<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 13, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JENNA LANE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 2345 22-3351399
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
1407 BROADWAY, SUITE 1801
NEW YORK, NEW YORK 10018
(212) 704-0002
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MITCHELL DOBIES, PRESIDENT
JENNA LANE, INC.
1407 BROADWAY, SUITE 1801
NEW YORK, NEW YORK 10018
(212) 704-0002
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
DAVID N. FELDMAN, ESQ. STANLEY R. GOLDSTEIN, ESQ.
LAW OFFICES OF DAVID N. FELDMAN GOLDSTEIN & DIGIOIA, L.L.P.
555 MADISON AVENUE, 23RD FLOOR 369 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10017
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units(2).................................. 690,000 $10.10 $ 6,969,000 $2,403
- ----------------------------------------------------------------------------------------------------------------------------------
-- 2 shares of Common Stock.............
- ----------------------------------------------------------------------------------------------------------------------------------
-- 1 Warrant............................
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(3)........... 690,000 $ 7.00 $ 4,830,000 $1,665
- ----------------------------------------------------------------------------------------------------------------------------------
Warrants(4)............................... 1,000,000 $ 0.10 $ 100,000 $ 34
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(5)........... 1,000,000 $ 7.00 $ 7,000,000 $2,414
- ----------------------------------------------------------------------------------------------------------------------------------
Underwriter's Option(6)................... 60,000 $ 0.001 $ 6 $ 0
- ----------------------------------------------------------------------------------------------------------------------------------
Units(7).................................. 60,000 $14.14 $ 848,400 $ 293
- ----------------------------------------------------------------------------------------------------------------------------------
-- 2 shares of Common Stock.............
- ----------------------------------------------------------------------------------------------------------------------------------
-- 1 Warrant............................
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(8)........... 60,000 $ 7.00 $ 420,000 $ 145
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL............................. $20,167,406 $6,954
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(2) An aggregate of 1,380,000 shares of Common Stock and up to 690,000 Class A
Warrants ("Warrants") will be offered to the public in up to 690,000 Units,
each Unit consisting of two shares of Common Stock and one Warrant,
including up to 90,000 Units (comprised of up to 180,000 shares of Common
Stock and up to 90,000 Warrants) which may be purchased to cover
over-allotments, if any.
(3) Consists of shares issuable upon exercise of the Warrants included in the
Units to be sold to the public, plus such indeterminate number of shares as
may be issuable pursuant to the antidilution provisions of the Warrants.
Upon exercise of each Warrant, the holder will receive one share of Common
Stock, subject to adjustment in certain circumstances.
(4) Consists of Warrants to be sold by the Selling Warrantholders.
(5) Consists of shares issuable upon exercise of Warrants to be sold by Selling
Warrantholders, plus such indeterminate number of shares as may be issuable
pursuant to the antidilution provisions of the Warrants.
(6) To be sold to the Underwriter. Pursuant to Rule 457(g), no separate
registration fee is required for the Underwriter's Option.
(7) Consists of Units issuable upon exercise of the Underwriter's Option
representing an aggregate of up to 120,000 shares of Common Stock and 60,000
Warrants.
(8) Consists of shares issuable upon exercise of the Warrants included in the
Units underlying the Underwriter's Option plus such indeterminate number of
shares as may be issuable pursuant to the antidilution provisions of the
Warrants.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
JENNA LANE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- ------ ----------------------------------------- -----------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement
and Outside Front Cover of Page of
Prospectus............................. Facing Page; Cross-Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.......................... Inside Front Cover Page of Prospectus;
Additional Information; Table of
Contents; Outside Back Cover Page of
Prospectus
3. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges..... Prospectus Summary; Risk Factors;
Selected Financial Data
4. Use of Proceeds.......................... Prospectus Summary; Use of Proceeds
5. Determination of Offering Price.......... Underwriting
6. Dilution................................. Dilution
7. Selling Security Holders................. Concurrent Offerings
8. Plan of Distribution..................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be
Registered............................. Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of
Securities
10. Interests of Named Experts and Counsel... Not Applicable
11. Information with Respect to Registrant... Prospectus Summary; The Company; Risk
Factors; Dividend Policy;
Capitalization; Selected Financial
Data; Management's Discussion and
Analysis of Financial Condition and
Results of Operations; Business;
Management; Certain Transactions;
Principal Stockholders; Shares Eligible
for Future Sale; Description of Capital
Stock; Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities............................ Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED SEPTEMBER , 1996
PROSPECTUS
600,000 UNITS
JENNA LANE, INC.
EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK
AND ONE REDEEMABLE CLASS A WARRANT
Jenna Lane, Inc. (the "Company") hereby offers (the "Offering") 600,000
units ("Units"), each Unit consisting of two shares (the "Shares") of Common
Stock, $.01 par value (the "Common Stock") and one Redeemable Class A Warrant
("Warrants"). The Common Stock and the Warrants will be immediately separately
transferable. Each Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $7.00, subject to adjustment, at any time until
the third anniversary of the date of this Prospectus. Commencing one year from
the date hereof, the Warrants are subject to redemption by the Company at a
redemption price of $.05 per Warrant on 30 days' written notice, provided that
the closing bid price of the Common Stock is in excess of $11.00 per share for
any 20 consecutive trading days ending on the third day prior to the date of the
notice of redemption and provided further that a registration statement with
respect to the shares of Common Stock underlying such Warrants is then in
effect. See "Description of Securities."
(Cover Continued on Next Page)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK, WHICH MAY RESULT IN THE LOSS OF AN INVESTOR'S ENTIRE
INVESTMENT, AND IMMEDIATE DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit.......................... $10.10 $1.01 $9.09
- -------------------------------------------------------------------------------------------------
Total(3).......................... $6,060,000 $606,000 $5,454,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) an unaccountable expense allowance of $181,800 ($195,570
if the over-allotment option is exercised in full); (ii) an aggregate of
60,000 Units (the "Underwriter's Purchase Units") which the Underwriter has
the option to purchase at a price equal to 120% of the public offering price
of the Units, which option is exercisable over a period of three years
commencing one year after the date of this Prospectus (the "Underwriter's
Option") and (iii) a two-year consulting fee of $108,000. The Company also
has agreed to indemnify the Underwriter against certain liabilities under
the Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(2) Before deducting estimated expenses of $421,800 ($449,070 if the
over-allotment option is exercised in full) payable by the Company,
including the Underwriter's unaccountable expense allowance. See
"Underwriting."
(3) The Company has granted to the Underwriter a 45-day option to purchase up to
an additional 90,000 Units (which includes 90,000 shares being sold as part
of the Units by the Selling Common Stockholders) on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
the over-allotment option is exercised in full (exclusive of the portion of
the 45,000 Units for which the Selling Common Stockholders will receive the
proceeds from sale of 90,000 shares contained therein at $5.00 per share),
the initial Price to Public, Underwriting Discounts and Commissions and
Proceeds to Company will be $6,519,000, $651,900 and $5,867,100,
respectively. See "Underwriting."
------------------------
The Units are being offered on a "firm commitment" basis by the Underwriter
when, as and if delivered to and accepted by the Underwriter, subject to its
right to reject orders in whole or in part and subject to certain other
conditions. It is expected that the delivery of the certificates representing
the Units will be made against payment therefor at the offices of Walsh Manning
Securities, Inc., 90 Broad Street, New York, New York 10004.
------------------------
WALSH MANNING SECURITIES, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER , 1996
<PAGE> 4
(Continued from Previous Page)
Prior to the Offering, there has been no public market for the Company's
securities, and there can be no assurance that such a market will develop. The
Company intends to make application to list the Common Stock and the Warrants on
the Nasdaq National Market System ("Nasdaq"). The Units will not be listed for
trading on Nasdaq and no separate trading market will exist for the Units. SEE
"RISK FACTORS" FOR INFORMATION CONCERNING THE COMPANY'S MANAGEMENT WHICH MAY
ADVERSELY AFFECT THE COMPANY'S ABILITY TO LIST THE SECURITIES ON NASDAQ. It is
currently estimated that the initial public offering price for each Unit will be
$10.10. The proposed offering price and terms of the Warrants have been
determined by negotiation between the Company and Walsh Manning Securities, Inc.
(the "Underwriter") and are not necessarily related to the Company's asset
value, net worth or other established criteria of value. Factors considered in
determining such prices and terms, in addition to prevailing market conditions,
include the history of and the prospects for the industry in which the Company
competes, the present state of the Company's development and its future
prospects, an assessment of the Company's management, the Company's capital
structure and such other factors as were deemed relevant. See "Underwriting."
The Company has concurrently registered (i) an aggregate of 1,000,000
Warrants (the "Selling Warrantholder Warrants") and the Common Stock underlying
the Selling Warrantholder Warrants for resale by certain securityholders (the
"Selling Warrantholders") and (ii) 90,000 shares of Common Stock (the "Selling
Common Stockholder Shares") held by certain existing stockholders who are
members of management of the Company ("Selling Common Stockholders") which,
together with 45,000 Warrants to be issued by the Company, will be sold as part
of the Underwriters' over-allotment option, if the option is exercised (the
over-allotment option may only be exercised and the Selling Common Stockholder
Shares sold only if all 600,000 Units offered hereby are first sold). The
Selling Warrantholder Warrants and the Common Stock underlying such Warrants and
the Selling Common Stockholder Shares are sometimes collectively referred to as
the "Selling Securityholder Securities." The Selling Warrantholder Warrants are
issuable on the closing of the Offering to the Selling Warrantholders upon the
automatic resetting of the terms of warrants (the "Bridge Warrants") acquired by
them in the Company's private placement in August 1996 (the "Bridge Financing").
The Selling Warrantholders have agreed with the Company not to sell or exercise
any of the Selling Warrantholder Warrants for a period of eighteen months after
the completion of the Offering without the prior written consent of the
Underwriter. Sales of the Selling Securityholder Securities, or the potential of
such sales, may have an adverse effect on the market price of the securities
offered hereby. Unless the context otherwise requires, all references herein to
the Warrants shall include the Selling Warrantholder Warrants and the 45,000
Warrants to be issued by the Company. The Company will not receive any of the
proceeds from the sale of Common Stock or Warrants by the Selling Warrantholders
or the Selling Common Stockholders. The Selling Warrantholders and Selling
Common Stockholders are sometimes referred to herein as the "Selling
Securityholders." The Units (and the shares and Warrants underlying them), the
Selling Warrantholder Warrants and the Selling Common Stockholder Shares, and
the shares and Warrants underlying them are collectively referred to herein as
the "Securities." See "Concurrent Offerings."
<PAGE> 5
THE COMPANY IS NOT PRESENTLY A REPORTING COMPANY AND DOES NOT FILE REPORTS
OR OTHER INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"). ON THE EFFECTIVE DATE ("EFFECTIVE DATE") OF THIS PROSPECTUS, THE
COMPANY WILL REGISTER EACH OF THE SECURITIES UNDER THE SECURITIES EXCHANGE ACT
OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AND WILL THEREBY BECOME A REPORTING
COMPANY UNDER THE EXCHANGE ACT. ACCORDINGLY, AFTER THE EFFECTIVE DATE, THE
COMPANY WILL BE SUBJECT TO THE REPORTING REQUIREMENTS OF THE EXCHANGE ACT AND IN
ACCORDANCE THEREWITH WILL FILE REPORTS, PROXY STATEMENTS AND OTHER INFORMATION
WITH THE COMMISSION. IN ADDITION, AFTER THE EFFECTIVE DATE, THE COMPANY INTENDS
TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS CONTAINING FINANCIAL STATEMENTS
AUDITED BY ITS INDEPENDENT AUDITORS. SEE "AVAILABLE INFORMATION."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 6
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Company's consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Except as otherwise noted, all
information in this Prospectus (i) reflects a 0.9047619-for-one stock dividend
effected in July 1996 (the "Stock Dividend"); (ii) assumes no exercise of (a)
the Underwriter's over-allotment option, (b) the Warrants, (c) the Selling
Warrantholder Warrants, (d) the Underwriter's Option, (e) options granted or
available for grant under the 1996 Incentive Stock Option Plan of Jenna Lane,
Inc. adopted in August 1996 (the "Option Plan") and (iii) gives effect to the
conversion, on the closing of the Offering, of (x) the Bridge Warrants into the
Selling Warrantholder Warrants and (y) all outstanding shares of the Company's
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock") into Common Stock. This Prospectus may be deemed to contain
forward-looking statements within the meaning of the Securities Act of 1933 and
the Securities Exchange Act of 1934. The Company's actual results and activities
could differ materially from those projected in the forward looking statements
as a result of the risk factors set forth herein.
THE COMPANY
The Company was formed in February 1995 and designs, manufactures and
markets high quality, cut and sewn, popularly priced junior, "missy", and large
size fashion and basic knit sportswear for women. The Company was founded by
individuals with extensive experience in apparel manufacturing, operations,
sales, and merchandising. Since its inception, the Company has dedicated its
time and resources primarily to the development of two sets of product lines,
basic sportswear and fashion sportswear.
Sales of basic sportswear comprised approximately 50-60% of the Company's
revenues in the fiscal year ended March 31, 1996 and the three months ended June
30, 1996. In the production of basic sportswear, the Company operates primarily
as a domestic manufacturer which substantially controls or owns all aspects of
its production capability, known within the industry as "vertical integration."
The Company believes that this vertical integration positions the Company among
the few apparel manufacturers in its market with the ability to control and
manage the entire manufacturing process from the conversion of yarn into fabric
to the completion of finished apparel. The Company believes it is able to
realize significant cost savings through its retention of responsibility for the
manufacturing of its own fabric (although not actually manufacturing itself). As
a result, the Company believes it can sell high quality merchandise to price
sensitive discounters and mass merchants at prices competitive to those of
imported goods.
Management believes that vertical integration as a domestic manufacturer of
basic sportswear allows the Company to deliver good quality competitively priced
merchandise to customers significantly faster than the delivery time on goods
shipped from overseas. Because of the Company's ability to produce goods more
quickly than those of its competitors who import products, the Company's retail
customers can conserve capital by purchasing less initial inventory, reduce
markdowns by holding smaller quantities of non-moving merchandise, and increase
sales by rapidly restocking fast-selling items. Management believes that the
Company's ability to deliver high quality, competitively priced merchandise in a
short time frame has allowed it to obtain as customers many of the nation's
leading discount retail outlets, although no assurance can be given that these
relationships will continue or be expanded.
The second key merchandise product line which the Company has pursued,
which comprised approximately 40-50% of the Company's revenues in the fiscal
year ended March 31, 1996 and the three months ended June 30, 1996, is fashion
sportswear. In producing its fashion sportswear, the Company follows more
traditional manufacturing processes utilized in the apparel industry, namely the
purchasing of fabric from outside vendors. The fashion sportswear product line
generates a higher gross profit margin than basic sportswear due to the
differentiation of product and reduced competition. In its fashion sportswear
production, the Company loses its competitive advantage of converting its own
fabrics, however, management believes that its long standing relationships with
buyers and management of its retail customers and its overall merchandising and
design skills will allow the Company to successfully compete in the fashion
sportswear business, although no assurance of such success can be given.
3
<PAGE> 7
The Company's sales efforts are organized based on the merchandise category
and/or customer, and are divided into Young Large Size, "Missy"/Large Size, Mass
Merchants, Imports and Mail Order. There can be no assurance that these sales
efforts will be successful or that the Company will not determine to add
additional categories or eliminate some or all of the divisions denoted above.
Indeed, since the Company's formation, it has added one such category and
eliminated another.
Although management is pleased with its success to date in selling basic
sportswear and fashion sportswear, and believes the Company will continue to
benefit from substantial focus on those areas, a longer-term opportunity for
expansion will be the growth and development of sales of imports. Part of
management's long-term plan is to continue to expand its importing activities.
There can be no assurance that this plan will be successfully implemented. See
"Use of Proceeds."
The Company attempts to maximize its competitive advantage through its
market focus, product design, and merchandise. The Company targets the major
national, regional and specialty chains whose volume demands attract them to
manufacturers who can produce quality merchandise in high volumes at low cost
within specified delivery schedules. See "Business."
The Company was incorporated under the laws of the State of Delaware in
February 1995. The Company's principal executive offices are located at 1407
Broadway, Suite 1801, New York, New York 10017, and its telephone number is
(212) 704-0002.
4
<PAGE> 8
THE OFFERING
Securities Offered..................... 600,000 Units, each consisting of
two shares of Common Stock and one
Warrant. The Common Stock and
Warrants will be immediately
separately transferable. Each
Warrant entitles the holder to
purchase one share of Common Stock
at an exercise price of $7.00,
subject to adjustment, at any time
until the third anniversary of the
date of this Prospectus. The
Warrants are subject to redemption
in certain circumstances. See
"Description of Securities."
Securities Offered Concurrently by
Selling Securityholders................ 1,000,000 Warrants and 1,000,000
shares of Common Stock issuable upon
exercise of such Warrants, as well
as the 90,000 Selling Common
Stockholder Shares which, together
with 45,000 Warrants to be issued by
the Company, will be sold as part of
the Underwriters' over-allotment
option, if the option is exercised.
The Company will not receive any of
the proceeds of the sale of such
Selling Securityholder Securities.
See "Concurrent Offerings."
Common Stock Outstanding Before
Offering............................... 3,000,000 shares (1)
Common Stock Outstanding After
Offering............................... 4,200,000 shares (2)
Use of Proceeds........................ To repay $500,000 principal amount
of 10% installment promissory notes
(the "Bridge Notes") issued in the
Bridge Financing, plus accrued
interest thereon of approximately
$2,200; to repay $500,000 principal
amount of 10% installment promissory
notes (the "November Notes") issued
in the November Offering (as
hereinafter defined), plus accrued
interest thereon of approximately
$8,300; to purchase a new CAD/CAM
system for design and manufacturing;
to purchase a new computer system
for the Company; to make a loan to a
supplier of the Company to assist in
opening a cutting room; for
reservation of funds relating to
letters of credit in the import
division and for working capital.
See "Use of Proceeds."
Listing; Proposed Trading Symbols...... The Company intends to make
application to list the Common Stock
and the Warrants on the Nasdaq
National Market System ("Nasdaq"),
with the proposed symbols for the
Common Stock and Warrants,
respectively, being JLNY and JLNYW.
The Units will not be listed for
trading on Nasdaq and no separate
trading market will exist for the
Units. See "Risk Factors" for
information concerning the Company's
management which may adversely
affect the Company's ability to list
the securities on Nasdaq.(3)
5
<PAGE> 9
Risk Factors........................... The Offering involves a high degree
of risk and immediate dilution. See
"Risk Factors" and "Dilution."
- ---------------
(1) Includes (i) 952,381 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock on the closing of the Offering (the "Preferred
Conversion Shares") and (ii) 571,429 shares of Common Stock (the
"Performance Shares") held by certain officers and directors of the Company,
which are subject to repurchase by the Company at the par value thereof if
the Company does not attain certain earnings levels. Does not include (x)
1,000,000 shares of Common Stock issuable upon exercise of the Bridge
Warrants, (y) 100,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $2.00 per
share and (z) 500,000 additional shares of Common Stock reserved for
issuance upon exercise of options not yet granted under the Option Plan. See
"Capitalization" and "Management."
(2) Includes the 571,429 Performance Shares. Does not include (i) 180,000 shares
of Common Stock issuable upon exercise of the Underwriter's over-allotment
option and the Warrants issuable upon exercise of such option; (ii) 180,000
shares of Common Stock issuable upon exercise of the Underwriter's Option
and the Warrants underlying such option; (iii) 600,000 shares of Common
Stock issuable upon exercise of the Warrants offered hereby; (iv) 1,000,000
shares of Common Stock issuable upon exercise of the Selling Warrantholder
Warrants; (v) 100,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $2.00 per
share and (vi) 500,000 additional shares of Common Stock reserved for
issuance upon exercise of options not yet granted under the Option Plan. See
"Capitalization," "Management" and "Underwriting."
(3) No assurance can be given that an active trading market will develop, or, if
one develops, be maintained for any of the Company's securities. See "Risk
Factors."
6
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
The information below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Financial Statements and notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 14,
1995 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED -------------------------
MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1995 1996 1995 1996
-------------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $ -- $25,832,323 $4,018,235 $9,724,079
Gross profit.......................... -- 4,704,176 657,729 1,797,026
Operating (Loss) income............... (43,926) 1,006,566 32,221 360,322
(Loss) income before income taxes..... (43,926) 933,993 25,971 325,447
Provision for income taxes............ -- 432,564 8,814 141,000
Net (loss) income..................... (43,926) 501,429 17,157 184,447
Pro forma net income per common
share (1).......................... $ 0.18 $ .06
Pro forma weighted average common
shares outstanding (1)............. 2,832,141 2,874,286
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
---------------------------------------------------
MARCH 31, PRO FORMA
1996 ACTUAL PRO FORMA (1) AS ADJUSTED(1)(2)
---------- ---------- ------------- ------------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $2,362,245 $2,402,561 $ 2,857,561 $6,771,269
Total assets...................... 5,209,550 4,949,593 5,404,593 9,318,301
Long-term debt.................... 425,143 437,042 912,042 3,709
Preferred stock................... 852,530 852,530 -- --
Shareholders' equity.............. 1,213,643 1,307,665 2,185,195 6,962,236
</TABLE>
- ---------------
(1) Gives effect to the conversion, at the closing of the offering, of all
outstanding shares of Series A Preferred Stock into 952,381 Preferred
Conversion Shares and the issuance of $500,000 principal amount of Bridge
Notes and Bridge Warrants.
(2) Adjusted to give effect to the sale of 600,000 units in the offering, and
the repayment of the November Notes, the Bridge Notes and all accrued
interest.
7
<PAGE> 11
RISK FACTORS
The securities offered hereby are speculative in nature and an investment
in the Units offered hereby involves a high degree of risk. In addition to the
other information contained in this Prospectus, prospective investors should
carefully consider the following risk factors in evaluating whether to purchase
the Securities offered hereby. This Prospectus may be deemed to contain
forward-looking statements within the meaning of the Securities Act of 1933 and
the Securities Exchange Act of 1934. The Company's actual results and activities
could differ materially from those projected in the forward-looking statements
as a result of the risk factors set forth herein.
Limited Operating History; Development-Stage Company. The Company
incorporated in February 1995, has only completed a single complete fiscal year,
and its operations and proposed operations remain subject to all of the risks
inherent in the establishment of a new business enterprise. While management has
extensive experience in the apparel industry, and specifically in the areas of
business in which the Company has been operating, there can be no assurance that
the Company can achieve its objectives or continue to operate profitably. Like
any relatively new business enterprise operating in a high risk and intensely
competitive market, the Company is subject to many business risks which include,
but are not limited to, inability to develop products, competition, unforeseen
marketing and promotional expenses, unforeseen negative publicity, unforeseen
difficulties in obtaining appropriate supply of raw materials, cutting and
sewing services and warehouse and shipping services, lack of operating
experience and limitations on its ability to raise capital or finance
operations. Many of the risks may be unforeseeable or beyond the control of
management, including the introduction of superior products to the market by
competitors. While management is pleased with early financial results, there can
be no assurance that the Company will be able to develop other marketable
products or to generate any further revenues from the sale of its proposed
products.
Dependence on Key Personnel. The Company, which currently has 55 full-time
employees, is substantially dependent upon the activities of certain executives,
including Mitchell Dobies, President and Chief Executive Officer, and Charles
Sobel, Executive Vice President. The Company has entered into employment
agreements with these individuals which expire March 24, 1997, creating the risk
that their services will be unavailable to the Company upon the expiration
thereof. The Company has purchased a $1,000,000 "key man" life insurance policy
on Mr. Dobies. The ability of the Company to succeed will also be dependent upon
its ability to hire and retain additional key management personnel, as to which
there can be no assurances. The Company's inability to retain the services of
other key personnel would have a materially adverse effect on the Company. For
more information concerning management of the Company, see "Management," "Risk
Factors -- Certain Legal Issues Concerning Management; Inability to Obtain
Nasdaq Listing/Blue Sky Law" and "Risk Factors -- Restrictions Contained in
Agreements Relating to Former Employer."
Certain Legal Issues Concerning Management; Inability to Obtain Nasdaq
Listing/Blue Sky Law. In 1991, Mitchell Dobies, President, Chief Executive
Officer and a director of the Company, was convicted by a state court in Essex
County, New Jersey, of theft in the third degree (a low-grade felony) of certain
materials from a contractor of CR & ME, Ltd. ("CR & ME"), his former employer.
Mr. Dobies agreed to a plea bargain, after which he received a sentence of
probation and community service. Mr. Dobies maintains that the only items he
removed from the supplier's location were those owned by CR & ME, but did not
believe it was in his or CR & ME's best interest to pursue a trial in the
matter. Stanley Kaplan may be deemed to be a promoter of the Company by virtue,
among other things, of having served as a director, but he no longer serves as a
director or officer of the Company, nor does he directly own any securities of
the Company (although he previously did). Mr. Stanley Kaplan is, however, the
owner of less than one percent of Walnut Financial Services, Inc., a publicly
held company (of which he is neither director, officer or affiliate), a wholly
owned subsidiary of which directly owns 95,238 shares of Common Stock (assuming
conversion of the Series A Preferred Stock into Preferred Conversion Shares) and
which indirectly controls Universal Partners, L.P. which directly owns 19,048
shares of Common Stock (assuming conversion of the Series A Preferred Stock into
Preferred Conversion Shares) and is an investor in the Bridge Financing (see
"Concurrent Offerings"). On August 12, 1994, Mr. Stanley Kaplan settled, without
admitting or denying any allegations, a civil action brought against him by the
Securities and Exchange Commission (the "Commission") relating to Atratech, Inc.
The action charged Stanley Kaplan with certain violations of the Securities Act
of 1933 and the
8
<PAGE> 12
Securities Exchange Act of 1934 (the "Exchange Act"). As part of the settlement,
Stanley Kaplan was permanently restrained and enjoined from future violations of
the securities laws and was permanently barred from acting as an officer or
director of any issuer that has a class of securities registered under Section
12 of the Exchange Act or that is required to file reports pursuant to Section
15(d) of the Exchange Act. Stanley Kaplan is a controlling shareholder of
Gro-Vest Management Consultants, Inc. ("GVMCI"), a consulting firm of which
Lawrence Kaplan, a director of the Company, also is a controlling shareholder.
GVMCI performed certain consulting services for the Company from January 1996
through July 1996. Stanley Kaplan is not related to Lawrence Kaplan. As a result
of the aforementioned legal matters regarding Mitchell Dobies, the Company's
President, and Stanley Kaplan, the Company may be precluded from listing the
Securities on Nasdaq or any national securities exchange. The Nasdaq and the
national securities exchanges reserve the right to preclude a company's listing
of securities based upon numerous factors, including the integrity and character
of the management and affiliates of a company. Additionally, the Company may be
precluded from the offer or sale of its securities in one or more states. If the
Company is precluded from listing its securities on Nasdaq or a national
securities exchange, the Underwriter and the Company have agreed that the
Offering will not be consummated. See "Management" and "Certain Transactions."
Restrictions Contained in Agreements Relating to Former Employer. Mitchell
Dobies, President and Chief Executive Officer of the Company, has entered into
an agreement with the shareholders of CR & ME, and Charles Sobel, Executive Vice
President of the Company, has entered into an agreement with CR & ME, both of
which agreements were in connection with their termination of employment with CR
& ME and certain other matters. Since Messrs. Dobies and Sobel's departure from
CR & ME in early 1995, upon information and belief, that company has filed for
liquidation under Chapter 7 of the United States Code (i.e. the bankruptcy
code). Mr. Sobel's agreement (pursuant to which his employment was terminated)
provides that he must "refrain from actively seeking other employment" during
the eight week period which ended on March 3, 1995 and that during that period
he may not attend interviews with competing employers. Management believes that
Mr. Sobel neither attended an interview with the Company nor did he actively
seek employment with the Company during this period. An action brought by Mr.
Sobel against CR & ME and its principals, which included certain counterclaims
by the principals, was recently settled with prejudice. CR & ME has commenced an
adversary proceeding (akin to litigation within a bankruptcy proceeding) against
Mr. Sobel alleging, among other things, that bonus payments of approximately
$37,000 made to him by CR & ME during the year prior to the commencement of its
Chapter 7 liquidation were improper "insider" payments that must be returned.
The Company is not named in this proceeding. The Company and Mr. Sobel cannot
predict the outcome of such proceeding. In addition, both Mr. Dobies' and Mr.
Sobel's agreements provide that they may not "induce or attempt to induce" any
employee of CR & ME (or an affiliate thereof, in Mr. Dobies' case) to leave
without prior approval from CR & ME's Board of Directors. The agreements state,
however, that the individuals may hire any employee who has been discharged or
has left of his or her own volition. To date, the Company has hired a number of
former CR & ME employees, all of which employees the Company believes were
terminated or discharged. Notwithstanding this, CR & ME might claim a violation
of the foregoing provisions. Management believes, however, that if CR & ME is
able to succeed in preventing the Company from hiring any individual formerly in
its employ, the Company would not have great difficulty finding other qualified
candidates to fill roles intended for any such individuals. Further, there can
be no assurance that Messrs. Dobies and Sobel's actions prior to the date hereof
might not be interpreted as inducing or attempting to induce certain of CR &
ME's employees to join the Company.
Difficulty In Achieving Market Acceptance. There can be no assurances that
the Company will be able to effectively market its line of junior, "missy" and
large size fashion and basic knit sportswear beyond the level of sales already
achieved and or that it will be able to continue to achieve sales at such level.
Risks Attendant to the Apparel Industry. The apparel industry is a
cyclical industry with purchases of apparel and related goods tending to decline
during recessionary periods when disposable income is low. In addition, the
Company sells and intends to continue to sell to major retailers, some of which
have engaged in leveraged buyouts or transactions in which such retailers
incurred significant amounts of debt, and some of which are currently operating
under the protection of the federal bankruptcy laws. Indeed, upon information
and belief, one major customer of the Company, the Petrie Shops, which accounts
for more than 10% of the
9
<PAGE> 13
Company's revenues, currently operates in Chapter 11 under the U.S. Bankruptcy
Code. It is unclear to what extent, if any, the current financial condition of
such retailers will affect the financial condition of the Company, although such
condition already has caused the Company to incur additional costs relating to
factoring of its accounts receivable from such troubled or bankrupt customers.
Further, any apparel manufacturer faces the risks of delays in delivery of
products, imperfections in the manufacture of products and returns from
customers, all of which could have an adverse effect on the Company.
Fashion Trends. The Company believes its ability to succeed depends in
substantial part on its ability to anticipate, gauge and respond to changing
consumer demands and fashion trends in a timely manner, as well as to operate
within significant production and delivery constraints. The Company has
attempted and will continue to attempt to minimize the risk of changing fashion
trends and product acceptance by producing a wide selection of apparel during a
particular selling season and by closely monitoring retail sales of its
products. However, if the Company misjudges the market for a number of products
or product groups, it may be faced with a significant amount of unsold finished
goods inventory which could have an adverse effect on the Company's operations.
Competition. The Company's objective is to continue to develop products
which will compete with many of the other existing lines of junior, "missy" and
large size fashion and basic knit sportswear produced by competitors of the
Company, which include Periscope, Julie Express, Expose, Tracy Evans and Jeffrey
Craig. The Company cannot provide prospective investors with any assurances that
the Company will develop competitive products, that a market will develop for
its products beyond the level achieved in its first year, that the Company will
be able to develop marketing or distribution channels to a greater extent than
currently or that competitors having greater financial and other resources will
not or have not devoted those resources to the development, manufacture and sale
of new or existing products which will compete with the Company's products.
There can be no assurance that the Company can effectively compete against any
competitor. There are many other companies that offer similar or competitive
products to the products marketed by the Company. The industry in which the
Company markets its products is characterized by substantial and intense
competition. Almost all of the companies, both domestic and foreign, are
substantially larger and have substantially greater resources, distribution
capabilities and experience than the Company. It is also likely that there will
be other competitors in the future.
Dependence on Suppliers; Distribution. The Company has established a
relationship with six "captive" outside contractors to provide a majority of the
Company's cut and sewing needs. Although the Company does not physically produce
its products, management believes that these contractors rely on the Company for
substantially all of their revenue. As the Company sales volume expands, the
Company intends to add additional "captive" contractors to support the increases
in sales volume. As virtually the only customer of these contractors, management
believes that the Company has substantial control over the contractors'
production scheduling and movement of merchandise. Quality is controlled in
tandem by Company employees and by an in-house quality staff provided by the
contractor. Conversely, the uncertain and inconsistent nature of the Company's
needs creates financial risks for these contractors. The Company does not
believe that it should in the future have difficulty maintaining the
relationships with these outside contractors or obtaining the supply it requires
within its desired time frame. Further, it does not believe it will have
difficulty obtaining additional contractors to either supplement or replace the
existing contractors if those relationships were to be insufficient or
terminate. It is possible, however, that difficulties in supplementing or
replacing these contractors could develop in the future because of factors which
the Company cannot predict at this time, creating a potential material adverse
effect on the Company. Since the Company intends, in the near term, to continue
to conduct a substantial portion of its manufacturing operations in the United
States (although no assurance can be given), it is possible that, while shipping
costs will tend to be lower than when manufacturing is completed outside the
United States, the labor, direct and other costs attendant to the manufacturing
process will be higher in the United States than elsewhere. With respect to
distribution of goods, management initially believed that concentrating their
efforts on sales and merchandising rather than operating a Company warehouse
would result in a much greater rate of growth without any diminution in services
to its customers. There were, however, additional costs and risks associated
with utilization of an outside shipping and distribution service, including
without limitation, reduced control by the Company over warehouse operations,
10
<PAGE> 14
which, given the Company's volume in its first year, caused the Company to rent
its own warehouse facility in June 1996. Some inventory is still retained at a
public bonded warehouse, but no additional inventory will be stored there, and
as orders are shipped, the inventory at the public warehouse will be depleted.
The Company maintains insurance with respect to its warehouse and goods
contained therein, and believes its insurance coverage to be reasonable and in
customary scope and amount, but there can be no assurance thereof, or of such
coverage applying to a particular loss which may occur.
Control by Management. Management of the Company (including all officers
and directors of the Company) beneficially owns approximately 68% of all the
issued and outstanding Common Stock of the Company (the "Outstanding Stock") on
the date hereof. Of such 68%, approximately 19% of the Outstanding Stock held by
such management is in the form of Performance Shares. See
"Management -- Employment Agreements." After the Offering, such management will
beneficially own approximately 48.5% of the Outstanding Stock (of which
approximately 14% of the Outstanding Stock held by such management will be in
the form of Performance Shares). Consequently, after the Offering management
will continue substantially to control the operations of the Company and
exercise significant and near majority voting control of the Company's affairs.
As a result, the stockholders of the Company possess little practical ability to
remove management or effect the operations of the business of the Company. The
foregoing analysis assumes those matters set forth in the introduction to
"Prospectus Summary," above. See "Management," "Principal Stockholders."
Intellectual Property. Currently, the Company has sought virtually no
patent, trademark or copyright protection for its lines or planned lines of
products. Whether or not the Company seeks and obtains such protection in the
future, there can be no assurance that competitors of the Company will not
successfully develop similar products to compete in the Company's intended
marketplace which do not infringe on any such protection obtained by the Company
or which involve rights owned by such competitors which the names of the
Company's products infringe upon. The apparel industry is particularly
vulnerable to attempts by competitors to "copycat" or "knock off" each other's
products, designs, even trademarks, and there can be no assurance that
competitors of the Company will not take such actions.
No Public Market for Securities; Possible Volatility of Market Price;
Arbitrary Determination of Offering Price. Prior to the Offering, there has not
been any market for any of the Company's securities, and there can be no
assurance that an active trading market will develop or be sustained after the
Offering. The initial public offering price of the Securities and the exercise
price and other terms of the Warrants have been determined by negotiation
between the Company and the Underwriter and are not necessarily related to the
Company's asset value, net worth, results of operations or any other criteria of
value and may not be indicative of the prices that may prevail in the public
market. The market prices of the Units, Common Stock and Warrants also could be
subject to significant fluctuations in response to general trends in the
industry and other factors, including extreme price and volume fluctuations
which have been experienced by the securities markets from time to time. See
"Underwriting."
Authorization of Additional Securities. The Company's Certificate of
Incorporation authorizes the issuance of 18,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock. Upon completion of this Offering, there
will be 2,000,000 authorized but unissued shares or treasury shares of Preferred
Stock and 13,800,000 authorized but unissued shares of Common Stock available
for issuance. The foregoing does not take into account (i) 1,600,000 shares of
Common Stock reserved for issuance upon exercise of the Warrants, (ii) 180,000
shares of Common Stock reserved for issuance upon exercise of the Underwriter's
Option and exercise of the Warrants contained therein, (iii) 100,000 shares of
Common Stock reserved for issuance upon exercise of outstanding stock options
under the Option Plan, (iv) an additional 500,000 shares of Common Stock
reserved for issuance upon exercise of stock options not yet granted under the
Option Plan or (v) any exercise by the Underwriter of the over-allotment option.
The foregoing includes the 571,429 Performance Shares and the Preferred
Conversion Shares. The Company's Board of Directors has the power to issue any
or all of such shares without stockholder approval. To the extent that
additional shares of Common Stock (or securities convertible into, or
exercisable or exchangeable for, shares of Common Stock) are issued, dilution to
the interests of the Company's stockholders will occur. The Company has agreed
not to issue or sell any securities of the Company without the Underwriter's
consent during the 18 months after the date hereof. See "Underwriting."
11
<PAGE> 15
Immediate Dilution. The purchasers of Units in the Offering will
experience immediate dilution of $3.34 or 66.8% in the pro forma per share net
tangible book value of their Common Stock ($3.29 or 65.8% if the Underwriter's
over-allotment option is exercised in full). Additional dilution to public
investors, if any, may result to the extent that the Warrants, the Underwriter's
Option and/or outstanding options are exercised at a time when the net tangible
book value per share of Common Stock exceeds the exercise price of any such
securities. See "Dilution."
Potential Adverse Effects of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of shares of "blank check" preferred
stock, which will have such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. The preferred stock could be utilized to discourage, delay or prevent a
change in control of the Company. Although the Company has no present intention
to issue any shares of preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Securities."
No Dividends. The Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash or other dividends in the
foreseeable future.
Outstanding Warrants and Options. Upon completion of the Offering
(assuming no exercise of the over-allotment option), the Company will have
outstanding (i) 600,000 Warrants to purchase an aggregate of 600,000 shares of
Common Stock; (ii) the Selling Warrantholder Warrants to purchase 1,000,000
shares of Common Stock; (iii) the Underwriter's Option to purchase an aggregate
of 60,000 Units comprising 120,000 shares of Common Stock and 60,000 Warrants,
which option is exercisable during the three-year period commencing one year
after the date of this Prospectus; (iv) incentive stock options to purchase
100,000 shares of Common Stock granted under the Option Plan and (v) 571,429
Performance Shares. The Company has reserved an aggregate of 600,000 shares of
Common Stock for issuance under the Option Plan. Holders of such warrants and
options are likely to exercise them when, in all likelihood, the Company could
obtain additional capital on terms more favorable than those provided by such
warrants and options. Further, while these warrants and options are outstanding,
the Company's ability to obtain additional financing on favorable terms may be
adversely affected. The Selling Warrantholders have agreed not to sell or
exercise the Selling Warrantholder Warrants for a period of eighteen months
after the completion of the Offering without the prior written consent of the
Underwriter. See "Management -- Option Plan," "Principal Stockholders,"
"Description of Securities," "Concurrent Offerings" and "Underwriting."
Potential Adverse Effect of Redemption of Warrants. Commencing one year
from the date of this Prospectus, the Warrants may be redeemed by the Company at
a redemption price of $.05 per Warrant provided that (x) 30 days prior written
notice is given to the holders of the Warrants and (y) the closing bid price per
share of Common Stock as reported on Nasdaq (or the last sale price, if quoted
on a national securities exchange) has been at least $11.00 for the twenty
consecutive trading days ending on the third day prior to the date of the notice
of redemption and a valid registration statement with respect to the shares of
Common Stock underlying such Warrants is then in effect. Redemption of the
Warrants could force the holders (i) to exercise the Warrants and pay the
exercise price therefor at a time when it may be disadvantageous for the holders
to do so, (ii) to sell the Warrants at the then current market price when they
might otherwise wish to hold the Warrants or (iii) to accept the nominal
redemption price which, at the time the Warrants are called for redemption, is
likely to be substantially less than the market value of the Warrants. See
"Description of Securities -- Redeemable Class A Warrants."
