<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31,1998
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 1-12868
JALATE, LTD.
(Exact Name of Registrant as Specified in Its Charter)
California 95-4121885
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
1675 South Alameda Street; Los Angeles, CA 90021
(Address of Principal Executive Offices) (Zip Code)
213-765-5000
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No _______
The number of shares outstanding of the registrant's Common Stock, no par value,
at May 11, 1998 was 3,403,000 shares.
This Form 10-Q contains 19 pages.
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<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
JALATE, LTD.
Condensed Balance Sheets
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 170 $ 69
Trade accounts receivable, less
allowance for doubtful receivables
of $324 in 1997 and $284 in 1998 119 246
Inventories 4,812 4,484
Prepaid expenses and other
current assets 201 177
--------------- ------------
Total current assets 5,302 4,976
Property and equipment, at cost, net
of accumulated depreciation of $1,366
in 1997 and $1,467 in 1998 961 1,344
Investment in unconsolidated subsidiaries 551 580
Other assets, at cost, net 79 286
--------------- ------------
$ 6,893 $ 7,186
=============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable to bank $ 1,120 $ 820
Current portion of long term
liabilities -- 43
Due to factor 1,315 506
Trade accounts payable 3,235 3,387
Accrued expenses 401 374
--------------- ------------
Total current liabilities 6,071 5,130
--------------- ------------
Long term liabilities:
Capitalized lease obligations,
less current portion -- 139
Subordinated notes payable -- 950
--------------- ------------
Total long term liabilities -- 1,089
--------------- ------------
Shareholders' equity:
Preferred stock, no par value.
Authorized 3,000,000 shares; none
issued and outstanding -- --
Common stock, no par value. Authorized
20,000,000 shares; issued and
outstanding 3,403,000 shares 5,311 5,576
Accumulated deficit (4,489) (4,609)
--------------- ------------
Total shareholders' equity 822 967
--------------- ------------
$ 6,893 $ 7,186
=============== ============
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE> 3
JALATE, LTD.
Condensed Statements of Operations
(In thousands except Net loss per share and
Weighted average shares outstanding)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1997 1998
------------- ------------
<S> <C> <C>
Net sales $ 13,919 $ 12,242
Cost of goods sold 10,091 8,906
------------- ------------
Gross profit 3,828 3,336
Operating expenses 3,887 2,948
------------- ------------
Earnings (loss) from operations (59) 388
Other (income) expense:
Interest expense 131 243
Equity in (income) loss of
unconsolidated subsidiaries (156) 265
Other (income) -- (1)
------------- ------------
Total other (income) expense (25) 507
------------- ------------
Loss before income taxes (34) (119)
Income tax expense -- --
------------- ------------
Net loss $ (34) $ (119)
============= ============
Net loss per share:
Basic $ (0.01) $ (0.03)
Diluted (0.01) (0.03)
============= ============
Weighted average shares outstanding:
Basic 3,403,000 3,403,000
Diluted 3,403,000 3,403,000
============= ============
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
JALATE, LTD.
Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1997 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (34) $ (119)
------------- ------------
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 105 119
Increase (decrease) in allowance
for doubtful receivables 582 (210)
Equity in net (earnings) loss of
unconsolidated subsidiaries (85) 265
Changes in assets and liabilities:
(Increase) decrease in:
Trade accounts receivable (644) 82
Inventories (1,494) 328
Refundable income taxes 6 --
Prepaid expenses and other
current assets (190) 24
Other assets 4 (10)
Increase (decrease) in:
Accounts payable 675 152
Accrued expenses 269 (28)
------------- ------------
Total adjustments (772) 722
------------- ------------
Net cash provided by (used
in) operating activities (806) 603
------------- ------------
Cash flows from investing activities:
Capital expenditures (69) (484)
Investment in unconsolidated
subsidiaries -- (314)
------------- ------------
Net cash used in investing
activities (69) (798)
------------- ------------
Cash flows from financing activities:
Repayment to factor, net (545) (809)
Proceeds from issuance of (repayment
of) note payable to bank 1,351 (300)
Distributions from unconsolidated
subsidiaries -- 20
Proceeds from capitalized leases, net -- 183
Proceeds from issuance of long term
subordinated debt -- 950
Proceeds from issuance of warrants -- 50
------------- ------------
Net cash provided by financing
activities 806 94
------------- ------------
Net decrease in cash (69) (101)
Cash at beginning of period 97 170
------------- ------------
Cash at end of period $ 28 $ 69
============= ============
Supplemental disclosures of cash flow information:
Cash payments (refunds) during the
period for -
Interest $ 131 $ 213
Income taxes -- --
============= ============
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
JALATE, LTD.
Notes to Condensed Financial Statements
(Unaudited)
1. GENERAL
The unaudited condensed financial statements have been prepared on the same
basis as the audited financial statements of Jalate, Ltd. (the Company) are
generally prepared at the end of each fiscal year and, in the opinion of
management, reflect all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation for each of the periods presented. The results
of operations for interim periods are not necessarily indicative of results to
be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission under Rule 10-01 of
Regulation S-X, the accompanying financial statements and notes have been
condensed and do not contain certain information that will be included in the
Company's annual financial statements and notes thereto. For further
information, refer to the financial statements and related notes for the year
ended December 31, 1997 included in the Company's annual report on Form 10-K.
2. INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
Piece goods and trim $ 1,828,000 $ 1,463,000
Work in process 1,657,000 1,614,000
Finished goods 1,327,000 1,407,000
----------------- --------------
$ 4,812,000 $ 4,484,000
================= ==============
</TABLE>
3. INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
AIRSHOP. In October 1997, the Company purchased 40% of the outstanding common
stock and 100% of the outstanding convertible preferred stock of Airshop Ltd.
for $500,000, of which $186,000 was paid in 1997 and the remaining $314,000 was
paid in 1998. The Company also has an option, through December 31, 2000, to
purchase an additional 11% of the outstanding common stock of Airshop. Airshop
sells junior women's apparel, footwear, cosmetics and accessories through mail
order catalogs and its internet website.
Airshop, which began operations during 1997, is currently in the start-up phase
of its existence. The Company, which accounts for its investment in Airshop
under the equity method of accounting, recorded $40,000 as its share of
Airshop's loss in 1997 and $398,000 as its share of Airshop's loss in the first
quarter of 1998.
JOINT VENTURE. In November 1994, the Company entered into a manufacturing joint
venture, Linroz Manufacturing Company, L.P. (Joint Venture), with an affiliate
of its largest sewing contractor (the Partner) to improve the efficiency,
quality and cost of its products. The Joint Venture is a California Limited
partnership. The Company and the Partner each are equal limited partners and
each hold one-half of the outstanding capital stock of the sole general partner,
a California corporation. The Joint Venture commenced operations in May 1995.
For the three months ended March 31, 1997 and 1998, purchases from the Joint
Venture aggregated $1,109,000 and $990,000, respectively. The Company had
accounts payable to the Joint Venture for purchases of $113,000 and $141,000 at
March 31, 1997 and 1998, respectively.
The tables below contain unaudited summarized financial information for the
Joint Venture:
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<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1997 1998
------------- ------------
<S> <C> <C>
Net sales $ 1,109,000 $ 990,000
Gross profit 411,000 355,000
Operating expenses 88,000 82,000
Net earnings 313,000 266,000
============= ============
</TABLE>
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
Current assets $ 405,000 $ 626,000
Non current assets 811,000 764,000
----------------- --------------
Total assets $ 1,216,000 $ 1,390,000
================= ==============
Current liabilities $ 205,000 $ 183,000
Long-term debt 201,000 171,000
----------------- --------------
Total liabilities 406,000 354,000
Partners' capital 810,000 1,036,000
----------------- --------------
$ 1,216,000 $ 1,390,000
================= ==============
</TABLE>
4. NOTE PAYABLE TO BANK
The Company has a term loan with its bank lender. On December 31, 1997, the
Company was in default of certain restrictive covenants under the loan agreement
dated June 30, 1997. Subsequently, the agreement was renegotiated effective
January 21, 1998. On March 31, 1998, the Company was in default of certain
restrictive covenants under this new agreement. On April 1, 1998, the bank
agreed to waive the Company's compliance with those covenants through June 30,
1998. The principal balance of this loan was $1,120,000 on December 31, 1997
and, in keeping with the terms of the loan agreement, had been paid down to
$820,000 at March 31, 1998. The loan is scheduled to be paid off by July 17,
1998.
5. FACTOR AGREEMENT
The Company has an agreement with its factor that provides for advances to the
Company of up to 100% of qualified accounts receivable. The Company was in
default of certain restrictive covenants under this factoring agreement from
December 31, 1997 through March 31, 1998. On April 1, 1998, these defaults were
waived by the factor, and the agreement with the factor was amended by revising
these covenants for 1998. The Company currently is in compliance with those
amended covenants. In addition, this revised factor agreement increased the
amount of the revolving loan available to the Company. Under this revised
agreement, the Company may borrow up to $2,200,000 in addition to the advances
against the total qualified receivables. This $2,200,000 amount reduces to
$1,500,000 on July 1, 1998. As of March 31, 1998, approximately $500,000 was
available for borrowings under the agreement.
6. CAPITALIZED LEASES
The Company leases various pieces of equipment, primarily computers, under long
term leases and has the option to purchase the equipment for a nominal amount at
the termination of the lease. At March 31, 1998, future minimum lease payments
for these assets aggregate $207,000 ($45,000 per year) through September 2002,
of which $25,000 represents interest.
7. SUBORDINATED NOTES PAYABLE AND WARRANTS
On January 27, 1998, the Company issued subordinated notes payable to certain
shareholders of the Company, totaling $950,000. These notes call for interest
(at 10% per annum) to be paid quarterly beginning April 30, 1998 and quarterly
installments of principal commencing April 30, 1999. These notes mature on
January 31, 2000 and are secured by the Company's interest in Airshop, Ltd.
In connection with these transactions, the Company sold 500,000 stock purchase
warrants to the shareholders for $50,000. The warrants are exercisable at an
exercise price of $1.625 per share and expire on January 27, 2003. These
warrants were
6
<PAGE> 7
independently valued at $265,000. The $215,000 discount (the difference between
the $265,000 valuation and the $50,000 cash received) is included in other
assets and is being amortized over the life of the notes, with $9,000 being
expensed monthly beginning February 1998.
8. INCOME TAXES
Income taxes for the interim period were computed using the effective tax rate
estimated to be applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management. As of March 31, 1998, the management's
estimate of the 1998 effective tax rate is zero.
9. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share represents net earnings (loss) divided by the
weighted average number of shares of common stock outstanding. Diluted earnings
(loss) per share represents net earnings (loss) divided by the weighted average
number of shares of common stock outstanding inclusive of any dilutive impact of
common stock equivalents. During the fiscal quarters ended March 31, 1997 and
March 31, 1998, there was no difference between basic and diluted earnings per
share because the impact of options to purchase common stock was antidilutive.
