U.S. Securities and Exchange Commission
Washington, D.C. 20549
----------
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended October 31, 1998
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 0-10593
CANDIE'S, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2481903
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2975 Westchester Avenue
Purchase, NY 10577
(Address of principal executive offices) (Zip Code)
(914) 694-8600
(Registrant's telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
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 periods 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 the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.001 Par Value -- 17,212,384 shares as of December 14, 1998
<PAGE>
INDEX
FORM 10-Q
CANDIE'S, INC. and SUBSIDIARIES
<TABLE>
<CAPTION>
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements - (Unaudited)
<S> <C>
Condensed Consolidated Balance Sheets - October 31, 1998 and January 31,
1998................................................................................ 3
Condensed Consolidated Statements of Income - Three and Nine Months Ended
October 31, 1998 and 1997........................................................... 4
Condensed Consolidated Statement of Stockholders' Equity - Nine Months
Ended October 31, 1998............................................................. 5
Condensed Consolidated Statements of Cash Flows - Nine Months Ended October
31, 1998 and 1997................................................................... 6
Notes to Condensed Consolidated Financial Statements................................ 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations....................................................................... 12
Part II. Other Information
Item 1. Legal Proceedings................................................................ 16
Item 2. Changes in Securities............................................................ 16
Item 3. Quantitative and Qualitative Disclosures about Market Risk....................... 16
Item 6. Exhibits and Reports on Form 8-K................................................. 16
Signatures ............................................................................ 17
Index to Exhibits........................................................................ 18
</TABLE>
2
<PAGE>
Part I. Financial Information
Candie's, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
----------- -----------
(Unaudited) (Note)
(000's omitted)
<S> <C> <C>
Assets
Current Assets
Cash ................................................................... $ 107 $ 367
Accounts receivable, net ............................................... 7,156 2,805
Inventories ............................................................ 14,801 16,179
Due from factors and trade receivables ................................. 16,951 831
Deferred income taxes .................................................. 451 801
Prepaid advertising and marketing ...................................... 5,727 1,821
Other current assets ................................................... 285 604
-------- --------
Total Current Assets ......................................................... 45,478 23,408
Property and equipment, at cost:
Furniture, fixtures and equipment ...................................... 2,331 1,810
Less: Accumulated depreciation and amortization ........................ 1,281 959
-------- --------
1,050 851
Other assets:
Deferred income taxes .................................................. 2,656 1,443
Intangibles ............................................................ 22,313 4,860
Investment in joint venture ............................................ 500 --
Other .................................................................. 1,030 319
-------- --------
26,499 6,622
-------- --------
Total Assets ................................................................. $ 73,027 $ 30,881
======== ========
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable and accrued expenses .................................. $ 6,148 $ 6,139
Revolving notes payable - banks ........................................ 6,287 --
Bankers acceptance - net ............................................... 4,959 --
-------- --------
Total Current Liabilities .................................................... 17,394 6,139
Long-term liabilities and deferred taxes ..................................... 1,838 61
Stockholders' Equity
Preferred stock, $.01 par value
-- authorized 5,000 shares; none issued and outstanding
Common stock, $.001 par value
-- authorized 30,000 shares; issued 18,515 shares at
October 31, 1998 and 12,425 shares issued and
outstanding at January 31, 1998 .................................... 18 12
Additional paid-in capital ................................................... 56,607 23,453
Retained earnings* ........................................................... 6,455 1,216
-------- --------
63,080 24,681
Less:
Treasury stock - at cost - 1,313 shares ............................... (8,810) --
Unearned compensation .................................................. (475) --
-------- --------
Total Stockholders' Equity ................................................... 53,795 24,681
-------- --------
Total Liabilities and Stockholders' Equity ................................... $ 73,027 $ 30,881
======== ========
</TABLE>
