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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter ended (Commission File Number): 1-4814
June 30, 1999
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ARIS INDUSTRIES, INC.
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(Exact name of registrant as specified in its charter)
NEW YORK 22-1715274
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1411 BROADWAY, NEW YORK, NEW YORK 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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Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section 13 or 15 of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Number of shares of Common Stock outstanding 78,610,234
(As of August 11, 1999)
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<PAGE>
ARIS INDUSTRIES, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION ----
Item 1. Financial Statements
a. Consolidated Condensed Balance Sheets as of June 30, 1999
and December 31, 1998 3
b. Consolidated Condensed Statements of Operations for the
Six Months Ended June 30, 1999 and June 30, 1998 4
b. Consolidated Condensed Statements of Operations for the
Three Months Ended June 30, 1999 and June 30, 1998 5
c. Consolidated Condensed Statements of Cash Flows for the
Six Months Ended June 30, 1999 and June 30, 1998 6
d. Notes to Consolidated Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 19
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities 20
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 21
SIGNATURES 22
<PAGE>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
1999 December 31,
ASSETS (Unaudited) 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 572,000 $ 1,112,000
Receivables, net 24,118,000 29,905,000
Inventories, net 19,041,000 26,371,000
Prepaid expenses and other current assets 2,126,000 1,753,000
----------- -----------
Total current assets 45,857,000 59,141,000
PROPERTY, PLANT AND EQUIPMENT, NET 2,746,000 1,094,000
GOODWILL 15,947,000 19,325,000
OTHER ASSETS 1,363,000 2,095,000
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TOTAL ASSETS $65,913,000 $81,655,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade acceptances payable $ 2,050,000 $ 5,178,000
Accounts payable 3,581,000 1,512,000
Accrued expenses and other current liabilities 3,600,000 8,370,000
Current portion of long term debt 500,000 1,083,000
Line of credit payable 18,530,000 33,900,000
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Total current liabilities 28,261,000 50,043,000
OTHER LIABILITIES 2,309,000 1,082,000
LONG TERM DEBT, LESS CURRENT PORTION 6,942,000 16,438,000
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Total Liabilities 37,512,000 67,563,000
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $.01 par value: 100,000,000 shares authorized;
46,051,204 issued and outstanding at June 30, 1999
and 14,956,377 issued and outstanding at December 31, 1998 460,000 151,000
Preferred stock, $.01 par value: 10,000,000 shares authorized;
2,605,903 issued and outstanding at June 30, 1999, 26,000 --
Additional paid-in capital 69,138,000 44,757,000
Accumulated deficit (41,223,000) (30,816,000)
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Total stockholders' equity 28,401,000 14,092,000
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $65,913,000 $81,655,000
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</TABLE>
See accompanying notes to consolidated condensed financial statements
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<PAGE>
<TABLE>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<CAPTION>
Six Six
Months Ended Months Ended
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
NET SALES $ 53,457,000 $ 37,345,000
COST OF SALES (39,889,000) (28,048,000)
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Gross Profit 13,568,000 9,297,000
Commission and Licensing Income 536,000 478,000
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INCOME BEFORE SELLING AND ADMINISTRATIVE
EXPENSES, RESTRUCTURING AND OTHER CHARGES,
INTEREST EXPENSE, INCOME TAX BENEFIT
AND EXTRAORDINARY ITEM 14,104,000 9,775,000
SELLING AND ADMINISTRATIVE EXPENSES (15,508,000) (12,494,000)
RESTRUCTURING AND OTHER CHARGES (8,001,000) --
------------ ------------
LOSS BEFORE INTEREST EXPENSE, INCOME TAX
BENEFIT AND EXTRAORDINARY ITEM (9,405,000) (2,719,000)
INTEREST EXPENSE, NET (1,589,000) (2,033,000)
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LOSS BEFORE INCOME TAX BENEFIT AND
EXTRAORDINARY ITEM (10,994,000) (4,752,000)
INCOME TAX BENEFIT 587,000 175,000
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LOSS BEFORE EXTRAORDINARY ITEM (10,407,000) (4,577,000)
EXTRAORDINARY ITEM:
Gain on debt forgiveness, net -- 522,000
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NET LOSS ($10,407,000) ($ 4,055,000)
============ ============
PER SHARE DATA:
Weighted average shares outstanding - Basic 36,486,933 14,906,095
Weighted average shares outstanding - Diluted 36,486,933 14,905,095
BASIC LOSS PER SHARE:
Loss before extraordinary item ($0.29) ($0.31)
Extraordinary item -- 0.04
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Net loss ($0.29) ($0.27)
============ ============
DILUTED LOSS PER SHARE:
Loss before extraordinary item ($0.29) ($0.31)
Extraordinary item -- 0.04
------------ ------------
Net loss ($0.29) ($0.27)
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</TABLE>
See accompanying notes to consolidated condensed financial statements
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<PAGE>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Three
Months Ended Months Ended
June 30, June 30,
1999 1998
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<S> <C> <C>
NET SALES $25,324,000 $19,779,000
COST OF SALES (18,416,000) (15,628,000)
Gross Profit 6,908,000 4,151,000
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Commission and Licensing Income 294,000 219,000
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INCOME BEFORE SELLING AND ADMINISTRATIVE
EXPENSES, RESTRUCTURING AND OTHER CHARGES,
INTEREST EXPENSE AND INCOME TAX BENEFIT 7,202,000 4,370,000
SELLING AND ADMINISTRATIVE EXPENSES (8,095,000) (6,092,000)
RESTRUCTURING AND OTHER CHARGES (1,850,000) --
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LOSS BEFORE INTEREST EXPENSE AND INCOME TAX BENEFIT (2,743,000) (1,722,000)
INTEREST EXPENSE, NET (601,000) (1,181,000)
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LOSS BEFORE INCOME TAX BENEFIT (3,344,000) (2,903,000)
INCOME TAX BENEFIT 261,000 91,000
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NET LOSS ($3,083,000) ($2,812,000)
=========== ===========
PER SHARE DATA:
Weighted average shares outstanding - Basic 46,034,999 14,907,145
Weighted average shares outstanding - Diluted 46,034,999 14,907,145
BASIC LOSS PER SHARE:
----------- -----------
Net loss ($0.07) ($0.19)
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DILUTED LOSS PER SHARE:
----------- -----------
Net loss ($0.07) ($0.19)
=========== ===========
</TABLE>
See accompanying notes to consolidated condensed financial statements
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<PAGE>
<TABLE>
<CAPTION>
ARIS INDUSTRIES, INC.
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Six Six
Months Ended Months Ended
June 30, June 30,
1999 1998
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($10,407,000) ($ 4,055,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 537,000 827,000
Issuance of notes in lieu of interest 108,000 151,000
Forgiveness of debt -- (522,000)
Impairment of goodwill and other assets 3,750,000 --
Change in assets and liabilities:
Decrease in receivables 5,787,000 7,070,000
Decrease/(increase) in inventories 7,330,000 (12,748,000)
Increase in prepaid expenses and other current assets (373,000) (223,000)
Decrease in other assets 9,000 12,000
(Decrease)/increase in trade acceptances payable (3,128,000) 2,364,000
Increase in accounts payable 1,209,000 1,632,000
Decrease in accrued expenses and other current liabilities (4,228,000) (4,428,000)
(Increase)/decrease in other liabilities 99,000 (113,000)
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Total adjustments 11,100,000 (5,978,000)
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Net cash provided by / (used in) operating activities 693,000 (10,033,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (709,000) (163,000)
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Net cash used in investing activities (709,000) (163,000)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of long-term debt (4,583,000) (1,236,000)
Cash overdraft 860,000 --
Stock options exercised 20,000 --
Proceeds from the issuance of common and preferred stock 20,000,000 --
Stock issuance costs paid (1,451,000) --
Net proceeds / (repayments) on bank line of credit (15,370,000) 10,795,000
------------ ------------
Net cash (used in) / provided by financing activities (524,000) 9,559,000
------------ ------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (540,000) (637,000)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,112,000 1,372,000
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 572,000 $ 735,000
============ ============
Non-Cash Investing and Financing Activities:
Capital Lease Obligations Incurred $ 1,128,000
Exchange of Series B Secured Notes for Common Stock 4,846,154
See accompanying notes to consolidated condensed financial statements
</TABLE>
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<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements for the three and six month
periods ended June 30, 1999 and June 30, 1998 are unaudited and reflect all
adjustments (consisting of normal recurring adjustments except for the
restructuring and other charges (See Note 4)) which are in the opinion of
management necessary for a fair presentation of the financial position and
operating results for the period.
The Consolidated Condensed Balance Sheet as of December 31, 1998 was derived
from audited financial statements but does not include all disclosures required
by generally accepted accounting principles. The accompanying consolidated
condensed financial statements have been prepared in accordance with accounting
standards appropriate for interim financial statements and should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998. The
operating results for the three and six months ended June 30, 1999 are not
necessarily indicative of the operating results for the year ending December 31,
1999.
