<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: August 31, 1995
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 0-13851
BEEBA'S CREATIONS, INC.
(Exact name of registrant as Specified in its charter)
California 95-2848021
(State of Incorporation) (I.R.S. Employer Identification No.)
9220 Activity Road, San Diego, California 92126
(Address of principal executive offices)
Registrant's telephone number, including area code: (619) 549-2922
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
------------------- ------------------------
<S> <C>
Common stock, no par value NASDAQ
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) 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
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Exhibit Index is on page 45.
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As of October 30, 1995, 1,210,295 shares of the Registrant's common stock were
outstanding. The aggregate market value of such common stock held by
non-affiliates of the Registrant based on the last sale of such stock in the
NASDAQ National Market, on October 30, 1995, was $4,084,746.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Definitive Proxy Statement, to be used in connection
with the solicitation of proxies to be voted at the Registrant's annual meeting
of shareholders to be held in December 1995, to be filed with the Commission,
are incorporated by reference into Part III of this Report on Form 10-K.
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PART I
ITEM 1. BUSINESS.
GENERAL
Beeba's Creations, Inc. (the "Company" or "Beeba's") has been in the
women's wholesale sportswear business since 1973, and imports finished garments
manufactured to its specifications in approximately 20 foreign countries.
The Company has multiple operating divisions and subsidiaries which
sell all-cotton and cotton blend woven sportswear as well as knit sportswear to
retailers which include Price Costco, Mervyn's, The Limited Stores, Inc., J. C.
Penney Company, Inc. and Sears, Roebuck & Co. The Company sells garments
through its own sales force and through independent sales representatives.
Beeba's provides fashionable clothing to the popularly priced market segment
which generally retail between $10 and $35 per item. The Company competes
primarily on the basis of price, quality, the desirability of its fabrics and
its ability to adjust rapidly to changes in style in women's sportswear.
SALE OF PRODUCT LINES
On August 22, 1995, the Company sold various assets associated with
its junior, girls and maternity product lines. On October 31, 1995, the
Company sold the buyer the Company's remaining inventory in such product lines
at cost and granted the buyer an exclusive, world-wide license to use various
tradenames registered by the Company for these product lines. At that time,
the Company also ceased purchasing garments which had previously been sold
under the tradenames licensed to the buyer. Sales of these product lines
amounted to $21 million, $42 million and $38 million in fiscal 1995, 1994 and
1993, respectively.
The sale of the product lines and the licensing of the tradenames is
consistent with management's efforts to downsize the Company in order to focus
on product lines which can be sold at higher gross margins.
DIVISIONS AND SUBSIDIARIES
The Company's operating sales divisions and subsidiaries are
organized, in general, to reflect the organizational buying and marketing
structures of its customers. Each operation sells garments under both Company
trademark labels and private retailer labels. From time to time, the Company
may add, consolidate or eliminate certain divisions as a result of increases or
decreases in the demand for the garments sold by a particular division or in
order to effectuate changes in marketing strategy and personnel.
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Ulterior Motives Division. The Ulterior Motives Division markets primarily
dresses, jumpsuits and rompers for the regular and Plus Size market segments.
The primary labels used by this Division include Ulterior Motives, Ulterior
Motives Woman and Avocado. The Division also sells garments using retailers'
private labels.
Adobe Rose Division. Western wear garments are sold by the Adobe Rose Division
primarily under the Company labels Adobe Rose and Southwest Canyon.
Body Drama, Inc. Subsidiary. The Company owns 100% of the outstanding shares
of Body Drama, Inc. which distributes a broad range of women's intimate apparel
for both the sleepwear and daywear markets. Sleepwear garments are produced in
a variety of fabrics and styles, including robes, pajamas, nightshirts and
nightgowns which are sold under the Body Drama and Body Tease labels and
retailers' private labels. Daywear products are sold primarily under the
Gaviota trademark, and include panties, teddies, camisoles and bodysuits.
Foreign Subsidiary. The Company owns 100% of the outstanding capital stock of
a Hong Kong corporation which, from time to time, may perform production
coordination, quality control and sample production services for the various
operations of the Company.
TRADEMARKS
The Company and its Body Drama subsidiary currently have a total of 44
Federally registered trademarks. While trademarks owned by the Company are
important to its marketing and competitive strategy, they are not central
factors influencing its sales.
PRODUCT DEVELOPMENT AND DESIGN
The Company develops merchandise lines for production and importation
in two principal ways: (l) it develops its own line of clothing styles which is
displayed in Company showrooms and which is also shown to retailers by
independent sales representatives ("Company Brand"), and (2) it works with
major retailers in developing product lines which the Company then has
manufactured and imported and which are generally sold under private retailer
labels ("Private Label"). Styles developed by the Company are sold under both
Company trademarks and private retailer labels.
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Except for the Body Drama subsidiary, the Company generally does not
create original garment shapes or bodies. The Company does, however, produce
garments from original fabric prints and designs. The Company also responds to
frequent style changes in the women's sportswear business by maintaining a
continuous program adapting to current trends in style and fabric. In an
effort to continually stay abreast of current fashion trends, representatives
of the Company regularly shop at exclusive department and specialty stores in
the United States, Europe, Japan and other countries which are known to sell
merchandise with advanced styling direction. Sample garments are submitted to
the Company by representatives along with their evaluation of the styles
expected to be in demand in the United States. The Company also seeks input
from selected customers. The Company then selects styles, fabrics and colors
which it believes reflect current fashion trends.
With regard to private label sales, the Company's sales personnel meet
frequently with buyers representing retailers who custom order products by
color, fabric and style. These buyers may provide samples to the Company or
may select styles already available in Company showrooms. The Company has an
established reputation for its ability to arrange for foreign manufacture on a
reliable, expeditious and cost-effective basis.
SOURCES OF SUPPLY
Approximately 93% of the garments sold by the Company are manufactured
abroad. Contracting with foreign manufacturers enables the Company to take
advantage of prevailing lower labor rates, with the consequent ability to
produce a quality garment which can be retailed in the popular, value and
moderate price ranges.
As a result of import restrictions on certain garments imposed by
bilateral trade agreements between the United States and certain foreign
countries, the Company has sought diversity in the number of countries in which
it has manufacturing arrangements. The percentage of total purchases from
particular countries varies from period to period based upon quota availability
and price considerations. The Company has arranged for production in the
United States when economically feasible to meet special needs.
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The following table shows the percentage of the Company's total
purchases, not including freight charges, duties and commissions, from each
country for the years ended August 31, 1995, l994 and l993.
<TABLE>
<CAPTION>
PERCENT OF TOTAL PURCHASES
--------------------------
YEAR ENDED AUGUST 31,
------------------------
<S> <C> <C> <C>
COUNTRY l995 l994 l993
- ------- ---- ---- ----
Hong Kong/China................ 13.9% 17.6% 16.6%
Sri Lanka...................... 13.4 9.4 9.1
India.......................... 13.3 16.8 19.9
Oman........................... 11.0 7.4
Dubai.......................... 9.2 8.1 7.8
Dominican Republic............. 7.4
Bangladesh..................... 7.0 10.2 13.0
United States.................. 6.9 12.0 10.7
Mauritius...................... 3.3 4.5 3.2
Macau.......................... 4.2
Countries less than
2.5% each in the
current year................. 10.4 14.0 19.7
</TABLE>
The Company arranges for the production of garments with suppliers on
a purchase order basis, with each order generally backed by an irrevocable
letter of credit. The Company does not have any long-term contractual
arrangements with manufacturers. This provides the Company with flexibility
regarding the selection of manufacturers for future production of goods. The
Company believes that the loss of any particular manufacturer in any country
could be replaced by another manufacturer in a reasonable time period.
However, in the event of the loss of a major manufacturer the Company could
experience a temporary interruption in supply.
In some cases, the manufacturer or agent with which the Company
contracts for production may subcontract work. Most of the listed countries
have numerous suppliers which have the technical capability to manufacture
garments of the type sold by the Company. Certain manufacturers are able to
ship garments to the Company in as little as 45 days after placement of a
production order by the Company.
The Company believes that the production capacity of foreign
manufacturers with which it has developed, or is developing, a relationship is
adequate to meet the Company's production requirements for the foreseeable
future. However, because of existing and potential import restrictions, the
Company continues to attempt to diversify its sources of supply.
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When management believes, based on previous experience and market
performance, that additional orders for certain garments will be received, it
may cause production runs to be made in amounts in excess of firm customer
orders. This may allow the Company to achieve overall lower costs as well as
to be able to respond more quickly to customer delivery requirements. The
Company bears the consequent risk if garments purchased in advance of receipt
of customer purchase orders do not sell.
QUALITY CONTROL
Company representatives regularly visit manufacturers to inspect
garments and monitor production facilities in order to assure timely delivery,
maintain quality control and issue inspection certificates. A representative
percentage of garments in each production run is inspected before each
shipment. Letters of credit arranged by the Company require, as a condition to
the release of funds to the supplier, that an inspection certificate be signed
by a representative of the Company.
MARKETING AND DISTRIBUTION
The Company sells its products through an established sales network
consisting of both in-house sales personnel and independent sales
representative organizations. The Company does not generally advertise,
although customers sometimes feature the Company's products in their
advertisements. For both Company Brand and Private Label sales, employees
operating in Company showrooms in New York City and Los Angeles represent the
Company in soliciting orders nationally from approximately 20 major customers.
In addition, senior executives of the Company have primary responsibility for
sales to certain key accounts. The Company's products are also marketed by
approximately 8 commissioned sales representative organizations, all of which
are independent contractors, and each of which has been assigned one or more
primary areas of responsibility.
Sales have historically been concentrated in apparel made of cotton
and cotton blend garments for the spring and summer seasons, which sell
primarily from January through July. Sales during the Company's first fiscal
quarter are generally lower than sales generated in the second, third and
fourth quarters of the fiscal year. While the Company believes that the
seasonal quarterly sales pattern described above is likely to continue in the
future, there can be no assurance that this will be the case.
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At present, most garments are shipped by suppliers in bulk form to the
Company in San Diego, where they are sorted, stored and packed for distribution
to customers. The Company may rent short-term warehouse space as needed to
accommodate its requirements during peak shipping periods. In addition, to
facilitate shipping to customers, some of its overseas suppliers perform
sorting and packing functions.
Purchase orders may be canceled by the Company's customers in the
event of late delivery or in the event of receipt of nonconforming goods. Late
deliveries usually are attributable to production or shipping delays beyond the
Company's control. In the event of canceled purchase orders, rejections or
returns, the Company will sell garments to other retailers, off-price discount
stores or garment jobbers. The Company has, in the past, often been able to
recover from its manufacturers some portion of its expenses or losses
associated with sales below cost for causes attributable to manufacturing
problems.
No customer accounted for 10% or more of the Company's total sales in
fiscal 1995 or 1994. For the year ended August 31, 1993, net sales to Wal-Mart
Stores, Inc. represented 13.2% of total net sales for the year. While the
Company believes its relationships with its other major customers are good,
because of competitive changes and availability of the types of garments sold
by the Company from a number of other suppliers, there is the possibility that
any customer could lower, or raise, the amount of business it does with the
Company. Historically, when a major customer has shifted business away from
the Company, the Company has been able to increase its business with other
major customers to at least partially offset such loss of business without a
material adverse financial effect. However, if the Company were to experience
a significant decrease in sales to any of its major customers, and were unable
to replace such sales volume with sales to other major customers, there could
be a material adverse financial effect on the Company.
IMPORT RESTRICTIONS
The ability of the Company to import garments is regulated by import
restrictions. Import quotas of various types are imposed on substantially all
of the products imported by the Company from substantially all of the countries
from which the Company purchases garments. Because of these quota
restrictions, the Company has sought diversity in the number of countries in
which it has garments manufactured.
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The Agreement on Textile and Clothing (the "ATC"), which became
effective on January 1, 1995, provides the basic guidelines for administering
import quotas and related matters. The ATC contains three provisions which
will affect the Company's business to varying degrees in the future. First,
the ATC requires that import quotas are to be phased out in four stages over a
ten year period. However, quotas on substantially all of the garments imported
by the Company are not scheduled to be phased out until the year 2005. Second,
over the next ten years, import tariffs will be reduced from an average of 19%
to 17.5%. While the tariff reductions apply to most apparel items, the size of
the reductions are extremely small and are not likely to have a material impact
on the Company's overall cost of merchandise. Finally, new rules of origin
will take effect on July 1, 1996 whereby the country in which the garment is
assembled will be deemed the country of origin instead of the country in which
the fabric is cut, as is currently the case. The biggest impact of the rule
change is likely to be on garments produced in China, which assembles large
quantities of apparel cut in nearby countries such as Hong Kong, Singapore and
Taiwan. Approximately 13.9% of the Company's garments were produced in either
China or Hong Kong in fiscal 1995. The Company does not expect a significant
disruption in its garment purchases as a result of the country of origin rule
change.
The Company closely monitors the status of applicable import quotas
and the extent to which they are being filled. The Company bases its
production decisions, in part, on whether a particular supplier country has
entered into an agreement with the United States restricting trade in certain
garments and, if so, the extent to which the applicable quota imposed for a
particular year is expected to be filled by a scheduled shipment date. In some
cases, the Company has responded to the anticipated exhaustion of a particular
quota by having goods manufactured and shipped prior to the receipt of purchase
orders or well in advance of scheduled delivery dates in order to be assured
that garments will be imported into the United States before the applicable
quota is filled. In these instances, the Company is required to hold garments
in inventory, sometimes for several months, before shipment to customers.
Import restrictions have, in some cases, increased the cost of
finished goods to the Company as a result of increased competition for a
restricted supply of goods. The Company's future results may also be affected
by additional bilateral or unilateral trade restrictions, a significant change
in existing quotas, political instability resulting in the disruption of trade
from exporting countries, or the imposition of additional duties, taxes and
other charges on imports. There can be no assurance that the ATC, or any
successor agreement, will permit importation of garments on terms similar to
those currently in effect.
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Because of import restrictions, embargo and utilization of quota, the
Company may be unable, from time to time, to import certain types of garments.
Because of the Company's dependence on foreign suppliers, a significant
tightening or utilization of import quotas for the types of garments imported
by the Company, applicable to a substantial number of countries from which the
Company imports, could force the Company to seek other sources of supply and to
take other actions which could increase costs of production. This could also
cause delays in production and result in cancellation of orders. Any of these
factors could result in an adverse financial impact on the Company.
The Company believes it has the ability to locate, establish
relationships with and develop manufacturing sources in countries where the
Company has not previously operated. Whenever possible, the Company moves
production to countries in which applicable quotas remain unfilled or to
countries in which no quotas are imposed. The Company may also shift
production to non-quota garments if a market for such garments exists. The
time required to commence contract production in supplier countries ranges from
several weeks in the case of a country with a relatively well developed garment
manufacturing industry to four months or more for a country in which there are
less developed capabilities. The cost to the Company of arranging for
production in a country generally involves management time and associated
travel expenses.
BACKLOG
At August 31, 1995, the Company had unfilled customer orders of $21.7
million compared to $34.8 million of such orders at August 31, 1994, with such
orders generally scheduled for delivery by January 1996 and March 1995,
respectively. These amounts include both confirmed orders and unconfirmed
orders which the Company believes, based on industry practice and past
experience, will be confirmed. The amount of unfilled orders at a particular
time is affected by a number of factors, including the scheduling of the
production and shipment of garments, which in some instances may be delayed or
accelerated by customer request. Accordingly, a comparison of unfilled orders
from period to period is not necessarily meaningful and may not be indicative
of eventual actual shipments. While cancellations, rejections and returns have
generally not been material in the past, there can be no assurance that
cancellations, rejections and returns will not reduce the amount of sales
realized from the backlog of orders at August 31, 1995.
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RAW MATERIALS
A substantial majority of the clothing sold by the Company is made of
l00% cotton, although the Company also utilizes cotton blends, acrylic knits
and rayon fabrics. All of these fabrics are readily available in most
countries in which the Company contracts for production and are easily imported
to those countries that do not have an internal supply of such fabric. The
Company is not dependent on a single source of supply for fabric which is not
readily replaceable.
COMPETITION
The women's sportswear business is competitive and consists of many
manufacturers and distributors, none of which accounts for a significant
percentage of total sales, but many of which are larger and have substantially
greater resources than the Company. The Company competes with a number of
companies which import clothing from abroad for wholesale distribution, with
domestic retailers having established foreign manufacturing capabilities and
with domestically produced goods. Management believes that the Company
competes effectively upon the basis of price, quality, the desirability of its
fabrics and styles, the reliability of its service and delivery and its ability
to adjust rapidly to changes in style. In addition, the Company has developed
long-term working relationships with manufacturers and agents which presently
provide the Company with reliable sources of supply. The Company's ability to
compete effectively is dependent, in part, on its ability to retain managerial
personnel with experience in locating, developing and maintaining reliable
sources of supply and to retain experienced sales personnel.
EMPLOYEES
As of October 15, l995, the Company had 144 full-time employees, of
whom 70 worked in executive, administrative or clerical capacities, 11 worked
in sales and 63 worked in warehouse facilities. The Company may also employ
temporary personnel on a seasonal basis. None of the Company's employees is
represented by a union. The Company considers its working relationships with
its employees to be good and has never experienced an interruption of its
operations due to any kind of labor dispute.
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ITEM 2. PROPERTIES.
Late in calendar 1995, the Company expects to move its warehouse and
administrative offices from its current 69,000 square foot facility into a
30,000 square foot facility. The move to smaller warehouse and administrative
offices is consistent with management's efforts to downsize the Company.
Additional short-term warehouse space may be leased as needed by the Company.
The Company is liable for a total of approximately $634,000 of lease
payments remaining on its current 69,000 square foot headquarters for a lease
which expires in August 1996. Approximately $528,000 of this liability has
been accrued as of August 31, 1995 as part of the $1.8 million restructuring
charge recorded by Company in the current year.
The Company and its Body Drama subsidiary lease two showrooms in New
York and one in Los Angeles with an aggregate monthly rental of approximately
$47,000. The Los Angeles showroom lease expires in July 1997 and the New York
leases expire in February 1997 and February 2000. The Company has subleased
51% of one of the New York showrooms on substantially the same terms and at the
same lease rate as that paid by the Company to the landlord.
ITEM 3. LEGAL PROCEEDINGS.
On August 8, 1994, a class action lawsuit was filed in the San Diego
Superior Court against the Company, its Body Drama subsidiary and certain
former and present directors and officers of Body Drama seeking to enjoin Body
Drama's tender offer for its shares and to recover certain unspecified damages
on the basis of alleged breaches of fiduciary duty by the defendants. The
court denied the plaintiffs' claim for injunctive relief and the tender offer
closed on September 21, 1994. On January 20, 1995, the court dismissed two of
the four causes of action claimed by the plaintiffs in the lawsuit. Management
believes that the remaining allegations of the complaint are without merit and
intends to vigorously defend the lawsuit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of fiscal 1995.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SHAREHOLDER MATTERS.
The Company's Common Stock trades on The NASDAQ Stock Market under the
symbol BEBA. The Company's 1995 Proxy Statement includes a proposal to change
the Company's name to Nitches, Inc. If the new name is approved by the
shareholders at the December 1995 Annual Shareholders Meeting, the Company
intends to change its trading symbol to NICH.
The number of record holders of the Common Stock was 193 on October
30, 1995. The Company believes that there are a significant number of
beneficial owners of its Common Stock whose shares are held in "street name".
The closing sales price of the Common Stock on October 30, 1995 was $4.38 per
share.
The high and low stock closing sale prices for each fiscal quarter of
the last two years were as follows:
<TABLE>
<CAPTION>
HIGH LOW
------ -------
<S> <C> <C>
November 30, 1994 $4 1/4 $3 1/4
February 28, 1995 4 3/4 3 9/16
May 31, 1995 4 3/4 3
August 31, 1995 7 1/4 3 7/8
November 30, 1993 8 1/4 7 1/4
February 28, 1994 7 3/4 4 3/4
May 31, 1994 6 1/4 3 7/8
August 31, 1994 4 3/8 3
</TABLE>
The Company has declared and paid the following dividends in the last
two fiscal years:
<TABLE>
<CAPTION>
PER SHARE
RECORD DATE DIVIDEND
---------------- ---------
<S> <C>
November 1, 1993 .08
January 31, 1994 .08
</TABLE>
The Company currently does not expect to reinstate its quarterly
dividend payments. However, it may do so at some future date depending on the
Company's results of operations and cash availability.
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ITEM 6. SELECTED FINANCIAL DATA. (In thousands, except per share amounts)
<TABLE>
<CAPTION>
OPERATING RESULTS: 1995 1994 1993 1992 1991
- ------------------ ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales (1) $83,846 $119,291 $116,200 $117,300 $132,282
Cost of goods sold 63,274 97,499 84,993 85,114 101,604
------- -------- -------- -------- --------
20,572 21,792 31,207 32,186 30,678
Selling, general and
administrative expenses 19,795 27,852 29,705 25,226 26,004
Restructuring charge 1,803
------- -------- -------- -------- --------
Income (loss) from operations (1,026) (6,060) 1,502 6,960 4,674
Gain on sale of product lines 563
Interest income 355 206 379 516 292
Interest expense (2) (462) (156) (111) (308)
Gain on sale of Body Drama,
net of related expenses 2,852
------- -------- -------- -------- --------
Income (loss) before
income taxes (110) (6,316) 1,725 10,217 4,658
Provision (benefit) for
income taxes (269) (1,262) 719 4,018 1,910
------- -------- -------- -------- --------
Income (loss) before
minority interests 159 (5,054) 1,006 6,199 2,748
Minority interests (55) (1,628) (318) 734
------- -------- -------- -------- --------
Net income (loss) $ 214 $ (3,426) $ 1,324 $ 5,465 $ 2,748
======= ======== ======== ======== ========
Earnings (loss) per share:
Primary $.09 ($1.33) $.49 $1.74 $.64
======= ======== ======== ======== ========
Fully diluted $.62
========
Cash dividends per
common share $.16 $.29 $.78 $.07
======== ======== ======== ========
</TABLE>
(1) See Management's Discussion and Analysis on page 16.
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<TABLE>
<CAPTION>
FINANCIAL POSITION: 1995 1994 1993 1992 1991
- ------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $10,485 $ 6,566 $ 4,724 $11,376 $ 7,711
Receivables 10,719 16,941 23,041 26,488 20,172
Inventories 6,680 10,800 20,228 13,979 9,874
Total current assets 29,971 36,732 51,222 55,245 41,369
Total assets 30,966 38,579 54,147 56,806 42,800
Notes and acceptances payable 3,000 7,949 9,258
Accounts payable and
accrued expenses 8,433 7,750 12,085 11,673 7,981
Income taxes payable
(receivable) (459) (1,596) (475) 1,047 (478)
Total current liabilities 8,433 10,750 20,034 23,296 9,299
Long-term debt
Minority interest 5,747 7,547 7,762
Shareholders' equity 21,437 20,987 25,470 24,652 33,501
OTHER FINANCIAL INFORMATION:
- ----------------------------
Profitability:
Gross margin 24.5% 18.3% 26.9% 27.4% 23.2%
Operating margin (1.2%) (5.1%) 1.3% 5.9% 3.5%
Net income (loss) as
percent of net sales .3% (2.9%) 1.1% 4.7% 2.1%
Liquidity:
Current ratio 3.55 3.42 2.56 2.37 4.45
Working capital $21,538 $25,982 $31,188 $31,949 $32,071
Share Data:
Weighted average number
of common shares:
Primary 2,439 2,573 2,686 3,146 4,287
Fully diluted 4,424
Number of common shares
outstanding at year end 2,398 2,508 2,542 2,520 3,432
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
YEARS ENDED AUGUST 31, 1995 AND 1994.
Net sales for the year ended August 31, 1995 decreased approximately
$35.4 million (29.7%) compared to the year ended August 31, 1994. The decrease
was due primarily to a 32% decrease in the number of garments sold offset by a
3% increase in the average selling price.
Gross margins increased from 18.3% for the year ended August 31, 1994
to 24.5% for the current fiscal year. Fiscal 1994 was characterized by weak
economic and market conditions for the apparel industry in general which
resulted in lower than normal gross margins as well as an increase in the
number of garments sold below cost. While the general business and market
conditions have not improved in the current fiscal year, the Company's current
product mix resulted in higher overall gross margins and fewer garments being
sold below cost in fiscal 1995 than in fiscal 1994.
The Company's product mix constantly changes to reflect customer mix,
fashion trends and changing seasons. Consequently, gross margins are likely to
vary on a quarter-to-quarter basis and in comparison to gross margins generated
in the same period of prior fiscal years.
Selling, general and administrative expenses decreased in dollar
amount from $27.9 million in fiscal 1994 to $19.8 million in fiscal 1995, but
were approximately the same as a percent of net sales (23.3% in fiscal 1994 and
23.6% in fiscal 1995). The decrease in dollar amount was due to the lower
sales volume in the current period and the reversal of an unutilized $250,000
reserve established in fiscal 1994 for the closure of one of the Company's two
warehouse facilities.
In the fourth quarter of fiscal 1995, the Company implemented a
strategy to eliminate unprofitable product lines, reduce its workforce, dispose
of excess equipment and consolidate its operations. As a result of this
strategy, restructuring charges were incurred which reduced pretax operating
income by approximately $1.8 million. The restructuring charges include
approximately $890,000 for employee terminations and related severance
packages, $610,000 for lease write-offs and $300,000 for fixed asset
write-offs. The restructuring is expected to be completed by early calendar
1996.
16
<PAGE> 17
On August 22, 1995, the Company sold various assets associated with
its junior, girls and maternity product lines for an initial cash payment of
$750,000 and a five-year note for $950,000. The Company recorded a $563,307
pretax gain from the transaction. Because of the general market conditions
within the apparel industry and the financial condition of buyer, the Company
will account for the $950,000 note on a cost recovery basis and record revenue
when the buyer makes payments on the note.
On October 31, 1995, the buyer purchased the Company's remaining
inventory of the product lines at the Company's cost. On October 31, 1995, the
Company sold the buyer the Company's remaining inventory in such product lines
at cost and granted the buyer an exclusive world-wide, license to use various
tradenames registered by the Company for these product lines. At that time,
the Company also ceased purchasing garments which had previously been sold
under the tradenames licensed to the buyer. Sales of these product lines
amounted to $21 million, $42 million and $38 million in fiscal 1995, 1994 and
1993, respectively.
Interest expense decreased in the current year due to the Company's
decreased usage of its short term line of credit. Interest income increased in
fiscal 1995 due to increases in the Company's average cash balances on hand and
increases in the prime rate of interest, and consequently the Company's
investment rate for its unutilized cash.
The valuation allowance for deferred tax assets decreased by $213,619
in fiscal 1995 due to the utilization on a consolidated basis of deferred tax
deductions generated by the Company's Body Drama subsidiary. Consequently, the
Company reported an income tax benefit of $269,056 while reporting a pretax
loss of only $109,541.
On November 30, 1994, the Company completed a short-form merger and
acquired all remaining outstanding shares of its Body Drama subsidiary. The
minority interest of $55,100 represents the earnings attributable to the
minority shareholders through November 30, 1994. Subsequent to November 30,
1994, the Company owned 100% of Body Drama.
YEARS ENDED AUGUST 31, 1994 AND 1993.
Net sales for the year ended August 31, 1994 increased approximately
$3.1 million (2.7%) as compared to the year ended August 31, 1993.
Approximately 64% of the increase was due to the addition of the Gaviota
product line by the Company's Body Drama subsidiary. The remaining increase
was due to a .8% increase in average selling prices and a 1.1% increase in the
number of garments sold.
17
<PAGE> 18
Gross margins decreased from 26.9% for the year ended August 31, 1993
to 18.3% for the year ended August 31, 1994. The decrease was due to weak
economic and market conditions for the apparel industry in general. These
conditions resulted in lower than normal gross margins as well as an increase
in the number of garments sold below cost and the size of the average loss per
garment for those items sold below cost. Consequently, the Company increased
its inventory reserves as of August 31, 1994 as compared to those at August 31,
1993, which increase accounted for approximately .5% of the decrease in the
gross margin percentage from fiscal 1993 to fiscal 1994.
Selling, general and administrative expenses decreased in dollar
amount from $29.7 million for fiscal 1993 to $27.9 million for fiscal 1994, and
decreased as a percent of sales from 25.7% in fiscal 1993 to 23.3% in fiscal
1994. The decrease in dollar amount was due to the Company's efforts to reduce
its operating expenses. The decrease as a percent of sales was also due to the
increased sales volume in fiscal 1994. Selling, general and administrative
expenses for fiscal 1994 include approximately $822,000 of expenses associated
with the closure of one of the Company's two warehouses, one minor
merchandising office and one overseas production office.
As a result of the February 1993 acquisition of the Gaviota trademark
and related assets by the Company's Body Drama subsidiary, the financing of
inventory and accounts receivable for that new product line and the increase in
the inventory levels of other product lines, the Company's consolidated cash
balances were lower during fiscal 1994 as compared to fiscal 1993.
Consequently, interest income decreased in fiscal 1994 compared to fiscal 1993.
Interest expense increased in fiscal 1994 compared to fiscal 1993 due to the
Company's increased usage of its short-term line of credit to finance its
increased inventory balances.
At August 31, 1994 the Company's Body Drama subsidiary established an
income tax valuation allowance of approximately $1.2 million which fully
offsets Body Drama's deferred tax assets and the tax benefits of its operating
losses which can be carried forward and used to offset future taxable income.
Consequently, the Company's effective income tax rate decreased from 41.7% for
fiscal 1993 to 20% for fiscal 1994.
Liquidity and Capital Resources
At August 31, 1995, the Company had agreements with a financial
institution pursuant to which the Company sells substantially all of its trade
accounts receivable to the financial institution on a pre-approved non-recourse
basis. Occasionally, the Company ships merchandise to customers and does not
sell the resulting receivables to the financial institution.
18
<PAGE> 19
Such shipments are generally made on a COD basis or are backed by a commercial
or standby letter of credit issued by the customer's bank. The amount of the
Company's receivables which were not sold to the financial institution and were
not made on a COD basis or supported by commercial or standby letters of credit
at August 31, 1995 was approximately $217,000.
Payment for receivables which are sold to the financial institution is
made at the time customers make payment to the financial institution or, if a
customer is financially unable to make payment, within approximately 180 days
of the invoice due date. The Company may request advances in anticipation of
customer collections at the lender's prime rate plus one percent or LIBOR plus
two percent, borrow on an acceptance basis at rates which vary in accordance
with the prevailing market rate for such acceptances and open letters of credit
through the lender. The amount of such borrowings, including a portion of
outstanding letters of credit, are limited to certain percentages of
outstanding accounts receivable and finished goods inventory owned by the
Company and are collateralized by all of the assets of the Company. Under
these agreements, the Company is required to maintain certain levels of net
worth and working capital.
The Company's working capital of $21.5 million at August 31, 1995
decreased from the August 31, 1994 level of $26 million. However, the
Company's current ratio increased from 3.42 at August 31, 1994 to 3.55 at
August 31, 1995.
In September 1995, the Company successfully completed a tender offer
and acquired 1,200,000 of its shares at $8.00 per share. The Company's
existing cash balances were used to fund the transaction. If the tender offer
had been completed as of August 31, 1995, the Company's working capital and
current ratio would have been approximately $11.9 million and 2.41,
respectively.
Other Information
INVENTORY
The experience of the Company demonstrates that, in its ordinary
course of operations, a portion of the Company's sales may be made below its
normal selling prices or below cost subsequent to August 31, 1995. The amount
of such sales depends on several factors, including general economic
conditions, market conditions within the apparel industry, the desirability of
the styles held in inventory and competitive pressures from other garment
suppliers.
19
<PAGE> 20
The Company's inventory decreased from $10.8 million at August 31,
1994 to $6.7 million at August 31, 1995. The Company has established an
inventory markdown reserve as of August 31, 1995, which management believes
will be sufficient for current inventory that is expected to be sold below cost
in the future. There can be no assurance that the Company will realize its
expected selling prices, or that the inventory markdown reserve will be
adequate, for items in inventory as of August 31, 1995 for which customer sales
orders have not yet been received.
BACKLOG
At August 31, 1995, the Company had unfilled customer orders of $21.7
million compared to $34.8 million of such orders at August 31, 1994, with such
orders generally scheduled for delivery by January 1996 and March 1995,
respectively. These amounts include both confirmed orders and unconfirmed
orders which the Company believes, based on industry practice and past
experience, will be confirmed. The amount of unfilled orders at a particular
time is affected by a number of factors, including the scheduling of the
production and shipment of garments, which in some instances may be delayed or
accelerated by customer request. Accordingly, a comparison of unfilled orders
from period to period is not necessarily meaningful and may not be indicative
of eventual actual shipments. While cancellations, rejections and returns have
generally not been material in the past, there can be no assurance that
cancellations, rejections and returns will not reduce the amount of sales
realized from the backlog of orders at August 31, 1995.
Impact of Inflation and Changing Prices
Management does not believe that inflation and changing prices have
had any material impact upon the Company's revenues or income from operations.