* Accumulated since February 28, 1993, deficit eliminated of $27,696
Note:The balance sheet at January 31, 1998 has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
2
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 31, October 31,
------------------------- --------------------------
1998 1997 1998 1997
------- ------- ------- -------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Net revenues ............................................... $30,365 $23,780 $97,535 $70,367
Cost of goods sold 22,396 17,673 69,626 52,535
------- ------- ------- -------
Gross profit ............................................... 7,969 6,107 27,909 17,832
Licensing income ........................................... 100 -- 100 --
Selling and administrative expenses 6,458 4,488 18,634 12,267
------- ------- ------- -------
Operating income ........................................... 1,611 1,619 9,375 5,565
Other expenses:
Interest expense - net 289 305 786 833
------- ------- ------- -------
Income before income taxes ................................. 1,322 1,314 8,589 4,732
Income taxes 500 505 3,350 905
------- ------- ------- -------
Net income ................................................. $ 822 $ 809 $ 5,239 $ 3,827
======= ======= ======= =======
Earnings per common share:
Basic ............................................. $ 0.05 $ 0.07 $ 0.36 $ 0.35
======= ======= ======= =======
Diluted ........................................... $ 0.05 $ 0.06 $ 0.31 $ 0.28
======= ======= ======= =======
Weighted average number of
common shares outstanding:
Basic ............................................. 15,841 11,966 14,577 11,025
======= ======= ======= =======
Diluted 17,691 14,454 16,723 13,447
======= ======= ======= =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
Nine Months Ended October 31, 1998
(000's omitted)
<TABLE>
<CAPTION>
Additional Unearned
Common Stock Paid-In Retained Treasury Compen-
Shares Amount Capital Earnings Stock sation Total
------ ------ ---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1998 12,425 $ 12 $ 23,453 $ 1,216 -- -- $ 24,681
Exercise of stock options and warrants 1,780 2 8,302 -- -- -- 8,304
Issuance of common stock to retirement plan 16 -- 78 -- -- -- 78
Net effect of merger with New Retail
Concepts, Inc 2,326 2 9,240 -- (8,439) (475) 328
Stock acquisition of Michael Caruso & Co., Inc. 1,968 2 15,248 -- -- -- 15,250
Tax benefit from exercise of stock options -- -- 286 -- -- -- 286
Stock buy-back -- -- -- -- (371) -- (371)
Net income -- -- -- 5,239 -- -- 5,239
------ -------- -------- -------- -------- -------- --------
Balance at October 31, 1998 18,515 $ 18 $ 56,607 $ 6,455 $ (8,810) $ (475) $ 53,795
====== ======== ======== ======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
Candie's, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------
October 31, October 31,
1998 1997
--------------------------
(000's omitted)
<S> <C> <C>
OPERATING ACTIVITIES:
Net cash used in operating activities ............................................. $(18,496) $ (8,600)
-------------------------
INVESTING ACTIVITIES:
Purchases of property and equipment .......................................... (521) (256)
Investment in joint venture .................................................. (500) --
-------------------------
Net cash used in investing activities ............................................. (1,021) (256)
-------------------------
FINANCING ACTIVITIES:
Proceeds from exercise of stock options and warrants ......................... 8,382 9,268
Revolving notes payable - bank ............................................ 6,287 --
Bankers acceptance - net .................................................. 4,959 --
Purchase of common stock for treasury ..................................... (371) --
-------------------------
Net cash provided by financing activities ......................................... 19,257 9,268
-------------------------
(DECREASE) INCREASE IN CASH ....................................................... (260) 412
Cash at beginning of period ....................................................... 367 389
-------------------------
Cash at end of period ............................................................. $ 107 $ 801
=========================
Supplemental disclosures of noncash investing
and financiang activities:
Merger and acquisition of businesses - net of cash acquired .................. $16,109 --
=========================
Common stock issued for merger & acquisition - net of treasury stock acquired $15,578 --
=========================
</TABLE>
See notes to condensed consolidated financial statements.
6
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
October 31, 1998
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
October 31, 1998 are not necessarily indicative of the results that may be
expected for a full fiscal year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended January 31, 1998.
NOTE B - MERGER
The Company began to license the use of the CANDIE'S(R) trademark from New
Retail Concepts, Inc. ("NRC") in June 1991 and in March 1993 purchased ownership
of the CANDIE'S(R) trademark from NRC together with certain pre-existing
licenses of NRC, a then publicly traded company engaged primarily in the
licensing and sublicensing of fashion trademarks and a significant shareholder
of the Company. NRC's principal shareholder was also the Company's President and
Chief Executive Officer.