2. THE SIMON TRANSACTION
On February 26, 1999, the Company issued: (i) 24,107,145 shares of Common Stock
of the Company and 2,093,790 shares of Series A Preferred Stock of the Company
(which shares shall be convertible into 20,937,900 shares of Common Stock), for
$20,000,000 and (ii) redeemed the Series B Junior Secured Note (which
represented a total indebtedness of $10,658,000) in exchange for $4,000,000 in
cash and an aggregate of 5,892,856 shares of Common Stock and 512,113 shares of
Series A Preferred Stock (which shares shall be convertible into 5,121,130
shares of Common Stock), (the "Simon Purchase Transaction"). In connection with
the Simon Purchase Transaction, the Company also issued 700,000 shares of Common
Stock to a third party as a condition to its consent to the transaction. In
addition, the Company paid approximately $1,451,000 in cash and issued 250,000
shares of common stock to cover the costs associated with the transaction.
3. DEBT
The Company's long-term indebtedness consists of its obligations to BNY
Financial Corporation ("BNY") under the Series A Junior Secured
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<PAGE>
Note Agreement dated June 30, 1993, pursuant to which BNY is owed $7,442,000,
plus interest at the rate of 7% per annum, with a final maturity date of
November 3, 2002. The principal of BNY's Note is payable on November 3 of each
year as follows:
YEAR AMOUNT
---- ------
1999 $ 500,000
2000 600,000
2001 1,100,000
2002 4,200,000
In addition, on November 3, 2002, the Company is obligated to pay BNY
$1,042,000, representing the quarterly interest payments that were deferred for
the period February 1, 1996 through January 31, 1998 by agreement with BNY in
September 1997. BNY is also entitled to receive mandatory prepayments based upon
50% of certain "excess cash flows" of the Company as defined in the Company's
note agreements with BNY.
The Company entered into a credit facility with The CIT Commercial Services
Group, Inc. and other financial institutions, which provides a revolving credit
facility of up to $65,000,000, for working capital loans and letters of credit,
limited in the aggregate to specified percentages of eligible factored
receivables and inventory. The credit facility has a maturity date of February
26, 2002. The credit facility is collateralized by liens on substantially all of
the assets of the Company and its subsidiaries. For revolving credit loans,
interest will accrue at the bank's prime rate. For Eurodollar loans, interest
will accrue at a rate per annum equal to the Eurodollar rate (as defined) plus
2.5%. The credit facility agreement contains various financial and other
covenants and conditions, including, but not limited to, limitations on paying
dividends, making acquisitions and incurring additional indebtedness.
In connection with the XOXO transaction (See Note 7), the Company's loan
agreement was amended in August 1999 to increase the revolving credit line to
$80,000,000, and to provide for a term loan of $10,000,000. The term loan bears
interest at prime plus one-half percent and is payable in quarterly installments
of $500,000, plus interest, commencing January 1, 2000, with a balloon payment
of $5,500,000 on February 26, 2002, the maturity date. The Company is required
to make certain mandatory prepayments based upon "excess cash flows" as defined
in the amendment to the credit ffacility agreement.
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<PAGE>
4. RESTRUCTURING AND OTHER CHARGES
In connection with the Simon Purchase Transaction, the Company was required to
obtain consents from the licensor of its Perry Ellis licenses. As a condition to
granting its consent, such licensor required that the term of several licenses
be shortened. In the opinion of management and based upon future forecasted
results of the Perry Ellis product line, the remaining value of the associated
goodwill pertaining to licenses of $3,750,000 acquired in connection with the
Davco acquisition will not be recoverable. In addition, on March 29, 1999 the
Company made a severance payment of approximately $2,401,000 pursuant to the
Retention Agreement between the Company and its former President. The Company
recognized these restructuring charges in the March 31, 1999 quarter.
Additionally, during the second quarter ended June 30, 1999, the Company
commenced a restructuring of its operations and recorded a restructuring charge
of $1,850,000. The major components of the restructuring charge relates to
severance pay, estimated costs to exit and sub-lease certain facilities and
impairment charges related to fixed assets at the vacated facilities.
5. INCOME TAXES
The Company had a significant net operating loss carryforward ("NOL") at
December 31, 1998. The Company believes the NOL will be available to offset
federal taxable income for the period January 1, 1999 through February 26, 1999
(the date of the closing of the Simon Purchase Transaction), including any
taxable income due to cancellation of indebtedness in connection with the
redemption by the Company from AIF of the Series B Junior Secured Note on
February 26, 1999. However, due to the change of ownership resulting from the
Simon Purchase Transaction, the Company's use of any remaining net operating
loss carryforward from and after February 27, 1999 will be severely limited.
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<PAGE>
6. PER SHARE DATA
The Company computes earnings per share in accordance with the provisions of
SFAS No. 128, Earnings per share. SFAS No. 128 requires the dual presentation of
basic and diluted earnings per share ("EPS"). Basic EPS excludes dilution and is
computed by dividing net income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if stock options or other contracts to
issue common stock were exercised and resulted in the issuance of common stock
that then shared in the earnings of the Company. Diluted EPS is computed using
the treasury stock method when the effect of common stock equivalents would be
dilutive.
<TABLE>
<CAPTION>
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Income Shares Per-Share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Six Months Ended 6/30/99
Basic EPS
Loss before extraordinary item ............ $(10,407,000) 36,486,933 $(0.29)
Effect of Dilutive Securities
Stock Options -- --
Warrants -- --
------------ ----------
Diluted EPS
Loss before extraordinary item $(10,407,000) 36,486,933 $(0.29)
- ---------------------------------------------------------------------------------------------------------------
Six Months Ended 6/30/98
Basic EPS
loss before extraordinary item ............ $ (4,577,000) 14,906,095 $(0.31)
Effect of Dilutive Securities
Stock Options -- --
Warrants -- --
------------ ----------
Diluted EPS
Loss before extraordinary item ............ $ (4,577,000) 14,906,095 $(0.31)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Three Months Ended
6/30/99
Basic EPS
Net loss .................................. $(3,083,000) 46,034,999 $(0.07)
Effect of Dilutive Securities
Stock Options -- --
Warrants -- --
----------- ----------
Diluted EPS
Net loss .................................. $(3,083,000) 46,034,999 $(0.07)
- ---------------------------------------------------------------------------------------------------------------
Three Months Ended 6/30/98
Basic EPS
Net loss .................
$(2,812,000) 14,907,145 $(0.19)
Effect of Dilutive Securities
Stock Options -- --
Warrants -- --
----------- ----------
Diluted EPS
Net loss .................................. $(2,812,000) 14,907,145 $(0.19)
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to the preferred stock (See Note 2), options and warrants to
purchase 3,309,677 and 2,289,345 shares of Common Stock were outstanding as of
June 30, 1999 and June 30, 1998, respectively, but were not included in the
computation of diluted earnings per share because the effect would be
anti-dilutive.
7. COMMITMENTS AND CONTINGENCIES
License Agreements
During Man and August 1999, the Company signed two licensing agreements to
manufacture and distribute apparel products bearing the licensors' name. The
agreements are for five year periods, subject to renewal for additional periods,
and require the Company to make minimum royalty payments, along with additional
royalty payments in the range of 4% to 8% based on a percentage of defined
sales. The following is a schedule of the minimum royalty payments due under the
new agreements:
1999 $ 340,000
2000 970,000
2001 2,190,000
2002 3,420,000
2003 3,920,000
2004 3,920,000
Contingencies
The Company, in the ordinary course of its business, is the subject of, or a
party to, various pending or threatened legal actions. While it is not possible
at this time to predict the outcome of any litigation, in the opinion of
management any ultimate liability arising from these actions will not have a
material effect on the financial position, results of operations or cash flows.
8. SUBSEQUENT EVENTS
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. Lola's business consists principally
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<PAGE>
of the manufacture and sale of women's apparel and accessories under the "XOXO"
name.
The consideration paid to Lola's shareholders was $10,000,000 in cash 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. In connection with the
transaction, ECI obtained a $10,000,000 term loan and the Company and its
subsidiaries amended its financing agreements to increase its revolving line of
credit from $65,000,000 to $80,000,000.
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<PAGE>
ARIS INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The following analysis of the financial condition and results of operations of
Aris Industries, Inc. (the "Company") for the three and six month periods ended
June 30, 1999 and June 30, 1998 should be read in conjunction with the
consolidated condensed financial statements, including the notes thereto,
included on pages 3 through 12 of this report.
FORWARD LOOKING STATEMENTS
Statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations which are not historical in nature, are
intended to be, and are hereby identified as, "forward looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended by Public Law 104-67. The Company cautions readers that
forward looking statements, including without limitation, those relating to the
Company's future business prospects, revenues, working capital, liquidity,
capital needs, interest costs, and income, are subject to certain risks and
uncertainties that could cause actual results to differ materially from those
indicated in the forward looking statements, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the Securities and Exchange
Commission.
