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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 10, 1999
ARIS INDUSTRIES, INC.
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(Exact name of registrant as specified in charter)
New York 1-4814 22-1715274
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
1411 Broadway, New York, NY 10018
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(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code 212-642-4300
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) On August 10, 1999, Aris Industries, Inc. (the "Registrant")
consummated the merger of Lola, Inc. ("Lola"), a California corporation, with
and into Europe Craft Imports, Inc. ("ECI"), a New Jersey corporation (the
"Merger"), that is wholly owned by the Registrant. Immediately following the
effectiveness of the Merger, ECI contributed all of the assets formerly owned by
Lola to XOXO Clothing Company, Incorporated, a Delaware corporation ("XOXO")
that is wholly owned by ECI.
The consideration paid to Lola's shareholders was $10,000,000
and 6,500,000 shares of the Registrant's common stock, which were valued, for
the purpose of the transaction, at $1.50 per share. The consideration was
determined by arms length negotiation.
In connection with the transaction, ECI obtained a $10 million
term loan and the Company and its subsidiaries amended its financing agreements
to increase its revolving line of credit from $65 million to $80 million.
(b) Lola's business consists principally of the manufacture and sale
of women's apparel and accessories, and the Registrant intends to continue such
business.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial statements of the business acquired.
1. It is impracticable to file any financial statements at
this time. The required financial statements will be filed by amendment as soon
as possible.
(b) Pro forma financial statements.
It is impracticable to file pro forma financial information at
the time of this report. Such information will be filed by amendment with the
required financial statements referred to above.
EXHIBITS
99.1 Agreement and Plan of Merger dated July 19, 1999 by and among Aris
Industries, Inc., XOXO Acquisition Corp. and Lola, Inc. and its
shareholders. The exhibits and schedules to the Merger Agreement are
listed on the last page of such Agreement. Such exhibits and schedules
have not been filed by the Registrant, who hereby undertakes to file such
exhibits and schedules upon request of the Commission.
99.2 Amendment No. 1 to Agreement and Plan of Merger.
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99.3 Employment Agreement by and among the Registrant, ECI, ECI Sportswear,
Inc. and XOXO and Gregg Fiene, dated August 10, 1999.
99.4 Employment Agreement by and among the Registrant, ECI, ECI Sportswear,
Inc. and XOXO and Hollis Fiene, dated August 10, 1999.
99.5 Shareholders' Agreement by and among the Registrant, The Simon Group, LLC,
Gregg Fiene, Michele Bohbot and Lynne Hanson, dated August 10, 1999.
99.6 Amendment No. 2 to Financing Agreement by and among Aris Industries, Inc.,
Europe Craft Imports, Inc., ECI Sportswear, Inc., Stetson Clothing
Company, Inc., XOXO; the Financial Institutions from time to time party to
the Financing Agreement, as Lenders; and The CIT Group/Commercial
Services, Inc. as Agent, dated August 10, 1999.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 24, 1999
ARIS INDUSTRIES, INC.
(Registrant)
By: /s/ Arnold H. Simon
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Arnold H. Simon, Chairman
and Chief Executive Officer
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EXHIBITS
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99.1 Agreement and Plan of Merger dated July 19, 1999 by and among Aris
Industries, Inc., XOXO Acquisition Corp. and Lola, Inc. and its
shareholders. The exhibits and schedules to the Merger Agreement are
listed on the last page of such Agreement. Such exhibits and schedules
have not been filed by the Registrant, who hereby undertakes to file such
exhibits and schedules upon request of the Commission.
99.2 Amendment No. 1 to Agreement and Plan of Merger.
99.3 Employment Agreement by and among the Registrant, ECI, ECI Sportswear,
Inc. and XOXO and Gregg Fiene, dated August 10, 1999.
99.4 Employment Agreement by and among the Registrant, ECI, ECI Sportswear,
Inc. and XOXO and Hollis Fiene, dated August 10, 1999.
99.5 Shareholders' Agreement by and among the Registrant, The Simon Group, LLC,
Gregg Fiene, Michele Bohbot and Lynne Hanson, dated August 10, 1999.
99.6 Amendment No. 2 to Financing Agreement by and among Aris Industries, Inc.,
Europe Craft Imports, Inc., ECI Sportswear, Inc., Stetson Clothing
Company, Inc., XOXO; the Financial Institutions from time to time party to
the Financing Agreement, as Lenders; and The CIT Group/Commercial
Services, Inc. as Agent, dated August 10, 1999.
EXHIBIT 99.1
AGREEMENT AND PLAN OF MERGER
dated as of July _, 1999
by and among
ARIS INDUSTRIES, INC.
XOXO ACQUISITION CORP.
and
LOLA, INC.
and
GREGG FIENE, MICHELE BOHBOT,
and LYNN FIENE HANSON
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This AGREEMENT AND PLAN OF MERGER, dated as of July __, 1999, is made
and entered into by and among Aris Industries, Inc., a New York corporation
("Parent"), XOXO Acquisition Corp., a California corporation wholly owned by
Parent ("Sub"), Lola, Inc., a California corporation (the "Company" and,
collectively with Sub, the "Constituent Corporations") wholly owned by Gregg
Fiene, ("Fiene"), an individual residing in California, Michele Bohbot
("Bohbot"), an individual residing in California and Lynn Fiene Hanson
("Hanson"), an individual residing in California (collectively, the
"Shareholders", and together with the Company, the "Company Group"). Terms not
otherwise defined have the meanings set forth in Section 12.1.
R E C I T A L S:
A. The Boards of Directors of Parent, Sub and the Company have each
determined that it is advisable and in the best interests of their respective
stockholders to consummate, and have approved, the business combination
transaction provided for herein in which the Company would merge with and into
the Sub (the "Merger").
B. Parent, Sub, the Company and the Shareholders desire to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger.
In consideration of the mutual covenants and agreements set forth in
this Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I.
THE MERGER
1.1 The Merger. At the Effective Time, upon the terms and subject to
the conditions of this Agreement, the Company shall be merged with and into Sub
in accordance with the General Corporation Law of the State of California (the
"GCL"). The Sub shall be the surviving corporation in the Merger (the "Surviving
Corporation") and the separate existence of the Company shall cease. As a result
of the Merger, the outstanding shares of capital stock of the Constituent
Corporations shall be converted or canceled in the manner provided in Article
II.
1.2 Effective Time. On the Closing Date, a certificate of merger (the
"Certificate of Merger") shall be duly prepared and executed by the Surviving
Corporation and thereafter delivered to the Secretary of State of the State of
California (the "Secretary of State") for filing, as provided in Section 1103 of
the GCL. The Merger shall become effective at the time the filing of the
Certificate of Merger with the Secretary of State (the date and time of such
filing being referred to herein as the "Effective Time").
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1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in this Agreement and the applicable provisions of
California law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Sub shall vest in the Surviving Corporation, and
all debts, liabilities and duties of the Company shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Closing. The closing of the Merger (the "Closing") will take place
at the offices of Troop Steuber Pasich Reddick & Tobey, LLP or, if required by
Parent's lenders at the offices of its lawyers in New York, at 10:00 a.m., local
time, three business days after Parent shall have given notice to the Company
that all of the conditions to consummation of the Merger shall have been
satisfied or waived by Parent but in no event later than August 15, 1999. At the
Closing (a) the Shareholders shall deliver for cancellation certificates
representing all issued and outstanding shares of Company Common Stock, (b)
Parent shall deliver to the Shareholders their pro rata share (as set forth on
Schedule 1.4) of $10,000,000 and certificates representing their pro rata share
(as set forth in Schedule 1.4) of 6,500,000 shares of the common stock, par
value $.01 per share of Parent ("Parent Common Stock"); and (c) the parties
shall execute and deliver to each other the certificates and other documents and
instruments required to be delivered under Article VIII.
1.5 Certificate of Incorporation and Bylaws of the Surviving
Corporation. At the Effective Time, (a) the Certificate of Incorporation of the
Sub as in effect immediately prior to the Effective Time shall be amended to
change its name to XOXO, Inc. and, as so amended, such Certificate of
Incorporation shall be the Certificate of Incorporation of the Surviving
Corporation, and (b) the Bylaws of the Sub as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation.
1.6 Directors and Officers of the Surviving Corporation. The directors
of the Sub, and the officers of the Company, immediately prior to the Effective
Time shall, from and after the Effective Time, be the directors and officers of
the Surviving Corporation until their successors shall have been duly elected or
appointed and qualified, provided, however, Parent shall cause Fiene to be added
as a director of the Surviving Corporation and of Parent concurrent with the
Effective Time.
1.7 Further Assurances. Each party hereto will execute such further
documents and instruments and take such further actions as may reasonably be
requested by one or more of the others to consummate the Merger, to vest the
Surviving Corporation with full title to all assets, properties, rights,
approvals, immunities and franchises of either of the Constituent Corporations
or to effect the other purposes of this Agreement.
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ARTICLE II.
CONVERSION OF SHARES; ADJUSTMENTS; ADDITIONAL PARENT SHARES
2.1 Conversion of Capital Stock. Subject to the terms and conditions of
this Agreement, at the Effective Time, by virtue of the Merger and without any
action on the part of Sub, the Company or the holders of any of the following
securities, the following shall occur:
(a) Capital Stock of Sub. Each issued and outstanding share of the
common stock, par value $.01 per share, of Sub ("Sub Common Stock") shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation ("Surviving
Corporation Common Stock"). Each certificate evidencing ownership of shares of
Sub Common Stock shall evidence ownership of shares of capital stock of the
Surviving Corporation.
(b) Cancellation of Treasury Stock and Stock Owned by Parent and
Subsidiaries. All shares of common stock, no par value, of the Company ("Company
Common Stock") that are owned by the Company as treasury stock shall be canceled
and retired and shall cease to exist and no stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Exchange Ratio for Company Common Stock. Each share of Company
Common Stock issued and outstanding at the Effective Time, other than shares to
be canceled in accordance with Section 2.1(b), shall be canceled and
extinguished and automatically converted subject to Section 2.1(d) into the
right to receive (A) $10,000,000 divided by the number of shares of Company
Common Stock outstanding at the Effective Time, and (B) such number (the
"Conversion Number") of shares of Parent Common Stock equal to the quotient of
(i) 6,500,000 (the "Aggregate Conversion Amount) divided by (ii) the number of
shares of Company Common Stock outstanding at the Effective Time, subject to
adjustment in accordance with the next sentence. If, prior to the Effective
Time, Parent shall pay a dividend in, subdivide, combine into a smaller number
of shares or issue by reclassification, reorganization, reclassification or the
like of its shares, any shares of Parent Common Stock, the Conversion Number
shall be multiplied by a fraction, the numerator of which shall be the number of
shares of Parent Common Stock outstanding immediately after, and the denominator
of which shall be the number of shares of Parent Common Stock outstanding
immediately before, the occurrence of such event, and the resulting product
shall from and after the date of such event be the Conversion Number. The
parties agree that a fair value of the Parent Company Stock being issued
hereunder is $1.50 per share.
(d) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Company Common Stock who would otherwise be entitled to a fraction of
a share of Parent Common Stock (after aggregating all fractional shares of
Parent Common Stock that otherwise would be
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received by such holder) shall, upon surrender of such holder's certificate(s),
receive from Parent an amount of cash (rounded to the nearest whole cent),
without interest, equal to the product of (i) such fraction, multiplied by (ii)
the average closing price of one share of Parent Common Stock for the ten (10)
most recent days that Parent Common Stock has traded ending on the trading day
ending one day prior to the Closing Date, as reported on the OTC BB.
(e) Lost, Stolen or Destroyed Certificates. In the event any
certificates representing shares of Company Common Stock shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and an agreement to
indemnify the Parent against any claim that may be made against it with respect
to such certificate, the Parent will issue in exchange for such lost, stolen or
destroyed certificate the aggregate merger consideration into which the shares
of Company Common Stock represented by such certificate would have been
converted and any fractional payment due in connection therewith.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Each member of the Company Group (except for Hanson, who only makes the
representations and warranties contained in Sections 3.2(b) (but only that the
shares of Common Stock owned by Hanson are free and clear of any liens, claims,
mortgages, encumbrances, pledges, security interest, equities and charges of any
kind), 3.27 and 3.28), jointly and severally, represents and warrants to Parent
and Sub as follows:
3.1 Organization; Good Standing.
(a) The Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and has full corporate power and authority to
conduct its business as and to the extent now conducted and to own, use and
lease its assets and properties. The Company is qualified to do business and is
in good standing in the jurisdictions listed on Schedule 3.1(a). Other than as
listed in Schedule 3.1(a) the Company is qualified to do business as a foreign
corporation, and is in good standing, under the laws of all jurisdictions where
the nature of its business requires such qualification and where the failure to
do so qualify would have a Material Adverse Effect on the Company.
(b) Except as set forth on Schedule 3.1(b), the Company does not
directly or indirectly own any equity or similar interest in, or any interest
convertible into or exchangeable or exercisable for, any equity or similar
interest in, any corporation, partnership, joint venture or other business
association or entity. Any references to the "Company" in Sections 3.6 through
3.24 and Section 5.1 shall include the Company's subsidiaries identified on
Schedule 3.1(b).
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3.2 Capital Stock. (a) The authorized capital stock of the Company
consists solely of 100,000 shares of Company Common Stock, of which 10,000 are
issued and outstanding, and none of which are reserved for issuance under any
Contract. There are no outstanding subscriptions, options, warrants, rights,
preemptive rights or other contracts, commitments, understandings or
arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (together, "Options"), obligating
the Company to issue or sell any shares of capital stock of the Company or to
grant, extend or enter into any Option with respect thereto.
(b) Other than as set forth on Schedule 3.2(b), all outstanding shares
of the Company Common Stock are duly authorized, validly issued, fully paid and
nonassessable and are owned, beneficially and of record, by the Shareholders,
free and clear of any liens, claims, mortgages, encumbrances, pledges, security
interests, equities and charges of any kind (each, a "Lien"). The number of
shares of Company Common Stock owned by each Shareholder is set forth on
Schedule 3.2(b).
(c) There are no outstanding contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of Company Common Stock or to
provide funds to, or make any investment (in the form of a loan, capital
contribution or otherwise) in, any person.
3.3 Authority Relative to this Agreement. The Company has full
corporate power and authority to enter into this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly approved by the Board of Directors and Shareholders of the
Company, and no other corporate proceedings on the part of the Company or its
stockholders are necessary to authorize the execution, delivery and performance
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by the Company and constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
3.4 Officers; Directors; Corporate Documents. Section 3.4 of the
Disclosure Schedule lists the name of each director and officer of the Company
on the date hereof, and the position with the Company each holds. Prior to the
date hereof, the Company has delivered to Purchaser true and complete copies of
the Certificate of Incorporation and By-Laws of the Company as in effect on the
date hereof.
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3.5 Financial Statements; Absence of Undisclosed Liabilities.
(a) Prior to the execution of this Agreement, the Company has delivered
to Purchaser true and complete copies of the Financial Statements.
(b) The Financial Statements (i) were prepared in accordance with the
Books and Records of the Company, (ii) fairly and accurately present the
financial condition of the Company as of the date thereof and (iii) were
prepared in accordance with GAAP.
(c) The Company does not have any liabilities (whether absolute,
accrued or contingent) except: (a) liabilities, obligations or contingencies
that are accrued and reserved against in the balance sheet of the Company or
reflected in the notes thereto as of April 30, 1999, (b) liabilities incurred
since April 30, 1999 in the ordinary course of business, (c) liabilities
disclosed in Schedule 3.5(c), or (d) liabilities under executory contracts
disclosed (or contracts in the ordinary course of business not required to be
disclosed) in the Schedules to this Agreement.
3.6 Real Property. Section 3.6 of the Disclosure Schedule lists each
parcel of real property leased by the Company, as lessor or lessee ("Real
Property"), and identifies the document pursuant to which each such parcel is
leased (the "Real Property Leases"). Each Real Property Lease is valid, binding
and in full force and effect without any default thereunder by the Company. No
real property other than that covered by the Real Property Leases is used by the
Company Group in connection with the Business. Prior to the execution of this
Agreement, the Company has delivered to Purchaser true and correct copies of the
Real Property Leases.
3.7 Tangible Personal Property; Investment Assets. The Company has good
title to, all tangible personal property used in the conduct of the Business,
including all tangible personal property reflected on the January Balance Sheet
and tangible personal property acquired since January 31, 1999, other than
property disposed of since such date in the ordinary course of business
consistent with past practice. All such tangible personal property is free and
clear of all Liens, other than Liens disclosed in Section 3.7 of the Disclosure
Schedule, and is in good working order and condition, ordinary wear and tear
excepted.
3.8 Intellectual Property Rights. The Company has an interest in or
uses only the Intellectual Property disclosed in Section 3.8 of the Disclosure
Schedule, each of which the Company has all right, title and interest in. No
other Intellectual Property is used or necessary in the conduct of the business
of the Company. Except as disclosed in Section 3.8 of the Disclosure Schedule,
(i) the Company has the exclusive right to use the Intellectual Property
disclosed in Section 3.8 of the Disclosure Schedule, (ii) all registrations with
and applications to governmental agencies in respect of such Intellectual
Property are valid and in full force and effect and are not subject to the
payment of any Taxes, (iii) there are no restrictions on the direct or indirect
transfer of any Contract, or any interest therein, held by the Company or any
Subsidiary in respect of such Intellectual Property other than those imposed by
applicable law,
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(iv) the Company is not, nor has it received any notice that it is, in default
(or with the giving of notice or lapse of time or both, would be in default)
under any Contract to use such Intellectual Property and (v) to the Knowledge of
the Company, no such Intellectual Property is being infringed by any other
Person. The Company is not infringing any Intellectual Property of any other
Person, no claim is pending or, to the Knowledge of the Company, has been made
to such effect that has not been resolved in the Company's favor.
3.9 Litigation. Except as set forth in Section 3.9 of the Disclosure
Schedule (with paragraph references corresponding to those set forth below):
(a) there is no Legal Proceeding pending or, to the Knowledge of the
Company, threatened against the Company relating to or affecting the Company or
the Business, or any of its assets and properties, and there has been no Legal
Proceeding previously resolved against the Company which remains unsatisfied;
(b) there are no facts or circumstances Known to the Company that could
reasonably be expected to give rise to any Legal Proceeding that would be
required to be disclosed pursuant to clause (a) above; and
(c) there are no Orders outstanding against the Company.
Prior to the execution of this Agreement, the Company has delivered to Parent
all responses of counsel for the Company to auditors' requests for information
delivered in the past five years in connection with the Financial Statements
(together with any updates provided by such counsel) regarding Legal Proceedings
pending or threatened against, relating or affecting the Company.
3.10 Compliance with Laws. The Company is not, nor at any time within
the last five years has been, nor has it received any notice that it is or has
at any time within the last five years been, in violation of or in default under
any Law or Order applicable to the Company or any of its assets or properties,
except to the extent such violation would not have a material adverse effect on
the Company.
3.11 Contracts.
(a) Except as set forth in Section 3.11 of the Disclosure Schedule, the
Company is not a party to any:
(1) Contract for the employment of any officer, director, employee or
consultant, or with any labor union or association that is not terminable at
will without cost, liability or expense to the Company;
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(2) Contract pursuant to which any Person who is or was an officer,
director, employee, consultant, or an Affiliate or Associate of any such Person
has a material interest;
(3) Contract relating to the borrowing or lending of money, the
factoring of accounts receivable or the guarantee of any obligations for
borrowed money, excluding trade payables or endorsements made for purposes of
collection in the ordinary course of business;
(4) Contract having an unexpired term of more than six months after the
Closing or involving payments after the Closing in excess of $25,000 in any
year;
(5) Contract for the production or supply by it of goods or services
having unexpired terms (including any periods covered by options to renew
exercisable by other parties) of more than 90 days after the Closing;
(6) Contract for capital expenditures or the purchase by it of
materials, supplies, equipment or services which requires payments by the
Company in excess of $25,000 after the Closing;
(7) licenses (whether as licensor or licensee of any Intellectual
Property) or royalty agreements;
(8) distributor, dealer, manufacturer's representative, sales agency,
franchise or advertising Contracts;
(9) Contract relating to (A) the future disposition or acquisition of
any Assets and Properties, other than dispositions or acquisitions in the
ordinary course of business consistent with past practice, and (B) any merger or
other business combination;
(10) Contract containing covenants not to compete in any business or
geographical area or restricting it from the use or disclosure of any
information in its possession; or
(b) Except as set forth in Section 3.11 of the Disclosure Schedule:
(1) each Contract required to be disclosed in Section 3.11(a) of the
Disclosure Schedule (each, a "Material Contract") is in all material respects
valid and in full force and effect;
(2) the Company has performed in all material respects all material
obligations required to be performed by it and is not in default (and with the
giving of notice or the lapse of time will not be in default), and will not be
in default entitling the other party thereto
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to terminate such Contract as a result of the consummation of the transactions
contemplated by this Agreement, under any Material Contract;
(3) the Company Group has not received notice that any party to any
Material Contract intends or may intend to cancel or terminate any Material
Contract or to exer cise or not exercise options or rights under any such
Material Contract;
(4) all liabilities and obligations of the Company required to be paid
or performed by the Company on or before the Closing under all Material
Contracts have been, or will have been on the Closing, duly paid in full,
performed or accrued by the Company in all material respects consistent with
past practices; and
(5) the consummation of the transactions contemplated by this Agreement
(1) does not require any consent under any Material Contract, and (2) will not
result in the rightful termination of any material right or privilege now
enjoyed by the Company under any Material Contract.
3.12 Absence of Certain Changes. Since April 30, 1999, other than as
disclosed in Section 3.12 of the Disclosure Schedule, the Company has operated
the Business in the ordinary course consistent with past practices, and has not:
(a) entered into any transaction or incurred any liability or
obligation other than in the ordinary course of business, or which was in an
amount in excess of $50,000 (other than purchases and sales of inventory in
accordance with past practices);
(b) had any material change in the Condition of the Business; and
(c) granted or agreed to grant any increase in compensation to any of
its employees or to any agent, or paid or agreed to pay any bonus to any
employee in excess of 5% of such employee's or agent's current salary.
