1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1997
REGISTRATION NO. 333-11979
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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JENNA LANE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2345 22-3351399
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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)
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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)
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COPIES TO:
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
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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. [ ]
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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
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Units(2).................................. 690,000 $10.125 $ 6,986,250 $2,409
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-- 2 shares of Common Stock.............
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-- 1 Warrant............................
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Common Stock, $.01 par value(3)........... 690,000 $ 7.00 $ 4,830,000 $1,665
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Warrants(4)............................... 1,000,000 $ 0.125 $ 125,000 $ 43
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Common Stock, $.01 par value(5)........... 1,000,000 $ 7.00 $ 7,000,000 $2,414
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Underwriter's Option(6)................... 60,000 $ 0.001 $ 6 $ 0
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Units(7).................................. 60,000 $16.706 $ 1,002,360 $ 304
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-- 2 shares of Common Stock.............
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-- 1 Warrant............................
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Common Stock, $.01 par value(8)........... 60,000 $ 7.00 $ 420,000 $ 145
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TOTAL............................. $20,211,756 $6,980
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(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.
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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.
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JENNA LANE, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
ITEM
NUMBER ITEM LOCATION IN PROSPECTUS
- ------ ----------------------------------------- -----------------------------------------
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
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."
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SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 25, 1997
PROSPECTUS
600,000 UNITS
JENNA LANE, INC.
EACH UNIT CONSISTING OF TWO SHARES OF COMMON STOCK
AND ONE REDEEMABLE CLASS A WARRANT
Jenna Lane, Inc. (the "Company") hereby offers (the "Offering") 600,000
units ("Units"), each Unit consisting of two shares (the "Shares") of Common
Stock, $.01 par value (the "Common Stock") and one Redeemable Class A Warrant
("Warrants"). The Common Stock and the Warrants will be immediately separately
transferable. Each Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $7.00, subject to adjustment, at any time until
the third anniversary of the date of this Prospectus. Commencing one year from
the date hereof, the Warrants are subject to redemption by the Company at a
redemption price of $.05 per Warrant on 30 days' written notice, provided that
the closing bid price of the Common Stock on the Nasdaq National Market System
is in excess of $11.00 per share for any 20 consecutive trading days ending on
the third day prior to the date of the notice of redemption and provided further
that a registration statement with respect to the shares of Common Stock
underlying such Warrants is then in effect. See "Description of Securities."
(Cover Continued on Next Page)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK, WHICH MAY RESULT IN THE LOSS OF AN INVESTOR'S ENTIRE
INVESTMENT, AND IMMEDIATE DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 AND "DILUTION."
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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)
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Per Unit.......................... $10.125 $1.0125 $9.1125
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Total(3).......................... $6,075,000 $607,500 $5,467,500
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(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."
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The Units are being offered on a "firm commitment" basis by the Underwriter
when, as and if delivered to and accepted by the Underwriter, subject to its
right to reject orders in whole or in part and subject to certain other
conditions. It is expected that the delivery of the certificates representing
the Units will be made against payment therefor at the offices of Walsh Manning
Securities, LLC, 90 Broad Street, New York, New York 10004 on or about ,
1997.
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WALSH MANNING SECURITIES, LLC
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THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1997
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
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(Continued from Previous Page)
Prior to the Offering, there has been no public market for the Company's
securities, and there can be no assurance that such a market will develop. The
Company intends to make application to list the Common Stock and the Warrants on
the Nasdaq National Market System ("Nasdaq"). No separate securities for the
Units will be issued. The Units will not be listed for trading on Nasdaq and no
separate trading market will exist for the Units. It is currently estimated that
the initial public offering price for each Unit will be $10.125. The proposed
offering price and terms of the Units have been determined by negotiation
between the Company and Walsh Manning Securities, LLC (the "Underwriter") and
are not necessarily related to the Company's asset value, net worth or other
established criteria of value. Factors considered in determining such prices and
terms, in addition to prevailing market conditions, include the history of and
the prospects for the industry in which the Company competes, the present state
of the Company's development and its future prospects, an assessment of the
Company's management, the Company's capital structure and such other factors as
were deemed relevant. See "Underwriting."
The Company has concurrently registered (i) an aggregate of 1,000,000
Warrants (the "Selling Warrantholder Warrants") and the Common Stock underlying
the Selling Warrantholder Warrants for resale by certain securityholders (the
"Selling Warrantholders") and (ii) 90,000 shares of Common Stock (the "Selling
Common Stockholder Shares") held by certain existing stockholders who are
members of management of the Company ("Selling Common Stockholders") which,
together with 45,000 Warrants to be issued by the Company, will be sold as part
of the Underwriter's over-allotment option, if the option is exercised (the
over-allotment option may only be exercised and the Selling Common Stockholder
Shares sold only if all 600,000 Units offered hereby are first sold). The
Selling Warrantholder Warrants and the Common Stock underlying such Warrants and
the Selling Common Stockholder Shares are sometimes collectively referred to as
the "Selling Securityholder Securities." The Selling Warrantholder Warrants are
issuable on the closing of the Offering to the Selling Warrantholders upon the
automatic resetting of the terms of warrants (the "Bridge Warrants") acquired by
them in the Company's private placement in August 1996 (the "Bridge Financing").
The Selling Warrantholders have agreed with the Company not to sell any of the
Selling Warrantholder Warrants or underlying shares for a period of eighteen
months after the completion of the Offering. Sales of the Selling Securityholder
Securities, or the potential of such sales, may have an adverse effect on the
market price of the securities offered hereby. Unless the context otherwise
requires, all references herein to the Warrants shall include the Selling
Warrantholder Warrants and the 45,000 Warrants to be issued by the Company. The
Company will not receive any of the proceeds from the sale of any Selling
Securityholder Securities. The Selling Warrantholders and Selling Common
Stockholders are sometimes referred to herein as the "Selling Securityholders."
The Units (and the Shares and Warrants underlying them), the Selling
Warrantholder Warrants and the Selling Common Stockholder Shares, and the shares
and Warrants underlying them are collectively referred to herein as the
"Securities." See "Concurrent Offerings."
5
THE COMPANY IS NOT PRESENTLY A REPORTING COMPANY AND DOES NOT FILE REPORTS
OR OTHER INFORMATION WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"COMMISSION"). ON THE EFFECTIVE DATE ("EFFECTIVE DATE") OF THIS PROSPECTUS, THE
COMPANY WILL REGISTER THE WARRANTS AND THE COMMON STOCK UNDER THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"), AND WILL THEREBY BECOME A
REPORTING COMPANY UNDER THE EXCHANGE ACT. ACCORDINGLY, AFTER THE EFFECTIVE DATE,
THE COMPANY WILL BE SUBJECT TO THE REPORTING REQUIREMENTS OF THE EXCHANGE ACT
AND IN ACCORDANCE THEREWITH WILL FILE REPORTS, PROXY STATEMENTS AND OTHER
INFORMATION WITH THE COMMISSION. IN ADDITION, AFTER THE EFFECTIVE DATE, THE
COMPANY INTENDS TO FURNISH ITS STOCKHOLDERS WITH ANNUAL REPORTS CONTAINING
FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT AUDITORS. THE COMPANY'S FISCAL
YEAR ENDS ON MARCH 31 OF EACH YEAR. SEE "ADDITIONAL INFORMATION."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND/OR WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Company's consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Except as otherwise noted, all
information in this Prospectus (i) reflects a 0.9047619-for-one stock dividend
effected in July 1996 (the "Stock Dividend"); (ii) assumes no exercise of (a)
the Underwriter's over-allotment option, (b) the Warrants, (c) the Selling
Warrantholder Warrants, (d) the Underwriter's Option, (e) options granted or
available for grant under the 1996 Incentive Stock Option Plan of Jenna Lane,
Inc. adopted in August 1996 (the "Option Plan") and (iii) gives effect to the
conversion, on the closing of the Offering, of (x) the Bridge Warrants into the
Selling Warrantholder Warrants and (y) all outstanding shares of the Company's
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock") into 952,381 shares of Common Stock. This Prospectus may be
deemed to contain forward-looking statements within the meaning of Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company desires
to avail itself of certain "safe harbor" provisions of the Reform Act and is
therefore including this special note to enable the Company to do so.
Forward-looking statements in this Prospectus or hereafter included in other
publicly available documents filed with the Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations. These risks
include, but are not limited to, risks set forth herein, each of which could
adversely affect the Company's business and the accuracy of the forward-looking
statements contained herein.
THE COMPANY
The Company was formed in February 1995 and designs, manufactures and
markets high quality, cut and sewn, popularly priced junior, "missy", and large
size fashion and basic sportswear for women. The Company was founded by
individuals with extensive experience in apparel manufacturing, operations,
sales, and merchandising. Since its inception, the Company has dedicated its
time and resources primarily to the development of two sets of product lines,
basic sportswear and fashion sportswear.
Sales of basic sportswear comprised approximately 50-60% of the Company's
revenues in the fiscal year ended March 31, 1996 and the nine months ended
December 31, 1996. In the production of basic sportswear, the Company operates
primarily as a domestic manufacturer which substantially controls or owns all
aspects of its production capability, known within the industry as "vertical
integration." The Company believes that this vertical integration positions the
Company among the few apparel manufacturers in its market with the ability to
control and manage the entire manufacturing process from the conversion of yarn
into fabric to the completion of finished apparel. The Company believes it is
able to realize significant cost savings through its retention of responsibility
for the manufacturing of its own fabric (although not actually manufacturing
itself). As a result, the Company believes it can sell high quality merchandise
to price sensitive discounters and mass merchants at prices competitive to those
of imported goods.
Management believes that vertical integration as a domestic manufacturer of
basic sportswear allows the Company to deliver good quality competitively priced
merchandise to customers significantly faster than the delivery time on goods
shipped from overseas. Because of the Company's ability to produce goods more
quickly than those of its competitors who import products, the Company's retail
customers can conserve capital by purchasing less initial inventory, reduce
markdowns by holding smaller quantities of non-moving merchandise, and increase
sales by rapidly restocking fast-selling items. Management believes that the
Company's ability to deliver high quality, competitively priced merchandise in a
short time frame has allowed it to obtain as customers many of the nation's
leading discount retail outlets, although no assurance can be given that these
relationships will continue or be expanded.
3
7
The second key merchandise product line which the Company has pursued,
which comprised approximately 40-50% of the Company's revenues in the fiscal
year ended March 31, 1996 and the nine months ended December 31, 1996, is
fashion sportswear. In producing its fashion sportswear, the Company follows
more traditional manufacturing processes utilized in the apparel industry,
namely the purchasing of fabric from outside vendors. The fashion sportswear
product line generates a higher gross profit margin than basic sportswear due to
the differentiation of product and reduced competition. In its fashion
sportswear production, the Company loses its competitive advantage of converting
its own fabrics, however, management believes that its long standing
relationships with buyers and management of its retail customers and its overall
merchandising and design skills allow the Company to successfully compete in the
fashion sportswear business, although no assurance of such success can be given.
The Company's sales efforts are organized based on the merchandise category
and/or customer, and are divided into "Missy"/Large Size, Young Large Size,
Imports, Mail Order and Mass Merchants. There can be no assurance that these
sales efforts will be successful or that the Company will not determine to add
additional categories or eliminate some or all of the divisions denoted above.
Indeed, since the Company's formation, it has added one such category and
eliminated another.
Although management is pleased with its success to date in selling
domestically produced basic sportswear and fashion sportswear, and believes the
Company will continue to benefit from substantial focus on those areas, a
longer-term opportunity for expansion will be the growth and development of
sales of imported fashion sportswear. Part of management's long-term plan is to
continue to expand its importing activities, which represented approximately 15%
of the Company's revenues for the nine months ended December 31, 1996. There can
be no assurance that this plan will be successfully implemented or, if
implemented, result in profits to the Company. See "Use of Proceeds"; Risk
Factors -- Foreign Operations and Sourcing; Import Restrictions" and
"Business -- Sales Groups -- Imports."
The Company attempts to maximize its competitive advantage through its
market focus, product design, and merchandise. The Company targets the major
national, regional and specialty chains whose volume demands attract them to
manufacturers who can produce quality merchandise in high volumes at low cost
within specified delivery schedules. See "Business."
The Company was incorporated under the laws of the State of Delaware in
February 1995. The Company's principal executive offices are located at 1407
Broadway, Suite 1801, New York, New York 10017, and its telephone number is
(212) 704-0002.
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THE OFFERING
Securities Offered..................... 600,000 Units, each consisting of
two shares of Common Stock and one
Warrant. The Common Stock and
Warrants will be immediately
separately transferable. No separate
securities will be issued for the
Units. Each Warrant entitles the
holder to purchase one share of
Common Stock at an exercise price of
$7.00, subject to adjustment, at any
time until the third anniversary of
the date of this Prospectus. The
Warrants are subject to redemption
in certain circumstances. See
"Description of Securities."
Securities Offered Concurrently by
Selling Securityholders................ 1,000,000 Warrants and 1,000,000
shares of Common Stock issuable upon
exercise of such Warrants, as well
as the 90,000 Selling Common
Stockholder Shares which, together
with 45,000 Warrants to be issued by
the Company, will be sold as part of
the Underwriter's over-allotment
option, if the option is exercised.
The Company will not receive any of
the proceeds of the sale of such
Selling Securityholder Securities.
See "Concurrent Offerings."
Common Stock Outstanding Before
Offering............................... 3,000,000 shares (1)
Common Stock Outstanding After
Offering............................... 4,200,000 shares (2)
Use of Proceeds........................ To repay $500,000 principal amount
of 10% installment promissory notes
(the "Bridge Notes") issued in the
Bridge Financing, plus accrued
interest thereon of approximately
$8,500; to repay $500,000 principal
amount of 10% installment promissory
notes (the "November Notes") issued
in the November Offering (as
hereinafter defined), plus accrued
interest thereon of approximately
$4,300; to purchase a new CAD/CAM
system for design and manufacturing;
to expand the Company's existing
computer system; to make a loan to a
supplier of the Company to assist in
opening a cutting room; for
reservation of funds relating to
letters of credit in the import
division and for working capital.
