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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended (Commission File Number): 1-4814
March 31, 1999
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ARIS INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 22-1715274
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
475 FIFTH AVENUE, NEW YORK, NEW YORK 10017
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 686-5050
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Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
Number of shares of Common Stock outstanding 46,021,043
At March 31, 1999
Number of shares of Preferred Stock outstanding 2,605,903
At March 31, 1999
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<PAGE>
ARIS INDUSTRIES, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
a. Consolidated Condensed Balance Sheets as of
March 31, 1999 and December 31, 1998 ....................... 3
b. Consolidated Condensed Statements of Operations
for the Three Months Ended March 31, 1999 and
March 31, 1998 ............................................. 4
c. Consolidated Condensed Statements of Cash Flows
for the Three Months Ended March 31, 1999 and
March 31, 1998 ............................................. 5
d. Notes to Consolidated Condensed Financial
Statements ................................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ......................... 11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk ................................................. 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings ............................................. 17
Item 2. Changes in Securities ......................................... 17
Item 3. Defaults upon Senior Securities ............................... 17
Item 4. Submission of Matters to a Vote
of Security Holders ......................................... 18
Item 5. Other Information ............................................. 18
Item 6. Exhibits and Reports on Form 8-K .............................. 18
SIGNATURES ................................................................. 19
<PAGE>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
ASSETS (Unaudited)
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 524,000 $ 1,112,000
Receivables, net 32,225,000 29,905,000
Inventories, net 21,435,000 26,371,000
Prepaid expenses and other current assets 2,482,000 1,753,000
------------ ------------
Total current assets 56,666,000 59,141,000
PROPERTY, PLANT AND EQUIPMENT, NET 1,007,000 1,094,000
GOODWILL 16,115,000 19,325,000
OTHER ASSETS 1,539,000 2,095,000
------------ ------------
TOTAL ASSETS $ 75,327,000 $ 81,655,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade acceptances payable $ 162,000 $ 5,178,000
Accounts payable - trade 3,564,000 1,512,000
Accrued expenses and other current liabilities 3,114,000 8,370,000
Current portion of long term debt 500,000 1,083,000
Line of credit payable 28,371,000 33,900,000
------------ ------------
Total current liabilities 35,711,000 50,043,000
OTHER LIABILITIES 986,000 1,082,000
LONG TERM DEBT, LESS CURRENT PORTION 6,942,000 16,438,000
------------ ------------
Total Liabilities 43,639,000 67,563,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value: 50,000,000 shares authorized;
46,021,043 issued and outstanding at March 31, 1999
and 14,956,377 issued and outstanding at December 31, 1998 461,000 151,000
Preferred stock, $.01 par value: 10,000,000 shares authorized;
2,605,903 issued and outstanding at March 31, 1999, 26,000 --
Additional paid-in capital 69,341,000 44,757,000
Accumulated deficit (38,140,000) (30,816,000)
------------ ------------
Total stockholders' equity 31,688,000 14,092,000
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 75,327,000 $ 81,655,000
============ ============
</TABLE>
See accompanying notes to consolidated condensed financial statements
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ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Three
Months Ended Months Ended
March 31, March 31,
1999 1998
------------ ------------
NET SALES $ 28,133,000 $ 17,566,000
COST OF SALES 21,473,000 12,420,000
------------ ------------
Gross Profit 6,660,000 5,146,000
Commission and Licensing Income 242,000 259,000
------------ ------------
INCOME BEFORE SELLING AND ADMINISTRATIVE
EXPENSES, NON-RECURRING CHARGES,
INTEREST EXPENSE, INCOME TAX BENEFIT
AND EXTRAORDINARY ITEM 6,902,000 5,405,000
SELLING AND ADMINISTRATIVE EXPENSES (7,413,000) (6,402,000)
NON-RECURRING CHARGES (6,151,000) --
------------ ------------
LOSS BEFORE INTEREST EXPENSE, INCOME TAX
BENEFIT AND EXTRAORDINARY ITEM (6,662,000) (997,000)
INTEREST EXPENSE, NET (988,000) (851,000)
------------ ------------
LOSS BEFORE INCOME TAX BENEFIT AND
EXTRAORDINARY ITEM (7,650,000) (1,848,000)
INCOME TAX BENEFIT 326,000 84,000
------------ ------------
LOSS BEFORE EXTRAORDINARY ITEM (7,324,000) (1,764,000)
EXTRAORDINARY ITEM:
Gain on debt forgiveness, net -- 522,000
------------ ------------
NET LOSS ($ 7,324,000) ($ 1,242,000)
============ ============
PER SHARE DATA:
Weighted average shares outstanding - Basic 26,264,887 14,905,044
Weighted average shares outstanding - Diluted 26,264,887 14,905,044
BASIC LOSS PER SHARE:
Loss before extraordinary item ($ 0.28) ($ 0.12)
Extraordinary item -- 0.04
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Net loss ($ 0.28) ($ 0.08)
------------ ------------
DILUTED LOSS PER SHARE:
Loss before extraordinary item ($ 0.28) ($ 0.12)
Extraordinary item -- 0.04
------------ ------------
Net loss ($ 0.28) ($ 0.08)
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See accompanying notes to consolidated condensed financial statements
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ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
<TABLE>
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
Three Three
Months Ended Months Ended
March 31, March 31,
1999 1998
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 7,324,000) ($1,242,000)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 266,000 404,000
Issuance of notes in lieu of interest 108,000 151,000
Forgiveness of debt -- (522,000)
Impairment of goodwill and other intangibles 3,750,000 --
Change in assets and liabilities:
(Increase)/decrease in receivables (2,320,000) 7,119,000
Decrease/(increase) in inventories 4,936,000 (2,223,000)
(Increase)/decrease in prepaid expenses and other current assets (729,000) 182,000
(Increase)/decrease in other assets (150,000) 13,000
Decrease in trade acceptances payable (5,016,000) (4,160,000)
Increase in accounts payable - trade 552,000 229,000
Decrease in accrued expenses and other current liabilities (4,714,000) (1,358,000)
Decrease in other liabilities (96,000) (50,000)
------------ -----------
Total Adjustments (3,413,000) (215,000)
------------ -----------
Net cash used in operating activities (10,737,000) (1,457,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,000) (133,000)
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Net cash used in investing activities (13,000) (133,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (4,583,000) (1,181,000)
Cash overdraft 1,500,000 --
Stock options exercised 10,000 --
Proceeds from the issuance of common and preferred stock 20,000,000 --
Stock issuance costs paid (1,236,000) --
Net proceeds/(repayments) on bank line of credit (5,529,000) 2,545,000
------------ -----------
Net cash provided by financing activities 10,162,000 1,364,000
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NET DECREASE IN CASH AND CASH EQUIVALENTS (588,000) (226,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,112,000 1,372,000
------------ -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 524,000 $ 1,146,000
------------ -----------
</TABLE>
See accompanying notes to consolidated condensed financial statements
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ARIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed balance sheet as of March 31, 1999, the consolidated
condensed statements of operations and cash flows for the three months ended
March 31, 1999 and 1998 were all prepared by the Company without audit. In
management's opinion, all adjustments (consisting of normal recurring
adjustments except for the non-recurring charges) necessary to fairly present
the financial position, results of operations and cash flows for these periods
have been made.
The Consolidated Condensed Balance Sheet as of December 31, 1998 was derived
from audited financial statements but does not include all disclosures required
by generally accepted accounting principles. The accompanying consolidated
condensed financial statements have been prepared in accordance with accounting
standards appropriate for interim financial statements and should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
operating results for the three months ended March 31, 1999 are not necessarily
indicative of the operating results for the year ending December 31, 1999.
2. THE SIMON TRANSACTION
On February 26, 1999, pursuant to a Securities Purchase Agreement (the "Purchase
Agreement") among the Company, The Simon Group L.L.C., a New York limited
liability company ("The Simon Group"), Apollo Aris Partners, L.P., a Delaware
limited partnership ("AAP"), AIF-II, L.P., a Delaware limited partnership
("AIF") and Arnold Simon, the Company entered into the following transactions
(the "Simon Purchase Transaction"): (i) The Simon Group acquired 24,107,145
shares of Common Stock of the Company and 2,093,790 shares of Series A Preferred
Stock of the Company (which shares shall be convertible into 20,937,900 shares
of Common Stock), for $20,000,000 and (ii) the Company redeemed from AIF the
Series B Junior Secured Note (which represented a total indebtedness of
$10,658,000) in exchange for $4,000,000 in cash and an aggregate of 5,892,856
shares of Common Stock and 512,113 shares of Series A Preferred Stock (which
shares shall be convertible into 5,121,130 shares of Common Stock), AIF and AAP
are collectively referred to as "Apollo". Also in connection with the Simon
Purchase Transaction, the Company issued 700,000 shares of Common Stock to the
Warnaco Group, Inc. ("Warnaco") as a condition to Warnaco's
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consent to the Transaction as not being in violation of a noncompetition
agreement between Arnold Simon and Warnaco. In addition, the Company paid
approximately $1,236,000 in cash and issued 250,000 shares of common stock to
cover the costs associated with the transaction.
3. DEBT
On February 26, 1999 the Company, as part of the Simon Purchase Transaction (See
Note 2), redeemed from AIF the Series B Junior Secured Note (which represented a
total indebtedness of $10,658,000) in exchange for $4,000,000 in cash and an
aggregate of 5,892,856 shares of Common Stock and 512,113 shares of Series A
Preferred Stock (which shares shall be convertible into 5,121,130 shares of
Common Stock). The Company's remaining long-term indebtedness consists of its
obligations to BNY Financial Corporation ("BNY") under the Series A Junior
Secured Note Agreement dated June 30, 1993, pursuant to which BNY was owed
$7,442,000, plus interest at the rate of 7% per annum, with a final maturity
date of November 3, 2002. On September 12, 1997, the Company and BNY entered
into an amendment of the BNY Note Agreement providing that (1) scheduled
interest accruing under the BNY Note Agreement for the period February 1, 1996
through January 31, 1998 would not be paid in cash and instead would be added to
principal and shall be payable on November 3, 2002, (2) scheduled interest under
the BNY Note Agreement accruing for the periods commencing February 1, 1998 will
be made in cash on quarterly payment dates commencing May 4, 1998 and (3) the
principal on the BNY Note Agreement of $300,000 otherwise due November 3, 1997
shall be rescheduled and paid quarterly in installments of $15,000 each on the
last day of each calendar quarter commencing on December 31, 1997, with any
remaining balance due on November 3, 2002. As a condition to BNY's consent to
the Simon Purchase Transaction, the remaining balance of $240,000 of such
quarterly principal was paid on February 26, 1999. In addition, the Company paid
$580,000 representing scheduled payments of principal of $300,000 and interest
of $280,000 otherwise due on February 1, 1999. The remaining principal of BNY's
Note, aggregating $6,400,000, is payable on November 3 of each year as follows:
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Year Amount
---- ----------
1999 $ 500,000
2000 600,000
2001 1,100,000
2002 4,200,000
In addition, on November 3, 2002, the Company is obligated to pay BNY
$1,042,000, representing the quarterly interest payments that were deferred
under the September 12, 1997 amendment. BNY is also entitled to receive
mandatory prepayments based upon 50% of certain "excess cash flows" of the
Company as defined in the Company's note agreements with BNY.
In connection with the Simon Purchase Transaction, the Company repaid in full on
February 26, 1999 its remaining obligation under its existing line of credit and
subsequently terminated the agreement. Immediately thereafter, the Company
entered into a new line of credit with The CIT Group. The new line of credit
allows for aggregate borrowings not to exceed $65,000,000, limited to specified
percentages of eligible factored receivables and inventory, as defined, and has
a maturity date of February 26, 2002. The new line of credit is collateralized
by liens on certain assets of the Company. For revolving credit loans, interest
will accrue at the bank's prime rate. For Eurodollar loans, interest will accrue
at a rate per annum equal to the Eurodollar rate (as defined) plus 2.5%. The
agreement evidencing the new line of credit contains various financial and other
covenants and conditions, including, but not limited to, limitations on paying
dividends, making acquisitions and incurring additional indebtedness.
4. NON-RECURRING CHARGES
In connection with the Simon Purchase Transaction, the Company was required to
obtain consents from the licensor of its Perry Ellis licenses. As a condition to
granting its consent, such licensor required that the term of several licenses
be shortened. In the opinion of management and based upon future forecasted
results of the Perry Ellis product line, the remaining value of the associated
goodwill pertaining to licenses of $3,750,000 acquired in connection with the
Davco acquisition will not be recoverable. The Company recognized this
non-recurring charge in the March 31, 1999 quarter.
On March 29, 1999 the Company made a severance payment of approximately
$2,401,000 pursuant to the Retention Agreement between the Company and its
former President.
-8-
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5. INCOME TAXES
The Company had a significant net operating loss carryforward ("NOL") at
December 31, 1998. The Company believes the NOL will be available to offset
federal taxable income for the period January 1, 1999 through February 26, 1999
(the date of the closing of the Simon Purchase Transaction), including any
taxable income due to cancellation of indebtedness in connection with the
redemption by the Company from AIF of the Series B Junior Secured Note on
February 26, 1999. However, due to the change of ownership resulting from the
Simon Purchase Transaction, the Company's use of any remaining net operating
loss carryforward from and after February 27, 1999 will be severely limited.
6. PER SHARE DATA
The Company computes earnings per share in accordance with the provisions of
SFAS No. 128, Earnings per share. SFAS No. 128 requires the dual presentation of
basic and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if stock options or other contracts to
issue common stock were exercised and resulted in the issuance of common stock
that then shared in the earnings of the Company. Diluted EPS is computed using
the treasury stock method when the effect of common stock equivalents would be
dilutive.
============================= ================== ================ ============
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ----------------------------- ------------------ ---------------- --------------
Three Months Ended
3/31/99
Basic EPS
Loss before extraordinary
item ..................... $(7,324,000) 26,264,887 $(0.28)
Effect of Dilutive
Securities
Stock Options ............ -- --
Warrants ................. -- --
----------- ----------
Diluted EPS
Loss before extraordinary
item ..................... $(7,324,000) 26,264,887 $(0.28)
============================= ================== ================ ==============
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============================= ================== ================ ============
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ----------------------------- ------------------ ---------------- --------------
Three Months Ended
3/31/98
Basic EPS
loss before extraordinary
item ..................... $(1,764,000) 14,905,044 $(0.12)
Effect of Dilutive
Securities
Stock Options ............ -- --
Warrants ................. -- --
----------- ----------
Diluted EPS
Loss before extraordinary
item ..................... $(1,764,000) 14,905,044 $(0.12)
============================= ================== ================ ============
In addition to the preferred stock (See Note 2), options and warrants to
purchase 3,336,516 and 1,604,175 shares of Common Stock were outstanding for the
three months ended March 31, 1999 and March 31, 1998, respectively, but were not
included in the computation of diluted earnings per share because the effect
would be anti-dilutive.
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ARIS INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Introduction
- ------------
The following analysis of the financial condition and results of operations of
Aris Industries, Inc. (the "Company") should be read in conjunction with the
consolidated condensed financial statements, including the notes thereto,
included on pages 3 through 10 of this report.
FORWARD LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the Securities and Exchange
Commission.
During the quarter ended March 31, 1999 the Company incurred a non-recurring
charge of $2,401,000 relating to a severance payment made pursuant to the
Retention Agreement between the Company and its former President and also
recorded a non-recurring charge of $3,750,000 in connection with the write off
of impaired goodwill (See Note 4). During the remainder of 1999 the Company will
be incurring additional restructuring charges as the result of the continuing
consolidation of its operations and facilities. In addition, the Company expects
to enter into new licensing arrangements which may result in startup expenses
during 1999 without any related revenues during the year.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date based information. The Company's Year 2000 Project (Project) is addressing
the issue of
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computer programs and embedded computer chips being unable to distinguish
between the year 1900 and the year 2000 ("Y2K").
The Project has been divided into three major areas; 1) IBM AS400, 2)
Application Software, and 3) PC Hardware and software. The general phases common
to all sections are: 1) inventorying Year 2000 items; 2) assigning priorities to
inventoried items; 3) assessing the Year 2000 compliance of items determined to
be material to the Company; 4) repairing or replacing material items that are
determined not to be Year 2000 compliant; 5) testing material items and 6)
designing and implementing contingency and business continuation plans. Internal
resources are being used to make required modifications and test Year 2000
Compliance. The Company target date for completion is September 30, 1999.
The IBM AS400 (Model 300) is the backbone of the Company's computer system. The
Company currently maintains 100% of its inventory valuation and tracking, order
processing and picking/shipping functions on the AS400. In addition, the Company
also maintains the bulk of its accounting records on the AS400. The Company has
received certification from the vendor that the AS400 is Y2K compliant.
The Applications Software section restates the Companies awareness of the
critical nature of the Y2K problem as to normal business operations of the
Company. The Company has elected to replace its existing Software with the
Complete Suite of Applications from "RLM" (Ron Lynn Management Accounting
Software). The RLM Software will not only provide a complete Y2K Solution for an
AS400 System but additionally will allow the Company to create a fully
integrated systems environment. In addition, the Company will continue to
utilize the " Premenos" Electronic Document Interchange Software System which
processes document interchanges between the Company and retailers. This system
will be upgraded using internal resources. The Company has identified 100% of
the programs/ sub system routines in these two applications that require
modification. These upgrades will be tested and finished during the third
quarter of 1999.
The final section of the Project is to determine if all of the Company's
personal computer (PC) hardware and software systems are Y2K compliant. Each PC
will be certified to be Y2K compliant, any PC that is found to be noncompliant
will be replaced. The Company intends to use internal resources to do the
certification. All software needed to assure Y2K compliance will be completed
after all the Company's PC's have been certified Y2K compliant. The Company does
not anticipate many Y2K issues in this area since approximately 90% of the
software in use is off the shelf retail software (spreadsheet, word processing
packages, etc.) that is already Y2K compliant.
The total cost to the Company of these Y2K Compliance activities is
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estimated to be approximately $100,000 which includes the cost of a programmer
as well as costs for software upgrades and third party contractors/suppliers.
The Company intends to fund these activities through operating cash flows. These
costs and the date on which the Company plans to complete the Y2K modification
and testing processes are based on management's best estimates, which were
derived utilizing continued availability of certain third party modification
plans and other factors. However, there can be no guarantee that these
objectives will be achieved; actual results could differ from those plans.
The failure to correct a material Y2K problem could result in an interruption
in, or a failure of, certain normal business activities or operations. Such
failures could materially and adversely affect the Company's results of
operations, liquidity and financial condition. Due to the general uncertainty
inherent in the Y2K problem, resulting in part from the uncertainty of the Year
2000 readiness of third-party suppliers and customers, the Company is unable to
determine at this time whether the consequences of Y2K failures will have a
material impact on the Company's results of operations, liquidity or financial
condition. The Y2K project is expected to significantly reduce the Company's
level of uncertainty about the Year 2000. The Company believes that with the
completion of the Project as scheduled the possibility of significant
interruptions of normal operations should be reduced.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had working capital of approximately
$20,955,000 as compared to $9,098,000 at December 31, 1998. The increase in
working capital was due to the capital infusion provided by the Simon Purchase
Transaction offset by the Company's net loss, which includes non-recurring
charges, incurred in the March 31, 1999 quarter. During this period, the Company
financed its capital expenditures principally through internally generated funds
and credit facilities.