10. RECENTLY ISSUED PRONOUNCEMENTS
COMPREHENSIVE INCOME. The Company adopted Statement of Financial Accounting
Standards (FAS) No. 130 "Reporting Comprehensive Income" on January 1, 1998.
There were no differences between "net loss" and "comprehensive income" as those
terms are defined in FAS 130.
SEGMENT REPORTING. In June 1997, the Financial Accounting Standards Board issued
Statement of Accounting Financial Standards Number 131, "Disclosure about
Segments of An Enterprise and Related Information" (FAS 131). FAS 131 supersedes
previous reporting requirements for reporting on segments of a business
enterprise and is effective for the Company's fiscal year ending December 31,
1998. The Company plans to implement FAS 131 in connection with its 1998 fiscal
year end reporting on Form 10-K. As FAS 131 only requires additional
disclosures, the Company expects there will be no impact on its financial
position or results of operations from the implementation.
START-UP ACTIVITIES. On April 3, 1998, the American Institute of Certified
Public Accountants Accounting Standards Executive Committee issued Statement of
Position 98-5 (SOP 98-5), "Reporting on the Costs of Start-up Activities." SOP
98-5 requires that costs of start-up activities, including organization costs,
be expensed as incurred. SOP 98-5 is effective for financial statements for
fiscal years beginning after December 15, 1998. In the fiscal year in which the
SOP is first adopted, the application should be reported as a cumulative effect
of a change in accounting principle. The Company has not yet determined whether
the application of SOP 98-5 will have a material impact upon the Company's
financial position or results of operations. The Company will adopt this
statement by the effective date. The effect of this pronouncement has not yet
been determined by management.
7
<PAGE> 8
LINROZ MANUFACTURING COMPANY, L.P.
Condensed Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1998
----------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 237,000 $ 457,000
Accounts receivable from
Jalate, Ltd. 143,000 141,000
Prepaid expenses and other
current assets 25,000 28,000
---------- ----------
Total current assets 405,000 626,000
Property and equipment, at
cost, net of accumulated
depreciation of $570,000 in
1997 and $635,000 in 1998 791,000 744,000
Other assets, at cost 20,000 20,000
---------- ----------
$1,216,000 $1,390,000
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities:
Current maturities of long
term debt $ 120,000 $ 120,000
Trade accounts payable 34,000 7,000
Accrued expenses and other
liabilities 51,000 56,000
---------- ----------
Total current liabilities 205,000 183,000
Long-term debt, less current
maturities 201,000 171,000
Partners' capital 810,000 1,036,000
---------- ----------
$1,216,000 $1,390,000
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
8
<PAGE> 9
LINROZ MANUFACTURING COMPANY, L.P.
Condensed Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1997 1998
------------- ------------
<S> <C> <C>
Net sales $ 1,109,000 $ 990,000
Cost of sales 698,000 635,000
------------- ------------
Gross profit 411,000 355,000
Operating expenses 88,000 82,000
------------- ------------
Earnings from operations 323,000 273,000
Interest expense, net 10,000 7,000
------------- ------------
Net earnings $ 313,000 $ 266,000
============= ============
</TABLE>
See accompanying notes to condensed financial statements.
9
<PAGE> 10
LINROZ MANUFACTURING COMPANY, L.P.
Condensed Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1997 1998
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 313,000 $ 266,000
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization
of property and equipment 58,000 66,000
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable from Jalate,
Ltd (18,000) 2,000
Prepaid expenses and other
current assets 28,000 (3,000)
Increase (decrease) in:
Accounts payable 3,000 (27,000)
Accrued expenses and other
current liabilities (25,000) 5,000
--------- ---------
Net cash provided by
operating activities 359,000 309,000
--------- ---------
Cash flows from investing activities:
Cash used in capital expenditures (31,000) (19,000)
--------- ---------
Cash flows from financing activities:
Principal payments on long-term debt (26,000) (30,000)
Distributions to partners (150,000) (40,000)
--------- ---------
Net cash used in financing
activities (176,000) (70,000)
--------- ---------
Net increase in cash 152,000 220,000
Cash at beginning of period 421,000 237,000
--------- ---------
Cash at end of period $ 573,000 $ 457,000
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for
interest $ 10,000 $ 7,000
========= =========
</TABLE>
See accompanying notes to condensed financial statements.
10
<PAGE> 11
LINROZ MANUFACTURING COMPANY L.P.
Notes to Condensed Financial Statements
(Unaudited)
1. GENERAL
The unaudited condensed financial statements have been prepared on the same
basis as the audited financial statements of Linroz Manufacturing Company, L.P.
(the Company) are generally prepared at the end of each fiscal year and, in the
opinion of management, reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation for each of the periods
presented. The results of operations for interim periods are not necessarily
indicative of results to be achieved for full fiscal years.
As contemplated by the Securities and Exchange Commission under Rule 10-01 of
Regulation 8-X of the accompanying financial statements and notes have been
condensed and do not contain certain information that will be included in the
Company's annual financial statements and notes thereto. For further
information, refer to the financial statements and related notes for the year
ending December 31, 1997, included in Jalate, Ltd.'s annual report on Form 10-K.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS ADDRESSED IN
THIS ITEM 2 CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE
SECURITIES EXCHANGE ACT OF 1934 AS AMENDED. SUCH FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO A VARIETY OF RISKS AND UNCERTAINTIES, INCLUDING THOSE DISCUSSED BELOW
UNDER THE HEADING "FACTORS THAT MAY AFFECT FUTURE RESULTS" AND ELSEWHERE IN THIS
REPORT ON FORM 10-Q THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE ANTICIPATED BY THE COMPANY'S MANAGEMENT. THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995 (THE "ACT") PROVIDES CERTAIN "SAFE HARBOR" PROVISIONS FOR
FORWARD-LOOKING STATEMENTS. ALL FORWARD-LOOKING STATEMENTS MADE IN THIS
QUARTERLY REPORT ON FORM 10-Q ARE MADE PURSUANT TO THE ACT.
As contemplated by the Securities and Exchange Commission under Instructions 2
and 3 to Item 303 (b) of Regulation S-K, this discussion and analysis has been
prepared assuming that the user has read or has access to Management's
Discussion and Analysis for the fiscal year ended December 31, 1997 and the
material presented in the Company's Form 8-K dated April 1, 1998. Therefore some
material which has not changed materially from that presented in the Form 10-K
for December 31, 1997 and the Form 8-K dated April 1, 1998 may have been omitted
from this Form 10-Q.
The following table sets forth, for the periods indicated, the percentage which
certain items in the statements of operations data (unaudited) bear to net sales
and the percentage dollar increase (decrease) of such items (unaudited) from
period to period.
<TABLE>
<CAPTION>
Percent of Net Sales
Three months ended March 31,
-------------------------------- Increase
1997 1998 (Decrease)
------------- ------------ ------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% (12.0)%
Cost of goods sold (72.5) (72.7) (11.7)
------------- ------------ -----------
Gross profit 27.5 27.3 (12.9)
Operating expenses (27.9) (24.1) (24.2)
------------- ------------ -----------
Earnings (loss) from operations (0.4) 3.2 *
Interest expense (0.9) (2.0) 85.5
Equity in earnings (loss) of
unconsolidated subsidiaries 1.1 (2.2) *
------------- ------------ -----------
Net loss before taxes (0.2) (1.0) *
============= ============ ===========
</TABLE>
* This percent change is not meaningful.
GROSS SALES decreased from $15,047,000 for the three months ended March 31, 1997
to $13,330,000 for the comparable period of fiscal 1998, a decrease of 11.4%.
The decrease in gross sales was due to a decrease in the volume of apparel sold
from 1,642,000 to 1,399,000 units, a decrease of 14.8%, which was partially
offset by an increase in the average unit price of items sold. The decrease in
volume of apparel sold was due in part to a 19.8 % decrease in the number of
units sold by the Jalate division and a 35.6% decrease in the number of units
sold by the Zanoni division, which were partially offset by a 118.6% increase in
the number of units sold by the Kids division that started in the first quarter
of 1997. These decreases in sales volume were due in part to the significant
reduction of product imported from the Far East in order to reduce the Company's
exposure to loss on unsold inventory and to reduce the need for working capital
to finance inventory. The average wholesale unit prices increased 8.7% for the
Jalate division, increased 11.3% for the Zanoni division and decreased 0.8% for
the Kids division.
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RETURNS AND ALLOWANCES AND DISCOUNTS decreased from $1,128,000 (7.5% of gross
sales) for the three months ended March 31, 1997 to $1,088,000 (8.2% of gross
sales) for the comparable period of fiscal 1998, a decrease of 3.5% mainly due
to the 11.4% decrease in gross sales from 1997 to 1998.
NET SALES decreased from $13,919,000 for the three months ended March 31, 1997
to $12,242,000 for the comparable period of fiscal 1998, a decrease of 12.0% as
a result of the above mentioned factors.
COST OF GOODS SOLD decreased from $10,091,000 (72.5% of net sales) for the three
months ended March 31, 1997 to $8,906,000 (72.7% of net sales) for the
comparable period of fiscal 1998, a decrease of 11.7% primarily due to a
reduction of net sales by 12.0%.
GROSS PROFIT decreased from $3,828,000 (27.5% of net sales) for the three months
ended March 31, 1997 to $3,336,000 (27.3% of net sales) for the comparable
period of fiscal 1998, a decrease of 12.9% primarily due to the reduction in net
sales.
OPERATING EXPENSES decreased from $3,887,000 (27.9% of net sales) for the three
months ended March 31, 1997 to $2,948,000 (24.1% of net sales) for the
comparable period of fiscal 1998, a decrease of 24.2% mainly due to staff
reductions and other cost cutting actions taken by management during the second
half of fiscal 1997.
INTEREST EXPENSE primarily reflects interest on advances from the factor, the
bank term loan, and the subordinated notes payable. Interest expense increased
from $131,000 for the three months ended March 31, 1997 to $243,000 for the
comparable period of fiscal 1998, an increase of 85.5% due in part to an
increase in interest rates charged to the Company and to an increase in total
borrowings needed to meet the working capital requirements for funding the
Company's continuing operations.
EQUITY IN EARNINGS (LOSS) OF UNCONSOLIDATED SUBSIDIARIES. Investment in the
Company's unconsolidated subsidiaries is accounted for by the equity method,
under which the Company's share of earnings or loss of the subsidiaries is
reflected in income or expense as earned and distributions are credited against
the investment in the subsidiaries when received.
Joint Venture. Equity earnings decreased from $156,000 for the three months
ended March 31, 1997 to $133,000 for the comparable period of fiscal 1998. This
14.7% decrease was mostly attributable to a 10.7% decrease in net sales of the
Joint Venture from the first quarter of 1997 to the first quarter of 1998.
