granted a consultant similar options to purchase 74,074 shares of common
stock at an exercise price of $1.75, contingent upon the closing of the
Merger and the options will become exercisable upon the effective date of
the Merger. The Company used the Black Scholes option valuation model to
determine the fair market value of the options and recorded consulting
expense of approximately $21,000 during the fiscal year ended March 31,
1998.
On June 2, 1998, the Company modified the options granted in March 1998.
The options are no longer contingent upon the closing of the Merger;
instead such options become exercisable with respect to one-third of the
aggregate amount granted to each individual, on the first, second and third
anniversaries of the original date of grant, respectively, so long as the
President and Chief Financial Officer are still employed by the Company, or
any successor and the consultant provide future services to the Company or
any successor.
The Company has elected to follow APB No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations in accounting for its employee
stock options.
F-39
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE G (continued)
Under APB No. 25, compensation expense is recognized when the market price
of the underlying stock on the date of grant exceeds the exercise price of
the Company's employee stock options. Effects of applying SFAS No. 123 for
providing pro forma disclosures are not likely to be representative of the
effects on reported net income for future years (e.g., the first year
reflects expense for only one year's vesting, while the second year
reflects expense for two years' vesting).
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options (including options granted to
directors and the President (see Note E) under the fair value method of
that Statement. The fair value for options granted during the year ended
March 31, 1998 was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:
Expected volatility 70%
Expected life (term) 3.8 years
Risk-free interest rate 6%
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require the input of highly subjective assumptions including the
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of the
fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. The Company's pro
forma information follows:
F-40
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE G (continued)
March 31,
---------------------------
1998 1997
----------- -----------
Pro forma net (loss) income $(601,930) $333,780
=========== ===========
Pro forma net (loss) income per share
Basic $(.11) $.06
=========== ===========
Diluted $(.11) $.05
=========== ===========
The weighted-average fair value of all options granted (at their grant
date) during the year ended March 31, 1998 was $1.40. No options were
granted during the year ended March 31, 1997.
A summary of the Company's stock option activity for all options granted
for the years ended March 31, 1998 and 1997 follows:
Weighted-
average
exercise
Shares price
---------- ---------
Outstanding, March 31, 1996 785,000 $.26
Granted --
Canceled --
---------
Outstanding, March 31, 1997 785,000 .26
Granted 950,000 1.56
Exercised (100,000) .15
---------
Outstanding, March 31, 1998 1,635,000 1.02
=========
F-41
<PAGE>
New Retail Concepts, Inc.
NOTES TO FINANCIAL STATEMENTS (continued)
March 31, 1998 and 1997
NOTE G (continued)
All options outstanding and exercisable at March 31, 1998 were as follows:
<TABLE>
<CAPTION>
Options outstanding Options exercisable
--------------------------------- ----------------------------
Weighted- Weighted- Weighted
Range of Number average remaining average Number average
exercise prices outstanding contractual life exercise price exercisable exercise price
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$ .10 - .35 685,000 2.7 years $ .27 685,000 $.27
.75 - .94 200,000 4.3 years .85 200,000 .85
1.75 750,000 10.0 years 1.75 -- --
--------- -------
1,635,000 6.2 years 1.02 885,000 .40
========= =======
</TABLE>
NOTE H - MAJOR CUSTOMERS
The Company derived a significant portion of its license and marketing fees
from two customers in 1998 and 1997. Net revenues attributable to each such
customer amounted to 82% and 14%, respectively, for the year ended March
31, 1998 and 80% and 20%, respectively, for the year ended March 31, 1997.
NOTE I - OTHER INCOME
Included in other income for the year ended March 31, 1998 is the reversal
of an accrual for imputed interest payable on a note payable of $52,000,
which was repaid in full during the year ended March 31, 1998.
F-42
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger dated April 6, 1998, by and between
CANDIE'S, INC., a Delaware corporation ("Candie's"), and NEW RETAIL CONCEPTS,
INC., a Delaware corporation ("NRC"). (Candie's and NRC are sometimes
collectively referred to as the "Constituent Corporations").
WHEREAS, as of the date hereof, the authorized capital stock of Candie's
consists of 30,000,000 shares of common stock, $.001 par value, (the "Candie's
Common Stock") of which 14,146,990 shares are issued and outstanding, of which
4,723,800 shares are reserved for issuance of outstanding options and warrants;
and 5,000,000 shares of Preferred Stock, $.01 par value, (the "Candie's
Preferred Stock") none of which are issued and outstanding;
WHEREAS, as of the date hereof, the authorized capital stock of NRC
consists of 25,000,000 shares of common stock, $.01 par value (the "NRC Common
Stock") of which 5,693,639 shares are issued and outstanding, and 1,635,000
shares are reserved for issuance upon the exercise of outstanding options; and
1,000,000 shares of Preferred Stock, $.01 par value, none of which are issued
and outstanding;
WHEREAS, the respective Boards of Directors of Candie's, and NRC deem it
advisable and in the best interests of
<PAGE>
Candie's and NRC and their respective shareholders that NRC merge with and into
Candie's (the "Merger") pursuant to this Agreement and the applicable provisions
of the Delaware General Corporation Law ("Delaware Corporate Law");
WHEREAS, the respective Boards of Directors of Candie's, and NRC have
approved and adopted this Agreement and have directed that the plan of merger
and reorganization set forth in Article I of this Agreement (the "Plan of
Merger") be submitted to the shareholders of Candie's and NRC for their
approval; and
WHEREAS, the Merger is intended to constitute a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended;
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and for other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the parties hereto
represent, warrant, covenant and agree as follows:
ARTICLE I
PLAN OF MERGER
1.1 Surviving Corporation. At the Effective Time (as defined in Section
1.8), NRC shall be merged with and into Candie's pursuant to this Agreement and
a plan of merger and reorganization in substantially the form annexed hereto as
Exhibit 1.1 (the "Plan of Merger"). Candie's shall be the surviving corporation
(the "Surviving Corporation") and shall
2
<PAGE>
continue its corporate existence under the laws of the State of Delaware and the
separate existence of NRC shall cease.
1.2 Effect of the Merger. At the Effective Time, the Surviving Corporation
shall possess all of the rights, privileges, immunities and franchises, of a
public as well as of a private nature, of each of the Constituent Corporations
and all property, real, personal and mixed, and all debts due on whatever
account, including subscriptions to shares, and all other choses in action, and
all and every other interest of or belonging to or due to each of the
Constituent Corporations, shall be taken and deemed to be transferred and vested
in the Surviving Corporation without further act or deed; and the title to any
real estate, or any interest therein, vested in either of the Constituent
Corporations shall not revert or be in any way impaired by reason of the Merger.
From and after the Effective Time, the Surviving Corporation shall be
responsible and liable for all of the liabilities, debts, duties and obligations
of each of the Constituent Corporations; and any claims existing or action or
proceeding, whether civil or criminal, pending, by or against either of the
Constituent Corporations shall be preserved unimpaired and all debts,
liabilities and duties of each of the Constituent Corporations shall attach to
the Surviving Corporation and may be enforced against it to the same extent as
if those debts, liabilities and duties had been incurred or contracted by it.
Neither the rights of creditors nor any liens upon the property of either of the
Constituent Corporations shall be impaired by the Merger.
3
<PAGE>
1.3 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable to (a) vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation any
rights, title or interest in, to or under any of the rights, properties or
assets of Candie's or NRC acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger, or (b) otherwise
carry out the purposes of this Agreement, then NRC and its appropriate officers
and/or directors shall be deemed to have granted to the Surviving Corporation an
irrevocable power of attorney to execute and deliver all such proper deeds,
assignments and assurances in law and to do all acts necessary or proper, to
vest, perfect or confirm title to and possession of such rights, properties or
assets in the Surviving Corporation and otherwise to carry out the purposes of
this Agreement, and the appropriate officers and/or directors of the Surviving
Corporation are hereby fully authorized in the names of NRC or otherwise to take
any and all such actions.
1.4 Name of Surviving Corporation. The name of the Surviving Corporation
shall remain Candie's, Inc.
1.5 Certificate of Incorporation. The Certificate of Incorporation of
Candie's as in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until and unless
thereafter amended as provided by law and such Certificate of Incorporation.
4
<PAGE>
1.6 Bylaws. The Bylaws of Candie's as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until thereafter
amended as provided by law, the Certificate of Incorporation and such Bylaws.
1.7 Officers and Directors. The officers and directors of Candie's shall
remain the directors and officers of the Surviving Corporation and shall hold
office until their resignations or until their respective successors have been
appointed or duly elected.
1.8 Closing Effective Time.
(a) The closing of the Merger shall take place at 10:00 a.m., local time,
on a date specified by Candie's and NRC, which shall be no later than the second
business day after satisfaction or waiver of the conditions set forth in Article
VII at the offices of Tenzer Greenblatt LLP, 405 Lexington Avenue, New York, New
York 10174, or such other place as agreed to by the parties (the "Closing"). The
Merger shall become effective at the time of filing of a Certificate of Merger
in the form attached as Exhibit 1.8, with the Secretary of State of the State of
Delaware in accordance with the relevant provisions of the Delaware Corporate
Law, which Certificate of Merger shall be so filed immediately following the
satisfaction of each of the conditions set forth in Article VII below, or as
soon as practicable thereafter.
(b) The date and time when the Merger shall become effective is referred to
as the "Effective Time."
5
<PAGE>
1.9 Conversion of Shares.
(a) By virtue of the Merger, automatically and without any action on the
part of the holder thereof, at the Effective Time:
(i) Each issued and outstanding share of NRC Common Stock shall cease
to exist and shall be converted into and represent the right to receive
0.405 shares of Candie's Common Stock (the "Exchange Ratio");
(ii) Any shares of NRC Common stock issued and held in the treasury of
NRC shall be cancelled;
(iii) Any shares of NRC Common Stock issued and owned by Candie's
immediately preceding the Effective Time shall be cancelled and retired and
no payment made with respect thereto;
(iv) Any shares of Candie's Common Stock issued and owned by NRC
immediately preceding the Effective Time shall be returned to the status of
authorized but unissued shares of Candie's Common Stock, and no payment
made with respect thereto;
(v) Any warrants or options to the purchase shares of Candie's Common
Stock issued and owned by NRC immediately preceeding the Effective Time
shall be cancelled, and no payment made with respect thereto; and
(vi) Each issued and outstanding option to acquire one (1) share of
NRC Common Stock outstanding at the Effective Time shall be converted into
an option to acquire 0.405 shares of Candie's Common Stock, which option
shall be on
6
<PAGE>
substantially the same terms and conditions as the option being converted,
and shall be exercisable at an exercise price equal to the quotient of (a)
the exercise price of the option being converted divided by (b) the
Exchange Ratio, which quotient shall then be rounded down to the nearest
cent. Between the date hereof and the Effective Date if necessary, Candie's
shall amend its stock option plan and reserve sufficient shares so as to
permit the issuance of the options to acquire shares of Candie's Common
Stock described in this Section 1.9(a)(vi).
(b) No rights to receive fractional shares of Candie's Common Stock shall
arise under this Agreement.
(c) No fractional shares of Candie's Common stock shall be issued, but in
lieu thereof, each holder of Candie's Common Stock who would otherwise be
entitled to receive a fraction of a share of Candie's Common Stock shall receive
from Candie's an amount of cash equal to the price of one share of Candie's
Common Stock as of the date of the Merger (which price shall be calculated as
the average of the last sales price for Candie's Common Stock during the twenty
(20) day period immediately prior to the Effective Date) multiplied by a
fraction of a share of Candie's Common Stock for which such holder would be
entitled. No shareholder of NRC shall receive cash from Candie's in lieu of
fractional shares in an amount greater than the value of one paid share of
Candie's Common Stock.
1.10 NRC Dissenting Shareholders. Shares of NRC Common Stock which are
issued and outstanding immediately prior to the Effective Time and which are
held by NRC shareholders who have
7
<PAGE>
not voted such shares in favor of the Merger and who shall have properly
exercised their rights of appraisal for such shares in the manner provided by
the Delaware Corporate Law ("Dissenting Shares") shall not be converted into or
be exchangeable for the right to receive shares of Candie's Common Stock unless
and until such holders shall have failed to perfect or shall have effectively
withdrawn or lost their dissenters' rights under the Delaware Corporate Law.
With respect to any holders who have failed to perfect and have effectively
withdrawn or lost their dissenters' rights, such holders' shares shall thereupon
be deemed to have been converted into and to have become exchangeable for, at
the Effective Time, shares of Candie's Common Stock. NRC shall give Candie's
prompt notice of any (i) Dissenting Shares, (ii) attempted withdrawals of such
demands for appraisal rights, and (iii) any other communications received by NRC
with respect to dissenters' rights. Candie's shall have the right to direct all
negotiations and proceedings with respect to any demands for appraisal rights.
NRC shall not, except with the prior consent of Candie's, voluntarily make any
payment with respect to, or settle or offer to settle, any such demand for
appraisal rights.
1.11 Exchange of Certificates.
(a) Candie's shall cause Continental Stock Transfer and Trust Company (or
such successor as Candie's may designate) as exchange agent (the "Exchange
Agent"), to send to each holder of shares of NRC's Common Stock which shall have
been converted into Candie's Common Stock an appropriate letter of
8
<PAGE>
transmittal for purposes of surrendering such holder's certificates for such
shares for exchange pursuant hereto.
(b) As soon as practicable after the Effective Time and after surrender to
the Exchange Agent of any certificate which prior to the Effective Time shall
have represented any shares of NRC's Common Stock (a "Certificate"), subject to
the provisions of paragraph (d) of this Section 1.11, Candie's shall cause to be
distributed to the person in whose name such Certificate shall have been
registered, or in accordance with the written instructions transmitted to the
Exchange Agent, certificates registered in the name of such person representing
the Candie's Common Stock to which such person shall be entitled as described in
paragraph (a) of Section 1.9 and cash payable to such person representing
payment in lieu of a fractional share of Candie's Common Stock as determined in
accordance with paragraph (c) of Section 1.9 (such cash to be provided in the
form of a check). Until surrendered as contemplated by the preceding sentence,
each Certificate shall be deemed at and after the Effective Time to represent
only the right to receive the certificates and payment contemplated by the
preceding sentence.
(c) No dividends declared after the Effective Time with respect to Candie's
Common Stock and payable to the holders of record thereof after the Effective
Time shall be paid to the holder of an unsurrendered Certificate until such
Certificate shall be surrendered as provided herein, but (i) upon such surrender
there shall be paid to the person in whose name the certificates representing
Candie's Common Stock shall be
9
<PAGE>
issued the amount of dividends theretofore paid with respect to Candie's Common
Stock as of any date subsequent to the Effective Time based on the number of
shares of Candie's Common Stock received by such person and the amount of cash
payable to such person in lieu of a fractional share of Candie's Common Stock
pursuant to paragraph (c) of Section 1.9 and (ii) at the appropriate payment
date or as soon as practicable thereafter, there shall be paid to such person
the amount of dividends payable with respect to Candie's Common Stock; provided,
however, that no dividends with a record date subsequent to the Effective Time
shall be payable with respect to fractional shares of Candie's Common Stock,
and, subject in any case to any applicable escheat laws and unclaimed property
laws. On surrender of a Certificate, no interest shall be payable with respect
to the payment of such dividends, and no interest shall be payable with respect
to the amount of any cash payable in lieu of a fractional share of Candie's
Common Stock.
