<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1997
REGISTRATION NO. 333-11979
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
AMENDMENT NO. 2
TO
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 BRIAN C. DAUGHNEY, ESQ.
555 MADISON AVENUE, 23RD FLOOR GOLDSTEIN & DIGIOIA, L.L.P.
NEW YORK, NEW YORK 10022 369 LEXINGTON AVENUE
TELEPHONE: (212) 317-0111 NEW YORK, NEW YORK 10017
FACSIMILE: (212) 317-0310 TELEPHONE: (212) 599-3322
FACSIMILE: (212) 557-0295
</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. [X]
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>
==================================================================================================================================
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 $10.125 $ 6,986,250 $2,409
- ----------------------------------------------------------------------------------------------------------------------------------
-- 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 $ 0.125 $ 125,000 $ 43
- ----------------------------------------------------------------------------------------------------------------------------------
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 $16.706 $ 1,002,360 $ 304
- ----------------------------------------------------------------------------------------------------------------------------------
-- 2 shares of Common Stock.............
- ----------------------------------------------------------------------------------------------------------------------------------
-- 1 Warrant............................
- ----------------------------------------------------------------------------------------------------------------------------------
Common Stock, $.01 par value(8)........... 60,000 $ 7.00 $ 420,000 $ 145
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL............................. $20,211,756 $6,980
==================================================================================================================================
</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 in
accordance with Rule 416. 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
- ------ ----------------------------------------- -----------------------------------------
<S> <C> <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>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering of Units (the "Company Prospectus") and one
to be used in connection with the sale of the Selling Warrantholder Warrants by
the Selling Warrantholders (the "Concurrent Offering Prospectus"). The Company
Prospectus and the Concurrent Offering Prospectus will be identical in all
respects except from the alternate pages for the Concurrent Offering Prospectus
included herein which are labeled "Alternate Page for Concurrent Offering
Prospectus."
<PAGE> 3
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 25, 1997
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 on the Nasdaq National Market System
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>
=================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Unit.......................... $10.125 $1.0125 $9.1125
- -------------------------------------------------------------------------------------------------
Total(3).......................... $6,075,000 $607,500 $5,467,500
=================================================================================================
</TABLE>
(1) Does not include additional compensation to be received by the Underwriter
in the form of (i) a non-accountable expense allowance of $182,250
($209,587.50 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 165% of the
public offering price of the Units, which option is exercisable over a
period of three years commencing 12 months after the date of this Prospectus
(the "Underwriter's Option") and (iii) a two-year consulting fee of $90,000.
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 $482,747 ($523,584.50 if the
over-allotment option is exercised in full) payable by the Company,
including the Underwriter's non-accountable 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 $6,536,250, $653,625 and $5,882,625,
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, LLC, 90 Broad Street, New York, New York 10004 on or about ,
1997.
------------------------
WALSH MANNING SECURITIES, LLC
------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1997
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.
<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"). No separate securities for the
Units will be issued. The Units will not be listed for trading on Nasdaq and no
separate trading market will exist for the Units. It is currently estimated that
the initial public offering price for each Unit will be $10.125. The proposed
offering price and terms of the Units have been determined by negotiation
between the Company and Walsh Manning Securities, LLC (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 Underwriter's 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 any of the
Selling Warrantholder Warrants or underlying shares for a period of eighteen
months after the completion of the Offering. 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 any Selling
Securityholder Securities. 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 THE WARRANTS AND THE COMMON STOCK 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. THE COMPANY'S FISCAL
YEAR ENDS ON MARCH 31 OF EACH YEAR. SEE "ADDITIONAL 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 952,381 shares of Common Stock. This Prospectus may be
deemed to contain forward-looking statements within the meaning of Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company desires
to avail itself of certain "safe harbor" provisions of the Reform Act and is
therefore including this special note to enable the Company to do so.
Forward-looking statements in this Prospectus or hereafter included in other
publicly available documents filed with the Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations. These risks
include, but are not limited to, risks set forth herein, each of which could
adversely affect the Company's business and the accuracy of the forward-looking
statements contained 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 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 nine months ended
December 31, 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.
3
<PAGE> 7
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 nine months ended December 31, 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 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 "Missy"/Large Size, Young Large Size,
Imports, Mail Order and Mass Merchants. 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
domestically produced 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 imported fashion sportswear. Part of management's long-term plan is to
continue to expand its importing activities, which represented approximately 15%
of the Company's revenues for the nine months ended December 31, 1996. There can
be no assurance that this plan will be successfully implemented or, if
implemented, result in profits to the Company. See "Use of Proceeds"; Risk
Factors -- Foreign Operations and Sourcing; Import Restrictions" and
"Business -- Sales Groups -- Imports."
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. No separate
securities will be issued for the
Units. 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 Underwriter's 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
$8,500; 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
$4,300; to purchase a new CAD/CAM
system for design and manufacturing;
to expand the Company's existing
computer system; 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.(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 $3.00 per
share and 50,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $5.00 per
share and (z) 450,000 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 $3.00 per
share and 50,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $5.00 per
share and (vi) 450,000 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 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED -----------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
-------------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ -- $25,832,323 $ 16,502,277 $ 25,595,708
Gross profit........................ -- 4,704,176 2,912,208 4,608,921
Operating (Loss) income............. (43,926) 975,566 472,847 291,388
(Loss) income before income taxes... (43,926) 933,993 456,274 166,777
Provision for income taxes.......... -- 432,564 198,564 49,671
Net (loss) income................... (43,926) 501,429 257,710 117,106
Pro forma net income per common
share (1)........................ $ 0.16 $ 0.04
Pro forma weighted average common
shares outstanding (1)........... 3,077,742 3,004,556
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 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 $1,662,629 $ 1,662,629 $6,612,380
Total assets...................... 5,209,550 4,736,909 4,736,909 8,583,052
Long-term debt.................... 425,143 16,651 16,651 16,651
Preferred stock................... 828,030 828,030 -- --
Shareholders' equity.............. 1,238,143 1,271,636 2,099,666 6,888,517
</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.
(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 Private Securities
Litigation Reform Act of 1995 (the "Reform Act"). The Company desires to avail
itself of certain "safe harbor" provisions of the Reform Act and is therefore
including this special note to enable the Company to do so. Forward-looking
statements in this Prospectus or hereafter included in other publicly available
documents filed with the Commission, reports to the Company's stockholders and
other publicly available statements issued or released by the Company involve
known and unknown risks, uncertainties and other factors which could cause the
Company's actual results, performance (financial or operating) or achievements
to differ from the future results, performance (financial or operating) or
achievements expressed or implied by such forward-looking statements. Such
future results are based upon management's best estimates based upon current
conditions and the most recent results of operations. These risks include, but
are not limited to, risks set forth herein, each of which could adversely affect
the Company's business and the accuracy of the forward-looking statements
contained 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
approximately 55 full-time employees, is substantially dependent upon the
activities of certain executives, including Mitchell Dobies, President and
Co-Chief Executive Officer, and Charles Sobel, Executive Vice President and
Co-Chief Executive Officer. The Company has entered into employment agreements
with these individuals which expire March 31, 2000. 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; Blue Sky Law. In 1991,
Mitchell Dobies, President, Co-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. Mr. 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
8
<PAGE> 12
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 Mr.
Stanley 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. 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. Mr. Stanley Kaplan is a
controlling shareholder of Gro-Vest Management Consultants, Inc. ("GVMCI"), a
consulting firm. GVMCI performed certain consulting services for the Company
from January 1996 through July 1996. The Company and GVMCI terminated their
relationship, GVMCI has permanently ceased all business activity and has
returned to the Company all fees earned. As a result of the aforementioned legal
matters regarding Mitchell Dobies, the Company's President, and Mr. Stanley
Kaplan, the Company may be precluded from the offer or sale of its securities in
one or more states. As a condition to listing the Company's securities on
Nasdaq, the Company is required to ensure that (i) independent directors
represent a majority of the members of the Board of Directors, and for one such
independent director to serve as Chairman and (ii) Messrs. Dobies and Sobel will
agree not to sell or otherwise dispose of any securities of the Company
beneficially owned by them (other than the Selling Common Stockholder Shares to
be sold by Messrs. Dobies and Sobel) for a period of two years from the
Effective Date. There can be no assurance that Nasdaq will not request further
restrictions in the future, or that any other securities exchange on which the
Company desires to list its securities will not request similar or more onerous
restrictions. See "Management" and "Certain Transactions."
Restrictions Contained in Agreements Relating to Former Employer. Mitchell
Dobies, President and Co-Chief Executive Officer of the Company, has entered
into an agreement with the shareholders of CR & ME, and Charles Sobel, Executive
Vice President and Co-Chief Executive Officer of the Company, has entered into
an agreement with CR & ME, both of which agreements address certain matters
related to termination of employment with CR & ME. 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 actively sought 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 adversary proceedings (akin to litigation within a bankruptcy
proceeding) against Messrs. Dobies and Sobel alleging, among other things, that
certain payments made to them by CR & ME were improper "insider" payments that
must be returned. The Company is not named in these proceedings. The action
against Mr. Sobel was recently settled with prejudice. Neither the Company nor
Mr. Dobies can 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.
9
<PAGE> 13
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.
Uncertainties in Apparel Retailing; General Economic Conditions. 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 customer of the Company, the Petrie Shops, 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. The Company's business is somewhat seasonal, but management
believes that it is less so than many other apparel companies, primarily because
of the Company's partial focus on basic sportswear, which is less seasonal than
fashion sportswear. In addition, the Company believes its product mix is diverse
and varied enough so that some of its products are popular at any time of year.
The Company does, however, generally experience its strongest sales during its
fourth quarter, from January 1 to March 31, and its weakest sales during its
second quarter, from July 1 to September 30. The Company does not believe this
variation has had a material adverse impact on its cash flow or operations,
although there can be no assurance that this will not be the case in the future.
See "Business -- Backlog; Seasonality."
Foreign Operations and Sourcing; Import Restrictions. Approximately 19% of
the Company's purchases of raw materials, labor and finished goods for its
apparel during the nine months ended December 31, 1996 were made in Asian
countries, Europe and elsewhere. The Company believes a longer-term opportunity
for expansion will be the growth and development of its import sales group. See
"Business" and "Use of Proceeds." As a result, the Company's operations may be
affected adversely by political instability resulting in the disruption of trade
with the countries in which the Company's contractors, suppliers or customers
are located, the imposition of additional regulations relating to imports, the
imposition of additional duties, taxes and other charges on imports, significant
fluctuations in the value of the dollar against foreign currencies, or
restrictions on the transfer of funds. The inability of a contractor to ship
orders in a timely fashion could cause the Company to miss the delivery date
requirements of its customers for these items, which could result in
cancellation of orders, refusal to accept deliveries, or a reduction in sales
prices. Further, since the Company is unable to return merchandise to its
suppliers, it could be faced with a significant amount of unsold merchandise,
which could have a material adverse effect on the Company's financial condition
and results of operations. The Company's import operations are and will be
subject to constraints imposed by bilateral textile agreements between the
United States and a number of foreign countries. These agreements, which have
been negotiated bilaterally either under the framework established by the
Arrangement Regarding International Trade in Textiles, also known as the
Multifiber Agreement, or other applicable statutes, impose quotas on the amounts
and types of merchandise which may be imported into the United States from these
countries. These agreements also allow the United States to impose restraints at
any time and on very short notice on the importation of categories of
merchandise that, under the terms of the agreements, are not currently subject
to specified limits. Imported products are also subject to United States customs
duties which comprise a material portion of the cost of the merchandise. A
substantial increase in customs duties could have an adverse effect on the
Company's operating results. The United States and the countries in which the
Company's products are produced or sold may, from time to time, impose new
quotas, duties, tariffs or other restrictions, or adversely adjust prevailing
quota, duty or tariff levels, any of which could have a material adverse effect
on the Company's results of operations. See "Business -- Sales
Groups -- Imports."
10
<PAGE> 14
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.
The Company's design team generally completes its process of designing Company
products approximately one year in advance of the selling season in which such
products are intended to be sold. Production of goods is generally completed
within three to four weeks with respect to domestically produced goods, and in
approximately three months with respect to imported goods. There can be no
assurance that these lead times will continue to be applicable to the Company's
design or production processes. See "Business -- Design Development" and
"Business -- Manufacturing.
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 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 ten "captive" outside contractors to provide a majority of the
Company's domestic 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,
which, given the Company's volume in its first year, caused the Company to rent
its own warehouse facility in June 1996. The Company maintains insurance with
respect to its warehouse and goods contained therein, and
11
<PAGE> 15
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.
Dependence on Accounts Receivable Factoring. 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, which historically has allowed the Company to
factor substantially all its accounts receivable. 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,
although there can be no assurance of the Company's ability to achieve this
goal. The funds provided by Republic prior to the completion of the Offering
are, and are likely to continue to be after the Offering, of material importance
to the Company's cash flow needs. The Company believes, however, that if
Republic were to cease to be the Company's factor, the Company would be able to
replace Republic with another factor or lender upon then commercially reasonable
terms, although there can be no assurance thereof. See "Business -- Factoring of
Accounts Receivable."
Control by Management; Independent Board Members. Prior to the Offering,
management of the Company (including all current officers and directors of the
Company) beneficially owned approximately 52% of all the issued and outstanding
Common Stock of the Company (the "Outstanding Stock"). Of such 52%,
approximately 17% 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 37% of the
Outstanding Stock (of which approximately 12% 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 condition to listing the Company's securities on Nasdaq,
the Company is required to ensure that independent directors represent a
majority of the members of the Board of Directors, and for one such independent
director to serve as Chairman. Messrs. Jay M. Haft, Gerald Cohen and Mitchell
Herman will be the three independent directors as of the Effective Date, serving
along with Messrs. Dobies and Sobel. While the existence of a majority of
independent directors will reduce the ability of Messrs. Dobies and Sobel to
control the Company, upon the Effective Date, management will continue to have
significant control over the Board of Directors through their stock ownership.
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. 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 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."
12
<PAGE> 16
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) 150,000 shares of
Common Stock reserved for issuance upon exercise of outstanding stock options
under the Option Plan, (iv) an additional 450,000 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."
Immediate Dilution. The purchasers of Units in the Offering will
experience immediate dilution of $3.35 or 67.0% 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."
Business Combinations. 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. The Company has no restrictions, super-majority voting provisions or
other discussion in its Certificate of Incorporation or By-Laws affecting
business combinations, except that, in the event of certain changes in control
of the Company, each of Messrs. Dobies and Sobel has the right in their
respective Employment Agreements to receive certain payments in the event of
certain terminations of their employment thereafter. See "Management" and
"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 12 months
after the date of this Prospectus; (iv) incentive stock options to purchase
150,000
13
<PAGE> 17
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 of which options to purchase 150,000 shares
have been issued to date. 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 the
Selling Warrantholder Warrants or underlying shares for a period of eighteen
months after the completion of the Offering. 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, (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 (z) 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 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 may determine 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
14
<PAGE> 18
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 Common
Stock and Warrants meet the current Nasdaq listing requirements and are expected
to be initially included on Nasdaq, 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
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.
15
<PAGE> 19
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 the Bridge Warrants
have agreed not to sell or otherwise dispose of such Bridge Warrants or Warrant
Shares underlying such Bridge Warrants for a period of 18 months from the date
of this Prospectus. The holders of the Series A Preferred Stock have agreed not
to sell or otherwise dispose of any Preferred Conversion Shares prior to October
31, 1997, without the prior written consent of the Underwriter. The holders of
190,476 shares of Common Stock acquired in the November Offering have agreed not
to sell or otherwise dispose of such shares prior to November 30, 1997, without
the prior written consent of the Underwriter. Messrs. Dobies and Sobel have
agreed not to sell or otherwise dispose of any securities of the Company
beneficially owned by them (other than the Selling Common Stockholder Shares
which will be sold as part of the Underwriter's over-allotment option) for a
period of two years from the date of this Prospectus. 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
$517,200 or approximately 10.57% 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."
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."
16
<PAGE> 20
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 $4,895,000
(approximately $5,296,000 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>
Funds Reserved for Letters of Credit for Import Sales
Group.................................................... $ 2,000,000 40.86%
Reduction of Trade Debt.................................... $ 1,000,000 20.43%
Repayment of Bridge Notes(1)............................... $ 508,500 10.39%
Repayment of November Notes(2)............................. $ 504,300 10.30%
Purchase of CAD/CAM System................................. $ 215,000 4.39%
Expansion of Existing Computer System...................... $ 50,000 1.02%
Loan to Supplier........................................... $ 100,000 2.04%
Working Capital (3)........................................ $ 517,200 10.57%
---------- -------
Total............................................ $ 4,895,000 100.00%
========== =======
</TABLE>
- ---------------
(1) Includes $500,000 principal amount of Bridge Notes and $8,500 in interest
accrued through January 31, 1997. The proceeds of the Bridge Financing were
used to finance the expenses relating to the Offering, for working capital
and for other corporate purposes.
(2) Includes $500,000 principal amount of November Notes and $4,300 in interest
accrued and unpaid through January 31, 1997. The proceeds of the November
Placement were utilized for general working capital and overhead of the
Company.
(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 or any of the Company's Warrants
will be exercised. The Company will not derive any proceeds from sales of
Selling Securityholder Securities.
17
<PAGE> 21
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996; (ii) the pro forma capitalization as of December 31, 1996 to
reflect the conversion of the Series A Preferred Stock into Preferred Conversion
Shares upon the closing of the Offering, 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>
DECEMBER 31, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
<S> <C> <C> <C>
Current maturities of long-term debt:
Equipment notes payable.............................. $ 11,959 $ 11,959 $ 11,959
November Notes, net of discount(2)................... 458,333 458,333 --
---------- ---------- ----------
470,292 470,292 11,959
---------- ---------- ----------
Bridge Notes, net of discount(1)....................... 484,375 484,375 --
---------- ---------- ----------
Long-term debt......................................... 16,651 16,651 16,651
---------- ---------- ----------
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............................ 828,030 -- --
---------- ---------- ----------
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....................... 906,084 1,724,590 6,607,343
Unearned compensation, performance shares............ (79,533) (79,533) (79,533)
Retained earnings(4)................................. 424,609 424,609 318,707
---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY........................ 1,271,636 2,099,666 6,888,517
---------- ---------- ----------
TOTAL CAPITALIZATION.............................. $3,070,984 $3,070,984 $ 6,917,127
========== ========== ==========
</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 $15,625 unamortized
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 $41,667 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 150,000 shares of Common Stock under the Option Plan
and (vi) an additional 450,000 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 $106,000 of
expense upon the repayment of the Bridge Notes and the November Notes
(includes an aggregate of $57,000 of debt discount). See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
18
<PAGE> 22
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 December 31, 1996, the
Company had a pro forma net tangible book value of $1,938,766 or $0.65 per share
of Common Stock. 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
December 31, 1996, would have been $6,888,517 or $1.64 per common share. This
would result in an immediate dilution to the public investors of $3.36 per share
(or 67.23%) and the aggregate increase in the pro forma net tangible book value
to present stockholders would be $1.00 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........ $0.65
Increase per share attributable to new investors................... 1.00
-----
Pro forma net tangible book value per share after Offering........... 1.64
-----
Dilution per share to new investors(1)............................... $3.36
=====
</TABLE>
- ---------------
(1) If the over-allotment option is exercised in full, the pro forma net
tangible book value after the Offering would be $1.70 per share, resulting
in dilution to new investors in the Offering of $3.30 per share (or 66.0%).
The following table summarizes, as of December 31, 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%
========= ======= ========== ======
</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 150,000 shares of Common
Stock under the Option Plan. See "Capitalization," "Management," "Certain
Transactions" and "Description of Securities."
19
<PAGE> 23
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 nine month periods
ended December 31, 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 nine months
ended December 31, 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 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED -----------------------------
MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
-------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $ -- $25,832,323 $ 16,502,277 $ 25,595,708
Operating (Loss) income............. (43,926) 975,566 472,847 291,388
Net (loss) income................... (43,926) 501,429 257,710 117,106
Pro forma net income per common
share............................ $ 0.16 $ 0.04
Pro forma weighted average common
shares outstanding(1)............ 3,077,742 3,004,556
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 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 $1,662,629 $1,662,629 $ 6,612,380
Total assets.......... 1,409,276 5,209,550 4,736,909 4,736,909 8,583,052
Long-term debt........ -- 425,143 16,651 16,651 16,651
Preferred stock....... 685,000 828,030 828,030 -- --
Shareholders'
equity............. 581,074 1,238,143 1,271,636 2,099,666 6,888,517
</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.
(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.
20
<PAGE> 24
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 nine months ended December 31, 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 primary 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.
Approximately 85% of all sales during the nine months ended December 31, 1996
have been generated from domestic production with the remainder in such period
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 as to the
future success of either the import or the mail order sales groups.
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>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,
MARCH 31, -------------------
1996 1995 1996
---------- ------ ------
<S> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0%
Cost of sales...................................... 81.8 82.3 82.0
----- ----- -----
Gross profit..................................... 18.2 17.7 18.0
Operating expenses................................. 14.4 14.8 16.9
----- ----- -----
Income from operations........................... 3.8 2.9 1.1
Other expenses..................................... 0.2 0.1 0.5
----- ----- -----
Income before income taxes....................... 3.6 2.8 0.6
Provision for income taxes......................... 1.7 1.2 0.2
----- ----- -----
Net income....................................... 1.9% 1.6% 0.4%
===== ===== =====
</TABLE>
21
<PAGE> 25
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
Net sales of $25.6 million in the nine months ended December 31, 1996
represented an increase of $9.1 million, or 55% over net sales of $16.5 million
in the nine months ended December 31, 1995. The increase in net sales was
primarily attributable to expansion of the customer base and increased volume
from existing customers. The expansion of the customer base includes
approximately $5.0 million in net sales to Charming Shoppes and Deb Shops which
were not customers during the nine months ended December 31, 1995. Increased
volume to Kmart, Petrie and Bradlees, among others, accounted for the balance of
the sales increase.
The Company's gross profit increased $1.7 million, or 58.6% to $4.6 million
for the nine months ended December 31, 1996 from $2.9 million for the nine
months ended December 31, 1995. Gross profit margin increased to 18.0% in the
nine months ended December 31, 1996 from 17.7% in the nine months ended December
31, 1995. The improvement in gross profit margin resulted primarily from higher
selling prices compared to certain aggressive pricing initially offered to
customers when the Company commenced operations.
Operating expenses, including all transactions with the factor, increased
$1.9 million, or 79.1%, to $4.3 million in the nine months ended December 31,
1996 from $2.4 million in the nine months ended December 31, 1995. The increase
was primarily due to an increase of $640,000 in payroll and related costs,
including $420,000 in increased selling salaries and other expenses which are
impacted by increased sales volume including increased warehouse and shipping
expenses of $160,000. The Company's results also include increases of $190,000
attributable to additional fixed costs (including rent, depreciation and
insurance) relating to the expansion of office and storage space. Factoring
costs increased $543,000 relating to commissions on higher sales volume, and
additional borrowing for working capital needs. The increased level of operating
expenses incurred during the nine months ended December 31, 1996 also reflected
anticipated further expansion of the Company's business, not all of which was
achieved as expected during the period. Since December 31, 1996, the Company has
been reviewing its business plan and has endeavored to reduce its operating
expenses.
As a result of the above factors, income from operations decreased $182,000
to $291,000 in the nine months ended December 31, 1996 from $473,000 in the nine
months ended December 31, 1995. This result includes a loss from operations of
$118,000 for the quarter ended December 31, 1996.
Other expenses increased $108,000 in the nine months ended December 31,
1996 from $17,000 in the nine months ended December 31, 1995 resulting primarily
from interest expense on promissory notes issued in November 1995 and August
1996.
For the nine months of fiscal 1997 income tax expense as a percentage of
pre-tax income decreased from 43.5% to 29.8% compared to the same period in
fiscal 1996. The decrease results primarily from applying the normal statutory
tax rates to the lower income level.
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, three
private placement offerings, as well as borrowings under its factoring
arrangement, vendor financing and, to a lesser extent, equipment financing.
These financing activities provided net cash of $718,000 in fiscal 1995, and
$1.3 million in fiscal 1996. The Company received gross proceeds of $500,000
from The Bridge Financing. The proceeds of the Bridge Financing were used to
finance the expenses relating to the Offering, for working capital and for other
corporate purposes.
Operating activities used net cash of $154,000 in fiscal 1995, $1.7 million
in fiscal 1996 and provided net cash of $42,000 for the nine months ended
December 31, 1996. The principal use of operating cash is to purchase fabric and
manufacture its products. The increased inventory levels resulted from the
Company's corresponding increased production to support the growth in sales.
Furthermore, the addition of import and mail order divisions during fiscal 1996
required funds for personnel, product development and additional space costs.
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<PAGE> 26
The Company's capital expenditures totalled $9,000, $122,000 and $162,000
in fiscal 1995, fiscal 1996 and in the nine months ended December 31, 1996,
respectively. These capital expenditures were for office equipment, computer and
improvements to leased premises. Future capital expenditures to upgrade the
Company's management information systems and purchase a new CAD/CAM system for
design and manufacturing are budgeted for $265,000. Except as described in "Use
of Proceeds," the Company has no present plans for capital expenditures in the
twelve months following the consummation of the Offering.
The Company's ability to fund its working capital and capital expenditure
requirements, make interest payments and meet its other cash requirements
depends, among other things, on internally generated funds and the continued
availability of advances under its factoring agreement. See "Risk
Factors -- Dependence on Accounts Receivable Financing." Management believes
that internally generated funds and advances under its factoring agreement will
provide the Company with sufficient resources of funds to satisfy its
anticipated cash requirements for the balance of fiscal 1997. However, if there
is a significant reduction of internally generated funds, the Company may
require funds from outside financing sources. In such event, there can be no
assurance that the Company would be able to obtain such funding as and when
required or on acceptable terms.
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<PAGE> 27
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 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 nine months ended
December 31, 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 nine months ended December 31, 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 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 "Missy"/Large Size, Young Large Size,
Imports, Mail Order and Mass Merchants. 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
domestically produced 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 imported fashion sportswear. Part of management's long-term plan is to
continue to expand its importing activities, which represented approximately 15%
of the Company's revenues for the nine months ended December 31, 1996. There can
be no assurance that this plan will be successfully implemented. See "Use of
Proceeds"; "Risk Factors -- Foreign Operations and Sourcing; Import
Restrictions."
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<PAGE> 28
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.
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 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 to 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 and woven
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 in the popular price and the large size women's
category and to be a major manufacturer of bottoms in popular price "missy"
sizes, although no assurance can be given that it will be able to attain these
goals. The Company
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<PAGE> 29
believes that its success in marketing bottoms will depend upon its ability to
compete on the basis of price and delivery lead time against imports.
SALES GROUPS
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 (other than Messrs. Dobies, Sobel and, as expected in the near
future, Holtz, see "Management -- Employment Agreements"), 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.
"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 Dupont Lycra(R) are a
significant contributor to this category.
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.
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 expects 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 -- Employment Agreements" and "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. See "Risk Factors - Foreign Operations and Sourcing;
Import Restrictions."
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.
Mass Merchants. Management believes that, although no assurance can be
given, 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 endeavors to
avoid committing a large percentage of its business to any one retailer. See
"Risk Factors" and "Business -- Customer Base."
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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,
management believes the mass merchant is best serviced as a separate sales
group.
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 with substantially the same pace continued through
the nine months ended December 31, 1996 (although no assurance can be given that
such trend will continue), and converted most of these patterns into samples.
See "Risk Factors -- Fashion Trends."
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 ten "captive" contractors, for whom the
Company represents substantially all their business, to provide a majority of
its domestic 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 DuPont 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 ten
"captive" outside contractors to provide a majority of its domestic 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
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<PAGE> 31
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."
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"; "Risk Factors -- Fashion
Trends."
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. The Company also ships a material
portion of its merchandise directly from the contractor to customers. 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
ShopKo (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 Co-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, and
during the nine months ended December 31, 1996 it did so approximately seven
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 and increases the overall contribution to revenues from
importing activities and mail order sales, it is expected that this turn rate
will be reduced, although no assurance can be given.
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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 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 attempts to conduct business 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 nine months ended December 31, 1996,
Charming Shoppes represented 15% of sales.
COMPETITION
The apparel business is intensely 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; SEASONALITY
As of January 1, 1997, the Company had unfilled orders of approximately
$7.1 million, compared to approximately $4.9 million of such orders at the
comparable date in 1996. 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
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<PAGE> 33
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.
The Company's business is somewhat seasonal, but management believes that
it is less so than many other apparel companies, primarily because of the
Company's partial focus on basic sportswear, which is less seasonal than fashion
sportswear. In addition, the Company believes its product mix is diverse and
varied enough so that some of its products are popular at any time of year. The
Company does, however, generally experience its strongest sales during its
fourth quarter, from January 1 to March 31. The Company does not believe this
variation has had a material adverse impact on its cash flow or operations,
although there can be no assurance that this will not be the case in the future.
See "Risk Factors -- Uncertainties in Apparel Retailing; General Economic
Conditions."
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, 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, which historically has allowed the Company to factor substantially all
its accounts receivable. 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"; "Risk Factors -- Dependence on Accounts Receivable Factorings."
EMPLOYEES
At December 31, 1996, the Company employed approximately 55 full time
individuals, of which seven occupy executive or managerial positions,
approximately 34 hold design, production, quality control or distribution
positions and the balance occupy sales, clerical and office positions.
Approximately seven 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.
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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, Co-Chief Executive Officer and
Director
Charles Sobel.................... 36 Co-Chief Executive Officer, Executive Vice President
and Director
Kathleen A. Dressel.............. 31 Secretary
Jeffrey Marcus................... 42 Chief Financial Officer
Mitchell Herman.................. 45 Director(1)
Gerald Cohen..................... 64 Director(1)
Jay M. Haft...................... 69 Director(1)
</TABLE>
- ---------------
(1) These individuals have been elected to become directors upon the Effective
Date.
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 two persons, Messrs. Dobies and Sobel. Upon the Effective Date, Messrs.
Cohen, Haft and Herman will become members of the Board of Directors.
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."
As a condition to listing the Company's securities on Nasdaq, the Company
is required to ensure that independent directors represent a majority of the
members of the Board of Directors, and for one such independent director to
serve as Chairman. Messrs. Herman, Cohen and Haft, each an independent director,
will represent a majority of the Board of Directors as of the Effective Date,
and Mr. Haft will become Chairman of the Board of Directors upon the Effective
Date. There can be no assurance that Nasdaq will not request further
restrictions in the future, or that any other securities exchange on which the
Company desires to list its securities will not request similar or more onerous
restrictions. See "Risk Factors."
Mitchell Dobies. Mr. Dobies is President, Co-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 Co-Chief Executive Officer, 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
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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 (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.
Mitchell Herman. Mr. Herman has been elected to become a director upon the
Effective Date. Since 1995, he has been Sales Manager of By Design, an apparel
manufacturer. From 1990-1995, he was Sales Manager of E.S. Sutton, a
manufacturer of knitwear. He also has previously been associated with Bradlees
Department Stores, Jefferson Ward Stores and J.W. Mays.
Gerald Cohen. Mr. Cohen has been elected to become a director upon the
Effective Date. He is a certified public accountant and attorney who for the
past five years has acted primarily as a financial consultant, advising
businesses in business combinations and formation and general advisory work. He
has previously served on the boards of directors of more than 12 public
companies and several private companies. Mr. Cohen formerly served as personal
accountant to Charles Sobel.
Jay M. Haft. Mr. Haft has been elected to become a director and Chairman
of the Board upon the Effective Date. Mr. Haft is a strategic and financial
consultant for growth stage companies. He is a Managing General Partner of
Venture Capital Associates, Ltd. and of Gen Am "I" Venture Fund, a domestic and
international venture capital fund, respectively. Mr. Haft also is a director of
numerous public and private corporations, including Robotic Vision Systems,
Inc., Noise Cancellation Technologies, Inc., Extech Inc., Healthcare Acquisition
Corp., Viragen, Inc., PC Service Source, Inc., DUSA Pharmaceuticals, Inc. and
Oryx Technology Corp. He serves as Chairman of the Board of Noise Cancellation
Technologies, Inc., Extech, Inc. and Healthcare Acquisition Corp. He also is a
member of the Florida Commission on Government Accountability to the People. He
is currently of counsel to Parker Duryee Rosoff & Haft, a New York City law
firm. He was previously a senior partner of that firm from 1989-1994, and prior
to that was a founding partner of Wofsey, Certilman, Haft, et al, from
1966-1988. He is a graduate of Yale College and Yale Law School.
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.
As a condition to listing the Company's securities on Nasdaq, the Company
is required to ensure that (i) independent directors represent a majority of the
members of the Board of Directors, and for one such independent director to
serve as Chairman and (ii) Messrs. Dobies and Sobel will agree not to sell or
otherwise dispose of any securities of the Company beneficially owned by them
(other than the Selling
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<PAGE> 36
Common Stockholder Shares to be sold by Messrs. Dobies and Sobel) for a period
of two years from the Effective Date. There can be no assurance that Nasdaq will
not request further restrictions in the future, or that any other securities
exchange on which the Company desires to list its securities will not request
similar or more onerous restrictions. See "Risk Factors."
Mr. 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. Mr. Stanley Kaplan was a controlling shareholder of GVMCI, a
consulting firm. GVMCI performed certain consulting services for the Company
from January 1996 through July 1996. The Company and GVMCI terminated their
relationship and GVMCI has permanently ceased all business activity and returned
all fees earned to the Company. 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 recently settled with prejudice. CR & ME has commenced
adversary proceedings (akin to litigation within a bankruptcy proceeding)
against Messrs. Dobies and Sobel alleging, among other things, that certain
payments made to them by CR & ME were improper "insider" payments that must be
returned. The Company is not named in these proceedings. The action against Mr.
Sobel was recently settled with prejudice. Neither the Company nor Mr. Dobies
can 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.
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<PAGE> 37
DIRECTORS' COMPENSATION
The Company currently pays $1,000 per meeting (plus travel and related
expenses) to members of the Board of Directors who are not employees of the
Company. Members of management who also serve as directors are not provided
separate compensation for their service as directors.
In June 1996, the Company paid Lawrence Kaplan, a former director of the
Company, 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, (a) one-half of these shares ("One Half") shall be
repurchased by the Company for the par value thereof in the event that the
Company does not achieve net income before taxes ("Net Income") of at least $2.0
million during the period of April 1, 1997 through March 31, 1998 ("1998 Fiscal
Year"), provided that (i) only one-half of such One Half shall be repurchased by
the Company in the event that the Company achieves Net Income for the 1998
Fiscal Year of at least $1.5 million but less than $1.75 million, and (ii) only
one-quarter of such One Half shall be repurchased by the Company in the event
that the Company achieves Net Income for the 1998 Fiscal Year of at least $1.75
million but less than $2.0 million, and (b) One Half shall be repurchased by the
Company for the par value thereof in the event that the Company does not achieve
Net Income of at least $2.5 million during the period of April 1, 1998 through
March 31, 1999 ("1999 Fiscal Year"), provided that (x) only one-half of such One
Half shall be repurchased by the Company in the event that the Company achieves
Net Income for the 1999 Fiscal Year of at least $2 million but less than $2.25
million and (y) only one-quarter of such One Half shall be repurchased by the
Company in the event that the Company achieves Net Income for the 1999 Fiscal
Year of at least $2.25 million but less than $2.5 million. Net Income, 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 were not subject to vesting or any other requirement that
Mr. Kaplan remain as a director of the Company for any specified period. Mr.
Kaplan resigned as a director of the Company in February 1997.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon the Effective Date, the Board of Directors will establish an Audit
Committee consisting of Messrs. Herman, Haft and Cohen. The Audit Committee will
review (i) the Company's audit functions, (ii) with management, the finances,
financial condition and interim financial statements of the Company, (iii) with
the Company's independent auditors, the year end financial statements of the
Company and (iv) the implementation of any action recommended by the independent
auditors.
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 years ended March 31, 1996 and
March 31, 1995. No other executive officer of the Company received salary and
bonus compensation in excess of $100,000 during such fiscal years. 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.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER
----------------------------------------------- ----- -------- ------- -------
<S> <C> <C> <C> <C>
Mitchell Dobies................................ 1996 $200,000 $15,000(1) $36,760(2)
President and Co-Chief Executive Officer 1995 $ 7,692 -0- (3)
Charles Sobel.................................. 1996 $200,000 $15,000(1) $36,760(2)
Executive Vice President and 1995 $ 7,692 -0- (3)
Co-Chief Executive Officer
Ernie Baumgarten............................... 1996 $114,800 -0- $23,969(2)
Vice President 1995 $ -0- -0- (3)
</TABLE>
- ---------------
(1) Includes cash bonuses accrued in March 1996 but not paid until April 1996.
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(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."
(3) Messrs. Dobies and Sobel each received 222,857 Performance Shares in March
1995. Mr. Baumgarten received 68,571 Performance Shares in March 1995 which
were repurchased by the Company in February 1996.
EMPLOYMENT AGREEMENTS
Mitchell Dobies and Charles Sobel
Messrs. Dobies and Sobel each has executed an Amended and Restated
Employment Agreement, dated as of February 1, 1997, with the Company (the
"Employment Agreements"), which provides for (i) a three-year term ending
January 31, 2000 (automatically renewable thereafter from year to year if not
terminated); (ii) a base salary of $225,000 (plus expense allowance of $3,500
monthly) through March 31, 1997, $250,000 (plus expense allowance of $3,500
monthly) during the 1998 Fiscal Year, $275,000 (plus expense allowance of $3,834
monthly) during the 1999 Fiscal Year and $300,000 (plus expense allowance of
$4,167 monthly) for the period from April 1, 1999 through March 31, 2000; (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 for Mr. Sobel. Mr. Sobel also will receive
an additional minimum bonus, solely for the year ended March 31, 1997, equal to
$32,000. 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, with a minimum of $100,000 in the aggregate (if pre-tax profit exceeds
one million dollars), 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, (a) one-half of these shares ("One Half") shall be
repurchased by the Company for the par value thereof in the event that the
Company does not achieve Net Income of at least $2.0 million during the 1998
Fiscal Year, provided that (i) only one-half of such One Half shall be
repurchased by the Company in the event that the Company achieves Net Income for
the 1998 Fiscal Year of at least $1.5 million but less than $1.75 million, and
(ii) only one-quarter of such One Half shall be repurchased by the Company in
the event that the Company achieves Net Income for the 1998 Fiscal Year of at
least $1.75 million but less than $2.0 million, and (b) One Half shall be
repurchased by the Company for the par value thereof in the event that the
Company does not achieve Net Income of at least $2.5 million during the 1999
Fiscal Year, provided that (x) only one-half of such One Half shall be
repurchased by the Company in the event that the Company achieves Net Income for
the 1999 Fiscal Year of at least $2 million but less than $2.25 million and (y)
only one-quarter of such One Half shall be repurchased by the Company in the
event that the Company achieves Net Income for the 1999 Fiscal Year of at least
$2.25 million but less than $2.5 million. Net Income, 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, 1998, if such termination is by the Company for
Cause or by Mr. Dobies or Sobel for Good Reason (each as defined below); and
one-half of which Performance Shares shall be repurchased by the
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<PAGE> 39
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, 1998 and prior to March 31, 1999, if such termination is by the Company for
Cause or by Mr. Dobies or Mr. Sobel for Good Reason (each as defined below). As
indicated above, these vesting restrictions do not apply to the Performance
Shares issued to Lawrence Kaplan, a former director of the Company, who has
retained his Performance Shares even though he has resigned as a director of the
Company.
The Employment Agreements contain provisions for termination by the Company
upon the death or disability of Mr. Dobies or Mr. Sobel, respectively, or for
Cause, which is defined as a nonappealable judicial determination of his
malfeasance or dishonesty with respect to actions related to the Company, or
conviction or plea of guilty or no contest of any felony or any crime against
the Company or certain failures to act upon express lawful direction of the
Board of Directors. Mr. Dobies or Mr. Sobel also may terminate their respective
Employment Agreements for Good Reason, defined as (i) after 30 days' written
notice and opportunity to cure, any breach of the terms of the Employment
Agreement by the Company or (ii) a Change in Control. The Employment Agreements
define Change in Control as (i) the acquisition by a person of 20% or more of
the combined voting power of the Company, unless more than 80% of the Board of
Directors decides that no change in control has occurred (provided, however, if
a person has acquired 33 1/3% of the voting power of the Company a change of
Control shall be deemed to have occurred), (ii) if there be a change in the
majority membership of the Board of Directors pursuant to a sale of at least 10%
of the equity of the Company to a third party, and at least 80% of all the
members of the Board of Directors prior to such change approve such change in
membership or (iii) certain changes in control as defined under the Exchange
Act, unless three-quarters of the Board prior to such change determine that no
change in control has occurred. The Employment Agreements provide for certain
severance payments upon termination by Mr. Dobies or Mr. Sobel for Good Reason,
or by the Company for any reason other than Cause.