The Company's interest payments to its secured lenders, BNY Financial Corp.
("BNY") and AIF II, L.P. ("AIF-II") scheduled for the period January 1, 1998
through January 31, 1999 were paid in kind pursuant to amendments to the
Company's loan agreements with such lenders. The Company's interest payments to
BNY and AIF-II scheduled for May 4, 1998 and August 3, 1998 were paid in cash on
their due dates. On October 21, 1998, the Company entered into amendments of its
agreements with BNY and AIF-II providing that payment of scheduled interest
payments otherwise due to such lenders on November 3, 1998 and the scheduled
principal payment of $300,000 otherwise due to BNY on November 3, 1998 would be
deferred until February 1, 1999. Pursuant to agreements with BNY the
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payments due February 1, 1999 were paid on February 26, 1999 upon the closing of
the Simon Purchase Transaction.
On February 26, 1999 simultaneous, with the closing of the Simon Purchase
Transaction, the Company, ECI, ECI Sportswear, and certain ECI subsidiaries
entered into a Financing Agreement with CIT Commercial Services Group, Inc.
("CIT") and certain other financial institution lenders, whereby such lenders
agreed to provide a revolving credit facility of up to $65,000,000 for working
capital, loans and letters of credit financing, with a final maturity date of
February 26, 2002. The obligations under the Financing Agreements are
collateralized by liens on certain assets of the Company. The revolving credit
facility provided by such Financing Agreement replaced ECI and ECI Sportswear's
prior working capital facilities. For revolving credit loans, interest will
accrue at the bank's prime rate. For Eurodollar loans, interest will accrue at a
rate per annum equal to the Eurodollar rate plus 2.5%. The agreement evidencing
the new line of credit contains various financial and other covenants and
conditions, including, but not limited to, limitations on paying dividends,
making acquisitions and incurring additional indebtedness. As of March 31, 1999
the Company had availability under the facility of approximately $13,331,000 and
was incurring interest at prime or 7.75%.
DEBT SERVICE AND CAPITAL NEEDS
On February 26, 1999 the Company, as part of the Simon Purchase Transaction (See
Note 2), redeemed from AIF the Series B Junior Secured Note (which represented a
total indebtedness of $10,658,000) in exchange for $4,000,000 in cash and an
aggregate of 5,892,856 shares of Common Stock and 512,113 shares of Series A
Preferred Stock (which shares shall be convertible into 5,121,130 shares of
Common Stock). As of March 31, 1999 the Company's remaining long-term
indebtedness consists of its obligations to BNY Financial Corporation
("BNY") under the Series A Junior Secured Note Agreement dated June 30, 1993,
pursuant to which BNY was owed $7,442,000, plus interest at the rate of 7% per
annum, with a final maturity date of November 3, 2002. On September 12, 1997,
the Company and BNY entered into an amendment of the BNY Note Agreement
providing that (1) scheduled interest accruing under the BNY Note Agreement for
the period February 1, 1996 through January 31, 1998 would not be paid in cash
and instead would be added to principal and shall be payable on November 3,
2002, (2) scheduled interest under the BNY Note Agreement accruing for the
periods commencing February 1, 1998 will be made in cash on quarterly payment
dates commencing May 4, 1998 and (3) the principal on the BNY Note Agreement of
$300,000 otherwise due November 3, 1997 shall be rescheduled and paid quarterly
in installments of $15,000 each on the last day of each calendar quarter
commencing on December 31, 1997, with any remaining balance due on November 3,
2002. As a
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condition to BNY's consent to the Simon Purchase Transaction, the remaining
balance of $240,000 of such quarterly principal was paid on February 26, 1999.
In addition, the Company paid $580,000 representing scheduled payments of
principal of $300,000 and interest of $280,000 otherwise due on February 1,
1999. Interest on the BNY Note is payable quarterly. The interest payment due
May 3, 1999 was made in cash by the Company. The remaining principal of BNY's
Note, aggregating $6.4 million, is payable on November 3 of each year as
follows:
Year Amount
---- ----------
1999 $ 500,000
2000 600,000
2001 1,100,000
2002 4,200,000
In addition, on November 3, 2002, the Company is obligated to pay BNY
$1,042,000, representing the quarterly interest payments that were deferred
under the September 12, 1997 amendment. BNY is also entitled to receive
mandatory prepayments based upon 50% of certain "excess cash flows" of the
Company as defined in the Company's note agreements with BNY.
As a result of the Simon Purchase Transaction and the CIT Financing Agreement,
the Company believes it has adequate liquidity and capital resources to meet its
requirements for at least the next twelve months.
RESULTS OF OPERATIONS
NET INCOME
The Company reported a net loss of $7,324,000 for the three months ended March
31, 1999 compared to a net loss of $1,242,000, inclusive of an extraordinary
gain in the amount of $522,000 recorded on the early extinguishment of the New
Heller Note, which was paid off on January 29, 1998, for the three month period
ended March 31, 1998.
The increase in the loss for the three month period was primarily due to
non-recurring charges which consist of a severance payment of approximately
$2,401,000 made pursuant to the Retention Agreement between the Company and its
former President and the write off of the remaining value of the goodwill and
licenses of $3,750,000 acquired in connection with the Davco acquisition (See
Note 4).
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NET SALES
The Company's net sales increased from $17,566,000 in 1998 to $28,133,000 in
1999. This increase of $10,567,000 was a result of increased sales of products
under the "FUBU" license which amounted to $12,640,000 during the current
quarter as compared to $237,000 in the first quarter last year which reflected
the initial shipment of the "FUBU" products to the marketplace. The increase in
sales was partially offset by a decrease in sales of the Members Only product
line in the amount of approximately $1,219,000 along with the phase out of the
Jeffrey Banks product line resulting in a decrease of sales in the amount of
$694,000.
GROSS PROFIT
Gross Profit for the three months ended March 31, 1999 was $6,660,000 or 23.7%
compared to $5,146,000 or 29.3% for the three months ended March 31, 1998. Gross
profit was negatively impacted by the weak performance of the Company's "Perry
Ellis America" brand which suffered from a lack of consumer demand which caused
the Company to liquidate prior season inventory at reduced prices.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and Administrative expenses were $7,413,000 or 26.3% of net sales for
the three months ended March 31, 1999 as compared to $6,402,000 or 36.4% of net
sales for the three months ended March 31, 1998. The increase in Selling and
Administrative expenses was attributable to the inclusion of increased sales of
the "FUBU" licensed product line along with related increases in fixed and
variable expenses. Additionally, one time factor and bank charges were incurred
during the first quarter of 1999 in connection with extensions of the Company's
working capital credit lines until the closing of the Simon Purchase Transaction
on February 26, 1999.
INTEREST EXPENSE
Interest expense for the three months ended March 31, 1999 increased by $137,000
or 16.1% compared to the three month period ended March 31, 1998. This increase
was due to increased borrowings required to support the "FUBU" licensed products
line offset by a reduction in interest on the Apollo Note which was redeemed as
part of the Simon Purchase Transaction.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
NONE
ITEM 2 CHANGES IN SECURITIES
On February 26, 1999, (i) The Simon Group acquired 24,107,145 shares of Common
Stock and 2,093,790 shares of Series A Preferred Stock (convertible into
20,937,790 shares of Common Stock) for $20,000,000 and (ii) the Company redeemed
from AIF the Series B Junior Secured Note of the Company including all accrued
interest thereon (representing a total indebtedness of $10,700,000) in exchange
for $4,000,000 in cash plus 5,892,856 shares of Common Stock and 512,113 shares
of Series A Preferred Stock (convertible into 5,121,130 shares of Common Stock).
All such shares were sold to The Simon Group and AIF in a private, negotiated
transaction, exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"), as a transaction not involving
any public offering.
In March 1999, the Company issued 700,000 shares of Common Stock to Warnaco,
Inc. in consideration for Warnaco's consent to the Simon Purchase Transaction.
In March 1999, the company issued 250,000 shares of Common Stock to Shapiro
Forman & Allen LLP, in partial payment for services rendered by such law firm to
The Simon Group in connection with the Simon Purchase Transaction, which
services, under the terms of the Purchase Agreement, were to be paid for by the
Company. These share issuances are exempt from registration pursuant to Section
4(2) of the Securities Act as transactions not involving any public offering.
The shares of Series A Preferred Stock of the Company are not publicly traded.
Each share of Series A Preferred Stock is automatically convertible into ten
shares of Common Stock upon the filing of a Certificate of Amendment to the
Certificate of Incorporation of the Company increasing the authorized shares of
Common Stock of the Company to an amount sufficient to permit conversion of all
shares of outstanding Series A Preferred Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. Exhibits
10.116 -- Employment Agreement effective as of March 1, 1999 with
Arnold Simon
10.117 -- Employment Agreement effective as of March 1, 1999 with
David Fidlon
10.118 -- Agreement of Lease made as of April 22, 1999 by and between
Erika Realty Trust, as Landlord, and Registrant, as Tenant, for
premises located at 89 West Rodney French Blvd., New Bedford, Ma.
(b) Reports on Form 8-K
-------------------
The Company filed a Form 8K on March 1, 1999 reporting the Simon Purchase
Transaction and a Form 8K on April 19, 1999 reporting a change in
certifying accountants.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARIS INDUSTRIES, INC.
(Registrant)
Date: May 12, 1999 By /s/ PAUL SPECTOR
------------------------
Paul Spector,
Senior Vice President
Chief Financial Officer
By /s/ VINCENT F. CAPUTO
------------------------
Vincent F. Caputo,
Vice President
Assistant Secretary and
Assistant Treasurer
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(c) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Filed as Indicated
Exhibit to Document
Referenced in
Exhibit No. Description Footnote No.
----------- ----------- -------------------
<S> <C> <C> <C>
2. Second Amended Joint Plan of Reorganization dated March (3)
26, 1993, as amended May 11 and June 9, 1993
(Note: Annexes omitted)
3.3 Restated Certificate of Incorporation filed on June 30, 1993 (3)
3.4 Amended and Restated By-Laws effective June 30, 1993 (3)
4.1 Specimen Certificate Evidencing Common Stock. (1)
10.67 Series A Junior Secured Note Agreement dated as of June 30, (3)
1993 between Registrant and BNY Financial Corporation.
10.68 Series A Junior Secured Note dated as of June 30, 1993 (3)
issued by Registrant to BNY Financial Corporation.
10.72 Secondary Pledge Agreement dated as of June 30, 1993 (3)
between Registrant, BNY Financial Corporation and AIF II,
L.P.
10.75 Shareholders Agreement dated as of June 30, 1993 among (3)
Registrant and the Subject Shareholders Referred to Therein.
10.76 Equity Registration Rights Agreement dated as of June 30, (3)
1993 among Registrant and the Holders of Registrable Shares
Referred to Therein.
10.79 Severance Agreement dated April 3, 1991 between Registrant (3)
and Paul Spector.
10.80 1993 Stock Incentive Plan of Registrant, as amended by (3)
Amendment No. 1 thereto dated June 24, 1993.
10.81 Form of Indemnification Agreement dated as of June 30, (3)
1993 between Registrant and each member of Registrant's
Board of Directors.
10.82 Letter Agreement dated February 8, 1993 among James G. (3)
Goren, Alexander M. Goren, Charles S. Ramat, and David
Schreiber and Ora Ramat as Trustees for the Benefit of Hana
Leah Ramat and Abraham Ramat.
10.84 Stipulated Entry Liquidating Claims dated March 10, 1993 (3)
among The Marcade Group Inc., Robert K. Lifton, Howard
L. Weingrow, and JAG Consulting Co. Ltd.
10.86 Letter Agreement dated October 29, 1992 among The (3)
Marcade Group Inc., Above The Belt, Inc., Europe Craft
Imports, Inc., Perry Manufacturing Company, Apollo
Investment Fund, L.P., AIF II, L.P., and Altus Finance.
10.93 Consent dated May 1, 1996 to Series A Junior Secured Note (9)
Agreement dated as of June 30, 1993 between Registrant and
BNY Financial Corporation.
10.95 Stock Purchase Agreement dated as of September 19, 1996 (10)
between Aris Industries, Inc., as Seller, Page Holding
Company, as Buyer, and Perry Manufacturing Company,
with respect to the stock of Perry Manufacturing Company.
10.99 Warrant dated September 30, 1996 issued by Aris Industries, (10)
Inc. to Heller Financial, Inc.
</TABLE>
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<TABLE>
<CAPTION>
Filed as Indicated
Exhibit to Document
Referenced in
Exhibit No. Description Footnote No.
----------- ----------- -------------------
<S> <C> <C> <C>
10.100 Letter dated December 18, 1996 from the Registrant to (11)
Charles S. Ramat.
10.101 Amendment dated May 5, 1997 to Series A Junior Secured (11)
Note Agreement dated as of June 30, 1993 between
Registrant and BNY Financial Corporation.
10.103 Amendment dated June 18, 1997 to Series A Junior Secured (13)
Note Agreement dated as of June 30, 1993 between
Registrant and BNY Financial Corporation.
10.105 Asset Purchase Agreement dated as of July 15, 1997 among (14)
Davco Industries, Inc., as Seller, Steven Arnold and
Christopher Healy as Shareholders of Seller, and Aris
Management Corp. (n/k/a ECI Sportswear, Inc.), as
Purchaser.
10.106 Shareholders Agreement dated as of July 15, 1997 among (14)
Davco Industries, Inc., Steven Arnold, Christopher Healy,
Aris Management Corp. (n/k/a ECI Sportswear, Inc.), the
Registrant, Apollo Aris Partners, L.P. and Charles S. Ramat.
10.107 Amendment dated July 18, 1997 to Series A Junior Secured (14)
Note Agreement dated as of June 30, 1993 between
Registrant and BNY Financial Corporation.
10.109 Amendment executed September 12, 1997 to Series A and (15)
Series B Junior Secured Note Agreements dated as of June
30, 1993 between Registrant, BNY Financial Corporation
and AIF, L.P.
10.111 Securities Purchase Agreement, dated as of February 26, (17)
1999, between Aris Industries, Inc., Apollo Aris Partners,
L.P., AIF, L.P., The Simon Group, L.L.C. and Arnold Simon.
10.112 Shareholders Agreement, dated as of February 26, 1999, (17)
between Aris Industries, Inc., Apollo Aris Partners, L.P.,
AIF, L.P., The Simon Group, L.L.C. and Charles S. Ramat.
10.113 Equity Registration Rights Agreement, dated as of February (17)
26, 1999, between Aris Industries, Inc., Apollo Aris Partners,
L.P., AIF, L.P., The Simon Group, L.L.C. and Charles S.
Ramat.
10.114 Retention Agreement dated as of February 18, 1999 by and (17)
between Aris Industries, Inc. and Charles S. Ramat.
10.115 Financing Agreement dated February 26, 1999 by and among (18)
the Company and its Subsidiaries and CIT Commercial
Group, Inc. and the other Financial Industries named therein.
10.116 Employment Agreement effective as of March 1, 1999 with Arnold (19)
Simon
10.117 Employment Agreement effective as of March 1, 1999 with David (19)
Fidlon
10.118 Agreement of Lease made as of April 22, 1999 by and between (19)
Erika Realty Trust, as Landlord, and Registrant, as Tenant,
for premises located at 89 West Rodney French Blvd., New
Bedford, Ma.
</TABLE>
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- ----------
(1) Filed as the indicated Exhibit to the Annual Report of the Company on Form
10-K for the fiscal year ended February 2, 1991 and incorporated herein by
reference.
(2) Omitted.
(3) Filed as the indicated Exhibit to the Report on Form 8-K dated June 30,
1993 and incorporated herein by reference.
(4) Omitted.
(5) Filed as the indicated Exhibit to the Report on Form 8-K dated June 12,
1995 and incorporated herein by reference.
(6) Filed as the indicated Exhibit to the Report on Form 8-K dated October 27,
1995 and incorporated herein by reference.
(7) Filed as the indicated Exhibit to the Report on Form 8-K dated February 2,
1996 and incorporated herein by reference.
(8) Omitted.
(9) Filed as the indicated Exhibit to the Report on Form 8-K dated May 1, 1996
and incorporated herein by reference.
(10) Filed as the indicated Exhibit to the Report on Form 8-K dated September
30, 1996 and incorporated herein by reference.
(11) Filed as the indicated Exhibit to the Annual Report of the Company on Form
10-K for the fiscal year ended December 31, 1996 and incorporated herein
by reference.
(12) Omitted.
(13) Filed as the indicated Exhibit to the Report on Form 8-K dated June 18,
1997 and incorporated herein by reference.
(14) Filed as the indicated Exhibit to the Report on Form 8-K dated July 15,
1997 and incorporated herein by reference.
(15) Filed as the indicated Exhibit to the Report on Form 8-K dated September
12, 1997 and incorporated herein by reference.
(16) Omitted.
(17) Filed as the indicated Exhibit to the Report on Form 8-K dated February
26, 1999 and incorporated herein by reference.
(18) Filed as the indicated Exhibit to the Annual Report of the Company on Form
10-K for the year ended December 31, 1998 and incorporated herein by
reference.
(19) Filed herewith
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EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") effective as of March 1, 1999 is made by
and among Aris Industries, Inc., a New York corporation (the "Company"), Europe
Craft Imports, Inc. and ECI Sportswear, Inc. (the "Subsidiaries"), and Arnold H.
Simon (the "Executive"). The Company and the Subsidiaries are collectively
referred to in this Agreement as the "Company" unless otherwise required by the
specific context of a particular provision hereof.
R E C I T A L S:
A. The Executive is currently employed as the Chairman and Chief Executive
Officer of the Company and the Subsidiaries.
B. The Board of Directors of the Company desires to continue the services
of the Executive as Chairman and Chief Executive Officer of the Company and the
Subsidiaries, which are wholly owned by the Company, and desires to use its best
efforts to continue the Executive as a director of the Company and to enter into
an agreement embodying the terms of those relationships.
C. The Executive is willing to serve as a director, Chairman and Chief
Executive Officer of the Company and the Subsidiaries (so long as they are
subsidiaries of the Company) and is willing to accept continued employment by
the Company on the terms set forth herein.
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NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Company, the
Subsidiaries and the Executive hereby agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means any Person controlling, controlled by or under
common control with the Company.
1.2 "Board" means the Board of Directors of the Company and/or the
Subsidiaries.
1.3 "Cause" means (a) the Executive is convicted of or pleads guilty to
a felony involving dishonesty as against the Company or the Subsidiaries, (b)
the Executive is convicted of a felony not involving the Company, and after
exhausting all rights of appeal, is obligated to serve ten (10) or more days in
prison or pay a fine of more than Five Hundred Thousand ($500,000) Dollars, or
(c) the Executive, in carrying out the Executive's duties and responsibilities
under this Agreement, is guilty of gross neglect or gross misconduct resulting,
in either case, in material economic harm to the Company and/or the
Subsidiaries, unless such act, or failure to act, was reasonably believed by the
Executive in good faith, using reasonable judgment under the circumstances, to
be in the best interests of the Company and/or the Subsidiaries.