(d) If any cash is to be paid to, or certificates representing Candie's
Common Stock are to be issued to, a person other than the person in whose name
the Certificate surrendered in exchange therefor is registered, it shall be a
condition of the payment or issuance thereof that the Certificate so surrendered
shall be properly endorsed and otherwise in proper form for transfer and that
the person requesting such exchange shall pay to the Exchange Agent any transfer
or other taxes required by reason of the payment of cash to a person other than,
or of the issuance of certificates representing Candie's Common
10
<PAGE>
Stock in any name other than that of, the registered holder of the Certificate
surrendered, or otherwise required, or shall establish to the satisfaction of
the Exchange Agent that such tax has been paid or is not payable.
(e) After the Effective Time, there shall be no further registration of
transfers on the stock transfer books of the Surviving Corporation of the shares
of NRC's Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the Surviving
Corporation, they shall be cancelled and exchanged for the cash, if any, and
certificates representing the Candie's Common Stock into which they were
converted as provided in this Article I.
ARTICLE II
SHAREHOLDER APPROVAL
2.1 Shareholder Approvals.
(a) A meeting of the holders of NRC's Common Stock shall be called in
accordance with Delaware Corporate Law to be held on such date as may be
mutually agreed by the Boards of Directors of NRC and Candie's, and approved by
the Board of Directors of NRC, to consider and vote upon the approval of the
Plan of Merger. NRC shall use its best efforts to seek all required approvals of
its shareholders in connection with the Plan of Merger.
(b) A meeting of the holders of Candie's Common Stock shall be called in
accordance with Delaware Corporate Law to be held on such date as may be
mutually agreed upon by the
11
<PAGE>
Boards of Directors of Candie's and NRC, and approved by the Board of Directors
of Candie's, to consider and vote upon the approval of the Plan of Merger and
the issuance by Candie's of the Candies securities in connection with the
Merger. Candie's shall use its best efforts to seek all required approvals of
its shareholders in connection with the Plan of Merger and the issuance of such
Candie's securities.
(c) If the Plan of Merger is approved as provided in this Article II, and
if the Merger is not thereafter terminated as permitted by ss. 251(d) of the
Delaware Corporate Law and Article IX of this Agreement, and if each of the
conditions to the obligations of NRC and Candie's as provided hereunder have in
accordance herewith been either satisfied or waived, then NRC and Candie's shall
cause the Certificate of Merger to be promptly executed, acknowledged, delivered
and properly and duly filed with the Secretary of State of the State of Delaware
on behalf of each of NRC and Candie's.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NRC
NRC represents and warrants to Candie's as follows:
3.1 Organization and Related Matters. NRC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
NRC has the requisite corporate power and authority to own, lease, license and
operate its properties and assets and carry on its business as now being
conducted.
12
<PAGE>
3.2 Subsidiaries. NRC has no direct or indirect subsidiaries.
3.3 Capitalization of NRC. The authorized capital stock of NRC consists of
25,000,000 shares of NRC's Common Stock, $.01 par value, of which 5,693,639
shares are issued and outstanding and 1,635,000 shares are reserved (the "NRC
Reserved Shares") for issuance upon the exercise of stock options granted to
certain of its directors, employees and consultants (the "NRC Options"), and
1,000,000 shares of NRC Preferred Stock, .01 par value, none of which are issued
and outstanding. There are no other outstanding options, warrants or other
rights to subscribe for or purchase or acquire from NRC, or any plans, contracts
or commitments providing for the issuance of or the granting of rights to
acquire, any capital stock of NRC or securities convertible into or exchangeable
for capital stock of NRC. All issued shares of NRC capital stock are duly
authorized, validly issued and outstanding and are fully paid, nonassessable and
free from preemptive rights.
3.4 Authority Relative to Agreement. Except for shareholder approval
required by ss. 251(c) of the Delaware Corporate Law, NRC has full corporate
power and authority to enter into and perform this Agreement and to carry out
the transactions contemplated hereby. The Board of Directors of NRC has duly
authorized the execution, delivery and performance of this Agreement and the
transactions contemplated hereby, and, except for the shareholder meeting
contemplated in Article II hereof, no other corporate proceedings on the part of
NRC are
13
<PAGE>
necessary to authorize this Agreement or the transactions contemplated hereby.
This Agreement constitutes the valid and binding agreement of NRC enforceable
against it in accordance with its terms, except (a) such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar laws affecting the enforcement of
creditors rights generally and (b) the availability of the equitable remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceeding may be brought.
3.5 Compliance. Except as disclosed in Section 3.5 of the Disclosure
Statement of NRC attached hereto and made a part hereof (the "NRC Disclosure
Statement"), neither the execution and delivery of this Agreement by NRC, nor
the consummation by NRC of the transactions contemplated hereby, nor compliance
by NRC with the terms and provisions of this Agreement, will (nor with the
giving of notice or the lapse of time or both would):
(a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of NRC;
(b) in any manner which would adversely affect the ability of NRC to
consummate the transactions provided for in this Agreement in accordance
with the terms of this Agreement, (i) violate, result in breach of, give
rise to a default, or any right of termination, cancellation or
acceleration, or otherwise be in conflict with or result in a loss of
material contractual benefits to NRC under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or
14
<PAGE>
other instrument or obligation to which NRC is a party or by which it or
its operations, business, property or assets may be bound, or of which it
or its operations, business, properties or assets is a beneficiary, or (ii)
require any consent, approval or notice under the terms of any such note,
bond, mortgage, indenture, license, agreement or other instrument;
(c) violate, result in a breach of or conflict with any order, writ,
injunction, decree, law, statute, rule or regulation of any court or
governmental authority applicable to NRC, or to which NRC's operations,
businesses, properties or assets, including but not limited to the NRC
Intellectual Property Rights (as defined in Section 3.11), are subject in
any manner which would adversely affect the ability of NRC to consummate
the transactions provided for in this Agreement in accordance with the
terms of this Agreement;
(d) result in the creation or imposition of any lien, claim,
restriction, charge or encumbrance upon any of the NRC Common Stock; or
(e) to the best of the knowledge of NRC, materially and adversely
interfere with or otherwise materially and adversely affect the ability of
the Surviving Corporation to carry on NRC's business on substantially the
same basis as it is now conducted by NRC, including (in any manner that
will materially and adversely affect the Surviving Corporation) violate,
result in a breach of, give rise to a default, or otherwise be in conflict
with or result in a loss of material contractual benefits to the Surviving
Corporation under any of
15
<PAGE>
the terms, conditions or provisions of any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which NRC is
currently a party or by which NRC, or any of its operations, business,
properties or assets currently may be bound or is a beneficiary.
3.6 SEC Filings; Financial Statements. (a) Since April 1, 1995, NRC has
filed, and will continue to file, all forms, reports and documents required to
be filed by NRC with Securities and Exchange Commission (the "SEC")
(collectively, the "NRC SEC Reports"). Except as disclosed in Section 3.6 of the
NRC Disclosure Statement, the NRC SEC Reports (i) at the time filed, complied in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a subsequent filing, then
on the date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated in such NRC SEC Reports or
necessary in order to make the statements in such NRC SEC Reports, in the light
of the circumstances under which they were made, not misleading.
(b) Each of the financial statements (including, in each case, any related
notes) contained in the NRC SEC Reports, including any NRC SEC Reports filed
after the date of this Agreement until the Closing (the "NRC Financial
Statements"), complied or will comply as to form in all material
16
<PAGE>
respects with the applicable published rules and regulations of the SEC with
respect thereto, was or will be prepared in accordance with U.S. generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-QSB
or 8-K promulgated by the SEC), and fairly presented or will fairly present the
financial position of NRC as and at the respective dates and the results of its
operations and cash flows for the periods indicated, except that the unaudited
interim financial statements were or are subject to normal and recurring
year-end adjustments which were not or are not expected to be material in
amount. The unaudited balance sheet of NRC as of December 31, 1997 is referred
to herein as the "NRC Balance Sheet."
3.7 Absence of Undisclosed Liabilities. Except as disclosed in Section 3.7
of the NRC Disclosure Statement or as otherwise disclosed in the NRC SEC
Reports, NRC does not have any liabilities, either accrued or contingent
(whether or not required to be reflected in financial statements in accordance
with U.S. generally accepted accounting principles), and whether due or to
become due, which individually or in the aggregate could reasonably be expected
to have a material adverse effect, other than (i) liabilities reflected in the
NRC Balance Sheet, (ii) liabilities specifically described in this Agreement or
in the NRC Disclosure Statement, (iii) normal or recurring liabilities incurred
since December 31, 1997 in the ordinary
17
<PAGE>
course of business consistent with past practices, and (iv) liabilities
permitted by Section 5.2 hereof.
3.8 Absence of Certain Changes or Events. Except as set forth in Section
4.7 of the NRC Disclosure Statement, since the date of the NRC Balance Sheet,
NRC has conducted its business only in the ordinary course in a manner
consistent with past practice (except as disclosed in the NRC SEC Reports), and
since such date there has not been: (a) any NRC material adverse effect or any
facts or circumstances that could reasonably be expected to result in a material
adverse effect: (b) any damage, destruction or loss (whether or not covered by
insurance) with respect to NRC having a material adverse effect; (c) any
material change by NRC in its accounting methods, principles or practices to
which Candie's has not previously consented in writing; (d) any revaluation by
NRC of any of its assets having a material adverse effect, unless Candie's has
previously consented in writing; or (e) except as disclosed in the NRC
Disclosure Statement, any other action or event that would have required the
consent of Candie's pursuant to Section 5.2 of this Agreement had such action or
event occurred after the date of this Agreement and that could reasonably be
expected to result in a material adverse effect.
3.9 Taxes.
(a) For purposes of this Agreement, a "Tax" or, collectively, "Taxes" means
any and all material federal, state, local and foreign taxes, assessments and
other governmental charges, duties, impositions and liabilities, including taxes
18
<PAGE>
based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) NRC has accurately prepared and timely filed (or will so file) all
material federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") required to be filed at or before the
Effective Time relating to any and all Taxes concerning or attributable to NRC
or to its operations, and such Returns are true and correct in all material
respects and have been completed in all material respects in accordance with
applicable law.
(c) NRC as of the Effective Time: (i) will have paid all Taxes it is
required to pay prior to the Effective Time and (ii) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, except in each case for Taxes contested in
good faith by appropriate proceedings for which adequate reserves have been
taken and except where the failure (if any) to pay or withhold such Taxes could
not reasonably be expected to have a material adverse effect.
(d) There is no Tax deficiency outstanding, proposed or assessed against
NRC that is not reflected as a
19
<PAGE>
liability on the NRC Balance Sheet nor has NRC executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(e) NRC has no material liability for unpaid federal, state, local or
foreign Taxes that has not been accrued for or reserved on the NRC Balance
Sheet, whether asserted or unasserted, contingent or otherwise.
3.10 Properties. Except as set forth in Section 3.10 of the NRC Disclosure
Statement, NRC owns or has valid leasehold interests in all real property
necessary for the conduct of its business as presently conducted. All material
leases to which NRC is a party are in good standing, valid and effective in
accordance with their respective terms, and NRC is not in default under any of
such leases, except where the lack of such good standing, validity and
effectiveness or the existence of such default could not reasonably be expected
to have a material adverse effect.
3.11 Intellectual Property.
(a) Except as disclosed in Section 3.11 of the NRC Disclosure Statement,
NRC owns, or licenses or otherwise possess, legally enforceable rights to use,
all patents, trademarks, trade names, service marks and copyrights, any
applications for and registrations of such patent, trademarks, trade names,
service marks and copyrights, and all processes, formulae, methods, schematics,
technology, know how, and tangible or intangible proprietary information or
material that are necessary to conduct the business of NRC as currently
conducted
20
<PAGE>
or planned to be conducted by NRC, the absence of which would be reasonably
likely to have a material adverse effect (the "NRC Intellectual Property
Rights").
(b) Except as disclosed in Schedule 3.11 of the NRC Disclosure Statement,
(i) the NRC Intellectual Property Rights which are material to the business of
NRC are valid and subsisting; (ii) NRC has not been sued in any suit, action or
proceeding which involves a claim of infringement of any of the NRC Intellectual
Property Rights or any other proprietary right of any third party; and (iii) to
the knowledge of NRC, the manufacturing, marketing, licensing or sale of NRC's
products does not infringe any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party, which infringement, either
individually or in the aggregate, could reasonably be expected to have a
material adverse effect.
3.12 Litigation. Except as disclosed in Section 3.12 of the NRC Disclosure
Statement, there is no action, suit or proceeding, claim, arbitration or, to the
knowledge of NRC, investigation against NRC, pending or, to the knowledge of
NRC, threatened, or as to which NRC has received any written notice of
assertion, which, if decided adversely to NRC, could reasonably be expected to
have a material adverse effect or a material adverse effect on the ability of
NRC to consummate the transactions contemplated by this Agreement.
3.13 Employee Benefit Plans.
(a) Except for the NRC stock option plan, a copy of which has been made
available to Candie's, NRC has no employee
21
<PAGE>
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and no bonus, other stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance or other similar employee benefit plans, and no unexpired severance
agreements, written or otherwise, for the benefit of, or relating to, any
current or former employee of NRC or any trade or business (whether or not
incorporated) which is a member or which is under common control with NRC within
the meaning of Section 414 of the Code. NRC does not maintain and has never
maintained or contributed to any employee benefit plan subject to Title IV of
ERISA (including a multiemployer plan as defined in Section 3(37) of ERISA).
(b) Except as set forth in Schedule 3.13 of the NRC Disclosure Statement,
and except as provided for in this Agreement, NRC is not a party to any oral or
written (i) union or collective bargaining agreement, (ii) agreement with any
officer or other key employee of NRC, the benefits of which are contingent, or
the terms of which are materially altered, upon the occurrence of a transaction
involving NRC of the nature contemplated by this Agreement, (iii) agreement with
any officer of NRC providing any term of employment or compensation guarantee
extending for a period longer than one year from the date hereof or for the
payment of compensation in excess of $10,000 per annum, or (iv) agreement or
plan, including the NRC stock option plan, any of the benefits of which will be
increased, or the vesting of the benefits of which will be accelerated, by the
22
<PAGE>
occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
3.14 Accounts Receivable; Inventory. Subject to any reserves set forth in
the NRC Balance Sheet, the accounts receivable shown in the NRC Balance Sheet
arose in the ordinary course of business; were not, as of the date of the NRC
Balance Sheet, subject to any material discount, contingency, claim of offset or
recoupment or counter claim; and represented, as of the date of the NRC Balance
Sheet, bona fide claims against debtors for sales, leases, licenses and other
charges. Other than those accounts receivable due from Candie's set forth on the
NRC Balance Sheet, all accounts receivable of NRC arising after the date of the
NRC Balance Sheet through the date of this Agreement arose in the ordinary
course of business and, as of the date of this Agreement, are not subject to any
material discount, contingency, claim of off-set or recoupment or counterclaim,
except for normal reserves consistent with past practice. The amount carried for
doubtful accounts and allowances disclosed in the NRC Balance Sheet is believed
by NRC as of the date of this Agreement to be sufficient to provide for any
losses which may be sustained on realization of the accounts receivable shown in
the NRC Balance Sheet. NRC has no inventory.