Eric Holtz
Eric Holtz, Director of Imports, is expected to enter into an employment
agreement with the Company in the near future. It is currently anticipated,
although no assurance can be given, that the agreement will provide for (i) a
one-year term, (ii) commissions which commence at 1% of sales made by him and
increase to 7% or more depending upon Gross Profit (to be defined in his
agreement) earned on such sales, (iii) a one percent override on other import
sales not generated by him individually, (iv) a $150,000 per year draw against
commissions and overrides, with any amounts of such draw in excess of
commissions and overrides being repayable by Mr. Holtz to the Company in the
event he terminates his employment or in the event of his termination by the
Company for Cause, which draw will never be less than eighty percent (80%) of
his aggregate compensation in any previous fiscal year, (v) a $2,000 per month
expense allowance, (vi) a minimum bonus of $7,500 and (vii) perquisites
comparable to Messrs. Dobies and Sobel. Mr. Holtz also will participate in the
Management Profit Participation, and shall receive no less than one-half of the
amount received by each of Messrs. Dobies and Sobel therefrom. The agreement
also is expected to include non-competition, confidentiality and
non-solicitation provisions. The agreement also is expected to provide that Mr.
Holtz will be entitled to receive commissions and overrides on sales which are
completed within six months after his departure, if efforts to achieve such
sales were commenced during his employment. Also, upon termination by the
Company other than for Cause, Mr. Holtz would be able to receive a pro-rated
portion of any payments made on the Management Profit Participation with respect
to the fiscal year during which his employment terminated (earning no less of a
percentage of the aggregate amount paid than in previous years) and certain
other severance payments, likely to include his full draw for the remainder of
the year of the contract then applicable, which are still under negotiation.
Cause is defined in a substantively similar manner to those contained in Messrs.
Dobies and Sobel's Employment Agreements.
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 is 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
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<PAGE> 40
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 or 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. The Company has agreed with the Underwriter that,
commencing on April 1, 1997, no more than 150,000 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 $3.00 per share
and 66,667 of such awards have vested, with the remaining Awards (all granted to
Mr. Holtz) vesting on April 1, 1997. On February 1, 1997, the Company agreed to
grant, on the Effective Date, 50,000 Awards, exercisable at $5.00 per share, to
Eric Holtz. These Awards vest in equal portions over a three-year period. No
other Awards have been granted.
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).
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
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<PAGE> 41
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.
38
<PAGE> 42
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 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. Since the establishment of the 401(k)
Plan, the Company has not made any contributions 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.
39
<PAGE> 43
CERTAIN TRANSACTIONS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Mitchell Dobies,
the President and Co-Chief Executive Officer of the Company and Charles Sobel,
Co-Chief Executive Officer and 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 95,238 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 prior to October 31, 1997 without the prior written consent of
the Underwriter. Lawrence Kaplan, a former director and current stockholder of
the Company, is the sole stockholder, officer and director of G-V. See
"Management"; "Principal Stockholders."
NOVEMBER UNIT OFFERING
In November 1995, the Company sold investment units comprising an aggregate
of $500,000 principal amount of the November Notes and 190,476 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. The holders of the shares of Common Stock issued in the
November Offering have agreed not to sell or otherwise dispose of such shares
prior to November 30, 1997 without the prior written consent of the Underwriter.
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.
The Company and GVMCI terminated their relationship, and GVMCI has permanently
ceased all business activity and returned all fees earned to the Company.
Lawrence Kaplan, a former director of the Company, was 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, was a principal
shareholder, officer and director of GVMCI. See "Risk Factors."
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 and
underlying shares have been registered for resale in the Registration Statement
of which this Prospectus forms a part. The holders of the Bridge Warrants have
agreed not to sell or otherwise dispose of their Bridge Warrants or Warrant
Shares for a period of 18 months after the Effective Date.
40
<PAGE> 44
CERTAIN ISSUANCES OF SECURITIES TO EXECUTIVE OFFICERS AND DIRECTORS; SELLING
SECURITYHOLDERS; CERTAIN RELATIONSHIPS
In June 1996, Mr. Sobel was issued 68,571 Performance Shares.
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., 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 was an officer, director and
principal shareholder of GVMCI, which has permanently ceased all business
activity and returned all fees earned to the Company. 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 former director of the Company, is the sole shareholder,
officer and director of G-V and was an officer, director and principal
shareholder of GVMCI, which has permanently ceased all business activity. The
compensation which G-V and GVMCI have received from the Company, all of which,
as to GVMCI, has been returned to 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 either jointly with or solely 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
solely or jointly with his wife invested $120,000 for 60,000 shares of Series A
Preferred Stock and $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,"
and "Concurrent Offerings."
Gerald Cohen, who was elected to become a director upon the Effective Date,
was formerly the personal accountant to Mr. Sobel.
The Company believes that all arrangements described above in "Certain
Transactions" were and are on terms that would have been able to be obtained had
such transactions been consummated with unaffiliated persons, although no
assurance can be given that such opportunities to conduct transactions with
unaffiliated persons were or are available to the Company.
41
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth information, as of the date of this
Prospectus, information relating to each executive officer and director and any
person who is known to the Company to be the beneficial owner of more than five
percent of the Company's voting securities, and all executive officers and
directors as a group.
<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%
Jay M. Haft(4).................................... 47,620 1.59% 47,620 1.13%
All current executive officers and directors
as a group (2 persons).......................... 1,558,095 51.94% 1,558,095 37.10%
</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. Assumes
conversion of all outstanding shares of Series A Preferred Stock into
Preferred Conversion Shares. Does not include 150,000 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. Also includes
95,238 shares of Common Stock owned jointly with Helaine Kaplan. Helaine
Kaplan is Lawrence Kaplan's wife. Also includes 95,238 shares of Common
Stock owned by G-V. Does not include shares owned of a public company, a
subsidiary of which 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.
(4) All such shares are owned by Clayre Haft, Mr. Haft's wife. Mr. Haft is not
currently a director but will become a director upon the Effective Date. Mr.
Haft's address is 201 S. Biscayne Blvd., Miami, Florida 33131.
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 1,000,000 Selling Warrantholder Warrants are being issued
to the Selling Securityholders as of the closing of the Offering in replacement
of Warrants issued pursuant to the Bridge Financing. 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
42
<PAGE> 46
Warrantholders have agreed not to sell their Selling Warrantholder Warrants or
the underlying shares for a period of eighteen months after the completion of
the Offering.
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 $10.125 Unit price less a valuation of
$0.125 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.
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 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 other than the lock-up agreements described herein.
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
Commission has proposed a new Regulation M, which will become effective on March
4, 1997 and is intended to replace Rules 10b-6 and 10b-7. Regulation M provides
for similar but different prohibitions, which may effect the ability of the
Selling Securityholders to sell their Selling Securityholder Securities.
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.
43
<PAGE> 47
The following table sets forth the number of Selling Warrantholder Warrants
owned by such Selling Warrantholder and the number of shares of Common Stock
issuable upon the exercise of the Selling Warrantholder Warrants held by each
Selling Securityholder, 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 WARRANTS SHARES COMPLETION OF OFFERING(1)
------------------------------------------ -------- -------- -------------------------
<S> <C> <C> <C>
Interpacific Capital Corporation.......... 200,000 200,000 3.85%
Universal Partners, L.P................... 50,000 50,000 0.96%
Lawrence Kaplan(2)........................ 175,000 175,000 3.37%
Windy City, Inc........................... 25,000 25,000 0.48%
Manhattan Group Funding................... 50,000 50,000 0.96%
Sheldon Schwartz.......................... 100,000 100,000 1.92%
Edmond O'Donnell.......................... 25,000 25,000 0.48%
Michael Miller............................ 25,000 25,000 0.48%
Charles Rose.............................. 50,000 50,000 0.96%
Galaxy Investments, Inc................... 300,000 300,000 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.
(2) Lawrence Kaplan is a former 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, Co-Chief Executive Officer and a director of
the Company.
(2) Includes 222,857 Performance Shares. See "Management."
(3) Charles Sobel is Executive Vice President, Co-Chief Executive Officer and a
director of the Company.
(4) Includes 291,429 Performance Shares. See "Management."
44
<PAGE> 48
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 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 issued and outstanding 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, (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 (z) the Company has then in effect a registration statement
with respect to the Warrant Shares. All Warrants must be redeemed if any are
redeemed.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") among the Company and American Stock Transfer Company, as warrant
agent ("Warrant Agent"), and will be evidenced by warrant certificates in
registered form. The Warrants provide for adjustment of the exercise price
45
<PAGE> 49
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.
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. The holders of the Warrants may exercise
the Warrants at any time up to the business day prior to the date of redemption,
provided that (i) a current registration statement relating to the shares of
Common Stock underlying the Warrants is on file with the Commission and then in
effect and (ii) such securities are qualified for sale or exempt from
qualification under the securities laws of the state in which the particular
holder of the Warrants resides. The Warrant Agreement requires the Company to
endeavor to maintain a registration statement current and effective for these
purposes. However, there can be no assurance that the Company will be able to do
so. 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, 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 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 12
months from the date of this Prospectus at an exercise price equal to 165% of
the initial public offering price per Unit ($16.70625), 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
46
<PAGE> 50
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 any Preferred Stock and has agreed that, for a period of two years
after the Effective Date, it will not issue any shares of Preferred Stock
without the prior written consent of the Underwriter. 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 ending October 31, 1997 without the
prior written consent of the Underwriter.
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. In the event of
certain changes in control of the Company, each of Messrs. Dobies and Sobel has
the right in their respective Employment Agreements to receive certain payments
in the event of certain terminations of their employment thereafter. See "Risk
Factors -- Business Combinations" and "Management."
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 such Bridge Warrants or shares for a
period of eighteen months after the completion of the Offering. 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
ending October 31, 1997 without the prior written consent of the Underwriter.
The holders of the shares of Common Stock issued in the November Offering have
agreed not to sell or otherwise dispose of such shares prior to November 30,
1997 without the prior written consent of the Underwriter.
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
47
<PAGE> 51
Series A Preferred Stock have agreed not to sell or otherwise dispose of their
shares of Preferred Conversion Shares for a period ending October 31, 1997,
without the prior written consent of the Underwriter. The holders of the shares
of Common Stock issued in the November Offering have agreed not to sell or
otherwise dispose of such shares prior to November 30, 1997 without the prior
written consent of the Underwriter. 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 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. The
Underwriter's Option is exercisable during the three-year period commencing 12
months 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.
48
<PAGE> 52
UNDERWRITING
Walsh Manning Securities, LLC, 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 $0.50625 per Unit. After the commencement
of the Offering, the public offering prices and the concession 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 exercised, the Underwriter will purchase the first 45,000 Units by purchasing
90,000 shares from the Selling Common Stockholders for $4.50 per share (the
$10.125 Unit price to the public less a price of $0.125 per Warrant less the 10%
underwriting discount). The Warrants comprising the Units will be contributed by
the Company for additional consideration equal to $0.125 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 (i) in the
case of the holders of Bridge Warrants, for a period of 18 months from the date
of this Prospectus, (ii) in the case of the Preferred Conversion Shares, October
31, 1997, without the prior written consent of the Underwriter or (iii) in the
case of the shares of Common Stock issued in the November Offering, November 30,
1997, 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 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 $90,000, to be paid in advance upon the closing of the
Offering.
The Company has agreed to pay to the Underwriters a warrant solicitation
fee (the "Warrant Solicitation Fee") equal to 5% of the exercise price of each
Warrant exercised beginning one year after the date of this Prospectus and to
the extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission. Such Warrant Solicitation Fee will be paid to the
soliciting Underwriter if (a) the exercise of such Warrant was solicited by such
Underwriter; (b) prior specific written approval for exercise is received from
the customer if the Warrant is held in a discretionary account; (c) disclosure
of this compensation agreement is made prior to or upon the exercise of such
Warrant; (d) solicitation of the exercise is not in violation of Rule 10b-6 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
49
<PAGE> 53
(e) solicitation of the exercise is in compliance with NASD Notice to Members
81-38. 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 12 months, except to any officer of the Underwriter
or members of the selling group or their officers. The Underwriter's Option is
exercisable during the three-year period commencing 12 months from the date of
this Prospectus at an exercise price equal to 165% of the initial public
offering price per Unit ($16.70625), 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.
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. 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 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.
50
<PAGE> 54
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. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov. 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.
51
<PAGE> 55
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
Independent Auditors' Report.................................................. F-2
Balance Sheets -- March 31, 1995 and 1996 and December 31, 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 Nine Months Ended
December 31, 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 Nine
Months Ended December 31, 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 Nine Months Ended
December 31, 1995 and 1996 (Unaudited)...................................... F-6
Notes to Financial Statements................................................. F-7 to F-12
</TABLE>
F-1
<PAGE> 56
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.
EDWARD ISAACS & COMPANY LLP
New York, New York
May 7, 1996
F-2
<PAGE> 57
JENNA LANE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
MARCH 31, -----------------------
----------------------- PRO FORMA
1995 1996 ACTUAL (NOTE 1)
---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................... $ 521,387 $ 1,250 $ 20,106 $ 20,106
Stock subscriptions receivable................. 720,000 -- -- --
Due from factor................................ -- 2,100,709 574,356 574,356
Inventories.................................... 102,077 2,782,135 3,228,731 3,228,731
Prepaid income taxes........................... -- -- 200,989 200,989
Prepaid expenses and other..................... 24,146 138,385 196,039 196,039
Deferred income taxes.......................... -- 29,000 22,000 22,000
---------- ---------- ---------- ----------
TOTAL CURRENT ASSETS................... 1,367,610 5,051,479 4,242,221 4,242,221
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT:
Furniture and equipment........................ 3,375 121,493 198,090 198,090
Leasehold improvements......................... 6,000 10,549 94,408 94,408
---------- ---------- ---------- ----------
9,375 132,042 292,498 292,498
Less: Accumulated depreciation................. -- 15,360 48,776 48,776
---------- ---------- ---------- ----------
PROPERTY AND EQUIPMENT, net............ 9,375 116,682 243,722 243,722
---------- ---------- ---------- ----------
OTHER ASSETS:
Deferred financing costs, net.................. -- -- 160,900 160,900
Security deposits and other.................... 32,291 41,389 90,066 90,066
---------- ---------- ---------- ----------
32,291 41,389 250,966 250,966
---------- ---------- ---------- ----------
TOTAL ASSETS........................... $1,409,276 $5,209,550 $4,736,909 $4,736,909
========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bridge Notes payable........................... $ -- $ -- $ 484,375 $ 484,375
Accounts payable............................... -- 2,371,354 1,529,476 1,529,476
Accrued expenses............................... 143,202 158,618 95,449 95,449
Income taxes payable........................... -- 157,000 -- --
Current maturities of long-term debt........... -- 2,262 470,292 470,292
---------- ---------- ---------- ----------
TOTAL CURRENT LIABILITIES.............. 143,202 2,689,234 2,579,592 2,579,592
---------- ---------- ---------- ----------
LONG-TERM DEBT................................... -- 425,143 16,651 16,651
---------- ---------- ---------- ----------
DEFERRED INCOME TAXES............................ -- 29,000 41,000 41,000
---------- ---------- ---------- ----------
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, $171,970 and $171,970,
respectively................................... 685,000 828,030 828,030 --
---------- ---------- ---------- ----------
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................. 682,381 804,850 906,084 1,724,590
Unearned compensation, performance shares...... (75,000) (44,000) (79,533) (79,533)
Retained earnings (deficit).................... (43,926) 457,503 424,609 424,609
---------- ---------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY............. 581,074 1,238,143 1,271,636 2,099,666
---------- ---------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................... $1,409,276 $5,209,550 $4,736,909 $4,736,909
========= ========= ========= =========
</TABLE>
See notes to financial statements.
F-3
<PAGE> 58
JENNA LANE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 14, NINE MONTHS ENDED
1995 ---------------------------
(INCEPTION) TO YEAR ENDED DECEMBER DECEMBER
MARCH 31, MARCH 31, 31, 31,
1995 1996 1995 1996
-------------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
NET SALES............................. $ -- $25,832,323 $16,502,277 $25,595,708
COST OF SALES......................... -- 21,128,147 13,590,069 20,986,787
-------- ----------- ----------- -----------
GROSS PROFIT........................ -- 4,704,176 2,912,208 4,608,921
-------- ----------- ----------- -----------
OPERATING EXPENSES:
Selling and shipping................ -- 1,862,864 1,258,768 2,010,321
General and administrative.......... 43,926 1,337,586 900,776 1,484,695
Factor charges and interest......... -- 528,160 279,817 822,517
-------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES.... 43,926 3,728,610 2,439,361 4,317,533
-------- ----------- ----------- -----------
OPERATING (LOSS) INCOME............. (43,926) 975,566 472,847 291,388
-------- ----------- ----------- -----------
OTHER EXPENSES:
Amortization of deferred financing
costs............................ -- -- -- 21,486
Interest expense -- promissory
notes............................ -- 41,573 16,573 103,125
-------- ----------- ----------- -----------
TOTAL OTHER EXPENSES........ -- 41,573 16,573 124,611
-------- ----------- ----------- -----------
(LOSS) INCOME BEFORE INCOME TAXES... (43,926) 933,993 456,274 166,777
PROVISION FOR INCOME TAXES............ -- 432,564 198,564 49,671
-------- ----------- ----------- -----------
NET (LOSS) INCOME................... $(43,926) $ 501,429 $ 257,710 $ 117,106
======== =========== =========== ===========
PRO FORMA NET INCOME PER COMMON SHARE
(Unaudited)
(Note 1)............................ $ .16 $ .04
=========== ===========
PRO FORMA WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING (Unaudited) (Note
1).................................. 3,077,742 3,004,556
=========== ===========
</TABLE>
See notes to financial statements.
F-4
<PAGE> 59
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 2,857 122,143 -- -- 125,000
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 19,790 804,850 (44,000) 457,503 1,238,143
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......................... -- -- -- 41,687 -- 41,687
Issuance of warrants................... -- -- 25,000 -- -- 25,000
Net income............................. -- -- -- -- 117,106 117,106
Dividends paid on preferred stock...... -- -- -- -- (150,000) (150,000)
--------- ------- -------- --------- --------- ----------
BALANCE at December 31, 1996
(unaudited).......................... 2,047,619 $20,476 $ 906,084 $(79,533) $ 424,609 $ 1,271,636
========= ======= ======== ========= ========= ==========
</TABLE>
See notes to financial statements.
F-5
<PAGE> 60
JENNA LANE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD
FEBRUARY 14, NINE MONTHS ENDED
1995 ----------------------------
(INCEPTION) TO YEAR ENDED DECEMBER 31, DECEMBER 31,
MARCH 31, MARCH 31, 1995 1996
1995 1996 ------------ ------------
-------------- ----------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net (loss) income........................................ $ (43,926) $ 501,429 $ 257,710 $ 117,106
Adjustments to reconcile net (loss) income to net cash
used in operating activities:
Depreciation and amortization.......................... -- 46,360 28,864 99,565
Deferred income taxes.................................. -- -- -- 19,000
Amortization of debt discount.......................... -- 20,833 8,333 46,875
Increase (decrease) in cash attributable to changes in
assets and liabilities:
Due from factor...................................... -- (2,100,709) (1,948,434) 1,525,353
Inventories.......................................... (102,077) (2,680,058) (2,109,818) (446,596)
Prepaid income taxes................................. -- -- -- (200,989)
Prepaid expenses and other........................... (24,146) (114,239) (53,431) (57,654)
Other assets......................................... -- (9,098) (11,063) --
Accounts payable..................................... -- 2,371,354 1,821,610 (841,878)
Accrued expenses..................................... 15,702 142,916 100,873 (63,169)
Income taxes payable................................. -- 157,000 198,000 (157,000)
--------- ----------- ----------- ----------
NET CASH USED IN OPERATING ACTIVITIES............. (154,447) (1,664,212) (1,707,356) 41,613
--------- ----------- ----------- ----------
INVESTING ACTIVITIES:
Capital expenditures..................................... (9,375) (115,329) (73,326) (135,026)
Security deposits........................................ (32,291) -- -- (50,153)
--------- ----------- ----------- ----------
NET CASH USED IN INVESTING ACTIVITIES............. (41,666) (115,329) (73,326) (185,179)
--------- ----------- ----------- ----------
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock................ -- 900,000 900,000 --
Proceeds from issuance of units.......................... -- 500,000 500,000 500,000
Proceeds from shareholder/director loan.................. -- 100,000 100,000 --
Repayment of shareholder/director loan................... -- (100,000) (100,000) --
Principal payments on equipment notes payable............ -- (766) (235) (4,892)
Repurchase of performance shares......................... -- (360) -- (300)
Issuance of common stock................................. 625,000 -- -- --
Issuance of convertible note............................. 100,000 -- -- --
Offering costs........................................... (7,500) (139,470) (139,470) --
Dividends paid........................................... -- -- -- (150,000)
Deferred financing costs................................. -- -- -- (182,386)
--------- ----------- ----------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES......... 717,500 1,259,404 1,260,295 162,422
--------- ----------- ----------- ----------
NET INCREASE (DECREASE) IN CASH................... 521,387 (520,137) (520,387) 18,856
CASH at beginning.......................................... -- 521,387 521,387 1,250
--------- ----------- ----------- ----------
CASH at end....................................... $ 521,387 $ 1,250 $ 1,000 $ 20,106
========= =========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid............................................ $ -- $ 236,834 $ 126,377 $ 419,257
========= =========== =========== ==========
Income taxes paid........................................ $ -- $ 275,564 $ 564 $ 391,018
========= =========== =========== ==========
NONCASH TRANSACTIONS:
Equipment notes payable for the acquisition of
equipment.............................................. $ -- $ 7,338 $ 7,338 $ 26,930
========= =========== =========== ==========
Issuance of common stock for services in connection with
preferred stock offering............................... $ -- $ 25,000 $ 25,000 $ --
========= =========== =========== ==========
Issuance of performance shares........................... $ 75,000 $ -- $ -- $ 77,220
========= =========== =========== ==========
</TABLE>
See notes to financial statements.
F-6
<PAGE> 61
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 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 December 31,
1996 and for the nine months ended December 31, 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 nine months ended December 31, 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 December 31, 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 after certain adjustments described below. Common
equivalent shares are included in the calculations where the effect on their
inclusion would be dilutive. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"), all common and
common equivalent shares
F-7
<PAGE> 62
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
and other potentially dilutive instruments which includes stock options and
warrants and the performance shares issued during the twelve month period prior
to the filing of the Registration Statement have been included in the
calculation as if they were outstanding for all periods. As permitted under SAB
No. 83, the common equivalent shares were determined using the treasury stock
method at an assumed initial public offering price of $5.00 per share.. 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.
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 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, -----------------------
1995 1996 1995 1996
-------------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Net (loss) income........................... $(43,926) $ 501,429 $ 257,710 $ 117,706
Dividends on convertible preferred stock.... -- 100,000 -- 75,000
-------- --------- --------- ---------
Net (loss) income applicable to common stock
shareholders.............................. $(43,926) $ 401,429 $ 257,710 $ 42,106
======== ========= ========= =========
Net (loss) income per common share.......... $ (.05) $ .19 $ .12 $ .02
======== ========= ========= =========
Weighted average number of common shares
outstanding............................... 963,482 2,164,916 2,173,387 2,052,175
======== ========= ========= =========
</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%.
F-8
<PAGE> 63
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
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 95,238 shares of common stock as part of its
compensation in connection with the offering.
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 $3.15, as
adjusted for stock dividends, stock splits 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.
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. Unearned compensation is recorded based on the fair
value of the shares issued ($.13 per share) and is being amortized to March 1998
under the straight-line method. 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.
Subsequent to March 31, 1996 the Company issued 125,714 additional
performance shares at a value of $77,220 ($.61 per share) and repurchased 57,143
shares at par value.
F-9
<PAGE> 64
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
6. INCOME TAXES
The provisions for income taxes consists of the following:
<TABLE>
<CAPTION>
MARCH
MARCH 31, 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>
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 (3,810 shares giving effect to the stock dividend) of common stock
and a $10,000 promissory note. Common stock was credited for $100,000,
representing
F-10
<PAGE> 65
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
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.
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 514,286 shares of common stock
(through December 31, 1996) 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
For the year ended March 31, 1996, three customers each accounted for
approximately 14%, 13%, and 10% of sales.
10. SUBSEQUENT EVENT
In April 1996, the Company declared and paid an annual 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 Bridge Notes are payable within one year of
date of issuance or the closing of an initial public offering, whichever is
earlier. The warrants to purchase 1,000,000 shares of common stock at an
exercise price of $7 per share, subject to adjustment, are
F-11
<PAGE> 66
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
exercisable for a period of three years. The warrants contain various redemption
and other provisions which are predicated upon the closing of an initial public
offering.
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 and will expire not later than 10 years from the date of grant. On
August 16, 1996, options for 100,000 shares were granted and are exercisable at
$3 per share. In management's opinion, the exercise price of those options
reasonably approximates the fair value of the common stock at the date of grant.
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.
In January 1997, the Company declared and paid a quarterly dividend of
$25,000 to the shareholders of preferred stock.
In February 1997, the Company amended the employment agreements with two of
its executives. The agreements, as amended, extend through March 2000 and
provide for (1) annual aggregate increases in base compensation of $50,000
through the fiscal year ending March 2000, (2) revisions to the profit
participation bonus, (3) changes in the conditions for repurchase of performance
shares and (4) severance and termination pay, as defined.
F-12
<PAGE> 67
======================================================
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........................ 16
Use of Proceeds........................ 17
Capitalization......................... 18
Dilution............................... 19
Selected Financial Data................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 24
Management............................. 31
Certain Transactions................... 40
Principal Stockholders................. 42
Concurrent Offerings................... 42
Description of Securities.............. 45
Shares Eligible for Future Sale........ 47
Underwriting........................... 49
Legal Matters.......................... 50
Experts................................ 50
Additional Information................. 51
Index to Financial Statements.......... F-1
---------------------
UNTIL , 1997 (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, LLC
FEBRUARY , 1997
======================================================
<PAGE> 68
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 14, 1997
PROSPECTUS
1,000,000 REDEEMABLE CLASS A WARRANTS
JENNA LANE, INC.
All of the Redeemable Class A Warrants ("Warrants") of Jenna Lane, Inc.
(the "Company") as well as shares of Common Stock, par value $.01 per share,
issuable upon exercise of the Warrants ("Warrant Shares") offered hereby are
being sold on behalf of the holders thereof (the "Selling Warrantholders"). The
Warrants and the Warrant Shares are collectively referred to herein as the
"Securities." 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 on the Nasdaq National Market System
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.
------------------------
The Company will not receive any of the proceeds from the sale of
Securities by the Selling Warrantholders. In the event the Warrants are
exercised, the Company will receive cash in the amount of the exercise price,
less any commissions payable to the Underwriter. Expenses of this offering,
estimated at $ , are payable by the Company. See "Concurrent
Offerings."
------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1997
<PAGE> 69
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
(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
Warrants and Warrant Shares are listed for trading on the Nasdaq National Market
System ("Nasdaq") under the symbols "JLNY-W" and "JLNY," respectively. On
, the closing price for the Warrants was $ and for the Warrant
Shares was $ .
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 any of the Selling Warrantholder
Warrants or underlying shares for a period of eighteen months after the
completion of the Offering. 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.
<PAGE> 70
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
THE COMPANY IS A REPORTING COMPANY UNDER THE SECURITIES AND EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT") AND FILES REPORTS AND OTHER INFORMATION
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"). ACCORDINGLY, THE
COMPANY IS SUBJECT TO THE REPORTING REQUIREMENTS OF THE EXCHANGE ACT AND IN
ACCORDANCE THEREWITH FILES REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH
THE COMMISSION. IN ADDITION, THE COMPANY FURNISHES ITS STOCKHOLDERS WITH ANNUAL
REPORTS CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT AUDITORS. SEE
"ADDITIONAL INFORMATION."
2
<PAGE> 71
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
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 952,381 shares of Common Stock. This Prospectus may be
deemed to contain forward-looking statements within the meaning of Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company desires
to avail itself of certain "safe harbor" provisions of the Reform Act and is
therefore including this special note to enable the Company to do so.
Forward-looking statements in this Prospectus or hereafter included in other
publicly available documents filed with the Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations. These risks
include, but are not limited to, risks set forth herein, each of which could
adversely affect the Company's business and the accuracy of the forward-looking
statements contained 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 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 nine months ended
December 31, 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
<PAGE> 72
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
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 nine months ended December 31, 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 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 "Missy"/Large Size, Young Large Size,
Imports; Mail Order and Mass Merchants. 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
domestically produced 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 imported fashion sportswear. Part of management's long-term plan is to
continue to expand its importing activities, which represented approximately 15%
of the Company's revenues for the nine months ended December 31, 1996. There can
be no assurance that this plan will be successfully implemented, or, if
implemented, result in profits to the Company. See "Use of Proceeds"; Risk
Factors -- Foreign Operations and Sourcing; Import Restrictions" and
"Business -- Sales Groups -- Imports."
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.
<PAGE> 73
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
THE OFFERING
Securities Offered by Selling
Securityholders........................ 1,000,000 Warrants and 1,000,000
shares of Common Stock issuable upon
exercise of such Warrants. 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)
Listing; Trading Symbols............... The Company's Common Stock and
Warrants are listed on the Nasdaq
National Market System ("Nasdaq"),
with the symbols for the Common
Stock and Warrants, respectively,
being JLNY and JLNYW.(3)
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 $3.00 per
share and 50,000 shares of Common Stock issuable upon exercise of subsidiary
options under the Option Plan at an exercise price of $5.00 per share and
(z) 450,000 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 $3.00 per
share and 50,000 shares of Common Stock issuable upon exercise of subsidiary
options under the Option Plan at an exercise price of $5.00 per share and
(vi) 450,000 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."
<PAGE> 74
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
UNDERWRITING
The Securities offered by this Prospectus may be sold from time to time by
the Selling Warrantholders. No underwriting arrangements have been entered into
by the Selling Warrantholders. The distribution of the Securities by the Selling
Warrantholders may be effected in one or more transactions that may take place
on the over-the-counter market, including ordinary broker's transactions,
privately negotiated transactions or through sales to one or more dealers for
resale of the Securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Warrantholders in connection with such
sales. The Selling Warrantholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered.
Simultaneously with this offering, the Company is registering (i) 600,000
units (including the components thereof, the "Units"), plus 90,000 additional
Units to cover overallotments, each Unit consisting of two shares of Common
Stock and one Warrant, as well as (ii) 90,000 shares of Common Stock (the
"Selling Common Stockholder Shares") to be sold by certain stockholders who are
members of management of the Company (the "Selling Common Stockholders") which,
together with 45,000 Warrants to be issued by the Company, will be sold as part
of the Underwriter's overallotment option, in each case for sale in a public
offering (the "Offering") underwritten by Walsh Manning Securities, LLC (the
"Underwriter").
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 6,980.00
NASD fee................................................................ 2,517.00
Nasdaq listing fee...................................................... 34,000.00
Blue sky fees........................................................... 16,000.00
Printing and engraving expenses......................................... 70,000.00
Accountants' fees and expenses.......................................... 58,000.00
Attorneys' fees and expenses............................................ 100,000.00
Transfer agent fees..................................................... 8,000.00
Miscellaneous........................................................... 5,000.00
------------
Total......................................................... $ 300,497.00
==========
</TABLE>
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> 76
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 and sold
1,000,000 shares of Series A Preferred Stock. 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 and sold
ten investment units. 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 and sold ten
investment units. 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> 77
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
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 Warrant certificate
4.3 Form of Underwriter's Warrant for the Purchase of Units
4.4 Form of Warrant Agreement between the Company and American Stock Transfer Company,
as warrant agent
5.1* Opinion of the Law Offices of David N. Feldman
10.1 Amended and Restated Employment Agreement, dated as of February 1, 1997, between the
Registrant and Mitchell Dobies
10.2 Amended and Restated Employment Agreement, dated as of February 1, 1997, between the
Registrant and Charles Sobel
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, as amended to date
10.6** Termination and Performance Shares Repurchase Agreement, dated February 8, 1996, by
and between the Registrant and Ernie Baumgarten
10.7 Factoring Agreement, dated March 17, 1995, between the Registrant and Republic
Factors Corp. ("Republic"), as amended to date
10.8 Security Agreement, dated March 17, 1995, between the Registrant and Republic
10.9** 1996 Incentive Stock Option Plan of Jenna Lane, Inc.
10.10 Collective Bargaining Agreement by and between United Production Workers Union Local
17-18 and the Company, dated June 15, 1996
10.11 Form of Letter Agreement between the Company and the Underwriter regarding
consulting services
10.12 Form of Registration Rights Agreement between the Company and the Selling
Warrantholders
10.13 Form of Selected Dealer Agreement
11.1 Computation of per share earnings
21.1 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
** Previously filed
II-3
<PAGE> 78
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 December 31, 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 Nine Months Ended December
31, 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 Nine Months Ended
December 31, 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 Nine Months Ended December
31, 1995 and 1996 (Unaudited)................................................. F-6
Notes to Financial Statements................................................... F-7
</TABLE>
II-4
<PAGE> 79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to 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 February 24, 1997.
JENNA LANE, INC.
By: /s/ MITCHELL DOBIES
------------------------------------
Name: Mitchell Dobies
Title: President, Co-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, Co-Chief Executive February 24, 1997
- ------------------------------------------ Officer and Director
Mitchell Dobies (Principal Executive Officer)
/s/ CHARLES SOBEL* Executive Vice President, February 24, 1997
- ------------------------------------------ Co-Chief Executive Officer
Charles Sobel and Director
/s/ JEFFREY MARCUS* Chief Financial Officer February 24, 1997
- ------------------------------------------ (Principal Financial and
Jeffrey Marcus Accounting Officer)
</TABLE>
* By Mitchell Dobies, as attorney-in-fact
pursuant to power of attorney granted
September 12, 1996
II-5
<PAGE> 80
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- --------------------------------------------------------------------------- -------
<C> <S> <C>
1.1 Form of Underwriting Agreement.............................................
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 Warrant certificate...............................................
4.3 Form of Underwriter's Warrant for the Purchase of Units....................
4.4 Form of Warrant Agreement between the Company and American Stock Transfer
Company, as warrant agent..................................................
5.1* Opinion of the Law Offices of David N. Feldman.............................
10.1 Amended and Restated Employment Agreement, dated as of February 1, 1997,
between the Registrant and Mitchell Dobies.................................
10.2 Amended and Restated Employment Agreement, dated as of February 1, 1997,
between the Registrant and Charles Sobel...................................
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, as amended to
date.......................................................................
10.6** Termination and Performance Shares Repurchase Agreement, dated February 8,
1996, by and between the Registrant and Ernie Baumgarten...................
10.7 Factoring Agreement, dated March 17, 1995, between the Registrant and
Republic Factors Corp. ("Republic"), as amended to date....................
10.8 Security Agreement, dated March 17, 1995, between the Registrant and
Republic...................................................................
10.9** 1996 Incentive Stock Option Plan of Jenna Lane, Inc. ......................
10.10 Collective Bargaining Agreement by and between United Production Workers
Union Local 17-18 and the Company, dated June 15, 1996.....................
10.11 Form of Letter Agreement between the Company and the Underwriter regarding
consulting services........................................................
10.12 Form of Registration Rights Agreement between the Company and the Selling
Warrantholders.............................................................
10.13 Form of Selected Dealer Agreement..........................................
11.1 Computation of per share earnings..........................................
21.1 Sudsidiaries...............................................................
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
** Previously filed
<PAGE> 1
Exhibit 1.1
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
February , 1997
Walsh Manning Securities, LLC
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, LLC ("Walsh Manning"), with respect to
the sale by the Company and the purchase by the Underwriter, of 600,000 units
("Units"), each Unit consisting of two (2) shares (the "Shares") of the
Company's common stock, par value $.01 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 I annexed hereto, and with respect to the grant by
the Company to the Underwriter of the option described in 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
<PAGE> 2
Securities") are hereinafter collectively referred to as the "Securities". The
Company also proposes to issue and sell to the Underwriter, an option (the "Unit
Purchase Option") pursuant to the Underwriter's Unit Purchase Option Agreement
(the "Underwriter's Unit Purchase Option Agreement") for the purchase of an
aggregate of 60,000 additional Units consisting of 120,000 Shares (the
"Underwriter's Unit Shares") and 60,000 Common Stock Purchase Warrants (the
"Underwriter's Unit Warrants"). The shares of Common Stock issuable upon
exercise of the Redeemable Warrants and the Underwriter's 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 acquired by the Company on or prior to the Closing
Date (defined in Subsection 2(c) hereof). All representations, warranties and
opinions of counsel shall cover any such subsidiaries and acquired entities.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with each of the Underwriter as of the
date hereof, and as of the Closing Date and any Overallotment 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. 333-11979) 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. Following execution of this
Agreement, the Company will promptly file (i) if the Registration has been
declared effective by the Commission, (A) a Term Sheet (as defined in the Rules
and Regulations) (as hereinafter defined) pursuant to Rule 434 under the Act or
(B) a Prospectus under Rules 430A and/or 424(b) under the Act, in either case in
form satisfactory to the Underwriter or (ii) in the event the Registration
Statement has not been declared effective, a further amendment to said
registration statement in the form heretofore delivered to the Underwriter and
will not, before the registration statement becomes effective, file any other
amendment thereto unless the Underwriter 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,
3
<PAGE> 3
schedules, exhibits and all other documents 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)(as hereinafter defined), 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
Underwriter by or on behalf of the Underwriter 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 Overallotment Closing
Date (as hereinafter defined) and during such longer period as the Prospectus
may be required to be delivered in connection with sales by the Underwriter 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 Overallotment 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
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<PAGE> 4
the circumstances under which they were made, not misleading; provided, however,
that this representation and 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 Underwriter 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 Overallotment 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 except to the extent that any failure of the
Company to comply with the foregoing does not have a material adverse effect on
the Company. 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
adverse 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 material compliance
with all such authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, local and foreign laws, rules and
regulations except where the failure to comply would not have a material adverse
effect upon the Company; and the Company has not received any written 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, if any, 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.
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<PAGE> 5
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under the caption "Capitalization"
and will have the adjusted capitalization set forth therein on the Closing Date
and the Overallotment 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 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, Underwriter's 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 all shares of Common Stock 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
Underwriter's 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, and all shares of Common Stock will be 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 Underwriter's 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
to the Underwriter by the Company hereunder, the Underwriter 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 except as contained in the Securities or disclosed
in the Prospectus.
(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
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<PAGE> 6
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, 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, conform
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 reasonable
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
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<PAGE> 7
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 Underwriter's Unit Purchase Option Agreement and the
Warrant Agreement and to consummate the transactions provided for in such
agreements; and this Agreement, the Underwriter's 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 Underwriter's Unit
Purchase Option Agreement or the Warrant Agreement, constitutes a legally valid
and binding agreement of the Company, subject to due authorization, execution
and delivery by the Underwriter and/or the Underwriter, 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 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: (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
8
<PAGE> 8
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 Underwriter's
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 Underwriter's Unit Shares, the Underwriter's Unit Warrants,
the Redeemable Warrants or the Warrant Shares.
(m) All executed agreements or copies of executed agreements
(whether electronically scanned or otherwise) 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 legally valid and binding agreements of the Company,
enforceable against it in accordance with its respective terms except to the
extent there is no material adverse effect upon the Company, in each case except
as may be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting the rights of creditors generally and
except as the enforceability of such agreements is subject to the application of
general principals of equity (regardless of whether considered in a proceeding
in equity or at law), including without limitation (in) the possible
unavailability of specific performance, injunctive relief or any other equitable
remedy and (ii) concepts of materiality, reasonableness, good faith and fair
dealing. 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 materially or substantially 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
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<PAGE> 9
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 except where such default does
not, and will not, have a material adverse effect upon the Company.
(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 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) Except as disclosed in the Prospectus, 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"). Except as disclosed in the Prospectus, 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.
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<PAGE> 10
(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, 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) To the best of its knowledge, 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.
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<PAGE> 11
(X) 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.
(y) 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 owning 5% or more of the Company's securities
(except with respect to the Company's Series A Preferred Stock) 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 18 months following the effective
date of the Registration Statement without the prior written consent of the
Underwriter. 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. With respect to
the Company's Series A Preferred Stock, the Company has obtained agreements from
the holders thereof that all shares of Common Stock issuable upon conversion of
the Series A Preferred Stock shall be subject to a lockup until October 31,
1997.
(z) 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 National Association of Securities Dealers,
Inc. ("NASD").
(aa) The Firm Securities, other than the Units, have been approved
for quotation on the Nasdaq National Market of the Nasdaq Stock Market, Inc.
subject to official notice of issuance.
(bb) 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
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<PAGE> 12
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; and (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.
(cc) 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 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.
(dd) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to the Underwriters' counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the matters
covered thereby.
(ee) The Company has entered into employment agreements with
Mitchell Dobies 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. Dobies, which policy is owned by the Company and
names the Company as the sole beneficiary thereunder.
(ff) No securities of the Company have been sold by the Company
since its inception, except as disclosed in Part II of the Registration
Statement.
(gg) The minute books of the Company have been made available to
Underwriter's Counsel and contain a complete summary
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<PAGE> 13
of all meetings and actions of the Board of Directors and Stockholders of the
Company since the date of its incorporation.
(hh) Except as disclosed in writing to the Underwriter, and based
upon questionnaires prepared by the Underwriter and collected by the Company, no
officer, or director or stockholder of the Company has any affiliation or
association with any member of the NASD.