Current Prospectus Required to Exercise Warrants. Holders of Warrants will
be able to exercise the Warrants only if (i) a current prospectus under the
Securities Act relating to the shares of Common Stock underlying the Warrants
(the "Warrant Shares") is then in effect and (ii) such securities are qualified
for sale or exempt from qualification under the applicable securities laws of
the states in which the various holders of Warrants reside. Although the Company
has undertaken and intends to use its best efforts to maintain a current
prospectus covering the Warrant Shares following completion of the Offering to
the extent required by federal securities laws, there can be no assurance that
the Company will be able to do so. The value of the
12
<PAGE> 16
Warrants may be greatly reduced if a prospectus covering the Warrant Shares is
not kept current or if the Warrant Shares are not qualified, or exempt from
qualification, in the state in which the holders of Warrants reside. Persons
holding Warrants who reside in jurisdictions in which such securities are not
qualified and in which there is no exemption will be unable to exercise their
Warrants and would either have to sell their Warrants in the open market or
allow them to expire unexercised. If and when the Warrants become redeemable by
the terms thereof, the Company may exercise its redemption right even if it is
unable to qualify the Warrant Shares for sale under all applicable state
securities laws. See "Description of Securities -- Redeemable Class A Warrants."
Possible Restrictions on Market-Making Activities in the Company's
Securities. The Underwriter intends to make a market in the Company's
securities. Rule 10b-6 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), may prohibit the Underwriter from engaging in any
market-making activities with regard to the Company's securities for the period
from nine business days (or such other applicable period as Rule 10b-6 may
provide) prior to any solicitation by the Underwriter of the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriter may have
to receive a fee for the exercise of Warrants following such solicitation. As a
result, the Underwriter may be unable to provide a market for the Company's
securities during certain periods while the Warrants are exercisable. In
addition, under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Selling Securityholder Securities may
not simultaneously engage in market-making activities with respect to any
securities of the Company for the applicable "cooling off" period (at least two
and possibly nine business days) prior to the commencement of such distribution.
Accordingly, in the event the Underwriter is engaged in a distribution of the
Selling Securityholder Securities, such firm will not be able to make a market
in the Company's securities during the applicable restrictive period. Any
temporary cessation of such market-making activities could have an adverse
effect on the market price of the Company's securities. See "Underwriting."
Possible Delisting of Securities from Nasdaq. While the Company's Units,
Common Stock and Warrants meet the current Nasdaq listing requirements and are
expected to be initially included on Nasdaq (subject to the concerns expressed
in "Risk Factors -- Certain Legal Issues Concerning Management; Inability to
Obtain Nasdaq Listing/Blue Sky Law," above), there can be no assurance that the
Company will meet the criteria for continued listing. Continued inclusion on
Nasdaq generally requires that (i) the Company maintain at least $2,000,000 in
total assets and $1,000,000 in capital and surplus, (ii) the minimum bid price
of the Common Stock be $1.00 per share, (iii) there be at least 200,000 shares
in the public float valued at $1,000,000 or more, (iv) the Common Stock have at
least two active market makers and (v) the Common Stock be held by at least 400
holders. If the Company is unable to satisfy Nasdaq's maintenance requirements,
its securities may be delisted from Nasdaq. In such event, trading, if any, in
the Units, Common Stock and Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the "Electronic
Bulletin Board" of the National Association of Securities Dealers, Inc. ("NASD")
and it could be more difficult to obtain quotations of the market price of the
Company's securities. Consequently, the liquidity of the Company's securities
could be impaired, not only in the number of securities which could be bought
and sold, but also through delays in the timing of transactions, reduction in
security analysts' and the news media's coverage of the Company and lower prices
for the Company's securities than might otherwise be attained.
Underwriter's Lack of Underwriting Experience. While certain of the
officers of the Underwriter have significant experience in corporate financing
and the underwriting of securities, the Underwriter has not previously
underwritten any public offerings. Accordingly, there can be no assurance that
the Underwriter's lack of public offering experience will not affect the
Company's offering of the Securities and subsequent development of a trading
market, if any.
Risks of Penny Stock. If the Company's securities were delisted from
Nasdaq (see "Risk Factors -- Possible Delisting of Securities from Nasdaq,"
above), they could become subject to Rule 15g-9 under the Exchange Act, which
imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
13
<PAGE> 17
transactions covered by such a rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers in the Offering to sell in
the secondary market any of the securities acquired.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
Shares Eligible for Future Sale. Future sales of Common Stock by existing
stockholders pursuant to Rule 144 under the Securities Act, pursuant to the
Concurrent Offerings or otherwise, could have an adverse effect on the price of
the Company's securities. Pursuant to the Concurrent Offerings, 1,000,000
Selling Warrantholder Warrants and 1,000,000 Warrant Shares underlying them, as
well as the 90,000 Selling Common Stockholder Shares which, together with 45,000
Warrants, will be sold as part of the Underwriters' over-allotment option, if
the option is exercised will be registered. Upon the sale of the Units offered
hereby, the Company will have outstanding 4,200,000 shares of Common Stock and
1,600,000 Warrants (4,290,000 shares of Common Stock and 1,690,000 Warrants if
the Underwriter's over-allotment option is exercised in full). The shares of
Common Stock and the Warrants sold in the Offering will be freely tradeable
without restriction under the Securities Act, unless acquired by "affiliates" of
the Company as that term is defined in the Securities Act. The remaining
2,910,000 outstanding shares of Common Stock are "restricted securities" within
the meaning of Rule 144 under the Securities Act and will become eligible for
sale under Rule 144 commencing in March 1997. The holders of 2,038,090 shares of
Common Stock (or approximately 68% of the shares of Common Stock outstanding
prior to the Offering (after giving effect to the conversion of the Series A
Preferred Stock into the Preferred Conversion Shares) have agreed not to sell or
otherwise dispose of any securities of the Company for a period of 18 months
from the date of this Prospectus without the prior written consent of the
Underwriter. The Underwriter (with respect to the Underwriter's Option) and the
holders of 1,142,857 (assuming conversion of the Series A Preferred Stock into
Preferred Conversion Shares) shares of Common Stock outstanding upon
consummation of the Offering have "piggy-back" registration rights covering
their securities, which rights have been waived with respect to the Offering.
Sales of Common Stock, or the possibility of such sales, in the public market
may adversely affect the market price of the securities offered hereby. See
"Concurrent Offerings," "Description of Securities" and "Shares Eligible for
Future Sale."
Broad Discretion as to Use of Proceeds. Of the net proceeds of the
Offering (assuming no exercise of the over-allotment option), approximately
$563,500 or approximately 11.44% has been allocated to working capital and other
general corporate purposes (and not otherwise allocated for a specific purpose)
and will be used for such purposes as management may determine in its sole
discretion without the need for stockholder approval with respect to such
allocation. See "Use of Proceeds."
14
<PAGE> 18
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock and does
not expect to declare or pay any dividends in the foreseeable future. The
Company presently anticipates that all earnings will be retained to finance the
continued growth and development of the Company's business. Any future
determination as to the payment of cash dividends will depend upon the Company's
financial condition, results of operations and other factors deemed relevant by
the Board of Directors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby,
after deducting underwriting discounts and commissions and other estimated
expenses of the Offering, are estimated to be approximately $4,924,200
(approximately $5,310,030 if the Underwriter's over-allotment option is
exercised in full). The Company expects the net proceeds to be utilized
approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
AMOUNT OF NET
APPLICATION OF NET PROCEEDS PROCEEDS
----------------------------------------------------------- --------------- ----------
<S> <C> <C>
Repayment of Bridge Notes(1)............................... $ 502,200 10.20%
Repayment of November Notes(2)............................. $ 508,300 10.32%
Purchase of CAD/CAM System................................. $ 150,000 3.05%
Purchase of New Computer System............................ $ 100,000 2.03%
Loan to Supplier........................................... $ 100,000 2.03%
Funds Reserved for Letters of Credit for Import Sales
Group.................................................... $ 2,000,000 40.62%
Reduction of Trade Debt.................................... $ 1,000,000 20.31%
Working Capital (3)........................................ $ 563,700 11.44%
---------- -------
Total............................................ $ 4,924,200 100.00%
========== =======
</TABLE>
- ---------------
(1) Includes $500,000 principal amount of Bridge Notes and $2,200 in interest
accrued through August 31, 1996.
(2) Includes $500,000 principal amount of November Notes and $8,300 in interest
accrued and unpaid through August 31, 1996.
(3) Includes financing of inventory, merchandising, marketing, reduction of
borrowing from factor and other purposes deemed appropriate by the Company.
The foregoing represents the Company's current estimate of its allocation
of the net proceeds of the Offering. This estimate is based on certain
assumptions, including the continued development of its import business and
continued overall growth in its sales and earnings, as to which there can be no
assurance.
The amounts actually expended for each purpose set forth in "Use of
Proceeds" may vary significantly in the event any of these assumptions prove
inaccurate. The Company reserves the right to change its use of proceeds as
unanticipated events may cause the Company to redirect its priorities and
reallocate the proceeds accordingly. A portion of the proceeds may also be used
to acquire or invest in complementary businesses or products. Although the
Company evaluates potential acquisitions or businesses and products from time to
time, there are no present understandings, commitments or agreements with
respect to any such acquisitions.
Pending utilization, the net proceeds of the Offering will be invested in
short-term, interest-bearing investments.
Any additional proceeds received upon exercise of the Underwriter's
over-allotment option, the Warrants, the Selling Warrantholder Warrants or the
Underwriter's Option or securities underlying any such options or warrants will
be added to working capital. There can be no assurance that the Underwriter's
over-allotment option, the Underwriter's Option any of the Company's Warrants
will be exercised. The Company will not derive any proceeds from sales of
Selling Securityholder Securities.
15
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
June 30, 1996; (ii) the pro forma capitalization as of June 30, 1996 to reflect
the conversion of the Series A Preferred Stock into Preferred Conversion Shares
upon the closing of the Offering and the issuance of the Bridge Notes and Bridge
Warrants, and (iii) the pro forma capitalization as adjusted to reflect the sale
of the Units offered hereby and the application of the net proceeds therefrom to
prepay the Bridge Notes and related interest and the November Notes and related
interest. See "Use of Proceeds." This table should be read in conjunction with
the financial statements (including the notes thereto) appearing elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Current maturities of long-term debt................... $ 2,320 $ 2,320 $ 2,320
---------- ---------- ----------
Long-term debt:
Equipment notes payable.............................. 3,709 3,709 3,709
Bridge notes, net of discount(1)..................... -- 475,000 --
November notes, net of discount(2)................... 433,333 433,333 --
---------- ---------- ----------
437,042 912,042 3,709
---------- ---------- ----------
Series A Convertible Preferred Stock, $.01 par value:
2,000,000 shares authorized 500,000 shares
outstanding actual; no shares issued and outstanding
pro forma and as adjusted............................ 852,530 -- --
---------- ---------- ----------
Shareholders' Equity:
Common stock, $.01 par value: 18,000,000 shares
authorized; 2,047,619 shares issued and
outstanding actual; 3,000,000 shares issued and
outstanding pro forma; 4,200,000 shares issued and
outstanding as adjusted(3)........................ 20,476 30,000 42,000
Capital in excess of par value....................... 856,584 1,724,590 6,636,790
Unearned compensation, performance shares............ (111,345) (111,345) (111,345)
Retained earnings(4)................................. 541,950 541,950 394,791
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY................... 1,307,665 2,185,195 6,962,236
---------- ---------- ----------
TOTAL CAPITALIZATION......................... $2,599,557 $3,099,557 $ 6,968,265
========== ========== ==========
</TABLE>
- ---------------
(1) The Bridge Notes are payable on the closing of the Offering. See "Use of
Proceeds." The Bridge Notes are recorded net of a $25,000 discount
attributable to the fair value of the Bridge Warrants.
(2) The November Notes are payable on the closing of the Offering. See "Use of
Proceeds." The November Notes are recorded net of a $66,667 unamortized
discount attributable to the fair value of the shares of Common Stock
issued in the November Offering.
(3) Includes 571,429 Performance Shares. See "Management -- Employment
Agreements." Excludes (i) 180,000 shares of Common Stock issuable upon
exercise of the Underwriter's over-allotment option and the Warrants
underlying such option; (ii) 180,000 shares of Common Stock issuable upon
exercise of the Underwriter's Option and the Warrants underlying such
option; (iii) 600,000 shares of Common Stock issuable upon exercise of the
Warrants offered hereby; (iv) 1,000,000 shares of Common Stock issuable
upon exercise of the Selling Warrantholder Warrants; and (v) outstanding
options to purchase 100,000 shares of Common Stock under the Option Plan at
an exercise price of $2.00 per share and (vi) an additional 500,000 shares
of Common Stock available for award under the Option Plan. See "Management"
and "Underwriting."
(4) As adjusted gives effect to the recognition of approximately $147,000 of
expense upon the repayment of the Bridge Notes and the November Notes
(includes an aggregate of $91,667 of debt discount). See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
16
<PAGE> 20
DILUTION
Dilution represents the difference between the initial public offering
price paid by the purchasers and allocated to the Common Stock in the Offering
and the net tangible book value per share immediately after completion of the
Offering. Net tangible book value per share represents the amount of the
Company's total tangible assets minus the amount of its liabilities, divided by
the number of shares of Common Stock outstanding, including the 952,381
Preferred Conversion Shares issuable upon the conversion of the Series A
Preferred Stock upon the closing of the Offering. At June 30, 1996, the Company
had a pro forma net tangible book value of $2,185,195 or $0.73 per common share.
After giving retroactive effect to the sale of the Securities offered hereby and
the Company's receipt of the estimated net proceeds therefrom and the use of a
portion of the net proceeds to repay the Bridge Notes (including related
interest) and the November Notes (including related interest), the pro forma net
tangible book value of the Company, as adjusted, at June 30, 1996, would have
been $6,962,236 or $1.66 per common share. This would result in an immediate
dilution to the public investors of $3.34 per share (or 66.8%) and the aggregate
increase in the pro forma net tangible book value to present stockholders would
be $0.93 per share.
The following table illustrates the information with respect to dilution to
new investors on a per share basis:
<TABLE>
<S> <C> <C>
Public offering price per share...................................... $5.00
Pro forma net tangible book value per share before Offering........ $0.73
Increase per share attributable to new investors................... 0.93
-----
Pro forma net tangible book value per share after Offering........... 1.66
-----
Dilution per share to new investors(1)............................... $3.34
=====
</TABLE>
- ---------------
(1) If the over-allotment option is exercised in full, the pro forma net
tangible book value after the Offering would be $1.71 per share, resulting
in dilution to new investors in the Offering of $3.29 per share (or 65.8%).
The following table summarizes, as of June 30, 1996, the number of shares
of Common Stock purchased from the Company, the total consideration paid to the
Company and the average price per share paid by the existing stockholders and by
new investors purchasing Units in the Offering (these share numbers take into
account the Stock Dividend):
<TABLE>
<CAPTION>
TOTAL CONSIDERATION
SHARES PURCHASED PAID AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT(1) PERCENT SHARE
---------- -------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(2)............. 3,000,000 71.43% $1,877,060 23.8% $0.63
New Investors........................ 1,200,000 28.57% $6,000,000 76.2% $5.00
--------- ------- ---------- ------ -----
Total................................ 4,200,000 100.00% $7,877,060 100.0% $1.88
========= ======= ========== ====== =====
</TABLE>
- ---------------
(1) Prior to deduction of costs of issuance.
(2) Includes Preferred Conversion Shares and 571,429 Performance Shares. See
"Management -- Employment Agreements."
The foregoing tables do not give effect to the exercise of any outstanding
options or Warrants. To the extent such options or Warrants are exercised there
will be further dilution to new investors. As of the closing of the Offering,
excluding the Warrants offered hereby and the Selling Warrantholder Warrants,
the Company will have outstanding options to purchase 100,000 shares of Common
Stock under the Option Plan at an exercise price of $2.00 per share. See
"Capitalization," "Management," "Certain Transactions" and "Description of
Securities."
17
<PAGE> 21
SELECTED FINANCIAL DATA
The following selected financial data for the period from February 14, 1995
(the date operations commenced) to March 31, 1995 and the year ended March 31,
1996 are derived from the audited financial statements of the Company appearing
elsewhere in this Prospectus. The financial data for the three-month periods
ended June 30, 1995 and 1996 are derived from the Company's unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which the Company considers necessary
for a fair presentation of its financial position and the results of operations
for these periods. Operating results for the three months ended June 30, 1996
are not necessarily indicative of the results that may be expected for the
entire fiscal year ending March 31, 1997 or any other future periods. The
selected financial data should be read in conjunction with the financial
statements of the Company and the other financial information appearing
elsewhere in this Prospectus and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 14,
1995 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED -------------------------
MARCH 31, MARCH 31, JUNE 30, JUNE 30,
1995 1996 1995 1996
-------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $ -- $25,832,323 $4,018,235 $9,724,079
Operating (Loss) income............... (43,926) 1,006,566 32,221 360,322
Net (loss) income..................... (43,926) 501,429 17,157 184,447
Pro forma net income per common
share.............................. $ 0.18 $ 0.06
Pro forma weighted average common
shares outstanding(1).............. 2,832,141 2,874,286
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------------
MARCH 31, MARCH 31, PRO FORMA
1995 1996 ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
---------- ---------- ---------- ------------ -----------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....... $1,224,408 $2,362,245 $2,402,561 $2,857,561 $ 6,771,269
Total assets.......... 1,409,276 5,209,550 4,949,593 5,404,593 9,318,301
Long-term debt........ -- 425,143 437,042 912,042 3,709
Preferred stock....... 685,000 852,530 852,530 -- --
Shareholders'
equity............. 581,074 1,213,643 1,307,665 2,185,195 6,962,236
</TABLE>
- ---------------
(1) Gives effect to the conversion, at the closing of the Offering, of all
outstanding shares of Series A Preferred Stock into 952,381 Preferred
Conversion Shares and the issuance of $500,000 principal amount of Bridge
Notes and Bridge Warrants.
(2) Adjusted to give effect to the sale of 600,000 Units in the Offering and
repayment of the November Notes, the Bridge Notes and all accrued interest.
18
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three months ended June 30, 1996 and 1995,
respectively. This discussion should be read in conjunction with the Company's
Financial Statements, the notes related thereto, and the other financial data
included elsewhere in this Prospectus. A comparison of the financial condition
and results of operations of the Company for the year ended March 31, 1996 and
the period February 14, 1995 (inception) to March 31, 1995 has not been included
in this discussion because the Company believes that such a comparison would not
be meaningful to investors due to the Company's limited operations during the
period February 14, 1995 to March 31, 1995.
OVERVIEW
The Company was incorporated in Delaware in February 1995 to design,
manufacture and market high quality, popular priced sportswear for women. From
inception through March 31, 1995, the Company focused primarily on setting up
manufacturing operations (primarily through contractors), establishing sources
of supply, leasing showroom and office premises, raising capital and
establishing credit from key suppliers and factors.
Management's primarily goal was to be recognized as a key resource to its
target customers. Market penetration was achieved through aggressive pricing,
established relationships within the industry and experience in predicting
fashion trends. In response to customer buying patterns, the Company, which
began production and shipping in April 1995, significantly increased the amount
of woven sportswear being produced and sold. Sales volume expanded rapidly
throughout the Company's first fiscal year which ended March 31, 1996.
Substantially all sales to date have been generated from domestic production
with only a relatively small amount from imports.
To date the Company has expended approximately $300,000 towards the
expansion of its import sales group, which it believes will increase in
importance in the years ahead. See "Business -- Sales Groups -- Imports." A mail
order sales group, which management also desires to turn into a profitable
opportunity, was established in fiscal 1996 with approximately $150,000 expended
to date (principally for personnel costs). There can be no assurance that either
the import or the mail order sales groups will achieve sales, profitability or
otherwise remain as a part of the Company.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the Company's
statement of operations data as a percentage of net sales:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED JUNE 30,
MARCH 31, ---------------
1996 1995 1996
---------- ----- -----
<S> <C> <C> <C>
Net sales................................................ 100.0% 100.0% 100.0%
Cost of sales............................................ 81.8 83.6 81.5
----- ----- -----
Gross profit........................................... 18.2 16.4 18.5
Operating expenses....................................... 14.3 15.6 14.8
----- ----- -----
Income from operations................................. 3.9 .8 3.7
Other expenses........................................... 0.3 0.2 0.4
----- ----- -----
Income before income taxes............................. 3.6 .6 3.3
Provision for income taxes............................... 1.7 0.2 1.4
----- ----- -----
Net income............................................. 1.9% 0.4% 1.9%
===== ===== =====
</TABLE>
19
<PAGE> 23
THREE MONTHS ENDED JUNE 30, 1996 COMPARED TO THREE MONTHS ENDED JUNE 30, 1995
Net sales of $9.7 million in the three months ended June 30, 1996
represented an increase of $5.7 million, or 142%, over net sales of $4.0 million
in the three months ended June 30, 1995. The increase in net sales was primarily
attributable to expansion of the customer base and increased volume from
existing customers.
The Company's gross profit increased $1.1 million, or 173.2% to $1.8
million for the three months ended June 30, 1996 as compared to $658,000 for the
three months ended June 30, 1995. Gross profit margin increased to 18.5% of net
sales in the three months ended June 30, 1996 from 16.4% of net sales in the
three months ended June 30, 1995. The improvement in gross profit margin
resulted primarily from higher selling prices compared to a more aggressive
pricing strategy utilized in the Company's first few months of operation.
Operating expenses increased $811,000, or 129.6%, to $1.4 million in the
three months ended June 30, 1996 as compared to $626,000 in the three months
ended June 30, 1995. The increase was primarily due to increased payroll and
payroll related costs, freight and delivery expenses, shipping supplies and
factoring costs substantially all of which are associated with the Company's
growth.
As a result of the above factors, income from operations increased $328,000
to $360,000 in the three months ended June 30, 1996 as compared to $32,000 for
the three months ended June 30, 1995.
Other expenses increased $29,000 to $35,000 in the three months ended June
30, 1996 from $6,000 in the three months ended June 30, 1995 resulting primarily
from interest expense on the November Notes, which were not outstanding in the
corresponding period.
For the three months ended June 30, 1996 income tax expense as a percentage
of pre-tax income increased from 33.9% to 43.3% compared to the same period in
fiscal 1996. The increase results primarily from applying the normal statutory
tax rates to the higher income level which the Company has achieved.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation, the Company has financed its operations and met its
capital requirements primarily through funds raised from its founders and from
three private placement offerings, as well as from borrowings under its
factoring arrangement, vendor financing and, to a lesser extent, equipment
financing. These financing activities provided net cash of $718,000 in the
fiscal year ended March 31, 1995, and $1.3 million in the fiscal year ended
March 31, 1996. The Company received gross proceeds of $500,000 from the Bridge
Financing in August 1996.
Operating activities used net cash of $154,000 in the fiscal year ended
March 31, 1995, $1.7 million in the fiscal year ended March 31, 1996 and
provided net cash of $173,000 for the three months ended June 30, 1996. The
principal use of operating cash is to purchase fabric and manufacture the
Company's products. The increased inventory levels resulted from the Company's
corresponding increased production to support growth in its sales. Furthermore,
as indicated above, the addition of import and mail order sales groups during
the fiscal year ended March 31, 1996 required funds for personnel, product
development and additional space.
The Company's capital expenditures totalled $9,000, $115,000 and $21,000 in
the fiscal year ended March 31, 1995, the fiscal year ended March 31, 1996 and
in the three months ended June 30, 1996, respectively. These capital
expenditures were for office equipment, computers and improvements to leased
premises.
The Company currently maintains a factoring agreement which permits
advances against factored receivables with interest at 1 1/2% over the prime
rate. Advances, which are at the discretion of the factor, are generally 80% of
eligible receivables. In addition, the factor is providing financing for import
letters of credit.
20
<PAGE> 24
BUSINESS
OVERVIEW
The Company was formed in February 1995 and designs, manufactures and
markets high quality, cut and sewn, popularly priced junior, "missy" and large
size fashion and basic knit sportswear for women. The Company was founded by
individuals with extensive experience in apparel manufacturing, operations,
sales and merchandising. Since its inception, the Company has dedicated its time
and resources primarily to the development of two sets of product lines, basic
sportswear and fashion sportswear.
Sales of basic sportswear comprised approximately 50-60% of the Company's
revenues in the fiscal year ended March 31, 1996 and the three months ended June
30, 1996. In the production of basic sportswear, the Company operates primarily
as a domestic manufacturer which substantially controls or owns all aspects of
its production capability, known within the industry as "vertical integration."
The Company believes that this vertical integration positions the Company among
the few apparel manufacturers in its market with the ability to control and
manage the entire manufacturing process from the conversion of yarn into fabric
to the completion of finished apparel. The Company believes it is able to
realize significant cost savings through its retention of responsibility for the
manufacturing of its own fabric (although not actually manufacturing itself). As
a result, the Company believes it can sell high quality merchandise to price
sensitive discounters and mass merchants at prices competitive to those of
imported goods.
Management believes that vertical integration as a domestic manufacturer of
basic sportswear allows the Company to deliver good quality competitively priced
merchandise to customers significantly faster than the delivery time on goods
shipped from overseas. Because of the Company's ability to produce goods more
quickly than those of its competitors who import products, the Company's retail
customers can conserve capital by purchasing less initial inventory, reduce
markdowns by holding smaller quantities of non-moving merchandise, and increase
sales by rapidly restocking fast-selling items. Management believes that the
Company's ability to deliver high quality, competitively priced merchandise in a
short time frame has allowed it to obtain as customers many of the nation's
leading discount retail outlets, although no assurance can be given that these
relationships will continue or be expanded.
The second key merchandise product line which the Company has pursued,
which comprised approximately 40-50% of the Company's revenues in the fiscal
year ended March 31, 1996 and the three months ended June 30, 1996, is fashion
sportswear. In producing its fashion sportswear, the Company follows more
traditional manufacturing processes utilized in the apparel industry, namely the
purchasing of fabric from outside vendors. The fashion sportswear product line
generates a higher gross profit margin than basic sportswear due to the
differentiation of product and reduced competition. In its fashion sportswear
production, the Company loses its competitive advantage of converting its own
fabrics, however, management believes that its long standing relationships with
buyers and management of its retail customers and its overall merchandising and
design skills will allow the Company to successfully compete in the fashion
sportswear business, although no assurance of such success can be given.
The Company's sales efforts are organized based on the merchandise category
and/or customer, and are divided into Young Large Size, "Missy"/Large Size, Mass
Merchants, Imports and Mail Order. There can be no assurance that these sales
efforts will be successful or that the Company will not determine to add
additional categories or eliminate some or all of the divisions denoted above.
Indeed, since the Company's formation, it has added one such category and
eliminated another.
Although management is pleased with its success to date in selling basic
sportswear and fashion sportswear, and believes the Company will continue to
benefit from substantial focus on those areas, a longer-term opportunity for
expansion will be the growth and development of sales of imports. Part of
management's long-term plan is to continue to expand its importing activities.
There can be no assurance that this plan will be successfully implemented. See
"Use of Proceeds."
The Company attempts to maximize its competitive advantage through its
market focus, product design, and merchandise. The Company targets the major
national, regional and specialty chains whose volume
21
<PAGE> 25
demands attract them to manufacturers who can produce quality merchandise in
high volumes at low cost within specified delivery schedules.
The Company generally focuses on popularly priced clothing, a segment of
the apparel industry which management believes is experiencing faster growth
than the industry as a whole. The Company believes, although it has no
quantitative evidence thereof, that demographic trends have shifted consumer
spending habits and apparel expenses have become a smaller proportion of
personal expenditures for the "baby boom" population born between 1945 and 1964.
Management believes that these consumers are required to shift more of their
disposable income to the payment of mortgages, children's education and savings.
As consumers have less money to spend on clothing, management believes they are
shifting their apparel spending to discounters and off-price retailers. They are
also purchasing more basics that can be worn for more than one season and have
lower risk of becoming out of style in the year following purchase.
The Company sells fashion and basic sportswear primarily to large size
women's departments. Management believes that this market will grow due to the
aging of the population and the tendency of older people to be overweight,
although there can be no assurance of this.
The Company also will respond to what management believes to be the growing
trend among retailers for "quick response" whereby the retailer rapidly
determines consumer preferences and shifts inventory in response to these
preferences. Quick response involves shortening the production cycle, improving
productivity, reducing inventory and accelerating the feedback of consumer
preference to their manufacturer. Management believes that most major retailers
are working with their manufacturers to speed restocking time and create
efficient ways to reduce response time on orders.
PRODUCT LINE
The Company specializes in the design, manufacture and marketing of high
quality cut and sewn knit women's sportswear. The Company's products are sold at
popular price points, typically ranging from $9 to $40 at retail. A large
portion of the Company's sales are from merchandise sold under the label of the
retailer (known as "private label"). The remainder are sold under the Company's
own labels, which currently include Jenna Lane(TM), JLNY(TM) and Tummy
Tucker(TM). The Company's product line consists of many different styles that
are changed twice each year in response to the two major selling seasons in the
apparel industry -- fall/back to school and spring. Adjustments and changes are
made continuously to the line in response to customer information. Many of these
styles are similar but customized to meet the design requests of the retailer or
to provide the retailer with merchandising which its competitor is not selling.
As indicated above, the Company concentrates on two primary product lines:
basic and fashion sportswear. Basic apparel is significantly less risky than
fashion apparel, primarily because of its longer product life cycle, but
contains a lower gross profit margin. Management attempts to blend the relative
risk levels with the profitability of these areas.
The Company believes it also has begun to establish a strong presence in
the large size women's market through the establishment of two separate sales
groups in this category. The first is young large size, catering primarily to
overweight teenagers and for young working women. The second sales group serves
the more traditional middle aged large size customer.
In the large size women's market, the Company produces a variety of pants,
shorts, skirts, blouses, t-shirts, coordinates, and dresses in knitted fabrics
consisting predominantly of Lycra(R), acrylic, and poly cotton. Bottoms and tops
predominate this category, with bottoms generally producing greater sales than
tops.
The Company intends to be a dominant manufacturer in the category of
leggings and stirrup pants containing Lycra(R) in the popular price and the
large size women's category and to be a major manufacturer of Lycra(R) bottoms
in popular price "missy" sizes, although no assurance can be given that it will
be able to attain these goals. The Company believes that its success in
marketing bottoms will depend upon its ability to compete on the basis of price
against imports.
22
<PAGE> 26
SALES GROUPS
As described above, the Company is organized into five sales groups,
described in more detail below. Each sales group is decentralized with regard to
sales. Production costs and operating costs associated with each sales group are
not the responsibility of the sales group manager and operating expenses are not
allocated by sales group. Management of the sales groups are compensated based
on a commission tied to net sales and profit margins. The Company believes that
this structure enables sales group management to concentrate on sales and
merchandising.
The Company sells virtually all of its products directly through its own
showroom at 1407 Broadway in Manhattan, New York. All mail order sales, however,
are handled by its mail order showroom at 1384 Broadway in Manhattan, New York.
In addition to Messrs. Dobies and Sobel, the Company currently employs six
individuals in sales. Although no written contracts exist with these additional
salespeople, they generally receive a monthly draw against commission, with the
commission being determined by the gross profit margin on an order by order
basis. The Company has not and does not currently intend to use any advertising
in its marketing efforts, but pays for "co-op" advertising as may be required in
its agreements with customers.
Young Large Size. This sales group's efforts are directed at customers who
service the under 25 large size market. The product is most commonly Junior
inspired fabrications and silhouettes manufactured to large size specifications.
The Company designs and manufactures a broad array of bottoms, tops, and dresses
for these customers. The Company prices its products at retail generally from
$16.99 - $39.99.
"Missy"/Large Size. This sales group is responsible for selling
merchandise to customers servicing the more traditional "missy" and large size
market. Products in this sales group consist primarily of bottoms, tops and
coordinates. As mentioned previously, bottoms containing Lycra(R) are a
significant contributor to this category.
Mass Merchants. Management believes that this sales group represents a
very strong opportunity for significant sales growth, primarily due to
management's reputation and its relationships with key customers. The mass
merchant area, however, is characterized by small gross profit margins and
financially troubled and bankrupt retailers, and the Company intends to
carefully control this sales growth and attempt to limit it to the most
profitable niches of that business. In addition, the Company carefully manages
its relationships with troubled retailers, and avoids committing a large
percentage of its business to any one retailer. See "Risk Factors" and
"Business -- Customer Base."
Due to the customers' specific needs in the area of color, price, styling
and delivery, and in order to maximize the image of the Company as a whole, the
mass merchant is best serviced as a separate sales group.
Imports. As mentioned above, a longer-term opportunity for expansion will
be the growth and development of the import sales group. Part of management's
long-term plan is to continue to expand its importing activities. The Company
has employed Eric Holtz, who has extensive experience in the design, sourcing
and selling of imported woven products, to serve as Director of the import sales
group, and intends to enter into an employment agreement with Mr. Holtz in the
near future. Mr. Holtz has been granted Options under the Option Plan. See
"Management -- Incentive Stock Option Plan."
Price points for both denim and woven products in this sales group are
slightly higher than those which are domestically produced, with similar gross
margins to domestic products. Management believes that reduced trade
restrictions, increased competition in the domestic market and other factors
have enhanced the Company's ability to substantially increase its activities in
the import area. Additional marketing efforts relating to imports also act to
hedge the Company's current dependence on domestically produced goods. There can
be no assurance that the Company's plans for the import sales group will be
successfully implemented.
Mail Order. This sales group is responsible for selling merchandise to
companies who sell through direct mail catalogs. The product line includes
wovens and knits in both basic and fashion sportswear, and tends to concentrate
on somewhat higher price points than the Company's other products.
23
<PAGE> 27
DESIGN DEVELOPMENT
New designs are created by an in-house staff which as of the date of this
Prospectus consists of two designers. Management believes there are many
synergies in the design functions and that designs created for one sales group
are frequently modified for use by other sales groups. The Company endeavors to
combine creativity, knowledge of the marketplace and input from its retail
customer to develop designs that incorporate established fashion trends and
basic apparel. In the year ended March 31, 1996, the Company created
approximately 2,000 patterns (although no assurance can be given that such trend
will continue), and converted most of these patterns into samples.
In order to facilitate its design activities and production, the Company
intends to purchase a CAD/CAM (computer aided design/computer aided
manufacturing) system with the proceeds of the Offering. The availability of
this system will speed the product development cycle during the design phases as
well as initial pattern making and the creation of samples. In addition,
customer presentations and maintenance of historical data will be significantly
improved. See "Use of Proceeds."
MANUFACTURING
In general, in basic sportswear merchandising, the Company maintains
responsibility for the entire apparel manufacturing process from conversion of
yarn to shipment of finished goods, although it contracts out most of this work.
The Company has established ties with six "captive" contractors, for whom the
Company represents substantially all their business, to provide all of its
cutting and sewing needs, although no assurance can be made that these
relationships will continue at all or in a form and structure satisfactory to
the Company. See "Risk Factors." These "captive" relationships allow the Company
to exercise substantial control over the contractor's production schedules and
quality of the production process without being required to manage its own large
labor force or undertake the financial obligations for capital acquisitions and
equipment.
The manufacturing process begins with the purchase of yarn. Poly cotton,
acrylic and Lycra(R) are the three major yarns which are purchased by the
Company. The Company generally purchases this yarn on a "spot" (or immediate)
basis. During times of price fluctuations, the Company attempts to protect
against these fluctuations by purchasing longer-term contracts, if possible.
The Company causes the yarn to be delivered to the contracted knitter,
which then knits fabric in accordance with Company specifications. This process
of conversion of knit to fabric generally takes approximately one week. The
majority of fabric produced is greige fabrics, which are fabrics in their
natural color. The Company maintains an inventory of greige fabric, permitting
it to respond quickly to orders or unforeseen shortages. By maintaining its
inventory primarily in greige goods rather than dyed goods, the fashion risk
inherent in fabric color is reduced.
The Company then sends the fabric to dyers and finishers primarily in the
Northeast United States, in particular New York, New Jersey and Pennsylvania.
The Company currently utilizes primarily one finisher in the New York area, one
dyer in the New York area and one dyer in Pennsylvania. After the fabric is
completed, it is then shipped to another contractor, which will then cut and sew
garments according to Company specifications.
As indicated above, the Company has established a relationship with six
"captive" outside contractors to provide all of its cut and sewing needs.
Although production is done outside the Company, these contractors rely on the
Company for substantially all of their revenue. As the Company sales volume
continues to expand, additional "captive" contractors will be added to support
the increases in sales volume. As practically the only customer of these
contractors, as mentioned above, the Company will have control over the
contractors' production scheduling and movement of merchandise. Quality is
controlled in tandem by Company employees and by an in-house quality staff
provided by the contractor. The Company currently has no contractual arrangement
with these contractors, nor are any expected. See "Risk Factors -- Dependence on
Suppliers; Distribution."
24
<PAGE> 28
After completion of cutting and sewing, the completed goods are sent to the
Company's warehouse in New Jersey for distribution and shipping or will be
shipped directly to the customer from the contractor. See
"Business -- Shipping."
Management believes that the industry standard in basic sportswear
merchandising to produce a finished product from the time the fabric is ordered
is six to eight weeks. By employing the processes described above, the Company
generally has been able to complete the entire manufacturing process from
delivery of yarn to completion of finished goods in approximately four weeks,
although no assurance can be given that such performance will continue, and many
factors outside the Company's control can affect this response time. See "Risk
Factors -- Dependence on Suppliers; Distribution."
In the manufacture of fashion sportswear, the Company and its captive
contractors noted above are involved in the cutting and sewing process, but the
Company does not purchase the yarn or knit, dye or finish it. This work is
completed prior to the Company's contractor's commencement of involvement in the
process.
SHIPPING
The Company, prior to June 1996, contracted with a public warehouse to
provide shipping and distribution services. Management also previously shipped a
material portion of its merchandise directly from the contractor to customers,
although it no longer does so. In June 1996, the Company leased 48,519 square
feet of warehouse space in Cranbury, New Jersey. Management has determined that
its ability to control its own warehouse operations is of significant benefit to
the Company. In addition, some long-term cost savings could be generated by
operating its own warehouse rather than continuing to utilize a public
warehouse. Given the Company's sales volume in its first year of operations and
the factors described above, these positive aspects in obtaining a Company
warehouse outweighed the negative aspects thereof, such as the addition to
overhead represented by leasing and staffing such a facility and the
administrative burdens represented thereby. See "Risk Factors -- Dependence on
Suppliers; Distribution."
QUALITY CONTROL
A vital concern to management is product quality and quality control.
Strict quality control standards are required in order to maintain and build
relationships with key customers and minimize product returns. Adherence to
these strict standards is even more important to national mass merchants such as
KMart (a current customer of the Company). The Company carefully monitors the
output of its contractors to insure they produce the highest quality
merchandise. All contractors are visited by employees of the Company's quality
control team, which includes its President and Chief Executive Officer, and are
supplemented by contractor paid in-house teams.
INVENTORY
The Company believes that it turns its inventory more often than its
competitors. In the fiscal year ended March 31, 1996, it did so 14 times,
although no assurance can be given that such result will continue. This turn
rate, which management believes is very high, primarily reflects the extremely
low permanent inventory of a start-up company, as well as the responsiveness and
service which the Company's customers expect. As the Company grows and matures,
it is expected that this turn rate will be reduced, although no assurance can be
given.
ORDERING AND DISTRIBUTION
The Company has computerized its order entry and has fully integrated order
entry, shipping, accounts payable and accounts receivable through use of
computer software. Senior management reviews all orders with respect to price,
merchandise delivery dates and suitability for the customer. During its first
year of operations and for the foreseeable future, the Company has determined
that virtually no speculative merchandise will be produced domestically and all
domestic manufacturing will take place in response to customer orders. An
appreciable portion of the Company's imported goods, however, are produced
speculatively, primarily resulting from the longer lead times required for
manufacturing and delivery as compared with domestically produced
25
<PAGE> 29
goods. Customers are invoiced at the time of shipment. Management believes that
most customers have made payment within 60-75 days, although no assurance can be
given that this trend will continue.