3.15 Board Recommendation. The Board of Directors of NRC has unanimously
approved and adopted this Agreement, which vote included the affirmative vote of
a majority of the
23
<PAGE>
disinterested directors and has recommended that the stockholders of NRC approve
and adopt the Plan of Merger.
3.16 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by NRC pursuant to this Agreement or
any other document, agreement or instrument referred to herein contains or will
contain any untrue statement of fact of material fact or omits or will omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
3.17 Financial Advisor Opinion. The financial advisor to NRC, CoView
Capital, Inc., has delivered to NRC an opinion, as of, or immediately prior to
the date of this Agreement to the effect that the Exchange Ratio is fair from a
financial point of view to the holders of NRC Common Stock (the "NRC Fairness
Opinion").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CANDIE'S
Candie's represents and warrants to NRC as follows:
4.1 Organization and Related Matters. Candie's is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Candie's has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
4.2 Authority Relative to this Agreement. Candie's has full corporate power
and authority to enter into this Agreement and to carry out the transactions
contemplated
24
<PAGE>
hereby. The Board of Directors of Candie's, has duly authorized the execution,
delivery and performance of this Agreement and the transactions contemplated
hereby, and, except for the Shareholder meeting contemplated in Article II
hereof, no other corporate proceedings on the part of Candie's are necessary to
authorize this Agreement or the transactions contemplated hereby. This Agreement
constitutes the valid and binding agreement of Candie's enforceable against it
in accordance with its terms, except (a) such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, receivership,
conservatorship, moratorium, or similar laws affecting the enforcement of
creditors rights generally and (b) the availability of the equitable remedy of
specific performance or injunctive relief is subject to the discretion of the
court before which any proceeding may be brought.
4.3 Capitalization of Candie's. The authorized capital stock of Candie's
consists of (i) 30,000,000 shares of Candie's Common Stock of which 14,146,990
shares are issued and outstanding, and (ii) 5,000,000 shares of Candie's
Preferred Stock, none of which are issued and outstanding. Candie's has reserved
for issuance (i) 4,723,800 shares of Candie's Common Stock upon the exercise of
outstanding stock options pursuant to the Candie's employee 1989 and 1997 stock
option plans and other options and outstanding warrants (the "Prior Reserved
Shares") and (ii) up to approximately 2,306,000 shares of Candie's Common Stock
to be issued to the NRC Stockholders at the Effective Time of the Merger as
contemplated by this Agreement (the "Reserved
25
<PAGE>
Shares") and 662,175 shares of Candie's Common stock to be issued upon exercise
of the NRC options to be issued to the holders of NRC stock options as
contemplated by this Agreement (the "Reserved Option Shares" and together with
the Reserved Shares the "Reserved Securities"). All issued and outstanding
shares of Candie's Common Stock are duly authorized, validly issued and are
fully paid, nonassessable and free from preemptive rights. All of the Prior
Reserved Shares, the Reserved Shares and the Reserved Option Shares when issued,
will be duly authorized, validly issued and outstanding fully paid,
nonassessable and free from preemptive rights.
There are no shares held in the treasury and except for the Prior Reserved
Shares and the Reserved Shares there are no outstanding options, warrants or
other rights to subscribe for or purchase or acquire from Candie's or any plans,
contracts or commitments providing for the issuance of or the granting of rights
to acquire any capital stock of Candie's or securities convertible into or
exchangeable for Candie's Common Stock.
4.4 Compliance. Neither the execution and delivery by Candie's of this
Agreement or of any agreement to be executed and delivered by it pursuant
hereto, nor the consummation of any of the transactions contemplated hereby or
thereby, nor the performance by it of any of its obligations hereunder or
26
<PAGE>
thereunder, will (nor with the giving of notice or the lapse of time or both
would):
(a) conflict with or result in a breach of any provision of the
Certificate of Incorporation or Bylaws of Candie's;
(b) in any manner which would adversely affect the ability of Candie's
to consummate the transactions provided for in this Agreement in accordance
with the terms of this Agreement; (i) violate, result in a breach of, give
rise to a default, or any right of termination, cancellation or
acceleration, or otherwise be in conflict with or result in a loss of
contractual benefits to Candie's under any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which it is a party or by which it, or
any of its operations, businesses, properties or assets may be bound, or of
which it, any of its securities, or its operations, business, property or
assets is a beneficiary, or (ii) require any consent, approval or notice
under the terms of any such note, bond, mortgage, indenture' license,
agreement or other instrument;
(c) violate, result in a breach of or conflict with any order, writ,
injunction, decree, law, statute, rule or regulation of any court or
governmental authority applicable to Candie's or to which its operations,
businesses, properties or assets, including but not limited, to the
Candie's Intellectual Property (as defined in Section 4.10), are subject in
any manner which would adversely affect the ability of Candie's to
27
<PAGE>
consummate the transactions provided for in this Agreement in accordance
with the terms of this Agreement;
(d) result in the creation or imposition of any lien, claim,
restriction, charge or encumbrance upon any of the Candie's Common Stock,
options or warrants issued or reserved for issuance pursuant to this
Agreement; or
(e) the best of the knowledge of Candie's, interfere with or otherwise
materially and adversely affect the ability of Candie's, after the
Effective Time, to carry on its business on substantially the same basis as
it is now conducted by it.
4.5 SEC Filings; Financial Statements.
(a) Since February 1, 1995, Candie's has filed, and will continue to file,
all forms, reports and documents required to be filed by Candie's with the SEC
(collectively, the "Candie's SEC Reports"). Except as disclosed in section 4.5
of the Candie's disclosure statement attached hereto and made a part hereof (the
"Candie's Disclosure Statement"), the Candie's SEC Reports (i) at the time
filed, complied in all material respects with the applicable requirements of the
Securities Act and the Exchange Act, as the case may be, and (ii) did not at the
time they were filed (or if amended or superseded by a subsequent filing, then
on the date of such filing) contain any untrue statement of a material fact or
omit to state a material fact required to be stated in such Candie's SEC Reports
or necessary in order to make the statements in such Candie's SEC Reports, in
the light of the circumstances under which they were made, not
28
<PAGE>
misleading. None of Candie's subsidiaries is required to file any forms, reports
or other documents with the SEC. For purposes of this Agreement, all references
to "Candie's" shall include all of Candie's subsidiaries unless the context
otherwise indicates.
(b) Each of the consolidated financial statements (including, in each case,
any related notes) contained in the Candie's SEC Reports, including any Candie's
SEC Reports filed after the date of this Agreement until the Closing (the
"Candie's Financial Statements"), complied or will comply as to form in all
material respects with the applicable published rules and regulations of the SEC
with respect thereto, was or will be prepared in accordance with U.S. generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes to such financial
statements or, in the case of unaudited statements, as permitted by Form 10-Q or
8-K promulgated by the SEC), and fairly presented or will fairly present the
consolidated financial position of Candie's as at the respective dates and the
consolidated results of its operations and cash flows for the periods indicated,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not or are not expected to
be material in amount. The audited consolidated balance sheet of Candie's as of
January 31, 1997 is referred to herein as the "Candie's Balance Sheet."
4.6 Absence of Undisclosed Liabilities. Except as disclosed in the Candie's
SEC Reports, Candie's does not have any
29
<PAGE>
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with U.S. generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate could reasonably be expected to have an material adverse
effect, other than (i) liabilities reflected in the Candie's Balance Sheet, (ii)
liabilities specifically described in this Agreement or in the Candie's
Disclosure Statement, (iii) normal or recurring liabilities incurred since
January 31, 1997 in the ordinary course of business consistent with past
practices, and (iv) any liabilities permitted by Section 6.2 hereof.
4.7 Absence of Certain Changes or Events. Except as set forth in Section
4.7 of the Candie's Disclosure Statement, since the date of the Candie's Balance
Sheet, Candie's has conducted its businesses only in the ordinary course in a
manner consistent with past practice (except as disclosed in the Candie's SEC
Reports), and since such date there has not been: (a) any material adverse
effect or any facts or circumstances that could reasonably be expected to result
in an material adverse effect; (b) any damage, destruction or loss (whether or
not covered by insurance) with respect to Candie's having an material adverse
effect; (c) any material change by Candie's in its accounting methods,
principles or practices to which NRC has not previously consented in writing;
(d) any revaluation by Candie's of any of its assets having an material adverse
effect, unless NRC has previously consented in writing; or (e) except as
disclosed in the Candie's Disclosure Statement, any other action
30
<PAGE>
or event that would have required the consent of NRC pursuant to Section 6.2 of
this Agreement had such action or event occurred after the date of this
Agreement and that could reasonably be expected to result in an material adverse
effect.
4.8 Taxes.
(a) Candie's has accurately prepared and timely filed (or will so file) all
Returns required to be filed at or before the Effective Time relating to any and
all Taxes concerning or attributable to Candie's or to its operations, and such
Returns are true and correct in all material respects and have been completed in
all material respects in accordance with applicable law.
(b) As of the Effective Time Candie's: (i) will have paid all Taxes it is
required to pay prior to the Effective Time and (ii) will have withheld with
respect to its employees all federal and state income taxes, FICA, FUTA and
other Taxes required to be withheld, except in each case for Taxes contested in
good faith by appropriate proceedings for which adequate reserves have been
taken and except where the failure (if any) to pay or withhold such Taxes could
not reasonably be expected to have an material adverse effect.
(c) There is no Tax deficiency outstanding, proposed or assessed against
Candie's that is not reflected as a liability on the Candie's Balance Sheet nor
has Candies executed any waiver of any statute of limitations on or extending
the period for the assessment or collection of any Tax.
31
<PAGE>
(d) Candie's does not have any material liability for unpaid federal,
state, local or foreign Taxes that has not been accrued for or reserved on the
Candie's Balance Sheet, whether asserted or unasserted, contingent or otherwise.
4.9 Properties. Candie's owns or has valid leasehold interests in all real
property necessary for the conduct of its business as presently conducted. All
material leases to which Candie's is a party are in good standing, valid and
effective in accordance with their respective terms, and Candie's is not in
default under any of such leases, except where the lack of such good standing,
validity and effectiveness or the existence of such default could not reasonably
be expected to have a material adverse effect.
4.10 Intellectual Property.
(a) Candies owns, or is licensed or otherwise possesses, legally
enforceable rights to use, all patents, trademarks, trade names, service marks
and copyrights, any applications for and registrations of such patents,
trademarks, trade names, service marks and copyrights, and all processes,
formulae, methods, schematics, technology, know how, and tangible or intangible
proprietary information or material that are necessary to conduct the business
of Candie's as currently conducted or planned to be conducted by Candie's, the
absence of which would be reasonably likely to have a material adverse effect
(the "Candie's Intellectual Property Rights").
(b) The Candie's Intellectual Property Rights which are material to the
business of Candie's, are valid and
32
<PAGE>
subsisting; (ii) Candie's has not been sued in any suit, action or proceeding
which involves a claim of infringement of any of the Candie's Intellectual
Property Rights or other proprietary right of any third party; and (iii) the
manufacturing, marketing, licensing or sale of Candie's products does not
infringe any patent, trademark, service mark, copyright, trade secret or other
proprietary right of any third party, which infringement could, either
individually or in the aggregate, be reasonably likely to have an material
adverse effect.
4.11 Litigation. Except as set forth in Section 4.11 of the Candie's
Disclosure Schedule, there is no action, suit or proceeding, claim, arbitration
or, to the knowledge of Candie's, investigation against Candie's pending or, to
the knowledge of Candie's, threatened, or as to which Candie's has received any
written notice of assertion, which, if decided adversely to Candie's, could
reasonably be expected to have an material adverse effect or a material adverse
effect on the ability of Candie's to consummate the transactions contemplated by
this Agreement.
4.12 Employee Benefit Plans.
(a) Candie's has made available to NRC all employee benefit plans (as
defined in Section 3(3) of ERISA) and all bonus, stock option, stock purchase,
incentive, deferred compensation, supplemental retirement, severance and other
similar employee benefit plans, and all unexpired severance agreements, written
or otherwise, for the benefit of, or relating to, any current or former employee
of Candie's or any trade or
33
<PAGE>
business (whether or not incorporated) which is a member or which is under
common control with Candie's within the meaning of Section 414 of the Code
(together, the "Candie's Employee Plans"). Candie's does not maintain and has
never maintained or contributed to an employee benefit plan subject to Title IV
of ERISA (including a multiemployer plan as defined in Section 3(37) of ERISA).
(b) With respect to each Candie's Employee Plan, Candie's has made
available to NRC, a true and correct copy of (i) the most recent annual report
(Form 5500) filed with the IRS with respect to a Candie's Employee Plan subject
to such filing requirement, (ii) such Candie's Employee Plan, (iii) each trust
agreement and group annuity contract, if any, relating to such Candie's Employee
Plan, and (iv) the most recent determination letter issued with respect to any
plan which is intended to be qualified under section 401(a) of the Internal
Revenue Code.
(c) With respect to the Candie's Employee Plans, individually and in the
aggregate, no event has occurred, and to the knowledge of Candie's there exists
no condition or set of circumstances, in connection with which Candie's could be
subject to any material liability under ERISA, the Code or any other applicable
law.
(d) With respect to the Candie's Employee Plans, individually and in the
aggregate, there are no material funded benefit obligations for which
contributions have not been made or properly accrued and there are no material
unfunded benefit obligations which have not been accounted for by reserves, or
34
<PAGE>
otherwise properly footnoted in accordance with U.S. generally accepted
accounting principles, on the Candie's Financial Statements.
(e) Except as set forth in Section 4.12 of the Candie's Disclosure
Statement, and except as provided for in this Agreement, Candie's is not a party
to any oral or written (i) union or collective bargaining agreement, (ii)
agreement with any officer or other key employee of Candie's the benefits of
which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Candie's of the nature contemplated by
this Agreement, (iii) agreement with any corporate officer of Candie's providing
any term of employment or compensation guarantee extending for a period longer
than one year from the date hereof or for the payment of compensation in excess
of $50,000 per annum, or (iv) agreement or plan, including any stock option
plan, stock appreciation rights plan, restricted stock plan or stock purchase
plan, any of the benefits of which will be increased, or the vesting of the
benefits to which will be accelerate, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement.
4.13 Accounts Receivable; Inventory. Subject to any reserves set forth in
the Candie's Balance Sheet, the accounts receivable shown in the Candie's
Balance Sheet arose in the ordinary course of business; were not, as of the date
of Candie's Balance Sheet, subject to any material discount, contingency,
35
<PAGE>
claim of offset or recoupment or counterclaim: and represented, as of the date
of the Candie's Balance Sheet, bona fide claims against debtors or sales,
leases, licenses and other charges. All accounts receivable of Candie's arising
after the date of the Candie's Balance Sheet through the date of this Agreement
arose in the ordinary course of business and, as of the date of this Agreement,
are not subject to any material discount, contingency, claim of offset or
recoupment or counterclaim, except for normal reserves consistent with past
practice. The amount carried for doubtful accounts and allowances disclosed in
the Candie's Balance Sheet is believed by Candie's as of the date of this
Agreement to be sufficient to provide for any losses which may be sustained on
realization of the accounts receivable shown in the Candie's Balance Sheet. As
of the date of the Candie's Balance Sheet, the inventories shown on the Candie's
Balance Sheet consisted in all material respects of items of a quantity and
quality usable or saleable in the ordinary course of business. All of such
inventories were acquired in the ordinary course of business and, as of the date
of this Agreement, have been replenished in all material respects in the
ordinary course of business consistent with past practices. All such inventories
are valued on the Candie's Balance Sheet in accordance with U.S. generally
accepted accounting principles applied on a basis consistent with Candie's past
practices, and provision has been made or reserves have been established on the
Candie's Balance Sheet, in each case in an amount believed by Candie's as of the
36
<PAGE>
date of the Candie's Balance Sheet to be adequate, for all slow-moving, obsolete
or unusable inventories.