Effective August 18, 1998, the Company completed its previously announced merger
with NRC. Each issued and outstanding share of NRC common stock $.01 par value
(the "NRC Common Stock"), and each issued and outstanding option to purchase one
share of NRC Common Stock, prior to the effective date, were converted,
respectively, into 0.405 shares of common stock, $.001 par value of the Company
(the "Candie's Common Stock"), and into options to purchase 0.405 shares of
Candie's Common Stock, respectively.
At the effective date, there were 5,743,639 outstanding shares of NRC Common
Stock and options to purchase 1,585,000 shares of NRC Common Stock. The
5,743,639 shares were converted to 2,326,173 shares of Candie's Common Stock and
the 1,585,000 options were converted into options to purchase 641,925 shares of
Candie's Common Stock. NRC also owned 1,227,696 shares of Candie's Common Stock
and had options and warrants to purchase an additional 800,000 shares of
Candie's Common Stock. The options and warrants were extinguished upon
consummation of the merger.
This transaction was accounted for using the purchase method of accounting. The
results of operations of NRC are included in the accompanying condensed
financial statements from the date of the merger.
The total cost of approximately $13,502,000, including acquisition expenses of
approximately $800,000 and the value of the 1,227,696 shares of Candie's Common
Stock reacquired and the value of the options and warrants extinguished
aggregate approximately $12,309,000 (described above), resulted principally in
purchase price allocation to the licenses acquired of $500,000 and a trademark
value of $616,000.
7
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) - Continued
NOTE C - ACQUISITION AND JOINT VENTURE INVESTMENT
On September 24, 1998 the Company, through a wholly owned subsidiary, acquired
all of the outstanding shares of Michael Caruso & Co., Inc. ("Caruso"). Under
the terms of the agreement, the Company acquired the BONGO trademark as well as
certain other related trademarks and two license agreements, one for kids' and
one for large size jeanswear. Caruso was a licensor of certain trademarks
relating to footwear products sold by the Company, which license was terminated
as of the closing.
The purchase price for the shares acquired was approximately $15,250,000 and was
paid at the closing in 1,967,742 shares of Candie's Common Stock (each share
being valued at $7.75), plus $100,000 in cash. The consideration may be subject
to upward adjustment based on the closing market price of Candie's Common Stock
during the six month period immediately following the closing.
This transaction was accounted for using the purchase method of accounting. The
total purchase of approximately $15,650,000, including acquisition expenses of
approximately $300,000, but excluding the contingency consideration described
above, resulted principally in purchase price allocation to the licenses
acquired of $2,706,000 and a trademark value of $12,606,000. If and when the
additional contingency consideration, referred to above, is issued, there will
be no effect on the above purchase price allocation.
On October 7, 1998, the Company entered into a joint venture with Sweet
Sportswear LLC ("Sweet") to market and distribute certain apparel under the
Candie's and Bongo labels. Candie's and Sweet each have a fifty percent (50%)
interest in the joint venture, named Unzipped Apparel, LLC ("Unzipped"). Under
the terms of the joint venture, Candie's licensed each of its Candie's and Bongo
trademarks to Unzipped for use in the design, manufacture and sale of certain
designated apparel products.
The following summarized unaudited pro-forma condensed consolidated financial
information are based on the assumption that the merger of NRC (See Note B) and
the acquisition of Caruso had occurred at the beginning of each of the
respective periods:
Pro-Forma Financial Information (Unaudited)
Nine Months Ended
October 31,
-------------------------
1998 1997
-------------------------
(000's omitted except per-share data)
Net revenues ............................... $97,535 $70,367
======= =======
Licensing income ........................... $ 200 $ 316
======= =======
Net income ................................. $ 4,778 $ 4,153
======= =======
Earnings per share:
Basic ...................................... $ .30 $ .29
======= =======
Diluted .................................... $ .26 $ .25
======= =======
The unaudited pro-forma financial information has been provided for comparative
purposes only and are not necessarily indicative of the results of operations
that would have been achieved had the merger and acquisition been consummated at
the beginning of the periods presented, nor are they necessarily indicative of
future operations or the financial results of the combined companies.
