•
Outstanding
Stock Options.
The Transaction will have no effect on outstanding options to purchase shares
of our common stock.
•
Reduction
in Publicly Available
Information.
If we complete the Transaction as described in this
proxy statement, our common stock will no longer be registered under the
Exchange Act and we will no longer be a reporting company under the Exchange
Act. We will, therefore, cease to file annual, quarterly, current, and other
reports and documents with the SEC, and stockholders will cease to receive
annual reports and proxy statements. Persons that remain stockholders after the
Transaction is effected will, therefore, have access to less information about
the Company and our business, operations, and financial performance. We will,
however, continue to prepare and publicly disseminate certain business and
financial information under the rules of the pink sheets and as required by the
Special Committee and the Board of Directors. While these disclosure
requirements may be less comprehensive than the disclosure requirements under
the Exchange Act applicable to SEC reporting companies they are intended to
ameliorate the impact of the Transaction on our Continuing Stockholders. See
“Special Factors--Special Committee and Board of Director Protections for
Continuing Stockholders.”
•
Possible
Decline in the Value of Our
Common Stock.
Because of the possible limited liquidity for our
common stock, the termination of our obligation to publicly disclose financial
and other information following the Transaction, and the deregistration of our
common stock under the Exchange Act, Continuing Stockholders may experience a
significant decrease in the value of their common stock. The adoption by the
Board and the Special Committee of the corporate governance and other special
stockholder protections, including continuing disclosure requirements and that
we be listed on the OTCQX
SM
tier of the pink sheets, is intended to mitigate
any reduction in the trading price of our common stock. See “Special
Factors--Special Committee and Board of Director Protections for Continuing
Stockholders.”
•
Aggregate
Stockholders’ Equity.
Our aggregate stockholders’ equity will decrease from approximately $20,046,000
as of December 31, 2007 to approximately $16,848,000 on a pro forma basis
(after giving effect to payment of Transaction Costs in the amount of
$3,244,000).
•
Book
Value Per Share.
Our book value per share of our common stock will decrease from $7.95 as of
December 31, 2007 to approximately $7.61 per share of common stock on a pro
forma basis (after giving effect to payment of Transaction Costs in the amount
of $3,244,000).
•
Net
Earnings Per Share
.
As of June 30, 2007 net earnings per fully diluted share for our fiscal year
then ended were $0.28 and at December 31, 2007 net earnings per fully diluted
share for the six-months then ended were $.36. On a pro forma basis (after
giving effect to the payment of the estimated $285,000 and $122,000 for
additional interests costs for the twelve-month period ended June 30, 2007 and
the six-month period ended December 31, 2007, respectively, in the
Transaction), net earnings per fully diluted share for those periods would have
been $0.25 and $0.50, respectively.
Effect
on Affiliated Stockholders.
On the Record Date,
1,257,643 shares, or approximately 50.9%, of the issued and outstanding shares
of our common stock, were held by certain parties to the Stockholders
Agreement. Abe Ginsburg, our Chairman of our Executive Committee, Allan
Ginsburg, our Chairman, Robert Chestnov, our President and Howard Ginsburg our
Vice Chairman, certain other family members, trusts and custodianships for the
benefit of such individuals and family members, unrelated individuals, and the
Company are parties to the Stockholders Agreement. The Stockholders Agreement,
among other things, entitles Abe Ginsburg, Allan Ginsburg, Robert Chestnov and
Howard Ginsburg, in their capacity as a stockholders’ committee, acting by the
vote of at least two-thirds, or by the unanimous written consent, of the
members of the stockholders committee, for a period of fifteen years from the
date of the Stockholders Agreement, to direct the voting of the shares of
common stock with respect to which the signatory stockholders have or share, or
may hereafter have or share, voting power with respect to all
39
matters
submitted to our stockholders at any annual or special meeting of stockholders
or pursuant to a written consent in lieu thereof. Each of the members of the
stockholders committee is considered to be the beneficial owner of the shares
of our common stock subject to the Stockholders Agreement. The stockholders
committee has indicated that it intends to direct the vote of all of the shares
that are subject to the Stockholders Agreement
“
FOR
”
the
Transaction. Accordingly, if all those shares are voted in favor of the
Transaction, the Transaction will be approved.
Upon
the effectiveness of the Transaction, the aggregate number of shares of our
common stock owned by parties to the Stockholders Agreement will remain the
same. The ownership percentage of the shares of our common stock subject to the
Stockholders Agreement will increase from approximately 50.9% to approximately
58.2% as a result of the reduction of the number of shares of our common stock
outstanding by up to 306,319 shares. The increase in the ownership percentage
of our shares of common stock subject to the Stockholders Agreement and the
reduction in the number of shares outstanding following the completion of the
Transaction is based on record holder information that we received as of
January 31, 2008 from our transfer agent, Continental Stock Transfer &
Trust Company, and a share range analysis we received from Broadridge Corporate
Issuer Services, a division of Broadridge Financial Solutions, Inc., reflecting
the distribution of the accounts of our stockholders who hold shares in “street
name” according to predefined ranges based on share amount. The share range
analysis from Broadridge Corporate Issuer Services reflects the share ranges of
896,080 shares, or approximately 82%, of the 1,094,221 outstanding shares of
our common stock held in street name as of January 31, 2008. We have assumed
for purposes of determining ownership percentages and the reduction in the
number of shares outstanding following the Transaction that the remaining
198,141 street name shares also will be cashed out in the Transaction. However,
the ownership percentage and the reduction in the number of shares outstanding
following the Transaction may increase or decrease depending on purchases,
sales and other transfers of our shares of common stock by our stockholders
prior to the effective time of the Transaction, and the number of street name
shares that are actually cashed out in the Transaction. The ownership
percentage of our shares of common stock subject to the Stockholders Agreement
and the ownership percentage of the Continuing Stockholders will proportionally
increase or decrease as a result of such purchases, sales and other transfers
of our shares of common stock by our stockholders prior to the effective time
of the Transaction, and depending on the number of street name shares that are
actually cashed out in the Transaction.
In
addition, our other directors and executive officers may have interests in the
Transaction that are different from your interests as a stockholder, and have
relationships that may present conflicts of interest, including the following:
• Richard
Chestnov, a director of the Company who is also a party to the Stockholders
Agreement, holds 33,050 shares of our common stock directly, and 31,223 shares
of our common stock indirectly in his capacity as a trustee of trusts for
family members or as an officer and director of charitable entities. Mr.
Chestnov will retain these shares after the Transaction.
• Martin
Brody, a director of the Company, owns 387 shares of our common stock and will
retain all of these shares after the Transaction. Mr. Brody has advised us he
intends to vote in favor of the Transaction.
• Anthony
Christon, our Vice President and Chief Financial Officer, owns 7,500 shares of
our common stock and will retain all of those shares after the Transaction. Mr.
Christon has advised us he intends to vote in favor of the Transaction.
• Each
member of the Board of Directors other than Albert Safer, Richard Chestnov and
Robert Chestnov holds options to purchase shares of our common stock. The
Transaction will not affect these stock options and they will remain
outstanding after the Transaction.
40
• After
the Transaction, the beneficial ownership of the executive officers and
directors who are not parties to the Stockholders Agreement will increase from
approximately 1.6% to approximately 1.8% as a result of the reduction of the
number of shares of common stock outstanding.
See
“Special Factors--Potential Conflicts of Interests of Officers, Directors, and
Certain Affiliated Persons” and “Information About the Company—Stockholders
Agreement.”
Our
direct, out-of-pocket costs resulting from our reporting and other obligations
under the Exchange Act, the Sarbanes-Oxley Act, and the American Stock Exchange
rules were approximately $611,000 in fiscal 2007 and we expect these costs to
be approximately $893,000 in fiscal 2008 and between approximately $873,000 and
$983,000 in fiscal 2009. As we noted above, we ultimately expect to realize
recurring annual cost savings of approximately $500,000 as a result of the
Transaction. Our Continuing Stockholders, including our affiliated
stockholders, will be the beneficiaries of these savings. See “Special
Factors—Purpose and Reasons for the Transaction.”
Examples.
The effect of the Transaction on both Cashed Out
Stockholders and Continuing Stockholders may be illustrated, in part, by the
following examples:
41
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Hypothetical Scenario
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Result
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Mr. Smith is a registered
stockholder who holds 50 shares of our common stock of record in his name at
the effective time of the Transaction. Mr. Smith holds no other shares.
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Mr. Smith will receive
cash in the amount of $510.50, without interest, for the 50 shares of common
stock held prior to the Reverse Stock Split.
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Ms. Jones holds 100 shares
of our common stock in a brokerage account at the effective time of the
Transaction. Ms. Jones holds no other shares.
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We intend to treat
stockholders holding common stock in street name in the same manner as
stockholders whose shares are registered in their own names, and will ask
banks, brokers and nominees holding these shares to effect the Transaction
for their beneficial holders. Assuming that they do so, Ms. Jones will
receive cash in the amount of $1,021, without interest, for the 100 shares of
common stock held prior to the Reverse Stock Split. If the bank, broker or
nominee holding Ms. Jones’ shares have different procedures, or do not
provide us with sufficient information on Ms. Jones’ holdings, then Ms. Jones
may or may not receive cash for her shares depending on the number of shares
held by the bank, broker or other nominee, which is the actual record holder
of her shares.
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Mr. Williams holds 225
shares of our common stock of record in his name and 75 shares in a brokerage
account at the effective time of the Transaction. Mr. Williams holds no other
shares.
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Each of Mr. Williams’
holdings will be treated separately. Accordingly, assuming the brokerage firm
with whom Mr. Williams holds his shares in street name effects the
Transaction for its beneficial holders, Mr. Williams will receive cash in the
amount of $3,063, without interest, for the 300 shares of common stock held
prior to the Reverse Stock Split.
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Ms. Washington holds 400
shares of our common stock in her name and 400 shares in a brokerage account
at the effective time of the Transaction.
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Ms. Washington will
continue to hold 400 shares of common stock in her own name and 400 shares in
a brokerage account after the Transaction.
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Mr. Adams holds 200 shares
of common stock in one brokerage account and 200 shares in another brokerage
account at the effective time of the Transaction.
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Each of Mr. Adams’
holdings will be treated separately. Assuming each of the brokerage firms
with whom Mr. Adams holds his shares in street name effect the Transaction
for their beneficial holders, Mr. Adams will receive cash in the amount of
$4,084, without interest, for the 400 shares of common stock held prior to
the reverse stock split.
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Ms. Wilson holds 200
shares in one record holder account and 200 shares in another identical
record holder account at the effective time of the Transaction.
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Ms. Wilson will continue
to hold 400 shares of common stock after the reverse stock split.
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Mr. Jefferson and Ms.
Jefferson each hold 250 shares in separate, individual record holder
accounts, but also hold 100 sharers of common stock jointly in another record
holder account.
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Shares held in joint
accounts will not be added to shares held individually in determining whether
a stockholder will be a Cashed Out Stockholder or a Continuing Stockholder.
Accordingly, Mr. Jefferson and Ms. Jefferson will each continue to own 250
shares of common stock after the Transaction in their separate accounts, but
will receive $1,021, without interest, for the shares held in their joint
account.
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42
American Stock Exchange Listing; Pink Sheets
Listing
Our
common stock is currently listed on the American Stock Exchange. To obtain the
cost savings we anticipate by no longer preparing and filing annual, periodic
and current reports with the SEC, our common stock will need to be delisted
from the American Stock Exchange.
However,
in order to ensure that our Continuing Stockholders will have the ability to
trade their shares after the Transaction, the Special Committee’s
recommendation of the Transaction to the full Board of Directors, and the Board
of Directors approval of the Transaction, is also contingent upon our common
stock being listed on the OTCQX
SM
tier of the pink sheets and at
least two market makers must have indicated their intent to quote our common
stock on the OTCQX
SM
tier once our common stock has been listed. The
pink sheets is a tiered listing service that offers a trading, quotation and
disclosure venue for over-the-counter securities in the US markets and the
OTCQX
SM
tier is the highest tier offered by the pink sheets. In
order to maintain a quotation on the OTCQX
SM
tier, we will be
required to meet certain reporting and other requirements of the OTCQX
SM,
tier including, without limitation, the following:
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preparing
quarterly and annual financial reports;
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performing
annual audits;
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requiring our chief executive officer and
chief financial officer to each certify that (i) to his knowledge, the
information about us furnished in accordance with the rules of the pink
sheets does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with
respect to the period covered by that information; (ii) to his knowledge, the
financial statements, and other financial information furnished in accordance
with the rules of the pink sheets, fairly present in all material respects
our financial condition, results of operations and cash flows as of, and for,
the periods presented; and (iii) based upon his reasonable belief, for at
least one year from the date of the certification, we have sufficient working
capital to continue operations and have the ability to continue to meet our
obligations as they become due; and
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preparing
interim material event disclosure in accordance with the reporting
requirements of the OTCQX
SM
tier.
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Fairness of the Transaction
The
Special Committee and the Board of Directors fully considered and reviewed the
terms, purpose, alternatives and effects of the proposed Transaction, and each
has unanimously determined that the Transaction is procedurally and
substantively fair to all stockholders of the Company, including the
unaffiliated stockholders who will receive cash consideration in the
Transaction and unaffiliated stockholders who will continue as owners of the
Company. The Board of Directors has unanimously approved the Transaction and
recommends that stockholders vote “FOR” approval of the Transaction.
Substantive Fairness
. The Special Committee
and the Board of Directors considered, among other things, the factors listed
below, as well as the alternatives to the Transaction as noted above in
“Special Factors—Alternatives to the Transaction” in reaching their conclusions
as to the substantive fairness of the Transaction to our stockholders,
including both unaffiliated Cashed Out Stockholders and unaffiliated Continuing
Stockholders. The Special Committee and the Board of Directors did not assign
specific weight to any factors they considered, nor did they apply them in a
formulaic fashion, although they particularly noted the opportunity in the
Transaction for stockholders to sell their holdings at a premium, as well as
the significant cost and time savings for the Company resulting from the Transaction
43
which will
benefit Continuing Stockholders. The discussion below is not meant to be
exhaustive, but we believe includes all material factors considered by the
Special Committee and the Board of Directors in their determinations.
Future
Cost and Time Savings.
The direct, out-of-pocket costs
resulting from our reporting and other obligations under the Exchange Act, the
Sarbanes-Oxley Act, and the American Stock Exchange rules were approximately
$611,000 in fiscal 2007 and we expect these costs to be approximately $893,000
in fiscal 2008 and between approximately $873,000 and $983,000 in fiscal 2009.
By eliminating these direct and indirect costs, the Company ultimately expects
to realize recurring annual cost savings of approximately $500,000. In
addition, the Special Committee and the Board of Directors noted that the
Company would eliminate the time and effort currently spent by the Company’s
management to prepare and review the reports it files with the SEC under the
Exchange Act and the Sarbanes-Oxley Act, and after the Transaction, management
and our other employees will be able to reallocate this time and effort to
other areas of our businesses and operations.
Opportunity
to Liquidate Shares of Common Stock.
The Special Committee
and Board of Directors considered the opportunity the Transaction presents for
stockholders owning fewer than 250 shares to liquidate their holdings at a
premium over the closing price per share of our common stock at the time of the
approval of the Transaction, without incurring brokerage costs.
Limited
Liquidity for the Company’s Common Stock.
The Special
Committee and the Board of Directors noted that the trading volume in our
common stock has been, and continues to be, relatively limited. The average
daily trading volume of the stock from January 2, 2006 to December 4, 2007 (the
trading day just prior to the announcement of the approval of the Transaction
by the Special Committee and the Board of Directors) was approximately 4,680
shares per day. During that period, however, there were 139 trading days on
which our common stock did not trade at all. Accordingly, the Transaction
provides a large number of our record holders and beneficial holders with the
opportunity to obtain cash for their shares in a relatively limited trading
market and at a premium over the closing price of our common stock at the time
of our announcement of the Transaction. With respect to the Continuing
Stockholders, the Special Committee and Board noted that any effect of this
Transaction on their liquidity may be mitigated by the fact that the shares
will be listed on the OTCQX
SM
tier of the pink sheets.