Airshop. In the fourth quarter of 1997, the Company acquired an interest in
Airshop, Ltd. which is still in its start-up phase. The Company's share of
Airshop's net loss for the three months ended March 31, 1998 was $398,000.
INCOME TAXES for interim periods are computed using the effective tax rate
estimated to be applicable for the full fiscal year, which is subject to ongoing
review and evaluation by management. As of March 31, 1998, management's estimate
of the 1998 effective tax rate is zero.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had a working capital deficiency of $769,000
compared to a working capital deficiency of $154,000 at March 31, 1998. Cash
used by operating activities aggregated $806,000 for the three months ended
March 31, 1997 compared with cash provided by operating activities aggregating
$603,000 for the three months ended March 31, 1998.
Inventory at December 31, 1997 was $4,812,000 compared to $4,484,000 at March
31, 1998.
At March 31, 1998, the amount due to the factor consisted of the following:
<TABLE>
<S> <C>
Factor receivables $9,702,000
Advances from factor (9,660,000)
Open credit memos (548,000)
----------
$ (506,000)
==========
</TABLE>
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<PAGE> 14
The Company has an agreement with its factor, as more completely described in
the Company's annual report on Form 10-K, that provides for advances to the
Company of up to 100% of qualified accounts receivable plus a revolving loan
facility. The Company was in default of certain restrictive covenants under this
factoring agreement from December 31, 1997 through March 31, 1998. On April 1,
1998, these defaults were waived by the factor, and the agreement with the
factor was amended by revising these covenants for 1998. The Company currently
is in compliance with those amended covenants. Under this revised factor
agreement, the amount of the revolving loan available to the Company was
increased to allow the Company to borrow up to $2,200,000 in addition to the
advances against the total qualified receivables. This $2,200,000 amount reduces
to $1,500,000 on July 1, 1998. As of March 31, 1998, approximately $500,000 was
available for borrowings under the agreement.
In addition, the Company has a term loan with its bank lender. On December 31,
1997, the Company was in default of certain restrictive covenants under the loan
agreement dated June 30, 1997. Subsequently, a new agreement was negotiated
effective January 21, 1998. On March 31, 1998, the Company was in default of
certain restrictive covenants under this new agreement. On April 1, 1998, the
bank agreed to waive the Company's compliance with those covenants through June
30, 1998. The principal balance of this loan was $1,120,000 on December 31, 1997
and, in keeping with the terms of the loan agreement, had been paid down to
$820,000 at March 31, 1998. The loan is scheduled to be paid off by July 17,
1998.
On January 27, 1998, the Company obtained $1,000,000 in additional capital from
four shareholders. This amount took the form of $950,000 in subordinated notes
payable plus $50,000 in payment for warrants to purchase 500,000 shares of the
Company's common stock. These notes call for interest (at 10% per annum) to be
paid quarterly beginning April 30, 1998 and quarterly installments of principal
commencing April 30, 1999. These notes mature on January 31, 2000 and are
secured by the Company's investment in Airshop, Ltd. These warrants, which are
exercisable at a price of $1.625 per share, expire on January 27, 2003. These
warrants were independently valued at $265,000. The $215,000 discount (the
difference between the $265,000 valuation and the $50,000 cash received) is
being amortized over the life of the notes with $9,000 being expensed monthly
beginning February 1998.
The Company is actively pursuing various avenues of providing for its long term
liquidity needs and assuring its long term vitality including additional debt
financing, new equity investments, and possible merger or other business
combinations. Negotiations are currently underway with the Chorus Line
Corporation regarding a possible merger of the two companies. However, there is
no assurance that additional financing, if obtained, will be sufficient to
sustain operations or the merger will be completed. Should management be
unsuccessful, the Company may be required to restructure or curtail operations.
MERGER
On April 13, 1998, the Company signed a letter of intent to merge with Chorus
Line Corporation, a competitor of the Company. Chorus Line is a privately held
company with revenues approximately triple those of the Company. Consummation of
the merger is subject to satisfactory completion of due diligence procedures,
negotiation and execution of a definitive merger agreement, approval by the
Company's board and stockholders, and other customary closing conditions. It is
anticipated that the merger will be completed by September or October 1998.
RECENTLY ISSUED PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standards (FAS) No. 130
"Reporting Comprehensive Income" on January 1, 1998. There were no differences
between "net loss" and "comprehensive income" as those terms are defined in FAS
130.
In June 1997, the Financial Accounting Standards Board issued Statement of
Accounting Financial Standards Number 131, "Disclosure about Segments of An
Enterprise and Related Information" (FAS 131). FAS 131 supersedes previous
reporting requirements for reporting on segments of a business enterprise and is
effective for the Company's fiscal year ending December 31, 1998. The Company
plans to implement FAS 131 in connection with its 1998 fiscal year end reporting
on Form 10-K. As FAS 131 only requires additional disclosures, the Company
expects there will be no impact on its financial position or results of
operations from the implementation.
On April 3, 1998, the American Institute of Certified Public Accountants
Accounting Standards Executive Committee issued Statement of Position 98-5 (SOP
98-5), "Reporting on the Costs of Start-up Activities." SOP 98-5 requires that
costs of start-up activities, including organization costs, be expensed as
incurred. SOP 98-5 is effective for financial statements for fiscal years
beginning after December 15, 1998. In the fiscal year in which the SOP is first
adopted, the application should be reported as a
14
<PAGE> 15
cumulative effect of a change in accounting principle. The Company has not yet
determined whether the application of SOP 98-5 will have a material impact upon
the Company's financial position or results of operations. The Company will
adopt this statement by the effective date. The effect of this pronouncement has
not yet been determined by management.
FACTORS THAT MAY AFFECT FUTURE RESULTS
All forward-looking statements contained in this Item 2 are subject to, in
addition to the other matters described in this report on Form 10-Q, a variety
of significant risks and uncertainties. The following discussion highlights some
of these risks and uncertainties. Further, from time to time, information
provided by the Company or statements made by its employees may contain
forward-looking information. The Company cautions the reader that there can be
no assurance that actual results or business conditions will not differ
materially from those projected or suggested in such forward-looking statements
as a result of various factors, including those discussed below.
SUBSTANTIAL COMPETITION. The apparel industry is highly competitive. Many of the
Company's competitors have substantially greater financial, distribution,
marketing and other resources, including greater brand awareness, than the
Company. The Company competes with numerous apparel manufacturers, including
those with their own retail stores, as well as department stores, specialty
stores, retail chains and mass merchandisers which sell apparel under their own
labels. From time to time, the Company has lowered prices on certain products to
maintain market share, which has adversely affected the Company's gross profit
margin on such products. There can be no assurance that such price competition
will not recur.
CHANGING FASHION TRENDS. The Company's success depends in substantial part on
its ability to correctly anticipate, gauge and respond to rapidly changing
consumer preferences in a timely manner. If the Company materially misjudges the
market for a particular product or product line, the Company may be faced with a
substantial reduction in sales and excess inventory. There can be no assurance
that the Company will be able to correctly anticipate, gauge and respond to
changing consumer preferences in a timely manner in the future.
ECONOMIC CONDITIONS. The apparel industry historically has been subject to
substantial cyclical variation, and a recession in the general economy or
uncertainties regarding future economic prospects that affect consumer spending
habits have in the past had, and may in the future have, a materially adverse
effect on the Company's results of operations. In addition, certain retailers,
including some of the Company's customers, are experiencing financial
difficulties which increase the risk of extending credit to such retailers. Many
retailers have attempted to improve their own operating efficiencies by
concentrating their purchasing power among an increasingly small group of
vendors. There can be no assurance that the Company will remain a preferred
vendor for its existing customers. A decrease in business from, or loss of, a
major customer could have a material adverse effect on the Company's results of
operations. In addition, there can be no assurance that the Company's factor
will approve the extension of credit to certain retail customers in the future.
If a customer's credit is not approved by the factor, the Company could either
assume the collection risk on sales to such customer itself, or choose not to
make sales to such customer.
VARIABILITY OF QUARTERLY RESULTS. The Company has experienced, and expects to
continue to experience, variability in its net sales and operating results on a
quarterly basis. The Company believes the factors which influence this
variability include (i) the timing of the Company's introduction of new apparel
collections, (ii) the level of consumer acceptance of each new collection, (iii)
general economic and industry conditions that affect consumer spending and
retailer purchasing, (v) the timing of the placement or cancellation of customer
orders, (v) the timing of expenditures in anticipation of increased sales and
customer delivery requirements, (vi) the weather and (vii) actions of
competitors. In addition, women's apparel business is highly seasonal.
RELIANCE ON KEY PERSONNEL. The operations of the Company depend to a great
extent on the efforts of its senior management, including Vinton W. Bacon, Larry
Brahim, and Jeffrey L. Friedman. The extended loss of the services of one or
more of these individuals could have a materially adverse effect on the
Company's operations.
IMPACT OF FOREIGN OPERATIONS. In July 1994, the Company commenced manufacturing
products abroad. As a result, the Company's operations are subject to the
customary risks of doing business abroad, including, but not limited to,
transportation delays, political instability, expropriation, currency
fluctuations and the imposition of tariffs, import and export controls and other
non-tariff barriers (including changes in the allocation of quotas).
LIQUIDITY. See comments under "Liquidity and Capital Resources."
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company does not invest in derivative financial instruments, other financial
instruments or derivative commodity instruments. However, significant increases
in interest rates could have a materially adverse effect on the Company's
operations through its bank borrowings and factor contracts. Likewise,
significant increases in the cost of the Company's labor or raw materials could
have a materially adverse effect on the Company's operations to the extent that
these increases could not be passed on to the Company's customers.
Also see "Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Factors That May Affect Future Results."
16
<PAGE> 17
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On January 27, 1998, the Company issued subordinated notes payable to certain
shareholders of the Company, totaling $950,000. These notes call for interest
(at 10% per annum) to be paid quarterly beginning April 30, 1998 and quarterly
installments of principal commencing April 30, 1999. These notes mature on
January 31, 2000 and are secured by the Company's investment in Airshop, Ltd.
In connection with these transactions, the Company sold 500,000 stock purchase
warrants to the shareholders for $50,000. The warrants are exercisable at an
exercise price of $1.625 per share and expire on January 27, 2003. These
warrants were independently valued at $265,000. The $215,000 discount (the
difference between the $265,000 valuation and the $50,000 cash received) is
being amortized over the life of the notes, with $9,000 being expensed monthly
beginning February 1998.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
The Company has an agreement with its factor, as more completely described in
the Company's annual report on Form 10-K, that provides for advances to the
Company of up to 100% of qualified accounts receivable plus a revolving loan
facility. The Company was in default of certain restrictive covenants under this
factoring agreement from December 31, 1997 through March 31, 1998. On April 1,
1998, these defaults were waived by the factor, and the agreement with the
factor was amended by revising these covenants for 1998. The Company currently
is in compliance with those amended covenants. Under this revised factor
agreement, the amount of the revolving loan available to the Company was
increased to allow the Company to borrow up to $2,200,000 in addition to the
advances against the total qualified receivables. This $2,200,000 amount reduces
to $1,500,000 on July 1, 1998. As of March 31, 1998, approximately $500,000 was
available for borrowings under the agreement.