See "Use of Proceeds."
Listing; Proposed Trading Symbols...... The Company intends to make
application to list the Common Stock
and the Warrants on the Nasdaq
National Market System ("Nasdaq"),
with the proposed symbols for the
Common Stock and Warrants,
respectively, being JLNY and JLNYW.
The Units will not be listed for
trading on Nasdaq and no separate
trading market will exist for the
Units.(3)
5
9
Risk Factors........................... The Offering involves a high degree
of risk and immediate dilution. See
"Risk Factors" and "Dilution."
- ---------------
(1) Includes (i) 952,381 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock on the closing of the Offering (the "Preferred
Conversion Shares") and (ii) 571,429 shares of Common Stock (the
"Performance Shares") held by certain officers and directors of the Company,
which are subject to repurchase by the Company at the par value thereof if
the Company does not attain certain earnings levels. Does not include (x)
1,000,000 shares of Common Stock issuable upon exercise of the Bridge
Warrants, (y) 100,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $3.00 per
share and 50,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $5.00 per
share and (z) 450,000 additional shares of Common Stock reserved for
issuance upon exercise of options not yet granted under the Option Plan. See
"Capitalization" and "Management."
(2) Includes the 571,429 Performance Shares. Does not include (i) 180,000 shares
of Common Stock issuable upon exercise of the Underwriter's over-allotment
option and the Warrants issuable upon exercise of such option; (ii) 180,000
shares of Common Stock issuable upon exercise of the Underwriter's Option
and the Warrants underlying such option; (iii) 600,000 shares of Common
Stock issuable upon exercise of the Warrants offered hereby; (iv) 1,000,000
shares of Common Stock issuable upon exercise of the Selling Warrantholder
Warrants; (v) 100,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $3.00 per
share and 50,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $5.00 per
share and (vi) 450,000 additional shares of Common Stock reserved for
issuance upon exercise of options not yet granted under the Option Plan. See
"Capitalization," "Management" and "Underwriting."
(3) No assurance can be given that an active trading market will develop, or, if
one develops, be maintained for any of the Company's securities. See "Risk
Factors."
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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.
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)
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
DECEMBER 31, 1996
---------------------------------------------------
MARCH 31, PRO FORMA
1996 ACTUAL PRO FORMA (1) AS ADJUSTED(1)(2)
---------- ---------- ------------- ------------------
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
- ---------------
(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.
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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
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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.
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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."
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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
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believes its insurance coverage to be reasonable and in customary scope and
amount, but there can be no assurance thereof, or of such coverage applying to a
particular loss which may occur.
Dependence on Accounts Receivable Factoring. In March 1995, the Company
entered into a Factoring Agreement with Republic Factors Corp ("Republic"),
pursuant to which the Company receives advances against factored accounts
receivable with interest at 1.5% over prime rate. Advances, which are at the
discretion of Republic, generally are equal to 80% of eligible receivables.
Republic also has provided the Company with financing for import letters of
credit. The Company generally utilizes the factoring arrangement to the maximum
extent permitted by Republic, which historically has allowed the Company to
factor substantially all its accounts receivable. After the completion of the
Offering, the Company intends to be less dependent upon its arrangement with
Republic for its cash flow needs, thereby reducing its overall interest expense,
although there can be no assurance of the Company's ability to achieve this
goal. The funds provided by Republic prior to the completion of the Offering
are, and are likely to continue to be after the Offering, of material importance
to the Company's cash flow needs. The Company believes, however, that if
Republic were to cease to be the Company's factor, the Company would be able to
replace Republic with another factor or lender upon then commercially reasonable
terms, although there can be no assurance thereof. See "Business -- Factoring of
Accounts Receivable."
Control by Management; Independent Board Members. Prior to the Offering,
management of the Company (including all current officers and directors of the
Company) beneficially owned approximately 52% of all the issued and outstanding
Common Stock of the Company (the "Outstanding Stock"). Of such 52%,
approximately 17% of the Outstanding Stock held by such management is in the
form of Performance Shares. See "Management -- Employment Agreements." After the
Offering, such management will beneficially own approximately 37% of the
Outstanding Stock (of which approximately 12% of the Outstanding Stock held by
such management will be in the form of Performance Shares). Consequently, after
the Offering management will continue substantially to control the operations of
the Company and exercise significant and near majority voting control of the
Company's affairs. As a condition to listing the Company's securities on Nasdaq,
the Company is required to ensure that independent directors represent a
majority of the members of the Board of Directors, and for one such independent
director to serve as Chairman. Messrs. Jay M. Haft, Gerald Cohen and Mitchell
Herman will be the three independent directors as of the Effective Date, serving
along with Messrs. Dobies and Sobel. While the existence of a majority of
independent directors will reduce the ability of Messrs. Dobies and Sobel to
control the Company, upon the Effective Date, management will continue to have
significant control over the Board of Directors through their stock ownership.
As a result, the stockholders of the Company possess little practical ability to
remove management or effect the operations of the business of the Company. See
"Management," "Principal Stockholders."
Intellectual Property. Currently, the Company has sought virtually no
patent, trademark or copyright protection for its lines or planned lines of
products. Whether or not the Company seeks and obtains such protection in the
future, there can be no assurance that competitors of the Company will not
successfully develop similar products to compete in the Company's intended
marketplace which do not infringe on any such protection obtained by the Company
or which involve rights owned by such competitors which the names of the
Company's products infringe upon. The apparel industry is particularly
vulnerable to attempts by competitors to "copycat" or "knock off " each other's
products, designs, even trademarks, and there can be no assurance that
competitors of the Company will not take such actions.
No Public Market for Securities; Possible Volatility of Market Price;
Arbitrary Determination of Offering Price. Prior to the Offering, there has not
been any market for any of the Company's securities, and there can be no
assurance that an active trading market will develop or be sustained after the
Offering. The initial public offering price of the Securities and the exercise
price and other terms of the Warrants have been determined by negotiation
between the Company and the Underwriter and are not necessarily related to the
Company's asset value, net worth, results of operations or any other criteria of
value and may not be indicative of the prices that may prevail in the public
market. The market prices of the Common Stock and Warrants also could be subject
to significant fluctuations in response to general trends in the industry and
other factors, including extreme price and volume fluctuations which have been
experienced by the securities markets from time to time. See "Underwriting."
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Authorization of Additional Securities. The Company's Certificate of
Incorporation authorizes the issuance of 18,000,000 shares of Common Stock and
2,000,000 shares of Preferred Stock. Upon completion of this Offering, there
will be 2,000,000 authorized but unissued shares or treasury shares of Preferred
Stock and 13,800,000 authorized but unissued shares of Common Stock available
for issuance. The foregoing does not take into account (i) 1,600,000 shares of
Common Stock reserved for issuance upon exercise of the Warrants, (ii) 180,000
shares of Common Stock reserved for issuance upon exercise of the Underwriter's
Option and exercise of the Warrants contained therein, (iii) 150,000 shares of
Common Stock reserved for issuance upon exercise of outstanding stock options
under the Option Plan, (iv) an additional 450,000 shares of Common Stock
reserved for issuance upon exercise of stock options not yet granted under the
Option Plan or (v) any exercise by the Underwriter of the over-allotment option.
The foregoing includes the 571,429 Performance Shares and the Preferred
Conversion Shares. The Company's Board of Directors has the power to issue any
or all of such shares without stockholder approval. To the extent that
additional shares of Common Stock (or securities convertible into, or
exercisable or exchangeable for, shares of Common Stock) are issued, dilution to
the interests of the Company's stockholders will occur. The Company has agreed
not to issue or sell any securities of the Company without the Underwriter's
consent during the 18 months after the date hereof. See "Underwriting."
Immediate Dilution. The purchasers of Units in the Offering will
experience immediate dilution of $3.35 or 67.0% in the pro forma per share net
tangible book value of their Common Stock ($3.29 or 65.8% if the Underwriter's
over-allotment option is exercised in full). Additional dilution to public
investors, if any, may result to the extent that the Warrants, the Underwriter's
Option and/or outstanding options are exercised at a time when the net tangible
book value per share of Common Stock exceeds the exercise price of any such
securities. See "Dilution."
Potential Adverse Effects of Preferred Stock. The Company's Certificate of
Incorporation authorizes the issuance of shares of "blank check" preferred
stock, which will have such designations, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the Common
Stock. The preferred stock could be utilized to discourage, delay or prevent a
change in control of the Company. Although the Company has no present intention
to issue any shares of preferred stock, there can be no assurance that the
Company will not do so in the future. See "Description of Securities."
Business Combinations. The Company is subject to a Delaware statute
regulating "business combinations," defined to include a broad range of
transactions, between Delaware corporations and "interested stockholders,"
defined as persons who have acquired at least 15% of a corporation's stock.
Under the law, a corporation may not engage in any business combination with any
interested stockholder for a period of three years from the date such person
became an interested stockholder unless certain conditions are satisfied. The
Company has not sought to "elect out" of the statute, and, therefore, upon
closing of the Offering and the registration of its shares of Common Stock under
the Exchange Act, the restrictions imposed by such statute will apply to the
Company. The Company has no restrictions, super-majority voting provisions or
other discussion in its Certificate of Incorporation or By-Laws affecting
business combinations, except that, in the event of certain changes in control
of the Company, each of Messrs. Dobies and Sobel has the right in their
respective Employment Agreements to receive certain payments in the event of
certain terminations of their employment thereafter. See "Management" and
"Description of Securities."
No Dividends. The Company has not paid any cash dividends on its Common
Stock and does not expect to declare or pay any cash or other dividends in the
foreseeable future.
Outstanding Warrants and Options. Upon completion of the Offering
(assuming no exercise of the over-allotment option), the Company will have
outstanding (i) 600,000 Warrants to purchase an aggregate of 600,000 shares of
Common Stock; (ii) the Selling Warrantholder Warrants to purchase 1,000,000
shares of Common Stock; (iii) the Underwriter's Option to purchase an aggregate
of 60,000 Units comprising 120,000 shares of Common Stock and 60,000 Warrants,
which option is exercisable during the three-year period commencing 12 months
after the date of this Prospectus; (iv) incentive stock options to purchase
150,000
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shares of Common Stock granted under the Option Plan and (v) 571,429 Performance
Shares. The Company has reserved an aggregate of 600,000 shares of Common Stock
for issuance under the Option Plan of which options to purchase 150,000 shares
have been issued to date. Holders of such warrants and options are likely to
exercise them when, in all likelihood, the Company could obtain additional
capital on terms more favorable than those provided by such warrants and
options. Further, while these warrants and options are outstanding, the
Company's ability to obtain additional financing on favorable terms may be
adversely affected. The Selling Warrantholders have agreed not to sell the
Selling Warrantholder Warrants or underlying shares for a period of eighteen
months after the completion of the Offering. See "Management -- Option Plan,"
"Principal Stockholders," "Description of Securities," "Concurrent Offerings"
and "Underwriting."
Potential Adverse Effect of Redemption of Warrants. Commencing one year
from the date of this Prospectus, the Warrants may be redeemed by the Company at
a redemption price of $.05 per Warrant provided that (x) 30 days prior written
notice is given to the holders of the Warrants, (y) the closing bid price per
share of Common Stock as reported on Nasdaq (or the last sale price, if quoted
on a national securities exchange) has been at least $11.00 for the twenty
consecutive trading days ending on the third day prior to the date of the notice
of redemption and (z) a valid registration statement with respect to the shares
of Common Stock underlying such Warrants is then in effect. Redemption of the
Warrants could force the holders (i) to exercise the Warrants and pay the
exercise price therefor at a time when it may be disadvantageous for the holders
to do so, (ii) to sell the Warrants at the then current market price when they
might otherwise wish to hold the Warrants or (iii) to accept the nominal
redemption price which, at the time the Warrants are called for redemption, is
likely to be substantially less than the market value of the Warrants. See
"Description of Securities -- Redeemable Class A Warrants."
Current Prospectus Required to Exercise Warrants. Holders of Warrants will
be able to exercise the Warrants only if (i) a current prospectus under the
Securities Act relating to the shares of Common Stock underlying the Warrants
(the "Warrant Shares") is then in effect and (ii) such securities are qualified
for sale or exempt from qualification under the applicable securities laws of
the states in which the various holders of Warrants reside. Although the Company
has undertaken and intends to use its best efforts to maintain a current
prospectus covering the Warrant Shares following completion of the Offering to
the extent required by federal securities laws, there can be no assurance that
the Company will be able to do so. The value of the Warrants may be greatly
reduced if a prospectus covering the Warrant Shares is not kept current or if
the Warrant Shares are not qualified, or exempt from qualification, in the state
in which the holders of Warrants reside. Persons holding Warrants who reside in
jurisdictions in which such securities are not qualified and in which there is
no exemption will be unable to exercise their Warrants and would either have to
sell their Warrants in the open market or allow them to expire unexercised. If
and when the Warrants become redeemable by the terms thereof, the Company may
exercise its redemption right even if it is unable to qualify the Warrant Shares
for sale under all applicable state securities laws. See "Description of
Securities -- Redeemable Class A Warrants."
Possible Restrictions on Market-Making Activities in the Company's
Securities. The Underwriter may determine to make a market in the Company's
securities. Rule 10b-6 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), may prohibit the Underwriter from engaging in any
market-making activities with regard to the Company's securities for the period
from nine business days (or such other applicable period as Rule 10b-6 may
provide) prior to any solicitation by the Underwriter of the exercise of
Warrants until the later of the termination of such solicitation activity or the
termination (by waiver or otherwise) of any right that the Underwriter may have
to receive a fee for the exercise of Warrants following such solicitation. As a
result, the Underwriter may be unable to provide a market for the Company's
securities during certain periods while the Warrants are exercisable. In
addition, under applicable rules and regulations under the Exchange Act, any
person engaged in the distribution of the Selling Securityholder Securities may
not simultaneously engage in market-making activities with respect to any
securities of the Company for the applicable "cooling off" period (at least two
and possibly nine business days) prior to the commencement of such distribution.