20
<PAGE> 21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS FILED WITH
THE ANNUAL REPORT OF THE COMPANY ON FORM 10-K
<TABLE>
<S> <C>
Independent Auditors' Report 22
Consolidated Balance Sheets at August 31, 1995 and 1994 23
Consolidated Statements of Operations for the years
ended August 31, 1995, 1994 and 1993 24
Consolidated Statements of Shareholders' Equity for
the years ended August 31, 1995, 1994 and 1993 25
Consolidated Statements of Cash Flows for the
years ended August 31, 1995, 1994 and 1993 26
Notes to consolidated financial statements 27
</TABLE>
21
<PAGE> 22
Independent Auditors' Report
Board of Directors and Shareholders
Beeba's Creations, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheets of Beeba's
Creations, Inc. and subsidiaries as of August 31, 1995 and 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended August 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Beeba's Creations, Inc. and
subsidiaries as of August 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1995 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Diego, California
October 24, 1995
22
<PAGE> 23
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
August 31,
------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,485,189 $ 6,565,813
Receivables:
Trade accounts, less allowance
for doubtful accounts ($333,000
in 1995 and $578,000 in 1994) 10,240,864 15,329,232
Income taxes receivable 458,789 1,596,480
Due from affiliates and employees 19,006 14,799
----------- -----------
10,718,659 16,940,511
Inventories 6,679,522 10,799,714
Deferred income taxes 1,479,673 1,509,294
Other current assets 608,126 916,201
----------- -----------
Total current assets 29,971,169 36,731,533
Furniture, fixtures and equipment 407,217 880,793
Other assets 587,193 967,041
----------- -----------
$30,965,579 $38,579,367
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,000,000
Accounts payable and
accrued expenses $ 8,433,214 7,749,654
----------- -----------
Total current liabilities 8,433,214 10,749,654
Deferred income taxes 1,095,858 1,095,858
Minority interest 5,747,229
Shareholders' equity:
Preferred stock, no par value,
25,000,000 shares authorized
Common stock, no par value,
50,000,000 shares authorized;
issued and outstanding (2,398,224
in 1995 and 2,507,924 in 1994) 12,586,793 12,351,527
Retained earnings 8,849,714 8,635,099
----------- -----------
Total shareholders' equity 21,436,507 20,986,626
----------- -----------
$30,965,579 $38,579,367
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
23
<PAGE> 24
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Year ended August 31,
---------------------------------------
1995 1994 1993
----------- ------------ ------------
<S> <C> <C> <C>
Net sales $83,846,253 $119,291,419 $116,199,677
Cost of goods sold 63,273,806 97,499,053 84,992,982
----------- ------------ ------------
Gross profit 20,572,447 21,792,366 31,206,695
Expenses:
Selling, general
and administrative 19,795,039 27,852,703 29,704,405
Restructuring charge 1,803,113
----------- ------------ ------------
Income (loss) from
operations (1,025,705) (6,060,337) 1,502,290
Gain on sale of
product lines 563,307
Interest income 355,078 206,350 378,875
Interest expense (2,221) (462,142) (155,762)
----------- ------------ ------------
Income (loss) before
income taxes (109,541) (6,316,129) 1,725,403
Provision (benefit) for
income taxes (269,056) (1,262,366) 719,561
----------- ------------ ------------
Net income (loss) before
minority interest 159,515 (5,053,763) 1,005,842
Minority interest (55,100) (1,627,736) (318,553)
----------- ------------ ------------
Net income (loss) $ 214,615 $ (3,426,027) $ 1,324,395
=========== ============ ============
Earnings (loss) per share $.09 ($1.33) $.49
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
24
<PAGE> 25
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
<TABLE>
<CAPTION>
Common Stock Paid-in Total
----------------------- Capital - Retained Shareholders'
Shares Amount Stock Options Earnings Equity
----------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance, September 1, 1992 2,519,586 $11,922,022 $ 846,120 $11,884,206 $24,652,348
Net income 1,324,395 1,324,395
Dividends paid (733,516) (733,516)
($.29 per share)
Compensatory stock options 106,680 106,680
Stock options exercised 22,588 120,584 120,584
------------ ------------ --------- ------------ ------------
Balance, August 31, 1993 2,542,174 12,042,606 952,800 12,475,085 25,470,491
Net loss (3,426,027) (3,426,027)
Dividends paid
($.16 per share) (413,959) (413,959)
Compensatory stock options 100,000 826,000 (952,800) (126,800)
Purchases and retirement
of parent common stock (134,250) (517,079) (517,079)
------------ ------------ --------- ------------ ------------
Balance, August 31, 1994 2,507,924 12,351,527 0 8,635,099 20,986,626
Net income 214,615 214,615
Purchases and retirement
of parent common stock (109,700) (436,980) (436,980)
Purchases and retirement
of subsidiary shares
by subsidiary 672,246 672,246
------------ ------------ --------- ------------ ------------
Balance, August 31, 1995 2,398,224 $12,586,793 $ 0 $8,849,714 $21,436,507
=========== =========== ========= ========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
25
<PAGE> 26
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Year ended August 31,
--------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $214,615 ($3,426,027) $1,324,395
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Minority interest in subsidiary's loss (55,100) (1,627,736) (318,553)
Gain on sale of product lines (563,307)
Asset write off for restructuring charge 240,588
Depreciation and amortization 548,702 1,055,545 767,760
(Increase) decrease in receivables 5,088,368 7,201,693 3,938,050
(Increase) decrease in income taxes receivable 1,137,691 (1,121,404) (475,076)
(Increase) decrease in inventories 4,120,192 9,428,769 (6,248,995)
(Increase) decrease in deferred income taxes 29,621 (260) 989,371
(Increase) decrease in other current assets 303,868 723,755 (832,258)
(Increase) decrease in other assets 126,564 364,019 (955,426)
Increase (decrease) in accounts payable
and accrued expenses 683,560 (4,684,857) 621,601
Increase (decrease) in income taxes payable (1,047,285)
------------ ------------ ------------
Net cash provided (used) by operating activities 11,875,362 7,913,497 (2,236,416)
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of trade name, covenant not
to compete and related assets (797,685)
Capital expenditures (249,124) (341,863) (378,347)
Payment of liabilities for manufacturing operations (1,317,578)
------------ ------------ ------------
Net cash (used) by investing activities (249,124) (341,863) (2,493,610)
------------ ------------ ------------
Cash flows from financing activities:
Net (repayments) under line of credit (3,000,000) (4,949,266) (1,308,787)
Proceeds from sale of product line 750,000
Proceeds from exercises of stock options 150,000 120,584
Dividends paid (413,959) (733,516)
Purchases and retirement of parent common stock (436,980) (517,079)
Purchases and retirement of subsidiary
shares by subsidiary (4,634,783)
Purchases of subsidiary shares by parent (385,099)
------------ ------------ ------------
Net cash provided (used) by financing activities (7,706,862) (5,730,304) (1,921,719)
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 3,919,376 1,841,330 (6,651,745)
Cash and cash equivalents at beginning of year 6,565,813 4,724,483 11,376,228
------------ ------------ ------------
Cash and cash equivalents at end of year $10,485,189 $6,565,813 $4,724,483
=========== ========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $17,750 $446,615 $174,616
Income taxes $23,401 $142,865 $1,250,574
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
26
<PAGE> 27
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business:
Beeba's Creations, Inc. (the "Company") was organized in 1971 and has
been a wholesale importer and distributor primarily of women's sportswear
manufactured to its specifications and distributed in the United States under
Company brand labels and private retailer labels since 1973.
2. Summary of Significant Accounting Policies:
Principles of Consolidation:
The consolidated financial statements include the accounts of Beeba's
Creations, Inc. and its subsidiaries. All significant intercompany
transactions and balances are eliminated in consolidation.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Furniture, Fixtures and Equipment:
Furniture, fixtures and equipment are stated at cost. Depreciation is
computed using the straight-line method based on the estimated useful lives of
the related assets, which range from three to ten years. Leasehold
improvements are amortized using the straight-line method over the shorter of
the estimated useful lives of the assets or the remaining term of the related
lease. Maintenance and repair costs are charged to expense as incurred. When
assets are retired or sold, the assets and accumulated depreciation are removed
from the respective accounts and any profit or loss on the disposition is
credited or charged to income.
Earnings Per Share:
The computation of net income per common share is based on the
weighted average number of common shares outstanding plus common share
equivalents arising from dilutive stock options.
The weighted average number of common shares and common share
equivalents outstanding for primary earnings per share was 2,438,874, 2,573,132
and 2,686,152 for fiscal 1995, 1994 and 1993, respectively.
27
<PAGE> 28
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Summary of Significant Accounting Policies: (continued)
Revenue Recognition:
The Company recognizes revenue as of the date merchandise is shipped
to its customers.
Cash Flow Statement:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
Reclassifications:
Certain reclassifications have been made in the 1994 and 1993
financial statements to conform to the classifications used for the 1995
financial statements.
3. Inventories:
<TABLE>
<CAPTION>
August 31,
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
Fabric and trims $1,316,292 $ 2,795,280
Finished goods 5,363,230 8,004,434
---------- -----------
$6,679,522 $10,799,714
========== ===========
</TABLE>
4. Furniture, Fixtures and Equipment:
<TABLE>
<CAPTION>
August 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
Leasehold improvements $ 358,146 $ 799,270
Computer equipment 826,324 1,256,705
Vehicles 159,118 184,994
Furniture, fixtures and
other equipment 879,917 1,286,047
---------- ----------
2,223,505 3,527,016
Less accumulated depreciation
and amortization 1,816,288 2,646,223
---------- ----------
$ 407,217 $ 880,793
========== ==========
</TABLE>
28
<PAGE> 29
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Notes Payable:
At August 31, 1995, pursuant to the terms of agreements between
Beeba's and a financial institution, Beeba's generally sells and assigns
substantially all of its trade accounts receivable to the financial institution
on a pre-approved, non-recourse basis. The Company may request advances in
anticipation of customer collections at the lender's prime rate plus one
percent or LIBOR plus two percent, borrow on an acceptance basis at rates which
vary in accordance with the prevailing market rate for such acceptances and
open letters of credit through the lender, all of which are collateralized by
all of the Company's assets. Notes payable and contingent liabilities for
irrevocable letters of credit outstanding are as follows:
<TABLE>
<CAPTION>
August 31,
-------------------------
1995 1994
------------ -----------
<S> <C> <C>
Notes payable $ 3,000,000
Contingent liabilities for
irrevocable letters of credit $10,746,558 $10,632,251
Weighted average interest rate
for the year 8.75% 6.0%
</TABLE>
6. Accounts Payable and Accrued Expenses:
<TABLE>
<CAPTION>
August 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
Trade accounts and other payables $7,252,725 $6,888,624
Accrued bonuses, commissions and
other payroll related expenses 1,180,489 861,030
---------- ----------
$8,433,214 $7,749,654
========== ==========
</TABLE>
29
<PAGE> 30
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Income Taxes:
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
Year ended August 31,
-------------------------------------
l995 1994 1993
--------- ----------- --------
<S> <C> <C> <C>
Current:
Federal ($319,212) ($1,362,706) ($29,068)
State (29,808) 1,600 39,663
--------- ----------- --------
(349,020) (1,361,106) 10,595
--------- ----------- --------
Deferred:
Federal 32,559 53,821 586,960
State 47,405 44,919 122,006
--------- ----------- --------
79,964 98,740 708,966
--------- ----------- --------
($269,056) ($1,262,366) $719,561
========= =========== ========
</TABLE>
The provision for deferred income taxes for the year ended August 31, 1993
consists of the following:
<TABLE>
<S> <C>
Sales returns and doubtful
accounts reserve $467,714
Inventory reserves and
Uniform Capitalization 62,697
Franchise taxes 172,140
Other items 6,415
--------
$708,966
========
</TABLE>
Net deferred income taxes included in current assets in the balance
sheet at August 31, 1995 and 1994 consist of the tax effects of temporary
differences related to the following:
<TABLE>
<CAPTION>
August 31,
-------------------------
1995 1994
---------- -----------
<S> <C> <C>
Inventories $ 436,027 $ 1,266,738
Sales return and doubtful
account reserve 149,726 399,629
Restructuring reserve 681,408
Tax loss carryforward 979,864 788,182
All other items 212,512 251,228
Less valuation allowance (979,864) (1,196,483)
---------- -----------
Deferred tax assets - current $1,479,673 $ 1,509,294
========== ===========
</TABLE>
30
<PAGE> 31
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Income Taxes: (continued)
The valuation allowance for deferred tax assets decreased by $216,619
in fiscal 1995 due to the utilization on a consolidated basis of deferred tax
deductions generated by the Company's Body Drama subsidiary.
The long term deferred income tax liability included on the balance
sheet at August 31, 1995 of $1,095,858 relates to the gain recognized for
financial statement purposes in connection with the initial public stock
offering of the Company's Body Drama subsidiary in 1991.
The Company's Body Drama subsidiary has a Federal income tax net
operating loss carryforward of approximately $1.6 million which expires in
2009. The Federal tax loss may be utilized only by Body Drama, approximately
$1.1 million of which may be used in fiscal 1996, or if not used in fiscal
1996, $1.6 million in fiscal 1997 and subsequent years.
Beeba's and Body Drama have various combined state income tax net
operating loss carryforwards which expire in 1999. The benefit of the loss
carryforwards has been fully reserved as of August 31, 1995.
Differences between the statutory Federal income tax rate and the
effective tax rate are as follows:
<TABLE>
<CAPTION>
Year ended August 31,
--------------------------
1995 1994 1993
------ ------ -----
<S> <C> <C> <C>
Statutory rate 34.0% 34.0% 34.0%
State income taxes, net of
Federal benefit 6.6 6.6 6.2
Reduction in valuation allowance
for deferred tax assets 197.8 (18.9)
Other items 7.2 (1.7) 1.5
----- ----- ----
Effective rate 245.6% 20.0% 41.7%
===== ===== ====
</TABLE>
31
<PAGE> 32
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Employee Benefit Plans:
The Company has employee benefit plans whereby employees may make
investments in various independent funds, and, through June 30, 1995, Company
stock. The Company may match employee contributions to this Plan on a
discretionary basis. The Company's matching contributions to these plans
amounted to $9,696, $223,788 and $271,057 in fiscal 1995, 1994 and 1993,
respectively.
9. Stock Options:
The Company has an Incentive Stock Option Plan for Key Employees under
which 338,671 shares were available for grant as of August 31, 1995. Options
are granted at prices not less than the fair market value of the shares at the
date of grant and generally become exercisable at the rate of twenty percent
per year commencing one year after the date of grant. At August 31, 1995,
92,100 options were exercisable. Transactions under this Plan during fiscal
1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- --------------
<S> <C> <C>
Outstanding options at
September 1, 1992 214,373 $5.00 - $10.00
Options exercised (19,600) $5.00 - $ 6.88
Options forfeited (12,900) $6.50 - $10.00
--------
Outstanding options at
August 31, 1993 181,873 $5.00 - $ 9.00
Options forfeited (51,500) $5.00 - $ 9.00
--------
Outstanding options at
August 31, 1994 130,373 $5.00 - $ 9.00
Options forfeited (31,973) $5.00 - $ 9.00
--------
Outstanding options at
August 31, 1995 98,400 $6.50 - $ 9.00
========
</TABLE>
32
<PAGE> 33
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Stock Options: (continued)
The Company has 97,000 shares available for grant under two
non-qualified option plans for key employees. Compensation expense is recorded
in the periods in which services are provided for options granted at less than
market value at the date of grant. Options may be granted at varying prices
and generally become exercisable over a four to five year period. At September
1, 1992, 109,917 options were outstanding with option prices ranging from $1.50
to $6.50 per share. In fiscal 1993, 9,917 options with an option price of
$6.50 were exercised. In fiscal 1994, 100,000 options with an option price of
$1.50 were exercised. At August 31, 1995, no options were outstanding.
10. Leases:
The Company has lease commitments expiring at various dates,
principally for real property and equipment. At August 31, 1995, the aggregate
minimum rental commitments for all non-cancelable leases having initial or
remaining terms of one or more years are as follows:
<TABLE>
<CAPTION>
Year ending August 31,
----------------------
<S> <C>
1996 $1,221,297
1997 524,512
1998 351,159
1999 333,743
2000 166,081
Subsequent years 0
----------
$2,596,792
==========
</TABLE>
In connection with the sale of product lines (see footnote number 12)
the Company subleased a portion of its showroom facility. Because of the
general market condition within the apparel industry and the financial
condition of the sublessee, no amounts for sublease revenues have been included
in the above schedule.
The Company's leases for real property are generally subject to escalation
based on increases in the consumer price or other indices with certain minimum
and maximum increases. Rent expense was approximately $1,431,000, $2,378,000
and $2,507,000, during fiscal 1995, 1994 and 1993, respectively.
33
<PAGE> 34
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Significant Customers:
No customer accounted for 10% or more of total sales in fiscal 1995 or
1994. Sales to one of the Company's customers represented 13.2% of total sales
in fiscal 1993.
12. Sale of Product Lines:
On August 22, 1995, the Company sold various assets associated with
its junior, girls and maternity product lines for an initial cash payment of
$750,000 and a five-year note for $950,000. The Company recorded a $563,307
pretax gain from the transaction. Because of the general market conditions
within the apparel industry and the financial condition of buyer, the Company
will account for the $950,000 note on a cost recovery basis and record revenue
when the buyer makes payments on the note. Accordingly, no amounts associated
with this note receivable have been recorded in the accompanying financial
statements.
The Company also executed an agreement whereby the buyer will act as
an independent sales representative for the Company through October 31, 1995,
on which date the buyer will purchase the Company's remaining inventory of the
product lines at the Company's cost. The buyer was also granted an exclusive,
world-wide license to use various tradenames registered by the Company for the
product lines.
On October 31, 1995, the Company will cease purchasing garments which
had previously been sold under the tradenames licensed to buyer. The Company's
sales of these products amounted to $21 million, $42 million and $38 million in
fiscal 1995, 1994 and 1993, respectively.
13. Restructuring Charge:
In the fourth quarter of fiscal 1995, the Company implemented a
strategy to eliminate unprofitable product lines, reduce its workforce, dispose
of excess equipment and consolidate its operations. As a result of this
strategy, restructuring charges were incurred which reduced pretax operating
income by approximately $1.8 million. The restructuring charges include
approximately $890,000 for employee terminations and related severance
packages, $610,000 for lease write-offs and $300,000 for fixed asset
write-offs. At August 31, 1995 the remaining balance in the restructuring
reserve, which is included in trade accounts and other payables, is
approximately $1.5 million. The restructuring is expected to be completed by
early calendar 1996.
34
<PAGE> 35
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Acquisition of Subsidiary Shares:
In fiscal 1995, the Company's Body Drama subsidiary acquired 1,446,921
shares of its stock at $2.93 per share. The total cost of these shares is
expected to be approximately $4.9 million, which includes expenses specifically
associated with the tender offer, including the estimated costs of defense for
a related class action suit filed against Body Drama, the Company and several
of its officers and directors (see Note 15). On November 30, 1994, the Company
acquired the remaining 128,079 outstanding shares of Body Drama at $2.93 per
share. The aggregate cost of the shares, which includes legal and other costs
incurred in connection with the purchase, was $385,000.
15. Litigation:
On August 8, 1994, a class action lawsuit was filed in the San Diego
Superior Court against the Company, its Body Drama subsidiary and certain
former and present directors and officers of Body Drama seeking to enjoin Body
Drama's tender offer for its shares and to recover certain unspecified damages
on the basis of alleged breaches of fiduciary duty by the defendants. The
court denied the plaintiffs' claim for injunctive relief and the tender offer
closed on September 21, 1994. On January 20, 1995, the court dismissed two of
the four causes of action claimed by the plaintiffs in the lawsuit. Management
believes that the remaining allegations of the complaint are without merit and
intends to vigorously defend the lawsuit.
16. Acquisition of Trademark:
In fiscal 1993, the Company's Body Drama subsidiary acquired various
intangible assets, including the Gaviota trademark, for $700,000. The
intangible assets are being amortized on a straight-line basis over their
estimated useful lives, which range from one to five years. The remaining
unamortized intangible assets at August 31, 1995 of $278,746 are included in
"Other assets".
35
<PAGE> 36
BEEBA'S CREATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Tender offer and related party transactions:
On September 1, 1995, the Company purchased and retired 1,200,000
shares of its common stock at $8 per share in connection with a tender offer by
the Company. The tender offer included the repurchase of approximately 458,000
shares owned by six of the Company's officers and directors.
18. Employment agreements:
In May 1995, the Company entered into Employment Agreements with three
key executives which expire on August 31, 1998. In addition to a base salary,
each executive will receive a bonus equal to a percentage of pretax net income
(exclusive of the bonus) over specified levels for fiscal 1996, 1997 and 1998.
In the event that any one of the executives is terminated without cause prior
to the expiration of the Employment Agreement, the executive will receive the
salary remaining through the end of the term of the Employment Agreement, a pro
rata portion of his bonus and continuation of certain employee benefits. The
aggregate amount due to the executives through August 31, 1998, excluding
bonuses and employee benefits, is $1,650,000.
19. Quarterly Results of Operations (Unaudited):
The following is a summary of the quarterly results of operations for
the years ended August 31, 1995 and 1994:
<TABLE>
<CAPTION>
Three months ended
------------------------------------
Nov. 30 Feb. 28 May 31 Aug. 31
-------- ------- ------ -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Fiscal 1995:
Net sales $19,812 $21,227 $22,637 $20,170
Gross profit 4,585 5,679 5,192 5,116
Net income (loss) (75) 468 51 (229)
Net income (loss)
per common share (.03) .19 .02 (.10)
Fiscal 1994:
Net sales $30,715 $29,021 $28,960 $30,595
Gross profit 6,104 4,606 4,857 6,225
Net (loss) (673) (1,295) (1,356) (102)
Net (loss) per
common share (.25) (.50) (.52) (.04)
</TABLE>
36
<PAGE> 37
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required as to this Item is incorporated herein by
reference from the data under the caption "Election of the Directors of the
Company and Other Information Concerning Executive Officers of the Company" in
the Proxy Statement ("1995 Proxy Statement"), to be used in connection with the
solicitation of proxies to be voted at the Registrant's annual meeting of
shareholders to be held in December 1995, to be filed with the Commission in
November 1995.
ITEM 11. EXECUTIVE COMPENSATION.
The information required as to this Item is incorporated herein by
reference from the data under the caption "Compensation and Benefits" in the
1995 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required as to this Item is incorporated herein by
reference from the data under the caption "Principal Shareholders" in the 1995
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required as to this Item is incorporated herein by
reference from the data under the caption "Certain Transactions" in the 1995
Proxy Statement.
37
<PAGE> 38
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.
(a) Documents filed as part of this report:
1. The following consolidated financial statements of the Registrant are
included as part of this report:
Balance Sheets as of August 31, 1995 and 1994;
Consolidated Statements of Operations for the years ended August 31, 1995,
1994 and 1993;
Statements of Shareholders' Equity for the years ended August 31, 1995,
1994 and 1993;
Statements of Cash Flows for the years ended August 31, 1995, 1994 and
1993;
Notes to Financial Statements; and
Independent Auditors' Report.
2. The following financial statement schedules of the Registrant are
included as part of this report:
Report of independent auditors on financial statement schedules
Schedule VIII - Valuation and Qualifying Accounts and Reserves
All other schedules are omitted because they are not required, are inapplicable
or the information is otherwise shown in the financial statements or notes
thereto.
2.1 Agreement and Plan of Reorganization dated November 9, 1994 by and
among Body Drama, Inc., Beeba's Acquisition, Inc. and the Company (9)
38
<PAGE> 39
3. The following exhibits are filed herewith or incorporated by reference
as indicated. Exhibit numbers refer to Item 601 of Regulation S-K:
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Company, as amended (5)
3.2 Bylaws of the Company, as amended (2)
4 See 3.1 and 3.2, above
10 Material Contracts:
10.3.2 Incentive Stock Option Plan as amended October 3, 1989 (4)
10.3.3 Executive Option Plan adopted October 3, 1989 (4)
10.5.4 Lease Agreement between the Company and Rancho Bernardo Corporate Center, dated June 14,
1985 (1)
10.5.10 Lease Agreement between the Company and Spanjian Properties dated August 9, 1989 (3)
10.5.12 Lease Agreement between the Company and Broadway and 41st Associates Limited
Partnership dated August 17, 1989 (3)
10.5.14 Lease Agreement between the Company and 1431 Associates dated October 13, 1989 (5)
10.6 Form of Indemnification Agreement for Officers and Directors (8)
10.12 Employee Stock Purchase Plan (7)
10.28 Management Services Agreement between the Company and Body Drama, Inc. dated October 9, 1991 (6)
10.29 Documents concerning offer to purchase Registrant's shares pursuant to a Tender Offer
dated July 20, 1995 (10)
10.30 Asset Purchase Agreement and related agreements between the Company and Design and
Source Holding Company, Ltd effective July 1, 1995
10.31 Employment Agreement dated May 9, 1995 between the Company and Arjun C. Waney
10.32 Employment Agreement dated May 9, 1995 between the Company and Steven P. Wyandt
10.33 Employment Agreement dated May 9, 1995 between the Company and Thomas P. Baumann
</TABLE>
<TABLE>
<S> <C>
11 Computation of earnings per share
See Note 2 of Notes to Consolidated Financial
Statements
21 Subsidiaries of the Registrant (7)
23 Consent of Independent Certified Public Accountants
</TABLE>
39
<PAGE> 40
<TABLE>
<S> <C>
24 Power of Attorney regarding authority to sign documents to be filed with the Commission (7)
27 Financial Data Schedule
</TABLE>
(b) Exhibits and Reports on Form 8-K.
On July 17, 1995, August 18, 1995 and September 12, 1995, the Company filed
Forms 8-K in connection with the tender offer for its shares dated July 20,
1995 and the sale of its certain assets used in its junior, girls and maternity
product lines.
__________________________
Footnotes:
(1) Incorporated by reference from Registrant's Registration Statement on Form
S-1, effective May 22, 1986 (Registration No. 33-4960).
(2) Incorporated by reference from Registrant's Form 10-K filed on November
23, 1988 for the fiscal year ended August 31, 1988.
(3) Incorporated by reference from Registrant's Form 10-K filed on November
21, 1989 for the fiscal year ended August 31,1989.
(4) Incorporated by reference from Registrant's Definitive Proxy Statement
dated December 12, 1989 and filed on December 14, 1989.
(5) Incorporated by reference from Registrant's Form 10-K filed on November
21, 1990 for the fiscal year ended August 31,1990.
(6) Incorporated by reference from Form S-1 filed on August 26, 1991 by Body
Drama, Inc., Commission file number 33-42417, Exhibit 10.2.
(7) Incorporated by reference from Registrant's Form 10-K filed on November
21, 1991 for the fiscal year ended August 31, 1991.
(8) Incorporated by reference from Registrant's Form 10-K filed on November
23, 1992 for the fiscal year ended August 31, 1992.
(9) Incorporated by reference from Registrant's Form 10-Q filed on January 4,
1995 for the quarter ended November 30, 1994.
(10) Incorporated by reference from Schedule 13E-4 filed on July 20, 1995.
40
<PAGE> 41
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.
Date: October 31, 1995
BEEBA'S CREATIONS, INC.
By: Steven P. Wyandt
------------------------------------
Steven P. Wyandt, President
41
<PAGE> 42
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
Steven P. Wyandt President and October 31, 1995
- ----------------------- Chief Executive
Steven P. Wyandt Officer (Principal
Executive Officer)
and Director
Thomas P. Baumann Chief Financial October 31, 1995
- ----------------------- Officer and Principal
Thomas P. Baumann Financial Officer
Arjun C. Waney Director October 31, 1995
- -----------------------
Arjun C. Waney
Eugene B. Price II Director October 31, 1995
- -----------------------
Eugene B. Price II
Luther A. Henderson Director October 31, 1995
- -----------------------
Luther A. Henderson
William L. Hoese Director October 31, 1995
- -----------------------
William L. Hoese
</TABLE>
42
<PAGE> 43
Board of Directors and Shareholders
Beeba's Creations, Inc.
San Diego, California
We have audited the consolidated financial statements of Beeba's Creations,
Inc. and its subsidiaries as of August 31, 1995 and 1994, and for each of the
three years in the period ended August 31, 1995 and have issued our report
thereon dated October 24, 1995; such consolidated financial statements and
report are included in your 1995 Annual Report to Stockholders and are
incorporated by reference. Our audits also included the financial statement
schedule of Beeba's Creations, Inc. listed in Item 14. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
Deloitte & Touche LLP
San Diego, California
October 24, 1995
43
<PAGE> 44
Schedule VIII
BEEBA'S CREATIONS, INC.
Valuation and Qualifying Accounts and Reserves
<TABLE>
<CAPTION>
Additions
----------------------
Balance at Charged to Charged Balance
Beginning Costs and To Other At End
Of Year Expenses Accounts Deductions Of Year
----------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended August 31, 1993
Allowance for doubtful accounts $973,000 $2,854,804 $3,479,804 $348,000
Inventory markdown allowance $1,473,296 $1,752,197 $2,239,439 $986,054
Year ended August 31, 1994
Allowance for doubtful accounts $348,000 $3,195,102 $2,965,102 $578,000
Inventory markdown allowance $986,054 $4,409,755 $3,816,809 $1,579,000
Year ended August 31, 1995
Allowance for doubtful accounts $578,000 $2,315,267 $2,560,267 $333,000
Inventory markdown allowance $1,579,000 $2,975,245 $4,127,245 $427,000
</TABLE>
44
<PAGE> 45
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit
- ------- -------
<S> <C>
*2.1 Agreement and Plan of Reorganization dated November 9, 1994 by and
among Body Drama, Inc., Beeba's Acquisition, Inc. and the Company
*3.1 Articles of Incorporation of the Company, as amended
*3.2 Bylaws of the Company, as amended
4 See 3.1 and 3.2, above
10 Material Contracts:
*10.3.2 Incentive Stock Option Plan as amended October 3, 1989
*10.3.3 Executive Option Plan adopted October 3, 1989
*10.5.4 Lease Agreement between the Company and Rancho Bernardo Corporate
Center, dated June 14, 1985
*10.5.10 Lease Agreement between the Company and Spanjian Properties dated
August 9, 1989
*10.5.12 Lease Agreement between the Company and Broadway and 41st Associates
Limited Partnership dated August 17, 1989
*10.5.14 Lease Agreement between the Company and 1431 Associates dated
October 13, 1989
*10.6 Form of Indemnification Agreement for Officers and Directors
*10.12 Employee Stock Purchase Plan
*10.28 Management Services Agreement between the Company and Body Drama, Inc.
dated October 9, 1991
*10.29 Documents concerning offer to purchase Registrant's shares pursuant
to a Tender Offer dated July 20, 1995
10.30 Asset Purchase Agreement and related agreements between the Company
and Design and Source Holding Company, Ltd. effective July 1, 1995
10.31 Employment Agreement dated May 9, 1995 between the Company and
Arjun C. Waney
10.32 Employment Agreement dated May 9, 1995 between the Company and
Steven P. Wyandt
10.33 Employment Agreement dated May 9, 1995 between the Company and
Thomas P. Baumann
11 Computation of earnings per share. See Note 2 of Notes
to Consolidated Financial Statements
*21 Subsidiaries of the Registrant
23 Consent of Independent Certified Public Accountants
*24 Power of Attorney regarding authority to sign documents
to be filed with the Commission
27 Financial Data Schedule
</TABLE>
* Incorporated by reference; see page 40.
45
<PAGE> 1
EXHIBIT 10.30
ASSET PURCHASE AGREEMENT
dated July 1, 1995
by and between
BEEBA'S CREATIONS, INC.
and
THE DESIGN AND SOURCE HOLDING COMPANY, LTD.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Purchase and Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 First Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Second Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.3 Assignment of Trade Names and Copyrights . . . . . . . . . . . . . . . 2
2. Assumption of Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
3. Independent Sales Representative Agreement . . . . . . . . . . . . . . . . . . . 2
4. Restrictive Covenant Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 3
5. Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.1 Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.2 Allocation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.3 Payment for Styles . . . . . . . . . . . . . . . . . . . . . . . . . . 3
5.4 Security for Obligations . . . . . . . . . . . . . . . . . . . . . . . 4
5.5 Credits and Chargebacks . . . . . . . . . . . . . . . . . . . . . . . 4
6. Representations and Warranties of Seller . . . . . . . . . . . . . . . . . . . . 4
6.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . 4
6.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6.3 No Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.4 Title to Assets; Absence of Encumbrances . . . . . . . . . . . . . . . 5
6.5 Financial Information Concerning Seller . . . . . . . . . . . . . . . 5
6.6 Product Liability Insurance . . . . . . . . . . . . . . . . . . . . . 5
6.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6.8 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . 5
6.9 Representations Accurate at Closing Date . . . . . . . . . . . . . . . 6
7. Representations and Warranties of Buyer . . . . . . . . . . . . . . . . . . . . 6
7.1 Organization and Good Standing . . . . . . . . . . . . . . . . . . . . 6
7.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.3 No Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.4 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . 6
7.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
7.6 Broker's or Finder's Fees . . . . . . . . . . . . . . . . . . . . . . 7
7.7 Representations Accurate at Closing Date . . . . . . . . . . . . . . . 7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
8. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1 Covenants of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8.1.1 Access to Documents; Opportunity to Ask Questions . . . . . . . . . . . . . 7
8.1.2 Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1.3 Physical Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.1.4 Future Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 Covenants of Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2.1 Future Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2.2 No Market Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2.3 Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9. Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1 Conditions Precedent to the Obligations of Seller at the First Closing Date . . . . . . . 9
9.1.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 9
9.1.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1.3 Authorization; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1.4 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
9.1.5 Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1.6 Satisfaction with Financial Projections . . . . . . . . . . . . . . . . . . 10
9.1.7 Cash Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1.8 Delivery of Related Agreements . . . . . . . . . . . . . . . . . . . . . . . 10
9.1.9 Employee Releases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1.10 Consents to Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1.11 Officers Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.1.12 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.2 Conditions Precedent to Buyer's Obligations at the First Closing Date . . . . . . . . . . 11
9.2.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.2 Performance of Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.3 Authorization; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.4 Legal Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.5 Good Standing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.6 No Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.7 Delivery of Related Agreements . . . . . . . . . . . . . . . . . . . . . . . 11
9.2.8 Bill of Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2.9 Seller's Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2.10 Officers' Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2.11 Secretary's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.3 Conditions Precedent to Seller's Obligations at the Second Closing Date . . . . . . . . . 12
9.4 Conditions Precedent to Buyer's Obligations at the Second Closing Date . . . . . . . . . . 12
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
10. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
10.2 Indemnification Notice and Procedure . . . . . . . . . . . . . . . . . . 13
11. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
12. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
12.1 Protection of Confidential Information . . . . . . . . . . . . . . . . . 14
12.2 Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
13. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14. Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.1 Waiver of Bulk Sale . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.3 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
14.4 Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.5 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.7 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
14.8 Prior Agreements; Amendments and Waivers . . . . . . . . . . . . . . . . 17
14.9 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.11 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
14.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
iii
<PAGE> 5
SCHEDULES
<TABLE>
<S> <C>
Schedule 1.1.1 Patterns and Style Library
Schedule 1.1.3 Customer List
Schedule 1.1.4 Furniture, Fixtures and Equipment
Schedule 1.2.1 List of Styles
Schedule 1.2.2 List of Tradenames
Schedule 2.1 List of Employees
Schedule 5.2 Purchase Price Allocation
Schedule 6.6 Product Liability Insurance Policies
Schedule 6.7 Litigation
</TABLE>
<PAGE> 6
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.1.2 License Agreement
Exhibit 1.1.5 Sublease Agreement
Exhibit 3 Independent Sales Representative
Exhibit 4 Restrictive Covenant Agreement
Exhibit 5.1 Promissory Note
Exhibit 5.4 Security Agreement
Exhibit 9.1.9 Form of Employee Release
Exhibit 9.1.10 Form of Consent to Assignment
Exhibit 9.2.8 Bill of Sale
</TABLE>
<PAGE> 7
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement ("Agreement"), is made and entered into
as of July 1, 1995 by and between Beeba's Creations, Inc., a California
corporation ("Seller"), and The Design and Source Holding Company, Ltd., a New
York corporation ("Buyer"), with respect to the following facts:
RECITALS
A. Seller is in the business of designing, manufacturing (through
contract manufacturers), and selling (at the wholesale level) clothing and
produces a number of different lines of clothing through several different
divisions within Seller's corporate organization.