In addition, the Company has a term loan with its bank lender. On December 31,
1997, the Company was in default of certain restrictive covenants under the loan
agreement dated June 30, 1997. Subsequently, a new agreement was negotiated
effective January 21, 1998. On March 31, 1998, the Company was in default of
certain restrictive covenants under this new agreement. On April 1, 1998, the
bank agreed to waive the Company's compliance with those covenants through June
30, 1998. The principal balance of this loan was $1,120,000 on December 31, 1997
and, in keeping with the terms of the loan agreement, had been paid down to
$820,000 at March 31, 1998. The loan is scheduled to be paid off by July 17,
1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K.
a. Exhibits - The following is a list of exhibits filed as a part of this
report.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ------------------------------------------------------------------
<S> <C>
3.1 Restated Articles of Incorporation of the Company.
3.2 Amendment to by-laws reducing the number of directors to seven.
3.3 Restated by-laws of the Company.
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
4.1 Form of stock certificate. [4.3*] (1)
4.2 Underwriters' Warrant Agreement dated March 16, 1994, among the
Company, H.J. Meyers & Co., Inc. and Sanders Morris Mundy Inc.
[4.2*] (2)
10.1 Letter of Intent to merge with Chorus Line Corporation, a competitor of
the Company.
</TABLE>
- ----------------------
* Indicates the exhibit number in the original filing.
(1) Filed as an exhibit to Amendment No. 1 to Registration Statement on
Form S-1 filed with the Securities and Exchange Commission on March 16,
1994.
(2) Filed as an exhibit to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
b. Reports on Form 8-K.
The Company filed a Form 8-K on April 13, 1998 in which it disclosed that both
its factor and its bank had issued waivers from technical defaults of certain
restrictive covenants contained in the agreements between the factor/bank and
the Company. In addition, the factor revised its agreement with the Company
granting less restrictive covenants and increased the amount available under the
revolving credit facility. Also see "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
c. Financial Data Schedule.
The Financial Data Schedule is filed as Exhibit 27 in the EDGAR (electronic)
version of this report only.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JALATE, LTD.
May 15, 1998 By:/s/ FREDERICK A. FINDLEY
---------------------------------------
Frederick A. Findley
Vice President, Finance and
Chief Financial Officer
19
<PAGE> 1
EXHIBIT 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
JALATE, LTD.
a California corporation
Revised on February 25, 1997
One: The name of this corporation is Jalate, Ltd.
Two: The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated by the California
Corporations Code.
Three: This corporation is authorized to issue two classes of shares
designated, respectively, "Common Stock" and "Preferred Stock." The number of
shares of Common Stock authorized to be issued is 20,000,000 and the number of
shares of Preferred Stock authorized to be issued is 3,000,000, all of which
shall be without par value. Upon the amendment of this Article Three to read as
hereinabove set forth, each outstanding share of the Common Stock of this
corporation shall be split up and converted into 0.86777 shares of Common Stock.
Four: The Board of Directors of this corporation, without further action by
the holders of the outstanding shares of Common Stock or Preferred Stock, if
any, may issue the Preferred Stock from time to time in one or more series, may
fix the number of shares and the designation of any wholly unissued series of
Preferred Stock, may determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any such series and, within the limits
and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series of
Preferred Stock, may increase or decrease (but not below the number of shares of
such series then outstanding) the number of shares of such series subsequent to
the issue of shares of that series.
Five: The liability of the directors of this corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law. This
corporation is authorized to provide indemnification of agents (as defined in
Section 317 of the California General Corporation Law) through bylaw provisions,
agreements with agents, vote of shareholders or disinterested directors or
otherwise, in excess of the indemnification otherwise permitted by Section 317
of the California General Corporation Law, subject only
20
<PAGE> 2
to the applicable limits set forth in Section 204 of the California General
Corporation Law with respect to actions for breach of duty to the corporation
and its shareholders. This corporation is authorized to purchase and maintain
insurance on behalf of its agents against any liability asserted against or
incurred by the agent in such capacity or arising out of the agent's status as
such from a company, the shares of which are owned in whole or in part by this
corporation, provided that any policy issued by such company is limited to the
extent required by applicable law. Any repeal or modification of the foregoing
provisions of this Article Five by the shareholders of this corporation shall
not adversely affect any right or protection of an agent of this corporation
existing at the time of that repeal or modification.
Six: A. This corporation is a listed corporation within the meaning of
Section 301.5(d) of the California General Corporations Law (the "California
Law"), by reason of having its shares of common stock listed on the American
Stock Exchange.
B. Upon the effectiveness of this Article Six, the election of
directors by the shareholders shall not be by cumulative voting. At each
election of directors, each shareholder entitled to vote may vote all the shares
held by that shareholder for each of several nominees for director up to the
number of directors to be elected. The shareholder may not cast more votes for
any single nominee than the number of shares held by the shareholder.
C. If at any time this corporation ceases to be a listed corporation as
defined in Section 301.5 of the California Law, at each succeeding meeting of
shareholders at which directors are to be elected, the election of directors by
the shareholders shall be by cumulative voting provided the candidates' names
have been properly placed in nomination prior to commencement of the voting and
a shareholder has given notice prior to commencement of the voting of the
shareholder's intention to cumulate votes. Shareholders shall continue to be
entitled to elect directors by cumulative voting until the corporation once
again qualifies as a listed corporation within the meaning of Section 301.5 of
the California Law, and the foregoing provisions of this Article Six shall be
reinstated.
21
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
BYLAWS OF
JALATE, LTD.
Frederick A. Findley hereby certifies as follows:
1. I am the Secretary of Jalate, Ltd., a California corporation.
2. Section 3.3(b) of the Bylaws of this corporation were amended by the Board of
Directors at a meeting duly held on March 24, 1998 to reduce the number of
directors to seven.
3. The foregoing action is reflected in the minutes of the March 24, 1998
meeting of the Board of Directors of Jalate, Ltd.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this Certificate are true and correct
of my own knowledge:
May 11, 1998 /s/ FREDERICK A. FINDLEY
-------------------------------
Frederick A. Findley
Secretary
22
<PAGE> 1
EXHIBIT 3.3
RESTATED
BYLAWS
OF
JALATE, LTD.
a California corporation
Revised on March 24, 1998
ARTICLE I
OFFICES
Section 1.1 PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the
corporation is hereby fixed and located at 1675 South Alameda Street, Los
Angeles, California 90021. The Board of Directors is hereby granted full power
and authority to change said principal executive office from one location to
another.
Section 1.2 OTHER OFFICES. Other business offices may at any time be
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 PLACE OF MEETINGS. All meetings of shareholders shall be held at
the principal executive office of the corporation or at any other place within
or outside the State of California as may be designated by the Board of
Directors.
Section 2.2 ANNUAL MEETINGS.
(a) Time and Place. The annual meeting of shareholders shall be held
each year on a date and at a time designated by the Board of Directors. The date
so designated for the initial meeting shall be within fifteen (15) months after
the organization of the corporation, and the date so designated for each
subsequent meeting shall be within fifteen (15) months after the last annual
meeting.
(b) Business to be Transacted. At the annual meetings, directors shall
be elected, reports of the affairs of the corporation shall be considered, and
any other business may be transacted which is within the powers of the
shareholders.
23
<PAGE> 2
(c) Notice, Means. Written notice of each annual meeting shall be given
to each shareholder entitled to vote, either personally or by mail or other
means of written communication, charges prepaid, addressed to such shareholder
at his address appearing on the books of the corporation or given by him to the
corporation for the purpose of notice. If any notice or report addressed to the
shareholder at the address of such shareholder appearing on the books of the
corporation is returned to the corporation by the United States Postal Service
marked to indicate that the United States Postal Service is unable to deliver
the notice or report to the shareholder at such address, all future notices or
reports shall be deemed to have been duly given without further mailing if the
same shall be available for the shareholder upon written demand of the
shareholder at the principal executive office of the corporation for a period of
one year from the date of the giving of the notice or report to all other
shareholders. If a shareholder gives no address, notice shall be deemed to have
been given him if sent by mail or other means of written communication addressed
to the place where the principal executive office of the corporation is
situated, or if published at least once in some newspaper of general circulation
in the county in which said principal executive office is located.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting shall be executed by the Secretary, any Assistant
Secretary or any transfer agent of the corporation giving the notice, and shall
be filed and maintained in the minute book of the corporation. Such affidavit
shall be prima facie evidence of the giving of such notice.
(d) Notice, Time and Content. All such notices shall be given to each
shareholder entitled thereto not less than ten (10) days nor more than sixty
(60) days before each annual meeting. Any such notice shall be deemed to have
been given at the time when delivered personally or deposited in the mail or
sent by other means of written communication.
Such notices shall specify:
(i) the place, the date, and the hour of such meeting;
(ii) those matters which the Board of Directors, at the
time of the mailing of the notice, intends to present for action by the
shareholders;
(iii) if directors are to be elected, the names of
nominees intended at the time of the notice to be presented by management for
election;
(iv) the general nature of a proposal, if any, to take
action with respect to approval of, (a) a contract or other transaction with an
interested director, (b) amendment of the articles of incorporation, (c) a
reorganization of the corporation as defined in Section 181 of the General
Corporation Law, (d) voluntary dissolution of the corporation, or (e) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, if any; and,
24
<PAGE> 3
(v) such other matters, if any, as may be expressly
required by statute.
Section 2.3 SPECIAL MEETINGS.
(a) Calling of. Special meetings of the shareholders, for the purpose of
taking any action permitted by the shareholders under the General Corporation
Law and the Articles of Incorporation of this corporation, may 3 be
called at any time by the Chairman of the Board, the Chief Executive Officer,
the Board of Directors or by one or more shareholders holding not less than ten
percent (10%) of the votes at the meeting. A shareholder entitled to call a
special meeting of shareholders for any proper purpose shall submit a request
therefor in writing directed to the Chairman of the Board, the Chief Executive
Officer, any Vice President or the Secretary.