YEAR 2000 COMPLIANCE
The inability of computers, software and other equipment utilizing
microprocessors to recognize and properly process data fields containing a 2
digit year is commonly referred to as the Year 2000 Compliance issue. As the
year 2000 approaches, such systems may be unable to accurately process certain
date based information. The Company's Year 2000 Project (Project) is addressing
the issue of computer programs and embedded computer chips being unable to
distinguish between the year 1900 and the year 2000 ("Y2K").
The Project has been divided into three major areas; 1) IBM AS400, 2)
Application Software, and 3) PC Hardware and software. The general phases common
to all sections are: 1) inventorying Year 2000 items; 2) assigning priorities to
inventoried items; 3) assessing the Year 2000 compliance of items determined to
be material to the Company; 4) repairing or replacing material items that are
determined not to be Year 2000 compliant; 5) testing material items and 6)
designing and implementing contingency and
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<PAGE>
business continuation plans. Internal resources are being used to make required
modifications and test Year 2000 Compliance. The Company target date for
completion is September 30, 1999.
The IBM AS400 (Model 300) is the backbone of the Company's computer system. The
Company currently maintains 100% of its inventory valuation and tracking, order
processing and picking/shipping functions on the AS400. In addition, the Company
also maintains the bulk of its accounting records on the AS400. The Company has
received certification from the vendor that the AS400 is Y2K compliant.
The Company has replaced its existing Software with the Complete Suite of
Applications from "RLM" (Ron Lynn Management Accounting Software). Management
believes that RLM Software provides a complete Y2K Solution for an AS400 System
and allows the Company to create a fully integrated systems environment. In
addition, the Company will continue to utilize the "Premenos" Electronic
Document Interchange Software System which processes document interchanges
between the Company and retailers. This system will be upgraded using internal
resources. The Company has identified 100% of the programs/ sub system routines
in these two applications that require modification. These upgrades have been
tested and completed.
The final section of the Project is to determine if all of the Company's
personal computer (PC) hardware and software systems are Y2K compliant. Each PC
will be certified to be Y2K compliant, any PC that is found to be noncompliant
will be replaced. The Company intends to use internal resources to do the
certification. All software needed to assure Y2K compliance will be completed
after all the Company's PC's have been certified Y2K compliant. The Company does
not anticipate many Y2K issues in this area since approximately 90% of the
software in use is off the shelf retail software (spreadsheet, word processing
packages, etc.) that is already Y2K compliant.
The total cost to the Company of these Y2K Compliance activities is estimated to
be approximately $500,000 which includes the cost of a programmer, consultants
as well as costs for software upgrades and third party contractors/suppliers and
PC replacements. The Company intends to fund these activities through operating
cash flows. These costs and the date on which the Company plans to complete the
Y2K modification and testing processes are based on management's best estimates,
which were derived utilizing continued availability of certain third party
modification plans and other factors. However, there can be no guarantee that
these objectives will be achieved; actual results could differ from those plans.
The failure to correct a material Y2K problem could result in an interruption
in, or a failure of, certain normal business activities or operations. Such
failures could materially and
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<PAGE>
adversely affect the Company's results of operations, liquidity and financial
condition. Due to the general uncertainty inherent in the Y2K problem, resulting
in part from the uncertainty of the Year 2000 readiness of third-party suppliers
and customers, the Company is unable to determine at this time whether the
consequences of Y2K failures will have a material impact on the Company's
results of operations, liquidity or financial condition. The Y2K project is
expected to significantly reduce the Company's level of uncertainty about the
Year 2000. The Company believes that with the completion of the Project as
scheduled the possibility of significant interruptions of normal operations
should be reduced.
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had working capital of approximately
$17,596,000 as compared to $9,098,000 at December 31, 1998. The increase in
working capital was due to the capital infusion provided by the Simon Purchase
Transaction offset by the Company's net loss, which includes restructuring and
other charges, incurred in the six months ended June 30, 1999. During this
period, the Company financed its capital expenditures principally through
internally generated funds and credit facilities.
The Company's interest payments to BNY and AIF-II scheduled for May 4, 1998 and
August 3, 1998 were paid in cash on their due dates. On October 21, 1998, the
Company entered into amendments of its agreements with BNY and AIF-II providing
that payment of scheduled interest payments otherwise due to such lenders on
November 3, 1998 and the scheduled principal payment of $300,000 otherwise due
to BNY on November 3, 1998 would be deferred until February 1, 1999. Pursuant to
agreements with BNY the payments due February 1, 1999 were paid on February 26,
1999 upon the closing of the Simon Purchase Transaction.
On February 26, 1999 simultaneous, with the closing of the Simon Purchase
Transaction, the Company and its subsidiaries entered into a Financing Agreement
with CIT Commercial Services Group, Inc. ("CIT") and certain other financial
institutions, whereby such lenders agreed to provide a revolving credit facility
of up to $ 65,000,000 for working capital, loans and letters of credit
financing, with a final maturity date of February 26, 2002. The obligations
under the Financing Agreements are collateralized by liens on substantially all
of the assets of the Company and its subsidiaries. The revolving credit facility
provided by such Financing Agreement replaced ECI and ECI Sportswear's prior
working capital facilities. For revolving credit loans, interest will accrue at
the bank's prime rate. For Eurodollar loans, interest will accrue at a rate per
annum equal to the Eurodollar rate plus 2.5%. The agreement evidencing the new
line of credit contains
-15-
<PAGE>
various financial and other covenants and conditions, including, but not limited
to, limitations on paying dividends, making acquisitions and incurring
additional indebtedness. As of June 30, 1999 the Company had availability under
the facility of approximately $7,843,000 and was incurring interest at prime or
7.75%.
The Company's long-term indebtedness consists of its obligations to BNY
Financial Corporation ("BNY") under the Series A Junior Secured Note Agreement
dated June 30, 1993, pursuant to which BNY is owed $7,442,000, plus interest at
the rate of 7% per annum, with a final maturity date of November 3, 2002. The
principal of BNY's Note is payable on November 3 of each year as follows:
YEAR AMOUNT
---- ------
1999 $ 500,000
2000 600,000
2001 1,100,000
2002 4,200,000
In addition, on November 3, 2002, the Company is obligated to pay BNY
$1,042,000, representing the quarterly interest payments that were deferred for
the period February 1, 1996 through January 31, 1998 by agreement with BNY in
September 1997. BNY is also entitled to receive mandatory prepayments based upon
50% of certain "excess cash flows" of the Company as defined in the Company's
note agreements with BNY.
In connection with the XOXO transaction (See Note 7), the Company's financing
agreement was amended in August 1999 to increase the revolving credit line to
$80,000,000, and to provide for a term loan of $10,000,000. The term loan bears
interest at prime plus one-half percent and is payable in quarterly installments
of $500,000, plus interest, commencing January 1, 2000, with a balloon payment
of $5,500,000 on February 26, 2002, the maturity date. The Company is required
to make certain mandatory prepayments based upon "excess cash flows" as defined
in the amendment to the loan agreement.
As a result of the Simon Purchase Transaction and the CIT Financing Agreement,
the Company believes it has adequate liquidity and capital resources to meet its
requirements for at least the next twelve months.
RESULTS OF OPERATIONS
The Company reported net losses of $3,083,000 and $10,407,000 for the three and
six month periods ended June 30, 1999 respectively, which included restructuring
and other charges of $1,850,000 and $8,001,000 for the three and six month
periods ended June 30, 1999, respectively. Absent these charges the net losses
for the three and six month periods ended June 30, 1999 would have been
$1,233,000 and $2,406,000 respectively, compared to net losses of $2,812,000 and
$4,055,000, respectively for the three and six month periods ended June 30,
1998.
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<PAGE>
The increase in the loss for the three month period was primarily due to the
Company's restructuring and other charges of approximately $1,850,000 relating
to the consolidation of operations and facilities. Such charges primarily
consisted of severance pay, estimated cost to exit and sub-lease certain
facilities and impairment charges related to fixed assets at the vacated
facilities. This loss was offset by an improvement in operating performance
attributable to increased sales and margins along with a reduction of interest
expense due to the conversion of Apollo debt to equity and the reduction of
borrowing due to the infusion of funds from the Simon Transaction.
The increase in the loss for the six month period was primarily due to
restructuring and other charges which consisted of (i) $2,401,000 relating to a
severance payment made pursuant to the Retention Agreement between the Company
and its former President, (ii) a non-recurring charge of $3,750,000 in
connection with the write off of impaired goodwill (See Note 4) and (iii)
additional charges of $1,850,000 relating to the consolidation of the Company's
operations and facilities as previously discussed. This loss was offset by an
improvement in operating performance attributable to increased sales and margins
along with a reduction of interest expense due to the conversion of Apollo debt
to equity and the reduction of borrowing due to the infusion of funds from the
Simon Purchase Transaction.
