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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 17, 1997
PACIFIC COAST APPAREL COMPANY, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
California 0-28760 95-4536683
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(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION
NUMBER)
1620 S. Los Angeles Street
Los Angeles, California 90015
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(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(213) 748-9724
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(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 17, 1997, the registrant acquired the business and
assets of Cotton Stuff, Inc., a California corporation, a designer
and manufacturer of casual sportswear. The purchase price was $475,000, paid in
cash, plus assumption of trade and other liabilities totaling approximately
$80,000. The registrant also entered into a six-month employment agreement with
Stuart Bryer, the former Cotton Stuff, Inc. chief executive officer, who will
serve as the general manager of the registrant.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) It is impractical to provide the required financial statements of the
acquired business at this time. Such financial statements will be filed as soon
as practicable, but not later than 60 days after the date of filing of this
report on Form 8-K. .
(b) The PRO FORMA financial information that would be required pursuant to
Article XI of Regulation S-X is not available at the time of this filing because
the preparation of such information at this time is impracticable. Such
information will be filed as soon as practicable, but not later than 60 days
after the date of filing of this report on Form 8-K. .
(c) EXHIBITS:
EXHIBIT
NO. DESCRIPTION OF EXHIBITS
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2.1 Agreement and Bill of Sale for Purchase of Assets dated August 22,
1997.
2.2 Press Release dated September 17, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PACIFIC COAST APPAREL COMPANY, INC.,
Date: September 29, 1997 By:
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Terrence L. McGovern
Chief Executive Officer
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AGREEMENT AND BILL OF SALE
FOR PURCHASE OF ASSETS OF COTTON STUFF, INC.
This AGREEMENT (the "Agreement") is entered into on August 22, 1997, by
and between COTTON STUFF, INC., a California corporation ("Seller"), and
PACIFIC COAST APPAREL COMPANY, INC., a California corporation ("Buyer").
RECITALS
A. Seller is engaged in the design, manufacture and sale of men's
and women's casual sportswear primarily under the "Cotton Stuff" trademark.
Seller is owned 50% by Stuart Bryer and 50% by Ramesh and Mohan Manglani.
B. Buyer, a publicly-held company, with its principal offices
located in Culver City, California, is engaged in the men's and boys' apparel
business. Buyer holds an exclusive license to use the ACA JOE trademark the
United States, subject to certain limited prior uses.
C. This Agreement sets forth the terms of, and effects, Buyer's
purchase of all of the operating assets of Seller, including goodwill. Buyer
is combining its operations at Seller's sub-leased office and warehouse
facility constituting the portion of the premises at 1620 S. Los Angeles
Street, Los Angeles, CA, heretofore used by Seller in its business (the
"Property").
D. Buyer's subsidiary is taking possession of Seller's business
and assets upon execution of this Agreement. Transfer of title will occur
upon "Closing," immediately following compliance with the California Bulk
Sale Law as set forth in Section 1.7 herein.
NOW, THEREFORE, it is agreed:
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ASSET SALE
1.1 SALE. Upon the terms and subject to the conditions of this
Agreement, and subject to the exclusions set forth in Section 1.2, effective
upon the Closing Seller hereby sells, assigns, transfers and delivers to
Buyer's wholly-owned subsidiary, Pacific Coast Apparel Sub, Inc., and Buyer
accepts from Seller, free and clear of liens or other Encumbrances (as defined
below), all of the assets and existing commercial business of Seller,
including, but not limited to:
(a) Goodwill, including the trademark "Cotton Stuff," U.S.
Registration Number 1,774,289, and all other marks, names, customer lists,
licenses, permits, rights and other intangible assets used in Seller's
business;
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(b) Inventory, including finished goods, raw materials and
work in process;
(c) Furniture, fixtures and equipment;
(d) All real property, including leaseholds;
(e) Any and all trade and other contracts which were
entered into in the ordinary course of Seller's business, including
purchase orders for Inventory and those contracts listed on Schedule E (the
"Contracts"). Buyer may elect in lieu of assuming any Contracts, to
indemnify Seller against post-Closing obligations under the Contracts; and
(f) Cash, cash equivalents, accounts and notes receivable,
the net sum due from Seller's factor, and any prepaid expenses.
All of the above assets are sometimes referred to herein as
the "Acquired Assets;" and the transactions contemplated by this Agreement
are sometimes referred to herein as the "Sale." The following accompanying
Schedules list the Acquired Assets:
Schedule A Trademarks and Trade Names; Licenses,
etc.
Schedule B Inventory
Schedule C Furniture, Fixtures and Equipment
Schedule D Real Property
Schedule E Contracts
1.2 EXCLUDED ASSETS. The prepaid income tax reflected on Exhibit
A is the only asset of Seller excluded from the Sale. All non-excluded assets
of Seller, whether or not listed in Schedules A-E or Exhibit A, are intended to
be included in the Acquired Assets. It is understood that Seller's vendor
numbers are not assignable, but that Seller will assist Buyer in re-establishing
vendor numbers with Seller's customers following the Closing.
1.3 PURCHASE PRICE. The total purchase consideration for the
Acquired Assets is $475,000, paid herewith by delivery of Buyer's certified
or cashier's check to the order of Law Offices Of Gary Freedman (see Section
1.7), plus those liabilities of Seller which are being assumed by Buyer under
Section 1.4.