(b) Time and Notice of. Upon receipt of such request, the corporation
forthwith shall cause notice to be given to shareholders entitled to vote that a
meeting will be held at a time requested by the person or persons calling the
meeting, which time shall be not less than thirty-five (35) nor more than sixty
(60) days after receipt of the request. If such notice is not given within
twenty (20) days after receipt of such request, the persons calling for the
meeting may give notice thereof in the manner provided by these Bylaws. Except
in special cases where other express provision is made by statute, notice of
such special meetings shall be given in the same manner as for annual meetings
of shareholders. In addition to the matters required by items (i) and, if
applicable (iii) of Section 2.2(d), notice of any special meeting shall specify
the general nature of the business to be transacted, and no other business may
be transacted at such meeting.
Section 2.4 QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum for the transaction
of business at a meeting of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum, if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
Section 2.5 ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of a majority of the shares, the holders of which are
either present in person or represented by proxy thereat. When any meeting of
shareholders is adjourned to another time or place, written notice need not be
given of the adjourned meeting if the time and place are announced at a meeting
at which the adjournment is taken, unless a new record date for the adjourned
meeting is fixed, or unless the adjournment is for more than forty-five (45)
days in which case the Board of Directors shall set a new record date. For any
adjourned meeting requiring notice, such notice shall be given to each
shareholder of record entitled to vote at the adjourned meeting in accordance
with the provisions of Sections 2.2 and 2.3. At any adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
25
<PAGE> 4
Section 2.6 VOTING.
(a) Record Date. Unless a record date for voting purposes be fixed as
provided in Section 5.1 of Article V of these Bylaws then, subject to the
provisions of Sections 702 and 704 of the General Corporation Law of California
(relating to voting of shares held by a fiduciary, in the name of a corporation,
or in joint ownership), only persons in whose names shares entitled to vote
standing on the stock records of the corporation at the close of business on the
business day next preceding the day on which notice of the meeting is given or
if such notice is waived, at the close of business on the business day next
preceding the day on which the meeting of shareholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date for such
meeting.
(b) Ballot. The shareholders' vote may be oral or by ballot; provided,
however, all elections for directors must be by ballot if demand for election by
ballot is made by a shareholder at the meeting and before the voting begins. If
a quorum is present, except with respect to election of directors, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on any matter shall be the act of the shareholders, unless the
vote of a greater number or voting by classes is required by the General
Corporation Law of California or the Articles of Incorporation.
(c) At a shareholders' meeting at which directors are to be elected, no
shareholder shall be entitled to cumulate votes (i.e., cast for any one or more
candidates a number of votes greater than the number of the shareholder's
shares) unless the candidates' names have been properly placed in nomination
prior to commencement of the voting and a shareholder has given notice prior to
commencement of the voting of the shareholder's intention to cumulate votes. If
any shareholder has given such a notice, then every shareholder entitled to vote
may cumulate votes for candidates in nomination and give one candidate a number
of votes equal to the number of directors to be elected multiplied by the number
of votes to which that shareholder's shares are entitled, or distribute the
shareholder's votes on the same principle among any or all of the candidates, as
the shareholder thinks fit. The candidates receiving the highest number of
votes, up to the number of directors to be elected, shall be elected.
Section 2.7 VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each of the
persons entitled to vote, who was not present in person or by proxy, signs a
written waiver of notice or a consent to a holding of the meeting, or an
approval of the minutes. The waiver of notice or consent need not specify either
the business to be transacted or the purpose of any annual or special meeting of
shareholders, except that if action is taken or proposed to be taken for
approval of any of those matters specified in Section 2.2(d)(iv) of Article II,
the waiver of notice or consent shall state the
26
<PAGE> 5
general nature of the proposal. All such waivers, consents or approvals shall be
filed with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of notice of
that meeting, except when the person objects, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened, and except that attendance at a meeting is not a waiver of any right
to object to the consideration of matters required by the General Corporation
Law of the State of California to be included in the notice but not so included,
if such objection is expressly made at the meeting.
Section 2.8 ACTION WITHOUT MEETING.
(a) Action by Written Consent and Notice Thereof. Any action which may
be taken at any annual or special meeting of shareholders, including the
election of directors, may be taken without a meeting and without prior notice
if a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take that action at a meeting at which
all shares entitled to vote on that action were present and voted. If the
consents of all shareholders entitled to vote have been solicited in writing,
and if the unanimous written consents of all shareholders have not been
obtained, notice shall be given as provided herein.
(i) Notice shall be given of any proposed shareholder
approval of, (a) a contract or other transaction with an interested director,
(b) indemnification of an agent of the corporation as authorized by Section 3.16
of Article III of these Bylaws, (c) a reorganization of the corporation as
defined in Section 181 of the General Corporation Law of California, or (d) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, if any. The notice referred to herein shall be
given at least ten (10) days before the consummation of the action authorized by
such approval.
(ii) Prompt notice of the taking of any other corporate
action shall be given to those shareholders entitled to vote who have not
consented in writing. Such notices shall be given in the manner and shall be
deemed to have been given as provided in Section 2.2 of Article II of these
Bylaws.
(b) Election to Fill Vacancy. In the case of an election to fill a
vacancy on the Board of Directors which vacancy (1) was not created by removal
or (2) has not been filled by the Board of Directors in accordance with Section
3.5(b) of Article III of these Bylaws, a director may be elected to fill such
vacancy by the written consent of the holders of a majority of the outstanding
shares entitled to vote for the election of directors. An election by the
written consent of the shareholders to fill a vacancy created by removal may be
made only by the unanimous written consent of the holders of all outstanding
shares entitled to vote for the election of directors.
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(c) Filing of Consents; Record Date. All written consents of the
shareholders shall be filed with the Secretary of the corporation. Unless, as
provided in Section 5.1 of Article V of these Bylaws, the Board of Directors has
fixed a record date for the determination of shareholders entitled to notice of
and to give such written consent, the record date for such determination shall
be the day on which the first written consent is given.
(d) Revocation of Consent. Any shareholder giving a written consent, or
the shareholder's proxyholders, or a transferee of the shares of a personal
representative of the shareholder or his respective proxyholders, may revoke the
consent by a writing received by the corporation prior to the time that written
consents of the number of shares required to authorize the proposed action have
been filed with the Secretary of the corporation, but may not do so thereafter.
Such revocation shall be effective upon its receipt by the Secretary of the
corporation.
Section 2.9 PROXIES. Every person entitled to vote or execute consents shall
have the right to do so either in person or by one or more agents authorized by
a written proxy executed by such person or his duly authorized agent and filed
with the Secretary of the corporation. Any proxy duly executed is not revoked
and continues in full force and effect until (i) an instrument revoking it or a
duly executed proxy bearing a later date is filed with the Secretary of the
corporation prior to the vote pursuant thereto, (ii) the person executing the
proxy attends the meeting and votes in person, or (iii) written notice of the
death or incapacity of the maker of such proxy is received by the corporation
before said proxy is voted and counted. In the determination of the validity and
effect of proxies, the dates contained on the forms of proxy shall presumptively
determine the order of execution of the proxies, regardless of the postmark
dates on the envelopes in which they are mailed. Unless otherwise provided in
the proxy, no proxy shall be valid after the expiration of eleven (11) months
from the date of such proxy.
Section 2.10 INSPECTORS OF ELECTION.
(a) Appointment and Number. In advance of any meeting of shareholders,
the Board of Directors may appoint any persons, other than nominees for office,
as inspectors of election to act at such meeting or any adjournment thereof. If
inspectors of election are not so appointed, or if any person so appointed fails
to appear or refuses to act, the chairman of any such meeting may, and on the
request of any shareholder or his proxy shall, appoint inspectors of election
(or persons to replace those who so fail or refuse) at the meeting. The number
if inspectors shall be either one (1) or three (3). If appointed at a meeting on
the request of one or more shareholders or proxies, the majority of shares
represented in person or by proxy shall determine whether one (1) or three (3)
inspectors are to be appointed.
(b) Duties. The duties of such inspectors shall be as prescribed by
Section 707 of the General Corporation Law of California and shall include:
determining the number of shares outstanding and the voting power of each, the
shares represented at the meeting, the existence of a quorum, the authenticity,
validity and effect of proxies; receiving votes, ballots
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or consents; hearing and determining all challenges and questions in any way
arising in connection with the right to vote; counting and tabulating all votes
or consents; determining when the polls shall close; determining the result; and
such acts as may be proper to conduct the election or vote with fairness to all
shareholders. The inspectors of election shall perform their duties impartially,
in good faith, to the best of their ability and as expeditiously as is
practical. If there are three (3) inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of election
is prima facie evidence of the facts stated therein.
Section 2.11 NOMINATIONS FOR DIRECTOR. Nominations for election of members of
the Board of Directors may be made by the Board of Directors or by any
shareholder of any outstanding class of voting stock of the corporation entitled
to vote for the election of directors. Notice of intention to make any
nominations, other than by the Board of Directors, shall be made in writing and
shall be received by the Chief Executive Officer of the corporation no more than
60 days prior to any meeting of shareholders called for the election of
directors, and no more than 10 days after the date the notice of such meeting is
sent to shareholders pursuant to Section 2.2 of these Bylaws; provided, however,
that if only 10 days' notice of the meeting is given to shareholders, such
notice of intention to nominate shall be received by the Chief Executive Officer
of the corporation not later than the time fixed in the notice of the meeting
for the opening of the meeting. Such notification shall contain the following
information to the extent known to the notifying shareholder: (a) the name and
address of each proposed nominee; (b) the principal occupation of each proposed
nominee; (c) the number of shares of voting stock of the corporation owned by
each proposed nominee; (d) the name and residence address of the notifying
shareholder; and (e) the number of shares of voting stock of the corporation
owned by the notifying shareholder. Nominations not made in accordance herewith
shall be disregarded by the then chairman of the meeting, and the inspectors of
election shall then disregard all votes cast for each such nominee.
The first paragraph of this Section 2.11 shall be set forth in any notice of a
shareholders' meeting, whether pursuant to Section 2.2 or Section 2.3 of these
Bylaws, at which meeting the election of directors is to be considered.
ARTICLE III
DIRECTORS
Section 3.1 POWERS. Subject to any limitations of the Articles of
Incorporation and of these Bylaws and of the General Corporation Law of
California requiring shareholder authorization or approval for a particular
action, the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors. The Board of Directors may delegate the management of the day-to-day
operation of the business of the corporation to a management company or other
person,
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provided that the business and affairs of the corporation shall be managed and
all corporate powers shall be exercised, under the ultimate direction of the
Board of Directors.