OPERATIONS
The Company maintains corporate offices at its warehouse facility in
Cranbury, New Jersey as well as at 1407 Broadway in Manhattan, where it also
maintains its showroom and principal executive offices. The Company's design
room is located at 264 West 40th Street in Manhattan, and its mail order
showroom is located at 1384 Broadway in Manhattan. See "Business -- Properties."
CUSTOMER BASE
The Company deals only with those customers it believes to be the most
attractive in the market. These include current national mass merchant customers
such as KMart and Montgomery Ward; regional discounters such as Ames, Shopko,
Bradlees, Hills, and Pamida and national specialty chains such as Deb Shops,
Petrie, and Charming Shoppes, and other customers including the Army/Air Force
Exchange, Brylane and Lerner's. Management has extensive long standing personal
relationships with most of these accounts, although no assurance can be given
that any of these will remain customers of the Company. During the fiscal year
ended March 31, 1996, Petrie represented 14% of the Company's sales, Montgomery
Ward represented 13% of sales and Brylane represented 11% of sales. During the
fiscal quarter ended June 30, 1996, KMart represented 20% of the Company's
sales, Petrie represented 14% of sales, Charming Shoppes represented 12% of
sales and Brylane represented 10% of sales.
COMPETITION
The apparel business is competitive and consists of numerous manufacturers,
importers and distributors, none of which accounts for a significant percentage
of total industry sales, but many of which are significantly larger and have
substantially greater resources than the Company. The Company competes with
distributors that import apparel from abroad, domestic companies with
established foreign manufacturing relationships and companies which produce
apparel domestically.
The Company believes its ability to succeed depends in substantial part on
its ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner, as well as to operate within significant
production and delivery constraints. The Company has attempted and will continue
to attempt to minimize the risk of changing fashion trends and product
acceptance by producing a wide selection of apparel during a particular selling
season and by closely monitoring retail sales of its products. However, if the
Company misjudges the market for a number of products or product groups, it may
be faced with a significant amount of unsold finished goods inventory which
could have a material adverse effect on the Company's operations.
BACKLOG
As of August 1, 1996, the Company had unfilled orders of approximately $5.2
million, compared to approximately $3.6 million of such orders at the comparable
date in 1995. These amounts include both confirmed orders and unconfirmed
orders, which the Company believes, based on industry practice and its past
experience, will be confirmed, and are therefore considered to be firm. Shipment
of Spring orders normally commences in the early part of January with the major
portion of Spring merchandise shipped in March and April. Shipment of
Back-to-School/Fall orders normally commences in late June with the major
portion of such merchandise shipped in August, September and October. The amount
of unfilled orders at a particular time is affected by a number of factors,
including the scheduling of the manufacture and shipping of the product which,
in some instances, depends on the desires of the customer. Accordingly, a
comparison of unfilled orders from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments.
26
<PAGE> 30
FACTORING OF ACCOUNTS RECEIVABLE
Generally, the Company's accounts receivable are paid within 60-75 days
from invoice, which management believes is within industry standards. In March
1995, the Company entered into a Factoring Agreement with Republic Factors Corp
("Republic"), pursuant to which the Company receives advances against factored
accounts receivable with interest at 1.5% over prime rate. Advances, which are
at the discretion of Republic, generally are equal to 80% of eligible
receivables. Republic also has provided the Company with financing for import
letters of credit. The Company generally utilizes the factoring arrangement to
the maximum extent permitted by Republic. After the completion of the Offering,
the Company intends to be less dependent upon its arrangement with Republic for
its cash flow needs, thereby reducing its overall interest expense. See "Use of
Proceeds."
EMPLOYEES
At June 30, 1996, the Company employed approximately 55 full time
individuals, of which eight occupy executive or managerial positions,
approximately 36 hold design, production, quality control or distribution
positions and the balance occupy sales, clerical and office positions.
Approximately eight of the Company's warehouse packers are covered by a
collective bargaining agreement with the United Production Workers Union Local
17-18 which is effective from June 15, 1996 through and including June 14, 1999.
The Company considers its relations with its employees to be good and has not
experienced any interruption of operations due to labor disputes.
PROPERTIES
The Company occupies three facilities in Manhattan and one in New Jersey.
The three Manhattan facilities, located at 1407 Broadway (its principal
executive offices), 264 West 40th Street and 1384 Broadway, and which encompass
approximately 8,000 square feet in total, house the Company's showroom and
sales, merchandising, mail order and design staffs. These facilities are the
subject of leases requiring a current annual base rental of approximately
$187,000 in total, and continue until April 30, 2001.
The Company's warehouse and certain executive offices are located in
Cranbury, New Jersey (the "Warehouse"). The Warehouse is the subject of a lease
requiring a current annual base rental of approximately $206,000 and continues
until May 2001, with an option for the Company to renew for an additional two
years.
The Company believes that its existing facilities are adequate to meet its
current and currently foreseeable requirements, although there can be no
assurance thereof.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
27
<PAGE> 31
MANAGEMENT
DIRECTORS, OFFICERS AND KEY EMPLOYEES
The following sets forth certain information with respect to the directors,
executive officers and key employees of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- --------------------------------- --- ----------------------------------------------------
<S> <C> <C>
Mitchell Dobies.................. 38 President, Treasurer, Chief Executive Officer and
Director
Charles Sobel.................... 36 Executive Vice President and Director
Kathleen A. Dressel.............. 31 Secretary
Jeffrey Marcus................... 42 Chief Financial Officer
Lawrence Kaplan.................. 53 Director
</TABLE>
Directors of the Company are elected annually at the annual meeting of
stockholders and serve until the next annual meeting and until their successors
are elected and qualify. Under the Company's By-laws, the number of directors
constituting the entire Board of Directors shall be fixed, from time to time, by
the directors then in office or by the stockholders. The directors may, however,
decrease or increase the number of directors by majority action without
soliciting stockholder approval. If the number of directors is not fixed, the
number shall be four. The Board of Directors of the Company currently consists
of three persons, Messrs. Dobies, Sobel and Lawrence Kaplan.
The Underwriter shall have the right to nominate one member of the Board of
Directors for a period of two years from the closing of the Offering. See
"Underwriting."
Mitchell Dobies. Mr. Dobies is President, Chief Executive Officer,
Treasurer and a director of the Company. Prior to founding Jenna Lane, Inc., Mr.
Dobies had extensive experience in apparel manufacturing and operation with both
major organizations and entrepreneurial operations. From 1986 until 1995 Mr.
Dobies was President and Chief Executive Officer of CR & ME, a vertically
integrated domestic manufacturer of cut and sewn knit sportswear. Upon
information and belief, that company has filed for liquidation under Chapter 7
of the United States Code (i.e. the bankruptcy code). From 1984 to 1986 he was
Director of Operations of the Mens Division of Izod LaCoste, a division of
General Mills. From 1982 to 1984 he was a shareholder and general manager of
Necessary Objects, a moderate priced domestic manufacturer of women's apparel,
of which he was the founder. From 1979 to 1981 he was a buyer for a retail chain
specializing in junior apparel. See also, "Certain Legal Issues Concerning
Management," below.
Charles Sobel. Charles Sobel is Executive Vice President and a director of
the Company, and is in charge of all aspects of sales and merchandising. Mr.
Sobel has more than 13 years of experience in selling women's apparel and
maintains an extensive network of relationships with the senior management of
most retail chains. From January 1994 until February 1995 Mr. Sobel was
Executive Vice President of CR & ME. Upon information and belief, that company
has filed for liquidation under Chapter 7 of the United States Code (i.e. the
bankruptcy code). From September 1992 until joining CR & ME he was the Vice
President and Sales Manager for the Women's Wear Division of Gitano Corporation.
From 1982 to 1992 he was a Principal and Sales Manager of Style Up of
California, a manufacturer of women's apparel and a division of Breton
Industries.
Kathleen A. Dressel. Ms. Dressel, Secretary of the Company, has been
Operations Manager of the Company since its inception in March 1995. From
September 1994 through March 1995, she was an Executive Assistant at CR & ME.
From April 1986 through September 1994 she was an Administrative Assistant to
the Senior Vice President of Merchandising of Jamesway Corporation, a regional
discount department store.
Jeffrey Marcus. Mr. Marcus was named Chief Financial Officer of the
Company in April 1996. Mr. Marcus has 20 years of experience in public and
private accounting. From 1991 to April 1996, he was Vice President of Finance
and Administration for Biscayne Apparel International, Inc., a manufacturer and
importer of women's and children's outerwear. In addition, Mr. Marcus was
Managing Director of Mackintosh
28
<PAGE> 32
(UK) Limited, a foreign subsidiary of Biscayne. Prior to that, from 1981 to
1991, he was a Vice President and Controller within the Biscayne organization.
Mr. Marcus is a certified public accountant and a member of the American
Institute of Certified Public Accountants and of the New Jersey Society of
Certified Public Accountants.
Lawrence Kaplan. Mr. Kaplan has served as a director of the Company since
February 1996. He also is a director of American United Global, Inc. and, since
January 1987, has been an officer, director and principal stockholder of GVMCI,
a consulting firm located on Long Island, New York. Mr. Kaplan also is a
registered representative, officer, director and sole stockholder of G-V Capital
Corp., a brokerage firm. He also is a director of Andover Equities, Inc., PARK
Group and SSI Capital Corp., all public shell companies. See also, "Certain
Transactions" and "Management -- Certain Legal Issues Concerning Management,"
below.
CERTAIN LEGAL ISSUES CONCERNING MANAGEMENT
In 1991, Mr. Dobies was convicted by a state court in Essex County, New
Jersey, of theft in the third degree (a low-grade felony) of certain materials
from a contractor of CR & ME, his former employer. Mr. Dobies agreed to a plea
bargain, after which he received probation and community service. Mr. Dobies
maintains that the only items he removed from the supplier's location were those
owned by CR & ME, but did not believe it was in his or CR & ME's best interest
to pursue a trial in the matter.
Stanley Kaplan may be deemed to be a promoter of the Company by virtue,
among other things, of having served as a director, but he no longer serves as a
director or officer of the Company, nor does he directly own any securities of
the Company (although he previously did). Mr. Stanley Kaplan is, however, the
owner of less than one percent of Walnut Financial Services, Inc., a publicly
held company (of which he is neither director, officer or affiliate), a wholly
owned subsidiary of which directly owns 95,238 shares of Common Stock (assuming
conversion of the Series A Preferred Stock into the Preferred Conversion Shares)
and which indirectly controls Universal Partners, L.P. which directly owns
19,048 shares of Common Stock (assuming conversion of the Series A Preferred
Stock into Preferred Conversion Shares) and is an investor in the Bridge
Financing (see "Concurrent Offerings"). On August 12, 1994, Mr. Stanley Kaplan
settled, without admitting or denying any allegations, a civil action brought
against him by the Commission relating to Atratech, Inc. The action charged Mr.
Kaplan with certain violations of the Securities Act of 1933 and the Securities
Exchange Act of 1934 (the "Exchange Act"). As part of the settlement, Mr. Kaplan
was permanently restrained and enjoined from future violations of the securities
laws and was permanently barred from acting as an officer or director of any
issuer that has a class of securities registered under Section 12 of the
Exchange Act or that is required to file reports pursuant to Section 15(d) of
the Exchange Act. Stanley Kaplan is a controlling shareholder of GVMCI, a
consulting firm of which Lawrence Kaplan, a director of the Company, also is a
controlling shareholder. GVMCI performed certain consulting services for the
Company from January 1996 through July 1996. Stanley Kaplan is not related to
Lawrence Kaplan. See "Risk Factors."
RESTRICTIONS CONTAINED IN AGREEMENTS WITH FORMER EMPLOYER
Mr. Dobies has entered into an agreement with the shareholders of CR & ME,
and Mr. Sobel has entered into an agreement with CR & ME, both of which
agreements were in connection with their termination of employment with CR & ME
in early 1995 and certain other matters. Since Messrs. Dobies and Sobel's
departure from CR & ME, upon information and belief, that company has filed for
liquidation under Chapter 7 of the United States Code (i.e. the bankruptcy
code). Mr. Sobel's agreement (pursuant to which his employment was terminated)
provides that he must "refrain from actively seeking other employment" during
the eight week period which ended on March 3, 1995 and that during that period
he may not attend interviews with competing employers. Management believes that
Mr. Sobel neither attended an interview with the Company nor did he actively
seek employment with the Company during this period. An action brought by Mr.
Sobel against CR & ME and its principals, which included certain counterclaims
by the principals, was
29
<PAGE> 33
recently settled with prejudice. CR & ME has commenced an adversary proceeding
(akin to litigation within a bankruptcy proceeding) against Mr. Sobel alleging,
among other things, that bonus payments of approximately $37,000 made to him by
CR & ME during the year prior to the commencement of its Chapter 7 liquidation
were improper "insider" payments that must be returned. The Company is not named
in this proceeding. The Company and Mr. Sobel cannot predict the outcome of such
proceeding. In addition, both Mr. Dobies' and Mr. Sobel's agreements provide
that they may not "induce or attempt to induce" any employee of CR & ME (or an
affiliate thereof, in Mr. Dobies' case) to leave without prior approval from CR
& ME's Board of Directors. The agreements state, however, that the individuals
may hire any employee who has been discharged or has left of his or her own
volition. To date, the Company has hired a number of former CR & ME employees,
all of which employees the Company believes were terminated or discharged.
Notwithstanding this, CR & ME might claim a violation of the foregoing
provisions. Management believes, however, that if CR & ME is able to succeed in
preventing the Company from hiring any individual formerly in its employ, the
Company would not have great difficulty finding other qualified candidates to
fill roles intended for any such individuals. Further, there can be no assurance
that Messrs. Dobies and Sobel's actions prior to the date hereof might not be
interpreted as inducing or attempting to induce certain of CR & ME's employees
to join the Company.
DIRECTORS' COMPENSATION
The Company currently pays compensation to directors who are not members of
management at the rate of $1,000 per month. Members of management who also serve
as directors are not provided separate compensation for their service as
directors.
Further, in June 1996, the Company paid Lawrence Kaplan compensation in the
form of 57,143 Performance Shares as an inducement for him to continue to serve
as a director of the Company. With respect to the Performance Shares, two-thirds
of these shares shall be repurchased by the Company for the par value thereof in
the event that the Company does not achieve pre-tax earnings of at least $2.1
million during the period from April 1, 1996 through March 31, 1997, and
one-third of these shares shall be repurchased by the Company for the par value
thereof in the event that the Company does not achieve pre-tax earnings of at
least $3.0 million during the period from April 1, 1997 through March 31, 1998.
Pre-tax earnings, for purposes of the foregoing calculations, will exclude any
tax deduction obtained by the Company solely on account of the issuance of the
Performance Shares and all similar Performance Shares issued to directors and
members of management of the Company. These shares, unlike the Performance
Shares owned by Messrs. Dobies and Sobel, otherwise are not subject to vesting
or any other requirement that Mr. Kaplan remain as a director of the Company for
any specified period.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all cash compensation
paid by the Company, as well as certain other compensation paid or accrued, to
certain executive officers during the fiscal year ended March 31, 1996. No other
executive officer of the Company received salary and bonus compensation in
excess of $100,000 during such fiscal year. The full Board of Directors of the
Company determines all compensation with regard to the executive officers of the
Company, taking into account such factors as they deem appropriate.
30
<PAGE> 34
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER
----------------------------------------------------- -------- ------- -------
<S> <C> <C> <C>
Mitchell Dobies...................................... $200,000 $15,000(1) $36,760(2)
President and Chief Executive Officer
Charles Sobel........................................ $200,000 $15,000(1) $36,760(2)
Executive Vice President
Ernie Baumgarten..................................... $114,800 -0- $23,969(2)
Vice President
</TABLE>
- ---------------
(1) Includes cash bonuses accrued in March 1996 but not paid until April 1996.
(2) Includes the following: (i) health insurance to these individuals and their
families and (ii) an expense/auto allowance and expense reimbursement to
Messrs. Dobies and Sobel of $2,500 per month each and to Mr. Baumgarten of
$1,500 per month. The Company had entered into Employment Agreements, dated
March 24, 1995, with these individuals. In February, 1996, Mr. Baumgarten
resigned from the Company, pursuant to which his Employment Agreement was
terminated and Performance Shares previously issued to him were repurchased
by the Company for the par value thereof pursuant to his Employment
Agreement. See "Management -- Employment Agreements."
EMPLOYMENT AGREEMENTS
Messrs. Dobies and Sobel each has executed an Employment Agreement, dated
as of March 24, 1995, with the Company which, as amended to date, provide for
(i) a term ending March 24, 1997 (automatically renewable from year to year if
not terminated), (ii) a base salary of $225,000 for each of Messrs. Dobies and
Sobel and expense allowance of $3,500 monthly, (iii) health insurance coverage
for each such individual and his family (or reimbursement for reasonable
personal expense therefor), (iv) the right to receive such portion of the
Management Profit Participation (as defined below) as is determined by the Board
of Directors, (v) 222,857 Performance Shares for Mr. Dobies, (vii) 291,429
Performance Shares for Mr. Sobel and (viii) minimum bonuses of $15,000 for Mr.
Dobies and $47,000 for Mr. Sobel. The employment agreements also include
non-competition, confidentiality and non-solicitation provisions.
The Company has agreed to set aside 12 1/2% of the Company's pre-tax
profit, to the extent above one million dollars, each fiscal year for payment to
members of management ("Management Profit Participation"), to be divided among
such members of management as the Board of Directors shall determine.
The Company also has issued the number of Performance Shares to those
individuals indicated above, two-thirds of which shares shall be repurchased by
the Company for the par value thereof in the event that the Company does not
achieve pre-tax earnings of at least $2.1 million during the period from April
1, 1996 through March 31, 1997 and one-third of which shares shall be
repurchased by the Company for the par value thereof in the event that the
Company does not achieve pre-tax earnings of at least $3 million during the
period from April 1, 1997 through March 31, 1998. Pre-tax earnings, for purposes
of the foregoing calculations, will exclude any tax deduction obtained by the
Company solely on account of the issuance of the Performance Shares and all
similar Performance Shares issued to directors and members of management of the
Company.
In addition, the retention of the Performance Shares by Messrs. Dobies and
Sobel is subject to vesting, as follows: all of the Performance Shares shall be
repurchased by the Company for the par value thereof upon termination of such
person's employment with the Company in the event that his employment shall
terminate prior to March 31, 1997; and one-third of which Performance Shares
shall be repurchased by the Company for the par value thereof upon termination
of such person's employment with the Company in the event that his employment
shall terminate after March 31, 1997 and prior to March 31, 1998. As indicated
above, these restrictions do not apply to the Performance Shares issued to
Lawrence Kaplan, who may retain his Performance Shares even after his service as
a director of the Company.
Mr. Baumgarten had executed an Employment Agreement with the Company, which
provided for the compensation described in the table above and was otherwise
substantially similar to Messrs. Dobies and
31
<PAGE> 35
Sobel's agreements. In February 1996, upon his resignation from the Company, Mr.
Baumgarten's Employment Agreement was terminated.
INCENTIVE STOCK OPTION PLAN
In August 1996, the Company adopted the Option Plan by written consent of
all the directors and a majority of the stockholders of the Company. The Option
Plan will be administered by the Board of Directors (or by a committee of the
Board of Directors, if one is appointed for this purpose), provided that members
of the Board of Directors who are either eligible for Awards (as defined below)
or have been granted Awards may not vote on any matters affecting the
administration of the Plan or the grant of any Award pursuant to the Plan in
accordance with Rule 16b-3 promulgated under the Exchange Act and Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). In the event any
employee granted an Award under the Option Plan is, at the time of such grant, a
member of the Board of Directors of the Company, the grant of such Award shall,
in the event the Board of Directors at the time such award is granted is not
deemed to satisfy the requirement of Rule 16b-3(c)(2) promulgated under the
Exchange Act, be subject to the approval of an auxiliary committee consisting of
not less than two persons all of whom qualify as "disinterested persons" within
the meaning of Rule 16b-3(c)(2) promulgated under the Exchange Act. In the event
the Board of Directors deems it impractical to form a committee of disinterested
persons, the Board of Directors is authorized to approve any Award under the
Option Plan. The Option Plan shall remain in effect for a term of ten (10) years
from August 16, 1996, its date of adoption, unless sooner terminated under the
terms of the Option Plan.
The Option Plan provides for the granting of incentive stock options
(within the meaning of Section 422 of the Code) and nonqualified stock options
(individually, an "Award" or collectively, "Awards"), to those officers of other
key employees, or consultants, with potential to contribute to the future
success of the Company or its subsidiaries, provided, that only employees may be
granted incentive stock options. The Board of Directors has discretion to select
the persons to whom Awards will be granted (from among those eligible), to
determine the type, size and terms and conditions applicable to each Award and
the authority to interpret, construe and implement the provisions of the Option
Plan. Notwithstanding the foregoing, with respect to incentive stock options,
the aggregate fair market value (determined at the time such Award is granted)
of the shares of Common Stock with respect to which incentive stock options are
exercisable for the first time by such employee during any calendar year shall
not exceed $100,000 under all plans of the employer corporation or its parent or
subsidiaries. The Board of Directors' decisions are binding on the Company and
persons eligible to participate in the Option Plan and all other persons having
any interest in the Option Plan. It is presently anticipated that approximately
8-15 individuals initially will participate in the Option Plan.
The total number of shares of Common Stock that may be subject to Awards
under the Option Plan is 600,000, subject to adjustment in accordance with the
terms of the Option Plan. No more than 125,000 shares of Common Stock subject to
Awards may be granted during any single fiscal year of the Company under the
Option Plan. Common Stock issued under the Option Plan may be either authorized
but unissued shares, treasury shares or any combination thereof. To the fullest
extent permitted under Rule 16b-3 under the Exchange Act and Sections 162(m) and
422 of the Code, any shares of Common Stock subject to an Award which lapses,
expires or is otherwise terminated prior to the issuance of such shares may
become available for new Awards.
The Company granted, on August 16, 1996, an aggregate of 100,000 Awards as
follows: 25,000 Awards to Mitchell Dobies, 25,000 Awards to Charles Sobel and
50,000 Awards to Eric Holtz (see "Business -- Sales Groups -- Imports"). All
options which are the subject of such Awards are exercisable at $2.00 per share.
No other Awards have been granted except as described above.
Options to purchase Common Stock granted as Awards ("Options"), which may
be nonqualified or incentive stock options, may be granted under the Option Plan
at an exercise price (the "Option Price") determined by the Board of Directors
in its discretion, provided, that the Option Price of incentive stock options
may be no less than the fair market value of the underlying Common Stock on the
date of grant (110% of fair market value in the case of an incentive stock
option granted to a ten percent stockholder).
32
<PAGE> 36
Options will expire not later than ten years after the date on which they
are granted. Options become exercisable at such times and in such installments
as determined by the Board of Directors. Notwithstanding the foregoing, however,
each Option shall, except as otherwise provided in the stock option agreement
between the Company and an optionee, become exercisable in full for the
aggregate number of shares covered thereby unconditionally on the first day
following the occurrence of any of the following: (a) the approval by the
stockholders of the Company of an Approved Transaction; (b) a Control Purchase;
or (c) a Board Change (each as defined below).
For purposes of the Option Plan, (i) an "Approved Transaction" shall mean
(A) any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Common Stock
would be converted into cash, securities or other property, other than a merger
of the Company in which the holders of Common Stock immediately prior to the
merger have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or (C) the adoption of any
plan or proposal for the liquidation or dissolution of the Company; (ii) a
"Control Purchase" shall mean circumstances in which any person (as such term is
defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, corporation or
other entity (other than the Company or any employee benefit plan sponsored by
the Company or any Subsidiary) (x) shall purchase any Common Stock of the
Company (or securities convertible into the Company's Common Stock) for cash,
securities or any other consideration pursuant to a tender offer or exchange
offer, without the prior consent of the Board of Directors, or (y) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the
case of rights to acquire the Company's securities), and (iii) A "Board Change"
shall mean circumstances in which, during any period of two consecutive years or
less, individuals who at the beginning of such period constitute the entire
Board shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least a majority of the directors then
still in office.
In the event that dividends are payable in Common Stock or in the event
there are splits, subdivisions or combinations of shares of Common Stock, the
number of shares available under the Option Plan shall be increased or decreased
proportionately, as the case may be, and the number of shares delivered upon the
exercise thereafter of any Option theretofore granted or issued shall be
increased or decreased proportionately, as the case may be, without change in
the aggregate purchase price.
In the event that an Option holder ceases to be an employee for any reason
other than permanent disability (as determined by the Board of Directors) and
death, any Option, including any unexercised portion thereof, which was
otherwise exercisable on the date of termination, shall expire unless exercised
within a period of three months from the date on which the Option holder ceased
to be so employed, but in no event after the expiration of the exercise period.
In the event of the death of an Option holder during this three month period,
the Option shall be exercisable by his or her personal representatives, heirs or
legatees to the same extent that the Option holder could have exercised the
Option if he or she had not died, for the three months from the date of death,
but in no event after the expiration of the exercise period. In the event of the
permanent disability of an Option holder while an employee, any Option granted
to such employee shall be exercisable for twelve (12) months after the date of
permanent disability, but in no event after the expiration of the exercise
period. In the event of the death of an Option holder while an employee, or
during the twelve (12) month period after the date of permanent disability of
the Option holder, that portion of the Option which had become exercisable on
the date of death shall be exercisable by his or her personal representatives,
heirs or legatees at any time prior to the expiration of one (l) year from the
date of the death of the Option holder, but in no event after the expiration of
the exercise period. Except as the Board of Directors shall provide otherwise,
in the event an Option holder ceases to be an employee for any reason, including
death, prior to the lapse of the waiting period, his or her Option shall
terminate and be null and void.
33
<PAGE> 37
The Board of Directors may at any time alter, amend, suspend or discontinue
the Option Plan, but no amendment, alteration, suspension or discontinuation
shall be made which would impair the rights of any recipient of an Option under
any agreement theretofore entered into under the Option Plan, without his
consent, or which, without the requisite vote of the stockholders of the Company
approving such action, would:
(a) except as is provided in Section 7 of the Option Plan, increase
the total number of shares of stock reserved for the purposes of the Option
Plan; or
(b) extend the duration of the Option Plan; or
(c) materially increase the benefits accruing to participants under
the Option Plan; or
(d) change the category of persons who can be eligible participants
under the Option Plan. Without limiting the foregoing, the Board of
Directors may, any time or from time to time, authorize the Company,
without the consent of the respective recipients, to issue new Options in
exchange for the surrender and cancellation of any or all outstanding
Options.
401(K) SAVINGS PLAN
Effective August 1, 1996, the Company established the Jenna Lane, Inc.
401(k) Plan (the "401(k) Plan") under Section 401(k) of the Code. Under the
401(k) Plan, employees may contribute up to 25% of their compensation per year
subject to elective limits as defined by the guidelines of the Internal Revenue
Service, and the Company may make profit sharing contributions to the Plan in
such amount, if any, that it shall determine, provided, that the Company has
agreed with the Underwriter that, for the first two years of operation of the
401(k) Plan, the Company shall not make a contribution in excess of an amount
equal to five percent (5%) of the amount of earnings before taxes of the Company
in excess of $1 million. Any contributions by the Company will be allocated as
an equal percentage of each eligible participant's compensation for the
applicable year during the 401(k) Plan. During the month of August 1996, the
Company made no contribution to the 401(k) Plan.
LIMITATION OF LIABILITY
The General Corporation Law of the State of Delaware permits a corporation
through its Certificate of Incorporation to eliminate the personal liability of
its directors to the corporation or its stockholders for monetary damages for
breach of fiduciary duty with certain exceptions. The exceptions include a
breach of fiduciary duty of loyalty, acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, improper
declarations of dividends, and transactions from which the directors derived an
improper personal benefit. The Company's Certificate of Incorporation exonerates
its directors from monetary liability to the fullest extent permitted by this
statutory provision but does not restrict the availability of non-monetary and
other equitable relief.
The Company believes that it is the position of the Commission that insofar
as the foregoing provision may be invoked to disclaim liabilities arising under
the Securities Act, the provision is against public policy as expressed in the
Securities Act and is therefore unenforceable. Such limitation of liability also
does not affect the availability of injunctive relief or rescission.
The Company intends to enter into Indemnification Agreements with each of
its directors and executive officers prior to or shortly after the closing of
the Offering. Each such Indemnification Agreement will provide that the Company
will indemnify the indemnitee against expenses, including reasonable attorney's
fees, judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties as an
officer, director, employee or agent of the Company. Indemnification is
available if the acts of the indemnitee were in good faith, if the indemnitee
acted in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal proceeding, the
indemnitee had no reasonable cause to believe his conduct was unlawful.
34
<PAGE> 38
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mitchell Dobies,
the President and Chief Executive Officer of the Company and Charles Sobel,
Executive Vice President of the Company. See "Management -- Employment
Agreements."
SERIES A PRIVATE PLACEMENT
In March and April 1995, G-V Capital Corp. ("G-V") acted as placement agent
in connection with the private placement of 500,000 shares of Series A Preferred
Stock (the "Series A Placement") with aggregate gross proceeds to the Company of
$1,000,000. G-V received $100,000 in commissions, a non-accountable expense
allowance of $10,000 and 50,000 shares of Common Stock in consideration of its
service as placement agent. The 500,000 shares of Series A Preferred Stock are
automatically convertible upon the closing of the Offering into an aggregate of
952,381 Preferred Conversion Shares. The holders of the Series A Preferred Stock
have agreed not to sell or otherwise dispose of their shares of Preferred
Conversion Shares for a period of six months following the passage of two years
from their dates of issuance in April 1995. Lawrence Kaplan, a director and
stockholder of the Company, is the sole stockholder, officer and director of
G-V. See "Management."
NOVEMBER UNIT OFFERING
In November 1995, the Company sold investment units comprising an aggregate
of $500,000 principal amount of the November Notes and 100,000 shares of Common
Stock (the "November Offering"). The November Notes are payable, together with
interest at the rate of 10% per annum, on the earlier of November 1997 and the
closing of the Offering. See "Use of Proceeds."
CONSULTING AGREEMENT
On January 1, 1996, the Company engaged GVMCI as a financial consultant,
pursuant to which GVMCI received a monthly consulting fee through July 31, 1996.
Lawrence Kaplan, a director of the Company, is a principal shareholder, officer
and director of GVMCI. In addition, Stanley Kaplan, a former director of the
Company who may be deemed to be a promoter of the Company, is a principal
shareholder, officer and director of GVMCI. See "Management."
BRIDGE FINANCING
In August 1996, the Company completed the Bridge Financing of an aggregate
of $500,000 principal amount of Bridge Notes and 1,000,000 Bridge Warrants. The
Bridge Notes are payable, together with interest at the rate of 10% per annum,
on the earlier of August 1997 and the closing of the Offering. See "Use of
Proceeds." The Bridge Warrants entitle the holders thereof to purchase one share
of Common Stock but will be exchanged automatically on the closing of the
Offering for the Selling Warrantholder Warrants, each of which will be identical
to the Warrants offered hereby. The Selling Warrantholder Warrants have been
registered for resale in the Registration Statement of which this Prospectus
forms a part.
CERTAIN ISSUANCES OF SECURITIES TO EXECUTIVE OFFICERS AND DIRECTORS; SELLING
SECURITYHOLDERS
In June 1996, Mr. Sobel was issued 68,571 Performance Shares (after taking
into account the Stock Dividend).
Stanley Kaplan, who may be deemed to be a promoter of the Company, was
formerly, but is no longer, a director and direct stockholder of the Company.
Mr. Stanley Kaplan is, however, the owner of less than one percent of a publicly
held company (of which he is neither director, officer or affiliate), a wholly
owned subsidiary of which directly owns 95,238 shares of Common Stock (assuming
conversion of the Series A Preferred Stock into Preferred Conversion Shares),
and which indirectly controls Universal Partners, L.P.,
35
<PAGE> 39
which directly owns 19,048 shares of Common Stock (assuming conversion of the
Series A Preferred Stock into Preferred Conversion Shares) and is an investor in
the Bridge Financing. He had purchased, on March 17, 1995, 37,000 shares of
Common Stock (prior to taking into account the Stock Dividend) for an aggregate
purchase price of $37,000 (the "March Purchase Shares"). He also had received,
on March 17, 1995, 30,000 Performance Shares (prior to taking into account the
Stock Dividend). His wife, Eileen A. Kaplan, had purchased, on April 13, 1995,
20,000 shares of Series A Preferred Stock for an aggregate purchase price of
$40,000 (the "Kaplan Preferred Shares"). The March Purchase Shares and the
Kaplan Preferred Shares are no longer owned by Stanley Kaplan or any member of
his immediate family. The Performance Shares were repurchased by the Company for
an aggregate of $300 in April 1996. Stanley Kaplan resigned as a director on
February 1, 1996. In addition, Stanley Kaplan is an officer, director and
principal shareholder of GVMCI. On August 12, 1994, Stanley Kaplan settled,
without admitting or denying any allegations, a civil action brought against him
by the Commission relating to Atratech, Inc. The action charged Stanley Kaplan
with certain violations of the Securities Act and the Exchange Act. As part of
the settlement, Stanley Kaplan was permanently restrained and enjoined from
future violations of the securities laws and was permanently barred from acting
as an officer or director of any issuer that has a class of securities
registered under Section 12 of the Exchange Act or that is required to file
reports pursuant to Section 15(d) of the Exchange Act. See "Risk
Factors -- Certain Legal Issues Concerning Management; Inability to Obtain
Nasdaq Listing/Blue Sky Law."
Mitchell Dobies and Charles Sobel are the sole Selling Common Stockholders.
See "Concurrent Offerings."
Lawrence Kaplan, a director of the Company who may be deemed to be a
promoter of the Company, is the sole shareholder, officer and director of G-V
and is an officer, director and principal shareholder of GVMCI. The compensation
which G-V and GVMCI have received from the Company are described above. Mr.
Kaplan also beneficially owns an aggregate of 479,995 shares of Common Stock
(including shares owned by G-V and by his wife Helaine, as custodian for certain
minors), of which 57,143 directly owned shares are Performance Shares. During
the last fiscal year of the Company, Mr. Kaplan invested $125,000 for $125,000
in installment promissory notes of the Company and 25,000 shares of Common Stock
as part of the November Offering. Lawrence Kaplan also is a Selling
Warrantholder, having purchased $87,500 in principal amount of the Bridge Notes
and 175,000 Bridge Warrants in the Bridge Financing for an aggregate investment
of $87,500. See "Principal Stockholders," "Management" and "Concurrent
Offerings."
36
<PAGE> 40
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of the date of this
Prospectus, information relating to beneficial ownership (as defined in Rule
13d-3 of the Exchange Act) of the Company's equity securities and each principal
stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
OF COMMON STOCK BENEFICIAL OWNERSHIP
PRIOR TO THE OF COMMON STOCK
OFFERING(1) AFTER THE OFFERING(1)
--------------------- ---------------------
NAME OF BENEFICIAL OWNERS(1) NUMBER PERCENT NUMBER PERCENT
- -------------------------------------------------- --------- ------- --------- -------
<S> <C> <C> <C> <C>
Mitchell Dobies(2)................................ 782,381 26.08% 782,381 18.63%
Charles Sobel(2).................................. 775,714 25.86% 775,714 18.47%
Lawrence Kaplan(2)(3)............................. 479,995 16.00% 479,995 11.43%
All executive officers and directors as a group (3
persons)........................................ 2,038,090 67.94% 2,038,090 48.53%
</TABLE>
- ---------------
(1) Unless otherwise indicated herein and subject to applicable community
property laws, each stockholder has sole voting and investment power with
respect to all shares of Common Stock beneficially owned by such stockholder
and directly owns all such shares in such stockholder's sole name. Takes
into account the Stock Dividend. Assumes conversion of all outstanding
shares of Series A Preferred Stock into Preferred Conversion Shares. Does
not include 100,000 options to purchase Common Stock currently outstanding
under the Option Plan. Assumes no exercise of the Warrants or the Selling
Warrantholder Warrants.
(2) Includes 222,857 Performance Shares for Mr. Dobies, 291,429 Performance
Shares for Mr. Sobel and 57,143 Performance Shares for Lawrence Kaplan.
Mailing address for Messrs. Dobies and Sobel is c/o Jenna Lane, Inc., 1407
Broadway, Suite 1801, New York, New York 10018. Mailing address for Mr.
Kaplan is 150 Vanderbilt Motor Parkway, Suite 311, Hauppauge, New York
11788. See "Management" and "Management -- Employment Agreements."
(3) Includes an aggregate of 19,048 shares of Common Stock owned by Helaine
Kaplan as custodian for Michelle Kaplan and Robert Kaplan. Helaine Kaplan is
Lawrence Kaplan's wife. Also includes 95,238 shares of Common Stock owned by
G-V.
CONCURRENT OFFERINGS
The registration statement of which this Prospectus forms a part also
includes the concurrent registration of securities owned by the Selling
Securityholders. The Selling Warrantholder Warrants are being issued to the
Selling Securityholders as of the closing of the Offering. In addition, the
90,000 Selling Common Stockholder Shares which, together with 45,000 Warrants,
will be sold as part of the Underwriters' over-allotment option, if the option
is exercised, will be registered. The Selling Warrantholder Warrants and such
additional 45,000 Warrants will be identical to the Warrants being offered
hereby. All of the Selling Securityholder Securities will be registered, at the
Company's expense, under the Securities Act and are expected to become tradeable
on or about the effective date of the Offering. The Company will not receive any
proceeds from the sale of any Selling Securityholder Securities. Sales of
Selling Securityholder Securities or even the potential of such sales could have
an adverse effect on the market prices of the Common Stock and the Warrants. The
Selling Warrantholders have agreed not to exercise or sell their Selling
Warrantholder Warrants for a period of eighteen months after the completion of
the Offering without the prior written consent of the Underwriter.
In the event that the Underwriter exercises the over-allotment option, the
Underwriter will purchase the first 90,000 shares of Common Stock to be included
in the Units sold under such option from the Selling Common Stockholders at a
purchase price of $4.50 per share (the $10.10 Unit price less a valuation of
$0.10 per Warrant and less the 10% underwriting discount). If the Underwriter
exercises the over-allotment option for less than 45,000 Units, the Underwriter
will purchase shares from each of the Selling Common Stockholders on a pro rata
basis.
37
<PAGE> 41
The sale of the securities by the Selling Securityholders may be effected
from time to time in transactions (which may include block transactions by or
for the account of the Selling Securityholders) in the over-the-counter market
or in negotiated transactions, a combination of such methods of sale or
otherwise. Sales may be made at fixed prices which may be changed, at market
prices or in negotiated transactions, a combination of such methods of sale or
otherwise.
There are no material relationships between any Selling Securityholder and
the Company, except that Lawrence Kaplan is a Selling Warrantholder and Mitchell
Dobies and Charles Sobel are the sole Selling Common Stockholders. See "Certain
Transactions." The Company has been informed by the Underwriter that there are
no agreements between the Underwriter and any Selling Securityholder regarding
the distribution of the Selling Securityholder Securities.
Selling Securityholders may effect such transactions by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Securityholders or to broker-dealers who may purchase shares as
principals and thereafter sell the securities from time to time in the
over-the-counter market, in negotiated transactions or otherwise. Such
broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers from whom such broker-dealer may act as agents or to whom they may
sell as principals or otherwise (which compensation as to a particular
broker-dealer may exceed customary commissions).
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Selling Securityholder Securities may not
simultaneously engage in market-making activities with respect to any securities
of the Company during the applicable "cooling-off" period (at least two and
possibly nine business days) prior to the commencement of such distribution.
Accordingly, in the event that the Underwriter is engaged in a distribution of
Selling Securityholder Securities, such firm will not be able to make a market
in the Company's securities during the applicable restrictive period. However,
the Underwriter has not agreed to nor it is obligated to act as a broker-dealer
in the sale of the Selling Securityholder Securities and the Selling
Securityholders may be required, and in the event the Underwriter is a
market-maker, will likely be required, to sell such securities through another
broker-dealer. In addition, each Selling Securityholder desiring to sell Shares
or Warrants will be subject to the applicable provisions of the Exchange Act and
the rules and regulations thereunder, including without limitation Rules 10b-6
and 10b-7, which provisions may limit the timing of purchases and sales of
shares of the Company's securities by such Selling Securityholder.