Historical
Prices.
The Special Committee and the Board of
Directors considered both the historical market prices and recent trading
activity and current market prices of our common stock. Between January 2, 2006
and December 4, 2007, the day before the public announcement of the proposed
transaction, our share price has ranged from $2.10 to $14.25. The $10.21 cash
out price, therefore, represents an approximately 25% premium over the midpoint
of the range of the share price for that period, an approximately 70% premium
over the $6.00 closing sales price of common stock on December 4, 2007 and an
approximately 19% premium over the $8.58 closing sales price of common stock on
the Record Date.
Opinion
of the Financial Advisor.
The Special Committee and
the Board of Directors considered a valuation report dated November 20, 2007
issued by Houlihan, and the opinion of Houlihan rendered to the Special
Committee on November 20, 2007 and confirmed in writing by Houlihan on November
28, 2007, to the effect that, as of the date of such opinion and based upon and
subject to certain matters stated therein, the $10.21 per share in cash to be
paid is fair, from a financial point of view to unaffiliated Cashed Out
Stockholders and unaffiliated Continuing Stockholders. For more information
about the opinion, you should read the discussion below under “Special Factors—Fairness
Opinion of Financial Advisor” and a copy of the opinion of Houlihan attached as
Annex B to this proxy statement. Each of the valuation report and the opinion
of Houlihan is available for inspection and copying at our principal executive
offices, 197 West Spring Valley Avenue, Maywood, New Jersey 07607.
44
Going
Concern Value.
In determining the cash amount to be
paid to Cashed Out Stockholders in the Transaction, the Special Committee and
the Board of Directors considered the valuations of the Company’s common stock
on a going concern basis as presented in Houlihan’s valuation report. The
guideline public company method, comparable transactions method and discounted
cash flow method used by Houlihan to assess the fairness of the $10.21 per
share to be paid to Cashed Out Stockholders and to our unaffiliated Continuing
Stockholders, each as described in more detail below under “Special
Factors—Fairness Opinion of Financial Advisor,” were performed by Houlihan on a
going concern basis. As is also noted below in the discussion under “Special
Factors—Fairness Opinion of Financial Advisor-Fair Value Summary,” Houlihan
weighted each of these methods equally in arriving at an implied common equity
value per share range of $8.89-$10.88 per share of common stock. The Special
Committee and the Board have relied upon Houlihan’s going concern analyses and
Houlihan’s written fairness opinion to the effect that the $10.21 per share in
cash to be paid is fair, from a financial point of view to unaffiliated Cashed
Out Stockholders and unaffiliated Continuing Stockholders.
Net
Book Value and Liquidation Value
. While Houlihan
reviewed the net book value of our shares of common stock, none of Houlihan,
the Special Committee or the Board viewed it as being relevant for the fair
value to be paid to Cashed Out Stockholders. Net book value is based on the
historical cost of our assets. The value of items, such as our positive
business reputation and goodwill, particularly since we will continue as a going
concern, are not included in a determination of net book value. Nevertheless,
our stockholders’ equity (net book value) per share on December 31, 2007 was
$7.95, and the cash out price of $10.21 represents a $2.26, or 28%, premium to
net book value. In addition, while Houlihan considered a liquidation analysis,
it determined that it also had no relevance in light of the fact that we will
remain as a continuing business and the Transaction will not result in a change
of control of the Company.
No
Firm Offers.
The Special Committee and the Board of
Directors is not aware of any firm offers during the past two years by any
unaffiliated person for the merger or consolidation of the Company, the sale or
other transfer or all or any substantial part of the assets of the Company, or
a purchase of our shares of common stock or other securities that would enable
the holder to exercise control of the Company.
Disadvantages of the Transaction
.
The Special Committee and the Board of Directors also considered the
disadvantages of the Transaction, including that:
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No Participation in Future Growth by Cashed Out Stockholders.
Cashed Out Stockholders will no longer have any ownership interest in the
Company and will no longer participate in our future earnings and growth.
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Possible Reduction in Information about the Company.
After completion of the Transaction, we will cease to file annual, quarterly,
current, and other reports and documents with the SEC, and stockholders will
cease to receive annual reports and proxy statements. As a result Continuing
Stockholders will have access to less information about the Company and our
business, operations, and financial performance. In order to mitigate this
disadvantage to our Continuing Stockholders, we will prepare quarterly and
annual financial reports, issue quarterly and annual earnings press releases
and make interim material event disclosures in accordance with the reporting
requirements of the OTCQX
SM
tier of the pink sheets, and have instituted
additional stockholder protections. See “Special Factors--Special Committee
and Board of Director Protections for Continuing Stockholders.”
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Limited Liquidity.
After the Transaction, we
will no longer be listed on the American Stock Exchange and our common stock
will, instead, be listed on the OTCQX
SM
tier of the pink sheets.
In addition, because of the possible limited liquidity for our common stock,
the termination of our
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obligation
to publicly disclose financial and other information following the
Transaction, and the deregistration of our common stock under the Exchange
Act, Continuing Stockholders may potentially experience a significant
decrease in the value of their common stock. In order to mitigate this
disadvantage, a condition to the Transaction is that our common stock be
listed on the OTCQX
SM
tier of the pink sheets and that at least
two market makers have indicated their intent to quote our common stock on
the OTCQX
SM
tier once our common stock has been listed, that we
continue to prepare and publicly disseminate quarterly and annual financial
reports, issue quarterly and annual earnings press releases, prepare and
publicly disseminate annual audited financial statements as well as interim
material event disclosure in accordance with the reporting requirements of
the OTCQX
SM
tier of the pink sheets is intended to ameliorate the
impact of the deregistration and delisting.
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Limited Oversight
. After completion of the
Transaction, we will no longer be subject to the provisions of the
Sarbanes-Oxley Act, the liability provisions of the Exchange Act or the
oversight of the American Stock Exchange.
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Reporting Obligations of Certain Insiders.
Our executive officers, directors and 5% stockholders will no longer be
required to file reports relating to their transactions in our common stock
with the SEC. In addition, our executive officers, directors and 10%
stockholders will no longer be subject to the recovery of profits provision
of the Exchange Act, and persons acquiring 5% of our common stock will no
longer be required to report their beneficial ownership under the Exchange
Act.
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Increased Debt.
We estimate that the cost of
payment to Cashed Out Stockholders, professional fees and other expenses will
total approximately $3,728,000. The consideration to be paid to the Cashed
Out Stockholders and the costs of the Transaction will be paid from funds on
hand and funds under our existing revolving loan agreement with TD Banknorth,
N.A. As a result, immediately after the Transaction, we will have more debt
outstanding than we would have had if the Transaction did not occur.
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Filing Requirements Reinstituted.
The filing
of the Form 15 will result in the suspension and not the termination of our
filing obligations under the Exchange Act. This suspension remains in effect
so long as we have fewer than 300 stockholders of record. Thus, subsequent to
the time the Form 15 becomes effective, if on the first day of any fiscal
year we have more than 300 stockholders, then we must resume reporting
pursuant to Section 15(d) of the Exchange Act.
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Board Composition
. After the completion of
the Transaction we will have at least two independent directors within the
meaning of Section 121A of the American Stock Exchange Company Guide and Rule
10A-3(b) of the Exchange Act. However, we cannot be certain how long these
directors will continue to serve as directors after the Transaction has been
effected.
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No Appraisal Rights
. Under Delaware law, our
certificate of incorporation and our bylaws, no appraisal or dissenters’
rights are available to our stockholders who dissent from the Transaction.
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Approval of the Transaction.
As of the
Record Date, over 50% of the issued and outstanding shares of our common
stock was held subject to the Stockholders Agreement. The stockholders
committee under the Stockholders Agreement has indicated that it intends to
direct the voting of the shares of our common stock (1,257,643 shares, or
approximately 50.9% of the issued and outstanding shares of our common stock)
“
FOR
”
the Transaction. Accordingly, if all those shares are voted in favor of
the Transaction, the Transaction will be approved.
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See “Special
Factors—Effects of the Transaction”.
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46
Procedural Fairness.
No unaffiliated
representative acting solely on behalf of our unaffiliated stockholders for the
purpose of negotiating the terms of the Transaction or preparing a report
covering the fairness of the Transaction was retained by the Company, nor were
special provisions made to grant unaffiliated stockholders access to our
corporate files or to obtain counsel or appraisal services. The Board of
Directors established the Special Committee to consider possible alternatives
to the Transaction, the related advantages and disadvantages to the Company and
its stockholders of each of those alternatives, the fairness of the price to be
paid to Cashed Out Stockholders, and to make a recommendation to the full Board
of Directors concerning the advisability of the alternatives considered. The
Board of Directors believes that the Special Committee, whose members are each
independent within the meaning of Rule 121A of the American Stock Exchange
Company Guide and Section 10A-3(b) of the Exchange Act, was sufficient to
protect the interests of unaffiliated stockholders. In addition, the Special
Committee and the Board of Directors took note of the fact that the interests
of unaffiliated stockholders inherently varied depending upon whether any
particular unaffiliated stockholder held 250 shares or more or held fewer than
250 shares. The Special Committee and the Board of Directors each believe that the
separate representatives and advisors for each of these classes would have
provided no measurable additional protection to unaffiliated stockholders.
The
Special Committee and the Board of Directors also noted that this proxy
statement, along with our other filings with the SEC, provide a great deal of
information for unaffiliated stockholders to make an informed decision as to
the Transaction, and that no special provision for the review of our files was
necessary. The Special Committee and the Board of Directors noted, though, that
subject to certain conditions, Delaware law already provides stockholders with
the right to review our books and records.
The
Special Committee and the Board of Directors determined not to condition the
approval of the Transaction on approval by a majority of unaffiliated
shareholders. The Special Committee and the Board of Directors noted that
affiliated and unaffiliated stockholders will be treated equally in the
Transaction. If separate approval of unaffiliated stockholders were required,
our affiliated stockholders would receive lesser voting rights than
unaffiliated stockholders solely on the basis of their affiliate status even
though they will receive no additional benefits or different treatment in the
Transaction, and that any such requirement would prevent a majority of the
outstanding shares of our common stock from participating in the consideration
of the proposed Transaction. Holders of shares of common stock under the
stockholders agreement presently own 50.9% of the issued and outstanding shares
of our common stock (please see “Special Factors – Potential Conflicts of
Interests of Officers, Directors, and Certain Affiliated Persons”).
Furthermore, a vote of the majority of unaffiliated stockholders is not
required under Delaware law. Finally, stockholders can increase, divide, or
otherwise adjust their existing holdings at any time prior to the effective
date of the Transaction, so as to retain some or all of their shares of common
stock, or to receive cash for some or all of their shares, as they see fit.
The
Special Committee and the Board of Directors also noted that there will be no
material change in the percentage ownership of the parties to the Stockholders
Agreement. Based on information provided by our transfer agent as of January
31, 2008 as to our record holders, and Broadridge Corporate Issuer Services, a
division of Broadridge Financial Solutions, Inc., reflecting the distribution
of the accounts of our stockholders who hold shares in “street name” according
to predefined ranges based on share amount, up to 306,319 shares out of
2,468,614 issued and outstanding shares of our common stock (consisting of an
estimated 20,756 shares owned by record holders and up to an estimated 285,563
owned by holders of shares in street name) will be eliminated as a result of
the Transaction. The Special Committee also noted that on the Record Date the
parties to the Stockholders Agreement held 1,257,643 shares, or approximately
50.9%, of the issued and outstanding shares of our common stock, and that after
the Transaction, we expect those shares will represent approximately 58.2% of
our issued and outstanding shares, subject to change based on the actual number
of shares that would be purchased in the Transaction.
47
Finally,
the Special Committee and the Board of Directors also have required that we
implement or maintain for a period of three years following the Transaction
certain corporate governance and other stockholder protections intended to
provide Continuing Stockholders with financial and other information about us,
and to mitigate any impact that the Transaction may have on the liquidity of
our shares of common stock. See “Special Factors— Special Committee and Board of
Directors’ Protections for Continuing Stockholders.” This three-year
requirement will be applicable as long as there are unaffiliated Continuing
Stockholders during that time; it is not intended to restrict or otherwise
prohibit any merger, consolidation, sale of all or substantially all of our
assets, or similar extraordinary transaction during that three-year period. We
have no present plans or proposals for any such transaction, however, and our
intent is to operate our business after the Transaction substantially as it is
currently conducted. See “Special Factors—Conduct of the Company’s Business
after the Transaction.”
Recommendation of the Special Committee.
Based on the foregoing analyses, including a consideration of the disadvantages
of the Transaction, the Special Committee believed that the Transaction is
procedurally and substantively fair to all stockholders, including the
unaffiliated stockholders, regardless of whether a stockholder receives cash or
continues to be a stockholder following the Transaction, and believes the
$10.21 cash amount to be fair consideration for those stockholders holding less
than 250 shares. As a result, the Special Committee unanimously recommended the
Transaction to the full Board of Directors.
Recommendation of the Board of Directors
.
At a meeting held on December 5, 2007, the Board of Directors unanimously
determined that the Transaction is fair to, and in the best interests of, the
Company and its stockholders, including all unaffiliated stockholders,
unanimously approved the Transaction and recommends that you vote
“
FOR
”
approval. In reaching its determination and recommendation, the Board of
Directors considered and specifically adopted the recommendations of the
Special Committee and the factors that the Special Committee took into account
in making its recommendations to the full Board of Directors.
Fairness Opinion of Financial Advisor
On
June 26, 2007, the Special Committee and the Board of Directors formally
retained Houlihan to consider the fairness, from a financial point of view, of
the cash consideration be paid to Cashed Out Stockholders. At a meeting of the
Special Committee held on November 20, 2007, Houlihan delivered its oral
opinion to the Special Committee that, as of November 20, 2007, the cash
consideration to be paid to those stockholders receiving the cash consideration
was fair, from a financial point of view, to unaffiliated Cashed Out
Stockholders and to unaffiliated Continuing Stockholders. At a meeting of the
Board of Directors on November 28, 2007, Houlihan delivered its oral opinion to
the Board of Directors that, as of November 28, 2007, the cash consideration to
be paid to those stockholders receiving the cash consideration was fair, from a
financial point of view, to unaffiliated Cashed Out Stockholders and to
unaffiliated Continuing Stockholders. Pursuant to the Special Committee’s
request, Houlihan confirmed its oral fairness opinion with a written fairness
opinion dated November 28, 2007 in which it stated that the cash consideration
to be paid to those stockholders receiving the cash consideration in the
Transaction is fair, from a financial point of view, to unaffiliated Cashed Out
Stockholders and to unaffiliated Continuing Stockholders. This fairness opinion
is attached to this proxy statement as Annex B.
The
Special Committee retained Houlihan based upon Houlihan’s experience in the
valuation of businesses of the Company’s size and their experience in providing
independent financial opinions to special committees. Houlihan is a nationally
recognized investment banking firm of recognized standing. As part of its
investment banking services, it is regularly engaged in the valuation of
corporate entities on a stand-alone basis and in connection with capital
raising and merger and acquisition transactions and has provided investment
banking services related to going private transactions. The Special Committee
48
imposed no
limitations upon Houlihan with respect to the investigations made or procedures
followed in rendering its valuation or its fairness opinion.
We
have agreed to pay Houlihan a fee of $125,000, plus reimbursement of its
out-of-pocket expenses, for providing its fairness opinion and related
financial advisory services. No portion of Houlihan’s fee is contingent upon
the conclusions reached in the Houlihan opinion or upon consummation of any
transaction. We have agreed to indemnify and hold harmless Houlihan, and its
employees, agents, officers, directors, principals and affiliates (and their
successors and assigns) against and from all losses arising out of or in
connection with its engagement by the Special Committee.
The
complete text of Houlihan’s opinion is attached to this proxy statement as
Annex B, and the following summary of that opinion is qualified in its entirety
by reference to that opinion. We urge you to read the opinion carefully for a
description of the procedures followed, the factors it considered and the
assumption it made.