8
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) - Continued
NOTE D - FINANCING AGREEMENTS
On May 27, 1998, the Company entered into a three year $35 million revolving
credit facility (the "Facility"). Under certain conditions, including the
addition of a second lender, the Facility may increase to a maximum of $50
million. On August 4, 1998, BankBoston, N.A. entered into a co-lending
arrangement and became a participant in the revolving credit Facility with
NationsBanc Commercial Corporation.
Borrowings under the Facility currently bear interest at 1.75% below the prime
rate (8% at October 31, 1998) and the Company also has the option to borrow at
either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These rates are
fixed and subject to an increase or decrease based on certain conditions
beginning in November 1998. The Company pays a commitment fee of 1/4% on the
unused portion of the Facility.
Borrowings under the Facility are formula based and available up to the maximum
amount of the Facility. The Facility also contains certain financial covenants
including, minimum tangible net worth, certain specified ratios and other
limitations, as defined therein. The Company has granted the lenders a security
interest in substantially all of its assets.
Simultaneously with the above, the Company entered into a new factoring
agreement whereby the Company has the option to sell any or all of its accounts
receivable, principally without recourse, subject to maximum credit limits
established by the lender for individual accounts. Receivables assigned but not
sold to the lender or in excess of such maximum credit limits are subject to
recourse.
NOTE E - EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings
Per Share" SFAS No. 128, which replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. Earnings per share amounts and weighted average shares for 1997 have been
restated in accordance with the SFAS No. 128 requirements.
9
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) - Continued
NOTE E - EARNINGS PER SHARE (Continued)
The following is a reconciliation of the numerator and denominators of the basic
and diluted EPS computations and other related disclosures required by SFAS No.
128:
<TABLE>
<CAPTION>
Three Months Ended October 31, Nine Months Ended October 31,
------------------------------ -----------------------------
1998 1997 1998 1997
------------------------------ -----------------------------
(000's omitted, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic and diluted
earnings per share ................................. $ 822 $ 809 $ 5,239 $ 3,827
=========================== ===========================
Denominator:
Denominator for basic earnings per
share ............................................... 15,841 11,966 14,577 11,025
Effect of dilutive securities .............................. 1,850 2,488 2,146 2,422
Denominator for diluted earnings per --------------------------- ---------------------------
share ............................................... 17,691 14,454 16,723 13,447
=========================== ===========================
Basic earnings per share ................................... $ .05 $ .07 $ .36 $ .35
=========================== ===========================
Diluted earnings per share ................................. $ .05 $ .06 $ .31 $ .28
=========================== ===========================
</TABLE>
For the three and nine months periods ended October 31, 1998 and 1997,
outstanding options and warrants to purchase 285,000 and 252,500, 135,000 and
142,000 shares of Common Stock, respectively, at exercise prices exceeding the
average market price of the Common Stock were not included in the computation of
diluted earnings per share as the effect would have been anti-dilutive.
NOTE F - STOCKHOLDERS' EQUITY
(1) STOCK OPTIONS
In connection with the merger with NRC (See Note B), options to purchase
303,750 shares of Candie's Common Stock were granted to certain executives
at an exercise price of $4.32 per share and expire in ten years. Unearned
compensation was recorded in the amount of $510,000, which represented the
difference between the exercise price and the fair value of the stock on
the effective date of the grant, and is classified as a component of
stockholders' equity. The unearned compensation is being amortized over
three years and charged to compensation expense.
(2) STOCK BUY-BACK
On September 15, 1998, the Board of Directors of the Company authorized
management to repurchase up to two million shares of Candie's Common Stock.
As of October 31, 1998, 85,200 shares were repurchased in the open market,
at an aggregate cost of approximately $371,000. No additional shares have
been repurchased since October 31, 1998. The Company intends, subject to
certain conditions, to buy shares on the open market from time-to-time,
depending on market conditions.