(ii) The Registration Statement includes the 1,000,000 Common stock
purchase warrants issued by the Company in its private placement in August 1996
("Bridge Warrants") and upon effectiveness thereof, the Bridge Warrants and
underlying shares of Common Stock shall be registered for sale under the Act,
subject to any lockup or other restrictions disclosed in the Prospectus. The
Bridge Warrants have been "reset" so that the terms thereof are the same, in all
respects, to the Redeemable Warrants.
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 the Underwriter, and the Underwriter agrees
to purchase from the Company the Units (or component parts thereof with respect
to the Overallotment Securities) at the price per Unit as set forth below and
each of Mssrs Mitchell Dobies and Charles Sobel agree to sell to the
Underwriter, and the Underwriter agrees to purchase from them, the Shares at the
prices set forth below.
(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 grants an option to the
Underwriter 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; provided, however, that with respect to such additional Units, the
Underwriter shall obtain such Units by first purchasing 90,000 Shares from
Mitchell Dobies and Charles Sobel (or less if the Overallotment Option is
exercised for less than 90,000 Units) and by the Company providing up to 45,000
Redeemable Warrants. 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 Underwriter to the Company setting forth the number of Overallotment
Securities as to which the Underwriter 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 Underwriter,
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<PAGE> 14
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 Underwriter and the Company.
Nothing herein contained shall obligate the Underwriter 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 the Underwriter, 90
Broad Street, New York, New York 10004, or at such other place as shall be
agreed upon by the Underwriter and the Company. Such delivery and payment shall
be made at 10:00 a.m. (New York City time) on _____ __, 1997 or at such other
time and date as shall be designated by the Underwriter 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 Underwriter, 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 Underwriter and the
Company on each Overallotment Closing Date as specified in the notice from the
Underwriter to the Company. Delivery of the certificates for the Firm Securities
and the Overallotment Securities, if any, shall be made to the Underwriter
against payment by the Underwriter of the purchase price for the Firm Securities
and the Overallotment Securities, if any, to the 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 Underwriter 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 Underwriter at the above-mentioned office or such other place
as the Underwriter 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 the Underwriter to the
Company for the Units purchased under Clauses (a) and (b) above will be $9.1125
per Unit (which price is net of the Underwriter's discount and commissions). The
purchase price of the Shares to be purchased from Mssrs. Dobies and Sobel in
connection with the Overalotment Option shall be $4.50 per Share
15
<PAGE> 15
(which price is net of the Underwriter's discount and commissions) and the
Redeemable Warrants to be purchased from the Company shall be $.125 per
Redeemable Warrant. 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 Underwriter
in accordance herewith.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter, the Underwriter's 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 sixty-five percent (165%) 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 Underwriter's 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 Underwriter's Unit Purchase Option and the Underwriter's Unit
Warrants contained in the Underwriter's Unit Purchase Option.
3. Public Offering of the Securities. As soon after the Registration
Statement becomes effective and as the Underwriter deem advisable, but in no
event more than five (5) business days after such effective date, the
Underwriter 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 and otherwise in compliance with the Rules and
Regulations. The Underwriter may allow such concessions and discounts upon sales
to other dealers as set forth in the Prospectus. In connection with its market
making activities, the Underwriter may from time to time increase or decrease
the public offering price after the public distribution of the Securities has
been completed to such extent as the Underwriter, in its sole discretion deems
advisable.
4. Covenants of the Company. The Company covenants and agrees with the
Underwriter 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
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<PAGE> 16
Securities by the Underwriter which the Underwriter shall not previously have
been advised and furnished with a copy, or (ii) to which the Underwriter 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 Underwriter 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 reasonable
effort to obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) 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 Underwriter 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 this
Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Underwriter 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
Underwriter 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 Underwriter with copies of any such amendment or supplement a
reasonable amount of
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<PAGE> 17
time prior to such proposed filing or use, as the case may be, and will not file
any such prospectus to which the Underwriter or Goldstein & DiGioia, LLP
("Underwriter's Counsel"), shall
reasonably object.
(e) The Company shall cooperate in good faith with the Underwriter,
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 Underwriter may
reasonably designate, and shall cooperate with the Underwriter 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 Underwriter 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 Underwriter's 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
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 Underwriter 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 Underwriter's Counsel, and the Company will furnish
to the Underwriter 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
18
<PAGE> 18
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 Underwriter, 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 Underwriter:
(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
Underwriter 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.
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 Common
Stock and Redeemable Warrants.
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<PAGE> 19
(j) The Company will furnish to the Underwriter or pursuant to the
Underwriter's direction, without charge, at such place as the Underwriter 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 Underwriter 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 the
caption "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 Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each
Overallotment Closing Date, if any, but no later than two (2) full business days
prior thereto, a copy of the latest 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 Underwriter at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Securities upon the Underwriter's
reasonable request; (ii) a list of holders of Securities upon the Underwriter's
reasonable request; (iii) a list of, if any, the securities positions of
20
<PAGE> 20
participants in the Depository Trust Company upon the Underwriter'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 Underwriter to be elected to the Board of Directors
of the Company (the "Board"), if requested by the Underwriter and provided such
individual is reasonably acceptable to and approved by the Company.
Alternatively, the Underwriter 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 Underwriter'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 Underwriter harmless against any
and all claims, actions, awards and judgements arising out of his or her service
as a director or an observer and, provided that the Underwriter has exercised
its right to appoint a designee to the Board of Directors, 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 Underwriter 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 and the
Underwriter's Unit Warrants.
(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 Market System.
(s) (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.
(t) 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 Underwriter may reasonably request after consultation with
the Company, and on the Underwriter's request, furnish the Underwriter with a
21
<PAGE> 21
secondary trading survey prepared by securities counsel to the Company.
(u) The Company shall not amend or alter any term of any written
employment agreement between the Company and any executive officer, during the
term of such written employment agreement, in a manner more favorable to such
employee, without the express written consent of the Underwriter.
(v) Until the completion of the distribution of the Securities, the
Company shall not without the prior written consent of the Underwriter 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.
(w) Commencing one (1) year from the date hereof, upon the exercise
of any Redeemable Warrant, the exercise of which was solicited by the
Underwriter in accordance with the applicable rules and regulations of the NASD
prevailing at the time of such solicitation (including Rule 2710(c)(6)(B)(xi)
thereof), the Company shall pay to the Underwriter a fee of 5% of the aggregate
exercise price of such Warrant (provided that the Underwriter has been
designated by the Warrantholder as having solicited the Redeemable 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 Underwriter, unless either: (i) the Underwriter
cannot legally solicit the exercise of the Redeemable Warrants at the time of
such solicitation; (ii) the Underwriter declines, in writing, to solicit the
exercise of the Warrants within five (5) business days of such a written request
by the Company; or (iii) the Underwriter consents to the solicitation of the
exercise of the Warrants by the Company or another entity.
(x) 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.
(y) On the Closing Date, the Company and the Underwriter shall enter
into a financial consulting agreement, in the form filed as an Exhibit to the
Registration Statement, pursuant to which the Underwriter will provide financial
consulting services to the Company for a two (2) year period for an aggregate
fee of $90,000, all of which will be paid on the Closing Date (the "Financial
Consulting Agreement").
(z) For a period of 18 months commencing on the Closing Date, except
with the written consent of the Underwriter, which
22
<PAGE> 22
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 ("Stock Option Plan") up to the maximum number of options per year
permitted in such Plan; 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. Except as discussed in the
Prospectus, prior to the Closing Date, the Company will not issue any options or
warrants without the prior written consent of the Underwriter.
(aa) 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 18 months following the Closing
Date without the Underwriter's prior written consent which consent shall not be
unreasonably withheld.
(bb) 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 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 and ongoing factoring of its account receivables) or other
securities of the Company, any material adverse change in the condition
(financial or other), business, operations, income, net worth or properties,
including any material loss or damage to the properties of the Company (whether
or not such loss is insured against), which could materially 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.
(cc) Except as disclosed in or contemplated by the Registration
Statement and Prospectus, the Company, for a period of 18 months following the
Closing Date, shall not redeem any of its securities, and shall not pay any
dividends or make any other cash
23
<PAGE> 23
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 Underwriter's prior written consent, which consent shall not be
unreasonably withheld. The Underwriter shall either approve or disapprove such
contemplated redemption of securities or dividend payment or distribution within
seven (7) business days from the date the Underwriter receives written notice of
the Company's proposal with respect thereto; a failure of the Underwriter to
respond within the seven (7) business day period shall be deemed approval of the
transaction.
(dd) 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.
(ee) For a period of the longer of two (2) years or as long as the
Underwriter is a market maker in the Company's Common Stock, but in no event
longer than three (3) years, the Company agrees and undertakes to consult with
the Underwriter prior to distribution to third parties of any financial
information, news releases, and/or other publicity regarding the Company, its
business, or any terms of the proposed offering.
(ff) The Company shall not, for a period of two years, change or
modify the terms of the Company's 401(k) plan as in effect on the date hereof,
except as required by law or regulation, without the consent of the Underwriter.
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
its 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 of accountants and counsel for the Company; (ii) all costs and expenses
incurred in connection with the preparation, duplication, printing and filing 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 and related documents, including the cost of all copies
thereof and of the Preliminary Prospectuses and of the
24
<PAGE> 24
Prospectus and any amendments thereof or supplements thereto supplied to the
Underwriter 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 Underwriter's 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 one information meeting held in
New York, New York, one tombstone advertisement, four bound volumes for the
Underwriter 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 National
Market and all fees and expenses payable to the Underwriter shall be payable at
the Closing Date or Overallotment Closing Date, as applicable. The Underwriter
shall be responsible for all of its own mailing and delivery costs and costs of
counsel.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of Section 6, Section 10(a) or Section 12, the Company shall
reimburse and indemnify the Underwriter for up to $50,000 out-of-pocket actual
documented expenses reasonably incurred in connection with the transactions
contemplated hereby including the fees and disbursements of counsel for the
Underwriter of which the Underwriter 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
Underwriter 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 Underwriter. 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 Underwriter, by
deduction from the proceeds of the offering contemplated herein. In the event
the Underwriter elects to exercise the over-allotment option described in
Section 2(b) hereof, the Company further agrees to pay to the Underwriter on the
Overallotment Closing Date (by certified or bank cashier's check or, at the
Underwriter's 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.
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<PAGE> 25
6. Conditions of the Underwriter's Obligations. The obligations of the
Underwriter 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 Overallotment 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 Underwriter, 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 to the knowledge of the Company 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 Underwriter 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 Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, and the opinion of its counsel, is
material or omits to state a fact which, in the Underwriter's opinion and the
opinion of its counsel, 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
Underwriter's reasonable opinion, and the opinion of its counsel, is material,
or omits to state a fact which, in the Underwriter's 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.
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<PAGE> 26
(c) At the Closing Date, and the Overallotment Closing Date the
Underwriter shall have received the favorable opinion of David Feldman, counsel
to the Company, dated the Closing Date, or Overallotment Closing Date, as the
case may be, addressed to the Underwriter and in form and substance satisfactory
to Underwriter's Counsel, to the effect that:
(i) 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 written notice of proceedings relating to the revocation or
modification of any such license or qualification which revocation or
modification would have a material adverse effect upon the Company.
(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 Underwriter 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 accuracy, completeness or fairness of the statements
contained in the Registration Statement and Prospectus, and has not been
obligated to complete any independent investigation thereof, 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 (A) the financial statements and
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<PAGE> 27
schedules and other financial and statistical data included in the Registration
Statement or Prospectus or (B) with respect to statements or omissions made
therein in reliance upon information furnished in writing to the Company on
behalf of Underwriter regarding the Underwriter or information concerning the
Underwriter expressly for use in the Registration Statement or the Prospectus or
(C) with respect to any promoter of the Company who is no longer affiliated with
the Company).
(iii) To the best of such counsel's knowledge, without independent
investigation, 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 Underwriter's Unit
Warrants, the Bridge Warrants and the Warrant Shares conform or upon issuance
will 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 all shares of Common Stock are fully paid and non-assessable; the
holders thereof, to counsel's best knowledge, are not, except by reason of their
own conduct or acts, subject to personal liability by reason of being such
holders, and to the best of such counsel's knowledge, 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 Underwriter's 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, and the Shares will be fully paid and non-assessable and all Securities
will conform or upon issuance will conform to the description thereof contained
in the Prospectus; that, to such counsel's knowledge, 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, if any, representing the
Units, Shares, Redeemable Warrants, Unit Purchase Option, the Underwriter's Unit
Shares, and the Underwriter's Unit Warrants are in due and proper legal form.
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(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, and the Shares will be fully paid and non-assessable securities
of the Company. To the knowledge of such counsel, the holders of the Securities
when issued and paid for, will not be subject to personal liability by reason of
being such holders except by reason of their own conduct or acts. To the
knowledge of such counsel, 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, if any,
representing the Units, Shares and Redeemable Warrants are in due and proper
form. Upon delivery of the Shares and Redeemable Warrants to the Underwriter
against payment therefor as provided for in this Agreement, the Underwriter
(assuming they are bona fide purchasers within the meaning of the Uniform
Commercial Code) will acquire good title to the Firm Securities, 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 S-1
and the Rules and Regulations;
(vii) This Agreement, the Underwriter's Unit Purchase Option
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 Underwriter, 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
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<PAGE> 29
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 Unit Purchase Option 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 material 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, except to the extent such event will not have a material adverse effect
upon the Company or as disclosed in the Prospectus, 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 is bound or to which its properties or assets (tangible
or intangible) are 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 (except with respect to environmental laws and/or
regulations which are expressly excluded from such counsel's opinion) or any
arbitrator, court, regulatory body or administrative agency or other
governmental agency or body, having jurisdiction over the Company or any of its
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;
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<PAGE> 30
(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, 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 captions "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, other than the Units, Bridge Warrants (and
underlying shares of Common Stock) are eligible for listing on the Nasdaq
National Market.
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 Underwriter's Counsel) of other counsel reasonably
acceptable to Underwriter's Counsel, familiar with the applicable laws of such
other jurisdictions, 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
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<PAGE> 31
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 Underwriter and
they are justified in relying thereon.
(e) At each Overallotment Closing Date, if any, the Underwriter
shall have received the favorable opinion of counsel to the Company, each dated
the Overallotment Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's 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, Underwriter's Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require and request 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 material default under
any provision of any instrument relating to any outstanding indebtedness for
money borrowed; (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 Underwriter shall have received a certificate
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<PAGE> 32
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:
(i) The representations and warranties of the Company in
this Agreement are, in all material respects, 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 except to the extent
any such material fact may be corrected in the Final Prospectus; 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 material 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
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<PAGE> 33
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 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 Underwriter shall have received
clearance from NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter 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
Underwriter, 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
financial statements 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 Underwriter may rely upon the
opinion of Edward Isaacs & Company, LLP with respect to the financial statements
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 financial
statements of the Company (with an indication of the date of the latest
available unaudited interim 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
financial statements and supporting schedules of the Company included in the
Registration Statement do not comply as to form in all material respects with
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<PAGE> 34
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
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 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 January 1, 1997 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 October 1, 1995 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 Effective 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
"material 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
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<PAGE> 35
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
(viii) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may reasonably request.
(k) At the Closing Date and each Overallotment Closing Date, the
Underwriter shall have received from Edward Isaacs & Company, LLP, a letter,
dated as of the Closing Date, or Overallotment 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 Underwriter 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 Underwriter for its account the
appropriate number of Securities against payment therefore.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter 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 Underwriter's 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 Underwriter may terminate
this Agreement or, if the Underwriter 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 the
Underwriter, including specifically each person who may be
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<PAGE> 36
substituted for an Underwriter as provided in Section 11 hereof) and each
person, if any, who controls the 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 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 Underwriter's 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, if reviewed by the Company prior to
filing or effectiveness of the Registration Statement; 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 in any case above 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.
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<PAGE> 37
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) The Underwriter agrees 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 Underwriter but only with respect to statements or omissions,
if any, made in any Preliminary Prospectus, the Registration Statement or
Prospectus or filings with the NASD 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
the 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 page in the Prospectus have been furnished by the
Underwriter 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 Underwriter for inclusion in the Prospectus and the
Underwriter hereby confirm that such statements and information are true and
correct and shall be on each Closing Date and Overallotment Closing Date.
(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
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<PAGE> 38
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 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
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<PAGE> 39
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 Underwriter is the indemnified party the relative
benefits received by the Company on the one hand, and the Underwriter, on the
other, shall 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 Underwriter
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 Underwriter 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 Underwriter 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.
40
<PAGE> 40
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 Overallotment Closing Date, as the case may be, and such
representations, warranties and agreements of the Company and the Underwriter
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 the Underwriter, the Company, or any controlling person, and
shall survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriter for a period of the latter of two (2) years or the
applicable statute of limitations without regard to tolling.
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
Underwriter, in its 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 Underwriter of telegrams to securities
dealers releasing such Securities for offering or the release by the Underwriter
for publication of the first newspaper advertisement which is subsequently
published relating to the Securities.
10. Termination.
(a) The Underwriter 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
41
<PAGE> 41
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 Underwriter's
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 affected by such election or termination or
failure to carry out the terms of this Agreement or any part hereof. In the
event of termination of this Agreement by the Underwriter as a result of the
underwriter's actions, then in such event the Company shall have no liability to
the Underwriter or be required to indemnify the Underwriter hereunder.
11. Default by the Company. If the Company shall fail at the Closing
Date or any Overallotment 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 Overallotment Closing Date, the
Underwriter may at the Underwriter's option, by notice from the Underwriter to
the Company, terminate the Underwriter's 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.
12. 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 (i) if mailed by first class mail, within three days of mailing
or (ii) if transmitted by any standard form of telecommunication upon receipt if
followed by delivery by first class mail or (ii) upon receipt if sent by
overnight courier. Notices to the Underwriter shall be directed to the
Underwriter at Walsh Manning Securities, LLC, 90 Broad Street, New York, New
York 10004, with a copy to Goldstein & DiGioia, LLP 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 Dobies, with a copy to the Law Offices of David N.
Feldman, 555 Madison Avenue, New York, New York 10022, Attention: David N.
Feldman, Esq.
13. Parties. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriter, the Company and the controlling persons,
directors and officers
42
<PAGE> 42
referred to in Section 7 hereof, and their respective successors, legal
Underwriters and assigns, and their respective heirs and legal Underwriters 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.
14. 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.
15. 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.
16. Waiver. The waiver by either party of the breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach.
17. Assignment. Except as otherwise provided within this Agreement,
neither party hereto may transfer or assign this Agreement without prior written
consent of the other party.
18. Titles and Captions. All article, section and paragraph titles or
captions contained in this Agreement are for convenience only and shall not be
deemed part of the context nor affect the interpretation of this Agreement.
19. Pronouns and Plurals. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
43
<PAGE> 43
20. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
21. Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
If the foregoing correctly sets forth the understanding between the
Underwriter 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:
_____________________
Mitchell Dobies
_____________________
Charles Sobel
Confirmed and accepted as of the date first above written.
WALSH MANNING SECURITIES, LLC
By:_____________________________
Name:
Title:
44
<PAGE> 44
SCHEDULE I
Warrant Agent - American Stock Transfer & Trust Company
45
<PAGE> 45
-------------------------COMPARISON OF FOOTERS-------------------------
- -FOOTER 1-
WALSH\PUBLCOFF\UNDAGT.005
46
<PAGE> 1
NUMBER SHARES
JL JENNA LANE, INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR CERTAIN DEFINITIONS
OF THE STATE OF DELAWARE CUSIP 476142 10 4
THIS IS TO CERTIFY THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR VALUE OF $.01
PER SHARE OF
JENNA LANE, INC.
transferable only on the books of the corporation by the holder hereof in person
or by attorney duly authorized, upon surrender of this certificate properly
endorsed or assigned. This certificate and the shares represented hereby are
subject to the laws of the State of Delaware and to the Certificate of
Incorporation and By-Laws of the corporation as now or hereafter amended. This
certificate is not valid until countersigned by the Transfer Agent and
Registrar.
WITNESS the facsimile seal of the corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ /s/
- ----------------------- ---------------------
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
JENNA LANE, INC.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM as tenants in common UNIF GIFT MIN ACT......................... Custodian .................
TEN ENT as tenants by the entireties (Cust) (Minor)
JT TEN as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants
in common Act ................................................
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
----------------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
--------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
shares
- --------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------------------
NOTICE:
------------------------------------
THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATEVER.
SIGNATURE(S) GUARANTEED:
------------------------------------
THE SIGNATURE(S) SHOULD BE
GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS,
SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
<PAGE> 1
NUMBER Class A Warrant(s)
JLW
JENNA LANE, INC.
CUSIP 476142 11 2
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received ______________________________
is the Registered Holder of a Redeemable Class A Common Stock Purchase Warrant
("Class A Warrants") that entitles its Registered Holder to purchase one share
of Common Stock, $.01 par value, of JENNA LANE, INC. ("Company") for each Class
A Warrant set forth above at a price of $7.00 per share (subject to adjustment)
from the date of issuance hereof until ______________, 1999, all as more
particularly described in and subject to the terms and conditions contained in
the Warrant Agreement, dated _______________, 1996 between the Company and
American Stock Transfer & Trust Company as Warrant Agent. A copy of the Warrant
Agreement may be obtained by any registered holder, without cost, upon written
request to the Warrant Agent or the Company. This Class A Warrant shall be
governed by the laws of the State of New York.
This Class A Warrant may be exercised to purchase Common Stock only in
accordance with its terms, which include the completion and execution of the
"Exercise Agreement" appearing on the reverse side hereof for a written exercise
instrument of comparable substance and delivery thereof, with payment as
provided, to the principal office of the Warrant Agent.
The Class A Warrants are redeemable by the Company for $.05 per Warrant
at any time after ________________, 1997, upon thirty (30) days' prior written
notice, if the average closing price or bid price of the Common Stock, as
reported by the principal exchange on which the Common Stock is traded, The
Nasdaq Stock Market Inc., or the National Quotation Bureau, Incorporated, as the
case may be, equals or exceeds $11.00 per share, for any twenty (20) consecutive
trading days ending within five (5) days prior to the date of the notice of
redemption.
This Class A Warrant is registered on the books of the Company as
maintained on its behalf by the Warrant Agent, and is transferable only by
surrender thereof at the principal office of the Warrant Agent, duly endorsed
for assignment as reflected on the reverse side hereof or otherwise accompanied
by a duly executed written instrument of assignment or transfer. This
certificate is not valid unless countersigned by the Warrant Agent.
WITNESS the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers.
Dated JENNA LANE, INC.
BY: /s/
--------------------
[SEAL] PRESIDENT
BY: /s/
--------------------
SECRETARY
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
JENNA LANE, INC.
EXERCISE AGREEMENT
To Be Executed by the Registered Holder in Order to Exercise Warrants
The undersigned Registered Holder, pursuant to the provisions of the
within Warrant, hereby subscribes for and purchases ___________________ shares
of Common Stock covered by such Warrant and herewith makes full cash payment of
$ ________________ for such Common Stock at the Exercise Price per share
provided by such Warrant.
Dated: _______________________ ______________________________
(Signature)
______________________________
(Address for Delivery) ______________________________
(Print or type name)
______________________________
______________________________
ASSIGNMENT FORM
To Be Executed by the Registered Holder in Order to Transfer Warrants
FOR VALUE RECEIVED, the undersigned Registered Holder hereby sells,
assigns and transfers all of the rights of the undersigned under and to the
within Warrant with respect to the number of shares of Common Stock covered
thereby set forth below, unto the Assignee identified below, and does hereby
irrevocably constitute and appoint _____________________ to effect such
transfer of rights on the books of the Company, with full power of substitution:
Name of Assignee Address of Assignee No. of Warrants
Dated: _______________________ ______________________________
(Signature of Registered Holder)
_______________________________
(Print or type name)
NOTICE: The signature(s) of the Registered Holder above must correspond with the
name as written upon the face of the within Warrant, or upon the Assignment
thereof if applicable, in every particular, without alteration, enlargement or
any change whatsoever, and must be guaranteed by an Eligible Guarantor
Institution which is a participant in a securities transfer association
recognized program, having an office or correspondent in New York, New York.
SIGNATURE GUARANTEE
(Required for each Exercise or Assignment)
Authorized Signature: __________________________________________________________
Name of Bank or Firm: __________________________________________________________
Dated: _________________________________________________________________________
<PAGE> 1
Exhibit 4.3
THE WARRANTS REPRESENTED BY THIS CERTIFICATE
AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, PURSUANT
TO A REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION
(REGISTRATION NO. 333-11979). HOWEVER,
NEITHER THE WARRANTS NOR SUCH SECURITIES CAN
BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) A
POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (ii) A SEPARATE REGISTRATION
STATEMENT UNDER SUCH ACT, OR (iii) AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT.
THE TRANSFER OF THIS WARRANT IS
RESTRICTED AS DESCRIBED HEREIN.
JENNA LANE, INC.
Warrant for the Purchase of Units
Each Unit Consisting of Two (2) Shares of Common Stock
and One (1) Warrant
No. 1 60,000 Units
THIS CERTIFIES that, for receipt in hand of $60.00 and other value
received, WALSH MANNING SECURITIES, LLC, 90 Broad Street, New York, New York
10004 (hereinafter referred to as the "Holder" or "Underwriter") is entitled to
subscribe for and purchase from JENNA LANE, INC., a Delaware corporation (the
"Company"), upon the terms and conditions set forth herein, at any time or from
time to time after , 1998 and before 5:00 P.M. on , 2001,
New York time (the "Exercise Period"), 60,000 Units (the "Units"), each Unit
consisting of two fully paid and nonassessable shares (the "Unit Shares") of the
Company's Common Stock, par value $.01 per share ("Common Stock"), and one
Common Stock Purchase Warrant ("Unit Warrant"), at a price of $16.70625 per
Unit, (the "Exercise Price"). This Warrant may not be sold, transferred,
assigned or hypothecated, until _________, 1998 except that it may be
transferred in whole or in part, to (i) one or more officers, or partners of the
Holder (or the officers or partners of any such person); (ii) a successor to the
Holder, or the officers or partners of such successor; (iii) a purchaser of
substantially all of the assets of the Holder; or (iv) by operation of law. The
term the "Holder" as used herein shall include any transferee to whom this
Warrant has been transferred in accordance with the above. As used herein the
term "this Warrant" shall mean
<PAGE> 2
and include this Warrant and any Warrant or Warrants hereafter issued as a
consequence of the exercise or transfer of this Warrant in whole or part.
Each Unit Warrant shall entitle the holder thereof to purchase two (2)
shares of Common Stock (the shares of Common Stock issuable upon exercise of the
Unit Warrants being collectively referred to as the "Warrant Shares"). Each Unit
Warrant shall be identical in all respect to the Redeemable Common Stock
Purchase Warrants (the "Public Warrants"), issued pursuant to the Warrant
Agreement, dated as of ___________, 1997 (the "Warrant Agreement"), between the
Company and American Stock Transfer & Trust Company as Warrant Agent; provided,
however, prior to the registration and sale thereof pursuant to the provisions
of paragraph 9 hereof, the Unit Warrants shall not be subject to redemption by
the Company under any circumstances.
1. Term of Exercise. (a) This Warrant may be exercised during the
Exercise Period as to the whole or any lesser number of whole Units, by the
surrender of this Warrant (with the election at the end hereof duly executed) to
the Company at its office at 1407 Broadway, Suite 1801, New York, New York 10018
or such other place as is designated in writing by the Company, together with a
certified or bank cashier's check payable to the order of the Company in an
amount equal to the Exercise Price multiplied by the number of Units for which
this Warrant is being exercised.
(b) For purposes of this Warrant, the term "Current Market Price"
with respect to the Common Stock or the Public Warrants at any date shall be
deemed to be: (i) the average of the daily closing prices of the Common Stock or
the Public Warrants, as the case may be, for the 20 consecutive trading days
immediately preceding such date as reported on the principal national securities
exchange on which the Common Stock or the Public Warrants, as the case may be,
is listed or admitted to trading, or (ii) if neither the Common Stock or the
Public Warrants, as the case may be, is 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 or the Public Warrants, as the case may be, on
the Nasdaq National Market System or Nasdaq SmallCap Market of the Nasdaq Stock
Market, Inc. (together referred to as "Nasdaq") for the 20 consecutive days
preceding such date or (iii) if neither the Common Stock or the Public Warrants,
as the case may be, is then listed or admitted for trading on any national
securities exchange and is not reported on NASDAQ or any similar organization,
the average of the closing bid and asked prices in the over-the-counter market
as furnished by the National Quotation Bureau, Inc. for the 20 consecutive
trading days preceeding such date or (v) if no such quotation is then available,
the fair market value as determined by the Board of Directors in good faith.
2
<PAGE> 3
2. Delivery of Certificates to Registered Holder. Upon each exercise of
this Warrant, the Holder shall be deemed to be the holder of record of the Unit
Shares and Unit Warrants issuable upon such exercise notwithstanding that the
transfer books of the Company shall then be closed or certificates representing
such Unit Shares or Unit Warrants shall not then have been actually delivered to
the Holder. As soon as practicable after each such exercise of this Warrant, the
Company shall issue and deliver to the Holder a certificate or certificates for
the Unit Shares and a certificate or certificates for the Unit Warrants
registered in the name of the Holder or its permitted designee hereunder. If
this Warrant should be exercised in part only, the Company shall, upon surrender
of this Warrant for cancellation, execute and deliver a new Warrant evidencing
the right of the Holder to purchase the balance of the Units (or portions
thereof) subject to purchase hereunder.
3. Warrant Register. Any Unit Warrants issued upon the transfer or
exercise in part of this Warrant (together with this Warrant, the "Warrants")
shall be numbered and shall be registered in a Warrant Register as they are
issued. The Company shall be entitled to treat the registered holder of any
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other person, and shall not be liable for any
registration or transfer of Warrants which are registered or to be registered in
the name of a fiduciary or the nominee of a fiduciary unless made with the
actual knowledge that a fiduciary or nominee is committing a breach of trust in
requesting such registration or participation therein amounts to bad faith. The
Warrants shall be transferable only on the books of the Company upon delivery
thereof duly endorsed by the Holder or by his duly authorized attorney-in-fact
or representative, or accompanied by proper evidence of succession, assignment
or authority to transfer. In all cases of transfer by an attorney-in-fact,
executor, administrator, guardian or other legal representative, duly
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Warrant or Warrants to
the option of the Holder thereof, for another Warrant, or other Warrants of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Units (or component portions thereof) upon
surrender of such Warrants to the Company or its duly authorized agent.
Notwithstanding the foregoing, the Company shall have no obligation to cause
Warrants to be transferred on its books to any person if, in the opinion of
counsel to the Company, such transfer does not comply with the provisions of the
Securities Act of 1933, as amended (the "Act"), and the rules and regulations
thereunder or other applicable law.
4. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized and unissued Common Stock, solely for
the purpose of providing for the
3
<PAGE> 4
exercise of this Warrant and the Unit Warrants, such number of shares of Common
Stock as shall, from time to time, be sufficient therefor. The Company covenants
that all shares of Common Stock issuable upon exercise of this Warrant and the
Unit Warrants when paid for in accordance with the respective terms thereof,
shall be validly issued, fully paid and nonassessable by the Company.
5. Anti-Dilution; Adjustments to Exercise Price. (a) Upon the
occurrence of any event (an "Event") as a result of which an adjustment is made
to the exercise price (the "Public Exercise Price") of any of the Public
Warrants, the number of Unit Shares issuable thereafter upon exercise of the
Unit Warrant shall be adjusted to equal the number of Unit Shares issuable prior
to such Event multiplied by a fraction, the numerator of which shall be the
Public Exercise Price in effect prior to such Event and the denominator of which
shall be the Public Exercise Price subsequent to such Event.
(b) Notwithstanding any other provision of this Warrant, any
adjustment of the exercise price, and/or the number of Warrant Shares
purchasable upon the exercise of the Unit Warrants shall be determined solely by
the antidilution and other adjustment provisions contained in the Warrant
Agreement (which provisions are incorporated herein by reference) as if such
Unit Warrants were and had been outstanding on and from ____________, 1997.
(c) Whenever there shall be an adjustment as provided in this
paragraph 5, the Company shall promptly cause written notice thereof to be sent
by registered mail, postage prepaid, to the Holder, at its principal office,
which notice shall be accompanied by an officer's certificate setting forth the
exercise price and the number of Warrant Shares purchasable upon the exercise of
the Unit Warrants after such adjustment and setting forth a brief statement of
the facts requiring such adjustment and the computation thereof, which officer's
certificate shall be conclusive evidence of the correctness of any such
adjustment absent manifest error.
(d) All calculations under this paragraph 5 shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
(e) The Company shall not be required to issue fractions of shares
of Common Stock or other capital stock of the Company upon the exercise of
Warrants. If any fraction of a share would be issuable on the exercise of any
Warrant (or specified portions thereof), the Company shall purchase such
fraction for an amount in cash equal to the same fraction of the Current Market
Price of such share of Common Stock on the date of exercise of the Warrant.
6. Reorganization/Reclassification. (a) In case of
4
<PAGE> 5
any consolidation with or merger of the Company with or into another corporation
(other than a merger or consolidation in which the Company is the surviving or
continuing corporation), or in case of any sale, lease or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, such successor, leasing or purchasing corporation, as the case may be,
shall (i) execute with the Holder an agreement providing that the Holder shall
have the right thereafter to receive upon exercise of this Warrant solely the
kind and amount of shares of stock and other securities, property, cash or any
combination thereof receivable upon such consolidation, merger, sale, lease or
conveyance by a holder of the number of shares of Common Stock and the Unit
Warrants for which this Warrant might have been exercised immediately prior to
such consolidation, merger, sale, lease or conveyance, and (ii) make effective
provision in order to effect such agreement. Such agreement shall provide for
adjustment which shall be as nearly equivalent as practicable to the adjustments
in paragraph 5.
(b) In case of any reclassification or change of the shares of
Common Stock issuable upon exercise of this Warrant (other than a change in par
value or from par value to no par value, or as a result of a subdivision or
combination, but including any change in the shares into two or more classes or
series of shares), or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing corporation
and in which there is a reclassification or change (including a change to the
right to receive cash or other property) of the shares of Common Stock (other
than a change in par value, or from par value to no par value, or as a result of
a subdivision or combination, but including any change in the shares into two or
more classes or series of shares), the Holder shall have the right thereafter to
receive upon exercise of this Warrant solely the kind and amount of shares of
stock and other securities, property, cash or any combination thereof receivable
upon such reclassification, change, consolidation or merger by a holder of the
number of shares of Common Stock and the Unit Warrants for which this Warrant
might have been exercised immediately prior to such reclassification, change,
consolidation or merger. Thereafter, appropriate provision shall be made for
adjustments which shall be as nearly equivalent as practicable to the
adjustments in paragraph 5 above.
(c) The above provisions of this paragraph 6 shall similarly apply
to successive reclassifications and changes of shares of Common Stock and to
successive consolidations, mergers, sales, leases or conveyances similar to
those described in paragraphs 6(a) and (b).
7. Notice of Dividends/Distributions. In case at any time the Company
shall propose:
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<PAGE> 6
(a) to pay any dividend or make any distribution on shares of Common
Stock in shares of Common Stock or make any other distribution (other than
regularly scheduled cash dividends which are not in a greater amount per share
than the most recent such cash dividend) to all holders of Common Stock; or
(b) to issue any rights, warrants or other securities to all holders
of Common Stock or Public Warrants entitling them to purchase any additional
shares of Common Stock or any other rights, warrants or other securities; or
(c) to effect any reclassification or change of the outstanding
shares of Common Stock, or any consolidation, merger, sale, lease or conveyance
of property, described in paragraph 6; or
(d) to effect any liquidation, dissolution, or winding-up of the
Company; or
(e) to take any other action which would cause an adjustment to the
Public Exercise Price;
then, and in any one or more of such cases, the Company shall give written
notice thereof, by registered mail, postage prepaid, to the Holder at the
Holder's address as it shall appear in the Warrant Register, mailed at least 15
days prior to: (i) the date as of which the holders of record of shares of
Common Stock to be entitled to receive any such dividend, distribution, rights,
warrants or other securities are to be determined; (ii) the date on which any
such reclassification, change of outstanding shares of Common Stock,
consolidation, merger, sale, lease, conveyance of property, liquidation,
dissolution, or winding-up is expected to become effective, and the date as of
which it is expected that holders of record of shares of Common Stock or Public
Warrants, as the case may be, shall be entitled to exchange their shares or
warrants for securities or other property, if any, deliverable upon such
reclassification, change of outstanding shares, consolidation, merger, sale,
lease, conveyance of property, liquidation, dissolution, or winding-up; or (iii)
the date of such action which would require an adjustment to the Public Exercise
Price.
8. Payment of Taxes. The issuance of any shares of Common Stock or
Warrants or other securities upon the exercise of this Warrant, and the delivery
of certificates or other instruments representing such shares of Common Stock,
Warrants or other securities, shall be made without charge to the Holder for any
tax or other charge in respect of such issuance. The Company shall not, however,
be required to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of any certificate in a name other than that
of the Holder and the Company shall not be required to issue or deliver any such
certificate unless and until the person or persons requesting the issue thereof
shall have paid to the Company the amount of such tax or shall have
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<PAGE> 7
established to the satisfaction of the Company that such tax has been paid or is
not due and payable.
9. Registration Rights. (a) If, at any time after __________, 1998, and
before __________, 2003, the Company shall file a registration statement (other
than on Form S-8, or any successor form) with the Securities and Exchange
Commission (the "Commission") while Unit Shares or Unit Warrants are available
for purchase upon exercise of this Warrant or while any Unit Shares, Unit
Warrants or Warrant Shares (which have not been so registered) are outstanding,
the Company shall give the Holder and all the then registered holders of such
Unit Shares, Unit Warrants or Warrant Shares at least 30 days prior written
notice of the filing of such registration statement. If requested by the Holder
or by any such holder in writing within 20 days after receipt of any such
notice, the Company shall, at the Company's sole expense (other than the fees
and disbursements of counsel for the Holder or such holder and the underwriting
discounts, if any, payable in respect of the Warrants, Units, Unit Shares, Unit
Warrants and Warrant Shares sold by the Holder or any such holder), register or
qualify the Units, the Unit Shares, Unit Warrants and Warrant Shares
(collectively, the "Underwriter's Securities") of the Holder or any such holders
who shall have made such request concurrently with the registration covering
such other securities, all to the extent requisite to permit the public offering
and sale of the Underwriter's Securities through the facilities of all
appropriate securities exchanges and the over-the-counter market, and will use
its best efforts through its officers, directors, auditors and counsel to cause
such registration statement to become effective as promptly as practicable.
Notwithstanding the foregoing, if the managing underwriter of any such offering
shall advise the Company in writing that, in its opinion, the distribution of
all or a portion of the Underwriter's Securities requested to be included in the
registration concurrently with the securities being registered by the Company
would materially adversely affect the distribution of such securities by the
Company for its own account, then the Holder or any such holder who shall have
requested registration of his or its Underwriter's Securities shall delay the
offering and sale of such Underwriter's securities (or the portions thereof so
designated by such managing underwriter) for such period, not to exceed 90 days,
as the managing underwriter shall request, provided that no such delay shall be
required as to any Underwriter's Securities if any securities of the Company are
included in such registration statement for the account of any person other than
the Company and the Holder or any such holder unless the securities included in
such registration statement for such other person shall have been reduced pro
rata to the reduction of the Underwriter's Securities which were requested to be
included in such registration.
(b) If at any time after ______________, 1998 and before
_________________, 2002, the Company shall receive a written
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<PAGE> 8
request from holders of Underwriter's Securities who, in the aggregate, own (or
upon exercise of all Warrants and Unit Warrants, will own) a majority of the
total number of shares of Common Stock issued or issuable upon exercise of the
Warrants and the Unit Warrants, the Company shall, as promptly as practicable,
prepare and file with the Commission a registration statement sufficient to
permit the public offering and sale of the Underwriter's Securities through the
facilities of all appropriate securities exchanges and the over-the-counter
market, and will use its best efforts through its officers, directors, auditors
and counsel to cause such registration statement to become effective as promptly
as practicable; provided, however, that the Company shall only be obligated to
file one such registration statement for which all expenses incurred in
connection with such registration (other than the fees and disbursements of
counsel for the Holder or such holders and underwriting discounts, if any,
payable in respect of the Underwriter's Securities sold by the Holder or any
such holder) shall be borne by the Company.
(c) In the event of a registration pursuant to the provisions of
this paragraph 9, the Company shall use its best efforts to cause the
Underwriter's Securities so registered to be registered or qualified for sale
under the securities or blue sky laws of such jurisdictions as the Holder or
such holders may reasonably request; provided, however, that the Company shall
not be required to qualify to do business in any state by reason of this
paragraph 9(c) in which it is not otherwise required to qualify to do business.