NET SALES
The Company's net sales increased from $19,779,000 during the three months ended
June 30, 1998 to $25,324,000 during the three months ended June 30, 1999. This
increase of $5,545,000 was a result of increased sales of products under the
"FUBU" license which amounted to $16,644,000 during this year's second quarter
as compared to $2,836,000 in the second quarter of last year which reflected the
Company's initial shipment of the "FUBU" products to the marketplace. This
increase in sales was partially offset by a decrease in sales of the Members
Only product line in the amount of approximately $1,819,000, a reduction in
private label sales of $5,053,000 and a reduction of $971,000 in sales of the
Company's Perry Ellis product lines which suffered from a lack of consumer
demand and the phase out of various product lines, including the Jeffrey Banks
product line, resulting in a decrease of sales in the amount of $420,000.
The Company's net sales increased from $37,345,000 during the six months ended
June 30, 1998 to $53,457,000 during the six months ended June 30, 1999. This
increase of $16,112,000 was a result of increased sales of products under the
"FUBU" license which amounted to $29,284,000 during the year as compared to
$3,072,000 in the first half of last year which reflected the Company's initial
shipment of the "FUBU" products to the marketplace. This increase
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<PAGE>
in sales was partially offset by a decrease in sales of the Members Only product
line in the amount of approximately $2,814,000, a reduction in private label
sales of $5,132,000 and a reduction of $981,000 in sales of the Company's Perry
Ellis product lines which suffered from a lack of consumer demand and the phase
out of various product lines, including the Jeffrey Banks product line,
resulting in a decrease of sales in the amount of $1,173,000.
GROSS PROFIT
Gross Profit for the three months ended June 30, 1999 was $6,908,000 or 27.3%
compared to $4,151,000 or 21.0% for the three months ended June 30, 1998. Gross
profit was positively impacted by sales of higher margin "FUBU" product lines
partially offset by the weak performance of the Company's "Perry Ellis America"
brand which suffered from a lack of consumer demand which caused the Company to
liquidate prior season inventory at reduced prices.
Gross Profit for the six months ended June 30, 1999 was $13,568,000 or 25.4%
compared to $9,297,000 or 24.9% for the six months ended June 30, 1998. Gross
profit was positively impacted by sales of higher margin "FUBU" product lines
partially offset by the weak performance of the Company's "Perry Ellis America"
brand which suffered from a lack of consumer demand which caused the Company to
liquidate prior season inventory at reduced prices.
SELLING AND ADMINISTRATIVE EXPENSES
Selling and Administrative expenses were $8,095,000 or 31.9% of net sales for
the three months ended June 30, 1999 as compared to $6,092,000 or 30.8% of net
sales for the three months ended June 30, 1998. The increase in Selling and
Administrative expenses was attributable to increased sales of the "FUBU"
licensed product line along with related increases in fixed and variable
expenses. Included in Selling and Administrative expenses for the three months
ended June 30, 1999 are approximately $675,000 or 2.7% of net sales of costs
incurred in connection with start-up activities, associated with the Company's
expansion of its operations, facilities and management.
Selling and Administrative expenses were $15,508,000 or 29.0% of net sales for
the six months ended June 30, 1999 as compared to $12,494,000 or 33.5% of net
sales for the six months ended June 30, 1998. The increase in Selling and
Administrative expenses was attributable to increased sales of the "FUBU"
licensed product line along with related increases in fixed and variable
expenses. Included in Selling and Administrative expenses for the six months
ended June 30, 1999 are approximately $675,000 or 1.3% of net sales of costs
incurred in connection with start-up activities, associated with the Company's
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<PAGE>
expansion of its operations, facilities and management.
RESTRUCTURING AND OTHER CHARGES
During the first quarter ended March 31, 1999 the Company incurred a
restructuring charge of $2,401,000 relating to a severance payment made pursuant
to the Retention Agreement between the Company and its former President and also
recorded a restructuring charge of $3,750,000 in connection with the write off
of impaired goodwill (See Note 4). In the second quarter ended June 30, 1999 the
Company incurred additional restructuring and other charges totaling $1,850,000
relating to the continuing consolidation of its operations and facilities.
During the remainder of 1999, the Company expects to incur additional
restructuring charges as the result of the continuing consolidation of its
operations and facilities. In addition, the Company has entered into new
licensing arrangements which may result in startup expenses during 1999 without
any related revenues during the year.
INTEREST EXPENSE
Interest expense for the three months ended June 30, 1999 decreased by $580,000
or 50% compared to the three month period ended June 30, 1998. This decrease was
primarily due to the conversion of Apollo debt to equity and the reduction of
borrowings resulting from the infusion of funds from the Simon Purchase
Transaction.
Interest expense for the six month period ended June 30, 1999 decreased by
$444,000 or 22% compared to the three month period ended June 30, 1998. This
decrease was primarily due to the conversion of Apollo debt to equity and the
reduction of borrowings resulting from the infusion of funds from the Simon
Purchase Transaction.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
ECI was served with a complaint in an action commenced by Pacific Isles
Corporation in New York State Supreme Court alleging that it wrongfully rejected
approximately $700,000 of merchandise and that it tortuously interfered with
Pacific Isles' business. The Company believes it has meritorious defenses to the
claims and intends to vigorously defend the action.
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<PAGE>
ITEM 2 CHANGES IN SECURITIES
On February 26, 1999, (i) The Simon Group acquired 24,107,145 shares of Common
Stock and 2,093,790 shares of Series A Preferred Stock (convertible into
20,937,790 shares of Common Stock) for $20,000,000 and (ii) the Company redeemed
from AIF the Series B Junior Secured Note of the Company including all accrued
interest thereon (representing a total indebtedness of $10,658,000) in exchange
for $4,000,000 in cash plus 5,892,856 shares of Common Stock and 512,113 shares
of Series A Preferred Stock (convertible into 5,121,130 shares of Common Stock).
All such shares were sold to The Simon Group and AIF in a private, negotiated
transaction, exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933, as amended (the "Securities Act"), as a transaction not involving
any public offering.
In March 1999, the Company issued 700,000 shares of Common Stock to Warnaco,
Inc. in consideration for Warnaco's consent to the Simon Purchase Transaction.
In March 1999, the Company issued 250,000 shares of Common Stock to Shapiro
Forman & Allen LLP, in partial payment for services rendered by such law firm to
The Simon Group in connection with the Simon Purchase Transaction, which
services, under the terms of the Purchase Agreement, were to be paid for by the
Company. These share issuances are exempt from registration pursuant to Section
4(2) of the Securities Act as transactions not involving any public offering.
The shares of Series A Preferred Stock of the Company are not publicly traded.
Each share of Series A Preferred Stock is automatically convertible into ten
shares of Common Stock upon the filing of a Certificate of Amendment to the
Certificate of Incorporation of the Company increasing the authorized shares of
Common Stock of the Company to an amount sufficient to permit conversion of all
shares of outstanding Series A Preferred Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Annual Meeting of Stockholders of Aris Industries, Inc. held on June 17,
1999 all of the current five members of the Board of Directors, Arnold H.
Simon, Debra Simon, David Fidlon, Howard Schneider and Robert Katz were
re-elected by the stockholders. A new member to the Board of Directors, Mark
Weiner, was also elected to the board.
In addition, at such Annual Meeting of Stockholders, the other three proposals
were approved by the stockholders with votes as follows:
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<PAGE>
Ratification of the amendment of the Company's certificate of
incorporation to provide that the number of shares that may be
issued be increased to 100,000,000 shares of Common Stock and
10,000,000 shares of Preferred Stock; 64,969,766 shares voted
in favor, 46,948 against and 1,103,555 abstentions.
Ratification of the amendment of the Aris 1993 Stock Incentive
Plan, to increase the shares reserved for grants and awards
under such Plan from 3,500,000 to 7,000,000; 68,411,162 shares
voted in favor, 43,358 against and 1,990 abstentions.
Ratification of the reincorporation of the Company from New
York to Delaware under the name Lifestyle Apparel Group, Ltd.;
49,266,157 shares voted in favor, 16,832,618 against and 1,494
abstentions.
ITEM 5. OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
8. (a) The following documents are filed herein as part of this report:
1. Exhibits
10.119 - First Amendment to CIT Financing Agreement dated as of March
25, 1999
10.120 - Employment Agreement effective as of June 7, 1999 with Joseph
Purritano
(b) Reports on Form 8-K
The Company filed a Form 8K on April 19, 1999, reporting a change in
certifying accountants.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ARIS INDUSTRIES, INC.
(Registrant)
Date: August 16, 1999 By /s/ PAUL SPECTOR
-------------------------------------
Paul Spector,
Senior Vice President
Chief Financial Officer
By /s/ VINCENT F. CAPUTO
-------------------------------------
Vincent F. Caputo,
Vice President
Assistant Secretary and
Assistant Treasurer
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<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Filed as Indicated Exhibit to
Document Referenced in
Exhibit No. Description Footnote No.