In
connection with its opinion, Houlihan made such reviews, analyses and inquiries
as it deemed necessary and appropriate under the circumstances. Among other
items Houlihan:
•
reviewed the financial terms and
conditions of the Transaction;
•
reviewed the Company’s publicly
available financial information and other data with respect to the Company,
including the Company’s Form 10-Ks for the fiscal years ended June 30, 2002 to
June 30, 2007 and quarterly reports on Form 10-Q for the three month periods
ended from September 30, 2005 to September 30, 2007, as well as certain other
public filings;
•
reviewed certain internal financial
information and other data relating to the business and financial prospects of
the Company provided by our senior management, including fiscal year 2008
budgets;
• conducted
an on-site visit and held discussion with the Company’s senior management
regarding the historic, current and future outlook and financial prospects of
the Company;
• discussed
with the Company’s senior management details of a potential sale of
non-operating assets consisting of a warehouse facility and adjacent parcels of
land located in West New York and reviewed certain public filings relating to
the potential sale and performed a site visit (the “Assets Held for Sale”);
• reviewed
the financial terms of certain recent business combinations in the apparel and
accessories industries specifically;
• analyzed
historic trading prices and volume in the Company’s common stock;
• analyzed
other recent reverse and forward split transactions and premiums paid in such
transactions as fractional share consideration;
• reviewed
the annual cost savings projected by the Company’s senior management to be
achieved through delisting from the American Stock Exchange and deregistration
under the federal securities laws as well as the cost savings projected to be
achieved through the disposition of non-operating assets consisting of a
warehouse facility and adjacent parcels of land located in West New York; and
49
• reviewed
other financial studies, analyses and investigations, and considered such other
information as Houlihan deemed necessary or appropriate.
Houlihan
used several methodologies to assess the fairness of the cash consideration to
be paid to those stockholders receiving the cash consideration in connection
with the Transaction. The following is a summary of the material financial
analyses used by Houlihan in connection with its appraisal. Houlihan utilized
each of the following analyses based upon its view that each is appropriate and
reflective of generally accepted valuation methodologies. Each analysis
provides an indication of the Company’s per share value in order to assess the
fairness of the cash consideration to be paid to those stockholders receiving
the cash consideration in connection with the Transaction.
Historical
Stock Trading Analysis
. Houlihan reviewed the
Company’s common stock based on an historical analysis of closing prices and
trading volumes for the five-year period prior to November 16, 2007. The shares
of our common stock presently are and during that period of time have been
traded on the American Stock Exchange. Houlihan noted that the Company’s common
stock has been volatile over that period of time based on relatively thin
trading volume.
The
following chart summarizes the average closing prices and average daily volume
of trading of the Company’s common stock over the one-year period ended
November 16, 2007:
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Historical Price and Volume Analysis (1)
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Current
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1 Week
Average
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1 Month
Average
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3 Month
Average
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6 Month
Average
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1 Year
Average
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Average
Price
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$6.25
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$5.39
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$5.89
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$7.54
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$8.95
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$10.08
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Average
Daily Volume
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2,200
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12,200
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8,771
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10,006
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6,517
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8,783
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(1)
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The source
of all share data is CapitalIQ based on historical trading in Jaclyn’s common
stock as of November 16, 2007.
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The cash out
price of $10.21 to be paid to Cashed Out Stockholders is above the average
closing prices of the Company’s common stock for the current, one-week,
one-month, three-month, six-month and one-year periods reviewed as part of the
historical stock trading analysis.
Guideline
Public Company Method
.
The guideline public company method applies the trading multiples of
publicly traded companies to the Company to derive an indication of value.
Houlihan sought guideline companies in industries similar to our operating
structures and target customers, and found ten companies that were comparable
to the Company based on size, growth, leverage, profitability, turnover ratio
and liquidity. Those companies are: Tarrant Apparel Group, Ted Baker plc, Tandy
Brands Accessories Inc., Maidenform Brands Inc., Oxford Industries Inc., St.
John Knits International Inc., Kellwood Co., G-III Apparel Group, Ltd., Delta
Apparel Inc., and Cygne Designs Inc.
Houlihan
determined that the valuations derived from EBITDA (earnings before interest,
taxes, depreciation and amortization), EBIT (earnings before interest and
taxes) and book value multiples of the guideline companies would provide the
most meaningful indications of value. Houlihan first multiplied the Company’s
last twelve–month EBITDA, EBIT and book value reported as of September 30, 2007
by the selected median multiples to calculate the indications of common equity
values. Then the cash that would be received upon exercise of outstanding
options was added to the equity value and the resulting value was divided by
the number of shares of the Company’s common stock outstanding on a fully
diluted basis. Finally, Houlihan added the calculated range of values for the
sale of the assets of the Company that are classified as “Assets Held for
Sale,” consisting of the Company’s former executive offices, warehouse facility
and adjacent parcels of land located in West New York, New Jersey, to
50
determine an
indicated common equity value per share of $8.54 to $11.24. Houlihan considered
the price/earnings multiple approach, but did not use it in its analysis given
the fact that the Company’s price/earnings multiple was much lower than the
guideline companies due to the Company’s mature stage, low growth, and
historically low leverage.
Comparable
Transactions Method
.
The comparable transactions method is a market approach which
analyzes transactions involving target companies operating in industries that
are similar to the Company’s industry. Although no two companies are exactly
alike, and no two transactions are structured exactly the same, consideration
is given to the similarity in capital structure, operations and profitability,
as well as other operating characteristics of the target companies.
Houlihan
found twelve transactions within the apparel and accessories industries that
had comparability. Houlihan determined that the valuations from EBITDA and EBIT
multiples of the guideline companies would provide the most meaningful
indications of value and applied these multiples to the Company’s financial
metrics over the twelve month period ended September 30, 2007 to calculate the
enterprise value based upon the comparable transactions method.
The
comparable transactions considered by Houlihan are set forth below:
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Announced
Date
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Target/Issuer
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Total
Transac-
tion
Amount
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Industry Classification
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Implied
Enterprise
Value/EBITDA
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Implied
Enterprise
Value/EBIDTA
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10/03/2003
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Royal Robbins Inc.
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$16.5
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Women’s, Misses’, and
Juniors’ Apparel
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10.3x
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11.9x
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10/02/2003
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GFSI Holdings Inc.
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$268.6
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Women’s, Misses’, and
Juniors’ Apparel
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9.5x
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11.2x
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07/07/2003
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Nautica Enterprises, Inc.
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$650.0
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Boys’ Apparel, Girls’
Apparel, Women’s, Misses’, and Juniors’ Apparel
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6.8x
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10.5x
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07/10/2001
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Full Line Distributors, Inc.
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$26.0
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Girls’ Apparel, Women’s,
Misses’, and Juniors’ Apparel
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8.2x
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10.0x
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06/04/2004
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The First Years Inc.
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$170.1
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Girls’ Apparel
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8.0x
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9.5x
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06/13/2005
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CFS International Inc.
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$14.1
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Women’s, Misses’, and
Juniors’ Apparel
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5.7x
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6.8x
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07/02/2002
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Garan Incorporated
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$275.6
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Boys’ Apparel, Girls’
Apparel, Women’s, Misses’, and Juniors’ Apparel
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4.6x
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5.3x
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05/15/2002
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Gerber Childrenswear Inc.
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$137.2
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Girls’ Apparel, Women’s,
Misses’, and Junior’s Apparel
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3.8x
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5.2x
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09/27/2006
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Hanesbrands Inc.
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$43.0
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Apparel, Accessories and
Luxury Goods
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4.1x
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5.2x
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07/07/2003
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M. J. Soffe Co.
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$71.8
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Boys’ Apparel, Women’s,
Misses’, and Juniors Apparel
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4.1x
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5.0x
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02/04/2003
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Salant Corporation
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$86.8
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Boys’ Apparel, Women’s,
Misses’, and Juniors’ Apparel
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3.4x
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4.6x
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05/01/2006
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Oxford Industries Inc., Womenswear Group
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$37.0
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Women’s, Misses’, and
Juniors’ Apparel
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NA
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3.7x
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Median
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5.7x
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6.0x
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(1) The source of all data was
CapitalIQ.
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51
Houlihan
applied a comparable transactions method in its analyses of the Company’s fair
value to calculate unadjusted indications of enterprise values. Houlihan
adjusted these values from the calculated range of values for the Assets Held
for Sale to determine a range of indicated enterprise values. Interest bearing
debt (adjusted for the retirement of the Company’s mortgage on its Assets Held
for Sale) was then subtracted and cash received from exercise of options was
added to the indicated enterprise values. This equity value was divided by the
number of common shares outstanding on a fully diluted basis to calculate a
range of indicated values for the Company’s common equity of $9.14 to $10.21
per share.
Discounted
Cash Flow
.
For
this valuation approach, Houlihan prepared a discounted cash flow analysis of
the Company, which estimates the present value of projected future earnings. In
preparing its discounted cash flow analysis Houlihan was provided with a fiscal
year 2008 budget prepared by senior management of the Company, further budgets
and other financial information prepared by senior management relating to
material business and operational events, and also held extensive discussions
with the Company’s senior management. Houlihan applied a discount rate of 13%
in determining discounted cash flows, based on Houlihan’s estimate, utilizing
the build-up method, of our weighted average cost of capital, which represents
a blended after-tax cost to us of debt and equity capital. Houlihan utilized a
long term growth rate of 3% which reflects the mature stage of the Company, as
well as discussions with management as to, among other things, management’s
view of general economic conditions, conditions in the apparel and accessories
industry, financial prospects and recent changes in the Company’s operations in
particular. Houlihan used the financial projections to determine the enterprise
net cash flows of the Company over the projected five year period. Houlihan
used the enterprise net cash flows to calculate a fair enterprise value,
applying the discounted cash flow method. Houlihan added the range of values
calculated for the Company’s Assets Held for Sale, added cash received from
exercise of options and subtracted interest bearing date (adjusted for the
retirement of the Company’s mortgage on the Assets Held for Sale) from the unadjusted
indicated enterprise value. This value was divided by the number of shares of
common stock outstanding on a fully diluted basis. From the discounted cash
flow analysis, Houlihan concluded a range of values for the Company’s common
equity of $9.00 to 11.18 per share.
Assets
Held for Sale
. In performing its analyses, Houlihan
took in to account Assets Held for Sale, which had been subject to a purchase
and sale agreement with a third-party purchaser at a purchase price of
$8,000,000. Houlihan reviewed the purchase and sale agreement and also held
discussions with the Company’s senior management regarding the Assets Held for
Sale. Management indicated the proposed purchaser would use the real estate for
residential purposes. The closing of the purchase was contingent on the
proposed purchaser’s receipt of governmental approvals required for the
construction of residential, multi-family housing consisting of 150 residential
units. Management noted that it was likely the Company would be able to realize
a net benefit from the sale of the real estate after paying taxes and retiring
the outstanding mortgage debt on the assets being sole. Houlihan treated the
Assets Held for Sale as a non-operating asset and added the value of those
assets to the unadjusted equity value indicated in Houlihan’s analyses.
Houlihan
used the $8,000,000 stated purchase price only as an indication of value.
However, because of the high level of uncertainty related to the zoning
approval, Houlihan applied sensitivity analysis. After accounting for taxes and
the retirement of the outstanding mortgage debt, on the high end of its
analysis, Houlihan estimated that the Company may realize a net benefit of
approximately $2,448,940. On the low end, Houlihan determined the value of the
property would be considerably less, and estimated a net benefit of $0.
Houlihan tested the reasonableness of its range by reviewing comparable
transactions, and also analyzed local real estate market conditions.
On
December 12, 2007, the Company issued a press release indicating that the
proposed purchaser of the Assets Held for Sale had terminated the purchase and
sale agreement because it was not able to obtain governmental approvals
required to proceed with the residential housing project.
52
Fair
Value Summary
. Houlihan weighted each of its three approaches
equally to calculate the fair value range per share for common equity of $8.89
to 10.88, with a midpoint of $9.89.
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Fair Value
Summary
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Low
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High
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Guideline Public Company
Method
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$
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8.54
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$
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11.24
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Comparable Transaction
Method
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$
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9.14
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$
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10.21
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DCF Method
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$
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9.00
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$
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11.18
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Implied Common Equity Value per Share Range
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$
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8.89
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$
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10.88
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Houlihan noted the volatility and relatively thin
trading volume throughout the periods Houlihan reviewed historical closing
prices and trading volumes of our common stock. Accordingly, Houlihan did not
use historical price and volume data in determining the fair value of our
common stock.
Premium
Analysis.
Houlihan analyzed 37 reverse split transactions
over the last five years and found the medium premium over the average price
over a one day, 20 day, 60 day, 90 day, 120 day, and one year period prior to
the date of its report ranged from 17% to 22%. Applying these premiums to the
Company’s average common stock price over each respective period, Houlihan
presented for illustrative purposes an applied premium range of $7.16 to $12.09
as set forth below:
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Premium
Paid On Average Price Over The Following Periods
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1 Day
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30 Day
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60 Day
|
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90 Day
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120 Day
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1 Year
|
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Median
Premium From Sample
|
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21.4
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%
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22.0
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%
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17.8
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%
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18.5
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%
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17.0
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%
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20.0
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%
|
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|
Jaclyn’s
Common Equity Average Price
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$6.25
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$5.87
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$6.71
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$7.54
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$8.30
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$10.08
|
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Premium
Applied to Jaclyn’s Average Price
|
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$7.59
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$7.16
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$7.91
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$8.94
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$9.71
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$12.09
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Houlihan
noted an implied common equity value per share range of $8.89 to $10.88, with a
midpoint of $9.89. Applying premiums paid in comparable transactions to the
Company’s average common stock price over multiple time periods, Houlihan
noted, for illustrative purposes an applied premium range of $7.16 to $12.09.
Houlihan
suggested a range of fractional share consideration of $8.89 to $10.88, with a
midpoint of $9.89. This represents a premium range of 42.2% to 74.1% over the
closing price on November 16, 2007 of $6.25, a premium range of 17.9% to 44.3%
over the 90-day average of $7.54 and a premium range of -11.8% to 7.9% over the
1-year average of $10.08.
Certain
Qualifying Statements Regarding the Fairness Opinion.
In
preparing its valuation of our shares of common stock and its fairness opinion,
Houlihan received and reviewed business and financial information provided to
Houlihan by the Company. Houlihan did not independently verify this
information, and has relied on its accuracy in all material respects, nor did
it obtain any independent appraisal of any of our assets.
HOULIHAN’S
OPINION DOES NOT ADDRESS THE BUSINESS DECISION BY THE COMPANY TO ENGAGE IN THE
TRANSACTION OR ADDRESS THE RELATIVE MERITS OF ANY ALTERNATIVES DISCUSSED BY THE
SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS. HOULIHAN’S OPINION DOES NOT
CONSTITUTE A RECOMMENDATION AS TO HOW ANY STOCKHOLDER SHOULD VOTE WITH RESPECT
TO THE TRANSACTION. HOULIHAN DID NOT MAKE, AND WAS NOT REQUESTED BY THE COMPANY
OR ANY OTHER PERSON TO MAKE, ANY RECOMMENDATIONS AS TO THE RELATIVE MERITS OF
ANY ALTERNATIVE DISCUSSED BY THE SPECIAL COMMITTEE.
53
The
summary set forth above describes what we believe are the material points of
the detailed analyses performed by Houlihan in arriving at its fairness
opinion. In arriving at its opinion, Houlihan employed several analytical
methodologies, while not regarding any one as critical to its overall
conclusion. Each of its methodologies had inherent strengths and weaknesses,
and the nature of available information may affect the value of particular
techniques. Accordingly, the conclusions Houlihan reached was based on all the
analyses and factors presented taken as a whole and on the application of its
own experience and judgment. Houlihan has given no opinion as to the value or
merit, standing alone, of any one of the analyses. Its opinion, and the
analyses it prepared, were based on market, economic and other conditions that
existed at the time and could be evaluated as of the date of its opinion. You
or your representative (who is designated in writing) may inspect and copy of
Houlihan’s valuation report at our principal executive offices, 197 West Spring
Valley Avenue, Maywood, New Jersey 07607, during our normal business hours.