B. Seller contracts for the manufacture of its garments in
several countries outside the United States and leases a warehouse/distribution
facility in San Diego, California and a showroom facility in New York, New
York.
C. Buyer desires to acquire from Seller, and Seller is willing to
transfer to Buyer, certain of the assets and liabilities used in the designing,
manufacturing (through contract manufacturers) and selling (at the wholesale
level) of Seller's junior, girls and maternity woven tops, junior, girls and
maternity woven bottoms, junior, girls and maternity knit tops and junior,
girls and maternity knit bottoms product lines (the " Business"), all upon the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows.
1. Purchase and Sale of Assets. Subject to the terms and
conditions of this Agreement, Buyer agrees to purchase from Seller, and Seller
agrees to sell, transfer, convey, and deliver to Buyer the assets described in
this Section 1 (collectively, the "Assets"). The purchase and transfer of the
Assets will take place on two separate closing dates.
1.1 First Closing Date. Concurrently with the execution
of this Agreement (the "First Closing Date"), Seller shall sell to Buyer and
Buyer shall purchase from Seller, the following:
1.1.1 The patterns and styles library listed on
Schedule 1.1.1 hereto;
1.1.2 A license in all copyrights associated
with and owned or licensed by Seller in connection with the items listed on
Schedule 1.1.1 hereto pursuant to the terms and conditions of a License
Agreement in the form attached hereto as Exhibit 1.1.2.
<PAGE> 8
1.1.3 The list of all customers of the Business
set forth on Schedule 1.1.3 hereto;
1.1.4 The furniture, fixtures and equipment
listed on Schedule 1.1.4 hereto;
1.1.5 The right to use of a portion of the New
York showroom, pursuant to the terms and conditions of the Sublease Agreement
attached hereto as Exhibit 1.1.5; and
1.1.6 The goodwill associated with the Business.
1.2 Second Closing Date. On November 10, 1995 (the
"Second Closing Date"), Seller shall sell to Buyer and Buyer shall purchase
from Seller the following:
1.2.1 The inventory as of October 31, 1995 of
finished goods of the garment styles listed on Schedule 1.2.1 hereto (the
"Styles"); and
1.2.2 The tradenames listed on Schedule 1.2.2
hereto, to be transferred pursuant to the terms and conditions of the License
Agreement; provided, however, that Seller may delay transfer of the trade names
until it has collected all accounts receivable from sales of inventory of the
Styles prior to October 31, 1995; however, the license of the trademarks is
effective as of July 1, 1995.
1.3 Assignment of Trade Names and Copyrights. Seller
also agrees upon satisfaction and performance of all of the obligations of
Buyer under the Security Agreement of even date (the "Security Agreement")
between Seller, as secured party, and Buyer, as debtor, that Seller shall
execute such further instruments and documents and are reasonably requested by
Buyer or its counsel in order to assign the tradenames and copyrights described
in the License Agreement to Buyer.
2. Assumption of Liabilities. Buyer shall assume and be
responsible for the following liabilities of Seller (collectively, the
"Liabilities") and no others:
(i) all accrued vacation time for the employees listed
and in the amounts set forth on Schedule 2.1 hereto such employees being those
who will terminate their employment with Seller, and commence employment with
Buyer, as of July 15, 1995 (the "Terminating Employees");
(ii) all commissions due to independent sales
representatives for customer sales orders for Styles taken prior to the Second
Closing Date, but not shipped to customers until after the Second Closing Date;
and
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<PAGE> 9
3. Independent Sales Representative Agreement. Concurrently with
the execution of this Agreement, the parties will enter into an Independent
Sales Representative Agreement (the "Independent Sales Representative
Agreement") in the form of Exhibit 3 hereto, pursuant to which Seller shall
appoint Buyer independent sales representative for sales of the Styles from the
date hereof through the Second Closing Date.
4. Restrictive Covenant Agreement. Concurrently with the
execution of this Agreement, the parties will enter into a Restrictive Covenant
Agreement in the form hereto pursuant to which Seller shall covenant not to
compete with the Business in the United States for a period of three years.
5. Purchase Price.
5.1 Price. In full payment for all of the Assets (except
for the inventory of finished goods of the Styles to be transferred and paid
for on the Second Closing Date), Buyer will deliver to Seller concurrently with
the execution of this Agreement:
(i) $750,000 in immediately available funds;
(ii) its Promissory Note in the form attached
hereto as Exhibit 3.1 (the "Promissory Note") in the principal amount of
$950,000; and
(iii) $49,003.22 as reimbursement for gross
payroll costs, employer taxes, employee benefits and travel costs related to
the Terminating Employees for the period from July 1, 1995 through July 31,
1995.
5.2 Allocation. The purchase price shall be allocated
among the Assets as set forth on Schedule 5.2. Buyer shall be responsible for
payment of any sales taxes incurred in connection with the transactions
contemplated in this Agreement.
5.3 Payment for Styles. On November 10, 1995, Buyer
shall pay Seller in immediately available funds for the inventory of Styles
transferred on the Second Closing Date. Upon receipt of such payment, Seller
shall ship the inventory of Styles to Buyer's warehouse on a freight collect
basis. In the event that Buyer fails to make payment for the inventory of
Styles, refuses delivery of the Styles or is otherwise unable to accept
delivery of the Styles and such Styles are warehoused at Seller's warehouse
building, Buyer shall pay Seller $30,000 per month or any portion thereof, for
storage of the inventory of Styles. The purchase price for the Styles shall be
the Full Landed Duty Paid Cost of the Styles as defined in Section 5.1 of the
Independent Sales Representative Agreement less the amount of liabilities
assumed by Buyer for accrued vacation time for Terminating Employees under
Section 2(i) hereof. The calculation of the Full Landed Duty Paid Cost for the
Styles is likely to contain good faith estimates at November 10, 1995. On
November 30, 1995, Seller shall prepare and deliver to Buyer a schedule (a
"Final Amount Schedule"), which shall identify each item used in calculating
the final Landed Duty Paid
3
<PAGE> 10
Cost for the Styles (the "Final Amount"). Upon receipt of the Final Amount
Schedule, Buyer shall be permitted during the 30-day period following such
receipt (the "Review Period") to examine the books, records and inventory of
Seller and to deliver a written statement to Seller of any objections to the
Final Amount Schedule. If no such statement is delivered to Seller by Buyer
within the Review Period, the Final Amount shall be binding on Seller and
Buyer. If, however, Buyer delivers such a statement to Seller, then Seller and
Buyer shall attempt to resolve the objections contained therein. Failing their
agreement, such objections shall be resolved by arbitration in accordance with
Section 14.3 hereof, which determination shall be conclusive and binding upon
the parties hereto. Within five business days after the last to occur of (i)
the end of the Review Period, or (ii) if Buyer delivers to Seller a statement
of objections to the Final Amount Schedule, the resolution of any such
objections, or (iii) failing such resolution, the date of determination as to
such objections by arbitration, Seller or Buyer, as appropriate, shall make a
final payment on the basis of the Final Amount, as adjusted by the resolution
or arbitral determination of any objections.
5.4 Security for Obligations. Buyer's obligations
hereunder shall be secured pursuant to the terms of a Security Agreement,
including appropriate UCC filings, in the form attached hereto as Exhibit 5.4.
5.5 Credits and Chargebacks. All credits and chargebacks
arising after the Second Closing Date shall be allocated properly between the
respective parties. Such chargebacks are to be determined mutually by Steven
P. Wyandt or Arjun C. Waney for the Seller or Haresh Tharani or Pamela J.
Grunder for the Buyer.
6. Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer on each of the First Closing Date and the
Second Closing Date (as appropriate, the "Closing Date"), as follows:
6.1 Organization and Good Standing. Seller is a
corporation duly organized, validly existing and in good standing under the
laws of the State of California, and has full corporate power and authority to
own its properties and carry on its business as it is now being conducted.
6.2 Authorization. Seller has the full corporate power
and authority to enter into this Agreement and each of the agreements which is
an exhibit to this Agreement (the "Ancillary Agreements") and to perform all
its obligations hereunder and under the Ancillary Agreements. This Agreement
and the Ancillary Agreements have been duly authorized by all required Board
and Shareholder action of Seller and, upon execution, delivery, and
satisfaction of the conditions stated herein, shall constitute the legal, valid
and binding obligations of Seller enforceable against Seller in accordance with
their terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditor's rights generally and by general principles of equity.
No approval or authorization of any governmental authority or agency or any
private entity is required, which has
4
<PAGE> 11
not been obtained, for the sale of the Assets by Seller to Buyer and the
performance by Seller of its obligations under this Agreement and under the
Ancillary Agreements.
6.3 No Restrictions. As of the Closing Date, neither the
execution or delivery of this Agreement or the Ancillary Agreements nor the
consummation of the transactions contemplated hereby or thereby will violate
any provision of Seller's Articles of Incorporation or Bylaws, or conflict with
or result in a breach of, or give rise to a right of termination under, or
accelerate the performance required by, any terms of any agreement to which
Seller is a party or to which it or its assets is subject, or constitute a
default thereunder, or result in the creation of any lien, claim or encumbrance
upon, or give rise to rights in any other person to, the Assets, or violate any
law, ordinance, rule, regulation, judgment, writ, injunction, or court order to
which Seller is subject.
6.4 Title to Assets; Absence of Encumbrances. As of the
First Closing Date and the Second Closing Date, Seller will have good and
marketable title to such of the Assets as are then being sold and transferred,
free and clear of any and all liens, mortgages, pledges, security restrictions,
prior assignments, claims, leases, encumbrances or rights of others of any kind
whatsoever.
6.5 Financial Information Concerning Seller. Buyer
acknowledges receipt of the 1994 Annual Report to shareholders of Seller, its
SEC Form 10-K report for the fiscal year ended August 31, 1994 and its SEC Form
10-Qs for the quarters ended November 30, 1994, February 28, 1995 and May 31,
1995.
6.6 Product Liability Insurance. Schedule 6.6 hereto
contains a true, correct and complete list of all policies of insurance which
insure or have insured Seller for product liability claims, which policies have
been in force at any time during the last five years. True, correct and
complete copies of each such policy, including all amendments, riders,
assignments and relevant correspondence relating thereto, have been furnished
by Seller to Buyer. The policy which provides current coverage is in full
force and effect and free from any right of termination (other than standard
provisions regarding cancellation after a reasonable notice period) on the part
of the insurance carrier.
6.7 Litigation. There are no private or governmental
actions, suits, proceedings, arbitrations, administrative or other proceedings
or claims, or investigations by governmental agencies (domestic or foreign),
pending or, to the best of Seller's knowledge, threatened against or involving
Seller or the Assets in which the amount in controversy exceeds $50,000, except
as set forth on Schedule 6.7. There is no outstanding judgment, order,
injunction or decree of any court or governmental agency (domestic or foreign)
or any arbitration decision against or naming Seller or involving the Assets.
There is no lawsuit, proceeding or investigation pending or, to the best of
Seller's knowledge, threatened against Seller which might question the validity
or propriety of this Agreement or the consummation of any of the transactions
contemplated hereby.
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<PAGE> 12
6.8 Broker's or Finder's Fees. No agent, broker, person
or firm acting on behalf of Seller is, or will be, entitled to any commission
or fees from any party in connection with this Agreement.
6.9 Representations Accurate at Closing Date. The
representations and warranties and all information contained in this Agreement
(including any of the Exhibits, Schedules or certificates delivered pursuant
hereto) or in any writing delivered to Buyer by Seller will be true, correct
and complete in all respects as of the Closing Date as though then made and as
though the Closing Date were substituted for the date of this Agreement
throughout this Agreement except as affected by the transactions provided for,
or as otherwise expressly contemplated by, this Agreement.
7. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to Seller on each Closing Date, as follows:
7.1 Organization and Good Standing. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of New York and has full corporate power and authority to own
its properties and carry on its business as it is now being conducted.
7.2 Authorization. Buyer has the full corporate power
and authority to enter into this Agreement and the Ancillary Agreements and to
perform all its obligations hereunder and under the Ancillary Agreements. This
Agreement and the Ancillary Agreements have been duly authorized by all
required Board and Shareholder action of Buyer and, upon execution, delivery,
and satisfaction of the conditions stated herein, shall constitute the legal,
valid and binding obligations of Buyer enforceable against Buyer in accordance
with their terms, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting the
enforcement of creditor's rights generally and by general principles of equity.
No approval or authorization of any governmental authority or agency or any
private entity is required, which has not been obtained, for the purchase of
the Assets by Buyer from Seller and the performance by Buyer of its obligations
under this Agreement and under the Ancillary Agreements.
7.3 No Restrictions. As of the Closing Date, neither the
execution or delivery of this Agreement or the Ancillary Agreements nor the
consummation of the transactions contemplated hereby or thereby will conflict
with or result in a breach of, or give rise to a right of termination under, or
accelerate the performance required by, any terms of any agreement to which
Buyer, or any shareholder, director, officer, employee, or other agent of Buyer
(an "Affiliate of Buyer") is a party or to which Buyer or any Affiliate of
Buyer, or its assets is subject, or constitute a default thereunder, or result
in the creation of any lien, claim or encumbrance upon, or give rise to rights
in any other person to, any assets of Buyer or any Affiliate of Buyer, or
violate any law, ordinance, rule, regulation, judgement, writ, injunction, or
court order to which Buyer or any Affiliate of Buyer is subject.
6
<PAGE> 13
7.4 Tangible Net Worth. Buyer shall have immediately
prior to the First Closing Date, Net Worth and cash on hand of at least
$900,000. For these purposes, Net Worth shall mean total shareholders' equity
in accordance with generally accepted accounting principles.
7.5 Litigation. There are no private or governmental
actions, suits, proceedings, arbitrations, administrative or other proceedings
or claims, or investigations by governmental agencies (domestic or foreign),
pending or, to the best of Buyer's knowledge, threatened against Buyer or
involving any of its assets or properties or against an Affiliate of Buyer or
involving any of the assets of any Affiliate of Buyer. There is no outstanding
judgment, order, injunction or decree of any court or governmental agency
(domestic or foreign) or any arbitration decision against or naming Buyer or an
Affiliate of Buyer. There is no lawsuit, proceeding or investigation pending
or, to the best of Buyer's knowledge, threatened against Buyer or an Affiliate
of Buyer which might question the validity or propriety of this Agreement or
the consummation of any of the transactions contemplated hereby.
7.6 Broker's or Finder's Fees. No agent, broker, person
or firm acting on behalf of Buyer is, or will be, entitled to any commission or
fees from any party in connection with this Agreement.
7.7 Representations Accurate at Closing Date. The
representations and warranties of Buyer and all information contained in this
Agreement (including any of the Schedules or certificates delivered pursuant
hereto) or in any writing delivered to Seller by Buyer will be true, correct
and complete in all respects as of the Closing Date as though then made and as
though the Closing Date were substituted for the date of this Agreement
throughout this Agreement except as affected by the transactions provided for,
or as otherwise expressly contemplated by, this Agreement.
8. Covenants.
8.1 Covenants of Seller. From and after the date hereof
to the Second Closing Date in respect of Sections 8.1.1, 8.1.2 and 8.1.3, and
thereafter in respect of Section 8.1.4 and 8.1.5, Seller hereby covenants and
agrees that:
8.1.1 Access to Documents; Opportunity to Ask
Questions. Seller will make confidentially available for inspection by Buyer
or its representatives, during normal business hours, Seller's properties,
corporate records, books of account, contracts and all other documents related
to the Business and the Assets and Liabilities reasonably requested by Buyer,
its employees, counsel, auditors and other representatives in order to permit
Buyer and such representatives to make a reasonable inspection and examination
of the properties, business and affairs of Seller with respect to the Business.
The furnishing of any information to Buyer or any investigation made by Buyer
or its authorized representatives or any knowledge of the principals or
employees of Buyer concerning Seller or the Business shall not affect or
otherwise diminish
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<PAGE> 14
or obviate the representations and warranties made by Seller in this Agreement
and Buyer's right to rely thereon.
8.1.2 Quality Control. Seller shall cooperate
with Buyer in resolving quality control and manufacturing problems relating to
the Styles.
8.1.3 Physical Inventory. Seller will take a
physical inventory of the Styles as of the Second Closing Date, at Buyer's
expense at the actual cost incurred by Seller. Seller shall promptly deliver
the results of such inventory to Buyer and Buyer shall have the right to have a
representative present during the inventory.
8.1.4 Future Claims. Seller will give Buyer
prompt written notice of its receipt of (i) any claim concerning or relating to
the Assets, or (ii) any product liability claim involving products associated
with the Business.
8.1.5 Name Change. Seller shall cause a vote to
be taken at its next regularly scheduled annual shareholder's meeting on a
proposal to amend its Articles of Incorporation to change its corporate name to
a name that bears no resemblance to Beeba's Creations, Inc. and that will not
interfere in any jurisdiction with the use by Buyer of such name. Upon
effectiveness of the license of Seller's tradenames to Buyer pursuant to
Section 1.2.2 hereof and the License Agreement, (a) Seller shall file a
Fictitious Business Name Statement other than Beeba's Creations, Inc. or a
similar name, and shall cease doing business under that tradename, and (b)
Seller shall consent to Buyer's filing a Fictitious Business Name Statement to
do business as "Beeba's Creations, Inc."
8.2 Covenants of Buyer. From and after the date hereof
to the Second Closing Date and thereafter as applicable, Buyer hereby covenants
and agrees that:
8.2.1 Future Operations. Buyer acknowledges
that its past relationship with Seller has provided it with access to certain
proprietary information. Buyer shall conduct its future operations in
compliance with the terms of the License Agreement and the confidentiality
provisions contained in Section 12 hereof.
8.2.2 No Market Transactions. In connection
with the negotiation of this Agreement, Buyer may receive material non-public
information concerning Seller. Buyer will treat all such information as
Confidential, as defined in Section 12 hereof. As a consequence of such
access, Buyer agrees that for a period of one year following the First Closing
Date, neither it nor any person or entity affiliated with it, will purchase any
of the capital stock of Seller or any security convertible into the capital
stock of Seller, except pursuant to an exercise of an option or employee
benefit plan or other right in such person's possession at the First Closing
Date, and will not sell any capital stock of Seller or any security convertible
into the capital stock of Seller.
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<PAGE> 15
8.2.3 Financial Information. Prior to the First
Closing Date, Buyer shall provide Seller with the following financial
information, prepared in accordance with GAAP, consistently applied:
(i) Buyer's most recent interim
unaudited financial statement;
(ii) statements of Buyer's projected
monthly income and cash flows for a period of 12 months after the First Closing
Date;
(iii) Buyer's projected Balance
Sheets for a period of 12 months after the First Closing Date.
Prior to the Second Closing Date, Buyer shall provide Seller with the following
financial information, prepared in accordance with GAAP, consistently applied:
(i) Buyer's most recent unaudited
financial statement.
9. Conditions Precedent.
9.1 Conditions Precedent to the Obligations of Seller at
the First Closing Date. The obligation of Seller to sell the Assets on the
First Closing Date is, at the option of Seller, subject to satisfaction by
Buyer of the following conditions, each of which shall be deemed material.
9.1.1 Representations and Warranties. Each of
the representations and warranties of Buyer contained in this Agreement shall
be true, correct and complete in all respects.
9.1.2 Performance of Covenants. Buyer shall have
performed and complied in all respects to the reasonable satisfaction of Seller
with the covenants and provisions in this Agreement required herein to be
performed or complied with by Buyer on or before the First Closing Date.
9.1.3 Authorization; Consents. All corporate
action necessary to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by Buyer. All notices to, and declarations,
filings and registrations with, and consents, authorizations, approvals and
waivers from, governmental and regulatory bodies required to enable Buyer to
consummate the transactions contemplated hereby, which, either individually or
in the aggregate, if not made or obtained, would have a material adverse effect
shall have been made or obtained.
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<PAGE> 16
9.1.4 Legal Action. No action or proceeding
shall have been instituted or threatened, or claim or demand made before any
court or other governmental body, seeking to restrain or prohibit or to obtain
damages with respect to the consummation of any of the transactions
contemplated hereby or which in the reasonable opinion of Seller makes it
inadvisable to consummate such transactions.
9.1.5 Good Standing. Buyer shall have delivered
to Seller certificates from the Secretary of State of New York to the effect
that Buyer is in good standing, and a certificate as to the non-default tax
status of Buyer in New York.
9.1.6 Satisfaction with Financial Projections.
Seller shall have reviewed the financial statements, including financial
projections, delivered pursuant to Section 8.2.3, and shall be satisfied, in
its discretion, that the presumptions underlying Buyer's projections are
reasonable and that Buyer will have sufficient cash flow to meet the payment
terms called for under the Promissory Note.
9.1.7 Cash Consideration. Buyer shall have
delivered to Seller the cash consideration specified in Section 5.
9.1.8 Delivery of Related Agreements. Buyer
shall have delivered to Seller executed copies of each of the following
agreements, each of which are Exhibits to this Agreement:
(i) Promissory Note;
(ii) Security Agreement, including
UCC-1's;
(iii) Independent Sales
Representative Agreement;
(iv) Sublease Agreement; and
(v) License Agreement.
9.1.9 Employee Releases. Seller shall have
received a release, in the form attached hereto as Exhibit 9.1.9, from each
Terminating Employee.
9.1.10 Consents to Assignment. Seller shall have
received a consent to assignment, in the form attached hereto as Exhibit
9.1.10, from each of Seller's commissioned sales representatives who will
receive commissions that will be payable by Buyer pursuant to its assumption of
the Liabilities in accordance with Section 2.
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9.1.11 Officers Certificate. Seller shall have
received a certificate from the President and Chief Financial Officer of Buyer,
dated the Closing Date, to the effect set forth in Section 9.1.1, 9.1.2, 9.1.3
and 9.1.4.
9.1.12 Secretary's Certificate. Seller shall have
received a certificate from the Secretary of Buyer, dated the Closing Date,
certifying to the resolutions in respect of this Agreement adopted by the Board
of Directors and Shareholders of Buyer.
9.2 Conditions Precedent to Buyer's Obligations at the
First Closing Date. The obligation of Buyer to consummate the purchase of the
Assets on the First Closing Date is, at the option of Buyer, subject to
satisfaction by Seller of the following conditions, each of which shall be
deemed material.
9.2.1 Representations and Warranties. Each of
the representations and warranties of Seller contained in this Agreement shall
be true, correct and complete in all respects on the Closing Date with the same
force and effect as if made on the Closing Date.
9.2.2 Performance of Covenants. Seller shall
have performed and complied in all respects to the reasonable satisfaction of
Buyer with the covenants and provisions in this Agreement required herein to be
performed or complied with by Seller on or before the Closing Date.
9.2.3 Authorization; Consents. All corporate
action necessary to authorize the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby shall
have been duly and validly taken by Seller. All notices to, and declarations,
filings and registrations with, and consents, authorizations, approvals and
waivers from, governmental and regulatory bodies required to consummate the
transactions contemplated hereby, which, either individually or in the
aggregate, if not made or obtained, would have a material adverse effect shall
have been made or obtained; provided, however, that Buyer expressly waives
Seller's obligation to deliver the Master Lessor's consent to the Sublease
Agreement.
9.2.4 Legal Action. No action or proceeding
shall have been instituted or threatened, or claim or demand made before any
court or other governmental body, seeking to restrain or prohibit, or to obtain
damages with respect to, the consummation of any of the transactions
contemplated hereby, or which might materially and adversely affect the Assets
or increase the assumed Liabilities, or which in the reasonable opinion of
Buyer makes it inadvisable to consummate such transactions.
9.2.5 Good Standing Certificates. Seller shall
have delivered to Buyer a certificate from the Secretary of State of California
to the effect that Seller is in good standing in such jurisdiction, and a
certificate as to the non-default tax status of Seller in California.
11
<PAGE> 18
9.2.6 No Adverse Change. There shall be no
material adverse change, whether or not covered by insurance, in the Assets or
increase in the assumed Liabilities.
9.2.7 Delivery of Related Agreements. Seller
shall have delivered to Buyer executed copies of each of the following
agreements, each of which are Exhibits to this Agreement:
(i) Independent Sales Representative
Agreement;
(ii) Restrictive Covenant Agreement;
(iii) Sublease Agreement; and
(iv) License Agreement.
9.2.8 Bill of Sale. Seller shall have executed a
bill of sale in the form of Exhibit 9.2.8 and shall have delivered it to Buyer
along with all such other deeds, bills of sale, endorsements, assignments,
drafts, checks and other documents of transfer, conveyance and assignment valid
to transfer all of Seller's right, title and interest in and to the Assets to
Buyer and to vest in Buyer good and indefeasible title to the Assets, in form
and substance satisfactory to Buyer and Buyer's counsel.
9.2.9 Seller's Records. Buyer shall have
received Seller's records pertaining to the Assets. (Unless otherwise
requested by Buyer, delivery of the foregoing will not be effected by physical
delivery at the Closing but by surrendering to Buyer access to the premises
containing the foregoing.)
9.2.10 Officers' Certificate. Buyer shall have
received a certificate signed by the President and Chief Financial Officer of
Seller to the effect set forth in Sections 9.2.1, 9.2.2, 9.2.3, 9.2.4 and
9.2.6, dated the Closing Date.
9.2.11 Secretary's Certificate. Buyer shall have
received a certificate from the Secretary of Seller, dated the Closing Date,
certifying to the resolutions in respect of this Agreement adopted by the Board
of Directors and Shareholders of Seller.
9.3 Conditions Precedent to Seller's Obligations at the
Second Closing Date. The obligation of Seller to sell the Assets to be
transferred on the Second Closing Date is, at the option of Seller, subject to
satisfaction by Buyer of the conditions set forth in Sections 9.1.1, 9.1.2,
9.1.3, 9.1.4, 9.1.5, 9.1.7, 9.1.11 and 9.1.12, as of the Second Closing Date,
substituting the term "Second Closing Date" for "First Closing Date" wherever
it appears in such sections.
9.4 Conditions Precedent to Buyer's Obligations at the
Second Closing Date. The obligation of Buyer to consummate the purchase of the
Assets to be transferred on the Second
12
<PAGE> 19
Closing Date is, at the option of Buyer, subject to satisfaction by Seller of
the conditions set forth in Sections 9.2.1, 9.2.2, 9.2.3, 9.2.4, 9.2.5, 9.2.6,
9.2.8, 9.2.9, 9.2.10 and 9.2.11, as of the Second Closing Date, substituting
the term "Second Closing Date" for "First Closing Date" wherever it appears in
such sections.
10. Indemnification.
10.1 General. Each party hereto agrees to and does hereby
indemnify, defend and hold harmless ("Indemnify") each other party hereto and
their heirs, successors, assigns, directors, officers, employees, agents and
affiliates (collectively the "Indemnified Representatives"), against any and
all losses, damages, costs and expenses, including reasonable attorneys' fees
(collectively the "Losses"), whether upon a claim by a third party or
otherwise, incurred by reason of (i) the failure of any representation or
warranty of the indemnifying party contained herein to be true and correct in
all respects, or (ii) the failure by the indemnifying party to fully comply
with all covenants or agreements contained herein. Buyer shall also indemnify
Seller and its Indemnified Representatives from (i) all claims for accrued
vacation pay for the Terminating Employees, and (ii) any Losses that Buyer may
suffer arising out of the conduct of the Business after the Closing Date.
Seller shall also indemnify Buyer against any Losses Buyer may suffer arising
out of (i) the conduct of the Business prior to the Closing Date, (ii) any
claim or lawsuit by a shareholder of Seller in its capacity as such, (iii) the
failure or alleged failure to comply with any applicable bulk sales law, or
(iv) Buyer becoming obligated for any liability or obligation of Seller not
assumed by Buyer pursuant to Section 2 hereof.
10.2 Indemnification Notice and Procedure. In connection
with any claim which might give rise to indemnification hereunder, the
indemnified party shall give prompt written notice to the indemnifying party
specifying the nature of the claim in reasonable detail and the amount thereof,
to the extent known to the indemnified party but the failure to so notify the
indemnifying party shall not relieve the indemnifying party from any liability
which he or it may have to the indemnified party hereunder, unless and to the
extent that the indemnifying party is ultimately found to have been prejudiced
thereby and then only to that extent. The indemnifying party shall defend
against such claim at its own cost and expense. If the claim is by a third
party, the indemnified party shall be entitled to participate in the defense of
such claim, by counsel reasonably acceptable to the indemnifying party, at the
indemnified parties' cost and expense. The indemnified party shall cooperate
with the indemnifying party in such defense. The indemnifying party shall
consult with the indemnified party prior to settling or otherwise disposing of
any such claim.
11. Survival. All representations, warranties, covenants,
agreements and indemnifications contained in this Agreement, including any
Exhibit, Schedule or certificate delivered pursuant hereto, or in any other
document or statement delivered in connection herewith, shall survive the
execution and delivery of this Agreement and the Closing Date and any
investigation made by any party or on his or its behalf for a period of two
years after Closing.
13
<PAGE> 20
If this Agreement is terminated, the provisions of Sections 8.2.1, 10, 12, 13,
14.1, 14.2, 14.5, 14.6, 14.7, and 14.8 shall continue to apply.
12. Confidentiality.
12.1 Protection of Confidential Information. In
connection with the transactions contemplated hereby, each party to this
Agreement may have access to Confidential Information (as defined below) of the
other party. Each party will (i) use the same effort to protect the
Confidential Information of the other party as it does with respect to its own
similar information, (ii) allow access to the Confidential Information only to
those of its employees having a need to know, and (iii) give appropriate
instructions to its employees concerning the nature of the Confidential
Information and the steps which its employees are to take in safeguarding such
information. Each agreement between a party to this Agreement and its
employees concerning confidential information shall be deemed to apply to the
Confidential Information of the other party. All Confidential Information in
the possession of Seller concerning the Business shall be considered
Confidential Information of Buyer commencing on the first Closing Date.
Confidential Information shall include, but not be limited to
financial projections; lists of vendors, suppliers, customers, potential
customers and employees, including all statistical and financial information
associated therewith; customer credit information; sales, marketing and
strategic plans; and pricing policies. Each party has maintained, and will
continue to maintain, its Confidential Information as its own private,
proprietary and confidential information and as its business trade secrets.
Confidential Information disclosed to a party hereto will sometimes, but not
always, be marked "Confidential" to designate its status. Where so marked, not
all pages may be so marked. The lack of marking will not be an indication that
such information is not Confidential Information.
Each party shall take every reasonable precaution to prevent
disclosure to any unauthorized person or entity and any unauthorized use of the
Confidential Information; provided, however, that Buyer recognizes that Seller
will be obligated to file a Current Report on Form 8-K and an Annual Report on
Form 10-K, as well as other reports regarding the transaction with the SEC and
nothing contained herein shall prohibit disclosure required by the Securities
Exchange Act of 1934, the rules and regulations promulgated thereunder or in
order for Seller to prepare its financial reports in accordance with generally
accepted accounting principles.
Neither party will, at any time, use any Confidential
Information of the other party in any manner which may, directly or indirectly,
have an adverse effect on the business or potential business of the other
party, nor will either party perform any acts which would tend to reduce the
proprietary value of such Confidential Information to other party.
12.2 Enforcement. In the event of a breach or threatened
breach of the obligation to maintain Confidential Information without
disclosure or unauthorized use, the following agreements, procedures and
remedies will apply:
14
<PAGE> 21
12.2.1 A breach would cause irreparable harm, and
the injured party would not have an adequate remedy at law with respect to
disclosure or threatened disclosure of such Confidential Information.
12.2.2 A breach or threatened breach alleged in a
verified complaint or affidavit filed with a proper Federal or State court
shall entitle the injured party to the immediate issuance, without notice or
hearing, of a temporary restraining order precluding the continuance of the
conduct in question until hearing on a preliminary injunction.
12.2.3 A preliminary injunction may be issued,
without bond, upon a proper showing of (i) the breach or threatened breach,
(ii) the confidential nature of the information, which may be shown by
affidavit and in camera to the court, (iii) ownership of the information by the
injured party, and (iv) that the Confidential Information was furnished to the
other party.
12.2.4 Upon issuance of a preliminary injunction,
and upon issuance of a permanent injunction, or upon a court finding of a
breach or threatened breach, the injured party shall be entitled to an award of
its actual attorney's fees and costs incurred in pursuing the remedy involved.
12.2.5 The remedies provided herein are not
exclusive of any other lawful remedies which may be available to either party.
13. Expenses. Each party shall be responsible for expenses
incurred by it in connection with the negotiation and implementation of this
Agreement.
14. Miscellaneous Provisions.
14.1 Waiver of Bulk Sale. Buyer hereby waives compliance
with California Bulk Sale requirements to the extent they apply to the sale of
the Assets contemplated by this Agreement.
14.2 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California without giving any effect to principles of conflicts of laws.
14.3 Arbitration. Except for injunctive proceedings
brought in connection with an alleged breach of paragraph 1.2.2, 4, 8.1.5 or
12, all disputes which cannot be resolved by the parties shall be determined,by
binding arbitration before a single arbitrator selected by and acting in
accordance with the rules for arbitration of commercial disputes of the
American Arbitration Association. Any arbitration shall be held in San
Francisco, California. The provisions of California Code of Civil Procedure
Section 1283.05 are applicable to this agreement to arbitrate.
15
<PAGE> 22
14.4 Jurisdiction. Any judicial or other proceeding
permitted to be brought by the parties to this Agreement or to enforce any
arbitral award shall be brought only in the courts of the State of California
for the County of San Francisco, or in the United States District Court for the
Northern District of California, or, if subject to arbitration, only pursuant
to paragraph 14.3 hereof. Each of the parties to this Agreement accepts for
itself the exclusive jurisdiction of the aforesaid courts or arbitration, as
applicable, and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement, but neither party waives its right to appeal
any judgment or order. The foregoing consent to jurisdiction shall not
constitute a general consent to service of process in the State of California
for any purpose except as provided above and shall not be deemed to confer
rights on any person other than the respective parties to this Agreement.
14.5 Attorneys' Fees. The prevailing party in any
litigation or arbitration shall be entitled to an award of its reasonable
attorneys' fees and costs incurred.
14.6 Notices. All notices and other communications
hereunder shall be in writing and shall be given by personal delivery, courier,
facsimile transmission or first class certified United States Mail, postage
prepaid, addressed to the address below stated of the party to which notice is
given, or to such other address as such party may have fixed by notice:
To Seller: Beeba's Creations, Inc.