----------- ----------- ------------------------------
<S> <C> <C>
2. Second Amended Joint Plan of Reorganization dated March 26, (3)
1993, as amended May 11 and June 9, 1993
(Note: Annexes omitted)
3.3 Restated Certificate of Incorporation filed on June 30, 1993 (3)
3.4 Amended and Restated By-Laws effective June 30, 1993 (3)
4.1 Specimen Certificate Evidencing Common Stock. (1)
10.67 Series A Junior Secured Note Agreement dated as of June 30, (3)
1993 between Registrant and BNY Financial Corporation.
10.68 Series A Junior Secured Note dated as of June 30, 1993 issued (3)
by Registrant to BNY Financial Corporation.
10.72 Secondary Pledge Agreement dated as of June 30, 1993 between (3)
Registrant, BNY Financial Corporation and AIF II, L.P.
10.75 Shareholders Agreement dated as of June 30, 1993 among (3)
Registrant and the Subject Shareholders Referred to Therein.
10.76 Equity Registration Rights Agreement dated as of June 30, (3)
1993 among Registrant and the Holders of Registrable Shares
Referred to Therein.
10.79 Severance Agreement dated April 3, 1991 between Registrant (3)
and Paul Spector.
10.80 1993 Stock Incentive Plan of Registrant, as amended by (3)
Amendment No. 1 thereto dated June 24, 1993.
10.81 Form of Indemnification Agreement dated as of June 30, 1993 (3)
between Registrant and each member of Registrant's Board of
Directors.
10.82 Letter Agreement dated February 8, 1993 among James G. Goren, (3)
Alexander M. Goren, Charles S. Ramat, and David Schreiber and
Ora Ramat as Trustees for the Benefit of Hana Leah Ramat and
Abraham Ramat.
10.84 Stipulated Entry Liquidating Claims dated March 10, 1993 (3)
among The Marcade Group Inc., Robert K. Lifton, Howard L.
Weingrow, and JAG Consulting Co. Ltd.
10.86 Letter Agreement dated October 29, 1992 among The Marcade (3)
Group Inc., Above The Belt, Inc., Europe Craft Imports, Inc.,
Perry Manufacturing Company, Apollo Investment Fund, L.P.,
AIF II, L.P., and Altus Finance.
10.93 Consent dated May 1, 1996 to Series A Junior Secured Note (9)
Agreement dated as of June 30, 1993 between Registrant and
BNY Financial Corporation.
10.95 Stock Purchase Agreement dated as of September 19, 1996 (10)
between Aris Industries, Inc., as Seller, Page Holding
Company, as Buyer, and Perry Manufacturing Company, with
respect to the stock of Perry Manufacturing Company.
10.99 Warrant dated September 30, 1996 issued by Aris Industries, (10)
Inc. to Heller Financial, Inc.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Filed as Indicated Exhibit to
Document Referenced in
Exhibit No. Description Footnote No.
----------- ----------- ------------------------------
<S> <C> <C>
10.100 Letter dated December 18, 1996 from the Registrant to Charles (11)
S. Ramat.
10.101 Amendment dated May 5, 1997 to Series A Junior Secured Note (11)
Agreement dated as of June 30, 1993 between Registrant and
BNY Financial Corporation.
10.103 Amendment dated June 18, 1997 to Series A Junior Secured Note (13)
Agreement dated as of June 30, 1993 between Registrant and
BNY Financial Corporation.
10.105 Asset Purchase Agreement dated as of July 15, 1997 among (14)
Davco Industries, Inc., as Seller, Steven Arnold and
Christopher Healy as Shareholders of Seller, and Aris
Management Corp. (n/k/a ECI Sportswear, Inc.), as Purchaser.
10.106 Shareholders Agreement dated as of July 15, 1997 among Davco (14)
Industries, Inc., Steven Arnold, Christopher Healy, Aris
Management Corp. (n/k/a ECI Sportswear, Inc.), the
Registrant, Apollo Aris Partners, L.P. and Charles S. Ramat.
10.107 Amendment dated July 18, 1997 to Series A Junior Secured Note (14)
Agreement dated as of June 30, 1993 between Registrant and
BNY Financial Corporation.
10.109 Amendment executed September 12, 1997 to Series A and Series (15)
B Junior Secured Note Agreements dated as of June 30, 1993
between Registrant, BNY Financial Corporation and AIF, L.P.
10.111 Securities Purchase Agreement, dated as of February 26, 1999, (17)
between Aris Industries, Inc., Apollo Aris Partners, L.P.,
AIF, L.P., The Simon Group, L.L.C. and Arnold Simon.
10.112 Shareholders Agreement, dated as of February 26, 1999, (17)
between Aris Industries, Inc., Apollo Aris Partners, L.P.,
AIF, L.P., The Simon Group, L.L.C. and Charles S. Ramat.
10.113 Equity Registration Rights Agreement, dated as of February (17)
26, 1999, between Aris Industries, Inc., Apollo Aris
Partners, L.P., AIF, L.P., The Simon Group, L.L.C. and
Charles S. Ramat.
10.114 Retention Agreement dated as of February 18, 1999 by and (17)
between Aris Industries, Inc. and Charles S. Ramat.
10.115 Financing Agreement dated February 26, 1999 by and among the (18)
Company and its Subsidiaries and CIT Commercial Group, Inc.
and the other Financial Industries named therein.
10.116 Employment Agreement effective as of March 1, 1999 with (19)
Arnold Simon
10.117 Employment Agreement effective as of March 1, 1999 with David (19)
Fidlon
10.118 Agreement of Lease made as of April 22, 1999 by and between (19)
Erika Realty Trust, as Landlord, and Registrant, as Tenant,
for premises located at 89 West Rodney French Blvd., New
Bedford, Ma.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Filed as Indicated Exhibit to
Document Referenced in
Exhibit No. Description Footnote No.
----------- ----------- ------------------------------
<S> <C> <C>
10.119 First Amendment to CIT Financing Agreement dated as of March (20)
25, 1999.
10.120 Employment Agreement effective as of June 7, 1999 with Joseph (20)
Purritano
</TABLE>
(1) Filed as the indicated Exhibit to the Annual Report of the Company on Form
10-K for the fiscal year ended February 2, 1991 and incorporated herein by
reference.
(2) Omitted.
(3) Filed as the indicated Exhibit to the Report on Form 8-K dated June 30,
1993 and incorporated herein by reference.
(4) Omitted.
(5) Filed as the indicated Exhibit to the Report on Form 8-K dated June 12,
1995 and incorporated herein by reference.
(6) Filed as the indicated Exhibit to the Report on Form 8-K dated October 27,
1995 and incorporated herein by reference.
(7) Filed as the indicated Exhibit to the Report on Form 8-K dated February 2,
1996 and incorporated herein by reference.
(8) Omitted.
(9) Filed as the indicated Exhibit to the Report on Form 8-K dated May 1, 1996
and incorporated herein by reference.
(10) Filed as the indicated Exhibit to the Report on Form 8-K dated September
30, 1996 and incorporated herein by reference.
(11) Filed as the indicated Exhibit to the Annual Report of the Company on Form
10-K for the fiscal year ended December 31, 1996 and incorporated herein by
reference.
(12) Omitted.
(13) Filed as the indicated Exhibit to the Report on Form 8-K dated June 18,
1997 and incorporated herein by reference.
(14) Filed as the indicated Exhibit to the Report on Form 8-K dated July 15,
1997 and incorporated herein by reference.
(15) Filed as the indicated Exhibit to the Report on Form 8-K dated September
12, 1997 and incorporated herein by reference.
(16) Omitted.
(17) Filed as the indicated Exhibit to the Report on Form 8-K dated February 26,
1999 and incorporated herein by reference.
(18) Filed as the indicated Exhibit to the Annual Report of the
Company on Form 10BK for the year ended December 31, 1998 and
incorporated herein by reference.
(19) Filed as the indicated Exhibit to the Report on Form 10-Q dated March 31,
1999 and incorporated herein by reference.
(20) Filed herewith
-25-
FIRST AMENDMENT
TO
FINANCING AGREEMENT
First Amendment, dated as of March 25, 1999, to the Financing Agreement,
dated as of February 26, 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 lenders listed on Schedule I hereto
under the captions "Continuing Lenders" (the "Continuing Lenders") and
"Additional Lenders" (the "Additional Lenders" and together with the Continuing
Lenders, each a "Lender" and collectively, the "Lenders"), and The CIT
Group/Commercial Services, Inc., as agent for the Lenders (in such capacity, the
"Agent").
The Company, the Borrowers, the Lenders and the Agent desire to (i) appoint
The Chase Manhattan Bank as Administrative Agent, (ii) add the Additional
Lenders as parties to the Financing Agreement, and (iii) amend certain other
terms and conditions hereafter set forth. In addition, The CIT Group/Commercial
Services, Inc. ("CIT") wishes to assign a portion of its interests in the
Revolving Credit Commitment and the Loans and Letter of Credit Obligations
outstanding under the Financing Agreement to the Additional Lenders and the
Additional Lenders wish to accept such assignments.