10
<PAGE>
Candie's, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited) - Continued
NOTE G - SUBSEQUENT EVENT
On December 11, 1998, the Board of Directors of the Company authorized and
ratified the repricing of certain employee stock options to $3.50 per share, an
amount above the then market value. The aggregate amount of option shares
subject to such exercise repricing was approximately 2,000,000 option shares at
original exercise prices ranging from $4.00 to $7.50 per share.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995. The statements which are not historical facts contained in this Quarterly
Report on Form 10-Q are forward looking statements that involve a number of
known and unknown risks, uncertainties and other factors, all of which are
difficult or impossible to predict and many of which are beyond the control of
the Company, which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward looking statements.
Such factors include, but are not limited to, uncertainty regarding continued
market acceptance of current products and the ability to successfully develop
and market new products particularly in light of rapidly changing fashion
trends, the impact of supply and manufacturing constraints or difficulties
particularly in light of the Company's dependence on foreign manufacturers,
uncertainties relating to customer plans and commitments, competition,
uncertainties relating to economic conditions in the markets in which the
Company operates, the ability to hire and retain key personnel, the ability to
obtain additional capital if required, the risks of uncertainty of trademark
protection and other risks detailed below and in the Company's Securities and
Exchange Commission filings, and the uncertainty regarding the ability to
successfully integrate the Caruso Acquisition into the Company's operations.
The words "believe", "expect", "anticipate", and "seek" and similar expressions
identify forward-looking statements. Readers are cautioned not to place undue
reliance on these forward-looking statements, which speak only as of the date
the statement was made.
Results of Operations
Revenues. Net revenues increased by $6.6 million or 28% to $30.4 million in
the three months ended October 31, 1998, from $23.8 million in the comparable
period of the prior year. Net revenues increased by $27.1 million or 38% to
$97.5 million in the nine months ended October 31, 1998, from $70.4 million in
the same period in 1997. The increase was primarily due to increased brand
awareness and consumer acceptance of the Company's products due to the Company's
increased sales and marketing efforts, coupled with increased sales in all
product categories, the successful introduction of children's footwear products
and, in part, increased selling prices.
Gross Profit. Gross profit margins increased to 26.2% in the three months
ended October 31, 1998 from 25.7% in the comparable period of the prior year.
Gross profit margins increased to 28.6% in the nine months ended October 31,
1998 from 25.3% in the same period in 1997. The increases were primarily
attributable to changes in product mix.
Operating Expenses. Selling and administrative expenses increased by $2.0
million or 43.9% to $6.5 million in the three months ended October 31, 1998 from
$4.5 million in the comparable period of the prior year. As a percentage of net
revenues, selling and administrative expenses increased 2.4% to 21.3% for the
three months ended October 31, 1998 from 18.9% for the comparable period of the
prior year. Selling and administrative expenses increased by $6.3 million or 52%
to $18.6 million in the nine months ended October 31, 1998 from $12.3 million in
the comparable period of the prior year. As a percentage of net revenues,
selling and administrative expenses increased 1.7% to 19.1% for the nine months
ended October 31, 1998 from 17.4% for the comparable period of the prior year.
These increases reflect costs which are directly associated with the increase in
net revenues, coupled with the costs incurred in implementing the Company's
strategic plan to strengthen its management team and infrastructure, which the
Company believes has created the foundation for future growth.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Results of Operations -Continued
Interest Expense. Interest expense for the second quarter of fiscal 1999
was $289,000, compared to $305,000 for the second quarter of fiscal 1998.
Interest expense for the nine months ended October 31, 1998 was $786,000,
compared to $833,000 for the comparable period in the previous year. The
decrease resulted from lower average borrowings and, to a lesser, extent lower
interest rates under the Company's new revolving credit facility.
Net Income. As a result of the foregoing, net income increased to $822,000
in the three months ended October 31, 1998, compared to net income of $809,000
in the corresponding period a year ago. Net income increased to $5,239,000 for
the nine months ended October 31, 1998, compared to net income of $3,827,000 for
the same period in 1997.