Accordingly, in the event the Underwriter is engaged in a distribution of the
Selling Securityholder Securities, such firm will not be able to make a market
in the Company's securities during the
14
18
applicable restrictive period. Any temporary cessation of such market-making
activities could have an adverse effect on the market price of the Company's
securities. See "Underwriting."
Possible Delisting of Securities from Nasdaq. While the Company's Common
Stock and Warrants meet the current Nasdaq listing requirements and are expected
to be initially included on Nasdaq, there can be no assurance that the Company
will meet the criteria for continued listing. Continued inclusion on Nasdaq
generally requires that (i) the Company maintain at least $2,000,000 in total
assets and $1,000,000 in capital and surplus, (ii) the minimum bid price of the
Common Stock be $1.00 per share, (iii) there be at least 200,000 shares in the
public float valued at $1,000,000 or more, (iv) the Common Stock have at least
two active market makers and (v) the Common Stock be held by at least 400
holders. If the Company is unable to satisfy Nasdaq's maintenance requirements,
its securities may be delisted from Nasdaq. In such event, trading, if any, in
the Units, Common Stock and Warrants would thereafter be conducted in the
over-the-counter market in the so-called "pink sheets" or the "Electronic
Bulletin Board" of the National Association of Securities Dealers, Inc. ("NASD")
and it could be more difficult to obtain quotations of the market price of the
Company's securities. Consequently, the liquidity of the Company's securities
could be impaired, not only in the number of securities which could be bought
and sold, but also through delays in the timing of transactions, reduction in
security analysts' and the news media's coverage of the Company and lower prices
for the Company's securities than might otherwise be attained.
Underwriter's Lack of Underwriting Experience. While certain of the
officers of the Underwriter have significant experience in corporate financing
and the underwriting of securities, the Underwriter has not previously
underwritten any public offerings. Accordingly, there can be no assurance that
the Underwriter's lack of public offering experience will not affect the
Company's offering of the Securities and subsequent development of a trading
market, if any.
Risks of Penny Stock. If the Company's securities were delisted from
Nasdaq (see "Risk Factors -- Possible Delisting of Securities from Nasdaq,"
above), they could become subject to Rule 15g-9 under the Exchange Act, which
imposes additional sales practice requirements on broker-dealers that sell such
securities to persons other than established customers and "accredited
investors" (generally, individuals with net worths in excess of $1,000,000 or
annual incomes exceeding $200,000 or $300,000 together with their spouses). For
transactions covered by such a rule, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser's
written consent to the transaction prior to sale. Consequently, such rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may adversely affect the ability of purchasers in the Offering to sell in
the secondary market any of the securities acquired.
Commission regulations define a "penny stock" to be any non-Nasdaq equity
security that has a market price (as therein defined) of less than $5.00 per
share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the
rules require delivery, prior to any transaction in a penny stock, of a
disclosure schedule prepared by the Commission relating to the penny stock
market. Disclosure is also required to be made about commissions payable to both
the broker-dealer and the registered representative and current quotations for
the securities. Finally, monthly statements are required to be sent disclosing
recent price information for the penny stock held in the account and information
on the limited market in penny stocks.
The foregoing required penny stock restrictions will not apply to the
Company's securities if such securities are listed on Nasdaq and have certain
price and volume information provided on a current and continuing basis or meet
certain minimum net tangible assets or average revenue criteria. There can be no
assurance that the Company's securities will qualify for exemption from these
restrictions. In any event, even if the Company's securities were exempt from
such restrictions, it would remain subject to Section 15(b)(6) of the Exchange
Act, which gives the Commission the authority to prohibit any person that is
engaged in unlawful conduct while participating in a distribution of a penny
stock from associating with a broker-dealer or participating in a distribution
of a penny stock, if the Commission finds that such a restriction would be in
the public interest. If the Company's securities were subject to the rules on
penny stocks, the market liquidity for the Company's securities could be
severely adversely affected.
15
19
Shares Eligible for Future Sale. Future sales of Common Stock by existing
stockholders pursuant to Rule 144 under the Securities Act, pursuant to the
Concurrent Offerings or otherwise, could have an adverse effect on the price of
the Company's securities. Pursuant to the Concurrent Offerings, 1,000,000
Selling Warrantholder Warrants and 1,000,000 Warrant Shares underlying them, as
well as the 90,000 Selling Common Stockholder Shares which, together with 45,000
Warrants, will be sold as part of the Underwriters' over-allotment option, if
the option is exercised, will be registered. Upon the sale of the Units offered
hereby, the Company will have outstanding 4,200,000 shares of Common Stock and
1,600,000 Warrants (4,290,000 shares of Common Stock and 1,690,000 Warrants if
the Underwriter's over-allotment option is exercised in full). The shares of
Common Stock and the Warrants sold in the Offering will be freely tradeable
without restriction under the Securities Act, unless acquired by "affiliates" of
the Company as that term is defined in the Securities Act. The remaining
2,910,000 outstanding shares of Common Stock are "restricted securities" within
the meaning of Rule 144 under the Securities Act and will become eligible for
sale under Rule 144 commencing in March 1997. The holders of the Bridge Warrants
have agreed not to sell or otherwise dispose of such Bridge Warrants or Warrant
Shares underlying such Bridge Warrants for a period of 18 months from the date
of this Prospectus. The holders of the Series A Preferred Stock have agreed not
to sell or otherwise dispose of any Preferred Conversion Shares prior to October
31, 1997, without the prior written consent of the Underwriter. The holders of
190,476 shares of Common Stock acquired in the November Offering have agreed not
to sell or otherwise dispose of such shares prior to November 30, 1997, without
the prior written consent of the Underwriter. Messrs. Dobies and Sobel have
agreed not to sell or otherwise dispose of any securities of the Company
beneficially owned by them (other than the Selling Common Stockholder Shares
which will be sold as part of the Underwriter's over-allotment option) for a
period of two years from the date of this Prospectus. The holders of 1,142,857
(assuming conversion of the Series A Preferred Stock into Preferred Conversion
Shares) shares of Common Stock outstanding upon consummation of the Offering
have "piggy-back" registration rights covering their securities, which rights
have been waived with respect to the Offering. Sales of Common Stock, or the
possibility of such sales, in the public market may adversely affect the market
price of the securities offered hereby. See "Concurrent Offerings," "Description
of Securities" and "Shares Eligible for Future Sale."
Broad Discretion as to Use of Proceeds. Of the net proceeds of the
Offering (assuming no exercise of the over-allotment option), approximately
$517,200 or approximately 10.57% has been allocated to working capital and other
general corporate purposes (and not otherwise allocated for a specific purpose)
and will be used for such purposes as management may determine in its sole
discretion without the need for stockholder approval with respect to such
allocation. See "Use of Proceeds."
DIVIDEND POLICY
The Company has not paid any cash dividends on its Common Stock and does
not expect to declare or pay any dividends in the foreseeable future. The
Company presently anticipates that all earnings will be retained to finance the
continued growth and development of the Company's business. Any future
determination as to the payment of cash dividends will depend upon the Company's
financial condition, results of operations and other factors deemed relevant by
the Board of Directors. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
16
20
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Units offered hereby,
after deducting underwriting discounts and commissions and other estimated
expenses of the Offering, are estimated to be approximately $4,895,000
(approximately $5,296,000 if the Underwriter's over-allotment option is
exercised in full). The Company expects the net proceeds to be utilized
approximately as follows:
APPROXIMATE PERCENTAGE
AMOUNT OF NET
APPLICATION OF NET PROCEEDS PROCEEDS
----------------------------------------------------------- --------------- ----------
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%
========== =======
- ---------------
(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
21
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
December 31, 1996; (ii) the pro forma capitalization as of December 31, 1996 to
reflect the conversion of the Series A Preferred Stock into Preferred Conversion
Shares upon the closing of the Offering, and (iii) the pro forma capitalization
as adjusted to reflect the sale of the Units offered hereby and the application
of the net proceeds therefrom to prepay the Bridge Notes and related interest
and the November Notes and related interest. See "Use of Proceeds." This table
should be read in conjunction with the financial statements (including the notes
thereto) appearing elsewhere in this Prospectus.
DECEMBER 31, 1996
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ---------- -----------
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
========== ========== ==========
- ---------------
(1) The Bridge Notes are payable on the closing of the Offering. See "Use of
Proceeds." The Bridge Notes are recorded net of a $15,625 unamortized
discount attributable to the fair value of the Bridge Warrants.
(2) The November Notes are payable on the closing of the Offering. See "Use of
Proceeds." The November Notes are recorded net of a $41,667 unamortized
discount attributable to the fair value of the shares of Common Stock
issued in the November Offering.
(3) Includes 571,429 Performance Shares. See "Management -- Employment
Agreements." Excludes (i) 180,000 shares of Common Stock issuable upon
exercise of the Underwriter's over-allotment option and the Warrants
underlying such option; (ii) 180,000 shares of Common Stock issuable upon
exercise of the Underwriter's Option and the Warrants underlying such
option; (iii) 600,000 shares of Common Stock issuable upon exercise of the
Warrants offered hereby; (iv) 1,000,000 shares of Common Stock issuable
upon exercise of the Selling Warrantholder Warrants; and (v) outstanding
options to purchase 150,000 shares of Common Stock under the Option Plan
and (vi) an additional 450,000 shares of Common Stock available for award
under the Option Plan. See "Management" and "Underwriting."
(4) As adjusted gives effect to the recognition of approximately $106,000 of
expense upon the repayment of the Bridge Notes and the November Notes
(includes an aggregate of $57,000 of debt discount). See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
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22
DILUTION
Dilution represents the difference between the initial public offering
price paid by the purchasers and allocated to the Common Stock in the Offering
and the net tangible book value per share immediately after completion of the
Offering. Net tangible book value per share represents the amount of the
Company's total tangible assets minus the amount of its liabilities, divided by
the number of shares of Common Stock outstanding, including the 952,381
Preferred Conversion Shares issuable upon the conversion of the Series A
Preferred Stock upon the closing of the Offering. At December 31, 1996, the
Company had a pro forma net tangible book value of $1,938,766 or $0.65 per share
of Common Stock. After giving retroactive effect to the sale of the Securities
offered hereby and the Company's receipt of the estimated net proceeds therefrom
and the use of a portion of the net proceeds to repay the Bridge Notes
(including related interest) and the November Notes (including related
interest), the pro forma net tangible book value of the Company, as adjusted, at
December 31, 1996, would have been $6,888,517 or $1.64 per common share. This
would result in an immediate dilution to the public investors of $3.36 per share
(or 67.23%) and the aggregate increase in the pro forma net tangible book value
to present stockholders would be $1.00 per share.
The following table illustrates the information with respect to dilution to
new investors on a per share basis:
Public offering price per share...................................... $5.00
Pro forma net tangible book value per share before Offering........ $0.65
Increase per share attributable to new investors................... 1.00
-----
Pro forma net tangible book value per share after Offering........... 1.64
-----
Dilution per share to new investors(1)............................... $3.36
=====
- ---------------
(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):
TOTAL CONSIDERATION
SHARES PURCHASED PAID AVERAGE
---------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT(1) PERCENT SHARE
---------- -------- ----------- ------- ---------
Existing Stockholders(2)............. 3,000,000 71.43% $1,877,060 23.8% $0.63
New Investors........................ 1,200,000 28.57% $6,000,000 76.2% $5.00
--------- ------- ---------- ------
Total................................ 4,200,000 100.00% $7,877,060 100.0%
========= ======= ========== ======
- ---------------
(1) 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."
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23
SELECTED FINANCIAL DATA
The following selected financial data for the period from February 14, 1995
(the date operations commenced) to March 31, 1995 and the year ended March 31,
1996 are derived from the audited financial statements of the Company appearing
elsewhere in this Prospectus. The financial data for the nine month periods
ended December 31, 1995 and 1996 are derived from the Company's unaudited
financial statements. The unaudited financial statements include all
adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of its financial position and the
results of operations for these periods. Operating results for the nine months
ended December 31, 1996 are not necessarily indicative of the results that may
be expected for the entire fiscal year ending March 31, 1997 or any other future
periods. The selected financial data should be read in conjunction with the
financial statements of the Company and the other financial information
appearing elsewhere in this Prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
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
-------------- ----------- ------------ ------------
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
DECEMBER 31, 1996
-------------------------------------------------
MARCH 31, MARCH 31, PRO FORMA
1995 1996 ACTUAL PRO FORMA(1) AS ADJUSTED(1)(2)
---------- ---------- ---------- ------------ -----------------
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
- ---------------
(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
24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the nine months ended December 31, 1996 and 1995,
respectively. This discussion should be read in conjunction with the Company's
Financial Statements, the notes related thereto, and the other financial data
included elsewhere in this Prospectus. A comparison of the financial condition
and results of operations of the Company for the year ended March 31, 1996 and
the period February 14, 1995 (inception) to March 31, 1995 has not been included
in this discussion because the Company believes that such a comparison would not
be meaningful to investors due to the Company's limited operations during the
period February 14, 1995 to March 31, 1995.
OVERVIEW
The Company was incorporated in Delaware in February 1995 to design,
manufacture and market high quality, popular priced sportswear for women. From
inception through March 31, 1995, the Company focused primarily on setting-up
manufacturing operations (primarily through contractors), establishing sources
of supply, leasing showroom and office premises, raising capital and
establishing credit from key suppliers and factors.