Accordingly, the Company, the Borrowers, 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. Cover Page. The Cover Page to the Financing Agreement is hereby amended
in its entirety to read as set forth in Annex I to this Amendment.
3. Preamble. 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' and, together with ECI and Sportswear, 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
<PAGE>
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')."
4. Existing Definitions. (a) The definition of the term "Eligible
Inventory" in Section 1.01 of the Financing Agreement is hereby amended by
deleting clause (vi)(B) in its entirety and substituting in lieu thereof:
"(B) 'in transit', provided, that (x) such 'in transit' Inventory is or
will be finished goods Inventory that is or will be shipped as finished
goods under a Letter of Credit issued by the L/C Issuer pursuant to this
Agreement to a location in the United States described in clause (vi)(A)
above and (y) upon ten (10) days prior written notice from the Agent to the
Administrative Borrower, the Inventory described in subclause (vi)(B)(x)
above shipped under a Letter of Credit issued after such written notice
shall be consigned to a common carrier that has issued or will issue
documents of title covering such Inventory to the Agent or the L/C Issuer
or"
(b) The definition of the term "Required Lenders" in Section 1.01 of the
Financing Agreement is hereby amended in its entirety to read as follows:
"'Required Lenders' means Lenders whose Pro Rata Shares aggregate more than
50%."
(c) 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" therein and substituting in lieu thereof "Schedule 1.01A-1".
5. New Definitions. (a) The new definition "Administrative Agent" is hereby
added to Section 1.01 of the Financing Agreement to read as follows:
"'Administrative Agent' has the meaning specified therefore in the
preamble hereto."
(b) The new definition "Collateral Agent" is hereby added to Section 1.01
of the Financing Agreement to read as follows:
"'Collateral Agent' has the meaning specified therefore in the
preamble hereto."
6. Assignments. (a) On and as of the Amendment Effective Date (as
hereinafter defined), CIT shall assign and each of the Additional Lenders shall
purchase, at the principal amount thereof, such interests in the Revolving
Credit Loans and Letter of Credit Obligations outstanding on such date as shall
be necessary in order that, after giving effect to all such assignments and
purchases, the Loans and Letter of Credit Obligations outstanding will be held
by the Lenders ratably in accordance with their Pro Rata Shares in the Revolving
Credit Commitment, as set forth in Annex II to this Amendment. Such assignments
and purchases shall
2
<PAGE>
be without recourse, representation or warranty, except that (i) CIT represents
that it is the legal and beneficial owner of the interests assigned by it free
and clear of any Lien and (ii) paragraphs 2 (other than clauses (i) and (v)
thereof), 4 and 5 of Exhibit H to the Financing Agreement are hereby
incorporated by reference as if set forth herein and CIT shall be deemed to have
made the representations, warranties and statements of Assignor in such
paragraphs and each Additional Lender shall be deemed to have made the
representations, warranties and statements of Assignee in such paragraphs.
(b) On the Amendment Effective Date, (i) each of the Additional Lenders
shall pay the purchase price for the Revolving Credit Loans purchased by it
pursuant to paragraph (a) of this Section 6 by wire transfer of immediately
available funds to the Agent in New York, New York, not later than 12:00 noon,
New York City time, and (ii) the Agent shall promptly pay to CIT, out of the
amounts received by it pursuant to clause (i) of this paragraph (b), the
purchase price for the interests assigned by it pursuant to such paragraph (a)
by wire transfer of immediately available funds to an account designated by CIT.
(c) The Company and the Borrowers hereby consent to the assignments and
purchases provided for in paragraphs (a) and (b) of this Section 6 and agree
that each Additional Lender shall have all of the rights of a Lender under the
Financing Agreement with respect to the interests purchased by it pursuant to
such paragraphs. Commencing on the Amendment Effective Date, each Additional
Lender will be a party to the Financing Agreement, agrees to be bound by the
terms and conditions of the Financing Agreement and the Loan Documents and will
have all of the rights and obligations of a Lender under the Financing Agreement
and the Loan Documents.
7. Delivery of Notes. CIT shall deliver to the Agent, for delivery to and
cancellation by the Borrowers, the Note issued by the Borrowers and held by CIT
under the Financing Agreement (the "Old Note"), which Old Note is 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 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 Annex II 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.
8. Accrued Interest and Fees. At the times and pursuant to the terms
contained in the Financing Agreement, the Agent will pay all accrued interest
and fees payable pursuant to Sections 2.08(a) and 3.03(b) of the Financing
Agreement to the Lenders entitled thereto after giving effect to the assignments
and purchases made pursuant to Section 6 above. On the Amendment Effective Date,
CIT shall pay to each Additional Lender any fee that has been agreed upon
between CIT and such Additional Lender.
9. Schedule. (a) Paragraph (d) of Section 12.09 of the Financing Agreement
is hereby amended by deleting each reference to "Schedule 1.01A" therein and
substituting in lieu thereof "Schedule 1.01A-1".
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(b) Schedule 1.01A to the Financing Agreement is hereby amended in its
entirety to read as set forth in Annex II to this Amendment.
10. 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 shall have been satisfied being herein called the
"Amendment Effective Date"):
(i) The representations and warranties contained in this Amendment and
in Article VI of the Financing Agreement shall be correct in all material
respects on and as of the Amendment Effective Date as though made on and as
of such date (except where such representations and warranties relate to an
earlier date in which case such representations and warranties shall be
true and correct as of such earlier date); no Event of Default or Default
shall have occurred and be continuing on the Amendment Effective Date, or
result from this Amendment becoming effective in accordance with its terms.
(ii) The Agent shall have received counterparts of this Amendment
which bear the signatures of the Company, the Borrowers and each of the
Lenders.
(iii) The Agent shall have received the New Notes, duly executed by
each of the Borrowers.
(iv) The Agent shall have received an acknowledgment to the agreement
among the Lenders duly executed by each Additional Lender.
(v) All legal matters incident to this Amendment shall be satisfactory
to the Agent and its counsel.
11. Representations and Warranties. Each of the Company and the 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 New Notes, in the case of the Borrowers, 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 and all other documents executed by it in connection
with this Amendment, the execution, delivery and performance by each Borrower of
the New Notes 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 and all other documents executed by it in
connection with this Amendment, the execution, delivery and performance by each
Borrower of the New Notes 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, 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 Amendment Effective Date as
though made on and as of the 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
Amendment Effective Date.
12. 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 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.
13. 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 reasonable out-of-pocket costs and
expenses of the Agent in connection with the preparation, execution and delivery
of
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this Amendment, including, without limitation, the reasonable fees,
disbursements and other charges of Schulte Roth & Zabel LLP, counsel to the
Agent.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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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:________________________
Name:______________________
Title:_____________________
EUROPE CRAFT IMPORTS, INC.
By:________________________
Name:______________________
Title:_____________________
ECI SPORTSWEAR, INC.
By:________________________
Name:______________________
Title:_____________________
STETSON CLOTHING COMPANY, INC.
By:________________________
Name:______________________
Title:_____________________
<PAGE>
AGENTS AND LENDERS
THE CIT GROUP/COMMERCIAL SERVICES,
INC., as Collateral Agent
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
THE CHASE MANHATTAN BANK,
as Administrative Agent
By:____________________________________________
Name:__________________________________________
Title:_________________________________________
Address:
1375 Broadway, 8th Floor
New York, New York 10018
Attention: David Michaels
Telephone: (212) 827-4404
Telecopier: (212) 827-4497
Wiring Instructions:
The Chase Manhattan Bank
ABA # 021000021
Acct. # 2000000846
Attn: Commercial Loan Services Department
4 Metrotech Center
<PAGE>
LENDERS
ISRAEL DISCOUNT BANK OF NEW YORK
By:_______________________________
Name:_____________________________
Title:____________________________
By:_______________________________
Name:_____________________________
Title:____________________________
PNC BANK, NATIONAL ASSOCIATION
By:_______________________________
Name:_____________________________
Title:____________________________
Address:
Two Tower Center Boulevard
East Brunswick, New Jersey 08816
Attention: Robert Anchundia
Telephone: (732) 220-4373
Telecopier: (732) 220-4393
Wiring Instructions:
PNC Business Credit
ABA # 031207607
Acct. # 196039957830
Ref.: Aris Industries, Inc.
<PAGE>
SCHEDULE I
CONTINUING LENDERS:
The CIT Group/Commercial Services, Inc.
