<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 14, 1997
REGISTRATION NO. 333-11979
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
AMENDMENT NO. 4
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
JENNA LANE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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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:
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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
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==================================================================================================================================
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
- ----------------------------------------------------------------------------------------------------------------------------------
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
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ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- ------ ----------------------------------------- -----------------------------------------
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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
PROSPECTUS DATED MARCH 19, 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."
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
Common Stock and the Warrants will be listed on the Nasdaq National Market
System ("Nasdaq") under the symbols "JLNY" and "JLNYW", respectively. 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.
The 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 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.
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=================================================================================================
Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------
Per Unit.......................... $10.125 $1.0125 $9.1125
- -------------------------------------------------------------------------------------------------
Total(3).......................... $6,075,000 $607,500 $5,467,500
=================================================================================================
</TABLE>
(footnotes on following page)
------------------------
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 components of 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 March 26, 1997.
------------------------
WALSH MANNING SECURITIES, LLC
------------------------
THE DATE OF THIS PROSPECTUS IS MARCH 19, 1997
<PAGE> 4
(footnotes from previous page)
(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 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."
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> 5
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.
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.
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
3
<PAGE> 6
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.
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.
4
<PAGE> 7
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 has made an 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> 8
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 194,159 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) 305,841 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 194,159 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) 305,841 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> 9
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> 10
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> 11
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> 12
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> 13
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> 14
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/Lien on Assets. 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. The obligations of
the Company to Republic are secured by a lien on all the Company's assets. As a
result, there can be no assurance that there will be assets available for
distribution to shareholders or creditors other than Republic in the event of a
liquidation of the Company. 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> 15
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) 294,159 shares of
Common Stock reserved for issuance upon exercise of outstanding stock options
under the Option Plan, (iv) an additional 305,841 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
294,159
13
<PAGE> 16
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 294,159 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> 17
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> 18
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. In addition, as a
condition to the approval by Nasdaq of the Company's listing application, Mr.
Lawrence Kaplan, a stockholder and former director of the Company, has agreed to
an additional lock-up of (i) all securities received by him during 1995 for a
period of 12 months and (ii) all securities received by him during 1996 for a
period of 24 months from the Effective Date. 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> 19
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> 20
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 294,159 shares of Common Stock under the Option Plan
and (vi) an additional 305,841 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> 21
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 67.2%) 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................... .99
-----
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> 22
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> 23
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> 24
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> 25
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> 26
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> 27
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> 28
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> 30
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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<PAGE> 31
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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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. The obligations of
the Company to Republic are secured by a lien on all the Company's assets. As a
result, there can be no assurance that there will be assets available for
distribution to shareholders or creditors other than Republic in the event of a
liquidation of the Company. 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...................... 61 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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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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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. On March 12, 1997, the Board of Directors granted 2,500 ten-year
Options under the Option Plan to each of Messrs. Haft, Herman and Cohen,
contingent upon their joining the Board upon the Effective Date. 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. Dobies, 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> 38
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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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, provided that the Underwriter has consented to the granting of
144,159 Options prior to the date hereof which were otherwise to be granted
during the fiscal year ended April 30, 1998. 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, 25,000 Awards, exercisable at $5.00 per share, to Mitchell Dobies,
and 25,000 Awards, exercisable at $5.00 per share, to Charles Sobel. On March
12, 1997 the Board of Directors agreed to grant, on the Effective Date, 2,500
Awards to each of Messrs. Haft, Herman and Cohen and 86,659 Options to employees
of the Company. These Awards are exercisable for 10 years and 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).
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Options will expire not later than ten years after the date on which they
are granted. Options become exercisable at such times and in such installments
as determined by the Board of Directors. Notwithstanding the foregoing, however,
each Option shall, except as otherwise provided in the stock option agreement
between the Company and an optionee, become exercisable in full for the
aggregate number of shares covered thereby unconditionally on the first day
following the occurrence of any of the following: (a) the approval by the
stockholders of the Company of an Approved Transaction; (b) a Control Purchase;
or (c) a Board Change (each as defined below).