1.4 ASSUMED AND EXCLUDED LIABILITIES. Buyer will not assume any
liabilities or obligations of Seller or otherwise relating to the Acquired
Assets, except for the following which are included on the Transfer Date
Balance Sheet: (i) trade accounts payable incurred in the ordinary course of
business, including any trade accounts payable not shown on the Transfer date
Balance Sheet but which either (a) were incurred since August 12, 1997 in the
ordinary course of business, do not exceed $500 per item, and for which there
would be an offsetting asset on the balance sheet, or (b) are payables for
goods orders included in Schedule E, (ii) accounts payable
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outside the ordinary course of business, including expenses of the Sale, not
exceeding $5,000, and (iii) obligations under the Contracts which arise after
the date hereof; except that Buyer is not assuming Seller's obligations under
the existing Sublease for the Property or the letter agreement dated August
22, 1997 between Seller and CMG Corporation relating to the Property, but
instead Buyer is subleasing the Property from Seller as of today as described
in Section 1.5. The following are specifically excluded from assumption by
Buyer, without limiting Buyer's assumption per (i) - (iii) above: any
termination fee of Republic Factors or any liability of Seller listed under
Note Payable-Related Party or Note Payable-Shareholder on the Transfer Date
Balance Sheet.
1.5 SUBLEASE. Buyer is today subleasing the Property from Seller
for Seller's share of the Sublease obligations as set forth in Seller's letter
agreement with CMG Corporation dated today. By the Closing, Buyer and Seller
will execute a written sublease and Seller will obtain the written consent of
CMG Corporation, Seller's sublessor, and, if necessary, the master landlord to
Buyer's sublease of the Property from Seller.
1.6 SALES TAXES. Buyer will reimburse Seller for one-half of the
sales tax, if any, payable by Seller incident to the Sale.
1.7 BULK SALE LAW COMPLIANCE. Seller will comply with the
California Uniform Commercial Code - Bulk Sales, including, without limitation
the notice requirements of Sections 6103 and 6105. These procedures are being
implemented by an Escrow Agreement of even date authorizing the Law Offices Of
Gary Freedman to administer and disburse the $475,000 purchase price consistent
with the Bulk Sale Law. Control of the Acquired Assets is being transferred to
Buyer today, and Buyer is taking possession of Seller's assets and operations
today; the Closing and transfer of title will occur immediately after (i)
expiration of the Bulk Sale Notice Period and satisfaction of any related
claims from the escrow, (ii) receipt of the financing statement terminations
referred to in Section 1.10 and sublease consents referred to in Section 1.5 are
obtained (the "Closing"), and (iii) receipt of any required consents to
assignment of the Contracts, including that with A&S Star Sales.
1.8 EMPLOYMENT AGREEMENT WITH STUART BRYER. Buyer and Stuart Bryer
have entered into a mutually acceptable six-month Employment Agreement,
effective today.
1.9 CORPORATE RECORDS. Seller hereby delivers to Buyer possession
of the books and records of Seller pertaining to the Acquired Assets, including
assumed Contracts, subject to Seller's ongoing reasonable access.
1.10 FACTOR MATTERS. By the Closing, Republic Factors Corporation
and Capitol Factors shall have reached agreement as to an indemnity arrangement
between them to allow the release of the net amount due to Seller and Republic's
release of its lien on the assets of Seller by delivery of Form UCC-2
Termination Statements.
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1.11 CLOSING DOCUMENTS. At the Closing, the parties will exchange
documents of transfer, assignment and assumption and such other customary
documents as counsel for the respective parties reasonably may request.
II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller and Stuart Bryer, jointly and severally, represent and warrant
to Buyer that, except as set forth in the Schedule of Exceptions delivered by
seller upon execution of this Agreement:
2.1 ORGANIZATION. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and has
all the requisite power and authority to own, lease and operate its properties
and to carry on its business in every jurisdiction in which such qualification
is necessary because of the nature of the property owned, leased or operated by
it or the nature of the business conducted by it. Stuart Bryer and Ramesh and
Mohan Manglani own all the outstanding capital stock of Seller, and no one else
has any rights to acquire any capital or ownership interest in Seller.
2.2 AUTHORITY. Seller has the power, authority and capacity to enter
into this Agreement and consummate the Sale. This Agreement and the Sale have
been duly and validly executed and delivered by Seller, and are valid and
binding obligations of Seller, enforceable in accordance with their terms except
as enforceability is limited by applicable bankruptcy, reorganization,
insolvency, moratorium, fraudulent conveyance or similar laws affecting the
enforcement of creditors' rights generally. Neither the execution, delivery and
performance of this Agreement by Seller, nor the consummation by Seller of the
transactions contemplated hereby nor compliance by Seller with any of the
provisions hereof, (i) conflicts with or result in a breach of any provision of
the Articles of Incorporation or Bylaws of Seller, (ii) causes a default (or
give rise to any right of termination, cancellation, or acceleration) under any
of the terms, conditions or provisions of any note, bond, lease (except for
landlord consents to assignment of leases), mortgage, indenture, license,
warranty or other instrument or agreement to which Seller is a party which would
affect Buyer or its continued operation of Seller's business in any way, or
(iii) violates any law, statute, rule or regulation or judgment, order, writ,
injunction or decree applicable to Seller or any of its respective properties or
assets. No consent or approval by, or any notification of or filing with, any
public body or authority is required in connection with the execution, delivery
and performance by Seller of this Agreement, or the consummation by Seller of
the transactions contemplated hereby. The holders of all the outstanding shares
of capital stock of Seller have approved the Sale, and Seller has delivered to
Buyer a true copy of such consents.
2.3 FINANCIAL STATEMENTS. Seller has delivered to Buyer the
following financial statements of Seller (the "Seller Financial Statements"):
(a) reviewed balance sheets of Seller as of December 31, 1996
and 1995, and the related reviewed statements of earnings, retained earnings,
and cash flow for the years then
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ended, including notes related thereto, prepared by Seller's independent
certified public accountant;
(b) balance sheet of Seller as of April 30, 1997 and the
related statement of earnings, retained earnings, and cash flow for the four
months then ended, prepared by Seller; and
(c) proforma balance sheet as of August 22, 1997 (the
"Transfer Date Balance Sheet"), including employee accruals and any severance
arrangements.