Section 3.2 COMMITTEES. By resolution adopted by a majority of the authorized
number of directors, the Board of Directors may designate an executive and other
committees, each consisting of two or more directors, to serve at the pleasure
of the Board of Directors. The provisions of this Article apply to committees of
the Board of Directors and action by such committees, with such changes in the
language of those provisions as are necessary to substitute the committee and
its members for the Board of Directors and its members. The Board of Directors
may designate one or more directors as alternate members of any committee, who
may replace any absent member at any meeting of the committee. The appointment
of members or alternate members of a committee shall be made by the vote of a
majority of the authorized number of directors. Unless the Board of Directors
shall otherwise prescribe the manner of proceedings of any such committee,
meetings of such committee may be regularly scheduled in advance and may be
called at any time by any two members thereof; otherwise, the provisions of
these Bylaws with respect to notice and conduct of meetings of the Board of
Directors shall govern. Any such committee, to the extent provided in a
resolution of the Board of Directors, shall have all of the authority of the
Board of Directors, except with respect to:
(i) the approval of any action for which the General
Corporation Law of California or the Articles of Incorporation also require
shareholder approval;
(ii) the filling of vacancies on the Board of Directors or
in any committee;
(iii) the fixing of compensation of the directors for
serving on the Board of Directors or on any committee;
(iv) the adoption, amendment or repeal of these Bylaws;
(v) the amendment or repeal of any resolution of the Board
of Directors which by its express terms is not so amendable or repealable;
(vi) any distribution to the shareholders, except at a
rate or in a periodic amount or within a price range determined by the Board of
Directors; and
(vii) the appointment of other committees of the Board of
Directors or the members thereof.
Section 3.3 NUMBER OF DIRECTORS.
(a) The authorized number of directors shall be not less than 5 nor more
than 9. The exact number of directors shall be fixed from time to time, within
the limits specified in
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this subsection, by an amendment of subsection (b) of this section adopted by
the Board of Directors.
(b) The exact number of directors shall be seven until changed as
provided in subsection (a) of this section.
(c) The maximum or minimum authorized number of directors may only be
changed by an amendment of this section approved by the vote or written consent
of a majority of the outstanding shares entitled to vote; provided, however,
that an amendment reducing the minimum number to a number less than five shall
not be adopted if the votes cast against its adoption at a meeting (or the
shares not consenting in the case of action by written consent) exceed 16-2/3%
of such outstanding shares; and provided further, that in no case shall the
stated maximum authorized number of directors exceed two times the stated
minimum number of authorized directors minus one.
Section 3.4 ELECTION AND TERM OF OFFICE. The directors shall be elected at
each annual meeting of shareholders but, if any such annual meeting is not held
or the directors are not elected thereat, the directors may be elected at any
special meeting of shareholders held for that purpose. All directors shall hold
office until the next annual meeting of the shareholders and until his successor
is elected and qualified, subject to the General Corporation Law of California
and the provisions of these Bylaws with respect to vacancies on the Board of
Directors.
Section 3.5 VACANCIES.
(a) When a Vacancy Exists. A vacancy in the Board of Directors exists
whenever any authorized position of director is not then filled by a duly
elected director, whether caused by death, resignation, removal, change in the
authorized number of directors or otherwise.
(b) Filling of Vacancies by Directors. Vacancies in the Board of
Directors, except for a vacancy created by the removal of a director (see
Section 3.5(c)) may be filled by a majority of the remaining directors, though
less than a quorum, or by a sole remaining director, and each director so
elected shall hold office until his successor is elected at an annual or a
special meeting of shareholders. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future time, the Board of
Directors (or the shareholders) may elect a successor to take office when the
resignation becomes effective.
(c) Filling of Vacancies by Shareholders. The shareholders may elect a
director or directors at any time to fill any vacancy or vacancies not filled by
the directors. Except for an election to fill a vacancy created by the removal
of a director, any such election by written consent shall require the consent of
holders of a majority of the outstanding shares entitled to vote for the
election of directors. A vacancy in the Board of Directors created by the
removal of a director may only be filled by the vote of a majority of the shares
entitled to vote for the election of directors represented at a duly held
meeting at which a quorum is present, or by
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the unanimous written consent of the holders of all of the outstanding shares
entitled to vote for the election of directors.
(d) Removal for Cause. The Board of Directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony.
(e) Removal without Cause. Any or all of the directors may be removed
without cause if such removal is approved by a majority of the outstanding
shares entitled to vote; provided, however, that no director may be removed
(unless the entire Board of Directors is removed) whenever the votes cast
against removal, or not consenting in writing to such removal, would be
sufficient to elect such director if voted cumulatively at an election at which
the same total number of votes were cast (or, if such action is taken by written
consent, all shares entitled to vote were voted) and the entire number of
directors authorized at the time of his most recent election were then being
elected.
(f) Resignation. Any director may resign effective upon giving written
notice to the Chairman of the Board, the Chief Executive Officer, the Secretary
or the Board of Directors of the corporation, unless the notice specifies a
later time for the effectiveness of such resignation. If the resignation is
effective at a future time, a successor may be elected to take office when the
resignation becomes effective.
(g) When Reduction in Number Effective. No reduction of the authorized
number of directors shall have the effect of removing any director prior to the
expiration of his term of office.
Section 3.6 PLACE OF MEETING. Regular meetings of the Board of Directors
shall be held at any place within or without the State of California which has
been designated from time to time by resolution of the Board of Directors. In
the absence of such designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the Board of Directors
may be held either at a place so designated or at the principal executive
office.
Section 3.7 ANNUAL MEETING. Immediately following each annual meeting of
shareholders the Board of Directors shall hold a regular meeting at the place of
said annual meeting or at such other place as shall be fixed by the Board of
Directors, for the purpose of organization, election of officers, and the
transaction of other business. Call and notice of such meetings are hereby
dispensed with.
Section 3.8 OTHER REGULAR MEETINGS. Other regular meetings of the Board of
Directors shall be held at such day and hour as shall be fixed from time to time
by the Board of Directors by resolution or in the Bylaws. If such day falls upon
a legal holiday, then said meeting shall be held at the same time on the next
day thereafter ensuing which is a full business day. Notice of all such regular
meetings of the Board of Directors is hereby dispensed with.
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Section 3.9 SPECIAL MEETINGS. Special meetings of the Board of Directors for
any purpose or purposes shall be called at any time by the Chairman of the
Board, the Chief Executive Officer, any Vice President, the Secretary or by any
two directors. Written notice of the time and place of special meetings shall be
delivered personally to each director or communicated to each director by
telephone, or by telegraph or mail, charges prepaid, addressed to him at his
address as it is shown upon the records of the corporation or, if it is not so
shown on such records or if not readily ascertainable, at the place at which the
meetings of the directors are regularly held. In case such notice is mailed or
telegraphed, it shall be deposited in the United States mail or delivered to the
telegraph company in the place in which the principal executive offices of the
corporation are located at least four (4) days prior to the time of the holding
of the meeting. In case such notice is delivered, personally or by telephone, as
above provided, it shall be so delivered at least forty-eight (48) hours prior
to the time of the holding of the meeting. Such mailing, telegraphing or
delivery, personally or by telephone, as above provided, shall be due, legal and
personal notice to such director. Any notice shall state the date, place and
hour of the meeting.
Section 3.10 ACTION WITHOUT MEETING. Any action by the Board of Directors may
be taken without a meeting if all members of the Board of Directors shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board of Directors and shall have the same force and effect as a unanimous vote
of such directors.
Section 3.11 ACTION AT A MEETING; QUORUM AND REQUIRED VOTE. Presence of a
majority of the authorized number of directors at a meeting of the Board of
Directors constitutes a quorum for the transaction of business. Members of the
Board of Directors may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all members
participating in such meeting can hear one another. Participation in a meeting
as permitted in the preceding sentence constitutes presence in person at such
meeting. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded as
the act of the Board of Directors, unless a greater number, or the same number
after disqualifying one or more directors from voting, is required by law, by
the Articles of Incorporation, or by these Bylaws. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of a director, provided that any action taken is approved by at least
a majority of the required quorum for such meeting.
Section 3.12 VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
transactions of any meeting of the Board of Directors, however called and
noticed or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present and if, either before or
after the meeting, each of the directors who was not present signs a written
waiver of notice or a consent to holding such meeting or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with the
corporate records or made a part of the minutes of the meeting.
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Section 3.13 WAIVER OF NOTICE BY ATTENDANCE. Attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, unless a director
attends for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called, noticed, or convened.
Section 3.14 ADJOURNMENT. A majority of the directors present, whether or not
a quorum is present, may adjourn any meeting to another time and place. If the
meeting is adjourned for more than 24 hours, written notice of any adjournment
to another time or place shall be given prior to the time of the adjourned
meeting to the directors who were not present at the time of the adjournment.
Section 3.15 FEES AND COMPENSATION. Directors and members of committees may
receive such compensation, if any, for their services, and such reimbursement
for expenses, as may be fixed or determined by resolution of the Board of
Directors.
Section 3.16 INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER
AGENTS.
(a) The corporation shall, to the maximum extent and in the manner
permitted by the California Corporations Code ("Code"), indemnify each of its
directors against expenses (as defined in Section 317(a) of the Code),
judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 3.16, a "director" of the corporation
includes any person (i) who is or was a director of the corporation, (ii) who is
or was serving at the request of the corporation as a director of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was a director of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
(b) The corporation shall have the power, to the extent and in the
manner permitted by the Code, to indemnify each of its officers, employees and
agents against expenses (as defined in Section 317(a) of the Code), judgments,
fines, settlements, and other amounts actually and reasonably incurred in
connection with any proceeding (as defined in Section 317(a) of the Code),
arising by reason of the fact that such person is or was an officer, employee or
agent of the corporation. For purposes of this Section 3.16, an "officer",
"employee" or "agent" of the corporation includes any person (i) who is or was
an officer, employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or (iii) who
was an officer, employee or agent of the corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
(c) Expenses incurred in defending any civil or criminal action or proceeding
for which indemnification is required pursuant to Section 3.16(a) shall be paid
by the corporation
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in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Section 3.16. Expenses incurred in
defending any civil or criminal action or proceeding for which indemnification
is permitted pursuant to Section 3.16(b) may be paid by the corporation in
advance of the final disposition of such action or proceeding upon receipt of an
undertaking by or on behalf of the indemnified party to repay such amount if it
shall ultimately be determined that the indemnified party is not entitled to be
indemnified as authorized in this Section 3.16.
(d) The indemnification provided by this Section 3.16 shall not be
deemed exclusive of any other rights to which those seeking indemnification may
be entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
(e) The corporation shall have the power to purchase and maintain
insurance on behalf of any person who is or was an agent of the corporation
against any liability asserted against or incurred by such person in such
capacity or arising out of such person's status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the provisions of this Section 3.16.
(f) No indemnification or advance shall be made under this Section 3.16,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, these Bylaws, a resolution of the shareholders or an
agreement in effect at the time of the accrual of the alleged cause of the
action asserted in the proceeding in which the expenses were incurred or other
amounts were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
Section 3.17 TRANSACTIONS BETWEEN CORPORATIONS AND DIRECTORS.