4.14 Board Recommendations. The Board of Directors of Candie's has
unanimously approved and adopted this Agreement, which vote included the
affirmative vote of a majority of the disinterested directors and has
recommended that the stockholders of Candie's approve and adopt the Plan of
Merger.
4.15 Financial Advisor Opinion. The financial advisor of Candie's,
Ladenburg Thalmann & Co. Inc., has delivered to Candie's an opinion, as of, or
immediately prior to the date of this Agreement to the effect that the Exchange
Ratio is fair from a financial point of view to the holders of the Candie's
Common Stock (the "Candie's Fairness Opinion").
4.16 Statements True and Correct. No statement, certificate, instrument or
other writing furnished or to be furnished by NRC pursuant to this Agreement or
any other document, agreement or instrument referred to herein contains or will
contain any untrue statement of fact of material fact or omits or will omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V
COVENANTS OF NRC
5.1 Shareholder Meeting. The Board of Directors of NRC shall take all
actions necessary to convene and cause the shareholders of NRC to hold a special
shareholders meeting to
37
<PAGE>
consider and vote upon the approval of the Plan of Merger by July 31, 1998.
5.2 Conduct of the Business; Prohibited Activities. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, and except as otherwise contemplated by
or set forth in this Agreement, NRC (except to the extent that Candie's shall
otherwise consent in writing, which consent shall not be unreasonably withheld),
shall carry on its business in the usual, regular and ordinary course in
substantially the same manner as previously conducted, pay its debts and taxes
when due subject to good faith disputes over such debts or taxes, pay or perform
its other obligations when due, and, to the extent consistent with such
business, use reasonable efforts consistent with past practices and policies to
(i) preserve intact its present business organization, (ii) keep available the
services of its present officers and key employees, and (iii) preserve its
relationships with customers, suppliers, distributors, licensors, licensees and
others having business dealings with it, except where the failure to do so could
not reasonably be expected to have a material adverse effect. NRC shall notify
Candie's promptly after becoming aware of any event or occurrence not in the
ordinary course of business of NRC that would result in a breach of any covenant
or agreement of NRC set forth in this Agreement or cause any representation or
warranty of NRC set forth in this Agreement to be untrue as of the date of such
event or occurrence. Except as expressly contemplated by this
38
<PAGE>
Agreement, or as set forth in Section 5.2 of the NRC Disclosure Statement, NRC
shall not, without the prior written consent of Candie's, which shall not be
unreasonably withheld:
(a) accelerate, amend or change the period of exerciseability of
options or restricted stock granted under any of the NRC stock option plans
or authorize cash payments in exchange for any options granted under any of
such plans except as required by the terms of such plans or any related
agreements in effect as of the date of this Agreement;
(b) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the NRC Intellectual Property Rights other
than in the ordinary course of business consistent with past practices or
on a non-exclusive basis not materially different from past practices;
(c) declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital
stock, or split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock, or purchase or otherwise
acquire, directly or indirectly, any shares of its capital stock except
from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service by such party;
39
<PAGE>
(d) issue, deliver or sell, or authorize or propose the issuance,
delivery or sale of, any shares of its capital stock or securities
convertible into shares of its capital stock, or subscriptions, rights,
warrants or options to acquire, or other agreements or commitments of any
character obligating it to issue any such shares or other convertible
securities, other than (i) the issuance of NRC Common Stock or the grant of
options or rights to acquire NRC Common Stock pursuant to the NRC stock
option plans in the ordinary course of business substantially consistent as
to amount, exercise price, vesting and other terms with past practice, and
(ii) the issuance of shares of NRC Common Stock as and to the extent
required under the NRC stock option plans;
(e) acquire or agree to acquire, by merging or consolidating with, by
purchasing a substantial equity interest in or substantial portion of the
assets of, or by any other means, any business or any corporation,
partnership or other business organization or division, or otherwise
acquire or agree to acquire any material amount of assets;
(f) sell, lease, license or otherwise dispose of any of its properties
or assets which are material, individually or in the aggregate, to the
business of NRC, except for sales, leases or licenses of products, services
and software in the ordinary course of business;
40
<PAGE>
(g) take any action to: (i) increase or agree to increase the
compensation payable or to become payable to its officers or employees,
except for increases in salary or wages of officers or employees in
accordance with past practices, (ii) grant any additional severance or
termination pay to, or enter into any employment or severance agreements
with, directors or officers, (iii) grant any severance or termination pay
to, or enter into any employment or severance agreement with, any employee,
except in accordance with past practices or in settlement of disputes with
present or former employees, not material in amount, either individually or
in the aggregate, (iv) enter into any collective bargaining agreement, or
(v) establish, adopt, enter into or amend in any material respect any
bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment, termination,
severance or other plan, trust, fund, policy or arrangement for the benefit
of any directors, officers or employees;
(h) revalue any of its assets, including writing down the value of
inventory or writing off notes or accounts receivable, other than in the
ordinary course of business or pursuant to arm's length transactions on
commercially reasonable terms or where such action will not have a material
adverse effect;
(i) incur or maintain any indebtedness for borrowed money or guarantee
any such indebtedness or issue
41
<PAGE>
or sell any debt securities or warrants or rights to acquire any debt
securities or guarantee any debt securities of others in excess of a
maximum aggregate amount outstanding at any time of $25,000 inclusive of
indebtedness outstanding as of the date of this Agreement;
(j) amend or propose to amend its Certificate of Incorporation or
Bylaws;
(k) incur or commit to incur capital expenditures in excess of $25,000
in the aggregate;
(l) enter into or amend any agreements pursuant to which any third
party is granted exclusive marketing, manufacturing or other rights with
respect to any NRC product, process or technology;
(m) amend or terminate any material contract, agreement or license to
which it is a party except in the ordinary course of business;
(n) waive or release any material right claim, except in the ordinary
course to business;
(o) initiate any litigation or arbitration proceeding; or
(p) take, or agree in writing or otherwise to take, any of the actions
described in the foregoing clauses (a) through (o), or any action which (i)
would make any of NRC's representations or warranties in this Agreement, if
made on and as of the date of such action or agreement, untrue or incorrect
in any material respect, or (ii) could
42
<PAGE>
prevent it from performing, or cause it not to perform, its obligations
under this Agreement.
5.3 Commission Filings. NRC shall cooperate fully with Candie's in
providing the information required for the Joint Proxy Statement and the
Registration Statement (each as defined in Section 6.3). The information
supplied by NRC for inclusion in the Joint Proxy Statement and Registration
Statement shall not contain, any untrue statement of a material fact or omit to
state any material fact required to be stated in the Registration Statement or
necessary in order to make the statements in the Registration Statement in light
of the circumstances under which they were made not misleading, (i) at the time
the Registration Statement is declared effective by the SEC, (ii) on the date
the Joint Proxy Statement is first mailed to NRC shareholders and the Candie's
shareholders and (iii) on the dates of the meetings of NRC shareholders and the
Candie's shareholders referred to in Article II hereof, insofar as they relate
to NRC. NRC shall correct any information provided by it for use in the Joint
Proxy Statement or Registration Statement which shall have become untrue or
misleading.
ARTICLE VI
COVENANTS OF CANDIE'S
6.1 Shareholder Meeting. The Board of Directors of Candie's shall take all
actions necessary to convene and cause the shareholders of Candie's to hold a
special or annual shareholders meeting to consider and vote upon the approval of
43
<PAGE>
the Plan of Merger and the issuance of the Candie's securities in connection
with the Merger.
6.2 Conduct of Business Pending Merger. During the period from the date of
this Agreement and continuing until the earlier of the termination of the
Agreement or the Effective Time, and except as otherwise set forth in Section
6.2 of the Candie's Disclosure Statement, Candie's (except to the extent that
NRC shall otherwise consent in writing), shall carry on its business in the
usual, regular and ordinary course in substantially the same manner as
previously conducted, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform its other obligations when
due, and, to the extent consistent with such business, to use all reasonable
efforts consistent with past practices and policies to (i) preserve intact its
present business organization, (ii) keep available the services of its present
officers and key employees, and (iii) preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others having business
dealings with it, except where the failure to do so could not reasonably be
expected to have an material adverse effect.
6.3 Commission Filings. Promptly after the date hereof, Candie's shall file
with the SEC a registration statement on Form S-4 or other appropriate form
under the Securities Act, and the rules and regulations thereunder, relating to
the shares of Candie's Common Stock and to the extent the form is available for
such purpose the Reserved Securities to be issued with respect to the Merger
(the "Registration Statement"). The
44
<PAGE>
Registration Statement shall contain a proxy statement, together with a form of
proxy with respect to each of the meeting of NRC's shareholders, at which the
shareholders of NRC will vote upon the Plan of Merger and the meeting of the
Candie's shareholders, at which the shareholders will vote upon the Plan of
Merger and the issuance of the Candie's securities (the "Joint Proxy
Statement"). Candie's shall use all reasonable efforts to have the Registration
Statement declared effective under the Securities Act and the Joint Proxy
Statement cleared by the Commission as promptly as practicable, and shall
cooperate with NRC to promptly thereafter mail the Joint Proxy Statement to the
respective shareholders of NRC and Candie's. Candie's shall take any action
required to be taken under state blue sky or securities laws.
6.4 The term "Registration Statement" shall mean such Registration
Statement at the time it becomes effective and all amendments thereto duly filed
and similarly mailed. The term "Joint Proxy Statement" shall mean such proxy or
information statement at the time it is initially mailed to Candie's
shareholders and NRC's shareholders and all amendments or supplements thereto,
if any, similarly filed and mailed. The information set forth in the
Registration Statement and the Joint Proxy Statement shall be true and correct
in all material respects and shall not omit to state any material fact necessary
in order to make such information not misleading, (i) at the time the
Registration Statement is declared effective by the SEC, (ii) at the time the
Joint Proxy Statement is first mailed to the
45
<PAGE>
shareholders of Candie's and NRC and (iii) on the dates of the meetings of the
NRC shareholders and Candie's shareholders referred to in Article II. Candie's
shall correct any information provided by it for use in the Registration
Statement or the Joint Proxy Statement which shall have become untrue or
misleading.
ARTICLE VII
CONDITIONS TO OBLIGATIONS
7.1 Conditions to Obligations of NRC to Effect the Merger. The obligations
of NRC to effect the Merger are subject to the satisfaction or waiver at or
prior to the Effective Time of the following conditions, of which, subsections
(g) and (h) of this Section 7.1 may be waived in writing by NRC:
(a) This Agreement and the Merger shall have been approved and adopted
by the requisite vote or consent of the shareholders of NRC and Candie's
required by the Delaware Corporate Law;
(b) The Registration Statement shall have become effective and no stop
order suspending such effectiveness or qualification shall have been issued
or proceedings for such purpose shall have been instituted or threatened;
(c) No preliminary or permanent injunction or other order, decree,
action or proceeding shall have been instituted, issued or threatened
against any of the parties hereto or their directors or officers, before
any court or governmental department, regulatory or administrative agency
or commission to restrain or prohibit, or to obtain substantial
46
<PAGE>
damages in respect of, this Agreement or the consummation of the
transactions contemplated hereby and which in the opinion of NRC or
Candie's would make it inadvisable to consummate such transactions;
provided, however, that NRC and Candie's shall have used all best efforts
to prevent such event;
(d) the waiting period, if any, applicable to the consummation of the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the
"HSR" Act) shall have expired or have been terminated;
(e) NRC shall have received a letter, dated as of a date not more than
five (5) days prior to the Effective Date, from CoView Capital, Inc.
stating that the NRC Fairness Opinion is still in full force and effect as
of such date;
(f) The shares of Candie's Common Stock to be issued in the Merger
shall have been approved for listing on the Nasdaq National Market, or if
not available, on the Nasdaq Small Cap Market;
(g) The representations and warranties of Candie's set forth in this
Agreement shall be true and correct in all material respects as of the date
this Agreement and as of the Effective Date (except that representations
and warranties which are confined to a specific date shall be true and
correct as of such date);
(h) NRC shall have received an opinion of Tenzer Greenblatt LLP,
counsel to Candie's, in form reasonably acceptable to NRC and its counsel.
47
<PAGE>
7.2 Conditions to Obligations of Candie's to Effect the Merger. The
obligations of Candie's to effect the Merger shall be subject to the
satisfaction or waiver at or prior to the Effective Time of the following
conditions, of which subsections (g), (h), (i), and (j) of this section 7.2 may
be waived in writing by Candie's:
(a) This Agreement and the Merger shall have been approved and adopted
by the requisite vote or consent of the shareholders of Candie's and NRC
required by the Delaware Corporate Law;
(b) The Registration Statement shall have become effective and no stop
order suspending such effectiveness or qualification shall have been issued
or proceedings for such purpose shall have been instituted or threatened;
(c) No preliminary or permanent injunction or other order, decree,
action or proceeding shall have been instituted, issued or threatened
against any of the parties hereto or their directors or officers, before
any court or governmental department, regulatory or administrative agency
or commission to restrain or prohibit, or to obtain substantial damages in
respect of, this Agreement or the consummation of the transactions
contemplated hereby and which in the opinion of Candie's or NRC would make
it inadvisable to consummate such transactions; provided, however, that
Candie's shall have used all best efforts to prevent such event;
(d) the waiting period, if any, applicable to the consummation of the
Merger under the Hart-Scott-Rodino Antitrust
48
<PAGE>
Improvements Act of 1976 (the "HSR" Act) shall have expired or have been
terminated;
(e) Candie's shall have received a letter, dated as of a date not more
than five (5) days prior to the Effective Date, from Ladenburg & Thalmann &
Co. Inc. stating that the Candie's Fairness Opinion is still in full force
and effect as of such date;
(f) The shares of Candie's Common Stock to be issued in the Merger
shall have been approved for listing on the Nasdaq National Market, or if
not available, on the Nasdaq Small Cap Market;
(g) The representations and warranties of NRC set forth in this
Agreement shall be true and correct in all material respects as of the date
of this Agreement and as of the Effective Date (except that representations
and warranties which are confined to a specific date shall be true and
correct as of such date);
(h) NRC shall have terminated any and all employment agreements with
any of its officers, directors and employees and shall have executed and
delivered all documentation in connection with such termination to
Candie's;
(i) Candies shall have received an opinion of Littman Krooks Roth &
Ball P.C., counsel to NRC, in form reasonably acceptable to Candie's and
its counsel; and
(j) NRC shall have obtained and delivered to Candie's copies of all
consents or approvals of all persons needed for the consummation of the
transactions contemplated
49
<PAGE>
hereby and all such consents and approvals shall be in full force and
effect, unless the failure to obtain such consent or approval is not
reasonably likely to have a material adverse effect on Candie's taken as a
whole giving effect to the transactions contemplated hereby.