3.13 Permits. The Company has all Permits required by Law for the
operation of the Business and the use of the Assets, the absence of which would
have a material adverse effect on the Company. Section 3.13 of the Disclosure
Schedule contains a materially complete and correct description of all such
Permits. All such Permits are valid and in full force and effect. To the
knowledge of the Company, there are no pending or threatened Legal Proceedings
that could result in the termination or impairment of any Permit.
3.14 Payments. No member of the Company Group, in connection with the
Business or the Assets, has directly or indirectly: made any unlawful domestic
or foreign political contribution; made or received any payment, or provided or
received any service which were not legal to make, receive or provide; or had
any transactions or payments which are not
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recorded in its accounting books and records or disclosed in its financial
statements, which act or omission would have a material adverse effect on the
Company.
3.15 Insurance. Section 3.15 of the Disclosure Schedule contains a true
and complete list (including the names and addresses of the insurers, the names
of the Persons to whom such insurance policies have been issued, the expiration
dates thereof, the annual premiums and payment terms thereof, whether it is a
"claims made" or an "occurrence" policy and a brief description of the interests
insured thereby) of all liability, property, workers' compensation and other
insurance policies currently in effect that insure the Business, the Employees
or the Assets. Each such insurance policy is valid and binding and in full force
and effect, no premiums due thereunder have not been paid and the Company has
not received any notice of cancellation or termination in respect of any such
policy or is in default thereunder. In light of the nature of the Business and
the Assets, the insurance policies are in amounts and have coverages that are
reasonable and customary for Persons engaged in such business and having such
Assets and Properties. Neither the Company nor the Person to whom such policy
has been issued has received notice that any insurer under any policy referred
to in this Section is denying liability with respect to a claim thereunder or
defending under a reservation of rights clause.
3.16 Inventories. Schedule 3.16 is a list of all inventory of the
Company as of May 31, 1999 (the "Inventory"), broken down by raw materials, work
in progress and finished goods (which are further broken down by ageing
thereof). The value attributed to each item of Inventory on Schedule 3.16 is
recorded at the lower of its cost or market price on a first-in-first-out basis.
Except as set forth on Schedule 3.16, all Inventory (net of reserves) consists
of current and marketable Products, raw materials and work-in-process related to
the Business which are usable, and, in the case of finished products, saleable
at the Company's regular prices, in the ordinary course of the Business
consistent with past practices.
3.17 Business Books and Records. Except with respect to the minute
books of the Company and its subsidiaries, none of the books and records of the
Company (the "Books and Records") is recorded, stored, maintained, operated or
otherwise wholly or partly dependent upon or held by any means (including any
electronic, mechanical or photographic process, whether computerized or not)
which are not under the exclusive ownership and direct control of the Company.
All Books and Records have been made available to the Parent, and they
accurately record all the transactions and assets of the Company in all material
aspects.
3.18 Accounts Receivable; Accounts and Other Liabilities Payable.
(a) Section 3.18(a) of the Disclosure Schedule is a summary Accounts
Receivable aging report (the "Summary") as of June 15, 1999 which accurately
reflects as of such date the dollar amount of the 30, 60, 90 and 120 day
accounts receivable in each of the following three categories by customer:
dresses, sportswear, denim. On or about July 15, 1999, the Company will deliver
to Parent the Capital Factors Aging Report as of July 15, 1999.
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(b) Other than as set forth on Schedule 3.18(b), the Accounts
Receivable reflected on Schedule 3.18(a), and those that will be reflected on
the Accounts Receivable Schedule, arose from bona fide sales transactions in the
ordinary course of business and are payable on ordinary trade terms, (ii) are
legal, valid and binding obligations of the respective debtors enforceable in
accordance with their terms, (iii) are not subject to any valid set-off or
counterclaim by any customer, (iv) do not represent obligations for goods sold
on consignment, on approval or on a sale-or-return basis or subject to any other
repurchase or return arrangement, (v) are collectible in the ordinary course of
business consistent with past practice in the aggregate recorded amounts
thereof, net of any applicable reserve reflected in the balance sheet included
in the Financial Statements, and (vi) are not the subject of any Legal
Proceedings brought by or on behalf of the Company.
(c) Section 3.18(c) of the Disclosure Schedule lists all the creditors
of the Company as of May 31, 1999 and such Schedule will be updated to
accurately describe the amounts, nature, and payment due dates of all the
Company's Liabilities as of the close of business on a day withing five (5) days
of the Closing. The updated Schedule (the "Payables Schedule") shall be
delivered to Parent at the Closing.
3.19 Taxes. Other than as disclosed in Section 3.19 the Company has
filed all Tax returns and reports required to be filed by it with respect to the
Business and the Assets, all such returns and reports were accurate in all
material respects, and all Taxes owed by the Company and reflected on tax
returns have been paid.
3.20 Affiliate Transactions. Except with respect to wages paid to
Employees in the ordinary course of business, payments made by the Company for
vehicles used by employees of the Company, payments that otherwise are not in
excess of $50,000 per year per Shareholder or as disclosed in Section 3.20 of
the Disclosure Schedule, (i) no officer, director, Affiliate or Associate of the
Company or any Associate of any such officer, director or Affiliate provides or
causes to be provided any assets, services or facilities used or held for use in
connection with the Business, (ii) the Business does not provide or cause to be
provided any assets, services or facilities to any such officer, director,
Affiliate or Associate, and (iii) the Company has not engaged in any transaction
or entered into any agreement with, or guaranteed any obligation of any
Affiliate or Associate of a member of the Company Group. Except as disclosed in
Section 3.20 of the Disclosure Schedule, each of the transactions listed in
Section 3.20 of the Disclosure Schedule is engaged in on an arm's-length basis.
3.21 Employees; Labor Relations; Benefits.
(a) Section 3.21(a) of the Disclosure Schedule contains a list of the
name of each employee of the Company as at the date hereof, together with such
Employee's position or function, annual base salary or wages and any incentive
or bonus arrangement with respect to such Employee in effect on such date. To
the knowledge of the Company, a material
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number of Employees will not cease to be Employees, or will not refuse offers of
employment from Parent, because of the consummation of the transaction
contemplated by this Agreement.
(b) (i) No Employee is presently a member of a collective bargaining
unit and, to the Knowledge of the Company, there are no threatened or
contemplated attempts to organize for collective bargaining purposes any of the
Employees, and (ii) no unfair labor practice complaint or gender, age, race or
other discrimination claim has been brought during the last three years against
the Company with respect to the conduct of the Business before the National
Labor Relations Board, the Equal Employment Opportunity Commission or any other
governmental or regulatory Authority. Since January 1, 1996, there has been no
work stoppage, strike or other concerted action by employees of the Company as
against the Company. During that period, the Company has complied in all
material respects with all applicable Laws relating to the employment of labor,
including, without limitation those relating to wages, hours and collective
bargaining.
(c) The Company has received no notices of claims or findings of
violations under OSHA.
(d) Schedule 3.21(d) of the Disclosure Schedule contains a true and
complete list of each employee benefit plan within the meaning of Section 3(3)
of ERISA and any other pension, retirement, profit-sharing, deferred
compensation, option, bonus, welfare, medical, disability, insurance, severance,
incentive or other benefit plan) maintained by the Company, or to which the
Company contributes, for any of the Company's employees (each a "Plan" and,
collectively, the "Plans"), setting forth the name and address of the Plans and
the trustees, and the basis of the Company's contributions. True and complete
copies of each of the Plans and related trusts have been furnished to Parent.
With respect to each of the Plans on Schedule 3.21(d):
(1) With respect to each Plan intended to be qualified under Section
401(a) of the Code, a determination letter from the Service has been received to
the effect that the Plan is qualified under Section 401 of the Code and any
trust maintained pursuant thereto is exempt from federal income taxation under
Section 501 of the Code, and the Company knows of no event which will occur
through the Closing Date (including without limitation the transactions
contemplated by this Agreement) which would cause the loss of such qualification
or exemption or the imposition of any penalty or tax liability;
(2) all contributions required by the Plan or by law with respect to
all periods through the Closing Date shall have been made by such date (or
provided for by the Company by adequate reserves on its financial statements);
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(3) no "reportable event" as described in Section 4043(c) of ERISA and
with respect to which the thirty (30) day notice requirement has not been waived
has occurred and is continuing with respect to the Plan;
(4) except as disclosed on Section 3.21(c) of the Disclosure Schedule,
no claim, lawsuit, arbitration or other action has been threatened in writing,
asserted or instituted against the Plan, any trustee or fiduciaries thereof, the
Company, other than routine claims for benefits;
(5) all amendments required to bring the Plan into conformity with any
of the applicable provisions of ERISA has been obtained and is in full force and
effect;
(6) any bonding required with respect to the Plan in accordance with
applicable provisions of ERISA has been obtained and is in full force and
effect;
(7) the Plan has been maintained in all material respects in accordance
with its terms and the terms and the provisions of ERISA (including rules and
regulations thereunder) applicable thereto;
(8) The Company has not engaged in a "prohibited transaction," as such
term is defined in Section 4975 of the Code and Section 406 of ERISA, with
respect to the Plan (and the transactions contemplated by this Agreement will
not constitute or directly or indirectly result in such a "prohibited
transaction"); and
(9) The Company has not been notified of an audit of any Plan by the
Service or the Department of Labor.
3.22 Substantial Customers and Suppliers. Section 3.22(a) of the
Disclosure Schedule lists the ten largest customers of the Company, on the basis
of revenues for goods sold for the most recently-completed fiscal year. Section
3.22(b) of the Disclosure Schedule lists the ten largest suppliers of the
Business, on the basis of cost of goods or services purchased for the most
recently-completed fiscal year. Except as disclosed in Section 3.29(c) of the
Disclosure Schedule, no such customer or supplier has ceased or materially
reduced its purchases from, or sales to the Business since December 31, 1998 or,
to the Knowledge of the Company, has threatened to cease or materially reduce
such purchases, use, sales or provision of services after the date hereof.
Except as disclosed in Section 3.22(d) of the Disclosure Schedule, to the
Knowledge of the Company, no such customer or supplier is threatened with
bankruptcy or insolvency.
3.23 No Guarantees. Except as set forth on Schedule 3.23, none of the
Liabilities of the Company is guaranteed by or subject to a similar contingent
obligation of any other Person, nor has the Company guaranteed or become subject
to a similar contingent obligation in respect of the Liabilities of any
customer, supplier or other Person to whom the
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Company sells goods or provides services in the conduct of the Business or with
whom the Company otherwise has significant business relationships in the conduct
of the Business.
3.24 Entire Business. The Merger will effectively convey to Parent the
entire Business and all of the tangible and intangible property used by the
Company (whether owned, leased or held under license by the Company, by any of
the Company's Affiliates or Associates or by others) in connection with the
conduct of the Business as heretofore conducted by the Company.
3.25 Brokers. No Person has a valid claim against Parent, the Company
or the Shareholders for a finder's fee, brokerage commission or similar payment
in connection with the execution of this Agreement or the consummation of the
transactions contemplated hereby as a result of any contract, arrangement,
understanding or relationship between such Person and any member of the Company
Group.
3.26 Disclosure. No representation or warranty contained in this
Agreement, and no statement contained in the Disclosure Schedule or in any other
schedule, certificate, list or other writing furnished to Parent pursuant to any
provision of this Agreement (including the Financial Statements), contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements herein or therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that no representation or warranty is made by the Company as to any financial
forecasts or projections previously furnished to Parent or its agents by the
Company or its representatives, if any, except that such financial forecast or
projection has been prepared in good faith based on assumptions that are
believed by the Company to have been reasonable at the time or times made; and
provided, further, that no party shall be deemed to be in breach of this Section
3.26, if any misstatement or omission, when considered in the context of all of
the information contained in this Agreement and the Exhibits and Schedules
attached hereto, is not material to the valuation of the Company.
3.27 Shareholder Approval; No Appraisal Rights. Each Shareholder has
voted all of his or her shares in favor of the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby. No
Shareholder shall exercise any appraisal rights or similar rights to receive any
consideration from the Company, other than as set forth in Section 2.1(c), for
their shares of Company Common Stock, and no Shareholder has any claim of any
kind or nature against the Company other than as set forth on Schedule 3.27, all
of which shall be released as of Closing.
3.28 Investment Intent.
(a) The shares of Parent Common Stock ("Parent Shares") being issued to
the Shareholders are being acquired by the Shareholders for investment for its
own account, not as a nominee or agent for any other person. No member of the
Company Group has
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any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participations to such person or to sell or any interest
therein to any third person any of the Parent Shares.
(b) Each Shareholder has received all information it considers
necessary or appropriate to decide whether to exchange the Company Shares for
the Parent Shares. Each Shareholder has received a copy of Parent's Form 10-K
for the fiscal year ended December 31, 1998, its Form 10-Q for the quarter ended
March 31, 1999, its Form 8-K filed with the Securities and Exchange Commission
on or about March 1, 1999 and its Proxy Statement for its 1999 Annual Meeting of
Shareholders.
(c) The certificates representing the Parent Shares, and the
certificates for any securities issued in respect thereof or exchange therefor,
shall bear the following legends:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. IT MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE
SECURITY UNDER SUCH ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED OR UNLESS SOLD PURSUANT TO
RULE 144 OF THE ACT."
ARTICLE IV.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PARENT AND SUB
Each of Parent and Sub, jointly and severally, represents and warrants
to, and covenants with, the Company Group as follows:
4.1 Organization. Each of Parent and Sub is a corporation duly
organized, validly existing and in good standing under the laws of the States of
Delaware and California, respectively.
4.2 Authority.
(a) Parent and Sub each have full corporate power and authority to
conduct its business as and to the extent now conducted and to own, use and
lease its Assets and Properties and to execute and deliver this Agreement and
the other agreements and instruments to be executed and delivered by it pursuant
hereto and to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby. All corporate
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acts and other proceedings required to be taken by or on the part of Parent, Sub
and their respective stockholders to authorize such execution, delivery and
consummation have been duly and properly taken.
(b) This Agreement has been duly executed by each of Parent and Sub and
constitutes, and such other agreements and instruments to which each of Parent
or Sub is a party, when duly executed and delivered by Parent or Sub, as
applicable, will constitute, legal, valid and binding obligations of Parent or
Sub, as applicable, enforceable in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(c) The execution and delivery by Parent and Sub of this Agreement and
such other agreements and instruments and the consummation of the transactions
contem plated hereby and thereby will not conflict with or constitute a breach,
violation or default under their respective charter documents and bylaws, any
law, statute, or administrative regulation, or under any judgment, decree,
order, writ, governmental permit or license or any indenture, mort gage, lease,
agreement or other instrument to which it is a party or by which it or its
assets or properties is bound.
(d) No approval, authorization, consent or other order or action of or
filing with any court, administrative agency or other governmental authority
(other than the HSR filing) and no action on the part of the shareholders of
Parent is required for the execution and delivery by Parent or Sub of this
Agreement and the execution and delivery by Parent or Sub of the other
agreements and instruments referred to herein or the consummation by Parent of
the transactions contemplated hereby or thereby.
4.3 Parent Shares. The Parent Shares to be issued pursuant to the terms
of this Agreement will be duly authorized, validly issued, fully paid and
nonassessable, and will vest in the Shareholders good and valid title, free and
clear of all liens, claims, encumbrances and restrictions.
4.4 Parent SEC Reports. Parent has delivered or made available to the
Company Group for its inspection each registration statement, report, proxy
statement or information statement prepared by it since December 31, 1998,
including (i) its Annual Report on Form 10-K for the year ended December 31,
1998, (ii) its Quarterly Report on Form 10-Q for the quarter ended March 31,
1999, (iii) its Current Reports on Form 8-K, and (iv) its Proxy Statements for
its Annual Meetings of Stockholders, each in the form (including exhibits and
amendments thereto) filed with the Securities and Exchange Commission (the
"SEC") (collectively, the "Parent Reports"). As of their respective dates, the
Parent Reports (x) were prepared in all material respects in accordance with
applicable requirements of the Securities Act, the Exchange Act, and the rules
and regulations promulgated thereunder and (y) did not
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contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. Each of
the consolidated balance sheets of Parent included in or incorporated by
reference into the Parent Reports (including the related notes and schedules)
fairly presents the consolidated financial position of Parent as of its date and
each of the consolidated statements of income, retained earnings and cash flows
of Parent included in or incorporated by reference into the Parent Reports
(including the related notes and schedules) fairly presents the results of
operations, retained earnings or cash flows, as the case may be, of Parent for
the periods set forth therein, in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein. There have been no material adverse changes in
the condition of Parent since the date of its most recent Quarterly Report on
Form 10-Q.
4.5 Disclosure. No representation or warranty of Parent or Sub in this
Agreement and no statement in any other schedule, certificate or other list
delivered to the Company Group pursuant to this Agreement (including the Parent
Reports) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the state ments contained herein or
therein not misleading.
4.6 Compliance with Applicable Law. The businesses of Parent, its
subsidiaries and Sub are not being conducted in violation of any applicable law,
ordinance, regulation, decree or order of any governmental entity, except for
violations which either singly or in the aggregate do not and are not expected
to have a material adverse effect on Parent, its subsidiaries or Sub. Neither
Parent, its subsidiaries or Sub is a party to or subject to any judgment,
decree, or order entered in any suit or proceeding brought by any governmental
agency or by any other person, enjoining Parent, its subsidiaries or Sub with
respect to any business practice, the acquisition of any property or the conduct
of business in any area.
4.7 No Registration. The Shares of Parent Common to be issued to
Shareholders are exempt from registration under the Securities Act of 1933, as
amended.
4.8 Finders Fee. Parent has agreed to pay a finders fee to Humane, Inc.
in connection with the transaction contemplated hereby and agrees that neither
the Company nor any of the Shareholders shall have any obligation with respect
to the payment owing to Humane, Inc..
ARTICLE V.
FURTHER COVENANTS AND AGREEMENTS
5.1 Conduct of Business. Except as otherwise expressly provided herein,
from the date hereof until the Closing, the Company Group shall:
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(a) conduct the Business only in its ordinary course consistent with
the Company's past practices and in compliance with this Agreement;
(b) preserve intact the business organization and reputation of the
Business, keep available the services of the Company's management and employees
of the Busi ness, and use its commercially reasonable efforts to preserve for
Parent the goodwill of suppliers, customers and others having business relations
with the Business;
(c) continue the Company's existing practices relating to maintaining
and keeping its Assets in good repair and working order;
(d) promptly notify Parent of any material adverse change subsequent to
January 31, 1999 in the financial condition, results of operations, condition or
prospects of the Business;
(e) not take any action or engage in any transaction which would render
any representation and warranty of the Company inaccurate in any material
respect as of the date hereof or as of the Closing;
(f) not, except in the ordinary course of business and consistent with
past practice, modify, amend or waive any material provisions of, or terminate
or decline to enforce, any Material Contract without the prior written consent
of Parent, which consent shall not be unreasonably withheld;
(g) not sell, lease, transfer, or otherwise dispose of, or subject to
any Lien, any of its properties or assets, or cancel, release or assign any
material indebtedness owed to it or any material claim held by it, except (i) in
the ordinary course of business consistent with past practice, (ii) as required
under any agreement relating to indebtedness for borrowed money to which the
Company is a party or (iii) pursuant to contracts or agreements in force as of
the date of this Agreement and listed in Schedule 5.1 hereto;
(h) except (i) in the ordinary course consistent with past practice, or
(ii) pursuant to any agreement relating to indebtedness for borrowed money in
effect on the date of this Agreement and disclosed on Schedule 5.1 hereto, not
incur or assume any liabilities or incur any indebtedness for borrowed money,
assume, guarantee, endorse or otherwise as an accommodation become responsible
for the obligations of any other individual, corporation or entity (other than a
Subsidiary of the Company);
(i) other than inventory purchased in the ordinary course of business
consistent with past practices, not make any material acquisition or investment
either by purchase of stock or securities, merger or consolidation,
contributions to capital, property transfers, or purchases of any property or
assets of any other individual, corporation or other entity other than a wholly
owned Subsidiary thereof;
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(j) except for purchases and sales of inventory and merchandise in the
ordinary course of business, not make any material change in any of its
licenses, leases or contracts or enter into, renew or terminate any contract or
agreement that calls for aggregate annual payments by the Company of $50,000 or
more and which either (i) is not terminable at will on 60 days or less notice
without cost, liability or expense to the Company or (ii) has a term of more
than one year, provided however, the Company may extend the lease for 6000
Sheila Street, Commerce, California for an additional five year period on terms
substantially similar to those contained in the current proposed lease extension
attached hereto as Schedule 5.1(j);
(k) not increase in any material respect the compensation or fringe
benefits of any of its employees or pay any bonus, pension or retirement
allowance not required by any existing plan, program or agreement to any such
employees or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee or accelerate the vesting of
stock options or other stock-based compensation;
(l) except as provided in the existing budgets and business plans of
the Company dated April 13, 1999 delivered to Parent, not make any capital
expenditures in excess of (A) $50,000 individually or (B) $150,000 in the
aggregate, other than expenditures necessary to maintain existing assets in good
repair;
(m) not enter into any line of business other than the importation,
manufacturing, distribution, and merchandising of apparel, the licensing of
trademarks relating thereto, and the licensing of the Company's owned
trademarks;
(n) not enter into any new license agreement as licensor or licensee;
or
(o) agree to, or make any commitment to, take any of the actions
prohibited by this Section 5.1.
5.2 Consents; Permits. Each of Parent and the Company will cooperate to
obtain promptly all consents, governmental authorizations, estoppel certificates
and filings required to be obtained or made by it or which may be reasonably
necessary to consummate the transactions contemplated by this Agreement or which
are reasonably requested by the other party, including without limitation,
promptly making all filings required by each of Parent and the Company under the
Hart-Scott-Rodino Antitrust Improvement Act (the "Act") and the Company shall
take all steps reasonably necessary to transfer all Permits to Parent if
permissible under applicable law. The Company shall make its HSR
Pre-Notification filing within two business days after the execution hereof and
shall request early termination of any applicable waiting period.