The Selling Securityholders and broker-dealers, if any, acting in
connection with such sales might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act and any commission received by
them and any profit on the resale of the securities might be deemed to be
underwriting discounts and commissions under the Securities Act.
38
<PAGE> 42
The following table sets forth the number of shares of Common Stock
issuable upon the exercise of the Selling Warrantholder Warrants held by each
Selling Securityholders, all of which Selling Warrantholder Warrants and
underlying shares are to be offered for the Selling Securityholder's account.
<TABLE>
<CAPTION>
PERCENTAGE TO BE
OWNED AFTER
SELLING WARRANTHOLDER SHARES COMPLETION OF OFFERING(1)
--------------------- -------- -------------------------
<S> <C> <C>
Interpacific Capital Corporation..................... 200,000 3.85%
Universal Partners, L.P.............................. 50,000 0.96%
Lawrence Kaplan(2)................................... 175,000 3.37%
Windy City, Inc...................................... 25,000 0.48%
Manhattan Group Funding.............................. 50,000 0.96%
Sheldon Schwartz..................................... 100,000 1.92%
Edmond O'Donnell..................................... 25,000 0.48%
Michael Miller....................................... 25,000 0.48%
Charles Rose......................................... 50,000 0.96%
Galaxy Investments, Inc.............................. 300,000 5.77%
</TABLE>
- ---------------
(1) Assumes full exercise of the Selling Warrantholder Warrants and assumes no
sale of any Selling Securityholder Securities after completion of the
Offering. The Selling Warrantholders have agreed not to sell their Selling
Warrantholder Warrants or shares of Common Stock underlying them for a
period of eighteen months after the completion of this Offering without the
prior written consent of the Underwriter.
(2) Lawrence Kaplan is a director of the Company.
The following table sets forth the number of shares of Common Stock which
may be sold by each Selling Common Stockholder pursuant to this Prospectus and
the shares of Common Stock held by such Selling Common Stockholders which are
not covered by the Registration Statement. The Company will not receive any
proceeds from the sale of such shares of Common Stock.
<TABLE>
<CAPTION>
SHARES NOT
COVERED BY
SELLING COMMON STOCKHOLDER SHARES REGISTRATION STATEMENT
-------------------------- ------- ----------------------
<S> <C> <C>
Mitchell Dobies(1)...................................... 30,000 752,381(2)
Charles Sobel(3)........................................ 60,000 715,714(4)
------ ---------
TOTAL......................................... 90,000 1,468,095
====== =========
</TABLE>
- ---------------
(1) Mitchell Dobies is President and a director of the Company.
(2) Includes 222,857 Performance Shares. See "Management."
(3) Charles Sobel is Executive Vice President and a director of the Company.
(4) Includes 291,429 Performance Shares. See "Management."
39
<PAGE> 43
DESCRIPTION OF SECURITIES
The following description of the Company's securities does not purport to
be complete and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Certificate of Incorporation, as amended, and
By-laws, the Warrant Agreement among the Company, the Underwriter and American
Stock Transfer Company, as warrant agent, pursuant to which the Warrants will be
issued and the Underwriting Agreement between the Company and the Underwriter
(the "Underwriting Agreement"), copies of all of which have been filed with the
Commission as Exhibits to the Registration Statement of which this Prospectus is
a part.
GENERAL
The Company's authorized capital stock consists of 18,000,000 shares of
Common Stock, $.01 par value, and 2,000,000 shares of preferred stock, $.01 par
value ("Preferred Stock"), of which 500,000 shares are designated as Series A
Preferred Stock and 1,500,000 are "blank check" or subject to designation by the
Board. All of the Company's outstanding 500,000 shares of Series A Preferred
Stock will convert into 952,381 Preferred Conversion Shares at the closing of
the Offering, upon which the Series A Preferred Stock will be cancelled.
COMMON STOCK
The Company currently has 2,047,619 shares of Common Stock, held of record
by 12 holders. An additional 952,381 Preferred Conversion Shares will be issued
upon conversion of the Series A Preferred Stock at the closing of the Offering
to 31 holders who are not currently holders of Common Stock and 9 holders who
are currently holders of Common Stock. Holders of Common Stock have the right to
cast one vote for each share held of record on all matters submitted to a vote
of holders of Common Stock, including the election of directors. There is no
right to cumulate votes for the election of directors. Stockholders holding a
majority of the voting power of the capital stock issued and outstanding and
entitled to vote, represented in person or by proxy, are necessary to constitute
a quorum at any meeting of the Company's stockholders, and the vote by the
holders of a majority of such outstanding shares is required to effect certain
fundamental corporate changes such as liquidation, merger or amendment of the
Company's Certificate of Incorporation.
Holders of Common Stock are entitled to receive dividends pro rata based on
the number of shares held, when, as and if declared by the Board of Directors,
from funds legally available therefor, subject to the rights of holders of any
outstanding Preferred Stock. In the event of the liquidation, dissolution or
winding up of the affairs of the Company, all assets and funds of the Company
remaining after the payment of all debts and other liabilities, subject to the
rights of the holders of any outstanding Preferred Stock, shall be distributed,
pro rata, among the holders of the Common Stock. Holders of Common Stock are not
entitled to preemptive or subscription or conversion rights, and there are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are, and the shares of Common Stock offered
hereby will be when issued, fully paid and non-assessable.
REDEEMABLE CLASS A WARRANTS
Each Warrant entitles the registered holder to purchase one share of Common
Stock at an exercise price of $7.00 at any time after issuance until the date
which is three years after the date of this Prospectus. Commencing one year from
the date of this Prospectus, the Warrants may be redeemed by the Company at a
redemption price of $.05 per Warrant provided that (x) 30 days prior written
notice is given to the holders of the Warrants and (y) the closing bid price per
share of Common Stock as reported on Nasdaq (or the last sale price, if quoted
on a national securities exchange) has been at least $11.00 for the twenty
consecutive trading days ending on the third day prior to the date of the notice
of redemption. All Warrants must be redeemed if any are redeemed. The Warrants
include a provision that they may not be exercised for a period of one year from
the issuance date thereof.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company, the Underwriter and American Stock Transfer
Company, as warrant agent ("Warrant Agent"),
40
<PAGE> 44
and will be evidenced by warrant certificates in registered form. The Warrants
provide for adjustment of the exercise price and for a change in the number of
shares issuable upon exercise to protect holders against dilution in the event
of a stock dividend, stock split, combination or reclassification of the Common
Stock or upon issuance of shares of Common Stock at prices lower than the market
price of the Common Stock, with certain exceptions.
The exercise price of the Warrants was determined by negotiation between
the Company and the Underwriter and should not be construed to be predictive of
or to imply that any price increases in the Company's securities will occur.
The Company has reserved from its authorized but unissued shares a
sufficient number of shares of Common Stock for issuance upon the exercise of
the Warrants. A Warrant may be exercised upon surrender of the Warrant
certificate on or prior to its expiration date (or earlier redemption date) at
the offices of the Warrant Agent, with the form of "Election to Purchase" on the
reverse side of the Warrant certificate completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or bank check
payable to the order of the Company) for the number of shares with respect to
which the Warrant is being exercised. See "Risk Factors -- Current Prospectus
Required to Exercise Warrants." Shares issued upon exercise of Warrants and
payment in accordance with the terms of the Warrants will be validly issued,
fully paid and non-assessable. For the life of the Warrants, the holders thereof
have the opportunity to profit from a rise in the market value of the Common
Stock, with a resulting dilution in the interest of all other stockholders. So
long as the Warrants are outstanding, the terms on which the Company could
obtain additional capital may be adversely affected. The holders of the Warrants
might be expected to exercise them at a time when the Company would, in all
likelihood, be able to obtain any needed capital by a new offering of securities
on terms more favorable than those provided for by the Warrants. The Warrants do
not confer upon the Warrantholder any voting or other rights of a stockholder of
the Company.
UNDERWRITER'S OPTION
The Company has agreed to grant to the Underwriter or its designees, upon
the closing of the Offering, the Underwriter's Option to purchase the 60,000
Underwriter's Purchase Units. These securities will be identical to the
securities offered hereby. The Underwriter's Option cannot be transferred, sold,
assigned or hypothecated for two years, except to any officer or employee of the
Underwriter, members of the Underwriter's syndicate or members of the selling
group or their officers. The Underwriter's Option is exercisable during the
three-year period commencing one year from the date of this Prospectus at an
exercise price equal to 120% of the initial public offering price per Unit,
subject to adjustment in certain events to protect against dilution. The
Underwriter's Purchase Units and securities underlying them are being registered
pursuant to the registration statement of which this Prospectus forms a part.
See "Concurrent Offerings" and "Underwriting."
PREFERRED STOCK
After completion of the Offering, the Company will be authorized to issue
up to 2,000,000 shares of "blank-check" Preferred Stock, since upon conversion
of the outstanding 500,000 shares of Series A Preferred Stock, the Board of
Directors has resolved to cancel such series of Preferred Stock. The Board of
Directors will have the authority to issue this Preferred Stock in one or more
series and to fix the number of shares and the relative rights, conversion
rights, voting rights and terms of redemption (including sinking fund
provisions) and liquidation preferences, without further vote or action by the
stockholders. If shares of Preferred Stock with voting rights are issued, such
issuance could affect the voting rights of the holders of the Company's Common
Stock by increasing the number of outstanding shares having voting rights, and
by the creation of class or series voting rights. If the Board of Directors
authorizes the issuance of shares of Preferred Stock with conversion rights, the
number of shares of Common Stock outstanding could potentially be increased by
up to the authorized amount. Issuance of Preferred Stock could, under certain
circumstances, have the effect of delaying or preventing a change in control of
the Company and may adversely affect the rights of holders of Common Stock.
Also, Preferred Stock could have preferences over the Common Stock (and other
series of preferred stock) with respect to dividend and liquidation rights. The
Company currently has no plans to issue
41
<PAGE> 45
any Preferred Stock. The holders of the Series A Preferred Stock have agreed not
to sell or otherwise dispose of their shares of Preferred Conversion Shares for
a period of six months following the passage of two years from their dates of
issuance in April 1995.
TRANSFER AGENT
American Stock Transfer Company, New York, New York, serves as Transfer
Agent for the shares of Common Stock and Warrant Agent for the Warrants.
BUSINESS COMBINATION PROVISIONS
The Company is subject to a Delaware statute regulating "business
combinations," defined to include a broad range of transactions, between
Delaware corporations and "interested stockholders," defined as persons who have
acquired at least 15% of a corporation's stock. Under the law, a corporation may
not engage in any business combination with any interested stockholder for a
period of three years from the date such person became an interested stockholder
unless certain conditions are satisfied. The Company has not sought to "elect
out" of the statute, and, therefore, upon closing of the Offering and the
registration of its shares of Common Stock under the Exchange Act, the
restrictions imposed by such statute will apply to the Company.
REGISTRATION RIGHTS
The Company has granted certain piggy-back registration rights to (i)
holders of 952,381 Preferred Conversion Shares issuable upon conversion of the
500,000 shares of Series A Preferred Stock purchased in the Series A Placement,
(ii) holders of 190,476 shares of Common Stock issued in the November Offering
and (iii) holders of 1,000,000 Bridge Warrants and shares of Common Stock
underlying such Bridge Warrants. The registration rights of those set forth in
clauses (i) and (ii) have been waived with respect to the Offering. Although the
Bridge Warrants and shares underlying them are being registered hereunder, the
holders thereof have agreed not to sell or exercise such Bridge Warrants or
shares for a period of eighteen months after the completion of the Offering
without the prior written consent of the Underwriter. See "Concurrent
Offerings." The holders of the Series A Preferred Stock have agreed not to sell
or otherwise dispose of their shares of Preferred Conversion Shares for a period
of six months following the passage of two years from their dates of issuance in
April 1995.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding
4,200,000 shares of Common Stock (assuming no exercise of the over-allotment
option). Of these shares, 1,200,000 shares of Common Stock offered hereby will
be freely transferable without restriction or further registration under the
Securities Act, unless purchased by affiliates of the Company as that term is
defined in Rule 144 under the Securities Act ("Rule 144") described below. Of
the 3,000,000 shares of Common Stock currently outstanding (after giving effect
to conversion of the Series A Preferred Stock), as of the closing of the
Offering 2,910,000 will be "restricted" securities within the meaning of Rule
144 and may not be sold publicly unless they are registered under the Securities
Act or are sold pursuant to Rule 144 or another exemption from registration.
Such shares will be eligible for sale in the public market pursuant to Rule 144
commencing in March 1997. However, the holders of approximately 2,038,090 shares
(or approximately 68% of the Common Stock outstanding prior to the Offering
(after giving effect to the conversion of the Series A Preferred Stock into
Common Stock)), have agreed not to publicly sell or otherwise dispose of any
securities of the Company without the Underwriter's prior written consent for a
period of 18 months after the date of this Prospectus. Further, the holders of
the Series A Preferred Stock have agreed not to sell or otherwise dispose of
their shares of Preferred Conversion Shares for a period of six months following
the passage of two years from their dates of issuance in April 1995. See
"Underwriting."
In general, under Rule 144 a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three month period a number of restricted shares beneficially owned
for at least two years
42
<PAGE> 46
that does not exceed the greater of (i) 1% of the then outstanding shares of
Common Stock or (ii) an amount equal to the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to certain requirements as to the manner of sale,
notice and the availability of current public information about the Company.
However, a person who is not deemed an affiliate and has beneficially owned such
shares for at least three years is entitled to sell such shares without regard
to the volume or other resale requirements.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of nonaffiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period. If all the requirements of Rule 701 are
met, an aggregate of 100,000 shares subject to outstanding vested stock options
may be sold pursuant to such rule at the end of this 90-day period.
Pursuant to registration rights previously acquired by holders of 1,000,000
Bridge Warrants and 1,000,000 shares of Common Stock underlying such Bridge
Warrants and pursuant to the agreement of the Company with respect to the
Selling Common Stockholder Shares and the Underwriter's Purchase Units (and
securities underlying such Units), the Company has, concurrently with the
Offering, registered for resale on behalf of the Selling Securityholders, the
Selling Securityholder Securities. The holders of the Bridge Warrants and shares
underlying them have agreed not to sell such Bridge Warrants and shares for a
period of eighteen months after the completion of the Offering without the prior
written consent of the Underwriter. The Underwriter's Option is exercisable
during the three-year period commencing one year after the date of this
Prospectus. See "Concurrent Offerings."
Certain other securityholders have piggy-back registration rights. See
"Underwriting" and "Description of Securities -- Registration Rights."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
UNDERWRITING
Walsh Manning Securities, Inc., the Underwriter, has agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Company
the 600,000 Units offered hereby on a "firm commitment" basis, if any are
purchased. It is expected that the Underwriter will distribute as a selling
group member substantially all the Units offered hereby. It is also expected
that the Underwriter will make a market in the Company's securities following
the Offering.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering prices set forth on the cover page of this
Prospectus and to certain dealers who are members of the NASD, at such prices
less concessions of not in excess of $ ] per Unit, of which a sum not
in excess of $ per Unit may in turn be reallowed to other dealers who
are members of the NASD. After the commencement of the Offering, the public
offering prices, the concession and the reallowance may be changed by the
Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company also
has agreed to pay to the Underwriter an unaccountable expense allowance equal to
3% of the gross proceeds derived from the sale of Securities offered hereby,
including any Units purchased pursuant to the Underwriter's overallotment
option, $35,000 of which has been paid to date.
The Company has granted to the Underwriter an option, exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase from
the Company, at the public offering price, less underwriting discounts, up to
90,000 Units for the purpose of covering over-allotments, if any. If this option
is
43
<PAGE> 47
exercised, the Underwriter will purchase the first 45,000 Units by purchasing
shares from the Selling Common Stockholders for $4.50 per share (the $10.10 Unit
price to the public less a price of $0.10 per Warrant less the 10% underwriting
discount). The Warrants comprising the Units will be contributed by the Company
for additional consideration equal to $0.10 per Warrant. See "Concurrent
Offerings."
The holders of approximately 68% of the shares of Common Stock outstanding
prior to the Offering (after giving effect to the conversion of the Series A
Preferred Stock into Common Stock), have agreed not to sell, assign, transfer or
otherwise dispose publicly of any of their shares of Common Stock for a period
of 18 months from the date of this Prospectus without the prior written consent
of the Underwriter.
The Company has agreed to nominate one director designated by the
Underwriter to the Company's Board of Directors for a period of two years from
the completion of the Offering, although it has not yet selected any such
designee. Such designee may be a director, officer, partner, employee or
affiliate of the Underwriter.
During the five-year period from the date of this Prospectus, in the event
the Underwriter originates a nonfinancing related transaction (including
mergers, acquisitions, joint ventures and other business transactions), the
Underwriter will be entitled to receive a finder's fee in consideration for
origination of such transaction equal to five percent of the amount of
consideration up to $1 million, four percent of the next $1 million, three
percent of the next $1 million, two percent of the next $1 million and one
percent thereafter. The fee is based on negotiation between the Company and the
Underwriter.
The Underwriter also has the preferential right, for a period of two years
from the date of this Prospectus, to purchase for its account or to sell for the
account of the Company, or any subsidiary of or successor to the Company, or any
of its officers, directors, affiliates or 5% stockholders of restricted stock,
any securities of the Company (excluding offerings solely consisting of debt)
which the Company or any of such other stockholders may seek to sell, whether
pursuant to registration under the Securities Act or otherwise.
The Underwriter also shall be engaged as the Company's investment banker
and financial consultant after the Offering for a period of two years for an
aggregate fee of $108,000, to be paid in advance upon the closing of the
Offering.
Upon any exercise of the Warrants after the first anniversary of the date
of this Prospectus, the Company will pay the Underwriter a fee of 5% of the
aggregate exercise price of the Warrants. The Company also has agreed not to
solicit the exercise of any Warrant other than through the Underwriter, unless
either (x) the Underwriter cannot legally solicit the exercise of the Warrants
at the time of such solicitation; (y) the Underwriter declines, in writing, to
solicit the exercise of the Warrants within ten (10) business days of such a
written request by the Company or (z) the Underwriter consents to the
solicitation by the Company or another entity.
Rule 10b-6 may prohibit the Underwriter from engaging in any market making
activities with regard to the Company's securities for the period from nine
business days (or such other applicable period as Rule 10b-6 may provide) prior
to any solicitation by the Underwriter of the exercise of Warrants until the
later of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriter may have to receive a fee
for the exercise of Warrants following such solicitation. As a result, the
Underwriter may be unable to provide a market for the Company's securities
during certain periods while the Warrants are exercisable.
The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Underwriter's Option to purchase up to 60,000
Underwriter's Purchase Units, identical to the Units being offered hereby,
except that the Warrants contained in the Underwriter's Purchase Units are not
redeemable by the Company. The Underwriter's Option cannot be transferred, sold,
assigned or hypothecated for two years, except to any officer or employee of the
Underwriter or members of the selling group or their officers. The Underwriter's
Option is exercisable during the three-year period commencing one year from the
date of this Prospectus at an exercise price equal to 120% of the initial public
offering price per Unit, subject to adjustment in certain events to protect
against dilution. The Underwriter's Purchase Units and securities comprised
therein are being registered as part of the registration statement of which this
Prospectus forms a part.
44
<PAGE> 48
The Underwriter acted as Placement Agent for the Bridge Financing in August
1996 for which it received a Placement Agent fee of $35,000 and a
non-accountable expense allowance of $10,000. This Offering constitutes the
first public offering for which the Underwriter has served as underwriter. The
principal business function of the Underwriter will be to sell the Units. The
promoters, officers and directors of the Company have no material relationship
with the Underwriter. The Underwriter's sole relationship with the Company, its
promoters and their controlling persons has been with respect to the Bridge
Financing and the Offering. See "Risk Factors."
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the public offering prices of the
Securities offered hereby and the terms of the Warrants have been determined by
negotiation between the Company and the Underwriter and are not necessarily
related to the Company's asset value, net worth or other established criteria of
value. Factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of and the prospects for the
industry in which the Company competes, the present state of the Company's
development and its future prospects, an assessment of the Company's management,
the Company's capital structure and such other factors as were deemed relevant.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by the Law Offices of David N. Feldman, New York, New York ("LODNF"). A
portion of LODNF's compensation is contingent upon the completion of the
Offering. Certain legal matters will be passed upon for the Underwriter by
Goldstein & DiGioia, LLP, New York, New York.
EXPERTS
The consolidated financial statements of the Company at and for the year
ended March 31, 1996 and for the period from February 14, 1995 (commencement of
operations) to March 31, 1995, appearing in this Prospectus and Registration
Statement have been audited by Edward Isaacs and Company, LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement of which this Prospectus forms a part, and are
included in reliance upon such report given upon the authority of such firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company is not a reporting company under the Exchange Act. The Company
has filed a Registration Statement on Form S-1 under the Securities Act with the
Commission in Washington, D.C. with respect to the Securities offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Securities
offered hereby, reference is hereby made to the Registration Statement and such
exhibits, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison (Suite 1400), Chicago, Illinois 60661. Copies
of such material may also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
Following the Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act and intends to furnish to its
stockholders annual reports containing audited financial statements and may
furnish interim reports as it deems appropriate.
45
<PAGE> 49
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent Auditors' Report.................................................. F-2
Balance Sheets -- March 31, 1995 and 1996 and June 30, 1996 (Unaudited)....... F-3
Statements of Operations for the Period February 14, 1995 (Inception) to March
31, 1995 and Year Ended March 31, 1996 and for the Three Months Ended June
30, 1995 and 1996 (Unaudited)............................................... F-4
Statements of Shareholders' Equity for the Period February 14, 1995
(Inception) to March 31, 1995 and Year Ended March 31, 1996 and for the
Three Months Ended June 30, 1996 (Unaudited)................................ F-5
Statements of Cash Flows for the Period February 14, 1995 (Inception) to March
31, 1995 and Year Ended March 31, 1996 and for the Three Months Ended June
30, 1995 and 1996 (Unaudited)............................................... F-6
Notes to Financial Statements................................................. F-7 to F-11
</TABLE>
F-1
<PAGE> 50
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Jenna Lane, Inc.
We have audited the accompanying balance sheets of Jenna Lane, Inc. as of
March 31, 1995 and 1996, and the related statements of operations, shareholders'
equity, and cash flows for the period February 14, 1995 (inception) to March 31,
1995 and the year ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jenna Lane, Inc. as of March
31, 1995 and 1996, and the results of its operations and its cash flows for the
period February 14, 1995 (inception) to March 31, 1995 and the year ended March
31, 1996 in conformity with generally accepted accounting principles.
May 7, 1996
F-2
<PAGE> 51
JENNA LANE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1996
MARCH 31, -----------------------
----------------------- PRO FORMA
1995 1996 ACTUAL (NOTE 1)
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................... $ 521,387 $ 1,250 $ 1,000 $ 1,000
Stock subscriptions receivable................. 720,000 -- -- --
Due from factor................................ -- 2,100,709 1,595,546 1,595,546
Inventories.................................... 102,077 2,782,135 3,000,845 3,000,845
Prepaid expenses and other..................... 24,146 138,385 79,526 79,526
Deferred income taxes.......................... -- 29,000 41,000 41,000
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS................... 1,367,610 5,051,479 4,717,917 4,717,917
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Furniture and equipment........................ 3,375 121,493 128,825 128,825
Leasehold improvements......................... 6,000 10,549 22,228 22,228
---------- ---------- ---------- ----------
9,375 132,042 151,053 151,053
Less: Accumulated depreciation................. -- 15,360 21,425 21,425
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT, net............ 9,375 116,682 129,628 129,628
---------- ---------- ---------- ----------
OTHER ASSETS..................................... 32,291 41,389 102,048 102,048
---------- ---------- ---------- ----------
TOTAL ASSETS........................... $1,409,276 $5,209,550 $4,949,593 $4,949,593
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable............................... $ -- $2,371,354 $2,102,163 $2,102,163
Accrued expenses............................... 143,202 158,618 91,589 91,589
Income taxes payable........................... -- 157,000 119,284 119,284
Current maturities of long-term debt........... -- 2,262 2,320 2,320
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES.............. 143,202 2,689,234 2,315,356 2,315,356
---------- ---------- ---------- ----------
LONG-TERM DEBT................................... -- 425,143 437,042 437,042
---------- ---------- ---------- ----------
DEFERRED INCOME TAXES............................ -- 29,000 37,000 37,000
---------- ---------- ---------- ----------
SERIES A CONVERTIBLE PREFERRED STOCK, $.01 par
value, 2,000,000 shares authorized, 410,000,
500,000 and 500,000 shares issued and
outstanding, respectively (liquidation
preference of $1,000,000), net of issuance
costs of $135,000, $147,470 and $147,470,
respectively................................... 685,000 852,530 852,530 --
---------- ---------- ---------- ----------
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value; 18,000,000 shares
authorized, issued and outstanding,
1,761,905, 1,979,048 and 2,047,619 shares,
respectively and 3,000,000 shares pro
forma....................................... 17,619 19,790 20,476 30,000
Capital in excess of par value................. 682,381 780,350 856,584 1,699,590
Unearned compensation, performance shares...... (75,000) (44,000) (111,345) (111,345)
Retained earnings (deficit).................... (43,926) 457,503 541,950 541,950
---------- ---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY............. 581,074 1,213,643 1,307,665 2,160,195
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................... $1,409,276 $5,209,550 $4,949,593 $4,949,593
========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 52
JENNA LANE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 14, THREE MONTHS ENDED
1995 ---------------------------
(INCEPTION) TO YEAR ENDED JUNE 30, JUNE 30,
MARCH 31, MARCH 31, 1995 1996
1995 1996 ----------- -----------
-------------- ----------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES............................... $ -- $25,832,323 $ 4,018,235 $ 9,724,079
COST OF SALES........................... -- 21,128,147 3,360,506 7,927,053
-------- ----------- ---------- ----------
GROSS PROFIT.......................... -- 4,704,176 657,729 1,797,026
-------- ----------- ---------- ----------
OPERATING EXPENSES:
Selling and shipping.................. -- 1,862,864 311,971 647,777
General and administrative............ 43,926 1,306,586 274,273 436,483
Factor charges and interest........... -- 528,160 39,264 352,444
-------- ----------- ---------- ----------
TOTAL OPERATING EXPENSES...... 43,926 3,697,610 625,508 1,436,704
-------- ----------- ---------- ----------
OPERATING (LOSS) INCOME............... (43,926) 1,006,566 32,221 360,322
-------- ----------- ---------- ----------
OTHER EXPENSES:
Amortization of unearned
compensation....................... -- 31,000 6,250 9,875
Interest expense -- promissory
notes.............................. -- 41,573 -- 25,000
-------- ----------- ---------- ----------
TOTAL OTHER EXPENSES.......... -- 72,573 6,250 34,875
-------- ----------- ---------- ----------
(LOSS) INCOME BEFORE INCOME TAXES..... (43,926) 933,993 25,971 325,447
PROVISION FOR INCOME TAXES.............. -- 432,564 8,814 141,000
-------- ----------- ---------- ----------
NET (LOSS) INCOME..................... $(43,926) $ 501,429 $ 17,157 $ 184,447
======== =========== ========== ==========
PRO FORMA NET INCOME PER COMMON SHARE
(Unaudited)
(Note 1).............................. $ .18 $ .06
=========== ==========
PRO FORMA WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Unaudited) (Note 1)...... 2,832,141 2,874,286
=========== ==========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 53
JENNA LANE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL
COMMON STOCK IN RETAINED
------------------- EXCESS OF UNEARNED EARNINGS
SHARES AMOUNT PAR VALUE COMPENSATION (DEFICIT) TOTAL
--------- ------- --------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock................ 1,190,476 $11,905 $ 613,095 $ 625,000
Issuance of performance shares.......... 571,429 5,714 69,286 $ (75,000) --
Net loss................................ -- -- -- -- $ (43,926) (43,926)
--------- ------- -------- --------- --------- ----------
BALANCE at March 31, 1995............... 1,761,905 17,619 682,381 (75,000) (43,926) 581,074
Issuance of common stock................ 285,714 2,857 97,643 -- -- 100,500
Amortization of unearned compensation... -- -- -- 31,000 -- 31,000
Repurchase of performance shares........ (68,571) (686) 326 -- -- (360)
Net income.............................. -- -- -- -- 501,429 501,429
--------- ------- -------- --------- --------- ----------
BALANCE at March 31, 1996............... 1,979,048 19,790 780,350 (44,000) 457,503 1,213,643
Issuance of performance shares.......... 125,714 1,257 75,963 (77,220) -- --
Repurchase of performance shares........ (57,143) (571) 271 -- -- (300)
Amortization of unearned compensation... -- -- -- 9,875 -- 9,875
Net income.............................. -- -- -- -- 184,447 184,447
Dividends paid on preferred stock....... -- -- -- -- (100,000) (100,000)
--------- ------- -------- --------- --------- ----------
BALANCE at June 30, 1996 (unaudited).... 2,047,619 $20,476 $ 856,584 $ (111,345) $ 541,950 $1,307,665
========= ======= ======== ========= ========= ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 54
JENNA LANE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 14, THREE MONTHS ENDED
1995 -------------------------
(INCEPTION) TO YEAR ENDED JUNE 30, JUNE 30,
MARCH 31, MARCH 31, 1995 1996
1995 1996 ----------- ---------
-------------- ----------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income............................. $ (43,926) $ 501,429 $ 17,157 $ 184,447
Adjustments to reconcile net (loss) income to
net cash (used in) provided by operating
activities:
Depreciation and amortization............... -- 46,360 7,472 17,932
Deferred income taxes....................... -- -- -- (4,000)
Amortization of debt discount............... -- 20,833 -- 12,500
Increase (decrease) in cash attributable to
changes in assets and liabilities:
Due from factor........................... -- (2,100,709) (1,384,421) 505,163
Inventories............................... (102,077) (2,680,058) (1,843,861) (218,710)
Prepaid expenses and other................ (24,146) (114,239) (43,853) 58,859
Other assets.............................. -- (9,098) (4,196) (9,016)
Accounts payable.......................... -- 2,371,354 1,938,647 (269,191)
Accrued expenses.......................... 15,702 142,916 32,425 (67,029)
Income taxes payable...................... -- 157,000 8,250 (37,716)
--------- ----------- ----------- ---------
NET CASH (USED IN) PROVIDED BY
OPERATING ACTIVITIES................. (154,447) (1,664,212) (1,272,380) 173,239
--------- ----------- ----------- ---------
INVESTING ACTIVITIES:
Capital expenditures.......................... (9,375) (115,329) (34,425) (20,511)
Security deposits............................. (32,291) -- -- (52,135)
--------- ----------- ----------- ---------
NET CASH USED IN INVESTING
ACTIVITIES........................... (41,666) (115,329) (34,425) (72,646)
--------- ----------- ----------- ---------
FINANCING ACTIVITIES:
Net proceeds from issuance of preferred
stock....................................... -- 760,530 760,530 --
Proceeds from issuance of units............... -- 500,000 -- --
Proceeds from shareholder/director loan....... -- 100,000 -- --
Repayment of shareholder/director loan........ -- (100,000) -- --
Principal payments on equipment note
payable..................................... -- (766) -- (543)
Repurchase of performance shares.............. -- (360) -- (300)
Issuance of common stock...................... 625,000 -- -- --
Issuance of convertible note.................. 100,000 -- -- --
Offering costs................................ (7,500) -- -- --
Dividends paid................................ -- -- -- (100,000)
Cash overdraft................................ -- -- 24,888 --
--------- ----------- ----------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES................. 717,500 1,259,404 785,418 (100,843)
--------- ----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH........ 521,387 (520,137) (521,387) (250)
CASH at beginning............................... -- 521,387 521,387 1,250
--------- ----------- ----------- ---------
CASH at end............................ $ 521,387 $ 1,250 $ -- $ 1,000
========= =========== =========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid................................. $ -- $ 236,834 $ 4,253 $ 149,484
========= =========== =========== =========
Income taxes paid............................. $ -- $ 275,564 $ 564 $ 182,716
========= =========== =========== =========
NONCASH TRANSACTIONS:
Equipment notes payable for the acquisition of
equipment................................... $ -- $ 7,338 $ -- $ --
========= =========== =========== =========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 55
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES
Business:
The Company, organized in the State of Delaware in February, 1995, designs
and manufactures (through contractors) and imports women's sportswear for the
domestic retail market.
Inventories:
Inventories are stated at the lower-of-cost (first-in, first-out) or
market.
Income Taxes:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes, primarily depreciation,
inventory costs capitalized and deferred compensation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
Property and Equipment:
Property and equipment are stated at cost. Furniture and equipment are
depreciated using the straight-line method over their estimated useful lives of
five years. Leasehold improvements are amortized over their respective lives or
the terms of the applicable leases whichever is shorter.
Unaudited Interim Financial Statements:
The accompanying financial statements of the Company as of June 30, 1996
and for the three months ended June 30, 1995 and 1996 are unaudited. All
adjustments (consisting only of normal recurring adjustments) have been made
which, in the opinion of management, are necessary for a fair presentation
thereof. Results of operations for the three months ended June 30, 1995 and 1996
are not necessarily indicative of the results that may be expected for the full
year or for any future period.
Pro Forma Presentation (Unaudited):
The unaudited pro forma balance sheet as of June 30, 1996 has been prepared
assuming the conversion of the outstanding Series A Convertible Preferred Stock
into 952,381 shares of Common Stock. Series A Convertible Preferred Stock
automatically converts into Common Stock upon the closing of an initial public
offering, if specified aggregate valuation and minimum proceeds are met.
The unaudited pro forma net income per common share is shown on the face of
the statement of operations because the Company believes the pro forma
presentation is more meaningful since it includes the conversion of the Series A
Convertible Preferred Stock. The unaudited pro forma net income per common share
is computed based upon the weighted average number of common and common
equivalent shares outstanding. The Series A Convertible Preferred Stock to be
converted into Common Stock upon the closing of the initial public offering is
treated as having been converted into Common Stock at the date of original
issuance.
F-7
<PAGE> 56
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Net (Loss) Income Per Common Share:
Net (loss) income per common share on a historical basis is computed in the
same manner as pro forma net (loss) income per common share, except that Series
A Convertible Preferred Stock is not assumed to be converted. In the computation
of net (loss) income per common share, dividend requirements on Series A
Convertible Preferred Stock are included as a decrease to net income available
to common shareholders.
Net (loss) income available per common share on a historical basis is as
follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 14,
1995 THREE MONTHS ENDED
(INCEPTION) TO YEAR ENDED JUNE 30,
MARCH 31, MARCH 31, -----------------------
1995 1996 1995 1996
-------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net (loss) income........................... $(43,926) $ 501,429 $ 17,157 $ 184,447
Dividends on convertible preferred stock.... -- 100,000 -- 25,000
-------- --------- --------- ---------
Net (loss) income applicable to common stock
shareholders.............................. $(43,926) $ 401,429 $ 17,157 $ 159,447
======== ========= ========= =========
Net (loss) income per common share.......... $ (.07) $ .21 $ .01 $ .08
======== ========= ========= =========
Weighted average number of common shares
outstanding............................... 671,247 1,919,316 1,843,537 1,921,905
======== ========= ========= =========
</TABLE>
Stock Dividend:
In July 1996, the Board of Directors authorized a 1.9047619 for one stock
split of the Common Stock to be effected in the form of a stock dividend. All
share and per share data have been restated in these financial statements for
all periods presented to reflect this stock split.
2. DUE FROM FACTOR
The Company has an agreement with a factor, whereby substantially all its
accounts receivable are sold to a factor on a pre-approved non-recourse basis
(except as to customer claims). Factoring commissions are charged at the rate of
.75%.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1996
--------- ----------
<S> <C> <C>
Raw materials................................................ $ 102,077 $1,677,410
Work-in-process.............................................. -- 747,060
Finished goods............................................... -- 357,665
-------- ----------
$ 102,077 $2,782,135
======== ==========
</TABLE>
4. SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to a private placement offering in March 1995, the Company issued
500,000 shares of Series A Convertible Preferred Stock in April 1995. The
placement agent received 50,000 shares of common stock as compensation.
F-8
<PAGE> 57
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
The Series A Convertible Preferred Stock is convertible at the discretion
of the holder, at a conversion rate of one share of common stock for each share
of preferred stock, subject to adjustment in the event of any stock dividend,
stock split, recapitalization or other anti-dilutive event.
Each share of Preferred Stock automatically converts into Common Stock at
the then effective conversion price upon the closing of the sale of shares of
Common Stock in an initial public offering at a price of at least $6.00 (subject
to adjustment in the event of any stock dividend, stock split or other
recapitalization) and having an aggregate offering price resulting in net
proceeds to the Company of not less than $4,000,000.
The holders of the Series A Convertible Preferred Stock shall have a
liquidation preference to the holders of Common Stock in an amount equal to $2
per share (subject to adjustment in the event of any stock dividend, stock split
or other recapitalization).
Dividends accrue at a rate of $.20 per share, per year and are payable
annually the first year and quarterly thereafter.
5. UNEARNED COMPENSATION -- PERFORMANCE SHARES
The Company issued 571,429 shares of common stock (514,286 to management
executives and 57,143 to a director of the Company), as compensation, which
shares are subject to repurchase by the Company at par value ($.01 per share) in
the event that the Company does not achieve certain annual pre-tax earnings
through March 31, 1998. In February 1996, the Company repurchased at par value
68,571 shares from an executive who terminated his employment. Amortization
expense for the year ended March 31, 1996 was $31,000.
6. INCOME TAXES
The provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1996
--------- --------
<S> <C> <C>
Current:
Federal.................................................... $ -- $320,000
State...................................................... -- 112,564
Deferred..................................................... -- --
--------
$ -- $432,564
========
</TABLE>
Reconciliations of the statutory federal income tax rate to the Company's
effective tax rates are as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1996
--------- ---------
<S> <C> <C>
Statutory federal income tax rate............................ -- 34.0%
State income taxes, net of federal benefit................... -- 7.9
Other........................................................ -- 4.4
---- ----
Effective income tax rate.................................... -- 46.3%
==== ====
</TABLE>
F-9
<PAGE> 58
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Significant components of the Company's deferred tax assets and liabilities
as of March 31, 1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1995 1996
-------- ---------
<S> <C> <C>
Current deferred tax assets:
Inventory.................................................. $ -- $ 29,000
Net operating loss......................................... 18,000 --
Valuation allowance........................................ (18,000) --
------- --------
Current deferred tax asset, net.............................. -- 29,000
------- --------
Noncurrent deferred tax liabilities:
Depreciation............................................... -- 10,000
Unearned compensation...................................... -- 19,000
------- --------
Noncurrent deferred tax liabilities.......................... $ -- $ 29,000
======= ========
</TABLE>
7. LONG-TERM DEBT
Long-term debt at March 31, 1996 consists of the following:
<TABLE>
<S> <C>
10% promissory notes, due November 1997, net of discount of $79,167
(a)................................................................... $420,833
Equipment note payable in monthly installments of $235 inclusive of
interest, through November 1998....................................... 6,572
--------
427,405
Less: Current maturity of equipment note payable...................... 2,262
--------
$425,143
========
</TABLE>
- ---------------
(a) In November 1995, the Company raised $500,000 upon the issuance of 50 units
pursuant to a private placement offering. Each unit consisted of 2,000
shares of common stock and a $10,000 promissory note. Common stock was
credited for $100,000, representing the fair value of the shares, and the
promissory notes were credited for $400,000. The $100,000 ascribed to the
common stock has been reflected as a discount on the notes, and is being
amortized over two years to their maturity. Amortization for the year ended
March 31, 1996 was $20,833.
Maturities of long-term debt are $423,332 in 1998 and $1,811 in 1999.
The fair value of the long-term debt approximates the carrying value based
on current rates at which the Company could borrow funds given the same
circumstances, with similar remaining maturities.
8. COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases office and showroom space and equipment under leases
extending to 2001. The leases provide for payment by the Company of taxes and
other expenses. Rent expense for the year ended March 31, 1996 was approximately
$172,000.
F-10
<PAGE> 59
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF JUNE 30, 1996 AND FOR THE
THREE MONTHS ENDED JUNE 30, 1995 AND 1996 IS UNAUDITED)
Minimum rental payments under noncancellable operating leases are as
follows:
Fiscal year ending March:
<TABLE>
<CAPTION>
YEAR AMOUNT
---------------------------------------------------------- --------
<S> <C>
1997...................................................... $206,000
1998...................................................... 209,000
1999...................................................... 110,000
2000...................................................... 69,000
2001...................................................... 36,000
--------
$630,000
========
</TABLE>
Employment Agreements:
The Company has employment agreements with two of its executives which
provide for aggregate annual base compensation of $450,000 plus profit
participation, as defined, and has issued 234,000 shares of common stock to the
executives, designated as "Performance Shares" (see Note 5).
Letters of Credit:
At March 31, 1996, the Company was contingently liable for open letters of
credit aggregating approximately $1,126,000.
9. SALES TO MAJOR CUSTOMERS
Sales to three customers accounted for approximately 37% of sales for the
year ended March 31, 1996.
10. SUBSEQUENT EVENT
In April 1996, the Company declared and paid a dividend of $.20 per share
($100,000) to the shareholders of preferred stock.
11. SUBSEQUENT EVENTS (UNAUDITED)
On August 16, 1996, pursuant to a unit purchase agreement (Bridge
Financing), the Company issued an aggregate of $500,000 (principal amount) 10%
notes and 1,000,000 warrants. The notes are payable within one year of date of
issuance or the closing of an initial public offering, whichever is earlier.
On August 16, 1996 the Company executed a letter of intent for a proposed
initial public offering of 600,000 units, consisting of 1,200,000 shares of
common stock and 600,000 warrants.
In August 1996, the Company adopted an Incentive Stock Option Plan for
employees (the Plan). The Plan permits the issuance of stock options to selected
employees (and consultants) of the Company. The Plan reserves 600,000 shares of
common stock for grant. Options granted may be either nonqualified or incentive
stock options.
In August 1996, the Company adopted a 401(k) profit sharing plan for
eligible employees which provides for elective salary deferrals by employees and
discretionary profit sharing contributions by the Company.
In June 1996, the Company entered into a five year lease for warehouse and
office space at an annual rental of approximately $206,000.
F-11
<PAGE> 60
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN CONTAINED IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 8
Dividend Policy........................ 15
Use of Proceeds........................ 15
Capitalization......................... 16
Dilution............................... 17
Selected Financial Data................ 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 19
Business............................... 21
Management............................. 28
Certain Transactions................... 35
Principal Stockholders................. 37
Concurrent Offerings................... 37
Description of Securities.............. 40
Shares Eligible for Future Sale........ 42
Underwriting........................... 43
Legal Matters.......................... 45
Experts................................ 45
Additional Information................. 45
Index to Financial Statements.......... F-1
---------------------
UNTIL , 1996 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ---------------------------------------------
- ---------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
JENNA LANE, INC.
600,000 UNITS
EACH UNIT CONSISTING OF
TWO SHARES OF COMMON STOCK
AND
ONE REDEEMABLE CLASS A WARRANT
---------------------
PROSPECTUS
---------------------
WALSH MANNING
SECURITIES, INC.
SEPTEMBER , 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 61
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 6,954.00
NASD fee.................................................................. $ 2,517.00
Nasdaq listing fee........................................................ *
Blue sky fees............................................................. *
Printing and engraving expenses........................................... *
Accountants' fees and expenses............................................ *
Attorneys' fees and expenses.............................................. *
Transfer agent fees....................................................... *
Miscellaneous............................................................. *
----------
Total........................................................... $ *
========
</TABLE>
- ---------------
* To be provided by amendment.
None of the foregoing expenses are to be borne by any Selling
Securityholder, all of which shall be borne by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Section 145 of the General Corporation Law of Delaware (the
"Delaware Corporation Law"), Article 9 of the Registrant's Certificate of
Incorporation, a copy of which is filed as Exhibit 3.1 to this Registration
Statement, provides that the Registrant shall indemnify, to the fullest extent
permitted by Section 145 of the Delaware Corporation Law, as amended from time
to time, each person that such section grants the Corporation the power to
indemnify. Section 145 of the Delaware Corporation Law permits the Registrant to
indemnify any person in connection with the defense or settlement of any
threatened, pending or completed legal proceeding (other than a legal proceeding
by or in the right of the Registrant) by reason of the fact that he is or was a
director or officer of the Registrant or is or was a director or officer of the
Registrant serving at the request of the Registrant as a director, officer,
employee or agent of another corporation, partnership or other enterprise
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred in connection with the defense or
settlement of such legal proceeding if he acted in good faith and in a manner
that he reasonably believes to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of the Registrant, the director or
officer may be indemnified by the Registrant against expense (including
attorneys' fees) actually and reasonably incurred in connection with the defense
or settlement of such legal proceeding if he acted in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Registrant and except that he may not be indemnified in respect of any claim,
issue or matter as to which he shall have been adjudged to be liable to the
Registrant unless a court determines otherwise.
Pursuant to Section 102(b)(7) of the Delaware Corporation Law, Article 8 of
the Certificate of Incorporation of the Registrant, a copy of which is filed as
Exhibit 3.1 to this Registration Statement, provides that no director of the
Registrant shall be personally liable to the Registrant or its stockholders for
monetary damages for any breach of his fiduciary duty as a director; provided,
however, that such clause shall not apply to any liability of a director (i) for
breach of his duty of loyalty to the Registrant or its stockholders, (ii) for
acts or omissions that are not in good faith or involve intentional misconduct
or a knowing violation of the law, (iii) under Section 174 of the Delaware
Corporation Law, or (iv) for any transaction from which the director derived an
improper personal benefit. The aforesaid provision also eliminates the liability
of any stockholder for managerial acts or omissions, pursuant to Section 350 of
the Delaware Corporation Law or any other provision of Delaware law, to the same
extent that such liability is limited for a director.
II-1
<PAGE> 62
The Company intends to enter into Indemnification Agreements with its
officers and directors prior to or shortly after the completion of the Offering.
Each such Indemnification Agreement will provide that the Company will indemnify
the indemnitee against expenses, including reasonable attorney's fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties as an
officer, director, employee or agent of the Company. Indemnification is
available if the acts of the indemnitee were in good faith, if the indemnitee
acted in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal proceeding, the
indemnitee had no reasonable cause to believe his conduct was unlawful.
The Company intends to acquire directors and officers liability insurance
prior to the completion of the Offering. The amount and scope of coverage will
depend upon the Company's analysis of the cost and appropriateness thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) In February and March 1995, the Company sold an aggregate of 975,000
shares of Common Stock at a price of $1.00 per share. Certain of these shares
were issued in exchange for promissory notes at $1.00 per share. These
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act since they were offered and sold only to members of management
and directors (specifically, Messrs. Dobies, Sobel, Baumgarten and Stanley
Kaplan).
(b) In April 1995, the Company completed the Series A Placement. Each share
of Series A Preferred Stock was sold for a purchase price of $2.00. These
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder, specifically, Rule 506
thereof.
(c) In November 1995, the Company completed the November Placement. Each
unit comprising $50,000 principal amount of the November Notes and 10,000 shares
of Common Stock was sold for a purchase price of $50,000. Certain of these units
were purchased by cancellation of indebtedness of the Company to purchasers
thereof. These transactions were exempt from registration pursuant to Section
4(2) of the Securities Act and Regulation D promulgated thereunder,
specifically, Rule 506 thereof.
(d) In March 1995, Mr. Dobies and Mr. Sobel each received 117,000
Performance Shares as compensation for services. In March 1995, Mr. Baumgarten
received 36,000 Performance Shares (the "Baumgarten Performance Shares") as
compensation for services and Stanley Kaplan received 30,000 Performance Shares
(the "Stanley Kaplan Performance Shares") for his services as a director. The
Baumgarten Performance Shares were repurchased by the Company at the par value
thereof in February 1996. The Stanley Kaplan Performance Shares were repurchased
by the Company at the par value thereof in April 1996. In June 1996, Mr. Sobel
received an additional 36,000 Performance Shares and Lawrence Kaplan received
30,000 Performance Shares, each as compensation for services. All these
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act since they were issued solely to members of management and
directors.
(e) In August 1996, the Company completed the Bridge Financing. Each unit
comprising $50,000 principal amount of the Bridge Notes and 100,000 Bridge
Warrants was sold for a purchase price of $50,000. These transactions were
exempt from registration pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated thereunder, specifically, Rule 506 thereof.
(e) All share amounts described in clauses (a) - (d) above do not take into
account the Stock Dividend. The share amounts described in clause (e) above take
into account the Stock Dividend.
II-2
<PAGE> 63
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
1.2 Form of Warrant Agreement among the Company, the Underwriter and American Stock
Transfer Company, as warrant agent
3.1 Certificate of Incorporation of Registrant
3.2 Certificate of Designation, Preferences and Rights of Series A Convertible Preferred
Stock
3.3 By-laws of Registrant
4.1* Specimen common stock certificate
4.2* Specimen preferred stock certificate
4.3* Specimen Series A Convertible Preferred Stock certificate
5.1* Opinion of the Law Offices of David N. Feldman
10.1* Employment Agreement, dated March 23, 1995, between the Registrant and Mitchell
Dobies, including amendments
10.2* Employment Agreement, dated March 23, 1995, between the Registrant and Charles
Sobel, including amendments
10.3* Letter Agreement between the Registrant and Stanley Kaplan
10.4* Offer of Stanley Kaplan to resell certain securities to the Registrant
10.5* Letter Agreement between the Registrant and Lawrence Kaplan
10.6* Lease dated May 1996 between Hanwha International Corporation and the Registrant
10.7* Lease dated January 18, 1995 between Jeanne Hodge & Milton Rinzler, executor for the
Estate of Dale Hodge and the Registrant, as amended to date
10.8* Lease dated December 1, 1995 between 1384 Broadway Company and the Registrant
10.9* Lease dated March 2, 1995 between Gettinger Associates and the Registrant
10.10* Termination and Performance Shares Repurchase Agreement, dated February 8, 1996, by
and between the Registrant and Ernie Baumgarten
10.11* Factoring Agreement, dated March 17, 1995, between the Registrant and Republic
Factors Corp. ("Republic"), as amended to date
10.12* Security Agreement, dated March 17, 1995, between the Registrant and Republic
10.13* 1996 Incentive Stock Option Plan of Jenna Lane, Inc.
10.14* Collective Bargaining Agreement by and between United Production Workers Union Local
17-18 and the Company, dated June 15, 1996
15.1* Letter from Edward Isaacs and Company LLP ("Edward Isaacs") re unaudited interim
financial information
21.1 The Company has no subsidiaries
23.1 Consent of Edward Isaacs, independent certified public accountants
23.2* Consent of the Law Offices of David N. Feldman (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-5)
27.1 Financial Data Schedule (submitted electronically only)
</TABLE>
- ---------------
* To be filed by amendment
II-3
<PAGE> 64
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the Securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)9 or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
ITEM 18. FINANCIAL STATEMENTS AND SCHEDULES
(a) Index to Financial Statements
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent Auditors' Report.................................................... F-2
Balance Sheets -- March 31, 1995 and 1996 and June 30, 1996 (Unaudited)......... F-3
Statements of Operations for the Period February 14, 1995 (Inception) to March
31, 1995 and Year Ended March 31, 1996 and for the Three Months Ended June 30,
1995 and 1996 (Unaudited)..................................................... F-4
Statements of Shareholders' Equity for the Period February 14, 1995 (Inception)
to March 31, 1995 and Year Ended March 31, 1996 and for the Three Months Ended
June 30, 1996 (Unaudited)..................................................... F-5
Statements of Cash Flows for the Period February 14, 1995 (Inception) to March
31, 1995 and Year Ended March 31, 1996 and for the Three Months Ended June 30,
1995 and 1996 (Unaudited)..................................................... F-6
Notes to Financial Statements................................................... F-7 to F-11
</TABLE>
II-4
<PAGE> 65
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Mitchell
Dobies his true and lawful attorney-in-fact and agent, with full powers of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement or any related registration statement
filed pursuant to Rule 462(b) under the Securities Act, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on September 12, 1996.
JENNA LANE, INC.
By: /s/ MITCHELL DOBIES
------------------------------------
Name: Mitchell Dobies
Title: President, Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------ -------------------
<C> <S> <C>
/s/ MITCHELL DOBIES President, Chief Executive September 12, 1996
- ------------------------------------------ Officer and Director
Mitchell Dobies (Principal Executive
Officer)
/s/ CHARLES SOBEL Executive Vice President, September 12, 1996
- ------------------------------------------ Director
Charles Sobel
/s/ LAWRENCE KAPLAN Director September 12, 1996
- ------------------------------------------
Lawrence Kaplan
/s/ JEFFREY MARCUS Chief Financial Officer September 12, 1996
- ------------------------------------------ (Principal Financial and
Jeffrey Marcus Accounting Officer)
</TABLE>
II-5
<PAGE> 66
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------ ---------------------------------------------------------------------------- -------
<C> <S> <C>
1.1 Form of Underwriting Agreement
1.2 Form of Warrant Agreement among the Company, the Underwriter and American
Stock Transfer Company, as warrant agent
3.1 Certificate of Incorporation of Registrant
3.2 Certificate of Designation, Preferences and Rights of Series A Convertible
Preferred Stock
3.3 By-laws of Registrant
4.1* Specimen common stock certificate
4.2* Specimen preferred stock certificate
4.3* Specimen Series A Convertible Preferred Stock certificate
5.1* Opinion of the Law Offices of David N. Feldman
10.1* Employment Agreement, dated March 23, 1995, between the Registrant and
Mitchell Dobies, including amendments
10.2* Employment Agreement, dated March 23, 1995, between the Registrant and
Charles Sobel, including amendments
10.3* Letter Agreement between the Registrant and Stanley Kaplan
10.4* Offer of Stanley Kaplan to resell certain securities to the Registrant
10.5* Letter Agreement between the Registrant and Lawrence Kaplan
10.6* Lease dated May 1996 between Hanwha International Corporation and the
Registrant
10.7* Lease dated January 18, 1995 between Jeanne Hodge & Milton Rinzler, executor
for the Estate of Dale Hodge and the Registrant, as amended to date
10.8* Lease dated December 1, 1995 between 1384 Broadway Company and the
Registrant
10.9* Lease dated March 2, 1995 between Gettinger Associates and the Registrant
10.10* Termination and Performance Shares Repurchase Agreement, dated February 8,
1996, by and between the Registrant and Ernie Baumgarten
10.11* Factoring Agreement, dated March 17, 1995, between the Registrant and
Republic Factors Corp. ("Republic"), as amended to date
10.12* Security Agreement, dated March 17, 1995, between the Registrant and
Republic
10.13* 1996 Incentive Stock Option Plan of Jenna Lane, Inc.
10.14* Collective Bargaining Agreement by and between United Production Workers
Union Local 17-18 and the Company, dated June 15, 1996
15.1* Letter from Edward Isaacs and Company LLP ("Edward Isaacs") re unaudited
interim financial information
21.1 The Company has no subsidiaries
23.1 Consent of Edward Isaacs, independent certified public accountants
23.2* Consent of the Law Offices of David N. Feldman (included in Exhibit 5.1)
24.1 Power of Attorney (contained on page II-5)
27.1 Financial Data Schedule (submitted electronically only)
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
[WALSH MANNING SECURITIES, INC. LETTERHEAD]
600,000 Units, each Unit Consisting of
Two (2) Shares of Common Stock and
One (1) Class A Redeemable
Common Stock Purchase Warrant
of
JENNA LANE, INC.
UNDERWRITING AGREEMENT
New York, New York
September , 1996
Walsh Manning Securities, Inc.
90 Broad Street
New York, New York 10004
Ladies and Gentlemen:
Jenna Lane, Inc., a Delaware corporation (the "Company"), confirms its
agreement with Walsh Manning Securities, Inc. ("Walsh Manning)", and each of the
other underwriters named in Schedule I hereto (collectively, the "Underwriters,"
which term shall also include any underwriter substituted as hereinafter
provided in Section 11), for whom Walsh Manning is acting as representative (in
such capacity, Walsh Manning shall hereinafter be referred to as the
"Representative"), with respect to the sale by the Company and the purchase by
the Underwriters, acting severally and not jointly, of 600,000 units ("Units"),
each Unit consisting of two (2) shares (the "Shares") of the Company's common
stock, par value $.001 per share ("Common Stock"), and one (1) Class A
Redeemable Common Stock Purchase Warrant (the "Redeemable Warrants"), each of
which Redeemable Warrants entitles the holder thereof to purchase one share of
Common Stock at an exercise price of $7.00 per share pursuant to a warrant
agreement (the "Warrant Agreement") between the Company and the warrant agent,
set forth in Schedule II, and with respect to the grant by the Company to the
Underwriters, acting severally and not jointly, of the option described in
<PAGE> 2
Section 2(b) hereof to purchase all or any part of 90,000 additional Units for
the purpose of covering over-allotments, if any. The aforesaid 600,000 Units,
1,200,000 Shares and 600,000 Redeemable Warrants (the "Firm Securities") and
together with all or any part of the Units, Shares and Redeemable Warrants
subject to the overallotment option described in Section 2(b) hereof (the
"Overallotment Securities") are hereinafter collectively referred to as the
"Securities." The Company also proposes to issue and sell to the Underwriters,
an option (the "Unit Purchase Option") pursuant to the Underwriters' Unit
Purchase Option Agreement (the "Underwriters' Unit Purchase Option Agreement")
for the purchase of an aggregate of 60,000 additional Units consisting of
100,000 Shares (the "Underwriters' Unit Shares") and 60,000 Common Stock
Purchase Warrants (the "Underwriters' Unit Warrants"). The shares of Common
Stock issuable upon exercise of the Redeemable Warrants and the Underwriters'
Unit Warrants are hereinafter sometimes referred to as the "Warrant Shares." The
Shares, the Redeemable Warrants, the Unit Purchase Option, Underwriters' Unit
Shares, Underwriters' Unit Warrants, and the Warrant Shares are more fully
described in the Registration Statement (as defined in Subsection 1(a) hereof)
and the Prospectus (as defined in Subsection 1(a) hereof) referred to below.
Unless the context otherwise requires, all references to the "Company" shall
include all subsidiaries and entities to be acquired by the Company on or prior
to the Closing Date, as (defined in Subsection 2(c) hereof) referred to below.
All representations, warranties and opinions of counsel shall cover any such
subsidiaries and to be acquired entities.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriters as of the
date hereof, and as of the Closing Date and any Option Closing Date, (as defined
in Subsection 2(c) hereof), if any, as follows:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement, and an amendment or
amendments thereto, on Form S-1 (No. _________) including any related
preliminary prospectus ("Preliminary Prospectus"), for the registration of the
Securities under the Securities Act of 1933, as amended (the "Act"), which
registration statement and any amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act and the rules and
regulations of the Commission under the Act. The Company will promptly file a
further amendment to said registration statement in the form heretofore
delivered to the Underwriters and will not, before the registration statement
becomes effective, file any other amendment thereto unless the Underwriters
shall have consented thereto after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, schedules,
exhibits and all other documents
2
<PAGE> 3
filed as a part thereof and all information deemed to be a part thereof as of
such time pursuant to paragraph (b) of Rule 430A of the Rules and Regulations),
is hereinafter called the "Registration Statement" and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the Rules
and Regulations, is hereinafter called the "Prospectus." For purposes hereof,
"Rules and Regulations" mean the rules and regulations adopted by the Commission
under either the Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or Prospectus or any part thereof and no
proceedings for a stop order have been instituted or are pending or, to the best
knowledge of the Company, threatened. Each of the Preliminary Prospectus, the
Registration Statement and Prospectus at the time of filing thereof conformed in
all material respects with the requirements of the Act and the Rules and
Regulations, and neither the Preliminary Prospectus, the Registration Statement
or Prospectus at the time of filing thereof contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriters by or on behalf of the Underwriters expressly for
use in such Preliminary Prospectus, Registration Statement or Prospectus.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing Date
and during such longer period as the Prospectus may be required to be delivered
in connection with sales by the Underwriters or a dealer, the Registration
Statement and the Prospectus will contain all material statements which are
required to be stated therein in compliance with the Act and the Rules and
Regulations, and will in all material respects conform to the requirements of
the Act and the Rules and Regulations; neither the Registration Statement, nor
any amendment thereto, at the time the Registration Statement or such amendment
is declared effective under the Act, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, not misleading, and the Prospectus
at the time the Registration Statement becomes effective, at the Closing Date
and at any Option Closing Date, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that this representation and
3
<PAGE> 4
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with information supplied to the Company in writing by or
on behalf of the Underwriters expressly for use in the Registration Statement or
Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is now, and at the
Closing Date and any Option Closing Date will be, validly existing as a
corporation in good standing under the laws of the State of Delaware. The
Company does not own, directly or indirectly, an interest in any corporation,
partnership, trust, joint venture or other business entity; provided, that the
foregoing shall not be applicable to the investment of the net proceeds from the
sale of the Securities in short-term, low-risk investments as set forth under
"Use of Proceeds" in the Prospectus. The Company is duly qualified and licensed
and in good standing as a foreign corporation in each jurisdiction in which its
ownership or leasing of its properties or the character of its operations
require such qualification or licensing, except where the failure to so qualify
would not have a material effect on the Company. The Company has all requisite
power and authority (corporate and other), and has obtained any and all
necessary applications, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and all federal, state, local and foreign
laws, rules and regulations; and the Company has not received any notice of
proceedings relating to the revocation or modification of any such
authorization, approval, order, license, certificate, franchise, or permit
which, singly or in the aggregate, if the subject of an unfavorable decision
ruling or finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operation, properties, business or results of operation of the Company.
The disclosures in the Registration Statement concerning the effects of federal,
state, local, and foreign laws, rules and regulations on the Company's business
as currently conducted and as contemplated are correct in all material respects
and do not omit to state a material fact necessary to make the statements
contained therein not misleading in light of the circumstances in which they
were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and will
have the adjusted capitalization set forth therein on the Closing Date and the
Option Closing Date, if any, based upon the assumptions set forth therein, and
the Company is not a party to or bound by any instrument, agreement or other
4
<PAGE> 5
arrangement providing for the Company to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and as
otherwise described in the Prospectus. The Shares, Redeemable Warrants, the Unit
Purchase Option, Underwriters' Unit Shares, the Underwriter's Unit Warrants, and
the Warrant Shares and all other securities issued or issuable by the Company
conform or, when issued and paid for, will conform in all respects to all
statements with respect thereto contained in the Registration Statement and the
Prospectus. All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto, and are not subject
to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company, or similar contractual rights granted by the
Company. The Securities, the Unit Purchase Option , the Underwriters' Unit
Shares, and the Underwriter's Unit Warrants to be issued and sold by the Company
hereunder, and the Warrant Shares issuable upon exercise of the Redeemable
Warrants and the Underwriter's Unit Warrants and payment therefor, are not and
will not be subject to any preemptive or other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof and thereof, will be validly issued, fully
paid and non-assessable and will conform to the descriptions thereof contained
in the Prospectus; the holders thereof will not be subject to any liability
solely as such holders; all corporate action required to be taken for the
authorization, issue and sale of the Securities, the Unit Purchase Option, the
Underwriters' Unit Shares, and the Underwriter's Unit Warrants, and the Warrant
Shares has been duly and validly taken; and the certificates representing the
Securities, the Underwriter's Unit Warrants, and the Warrant Shares will be in
due and proper form. Upon the issuance and delivery pursuant to the terms hereof
of the Securities to be sold by the Company hereunder, the Underwriters will
acquire good and marketable title to such Securities free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever.
(f) The financial statements of the Company, together with the
related notes and schedules thereto, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus fairly present the financial position
and the results of operations of the Company at the respective dates and for the
respective periods to which they apply; and such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no material adverse change or development involving a prospective
change in the condition, financial or otherwise, or in the earnings, business
affairs, position, prospects, value, operation, properties, business, or results
of operation of the Company,
5
<PAGE> 6
whether or not arising in the ordinary course of business, since the dates of
the financial statements included in the Registration Statement and the
Prospectus and the outstanding debt, the property, both tangible and intangible,
and the business of the Company, conforms in all material respects to the
descriptions thereof contained in the Registration Statement and in the
Prospectus.
(g) Edward Isaacs & Company, LLP, whose report is filed with
the Commission as a part of the Registration Statement, is an independent
certified public accountant as required by the Act and the Rules and
Regulations.
(h) The Company (i) has paid all federal, state, local, and
foreign taxes for which it is liable, including, but not limited to, withholding
taxes and taxes payable under Chapters 21 through 24 of the Internal Revenue
Code of 1986 (the "Code"), (ii) has furnished all tax and information returns it
is required to furnish pursuant to the Code, and has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
knowledge of any tax deficiency or claims outstanding, proposed or assessed
against it.
(i) The Company maintains insurance, which is in full force
and effect, of the types and in the amounts which it reasonably believes to be
adequate for its business, including, but not limited to, personal injury and
product liability insurance covering all personal and real property owned or
leased by the Company against fire, theft, damage and all risks customarily
issued against.
(j) Except as disclosed in the Prospectus, there is no action,
suit, proceeding, inquiry, investigation, litigation or governmental proceeding
(including, without limitation, those having jurisdiction over environmental or
similar matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or involving the properties or
business of the Company which: (i) questions the validity of the capital stock
of the Company or this Agreement or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement; (ii) is required to be
disclosed in the Registration Statement which is not so disclosed (and such
proceedings as are summarized in the Registration Statement are accurately
summarized in all respects); or (iii) might materially affect the condition,
financial or otherwise, or the earnings, business affairs, position, prospects,
value, operation, properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
enter into this Agreement, the Underwriters' Unit Purchase Option Agreement and
the Warrant Agreement and to consummate the transactions provided for in such
agreements; and this Agreement,
6
<PAGE> 7
the Underwriters' Unit Purchase Option Agreement and the Warrant Agreement have
each been duly and properly authorized, executed and delivered by the Company.
Each of this Agreement, the Underwriters' Agreement and the Warrant Agreement,
constitutes a legal, valid and binding agreement of the Company, subject to due
authorization, execution and delivery by the Representative and/or the
Underwriters, enforceable against the Company in accordance with its terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as rights to
indemnity or contribution may be limited by applicable law). Neither the
Company's execution or delivery of this Agreement, the Underwriters' Unit
Purchase Option Agreement, and the Warrant Agreement, its performance hereunder
and thereunder, its consummation of the transactions contemplated herein and
therein, nor the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, conflicts
with or will conflict with or results or will result in any breach or violation
of any of the terms or provisions of, or constitutes or will constitute a
default under, or result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest defect or other restriction or
equity of any kind whatsoever upon, any property or assets (tangible or
intangible) of the Company pursuant to the terms of: (i) the Articles of
Incorporation or By-Laws of the Company; (ii) any license, contract, indenture,
mortgage, deed of trust, voting trust agreement, stockholders agreement, note,
loan or credit agreement or any other agreement or instrument to which the
Company is a party or by which the Company is bound or to which any of its
properties or assets (tangible or intangible) is or may be subject; or (iii) any
statute, judgment, decree, order, rule or regulation applicable to the Company
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any court, regulatory body, government agency or other body,
domestic or foreign, is required for the issuance of the Securities pursuant to
the Prospectus and the Registration Statement, the performance of this Agreement
and the transactions contemplated hereby, except such as have been or may be
obtained under the Act or may be required under state securities or Blue Sky
laws in connection with (i) the Underwriters' purchase and distribution of the
Firm Securities and Overallotment Securities to be sold by the Company
hereunder; or (ii) the issuance and delivery of the Unit Purchase Option, the
Underwriters' Unit Shares, the
7
<PAGE> 8
Underwriter's Unit Warrants, the Redeemable Warrants or the Warrant Shares.
(m) All executed agreements or copies of executed agreements
filed as exhibits to the Registration Statement to which the Company is a party
or by which the Company may be bound or to which any of its assets, properties
or businesses may be subject have been duly and validly authorized, executed and
delivered by the Company, and constitute the legal, valid and binding agreements
of the Company, enforceable against it in accordance with its respective terms.
The descriptions contained in the Registration Statement of contracts and other
documents are accurate in all material respects and fairly present the
information required to be shown with respect thereto by the Rules and
Regulations and there are no material contracts or other documents which are
required by the Act or the Rules and Regulations to be described in the
Registration Statement or filed as exhibits to the Registration Statement which
are not described or filed as required, and the exhibits which have been filed
are complete and correct copies of the documents of which they purport to be
copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not:
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money in any material amount; (ii) entered into any
transaction other than in the ordinary course of business; (iii) declared or
paid any dividend or made any other distribution on or in respect of its capital
stock; or (iv) made any changes in capital stock, material changes in debt (long
or short term) or liabilities other than in the ordinary course of business,
material changes in or affecting the general affairs, management, financial
operations, stockholders equity or results of operations of the Company.
(o) No default exists in the due performance and observance of
any material term, covenant or condition of any license, contract, indenture,
mortgage, installment sales agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, note, loan or credit agreement, or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which any of
the Company may be bound or to which any of its property or assets (tangible or
intangible) of the Company is subject or affected.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance in all
material respects with all federal, state, local, and foreign laws and
regulations respecting employment and
8
<PAGE> 9
employment practices, terms and conditions of employment and wages and hours.
(q) Since its inception, the Company has not incurred any
liability arising under or as a result of the application of the provisions of
the Act.
(r) The Company does not presently maintain, sponsor or
contribute to, and never has maintained, sponsored or contributed to, any
program or arrangement that is an "employee pension benefit plan," an "employee
welfare benefit plan " or a "multiemployer plan" as such terms are defined in
Sections 3(2), 3(1) and 3(37) respectively of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does not
maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA.
(s) The Company is not in violation in any material respect of
any domestic or foreign laws, ordinances or governmental rules or regulations to
which it is subject.
(t) No holders of any securities of the Company or of any
options, warrants or other convertible or exchangeable securities of the Company
exercisable for or convertible or exchangeable for securities of the Company
have the right to include any securities issued by the Company in the
Registration Statement or any registration statement to be filed by the Company
within eighteen (18) months of the date hereof or to require the Company to file
a registration statement under the Act during such eighteen (18) month period,
except such registration rights as have been waived or disclosed in the
Prospectus.
(u) Neither the Company, nor, to the Company's best knowledge,
any of its employees, directors, stockholders or affiliates (within the meaning
of the Rules and Regulations) has taken, directly or indirectly, any action
designed to or which has constituted or which might reasonably be expected to
cause or result in, under the Exchange Act, or otherwise, stabilization or
manipulation of the price of any security of the Company to facilitate the sale
or resale of the Securities or otherwise.
(v) Except as described in the Prospectus, to the best of the
Company's knowledge, none of the patents, patent applications, trademarks,
service marks, trade names and copyrights, or licenses and rights to the
foregoing presently owned or held by the Company is in dispute or are in any
conflict with the right of any other person or entity within the Company's
current area of operations nor has the Company received notice of any of the
foregoing. To the best of the Company's knowledge, the Company: (i) owns or has
the right to use, free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities of any
kind whatsoever, all patents,
9
<PAGE> 10
trademarks, service marks, trade names and copyrights, technology and licenses
and rights with respect to the foregoing, used in the conduct of its business as
now conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity under or with respect to any of the foregoing; and (ii) except as
set forth in the Prospectus, is not obligated or under any liability whatsoever
to make any payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any patent, trademark, service mark trade
name, copyright, know-how, technology or other intangible asset, with respect to
the use thereof or in connection with the conduct of its business or otherwise.
(w) The Company owns and has the unrestricted right to use all
material trade secrets, trade-marks, trade names, know-how (including all other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures), inventions, designs, processes, works of authorship, computer
programs and technical data and information (collectively herein "Intellectual
Property") required for or incident to the development, manufacture, operation
and sale of all products and services sold or proposed to be sold by the
Company, free and clear of and without violating any right, lien, or claim of
others, including without limitation, former employers of its employees;
provided, however, that the possibility exists that other persons or entities,
completely independently of the Company, or employees or agents, could have
developed trade secrets or items of technical information similar or identical
to those of the Company.
(x) The Company has taken reasonable security measures to
protect the secrecy, confidentiality and value of all the Intellectual Property
material to its operations.
(y) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property owned
or leased by it free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects, or other restrictions or equities of any
kind whatsoever, other than those referred to in the Prospectus and liens for
taxes or assessments not yet due and payable.
(aa) The Company has obtained duly executed legally binding
and enforceable agreements pursuant to which each of the Company's officers and
directors and any person or entity deemed to be an affiliate of the Company
(pursuant to the Rules and Regulations) has agreed not to, directly or
indirectly, offer to sell, sell, grant any option for the sale of, assign,
transfer, pledge, hypothecate or otherwise encumber any of their shares of
Common Stock or other securities of the Company (either pursuant to Rule 144 of
the Rules and Regulations or otherwise) or dispose of any beneficial interest
therein for a period of not less than 24
10
<PAGE> 11
months following the effective date of the Registration Statement without the
prior written consent of the Representative. The Company will cause the Transfer
Agent, as defined below, to mark an appropriate legend on the face of stock
certificates representing all of such shares of Common Stock and other
securities of the Company.
(bb) Except as disclosed in the Prospectus, the Company has
not incurred any liability and there are no arrangements or understandings for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company or any of its officers,
directors, employees or affiliates that may adversely affect the Underwriters'
compensation, as determined by the NASD.
(cc) The Firm Securities have been approved for quotation on
the Nasdaq SmallCap Market of the Nasdaq Stock Market, Inc. [and approved for
listing on the Boston Stock Exchange,] subject to official notice of issuance.
(dd) Neither the Company nor any of its respective officers,
employees, agents or any other person acting on behalf of the Company, has,
directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which: (a) might subject the Company, or any other such person to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign); (b) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company;
or (c) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(ee) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company, or any "affiliate" or "associate" (as
these terms are defined in Rule 405 promulgated under the Rules and Regulations)
of any such person or entity or the Company, has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, except with
11
<PAGE> 12
respect to the beneficial ownership of not more than 1% of the outstanding
shares of capital stock of any publicly-held entity; or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected. Except as set forth in the Prospectus under
"Certain Transactions", there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director, or principal stockholder of the Company, or any affiliate or associate
of any such person or entity.
(ff) Any certificate signed by any officer of the Company and
delivered to the Underwriters or to the Underwriters' counsel shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(gg) The Company has entered into employment agreements with
Mitchell Dobler and Charles Sobel as described in the Prospectus. The Company
has obtained a key-man life insurance policy in the amount of not less than
$1,000,000 on the life of Mr. Dobler, which policy is owned by the Company and
names the Company as the sole beneficiary thereunder.
(hh) No securities of the Company have been sold by the
Company since its inception, except as disclosed in Part II of the Registration
Statement.
(ii) The minute books of the Company have been made available
to Underwriters' Counsel and contain a complete summary of all meetings and
actions of the Board of Directors and Shareholders of the Company since the date
of its incorporation.
2. Purchase, Sale and Delivery of the Securities and Agreement to
Issue Underwriters' Unit Purchase Option.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at the price per
Unit set forth below, that proportion of the number of Units set forth in
Schedule I opposite the name of such Underwriter that such number of Units bears
to the total number of Units, subject to such adjustment as the Underwriters in
their discretion shall make to eliminate any sales or purchases of fractional
Securities, plus any additional numbers of Units which such Underwriter may
become obligated to purchase pursuant to the provisions of Section 11 hereof.
(b) In addition, on the basis of the representations,
warranties, covenants and agreements, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby
12
<PAGE> 13
grants an option to the Underwriters, severally and not jointly, to purchase up
to an additional 90,000 Units, each Unit consisting of two (2) Shares and one
(1) Redeemable Warrant at the prices per Unit set forth below. The option
granted hereby will expire 45 days after the date of this Agreement, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the number of Overallotment Securities as to which the
Underwriters are then exercising the option and the time and date of payment and
delivery for such Overallotment Securities. Any such time and date of delivery
shall be determined by the Underwriters, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Date, as defined in paragraph (c) below, unless otherwise agreed to
between the Representative and the Company. In the event such option is
exercised, each of the Underwriters, acting severally and not jointly, shall
purchase such number of Overallotment Securities then being purchased which
shall have been allocated to such Underwriter by the Representative, and which
such Underwriter shall have agreed to purchase, subject in each case to such
adjustments as the Underwriters in their discretion shall make to eliminate any
sales or purchases of fractional Securities. Nothing herein contained shall
obligate the Underwriters to make any over-allotments. No Overallotment
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Securities shall be made at the offices of Walsh
Manning, Representative, 90 Broad Street, New York, New York 10004, or at such
other place as shall be agreed upon by the Underwriters and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on _____
__, 1996 or at such other time and date as shall be designated by the
Representative but not less than three (3) nor more than five (5) business days
after the effective date of the Registration Statement (such time and date of
payment and delivery being hereafter called "Closing Date"). In addition, in the
event that any or all of the Overallotment Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for such Option Securities shall be made at the above-mentioned office or at
such other place and at such time (such time and date of payment and delivery
being hereinafter called "Overallotment Closing Date") as shall be agreed upon
by the Representative and the Company on each Overallotment Closing Date as
specified in the notice from the Underwriters to the Company. Delivery of the
certificates for the Firm Securities and the Overallotment Securities, if any,
shall be made to the Underwriters against payment by the Underwriters of the
purchase price for the Firm Securities and the Overallotment Securities, if any,
to the
13
<PAGE> 14
order of the Company as the case may be by certified check in New York Clearing
House funds, certificates for the Firm Securities and the Overallotment
Securities, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriters may request in writing at least two (2) business days
prior to Closing Date or the relevant Overallotment Closing Date, as the case
may be. The certificates for the Firm Securities and the Overallotment
Securities, if any, shall be made available to the Underwriters at the
above-mentioned office or such other place as the Underwriters may designate for
inspection, checking and packaging no later than 9:30 a.m. on the last business
day prior to Closing Date or the relevant Overallotment Closing Date, as the
case may be.
The purchase price of the Units to be paid by each of the
Underwriters, severally and not jointly, to the Company for the Units purchased
under Clauses (a) and (b) above will be $4.50 per Unit (which price is net of
the Underwriters' discount and commissions). The Company shall not be obligated
to sell any Securities hereunder unless all Firm Securities to be sold by the
Company are purchased hereunder. The Company agrees to issue and sell 600,000
Units to the Underwriters in accordance herewith.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriters, the Underwriters' Unit Purchase Option at a purchase price of
$60.00 which Unit Purchase Option shall entitle the holders thereof to purchase
an aggregate of 60,000 Units. The Underwriter's Unit Purchase Option shall be
exercisable for a period of three (3) years commencing one (1) year from the
effective date of the Registration Statement at an initial exercise price equal
to one hundred twenty percent (120%) of the initial public offering price of the
Units. The Underwriter's Unit Purchase Option Agreement and form of Unit
Purchase Option Certificate shall be substantially in the form filed as an
Exhibit to the Registration Statement. Payment for the Underwriters' Unit
Purchase Option shall be made on the Closing Date. The Company has reserved and
shall continue to reserve a sufficient number of Shares for issuance upon
exercise of the Underwriters' Unit Purchase Option and the Underwriters' Unit
Warrants contained in the Underwriters' Unit Purchase Option.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective and as the Underwriters deem advisable, but in no
event more than five (5) business days after such effective date, the
Underwriters shall make a public offering of the Securities (other than to
residents of or in any jurisdiction in which qualification of the Securities is
required and has not become effective) at the price and upon the other terms set
forth in the Prospectus. The Underwriters may allow such concessions and
discounts upon sales to other dealers as set forth in the Prospectus. The
Underwriters may from time to time increase
14
<PAGE> 15
or decrease the public offering price after distribution of the Securities has
been completed to such extent as the Underwriters, in their sole discretion deem
advisable.