Except as otherwise noted therein, the Seller Financial Statements are
accurate and complete and correctly present the financial position of Seller and
the results of its operations as of the dates thereof and for the periods
covered thereby in conformity with generally accepted accounting principles
applied on a consistent basis. The current liabilities on the Transfer Date
Balance Sheet include only accounts payable in the ordinary course of Seller's
business, and any employee loans have been paid off except for the loan to
Michael Mote as described in the Section 2.17.
2.4 ABSENCE OF CHANGES. Since April 30, 1997, Seller's business has
operated only in the ordinary course and there has not been any material adverse
change in the condition (financial or otherwise), assets, liabilities, earnings,
business operations or prospects of Seller, excluding general economic
conditions, except for an $18,000 allowance for markdowns granted to Macy's.
Seller has no reason to believe that there will be markdowns or returned
merchandise in excess of Seller's historical experience. Since April 30, 1997,
Seller has not paid any liability or obligation not relating to the ordinary
course of Seller's business.
2.5 ACCOUNTS RECEIVABLE. Seller's accounts receivable and the amount
receivable from its factor on the Transfer Date Balance Sheet are valid and
collectible in the ordinary course of business and not exceeding 90 days,
subject to the allowance for doubtful accounts and subject to customary factor
returns.
2.6 TITLE TO ASSETS. At the Closing, Seller will have good and
marketable title to all of the Acquired Assets, free and clear of all mortgages,
liens, pledges, charges, security interests, rights of way, options, rights of
first refusal, conditions, restrictions or encumbrances of any kind or
character, whether or not relating to the extension of credit or the borrowing
of money (collectively, "Encumbrances").
2.7 PROPERTY. With respect to the Property:
(i) to the knowledge of Seller, there are no pending or, to
the knowledge of Seller, threatened condemnation proceedings, lawsuits,
violation of applicable law or administrative actions or other matters affecting
adversely the current use, occupancy, or value of the Property;
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(ii) to the knowledge of Seller, the Property is not located
within any flood plain or subject to any similar type of restriction for which
any permits or licenses necessary to the use thereof have not been obtained;
(iii) Seller is not a party to, or aware of, any leases,
subleases, licenses, concessions, or other agreements, written or oral, granting
to any person the right of use or occupancy of any portion of the Property;
except for (a) the sharing arrangement with CMG Corporation dated August 22,
1997 and (b) the oral month-to-month sublease of approximately 3,600 square feet
of warehouse space to Schferes Fashions at $2,000 per month and (c) the oral
month-to-month sublease of approximately 1,200 square feet of office space to
R.L.M. Industries, inc. at a rate of $1,200 per month.
(iv) to the knowledge of Seller, the buildings, improvements
and other property thereon have received all approvals of governmental
authorities (including certificates of occupancy, permits and licenses) required
in connection with the business of Seller and have been operated and maintained
in compliance in all material respects with all applicable legal requirements;
and
(v) to the knowledge of Seller, the buildings, improvements
and other property thereon are supplied with utilities and other services
reasonably necessary for the current operations of Seller.
(vi) the Property is adequate for the current operation of the
business of Seller.
2.8 PERSONAL PROPERTY. Schedule C sets forth all material fixed
assets and tangible personal property, other than Inventory, owned by Seller and
a list of all leases or other material agreements under which Seller is lessee
of holds or operates any items of machinery, equipment, motor vehicles, office
furniture, computer software, fixtures or other tangible personal property owned
by any third party. All such personal property is in good operating condition
and repair and is adequate and suitable to permit Buyer to operate the business
of Seller in the ordinary course as conducted prior to the Sale.
2.9 AGREEMENTS. All material contracts, agreements and instruments
(including real property leases and subleases) to which Seller is a party are
listed, or in the case of oral agreements are described, in Schedule E. A copy
of each such contract, agreement or instrument has been delivered to Buyer and
is a true an accurate copy, and such descriptions of oral agreements are
materially complete. Seller is not in material default under any such contract
and Seller has no knowledge of any default by other parties under such
contracts. Schedule E also lists Seller's purchase orders as of the date
indicated therein.
2.10 LITIGATION. To the knowledge of Seller, there are (i) no audits,
inspections, actions, suits, claims, investigations or legal, administrative or
arbitration proceedings pending or threatened against Seller, whether at law or
in equity, whether civil or criminal in nature or whether before or by any
federal, state, municipal, or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, nor, to the
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knowledge of Seller, does any basis exist therefor; (ii) no judgments, decrees,
injunctions or orders of any court, governmental department, commission, agency,
instrumentality or arbitrator against Seller; or (iii) no proceedings under any
bankruptcy or insolvency laws against Seller which have not been terminated; no
general assignment for the benefit of creditors by Seller; and no trustee or
receiver of Seller's property.
2.11 COMPLIANCE; GOVERNMENTAL AUTHORIZATION.
(a) To the knowledge of Seller, Seller has complied and is
currently in compliance in all material respects with all federal, state,
territorial and local laws, ordinances, regulations or orders applicable to its
business and the Property, including, by way of description, and not limitation,
matters relating to the environment, usage of the Property, anti-competitive
practices, discrimination, employment, health and safety, taxes, issuance of
securities, customs duties and requirements and foreign practices. Seller has
all federal, state, territorial, local and foreign governmental licenses and
permits necessary in the conduct of its business as presently conducted, which
licenses and permits are in full force and effect. No violations are
outstanding or uncured with respect to any such licenses or permits and no
proceeding is pending or, to the knowledge of Seller, threatened to revoke or
limit any of them.
(b) Schedule A contains a true, correct and complete list of
all of the aforesaid governmental licenses and permits, consents, orders,
decrees and other compliance agreements under which Seller is operating or
bound, and Seller has furnished to Buyer true, complete and correct copies
thereof.