5.3 Access; Information. Through the Closing, the Company Group shall:
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(a) afford to the authorized representatives of Parent reasonable
access, during normal business hours, to the employees, offices, plants,
properties, books and records of the members of the Company Group as the same
relate to the business and assets in order that Parent may have full opportunity
to make such engineering, environmental, legal, financial, accounting and other
reviews or investigations of the Business and the Assets as Parent shall desire
to make;
(b) instruct and use their best efforts to cause the Company Group's
independent public accountants to permit Parent's independent public accountants
to inspect the accounting work papers and other records relating to the Business
and the Assets;
(c) furnish to Parent and its authorized representatives such
additional financial and operating data and other information regarding the
Assets and Business as Parent shall reasonably request; and
(d) permit a representative of Parent's accountants to observe the
physical inventory of the Business as of the Closing Date.
5.4 No Shopping. No member of the Company Group shall, directly or
indirectly, contact, initiate, solicit, enter into or conduct any discussions or
negotiations, or enter into any agreement with any person with respect to the
direct or indirect sale of all or any part of the Assets (except in the ordinary
course of business consistent with past practice) or the Business.
5.5 Best Efforts. Each member of the Company Group and Parent shall use
its best efforts to fulfill the conditions to its obligations hereunder and to
cause its representations and warranties to remain true and correct in all
material respects as of the Closing.
5.6 Tax Matters.
(a) Parent and the Company shall treat and report the transactions
contemplated by this Agreement in all respects consistently for purposes of any
Federal, state or local tax, including the calculation of gain, loss and basis
with reference to the Purchase Price allocation made pursuant to Section 1.5(f)
and the reporting of such allocation pursuant to the requirements of Section
1060(b) of the Code and Form 8594. The parties hereto shall not take any actions
or positions inconsistent with the obligations set forth in this Section 5.6.
(b) Parent shall make available to the Company, and the Company shall
make available to Parent, (i) such records as either party may require for the
preparation of any Federal, state, local or other tax returns required to be
filed by the Company or Parent and (ii) such records as the Company or Parent
may require for the defense of any audit, examination,
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assessment, administrative appeal, or litigation of any such tax return in which
the Company or Parent was included.
(c) Parent and the Company shall be bound by the standard procedure
described in Section 4 of IRS Rev. Proc. 84-77 for reporting wages and other
compensation to the IRS, the various states and to the Employees.
5.7 Auditable Financial Statements for 8-K. Shares of Parent's common
stock are registered under the Securities Exchange Act of 1934, and, after
Closing, it may be required to file a current report on Form 8-K to report the
consummation of the transaction contemplated by this Agreement. In such Form
8-K, Parent will be required to include an audited balance sheet of the Company
for the fiscal year ended January 31, 1999 and 1998, and the Company's
statements of income, cash flow and changes in stockholders' equity for the
three fiscal years preceding the 1999 balance sheet, and certain interim
financial statements (the "Required Financial Statements"). From and after the
Closing Date, the Company Group shall cooperate, and cause its independent
accountants to cooperate, with Parent and its accountants in the preparation and
audit (if necessary) of the Required Financial Statements and shall provide
Parent and its accountants with full access to the Business Books and Records,
and the Company Group shall cause its independent accountants to give it and
Parent's accountants full access to its records and staff, for the purpose of
preparing and auditing the Required Financial Statements.
5.8 Employment Agreements. At Closing, Parent and each of Fiene and
Hollis Fiene shall enter into employment agreements, substantially in the forms
attached as Exhibits A and B (the "Fiene Employment Agreement" and "Hollis
Employment Agreement", respectively, and collectively, the "Employment
Agreements").
5.9 Shareholder Vote. Each Shareholder hereby agrees that he or she has
voted in favor of consummating the transaction contemplated hereby, will not
change such vote, and will not vote in favor of any other transaction relating
to the merger, consolidation, sale or exchange or similar extraordinary
transaction involving the Company or its assets prior to the termination of this
Agreement pursuant to Article XI hereof.
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
All obligations of Parent to effect the Closing hereunder are, at the
option of Parent, subject to the conditions precedent that, at the Closing:
6.1 Opinion of Counsel. Parent shall have received an opinion of
counsel for the Company Group, addressed to Parent and dated as of the Closing,
substantially in the form of Exhibit C.
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6.2 Performance by the Company Group. All the terms, covenants,
agreements and conditions of this Agreement to be complied with and performed by
a member of the Company Group on or before the Closing shall have been complied
with and performed in all material respects.
6.3 Representation and Warranties. The representations and warranties
made by members of the Company Group in this Agreement shall be true and correct
in all material respects when made and as of the Closing.
6.4 No Actions or Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any Order which is in effect and makes illegal or prohibits
the consummation of the transactions contemplated by this Agreement; provided
that Parent shall have used reasonable efforts to obtain the removal of any
Order if such Order is against Parent.
6.5 No Certain Material Adverse Change. There shall have been no
material adverse change in Condition of the Business since April 30, 1999.
6.6 Satisfaction of Counsel. All corporate and other actions and
proceedings in connection with the transactions contemplated hereby, all
resolutions, documents and instruments incidental thereto, and all other related
legal matters, shall be reasonably satisfactory in form and substance to counsel
for Parent.
6.7 Third Party Consents; Permits and Approvals. The Company shall have
delivered to Parent consents from all third parties required to transfer the
Business and the Assets ("Required Consents"). All Permits and Approvals used,
or required by Law to be used, in connection with the Business and the Assets,
or required in connection with the consummation by the Company Group of the
transactions contemplated by this Agreement (collectively, "Required Permits and
Approvals") shall have been obtained by the Company Group on or prior to the
Closing. Without limiting the generality of the foregoing, the Hart-Scott-Rodino
Act pre- merger notification waiting period applicable to the transactions
contemplated hereby shall have expired or have been terminated.
6.8 CIT Approval. The CIT Group/Commercial Services, Inc. shall have
approved the transaction contemplated by the Agreement and shall have agreed to
provide financing for the Company following the Closing on terms substantially
similar to those terms on which it currently provides working capital financing
to Parent's other subsidiaries.
6.9 XOXO Outlets, Inc. The Company shall be the sole owner of all
shares of XOXO Outlets, Inc. ("Outlets").
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6.10 Termination of Affiliate Transactions. All agreements or
obligations between the Company and any Shareholder or Director of the Company
shall have been terminated other than for any accrued compensation to the extent
consistent with past practices.
6.11 Release of Liens. All liens on the Company Common Stock shall be
released.
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
All obligations of the Company Group to effect the Closing hereunder
are, at its option, subject to the conditions precedent that, at the Closing:
7.1 Performance by Parent. All the terms, covenants, agreements and
conditions of this Agreement to be complied with and performed by Parent on or
before the Closing shall have been complied with and performed in all material
respects.
7.2 Representations and Warranties. The representations and warranties
made by Parent in this Agreement shall be true and correct in all material
respects as of the Closing.
7.3 No Actions or Proceedings. No Legal Proceeding shall have been
instituted or threatened to restrain, prohibit or invalidate the transactions
contemplated by this Agreement.
7.4 Satisfaction of Counsel. All corporate and other actions and
proceedings in connection with the transactions contemplated hereby, all
resolutions, documents and instruments incidental thereto, and all other related
legal matters, shall be reasonably satisfactory in form and substance to counsel
for the Company.
7.5 Opinion of Counsel to Parent. The Shareholders shall have received
an opinion of counsel for Parent, addressed to the Company Group and dated as of
the Closing, substantially in the form of Exhibit D.
7.6 Shareholders Agreement. The Simon Group LLC and the Company shall
have executed and deliver to the Shareholders the Shareholders Agreement in the
form of Exhibit E.
7.7 No Certain Material Adverse Change. There shall have been no
material adverse change in the financial condition of Parent since March 31,
1999.
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7.8 Hart-Scott-Rodino. The Hart-Scott-Rodino Act pre-merger
notification waiting period applicable to the transactions contemplated hereby
shall have expired or have been terminated.
7.9 Consents. Parent shall have delivered to the Company consents from
all third parties whose consent to the transaction contemplated hereby is
required.
ARTICLE VIII.
DOCUMENTS TO BE DELIVERED AT THE CLOSING
8.1 The Company Group Closing Documents and Actions.
(a) At the Closing, the Company Group shall deliver, or cause to be
delivered, to Parent the following, executed by all parties thereto other than
Parent:
(1) a certificate of officer of the Company, substantially in the form
attached as Exhibit F;
(2) a certificate of the Company's Secretary, substantially in the form
attached as Exhibit G;
(3) a manually signed report of the Company's independent public
accountants for the Company's fiscal years ended January 31, 1998 and 1999;
(4) a certificate of good standing of the Company of recent date from
the Secretary of State of California;
(5) evidence that the Company has requested a "Certificate of Release
of Buyer" (Form DE2220) from the Employment Development Department of the State
of California (certifying either no amounts are due and owing from the Company
or releasing Parent from any liability therefrom);
(6) the Inventory Schedule;
(7) the Accounts Receivable Schedule;
(8) the Payables Schedule;
(9) the opinion of counsel referred to in Section 5.1;
(10) Required Consents and Required Permits and Approvals;
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(11) the Employment Agreements, executed by Fiene and Hollis Fiene;
(12) such other endorsements, instruments or documents as may be
necessary or appropriate to carry out the transactions contemplated by this
Agreement.
8.2 Documents to be Delivered by Parent. At the Closing, Parent shall
deliver, or cause to be delivered, the following:
(a) to each of the Shareholders, the Purchase Price, in the manner and
form required in Section 1.2;
(b) to each of the Shareholders, a certificate of officer of Parent,
substantially in the form attached as Exhibit H;
(c) to each of the Shareholders, a certificate of Parent's Secretary,
substantially in the form attached as Exhibit I;
(d) to each of Fiene and Hollis Fiene, the Employment Agreements,
executed by Parent;
(e) to each of the Shareholders, the Shareholders Agreement;
(f) to each option holder, his or her option agreement under the
Parent's stock option plan for such number of options as are set forth on
Schedule 8.2(f); and
(g) to the appropriate parties, such other instruments or documents as
may be necessary or appropriate to carry out the transactions contemplated
hereby.
ARTICLE IX.
SURVIVAL AND INDEMNIFICATIONS
9.1 Survival of Representations. The representations, warranties,
covenants and agreements contained in this Agreement, and in any agreements,
certificates or other instruments delivered pursuant to this Agreement, shall
survive the Closing and shall remain in full force and effect, subject to all
limitations and other provisions contained in this Agreement.
9.2 Indemnification by the Company Group. Each member of the Company
Group hereby agrees, jointly and severally, to indemnify and hold harmless
Parent and its successors, assigns and affiliates (and its and their respective
directors, officers, employees, agents and Representatives) from and against any
and all claims, damages, liabilities, fines, liens, losses or other obligations
whatsoever, together with costs and expenses, including fees and dis bursements
of counsel and expenses of investigation, incurred in connection therewith or in
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connection with the enforcement of the indemnifying party's indemnification
obligations hereunder (collectively, "Losses") arising out of, based upon or
caused by the inaccuracy of any representation or the breach of any warranty or
covenant of any member of the Company Group contained in this Agreement or in
any agreement, certificate or other instrument delivered by any member of the
Company Group pursuant to this Agreement. Notwithstanding the foregoing, Hanson
shall only be liable with respect to losses resulting from the breach by her of
Sections 3.2(b) (but only to the extent of losses resulting from the
circumstance that the shares of Common Stock owned by Hanson are not free and
clear of any liens, claims, mortgages, encumbrances, pledges, security interest,
equities and charges of any kind), 3.27 and 3.28.
9.3 Indemnification by Parent.
(a) Parent hereby agrees to indemnify and hold harmless the Company and
each Shareholder and their Affiliates (and their respective directors, officers,
employees, agents and representatives) from and against any and all Losses
arising out of, based upon or caused by the inaccuracy of any representation or
the breach of any warranty, covenant or agreement of Parent contained in this
Agreement or in any agreement, certificate or other instru ment delivered by
Parent pursuant to this Agreement.
(b) Parent will indemnify and hold Fiene harmless from and against any
liability which arises under the guaranty of any liability of the Company made
by Fiene prior to Closing under the Company's factoring agreement with Capital
Factors and any of its Affiliates or other related parties and the lease for
premises located at 1466 North Broadway, New York, N.Y.
9.4 Notices, etc. Each indemnified party agrees to give the
indemnifying party prompt written notice of any action, claim, demand, discovery
of fact, proceeding or suit (collectively, "Claims") for which such indemnified
party intends to assert a right to indemnification under this Agreement,
identify all provisions of this Agreement under which the Claims arise, and set
forth the Claim in reasonable detail. The indemnifying party shall have the
right to participate jointly with the indemnified party in the indemnified
party's defense, settlement or other disposition of any Claim by a third party
which gives rise to Indemnification. With respect to such Claim relating solely
to the payment of money damages and which will not result in the indemnified
party's becoming subject to injunctive or other relief or otherwise adversely
affect the business of the indemnified party in any manner, and as to which the
indem nifying party shall have acknowledged in writing the obligation to
indemnify the indemnified party hereunder, the indemnifying party shall have the
sole right to defend, settle or otherwise dispose of such Claim, on such terms
as the indemnifying party, in its sole discretion, shall deem appropriate. The
indemnifying party shall obtain the written consent of the indemnified party,
which shall not be unreasonably withheld, delayed or conditioned, prior to
ceasing to defend, settling or otherwise disposing of any Claim if as a result
thereof the indemnified party would become subject to injunctive or other
equitable relief or the business of the indemnified party would be adversely
affected in any manner.
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9.5 Reimbursement of Costs. The costs and expenses, including fees and
disbursements of counsel and expenses of investigation, incurred by any
indemnified party in connection with any Claim shall be reimbursed on a
quarterly basis by the indemnifying party, without prejudice to the indemnifying
party's right to contest the indemnified party's right to indemnification and
subject to refund in the event the indemnifying party is ultimately held not to
be obligated to indemnify the indemnified party.
9.6 Limitations.
(a) Notwithstanding anything to the contrary contained herein and
notwithstanding any statute of limitations, the obligation of the Company Group
to indemnify Parent, their Affiliates and their respective directors, officers,
employees, agents and representatives for any Loss (other than a Loss resulting
from a breach of the representations contained in Sections 3.2 or 3.19, which
shall survive indefinitely) with respect to a Claim arising out of the breach of
any representation, warranty or covenant (other than those contained in Article
10) made by the Company Group in this Agreement, shall terminate one year after
the Closing, if no notice of Claim is given prior to that time. Claims pending
on, or asserted prior to, the expiration of the time period specified above may
continue to be asserted and shall be indemnified against.
(b) Notwithstanding anything to the contrary contained herein, neither
party shall be required to indemnify the other for Losses arising from a breach
of a representation until such losses aggregate (x) $50,000 or (y) in the case
of indemnification by a Shareholder, in excess of the consideration payable to
such Shareholder under Section 2.1(c) hereof.
9.7 Manner of Payment. All amounts payable by any member of the Company
Group pursuant to this Article IX shall be payable in cash, but no amount shall
be required to be actually paid until 15 months from the date hereof, although
Parent may commence an action and obtain a judgment prior to that time; provided
however, if any member of the Company Group has not been provided with the
opportunity to sell all or a sufficient number of shares of Common Stock of
Parent under Rule 144 of the Rules and Regulations promulgated under the
Securities Act of 1933, as amended, or otherwise, to fully satisfy his or her
indemnification obligation(s) hereunder, then the time period provided for
herein to make such payment shall be extended until 90 days following the date
upon which such Shareholder has been able to sell all or a sufficient number of
shares of Common Stock of Parent to satisfy his or her indemnification
obligation hereunder.
ARTICLE X.
POST CLOSING AGREEMENTS
10.1 Business Covenant.
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(a) Gregg Fiene (but not the other Shareholders) agrees that, for a
period of 18 months following the termination of the Fiene Employment Agreement
neither he nor any of his Affiliates will in any way, directly or indirectly,
take away or interfere or attempt to interfere with any custom, trade, business
or patronage of Parent and its Affiliates relating to the Business, and will
not, without Parent's prior written consent, (x) engage in any business,
directly or indirectly, that competes with the Business, (y) hire any employee
of Parent unless Parent first terminates the employment of such employee, or (z)
disclose or use, in any manner, any confidential information related to the
Business or the Assets or use any Intellectual Property used in connection with
the Business other than in connection with his employment obligations; provided,
however, that if the Fiene Employment Agreement is terminated without Cause or
if Gregg Fiene terminates the Fiene Employment Agreement for Good Reason (each
as defined in the Fiene Employment Agreement), and Parent fails to pay him
amounts due thereunder within the time period set forth therein, the
restrictions set forth in this Section 10.1(a) shall not apply; provided
further, that nothing contained in this Section 10.1(a) shall release Parent
from its obligations timely to make all payments owing under the Fiene
Employment Agreement.
(b) Gregg Fiene acknowledges that his failure to comply with the
provisions of Section 10.1(a) will result in irreparable and continuing damage
for which there will be no adequate remedy at law and that, in the event of a
failure to comply, the aggrieved party and their successors, legal
representatives and assigns may be entitled to injunctive relief and to such
other and further relief as may be proper and necessary to ensure compliance
with the provisions of Section 10.1(a).
10.2 Mail. Effective from consummation of the Closing, Parent shall
have the right to receive and open all mail, packages and other communications
addressed to the Company, and the Company Group agrees promptly to deliver to
Parent any such mail, packages or other communications received by any member of
the Company Group.
10.3 Further Assurances. From and after the Closing, upon the
reasonable request of Parent the members of the Company Group shall execute,
acknowledge and deliver all such further documents as may be reasonably
requested to evidence or effect the transactions contemplated hereby.
10.4 Use of Names. After the Closing, no member of the Company Group
nor any of its affiliates, successors or assigns shall adopt or otherwise
commercially use the name "Lola" or "XOXO" or any variation thereof or any trade
name, trademark or service mark used in connection with the Business.
10.5 Financial Records.
(a) Each party hereby agrees that, after Closing, it shall make
available to the other all work papers, records and notes of any kind, at all
reasonable times, for the
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purpose of allowing the appropriate party to complete tax returns, respond to
audits, obtain refunds, make any determination required under this Agreement,
verify issues and negotiate settlements with tax authorities or defend or
prosecute tax claims.
(b) After the Closing, Parent shall (i) afford to the Company, its
counsel and accountants, during normal business hours, reasonable access to the
books, records and data relating to the Business or the Assets with respect to
the period through the Closing Date, and (ii) cooperate with the Company, at the
Company's expense, in connection with any fact-finding by or on behalf of the
Company in connection with any claims made against the Company.
ARTICLE XI.
TERMINATION
This Agreement may be terminated and the Merger may be abandoned at any
time prior to the Effective Time:
11.1 Material Breach. By a non-breaching party, in the event of a
material breach of any representation, warranty, condition or agreement
contained in this Agreement that is not cured within 30 days of the time that
written notice of such breach is received by such other party from the party
giving notice.
11.2 Consummation of Merger. If the Merger shall not have been
consummated on or before August 15, 1999; provided, in the case of a termination
pursuant to this Section 11.2, the terminating party shall not have materially
breached its obligations hereunder in any manner that shall have contributed to
the failure to consummate the Merger by such date.
11.3 Mutual Consent. By mutual written consent of Parent and the
Company authorized by their respective Boards of Directors.
11.4 Effect of Termination. In the event of termination of this
Agreement and abandonment of the Merger pursuant to this Article 11, no party
hereto (or any of its Affiliates) shall have any liability to any other party to
this Agreement, except that if termination of this Agreement shall be judicially
determined to have been caused by a breach of this Agreement, then, in addition
to other remedies at law or equity for breach of this Agreement, the party so
found to have breached this Agreement shall indemnify the other parties for
their respective costs, fees and expenses of their counsel, accountants and
other experts and advisors as well as fees and expenses incident to negotiation,
preparation and execution of this Agreement and the related documentation and
the enforcement of this Agreement.
ARTICLE XII.
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DEFINITIONS
12.1 Defined Terms. As used in this Agreement, the following terms have
the meanings indicated below:
"Affiliate" means any Person that directly, or indirectly through one
of more intermediaries, controls or is controlled by or is under common control
with the Person specified. For purposes of this definition, control of a Person
means the power, direct or indirect, to direct or cause the direction of the
management and policies of such Person whether by Contract or otherwise and, in
any event and without limitation of the previous sentence, any Person owning ten
percent (10%) or more of the voting securities of another Person shall be deemed
to control that Person.
"Approvals" shall mean authorizations, consents or other orders or
actions of or filings with any Body or third party including landlords, lessors
and lienors required to be obtained or made by a member of the Company Group in
connection with the execution, delivery and performance of this Agreement or the
consummation by the members of the Company Group of the transactions
contemplated hereby.
"April Balance Sheet" means the Company's balance sheet as of April 30,
1999.
"April Financial Statements" means the April Balance Sheet and
statement of income and changes in financial position for the four months ended
April 30, 1999.
"Associate," in reference to any Person, means (i) any corporation,
partnership or other entity of which any such Person is an officer or partner or
is, directly or indirectly, a beneficial owner (including shares held by any
parent, child, sibling or spouse) of 10% or more of any class of equity
securities; (ii) any trust or estate in which any Person has a substantial
beneficial interest or as to which any such Person serves as trustee or in a
similar fiduciary capacity; and (iii) any parent, child, sibling or spouse of
any such Person, or parent, child or sibling of such spouse.
"Benefit Plans" means all "employee pension benefit plans" (as defined
in Section 3(2) of ERISA) "employee welfare benefit plans" (as defined in
Section 3(1) of ERISA), bonus, deferred compensation, incentive or other
compensation plans or arrangements, and other employee fringe benefit plans at
any time maintained, or contributed to, by the Company for the benefit of any
employees, officers or directors.
"Body" means any court, arbitration agency or panel, or any
governmental department, commission, bureau, board or instrumentality.
"Business" means the design, manufacture, sale or licensing of apparel
as currently conducted by the Company.
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"Compliance Matters" means any Law including OSHA, Environmental Laws,
and ERISA to which the Company, the Business or the Assets may be subject prior
to the Closing.