1.4 "Date of Termination" means (a) in the case of a termination for
which a Notice of Termination (as hereinafter defined in Section 6.6) is
required, the date of actual receipt of such Notice of Termination or, if later,
the date specified therein, as the case may be, and (b) in all other cases, the
actual date on which the Executive's employment terminates during
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EXECUTION COPY
the Term of Employment (as hereinafter defined in Section 3) (it being
understood that nothing contained in this definition of "Date of Termination"
shall affect any of the cure rights provided to the Executive or the Company in
this Agreement).
1.5 "Disability" means the Executive's inability to render, for a period
of nine consecutive months, services hereunder.
1.6 "Adjusted EBITDA" means for any fiscal year the sum of (a) the net
income of the Company and its subsidiaries on a consolidated basis for such
fiscal year as determined in accordance with GAAP except as specifically noted
below in this definition, (b) taxes in respect of income, (c) interest for money
borrowed, (d) depreciation, (e) amortization and (f) factoring fees, charges and
expenses, PROVIDED THAT the following shall be excluded from Adjusted EBITDA:
(A) extraordinary, unusual or non-recurring expenses including, without
limitation, restructuring charges, severance payments, duplicative lease
payments and write-downs of any assets on the Company's books as of December 31,
1998; (B) gains and losses from financing transactions; and (C) losses from the
sale or other disposition of material assets (other than inventory) outside of
the ordinary course of business; and (D) to the extent that, in connection with
or otherwise related to the performance of a material arrangement with a
licensor in the year such license arrangement is entered into the revenues, if
any, associated with such license are exceeded by the costs and expenses
(including general and administrative expenses related thereto) associated with
such license (thereby resulting in a net reduction in Adjusted EBITDA). It is
understood and agreed that there shall be an appropriate calculation so that the
amount of any bonus payable in respect of any fiscal year pursuant to Section
5.2 shall not reduce the Adjusted EBITDA for the purpose of calculating the
bonus under Section 5.2.
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EXECUTION COPY
1.7 "Good Reason" means and shall be deemed to exist if (a) without the
Executive's express prior written consent, the Executive is assigned any duties
or responsibilities inconsistent in any material respect with the scope of the
duties or responsibilities associated with the Executive's title or positions,
as set forth and described in Article 4 of this Agreement; (b) without the
Executive's express prior written consent, the Executive suffers, in any
material respect, a reduction in the duties, responsibilities or effective
authority associated with Executive's titles and positions as set forth and
described in Article 4 of this Agreement; (c) without the Executive's express
prior written consent, the Executive is not appointed to and/or elected to, or
is removed from, the offices or positions provided for in Section 4.1 of this
Agreement (whether or not the Company uses its best efforts to cause the
Executive to be elected as a director of the Company); (d) the Company fails to
substantially perform or otherwise substantially breaches any material term or
provision of this Agreement; (e) without the Executive's express prior written
consent, and except as provided in Section 5.2 hereof, the Executive's
compensation under this Agreement is decreased, or the Executive's benefits
under employee benefit or health or welfare plans or programs of the Company are
in the aggregate materially decreased; (f) the Company's principal office or the
Executive's own office location is relocated to a location not within the
borough of Manhattan; (g) the Company fails to obtain the full assumption of
this Agreement by a successor entity in accordance with Section 12.2 of this
Agreement; (h) the Company fails to use reasonable efforts to maintain, or cause
to be maintained, directors and officers liability insurance coverage for the
Executive as provided in Section 13.10 of this Agreement; (i) the Company
purports to terminate the Executive's employment for Cause and the Company is
not entitled to terminate this Agreement for Cause;
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EXECUTION COPY
(j) a majority of the Members of the Board shall consist of persons whose
election or appointment was not approved in writing by the Executive; (k) there
shall occur (i) any liquidation of the Company or the sale of substantially all
of the assets of the Company, or (ii) any merger, consolidation or other
business combination of the Company (a "Transaction") or any combination of any
such Transactions, other than a Transaction immediately after which the
stockholders of the Company who were stockholders immediately prior to the
Transaction continue to own beneficially, directly or indirectly, more than
fifty percent (50%) of the then outstanding voting securities of the Company and
the Subsidiaries in which the Company's common stockholders receive
consideration of at least $2 per share; or (l) any Person or group (as such term
is defined in Rule 13d-5 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of related Persons, which is not an Affiliate of the Company as
of the Commencement Date shall beneficially own, directly or indirectly, more
than 50% of the then outstanding voting stock of the Company or the
Subsidiaries.
1.8 "Person(s)" means any individual or entity of any kind or nature,
including any other person as defined in Section 3(a)(9) of the Exchange Act,
and as used in Sections 13(d) and 14(d) thereof.
2. EMPLOYMENT. Subject to the terms and provisions set forth in this
Agreement, the Company and each Subsidiary hereby employs the Executive during
the Term of Employment as the Chairman and Chief Executive Officer of the
Company, and agrees to use best efforts to cause the Executive to be a director
of the Company at all times during the Term of Employment, and the Executive
hereby accepts such employment.
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EXECUTION COPY
3. TERM OF EMPLOYMENT. The term of employment under this Agreement shall be
deemed to commence as of March 1, 1999 (the "Commencement Date") and, unless
terminated earlier pursuant to the terms hereof, shall terminate on February 28,
2002 (the "Term of Employment").
4. POSITIONS, RESPONSIBILITIES AND DUTIES.
4.1 POSITIONS. During the Term of Employment, the Executive shall be
employed as, and the Company shall at all times cause the Executive to be, the
Chairman and Chief Executive Officer of (i) the Company; and (ii) all existing
and future direct or indirect subsidiaries of the Company (for such period as
they continue to be subsidiaries). In addition to such positions, it is
acknowledged that the Executive shall serve as a director of each of the Company
and the Subsidiaries during the Term of Employment and be a member of the Board
of Director Committees of each of the Company and the Subsidiaries identified in
Schedule 4.1 hereto provided that insofar as the election of the Executive as a
director of Aris Industries, Inc., the Company's obligations shall be to use its
best efforts to cause the Executive to be elected as a director provided further
that the parties hereto confirm and agree that the Executive's not being elected
as a director of the Company constitutes Good Reason pursuant to Section 1.7(c)
hereof. In such positions, the Executive shall have the duties, responsibilities
and authority normally associated with the office and position of director,
Chairman and Chief Executive Officer of a company including, but not limited to,
those set forth in Schedule 4.1. In no event shall any other employee have
duties, responsibilities and/or effective authority with respect to the Company
or any Subsidiary that are equal to or greater than those of the Executive (it
being acknowledged that directors, in their capacity as directors, shall have
equal duties,
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EXECUTION COPY
responsibilities and authority). The Executive shall report solely and directly
to the Board of Directors of the Company, and all other officers and other
employees of the Company and any other direct or indirect subsidiaries of the
Company shall report directly to the Executive or the Executive's designees.
4.2 DUTIES. During the Term of Employment, the Executive shall devote
such business time and attention to the business of the Company as the Executive
deems necessary to perform faithfully and efficiently the duties and
responsibilities contemplated by this Agreement; PROVIDED, HOWEVER, that the
Executive shall be allowed, to the extent such activities do not substantially
interfere with the performance of the Executive's duties and responsibilities
hereunder, to (a) manage the Executive's personal financial and legal affairs,
and (b) engage in other businesses so long as they do not compete with the
Company.
5. COMPENSATION AND OTHER BENEFITS.
5.1 BASE SALARY. During the Term of Employment, the Executive shall
receive a base salary of no less than $750,000 per annum ("Base Salary") payable
in equal monthly installments. Such Base Salary shall be reviewed annually for
increase (but not decrease) in the sole discretion of the Board. In conducting
any such annual review, the Board shall take into account any change in the
Executive's responsibilities, increases in the compensation of other executives
of the Company or the Subsidiaries or of competitors of either, the performance
of the Executive and other pertinent factors. The increased Base Salary shall
then constitute the "Base Salary" for purposes of this Agreement.
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EXECUTION COPY
5.2 ANNUAL BONUS. For each Calendar Year during the Term (and in
addition to the Base Salary), the Executive shall be entitled to receive an
annual cash bonus payment (the "Bonus") determined as follows:
IF ADJUSTED EBITDA IS: AMOUNT OF BONUS
---------------------- ---------------
Less than $5 million -0-
Between $5 million - 2% of Adjusted EBITDA
$10 million
Over $10 million 3% of Adjusted EBITDA
The Annual Bonus shall be paid to the Executive in cash as soon as
practicable after the end of the fiscal year to which it relates, but in any
event no later than one hundred five (105) calendar days after the end of such
fiscal year (and, to the extent there is any disagreement as to the amount
thereof any amount acknowledged as payable by the Company shall be paid by such
date).
5.3 INTENTIONALLY OMITTED.
5.4 INCENTIVE, RETIREMENT, and Savings Plans. During the Term of
Employment, the Executive shall be entitled to participate in all incentive,
pension, retirement, savings and other employee benefit plans and programs
maintained by the Company and/or the Subsidiaries for the benefit of senior
executives.
5.5 WELFARE BENEFIT PLANS. During the Term of Employment, the Executive,
the Executive's spouse and their eligible dependents, if any, shall be entitled
to participate in and be covered under all the welfare benefit plans or programs
maintained by the Company and/or the Subsidiaries, including, without
limitation, all term life insurance, long term disability
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EXECUTION COPY
insurance, medical, hospitalization, dental, disability, accidental death and
dismemberment and travel accident insurance plans and programs.
5.6 INTENTIONALLY OMITTED.
5.7 EXPENSE REIMBURSEMENT. In addition to the expense reimbursement set
forth on Schedule 5.8, during the Term of Employment, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in performing the Executive's duties and responsibilities
hereunder in accordance with the policies and procedures of the Company. At the
end of each fiscal year, the Executive and the Company shall in good faith
reconcile any differences and disputes with respect to timing, right to
reimbursement, reasonableness or documentation of any items of expense
reimbursement, it being agreed that no dispute respecting any of the foregoing
shall constitute a basis for the Executive or the Company (including the
Subsidiaries) terminating or attempting to terminate this Agreement.
5.8 VACATION AND FRINGE BENEFITS. During the Term of Employment, the
Executive shall be entitled to such paid vacation, fringe benefits and
perquisites as set forth in Schedule 5.8 or, if more favorable to the Executive,
as provided by the Company at any time hereafter.
5.9 OFFICE AND SUPPORT STAFF. Unless the Executive otherwise agrees in
writing, during the Term of Employment the Executive shall be entitled to
executive secretarial and other administrative assistance of a type and to the
extent, and to an office or offices (with furnishings and other appointments) of
a type and size, at least equal to that provided to the former Chairman of the
Board of the Company.
6. TERMINATION.
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6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Company or the Executive
may terminate the Executive's employment hereunder due to his death or
Disability. In the event the Executive's employment is terminated due to death
or Disability, the Executive's estate or Executive's legal representative, as
the case may be, shall be entitled to:
(a) (i) in the case of death, Base Salary continuation at the rate in
effect (as provided for by Section 5.1 of this Agreement) on the Date of
Termination for a period of three (3) months after the date of death, plus
(y) a death benefit in an amount equal to $10,000,000 less any amounts paid
pursuant to the group and/or individual life insurance policies referred to
in Section 5.5 of this Agreement, and (ii) in the case of Disability, an
amount equal to the maximum amount of disability income insurance the
Company can reasonably obtain on behalf of the Executive after giving
appropriate consideration to the cost thereof, but not less than $30,000 per
month (less any payments received under any long-term disability plan or
policy maintained by the Company) for so long as the Executive is subject to
a Disability or until age 65, whichever occurs first;
(b) any Base Salary accrued or any Annual Bonus earned but not yet paid;
(c) a pro rata Annual Bonus for the calendar year in which death or
Disability occurs (determined and payable in accordance with Section 5.2 of
this Agreement);
(d) any deferred compensation not yet paid to the Executive (including,
without limitation, interest or other credits on such deferred amounts) and
any accrued vacation pay;
(e) reimbursement pursuant to Section 5.7 hereof or any other provision
of this Agreement for expenses incurred but not yet paid prior to such death
or Disability;
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(f) in the case of death, any other compensation and benefits as may be
provided in accordance with the terms and provision of any applicable plans
and programs of the Company and/or the Subsidiaries; and
(g) in the case of Disability, (i) continuation of the Executive's
health and welfare benefits (as described in section 5.5 of this Agreement)
at the level in effect (as provided for by Section 5.5) on the Date of
Termination through the end of the three-year period following the
termination of the Executive's employment due to Disability (or the Company
shall provide the economic equivalent thereof), and (ii) any other
compensation and benefits as may be provided in accordance with the terms
and provisions of any applicable plans and programs of the Company.
With respect to the deferred compensation arrangements referred to in
Sections 6.1(d), 6.2(c) and 6.3(d), to the extent that such deferred
compensation arrangements provide by their terms for any deferral of payments in
the event of death or Disability, termination with Cause or termination without
Cause or for Good Reason, such payments shall be deferred in accordance with
such arrangements to the extent required by the type of termination of this
Agreement. With respect to the other benefits referred to in Sections 6.1(g),
6.2(e) and 6.3(g), to the extent that such other benefit arrangements provide by
their terms for any deferral of payments in the event of death or Disability,
termination with Cause or termination without Cause or for Good Reason, such
payments shall be deferred in accordance with such arrangements to the extent
required by the type of termination of this Agreement.
6.2 TERMINATION IN THE COMPANY FOR CAUSE. The Company may terminate the
Executive's employment hereunder for Cause as provided in this Section 6.2;
provided that no
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act or omission referred to in Section 1.3(b) hereof occurring prior to the
Commencement Date shall constitute Cause. If the Company terminates the
Executive's employment hereunder for Cause, the Executive shall be entitled to:
(a) the Executive's Base Salary at the rate in effect (as provided for
by Section 5.1 of this Agreement) at the time of such termination through
the Date of Termination;
(b) any Annual Bonus for the prior fiscal year not yet paid together
with a pro-rata portion of the Annual Bonus for the calendar year in which
termination occurs through the Date of Termination;
(c) any deferred compensation (including, without limitation, interest
or other credit on such deferred amounts) and any accrued vacation pay;
(d) reimbursement pursuant to Section 5.7 hereof or any other provision
of this Agreement for expenses incurred, but not yet paid prior to such
termination of employment; and
(e) any other compensation and benefits as may be provided in accordance
with the terms and provisions of any applicable plans and programs of the
Company and/or the Subsidiaries.
In any case described in this Section 6.2, the Executive shall be given
written notice, authorized (with Executive abstaining) by a vote of at least two
thirds (2/3) of the members of the entire Board (excluding Executive), that the
Company intends to terminate the Executive's employment for Cause. Such written
notice, given in accordance with Section 6.6 of this Agreement, shall specify
the particular act or acts, or failure to act, which is or are the basis for the
decision to so terminate the Executive's employment for Cause. The Executive
shall be
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given the opportunity within ten (10) calendar days of the receipt of such
notice to meet with the Board to defend such act or acts, or failure to act, and
the Executive shall be given twenty (20) business days after such meeting to
correct such act, acts or failure(s) to act, provided that the Executive shall
not have the right to cure the acts described in Section 1.3(a) hereof. Upon
failure of the Executive, within such latter twenty (20) business day period, to
correct such act, acts or failure(s) to act, the Executive's employment by the
Company shall automatically be terminated under this Section 6.2 for Cause as of
the date determined in Section 1.4 of this Agreement.
6.3 TERMINATION WITHOUT CAUSE OR TERMINATION WITH GOOD REASON. The
Company may terminate the Executive's employment hereunder without Cause and the
Executive may terminate the Executive's employment hereunder for Good Reason. If
the Company terminates the Executive's employment hereunder without Cause, other
than due to death or Disability, or if the Executive terminates Executive's
employment for Good Reason, the Executive shall be entitled to the following:
(a) A lump sum payment in an amount equal to Executive's highest annual
Base Salary during the Term of Employment multiplied by 2.99 (two hundred
and ninety nine percent).
(b) Subject to the provisions of Section 6.3(a), a lump sum payment in
an amount equal to Executive's average annual bonus paid or payable to the
Executive with respect to the then immediately preceding three (3) fiscal
years (determined in accordance with Section 6.9 hereof) multiplied by 2.99
(299%). Notwithstanding the previous sentence, if the payments pursuant to
Sections 6.3(a), 6.3(b) and 6.3(c) together with any other
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payments considered to be parachute payments within the meaning of Section 280G
of the Internal Revenue Code of 1986, as amended from time to time (the
"Internal Revenue Code"), or any successor provision shall cause the Executive
to incur an excise tax pursuant to Section 4999 of the Internal Revenue Code (or
any successor provision) or any similar tax, the payments payable pursuant to
Section 6.3(a), this Section 6.3(b) and Section 6.3(c) shall be reduced to an
amount which would not cause such excise or similar tax to be incurred.
(c) any Base Salary accrued or Annual Bonus earned but not yet paid as
of the actual termination of this Agreement, and a pro rata Annual Bonus for
the calendar year in which such termination occurs.
(d) any deferred compensation (including, without limitation, interest
or other credits on the deferred amounts) and any accrued vacation pay;
(e) reimbursement pursuant to Section 5.7 hereof or any other provision
of this Agreement for expenses incurred, but not paid prior to such
termination of employment;
(f) continuation of the pre-existing benefits of the Executive,
including, without limitation, health, welfare, life and any long-term
disability insurance heretofore provided or otherwise generally provided to
senior executives of the Company (including the Subsidiaries), all at the
level in effect (as provided for by Section 5.5 of this Agreement) on the
Date of Termination through the end of the three (3) year period following
such termination of employment (or the Company shall provide the economic
equivalent thereof); and
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(g) any other compensation and benefits as may be provided in accordance
with the terms and provisions of any applicable plans or programs of the
Company and/or the Subsidiaries.
If the Executive seeks to terminate the Executive's employment hereunder
for Good Reason, the Company shall be given written notice that the Executive
intends to terminate the Executive's employment for Good Reason. Such written
notice, given in accordance with Section 6.6 of this Agreement, shall specify
the particular act or acts, or failure(s) to act, which is or are the basis for
the Executive's decision to so terminate the Executive's employment for Good
Reason. The Company shall be given the opportunity within ten (10) calendar days
of the receipt of such notice to meet with the Executive to defend such act or
acts, or failure(s) to act, and the Company shall be given twenty (20) business
days after such meeting to correct such act, acts or failure(s) to act provided
that the Company shall not have the right to correct the acts or failure(s) to
act specified in clauses (c) and (i) of the definition of Good Reason. Upon
failure of the Company, within such latter twenty (20) business day period, to
correct such act, acts or failure(s) to act, the Executive's employment by the
Company shall automatically be terminated under this Section 6.3 for Good Reason
as of the date of actual termination provided that the date of actual
termination shall be ten (10) calendar days after receipt of the Executive's
notice if the Company does not have the right to correct such act(s) or
failure(s) to act.
6.4 INTENTIONALLY OMITTED.
6.5 NO MITIGATION; NO OFFSET. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment and there shall be no offset against any amounts paid or
payable the Executive under this Agreement
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on account of any remuneration attributable to any subsequent employment that
the Executive may obtain. Any amounts due under this Section 6 are in the nature
of severance payments, or liquidated damages, or both, and are not in the nature
of a penalty.