(d) The Company shall keep effective any registration or
qualification contemplated by this paragraph 9 and shall from time to time amend
or supplement each applicable registration statement, preliminary prospectus,
final prospectus, application, document and communication for such period of
time as shall be required to permit the Holder or such holders to complete the
offer and sale of the Underwriter's Securities covered thereby. The Company
shall in no event be required to keep any such registration or qualification
effect for a period in excess of nine months from the date on which the Holder
and such holders are first free to sell such Underwriter's Securities; provided,
however, that if the Company is required to keep any such registration or
qualification in effect with respect to securities other than the Underwriter's
Securities beyond such period, the Company shall keep such registration or
qualification in effect as it relates to the Underwriter's Securities for so
long as such registration or qualification remains or is required to remain in
effect in respect of such other securities.
(e) In the event of a registration pursuant to the provisions of
this paragraph 9, the Company shall furnish to each holder of any Underwriter's
Securities included therein such amendment and supplement thereto (in each case,
including all
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<PAGE> 9
exhibits), such reasonable number of copies of each prospectus contained in such
registration statement and each supplement or amendment thereto (including each
preliminary prospectus), all of which shall conform to the requirements of the
Act and the rules and regulations thereunder, and such other documents, as the
Holder or such holders may reasonable request in order to facilitate the
disposition of the Underwriter's Securities included in such registration.
(f) In the event of a registration pursuant to the provisions this
paragraph 9, the Company shall furnish to each holder of any Underwriter's
Securities so registered with an opinion of its counsel (reasonably acceptable
to the Holder) to the effect that (i) the registration statement has become
effective under the Act and no order suspending the effectiveness of the
registration statement, preventing or suspending the use of the registration
statement, any preliminary prospectus, any final prospectus, or any amendment or
supplement thereto has been issued, nor has the Securities and Exchange
Commission or any securities of blue sky authority of any jurisdiction
instituted or threatened to institute any proceedings with respect to such an
order, (ii) the registration statement and each prospectus forming a part
thereof (including each preliminary prospectus), and any amendment or supplement
thereto, complies as to form with the Act and the rules and regulations
thereunder, and (iii) such counsel has no knowledge or reason to know of any
material misstatement or omission in such registration statement or any
prospectus, as amended or supplemented. Such opinion shall also state the
jurisdictions in which the Underwriter's Securities have been registered or
qualified for sale pursuant to the provisions of paragraph 9(c).
(g) The Company agrees that until all the Underwriter's Securities
have been sold under a registration statement or pursuant to Rule 144 under the
Act, it shall keep current in filing all reports, statements and other materials
required to be filed with the Commission to permit holders of the Underwriter's
Securities to sell such securities under Rule 144.
10. Indemnification. (a) Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Holder, any holder of any of
the Underwriter's Securities, their officers, directors, partners, employees,
agents and counsel, and each person, if any, who controls any such person within
the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), from and against any and all loss,
liability, charge, claim, damage and expense whatsoever (which shall include,
for all purposes of this paragraph 10, but not be limited to, reasonable
attorneys' fees and any and all expense whatsoever reasonably incurred, and any
and all amounts paid in settlement of any claim or litigation), as and when
incurred, arising out of, based upon, or in connection with (i) any untrue
statement or alleged untrue statement of a material fact
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<PAGE> 10
contained (A) in any registration statement, preliminary prospectus or final
prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or (B) in any application or other document or communication
(in this paragraph 10 collectively called an "application") executed by or on
behalf of the Company filed in any jurisdiction in order to register or qualify
any of the Underwriter's Securities under the securities or blue sky laws
thereof or filed with the Commission or any securities exchange; or any omission
or alleged omission to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, unless such statement
or omission was made in reliance upon and in conformity with written information
furnished to the Company with respect to the Holder or any holder of any of the
Underwriter's Securities by or on behalf of such preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any application,
as the case may be, or (ii) any breach of any representation, warranty, covenant
or agreement of the Company to indemnify shall be in addition to any liability
the Company may otherwise have, including liabilities arising under this
Warrant.
If any action is brought against the Holder or any holder of any of the
Underwriter's Securities or any of its officers, directors, partners, employees,
agents or counsel, or any controlling persons of such person (an "indemnified
party") in respect of which indemnity may be sought against the Company pursuant
to the foregoing paragraph, such indemnified party or parties shall promptly
notify the Company in writing of the institution of such action (but the failure
so to notify shall not relieve the Company from any liability it may have other
than pursuant to this paragraph 10(a)) and the Company shall promptly assume the
defense of such action, including the employment of counsel (reasonably
satisfactory to such indemnified party or parties) and payment of expenses. Such
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 parties unless the employment of such
counsel shall have been authorized in writing by the Company in connection with
the defense of such action or the Company shall not have promptly employed
counsel reasonably satisfactory to such indemnified party or parties to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be one or more legal defenses available
to it or them or to other indemnified parties which are different from or
addition to those available to the Company, if any of which events the
reasonable fees and expenses of such counsel shall be borne by the Company and
the Company shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties. Anything in this paragraph 10(a) to
the contrary notwithstanding, the Company shall not be liable for any settlement
of any such claim or action effected without its written consent.
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<PAGE> 11
(b) The Holder and any other holder of Underwriter's Securities and
such other holder agrees to indemnify and hold harmless the Company, each
director of the Company, each officer of the Company who shall have signed any
registration statement covering Underwriter's Securities held by the Holder and
such other holder and each other person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, to
the same extent as the foregoing indemnity from the Company to the Holder and
such other holder in paragraph 10(a), but only with respect to statements or
omissions, if any, made in any registration statement, preliminary prospectus,
or final prospectus (as from time to time amended and supplemented), or any
amendment or supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company with respect to the
Holder or such other holder by or on behalf of the Holder or such other holder
expressly for inclusion in any such registration statement, preliminary
prospectus, or final prospectus, or any amendment or supplement thereto, or in
any application, as the case may be. If any action shall be brought against the
Company or any other person so indemnified based on any such registration
statement, preliminary prospectus, or final prospectus, or any amendment or
supplement thereto, or in any application, and in respect of which indemnity may
be sought against the Holder pursuant to this paragraph 10(b), the Holder and
such other holder shall have the rights and duties given to the Company, and the
Company and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of paragraph 10(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to paragraph 10(a)
or 10(b) (subject to the limitations thereof) but is found in a final judicial
determination, not subject to further appeal, that such indemnification may not
be enforced in such case, even though this Agreement expressly provides for
indemnification in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Act, the Exchange Act or otherwise, then the
Company (including for this purpose any contribution made by or on behalf of any
director of the Company, any officer of the Company who signed any such
registration statement and any controlling person of the Company), as one
entity, and the Holder and any holder of any of the Underwriter's Securities
included in such registration in the aggregate (including for this purpose any
contribution by or on behalf of an indemnified party), as a second entity, shall
contribute to the losses, liabilities, claims, damages and expenses whatsoever
to which any of them may be subject, on the basis of relevant equitable
considerations such as the relative fault of the Company and the Holder or any
such holder in connection with the facts which resulted in such losses,
liabilities, claims, damages and expenses. The relative fault, in the case of an
untrue
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statement, alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement, alleged statement,
omission or alleged omission relates to information supplied by the Company, by
the Holder or by any holder of Underwriter's Securities included in such
registration, and the parties relative intent, knowledge, access to information
and opportunity to correct or prevent such statement, alleged statement,
omission or alleged omission. The Company and the Holder agree that it would be
unjust and inequitable if the respective obligations of the Company and the
Holder or any such other holder of the Underwriter's Securities for contribution
were determined by pro rata or per capital allocation of the aggregate losses,
liabilities, claim, damages and expenses (even if the Holder and the other
indemnified parties were treated as one entity for such purpose) or by any other
method of allocation that does not reflect the equitable considerations referred
to in this paragraph 19(c). No person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. For purposes of this paragraph 10(c), each person, if any,
who controls the Holder or any holder of any of the Underwriter's Securities
within the meaning of section 15 of the Act or Section 20(a) of the Exchange Act
and each officer, director, partner, employee, agent and counsel of each such
person, shall have the same rights to contribution as such person and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act and each officer, director, partner,
employee, agent and counsel of each such person, shall have the same rights to
contribution as such person and each person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, each officer of the Company who shall have signed any such registration
statement, and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the provisions of this
paragraph 10(c). Anything in this paragraph 10(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect to the
settlement of any claim or action effected without its written consent. This
paragraph 10(c) is intended to supersede any right to contribution under the
Act, the Exchange Act or otherwise.
11. Legend. The securities issued upon exercise of the Warrants shall
be subject to a stop transfer order and the certificate or certificates
evidencing any such securities shall bear the following legend:
"THE SHARES [OR OTHER SECURITIES]
REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, PURSUANT TO A REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND
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EXCHANGE COMMISSION. HOWEVER, SUCH SHARES [OR
OTHER SECURITIES] CANNOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO (i) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, (ii)
A SEPARATE REGISTRATION STATEMENT UNDER SUCH
ACT, OR (iii) AN EXEMPTION FROM REGISTRATION
UNDER SUCH ACT."
12. Lost Certificates. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of any Warrant (and upon
surrender of any Warrant if mutilated), and upon reimbursement of the Company's
reasonable incidental expenses and execution and delivery of appropriate
agreements of indemnity, the Company shall execute and deliver to the Holder
thereof a new Warrant of like date, tenor and denomination.
13. No Rights as Shareholder. The Holder of any Warrant shall not have,
solely on account of such status, any rights of a shareholder of the Company,
either at law or in equity, or to any notice of meetings of stockholders or of
any other proceedings of the Company, except as provided in this Warrant.
14. Notices.
All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been duly made and received (i)
when delivered if delivered by hand, or (ii) upon three days after sending if
mailed by registered or certified mail, return receipt requested or (iii) upon
receipt if sent by overnight courier:
(a) If to the registered holder of this Warrant, to the address of
such holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Paragraph 1(a)
of this Warrant; or
(c) If to the Holder, to the address set forth on the first page of
this Warrant.
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15. Governing Law. This Warrant shall be construed in accordance with
the laws of the State of New York, without giving effect to conflict of laws.
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.
17. Waiver. The waiver by either party of the breach of any provision
of this Agreement by the other party shall not operate or be construed as a
waiver of any subsequent breach.
18. Assignment. Except as otherwise provided within this Agreement,
neither party hereto may transfer or assign this Agreement without prior written
consent of the other party.
19. Titles and Captions. All article, section and paragraph titles or
captions contained in this Agreement are for convenience only and shall not be
deemed part of the context nor affect the interpretation of this Agreement.
20. Pronouns and Plurals. All pronouns and any variations thereof shall
be deemed to refer to the masculine, feminine, neuter, singular or plural as the
identity of the person or persons may require.
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<PAGE> 15
21. Entire Agreement. This Agreement contains the entire understanding
between and among the parties and supersedes any prior understandings and
agreements among them respecting the subject matter of this Agreement.
22. Savings Clause. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
Dated: ________________ __, 1997
JENNA LANE, INC.
By _______________________________
Name:
Title:
[Seal]
_________________________________
Secretary
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<PAGE> 1
Exhibit 4.4
WARRANT AGREEMENT dated as of February ____, 1997 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, LLC (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");
WHEREAS, in August 1996 the Company completed a private placement
offering wherein it issued common stock purchase warrants to purchase 1,000,000
shares of the Company's common stock (the "Bridge Warrants") and which Bridge
Warrants are being reset to contain the same terms as the Public Warrants in the
IPO and shall be registered for sale under the Registration Statement with
respect to the IPO;
WHEREAS, the Public Warrants, Underwriter's Warrants and Bridge
Warrants (together sometimes referred to as 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 at the exercise price set forth herein;
WHEREAS, the Warrants will have an exercise price of $7.00 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);
<PAGE> 2
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 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
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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.
SECTION l.04. Except as otherwise expressly stated herein, all terms
used in the Warrant Certificate have the meanings provided in this Agreement.
SECTION l.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 of Common Stock and the Public Warrants are
detachable and 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
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<PAGE> 4
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 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
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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
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 __________, 1998, the Company may,
subject to the conditions set forth herein, redeem all, but not less than all,
the Public Warrants and Bridge Warrants then outstanding at a redemption price
of $.05 per Public Warrant or Bridge Warrant upon not less than thirty (30) days
prior written notice (the "Redemption Notice") to the holders thereof provided
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 by first class mail 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 Public Warrants and
Bridge Warrants then outstanding shall have
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first been set aside by the Company in trust with the Warrant Agent for the
benefit of all holders of Public Warrant and Bridge Warrants so as to be and
continue to be available therefor. The redemption price to be paid to the
holders of the Public Warrants and Bridge Warrants 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 or Bridge 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 or Bridge Warrant being 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 Public Warrant or Bridge 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 or Bridge Warrant being redeemed immediately after such adjustment. The
Public Warrants and Bridge 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 and Bridge Warrants. The holders of the
Public Warrant and Bridge Warrants may exercise their Public Warrants or Bridge
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 or Bridge 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 holder of Public Warrants or Bridge Warrants does not
wish to exercise any Public Warrant or Bridge 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 and Bridge Warrant holders so as to be and
continue to be available therefor, then, on and after said Redemption Date,
notwithstanding that any Public Warrant or Bridge Warrant subject to redemption
shall not have been surrendered for redemption, the obligation evidenced by all
Public Warrants and Bridge 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
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of each Public Warrant or Bridge 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 or Bridge Warrant upon receiving the
Redemption Notice of the Public Warrant or Bridge 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.
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
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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
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,
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<PAGE> 9
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 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
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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 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,
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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, 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
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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 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. 333-11979) 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
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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 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
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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 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
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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 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
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<PAGE> 16
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 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
17
<PAGE> 17
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, 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
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<PAGE> 18
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent) as follows:
Jenna Lane, Inc.
1407 Broadway, Suite 1801
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 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, LLC
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
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<PAGE> 19
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.
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:
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<PAGE> 20
- -----------------------------COMPARISON OF FOOTERS-----------------------------
- -FOOTER 1_
WALSH\JENNA\PUBLOFF\publcwar.003
21
<PAGE> 1
EXHIBIT 10.1
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of February 1, 1997,
by and between JENNA LANE, INC., a Delaware corporation with offices at 1407
Broadway, Suite 1801, New York, New York 10018 (the "Company") and MITCHELL
DOBIES, residing at 5 Whistler Way, Marlboro, New Jersey 07746 (the
"Executive").
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement, dated as of March 24, 1995, providing for the employment
of the Executive by the Company, which Agreement was amended pursuant to that
certain Amendment to Employment Agreement dated as of March 24, 1995, further
amended pursuant to that certain Amendment to Employment Agreement dated as of
April 10, 1995 and further amended pursuant to that certain Amendment to
Employment Agreement dated as of March 23, 1996 (collectively, the "Employment
Agreement"), initially capitalized terms not otherwise defined herein having
their respective meanings as set forth in the Employment Agreement; and
WHEREAS, the Company and the Executive desire to further amend and
restate in its entirety, as so amended, the Employment Agreement pursuant to the
terms and conditions hereof.
NOW, THEREFORE, the Employment Agreement is hereby amended and restated
in its entirety as follows, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged:
1. Employment and Duties.
(a) The Company hereby employs the Executive, and the Executive
hereby accepts employment by the Company, as President and co-Chief Executive
Officer of the Company, and shall report directly to the Board of Directors of
the Company. As such, Executive shall perform duties and functions and assume
and discharge those responsibilities which are otherwise usually performed by
persons holding his title with the Company and shall perform such other duties
as may be assigned to him from time to time by the Board of Directors.
(b) The Executive shall devote his full time to the business and
affairs of the Company, shall use his best efforts to promote the interests of
the Company and its affiliates, and shall discharge his responsibilities in a
diligent and faithful manner, consistent with sound business practices. The
Executive shall not engage in any other employment or business activity, except
the supervision of his private investments.
(c) The Company agrees that during the term hereof the
Executive's duties shall be such as to allow him to live and work in the New
York City Metropolitan Area, and in no event shall the Executive be required to
move his residence from, or operate outside of, the New York City Metropolitan
Area.
2. Compensation.
<PAGE> 2
(a) Salary. As payment in full for all services to be rendered by
the Executive during the term hereof, the Company shall pay the Executive, and
the Executive shall accept, an annual salary ("Base Salary") at the rates set
forth below. The Company, acting by its Board of Directors, may, in its sole and
absolute discretion, increase the salary of the Executive during the term
hereof. Such salary shall be payable in equal weekly installments or as
otherwise agreed upon by the Company and the Executive.
<TABLE>
<CAPTION>
Period Base Salary
------ -----------
<S> <C>
2/1/97-3/31/97 $225,000
4/1/97-3/31/98 $250,000
4/1/98-3/31/99 $275,000
4/1/99-3/31/00 $300,000
</TABLE>
(b) Fringe Benefits. The Company shall provide the Executive with
perquisites consistent with those provided to other senior executives of the
Company, to the extent so provided, including, without limitation, health
insurance for him and his dependents (or reimburse him for reasonable cost which
he incurs himself with respect thereto), disability, life and accident insurance
(such health insurance, disability, life and accident insurance, collectively,
"Insurance"), pension, profit sharing, stock option, stock bonus or other
employee benefit plans. The Company also shall provide Executive with a monthly
expense allowance (the "Expense Allowance") which Executive shall utilize for
business expenses related to the business of the Company, in amounts as follows:
<TABLE>
<CAPTION>
Period Monthly Expense Allowance
------ -------------------------
<S> <C>
2/1/97-3/31/97 $3,500
4/1/97-3/31/98 $3,500
4/1/98-3/31/99 $3,834
4/1/99-3/31/00 $4,167
</TABLE>
Executive also shall be entitled to and shall receive during the term hereof
such vacation, holiday and similar rights and privileges as are enjoyed
generally by senior executives of the Company as of the date hereof; provided
however that Executive shall be entitled to no less than twenty-five (25)
business days annual vacation. The Company agrees not to reduce or remove any
perquisites, emoluments of office or title or benefits enjoyed by Executive on
the date hereof.
(c) Participation in Bonus Pool. The Board of Directors shall
include Executive in the distribution of an aggregate, to all executives of the
Company who may participate, of twelve and one-half percent (12 1/2%) of the
excess above $1,000,000 of the net income before taxes of the Company for each
fiscal year of the Company during the term hereof (the "Bonus Pool"), payable
once annually at such time as the Board of Directors shall determine, provided,
that in no event shall the amount in the Bonus Pool be less than $100,000 if the
net income before taxes of the Company for such fiscal year has equaled or
exceeded $1,000,000. That portion of the Bonus Pool which shall be payable to
Executive shall be in the sole discretion of the Board of Directors.
Notwithstanding the foregoing, Executive shall receive a minimum annual bonus
equal to $15,000 (the "Minimum Bonus").
2
<PAGE> 3
(d) Issuance of Performance Shares. The Company acknowledges
having issued to you 222,857 shares (the "Performance Shares") of Common Stock,
par value $.01 per share, of the Company (the "Common Stock"), taking into
account the 0.9047619 for one stock dividend declared in July 1996. The
Performance Shares, upon issuance, were validly issued and fully paid shares of
Common Stock of the Company, provided, however, that (i) one-half of the
Performance Shares ("One Half") shall be repurchased by the Company for the par
value thereof in the event that the Company does not achieve net income before
taxes ("Net Income") of at least $2.0 million during the period of April 1, 1997
through March 31, 1998 ("1998 Fiscal Year"), provided that (x) only one-half of
such One Half shall be repurchased by the Company in the event that the Company
achieves Net Income for the 1998 Fiscal Year of at least $1.5 million but less
than $1.75 million and (y) only one-quarter of such One Half shall be
repurchased by the Company in the event that the Company achieves Net Income for
the 1998 Fiscal Year of at least $1.75 million but less than $2.0 million, (ii)
One Half shall be repurchased by the Company for the par value thereof in the
event that the Company does not achieve Net Income of at least $2.5 million
during the period of April 1, 1998 through March 31, 1999 ("1999 Fiscal Year"),
provided that (z) only one-half of such One Half shall be repurchased by the
Company in the event that the Company achieves Net Income for the 1999 Fiscal
Year of at least $2 million but less than $2.25 million and (zz) only
one-quarter of such One Half shall be repurchased by the Company in the event
that the Company achieves Net Income for the 1999 Fiscal Year of at least $2.25
million but less than $2.5 million, (iii) all of which Performance Shares shall
be repurchased by the Company for the par value thereof upon termination of
Executive's employment hereunder in the event that Executive's employment shall
terminate prior to March 31, 1998 and shall be terminated by the Company for
Cause or by Executive without Good Reason; and (iv) one-half of which
Performance Shares shall be repurchased by the Company for the par value thereof
upon termination of Executive's employment hereunder in the event that
Executive's employment shall terminate prior to March 31, 1999 and shall be
terminated by the Company for Cause or by Executive without Good Reason. Net
income before taxes, 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. This provision shall survive any
termination of this Agreement.
3. Term of Employment. The term of employment of the Executive
hereunder, which commenced pursuant to the Employment Agreement, shall continue
for the three year period commencing on the date hereof (the "Initial Term"),
provided that this Agreement shall be deemed renewed on a year to year basis
(each a "Renewal Term") on the same terms as shall have been effective at the
end of the Initial Term in the event that neither party gives the other written
notice of its intent to terminate this Agreement at least 60 days prior to the
expiration of the Initial Term or Renewal Term, as the case may be.
4. Termination of Employment.
(a) Termination upon Death, Disability, Good Reason or for Cause.
The Executive's employment shall terminate upon expiration of the Initial Term
or any Renewal Term of this Agreement as provided in Section 3 or upon the death
of the Executive, and may be terminated immediately, by the majority vote of all
members of the Board of Directors of the Company (excluding Executive), if the
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<PAGE> 4
Executive suffers a Disability or in case of Cause, or may be terminated upon 90
days' advance written notice by the Company without Cause, or may be terminated
by the Executive for Good Reason. "Disability" shall mean such physical or
mental disability or incapacity of the Executive as, in the good faith
determination of the Board of Directors, has prevented him from performing
substantially all his duties hereunder during any period of 90 consecutive days
or 120 days in any six-month period. "Cause" shall mean (i) a nonappealable
judicial determination of Executive's malfeasance or dishonesty with respect to
actions related to the Company, (ii) conviction or plea of guilty or no contest
by Executive of (A) any felony or (B) any crime against the Company or (iii)
failure to act upon the express lawful direction of the Board of Directors,
after 15 days' written notice and opportunity to cure such failure, so long as
such direction (x) is to take action within Executive's duties, (y) is neither
unethical or immoral, in the reasonable determination of Executive and (z) does
not purport to require Executive to take actions which relate to day-to-day
management of the Company. "Good Reason" shall mean, (i) after 30 days' written
notice and opportunity to cure, any breach of the terms hereof by the Company,
including without limitation any reduction or removal of any of his duties,
compensation, perquisites, emoluments of office or title or benefits enjoyed by
Executive on the date hereof or (ii) a Change in Control (as hereinafter
defined).
(b) Consequences of Termination for Good Reason or other than for
Cause. In the event of the termination of Executive's employment by the Company
for any reason other than Cause or in the event of termination by Executive for
Good Reason, he shall receive (i) in one lump sum, the balance of all Base
Salary which had accrued through the date of such termination, as well as all
Base Salary remaining yet to be paid until the expiration of the Initial Term or
the then current Renewal Term, as applicable ("Expiration"), provided, that if
such termination occurs after March 31, 1999, then in addition to such Base
Salary, you shall receive an amount equal to an additional one year's Base
Salary, (ii) the Company shall continue to pay Insurance on your behalf through
Expiration, unless you shall become employed, upon which such payments would
cease, (iii) all accrued but unpaid portions of the Expense Allowance, (iv) upon
payment to other executives of the Company, all announced but unpaid Bonus Pool
payments, (v) upon payment to other executives of the Company, a portion of the
Bonus Pool payment next announced and paid, pro-rated based upon the portion of
the fiscal year during which Executive was employed, the portion of the Bonus
Pool to be paid to Executive being no less (adjusted for such proportion of the
fiscal year) than the portion of the previous year's Bonus Pool, (vi) any
reimbursement of business expenses in excess of the Expense Allowance and (vii)
all rights for the Company to repurchase any of the Performance Shares, unless
such right shall have accrued but not been exercised, shall be null and void as
of the date of such termination.
(c) Consequences of Termination without Good Reason or for Cause.
In the event of a termination of the Executive's employment by the Company for
Cause, or in the event of termination by Executive without Good Reason, he shall
receive (i) in one lump sum, the balance of all accrued but unpaid Base Salary
and Expense Allowance, (ii) upon payment to other executives of the Company, all
announced but unpaid Bonus Pool payments and (iii) any reimbursement of business
expenses in excess of the Expense Allowance. Upon such termination, the Company
shall have the right to repurchase Performance Shares, if applicable, pursuant
to Paragraph 2(d) above.
(d) Consequences of Termination after Change in Control.
Notwithstanding the
4
<PAGE> 5
foregoing, in the event that Executive's employment with the
Company ceases for any reason within 18 months after a Change in Control, he
shall receive the greater of the amounts described above and a lump sum payment
equal to 299% of the average of all annual compensation (including all Base
Salary, Expense Allowance and the reasonable value of all fringe benefits)
received for the previous five years (or lesser period since the Company was
incorporated). Further, in the event the provisions of this Paragraph 4(d) are
in any manner involved in litigation or arbitration and Executive incurs legal
fees or expenses or must make a contribution to a judgment or a settlement of
the matter, the Company agrees to reimburse him for any and all such
expenditures. Such fees or expenses shall not be reimbursed in the event that
Executive is unsuccessful in such litigation or arbitration.
(e) Definition of Change in Control. As used herein, a "Change in
Control" shall be deemed to have occurred:
(i) if any "person" (as such term is used in Section
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than Executive, shall have become the beneficial owner,
directly or indirectly, of Common Stock of the Company representing twenty
percent (20%) or more of the combined voting power of the Company's then
outstanding securities, unless more than eighty (80%) of the Board of Directors,
as constituted immediately prior to the date of the Change in Control, decide in
their reasonable discretion that no Change in Control has occurred, Executive
not being allowed to vote on such matter as a Director; provided, that if any
such person shall become the beneficial owner, directly or indirectly, of Common
Stock of the Company representing thirty-three and one third percent (33-1/3%)
or more of the Company's then outstanding securities, a Change in Control shall
ipso facto have occurred,
(ii) if at any time individuals who at the date of this
Agreement constitute a majority of the Board of Directors cease, for any reason
other than death or voluntary resignation (being a resignation not requested by
any other person or persons), to constitute at least a majority of the Board,
provided, that no Change in Control shall be deemed to occur which takes place
prior to, or contemporaneous with, the Company's currently contemplated initial
public offering of securities, and provided, further, that no Change in Control
shall be deemed to have occurred if any change described herein (x) has been
approved by a vote of at least eighty percent (80%) of all the members of the
Board of Directors and (y) such change is part of a transaction pursuant to
which an equity interest in the Company representing at least ten percent (10%)
of the issued and outstanding capital stock of the Company, on a fully diluted
basis, is being sold by the Company to third parties, or
(iii) if there is a Change in Control of a nature that, in
the opinion of counsel for the Company, would be required to be reported in
response to Item 5(f) of Schedule 14A under the Exchange Act, unless
three-quarters of the Board, as constituted immediately prior to the date of the
Change in Control, decide in their reasonable discretion that no Change in
Control has occurred, Executive not being allowed to vote on such matter as a
Director.
(f) "Golden Parachute" Limitation. Notwithstanding anything
contained herein, nothing in Paragraph 4(d) is intended to provide compensation
or severance to Executive in an amount which, in the aggregate with all other
payments in the nature of compensation paid to (or for the benefit of)
5
<PAGE> 6
Executive, would require the payment of the excise tax described in Section 4999
of the Internal Revenue Code of 1986, as amended, or any successor to such
Section , and no payments to Executive under Paragraph 4(d) shall be made which
so require the payment of any such excise tax.
5. Non-Competition; Confidentiality; Inventions.
(a) The Executive shall not, at any time during the period of his
employment by the Company or (i) within one (1) year after termination of his
employment, if termination is a result of termination for Cause or is a result
of Executive's termination other than for Good Reason, or (ii) within 90 days
after termination of employment, if termination is a result of the expiration of
the Initial Term or any Renewal Term, termination not for Cause by the Company
or termination by Executive for Good Reason (such period, as applicable, the
"Restriction Period"), in either case directly or indirectly, solicit or permit
any business of which he is an owner, partner, shareholder or executive to
solicit any employee of the Company or any of its affiliates to leave its employ
or join the employ of another, then or at a later time.
(b) The Executive shall not, at any time during the period of his
employment by the Company or during the Restriction Period, in either case
directly or indirectly, engage in or be interested (as owner, member, partner,
shareholder, employee, director, officer, manager, agent, consultant or
otherwise) in any firm or Company which engages in any business which competes,
directly or indirectly, with the business of the Company; provided that the
ownership of two percent or less of a publicly-traded class of securities shall
not be deemed a violation of the foregoing covenant.
(c) The Executive shall not, directly or indirectly, either
during the term of this Agreement or thereafter, disclose to any person, firm or
Company or use (except in the regular course of the Company's business) any
confidential information of any type that he shall have acquired as a result of
his employment with the Company, unless such information has been first
published voluntarily and intentionally by the Company, or unless such
disclosure is required by law. Promptly after termination of his employment
hereunder, the Executive will surrender to the Company any and all lists,
manuals, books and records of or relating to the business of the Company, all
copies of the former, whether in use or not, and all other property belonging to
the Company.
(d) The Executive agrees to make prompt and complete disclosure
of every invention (whether or not patentable), process, product, apparatus,
plan, system or improvement which he conceives or makes, and any patent
application which he files, during the period of his employment by the Company
or during the Restriction Period, which pertain to the Company's present or then
contemplated field of business. The Executive further agrees that every said
invention, process, product, apparatus, plan, system, improvement and filing
which relates to the Company's present or then contemplated field of business
shall be the sole and exclusive property of the Company but without expense to
himself, he will execute any and all proper applications for patents, copyrights
and trademarks, assignments and other instruments which the Company shall deem
necessary or convenient to perfect its title in said property or to otherwise
protect its interest therein in the United States or foreign countries, and
render aid and assistance to the Company in any litigation or other proceeding
pertaining to said property.
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<PAGE> 7
(e) The provisions contained in this Section 5 as to the time
periods, scope of activities, persons or entities affected, and territories
restricted shall be deemed divisible so that, if any provision contained in this
Section is determined to be invalid or unenforceable, such provisions shall be
deemed modified so as to be valid and enforceable to the full extent lawfully
permitted.
(f) The Executive acknowledges that the provisions of this
Section 5 are reasonable and necessary for the protection of the Company and
that the Company will be irrevocably damaged if such covenants are not
specifically enforced. Accordingly, the Executive agrees that the Company will
be entitled to injunctive relief for the purpose of restraining the Executive
from violating such covenants in addition to any other relief to which the
Company may be entitled under this Agreement.
6. Representations and Warranties of Executive. Executive represents
and warrants to the Company that (a) Executive is under no contractual or other
restriction or obligation which is inconsistent with the execution, delivery and
performance under this Agreement or the other rights of the Company hereunder,
and (b) Executive is under no physical or mental disability that would hinder
his performance of duties under this Agreement.
7. Miscellaneous.
(a) This Agreement shall be governed by and be construed in
accordance with the law of the State of Delaware applicable to contracts made
and to be performed in that state.
(b) The Executive may not assign his rights or obligations under
this Agreement, or a participation in such rights and obligations, to any
person.
(c) All notices and other communications under this Agreement
shall be in writing and shall be considered given only when delivered personally
against written receipt therefor, mailed by registered mail (return receipt
requested), or sent by expedited or overnight delivery service with return
receipt, or sent by telecopier with confirmed receipt, to the party to receive
notice at the addresses first set forth above, or such other address as either
party may, upon ten (10) days' written notice, direct.
(d) Each of the parties hereto shall hereafter, at the request of
either party hereto, execute and deliver such further documents and agreements,
and do such further acts and things as may be necessary or expedient to carry
out the provisions of this Agreement.
(e) The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
(f) This Agreement constitutes a complete statement of all of the
arrangements between the parties as of the date hereof with respect to the
matters contemplated hereby, supersedes all prior agreements and understandings
between them, and cannot be changed or terminated orally.
7
<PAGE> 8
(g) The headings in this Agreement are intended solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
(h) This Agreement shall inure to the benefit of, and be binding
upon, the heirs and personal representatives of the Executive and any successor
to the Company including, but not limited to, any successor by merger or
consolidation to the Company's business and assets.
IN WITNESS WHEREOF, the undersigned have set their hands hereto as
of the date first above written.
JENNA LANE, INC.
By: /s/ Charles Sobel
-------------------------------------------
Charles Sobel, Co-Chief Executive Officer
/s/ Mitchell Dobies
----------------------------------------------
MITCHELL DOBIES
8
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
Amended and Restated Employment Agreement dated as of February 1, 1997,
by and between JENNA LANE, INC., a Delaware corporation with offices at 1407
Broadway, Suite 1801, New York, New York 10018 (the "Company") and CHARLES
SOBEL, residing at 9 Goose Point Drive, Colts Neck, New Jersey 07722 (the
"Executive").
WHEREAS, the Company and the Executive entered into that certain
Employment Agreement, dated as of March 24, 1995, providing for the employment
of the Executive by the Company, which Agreement was amended pursuant to that
certain Amendment to Employment Agreement dated as of March 24, 1995, further
amended pursuant to that certain Amendment to Employment Agreement dated as of
April 10, 1995 and further amended pursuant to that certain Amendment to
Employment Agreement dated as of March 23, 1996 (collectively, the "Employment
Agreement"), initially capitalized terms not otherwise defined herein having
their respective meanings as set forth in the Employment Agreement; and
WHEREAS, the Company and the Executive desire to further amend and
restate in its entirety, as so amended, the Employment Agreement pursuant to the
terms and conditions hereof.
NOW, THEREFORE, the Employment Agreement is hereby amended and restated
in its entirety as follows, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged:
1. Employment and Duties.
(a) The Company hereby employs the Executive, and the Executive
hereby accepts employment by the Company, as Executive Vice President and
co-Chief Executive Officer of the Company, and shall report directly to the
President of the Company. As such, Executive shall perform duties and functions
and assume and discharge those responsibilities which are otherwise usually
performed by persons holding his title with the Company and shall perform such
other duties as may be assigned to him from time to time by the President.
(b) The Executive shall devote his full time to the business and
affairs of the Company, shall use his best efforts to promote the interests of
the Company and its affiliates, and shall discharge his responsibilities in a
diligent and faithful manner, consistent with sound business practices. The
Executive shall not engage in any other employment or business activity, except
the supervision of his private investments.
(c) The Company agrees that during the term hereof the
Executive's duties shall be such as to allow him to live and work in the New
York City Metropolitan Area, and in no event shall the Executive be required to
move his residence from, or operate outside of, the New York City Metropolitan
Area.
2. Compensation.
<PAGE> 2
(a) Salary. As payment in full for all services to be rendered by
the Executive during the term hereof, the Company shall pay the Executive, and
the Executive shall accept, an annual salary ("Base Salary") at the rates set
forth below. The Company, acting by its Board of Directors, may, in its sole and
absolute discretion, increase the salary of the Executive during the term
hereof. Such salary shall be payable in equal weekly installments or as
otherwise agreed upon by the Company and the Executive.
<TABLE>
<CAPTION>
Period Base Salary
<S> <C>
2/1/97-3/31/97 $225,000
4/1/97-3/31/98 $250,000
4/1/98-3/31/99 $275,000
4/1/99-3/31/00 $300,000
</TABLE>
(b) Fringe Benefits. The Company shall provide the Executive with
perquisites consistent with those provided to other senior executives of the
Company, to the extent so provided, including, without limitation, health
insurance for him and his dependents (or reimburse him for reasonable cost which
he incurs himself with respect thereto), disability, life and accident insurance
(such health insurance, disability, life and accident insurance, collectively,
"Insurance"), pension, profit sharing, stock option, stock bonus or other
employee benefit plans. The Company also shall provide Executive with a monthly
expense allowance (the "Expense Allowance") which Executive shall utilize for
business expenses related to the business of the Company, in amounts as follows:
<TABLE>
<CAPTION>
Period Monthly Expense Allowance
<S> <C>
2/1/97-3/31/97 $3,500
4/1/97-3/31/98 $3,500
4/1/98-3/31/99 $3,834
4/1/99-3/31/00 $4,167
</TABLE>
Executive also shall be entitled to and shall receive during the term hereof
such vacation, holiday and similar rights and privileges as are enjoyed
generally by senior executives of the Company as of the date hereof; provided
however that Executive shall be entitled to no less than twenty-five (25)
business days annual vacation. The Company agrees not to reduce or remove any
perquisites, emoluments of office or title or benefits enjoyed by Executive on
the date hereof.
(c) Participation in Bonus Pool. The Board of Directors shall
include Executive in the distribution of an aggregate, to all executives of the
Company who may participate, of twelve and one-half percent (12 1/2%) of the
excess above $1,000,000 of the net income before taxes of the Company for each
fiscal year of the Company during the term hereof (the "Bonus Pool"), payable
once annually at such time as the Board of Directors shall determine, provided,
that in no event shall the amount in the Bonus Pool be less than $100,000 if the
net income before taxes of the Company for such fiscal year has equaled or
exceeded $1,000,000. That portion of the Bonus Pool which shall be payable to
Executive shall be in the sole discretion of the Board of Directors.
Notwithstanding the foregoing, Executive shall receive a minimum annual bonus
equal to $32,000 for the fiscal year ended March 31, 1997, and $15,000 for each
fiscal year of the Company thereafter during the term hereof (the "Minimum
Bonus").
2
<PAGE> 3
(d) Issuance of Performance Shares. The Company acknowledges
having issued to you 291,429 shares (the "Performance Shares") of Common Stock,
par value $.01 per share, of the Company (the "Common Stock"), taking into
account the 0.9047619 for one stock dividend declared in July 1996. The
Performance Shares, upon issuance, were validly issued and fully paid shares of
Common Stock of the Company, provided, however, that (i) one-half of the
Performance Shares ("One Half") shall be repurchased by the Company for the par
value thereof in the event that the Company does not achieve net income before
taxes ("Net Income") of at least $2.0 million during the period of April 1, 1997
through March 31, 1998 ("1998 Fiscal Year"), provided that (x) only one-half of
such One Half shall be repurchased by the Company in the event that the Company
achieves Net Income for the 1998 Fiscal Year of at least $1.5 million but less
than $1.75 million and (y) only one-quarter of such One Half shall be
repurchased by the Company in the event that the Company achieves Net Income for
the 1998 Fiscal Year of at least $1.75 million but less than $2.0 million, (ii)
One Half shall be repurchased by the Company for the par value thereof in the
event that the Company does not achieve Net Income of at least $2.5 million
during the period of April 1, 1998 through March 31, 1999 ("1999 Fiscal Year"),
provided that (z) only one-half of such One Half shall be repurchased by the
Company in the event that the Company achieves Net Income for the 1999 Fiscal
Year of at least $2 million but less than $2.25 million and (zz) only
one-quarter of such One Half shall be repurchased by the Company in the event
that the Company achieves Net Income for the 1999 Fiscal Year of at least $2.25
million but less than $2.5 million, (iii) all of which Performance Shares shall
be repurchased by the Company for the par value thereof upon termination of
Executive's employment hereunder in the event that Executive's employment shall
terminate prior to March 31, 1998 and shall be terminated by the Company for
Cause or by Executive without Good Reason; and (iv) one-half of which
Performance Shares shall be repurchased by the Company for the par value thereof
upon termination of Executive's employment hereunder in the event that
Executive's employment shall terminate prior to March 31, 1999 and shall be
terminated by the Company for Cause or by Executive without Good Reason. Net
income before taxes, 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. This provision shall survive any
termination of this Agreement.
3. Term of Employment. The term of employment of the Executive
hereunder, which commenced pursuant to the Employment Agreement, shall continue
for the three year period commencing on the date hereof (the "Initial Term"),
provided that this Agreement shall be deemed renewed on a year to year basis
(each a "Renewal Term") on the same terms as shall have been effective at the
end of the Initial Term in the event that neither party gives the other written
notice of its intent to terminate this Agreement at least 60 days prior to the
expiration of the Initial Term or Renewal Term, as the case may be.
4. Termination of Employment.
(a) Termination upon Death, Disability, Good Reason or for Cause.
The Executive's employment shall terminate upon expiration of the Initial Term
or any Renewal Term of this Agreement as provided in Section 3 or upon the death
of the Executive, and may be terminated immediately, by the majority vote of all
members of the Board of Directors of the Company (excluding Executive), if the
3
<PAGE> 4
Executive suffers a Disability or in case of Cause, or may be terminated upon 90
days' advance written notice by the Company without Cause, or may be terminated
by the Executive for Good Reason. "Disability" shall mean such physical or
mental disability or incapacity of the Executive as, in the good faith
determination of the Board of Directors, has prevented him from performing
substantially all his duties hereunder during any period of 90 consecutive days
or 120 days in any six-month period. "Cause" shall mean (i) a nonappealable
judicial determination of Executive's malfeasance or dishonesty with respect to
actions related to the Company, (ii) conviction or plea of guilty or no contest
by Executive of (A) any felony or (B) any crime against the Company or (iii)
failure to act upon the express lawful direction of the President or the Board
of Directors, after 15 days' written notice and opportunity to cure such
failure, so long as such direction (x) is to take action within Executive's
duties and (y) is neither unethical or immoral, in the reasonable determination
of Executive. "Good Reason" shall mean, (i) after 30 days' written notice and
opportunity to cure, any breach of the terms hereof by the Company, including
without limitation any reduction or removal of any of his duties, compensation,
perquisites, emoluments of office or title or benefits enjoyed by Executive on
the date hereof or (ii) a Change in Control (as hereinafter defined).