Israel Discount Bank of New York
ADDITIONAL LENDERS:
The Chase Manhattan Bank
PNC Bank, National Association
<PAGE>
ANNEX I
FINANCING AGREEMENT
Dated as of February 26, 1999
by and among
ARIS INDUSTRIES, INC.,
EUROPE CRAFT IMPORTS, INC.,
ECI SPORTSWEAR, INC.,
STETSON CLOTHING COMPANY, INC.,
THE FINANCIAL INSTITUTIONS
FROM TIME TO TIME PARTY HERETO,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
and
THE CIT GROUP/COMMERCIAL SERVICES, INC.,
as Collateral Agent
<PAGE>
ANNEX II
Schedule 1.01A-1
Lenders and Lenders' Commitments
Revolving
Lender Credit Commitment Percentage
------ ----------------- ----------
The CIT Group/Commercial Services, Inc. $30,000,000 46.1539%
Israel Discount Bank of New York $10,000,000 15.3846%
The Chase Manhattan Bank $15,000,000 23.0769%
PNC Bank, National Association $10,000,000 15.3846%
----------- --------
$65,000,000 100%
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EMPLOYMENT AGREEMENT
This Agreement (the "Agreement") dated as of June 7, 1999 is made by
and among Aris Industries, Inc., a New York corporation (the "Company"), Europe
Craft Imports, Inc. and ECI Sportswear, Inc. (the "Subsidiaries"), and Joseph
Purritano (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, The Company desires to hire the Executive as
Executive Vice President in charge of sales for the Company and its Subsidiaries
and the Executive is willing to accept such employment by the Company 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
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obligated to serve ten (10) or more days in prison or pay a fine of more than
Five Hundred Thousand ($500,000) Dollars, or (c) the Executive, in carrying out
the Executive's duties and responsibilities under this Agreement, is guilty of
gross neglect or gross misconduct resulting, in either case, in material
economic harm to the Company and/or the Subsidiaries, unless such act, or
failure to act, was reasonably believed by the Executive in good faith, using
reasonable judgment under the circumstances, to be in the best interests of the
Company and/or the Subsidiaries.
1.4 "Date of Termination" means (a) in the case of a
termination for which a Notice of Termination (as hereinafter defined in Section
6.6) is required, the date of actual receipt of such Notice of Termination or,
if later, the date specified therein, as the case may be, and (b) in all other
cases, the actual date on which the Executive's employment terminates during the
Term of Employment (as hereinafter defined in Section 3) (it being understood
that nothing contained in this definition of "Date of Termination" shall affect
any of the cure rights provided to the Executive or the Company in this
Agreement).
1.5 "Disability" means the Executive's inability to render,
for a period of nine consecutive months, services hereunder.
1.6 "Adjusted EBITDA" means for any fiscal year the sum of (a)
the net income of the Company and its subsidiaries on a consolidated basis for
such fiscal year as determined in accordance with GAAP except as specifically
noted below in this definition, (b) taxes in respect of income, (c) interest for
money borrowed, (d) depreciation, (e) amortization and (f) factoring fees,
charges and expenses, provided that the following shall be excluded from
Adjusted EBITDA: (A) extraordinary, unusual or non-recurring expenses including,
without
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limitation, restructuring charges, severance payments, duplicative lease
payments and write-downs of any assets on the Company's books as of December 31,
1998, (B) gains and losses from financing transactions and (C) losses from the
sale or other disposition of material assets (other than inventory) outside of
the ordinary course of business; and (D) to the extent that, in connection with
or otherwise related to the performance of a material arrangement with a
licensor in the year such license arrangement is entered into the revenues, if
any, associated with such license are exceeded by the costs and expenses
(including general and administrative expenses related thereto) associated with
such license (thereby resulting in a net reduction in Adjusted EBITDA). It is
understood and agreed that there shall be an appropriate calculation so that the
amount of any bonus payable in respect of any fiscal year pursuant to Section
5.2 shall not reduce the Adjusted EBITDA for the purpose of calculating the
bonus under Section 5.2.
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
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substantially breaches any material term or provision of this Agreement; (e)
without the Executive's express prior written consent, and except as provided in
Section 5.2 hereof, the Executive's compensation under this Agreement is
decreased, or the Executive's benefits under employee benefit or health or
welfare plans or programs of the Company are in the aggregate materially
decreased; (f) the Company's principal office or the Executive's own office
location is relocated to a location not within the borough of Manhattan; (g) the
Company fails to obtain the full assumption of this Agreement by a successor
entity in accordance with Section 12.2 of this Agreement; (h) the Company
purports to terminate the Executive's employment for Cause and the Company is
not entitled to terminate this Agreement for Cause; (i) there shall occur (A)
any liquidation of the Company or the sale of substantially all of the assets of
the Company, or (B) any merger, consolidation or other business combination of
the Company (a "Transaction") or any combination of any such Transactions, other
than a Transaction immediately after which the stockholders of the Company who
were stockholders immediately prior to the Transaction continue to own
beneficially, directly or indirectly, more than fifty percent (50%) of the then
outstanding voting securities of the Company and the Subsidiaries; or (j) any
Person or group (as such term is defined in Rule 13d-5 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of related Persons, which
is not an Affiliate of the Company as of the Commencement Date shall
beneficially own, directly or indirectly, more than 50% of the then outstanding
voting stock of the Company or the Subsidiaries.
1.8 "Person(s)" means any individual or entity of any kind or
nature, including any other person as defined in Section 3(a)(9) of the Exchange
Act, and as used in Sections 13(d) and 14(d) thereof.
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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 Executive Vice President in charge of
sales, and the Executive hereby accepts such employment.
3. Term of Employment. The term of employment (the "Term)
under this Agreement shall be deemed to commence as of June 7, 1999 (the
"Commencement Date") and, unless terminated earlier pursuant to the terms
hereof, shall terminate on June 6, 2002 (the "Initial Term of Employment").
4. Positions, Responsibilities and Duties.
4.1 Positions. During the Term of Employment, the Executive
shall be employed as Executive Vice President in charge of sales for the Company
and the Subsidiaries (for such period as they continue to be subsidiaries). In
such position, the Executive shall report to the Chief Executive Officer and
Board of Directors of the Company.
4.2 Duties. During the Term of Employment, the Executive shall
devote substantially all of Executive's business time and attention to the
business of the Company and shall perform faithfully and efficiently the duties
and responsibilities contemplated by this Agreement.
5. Compensation and Other Benefits.
5.1 Base Salary. During the Term of Employment, the Executive
shall receive a base salary of $500,000 per annum in the first year of the term,
$550,000 per annum in the second year of the Term and $600,000 per annum in the
third year of the Term ("Base Salary"), payable in accordance with the Company's
regular payroll practices.
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5.2 Annual Bonus. For each Calendar Year during the Term (and
in addition to the Base Salary), the Executive shall be entitled to receive an
annual cash bonus payment (the "Bonus") determined as follows:
If Adjusted EBITDA is: Amount of Bonus
---------------------- ---------------
Less than $5 million -0-
Between $5 million - 1% of Adjusted EBITDA
$10 million
Over $10 million 1.5% of Adjusted EBITDA
The Annual Bonus shall be paid to the Executive in cash as
soon as practicable after the end of the fiscal year to which it relates, but in
any event no later than one hundred five (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 Options. As a further inducement to the executive to enter
into this Agreement, the Company shall grant to the Executive options to
purchase 750,000 shares of the Company's commons stock under its 1994 Stock
Option Plan at an exercise price reflecting the market price of the stock on the
date of the grant (but in no event more than $2.50 per share) and on such other
terms and conditions as are consistent with the Plan.
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.
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5.5 Welfare Benefit Plans. During the Term of Employment, the
Executive, the Executive's spouse and their eligible dependents, if any, shall
be entitled to participate in and be covered under all the welfare benefit plans
or programs maintained by the Company and/or the Subsidiaries, including,
without limitation, all term life insurance, long term disability insurance,
medical, hospitalization, dental, disability, accidental death and dismemberment
and travel accident insurance plans and programs.
5.6 Signing Bonus. As further inducement to the Executive to
enter into this Agreement, the Company shall pay to Employee a bonus of $250,000
on or before the Commencement Date.
5.7 Expense Reimbursement. 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. Executive shall be
entitled to fly first class on all business trips greater than three hours. 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.
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6. Termination.
6.1 Termination Due to Death or Disability. The Company or the
Executive may terminate the Executive's employment hereunder due to his death or
Disability. In the event the Executive's employment is terminated due to death
Disability, the Executive's estate or Executive's legal representative, as the
case may be, shall be entitled to:
(a) (i) in the case of death or disability, Base Salary
continuation at the rate in effect (as provided for by Section
5.1 of this Agreement) on the Date of Termination for a period of
six (6) months after the Date of Termination.