2.12 EMPLOYEE BENEFIT PLANS. Schedule F lists all "employee pension
benefit" plans (as defined in Section 3(2) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")), all "employee welfare benefit"
plans (as defined in Section 3(1) of ERISA) and any other qualified or
non-qualified plans, programs or letters of commitment promising current or
future benefits or deferred compensation (individually, a "Plan" and,
collectively, the "Plans") maintained by Seller as well as any oral or written
employment contract between Seller and its employees. All such plans and
contracts shall terminate as of the Closing without liability to Buyer.
2.13 CUSTOMERS AND SUPPLIERS. Schedule A contains a true and complete
list of all current suppliers and customers of Seller .
2.14 INTELLECTUAL PROPERTY. Schedule A lists and identifies all
intellectual property rights owned, leased or licensed by Seller or used in
connection with its business, including, without limitation, all patents, patent
applications, trade names, fictitious or assumed names, trademarks, trademark
applications, service marks, service mark applications, copyrights, copyright
applications, patterns, inventions, trade secrets, proprietary processes and
formulae, license agreements, and all other similar proprietary rights, whether
patentable or unpatentable (collectively, the "Intellectual Property"). Seller
has the right to use all Intellectual Property necessary to conduct its business
as now operated, without any obligation to anyone else for such use. To the
knowledge of Seller, there is no infringement, misappropriation or other use or
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misuse being made by any other party of the Intellectual Property for the
purpose covered by the registration. No claim is pending or threatened to the
effect that the present or past operations of Seller infringe or conflict with
the asserted rights of others in respect of any Intellectual Property, and no
claim is pending or threatened to the effect that any of such Intellectual
Property is invalid or unenforceable.
2.15 INSURANCE. Schedule E contains a list of all policies of
liability, theft, fidelity, life, fire, product liability, worker's
compensation, health and other forms of insurance held by Seller (specifying the
insurer, insured, amount of coverage, type of insurance, policy number and any
pending claims thereunder). Seller has not, during the last three fiscal years,
been denied or had revoked or rescinded any policy of insurance. Buyer will
elect prior to the Closing whether to assume Seller's insurance contracts.
2.16 INVENTORIES. Schedule B contains a true and complete list of all
inventory of Seller as of the date indicated therein, including work in process
and raw materials. Since that date, the only changes that have occurred in the
Inventory have been in the ordinary course of Seller's business consistent with
prior practice. Seller's Inventory at the date hereof is of good and
merchantable and of a quality and quantity presently usable and salable in the
ordinary course of business consistent with prior practice.
2.17 EMPLOYEES. Schedule F lists all employees of Seller as of the
date of this Agreement, together with their annual rates of compensation and
benefits. Seller has not entered into any collective bargaining agreement and
has no written or oral understanding with any labor organization concerning the
wages, hour or working conditions of its employees. There are no strikes, work
stoppages, grievance proceeding, unfair labor practice charges, organizing
petitions or campaigns, or other material labor controversies pending or
threatened involving Seller. To the best knowledge of Seller, substantially all
of Seller's current employees shall be available and willing to come to work for
Buyer following the Closing. All employee loans have been paid to Seller,
except for the $6,500 obligation of Michael Mote evidenced by a ten-month zero
percent promissory note included in the acquired Assets and guaranteed by Stuart
Bryer.
Seller has terminated the employment of all employees prior to
the Sale, and settled any and all claims which may be due and owing to any
employees, including but not limited to, all wages due and owing at the time of
the Closing, vacation pay, sick leave pay and/or severance or other benefit
entitlement, if any, all as indicated in the Transfer Date Balance Sheet. If
applicable to this transaction, Seller has complied with the provisions of the
Worker Adjustment and Retraining Notification Act (24 U.S.C. Section 2101 ET
SEQ.). Substantially all of Seller's current employees are available and
willing to come to work for Buyer following the Sale on similar compensation
terms, it being understood that certain employees may not be retained consistent
with avoiding duplication upon the combination of working facilities at the
Property.
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2.18 TAX MATTERS.
(a) For purposes of this Agreement, the term "Taxes" means
all taxes of any kind or nature, including but not limited to U.S., state, local
and foreign income taxes, withholding taxes, branch profit taxes, gross receipts
taxes, franchise taxes, sales and use taxes, business and occupation taxes,
property taxes, VAT, custom duties or imposts, stamp taxes, excise taxes,
payroll taxes, intangible taxes and capital taxes and any penalties or interest
thereon.
To the knowledge of Seller:
(b) Seller has filed within the time and in the manner
prescribed by law all tax returns and reports required to be filed by it under
the laws of the United States and California. Seller has paid or set up
adequate reserves in the Seller Financial Statements with respect to all Taxes.
(c) There are no tax liens, whether imposed by the United
States, any state, local, foreign or other taxing authority, outstanding against
Seller or the Acquired Assets.
(d) All Taxes and assessments that Seller is required to
withhold or to collect have been duly withheld or collected and all withholdings
and collections have either been duly and timely paid over to the appropriate
governmental authorities or are, together with the payments due or to become due
in connection therewith, duly reflected on the Balance Sheet in accordance with
generally accepted accounting principles.
(e) Seller is not a "foreign person" within the meaning of
IRC Section 1445(f)(3).
2.19 BOOKS AND RECORDS. The books of account and other corporate
financial records of Seller are in all material respects complete and correct,
have been maintained in accordance with good business practices and matters
contained therein are appropriately and accurately reflected in the Seller
Financial Statements. All historical records are in all material respects
complete and correct and have been maintained in accordance with good business
practices.