9220 Activity Road
San Diego, CA 92126
Attn: President
FAX (619) 549-6857
To Buyer: The Design and Source Holding Company, Ltd.
150 Commerce Road
Carlstadt, NJ 07072
Attn: President
FAX (201) 507-0894
Notices shall be effective upon courier delivery, personal delivery,
acknowledgment of receipt of facsimile or receipt of first class certified
United States mail. Notices by facsimile must be confirmed by one of the other
methods of transmission, but will be deemed effective upon confirmation of
receipt of the facsimile.
14.7 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, provided that this Agreement and all rights and obligations hereunder
may not be assigned or transferred without the prior written consent of the
other party hereto.
16
<PAGE> 23
14.8 Prior Agreements; Amendments and Waivers. This
Agreement, including the related Schedules and Exhibits, sets forth the entire
understanding of the parties with respect to the transactions contemplated
hereby and supersedes all prior agreements and understandings between the
parties with respect to the subject matter hereof. This Agreement may be
amended only by a writing signed by all of the parties hereto. Any breach of
or failure to comply with any covenant, agreement, warranty or representation
herein may be waived only in a written instrument making specific reference to
this Agreement signed by the party against whom enforcement of such waiver is
sought.
14.9 Severability. In case any provision of this
Agreement shall be held to be invalid, illegal or unenforceable under any
particular circumstances or for any reason whatsoever, (i) the validity,
legality and enforceability of the remaining provisions of this Agreement, or
the validity, legality or enforceability under any other circumstances shall
not in any way be affected or impaired thereby and (ii) to the fullest extent
possible consistent with applicable law, the provisions of this Agreement shall
be deemed revised, and shall be construed so as to give effect to the intent
manifested by this Agreement.
14.10 Counterparts. This Agreement may be executed 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.
14.11 Further Assurances. Each of the parties shall take
such further action and execute and deliver such further documents as the other
party may reasonably request to effect the transaction contemplated by this
Agreement.
14.12 Headings. The headings in this Agreement are for
reference purposes only and shall not constitute a part hereof.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first above written.
<TABLE>
<S> <C>
BEEBA'S CREATIONS, INC. THE DESIGN AND SOURCE HOLDING
COMPANY, LTD.
By: STEVEN P. WYANDT By: PAMELA J. GRUNDER
-------------------------------- ----------------------------
Steven P. Wyandt Pamela J. Grunder
President President
By: LINDA K. MASKOVICH By: HARESH THARANI
-------------------------------- ---------------------------
Linda K. Maskovich Haresh Tharani
Secretary Secretary
</TABLE>
17
<PAGE> 24
Schedule 1.2.2
THE LICENSED PROPERTY
Trade Names
Beeba's Creations, Inc.
Beeba's
Trademarks
BCI Clothing Co.
BCI Jr.
In Short
ISD
Kyoto
Kyoto Kasuals
Pinot Noir
Red Rover
Bim-Bom-Bay
Copyrights
All copyrights associated with the library of patterns and styles
identified on Schedule 1.1.1 of the Asset Purchase Agreement, of even date
herewith, between Licensor, as seller, and Licensee, as buyer.
<PAGE> 25
Schedule 5.2
PURCHASE PRICE ALLOCATION
<TABLE>
<S> <C>
Patterns and styles library $ 300,000
License in copyrights 225,000
Customers list 400,000
Furniture and fixtures 15,000
Equipment 10,000
Leasehold improvements 25,000
Goodwill 200,000
Tradenames 225,000
Covenants not to compete 300,000
----------
$1,700,000
==========
</TABLE>
The cash portion of the purchase price ($750,000.00) shall be allocated to the
customer list, furniture and fixtures, equipment, leasehold improvements, and
covenant not to compete. The promissory note portion of the purchase price
($950,000.00) shall be allocated to the patterns and styles library, the
license for the copyrights, the goodwill and the tradenames.
<PAGE> 26
Schedule 6.7
Litigation
<TABLE>
<S> <C>
1. Goody's Family Clothing, Inc. v. Beeba's Creations, Incorporated.
2. Ann M. Childre v. Beeba's Creations, Inc.
3. Lau v. Body Drama, Inc., Beeba's Creations, Inc., et al.
4. Nash International Group, Ltd. v. Beeba's Creations, Inc.
</TABLE>
<PAGE> 27
LICENSE AGREEMENT
This License Agreement ("Agreement"), made as of the 1st day of July,
1995, by and between Beeba's Creations, Inc., a California corporation
("Licensor") and The Design and Source Holding Company, Ltd., a New York
corporation ("Licensee") and is made with reference to the following facts:
A. Licensor is the owner of the trade names and trademarks, and
copyrights set forth in Exhibit A attached hereto (hereinafter, "Licensed
Property"); and
B. Licensor and Licensee mutually desire to enter into this
Agreement in accordance with the provisions hereof.
NOW, THEREFORE, Licensor and Licensee, in consideration of their
respective promises herein contained and for other good and valuable
consideration, acknowledged by each of them to be satisfactory and adequate, do
hereby agree as follows:
1. Definitions.
1.1 Territory. World-wide.
1.2 Product(s). Clothing.
2. Grant of License Rights.
2.1 Grant of License Rights. Subject to the terms and
conditions hereof, Licensor hereby grants to Licensee, and Licensee accepts
from Licensor, for the term of this Agreement, an exclusive, royalty-free
license, nontransferable except in accordance with the provisions herein, to
use and sublicense the Licensed Property for and in connection with all
activities relating to the production, distribution, packaging, marketing, and
licensing of the Products in the Territory (subject to the provisions hereof).
2.2 Sublicense Rights. Subject to the terms and
conditions hereof, Licensee shall be entitled to sublicense any entity the
right to use the Licensed Property for and in connection with the production,
distribution, packaging, marketing, and licensing of the Products in the
Territory; provided that any such sublicense shall be on terms substantially
similar to and consistent with those herein, shall not reduce or otherwise
affect Licensee's obligations hereunder, shall be subject to the prior approval
of Licensor, which shall not be unreasonably withheld, and shall provide that
Licensee shall serve as Licensor's agent for the purpose of maintaining the
quality standards set forth below.
2.3 Reservation of Rights. Notwithstanding the exclusive
license granted herein, Licensor shall have the right to market and distribute
its existing inventory of Styles (as defined in the Asset Purchase Agreement of
even date herewith between Licensor, as Seller, and
<PAGE> 28
Licensee, as Buyer), including inventory in process and in transit, and
returned Styles during the term of the Independent Sales Representative
Agreement of even date herewith between Licensor and Licensee. The License for
the use of the trade names identified on Exhibit A shall not be effective until
Licensor collects its accounts receivable for sales of existing inventory of
the Styles.
3. Representations and Warranties of Licensor. Licensor
represents and warrants to Licensee that:
3.1 To the best of its knowledge, it is the owner of the
Licensed Property and has enforceable legal rights in the Unites States of
American in and to the Licensed Property, subject to no pledge, lien, charge or
security interest of any kind or character whatsoever; provided, however, that
Licensor does not have the right to use the name "Beeba's" or "Beeba's
Creations, Inc." in any capacity other than as a corporate name (i.e. it may
not use such names as a brand name or place such names on hang tags), and,
provided, further, that while applications for registration of the trademarks
for "BCI Clothing Co." and "BCI Jr." have been filed, no registration for those
marks has been issued and Licensor makes no representations or warranties that
such registrations will ever be issued. The application for the "BCI Clothing
Co." mark is currently pending. The application for the "BCI Jr." mark is
pending, but suspended.
3.2 To the best of its knowledge, subject to the
provisions of Section 3.1, it has the sole and exclusive right to grant a
license in and to the Licensed Property.
3.3 Neither the execution and delivery of this Agreement,
nor the consummation of the transactions contemplated hereby, will result in
(i) to the best of its knowledge, the infringement or other violation of the
rights of any other person or entity, or (ii) the breach of or a default under
any other agreement, arrangement or understanding to which it is a party.
4. Quality Standards.
4.1 Standards. The quality and technical specifications
("Standards") for the Products shall be that all products shall be of at least
as high a quality as those currently produced or marketed by Licensor.
4.2 Rights of Inspection. To ensure that the Standards
hereinabove described are maintained, Licensor and its authorized agents and
representatives shall have the right to inspect Licensee's Products at all
reasonable times, with prior notice.
5. Ownership of the Licensed Property; Modifications.
5.1 Licensor's Ownership Rights. Licensee acknowledges
Licensor's exclusive right, title, and interest in and to the Licensed Property
in the Territory and acknowledges that nothing herein shall be construed to
grant to Licensee any rights in any of the Licensed Property except as
expressly provided herein. Licensee acknowledges that its use of the Licensed
Property
2
<PAGE> 29
in the Territory hereunder will not create in it any right, title or interest
in the Licensed Property and that all such use of the Licensed Property in the
Territory and the goodwill generated thereby will inure to the benefit of
Licensor. Licensee warrants and represents with respect thereto as follows:
(a) Licensee will not at any time challenge
Licensor's right, title, or interest in the Licensed Property or the validity
of any of the Licensed Property or any registration thereof;
(b) Licensee will not do or cause to be done or
omit to do anything, the doing, causing, or omitting of which would contest or
in any way impair or tend to impair the rights of Licensor in the Licensed
Property;
(c) Licensee will not represent that it has any
ownership in or rights with respect to the Licensed Property in the Territory
other than rights conferred by this Agreement; and
(d) Licensee will not, either during or
subsequent to the term of this Agreement, use in the Territory any trademark,
service mark, trade name, insignia or logo that is confusingly similar to or a
colorable imitation of any of the Licensed Property.
6. Undertakings of Licensee Respecting the Licensed Property.
During the term of this Agreement:
6.1 Marking; Compliance with Trademark Laws. Licensee
shall, and shall require each of its sublicensees to (1) cause the appropriate
designation "TM" or the registration symbol "(R)" to be placed adjacent to
trademarks included in the Licensed Property in connection with each use or
display thereof; and (2) comply with all laws pertaining to trademarks in
force.
6.2 Display of the Marks. Licensee shall, and shall
require each of its sublicensees to, display, in a manner consistent with
Licensor's standards, the trademarks included in the Licensed Property on the
Products and in marketing activities for the Products.
6.3 No Use Objectionable to Licensor. Licensee shall
not, and Licensee shall not permit its sublicensees to, use the Licensed
Property on or in connection with any Product, display, packaging, or marketing
material to which Licensor at any time reasonably objects.
6.4 Restrictions on Use of Trade Names. Licensee shall
not use the trade names "Beeba's" or "Beeba's Creations" as a trademark,
service mark or product label.
6.5 Prosecution and Maintenance of Registrations.
Licensee shall be responsible for all filings and fees necessary to prosecute
all pending trademark applications and to maintain
3
<PAGE> 30
all state or federal registrations of the Licensed Property in full force and
effect and Licensor shall cooperate fully with Licensee in such regard.
7. Prosecution and Defense of Infringement Claims. During the
term of this Agreement:
7.1 Notice and Prosecution of Infringement of Marks.
Licensee and Licensor shall each provide the other with prompt notice of any
apparent infringement of the Licensed Property within the Territory, any
petition to cancel any registration of any of the Licensed Property, or any
attempted use of or any application to register any mark confusingly similar
to, or a colorable imitation of, any of the Licensed Property within the
Territory of which it becomes aware. Licensee shall have primary
responsibility to:
(a) Institute and prosecute any actions for such
infringement of the Licensed Property within the Territory;
(b) Defend any petition to cancel any
registration of any of the Licensed Property; and
(c) Oppose any attempted use of or any
application to register any mark confusingly similar to, or a colorable
imitation of, any of the Licensed Property within the Territory.
Any damages and costs recovered through such proceedings shall belong
exclusively to Licensee, and Licensee shall be solely responsible for all costs
and expenses (including attorney's fees) of prosecuting such actions. Licensor
shall provide Licensee with reasonably requested assistance in connection with
such proceedings, and Licensee shall reimburse Licensor's reasonable out-of-
pocket costs of providing such assistance. Licensee shall keep Licensor
informed of the status of any such proceeding and supply Licensor with any
reasonably requested documents regarding such proceeding.
7.2 Licensor Right to Institute Infringement Actions. In
the event Licensee does not institute and prosecute any action for infringement
of the Licensed Property within the Territory, defend any petition to cancel
any registration of any of the Licensed Property, or oppose any attempted use
of or any application to register any mark confusingly similar to, or a
colorable imitation of, any of the Licensed Property within the Territory
within a reasonable period of time (having due regard for the protection of the
Licensed Property), Licensor shall have the right to do so, but shall not be
obligated to, either in its own name or in the name of Licensee. Any damages
or costs recovered through such proceeding shall belong exclusively to
Licensor, and Licensor shall be solely responsible for all costs and expenses
(including attorney's fees) of prosecuting such proceeding. If Licensor elects
to prosecute an alleged infringement, Licensor shall obtain Licensee's approval
before entering into any compromise, settlement or stipulation with respect to
such proceeding, which approval Licensee shall not unreasonably withhold.
4
<PAGE> 31
7.3 Notice and Defense of Third-Party Infringement
Claims. Licensee and Licensor shall each provide the other with prompt notice
of any claim alleging trademark or copyright infringement involving the use by
Licensee or any sublicensee of the Licensed Property on the Products within the
Territory of which it becomes aware. Licensee shall have primary
responsibility for defending against any and all claims charging trademark
infringement involving the use by Licensee or any sublicensee of the Licensed
Property on the Products within the Territory. Licensor shall provide Licensee
with reasonably requested assistance in connection with such proceedings, and
Licensee shall reimburse Licensor's reasonable out-of-pocket costs of providing
such assistance. Licensee shall keep Licensor informed of the status of such
proceeding and supply Licensor with any reasonably requested documents
regarding such proceedings. Except with regard to claims that are defended by
Licensor, any expenses, losses, damages, or judgments (including attorney's
fees) in connection with claims alleging trademark infringement involving the
use by Licensee or any sublicensee of the Licensed Property on the Products
within the Territory shall be the responsibility of Licensee without any claim
over against Licensor for any portion thereof;provided that Licensee may claim
over against Licensor for any breach of a representation or warranty made by
Licensor hereunder. Licensee shall obtain Licensor's approval before entering
into any compromise, settlement in stipulation regarding such proceeding, which
approval Licensor shall not unreasonably withhold.
7.4 Licensor Rights to Defend Infringement Claims. In
the event Licensee does not within a reasonable period (having due regard for
the protection of the Licensed Property) defend against a claim alleging
trademark infringement involving the use by Licensee or any sublicensee of the
Licensed Property on the Products within the Territory, Licensor shall have the
right, but shall not be obligated, to defend such claim. Any expenses, losses,
damages, or judgments (including attorney's fees) in connection with such
claims defended by Licensor shall be the sole responsibility of Licensor. If
Licensor elects to defend an alleged infringement, Licensor shall secure
Licensee's approval before entering into any compromise, settlement, or
stipulation with respect to such proceeding, which approval Licensee shall not
unreasonably withhold.
8. Licensee Defense and Indemnification of Licensor. Licensee
shall defend, indemnify and save harmless Licensor, its subsidiaries and
affiliates, and their respective successors and assigns from all losses, costs,
liabilities, damages, claims, and expenses of every kind and description,
including reasonable attorney's fees, arising out of or resulting from any act
or omission of Licensee or any sublicensee relating to the production,
distribution, licensing, or marketing of any of the Products in connection with
which the Licensed Property is used, including, but not limited to (1) unfair
or fraudulent advertising claims, warranty claims, and product defect or
liability claims pertaining to the Products; and (2) claims for unauthorized
use or misuse of any patent, trademark, copyright, or other proprietary right
owned, used or controlled by any third party pertaining to the production,
distribution, licensing, or marketing of the Products.
5
<PAGE> 32
9. Licensor Defense and Indemnification of Licensee. Licensor
shall defend, indemnify and save harmless Licensee, its successors and assigns,
from all losses, costs , liabilities, damages, claims and expenses of every
kind and description, including reasonable attorneys' fees, arising out of or
resulting from any breach of a representation or warranty made by Licensor
hereunder.
10. Compliance With Laws by Licensee and Sublicensees. In
addition to compliance with laws governing trademark usage as provided in
Section 6 hereof, Licensee agrees to comply with, and agrees to require each
sublicensee to comply with, all laws governing production, distribution,
licensing, and marketing of the Products.
11. Term and Termination.
11.1 Term. This Agreement shall be perpetual unless
terminated pursuant to the terms hereof. Upon the termination of this
Agreement, the rights granted hereunder to all sublicensees of Licensee shall
likewise terminate, and all sublicensees shall so provide.
11.2 Events of Termination. If any of the following
events shall occur with respect to Licensee, each such occurrence shall be
deemed an "Event of Termination," and Licensor shall have the right to
terminate this Agreement pursuant to Section 11.3 hereof:
11.2.1 Bankruptcy of Licensee. The occurrence of a
"Bankruptcy" with respect to Licensee. For this purpose, "Bankruptcy" means a
"Voluntary Bankruptcy" or an "Involuntary Bankruptcy." A "Voluntary
Bankruptcy" means an admission in writing by Licensee of its inability to pay
its debts generally or a general assignment by Licensee for the benefit of
creditors; the filing of any petition or answer by Licensee seeking to
adjudicate it a bankrupt or insolvent, or seeking for itself any liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief, or
composition of Licensee or its debts under any law relating to bankruptcy,
insolvency, or reorganization or relief of debtors, or seeking, consenting to,
or acquiescing in the entry of an order for relief or the appointment of a
receiver, trustee, custodian, or other similar official for Licensee or for any
substantial part of its property; or corporate action taken by Licensee to
authorize any of the actions set forth above. An "Involuntary Bankruptcy"
means without the consent or acquiescence of Licensee, the entering of an order
for relief or approving a petition for relief or reorganization or any other
petition seeking any reorganization, arrangement, composition, readjustment,
liquidation, dissolution, or other similar relief under any present or future
bankruptcy, insolvency or similar statute, law or regulation, or the filing of
any such petition against Licensee, which petition shall not be dismissed
within ninety (90) days, or, without the consent or acquiescence of Licensee,
the entering of an order appointing a trustee, custodian, receiver, or
liquidator of Licensee or of all or any substantial part of the property of
Licensee which order shall not be dismissed within sixty (60) days.
11.2.2 Breach of Agreements. Licensee fails to
perform in accordance with any of the material terms and conditions contained
herein or there occurs an Event of Default
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<PAGE> 33
under (and as defined in) that certain Security Agreement of even date herewith
between Licensor, as secured party, and Licensee, as debtor.
11.3 Licensor's Right to Terminate Upon Event of
Termination. Licensor may, at its option, without prejudice to any other
remedies it may have, terminate this Agreement by giving written notice of such
termination to Licensee as follows:
(a) Immediately, upon the occurrence of any Event
of Termination pursuant to Section 11.2.1; or
(b) After the expiration of thirty (30) days from
Licensee's receipt of notice from Licensor of the occurrence of any Event of
Termination pursuant to Section 11.2.2, if such Event of Termination is then
still uncured.
11.4 Availability of Injunctive Relief. Licensee agrees
that the remedy at law of Licensor for any act or event that constitutes an
Event of Termination under this Agreement, other than the failure of Licensee
to pay any monies when due, will be inadequate and that Licensor shall be
entitled to injunctive relief, forfeiture of the Products, specific performance
or other such equitable relief, and that Licensee shall not urge in any such
proceeding that an adequate remedy exists at law.
11.5 Post-Termination Obligations of Licensee. Upon the
termination of this Agreement as herein provided, all rights of Licensee and
any sublicensee to use the Licensed Property in the Territory shall immediately
cease. Licensee shall not thereafter operate or conduct business under any
name or in any manner in the Territory that might tend to give the general
public the impression that this Agreement is still in force, or that Licensee
has any right to use any of the Licensed Property in the Territory.
12. Miscellaneous.
12.1 Independent Contractor. It is understood and agreed
that each party to this Agreement shall be acting only in the capacity of an
independent contractor insofar as this Agreement is concerned, and not as a
partner, co-venturer, agent, employee, franchisee or representative of the
other party.
12.2 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California without giving any effect to principles of conflict of laws.
12.3 Arbitration. All disputes which cannot be resolved
by the parties shall be determined,by binding arbitration before a single
arbitrator selected by and acting in accordance with the rules for arbitration
of commercial disputes of the American Arbitration Association.
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<PAGE> 34
Any arbitration shall be held in San Francisco, California. The provisions of
California Code of Civil Procedure Section 1283.05 are applicable to this
agreement to arbitrate.
12.4 Jurisdiction. Any judicial or other proceeding
permitted to be brought by the parties to this Agreement or to enforce any
arbitral award shall be brought only in the courts of the State of California
for the County of San Francisco or in the United States District Court for the
Northern District of California, or, if subject to arbitration, only pursuant
to Section 12.3 hereof. Each of the parties to this Agreement accepts for
itself the exclusive jurisdiction of the aforesaid courts or arbitration, as
applicable, and irrevocably agrees to be bound by any judgment rendered thereby
in connection with this Agreement, but neither party waives its right to appeal
any judgment or order. The foregoing consent to jurisdiction shall not
constitute a general consent to service of process in the State of California
for any purpose except as provided above and shall not be deemed to confer
rights on any person other than the respective parties to this Agreement.
12.5 Attorneys' Fees. The prevailing party in any
litigation or arbitration shall be entitled to an award of its reasonable
attorneys' fees and costs incurred.
12.6 Notices. All notices and other communications
hereunder shall be in writing and shall be given by personal delivery, courier,
facsimile transmission or first class certified United States Mail, postage
prepaid, addressed to the address below stated of the party to which notice is
given, or to such other address as such party may have fixed by notice:
To Licensor: Beeba's Creations, Inc.
9220 Activity Road
San Diego, CA 92126
Attn: President
FAX (619) 549-6857
To Licensee: The Design and Source Holding Company, Ltd.
150 Commerce Road
Carlstadt, NJ 07072
Attn: President
FAX (201) 507-0894
Notices shall be effective upon courier delivery, personal delivery,
acknowledgment of receipt of facsimile or receipt of first class certified
United States mail. Notices by facsimile must be confirmed by one of the other
methods of transmission, but will be deemed effective upon confirmation of
receipt of the facsimile.
12.7 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, provided that this Agreement and all
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<PAGE> 35
rights and obligations hereunder may not be assigned or transferred without the
prior written consent of the other party hereto, except as specifically
provided in Section 2.2.
12.8 Prior Agreements: Amendments and Waivers. This
Agreement sets forth the entire understanding of the parties with respect to
the transactions contemplated hereby and supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
This Agreement may be amended only by a writing signed by the parties hereto.
Any breach of or failure to comply with any covenant, agreement, warranty or
representation herein may be waived only by a written instrument making
specific reference to this Agreement signed by the party against whom
enforcement of such waiver is sought.
12.9 Severability. In case any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable under any
particular circumstances or for any reason whatsoever, (i) the validity,
legality and enforceability of the remaining provisions of this Agreement, or
the validity, legality or enforceability under any other circumstances shall
not in any way be affected or impaired thereby and (ii) to the fullest extent
possible consistent with applicable law, the provisions of this Agreement shall
be deemed revised, and shall be construed so as to give effect to the intent
manifested by this Agreement.
12.10 Headings. The headings in this Agreement are for
reference purposes only and shall not constitute a part hereof.
12.11 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
12.12 Expenses. Except as otherwise provided for herein,
each party hereto shall be responsible for its own expenses accrued in
connection with the negotiation, execution and consummation of the transactions
contemplated by this Agreement, including fees of his or its respective
attorneys, accountants or consultants.
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<PAGE> 36
12.13 Time is of the Essence. Time is of the essence in
this Agreement, and all of the terms, covenants and conditions hereof.
<TABLE>
<S> <C>
LICENSOR: LICENSEE:
BEEBA'S CREATIONS, INC. THE DESIGN AND SOURCE HOLDING COMPANY, LTD.
By: STEVEN P. WYANDT By: PAMELA J. GRUNDER
------------------------------------------------ ------------------------------------------------
Steven P. Wyandt, President Pamela J. Grunder, President
</TABLE>
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<PAGE> 37
EXHIBIT A
THE LICENSED PROPERTY
Trade Names
Beeba's Creations, Inc.
Beeba's
Trademarks
BCI Clothing Co.
BCI Jr.
In Short
ISD
Kyoto
Kyoto Kasuals
Pinot Noir
Red Rover
Bim-Bom-Bay
Copyrights
All copyrights associated with the library of patterns and styles
identified on Schedule 1.1.1 of the Asset Purchase Agreement, of even date
herewith, between Licensor, as seller, and Licensee, as buyer.
<PAGE> 38
SUBLEASE
This Sublease ("Sublease") is made and entered into as of July 1,
1995, by and between BEEBA'S CREATIONS, INC., a California corporation
("Sublessor") and The Design and Source Holding Company, Ltd., a New York
corporation ("Sublessee"), with reference to the following facts:
RECITALS
A. Pursuant to that certain Standard Form Of Office Lease dated
as of August 17, 1989 ("Master Lease"), entered into by and between Sublessor,
as lessee thereunder, and Broadway and 41st Associates Limited Partnership, as
lessor thereunder ("Master Lessor"), Master Lessor leased to Sublessor the
entire eighteenth (18th) floor designated as unit 1800 in the building commonly
known as 1450 Broadway, Manhattan, New York (the "Premises"), as more
particularly described in the Master Lease.
B. A copy of the Master Lease is attached hereto as Exhibit "A"
and incorporated herein by this reference.
C. Sublessor and Sublessee desire to enter into this Sublease in
order for Sublessee to sublease a portion of the Premises on the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements set forth
herein and for other valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties agree as set forth below.
1. Sublease Premises. Sublessor hereby subleases to Sublessee
and Sublessee hereby subleases from Sublessor, on and subject to the terms,
conditions and covenants hereinafter set forth, a portion of the Premises as
more described on Exhibit "B" attached hereto and incorporated herein
("Sublease Premises"). Sublessee's percentage share of the Premises is
fifty-one percent (51%) ("Percentage Share") for purposes of determining
Sublessee's percentage of (i) all rental obligations under the Master Lease
including, without limitation, taxes, insurance, utilities, escalations and
other costs payable to Master Lessor and (ii) all other costs associated with
leasing the Premises including without limitation repairs, utilities and
maintenance expenses payable to third party vendors except to the extent the
costs are attributable to the sole actions or omissions of either Sublessor or
Sublessee in which case the costs shall be paid by such party.
2. Use. Sublessee agrees to use the Sublease Premises for
showroom(s) and general office in connection with Sublessee's apparel related
business, as well as incidental use in regard thereto and for no other purpose.
Sublessee agrees Sublessee is subleasing the Sublease Premises "As Is" except
for the construction of walls and doors stated in Section 28 and the
rearrangement of equipment as stated in 31(d). Sublessee shall not make any
improvements to the Sublease Premises without prior written consent from (i)
Sublessor, which shall not be unreasonably
<PAGE> 39
withheld or delayed and (ii) Master Lessor as may be required by the Master
Lease. Any improvements made by Sublessee which are regarded as fixtures
under the laws of New York and which cannot be removed without causing damage,
will become the property of the Sublessor upon expiration or termination of
this Sublease unless Sublessee removes and repairs damage; provided, however,
Sublessee shall not remove any such improvements if Sublessee is then in
default under this Sublease. Equipment or other personal property installed
in the Sublease Premises, which Sublessor and Sublessee agree should not be
viewed as fixtures and should not become a part of the real property, shall be
identified prior to installation as "Personal Property." Sublessee shall
repair any damage to the Sublease Premises caused by removal of Sublessee's
Personal Property upon termination of this Sublease and return the Sublease
Premises to Sublessor in the same condition as of the date of this Sublease,
reasonable wear and tear and partitions excepted.
3. Term. The term of this Sublease shall commence on July 1,
1995 ("Commencement Date") and shall end on February 28, 2000, unless sooner
terminated pursuant to the provisions hereof. Sublessee acknowledges and
understands the term of the Master Lease expires on February 28, 2000.
4. Rent. Sublessee shall pay to Sublessor annual rent equal to
One Hundred Sixty-Nine Thousand Four Hundred One Dollars and Sixty cents
($169,401.60) payable in monthly installments equal to Fourteen Thousand One
Hundred Sixteen Dollars and Eighty cents ($14,116.80). Sublessee shall pay the
monthly rent in advance on the first day of each calendar month of the term of
this Sublease, without deduction, offset, prior notice or demand. Rent shall
deemed delinquent if not received by Sublessor on or before the fifth (5th) day
of each month. Rent shall be paid to Sublessor at the address to which notices
to Sublessor are to be delivered pursuant to this Sublease. The installment of
rent payable for any portion of a calendar month shall be a pro rata portion of
the installment payable for a full calendar month.
5. Additional Rent. All amounts payable by Sublessee to
Sublessor hereunder constitute rent and Sublessor, may at Sublessor's
discretion, require Sublessee to pay Master Lessor directly for all rental
obligation's hereunder. Sublessee shall pay to Sublessor within ten (10) days
from receipt of billing statements from either Sublessor or Master Lessor, for
all additional rent and costs associated with the Master Lease based on
Sublessee's Percentage Share and additional rent for purposes of this Sublease
shall include without limitation (i) all rental obligations under the Master
Lease including, without limitation, taxes, insurance, utilities, escalations
and other costs payable to Master Lessor and (ii) all other costs normally
associated with the leasing of the Premises including without limitation
repairs, utilities and maintenance expenses payable to third party vendors
except to the extent such costs are attributable to the sole actions or
omissions of either Sublessor or Sublessee in which case the costs shall be
paid by such party. Except for costs incurred under the terms of the Master
Lease, neither party shall seek reimbursement for costs in excess of $50.00
without the other party's prior written consent.
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<PAGE> 40
6. Security Deposit. Sublessee shall deposit with Sublessor the
sum of $29,493.88 Dollars, which shall throughout the term of this Sublease, be
equal to the percentage share of the total security deposit then existing under
the Master Lease. The deposit shall be security for the faithful performance
and observance by Sublessee of the terms, provisions and conditions of this
Sublease. It is agreed that in the event Sublessee defaults in respect of any
the terms, provisions and conditions of this Sublease, including, but not
limited to the payment of rent and additional rent, Sublessor may use, apply or
retain the whole or any part of the security so deposited to the extent
required for the payment of any rent and additional rent or any other sum as to
which Sublessee is in default or for any sum which Sublessor may expend or may
be required to expend by reason of Sublessee's default in respect of any of the
terms, covenants and conditions of this Sublease. In the event the amount of
the deposit required under the Master Lease is increased, Sublessee shall
within ten (10) days from receipt of notice from Sublessor, deliver to
Sublessor its Percentage Share of the increase.
7. Obligations Under Master Lease.
7.1 This Sublease (except as provided herein) is made
subject to all of the terms and conditions of the Master Lease. The terms and
conditions, and the respective rights and obligations of Sublessor and
Sublessee to each other under this Sublease, shall be as set forth in the
Master Lease except (i) Sections relating to tenant improvements and initial
occupancy at the commencement of the Master Lease shall not be applicable to
Sublessee, (ii) obligations of Master Lessor for functions within the control
of Master Lessor such as those relating to repair, maintenance, operation,
insurance and management of the Premises shall not be assumed by Sublessor,
(iii) Sections 45, 46, 59, 68, and 72, (iv) where consent is required,
Sublessor may not unreasonably withhold its consent, and (v) Sections 57 and 58
may only be invoked by Sublessor if Sublessee's actions have caused the Master
Lessor to invoke same against Sublessor, and (vi) those provisions of the
Master Lease that are inconsistent with this Sublease, in which event, as
between Sublessor and Sublessee, the terms of this Sublease shall control over
the Master Lease. Therefore, for the purpose of this Sublease, except as
provided herein, whenever in the Master Lease the words "lease," "Owner" and
"Tenant" are used, they shall be deemed to mean the "Sublease," "Sublessor" and
"Sublessee" respectively as used in this Sublease and the words ""demised
premises"" shall mean the "Sublease Premises". Sublessee hereby agrees, for
the benefit of Sublessor, to assume and perform the obligations of Sublessor as
the "lessee" under the Master Lease, except as expressly modified by the terms
of this Sublease. Sublessor does not assume any obligations of Master Lessor
under the Master Lease and Sublessee shall look solely to the Master Lessor for
performance of any and all of Master Lessor's obligations under the Master
Lease. Sublessor shall cooperate with Sublessee and send notices as may be
necessary to protect Sublessor's interest under the Master Lease.
7.2 Sublessor and Sublessee each acknowledge that their
possession is subject to all the terms and conditions of the Master Lease and
Sublessee agrees that they will do nothing to breach any of the terms,
covenants and/or conditions of the Master Lease. In the event of termination
of the Master Lease for any reason, including, without limitation, a voluntary
3
<PAGE> 41
surrender by Sublessor, or in the event of any re-entry or repossession of the
Sublease Premises by Master Lessor, Master Lessor shall have the option at its
election to either take over all right, title and interest of Sublessor under
this Sublease, in which case Sublessee shall attorn to Master Lessor or enter
into a new lease based on the terms for which Sublessee is bound under this
Sublease.
7.3 If the Master Lease terminates, as between Sublessor
and Sublessee, this Sublease shall also terminate and Sublessor and Sublessee
shall be released from all liabilities and obligations under this Sublease
except with respect to Sections 7.2, 8, 14, 15, 19 herein.
7.4 Sublessor shall not modify the Master Lease if it
affects Sublessee obligations or rights without the prior written consent of
Sublessee.
8. Insurance. Sublessee and Sublessor shall maintain insurance
as required by the Master Lease. Sublessor will name both Master Lessor and
Sublessee as additional insureds under such liability insurance policy.
Sublessee will name both Master Lessor and Sublessor as additional insureds
under such liability insurance policy. Sublessor and Sublessee each hereby
release and relieve the other, and waive their entire right of recovery against
the other for loss or damage arising out of or incident to the perils insured
against which perils occur in, on or about the Premises and each shall give
notice to its insurance company of such release and waiver of subrogation
contained herein. Sublessee shall maintain adequate insurance to insure
against all losses and damage to Sublessee's products and personal property
stored or located in, on or about the Sublease Premises.
9. Assignment and Subletting. Sublessee shall not, without the
prior written consent of Sublessor, assign this Sublease or any interest in it
and shall not transfer, lease or sublet the Sublease Premises or any part
thereof or any right, interest or privilege appurtenant thereto. Sublessor
shall not withhold its consent unreasonably. Any purported assignment,
transfer, or underletting shall be null and void.