Earnings Per Share. Earnings per share in the three months ended October
31, 1998 was $.05 on a diluted basis, which reflects an additional 3.2 million
weighted average shares outstanding, compared to $.06 per diluted share in the
comparable quarter of the prior year. Earnings per share in the nine months
ended October 31, 1998 was $.31 on a diluted basis, which reflects an additional
3.3 million weighted average shares outstanding, compared to $.28 per diluted
share in the same period in 1997. The prior year's computation of earnings per
share has been restated to comply with the requirements of SFAS No. 128. The
increase in the weighted average shares outstanding for the three and nine month
periods ended October 31, 1998 are primarily the result of the exercise of
approximately 1.8 million warrants and options since the beginning of fiscal
1999 and the shares issued and issuable in connection with the merger and
acquisition described in the Notes to Condensed Consolidated Financial
Statements.
Liquidity and Capital Resources
Working capital increased approximately $11 million to $28.1 million at October
31, 1998 from $17.3 million at January 31, 1998. The current ratio at October
31, 1998 was approximately 2.61 to 1. Inventory levels at October 31, 1998
decreased by $1,400,000 to $14.8 million from $16.1 million at January 31, 1998.
The Company has relied in the past primarily upon revenues generated from
operations, borrowings from its factor and sales of securities to finance its
liquidity and capital needs. Net cash used in operating activities totaled $18.5
million for the nine months ended October 31, 1998, compared to $8.6 million for
the nine months ended October 31, 1997.
Capital expenditures were $521,000 for the nine months ended October 31, 1998,
compared to $256,000 for the nine months ended October 31, 1997.
During the nine month period ended October 31, 1998, substantially all of the
Company's outstanding Class C warrants ("Warrants") were exercised and the
Company received aggregate proceeds of approximately $7.16 million from the
exercise of such Warrants. The proceeds were used to repay short-term
borrowings. Each Warrant entitled the holder thereof to purchase one share of
Common Stock at an exercise price of $5.00. In addition, the Company received
proceeds of approximately $1.14 million in connection with the issuance of
Common Stock relating to the exercise of outstanding stock options and certain
underwriters' warrants.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Liquidity and Capital Resources - Continued
Effective August 18, 1998, the Company completed its previously announced merger
with NRC. Each issued and outstanding share of NRC common stock $.01 par value
(the "NRC Common Stock"), and each issued and outstanding option to purchase one
share of NRC Common Stock, prior to the effective date, were converted,
respectively, into 0.405 shares of common stock, $.001 par value of the Company
(the "Candie's Common Stock"), and into options to purchase 0.405 shares of,
Candie's Common Stock, respectively.
At the effective date, there were 5,743,639 outstanding shares of NRC Common
Stock and options to purchase 1,585,000 shares of NRC Common Stock. The
5,743,639 shares were converted to 2,326,173 shares of Candie's Common Stock and
the 1,585,000 options were converted into options to purchase 641,925 shares of
Candie's Common Stock. NRC also owned 1,227,696 shares of Candie's Common Stock
and had options and warrants to purchase an additional 800,000 shares of
Candie's Common Stock. The options and warrants were extinguished upon
consummation of the merger.
On September 24, 1998 the Company, through a wholly owned subsidiary, acquired
all of the outstanding shares of Michael Caruso & Co., Inc. ("Caruso"). Under
the terms of the agreement, the Company acquired the BONGO trademark as well as
certain other related trademarks and two license agreements, one for kids' and
one for large size jeanswear. Caruso was a licensor of certain trademarks
relating to footwear products sold by the Company, which license was terminated
as of the closing.
The purchase price for the shares acquired was approximately $15,250,000 and was
paid at the closing in 1,967,742 shares of Candie's Common Stock (each share
being valued at $7.75), plus $100,000 in cash. The consideration may be subject
to upward adjustment based on the closing market price of the Candie's Common
Stock during the six month period immediately following the closing.
On September 15, 1998, the Board of Directors of the Company authorized
management to repurchase up to two million shares of the Candie's Common Stock.
As of October 31, 1998, 85,200 shares were repurchased in the open market, at an
aggregate cost of approximately $371,000. No additional shares have been
repurchased since October 31, 1998. The Company intends, subject to certain
conditions, to buy shares on the open market from time-to-time, depending on
market conditions.