Management's primary goal was to be recognized as a key resource to its
target customers. Market penetration was achieved through aggressive pricing,
established relationships within the industry and experience in predicting
fashion trends. In response to customer buying patterns, the Company, which
began production and shipping in April 1995, significantly increased the amount
of woven sportswear being produced and sold. Sales volume expanded rapidly
throughout the Company's first fiscal year which ended March 31, 1996.
Approximately 85% of all sales during the nine months ended December 31, 1996
have been generated from domestic production with the remainder in such period
from imports.
To date the Company has expended approximately $300,000 towards the
expansion of its import sales group, which it believes will increase in
importance in the years ahead. See "Business -- Sales Groups -- Imports." A mail
order sales group, which management also desires to turn into a profitable
opportunity, was established in fiscal 1996 with approximately $150,000 expended
to date (principally for personnel costs). There can be no assurance as to the
future success of either the import or the mail order sales groups.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, the Company's
statement of operations data as a percentage of net sales:
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31,
MARCH 31, -------------------
1996 1995 1996
---------- ------ ------
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%
===== ===== =====
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25
NINE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1995
Net sales of $25.6 million in the nine months ended December 31, 1996
represented an increase of $9.1 million, or 55% over net sales of $16.5 million
in the nine months ended December 31, 1995. The increase in net sales was
primarily attributable to expansion of the customer base and increased volume
from existing customers. The expansion of the customer base includes
approximately $5.0 million in net sales to Charming Shoppes and Deb Shops which
were not customers during the nine months ended December 31, 1995. Increased
volume to Kmart, Petrie and Bradlees, among others, accounted for the balance of
the sales increase.
The Company's gross profit increased $1.7 million, or 58.6% to $4.6 million
for the nine months ended December 31, 1996 from $2.9 million for the nine
months ended December 31, 1995. Gross profit margin increased to 18.0% in the
nine months ended December 31, 1996 from 17.7% in the nine months ended December
31, 1995. The improvement in gross profit margin resulted primarily from higher
selling prices compared to certain aggressive pricing initially offered to
customers when the Company commenced operations.
Operating expenses, including all transactions with the factor, increased
$1.9 million, or 79.1%, to $4.3 million in the nine months ended December 31,
1996 from $2.4 million in the nine months ended December 31, 1995. The increase
was primarily due to an increase of $640,000 in payroll and related costs,
including $420,000 in increased selling salaries and other expenses which are
impacted by increased sales volume including increased warehouse and shipping
expenses of $160,000. The Company's results also include increases of $190,000
attributable to additional fixed costs (including rent, depreciation and
insurance) relating to the expansion of office and storage space. Factoring
costs increased $543,000 relating to commissions on higher sales volume, and
additional borrowing for working capital needs. The increased level of operating
expenses incurred during the nine months ended December 31, 1996 also reflected
anticipated further expansion of the Company's business, not all of which was
achieved as expected during the period. Since December 31, 1996, the Company has
been reviewing its business plan and has endeavored to reduce its operating
expenses.
As a result of the above factors, income from operations decreased $182,000
to $291,000 in the nine months ended December 31, 1996 from $473,000 in the nine
months ended December 31, 1995. This result includes a loss from operations of
$118,000 for the quarter ended December 31, 1996.
Other expenses increased $108,000 in the nine months ended December 31,
1996 from $17,000 in the nine months ended December 31, 1995 resulting primarily
from interest expense on promissory notes issued in November 1995 and August
1996.
For the nine months of fiscal 1997 income tax expense as a percentage of
pre-tax income decreased from 43.5% to 29.8% compared to the same period in
fiscal 1996. The decrease results primarily from applying the normal statutory
tax rates to the lower income level.
LIQUIDITY AND CAPITAL RESOURCES
Since its formation, the Company has financed its operations and met its
capital requirements primarily through funds raised from its founders, three
private placement offerings, as well as borrowings under its factoring
arrangement, vendor financing and, to a lesser extent, equipment financing.
These financing activities provided net cash of $718,000 in fiscal 1995, and
$1.3 million in fiscal 1996. The Company received gross proceeds of $500,000
from The Bridge Financing. The proceeds of the Bridge Financing were used to
finance the expenses relating to the Offering, for working capital and for other
corporate purposes.
Operating activities used net cash of $154,000 in fiscal 1995, $1.7 million
in fiscal 1996 and provided net cash of $42,000 for the nine months ended
December 31, 1996. The principal use of operating cash is to purchase fabric and
manufacture its products. The increased inventory levels resulted from the
Company's corresponding increased production to support the growth in sales.
Furthermore, the addition of import and mail order divisions during fiscal 1996
required funds for personnel, product development and additional space costs.
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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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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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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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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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the contractors' production scheduling and movement of merchandise. Quality is
controlled in tandem by Company employees and by an in-house quality staff
provided by the contractor. The Company currently has no contractual arrangement
with these contractors, nor are any expected. See "Risk Factors -- Dependence on
Suppliers; Distribution."
After completion of cutting and sewing, the completed goods are sent to the
Company's warehouse in New Jersey for distribution and shipping or will be
shipped directly to the customer from the contractor. See
"Business -- Shipping."
Management believes that the industry standard in basic sportswear
merchandising to produce a finished product from the time the fabric is ordered
is six to eight weeks. By employing the processes described above, the Company
generally has been able to complete the entire manufacturing process from
delivery of yarn to completion of finished goods in approximately four weeks,
although no assurance can be given that such performance will continue, and many
factors outside the Company's control can affect this response time. See "Risk
Factors -- Dependence on Suppliers; Distribution"; "Risk Factors -- Fashion
Trends."
In the manufacture of fashion sportswear, the Company and its captive
contractors noted above are involved in the cutting and sewing process, but the
Company does not purchase the yarn or knit, dye or finish it. This work is
completed prior to the Company's contractor's commencement of involvement in the
process.
SHIPPING
The Company, prior to June 1996, contracted with a public warehouse to
provide shipping and distribution services. The Company also ships a material
portion of its merchandise directly from the contractor to customers. In June
1996, the Company leased 48,519 square feet of warehouse space in Cranbury, New
Jersey. Management has determined that its ability to control its own warehouse
operations is of significant benefit to the Company. In addition, some long-term
cost savings could be generated by operating its own warehouse rather than
continuing to utilize a public warehouse. Given the Company's sales volume in
its first year of operations and the factors described above, these positive
aspects in obtaining a Company warehouse outweighed the negative aspects
thereof, such as the addition to overhead represented by leasing and staffing
such a facility and the administrative burdens represented thereby. See "Risk
Factors -- Dependence on Suppliers; Distribution."
QUALITY CONTROL
A vital concern to management is product quality and quality control.
Strict quality control standards are required in order to maintain and build
relationships with key customers and minimize product returns. Adherence to
these strict standards is even more important to national mass merchants such as
ShopKo (a current customer of the Company). The Company carefully monitors the
output of its contractors to insure they produce the highest quality
merchandise. All contractors are visited by employees of the Company's quality
control team, which includes its President and Co-Chief Executive Officer, and
are supplemented by contractor paid in-house teams.
INVENTORY
The Company believes that it turns its inventory more often than its
competitors. In the fiscal year ended March 31, 1996, it did so 14 times, and
during the nine months ended December 31, 1996 it did so approximately seven
times although no assurance can be given that such result will continue. This
turn rate, which management believes is very high, primarily reflects the
extremely low permanent inventory of a start-up company, as well as the
responsiveness and service which the Company's customers expect. As the Company
grows and matures and increases the overall contribution to revenues from
importing activities and mail order sales, it is expected that this turn rate
will be reduced, although no assurance can be given.
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ORDERING AND DISTRIBUTION
The Company has computerized its order entry and has fully integrated order
entry, shipping, accounts payable and accounts receivable through use of
computer software. Senior management reviews all orders with respect to price,
merchandise delivery dates and suitability for the customer. During its first
year of operations and for the foreseeable future, the Company has determined
that virtually no speculative merchandise will be produced domestically and all
domestic manufacturing will take place in response to customer orders. An
appreciable portion of the Company's imported goods, however, are produced
speculatively, primarily resulting from the longer lead times required for
manufacturing and delivery as compared with domestically produced goods.
Customers are invoiced at the time of shipment. Management believes that most
customers have made payment within 60-75 days, although no assurance can be
given that this trend will continue.
OPERATIONS
The Company maintains corporate offices at its warehouse facility in
Cranbury, New Jersey as well as at 1407 Broadway in Manhattan, where it also
maintains its showroom and principal executive offices. The Company's design
room is located at 264 West 40th Street in Manhattan, and its mail order
showroom is located at 1384 Broadway in Manhattan. See "Business -- Properties."
CUSTOMER BASE
The Company attempts to conduct business only with those customers it
believes to be the most attractive in the market. These include current national
mass merchant customers such as KMart and Montgomery Ward; regional discounters
such as Ames, Shopko, Bradlees, Hills, and Pamida and national specialty chains
such as Deb Shops, Petrie, and Charming Shoppes, and other customers including
the Army/ Air Force Exchange, Brylane and Lerner's. Management has extensive
long standing personal relationships with most of these accounts, although no
assurance can be given that any of these will remain customers of the Company.
During the fiscal year ended March 31, 1996, Petrie represented 14% of the
Company's sales, Montgomery Ward represented 13% of sales and Brylane
represented 11% of sales. During the nine months ended December 31, 1996,
Charming Shoppes represented 15% of sales.
COMPETITION
The apparel business is intensely competitive and consists of numerous
manufacturers, importers and distributors, none of which accounts for a
significant percentage of total industry sales, but many of which are
significantly larger and have substantially greater resources than the Company.
The Company competes with distributors that import apparel from abroad, domestic
companies with established foreign manufacturing relationships and companies
which produce apparel domestically.
The Company believes its ability to succeed depends in substantial part on
its ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner, as well as to operate within significant
production and delivery constraints. The Company has attempted and will continue
to attempt to minimize the risk of changing fashion trends and product
acceptance by producing a wide selection of apparel during a particular selling
season and by closely monitoring retail sales of its products. However, if the
Company misjudges the market for a number of products or product groups, it may
be faced with a significant amount of unsold finished goods inventory which
could have a material adverse effect on the Company's operations.
BACKLOG; SEASONALITY
As of January 1, 1997, the Company had unfilled orders of approximately
$7.1 million, compared to approximately $4.9 million of such orders at the
comparable date in 1996. These amounts include both confirmed orders and
unconfirmed orders, which the Company believes, based on industry practice and
its past experience, will be confirmed, and are therefore considered to be firm.
Shipment of Spring orders normally commences in the early part of January with
the major portion of Spring merchandise shipped in March and April. Shipment of
Back-to-School/Fall orders normally commences in late June with the major
portion of such merchandise shipped in August, September and October. The amount
of unfilled orders at a particular time is affected by a number of factors,
including the scheduling of the manufacture and shipping of the
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product which, in some instances, depends on the desires of the customer.
Accordingly, a comparison of unfilled orders from period to period is not
necessarily meaningful and may not be indicative of eventual actual shipments.
The Company's business is somewhat seasonal, but management believes that
it is less so than many other apparel companies, primarily because of the
Company's partial focus on basic sportswear, which is less seasonal than fashion
sportswear. In addition, the Company believes its product mix is diverse and
varied enough so that some of its products are popular at any time of year. The
Company does, however, generally experience its strongest sales during its
fourth quarter, from January 1 to March 31. The Company does not believe this
variation has had a material adverse impact on its cash flow or operations,
although there can be no assurance that this will not be the case in the future.
See "Risk Factors -- Uncertainties in Apparel Retailing; General Economic
Conditions."
FACTORING OF ACCOUNTS RECEIVABLE
Generally, the Company's accounts receivable are paid within 60-75 days
from invoice, which management believes is within industry standards. In March
1995, the Company entered into a Factoring Agreement with Republic, pursuant to
which the Company receives advances against factored accounts receivable with
interest at 1.5% over prime rate. Advances, which are at the discretion of
Republic, generally are equal to 80% of eligible receivables. Republic also has
provided the Company with financing for import letters of credit. The Company
generally utilizes the factoring arrangement to the maximum extent permitted by
Republic, which historically has allowed the Company to factor substantially all
its accounts receivable. After the completion of the Offering, the Company
intends to be less dependent upon its arrangement with Republic for its cash
flow needs, thereby reducing its overall interest expense. See "Use of
Proceeds"; "Risk Factors -- Dependence on Accounts Receivable Factorings."
EMPLOYEES
At December 31, 1996, the Company employed approximately 55 full time
individuals, of which seven occupy executive or managerial positions,
approximately 34 hold design, production, quality control or distribution
positions and the balance occupy sales, clerical and office positions.
Approximately seven of the Company's warehouse packers are covered by a
collective bargaining agreement with the United Production Workers Union Local
17-18 which is effective from June 15, 1996 through and including June 14, 1999.
The Company considers its relations with its employees to be good and has not
experienced any interruption of operations due to labor disputes.
PROPERTIES
The Company occupies three facilities in Manhattan and one in New Jersey.
The three Manhattan facilities, located at 1407 Broadway (its principal
executive offices), 264 West 40th Street and 1384 Broadway, and which encompass
approximately 8,000 square feet in total, house the Company's showroom and
sales, merchandising, mail order and design staffs. These facilities are the
subject of leases requiring a current annual base rental of approximately
$187,000 in total, and continue until April 30, 2001.
The Company's warehouse and certain executive offices are located in
Cranbury, New Jersey (the "Warehouse"). The Warehouse is the subject of a lease
requiring a current annual base rental of approximately $206,000 and continues
until May 2001, with an option for the Company to renew for an additional two
years.
The Company believes that its existing facilities are adequate to meet its
current and currently foreseeable requirements, although there can be no
assurance thereof.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
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MANAGEMENT
DIRECTORS, OFFICERS AND KEY EMPLOYEES
The following sets forth certain information with respect to the directors,
executive officers and key employees of the Company.