Prospective Financial Information
Any prospective
financial information included or referred to in this proxy statement was, in the
view of the Company’s management, prepared on a reasonable basis, reflects the
best available estimates and judgments, and presents, to the best of management’s
knowledge and belief, the expected course of action and the expected future
financial performance of the Company at the time the forecasts were prepared.
However, this information is not fact and should not be relied upon as being
necessarily indicative of future results, and you are cautioned not to place
undue reliance on the prospective financial information.
Neither
the Company’s independent auditors, nor any other independent accountants, have
compiled, examined, or performed any procedures with respect to the prospective
financial information contained or referred to in this proxy statement, nor
have they expressed any opinion or any other form of assurance on such
information or its achievability, and assume no responsibility for, and
disclaim any association with, the prospective financial information.
Conduct
of the Company’s Business After the Transaction.
Except
as described in this proxy statement, neither the Company nor its management
has any current plans or proposals to effect any extraordinary corporate
transaction, such as a merger, reorganization or liquidation, a sale or
transfer of any material amount of its assets, a change in management, a
material change in its indebtedness or capitalization, or any other material
change in its corporate structure or business. In that regard, we expect to
conduct our business and operations after the effective date of the Transaction
in substantially the same manner as currently conducted and, except as
described in this proxy statement with respect to: (1) the use of funds to
finance the Transaction and related costs and (2) our plans to deregister
our common stock under the Exchange Act and delist it from the American Stock
Exchange, the Transaction is not anticipated to have a material effect upon the
conduct of our business. We intend, however, to continue to evaluate and review
our businesses, properties, management and other personnel, corporate
structure, capitalization and other aspects of our operations in the same
manner as we historically have from time to time, and to make such changes as
we consider appropriate. We also intend to continue to explore acquisitions and
other business opportunities to expand or strengthen our businesses, as we have
done in the past. In that regard, we may review proposals or may propose the
acquisition or disposition of assets or other changes in our business,
corporate structure, capitalization, management or other changes which we then
consider to be in our best interests and in the best interests of Continuing
Stockholders.
In
addition, we may reduce the size of the Board of Directors from the current
number of nine directors, which contributes to the cost savings we expect to
receive as a result of the Transaction. See “Special Factors—Purpose of and
Reasons for the Transaction.” We therefore expect that certain
54
members of the Board of Directors, including the
independent directors, may not continue to serve as directors after the
Transaction has been effected. However, for at least three years after the
Transaction has been effected, we will have at least two independent directors within
the meaning of Section 121A of the American Stock Exchange Company Guide and
Rule 10A-3(b) of the Exchange Act. We have not identified those members of the
Board of Directors who will continue after the Transaction and those who may
not continue. We expect, however, that Robert Chestnov, Allan Ginsburg and
Howard Ginsburg will continue to serve as directors of the Company after the
effective time of the Transaction.
The
corporate governance and other stockholder protections described above under
the caption “Special Factors— Special Committee and Board of Directors’
Protections for Continuing Stockholders” will remain in place for at least
three years following the Transaction. This three-year requirement will be
applicable as long as there are unaffiliated Continuing Stockholders during
that time; it is not intended to restrict or otherwise prohibit any merger,
consolidation, sale of all or substantially all of our assets, or similar
extraordinary transaction during that three-year period. We have no present
plans or proposals for any such transaction, however, and our intent is to
operate our business after the Transaction substantially as it is currently
conducted.
Material
Federal Income Tax Consequences
The
following is a summary of certain United States federal income tax consequences
to the Company and its stockholders resulting from the Transaction. This
summary addresses only those stockholders who have held their shares as capital
assets. This discussion does not address all United States federal income tax
considerations that may be relevant to particular stockholders in light of
their individual circumstances. Many types of stockholders (such as financial
institutions, tax-exempt organizations (including private foundations),
insurance companies, dealers in securities, foreign investors, and partnerships
and their partners), holders that received their shares pursuant to the
exercise of employee stock options or otherwise as compensation, and investors
that hold the shares as part of a straddle, hedge, conversion, constructive
sale, or other integrated transaction for United States federal income tax
purposes, may be subject to special tax rules. The following summary is based
upon United States federal income tax law, as currently in effect, which is
subject to differing interpretations or change, possibly on a retroactive
basis, and does not address any state, local, foreign, or other tax
considerations. No assurance can be given that possible changes in such United
States federal income tax laws or interpretations will not adversely affect
this summary. This summary is not binding on the Internal Revenue Service.
This
summary assumes that you are one of the following:
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a citizen or resident of the
United States;
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•
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a corporation or an entity
taxable as a corporation created or organized under U.S. law (federal or
state);
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•
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an estate the income of which
is subject to federal income taxation regardless of its sources;
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a trust if a U.S. court is
able to exercise primary supervision over the administration of the trust and
one or more U.S. persons have authority to control all substantial decisions
of the trust; or
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•
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any other person whose
worldwide income and gain is otherwise subject to United States federal
income taxation on a net basis.
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NO
RULING FROM THE INTERNAL REVENUE SERVICE OR OPINION OF COUNSEL HAS BEEN OR WILL
BE OBTAINED REGARDING THE UNITED STATES
55
FEDERAL INCOME TAX CONSEQUENCES TO
STOCKHOLDERS IN CONNECTION WITH THE TRANSACTION. ACCORDINGLY, EACH STOCKHOLDER
IS ENCOURAGED TO CONSULT THEIR OWN TAX ADVISOR AS TO THE PARTICULAR FEDERAL,
STATE, LOCAL, FOREIGN, AND OTHER TAX CONSEQUENCES OF THE TRANSACTION, IN LIGHT
OF THEIR INDIVIDUAL CIRCUMSTANCES.
Tax
Consequences to the Company.
We believe that the Transaction will be treated
as a tax-free “recapitalization” for federal income tax purposes. This will
result in no material federal income tax consequences to the Company.
Federal
Income Tax Consequences to Stockholders
Who Do Not Receive Cash in the Transaction.
If you receive no cash as a result
of the Transaction, but continue to hold our shares of Common Stock immediately
after the Transaction, you will not recognize any gain or loss for United
States federal income tax purposes. The aggregate adjusted tax basis of the
shares you hold immediately after the Transaction will equal the aggregate
adjusted tax basis of the shares you held immediately prior to the Transaction,
and the holding period in those shares will be the same as immediately prior to
the Transaction.
Federal
Income Tax Consequences to Stockholders Who Receive Cash in the Transaction and
Who Will Own, or Will Be Considered under the Internal Revenue Code to Own,
Shares of Common Stock After the Transaction.
In some
instances you may be entitled to receive cash in the Transaction for shares of
our common stock you hold in one capacity, but continue to hold shares in
another capacity. For example, you may own fewer than 250 shares in your own
name (for which you will receive cash) and own 250 or more shares that are held
in your brokerage account in street name. Alternatively, for federal income tax
purposes you may be deemed to own shares held by others. For instance, if you
own fewer than 250 shares in your own name (for which you will receive cash)
and your spouse owns 250 or more shares (which will continue to be held
following the completion of the Transaction), the shares owned by your spouse
will be attributable to you. Furthermore, in determining whether you are
considered to continue to hold shares of our common stock, for federal income
tax purposes, immediately after the Transaction, you will be treated as owning
shares actually or constructively owned by certain family members and entities
in which you have an interest (such as trusts and estates of which you are
beneficiary and corporations and partnerships of which you are an owner, and
shares you have an option to acquire). Accordingly, in some instances the
shares of common stock you own in another capacity, or which are attributed to
you, may remain outstanding.
If
you receive cash for a fractional share as a result of the Transaction, but are treated as continuing to own shares of
common stock through attribution as described above, you will recognize capital
gain or loss for federal income tax purposes equal to the difference between
the cash you receive for the shares of common stock and your aggregate adjusted
tax basis in those shares, provided that the receipt of cash either is “not
essentially equivalent to a dividend,” or constitutes a “substantially
disproportionate redemption of stock,” as described below.
Not
Essentially Equivalent to a Dividend.
The receipt of cash is “not essentially equivalent to a dividend” if the
reduction in your proportionate interest in us resulting from the Transaction (taking
into account for this purpose shares of common stock which you are considered
to own under the attribution rules described above) is considered a “meaningful
reduction” given your particular facts and circumstances. The Internal Revenue
Service has ruled that a small reduction by a minority stockholder whose
relative stock interest is minimal and who exercises no control over the
affairs of a corporation can satisfy this test.
Substantially
Disproportionate Redemption of Stock.
The receipt of cash in the Transaction will be a “substantially
disproportionate redemption of stock” if (a) you own less than 50% of the
total
56
combined voting power of all
classes of stock entitled to vote, and (b) the percentage of our voting
stock owned by you (and by those other stockholders whose shares of common
stock you are considered to own under the attribution rules described above) immediately
after the Transaction is less than 80% of the percentage of shares of voting
stock owned by you immediately before the Transaction.
If
the receipt of cash in exchange for shares of common stock is not treated as
capital gain or loss under either of the tests, it will be treated first as
ordinary dividend income to the extent of the your ratable share of our current
and accumulated earnings and profits, then as a tax-free return of capital to
the extent of the your aggregate adjusted tax basis in the shares, and any
remaining amount will be treated as capital gain.
Capital
gain or loss recognized will be long-term if your holding period with respect
to the common stock surrendered is more than one year at the time of the
Transaction. The deductibility of capital loss is subject to limitations. If
you are an individual, long-term capital gain and dividend income should
generally be subject to United Stated federal income tax at a maximum rate of
15%. In general, dividends are taxed at ordinary income rates. However, you may
qualify for a 15% federal income tax rate on any cash received in the
Transaction that is treated as a dividend as described above, if (i) you are an
individual or other non-corporate stockholder; (ii) you have held the common stock
with respect to which the dividend was received for more that 60 days during
the 120-day period beginning 60 days before the ex-dividend date, as determined
under the Internal Revenue Code; and (iii) you were not obligated during such
period (pursuant to a short sale or otherwise) to make related payments with
respect to positions in substantially similar or related property. You should
consult with your tax advisor regarding your eligibility for such lower tax
rates on dividend income.
If
you, or a person or entity whose ownership shares would be attributed to you,
will continue to hold common stock immediately after the Transaction, you are
urged to consult with your tax advisor as to the particular federal, state,
local, foreign, and other tax consequences of the Transaction, in light of your
specific circumstances.
Federal
Income Tax Consequences to Stockholders Who Receive Cash in the Transaction and
Who Will Not Own, or Will Not Be Considered under the Internal Revenue Code to
Own, Shares of Common Stock After the Transaction.
If you
receive cash as a result of the Transaction and you do not own, and are not
considered to own, shares of our common stock immediately after the
Transaction, you will recognize capital
gain or loss for federal income tax purposes equal to the difference between
the cash you receive for the shares of common stock and your aggregate adjusted
tax basis in those shares.
Backup
Withholding.
If you are
to receive cash as a result of the Transaction, you will be required to provide
your social security or other taxpayer identification number (or, in some
instances, additional information) in connection with the Transaction to avoid
backup withholding requirements that might otherwise apply. The letter of
transmittal and other documentation we will send to you after the Transaction
will require you to deliver such information when the common stock certificates
are surrendered following the effective time of the Transaction. Failure to
provide such information may result in backup withholding. Backup withholding
is not an additional tax. Rather, the amount of the backup withholding can be
credited against your United States federal income tax liability provided that
the required information is given to the IRS. If backup withholding results in
an overpayment of tax, a refund can be obtained by you upon filing an
appropriate income tax return on a timely basis.
Potential
Conflicts of Interests of Officers, Directors, and Certain Affiliated Persons
On
the Record Date, 1,257,643 shares, or approximately 50.9%, of the issued and
outstanding shares of our common stock was held by parties to a Stockholders
Agreement. As noted above, the
57
Stockholders Agreement entitles Abe Ginsburg, Allan
Ginsburg, Robert Chestnov and Howard Ginsburg, in their capacity as a
stockholders’ committee, to direct the voting of the shares of common stock
owned by signatories to the Stockholders Agreement. Each member of the
stockholders committee is considered to be the beneficial owner of the shares
of our common stock subject to the Stockholders Agreement. See “Information
About the Company—Stockholders Agreement.” The stockholders committee has
indicated that it intends to direct the vote of all of the shares that are
subject to the Stockholders Agreement
“
FOR
”
the Transaction. Accordingly, if all
those shares are voted in favor of the Transaction, the Transaction will be
approved.
• Upon
the effectiveness of the Transaction, the aggregate number of shares of our
common stock owned by parties to the Stockholders Agreement will remain the
same. However, the ownership percentage of the shares of our common stock
subject to the Stockholders Agreement will increase from approximately 50.9% to
approximately 58.2% as a result of the reduction of the number of shares of our
common stock outstanding by up to 306,319 shares. The increase in the ownership
percentage of our shares of common stock subject to the Stockholders Agreement
and the reduction in the number of shares outstanding following the completion
of the Transaction is based on record holder information that we received as of
January 31, 2008 from our transfer agent, Continental Stock Transfer &
Trust Company, and a share range analysis we received from Broadridge Corporate
Issuer Services, a division of Broadridge Financial Solutions, Inc., reflecting
the distribution of the accounts of our stockholders who hold shares in “street
name” according to predefined ranges based on share amount. The share range
analysis from Broadridge Corporate Issuer Services reflects the share ranges of
896,080 shares, or approximately 82%, of the 1,094,221 outstanding shares of
our common stock held in street name as of January 31, 2008. We have assumed
for purposes of determining ownership percentages and the reduction in the
number of shares outstanding following the Transaction that the remaining
198,141 street name shares also will be cashed out in the Transaction. However,
the ownership percentage and the reduction in the number of shares outstanding
following the Transaction may increase or decrease depending on purchases,
sales and other transfers of our shares of common stock by our stockholders
prior to the effective time of the Transaction, and the number of street name
shares that are actually cashed out in the Transaction. The ownership
percentage of our shares of common stock subject to the Stockholders Agreement
and the ownership percentage of the Continuing Stockholders will proportionally
increase or decrease as a result of such purchases, sales and other transfers
of our shares of common stock by our stockholders prior to the effective time
of the Transaction, and depending on the number of street name shares that are
actually cashed out in the Transaction.
See
“Special Factors—Effects of the Transaction—Effect on Affiliated Stockholders.”
In
addition, our other directors and executive officers may have interests in the
Transaction that are different from your interests as a stockholder, and have
relationships that may present conflicts of interest, including the following:
• Richard
Chestnov, a director of the Company who is also a party to the Stockholders
Agreement, holds 33,050 shares of our common stock directly, and 31,223 shares
of our common stock indirectly in his capacity as a trustee of trusts for
family members or as an officer and director of charitable entities. Mr.
Chestnov will retain these shares after the Transaction.
• Martin
Brody, a director of the Company, owns 387 shares of our common stock and will
retain all of those shares after the Transaction. Mr. Brody has advised us he
intends to vote in favor of the Transaction.
• Anthony
Christon, our Vice President and Chief Financial Officer, owns 7,500 shares of
our common stock and will retain all of those shares after the Transaction. Mr.
Christon has advised us he intends to vote in favor of the Transaction.
58
• Each
member of the Board of Directors other than Albert Safer, Richard Chestnov and
Robert Chestnov holds options to purchase shares of our common stock. The
Transaction will not affect these stock options and they will remain
outstanding after the Transaction.
• After
the Transaction, the beneficial ownership of the executive officers and
directors who are not parties to the Stockholders Agreement will increase from
approximately 1.6% to approximately 1.8% as a result of the reduction of the
number of shares of common stock outstanding.