"Condition of the Business" means the business, conditions (financial
or otherwise), results of operations, Assets and Properties of the Business.
"Contracts" means all agreements, leases, rental agreements, insurance
policies, collective bargaining agreements, union contracts, licenses, employee
plans, purchase orders, sales orders, commitments, confidentiality non-use or
non-disclosure agreements, and all other binding arrangements, whether written
or oral, express or implied, of the Company or relating to the Business or an
Asset.
"Disclosure Schedule" means the record delivered to Parent by the
Company Group herewith and dated as of the date hereof, containing all lists,
descriptions, exceptions and other information and material as are required to
be included therein by the Company Group pursuant to this Agreement.
"ERISA Affiliate" means any Person who is in the same controlled group
of corporations or who is under common control with the Company (within the
meaning of Section 414 of the Code).
"Financial Statements" means the (i) balance sheets of the Company as
of January 31, 1999 and 1998, and (ii) statements of income and changes in
financial position of the Company for the years then ended together with a true
and correct copy of the report on such information by the Company's Auditors,
and all letters from such accountants with respect to the results of such audit;
and (b) April Financial Statements.
"GAAP" means generally accepted accounting principles, consistently
applied throughout the specified period and in the immediately prior comparable
period.
"Income Taxes" means (i) all Federal, state, local or foreign income or
franchise taxes of the Company or other taxes or charges imposed on or with
respect to the Company's net income or capital, together with any interest or
penalties or additions to tax imposed with respect thereto and (ii) any
obligations under any agreements with respect to any Income Taxes.
"Intellectual Property" means all Patents and patent rights, Trademarks
and trademark rights, Trade names and trade name rights, service marks and
service mark rights, service names and service name rights, brand names,
inventions, processes, formulae, copyrights and copyright rights, trade dress,
business and product names, logos, slogans, trade secrets, industrial models,
processes, designs, methodologies, computer programs (including all source
codes) and related documentation, technical information, manufacturing,
engineering and technical drawings,
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Know-how and all pending applications for and registrations of patents,
trademarks, service marks and copyrights.
"Inventory" means all Products, work in process, finished goods, raw
materials, supplies and packaging materials of the Company, whether current,
excess or obsolete.
"Knowledge of the Company" or "Known to the Company" means the actual
knowledge of any officer or director of the Company.
"Know-how" means all laboratory journals, trade secrets (including,
without limitation, proprietary or confidential information and use and
application know-how), formulas, processes, product designs, manufacturing,
engineering and other drawings, computer databases and software, technology,
technical information, safety information, engineering and technical data and
design and engineering specifications, research records, market surveys and all
promotional literature, customer and supplier lists and information and similar
data of the Company.
"Laws" means all laws, statutes, rules, regulations, ordinances and
other pronouncements having the effect of law of the United States of America,
any foreign country or any domestic or foreign state, county, city or other
political subdivision, or of any Body.
"Legal Proceeding" means any suit, action, arbitration, governmental
investigation, or legal, administrative or other proceeding.
"Liabilities" means all Indebtedness, obligations and other liabilities
of a Person (whether absolute, accrued, contingent, fixed or otherwise, or
whether due or to become due).
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Body.
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or
any conditional sale Contract, title retention Contract or other Contract to
give any of the foregoing.
"Order" means any judgment, order, writ, injunction or decree of any
Body.
"Patents" means United States and foreign patents (including all
reissues, divisions, continuations, continuations in part and extensions
thereof), patent applications and patent disclosures, and all other patent and
ancillary rights of the Company (including those as licensee or licensor or of
the Company pertaining to the Business).
"Pension Benefit Plan" means each Benefit Plan which is a pension
benefit plan within the meaning of Section 3(2) of ERISA.
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"Permits" means the franchises, licenses, permits and governmental and
regulatory authorizations and approvals used, or which are required by Law to be
used, by the Company in connection with the Assets and the Business.
"Person" means any natural person, corporation, association,
partnership, joint venture or other entity.
"Products" means all products and services designed, developed,
manufactured, produced, serviced, imported, marketed, dealt in, sold or
distributed by the Company as of the date hereof together with any additions and
deletions made in the ordinary course of business.
"Product Liability Claims" means all claims and actions arising from
the use prior to the consummation of the Closing by the Company of any Product,
for injuries alleged to have been caused by such Product.
"Qualified Plan" means each Benefit Plan which is intended to qualify
under Section 401 of the Code.
"Representatives" means with respect to any Person, such Person's
officers, directors, employees, agents, counsel, accountants, financial
advisors, consultants and other representatives.
"Taxes" means all taxes, customs duties or similar fees, assessments or
charges of any kind whatsoever required to be paid or collected and remitted by
a member of the Company Group, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority, domestic
or foreign with respect to such Taxes and any obligations under any agreements
with respect thereto.
"Trademarks" means trademarks, registrations thereof, pending
applications therefor, and such unregistered rights as are used in the Business.
"Trade Names" means the trade names, brand marks, service marks, trade
dress, brand names, logos and all other names and slogans embodying Business or
Product goodwill of the Company.
12.2 Accounting Terms. Any accounting terms used in this Agreement,
unless otherwise specifically provided, shall have the meanings customarily
given them in accordance with GAAP, and all financial computations, statements
and reports hereunder, unless otherwise specifically provided, shall be in
accordance with GAAP. An "audited" financial statement means one with an
independent auditor's report of audit thereon containing no qualification or
exception.
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12.3 Other Rules of Construction. Unless the context of this Agreement
requires otherwise (a) references in this Agreement to Articles, schedules and
exhibits are to sections of, and schedules and exhibits to, this Agreement; (b)
words in the singular include the plural and in the plural include the singular;
(c) the word "or" connotes both the disjunctive and conjunctive of the terms
affected, unless otherwise expressly stated; (d) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire agreement; (e) the
terms "include," "includes," "including" and derivative or similar words shall
be deemed to include the phrase "without limitation"; (f) the phrase "ordinary
course of business" and "ordinary course of business consistent with past
practice" refer to the business and practice of the Company Group in connection
with the Business; and (g) words of any gender including each other gender.
Whenever this Agreement refers to a number of days, such number shall refer to
calendar days unless Business Days are specified.
ARTICLE XIII.
MISCELLANEOUS
13.1 Amendments and Waivers. This Agreement may be modified or amended
only by written instrument signed by the parties hereto.
13.2 Transferability.
(a) The respective rights and obligations of each party hereto shall
not be assignable by such party without the written consent of the other parties
hereto.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and permitted assignees.
Nothing herein expressed or implied is intended to confer upon any person, other
than the parties hereto and their respective successors and permitted assignees,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement.
13.3 Notices. Any notice, request or other document to be given
hereunder to a party hereto shall be in writing and delivered in person or sent
by registered or certified mail, postage prepaid, or by Federal Express
(priority service), and by telephone facsimile transmission ("fax") confirmed by
telephone, as follows:
If to Parent, to:
Aris Industries, Inc.
1411 Broadway
New York, NY 10018
Attention: Arnold H. Simon, Chairman
Telephone No.: 212-642-4300
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Facsimile Transmission No.: 212-642-4265
with a copy to:
Shapiro Forman & Allen LLP
380 Madison Avenue
New York, NY 10017
Fax No. (212) 557-1275
Attention: Robert W. Forman, Esq.
If to any member of the Company Group, to:
Lola, Inc.
6000 Sheila St.
Commerce City, CA 90040
Attn: Gregg Fiene
with copies to:
Julie M. Kaufer, Esq.
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, CA 90067
Jeffrey F. Gersh, Esq.
Zimmerman Rosenfeld Gersh & Leeds, LLP
9107 Wilshire Blvd.
Beverly Hills, CA 90210
Any party hereto may change its address for receiving notices, requests and
other documents by giving written notice of such change to the other parties.
13.4 Remedies. Each party acknowledges and agrees that the other party
would be irreparably damaged in the event any of the provisions of this
Agreement were not performed by it in accordance with its specific terms or were
otherwise breached. It is accordingly agreed that each party hereto shall be
entitled to an injunction to prevent breaches of such provisions and to
specifically enforce such provisions, in addition to any other remedy to which
such party may be entitled, at law or in equity. If the transaction contemplated
by this Agreement fails to close because of the nonfulfillment of any condition
to Parent's obligation, or as a result of any breach by the Company Group under
this Agreement, in addition to any other remedies available to it, Parent shall
be entitled to receive from the Company Group all costs and expenses incurred by
it in connection with this Agreement and the transactions contemplated hereby
including, all legal fees and disbursements, all accounting fees and
disbursements, all
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environmental audit fees and disbursements, and all other costs and expenses
associated with Parent's "due diligence" investigation of the Company, the
Assets and the Business.
13.5 Partial Invalidity. If any provision of this Agreement shall be
held invalid or unenforceable by any court of competent jurisdiction, such
holding shall not invalidate or render unenforceable any other provision hereof.
13.6 Expenses. Except as otherwise expressly provided in this Agreement
whether or not the transactions contemplated hereby are consummated, each party
will pay its own costs and expenses incurred in connection with the negotiation,
execution and closing of this Agreement and the transactions contemplated
hereby. In the event this Agreement is terminated other than as a result of a
breach by Parent, and the Company or Stockholder enter into an agreement to sell
substantially all of the Business or Assets or a majority of the capital stock
of the Company (a "Subsequent Transaction"), the Company Group shall pay Parent
a Termination Fee, consisting of (x) a "reimbursement amount" equal to Parent's
actual expenses in connection with the transactions contemplated hereby (i.e.,
the actual out-of-pocket expenses incurred in connection with negotiating,
preparing and presenting the Letter of Intent, this Agreement and related
documents, conducting due diligence, preparing for the Closing, and resolving
issues relating to same), plus a "topping payment", equal to the sum of 25% of
the excess of any consideration payable to members of the Company Group in the
Subsequent Transaction over the sum of the consideration to be paid by Parent
hereunder. Payment of any Termination Fee shall be made promptly, but in no
event later than the closing of the Subsequent Transaction.
13.7 Confidentiality. Unless (a) compelled to disclose by judicial or
administrative process (including without limitation in connection with
obtaining the necessary approvals of this Agreement and the transactions
contemplated hereby of Body) or by other requirements of Law or (b) disclosed in
a Legal Proceeding brought by a party hereto in pursuit of its rights or in the
exercise of its remedies hereunder, each party hereto will hold, and will use
its best efforts to cause its Affiliates, and their respective Representatives
to hold, in strict confidence from any Person (other than any such Affiliate or
Representative), all documents and information concerning the other party or any
of its Affiliates furnished to it by the other party or such other party's
Representatives in connection with this Agreement or the transactions
contemplated hereby, except to the extent that such documents or information can
be shown to have been (i) previously known by the party receiving such documents
or information, (ii) in the public domain (either before or after the furnishing
of such documents or information hereunder) through no fault of such receiving
party, or (iii) later acquired by the receiving party from another source if the
receiving party is not aware that such source is under an obligation to another
party hereto to keep such documents and information confidential; provided,
however, that following the Closing the foregoing restrictions will not apply to
Parent's use of documents and information concerning the Company. If the
transactions contemplated hereby are not con summated, upon the request of the
other party, each party hereto will, and will cause its Affiliates and their
respective Representatives to, promptly redeliver or cause to be redelivered all
copies of documents and information furnished by the other party in connection
with this Agreement or the
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<PAGE>
transactions contemplated hereby and destroy or cause to be destroyed all notes,
memoranda, summaries, analyses, compilations and other writings related thereto
or based thereon prepared by the party furnished such documents and information
or its Representatives.
13.8 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
13.9 Section Headings. The section headings and table of contents
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement.
13.10 Entire Agreement. This Agreement, together with the Schedules and
Exhibits and the agreements and instruments delivered pursuant hereto, contains
the entire agreement between the parties, and supersede all prior agreements and
understanding between them relating to the subject matter hereof.
13.11 Publicity. No member of the Company Group shall issue any press
release or make any other public announcement with respect to this Agreement or
the transactions contemplated hereby without obtaining the prior approval of the
Parent (which shall not be unreasonably withheld or delayed), except as may be
required by law or the regulations of any securities exchange.
13.12 Joint and Several Obligations. Each member of the Company Group
is jointly and severally responsible for the agreements, covenants,
representations, warranties and obligations of any member of the Company Group
contained in this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed on and as of the day and year first above written.
ARIS INDUSTRIES, INC.
By: /s/ Arnold Simon
----------------------------
XOXO ACQUISITION CORP.
By: /s/ Arnold Simon
----------------------------
LOLA, INC.
By: /s/ Gregg Fiene
----------------------------
SHAREHOLDERS:
/s/ Gregg Fiene
----------------------------
GREGG FIENE
/s/ Michele Bohbot
----------------------------
MICHELE BOHBOT
/s/ Lynne Fiene Hanson
----------------------------
LYNNE FIENE HANSON
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<PAGE>
SCHEDULES AND EXHIBITS
----------------------
<TABLE>
<CAPTION>
Schedules
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<S> <C>
1.4 List of all issued and outstanding Company Common Stock.
3.1(a) List of all jurisdictions in which the Company is in good standing or qualified to
do business.
3.1(b) List of all entities in which the Company has an interest or equity.
3.2(b) List of all shareholders owning Company Common Stock and the number of
shares owned by each.
3.4 List of all current directors and officers including positions held as of the Closing
Date.
3.5(c) Certain of the Company's liabilities.
3.6 List of all Real Property Leases.
3.7 List of all tangible personal property owned by the Company including any liens
thereon.
3.8 List of Intellectual Property Rights.
3.9 List of all pending, threatened or unresolved litigation.
3.11 List of all Contracts.
3.13 List of all Permits.
3.15 List of all Insurance Policies.
3.16 List of all Inventory as of May 31, 1999.
3.18(a) Accounts Receivable Aging Report as of June 15, 1999.
3.18(c) All creditors of the Company as of May 31, 1999.
3.20 Affiliate Transactions.
3.21(a) List of all employees, salary, incentive bonus or any bonus arrangements.
3.21(d) Employee Benefit Plans.
3.22 List of 10 largest customers and 10 largest suppliers.
3.23 List of all Guarantees.
3.27 Shareholder Claims against the Company.
</TABLE>
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<PAGE>
Exhibits
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A Form of Fiene Employment Agreement
B Form of Holly Employment Agreement
C Form of Opinion of Counsel to Company Group
D Form of Opinion of Counsel to Parent
E Form of Shareholders Agreement between Fiene, the Simon Group and the
Company
F Company's Officers' Certificate
G Company's Secretary's Certificate
H Parent's Officer's Certificate
I Parent's Secretary's Certificate
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EXHIBIT 99.2
Amendment No. 1 dated as of July ____, 1999 to the AGREEMENT AND PLAN
OF MERGER (the "Agreement"), dated as of July 19, 1999, made and entered into by
and among Aris Industries, Inc., a New York corporation ("Parent"), XOXO
Acquisition Corp., a Delaware corporation (wholly owned by Parent ("Sub"), Lola,
Inc., a California corporation (the "Company" and, collectively with Sub, the
"Constituent Corporations") wholly owned by Gregg Fiene, ("Fiene"), an
individual residing in California, Michele Bohbot ("Bohbot"), an individual
residing in California and Lynne Fiene Hanson ("Hanson").
R E C I T A L S:
A. The Parent's Lenders have requested that the Merger contemplated by
the Agreement be accomplished by merging the Company with and into Europe Craft
Imports, Inc. ("ECI"), a New Jersey corporation that is wholly owned by Parent.
B. Sub has filed an amendment changing its name to "XOXO Clothing
Company, Incorporated."
NOW, THEREFORE, the parties hereto agree as follows:
1. Amendment to Merger. The Agreement is hereby amended to provide
that, at the Closing, the Company merge with and into ECI, in accordance with
the laws of the states of New Jersey and California and that all references in
the Agreement to the Sub be deemed to refer to ECI rather than XOXO Acquisition
Corp.
2. Contribution of the Company's Assets to XOXO. Immediately following
the effectiveness of the Merger, ECI shall contribute all of the assets of Lola
to Sub, and Sub shall assume all of the liabilities of Lola.
3. No Other Amendments. Other than as set forth in the immediately
preceding two paragraphs, all other terms and conditions of the Agreement shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Undersigned have executed this Amendment as of
July ___, 1999.
ARIS INDUSTRIES, INC.
By: /s/ David Fidlon
--------------------------------
David Fidlon, President
XOXO CLOTHING COMPANY, INCORPORATED
(formerly known as XOXO Acquisition
Corp.)
By: /s/ David Fidlon
--------------------------------
EUROPE CRAFT IMPORTS, INC.
By: /s/ David Fidlon
--------------------------------
LOLA, INC.
By: /s/ Gregg Fiene
--------------------------------
EXHIBIT 99.3
EXECUTION COPY
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EMPLOYMENT AGREEMENT
--------------------
This Agreement (the "Agreement") dated as of August 10, 1999 is made by
and among Aris Industries, Inc., a New York corporation (the "Company"), Europe
Craft Imports, Inc. ("ECI"), ECI Sportswear, Inc. ("Sportswear") and XOXO
Clothing Company, Incorporated (formerly known as XOXO Acquisition Corp.), a
Delaware corporation ("XOXO" and together with ECI and Sportswear, the
"Subsidiaries"), and Gregg Fiene (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:
WHEREAS, simultaneously with the execution hereof, upon the
terms and subject to the conditions of that certain Agreement and Plan of
Merger, as amended (the "Merger"), Lola, Inc. ("Lola") is being merged with and
into ECI, which shall be the surviving corporation in the Merger and the
separate existence of Lola shall cease;
WHEREAS, immediately following the Merger, ECI is contributing to XOXO
all of the assets and business owned and operated by Lola;
WHEREAS, the Company desires to hire the Executive as, (1) Vice
Chairman of the Board of Directors of the Company, (2) Chief Executive Officer
of XOXO and all divisions of the Company, the Subsidiaries and such future
direct or indirect subsidiaries of the Company engaged in the female apparel
industry and related or ancillary industries as Executive shall determine, and
as (3) Chief Executive Officer, President, or in such other senior executive
position with respect to any other Subsidiaries and such future direct or
indirect subsidiaries of
<PAGE>
EXECUTION COPY
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the Company as the Executive and the Chairman of the Company shall mutually
determine, and the Executive is willing to accept such employment on the terms
set forth herein.
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, and actually serves, 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
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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 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 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 items, (B) gains and losses from
financing transactions and (C) gains and 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), provided that such excess is
included when calculating Adjusted EBITDA for the next fiscal year. It is
understood and agreed that there shall be an appropriate calculation so that the
amount
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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.
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 fails to obtain the full
assumption of this Agreement by a successor entity in accordance with Section
12.2 of this Agreement; (g) 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; (h)
the Company purports to terminate the Executive's employment for Cause and the
Company is not entitled to
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<PAGE>
EXECUTION COPY
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terminate this Agreement for Cause; (i) Executive is required to relocate his
office more than 15 miles out of Los Angeles County; (j) Arnold Simon ("Simon")
is no longer Chairman of the Board of the Company or if Executive is required to
report to any individual other than Simon; or (k) the Chairman terminates any
employee of XOXO without Executive's prior consent.
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 of each Company.
3. Term of Employment. The term of employment under this Agreement
shall be deemed to commence as of August 10, 1999 (the "Commencement Date") and,
unless terminated earlier pursuant to the terms hereof, shall terminate on
August 9, 2004 (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, (1)
Vice Chairman of the Board of Directors of the Company, (2) Chief Executive
Officer of XOXO and all divisions of the Company, the Subsidiaries and such
future direct or indirect subsidiaries of the Company engaged in the female
apparel industry and related or ancillary industries as Executive shall
determine, and as (3) Chief Executive Officer, President, or in such other
senior executive position with respect to any other Subsidiaries and such future
direct or indirect subsidiaries of
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<PAGE>
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the Company as the Executive and the Chairman of the Company shall mutually
determine. In such positions, the Executive shall have the duties,
responsibilities and authority normally associated with such positions. The
Executive shall report solely and directly to the Chairman and the Board of
Directors of the Company, and all employees of the Company and all of the
Subsidiaries and such future direct or indirect subsidiaries of the Company
engaged in the apparel industry for which the Executive serves as Chief
Executive Officer shall report to Executive. Executive shall be entitled to
serve on such committees of the Company's board of directors as Simon serves on.
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
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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 - 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
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<PAGE>
EXECUTION COPY
--------------
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. All premiums and other costs and expenses associated with
the participation by the Executive, his spouse and his eligible dependents, if
any, in the plans and/or programs referenced herein shall be borne in full by
the Company.
5.6 OMITTED
5.7 Expense Reimbursement. 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. The Company shall provide Executive with a Company credit card for use
for Company expenses. 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.
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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 Executive currently.
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
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, (x) 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 $5,000,000 (provided Executive is
insurable for such amount at regular rates) 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, $30,000
per month for so long as the Executive is subject to a Disability or for
the unexpired portion of the Term.
(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);
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(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;
(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
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<PAGE>
EXECUTION COPY
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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 by 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 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.
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<PAGE>
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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 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;
provided, however, if the act or acts, or the failure to act, which is or are
the basis for the decision to terminate the Executive's employment for Cause are
incapable of being cured within the twenty (20) business day period and the
Executive has commenced reasonable efforts to correct such act, acts or
failure(s) to act within the twenty (20) day period, then the Executive's
employment shall not be terminated under this Section 6.2 for Cause and the
Executive shall have a reasonable time period following the expiration of the
twenty (20) business day period to correct such act, acts or failure(s) to act.
6.3 Termination Without Cause or Termination with Good Reason. The
Company may terminate the Executive's employment hereunder without Cause and the
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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 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.
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(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
(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
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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), (i) and
(k) 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 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
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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 ninety (90)
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 ninety (90) 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.
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.
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7. Key Man Life Insurance. If requested by the Company, Executive will
cooperate with the Company, at the Company's expense, to obtain key man life
insurance on the Executive's life.
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
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
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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 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
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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.
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
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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 Company fifteen (15) days after a written claim or request has been
received by the Company, the Executive may at any time thereafter commence
arbitration 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.
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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
California 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.