For purposes of the Option Plan, (i) an "Approved Transaction" shall mean
(A) any consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of Common Stock
would be converted into cash, securities or other property, other than a merger
of the Company in which the holders of Common Stock immediately prior to the
merger have the same proportionate ownership of common stock of the surviving
corporation immediately after the merger, or (B) any sale, lease, exchange, or
other transfer (in one transaction or a series of related transactions) of all,
or substantially all, of the assets of the Company, or (C) the adoption of any
plan or proposal for the liquidation or dissolution of the Company; (ii) a
"Control Purchase" shall mean circumstances in which any person (as such term is
defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act, corporation or
other entity (other than the Company or any employee benefit plan sponsored by
the Company or any Subsidiary) (x) shall purchase any Common Stock of the
Company (or securities convertible into the Company's Common Stock) for cash,
securities or any other consideration pursuant to a tender offer or exchange
offer, without the prior consent of the Board of Directors, or (y) shall become
the "beneficial owner" (as such term is defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors (calculated as provided in paragraph (d) of such Rule 13d-3 in the
case of rights to acquire the Company's securities), and (iii) A "Board Change"
shall mean circumstances in which, during any period of two consecutive years or
less, individuals who at the beginning of such period constitute the entire
Board shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, of each
new director was approved by a vote of at least a majority of the directors then
still in office.
In the event that dividends are payable in Common Stock or in the event
there are splits, subdivisions or combinations of shares of Common Stock, the
number of shares available under the Option Plan shall be increased or decreased
proportionately, as the case may be, and the number of shares delivered upon the
exercise thereafter of any Option theretofore granted or issued shall be
increased or decreased proportionately, as the case may be, without change in
the aggregate purchase price.
In the event that an Option holder ceases to be an employee for any reason
other than permanent disability (as determined by the Board of Directors) and
death, any Option, including any unexercised portion thereof, which was
otherwise exercisable on the date of termination, shall expire unless exercised
within a period of three months from the date on which the Option holder ceased
to be so employed, but in no event after the expiration of the exercise period.
In the event of the death of an Option holder during this three month period,
the Option shall be exercisable by his or her personal representatives, heirs or
legatees to the same extent that the Option holder could have exercised the
Option if he or she had not died, for the three months from the date of death,
but in no event after the expiration of the exercise period. In the event of the
permanent disability of an Option holder while an employee, any Option granted
to such employee shall be exercisable for twelve (12) months after the date of
permanent disability, but in no event after the expiration of the exercise
period. In the event of the death of an Option holder while an employee, or
during the twelve (12) month period after the date of permanent disability of
the Option holder, that portion of the Option which had become exercisable on
the date of death shall be exercisable by his or her personal representatives,
heirs or legatees at any time prior to the expiration of one (l) year from the
date of the death of the Option holder, but in no event after the expiration of
the exercise period. Except as the Board of Directors shall provide otherwise,
in the event an Option holder ceases to be an employee for any reason, including
death, prior to the lapse of the waiting period, his or her Option shall
terminate and be null and void.
38
<PAGE> 41
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> 42
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> 43
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. In addition, as a condition to
the approval by Nasdaq of the Company's listing application, Mr. Kaplan has
agreed to an additional lock-up of (i) all securities received by him during
1995 for a period of 12 months and (ii) all securities received by him during
1996 for a period of 24 months from the Effective Date. 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> 44
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 294,159 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> 45
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> 46
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> 47
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> 48
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> 49
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> 50
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. In addition, as a condition to the approval
by Nasdaq of the Company's listing application, Mr. Lawrence Kaplan has agreed
to an additional lock-up of (i) all securities received by him during 1995 for a
period of 12 months and (ii) all securities received by him during 1996 for a
period of 24 months from the Effective Date. 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> 51
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> 52
(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> 53
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> 54
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> 55
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> 56
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> 57
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> 58
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> 59
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> 60
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> 61
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> 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)
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> 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)
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> 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)
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> 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)
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.
In February and March, 1997, the Company agreed to grant, on the effective
date of the initial public offering, options for 294,159 shares exercisable at
$5 per share.