2.20 TRANSACTIONS WITH CERTAIN PERSONS. Other than as shown at Note
Payable-Related Party and Note Payable-Shareholder in the Transfer Date Balance
Sheet and the loan to Michael Mote as described in Section 2.17, no officer,
director or employee of Seller, nor any member of any such person's immediate
family, is presently a party to any transaction with Seller, including, without
limitation, any contract, agreement or other arrangement (i) providing for the
furnishing of services by, (ii) providing for the rental of real or personal
property from, or (iii) otherwise requiring payments to (other than for services
as officers, directors or employees of Seller) any such person or corporation,
partnership, trust or other entity in which any such person has a substantial
interest as a shareholder, officer, director, trustee or partner.
2.21 BROKERS. Seller has not employed any broker or finder in
connection with the transactions contemplated by this Agreement. Seller and
Stuart Bryer shall indemnify, defend
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and hold Buyer harmless from any and all claims or losses relating to brokerage
fees, commissions or finder's fees owed or claimed to be owed to any broker or
finder engaged or claimed to be engaged by Seller.
2.22 OPPORTUNITY TO INVESTIGATE. Seller and its representatives have
had an adequate opportunity to make whatever investigation and inquiries they
deemed necessary or advisable in connection with entering into and consummating
this Agreement.
2.23 DISCLOSURE. Neither this Agreement (including the Schedules) nor
any other document, certificate or statement furnished to Buyer by or on behalf
of Seller in connection with the transactions contemplated hereby, when
considered in the aggregate with all other such documents, certificates or
statements, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading.
III
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller that at the date of this
Agreement:
3.1 ORGANIZATION, STANDING AND POWER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California and has all requisite corporate power and authority to enter into
this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby.
3.2 AUTHORITY. Seller has the power, authority and capacity to enter
into this Agreement and consummate the Sale. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of Buyer. This Agreement has been duly and validly
executed and delivered by Buyer and is a valid and binding obligation of Buyer,
enforceable in accordance with its terms except as enforceability is limited by
applicable bankruptcy, reorganization, insolvency, moratorium, fraudulent
conveyance or similar laws affecting the enforcement of creditors' rights
generally. Neither the execution, delivery and performance of this Agreement,
nor the consummation of the transactions contemplated hereby, nor compliance by
Buyer with any of the provisions hereof (a) conflicts with or result in a breach
of any provision of its Articles of Incorporation or By-laws, (b) causes a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any agreement, instrument or
obligation to which Buyer is a party, or by which any of its properties or
assets may be bound, or (c) violates any law, statute, rule or regulation, or
judgment, order, writ, injunction or decree applicable to Buyer or any of its
respective properties or assets. No filing with, and no permit, authorization,
consent or approval of, any public body or authority is necessary for the
consummation by Buyer of the transactions contemplated by this Agreement.
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3.3 BROKERS. Buyer has not employed any broker or finder in
connection with the transactions contemplated by this Agreement. Buyer shall
indemnify, defend and hold Seller and its shareholders harmless from any and all
claims or losses relating to brokerage fees, commissions or finder's fees owed
or claimed to be owed to any broker or finder engaged or claimed to be engaged
by Buyer.
3.4 OPPORTUNITY TO INVESTIGATE. Buyer and its representatives have
had an adequate opportunity to make whatever investigation and inquiries they
deemed necessary or advisable in connection with entering into and consummating
this Agreement.
3.5 DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement furnished to Seller by or on behalf of Buyer in
connection with the transactions contemplated hereby, when considered in the
aggregate with all other such documents, certificates or statements, contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements contained herein and therein not
misleading.
IV
COVENANTS OF SELLER
Seller hereby covenants and agrees with Buyer as follows:
4.1 CHANGE OF CORPORATE NAME. As soon as practicable following the
Closing, Seller will change its corporate name to delete any reference to
"cotton" or "stuff," it being understood that Buyer's subsidiary acquiring the
acquired assets intends to change its name to "Cotton Stuff, Inc."
4.2 FURTHER ASSURANCES. Seller shall at any time and from time to
time before or after the Closing, upon the request of Buyer, (a) do, execute,
acknowledge and deliver, and cause to be done, executed, acknowledged or
delivered, all such further acts, deeds, assignments, transfers, conveyances or
other assurances as may be required for the better transferring, assigning,
conveying, granting, assuring and confirming to Buyer, or for aiding and
assisting in the collection of or reducing to possession by Buyer, of the
Acquired Assets or to vest in Buyer good, valid and marketable title to the
Acquired Assets and otherwise to consummate the transactions contemplated by
this Agreement, including, without limitation, any registration rights Seller
may have in Seller's unregistered trade marks included in the Sale; (b)
cooperate and assist Buyer in connection with any tax, environmental or other
governmental audit and any litigation or claims related to the business or
assets of Seller through the Closing Date; and (c) promptly convey to Buyer
after receipt of any payments, correspondence or notices relating to any of the
Acquired Assets. Seller and its shareholders agree to cooperate with Buyer's
independent auditors in connection with their audit of Seller's 1995 and 1996
and pre-Closing 1997 financial results for Buyer's SEC reporting compliance.
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4.3 SATISFACTION OF CONDITIONS. Seller shall take all actions and
execute all documents required for the satisfaction, to the extent within the
control of Seller, of any conditions to Closing herein.
V
COVENANTS OF BUYER
5.1 FURTHER ASSURANCES. Buyer shall at any time and from time to
time before or after the Closing, upon the request of Seller, do, execute,
acknowledge and deliver, and cause to be done, executed, acknowledged or
delivered, all such further acts, deeds, assignments, transfers, conveyances or
other assurances as may be required to consummate the transactions contemplated
by this Agreement.
5.2 SATISFACTION OF CONDITIONS. Buyer shall take all actions and
execute all documents required for the satisfaction, to the extent with the
control of Buyer, of any conditions to the Closing herein.