6.6 NOTICE OF TERMINATION. Any termination of the Executive by the
Company or by the Executive for Good Reason shall be communicated by a notice of
termination to the other party hereto given in accordance with Section 15.3 of
this Agreement (the "Notice of Termination"). Such notice shall (a) indicate the
specific termination provision in this Agreement relied upon, (b) set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(c) if the termination date is other than the date of receipt of such notice,
specify the date on which the Executive's employment is to be terminated (which
date shall not be earlier than the date on which such notice is given).
6.7 PAYMENT. Except as otherwise provided in this Agreement, any
payments to which the Executive shall be entitled under this Section 6,
including, without limitation, any economic equivalent of any benefit, shall be
made as promptly as possible following the Date of Termination. If the amount of
any payment due to the Executive cannot be finally determined within thirty (30)
days after the Date of Termination (by way of example only, pro rata bonuses
determined pursuant to Section 6.10 hereof), such amount shall be estimated on a
good faith basis by the Company and the estimated amount shall be paid no later
than thirty (30) days after such Date of Termination. As soon as practicable
thereafter, the final determination of the amount due shall be made and any
adjustment requiring a payment to or from the Executive shall be made as
promptly as practicable.
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6.8 DISCLOSURE OF TERMINATION. Subject to the requirements of any
Exchange on which securities of the Company may be listed or the securities
laws, and except for terminations for Cause or the death or Disability of the
Executive, any public disclosure of the termination of this Agreement by the
Company shall be subject to prior review and approval by the Executive, which
review and approval shall not be unreasonably withheld or delayed.
6.9 PRO RATA CALCULATIONS. For the purposes of this Article 6 (except
Section 6.2(b)), all calculations of the Annual Bonus on a pro rata basis shall
mean that the Annual Bonus shall be based on the bonus that would have been
payable for the entire calendar year multiplied by a fraction, the numerator of
which is the number of days from January 1 in such year through the date of the
termination of this Agreement and the denominator of which is 365.
7. INTENTIONALLY OMITTED.
8. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Section 5.4 hereof,
nothing in this Agreement or any other provision of this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided or maintained by the Company,
the Subsidiaries or any other Affiliate and for which the Executive may qualify,
nor shall anything herein limit or otherwise prejudice such rights as the
Executive may have under any other existing or future agreements with the
Company, the Subsidiaries or any Affiliate, including, without limitation, any
change of control agreements or any stock option or restricted stock agreements.
Except as otherwise expressly provided for in this Agreement, amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plans or programs of the Company, the Subsidiaries or any other Affiliate at
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or subsequent to the Date of Termination shall be payable in accordance with
such plans or programs.
9. FULL PERFORMANCE. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against the Executive or others.
10. FEES AND EXPENSES. In the event that a claim for payment or benefits
under this Agreement is disputed, the Company shall advance and pay all
reasonable accounting and legal fees and expenses of the Executive, at the
regular hourly rate charged by the accountants and attorneys of the Executive in
connection with any such dispute (whether such dispute is litigated or
arbitrated including, without limitation, in connection with claims that are
settled) incurred by the Executive in pursuing or defending such claim. The
Executive shall not have an obligation to repay any such advances to the Company
except to the extent that a court of competent jurisdiction issues a final,
nonappealable judgment ordering the Executive to reimburse the Company for a
portion (or, if so ordered, all) of legal fees and expenses previously advanced
by the Company, based upon such court's determination of what is reasonable
under all applicable facts and circumstances including which party prevailed on
each of the issues disputed. The Company shall in addition pay or reimburse the
Executive for all reasonable legal fees and expenses incurred by the Executive
in connection with the preparation and negotiation of this Agreement and the
matters related thereto.
11. CONFIDENTIAL INFORMATION. The Executive shall not, during the Term
of Employment and thereafter, without the prior express written consent of the
Company, disclose
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any confidential information, knowledge or data relating to the Company, which
(a) was obtained by the Executive in the course of the Executive's employment
with the Company, and (b) which is not information, knowledge or data otherwise
in the public domain (other than by reason of a breach of this provision by the
Executive), unless required to do so by a court of law or equity or by a
governmental agency or other authority.
12. SUCCESSORS.
12.1 The EXECUTIVE. This Agreement is personal to the Executive and,
without the prior express written consent of the Company, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition, intestate succession or a qualified
domestic relations order or in connection with a Disability. This Agreement
shall inure to the benefit of and be enforceable by the Executive's estate,
heirs, beneficiaries and/or legal representatives.
12.2 THE COMPANY. This Agreement shall inure to the benefit of and
be binding upon the Company and its successors and assigns. The Company shall
require any successor to all or substantially all of the business and/or assets
of the Company or the Subsidiaries, whether direct or indirect, by purchase,
merger, consolidation, acquisition of stock, or otherwise, by an agreement in
form and substance satisfactory to the Executive, expressly to assume and agree
to perform this Agreement in the same manner and to the same extent as the
Company would be required to perform had no such succession taken place.
13. INDEMNIFICATION.
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13.1 GENERAL. The Company agrees that if the Executive is made a
party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that Executive is or was a director or officer of the
Company, the Subsidiaries and/or any other Affiliate or is or was serving at the
request of the Company, the Subsidiaries and/or any other Affiliate as a
director, officer, member, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including, without
limitation, service with respect to employee benefit plans, whether or not the
basis of such Proceeding is alleged action in an official capacity as a
director, officer, member, employee or agent while serving as a director,
officer, member, employee or agent, Executive shall be indemnified and held
harmless by the Company to the fullest extent authorized by New York law, as the
same exists or may hereafter be amended, against all Expenses (as hereinafter
defined in Section 13.2) incurred or suffered by the Executive in connection
therewith, and such indemnification shall continue as to the Executive even if
the Executive has ceased to be an officer, director or agent, or is no longer
employed by the Company and shall inure to the benefit of Executive's heirs,
executors and administrators.
13.2 EXPENSES. As used in this Article, the term "Expenses"
shall include, without limitation, damages, losses, judgments, liabilities,
fines, penalties, excise taxes, settlements and costs, reasonable attorneys'
fees, reasonable accountants' fees, and disbursements and costs of attachment or
similar bonds, investigations, and any reasonable expenses of establishing a
right to indemnification under this Agreement.
13.3 ENFORCEMENT. If a claim or request under this Article is not
paid by the
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Company fifteen (15) days after a written claim or request has been received by
the Company, the Executive may at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim or request and if successful
in whole or in part, the Executive shall be entitled to be paid also the
expenses of prosecuting such suit. The burden of proving that the Executive is
not entitled to indemnification for any reason shall be upon the Company.
13.4 SUBROGATION. In the event of payment under this Article, the
Company shall be subrogated to the extent of such payment to all the rights of
recovery of the Executive.
13.5 PARTIAL INDEMNIFICATION. If the Executive is entitled under any
provision of this Article to indemnification by the Company for some or a
portion of any Expenses, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify the Executive for the portion of such
Expenses to which the Executive is entitled.
13.6 ADVANCES OF EXPENSES. Expenses incurred by the Executive
in connection with any Proceeding shall be paid by the Company in advance upon
request of the Executive that the Company pay such Expenses, provided that prior
to such advance the Executive shall provide the Company with a written
undertaking to repay such advances to the Company if it shall ultimately be
determined that he is not entitled to be indemnified as authorized under the New
York Business General Corporation Law.
13.7 NOTICE OF CLAIM. The Executive shall give to the Company notice
of any claim made against the Executive for which indemnity will or could be
sought under this Article. In addition, the Executive shall give the Company
such information and cooperation as it may reasonably require and as shall be
within the Executive's power and at such times and places as are convenient for
the Executive.
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13.8 DEFENSE OF CLAIM. With respect to any Proceeding as to which the
Executive notifies the Company of the commencement thereof:
13.8.1 The Company will be entitled to participate therein at its
own expense; and
13.8.2 Except as otherwise provided below, to the extent that it
may wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense of the Executive, with counsel
satisfactory to the Executive. The Executive also shall have the right to employ
the Executive's own counsel in such action, suit or Proceeding and the
reasonable fees and expenses of such counsel shall be at the expense of the
Company. The Company shall not be entitled to assume the defense of any action,
suit or Proceeding brought by or on behalf of the Company or the Subsidiaries or
as to which the Executive shall have concluded that there may be a conflict of
interest between the Company or the Subsidiaries and the Executive in the
conduct of the defense of such action.
13.8.3 The Company shall not be liable to indemnify the Executive
under this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on the
Executive without Executive's written consent. Neither the Company nor the
Executive will unreasonably withhold or delay their consent to any proposed
settlement.
13.9 NON-EXCLUSIVITY. The right to indemnification and the payment
of expenses incurred in defending a Proceeding in advance of its final
disposition conferred in this Section 13 shall not be exclusive of any other
right which the Executive may have or hereafter
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may acquire under any statute, provision of the certificate of incorporation or
by-laws of the Company or the Subsidiaries, agreement, vote of stockholders or
disinterested directors or otherwise.
13.10 DIRECTORS AND OFFICERS LIABILITY POLICY. The Company agrees to
use commercially reasonable efforts to obtain a directors and officers liability
insurance policy covering the Executive in an amount and in accordance with
terms no less favorable than that policy in effect upon the Commencement Date.
The Company shall use its commercially reasonable efforts to maintain during the
Term of Employment (and for so long thereafter as is practicable in the
circumstances taking account of prevailing conditions as to availability of such
insurance) coverage to the Executive in an amount at least equal to that
maintained immediately prior to the Commencement Date.
14. INTENTIONALLY OMITTED.
15. MISCELLANEOUS.
15.1 APPLICABLE LAW. Except as may be otherwise provided herein,
this Agreement shall be governed by and construed in accordance with the laws of
the State of New York, applied without reference to principles of conflict of
laws.
15.2 Amendments. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
15.3 Notices. All notices and other communications hereunder shall
be in writing and shall be given by hand-delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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If to the Executive: Arnold H. Simon
1411 Broadway
New York, New York 10018
and to: Arnold H. Simon
29 Burning Hollow Road
Saddle River, New Jersey 07458
If to the Company: Aris Industries, Inc.
1411 Broadway
New York, New York 10018
Attention: Chairman
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
15.4 WITHHOLDING. The Company may withhold from any amounts payable
under this Agreement such federal, state and local income, unemployment, social
security and similar employment related taxes and similar employment related
withholdings as shall be required to be withheld pursuant to any applicable law
or regulation.
15.5 SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and any such provision which is not valid
or enforceable in whole shall be enforced to the maximum extent permitted by
law.
15.6 CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
15.7 Beneficiaries/References. The Executive shall be entitled to
select (and change) a beneficiary or beneficiaries to receive any compensation
or benefit payable hereunder following the Executive's death, and may change
such election, in either case by giving the
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Company written notice thereof. In the event of the Executive's death or a
judicial determination of the Executive's incompetence, reference in this
Agreement to the Executive shall be deemed, where appropriate, to refer to the
Executive's beneficiary(ies), estate or other legal representative(s).
15.8 ENTIRE AGREEMENT. This Agreement contains the entire agreement
among the parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the parties with respect thereto.
15.9 REPRESENTATION. Each party to this Agreement represents and
warrants that it is fully authorized and empowered to enter into this Agreement
and that the performance of its obligations under this Agreement will not
violate any agreement between it and any other person, firm or organization or
any applicable laws or regulations.
15.10 SURVIVORSHIP. The respective rights and obligations of the
parties hereunder shall survive any termination of this Agreement or the
Executive's employment hereunder to the extent necessary to the intended
preservation of such rights and obligations.
15.11 JOINT AND SEVERAL OBLIGATIONS. Anything to the contrary
notwithstanding in this Agreement, all of the monetary and non-monetary
obligations of the Company in this Agreement shall be and are the joint and
several obligations of the Company and the Subsidiaries.
15.12 JOINT EFFORTS/COUNTERPARTS. Preparation of this Agreement
shall be deemed to be joint effort of the parties hereto and shall not be
construed more severely against any party.
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This Agreement may be signed in two or more counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year first above written.
Attest: ARIS INDUSTRIES, INC.
By
- --------------------------- -----------------------------
, Secretary Name:__________________________
Title:_________________________
Attest: ECI SPORTSWEAR, INC.
- --------------------------- By
, Secretary -----------------------------
Name:__________________________
Title:_________________________
EUROPE CRAFT IMPORTS, INC.
By
-----------------------------
Name:__________________________
Title:_________________________
-------------------------------
Arnold H. Simon
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SCHEDULE 4.1
A. EXECUTIVE'S MEMBERSHIP ON COMPANY AND SUBSIDIARIES BOARD OF DIRECTORS
COMMITTEES
EXECUTIVE COMMITTEE
Member
FINANCE COMMITTEE
Member
NOMINATING COMMITTEE (IF ANY)
Member
COMPENSATION COMMITTEE
Ex-Officio Member
B. EXECUTIVE'S PRIMARY RESPONSIBILITIES
o Overall responsibility for Company operations
o Acquisitions and dispositions
o Hiring and termination of employees
o Setting executive and other employee compensation (subject,
however, to the decisions of the Compensation Committee)
o Setting the location of the Company's principal executive
offices
o Relationships with designers
o Other similar general management decisions affecting Company
operations
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SCHEDULE 5.8
PERQUISITES AND FRINGE BENEFITS
o Use of Mercedes-Benz or automobile of similar status and driver
selected by the Executive.
o Payment/Reimbursement to the Executive for private aircraft
paid for by the Executive based on the full price first class
airplane ticket for the Executive and each other person that
is traveling on an aircraft on business for the Company or any
of its subsidiaries for which the Company or the Subsidiaries
does not otherwise pay for.
o Four (4) weeks of paid vacation for each calendar year, to be
taken cumulatively.
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EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") effective as of March 1,1999 is made by
and among Aris Industries, Inc., a New York corporation (the "Company"), Europe
Craft Imports, Inc. and ECI Sportswear, Inc. (the "Subsidiaries"), and David
Fidlon (the "Executive"). The Company and the Subsidiaries are collectively
referred to in this Agreement as the "Company" unless otherwise required by the
specific context of a particular provision hereof.
R E C I T A L S:
A. The Executive is currently employed as the Chief Operating Officer of
the Company and the Subsidiaries.
B. The Board of Directors of the Company desires to continue the services
of the Executive as President and Chief Operating Officer of the Company and
Executive Vice President and Chief Operating Officer of the Subsidiaries, which
are wholly owned by the Company, and to enter into an agreement embodying the
terms of those relationships.
C. The Executive is willing to serve as President and Chief Operating
Officer of the Company and Executive Vice President and Chief Operating Officer
of the Subsidiaries (so long as they are subsidiaries of the Company) and is
willing to accept continued employment by the Company on the terms set forth
herein.
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NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Company, the
Subsidiaries and the Executive hereby agree as follows:
1. DEFINITIONS.
1.1 "Affiliate" means any Person controlling, controlled by or under common
control with the Company.
1.2 "Board" means the Board of Directors of the Company and/or the
Subsidiaries.
1.3 "Cause" means (a) the Executive is convicted of or pleads guilty to a
felony involving dishonesty as against the Company or the Subsidiaries, (b) the
Executive is convicted of a felony not involving the Company, and after
exhausting all rights of appeal, is obligated to serve ten (10) or more days in
prison or pay a fine of more than Five Hundred Thousand ($500,000) Dollars, or
(c) the Executive, in carrying out the Executive's duties and responsibilities
under this Agreement, is guilty of gross neglect or gross misconduct resulting,
in either case, in material economic harm to the Company and/or the
Subsidiaries, unless such act, or failure to act, was reasonably believed by the
Executive in good faith, using reasonable judgment under the circumstances, to
be in the best interests of the Company and/or the Subsidiaries.
1.4 "Date of Termination" means (a) in the case of a termination for which
a Notice of Termination (as hereinafter defined in Section 6.6) is required, the
date of actual receipt of such Notice of Termination or, if later, the date
specified therein, as the case may be, and (b) in all other cases, the actual
date on which the Executive's employment terminates during
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the Term of Employment (as hereinafter defined in Section 3) (it being
understood that nothing contained in this definition of "Date of Termination"
shall affect any of the cure rights provided to the Executive or the Company in
this Agreement).
1.5 "Disability" means the Executive's inability to render, for a period of
nine consecutive months, services hereunder.
1.6 "Adjusted EBITDA" means for any fiscal year the sum of (a) the net
income of the Company and its subsidiaries on a consolidated basis for such
fiscal year as determined in accordance with GAAP except as specifically noted
below in this definition, (b) taxes in respect of income, (c) interest for money
borrowed, (d) depreciation, (e) amortization and (f) factoring fees, charges and
expenses, provided that the following shall be excluded from Adjusted EBITDA:
(A) extraordinary, unusual or non-recurring expenses including, without
limitation, restructuring charges, severance payments, duplicative lease
payments and write-downs of any assets on the Company's books as of December 31,
1998, (B) gains and losses from financing transactions and (C) losses from the
sale or other disposition of material assets (other than inventory) outside of
the ordinary course of business; and (D) to the extent that, in connection with
or otherwise related to the performance of a material arrangement with a
licensor in the year such license arrangement is entered into the revenues, if
any, associated with such license are exceeded by the costs and expenses
(including general and administrative expenses related thereto) associated with
such license (thereby resulting in a net reduction in Adjusted EBITDA). It is
understood and agreed that there shall be an appropriate calculation so that the
amount of any bonus payable in respect of any fiscal year pursuant to Section
5.2 shall not reduce the Adjusted EBITDA for the purpose of calculating the
bonus under Section 5.2.
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1.7 "Good Reason" means and shall be deemed to exist if (a) without the
Executive's express prior written consent, the Executive is assigned any duties
or responsibilities inconsistent in any material respect with the scope of the
duties or responsibilities associated with the Executive's title or positions,
as set forth and described in Article 4 of this Agreement; (b) without the
Executive's express prior written consent, the Executive suffers, in any
material respect, a reduction in the duties, responsibilities or effective
authority associated with Executive's titles and positions as set forth and
described in Article 4 of this Agreement; (c) without the Executive's express
prior written consent, the Executive is not appointed to and/or elected to, or
is removed from, the offices or positions provided for in Section 4.1 of this
Agreement (whether or not the Company uses its best efforts to cause the
Executive to be elected as a director of the Company); (d) the Company fails to
substantially perform or otherwise substantially breaches any material term or
provision of this Agreement; (e) without the Executive's express prior written
consent, and except as provided in Section 5.2 hereof, the Executive's
compensation under this Agreement is decreased, or the Executive's benefits
under employee benefit or health or welfare plans or programs of the Company are
in the aggregate materially decreased; (f) the Company's principal office or the
Executive's own office location is relocated to a location not within the
borough of Manhattan; (g) the Company fails to obtain the full assumption of
this Agreement by a successor entity in accordance with Section 12.2 of this
Agreement; (h) the Company fails to use reasonable efforts to maintain, or cause
to be maintained, directors and officers liability insurance coverage for the
Executive as provided in Section 13.10 of this Agreement; (i) the Company
purports to terminate the Executive's employment for Cause and the Company is
not entitled to terminate this Agreement for Cause;
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(j) there shall occur (i) any liquidation of the Company or the sale of
substantially all of the assets of the Company, or (ii) any merger,
consolidation or other business combination of the Company (a "Transaction") or
any combination of any such Transactions, other than a Transaction immediately
after which the stockholders of the Company who were stockholders immediately
prior to the Transaction continue to own beneficially, directly or indirectly,
more than fifty percent (50%) of the then outstanding voting securities of the
Company and the Subsidiaries in which the Company's common stockholders receive
consideration of at least $2 per share; (l) any Person or group (as such term is
defined in Rule 13d-5 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) of related Persons, which is not an Affiliate of the Company as
of the Commencement Date shall beneficially own, directly or indirectly, more
than 50% of the then outstanding voting stock of the Company or the
Subsidiaries; or (m) Arnold Simon ceases to be Chief Executive Officer of the
Company.