F-12
<PAGE> 66
======================================================
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 APRIL 15, 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
MARCH 19, 1997
======================================================
<PAGE> 67
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
PROSPECTUS DATED MARCH 19, 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 MARCH 19, 1997
<PAGE> 68
[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> 69
[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> 70
[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> 71
[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> 72
[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> 73
[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> 74
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> 75
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> 76
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
27.1** Financial Data Schedule (submitted electronically only)
99.1 Consent of Jay M. Haft
99.2 Consent of Mitchell Herman
99.3 Consent of Gerald Cohen
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
II-3
<PAGE> 77
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> 78
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 4 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 March 14, 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 March 14, 1997
- ------------------------------------------ Officer and Director
Mitchell Dobies (Principal Executive Officer)
/s/ CHARLES SOBEL* Executive Vice President, March 14, 1997
- ------------------------------------------ Co-Chief Executive Officer
Charles Sobel and Director
/s/ JEFFREY MARCUS* Chief Financial Officer March 14, 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> 79
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..........................................................
27.1** Financial Data Schedule (submitted electronically only)....................
99.1 Consent of Jay M. Haft.....................................................
99.2 Consent of Mitchell Herman.................................................
99.3 Consent of Gerald Cohen....................................................
</TABLE>
- ---------------
* To be filed by amendment
** Previously filed
<PAGE> 1
Exhibit 5.1
[FORM OF LEGAL OPINION OF
LAW OFFICES OF DAVID N. FELDMAN]
LAW OFFICES
DAVID N. FELDMAN
555 MADISON AVENUE
NEW YORK, NEW YORK 10022
---------
TELEPHONE: (212) 317-0111
FACSIMILE: (212) 317-0310
E-MAIL: [email protected]
March 12, 1997
Jenna Lane, Inc.
1407 Broadway, Suite 1801
New York, NY 10018
Re: Jenna Lane, Inc.
Registration Statement on Form S-1 (File No. 333-11979)
Ladies and Gentlemen:
We have reviewed the Registration Statement on Form S-1, filed with the
Securities and Exchange Commission on September 12, 1996, and amendments thereto
(file no. 333-11979) (the "Registration Statement") under the Securities Act of
1933, as amended (the "Act") by Jenna Lane, Inc., a Delaware corporation (the
"Company"). The Registration Statement has been filed for the purpose of
registering the following securities for offer and sale under the Act:
a. A maximum of 690,000 investment units ("Units") comprising those
securities set forth in items b and c below.
b. A maximum of 1,380,000 shares (the "Shares") of Common Stock, $.01
par value per share (the "Common Stock").
c. A maximum of 690,000 Redeemable Class A Warrants to purchase a
maximum of 690,000 shares of Common Stock (the "Warrants"), as well as such
690,000 shares of Common Stock issuable upon exercise of such Warrants (the
"Warrant Shares").
d. An option to purchase 60,000 Units (the "Underwriter's Units"), to
be sold to Walsh Manning Securities, LLC (the "Underwriter").
e. 60,000 shares of Common Stock comprising part of the Underwriter's
Units (the "Underwriter's Shares").
f. 120,000 Warrants comprising part of the Underwriter's Units (the
"Underwriter's Warrants").
1
<PAGE> 2
g. 120,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrants (the "Underwriter's Warrant Shares").
h. 90,000 shares of Common Stock to be offered as part of the
Underwriter's over-allotment option by certain selling stockholders (the
"Selling Common Stockholder Shares").
i. 1,000,000 Warrants to be offered by certain selling securityholders
(the "Selling Warrantholder Warrants").
j. 1,000,000 shares of Common Stock issuable upon exercise of the
Selling Warrantholder Warrants (the "Selling Warrantholder Warrant Shares").
We have examined your Certificate of Incorporation, as amended,
By-laws, and such documents, corporate records and questions of law as we have
deemed necessary solely for the purpose of enabling us to render this opinion.
On the basis of such examination, we are of the opinion that:
1. The Company is a corporation duly organized and validly existing and
in good standing under the laws of the State of Delaware, with corporate power
to conduct its business as described in the Registration Statement.
2. The Company has an authorized capitalization of 20,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock, par value $.01 per share.
3. The Shares have been duly authorized and when issued, sold and paid
for as described in the Registration Statement, will be validly issued, fully
paid and non-assessable.