(b) any Base Salary accrued or any Annual Bonus earned but
not yet paid;
(c) a pro rata Annual Bonus for the calendar year in which
death or Disability occurs (determined and payable in accordance
with Section 5.2 of this Agreement);
(d) any deferred compensation not yet paid to the Executive
(including, without limitation, interest or other credits on such
deferred amounts) and any accrued vacation pay;
(e) reimbursement pursuant to Section 5.7 hereof or any
other provision of this Agreement for expenses incurred but not
yet paid prior to such death or Disability;
(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
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period following the termination of the Executive's employment
due to Disability (or the Company shall provide the economic
equivalent thereof), and (ii) any other compensation and benefits
as may be provided in accordance with the terms and provisions of
any applicable plans and programs of the Company. With respect to
the deferred compensation arrangements referred to in Sections
6.1(d),
6.2(c) and 6.3(d), to the extent that such deferred compensation arrangements
provide by their terms for any deferral of payments in the event of death or
Disability; termination with Cause or termination without Cause or for Good
Reason, such payments shall be deferred in accordance with such arrangements to
the extent required by the type of termination of this Agreement. With respect
to the other benefits referred to in Sections 6.1(g), 6.2(e) and 6.3(g), to the
extent that such other benefit arrangements provide by their terms for any
deferral of payments in the event of death or Disability, termination with Cause
or termination without Cause or for Good Reason, such payments shall be deferred
in accordance with such arrangements to the extent required by the type of
termination of this Agreement.
6.2 Termination 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;
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(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.
6.3 Termination Without Cause or Termination with Good Reason.
The Company may terminate the Executive's employment hereunder without Cause and
the Executive may terminate the Executive's employment hereunder for Good
Reason. If the Company terminates the Executive's employment hereunder without
Cause, other than due to death or Disability, or if the Executive terminates
Executive's employment for Good Reason, the Executive shall be entitled to the
following:
(a) A lump sum payment in an amount equal to 150% of Base
Salary then in effect.
(b) 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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(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 5.7 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 5.5 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
(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 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,
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and the Company shall be given twenty (20) business days after such meeting to
correct such act, acts or failure(s) to act provided that the Company shall not
have the right to correct the acts or failure(s) to act specified in clauses (c)
and (i) of the definition of Good Reason. Upon failure of the Company, within
such latter twenty (20) business day period, to correct such act, acts or
failure(s) to act, the Executive's employment by the Company shall automatically
be terminated under this Section 6.3 for Good Reason as of the date of actual
termination provided that the date of actual termination shall be ten (10)
calendar days after receipt of the Executive's notice if the Company does not
have the right to correct such act(s) or failure(s) to act.
6.4 Non-Renewable Severance Payment. In the event that the
Term is not extended for an additional three years at the end of the Term,
provided that the Term was not earlier terminated, Employee shall be entitled to
receive his Base Salary for an additional one year.
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
11.3 of this Agreement (the "Notice of Termination"). Such notice shall (a)
indicate the specific termination provision in this
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Agreement relied upon, (b) set forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (c) if the termination date is
other than the date of receipt of such notice, specify the date on which the
Executive's employment is to be terminated (which date shall not be earlier than
the date on which such notice is given).
6.7 Payment. Except as otherwise provided in this Agreement,
any payments to which the Executive shall be entitled under this Section 6,
including, without limitation, any economic equivalent of any benefit, shall be
made as promptly as possible following the Date of Termination. If the amount of
any payment due to the Executive cannot be finally determined within thirty (30)
days after the Date of Termination (by way of example only, pro rata bonuses
determined pursuant to Section 6.10 hereof), such amount shall be estimated on a
good faith basis by the Company and the estimated amount shall be paid no later
than thirty (30) days after such Date of Termination. As soon as practicable
thereafter, the final determination of the amount due shall be made and any
adjustment requiring a payment to or from the Executive shall be made as
promptly as practicable.
6.8 Pro Rata Calculations. For the purposes of this Article 6
(except Section 6.2(b)), all calculations of the Annual Bonus on a pro rata
basis shall mean that the Annual Bonus shall be based on the bonus that would
have been payable for the entire calendar year multiplied by a fraction, the
numerator of which is the number of days from January 1 in such year through the
date of the termination of this Agreement and the denominator of which is 365.
7. Executive's Representation. The Executive represents and warrants to
the Company that: (a) he is subject to no contractual, fiduciary or other
obligation which may affect
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or limit the performance of his duties under this Agreement; and (b) his
employment with the Company will not require him to use or disclose proprietary
or confidential information of any other person or entity.
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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 (regardless of the manner of termination), the Executive will not
directly or indirectly, as an officer, director, stockholder, partner,
associate, employee, consultant or owner (x) sell or solicit the sale of any
products similar to those sold by the Company or any of its subsidiaries; or (y)
solicit or hire any employees of the Company other than those 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, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition, intestate succession or a qualified
domestic relations order or in connection with a Disability. This Agreement
shall inure to the benefit of and be enforceable by the Executive's estate,
heirs, beneficiaries and/or legal representatives.
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9.2 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.
10. Indemnification.
10.1 General. The Company agrees that if the Executive is made
a party or is threatened to be made a party to any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "Proceeding"), by
reason of the fact that Executive is or was a director or officer of the
Company, the Subsidiaries and/or any other Affiliate or is or was serving at the
request of the Company, the Subsidiaries and/or any other Affiliate as a
director, officer, member, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including, without
limitation, service with respect to employee benefit plans, whether or not the
basis of such Proceeding is alleged action in an official capacity as a
director, officer, member, employee or agent while serving as a director,
officer, member, employee or agent, Executive shall be indemnified and held
harmless by the Company to the fullest extent authorized by New York law, as the
same exists or may hereafter be amended, against all Expenses (as hereinafter
defined in Section 10.2) 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
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the Company and shall inure to the benefit of Executive's heirs, executors and
administrators.
10.2 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.
10.3 Enforcement. If a claim or request under this Article is
not paid by the Company fifteen (15) days after a written claim or request has
been received by the Company, the Executive may at any time thereafter bring
suit against the Company to recover the unpaid amount of the claim or request
and if successful in whole or in part, the Executive shall be entitled to be
paid also the expenses of prosecuting such suit. The burden of proving that the
Executive is not entitled to indemnification for any reason shall be upon the
Company.
10.4 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.
10.5 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.
10.6 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
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shall ultimately be determined that he is not entitled to be indemnified as
authorized under the New York Business General Corporation Law.
10.7 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.
10.8 Defense of Claim. With respect to any Proceeding as to
which the Executive notifies the Company of the commencement thereof:
10.8.1 The Company will be entitled to participate therein at
its own expense; and
10.8.2 Except as otherwise provided below, to the extent that
it may wish, the Company jointly with any other indemnifying party similarly
notified will be entitled to assume the defense of the Executive, with counsel
satisfactory to the Executive. The Executive also shall have the right to employ
the Executive's own counsel in such action, suit or Proceeding and the
reasonable fees and expenses of such counsel shall be at the expense of the
Company. The Company shall not be entitled to assume the defense of any action,
suit or Proceeding brought by or on behalf of the Company or the Subsidiaries or
as to which the Executive shall have concluded that there may be a conflict of
interest between the Company or the Subsidiaries and the Executive in the
conduct of the defense of such action.
10.8.3 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
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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.
10.9 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.
11. Miscellaneous.
11.1 Applicable Law. Except as may be otherwise provided
herein, this Agreement shall be governed by and construed in accordance with the
laws of the State of New York, applied without reference to principles of
conflict of laws.
11.2 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.
11.3 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: Joseph Purritano
6 Hunter Ridge
Woodcliff, NJ 07675
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with a copy to: Jeffrey D. Grant
Grant Weinhaus LLP
910 East Boston Post Road
Mamaroneck, NY 10543
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, 25th Floor
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.
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
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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 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.
11.10 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.
ARIS INDUSTRIES, INC.
By_________________________
Name:______________________
Title:_______________________
ECI SPORTSWEAR, INC.
By_________________________
Name:______________________
Title:_______________________
EUROPE CRAFT IMPORTS, INC.
By_________________________
Name_______________________
Title________________________
---------------------------
JOSEPH PURRITANO
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Schedule 5.8
Perquisites and Fringe Benefits
o The Company shall provide Executive with a 1999 Mercedes
500SL or equivalent vehicle and shall pay for all insurance,
parking, gas and maintenance.
o Four (4) weeks of paid vacation for each calendar year, to be taken
cumulatively
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<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 572,000
<SECURITIES> 0
<RECEIVABLES> 24,118,000
<ALLOWANCES> 0
<INVENTORY> 19,041,000
<CURRENT-ASSETS> 45,857,000
<PP&E> 8,135,000
<DEPRECIATION> (5,389,000)
<TOTAL-ASSETS> 65,913,000
<CURRENT-LIABILITIES> 28,261,000
<BONDS> 6,942,000
<COMMON> 460,000
0
26,000
<OTHER-SE> 27,915,000
<TOTAL-LIABILITY-AND-EQUITY> 65,913,000
<SALES> 53,457,000
<TOTAL-REVENUES> 53,993,000
<CGS> 39,889,000
<TOTAL-COSTS> 39,889,000
<OTHER-EXPENSES> 23,509,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,589,000
<INCOME-PRETAX> (10,994,000)
<INCOME-TAX> 587,000
<INCOME-CONTINUING> (10,407,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,407,000)
<EPS-BASIC> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