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
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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 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.
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14. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or any portion thereof, shall be resolved by binding
arbitration. The arbitration shall be conducted in Los Angeles County,
California in accordance with the arbitration rules promulgated and adopted by
the American Arbitration Association, JAMS/Endispute or other reputable
recognized alternative dispute resolution organization (hereinafter collectively
referred to as "ADR") chosen by the party demanding arbitration. Any party may
commence arbitration by sending a written demand for arbitration to the other
party and filing such claim with the ADR and paying the appropriate filing fees.
The demand will state the dispute with reasonable particularity. Subject to the
availability of the neutral arbitrator, the arbitration hearing shall be
commenced within the sixty (60) days following the date of appointment of the
neutral arbitrator. Unless the parties mutually agree on one arbitrator, the
arbitration shall be conducted by a panel of three (3) qualified arbitrators,
one (1) chosen by the Company, one (1) by the Executive and one (1) chosen by
the first two (2) arbitrators so appointed. If either party fails to designate
an arbitrator within ten (10) days of receipt of the demand for arbitration,
then it shall be deemed that the parties have agreed to have a single
arbitrator. The neutral arbitrator shall be chosen within twenty (20) days of
receipt of the demand for arbitration. If the parties or their respective
arbitrators fail to agree upon a neutral arbitrator, then either party may apply
to the Superior Court of Los Angeles County for an order appointing the neutral
arbitrator. Each party shall retain the right to cross-examine the opposing
party's witnesses. Discovery shall be limited to one (1) deposition per side and
one (1) demand for production and inspection of documents.. The majority
decision of the arbitration panel shall be final, binding and conclusive on all
parties (without any right of appeal therefrom) and shall not be subject to
judicial review, other than as
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provided by law. The fees for the neutral arbitrator and administration of the
arbitration shall be divided between the parties. As part of its decision, the
arbitration panel may allocate the cost of arbitration, including fees of
attorneys and experts, as it deems fair and equitable in light of all relevant
circumstances. The parties waive the right to a trial by jury. The award of the
arbitrator shall be in writing and shall set forth the basis upon which all
issues submitted by the parties for decision has been decided. Judgment on the
award rendered by the arbitration panel may be entered in any court of competent
jurisdiction.
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 California, 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:
If to the Executive: Gregg Fiene
Lola, Inc.
6000 Sheila Street
Commerce, California 90040
and to: Jeffrey F. Gersh, Esq.
Zimmerman Rosenfeld Gersh & Leeds, LLP
9107 Wilshire Blvd.
Beverly Hills, California 90210
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If to the Company: Aris Industries, Inc.
1411 Broadway
New York, New York 10018
Attention: Chairman
with a copy to: Robert W. Forman
Shapiro Forman & Allen LLP
380 Madison Avenue
New York, NY 10017
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 Company written notice thereof. In
the event of the Executive's death or a judicial determination
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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. 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.
/s/ Robert W. Forman By: /s/ Arnold Simon
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Robert W. Forman, Asst. Secretary Name: Arnold Simon
---------------------------
Title: Chairman of the Board
---------------------------
Attest: EUROPE CRAFT IMPORTS, INC.
/s/ Robert W. Forman By: /s/Arnold Simon
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Robert W. Forman, Asst. Secretary Name: Arnold Simon
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Title: Chairman of the Board
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Attest: XOXO, Inc. (Formerly known XOXO
ACQUISITION CORP.)
/s/ Robert W. Forman By: /s/Arnold Simon
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Robert W. Forman, Asst. Secretary Name: Arnold Simon
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Title: Chairman of the Board
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Attest: ECI SPORTSWEAR, INC.
/s/ Robert W. Forman By: /s/Arnold Simon
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Robert W. Forman, Asst. Secretary Name: Arnold Simon
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Title: Chairman of the Board
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GREGG FIENE
/s/ Gregg Fiene
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SCHEDULE 5.8
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PERQUISITES AND FRINGE BENEFITS
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o Use of Mercedes-Benz or automobile of similar status and driver selected by
the Executive
o Four (4) weeks of paid vacation for each calendar year, to be taken
cumulatively
o While in New York, the use of a luxury automobile and a driver of Mr.
Fiene's choice
o Reimbursement by the Company for all business-related expenses, including
but not limited to, telephone (both land and cellular) charges,
entertainment and first class travel and hotel accommodations.
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EMPLOYMENT AGREEMENT
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This Employment Agreement (the "Agreement"), dated as of August 10,
1999, is made by and among Aris Industries, Inc., a New York corporation (the
"Company") and XOXO Clothing Company, Incorporated, (formerly known as XOXO
Acquisition Corp.), a Delaware corporation (the "Subsidiary"), wholly owned by
Europe Craft Imports, Inc., a New Jersey corporation ("ECI") and Hollis Fiene
(the "Executive"). The Company and the Subsidiary 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:
WHEREAS, simultaneously with the execution hereof, Lola, Inc. ("Lola")
is merging with and into ECI which is immediately thereafter contributing to the
Subsidiary all of the assets and business owned and operated by Lola.
WHEREAS, the Company desires to hire the Executive as Vice
President-Design and Merchandising for the Subsidiary and of other subsidiaries
or divisions of the Company engaged in the design of women's apparel, and the
Executive is willing to accept such employment on the terms set forth herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Company, the
Subsidiary and the Executive hereby agree as follows:
1. Definitions.
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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
Subsidiary.
1.3 "Cause" means (a) the Executive is convicted of, or pleads guilty
to, any felony, (b) the Executive engages in any act of dishonesty or illegality
involving the Company or any of its assets or (c) the Executive, in carrying out
the Executive's duties and responsibilities under this Agreement, is guilty of
gross neglect or gross misconduct.
1.4 "Disability" means the Executive's inability to render, for a
period of three consecutive months, or four months in any 12 month period, her
full time services hereunder.
1.5 "Good Reason" means and shall be deemed to exist if, without the
Executive's express prior written consent, (a) Executive is assigned any duties
or responsibilities inconsistent in any material respect with the scope of the
duties or responsibilities associated with Executive's title or positions, as
set forth and described in Article 4 of this Agreement; (b) 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) the Company fails to
substantially perform or otherwise substantially breaches any material term or
provision of this Agreement; (d) Executive's benefits under employee benefit or
health or welfare plans or programs of the Company are in the aggregate
materially decreased; (e) the Company purports to terminate Executive's
employment for Cause and the Company is not entitled to terminate this Agreement
for Cause; or (f) if Gregg Fiene is
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terminated without Cause or resigns for Good Reason as such terms are defined in
his employment agreement.
2. Employment. Subject to the terms and provisions set forth in this
Agreement, the Company and the Subsidiary hereby employs the Executive during
the Term of Employment as the Vice President-Design and Merchandising of the
Subsidiary and of other subsidiaries or divisions of the Company engaged in the
design of women's apparel, and the Executive hereby accepts such employment, on
the terms and conditions set forth herein.
3. Term of Employment. The term of employment (the "Term) under this
Agreement shall be deemed to commence as of August 10, 1999 (the "Commencement
Date") and, unless terminated earlier pursuant to the terms hereof, shall
terminate on August 9, 2002 (the "Term").
4. Position, Responsibilities and Duties.
4.1 Position. During the Term of Employment, the Executive shall be
employed as Vice President - Design and Merchandising of the Subsidiary and of
such other subsidiaries or divisions of the Company engaged in the design of
women's apparel as agreed between the parties. In such position, the Executive
shall report to the Chief Executive Officer of the Subsidiary and of such other
subsidiaries for which she performs design and merchandising services.
4.2 Duties. During the Term of Employment, the Executive shall devote
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
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Agreement.
5. Compensation and Other Benefits.
5.1 Base Salary; Discretionary Bonus. During the Term of Employment,
the Executive shall receive a base salary of $300,000. per annum ("Base
Salary"), payable in accordance with the Company's regular payroll practices.
The Board shall review Executive's salary on an annual basis for an increase but
may not decrease such salary. In addition, Executive shall be entitled to such
annual discretionary bonus as the Board may determine.
5.2 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.
5.3 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. All premiums and other costs
and expenses associated with the participation by the Executive, her spouse and
her eligible dependents, if any, in the plans and/or programs referenced herein,
shall be borne in full by the Company.
5.4 Expense Reimbursement. The Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by the Executive in
performing the
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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.
5.5 Vacation. During the Term of Employment, the Executive shall be
entitled to four weeks paid vacation and shall be entitled to such fringe
benefits and perquisites as set forth in Schedule 5.5 or, if more favorable to
the Executive, as provided by the Company at any time hereafter.
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
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 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 but not yet paid;
(c) any deferred compensation accrued but not yet paid to the
Executive (including, without limitation, interest or other credits on such
deferred amounts) and any accrued vacation pay;
(d) reimbursement pursuant to Section 5.4 hereof or any other
provision of
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this Agreement for expenses incurred but not yet paid prior to such death
or Disability; and
(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 Subsidiary.
6.2 Termination by the Company for Cause. The Company may terminate the
Executive's employment hereunder for Cause as provided in this Section 6.2. 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) reimbursement pursuant to Section 5.4 hereof or any other
provision of this Agreement for expenses incurred, but not yet paid prior
to such termination of employment; and
(c) 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 Subsidiary.
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
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Executive shall be entitled to the following:
(a) in consideration of Executive's agreement contained in Section
8.1, a lump sum payment in an amount equal to 150% of Base Salary then in
effect.
(b) any 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.
(c) any deferred compensation (including, without limitation, interest
or other credits on the deferred amounts) and any accrued vacation pay;
(d) reimbursement pursuant to Section 5.4 hereof or any other
provision of this Agreement for expenses incurred, but not paid prior to
such termination of employment;
(e) 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 5.4 of this Agreement) on the
Date of Termination through the end of the Term set forth in Section 3 or
the Company shall provide the economic equivalent thereof; and
(f) 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 Subsidiary.
If the Executive seeks to terminate the Executive's employment hereunder for
Good
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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 6.4 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; provided,
however, if the act or acts, or the failure to act, which is or are the basis
for the decision to terminate the Executive's employment for Cause are incapable
of being cured within the twenty (20) business day period and the Executive has
commenced reasonable efforts to correct such act, acts or failure(s) to act
within the twenty (20) day period, then the Executive's employment shall not be
terminated under this Section 6.2 for Cause and the Executive shall have a
reasonable time period following the expiration of the twenty (20) business day
period to correct such act, acts or failure(s) to act.
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6.4 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 11.3 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).
7. Executive's Representation. The Executive represents and warrants to
the Company that: (a) she is subject to no contractual, fiduciary or other
obligation which may affect or limit the performance of her duties under this
Agreement; and (b) her employment with the Company will not require him to use
or disclose proprietary or confidential information of any other person or
entity.
8. Non-Competition; Non-Disclosure.
8.1 Non-Competition. Executive agrees that during the Term and for a
period of twelve months after the termination of Executive's employment
hereunder (except upon expiration of the Term), the Executive will not directly
or indirectly, as an officer, director, stockholder, partner, associate,
employee, consultant or owner (x) design any products of a category similar to
those designed by the Executive while she was employed by the Company or any of
its subsidiaries; or (y) solicit or hire any employees of the Company other than
those
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dismissed by the Company.
8.2 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.
9. Successors.
9.1 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. This Agreement shall inure to the benefit of and be
enforceable by the Executive's estate, heirs, beneficiaries and/or legal
representatives.
9.2 The Company. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
10. Miscellaneous.
10.1 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 California, applied without reference to principles of conflict of
laws.
10.2 Amendments. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties hereto or their
respective
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successors and legal representatives.
10.3 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: Hollis Fiene
Lola, Inc.
6000 Sheila Street
Commerce, California 90040
with a copy to: Jeffrey F. Gersh, Esq.
Zimmerman Rosenfeld Gersh & Leeds LLP
9107 Wilshire Boulevard, Suite 300
Beverly Hills, CA 90210-5528
If to the Company: Aris Industries, Inc.
1411 Broadway
New York, New York 10018
Attention: Chairman
with a copy to: Robert W. Forman
Shapiro Forman & Allen LLP
380 Madison Avenue
New York, NY 10017
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.
11.4 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.
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11.5 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.
11.6 Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
11.7 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.
11.8 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.
11.9 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.
12. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or any portion thereof, shall be resolved by binding
arbitration. The arbitration shall be conducted in Los Angeles County,
California in accordance with the arbitration rules promulgated and adopted by
the American Arbitration Association, JAMS/Endispute or other
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reputable recognized alternative dispute resolution organization (hereinafter
collectively referred to as "ADR") chosen by the party demanding arbitration.
Any party may commence arbitration by sending a written demand for arbitration
to the other party and filing such claim with the ADR and paying the appropriate
filing fees. The demand will state the dispute with reasonable particularity.
Subject to the availability of the neutral arbitrator, the arbitration hearing
shall be commenced within the sixty (60) days following the date of appointment
of the neutral arbitrator. Unless the parties mutually agree on one arbitrator,
the arbitration shall be conducted by a panel of three (3) qualified
arbitrators, one (1) chosen by the Company, one (1) by the Executive and one (1)
chosen by the first two (2) arbitrators so appointed. If either party fails to
designate an arbitrator within ten (10) days of receipt of the demand for
arbitration, then it shall be deemed that the parties have agreed to have a
single arbitrator. The neutral arbitrator shall be chosen within twenty (20)
days of receipt of the demand for arbitration. If the parties or their
respective arbitrators fail to agree upon a neutral arbitrator, then either
party may apply to the Superior Court of Los Angeles County for an order
appointing the neutral arbitrator. Each party shall retain the right to
cross-examine the opposing party's witnesses. Discovery shall be limited to one
(1) deposition per side and one (1) demand for production and inspection of
documents.. The majority decision of the arbitration panel shall be final,
binding and conclusive on all parties (without any right of appeal therefrom)
and shall not be subject to judicial review, other than as provided by law. The
fees for the neutral arbitrator and administration of the arbitration shall be
divided between the parties. As part of its decision, the arbitration panel may
allocate the cost of arbitration, including fees of attorneys and experts, as it
deems fair and equitable in light of all
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relevant circumstances. The parties waive the right to a trial by jury. The
award of the arbitrator shall be in writing and shall set forth the basis upon
which all issues submitted by the parties for decision has been decided.
Judgment on the award rendered by the arbitration panel may be entered in any
court of competent jurisdiction.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
Attest: ARIS INDUSTRIES, INC.
/s/ Robert W. Forman By: /s/ Arnold Simon
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Robert W. Forman, Asst. Secretary Name: Arnold Simon
-------------------------
Title: Chairman of the Board
-------------------------
Attest: XOXO, Inc. (Formerly known XOXO
ACQUISITION CORP.)
/s/ Robert W. Forman By: /s/Arnold Simon
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Robert W. Forman, Asst. Secretary Name: Arnold Simon
-------------------------
Title: Chairman of the Board
-------------------------
/s/ Hollis Fiene
-------------------------------
HOLLIS FIENE
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SCHEDULE 5.5
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PERQUISITES AND FRINGE BENEFITS
-------------------------------
o Use of Mercedes-Benz or automobile of similar status selected by the
Executive
o While in New York, the use of a luxury automobile selected by the Executive
o Reimbursement by the Company for all business-related expenses, including
but not limited to, telephone (both land and cellular) charges,
entertainment and first class travel and hotel accommodations.
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EXHIBIT 99.5
SHAREHOLDERS AGREEMENT
dated as of August 10, 1999
by and among
ARIS INDUSTRIES, INC.
and
GREGG FIENE
and
MICHELE BOHBOT
and
LYNNE HANSON
and
THE SIMON GROUP, LLC
<PAGE>
SHAREHOLDERS AGREEMENT
Shareholders Agreement (this "Agreement"), dated as of August 10, 1999,
among Aris Industries, Inc., a New York corporation (the "Company"), The Simon
Group, LLC, a New York limited liability company ("Simon") and each of Gregg
Fiene ("Fiene"), Michele Bohbot ("Bohbot"), and Lynne Hanson
("Hanson,")(individually a "Seller" and together the "Sellers" and together with
Simon, the "Shareholders").
WHEREAS, Simon beneficially owns 41,757,194 shares of the Common Stock
of the Company, par value $.01 per share (the "Common Stock");
WHEREAS, pursuant to the terms and conditions of that certain Agreement
and Plan of Merger dated as of July 19, 1999 as amended by Amendment No. 1 dated
August 2, 1999, (the "Merger Agreement") by and among the Company, Lola, Inc.,
Fiene, Bohbot and Hansen, Sellers are acquiring an aggregate of 6,500,000 shares
of Common Stock (the "Shares");
WHEREAS, execution and delivery of this Agreement by the parties hereto
is a condition precedent to the closing (the "Closing") under the Merger
Agreement; NOW, THEREFORE, in consideration of the premises, covenants and
agreements contained herein, and for other good and valuable consideration, the
sufficiency and adequacy of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. Intentionally Omitted.
2. Corporate Governance.
2.1 Board of Directors; Nomination of Directors.
<PAGE>
(a) During the term of this Agreement, Simon shall nominate, and vote
all of its shares of Common Stock for the election of, Fiene as a director of
the Company, provided Fiene is, at such time, employed as an executive officer
of the Company.
(b) In the event that Fiene no longer serves as an executive officer of
the Company, he shall resign as a Director of the Company promptly upon the
written request of Simon.
2.2 Voting for Directors Generally. Fiene and Bohbot shall vote for
directors of the Company in accordance with this Agreement as follows. Fiene and
Bohbot each shall appear in person, or by proxy, at any annual or special
meeting of shareholders of the Company, and shall vote the shares of Common
Stock owned by such Seller, in favor of the election of the individuals
nominated by Simon. Fiene and Bohbot each shall vote in any solicitation of
written consents or proxies consistent with the foregoing.
3. Restrictive Legends Requirements.
3.1 Restrictive Legend on Certificate. Each of the Shareholders agrees
that the Company shall place during the term of this Agreement the applicable
portion or portions of the following legend on the certificates representing the
shares of Common Stock beneficially owned by each of them.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF THE SHAREHOLDERS AGREEMENT, DATED AS OF August 10, 1999,
WHICH AGREEMENT CONTAINS PROVISIONS RESTRICTING THE TRANSFER OF
SECURITIES EVIDENCED BY THIS CERTIFICATE UNDER CERTAIN CIRCUMSTANCES.
SUCH SHAREHOLDERS AGREEMENT ALSO CONTAINS PROVISIONS REQUIRING THE VOTE
OF THE SECURITIES EVIDENCED BY THIS CERTIFICATE IN FAVOR OF INDIVIDUALS
NOMINATED TO THE BOARD OF DIRECTORS OF THE CORPORATION BY OTHER
SHAREHOLDERS REFERRED TO THEREIN UNDER CERTAIN
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CIRCUMSTANCES. A COPY OF SUCH SHAREHOLDERS AGREEMENT
MAY BE OBTAINED FROM THE COMPANY WITHOUT CHARGE.
4. General Restrictions on Transfer of Common Stock.
4.1 Restrictions on Transfers. During the term of this Agreement, none
of Fiene or Bohbot shall sell, assign, transfer, pledge, hypothecate, mortgage,
encumber or otherwise dispose (a "Transfer") of all or any shares of Common
Stock now owned by either of them, except as permitted in this Section 4, or as
permitted by, or in compliance with, Section 5 or Section 6 of this Agreement.
Any Transfer by Fiene or Bohbot of any shares of Common Stock subject to this
Agreement that does not comply with the terms of this Agreement shall be void ab
initio and of no effect, and the Company and its transfer agent and registrar
shall have no obligation to give effect to such purported Transfer or to
recognize the purported transferee as the holder of such shares.
4.2 Death of Seller. Notwithstanding any provision of this Agreement to
the contrary, effective upon the death of Fiene or Bohbot, the terms of this
Agreement shall terminate with respect to such Seller.
4.3 Transfers Subject to Simon's Right of First Offer. Prior to either
of Fiene or Bohbot effecting the Transfer of 100,000 or more shares of such
Seller's Common Stock in one transaction or series of related transactions in
any 90-day period (other than any Transfer otherwise permitted under this
Agreement), such Seller shall irrevocably offer such shares of Common Stock to
Simon by delivering via facsimile, no later than 1:00 p.m. eastern standard time
(10:00 a.m. pacific standard time), to Simon a Transfer Notice to such effect
stating the terms of such offer, and meeting the requirements of a Transfer
Notice (defined below) and including the proposed closing date, which shall not
be earlier than 1:00 p.m. eastern standard
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time (10:00 a.m. pacific standard time) the next business day after delivery of
such Transfer Notice or 1:00 p.m. eastern standard time (10:00 a.m. pacific
standard time) on the third business day following the delivery of the Transfer
Notice if the proposed Transfer is pursuant to a private sale. If Simon does not
deliver via facsimile a written notice (the "Acceptance Notice") irrevocably
accepting such offer on or prior to 1:00 p.m. eastern standard time (10:00 a.m.
pacific standard time) on the business day after Simon's receipt of the Transfer
Notice or on or before 1:00 p.m. eastern standard time (10:00 a.m. pacific
standard time) on the third business day following delivery of the Transfer
Notice if the proposed Transfer is pursuant to a private sale, then such Seller
shall have the right for a period of 30 days to Transfer such shares of Common
Stock to any Person on terms no less favorable to Seller than the terms
described in such Transfer Notice. If Simon shall deliver the Acceptance Notice
irrevocably accepting the offer within the required time period, the selling
Seller shall sell, and Simon shall purchase, such offered shares at the price
per share and in accordance with the other terms set forth in the applicable
Transfer Notice on the closing date specified therein. As used in this
Agreement, "Transfer Notice" shall mean a notice that (x) sets forth: (i) the
aggregate number of shares of Common Stock to be transferred (the "Offered
Shares"); (ii) the proposed date, time and place of Transfer; (iii) the amount
and form of consideration to be received in the aggregate and on a per-share
basis by the selling Shareholder; (iv) the identity of the transferee or
transferees (provided that in the case of a public sale, or a Transfer pursuant
to Rule 144, the requirement to set forth such identity may be satisfied by a
statement that the transferee or transferees is the public market); and (v) any
other material terms and conditions of the Transfer, together with copies of any
then-available Transfer documents (or the current draft thereof) related
thereto; provided,
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that with respect to a Transfer Notice issued pursuant to Section 4.3,
notwithstanding the provisions of Section 11, a Transfer Notice shall be given
in writing by facsimile to Simon at 1- 212-642-4265, and shall be deemed
received by Simon on the date such facsimile was transmitted, if such Seller has
a confirmation that such transmission was received; and provided further that
with respect to an Acceptance Notice issued pursuant to Section 4.3,
notwithstanding the provisions of Section 11, an Acceptance Notice shall be
given in writing by facsimile to the selling Seller as follows: if to Fiene, to
(323) 838-7873 and if to Bohbot, to (213) 742-9190 and shall be deemed received
by the selling Seller on the date such facsimile was transmitted, if Simon has a
confirmation that such transmission was received.