4. Covenants of the Company. The Company covenants and agrees with
each of the Underwriters as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Exchange Act (i) before termination of the offering of the Securities
by the Underwriters which the Underwriters shall not previously have been
advised and furnished with a copy, or (ii) to which the Underwriters shall have
objected or (iii) which is not in compliance with the Act, the Exchange Act or
the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriters and confirm by notice in
writing: (i) when the Registration Statement, as amended, becomes effective, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening of any proceeding, suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution or proceeding for that purpose; (iii) of the issuance by any state
securities commission of any proceedings for the suspension of the qualification
of the Securities for offering or sale in any jurisdiction or of the initiation,
or the threatening, of any proceeding for that purpose; (iv) of the receipt of
any comments from the Commission; and (v) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectus or for additional information. If the Commission or any state
securities commission or regulatory authority shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriters) or transmit the Prospectus by a
means reasonably calculated to result in filing with the Commission pursuant to
Rule 424(b)(1) (or, if applicable and if consented to by the Underwriters
pursuant to Rule 424(b)(4)) not later than the Commission's close of business on
the earlier of (i) the second business day following the execution and delivery
of
15
<PAGE> 16
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Underwriters notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
by the Underwriters in connection with the offering of the Securities which
differs from the corresponding prospectus on file at the Commission at the time
the Registration Statement becomes effective, whether or not such revised
prospectus is required to be filed pursuant to Rule 424(b) of the Rules and
Regulations), will furnish the Underwriters with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the Underwriters
or Goldstein & DiGioia, LLP ("Underwriters' Counsel"), shall reasonably object.
(e) The Company shall cooperate in good faith with the
Underwriters, and Underwriters' Counsel, at or prior to the time the
Registration Statement becomes effective, in endeavoring to qualify the
Securities for offering and sale under the securities laws of such jurisdictions
as the Underwriters may reasonably designate, and shall cooperate with the
Underwriters and Underwriters' Counsel in the making of such applications, and
filing such documents and shall furnish such information as may be required for
such purpose; provided, however, the Company shall not be required to qualify as
a foreign corporation or file a general consent to service of process in any
such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriters agree that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when the Prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act and the Exchange Act, as now
and hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when the Prospectus
relating to the Securities is required to be delivered under the Act, any event
shall have occurred as a result of which, in the opinion of counsel for the
Company or Underwriters' Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
16
<PAGE> 17
made, not misleading, or if it is necessary at any time to amend the Prospectus
to comply with the Act, the Company will notify the Underwriters promptly and
prepare and file with the Commission an appropriate amendment or supplement in
accordance with Section 10 of the Act, each such amendment or supplement to be
reasonably satisfactory to Underwriters' Counsel, and the Company will furnish
to the Underwriters a reasonable number of copies of such amendment or
supplement.
(g) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period commencing on the day after the end of
the fiscal quarter of the Company during which the effective date of the
Registration Statement occurs (90 days in the event that the end of such fiscal
quarter is the end of the Company's fiscal year), the Company shall make
generally available to its security holders, in the manner specified in Rule
158(b) of the Rules and Regulations, and to the Underwriters, an earnings
statement which will be in such form and detail required by, and will otherwise
comply with, the provisions of Section 11(a) of the Act and Rule 158(a) of the
Rules and Regulations, which statement need not be audited unless required by
the Act, covering a period of at least 12 consecutive months after the effective
date of the Registration Statement.
(h) During a period of three (3) years after the date hereof
and provided that the Company is required to file reports with the Commission
under Section 12 of the Exchange Act, the Company will furnish to its
stockholders, as soon as practicable, annual reports (including financial
statements audited by independent public accountants), and will deliver to the
Underwriters:
(i) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
(ii) as soon as they are available, copies of all
reports and financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
(iii) every press release and every material news item
or article of interest to the financial community in respect of the Company and
any future subsidiaries or their affairs which was released or prepared by the
Company;
(iv) any additional information of a public nature
concerning the Company and any future subsidiaries or their respective
businesses which the Underwriters may reasonably request;
(v) a copy of any Schedule 13D, 13G 14D-1, 13E-3 or
13E-4 received or filed by the Company from time to time.
17
<PAGE> 18
During such three-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) For as long as the Company is required to file reports
with the Commission under Section 12 of the Exchange Act, the Company will
maintain a Transfer Agent and Warrant Agent, which may be the same entity, and,
if necessary under the jurisdiction of incorporation of the Company, a Registrar
(which may be the same entity as the Transfer and Warrant Agent) for its Units,
Common Stock and Redeemable Warrants.
(j) The Company will furnish to the Underwriters or pursuant
to the Underwriters' direction, without charge, at such place as the
Underwriters may designate, copies of each Preliminary Prospectus, the
Registration Statement and any pre-effective or post-effective amendments
thereto (two of which copies will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Underwriters may reasonably request.
(k) Neither the Company, nor its officers or directors, nor
affiliates of any of them (within the meaning of the Rules and Regulations) will
take, directly or indirectly, any action designed to, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any securities of the Company.
(l) The Company shall apply the net proceeds from the sale of
the Securities in the manner, and subject to the provisions, set forth under
"Use of Proceeds" in the Prospectus. No portion of the net proceeds will be used
directly or indirectly to acquire any securities issued by the Company.
(m) The Company shall timely file all such reports, forms or
other documents as may be required (including but not limited to a Form SR as
may be required pursuant to Rule 463 under the Act) from time to time, under the
Act, the Exchange Act, and the Rules and Regulations, and all such reports,
forms and documents filed will comply as to form and substance with the
applicable requirements under the Act, the Exchange Act, and the Rules and
Regulations.
(n) The Company shall furnish to the Underwriters as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest
18
<PAGE> 19
available unaudited consolidated interim financial statements of the Company
(which in no event shall be as of a date more than forty-five (45) days prior to
the date of the Registration Statement) which have been read by the Company's
independent public accountants, as stated in their letters to be furnished
pursuant to Section 6(k) hereof.
(o) For a period of two (2) years from the Closing Date, the
Company shall furnish to the Underwriters at the Company's sole expense, (i)
daily consolidated transfer sheets relating to the Securities upon the
Representative's reasonable request; (ii) a list of holders of Securities upon
the Representatives reasonable request; (iii) a list of, if any, the securities
positions of participants in the Depository Trust Company upon the
Representative's reasonable request.
(p) For a period of two (2) years after the effective date of
the Registration Statement, the Company shall use its best efforts to cause one
(1) individual selected by the Representative to be elected to the Board of
Directors of the Company (the "Board"), if requested by the Representative and
provided such individual is reasonably acceptable to and approved by the
Company. Alternatively, the Representative shall be entitled to appoint an
individual who shall be permitted to attend all meetings of the Board and to
receive all notices and other correspondence and communications sent by the
Company to members of the Board. The Company shall reimburse the
Representative's designee for his or her out-of-pocket expenses reasonably
incurred and authorized in advance by the Company in connection with his or her
attendance of the Board meetings. To the extent permitted by law, the Company
agrees to indemnify and hold the designee (as a director or observer) and the
Representative harmless against any and all claims, actions, awards and
judgements arising out of his or her service as a director or an observer and
the Company shall maintain a liability insurance policy in an amount of not less
than $5,000,000 affording coverage for the action of its officer and directors,
to include such designee and the Representative as an insured under such policy.
(q) For a period equal to the lesser of (i) five (5) years
from the date hereof, or (ii) the sale to the public of the Warrant Shares, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Forms S-1 or, if applicable, S-2 and S-3 (or other appropriate
form) for the registration under the Act of the Warrant Shares.
(r) For a period of five (5) years from the date hereof, use
its best efforts at its cost and expense to maintain the listing of the
Securities on the Nasdaq SmallCap Market [and for a period of two years maintain
the listing of the Securities on the Boston Stock Exchange.]
19
<PAGE> 20
(s) On or before the effective date of the Registration
Statement, retain or make arrangements to retain a financial public relations
firm reasonably satisfactory to the Representative which shall be continuously
engaged from such engagement date to a date 24 months from the effective date of
the Registration Statement.
(t) (i) As soon as practicable, but in no event more than 5
business days after the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) promptly take all necessary and appropriate
actions to be included in Standard and Poor's Corporation Descriptions and/or
Moody's OTC Manual and to continue such inclusion for a period of not less than
five (5) years from the date hereof.
(u) Following the Effective Date of the Registration Statement
and for a period of two (2) years thereafter, the Company shall, at its sole
cost and expense, prepare and file such blue sky trading applications with such
jurisdictions as the Representative may reasonably request after consultation
with the Company, and on the Representative's request, furnish the Underwriters
with a secondary trading survey prepared by securities counsel to the Company.
(v) The Company shall not amend or alter any term of any
written employment agreement between the Company and any executive officer,
during the term thereof, in a manner more favorable to such employee, without
the express written consent of the Representative.
(w) Until the completion of the distribution of the
Securities, the Company shall not without the prior written consent of the
Representative and Underwriters' Counsel, which consent shall not be
unreasonably withheld, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(x) Commencing one (1) year from the date hereof, upon the
exercise of any Warrant, the exercise of which was solicited by the Underwriters
in accordance with the applicable rules and regulations of the NASD prevailing
at the time of such solicitation, the Company shall pay to the soliciting
Underwriter a fee of 5% of the aggregate exercise price of such Warrant within
five (5) business days of such exercise and receipt of the exercise price. The
Company further agrees that it will not solicit the exercise of any Warrant
other than through the Underwriters, unless either: (i) the Underwriters cannot
legally solicit the exercise of the Warrants at the time of such solicitation;
(ii) the Representative declines, in writing, to solicit the exercise of the
20
<PAGE> 21
Warrants within five (5) business days of such a written request by the Company;
or (iii) the Representative consents to the solicitation of the exercise of the
Warrants by the Company or another entity.
(y) The Company will use its best efforts to maintain its
registration under the Exchange Act in effect for a period of five (5) years
from the Closing Date.
(z) On the Closing Date, the Company and the Underwriters
shall enter into a financial consulting agreement, in the form filed as Exhibit
_____ to the Registration Statement, pursuant to which the Underwriters will
provide financial consulting services to the Company for a two (2) year period
for an aggregate fee of $108,000, all of which will be paid on the Closing Date
(the "Financial Consulting Agreement").
(aa) For a period of 18 months commencing on the Closing Date,
except with the written consent of the Underwriters, which consent shall not be
unreasonably withheld, the Company will not issue or sell, directly or
indirectly, any shares of its capital stock, or sell or grant options, or
warrants or rights to purchase any shares of its capital stock, except pursuant
to (i) this Agreement, (ii) the Unit Purchase Option and the Underwriters' Unit
Warrants, (iii) warrants and options of the Company heretofore issued and
described in the Prospectus, and (iv) the grant of options and the issuance of
shares issued upon exercise of options issued or to be issued under the
Company's 1996 Stock Option Plan as contemplated by the Prospectus; except that,
during such period, the Company may issue securities in connection with an
acquisition, merger or similar transaction, provided that such securities are
not publicly registered and the acquirer of the securities is not granted
registration rights with respect thereto which are effective prior to 24 months
after the Closing Date. Notwithstanding anything to the contrary set forth in
the prior sentence, the Company may not issue any class or series of Preferred
Stock for a period of 18 months from the Closing Date without the unanimous vote
or consent of all members of the Board of Directors of the Company. Prior to the
Closing Date, the Company will not issue any options or warrants without the
prior written consent of the Representative.
(bb) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, including any
registration statement on Form S-8, during the 12 months following the Closing
Date without the Underwriters' prior written consent.
(cc) Subsequent to the dates as of which information is given
in the Registration Statement and Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not
21
<PAGE> 22
have incurred any liabilities or obligations, direct or contingent, or entered
into any material transactions other than in the ordinary course of business;
(ii) there shall not have been any change in the capital stock, funded debt
(other than regular repayments of principal and interest on existing
indebtedness) or other securities of the Company, any adverse change in the
condition (financial or other), business, operations, income, net worth or
properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which could adversely affect the
condition (financial or other), business, operations, income, net worth or
properties of the Company; and (iii) the Company shall not pay or declare any
dividend or other distribution on its Common Stock or its other securities or
redeem or repurchase any of its Common Stock or other securities.
(dd) Except as disclosed in or contemplated by the
Registration Statement and Prospectus, the Company, for a period of two (2)
years following the Closing Date, shall not redeem any of its securities, and
shall not pay any dividends or make any other cash distribution in respect of
its securities in excess of the amount of the Company's current or retained
earnings derived after the Closing Date without obtaining the Underwriters'
prior written consent, which consent shall not be unreasonably withheld. The
Underwriters shall either approve or disapprove such contemplated redemption of
securities or dividend payment or distribution within ten (10) business days
from the date the Underwriters receive written notice of the Company's proposal
with respect thereto; a failure of the Underwriters to respond within the five
(5) business day period shall be deemed approval of the transaction.
(ee) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
5. Payment of Expenses.
(a) The Company hereby agrees to pay on each of Closing Date
and the Overallotment Closing Date (to the extent not paid at the Closing Date)
all expenses and fees (other than fees of Underwriters' Counsel, except as
provided in (iv) below) incident to the performance of the obligations of the
Company under this Agreement, including, without limitation: (i) the fees and
expenses
22
<PAGE> 23
of accountants and counsel for the Company; (ii) all costs and expenses incurred
in connection with and due diligence the preparation, duplication, printing,
filing, delivery and mailing (including the payment of postage with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing and delivery of this Agreement,
the Selected Dealer Agreements, the Agreement Among Underwriters, Underwriters
Questionnaires, Powers of Attorney and related documents, including the cost of
all copies thereof and of the Preliminary Prospectuses and of the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriters in
quantities as hereinabove stated; (iii) the printing, engraving, issuance and
delivery of the Securities including any transfer or other taxes payable
thereon; (iv) disbursements and fees of Underwriters' Counsel in connection with
the qualification of the Securities under state or foreign securities or "Blue
Sky" laws and determination of the status of such securities under legal
investment laws, including the costs of printing and mailing the "Preliminary
Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, which Underwriters' Counsel fees (exclusive of
filing fees and disbursements) shall equal $20,000 and of which $10,000 has
previously been paid; (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with information meeting held in New
York, New York, and presentations, and prospectus memorabilia all of which costs
and expenses shall be approved in advance by the Company; (vi) fees and expenses
of the transfer agent; (vii) the fees payable to the NASD; and (viii) the fees
and expenses incurred in connection with the listing of the Securities on the
Nasdaq SmallCap Market [and The Boston Stock Exchange.] All fees and expenses
payable to the Underwriters shall be payable at the Closing Date or
Overallotment Closing Date, as applicable.
(b) If this Agreement is terminated by the Underwriters in
accordance with the provisions of Section 6, Section 10(a) or Section 12, the
Company shall reimburse and indemnify the Representative for up to $50,000
out-of-pocket expenses reasonably incurred in connection with the transactions
contemplated hereby including the fees and disbursements of counsel for the
Underwriters of which the Representative acknowledges $35,000 has been paid
prior to the date hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to subsection (a) of this Section 5, it will pay to
the Underwriters a non-accountable expense allowance equal to three percent (3%)
of the gross proceeds received by the Company from the sale of the Firm
Securities $35,000 of which has been paid to date to the Underwriters. The
Company will pay the remainder of the non-accountable expense allowance on the
Closing Date by certified or bank cashier's check or, at the election of the
Underwriters, by deduction from the proceeds of the offering
23
<PAGE> 24
contemplated herein. In the event the Underwriters elects to exercise the
over-allotment option described in Section 2(b) hereof, the Company further
agrees to pay to the Underwriters on the Option Closing Date (by certified or
bank cashier's check or, at the Underwriters' election, by deduction from the
proceeds of the offering) a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Overallotment Securities.
6. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the Closing Date and
each Overallotment Closing Date, if any, as if they had been made on and as of
the Closing Date or each Overallotment Closing Date, as the case may be; the
accuracy on and as of the Closing Date or Overallotment Closing Date, if any, of
the statements of officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of each of its covenants and obligations
hereunder and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M., New York time, on the date of this Agreement or such later
date and time as shall be consented to in writing by the Underwriters, and, at
Closing Date and each Overallotment Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for additional information shall have been complied with to the
reasonable satisfaction of Underwriters' Counsel. If the Company has elected to
rely upon Rule 430A of the Rules and Regulations, the price of the Securities
and any price-related information previously omitted from the effective
Registration Statement pursuant to such Rule 430A shall have been transmitted to
the Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to Closing Date the Company shall
have provided evidence satisfactory to the Underwriters of such timely filing,
or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriters shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriters' opinion, is material or omits to
state a fact which, in the Underwriters' opinion, is material and is required to
be stated therein or is necessary to make the statements therein not misleading,
or that the Prospectus, or any supplement thereto, contains an untrue statement
of fact which, in the Underwriters' reasonable opinion,
24
<PAGE> 25
is material, or omits to state a fact which, in the Underwriters' reasonable
opinion, is material and is required to be stated therein or is necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(c) On or prior to the Closing Date, and each Overallotment
Closing Date, as the case may be, the Underwriters shall have received from
Underwriters' Counsel, such opinion or opinions with respect to the organization
of the Company the validity of the Securities, the Registration Statement, the
Prospectus and other related matters as the Underwriters reasonably may request
and such counsel shall have received such papers and information as they request
to enable them to pass upon such matters.
(d) At the Closing Date, and the Option Closing Date the
Underwriters shall have received the favorable opinion of David Feldman, counsel
to the Company, dated the Closing Date, or Option Closing Date, as the case may
be, addressed to the Underwriter and in form and substance satisfactory to
Underwriters' Counsel, to the effect that:
(e) The Company: (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with full corporate power and authority to own and operate its
properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (B) to the best of counsel's knowledge, the Company is
duly licensed or qualified as a foreign corporation in all jurisdictions in
which by reason of maintaining an office in such jurisdiction or by owning or
leasing real property in such jurisdiction it is required to be so licensed or
qualified except where failure to be so qualified or licensed would have no
material adverse effect; and (C) to the best of counsel's knowledge, the Company
has not received any notice of proceedings relating to the revocation or
modification of any such license or qualification.
(ii) The Registration Statement, each Preliminary
Prospectus that has been circulated and the Prospectus and any post-effective
amendments or supplements thereto (other than the financial statements,
schedules and other financial and statistical data included therein, as to which
no opinion need be rendered) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form S-1 have been satisfied by the Company. Such
counsel shall state that such counsel has participated in conferences with
officers and other representatives of the Company, representatives of the
independent public accountants for the Company and representatives of the
Underwriters at which the contents of the Registration Statement, the Prospectus
and related matters were discussed and, although such counsel is not passing
upon and does not assume any responsibility for the
25
<PAGE> 26
accuracy, completeness or fairness of the statements contained in the
Registration Statement and Prospectus, on the basis of the foregoing, no facts
have come to the attention of such counsel which lead them to believe that
either the Registration Statement or any amendment thereto at the time such
Registration Statement or amendment became effective or the Prospectus as of the
date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or to make the
statements therein in light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no opinion with
respect to the financial statements and schedules and other financial and
statistical data included in the Registration Statement or Prospectus or with
respect to statements or omissions made therein in reliance upon information
furnished in writing to the Company on behalf of any Underwriter expressly for
use in the Registration Statement or the Prospectus).
(iii) To the best of such counsel's knowledge, except
as described in the Prospectus, the Company does not own an interest of a
character required to be disclosed in the Registration Statement in any
corporation, partnership, joint venture, trust or other business entity;
(iv) To the best of such counsel's knowledge, the
Company has a duly authorized, issued and outstanding capitalization as set
forth in the Prospectus as of the date indicated therein, under
"Capitalization". The Units, Shares, Redeemable Warrants, the Unit Purchase
Option, the Underwriters' Unit Warrants, and the Warrant Shares conform in all
material respects to all statements with respect thereto contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company have been duly authorized and validly issued and are fully paid
and non-assessable; the holders thereof, to counsel's best knowledge, are not
subject to personal liability by reason of being such holders, and none of such
securities were issued in violation of the preemptive rights of any holder of
any security of the Company. The Securities to be sold by the Company hereunder,
the Unit Purchase Option to be sold by the Company under the Underwriter's Unit
Purchase Option Agreement and Underwriters' Unit Warrant and the Warrant Shares
are not, to the best of such counsel's knowledge, subject to any preemptive or
other similar rights of any stockholder, have been duly authorized and, when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and conform to the description
thereof contained in the Prospectus; that the holders of the Common Stock shall
not be personally liable for the payment of the Company's debts solely by reason
of being such holders except as they may be liable by reason of their own
conduct or acts; and that the certificates representing the Units, Shares,
Redeemable Warrants, Unit Purchase Option, the
26
<PAGE> 27
Underwriters' Unit Shares, and the Underwriters' Unit Warrants are in due and
proper legal form.
(v) The issuance of the Shares, Redeemable Warrants and
the Warrant Shares have been duly authorized and when issued and paid for in
accordance with this Agreement and the Warrant Agreement, respectively, will be
validly issued, fully paid and non-assessable securities of the Company. The
holders of the Securities when issued and paid for, will not be subject to
personal liability by reason of being such holders. The Securities are not and
will not be subject to the preemptive or similar contractual rights of any
shareholder of the Company. All corporate action required to be taken for the
authorization, issuance and sale of the Securities has been duly and validly
taken. The certificates representing the Units, Shares and Redeemable Warrants
are in due and proper form. Upon delivery of the Shares to the Underwriters
against payment therefor as provided for in this Agreement, the Underwriters
(assuming they are bona fide purchasers within the meaning of the Uniform
Commercial Code) will acquire good title to the Units, free and clear of all
liens, encumbrances, equities, security interests and claims.
(v) The Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has been timely made
in the appropriate form under Rule 430A, and, to the best of such counsel's
knowledge, no stop order suspending the effectiveness of the Registration
Statement has been issued and to the best of such counsel's knowledge, no
proceedings for that purpose have been instituted or are pending or threatened
or contemplated under the Act;
(vi) To the best of such counsel's knowledge, (A) there
are no material contracts or other documents required to be described in the
Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
and the Prospectus and filed as exhibits thereto, and (B) the descriptions in
the Registration Statement and the Prospectus and any supplement or amendment
thereto regarding such material contracts or other documents to which the
Company is a party or by which it is bound, are accurate in all material
respects and fairly represent the information required to be shown by Form SB-2
and the Rules and Regulations;
(vii) This Agreement, the Underwriters' Warrant
Agreement, the Warrant Agreement, and the Financial Consulting Agreement have
each been duly and validly authorized, executed and delivered by the Company,
and assuming that it is a valid and binding agreement of the Underwriters, so as
the case may be, constitutes a legal, valid and binding agreement of the Company
enforceable as against the Company in accordance with its respective terms
(except as such enforceability may be limited by
27
<PAGE> 28
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors rights and
the application of equitable principles in any action, legal or equitable, and
except as rights to indemnity or contribution may be limited by applicable law
or pursuant to public policy).
(ix) Neither the execution or delivery by the Company
of this Agreement, the Underwriter's Warrant Agreement, the Financial Consulting
Agreement, and the Warrant Agreement, nor its performance hereunder or
thereunder, nor its consummation of the transactions contemplated herein or
therein, nor the conduct of its business as described in the Registration
Statement, the Prospectus, and any amendments or supplements thereto, nor the
issuance of the securities conflicts with or will conflict with or results or
will result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a material default under, or result in the
creation imposition of any material lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of, (A) the Certificate of Incorporation or By-Laws of the Company,
(B) to the best knowledge of such counsel, any indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument that is material to the Company
to which the Company is a party or by which it may be bound or to which its
properties or assets (tangible or intangible) is or may be subject, or any
indebtedness, or (C) to the best knowledge of such counsel, and except to the
extent it would not have a material adverse effect on the Company, any statute,
judgment, decree, order, rule or regulation applicable to the Company of any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, having jurisdiction over the Company or any of its
respective activities or properties.
(x) No consent, approval, authorization or order, and
no filing with, any court, regulatory body, government agency or other body,
(other than such as may be required under state securities laws, as to which no
opinion need be rendered) is required in connection with the issuance by the
Company of the Securities pursuant to the Prospectus and the Registration
Statement, the performance of this Agreement, the Underwriters' Unit Purchase
Option Warrant Agreement, the Financial Consulting Agreement and the Warrant
Agreement by the Company, and the taking of any action by the Company
contemplated hereby or thereby, which has not been obtained;
(xi) Except as described in the Prospectus, to the best
knowledge of such counsel, the Company is not in breach of, or in default under,
any material term or provision of any indenture,
28
<PAGE> 29
mortgage, installment sale agreement, deed of trust, lease, voting trust
agreement, stockholders' agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed money, or any
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets (tangible or
intangible) of the Company is subject or affected; and the Company is not in
violation of any material term or provision of its Certificate of Incorporation
or By-Laws or in violation of any material franchise, license, permit, judgment,
decree, order, statute, rule or regulation material to the Company business;
(xii) The statements in the Prospectus under "THE
COMPANY," "BUSINESS," "MANAGEMENT," "PRINCIPAL STOCKHOLDERS," "CERTAIN
TRANSACTIONS," "DESCRIPTION OF CAPITAL STOCK," and "SHARES ELIGIBLE FOR FUTURE
SALE" have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
(xiii) To the best of such counsel's knowledge, except
as described in the Prospectus, no person, corporation, trust, partnership,
association or other entity holding securities of the Company has the
contractual right to include and/or register any securities of the Company in
the Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration statement
for eighteen months from the date hereof;
(xiv) the Securities are eligible for listing on the
Nasdaq SmallCap Market [and upon issuance will be listed on the Boston Stock
Exchange].
In rendering such opinion, such counsel may rely, (A) as to matters
involving the application of laws other than the laws of the United States, the
corporate laws of Delaware and New York and jurisdictions in which they are
admitted, to the extent such counsel deems proper and to the extent specified in
such opinion, if at all, upon an opinion or opinions (in form and substance
reasonably satisfactory to Underwriters' Counsel) of other counsel reasonably
acceptable to Underwriters' Counsel, familiar with the applicable laws, and (B)
as to matters of fact, to the extent they deem proper, on certificates and
written statements of responsible officers of the Company and certificates or
other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company; provided, that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and, in their opinion, the Underwriters
and they are justified in relying thereon.
29
<PAGE> 30
(e) At each Overallotment Closing Date, if any, the
Underwriters shall have received the favorable opinion of counsel to the
Company, each dated the Overallotment Closing Date, addressed to the
Underwriters and in form and substance satisfactory to Underwriters' Counsel
confirming as of Overallotment Closing Date the statements made by such firm, in
their opinion, delivered on the Closing Date.
(f) On or prior to each of the Closing Date and the
Overallotment Closing Date, Underwriters' Counsel shall have been furnished such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
subsection (c) of this Section 6, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
(g) Prior to the Closing Date and each Overallotment Closing
Date, if any: (i) there shall have been no material adverse change nor
development involving a prospective change in the condition, financial or
otherwise, prospects or the business activities of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
condition is set forth in the Registration Statement and Prospectus; (ii) there
shall have been no transaction, not in the ordinary course of business, entered
into by the Company, from the latest date as of which the financial condition of
the Company is set forth in the Registration Statement and Prospectus which is
materially adverse to the Company; (iii) the Company shall not be in default
under any provision of any instrument relating to any outstanding indebtedness;
(iv) no material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus; (v)
no action, suit or proceeding, at law or in equity, shall have been pending or
to its knowledge threatened against the Company, or affecting any of its
properties or businesses before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially adversely affect the business,
operations, prospects or financial condition or income of the Company, except as
set forth in the Registration Statement and Prospectus; and (vi) no stop order
shall have been issued under the Act and no proceedings therefor shall have been
initiated, threatened or contemplated by the Commission.
(h) At the Closing Date and each Overallotment Closing Date,
if any, the Underwriters shall have received a certificate of the Company signed
by the principal executive officer and by the chief financial or chief
accounting officer of the Company, dated the Closing Date or Overallotment
Closing Date, as the case may be, to the effect that:
30
<PAGE> 31
(i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as of the Closing Date
or the Overallotment Closing Date, as the case may be, and the Company has
complied with all agreements and covenants and satisfied all conditions
contained in this Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Overallotment Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus
and, if any, each amendment and each supplement thereto, contain all statements
and information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading and neither the
Preliminary Prospectus or any supplement thereto included any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and except
as otherwise contemplated therein: (A) the Company has not incurred up to and
including the Closing Date or the Overallotment Closing Date, as the case may
be, other than in the ordinary course of its business, any material liabilities
or obligations, direct or contingent; (B) the Company has not paid or declared
any dividends or other distributions on its capital stock; (C) the Company has
not entered into any transactions not in the ordinary course of business; (D)
there has not been any change in the capital stock or any increase in long-term
debt or any increase in the short-term borrowings (other than any increase in
the short-term borrowings in the ordinary course of business) of the Company;
(E) the Company has not sustained any material loss or damage to its property or
assets, whether or not insured; (F) there is no litigation which is pending or
threatened against the Company which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth;
(v) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the
31
<PAGE> 32
Company's securities to facilitate the sale or resale of the Shares.
References to the Registration Statement and the Prospectus in this
subsection (i) are to such documents as amended and supplemented at the date of
such certificate.
(i) By the Closing Date, the Underwriters shall have received
clearance from NASD as to the amount of compensation allowable or payable to the
Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Representative
shall have received a letter, dated such date, addressed to the Representative
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriters, from Edward Isaacs & Company, LLP:
(i) confirming that they are independent public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the combined
financial statements and supporting schedules of the Company included in the
Registration Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules and Regulations
thereunder and that the Underwriters may rely upon the opinion of Edward Isaacs
& Company, LLP with respect to the financial statements and-supporting schedules
included in the Registration Statement;
(iii) stating that, on the basis of a limited review
which included a reading of the latest available unaudited interim combined
financial statements of the Company (with an indication of the date of the
latest available unaudited interim combined financial statements), a reading of
the latest available minutes of the stockholders and board of directors and the
various committees of the boards of directors of the Company, consultations with
officers and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries, nothing has
come to their attention which would lead them to believe that (A) the unaudited
combined financial statements and supporting schedules of the Company included
in the Registration Statement do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the Rules and
Regulations or are not fairly presented in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited combined financial statements of the Company included in the
Registration Statement, or (B) at a specified date not more than five (5) days
prior to the effective date of the Registration Statement, there
32
<PAGE> 33
has been any change in the capital stock or long-term debt of the Company, or
any decrease in the stockholders' equity or net current assets or net assets of
the Company as compared with amounts shown in the financial statements included
in the Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from ________
to a specified date not more than five (5) days prior to the effective date of
the Registration Statement, there was any decrease in net revenues, net earnings
or increase in net earnings per common share of the Company, in each case as
compared with the corresponding period beginning _________ other than as set
forth in or contemplated by the Registration Statement, or, if there was any
such decrease, setting forth the amount of such decrease;
(iv) setting forth, at a date not later than five (5)
days prior to the date of the Registration Statement, the amount of liabilities
of the Company (including a breakdown of commercial paper and notes payable to
banks);
(v) stating that they have compared specific dollar
amounts, numbers of Securities, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
including work sheets, of the Company and excluding any questions requiring an
interpretation by legal counsel, with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(vi) stating that they have not during the immediately
preceding five (5) year period brought to the attention of the Company's
management any "weakness", as defined in Statement of Auditing Standard No. 60
"Communication of Internal Control Structure Related Matters Noted in an Audit,
" in the Company's internal controls;
(vii) stating that they have in addition carried out
certain specified procedures, not constituting an audit, with respect to certain
pro forma financial information which is included in the Registration Statement
and the Prospectus and that nothing has come to their attention as a result of
such procedures that caused them to believe such unaudited pro forma financial
information does not comply in form in all material respects with the applicable
accounting requirements of Rule ll-02 of Regulation S-X or that the pro forma
adjustments have not been properly applied to the historical amounts in the
compilation of that information; and
33
<PAGE> 34
(viii) statements as to such other matters incident to
the transaction contemplated hereby as the Underwriters may reasonably request.
(k) At the Closing Date and each Option Closing Date, the
Underwriters shall have received from Edward Isaacs & Company, LLP, a letter,
dated as of the Closing Date, or Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to Subsection (j) of this Section , except that the specified date referred to
shall be a date not more than five days prior to Closing Date and, if the
Company has elected to rely on Rule 430A of the Rules and Regulations, to the
further effect that they have carried out procedures as specified in clause
(iii) of subsection (j) of this Section with respect to certain amounts,
percentages and financial information as specified by the Underwriters and
deemed to be a part of the Registration Statement pursuant to Rule 430A(b) and
have found such amounts, percentages and financial information to be in
agreement with the records specified in such clause (iii).
(l) On each of Closing Date and Overallotment Closing Date, if
any, there shall have been duly tendered to the Underwriters for the several
Underwriters' accounts the appropriate number of Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriters pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the
Overallotment Closing Date, if any, and no proceedings for that purpose shall
have been instituted or to its knowledge or that of the Company shall be
contemplated.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Overallotment Closing
Date, as the case may be, is not so fulfilled, the Underwriters may terminate
this Agreement or, if the Underwriters so elect, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each of
the Underwriters, including specifically each person who may be substituted for
an Underwriter as provided in Section 11 hereof) and each person, if any, who
controls any Underwriter ("controlling person") within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions in
respect thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation, commenced or threatened, or any claim whatsoever), as such are
34
<PAGE> 35
incurred, to which such Underwriter or such controlling person may become
subject under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
(i) in any Preliminary Prospectus, except that the indemnification contained in
this paragraph with respect to any preliminary prospectus shall not inure to the
benefit of the Underwriter or to the benefit of any person controlling the
Underwriter on account of any loss, claim, damage, liability or expense arising
from the sale of the Firm Securities by the Underwriter to any person if a copy
of the Prospectus, as amended or supplemented, shall not have been delivered or
sent to such person within the time required by the Act, and the untrue
statement or alleged untrue statement or omission or alleged omission of a
material fact contained in such Preliminary Prospectus was corrected in the
Prospectus, as amended and supplemented, and such correction would have
eliminated the loss, claim, damage, liability or expense), the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Underwriters' Unit Purchase Option; or (iii) in
any application or other document or written communication (in this Section 8
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, Nasdaq Stock Market, Inc. or any other
securities exchange; or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements therein
not misleading (in the case of the Prospectus, in the light of the circumstances
under which they were made), unless such statement or omission was made in
reliance upon and in conformity with written information furnished to the
Company with respect to any Underwriter by or on behalf of such Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, in any
post-effective amendment, new registration statement or prospectus or in any
application, as the case may be.
The indemnity agreement in this subsection (a) shall be in addition to
any liability which the Company may have at common law or otherwise.
(b) Each of the Underwriters agrees severally, but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement, and each other
person, if any, who controls the Company within the meaning of the Act to the
same extent as the foregoing indemnity from the Company to the Underwriters but
only with
35
<PAGE> 36
respect to statements or omissions, if any, made in any Preliminary Prospectus,
the Registration Statement or Prospectus or any amendment thereof or supplement
thereto in any post-effective amendment, new registration statement or
prospectus, or in any application made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
any Underwriter by such Underwriter expressly for use in such Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto or in any post-effective amendment, new registration
statement or prospectus, or in any such application, provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof or
supplement thereto, in any post-effective amendment, new registration statement
or prospectus or in any such application, provided, further, that the liability
of each Underwriter to the Company shall be limited to the amount of the net
proceeds of the Offering received by the Company. The Company acknowledges that
the statements with respect to the public offering of the Firm Securities set
forth under the heading "Underwriting" and the stabilization legend and the last
paragraph of the cover age in the Prospectus have been furnished by the
Underwriters expressly for use therein and any information furnished by or on
behalf of the Underwriter filed in any jurisdiction in order to qualify the
Securities under State Securities laws or filed with the Commission, the NASD or
any securities exchange constitute the only information furnished in writing by
or on behalf of the Underwriters for inclusion in the Prospectus and the
Underwriters hereby confirm that such statements and information are true and
correct.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, suit or proceeding, such
indemnified party shall, if a claim in respect thereof is to be made against one
or more indemnifying parties under this Section 7, notify each party against
whom indemnification is to be sought in writing of the commencement thereof (but
the failure so to notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 except to the extent that it
has been prejudiced in any material respect by such failure or from any
liability which it may have otherwise). In case any such action is brought
against any indemnified party, and it notifies an indemnifying party or parties
of the commencement thereof, the indemnifying party or parties will be entitled
to participate therein, and to the extent it may elect by written notice
delivered to the indemnified party promptly after receiving the aforesaid notice
from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party. Notwithstanding the foregoing
the indemnified party or parties shall have the right to employ its or their own
counsel in any such case but the fees and expenses of such counsel shall be at
the expense of such indemnified party or
36
<PAGE> 37
parties unless (i) the employment of such counsel shall have been authorized in
writing by the indemnifying parties in connection with the defense of such
action at the expense of the indemnifying party, (ii) the indemnifying parties
shall not have employed counsel reasonably satisfactory to such indemnified
party to have charge of the defense of such action within a reasonable time
after notice of commencement of the action, or (iii) such indemnifying party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those available to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events such fees and expenses of
one additional counsel shall be borne by the indemnifying parties. In no event
shall the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. Anything in this Section 7 to the contrary
notwithstanding, an indemnifying party shall not be liable for any settlement of
any claim or action effected without its written consent; provided however, that
such consent was not unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by each of the contributing parties, on the one
hand, and the party to be indemnified on the other hand, from the offering of
the Securities or (B) if the allocation provided by clause (A) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages, expenses or liabilities, as well
as any other relevant equitable considerations. In any case where the Company is
the contributing party and the Underwriters are the indemnified party the
relative benefits received by the Company on the one hand, and the Underwriters,
on the other, shall
37
<PAGE> 38
be deemed to be in the same proportion as the total net proceeds from the
offering of the Securities (before deducting expenses) bear to the total
underwriting discounts and commissions received by the Underwriters hereunder,
in each case as set forth in the table on the Cover Page of the Prospectus.
Relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or by the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such untrue
statement or omission. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, expenses or liabilities (or actions in
respect thereof) referred to above in this subdivision (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (d), the Underwriters shall
not be required to contribute any amount in excess of the amount of the net
proceeds of the Offering received by the Company. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person, if any, who
controls the Company within the meaning of the Act, each officer of the Company
who has signed the Registration Statement, and each director of the Company
shall have the same rights to contribution as the Company, subject in each case
to this subparagraph (d). Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be made
against another party or parties under this subparagraph (d), notify such party
or parties from whom contribution may be sought, but the omission so to notify
such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this subparagraph (d), or to the extent that such party or
parties were not adversely affected by such omission. The contribution agreement
set forth above shall be in addition to any liabilities which any indemnifying
party may have at common law or otherwise.
8. Representations and Agreements to Survive Delivery. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, or any controlling
38
<PAGE> 39
person, and shall survive termination of this Agreement or the issuance and
delivery of the Securities to the Underwriters.
9. Effective Date.
This Agreement shall become effective at _____ a.m., New York
City time, on the next full business day following the date hereof, or at such
earlier time after the Registration Statement becomes effective as the
Underwriters, in their discretion, shall release the Securities for the sale to
the public, provided, however that the provisions of Sections 5, 7 and 10 of
this Agreement shall at all times be effective. For purposes of this Section 9,
the Securities to be purchased hereunder shall be deemed to have been so
released upon the earlier of dispatch by the Underwriters of telegrams to
securities dealers releasing such Securities for offering or the release by the
Underwriters for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. Termination.
(a) The Underwriters shall have the right to terminate this
Agreement: (i) if any calamitous domestic or international event or act or
occurrence has materially disrupted, or in the Underwriters' opinion will in the
immediate future materially disrupt general securities markets in the United
States; or (ii) if trading on the New York Stock Exchange, the American Stock
Exchange, or in the over-the-counter market shall have been suspended or minimum
or maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall have been required on the over-the-counter market by
the NASD or by order of the Commission or any other government authority having
jurisdiction; or (iii) if the United States shall have become involved in a war
or major hostilities; or (iv) if a banking moratorium has been declared by a New
York State or federal authority; or (v) if a moratorium in foreign exchange
trading has been declared; or if the Company shall have sustained a material
loss, whether or not insured, by reason of fire, flood, accident or other
calamity; or (vii) if there shall have been such material adverse change in the
conditions or prospects of the Company, involving a change not contemplated by
the Registration Statement, or (viii) if there shall have been such material
adverse general market conditions as in the Underwriters' reasonable judgment
would make it inadvisable to proceed with the offering, sale and/or delivery of
the Securities.