ARTICLE VIII
INDEMNIFICATION
8.1 Indemnification by NRC of Candie's. NRC shall indemnify and hold
Candie's harmless from any and all damages or deficiencies resulting from any
misrepresentation, breach of any representation or warranty, or nonfulfillment
of any covenant or agreement on the part of NRC, whether contained in the
Agreement, the NRC Disclosure Statement or in any Exhibit hereto or in any
statement, or certificate furnished by NRC in connection with the consummation
of the transactions contemplated by this Agreement; and any and all actions,
suits, proceedings, demands, assessments, judgments, costs and expenses incident
to any of the foregoing, including but not limited to reasonable attorneys' fees
and expenses.
8.2 Indemnification by Candie's of the Shareholders, Directors and Officers
of NRC. (a) Candie's shall indemnify and hold the shareholders of NRC harmless
from any and all damages or deficiencies resulting from any misrepresentation,
breach of any representation or warranty, or nonfulfillment of any covenant or
agreement on the part of Candie's whether contained in this Agreement or any
Exhibit hereto or in the Candie's Disclosure Statement or any certificate
furnished by Candie's in connection
50
<PAGE>
with the consummation of the transactions contemplated by the Agreement; and any
and all actions, suits, proceedings, demands, assessments, judgments, costs, and
expenses incident to any of the foregoing, including but not limited to
reasonable attorneys' fees and expenses.
(b) For a period of three (3) years after the Effective Time, Candie's
shall indemnify and hold harmless the current officers and directors of NRC to
the fullest extent permitted by Section 145 of the Delaware Corporate Law, as
the same may be amended and supplemented, for damages arising out of or
resulting from actions in their capacity as an officer or director of NRC.
8.3 Termination of Indemnification Obligations Upon Closing. Except for the
indemnification obligations set forth in Section 8.2(b), the respective
indemnification obligations of NRC and Candies set forth in this Article VIII
shall expire with, and be terminated and extinguished upon, consummation of the
Merger, and thereafter neither NRC nor Candie's shall have any liability
whatsoever with respect to any such indemnification obligation.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after approval by the shareholders of NRC:
(a) By mutual written consent of the Boards of Directors of Candie's
and NRC; or
51
<PAGE>
(b) By NRC:
(i) If the Effective Time shall not have occurred on or before
July 31, 1998 after the date hereof; or
(ii) If Candie's fails to perform in any material respect any of
its material obligations under this Agreement; or
(c) By Candie's:
(i) If the Effective Time shall not have occurred on or before
July 31, 1998 after the date hereof;
(ii) If NRC fails to perform in any material respect any of its
material obligations under the Agreement.
9.2 Effect of Termination. In the event of the termination of this
Agreement as provided in Section 9.1, this Agreement shall forthwith become
void, and there shall be no liability on the part of Candie's or NRC.
9.3 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto; provided, however, after
approval by the shareholders of NRC, such amendment shall not:
(i) alter or change the amount or kind of shares, securities, cash,
property and/or rights to be received in exchange for or on conversion of
all or any of the shares of any class or series thereof of such Constituent
Corporation; and
(ii) Alter or change any of the terms or conditions of this Agreement
if such alteration or change would adversely affect the holder of any class
or series thereof of any Constituent Corporation.
52
<PAGE>
9.4 Waiver. At any time prior to the Effective Time, whether before or
after the meetings of the NRC shareholders or the Candie's shareholders referred
to in Article II, any party hereto, by action taken by its Board of Directors,
may (i) extend the time for the performance of any of the obligations or other
acts of any other party hereto or, (ii) excepting the provisions contained in
Section 9.3, waive compliance with any of the agreements of any other party or
with any conditions to its own obligations. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in an
instrument in writing signed on behalf of such party by a duly authorized
officer.
ARTICLE X
NO SOLICITATION
From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in accordance with Section
9.1, neither Candie's nor NRC shall, nor shall its stockholders directly or
indirectly, through any officer, director, employee, representative, agent or
affiliate, (i) solicit, initiate, or encourage any inquiries or proposals that
constitute, or could reasonably be expected to lead to, a proposal or offer for
a merger, consolidation, sale or purchase of substantial assets or stock, tender
or exchange offer, or other business combination or change in control or similar
transaction involving such party, other than the transactions contemplated or
permitted by this Agreement (any of the foregoing inquiries or proposals being
referred to in this
53
<PAGE>
Agreement as a "Competing Offer"), (ii) engage in negotiations or discussions
concerning, or provide any non-public information to any person or entity
relating to, any Competing Offer, or (iii) agree to, approve or recommend any
Competing Offer.
ARTICLE XI
MISCELLANEOUS
11.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
11.2 Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Inclusion of information in any Disclosure
Statement does not constitute an admission or acknowledgment of the materiality
of such information.
11.3 Representations and Warranties. The respective representations and
warranties of NRC and Candie's contained herein, and the covenants, obligations,
agreements and liabilities of each of them shall expire with, and be terminated
and extinguished upon, consummation of the Merger, and thereafter neither NRC
nor Candie's nor any officer, director or principal thereof shall be under any
liability whatsoever with respect to any such representation or warranty. This
Section shall have no effect upon any other obligation of the parties hereto,
whether to be performed before or after the consummation of the Merger.
11.4 Brokers and Agents. Candie's and NRC each represents and warrants to
the other that it has not employed any
54
<PAGE>
broker or agent in connection with the transactions contemplated by this
Agreement.
11.5 Expenses. Except as otherwise specifically provided in this Agreement,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses, whether or not the transactions contemplated hereby are
consummated.
11.6 Mutual Drafting. This Agreement is the mutual product of the parties
hereto, and each provision hereof has been subject to mutual consultation,
negotiation and agreement of each of the parties, and shall not be construed for
or against any party hereto.
11.7 Entire Agreement. This Agreement (together with the other agreements,
instruments and documents delivered pursuant hereto) including the
Non-Disclosure Agreement dated February 19, 1998 executed by the parties hereto,
constitutes the entire agreement of the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
between the parties hereto, oral and written with respect to the subject matter
hereof.
11.8 Public Statements. NRC and Candie's shall consult with each other
prior to issuing any press release or otherwise making any public statement with
respect to the contents of this document or the transactions contemplated
hereby, and none of the parties hereto shall issue any press release or make any
such public statement prior to such
55
<PAGE>
consultation, except as may be required by law or NASDAQ regulations.
11.9 Due Diligence Investigation. Upon reasonable notice and subject to
applicable law and other legal obligation, Candie's and NRC shall each afford to
the officers, employees, accountants, financial advisors, counsel and other
representatives of the other, access during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records, concerning its business, properties and personal as
such other party may reasonably request. Unless otherwise required by law, the
parties shall hold all such information confidential and treat such information
as "Evaluation Material" in accordance with the Non-Disclosure Agreement dated
February 19, 1998 between the parties hereto.
11.10 Cooperation. Each of the parties hereto shall cooperate and take any
and all actions, and execute and acknowledge, deliver, file and/or record any
and all documents and instruments as the other party hereto reasonably requests
from time to time in order to have fully protect and perfect the rights intended
to be granted hereunder.
11.11 Notices. All notices or other communications required or permitted
hereunder shall be sufficiently given:
(i) on the date of delivery, if delivered by hand or by courier; (ii)
upon receipt of confirmation of transmission if transmitted by telecopier,
and (iii) on the third business day after mailing
56
<PAGE>
if mailed by registered or certified mail, postage prepaid, return receipt
requested, as set forth below:
If to Candie's to:
Candie's Inc.
2975 Westchester Avenue
Purchase, New York 10577
Attn: Neil Cole, President
Fax: (914) 694-8606
Copy to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attn: Michael S. Mullman, Esq.
Fax: (212) 885-5001
If to NRC:
New Retail Concepts, Inc.
2975 Westchester Avenue
Purchase, New York 10577
Attn: Gary Klein, Vice President-Finance
Fax: (914) 694-8606
Copy to:
Littman Krooks Roth & Ball P.C.
655 Third Avenue
New York, New York 10017
Attn: Mitchell Littman, Esq.
Fax: (212) 490-2990
or such other address that shall be furnished in writing by either party.
11.12 No Assignment. This Agreement and the rights, interests and
obligations hereunder may not be assigned by any party hereto, by operation of
law or otherwise without the prior written consent of the other party hereto,
and any such purported assignment without such consent shall be null and void.
11.13 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one
57
<PAGE>
and the same agreement and shall become effective when one or more counterparts
have been signed by each of the parties hereto and delivered to each of the
other parties hereto and each of which shall be deemed an original.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
hereof.
CANDIE'S INC.
a Delaware corporation
By: /s/ David Golden
------------------------
Name: David Golden
Title: Chief Financial Officer
NEW RETAIL CONCEPTS, INC.
a Delaware corporation
By: /s/ Neil Cole
------------------------
Name: Neil Cole
Title: Chief Executive Officer
58
<PAGE>
DISCLOSURE STATEMENT
TO
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
CANDIES, INC.
AND
NEW RETAIL CONCEPTS, INC.
DATED APRIL 6, 1998
59
<PAGE>
Section 3.5
Compliance
Consummation of the transactions will violate the following agreements
without the prior consent of the other party thereto:
1. Purchase and Sale Agreement dated as of December 31, 1992 between
NRC and Stantrob Associates, Ltd.
2. Settlement Agreement dated as of November 3, 1995 between NRC and
Stantrob Associates, Ltd.
3. License Agreement as of April 1, 1997 between NRC and Montgomery
Ward & Co., Incorporated.
4. Agreement dated as of April 1, 1992, as extended, between NRC and
Wal-Mart Stores, Inc.
5. Affiliate Transactions Agreement between NRC and Candie's dated
March 3, 1993, as amended January 30, 1995.
60
<PAGE>
Section 3.6
SEC Filings, Financial Statements
Certain Form 5 filings with respect to deferred reporting of options grants
and gift transactions have not been timely filed.
The Company failed to timely file its Quarterly Report on Form 10-QSB for
the quarter ended June 30, 1997.
61
<PAGE>
Section 3.7
Absence of Undisclosed Liabilities
As an inducement to join Candie's and in consideration of foregoing certain
future bonus opportunities pursuant to their respective employment agreements
with NRC, each of Messrs Neil Cole, Lawrence O'Shaughnessy and Gary Klein
received the following option grants and upon termination will receive the
following bonuses:
Options Bonus
------- -----
Neil Cole 626,543 @ $1.75 $525,000
Lawrence O'Shaughnessy 74,074 @ $1.75 $ 50,000
Gary Klein 49,383 @ $1.75 $ 25,000
62
<PAGE>
Section 3.10
Properties
NRC has a use of premises agreement with Candie's with respect to its executive
offices pursuant to a Services Allocation Agreement dated as of March 3, 1993.
63
<PAGE>
Section 3.11
Intellectual Property
NRC rights to the No Excuses(R) name are subject to its license agreements with
Stantrob Associates, Ltd.
64
<PAGE>
Section 3.12
Litigation
Carlos Cu, et al v. El Greco, et al, Index No. 22716/91, Queens Supreme Court.
Eric Knipe and Eyk International v. New Retail Concepts, Inc. and Neil Cole,
individually. Los Angeles Supreme Court, Case Number BC144605
65
<PAGE>
Section 3.13
Employee Benefit Plans
Employment Agreement dated January 1, 1989 between NRC and Neil Cole, as
amended:
Employment Agreement dated November 15, 1994 between NRC and Gary Klein.
Letter dated May 18, 1995 from NRC to Lawrence O'Shaughnessy with respect to the
retention of Mr. O'Shaughnessy by NRC as business advisor until March 31, 1997.
See items listed in Section 3.7 of this NRC Disclosure Statement.
66
<PAGE>
Section 4.5
SEC Filings
Certain Form 5 Filings with respect to deferred reporting of option grants
and gift transactions have not been timely filed.
67
<PAGE>
Section 4.7
Certain Changes
Candie's has served written notice of termination of its factoring arrangements
to Congress Talcott Corporation, effective April 27, 1998, and is in the process
of obtaining new financing arrangements with Nations Bank pursuant to the
commitment letter attached hereto.
68
<PAGE>
Section 4.11
Litigation
Petition for Order Compelling Arbitration by Lucky Brand Dungarees of
America; Inc. v. Candies, Inc., U.S. District Court, Central District of
California.
69
<PAGE>
Section 4.12
Employee Benefit Plans
1. Employment Agreement dated February 23, 1993 between Neil Cole and
Candie's, as amended March 6, 1995 and February 28, 1997.
2. Employment Agreement dated April 1, 1995 between Lawrence
O'Shaughnessy and Candie's as amended on March 17, 1997.
3. Employment Agreement dated November 15, 1994 between Gary Klein and
Candie's.
4. Employment Agreement dated March 1, 1998 between David Golden and
Candie's.
5. Employment Agreement dated November 30, 1994 between Lynn Miller and
Candie's, as amended on July 8, 1997.
70
<PAGE>
EXHIBIT 1.1
AGREEMENT AND PLAN OF MERGER (the "Plan") made the 6th day of April 1998,
between Candie's Inc., a Delaware corporation ("Candie's"), and New Retail
Concepts, Inc., a Delaware corporation ("NRC"); and
WHEREAS, each of the Boards of Directors of Candie's and NRC deems it
advisable and generally to the advantage and welfare of Candie's and NRC that
NRC merge with and into Candie's;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein and of the mutual benefits hereby provided, it is
agreed by and between the parties hereto as follows:
1. Merger. NRC shall be and it hereby is merged with and into
Candie's.
2. Effective Date. This Plan shall become effective immediately upon
compliance with the laws of the State of Delaware and the time of such
effectiveness being hereinafter called the Effective Date.
3. Surviving Corporation. Candie's shall survive the merger herein
contemplated and shall continue to be governed by the laws of the State of
Delaware, but the separate corporate existence of the NRC shall cease
forthwith upon the Effective Date.
4. Authorized Capital. The authorized capital stock of Candie's
following the Effective Date shall remain 30,000,000
<PAGE>
shares of common stock, $.001 par value (the "Candie's Common Stock"), and
5,000,000 shares of Preferred Stock, $.01 par value, unless and until the
same shall be changed in accordance with the laws of the State of Delaware.
5. Certificate of Incorporation. The Certificate of Incorporation of
Candie's in effect on the Effective Date, shall continue to be the
Certificate of Incorporation of Candie's following the Effective Date
unless and until the same shall be amended or repealed in accordance with
the provisions thereof;
6. Bylaws. The Bylaws of Candie's in effect on the Effective Date,
shall continue to be the Bylaws of Candie's following the Effective Date
unless and until the same shall be amended or repealed in accordance with
the provisions thereof.
7. Further Assurance of Title. If at any time NRC shall consider or be
advised that any acknowledgments or assurances in law or other similar
actions are necessary or desirable in order to acknowledge or confirm in
and to Candie's any right, title, or interest of NRC held immediately prior
to the Effective Date, NRC and its proper officers and directors shall and
will execute and deliver all such acknowledgments or assurances in law and
do all things necessary or proper to acknowledge or confirm such right,
title, or interest in NRC as shall be necessary to carry out the purposes
of this Plan, and NRC and the proper officers and directors thereof are
fully authorized to take any and all such action in the name of NRC or
otherwise.