(b) Consequences of Termination for Good Reason or other than for
Cause. In the event of the termination of Executive's employment by the Company
for any reason other than Cause or in the event of termination by Executive for
Good Reason, he shall receive (i) in one lump sum, the balance of all Base
Salary which had accrued through the date of such termination, as well as all
Base Salary remaining yet to be paid until the expiration of the Initial Term or
the then current Renewal Term, as applicable ("Expiration"), provided, that if
such termination occurs after March 31, 1999, then in addition to such Base
Salary, you shall receive an amount equal to an additional one year's Base
Salary, (ii) the Company shall continue to pay Insurance on your behalf through
Expiration, unless you shall become employed, upon which such payments would
cease, (iii) all accrued but unpaid portions of the Expense Allowance, (iv) upon
payment to other executives of the Company, all announced but unpaid Bonus Pool
payments, (v) upon payment to other executives of the Company, a portion of the
Bonus Pool payment next announced and paid, pro-rated based upon the portion of
the fiscal year during which Executive was employed, the portion of the Bonus
Pool to be paid to Executive being no less (adjusted for such proportion of the
fiscal year) than the portion of the previous year's Bonus Pool, (vi) any
reimbursement of business expenses in excess of the Expense Allowance and (vii)
all rights for the Company to repurchase any of the Performance Shares, unless
such right shall have accrued but not been exercised, shall be null and void as
of the date of such termination.
(c) Consequences of Termination without Good Reason or for Cause.
In the event of a termination of the Executive's employment by the Company for
Cause, or in the event of termination by Executive without Good Reason, he shall
receive (i) in one lump sum, the balance of all accrued but unpaid Base Salary
and Expense Allowance, (ii) upon payment to other executives of the Company, all
announced but unpaid Bonus Pool payments and (iii) any reimbursement of business
expenses in excess of the Expense Allowance. Upon such termination, the Company
shall have the right to repurchase Performance Shares, if applicable, pursuant
to Paragraph 2(d) above.
(d) Consequences of Termination after Change in Control.
Notwithstanding the foregoing, in the event that Executive's employment with the
Company ceases for any reason within 18
4
<PAGE> 5
months after a Change in Control, he shall receive the greater of the amounts
described above and a lump sum payment equal to 299% of the average of all
annual compensation (including all Base Salary, Expense Allowance and the
reasonable value of all fringe benefits) received for the previous five years
(or lesser period since the Company was incorporated). Further, in the event the
provisions of this Paragraph 4(d) are in any manner involved in litigation or
arbitration and Executive incurs legal fees or expenses or must make a
contribution to a judgment or a settlement of the matter, the Company agrees to
reimburse him for any and all such expenditures. Such fees or expendses shall
not be reimbursed in the event that Executive is unsuccessful in such litigation
or arbitration.
(e) Definition of Change in Control. As used herein, a "Change in
Control" shall be deemed to have occurred:
(i) if any "person" (as such term is used in Section
13(d)(3) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), other than Executive, shall have become the beneficial owner,
directly or indirectly, of Common Stock of the Company representing twenty
percent (20%) or more of the combined voting power of the Company's then
outstanding securities, unless more than eighty (80%) of the Board of Directors,
as constituted immediately prior to the date of the Change in Control, decide in
their reasonable discretion that no Change in Control has occurred, Executive
not being allowed to vote on such matter as a Director; provided, that if any
such person shall become the beneficial owner, directly or indirectly, of Common
Stock of the Company representing thirty-three and one third percent (33-1/3%)
or more of the Company's then outstanding securities, a Change in Control shall
ipso facto have occurred,
(ii) if at any time individuals who at the date of this
Agreement constitute a majority of the Board of Directors cease, for any reason
other than death or voluntary resignation (being a resignation not requested by
any other person or persons), to constitute at least a majority of the Board,
provided, that no Change in Control shall be deemed to occur which takes place
prior to, or contemporaneous with, the Company's currently contemplated initial
public offering of securities, and provided, further, that no Change in Control
shall be deemed to have occurred if any change described herein (x) has been
approved by a vote of at least eighty percent (80%) of all the members of the
Board of Directors and (y) such change is part of a transaction pursuant to
which an equity interest in the Company representing at least ten percent (10%)
of the issued and outstanding capital stock of the Company, on a fully diluted
basis, is being sold by the Company to third parties, or
(iii) if there is a Change in Control of a nature that, in
the opinion of counsel for the Company, would be required to be reported in
response to Item 5(f) of Schedule 14A under the Exchange Act, unless
three-quarters of the Board, as constituted immediately prior to the date of the
Change in Control, decide in their reasonable discretion that no Change in
Control has occurred, Executive not being allowed to vote on such matter as a
Director.
(f) "Golden Parachute" Limitation. Notwithstanding anything
contained herein, nothing in Paragraph 4(d) is intended to provide compensation
or severance to Executive in an amount which, in the aggregate with all other
payments in the nature of compensation paid to (or for the benefit of)
Executive, would require the payment of the excise tax described in Section 4999
of the Internal
5
<PAGE> 6
Revenue Code of 1986, as amended, or any successor to such Section , and no
payments to Executive under Paragraph 4(d) shall be made which so require the
payment of any such excise tax.
5. Non-Competition; Confidentiality; Inventions.
(a) The Executive shall not, at any time during the period of his
employment by the Company or (i) within one (1) year after termination of his
employment, if termination is a result of termination for Cause or is a result
of Executive's termination other than for Good Reason, or (ii) within 90 days
after termination of employment, if termination is a result of the expiration of
the Initial Term or any Renewal Term, termination not for Cause by the Company
or termination by Executive for Good Reason (such period, as applicable, the
"Restriction Period"), in either case directly or indirectly, solicit or permit
any business of which he is an owner, partner, shareholder or executive to
solicit any employee of the Company or any of its affiliates to leave its employ
or join the employ of another, then or at a later time.
(b) The Executive shall not, at any time during the period of his
employment by the Company or during the Restriction Period, in either case
directly or indirectly, engage in or be interested (as owner, member, partner,
shareholder, employee, director, officer, manager, agent, consultant or
otherwise) in any firm or Company which engages in any business which competes,
directly or indirectly, with the business of the Company; provided that the
ownership of two percent or less of a publicly-traded class of securities shall
not be deemed a violation of the foregoing covenant.
(c) The Executive shall not, directly or indirectly, either
during the term of this Agreement or thereafter, disclose to any person, firm or
Company or use (except in the regular course of the Company's business) any
confidential information of any type that he shall have acquired as a result of
his employment with the Company, unless such information has been first
published voluntarily and intentionally by the Company, or unless such
disclosure is required by law. Promptly after termination of his employment
hereunder, the Executive will surrender to the Company any and all lists,
manuals, books and records of or relating to the business of the Company, all
copies of the former, whether in use or not, and all other property belonging to
the Company.
(d) The Executive agrees to make prompt and complete disclosure
of every invention (whether or not patentable), process, product, apparatus,
plan, system or improvement which he conceives or makes, and any patent
application which he files, during the period of his employment by the Company
or during the Restriction Period, which pertain to the Company's present or then
contemplated field of business. The Executive further agrees that every said
invention, process, product, apparatus, plan, system, improvement and filing
which relates to the Company's present or then contemplated field of business
shall be the sole and exclusive property of the Company but without expense to
himself, he will execute any and all proper applications for patents, copyrights
and trademarks, assignments and other instruments which the Company shall deem
necessary or convenient to perfect its title in said property or to otherwise
protect its interest therein in the United States or foreign countries, and
render aid and assistance to the Company in any litigation or other proceeding
pertaining to said property.
6
<PAGE> 7
(e) The provisions contained in this Section 5 as to the time
periods, scope of activities, persons or entities affected, and territories
restricted shall be deemed divisible so that, if any provision contained in this
Section is determined to be invalid or unenforceable, such provisions shall be
deemed modified so as to be valid and enforceable to the full extent lawfully
permitted.
(f) The Executive acknowledges that the provisions of this
Section 5 are reasonable and necessary for the protection of the Company and
that the Company will be irrevocably damaged if such covenants are not
specifically enforced. Accordingly, the Executive agrees that the Company will
be entitled to injunctive relief for the purpose of restraining the Executive
from violating such covenants in addition to any other relief to which the
Company may be entitled under this Agreement.
6. Representations and Warranties of Executive. Executive represents
and warrants to the Company that (a) Executive is under no contractual or other
restriction or obligation which is inconsistent with the execution, delivery and
performance under this Agreement or the other rights of the Company hereunder,
and (b) Executive is under no physical or mental disability that would hinder
his performance of duties under this Agreement.
7. Miscellaneous.
(a) This Agreement shall be governed by and be construed in
accordance with the law of the State of Delaware applicable to contracts made
and to be performed in that state.
(b) The Executive may not assign his rights or obligations under
this Agreement, or a participation in such rights and obligations, to any
person.
(c) All notices and other communications under this Agreement
shall be in writing and shall be considered given only when delivered personally
against written receipt therefor, mailed by registered mail (return receipt
requested), or sent by expedited or overnight delivery service with return
receipt, or sent by telecopier with confirmed receipt, to the party to receive
notice at the addresses first set forth above, or such other address as either
party may, upon ten (10) days' written notice, direct.
(d) Each of the parties hereto shall hereafter, at the request of
either party hereto, execute and deliver such further documents and agreements,
and do such further acts and things as may be necessary or expedient to carry
out the provisions of this Agreement.
(e) The failure of a party to insist upon strict adherence to any
term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
(f) This Agreement constitutes a complete statement of all of the
arrangements between the parties as of the date hereof with respect to the
matters contemplated hereby, supersedes all prior agreements and understandings
between them, and cannot be changed or terminated orally.
7
<PAGE> 8
(g) The headings in this Agreement are intended solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
(h) This Agreement shall inure to the benefit of, and be binding
upon, the heirs and personal representatives of the Executive and any successor
to the Company including, but not limited to, any successor by merger or
consolidation to the Company's business and assets.
IN WITNESS WHEREOF, the undersigned have set their hands hereto as
of the date first above written.
JENNA LANE, INC.
By: /s/ Mitchell Dobies
------------------------------------------
Mitchell Dobies, President
/s/ Charles Sobel
---------------------------------------------
CHARLES SOBEL
8
<PAGE> 1
Exhibit 10.7
FACTORING AGREEMENT
(DAILY BALANCES)
Republic Factors Corp.
452 Fifth Avenue
New York, New York 10016
Re: Jenna Lane, Inc.
1407 Broadway
New York, New York 10018
Gentlemen:
We hereby request that you act as our sole factor, effective as of the
date of your acceptance hereof, upon the terms and conditions set forth below:
1. A. We agree that we will do all of our business through you as our
sole factor and hereby assign and sell to you as absolute owner all Receivables.
As used herein, the term "Receivables" shall mean and include all accounts, and
all other obligations of customers of ours arising out of the sale and delivery
of goods by us or the rendition of services by us, whether now existing or
hereafter created. We represent and warrant that each and every Receivable now
or hereafter assigned to you will be a bona fide and existing obligation of a
customer of ours, owned by and owing to us, arising out of the sale and delivery
of goods by us or the rendition by us of services as aforesaid, free and clear
of any and all deductions, Disputes (as defined in paragraph 8. below), liens,
security interests and encumbrances.
B. You agree to (i) purchase and hereby do purchase, without
recourse to us except as set forth hereinafter, all Receivables approved by you
in accordance with paragraph 2. below and which are promptly assigned to you,
and (ii) assume the risk of non-payment on such Receivables, which nonpayment is
due solely to the financial inability of our customer, whose credit standing you
will have approved in advance in accordance with paragraph 2. below, to make
payment in accordance with the terms of the invoice provided the customer has,
prior to the expiration of the payment terms of the invoice, and thereafter
received and finally accepted the merchandise or services giving rise to such
Receivables without any Dispute.
C. Receivables not covered by the provisions of paragraph 1.B.
above, in whole or in part, shall be assigned to, and purchased by you with full
recourse to us in the event of non-payment thereof or in the
<PAGE> 2
event of a Dispute.
D. In addition, we hereby sell, assign and transfer to you all of
our right, title and interest in and to the merchandise the sale of which
resulted in creation of Receivables and in all such merchandise that may be
returned by customers and all causes of action and rights in connection
therewith which we now have or may hereafter acquire including _________________
of reclamation, replevin and stoppage in transit and as an unpaid vendor of
merchandise or services as a lienor. We hereby agree upon your instruction to
promptly take any and all action necessary for you to enforce your rights of
reclamation, replevin and stoppage in transit and in the event of our failure to
do so, you shall be authorized to exercise any such right in our name or in any
manner you deem appropriate. Any merchandise so recovered shall be treated as
returned merchandise, and shall be set aside, marked with your name and held for
your account. We shall notify you promptly of all such returned merchandise.
2. No purchase of any Receivable by you shall be deemed to be made
pursuant to paragraph 1.B. above unless the sale of merchandise or rendition of
services by us resulting in such Receivable shall have been made with your prior
written approval of the amount and terms of such sale or rendition of services
and the credit standing of our customer, and you shall have the right to
withdraw such approval at any time before actual delivery of such merchandise or
rendition of such services. Each credit approval shall be automatically
withdrawn in the event the terms of sale are changed or in the event the
shipment of goods or rendition of services shall not be made or performed within
thirty (30) days from the completion date specified in the credit approval or
within thirty (30) days from the date of the credit approval, if no completion
date is specified. When a credit approval specifies special terms and
conditions, the credit approval shall be deemed automatically withdrawn when
such special terms and conditions are not complied with. You shall not be
liable in any manner or respect for refusing to accept or approve any Receivable
or the credit standing of any customer of ours or for withdrawing any approval
as provided in the preceding sentence.
3. On the face of all bills and invoices for all Receivables assigned
to and purchased by you hereunder shall be placed the following legend: "This
Receivable is assigned to, owned by and payable only to: REPUBLIC FACTORS CORP.
at P.O. BOX 7777, W8720, PHILADELPHIA, PA. 19175 OR DEPT. 49941, LOS ANGELES,
CA. 90088, whichever is nearer. Any objection to this invoice must be reported
to Republic Factors Corp. at 452 Fifth Avenue, New York, N.Y. 10018.
4. A. The "Purchase Price of Receivables" shall be the net amount of
Receivables less the amount of your commission described in paragraph 6. below.
As used herein "net amount" of Receivables shall mean the gross amount of said
Receivables less returns, discounts (based upon shortest or longest payment
terms, as you may elect), credits or allowances of any nature at any time
issued, owing, claimed by customers, granted or outstanding. Trade and cash
discounts shall
-2-
<PAGE> 3
be considered applicable to postage, freight and incidental charges, as well as
to the price of the goods.
B. Discounts to customers, at your option, may be calculated on any
of the stated terms. The Purchase Price of Receivables shall be payable to us on
the Collection Date. For the purpose hereof, the term "Collection Date" shall
mean the earlier of (a) 5 business days after receipt by you of payment of the
Receivables or (b) 150 days after the due date of the Receivable in question,
provided that no Dispute has been raised with respect to such Receivable, and
provided that such Receivable has been credit approved by you, ("Deems Paid
Provision"). Moreover, Receivables created under paragraph 1.C. shall not be
subject to the Deems Paid Provision.
C. You may, in your sole discretion, make advances to us from time
to time at our request. In your sole discretion you shall withhold a reserve
against the Purchase Price of Receivables, and you may revise such reserve from
time to time, as a protection to you against all possible returns, claims,
allowances, expenses, indebtedness owing by us to you or any other
contingencies.
D. As security for any and all "Obligations" (as defined below), you
shall be entitled to hold and we hereby grant to you a continuing general lien
upon, security interest in and to, and right of set off on or against any of the
following (collectively, the "Collateral"): All Receivables whether or not
specifically assigned to you and all of our reserves and all of our present and
future instruments, documents, contract rights, notes, bills, chattel paper, all
other forms of obligations owing to us, all general intangibles (including
without limitation all tax refunds, proceeds of insurance, bank and other
deposit accounts, trade names, trademarks, trade secrets, customer lists, and
all other licenses, rights, privileges and franchises), all balances, sums and
other property at any time to our credit or in your possession or in the
possession of any of your Affiliates (as defined in paragraph 11. below),
together with all merchandise the sale of which resulted in the creation of
Receivables and in all such merchandise that may be returned by customers and
all books and records relating to any of the foregoing. We represent and
warrant to you that we now have, and shall at all times continue to have, good
and marketable title to all of the Collateral, free and clear of any and all
liens, security interests and encumbrances. As used herein, the term
"Obligations" means and includes all loans, advances, indebtedness,
liabilities, debit balances, covenants and duties and all other obligations of
whatever kind or nature at any time or from time to time owing by us to you or
any of your Affiliates, whether fixed or contingent, no matter how or when
arising and whether under this or any other agreement or otherwise and including
all obligations for purchases made by us from any other concern factored by you,
together with any applicable late payment interest due with respect to such
purchases. You shall have the right and are hereby irrevocably authorized to
charge to our account the amounts of any and all Obligations and, upon the
demand of any of your Affiliates or clients, to pay over to such Affiliate or
clients any amounts owing to them by us.
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We shall execute and deliver to you all financing statements and other documents
and instruments that you may request to perfect, protect or establish your
security interest hereunder and we authorize you to execute and file any
financing statements covering such security interest without our signature or,
if you so elect, signed in our name by you, and you are hereby irrevocably
appointed our attorney-in-fact to do so. You shall be intitled ____________
our account with all costs and expenses incurred by you in connection
with the preparation, execution, administration and enforcement of this
Agreement, or to enforce any of the Obligations, or in the prosecution or
defense of any action, involving you or us, concerning any matter growing out of
or in any manner relating to this Agreement, the Receivables or other Collateral
or any Obligation whatsoever including, without limitation, all reasonable fees
and expenses of your attorneys, and all fees and costs in connection with public
record searches and filings, accounting fees, investigation fees, periodic field
examination fees and expenses and all other costs and expenses with respect
thereto, whether or not a legal action is commenced by or against us, and if
such action is commenced, whether or not judgment is obtained. Moreover, you
shall similarly be entitled to such attorneys' fees in the event of any state
court insolvency proceeding or federal bankruptcy proceeding. Recourse to
security or any Collateral shall not at any time be required and we shall at all
times remain liable for the repayment on demand to you of all loans and advances
to or for our account and of all other Obligations at any time or from time to
time owing to you or any of your Affiliates.
5. A. i) Interest on all sums advanced and charged to us or to or for
our account shall be calculated on the daily balance of all monies remitted,
paid or otherwise advanced to us by you or for our account including all fees
and commissions net of all payments received by you from us including the
Purchase Price of Receivables purchased by you hereunder and which is credited
to our account on the Collection Date.
ii) In the event any sums are paid or credited to us by you in
error, then, without limiting the generality of the foregoing, you may in your
discretion deduct said sum from the funds payable to us on the next Collection
Date. Any such sums paid or credited to us in error shall bear interest, from
the date the sum was paid or credited to us to the date correction is made on
your records, at the interest rate set forth in Section 5.B. below. In the event
you do not credit our account with a payment on a Receivable which you receive
whether by error, or because it was a payment for less than a full invoice
amount (which payments are not credited until the full invoice amount is paid),
or because the payment was unidentified, then the payment received by you shall
bear interest, at the rate set forth in Section 5.B. below, from the date of
deposit to the date the adjustment is made to our account. For purposes of
computing the Collection Date for such payments, the payment shall be deemed
received by you on the date such adjustment is made, and the Purchase Price for
the Receivable shall be remitted to us on the following Collection Date.
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B. All interest charges to our account shall be at one and one-half
percent (1 1/2%) above the reference rate of Republic National Bank of New
York ("Republic Reference Rate"), computed on the basis of a 360-day year for
the actual number of days elapsed and charged to our account at the end of each
month. The term "Republic Reference Rate" shall mean the lending rate announced
by Republic National Bank of New York from time to time as its reference rate.
The interest rate in effect during each calendar month shall be based on the
Republic Reference Rate in effect on the last business day of the preceding
calendar month.
C. You will send us a monthly statement of account after the end of
each month. Unless you receive our written exceptions to any monthly accounting
rendered by you within thirty (30) days after such accounting is rendered, such
monthly accounting shall constitute an account stated and be deemed accepted by
us and shall be conclusive and binding upon us.
D. If funds remain with you past the Collection Date which creates a
balance in our favor in our account with you ("Matured Funds"), you shall pay us
interest on such Matured Funds at a rate per annum equal to 3% below the
Republic Reference Rate.
E. We may from time to time give you oral, telephonic and/or written
instructions to disburse monies out of our factoring account; such requests may
be made by any of our officers, employees or agents and you shall have no
obligation to verify that any such request is authorized or proper.
6. A. As compensation for your services as factor hereunder, we agree
to pay to you a factoring commission equal to (.75%) of the gross amount of each
bill or invoice, whether or not specifically assigned to you. Your factoring
commission as so calculated shall be charged to our account as of the fifteenth
(15th) day of the month in which the Receivable was created and shall be
deducted from the Purchase Price payable on such Collection Date in the
following month as you shall select. If sufficient funds are not available on a
Collection Date to pay the commissions for the prior month in full, then the
unpaid balance will be deducted from the Purchase Price payable on such
subsequent Collection Date(s) as you shall select.
B. Commissions payable to you hereunder are based upon our usual and
regular terms which do not exceed sixty (60) days. On all Receivables on which
additional terms or dating are granted, your commissions thereon shall be
increased at the rate of one-quarter of one percent of the gross amount of the
invoice for each additional thirty (30) days or fraction thereof by which our
regular terms are extended. No such increase in terms or dating, however, shall
be granted without your prior written approval. A minimum factoring commission
on each invoice shall be $5.00. Each month you shall charge our account with the
greater of (i) $2,500, or (ii) the amount of the factoring commission at the
rate provided for herein based upon the actual aggregate gross amount of all
bills or invoices factored by you in each such month. We will issue credits only
with your
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prior written approval and only the customer may claim allowances, discounts and
credits. All credits for full invoice amounts shall be assigned by us to you.
C. We may from time to time request that you credit approve sales
made by us to Debtors-in-Possession operating under Chapter 11 of the Bankruptcy
Code ("DIP Sales"). On all such DIP Sales ___________ by you, you shall be
entitled to a factoring commission, in addition to the regular factoring
commission charged by you, in an amount to be determined by you from time to
time.
7. We will provide you with an assignment and schedule of Receivables
sold and assigned to you in form satisfactory to you. All invoices shall be
mailed by us to our customers at our sole expense. We will give you copies of
all invoices, together with such proof of shipment or delivery as you may from
time to time require. The issuance of or any billing by us of such invoices,
shall constitute an assignment thereof to you for the Receivables represented
thereby, whether or not we execute any other specific instrument of assignment.
Notwithstanding the foregoing, you shall no longer assume the credit risk as
provided in paragraph 1.B. above if we do not supply you with a schedule and
assignment of Receivables within ten (10) days of the creation of the
Receivables involved and the risk of loss with respect to such Receivables shall
immediately revert to and be assumed by us without any act on your part to
effect the same.
8. We hereby further warrant to you that the customer in each instance
has received and will accept the merchandise sold or the services rendered and
the invoice therefor, and will pay the same as and when due without any Dispute.
As used herein, the term "Dispute" shall mean and include any dispute, claim,
offset, defense or counterclaim, regardless of whether the same is in an amount
greater than, equal to or less than the Receivables concerned. whether bona fide
or not, and regardless of whether the same, in part or in whole, relates to
unpaid Receivables or other Receivables, and whether or not such Dispute arises
by reason of an Act of God, civil strife, war, currency restrictions, foreign
political restrictions or regulations, or the like. We will notify you promptly
of, and, at our own cost and expense, including attorneys' fees, shall settle
all Disputes and will pay you promptly the amount of the Receivables affected
thereby. Any Dispute not settled by us by the sixtieth (60th) day next following
the maturity of the invoice affected thereby may, if you so elect, be settled,
compromised, adjusted or litigated by you directly with the customer or other
complainant for our account and risk and upon such terms and conditions as you
in your sole discretion deem advisable. You may also in your discretion take
possession of and sell or cause the sale of any returned or recovered
merchandise, at such prices, upon such terms and to such purchasers as you deem
proper (including, in the event of any public sale, yourself) and in any event
to charge the deficiency costs and expenses thereof, including attorneys' fees,
to us. In addition to all other rights to which you are entitled hereunder,
whenever there is any Dispute, or if any unapproved Receivable is unpaid at its
maturity, you may reduce the amount of our Receivables balance (and
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charge our loan account if you have previously paid us the purchase price) by
the amount of the Receivable so affected or unpaid (as well as all other
Receivables due and owing from that customer) at any time (a "Chargeback"). Such
Chargeback shall not be deemed nor shall it constitute a reassignment to us of
the Receivable affected thereby, and title hereto and to the merchandise
represented thereby shall remain in you until you are fully reimbursed.
Regardless of the date or dates upon which you charge back the amount of any
Receivable with respect to which there is any Dispute, or the amount owing from
a customer which has raised any Dispute, we agree that immediately upon the
occurrence of any such Dispute, any obligation you may otherwise have had
hereunder to bear the risk of loss with respect to such Receivable shall cease
and such obligation shall immediately revert to and be assumed by us without any
act upon your part to effect the same.
9. A. If any remittances are made directly to us, we shall hold the
same in trust for you as your property and immediately deliver to you the
identical checks, monies or other forms of payment received, and you shall have
the right to endorse our name on any and all checks or other forms of
remittances received if such endorsement is necessary to effect collection. We
agree that we will hold at our offices and be fully responsible to you for any
and all shipping receipts evidencing delivery of goods regarding Receivables
factored by you. Such shipping evidences held by us shall be available for your
inspection and for delivery to you at your request at any time. B. We further
agree to make our records, files and books of account, including, but not
limited to, any and all invoices, shipping or transport documents, ledgers,
journals, checkbooks, correspondence, memoranda, copies of correspondence and
memoranda, microfilm, microfiche, computer programs and records, source
materials, tapes and discs (collectively "Documents"), available to you on
request and that you may visit our premises during normal business hours to
examine such Documents and to make copies or extracts thereof and to conduct
such examinations as you deem necessary. You shall be entitled to charge our
account a fee of $500.00 for each day or part thereof in which the examination
is conducted, plus out-of-pocket expenses you incur as a result of conducting
such examinations.
C. You shall charge our factoring account $15.00 in connection with
each disbursement of monies from our factoring account, whether made by check,
electronically, or otherwise.
D. We shall be entitled to receive, at no cost to us, one (1) Client
Detail Aged Trail Balance for each month. For each additional Client Detail Aged
Trial Balance requested by us in that month, you shall charge our account for
$100.00, for each such additional report.
E. If you, at our request and on our behalf, in your sole
discretion, file a proof of claim in any insolvency proceeding with respect to a
Receivable which is not at your credit risk (a "DR Claim") or forward such a DR
Claim to a collection agency or attorney for collection,
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you shall charge our account with an amount equal to ten (10%) percent of the DR
Claim at the time such DR Claim is filed or forwarded and any other expenses or
charges incurred by you thereafter shall be charged to our account.
F. You may modify the charges set forth in Sections 9, B, C, D, and
E above, from time to time, on not less than thirty (30) days prior written
notice to us.
10. Any state, city, local or federal sales or excise taxes on sales of
Receivables hereunder and any payroll taxes, state disability premiums, premiums
for workman's compensation insurance and unemployment taxes shall be timely paid
by us, but if you should make any payment of any thereof, we will repay the same
to you upon demand.
11. As used herein, an "Affiliate" shall mean and include any person,
firm or corporation controlling, controlled by or in common control with you
and/or any subsidiary or parent corporation of yours.
12. We hereby warrant our solvency (which warranty shall be continuing
throughout the term of this Agreement), and hereby agree that we are not
entitled to and shall not pledge your credit for any purpose whatsoever. This
Agreement is the complete agreement between the parties hereto and is entered
into for the benefit of said parties, their successors and assigns, and cannot
be changed, modified or terminated orally except that we shall not assign or
hypothecate our rights under this Agreement to any other person, firm,
corporation or entity without your prior written consent. No delay or failure on
your part in exercising any right, privilege or option hereunder shall operate
as a waiver of such or of any other right, privilege or option, and no waiver
whatever shall be valid unless in writing signed by you and then only to the
extent a waiver is therein set forth. This Agreement is made in the State of New
York and shall be governed by and construed in accordance with the laws of said
State.
13. A. This Agreement shall continue in full force and effect for a
period of two years from the effective date hereof and every two years
thereafter unless terminated by you or unless we notify you of our desire to
terminate this Agreement effective at the end of each such two year period by
giving you at least sixty (60) days prior written notice. You shall have the
right to terminate this Agreement at any time upon sixty days' prior written
notice. Termination shall be effective by the mailing by certified mail, return
receipt requested of a letter of notice addressed by either of us to the other
specifying the date of termination. Notwithstanding the foregoing, you may
terminate this Agreement without notice upon the occurrence of any Event of
Default. On termination for any reason, all Obligations shall, unless and to the
extent that you otherwise elect, become immediately due and payable without
notice or demand. Any of the following events shall constitute "Events of
Default" hereunder: we fail to pay or perform any Obligation owing to you or any
of your Affiliates when due or commit any breach of or default in the
performance of any agreement contained herein or in any
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instrument or document delivered pursuant hereto or in any other agreement,
instrument or document under which we are obligated to you or any of your
Affiliates; we as principal, guarantor, surety or other party liable upon any
Obligation make any false or untrue representation to you or any of your
Affiliates in connection with this Agreement or any transaction relating hereto
or in connection with any Obligation; any partner (if we are a partnership)
shall die or otherwise withdraw from the partnership; any guarantor, surety or
other party liable upon any Obligation shall die; we (if a corporation) shall be
dissolved or become a party to any merger or consolidation without your prior
written consent; if we are a corporation, the persons who are in control of us
shall change, or we become insolvent or unable to meet our debts as they mature,
or we file or have filed against us a petition under the Bankruptcy Code or
otherwise seek a rearrangement or restructuring of our indebtedness.
B. Notwithstanding any termination hereof, this Agreement shall
nevertheless continue in full force and effect as to, and be binding upon us,
after any termination, until we have fully paid, performed and satisfied all of
the Obligations, no matter how or when arising and whether under this or any
other agreement.
14. Upon the occurrence of any Event of Default, you shall have all of
the rights and remedies of a secured party under the Uniform Commercial Code and
other applicable laws with respect to all Collateral, such rights and remedies
being in addition to all of your other rights and remedies provided for herein,
and further, you may, at any time or times, after the occurrence of any such
Event of Default, sell and deliver any and all other Collateral held by you or
for you at public or private sale, in one or more sales or parcels, at such
prices and upon such terms as you may deem best, and for cash or on credit or
for future delivery, without your assumption of any credit risk, and at public
or private sales, as you may deem appropriate. If reasonable notice of the time
and place of such sale is required under applicable law, such requirement shall
be met if any such notice is mailed, postage prepaid, to our address shown on
the cover page hereof, or the last shown address in your records, at least five
(5) days before the time of the sale or disposition thereof. You may be the
purchaser at any sale, if it is public, free from any right of redemption, which
we also hereby expressly waive. The proceeds of sale shall be applied first to
all costs and expenses of sale, including attorneys' fees and disbursements, and
then to the payment (in such order as you may elect) of all Obligations. You
will return any excess to us and we shall remain liable to you for any
deficiency. Your rights and remedies under this Agreement will be cumulative and
not exclusive of any other rights or remedies which you may otherwise have.
15. We agree to furnish you with balance sheets, statements of profit
and loss, financial statements and such other information regarding our business
affairs and financial conditions as you may from time to time require, and in
any event, a statement of our financial position for each fiscal year prepared
and certified by our regularly engaged Certified Public
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Accountant. All such statements Shall fairly present our financial condition as
of the dates, and the results of our operations for the periods, for which the
same are furnished.
16. A. This Agreement is made in the State of New York and shall be
governed by and construed in accordance with the laws of said State, without
regard to conflict of laws principles.
B. WE AGREE THAT ANY, DISPUTE, CLAIM OR CONTROVERSY BETWEEN YOU AND
US, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ("CLAIM" OR "CLAIMS") SHALL,
AT YOUR ELECTION, BE RESOLVED BY ARBITRATION IN ACCORDANCE WITH THE PROVISIONS
OF THIS PARAGRAPH. Such election may be made at any time prior to the
commencement of a judicial proceeding by you, or in the event of a judicial
proceeding instituted by us at any time prior to the last day to answer and/or
respond to a summons and/or complaint made by us (or within thirty (30) days
after the rendition of an order on any motion by you based upon the statute of
limitations). The provisions of this paragraph apply to and include all claims
arising out of or in connection with i) this Agreement or any related agreements
or instruments, ii) all past, present and future agreements involving you or us,
iii) any transaction related to this Agreement and all past, present and future
transactions involving you and us, and iv) any aspect of the past, present or
future relationship between you or us. You may elect to require arbitration of
any Claim with us without thereby being required to arbitrate all Claims between
you and us. Any such Claim shall be resolved by binding arbitration in
accordance with the Arbitration Law of the State of New York and the Commercial
Arbitration Rules of the American Arbitration Association ("AAA"). In the event
of any inconsistency between such Rules and these arbitration provisions, these
provisions shall supersede such Rules. All statutes of limitations which would
otherwise be applicable shall apply to any arbitration proceeding under this
paragraph. In any arbitration proceeding subject to this paragraph, the
arbitrator is specifically empowered to decide (by documents only, or with a
hearing, at the arbitrator's sole discretion) pre-hearing motions which are
substantially similar to pre-hearing motions for summary adjudication. In any
such arbitration proceeding, the arbitrator shall not have the power or
authority to award punitive damages to any party nor shall the arbitrator have
the power or authority to alter or modify any express provision of this
Agreement or any other agreement heretofore or hereafter entered into between
us, all of which agreements are hereby incorporated in this arbitration
provision. Judgment upon the arbitration award rendered may be entered in any
court having jurisdiction. Whenever an arbitration is required, the party shall
select an arbitrator in the manner provided in this paragraph. No provision of,
nor the exercise of any rights under this paragraph shall limit your rights i)
to foreclose against collateral pursuant to applicable provisions of the Uniform
Commercial Code or otherwise herein pursuant to applicable law, ii) to exercise
self-help remedies including, but not limited to, set off and repossession or
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iii) to request and obtain from a court having jurisdiction before, during or
after the pendency of any arbitration, provisional or ancillary remedies and
relief including, but not limited to, injunctive or mandatory relief. The
institution and maintenance of an action or judicial proceeding for, or pursuit
of, provisional or ancillary remedies or exercise of self-help remedies shall
not constitute a waiver by you, even if you are a plaintiff to submit the Claim
to arbitration if you would otherwise have such right. Whenever an arbitration
is required under this paragraph, the arbitrator shall be selected, except as
otherwise herein provided, in accordance with the Commercial Arbitration Rules
of the AAA. A single arbitrator shall decide any Claim of $100,000.00 or less
and he or she shall be a Certified Public Accountant with at least five years
experience. Where a Claim of any party exceeds $100,000.00, the Claim shall be
decided by a majority of three arbitrators, at least two of whom shall be
Certified Public Accountants (at least one of whom shall have not less than five
years experience). The arbitrator shall have the power to award recovery of all
costs and fees (including attorney's fees, administrative fees, arbitrator's
fees and, if applicable, court costs) to the prevailing party. In the event of
any Claim governed by this paragraph, each of the parties shall, subject to the
award of the arbitrator, pay an equal share of the arbitrator's fees.
C. We agree that any claim or cause of action by us against you, or
any of your directors, officers, employees, agents, accountants or attorneys,
based on, arising from or relating in any way to this Agreement, or any
supplement or amendment hereto, or any other present or future agreement between
us, or any other transaction contemplated hereby or thereby or relating hereto
or thereto, or any other matter whatsoever shall be barred unless asserted by us
by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within one year after the first act,
occurrence or omission upon which such Claim or cause of action, or any part
thereof, is based, and the service of a summons and complaint upon one of your
officers, within thirty (30) days thereafter. We agree that said one year period
is a reasonable and sufficient time for us to investigate and act upon such
Claim or cause of action. Said one year period shall not be waived, tolled or
extended except by specific written consent by you.
D. In performing your obligations under this Agreement, you shall
be liable to us for only your gross negligence or willful misconduct. No person
or entity shall be a third party beneficiary of any of our rights or claims
under this Agreement and in particular, but not by way of limitation, you shall
not be liable to any third party or for any act or omission by you or any third
party including, without limitation, the inability or failure of any third party
to effect a transfer in accordance with our instructions due to mechanical,
computer or electrical failures or for any other reasons beyond your control.
You shall have no obligation to pursue, or assist us in pursuing, any claim we
may have against any third party. In no event, shall you be liable for special,
punitive, indirect or consequential damages, nor shall any action or inaction on
your
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part, constitute a waiver by you or any cause of action or defense.
E. You and we each here waive the right to trial by jury in any
action based upon, arising from, or in any way relating to: (i) this Agreement,
or any supplement hereto; or (ii) any other present or future instrument or
agreement between you and us; or (iii) any conduct, acts or omissions by you or
us or any of your respective directors, officers, employees, agents,
attorneys or any other persons affiliated with you or us; in each of the
foregoing cases, whether sounding in contract or tort or otherwise. As a
material part off the consideration to you to enter into this Agreement, we (1)
agree that, at your option, all actions and proceedings based upon, arising out
of or relating in any way directly or indirectly to this Agreement shall be
litigated exclusively in the Supreme Court of the State of New York located
within New York County, New York, (2) consent to the jurisdiction of such court
and consent to the service of process in any such action or proceeding by
personal delivery, first-class mail, or any other method permitted by law, and
(3) waive any and all rights to transfer or change the venue of any such action
or proceeding to any court located outside New York County, New York.
F. This Agreement and the other written documents previously or now
executed in connection herewith are the entire and only agreements between us
with respect to the subject matter hereof, and all oral representations,
agreements and undertakings, previously or contemporaneously made, which are not
set forth herein or therein, are superseded hereby and thereby. The provisions
of this paragraph shall survive any termination of this Agreement.
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Very truly yours,
JENNA LANE, INC.
By:
-------------------------------
Title: President
----------------------------
ATTEST:
/s/ Ed Bryant Treasury Secretary
- ----------------------------------
[SEAL]
ACCEPTED AT NEW YORK,
NEW YORK
ON March 17, 1995
--------------
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
-------------------------------
Title: Vice President
----------------------------
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[REPUBLIC FACTORS LETTERHEAD]
June 14, 1996
Jenna Lane, Inc.
1407 Broadway
New York, New York 10018
Gentlemen:
Reference is made to your Factoring Agreement dated March 17, 1995 as amended
(the "Agreement"). You have requested and we hereby agree, subject to your
acceptance below to amend the Agreement as follows:
1. Section 9.C is eliminated in its entirety.
2. Section 6.B is hereby amended by eliminating in its entirety the fourth
sentence of said Section.
3. Section 6.C is amended in its entirety and replaced with the following:
"We may from time to time request that you credit approve sales made by
us to Debtors-in-Possession operating under Chapter 11 of the
Bankruptcy Code ("DIP Sales"). We agree that any such credit approval
by you of DIP Sales shall be subject to a supplemental factoring
commission of 1% in addition to the regular factoring commission
charged by you. Notwithstanding the foregoing, credit approvals by you
of DIP Sales to Perrie Stores Inc. shall be subject to a supplemental
factoring commission of 2% in addition to the regular factoring
commission charged by you.
Except as modified herein all terms and conditions of the Agreement shall remain
in full force and effect.
Please indicate your acceptance by your signature below.
Very truly yours,
/s/ Jeffrey Kremberg
Jeffrey Kremberg
Vice President
ACCEPTED & AGREED
Jenna Lane, Inc.
By:
--------------------------------
<PAGE> 15
[REPUBLIC FACTORS LETTERHEAD]
April 15, 1996
Jenna Lane, Inc.
1407 Broadway
New York, NY 10018
RE: KMART CORPORATION ("KMART")
Gentlemen:
This will confirm that notwithstanding anything to the contrary contained in our
Factoring Agreement, any Receivables assigned to us by you from Kmart for which
we have assumed the credit risk with approvals commencing on April 15, 1996,
including but not limited to the attached listing of invoices ("Kmart
Receivables"), are subject to the following additional terms and conditions,
which by your signature below you agree shall apply to all Kmart Receivables:
1. Republic Factors Corp.'s ("RFC") obligations with respect to the risk
of nonpayment of a Kmart Receivable due solely to the financial
inability of Kmart to make a payment on the due date of the Kmart
Receivable shall be limited to 75% of the net amount of any such Kmart
Receivable for all approvals given by RFC from 11/28/95 to 1/31/96 and
limited to 70% from 2/1/96 to 2/14/96 and limited to 60% from 2/15/96
to 3/15/96 and 70% of such net amount for all approvals given on or
after the date hereof (the "Agreed Portion") and the remaining portion
of such Kmart Receivable shall be treated as not approved by RFC and
RFC shall purchase the remaining portion of such Kmart Receivable with
full recourse to you. Each credit approval shall be automatically
withdrawn in the event the terms of sale are changed without RFC's
written approval or in the event the shipment of goods or rendition of
services shall not be made or performed within fifteen (15) days from
the completion date specified in the credit approval or within fifteen
(15) days from be date of the credit approval, if no completion date is
specified. RFD may in its sole discretion hold as a reserve the full
amount of such remaining unapproved portion.