Source
of Funds and Expenses
Based
on information we have received as of January 31, 2008 from our transfer agent,
Continental Stock Transfer & Trust Company, as to holdings of our record
holders, and from Broadridge Corporate Issuer Services, a division of
Broadridge Financial Solutions, Inc., reflecting the distribution of the accounts of our stockholders who hold
shares in street name, as well our estimates of other Transaction
expenses, we believe that the total cash requirement of the Transaction to the
Company will be approximately $3,728,000. This amount includes approximately
$3,128,000 needed to cash out fractional shares (although this amount could be
larger or smaller depending on, among other things, the number of fractional
shares that will be outstanding at the time of the Transaction as a result of
purchases, sales and other transfers of our shares of common stock by our
stockholders, and the number of street name shares that are actually cashed out
in the Transaction), and approximately $600,000 of legal, accounting, and
financial advisory fees and other costs to effect the Transaction as follows:
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Legal Fees
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$350,000
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Investment Banker/Fairness Opinion
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130,000
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Accounting Fees
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50,000
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Transfer Agent Fees
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20,000
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Printing Costs
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16,000
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Pink Sheets Listing Fees and Related Costs
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14,000
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Miscellaneous Other
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20,000
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Total
Expenses
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$600,000
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We expect
that the consideration to be paid to the Cashed Out Stockholders and the costs
of the Transaction will be paid from cash on hand and from funds under our
existing revolving loan agreement with TD Banknorth, N.A. The revolving loan
agreement provides for short-term loans and the issuance of letters of credit
in an aggregate amount not to exceed $50,000,000. Based on a borrowing formula,
we may borrow up to $30,000,000 in short-term loans and up to $50,000,000
including letters of credit. Substantially all of our personal property assets
are pledged to the bank as collateral. The revolving loan agreement requires
that we maintain a minimum tangible net worth, as defined, and imposes certain
debt to equity ratio requirements. We were in compliance with all applicable
financial covenants as of December 31, 2007. As long as no default or event of
default under the revolving loan agreement exists, we may repurchase, and we
may use the proceeds of loans we borrow under that agreement to repurchase, our
shares of common stock in the Transaction in an aggregate amount not to exceed
$3,000,000. In the event that the total cost of repurchases of our shares of
common stock in the Transaction exceeds $3,000,000, we have been advised by TD
Banknorth that it will work with us to enter into a mutually agreeable
amendment to our revolving loan agreement so that we may complete the
Transaction. We anticipate that our borrowings under the revolving loan
agreement will be repaid in the ordinary course of business and we have not
made any special plans or arrangements to repay loans made to us to complete
the Transaction.
59
Stockholder Approval
A
majority of the outstanding shares of our common stock will constitute a quorum
for the purposes of approving the amendments to our certificate of
incorporation to effect the Transaction. Assuming the presence of a quorum, the
affirmative vote of the majority of outstanding shares of our common stock
entitled to vote at the Special Meeting is required to approve each of the
Reverse Stock Split proposal and the Forward Stock Split proposal. Although stockholders will be voting
separately on the Reverse Stock Split and the Forward Stock Split, the Company
will not effect either the Reverse Stock Split and the Forward Stock Split
unless both proposals are approved by stockholders.
As
of the Record Date, over 50% of the issued and outstanding shares of our common
stock was held subject to the Stockholders Agreement. As noted above, the
stockholders committee under the Stockholders Agreement has indicated that it
intends to direct the voting of the shares of our common stock (1,257,643
shares, or approximately 50.9% of the issued and outstanding shares of our
common stock)
“
FOR
”
the Transaction. Accordingly, if all
those shares are voted in favor of the Transaction, the Transaction will be
approved.
Effective Date
The
Transaction will become effective as of the date that the Board of Directors
amends the certificate of incorporation of the Company through the filing of
certificates of amendment to the certificate of incorporation with the State of
Delaware to effectuate the Reverse Stock Split and the Forward Stock Split. We
intend to effect the Transaction as soon as possible after the Transaction is
approved by our stockholders. Our common stock acquired by us in connection
with the Transaction either will be held as treasury shares, or restored to the
status of authorized but unissued shares. The suspension of our obligation to
file periodic reports and other documents under the Exchange Act will become
effective after the filing with the SEC of both a notice of removal from
listing of our common stock from listing on the American Stock Exchange and
termination of registration under Section 12(b) of the Exchange Act on Form 25,
and a certification and notice of termination of registration on Form 15. The deregistration
of our common stock under Section 12(b) of the Exchange Act will take effect 90
days after the filing of the Form 25 and the deregistration of our common stock
under other provisions of the Exchange Act will become effective 90 days after the filing of the
Form 15. See “Special Factors—Effects of the Transaction—
Termination of Exchange Act
Registration and Elimination of SEC Reporting Obligations
”.
Termination of Transaction
Although
we are requesting your approval of the Transaction, the Special Committee and
the Board of Directors has retained authority, in their discretion, to withdraw
the Transaction from the agenda of the Special Meeting prior to any vote. In
addition, even if the Transaction is approved by stockholders at the Special Meeting,
the Special Committee or the Board may determine not to implement the
Transaction if subsequently it determines that the Transaction is not in the
best interests of the Company and stockholders. If for any reason the
Transaction is not approved, or if approved, is not implemented, our common
stock will not be deregistered until such time as we otherwise are eligible to
do so. Reasons to withdraw the Transaction from the agenda, or to abandon the
Transaction, may include, among other things:
• any
change in the nature of the holdings of stockholders which would result in us
not being able to reduce the number of our record holders below 300 as a result
of the Transaction;
• any
change in the number of record holders that would enable us to deregister our
shares of common stock without effecting the Transaction;
60
• any
change in the number of shares that will be exchanged for cash in connection
with the Transaction, including the shares owned by holders in street name,
that would increase in any material respect the cost and expense of the
Transaction compared to what we presently estimate; and
• any
adverse change in our financial condition that would cause us to believe that
the Transaction would no longer be in the best interests of the Company or our
stockholders.
If
the Special Committee or the Board decides to withdraw the Transaction from the
agenda of the Special Meeting, or to abandon the Transaction, the Board will
promptly notify stockholders of the decision.
Exchange of Certificates and Payment for
Fractional Shares
Our
transfer agent, Continental Stock Transfer & Trust Company, will act as our
agent for purposes of exchanging certificates and paying for fractional shares
in connection with the Transaction.
No
service charge, brokerage commission, or transfer tax will be payable by any
holder of any old certificate evidencing shares of our common stock in
connection with the issuance of a new certificate in respect thereof, except
that if any new certificate is to be issued in a name other than that in which
the old certificate (that is surrendered for exchange) is registered, it will
be a condition to such issuance that: (i) the person requesting such
issuance pay to us any transfer taxes payable by reason of such transfer (or
any prior transfer of such surrendered certificate, if any) or establish to our
satisfaction that such taxes have been paid or are not payable; and
(ii) the surrendered certificate has been properly endorsed and otherwise
in proper form for transfer.
If
any certificate evidencing shares of our common stock has been lost or
destroyed, we may in our sole discretion accept in lieu thereof a duly executed
affidavit and indemnity agreement in a form satisfactory to us. The holder of
any shares of our common stock evidenced by any certificate that has been lost
or destroyed must submit, in addition to the (i) letter of transmittal
sent by us, (ii) the above-referenced affidavit, (iii) the
above-referenced indemnity agreement, and (iv) any other document required
by us, which may include a bond or other security satisfactory to the us
indemnifying us and our other persons against any losses incurred as a
consequence of issuing a certificate evidencing new shares of our common stock
or paying cash in lieu of issuing fractional shares of our common stock in
exchange for the existing shares of our common stock evidenced or purported to
be evidenced by such lost or destroyed certificate. Additional instructions
with respect to lost or destroyed certificates will be included with the letter
of transmittal that we will send to stockholders after the Effective Date.
Stockholders
owning less than 250 shares on the effective date of the Transaction will
receive $10.21 for each pre-split share of common stock, without interest.
Stockholders who own 250 or more shares at the effective date of the
Transaction will not be entitled to receive any cash for their fractional share
interests resulting from the Reverse Stock Split. The Forward Stock Split that
will immediately follow the Reverse Stock Split will reconvert their whole
shares and fractional share interests back into the same number of shares of
our common stock they held immediately before the effective time of the
Transaction. As a result, the total number of shares held by such a stockholder
will not change after completion of the Transaction, and the stockholder will
not receive new certificates for his or her shares of our common stock.
For
purposes of determining ownership of shares of our common stock on the
effective date of the Transaction, such shares will be considered held by the
person in whose name such shares are registered on our transfer agent’s
records. Upon effecting the Transaction, we intend to treat stockholders
holding shares of our common stock in street name in the same manner as
registered stockholders whose shares are registered in their names. Prior to
the effective date of the Transaction, we will conduct an
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inquiry of all brokers,
banks and other nominees that hold shares of our common stock in street name.
We will ask them to effect the Transaction for their beneficial holders holding
shares of our common stock in street name. We will rely on these brokers, banks
and other nominees to provide us with information on how many fractional shares
will be cashed out. However, these brokers, banks and other nominees may have
different procedures than registered stockholders for processing the Transaction.
If you hold your shares in street name with a bank, broker or other third
party, and if you have any questions in this regard, we encourage you to
contact your bank, broker or nominee.
Promptly
after the effective date of the Transaction, we will send to each holder of
record of our common stock, and to brokers, banks and other nominees, based on
information we receive from them in response to our inquiries, for each owner
of our common stock held in street name, instructions for surrendering any
certificates held thereby representing shares of our common stock which will be
converted to a right to receive cash as a result of the Transaction. Only
holders of 249 or fewer shares of our common stock immediately prior the
Transaction should surrender their shares. Holders of 250 or more shares should
not surrender their shares. Such instructions will include a letter of
transmittal to be completed and returned to the Transfer Agent by the holder of
such certificates, together with such certificates.
Promptly
after the Transfer Agent receives any surrendered certificate from a holder of
249 or fewer shares of our common stock immediately prior to the Transaction,
together with a duly completed and executed letter of transmittal with respect
thereto and such other documents as we may require, the Transfer Agent will
deliver to the person payment in an amount equal to $10.21, without
interest, for each pre-split share of common stock that is represented by
the fractional share.
There
will be no differences between the respective rights, preferences or
limitations of our common stock prior to the Transaction and our common stock
after the Transaction. There will be no differences with respect to dividend,
voting, liquidation or other rights associated with our common stock.
DO NOT SEND SHARE CERTIFICATES TO THE COMPANY OR OUR
TRANSFER
AGENT UNTIL AFTER YOU HAVE RECEIVED A LETTER OF TRANSMITTAL AND ANY
ACCOMPANYING INSTRUCTIONS.
No Appraisal or Dissenters’ Rights
Under
Delaware law, our certificate of incorporation and our bylaws, no appraisal or
dissenters’ rights are available to stockholders of the Company who dissent
from the Transaction.
Escheat Laws
The
unclaimed property and escheat laws of each state provide that under
circumstances defined in that state’s statutes, holders of unclaimed or
abandoned property must surrender that property to the state. Persons whose
shares are cashed out and whose addresses are unknown to us, or who do not
return their stock certificates and request payment for their cashed-out
shares, generally will have a period of years from the effective date of the
Transaction in which to claim the cash payment payable to them. For example,
with respect to stockholders whose last known addresses are in New York, as
shown by our records, the period is three years. Following the expiration of
that three-year period, the Unified Disposition of Unclaimed Property Act of
New York would likely cause the cash payments to escheat to the State of New
York. For stockholders who reside in other states or whose last known
addresses, as shown by our records, are in states other than New York, such
states may have abandoned property laws which call for such state to obtain
either (i) custodial possession of property that has been unclaimed until
the owner reclaims it; or (ii) escheat of such property to the state.
Under the laws of such other jurisdictions, the “holding period” or the time
period which must elapse before the property is deemed to
62
be abandoned may be shorter
or longer than three years. If we do not have an address for the holder of
record of the shares, then unclaimed cash-out payments would be turned over to
our state of incorporation, the State of Delaware, in accordance with its
escheat laws.
63
INFORMATION
ABOUT THE COMPANY
Market Price of Common Stock
Our
common stock is traded on the American Stock Exchange under the symbol “JLN.”
The following table sets forth the high and low closing sales prices reported
by the American Stock Exchange for our common stock for our two most recent
fiscal years:
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High
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Low
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|
|
|
|
|
|
|
|
Fiscal
Year Ended June 30, 2008
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|
|
|
|
|
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First quarter
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$11.50
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|
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$6.55
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Second quarter
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$7.75
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$4.55
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Third
quarter
(though February 15, 2008)
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$7.67
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$6.51
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Fiscal
Year Ended June 30, 2007
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First quarter
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$7.70
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$7.30
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Second quarter
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$11.80
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$7.70
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Third quarter
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$14.25
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$10.36
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Fourth quarter
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$12.03
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$8.50
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Fiscal Year Ended June 30, 2006
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First quarter
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$7.97
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|
|
$6.34
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Second quarter
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|
$8.09
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|
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$7.25
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Third quarter
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$8.90
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$7.40
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Fourth quarter
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$8.25
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$7.28
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On
December 4, 2007, the day before we announced the Transaction, and on the
Record Date, the closing prices of our common stock on the American Stock
Exchange were $6.00 and $8.58, respectively.
Dividends
We
did not pay cash dividends during fiscal 2007 or 2006 and do not anticipate
paying cash dividends in the foreseeable future.
Stockholders
As
of March 31, 2008 there were approximately 512 holders of record of our common
stock.
Stock Purchases
Except
as described below, the Company has not purchased any shares of its common
stock within the past two years.
During
our last two fiscal years, the Company purchased an aggregate of 199,562 shares
of its common stock. The following table sets forth information by quarter
regarding such share repurchases:
64
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(a) Total
Number of
Shares (or
Units)
Purchased
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(b) Range of
Prices Paid per
Share
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(c) Average
Price Paid per
Share
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|
Fiscal Year Ended June 30,
2008
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First quarter
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|
|
—
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|
|
—
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|
|
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—
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Second quarter
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|
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—
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—
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—
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Third quarter
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(though February 15, 2008)
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—
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—
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|
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—
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|
|
Fiscal
Year Ended June 30, 2007
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|
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|
|
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|
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First quarter
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|
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—
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|
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—
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—
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Second quarter
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|
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6,548
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$8.35
- $9.45
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$8.46
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Third quarter
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6,000
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$12.88
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$12.88
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Fourth quarter
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|
|
|
28,557
|
|
|
$12.55
- $14.15
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|
|
|
$13.03
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|
|
|
|
|
Fiscal
Year Ended June 30, 2006
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|
|
|
|
|
|
|
|
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First quarter
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100,619
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$6.79
- $7.15
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$7.15
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Second quarter
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30,000
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$7.50
- $8.09
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|
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$7.71
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Third quarter
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27,838
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$7.73
- $8.28
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$7.87
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Fourth quarter
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—
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—
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—
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In
addition, during the last two years, none of our directors or executive
officers have purchased shares of our common stock except as follows:
• On
March 14, 2006 and June 20, 2006, respectively, Anthony Christon, our Vice
President and Chief Financial Officer, acquired 3,700 and 3,800 shares,
respectively, of our common stock upon the exercise of stock options previously
granted under a stockholder approved stock option plan of the Company, in each
case at an exercise price per share of $4.0625;
• On
November 8, 2006, Richard Chestnov, a director of the Company, acquired 2,000
shares of our common stock upon the exercise of a stock option previously
granted under a stockholder approved stock option plan of the Company at an
exercise price of $5.125 per share, and on February 15, 2007, Richard Chestnov
acquired 16,000 shares of our common stock upon the exercise of stock options
previously granted under a stockholder approved stock option plan of the
Company at exercise prices per share ranging from $2.42 to $6.70; and
• On
June 7, 2007, Robert Chestnov, our President and Chief Executive Officer,
acquired 15,000 shares of our common stock upon the exercise of a stock option
previously granted under a stockholder approved stock option plan of the Company
at an exercise price per share of $7.70.