10. Entry by Sublessor. Sublessor and Master Lessor both reserve
and shall have the right to enter the Sublease Premises upon prior notice to
Sublessee. Sublessor shall have the right to enter the Sublease Premises upon
24 hour prior written notice to Sublessee; except in the event of an emergency,
in which event, Sublessor shall have the right to enter the Sublease Premises
immediately and shall promptly provide written notice to Sublessee of such
entry.
11. Master Sublessor Consent. This Sublease and the obligations
of the parties hereunder are conditioned upon Sublessor obtaining Master
Lessor's consent hereto by Master Lessor executing the Consent of Master Lessor
attached to this Sublease.
12. No Brokers. Sublessor and Sublessee each hereby represent and
warrant that they have had no dealings with any real estate broker or agents in
connection with the negotiation of this Sublease. Each party agrees to
indemnify and hold harmless the other from any and all
4
<PAGE> 42
claims, costs, expenses, damages, liabilities (including but not limited to
reasonable attorneys fees) arising from or in connection with any claim by any
broker or agent for a commission or fee or other amount due in connection with
this Sublease based upon the action of the indemnifying party.
13. Cooperation. Sublessor and Sublessee each agree to execute
and deliver to the other such other and further documents or instruments and
take such other acts as may reasonably be required to carry out and effectuate
the provisions and purposes of this Sublease.
14. Waiver of Liability. Unless caused by the other party's
negligence or illegal misconduct, neither party shall be liable to the other
(or any sublessee, assignee, licensee or invitee of the other party) for any
injury or damage that may result to any person or property by or from any cause
whatsoever, and without limiting the generality of the foregoing, whether
caused by interruption of utilities or services to be provided by Master
Lessor, or water leakage of any character from the room, walls, basement or
other portion of the Premises, the Sublease Premises or the Common Area (as
defined below), or caused by gas, fire, oil, electricity or any cause
whatsoever, in, on or about the Premises, the Sublease Premises, the Common
Area or any part thereof, or upon any default by Master Lessor related to the
Premises.
15. Indemnity. Sublessor agrees to indemnify and hold Sublessee
harmless from and defend Sublessee against any and all claims or liabilities
for any injury or damage to any person or property whatsoever (i) arising from
(x) Sublessor's conduct of business in or management of the Premises or (y) any
work or thing whatsoever done by Sublessor, or any condition created in or
about the Premises by Sublessor during the term of the Master Lease, if any, or
(ii) arising from any negligence or otherwise wrongful act or omission of
Sublessor or invitees or its or their employees, agents, or contractors; and,
(b) all costs; expenses and liabilities incurred in or in connection with each
such claim or action or proceeding brought against Sublessee by reason of any
such claim. Sublessor, upon notice from Sublessee, shall resist and defend
such action or proceeding by counsel chosen by Sublessee who shall be
reasonably satisfactory to Sublessor. Sublessee agrees to indemnify and hold
Sublessor harmless from and defend Sublessor against any and all claims or
liabilities for any injury or damage to any person or property whatsoever (i)
arising from (x) Sublessee's conduct of business in or management of the
Sublease Premises or (y) any work or thing whatsoever done by Sublessee, or any
condition created in or about the Premises by Sublessee during the term of the
Master Lease, if any, or (ii) arising from any negligence or otherwise wrongful
act or omission of Sublessee or invitees or its or their employees, agents, or
contractors; and, (b) all costs; expenses and liabilities incurred in or in
connection with each such claim or action or proceeding brought against
Sublessor by reason of any such claim. Sublessee, upon notice from Sublessor,
shall resist and defend such action or proceeding by counsel chosen by
Sublessor who shall be reasonably satisfactory to Sublessee. Both parties
shall keep each other fully appraised at all times of the status of such any
claims or defense of claims arising under this Section.
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<PAGE> 43
16. Late Charges. Sublessee's failure to pay any of Sublessee's
obligations promptly may cause Sublessor to incur unanticipated costs, the
exact amount of which are impractical or extremely difficult to ascertain.
Such costs may include, but are not limited to, processing and accounting
charges and late charges which may be imposed on Sublessor by the Master Lease.
Therefore, if Sublessor does not receive any rent or additional rent payment
within five (5) days after it becomes due, Sublessee shall pay Sublessor a late
charge equal to four percent (4%) of the overdue amount. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Sublessor will incur by reason of such late payment.
17. Interest. Any amount owed by Sublessee hereunder which is not
paid when due shall bear interest at the rate of prime plus 2% per annum from
the due date. The payment of interest on such amounts shall not excuse or cure
any default by Sublessee under this Sublease. If the interest rate specified
in this Sublease is higher than the rate permitted by law, the interest rate is
hereby decreased to the maximum legal interest rate permitted by law. Interest
shall not be payable on late charges.
18. Remedies Upon Default. In addition to the default provisions
set forth in the Master Lease, which shall govern any default hereunder,
Sublessor shall have the remedies set forth in this Section. Notwithstanding
anything in this Sublease or the Master Lease to the contrary, in the event of
any default after applicable notice and cure periods ("Cross-Default") under
any of the Asset Purchase Agreement, License Agreement, Promissory Note,
Restrictive Covenant Agreement, Security Agreement, or Independent Sales
Representative Agreement, all of even date herewith and all of which have been
entered into by and between Sublessor and Sublessee ("Ancillary Agreements"),
Sublessee shall be deemed to be in default hereunder, and in addition to other
rights of Sublessee upon a default, Sublessor may terminate this Sublease upon
thirty (30) days written notice to Sublessee, unless Sublessee cures the
Cross-Default prior to the expiration of such thirty (30) day notice period.
18.1 Right of Sublessor to Re-Enter. In the event of any
termination of this Sublease, Sublessor shall have the right to bring an action
to repossess the Sublease Premises under any applicable laws including without
limitation summary procedure, and any Personal Property of Sublessee may be
removed from the Sublease Premises and stored in any public warehouse at the
risk and reasonable expense of Sublessee.
18.2 Sublessor's Right to Pursue Other Remedies. In the
event of any breach of this Sublease, Sublessor may pursue any of the foregoing
remedies, and Sublessor may consecutively or concurrently therewith pursue any
other remedy or enforce any right to which Sublessor may be by law entitled.
19. Attornment. Sublessee acknowledges that Sublessor may not in
the future be the Sublessor of the Sublease Premises and that if Sublessor is
not the Sublessor at some time in the future and if the holder of any mortgage,
deed of trust, leasehold or similar instrument succeeds to Sublessor's interest
in the Sublease Premises, the following shall apply:
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<PAGE> 44
(a) Sublessee shall not disaffirm this Sublease or any of
its obligations hereunder;
(b) At the request of such holder, Sublessee shall attorn
to such holder and pay all rents payable under this Sublease and execute a new
lease for the Sublease Premises, setting forth all of the provisions of this
Sublease except that the term of the new lease shall be for the balance of the
term of this Sublease.
20. Signs. Except for signage reasonably approved by Master
Lessor and Sublessor, Sublessee shall not place or permit to be placed, any
sign, advertisement, notice or other similar matter on the doors, windows,
exterior walls, roof or other areas of the Sublease Premises without the prior
written consent of Sublessor and Master Lessor, which consent may be withheld
for any reason.
21. Statement of Status (Estoppel Certificate). Upon request by
Sublessor or Master Lessor, Sublessee agrees to execute and return, within ten
(10) days of request, a customary and reasonable statement of status of its
tenancy in the form approved by Sublessor and Master Lessor.
22. No Recordation Permitted. Sublessee is prohibited from
recording any memorandum of this Sublease or any other document referencing or
incorporating this Sublease.
23. Governing Law. This Sublease has been negotiated and entered
into in the State of New York, and shall be governed by, construed and enforced
in accordance with the internal laws of the State of New York, applied to
contracts made in New York by New York domiciliaries to be wholly performed in
New York.
24. Attorneys' Fees. The prevailing party in any litigation or
arbitration shall be entitled to an award of its reasonable attorneys' fees and
costs incurred.
25. Notices. All notices and other communications hereunder shall
be in writing and shall be given by personal delivery, courier, facsimile
transmission or first class certified United States Mail, postage prepaid,
addressed to the address below stated of the party to which notice is given, or
to such other address as such party may have fixed by notice:
To the Sublessee: The Design and Source Holding Company, Ltd.
150 Commerce Road
Carlstadt, NJ 07072
Attn: President
FAX (201) 507-0894
To Beeba's: Beeba's Creations, Inc.
9220 Activity Road
7
<PAGE> 45
San Diego, CA 92126
Attn: President
FAX (619) 549-6857
Notices shall be effective upon courier delivery, personal delivery,
acknowledgment of receipt of facsimile or receipt of first class certified
United States mail.
26. Prior Agreements; Amendments. This Sublease and the Ancillary
Agreements listed in Section 19 set forth the entire understanding of the
parties with respect to the transactions contemplated hereby and supersedes all
prior agreements and understandings between the parties with respect to the
subject matter hereof. This Sublease may be amended only by a writing signed
by the parties hereto. Any breach of or failure to comply with any covenant,
agreement, warranty or representation herein may be waived only by a written
instrument making specific reference to this Agreement signed by the party
against whom enforcement of such waiver is sought.
27. Counterparts. This Sublease may be executed in two (2) or
more counterparts, each of which shall be an original, and all of which shall
constitute one and the same instrument.
28. Sublessor and Sublessee shall promptly build demising walls
and doors in places marked on Exhibit B. The cost of building the demising
walls shall be shared in accordance with Sublessee's Percentage Share.
Sublessor and Sublessee shall share equally in the hiring and supervision of
the contractor to perform such work.
29. If Sublessor defaults under the Master Lease, Sublessee may,
after delivering prior written notice to Sublessor, pay any rent or additional
rent directly to Master Lessor.
30. Sublessor shall deliver to Sublessee copies of all
documentation received from Master Lessor and Sublessee may independently
investigate such information so long as all correspondence to the Master Lessor
or third parties is approved by Sublessor in advance.
31. Sublessor represents:
(a) No notice of default has been received under Master
Lease regarding an existing default.
(b) The Master Lease has not been terminated and has not
been amended or modified.
(c) Sublessor will not cause a termination or forfeiture
of the Master Lease or voluntarily accept an early termination thereof.
(d) Sublessor shall rearrange equipment, being purchased
by Sublessee in the Subleased Premises, within 30 days of approval of this
Sublease.
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<PAGE> 46
(e) Sublessor shall use all reasonable efforts to cause
Master Lessor to give its consent.
(f) Sublessor shall pay 49% of all costs under the Master
Lease and under Section 5(ii) of this Sublease.
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<PAGE> 47
32. Common Area. Sublessor and Sublessee shall share the
reception, kitchen, mail room and supply room areas depicted on Exhibit B (the
"Common Area"). Sublessor and Sublessee shall be jointly responsible for the
repair and maintenance of the Common Area, and agree to reasonably cooperate in
that regard. Each party shall provide insurance for their interest in the
Common Area pursuant to the terms hereof. In addition, each party shall
indemnify the other for events occurring in the Common Areas in accordance with
the terms hereof.
IN WITNESS WHEREOF, this Sublease is executed as of the date first set
forth above.
SUBLESSEE:
THE DESIGN AND SOURCE HOLDING COMPANY, LTD.,
a New York corporation
By: PAMELA J. GRUNDER
-------------------------------------
Pamela J. Grunder, President
SUBLESSOR:
BEEBA'S CREATIONS, INC.,
a California corporation
By: STEVEN P. WYANDT
-------------------------------------
Steven P. Wyandt, President
10
<PAGE> 48
CONSENT OF MASTER LESSOR
The undersigned is the Master Lessor under the Master Lease described
in the Sublease dated July 1, 1995. Master Lessor hereby consents to the
sublease of the Sublease Premises described in the Sublease to The Design and
Source Holding Company, Ltd., a New York corporation ("Sublessee") on the terms
set forth in the Sublease without waiver of the restriction in the Master Lease
concerning further subletting.
MASTER LESSOR:
Date: _______________, 1995 _____________________________________
<PAGE> 49
INDEPENDENT SALES REPRESENTATIVE AGREEMENT
This Independent Sales Representative Agreement (this "Agreement") is
made and entered into as of July 1, 1995, by and between Beeba's Creations,
Inc., a California corporation ("Beeba's), and The Design and Source Holding
Company, Ltd., a New York corporation ("DSHC"), with respect to the following
facts:
A. Beeba's is engaged in the business of designing, manufacturing
(through contract manufacturers), and selling (at the wholesale level) clothing
and produces a number of different lines of clothing through several different
divisions within its corporate organization.
B. Concurrently herewith Beeba's is selling to DSHC, and DSHC is
purchasing from Beeba's, certain assets used in the designing, manufacturing
(through contract manufacturers) and selling (at the wholesale level) of
Beeba's junior woven tops, junior woven bottoms, junior knit tops and junior
knit bottoms (the "Business"), pursuant to the terms of an Asset Purchase
Agreement between Beeba's and DSHC of even date herewith (the "Asset Purchase
Agreement").
C. Among the assets of the Business is an inventory of finished
goods, work in process and work in transit of specific clothing styles
identified on Schedule I attached hereto (collectively, the "Styles").
D. Under the terms of the Asset Purchase Agreement, DSHC will act
as sales representative for the sale of Styles from the date hereof until
October 31, 1995, at which time DSHC will purchase the balance of the inventory
of the Styles from Beeba's.
E. Beeba's is willing to appoint DSHC as the sales representative
for the Styles, and DSHC is willing to accept such appointment, all on the
terms and conditions contained herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and for other good and valuable consideration the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
1. Appointment as Sales Representative. Beeba's hereby appoints
DSHC, and DSHC accepts appointment as, sales representative for the Styles,
with authority to sell the Styles in the United States on the terms and
conditions set forth herein. DSHC's duties as sales representative shall be to
use its best efforts to obtain orders for the sale of the Styles and to provide
such follow up services as are needed by the customers, with the same degree
of care and with the same purpose, expertise and timeliness as DSHC uses in the
conduct of its own business.
2. Supplies and Deliveries. Beeba's shall use its best efforts
to provide only the Styles in quantities equal to numbers covered by existing
purchase orders or for which Beeba's has opened letters of credit to suppliers
as of the date of this Agreement, and shall have no obligation to manufacture
or cause the manufacture of additional quantities of the Styles or additional
styles. Beeba's shall furnish to DSHC such information relating to the
delivery of the Styles into its warehouse in San Diego, or other designated
destination, as DSHC may reasonably require. The
<PAGE> 50
parties acknowledge that the same garment suppliers may be supplying some of
the Styles to Beeba's at the same time they are supplying other garments to
DSHC. In the event that a supplier combines on a single shipment to Beeba's
some of the Styles (or other products ordered by Beeba's) with garments ordered
by DSHC, then DSHC will immediately remit to Beeba's all amounts required to be
paid by Beeba's for the clearance of the DSHC garments through U.S. customs.
Such amount may be equal to the FOB value of the garments, duty, brokerage fees
and pro rata freight. Beeba's shall have no obligation to advance funds in
order to release DSHC's merchandise from U.S. customs.
3. Pricing and Terms of Sales. DSHC shall be responsible for all
direct customer contact, including soliciting orders for the Styles , and shall
have the right to negotiate the prices and terms of each sale, subject to
Beeba's approval only if the price of any such sale would be lower than Beeba's
full Landed Duty Paid cost (as defined in Section 5.1) for the Styles being
sold. Beeba's shall not be under any obligation to accept any orders taken by
DSHC for the Styles. Without limiting the generality of the foregoing, Beeba's
shall not ship any customer orders which are not approved for factoring by
Congress Talcott under the terms of the Non-Notification Factoring Agreement
dated April 1, 1991, between Congress Talcott and Beeba's, as amended, unless
(i) the shipment can be made on a cash before delivery or COD basis, (ii) an
acceptable standby letter of credit is opened by the customer to Beeba's, or
(iii) Beeba's, in its sole discretion, determines to ship the goods, and DSHC
agrees in writing to accept the credit risk for the shipment.
4. Warehouse Services, Invoicing and Collections. Beeba's shall
be responsible for all warehouse services, invoicing and collections in
connection with orders solicited by DSHC and accepted by Beeba's. Beeba's will
maintain the finished Styles in its San Diego warehouse, and will provide all
necessary warehouse personnel for their receiving, handling and shipping.
Beeba's shall directly invoice each customer for sales of the Styles. Full
responsibility for all collections rests with Beeba's, which shall exercise
complete control over the approval of all customer credits, orders, and
contracts. DSHC shall make no allowances or adjustments in accounts, or
authorize the return of any Styles unless given specific advance authorization,
in individual cases, in writing by Beeba's. In the event that DSHC receives
any item of value from customers related to sales of the Styles, DSHC shall
immediately remit the exact amount received to Beeba's without deduction or
offset. In the event that any customer returns any Styles to DSHC instead of
Beeba's, DSHC shall immediately contact Beeba's and advise Beeba's of the
return. At Beeba's request, DSHC shall return the Styles to Beeba's San Diego
warehouse on a freight prepaid basis.
5. Commissions Payable. DSHC shall be entitled to a commission
(the "Commission") from the sale of the Styles equal to net cash receipts (the
"Cash Receipts") from customers for all sales of the Styles, less all of the
following expenses incurred by Beeba's (collectively, the "Expenses"):
2
<PAGE> 51
5.1 The full Landed Duty Paid cost of the goods sold for
the Styles, including, without limitation, all costs incurred by Beeba's for
the following:
5.1.1 FOB payments to suppliers,
5.1.2 Duty,
5.1.3 Brokerage fees,
5.1.4 Buying commissions provided that the
recipient of such commissions is identified to DSHC and such
commission relates solely to the Styles,
5.1.5 Freight from overseas suppliers up to U.S.
Customs,
5.1.6 Freight from U.S. Customs to Beeba's San
Diego warehouse, if an independent freight company is used,
5.1.7 All insurance payments made by Beeba's based
related to the Styles, based upon a proration of Beeba's total
insurance premium, and
5.1.8 All other identified miscellaneous costs
incurred in connection with the production, importation and delivery
of the Styles to Beeba's San Diego warehouse or other destination in
the U.S. prior to shipment to retail customers.
All costs for the items in Section 5.1 above shall be separately identified by
file in the accounting for the Commission, and Seller shall make the supporting
documentation for such costs available for Buyers review, upon reasonable
advance notice of a request for inspection.
5.2 All costs associated with the opening, amendment and
negotiation incurred on or after July 1, 1995, of all letters of credit
relating to the Styles opened by Beeba's to suppliers or opened by customers to
Beeba's.
5.3 All factoring fees and banking fees paid to Congress
Talcott or any of its affiliates related to the sales or cash receipts of the
Styles.
5.4 All costs for any facilities charges for DSHC
personnel located at Beeba's San Diego office during the term of this Agreement
for Warehousing, Traffic, Trucking, Order Entry and Invoicing, Data Processing,
Finance and Accounts Receivable Collections in accordance with the rates listed
on Schedule II attached hereto.
3
<PAGE> 52
5.5 All warehouse labor (including employer taxes and
employee benefits paid by Beeba's) related to the receiving, handling and
shipping of the Styles during the term of this Agreement, based on actual wage
rates and hours incurred by Beeba's warehouse staff.
5.6 All sales commissions paid to independent sales
representatives and internal sales staff.
5.7 All freight costs incurred by Beeba's for the
shipment of the Styles to the customers and any freight charges paid by Beeba's
related to Styles returned by customers to Beeba's.
5.8 All out-of-pocket costs for staff of DSHC located at
Beeba's San Diego warehouse during the term of this Agreement.
5.9 All payments made by Beeba's after July 1, 1995 for
production samples, retail samples, courier costs for production samples,
design costs and other miscellaneous costs for garments or research regarding
garments for the fall 1995 season or seasons later than fall 1995.
5.10 $300 per month as payment for all overhead costs
incurred by Beeba's Creations Far East Limited ("BCFE") during the term of this
Agreement, plus all fabric and trims purchased by BCFE, all long distance
telephone charges and fax costs incurred in connection with the Styles.
5.11 Courier costs between Beeba's New York Showroom and
its San Diego office incurred in connection with the Styles.
5.12 Monthly rent and related costs, including deposits,
in connection with DSHC's Sublease of Beeba's New York Showroom.
5.13 All Draws against the Commission, as described below.
The exact amount of the Commission will not be determinable until all customers
have paid all amounts due to Beeba's or Beeba's has issued agreed upon credit
memos to such customers. The collection of receivables is not likely to be
completed until January 31, 1996 or later, and to a large extent will depend on
the sale terms on the orders taken by DSHC from customers. On December 20,
1995, Beeba's will make its existing accounting records relating to the
Commission available to DSHC for inspection and review. If after such review,
Beeba's determines, in its reasonable judgment, that an advance against the
Commission can be made without exceeding the amount of the Commission that will
ultimately be owed, then Beeba's shall advance such funds to DSHC on December
20, 1995 as an additional draw under Section 6 below. As soon as practical
after receipt of all relevant information regarding Cash Receipts and Expenses,
Beeba's will forward a bank check or wire transfer to DSHC in payment of the
Commission, along with
4
<PAGE> 53
a statement showing the calculation of the Commission in reasonable detail.
The Commission will not include any amounts attributable to Styles shipped
after the term hereof, even if DSHC obtained the customer order prior to the
end of the term.
6. Draws. DHSC may request from Beeba's, upon at least three (3)
day's prior written notice before the Payment Dates specified below, and
Beeba's will pay to DHSC a draw against the Commission ("Draw") to DSHC equal
to a percentage of Gross Sales less certain expenses, as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHIPMENT PERIOD PAYMENT DATE GROSS SALES DRAW PERCENTAGE
--------------- ------------ ------------- ---------------
<S> <C> <C> <C>
July 1-15 July 17 93% 7%
July 16-31 August 1 93% 7%
August 1-15 August 16 93% 12%
August 16-30 September 1 93% 12%
September 1-15 September 18 93% 12%
September 16-30 October 2 93% 12%
October 1-15 October 16 93% 12%
October 16-31 November 1 93% 12%
</TABLE>
(For example, if the gross sales of the Styles for the first shipment period in
July amounted to $1,000,000, the Draw to be paid on July 17, 1995 would amount
to $1,000,000 multiplied by the Percentage of Gross Sales and multiplied by the
Draw Percentage.) The following amounts will be subtracted to determine the
actual Draw payable for the first payment date of each month: (i) from the
Draw payable on August 1, the monthly rent and related costs and deposits due
under Section 5.12 above for the months of July and August; (ii) from the Draw
payable for the first payment date of each successive month, the monthly rent
due under Section 5.12 for that month as well as the Expenses identified in
5.6, 5.7, 5.9 and 5.10 above for the shipment month two months prior to the
Draw payment date. (For example, the expenses incurred in the July shipment
month will be deducted from the Draw paid on September 1). In the event that
Beeba's determines, in the reasonable exercise of its discretion, that the
cumulative Draws paid by Beeba's are likely to exceed the Commission earned at
any point in time, then Beeba's can cease paying the Draws until such time as
the Commissions are likely, in Beeba's reasonable judgment, to exceed Draws
paid to date. In the event that Beeba's determines not to pay a Draw, it shall
provide to DSHC a copy of all available information supporting its decision.
7. Offset. From time to time, DSHC will owe monies to Beeba's which
are payable in accordance with the terms of other agreements between the
parties. Beeba's shall have the right, upon presentation to DSHC of
appropriate documentation, to offset against the Commission and
5
<PAGE> 54
any Draws, any amounts due to Beeba's from DSHC under the terms of any
agreement or arrangement between the parties, except for the $950,000
Promissory Note of even date herewith, executed by DSHC to the order of
Beeba's. The right of offset provided hereunder is granted solely to Beeba's,
in its sole discretion, and except as provided herein or in the specific
agreement giving rise to the obligation, all sums due from one party to the
other shall be paid without deduction or offset.
8. Relationship Created. Neither DSHC nor any representative of
DSHC is an employee of Beeba's for any purpose whatsoever. Beeba's is
interested only in the results obtained by DSHC, which shall have sole control
of the manner and means of performing its obligations under this Agreement.
All expenses and disbursements, including, but not limited to, those for travel
and maintenance, entertainment, office, clerical, and general selling expenses,
that may be incurred by DSHC in connection with this Agreement shall be borne
wholly and completely by DSHC, and Beeba's shall not be in any way responsible
or liable therefor. DSHC does not have, nor shall it hold itself out as
having, any right, power, or authority to create any contract or obligation,
either express or implied, on behalf of, in the name of, or binding upon
Beeba's, or to pledge Beeba's credit, or to extend credit in Beeba's name
unless Beeba's shall consent thereto in advance in writing. DSHC shall have
the right to appoint or otherwise designate suitable and desirable salesmen,
employees, agents, and representatives (collectively referred to as "DSHC's
Representatives"). DSHC shall be solely responsible for DSHC's Representatives
and their acts. DSHC's Representatives shall be retained at DSHC's own risk,
expense, and supervision, and DSHC's Representatives shall not have any claim
against Beeba's for salaries, commissions, items of cost, or other forms of
compensation or reimbursement, and DSHC represents, warrants, and covenants
that DSHC's Representatives shall be subordinate to DSHC and subject to each
and all of the terms, provisions, and conditions of this Agreement which apply
to DSHC.
9. Term. This Agreement shall commence on the date hereof and
shall terminate on October 31, 1995; provided, however, that Beeba's shall have
the right to terminate this Agreement upon the occurrence or (i) any material
breach by DSHC of this Agreement or (ii) any event of default under the
Security Agreement of even date herewith between Beeba's and DSHC. The
provisions of Sections 10 and 11 (excluding Section 11.6) shall survive any
termination of this Agreement.
10. Confidentiality.
10.1 Protection of Confidential Information. In the
performance of their respective obligations hereunder, each party to this
Agreement may have access to Confidential Information (as defined below) of the
other party. Each party will (i) use the same effort to protect the
Confidential Information of the other party as it does with respect to its own
similar information, (ii) allow access to the Confidential Information only to
those of its employees having a need to know, and (iii) give appropriate
instructions to its employees concerning the nature of the Confidential
Information and the steps which its employees are to take in safeguarding such
6
<PAGE> 55
information. Each agreement between a party to this Agreement and its
employees concerning confidential information shall be deemed to apply to the
Confidential Information of the other party. All Confidential Information in
the possession of Seller concerning the Business shall be considered
Confidential Information of Buyer commencing on the first Closing Date.
10.2 "Confidential Information" Defined. Confidential
Information shall include, but not be limited to financial projections; lists
of vendors, suppliers, customers, potential customers and employees, including
all statistical and financial information associated therewith; customer credit
information; sales, marketing and strategic plans; and pricing policies. Each
party has maintained, and will continue to maintain, its Confidential
Information as its own private, proprietary and confidential information and as
its business trade secrets. Confidential Information disclosed to a party
hereto will sometimes, but not always, be marked "Confidential" to designate
its status. Where so marked, not all pages may be so marked. The lack of
marking will not be an indication that such information is not Confidential
Information.
Each party shall take every reasonable precaution to prevent
disclosure to any unauthorized person or entity and any unauthorized use of the
Confidential Information; provided, however, that DSHC realizes that Beeba's
will be obligated to file a Current Report on Form 8-K and an Annual Report on
Form 10-K, as well as other reports regarding the transaction with the SEC and
nothing contained herein shall prohibit disclosure required by the Securities
Exchange Act of 1934, the rules and regulations promulgated thereunder or in
order for Seller to prepare its financial reports in accordance with generally
accepted accounting principles.
Neither party will, at any time, use any Confidential
Information of the other party in any manner which may, directly or indirectly,
have an adverse effect on the business or potential business of the other
party, nor will either party perform any acts which would tend to reduce the
proprietary value of such Confidential Information to other party.
10.3 Enforcement. In the event of a breach or threatened
breach of the obligation to maintain Confidential Information without
disclosure or unauthorized use, the following agreements, procedures and
remedies will apply:
10.3.1 A breach would cause irreparable harm, and
the injured party would not have an adequate remedy at law with respect to
disclosure or threatened disclosure of such Confidential Information.
10.3.2 A breach or threatened breach alleged in a
verified complaint or affidavit filed with a proper Federal or State court
shall entitle the injured party to the immediate issuance, without notice or
hearing, of a temporary restraining order precluding the continuance of the
conduct in question until hearing on a preliminary injunction.
10.3.3 A preliminary injunction may be issued,
without bond, upon a proper showing of (i) the breach or threatened breach,
(ii) the confidential nature of the information,
7
<PAGE> 56
which may be shown by affidavit and in camera to the court, (iii) ownership of
the information by the injured party, and (iv) that the Confidential
Information was furnished to the other party.
10.3.4 Upon issuance of a preliminary injunction,
and upon issuance of a permanent injunction, or upon a court finding of a
breach or threatened breach, the injured party shall be entitled to an award of
its actual attorney's fees and costs incurred in pursuing the remedy involved.
10.3.5 The remedies provided herein are not
exclusive of any other lawful remedies which may be available to either party.
11. Miscellaneous.
11.1 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California without giving any effect to principles of conflict of laws.
11.2 Arbitration. Except for injunctive proceedings
brought in connection with an alleged breach of Section 10, all disputes which
cannot be resolved by the parties shall be determined, by binding arbitration
before a single arbitrator selected by and acting in accordance with the rules
for arbitration of commercial disputes of the American Arbitration Association.
Any arbitration shall be held in San Francisco, California. The provisions of
California Code of Civil Procedure Section 1283.05 are applicable to this
agreement to arbitrate.
11.3 Jurisdiction. Any judicial or other proceeding
brought by the parties to this Agreement or any dispute arising out of this
Agreement or any matter related hereto shall be brought only in the courts of
the State of California for the County of San Francisco, or in the United
States District Court for the Northern District of California, or, if subject
to arbitration, only pursuant to paragraph 11.2 hereof. Each of the parties to
this Agreement accepts for itself the exclusive jurisdiction of the aforesaid
courts or arbitration, as applicable, and irrevocably agrees to be bound by any
judgment rendered thereby in connection with this Agreement, but neither party
waives its right to appeal any judgment or order. The foregoing consent to
jurisdiction shall not constitute a general consent to service of process in
the State of California for any purpose except as provided above and shall not
be deemed to confer rights on any person other than the respective parties to
this Agreement.
11.4 Attorneys' Fees. The prevailing party in any
litigation or arbitration shall be entitled to an award of its reasonable
attorneys' fees and costs incurred.
11.5 Notices. All notices and other communications
hereunder shall be in writing and shall be given by personal delivery, courier,
facsimile transmission or first class certified United States Mail, postage
prepaid, addressed to the address below stated of the party to which notice is
given, or to such other address as such party may have fixed by notice:
8
<PAGE> 57
To DSHC: The Design and Source Holding Company, Ltd.
150 Commerce Road
Carlstadt, NJ 07072
Attn: President
FAX: (201) 507-0894
To Beeba's: Beeba's Creations, Inc.
9220 Activity Road
San Diego, CA 92126
Attn: President
FAX (619) 549-6857
Notices shall be effective upon courier delivery, personal delivery,
acknowledgment of receipt of facsimile or receipt of first class certified
United States mail. Notices by facsimile must be confirmed by one of the other
methods of transmission, but will be deemed effective upon confirmation of
receipt of the facsimile.
11.6 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, provided that this Agreement and all rights and obligations hereunder
may not be assigned or transferred without the prior written consent of the
other party hereto, except that Beeba's may, on 30 days prior written notice,
assign its rights and obligations hereunder to an affiliate of Beeba's without
such consent, provided such affiliate shall be reasonably capitalized and
staffed to perform the duties of Beeba's hereunder.
11.7 Prior Agreements: Amendments and Waivers. This
Agreement sets forth the entire understanding of the parties with respect to
the transactions contemplated hereby and supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
This Agreement may be amended only by a writing signed by the parties hereto.
Any breach of or failure to comply with any covenant, agreement, warranty or
representation herein may be waived only by a written instrument making
specific reference to this Agreement signed by the party against whom
enforcement of such waiver is sought.
11.8 Severability. In case any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable under any
particular circumstances or for any reason whatsoever, (i) the validity,
legality and enforceability of the remaining provisions of this Agreement, or
the validity, legality or enforceability under any other circumstances shall
not in any way be affected or impaired thereby and (ii) to the fullest extent
possible consistent with applicable law, the provisions of this Agreement shall
be deemed revised, and shall be construed so as to give effect to the intent
manifested by this Agreement.
11.9 Counterparts. This Agreement may be executed 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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<PAGE> 58
11.10 Headings. The headings in this Agreement are for
reference purposes only and shall not constitute a part hereof.
11.11 Actions by Parties. All actions required, permitted
or desired to be taken by Beeba's hereunder shall be taken by Steven P. Wyandt
or in his absence by Arjun C. Waney, and by DSHC by Pamela J. Grunder or in her
absence Haresh Tharani.
IN WITNESS WHEREOF, the undersigned have executed this Agreement
effective as of the date first written above.
THE DESIGN AND SOURCE HOLDING COMPANY, LTD
By: PAMELA J. GRUNDER
--------------------------------------
Pamela J. Grunder, President
BEEBA'S CREATIONS, INC.
By: STEVEN P. WYANDT
--------------------------------------
Steven P. Wyandt, President
10
<PAGE> 59
RESTRICTIVE COVENANT AGREEMENT
AGREEMENT made this 1st day of July, 1995 by and among THE DESIGN AND
SOURCE HOLDING COMPANY, LTD., a New York corporation ("Buyer"), having its
principal place of business at 150 Commerce Road, Carlstadt, New Jersey 07072,
and BEEBA'S CREATIONS INC., a California corporation ("Seller"), having its
principal place of business at 9220 Activity Road, San Diego, California 92126.