(b) Notwithstanding any contrary provision contained in this
Agreement, any election hereunder or any termination of this Agreement
(including, without limitation, pursuant to Sections 9 and 10 hereof), and
whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way
39
<PAGE> 40
affected by such election or termination or failure to carry out the terms of
this Agreement or any part hereof.
11. Substitution of the Underwriters. If one or more of the
Underwriters shall fail (otherwise than for a reason sufficient to justify the
termination of this Agreement under the provisions of Section 6, Section 10 or
Section 12 hereof) to purchase the Securities which it or they are obligated to
purchase on such date under this Agreement (the "Defaulted Securities), the
Underwriters shall have the right, within 24 hours thereafter, to make
arrangements for one or more of the non-defaulting Underwriters, or any other
Underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Underwriters shall not have completed such arrangements
within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the total number of Firm Securities to be purchased on such date, the
non-defaulting Underwriters shall be obligated to purchase the full amount
thereof in the proportions that their respective underwriting obligations
hereunder bear to the underwriting obligations of all nondefaulting
Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
total number of Firm Securities, this Agreement shall terminate without
liability on the part of any nondefaulting Underwriters.
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of any default such Underwriter under this
Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Underwriters shall have the right to postpone
the Closing Date for a period not exceeding seven days in order to effect any
required changes in the Registration Statement or Prospectus or in any other
documents or arrangements.
12. Default by the Company. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Securities to be purchased on an Option Closing Date, the Underwriters
may at the Underwriters' option, by notice from the Underwriters to the Company,
terminate the Underwriters' several obligations to purchase Securities from the
Company on such date) without any liability on the part of any non-defaulting
party other than pursuant to Section 5 and Section 7 hereof. No action taken
pursuant to this Section shall relieve the Company from liability, if any, in
respect of such default.
40
<PAGE> 41
13. Notices. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be deemed
to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative at Walsh Manning Securities, Inc., 90 Broad Street, New York, New
York 10004, with a copy to Goldstein & DiGioia, 369 Lexington Avenue, New York,
New York 10017, Attention: Stanley R. Goldstein, Esq. Notices to the Company
shall be directed to the Company at 1407 Broadway, New York, New York 10018,
Attention: Mitchell Dobler, with a copy to David Feldman, 555 Madison Avenue,
New York, New York, Attention: David B. Newman, Esq.
14. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and their respective
heirs and legal representatives and no other person shall have or be construed
to have any legal or equitable right, remedy or claim under or in respect of or
by virtue of this Agreement or any provisions herein contained. No purchaser of
Securities from any Underwriter shall be deemed to be a successor by reason
merely of such purchase.
15. Construction. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles.
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
41
<PAGE> 42
If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
JENNA LANE, INC.
By:___________________________
Name:
Title:
Confirmed and accepted as of the date first above written.
WALSH MANNING SECURITIES, INC., as
Representative of the Several Underwriters
By:_____________________________
Name:
Title:
42
<PAGE> 43
SCHEDULE I
UNDERWRITER NUMBER OF SECURITIES
43
<PAGE> 44
SCHEDULE II
WARRANT AGENT -
44
<PAGE> 1
EXHIBIT 1.2
WARRANT AGREEMENT dated as of ________, 1996 between Jenna
Lane, Inc., a Delaware corporation, having its principal place of business at
1407 Broadway, Suite 1801, New York, NY 10018, (the "Company") and American
Stock Transfer & Trust Company, a New York corporation, having its principal
place of business at 40 Wall Street, New York, New York 10005 (the "Warrant
Agent").
W I T N E S S E T H :
WHEREAS, the Company proposes to issue and sell to the public
in an initial public offering (the "IPO") up to 600,000 units ("Units"), each
Unit consisting of two (2) shares of the Company's Common Stock, par value $.001
per share ("Shares"), and one Redeemable Class A Common Stock Purchase Warrant
(the "Public Warrants") (plus an additional 90,000 Units to cover
overallotments);
WHEREAS, the Company also proposes to issue and sell to Walsh
Manning Securities, Inc. (the "Underwriter") in the IPO an option
("Underwriters' Unit Option") to purchase 60,000 Units, each Unit consisting of
two (2) shares of Common Stock and one Common Stock Purchase Warrant (the
"Underwriter Warrants" and together with the Public Warrants sometimes
hereinafter referred to as the "Warrants");
WHEREAS, the Warrants shall be evidenced by certificates
substantially in the form of Exhibit A annexed hereto (the "Warrant
Certificate"), each Warrant entitling the holder thereof to purchase one share
of Common Stock;
WHEREAS, the Warrants will have an exercise price of $7.50 per
share of Common Stock, subject to certain adjustments (the "Warrant Price"), and
except for the Underwriters' Warrants, will be exercisable commencing on the
date hereof ("First Exercise Date") until a date which is the third anniversary
thereof ("Last Exercise Date"), unless extended by the Company, and, except for
the Underwriter's Warrants, will be exercisable during any period of time fixed
for that Warrant's redemption in a Redemption Notice (hereinafter defined in
Section 2.03), which period of time will terminate on a stated Redemption Date
(hereinafter defined in Section 2.03);
WHEREAS, the Company desires the Warrant Agent to act on
behalf of the Company, and the Warrant Agent is willing to so act in connection
with the issuance, registration, transfer, exchange and replacement of the
Warrant Certificates and exercise of the Warrants; and
WHEREAS, the Company and the Warrant Agent desire to set forth
in this Agreement the terms and conditions upon which the Warrant Certificates
shall be issued, transferred, exchanged and
<PAGE> 2
placed and the Warrants exercised, and to provide for the rights of the holders
of the Warrants;
NOW, THEREFORE, in consideration of the foregoing and other
good and valuable consideration, the receipt of which is hereby acknowledged,
and the respective undertakings herein below set forth, the Company and the
Warrant Agent agree as follows:
ARTICLE I
ISSUANCE AND EXECUTION OF WARRANTS
SECTION 1.01. The Company hereby appoints the Warrant Agent to act on
behalf of the Company in accordance with the terms and conditions herein set
forth, and the Warrant Agent hereby accepts such appointment and agrees to
perform the same in accordance with such provisions.
SECTION 1.02. The Warrant Certificates for the Warrants shall be issued
in registered form only. The text of the Warrant Certificate, including the form
of assignment and subscription printed on the reverse side thereof, shall be
substantially in the form of Exhibit A annexed hereto, which text is hereby
incorporated in this Agreement by reference as though fully set forth herein and
to whose terms and conditions the Company and the Warrant Agent hereby agree.
Each Warrant Certificate shall evidence the right, subject to the provisions of
this Agreement and of such Warrant Certificate, to purchase the number of
validly issued, fully paid and non-assessable shares of Common Stock, as that
term is defined in Section 1.05 of this Agreement, stated therein, free of
preemptive rights, subject to adjustment as provided in Article III of this
Agreement.
SECTION 1.03. Upon the written order of the Company, signed by the
President or any Vice President, and the Secretary, Treasurer, Assistant
Secretary or Assistant Treasurer of the Company, the Warrant Agent shall issue
and register Warrants in the names and denominations specified in that order,
and will countersign and deliver Warrant Certificates evidencing the same in
accordance with that order. Each Warrant Certificate shall be dated the date of
its countersignature. Each Warrant Certificate shall be executed on behalf of
the Company by the manual or facsimile signature of the President of the
Company, under its corporate seal, affixed or facsimile, attested by the manual
or facsimile signature of the Secretary of the Company and shall be
countersigned manually by the Warrant Agent. The Warrant Certificates shall not
be valid for any purpose unless so countersigned. In case any officer whose
facsimile signature has been placed upon any Warrant Certificate shall have
ceased to be such before such Warrant Certificate is issued, it may be issued
with the same effect as if such officer had not ceased to be such on the date of
issuance.
2
<PAGE> 3
SECTION 1.04. Except as otherwise expressly stated herein, all terms
used in the Warrant Certificate have the meanings provided in this Agreement.
SECTION 1.05. As used herein, the term "Common Stock" shall mean the
aggregate number of shares that the Company, by its Certificate of
Incorporation, as from time to time amended, is authorized to issue, which are
not limited by its Certificate of Incorporation to a fixed sum or percentage of
the book value in respect of the rights of the holders thereof to participate in
dividends or in distribution of assets upon the voluntary or involuntary
liquidation, dissolution, or winding up the Company.
SECTION 1.06. The Warrant Agent understands and agrees that the Public
Warrants are being issued together with shares of Common Stock as constituting
Units in the IPO and that the Shares and the Public Warrants are detachable nor
may be traded separately, immediately upon the Effective Date.
ARTICLE II
WARRANT PRICE, DURATION AND EXERCISE OF WARRANTS,
CALL OF WARRANTS AND TRADING OF WARRANT
SECTION 2.01. (a) Each Warrant shall entitle the person in whose name
at the time the Warrant shall be registered upon the books to be maintained by
the Warrant Agent for that purpose (the Warrant Holder"), subject to the
provisions of the Warrant Certificates and of this Agreement, to purchase from
the Company any time on or after the First Exercise Date but at or before the
Last Exercise Date, the number of shares of Common Stock stated therein, as
adjusted, at the Warrant Price in effect at such date, payable in full at the
time of purchase in the manner provided in Section 2.02 of this agreement.
(b) Each Warrant shall be exercisable in accordance with the
terms herein and in the Warrant Certificate which, among other things, contains
certain terms as to the Warrant Price.
SECTION 2.02. (a) The Warrant Holder may exercise a Warrant, in whole
or in part, by surrender of the Warrant Certificate, with the form of
subscription thereon duly executed by the Warrant Agent at its corporate office,
together with the Warrant Price for each share of Common Stock to be purchased
in lawful money of the United States, or by certified check, bank draft, or
postal or express money order payable in United States Dollars to the order of
the Company.
(b) Upon receipt of a Warrant Certificate with the form of
election to purchase thereon duly executed and accompanied by
3
<PAGE> 4
payment of the aggregate Warrant Price for the shares of Common Stock for which
the Warrant is then being exercised, the Warrant Agent shall requisition from
the transfer agent certificates for the total number of the shares of Common
Stock, for which the Warrant is being exercised in such names and denominations
as are required for delivery to the Warrant Holder, and the Warrant Agent shall
thereupon deliver such certificates to or in accordance with the instructions of
the Warrant Holder. The Company covenants and agrees that it has duly authorized
and directed its transfer agent (and will authorize and direct all its future
transfer agents) to comply with all such requests of the Warrant Agent.
(c) In case any Warrant Holder shall exercise his Warrant with
respect to less than all of the shares of Common Stock that may be purchased
under the Warrant, a new Warrant Certificate for be balance shall be
countersigned and delivered to or upon the order of the Warrant Holder.
(d) The Company covenants and agrees that it will pay when due
and payable any and all issue, transfer and other taxes which may be payable in
respect to the issuance of Warrants, or the issuance of any shares of Common
Stock upon the exercise of Warrants. However, neither the Company nor the
Warrant Agent shall be required to issue or deliver any Warrant Certificate or
shares of Common Stock in a name other than that of the Warrant Holder at the
time of surrender if any tax is payable in respect of such transfer until the
person requesting the same has paid to the Company the amount of such tax or has
established to the Company's satisfaction that such tax has been paid or shall
not be due and payable. In the event that any transfer tax is due and payable,
the Warrant Agent shall be under no obligation to issue or deliver any Warrant
Certificate or shares of Common Stock in a name other than that of the Warrant
Holder until the Company has notified the Warrant Agent that the transfer tax,
if any, has been paid, or in the alternative, that no transfer tax is due and
payable by reason of an exemption.
(e) The Warrant Agent shall account promptly to the Company
with respect to Warrants exercised and concurrently account to the Company for
all moneys received by the Warrant Agent for the purchase of shares of Common
Stock upon the exercise of Warrants.
(f) The Warrant Agent covenants and agrees that upon the
exercise of any of the Warrants, the Warrant Agent shall provide written notice
to the Company and to the Underwriter at its office at 90 Broad Street, New
York, NY 10004, the expense of which notice shall be borne by the Company. Each
notice shall contain the name of the exercising Warrant Holder, the number of
shares of Common Stock that the Warrant Holder has elected to purchase, the
purchase price paid on a per share basis and the cumulative number of Warrants
exercised by all of the Warrant Holders as of the date of the transaction which
is the subject of the aforesaid notice. Such
4
<PAGE> 5
notice shall be made on the date of the exercise of the Warrant. Nothing
contained herein shall be construed so as to prevent the Warrant Agent from
providing the information required in this Section 2.02 (f) in a consolidated or
tabular form, provided that all other provisions of this Section are complied
with.
(g) The Warrant Agent covenants and agrees that it shall
provide a list of each and every holder of the Warrants to the Company and the
Underwriter at such time or from time to time as shall be required by the
Company or the Underwriter, but in no event shall such a list be provided less
frequently than once per annum at a date as shall be determined by the Company.
SECTION 2.03. (a) Commencing on ______, 1997, the Company may, subject
to the conditions set forth herein, redeem all, but not less than all, the
Public Warrants then outstanding at a redemption price of $.05 per Public
Warrant upon not less than thirty (30) days prior written notice (the
"Redemption Notice") to the holders thereof that the average closing price of
the Common Stock for the 20 consecutive trading days ending three (3) days prior
to the date of the Redemption Notice is at least $11.00, subject to adjustment
for stock dividends, stock splits and other anti-dilution provisions as provided
for under Article III herein. For purposes of this Section 2.03, "closing price"
at any date shall be deemed to be: (i) the last sale price regular way as
reported on the principal national securities exchange on which the Common Stock
is listed or admitted to trading, or (ii) if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices regular way for the Common Stock as reported by the
Nasdaq National Market or Nasdaq Small Cap Market of the Nasdaq Stock Market,
Inc. ("NASDAQ") or (iii) if the Common Stock is not listed or admitted for
trading on any national securities exchange, and is not reported by NASDAQ, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by the National Quotation Bureau, Inc. or if no such quotation is
available, the fair market value of the Common Stock as determined in good faith
by the Board of Directors of the Company. The Redemption Notice shall be deemed
effective upon mailing and the time of mailing is the "Effective Date of The
Notice". The Redemption Notice shall state a redemption date not less than
thirty (30) days from the Effective Date of the Notice (the "Redemption Date").
No Redemption Notice shall be mailed unless all funds necessary to pay for
redemption of all Warrants then outstanding shall have first been set aside by
the Company in trust with the Warrant Agent for the benefit of all Public
Warrant Holders so as to be and continue to be available therefor. The
redemption price to be paid to the Public Warrant Holders will be $.05 for each
share of the Common Stock of the Company to which the Warrant Holder would then
be entitled upon exercise of the Public Warrant being redeemed, as adjusted from
time to time as provided herein (the "Redemption Price"). In the event the
number of shares of Common Stock issuable upon exercise of the Public Warrant
being
5
<PAGE> 6
redeemed are adjusted pursuant to Article III hereof, then upon each such
adjustment the Redemption Price will be adjusted by multiplying the Redemption
Price in effect immediately prior to such adjustment by a fraction, the
numerator of which is the number of shares of Common Stock issuable upon
exercise of the Warrant being redeemed immediately prior to such adjustment and
the denominator of which is the number of shares of Common Stock issuable upon
exercise of such Public Warrant being redeemed immediately after such
adjustment. The Public Warrants may only be redeemed if the Company has in
effect a current Registration Statement or post-effective amendment covering the
shares underlying the Public Warrants. The Public Warrant Holders may exercise
their Public Warrants between the Effective Date of The Notice and the
Redemption Date, such exercise being effective if done in accordance with
Section 2.02 (a), and if the Warrant Certificate, with form of election to
purchase duly executed and the Warrant Price, as applicable for such Public
Warrant subject to redemption for each share of Common Stock to be purchased is
actually received by the Warrant Agent at its office located at 40 Wall Street
New York, New York 10005, no later than 5:00 P.M. New York Time on the
Redemption Date.
(b) If any Public Warrant Holder does not wish to exercise any
Public Warrant being redeemed, the Warrant Holder should mail such Public
Warrant to the Warrant Agent at its office located at 40 Wall Street New York,
New York 10005, after receiving the Redemption Notice required by this Section.
If such Redemption Notice shall have been so mailed, and if on or before the
Effective Date of the Notice all funds necessary to pay for redemption of all
Public Warrants then outstanding shall have been set aside by the Company in
trust with the Warrant Agent for the benefit of all Public Warrant Holders so as
to be and continue to be available therefor, then, on and after said Redemption
Date, notwithstanding that any Public Warrant subject to redemption shall not
have been surrendered for redemption, the obligation evidenced by all Public
Warrants not surrendered for redemption or effectively exercised shall be deemed
no longer outstanding, and all rights with respect thereto shall forthwith cease
and terminate, except only the right of the holder of each Public Warrant
subject to redemption to receive the Redemption Price for each share of Common
Stock to which he would be entitled if he exercised the Public Warrant upon
receiving the Redemption Notice of the Public Warrant subject to redemption held
by the Holder hereof.
(c) Notwithstanding anything contained in this Article II, the
Underwriter's Warrants shall not be eligible for redemption by the Company.
6
<PAGE> 7
ARTICLE III
ADJUSTMENT OF SHARES OF COMMON STOCK PURCHASABLE
AND OF WARRANT PRICE
SECTION 3.01. In case the Company shall at any time after the date of
this Agreement (i) declare a dividend on the outstanding Common Stock in shares
of its capital stock, (ii) subdivide the outstanding Common Stock, (iii) combine
the outstanding Common Stock into a smaller number of shares, or (iv) issue any
shares of its capital stock by reclassification of the Common Stock (including
any such reclassification in connection with a consolidation or merger in which
the Company is the continuing corporation), then, in each case, the Warrant
Price, and the number and kind of shares of Common Stock receivable upon
exercise, in effect at the time of the record date for such dividend or of the
effective date of such subdivision, combination, or reclassification shall be
proportionately adjusted so that the holder of any Warrant exercised after such
time shall be entitled to receive the aggregate number and kind of shares which
if such warrant had been exercised immediately prior to such time, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination, or reclassification. Such adjustment shall
be made successively whenever any event listed above shall occur.
SECTION 3.02. In case the Company shall issue rights, options, or
warrants to holders of Common Stock entitling them to subscribe for or purchase
Common Stock (or securities convertible into or exchangeable for Common Stock)
at a price per share (or having a conversion price per share, if a security
convertible into or exchangeable for Common Stock) less than the "current market
price" (as defined in Section 3.04 hereof) per share of Common Stock on the
record date established for the issuance of such rights, options or warrants,
then, in such case, the Warrant Price shall be adjusted by multiplying the
Warrant Price in effect on the record date of such issuance by a fraction, of
which the numerator shall be the number of shares of Common Stock outstanding on
record date for such issuance plus the number of shares of Common Stock which
the aggregate offering price of the total number of shares of Common Stock so to
be issued (or the aggregate initial conversion price of the convertible
securities to be issued or sold) would purchase at such "current market price"
and of which the denominator shall be the number of shares of Common Stock
outstanding on the record date for such issuance plus the number of additional
shares of Common Stock to be issued (or into which the convertible or
exchangeable securities to be issued or sold are initially convertible or
exchangeable). Such adjustment shall become effective at the close of business
on such record date; provided, however, that, to the extent the shares of Common
Stock (or securities convertible to or exchangeable for shares of Common Stock)
are not delivered, the Warrant Price shall be readjusted
7
<PAGE> 8
after the expiration of such rights, options, or warrants (but only with respect
to Warrants exercised after such expiration), to the Warrant Price which would
then be in effect had the adjustments made upon the issuance of such rights or
warrants been made upon the basis of delivery of only the number of shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock) actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error. Shares of Common Stock owned by or held for the account of the
Company or any majority-owned subsidiary shall not be deemed outstanding for the
purpose of any such computation.
Notwithstanding the foregoing, no adjustment in the Warrant Price or
the number of shares of Common Stock issuable upon exercise of the Warrants
shall be made upon (i) the issuance of options (or upon exercise thereof) by the
Company pursuant to its 1996 Stock Option Plan or (ii) the issuance of the
Underwriter's Warrants.
SECTION 3.03. In case the Company shall distribute to holders of Common
Stock (including any such distribution made to the stockholders of the Company
in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness or assets (other then cash
dividends distributions and dividends payable in shares of Common Stock),
subscription rights, options, or warrants or convertible or exchangeable
securities containing the right to subscribe for or purchase shares of Common
Stock (excluding those referred to in Section 3.02 hereof), then, in each case,
the Warrant price shall be adjusted by multiplying the Warrant Price in effect
immediately prior to the record date for the determination of stockholders
entitled to receive such distribution by a fraction of which the numerator shall
be the "current market price" per share of Common Stock on such record date,
less the fair market value (as determined in good faith by the board of
directors of the Company, whose determination shall be conclusive absent
manifest error) of the portion of the evidences of indebtedness or assets so to
be distributed, or of such subscription rights, options, or warrants,
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock, applicable to the share, and of which the
denominator shall be such "current market price" per share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of such distribution retroactive to the record date
for the determination of stockholders entitled to receive such distribution.
SECTION 3.04. For the purpose of any computation under sections 3.02
and 3.03 hereof, the "current market price" per share
8
<PAGE> 9
of Common Stock on any date shall be deemed to be the average of the daily
closing prices for the 20 consecutive trading days ending three (3) days prior
to such date. The closing price for each day shall be the last reported sales
price regular way or, in case no such reported sale takes place on such day, the
closing bid price regular way, in either case on the principal national
securities exchange on which the Common Stock is listed or admitted to trading
or, if the Common Stock is not listed or admitted to trading on any national
securities exchange, the highest reported bid price as furnished by NASDAQ. If
on any such date the Common Stock is not quoted on NASDAQ or any such
organization, the closing price shall be deemed to be the average of the closing
bid and asked prices in the over-the-counter market as reported by the National
Quotation Bureau or if no such quotation is available, the fair value of the
Common Stock on such date, as determined in good faith by the board of directors
of the Company, whose determination shall be conclusive absent manifest error.
SECTION 3.05. No adjustment in the Warrant Price shall be required if
such adjustment is less than $.01; provided, however, that any adjustments which
by reason of this Section 3.05 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Article III shall be made to the nearest cent or to the nearest
one-thousandth of a share, as the case may be.
SECTION 3.06. In any case in which this Article III shall require that
an adjustment in the Warrant Price be made effective as of a record date for a
specified event, the Company may elect to defer, until the occurrence of such
event, issuing to the holder of any Warrant exercised after such record date,
the shares, if any, issuable upon such exercise over and above the shares, if
any, issuable upon such exercise on the basis of the Warrant Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
SECTION 3.07. Upon each adjustment of the Warrant Price as a result of
the calculations made in Section 3.01, 3.02, or 3.03 hereof, each Warrant
outstanding prior to the making of the adjustment in the Warrant Price shall
thereafter evidence the right to purchase, at the adjusted Warrant Price, that
number of shares (calculated to the nearest thousandth) obtained by dividing (A)
the product obtained by multiplying the number of shares purchasable upon
exercise of a Warrant prior to adjustment of the number of shares by the Warrant
Price in effect prior to adjustment of the Warrant Price by (B) the Warrant
Price in effect after such adjustment of the Warrant Price.
SECTION 3.08. In case of any capital reorganization of the
9
<PAGE> 10
Company, or of any reclassification of the Common Stock (other than a
reclassification of the Common Stock referred to in Section 3.01 hereof), or in
the case of the consolidation of the Company with or the merger of the Company
into any other corporation or of the sale, transfer, or lease of the properties
and assets of the Company as, or substantially as, an entirety to any other
corporation or other entity, each Warrant shall after such capital
reorganization, reclassification of Common Stock, consolidation, merger, sale,
transfer, or lease, be exercisable, on the same terms and conditions specified
in this Agreement, for the number of shares of stock or other securities,
assets, or cash to which a holder of the number of shares purchasable (at the
time of such capital reorganization, reclassification of Common Stock,
consolidation, merger, sale, transfer, or lease) upon exercise of such Warrant
would have been entitled upon such capital reorganization, reclassification of
Common Stock, consolidation, merger, sale, transfer, or lease; and in any such
case, if necessary, the provisions set forth in this Article III with respect to
the rights and interests thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable, as nearly as may reasonably be,
to any shares of stock other securities, assets, or cash thereafter deliverable
on the exercise of the Warrants. The subdivision or combination of shares of
Common Stock at any time outstanding into a greater or lesser number of shares
shall not be deemed to be a reclassification of the Common Stock for the
purposes of this subsection. The Company shall not effect any such
consolidation, merger, transfer, or lease, unless prior to or simultaneously
with the consummation thereof, the successor corporation (if other than the
Company) resulting from such consolidation or merger or the Corporation
purchasing, receiving, or leasing such assets or other appropriate corporation
or entity shall expressly assume, by written instrument in form satisfactory to
the Underwriter and duly executed and delivered to each holder of a Warrant, the
obligation to deliver to the holder of each Warrant such shares of stock,
securities, or assets as, in accordance with the foregoing provisions, such
holders may be entitled to purchase and to perform the other obligations of the
Company under this Agreement.
SECTION 3.09. The Company may make such reductions in the Warrant
Price, in addition to those required by this Article III, as it shall, in it
sole discretion, determine to be advisable.
ARTICLE IV
OTHER PROVISIONS RELATING TO RIGHTS OF
WARRANT HOLDERS
SECTION 4.01. No Warrant Holder, as such shall be entitled to vote or
receive dividends or be deemed the holder of shares of Common Stock for any
purposes, nor shall anything contained in any Warrant Certificate be construed
to confer upon any Warrant holder,
10
<PAGE> 11
as such, any of the rights of a shareholder of the Company or any right to vote,
give or withhold consent to any action by the Company, whether upon any
recapitalization, issue of stock, reclassification of stock, consolidation,
merger, conveyance or otherwise, receive dividends or subscription rights, or
otherwise, until in connection with the exercise of any Warrant, such Warrant
shall have been surrendered and the purchase price or the shares of Common Stock
for which such Warrant is being exercised shall have been received by the
Warrant Agent; provided, however, that any such surrender and payment on any
date when the stock transfer books of the Company shall be closed shall
constitute the person or persons in whose name or names the certificate or
certificates for those shares of Common Stock are to be issued as the record
holder or holders thereof for all purposes at the opening of business on the
next succeeding day on which such stock transfer books are open and the Warrant
surrendered shall not be deemed to have been exercised, in whole or in part, as
the case maybe, until such next succeeding day on which stock transfer books are
open.
SECTION 4.02. The Company covenants and agrees that it shall
contemporaneously provide to all Warrant Holders of record any publication,
mailing or notice of an event which it shall provide to all of its shareholders
of record and which event shall result in the adjustment to the Warrant Price as
provided in Article III hereof. For purposes of this Section 4.02, the Warrant
Holders of record shall be those Warrant Holders who are of record on a date
even with the date chosen by the Company for the purpose of determining the
shareholders of record who shall be entitled to receive such publication,
mailing or notice.
SECTION 4.03. If any Warrant Certificate is lost, stolen, mutilated or
destroyed, the Company and the Warrant Agent may, on such terms as to indemnity
or otherwise as they may in their discretion reasonably impose, which shall, in
the case of a mutilated Warrant Certificate, include the surrender thereof,
issue a new Warrant Certificate of like denomination and tenor as, and in
substitution for, the Warrant Certificate so lost, stolen mutilated or
destroyed.
SECTION 4.04. (a) The Company covenants and agrees that at all times it
shall reserve and keep available for the exercise of outstanding Warrants such
number of authorized shares of Common Stock and the aggregate number and kind of
any other securities which the Warrants are exercisable for, pursuant to the
provisions of Article III hereof, as are sufficient to permit the exercise in
full of such Warrants and that it will make available to the Warrant Agent from
time to time a number of duly executed certificates representing shares of
Common Stock and other securities, sufficient therefor.
(b) The Company shall use its best efforts to secure the
listing, upon official notice of issuance, of the shares of Common
11
<PAGE> 12
Stock issuable upon exercise of Warrants upon any securities exchange or NASDAQ
upon which the Common Stock becomes listed.
(c) The Company covenants that all shares of Common Stock
issued on exercise of Warrants shall be validly issued, fully paid,
non-assessable and free of preemptive rights.
(d) The Company has filed a Registration Statement on Form S-1
(Registration No. __________) for the registration of, among other things, the
sale of the Warrants and the shares of Common Stock issuable upon exercise
thereof under the Securities Act of 1933, as amended (the "Act"). The Company
shall use its best efforts to secure the effectiveness of the Registration
Statement under the Act, and to register or qualify such Warrants and shares of
Common Stock under the laws of any states in which the sale of the Warrants and
shares of Common Stock was registered or qualified at the time of the IPO and
shall use its reasonable good faith efforts to register and qualify such
Warrants and shares of Common Stock in such additional states and jurisdictions
as may be appropriate. The Company further agrees to use its best efforts
maintain the effectiveness of such Registration Statement and such state
qualifications, as aforesaid, by the filing of any and all amendments to the
Registration Statement and such state qualifications as may be required from
time to time under the Act or the laws of the various states until the
expiration or termination of all the Warrants in accordance herewith.
(e) The Company will furnish to the Warrant Agent, upon
request, an opinion of counsel satisfactory to the Warrant Agent the effect that
(i) a Registration Statement under the Act is then in effect with respect to the
Warrants and shares of Common Stock issuable upon the exercise of the Warrants
and that the prospectus included therein complies as to form in all material
respects, (except as to financial statements, including schedules, and other
accounting and financial data, as to which such counsel need express no
opinion), with the requirements of the Act and the rules and regulations of the
Commission thereunder; or (ii) a Registration Statement under the Act with
respect to said shares of Common Stock is not required. In the event that said
opinion states that such a Registration Statement is in effect, the Company will
from time to time furnish the Warrant Agent with current prospectuses meeting
the requirements of the Act and such rules and regulations in sufficient
quantity to permit the Warrant Agent to deliver a prospectus ("Prospectus") to
each Warrant Holder upon exercise thereof. The Company further agrees to pay all
fees, costs and expenses in connection with the preparation and delivery to the
Warrant Agent of the foregoing opinions and Prospectuses and the above mentioned
registrations and other actions, and to immediately notify the Warrant Agent in
the event that (i) the Commission shall have issued or threatened to issue any
order preventing or suspending the use of any Prospectus; (ii) at any time any
Prospectus shall contain any untrue statement of a material fact or
12
<PAGE> 13
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading; or (iii) for any reason it shall be
necessary to amend or supplement any Prospectus in order to comply with the Act.
SECTION 4.05. If the number of shares purchasable upon the exercise of
each Warrant is adjusted pursuant to Section 3.07 hereof, the Company shall not
be required to issue fractions of shares upon exercise of the Warrants or to
distribute share certificates which evidence fractional shares. In lieu of
fractional shares, there shall be paid to the registered holders of Warrant
Certificates at the time such Warrants are exercised as herein provided an
amount in cash equal to the same fraction of the current market value of a
share. For purposes of this Section 4.05, the current market value of a share
issuable upon the exercise of a Warrant shall be the closing price of a share of
Common Stock, as determined pursuant to the second and third sentences of
Section 3.04, for the trading day immediately prior to the date of such
exercise.
ARTICLE V
TREATMENT OF WARRANT HOLDERS
SECTION 5.01. Prior to due presentment for registration of transfer of
any Warrant, the Company and the Warrant Agent may deem and treat the Warrant
Holder as the absolute owner of such warrant, notwithstanding any notation of
ownership or other writing thereon, for the purpose of any exercise thereof and
for all other purposes, and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
ARTICLE VI
CONCERNING THE WARRANT AGENT
AND OTHER MATTERS
SECTION 6.01. The Company will from time to time promptly pay, subject
to the provisions of Section 2.02 (d) of this Agreement, all taxes and charges
that may be imposed upon the Company or the Warrant Agent in respect of the
issuance or delivery of shares of Common Stock upon the exercise of Warrants.
SECTION 6.02. (a) The Warrant Agent may resign and be discharged from
its duties under this Agreement upon sixty (60) days notice in writing, mailed
to the Company by registered or certified mail, and to each Warrant Holder. The
Company may remove the Warrant Agent or any successor warrant agent upon sixty
(60) days notice in writing, mailed to the Warrant Agent or successor Warrant
Agent, as the case may be, by registered or certified mail, and to each Warrant
Holder; provided, however, the Company shall
13
<PAGE> 14
appoint a new Warrant Agent as hereinafter provided and such removal shall not
become effective until a successor Warrant Agent has been appointed and has
accepted such appointment. If the Warrant Agent shall resign or shall otherwise
become capable of acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of
sixty (60) days after it has been notified in writing of such resignation or
incapability by the Warrant Agent by a Warrant Holder, who shall, with such
notice, submit his Warrant Certificate for inspection by the Company, then any
Warrant Holder may apply to any court of competent jurisdiction or the
appointment of a successor to the Warrant Agent. Any successor Warrant Agent,
whether appointed by the Company or by such a court shall be a registered
transfer agent, bank or trust company, subject to the terms and conditions of
this Section 6.02, in good standing and incorporated under the laws of any State
of the United States, having its principal office in the United States of
America. After appointment, the successor Warrant Agent shall be vested with the
same powers, rights, duties and responsibilities as if it had been originally
named as Warrant Agent without further act or deed. The former Warrant Agent
shall deliver and transfer to the successor Warrant Agent any property at the
time held by it hereunder and execute and deliver any further assurance,
conveyance, act or deed necessary for the purpose. Failure to give any notice
provided for in this Section, however, or any defect therein, shall not affect
the legality or validity of the resignation or removal of the Warrant Agent or
the appointment of the successor Warrant Agent, as the case may be.
(b) Any corporation into which the Warrant Agent may be merged
or with which it may be consolidated, or any corporation resulting from any
merger or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto.
In case at the time such successor to the Warrant Agent shall succeed to the
agency created by this Agreement, any of the Warrant Certificates shall have
been countersigned but not delivered, any such successor to the Warrant Agent
may adopt the countersignature of the original Warrant Agent and deliver such
Warrant Certificates so countersigned, and in case at that time any of the
Warrant Certificates shall not have been countersigned, any successor to the
Warrant Agent may countersign such Warrant Certificate in its own name or in the
name of the successor Warrant Agent; and in all such cases such Warrant
Certificates shall have the full force provided in the Warrant Certificates and
this Agreement.
In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent may
14
<PAGE> 15
adopt the countersignature under this prior name and deliver Warrant
Certificates so countersigned; and in case at that time any of the Warrant
Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name; and in all such cases such Warrant Certificates shall have the full force
provided in the Warrant Certificates and in this Agreement.
SECTION 6.03. The Company agrees to pay the Warrant Agent the sum of
$_________ for all services rendered by it hereunder. The Company also agrees to
indemnify the Warrant Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without gross negligence, willful misconduct or
bad faith on the part of the Warrant Agent, arising out of or in connection with
the acceptance and administration of this Agreement, including the costs and
expenses of defending against any claim of liability in the premises.
SECTION 6.04. The Company covenants and agrees that it shall, at the
Company's expense, provide to the Warrant Agent copies of its current
prospectus, if any, in such quantity as to enable the Warrant Agent to deliver
one copy of such current prospectus to such Warrant Holder who shall exercise
his rights under a Warrant. Notwithstanding anything else contained in this
Section 6.04, the Company shall not be obligated to provide copies of its
current prospectus for the purpose of allowing the Warrant Agent to deliver such
copies to any Warrant Holder who delivers all of his redeemable warrants for
redemption pursuant to Section 2.03 or who shall notice the Company of his
intent to permit redemption of all of his Warrants pursuant to Section 2.03
herein or to any person who shall hold any Warrant subject to the terms of this
Agreement after the earlier of the Redemption Date or the Last Exercise Date of
the Warrants.
SECTION 6.05. The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions, by all of
which the Company and the holders of Warrant certificates, by their acceptance
thereof, shall be bound:
(a) Whenever in the performance of its duties under this
Agreement the Warrant Agent shall deem it necessary or desirable that any fact
or matter be proved or established by the Company prior to taking or suffering
any action hereunder, that fact or matter, unless other evidence in respect
thereof be herein specifically prescribed, may be deemed to be conclusively
proved and established by a certificate signed by the President or the Secretary
of the Company and delivered to the Warrant Agent. That certificate shall be
full authorization to the Warrant Agent for any action taken or suffered in good
faith by it under the provisions of this Agreement in reliance upon that
certificate.
(b) The Warrant Agent shall be liable hereunder only for
15
<PAGE> 16
its own negligence, willful misconduct or bad faith.
(c) The Warrant Agent shall not be liable for or by reason of
any of the statements of fact or recitals contained in this agreement or in the
Warrant Certificates, except its countersignature thereof, or be required to
verify the same, but all such statements and recitals are and shall be deemed to
have been made by the Company only.
(d) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery hereof,
except the due execution hereof by the Warrant Agent, or in respect of the
validity or execution of any Warrant Certificate, except its countersignature
thereof; nor shall it be responsible for any Warrant Certificate; nor shall it
be responsible for the adjustment of the Warrant Price or the making of any
change in the number of shares of Common Stock required under the provisions of
Article III of this Agreement or responsible for the manner, method or amount of
any such change or the ascertaining of the existence of facts that would require
any such adjustment or change except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Warrant Price; nor
shall it by any act under this Agreement be deemed to make any representation or
warranty as to the authorization or reservation of any shares of Common Stock to
be issued pursuant to this Agreement or any Warrant Certificate or as to whether
any share of Common Stock will when issued be validly issued, fully paid,
non-assessable and free of preemptive rights.
(e) The Warrant Agent and any shareholder, director, officer
or employee of the Warrant Agent may buy, sell or deal in any of the Warrant
Certificates or other securities of the Company to retain a pecuniary interest
in any transaction in which the Company may be interested or contract with or
lend money to or otherwise act as fully and freely as though it was not Warrant
Agent or subject to this Agreement. Nothing herein shall preclude the Warrant
Agent from acting in any other capacity for the Company or for any other legal
entity.
(f) The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties hereunder from
any officer or assistant officer of the Company, and to apply to any such
officer or assistant officer for advice or instructions in connection with its
duties, and shall not be liable for any action taken or suffered to be taken by
it in good faith in accordance with instructions of any such officer or
assistant officer.
(g) The Warrant Agent may consult with its counsel or other
counsel satisfactory to it, including counsel for the Company, and the opinion
of such counsel shall be full and complete authorization and protection in
respect of any action taken,
16
<PAGE> 17
offered, or omitted by it hereunder in good faith and in accordance with the
opinion of such counsel.
(h) The Warrant Agent shall incur no liability to the Company
or to any holder of any Warrant for any action taken by it in reliance upon any
Warrant Certificate or certificate for Common Stock, instrument of assignment or
transfer, power of attorney, endorsement, affidavit, letter, notice, direction,
consent, certificate, statement, or other paper or document believed by it to be
genuine and to be signed, executed, and where necessary, certified or
acknowledged, by the proper person or persons.
SECTION 6.06. The Warrant Agent may, without the consent or concurrence
of the Warrant Holders, by supplemental agreement or otherwise, concur with the
Company in making any changes or corrections in this Agreement that (i) it shall
have been advised by counsel, who may be counsel for the Company, are required
to cure any ambiguity or to correct any defective or inconsistent provision or
clerical omission or mistake or manifest error herein contained, or (ii) as
provided in Section 3.09, the Company deems necessary of advisable and which
shall not be inconsistent with the provisions of the Warrant Certificates,
provided such changes or corrections do not adversely affect the privileges or
immunities of the Warrant Holders.
SECTION 6.07. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and inure to the
benefit of their respective successors and assigns hereunder.
SECTION 6.08. Forthwith upon the appointment after the date thereof of
any transfer agent for the Common Stock, or of any subsequent transfer agent for
the Common Stock, the Company will file with the Warrant Agent a statement
setting forth the name and address of such transfer agent.
SECTION 6.09. Notice or demand pursuant to this Agreement to be given
or made by the Warrant Agent or by any Warrant Holder to or on the Company shall
be sufficiently given or made and effective on the third business day after
posting thereof, unless otherwise provided in this Agreement, if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
Jenna Lane, Inc.