VI
NON-COMPETITION AGREEMENTS
Seller and Stuart Bryer each agrees not to engage, directly or
indirectly, in the men's and women's casual sportswear business for two years
from the Closing. Except for his business of selling close-out apparel, Ramesh
Manglani agrees not to engage, directly or indirectly, in the garment-dye men's
and women's casual sportswear business for two years from the Closing.
The forgoing covenant shall apply to all geographical areas in which
Seller has conducted business or sold products within the two years preceding
the closing, including, without limitation, the United States. Further, the
foregoing shall apply to full or part-time employment, consulting, or record or
beneficial ownership (other than ownership of less than one percent of a
publicly-held company).
Seller, Stuart Bryer and Ramesh Manglani each agrees that Buyer shall
be entitled to injunctive relief in the event of a breach of this covenant not
to compete, in addition to other applicable legal remedies. In the event a
court of competent jurisdiction finds this covenant to be broader than is
allowed by applicable law, this covenant shall be reconstrued to reflect the
maximum permitted by law.
VII
INDEMNIFICATION
7.1 BY SELLER. Seller and Stuart Bryer, jointly and severally, shall
indemnify, defend and hold Buyer harmless and, upon Buyer's request, defend
Buyer, and its affiliates, subsidiaries, shareholders, directors, officers,
employees, agents and assigns, from and against any claims, demands, causes of
action, proceedings, losses, liabilities, damages, deficiencies, interest,
penalties, expenses, judgments and costs (including reasonable attorneys',
consultants' and
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accountants' fees and disbursements, court costs, amounts paid in settlement and
expenses of investigation) incurred (collectively, "Losses") by Buyer, based
upon, arising out of or otherwise in respect of:
(i) the breach or breaches of any representation or warranty
aggregating more than $5,000 (provided that such $5,000 allowance would not
apply to any wilful breach), or of any covenant or agreement of Seller contained
in this Agreement or in any document or other writing delivered pursuant to this
Agreement; or
(ii) any liability of Seller arising prior to the date hereof
and not expressly assumed by Buyer hereunder and whether or not constituting a
breach of a representation or warranty of Seller, including, without limitation,
liabilities (a) relating to environmental laws and regulations, (b) personal
injury or property damage arising from any act or omission occurring on or prior
to the date hereof related in any way to any product manufactured or distributed
by Seller, or (c) related in any way to acts or omissions of Seller with respect
to its employees, including, without limitation, any claims arising from ERISA
and any other statute concerning employee benefit plans, occurring after, on or
prior to the date hereof; or
(iii) any claim by Anthony Saionz. Seller has provided to
Buyer a copy of its recent settlement agreement with Anthony Saionz, but Buyer
is assuming no responsibility thereunder.
7.2 BY BUYER. Buyer shall indemnify, defend and hold harmless Seller
and its affiliates, subsidiaries, shareholders, directors, officers, employees,
agents, and their respective heirs and assigns, from and against any Losses
based upon, arising out of or otherwise in respect of (i) the breach of any
representation, warranty, covenant or agreement of Buyer contained in this
Agreement or in any document or other papers delivered pursuant to this
Agreement, (ii) operation of the business of Seller after the date hereof, or
(iii) any claim arising after the date hereof relating to any Contracts as to
which Buyer has agreed to assume or indemnify Seller hereunder.
7.3 CLAIMS. If any party (the "Indemnitee") receives notice of
circumstances that would give rise to a claim by such party or notice of any
claim or the commencement of any action or proceeding with respect to which any
other party (or parties) is obligated to provide indemnification (the
"Indemnifying Party") pursuant to Section 7.1 or 7.2 (a "Claim"), the Indemnitee
shall promptly give the Indemnifying Party notice thereof. Within 30 days after
such notice, the Indemnifying Party will notify the Indemnitee whether it
irrevocably elects to make payment of the amount claimed or, with respect to
Claims between the parties, submit the matter to arbitration in accordance with
Section 8.11, or with respect to third party Claims, to contest such Claim by
appropriate legal proceedings. The failure of the Indemnifying Party to notify
the Indemnitee of its intention within such 30 days shall constitute an
irrevocable election by the Indemnifying Party that it will pay the amount
claimed. Any defense of a claim shall be conducted by counsel of good standing
chosen by the Indemnifying Party and satisfactory to the Indemnitee. Such
defense shall be conducted at the expense of Indemnifying Party, except that if
any proceeding involves both claims against which indemnity is granted hereunder
and other
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<PAGE>
claims for which indemnification is not granted hereunder, the expenses of
defending against such claims shall be borne by the Indemnifying Party and the
Indemnitee in respective proportions to the dollar amount of the claims for
which they may be liable based on the aggregate dollar amount of the claims.
7.4 SURVIVAL. The parties' representations, warranties, covenants
and agreements hereunder shall survive the Closing.
VIII
MISCELLANEOUS
8.1 EXPENSES. All fees, costs and expenses incurred by Seller in
connection with, relating to or arising out of the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby, including, without limitation, legal and accounting fees
and expenses, shall be borne by Seller from funds received at the Closing,
except for Seller's expenses as provided in Section 1.4. All fees, costs and
expenses incurred by Buyer in connection with, relating to or arising out of the
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby, including, without limitation, legal and
accounting fees and expenses, shall be borne by Buyer.
8.2 BINDING EFFECT; ASSIGNMENT. This Agreement shall not be
assignable by either Buyer or Seller without the prior written consent of the
other; except that prior to the Closing Buyer may assign the acquired assets and
this Agreement to a wholly-owned subsidiary, but this shall not relieve Buyer of
any ongoing obligations hereunder, e.g. under Section 7.2. Subject to the
foregoing, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the respective successors, heirs, legal representatives, and
assigns of the parties hereto. This Agreement constitutes an agreement among
the parties hereto and none of the agreements, covenants, representations or
warranties contained herein shall be for the benefit of any third party not a
party to this Agreement.