W I T N E S S E T H:
WHEREAS, concurrently herewith Seller is selling to Buyer and Buyer is
purchasing from Seller certain assets used in designing, manufacturing (through
contract manufacturers) and selling (at the wholesale level) of Seller's knit
and woven tops and bottoms (the "Product") for its junior, girls and maternity
product lines (the "Business"), including the goodwill associated therewith, as
described in and subject to the terms and conditions of an Asset Purchase
Agreement between Seller and Buyer dated as of the date hereof (the "Asset
Purchase Agreement); and
WHEREAS, upon such acquisition, Buyer and Seller intend that Buyer
will have acquired from Seller the Business including Seller's activities
associated with the designing, importing and selling of the Business' product
lines in the United States; and
WHEREAS, in order to implement the intentions of the parties with
respect to the effect of such acquisition, and as a condition to closing of the
transaction contemplated by the Asset Purchase Agreement, Buyer requires that
Seller agree to certain restrictions with respect to its business activities,
and Seller is willing to agree to such restrictions;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto agree as follows:
1. In consideration of Buyer's execution and delivery of
the Asset Purchase Agreement and consummation of the transactions contemplated
thereby, during the period commencing on the date hereof and ending on June 30,
1998, Seller will not (i) directly or indirectly own, manage, operate, join,
control, participate in, invest in, or otherwise be connected with, in any
manner, whether as a stockholder, partner, venturer, investor or otherwise, any
business entity that is engaged anywhere in the world in (a) the design,
manufacture, sale, import or export of junior or girls or maternity Product,
whether under brand name or private label, or (b) the financing of any such
business entity; provided that nothing herein shall constrain Seller from
operating that business conducted on the date hereof by Body Drama, Body Drama
Far East, Beeba's Creations Far East, Gaviota, Khazana, Ulterior Motives, and
Adobe Rose (all existing subsidiaries or divisions of Seller) which includes,
as a minority volume, Product that contains both missy and junior size labels
(referred to as cross ticketing), Product that is considered related separates
incorporating the same fabric and prints used in Seller's then current dress
business for other styles (i.e. dresses, skirts, blouses and jackets) and
Product that is made from stretch fabric that is used for intimate apparel;
(ii) for itself or on behalf of any other person, firm or
<PAGE> 60
corporation, directly or indirectly or by action together with others (x) call
on any person, firm or corporation that is, was or will be a customer or client
of Seller or Buyer with respect to the Business, for the purpose of soliciting,
diverting or taking away any customer or client from Buyer, provided that
Seller shall not be prohibited from contacting new, existing or previous
customers in connection with the business that it conducts from and after the
Second Closing Date (as defined in the Asset Purchase Agreement), or (y)
induce, influence or seek to induce or influence any person who has been
engaged as an employee or representative of Buyer to terminate any relationship
with Buyer, or employ or retain such person, provided that nothing herein shall
constrain Seller from employing or retaining any person who voluntarily leaves
any such relationship with Buyer without having been so induced or influenced;
or (iii) disclose or divulge any information, knowledge or data relating to or
concerned with the Business, including without limitation its operations,
affairs, methods of doing business, revenues, results of operations, financial
condition, customers or clients, to any person, firm or corporation other than
Buyer (or any affiliate, officer, employee or designee of Buyer), provided that
(a) Buyer recognizes that Seller will be obligated to file a Current Report on
Form 8-K and an Annual Report on Form 10-K, as well as other reports regarding
the transaction with the SEC and nothing contained herein shall prohibit
disclosure required by the Securities and Exchange Act of 1934, the rules and
regulations of the SEC promulgated thereunder or in order for the Seller to
prepare its financial reports in accordance with Generally Accepted Accounting
Principles, and (b) if Seller otherwise becomes legally compelled to disclose
any such information, knowledge or data, Seller will so advise Buyer so that
Buyer may seek a protective order or other appropriate judicial remedy and/or
waive compliance with the provisions of this clause (iii). Nothing herein
contained shall be deemed to prohibit Seller from investing funds, solely on a
passive basis, in securities of a corporation or partnership if the securities
of such corporation or partnership are listed for trading on a national stock
exchange or are traded in the over-the-counter market and Seller's holdings
therein represent less than 5% of the total number of shares or principal
amount of other securities of such corporation or partnership outstanding.
2. This Agreement shall commence on the date hereof and
shall terminate on June 30, 1998; provided, however, that Seller shall have the
right to terminate this Agreement upon the occurrence of any event of default
under the Security Agreement of even date herewith between Seller and Buyer.
The provisions of Sections 6, 7 and 8 shall survive any termination of this
Agreement.
3. Seller acknowledges that the provisions of Section 1
are reasonable and necessary for the protection of Buyer and that each
provision, and the period or periods of time, geographic areas and types and
scope of restrictions on the activities specified therein are, and are intended
to be, divisible. In the event that any provisions of Section 1, including any
sentence, clause or part thereof, shall be deemed contrary to law or invalid or
unenforceable in any respect by a court of competent jurisdiction, the
remaining provisions shall not be affected, but shall, subject to the
discretion of such court, remain in full force and effect and any invalid and
unenforceable provisions shall be deemed, without further action on the part of
the parties hereto, modified, amended and limited to the extent necessary to
render the same valid and enforceable.
2
<PAGE> 61
4. The parties hereto acknowledge that in the event of a
breach or a threatened breach by Seller of any of its obligations under this
Agreement, Buyer will not have adequate remedy at law. Accordingly, in the
event of any such breach or threatened breach by Seller, Buyer shall be
entitled to such equitable and injunctive relief as may be available to
restrain Seller and any person, firm or corporation participating in such
breach or threatened breach from violating the provisions hereof. Nothing
herein shall be construed as prohibiting Buyer from pursuing any other remedies
available under this Agreement for such breach or threatened breach, including
the recovery of damages.
5. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
giving any effect to principles of conflict of laws.
6. Except for injunctive proceedings brought in
connection with an alleged breach of Section 1, all disputes which cannot be
resolved by the parties shall be determined by binding arbitration before a
single arbitrator selected by and acting in accordance with the rules for
arbitration of commercial disputes of the American Arbitration Association.
Any arbitration shall be held in New York, New York.
7. Any judicial or other proceeding brought by the
parties to this Agreement or any dispute arising out of this Agreement or any
matter related hereto shall be brought only in the courts of the State of New
York for the County of New York, or in the United States District Court for the
Southern District of New York, or, if subject to arbitration, only pursuant to
Section 5 hereof. Each of the parties to this Agreement accepts for itself the
exclusive jurisdiction of the aforesaid courts or arbitration, and irrevocably
agrees to be bound by any judgment rendered thereby in connection with this
Agreement, but neither party waives its right to appeal any judgment or order.
The foregoing consent to jurisdiction shall not constitute a general consent to
service of process in the State of New York for any purpose except as provided
above and shall not be deemed to confer rights on any person other than the
respective parties to this Agreement.
8. This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors and assigns.
9. This Agreement may be executed 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.
3
<PAGE> 62
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
THE DESIGN AND SOURCE HOLDING COMPANY, LTD.
By: PAMELA J. GRUNDER
--------------------------------------
Pamela J. Grunder, President
BEEBA'S CREATIONS INC.
By: STEVEN P. WYANDT
---------------------------------------
Steven P. Wyandt, President
4
<PAGE> 63
PROMISSORY NOTE
$950,000.00 July 1, 1995
San Diego, California
FOR VALUE RECEIVED, The Design and Source Holding Company, Ltd.
("Maker"), promises to pay to Beeba's Creations, Inc., a California corporation
("Holder"), or order, at San Diego, California, the principal amount of Nine
Hundred Fifty Thousand Dollars ($950,000.00), with interest on such amount
until paid, at the rate set forth below and payable as follows:
1. Interest Rate. The amount of outstanding principal shall bear
interest at the rate of 6.83551% per annum. Interest shall accrue on the
principal balance from and after July 1, 1995, and shall be calculated on the
basis of a 360-day year.
2. Payment. Principal and interest shall be payable in 10
installments as reflected on Schedule A attached hereto. Any payment hereunder
shall be applied first to the payment of costs and charges of collection, if
any, then to accrued interest, and the balance, if any, shall be then applied
to reduction of principal. Principal and interest are payable in lawful money
of the United States of America.
3. Late Payment. Maker agrees that if for any reason it fails to
make any of the periodic payments required herein, including the amount due at
the Maturity Date, within five (5) days after the due date, Holder shall be
entitled to damages for the detriment caused thereby, the extent of which
damages are extremely difficult and impractical to ascertain. Maker therefore
agrees that a sum equal to four percent (4%) of such delinquent payment is a
reasonable estimate of such damages and Makers agrees to pay such sum upon
demand by Holder. Acceptance of such late charge by the Holder shall in no
event constitute a waiver of Makers' default with respect to such overdue
amount nor prevent the Holder from exercising any of the other rights and
remedies granted hereunder. The acceptance by the Holder of any payment under
this Note after the date that such payment is due shall not constitute a waiver
of the right to require prompt payment when due of any succeeding payments or
to declare a default as herein provided for any failure to so pay. Acceptance
by the Holder of the payment or a portion of any installment at any time that
such installment is due and payable in its entirety shall neither cure nor
excuse the default caused by failure to pay the whole of such installment and
shall not constitute a waiver of the Holder's rights to require full payment
when due of all future or succeeding installments.
4. Security Agreement. This Note is secured pursuant to the
terms of a Security Agreement executed contemporaneously herewith, which grants
a security interest in substantially all of Maker's tangible and intangible
assets (the "Security Agreement").
5. Default/Acceleration. If any one or more of the following
events shall occur (hereinafter called an "Event of Default"), namely: (i)
default shall be made in the payment of any installment hereunder and shall
continue for a period of three (3) days after the date due; or (ii) Maker shall
become insolvent, or shall be unable to pay its debts as they mature; or shall
<PAGE> 64
admit in writing its inability to pay its debts as they mature; or shall make
an assignment for the benefit of its creditors; or shall file or commence or
have filed or commenced against it any proceeding for any relief under any
bankruptcy or insolvency law or any law or laws relating to the relief of
debtors, readjustment of indebtedness, reorganizations, compositions or
extensions, or a receiver or trustee shall be appointed for the undersigned,
and in the case of any such proceeding commenced by any other person or entity
against Maker or the appointment of any such receiver or trustee other than as
a result of the actions of Maker, such proceeding or appointment is not
dismissed, vacated or terminated within 60 days; or (iii) a default shall have
occurred and be continuing under the Security Agreement beyond any applicable
grace period provided in the Security Agreement, THEN, upon the occurrence of
any such Event of Default, or upon the expiration of the term of this Note,
Holder at its election, and without presentment, demand, notice of any kind,
all of which are expressly waived by Maker, may declare the entire outstanding
balance of principal and interest thereon immediately due and payable, together
with all costs of collection, including attorneys' fees, or may exercise upon
or enforce its rights to its collateral, as may be set forth in the Security
Agreement.
6. No Waiver by Holder. The acceptance by Holder of any payment
under this Note after the date such payment is due, or the failure to declare
an Event of Default as herein provided, shall not constitute a waiver of any of
the terms of this Note or the right to require the prompt payment when due of
future or succeeding payments or to declare an Event of Default for any failure
to so pay or for any other default. The acceptance by Holder of a payment of a
portion of any installment at any time that such installment is due in full
shall not cure or excuse the default caused by the failure to pay such
installment in full and shall not constitute a waiver of the right to require
full payment when due of all future or succeeding installments.
7. Attorneys' Fees and Costs. In the event Holder takes any
action to enforce any provision of this Note, either through legal proceedings
or otherwise, Maker promises to immediately reimburse Holder for reasonable
attorneys' fees and all other costs and expenses so incurred. Maker shall also
reimburse Holder for all attorneys' fees and costs reasonably incurred in the
representation of Holder in any bankruptcy, insolvency, reorganization or other
debtor-relief proceeding of or relating to Maker, or for any action to enforce
any judgment rendered hereon or relating to enforcement hereof.
8. Waivers. Maker, endorsers, guarantors and sureties of this
Note hereby waive diligence, demand, presentment, notice of non-payment,
protest and notice of protest; expressly agree that this Note, or any payment
hereunder, may be renewed, modified or extended from time to time and at any
time; and consent to the acceptance or release of security for this Note or the
release of any party or guarantor, all without in any way affecting their
liability and waive the right to plead any and all statutes of limitations as a
defense to any demand on this Note, or on any guaranty thereof, or to any
agreement to pay the same to the full extent permissible by law.
9. Maximum Interest. In no event whatsoever shall the amount
paid, or agreed to be paid, to Holder for the use, forbearance or detention of
money to be loaned hereunder or
2
<PAGE> 65
otherwise, for the performance or payment of any covenant or obligation
contained herein, exceed the maximum amount permissible under applicable law.
If from any circumstance whatsoever fulfillment of any provision hereof exceeds
the limit of validity prescribed by law, then, ipso facto, the obligation to be
fulfilled shall be reduced to the limit of such validity, and if from any such
circumstance Holder shall ever receive as interest under this Note or otherwise
an amount that would exceed the highest lawful rate, such amount that would be
excessive interest shall be applied to the reduction of the principal amount
owing hereunder and not to the payment of interest, or if such excessive
interest exceeds the unpaid balance of principal, such excess shall be refunded
to Maker.
10. Prepayment. Maker may prepay this Note in full or in part at
any time without prepayment charge, but with interest accrued on the amount
prepaid to and including the date of payment. No partial prepayment shall
release Maker from thereafter tendering all regular scheduled monthly payments
required herein until the Note is paid in full.
11. Miscellaneous. The terms of this Note shall inure to the
benefit of and bind the parties hereto and their successors and assigns. As
used herein the term "Maker" shall include the undersigned Maker and any other
person or entity who may subsequently become responsible for the payment
hereof. The term "Holder" shall include the named Holder as well as any other
person or entity to whom this Note or any interest in this Note is conveyed,
transferred or assigned; provided, however, that Beeba's Creations, Inc. may
not transfer or assign any interest hereunder or discount this Note to an
individual or foreign entity without Maker's prior written consent, and;
provided, further, that Beeba's Creations, Inc. may not transfer, assign or
discount this Note for less than the amount currently due hereunder, without
first offering Maker the opportunity to prepay the entire balance due with the
same discount as proposed in the transfer or assignment or discount. Each
person signing this Note on behalf of Maker represents and warrants that he has
full authority to do so and that this Note binds the corporation. If Maker
consists of more than one person or entity, their obligations under this Note
shall be joint and several.
12. Governing Law. This Note shall be governed by and construed
under the laws of the State of California.
Entered into on this 1st day of July, 1995, at San Diego, California.
THE DESIGN AND SOURCE HOLDING COMPANY, LTD.
By: PAMELA J. GRUNDER
---------------------------------------
Pamela J. Grunder, President
3
<PAGE> 66
Schedule A
<TABLE>
<CAPTION>
BEGINNING ENDING
MONTH MONTH BALANCE INTEREST PRINCIPAL PAYMENT BALANCE
----- ----- --------- -------- --------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
9 4/1/96 950,000 48,703 48,703 950,000
12 7/1/96 950,000 16,234 16,234 950,000
18 1/1/97 950,000 32,469 105,260 137,729 844,740
24 7/1/97 844,740 28,871 108,858 137,729 735,882
30 1/1/98 735,882 25,151 112,578 137,729 623,304
36 7/1/98 623,304 21,303 116,426 137,729 506,878
42 1/1/99 506,878 17,324 120,405 137,729 386,473
48 7/1/99 386,473 13,209 124,520 137,729 261,953
54 1/1/2000 261,953 8,953 128,776 137,729 133,177
60 7/1/2000 133,177 4,552 133,177 137,729
------- ------- ---------
TOTAL 216,769 950,000 1,166,769
750,000
---------
Total Cash Outflow Including Down payment 1,916,769
=========
</TABLE>
4
<PAGE> 67
SECURITY AGREEMENT
This Security Agreement ("Agreement") is made and effective this 1st
day of July, 1995 by The Design and Source Holding Company, Ltd., a New York
corporation ("Debtor").
1. Property Subject To Security Interest. In consideration of
the terms, covenants and conditions contained in this Agreement, and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Debtor hereby grants to Beeba's Creations, Inc.,a California
corporation ("Secured Party") a security interest in all property described on
Exhibit "A" attached hereto and incorporated herein by this reference, now
owned or hereafter acquired by Debtor (the "Collateral").
2. Obligations Secured. Such security interest is granted to
secure (i) the payment of all indebtedness under and the performance of, and
compliance with, all of the terms, covenants and conditions of this Agreement,
the obligations under Section 1.2.1 of the Asset Purchase Agreement and the
Promissory Note, and (ii) the payment of all monetary obligations under the
Sublease Agreement, all of even date herewith, between Secured Party and Debtor
(collectively, the "Ancillary Agreements").
3. Debtor's Representations And Warranties. Debtor hereby
covenants, warrants, represents and agrees as follows:
3.1 No Liens. Debtor is, and at all times hereafter will
be, the sole owner of the Collateral and, unless expressly consented to in
writing by the Secured Party, subsequent to the execution of this Agreement,
there are no liens or encumbrances or adverse claims whatsoever on or against
the Collateral, or any part thereof, created or incurred by Debtor nor will
there be any such liens, encumbrances, or claims at any time hereafter, except
the security interest granted hereby and for such security interest as may be
granted to Republic Finance Corporation or other factor or lender as
contemplated by in Section 4 hereof. There are no existing prior security
interests in the Collateral, created or incurred by Debtor, other than as set
forth on Exhibit B.
3.2 Taxes. Debtor will pay, prior to delinquency, all
taxes, liens and assessments of any kind whatsoever levied or assessed against
the Collateral or any part thereof and should Debtor fail to do so, Secured
Party may pay the same and any amount so paid shall bear interest at the same
rate as the principal of the major indebtedness secured hereby and said
interest shall be secured hereby and shall be immediately repayable by Debtor
to Secured Party.
3.3 Maintenance and Insurance. Except as set forth on
Exhibit B, Debtor will at all times maintain the Collateral essential to the
conduct of its business in good condition and repair, ordinary wear and tear
excepted, and will keep the Collateral insured against all loss by fire, theft
and other risks, liabilities and perils in form and amounts customary in the
industry and with companies of recognized standing, with loss proceeds payable
to Secured Party as its interest may appear; said insurance policies shall
provide for at least thirty (30) days written cancellation notice to Secured
Party; in the event Debtor does not procure such insurance required hereunder
<PAGE> 68
upon being requested to do so, Secured Party may do so and any sums expended
for insurance premiums shall bear interest at the same rate as the principal of
the major indebtedness secured hereby bears interest and said amount of
interest shall be secured hereby and shall be immediately repayable by Debtor
to Secured Party.
3.4 Location of Collateral. Except (i) as set forth on
Exhibit B; or (ii) in the ordinary course of its business; or (iii) as
contemplated by Section 4 hereof, Debtor will keep the Collateral separate and
identifiable and will not sell, lease, transfer, hypothecate, consign or permit
or suffer any attachment, judgment or other judicial or involuntary lien
against, or otherwise dispose of, the Collateral or any part thereof without
Secured Party's prior written consent; Debtor will not grant any security
interest to any other party on any of the Collateral or any part thereof
without Secured Party's prior written consent; Debtor shall not remove any
Collateral from its original location without the prior written permission of
Secured Party.
3.5 Information. All information at any time supplied to
Secured Party by Debtor (including information regarding the value or the
condition of the Collateral, financial statements and documentary collateral)
is, and shall be at the time it is supplied to Secured Party, correct and
complete in all material respects.
3.6 Location of Records. The address of the chief
executive office and chief place of business of Borrower is its address set
forth on the signature page hereof, and Borrower has no other places of
business except as disclosed to Secured Party. All records pertaining to
accounts and subscription contracts (including computer records) are kept at
the addresses heretofore provided to Secured Party; and Debtor will notify
Secured Party, no later than thirty (30) days prior to any change in address of
the chief executive office or chief place of business of Debtor or the change
of the location of any of the Collateral or records pertaining thereto.
3.7 Inspection. Secured Party or its representative may,
at any time during the continuance hereof, upon prior notice during normal
business hours and at reasonable intervals, enter upon the premises of Debtor
where the Collateral, or any part thereof, is kept or maintained and examine
the same.
3.8 Discharge of Obligations. Debtor will pay, in
accordance with its terms, all indebtedness secured hereby and will observe all
conditions, comply with all terms, perform all acts and discharge all
obligations secured hereby.
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<PAGE> 69
3.9 Compliance with Agreements. Debtor will perform all
acts and comply with all terms of any agreement, the performance of and/or
compliance with which are secured by a lien that is, or appears to be,
superior, prior, subordinate, or subsequent to the security interest created
hereby; provided, however, that nothing in this paragraph shall limit,
compromise or restrict the Secured Party's interest pursuant to the other
provisions of this Agreement.
3.10 Defense of Claims. Subject to the provisions of
Section 4 hereof and the arrangements contemplated thereby, Debtor at its own
cost and expense will defend the Collateral against all claims, liens, security
interests, demands and other encumbrances of third parties which may affect
Secured Party's security interest in, or Debtor's title to, any Collateral.
3.11 Notice. Debtor will promptly notify Secured Party in
the event of any damage to or loss of any material portion of the Collateral or
any part thereof from any source whatsoever.
3.12 Verification of Information. Debtor will, at
reasonable intervals, upon written demand from Secured Party, establish the
correctness of information supplied and will notify Secured Party of any
changes to information supplied.
3.13 Further Assurances. Debtor will execute any and all
further agreements, assignments, documents and Financing Statements that
Secured Party may reasonably request from time to time in order to perfect or
continue the security interest of Secured Party in the Collateral or otherwise
carry out the purposes and intent of this Agreement.
3.14 Attorney In Fact. Upon the occurrence and during the
continuance of a default (as defined in Section 5 hereof), Debtor hereby
authorizes Secured Party to perform any act which Secured Party may deem
necessary in order to protect and preserve the Collateral, or any part thereof,
and the interest of Secured Party therein. In addition, Debtor hereby
irrevocably appoints Secured Party as Debtor's attorney-in-fact for the purpose
of executing, on Debtor's behalf and in Debtor's name, such Financing
Statement, Financing Statement Change, Continuation Statements, and any and all
other documents required in order to give Secured Party a continuing first lien
upon the Collateral or any part thereof, subject to the provisions of Section 4
hereof.
3.15 Books and Records. Secured Party may, upon prior
notice during normal business hours and at reasonable intervals, examine any of
Debtor's records, books, accounts, ledgers and assets of any kind and may take
copies therefrom and may utilize any duplication equipment located on the
premises.
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<PAGE> 70
3.16 Operation of Business. Debtor will at all times
operate Debtor's business in a manner consistent with any and all rules,
regulations and statutes of governmental agencies having jurisdiction over the
Debtor's business applicable to the operation of such a business and will
comply with any and all requirements specified by companies insuring the
Collateral, or any part thereof, as conditions for such insurance.
3.17 Attorneys' Fees. In the event an attorney may be
employed by Secured Party to enforce any of the terms hereof, Debtor will pay
all costs and reasonable attorneys' fees as incurred by Secured Party in
connection therewith including without limitation all attorneys' fees and costs
incurred in connection with any bankruptcy, liquidation receivership or other
debtor-relief proceeding of Debtor or relating to any of the Collateral, and
said amount shall be secured hereby and shall be immediately repayable by
Debtor to Secured Party.
3.18 Financial Statements and Information. Debtor shall
furnish to Secured Party audited financial statements within 90 days of each
fiscal year-end of Debtor, and quarterly unaudited financial statements within
45 days after the end of each quarter. Each unaudited financial statement
shall consist of at least a balance sheet and profit and loss statement as of
close of such accounting period and for the period from the beginning such
fiscal year to the close of such accounting period. Quarterly financial
statements shall be prepared in accordance with GAAP consistent with the
preparation of the annual financial statements and shall be certified by the
Chief Financial Officer of Debtor.
4. Subordination. Notwithstanding anything to the contrary
contained herein, Debtor may grant a priority interest in the Collateral (i) to
Republic Finance Corporation or to another nationally recognized or industry
recognized factor, or (ii) another lender selected by Debtor and reasonably
acceptable to Secured Party as security for a factoring line with Secured
Party's prior written consent, which shall not be unreasonably withheld or
delayed. Upon the grant of any such interest, Secured Party shall execute a
Subordination Agreement and such other documents as Republic Finance
Corporation shall reasonably request in order to establish the priority of its
interest in the Collateral.
5. Acts Constituting Default.
5.1 The happening of any of the following events, at the
option of Secured Party, shall constitute a default by Debtor under this
Security Agreement:
(a) if any warranty, representation or statement
made or furnished by or on behalf of Debtor, whether or not made herein, proves
to have been false in any material respect when made or furnished;
4
<PAGE> 71
(b) failure by Debtor to keep or perform any of
the material terms, covenants or conditions of this Agreement, the obligations
under Section 1.2.1 of the Asset Purchase Agreement and the Promissory Note, or
the payment of any monetary obligations under the Sublease Agreement, beyond
any applicable grace periods;
(c) the levy of any attachment, execution or
other process against Debtor or against the Collateral, or any part thereof,
and the failure of removal of such process within sixty (60) days;
(d) the loss, theft, damage, destruction, or sale
to or of the Collateral or any part thereof which is not replaced with other
property of a value at least equal to that lost, which property shall become
subject to this Agreement; or
(e) if Debtor (or any of Debtor's successors or
assigns) shall make a general assignment for the benefit of creditors, or shall
admit in writing its inability to pay its debts as they become due, or shall
file or have filed against it a petition for relief under any chapter or
provision of the Bankruptcy laws of the United States, as amended from time to
time, or shall be adjudged a bankrupt or insolvent, or shall file a petition,
complaint, pleading, certificate, formal request or matter of a similar nature
seeking any reorganization, arrangement, composition, liquidation, dissolution
or financial relief of a similar nature under any present or future statute,
law or regulation, or shall file an answer or response admitting or not
contesting the material allegations of a petition or other document filed
against it in any proceeding commenced for the purpose of affecting debtor's
rights and/or creditors' remedies; and in the case of any such proceeding
commenced by any other person or entity against Debtor, or in the event that a
receiver, trustee or other court officer or administrative officer is appointed
for the purpose of taking possession of all or any part of the Collateral, or
of the premises of Debtor, or Debtor's successors or assigns, or any interest
of Debtor or Debtor's successors or assigns in the Collateral, and said
proceeding is not terminated or discharged within sixty (60) days of its
commencement or said receiver, trustee, court officer or administrative officer
is not removed within sixty (60) days of such appointment.
5.2 Upon the occurrence of any act, event or condition
which would constitute a default under this Agreement, Debtor shall not be
deemed to be in default hereunder unless such act, event or condition is
unremedied thirty (30) days after notice thereof by Secured Party to Debtor;
provided, however, that such notice and opportunity to cure shall not be
applicable: (a) in cases of monetary defaults; (b) if, in the reasonable
judgment of Secured Party, any such act, event or condition is incurable; (c)
if a specific provision regarding notice or time period for performance is set
forth elsewhere herein, in which case such specific provisions shall control;
or (d) to defaults arising under other documents, including, without
limitation, the Ancillary Agreements, in which case the applicable provisions
of such other documents shall control.
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<PAGE> 72
6. Secured Party's Remedies Upon Default. Upon, or at any time
after, a default by Debtor, as set forth above, Secured Party may, in addition
to all other remedies provided under the Note, or otherwise, at Secured Party's
option, do any one or more of the following:
6.1 declare the entire indebtedness secured hereby
immediately due and payable;
6.2 terminate the Restrictive Covenant Agreement, the
Independent Sales Representative Agreement, the Sublease Agreement and the
License Agreement, all of even date herewith, between Secured Party and Debtor;
6.3 exercise all rights and remedies of a secured party
under the California Commercial Code;
6.4 require Debtor to assemble the Collateral and make it
available to Secured Party in a place designated by Secured Party which is
reasonably convenient to both parties;
6.5 without removal, render the Collateral unusable and
dispose of the same on the premises;
6.6 enter upon Debtor's premises where the Collateral is
kept and possess and remove the same without legal process if Secured Party can
do so without a breach of the peace or proceed by legal action to obtain
possession;
6.7 proceed against Debtor with or without proceeding
against the Collateral, including proceeding against the separate property of
Debtor;
6.8 proceed against Debtor for any deficiency after
proceeding against the Collateral;
6.9 proceed against any other security securing any
indebtedness secured hereby with or without proceeding against the Collateral;
6.10 notify or require Debtor to notify any and all
customers or account debtors of Debtor that the Collateral has been assigned to
Secured Party and/or that Secured Party has a security interest in the
Collateral; endorse the name of Debtor upon any notes, checks, acceptances,
drafts, money orders, or other instruments of payment (including payments made
under any policy of insurance) that may come into possession of Secured Party
in full or part payment of any amount owing to Secured Party; sign and endorse
the name of Debtor upon any invoice, bill, receipt, draft, assignment,
verification or notice in connection with accounts and all contract rights, and
any instrument or document relating thereto, or to rights of Debtor therein;
notify the post office authorities to change the address for delivery of mail
of Debtor to an address designated by Secured Party and to receive, open and
dispose of all mail addressed to Debtor; send requests for verification of
Collateral to customers or account debtors;
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6.11 notify applicable phone company or service
authorities or personnel to transfer phone exchanges or lines of Debtor as
designated by Secured Party and effectuate a transfer of any phone numbers,
exchanges or lines to the name or for the benefit of Secured Party or any other
person as Secured Party may designate;
6.12 enter and/or remain upon the premises of Debtor
without any obligation to pay rent to Debtor or others, or any other place or
places where any of the Collateral is located and kept;
6.13 Secured Party shall be deemed as the attorney-in-fact
of Debtor, with full power of substitution and full power to do any and all
things necessary to be done in and about the premises fully and effectually and
with respect to the Collateral as Debtor might or could do but for this
appointment, hereby ratifying all that said attorney-in-fact shall lawfully do
or cause to be done by virtue hereof;
6.14 incur expenses, including reasonable attorneys' fees
and costs including, but not by way of limitation, any fees and costs incurred
in any bankruptcy liquidation, receivership or other debtor-relief proceeding
by Debtor or relating to any of the Collateral, in the exercise of any right or
remedy hereunder; and
6.15 do any and all other acts allowed by law to enforce
Secured Party's rights hereunder.
7. Notices. The following shall control the giving of any notice
hereunder:
7.1 Unless the Collateral is perishable or threatens to
decline speedily in value or is of the type customarily sold on a recognized
market, Secured Party will give the Debtor reasonable notice of the time and
place of any public sale thereof, or of the time on or after which any private
sale or other intended disposition thereof is to be made.
7.2 Debtor waives any right to require that the sale or
disposition take place where the Collateral is located.
7.3 The requirements of reasonable notice shall be met if
such notice is mailed or delivered as provided in Section 7.4 below at least
fifteen (15) days before the time of the sale or disposition.
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7.4 Notices. All notices and other communications
hereunder shall be in writing and shall be given by personal delivery, courier,
facsimile transmission or first class certified United States Mail, postage
prepaid, addressed to the address below stated of the party to which notice is
given, or to such other address as such party may have fixed by notice:
To DSHC: The Design and Source Holding Company, Ltd.
150 Commerce Road
Carlstadt, NJ 07072
Attn: President
FAX: (201) 507-0894
To Beeba's: Beeba's Creations, Inc.
9220 Activity Road
San Diego, CA 92126
Attn: President
FAX (619) 549-6857
Notices shall be effective upon courier delivery, personal delivery,
acknowledgment of receipt of facsimile or receipt of first class certified
United States mail. Notices by facsimile must be confirmed by one of the other
methods of transmission, but will be deemed effective upon confirmation of
receipt of the facsimile.
7.5 Debtor shall provide to Secured Party a complete and
up-to-date listing of the names and addresses of all parties to whom notices
should be mailed. Unless Debtor has, in writing by certified or registered
mail, informed Secured Party of any changes in address, notice mailed to
addresses on this Agreement shall be deemed to be effective.
8. Use Of Proceeds. The proceeds of any disposition of
Collateral shall be applied in the following priority:
8.1 to pay reasonable expenses of taking, holding,
preparing for sale, selling, leasing and the like, including reasonable
attorneys' fees and legal expenses incurred by Secured Party;
8.2 to satisfy the indebtedness secured by this
Agreement; and
8.3 to satisfy any indebtedness secured by any
subordinate security interest in the Collateral, if written notification or
demand therefor is received before distribution of the proceeds is completed.
In the event the Collateral is sold or otherwise disposed of as aforesaid and a
sufficient sum is not realized to pay in full all indebtedness secured by this
Agreement after application of the proceeds as aforesaid, Debtor promises and
agrees to pay to Secured Party any deficiency.
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9. Miscellaneous.
9.1 Survival. All covenants, agreements,
representations, and warranties made herein, and in documents delivered
pursuant hereto, or in connection herewith, shall be deemed to have been
material and relied upon by Secured Party and shall survive the execution and
delivery to Secured Party.
9.2 Time. Time is of the essence of this Agreement.
9.3 No Waiver. No course of dealing between Debtor and
Secured Party, or failure, neglect, or delay by Secured Party in exercising any
and all of Secured Party's rights hereunder shall operate as a waiver,
forfeiture or abandonment of any such right except only to the extent expressly
waived in writing.
9.4 Rights Cumulative. All rights and remedies provided
in this Agreement shall be cumulative and may be exercised and enforced without
notice or demand being first made to Debtor.
9.5 Receiver. In any suit brought to enforce any of the
provisions of this or any other agreement between the Secured Party and the
Debtor upon request of Secured Party as plaintiff or cross-complainant, the
court having jurisdiction over such suit may appoint a receiver to take
possession of and control the Collateral and such receiver may exercise such
powers over the Collateral as the court shall confer. The Secured Party may
obtain the appointment of a receiver ex parte and Debtor waives the right to
any prior notice.
9.6 Governing Law. This Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California without giving any effect to principles of conflict of laws.
9.7 Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
assigns, provided that this Agreement and all rights and obligations hereunder
may not be assigned or transferred without the prior written consent of the
other party hereto, except that Secured Party may, on 30 days prior written
notice, assign its rights and obligations hereunder to an affiliate of Secured
Party without such consent, provided such affiliate shall be reasonably
capitalized and staffed to perform the duties of Secured Party hereunder.
9.8 Prior Agreements: Amendments and Waivers. This
Agreement sets forth the entire understanding of the parties with respect to
the transactions contemplated hereby and supersedes all prior agreements and
understandings between the parties with respect to the subject matter hereof.
This Agreement may be amended only by a writing signed by the parties hereto.
Any breach of or failure to comply with any covenant, agreement, warranty or
representation
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herein may be waived only by a written instrument making specific reference to
this Agreement signed by the party against whom enforcement of such waiver is
sought.
9.9 Severability. In case any provision or provisions of
this Agreement shall be held to be invalid, illegal or unenforceable under any
particular circumstances or for any reason whatsoever, (i) the validity,
legality and enforceability of the remaining provisions of this Agreement, or
the validity, legality or enforceability under any other circumstances shall
not in any way be affected or impaired thereby and (ii) to the fullest extent
possible consistent with applicable law, the provisions of this Agreement shall
be deemed revised, and shall be construed so as to give effect to the intent
manifested by this Agreement.