4.4 No Joint and Several Liability. The obligations of the Sellers set
forth in this Section 4 are individual to each Seller and are not joint and
several, and no liability shall be attributed to a particular Seller for the
breach of this Section 4.1 by another Seller.
5. Tag-Along Transfer Rights on Non-Public Dispositions by Simon.
5.1 Delivery of Transfer Notices. If Simon proposes to Transfer shares
of Common Stock in one transaction or a series of transactions in which more
than 50% of the Common Stock owned by him beneficially and of record are being
sold in a privately negotiated transaction, Simon shall deliver to each Seller a
Transfer Notice. Each Seller shall be entitled to offer for transfer in the
proposed Transfer the number of shares of Common Stock as determined pursuant to
the next sentence, on the terms set forth in such Transfer Notice, by delivering
to Simon, within ten business days of receipt of the Transfer Notice, an
irrevocable offer to sell such shares. In the case of a Transfer by Simon giving
rise to a Tag-Along Right, each Seller shall be entitled to sell such number of
shares equal to the product of (A) the number of shares
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set forth in the Transfer Notice and (B) a fraction, the numerator of which is
equal to the aggregate number of shares of Common Stock which such Seller owns
and the denominator of which is equal to the aggregate number of shares of
Common Stock owned beneficially and of record by Simon and Apollo Aris Partners,
L.P. and AIF - II L.P. ("Apollo"); provided, that notwithstanding any other
provision of this Agreement that any reference in this Agreement to the Common
Stock owned by Simon shall include beneficial ownership by Simon and all shares
of Common Stock issuable upon conversion of Series A Preferred Stock of the
Company held beneficially by Simon; provided, further, if Apollo does not sell
shares in the transaction subject to the Transfer Notice, then each Seller shall
be given the opportunity to sell additional shares in the transaction subject to
the Transfer Notice and the aggregate number of shares that each Seller may
transfer shall be determined pursuant to the formula set forth in this Section
5.1 which shall be revised to delete the inclusion of the shares of Common Stock
owned beneficially and of record by Apollo.
5.2 Terms and Conditions of Sale. The shares of Common Stock to be
offered for Transfer pursuant to this Section 5 by the Sellers shall be
transferred on the same terms and conditions as those applicable to Simon as
specified in the Transfer Notice, including the time of Transfer (provided,
however, that Simon shall be entitled to postpone such Transfer date if
reasonably necessary), form of consideration, and per-share sale price. No
Transfer of shares of Common Stock shall occur prior to the expiration of the
ten (10) business day period referred to in Section 5.1. Sellers shall promptly
take all steps described in the relevant Transfer Notice to effectuate the
Transfer of their shares, as applicable, of Common Stock to be offered for
transfer in the Transfer, including the furnishing of information customarily
provided in connection with
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<PAGE>
such a Transfer and the executing of customary Transfer documents with customary
representations and warranties limited to its authority to Transfer and the
title to securities and the absence of any liens or other encumbrances thereon.
5.3 Failure to Complete Tag-Along Transfer. If a Transfer described in
a Transfer Notice delivered pursuant to Section 5.1 shall not be completed for
any reason, Simon shall have no liability to the Sellers therefor.
5.4 No Joint and Several Liability. The obligations of the Sellers set
forth in this Section 5 are individual to each Seller and are not joint and
several, and no liability shall be attributed to a particular Seller for the
breach of this Section 5 by another Seller.
6. Bring-Along Right of Simon.
6.1 Qualifying Transaction. If Simon proposes to sell to a third party
that is not an affiliate of Simon all, but not less than all, of the shares of
Common Stock then owned beneficially and of record by Simon, Simon shall have
the right, but not the obligation (the "Bring-Along Right"), to require the
Sellers to sell all, but not less than all, of the shares of Common Stock
acquired by them pursuant to the Merger Agreement to such third party
purchaser(s) in the same manner, at the same purchase price per share, on the
same closing date and on the same other terms and conditions as Simon, provided,
that Simon must exercise such right as to all of the Sellers as a group.
6.2 Exercise of the Bring-Along Right; Closing Date. Simon may exercise
the Bring-Along Right by delivering a written notice to the Sellers to such
effect, which notice shall also state (i) that the notice is being delivered
pursuant to the provisions of Section 6, (ii) the purchase price per share of
Common Stock, (iii) whether the purchase price will be paid in cash,
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<PAGE>
Marketable Securities (defined below) or a combination thereof, (iv) the number
of shares of Common Stock which each Seller shall be required to sell pursuant
to the exercise of the Bring- Along Right, (v) the identity of the transferee,
and (vi) the date and time for the closing of the purchase and sale of the
securities pursuant to the Bring-Along Right. For purposes of this Agreement,
"Marketable Securities" means marketable securities (i) issued by an issuer with
a public float equal to or greater than $100 million, (ii) listed on a major
national stock exchange, (iii) that constitute, in the aggregate, not more than
5% of the outstanding class of securities of such issuer, and (iv) that have
been registered for sale under the Securities Act of 1933, as amended (the
"Securities Act") or are otherwise freely tradable under the Securities Act and
applicable "blue sky" or state securities laws.
6.3 Closing of Purchase and Sale Pursuant to the Bring-Along Right. At
the closing specified for the purchase and sale of the shares of Common Stock
owned by Sellers pursuant to the exercise by Simon of its Bring-Along Right at
the offices of the Company (x) the party purchasing such shares of Common Stock
shall (i) to the extent the purchase price is to be paid in cash, pay the
aggregate purchase price for such Common Stock payable to each Seller on the
same terms and conditions as regards Simon by wire transfer of immediately
available funds and (ii) to the extent the purchase price is to be paid by
delivery of Marketable Securities to Sellers, deliver such Marketable Securities
to each Seller, and (y) each Seller shall deliver to such purchaser the stock
certificate or certificates representing all such securities free and clear of
any liens or other encumbrances thereon (other than such liens or other
encumbrances which will be satisfied on such closing date by the payment of
money) duly endorsed in blank, or accompanied by stock powers duly executed in
blank, which date shall not be earlier than ten (10) days after
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the date such notice is given pursuant to Section 11. Each Seller shall promptly
take all steps described in the notice delivered to him to effectuate the
Transfer of the shares of Common Stock to be transferred pursuant to the
exercise of the Bring-Along Right, including the furnishing of information
customarily provided in connection with such a Transfer and the executing of
customary Transfer documents with customary representations and warranties
limited to his authority to Transfer, title to such securities and the absence
of any liens or other encumbrances thereon.
7. Registration Rights.
7.1 Piggyback Registration Rights. In the event that the Company
intends to, or has been requested to, register any share of Common Stock under
the Act, the Company shall notify each Seller of its intention to register such
shares not less than 30 days before the expected filing date of the registration
statement. If any Seller notifies the Company, not less than 15 days prior to
the filing of such registration statement, that they desire to have shares of
the Common Stock they received under the Merger Agreement included in the
registration statement, the Company shall, subject to the provisions of Sections
7.2 and 7.3, include such shares in such registration statement, provided that
each Seller making such request, promptly after the Company's request, furnishes
the Company with such information as may be necessary for the inclusion of such
shares in such registration statement.
7.2 Underwritten Offer. If any registration to which the provisions of
Section 7.1 apply is intended to be an underwritten "firm commitment" public
offering, the Company shall describe the terms and conditions of the
underwriting arrangement in the notice given pursuant to Section 7.1 and
Sellers' rights to have shares of the Common Stock registered
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<PAGE>
thereunder shall be conditioned on Sellers' agreement, if so requested by the
Company, to sell such shares pursuant to such underwriting agreement.
7.3 Limitation on Shares. Notwithstanding the provisions of Section
7.1, if any such registration to which the provisions of Section 7.1 apply is to
be an underwritten public offering, and the underwriter of such public offering
determines that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter may exclude from such underwriting a number
of the shares proposed to be offered by parties other than the Company;
provided, that such exclusion shall be allocated among them in the same
proportion as the number of shares proposed to be offered by each such party
bears to the number of shares proposed to be offered by all of them.
7.4 Registration Statement. With respect to any registration of shares
of the Common Stock in which a Seller participates pursuant to this Section 7,
the Company shall furnish a manually signed copy of each such registration
statement and all amendments thereto to each participating Seller upon the
filing thereof, such reasonable number of copies of the prospectus included in
each such registration statement and amendments thereto as such party may
reasonably request in order to facilitate the public sale or other disposition
of the shares owned by such participating Seller.
7.5 Expenses; Fees. Sellers shall not be required to pay any expenses,
fees, or charges in connection with any registration pursuant to this Section 7
except that he shall pay all fees and disbursements of counsel incurred by him
and shall pay a portion of any underwriting discounts or commissions and SEC and
blue sky fees in the same proportion that the number of shares being registered
for any applicable Seller bears to the total number of shares being registered.
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7.6 Indemnification. The Company will indemnify and hold harmless
Sellers, and each of them, against any losses, claims, damages or liabilities to
which Sellers, and each of them, may become subject as far as such losses,
claims, damages or liabilities are caused by any untrue statement of any
material fact contained, on the effective date thereof, in any Registration
Statement under which the securities were registered under the Act, any
prospectus contained therein, or any amendment or supplement thereto, or arise
out of or are based upon the omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
and will reimburse Sellers, and each of them, for any legal or other expenses
reasonably incurred by him or her in connection with defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable to a particular Seller in any such case to the extent that any such
loss, damage, expense or liability arises out of or is based upon an untrue
statement or omission so made in conformity with information furnished by such
particular Seller for inclusion in the Registration Statement. Promptly after
receipt by any of the Sellers of notice of any claim to which indemnity would
apply or the commencement of any such action, such Seller will notify the
Company of the commencement thereof. In case such action is brought against a
Seller, and he or she notified the Company of the commencement thereof, the
Company will be entitled to participate in, and, to the extent that it may wish,
to assume the defense thereof, with counsel satisfactory to such Seller.
8. Amendment. This Agreement may not be amended except by a written
instrument signed by all of the parties hereto.
9. Assignment; No Third-Party Beneficiaries.
9.1 This Agreement and all the provisions hereof shall be binding upon
and shall inure to the benefit of the parties hereto and their respective heirs,
assigns, executors,
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<PAGE>
administrators or successors; provided, however, that except as specifically
provided herein with respect to certain matters, neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned.
9.2 This Agreement is not intended to offer any rights or remedies upon
any Person other than the parties hereto and their permitted heirs, assigns,
executors, administrators or successors, and no party hereto shall have any
right to enforce the provisions of this Agreement on behalf of any other Person,
including the Company.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without giving regard to the
conflict of laws principles thereof.
11. Notices. All notices given pursuant to this Agreement shall be in
writing and shall be made by hand delivery, first-class mail (registered or
certified, return receipt requested), or nationally recognized overnight air
courier guaranteeing next business day delivery as follows:
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<PAGE>
If to Simon:
Aris Industries, Inc.
1411 Broadway
New York, NY 10018
Attention.: Arnold H. Simon, Chairman
Telephone No.: 212-642-4300
Facsimile Transmission No.: 212-642-4265
with a copy to:
Shapiro Forman & Allen LLP
380 Madison Avenue
New York, NY 10017
Fax No. (212) 557-1275
Attention: Robert W. Forman, Esq.
If to Fiene:
c/o XOXO, Inc.
6000 Sheila St.
Commerce City, CA 90040
Attn: Gregg Fiene
with a copy to:
Julie M. Kaufer, Esq.
Troop Steuber Pasich Reddick & Tobey, LLP
2029 Century Park East, 24th Floor
Los Angeles, CA 90067
and a copy to:
Jeffrey F. Gersh, Esq.
Zimmerman Rosenfeld Gersh & Leeds, LLP
9107 Wilshire Blvd.
Beverly Hills, California 90210
If to Bohbot
c/o Bisou Bisou, Inc.
2025 South Figueroa Street
Los Angeles, California 90007
with a copy to:
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<PAGE>
Jeffrey F. Gersh, Esq.
Zimmerman Rosenfeld Gersh & Leeds, LLP
9107 Wilshire Blvd.
Beverly Hills, California 90210
If to Hanson:
Lynne Hanson
3775 Belina Canyon Road
Encino, California 91436
with a copy to:
Cynthia M. Cohen, Esq.
Jeffer, Mangels, Butler & Marmaro LLP
2121 Avenue of the Stars, Tenth Floor
Los Angeles, California 90067
Any party hereto may change its address for receiving notices, requests and
other documents by giving written notice of such change to the other parties.
Except as otherwise provided in this Agreement, each such notice shall be deemed
given: at the time delivered, if personally delivered; if mailed, three days
after being mailed by certified or registered mail, postage prepaid, return
receipt requested; and the next business day after timely delivery to the
courier, if sent by nationally recognized overnight air courier guaranteeing
next business day delivery.
12. Entire Agreement. This Agreement supersedes all prior Agreements
between or among any of the parties hereto with respect to the subject matter
contained herein, and such agreements embody the entire understanding among the
parties relating to such subject matter.
13. Injunctive Relief. Each of the parties hereto hereby acknowledges
that in the event of a breach by any of them of any material provision of this
Agreement, the aggrieved party will be irreparably harmed (which harm is
acknowledged to be not readily measurable in damages) and that there will be no
adequate remedy at law. Each of the parties therefore agrees
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<PAGE>
that in the event of a breach hereof the aggrieved party shall have the right to
obtain injunctive relief in any court of competent jurisdiction to enforce
specific performance or to enjoin the continuing breach hereof without the
requirement of posting any bond or security or proving any special damages. By
seeking or obtaining any such relief, the aggrieved party will not be precluded
from seeking or obtaining any other relief to which it may be entitled.
14. Termination.
14.1 Termination of Agreement. This Agreement shall terminate ten years
from the date hereof unless sooner terminated by a written instrument signed by
each of the parties hereto or pursuant to Section 14.2 hereof, provided, if
Fiene's employment with the Company, pursuant to that certain Employment
Agreement executed concurrently herewith by and between the Company and Fiene
(the "Employment Agreement"), is terminated "For Cause" (as defined in the
Employment Agreement), or for "Good Reason" (as defined in the Employment
Agreement), the provisions of this Agreement, other than the rights of Sellers
set forth in Sections 5 and 7, shall immediately terminate.
14.2 Termination with Respect to Shareholders with De Minimis Holdings.
Unless this entire Agreement is sooner terminated in accordance with Section
14.1, any Shareholder shall cease to be a party hereto as of such earlier date,
if any, as the number of shares of Common Stock owned by such Shareholder equals
less than 10% of the aggregate number of shares of Common Stock owned
beneficially and of record by such Shareholder as of the date hereof, and
thereafter such Shareholder shall have no rights or obligations as a party
hereto and no termination pursuant hereto shall be deemed to be a breach of any
provision hereof.
15. Section Headings. Section headings are for convenience of reference
only and shall not affect the meaning of any provision of this Agreement.
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<PAGE>
16. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, and all of which shall
together constitute one and the same instrument. All signatures need not be on
the same counterpart.
17. Consent to Jurisdiction. All actions and proceedings arising out
of, or relating to, this Agreement shall be heard and determined in any state or
federal court sitting in New York, unless the Company is reincorporated in the
state of Delaware, in which case, all such actions and proceedings shall be
heard and determined in any state or federal court sitting in Delaware. The
undersigned, by execution and delivery of this Agreement, expressly and
irrevocably consent and submit to the personal jurisdiction of any of such
courts in any such action or proceeding; (ii) consent to the service of any
complaint, summons, notice or other process relating to any such action or
proceeding by delivery thereof to such party by hand or by certified mail,
delivered or addressed as set forth in Section 11 of this Agreement; and (iii)
waive any claim or defense in any such action or proceeding based on any alleged
lack of personal jurisdiction, improper venue or forum non conveniens or any
similar basis.
18. Severability. If any provision of this Agreement shall be
determined to be invalid or unenforceable, such invalidity or unenforceability
shall not affect the validity and enforceability of the remaining provisions of
this Agreement, unless the result thereof would be unreasonable, in which case
the parties hereto shall negotiate in good faith as to appropriate amendments
hereto.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
ARIS INDUSTRIES, INC.
By: /s/ David Fidlon
---------------------------------
Name: David Fidlon
Title: President
THE SIMON GROUP, L.L.C.
By: /s/ Arnold Simon
---------------------------------
Name: Arnold H. Simon
Title: Managing Member
/s/ Gregg Fiene
---------------------------------
Gregg Fiene, Individually
/s/ Michele Bohbot
---------------------------------
Michele Bohbot, Individually
---------------------------------
Lynne Hanson, Individually
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EXHIBIT 99.6
SECOND AMENDMENT
TO
FINANCING AGREEMENT
Second Amendment, dated as of August 10, 1999, to the Financing
Agreement, dated as of February 26, 1999, as amended by the First Amendment,
dated as of March 25, 1999 (the "Financing Agreement"), by and among Aris
Industries, Inc., a New York corporation (the "Company"), Europe Craft Imports,
Inc., a New Jersey corporation ("ECI"), ECI Sportswear, Inc., a New York
corporation ("Sportswear"), Stetson Clothing Company, Inc., a Delaware
corporation ("Stetson" and together with ECI and Sportswear, each a "Borrower"
and collectively, the "Borrowers"), the financial institutions from time to time
party thereto (each a "Lender" and collectively, the "Lenders"), The Chase
Manhattan Bank, as administrative agent, book manager and arranger for the
Lenders (in such capacity, the "Administrative Agent") and The CIT
Group/Commercial Services, Inc., as agent for the Lenders (in such capacity, the
"Collateral Agent" or "Agent").
WHEREAS, pursuant to the terms of an Agreement and Plan of Merger
dated as of July 19, 1999, as amended by Amendment No. 1 dated as of July ___,
1999, in the form attached hereto as Annex I hereto (the "Merger Agreement"), by
and among the Company, ECI, XOXO Clothing Company, Incorporated, a Delaware
corporation formerly known as XOXO Acquisition Corp. ("XOXO"), Lola, Inc., a
California corporation ("Lola"), and Gregg Fiene, Michele Bohbot and Lynne Fiene
Hanson, Lola, Inc. shall be merged with and into ECI, with ECI as the surviving
corporation in such merger (the "Lola Acquisition");
WHEREAS, immediately following the Lola Acquisition, ECI will
contribute (the "Contribution") all of the assets and liabilities of Lola
assumed by ECI in the Lola Acquisition to XOXO Clothing Company, Incorporated, a
Delaware corporation and a direct wholly-owned subsidiary of ECI ("XOXO");
WHEREAS, the Borrowers, XOXO, B P Clothing Company, Inc., a New York
corporation and a newly formed direct wholly-owned subsidiary of ECI ("B P", and
together with XOXO, each an "Additional Borrower" and collectively, the
"Additional Borrowers"), the Lenders, the Administrative Agent and the Agent
have executed and delivered the Joinder Agreement and Acknowledgment dated as of
the date hereof (the "Joinder Agreement") pursuant to which, among other things,
each of the Additional Borrowers has agreed to be bound as a Borrower by all the
provisions of the Financing Agreement; and
WHEREAS, in connection with the Lola Acquisition and the
Contribution (collectively, the "Transactions"), the Borrowers, the Additional
Borrowers, the Lenders, the Administrative Agent and the Agent wish to amend the
Financing Agreement to among other
<PAGE>
things (i) extend a term loan to ECI in the aggregate principal amount of
$10,000,000, the proceeds of which will be used to pay a portion of the purchase
price in connection with the Lola Acquisition pursuant to the terms of the
Merger Agreement, (ii) increase the Total Revolving Credit Commitment of the
Lenders from $65,000,000 to $80,000,000, and (iii) permit the Transactions.
Accordingly, the Company, the Borrowers, the Additional Borrowers,
the Administrative Agent, the Agent and the Lenders hereby agree as follows:
1. Definitions. All capitalized terms used herein and not
otherwise defined herein are used herein as defined in the Financing
Agreement.
2. The preamble of the Financing Agreement is hereby amended in its
entirety to read as follows:
"FINANCING AGREEMENT, dated as of February 26, 1999, by and among
Aris Industries, Inc., a New York corporation (the 'Company'), Europe Craft
Imports, Inc., a New Jersey corporation ('ECI'), ECI Sportswear, Inc., a New
York corporation ('Sportswear'), Stetson Clothing Company, Inc., a Delaware
corporation ('Stetson'), XOXO Clothing Company, Incorporated, a Delaware
corporation ('XOXO'), B P Clothing Company, Inc., a New York corporation ('B P'
and, together with ECI, Sportswear, Stetson and XOXO, each a 'Borrower' and
collectively, the 'Borrowers'), the financial institutions from time to time
party hereto (each a 'Lender' and collectively, the 'Lenders'), The Chase
Manhattan Bank, as administrative agent, book manager and arranger for the
Lenders (in such capacity, the 'Administrative Agent') and The CIT
Group/Commercial Services, Inc., as collateral agent for the Lenders (in such
capacity, the 'Collateral Agent' or 'Agent')."
3. Recitals. The first sentence of the Recitals of the Financing
Agreement is hereby amended in its entirety to read as follows:
"The Company and the Borrowers have asked the Lenders to extend
credit to the Borrowers consisting of (i) a term loan to ECI in the aggregate
principal amount of $10,000,000, and (ii) a revolving credit facility to the
Borrowers in an aggregate principal amount not in excess of $80,000,000 at any
time outstanding, a portion of which may be utilized for letters of credit. The
proceeds of the term loan shall be used to pay a portion of the consideration
paid in connection with the merger of Lola, Inc. with and into ECI."