Directors and Executive Officers
The
following sets forth certain information concerning our current directors and
executive officers:
65
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Name
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Age
|
|
Position
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|
|
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|
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Abe Ginsburg
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90
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|
Chairman of the Executive
Committee
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Allan Ginsburg
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65
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Chairman of the Board
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Robert Chestnov
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59
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President, Chief Executive
Officer and Director
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Howard Ginsburg
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65
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Vice Chairman of the Board
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Martin Brody
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86
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Director
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Richard Chestnov
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62
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Director
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Albert Safer
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59
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|
Director
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Norman Axelrod
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55
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|
Director
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Harold Schechter
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63
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|
Director
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Anthony Christon
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62
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Chief Financial Officer
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Information Concerning the Board of Directors and Executive
Officers
The
business experience during the last five years of the directors of the Company
is as follows:
Abe
Ginsburg has been Chairman of the Executive Committee of the Company since
November 29, 1988.
Allan
Ginsburg has been Chairman of the Board of the Company since November 29, 1988.
Robert
Chestnov has been the President and Chief Executive Officer of the Company
since November 29, 1988.
Howard
Ginsburg has been Vice Chairman of the Board of the Company since November 29,
1988.
Martin
Brody has been a private investor since his retirement on January 1, 1994. From
April 1990 through December 1993, Mr. Brody was Vice Chairman of the Board of
Restaurant Associates Corporation, the owner and operator of specialty
restaurants, and was Chairman of its Board for more than five years prior
thereto. Mr. Brody also serves as a director of a number of Salomon Smith
Barney mutual funds and preferred income funds.
Richard
Chestnov has been a private investor since 1992. Before then, he was a partner
of Chego International, an apparel importer.
Albert
Safer has been President of Safer Textile Processing and Kuttner Prints,
textile mills, for more than the past five years. Mr. Safer has also served as
President of Safer Development and Management, which is engaged in real estate
development and management, for more than the past five years.
Norman
Axelrod has been Chairman of the Board of Directors of General Nutrition
Centers, Inc., a specialty retailer of health and wellness products, and
certain affiliated companies, since March 2007. From March 2006 to March 2007,
Mr. Axelrod was a private investor. From 1988 until March 2006, Mr. Axelrod
served as Chief Executive Officer of Linens ‘n Things, Inc., a leading,
national large format retailer of home textiles, housewares and home
accessories, was Chairman of the Board of that company from 1997 until March
2006, and through 2000, he also held the additional post of President. Mr.
Axelrod also serves as a director of Maidenform Brands, Inc.
66
Harold
Schechter has been Chief Financial Officer of Global Design Concepts, Inc., a
manufacturer and distributor of handbags and related products, since January
2005. From October 2004 until January 2005, Mr. Schechter was the Chief
Financial Officer of Diamond Chemical Company Inc., a manufacturer of cleaning
chemicals. Mr. Schechter served as Vice President, Chief Operating Officer and
Chief Financial Officer of Creative Salon Products, an importer and distributor
of beauty products, from January 2003 to October 2004, and as Vice President,
Chief Operating Officer and Chief Financial Officer of William H. Ranney
Associates Inc., which was also an importer and distributor of beauty products,
from May 2001 to December 2002. From January 1999 to April 2001, Mr. Schechter
served as Vice President-Operations and Purchasing of Monarch Luggage Inc., an
importer and distributor of luggage and related items.
Anthony
Christon has been Chief Financial Officer of the Company for more than the past
five years.
Family
Relationships.
Abe
Ginsburg, Chairman of the Executive Committee and a director of the Company, is
the father of Howard Ginsburg, Vice Chairman of the Board and a director of the
Company. Allan Ginsburg, Chairman of the Board and a director of the Company,
is a nephew of Abe Ginsburg and is a first cousin of Howard Ginsburg. Robert
Chestnov, President, Chief Executive Officer and a director of the Company, and
Richard Chestnov, a director of the Company, are brothers.
None
of our officers or directors has been involved in any transaction in the shares
of our common stock during the past 60 days, except that on February 8, 2008,
Richard Chestnov, a director of the Company, gifted 100 shares of our common
stock which he held directly to a custodial account for the benefit of his
child.
Security Ownership of Certain Beneficial Owners
The
following table sets forth certain information as of the Record Date with
respect to the beneficial ownership of our common stock before the Transaction
and after the Transaction, by: (a) each director of the Company; (b) each of
the Company’s executive officers; (c) the directors and executive officers of
the Company, as a group; and (d) all persons known to the Company to be the
beneficial owners of more than five percent (5%) of its outstanding common
stock. As of the Record Date, there were 2,468,614 shares of common stock
issued and outstanding.
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|
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|
|
Name of
Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership(1)
|
|
Pre-Split
|
|
Post Split#
|
|
|
|
|
|
|
|
|
|
|
|
|
Abe Ginsburg
|
|
69,223
|
(2)
|
|
|
|
2.8
|
%
|
|
|
|
3.2
|
%
|
|
|
Allan Ginsburg
|
|
196,861
|
(3)(4)
|
|
|
|
7.9
|
%
|
|
|
|
9.0
|
%
|
|
|
Robert Chestnov
|
|
176,654
|
(3)(5)
|
|
|
|
7.2
|
%
|
|
|
|
8.2
|
%
|
|
|
Howard Ginsburg
|
|
175,047
|
(3)(6)
|
|
|
|
7.0
|
%
|
|
|
|
8.0
|
%
|
|
|
Martin Brody
|
|
14,387
|
(7)
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
Richard Chestnov
|
|
64,273
|
(8)
|
|
|
|
2.6
|
%
|
|
|
|
2.7
|
%
|
|
|
Albert Safer
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
Norman Axelrod
|
|
12,000
|
(9)
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
Harold Schechter
|
|
6,000
|
(10)
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
Anthony Christon
|
|
7,500
|
|
|
|
|
*
|
|
|
|
|
*
|
|
|
|
All directors and
executive officers as a group (10 persons)
|
|
691,022
|
(11)
|
|
|
|
27.3
|
%
|
|
|
|
31.0
|
%
|
|
|
Other 5%
Stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonnie Sue Levy
|
|
213,968
|
(3)(12)
|
|
|
|
8.7
|
%
|
|
|
|
9.9
|
%
|
|
67
# Assumes an aggregate of
306,319 shares of common stock are repurchased in the Transaction.
* Less than one (1%) percent.
|
|
|
|
(1)
|
Except as otherwise
indicated below, each person named above and each person in the group
referred to above has sole voting and dispositive power with respect to
shares indicated as beneficially owned by such person or group.
|
|
|
|
|
(2)
|
Includes 65,769 shares of
our common stock owned by a charitable foundation in which Abe Ginsburg
serves as an officer and director and with respect to which Mr. Ginsburg
shares voting and dispositive power, and 2,581 shares owned by a charitable
foundation of which Mr. Ginsburg serves as an officer and director, and with
respect to which shares Mr. Ginsburg has sole voting and dispositive power.
Mr. Ginsburg disclaims beneficial ownership of all such shares.
|
|
|
|
|
(3)
|
Such stockholder, along
with certain of his or her family members, trusts and custodianships for the
benefit of such stockholder and his or her family members, unrelated
individuals, and the Company are parties to the Stockholders Agreement, which
provides, among other things, that a committee of four of the signatory
stockholders, consisting of Abe Ginsburg, Allan Ginsburg, Robert Chestnov and
Howard Ginsburg, may direct the vote of the shares as to which such
stockholder may have or share voting power and, accordingly, Abe Ginsburg,
Allan Ginsburg, Robert Chestnov and Howard Ginsburg may be considered to
beneficially own the shares of common stock subject to the Stockholders
Agreement. On the record date, 1,257,643 shares of our common stock (50.9%) were
subject to the Stockholders Agreement.
|
|
|
|
|
(4)
|
Includes 8,470 shares of
our common stock held by Mr. Ginsburg in an individual retirement account and
17,500 shares Mr. Ginsburg has the right to acquire pursuant to presently
exercisable stock options. Also includes 29,884 shares held of record by Mr.
Ginsburg as custodian for his children, 10,769 shares owned by Mr. Ginsburg’s
wife, and 1,984 shares owned by a charitable foundation of which Mr. Ginsburg
serves as an officer and trustee, with respect to which Mr. Ginsburg shares
voting and dispositive power. Mr. Ginsburg disclaims beneficial ownership of
all of such shares.
|
|
|
|
|
(5)
|
Includes 10,953 shares
held by Mr. Chestnov in an individual retirement account. Also includes
27,423 shares held of record by Mr. Chestnov as co-trustee of a trust with
respect to which he shares voting and dispositive power, 3,500 shares owned
by a charitable foundation of which Mr. Chestnov serves as an officer and
director, 372 shares of our common stock owned by Mr. Chestnov’s wife and
6,906 shares held of record by her as custodian for their children, with
respect to all of which shares Mr. Chestnov disclaims beneficial ownership.
|
|
|
|
|
(6)
|
Includes 8,470 shares held
by Mr. Ginsburg in an individual retirement account and 17,500 shares Mr.
Ginsburg has the right to acquire pursuant to presently exercisable stock
options. Also includes 55,114 shares of our common stock held of record by
Mr. Ginsburg as custodian for his children and 1,800 shares owned by his
wife, with respect to all of which shares Mr. Ginsburg disclaims beneficial
ownership.
|
|
|
|
|
(7)
|
Includes 14,000 shares of
our common stock which Mr. Brody has the right to acquire pursuant to
presently exercisable stock options.
|
|
|
|
|
(8)
|
Richard Chestnov holds
27,423 of the shares set opposite his name as co-trustee of a trust, 3,500 of
the shares set opposite his name as an officer and director of a charitable
foundation, with respect to which, in each case, he shares voting and
dispositive power, and 300 shares as custodian for his child. Mr. Chestnov
disclaims beneficial ownership of such shares.
|
|
|
|
|
(9)
|
Includes 12,000 shares of
our common stock which Mr. Axelrod has the right to acquire pursuant to
presently exercisable stock options.
|
|
|
|
|
(10)
|
Includes 6,000 shares of
our common stock which Mr. Schechter has the right to acquire pursuant to
presently exercisable stock options.
|
|
|
|
|
(11)
|
Reference is made to
footnotes (1) through (10) above. Includes an aggregate of 67,000 shares of
our common stock which our directors and executive officers have the right to
acquire pursuant to presently exercisable stock options.
|
|
|
|
|
(12)
|
Includes 6,164 shares held
by Mrs. Levy in an individual retirement account.
|
68
Stockholders Agreement
Abe
Ginsburg, Allan Ginsburg, Robert Chestnov and Howard Ginsburg, certain other
family members, trusts and custodianships for the benefit of such individuals
and family members, unrelated individuals, and the Company are parties to the
Stockholders Agreement. The Stockholders Agreement, among other things,
entitles Abe Ginsburg, Allan Ginsburg, Robert Chestnov and Howard Ginsburg, in
their capacity as a stockholders’ committee, acting by the vote of at least
two-thirds, or by the unanimous written consent, of the members of the
stockholders committee, for a period of fifteen years from the date of the
Stockholders Agreement, to direct the voting of the shares of common stock with
respect to which the signatory stockholders have or share, or may hereafter
have or share, voting power with respect to all matters submitted to our
stockholders at any annual or special meeting of stockholders or pursuant to a
written consent in lieu thereof. On the Record Date, the stockholders committee
was entitled under the Stockholders Agreement to direct the vote as to
1,257,643 shares of our common stock (50.9%).
69
MEETING
AND VOTING INFORMATION
Outstanding Voting Securities
and Voting Rights.
Only stockholders of record at the close of business on March 31, 2008 (the
“Record Date”), will be entitled to notice of, and to vote at, the Special
Meeting or any adjournments or postponements of the Special Meeting. On the
Record Date, 2,468,614 shares of our common stock were issued and outstanding.
Each share of our common stock is entitled to one vote.
Information Concerning Proxies;
Revocation of Proxies.
Sending in a signed proxy will not affect your right to attend the Special
Meeting and vote in person since the proxy is revocable. All proxies which are
properly completed, signed and returned to us prior to the Special Meeting, and
which have not been revoked, unless otherwise directed by you, will be voted in
accordance with the recommendations of the Board of Directors set forth in this
proxy statement. You may revoke your proxy at any time before it is voted
either by (i) filing with the Secretary of the Company, at its principal
executive offices, 197 West Spring Valley Avenue, Maywood, New Jersey 07607, a
written notice of revocation or a duly executed proxy bearing a later date, or
(ii) by attending the Special Meeting, delivering written notice of revocation
of your proxy and voting your shares in person.
Solicitation.
The Company
will
bear the entire cost of solicitation, including the preparation, assembly,
printing and mailing of this proxy statement, the proxy and any additional solicitation
materials furnished to stockholders. Copies of the solicitation materials will
be furnished to brokerage houses, fiduciaries and custodians holding shares in
their names that are beneficially owned by others so that they may forward this
solicitation material to those beneficial owners. Our officers, directors and
employees may also solicit proxies by telephone, telegram or other means. Upon
request, we will pay the reasonable expenses incurred by record holders of its
common stock who are brokers, dealers, banks or voting trustees, or their
nominees, for sending proxy materials to the beneficial owners of the shares
they hold of record.
Quorum and Certain Voting
Matters.
The presence, in person or represented by proxy, of the holders of a majority
of the issued and outstanding shares of our common stock will constitute a
quorum for the transaction of business at the Special Meeting. The affirmative
vote of the majority of outstanding shares of our common stock entitled to vote
at the Special Meeting is required to approve each of the Reverse Stock Split
proposal and to approve the Forward Stock Split proposal. Abstentions and
broker non-votes (i.e., when a nominee holding shares of common stock cannot
vote on a particular proposal because the nominee does not have discretionary
voting power with respect to that proposal and has not received voting
instructions from the beneficial owner) will be included in the number of
shares present at the Special Meeting for the purpose of determining the
presence of a quorum. Shares of our common stock that are voted to abstain are
considered shares entitled to vote, and cast, with regard to the Transaction.
Shares of our common stock subject to broker non-votes will not be considered
as shares entitled to vote with respect to the Transaction. The enclosed proxy
will be voted in accordance with the instructions thereon.
Although
stockholders will be voting separately on the Reverse Stock Split and the
Forward Stock Split, the Company will not effect either the Reverse Stock Split
and the Forward Stock Split unless both proposals are approved by stockholders.
Adjournment or
Postponement.
The
Special Meeting may be adjourned or postponed. Any adjournment may be made
without notice, other than by an announcement made at the Special Meeting. The
favorable vote of a majority of the shares of our common stock present in
person or represented by proxy and entitled to vote on the adjournment proposal
may adjourn the meeting. Any adjournment or postponement of the Special Meeting
will allow our stockholders who have already sent in their proxies to revoke
them at any time prior to their use at the Special Meeting as adjourned or
postponed.
70
FINANCIAL
INFORMATION
Summary Historical Financial Information
The
following summary of consolidated financial information was derived from our
audited consolidated financial statements as of and for each of the years ended
June 30, 2007, 2006 and 2005 and from unaudited consolidated interim financial
statements as of and for the six months ended December 31, 2007 and 2006. In
the opinion of management, all adjustments (consisting only of normal recurring
accruals), which are necessary for a fair presentation of the financial
position and results of operation, have been included. The consolidated
statement of earnings data for the six months ended December 31, 2007 is not
necessarily indicative of results for the full fiscal year. This financial
information is only a summary and should be read in conjunction with our
historical financial statements and the accompanying footnotes. Please see the
information set forth below under the captions “Where You Can Find More
Information” and “Documents Incorporated By Reference.”