Address: THE DESIGN AND SOURCE HOLDING
150 Commerce Road COMPANY, LTD.
Carlstadt, NJ 07072
By: PAMELA J. GRUNDER
------------------------------------
Pamela J. Grunder, President
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EXHIBIT "A"
Description of Collateral
(a) All accounts, contract rights, instruments, documents, chattel
paper, general intangibles (including, but not limited to chooses in action,
tax refunds, and insurance proceeds), subscriber contracts and rights,
monitoring agreements, deposit accounts, leases, securities, cash, inventory,
names under which Debtor may at any time be operated or known, and rights to
carry on business under any such names, or any variation thereof, patents,
trademarks, tradenames, copyrights, registrations, and goodwill;
(b) All merchandise, fixtures, furnishings, machinery, equipment,
materials, supplies, phone lines, systems, exchanges and numbers, appliances,
vehicles and goods of any kind and every nature whatsoever;
(c) All ledger sheets, files, records (including without
limitation computer programs, tapes and related electronic data processing
software), plans, specifications, maps, studies, data, drawings, reports,
permits, licenses, books of account and other documents of any kind;
(d) All proceeds, including insurance proceeds, and claims arising
on account of any damage to or taking of the Collateral or any part thereof and
all causes of action and recoveries from loss or diminution in value of the
Collateral or any part thereof and all products, substitutions, replacements,
additions, accessions, and increases of any and all of the foregoing.
(e) All of the foregoing, now existing or hereafter acquired or
arising.
THE DESIGN AND SOURCE HOLDING
COMPANY, LTD.
By: PAMELA J. GRUNDER
------------------------------------
Pamela J. Grunder
<PAGE> 1
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective as of May 9, 1995 by and between
BEEBA'S CREATIONS, INC., a California corporation ("Company"), with its
principal executive offices in San Diego, California, and Arjun C. Waney
("Executive"), an individual residing in the State of California, with
reference to the following:
WHEREAS, Executive is currently employed by the Company in the
capacity as its Chairman, and Executive's background, expertise and efforts
have contributed to the success and financial strength of the Company; and
WHEREAS, the relative rights and obligations of employers and
employees in California may be, in the absence of agreement or policy, subject
to the uncertainties of future changes in California law and judicial
decisions; and
WHEREAS, the Company and Executive desire to define their respective
rights and obligations as provided herein; and
WHEREAS, the Company wishes to assure itself of the continued
opportunity to benefit from Executive's services for the period provided in
this Agreement, and Executive is willing to serve in the employ of the Company
on a full-time basis solely in accordance with the terms hereof for said
period; and
WHEREAS, the Board has determined that the best interests of the
Company would be served by Executive's continued employment under the terms of
this Agreement by the Company and its Affiliates in Executive's current
capacity or such capacities as
<PAGE> 2
the Board may delegate to him or her from time to time during the term of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
1. Definitions.
(a) "Affiliate" shall mean any Person that controls or is
controlled by or under common control with the Company, whether now or
hereafter formed, including but not limited to Body Drama, Inc., a California
corporation.
(b) "Agreement" means this Employment Agreement and any
amendments hereto complying with Section 15(f) hereof.
(c) "Base Amount" shall have the meaning set forth in
Section 280G of the Code.
(d) "Board" means the Board of Directors of the Company
unless the context otherwise requires.
(e) "Cause" means (1) Executive's personal dishonesty,
gross incompetence (which is intended to be far beyond failure to meet
performance goals), willful misconduct, conflict of interest or breach of
fiduciary duty involving intent for or obtainment of personal or family profit,
willful violation of any law, rule, or regulation to the extent detrimental to
the Company's business or reputation or the Executive's ability to perform this
Agreement, causing the issuance of a final cease-and- desist order, or a
material breach of any provision of this Agreement; or (2) the willful and
continued failure by Executive to substantially perform Executive's duties with
the Company or its Affiliates
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<PAGE> 3
(other than any failure resulting from Disability) after a written demand for
substantial performance is given to Executive by the Board which demand
specifically identifies the manner in which the Board believes that Executive
has not substantially performed his or her duties.
(f) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(g) "Compensation Committee" is the committee of the
Board appointed as such under Corporations Code Section 311 to act on behalf of
the full Board in matters of executive compensation and benefits.
(h) "Disability" means physical or mental illness
resulting in Executive's absence on a full-time basis from Executive's duties
with the Company or its Affiliates for one hundred eighty (180) consecutive
calendar days, subject to the procedure referenced in Section 9(a).
(i) "Expiration" means the termination of this Agreement
(including Executive's employment hereunder) and of any further obligations of
the parties (except as specified in this Agreement) upon completion of the
Term.
(j) "Fiscal Year" means the year ending August 31.
(k) (Definition not used).
(l) "Parachute Payment" shall have the meaning set forth
in Section 280G of the Code and the regulations promulgated thereunder.
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<PAGE> 4
(m) "Person" means an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, any unincorporated organization or a government or political subdivision
thereof.
(n) "Retirement" or "Retire" means the Termination by
Executive of his employment with the Company and its Affiliates based upon
retirement in accordance with the Retirement Plan.
(o) "Retirement Plan" means any retirement plans of
Company applicable to Executive in effect on the date of Executive's
Termination or resignation.
(p) "Term" means the initial term of this Agreement and
any extensions hereof, as provided in Section 4.
(q) "Termination" and "Terminate(d)" means the
termination of Executive's employment hereunder for any of the following
reasons unless the context indicates otherwise: (i) Retirement, (ii) Death of
Executive, (iii) Disability, (iv) Expiration, (v) resignation by Executive,
(vi) liquidation of the Company, (vii) Termination Without Cause, and (viii)
Termination for Cause.
(r) "Termination Without Cause" and "Terminate(d) Without
Cause" means the cessation of Executive's employment hereunder for any reason
except (i) a voluntary resignation by Executive, (ii) Termination for Cause,
(iii) Retirement, (iv) Disability, (v) liquidation of the Company, (vi) Death,
or (vii) Expiration.
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<PAGE> 5
(s) "Unexpired Term" has the meaning specified in Section
10(e)(1).
2. Employment.
The Company agrees to continue Executive in its employ, and
Executive agrees to remain in the employ of the Company, for the period stated
in Section 4 hereof and upon the terms and conditions herein provided.
3. Position and Responsibilities.
The Company shall employ Executive in his or her current
capacity with the Company, and Executive shall serve the Company as such for
the Term and on the conditions hereinafter set forth. Executive agrees to
perform such services not materially inconsistent with Executive's position as
shall from time to time be assigned to Executive by the Board or its designee.
4. Term of Employment.
Subject to the provisions and conditions of this Agreement,
the period of Executive's employment under this Agreement shall be deemed to
have commenced as of May 9, 1995, and shall continue for a term ending on
August 31, 1998. In the event the Company retains Executive as an employee
following the expiration of the Term, such employment, absent a written
agreement to the contrary, will be on an at-will basis with such compensation
to which the parties may then agree, subject to termination at any time with or
without cause, and without liability. If the Company does not retain Executive
as an
5
<PAGE> 6
employee after Expiration of the Term, Executive's employment shall cease
without further liability to Executive unless otherwise provided in this
Agreement. Executive's employment shall also terminate, and the Term of this
Agreement will expire, upon Executive's resignation, Retirement, Death or
Disability as described in Section 9(a), upon Executive's Termination for Cause
as described in Section 9(b) or upon the liquidation of the Company.
5. Duties.
(a) The Company and Executive hereby agree that, subject
to the provisions of this Agreement, the Company shall employ Executive, and
Executive shall serve the Company as an executive for the Term of this
Agreement. The specific executive position(s) in which Executive will serve
will be designated from time to time by the Board or its Compensation
Committee, with his or her initial position(s) to be as set forth in this
Agreement.
(b) In the event that Executive is assigned to a position
involving different responsibilities and duties of office than those he or she
is currently exercising or is provided with a different title than that
stipulated in this Agreement, then such changed position and title shall at a
minimum be equivalent to Executive's then current position and title including
but not limited to his or her reporting relationship within the Company.
(c) During the Term hereof, Executive shall devote
substantially all of his or her business time, attention, skill
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<PAGE> 7
and efforts to the faithful performance of the business of the Company to the
fullest extent necessary to properly discharge his or her duties and
responsibilities hereunder, whether such business is operated directly by the
Company or through one or more of its Affiliates. Executive's position and
duties with Affiliates, if any, shall be as identified from time to time by the
Board of Directors of such Affiliate(s). Further, with the approval of the
Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies
or charitable, political or civic organizations, which, in the Board's
judgment, will not present any material conflict of interest with the Company
or its Affiliates, and will not unfavorably affect the performance of
Executive's duties pursuant to this Agreement.
6. Working Facilities.
Executive shall be furnished with a private office,
secretarial and other necessary clerical assistance, and such other facilities,
amenities and services as are presently or may hereafter be furnished to
similarly situated executives of the Company, and as are appropriate for
Executive's position and adequate for the performance of his or her duties
hereunder.
7. Place of Performance.
The Company shall provide and the Executive shall maintain an
office located at the Company's current principal executive offices, within 30
miles of the Company's principal
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<PAGE> 8
executive offices or such other location as the Company and the Executive shall
mutually agree upon.
8. Salary, Bonus, Expenses and Benefits.
(a) Salary. The Company shall pay Executive a base
annual salary of $250,000 or such higher amount as the Board may set in its
sole discretion, payable in at least monthly installments. Any increase in
annual salary shall not serve to limit or reduce any other obligations to
Executive under this Agreement.
(b) Bonus. In addition to said salary, Executive shall
receive an annual bonus ("Bonus") for each fiscal year as follows:
(1) For fiscal year 1995, any bonus shall be paid
in the discretion of the Board; and
(2) Beginning for the year ending August 31,
1996, an amount not less than 9.09% of the excess of (i) the
pretax book income of the Company (exclusive of the Bonus)
over (ii) (a) $1,500,000 for fiscal year ending August 31,
1996 and (b) $1,800,000 for fiscal years ended August 31, 1997
and 1998.
8
<PAGE> 9
Executive must be employed for the entire fiscal year in order to
receive such Bonus except that a pro rata portion of the Bonus shall be paid to
Executive based on the period Executive worked during the fiscal year in the
event Executive is Terminated Without Cause. The Board may elect in its sole
discretion to pay an additional Bonus for any year. The Bonus shall be paid
within 15 days of the Company's independent accountants' audit opinion date on
the Company's annual fiscal year-end financial statement. Executive shall also
receive such additional compensation and rights as the Board may, from time to
time, expressly grant to him or her in its sole discretion.
(c) Reimbursement of Expenses. The Company shall pay or
reimburse Executive, on a monthly basis, for reasonable travel, entertainment,
promotional and other expenses incurred by Executive in the performance of his
or her obligations under this Agreement, pursuant to Company expense
reimbursement policies in effect for all executive employees from time to time.
The Company also will reimburse Executive for initiation fees and dues
associated with membership in such professional, social, civic and service
clubs of which Executive is now a member, and which have been or are hereafter
approved for reimbursement on a case by case basis by the Board of Directors.
9
<PAGE> 10
(d) Vacation Leave. Executive shall be entitled to
vacation time each year during the Term hereof in accordance with normal
Company policy for executives of comparable tenure and position.
(e) Holidays, Leave Days. Etc. Executive shall be
entitled to such holidays, sick leave, leaves of absence and other absences in
accordance with normal Company policy for executives of comparable tenure and
position.
(f) Participation in Welfare and Benefit Plans. During
the Term hereof, in addition to the foregoing, Executive shall be entitled to
participate in (personally and/or for the benefit of his or her family or other
beneficiaries) any Company welfare, insurance and benefit plans that are
available to other executives of the Company of comparable tenure and position,
in accordance with the terms of such plans.
(g) Pension and Profit-Sharing Plans. In accordance with
the general terms and provisions of such plans, Executive shall be entitled to
all benefits payable under the Company's qualified profit-sharing plan, or
other present or future retirement plans or programs, which are available to
other executives of the Company of comparable tenure and position.
9. Termination.
Executive's employment during the Term may be ended by the
Board or its designee, or by Executive, as herein provided, without further
obligation or liability except as expressly provided herein:
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<PAGE> 11
(a) Resignation, Retirement, Death or Disability.
Executive's employment hereunder shall cease at any time by Executive's
voluntary resignation or by Executive's Retirement, Death or Disability.
Disability shall be deemed to have occurred only after the following procedure
has been satisfied: If within thirty (30) days after written notice of
proposed Termination for Disability is given to Executive by the Company,
Executive has not returned to the full-time performance of his or her duties,
the Company may end Executive's employment by giving written notice of
Termination for Disability. Such notice may be given by the Company following
Executive's absence from Executive's duties by reason of physical or mental
disability for one hundred fifty (150) consecutive calendar days.
(b) Termination for Cause. Executive's employment
hereunder shall cease upon a good faith finding of Cause by the Board;
provided, however, that Executive shall be given written notice of the Board's
finding of conduct by Executive amounting to Cause for such Termination. Said
notice shall be accompanied by a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board at a duly-noticed
meeting of the Board, finding that in the good faith opinion of the Board,
Executive was guilty of conduct amounting to Cause and specifying the
particulars thereof.
(c) Termination Without Cause. Executive's employment
may be Terminated Without Cause upon five (5) days' notice for
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<PAGE> 12
any reason, subject to the payment of all amounts required by Section 10(e)
hereof.
(d) Expiration. Executive's employment shall cease, or
shall continue on an at-will basis as provided in Section 4, upon the
expiration of the Term of this Agreement as provided in Section 4.
10. Payments to Executive Upon Termination.
(a) Disability or Retirement. In the event of
Termination of this Agreement due to Executive's Retirement, Death or
Disability, Executive or Executive's spouse and/or estate shall be entitled to
all benefits generally available to Company employees, or their spouses and/or
estates, as of the date of such, Disability or Retirement, without reduction,
including but not limited to payments under the plans identified in Sections
8(f) and (g).
(b) Death. In the event of Termination of this Agreement
due to Executive's Death, Executive or Executive's spouse and/or estate shall
be entitled to all benefits generally available to Company executives, or their
spouses and/or estates, as of the date of such Death without reduction,
including but not limited to payments under the plans identified in Sections
8(f) and (g).
(c) Resignation or Expiration. In the event of
Executive's voluntary resignation, or upon Expiration, neither the Company nor
any Affiliate shall have any further obligation
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<PAGE> 13
to Executive under this Agreement or otherwise, except as may be expressly
required by law.
(d) Termination for Cause. In the event Executive is
Terminated by the Company for Cause, neither the Company nor any Affiliate
shall have any further obligation to Executive under this Agreement or
otherwise, except as may be expressly required by law.
(e) Termination Without Cause. Upon the occurrence of a
Termination Without Cause the Company shall, as damages for breach of contract:
(1) Pay to Executive within 15 days of said
termination, a lump sum payment equal to the amount that the Executive would
have received (without reduction for the time value of money) if this Agreement
would have remained in effect, without renewal, but for such Termination
Without Cause ("Unexpired Term"); and
(2) Pay to Executive a pro rata portion of the
Bonus under the terms set forth under Section 8(b).
(3) Continue to provide to Executive during the
Unexpired Term hereof, at the Company's expense, those benefits afforded to
Executive under Section 8(f) as if Executive continued to remain in the employ
of the Company or, if that is infeasible, shall compensate Executive for the
value thereof.
(4) Within ninety (90) days of the end of each
plan year during the Unexpired Term hereof, pay to Executive sums equivalent to
those which Executive would have received under
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<PAGE> 14
Section 8(g) but for such Termination Without Cause. The objective of this
provision is to place Executive, so far as is financially reasonable, in the
same position as if he or she had been employed throughout the Unexpired Term
of this Agreement and any such retirement plans continued to provide the same
benefits after the Executive's Termination Without Cause as before such
Termination Without Cause.
(5) The receipt of the amounts and benefits
provided by this Section 10(e) shall constitute the sole remedy of Executive as
against the Company, its Affiliates and their respective past, present and
future officers, directors, shareholders, employees and agents, in the event of
a Termination Without Cause, or other material breach by the Company of the
terms of this Agreement unless specified to the contrary herein,
(f) Liquidation of Company. In the event the Company
plans to liquidate, prior to the liquidation of the Company the Company shall
pay to Executive a lump sum payment equal to the remaining amount that would
have been due Executive pursuant to Section 8(a) for the remainder of the Term
of this Agreement; provided, however, that if the liquidation occurs after
August 31, 1996, Executive shall also receive an additional one year's salary
set forth in Section 8(a). In the event of a liquidation of the Company, this
Agreement shall terminate and the Company shall have no further obligation to
Executive except as set forth herein.
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<PAGE> 15
(g) Payment Limitation. Notwithstanding anything to the
contrary in this Agreement which is treated as a Parachute Payment, the total
compensation paid to Executive pursuant to this Agreement, together with any
other payment or the value of any benefit received or to be received by the
Executive which is treated as a Parachute Payment shall not exceed 2.99 times
the Executive's Base Amount. In the event a reduction of the payments set
forth in this Agreement is required pursuant to this Section, the Executive may
select the compensation which will be reduced in order to fall within the 2.99
times Base Amount limitation.
(h) Source of Payments. All payments provided in Section
10 shall be paid in cash from the general funds of the Company, and no special
or separate fund need be established and no other segregation of assets need be
made to assure payment. Executive shall have no right, title, or interest
whatever in or to any investments which the Company may make to aid the Company
in meeting its obligations hereunder.
(i) Sole Remedy. The receipt of the amounts described in
this Section 10 shall constitute the Executive's sole remedy for breach of this
Agreement against the Company, its Affiliates, and their respective officers,
directors, shareholders, employees and agents.
11. Confidential Information.
During the Term of this Agreement and thereafter, Executive
shall not, to the detriment of the Company or its
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Affiliates, disclose or reveal to any unauthorized person any confidential
information relating to the Company or its' Affiliates, or to any of the
businesses operated by them, and Executive confirms that such information
constitutes the exclusive property of the Company and its Affiliates.
12. Federal Income Tax Withholding.
The Company may withhold from any compensation or benefits
payable under this Agreement, including amounts payable under Section 10, all
federal, state, city or other taxes or deductions as shall be required pursuant
to any law, governmental regulation or ruling.
13. Effect of Prior Agreements.
This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements, representations or understandings, whether
oral or written, express or implied, between the Company, its Affiliates, and
Executive with respect to Executive's employment by the Company. The parties
do not intend for this Agreement to supersede or invalidate the terms of any
written employee benefit or welfare plans with the Company covering Executive,
unless necessary to carry out the purposes of this Agreement.
14. Arbitration.
Any controversy between the parties hereto, including the
construction, application or breach of any of the terms, covenants or
conditions of this Agreement, and all claims
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relating to or arising from Executive's employment or termination, including
all statutory claims (including but not limited to all statutes dealing with
employment discrimination), shall on timely written request of one party served
upon the other, be submitted to confidential arbitration and be governed by the
California Arbitration Act as set forth in the California Code of Civil
Procedure (presently Sections 1280 et seq.). The parties agree that any
written request for arbitration must be made within twelve months after the
initiating party first learned or should have learned in the exercise of
reasonable diligence of the essential facts upon which the claim is based, or
first suffered any harm, or first learned or should have learned in the
exercise of reasonable diligence of the breach of this Agreement, whichever is
earlier. Any claim not raised within such time limitation shall be waived and
forever barred. The arbitration shall take place in the City of San Diego,
California. The parties may agree upon one arbitrator, but in the event they
cannot agree the arbitrator shall be a retired judge designated by the then
Presiding Judge of the San Diego Superior Court. Arbitration shall be the
exclusive remedy of Executive and the Company and the award of the arbitrator
shall be final and binding upon the parties.
15. General Provisions.
(a) Nonassignability. Neither this Agreement nor any
right or interest hereunder shall be assignable by Executive or Executive's
beneficiaries or legal representatives without the
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<PAGE> 18
Company's prior written consent, provided, however, that nothing in this
Section 15(a) shall preclude (i) Executive from designating a beneficiary to
receive any benefits payable hereunder upon his or her death, or (ii) the
executors, administrators, or other legal representatives of Executive or his
or her estate from assigning any rights hereunder to the person or persons
entitled thereto.
(b) Assumption. The Company shall require any successor
in interest (whether direct or indirect or as a result of purchase, merger,
consolidation, Change in Control or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform the obligations under this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(c) No Attachment. Except as required by law, no right
to receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process of
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
(d) Effect of Termination of Agreement. Notwithstanding
any Termination of this Agreement and Executive's employment in accordance
with the provisions hereof, such Termination shall not be construed to relieve
any party of the obligation to pay
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any sums which are accrued and owing under this Agreement but unpaid as of the
date of such Termination, or to affect benefits which have become vested either
pursuant to the terms hereof or to the plan under which such benefits have been
granted.
(e) Binding Agreement. This Agreement shall be binding
upon, and inure to the benefit of, Executive, the Company and its Affiliates,
and their respective heirs, successors and assigns. Each party acknowledges
that no representations, inducements, promises, or agreements have been made by
any party, or anyone acting on behalf of any party, which are not embodied
herein and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding on either party except as provided herein.
(f) Amendment or Augmentation of Agreement. This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. Unless expressly agreed to in writing by the
parties hereto, no additional rights or compensation, even if given or
accepted, shall be deemed to modify or otherwise affect the express terms and
conditions of this Agreement.
(g) Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall
be deemed a continuing waiver unless specifically stated therein, and each
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<PAGE> 20
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
(h) Severability. If, for any reason, any provision of
this Agreement is held invalid, such invalidity shall not affect any other
provision of this Agreement not held so invalid, and each such other provision
shall to the full extent consistent with law continue in full force and effect.
If any provision of this Agreement shall be held invalid in part, such
invalidity shall in no way affect the rest of such provision not held so
invalid, and the rest of such provision together with all other provisions of
this Agreement shall, to the full extent consistent with law, continue in full
force and effect.
(i) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if mailed by United States certified or
registered mail, prepaid, to the parties or their permitted assignees at the
following addresses (or at such other address as shall be given in writing by
either party to the other):
To: Beeba's Creations, Inc.
9220 Activity Road
San Diego, California 92126
Attention: President
To: Executive at the last known
address contained in the personnel
records of the Company
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(j) Headings. The headings of paragraphs herein are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
(k) Governing Law. This Agreement has been executed and
delivered in the State of California, and its validity, interpretation,
performance, and enforcement shall be governed by the laws of said State.
(l) Advice of Counsel. Executive has been encouraged to
consult with legal counsel of his or her choosing concerning the terms of this
Agreement prior to executing this Agreement. Any failure by Executive to
consult with competent counsel prior to executing this Agreement shall not be a
basis for rescinding or otherwise avoiding the binding effect of this
Agreement. The parties acknowledge that they are entering into this Agreement
freely and voluntarily, with full understanding of the terms of the Agreement.
Interpretation of the terms of this Agreement shall not be construed for or
against either party on the basis of the identity of the party who drafted the
provision in question.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized representative, and Executive
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has signed this Agreement, all as of the day and month first above written.
BEEBA'S CREATIONS, INC. EXECUTIVE
ARJUN C. WANEY
By: L. A. HENDERSON ------------------------------
-------------------------- Arjun C. Waney
Its: Director
--------------------------
By: EUGENE B. PRICE II
---------------------------
Its: Director
--------------------------
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<PAGE> 1
EXHIBIT 10.32
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective as of May 9, 1995 by and between
BEEBA'S CREATIONS, INC., a California corporation ("Company"), with its
principal executive offices in San Diego, California, and Steven P. Wyandt
("Executive"), an individual residing in the State of California, with
reference to the following:
WHEREAS, Executive is currently employed by the Company in the
capacity as its President and Chief Executive Officer, and Executive's
background, expertise and efforts have contributed to the success and financial
strength of the Company; and
WHEREAS, the relative rights and obligations of employers and
employees in California may be, in the absence of agreement or policy, subject
to the uncertainties of future changes in California law and judicial
decisions; and
WHEREAS, the Company and Executive desire to define their respective
rights and obligations as provided herein; and
WHEREAS, the Company wishes to assure itself of the continued
opportunity to benefit from Executive's services for the period provided in
this Agreement, and Executive is willing to serve in the employ of the Company
on a full-time basis solely in accordance with the terms hereof for said
period; and
WHEREAS, the Board has determined that the best interests of the
Company would be served by Executive's continued employment under the terms of
this Agreement by the Company and its Affiliates in Executive's current
capacity or such capacities as
<PAGE> 2
the Board may delegate to him or her from time to time during the term of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
1. Definitions.
(a) "Affiliate" shall mean any Person that controls or is
controlled by or under common control with the Company, whether now or
hereafter formed, including but not limited to Body Drama, Inc., a California
corporation.
(b) "Agreement" means this Employment Agreement and any
amendments hereto complying with Section 15(f) hereof.
(c) "Base Amount" shall have the meaning set forth in
Section 280G of the Code.
(d) "Board" means the Board of Directors of the Company
unless the context otherwise requires.
(e) "Cause" means (1) Executive's personal dishonesty,
gross incompetence (which is intended to be far beyond failure to meet
performance goals), willful misconduct, conflict of interest or breach of
fiduciary duty involving intent for or obtainment of personal or family profit,
willful violation of any law, rule, or regulation to the extent detrimental to
the Company's business or reputation or the Executive's ability to perform this
Agreement, causing the issuance of a final cease-and- desist order, or a
material breach of any provision of this Agreement; or (2) the willful and
continued failure by Executive to substantially perform Executive's duties with
the Company or its Affiliates
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<PAGE> 3
(other than any failure resulting from Disability) after a written demand for
substantial performance is given to Executive by the Board which demand
specifically identifies the manner in which the Board believes that Executive
has not substantially performed his or her duties.
(f) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(g) "Compensation Committee" is the committee of the
Board appointed as such under Corporations Code Section 311 to act on behalf of
the full Board in matters of executive compensation and benefits.
(h) "Disability" means physical or mental illness
resulting in Executive's absence on a full-time basis from Executive's duties
with the Company or its Affiliates for one hundred eighty (180) consecutive
calendar days, subject to the procedure referenced in Section 9(a).
(i) "Expiration" means the termination of this Agreement
(including Executive's employment hereunder) and of any further obligations of
the parties (except as specified in this Agreement) upon completion of the
Term.
(j) "Fiscal Year" means the year ending August 31.
(k) (Definition no used).
(l) "Parachute Payment" shall have the meaning set forth
in Section 280G of the Code and the regulations promulgated thereunder.
3
<PAGE> 4
(m) "Person" means an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, any unincorporated organization or a government or political subdivision
thereof.
(n) "Retirement" or "Retire" means the Termination by
Executive of his employment with the Company and its Affiliates based upon
retirement in accordance with the Retirement Plan.
(o) "Retirement Plan" means any retirement plans of
Company applicable to Executive in effect on the date of Executive's
Termination or resignation.
(p) "Term" means the initial term of this Agreement and
any extensions hereof, as provided in Section 4.
(q) "Termination" and "Terminate(d)" means the
termination of Executive's employment hereunder for any of the following
reasons unless the context indicates otherwise: (i) Retirement, (ii) Death of
Executive, (iii) Disability, (iv) Expiration, (v) resignation by Executive,
(vi) liquidation of the Company, (vii) Termination Without Cause, and (viii)
Termination for Cause.
(r) "Termination Without Cause" and "Terminate(d) Without
Cause" means the cessation of Executive's employment hereunder for any reason
except (i) a voluntary resignation by Executive, (ii) Termination for Cause,
(iii) Retirement, (iv) Disability, (v) liquidation of the Company, (vi) Death,
or (vii) Expiration.
4
<PAGE> 5
(s) "Unexpired Term" has the meaning specified in Section
10(e)(1).
2. Employment.
The Company agrees to continue Executive in its employ, and
Executive agrees to remain in the employ of the Company, for the period stated
in Section 4 hereof and upon the terms and conditions herein provided.
3. Position and Responsibilities.
The Company shall employ Executive in his or her current
capacity with the Company, and Executive shall serve the Company as such for
the Term and on the conditions hereinafter set forth. Executive agrees to
perform such services not materially inconsistent with Executive's position as
shall from time to time be assigned to Executive by the Board or its designee.
4. Term of Employment.
Subject to the provisions and conditions of this Agreement,
the period of Executive's employment under this Agreement shall be deemed to
have commenced as of May 9, 1995, and shall continue for a term ending on
August 31, 1998. In the event the Company retains Executive as an employee
following the expiration of the Term, such employment, absent a written
agreement to the contrary, will be on an at-will basis with such compensation
to which the parties may then agree, subject to termination at any time with or
without cause, and without liability. If the Company does not retain Executive
as an
5
<PAGE> 6
employee after Expiration of the Term, Executive's employment shall cease
without further liability to Executive unless otherwise provided in this
Agreement. Executive's employment shall also terminate, and the Term of this
Agreement will expire, upon Executive's resignation, Retirement, Death or
Disability as described in Section 9(a), upon Executive's Termination for Cause
as described in Section 9(b) or upon the liquidation of the Company.
5. Duties.
(a) The Company and Executive hereby agree that, subject
to the provisions of this Agreement, the Company shall employ Executive, and
Executive shall serve the Company as an executive for the Term of this
Agreement. The specific executive position(s) in which Executive will serve
will be designated from time to time by the Board or its Compensation
Committee, with his or her initial position(s) to be as set forth in this
Agreement.
(b) In the event that Executive is assigned to a position
involving different responsibilities and duties of office than those he or she
is currently exercising or is provided with a different title than that
stipulated in this Agreement, then such changed position and title shall at a
minimum be equivalent to Executive's then current position and title including
but not limited to his or her reporting relationship within the Company.
(c) During the Term hereof, Executive shall devote
substantially all of his or her business time, attention, skill
6
<PAGE> 7
and efforts to the faithful performance of the business of the Company to the
fullest extent necessary to properly discharge his or her duties and
responsibilities hereunder, whether such business is operated directly by the
Company or through one or more of its Affiliates. Executive's position and
duties with Affiliates, if any, shall be as identified from time to time by the
Board of Directors of such Affiliate(s). Further, with the approval of the
Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies
or charitable, political or civic organizations, which, in the Board's
judgment, will not present any material conflict of interest with the Company
or its Affiliates, and will not unfavorably affect the performance of
Executive's duties pursuant to this Agreement.
6. Working Facilities.
Executive shall be furnished with a private office,
secretarial and other necessary clerical assistance, and such other facilities,
amenities and services as are presently or may hereafter be furnished to
similarly situated executives of the Company, and as are appropriate for
Executive's position and adequate for the performance of his or her duties
hereunder.
7. Place of Performance.
The Company shall provide and the Executive shall maintain an
office located at the Company's current principal executive offices, within 30
miles of the Company's principal
7
<PAGE> 8
executive offices or such other location as the Company and the Executive shall
mutually agree upon.
8. Salary, Bonus, Expenses and Benefits.
(a) Salary. The Company shall pay Executive a base
annual salary of $180,000, or such higher amount as the Board may set in its
sole discretion, payable in at least monthly installments. Any increase in
annual salary shall not serve to limit or reduce any other obligations to
Executive under this Agreement.
(b) Bonus. In addition to said salary, Executive shall
receive an annual bonus ("Bonus") for each fiscal year as follows:
(1) For fiscal year 1995, any bonus shall be paid
in the discretion of the Board; and
(2) Beginning for the year ending August 31,
1996, an amount not less than 6.55% of the excess of (i) the
pretax book income of the Company (exclusive of the Bonus)
over (ii) (a) $1,500,000 for fiscal year ending August 31,
1996 and (b) $1,800,000 for fiscal years ended August 31, 1997
and 1998.
8
<PAGE> 9
Executive must be employed for the entire fiscal year in order to
receive such Bonus except that a pro rata portion of the Bonus shall be paid to
Executive based on the period Executive worked during the fiscal year in the
event Executive is Terminated Without Cause. The Board may elect in its sole
discretion to pay an additional Bonus for any year. The Bonus shall be paid
within 15 days of the Company's independent accountants' audit opinion date on
the Company's annual fiscal year-end financial statement. Executive shall also
receive such additional compensation and rights as the Board may, from time to
time, expressly grant to him or her in its sole discretion.
(c) Reimbursement of Expenses. The Company shall pay or
reimburse Executive, on a monthly basis, for reasonable travel, entertainment,
promotional and other expenses incurred by Executive in the performance of his
or her obligations under this Agreement, pursuant to Company expense
reimbursement policies in effect for all executive employees from time to time.
The Company also will reimburse Executive for initiation fees and dues
associated with membership in such professional, social, civic and service
clubs of which Executive is now a member, and which have been or are hereafter
approved for reimbursement on a case by case basis by the Board of Directors.
9
<PAGE> 10
(d) Vacation Leave. Executive shall be entitled to
vacation time each year during the Term hereof in accordance with normal
Company policy for executives of comparable tenure and position.
(e) Holidays, Leave Days. Etc. Executive shall be
entitled to such holidays, sick leave, leaves of absence and other absences in
accordance with normal Company policy for executives of comparable tenure and
position.
(f) Participation in Welfare and Benefit Plans. During
the Term hereof, in addition to the foregoing, Executive shall be entitled to
participate in (personally and/or for the benefit of his or her family or other
beneficiaries) any Company welfare, insurance and benefit plans that are
available to other executives of the Company of comparable tenure and position,
in accordance with the terms of such plans.
(g) Pension and Profit-Sharing Plans. In accordance with
the general terms and provisions of such plans, Executive shall be entitled to
all benefits payable under the Company's qualified profit-sharing plan, or
other present or future retirement plans or programs, which are available to
other executives of the Company of comparable tenure and position.
9. Termination.
Executive's employment during the Term may be ended by the
Board or its designee, or by Executive, as herein provided, without further
obligation or liability except as expressly provided herein:
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<PAGE> 11
(a) Resignation, Retirement, Death or Disability.
Executive's employment hereunder shall cease at any time by Executive's
voluntary resignation or by Executive's Retirement, Death or Disability.
Disability shall be deemed to have occurred only after the following procedure
has been satisfied: If within thirty (30) days after written notice of
proposed Termination for Disability is given to Executive by the Company,
Executive has not returned to the full-time performance of his or her duties,
the Company may end Executive's employment by giving written notice of
Termination for Disability. Such notice may be given by the Company following
Executive's absence from Executive's duties by reason of physical or mental
disability for one hundred fifty (150) consecutive calendar days.
(b) Termination for Cause. Executive's employment
hereunder shall cease upon a good faith finding of Cause by the Board;
provided, however, that Executive shall be given written notice of the Board's
finding of conduct by Executive amounting to Cause for such Termination. Said
notice shall be accompanied by a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board at a duly-noticed
meeting of the Board, finding that in the good faith opinion of the Board,
Executive was guilty of conduct amounting to Cause and specifying the
particulars thereof.
(c) Termination Without Cause. Executive's employment
may be Terminated Without Cause upon five (5) days' notice for
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<PAGE> 12
any reason, subject to the payment of all amounts required by Section 10(e)
hereof.