2. Any and all _______________ in connection with or related to any Kmart
________________ claim related thereto) shall be retained by and be for
the account of RFC, except if and to the extent RFC has recovered in
full the Agreed Portion of any Kmart Receivable plus any and all
expenses incurred by RFC in connection with obtaining such Agreed
Portion, including legal fees and expenses, any additional amounts net
of any such additional expenses ("Net Additional Amounts") actually
received by RFC shall be paid over to you promptly after RFC's receipt
thereof.
3. Nothing contained herein, in our Factoring Agreement or otherwise,
shall create any principal or agency relationship between you and RFC,
or create any fiduciary relationship on the part of RFC
<PAGE> 16
refrain from taking any legal or other action with respect to any Kmart
Receivable. RFC's present intention with respect to any "claim" in
respect of Kmart Receivables, within the meaning of Section 101(5) of
the United States Bankruptcy Code, should Kmart become a debtor under
the United States Bankruptcy Code, is to sell such claim (although RFC
shall be under no duty to do so), at such time or times as RFC in its
sole discretion deems appropriate, whether or not such sale is, or is
later determined not to have been, in your best interest, and in no
event and under no circumstance shall RFC be liable to you for any
amounts in excess of the Agreed Portion of any Kmart Receivable, unless
and then only to the extent Net Additional Amounts are actually
received by RFC with respect to such Kmart Receivable.
4. Notwithstanding the foregoing, RFC agrees that (i) you may at any time
after the due date of any Kmart Receivable, upon two business days
prior written notice to RFC, purchase all, but not less than all, of
the then outstanding Kmart Receivables from us for cash in an amount
equal to the Agreed Portion of Kmart Receivables; and (ii) if, at any
time, RFC proposes to sell a claim with respect to a Kmart Receivable,
it (a) only will sell such claim to an unrelated third party for cash,
and (b) before effecting such sale, will offer to sell such claim to
you on the same terms and conditions as such proposed sale (the "Third
Party Terms"). In the event you receive such an offer from RFC
pursuant to clause (b)of this paragraph 4, such offer is conditional
upon you irrevocably agreeing in writing, within the time period
specified by Republic Factors Corp. (which may be as little as 24
hours) to make such purchase on the Third Party Terms, but in no event
shall the purchase price to you be in excess of any amount, payable by
you in cash, equal to the Agreed Portion of such Kmart Receivable
proposed to be sold to such third party, provided that you are ready,
willing and able to effect such purchase within the time period
specified by RFC (which also may be within such 24 hour period).
This letter supersedes and replaces any prior written or oral agreements
regarding Kmart Receivables. Except as hereby modified and amended, all terms
and provisions of the Factoring Agreement shall remain in full force and effect.
Please indicate your acceptance to the foregoing by signing and returning the
enclosed copy of this letter.
Very truly yours,
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
-----------------------------
ACCEPTED AND AGREED
- --------------
By:
-----------------------------
<PAGE> 17
[Republic Factors Letterhead]
I
February 15, 1996
Jenna Lane, Inc.
400 Perrine Road
Old Bridge, NJ 08857
Re: Kmart Corporation ("Kmart")
Gentlemen:
This will confirm that notwithstanding anything to the contrary
contained in our Factoring Agreement, any Receivables assigned to us by you from
Kmart for which we have assumed the credit risk with approvals commencing on
2/14/96, including but not limited to the attached listing of invoices ("Kmart
Receivables"), are subject to the following additional terms and conditions,
which by your signature below you agree shall apply to all Kmart Receivables:
1. Republic Factors Corp.'s ("RFC") obligations with respect to the risk
of nonpayment of a Kmart Receivable due solely to the financial
inability of Kmart to make a payment on the due date of the Kmart
Receivable shall be limited to 60% of the net amount of any such Kmart
Receivable date hereof (the "Agreed Portion") except as to Kmart
receivables approved after 11/28/95 and prior to 2/14/96 the Agreed
Portion shall be 75% and the remaining portion of such Kmart Receivable
shall be treated as not approved by RFC and RFC shall purchase the
remaining portion of such Kmart Receivable with full recourse to you.
Each credit approval shall be automatically withdrawn in the event the
terms of sale are changed without RFC's written approval or in the
event the shipment of goods or rendition of services shall not be made
or performed within fifteen (15) days from the completion date
specified in the credit approval or within fifteen (15) days from the
date of the credit approval, if no completion date is specified. RFC
may in its sole discretion hold as a reserve the full amount of such
remaining unapproved portion.
2. Any and all recoveries received in connection with or related to any
Kmart Receivable (or any claim related thereto) shall be retained by
and be for the account of RFC, except if and to the extent RFC has
recovered in full the Agreed Portion of any Kmart Receivable plus any
and all expenses incurred by RFC in connection with obtaining such
Agreed Portion, including legal fees and expenses, any additional
amounts net of any such additional expenses ("Net Additional Amounts")
actually received by RFC shall be paid over to you promptly after RFC's
receipt thereof.
<PAGE> 18
Page 2
3. Nothing contained herein, in our Factoring Agreement or otherwise,
shall create any principal or agency relationship between you and RFC,
or create any fiduciary relationship on the part of RFC as to any Kmart
Receivable or otherwise, or imply or impose any duty upon RFC to take
or refrain from taking any legal or other action with respect to any
Kmart Receivable. RFC's present intention with respect to any "claim"
in respect of Kmart Receivables, within the meaning of Section 101(5)
of the United States Bankruptcy Code, should Kmart become a debtor
under the United States Bankruptcy Code, is to sell such claim
(although RFC shall be under no duty to do so), at such time or times
as RFC in its sole discretion deems appropriate, whether or not such
sale is, or is later determined not to have been, in your best
interest, and in no event and under no circumstance shall RFC be liable
to you for any amounts in excess of the Agreed Portion of any Kmart
Receivable, unless and then only to the extent Net Additional Amounts
are actually received by RFC with respect to such Kmart Receivable.
4. Notwithstanding the foregoing, RFC agrees that (i) you may at any time
after the due date of any Kmart Receivable, upon two business days
prior written notice to RFC, purchase all, but not less than all, of
the then outstanding Kmart Receivables from us for cash in an amount
equal to the Agreed Portion of Kmart Receivables; and (ii) if, at any
time, RFC proposes to sell a claim with respect to a Kmart Receivable,
it (a) only will sell such claim to an unrelated third party for cash,
and (b) before effecting such sale, will offer to sell such claim to
you on the same terms and conditions as such proposed sale (the "Third
Party Terms"). In the event you receive such an offer from RFC pursuant
to clause (b) of this paragraph 4, such offer is conditional upon you
irrevocably agreeing in writing, within the time period specified by
RFC (which may be as little as 24 hours) to make such purchase on the
Third Party Terms, but in no event shall the purchase price to you be
in excess of any amount, payable by you in cash, equal to the Agreed
Portion of such Kmart Receivable proposed to be sold to such third
party, provided that you are ready, willing and able to effect such
purchase within the time period specified by RFC (which also may be
within such 24 hour period).
<PAGE> 19
Page 3
This letter supersedes and replaces any prior written or oral
agreements regarding Kmart Receivables. Except as hereby modified and amended,
all terms and provisions of the Factoring Agreement shall remain in full force
and effect.
Please indicate your acceptance to the foregoing by signing and
returning the enclosed copy of this letter.
Very truly yours,
REPUBLIC FACTORS CORP.
By:_______________________
ACCEPTED AND AGREED
JENNA LANE, INC.
By:_______________________
<PAGE> 20
[Republic Factors Letterhead]
II
February 1, 1996
Jenna Lane, Inc.
4C)O Perrine Road
Old Bridge, NJ 08857
Re: Kmart Corporation ("Kmart")
Gentlemen:
This will confirm that notwithstanding anything to the contrary
contained in our Factoring Agreement, any Receivables assigned to us by you from
Kmart for which we have assumed the credit risk with approvals commencing on
11/28/95 including but not limited to the attached listing of invoices ("Kmart
Receivables"), are subject to the following additional terms and conditions,
which by your signature below you agree shall apply to all Kmart Receivables:
1. Republic Factors Corp.'s ("RFC") obligations with respect to the risk
of nonpayment of a Kmart Receivable due solely to the financial
inability of Kmart to make a payment on the due date of the Kmart
Receivable shall be limited to 75% of the net amount of any such Kmart
Receivable for all approvals given by RFC from 11/28/95 to the date
hereof and 70% of such net amount for all approvals given on and after
the date hereof (the "Agreed Portion") and the remaining portion of
such Kmart Receivable shall be treated as not approved by RFC and RFC
shall purchase the remaining portion of such Kmart Receivable with full
recourse to you. Each credit approval shall be automatically withdrawn
in the event the terms of sale are changed without RFC's written
approval or in the event the shipment of goods or rendition of services
shall not be made or performed within fifteen (15) days from the
completion date specified in the credit approval or within fifteen (15)
days from the date of the credit approval, if no completion date is
specified. RFC may in its sole discretion hold as a reserve the full
amount of such remaining unapproved portion.
2. Any and all recoveries received in connection with or related to any
Kmart Receivable (or any claim related thereto) shall be retained by
and be for the account of RFC, except if and to the extent RFC has
recovered in full the Agreed Portion of
<PAGE> 21
Page two
any Kmart Receivable plus any and all expenses incurred by RFC in
connection with obtaining such Agreed Portion, including legal fees and
expenses, any additional amounts net of any such additional expenses
("Net Additional Amounts") actually received by RFC shall be paid over
to you promptly after RFC's receipt thereof.
3. Nothing contained herein, in our Factoring Agreement or otherwise,
shall create any principal or agency relationship between you and RFC,
or create any fiduciary relationship on the part of RFC as to any Kmart
Receivable or otherwise, or imply or impose any duty upon RFC to take
or refrain from taking any legal or other action with respect to any
Kmart Receivable. RFC's present intention with respect to any "claim"
in respect of Kmart Receivables, within the meaning of Section 101(5)
of the United States Bankruptcy Code, should Kmart become a debtor
under the United States Bankruptcy Code, is to sell such claim
(although RFC shall be under no duty to do so), at such time or times
as RFC in its sole discretion deems appropriate, whether or not such
sale is, or is later determined not to have been, in your best
interest, and in no event and under no circumstance shall RFC be liable
to you for any amounts in excess of the Agreed Portion of any Kmart
Receivable, unless and then only to the extent Net Additional Amounts
are actually received by RFC with respect to such Kmart Receivable.
4. Notwithstanding the foregoing, RFC agrees that (i) you may at any time
after the due date of any Kmart Receivable, upon two business days
prior written notice to RFC, purchase all, but not less than all, of
the then outstanding Kmart Receivables from us for cash in an amount
equal to the Agreed Portion of Kmart Receivables; and (ii) if, at any
time, RFC proposes to sell a claim with respect to a Kmart Receivable,
it (a) only will sell such claim to an unrelated third party for cash,
and (b) before effecting such sale, will offer to sell such claim to
you on the same terms and conditions as such proposed sale (the "Third
Party Terms"). In the event you receive such an offer from RFC pursuant
to clause (b) of this paragraph 4, such offer is conditional upon you
irrevocably agreeing in writing, within the time period specified by
RFC (which may be as little as 24 hours) to make such purchase on the
Third Party Terms, but in no event shall the purchase price to you be
in excess of any amount, payable by you in cash, equal to the Agreed
Portion of such Kmart Receivable proposed to be sold to such third
party, provided that you are ready, willing and able to effect such
purchase within the time period specified by RFC (which also may be
within such 24 hour period).
<PAGE> 22
Page 3
This letter supersedes and replaces any prior written or oral
agreements regarding Kmart Receivables. Except as hereby modified and amended,
all terms and provisions of the Factoring Agreement shall remain in full force
and effect.
Please indicate your acceptance to the foregoing by signing and
returning the enclosed copy of this letter.
Very truly yours,
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
----------------------
Vice President
ACCEPTED AND AGREED
JENNA LANE, INC.
By:
----------------------
<PAGE> 23
[Republic Factors Letterhead]
December 20, 1995
Jenna Lane, Inc.
1407 Broadway
New York, NY 10018
Gentlemen:
Reference is made to the Factoring Agreement entered into between us as amended
from time to time (the "Agreement").
As provided in paragraph 6.C. of the Agreement the additional Factoring
Commission with respect to DIP Sales shall be two percent (2%) on sales terms of
up to net 30 days with respect to the debtors in possession set forth on the
attached Schedule "A".
We shall not be responsible for the credit risk in connection with DIP Sales
unless the shipment is made within thirty days from the date that the credit
approval has been communicated by us to you. In addition, notwithstanding any
practice or procedure to the contrary with respect to credit approved sales in
general, our maximum credit risk with respect to DIP Sales shall not exceed the
actual amount approved by us as to credit.
Very truly yours,
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
----------------------
Vice President
<PAGE> 24
Schedule A
- Petrie Retail, Inc.
<PAGE> 25
[REPUBLIC FACTORS LOGO]
December 20, 1995
Jenna Lane, Inc.
400 Perrine Road
Old Bridge, New Jersey 08857
RE: Kmart Corporation ("Kmart")
Gentlemen:
This will confirm that notwithstanding anything to the contrary contained in our
Factoring Agreement, any Receivables assigned to us by you from Kmart for which
we have assumed the credit risk with Approvals commencing on November 28, 1995
shall be subject to the following additional conditions and by your signature
below you agree that these conditions shall apply to all such Receivables.
1. Republic Factors Corp.'s ("RFC") obligations with respect to the risk of
nonpayment of a Receivable due to the financial inability of Kmart to
make a payment on the due date of the Receivable shall be limited to 75%
of the net amount of any such Receivable.
2. It is agreed that any and all recoveries received in connection with or
related to any such Receivable or any claim related thereto shall be
retained by RFC until such time as RFC has recovered the amount of any
payments made to you together with any and all expenses incurred by RFC
in connection therewith. After such recoveries any additional amounts
shall be paid to you.
Except as hereby modified and amended, all terms and provisions of the
Factoring Agreement shall remain in full force and effect.
Please indicate your acceptance to the foregoing by signing and returning the
enclosed copy of this letter.
Very truly yours,
/s/ Jeffrey Kremberg V.P.
- -------------------------
Jeffrey Kremberg
ACCEPTED AND AGREED
Jenna Lane, Inc.
By: Pres.
- -------------------------
<PAGE> 26
[Republic Factors Letterhead]
October 19, 1995
Jenna Lane, Inc.
1407 Broadway
New York, NY 10018
Gentlemen:
Reference is made to the letter agreement entered into between us amending our
factoring agreement with respect to "DIP Sales", as defined therein ("the Letter
Agreement").
In accordance with the terms of the Letter Agreement, we are hereby
notifying you that the name Bradlee Stores, Inc. shall be added to Schedule "A"
and any credit approved sales made by you to that company shall be subject to
the Additional Commission.
Very truly yours,
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
----------------------
Title: Vice President
<PAGE> 27
[Republic Factors Letterhead]
June 27, 1995
Jenna Lane, Inc.
1407 Broadway
New York, NY 10018
Gentlemen:
Reference is made to the Factoring Agreement entered into between us as amended
(the "Agreement").
This will confirm that Paragraph 6B of the Agreement, effective as of the date
hereof is amended as follows:
The increased commission for sales in excess of your regular terms of sale shall
only apply when such terms of sale exceed ninety days.
Except as herein specifically provided, no other changes in the terms and
provisions of the Agreement are intended or implied.
Kindly acknowledge your agreement to the foregoing by signing and returning the
enclosed copy of this letter.
Very truly yours,
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
----------------------
Vice President
READ AND AGREED TO:
JENNA LANE, INC.
By:
----------------------
President
<PAGE> 28
[Republic Factors Letterhead]
May 31, 1995
Jenna Lane, Inc.
1407 Broadway
New York, NY 10018
Gentlemen:
Reference is made to the Factoring Agreement entered into between us as amended
from time to time (the "Agreement") including, without limitation, that certain
letter agreement with reference to DIP Sales (the "The DIP Agreement").
You are hereby notified that effective immediately, in accordance with said DIP
Agreement, The name:
- - Weiner Stores, Inc.
shall be deemed added to Schedule A of the DIP Agreement.
Very truly yours,
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
----------------------
Title: Vice President
<PAGE> 29
[Republic Factors Letterhead]
March 8, 1995
Jenna Lane, Inc.
1407 Broadway
New York, NY 10018
Gentlemen:
Reference is made to the Factoring Agreement entered into between us as amended
from time to time (the "Agreement").
As provided in paragraph 6.C. of the Agreement the additional Factoring
Commission with respect to DIP Sales shall be one percent (1%) on sales terms of
up to net 30 days with respect to the debtors in possession set forth on the
attached Schedule "A".
We shall not be responsible for the credit risk in connection with DIP Sales
unless the shipment is made within thirty days from the date that the credit
approval has been communicated by us to you. In addition, notwithstanding any
practice or procedure to the contrary with respect to credit approved sales in
general, our maximum credit risk with respect to DIP Sales shall not exceed the
actual amount approved by us as to credit.
Very truly yours,
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
----------------------
Vice President
<PAGE> 30
SCHEDULE A
McCrory's Stores
Leslie Fay
Piece Goods Shops, Inc.
Roses Stores Inc.
Woodward & Lothrop/John Wanamaker, Inc.
Bills Dollar Store
Merry-Go-Round Ent.
Jay Jacobs, Inc.
Solo Serve, Inc.
Gantos
<PAGE> 31
[Republic Factors Letterhead]
March 24, 1995
Jenna Lane, Inc.
1407 Broadway
New York NY 10018
Gentlemen:
Reference is made to the Factoring Agreement entered into between us as
amended (the "Agreement").
This will confirm that Paragraph 6.B. of the Agreement, effective as of
the date hereof is amended as follows:
l. The minimum factoring commission on each invoice shall be $3.50,
provided, however, that no minimum per invoice commission shall apply to the
following customers:
Pamida, Inc., Hills Dept. Stores,
Laneco, Inc., Wal Mart, Shopko,
Clover Stores, J, Byrons, Ann
Hope, Inc. and Variety
Wholesalers, Inc.
2. The increased commission for sales in excess of your regular terms
of sale shall only apply to Rainbow Shops, Petrie Stores and Montgomery Ward
when such terms of sale exceed 120 days.
Except as herein specifically provided, no other changes in the terms
and provisions of the Agreement are intended or implied.
<PAGE> 32
Jenna Lane, Inc.
March 24, 1995
Page 2
Kindly acknowledge your agreement to the foregoing by signing and
returning the enclosed copy of this letter.
Very truly yours,
REPUBLIC FACTORS CORP.
By: /s/ Jeffrey Kremberg
----------------------
Vice President
READ AND AGREED TO:
JENNA LANE, INC.
By:
----------------------
President
<PAGE> 33
[Republic Factors Letterhead]
May 1, 1995
Mr. Mitchell Dobies
Jenna Lane, Inc.
1407 Broadway
New York, NY 10018
Dear Mitchell:
Enclosed please find executed copies of Jenna Lane documents for your
files.
If you have any questions please call.
Very truly yours,
/s/ Jeffrey Kremberg
--------------------------
Jeff Kremberg
<PAGE> 1
EXHIBIT 10.8
SECURITY AGREEMENT
(SUPPLEMENT TO FACTORING AGREEMENT)
This Security Agreement between REPUBLIC FACTORS CORP. ("Republic") and
Jenna Lane, Inc. ("Client"), dated April 24, 1995, supplements and constitutes
a part of Factoring Agreement between Republic and Client dated March 17, 1995
(as supplemented hereby, the "Factoring Agreement").
1. GRANT OF SECURITY INTEREST. As security for the unconditional
payment and performance when due of all of the Client's "Obligations" (as
defined in Factoring Agreement), including without limitation, any and all
liabilities, indebtedness, obligations, guarantees, representations, warranties
and covenants now existing or hereafter arising under this Security Agreement or
otherwise, the client hereby grants Republic a continuing security interest in
all of Client's right, title and interest in the following types of property,
whether now owned or existing or hereafter acquired or arising, and wherever
located (collectively, the "Collateral").
(i) All inventory and goods, including without limitation,
all inventory and goods held for sale or lease or to be furnished under
contracts of service, raw materials, work in process, finished goods, goods in
transit, advertising, packaging and shipping materials, and all designs,
creations, patterns, styles, samples and all other materials, and supplies
(collectively, the "Inventory");
(ii) All documents, including without limitation, documents
of transport, payment and title relating to any of the foregoing and all such
other documents as are made available to Client for the purpose of ultimate sale
or exchange or goods or for the purpose of loading, unloading, storing,
shipping, transhipping, manufacturing, processing or otherwise dealing with
goods in a manner preliminary to their sale or exchange and/or pertaining to a
"Transaction" (as defined below);
(iii) All rights, claims, rights of offset, rights of return,
actions and causes of action, against any person, including without limitation,
those arising out of the purchase by Client of any of its Inventory, and all
rights of stoppage in transit, replevin, reclamation and rights of an unpaid
vendor or as a lienor;
(iv) All equipment, machinery, fixtures, trade fixtures,
vehicles, furnishings, furniture, supplies, materials, tools, machine tools,
office equipment, appliances, apparatus, parts, dies, jigs and chattels
(collectively, the "Equipment"), including (but not limited to) all of the
Equipment listed on any exhibit which may be attached hereto;
(v) All other collateral described in the Factoring
Agreement; and
(vi) All proceeds, insurance proceeds, products and
accessions of or to any and all of the foregoing, and all collateral and
security for and guarantees of, any and all of the foregoing, and all books and
records relating to any and all of the foregoing (including without limitation,
any and all micro??? microfiche, computer program and records, source materials,
tapes and discs) and all equipment containing said books and records.
The term "Collateral" as used in the Factoring Agreement shall be deemed to
include all of the Collateral described above, for all purposes of the
Factoring Agreement.
2. REPRESENTATIONS AND WARRANTIES. Client represents and warrants
to Republic that all of the following representations and warranties are true
and correct on the date hereof and will continue to be true and correct
throughout the term of this Security Agreement.
(a) Client, if a corporation, is duly authorized, existing
and in good standing under the laws of the jurisdiction of its incorporation.
Client is and will continue to be qualified and licensed in all jurisdictions
in which the nature of the business transacted by it, or the ownership or
leasing of its property, make such qualification or licensing necessary, and
Client has all the requisite power and authority to carry on its business as it
is now, or may hereafter be conducted.
(b) The execution, delivery and performance of this
Security Agreement, the Factoring Agreement and all other documents,
instruments and agreements between Republic and the Client (collectively, the
"Factoring Documents") have been duly authorized by all necessary corporate and
other action, are enforceable against Client in accordance with their terms,
and do not conflict with any instrument or agreement to which Client is a party
or to which any of its property is subject.
(c) Set forth in the heading to this Security Agreement is
Client's true and correct name, and set forth on Exhibit A hereto is each prior
name of Client and each fictitious name, trade name and trade style by which
Client has been, or is now, known or has previously, or now, transacts business.
Client shall provide Republic with ten (10) business days advance written notice
before doing business under any other name, fictitious name, trade name or trade
style. Client has complied, and will hereafter comply, with all laws relating to
the conduct of business under, and the continuation of the right to use, a
corporate, fictitious or trade name or trade style.
(d) Client has places of business, and Inventory and other
Collateral is kept only at the locations identified on Exhibit A hereto. Client
will give Republic ten (10) business days' prior written notice of any
discontinuance, or change in location, of any place of business, or the
establishment of any new place of business, or any change in the location of
the places where Inventory or other Collateral is or is to be kept.
(e) Client is the sole owner of all of the Collateral, free
and clear of all liens, claims, security interests and encumbrances, except a
security interest in favor of Republic and/or Republic National Bank of New York
("Republic Bank") and/or Republic International Bank of New York (California).
(f) None of the Collateral is affixed to any real property
in such a manner, or with such intent, as to make it a fixture or a part of the
real property. Client is not a lessee under any real property lease pursuant to
which the lessor has obtained or may obtain any rights to the Collateral, and
no such lease prohibits, restrains, or impairs Client's right to remove any
Collateral from the leased premises, whether such removal is to be accomplished
prior or subsequent to any default by Client under any such real property lease
or any termination thereof. Client shall, whenever requested by Republic, cause
the owner and lessor of any premises on which Collateral is located, and any
person having a lien, mortgage or deed of trust on any such premises to execute
and deliver to Republic a form and substance acceptance to Republic, whatever
waivers and subordinations that Republic, in its sole discretion, requires, so
as to ensure that Republic's right in and to the Collateral are, and will
continue to be, prior and superior to the rights of any such owner, lessor or
lienor. Client will keep in full force and effect and will comply with all the
terms of, any lease of real property where any of the Collateral now is or
hereafter may be located.
(g) All of Client's assets useful or necessary in the
conduct of Client's business and all Collateral is in good working order and
condition. Client will not use the Collateral or any of the Client's other
assets in any unlawful business or for any unlawful purpose and will not
secrete or abandon the Collateral or any other assets. Client will immediately
advise Republic in writing of any loss of, or material adverse change in the
condition of any of the Collateral or of any of Client's other assets.
(h) Client has complied, and will hereafter comply, with
all provisions of all laws, rules and regulations relating to Client,
including, but not limited to, those relating to environmental matters,
hazardous and waste materials, Client's ownership of real or personal property,
conduct and licensing of Client's business, payment and withholding of taxes,
and payment of minimum wages and other matters relating to employment of
Client's personnel.
(i) There is no claim, litigation, proceeding or
investigation pending or threatened by or against or affecting Client (or any
basis therefor known to Client) which might result, either separately or in the
aggregate, in any material adverse change in the business, prospects or
condition of Client, or in any impairment in the ability of right of Client to
carry on its business in substantially the same manner as it is now being
conducted. Client will immediately inform Republic in writing of any claim,
proceeding, litigation or investigation hereafter threatened or instituted by
or against Client involving amounts in excess of $10,000.
(j) Client has not, and will not, engage in any activity
which constitutes or may constitute a pattern of racketeering activity within
the meaning of, or may be illegal under, any statute of the United States or
any other governmental authority, and Client has not, and will not, engage in
any activity which subject any of the Collateral or any of its other assets to
any forfeiture or other adverse claim.
(k) There is no fact which Client has not disclosed to
Republic in writing which could materially adversely affect the properties,
business or financial condition of Client or any of the Collateral or which it
is necessary to disclose in order to keep the foregoing representations and
warranties from being misleading.
3. COVENANTS. Client shall at all times comply with the following
covenants, at its sole cost;
(a) Client will have and maintain, at its sole expense,
insurance at all times with respect to all Inventory and Equipment and all
materials and merchandise which may be the subject of any Transaction and all
other insurable Collateral, against risk of fire (including extended coverage),
that and all other usual risks and such special risks as Republic may designate
and in the case of motor vehicles, collision insurance, all such insurance to
be in such form and amounts, for such periods and written by such companies as
may be satisfactory to Republic, such insurance proceeds to be payable to
Republic and Client as their interest may appear; and, all policies of
insurance shall provide for a minimum of twenty (20) days prior written
cancellation notice to Republic, and Client shall provide Republic with proof,
satisfactory to it, of full payment of all premiums thereon. All such policies
shall have endorsements thereon designating Republic as a secured party
thereunder and shall have lender's loss payee endorsements in favor of Republic
in such form as Republic may require. In addition, the request of Republic, the
originals of such policies shall be delivered to and held by Republic. In the
event of failure to provide insurance as herein provided, Republic may, at its
option, but without any obligation, obtain such insurance and Client shall pay
to Republic, on demand, the cost thereof. The cost of any such Insurance which
Republic may obtain shall be added to the Obligations. Client's liability to
Republic hereunder shall not be affected, impaired, released, discharged, in
whole or in part, by reason of any loss, theft, or destruction of, or
depreciation or damage to, any Collateral, regardless of the cause of any such
loss, theft, destruction, depreciation or damage, or absence or non-receipt of
insurance proceeds and whether such non-receipt of insurance proceeds is caused
for the failure of the insurer to pay claims or otherwise.
(b) So long as any of the Obligations are outstanding,
Client shall maintain Collateral so that the total "value" of the Collateral
shall at all times be not less than 100% of the total amount of the outstanding
Obligations, and, for purposes of this covenant, the term "value" with respect
to the Inventory shall mean the lower of wholesale cost or wholesale market
value. Client acknowledges that the foregoing covenant is a material part of
the consideration of Republic for entering into this Security Agreement, and
extending credit pursuant thereto, and that one of the reasons for the
foregoing covenant is to provide an equity cushion and adequate protection to
Republic caused by the delays, difficulty and expense which can occur in
liquidation of the Collateral, and probability of rapid deterioration in the
value of the Collateral in a liquidation, and other circumstances.
<PAGE> 2
(c) Client shall not sell, exchange, trade, lease or otherwise
transfer any of the Inventory or Equipment, or any other Collateral, without
Republic's specific prior written consent, except for sales of finished
Inventory for fair consideration in the ordinary course of business, and not in
satisfaction of any pre-existing debt.
(d) Client has maintained and will hereafter maintain all of
the Equipment in good working order and condition, at Client's sole cost and
expense, and Client will immediately advise Republic in writing of any event
causing loss or depreciation and of any material adverse change in the
condition of the Equipment.
(e) Client shall not permit or cause the Equipment to be
misused, used for any purpose other than that for which it was designed,
altered or utilized in any illegal or negligent manner. Client shall use the
Equipment only in the ordinary course of its business as heretofore conducted,
in a legal manner and in a manner not inconsistent with the terms of any
insurance policy relating thereto.
(f) None of the Equipment now is, or will hereafter be, affixed
to any real property in such a manner, or with such intent, as to constitute
fixture thereto or to otherwise become a part thereof. Whenever any Equipment
is located upon premises in which any third party has an interest (whether as
owner, mortgagee, beneficiary under a deed of trust, lienor or otherwise),
Client shall, whenever requested by Republic, cause such third party to
execute and deliver to Republic, in form and substance acceptable to Republic,
whatever waivers and subordinations that Republic in its sole discretion
requires, so as to ensure that Republic's rights in and to the Equipment are,
and will continue to be, prior and superior to the rights of any such third
party.
(g) Client has kept, and shall hereafter keep, accurate and
complete records regarding the Equipment, including without limitation, records
describing in full the dates of acquisition, acquisition costs, and serial
numbers thereof and all such other information as Republic shall specify, and
Client shall immediately give Republic written notice of all Equipment which it
hereafter purchases, leases, or otherwise acquires.
(h) Upon request by Republic, Client shall immediately deliver
to Republic all certificates of title, certificates of ownership, evidence of
ownership, and applications therefor, and all other similar documents and
instruments, relating to any or all of the Equipment.
(i) Client shall: (1) perform any and all steps requested by
Republic to perfect its security interest in the Inventory, Equipment and other
Collateral, such as placing and maintaining signs, appointing custodians and
transferring Inventory to warehouses under the control of Republic or its
designee. If any Inventory is in the possession or control of Client's agents
or processors, Client shall notify such agents or processors or Republic's
security interest therein and upon request instruct them to hold all such
Inventory for Republic's account and subject to Republic's instruction; (ii)
execute and deliver to Republic, each month, or at any time upon Republic's
request, a written certification of Inventory, in such form as Republic may
from time to time request; (iii) allow Republic through any of its officers or
agents, at all reasonable times, to examine and inspect the Inventory and any
of the other Collateral and to examine, inspect, utilize, and make copies
and/or extracts from all the Client's books and records, relating to the
Collateral; (iv) promptly notify Republic in writing of any change of Client's
officers, directors and key employees, a death of any co-partner or joint
venturer (if Client is a partnership or joint venture), any sale or purchase
out of the regular course of Client's business, and any material adverse change
in the business or financial affairs of Client; (v) make available Client and
its officers, employees, and agents and Client's books, computer discs, runs
and printouts, records and files to the extent that Republic may deem necessary
in order to prosecute or defend any such suit or proceeding relating to Client
or the Collateral; (vi) pay when due all brokers' fees, freight, cargo
insurance, ???????? charges, warehousing and/or storage charges, duties, taxes
and assessments upon the Collateral, or for its use or operation, or upon the
proceeds thereof, or upon this Security Agreement, or upon any instrument or
instruments evidencing the Obligations. Republic may, at its option, but
without obligation and without waiving any of its rights and remedies,
discharge any of the foregoing, and Client agrees to reimburse Republic on
demand for any payment made or any expense incurred by Republic pursuant to the
foregoing authorization; and any such payment made or expense incurred shall be
deemed to be Obligations.
4. Transactions.
(a) From time to time, upon Client's request, but subject, in
each instance, to such terms and conditions as Republic may specify the
Republic's absolute right, in its sole discretion, to refuse so to do, Republic
may (i) make loans and advances to Client, including without limitation, loans
and advances for purchases made by Client of Inventory for Client's use in the
ordinary course of its business; or (ii) guarantee payment by Client under
letters of credit to be opened either by Republic for Client or by Client with
Republic Bank (or with any other bank or lender satisfactory to Republic) in
Client's name and to Client's account, to be used in the purchase of Inventory
or for other business purposes; or (iii) make payments, and guarantee to make
payments, to others for the account of Client; or (iv) do any or all of the
foregoing. The word "Transaction," whenever used in this Security Agreement,
shall mean and include any such loan, advance, guarantee or payment which may be
made by Republic hereunder, the purchase agreement or letter of credit relating
thereto or covered thereby, as Inventory which may be the subject of any such
purchase or letter of credit so guaranteed and all documents and instruments of
every kind relating the ?????? including without limitation, all documents of
title, transport, indebtedness and payment, or evidencing any thereof. Each
loan, advance, guarantee or payment which Republic may issue for Client's
account hereunder, shall be in such form and shall contain such terms,
conditions and provisions as Republic, in its sole discretion, may elect. Client
shall deposit with Republic or its agents either cash or other collateral
satisfactory to Republic, in such amounts as Republic, in its sole discretion,
may require from time to time, whether prior to the making of such loan, advance
or payment or the issuance of such guarantee or at any time or time thereafter.
Client's failure to make any such deposit within five (5) days after demand
therefor shall constitute a default by Client hereunder.
(b) Client shall promptly, satisfy and discharge in full, as
and when due, all debts, liabilities, costs, fees, charges, and all other
Obligations of any kind incurred by it in connection with each and every
Transaction, whether or not the same or any of them shall be covered by
Republic's guarantee thereof including without limitation, all fees and charges
of Republic, Republic Bank or any other bank; and Client shall pay to Republic
forthwith and in full, any and all monies which may have any connection with
any Transaction covered by any letter of credit issued by Republic Bank (or any
other bank) and hold Republic and each such other bank harmless against any and
all claims, demands and causes of action which may be made, asserted, or
brought against Republic, or any of them arising on, under, in connection with,
or by reason of, any Transaction, or any guarantee or letter of credit
delivered therein, and all costs, fees and expenses (including without
limitation, attorneys' fees) paid or incurred by them in connection therewith.
Republic Bank and each such other bank shall have the right to make payment on
or otherwise settle any such claim, demand or cause of action, in their sole
discretion, and any such payment or settlement shall be conclusive and binding
upon Client.
(c) In order to induce Republic to execute and deliver
guarantees and make loans, advances and payments hereunder, Client hereto
represents, warrants and agrees as follows: (i) without limiting the security
interests granted Republic in the other provisions of this Security Agreement,
as additional Collateral for the payment and performance of all the Obligations,
including without limitation, all of Client's debts, obligations and liabilities
guaranteed by Republic. Client shall, in each Transaction, assign to Republic
the purchase order, sales contract, letter of credit in Client's favor and all
other documents, instruments and rights which Republic may require; and all of
the same shall be deemed to have been automatically assigned to Republic and
shall become its property, immediately upon the issuance of its guarantee or the
making of a loan, advance or payment for such Transaction, without any formal
assignment thereof. All inventory invoices, cash, instruments, checks, drafts,
notes, documents, chattel paper, bills of lading, customs releases, warehouse,
shipping and dock receipts, and other title, payment, or other documents and
instruments, and all insurance proceeds, tax refunds, customs duty drawbacks and
all other Collateral pertaining to each Transaction shall be deemed to be
Republic's sole property and in furtherance thereof, Client shall instruct all
suppliers, shippers, carriers, forwarders, warehousers, customs brokers,
governmental taxing authorities, banks and other persons holding or receiving
any of the Inventory or other Collateral to deliver them to Republic or upon its
order and shall forthwith deliver the same to Republic in their original form;
(ii) all letters of credit guaranteed or established by Republic hereunder shall
be issued for the account of Client, and Client shall, on demand, execute and
deliver, in writing, all applications, instructions and agreements with respect
thereto which may be required by Republic or by Republic Bank or any other bank;
(iii) Client is and will continue to be solvent at all times; and (iv) each
account receivable, draft, or note or other evidence of indebtedness arising out
of any Transaction, will be paid in full when due without dispute. The covenant
in clause (iii) shall be deemed to be breached in the event Republic, at any
time, in its judgment, determines that Client's assets, if sold in bulk for
liquidation purposes, would be insufficient to pay all of Client's creditors in
full, or the Client is not generally paying its debts and labilities as they
mature. Each letter of credit presented to Republic by Client providing for
payment to Client shall be genuine, correct and complete and will not have been
drawn against, except to the extent stated to Republic in writing at the time of
such presentation, and all of such presentations, and all invoices, receipts and
other documents and instruments of every kind which Client presents, disposes or
delivers to Republic for any purpose will be genuine, correct and complete.
(d) Republic shall not be liable or responsible, in any manner
or to any extent, for any error, act or omission by it, or by Republic Bank or
any other bank or party, in connection with or relating to any Transaction, or
the completion or execution of any Transaction; or for any failure to pay
duties, or for any loss of depreciation of, or damage to, any Inventory or any
documents of title, transport, payment or indebtedness or any other documents
or instruments or any other Collateral, regardless of the cause of any
thereof. All Transactions hereunder shall be entirely without recourse against
Republic in any event.
(e) As compensation for Republic opening letters of credit or
increasing the face amount thereof or issuing guarantees hereunder and for all
services which Republic may render in respect hereof, Client shall pay Republic
(i) a fee equal to the greater of 1/4 of 1% of the gross amount of each letter
of credit or the increase thereof (including without limitation of the
foregoing, sight letters of credit) or guaranteed issued, or $____________
whichever is greater, (ii) a fee equal to the greater of 1/4 of 1% of the face
amount of each standby letter of credit or increase thereof for each period of
thirty (30) days, or a fraction thereof, that each such standby letter of credit
is to be outstanding from the date of issuance or increase or $___________
whichever is greater; (iii) a fee for each acceptance created by reason of the
opening of any of the aforementioned letters of credit equal to the greater of
____________ of 1% of the face amount of each such acceptance for each period of
thirty (30) days or fraction thereof that each such acceptance shall be
outstanding from the date of issuance or $____________ whichever is greater;
(iv) with respect to negotiating sight letters of credit, a fee equal to the
greater of ______________ of 1% of the face amount of each negotiation or
$__________ in each instance; (v) in the event that the bank issuing the standby
letters of credit, letters of credit, or acceptances fundings the acceptances
increases its charges therefor over those in effect at the date of this Security
Agreement, then Republic shall have the right, without notice, to increase
Republic's charge to Client by an additional amount proportionate to the amount
of increase by such bank; and (vi) interest, to be computed and discounted at a
rate to be fixed as provided by Factoring Agreement, as the same may be in
effect from time to time, on all money actually loaned or advanced to Republic
to or for the account of Client or paid by Republic to Republic Bank or any
other bank, or any supplier or other party on, under, by reason of, or in
connection with any Transaction covered hereby or for any other reason
hereunder. All such charges and interest shall be in addition to all sums and
charges payable to Republic Bank or any other bank in connection with any
Transaction, and shall be deemed included in the Obligations and shall be
payable on demand.
(f) The total amount of Obligations in respect of Transactions, which
may be outstanding at any time, may be limited by Republic, in its sole and
absolute discretion. Nothing herein contained shall be deemed, or construed to
grant to Client any right, power or authority to pledge Republic's credit
in any manner or to any extent whatsoever. Nothing herein contained shall be
deemed, or construed to be or to constitute either a commitment to make any
loan or advance or payment or guarantee of any Transaction, unless and until
Republic shall have first duly made its loan, advance or payment or executed
and delivered its guarantee in writing with respect thereto, as herein
provided. Any action taken by Republic for or on behalf of Client shall
conclusively bind Client notwithstanding whether such actions by Republic are
based on oral or written communications from Client's employees, agents,
representatives, officers or directors.