1.8 "Person(s)" means any individual or entity of any kind or nature,
including any other person as defined in Section 3(a)(9) of the Exchange Act,
and as used in Sections 13(d) and 14(d) thereof.
2. EMPLOYMENT. Subject to the terms and provisions set forth in this
Agreement, the Company and each Subsidiary hereby employs the Executive during
the Term of Employment as the President and Chief Operating Officer of the
Company and the Executive Vice President and Chief Operating Officer of the
Subsidiaries, and the Executive hereby accepts such employment.
3. TERM OF EMPLOYMENT. The term of employment (the "Term) under this
Agreement shall be deemed to commence as of March 1, 1999 (the "Commencement
Date") and, unless terminated earlier pursuant to the terms hereof, shall
terminate on February 28, 2002 (the
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"Initial Term of Employment"). The Term shall automatically renew for successive
one-year periods after the Initial Term unless either party gives notice to the
other at least six months, but no longer than nine months, before the end of the
then-applicable Term. Notwithstanding the foregoing, at any time commencing on
or after three months before the end of the Initial Term and continuing
thereafter, Executive, upon 90 days prior written notice (the "Consulting
Notice") may elect to convert his status from employee to consultant for a
period of three years following the effective date of such Notice, in which
case, (x) Executive shall make himself available not more than 20 hours per week
to consult with the Company's Chief Executive Officer, and (y) his Base Salary
then in effect shall be reduced by 50% and he shall not be entitled to a bonus
for any year after the year in which the Consulting Notice becomes effective. In
the event the Company elects not to renew the Term, it shall pay to Executive
during the three years following the end of the Term, at regular payroll
intervals, 50% of his then applicable base salary.
4. POSITIONS, RESPONSIBILITIES AND DUTIES.
4.1 POSITIONS. During the Term of Employment, the Executive shall be
employed as Chief Operating Officer of the Company and the Subsidiaries (for
such period as they continue to be subsidiaries). In such position, the
Executive shall have the duties, responsibilities and authority normally
associated with the office and position of Chief Operating Officer of a company.
The Executive shall report to the Chief Executive Officer and Board of Directors
of the Company.
4.2 DUTIES. During the Term of Employment, the Executive shall devote
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substantially all of Executive's business time and attention to the business of
the Company and shall perform faithfully and efficiently the duties and
responsibilities contemplated by this Agreement.
5. Compensation and Other Benefits.
5.1 Base Salary. During the Term of Employment, the Executive shall receive
a base salary of no less than $375,000 per annum ("Base Salary") payable in
equal monthly installments. Such Base Salary shall be reviewed annually for
increase (but not decrease) in the sole discretion of the Board. In conducting
any such annual review, the Board shall take into account any change in the
Executive's responsibilities, increases in the compensation of other executives
of the Company or the Subsidiaries or of competitors of either, the performance
of the Executive and other pertinent factors. The increased Base Salary shall
then constitute the "Base Salary" for purposes of this Agreement.
5.2 Annual Bonus. For each Calendar Year during the Term (and in addition
to the Base Salary), the Executive shall be entitled to receive an annual cash
bonus payment (the "Bonus") determined as follows:
If Adjusted EBITDA is: Amount of Bonus
---------------------- ---------------
Less than $5 million -0-
Between $5 million -- 1% of Adjusted EBITDA
$10 million
Over $10 million 1.5% of Adjusted EBITDA
The Annual Bonus shall be paid to the Executive in cash as soon as
practicable after the end of the fiscal year to which it relates, but in any
event no later than one hundred five
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(105) calendar days after the end of such fiscal year (and, to the extent there
is any disagreement as to the amount thereof any amount acknowledged as payable
by the Company shall be paid by such date).
5.3 INTENTIONALLY OMITTED.
5.4 Incentive, Retirement, and Savings Plans. During the Term of
Employment, the Executive shall be entitled to participate in all incentive,
pension, retirement, savings and other employee benefit plans and programs
maintained by the Company and/or the Subsidiaries for the benefit of senior
executives.
5.5 WELFARE BENEFIT PLANS. During the Term of Employment, the Executive,
the Executive's spouse and their eligible dependents, if any, shall be entitled
to participate in and be covered under all the welfare benefit plans or programs
maintained by the Company and/or the Subsidiaries, including, without
limitation, all term life insurance, long term disability insurance, medical,
hospitalization, dental, disability, accidental death and dismemberment and
travel accident insurance plans and programs.
5.6 INTENTIONALLY OMITTED.
5.7 EXPENSE REIMBURSEMENT. In addition to the expense reimbursement set
forth on Schedule 5.8, during the Term of Employment, the Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in performing the Executive's duties and responsibilities
hereunder in accordance with the policies and procedures of the Company. At the
end of each fiscal year, the Executive and the Company shall in good faith
reconcile any differences and disputes with respect to timing, right to
reimbursement, reasonableness or documentation of any items of expense
reimbursement, it being agreed that no
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dispute respecting any of the foregoing shall constitute a basis for the
Executive or the Company (including the Subsidiaries) terminating or attempting
to terminate this Agreement.
5.8 VACATION AND FRINGE BENEFITS. During the Term of Employment, the
Executive shall be entitled to such paid vacation, fringe benefits and
perquisites as set forth in
Schedule 5.8.
6. TERMINATION.
6.1 TERMINATION DUE TO DEATH OR DISABILITY. The Company or the Executive
may terminate the Executive's employment hereunder due to his death or
Disability. In the event the Executive's employment is terminated due to death
Disability, the Executive's estate or Executive's legal representative, as the
case may be, shall be entitled to:
(a) (i) in the case of death or disability, Base Salary continuation
at the rate in effect (as provided for by Section 5.1 of this Agreement) on
the Date of Termination for a period of six (6) months after the Date of
Termination.
(b) any Base Salary accrued or any Annual Bonus earned but not yet
paid;
(c) a pro rata Annual Bonus for the calendar year in which death or
Disability occurs (determined and payable in accordance with Section 5.2 of
this Agreement);
(d) any deferred compensation not yet paid to the Executive
(including, without limitation, interest or other credits on such deferred
amounts) and any accrued vacation pay;
(e) reimbursement pursuant to Section 5.7 hereof or any other
provision of this Agreement for expenses incurred but not yet paid prior to
such death or Disability;
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(f) in the case of death, any other compensation and benefits as may
be provided in accordance with the terms and provision of any applicable
plans and programs of the Company and/or the Subsidiaries; and
(g) in the case of Disability, (i) continuation of the Executive's
health and welfare benefits (as described in section 5.5 of this Agreement)
at the level in effect (as provided for by Section 5.5) on the Date of
Termination through the end of the three-year period following the
termination of the Executive's employment due to Disability (or the Company
shall provide the economic equivalent thereof), and (ii) any other
compensation and benefits as may be provided in accordance with the terms
and provisions of any applicable plans and programs of the Company.
With respect to the deferred compensation arrangements referred to in
Sections 6.1(d), 6.2(c) and 6.3(d), to the extent that such deferred
compensation arrangements provide by their terms for any deferral of payments in
the event of death or Disability; termination with Cause or termination without
Cause or for Good Reason, such payments shall be deferred in accordance with
such arrangements to the extent required by the type of termination of this
Agreement. With respect to the other benefits referred to in Sections 6.1(g),
6.2(e) and 6.3(g), to the extent that such other benefit arrangements provide by
their terms for any deferral of payments in the event of death or Disability,
termination with Cause or termination without Cause or for Good Reason, such
payments shall be deferred in accordance with such arrangements to the extent
required by the type of termination of this Agreement.
6.2 Termination in the Company for Cause. The Company may terminate the
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Executive's employment hereunder for Cause as provided in this Section 6.2;
provided that no act or omission referred to in Section 1.3(b) hereof occurring
prior to the Commencement Date shall constitute Cause. If the Company terminates
the Executive's employment hereunder for Cause, the Executive shall be
entitled to:
(a) the Executive's Base Salary at the rate in effect (as provided for
by Section 5.1 of this Agreement) at the time of such termination through
the Date of Termination;
(b) any Annual Bonus for the prior fiscal year not yet paid together
with a pro-rata portion of the Annual Bonus for the calendar year in which
termination occurs through the Date of Termination;
(c) any deferred compensation (including, without limitation, interest
or other credit on such deferred amounts) and any accrued vacation pay;
(d) reimbursement pursuant to Section 5.7 hereof or any other
provision of this Agreement for expenses incurred, but not yet paid prior
to such termination of employment; and
(e) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans and
programs of the Company and/or the Subsidiaries.
In any case described in this Section 6.2, the Executive shall be
given written notice, authorized (with Executive abstaining) by a vote of
at least two thirds (2/3) of the members of the entire Board (excluding
Executive), that the Company intends to terminate the Executive's
employment for Cause. Such written notice, given in accordance with Section
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this Agreement, shall specify the particular act or acts, or failure to act,
which is or are the basis for the decision to so terminate the Executive's
employment for Cause. The Executive shall be given the opportunity within ten
(10) calendar days of the receipt of such notice to meet with the Board to
defend such act or acts, or failure to act, and the Executive shall be given
twenty (20) business days after such meeting to correct such act, acts or
failure(s) to act, provided that the Executive shall not have the right to cure
the acts described in Section 1.3(a) hereof. Upon failure of the Executive,
within such latter twenty (20) business day period, to correct such act, acts or
failure(s) to act, the Executive's employment by the Company shall automatically
be terminated under this Section 6.2 for Cause as of the date determined in
Section 1.4 of this Agreement.
6.3 TERMINATION WITHOUT CAUSE OR TERMINATION WITH GOOD REASON. The Company
may terminate the Executive's employment hereunder without Cause and the
Executive may terminate the Executive's employment hereunder for Good Reason. If
the Company terminates the Executive's employment hereunder without Cause, other
than due to death or Disability, or if the Executive terminates Executive's
employment for Good Reason, the Executive shall be entitled to the following:
(a) A lump sum payment in an amount equal to Executive's highest
annual Base Salary during the Term of Employment multiplied by 2.99 (two
hundred and ninety nine percent).
(b) Subject to the provisions of Section 6.3(a), a lump sum payment in
an amount equal to Executive's average annual bonus paid or payable to the
Executive with respect to the then immediately preceding three (3) fiscal
years (determined in accordance with
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Section 6.9 hereof) multiplied by 2.99 (299%). Notwithstanding the previous
sentence, if the payments pursuant to Sections 6.3(a), 6.3(b) and 6.3(c)
together with any other payments considered to be parachute payments within
the meaning of Section 280G of the Internal Revenue Code of 1986, as
amended from time to time (the "Internal Revenue Code") or any successor
provision shall cause the Executive to incur an excise tax pursuant to
Section 4999 of the Internal Revenue Code (or any successor provision) or
any similar tax, the payments payable pursuant to Section 6.3(a), this
Section 6.3(b) and Section 6.3(c) shall be reduced to an amount which would
not cause such excise or similar tax to be incurred.
(c) any Base Salary accrued or Annual Bonus earned but not yet paid as
of the actual termination of this Agreement, and a pro rata Annual Bonus
for the calendar year in which such termination occurs.
(d) any deferred compensation (including, without limitation, interest
or other credits on the deferred amounts) and any accrued vacation pay;
(e) reimbursement pursuant to Section 5.7 hereof or any other
provision of this Agreement for expenses incurred, but not paid prior to
such termination of employment;
(f) continuation of the pre-existing benefits of the Executive,
including, without limitation, health, welfare, life and any long-term
disability insurance heretofore provided or otherwise generally provided to
senior executives of the Company (including the Subsidiaries), all at the
level in effect (as provided for by Section 5.5 of this Agreement) on the
Date of Termination through the end of the three (3) year period
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following such termination of employment (or the Company shall provide the
economic equivalent thereof); and
(g) any other compensation and benefits as may be provided in
accordance with the terms and provisions of any applicable plans or
programs of the Company and/or the Subsidiaries.
If the Executive seeks to terminate the Executive's employment hereunder
for Good Reason, the Company shall be given written notice that the Executive
intends to terminate the Executive's employment for Good Reason. Such written
notice, given in accordance with Section 6.6 of this Agreement, shall specify
the particular act or acts, or failure(s) to act, which is or are the basis for
the Executive's decision to so terminate the Executive's employment for Good
Reason. The Company shall be given the opportunity within ten (10) calendar days
of the receipt of such notice to meet with the Executive to defend such act or
acts, or failure(s) to act, and the Company shall be given twenty (20) business
days after such meeting to correct such act, acts or failure(s) to act provided
that the Company shall not have the right to correct the acts or failure(s) to
act specified in clauses (c) and (i) of the definition of Good Reason. Upon
failure of the Company, within such latter twenty (20) business day period, to
correct such act, acts or failure(s) to act, the Executive's employment by the
Company shall automatically be terminated under this Section 6.3 for Good Reason
as of the date of actual termination provided that the date of actual
termination shall be ten (10) calendar days after receipt of the Executive's
notice if the Company does not have the right to correct such act(s) or
failure(s) to act.
6.4 INTENTIONALLY OMITTED.
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6.5 NO MITIGATION; NO OFFSET. In the event of any termination of employment
under this Section 6, the Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts paid or payable the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 6 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
6.6 NOTICE OF TERMINATION. Any termination of the Executive by the Company
or by the Executive for Good Reason shall be communicated by a notice of
termination to the other party hereto given in accordance with Section 15.3 of
this Agreement (the "Notice of Termination"). Such notice shall (a) indicate the
specific termination provision in this Agreement relied upon, (b) set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated, and
(c) if the termination date is other than the date of receipt of such notice,
specify the date on which the Executive's employment is to be terminated (which
date shall not be earlier than the date on which such notice is given).
6.7 PAYMENT. Except as otherwise provided in this Agreement, any payments
to which the Executive shall be entitled under this Section 6, including,
without limitation, any economic equivalent of any benefit, shall be made as
promptly as possible following the Date of Termination. If the amount of any
payment due to the Executive cannot be finally determined within thirty (30)
days after the Date of Termination (by way of example only, pro rata bonuses
determined pursuant to Section 6.10 hereof), such amount shall be estimated on a
good faith basis by the Company and the estimated amount shall be paid no later
than thirty (30) days after
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such Date of Termination. As soon as practicable thereafter, the final
determination of the amount due shall be made and any adjustment requiring a
payment to or from the Executive shall be made as promptly as practicable.
6.8 DISCLOSURE OF TERMINATION. Subject to the requirements of any Exchange
on which securities of the Company may be listed or the securities laws, and
except for terminations for Cause or the death or Disability of the Executive,
any public disclosure of the termination of this Agreement by the Company shall
be subject to prior review and approval by the Executive, which review and
approval shall not be unreasonably withheld or delayed.
6.9 PRO RATA CALCULATIONS. For the purposes of this Article 6 (except
Section 6.2(b)), all calculations of the Annual Bonus on a pro rata basis shall
mean that the Annual Bonus shall be based on the bonus that would have been
payable for the entire calendar year multiplied by a fraction, the numerator of
which is the number of days from January 1 in such year through the date of the
termination of this Agreement and the denominator of which is 365.
7. INTENTIONALLY OMITTED.
8. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Section 5.4 hereof,
nothing in this Agreement or any other provision of this Agreement shall prevent
or limit the Executive's continuing or future participation in any benefit,
bonus, incentive or other plan or program provided or maintained by the Company,
the Subsidiaries or any other Affiliate and for which the Executive may qualify,
nor shall anything herein limit or otherwise prejudice such rights as the
Executive may have under any other existing or future agreements with the
Company, the Subsidiaries or any Affiliate, including, without limitation, any
change of control agreements
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or any stock option or restricted stock agreements. Except as otherwise
expressly provided for in this Agreement, amounts which are vested benefits or
which the Executive is otherwise entitled to receive under any plans or programs
of the Company, the Subsidiaries or any other Affiliate at or subsequent to the
Date of Termination shall be payable in accordance with such plans or programs.
9. FULL PERFORMANCE. The Company's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the Company may
have against the Executive or others.
10. FEES AND EXPENSES. In the event that a claim for payment or benefits
under this Agreement is disputed, the Company shall advance and pay all
reasonable accounting and legal fees and expenses of the Executive, at the
regular hourly rate charged by the accountants and attorneys of the Executive in
connection with any such dispute (whether such dispute is litigated or
arbitrated including, without limitation, in connection with claims that are
settled) incurred by the Executive in pursuing or defending such claim. The
Executive shall not have an obligation to repay any such advances to the Company
except to the extent that a court of competent jurisdiction issues a final,
nonappealable judgment ordering the Executive to reimburse the Company for a
portion (or, if so ordered, all) of legal fees and expenses previously advanced
by the Company, based upon such court's determination of what is reasonable
under all applicable facts and circumstances including which party prevailed on
each of the issues disputed. The Company shall in addition pay or reimburse the
Executive for all reasonable legal fees and
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expenses incurred by the Executive in connection with the preparation and
negotiation of this Agreement and the matters related thereto.
11. CONFIDENTIAL INFORMATION. The Executive shall not, during the Term of
Employment and thereafter, without the prior express written consent of the
Company, disclose any confidential information, knowledge or data relating to
the Company, which (a) was obtained by the Executive in the course of the
Executive's employment with the Company, and (b) which is not information,
knowledge or data otherwise in the public domain (other than by reason of a
breach of this provision by the Executive), unless required to do so by a court
of law or equity or by a governmental agency or other authority.
12. SUCCESSORS.
12.1 THE EXECUTIVE. This Agreement is personal to the Executive and,
without the prior express written consent of the Company, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition, intestate succession or a qualified
domestic relations order or in connection with a Disability. This Agreement
shall inure to the benefit of and be enforceable by the Executive's estate,
heirs, beneficiaries and/or legal representatives.
12.2 THE COMPANY. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company shall
require any successor to all or substantially all of the business and/or assets
of the Company or the Subsidiaries, whether direct or indirect, by purchase,
merger, consolidation, acquisition of stock, or otherwise, by an agreement in
form and substance satisfactory to the Executive, expressly to
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assume and agree to perform this Agreement in the same manner and to the same
extent as the Company would be required to perform had no such succession taken
place.