NAME AGE POSITION(S)
- --------------------------------- --- ----------------------------------------------------
Mitchell Dobies.................. 38 President, Treasurer, Co-Chief Executive Officer and
Director
Charles Sobel.................... 36 Co-Chief Executive Officer, Executive Vice President
and Director
Kathleen A. Dressel.............. 31 Secretary
Jeffrey Marcus................... 42 Chief Financial Officer
Mitchell Herman.................. 45 Director(1)
Gerald Cohen..................... 64 Director(1)
Jay M. Haft...................... 69 Director(1)
- ---------------
(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. Members of management who also serve as directors are not provided
separate compensation for their service as directors.
In June 1996, the Company paid Lawrence Kaplan, a former director of the
Company, compensation in the form of 57,143 Performance Shares as an inducement
for him to continue to serve as a director of the Company. With respect to the
Performance Shares, (a) one-half of these shares ("One Half") shall be
repurchased by the Company for the par value thereof in the event that the
Company does not achieve net income before taxes ("Net Income") of at least $2.0
million during the period of April 1, 1997 through March 31, 1998 ("1998 Fiscal
Year"), provided that (i) only one-half of such One Half shall be repurchased by
the Company in the event that the Company achieves Net Income for the 1998
Fiscal Year of at least $1.5 million but less than $1.75 million, and (ii) only
one-quarter of such One Half shall be repurchased by the Company in the event
that the Company achieves Net Income for the 1998 Fiscal Year of at least $1.75
million but less than $2.0 million, and (b) One Half shall be repurchased by the
Company for the par value thereof in the event that the Company does not achieve
Net Income of at least $2.5 million during the period of April 1, 1998 through
March 31, 1999 ("1999 Fiscal Year"), provided that (x) only one-half of such One
Half shall be repurchased by the Company in the event that the Company achieves
Net Income for the 1999 Fiscal Year of at least $2 million but less than $2.25
million and (y) only one-quarter of such One Half shall be repurchased by the
Company in the event that the Company achieves Net Income for the 1999 Fiscal
Year of at least $2.25 million but less than $2.5 million. Net Income, for
purposes of the foregoing calculations, will exclude any tax deduction obtained
by the Company solely on account of the issuance of the Performance Shares and
all similar Performance Shares issued to directors and members of management of
the Company. These shares, unlike the Performance Shares owned by Messrs. Dobies
and Sobel, otherwise were not subject to vesting or any other requirement that
Mr. Kaplan remain as a director of the Company for any specified period. Mr.
Kaplan resigned as a director of the Company in February 1997.
COMMITTEES OF THE BOARD OF DIRECTORS
Upon the Effective Date, the Board of Directors will establish an Audit
Committee consisting of Messrs. Herman, Haft and Cohen. The Audit Committee will
review (i) the Company's audit functions, (ii) with management, the finances,
financial condition and interim financial statements of the Company, (iii) with
the Company's independent auditors, the year end financial statements of the
Company and (iv) the implementation of any action recommended by the independent
auditors.
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all cash compensation
paid by the Company, as well as certain other compensation paid or accrued, to
certain executive officers during the fiscal years ended March 31, 1996 and
March 31, 1995. No other executive officer of the Company received salary and
bonus compensation in excess of $100,000 during such fiscal years. The full
Board of Directors of the Company determines all compensation with regard to the
executive officers of the Company, taking into account such factors as they deem
appropriate.
ANNUAL COMPENSATION
---------------------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OTHER
----------------------------------------------- ----- -------- ------- -------
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)
- ---------------
(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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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. Common Stock issued under the Option Plan may be either authorized
but unissued shares, treasury shares or any combination thereof. To the fullest
extent permitted under Rule 16b-3 under the Exchange Act and Sections 162(m) and
422 of the Code, any shares of Common Stock subject to an Award which lapses,
expires or is otherwise terminated prior to the issuance of such shares may
become available for new Awards.
The Company granted, on August 16, 1996, an aggregate of 100,000 Awards as
follows: 25,000 Awards to Mitchell Dobies, 25,000 Awards to Charles Sobel and
50,000 Awards to Eric Holtz (see "Business -- Sales Groups -- Imports"). All
options which are the subject of such Awards are exercisable at $3.00 per share
and 66,667 of such awards have vested, with the remaining Awards (all granted to
Mr. Holtz) vesting on April 1, 1997. On February 1, 1997, the Company agreed to
grant, on the Effective Date, 50,000 Awards, exercisable at $5.00 per share, to
Eric Holtz. These Awards vest in equal portions over a three-year period. No
other Awards have been granted.
Options to purchase Common Stock granted as Awards ("Options"), which may
be nonqualified or incentive stock options, may be granted under the Option Plan
at an exercise price (the "Option Price") determined by the Board of Directors
in its discretion, provided, that the Option Price of incentive stock options
may be no less than the fair market value of the underlying Common Stock on the
date of grant (110% of fair market value in the case of an incentive stock
option granted to a ten percent stockholder).
Options will expire not later than ten years after the date on which they
are granted. Options become exercisable at such times and in such installments
as determined by the Board of Directors. Notwithstanding the foregoing, however,
each Option shall, except as otherwise provided in the stock option agreement
between the Company and an optionee, become exercisable in full for the
aggregate number of shares covered thereby unconditionally on the first day
following the occurrence of any of the following: (a) the approval by the
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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.
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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.
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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.
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CERTAIN ISSUANCES OF SECURITIES TO EXECUTIVE OFFICERS AND DIRECTORS; SELLING
SECURITYHOLDERS; CERTAIN RELATIONSHIPS
In June 1996, Mr. Sobel was issued 68,571 Performance Shares.
Stanley Kaplan, who may be deemed to be a promoter of the Company, was
formerly, but is no longer, a director and direct stockholder of the Company.
Mr. Stanley Kaplan is, however, the owner of less than one percent of a publicly
held company (of which he is neither director, officer or affiliate), a wholly
owned subsidiary of which directly owns 95,238 shares of Common Stock (assuming
conversion of the Series A Preferred Stock into Preferred Conversion Shares),
and which indirectly controls Universal Partners, L.P., which directly owns
19,048 shares of Common Stock (assuming conversion of the Series A Preferred
Stock into Preferred Conversion Shares) and is an investor in the Bridge
Financing. He had purchased, on March 17, 1995, 37,000 shares of Common Stock
(prior to taking into account the Stock Dividend) for an aggregate purchase
price of $37,000 (the "March Purchase Shares"). He also had received, on March
17, 1995, 30,000 Performance Shares (prior to taking into account the Stock
Dividend). His wife, Eileen A. Kaplan, had purchased, on April 13, 1995, 20,000
shares of Series A Preferred Stock for an aggregate purchase price of $40,000
(the "Kaplan Preferred Shares"). The March Purchase Shares and the Kaplan
Preferred Shares are no longer owned by Stanley Kaplan or any member of his
immediate family. The Performance Shares were repurchased by the Company for an
aggregate of $300 in April 1996. Stanley Kaplan resigned as a director on
February 1, 1996. In addition, Stanley Kaplan was an officer, director and
principal shareholder of GVMCI, which has permanently ceased all business
activity and returned all fees earned to the Company. On August 12, 1994,
Stanley Kaplan settled, without admitting or denying any allegations, a civil
action brought against him by the Commission relating to Atratech, Inc. The
action charged Stanley Kaplan with certain violations of the Securities Act and
the Exchange Act. As part of the settlement, Stanley Kaplan was permanently
restrained and enjoined from future violations of the securities laws and was
permanently barred from acting as an officer or director of any issuer that has
a class of securities registered under Section 12 of the Exchange Act or that is
required to file reports pursuant to Section 15(d) of the Exchange Act. See
"Risk Factors -- Certain Legal Issues Concerning Management; Inability to Obtain
Nasdaq Listing/Blue Sky Law."
Mitchell Dobies and Charles Sobel are the sole Selling Common Stockholders.
See "Concurrent Offerings."
Lawrence Kaplan, a former director of the Company, is the sole shareholder,
officer and director of G-V and was an officer, director and principal
shareholder of GVMCI, which has permanently ceased all business activity. The
compensation which G-V and GVMCI have received from the Company, all of which,
as to GVMCI, has been returned to the Company, are described above. Mr. Kaplan
also beneficially owns an aggregate of 479,995 shares of Common Stock (including
shares owned by G-V and either jointly with or solely by his wife Helaine, as
custodian for certain minors), of which 57,143 directly owned shares are
Performance Shares. During the last fiscal year of the Company, Mr. Kaplan
solely or jointly with his wife invested $120,000 for 60,000 shares of Series A
Preferred Stock and $125,000 for $125,000 in installment promissory notes of the
Company and 25,000 shares of Common Stock as part of the November Offering.
Lawrence Kaplan also is a Selling Warrantholder, having purchased $87,500 in
principal amount of the Bridge Notes and 175,000 Bridge Warrants in the Bridge
Financing for an aggregate investment of $87,500. See "Principal Stockholders,"
and "Concurrent Offerings."
Gerald Cohen, who was elected to become a director upon the Effective Date,
was formerly the personal accountant to Mr. Sobel.
The Company believes that all arrangements described above in "Certain
Transactions" were and are on terms that would have been able to be obtained had
such transactions been consummated with unaffiliated persons, although no
assurance can be given that such opportunities to conduct transactions with
unaffiliated persons were or are available to the Company.
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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.
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
- -------------------------------------------------- --------- ------- --------- -------
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%
- ---------------
(1) Unless otherwise indicated herein and subject to applicable community
property laws, each stockholder has sole voting and investment power with
respect to all shares of Common Stock beneficially owned by such stockholder
and directly owns all such shares in such stockholder's sole name. Assumes
conversion of all outstanding shares of Series A Preferred Stock into
Preferred Conversion Shares. Does not include 150,000 options to purchase
Common Stock currently outstanding under the Option Plan. Assumes no
exercise of the Warrants or the Selling Warrantholder Warrants.
(2) Includes 222,857 Performance Shares for Mr. Dobies, 291,429 Performance
Shares for Mr. Sobel and 57,143 Performance Shares for Lawrence Kaplan.
Mailing address for Messrs. Dobies and Sobel is c/o Jenna Lane, Inc., 1407
Broadway, Suite 1801, New York, New York 10018. Mailing address for Mr.
Kaplan is 150 Vanderbilt Motor Parkway, Suite 311, Hauppauge, New York
11788. See "Management" and "Management -- Employment Agreements."
(3) Includes an aggregate of 19,048 shares of Common Stock owned by Helaine
Kaplan as custodian for Michelle Kaplan and Robert Kaplan. Also includes
95,238 shares of Common Stock owned jointly with Helaine Kaplan. Helaine
Kaplan is Lawrence Kaplan's wife. Also includes 95,238 shares of Common
Stock owned by G-V. Does not include shares owned of a public company, a
subsidiary of which owns 95,238 shares of Common Stock (assuming conversion
of the Series A Preferred Stock into Preferred Conversion Shares), and which
indirectly controls Universal Partners, L.P., which directly owns 19,048
shares of Common Stock (assuming conversion of the Series A Preferred Stock
into Preferred Conversion Shares) and is an investor in the Bridge
Financing.
(4) All such shares are owned by Clayre Haft, Mr. Haft's wife. Mr. Haft is not
currently a director but will become a director upon the Effective Date. Mr.
Haft's address is 201 S. Biscayne Blvd., Miami, Florida 33131.
CONCURRENT OFFERINGS
The registration statement of which this Prospectus forms a part also
includes the concurrent registration of securities owned by the Selling
Securityholders. The 1,000,000 Selling Warrantholder Warrants are being issued
to the Selling Securityholders as of the closing of the Offering in replacement
of Warrants issued pursuant to the Bridge Financing. In addition, the 90,000
Selling Common Stockholder Shares which, together with 45,000 Warrants, will be
sold as part of the Underwriters' over-allotment option, if the option is
exercised, will be registered. The Selling Warrantholder Warrants and such
additional 45,000 Warrants will be identical to the Warrants being offered
hereby. All of the Selling Securityholder Securities will be registered, at the
Company's expense, under the Securities Act and are expected to become tradeable
on or about the effective date of the Offering. The Company will not receive any
proceeds from the sale of any Selling Securityholder Securities. Sales of
Selling Securityholder Securities or even the potential of such sales could have
an adverse effect on the market prices of the Common Stock and the Warrants. The
Selling
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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.
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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.
PERCENTAGE TO BE
OWNED AFTER
SELLING WARRANTHOLDER WARRANTS SHARES COMPLETION OF OFFERING(1)
------------------------------------------ -------- -------- -------------------------
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%
- ---------------
(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.
SHARES NOT
COVERED BY
SELLING COMMON STOCKHOLDER SHARES REGISTRATION STATEMENT
-------------------------------------------------------- ------- ----------------------
Mitchell Dobies(1)...................................... 30,000 752,381(2)
Charles Sobel(3)........................................ 60,000 715,714(4)
------ ---------
TOTAL......................................... 90,000 1,468,095
====== =========
- ---------------
(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."
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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
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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
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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
51
Series A Preferred Stock have agreed not to sell or otherwise dispose of their
shares of Preferred Conversion Shares for a period ending October 31, 1997,
without the prior written consent of the Underwriter. The holders of the shares
of Common Stock issued in the November Offering have agreed not to sell or
otherwise dispose of such shares prior to November 30, 1997 without the prior
written consent of the Underwriter. See "Underwriting."
In general, under Rule 144 a person (or persons whose shares are
aggregated), including persons who may be deemed to be "affiliates" of the
Company as that term is defined under the Securities Act, is entitled to sell
within any three month period a number of restricted shares beneficially owned
for at least two years that does not exceed the greater of (i) 1% of the then
outstanding shares of Common Stock or (ii) an amount equal to the average weekly
trading volume in the Common Stock during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and the availability of current public information about
the Company. However, a person who is not deemed an affiliate and has
beneficially owned such shares for at least three years is entitled to sell such
shares without regard to the volume or other resale requirements.