4. Existing Definitions. (a) The definition of the term
"Availability" in Section 1.01 of the Financing Agreement is hereby amended
in its entirety to read as follows:
"'Availability' shall mean, at any time, the difference between (i)
the lesser of (A) the Borrowing Base Before Overadvance Amount and (B) the Total
Revolving Credit Commitment and (ii) the sum of (A) the aggregate outstanding
principal amount of all Revolving Credit Loans and (B) all Letter of Credit
Obligations."
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<PAGE>
(b) Subsection (iv) of the definition of "Change of Control"
in Section 1.01 of the Financing Agreement is hereby amended in its entirety to
read as follows:
"(iv) ECI shall cease to directly own and control, of record
and beneficially, 100% of the outstanding Capital Stock of B P, Sportswear,
Stetson and XOXO free and clear of all Liens, except the Lien in favor of the
Agent for the benefit of the Lenders,"
(c) The definition of the term "Commitment" in Section 1.01 of
the Financing Agreement is hereby amended in its entirety to read as follows:
"'Commitment' means, with respect to each Lender,
such Lender's Revolving Credit Commitment and Term Loan Commitment."
(d) Subsection (i)(E)(z) of the definition of "Consolidated
EBITDA" in Section 1.01 of the Financing Agreement is hereby amended in its
entirety to read as follows:
"(z) prior to December 31, 1999, start-up costs and expenses
incurred in connection with the businesses of Stetson, B P and any other
Subsidiary of the Borrowers that is created and for which the Borrowers have
complied with the terms of Section 7.01(b) of this Agreement, in an aggregate
amount not in excess of $6,000,000,"
(e) The definition of the term "Eligible Inventory" in Section
1.01 of the Financing Agreement is hereby amended by (i) deleting the following
clause in the first sentence thereof "with respect to any Borrower, all finished
goods of such Borrower which meets all of the following specifications:" and
substituting in lieu thereof "with respect to any Borrower, all finished goods
and raw materials Inventory of such Borrower which meets all of the following
specifications:", (ii) deleting the reference in subsection (vii) to "raw
materials,", (iii) deleting the reference to "May 26, 1999" in clause (viii)
thereof, and substituting in lieu thereof "October 15, 1999", (iv) redesignating
clause (ix) thereof, and the internal reference in such clause (ix) to clause
(ix), to clause "(x)", and (v) adding the following new clause (ix) "(ix) in the
case of raw materials, such raw materials have been acquired by the Borrower
during the previous twelve months;" and
(f) The definition of the term "Factoring Agreements" in
Section 1.01 of the Financing Agreement is hereby amended in its entirety to
read as follows:
"'Factoring Agreements' means (i) (A) the Factoring Agreement dated
the date hereof between the Factor and ECI, (B) the Factoring Agreement dated
the date hereof between the Factor and Sportswear, (C) any Factoring Agreement
entered into between the Factor and Stetson, (D) any Factoring Agreement entered
into between the
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<PAGE>
Factor and B P, and (E) the Factoring Agreement dated as of the Second Amendment
Effective Date between the Factor and XOXO or (ii) such other factoring
agreements as are entered into by the Borrowers pursuant to the terms of Section
7.02(o) of this Agreement."
(g) The definition of the term "Guarantors" in Section 1.01 of
the Financing Agreement is hereby amended in its entirety to read as follows:
"'Guarantors' means B P, the Company, ECI, Stetson, Sportswear,
XOXO, each XOXO Subsidiary, each Subsidiary Retailer, and all Persons which
hereafter guarantee, pursuant to Section 7.01(b) hereof or otherwise, all or any
part of the Obligations."
(h) The definition of the term "Interest Period" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'Interest Period' means with respect to any Eurodollar Loan, the
period commencing on the borrowing date or the date of any continuation of or
conversion into such Eurodollar Loan, as the case may be, and ending one, two,
three or six months thereafter, in each case as selected by the Administrative
Borrower in the applicable notice given to the Agent pursuant to Sections 2.03
or 2.11 hereof; provided that (i) each Interest Period shall begin on the first
Business Day of a month, (ii) any Interest Period that would otherwise end on a
day that is not a Business Day shall be extended to the next succeeding Business
Day, unless such Business Day falls in another calendar month, in which case
such Interest Period shall end on the next preceding Business Day, (iii) no
Interest Period for any Eurodollar Loan shall end after the Final Maturity Date
in the case of the Revolving Credit Loans or February 26, 2002 in the case of
the Term Loan, (iv) no more than three (3) Interest Periods in the aggregate for
the Borrowers may exist at any one time and (v) the Administrative Borrower will
select Interest Periods so as not to require a payment or prepayment of any
Eurodollar Loan during an Interest Period of the Term Loan."
(i) The definition of the term "Loan" in Section 1.01 of the
Financing Agreement is hereby amended in its entirety to read as follows:
"'Loan' means any Revolving Credit Loan or Term Loan made by a
Lender or the Agent to a Borrower pursuant to Article II hereof."
(j) The definition of the term "Loan Documents" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'Loan Documents' means this Agreement, the Notes, the Guarantees,
the Security Agreements, the Pledge Agreements, the Factoring Agreements, the
Assignment of Factoring Proceeds Agreement, the Existing Factor Assignment
Agreements, the Joinder Agreement, the Fee Letter, the Letter of Credit
Applications and all other instruments, agreements and other documents executed
and delivered pursuant hereto or thereto."
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<PAGE>
(k) The definition of the term "Notes" in Section 1.01 of the
Financing Agreement is hereby amended in its entirety to read as follows:
"'Notes' means the Revolving Credit Notes and the Term Notes."
(l) The definition of the term "Obligations" in Section 1.01
of the Financing Agreement is hereby amended in its entirety to read as follows:
"'Obligations' means (i) the obligations of each Borrower to pay, as
and when due and payable (by scheduled maturity or otherwise), all amounts from
time to time owing by it in respect of any Loan Document to which it is a party,
whether for principal, interest (including, without limitation, all interest
that accrues after the commencement of any case, proceeding or other action
relating to bankruptcy, insolvency or reorganization of any Borrower, whether or
not a claim for post-filing interest is allowed in such proceeding), Letter of
Credit Obligations, fees, commissions, expense reimbursements, indemnifications
or otherwise and all Ledger Debt Obligations, and (ii) the obligations of each
Borrower to perform or observe all of its other obligations from time to time
existing under any Loan Document to which it is a party."
(m) The definition of the term "Revolving Credit Commitment"
in Section 1.01 of the Financing Agreement is hereby amended by deleting the
reference to "Schedule 1.01A-1" therein and substituting in lieu thereof
"Schedule 1.01A-2".
(n) The definition of the term "Total Commitment" in Section
1.01 of the Financing Agreement is hereby amended in its entirety to read as
follows:
"'Total Commitment' means the sums of the amounts of the Lender's
Total Revolving Credit Commitments and the Total Term Loan Commitments."
5. New Definitions. The following new definitions are added to
Section 1.01 of the Financing Agreement in appropriate alphabetical order to
read as follows:
"'B P' means B P Clothing Company, a New York corporation.
"'Consolidated Fixed Charges' means, for any Person and its
Consolidated Subsidiaries for any period, the sum of, without duplication (i)
Consolidated Net Interest Expense for such period, (ii) all principal of
Indebtedness for borrowed money of such Person or any of its Consolidated
Subsidiaries having a scheduled due date during such period (not including
mandatory prepayments pursuant to Section 2.07 hereof), (iii) all amounts
payable by such Person or any of its Consolidated Subsidiaries on Capitalized
Lease Obligations having a scheduled due date during such period, (iv) the total
income tax liability actually payable by such Person or any of its Consolidated
Subsidiaries in respect of such period, and (v) cash capital expenditures of
such Person and its Consolidated Subsidiaries made during such period."
"'Consolidated Net Interest Expense' means, for any Person and its
Consolidated Subsidiaries for any period, gross interest expense of such Person
and its Consolidated
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<PAGE>
Subsidiaries for such period determined in conformity with GAAP less the
following for such Person and its Consolidated Subsidiaries determined in
conformity with GAAP: (i) the sum of (a) interest income for such period and (b)
gains for such period on Hedging Agreements (to the extent not included in
interest income above and to the extent not deducted in the calculation of such
gross interest expense), plus the following for such Person and its Consolidated
Subsidiaries determined in conformity with GAAP, (ii) the sum of (a) losses for
such period on Hedging Agreements (to the extent not included in such gross
interest expense) and (b) the expending of upfront costs or fees for such period
associated with Hedging Agreements (to the extent not included in gross interest
expense)."
"'Excess Cash Flow' means, for any fiscal period of the Company (i)
Consolidated Net Income (Loss) of the Company and its Consolidated Subsidiaries
for such period, plus (ii) all non-cash charges of the Company and its
Consolidated Subsidiaries deducted in arriving at such Consolidated Net Income
(Loss) for such period, less (iii) all non-cash credits of the Company and its
Consolidated Subsidiaries included in arriving at such Consolidated Net Income
(Loss) for such period, less (iv) all scheduled and mandatory cash principal
payments on the Loans and optional cash principal payments on the Loans made
during such period (but excluding (A) all prepayments made pursuant to Section
2.07(i) of this Agreement and (B), in the case of the Revolving Credit Loans,
prepayments only to the extent that the Total Revolving Credit Commitment is
permanently reduced by the amount of such prepayments), less (v) all scheduled
and mandatory cash principal payments on the BONY Indebtedness during such
period (but excluding all prepayments made on the BONY Indebtedness pursuant to
any excess cash flow or similar provision contained in the BONY Loan Documents),
less (vi) the cash portion of capital expenditures made by the Company and its
Consolidated Subsidiaries during such period to the extent permitted to be made
under this Agreement."
"'Joinder Agreement' has the meaning specified in the Second
Amendment."
"'Ledger Debt' means indebtedness owing by a Borrower to the Factor
by reason of such Borrower's purchases from other entities factored or financed
by the Factor."
"'Ledger Debt Guaranties' means indebtedness or other obligations of
a Borrower to the Factor by reason of guaranties issued by the Factor in favor
of other factors with respect to such other factor's purchase of accounts
receivable owed by such Borrower."
"'Ledger Debt Obligations' means all obligations of the Borrowers to
the Factor in connection with Ledger Debt and Ledger Debt Guaranties."
"'Second Amendment' means the Second Amendment to this Agreement
dated as of August 10, 1999."
"'Second Amendment Effective Date' has the meaning specified
therefor in the Second Amendment."
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"'Term Loan' means a term loan made by a Lender to ECI pursuant
to Section 2.01(d) hereof."
"'Term Loan Commitment' means, with respect to each Lender, the term
commitment of such Lender as set forth in Schedule 1.01A-2 hereto, as the same
may be adjusted from time to time pursuant to the terms of this Agreement."
"'Term Note' means a promissory note of the ECI, substantially in
the form of Exhibit AA hereto, made payable to the order of a Lender and
evidencing the Indebtedness resulting from the making by such Lender of such
Lender's Term Loan and delivered to the Agent pursuant to the Second Amendment,
as such promissory note may be modified or extended from time to time, and any
promissory note or notes issued in exchange or replacement therefor."
"'Total Revolving Credit Commitment' means the sum of the
Lenders' Revolving Credit Commitments."
"'Total Term Loan Commitment' means the sum of the Lenders' Term
Loan Commitments."
"'Valuation Adjustment' means, in the event the Company is required
by any Governmental Authority to adjust the value in its publicly filed
financial statements of the 6,500,000 shares of capital stock of the Company
paid as a portion of the consideration in connection with the Lola Acquisition,
the amount in its publicly filed financial statements which the chief financial
officer of the Company certifies to the Lenders is equal to such adjustment
required by such Governmental Authority (which amount shall be positive in the
case of an upward adjustment; negative in the case of a downward adjustment).
"'XOXO' means XOXO Clothing Company, Incorporated, a Delaware
corporation."
"'XOXO Subsidiaries' means 8-3 Retailing, Inc., a California
corporation, XOXO Outlets, Inc., a California corporation and each other
Subsidiary of XOXO."
6. Revolving Credit Commitments. Section 2.01(b) of the Financing
Agreement is hereby amended in its entirety to read as follows:
"(b) Notwithstanding the foregoing, the aggregate principal
amount of Revolving Credit Loans outstanding at any time to the Borrowers shall
not exceed the lower of (i) the difference between (A) the Total Revolving
Credit Commitment and (B) the aggregate Letter of Credit Obligations and (ii)
the difference between (A) the then current Borrowing Base and (B) the aggregate
Letter of Credit Obligations."
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7. Term Loan Commitments. The following new subjection (d) is
hereby added to the Section 2.01 of the Financing Agreement to read as
follows:
"(d) Subject to the terms and conditions and relying upon the
representations and warranties set forth herein, each Lender severally agrees to
make a Term Loan to ECI on the Second Amendment Effective Date in the principal
amount not to exceed such Lender's Term Loan Commitment. Any principal amount of
a Term Loan which is repaid or prepaid by ECI may not be reborrowed."
8. Loans. Section 2.02 of the Financing Agreement is hereby amended
and restated in its entirety to read as follows:
"SECTION 2.02. Loans. Except as otherwise provided in Section 2.05,
Loans shall be made ratably by the Lenders in accordance with their respective
Revolving Credit Commitments and Term Loan Commitments as the case may be. The
initial Revolving Credit Loans shall be made on or after the Effective Date
against delivery hereunder of the Revolving Credit Notes. The Term Loans shall
be made on the Second Amendment Effective Date by the Lenders against delivery
hereunder of the Term Notes."
9. Notes; Repayment of Loans. The following new subjection (c) is
hereby added to the Section 2.04 of the Financing Agreement to read as follows:
"(c) Each Term Loan shall be evidenced by a Term Note, each
duly executed by ECI, dated the Second Amendment Effective Date and delivered to
and made payable to the order of a Lender in a principal amount equal to such
Lender's Term Loan Commitment. The Term Loans shall be payable as to principal
in nine equal installments of $500,000 on the first day of each of January,
April, July and October, commencing January 1, 2000, and a final installment of
$5,500,000 on February 26, 2002; provided that the last such installment shall
be in the amount sufficient to repay in full the payment amount of the Term Loan
on February 26, 2002."
10. Funding and Settlement Procedures. Section 2.05(a)(i) of the
Financing Agreement is hereby amended in its entirety to read as follows:
"(a) (i) Except as otherwise provided in this subsection
2.05(a), all Loans under this Agreement shall be made by the Lenders
simultaneously and proportionately according to their Pro Rata Shares of the
Total Term Loan Commitment or the Total Revolving Credit Commitment, as the case
may be, it being understood that no Lender shall be responsible for any default
by any other Lender in such other Lender's obligation to make a Loan requested
hereunder nor shall the Commitment of any Lender to make the Loan requested be
increased or decreased as a result of the default by any other Lender in such
other Lender's obligation to make a Loan requested hereunder."
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11. Interest. Section 2.06(a) of the Financing Agreement is hereby
amended by (i) changing the title to paragraph (a) of such section to "Loans",
(ii) redesignating paragraph (a) of such section as paragraph "(a)(i)", and
(iii) adding the following new subparagraph (ii):
"(ii) Each Term Loan which is a Eurodollar Loan shall bear
interest on the principal amount thereof from time to time outstanding from the
date of such Loan until such principal amount becomes due, at a rate per annum
equal to the Eurodollar Rate for the Interest Period in effect for such Loan
plus 3.00%. Each Term Loan which is a Base Rate Loan shall bear interest on the
principal amount thereof from time to time outstanding from the date of such
Loan, until such principal amount becomes due, at a rate per annum equal to the
Base Rate, plus 0.50%."
12. Reduction of Commitment; Prepayment of Loans. Section 2.06 of
the Financing Agreement is hereby further amended by (i) redesignating paragraph
(i) of such section as paragraph "(k)", (ii) redesignating paragraph (j) of such
section as paragraph "(l)", and (iii) adding the following new paragraphs (i)
and (j):
"(i) Within ten (10) Business Days of delivery to the Agent of
audited annual financial statements pursuant to Section 7.01(a)(ii) hereof or,
if such financial statements are not delivered to the Agent on the date such
statements are required to be delivered pursuant to such Section 7.01(a)(ii),
ten (10) Business Days after the date such statements are required to be
delivered to the Agent pursuant to Section 7.01(a)(ii), the Borrowers shall pay
to the Agent an amount equal to 50% of the Excess Cash Flow for the Fiscal Year
covered by such financial statements. Each prepayment pursuant to this paragraph
(k) shall be applied to principal installments of the Term Loans in the inverse
order of maturity.
(j) The Borrowers shall immediately prepay the outstanding
principal amount of the Term Loans in the event the Total Revolving Credit
Commitment is terminated for any reason."
13. The Loans. (a) Sections 2.07(a) and (b) of the Financing
Agreement are each hereby amended in its entirety to read as follows:
"(a) The Total Term Loan Commitment shall
automatically terminate in full at 5:00 p.m. on the Second Amendment Effective
Date. The Borrowers may at any time or from time to time and without penalty or
premium reduce the Revolving Credit Commitments to an amount (which may be zero)
not less than the sum of the unpaid principal amount of all Revolving Credit
Loans then outstanding plus the principal amount of all Revolving Credit Loans
not yet made as to which notice has been given by the Administrative Borrower
under Section 2.03 hereof plus the Letter of Credit Obligations at such time
plus the stated amount of all Letters of Credit not yet issued as to which a
request has been made and not withdrawn. Any reduction shall be in an amount
which is an integral multiple of $5,000,000. Reduction of the Revolving Credit
Commitments shall be made by providing not less than two Business Days' written
notice (which notice shall be irrevocable) to such effect to the Agent
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(which notice the Agent shall promptly transmit to each Lender). Reductions of
the Revolving Credit Commitments are irrevocable and may not be reinstated. Each
such reduction shall reduce the Revolving Credit Commitment of each Lender
proportionately in accordance with its Pro Rata Share.
(b) Subject to the terms and conditions contained
in this Section 2.07, Section 2.10 hereof and elsewhere in this Agreement, the
Borrowers shall have the right to prepay, in whole or in part, the Revolving
Credit Loans, and the Term Loans; provided, that, pursuant to the terms of
Section 2.08(b) hereof, the Borrowers shall be obligated to pay the Early
Termination Fee with respect to any Loans prepaid in connection with a
termination of the Total Commitment prior to February 26, 2001."
(b) Section 2.07(e) of the Financing Agreement is hereby
amended in its entirety to read as follows:
"(e) Immediately upon the receipt by any Loan Party
or any of its Subsidiaries of any Net Proceeds from the issuance, sale,
assignment, transfer or other disposition of any Capital Stock, debt securities
or assets of the Company or any of its Subsidiaries, the Borrowers shall make a
prepayment of the Loans in an amount equal to the amount of such Net Proceeds,
provided that the Borrowers shall not be required to prepay the Loans (i) in the
case of intercompany Indebtedness between the Loan Parties permitted by Sections
7.02(b)(iii) and 7.02(f)(iii) and (v) hereof, and (ii) in the case of the Net
Proceeds of any Indebtedness of the Company permitted by Section 7.02(b)(viii)
of this Agreement and the Net Proceeds from the issuance of Capital Stock of the
Company consisting of common equity, in each case to the extent that such Net
Proceeds are used to prepay, purchase, redeem, retire, defease or otherwise
acquire the Borrower's Indebtedness in accordance with Section 7.02(t)(ii) of
this Agreement. In addition, upon receipt of aggregate Net Proceeds from any
such issuance, sale, assignment, transfer or other disposition by the Company or
any of its Subsidiaries of any Capital Stock, debt securities or assets of the
Company or any of its Subsidiaries, other than any Net Proceeds from the events
described in clause (i) of the proviso of the immediately preceding sentence,
the current Overadvance Amount limits (as such amounts are set forth in clause
(i) of the definition of "Overadvance Amount" in Section 1.01 hereof) shall each
be reduced on a dollar for dollar basis by the aggregate amount of Net Proceeds
received from any such issuance, sale, assignment, transfer or other
disposition, with such reduction to be effective upon receipt of such Net
Proceeds, provided, further that, if the Net Proceeds from the issuance of
Capital Stock of the Company consisting of common equity are used to prepay,
purchase, redeem, retire, defease or otherwise acquire the BONY Indebtedness in
accordance with Section 7.02(t)(ii) hereof, such Overadvance Amount limits shall
be reduced only to the extent that, at the time of receipt of such Net Proceeds,
the Loans and Letter of Credit Obligations exceed the Borrowing Base Before
Overadvance Amount. Such Net Proceeds shall be applied first, to the
installments of the Term Loans in the inverse order of maturity and second, to
the Revolving Credit Loans."
(c) Section 2.07(f) of the Financing Agreement is hereby
amended by deleting the reference to "Obligations" and substituting in lieu
thereof "Revolving Credit Loans".
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(d) Section 2.07(g) of the Financing Agreement is hereby
amended in its entirety to read as follows:
"(g) Immediately upon the receipt by any Loan Party
of any insurance proceeds, the Borrowers shall prepay the Loans in an amount
equal to the insurance proceeds received by such Loan Party, provided that (i)
if no Default or Event of Default has occurred and is continuing, proceeds from
insurance covering damage to property shall not be required to be so prepaid on
such date to the extent such insurance proceeds are used to replace or restore
the properties or assets in respect of which such proceeds were paid if the
Borrowers deliver a certificate to the Agent on or prior to such date stating
that such proceeds shall be used to replace or restore any such properties or
assets within a period specified in such certificate not to exceed 60 days after
the date of receipt of such proceeds (which certificate shall set forth
estimates of the proceeds to be so expended) and (ii) if all or any portion of
such proceeds not so applied to the repayment of the Loans are not so used
within the period specified in the relevant certificate furnished pursuant to
clause (i) above, such remaining portion shall be prepaid on the last day of
such specified period. Such insurance proceeds shall be applied shall be applied
first, to the installments of the Term Loans in the inverse order of maturity
and second, to the Revolving Credit Loans."