On May 27, 1998, the Company entered into a three year $35 million revolving
credit facility (the "Facility"). Under certain conditions, including the
addition of a second lender, the Facility may increase to a maximum of $50
million. On August 4, 1998, BankBoston, N.A. entered into a co-lending
arrangement and became a participant in the revolving credit Facility with
NationsBanc Commercial Corporation.
Borrowings under the Facility currently bear interest at 1.75% below the prime
rate (8% at October 31, 1998) and the Company also has the option to borrow at
either LIBOR plus 1.25% or the banker's acceptance rate plus 1%. These rates are
fixed and subject to an increase or decrease based on certain conditions
beginning in November 1998. The Company pays a commitment fee of 1/4% on the
unused portion of the Facility.
Borrowings under the Facility are formula based and available up to the maximum
amount of the Facility. The Facility also contains certain financial covenants
including, minimum tangible net worth, certain specified ratios and other
limitations, as defined therein. The Company has granted the lenders a security
interest in substantially all of its assets.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Continued
Liquidity and Capital Resources - Continued
Cash requirements fluctuate from time to time due to seasonal requirements,
including the timing of receipt of merchandise and various other factors. The
Company believes that it will be able to satisfy its ongoing cash requirements
for the foreseeable future, including requirements for its expansion, primarily
with cash flow from operations, supplemented by borrowings under the Facility.
Year 2000
The Company has assessed the issues associated with its existing computer system
with respect to a two-digit year value as the year 2000 approaches. The Company
believes a significant portion of the Company's Year 2000 issues will be
resolved by the installation of a Year 2000 compliant information system. The
new systems are designed to handle the Company's information systems for order
processing, warehousing and finance on a fully integrated enterprise-wide basis.
In addition, the Company has been in contact with its suppliers and other third
parties with which it does business to determine the extent which they may be
vulnerable to Year 2000 issues. As this assessment progresses, matters may come
to the Company's attention which could give rise to the need for remedial
measures which have not yet been identified. The Company cannot currently
predict the potential effect of third parties Year 2000 issues on its business.
Throughout 1998 and 1999 the Company intends to address all material internal
systems and third party issues. The Company intends to utilize both internal and
external resources to replace and test the systems for the Year 2000
modifications.
The Company does not expect expenditures relating to the Year 2000 issues to be
material and does not expect costs associated with the Year 2000 to have a
significant impact on the Company's results of operations or financial position.
However, there can be no assurance that the Company will not experience
unexpected difficulties in connection with the Year 2000 or that the systems of
other companies on which the Company's systems rely will be timely converted.
15
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
The Company is party to certain litigation incurred in the normal course of
business. While any litigation has an element of uncertainty, the Company
believes that the final outcome of any of these matters will not have a
material adverse effect on the Company's financial position or future
liquidity.
Item 2. Changes in Securities
During the quarter ended October 31, 1998, the Registrant issued five-year
options to purchase an aggregate of 1,403,000 shares of its common stock at
an average exercise price of $4.32. The foregoing options were acquired by
the holders for investment in private transactions exempt from registration
by Sections 2(3) or 4(2) of the Securities Act of 1933.
On August 18, 1998, the Registrant issued 2,326,173 shares of its common
stock in connection with the merger with New Retail Concepts, Inc.
On September 24, 1998, the Registrant issued 1,967,742 shares of its common
stock in connection with the acquisition of all the outstanding shares of
Michael Caruso & Co., Inc. in a private transaction exempt from
registration by Section 4(2) of the Securities Act of 1933 as amended.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
A. Exhibit 10.1 - Joint Venture Agreement
B. Exhibit 27 - Financial Data Schedule
C. Reports on Form 8-K
1. The Registrant filed a report on Form 8-K dated August 18, 1998
with respect to the merger with New Retail Concepts, Inc.
2. The Registrant filed a report on Form 8-K dated September 24,
1998 regarding the acquisition of Michael Caruso & Co., Inc.
3. The Registrant filed an Amendment No.1 on Form 8-K/A on December
4, 1998 with respect to the inclusion of financial statements and
pro-forma financial information related to the Michael Caruso &
Co., Inc. acquisition which were not included in the original
Form 8-K filing on September 24, 1998.