<PAGE> 3
and Client waives any bond of surety otherwise required in connection
therewith, any demand for possession prior to the institution of any such
proceedings and any requirement that Republic not disposed of any of the
Collateral until after trial or judgment; (v) institute legal proceedings for
sale, under the judgment or decree of any court of competent jurisdiction, of
any of the Collateral; (vi) institute legal proceedings for the appointment of
a receiver pending foreclosure hereunder or the sale of any of the Collateral
under the order of a court of competent jurisdiction or under other legal
process, and Client hereby consents to the appointment of a receiver in any
such proceedings and waives any and all bonds in connection therewith; (vii)
personally or by agents or representatives or employees or attorneys, enter any
premises where Collateral is or may be, without hinderance, and take possession
of any part or all of the Collateral at any time, wherever the same may be
with or without process of law and without being responsible for loss or
damage; keep or store any or all of the Collateral on Client's premises and
remain on such premises or cause a custodian to remain thereon, in exclusive
control thereof, without charge, for so long as Republic deems necessary;
process or complete the processing, manufacturing or repair of any or all of
the Collateral, and in connection therewith Republic shall have the exclusive
right to utilize any or all of the Client's premises, machinery, equipment,
fixtures, and other assets without charge; and Republic may demand, sue for,
collect or receive any money or property at any time payable or receivable on
account of or in exchange for, or make any compromise or settlement deemed
desirable with respect to any of the Collateral and/or sell or dispose of all
or any part of the same, free from any and all claims of Client or of any other
party claiming by, through or under Client at ???? in equity, at one or more
public or private sales, in such place or places (including without limitation,
the premises of Client), in lots or in bulk, at such time or times, in such
order, and upon such terms as Republic shall determine in its sole discretion,
in its condition at the time Republic obtains possession or further processes
or repair, with our without any previous demand or notice to Client or
advertisement of any such sale or other disposal except as may be required by
law. Republic shall have the right to conduct such disposition on Client's
premises without charge for such time or times as Republic deems fit, or on
Republic's premises, or elsewhere and the Collateral need not be located at the
place of disposition. Republic may directly or through any affiliated company
purchase or lease any Collateral at any such disposition and, if permissible
under applicable law, at any private disposition. Any sale or other disposition
of Collateral shall not relieve Client of any liability Client may have if any
Collateral is defective as to title or physical condition or otherwise at the
time of sale. The power of sale hereunder shall not be exhausted by one or more
sales, and Republic may from time to time adjourn any sale so to be made
pursuant to this Section, buy oral announcement at the time of sale, without
any further notice or publication. If Republic shall demand possession of the
collateral or any part thereof pursuant to this Security Agreement. Client
shall, at its own expense, forthwith cause such Collateral or any part thereof
designated by Republic to be assembled and made available or delivered to
Republic at any place reasonably designated by Republic. In the event that any
mandatory requirement of applicable law shall obligate Republic to give prior
written notice to Client of any of the foregoing acts, Client hereby covenants
and agrees that a notice sent to it, in writing, by first class or certified
United States mail, addressed to it at its address set forth below, and
deposited in the United States mail at least five (5) days before the date of
any such act, shall be deemed to be reasonable notice of such act and
specifically, reasonable notification of the time and place of any public or
private sale hereunder and reasonable notification of the time after which any
intended sale or disposition thereof to be made. Any and all attorneys' fees,
expenses, costs, liabilities and obligations incurred by Republic with respect
to the foregoing shall be added to and become part of the Obligations.
(c) All proceeds realized as the result of any disposition of the
Collateral shall be applied by Republic first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Republic in the
exercise of its rights under this Security Agreement, second to the interest
due upon any of Client's Obligations and third to the principal of Client's
Obligations in such order as may be determined by Republic in its sole
discretion. In the event that, as a result of the disposition of any of the
Collateral, Republic directly or indirectly enters into a credit transaction
with any third party. Republic shall have the option, exercisable at any time,
in it sole discretion, of either reducing the Obligations by the principal
amount of such credit transaction or deferring the reduction thereof until the
actual receipt by Republic of cash therefor from such third party. The surplus,
if any, shall be paid to Client or other persons legally entitled thereto; if
any deficiency shall arise, Client shall remain liable in Republic therefor.
6. Further Assurances; Power of Attorney. Client will at any time or
from time to time, upon request of Republic, sign such financing statements,
continuation statements and amendments thereto and such trust receipts,
security agreements and other agreements or instruments as Republic determines
to be necessary or desirable to preserve and protect any of Republic's rights
hereunder. Client hereby agrees to pay all filing fees and reimburse Republic
for all costs and expenses of any kind incurred in any way in connection with
the Collateral. Client hereby grants to Republic an irrevocable power of
attorney coupled with its interest, authorizing Republic (through any of its
officers, employees, attorneys or agents), at any time and from time to time,
at its option but without obligation, with or without notice to Client, and at
Client's sole expense, to do any or all of the following in Client's name or
otherwise; (i) execute, deliver, present, record, endorse (with full recourse
to client), assign, and take control of any and all warehouse, shipping, dock
and other receipts, letters of credit (including without limitations of the
foregoing, applications for letters of credit, red clause letters of credit,
agreements to letters of credit, letters of indemnity to steamship companies,
ship-side bonds, air releases to airline companies and/or freight forwarders
and indemnification agreements in favor of issuers of letters of indemnity to
steamship companies, ship-side bonds and air releases, and waivers of
discrepancies in documentation, notes, tax refund checks or warrants from any
and all governmental agencies, instruments, acceptances, checks, drafts, money
orders, customs duty drawbacks, chattel paper, invoices, trust receipts, bills
of lading, title documents, and evidence of indebtedness, and any and all
financing statements, continuation financing statements, financing statement
amendments, security agreements, assignments, certificates of title,
application for vehicle title, affidavits, reports, notices, schedules, claims,
proofs of claim in bankruptcy and to perfect, maintain, improve or protect
Republic's security interest in the Collateral, or to carry out or enforce any
of Republic's rights and remedies under the Factoring Agreement and/or this
Security Agreement or otherwise, or to complete or consummate any Transaction,
or to collect any sums owed to Republic or for which Client may be or become
liable, or to carry out or consummate any transaction contemplated by this
Security Agreement and any documents or instruments executed in connection
herewith or relating hereto; (ii) upon the occurrence of any default or any
default in any Transaction, to cancel, rescind, terminate, modify, amend, or
adjust, in any way, in whole or in part, any Transaction; (iii) pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (iv) grant extensions of time to
pay, compromise and/or settle any claims for less than face value, and execute
and deliver all releases and other documents in connection therewith; (v) pay
any sums required on account of Client's taxes or to secure the release of any
liens therefor, or both; (vi) upon the occurrence of any default, to receive,
and open and examine all mail addressed to Client, and in the exercise of such
right, Republic shall have the right, in the name of Client, to notify the Post
Office authorities to change the address for the delivery of mail addressed to
Client to such other address as Republic may designate, including without
limitation, Republic's own address, in which event Republic shall turn over to
Client all of such mail not relating to the Collateral; (vii) upon any default,
direct any financial institution to pay to Republic all monies on deposit by
Client with said financial institution, regardless of any loss of interest,
charge or penalty as a result of payment before maturity; (viii) settle and
adjust, and give releases with respect to, any insurance claim that relates to
any of the Collateral or any Transaction, and obtain payment therefor directly
to Republic, and make all determinations and decisions with respect to any such
insurance and any such insurance claim, and endorse Client's name on any check,
draft, instrument or other item of payment or the proceeds of such insurance;
and (ix) take any action or pay any sum required of Client pursuant to this
Security Agreement and any other present or future agreements. Any and all sums
paid and any and all costs, expenses, liabilities, obligations, accounting
fees, adjustors' fees, consulting fees, appraisal fees, and attorneys' fees
incurred by Republic with respect to the foregoing shall be added to and become
part of the Obligations and shall be payable on demand. Republic shall have no
liability to Client for any action taken or omitted to be taken by it pursuant
to the foregoing power of attorney. In no event shall Republic's rights under
this Security Agreement or any other documents or agreements be deemed to
indicate that Republic is in control of the Client or Client's business or
management or that Republic has control over the daily management functions or
operating decisions of Client.
7. General.
(a) Republic shall not be deemed to have waived any of its rights
hereunder or under the Factoring Agreement or any other agreement, instrument
or paper signed by Client unless such waiver is in writing and signed by
Republic and specifically refers to the right being waived. No delay or
omission on the part of Republic in exercising any right shall operate as a
waiver of such right or of any other right. A waiver upon any occasion shall
not be construed as a bar or waiver of any right or remedy on any future
occasion. All of the rights and remedies of Republic, under the Factoring
Agreement, this Security Agreement and under any other agreement, instrument or
document, shall be cumulative and may be exercised singularly or concurrently.
(b) Client hereby assents to any agreement Republic may elect to
enter into with any other party providing for the sharing or the participation
by said party with Republic in the Obligations and/or the Collateral or any
realizations thereon. Republic shall have no obligations to give any credit
references on, or with respect to Client to any third party.
(c) This Security Agreement shall continue in full force and
effect until all of the Obligations have been paid and performed in full and
the Factoring Agreement has been terminated. Notwithstanding any termination of
this Security Agreement and payment and performance of all Obligations,
Republic shall not be required to deliver a termination statement with respect
to any financing statement filed by it until Client has executed and delivered
to Republic a General Release, in form acceptable to Republic, whereby Client
releases any and all known and unknown claims of Client against Republic.
<PAGE> 4
(d) All notices to be given hereunder shall be in writing and may be
served either personally or by telecopy, or by depositing the same in the United
States mail, first-class postage prepaid, or ordinary, registered or certified
mail addressed to Republic or Client at the addresses shown in the Factoring
Agreement or herein, or at any other address as shall be designated by one party
in a written notice to the other party. Any such notice shall be deemed to have
been given upon delivery in the case of notices personally delivered or sent by
telecopy, or at the expiration of two (2) business days following the deposit
thereof in the United States mail, (except that any notice of disposition of
Collateral pursuant to Section 5 above that is mailed shall be deemed give at
the time of deposit thereof in the United States mail).
(e) Client shall defend, indemnify and hold Republic, and its
directors, officers, employees, agents, attorneys and affiliates harmless from
and against any and all claims, costs (including without limitation, attorneys'
fees), losses, demands, actions, causes of action, lawsuits, damages, penalties,
fines, judgments and liabilities of any kind or nature in any manner relating to
Client's business, assets or operations, or otherwise relating to Client,
including (but not limited to) any of the foregoing arising from any breach of
any representation, warranty, covenant or provisions contained in this Security
Agreement or any other document or agreement between Client and Republic, or any
other transaction contemplated thereby or relating hereto or thereto, and
including (but not limited to) any of the foregoing arising from law, rule or
regulation relating to hazardous or toxic materials or waste or the environment,
or relating to the withholding or payment of income or other taxes, or relating
to wages or hours of Client's employees. Defense of any action or proceeding
with respect to which Republic or others are entitled to indemnity hereunder
shall be by attorneys of Republic's choice, at Client's expense. This indemnity
agreement shall continue in full force and effect notwithstanding any
termination of this Security Agreement or termination of the security interests
granted herein.
(f) As used in this Security Agreement, the term "affiliate" of any
party shall mean and include any person, firm or corporation controlling,
controlled by or under common control with such party, but in no event shall
Republic be deemed to be an "affiliate" of Client for purposes of this Security
Agreement or for any other purpose whatsoever. As used in this Security
Agreement, the term "Client" shall be deemed to include the individual or
individuals, association, partnership or corporation named herein as "Client,"
and (a) any successor, and any association, partnership, corporation or any
other person to which all or substantially all of the business or assets of
Client shall have been transferred, and (b) in the case of a partnership, any
general or limited partnership which shall have been created by reason of, or
continue in existence after the admission of any new partner or partners
therein, or the dissolution of the existing partnership by, or the condition
thereof after death, resignation or other withdrawal of any partner.
(g) Client shall reimburse Republic for all attorneys' fees,
accounting fees, and investigation fees, and for all filing, recording,
publication, search and other costs and expenses which Republic may incur
pursuant to or in connection with this Security Agreement or any Transaction
contemplated hereby or with respect to any of the Collateral or in connection
with the defense or enforcement of its rights, remedies and interests (whether
or not any suit is brought or judgment obtained). Without limiting the
generality of the foregoing, Client will pay all such expenses and attorneys'
fees incurred by Republic in connection with the enforcement of payment and
performance of all Obligations and in any litigation relating to, or affecting
this Security Agreement, and in any case or proceeding under any provision of
the Bankruptcy Code (including without limitation, Chapter 7 or 11, thereof), or
any successor statute thereto, the negotiating of this Security Agreement and
any agreements or documents relating to Client, the enforcement of any of its
rights; the filing or prosecution of a claim in any action or proceeding
(including without limitation, any probate claim, bankruptcy claim, third-party
claim, secured creditor or reclamation complaint); the protection of, obtaining
possession of, or enforcement of its security interest in the Collateral, or the
representation of Republic in any litigation with respect to Client or its
affairs. All attorneys' fees and costs to which Republic may be entitled
pursuant to this Section shall immediately become part of Client's Obligations.
(h) If this Security Agreement be signed by more than one party,
their obligations hereunder shall be joint and several. This Security Agreement
does not create, and shall not be construed as creating, any rights enforceable
by any person not a party to this Security Agreement. If any provision of this
Security Agreement is held by a court of competent jurisdiction to be invalid,
illegal or unenforceable, the remaining provisions of this Security Agreement
shall nevertheless remain in full force and effect.
(i) Republic and Client each hereby waive the right to trial by jury
in any action or proceeding based upon, arising out of, or in any way relating
to: (i) this Security Agreement or the Factoring Agreement; or (ii) any other
present or future instrument or agreement between Republic and Client; or (iii)
any conduct, acts or omissions of Republic or Client or any of their directors,
officers, employees, agents, attorneys or any other persons affiliated with
Republic or Client; in each of the foregoing cases, whether sounding in contract
or tort or otherwise.
(j) Neither Republic, nor any of its directors, officers, employees,
agents, attorneys or any other person affiliated with or representing Republic
shall be liable for claims, demands, losses or damages, of any kind whatsoever,
made, claimed, incurred or suffered by the undersigned or any other party
through the ordinary negligence of Republic, or any of its directors, officers,
employees, agents, attorneys or any other person affiliated with or representing
Republic.
(k) This Security Agreement and the Factoring Agreement, and the
other written documents and instruments between Republic and Client which set
forth in full the terms of agreement between the parties, are intended as the
full, complete and exclusive contract governing the relationship between the
parties, and supersede all prior and contemporaneous oral discussions, promises,
representation, warranties, agreements and understandings between the parties.
This Security Agreement may not be modified or amended, nor may any rights
hereunder be waived, except in a writing signed by the party against whom
enforcement of the modification, amendment or waiver is sought. No course of
dealing between the parties, no usage of trade, and no parol or extrinsic
evidence of any nature shall be used or be relevant to supplement, explain or
modify any term or provision of this Security Agreement or any supplement or
amendment thereto. This Security Agreement shall be construed in an even-handed
manner and not strictly against or in favor of any party hereto, nor shall any
ambiguities in this Security Agreement be construed strictly against or in favor
of any party hereto.
(l) Client agrees that any claim or cause of action by Client
against Republic, or any of Republic's directors, officers, employees, agents,
accountants or attorneys, based upon, arising from or relating to this Security
Agreement, or any other present or future agreement, or any other transaction
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, whether or not relating hereto or thereto,
occurred, done, omitted or suffered to be done by Republic, or by Republic's
directors, officers, employees, agents, accountants or attorneys, whether
sounding in contract or in tort or otherwise, shall be barred unless asserted by
Client by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within twelve months after the first
act, occurrence or omission upon which such claim or cause of action, or any
part thereof, is based and service of a summons and complaint on an officer of
Republic or any other person authorized to accept service of process on behalf
of Republic, within thirty (30) days thereafter. Client agrees that such
twelve-month period of time is a reasonable and sufficient time for Client to
investigate and act upon any such claim or cause of action. The twelve-month
period provided herein shall not be waived, tolled, or extended except by a
specific written agreement of Republic. This provision shall survive any
termination of this Security Agreement or any other agreement.
(m) As a material part of the consideration to Republic for entering
into this Security Agreement, Client agrees that all actions and proceedings
arising out of or relating to this Security Agreement or to any transaction in
connection herewith shall, at the option of Republic, be litigated exclusively
in courts located in the State of New York, and that, at the option of Republic,
the exclusive venue therefore shall be New York, N.Y. Client hereby consents and
submits to the jurisdiction of any such court and hereby waives personal service
of any summons and complaint or other process or papers to be issued therein and
hereby agrees that service of such summons and complaint or process may be made
by registered or certified mail addressed to Client at its address as set forth
below; failure on the part of Client to appear or answer within thirty (30) days
after the mailing of such summons, complaint or process shall constitute a
default entitling Republic to enter a judgment or order as demanded or prayed
for therein. Client further waives any right to transfer or change the venue of
any such action or proceeding. Client, in any litigation in which Republic and
Client shall be adverse parties, waives the right to interpose any defense based
upon any Statute of Limitations or any claims of laches and any set-off or
counterclaim of any nature or description. This Security Agreement is being
entered into in the State of New York. This Security Agreement shall be governed
by the internal laws (and not the conflict of law rules) of the State of New
York.
REPUBLIC: CLIENT:
Jenna Lane, Inc.
REPUBLIC FACTORS CORP. ---------------------------------------
By /s/ Jeffrey Kieueby By /s/ Mitchell Dobies, President
--------------------------------- ------------------------------------
Mitchell Dobies, President
Title Vice President
------------------------------
By /s/ Ernest Baumgarten, Secretary
------------------------------------
Ernest Baumgarten, Secretary
Address: 1407 Broadway
------------------------------
New York, NY 10018
------------------------------
<PAGE> 1
EXHIBIT 10.10
COLLECTIVE BARGAINING AGREEMENT
By and Between
UNITED PRODUCTION WORKERS UNION
LOCAL 17-18
AND
JENNA LANE, INC.
EFFECTIVE: June 15, 1996
EXPIRES: MIDNIGHT, JUNE 14, 1999
<PAGE> 2
COLLECTIVE BARGAINING AGREEMENT, made and entered into this 15th day of
June, 1996, by and between UNITED PRODUCTION WORKERS UNION, LOCAL 17-18 (" UNION
"), having its principles offices at 735 Wythe Avenue, Brooklyn, New York 11211,
and JENNA LANE, INC. ("EMPLOYER"), with the factory and offices located at 2559
- - B Route 130 South, Cranbury, New Jersey 08512.
WITNESSETH
WHEREAS, the UNION has duly obtained application/designation cards from
a majority of the shipping and receiving employees employed by the EMPLOYER; and
WHEREAS, the UNION has requested the EMPLOYER to recognize the UNION as
the sole and exclusive collective bargaining representative of the EMPLOYER'S
subject employees; and
WHEREAS, the EMPLOYER has examined the said application/designation
cards submitted by the UNION and has confirmed by verification of the individual
employees' signed W-4 Forms and the EMPLOYER'S payroll records that a majority
of its subject employees have duly designated the UNION as their sole and
exclusive collective bargaining representative; and
WHEREAS, the EMPLOYER has thereupon recognized the UNION as the sole
and exclusive collective bargaining representative of the EMPLOYER'S subject
employees; and
WHEREAS, the Union and the EMPLOYER, have negotiated and agreed upon
the terms,
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<PAGE> 3
conditions and provisions of a collective bargaining agreement to cover the
subject employees, to be confirmed in a writing;
NOW, THEREFORE, the UNION and EMPLOYER mutually agree as follows:
ARTICLE 1
UNION RECOGNITION
A. The Employer hereby recognizes the Union as the sole and exclusive
collective bargaining representative of the shipping and receiving employees who
are or hereafter may be employed by the Employer, excluding guards, professional
employees, managers and supervisors as defined in the Labor Management Relation
Act, 1947, as amended.
B. This agreement shall be applicable to and cover all of the
Employers' operations and facilities, including any new, different or subsidiary
shops that an Employer may acquire.
ARTICLE 2
UNION SHOP
A. All present Employees who are members of the Union on the date of
execution of the Agreement shall remain members in good standing of the Union as
a condition of the employment and continued employment. All present employees
who are not members of the Union and all employees who are hired hereafter
shall become and remain members in good standing of the Union as a condition of
the employment and continued employment after 60 calendar days following the
commencement of their employment or the date of execution of the
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<PAGE> 4
agreement whichever is later.
B. Upon notice in writing from the Union that an Employee is not a
member of the Union in good standing as required hereunder, the Employer shall
terminate the employment of such employee seven (7) days, hereafter, if the
Employee has not paid his or her Union Dues to become or remain a member of the
Union within said seven (7) days.
ARTICLE 3
CHECK-OFF OF UNION DUES AND INITIATION FEES
A. The Employer shall deduct and withhold from wages paid to its
Employees the amount of their Union Dues, initiation fees and regularly
authorized assessments, upon its receipts of written authorization therefore
signed by the respective Employees to make such deductions. The Employer shall
forthwith transmit all such sums to the Union not later than the fifth (5th) day
of each month, together with an itemized statement setting forth the names of
all Employees from whose wages such deductions were made, together with their
respective social security numbers.
B. The written authorization herein above mentioned shall not be
irrevocable for a period of more than one (1) year or beyond the termination
date of this Agreement, whichever occurs sooner, provided such authorization
shall be deemed to be automatically renewed, unless revoked in writing not more
than twenty (20) days and not less than ten (10) days prior to the expiration of
each such period of one (1) year or each applicable Collective Bargaining
Agreement, whichever occurs sooner.
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C. The Employer shall notify the Union, from time to time in writing,
of the names of all newly-hired Employees within ten (10) days of their
respective employment.
D. The Employer shall permit the Union by its authorized agents,
representative, attorneys, and/or accountants to examine the Employer's payroll
and employment records, or any other documents deemed necessary, from time to
time, during reasonable business hours to effectuate the purposes of Article 2
and 3 of this Agreement and to confirm that the Employees are receiving the
wages and other benefits provided herein
ARTICLE 4
NON-DISCRIMINATION
As required by applicable law, there shall be no discrimination against
any Employee or applicant for employment in any respect of hiring or employment
in any manner whatsoever because of Union membership or activities or lack
thereof, or on account of race, religion, creed, color, sex, age, national
origin, sexual orientation handicap or marital status. Whenever the masculine
gender is used in this Agreement, it is intended to mean and include in each
instance the feminine gender in like manner for all purposes.
ARTICLE 5
TRIAL PERIOD
All newly-hired employees shall be on a trial period for the first forty
five (45) actual working days of their employment. During the said trial period,
the discipline, including discharge, of
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<PAGE> 6
a new Employee shall not be subject to the grievance procedure, including
arbitration, provided herein. This period may be extended, an additional 30
days, in individual cases, provided you notify the Union in writing 1 week prior
to the 30 working days, conclusion of the original trial period.
ARTICLE 6
HOURS OF WORK AND OVERTIME
A. The regular work week shall consist of 40 hours.
B. Work performed in excess of eight (8) hours a day or in excess of 40
hours a week shall be paid for at the overtime rate of 1.5 times the regular
rate of such employees.
ARTICLE 7
CALL-IN PAY
All employees who report at their regular time, unless notified to the
contrary on the previous day or night, shall be given four (4) hours' work or,
if no work is available, four (4) hours' pay at their regular rate for such day,
unless such work is not available because of weather conditions, machinery
break-down or for reasons beyond the control of the Employer.
ARTICLE 8
WAGES AND WAGE INCREASES
A. The minimum hiring wage rate shall be the prevailing Federal
minimum wage rate. If the current Federal or State minimum wage is increased
during the term of Agreement, all Employees employed more than sixty (60)
calendar days shall receive a wage increase of thirty
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<PAGE> 7
($.30) cents per hour over any such new minimum wage rate effective as of the
date thereof.
B. After sixty (60) calendar days of employment a newly-hired Employee
shall receive a wage increase of thirty ($.30) cents per hour regardless of the
actual hiring.
C. Employees who have completed forty five (45) calendar days of
employment on the effective dates thereof shall receive the following general
wage increases:
Effective Date Wage Increases
July 1, 1997 (ii) Employees shall receive a fifty (.50)
cents increase per their hourly rate.
July 1, 1998 (iii) Employees shall receive a fifty (.50)
cents increase per their hourly rate.
D. A newly hired Employee who receives the wage increase provided in
Paragraph B hereof within ninety (90) days of any general wage increase provided
in Paragraph C hereof shall not be eligible to receive such general wage
increase.
E. Employees who shall not actually be working as of or on the
effective date of any of the wage increases provided herein shall be entitled to
receive such increase on their return or recall to work.
F. In addition to the wage increases provided herein, the EMPLOYER may
grant merit increases and bonuses at their sole decision upon written notice to
the UNION.
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<PAGE> 8
ARTICLE 9
FIFTEEN MINUTE BREAK
Employees shall be entitled to at least 15 minutes of compensated time
to cash their weekly paycheck on the same day they received such paychecks. The
check cashing arrangement shall not interfere with the Employees meal period to
the extent that it decreases the meal period to less than 30 minutes.
ARTICLE 10
PAID VACATION
Length of Employment Benefit
6 months less than 1 year 1 week
1 year less than 3 years 2 weeks
3 years less than 5 years 2 1/2 weeks
5 years or more 3 weeks
A. The Employer retains the right to require employees not to take two
weeks vacation time consecutively.
B. Paid Vacation and Paid Holidays under this Agreement shall be
considered time actually worked.
C. Vacation pay shall be based on the Employee's average weekly salary,
for the weeks actually worked in the eligibility period ending July 1st.
D. If a paid holiday hereunder occurs during an Employee's paid
vacation, the Employee shall be entitled to receive such holiday pay at the end
of the company year, June 31.
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<PAGE> 9
ARTICLE 11
PAID HOLIDAY
A. All employees employed four (4) months or more shall receive without
work, pay for the following holidays, on which they shall not be required to
work:
New Year's Day July 4th
Christmas Day Labor Day
Thanksgiving Day George Washington's Birthday
Day after Thanksgiving Memorial Day
Martin Luther King's Birthday
Rosh Hashana (2 days) If it falls out in a work week
Yom Kippur (if it falls out in work week)
B. Pay for holidays not worked shall be eight (8) hours pay at the
regular straight rate. Employees who work on a paid holiday shall receive their
straight time hourly rate for each hour worked plus 8 hours holiday pay.
C. To be eligible for holiday pay, an employee shall be required to
work the full regularly scheduled work day before and after the paid holiday
unless a doctor's note is provided.
D. Employees shall receive holiday pay regardless of the day of the
week on which the holiday may fall, except for Rosh Hashana and Yom Kippur.
E. In computing overtime over forty (40) hours, paid holidays hereunder
shall be considered time worked, whether or not work was actually performed on
such holidays.
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<PAGE> 10
ARTICLE 12
DEATH IN THE FAMILY
Employees shall be entitled to one (1) day off without pay, followed by
one (1) working day off with pay, by the Employer. In the event of a death in
the immediate family: Spouse, Father, Mother, Child, Sister, Brother. Employees
must present a death certificate upon request.
ARTICLE 12-A
COURT AND JURY DUTY
Employees shall be released from work for Court-Jury Duty, when
summoned. Payments received for jury duty, shall be subtracted from the
Employee's regular payroll check, and the Employee shall receive the difference.
The Employee must make a reasonable effort to report for whatever work the
Employer makes available on any off days while serving on jury duty.
ARTICLE 13
CLEAN, SAFE AND SANITARY FACILITIES
A. The Employer shall provide and maintain for its employees clean
toilet facilities, including running water, soap and paper towels.
B. The Employer shall comply with all rules, regulations and directives
of Federal, State and Local Authorities for the safety and health of its
employees.
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<PAGE> 11
ARTICLE 14
SICK DAYS
Length of Employment (by July 1st) Benefit
1 year 4 days
2 years 6 days
4 years 7 days
A physician note is to be presented to the Employer should an employee utilize
more than three (3) sick days in any given work week. A physician note is to be
presented to the Employer should and employee be absent on the day before or the
day after a paid holiday or any paid day off. A physician note is to be
presented to the Employer should the employee be absent on a Monday or a Friday.
Unused sick days may be cashed in at the end of the company year June 31.
ARTICLE 15
PERSONAL DAY
Employees employed more than six (6) months by July 1st are entitled to
one (1) personal day with pay.
ARTICLE 16
NO INDIVIDUAL AGREEMENTS
Neither the Employer nor an employee or a group of employees shall have
the right to modify or waive any provision of this Agreement for or on behalf of
the Union or the employees. The Employer shall not enter into any individual
agreements, arrangements or understandings with any of the employees with regard
to any term, condition or provision of employment.
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<PAGE> 12
ARTICLE 17
UNION VISITATION
Union representatives shall have the right to enter the Employers'
premises at all reasonable times for the purpose of investigating grievances, to
secure the enforcement of this Agreement and for such other purpose as may be
necessary; provided, however that after entering the premises they shall inform
the plant office of their presence.
ARTICLE 18
HEALTH AND WELFARE BENEFITS
A. (a) The Employer shall participate in and contribute to the United
Production Workers Union, Local 17-18 Welfare Fund ("Fund"), for the purpose of
providing and maintaining such health, welfare and medical benefits for eligible
employees and their eligible dependents as may be determined from time to time
by the Trustees of the Fund.
(b) The Employer shall contribute to the Local 17-18 Welfare Fund,
each calendar month, for each employee, employed for 60 calendar days or more,
who has worked any time in the prior month.
<TABLE>
<CAPTION>
EFFECTIVE DATE EMPLOYER CONTRIBUTION
<S> <C>
July 1, 1996 $55.00 per employee
June 1, 1997 $58.00 per employee
June 1, 1998 $60.00 per employee
</TABLE>
B. (a) The Employer agrees to, and shall be bound by all of the terms,
conditions and provisions of the Agreement and Declaration of Trust whereby the
Fund was established (as the
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<PAGE> 13
same may be amended from time to time), all of which documents by this
reference shall be deemed incorporated herein for all purposes and made a part
hereof as if set forth herein at length.
(b) The Employer shall make available for examination, review and
copying (photocopying) to the Fund and/or its agents or representatives (e.g.,
attorneys, accountants and auditors), during regular business hours, any and all
documents, instruments, record files, forms and papers (including, without
limiting the generality of the foregoing, IRS and NYS Unemployment insurance
forms, filing and reports) that may be necessary or desirable for the sound and
efficient operation and administration of the Fund.
C. No employee shall have any interest or right to receive any benefits
from the Fund other than those specifically provided in the plan of benefits as
the same may be adopted and amended from time to time by the Trustees hereof. No
employee shall have any right to assign any benefits to which he may be or
become entitled under the Fund or to receive a cash consideration in lieu of
such benefits either upon the termination of the Fund, through severance of
employment or for any reason of whatsoever nature or kind.
D. (a) In the event the Employer fails to make contributions to the
Fund (and submit therewith the requisite provided, or as may otherwise be
directed from time to time by the Trustees of the Fund, such contributions shall
bear interest which shall be paid by such Employer at the rate of twelve (12%)
percent per annum from the time such contributions were due until unpaid; and,
in addition, such Employer shall be obligated to pay all costs of collection,
including attorneys' fees equal to twenty (20%) percent of the overdue
contributions (including the interest thereon), if the matter is referred to
counsel for collection.
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<PAGE> 14
(b) Upon the Employer's failure to make contributions to the Fund as
required hereunder, the Union may commence an expedited arbitration proceeding
for collection before a designated arbitrator, upon forty-eight (48) hour
written notice to the Employer, the arbitrator shall render an award as quickly
as possible. If the Employer fails to appear at the hearing after notice
thereof, the arbitration shall proceed without the Employer. In the absence of
proof otherwise by the Employer, the arbitrator shall determine the amount of
contributions due and payable to the Fund on the basis of the average number of
the employees set forth in the two (2) highest remittance reports submitted by
the Employer prior to the commencement of the arbitration or such other proofs
as may be presented by the Union or Fund.
ARTICLE 19
ENFORCEMENTS OF COLLECTION OF EMPLOYER DELINQUENCIES
A. Notwithstanding anything to the contrary contained in this
Agreement, and in addition to any other remedies, right and relief (all of which
shall be cumulative) that may be available in the premises to the Union and the
Trustees of the Fund, in the event that any Employer fails, for a period in
excess of thirty (30) calendar days:
(a) To make the requisite contributions to the Fund
and to submit therewith the requisite remittance
reports within the time prescribed or as may be
required from time to time by the Trustees of the
Fund; or
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<PAGE> 15
(b) To make payments of the costs and expenses for
auditing as may be required by the Trustees of the
Fund, provided a discrepancy is found in such audit
that requires such Employer to make additional
payment to the Fund; or
(c) To remit to the Union within the time prescribed
the dues that have been deducted and withheld from
its employees in accordance with Article 3 hereof;
the Union may, in any such event, upon seven (7) days written notice, certified
mail, return receipt requested, call and engage in a strike, work stoppage,
picketing or such other act or activity that it deems advisable to secure
payment from such Employer forthwith, provided the Employer's delinquency and
default in making any payment or payments have not been cured within said seven
(7) days; and any such strike, work stoppage, picketing or other act or activity
shall not constitute or be considered for any purpose whatsoever a breach of the
"No-Strike Clause" or any other provision of this Agreement.
ARTICLE 20
SENIORITY
A. The principle of departmental seniority shall prevail in all aspects
of employment, e.g., layoffs, recalls (inverse order), overtime (provided
employee is able to perform work), and vacation selection. Employees shall not
accrue seniority until completion of their trial period,
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<PAGE> 16
at which time their seniority should be established as of their date of hire.
B. The Shop Steward, shall at all times have top seniority so that he
or she shall be the last employee laid off and the first employee recalled,
provided that he or she has the ability to do the available work. The Shop
Steward may investigate and process grievances during working hours, provided
same does not unreasonably interfere with his or her performance of work.
C. Employees shall lose their accumulated seniority for any of the
following ground:
(a) Voluntary quit;
(b) Discharge for just cause;
(c) Absence without authorization for three (3)
consecutive working days except on account of
reasonable excuse;
(d) Failure to report to work within three (3)
working days after recall by registered or
certified mail;
Employees are required to continue to provide the Employer with their
most current home address and telephone number.
ARTICLE 21
DISCIPLINE AND DISCHARGE ONLY FOR JUST CAUSE
A. No Employee shall be disciplined or discharged except for just
cause. No employee shall be discharged immediately except for the following
conduct:
(a) Stealing, gambling or intoxication during the performance of
work;
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<PAGE> 17
(b) Under influence, possession or use of drugs, during performance of
work;
(c) Assaulting any other employees or Employer's representative during
their performance of work;
(d) Punching any other employee's time card or theft of time on
employee's time card;
(e) No-strike violation, calling an unauthorized strike, walk out or
slow down or refusing to return therefrom; and
(f) Vandalism or sabotage in the shop.
The Employer shall notify the employee, Shop Steward and the Union, in writing,
immediately upon effecting a discharge for any of the above grounds.
B. All discipline, including, without limiting the generality of the
foregoing, warning, notices and suspensions, except for the conduct itemized
above, shall be imposed progressively for the same act or conduct, as follows:
1. Oral Warning
2. Written Notice, with Counselling
3. Suspension, up to 5 days
4. Discharge
C. All records and files of discipline of whatsoever kind or nature
shall not be maintained, referred to or used for any purpose whatsoever, after
one (1) year from the date of the last discipline.
ARTICLE 22
GRIEVANCE PROCEDURE AND ARBITRATION
A. (a) Any and all complaints, disputes, claims, differences or
grievances arising out of
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<PAGE> 18
or relating to the interpretation or application of this Agreement, or any act,
conduct or matter in relation thereto, directly or indirectly, which the Union
and an Employer are unable to settle, adjust or resolve, may be submitted by
either party for arbitration to the Arbitrator as hereinafter designated.
(b) If such complaints, dispute, claim, difference, grievance, act,
conduct or matter is initially raised by an employee, the same shall proceed as
follows;
(i) Between the Shop Steward of the Union and the Supervisor of the
subject employee;
(ii) If the matter is not settled, adjusted and resolved as provided
in sub-paragraph (i) above, then the same may be submitted for consideration and
disposition at a conference between the Union's Business Agent and the
Representative of the Employer;
(iii) If the matter is not settled, adjusted and resolved as
provided in sub-paragraph (ii) above, the same may be submitted by either the
Union or the Employer for arbitration to the Arbitrator as hereinafter
designated.
(iv) The parties may mutually agree to dispense with sub-paragraphs
(i) and (ii) of the grievance procedure and to submit the matter to arbitration
to the designated Arbitrator.
B. The Arbitrator herein shall be, on rotating basis, subject to
availability for each matter:
RICHARD ADELMAN, ROGER MAHER
69 THE OAKS 7221 SHORE ROAD
ROSLYN, NY 11576 BROOKLYN, NY 11209
C. The Arbitrator is authorized and empowered to determine all
complaints, disputes, differences, grievances, acts, conducts or matters that
may come before him pursuant to this
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<PAGE> 19
Agreements and to award such remedy or remedies as he deems proper and
reasonable, consistent with this Agreement.
D. The parties waive the requirements regarding the oath of the
Arbitrator and the manner and time for the service of the Notice of Hearing as
may otherwise be required by the laws of the State of New York of elsewhere.
E. In the event the failure of either party to appear before the
Arbitrator for hearing after due written notice shall have been given to said
party, the Arbitrator may render a decision and make an award upon the
testimony, evidence and proof submitted by the party appearing.
F. The award and decision of the Arbitrator shall be final and binding
upon the Union, the Employer and the employees, and all other persons and
parties who may have any interest herein of whatsoever kind or nature, for all
purposes.
G. Either party may enforce the award of the Arbitrator hereunder by
entering a Judgement confirming same in any court of competent jurisdiction. The
Arbitrator's fees and all other costs of arbitration hereunder shall be borne
and paid equally by the Employer and the Union.
H. In the event that a party fails to comply with the Award of the
Arbitrator within five (5) days of its issuance, then the other party shall be
released of the prohibition against strikes and lockouts, as the cause may be,
contained in Article 23 hereof and, in addition to any other remedies, rights,
and relief (all which shall be cumulative) available in the premises as a result
of such default, the other party may engage in such conduct (including a strike
and picketing), notwithstanding anything to the contrary
contained herein.
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<PAGE> 20
ARTICLE 23
NO STRIKE - NO LOCKOUTS
A. Except as otherwise expressly provided in this Agreement, during the
term hereof:
(a) The Union agrees not to engage in any strikes or work stoppages;
and
(b) The Employer agrees not to engage in any lock-outs of their
employees or any portion thereof.
If a strike or work stoppage that is prohibited hereunder occurs, upon
receipt of notice thereof from the Employer, the Union shall immediately direct
the employees who are engaging in such conduct to cease and to return to work.
Compliance by the Union is good faith herewith shall be deemed full compliance
with the Union's obligations hereunder.
B. Neither the Union nor the Employer shall be held responsible for any
damage caused by the acts of any individuals or groups of individual who are
acting or conducting themselves in violation of the terms of this Agreement,
which action or conduct has not been specifically authorized by either the Union
or the Employer, as the case may be.
C. No employee shall be subject to any form of discipline if he refuses
to enter upon the premises of any Employer when the Employer's premises are
subject to a lawful picket line or, if the employee refuses to enter upon the
premises of another employer, if the other employer's premises are subject to a
lawful picket line.
ARTICLE 24
LEAVE OF ABSENCE
Upon written request of an employee, a leave of absence shall be
granted provided such
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<PAGE> 21
request is for the reason of health or some important emergency reason. A leave
of absence is not to exceed four (4) months. A written request for such leave
must be supported by a physician's recommendation in writing. This request may
be approved by the Employer and the Union which approval may not unreasonably be
withheld or delayed. The Company has the right to replace the worker when the
worker is on leave of absence on a temporary basis.
ARTICLE 25
BULLETIN BOARDS
The Employer shall provide the Union with a bulletin board in an
appropriate location in its plant or shop to be used by the Union for posting of
all Union notices and literature.
ARTICLE 26
PRIOR BENEFITS - MAINTENANCE OF STANDARDS
Notwithstanding anything to the contrary contained herein, no employee
shall suffer any reduction in wages or any compensation of any kind or nature,
or in any other benefit, term, condition or provision of employment previously
received or enjoyed, on account of the execution of this Agreement, except for
the prior health coverage. The parties have mutually agreed that all current and
new employees shall become participants of the UPWU Local 17-18 Welfare Fund. If
any term, condition or provision of employment previously received or enjoyed by
the employees is better, higher or superior to those provided herein, then such
term, condition and/or provision shall continue in full force and effect and
shall not be modified or terminated on account of this Agreement.
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ARTICLE 27
SUCCESSORS, ASSIGNS, MERGER AND CONSOLIDATION, ETC.
A. This Agreement shall be binding upon the respective successors and
assigns of the Employer and the Union, and shall survive any merger,
reorganization, change of name, change of vocation or place or business. No
provision, term or obligation herein contained shall be effected. modified,
altered or changed in any respect whatsoever by change of any kind in the legal
status, ownership, geographic location or any Employer. It is the intention of
the parties that this Agreement remain in full force and effect regardless of
any change of any kind or nature in management, location, form of business
organization or ownership.