Under Rule 701 of the Securities Act, persons who purchase shares upon
exercise of options granted prior to the date of this Prospectus are entitled to
sell such shares after the 90th day following the date of this Prospectus in
reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of nonaffiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. Affiliates are subject to all Rule 144 restrictions after this 90-day
period, but without a holding period. If all the requirements of Rule 701 are
met, an aggregate of 100,000 shares subject to outstanding vested stock options
may be sold pursuant to such rule at the end of this 90-day period.
Pursuant to registration rights previously acquired by holders of 1,000,000
Bridge Warrants and 1,000,000 shares of Common Stock underlying such Bridge
Warrants and pursuant to the agreement of the Company with respect to the
Selling Common Stockholder Shares and the Underwriter's Purchase Units (and
securities underlying such Units), the Company has, concurrently with the
Offering, registered for resale on behalf of the Selling Securityholders, the
Selling Securityholder Securities. The holders of the Bridge Warrants and shares
underlying them have agreed not to sell such Bridge Warrants and shares for a
period of eighteen months after the completion of the Offering. The
Underwriter's Option is exercisable during the three-year period commencing 12
months after the date of this Prospectus. See "Concurrent Offerings."
Certain other securityholders have piggy-back registration rights. See
"Underwriting" and "Description of Securities -- Registration Rights."
Prior to the Offering, there has been no market for any securities of the
Company, and no predictions can be made of the effect, if any, that sales of
Common Stock or the availability of Common Stock for sale will have on the
market price of such securities prevailing from time to time. Nevertheless,
sales of substantial amounts of Common Stock in the public market could
adversely affect prevailing market prices.
48
52
UNDERWRITING
Walsh Manning Securities, LLC, the Underwriter, has agreed, subject to the
terms and conditions of the Underwriting Agreement, to purchase from the Company
the 600,000 Units offered hereby on a "firm commitment" basis, if any are
purchased. It is expected that the Underwriter will distribute as a selling
group member substantially all the Units offered hereby. It is also expected
that the Underwriter will make a market in the Company's securities following
the Offering.
The Underwriter has advised the Company that it proposes to offer the Units
to the public at the public offering prices set forth on the cover page of this
Prospectus and to certain dealers who are members of the NASD, at such prices
less concessions of not in excess of $0.50625 per Unit. After the commencement
of the Offering, the public offering prices and the concession may be changed by
the Underwriter.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company also
has agreed to pay to the Underwriter an unaccountable expense allowance equal to
3% of the gross proceeds derived from the sale of Securities offered hereby,
including any Units purchased pursuant to the Underwriter's overallotment
option, $35,000 of which has been paid to date.
The Company has granted to the Underwriter an option, exercisable during
the 45-day period commencing on the date of this Prospectus, to purchase from
the Company, at the public offering price, less underwriting discounts, up to
90,000 Units for the purpose of covering over-allotments, if any. If this option
is exercised, the Underwriter will purchase the first 45,000 Units by purchasing
90,000 shares from the Selling Common Stockholders for $4.50 per share (the
$10.125 Unit price to the public less a price of $0.125 per Warrant less the 10%
underwriting discount). The Warrants comprising the Units will be contributed by
the Company for additional consideration equal to $0.125 per Warrant. See
"Concurrent Offerings."
The holders of approximately 68% of the shares of Common Stock outstanding
prior to the Offering (after giving effect to the conversion of the Series A
Preferred Stock into Common Stock), have agreed not to sell, assign, transfer or
otherwise dispose publicly of any of their shares of Common Stock (i) in the
case of the holders of Bridge Warrants, for a period of 18 months from the date
of this Prospectus, (ii) in the case of the Preferred Conversion Shares, October
31, 1997, without the prior written consent of the Underwriter or (iii) in the
case of the shares of Common Stock issued in the November Offering, November 30,
1997, without the prior written consent of the Underwriter.
The Company has agreed to nominate one director designated by the
Underwriter to the Company's Board of Directors for a period of two years from
the completion of the Offering, although it has not yet selected any such
designee. Such designee may be a director, officer, partner, employee or
affiliate of the Underwriter.
During the five-year period from the date of this Prospectus, in the event
the Underwriter originates a nonfinancing related transaction (including
mergers, acquisitions, joint ventures and other business transactions), the
Underwriter will be entitled to receive a finder's fee in consideration for
origination of such transaction equal to five percent of the amount of
consideration up to $1 million, four percent of the next $1 million, three
percent of the next $1 million, two percent of the next $1 million and one
percent thereafter.
The Underwriter also shall be engaged as the Company's investment banker
and financial consultant after the Offering for a period of two years for an
aggregate fee of $90,000, to be paid in advance upon the closing of the
Offering.
The Company has agreed to pay to the Underwriters a warrant solicitation
fee (the "Warrant Solicitation Fee") equal to 5% of the exercise price of each
Warrant exercised beginning one year after the date of this Prospectus and to
the extent not inconsistent with the guidelines of the NASD and the rules and
regulations of the Commission. Such Warrant Solicitation Fee will be paid to the
soliciting Underwriter if (a) the exercise of such Warrant was solicited by such
Underwriter; (b) prior specific written approval for exercise is received from
the customer if the Warrant is held in a discretionary account; (c) disclosure
of this compensation agreement is made prior to or upon the exercise of such
Warrant; (d) solicitation of the exercise is not in violation of Rule 10b-6 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
49
53
(e) solicitation of the exercise is in compliance with NASD Notice to Members
81-38. The Company also has agreed not to solicit the exercise of any Warrant
other than through the Underwriter, unless either (x) the Underwriter cannot
legally solicit the exercise of the Warrants at the time of such solicitation;
(y) the Underwriter declines, in writing, to solicit the exercise of the
Warrants within ten (10) business days of such a written request by the Company
or (z) the Underwriter consents to the solicitation by the Company or another
entity.
Rule 10b-6 may prohibit the Underwriter from engaging in any market making
activities with regard to the Company's securities for the period from nine
business days (or such other applicable period as Rule 10b-6 may provide) prior
to any solicitation by the Underwriter of the exercise of Warrants until the
later of the termination of such solicitation activity or the termination (by
waiver or otherwise) of any right that the Underwriter may have to receive a fee
for the exercise of Warrants following such solicitation. As a result, the
Underwriter may be unable to provide a market for the Company's securities
during certain periods while the Warrants are exercisable.
The Company has agreed to sell to the Underwriter and its designees, for
nominal consideration, the Underwriter's Option to purchase up to 60,000
Underwriter's Purchase Units, identical to the Units being offered hereby,
except that the Warrants contained in the Underwriter's Purchase Units are not
redeemable by the Company. The Underwriter's Option cannot be transferred, sold,
assigned or hypothecated for 12 months, except to any officer of the Underwriter
or members of the selling group or their officers. The Underwriter's Option is
exercisable during the three-year period commencing 12 months from the date of
this Prospectus at an exercise price equal to 165% of the initial public
offering price per Unit ($16.70625), subject to adjustment in certain events to
protect against dilution. The Underwriter's Purchase Units and securities
comprised therein are being registered as part of the registration statement of
which this Prospectus forms a part.
The Underwriter acted as Placement Agent for the Bridge Financing in August
1996 for which it received a Placement Agent fee of $35,000 and a
non-accountable expense allowance of $10,000. This Offering constitutes the
first public offering for which the Underwriter has served as underwriter. See
"Risk Factors."
Prior to the Offering, there has been no public market for any of the
securities offered hereby. Accordingly, the public offering prices of the
Securities offered hereby and the terms of the Warrants have been determined by
negotiation between the Company and the Underwriter and are not necessarily
related to the Company's asset value, net worth or other established criteria of
value. Factors considered in determining such prices and terms, in addition to
prevailing market conditions, include the history of and the prospects for the
industry in which the Company competes, the present state of the Company's
development and its future prospects, an assessment of the Company's management,
the Company's capital structure and such other factors as were deemed relevant.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by the Law Offices of David N. Feldman, New York, New York ("LODNF"). A
portion of LODNF's compensation is contingent upon the completion of the
Offering. Certain legal matters will be passed upon for the Underwriter by
Goldstein & DiGioia, LLP, New York, New York.
EXPERTS
The financial statements of the Company at and for the year ended March 31,
1996 and for the period from February 14, 1995 (commencement of operations) to
March 31, 1995, appearing in this Prospectus and Registration Statement have
been audited by Edward Isaacs and Company, LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the Registration
Statement of which this Prospectus forms a part, and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
50
54
ADDITIONAL INFORMATION
The Company is not a reporting company under the Exchange Act. The Company
has filed a Registration Statement on Form S-1 under the Securities Act with the
Commission in Washington, D.C. with respect to the Securities offered hereby.
This Prospectus, which is part of the Registration Statement, does not contain
all of the information set forth in the Registration Statement and the exhibits
thereto. For further information with respect to the Company and the Securities
offered hereby, reference is hereby made to the Registration Statement and such
exhibits, which may be inspected without charge at the office of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at Seven World Trade Center, 13th Floor, New York, New
York 10048 and at 500 West Madison (Suite 1400), Chicago, Illinois 60661. Copies
of such material may also be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
Following the Offering, the Company will be subject to the reporting and
other requirements of the Exchange Act and intends to furnish to its
stockholders annual reports containing audited financial statements and may
furnish interim reports as it deems appropriate.
51
55
INDEX TO FINANCIAL STATEMENTS
PAGE
------------
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
F-1
56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Jenna Lane, Inc.
We have audited the accompanying balance sheets of Jenna Lane, Inc. as of
March 31, 1995 and 1996, and the related statements of operations, shareholders'
equity, and cash flows for the period February 14, 1995 (inception) to March 31,
1995 and the year ended March 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Jenna Lane, Inc. as of March
31, 1995 and 1996, and the results of its operations and its cash flows for the
period February 14, 1995 (inception) to March 31, 1995 and the year ended March
31, 1996 in conformity with generally accepted accounting principles.
EDWARD ISAACS & COMPANY LLP
New York, New York
May 7, 1996
F-2
57
JENNA LANE, INC.
BALANCE SHEETS
DECEMBER 31, 1996
MARCH 31, -----------------------
----------------------- PRO FORMA
1995 1996 ACTUAL (NOTE 1)
---------- ---------- ---------- ----------
(UNAUDITED)
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
========= ========= ========= =========
See notes to financial statements.
F-3
58
JENNA LANE, INC.
STATEMENTS OF OPERATIONS
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)
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
=========== ===========
See notes to financial statements.
F-4
59
JENNA LANE, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
CAPITAL
COMMON STOCK IN RETAINED
------------------- EXCESS OF UNEARNED EARNINGS
SHARES AMOUNT PAR VALUE COMPENSATION (DEFICIT) TOTAL
--------- ------- --------- ------------ --------- -----------
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
========= ======= ======== ========= ========= ==========
See notes to financial statements.
F-5
60
JENNA LANE, INC.
STATEMENTS OF CASH FLOWS
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)
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
========= =========== =========== ==========
See notes to financial statements.
F-6
61
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES
Business:
The Company, organized in the State of Delaware in February, 1995, designs
and manufactures (through contractors) and imports women's sportswear for the
domestic retail market.
Inventories:
Inventories are stated at the lower-of-cost (first-in, first-out) or
market.
Income Taxes:
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes, primarily depreciation,
inventory costs capitalized and deferred compensation.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Although these estimates are based on management's knowledge
of current events and actions it may undertake in the future, they may
ultimately differ from actual results.
Property and Equipment:
Property and equipment are stated at cost. Furniture and equipment are
depreciated using the straight-line method over their estimated useful lives of
five years. Leasehold improvements are amortized over their respective lives or
the terms of the applicable leases whichever is shorter.
Unaudited Interim Financial Statements:
The accompanying financial statements of the Company as of December 31,
1996 and for the nine months ended December 31, 1995 and 1996 are unaudited. All
adjustments (consisting only of normal recurring adjustments) have been made
which, in the opinion of management, are necessary for a fair presentation
thereof. Results of operations for the nine months ended December 31, 1995 and
1996 are not necessarily indicative of the results that may be expected for the
full year or for any future period.
Pro Forma Presentation (Unaudited):
The unaudited pro forma balance sheet as of December 31, 1996 has been
prepared assuming the conversion of the outstanding Series A Convertible
Preferred Stock into 952,381 shares of Common Stock. Series A Convertible
Preferred Stock automatically converts into Common Stock upon the closing of an
initial public offering, if specified aggregate valuation and minimum proceeds
are met.
The unaudited pro forma net income per common share is shown on the face of
the statement of operations because the Company believes the pro forma
presentation is more meaningful since it includes the conversion of the Series A
Convertible Preferred Stock. The unaudited pro forma net income per common share
is computed based upon the weighted average number of common and common
equivalent shares outstanding after certain adjustments described below. Common
equivalent shares are included in the calculations where the effect on their
inclusion would be dilutive. In accordance with Securities and Exchange
Commission Staff Accounting Bulletin No. 83 ("SAB No. 83"), all common and
common equivalent shares
F-7
62
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
and other potentially dilutive instruments which includes stock options and
warrants and the performance shares issued during the twelve month period prior
to the filing of the Registration Statement have been included in the
calculation as if they were outstanding for all periods. As permitted under SAB
No. 83, the common equivalent shares were determined using the treasury stock
method at an assumed initial public offering price of $5.00 per share.. The
Series A Convertible Preferred Stock to be converted into Common Stock upon the
closing of the initial public offering is treated as having been converted into
Common Stock at the date of original issuance.