8.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement (including the
Schedules and Exhibits) and the other writings referred to herein or delivered
pursuant hereto contain the entire understanding of the parties with respect to
its subject matter. This Agreement supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof,
including their letter of intent dated July 15. This Agreement may be amended
only by a written instrument duly executed by the parties, and any condition to
a party's obligations hereunder may only be waived in writing by such party.
8.4 HEADINGS. The article and section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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8.5 NOTICES. All notices, claims, certificates, requests, demands
and other communications hereunder shall be in writing and shall be deemed given
if delivered personally or mailed (by registered or certified mail, return
receipt requested and postage prepaid), or if sent by facsimile with a copy
mailed, as follows:
if to Seller, to: Cotton Stuff, Inc.
c/o Stuart Bryer
4927 Densmore Avenue
Encino, CA 91436
with a copy to: Emily Bresler, Esq.
Law Offices Of Gary Freedman
725 Arizona Avenue, Suite 100
Santa Monica, CA 90401
Fax: (310) 576-2440
to Buyer: PACIFIC COAST APPAREL COMPANY, INC.,
1620 S. Los Angeles Street
Los Angeles, CA 90015
Fax: (213) 748-1206
with a copy to: Michael Gettelman, Esq.
Farella, Braun & Martel LLP
235 Montgomery Street, Suite 3000
San Francisco, CA 94104
Fax: (415) 954-4480
or to such other address as the party to whom notice is given may have furnished
to the other party in writing in accordance herewith. Any such communication
shall be deemed to have been given on the date of receipt.
8.6 PUBLICITY. The parties agree that the issuance of any reports,
statements or releases pertaining to this Agreement or the transactions
contemplated hereby prior to Closing, including to their employees, is subject
to mutual consent. An announcement was made relating to the letter of intent.
Announcement of this Agreement and the Closing shall be subject to mutual review
and approval.
8.7 COUNTERPARTS. This Agreement may be executed in two
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
15
<PAGE>
8.8 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of California.
8.9 WAIVERS. Any provision of this Agreement may be waived only be a
written instrument executed by the party to be charged with such waiver. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any subsequent breach.
8.10 ATTORNEYS' FEES. If there is any litigation or arbitration
between the parties relating to this Agreement or the transactions contemplated
by this Agreement, the prevailing party shall be entitled to recover all
reasonable costs and expenses (including, without limitation, reasonable
attorneys', accountants' and other professional fees and expenses).
8.11 ARBITRATION. Any dispute arising from, or relating to, this
Agreement shall be resolved at the request of either party through binding
arbitration. Within 14 business days after demand for arbitration has been made
by either party, the parties, and/or their counsel, shall meet to discuss the
issues involved, to discuss a suitable arbitrator and arbitration procedure, and
to agree on arbitration rules particularly tailored to the matter in dispute,
with a view to the dispute's prompt, efficient, and just resolution. Upon the
failure of the parties to agree upon arbitration rules and procedures within a
reasonable time (not longer than 30 days from the demand), the Commercial
Arbitration Rules of the American Arbitration Association shall be applicable.
Likewise, upon the failure of the parties to agree upon an arbitrator within a
reasonable time (not longer than 30 days from the demand), there shall be a
panel comprised of three arbitrators, one to be appointed by each party and the
third one to be selected by the two arbitrators jointly, or by the American
Arbitration Association, if the two arbitrators cannot decide on a third
arbitrator. At least 30 days before the arbitration hearing, the parties shall
allow each other reasonable written discovery including the inspection and
copying of documents and other tangible items relevant to the issues which are
to be presented at the arbitration hearing. The arbitrator(s) shall be
empowered to decide any disputes regarding the scope of discovery. Fees for the
arbitrator or arbitrators shall be divided equally between the parties, and the
parties will be individually responsible for the payment of the fees. The
prevailing party in any arbitration, proceeding or legal action arising out of,
or in connection with, this Agreement shall be entitled to recover its
reasonable attorneys' fees and costs incurred in connection with such
arbitration, proceeding or legal action. The arbitrator(s) shall determine who
the prevailing party is for this purpose.
The award rendered by the arbitrator(s) shall be final and binding upon
both parties. The arbitration shall be conducted in Los Angeles, California.
The California State Superior Court located in Los Angeles, California shall
have exclusive jurisdiction over disputes between the parties in connection with
such arbitration and the enforcement thereof.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
BUYER: PACIFIC COAST APPAREL COMPANY, INC.
By:
------------------------------------
Terrence L. McGovern, CEO
SELLER: COTTON STUFF, INC.
By:
------------------------------------
Stuart Bryer, Chief Executive Officer
---------------------------------------
Stuart Bryer
Agreed as to the foregoing non-competition agreement:
- ---------------------------------
Ramesh Manglani
17
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is entered into this 22nd day of August, 1997, by and
between PACIFIC COAST APPAREL COMPANY, INC., a California corporation (the
"Company"), and STUART BRYER ("Bryer").
RECITALS
On this date, the Company has acquired the business and substantially all
the operating assets of Cotton Stuff, Inc. which is engaged in the design,
manufacture and sale of casual sportswear under the Cotton Stuff trademark and
other trade names. The Company heretofore was engaged in the design,
manufacture and sale of men's and boys' clothing in the U.S. under the ACA JOE
trademark. As a result of today's acquisition, the Company will operate both
businesses at the Cotton Stuff premises in Los Angeles, California.
Bryer is joining the Company's management team as [General Manager]. This
Agreement sets forth the terms of that engagement.