2
<PAGE>
8. Conversion of Outstanding Stock. At the Effective Date:
(a) By virtue of the merger, automatically and without any action on
the part of the holder thereof:
(i) Each issued and outstanding share of NRC common stock, $.01
par value (the "NRC Common Stock") shall cease to exist and shall be
converted into and represent the right to receive 0.405 shares of
Candie's Common Stock (the "Exchange Ratio");
(ii) Any shares of NRC Common stock issued and held in the
treasury of NRC shall be cancelled;
(iii) Any shares of NRC Common Stock issued and owned by Candie's
immediately preceding the Effective Time shall be cancelled and
retired and no payment made with respect thereto;
(iv) Any shares of Candie's Common Stock issued and owned by NRC
immediately preceding the Effective Time shall be returned to the
status of authorized but unissued shares of Candie's Common Stock, and
no payment made with respect thereto;
(v) Any warrants or options to the purchase shares of Candie's
Common Stock issued and owned by NRC immediately preceeding the
Effective Time shall be cancelled, and no payment made with respect
thereto; and
(vi) Each issued and outstanding option to acquire one (1) share
of NRC Common Stock outstanding at the Effective Time shall be
converted into an option to acquire 0.405
3
<PAGE>
shares of Candie's Common Stock, which option shall be on
substantially the same terms and conditions, as the option being
converted, and shall be exercisable at an exercise price equal to the
quotient of (a) the exercise price of the option being converted
divided by (b) the Exchange Ratio, which quotient shall then be
rounded down to the nearest cent. Between the date hereof and the
Effective Date if necessary, Candie's shall amend its stock option
plan and reserve sufficient shares so as to permit the issuance of the
options to acquire shares of Candie's Common Stock described
hereinabove.
(b) No rights to receive fractional shares of Candie's Common Stock
shall arise under this Agreement.
(c) No fractional shares of Candie's Common stock shall be issued, but
in lieu thereof, each holder of Candie's Common Stock who would otherwise
be entitled to receive a fraction of a share of Candie's Common Stock shall
receive from Candie's an amount of cash equal to the price of one share of
Candie's Common Stock as of the date of the Merger (which price shall be
calculated as the average of the last sales price for Candie's Common Stock
during the twenty (20) day period immediately prior to the Effective Date)
multiplied by a fraction of a share of Candie's Common Stock for which such
holder would be entitled. No shareholder of NRC shall receive cash from
Candie's in lieu of fractional shares in an amount greater than the value
of one paid share of Candie's Common Stock.
9. Directors and Officers. The directors and officers of Candie's on the
Effective Date, shall continue to
4
<PAGE>
serve as directors and officers of Candie's for the balance of their terms as
directors and officers of Candie's and until their successors are elected and
qualified as provided by law and the Bylaws of Candie's.
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan to be
executed on the day and year first above written.
CANDIE'S, INC.
By: _____________________________
Name:
Title:
NEW RETAIL CONCEPTS, INC.
By: _____________________________
Name:
Title:
5
<PAGE>
CERTIFICATE OF MERGER
OF
NEW RETAIL CONCEPTS, INC.
(a Delaware corporation)
INTO
CANDIE'S INC.
(a Delaware corporation)
New Retail Concepts, Inc., a corporation formed under the laws of the State
of Delaware, desiring to merge with and into Candie's, Inc. pursuant to the
provisions of Section 251(c) of the Delaware General Corporation law, DOES
HEREBY CERTIFY as follows:
FIRST: That the names and states of incorporation of each Constituent
Corporations are:
NAME STATE OF INCORPORATION
- ---- ----------------------
Candie's, Inc. Delaware
New Retail Concepts, Inc. Delaware
SECOND: That the Agreement and Plan of Merger has been approved, adopted,
certified, executed and acknowledged by each of the Constituent Corporations in
accordance with Section 251(c) of the Delaware General Corporation Law.
THIRD: That the name of the surviving corporation is Candie's, Inc.
FOURTH: The Certificate of Incorporation of Candie's shall be the
Certificate of Incorporation of the surviving corporation.
FIFTH: That an executed Agreement and Plan of Merger is on file at the
principal place of business of Candie's, Inc. 2975 Westchester Avenue, Purchase,
New York 10577 and that a copy of the Agreement and Plan of Merger will be
furnished by the Surviving Corporation, on request and without cost, to any
stockholder of any Constituent Corporation.
IN WITNESS WHEREOF, Candie's, Inc. has caused this Certificate of Merger to
be executed by its president thereunto duly authorized this ___ day of
____________, 1998.
ATTEST: CANDIE'S, INC.
(a Delaware corporation)
By:________________________
Neil Cole, President
6
<PAGE>
AMENDMENT NO. 1 TO
AGREEMENT AND PLAN OF MERGER
AGREEMENT, dated as of the 14th day of May, 1998, by and among Candie's,
Inc., a Delaware corporation ("Candie's"), and New Retail Concepts, Inc., a
Delaware corporation ("NRC").
W I T N E S S E T H :
WHEREAS, the parties hereto are the parties to the Agreement and Plan of
Merger, dated April 6, 1998 (the "Merger Agreement"), pursuant to which NRC will
merge with and into Candie's and Candie's will be the surviving corporation; and
WHEREAS, the parties hereto wish to amend the Merger Agreement in the
manner set forth herein;
NOW, THEREFORE, in consideration of the agreements herein and in the Merger
Agreement contained, the parties hereto hereby agree as follows:
1. The Merger Agreement is hereby amended by adding a new subparagraph (i)
to paragraph 7.1 which shall read in its entirety as follows:
NRC shall have received an opinion of Littman Krooks Roth & Ball P.C.,
counsel to NRC, to the effect that the Merger will be treated for federal
income tax purposes as a tax free reorganization within the meaning of
Section 368(a) of the Code.
2. The Merger Agreement is hereby amended by adding a new subparagraph (k)
to paragraph 7.2, which shall read in its entirety as follows:
Candie's shall have received an opinion of Tenzer Greenblatt LLP, counsel
to Candie's, to the effect that the Merger will be treated for federal
income tax purposes as a tax free reorganization within the meaning of
Section 368(a) of the Code.
3. Paragraph 9.1 of the Merger Agreement is hereby amended to change the
July 31, 1998 date in subparagraphs (b) and (c) thereof to the date September
30, 1998.
4. Each of the parties hereby agrees to take all such actions and execute
all such documents and instruments as may be
<PAGE>
reasonably requested by any other party hereto in order to more fully effectuate
the provisions hereof.
5. Except as specifically amended by this Agreement, the Merger Agreement
(including the Exhibits and Schedules thereto) shall remain in full force and
effect in accordance with its terms, and is hereby ratified and confirmed by the
parties hereto.
6. This Agreement may only be amended or modified by a written instrument
executed by the party or parties against whom or which enforcement of such
amendment or modification is sought.
7. This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof, and supersedes all prior agreements
and understandings between the parties hereto, oral and written, with respect to
the subject matter hereof.
8. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be wholly
performed therein.
9. This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective heirs, legal representatives, successors and
assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
CANDIE'S, INC.
By /s/ DAVID GOLDEN
-----------------------------------
NEW RETAIL CONCEPTS, INC.
By /s/ NEIL COLE
-----------------------------------
-2-
<PAGE>
AMENDMENT NO. 2 TO
AGREEMENT AND PLAN OF MERGER
AGREEMENT, dated as of the 2nd day of June, 1998, by and among Candie's,
Inc., a Delaware corporation ("Candie's"), and New Retail Concepts, Inc., a
Delaware corporation ("NRC").
W I T N E S S E T H :
WHEREAS, the parties hereto are the parties to the Agreement and Plan of
Merger, dated April 6, 1998, as amended May 14, 1998 (the "Merger Agreement"),
pursuant to which NRC will merge with and into Candie's and Candie's will be the
surviving corporation; and
WHEREAS, the parties hereto wish to further amend the Merger Agreement in
the manner set forth herein;
NOW, THEREFORE, in consideration of the agreements herein and in the Merger
Agreement contained, the parties hereto hereby agree as follows:
1. The Merger Agreement is hereby amended by deleting the language on
Schedule 3.7," Absence of Undisclosed Liabilities" in its entirety and replacing
it with the following language:
As an inducement to join Candie's and in consideration of foregoing certain
future bonus opportunities pursuant to their respective employment agreements or
arrangements with NRC, upon termination each of Messrs Neil Cole, Lawrence
O'Shaughnessy and Gary Klein will receive the following bonuses:
Bonus
-----
Neil Cole $525,000
Lawrence O'Shaughnessy $ 30,000
Gary Klein $ 25,000
On March 9, 1998, in consideration for future and past services performed
on behalf of NRC, each of Messrs. Cole, O'Shaughnessy and Klein received the
following option grants, which options are contingent on continued employment
with NRC, or any successor thereto, and will vest with respect to one third
(1/3) of the aggregate amount granted to each individual, on the first, second
and third anniversary of the date of grant, respectively:
<PAGE>
Options
-------
Neil Cole 626,543 @ $1.75
Lawrence O'Shaughnessy 74,074 @ $1.75
Gary Klein 49,383 @ $1.75
2. Except as specifically amended by this Agreement, the Merger Agreement
(including the Exhibits and Schedules thereto) shall remain in full force and
effect in accordance with its terms, and is hereby ratified and confirmed by the
parties hereto.
3. This Agreement may only be amended or modified by a written instrument
executed by the party or parties against whom or which enforcement of such
amendment or modification is sought.
4. This Agreement constitutes the entire agreement of the parties hereto
with respect to the subject matter hereof, and supersedes all prior agreements
and understandings between the parties hereto, oral and written, with respect to
the subject matter hereof.
5. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York applicable to contracts made and to be wholly
performed therein.
6. This Agreement shall inure to the benefit of, and be binding upon, the
parties hereto and their respective heirs, legal representatives, successors and
assigns.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto as of the date first above written.
CANDIE'S, INC.
By /s/ DAVID GOLDEN
---------------------------------------
NEW RETAIL CONCEPTS, INC.
By /s/ NEIL COLE
---------------------------------------
-2-
<PAGE>
ANNEX B
April 6, 1998
The Board of Directors
Candie's, Inc.
2975 Westchester Avenue
Purchase, NY 10577
Gentlemen:
You have engaged us pursuant to the engagement letter, dated as of February 4,
1998, between Candie's, Inc. ("Candie's" or the "Company") and Ladenburg
Thalmann & Co. Inc. ("Ladenburg"). Specifically, you have requested our opinion
as to whether the "Exchange Ratio" (as defined in the Merger Agreement described
below) to be used by the Company in connection with the acquisition of New
Retail Concepts, Inc. ("NRCX") (the "Transaction") is fair, from a financial
point of view, to the shareholders of the Company.
In connection with rendering this opinion, we have reviewed such information as
we have deemed necessary or appropriate for the purpose of stating the opinions
expressed herein, including but not limited to the following: (i) the Letter of
Intent dated January 30, 1998; (ii) the merger agreement (the "Merger
Agreement") between the Company and NRCX dated April 6, 1998 and the draft Joint
Proxy Statement of the Company and NRCX dated March 20, 1998 (the "Joint Proxy")
(iii) the Annual Reports on Form 10-KSB for NRCX for the three fiscal years
ended March 31, 1995, 1996 and 1997; (iv) the Quarterly Report on Form 10-QSB
for NRCX for the nine months ended December 31, 1997; (v) NRCX management's
projected financial statements and other financial information for NRCX for the
years ending March 31, 1998 through 2002; (vii) detailed internal financial
statements for NRCX for the fiscal years ended March 31, 1995, 1996 and 1997;
(ix) publicly available information regarding the industry, NRCX, Candie's and
their competitors; (x) the Annual Reports on Form 10-K for Candie's for the
fiscal years ending January 31, 1995, 1996 and 1997; (xi) the Quarterly report
on Form-10Q or Candie's for the nine months ended October 31, 1997; (xii)
Candie's management's projected financial statements and other financial
information for Candie's for the years ending July 31, 1998 through 2001; and
(xiii) securities analysts research reports on Candie's including reports
published by Ladenburg.
In addition, we met with members of senior management of NRCX at their offices
and members of senior management of Candie's at their offices to discuss, among
other things, the historical and
<PAGE>
The Board of Directors
Candie's, Inc.
April 6, 1998
Page 2
- ----------------------
prospective industry environment, financial conditions and operating results for
Candie's and NRCX, respectively, and strategic reasons for the Transaction. We
have been advised that the Merger Agreement, the Joint Proxy and the exhibits to
such documents constitute all of the documentation and agreements between the
parties in respect to the Transaction.
The summary of the structure of the Transaction is as follows:
NRCX will merge with and into Candie's, leaving Candie's as the surviving
entity of the merger. Upon effective time of the merger, shareholders'
of NRCX (other than those who validly hold "Dissenters Shares" as
defined in the Merger Agreement) will receive 0.405 shares of Candie's
common stock for each share of common stock of NRCX.
Holders of options to purchase common stock of NRCX which are outstanding
at the effective time of the merger will receive options or warrants
to purchase the number of shares of Candie's common stock (at an
adjusted exercise price) that the holder thereof would have been
entitled to receive in the Transaction had such option or warrant been
exercised prior to the effective date of the Transaction.
Shares of Common Stock of Candie's owned by NRCX will be returned to the
status for authorized but unissued shares of Candie's Common Stock and
options and warrants to acquire common stock of Candie's owned by NRCX
will be canceled and not receive any consideration in the Transaction.
The Transaction is intended to be a "reorganization" within the meaning of
Section 368 (a) of the Internal Revenue Service Code of 1986, as
amended.
In rendering our opinion, we have assumed and relied upon the accuracy,
completeness and fairness, without assuming any responsibility for the
independent verification of, all financial and other information that was
available to us from public sources, that was provided to us by Candie's or
NRCX, or that was otherwise reviewed by us. With respect to financial
projections
<PAGE>
The Board of Directors
Candie's, Inc.
April 6, 1998
Page 3
- ----------------------
supplied to us, we assume that they have been reasonably prepared by senior
management based on both Candie's and NRCX's then current good faith best
estimates and judgments, and we have relied upon such projections and made no
independent verification of the basis, assumptions, calculations or other
information contained therein. We have further assumed that neither the
management of Candie's nor NRCX has any information or beliefs that make the
projections misleading. We have not made or been provided with an independent
evaluation or appraisal of the assets or liabilities (contingent or otherwise)
of NRCX, and we do not assume any responsibility for verifying any of the
information reviewed by us.
Our opinion is necessarily based upon information available to us, and
financial, stock market and other conditions and circumstances existing and
disclosed to us, as of the date hereof. Events occurring after such date could
materially affect the assumptions and conclusions contained herein.
In conducting our investigation and analyses and in arriving at our opinion
expressed herein, we have taken into account such accepted financial and
investment banking procedures and considerations as we have deemed relevant,
including: (i) historical revenues, operating earnings, net income, historical
stock prices and stock trading activity, operating assets of NRCX and
capitalization of the Company and NRCX and certain other publicly held companies
in businesses we believe to be comparable to those of the Company and NRCX; (ii)
the current financial and market position and results of operations of the
Company and NRCX; and (iii) the general condition of the securities market. In
addition, we performed various discounted cash flow analyses for certain
operating assets and liabilities of NRCX based on their expected future earnings
or payment projections using various discount rates.
We express no opinion as the price or trading range at which the Company's
Common stock would trade following the completion of the Transaction. The
opinion does not represent a recommendation as to how the shareholders of the
Company should vote in respect to the Transaction. We have not negotiated the
Transaction, provided legal advice or advised you to alternatives to the
Transaction. Additionally, we did not analyze the impact of any federal, state
or local income taxes to the Company shareholders arising out of the proposed
Transaction and assume that the
<PAGE>
The Board of Directors
Candie's, Inc.