13. INDEMNIFICATION.
13.1 GENERAL. The Company agrees that if the Executive is made a party or
is threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that Executive is or was a director or officer of the Company, the
Subsidiaries and/or any other Affiliate or is or was serving at the request of
the Company, the Subsidiaries and/or any other Affiliate as a director, officer,
member, employee or agent of another corporation or of a partnership, joint
venture, trust or other enterprise, including, without limitation, service with
respect to employee benefit plans, whether or not the basis of such Proceeding
is alleged action in an official capacity as a director, officer, member,
employee or agent while serving as a director, officer, member, employee or
agent, Executive shall be indemnified and held harmless by the Company to the
fullest extent authorized by New York law, as the same exists or may hereafter
be amended, against all Expenses (as hereinafter defined in Section 13.2)
incurred or suffered by the Executive in connection therewith, and such
indemnification shall continue as to the Executive even if the Executive has
ceased to be an officer, director or agent, or is no longer employed by the
Company and shall inure to the benefit of Executive's heirs, executors and
administrators.
13.2 EXPENSES. As used in this Article, the term "Expenses" shall include,
without limitation, damages, losses, judgments, liabilities, fines, penalties,
excise taxes, settlements and costs, reasonable attorneys' fees, reasonable
accountants' fees, and disbursements
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and costs of attachment or similar bonds, investigations, and any reasonable
expenses of establishing a right to indemnification under this Agreement.
13.3 ENFORCEMENT. If a claim or request under this Article is not paid by
the Company fifteen (15) days after a written claim or request has been received
by the Company, the Executive may at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim or request and if successful
in whole or in part, the Executive shall be entitled to be paid also the
expenses of prosecuting such suit. The burden of proving that the Executive is
not entitled to indemnification for any reason shall be upon the Company.
13.4 SUBROGATION. In the event of payment under this Article, the Company
shall be subrogated to the extent of such payment to all the rights of recovery
of the Executive.
13.5 PARTIAL INDEMNIFICATION. If the Executive is entitled under any
provision of this Article to indemnification by the Company for some or a
portion of any Expenses, but not, however, for the total amount thereof, the
Company shall nevertheless indemnify the Executive for the portion of such
Expenses to which the Executive is entitled.
13.6 ADVANCES OF EXPENSES. Expenses incurred by the Executive in connection
with any Proceeding shall be paid by the Company in advance upon request of the
Executive that the Company pay such Expenses, provided that prior to such
advance the Executive shall provide the Company with a written undertaking to
repay such advances to the Company if it shall ultimately be determined that he
is not entitled to be indemnified as authorized under the New York Business
General Corporation Law.
13.7 NOTICE OF CLAIM. The Executive shall give to the Company notice of any
claim made against the Executive for which indemnity will or could be sought
under this Article.
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In addition, the Executive shall give the Company such information and
cooperation as it may reasonably require and as shall be within the Executive's
power and at such times and places as are convenient for the Executive.
13.8 DEFENSE OF CLAIM. With respect to any Proceeding as to which the
Executive notifies the Company of the commencement thereof:
13.8.1 The Company will be entitled to participate therein at its own
expense; and
13.8.2 Except as otherwise provided below, to the extent that it may wish,
the Company jointly with any other indemnifying party similarly notified will be
entitled to assume the defense of the Executive, with counsel satisfactory to
the Executive. The Executive also shall have the right to employ the Executive's
own counsel in such action, suit or Proceeding and the reasonable fees and
expenses of such counsel shall be at the expense of the Company. The Company
shall not be entitled to assume the defense of any action, suit or Proceeding
brought by or on behalf of the Company or the Subsidiaries or as to which the
Executive shall have concluded that there may be a conflict of interest between
the Company or the Subsidiaries and the Executive in the conduct of the defense
of such action.
13.8.3 The Company shall not be liable to indemnify the Executive under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent. The Company shall not settle any action or
claim in any manner which would impose any penalty or limitation on the
Executive without Executive's written consent. Neither the Company nor the
Executive will unreasonably withhold or delay their consent to any proposed
settlement.
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13.9 Non-exclusivity. The right to indemnification and the payment of
expenses incurred in defending a Proceeding in advance of its final disposition
conferred in this Section 13 shall not be exclusive of any other right which the
Executive may have or hereafter may acquire under any statute, provision of the
certificate of incorporation or by-laws of the Company or the Subsidiaries,
agreement, vote of stockholders or disinterested directors or otherwise.
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EXECUTION COPY
14. MISCELLANEOUS.
14.1 APPLICABLE LAW. Except as may be otherwise provided herein, this
Agreement shall be governed by and construed in accordance with the laws of the
State of New York, applied without reference to principles of conflict of laws.
14.2 AMENDMENTS. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
14.3 NOTICES. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: David Fidlon
1411 Broadway
New York, New York 10018
and to: David Fidlon
1530 Palisade Avenue
Apt. 21-S
Fort Lee, New Jersey 07024
If to the Company: Aris Industries, Inc.
1411 Broadway
New York, New York 10018
Attention: Chairman
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
15.4 WITHHOLDING. The Company may withhold from any amounts payable under
this Agreement such federal, state and local income, unemployment, social
security and
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EXECUTION COPY
similar employment related taxes and similar employment related withholdings as
shall be required to be withheld pursuant to any applicable law or regulation.
15.5 SEVERABILITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and any such provision which is not valid or
enforceable in whole shall be enforced to the maximum extent permitted by law.
15.6 CAPTIONS. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
15.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement among
the parties concerning the subject matter hereof and supersedes all prior
agreements, understandings, discussions, negotiations and undertakings, whether
written or oral, between the parties with respect thereto.
15.8 REPRESENTATION. Each party to this Agreement represents and warrants
that it is fully authorized and empowered to enter into this Agreement and that
the performance of its obligations under this Agreement will not violate any
agreement between it and any other person, firm or organization or any
applicable laws or regulations.
15.9 SURVIVORSHIP. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement or the Executive's
employment hereunder to the extent necessary to the intended preservation of
such rights and obligations.
15.10 JOINT AND SEVERAL OBLIGATIONS. Anything to the contrary
notwithstanding in
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EXECUTION COPY
this Agreement, all of the monetary and non-monetary obligations of the Company
in this Agreement shall be and are the joint and several obligations of the
Company and the Subsidiaries.
15.11 JOINT EFFORTS/COUNTERPARTS. Preparation of this Agreement shall be
deemed to be joint effort of the parties hereto and shall not be construed more
severely against any party. This Agreement may be signed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument.
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EXECUTION COPY
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Attest: ARIS INDUSTRIES, INC.
By:
- --------------------------- ----------------------------------
, Secretary Name:______________________
Title:_____________________
Attest: ECI SPORTSWEAR, INC.
By:
- --------------------------- ----------------------------------
, Secretary Name:______________________
Title:_____________________
EUROPE CRAFT IMPORTS, INC.
By:
----------------------------------
Name:______________________
Title:_____________________
----------------------------------
David Fidlon
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EXECUTION COPY
SCHEDULE 5.8
PERQUISITES AND FRINGE BENEFITS
o Reimbursement of $25,000 of a non-accountable expense allowance
o Four (4) weeks of paid vacation for each calendar year, to be taken
cumulatively
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AGREEMENT OF LEASE
AGREEMENT OF LEASE, made as of the Twenty-second day of April, 1999, by
and between ERIKA REALTY TRUST, 100 North Front Street, New Bedford,
Massachusetts 02741 (hereinafter called "Landlord"), and ARIS INDUSTRIES, INC.,
a corporation, organized and existing pursuant to the laws of the State of New
York, and having a usual place of business at 1411 Broadway, New York, New York
10018 (hereinafter called "Tenant").
W I T N E S S E T H:
1. DEMISED PREMISES:
1.01 Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord, during the term hereof, the premises (hereinafter referred to as the
"Demised Premises") suitably identified as:
The entire 4 story mill building and 3 story annex located at 89 West
Rodney French Boulevard, New Bedford, Massachusetts and containing approximately
300,000 square feet of floor space as shown on plan attached hereto as Exhibit
"A" and made a part hereof. The building complex in which the Demised Premises
is located is hereinafter referred to as the "Mill".
1.02 Tenant shall have, as appurtenant to the Demised Premises, the
non-exclusive right in common with others to use and permit its employees to use
public or common areas and facilities, parking areas, and roadways in the Mill,
but such right, shall always be subject to reasonable rules and regulations from
time to
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time established by Landlord by suitable notice, which shall be required of all
tenants and enforced uniformly, but which shall not increase Tenant's
obligations, either monetary or otherwise, nor diminish Tenant's rights
hereunder and subject to the right of Landlord to designate and change from time
to time areas and facilities so to be used, upon reasonable consent of Tenant.
Landlord guarantees to Tenant that at least 90% of the parking spaces in the
Mill will be available to Tenant.
2. TERM.
2.01 The term of this lease shall be five (5) years and shall commence
June 1, 1999 (the "Commencement Date") and terminate on May 31, 2004.
3. RENT.
3.01 During the first year of the lease term yielding and paying
therefor the yearly rent of Four Hundred Eighty Thousand ($480,000.00) Dollars,
(hereinafter the "Fixed Rent"), payable in equal monthly installments of Forty
Thousand ($40,000.00) Dollars, on the first day of each month, in advance.
3.02 During the second year of the lease term yielding and paying
therefor the yearly rent of Five Hundred Thousand ($500,00.00) Dollars,
(hereinafter the "Fixed Rent"), payable in equal monthly installments of
Forty-one Thousand Six Hundred Sixty-six and 66/100 ($41,666.66) Dollars on the
first day of each month, in advance.
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3.03 During the third year of the lease term yielding and paying
therefor the yearly rent of Five Hundred Sixty-three Thousand Three Hundred
Thirty-three and 34/100 ($563,333.34) Dollars, (hereinafter the "Fixed Rent"),
payable in equal monthly installments of Forty-six Thousand Nine Hundred
Forty-four and 44/100 ($46,944.44) Dollars.
3.04 During the fourth and fifth years of the lease term, yielding and
paying therefor the yearly rent of Six Hundred Twenty-nine Thousand Three
Hundred Thirty-three and 34/100 ($629,333.34) Dollars, (hereinafter the "Fixed
Rent"), payable in equal monthly installments of Fifty-two Thousand Four Hundred
Forty-four and 44/100 ($52,444.44) Dollars, on the first day of each month, in
advance.
4. USE OF PREMISES:
4.01 Tenant may use and occupy the Demised Premises thereon as a
clothing distribution center, warehouse and uses incidental thereto or any other
lawful purpose. No trade or occupation shall be carried on upon the demised
premises or use made thereof, which shall be unlawful, or contrary to any law of
the Commonwealth of Massachusetts or of the United States of America, or any
ordinance or by-law, for the time being in force, of the City of New Bedford or
injurious to any person or property.
4.02 Tenant will not permit any other persons to do anything or, bring
anything in or upon the Demised Premises or to be kept
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therein, which will in any way increase the rate of fire insurance of the Mill,
nor use or permit the Demised Premises to be used for any purpose which would
cause an increase in the rate of fire insurance of the Mill.
4.03 Tenant represents that it shall not cause, nor permit, any oil,
friable asbestos, hazardous waste, hazardous material, or other waste or
material regulated or limited by applicable federal, state, or local
environmental law or regulation ("Hazardous Material") to be spilled, placed,
held, located or disposed of on, under, or about the Demised Premises in
violation of any said laws or regulations.
5. TAXES, WATER AND SEWER:
5.01 In addition to the annual rental provided for in Article 3 hereof,
Tenant agrees to pay to Landlord as additional rent, in monthly installments,
Tenant's Proportionate Share (as hereinafter defined) of all real property
taxes, payments in lieu of taxes, if any, water and sewer rents, rates and
charges, and assessments, which may be levied or assessed against the Mill by
any lawful authority for the period of term of this Lease. Tenant's
Proportionate Share in this article and other articles hereinafter shall be
equal to ninety-six (96%) per cent based upon the Mill consisting of 312,500
square feet. Should the Commonwealth of Massachusetts or any political
subdivision thereof or any governmental authority having jurisdiction thereover,
impose a tax
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and/or assessment (other than a net income or franchise tax) upon or against the
rental payable by a tenant in the Mill to Landlord, or any other tax which is
intended in whole or in part as a substitute for the current method of real
estate taxation, such tax and/or assessment shall be deemed to constitute a tax
and/or assessment against the Mill for the purpose of this Article.
5.02 Upon receipt of all tax bills and assessment bills attributable to
any period during the term hereof, Landlord shall furnish Tenant with a written
statement of the actual amount of Tenant's proportionate share of the taxes and
assessments of such period, along with a copy of said bills. If the total amount
paid by Tenant under this Article during the term of this Lease shall be less
than the actual amount due from Tenant for any period thereof, as shown on such
statement, Tenant shall pay to Landlord the deficiency within ten (l0) days
after demand therefor by Landlord; and if the total amount paid by Tenant
hereunder for any such calendar year shall exceed such amount due from Tenant
for such period, Tenant shall be entitled to offset the excess against payments
next thereafter becoming due under this Article 5 or Tenant, at its option, may
receive a refund from Landlord within ten (10) days after request therefor by
Tenant. For the year in which this Lease commences and terminates, the
provisions of this Article shall apply and Tenant's liability for its
proportionate share of the taxes and assessments for any such period shall be
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subject to a pro rata adjustment based on the number of days of any such period
during which the term of this Lease is in effect. Landlord's and Tenant's
obligations under this Article shall survive the expiration of the term of this
Lease.
5.03 Tenant may endeavor to contest any tax or assessment against the
said Mill or to obtain a reduction in the assessed valuation upon the said Mill
for the purpose of reducing any such tax assessment. During the contest of any
tax or assessment, Tenant shall pay its proportionate share of the tax or
assessment as billed, and shall receive a proportionate rebate of any payments
after expenses in the event such contest is successful.
5.04 Nothing herein contained is intended to make the Tenant
responsible for franchise, corporate or partnership taxes which are levied on
the Landlord, including excise, inheritance, capital levy, transfer or income,
profits or revenue, upon income of Landlord, except that, in the event of the
passage of any statute, act or law as the result of which Landlord becomes
obligated to pay any income tax or any other tax, charge, levy, assessment or
imposition, in lieu or place of any general tax, school tax, or other real
estate tax or assessment ("Substitute Tax"), which would otherwise be levied
against and/or become a lien upon the Mill, such Substitute Tax shall be payable
by Tenant as provided for by this Article 5; provided that such Substitute Tax
is in lieu of the
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taxes and assessments chargeable against Tenant under Section 5.01 hereof.
6. INSURANCE:
6.01 Landlord agrees to carry, or cause to be carried, during the term
hereof, public liability insurance on the common areas of the Mill naming Tenant
as an additional insured. Landlord also agrees to carry during the term hereof
insurance for fire, extended coverage, vandalism, malicious mischief, and such
other hazards as Landlord's first mortgagee may require, insuring the
improvements located on Landlord's property in the Mill, including the Demised
Premises and all appurtenances thereto (excluding Tenant's merchandise, trade
fixtures, furnishing, equipment, personal property and Tenant's work) for not
less than the full insurable value thereof. During the term of this Lease,
Tenant shall be liable for Tenant's Proportionate Share of any premiums
associated with the cost of Landlord carrying such insurance required by this
Article 6, payable in monthly installments.
6.02 Tenant agrees to carry public liability insurance on the Demised
Premises during the term hereof, naming Landlord as additional insured, for
limits of not less than Three Million ($3,000,000.00) Dollars for personal
injury or death and property damage insurance for not less than One Million
($1,000,000.00) Dollars arising out of any one occurrence and providing that
Landlord and Tenant shall be given a minimum of thirty (30) days'
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written notice by the insurance company prior to cancellation, termination or
change in such insurance. Tenant further agrees to carry insurance against fire
and such other risks as are from time to time included in standard extended
coverage insurance, for the full insurable value covering all of tenant's
merchandise, trade fixtures, furnishings, wall covering, carpeting, drapes,
equipment, Tenant's work, and all other items of personal property of Tenant
located on or within the Demised Premises. Tenant shall provide Landlord with
copies of the policies or certificates evidencing that all insurance coverage
provided for herein is in full force and effect and stating the terms thereof.
6.03 (a) Tenant hereby releases Landlord, to the extent of Tenant's
insurance coverage, from any and all liability for any loss or damage caused by
fire or any of the extended coverage casualties or any other casualty insured
against, even if such fire or other casualty shall be brought about by the fault
or negligence of Landlord or its agents, provided, however, this release shall
be in force and effect only with respect to loss or damage occurring during such
time as Tenant's policies covering such loss or damage shall contain a clause to
the effect that this release shall not affect said policies or the right of
Tenant to recover thereunder. Tenant agrees that its fire and other casualty
insurance policies will include such a clause. Tenant agrees that it shall keep
its
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fixtures, equipment and leasehold improvements insured against loss or damage by
fire with the usual extended coverage.
(b) Landlord hereby releases Tenant, to the extent of Landlord's
insurance coverage, from any and all liability for any loss or damage caused by
fire or any of the extended coverage casualties or any other casualty insured
against, even if such fire or other casualty shall be brought about by the fault
or negligence of Tenant or its agents, provided, however, this release shall be
in force and effect only with respect to loss or damage occurring during such
time as Landlord's policies covering such loss or damage shall contain a clause
to the effect that this release shall not affect said policies or the right of
Landlord to recover thereunder. Landlord agrees that its fire and other casualty
insurance policies will include such a clause.
7. SERVICES:
7.01 The Landlord shall furnish reasonable heat as required for the
comfortable occupancy of the Demised Premises during the usual heating season,
from 8:00 a.m. to 6:00 p.m. on business days. The Landlord shall not be liable
for consequential damages by reason of its failure to supply such heat, unless
such failure is due to any act or failure to act on the part of the Landlord.
Upon notice from Tenant that heat is not being provided, Landlord shall use due
diligence to restore heat to the premises as soon thereafter as reasonably
possible.
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7.02 In addition to the annual rental provided for in Article 3 hereof,
Tenant agrees to pay to Landlord as additional rent, monthly, Tenant's
Proportionate Share of all cost of heating and maintaining the heating system
and boilers of the Mill.
7.03 Landlord shall provide to the Demised Premises cold water for
ordinary drinking, cleaning and lavatory purposes.
7.04 Landlord shall not unreasonably withhold or delay its consent to
an alteration consisting of the installation of an air conditioning system to
service the Demised Premises.
8. ALTERATIONS:
8.01 Tenant may not make any alterations or additions in or to the
Demised Premises without the consent of Landlord, which approval shall not be
unreasonably withheld or delayed.
8.02 Landlord shall not unreasonably withhold or delay its consent to
any proposed alterations with respect to which Landlord's consent is required,
provided that such alterations (i) do not adversely affect the building systems
(except to the extent necessary to tie into the building systems), (ii) do not
adversely affect the exterior of the Mill, (iii) do not reduce the value or
utility of the Mill and (iv) do not violate the certificate of occupancy for the
Mill or the Demised Premises.
8.03 Landlord will make no change, and will prevent any change to be
made by any "Person", in the arrangement and/or location of entrances or
passageways, doors and doorways,
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corridors, elevators, stairs, toilets, or other public parts of the Mill which
will adversely affect, in any manner, Tenant's use and enjoyment of the Demised
Premises, unless required by law to do so.