B. In the event that any Employer closes its business operations, in
addition to the rights and remedies the Union and the employees may have in
connection with the Employer's decision to shut down and the impact thereof on
the employees, the employees shall be offered re-employment by the Employer if
available in order of their seniority, at a new or other shop, branch, or
facility that the Employer may open or establish.
C. In the event that any Employer shall divide the operation of its
business or shall departmentalize or further subdivide any of its operations
either in the same location or at different locations and under the same name or
different names, directly or indirectly, in whole or in part, all of the
employees in all parts of said operation, wherever located, shall be covered by
this Agreement, and all of said parts or subdivisions of said operations of such
Employer under whatever name and whatever entity, whether a person, firm, or
corporation and regardless of whether other individuals or persons may also have
an interest in such entity, shall be bound by terms, conditions and provisions
of this Agreement with the same force and effect as any
21
<PAGE> 23
Employer hereunder.
ARTICLE 28
SEPARABILITY - SAVING CLAUSE
If any provision of this Agreement or the application of any provision
to any person or circumstances should be rendered or declared invalid, unlawful
or unenforceable, the remaining provision of this Agreement and the application
such provision(s) to other persons or circumstances shall not be affected
thereby, but shall remain severally valid, binding and in full force and effect.
The parties agree to meet immediately to negotiate substitute provisions for
such parts or provisions rendered or declared illegal, invalid or unenforceable.
Should the parties be unable to agree on substitute provisions, the matter shall
be submitted to arbitration as hereinabove provided in Article 22.
ARTICLE 29
EXECUTION OF AGREEMENT IN COUNTERPARTS
This Agreement may be executed in a number of counterparts, each and
every one of which is, and shall be considered an original document for all
purposes.
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<PAGE> 24
ARTICLE 30
TERM OF AGREEMENT
This Agreement shall be effective and retroactive as of this 15th day
of June, 1996 and shall remain and continue in full force and effect until
midnight, June 14, 1999 and from year to year thereafter unless either party
gives written notice to the other by certified mail, return receipt requested,
at least sixty (60) days prior to the date of expiration of this Agreement or
annual renewal thereof that they desire to modify or amend and/or renegotiate
same.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
27th day of January, 1996 by causing same to be signed for and on their
respective authorized representatives.
UNITED PRODUCTION WORKERS UNION JENNA LANE, INC.
LOCAL 17-18
BY: BY:
------------------------- ---------------------------
23
<PAGE> 1
10.11
WALSH MANNING SECURITIES, LLC
90 BROAD STREET
NEW YORK, NY 10004
February , 1997
Jenna Lane, Inc.
1407 Broadway, Suite 1801
New York, NY 10018
Attention: Mitchell Dobies, President
Gentlemen:
This letter, when executed by the parties hereto, will constitute an
agreement between Jenna Lane, Inc. (the "Company") and Walsh Manning
Securities, LLC ("Walsh") pursuant to which the Company agrees to retain Walsh
and Walsh agrees to be retained by the Company under the terms and conditions
set forth below.
1. The Company hereby retains Walsh to perform consulting services
related to corporate finance and other financial services matters, and Walsh
hereby accepts such retention. In this regard, subject to the terms set forth
below, Walsh shall furnish to the Company advice and recommendations with
respect to such aspects of the business and affairs of the Company as the
Company shall, from time to time, reasonably request upon reasonable notice. In
addition, Walsh shall hold itself ready to assist the Company in evaluating and
negotiating particular contracts or transactions, if requested to do so by the
Company, upon reasonable notice.
2. As compensation for the services described in paragraph 1 above,
the Company shall pay to Walsh a fee of $90,000, for the full term of 24
months, payable in full in advance on the date hereof. In addition to the
$90,000 compensation hereunder, the Company will reimburse Walsh for any and
all reasonable expenses incurred by Walsh in the performance of its duties
under paragraphs 3 or 4 hereunder, and Walsh shall account for such expenses to
the Company. Such reimbursement shall accumulate and be paid monthly. No
expenses shall be incurred or reimbursed without the prior consent of the
Company. Nothing contained herein shall prohibit Walsh from receiving any
additional compensation under paragraphs 3 and 4 herein or otherwise.
<PAGE> 2
3. In addition, Walsh shall hold itself ready to assist the
Company in evaluating and negotiating particular contracts or transactions, if
requested to do so by the Company, upon reasonable notice, and will undertake
such evaluations and negotiations upon prior written agreement as to additional
compensation to be paid by the Company to Walsh with respect to such
evaluations and negotiations.
4. The Company and Walsh further acknowledge and agree that Walsh
may act as a finder or financial consultant in various business transactions in
which the Company may be involved, such as mergers, acquisitions or joint
ventures. The Company hereby agrees that if in the event Walsh shall first
introduce to the Company another party or entity, and that as a result of such
introduction, a transaction is consummated, the Company shall pay to Walsh a
fee equal to five percent of the first $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 of the consideration received by the Company
from parties introduced to the Company by Walsh in non-financing related
transactions (including mergers, acquisitions, joint ventures and other
business transactions) consummated by the Company with a party introduced to
the Company by Walsh. Such fee shall be paid in cash at the closing of the
transaction to which it relates or at such time as the consideration is
received or paid by the Company, and shall be payable whether or not the
transaction involves stock, or a combination of stock and cash, or is made on
the installment sale basis. In addition, if the Company shall, within 12 months
immediately following the termination of this Agreement, consummate a
transaction with any party first introduced by Walsh to the Company prior to
such termination, the Company shall pay to Walsh a fee with respect to such
transaction calculated in accordance with this paragraph.
5. All obligations of Walsh contained herein shall be subject to
Walsh's reasonable availability for such performance, in view of the nature of
the requested service and the amount of notice received. Walsh shall devote
such time and effort to the performance of its duties hereunder as Walsh shall
determine is reasonably necessary for such performance. Walsh may look to such
others for such factual information, investment recommendations, economic
advice and/or research, upon which to base its advice to the Company hereunder,
as it shall deem appropriate. The Company shall furnish to Walsh all
information relevant to the performance by Walsh of its obligations under this
Agreement, or particular projects as to which Walsh is acting as advisor, which
will permit Walsh to know all facts material to the advice to be rendered, and
all material or information reasonably requested by Walsh. In the event that
the Company fails or refuses to furnish any such material or information
reasonably requested by Walsh, and thus prevents or impedes Walsh's performance
hereunder, any inability of
<PAGE> 3
Walsh to perform shall not be a breach of its obligations hereunder.
6. Nothing contained in this Agreement shall limit or restrict the
right of Walsh or of any partner, employee, agent or representative of Walsh,
to be a partner, director, officer, employee, agent or representative of, or
to engage in, any other business, whether of a similar nature or not, nor to
limit or restrict the right of Walsh to render services of any kind to any
other corporation, firm, individual or association.
7. Walsh will hold in confidence any confidential information which
the Company provides to Walsh pursuant to this Agreement unless the Company
gives Walsh permission in writing to disclose such confidential information to
a specific third party. In addition, all confidential information which the
Company provided to Walsh in connection with its initial public offering shall
be considered confidential information for purposes of this Agreement.
Notwithstanding the foregoing, Walsh shall not be required to maintain
confidentiality with respect to information (i) which is or becomes part of the
public domain through no fault of Walsh; (ii) of which it had independent
knowledge prior to disclosure; (iii) which comes into the possession of Walsh in
the normal and routine course of its own business from and through independent
non-confidential sources; or (iv) which is required to be disclosed by Walsh by
governmental requirements. If Walsh is requested or required (by oral
questions, interrogatories, requests for information or document subpoenas,
civil investigative demands, or similar process) to disclose any confidential
information supplied to it by the Company, or the existence of other
negotiations in the course of its dealings with the Company or its
representatives, Walsh shall, unless prohibited by law, promptly notify the
Company of such request(s) so that the Company may seek an appropriate
protective order.
8. Each of the Company and Walsh agrees to indemnify and hold harmless
each other, and their respective partners, employees, agents, representatives
and controlling persons (and the officers, directors, employees, agents,
representatives and controlling persons of each of them) from and against any
and all losses, claims, damages, liabilities, costs and expenses (and all
actions, suits, proceedings or claims in respect thereof) and any legal or
other expenses in giving testimony or furnishing documents in response to a
subpoena or otherwise (including, without limitation, the cost of
investigating, preparing or defending any such action, suit, proceeding or
claim, whether or not in connection with any action, suit, proceeding or claim
in which Walsh or the Company is a party), as and when incurred, directly or
indirectly, caused by, relating to, based upon or arising out of Walsh's
service pursuant to this Agreement. The Company further agrees that Walsh
shall incur no liability to the Company or any other party on account of this
Agreement or any acts of omissions
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<PAGE> 4
arising out of or related to the actions of Walsh relating to this Agreement or
the performance or failure to perform any services under this Agreement except
for Walsh's intentional or willful misconduct. This paragraph shall survive the
termination of this Agreement. Notwithstanding the foregoing, no party otherwise
entitled to indemnification shall be entitled thereto to the extent such party
has been determined to have acted in a manner which has been deemed gross
negligence or wilful misconduct regarding the matter for which indemnification
is sought herein.
9. This Agreement may not be transferred, assigned or delegated by
any of the parties hereto without the prior written consent of the other party
hereto.
10. The failure or neglect of the parties hereto to insist, in any
one or more instances, upon the strict performance of any of the terms or
conditions of this Agreement, or their waiver of strict performance of any of
the terms or conditions of this Agreement, shall not be construed as a waiver or
relinquishment in the future of such term or condition, but the same shall
continue in full force and effect.
11. This Agreement is for a term of twenty-four (24) months and may
not be terminated by the Company. This Agreement may be terminated by Walsh at
any time upon 30 days' notice; provided Walsh shall repay any portion of their
fee which was not earned on the effective date of such termination ($3,750
multiplied by the number of months remaining in this agreement). Paragraphs 4,
7 and 8 shall survive the expiration or termination of this Agreement under all
circumstances.
12. Any notices hereunder shall be sent to the Company and to Walsh
at their respective addresses set forth above. Any notice shall be given by
registered or certified mail, postage prepaid, and shall be deemed to have been
given when deposited in the United States mail. Either party may designate any
other address to which notice shall be given, by giving written notice to the
other of such change of address in the manner herein provided.
13. This Agreement has been made in the State of New York and shall
be construed and governed in accordance with the laws thereof without giving
effect to principles governing conflicts of law.
14. This Agreement contains the entire agreement between the
parties, may not be altered or modified, except in writing and signed by the
party to be charged thereby, and supersedes any and all previous agreements
between the parties relating to the subject matter hereof.
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<PAGE> 5
15. This Agreement shall be binding upon the parties hereto, the
indemnified parties referred to in Section 7, and their respective heirs,
administrators, successors and permitted assigns.
If you are in agreement with the foregoing, please execute two copies
of this letter in the space provided below and return them to the undersigned.
Very truly yours,
WALSH MANNING SECURITIES, LLC
By:
----------------------------
An Authorized Representative
ACCEPTED AND AGREED TO AS OF
THE DATE FIRST ABOVE WRITTEN
JENNA LANE, INC.
By:
--------------------------
Mitchell Dobies
President
5
<PAGE> 1
Exhibit 10.12
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, by and between Jenna Lane, Inc., a
Delaware corporation (the "Company"), and the person whose name appears on the
signature page attached hereto (individually a "Holder" and collectively, with
the holders of other Units (as defined herein), the "Holders") issued in the
private placement offering by the Company (the "Offering").
WHEREAS, pursuant to a Unit Purchase Agreement dated July 11, 1996 (the
"Unit Purchase Agreement"), the Company is offering for sale ten (10) of the
Company's units ("Units") at a subscription price of $50,000 per Unit for a
total offering of $500,000. Each Unit is comprised of (i) an unsecured
promissory note in the principal amount of $50,000 bearing interest at ten (10%)
percent per annum and (ii) a redeemable common stock purchase warrant ("Class A
Warrant") to purchase one (1) share of the Company's common stock, par value
$.01 per share ("Common Stock"). The exercise price (the "Warrant Exercise
Price") of the Class A Warrants is $7.00 per share and the Class A Warrants are
exercisable for a period of three (3) years from the date of issue; and
WHEREAS, pursuant to the terms of, and in order to induce the Holders
to enter into the Unit Purchase Agreement to purchase the Units, the Company and
the Holders have agreed to enter into this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and in the Unit Purchase Agreement, the Company
hereby agrees as follows:
1. Piggyback Registration for Warrants and Warrant Shares. If the
Company at any time proposes to conduct an initial public offering of its
securities under the Securities Act of 1933 (the "Act") wherein the aggregate
gross proceeds to the Company equal or exceed $4,000,000 and Walsh Manning
Securities, Inc. ("Walsh Manning") acts as the lead or a co-managing underwriter
(the "Proposed Public Offering"), including the registration of any securities
owned by shareholders of the Company, the Company shall include the Class A
Warrants and shares of Common Stock underlying the Class A Warrants, (the
"Warrant Shares" and sometimes together with the Class A Warrants referred to as
the "Registerable Securities") in any registration statement filed with the
Securities and Exchange Commission ("SEC") with respect to the Proposed Public
Offering. The Holder shall not be required to give any notice to the Company in
order to have his securities included in the registration statement for the
Proposed Public Offering.
2. Piggyback Registration for Warrant Shares.
(A) If at any time the Company proposes to offer for
<PAGE> 2
sale, in a public offering any of its securities other than in the Proposed
Public Offering (as defined in Section 1 above), then the Company shall be
required to include in such registration only the shares of Common Stock
underlying the Class A Warrants. The Company shall provide each Holder with
written notice at least 30 days in advance of the filing of a registration
statement with respect to such offering. Within 10 days of receipt of the
Company's notice, the Holder shall notify the Company of the number of Warrant
Shares which he wishes to have included in such registration statement.
(B) If a registration under this Section 2 involves the registration
of shares of Common Stock by the Company and other selling shareholders offered
in a firm commitment underwritten offering and the managing underwriter(s) for
the offering advise the Company in writing that in their opinion the number of
shares of Common Stock requested to be included in such registration exceeds the
number of shares of Common Stock which can be sold in such offering without
materially affecting the offering price of the shares of Common Stock to be
included therein, the Company will include in such registration that number of
shares of Common Stock which the managing underwriter(s) have advised the
Company, in their opinion, will not materially affect the offering price of the
shares of Common Stock to be offered by the Company, such number of shares to be
included in such registration in accordance with the following priorities: (i)
first, the Common Stock and other securities, if any, that the Company proposes
to sell and (ii) second, to the extent the registration of (A) the Holders'
Shares requested to be included in such registration pursuant to this Section 2
and (B) any other Common Stock owned by persons other than the Holders having
rights to participate in an underwritten registered offering of Common Stock and
who have notified the Company of their intention to participate in such
registration, does not materially affect the price of the Common Stock to be
offered by the Company in such registration, the Holders' Shares and the shares
of Common Stock owned by such other persons, pro rata among all such holders on
the basis of the total number of shares of Common Stock requested by each such
holder to be included therein. In the event that the underwritten offering does
not involve other selling shareholders, then the Holder hereby agrees (or shall
agree) with the managing underwriter that he shall not sell his Warrant Shares
for a period of 90 days after the effective date of the registration statement
filed for such offering.
3. Cooperation with Company. Holders will cooperate with the Company in
all respects in connection with this Agreement, including, timely supplying all
information reasonably requested by the Company and executing and returning all
documents reasonably requested in connection with the registration and sale of
the Registerable Securities. Each Holder shall provide the Company such
information regarding the Holder and the distribution of the Registerable
Securities as the Company may from time to time
2
<PAGE> 3
reasonably request or as shall be required by law.
4. Registration Procedures. If and whenever the Company is required by
any of the provisions of this Agreement to effect the registration of any of the
Registerable Securities under the Act, the Company shall (except as otherwise
provided in this Agreement), as expeditiously as possible:
a. use its best efforts to cause such registration statement to
remain effective for a period of (1) year.
b. prepare and file with the Commission such amendments and
supplements to such registration statement and the Prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder or Holders of such securities shall desire to sell or otherwise
dispose of the same within one (1) year (including prospectus supplements with
respect to the sales of securities from time to time in connection with a
registration statement pursuant to Rule 415 of the Commission);
c. furnish to each Holder such numbers of copies of a summary
prospectus or other prospectus, including a preliminary prospectus or any
amendment or supplement to any prospectus, in conformity with the requirements
of the Act, and such other documents, as such Holder may reasonably request in
order to facilitate the public sale or other disposition of the securities owned
by such Holder;
d. use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as the Holders, shall reasonably request, and do any
and all other acts and things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition in such jurisdiction
of the securities owned by such Holder, except that the Company shall not for
any such purpose be required to qualify to do business as a foreign corporation
in any jurisdiction wherein it is not so qualified or to file therein any
general consent to service of process;
e. use its best efforts to list such securities on any securities
exchange on which any securities of the Company is then listed, if the listing
of such securities is then permitted under the rules of such exchange or the
Nasdaq Stock Market ("Nasdaq");
f. notify each Holder of Registerable Securities covered by such
registration statement, at any time when a prospectus relating thereto covered
by such registration statement is required to be delivered under the Act, of the
happening of any
3
<PAGE> 4
event of which it has knowledge as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue statement of
a material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing; and
g. furnish, at the request of any Holder on the date such
Registerable Securities are delivered to the underwriters for sale pursuant to
such registration or, if such Registerable Securities are not being sold through
underwriters, on the date the registration statement with respect to such
Registerable Securities becomes effective, (i) an opinion, dated such date, of
the counsel representing the Company for the purpose of such registration,
addressed to the underwriters, if any, and to the Holder making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as the Holder of such Registerable Securities may
reasonably request and are customarily included in such an opinion and (ii)
letters, dated, respectively, (1) the effective date of the registration
statement and (2) the date such Registerable Securities are delivered to the
underwriters, if any, for sale pursuant to such registration from a firm of
independent certified public accountants of recognized standing selected by the
Company, addressed to the underwriters, if any, and to the Holder making such
request, covering such financial, statistical and accounting matters with
respect to the registration in respect of which such letters are being given as
the Holder of such Registerable Securities may reasonably request and are
customarily included in such letters; and
5. Restrictions on Transfer of Registerable Securities. In the event
the Company has declared effective a registration statement for an underwritten
public offering of its securities prior to the date that the Holder's
registration becomes effective, then (i) the Holder shall deliver to the
underwriter a lock-up letter whereby the Holder agrees that his shares of Common
Stock underlying the Class A Warrants and all Class A Warrants shall be subject
to a lock up for up to two (2) years from the date of the underwritten offering.
6. Expenses. All expenses incurred in any registration of the Holders'
Registerable Securities under this Agreement shall be paid by the Company,
including, without limitation, printing expenses, fees and disbursements of
counsel for the Company and each participating Holder, expenses of any audits to
which the Company shall agree or which shall be necessary to comply with
governmental requirements in connection with any such registration, all
registration and filing fees for the Holders' Registerable Securities under
federal and State securities laws, and expenses of complying with the securities
or blue sky laws of any jurisdictions; provided, however, the Company shall not
be liable
4
<PAGE> 5
for (a) any discounts or commissions to any underwriter; (b) any stock transfer
taxes incurred with respect to Registerable Securities sold in the Offering or
(c) the fees and expenses of counsel for any Holder, provided that the Company
will pay the costs and expenses of Company counsel when the Company's counsel is
representing any or all selling security holders.
7. Indemnification. In the event any Registerable Securities are
included in a registration statement pursuant to this Agreement:
a. Company Indemnity. Without limitation of any other indemnity
provided to any Holder, either in connection with the Offering or otherwise, to
the extent permitted by law, the Company shall indemnify and hold harmless each
Holder, the affiliates, officers, directors and partners of each Holder, any
underwriter (as defined in the Act) for such Holder, and each person, if any,
who controls such Holder or underwriter (within the meaning of the Act or the
Securities Exchange Act of 1934 (the "Exchange Act")) against any losses,
claims, damage or liabilities (joint or several) to which they may become
subject under the Act, the Exchange Act or other federal or state law, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein not misleading, or
necessary to make the statements therein, (iii) any violation or alleged
violation by the Company of the Act, the Exchange Act, or any state securities
law or any rule or regulation promulgated under the Act, the Exchange Act or any
state securities law, and the Company shall reimburse each such Holder,
affiliate, officer or director or partner, underwriter or controlling person for
any legal or other expenses incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the Company shall not be liable to any Holder in any such case for any such
loss, claim, damage, liability or action to the extent that it arises out of or
is based upon a Violation which occurs in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder or any other officer, director or controlling
person thereof.
b. Holder Indemnity. Each Holder shall indemnify and hold harmless
the Company, its affiliates, its counsel, officers, directors, shareholders and
representatives, any underwriter (as defined in the Act) and each person, if
any, who controls the Company or the underwriter (within the meaning of the Act
the Exchange Act) against any losses, claims, damages or liabilities
5
<PAGE> 6
(joint or several) to which they may become subject under the Act, the Exchange
Act or any state securities law, and the Company shall reimburse each such
Holder, affiliate, officer or director or partner, underwriter or controlling
person for any legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
insofar as such losses, claims, damages or liabilities (or actions and respect
thereof) arise out of or are based upon any statements or information provided
by such Holder to the Company in connection with the offer or sale of
Registerable Securities.
c. Notice; Right to Defend. Promptly after receipt by an indemnified
party under this Section 7 of notice of the commencement of any action
(including any governmental action), such indemnified party shall, if a claim in
respect thereof is to be made against any indemnifying party under this Section
7 deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in and if the
indemnifying party agrees in writing that it will be responsible for any costs,
expenses, judgments, damages and losses incurred by the indemnified party with
respect to such claim, jointly with any other indemnifying party similarly
noticed, to assume the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if the indemnified party reasonably believes based upon
advice of counsel that representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall relieve such indemnifying party of any liability to the
indemnified party under this Agreement only if and to the extent that such
failure is prejudicial to its ability to defend such action, and the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Agreement.
d. Contribution. If the indemnification provided for in this
Agreement is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to therein, then the indemnifying party, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect not only the relative
benefits but also the relative fault of the indemnifying party on the one hand
and the indemnified party on the other hand in connection with the statements or
omissions which resulted in such loss, liability, claim, damage or expense as
well
6
<PAGE> 7
as any other relevant equitable considerations. The relevant fault of the
indemnifying party and the indemnified party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Notwithstanding the foregoing, the amount
any Holder shall be obligated to contribute pursuant to the Agreement shall be
limited to an amount equal to the proceeds to such Holder of the Registerable
Securities sold pursuant to the registration statement which gives rise to such
obligation to contribute (less the aggregate amount of any damages which the
Holder has otherwise been required to pay in respect of such loss, claim,
damage, liability or action or any substantially similar loss, claim, damage,
liability or action arising from the sale of such Registerable Securities).
e. Survival of Indemnity. The indemnification provided by this
Agreement shall be a continuing right to indemnification and shall survive the
registration and sale of any Registerable Securities by any person entitled to
indemnification hereunder and the expiration or termination of this Agreement.
8. Remedies. Remedies Upon Default or Delay. The Company acknowledges
the breach of any part of this Agreement may cause irreparable harm to a Holder
and that monetary damages alone may be inadequate. The Company therefore agrees
that the Holder shall be entitled to injunctive relief or such other applicable
remedy as a court of competent jurisdiction may provide. Nothing contained
herein will be construed to limit a Holder's right to any remedies at law,
including recovery of damages for breach of any part of this Agreement.
9. Notices.
a. All communications under this Agreement shall be in writing and
shall be mailed by first class mail, postage prepaid, or telegraphed or telexed
with confirmation of receipt or delivered by hand or by overnight delivery
service,
b. If to the Company, at:
Jenna Lane Inc.
1407 Broadway, Suite 1801
New York, New York 10018
With a copy to:
David Feldman, Esq.
555 Madison Avenue
New York, NY 10022
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<PAGE> 8
or at such other address as it may have furnished in writing to the Holders of
Registerable Securities at the time outstanding, or
c. if to any Holder of any Registerable Securities, to the address
of such Holder as it appears in the stock or warrant ledger of the Company.
d. Any notice so addressed, when mailed by registered or certified
mail shall be deemed to be given three days after so mailed, when telegraphed or
telexed shall be deemed to be given when transmitted, or when delivered by hand
or overnight shall be deemed to be given when delivered.
10. Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the Company and each of the Holders.
11. Amendment and Waiver. This Agreement may be amended, and the
observance of any term of this Agreement may be waived, but only with the
written consent of the Company and the Holders of securities representing a
majority of the Registerable Securities; provided, however, that no such
amendment or waiver shall take away any registration right of any Holder of
Registerable Securities or reduce the amount of reimbursable costs to any Holder
of Registerable Securities in connection with any registration hereunder without
the consent of such Holder; further provided, however, that without the consent
of any other Holder of Registerable Securities, any Holder may from time to time
enter into one or more agreements amending, modifying or waiving the provisions
of this Agreement if such action does not adversely affect the rights or
interest of any other Holder of Registerable Securities. No delay on the part of
any party in the exercise of any right, power or remedy shall operate as a
waiver thereof, nor shall any single or partial exercise by any party of any
right, power or remedy preclude any other or further exercise thereof, or the
exercise of any other right, power or remedy.
12. Counterparts. One or more counterparts of this Agreement may be
signed by the parties, each of which shall be an original but all of which
together shall constitute one and same instrument.
13. Governing Law. This Agreement shall be construed in accordance with
and governed by the internal laws of the State of New York, without giving
effect to conflicts of law principles.
14. Invalidity of Provisions. If any provision of this Agreement is or
becomes invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein shall not be
affected thereby.
8
<PAGE> 9
15. Headings. The headings in this Agreement are for convenience of
reference only and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
16. Arbitration. Any controversy, claim, or dispute arising out of or
relating to this Agreement, or any breach thereof, including without limitation
any dispute concerning the scope of this arbitration clause, shall be settled by
arbitration in New York, New York before three (3) arbitrators of the American
Arbitration Association ("AAA") in accordance with the Commercial Arbitration
Rules of the AAA as supplemented herein, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof. Each
party shall choose 1 arbitrator and the two shall then choose the third
arbitrator. Pending final award, arbitrator compensation and expenses shall be
advanced equally by both parties. The final award may grant such other, further,
and different relief as authorized by the AAA Commercial Arbitration Rules, but
may not include punitive damages.
17. Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the parties and supersedes any
prior understandings, agreements, or representations by or among the parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day of , 1996.
JENNA LANE, INC.
By:___________________________ _________________________
NAME: Print Name of Holder
TITLE:
_________________________
Signature of Holder
9
<PAGE> 1
Exhibit 10.13
600,000 Units, each Unit consisting of
Two Shares of Common Stock and One Redeemable
Class A Common Stock Purchase Warrant
JENNA LANE, INC.
SELECTED DEALER AGREEMENT
February , 1997
Gentlemen:
We have agreed as the underwriter (the "Underwriter") named in the
enclosed prospectus (the "Prospectus"), subject to the terms and conditions of
an Underwriting Agreement dated February ___, 1997 (the "Underwriting
Agreement"), to purchase from Jenna Lane, Inc., a Delaware corporation (the
"Company") 600,000 Units ("Units"), each Unit consisting of two shares of Common
Stock, par value $.001 per share (the "Public Shares") and one Redeemable Class
A Common Stock Purchase Warrant (the "Public Warrants"). We may also purchase as
many as 90,000 additional Units (the "Option Securities") from the Company
pursuant to Section 2(b) of the Underwriting Agreement. The Securities are more
particularly described in the Prospectus, additional copies of which will be
supplied in reasonable quantities upon request.
We are offering a portion of the Units for sale by selected dealers
(the "Selected Dealers"), among whom we are pleased to include you, at the
public offering price, less a concession in the amount set forth in the
Prospectus under "Underwriting." This offering is made subject to delivery of
the Units and their acceptance by the Underwriter, to the approval of all legal
matters by our counsel, and to the terms and conditions herein set forth, and
may be made on the basis of the reservation of the Units or an allotment against
subscription.
We will advise you by telegram of the method and terms of the offering.
Acceptances should be sent to Walsh Manning Securities, LLC, 90 Broad Street,
New York, New York 10004, Attn: Syndicate Department. Subscription books may be
closed by us at any time without notice, and we reserve the right to reject any
subscription in whole or in part, but notification of allotments against and
rejections of subscriptions will be made as promptly as practicable.
<PAGE> 2
Any of the Units purchased by you hereunder are to be promptly offered
by you to the public at the public offering price, as set forth in the
Prospectus, except as herein otherwise provided and except that a reallowance
from any such public offering price not in excess of the amount set forth in the
Prospectus under "Underwriting" may be allowed to dealers who are members in
good standing of the National Association of Securities Dealers, Inc. (the
"NASD"), or foreign dealers or institutions not eligible for membership in said
association who agree to abide by the conditions with respect to foreign dealers
and institutions set forth in your confirmation below. We may buy Units from, or
sell Units to, any Selected Dealer, and any Selected Dealer may buy Units from,
or sell Units to, any other Selected Dealer at the public offering price less
all or any part of the concession set forth in the Prospectus. After the Units
are released for sale to the public, we are authorized to vary the offering
price of the Units and other selling terms.
If, prior to the termination of this Agreement, we purchase or contract
to purchase any Units which were purchased by you from us or any Selected Dealer
at a concession from the public offering price (or any Units which we believe
have been substituted therefor) you hereby agree that we may: (i) require you to
pay us on demand an amount equal to the concession on such Units; (ii) sell for
your account the Units so purchased and debit or credit your account with the
loss or profit resulting from such sale; or (iii) require you to purchase such
Units at a price equal to the total cost of such purchase including commissions
and transfer taxes (if any) on redelivery.
Units accepted or allotted hereunder shall be paid for in full at the
public offering price, or, if we shall so advise you, at such price less the
concession to dealers, at the office of Walsh Manning Securities, LLC, 90 Broad
Street, New York, New York 10004 (or such other place as you may be instructed)
prior to 10:00 a.m., New York City time, on such day after the public offering
date as we may advise, by certified or official bank check payable in New York
Clearing House funds to the order of Walsh Manning Securities, Inc. against
delivery of certificates. If Units are purchased and paid for by you hereunder
at the public offering price, the concession will be paid to you after the
termination of this Agreement.
We have been advised by the Company that a registration statement
(Registration No. 333-11979) (the "Registration Statement") for the Units,
Public Shares and Public Warrants, filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), has become
effective. You agree that in selling Units purchased pursuant hereto (which
agreement shall also be for the benefit of the Company) you will
2
<PAGE> 3
comply with the applicable requirements of the Act and of the Securities
Exchange Act of 1934, as amended, and the terms and conditions set forth in the
Prospectus. No person is authorized by the Company or the Underwriter to give or
rely on any information or to make any representations not contained in the
Prospectus in connection with the sale of Units. You are not authorized to act
as agent for the Company or the Underwriter in offering the Units to the public
or otherwise. Nothing contained herein shall constitute or be construed to make
the Selected Dealers partners with the Underwriter or with one another.
We shall not be under any liability (except for our own want of good
faith) for or in respect of the validity or value of, or title to, any Units;
the form or completeness of, or the statements contained in, or the validity of,
the Registration Statement, any preliminary prospectus, the Prospectus, or any
amendment or supplement thereto or any other letters or instruments executed by
or on behalf of the Company or others; the form or validity of the agreement for
the purchase of the Units or this Agreement; the delivery of the Units; the
performance by the Company or others of any agreement on its or their part; or
any matter in connection with any of the foregoing; provided, however, that
nothing in this paragraph shall be deemed to relieve the Underwriter from any
liability under the Act.
You, by your confirmation below, represent that: (i) you are a member
in good standing of the NASD or are a foreign bank or dealer not eligible for
membership in the NASD which agrees to make no offers or sales of Units within
the United States, its territories or its possessions, or to persons who are
citizens thereof or residents therein; (ii) neither you nor any of your
directors, officers, partners or "persons associated with" you (as defined in
the By-Laws of the NASD) nor, to your knowledge, any "related person" (as
defined by the NASD in its Interpretation of Article III, Section I of its Rules
of Fair Practice, as amended) or any other broker-dealer, have participated or
intend to participate in any transaction or dealing as to which documents or
information are required to be filed with the NASD pursuant to such
Interpretation, and as to which such documents or information have not been so
filed as required.
You agree not to, at any time prior to the termination of this
Agreement, bid for, purchase, sell or attempt to induce others to purchase or
sell, directly or indirectly, any Units other than (a) as provided for in this
Agreement or the Underwriting Agreement relating to the Units, or (b) purchases
or sales as broker on unsolicited orders for the account of others. In making
the sales of Units, if you are a member of the NASD, you will comply with all
applicable rules of the NASD, including, without limitation, the NASD's
Interpretation of Article II, Section I of its Rules of Fair
3
<PAGE> 4
Practice with respect to Free-Riding and Withholding and Section 24 of Article
III of the NASD's Rules of Fair Practice, or if you are a foreign bank or
dealer, you agree to comply with such Interpretation of Sections 8, 24 and 36 of
such Article as though you were such a member and Section 25 of such Article as
it applies to a nonmember broker or dealer in a foreign country.
Upon written application to us, we will inform you as to the advice we
have received from counsel concerning the jurisdictions in which the Units,
Public Warrants and Public Shares have been qualified for sale or are exempt
under the respective securities or blue sky laws of such jurisdictions, but we
have not assumed and will not assume any obligation or responsibility as to the
right of any Selected Dealer to sell the Units, Public Shares or Public Warrants
in any jurisdiction.
As Underwriter, we shall have full authority to take such action as we
may deem advisable in respect of all matters pertaining to the offering or
arising thereunder. We shall not be under any obligation to you except for
obligations expressly assumed by us in this Agreement.
You agree, upon our request, at any time or times prior to the
termination of this Agreement, to report to us the number of Units purchased by
you pursuant to the provisions hereof which then remain unsold.
Selected Dealers will be governed by the conditions herein set forth
until this Agreement is terminated. This Agreement will terminate at the close
of business on the 30th business day after the public offering of the Units,
but, in our discretion, may be extended by us for a further period or periods
not exceeding 30 business days in the aggregate and in our discretion, whether
or not extended, may be terminated at any earlier time. Notwithstanding the
termination of this Agreement, you shall remain liable for your proportionate
amount of any claim, demand or liability which may be asserted against you
alone, or against you together with other dealers purchasing Units upon the
terms hereof, or against us, based upon the claim that the Selected Dealers, or
any of them, constitute an association, an unincorporated business or other
entity.
This Agreement shall be construed in accordance with the laws of the
State of New York without giving effect to conflict of laws principles.
In the event that you agree to purchase Units in accordance with the
terms hereof, and of the aforementioned telegram, kindly confirm such agreement
by completing and signing the form provided
4
<PAGE> 5
for that purpose on the enclosed duplicate hereof and returning it to us
promptly.
All communications from you should be addressed to Walsh Manning
Securities, LLC, 90 Broad Street, New York, New York 10004, Attn: _______
__________. Any notice from us to you shall be deemed to have been duly given if
mailed or telegraphed to you at this address to which this letter is mailed.
Very truly yours,
WALSH MANNING SECURITIES, LLC
By:__________________________
Name:
Title:
5
<PAGE> 6
Walsh Manning Securities, LLC
90 Broad Street
New York, NY 10004
Attention:
Syndicate Department
Gentlemen:
We hereby confirm our agreement to purchase the Units (as such term is
defined in the Selected Dealer Agreement) consisting of two shares of Common
Stock and one Redeemable Class A Common Stock Purchase Warrant, of Jenna Lane,
Inc., subject to the terms and conditions of the foregoing Agreement and your
telegram to us referred to herein. We hereby acknowledge receipt of the
definitive Prospectus relating to the Units, and we confirm that in purchasing
Units we have relied upon no statements whatsoever, written or oral, other than
the statements in such Prospectus. We have made a record of our distribution of
preliminary prospectuses and, when furnished with copies of any revised
preliminary prospectus, we have, upon your request, promptly forwarded copies
thereof to each person to whom we had theretofore distributed preliminary
prospectuses. We confirm that we have complied and will comply with all of the
requirements of Rule 15c2-8 under the Securities Exchange Act of 1934.
We hereby represent that we are a member in good standing of the
National Association of Securities Dealers, Inc. (the "NASD") or, if we are not
such a member, we are a foreign dealer or institution not eligible for
membership in said Association which agrees to make no sales within the United
States, its territories or its possessions or to persons who are citizens
thereof or residents therein. If we are a member of the NASD, we agree to comply
with all applicable rules of the NASD, including, without limitation, the
provisions of Section 24 of Article III of the Rules of Fair Practice of the
NASD, or, if we are such a foreign dealer or institution, we agree to comply
with all applicable rules of the NASD, including, without limitation, the NASD's
Interpretation with Respect to Free-Riding and Withholding and Sections 8, 24
and 36 of such Article as if we were such a member, and Section 25 of such
Article as it applies to a non-member broker or dealer in a foreign country.
6
<PAGE> 7
Pursuant to your telegram, we hereby subscribe for an allotment of
_______ Units, each Unit consisting of two shares of Common Stock and one
Redeemable Class A Common Stock Purchase Warrant, and acknowledge a concession
of $.50625 (5%) from the $10.125 public offering price of the Unit.
________________________________ _______________________________
Corporate or Firm Name of (Signature of Authorized
Selected Dealer Official or Partner)
________________________________ _______________________________
Address Date Accepted
________________________________ _______________________________
Telephone Tax I.D.#
7
<PAGE> 1
EXHIBIT 11.1
JENNA LANE, INC.
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
FEBRUARY 14,
1995 NINE MONTHS ENDED
(INCEPTION) YEAR ENDED ------------------------------
TO MARCH 31, MARCH 31, DECEMBER 31, DECEMBER 31,
1995 1996 1995 1996
------------ ---------- ------------- -------------
<S> <C> <C> <C> <C>
PRIMARY EARNINGS PER SHARE --
HISTORICAL BASIS:
Net (loss) income................. $(43,926) $ 501,429 $ 257,710 $ 117,106
Deduct dividends on preferred
shares.......................... -- 100,000 -- 75,000
-------- ---------- ---------- ----------
Net (loss) income applicable
to common stock............ $(43,926) $ 401,429 $ 257,710 $ 42,106
======== ========== ========== ==========
Weighted average number of shares
outstanding..................... 963,482 2,164,916 2,173,387 2,052,175
======== ========== ========== ==========
Primary (loss) earnings per
share........................... $(.05) $.19 $.12 $.02
------- ---- ----- -----
------- ---- ----- -----
PRIMARY EARNINGS PER SHARE -- PRO
FORMA:
Net Income........................ $ 501,429 $ 117,106
========== ==========
Pro Forma weighted average number
of shares outstanding(a)........ 3,077,742 3,004,556
========== ==========
Pro Forma earnings per share...... $.16 $.04
---- -----
---- -----
SUPPLEMENTAL PRO FORMA PRIMARY EARNINGS PER
SHARE:
Net income........................ $ 501,429 $ 117,106
Add: Interest on November notes,
and Bridge notes, net of tax
effect(b)....................... 22,324 72,394
---------- ----------
Net income, as adjusted........... $ 523,753 $ 189,500
========== ==========
Weighted average number of shares
outstanding(a).................. 3,077,742 3,004,556
Add: Shares issuable from
application of assumed proceeds
from public offering (treasury
stock method)................... 39,452 149,818
---------- ----------
Weighted average number of shares
outstanding, as adjusted........ 3,117,194 3,154,374
========== ==========
Pro Forma earnings per share, as
adjusted........................ $.17(c) $.06(c)
---- -----
---- -----
</TABLE>
- ---------------
(a) Assuming conversion of preferred stock.
(b) Adjustments to income have been shown net of tax effects which were
calculated at 46.3% and 29.8%, respectively (the Company's effective
tax rate) of the gross amounts of the adjustments.
(c) This calculation is submitted in accordance with Regulation S-K item
601(b)(ii) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
<PAGE> 1
EXHIBIT 21.1
The Company has no subsidiaries
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1997
<PERIOD-END> MAR-31-1996 DEC-31-1996
<CASH> 1,250 20,106
<SECURITIES> 0 0
<RECEIVABLES> 2,100,709 574,356
<ALLOWANCES> 0 0
<INVENTORY> 2,782,135 3,228,731
<CURRENT-ASSETS> 5,051,479 4,242,221
<PP&E> 132,042 292,498
<DEPRECIATION> 15,360 48,776
<TOTAL-ASSETS> 5,209,550 4,736,909
<CURRENT-LIABILITIES> 2,689,234 2,579,592
<BONDS> 425,143 16,651
0 0
828,030 828,030
<COMMON> 19,790 20,476
<OTHER-SE> 1,218,353 1,251,160
<TOTAL-LIABILITY-AND-EQUITY> 5,209,550 4,736,909
<SALES> 25,832,323 25,595,708
<TOTAL-REVENUES> 25,832,323 25,595,708
<CGS> 21,128,147 20,986,787
<TOTAL-COSTS> 24,856,757 25,304,320
<OTHER-EXPENSES> 0 21,486
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 41,573 103,125
<INCOME-PRETAX> 933,993 166,777
<INCOME-TAX> 432,564 49,671
<INCOME-CONTINUING> 501,429 117,106
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 501,429 117,106
<EPS-PRIMARY> .16 .04
<EPS-DILUTED> 0 0
</TABLE>