Net (Loss) Income Per Common Share:
Net (loss) income per common share on a historical basis is computed in the
same manner as pro forma net (loss) income per common share, except that Series
A Convertible Preferred Stock is not assumed to be converted. In the computation
of net (loss) income per common share, dividend requirements on Series A
Convertible Preferred Stock are included as a decrease to net income available
to common shareholders.
Net (loss) income available per common share on a historical basis is as
follows:
FOR THE PERIOD
FEBRUARY 14,
1995 NINE MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31,
MARCH 31, MARCH 31, -----------------------
1995 1996 1995 1996
-------------- ---------- --------- ---------
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
======== ========= ========= =========
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
63
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
3. INVENTORIES
Inventories consist of the following:
MARCH 31, MARCH 31,
1995 1996
--------- ----------
Raw materials................................................ $ 102,077 $1,677,410
Work-in-process.............................................. -- 747,060
Finished goods............................................... -- 357,665
-------- ----------
$ 102,077 $2,782,135
======== ==========
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
64
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
6. INCOME TAXES
The provisions for income taxes consists of the following:
MARCH
MARCH 31, 31,
1995 1996
--------- --------
Current:
Federal.................................................... $ -- $320,000
State...................................................... -- 112,564
Deferred..................................................... -- --
--------
$ -- $432,564
========
Reconciliations of the statutory federal income tax rate to the Company's
effective tax rates are as follows:
MARCH 31, MARCH 31,
1995 1996
--------- ---------
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%
==== ====
Significant components of the Company's deferred tax assets and liabilities
as of March 31, 1995 and 1996 are summarized as follows:
MARCH
31, MARCH 31,
1995 1996
-------- ---------
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
======== =======
7. LONG-TERM DEBT
Long-term debt at March 31, 1996 consists of the following:
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
========
- ---------------
(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
65
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
the fair value of the shares, and the promissory notes were credited for
$400,000. The $100,000 ascribed to the common stock has been reflected as a
discount on the notes, and is being amortized over two years to their
maturity. Amortization for the year ended March 31, 1996 was $20,833.
Maturities of long-term debt are $423,332 in 1998 and $1,811 in 1999.
The fair value of the long-term debt approximates the carrying value based
on current rates at which the Company could borrow funds given the same
circumstances, with similar remaining maturities.
8. COMMITMENTS AND CONTINGENCIES
Leases:
The Company leases office and showroom space and equipment under leases
extending to 2001. The leases provide for payment by the Company of taxes and
other expenses. Rent expense for the year ended March 31, 1996 was approximately
$172,000.
Minimum rental payments under noncancellable operating leases are as
follows:
Fiscal year ending March:
YEAR AMOUNT
---------------------------------------------------------- --------
1997...................................................... $206,000
1998...................................................... 209,000
1999...................................................... 110,000
2000...................................................... 69,000
2001...................................................... 36,000
--------
$630,000
========
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
66
JENNA LANE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION AS OF DECEMBER 31, 1996 AND FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 AND 1996 IS UNAUDITED)
exercisable for a period of three years. The warrants contain various redemption
and other provisions which are predicated upon the closing of an initial public
offering.
On August 16, 1996 the Company executed a letter of intent for a proposed
initial public offering of 600,000 units, consisting of 1,200,000 shares of
common stock and 600,000 warrants.
In August 1996, the Company adopted an Incentive Stock Option Plan for
employees (the Plan). The Plan permits the issuance of stock options to selected
employees (and consultants) of the Company. The Plan reserves 600,000 shares of
common stock for grant. Options granted may be either nonqualified or incentive
stock options and will expire not later than 10 years from the date of grant. On
August 16, 1996, options for 100,000 shares were granted and are exercisable at
$3 per share. In management's opinion, the exercise price of those options
reasonably approximates the fair value of the common stock at the date of grant.
In August 1996, the Company adopted a 401(k) profit sharing plan for
eligible employees which provides for elective salary deferrals by employees and
discretionary profit sharing contributions by the Company.
In June 1996, the Company entered into a five year lease for warehouse and
office space at an annual rental of approximately $206,000.
In January 1997, the Company declared and paid a quarterly dividend of
$25,000 to the shareholders of preferred stock.
In February 1997, the Company amended the employment agreements with two of
its executives. The agreements, as amended, extend through March 2000 and
provide for (1) annual aggregate increases in base compensation of $50,000
through the fiscal year ending March 2000, (2) revisions to the profit
participation bonus, (3) changes in the conditions for repurchase of performance
shares and (4) severance and termination pay, as defined.
F-12
67
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN CONTAINED IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
---------------------
TABLE OF CONTENTS
PAGE
-----
Prospectus Summary..................... 3
Risk Factors........................... 8
Dividend Policy........................ 16
Use of Proceeds........................ 17
Capitalization......................... 18
Dilution............................... 19
Selected Financial Data................ 20
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 21
Business............................... 24
Management............................. 31
Certain Transactions................... 40
Principal Stockholders................. 42
Concurrent Offerings................... 42
Description of Securities.............. 45
Shares Eligible for Future Sale........ 47
Underwriting........................... 49
Legal Matters.......................... 50
Experts................................ 50
Additional Information................. 51
Index to Financial Statements.......... F-1
---------------------
UNTIL , 1997 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
=============================================
======================================================
JENNA LANE, INC.
600,000 UNITS
EACH UNIT CONSISTING OF
TWO SHARES OF COMMON STOCK
AND
ONE REDEEMABLE CLASS A WARRANT
---------------------
PROSPECTUS
---------------------
WALSH MANNING
SECURITIES, LLC
FEBRUARY , 1997
======================================================
68
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED FEBRUARY 14, 1997
PROSPECTUS
1,000,000 REDEEMABLE CLASS A WARRANTS
JENNA LANE, INC.
All of the Redeemable Class A Warrants ("Warrants") of Jenna Lane, Inc.
(the "Company") as well as shares of Common Stock, par value $.01 per share,
issuable upon exercise of the Warrants ("Warrant Shares") offered hereby are
being sold on behalf of the holders thereof (the "Selling Warrantholders"). The
Warrants and the Warrant Shares are collectively referred to herein as the
"Securities." Each Warrant entitles the holder to purchase one share of Common
Stock at an exercise price of $7.00, subject to adjustment, at any time until
the third anniversary of the date of this Prospectus. Commencing one year from
the date hereof, the Warrants are subject to redemption by the Company at a
redemption price of $.05 per Warrant on 30 days' written notice, provided that
the closing bid price of the Common Stock on the Nasdaq National Market System
is in excess of $11.00 per share for any 20 consecutive trading days ending on
the third day prior to the date of the notice of redemption and provided further
that a registration statement with respect to the shares of Common Stock
underlying such Warrants is then in effect. See "Description of Securities."
(Cover Continued on Next Page)
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF
RISK, WHICH MAY RESULT IN THE LOSS OF AN INVESTOR'S ENTIRE
INVESTMENT, AND IMMEDIATE DILUTION. SEE "RISK FACTORS"
BEGINNING ON PAGE 8 AND "DILUTION."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Company will not receive any of the proceeds from the sale of
Securities by the Selling Warrantholders. In the event the Warrants are
exercised, the Company will receive cash in the amount of the exercise price,
less any commissions payable to the Underwriter. Expenses of this offering,
estimated at $ , are payable by the Company. See "Concurrent
Offerings."
------------------------
THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1997
69
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
(Continued from Previous Page)
Prior to the Offering, there has been no public market for the Company's
securities, and there can be no assurance that such a market will develop. The
Warrants and Warrant Shares are listed for trading on the Nasdaq National Market
System ("Nasdaq") under the symbols "JLNY-W" and "JLNY," respectively. On
, the closing price for the Warrants was $ and for the Warrant
Shares was $ .
The Selling Warrantholder Warrants are issuable on the closing of the
Offering to the Selling Warrantholders upon the automatic resetting of the terms
of warrants (the "Bridge Warrants") acquired by them in the Company's private
placement in August 1996 (the "Bridge Financing"). The Selling Warrantholders
have agreed with the Company not to sell any of the Selling Warrantholder
Warrants or underlying shares for a period of eighteen months after the
completion of the Offering. Sales of the Selling Securityholder Securities, or
the potential of such sales, may have an adverse effect on the market price of
the securities offered hereby.
70
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
THE COMPANY IS A REPORTING COMPANY UNDER THE SECURITIES AND EXCHANGE ACT OF
1934, AS AMENDED (THE "EXCHANGE ACT") AND FILES REPORTS AND OTHER INFORMATION
WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"). ACCORDINGLY, THE
COMPANY IS SUBJECT TO THE REPORTING REQUIREMENTS OF THE EXCHANGE ACT AND IN
ACCORDANCE THEREWITH FILES REPORTS, PROXY STATEMENTS AND OTHER INFORMATION WITH
THE COMMISSION. IN ADDITION, THE COMPANY FURNISHES ITS STOCKHOLDERS WITH ANNUAL
REPORTS CONTAINING FINANCIAL STATEMENTS AUDITED BY ITS INDEPENDENT AUDITORS. SEE
"ADDITIONAL INFORMATION."
2
71
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
Company's consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus. Except as otherwise noted, all
information in this Prospectus (i) reflects a 0.9047619-for-one stock dividend
effected in July 1996 (the "Stock Dividend"); (ii) assumes no exercise of (a)
the Underwriter's over-allotment option, (b) the Warrants, (c) the Selling
Warrantholder Warrants, (d) the Underwriter's Option, (e) options granted or
available for grant under the 1996 Incentive Stock Option Plan of Jenna Lane,
Inc. adopted in August 1996 (the "Option Plan") and (iii) gives effect to the
conversion, on the closing of the Offering, of (x) the Bridge Warrants into the
Selling Warrantholder Warrants and (y) all outstanding shares of the Company's
Series A Convertible Preferred Stock, par value $.01 per share (the "Series A
Preferred Stock") into 952,381 shares of Common Stock. This Prospectus may be
deemed to contain forward-looking statements within the meaning of Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). The Company desires
to avail itself of certain "safe harbor" provisions of the Reform Act and is
therefore including this special note to enable the Company to do so.
Forward-looking statements in this Prospectus or hereafter included in other
publicly available documents filed with the Commission, reports to the Company's
stockholders and other publicly available statements issued or released by the
Company involve known and unknown risks, uncertainties and other factors which
could cause the Company's actual results, performance (financial or operating)
or achievements to differ from the future results, performance (financial or
operating) or achievements expressed or implied by such forward-looking
statements. Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations. These risks
include, but are not limited to, risks set forth herein, each of which could
adversely affect the Company's business and the accuracy of the forward-looking
statements contained herein.
THE COMPANY
The Company was formed in February 1995 and designs, manufactures and
markets high quality, cut and sewn, popularly priced junior, "missy", and large
size fashion and basic sportswear for women. The Company was founded by
individuals with extensive experience in apparel manufacturing, operations,
sales, and merchandising. Since its inception, the Company has dedicated its
time and resources primarily to the development of two sets of product lines,
basic sportswear and fashion sportswear.
Sales of basic sportswear comprised approximately 50-60% of the Company's
revenues in the fiscal year ended March 31, 1996 and the nine months ended
December 31, 1996. In the production of basic sportswear, the Company operates
primarily as a domestic manufacturer which substantially controls or owns all
aspects of its production capability, known within the industry as "vertical
integration." The Company believes that this vertical integration positions the
Company among the few apparel manufacturers in its market with the ability to
control and manage the entire manufacturing process from the conversion of yarn
into fabric to the completion of finished apparel. The Company believes it is
able to realize significant cost savings through its retention of responsibility
for the manufacturing of its own fabric (although not actually manufacturing
itself). As a result, the Company believes it can sell high quality merchandise
to price sensitive discounters and mass merchants at prices competitive to those
of imported goods.
Management believes that vertical integration as a domestic manufacturer of
basic sportswear allows the Company to deliver good quality competitively priced
merchandise to customers significantly faster than the delivery time on goods
shipped from overseas. Because of the Company's ability to produce goods more
quickly than those of its competitors who import products, the Company's retail
customers can conserve capital by purchasing less initial inventory, reduce
markdowns by holding smaller quantities of non-moving merchandise, and increase
sales by rapidly restocking fast-selling items. Management believes that the
Company's ability to deliver high quality, competitively priced merchandise in a
short time frame has allowed it to obtain as customers many of the nation's
leading discount retail outlets, although no assurance can be
72
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
given that these relationships will continue or be expanded.
The second key merchandise product line which the Company has pursued,
which comprised approximately 40-50% of the Company's revenues in the fiscal
year ended March 31, 1996 and the nine months ended December 31, 1996, is
fashion sportswear. In producing its fashion sportswear, the Company follows
more traditional manufacturing processes utilized in the apparel industry,
namely the purchasing of fabric from outside vendors. The fashion sportswear
product line generates a higher gross profit margin than basic sportswear due to
the differentiation of product and reduced competition. In its fashion
sportswear production, the Company loses its competitive advantage of converting
its own fabrics, however, management believes that its long standing
relationships with buyers and management of its retail customers and its overall
merchandising and design skills allow the Company to successfully compete in the
fashion sportswear business, although no assurance of such success can be given.
The Company's sales efforts are organized based on the merchandise category
and/or customer, and are divided into "Missy"/Large Size, Young Large Size,
Imports; Mail Order and Mass Merchants. There can be no assurance that these
sales efforts will be successful or that the Company will not determine to add
additional categories or eliminate some or all of the divisions denoted above.
Indeed, since the Company's formation, it has added one such category and
eliminated another.
Although management is pleased with its success to date in selling
domestically produced basic sportswear and fashion sportswear, and believes the
Company will continue to benefit from substantial focus on those areas, a
longer-term opportunity for expansion will be the growth and development of
sales of imported fashion sportswear. Part of management's long-term plan is to
continue to expand its importing activities, which represented approximately 15%
of the Company's revenues for the nine months ended December 31, 1996. There can
be no assurance that this plan will be successfully implemented, or, if
implemented, result in profits to the Company. See "Use of Proceeds"; Risk
Factors -- Foreign Operations and Sourcing; Import Restrictions" and
"Business -- Sales Groups -- Imports."