1407 Broadway, Suite 1800
New York, NY 10018
Attn: Mitchell Dobies, President
notice or demand pursuant to this Agreement to be given or made by the Company
or any Warrant Holder to or on the Warrant Agent shall be sufficiently given or
made and effective on the third business
17
<PAGE> 18
day after posting thereof, unless otherwise provided in this Agreement, if sent
by first-class mail, postage prepaid, addressed until another address is filed
in writing by the Warrant Agent with the Company) as follows:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Attn: Compliance Department
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on the Underwriter shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed until another address is filed in writing by the Underwriter
with the Company) as follows:
Walsh Manning Securities, Inc.
90 Broad Street
New York, NY 10004
Attn: Theodore Burns
notice or demand pursuant to this Agreement to be given or made by the Company
or the Warrant Agent to or on any Warrant Holder shall be sufficiently given or
made and effective on the third business day after posting thereof, unless
otherwise provided in this Agreement, if sent by first-class mail, postage
prepaid, addressed to such Warrant Holder at his last known address as it shall
appear in the records of the Company, if such notice shall be given by the
Company, or, if such notice shall be given by the Warrant Agent, as it shall
appear on the register maintained by the Warrant Agent.
A copy of any Notice or demand given or made pursuant to this Agreement
on the Warrant Agent, Company or Underwriter shall be promptly forwarded by the
recipient thereof to each of the Company, Warrant Agent or Underwriter who shall
not have received or made such demand or notice.
SECTION 6.10. The validity, interpretation and performance of this
Agreement and the Warrants shall be governed by the law of the State of New
York.
SECTION 6.11. Nothing in this Agreement shall be construed to give to
any person or corporation other than the parties hereto and the Warrant Holders
any right, remedy or claim under promise or agreement hereof. All covenants,
conditions, stipulations, promises and agreements contained in this Agreement
shall be for the sole and exclusive benefit of the Company and the Warrant Agent
and their successors and of the Warrant Holders, and their heirs,
representatives, successors, assigns and transferees.
18
<PAGE> 19
SECTION 6.12. A copy of this Agreement shall be available for
inspection by any Warrant Holder during the regular business hours and at the
corporate office of the Warrant Agent in New York, New York, at which time the
Warrant Agent may require any Warrant Holder to submit his Warrant Certificate
for inspection by it.
SECTION 6.13. This Agreement shall terminate on the Last Exercise Date,
or such earlier date upon which all Warrants have been exercised or redeemed,
except that the Warrant Agent shall account to the Company pursuant to Section
2.02 (e) of this Agreement for all cash held by it. The provisions of Section
6.03 and 6.04 of this Agreement shall survive such termination.
SECTION 6.14. The Article headings in this Agreement are for
convenience only and are not part of this Agreement and shall not affect the
interpretation thereof.
SECTION 6.15. This Agreement may be executed in any number
counterparts, each of which is so executed shall be deemed to be an original,
and all such counterparts shall together constitute but one and the same
agreement.
ATTEST: JENNA LANE, INC.
BY:____________________________
Mitchell Dobies
President
American Stock Transfer & Trust Company
BY:___________________________
Name:
Title:
19
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
JENNA LANE, INC.
(Pursuant to Section 103 of the Delaware General Corporation Law)
1. The name of the Corporation is Jenna Lane, Inc. (the
"Corporation").
2. The address of its registered office in the State of Delaware is
32 Loockerman Square, Suite L-100, Dover, County of Kent, Delaware 19901. The
name of its registered agent at such address is The Prentice-Hall Corporation
System, Inc.
3. The nature of the business or purposes to be conducted or promoted
is to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware (the "DGCL").
4. The Corporation is to have perpetual existence.
5. The total number of shares of capital stock which the Corporation
shall have authority to issue is: Twenty Million (20,000,000) shares of the par
value of one cent ($.01) each, divided into Two Million (2,000,000) shares of
preferred stock (the "Preferred Stock") and (b) Eighteen Million (18,000,000)
shares of common stock (the "Common Stock").
The Preferred Stock of the Corporation shall be issued by the Board of
Directors of the Corporation in one or more classes or one or more series within
any class and such classes or series shall have such voting powers, full or
limited, or no voting powers, and such designations, preferences, limitations or
restrictions as the Board of Directors of the Corporation may determine, from
time to time.
Holders of shares of Common Stock shall be entitled to cast one vote
for each share held at all stockholders' meetings for all purposes, including
the election of directors. The Common Stock does not have cumulative voting
rights.
No holder of shares of stock of any class shall be entitled as a matter
of right to subscribe for or purchase or receive any part of any new or
additional issue of shares of stock of any class or of securities convertible
into shares of stock of any class,
<PAGE> 2
whether now hereafter authorized or whether issued for money, for consideration
other than money, or by way of dividend.
6. The Board of Directors shall have the power to adopt, amend or
repeal the by-laws of the Corporation.
7. The Board of Directors of the Corporation shall have the power to
authorize an issuance from time to time of shares of its stock of any class,
whether now or hereafter authorized, or securities convertible into shares of
its stock of any class or classes, whether now or hereafter authorized.
8. No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable to the extent provided by applicable law, (i) for breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal benefit. If
the DGCL hereafter is amended to authorize the further elimination or limitation
of the liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended DGCL. No
amendment to or repeal of this Article 8 shall apply to or have any effect on
the liability or alleged liability of any director of the Corporation for or
with respect to any acts or omissions of such director occurring prior to such
amendment.
9. The Corporation shall indemnify, to the fullest extent permitted
by Section 145 of the DGCL, as amended from time to time, each person that such
section grants the Corporation the power to indemnify.
10. The name and mailing address of the incorporator is Richard M.
Rosier, 200 Madison Avenue, Suite 1900, New York, New York 10016.
IN WITNESS WHEREOF, the undersigned, being the incorporator
hereinbefore named, has executed, signed and acknowledged this certificate of
incorporation this 14th day of February, 1995.
/S/ Richard M. Rosier
------------------------------------
RICHARD M. ROSIER
Incorporator
2
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
JENNA LANE, INC.
Pursuant to Section 151 of the General Corporation Law of the
State of Delaware
<PAGE> 2
JENNA LANE, INC.
Certificate of Designation, Preferences and Rights of Series A Convertible
Preferred Stock Pursuant to Section 151 of the General Corporation
Law of the State of Delaware
We, being, respectively, the President and Secretary of JENNA LANE,
INC., a corporation organized and existing under the General Corporation Law of
the State of Delaware (the "Corporation"), DO HEREBY CERTIFY:
FIRST: That, pursuant to authority expressly granted and vested in the
Board of Directors of said Corporation by the provisions of its Certificate of
Incorporation, as amended, said Board of Directors duly adopted, upon unanimous
written consent, the following resolution:
RESOLVED, that the Board of Directors, pursuant to authority granted
and expressly vested in it by the provisions of the Certificate of Incorporation
of the Corporation, as amended, hereby authorizes the issue from time to time of
a series of Preferred Stock of the Corporation and hereby fixes the designation,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, in addition to those set
forth in said Certificate of Incorporation, as amended, to be in their entirety
as follows:
Section 1. Designation. The series of Preferred Stock shall be
designated and known as "Series A Convertible Preferred Stock" and is sometimes
referred to herein as the "Preferred Stock". The number of shares constituting
such series shall be five hundred thousand (500,000).
Section 2. Liquidation Rights. In the event of any voluntary or
involuntary liquidation, dissolution or winding up of the affairs of the
Corporation, the holders of each share of Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock or any other
series of Preferred Stock of the Corporation by reason of their ownership
thereof, an amount equal to (i) two dollars ($2.00) per share,
<PAGE> 3
plus (ii) any and all accrued but unpaid dividends on each share of Preferred
Stock declared or otherwise due and payable pursuant to Section 5 hereof. If,
upon any liquidation, dissolution or winding up of the Corporation, the assets
of the Corporation available for distribution to the holders of the Preferred
Stock shall be insufficient to pay the holders of the Preferred Stock the full
amounts to which they respectively shall be entitled pursuant to this Section 2,
the holders of shares of the Preferred Stock shall share ratably in any
distribution of assets according to the respective amounts that would be payable
in respect of the shares of Preferred Stock held by them upon such distribution
if all amounts payable on or with respect to said shares were paid in full.
All of the preferential amounts to be paid to the holders of the
Preferred Stock under this Section 2 shall be paid or set apart for payment
before the payment or setting apart for payment of any amount for, or the
distribution of any assets of the Corporation to, the holders of the Common
Stock or any other series of Preferred Stock in connection with such
liquidation, dissolution or winding up. After payment shall have been made to
the holders of shares of the Preferred Stock of the full amounts to which they
shall have been entitled pursuant to this Section 2, the holders of shares of
the Corporation's Common Stock and the holders of shares of the Preferred Stock
shall be entitled to share in all remaining assets of the Corporation available
for distribution to its stockholders, such remaining assets to be shared by the
holders of shares of the Corporation's Common Stock and the holders of shares of
the Corporation's Preferred Stock on a pro rata basis calculated as if all of
the outstanding shares of the Preferred Stock had been converted into shares of
Common Stock pursuant to Section 3 hereof immediately prior to such payment.
For the purposes of this Section 2, the term "liquidation" shall be
deemed to include (i) a consolidation or merger of the Corporation with or into
any other corporation, (ii) a merger of any other corporation into the
Corporation, (iii) a reorganization of the Corporation, (iv) a purchase or
redemption of all or a substantial part of the outstanding shares of any class
or classes of capital stock of the Corporation, (v) a sale, transfer, assignment
or other disposition of all or substantially all the assets of the
-2-
<PAGE> 4
Corporation or (vi) a distribution to the Corporation's holders of Common Stock
of the stock of any subsidiary of the Corporation.
If the assets or surplus funds to be distributed to the holders of the
Preferred Stock are insufficient to permit the payment to such holders of their
full preferential amount, the assets and surplus funds legally available for
distribution shall be distributed ratably among the holders of the Preferred
Stock in proportion to the full preferential amount each such holder is
otherwise entitled to receive.
Section 3. Conversion. The holders of any shares of the Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of the Corporation or any transfer agent
for the Preferred Stock, into that number of fully paid and nonassessable shares
of Common Stock (calculated to the nearest one-one-hundredth (1/100) of a share)
determined by dividing two dollars ($2.00) by the Conversion Price, determined
as hereinafter provided, in effect at the time of conversion. The conversion
price at which shares of Common Stock shall be deliverable upon conversion of
Preferred Stock without the payment of any additional consideration by the
holder thereof (the "Conversion Price") shall initially be two dollars ($2.00)
per share of Common Stock. Such initial Conversion Price shall be subject to
adjustment, in order to adjust the number of shares of Common Stock into which
the Preferred Stock is convertible, as hereinafter provided.
(b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the closing of a public offering pursuant to an effective
underwritten registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation to the public at a public offering price of at least six dollars
($6.00), subject to adjustment for stock splits, stock dividends,
-3-
<PAGE> 5
recapitalizations and other similar transactions, and having an aggregate
offering price resulting in net proceeds to the Corporation of not less than
Four Million Dollars ($4,000,000) (in the event of which offering, the person(s)
entitled to receive the Common Stock issuable upon such conversion of the
Preferred Stock shall not be deemed to have converted that Preferred Stock until
immediately prior to the closing of such offering). Each person who holds of
record Preferred Stock immediately prior to such automatic conversion shall be
entitled to all dividends which have accrued to the time of the automatic
conversion, but not paid on the Preferred Stock, pursuant to Section 5 hereof.
Such dividends shall be paid to all such holders within thirty (30) days of the
automatic conversion.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
be issued upon conversion of the Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the then effective Conversion
Price. Before any holder of Preferred Stock shall be entitled to convert the
same into full shares of Common Stock, he shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or of any
transfer agent for the Preferred Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same and shall state
therein his name or the name or names of his nominees in which he wishes the
certificate or certificates for shares of Common Stock to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Preferred Stock, or to his nominee or nominees, a
certificate or certificates for the number of shares of Common Stock to which he
shall be entitled as aforesaid, together with cash in lieu of any fraction of a
share, and a certificate or certificates for such number of shares of Preferred
Stock as were represented by the certificates surrendered and not converted.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Preferred Stock to be
converted, and the person or persons entitled to receive the shares of Common
Stock issuable upon conversion shall be treated for all purposes as the record
holder or holders of such
-4-
<PAGE> 6
shares of Common Stock on such date.
(d) Adjustments to Conversion Price for Diluting Issues:
(i) Special Definitions. For purposes of this Section 3(d), the
following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible Securities.
(2) "Original Issue Date" shall mean the date on which the first share
of Preferred Stock was originally issued.
(3) "Convertible Securities" shall mean any evidences of indebtedness,
shares (other than Common Stock and Preferred Stock) or other securities
directly or indirectly convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all shares of Common
Stock issued (or, pursuant to Section 3(d)(iii), deemed to be issued) by the
Corporation after the Original Issue Date, but shall not include shares of
Common Stock issued or issuable:
(A) upon conversion of shares of Preferred Stock or upon payment of the
common stock dividend which the Corporation may choose to pay on account of the
Preferred Dividend (as defined in Section 5 hereof);
(B) to officers or employees of, or consultants to, the Corporation
pursuant to a stock purchase or option plan or other incentive program approved
by the Board of Directors, or pursuant to such employee's Employment Agreement
with the Corporation, if such shares are issued upon the execution and delivery
thereof; or
(C) by way of dividend or other distribution on shares of Common Stock
excluded from the definition of Additional Shares of Common Stock by the
foregoing clause (A) or (B).
(ii) No Adjustment of Conversion Price. No adjustment in the number of
shares of Common Stock into which the Preferred Stock is convertible shall be
made, by adjustment in the Conversion Price of
-5-
<PAGE> 7
Preferred Stock in respect of the issuance of Additional Shares of Common Stock
or otherwise, unless the consideration per share for an Additional Share of
Common Stock issued or deemed to be issued by the Corporation is less than the
Conversion Price in effect on the date of, and immediately prior to, the issue
of such Additional Share.
(iii) Issue of Securities Deemed Issue of Additional Shares of Common
Stock.
(1) Options and Convertible Securities. In the event the Corporation at
any time or from time to time after the Original Issue Date shall issue any
Options or Convertible Securities or shall fix a record date for the
determination of holders of any class of securities entitled to receive any such
Options or Convertible Securities, then the maximum number of shares (as set
forth in the instrument relating thereto without regard to any provisions
contained therein for a subsequent adjustment of such number) of Common Stock
issuable upon the exercise of any such Options or, in the case of Convertible
Securities and Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued as of
the time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, provided that Additional Shares of
Common Stock shall not be deemed to have been issued unless the consideration
per share (determined pursuant to Section 3(d)(v) hereof) of such Additional
Shares of Common Stock would be less than the Conversion Price in effect on the
date immediately prior to such issue, or such record date, as the case may be,
and provided further that in any such case in which Additional Shares of Common
Stock are deemed to be issued:
(A) no further adjustment in the Conversion Price shall be made upon
the subsequent issue of Convertible Securities or shares of Common Stock upon
the exercise of such options or conversion or exchange of such Convertible
securities;
(B) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the consideration
payable to the Corporation, or decrease in the number of
-6-
<PAGE> 8
shares of Common Stock issuable, upon the exercise, conversion or exchange
thereof, the Conversion Price computed upon the original issue thereof (or upon
the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recompute to reflect such increase or decrease insofar as it
effects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any rights of conversion
or exchange under such Convertible Securities which shall not have been
exercised, the Conversion Price computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, upon such expiration, shall be recompute as if:
(I) in the case of Convertible Securities or Options for Common Stock
the only Additional Shares of Common Stock issued were the shares of Common
Stock, if any, actually issued upon the exercise of such options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(II) in the case of Options for Convertible Securities only the
Convertible Securities, if any, actually issued upon the exercise thereof were
issued at the time of issue of such Options, and the consideration received by
the Corporation for the Additional Shares of Common Stock deemed to have been
then issued was the consideration actually received by the Corporation for the
issue of all such options, whether or not exercised, plus the consideration
deemed to have been received by the Corporation (determined pursuant to Section
3(d)(v)) upon the issue of the Convertible Securities with respect to which such
Options were actually exercised;
-7-
<PAGE> 9
(D) no readjustment pursuant to clause (B) or (C) above shall have the
effect of increasing the Conversion Price to an amount which exceeds the lower
of (i) the Conversion Price on the original adjustment date, or (ii) the
Conversion Price that would have resulted from any issuance of Additional Shares
of Common Stock between the original adjustment date and such readjustment date;
(E) in the case of any Options which expire by their terms not more
than 30 days after the date of issue thereof, no adjustment of the Conversion
Price shall be made until the expiration or exercise of all such Options,
whereupon such adjustment shall be made in the same manner provided in clause
(C) above; and
(F) if such record date shall have been fixed and such Options or
Convertible Securities are not issued on the date fixed therefor, the adjustment
previously made in the Conversion Price which became effective on such record
date shall be cancelled as of the close of business on such record date, and
thereafter the Conversion Price shall be adjusted pursuant to this subparagraph
3(d)(iii) as of the actual date of their issuance.
(2) Stock Dividends, Stock Distributions and Subdivisions. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall declare or pay any dividend or make any other distribution on the Common
Stock payable in Common Stock, or effect a subdivision of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in Common Stock), then and in any such event, Additional Shares of Common Stock
shall be deemed to have been issued:
(A) in the case of any such dividend or distribution, immediately after
the close of business on the record date for the determination of holders of any
class of securities entitled to receive such dividend or distribution, or
(B) in the case of any such subdivision, at the close of business on
the date immediately prior to the date upon which such corporate action becomes
effective.
-8-
<PAGE> 10
If such record date shall have been fixed and such dividend shall not
have been fully paid on the date fixed therefor, the adjustment previously made
in the Conversion Price which became effective on such record date shall be
cancelled as of the close of business on such record date, and thereafter the
Conversion Price shall be adjusted pursuant to this subparagraph 3(d)(iii) as of
the time of actual payment of such dividend.
(iv) Adjustment of Conversion Price Upon Issuance of Additional Shares
of Common Stock. In the event the Corporation shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 3(d)(iii), but excluding Additional Shares of Common Stock
issued pursuant to Section 3(d)(iii)(2), which event is dealt with in Section
3(d)(vi) hereof) without consideration or for a consideration per share less
than the Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, such Conversion Price shall be reduced,
concurrently with such issue to a price (calculated to the nearest cent) to an
amount determined by multiplying the Conversion Price by a fraction:
(A) the numerator of which shall be (a) the number of shares of Common
Stock outstanding immediately prior to the issuance of such additional shares of
Common Stock, plus (b) the number of shares of Common Stock which the net
aggregate consideration received by the corporation for the total number of such
additional shares of Common Stock so issued would purchase at the Conversion
Price, and
(B) the denominator of which shall be (a) the number of shares of
Common Stock outstanding immediately prior to the issuance of such additional
shares of Common Stock, plus (b) the number of such additional shares of Common
Stock so issued.
(v) Determination of Consideration. For purposes of this Section 3(d),
the consideration received by the Corporation for the issue of any Additional
Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-9-
<PAGE> 11
(A) insofar as it consists of cash, be computed at the aggregate amount
of cash received by the Corporation excluding amounts paid or payable for
accrued interest or accrued dividends;
(B) insofar as it consists of property other than cash, be computed at
the fair value thereof at the time of such issue, as determined in good faith by
the Board of Directors; and
(C) in the event Additional Shares of Common Stock are issued together
with other shares or securities or other assets of the Corporation for
consideration which covers both, be the proportion of such consideration so
received, computed as provided in clauses (A) and (B) above, as determined in
good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration per share
received by the Corporation for Additional Shares of Common Stock deemed to have
been issued pursuant to Section 3(d)(iii)(1), relating to Options and
Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the Corporation
as consideration for the issue of such Options or Convertible Securities, plus
the minimum aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such consideration) payable to the Corporation
upon the exercise of such options or the conversion or exchange of such
Convertible Securities, or in the case of Options for Convertible Securities,
the exercise of such Options for Convertible Securities and the conversion or
exchange of such Convertible Securities, by
(y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(vi) Adjustment for Dividends, Distributions, Subdivisions,
Combinations or Consolidation of Common Stock.
(1) Stock Dividends, Distributions or Subdivisions. In the event the
Corporation shall issue
-10-
<PAGE> 12
Additional Shares of Common Stock pursuant to Section 3(d)(iii)(2) in a stock
dividend, stock distribution or subdivision, the Conversion Price in effect
immediately prior to such stock dividend, stock distribution or subdivision
shall, concurrently with the effectiveness of such stock dividend, stock
distribution or subdivision, be proportionately decreased.
(2) Combinations or Consolidations. In the event the outstanding shares
of Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, the Conversion Price
in effect immediately prior to such combination or consolidation shall,
concurrently with the effectiveness of such combination or consolidation, be
proportionately increased.
(vii) Adjustment for Merger or Reorganization, etc. In case of any
consolidation or merger of the Corporation with or into another corporation or
the conveyance of all or substantially all of the assets of the Corporation to
another corporation, each share of Preferred Stock thereafter shall be
convertible into the number of shares of stock or other securities or property
to which a holder of the number of shares of Common Stock of the Corporation
deliverable upon conversion of such Preferred Stock would have been entitled
upon such consolidation, merger or conveyance; and, in any case, appropriate
adjustment (as determined by the Board of Directors) shall be made in the
application of the provisions herein set forth with respect to the rights and
interest thereafter of the holders of the Preferred Stock, to the end that the
provisions set forth herein (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonably may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Preferred Stock.
(e) No Impairment. The Corporation shall not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may
-11-
<PAGE> 13
be necessary or appropriate in order to protect the conversion rights of the
holders of the Preferred Stock against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of the number of shares into which the Preferred
Stock may be converted pursuant to this Section 3, the Corporation, at its
expense, promptly shall compute such adjustment or readjustment in accordance
with the terms hereof and, upon request by any holder of Preferred Stock,
furnish to each holder of Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation, upon the written request
at any time of any holder of Preferred Stock, shall furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, (ii) the Conversion Price at the time in effect, and (iii)
the number of shares of Common Stock and the amount, if any, of other property
which at the time would be received upon the conversion of Preferred Stock.
(g) Notices of Record Date. In the event of any taking by the
Corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend which is the same as cash dividends paid in
previous quarters and other than the dividends to be paid pursuant to Section 5
hereof) or other distribution, the Corporation shall mail to each holder of
Preferred Stock at least ten (10) days prior to the date specified herein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend or distribution.
(h) Common Stock Reserved. The Corporation shall reserve and keep
available out of its authorized but unissued Common Stock such number of shares
of Common Stock as from time to time shall be sufficient to effect conversion of
the Preferred Stock.
Section 4. Voting. (a) The holders of shares of Preferred Stock shall
be entitled to notice of any stockholders' meeting and to vote upon any matter
submitted to a stockholder for a vote, on the following
-12-
<PAGE> 14
basis:
(i) Holders of Common Stock shall have one vote per share on all
matters; and
(ii) Holders of Preferred Stock shall have that number of votes per
share as is equal to the number of shares of Common Stock into which each such
share of Preferred Stock held by such holder is convertible.
Section 5. Dividends. The Corporation shall declare and pay to the
holder of each share of Preferred Stock cash dividends aggregating each year in
the amount of ten percent (10%) of the purchase price thereof (the "Preferred
Dividend") at any time that the Corporation legally may pay dividends in
accordance with Delaware law. Such dividends shall be cumulative commencing as
of the Original Issue Date, shall be paid prior and in advance of payment of
dividends on any other capital stock of the Corporation, and shall be paid on at
least an annual basis with respect to the first year after the Original Issue
Date and on at least a quarterly basis thereafter, and in all events prior to
the payment of dividends on any other capital stock of the Corporation.
Notwithstanding the foregoing, the Corporation, with respect to the Preferred
Dividend relating to the first year after the Original Issue Date, may, at its
option, if it legally may pay dividends in accordance with Delaware law, pay the
Preferred Dividend with respect to such year in the form of cash as indicated
above or in the form of one-tenth of one share of Common Stock of the
Corporation (the "Stock Dividend"), provided, that the number of shares
comprising the Stock Dividend shall be adjusted appropriately to reflect
additional issuances of Common Stock after the Original Issuance Date, stock
splits, mergers, reorganizations and the like.
Section 6. Restriction on Additional Issuances. The Corporation shall
not, without the prior written consent of the holders of at least two-thirds of
the then outstanding shares of Series A Convertible Preferred Stock, create or
issue any additional Series A Convertible Preferred Stock (other than the
500,000 shares authorized hereby) or securities of the Company which rank senior
to the Preferred Stock upon payment of dividends or upon liquidation or other
distribution of assets other than debt securities
-13-
<PAGE> 15
issued in connection with borrowings, direct or indirect, from financial
institutions or other persons by the Company, provided such securities and
borrowings do not have any equity features, including warrants, options or other
rights to purchase capital stock, and are not convertible into capital stock of
the Company. The Corporation may create another series of preferred stock on a
basis which is on a parity in any or all respects with the Series A Convertible
Preferred Stock.
SECOND: That said determination of the designation, preferences and the
relative, participating, optional or other rights, and the qualifications,
limitations or restrictions thereof, relating to said Preferred Stock, was duly
made by the Board of Directors pursuant to the provisions of the Certificate of
Incorporation of the Corporation, as amended, and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, this Certificate has been signed by the President
of JENNA LANE, INC. and said Corporation has caused its corporate seal to be
hereunder affixed and attested by its Secretary, all as of the 31st day of
March, 1995.
JENNA LANE, INC. ATTEST:
By: /s/ Mitchell Dobies, Pres. [SEAL] /s/ Mitchell Dobies, Secy
-------------------------- -------------------------
Mitchell Dobies, President Secretary
-14-
<PAGE> 1
EXHIBIT 3.3
BY-LAWS
OF
JENNA LANE, INC.
(A DELAWARE CORPORATION)
ARTICLE I
STOCKHOLDERS
SECTION 1. CERTIFICATES REPRESENTING STOCK. (a) Certificates
representing stock in the corporation shall be signed by, or in the name of, the
corporation by the Chairman or Vice-Chairman of the Board of Directors, if any,
or by the President or a Vice-President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the corporation. Any or
all the signatures on any such 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 her were such officer,
transfer agent, or registrar at the date of issue.
(b) Whenever the corporation shall be authorized to issue more
than one class of stock or more than one series of any class of stock, and
whenever the corporation shall issue any shares of its stock as partly paid
stock, the certificates representing shares of any such class or series or of
any such partly paid stock shall set forth thereon the statements prescribed by
the General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
(c) The corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Board of Directors may
require the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
<PAGE> 2
SECTION 2. UNCERTIFICATED SHARES. Subject to any conditions imposed by
the General Corporation Law, the Board of Directors of the corporation may
provide by resolution or resolutions that some or all of any or all classes or
series of the stock of the corporation shall be uncertificated shares. Within a
reasonable time after the issuance or transfer of any uncertificated shares, the
corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
SECTION 3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall
not be required to, issue fractions of a share. If the Corporation does not
issue fractions of a share, it shall (1) arrange for the disposition of
fractional interests by those entitled thereto, (2) pay in cash the fair value
of fractions of a share as of the time when those entitled to receive such
fractions are determined, or (3) issue scrip or warrants in registered form
(either represented by a certificate or uncertificated) or bearer form
(represented by a certificate) which shall entitle the holder to receive a full
share upon the surrender of such scrip or warrants aggregating a full share. A
certificate for a fractional share or an uncertificated fractional share shall,
but scrip or warrants shall not unless otherwise provided therein, entitle the
holder to exercise voting rights, to receive dividends thereon, and to
participate in any of the assets of the Corporation in the event of liquidation.
The Board of Directors may cause scrip or warrants to be issued subject to the
conditions that they shall become void if not exchanged for certificates
representing the full shares or uncertificated full shares before a specified
date, or subject to the conditions that the shares for which scrip or warrants
are exchangeable may be sold by the corporation and the proceeds thereof
distributed to the holders of scrip or warrants, or subject to any other
conditions which the Board of Directors may impose.
SECTION 4. STOCK TRANSFERS. Upon compliance with provisions restricting
the transfer or registration of transfer of shares of stock, if any, transfers
or registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
SECTION 5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record
2
<PAGE> 3
date shall not precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which record date shall not be more
than sixty nor less than ten days before the date of such meeting. If no record
date is fixed by the Board of Directors, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held. A determination of stockholders
of record entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting. In order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. If no record date has been
fixed by the Board of Directors, the record date for determining the
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is required by the
General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meeting of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than sixty days prior to such action. If
no record date is fixed, the record date for determining stockholders for any
such purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
3
<PAGE> 4
SECTION 6. MEANING OF CERTAIN TERMS. As used herein in respect of the
right to notice of a meeting of stockholders or a waiver thereof or to
participate or vote thereat or to consent or dissent in writing in lieu of
meeting, as the case may be, the term "share" or "shares" or "share of stock" or
"shares of stock" or "stockholder" or "stockholders" refers to an outstanding
share or shares of stock and to a holder or holders of record of outstanding
shares of stock when the corporation is authorized to issue only one class of
shares of stock, and said reference is also intended to include any outstanding
share or shares of stock and any holder or holders of record of outstanding
shares of stock of any class upon which or upon whom the certificate of
incorporation confers such rights where there are two or more classes or series
of shares of stock or upon which or upon whom the General Corporation Law
confers such rights notwithstanding that the certificate of incorporation may
provide for more than one class or series of shares of stock, one or more of
which are limited or denied such rights thereunder; provided, however, that no
such right shall vest in the event of an increase or a decrease in the
authorized number of shares of stock of any class or series which is otherwise
denied voting rights under the provisions of the certificate of incorporation,
except as any provision of law may otherwise require.
SECTION 7. STOCKHOLDER MEETINGS.
- TIME. The annual meeting shall be held on the date and at the time
fixed, from time to time, by the directors, provided that the first annual
meeting shall be held on a date within thirteen months after the organization of
the corporation, and each successive annual meeting shall be held on a date
within thirteen months after the date of the preceding annual meeting. A special
meeting shall be held on the date and at the time fixed by the directors.
- PLACE. Annual meetings and special meetings shall be held at such
place, within or without the State of Delaware, as the directors may, from time
to time, fix. Whenever the directors shall fail to fix such place, the meeting
shall be held at the registered office of the corporation in the State of
Delaware.
- CALL. Annual meetings and special meetings may be called by the
directors or by any officer instructed by the directors to call the meeting.
- NOTICE OR WAIVER OF NOTICE. Written notice of all meetings shall be
given, stating the place, date, hour of the meeting and stating the place within
the city or other municipality or community at which the list of stockholders of
the corporation may be examined. The notice of an annual meeting shall state
that the meeting is called for the election of directors and for the
4
<PAGE> 5
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
or by mail, not less than ten days nor more than sixty days before the date of
the meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States Mail. If a meeting is adjourned to
another time, not more than thirty days hence, and/or place is made at the
meeting, it shall not be necessary to give notice of the adjourned meeting
unless the directors, after adjournment, fix a new record date for the adjourned
meeting. Notice need not be given to any stockholder who submits a written
waiver of notice signed by him before or after the time stated therein.
Attendance of a stockholder at a meeting of stockholders shall constitute a
waiver of notice of such meeting, except when the stockholder attends the
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, not the purpose of, any
regular or special meeting of the stockholders need be specified in any written
waiver of notice.
- STOCKHOLDER LIST. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
either at a place within the city or other municipality or community where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
5
<PAGE> 6
- CONDUCT OF MEETING. Meetings of the stockholders shall be presided
over by one of the following officers in the order of seniority and if present
and acting-the Chairman of the Board, if any, the Vice-Chairman of the Board, if
any, the President, a Vice-President, or, if none of the foregoing is in office
and present and acting, by a chairman to be chosen by the stockholders. The
Secretary of the corporation, or in his absence, an Assistant Secretary, shall
act as secretary of every meeting, but if neither the Secretary nor an Assistant
Secretary is present the Chairman of the meeting shall appoint a secretary of
the meeting.
- PROXY REPRESENTATION. Every stockholder may authorize another person
or persons to act for him by proxy in all matters in which a stockholder is
entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that is irrevocable and, if, and only as long as it is coupled with
an interest sufficient in law to support an irrevocable power. A proxy may be
made irrevocable regardless of whether the interest with which it is coupled is
an interest in the stock itself or an interest in the corporation generally.
- INSPECTORS. The directors, in advance of any meeting, may, but need
not, appoint one or more inspectors of election to act at the meeting or any
adjournment thereof. If any inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the directors in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his duties, shall take
and sign an oath faithfully to execute the duties of inspectors at such meeting
with strict impartiality and according to the best of his ability. The
inspectors, if any, shall determine the number of shares of stock outstanding
and the voting power of each, the shares of stock represented at the meeting,
the existence of a quorum, the validity and effect of proxies, and shall receive
votes, ballots, or consents, hear and determine all challenges and questions
arising in connection with the right to vote, count and tabulate all votes,
ballots, or consents, determine the result, and do such acts as are proper to
conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question, or matter determined by him
or them and execute a certificate of any fact found by him or them. Except as
6
<PAGE> 7
otherwise required by subsection (e) of Section 231 of the General Corporation
Law, the provisions of that Section shall not apply to the corporation.
- QUORUM. The holders of a majority of the outstanding shares of stock
shall constitute a quorum at a meeting of stockholders for the transaction of
any business. The stockholders presents may adjourn the meeting despite the
absence of a quorum.
- VOTING. Each share of stock shall entitle the holder thereof to one
vote. Directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Any other action shall be authorized by a majority of
the votes cast except where the General Corporation Law prescribes a different
percentage of votes and/or a different exercise of voting power, and except as
may be otherwise prescribed by the provisions of the certificate of
incorporation and these Bylaws. In the election of directors, and for any other
action, voting need not be by ballot.
SECTION 8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by
the General Corporation Law to be taken at any annual or special meeting of
stockholders, or any action which may be taken at any annual or special meeting
of stockholders, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing. Action taken pursuant to this paragraph shall be
subject to the provisions of Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
SECTION 1. FUNCTIONS AND DEFINITION. The business and affairs of the
corporation shall be managed by or under the direction of the Board of Directors
of the corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
SECTION 2. QUALIFICATIONS AND NUMBER. A director need not be a
stockholder, a citizen of the United States, or a resident of
7
<PAGE> 8
the State of Delaware. The initial Board of Directors shall consist of two (2)
persons. Thereafter, the number of directors may be fixed from time to time by
action of the stockholders or of the directors, or, if the number is not fixed,
the number shall be two (2). The number of directors may be increased or
decreased by action of the stockholders or of the directors.
SECTION 3. ELECTION AND TERM. The first Board of Directors, unless the
members thereof shall have been named in the certificate of incorporation, shall
be elected by the incorporator or incorporators and shall hold office until
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting resignation or removal. Except as the
General Corporation Law may otherwise require, in the interim between annual
meetings of stockholders or of special meetings of stockholders called for the
election of directors and/or for the removal of one or more directors and for
the filling of any vacancy in that connection, newly created directorships and
any vacancies in the Board of Directors, including unfilled vacancies resulting
from the removal of directors for cause or without cause, may be filled by the
vote of a majority of the remaining directors then in office, although less than
a quorum, or by the sole remaining director.
4. MEETINGS.
- TIME. Meetings shall be held at such time as the Board shall fix,
except that the first meeting of a newly elected Board shall be held as soon
after its election as the directors may conveniently assemble.
- PLACE. Meetings shall be held at such place within or without
the State of Delaware as shall be fixed by the Board.
- CALL. No call shall be required for regular meetings for which
the time and place have been fixed. Special meetings may be called by or at the
direction of the Chairman of the Board, if any, the Vice-Chairman of the Board,
if any, of the President, or of a majority of the directors in office.
- NOTICE OR ACTUAL OR CONSTRUCTIVE WAIVER. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee
8
<PAGE> 9
of directors who submits a written waiver of notice signed by him before or
after the time stated therein. Attendance of any such person at a meeting shall
constitute a waiver of notice of such meeting, except when he attends a meeting
for the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the directors need be specified in any written
waiver of notice.
- QUORUM AND ACTION. A majority of the whole Board shall constitute
a quorum except when a vacancy or vacancies prevents such majority, whereupon a
majority of the directors in office shall constitute a quorum, provided, that
such majority shall constitute at least one-third of the whole Board. A majority
of the directors present, whether or not a quorum is present, may adjourn a
meeting to another time and place. Except as herein otherwise provided, and
except as otherwise provided by the General Corporation Law, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board. The quorum and voting provisions herein stated
shall not be construed as conflicting with any provisions of the General
Corporation Law and these Bylaws which govern a meeting of the directors held to
fill vacancies and newly created directorships in the Board or action of
disinterested directors.
Any member or members of the Board of Directors or of any committee
designated by the Board, may participate in a meeting of the Board, or any such
committee, as the case may be, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
- CHAIRMAN OF THE MEETING. The Chairman of the Board, if any and
if present and acting, shall preside at all meetings. Otherwise, the
Vice-Chairman of the Board, if any and if present and acting, or the President,
if present and acting, or any other director chosen by the Board, shall preside.
SECTION 5. REMOVAL OF DIRECTORS. Except as may otherwise be provided
by the General Corporation Law, any director or the entire Board of Directors
may be removed, with or without cause, by the holders of a majority of the
shares then entitled to vote at an election of directors.
SECTION 6. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
9
<PAGE> 10
committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise the powers and authority of the Board of Directors in the
management of the business and affairs of the corporation with the exception of
any authority the delegation of which is prohibited by Section 141 of the
General Corporation Law, and may authorize the seal of the corporation to be
affixed to all papers which may require it.
SECTION 7. WRITTEN ACTION. Any action required or permitted to be taken
at any meeting of the Board of Directors or any committee thereof may be taken
without a meeting if all members of the Board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a
Secretary, a Treasurer, and, if deemed necessary, expedient, or desirable by the
Board of Directors, a Chairman of the Board, a Vice-Chairman of the Board, an
Executive Vice-President, one or more other Vice-Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, and such other officers
with such title as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice-Chairman of
the Board, if any, need be a director. Any number of offices may be held by the
same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform
such duties in the management and operation of the corporation as shall be
prescribed in the resolutions of the Board of Directors designating and choosing
such officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The
10
<PAGE> 11
Secretary or an Assistant Secretary of the corporation shall record all of the
proceedings of all meetings and actions in writing of stockholders, directors,
and committees of directors, and shall exercise such additional authority and
perform such additional duties as the Board shall assign to him. Any officer may
be removed, with or without cause, by the Board of Directors. Any vacancy in any
office may be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors
shall prescribe.
ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject
to change, by the Board of Directors.
11
<PAGE> 1
Exhibit 23.1
[EDWARD ISAACS & COMPANY LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated May 7, 1996 relating to
the financial statements of Jenna Lane, Inc., which appears in such Prospectus.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Edward Isaacs & Company LLP
September 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996
<CASH> 1,250 1,000
<SECURITIES> 0 0
<RECEIVABLES> 2,100,709 1,595,546
<ALLOWANCES> 0 0
<INVENTORY> 2,782,135 3,000,845
<CURRENT-ASSETS> 5,051,476 4,717,917
<PP&E> 132,042 151,053
<DEPRECIATION> 15,360 21,425
<TOTAL-ASSETS> 5,209,550 4,949,593
<CURRENT-LIABILITIES> 2,689,234 2,315,356
<BONDS> 425,143 437,042
0 0
852,350 852,350
<COMMON> 19,790 20,476
<OTHER-SE> 1,193,853 1,287,189
<TOTAL-LIABILITY-AND-EQUITY> 5,209,550 4,949,593
<SALES> 25,832,323 9,724,079
<TOTAL-REVENUES> 25,832,323 9,724,079
<CGS> 21,128,147 7,927,053
<TOTAL-COSTS> 24,825,757 9,363,757
<OTHER-EXPENSES> 31,000 9,875
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 41,573 25,000
<INCOME-PRETAX> 933,993 325,447
<INCOME-TAX> 432,564 141,000
<INCOME-CONTINUING> 501,429 184,447
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 501,429 184,447
<EPS-PRIMARY> .21 .08
<EPS-DILUTED> .00 .00
</TABLE>