NOW, THEREFORE, it is agreed:
1. TERM AND DUTIES. The Company hereby engages Bryer, and Bryer
agrees to serve, as the Company's [General Manager] from the date of this
Agreement until [six months], subject to termination by the Company at any time
without cause. In this capacity, Bryer shall be responsible for supervising the
day-to-day apparel operations of the Company. Bryer shall devote his full
business time and efforts to his duties hereunder, subject only to reasonable
time for managing his personal affairs. Bryer shall report to the Company's
Chief Executive Officer and its Chief Operating Officer.
2. COMPENSATION. Bryer shall receive base compensation of $156,000
per year, payable in accordance with the Company's payroll practices.
3. EXPENSES. Bryer shall be entitled to reimbursement of out of
pocket expenses incurred in the performance of his duties in accordance with
Company policy for its executives generally.
4. FRINGE BENEFITS. Bryer shall participate in the Company's health
insurance program, and shall be entitled to vacation time, on the same basis as
the Company's other personnel. The Company will pay one year's premium on the
Company's $1,000,000 split-dollar whole life insurance policy for Bryer (or a
replacement policy, if necessary), whether or not Bryer remains employed during
that entire period. So long as the Company pays the premium, the Company shall
be a 50% beneficiary on such policy and the beneficiaries can't be changed
without Bryer's consent.
<PAGE>
5. CONFIDENTIALITY AND RESTRICTIVE COVENANT.
(a) It is specifically understood and agreed that some of the
Company's business activities are secret in nature and constitute trade secrets,
including but not limited to the Company's "know-how," methods of business and
operations, and customer lists (all such information, "Proprietary
Information"). All of the Company's Proprietary Information is and shall be the
property of the Company for its own exclusive use and benefits, and Bryer agrees
that he will hold all of the Company's Proprietary Information in strictest
confidence and will not at any time, either during or after his employment by
the Company, use or permit the use of the same for his own benefit or for the
benefit of others unless authorized to do so by the Company's written consent or
by a contract or agreement to which the Company is a party or by which it is
bound. The provisions of this Section 6 shall survive the termination of this
Agreement.
(b) For a period of two years following any termination of this
Agreement, Bryer shall not recruit, attempt to hire, direct, assist others in
recruiting or hiring, or encourage any employee of the Company to terminate his
employment with the Company or to accept employment with any subsequent employer
or business with whom Bryer is affiliated or receiving compensation.
6. STOCK OPTION. On the date hereof, the Company is granting Bryer a
five-year employee stock option under the Company's stock option plan to
purchase 100,000 shares of its common stock at $1.00 per share, such option to
vest in full upon completion of the six-month employment term, or upon sooner
termination by the Company without cause, and thereafter to be exercisable by
Bryer as his estate irrespective of his continuing employment. As used herein,
"cause" is defined as gross negligence, willful misconduct, dishonesty or fraud,
or the charging or indictment of a felony or a misdemeanor involving dishonesty
or moral turpitude. Bryer acknowledges that this stock option is not a material
part of the consideration for the Sale, and the Company makes no representation
as to its value.
7. NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be in writing and shall be deemed given if
delivered personally or mailed (by registered or certified mail, return receipt
requested and postage prepaid), or if sent by facsimile with a copy mailed, as
follows:
if to Bryer, to: Stuart Bryer
4927 Densmore Avenue
Encino, CA 91436
if to the Company: PACIFIC COAST APPAREL COMPANY, INC.,
1620 S. Los Angeles Street
Los Angeles, CA 90015
Fax: (213) 748-1206
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PACIFIC COAST APPAREL COMPANY, INC.
By
--------------------------------
---------------------------------------
Stuart Bryer
3
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[LETTERHEAD]
Contact: Pacific Coast Apparel Company, Inc.
Terry McGovern
Chairman and CEO
213/746-9724
FOR IMMEDIATE RELEASE
PACIFIC COAST APPAREL COMPANY, INC. COMPLETES
ACQUISITION OF COTTON STUFF
CULVER CITY, CA--SEPTEMBER 17, 1997--Pacific Coast Apparel
Company, Inc. d.b.a. "Aca Joe" (NASDAQ:Small Cap:ACAJ) announced today that it
has completed the acquisition of the assets and business of Cotton Stuff, Inc.,
a Los Angeles designer and manufacturer of better men's and women's casual
sportswear.
The Cotton Stuff brand launched in 1992, is sold in better catalogs,
department stores and specialty stores throughout the United States. Revenues
for Cotton Stuff for the year ended 1996 were approximately $5.2 million.
Pacific Coast Apparel operations have been consolidated at the
Cotton Stuff facility located at 1620 Los Angeles Street, Los Angeles, CA
90015. The company also plans to merge sales and showrooms and consolidate
manufacturing in order to gain a better negotiating advantage relative to
price and delivery of products.
Terry McGovern, CEO of Pacific Coast Apparel Company, Inc. said, "We
are very pleased with the management's expertise, product lines and
production synergy's this acquisition provides us." Cotton Stuff will be
operated as a wholly-owned subsidiary of Pacific Coast Apparel Company, Inc.
Former Cotton Stuff CEO, Stuart Bryer will serve as General Manager of
Pacific Coast Apparel Company, Inc.
Pacific Coast Apparel Company, Inc. designs, sources and markets a
collection of men's and boy's active casual sportswear under the Aca Joe
brand, and casual apparel for men and women under the brand name Cotton
Stuff, Inc. Both brands are sold in department and specialty stores
throughout the United States and a company outlet store located in Los
Angeles, California.
###
THIS PRESS RELEASE CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO THE
RESULTS OF OPERATIONS AND BUSINESS OF THE COMPANY THAT INVOLVE RISK AND
UNCERTAINTIES. THESE RISKS AND UNCERTAINTIES ARE DETAILED FROM TIME TO TIME IN
THE COMPANY'S FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INCLUDING THE
COMPANY'S REPORT ON FORM 10-KSB FOR THE YEAR ENDING SEPTEMBER 30, 1996.