The Company attempts to maximize its competitive advantage through its
market focus, product design, and merchandise. The Company targets the major
national, regional and specialty chains whose volume demands attract them to
manufacturers who can produce quality merchandise in high volumes at low cost
within specified delivery schedules. See "Business."
The Company was incorporated under the laws of the State of Delaware in
February 1995. The Company's principal executive offices are located at 1407
Broadway, Suite 1801, New York, New York 10017, and its telephone number is
(212) 704-0002.
73
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
THE OFFERING
Securities Offered by Selling
Securityholders........................ 1,000,000 Warrants and 1,000,000
shares of Common Stock issuable upon
exercise of such Warrants. The
Company will not receive any of the
proceeds of the sale of such Selling
Securityholder Securities. See
"Concurrent Offerings."
Common Stock Outstanding Before
Offering............................... 3,000,000 shares (1)
Common Stock Outstanding After
Offering............................... 4,200,000 shares (2)
Listing; Trading Symbols............... The Company's Common Stock and
Warrants are listed on the Nasdaq
National Market System ("Nasdaq"),
with the symbols for the Common
Stock and Warrants, respectively,
being JLNY and JLNYW.(3)
Risk Factors........................... The Offering involves a high degree
of risk and immediate dilution. See
"Risk Factors" and "Dilution."
- ---------------
(1) Includes (i) 952,381 shares of Common Stock issuable upon conversion of the
Series A Preferred Stock on the closing of the Offering (the "Preferred
Conversion Shares") and (ii) 571,429 shares of Common Stock (the
"Performance Shares") held by certain officers and directors of the Company,
which are subject to repurchase by the Company at the par value thereof if
the Company does not attain certain earnings levels. Does not include (x)
1,000,000 shares of Common Stock issuable upon exercise of the Bridge
Warrants, (y) 100,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $3.00 per
share and 50,000 shares of Common Stock issuable upon exercise of subsidiary
options under the Option Plan at an exercise price of $5.00 per share and
(z) 450,000 additional shares of Common Stock reserved for issuance upon
exercise of options not yet granted under the Option Plan. See
"Capitalization" and "Management."
(2) Includes the 571,429 Performance Shares. Does not include (i) 180,000 shares
of Common Stock issuable upon exercise of the Underwriter's over-allotment
option and the Warrants issuable upon exercise of such option; (ii) 180,000
shares of Common Stock issuable upon exercise of the Underwriter's Option
and the Warrants underlying such option; (iii) 600,000 shares of Common
Stock issuable upon exercise of the Warrants offered hereby; (iv) 1,000,000
shares of Common Stock issuable upon exercise of the Selling Warrantholder
Warrants; (v) 100,000 shares of Common Stock issuable upon exercise of
outstanding options under the Option Plan at an exercise price of $3.00 per
share and 50,000 shares of Common Stock issuable upon exercise of subsidiary
options under the Option Plan at an exercise price of $5.00 per share and
(vi) 450,000 additional shares of Common Stock reserved for issuance upon
exercise of options not yet granted under the Option Plan. See
"Capitalization," "Management" and "Underwriting."
(3) No assurance can be given that an active trading market will develop, or, if
one develops, be maintained for any of the Company's securities. See "Risk
Factors."
74
[ALTERNATE PAGE FOR CONCURRENT OFFERING PROSPECTUS]
UNDERWRITING
The Securities offered by this Prospectus may be sold from time to time by
the Selling Warrantholders. No underwriting arrangements have been entered into
by the Selling Warrantholders. The distribution of the Securities by the Selling
Warrantholders may be effected in one or more transactions that may take place
on the over-the-counter market, including ordinary broker's transactions,
privately negotiated transactions or through sales to one or more dealers for
resale of the Securities as principals, at market prices prevailing at the time
of sale, at prices related to such prevailing market prices or at negotiated
prices. Usual and customary or specifically negotiated brokerage fees or
commissions may be paid by the Selling Warrantholders in connection with such
sales. The Selling Warrantholders and intermediaries through whom such
securities are sold may be deemed "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities offered.
Simultaneously with this offering, the Company is registering (i) 600,000
units (including the components thereof, the "Units"), plus 90,000 additional
Units to cover overallotments, each Unit consisting of two shares of Common
Stock and one Warrant, as well as (ii) 90,000 shares of Common Stock (the
"Selling Common Stockholder Shares") to be sold by certain stockholders who are
members of management of the Company (the "Selling Common Stockholders") which,
together with 45,000 Warrants to be issued by the Company, will be sold as part
of the Underwriter's overallotment option, in each case for sale in a public
offering (the "Offering") underwritten by Walsh Manning Securities, LLC (the
"Underwriter").
75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
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
==========
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
76
The Company intends to enter into Indemnification Agreements with its
officers and directors prior to or shortly after the completion of the Offering.
Each such Indemnification Agreement will provide that the Company will indemnify
the indemnitee against expenses, including reasonable attorney's fees,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with any civil or criminal action or
administrative proceeding arising out of the performance of his duties as an
officer, director, employee or agent of the Company. Indemnification is
available if the acts of the indemnitee were in good faith, if the indemnitee
acted in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal proceeding, the
indemnitee had no reasonable cause to believe his conduct was unlawful.
The Company intends to acquire directors and officers liability insurance
prior to the completion of the Offering. The amount and scope of coverage will
depend upon the Company's analysis of the cost and appropriateness thereof.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
(a) In February and March 1995, the Company sold an aggregate of 975,000
shares of Common Stock at a price of $1.00 per share. Certain of these shares
were issued in exchange for promissory notes at $1.00 per share. These
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act since they were offered and sold only to members of management
and directors (specifically, Messrs. Dobies, Sobel, Baumgarten and Stanley
Kaplan).
(b) In April 1995, the Company completed the Series A Placement and sold
1,000,000 shares of Series A Preferred Stock. Each share of Series A Preferred
Stock was sold for a purchase price of $2.00. These transactions were exempt
from registration pursuant to Section 4(2) of the Securities Act and Regulation
D promulgated thereunder, specifically, Rule 506 thereof.
(c) In November 1995, the Company completed the November Placement and sold
ten investment units. Each unit comprising $50,000 principal amount of the
November Notes and 10,000 shares of Common Stock was sold for a purchase price
of $50,000. Certain of these units were purchased by cancellation of
indebtedness of the Company to purchasers thereof. These transactions were
exempt from registration pursuant to Section 4(2) of the Securities Act and
Regulation D promulgated thereunder, specifically, Rule 506 thereof.
(d) In March 1995, Mr. Dobies and Mr. Sobel each received 117,000
Performance Shares as compensation for services. In March 1995, Mr. Baumgarten
received 36,000 Performance Shares (the "Baumgarten Performance Shares") as
compensation for services and Stanley Kaplan received 30,000 Performance Shares
(the "Stanley Kaplan Performance Shares") for his services as a director. The
Baumgarten Performance Shares were repurchased by the Company at the par value
thereof in February 1996. The Stanley Kaplan Performance Shares were repurchased
by the Company at the par value thereof in April 1996. In June 1996, Mr. Sobel
received an additional 36,000 Performance Shares and Lawrence Kaplan received
30,000 Performance Shares, each as compensation for services. All these
issuances were exempt from registration pursuant to Section 4(2) of the
Securities Act since they were issued solely to members of management and
directors.
(e) In August 1996, the Company completed the Bridge Financing and sold ten
investment units. Each unit comprising $50,000 principal amount of the Bridge
Notes and 100,000 Bridge Warrants was sold for a purchase price of $50,000.
These transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act and Regulation D promulgated thereunder, specifically, Rule 506
thereof.
(e) All share amounts described in clauses (a) - (d) above do not take into
account the Stock Dividend. The share amounts described in clause (e) above take
into account the Stock Dividend.
II-2
77
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------ ------------------------------------------------------------------------------------
1.1 Form of Underwriting Agreement
3.1** Certificate of Incorporation of Registrant
3.2** Certificate of Designation, Preferences and Rights of Series A Convertible Preferred
Stock
3.3** By-laws of Registrant
4.1 Specimen common stock certificate
4.2 Specimen Warrant certificate
4.3 Form of Underwriter's Warrant for the Purchase of Units
4.4 Form of Warrant Agreement between the Company and American Stock Transfer Company,
as warrant agent
5.1* Opinion of the Law Offices of David N. Feldman
10.1 Amended and Restated Employment Agreement, dated as of February 1, 1997, between the
Registrant and Mitchell Dobies
10.2 Amended and Restated Employment Agreement, dated as of February 1, 1997, between the
Registrant and Charles Sobel
10.3** Letter Agreement between the Registrant and Stanley Kaplan
10.4** Offer of Stanley Kaplan to resell certain securities to the Registrant
10.5** Letter Agreement between the Registrant and Lawrence Kaplan, as amended to date
10.6** Termination and Performance Shares Repurchase Agreement, dated February 8, 1996, by
and between the Registrant and Ernie Baumgarten
10.7 Factoring Agreement, dated March 17, 1995, between the Registrant and Republic
Factors Corp. ("Republic"), as amended to date
10.8 Security Agreement, dated March 17, 1995, between the Registrant and Republic
10.9** 1996 Incentive Stock Option Plan of Jenna Lane, Inc.
10.10 Collective Bargaining Agreement by and between United Production Workers Union Local
17-18 and the Company, dated June 15, 1996
10.11 Form of Letter Agreement between the Company and the Underwriter regarding
consulting services
10.12 Form of Registration Rights Agreement between the Company and the Selling
Warrantholders
10.13 Form of Selected Dealer Agreement
11.1 Computation of per share earnings
21.1 Subsidiaries
23.1** Consent of Edward Isaacs, independent certified public accountants
23.2* Consent of the Law Offices of David N. Feldman (included in Exhibit 5.1)
24.1** Power of Attorney (contained on page II-5)
27.1 Financial Data Schedule (submitted electronically only)
- ---------------
* To be filed by amendment
** Previously filed
II-3
78
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the Securities being
registered, the Registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)9 or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(c) The undersigned Registrant hereby undertakes to provide to the
Underwriter at the closing specified in the Underwriting Agreement, certificates
in such denominations and registered in such names as required by the
Underwriter to permit prompt delivery to each purchaser.
ITEM 18. FINANCIAL STATEMENTS AND SCHEDULES
(a) Index to Financial Statements
PAGE
------------
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
II-4
79
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 1 to Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of New
York, State of New York, on February 24, 1997.
JENNA LANE, INC.
By: /s/ MITCHELL DOBIES
------------------------------------
Name: Mitchell Dobies
Title: President, Co-Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
- ------------------------------------------ ------------------------------- ------------------
/s/ MITCHELL DOBIES President, Co-Chief Executive February 24, 1997
- ------------------------------------------ Officer and Director
Mitchell Dobies (Principal Executive Officer)
/s/ CHARLES SOBEL* Executive Vice President, February 24, 1997
- ------------------------------------------ Co-Chief Executive Officer
Charles Sobel and Director
/s/ JEFFREY MARCUS* Chief Financial Officer February 24, 1997
- ------------------------------------------ (Principal Financial and
Jeffrey Marcus Accounting Officer)
* By Mitchell Dobies, as attorney-in-fact
pursuant to power of attorney granted
September 12, 1996
II-5
80
EXHIBITS
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- --------------------------------------------------------------------------- -------
1.1 Form of Underwriting Agreement.............................................
3.1** Certificate of Incorporation of Registrant.................................
3.2** Certificate of Designation, Preferences and Rights of Series A Convertible
Preferred Stock............................................................
3.3** By-laws of Registrant......................................................
4.1 Specimen common stock certificate..........................................
4.2 Specimen Warrant certificate...............................................
4.3 Form of Underwriter's Warrant for the Purchase of Units....................
4.4 Form of Warrant Agreement between the Company and American Stock Transfer
Company, as warrant agent..................................................
5.1* Opinion of the Law Offices of David N. Feldman.............................
10.1 Amended and Restated Employment Agreement, dated as of February 1, 1997,
between the Registrant and Mitchell Dobies.................................
10.2 Amended and Restated Employment Agreement, dated as of February 1, 1997,
between the Registrant and Charles Sobel...................................
10.3** Letter Agreement between the Registrant and Stanley Kaplan.................
10.4** Offer of Stanley Kaplan to resell certain securities to the Registrant.....
10.5** Letter Agreement between the Registrant and Lawrence Kaplan, as amended to
date.......................................................................
10.6** Termination and Performance Shares Repurchase Agreement, dated February 8,
1996, by and between the Registrant and Ernie Baumgarten...................
10.7 Factoring Agreement, dated March 17, 1995, between the Registrant and
Republic Factors Corp. ("Republic"), as amended to date....................
10.8 Security Agreement, dated March 17, 1995, between the Registrant and
Republic...................................................................
10.9** 1996 Incentive Stock Option Plan of Jenna Lane, Inc. ......................
10.10 Collective Bargaining Agreement by and between United Production Workers
Union Local 17-18 and the Company, dated June 15, 1996.....................
10.11 Form of Letter Agreement between the Company and the Underwriter regarding
consulting services........................................................
10.12 Form of Registration Rights Agreement between the Company and the Selling
Warrantholders.............................................................
10.13 Form of Selected Dealer Agreement..........................................
11.1 Computation of per share earnings..........................................
21.1 Sudsidiaries...............................................................
23.1** Consent of Edward Isaacs, independent certified public accountants.........
23.2* Consent of the Law Offices of David N. Feldman (included in Exhibit 5.1)...
24.1** Power of Attorney (contained on page II-5).................................
27.1 Financial Data Schedule (submitted electronically only)....................
- ---------------
* To be filed by amendment
** Previously filed