14. Fees. The first sentence of Section 2.08(a) of the Financing
Agreement is hereby amended by deleting each reference to "Total Commitment" and
substituting in lieu thereof "Total Revolving Credit Commitment".
15. Letter of Credit Guaranty. The first sentence of Section 3.01(b)
of the Financing Agreement is hereby amended and restated in its entirety to
read as follows:
"The aggregate Letter of Credit Obligations shall not exceed the
lowest of (i) the difference between (A) the Total Revolving Credit Commitment
and (B) the aggregate principal amount of Revolving Credit Loans then
outstanding, (ii) the difference between (A) the Borrowing Base and (B) the
aggregate principal amount of the Revolving Credit Loans then outstanding and
(iii) the L/C Subfacility."
16. Post Closing Deliveries. Sections 7.01(o) and 7.01(p) of
the Financing Agreement are hereby amended in their entirety to read as
follows:
"(o) Inventory and Intellectual Property Appraisals. Furnish
to the Lenders no later than October 15, 1999, appraisals, by an appraiser
satisfactory to the Agent, at the sole cost and expense of the Borrowers,
satisfactory to the Agent, of all inventory and trademarks of the Borrowers
(including the 'Members Only' and the 'XOXO' trademarks), such appraisals to be
performed on an 'orderly liquidation value' basis.
(p) Landlord and Licensor Waivers. Use its best efforts to
furnish to the Agent as soon as possible and in any event prior to October 15,
1999, (i) (A) a landlord waiver in form and substance satisfactory to the Agent
from each of the Borrowers' and the Guarantors' landlords, and (B) a warehouse
access agreement in form and substance satisfactory
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to the Agent with respect to ECI's warehouse located in New Bedford,
Massachusetts, and (ii) a licensor waiver letter, in form and substance
satisfactory to the Agent, for each License Agreement, executed by each
licensor."
17. Use of Proceeds. The first sentence of Section 7.01(w) is hereby
amended and restated in its entirety to read as follows:
"The proceeds of the Revolving Credit Loans shall be used to
refinance existing Indebtedness of the Borrowers, for general working capital
purposes of the Borrowers and to make intercompany loans and advances permitted
by Sections 7.02(b)(iii) and 7.02(f)(iii) and (iv) hereof. The proceeds of the
Term Loans shall be used to pay a portion of the consideration paid in
connection with the merger of Lola, Inc. with and into ECI."
18. Liens, Etc. Section 7.02(a)(viii) of the Financing
Agreement is hereby amended by deleting the "$3,000,000" and substituting in
lieu thereof "$6,000,000".
19. Guaranties, Etc. Section 7.02(c)(iv) of the Financing
Agreement is hereby amended by deleting the "$1,000,000" and substituting in
lieu thereof "$2,000,000".
20. Merger, Consolidation, Sale of Assets, Etc. The following
proviso is hereby added to the end of each of Section 7.02(d)(i) and Section
7.02(d)(ii):
", provided, further, that the consummation of the Transactions (as
defined in the Second Amendment) shall not constitute a violation of this
subsection".
21. Investments, Etc. Section 7.02(f) of the Financing Agreement is
hereby amended by (i) deleting the "and" at the end of paragraph (vi); (ii)
deleting the "$1,000,000" in paragraph (vii) and substituting in lieu thereof
"$2,000,000", (iii) replacing the period at the end of paragraph (vii) with ";
and", and (iv) adding the following new paragraph (viii):
"(viii) (A) investments in B P and (B) investments in XOXO
pursuant to the Transactions (as defined in the Second Amendment)."
22. Capital Expenditures Section 7.02(h) of the Financing Agreement
is hereby amended by deleting the "$3,000,000" and substituting in lieu thereof
"$6,000,000".
23. Financial Covenants. (a) Section 7.02(p)(i) of the Financing
Agreement is hereby amended by deleting the "(i) $22,000,000 and" and
substituting in lieu thereof "(i) $31,750,000 plus, any Valuation Adjustment
and".
(b) The following subsection (iv) is hereby added to Section 7.02(p)
of the Financing Agreement to read in its entirety as follows:
"(iv) Fixed Charge Coverage Ratio. Permit the ratio of
Consolidated EBITDA of the Company and its Consolidated Subsidiaries to
Consolidated Fixed Charges of the Company and its Consolidated Subsidiaries for
each period of four (4) consecutive quarters
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for which the last quarter ends on a date set forth below to be less than the
amount set forth opposite such date:
Minimum Fixed
Fiscal Quarter Charge Coverage Ratio
-------------- ---------------------
June 30, 2000 1.00:1.0
September 30, 2000 1.00:1.0
December 31, 2000 1.25:1.0
and thereafter
24. Notices, Etc. The address for notices to any Borrower and
the Company in Section 12.02 of the Financing Agreement and in each other
Loan Documents is hereby amended to be: Aris Industries, Inc. 1411 Broadway,
New York, New York 10018, Attention: Arnold Simon and David Fidlon, Telephone
(212) 790-6610; Facsimile (212) 642-4265.
25. Delivery of Notes. Each Lender shall deliver to the Agent, for
delivery to and cancellation by the Borrowers, the Revolving Credit Note issued
by the Borrowers and held by the Lenders under the Financing Agreement (the "Old
Note"), which Old Notes are hereby deemed cancelled effective from delivery of
the New Notes to the Agent. The Borrowers shall execute and deliver to the Agent
for the account of each Lender the Revolving Credit Notes which such Lender is
entitled to receive pursuant to Section 2.04 of the Financing Agreement, in the
form of Exhibit A thereto and in the principal amount for each Lender equal to
its Pro Rata Share of the Revolving Credit Commitment, as set forth in Schedule
1.01A-2 to this Amendment (the "New Notes"). The Agent shall release and deliver
the Old Note to the Borrowers for cancellation and deliver the New Notes to the
Lenders.
26. Schedules. (a) Paragraph (d) of Section 12.09 of the Financing
Agreement is hereby amended by deleting each reference to "Schedule 1.01A-1"
therein and substituting in lieu thereof "Schedule 1.01A-2".
(b) Schedule 1.01A-1 to the Financing Agreement is hereby
amended in its entirety to read as set forth in Annex II to this Amendment.
(c) Attached as Annex III hereto are updates to the Schedules
to the Financing Agreement revised to include all information required to be
provided therein with respect to, and only with respect to, the Additional
Borrowers and the XOXO Subsidiaries. The Schedules to the Financing Agreement
shall, without further action, be amended to include the supplemental
information contained in each such update.
27. Conditions to Effectiveness. This Amendment shall become
effective only upon satisfaction in full of the following conditions precedent
(the first date upon which all such conditions have been satisfied being herein
called the "Second Amendment Effective Date"):
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(a) Representations and Warranties; No Event of Default. The
representations and warranties contained herein, in Section 6.01 of the
Financing Agreement and in each other Loan Document and certificate or other
writing delivered to the Agent and the Lenders pursuant hereto on or prior to
the Second Amendment Effective Date shall be correct on and as of the Second
Amendment Effective Date as though made on and as of such date (except to the
extent that such representations and warranties expressly relate solely to an
earlier date in which case such representations and warranties shall be true and
correct on and as of such date); and no Default or Event of Default shall have
occurred and be continuing on the Second Amendment Effective Date or would
result from this Amendment becoming effective in accordance with its terms.
(b) Delivery of Documents. The Agent shall have received on or
before the Second Amendment Effective Date the following, each in form and
substance satisfactory to the Agent and, unless indicated otherwise, dated the
Second Amendment Effective Date:
(i) counterparts of this Amendment, duly executed by the
Borrowers and the Lenders;
(ii) the New Notes, duly executed by each of the Borrowers;
(iii) (A) a Security Agreement, in the form of Exhibit C-1 to the
Financing Agreement, duly executed by each of the Additional Borrower,
and (B) a Security Agreement, in the form of Exhibit C-2 to the
Financing Agreement, duly executed by each of the XOXO Subsidiaries;
(iv) a Pledge Agreement, in the form of Exhibit D to the
Financing Agreement, duly executed by each of the Additional
Borrowers, together with the original stock certificates representing
all of the common stock of the Subsidiaries of each of the Additional
Borrowers and all inter-company promissory notes of the Borrowers
issued to each of the Additional Borrowers, accompanied by undated
stock powers executed in blank and other instruments of transfer;
(v) an amendment to each of the Pledge Agreements and Security
Agreement, delivered on the Effective Date, in substantially the forms
of Annexes IV and V hereto, duly executed by each of the Loan Parties
a party thereto;
(vi) the Joinder Agreement, duly executed by each of the
Additional Borrowers and the other parties thereto (together with the
documents delivered pursuant to clauses (i), (ii), (iii), (iv) and (v)
above collectively, the "Amendment Documents");
(vii) appropriate financing statements on Form UCC-1, duly
executed by each of the Additional Borrowers and each XOXO Subsidiary,
and duly filed in such office or offices as may be necessary or, in
the opinion of the
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Agent, desirable (including, without limitation, at the United States
Patent and Trademark Office) to perfect the security interests
purported to be created by the Security Agreement and the Factoring
Agreements to which such Persons are a party;
(viii) certified copies of requests for copies of information on
Form UCC-11, listing all effective financing statements which name as
debtor any of the Additional Borrowers or any of the XOXO
Subsidiaries, together with copies of such financing statements, none
of which, except as otherwise agreed in writing by the Agent, shall
cover any of the Collateral, and results of searches for any tax and
judgment Liens filed against any of the Additional Borrowers and the
XOXO Subsidiaries and their property, which results, except as
otherwise agreed to in writing by the Agent, shall not show any such
Liens;
(ix) evidence of the insurance coverage required by the terms of
Section 7.01(h) of the Financing Agreement and the other Loan
Documents with respect to each of the Additional Borrowers and the
XOXO Subsidiaries naming the Agent an additional insured or loss payee
thereunder as specified by the Agent;
(x) a certificate of the chief executive officer or the chief
financial officer of the Parent, certifying that attached thereto are
complete and correct copies of the Merger Agreement and the other
material agreements executed in connection with the Transactions and
all other agreements, instruments and other documents executed and
delivered in connection therewith as requested by the Agent, in each
case in form and substance satisfactory to the Agent;
(xi) a copy of the resolutions of each Loan Party, certified as
of the Second Amendment Effective Date by an authorized officer
thereof, authorizing (A) the execution of each Amendment Document to
which such Person is a party and the transactions contemplated
thereby, and (B) the execution, delivery and performance by each such
Person of each Amendment Documents to which such Person is a party,
and the performance of the Financing Agreement, as amended;
(xii) a certificate of an authorized officer of each Loan Party,
certifying the names and true signatures of the representatives of
such Person authorized to sign each Amendment Document to which such
Person is a party and the other documents to be executed and delivered
by such Person in connection herewith, together with evidence of the
incumbency of such authorized officers;
(xiii) a certificate of the appropriate official(s) of the state
of organization and each state of foreign qualification of each Loan
Party, dated within 30 days of the Second Amendment Effective Date,
certifying as to the
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subsistence and good standing of, and the payment of taxes by, such
Person in such states;
(xiv) a true and complete copy of the charter of each Loan Party,
certified as of a date not more than 30 days prior to the Second
Amendment Effective Date by an appropriate official of the state of
organization of each such Person (or in the case of a Loan Party that
existed on the effective date of the Financing Agreement, a
certificate confirming that such charter has not been amended or
otherwise modified since it was delivered to the Agent and the Lenders
on the effective date of the Financing Agreement and that the copy
thereof previously delivered to the Agent is true, correct and
complete as of the Second Amendment Effective Date);
(xv) a copy of the by-laws of each Loan Party , together with all
amendments thereto, certified as of the Second Amendment Effective
Date by an authorized officer of each such Person (or in the case of a
Borrower that existed on the effective date of the Financing
Agreement, a certificate confirming that such by-laws have not been
amended or otherwise modified since it was delivered to the Agent and
the Lenders on the effective date of the Financing Agreement and that
the copy thereof previously delivered to the Agent is true, correct
and complete as of the Second Amendment Effective Date);
(xvi) an opinion of (a) Shapiro Forman & Allen LLP, New York
counsel to the Borrowers, and (b) Soukup & Schiff, LLP, California
counsel to the Borrowers, in each case as to such matters as the Agent
may reasonably request;
(xvii) a certificate of the chief executive officer or the chief
financial officer of the Company, certifying as to the matters set
forth in subsection (a) of this Section 27;
(xviii) (A) projections of the Borrowers (reflecting on a
pro-forma basis the consummation of the Transactions), in form and
substance satisfactory to the Lenders, including monthly profit and
loss statements, balance sheets and cash flow projections, for the
Fiscal Year ending December 31, 1999 and for each Fiscal Year
thereafter through and including the Fiscal Year ending as of December
31, 2002, (B) a copy of the financial statements of XOXO and its
Subsidiaries for the fiscal quarter ended April 30, 1999, and (C) a
copy of the audited financial statements of Lola, Inc. and its
Subsidiaries for the fiscal year ended January 31, 1999, together with
a certificate of the chief financial officer of the Company setting
forth all existing Indebtedness, including guarantees, pending or, to
the best of the Company's and XOXO's knowledge, threatened litigation
or claims and other contingent liabilities of XOXO and its
Subsidiaries not shown on such financial statements;
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<PAGE>
(xix) a breakdown of Inventory by XOXO and each of its
Subsidiaries and by location in the form specified in Section
7.01(a)(v)(B) of the Financing Agreement, dated within 15 days of the
Second Amendment Effective Date, certified by the chief financial
officer of the Company;
(xx) the factoring agreement between XOXO and the Factor dated
the date hereof and all related documents duly executed by the XOXO
and the Factor, certified by the chief financial officer of the
Company as a true and correct copy hereof;
(xxi) landlord waivers in form and substance satisfactory to the
Agent with respect to the parcel of property leased by XOXO at 6000
Sheila Street, in Commerce, California;
(xxii) a Borrowing Base Certificate current as of the Business
Day prior to the Second Amendment Effective Date;
(xxiii) copy of each of the License Agreements to which any of
the Additional Borrowers or any of its Subsidiaries is a party as in
effect on the Second Amendment Effective Date and each other trademark
license agreement pursuant to which any of the Additional Borrowers or
any of its Subsidiaries is a party, certified as a true and correct
copy thereof by the chief financial officer of the Company together
with a certification that such license agreements remain in full force
and effect and that neither of the Additional Borrowers nor any of
their Subsidiaries has breached or defaulted in any of the obligations
under any such license agreements;
(xxiv) a copy of the most recent annual report (Form 5500 Series)
for each Employee Plan of XOXO and its Subsidiaries, if any, including
Annex VI attached thereto;
(xxv) a termination agreement duly executed by Capital Factors,
Inc. and XOXO and its Subsidiaries, together with UCC termination
statements and other documentation evidencing the termination by
Capital Factors, Inc. of its Liens in and to the properties and assets
of XOXO and its Subsidiaries; and
(xxvi) such other agreements, instruments, approvals, opinions
and other documents as the Agent may reasonably request.
(c) Proceedings. All proceedings in connection with the
transactions contemplated by each Amendment Document, and all documents
incidental thereto, shall be satisfactory to the Agent and its special counsel,
and the Agent and such special counsel shall have received all such information
and such counterpart originals or certified copies of
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documents, and such other agreements, instruments, approvals, opinions and other
documents, as the Agent or such special counsel may reasonably request.
(d) Audit. The Agent may, at its option, obtain an update of
the audit of the Accounts Receivable and Inventory of the Borrowers (including
XOXO) and the Guarantors and the Agent shall be satisfied (in its sole
discretion) with the results of such updated audit.
(e) Material Adverse Effect. The Lenders shall have
determined, in their sole judgment, that (i) after giving effect to the Lola
Acquisition and the Transactions, no Material Adverse Effect shall have occurred
since February 26, 1999, and (ii) no material adverse change in the business,
properties, operations, prospects, profitability or condition (financial or
otherwise) of XOXO or its Subsidiaries shall have occurred since January 31,
1999.
(f) Consummation of the Transactions. The Agent shall have
received evidence satisfactory to it that the Transactions shall have occurred
on terms and conditions satisfactory to the Lenders.
(g) Fees. The Borrowers shall have paid the Agent for the
account of the Lenders in accordance with the Lenders' respective Pro Rata
Shares (or the Agent may charge the Loan Account pursuant to Section 4.02): (i)
a non-refundable facility fee with respect to the Revolving Credit Commitment
equal to $90,000, and (ii) a non-refundable facility fee with respect to the
Term Loan Commitment equal to $100,000.
28. Representations and Warranties. Each of the Company and the Loan
Party (including without limitation the Additional Borrowers) represents and
warrants to the Lenders as follows:
(a) The Company and each Borrower (i) is duly organized,
validly existing and in good standing under the laws of the state of its
organization and (ii) has all requisite power, authority and legal right to
execute, deliver and perform this Amendment, the other Amendment Documents to
which it is a party and all other documents executed by it in connection with
this Amendment, and to perform the Financing Agreement, as amended hereby.
(b) The execution, delivery and performance by the Company and
the Borrowers of this Amendment, the other Amendment Documents to which it is
party and all other documents executed by it in connection with this Amendment,
and the performance by the Company and the Borrowers of the Financing Agreement
as amended hereby (i) have been duly authorized by all necessary action, (ii) do
not and will not violate or create a default under the Company's or any
Borrower's organizational documents, any applicable law or any contractual
restriction binding on or otherwise affecting the Company or any Borrower or any
of the Company's or such Borrower's properties, and (iii) except as provided in
the Loan Documents, do not and will not result in or require the creation of any
Lien, upon or with respect to the Company's or any Borrower's property.
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(c) No authorization or approval or other action by, and no
notice to or filing with, any Governmental Authority or other regulatory body is
required in connection with the due execution, delivery and performance by the
Company or any of the Borrowers of this Amendment, the other Amendment Documents
to which it is a party and all other documents executed by it in connection with
this Amendment, and the performance by the Company and the Borrowers of the
Financing Agreement as amended hereby.
(d) This Amendment and the Financing Agreement, as amended
hereby, the other Amendment Documents to which it is a party, and all other
documents executed in connection with this Amendment constitute the legal, valid
and binding obligations of the Company and the Borrowers party thereto,
enforceable against such Persons in accordance with their terms except to the
extent the enforceability thereof may be limited by any applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws from time to time in
effect affecting generally the enforcement of creditors' rights and remedies and
by general principles of equity.
(e) The representations and warranties contained in Article VI
of the Financing Agreement are correct on and as of the Second Amendment
Effective Date as though made on and as of the Second Amendment Effective Date
(except to the extent such representations and warranties expressly relate to an
earlier date), and no Event of Default or Default, has occurred and is
continuing on and as of the Second Amendment Effective Date.
(f) Neither (i) the consummation of the Transactions, or (ii)
the execution, delivery and performance by the Borrowers and the Guarantors of
this Amendment and the other Amendment Documents shall contravene in any way or
result in a default or event of default under the BONY Loan Documents.
29. Continued Effectiveness of Financing Agreement. Each of the
Company and the Borrowers hereby (i) confirms and agrees that each Loan Document
to which it is a party is, and shall continue to be, in full force and effect
and is hereby ratified and confirmed in all respects except that on and after
the Second Amendment Effective Date of this Amendment all references in any such
Loan Document to "the Financing Agreement", "thereto", "thereof", "thereunder"
or words of like import referring to the Financing Agreement shall mean the
Financing Agreement as amended by this Amendment, and (ii) confirms and agrees
that to the extent that any such Loan Document purports to assign or pledge to
the Agent, or to grant to the Agent a Lien on any collateral as security for the
Obligations of the Company and the Borrowers from time to time existing in
respect of the Financing Agreement and the Loan Documents, such pledge,
assignment and/or grant of a Lien is hereby ratified and confirmed in all
respects.
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30. Miscellaneous.
(a) This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which shall be deemed to be an original, but all of which taken together shall
constitute one and the same agreement.
(b) Section and paragraph headings herein are included for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
(c) This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York.
(d) The Borrowers will pay on demand all out-of-pocket costs
and expenses of the Agent in connection with the preparation, execution and
delivery of this Amendment, including, without limitation, the reasonable fees,
disbursements and other charges of Schulte Roth & Zabel LLP, counsel to the
Agent.
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of the day
and year first above written.
ARIS INDUSTRIES, INC.
By: /s/ DAVID FIDLON
--------------------------------
Name: David Fidlon
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Title: Vice President
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EUROPE CRAFT IMPORTS, INC.
By: /s/ DAVID FIDLON
--------------------------------
Name: David Fidlon
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Title: Vice President
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ECI SPORTSWEAR, INC.
By: /s/ DAVID FIDLON
--------------------------------
Name: David Fidlon
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Title: Vice President
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STETSON CLOTHING COMPANY, INC.
By: /s/ DAVID FIDLON
--------------------------------
Name: David Fidlon
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Title: Vice President
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B P CLOTHING COMPANY, INC.
By: /s/ DAVID FIDLON
--------------------------------
Name: David Fidlon
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Title: Vice President
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XOXO CLOTHING COMPANY, INCORPORATED
By: /s/ DAVID FIDLON
--------------------------------
Name: David Fidlon
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Title: Vice President
------------------------------
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AGENTS AND LENDERS
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THE CIT GROUP/COMMERCIAL SERVICES,
INC., as Collateral Agent
By: /s/ TERRY S. SCHWARTZ
--------------------------------
Name: Terry S. Schwartz
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Title: Vice President
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THE CHASE MANHATTAN BANK,
as Administrative Agent
By: /s/ DAVID MICHAELS
--------------------------------
Name: David Michaels
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Title: Vice President
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ISRAEL DISCOUNT BANK OF NEW YORK
By: /s/ ANDREW FINKLE
--------------------------------
Name: Andrew Finkle
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Title: Assistant Manager
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By: /s/ R. DAVID KORNGRUEN
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Name: R. David Korngruen
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Title: Vice President
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PNC BANK, NATIONAL ASSOCIATION
By: /s/ ROBERT ANCHUNDIA
--------------------------------
Name: Robert Anchundia
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Title: Assistant Vice President
------------------------------