4. The Warrants and Underwriter's Warrants, when issued, sold and paid
for as described in the Registration Statement, will constitute legal and
binding obligations of the Company in accordance with their terms, subject to
applicable bankruptcy, insolvency and other laws affecting the enforceability of
creditors' rights generally.
5. The Warrant Shares, Underwriter's Warrant Shares and Selling
Warrantholder Warrant Shares have been duly authorized and when issued, sold and
paid for as described in the Registration Statement, will be validly issued,
fully paid and nonassessable.
6. All currently outstanding shares of Common Stock, including without
limitation the Selling Common Stockholder Shares, have been duly authorized and
issued as described in the Registration Statement, and are validly issued, fully
paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement.
Very truly yours,
/s/ Law Offices of David N. Feldman
LAW OFFICES OF DAVID N. FELDMAN
2
<PAGE> 1
JENNA LANE, INC.
1407 BROADWAY, SUITE 1801
NEW YORK, NY 10018
April 1, 1996
Lawrence Kaplan
150 Vanderbilt Motor Parkway, Suite 311
Hauppauge, NY 11788
Dear Larry:
On behalf of the Board of Directors of Jenna Lane, Inc. (the
"Corporation"), I am pleased that you have joined the Corporation's Board of
Directors. As an inducement for you to remain on the Board, the Corporation
hereby offers shares of Common Stock, par value $.01 per share, of the
Corporation to you, subject to the restrictions set forth below.
Upon your acceptance of the Board seat by your signature below, the
Corporation shall issue and deliver to you an aggregate of 30,000 shares (the
"Performance Shares") of Common Stock, par value $.01 per share, of the
Corporation (the "Common Stock"). The Performance Shares, upon issuance, shall
be validly issued and fully paid shares of Common Stock of the Corporation,
provided, however, that (i) two-thirds of the Performance Shares shall be
repurchased by the Corporation for the par value thereof in the event that the
Corporation does not achieve net income before taxes of at least $2.2 million
during the period of April 1, 1996 through March 31, 1997, and (ii) one-third of
the Performance Shares shall be repurchased by the Corporation for the par value
thereof in the event that the Corporation does not achieve net income before
taxes of at least $3 million during the period of April 1, 1997 through March
31, 1998. Net income before taxes, for purposes of the foregoing calculations,
will exclude any tax deduction obtained by the Corporation 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 your term on the Board of Directors. The certificates representing the
Performance Shares shall include appropriate legends restricting the
transferability thereof and reflecting the foregoing restrictions.
Please let me know if you have any questions or comments concerning the
foregoing. By signing below, you confirm your acceptance to the provisions
hereof.
With best regards.
Very truly yours,
Mitchell A. Dobies, President and Director
ACCEPTED AND AGREED AS OF THE
1ST DAY OF APRIL, 1996:
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<PAGE> 2
Exhibit 10.5
JENNA LANE, INC.
1407 BROADWAY, SUITE 1801
NEW YORK, NY 10018
February 1, 1997
Lawrence Kaplan
150 Vanderbilt Motor Parkway, Suite 311
Hauppauge, NY 11788
Dear Larry:
This letter modifies the terms of that letter agreement (the "Letter"),
dated April 2, 1996, by and between you and Jenna Lane, Inc. (the "Company"), as
to which the parties agree that the agreements herein are for good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged. The
terms of your Performance Shares (as defined in the Letter), are hereby modified
to state as follows:
The Performance Shares, upon issuance, shall be validly issued
and fully paid shares of Common Stock of the Corporation, 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. 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 or of your service on the Board of Directors.
Please let me know if you have any questions or comments concerning the
foregoing. By signing below, you confirm your acceptance to the provisions
hereof.
With best regards.
Very truly yours,
/s/ Mitchell A. Dobies
Mitchell A. Dobies, President
<PAGE> 3
ACCEPTED AND AGREED AS OF THE
1st DAY OF FEBRUARY, 1997:
/s/ Lawrence Kaplan
LAWRENCE KAPLAN
<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 our rights 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
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<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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<PAGE> 4
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 entitled to have 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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<PAGE> 5
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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<PAGE> 6
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 credit approved 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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<PAGE> 7
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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<PAGE> 8
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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<PAGE> 9
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
-9-
<PAGE> 10
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
-10-
<PAGE> 11
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
-11-
<PAGE> 12
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.