April 6, 1998
Page 4
- ----------------------
merger will be treated as a tax-free reorganization as described above.
Ladenburg, as part of its investment banking services, is regularly engaged in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate or other
purposes. It is understood that this fairness opinion is not to be quoted,
excerpted or summarized, in whole or in part, without our written consent.
However this fairness opinion may be included in the Joint Proxy in connection
with the proposed Transaction. Ladenburg has been retained by the Board of
Directors of the Company to provide this opinion and has received fees and
indemnification against certain liabilities for the services rendered pursuant
to this engagement. Ladenburg has not provided investment banking or financial
advisory services to Candie's or NRCX in the past.
In our review, we have assumed, with your permission, that the documents to be
prepared, used and signed by the parties to formally affect the Transaction,
including the Joint Proxy or other disclosure material, to be delivered to the
shareholders of Candie's and NRCX to elicit any necessary consents for the
transaction, will effect the Transaction on the terms set forth in the Merger
Agreement without material alteration. We note that any material alteration to
the terms and conditions of the Merger Agreement from those set forth in the
Merger Agreement delivered to us could result in a change in our opinion as set
forth herein.
In the ordinary course of business, we actively trade securities for our own
account and for the accounts of our customers and, accordingly, may at any time
hold a long or short position in the debt or equity securities of the Company.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio to be used in the
Transaction is fair,
<PAGE>
The Board of Directors
Candie's, Inc.
April 6, 1998
Page 5
- ----------------------
from a financial point of view, to the shareholders of the Company.
Very truly yours,
s/Ladenburg Thalmann & Co., Inc.
LADENBURG THALMANN & CO. INC.
<PAGE>
ANNEX C
April 6, 1998
Board of Directors
New Retail Concepts, Inc.
2975 Westchester Avenue
Purchase, NY 10577
Gentlemen:
Candie's, Inc. ("Candie's") and New Retail Concepts, Inc. ("New Retail
Concepts" or the "Company") have entered into an Agreement and Plan of Merger
(the "Plan") dated April 6, 1998. Pursuant to the Plan, among other things, New
Retail Concepts will merge with Candie's and each issued and outstanding share
of common stock of New Retail Concepts (the "NRC Common Stock"), other than
shares held in treasury or held by Candie's, shall be converted into the right
to receive 0.405 (the "Exchange Ratio") shares of common stock of Candie's (the
"Candie's Common Stock") and each outstanding option to purchase one share of
NRC Common Stock will be converted into an option to purchase 0.405 shares of
Candie's Common Stock. The Merger terms and conditions are more fully set forth
in the Plan.
You have requested our opinion (the "Opinion") as to whether the Exchange
Ratio pursuant to the Plan is fair from a financial point of view to the public
holders of shares of NRC Common Stock.
CoView Capital is an investment banking firm and a member of the National
Association of Securities Dealers (NASD), and is regularly engaged as financial
advisor to companies in the divestiture and sale of businesses and in the
valuation of companies in connection with mergers and acquisitions and private
placements. CoView will receive a fee for rendering the Opinion. In addition,
New Retail Concepts has agreed to indemnify CoView for certain liabilities
arising from the delivery of the Opinion.
<PAGE>
For purposes of the Opinion set forth herein, we have reviewed and
analyzed, among other things, the following:
o developments in the Company's and Candie's markets;
o publicly available information with respect to certain of New Retail
Concepts' and Candie's competitors;
o historical Company and Candie's financial statements;
o internal financial statements and other financial and operating data
provided by the managements of New Retail Concepts and Candie's;
o Company projections for the fiscal years 1998 through 2002;
o Candie's projections for the fiscal years 1998 through 2001;
o securities research analysts' reports regarding Candie's;
o the reported prices and trading activity for the NRC Common Stock and
for Candie's Common Stock;
o information and market valuations pertaining to publicly-traded
companies which are engaged in activities relatively similar and
comparable to those of the Company and Candie's;
o the draft Agreement and Plan of Merger dated as of March 27, 1998;
o the draft Proxy Statement/Prospectus dated as of March 20, 1998.
In addition, we:
2
<PAGE>
o participated in discussions with the representatives of New Retail
Concepts and Candie's;
o discussed with the management of New Retail Concepts and of Candie's
the strategic logic for the Merger;
o performed a Discounted Cash Flow (DCF) analysis based on the Company's
future earnings projections using various discount rates;
o performed a Discounted Cash Flow (DCF) analysis on the future earnings
projections of Candie's using various discount rates;
o discussed with the management of New Retail Concepts and of Candie's
their respective financial statements, operations, prospects, and
financial projections.
CoView has relied upon, without independent verification or investigation,
the accuracy and completeness of all financial and other information provided by
New Retail Concepts and Candie's and certain publicly available information. All
internal financial statements, projections, operating data and estimates
reviewed by CoView for the purposes of this Opinion have been assumed to have
been prepared to reflect the best available estimates and judgements. We have
not obtained any independent evaluations or appraisals of any of the Company's
or Candie's assets, properties, liabilities or securities. We have relied upon
the reasonableness and accuracy of all internal financial projections,
forecasts, estimates, and analyses, including, without limitation, those
forecasts, estimates and analyses relating to future cash flows (collectively
the "Projections"). We have not independently verified the reasonableness and
accuracy of data and information used in preparing the Projections.
CoView has assumed that the Merger will be treated as a tax-free
reorganization and will be consummated according to the terms of the Plan.
It is understood that this fairness opinion is not to be summarized or
quoted without our prior written consent, other than for inclusion in the Proxy
Statement relating to the meeting of New Retail Concepts' shareholders to be
held in connection with the Merger. It is further understood that CoView's
opinion in no way addresses the market price at which
3
<PAGE>
Candie's shares will trade at any particular future time, nor does the opinion
represent a recommendation as to how New Retail Concepts shareholders should
vote on the Merger.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair, from a financial point of view, to the
public holders of NRC Common Stock.
CoView Capital, Inc.
s/CoView Capital, Inc.
4
<PAGE>
ANNEX D
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Appraisal Rights. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d)of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of his shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of an nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss.251, 252, 254, 257, 258, 263 or 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc., or (ii)
held of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the holders of the surviving corporation as
provided in subsection (f) of ss.251 of this title.
<PAGE>
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
ss.ss.251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock or depository
receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by
the National Association of securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss.253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
2
<PAGE>
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporation,s and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. a proxy or vote against the merger or
consolidation shall not constitute such a demand. a stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to ss.228 or
253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it
appears on the records of the corporation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of the
notice, demand in writing from the surviving or resulting corporation the
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof
3
<PAGE>
and who is otherwise entitled to appraisal rights, may file a petition in the
Court of Chancery demanding a determination of the value of the stock of all
such stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger of consolidation, any stockholder shall
have the right to withdraw his demand for appraisal and to accept the terms
offered upon the merger or consolidation. Within 120 days after the effective
date of the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of share not
voted in favor of the merger or consolidation a statement setting forth the
aggregate number of shares not voted in favor of the merger or consolidation and
with respect to which demands for appraisal have ben received and the aggregate
number of holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under subsection
(d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for
4
<PAGE>
notation thereon of the pendency of the appraisal proceedings; and if any
stockholder fails to comply with such discretion, the Court may dismiss the
proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertified stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
5
<PAGE>
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving in or resulting corporation a written withdrawal of his demand
for an appraisal and an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the statu of authorized and
unissued shares of the surviving or resulting corporation. (Last amended by Ch.
262, L. '94, eff. 7-1-94.)
6
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Section 145 of the General Corporation Law of the State of Delaware
provides for the indemnification of officers and directors under certain
circumstances against expenses incurred in successfully defending against a
claim and authorizes Delaware corporations to indemnify their officers and
directors under certain circumstances against expenses and liabilities incurred
in legal proceedings involving such persons because of their being or having
been an officer or director.
Section 102(b) of the Delaware General Corporation Law permits a
corporation, by so providing in its certificate of incorporation, to eliminate
or limit director's liability to the corporation and its shareholders for
monetary damages arising out of certain alleged breaches of their fiduciary
duty. Section 102(b)(7) provides that no such limitation of liability may affect
a director's liability with respect to any of the following: (i) breaches of the
director's duty of loyalty to the corporation or its shareholders; (ii) acts or
omissions not made in good faith or which involve intentional misconduct of
knowing violations of law; (iii) liability for dividends paid or stock
repurchased or redeemed in violation of the Delaware General Corporation Law; or
(iv) any transaction from which the director derived an improper personal
benefit. Section 102(b)(7) does not authorize any limitation on the ability of
the corporation or its shareholders to obtain injunction relief, specific
performance or other equitable relief against directors.
Article Nine of Candie's Certificate of Incorporation and Candie's By-laws
provide that all persons who Candie's is empowered to indemnify pursuant to the
provisions of Section 145 of the General Corporation Law of the Stat of Delaware
(or any similar provision or provisions of applicable law at the time in
effect), shall be indemnified by Candie's to the full extent permitted thereby.
The forgoing right of indemnification shall not be deemed to be exclusive of any
other rights to which those seeking indemnification may be entitled under any
by-law, agreement, vote of shareholders or disinterested directors, or
otherwise.
Article Ten of Candie's Certificate of Incorporation provides that no
director of Candie's shall be personally liable to Candie's or its shareholders
for any monetary damages for breaches of fiduciary duty of loyalty to Candie's
or its shareholders; (ii) for acts or omissions not in good faith or which
involve
II-2
<PAGE>
intentional misconduct or a knowing violation of law; (iii) under Section 174 of
the General Corporation Law of the State of Delaware; or (iv) for any
transaction from which the director derived an improper personal benefit.
Candie's employment agreements with each of Neil Cole and Lawrence
O'Shaughnessy provide that Candie's shall indemnify them and hold them harmless
for the consequences of all acts and decisions made by them in good faith while
performing services for Candie's. These agreements also require Candie's to use
its best efforts to obtain directors' and officers' liability insurance.
Item 21. Exhibits and Financial Statement Schedules.
(a) Exhibits
The Exhibits required to be filed as part of this Registration
Statement are listed on the attached Index to Exhibits.
(b) Financial Statement Schedules
No Financial Statement Schedules are filed as part of this
Registration Statement because they are not required or not applicable or
the required information is contained in the financial statements as notes
thereto.
II-3
<PAGE>
Item 22. Undertakings.
A. Rule 415 Undertakings.
The undersigned Registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii) To include any additional or changed information with respect to
the plan of distribution.
(2) That, for the purpose of determining liability under the Securities Act
of 1933, that each post-effective amendment shall be deemed as a new
Registration Statement of the securities offered, and the offering of the
securities at that time shall be deemed to be the initial bona fide offering.
(3) To remove from registration by filing a post-effective amendment to any
of the securities being registered which remain unsold at the end of the
offering.
(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act that is incorporated by reference
in the registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(5) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
II-4
<PAGE>
(6) That every prospectus (i) that is filed pursuant to paragraph (5)
immediately preceding, or (ii) that purports to meet the requirements of section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(7) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(8) To supply by means of a post-effective amendment all required
information concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration statement
when it became effective.
B. Indemnification Undertakings.
Reference is made to the items of (i) the Delaware General Corporation Law,
(ii) the Company's Certificate of Incorporation, (iii) the Company's By-Laws and
(iv) the employment agreements of Neil Cole and Lawrence O'Shaughnessy
(described in Item 20 hereof), which provide for certain rights of
indemnification for officers and directors of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act of 1933 and will be governed by the
final adjudication of such issue.
II-5
<PAGE>
Signatures
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S- 4 and has duly caused this Registration
Statement or amendment thereto to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Purchase, State of New York on June
30, 1998.
CANDIE'S, INC.
By: /s/ Neil Cole
-----------------------------
Neil Cole, President and
Chief Executive Officer
Each person whose signature appears below on this Registration Statement
hereby constitutes and appoints Neil Cole and Lawrence O'Shaughnessy or either
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and his name, place and stead, in any
and all capacities (until revoked in writing) to sign any and all amendments
(including post-effective amendments and amendments thereto) to this
Registration Statement of Candie's, Inc. and to file the same, with all exhibits
thereto, and other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone or his substitute, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Neil Cole Chairman of the Board, July 2, 1998
- -------------------------- President and Chief
Neil Cole Executive Officer
II-6
<PAGE>
/s/ Lawrence O'Shaughnessy Executive Vice July 2, 1998
- -------------------------- President, Chief
Lawrence O'Shaughnessy Operating Officer and a
Director
/s/ Barry Emanuel Director July 2, 1998
- --------------------------
Barry Emanuel
/s/ Mark Tucker Director July 2, 1998
- --------------------------
Mark Tucker
/s/ David Golden Senior Vice President July 2, 1998
- -------------------------- and Chief Financial
David Golden Officer
/s/ Gary Klein Vice President of July 2, 1998
- -------------------------- Finance (Principal
Gary Klein Accounting Officer)
II-7
<PAGE>
Index to Exhibits
-----------------
Exhibit
Numbers Description
- ------ ---------
2.1 Agreement and Plan of Merger between the Company and New
Retail Concepts, Inc. included as Annex A to the Proxy
Statement.
3.1 Certificate of Incorporation, as amended through October 1994
(1)(3)
3.2 Amendment to Certificate of Incorporation filed November 1994
(2)
3.3 By-Laws (1)
5.0 Opinion of Tenzer Greenblatt LLP
8.1 Form of Tax Opinion of Tenzer Greenblatt LLP
8.2 Form of Tax Opinion of Littman Krooks Roth & Ball P.C.
10.1 Trademark Purchase Agreement between the Company and New
Retail Concepts, Inc. (3)
10.2 1989 Stock Option Plan of the Company (1)
10.3 1997 Stock Option Plan of the Company (7)
10.4 Discount Factoring Agreement and Supplements between Congress
Talcott Corporation and the Company (4)
10.5 General Security Agreement between Congress Talcott
Corporation and Intercontinental Trading Group, Inc. (4)
10.6 Personal Guaranty and Waiver of Neil Cole in favor of Congress
Talcott Corporation (4)
10.7 Employment Agreement between Neil Cole and the Company (4)
10.8 Amendment to Employment Agreement between Neil Cole and the
Company (6)
10.9 Services Allocation Agreement between the Company and New
Retail Concepts Inc. (4)
10.10 Indemnity Agreement of Barnet Feldstein (4)
10.11 Amended and Restated Affiliates Transaction Agreement between
the Company and New Retail Concepts Inc. dated January 30,
1995 (2)
<PAGE>
10.12 Security Agreement among New Retail Concepts, Inc., the
Company, Bright Star Footwear, Inc. and Intercontinental
Trading Group, Inc., dated February 1, 1995 (2)
10.13 Guarantee of Neil Cole in favor of New Retail Concepts, Inc.
dated February 1, 1995 (2)
10.14 Lease with respect to the Company's executive offices (2)
10.15 Employment Agreement between Gary Klein and the Company (2)
10.16 Agreement dated May 16, 1994 between the Company and New
Retail Concepts, Inc. (2)
10.17 Agreement dated as of April 3, 1996 between the Company and
Redwood Shoe Corp. (5)
10.18 Amendment dated as of September 30, 1996 to agreement dated as
of April 3, 1996 between the Company and Redwood Shoe Corp.