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
December 31,
|
|
Years Ended June 30,
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
2007
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
$77,646,000
|
|
|
$88,208,000
|
|
|
$154,507,000
|
|
|
$126,601,000
|
|
|
$126,477,000
|
|
|
Cost of Goods Sold
|
|
|
59,755,000
|
|
|
67,845,000
|
|
|
118,247,000
|
|
|
95,735,000
|
|
|
97,952,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
17,891,000
|
|
|
20,363,000
|
|
|
36,260,000
|
|
|
30,866,000
|
|
|
28,525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping, selling and administrative
expenses
|
|
|
16,038,000
|
|
|
16,039,000
|
|
|
30,573,000
|
|
|
27,574,000
|
|
|
26,172,000
|
|
|
Pension plan settlement
|
|
|
—
|
|
|
—
|
|
|
3,089,000
|
|
|
—
|
|
|
—
|
|
|
Interest expense
|
|
|
360,000
|
|
|
716,000
|
|
|
1,001,000
|
|
|
586,000
|
|
|
639,000
|
|
|
Interest income
|
|
|
|
|
|
|
|
|
(5,000
|
)
|
|
(5,000
|
)
|
|
(1,000
|
)
|
|
Provision for income taxes
|
|
|
592,000
|
|
|
1,429,000
|
|
|
893,000
|
|
|
1,181,000
|
|
|
666,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
|
901,000
|
|
|
2,179,000
|
|
|
$709,000
|
|
|
$1,530,000
|
|
|
$1,049,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares – Basic
|
|
|
2,469,000
|
|
|
2,481,000
|
|
|
2,478,000
|
|
|
2,480,000
|
|
|
2,596,000
|
|
|
Net earnings per common share – Basic
|
|
|
$.36
|
|
|
$.88
|
|
|
$.29
|
|
|
$.62
|
|
|
$.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares – Diluted
|
|
|
2,521,000
|
|
|
2,544,000
|
|
|
2,528,000
|
|
|
2,557,000
|
|
|
2,702,000
|
|
|
Net earnings per common share – Diluted
|
|
|
$36
|
|
|
$.86
|
|
|
$.28
|
|
|
$.60
|
|
|
$.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
|
$38,748,000
|
|
|
$47,415,000
|
|
|
$38,077,000
|
|
|
$41,702,000
|
|
|
$32,492,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Payable - Long-Term portion
|
|
|
$2,294,000
|
|
|
$2,476,000
|
|
|
$2,387,000
|
|
|
$2,563,000
|
|
|
$2,727,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity
|
|
|
$20,046,000
|
|
|
$21,181,000
|
|
|
$19,274,000
|
|
|
$19,047,000
|
|
|
$16,674,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71
Pro Forma Consolidated Financial Statements
(Unaudited)
The
following unaudited pro forma consolidated balance sheet as of December 31,
2007, and the unaudited pro forma consolidated statements of earnings for the
six months ended December 31, 2007 and for the fiscal year ended June 30, 2007,
show the pro forma effect of the Transaction and related events as required by
Rule 11-02 of Regulation S-X. The historical figures as of and for the period
ended December 31, 2007 were derived from the Company’s unaudited consolidated
financial statements that were included in the Company’s Quarterly Report on
Form 10-Q for the quarter ended December 31, 2007. The historical figures for
the fiscal year ended June 30, 2007, were derived from the Company’s audited
consolidated financial statements that were included in the Company’s Annual
Report on Form 10-K for the fiscal year ended June 30, 2007.
The
pro forma information below gives effect to the Transaction based on holders of
record owning less than 250 shares of shares of common stock, the resulting
reduced number of shares outstanding, the impact of additional borrowing to
effect the Transaction as well as tax implications as of December 31, 2007 and
June 30, 2007. The Transaction assumes that 306,319 shares are purchased for
treasury stock at a price of $10.21 per share. Pro forma adjustments to the pro
forma consolidated balance sheet are computed as if the Transaction had
occurred at December 31, 2007, while the pro forma consolidated statements of
earnings are computed as if the Transaction had occurred at the beginning of
the periods. The pro forma Consolidated Statements of Earnings do not give
effect to non-recurring costs and expenses of the Transaction (see notes (8)
and (9) below of the Notes to the Unaudited Pro Forma Consolidated Financial
Statements).
The
pro forma information is not necessarily indicative of what the Company’s
financial position or results of operations actually would have been if the
Transaction had occurred on July 1, 2006, or of the Company’s financial
position or results of operations in the future.
The
unaudited pro forma financial statements should be read in conjunction with the
historical financial statements and accompanying footnotes included in the
Company’s Annual Report on Form 10-K for the year ended June 30, 2007, and in
our Quarterly Report on Form 10-Q for the quarter ended December 31, 2007,
which are being delivered to our stockholders with this proxy statement and are
incorporated by reference in this proxy statement.
72
JACLYN, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
Pro Forma
Adjustments
|
|
Pro Forma
December 31,
2007
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
|
|
|
|
|
|
|
|
|
CASH AND CASH
EQUIVALENTS
|
|
|
$1,495,000
|
|
|
$(1,495,000
|
) (1)
|
|
$ —
|
|
|
ACCOUNTS
RECEIVABLE, LESS SALES RETURNS, SALES DISCOUNTS, SALES ALLOWANCE, &
ALLOWANCE FOR DOUBTFUL ACCOUNTS: $6,630,000
|
|
|
18,606,000
|
|
|
—
|
|
|
18,606,000
|
|
|
INVENTORIES
|
|
|
7,832,000
|
|
|
—
|
|
|
7,832,000
|
|
|
PREPAID
EXPENSES AND OTHER CURRENT ASSETS
|
|
|
2,946,000
|
|
|
—
|
|
|
2,946,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT ASSETS
|
|
|
30,879,000
|
|
|
(1,495,000
|
)
|
|
29,384,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PROPERTY,
PLANT AND EQUIPMENT – NET
|
|
|
3,839,000
|
|
|
|
|
|
3,839,000
|
|
|
ASSETS HELD
FOR SALE
|
|
|
357,000
|
|
|
|
|
|
357,000
|
|
|
GOODWILL
|
|
|
3,338,000
|
|
|
|
|
|
3,338,000
|
|
|
OTHER ASSETS
|
|
|
335,000
|
|
|
|
|
|
335,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$38,748,000
|
|
|
$(1,495,000
|
)
|
|
$37,253,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
NOTES
PAYABLE – BANK
|
|
|
$2,905,000
|
|
|
$1,633,000
|
(1)
|
|
$4,538,000
|
|
|
|
|
ACCOUNTS
PAYABLE
|
|
|
7,061,000
|
|
|
116,000
|
(3)
|
|
7,177,000
|
|
|
OTHER
CURRENT LIABILITIES
|
|
|
5,546,000
|
|
|
|
|
|
5,546,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
15,512,000
|
|
|
1,749,000
|
|
|
17,261,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MORTGAGE
PAYABLE
|
|
|
2,294,000
|
|
|
|
|
|
2,294,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED
INCOME TAXES
|
|
|
571,000
|
|
|
(46,000
|
) (2)
|
|
525,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER
LIABILITIES
|
|
|
325,000
|
|
|
|
|
|
325,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMITMENTS
AND CONTINGENCIES
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
|
|
|
|
|
|
|
|
|
PREFERRED
STOCK, PAR VALUE $1: AUTHORIZED, 1,000,000 SHARES; ISSUED AND OUTSTANDING,
NONE
|
|
|
|
|
|
|
|
|
|
|
|
COMMON
STOCK, PAR VALUE $1: AUTHORIZED, 5,000,000 SHARES
|
|
|
3,369,000
|
|
|
|
|
|
3,369,000
|
|
|
ADDITIONAL
PAID-IN CAPITAL
|
|
|
9,518,000
|
|
|
|
|
|
9,518,000
|
|
|
RETAINED
EARNINGS
|
|
|
13,776,000
|
|
|
(70,000
|
) (2)
|
|
13,706,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,663,000
|
|
|
(70,000
|
)
|
|
26,593,000
|
|
|
LESS:
TREASURY STOCK AT COST
|
|
|
6,617,000
|
|
|
3,128,000
|
(1)
|
|
9,745,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
STOCKHOLDERS’ EQUITY
|
|
|
20,046,000
|
|
|
(3,198,000
|
)
|
|
16,848,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$38,748,000
|
|
|
$(1,495,000
|
)
|
|
$37,253,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
the Unaudited Pro Forma Consolidated Financial Statements
73
JACLYN, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF EARNINGS
SIX MONTHS ENDED DECEMBER 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
2007
|
|
Pro Forma
Adjustments
|
|
Pro Forma
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$77,646,000
|
|
|
$ —
|
|
|
$77,646,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold
|
|
|
59,755,000
|
|
|
|
|
|
59,755,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
17,891,000
|
|
|
|
|
|
17,891,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping,
selling and administrative expenses
|
|
|
16,038,000
|
|
|
(484,000
|
) (8)
|
|
15,554,000
|
|
|
Interest
expense
|
|
|
360,000
|
|
|
122,000
|
(4)
|
|
482,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
BEFORE PROVISION FOR INCOME TAXES
|
|
|
1,493,000
|
|
|
362,000
|
|
|
1,855,000
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
592,000
|
|
|
145,000
|
(7)
|
|
737,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
|
$901,000
|
|
|
217,000
|
|
|
$1,118,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
PER COMMON SHARE – BASIC
|
|
|
$.36
|
|
|
|
|
|
$.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding – basic
|
|
|
2,469,000
|
|
|
(306,000
|
) (5)
|
|
2,163,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
PER COMMON SHARE – DILUTED
|
|
|
$.36
|
|
|
|
|
|
$.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding – diluted
|
|
|
2,521,000
|
|
|
(306,000
|
) (5)
|
|
2,215,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
the Unaudited Pro Forma Consolidated Financial Statements
74
JACLYN, INC. AND SUBSIDIARIES
PROFORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED JUNE 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2007
|
|
Pro Forma
Adjustments
|
|
Pro Forma
June 30,
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$154,507,000
|
|
$
|
—
|
|
|
$154,507,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold
|
|
|
118,247,000
|
|
|
|
|
|
118,247,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
36,260,000
|
|
|
|
|
|
36,260,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shipping,
selling and administrative expenses
|
|
|
30,573,000
|
|
|
(35,000
|
) (9)
|
|
30,538,000
|
|
|
Pension plan
settlement
|
|
|
3,089,000
|
|
|
|
|
|
3,089,000
|
|
|
Interest
expense
|
|
|
1,001,000
|
|
|
285,000
|
(6)
|
|
1,286,000
|
|
|
Interest
income
|
|
|
(5,000
|
)
|
|
|
|
|
(5,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS
BEFORE PROVISION FOR INCOME TAXES
|
|
|
1,602,000
|
|
|
(250,000
|
)
|
|
1,352,000
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
893,000
|
|
|
(100,000
|
) (7)
|
|
793,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
|
|
|
$709,000
|
|
|
(150,000
|
)
|
|
559,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
PER COMMON SHARE – BASIC
|
|
|
$.29
|
|
|
|
|
|
$.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding – basic
|
|
|
2,468,000
|
|
|
(306,000
|
) (5)
|
|
2,162,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET EARNINGS
PER COMMON SHARE – DILUTED
|
|
|
$.28
|
|
|
|
|
|
$.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares outstanding – diluted
|
|
|
2,528,000
|
|
|
(306,000
|
) (5)
|
|
2,222,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to
the Unaudited Pro Forma Consolidated Financial Statements
75
Notes to the Unaudited Pro Forma Consolidated
Financial Statements
(1) Represents
the impact on the December 31, 2007 historical balance sheet of cash used and
borrowed under the Company’s credit facility to effect the Transaction. The
estimated cash payout is approximately $3,128,000 for the shares subject to the
Transaction.
(2) Retained
earnings are reduced for the remaining estimated non-recurring costs and
expenses, as of December 31, 2007, related to the Transaction of $116,000
(approximately $70,000 net of tax using an assumed tax rate of 40%). The
remaining estimated expenses of $116,000 reflect an estimated $600,000 of
transaction costs, less approximately $484,000 expensed through December 31,
2007.
(3) Represents
the remaining estimated expenses related to the Transaction, totaling $116,000,
primarily for the legal costs, accounting costs, financial advisor fees, filing
and printing costs.
(4) Increased
interest costs of approximately $122,000 for the 6-month period ended December
31, 2007 at an assumed interest rate of 7.50% on the estimated $3,244,000 of
the Company’s revolving line of credit used to effect the Transaction. A 1/8%
change in the assumed rate would result in a change in interest expense of
approximately $2,000.
(5) Pro forma
basic and diluted weighted outstanding shares are adjusted based on the assumed
redemption of 306,319 shares.
(6) Reflects
increased interest costs of approximately $285,000 for the fiscal year ended June 30,
2007 at a weighted-average interest rate of 7.71% on the estimated $3,693,000 of
the Company’s revolving line of credit used to effect the Transaction. A 1/8%
change in the assumed rate would result in a change in interest expense of
approximately $4,600 per annum.
(7) Reflects
the estimated tax effect resulting from the pro forma adjustments at an assumed
rate of 40%.
(8) Reflects
the elimination of non-recurring costs and expenses of the Transaction of
approximately $484,000 expensed through December 31, 2007.
(9) Reflects
the elimination of non-recurring costs and expenses of the Transaction of
approximately $35,000 expensed through June 30, 2007.
(10) Potential
Cost Savings
The
table below shows the Company’s historical approximate annualized costs related
to being a public company. As a deregistered company, we do not expect to incur
these costs. However, as required by SEC rules and regulations, these costs
continue to be included in the accompanying Unaudited Pro Forma Consolidated
Statements of Earnings.
|
|
|
|
|
|
|
|
|
|
Description
|
|
Annualized Costs as
a Public Company
|
|
|
|
|
|
|
|
|
|
|
Audit
|
|
|
$315,000
|
|
|
|
Legal
|
|
|
25,000
|
|
|
|
Other Sarbanes-Oxley Costs
|
|
|
50,000
|
|
|
|
Corporate Governance Costs
|
|
|
133,000
|
|
|
|
Additional Costs – Pink Sheets
|
|
|
(14,000
|
)
|
|
|
|
|
|
|
|
|
|
Total estimated annualized costs, net
|
|
|
$509,000
|
|
|
|
|
|
|
|
|
76
Ratio of Earnings to Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma
June
30, 2007
|
|
Actual
June
30, 2007
|
|
Actual
June
30, 2006
|
|
Pro forma
December
31, 2007
|
|
Actual
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before provision for income taxes
|
|
|
$1,352,000
|
|
|
$1,602,000
|
|
|
2,711,000
|
|
|
$1,855,000
|
|
|
$1,493,000
|
|
|
Fixed Charges
|
|
|
1,746,000
|
|
|
1,461,000
|
|
|
1,027,000
|
|
|
716,000
|
|
|
594,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings available to cover fixed charges
|
|
|
$3,098,000
|
|
|
$3,063,000
|
|
|
3,738,000
|
|
|
$2,571,000
|
|
|
$2,087,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
$1,286,000
|
|
|
$1,001,000
|
|
|
586,000
|
|
|
$482,000
|
|
|
$360,000
|
|
|
Interest portion of rental expense
|
|
|
460,000
|
|
|
460,000
|
|
|
441,000
|
|
|
234,000
|
|
|
234,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed charges
|
|
|
$1,746,000
|
|
|
$1,461,000
|
|
|
1,027,000
|
|
|
$716,000
|
|
|
$594,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio of earnings to fixed charges (a)
|
|
|
1.8
|
x
|
|
2.1
|
x
|
|
3.6
|
x
|
|
3.6
|
x
|
|
3.5
|
x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) For
purposes of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness and the portion of rental
expense that management believes is representative of the interest factor.
|
77
STOCKHOLDER PROPOSALS
If
the Transaction is not consummated and the Company remains a public company,
stockholder proposals intended to be included in the proxy statement and form of
proxy for the 2008 Annual Meeting of Stockholders must be received at the
principal executive offices of the Company, 197 West Spring Valley Avenue,
Maywood, New Jersey 07607, no later than July 1, 2008. Any such proposals, as
well as any questions relating thereto, should be directed to the Secretary of
the Company. As to any proposals intended to be presented by a stockholder
without inclusion in the Company’s proxy statement and form of proxy for the
2008 Annual Meeting, the proxies named in the Company’s form of proxy for that
meeting will be entitled to exercise discretionary authority on that proposal
unless the Company receives notice of the matter on or before September 14,
2008. However, even if such notice is timely received, such proxies may nevertheless
be entitled to exercise discretionary authority on that matter to the extent
permitted by Securities and Exchange Commission regulations.