8.04 If Landlord shall fail to disapprove Tenant's plans and
specifications for any alteration within ten (l0) business days, or within five
(5) business days with respect to any resubmission of disapproved plans
(provided the same shall be of a scope and detail reasonably susceptible of
review in such period), after Landlord's receipt thereof, Landlord shall be
deemed to have approved such plans and specifications. Any disapproval given by
Landlord shall be accompanied by a statement in reasonable specificity of the
reasons for such disapproval, itemizing those portions of the plans so
disapproved. Anything contained herein to the contrary notwithstanding, Tenant
shall have the right to submit to Landlord layouts, drawings and schematic plans
preparatory to the preparation of the preliminary and final plans and
specifications for any alteration, and Landlord shall either approve or
disapprove such layouts, drawings or schematic plans within ten (10) business
days after receipt thereof. If Landlord shall fail to disapprove such layouts,
drawing or schematic plans within such period, the same shall be deemed
approved. Notwithstanding any such approval, Landlord shall not be deemed to
have waived its right to disapprove the final plans and specifications for such
alteration, provided that Landlord shall not disapprove the final plans and
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specifications to the extent they shall have been prepared based upon the
layouts, drawings and schematic plans which Landlord shall have previously
approved and are not inconsistent therewith. Any dispute regarding the
reasonableness of Landlord's withholding of its consent to Tenant's plans and
specifications, or any portion thereof, may be submitted to arbitration by
either party pursuant to Article (33) of this Lease.
9. REPAIRS AND COST OF MAINTENANCE PERSONNEL:
9.01 The Tenant shall take good care of the Demised Premises, maintain
same and shall, at Tenant's own cost and expense, make all repairs, except
repairs to the roof, foundation, exterior walls and other load bearing elements
of the Demised Premises and normal maintenance and repair of the mechanical
systems (i.e., electrical, plumbing, heating, etc.) serving the Demised
Premises, which shall be Landlord's responsibility, and at the end or other
expiration of the term, shall deliver up the Demised Premises in good order and
condition, damage by the elements, normal wear and tear and damage not caused by
Tenant, its agents, employees and contractors excepted. Tenant shall keep all
water closets and drains located within and servicing the Demised Premises free
from obstructions.
9.02 In addition to the annual rental provided for in Article 3 hereof,
Tenant agrees to pay to Landlord as additional rent, in monthly installments,
Tenant's Proportionate Share of the cost of the Landlord's maintenance personnel
employed exclusively in
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connection with the Mill, including all employer's taxes, insurance and employee
fringe benefits.
9.03 Landlord shall repair and maintain the parking lot and land around
the Mill, the roof, foundation, exterior walls and other load-bearing elements
of the Demised Premises and supply labor for the normal maintenance and repair
of the mechanical systems (i.e., plumbing and heating, but excluding electrical
and sprinkler system repairs) unless such maintenance or repairs are required in
whole or in part because of any act, neglect, fault of or omission of any duty
by Tenant, its agents, servants, employees or invitees in which case Tenant
shall reimburse Landlord for the reasonable cost of such maintenance and repairs
upon Landlord's completion of any such maintenance and repairs.
10. DESTRUCTION BY FIRE OR OTHER CASUALTY:
10.01 In the event the Demised Premises are hereafter damaged or
destroyed or rendered partially untenantable for their accustomed uses by fire
or other casualty insured under the coverage which Landlord is obligated to
carry pursuant to Article 6, then Landlord shall promptly repair said premises
and restore the same to substantially the condition in which they were
immediately prior to the happening of such casualty (excluding wall; and floor
covering), and from the date of such casualty until the Demised Premises are so
repaired and restored, annual rental payments and all other charges and items of
additional rental
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payable hereunder, shall abate in such proportion as the part of the Demised
Premises thus destroyed or rendered untenantable bears to the total Demised
Premises, provided Tenant may elect to terminate if Tenant will not be either
(i) furnished reasonably suitable substitute space or (ii) be restored to
possession of Demised Premises within sixty (60) days after the date of
destruction. If Landlord elects not to repair then this Lease shall terminate as
of the date of destruction. In the event fifty (50%) per cent or more of the
Demised Premises be hereafter destroyed or rendered untenantable by fire or
other casualty during the last year of the term of this Lease, then Landlord or
Tenant shall have the right to terminate this Lease effective as of the date of
such casualty, by giving to the other party hereto, within thirty (30) days
after the happening of such casualty, written notice of such termination. If
said notice be given within said thirty (30) day period, this Lease shall
terminate and annual rental and all other charges and items of additional rental
shall abate as aforesaid from the happening of such casualty, and Landlord shall
promptly repay to Tenant any rental theretofore paid in advance which has not
been earned as the date of such casualty. Except as herein expressly provided to
the contrary, this Lease shall not terminate nor shall there be any abatement of
rent or other charges or items of additional rent as the result of a fire or
other casualty. In determining what constitutes prompt repair
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of the Demised Premises consideration shall be given to the delays caused by
strikes, adjustment of insurance and other causes beyond Landlord's control.
Notwithstanding anything to the contrary contained in this Article, should
Landlord be delayed or prevented from completing the repair or restoration of
the damage to the Demised Premises after the occurrence of such damage or
destruction by reason of acts of God or war, governmental restrictions,
inability to procure the necessary labor or materials, strikes, or other uses
beyond the control of Landlord, the time for Landlord to commence or complete
repairs shall be extended, provided, at the election of Landlord or Tenant,
Landlord shall be relieved of its obligation to make such repairs or restoration
and Tenant shall be released from its obligation under this Lease as of the end
of four (4) months from date of destruction, if repairs required to provide
Tenant use of the Demised Premises are not then substantially complete. Any such
election shall be by written notice delivered to the other party.
10.02 If, however, the building of which the Demised Premises are a
part shall be substantially damaged or destroyed by fire or casualty, or if, as
a result of a risk not covered by the forms of hazard insurance at the time then
customarily carried on like improvements in the locality in which the Demised
Premises are located the Demised Premises are substantially damaged, Landlord
shall promptly restore, (consistent, however, with zoning laws and
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building codes then in existence), the Demised Premises to substantially the
condition thereof at the time of such damage, unless Landlord, within thirty
(30) days after such loss, gives notice to Tenant of Landlord's election to
terminate this Lease. If Landlord shall give such notice, then this Lease shall
terminate as of the happening of such casualty with the same force and effect as
if such date were the date originally established as the expiration date hereof.
Further, if there shall be substantial damage or destruction from any
cause to the Mill building within which the Demised Premises are a part to such
extent that continued operation of the Mill would be uneconomical, Landlord or
Tenant shall have the right, within thirty (30) days after such damage, to
terminate this Lease by suitable notice to the other in which is stated a date
as of which this Lease shall terminate, and this Lease shall terminate as of the
date so stipulated as if the same were the date originally established as the
expiration date hereof. The term "substantial damage" or destruction as used
herein, shall refer to damage of such a character that the same cannot, in
ordinary course, reasonable be expected to be repaired within thirty (30) days
from the time that such work would commence.
11. SIGNS:
11.01 Pursuant to and in compliance with any legal requirements, Tenant
shall have the right, at its expense, to
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install and maintain a sign or signs on the exterior of the Mill, or on the land
around the Mill. Tenant, at its expense, shall obtain prior to the erection of
any sign, such permits as Tenant may be required to obtain from any and all
public authorities having jurisdiction with respect to the erection,
installation, maintenance or use of said sign. Landlord agrees to cooperate with
Tenant in the obtaining of any such permits but shall not be required to incur
any costs or expenses in connection therewith. Tenant shall, at its expense,
maintain and repair the said signs in compliance with all legal requirements. In
addition, Tenant shall have the right, without the consent of Landlord, but
subject to Landlord's reasonable approval, to place reasonable signage within
the Demised Premises. The size, design, character and location of any of
Tenant's signs shall be subject to reasonable approval by the Landlord. Approval
of all signs shall be in writing by Landlord. In the case that Landlord shall
deem it necessary to remove any such sign or signs in order to make any other
repairs or alterations or improvements in or upon the Demised Premises or
building or any part thereof, the Landlord shall have the right to do so,
providing the same be removed and replaced at the Landlord's expense, whenever
the said repairs, alterations or improvements shall be completed.
11.02 Upon termination of this Lease by expiration or otherwise, Tenant
shall remove all of its signs, interior and
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exterior, within thirty (30) days after such termination and shall repair to
Landlord's reasonable satisfaction any damage caused by such removal, normal
wear and tear excepted.
12. UTILITIES:
12.01 Tenant shall pay all rates and charges for the use of
electricity, telephone, gas and other services rendered to the Demised Premises.
Tenant shall pay Tenant's Proportionate Share of sewer and water bills.
13. ASSIGNMENT OF LEASE:
13.01 Tenant may not sublet or assign this Lease without the Landlord's
consent, which consent shall not be unreasonably withheld or delayed, except
that Tenant need not obtain Landlord's prior written consent for the assignment
or sublet of its leasehold interest in the event that it wishes to assign or
sublease same to a subsidiary or affiliate or to any entity into which Tenant is
merged, with which Tenant is consolidated, or which acquires all or
substantially all of the assets of Tenant for the use set forth in Article 4
hereof. It is further agreed that no assignment or sublease shall be effective
unless the assignee or sublessee agrees directly with the Landlord to perform
Tenant's obligations under this lease. Notwithstanding any permitted assignment
or subletting, no further assignment or subletting may be made without
Landlord's consent and, except as set forth herein, Tenant shall remain fully
and liable for the payment of all rent, additional
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rent and the performance of all the terms, covenants and conditions contained
herein in the event Tenant's assignee or sublessee defaults under the terms of
Tenant's lease. Except as set forth herein, Landlord's dealing with an assignee
or sublessee shall not affect the contingent liability of the Tenant under this
Lease.
13.02 Tenant shall have the right, without the prior written consent of
Landlord, to sublet any part or all of the Demised Premises for the purposes
permitted by this Lease, and for such term of years, and on such terms and
conditions, as Tenant shall determine subject to Landlord's reasonable consent;
provided, however, that (i) the subletting shall end no later than one (l) day
before the Expiration Date (or any extended expiration date, in the even Tenant
shall have exercised its right to extend the term of this Lease); (ii) the
proposed sublease shall contain a provision stating that it is expressly
subordinate to this Lease; (iii) the proposed sublease shall be for general
warehouse, and uses incidental thereto, only and for no other purpose, and shall
otherwise comply with the provisions of this Lease; and (iv) prior to the
execution of any proposed sublease, Tenant shall have delivered copies of the
proposed sublease to Landlord.
13.03 (a) Notwithstanding anything contained in this Article 13 to the
contrary, as along as Tenant is not then in default under any of the material
terms, covenants or conditions of this Lease on Tenant's part to be observed or
performed beyond any applicable
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grace period provided for in this Lease for the curing of such default, Tenant
named herein, or any subsidiary or affiliate of Tenant named herein to whom this
Lease is assigned, shall have the right, subject to the provisions of this
Section 13.03 to assign Tenant's interest in this Lease to a "Qualified
Purchaser" (as hereinafter defined), in connection with a "Qualified Transfer"
(as hereinafter defined).
(b) For the purposes of this Section 13.03 a "Qualified Purchaser"
shall mean any person, corporation, partnership, or other business entity which
shall meet the following criteria:
(1) (A) such person, partnership, business entity or
corporation shall comply with the "Qualified Purchaser's Net Worth Requirement"
(as determined in accordance with the provisions of subsection (f) of this
Section 13.03 after consummation of the subject Qualified Transfer, or (B) if
such corporation does not meet the Qualified Purchaser's Net Worth Requirement
set forth in subdivision (A) above but is a subsidiary of another corporation
(referred to herein as the "Parent") then Parent shall (x) comply with the
Qualified Purchaser's Net Worth Requirement after consummation of the subject
Qualified Transfer and (y) unconditionally guarantee the full and complete
performance and observance of all of Tenant's obligations under the Lease; and
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<PAGE>
(2) such Qualified Purchaser shall use the Premises for
general warehouse use only, and shall otherwise comply with the terms of this
Lease.
(c) For the purposes of this Section 13.03 a "Qualified Transfer"
shall be deemed to mean an assignment or transfer of Tenant's interest in this
Lease to a Qualified Purchaser for a good business purpose including an
assignment or transfer in connection with the sale of the assets of Tenant.
(d) No such assignment shall be valid, unless, within ten (10)
business days prior to the execution and effective date thereof (or if otherwise
required by law, promptly after the public announcement of the Qualified
Transfer), Tenant shall deliver to Landlord (1) a duplicate original instrument
of assignment and assumption of Tenant's interest in this Lease and (2) if the
Qualified Purchaser has satisfied the Qualified Purchaser's Net Worth
Requirement set forth in subsections (b), (c) and (f) of this Section 13.03
based upon the Qualified Purchaser's Net Worth of its Parent, then the Qualified
Purchaser shall cause said Parent to execute and deliver to Landlord a guarantee
in form and substance reasonably satisfactory to Landlord in which said Parent
shall unconditionally guarantee the full and complete performance and observance
of all of Tenant's obligations under this Lease.
(e) At the time of the proposed assignment or transfer
constituting a Qualified Transfer (or if otherwise required by law,
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<PAGE>
promptly after the public announcement of the Qualified Transfer), Tenant shall
deliver to Landlord a detailed statement of the financial condition of the
proposed Qualified Purchaser (or the Parent), prepared in accordance with
generally accepted accounting principles applied on a consistent basis, by a
firm of reputable independent certified public accountants, which statements
shall reflect the financial condition of the aforesaid proposed Qualified
Purchaser (or the Parent) at that time.
(f) For the purposes of this Section 13.03 the term "Qualified
Purchaser's Net Worth Requirement" shall mean that a Qualified Purchaser shall
have a net worth of not less than TEN MILLION and 00/100 ($10,000,000.00)
DOLLARS after the completion of the assignment or transfer which is the subject
of the Qualified Transfer as shown on the proposed Qualified Purchaser's latest
financial statement prepared in accordance with the requirements of subsection
(e) above; and Qualified Purchaser shall have a credit rating equal to or better
than Tenant at the time of the assignment as determined by a nationally
recognized, independent corporation such as Dunn & Bradstreet Corporation.
(g) In the event of an assignment pursuant to this Section 13.03,
Tenant shall be relieved of all obligations and responsibilities under this
Lease which accrue on and subsequent to the date of such assignment.
14. ELEVATORS:
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<PAGE>
14.01 The Tenant shall have the right, to use the elevators in the
Mill. The elevators shall be kept in ordinary repair by the Landlord but it is
understood and agreed that the Landlord assumes no obligation to the Tenant for
failure to keep the elevators in such repair, unless same is caused by wilful
negligence of the Landlord, its agents or servants; however, the Landlord shall
use reasonable diligence to restore said elevator systems on notice of the need
therefor and as soon thereafter as reasonably possible. The Landlord shall not
be liable for consequential damages by reason of its failure to keep the
elevators in such repair. Any expense of use and maintenance and repair of the
elevators shall be borne by the Tenant, including, but not limited to elevator
maintenance contracts.
15. LANDLORD'S RIGHT TO ENTER UPON THE PREMISES:
15.01. The Tenant shall allow the Landlord and its agents free access
to the demised premises during reasonable hours, for the purpose of ascertaining
if same are in good repair and for exhibiting the premises to prospective
purchasers; and during the last six (6) months of the term, to prospective
tenants. Landlord shall give Tenant 24 hours notice of its intention to exhibit
the Premises to prospective purchasers or prospective Tenants.
16. LANDLORD NOT LIABLE FOR DEFECTS:
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<PAGE>
16.01 During the continuance of this lease and thereafter, all
merchandise, furniture and property of every kind and nature which may be upon
the Demised Premises or elsewhere in the Mill, as well as all property that may
be brought to the said premises by or for the Tenant, is to be at the sole risk
and hazard of the Tenant and if the whole or any part thereof is destroyed or
damage by fire, water, or otherwise, or by the use of abuse of water, or by the
leaking or bursting of water pipes or sprinkler pipes, or in any other way or
manner, no part of the said loss or damage to said property or to the business
of the Tenant is to be charged to, or borne by, the Landlord in any case
whatever, except as may be limited by Chapter 445 of the Massachusetts Acts of
1945.
17. LIABILITY FOR INJURY:
17.01 Each party will save the other party harmless and keep it
exonerated from all loss, damage, liability ,or expense occasioned or claimed by
reason of acts or neglects of the other party or of its employees, or of
independent contractors engaged or paid by the other party, on or about the
Demised Premises, or the elevators and approaches thereto, or by reason of any
neglect or misuse of the Demised Premises or the elevators and approaches
thereto.
18. COVENANTS TO PAY RENT, ETC., DEFAULT:
18.01 The Tenant shall pay said rent and other charges at the times and
in the manner hereinbefore set forth, and in case of
24
<PAGE>
failure on the Tenant's part to pay any installment of Fixed Rent for ten (10)
business days after notice, or in the payment when due of any other items of
rent and such default shall continue for ten (10) business days after notice of
such default is given to Tenant, or in case of the failure of the Tenant to keep
or perform any covenant or agreement contained in this lease, on the Tenant's
part to be kept or performed, other than the payment of rent and Tenant shall
fail to remedy such default within thirty (30) days after notice by Landlord to
Tenant of such default, or if such default is of such a nature that it cannot be
completely remedied within said period of thirty (30) days and Tenant shall not
commence within said period of thirty (30) days, or shall not thereafter
diligently prosecute to completion, all steps necessary to remedy such default,
then and in any of said cases the Landlord may, immediately or at any time
thereafter, notwithstanding any license or wavier of any former breach or waiver
of the benefit thereof or consent in a former instance, without demand or
notice, in person or by agent or attorney, enter into and upon the demised
premises or any part thereof in the name of the whole, and repossess the same as
of its former estate, and expel the said Tenant and those claiming under it and
remove their effects, without being taken or deemed guilty of any manner of
trespass, and without prejudice to any rights of the Landlord, to recover for
arrears of rent or damages for any breach of covenant hereunder or to the
Landlord's
25
<PAGE>
other remedies therefor, and upon entering as aforesaid this lease shall
terminate. The Tenant covenants that in case of any such termination or of
termination under the provisions of law for the Tenant's default, the Tenant
will be and remain liable to the Landlord for, and will indemnify the Landlord
against all loss of Fixed Rent and Additional Rent sustained by the Landlord
during the remainder of the term under this lease by reason of such termination
or on account of the premises remaining vacant or being let for a less rent
during such remaining term; or, at the election of the Landlord, the Tenant
shall upon such termination, pay to the Landlord as damages such amount as, at
the time of such termination, represents the difference between the rental value
of the Demised Premises for the remainder of such term and any extension
thereof, and the rent and any other payments herein provided to be paid to the
Landlord by the Tenant, both discounted to present worth at the then current
"base" rate charged by Citibank N.A., or its successor, as of the date the Lease
is terminated, less the aggregate amount of rent theretofore collected by
Landlord in the event of a reletting of the Demised Premises after such
termination. For purposes of this Section 18.01, Landlord shall use reasonable
efforts to mitigate its damages.