(a) No contract or other transaction between the corporation and one or
more of its directors, or between the corporation and any corporation, firm or
association in which one or more of its directors has a material financial
interest, is either void or voidable because such director or directors or such
other corporation, firm or association are parties or because such director or
directors are present at the meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies the contract or transaction, if:
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(1) the material facts as to the transaction and as to
such director's interest are fully disclosed or known to the shareholders and
such contract or transaction is approved in good faith by the affirmative vote
of a majority of the shares entitled to vote represented at a duly held meeting
at which a quorum is present or by the written consent of shareholders, with the
shares owned by the interested director or directors not being entitled to vote
thereon;
(2) the material facts as to the transaction and as to
such director's interest are fully disclosed or known to the Board of Directors
or committee, and the Board of Directors or committee authorizes, approves or
ratifies the contract or transaction in good faith by a vote sufficient without
counting the vote of the interested director or directors and the contract or
transaction is just and reasonable as to the corporation at the time it is
authorized, approved or ratified; or
(3) as to contracts or transactions not approved as
provided in paragraph (a) or (b) of this subdivision, the person asserting the
validity of the contract or transaction sustains the burden of proving that the
contract or transaction was just and reasonable as to the corporation at the
time it was authorized, approved or ratified.
(b) No contract or other transaction between a corporation and any
corporation or association of which one or more of its directors are directors
is either void or voidable because such director or directors are present at the
meeting of the Board of Directors or a committee thereof which authorizes,
approves or ratifies the contract or transaction, if:
(1) The material facts as to the transaction and as to
such director's other directorship are fully disclosed or known to the Board of
Directors or committee, and the Board of Directors or committee authorizes,
approves or ratifies the contract or transaction in good faith by a vote
sufficient without counting the vote of the common director or directors or the
contract or transaction is approved by the shareholders (Section 153) of the
General Corporation Law in good faith; or
(2) As to contracts or other transactions not approved as
provided in paragraph (1) of this subdivision, the contract or transaction is
just and reasonable as to the corporation at the time it is authorized, approved
or ratified.
This subsection (b) does not apply to contracts or transactions covered by
subsection (a).
(c) A mere common directorship does not constitute a material financial
interest within the meaning of subsection (a) of this Section 3.17. A director
is not interested within the meaning of subsection (a) of this Section 3.17 in a
resolution fixing the compensation of another director as a director, officer or
employee of the corporation, notwithstanding the fact that the first director is
also receiving compensation from the corporation.
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(d) Interested or common directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves or ratifies a contract or transaction.
ARTICLE IV
OFFICERS
Section 4.1 OFFICERS. The officers of the corporation shall be a Chief
Executive Officer, a Secretary and a Chief Financial Officer. The corporation
may also have, at the discretion of the Board of Directors, a Chairman of the
Board, one or more Vice Presidents, one or more Assistant Secretaries, one or
more Assistant Treasurers and such other officers as may be appointed in
accordance with the provisions of Section 4.3 of this article. Any number of
offices may be held by the same person.
Section 4.2 ELECTION. The officers of the corporation, except such officers
as may be appointed in accordance with the provisions of Section 4.3 or Section
4.5 of this article, shall be chosen annually by the Board of Directors, and
each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or his successor shall be elected and
qualified.
Section 4.3 SUBORDINATE OFFICERS, ETC. The Board of Directors may appoint,
and may empower the Chairman of the Board, if there be such an officer, or the
Chief Executive Officer, to appoint such other officers as the business of the
corporation may require, each of whom shall hold office for such period, have
such authority and perform such duties as are provided in the bylaws or as the
Board of Directors may from time to time determine. Any appointment of an
officer shall be evidenced by a written instrument filed with the secretary of
the corporation and maintained with the corporate records.
Section 4.4 REMOVAL AND RESIGNATION. Subject, in each case, to the rights, if
any, of an officer under any contract of employment, any officer may be removed,
either with or without cause, by the Board of Directors at any regular or
special meeting thereof, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors.
Any officer may resign at any time by giving written notice to the Board of
Directors or to the Chief Executive Officer or to the Secretary of the
corporation, without prejudice, however, to the rights, if any, of the
corporation under any contract to which such officer is a party. Any such
resignation shall take effect at the date of the receipt of such notice or at
any later time specified therein; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
Section 4.5 VACANCIES. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled in the manner
prescribed in these bylaws for regular appointments to such office.
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Section 4.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall
be such an officer, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
bylaws.
Section 4.7 CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if
any, as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the Chief Executive Officer shall be the chief
executive officer of the corporation and shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business and officers of the corporation. He shall preside at all meetings of
the shareholders and, in the absence of the Chairman of the Board, or if there
be none, at all meetings of the Board of Directors. He shall have the general
powers and duties of management usually vested in the office of Chief Executive
Officer of a corporation, and shall have such other powers and duties as may be
prescribed by the Board of Directors or the bylaws.
Section 4.8 VICE PRESIDENT. In the absence or disability of the Chief
Executive Officer, the vice presidents, if any, in order of their rank as fixed
by the Board of Directors or, if not ranked, the Vice President designated by
the Board of Directors, shall perform all the duties of the Chief Executive
Officer, and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the Chief Executive Officer. The Vice Presidents shall
have such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or these bylaws, or
as the chief executive officer may from time to time delegate.
Section 4.9 SECRETARY.
(a) Corporate Records. The Secretary shall keep or cause to be kept, at
the principal executive office and such other place as the Board of Directors
may direct, the seal of the corporation, copies of the Articles of Incorporation
and Bylaws of the corporation, a book of minutes of actions taken at all
meetings of shareholders, the Board of Directors and committees of the Board of
Directors with the time and place of holding, whether regular or special, and,
if special, how authorized, the notice given, the names of those present at
directors' meetings, the number of shares present or represented at
shareholders' meetings, and the proceedings thereof.
(b) Share Register. The Secretary shall keep, or cause to be kept, at
the principal executive office or at the office of the corporation's transfer
agent, a share register, or a duplicate share register, showing the names of the
shareholders and their addresses, the number and classes of shares held by each,
the number and date of certificates issued for the same, and the number and date
of cancellation of every certificate surrendered for cancellation.
38
<PAGE> 17
(c) Other Duties. The Secretary shall give, or cause to be given, notice
of all the meetings of the shareholders and of the Board of Directors required
by the Bylaws or by law to be given, and he shall keep the seal of the
corporation in safe custody, and shall have such other powers and perform such
other duties as may be prescribed by the Board of Directors or by the bylaws.
Section 4.10 CHIEF FINANCIAL OFFICER.
(a) Books of Account. The Chief Financial Officer of the corporation
shall keep and maintain, or cause to be kept and maintained, adequate and
correct accounts of the properties and business transactions of the corporation,
and shall send or cause to be sent to the shareholders of the corporation such
financial statements and reports as are by law or these bylaws required to be
sent to them. The books of account shall at all reasonable times be open to
inspection by any director.
(b) Other Duties. The Chief Financial Officer shall deposit all monies
and other valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the Board of Directors. The chief financial
officer shall disburse the funds of the corporation as may be ordered by the
Board of Directors, shall render to the Chief Executive Officer and directors,
whenever they request it, an account of all of his transactions as chief
financial officer and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by the
Board of Directors or the Bylaws.
ARTICLE V
GENERAL CORPORATE MATTERS
Section 5.1 RECORD DATE.
(a) When Fixed by Board of Directors. The Board of Directors may fix a
time in the future as a record date for the determination of the shareholders
entitled to notice of and to vote at any meting of shareholders or entitled to
give consent to corporate action in writing without a meeting, to receive any
report, to receive any dividend or distribution, or any allotment of rights, or
to exercise rights in respect to any change, conversion, or exchange of shares.
The record date so fixed shall be not more than sixty (60) days nor less than
ten (10) days prior to the date of any meeting, nor more than (60) days prior to
any other event for the purposes of which it is fixed. When a record date is so
fixed, only shareholders of record at the close of business on that date are
entitled to notice of and to vote at any such meeting, to give consent without a
meeting, to receive any report, to receive a dividend, distribution, or
allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation after
the record date, except as otherwise provided in the Articles of Incorporation
or these Bylaws.
39
<PAGE> 18
(b) When Not Fixed by Board of Directors. In the event no record date is
fixed by the Board of Directors:
(1) The record date for determining the shareholders
entitled to notice of or to vote at a meeting of shareholders shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(2) The record date for determining shareholders entitled
to give consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors has been taken, shall be the day on which the
first written consent is given.
(3) The record date for determining shareholders for any
other purpose shall be at the close of business on the date on which the Board
of Directors adopts the resolution relating thereto, or the sixtieth day prior
to the date of such other action, whichever is later.
Section 5.2 INSPECTION OF CORPORATE RECORDS.
(a) By Shareholders. The accounting books and records, the record of
shareholders, and minutes of proceedings of the shareholders and the Board of
Directors and committees of the Board of Directors of this corporation and any
subsidiary of this corporation shall be open to inspection upon the written
demand on the corporation of any shareholder or holder of a voting trust
certificate at any reasonable time during usual business hours, for a purpose
reasonably related to such holder's interests as a shareholder or as the holder
of such voting trust certificate. Such inspection by a shareholder or holder of
a voting trust certificate may be made in person or by agent or attorney, and
the right of inspection includes the right to copy and make extracts.
(b) By Directors. Every director shall have the absolute right at any
reasonable time to inspect and copy all books, records and documents of every
kind and to inspect the physical properties of the corporation. Such inspection
by a director may be made in person or by agent or attorney and the right of
inspection includes the right to copy and make extracts.
Section 5.3 MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall keep
at its principal executive office, or if its principal executive office is not
in the State of California, at its principal business office in this state, the
original or a copy of the Bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in this state,
the Secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the bylaws as amended to date.
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<PAGE> 19
Section 5.4 ANNUAL AND OTHER REPORTS. The Board of Directors of the
corporation shall cause an annual report to be sent to the shareholders at least
fifteen (15) days prior to the annual meeting of shareholders but not later than
one hundred twenty (120) days after the close of the fiscal year in accordance
with the provisions of the General Corporation Law.
Section 5.5 CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes or other evidences of indebtedness, issued in the name
of or payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors.
Section 5.6 CONTRACTS, ETC., HOW EXECUTED. The Board of Directors, except as
in the Bylaws otherwise provided, may authorize any officer or officers, agent
or agents, to enter into any contract or execute any instrument in the name of
and on behalf of the corporation, and such authority may be general or confined
to specific instances; and, unless so authorized or ratified by the Board of
Directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement or to pledge its credit or to render it liable for any
purpose or to any amount.
Section 5.7 CERTIFICATE FOR SHARES. Every holder of shares in the corporation
shall be entitled to have a certificate signed in the name of the corporation by
the Chairman of the Board or the Chief Executive Officer or a Vice President and
by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any of the signatures on the certificate may be
a facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the corporation with the same effect as if such
person were an officer, transfer agent or registrar at the date of issue.