(6)
10.19 Employment Agreement between Lawrence O'Shaughnessy and the
Company. (5)
10.20 Amendment to Employment Agreement between Lawrence
O'Shaughnessy and the Company. (6)
10.21 Bongo License Agreement (8)
10.22 December 31, 1996 Amendments to the Discount Factoring
Agreement between Congress Talcott Corporation and the
Company. (6)
10.23 December 31, 1996 Amendment to the Guarantee of Neil Cole in
Favor of Congress Talcott Corporation. (6)
10.24 Employment Agreement between David Golden and the Company. (8)
10.25 Revolving Credit and Security Agreement dated May 27, 1998 by
and among Nationsbanc Commerical Corporation and the
Company. (9)
10.26 Factoring Agreement dated May 27, 1998 between Nationsbanc
Commercial Corporation and the Company. (9)
21 Subsidiaries of the Company. (8)
23.1 Consent of Ernst & Young LLP
23.2 Consent of Grant Thornton LLP
23.3 Consent of Tenzer Greenblatt LLP (included in Exhibit 5.0)
99.1 Form of Candie's, Inc. Proxy
99.2 Form of NRC Proxy which is a part of this Registration
Statement
<PAGE>
- ----------
(1) Filed with the Registrant's Registration Statement on Form S-18 (File
33-32277-NY) and incorporated by reference herein.
(2) Filed with the Registrant's Annual Report on Form 10-KSB for the year ended
January 31, 1995, and incorporated by reference herein.
(3) Filed with the Registrant's Registration Statement on Form S-1 (File
33-53878) and incorporated by reference herein.
(4) Filed with the Registrant's Annual Report on Form 10-K for the year ended
January 31, 1994, and incorporated by reference herein.
(5) Filed with the Registrant's Annual Report on Form 10-KSB for the year ended
January 31, 1996, and incorporated by reference herein.
(6) Filed with the Registrant's Annual Report on Form 10-KSB for the year ended
January 31, 1997, and incorporated by reference herein.
(7) Filed with the Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1997, and incorporated by reference herein.
(8) Filed with the Registrant's Annual Report on Form 10-K for the year ended
January 31, 1998, and incorporated by reference herein.
(9) Filed with the Registrant's Quarterly Report on Form 10-Q for the quarter
ended April 30, 1998, and incorporated by reference herein.
Candie's, Inc.
June 30, 1998
Page 2
[LETTERHEAD OF TENZER GREENBLATT LLP]
Exhibit 5.0
June 30, 1998
Candie's, Inc.
1975 Westchester Avenue
Purchase, New York 10577
Gentlemen:
You have requested our opinion with respect to the public offering and sale
by Candie's Inc. (the "Company") pursuant to an Agreement and Plan of Merger
dated April 6, 1998, as amended, by and between the Company and New Retail
Concepts, Inc. ("NRC")(the "Merger Agreement") and Registration Statement (the
"Registration Statement") on Form S-4 under the Securities Act of 1933, as
amended (the "Act"), of (i) up to 2,326,174 shares (the "Shares") of the
Company's common stock, $.001 par value (the "Common Stock") to be issued to
holders of NRC common stock in connection with the merger contemplated by the
Merger Agreement (the "Merger") and (ii) up to 662,175 shares of Common Stock
(the "Option Shares") which will be issuable upon exercise of options (the
"Options") to be granted to the holders of options to purchase NRC common stock
in connection with the Merger.
We have examined originals, or copies certified or otherwise identified to
our satisfaction, of such documents and corporate and public records as we deem
necessary as a basis for the opinion hereinafter expressed. With respect to such
examination, we have assumed the genuineness of all signatures appearing on all
documents presented to us as originals, and the conformity to the originals of
all documents presented to us as conformed or reproduced copies. Where factual
matters relevant to such opinion were not independently established, we have
relied upon certificates of appropriate state and local officials, and upon
certificates of executive officers and responsible employees and agents of the
Company.
<PAGE>
Based upon the foregoing, it is our opinion that
(i) the Shares have been duly and validly authorized and when issued as
contemplated by the Merger Agreement and Registration Statement will be duly and
validly issued and fully paid and nonassessable;
(ii) the Option Shares have been duly and validly authorized and when
sold, paid for and issued upon exercise of the Options in accordance with the
terms of the Options, will be duly and validly issued and fully paid and
nonassessable.
We hereby consent to the use of this opinion as Exhibit 5 to the
Registration Statement, and to the use of our name as counsel in connection with
the Registration Statement and in the Prospectus forming a part thereof. In
giving this consent, we do not thereby concede that we come within the
categories of persons whose consent is required by the Act or the General Rules
and Regulations promulgated thereunder.
Very truly yours,
/s/ Tenzer Greenblatt LLP
TENZER GREENBLATT LLP
[LETTERHEAD OF TENZER GREENBLATT LLP]
Exhibit 8.1
___________, 1998
Candie's, Inc.
2975 Westchester Avenue
Purchase, New York 10577
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Agreement and
Plan of Merger, dated April 6, 1998, as amended by Amendment No. 1 thereto,
dated as of May 14, 1998, and as further amended by Amendment No. 2 thereto,
dated as of June 2, 1998 (the "Merger Agreement"), by and between Candie's,
Inc., a Delaware corporation ("Candie's"), and New Retail Concepts, Inc., a
Delaware corporation ("NRC"). Pursuant to the Merger Agreement, NRC will merge
with and into Candie's (the "Merger").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement or in a certificate delivered to us
by Candie's and NRC containing certain representations of Candie's and NRC (the
"Certificate of Representations"). All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as counsel to Candie's in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto):
(a) The Merger Agreement;
(b) The Registration Statement on Form S-4, and amendments thereto, filed
by Candie's and NRC with the Securities and Exchange Commission (the
"Registration Statement") under the Securities Act of 1933 (the "Act");
(c) The Certificate of Representations; and
<PAGE>
(d) Such other instruments and documents related to the formation,
organization and operation of Candie's and NRC and related to the consummation
of the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there is (or
will be prior to the Closing) due execution and delivery of all documents where
due execution and delivery are a prerequisite to the effectiveness thereof; and
2. The truth and accuracy at all relevant times, of all representations,
warranties and statements made or agreed to by Candie's and NRC, their
managements, employees, officers, directors and shareholders in connection with
the Merger, including but not limited to those set forth in the Merger Agreement
(including the exhibits) and the Certificate of Representations; and that all
covenants contained in such agreements are performed without waiver or breach of
any material provision thereof.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that for federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger except as
specifically set forth herein and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any other transaction whatsoever
including the Merger if all the transactions described in the Merger Agreement
are not consummated in accordance with the terms of the Merger Agreement and
without waiver of any material provision thereof. To the extent any of the
representations, warranties, statements and assumptions material to our opinion
and upon which we have relied are not complete, correct, true and accurate in
all material respects at all relevant times, our opinion would be adversely
affected and should not be relied upon.
This opinion represents only our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
the courts. The conclusions
<PAGE>
are based on the Code, existing judicial decisions, administrative regulations
and published rulings. No assurance can be given that future legislative,
judicial or administrative changes would not adversely affect the accuracy of
the conclusions stated herein. Nevertheless, by rendering this opinion, we
undertake no responsibility to advise you of any new developments in the
application or interpretation of the federal income tax laws.
This opinion may not be relied upon or utilized for any other purpose or by
any other person or entity, and may not be distributed or otherwise made
available to any other person or entity without our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Federal Income Tax
Consequences of the Merger" in the Registration Statement. In giving this
consent, we do not thereby concede that we come within the categories of persons
whose consent is required by the Act or the General Rules and Regulations
promulgated thereunder.
Very truly yours,
TENZER GREENBLATT LLP
Exhibit 8.2 Form of Tax Opinion of Littman Krooks Roth & Ball P.C.
[LKR&B LETTERHEAD]
FORM OF LKR&B TAX OPINION
_________, 1998
New Retail Concepts, Inc.
2975 Westchester Avenue
Purchase, New York 10577
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the Agreement and
Plan of Merger dated April 6, 1998, as amended by Amendment No. 1, dated as of
May 14, 1998 and by Amendment No. 2, dated as of June 2, 1998 (the "Merger
Agreement") by and between New Retail Concepts, Inc., a Delaware corporation
("NRC") and Candie's Inc., a Delaware corporation ("Candie's"). Pursuant to the
Merger Agreement, NRC will merge with and into Candie's (the "Merger").
Except as otherwise provided, capitalized terms not defined herein have the
meanings set forth in the Merger Agreement or in certificates delivered to us by
Candie's and NRC containing certain representations of Candie's, and NRC (the
"Certificates of Representations"). All section references, unless otherwise
indicated, are to the Internal Revenue Code of 1986, as amended (the "Code").
We have acted as special counsel to NRC in connection with the Merger. As
such, and for the purpose of rendering this opinion, we have examined originals,
certified copies or copies otherwise identified to our satisfaction as being
true copies of the original of the following documents (including all exhibits
and schedules attached thereto):
(a) the Merger Agreement;
(b) the Registration Statement on Form S-4, and amendments thereto, filed
by Candie's and NRC with the Securities and Exchange Commission (the
"Registration Statement");
(c) the Certificates of Representations; and
(d) such other instruments and documents related to the formation,
organization and operation of Candie's and NRC and related to the consummation
of the Merger and the transactions contemplated thereby as we have deemed
necessary or appropriate.
In connection with rendering this opinion, we have assumed (without any
independent investigation or review thereof):
1. Original documents (including signatures) are authentic, documents
submitted to us as copies conform to the original documents, and there is (or
will be prior to the Closing) due execution and delivery of all documents where
due execution and delivery are a prerequisite to the effectiveness thereof; and
2. The truth and accuracy at all relevant times, of all representations,
warranties and statements made or agreed to by Candie's and NRC, their
respective managements, employees, officers, directors and shareholders in
<PAGE>
connection with the Merger, including but not limited to those set forth in the
Merger Agreement (including the exhibits) and the Certificates of
Representations; and that all covenants contained in such agreements are
performed without waiver or breach of any material provision thereof.
Based on our examination of the foregoing items and subject to the
limitations, qualifications, assumptions and caveats set forth herein, we are of
the opinion that:
(a) For federal income tax purposes, the Merger will qualify as a
"reorganization" as defined in Section 368(a) of the Code; and
(b) The discussion entitled "Federal Income Tax Consequences of the Merger"
in the Registration Statement insofar as it relates to the statements of law or
legal conclusions is correct in all material respects.
This opinion does not address the various state, local or foreign tax
consequences that may result from the Merger. In addition, no opinion is
expressed as to any federal income tax consequence of the Merger except as
specifically set forth herein and this opinion may not be relied upon except
with respect to the consequences specifically discussed herein.
No opinion is expressed as to any transaction other than the Merger as
described in the Merger Agreement or to any other transaction whatsoever
including the Merger if all the transactions described in the Merger Agreement
are not consummated in accordance with the terms of the Merger Agreement and
without waiver of any material provision thereof. To the extent any of the
representations, warranties, statements and assumptions material to our opinion
and upon which we have relied are not complete, correct, true and accurate in
all material respects at all relevant times, our opinion would be adversely
affected and should not be relied upon.
This opinion only represents our best judgment as to the federal income tax
consequences of the Merger and is not binding on the Internal Revenue Service or
the courts. The conclusions are based on the Code, existing judicial decisions,
administration regulations and published rulings. No assurance can be given that
future legislative, judicial or administrative changes would not adversely
affect the accuracy of the conclusions stated herein. Nevertheless, by rendering
this opinion, we undertake no responsibility to advise you of any new
developments in the application or interpretation of the federal income tax
laws.
This opinion may not be relied upon or utilized for any other purpose or by
any other person or entity, and may not be distributed or otherwise made
available to any other person or entity without our prior written consent. We
hereby consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of our name under the heading "Federal Income Tax
Consequences of Merger" in the Registration Statement. In giving this consent,
we do not thereby concede that we come within the categories of persons whose
consent is required by Securities Act of 1933, as amended, or the General Rules
and Regulations promulgated thereunder.
Sincerely,
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated April 16, 1998, included in the Joint Proxy Statement/
Prospectus of Candie's, Inc. that is made a part of the Registration Statement
(Form S-4) of Candie's, Inc. for the registration of its common stock.
/s/ ERNST & YOUNG
White Plains, New York
June 29, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
We have issued our report dated May 22, 1998, (except for Notes A and G, as to
which the date is June 2, 1998), accompanying the financial statements of New
Retail Concepts, Inc. contained in the Joint Proxy Statement and Prospectus. We
consent to the use of the aforementioned report in the Joint Proxy Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts."
/s/ GRANT THORNTON LLP
New York, New York
June 25, 1998
CANDIE'S, INC.
2975 Westchester Avenue
Purchase, New York 10577
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST 17, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints NEIL COLE and LAWRENCE O'SHAUGHNESSY, and each
of them, Proxies, with full power of substitution in each of them, in the name,
place and stead of the undersigned, to vote at the Annual Meeting of
Stockholders of Candie's Inc. (the "Company") on Monday, August 17, 1998, at the
offices of the Company, 2975 Westchester Avenue, Purchase, New York 10577 or at
any adjournment thereof, according to the number of votes that the undersigned
would be entitled to vote if personally present, upon the following matters:
1. Adoption of Agreement and Plan of Merger between the Company and New Retail
Concepts, Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
- --------------------------------------------------------------------------------
2. ELECTION OF DIRECTORS:
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees
listed below.
Neil Cole, Lawrence O'Shaughnessy, Barry Emanuel and Mark Tucker
(INSTRUCTION: To withhold authority to vote for any individual nominee, write
that nominees name in the space below.)
- --------------------------------------------------------------------------------
3. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(Continued and to be signed on reverse side)
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THOSE NOMINEES AND THE
PROPOSALS LISTED ABOVE.
Dated: _____________________, 1998
Please sign exactly as name appears heron. When shares are hold by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such, If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature of held jointly
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope.
NEW RETAIL CONCEPTS, INC.
2975 Westchester Avenue
Purchase, New York 10577
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS TO BE HELD AUGUST 17,1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints NEIL COLE and GARY KLEIN, and each of them,
Proxies, with full power of substitution in each of them, in the name, place and
stead of the undersigned, to vote at the Special Meeting of Stockholders of New
Retail Concepts, Inc. (the "Company") on Monday, August 17, 1998, at the
Company, 2975 Westchester Avenue, Purchase New York 10577 or at any adjournment
thereof, according to the number of votes that the undersigned would be entitled
to vote if personally present, upon the following matters:
1. Adoption of Agreement and Plan of Merger between the Company and Candie's,
Inc.
|_| FOR |_| AGAINST |_| ABSTAIN
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before meeting.
(Continued and to be signed on reverse side)
<PAGE>
THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE INSTRUCTIONS GIVEN ABOVE. IF NO
INSTRUCTIONS ARE GIVEN, THIS PROXY WILL BE VOTED FOR THE PROPOSALS LISTED ABOVE.
Dated: ____________, 1998
Please sign exactly as name appears hereon. When shares are hold by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such, if a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
- --------------------------------------------------------------------------------
Signature
- --------------------------------------------------------------------------------
Signature of held jointly
Please mark, sign, date and return this proxy card promptly using the
enclosed envelope.