19. FIXTURES:
19.01 All fixtures, (other than Tenant's trade fixtures), equipment,
improvements, and appurtenances attached to, or built in
26
<PAGE>
to, the space herein demised at the commencement of or during the term, whether
by the Landlord at its own expense or at the expense of the Tenant, or by the
Tenant shall be and remain part of the premises and shall not be removed by the
Tenant at the end of the term unless otherwise specifically provided in this
lease. All electric, plumbing, heating, sprinkler, telephone, telegraph,
fixtures (other than Tenant's trade fixtures) and outlets, partitions, railings,
gates, doors, vaults, paneling, molding, shelves, radio wires, cork, rubber,
linoleum and composition floors, ventilating, silencing, air-conditioning, and
cooling equipment, shall be deemed to be included in such fixtures, equipment
improvements, and appurtenances. If furnished by or at the expense of the
Tenant, all carpets, wind deflectors, electric fans, water coolers, furniture,
trade fixtures and business equipment shall not be deemed to be included in such
fixtures, equipment, improvements, and appurtenances, and may be removed by the
Tenant upon condition that such removal does not materially damage the building
and upon condition also that the cost of repairing any damage to the premises of
the building arising from such removal shall be paid by the Tenant, normal wear
and tear and damage not caused by Tenant excepted.
19.02 Notwithstanding anything to the contrary, unless otherwise agreed
to, at the expiration of the Lease, or sooner termination thereof, the Tenant
shall remove at the Tenant's own
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<PAGE>
expense, such or all erections, additions and improvements to or upon the
demised premises and such or all fixtures, fittings and appliances therein that
are a part of the real estate, which have been installed by the Tenant, which
the Landlord at the time of the making of such alteration, erection or
improvement directed the Tenant to remove. Upon said removal the Tenant shall
repair any defect or make good any damage caused by said removal, normal wear
and tear excepted. Landlord hereby agrees that upon the expiration of this
Lease, Tenant shall not be required to remove any alteration, improvement or
erection existing in the Demised Premises on the Commencement Date.
20. SURRENDER:
20.01 In accordance with Article 19 hereof, Tenant shall at the
expiration or other termination of this lease remove all of Tenant's goods and
effects from the demised premises, including, without hereby limiting the
generality of the foregoing, all signs and lettering affixed or painted by
Tenant, either inside or outside the demised premises. Tenant shall deliver to
Landlord the demised premises and all keys, locks thereto, and other fixtures
(subject to Article 19 hereof) connected therewith and all alterations and
additions, made to or upon the demised premises, broom clean and in the same
condition as they were at the commencement of the term, or as they were put
during the term hereof, reasonable wear and tear and damage by fire or other
28
<PAGE>
casualty and damage not caused by Tenant only excepted. In the event of Tenant's
failure to remove any of Tenant's property from the demised premises, Landlord
is hereby authorized, without liability to Tenant for loss or damage thereto,
and at the sole risk of Tenant, to remove and store any of the property at
Tenant's expense, or to retain the same under Landlord's control or to sell at
public or private sale, without notice, any or all of the property not so
removed and to retain the net proceeds of such sale without any liability to
account to Tenant therefor, or Landlord may, if it so desires, destroy such
property.
21. WAIVER OF BREACH, ETC.:
21.01 No waiver by the Landlord or Tenant and no assent, express or
implied, to any breach on the part of the other party of any covenant,
agreement, condition, or duty shall ever be held or construed as a waiver of or
consent to any other breach of the same or of any other covenant, agreement,
condition, or duty. In the event of a breach by the Tenant of any covenant,
agreement, condition or duty which is conditioned upon the consent or approval
of the Landlord, neither the acceptance of rent by the Landlord nor failure by
the Landlord to take action on account of such breach or to enforce its rights
resulting therefrom, shall be deemed a waiver, but such breach shall be a
continuing breach until the written consent or approval of the Landlord is
obtained.
22. MISCELLANEOUS:
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<PAGE>
22.01 The rights and remedies of the Landlord and Tenant provided in
this lease are cumulative and are additional to any and all rights and remedies
the other party may have otherwise by law or by statute present or future.
22.02 (a) Subject to Section 22.02 (b) hereof, this lease is subject
and subordinate to all ground or underlying leases and mortgages which may now
or hereafter affect the real property of which demised premises form a part, and
to all renewals, modifications, consolidations, replacements and extensions
thereof. In confirmation of such subordination, the Tenant shall execute
promptly any certificate or instrument that the Landlord may request, upon
receipt by Tenant of a Nondisturbance Agreement from the holder of any such
ground or underlying lease or mortgage.
(b) The subordination of this Lease to any superior leases or
superior mortgages is expressly conditioned upon the receipt by Tenant of a
so-called "Nondisturbance Agreement" by which the holder(s) of any such superior
mortgages or superior leases agree (using its customary and usual form) that so
long as there is not an Event of Default under the terms of this Lease, this
Lease shall not be terminated nor shall Tenant's rights hereunder be disturbed
as a result of any default under any such superior mortgages or superior leases
or, in respect of any Superior mortgages, foreclosure of the same.
30
<PAGE>
22.03 Should any of the provisions of this lease be held ineffectual or
invalid for any reason, no other portion or provision of this lease shall be
invalidated, or affected thereby, but this lease shall be construed as if such
invalidated provision had not been herein contained.
22.04 The Landlord or the Landlord's agents have made no representation
or promises with reference to the Mill or the demised premises, except as herein
expressly set forth.
22.05 Any notice from Landlord to Tenant shall be deemed duly served if
delivered by hand (against a signed receipt) or mailed registered or certified
mail, return receipt requested, postage prepaid, or by Federal Express or other
reputable carrier, addressed to Tenant (a) at Tenant's address set forth in this
Lease, Attention: Chief Operating Officer, with a copy to Robert W. Forman,
Esquire, Shapiro Forman & Allen LLP, 380 Madison Avenue, New York, NY 10017 if
mailed prior to Tenant's taking possession of the Demised Premises, or (b) at
the Demised Premises, Attention: Warehouse Manager, if mailed subsequent to
Tenant's taking possession of the Demised Premises, or (c) at any place where
Tenant or any agent or employee of Tenant may be found if mailed subsequent to
Tenant's vacating, deserting, abandoning or surrendering the Demised Premises,
in each case with a copy to Tenant at Tenant's address set forth in this Lease,
Attention: Chief Operating Officer, with a copy to Robert W. Forman, Esquire,
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<PAGE>
Shapiro Forman & Allen LLP, 380 Madison Avenue, New York, NY 10017. Any notice
from Tenant to Landlord shall be deemed duly served if delivered by hand
(against a signed receipt), or if mailed to Landlord by registered or certified
mail, return receipt requested, postage prepaid or by Federal Express or other
reputable carrier, at the address on the first page of this lease, or at such
other address as Landlord shall from time to time designate to Tenant in
writing. The parties agree, however, that delivery of any notice by a commercial
delivery service such as Federal Express, UPS, Purolator Courier, and the like,
or a similar service offered by the United States Postal Service, shall also be
deemed duly served for the purposes of this lease.
22.06 Unless repugnant to the context, the words "Landlord" and
"Tenant" appearing herein shall be construed to refer to the person or persons,
natural or corporate, named above as Landlord or as Tenant, as the case may be,
and the heirs, executors, administrators, successors, and assigns of such person
or persons and those claiming through or under them or any of them. The Landlord
shall be liable upon the Landlord's obligations hereunder only while owner of
said premises.
22.07 The Tenant agrees to pay interest to the Landlord on any payments
made after the due dates provided in the lease. Interest on such unpaid rent
shall be calculated at the rate of two (2%) per cent per annum above the then
current prime rate or base
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<PAGE>
rate charged by Citibank, N.A. or its successor (the "Applicable Rate") computed
from the date such payment was due (including any applicable grace period) to
and including the date of payment, which interest shall be deemed to be
additional rent for all purposes in this Lease. The billing and acceptance of
interest payments by the Landlord shall not be a waiver by the Landlord of the
other rights and remedies for the Tenant's failure to make punctual payment as
provided herein.
23. NO OPTIONS:
23.01 The submission of this lease for examination does not constitute
a reservation of or option for the demised premises, and this lease becomes
effective only upon execution and delivery thereof by the Landlord.
24. OPTIONS TO RENEW:
24.01 The Landlord hereby covenants and agrees that if, upon the
termination of the original term of this Lease if Tenant is not in default under
any of the material terms, covenants or conditions of this Lease on Tenant's
part to be observed or performed beyond any applicable grace period provided for
in this Lease for the curing of such default, the Tenant shall have the option,
upon giving written notice of its exercise thereof six (6) months prior to the
end of the initial term, to further extend the term of the Lease for an
additional term of five (5) years (the First Option Period) upon the same terms
and conditions herein contained, except
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<PAGE>
that the rental as provided in Article 3 shall be calculated as hereinafter
provided. Upon the termination of the first option period, if Tenant is not in
default under any of the material terms, covenants or conditions of this Lease
on Tenant's part to be observed or performed beyond any applicable grace period
provided for in this Lease for the curing of such default, the Tenant shall have
the option, upon giving written notice of its exercise thereof six (6) months
prior to the end of the first option period, further to extend the term of the
Lease for an additional term of five (5) years upon the same terms and
conditions herein contained, except that the rental as provided in Article 3
shall be calculated as hereinafter provided, and there shall be no further
options to extend the Lease. During the option periods, rental shall be adjusted
(hereinafter referred to as the "Adjustment"), effective as of the commencement
of any extension of the Term of this Lease, to reflect any increase in the cost
of living based upon the "Consumer Price Index for Urban Wage Earners and
Clerical Workers, Northeast. All items - (1982-84 = 100)" (hereinafter referred
to as the "Index") published by the Bureau of Labor Statistics of the United
States Department of Labor. The Adjustment shall be calculated by multiplying
the rental in effect during the first month of the Original Term by a fraction,
the numerator of which shall be the Index for the month in which commences each
extension of term (or the nearest reported preceding month), and the
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<PAGE>
denominator of which shall be the corresponding Index for the first full month
of the initial term hereof.
25. BROKERAGE:
25.01 A. Tenant warrants and represents that it has not dealt with any
realtor, broker or agent, in connection with the negotiation of this Lease, and
agrees to pay and to hold Landlord harmless from any cost, expense or liability
(including costs of suit and reasonable attorneys' fees) for any compensation,
commission or charges claimed by any broker with respect to this Lease arising
as a result of the acts of Tenant.
B. Landlord warrants and represents that it has not dealt with
any realtor, broker or agent, in connection with the negotiation of this Lease
and agrees to pay and to hold Tenant harmless from any cost, expense or
liability (including costs of suit and reasonable attorneys' fees) for any
compensation, commission or charges claimed by any broker with respect to this
Lease, arising as a result of the acts of Landlord.
26. LEASE STATUS:
26.01 Upon request of either party hereto, the other party will execute
and deliver an instrument, in recordable form, stating, if the same be true,
that this Lease is a true and exact copy of the Lease between the parties
hereto, that there are no amendments hereof (or stating what amendments there
may be), that the same is then in full force and effect and that, to the best of
35
<PAGE>
such party's knowledge, there are then no offsets, defenses or counterclaims
with respect to the payment of rent reserved hereunder or in the performance of
the other terms, covenants and conditions hereof to be performed by either party
hereto, and that as of such date no default has been declared hereunder by
either party hereto and that such party at the time has no knowledge of any fact
or circumstance which it might reasonably believe would give rise to a default
by either party.
27. HOLDOVER:
27.01 After the expiration of the term of this Lease if not extended,
or extended term, if extended, if Tenant shall continue in possession
thereafter, such possession shall be on a month-to-month basis upon the same
terms of this Lease and in such case Tenant shall continue to pay Fixed Rent (as
so adjusted from the Commencement Date) and additional rent and charges until
terminated at the end of a month by either party upon thirty (30) days' advance
written notice to the other party.
28. QUIET ENJOYMENT:
28.01 Landlord represents and covenants that Landlord has full right,
power and authority to enter this Lease for the term herein granted and Landlord
covenants and agrees with Tenant that upon Tenant paying the Fixed Rent, and
other charges due hereunder, and observing and performing all the terms,
covenants and conditions on Tenant's part to be observed and performed, Tenant
36
<PAGE>
may peaceably and quietly enjoy the Demised Premises, free from any
interference, molestation or acts of Landlord or of anyone claiming by, through
or under Landlord, subject, nevertheless, to the terms and conditions of this
Lease.
29. REPRESENTATIONS BY LANDLORD:
29.01. A. Landlord hereby represents to, and covenants with, Tenant as
follows:
(i) Landlord has good and marketable fee simple title to the
Mill and the Demised Premises, subject to no liens or encumbrances other than
easements, rights-of-way, zoning and similar restrictions on the use of property
and minor irregularities of title which do not, individually or in the
aggregate, adversely impair the use of the Demised Premises for the purposes set
forth in this Lease. The representation contained in this subparagraph (i) shall
be true and correct as of this date and the Commencement Date.
(ii) Landlord is duly authorized to execute this Lease.
(iii) During the term of this Lease, Landlord shall not
voluntarily pursue an application for a zoning variance which would adversely
affect Tenant's use of the Demised Premises.
(iv) There has been issued and there remains in effect every
certificate of occupancy or use or other permit currently required for the
existing use and occupancy of the Demised Premises.
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(v) The Mill and the Demised Premises and the use and
occupancy thereof are in material compliance with all local zoning, land use,
set back or other development and use requirements of all applicable
governmental authorities and all permits.
(vi) The Mill and the mechanical systems and equipment
included in the Demised Premises are structurally sound, in good operating
condition and repair (normal wear and tear excepted) and do not require material
repairs.
30. RIGHT TO CONTEST:
30.01 So long as the actions of Tenant shall not result in a penalty
being imposed against Landlord, or subject the Mill to forfeiture, Tenant shall
have the right to contest or review any regulation, by-law, order, statute,
assessment or similar item imposed by any governmental authority having
jurisdiction over the Mill or the Demised Premises ("order") by legal
proceedings or in such manner as Tenant may deem advisable and may have any such
order cancelled, removed or revoked, without actual compliance therewith. If any
such actions or proceedings are instituted by Tenant, they shall be instituted
and conducted diligently and in good faith at the expense of the Tenant and free
of expenses to the Landlord.
31. SELF-HELP; RENT ABATEMENT:
31.01 If, for any reason (other than damage or destruction otherwise
provided for pursuant to Article 10 hereof), including,
38
<PAGE>
without limitation, "Force Majeure" delays, there is a failure to make any
repair or replacement, or to perform any other obligation of Landlord under this
Lease, and as a result thereof the conduct of Tenant's normal business
operations in the Demised Premises (or a material portion thereof) shall be
materially impaired (any or all of the foregoing hereinafter sometimes referred
to as an "Interruption"), and, after notice thereof by Tenant to Landlord,
Landlord does not with reasonable dispatch commence action to remedy such
interruption, or if so commenced, does not continue such action with reasonable
diligence, and complete the same with reasonable dispatch (or, in the case of
emergency, within two (2) days), then, in any such event, and upon the giving of
five (5) days' written notice to Landlord (or, in the case of emergency, upon
the giving of such notice, oral or written, as may be reasonable under the
circumstances), Tenant shall have the right (but not the obligation) to make any
such repairs or replacements that Landlord shall have failed to make, or to
perform such other obligation of Landlord as Landlord shall have failed to
perform, as Landlord's agent, and Tenant may deduct the reasonable costs thereof
(with interest at the Applicable Rate from the date of expenditure to the date
that such cost plus interest shall have been fully deducted) from any rents
payable to Landlord.
32. ARBITRATION:
39
<PAGE>
32.01 Any controversy or claim arising out of, or relating to this
Lease or the breach thereof, shall be settled by arbitration, in accordance with
the Commercial Arbitration Rules, then obtaining, of the American Arbitration
Association at Boston, Massachusetts, or such other site as agreed by the
parties and judgment upon the award rendered may be entered in any Court having
jurisdiction thereof.
IN WITNESS WHEREOF, the said Landlord and Tenant have hereunto and to a
duplicate original hereof, interchangeably set their hands and seals on the day
and date first set forth above, by their property officers hereunto duly
authorized.
Signed and sealed
in the presence of:-
ERIKA REALTY TRUST
By:
- ------------------------------------ ------------------------------------
, TRUSTEE
ARIS INDUSTRIES, INC.
By:
- ------------------------------------ ------------------------------------
40
<PAGE>
AGREEMENT OF LEASE
By and Between
ERIKA REALTY TRUST
100 North Front Street
New Bedford, Massachusetts
and
ARIS INDUSTRIES, INC.
1411 Broadway
New York, New York 10018
41
<PAGE>
TABLE OF CONTENTS
- -----------------
DEMISED PREMISES....................................... PAGE 1
TERM................................................... PAGE 2
RENT................................................... PAGE 2
USE OF PREMISES ....................................... PAGE 3
TAXES, WATER AND SEWER................................. PAGE 4
INSURANCE.............................................. PAGE 6
SERVICES............................................... PAGE 8
ALTERATIONS............................................ PAGE 9
REPAIRS AND COST OF MAINTENANCE PERSONNEL.............. PAGE 11
DESTRUCTION BY FIRE OR OTHER CASUALTY.................. PAGE 12
SIGNS.................................................. PAGE 15
UTILITIES.............................................. PAGE 16
ASSIGNMENT OF LEASE ................................... PAGE 16
ELEVATORS.............................................. PAGE 21
LANDLORD'S RIGHT TO ENTER UPON THE PREMISES............ PAGE 21
LANDLORD NOT LIABLE FOR DEFECTS........................ PAGE 22
LIABILITY FOR INJURY................................... PAGE 22
COVENANTS TO PAY RENT, ETC., DEFAULT................... PAGE 22
FIXTURES............................................... PAGE 24
SURRENDER.............................................. PAGE 26
WAIVER OF BREACH, ETC.................................. PAGE 27
MISCELLANEOUS.......................................... PAGE 27
NO OPTIONS ............................................ PAGE 30
OPTIONS TO RENEW....................................... PAGE 30
BROKERAGE ............................................. PAGE 32
LEASE STATUS........................................... PAGE 32
HOLDOVER............................................... PAGE 33
QUIET ENJOYMENT ....................................... PAGE 33
REPRESENTATIONS BY LANDLORD............................ PAGE 34
RIGHT TO CONTEST....................................... PAGE 35
SELF-HELP; RENT ABATEMENT ............................. PAGE 35
ARBITRATION............................................ .PAGE 36
42
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 524,000
<SECURITIES> 0
<RECEIVABLES> 32,225,000
<ALLOWANCES> 0
<INVENTORY> 21,435,000
<CURRENT-ASSETS> 56,666,000
<PP&E> 6,309,000
<DEPRECIATION> (5,302,000)
<TOTAL-ASSETS> 75,327,000
<CURRENT-LIABILITIES> 35,711,000
<BONDS> 6,942,000
<COMMON> 461,000
0
26,000
<OTHER-SE> 31,201,000
<TOTAL-LIABILITY-AND-EQUITY> 75,327,000
<SALES> 28,133,000
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<INCOME-TAX> 326,000
<INCOME-CONTINUING> (7,324,000)
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<NET-INCOME> (7,324,000)
<EPS-PRIMARY> (0.28)
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</TABLE>