Section 5.8 LOST, STOLEN OR DESTROYED CERTIFICATES. No new certificates for
shares shall be issued to replace an old certificate unless the latter is
surrendered and cancelled at the same time; provided, however, that the Board of
Directors or the Chief Executive Officer and any Vice President may, however, in
case any certificate for shares is lost, stolen, mutilated or destroyed,
authorize the issuance of a new certificate in lieu thereof, upon such terms and
conditions, including reasonable indemnification of the corporation, as the
Board of Directors or the Chief Executive Officer or any Vice President shall
determine. In the event of the issuance of a new certificate, the rights and
liabilities of the corporation, and of the holders of the old and new
certificates, shall be governed by the relevant provisions of the California
Commercial Code.
Section 5.9 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of
the Board, the Chief Executive Officer or any Vice President, or any other
person authorized by resolution of the Board of Directors or by any of the
foregoing
41
<PAGE> 20
designated officers, are authorized to vote, represent and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
these officers.
Section 5.10 CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the General Corporation Law of California shall govern the
construction of these Bylaws. Without limiting the generality of the foregoing,
the masculine gender includes the feminine and neuter, the singular number
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation as well as a natural person.
ARTICLE VI
AMENDMENTS
Section 6.1 POWER OF SHAREHOLDERS. New bylaws may be adopted or these Bylaws
may be amended or repealed by the affirmative vote or written consent of a
majority of the outstanding shares entitled to vote thereon, except as otherwise
provided by law or by the Articles of Incorporation.
Section 6.2 POWER OF DIRECTORS. Subject to the right of shareholders as
provided in Section 6.1 of this Article VI to adopt, amend or repeal bylaws,
bylaws may be adopted, amended or repealed by the Board of Directors; provided,
however, that the Board of Directors may adopt a bylaw or amendment thereof
changing the authorized number of directors only for the purpose of fixing the
exact number of directors within the limits specified in the articles of
incorporation or in Section 3.2 of Article III of these Bylaws.
42
<PAGE> 1
EXHIBIT 10.1
[Jalate letterhead]
April 9, 1998
Andrew Cohen
President
CHORUS LINE CORPORATION
4505 Bandini Boulevard
Los Angeles, California 90040
Dear Andy:
This letter of intent sets forth the basic terms and conditions relating to
the proposed combination of JALATE LTD. ("JL") and CHORUS LINE CORPORATION
("CLC") pursuant to a statutory merger or other mutually acceptable transaction
(the "Merger") which would result in common ownership of CLC and JL. Subject to
Consideration of other forms of transactions which may be mutually acceptable,
the parties currently intend that the Merger would qualify as a tax-free
reorganization under Section 368 of the Internal Revenue Code of 1986, as
amended.
1. Post Closing Ownership
Immediately following the effective time of the Merger, holders of CLC Common
Stock immediately prior to the Merger will in the aggregate hold 80% of the
shares of the Common Stock of the surviving corporation outstanding immediately
following the effective time of the Merger (on a fully diluted basis assuming
(but not requiring) the exercise of cancellation of all outstanding options and
warrants of JL and CLC).
2. Corporate Name
Upon the effective time of the Merger, the name of the surviving corporation
shall be "Chorus Line Corporation" or another name acceptable to CLC
shareholders.
3. Board Representation
The post-closing Board of Directors of the surviving corporation will consist of
five directors (plus such additional directors satisfactory to CLC as may be
required by any stock exchange), four of whom shall be nominated by the current
CLC directors and one of whom shall be nominated by the current JL directors.
Management of the surviving corporation shall use its reasonable efforts to
cause the nominee of the JL directors and the nominees of the CLC directors to
be elected to the Board of Directors for the period through the third
anniversary of the effective time of the Merger.
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<PAGE> 2
4. Shareholder Agreements
Concurrently with the execution of the definitive merger agreement (the "Merger
Agreement"), Vint Bacon, Larry Brahim, William DeArman, John Drury, Don Sanders,
Katherine Sanders, Levine Leichtman Capital Partners, L.P., ING Capital
Corporation, Jay Balaban, Andy Cohen and any of their respective affiliates will
enter into mutually agreeable shareholder agreements which will include, but not
be limited to, provisions relating to prohibitions on their sale of stock for
mutually agreeable periods of time and agreements relating to voting for
directors of the surviving corporation in accordance with paragraph 3 above.
5. Operating Plan
Within 90 days after the date of this letter of intent, JL and CLC will develop
a mutually agreeable operation plan for the surviving corporation which will
include, but not be limited to (i) expenses, that will be eliminated by amount
and implementation date, (ii) necessary factoring relationship, (iii)
manufacturing facility usage, (iv) monthly income statement, balance sheet and
liquidity position for April 1998 through December 1999.
6. Merger Agreement
The Merger Agreement would contain representations, warranties and other
provisions customary in transactions of this type. All representations,
warranties, covenants and indemnities would terminate on the effective date of
the Merger.
7. Securities Law Matters
The Common Stock to be issued in the merger would be registered on a Form S-4
registration statement and listed on an exchange mutually acceptable to the
parties.
8. Conditions
Consummation of the Merger would be subject to the satisfaction of the following
conditions, among others:
(a) the negotiation and execution of a definitive merger agreement, containing
representations, warranties, covenants, conditions and indemnification
provisions customary for transactions of this nature and which are satisfactory
in form and substance to both parties;
(b) the obtaining of all required governmental and regulatory consents or
approvals with respect to the Merger (including without limitation the
Hart-Scott-Rodino Act);
(c) approval of the definitive Merger Agreement by the Boards of Directors and
stockholders of both JL and CLC:
44
<PAGE> 3
(d) no material adverse change in the business, financial condition, results of
operations or properties of either party after the execution of a definitive
agreement; and
(e) JL shall have repaid in full all indebtedness (except for unsecured trade
payables and except for factor indebtedness secured by receivables), and all
liens on assets securing such indebtedness shall have been released.
9. Closing
The parties intend to work diligently and in good faith toward the negotiation
and execution of a definitive merger agreement. Execution of any definitive
agreement would be subject, among other things, to the satisfactory completion
of legal, accounting and business due diligence by no later than 90 days from
the date hereof by both JL and CLC in their sole discretion. Following execution
of a definitive agreement, if any, the parties would work toward consummation of
the transactions by September 30, 1998, but in no event later than October 31,
1998.
10. Conduct of Due Diligence
Each party will provide the other reasonable access to its premises and its
books and records and shall cause its officers, financial advisors and auditors
to furnish to the other party and its representatives such financial
information, operation data and other information as such other party may
reasonable [sic] request.
11. Confidentiality, Etc.
Neither party shall (i) disclose to any person other than its own
representatives any non-public information it acquires by reason of its
negotiations of the terms of the Merger or its due diligence investigations or
(ii) until at least one year shall have passed after any termination of this
letter of intent, solicit for employment by it any of the employees of the other
party. The parties shall continue to be bound by the terms of any
confidentiality agreement entered into prior to the date of this letter of
intent.
12. Publicity
CLC recognizes that, since JL is a public company, JL may be obligated to issue
a press release relating to the terms of this letter of intent. Any such press
release shall be reasonably satisfactory to CLC, and JL and CLC shall cooperate
in conjunction with issuing any such press release and any other public
disclosure of the matters contemplated hereby.
13. Expense
Each party will be responsible for its own expenses in connection with all
matters relating to the transaction, except as may otherwise be agreed to by the
parties in writing. If for any reason this proposed transaction shall not be
consummated, neither party will be responsible for any of the other's expenses
except as may be provided in the definitive Merger Agreement. Each party will
45
<PAGE> 4
indemnify, defend and hold harmless the other against the claims of any broker
or finders claiming by, through or under the indemnifying party.
14. Notice of Certain Events
Each party shall provide the other with prompt notice if it (i) solicits or
entertains inquiries or proposals, or enters into negotiations with any other
person, with respect to the sale of its assets (other than sales of inventory in
the ordinary course of business) or a merger, consolidation or other acquisition
or business combination involving it, or (ii) makes any material changes in its
capital structure, incurs new material indebtedness (other than borrowings
related to existing credit or factor arrangements) or makes any material changes
in its business plans.
15. Binding Nature
Except for matters set forth in paragraphs 11 (Confidentiality, Etc.), 12
(Publicity), 13 (Expenses), 14 (Notice of Certain Events) and this paragraph 15
(Binding Nature), this letter does not create and will not be deemed to be a
binding, legal obligation among the parties for any reason but merely represents
the present good faith intention of the parties. Except as set forth in the
preceding sentence, there shall be no binding agreement between the parties
hereto unless and until a definitive Merger Agreement is executed and delivered
by the parties hereto. This letter agreement shall be governed by California
law.
16. Termination
Either party may terminate negotiations at any time prior to the execution of
the Merger Agreement without liability to the other party whatsoever, subject to
the parties' obligations under Sections 11 and 13, which shall survive any
termination of this letter of intent. The parties also agree that if the Merger
Agreement has not been executed by both parties by July 31, 1998, this letter of
intent will automatically be terminated and be of no further force or effect,
subject only to the parties' obligations under Sections 11 and 13.
17. Counterparts
This letter of intent may be executed in counterparts.
Your signature below shall confirm your agreement with the foregoing
letter of intent.
Very truly yours,
JALATE LTD.
By: /s/ VINTON BACON
------------------------------------
Name: Vinton Bacon
Title: President and CEO
46
<PAGE> 5
Agree to and Accepted this
13th day of April, 1998.
CHORUS LINE CORPORATION
By: /s/ ANDREW COHEN
--------------------------------
Name: Andrew Cohen
Title: President and CEO
47
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JALATE,
LTD. CONDENSED BALANCE SHEET AS OF MARCH 31, 1998 AND CONDENSED STATEMENT OF
OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS FILED IN JALATE, LTD.'S QUARTERLY
REPORT FILED ON FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 69
<SECURITIES> 0
<RECEIVABLES> 530
<ALLOWANCES> 284
<INVENTORY> 4,484
<CURRENT-ASSETS> 4,976
<PP&E> 2,811
<DEPRECIATION> 1,467
<TOTAL-ASSETS> 7,186
<CURRENT-LIABILITIES> 5,130
<BONDS> 139
<COMMON> 5,576
0
0
<OTHER-SE> (4,609)
<TOTAL-LIABILITY-AND-EQUITY> 7,186
<SALES> 12,242
<TOTAL-REVENUES> 12,242
<CGS> 8,906
<TOTAL-COSTS> 8,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 161
<INTEREST-EXPENSE> 243
<INCOME-PRETAX> (119)
<INCOME-TAX> 0
<INCOME-CONTINUING> (119)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (119)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