Stockholder
recommendations of candidates for Board membership will be considered when
timely submitted with sufficient detail including candidate’s name, principal
occupation during the past five years, listing of directorships, a statement
that such nominee has consented to the submission of the nomination, amount of
common stock of the Company held by the nominee and qualification (including
information regarding compliance with the Company’s bylaws on qualifications)
addressed to the Corporate Secretary of the Company, 197 West Spring Valley
Avenue, Maywood, New Jersey 07607. Stockholder proposals should also be submitted
to our Corporate Secretary at the address noted.
WHERE
YOU CAN FIND MORE INFORMATION
The
Transaction is a “going private” Transaction subject to Rule 13e-3 of the
Exchange Act. The Company has filed a Rule 13e-3 Transaction Statement on
Schedule 13E-3 under the Exchange Act with respect to the Transaction. The
Schedule 13E-3 contains additional information about the Company. Copies
of the Schedule 13E-3 are available for inspection and copying at the
principal executive offices of the Company during regular business hours by any
interested stockholder of the Company, or a representative who has been so
designated in writing, and may be inspected and copied, or obtained by mail, by
written request directed to Jaclyn Hartstein, the Company’s Secretary, at the
following address: Jaclyn, Inc., 197 West Spring Valley Avenue, Maywood, New
Jersey 07607.
The
Company is currently subject to the information requirements of the Exchange
Act and files periodic reports, proxy statements and other information with the
SEC relating to its business, financial and other matters.
You
may read and copy any document we file at the SEC’s public reference room at
100 F Street, N.E., Washington, D.C. 20549 Washington, D.C. Please call the
Commission at 1-800-SEC-0330 for further information on the public reference
room. Our SEC filings are also available to the public over the Internet at the
SEC’s Website at
http://www.sec.gov
.
78
DOCUMENTS
INCORPORATED BY REFERENCE
In
filings with the SEC, information is sometimes incorporated by reference. That
means that we are referring to you to information that we have filed separately
with the SEC. The information incorporated by reference should be considered
part of this proxy statement, except for any information superseded by
information contained directly in this proxy statement.
This
proxy statement incorporates by reference our financial statements that are
contained in certain documents that we have previously filed with the SEC, as
follows:
• Our
audited Consolidated Balance Sheets as at June 30, 2007 and 2006, our audited
Consolidated Statements of Earnings for the years ended June 30, 2007 and 2006,
our audited Consolidated Statements of Cash Flow for the years ended June 30,
2007, 2006 and 2005 and the Notes to our audited Consolidated Financial
Statements, in each case that are contained in our Annual Report on Form 10-K
for the year ended June 30, 2007; and
• Our
Condensed Consolidated unaudited Balance Sheets as at December 31, 2007 and
June 30, 2007, our Condensed Consolidated unaudited Statements of Earnings for
the six months ended December 31, 2007 and 2006, our Condensed Consolidated
unaudited Statements of Cash Flow for the six months ended December 31, 2007
and 2006, and the Notes to our Condensed Consolidated unaudited Financial
Statements, in each case that are contained in our Quarterly Report on Form
10-Q for the fiscal quarter ended December 31, 2007.
We
are delivering to you with this Proxy Statement copies, without exhibits, of
our Annual Report on Form 10-K for the fiscal year ended June 30, 2007 and our
Quarterly Report on Form 10-Q for the fiscal quarter ended December 31, 2007.
Exhibits to these documents are not included, but they can be viewed over the
Internet at the SEC’s Website at
http://www.sec.gov
or, if you request
them in writing, we will send them to you. Please address any request to Jaclyn
Hartstein, the Company’s Secretary, at the following address: Jaclyn, Inc., 197
West Spring Valley Avenue, Maywood, New Jersey 07607.
We
have not authorized anyone to give any information or make any representation
about the Transaction or us that differs from, or adds to, the information in
this proxy statement or in our documents that are publicly filed with the SEC.
If anyone does give you different or additional information, you should not
rely on it.
|
|
|
|
|
|
By Order of the Board of Directors
|
|
|
|
|
|
|
Jaclyn Hartstein
Secretary
|
|
April 7, 2008
|
|
79
Annex A
CERTIFICATE
OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
JACLYN, INC.
The
Corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware does hereby certify:
1. The
name of the Corporation is Jaclyn, Inc.
2. Article
FOURTH of the Certificate of Incorporation of the Corporation (hereinafter
called the “Certificate of Incorporation”) is hereby amended by inserting the
following as new Section C.5.:
“5.
Without regard to any other provision of this Certificate of Incorporation,
each 250 shares of Common Stock of the Corporation, either issued and
outstanding or held by the Corporation as treasury stock, immediately prior to
the time this amendment becomes effective shall be and is automatically
reclassified and changed (without any further act) into one (1) fully paid
and nonassessable share of Common Stock of the Corporation without increasing
or decreasing the amount of stated capital or paid-in surplus of the
Corporation, provided that no fractional shares shall be issued to any holder
of fewer than 250 shares of Common Stock of the Corporation immediately prior
to the time this amendment becomes effective, and that instead of issuing such
fractional shares, the Corporation shall pay an amount in cash equivalent to
$10.21 per share of Common Stock of the Corporation held by such holder
immediately prior to the time this amendment becomes effective.”
3. This
amendment of the Certificate of Incorporation herein certified has been duly
adopted in accordance with the provisions of Section 242 of the Delaware
General Corporation Law and shall become effective at 11:58 p.m., Eastern time,
on _______________, 2008.
IN
WITNESS WHEREOF, said Corporation has caused this certificate to be signed this
_____ day of ___________, 2008.
|
|
|
|
|
|
|
JACLYN, INC.
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
Name:
|
|
|
Title:
|
A-1
CERTIFICATE
OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
JACLYN, INC.
The
Corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware does hereby certify:
1. The
name of the Corporation is Jaclyn, Inc.
2. Article
FOURTH of the Certificate of Incorporation of the Corporation (hereinafter
called the “Certificate of Incorporation”) is hereby amended by deleting
current section C.5. in its entirety and replacing it with the following:
“5.
Without regard to any other provision of this Certificate of Incorporation,
each one (1) share of Common Stock of the Corporation, either issued and
outstanding or held by the Corporation as treasury stock (and including each
fractional share in excess of one (1) share held by any stockholder and each
fractional interest in excess of one (1) share held by the Corporation or
its agent pending disposition on behalf of those entitled thereto), immediately
prior to the time this amendment becomes effective shall be and is
automatically reclassified and changed (without any further act) into 250 fully
paid and nonassessable shares of Common Stock of the Corporation (or, with
respect to such fractional shares and interests, such lesser number of shares
and fractional shares or interests as may be applicable based upon such
250-for-1 ratio) without increasing or decreasing the amount of stated capital
or paid-in surplus of the corporation, provided that no fractional shares shall
be issued.”
3. This
amendment of the Certificate of Incorporation herein certified has been duly
adopted in accordance with the provisions of Sections 242 of the Delaware
General Corporation Law and shall become effective at 11:59 p.m., Eastern time,
on _______________, 2008.
IN
WITNESS WHEREOF, said Corporation has caused this certificate to be signed this
_____ day of ___________, 2008.
|
|
|
|
|
|
|
|
|
|
|
JACLYN, INC.
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
Name:
|
|
|
Title:
|
A-2
Annex B
|
|
|
|
|
November 28, 2007
|
CONFIDENTIAL
|
Special Committee to the
Board of Directors
Jaclyn, Inc.
197 West Spring Valley Ave
Maywood, NJ 07607
Re: Fairness Opinion –
Opinion of the Special Committee’s Financial Advisor
Dear Members of the Special
Committee:
We understand that Jaclyn,
Inc. (“Jaclyn” or the “Company”), a Delaware corporation, intends to effect a
1-for-250 reverse stock split, which will then be immediately followed by a
250-for-1 forward stock split. Following the reverse/forward stock split, the
Company would expect to take action to delist its common stock with the
American Stock Exchange and deregister its common stock under the Securities
Exchange Act of 1934, as amended (the “Transaction”). As a result of the
Transaction, (a) each shareholder owning less than 250 shares before the
Transaction will receive from the Company $10.21 in cash for each of such
shareholder’s pre-split shares (the “Transaction Consideration”); and (b) each
share of common stock held by a shareholder owning 250 or more shares will
continue to represent one share of the Company after completion of the
Transaction.
Houlihan Smith &
Company, Inc. (“Houlihan”) has been engaged by the Special Committee to the
Board of Directors of Jaclyn (“Special Committee”) to render an opinion
(whether or not favorable) to the Special Committee as to whether, from a
financial point of view, the Transaction is fair to the unaffiliated
shareholders of the Company, which consists of those whose fractional shares
would be cashed out as part of the Transaction and those who would remain as
shareholders (the “Opinion”).
In performing our analyses
and for purposes of our Opinion set forth herein, we have, among other things:
|
|
|
|
|
|
a)
|
Reviewed the financial
terms and conditions of the Transaction;
|
|
|
|
|
|
|
b)
|
Reviewed publicly
available financial information and other data with respect to Jaclyn,
including the Form 10-K’s for the fiscal years ended June 30, 2002 through
2007 and the Form 10-Q’s for each three months period ended from September
30, 2005 to September 30, 2007, as well as certain other public filings made;
|
|
|
|
|
|
|
c)
|
Reviewed certain internal
financial information and other data relating to the business and financial
prospects of Jaclyn, including the fiscal year 2008 financial budget;
|
|
|
|
|
|
|
d)
|
Conducted an on-site visit
and held discussions with the senior management of Jaclyn “Management”)
regarding the historic, current, and future outlook of Jaclyn;
|
|
|
|
|
|
|
e)
|
Discussed with Management
details of a potential sale of non-operating assets consisting of a warehouse
facility and adjacent parcels of land located in West New York (the “Assets
Held for Sale”). Houlihan reviewed certain public filings relating to the
potential sale and performed a site visit;
|
|
|
|
|
|
|
|
105 W. Madison, Suite 1500
|
|
Tel:
312.499.5900 Toll Free: 800.654.4977
|
|
www.houlihansmith.com
|
|
Chicago, IL 60602
|
|
Fax:
312.499.5901
|
|
www.fairnessopinion.com
|
|
|
|
|
|
www.solvencyopinion.com
|
B-1
Special Committee to the
Board of Directors
Jaclyn, Inc.
Fairness Opinion - Confidential
November 28, 2007
|
|
|
|
|
|
f)
|
Reviewed financial and
operating information with respect to certain publicly-traded companies in
the apparel and accessories industries, which we believe to be generally
comparable to the business of the Company;
|
|
|
|
|
|
|
g)
|
Reviewed the financial
terms of certain recent business combinations in the apparel and accessories
industries specifically;
|
|
|
|
|
|
|
h)
|
Analyzed historic trading
prices and volume in Jaclyn’s shares;
|
|
|
|
|
|
|
i)
|
Analyzed other recent
reverse and forward split transactions and premiums paid in such transactions
as fractional share consideration;
|
|
|
|
|
|
|
j)
|
Reviewed the annual cost
savings projected by Management achieved through delisting and deregistration
as well as the cost savings achieved through the disposition of the Assets
Held for Sale; and
|
|
|
|
|
|
|
k)
|
Performed other financial
studies, analyses and investigations, and considered such other information,
as we deemed necessary or appropriate.
|
We have relied upon and
assumed, without independent verification, the accuracy, completeness and
reasonableness of the financial, legal, tax, and other information discussed
with or reviewed by us and have assumed such accuracy and completeness for
purposes of rendering an opinion. In addition, we have not made any independent
evaluation or appraisal of any of the assets or liabilities (contingent or
otherwise) of the Company, nor have we been furnished with any such evaluation
or appraisal. We have further relied upon the assurances and representations
from senior management of Jaclyn that they are unaware of any facts that would
make the information provided to us to be incomplete or misleading for the
purposes of our Opinion. We have not assumed responsibility for any independent
verification of this information nor have we assumed any obligation to verify
this information.
Further, our Opinion is
necessarily based upon information made available to us, as well as the
economic, monetary, market, financial and other conditions as they exist as of
the date of this letter. We disclaim any obligation to advise the Special
Committee or any person of any change in any fact or matter affecting our
Opinion, which may come or be brought to our attention after the date of this
Opinion.
Each of the analyses conducted
by Houlihan was carried out to provide a particular perspective of the
Transaction. Houlihan did not form a conclusion as to whether any individual
analysis, when considered in isolation, supported or failed to support our
Opinion as to the fairness of the Transaction to the unaffiliated shareholders.
Houlihan does not place any specific reliance or weight on any individual
analysis, but instead, concludes that its analyses taken as a whole, supports
its conclusion and Opinion. Accordingly, Houlihan believes that its analyses
must be considered in its entirety and that selecting portions of its analyses
or the factors it considered, without considering all analyses and factors
collectively, could create an incomplete view of the processes underlying the
analyses performed by Houlihan in connection with the preparation of the
Opinion.
Our Opinion does not
constitute a recommendation to proceed with the Transaction. This Opinion
relates solely to the question of the fairness to unaffiliated shareholders. We
are expressing no opinion as to the income tax consequences of the Transaction
to the unaffiliated shareholders.
B-2
Special Committee to the
Board of Directors
Jaclyn, Inc.
Fairness Opinion - Confidential
November 28, 2007
Houlihan, a Financial
Industry Regulatory Authority (FINRA) member, as part of its investment banking
services, is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, private placements, bankruptcy,
capital restructuring, solvency analyses, stock buybacks, and valuations for
corporate and other purposes. Houlihan has no prior investment banking
relationships with the Company. Houlihan has received a non-contingent fee from
Jaclyn relating to its services in providing the Opinion. In an engagement
letter dated June 26, 2007, Jaclyn has agreed to indemnify Houlihan with
respect to Houlihan’s services relating to the Opinion.
Based on and subject to the
foregoing, it is our opinion that, as of the date hereof, the Transaction
Consideration to be received by the unaffiliated shareholders of the Company,
which consists of those whose fractional shares would be cashed out as part of
the Transaction and those who would remain as shareholders is fair, from a
financial point of view, to such shareholders.
|
|
|
Very truly yours,
|
|
|
|
|
|
|
|
Houlihan Smith & Company, Inc.
|
B-3
[PROXY CARD]
Front of Card
|
|
|
JACLYN, INC.
|
|
|
|
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
|
|
|
|
|
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
|
The
undersigned stockholder hereby appoints JACLYN HARTSTEIN and LLOYD FRANK, and
any one of them, the proxies of the undersigned, with power of substitution,
hereby revoking any proxy heretofore given, to vote all shares which the
undersigned is entitled to vote at the Special Meeting of Stockholders of
JACLYN, INC. (the “Company”) to be held at the Company’s offices, 197 West
Spring Valley Avenue, Maywood, New Jersey 07607 at 9:00 a.m. (local time) on
May 7, 2008, and at any adjournments and postponements thereof, with all
powers the undersigned would possess if personally present upon the matters set
forth on the reverse side hereof.
|
|
|
|
|
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
|
|
|
|
|
|
|
|
|
|
Signature
|
|
|
|
|
|
|
|
|
|
|
Note:
Please date and sign exactly as your name appears hereon. If acting as an
executor, administrator, trustee, guardian, etc., you should so indicate. If
the signer is a corporation, please sign the full corporate name by a duly
authorized officer. If shares are held jointly, each stockholder should sign.
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The Board of Directors recommends a vote “For” the following proposals:
1. Proposal to amend the
Company’s Certificate of Incorporation to effect a 1-for-250 reverse stock
split (the “Reverse Stock Split”), all as described in the Company’s proxy
statement dated April 7, 2008.
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For
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Against
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Abstain
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o
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o
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o
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2. Proposal to amend the
Company’s Certificate of Incorporation to effect, immediately after the Reverse
Stock Split, a 250-for-1 forward stock split, all as described in the Company’s
proxy statement dated April 7, 2008.
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For
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Against
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Abstain
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o
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o
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o
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The
proxies are authorized to vote upon such other matters as may properly come
before the meeting. Each properly executed proxy will be voted as directed by
the stockholder(s). If no direction is given, such shares will be voted FOR
Proposals No. 1 and No. 2, and in the discretion of the proxies on any other
matters that may properly come before the meeting.
Jaclyn (AMEX:JLN)
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