(d) Expiration. Executive's employment shall cease, or
shall continue on an at-will basis as provided in Section 4, upon the
expiration of the Term of this Agreement as provided in Section 4.
10. Payments to Executive Upon Termination.
(a) Disability or Retirement. In the event of
Termination of this Agreement due to Executive's Retirement, Death or
Disability, Executive or Executive's spouse and/or estate shall be entitled to
all benefits generally available to Company employees, or their spouses and/or
estates, as of the date of such, Disability or Retirement, without reduction,
including but not limited to payments under the plans identified in Sections
8(f) and (g).
(b) Death. In the event of Termination of this Agreement
due to Executive's Death, Executive or Executive's spouse and/or estate shall
be entitled to all benefits generally available to Company executives, or their
spouses and/or estates, as of the date of such Death without reduction,
including but not limited to payments under the plans identified in Sections
8(f) and (g).
(c) Resignation or Expiration. In the event of
Executive's voluntary resignation, or upon Expiration, neither the Company nor
any Affiliate shall have any further obligation
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<PAGE> 13
to Executive under this Agreement or otherwise, except as may be expressly
required by law.
(d) Termination for Cause. In the event Executive is
Terminated by the Company for Cause, neither the Company nor any Affiliate
shall have any further obligation to Executive under this Agreement or
otherwise, except as may be expressly required by law.
(e) Termination Without Cause. Upon the occurrence of a
Termination Without Cause the Company shall, as damages for breach of contract:
(1) Pay to Executive within 15 days of said
termination, a lump sum payment equal to the amount that the Executive would
have received (without reduction for the time value of money) if this Agreement
would have remained in effect, without renewal, but for such Termination
Without Cause ("Unexpired Term"); and
(2) Pay to Executive a pro rata portion of the
Bonus under the terms set forth under Section 8(b).
(3) Continue to provide to Executive during the
Unexpired Term hereof, at the Company's expense, those benefits afforded to
Executive under Section 8(f) as if Executive continued to remain in the employ
of the Company or, if that is infeasible, shall compensate Executive for the
value thereof.
(4) Within ninety (90) days of the end of each
plan year during the Unexpired Term hereof, pay to Executive sums equivalent to
those which Executive would have received under
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<PAGE> 14
Section 8(g) but for such Termination Without Cause. The objective of this
provision is to place Executive, so far as is financially reasonable, in the
same position as if he or she had been employed throughout the Unexpired Term
of this Agreement and any such retirement plans continued to provide the same
benefits after the Executive's Termination Without Cause as before such
Termination Without Cause.
(5) The receipt of the amounts and benefits
provided by this Section 10(e) shall constitute the sole remedy of Executive as
against the Company, its Affiliates and their respective past, present and
future officers, directors, shareholders, employees and agents, in the event of
a Termination Without Cause, or other material breach by the Company of the
terms of this Agreement unless specified to the contrary herein,
(f) Liquidation of Company. In the event the Company
plans to liquidate, prior to the liquidation of the Company the Company shall
pay to Executive a lump sum payment equal to the remaining amount that would
have been due Executive pursuant to Section 8(a) for the remainder of the Term
of this Agreement; provided, however, that if the liquidation occurs after
August 31, 1996, Executive shall also receive an additional one year's salary
set forth in Section 8(a). In the event of a liquidation of the Company, this
Agreement shall terminate and the Company shall have no further obligation to
Executive except as set forth herein.
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<PAGE> 15
(g) Payment Limitation. Notwithstanding anything to the
contrary in this Agreement which is treated as a Parachute Payment, the total
compensation paid to Executive pursuant to this Agreement, together with any
other payment or the value of any benefit received or to be received by the
Executive which is treated as a Parachute Payment shall not exceed 2.99 times
the Executive's Base Amount. In the event a reduction of the payments set
forth in this Agreement is required pursuant to this Section, the Executive may
select the compensation which will be reduced in order to fall within the 2.99
times Base Amount limitation.
(h) Source of Payments. All payments provided in Section
10 shall be paid in cash from the general funds of the Company, and no special
or separate fund need be established and no other segregation of assets need be
made to assure payment. Executive shall have no right, title, or interest
whatever in or to any investments which the Company may make to aid the Company
in meeting its obligations hereunder.
(i) Sole Remedy. The receipt of the amounts described in
this Section 10 shall constitute the Executive's sole remedy for breach of this
Agreement against the Company, its Affiliates, and their respective officers,
directors, shareholders, employees and agents.
11. Confidential Information.
During the Term of this Agreement and thereafter, Executive
shall not, to the detriment of the Company or its
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<PAGE> 16
Affiliates, disclose or reveal to any unauthorized person any confidential
information relating to the Company or its' Affiliates, or to any of the
businesses operated by them, and Executive confirms that such information
constitutes the exclusive property of the Company and its Affiliates.
12. Federal Income Tax Withholding.
The Company may withhold from any compensation or benefits
payable under this Agreement, including amounts payable under Section 10, all
federal, state, city or other taxes or deductions as shall be required pursuant
to any law, governmental regulation or ruling.
13. Effect of Prior Agreements.
This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements, representations or understandings, whether
oral or written, express or implied, between the Company, its Affiliates, and
Executive with respect to Executive's employment by the Company. The parties
do not intend for this Agreement to supersede or invalidate the terms of any
written employee benefit or welfare plans with the Company covering Executive,
unless necessary to carry out the purposes of this Agreement.
14. Arbitration.
Any controversy between the parties hereto, including the
construction, application or breach of any of the terms, covenants or
conditions of this Agreement, and all claims
16
<PAGE> 17
relating to or arising from Executive's employment or termination, including
all statutory claims (including but not limited to all statutes dealing with
employment discrimination), shall on timely written request of one party served
upon the other, be submitted to confidential arbitration and be governed by the
California Arbitration Act as set forth in the California Code of Civil
Procedure (presently Sections 1280 et seq.). The parties agree that any
written request for arbitration must be made within twelve months after the
initiating party first learned or should have learned in the exercise of
reasonable diligence of the essential facts upon which the claim is based, or
first suffered any harm, or first learned or should have learned in the
exercise of reasonable diligence of the breach of this Agreement, whichever is
earlier. Any claim not raised within such time limitation shall be waived and
forever barred. The arbitration shall take place in the City of San Diego,
California. The parties may agree upon one arbitrator, but in the event they
cannot agree the arbitrator shall be a retired judge designated by the then
Presiding Judge of the San Diego Superior Court. Arbitration shall be the
exclusive remedy of Executive and the Company and the award of the arbitrator
shall be final and binding upon the parties.
15. General Provisions.
(a) Nonassignability. Neither this Agreement nor any
right or interest hereunder shall be assignable by Executive or Executive's
beneficiaries or legal representatives without the
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<PAGE> 18
Company's prior written consent, provided, however, that nothing in this
Section 15(a) shall preclude (i) Executive from designating a beneficiary to
receive any benefits payable hereunder upon his or her death, or (ii) the
executors, administrators, or other legal representatives of Executive or his
or her estate from assigning any rights hereunder to the person or persons
entitled thereto.
(b) Assumption. The Company shall require any successor
in interest (whether direct or indirect or as a result of purchase, merger,
consolidation, Change in Control or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform the obligations under this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(c) No Attachment. Except as required by law, no right
to receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process of
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
(d) Effect of Termination of Agreement. Notwithstanding
any Termination of this Agreement and Executive's employment in accordance
with the provisions hereof, such Termination shall not be construed to relieve
any party of the obligation to pay
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<PAGE> 19
any sums which are accrued and owing under this Agreement but unpaid as of the
date of such Termination, or to affect benefits which have become vested either
pursuant to the terms hereof or to the plan under which such benefits have been
granted.
(e) Binding Agreement. This Agreement shall be binding
upon, and inure to the benefit of, Executive, the Company and its Affiliates,
and their respective heirs, successors and assigns. Each party acknowledges
that no representations, inducements, promises, or agreements have been made by
any party, or anyone acting on behalf of any party, which are not embodied
herein and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding on either party except as provided herein.
(f) Amendment or Augmentation of Agreement. This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. Unless expressly agreed to in writing by the
parties hereto, no additional rights or compensation, even if given or
accepted, shall be deemed to modify or otherwise affect the express terms and
conditions of this Agreement.
(g) Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall
be deemed a continuing waiver unless specifically stated therein, and each
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<PAGE> 20
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
(h) Severability. If, for any reason, any provision of
this Agreement is held invalid, such invalidity shall not affect any other
provision of this Agreement not held so invalid, and each such other provision
shall to the full extent consistent with law continue in full force and effect.
If any provision of this Agreement shall be held invalid in part, such
invalidity shall in no way affect the rest of such provision not held so
invalid, and the rest of such provision together with all other provisions of
this Agreement shall, to the full extent consistent with law, continue in full
force and effect.
(i) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if mailed by United States certified or
registered mail, prepaid, to the parties or their permitted assignees at the
following addresses (or at such other address as shall be given in writing by
either party to the other):
To: Beeba's Creations, Inc.
9220 Activity Road
San Diego, California 92126
Attention: President
To: Executive at the last known
address contained in the personnel
records of the Company
20
<PAGE> 21
(j) Headings. The headings of paragraphs herein are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
(k) Governing Law. This Agreement has been executed and
delivered in the State of California, and its validity, interpretation,
performance, and enforcement shall be governed by the laws of said State.
(l) Advice of Counsel. Executive has been encouraged to
consult with legal counsel of his or her choosing concerning the terms of this
Agreement prior to executing this Agreement. Any failure by Executive to
consult with competent counsel prior to executing this Agreement shall not be a
basis for rescinding or otherwise avoiding the binding effect of this
Agreement. The parties acknowledge that they are entering into this Agreement
freely and voluntarily, with full understanding of the terms of the Agreement.
Interpretation of the terms of this Agreement shall not be construed for or
against either party on the basis of the identity of the party who drafted the
provision in question.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized representative, and Executive
21
<PAGE> 22
has signed this Agreement, all as of the day and month first above written.
<TABLE>
<S> <C>
BEEBA'S CREATIONS, INC. EXECUTIVE
By: L. A. HENDERSON STEVEN P. WYANDT
--------------------------- ---------------------------
Steven P. Wyandt
Its: Director
--------------------------
By: EUGENE B. PRICE II
---------------------------
Its: Director
--------------------------
By: ARJUN C. WANEY
---------------------------
Its: Director
--------------------------
</TABLE>
22
<PAGE> 1
EXHIBIT 10.33
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and effective as of May 9, 1995 by and between
BEEBA'S CREATIONS, INC., a California corporation ("Company"), with its
principal executive offices in San Diego, California, and Thomas P. Baumann
("Executive"), an individual residing in the State of California, with
reference to the following:
WHEREAS, Executive is currently employed by the Company in the
capacity as its Chief Financial Officer, and Executive's background, expertise
and efforts have contributed to the success and financial strength of the
Company; and
WHEREAS, the relative rights and obligations of employers and
employees in California may be, in the absence of agreement or policy, subject
to the uncertainties of future changes in California law and judicial
decisions; and
WHEREAS, the Company and Executive desire to define their respective
rights and obligations as provided herein; and
WHEREAS, the Company wishes to assure itself of the continued
opportunity to benefit from Executive's services for the period provided in
this Agreement, and Executive is willing to serve in the employ of the Company
on a full-time basis solely in accordance with the terms hereof for said
period; and
WHEREAS, the Board has determined that the best interests of the
Company would be served by Executive's continued employment under the terms of
this Agreement by the Company and its Affiliates in Executive's current
capacity or such capacities as
<PAGE> 2
the Board may delegate to him or her from time to time during the term of this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereby agree as follows:
1. Definitions.
(a) "Affiliate" shall mean any Person that controls or is
controlled by or under common control with the Company, whether now or
hereafter formed, including but not limited to Body Drama, Inc., a California
corporation.
(b) "Agreement" means this Employment Agreement and any
amendments hereto complying with Section 15(f) hereof.
(c) "Base Amount" shall have the meaning set forth in
Section 280G of the Code.
(d) "Board" means the Board of Directors of the Company
unless the context otherwise requires.
(e) "Cause" means (1) Executive's personal dishonesty,
gross incompetence (which is intended to be far beyond failure to meet
performance goals), willful misconduct, conflict of interest or breach of
fiduciary duty involving intent for or obtainment of personal or family profit,
willful violation of any law, rule, or regulation to the extent detrimental to
the Company's business or reputation or the Executive's ability to perform this
Agreement, causing the issuance of a final cease-and- desist order, or a
material breach of any provision of this Agreement; or (2) the willful and
continued failure by Executive to substantially perform Executive's duties with
the Company or its Affiliates
2
<PAGE> 3
(other than any failure resulting from Disability) after a written demand for
substantial performance is given to Executive by the Board which demand
specifically identifies the manner in which the Board believes that Executive
has not substantially performed his or her duties.
(f) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(g) "Compensation Committee" is the committee of the
Board appointed as such under Corporations Code Section 311 to act on behalf of
the full Board in matters of executive compensation and benefits.
(h) "Disability" means physical or mental illness
resulting in Executive's absence on a full-time basis from Executive's duties
with the Company or its Affiliates for one hundred eighty (180) consecutive
calendar days, subject to the procedure referenced in Section 9(a).
(i) "Expiration" means the termination of this Agreement
(including Executive's employment hereunder) and of any further obligations of
the parties (except as specified in this Agreement) upon completion of the
Term.
(j) "Fiscal Year" means the year ending August 31.
(k) (Definition not used).
(l) "Parachute Payment" shall have the meaning set forth
in Section 280G of the Code and the regulations promulgated thereunder.
3
<PAGE> 4
(m) "Person" means an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, any unincorporated organization or a government or political subdivision
thereof.
(n) "Retirement" or "Retire" means the Termination by
Executive of his employment with the Company and its Affiliates based upon
retirement in accordance with the Retirement Plan.
(o) "Retirement Plan" means any retirement plans of
Company applicable to Executive in effect on the date of Executive's
Termination or resignation.
(p) "Term" means the initial term of this Agreement and
any extensions hereof, as provided in Section 4.
(q) "Termination" and "Terminate(d)" means the
termination of Executive's employment hereunder for any of the following
reasons unless the context indicates otherwise: (i) Retirement, (ii) Death of
Executive, (iii) Disability, (iv) Expiration, (v) resignation by Executive,
(vi) liquidation of the Company, (vii) Termination Without Cause, and (viii)
Termination for Cause.
(r) "Termination Without Cause" and "Terminate(d) Without
Cause" means the cessation of Executive's employment hereunder for any reason
except (i) a voluntary resignation by Executive, (ii) Termination for Cause,
(iii) Retirement, (iv) Disability, (v) liquidation of the Company, (vi) Death,
or (vii) Expiration.
4
<PAGE> 5
(s) "Unexpired Term" has the meaning specified in Section
10(e)(1).
2. Employment.
The Company agrees to continue Executive in its employ, and
Executive agrees to remain in the employ of the Company, for the period stated
in Section 4 hereof and upon the terms and conditions herein provided.
3. Position and Responsibilities.
The Company shall employ Executive in his or her current
capacity with the Company, and Executive shall serve the Company as such for
the Term and on the conditions hereinafter set forth. Executive agrees to
perform such services not materially inconsistent with Executive's position as
shall from time to time be assigned to Executive by the Board or its designee.
4. Term of Employment.
Subject to the provisions and conditions of this Agreement,
the period of Executive's employment under this Agreement shall be deemed to
have commenced as of May 9, 1995, and shall continue for a term ending on
August 31, 1998. In the event the Company retains Executive as an employee
following the expiration of the Term, such employment, absent a written
agreement to the contrary, will be on an at-will basis with such compensation
to which the parties may then agree, subject to termination at any time with or
without cause, and without liability. If the Company does not retain Executive
as an
5
<PAGE> 6
employee after Expiration of the Term, Executive's employment shall cease
without further liability to Executive unless otherwise provided in this
Agreement. Executive's employment shall also terminate, and the Term of this
Agreement will expire, upon Executive's resignation, Retirement, Death or
Disability as described in Section 9(a), upon Executive's Termination for Cause
as described in Section 9(b) or upon the liquidation of the Company.
5. Duties.
(a) The Company and Executive hereby agree that, subject
to the provisions of this Agreement, the Company shall employ Executive, and
Executive shall serve the Company as an executive for the Term of this
Agreement. The specific executive position(s) in which Executive will serve
will be designated from time to time by the Board or its Compensation
Committee, with his or her initial position(s) to be as set forth in this
Agreement.
(b) In the event that Executive is assigned to a position
involving different responsibilities and duties of office than those he or she
is currently exercising or is provided with a different title than that
stipulated in this Agreement, then such changed position and title shall at a
minimum be equivalent to Executive's then current position and title including
but not limited to his or her reporting relationship within the Company.
(c) During the Term hereof, Executive shall devote
substantially all of his or her business time, attention, skill
6
<PAGE> 7
and efforts to the faithful performance of the business of the Company to the
fullest extent necessary to properly discharge his or her duties and
responsibilities hereunder, whether such business is operated directly by the
Company or through one or more of its Affiliates. Executive's position and
duties with Affiliates, if any, shall be as identified from time to time by the
Board of Directors of such Affiliate(s). Further, with the approval of the
Board, from time to time, Executive may serve, or continue to serve, on the
boards of directors of, and hold any other offices or positions in, companies
or charitable, political or civic organizations, which, in the Board's
judgment, will not present any material conflict of interest with the Company
or its Affiliates, and will not unfavorably affect the performance of
Executive's duties pursuant to this Agreement.
6. Working Facilities.
Executive shall be furnished with a private office,
secretarial and other necessary clerical assistance, and such other facilities,
amenities and services as are presently or may hereafter be furnished to
similarly situated executives of the Company, and as are appropriate for
Executive's position and adequate for the performance of his or her duties
hereunder.
7. Place of Performance.
The Company shall provide and the Executive shall maintain an
office located at the Company's current principal executive offices, within 30
miles of the Company's principal
7
<PAGE> 8
executive offices or such other location as the Company and the Executive shall
mutually agree upon.
8. Salary, Bonus, Expenses and Benefits.
(a) Salary. The Company shall pay Executive a base
annual salary of $120,000, or such higher amount as the Board may set in its
sole discretion, payable in at least monthly installments. Any increase in
annual salary shall not serve to limit or reduce any other obligations to
Executive under this Agreement.
(b) Bonus. In addition to said salary, Executive shall
receive an annual bonus ("Bonus") for each fiscal year as follows:
(1) For fiscal year 1995, any bonus shall be paid
in the discretion of the Board; and
(2) Beginning for the year ending August 31,
1996, an amount not less than 4.36% of the excess of (i) the
pretax book income of the Company (exclusive of the Bonus)
over (ii) (a) $1,500,000 for fiscal year ending August 31,
1996 and (b) $1,800,000 for fiscal years ended August 31, 1997
and 1998.
8
<PAGE> 9
Executive must be employed for the entire fiscal year in order to
receive such Bonus except that a pro rata portion of the Bonus shall be paid to
Executive based on the period Executive worked during the fiscal year in the
event Executive is Terminated Without Cause. The Board may elect in its sole
discretion to pay an additional Bonus for any year. The Bonus shall be paid
within 15 days of the Company's independent accountants' audit opinion date on
the Company's annual fiscal year-end financial statement. Executive shall also
receive such additional compensation and rights as the Board may, from time to
time, expressly grant to him or her in its sole discretion.
(c) Reimbursement of Expenses. The Company shall pay or
reimburse Executive, on a monthly basis, for reasonable travel, entertainment,
promotional and other expenses incurred by Executive in the performance of his
or her obligations under this Agreement, pursuant to Company expense
reimbursement policies in effect for all executive employees from time to time.
The Company also will reimburse Executive for initiation fees and dues
associated with membership in such professional, social, civic and service
clubs of which Executive is now a member, and which have been or are hereafter
approved for reimbursement on a case by case basis by the Board of Directors.
9
<PAGE> 10
(d) Vacation Leave. Executive shall be entitled to
vacation time each year during the Term hereof in accordance with normal
Company policy for executives of comparable tenure and position.
(e) Holidays, Leave Days. Etc. Executive shall be
entitled to such holidays, sick leave, leaves of absence and other absences in
accordance with normal Company policy for executives of comparable tenure and
position.
(f) Participation in Welfare and Benefit Plans. During
the Term hereof, in addition to the foregoing, Executive shall be entitled to
participate in (personally and/or for the benefit of his or her family or other
beneficiaries) any Company welfare, insurance and benefit plans that are
available to other executives of the Company of comparable tenure and position,
in accordance with the terms of such plans.
(g) Pension and Profit-Sharing Plans. In accordance with
the general terms and provisions of such plans, Executive shall be entitled to
all benefits payable under the Company's qualified profit-sharing plan, or
other present or future retirement plans or programs, which are available to
other executives of the Company of comparable tenure and position.
9. Termination.
Executive's employment during the Term may be ended by the
Board or its designee, or by Executive, as herein provided, without further
obligation or liability except as expressly provided herein:
10
<PAGE> 11
(a) Resignation, Retirement, Death or Disability.
Executive's employment hereunder shall cease at any time by Executive's
voluntary resignation or by Executive's Retirement, Death or Disability.
Disability shall be deemed to have occurred only after the following procedure
has been satisfied: If within thirty (30) days after written notice of
proposed Termination for Disability is given to Executive by the Company,
Executive has not returned to the full-time performance of his or her duties,
the Company may end Executive's employment by giving written notice of
Termination for Disability. Such notice may be given by the Company following
Executive's absence from Executive's duties by reason of physical or mental
disability for one hundred fifty (150) consecutive calendar days.
(b) Termination for Cause. Executive's employment
hereunder shall cease upon a good faith finding of Cause by the Board;
provided, however, that Executive shall be given written notice of the Board's
finding of conduct by Executive amounting to Cause for such Termination. Said
notice shall be accompanied by a copy of a resolution duly adopted by the
affirmative vote of not less than a majority of the Board at a duly-noticed
meeting of the Board, finding that in the good faith opinion of the Board,
Executive was guilty of conduct amounting to Cause and specifying the
particulars thereof.
(c) Termination Without Cause. Executive's employment
may be Terminated Without Cause upon five (5) days' notice for
11
<PAGE> 12
any reason, subject to the payment of all amounts required by Section 10(e)
hereof.
(d) Expiration. Executive's employment shall cease, or
shall continue on an at-will basis as provided in Section 4, upon the
expiration of the Term of this Agreement as provided in Section 4.
10. Payments to Executive Upon Termination.
(a) Disability or Retirement. In the event of
Termination of this Agreement due to Executive's Retirement, Death or
Disability, Executive or Executive's spouse and/or estate shall be entitled to
all benefits generally available to Company employees, or their spouses and/or
estates, as of the date of such, Disability or Retirement, without reduction,
including but not limited to payments under the plans identified in Sections
8(f) and (g).
(b) Death. In the event of Termination of this Agreement
due to Executive's Death, Executive or Executive's spouse and/or estate shall
be entitled to all benefits generally available to Company executives, or their
spouses and/or estates, as of the date of such Death without reduction,
including but not limited to payments under the plans identified in Sections
8(f) and (g).
(c) Resignation or Expiration. In the event of
Executive's voluntary resignation, or upon Expiration, neither the Company nor
any Affiliate shall have any further obligation
12
<PAGE> 13
to Executive under this Agreement or otherwise, except as may be expressly
required by law.
(d) Termination for Cause. In the event Executive is
Terminated by the Company for Cause, neither the Company nor any Affiliate
shall have any further obligation to Executive under this Agreement or
otherwise, except as may be expressly required by law.
(e) Termination Without Cause. Upon the occurrence of a
Termination Without Cause the Company shall, as damages for breach of contract:
(1) Pay to Executive within 15 days of said
termination, a lump sum payment equal to the amount that the Executive would
have received (without reduction for the time value of money) if this Agreement
would have remained in effect, without renewal, but for such Termination
Without Cause ("Unexpired Term"); and
(2) Pay to Executive a pro rata portion of the
Bonus under the terms set forth under Section 8(b).
(3) Continue to provide to Executive during the
Unexpired Term hereof, at the Company's expense, those benefits afforded to
Executive under Section 8(f) as if Executive continued to remain in the employ
of the Company or, if that is infeasible, shall compensate Executive for the
value thereof.
(4) Within ninety (90) days of the end of each
plan year during the Unexpired Term hereof, pay to Executive sums equivalent to
those which Executive would have received under
13
<PAGE> 14
Section 8(g) but for such Termination Without Cause. The objective of this
provision is to place Executive, so far as is financially reasonable, in the
same position as if he or she had been employed throughout the Unexpired Term
of this Agreement and any such retirement plans continued to provide the same
benefits after the Executive's Termination Without Cause as before such
Termination Without Cause.
(5) The receipt of the amounts and benefits
provided by this Section 10(e) shall constitute the sole remedy of Executive as
against the Company, its Affiliates and their respective past, present and
future officers, directors, shareholders, employees and agents, in the event of
a Termination Without Cause, or other material breach by the Company of the
terms of this Agreement unless specified to the contrary herein,
(f) Liquidation of Company. In the event the Company
plans to liquidate, prior to the liquidation of the Company the Company shall
pay to Executive a lump sum payment equal to the remaining amount that would
have been due Executive pursuant to Section 8(a) for the remainder of the Term
of this Agreement; provided, however, that if the liquidation occurs after
August 31, 1996, Executive shall also receive an additional one year's salary
set forth in Section 8(a). In the event of a liquidation of the Company, this
Agreement shall terminate and the Company shall have no further obligation to
Executive except as set forth herein.
14
<PAGE> 15
(g) Payment Limitation. Notwithstanding anything to the
contrary in this Agreement which is treated as a Parachute Payment, the total
compensation paid to Executive pursuant to this Agreement, together with any
other payment or the value of any benefit received or to be received by the
Executive which is treated as a Parachute Payment shall not exceed 2.99 times
the Executive's Base Amount. In the event a reduction of the payments set
forth in this Agreement is required pursuant to this Section, the Executive may
select the compensation which will be reduced in order to fall within the 2.99
times Base Amount limitation.
(h) Source of Payments. All payments provided in Section
10 shall be paid in cash from the general funds of the Company, and no special
or separate fund need be established and no other segregation of assets need be
made to assure payment. Executive shall have no right, title, or interest
whatever in or to any investments which the Company may make to aid the Company
in meeting its obligations hereunder.
(i) Sole Remedy. The receipt of the amounts described in
this Section 10 shall constitute the Executive's sole remedy for breach of this
Agreement against the Company, its Affiliates, and their respective officers,
directors, shareholders, employees and agents.
11. Confidential Information.
During the Term of this Agreement and thereafter, Executive
shall not, to the detriment of the Company or its
15
<PAGE> 16
Affiliates, disclose or reveal to any unauthorized person any confidential
information relating to the Company or its' Affiliates, or to any of the
businesses operated by them, and Executive confirms that such information
constitutes the exclusive property of the Company and its Affiliates.
12. Federal Income Tax Withholding.
The Company may withhold from any compensation or benefits
payable under this Agreement, including amounts payable under Section 10, all
federal, state, city or other taxes or deductions as shall be required pursuant
to any law, governmental regulation or ruling.
13. Effect of Prior Agreements.
This Agreement contains the entire understanding between the
parties hereto with respect to the subject matter hereof and supersedes any
prior or contemporaneous agreements, representations or understandings, whether
oral or written, express or implied, between the Company, its Affiliates, and
Executive with respect to Executive's employment by the Company. The parties
do not intend for this Agreement to supersede or invalidate the terms of any
written employee benefit or welfare plans with the Company covering Executive,
unless necessary to carry out the purposes of this Agreement.
14. Arbitration.
Any controversy between the parties hereto, including the
construction, application or breach of any of the terms, covenants or
conditions of this Agreement, and all claims
16
<PAGE> 17
relating to or arising from Executive's employment or termination, including
all statutory claims (including but not limited to all statutes dealing with
employment discrimination), shall on timely written request of one party served
upon the other, be submitted to confidential arbitration and be governed by the
California Arbitration Act as set forth in the California Code of Civil
Procedure (presently Sections 1280 et seq.). The parties agree that any
written request for arbitration must be made within twelve months after the
initiating party first learned or should have learned in the exercise of
reasonable diligence of the essential facts upon which the claim is based, or
first suffered any harm, or first learned or should have learned in the
exercise of reasonable diligence of the breach of this Agreement, whichever is
earlier. Any claim not raised within such time limitation shall be waived and
forever barred. The arbitration shall take place in the City of San Diego,
California. The parties may agree upon one arbitrator, but in the event they
cannot agree the arbitrator shall be a retired judge designated by the then
Presiding Judge of the San Diego Superior Court. Arbitration shall be the
exclusive remedy of Executive and the Company and the award of the arbitrator
shall be final and binding upon the parties.
15. General Provisions.
(a) Nonassignability. Neither this Agreement nor any
right or interest hereunder shall be assignable by Executive or Executive's
beneficiaries or legal representatives without the
17
<PAGE> 18
Company's prior written consent, provided, however, that nothing in this
Section 15(a) shall preclude (i) Executive from designating a beneficiary to
receive any benefits payable hereunder upon his or her death, or (ii) the
executors, administrators, or other legal representatives of Executive or his
or her estate from assigning any rights hereunder to the person or persons
entitled thereto.
(b) Assumption. The Company shall require any successor
in interest (whether direct or indirect or as a result of purchase, merger,
consolidation, Change in Control or otherwise) to all or substantially all of
the business and/or assets of the Company to expressly assume and agree to
perform the obligations under this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place.
(c) No Attachment. Except as required by law, no right
to receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process of
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
(d) Effect of Termination of Agreement. Notwithstanding
any Termination of this Agreement and Executive's employment in accordance
with the provisions hereof, such Termination shall not be construed to relieve
any party of the obligation to pay
18
<PAGE> 19
any sums which are accrued and owing under this Agreement but unpaid as of the
date of such Termination, or to affect benefits which have become vested either
pursuant to the terms hereof or to the plan under which such benefits have been
granted.
(e) Binding Agreement. This Agreement shall be binding
upon, and inure to the benefit of, Executive, the Company and its Affiliates,
and their respective heirs, successors and assigns. Each party acknowledges
that no representations, inducements, promises, or agreements have been made by
any party, or anyone acting on behalf of any party, which are not embodied
herein and that no other agreement, statement, or promise not contained in this
Agreement shall be valid or binding on either party except as provided herein.
(f) Amendment or Augmentation of Agreement. This
Agreement may not be modified or amended except by an instrument in writing
signed by the parties hereto. Unless expressly agreed to in writing by the
parties hereto, no additional rights or compensation, even if given or
accepted, shall be deemed to modify or otherwise affect the express terms and
conditions of this Agreement.
(g) Waiver. No term or condition of this Agreement shall
be deemed to have been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written instrument of
the party charged with such waiver or estoppel. No such written waiver shall
be deemed a continuing waiver unless specifically stated therein, and each
19
<PAGE> 20
waiver shall operate only as to the specific term or condition waived and shall
not constitute a waiver of such term or condition for the future or as to any
act other than that specifically waived.
(h) Severability. If, for any reason, any provision of
this Agreement is held invalid, such invalidity shall not affect any other
provision of this Agreement not held so invalid, and each such other provision
shall to the full extent consistent with law continue in full force and effect.
If any provision of this Agreement shall be held invalid in part, such
invalidity shall in no way affect the rest of such provision not held so
invalid, and the rest of such provision together with all other provisions of
this Agreement shall, to the full extent consistent with law, continue in full
force and effect.
(i) Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if personally delivered or if mailed by United States certified or
registered mail, prepaid, to the parties or their permitted assignees at the
following addresses (or at such other address as shall be given in writing by
either party to the other):
To: Beeba's Creations, Inc.
9220 Activity Road
San Diego, California 92126
Attention: President
To: Executive at the last known
address contained in the personnel
records of the Company
20
<PAGE> 21
(j) Headings. The headings of paragraphs herein are
included solely for convenience of reference and shall not control the meaning
or interpretation of any of the provisions of this Agreement.
(k) Governing Law. This Agreement has been executed and
delivered in the State of California, and its validity, interpretation,
performance, and enforcement shall be governed by the laws of said State.
(l) Advice of Counsel. Executive has been encouraged to
consult with legal counsel of his or her choosing concerning the terms of this
Agreement prior to executing this Agreement. Any failure by Executive to
consult with competent counsel prior to executing this Agreement shall not be a
basis for rescinding or otherwise avoiding the binding effect of this
Agreement. The parties acknowledge that they are entering into this Agreement
freely and voluntarily, with full understanding of the terms of the Agreement.
Interpretation of the terms of this Agreement shall not be construed for or
against either party on the basis of the identity of the party who drafted the
provision in question.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by a duly authorized representative, and Executive
21
<PAGE> 22
has signed this Agreement, all as of the day and month first above written.
BEEBA'S CREATIONS, INC. EXECUTIVE
By: L. A. HENDERSON THOMAS P. BAUMANN
--------------------------- ---------------------------
Thomas P. Baumann
Its: Director
--------------------------
By: EUGENE B. PRICE II
---------------------------
Its: Director
--------------------------
By: ARJUN C. WANEY
---------------------------
Its: Director
--------------------------
22
<PAGE> 1
EXHIBIT 23
Independent Auditors' Consent
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos 33-11005, 33-33293, 33-38663 and 33-44398) of Beeba's Creations,
Inc., of our report dated October 24, 1995, appearing in this Annual Report on
Form 10-K of Beeba's Creations, Inc. for the year ended August 31, 1995.
Deloitte & Touche LLP
San Diego, California
October 30, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<EXCHANGE-RATE> 1
<CASH> 10,485,189
<SECURITIES> 0
<RECEIVABLES> 10,718,659<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 6,679,522
<CURRENT-ASSETS> 29,971,169
<PP&E> 407,217<F1>
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 30,965,579
<CURRENT-LIABILITIES> 8,433,214
<BONDS> 0
<COMMON> 12,586,793
0
0
<OTHER-SE> 21,436,507
<TOTAL-LIABILITY-AND-EQUITY> 30,965,579
<SALES> 86,846,253
<TOTAL-REVENUES> 86,846,253
<CGS> 63,273,806
<TOTAL-COSTS> 63,273,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,221
<INCOME-PRETAX> (109,541)
<INCOME-TAX> (269,056)
<INCOME-CONTINUING> 214,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 214,615
<EPS-PRIMARY> .09
<EPS-DILUTED> 0
<FN>
<F1>THE ASSET VALUES FOR RECEIVABLES AND PP&E REPRESENT AMOUNTS NET OF ALLOWANCES
AND DEPRECIATION RESPECTIVELY
</FN>
</TABLE>