-12-
<PAGE> 13
Very truly yours,
JENNA LANE, INC.
By: /s/ Mitchell Dobies
-------------------------------
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
----------------------------
-13-
<PAGE> 14
[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: /s/ Mitchell Dobies
--------------------------------
<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 recoveries received in connection with or related to any
Kmart Receivable (or may 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
JENNA LANE, INC.
- ----------------
By: Mitchell Dobies
-----------------------------
<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: /s/ Mitchell Dobies
-----------------------------
<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: /s/ Mitchell Dobies
----------------------
<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: /s/ Mitchell Dobies, President
- --------------------------------------
<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: /s/ Mitchell Dobies
----------------------
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: /s/ Mitchell Dobies
----------------------
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 microfilm, 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, demurrage 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 thereto 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 law or 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
[EDWARD ISAACS & COMPANY LLP LETTERHEAD]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in this Amendment No. 1 to Registration Statement
No. 333-11979 on Form S-1 of Jenna Lane, Inc. of our report dated May 7, 1996
relating to the financial statements appearing in the Prospectus, which is a
part of such Registration Statement and to the reference to us under the
heading "Experts" in such prospectus.
EDWARD ISAACS & COMPANY LLP
New York, New York
November 4, 1996
<PAGE> 2
Edward Isaacs & Company LLP
CPAs and Financial Consultants
380 Madison Avenue
New York, NY 10017
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the use in Amendment Nos. 1, 2, 3 and 4 to Registration No.
333-11979 on Form S-1 of Jenna Lane, Inc. of our report dated May 7, 1996
relating to the financial statements appearing in the Prospectus, which is a
part of such Registration Statement, and to the reference to us under the
heading "Experts" in such Prospectus.
/s/ EDWARD ISAACS & COMPANY LLP
New York, New York
March 14, 1997
<PAGE> 1
Exhibit 99.1
CONSENT
Reference is made to that certain Registration Statement (the
"Registration Statement") filed with the Securities and Exchange Commission with
respect to certain securities of Jenna Lane, Inc., a Delaware corporation (the
"Company").
The undersigned has agreed to become a director of the Company upon the
Effective Date (as defined in the Registration Statement) and acknowledges and
consents to the reference to the undersigned in the section entitled
"Management" as well as all other references to the undersigned in the
Registration Statement.
This consent is given pursuant to Rule 438 under the Securities Act of
1933, as amended.
Date: March 10, 1997
/s/ Jay M. Haft
-------------------------------
JAY M. HAFT
<PAGE> 1
Exhibit 99.2
CONSENT
Reference is made to that certain Registration Statement (the
"Registration Statement") filed with the Securities and Exchange Commission with
respect to certain securities of Jenna Lane, Inc., a Delaware corporation (the
"Company").
The undersigned has agreed to become a director of the Company upon the
Effective Date (as defined in the Registration Statement) and acknowledges and
consents to the reference to the undersigned in the section entitled
"Management" as well as all other references to the undersigned in the
Registration Statement.
This consent is given pursuant to Rule 438 under the Securities Act of
1933, as amended.
Date: March 10, 1997
/s/ Mitchell Herman
-------------------------------
MITCHELL HERMAN
<PAGE> 1
Exhibit 99.3
CONSENT
Reference is made to that certain Registration Statement (the
"Registration Statement") filed with the Securities and Exchange Commission with
respect to certain securities of Jenna Lane, Inc., a Delaware corporation (the
"Company").
The undersigned has agreed to become a director of the Company upon the
Effective Date (as defined in the Registration Statement) and acknowledges and
consents to the reference to the undersigned in the section entitled
"Management" as well as all other references to the undersigned in the
Registration Statement.
This consent is given pursuant to Rule 438 under the Securities Act of
1933, as amended.
Date: March 10, 1997
/s/ Gerald Cohen
-------------------------------
GERALD COHEN