16
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CANDIE'S, INC.
------------------------------------
(Registrant)
Date December 15, 1998 /s/ Neil Cole
------------------------------------
Neil Cole
Chief Executive Officer
(on Behalf of the Registrant)
Date December 15, 1998 /s/ David Golden
------------------------------------
David Golden
Senior Vice President and
Chief Financial Officer
17
<PAGE>
Index to Exhibits
Exhibit
Numbers Description
- ------- -----------
10.1 Joint Venture Agreement
27 Financial Data Schedule
18
Exhibit 10.1
LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF
UNZIPPED APPAREL LLC
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1: DEFINED TERMS..................................................... 1
Section 1.1 Definitions............................................ 1
ARTICLE 2: OPERATION; NAME; ADDRESS; QUALIFICATIONS TO DO
BUSINESS............................................................ 5
Section 2.1 Operation.............................................. 5
Section 2.2 Name................................................... 6
Section 2.3 Principal Place of Business............................ 6
Section 2.4 Term................................................... 6
Section 2.5 Qualification in Other Jurisdictions................... 6
Section 2.6 Partnership Status..................................... 6
Section 2.7 Service of Process..................................... 7
ARTICLE 3: PURPOSE AND POWERS OF THE LLC..................................... 7
Section 3.1 Purpose................................................ 7
Section 3.2 Powers of the LLC...................................... 7
ARTICLE 4: CAPITAL CONTRIBUTIONS, INTERESTS, AND CAPITAL
ACCOUNTS............................................................7-8
Section 4.1 Initial Capital Contributions to the LLC............... 8
Section 4.2 Use of Proceeds........................................ 8
Section 4.3 Interests.............................................. 8
Section 4.4 Status of Capital Contributions........................ 9
Section 4.5 Financing and Additional Capital....................... 9
Section 4.6 Capital Accounts....................................... 10
Section 4.7 Return of Capital Contributions ....................... 11
Section 4.8 Guarantees of Member Interests......................... 12
ARTICLE 5: REPRESENTATIONS AND WARRANTIES.................................... 12
Section 5.1 Representations and Warranties of Caruso............... 12
Section 5.2 Representations and Warranties of Sweet................ 14
ARTICLE 6: ALLOCATIONS AND DISTRIBUTIONS..................................... 16
Section 6.1 Allocations of Profits, Losses and Cash
Flow................................................... 16
Section 6.2 Time of Allocation..................................... 16
Section 6.3 Distributions of Cash Flow............................. 16
Section 6.4 Limitations on Distributions........................... 16
Section 6.5 Amounts Withheld....................................... 17
Section 6.6 Tax Allocations: Section 704(c) of the
Code................................................... 17
ARTICLE 7: MANAGEMENT........................................................ 18
Section 7.1 Designation of Management Committee.................... 18
Section 7.2 Authority of the Management Committee.................. 18
Section 7.3 Time Commitment of Managers............................ 20
Section 7.4 Resignation in Certain Events.......................... 21
Section 7.5 Initial Managers and Officers of the LLC............... 21
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Page
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ARTICLE 8: MEMBERS' VOTING REQUIREMENTS AND RIGHTS.......................... 21
ARTICLE 9: DISPOSITION OR TRANSFER OF INTERESTS............................. 21
ARTICLE 10: LEGAL AND ACCOUNTING FEES....................................... 22
ARTICLE 11: AFTER-ACQUIRED INTERESTS AND ISSUANCE OF
ADDITIONAL INTERESTS............................................... 22
Section 11.1 After-Acquired Interests............................ 22
Section 11.2 Issuance of Additional Interests.................... 22
ARTICLE 12: PURCHASE AND SALE OF SWEET INTEREST............................. 23
Section 12.1 Mandatory Purchase and Sale of Sweet
Interest............................................. 23
Section 12.2 Purchase Price of Sweet Interest..................... 23
Section 12.3 Closing and Payment.................................. 23
Section 12.4 Transition Period.................................... 24
ARTICLE 13: CERTAIN COVENANTS............................................... 24
Section 13.1 Confidentiality...................................... 24
Section 13.2 Delivery of Confidential Information................. 25
Section 13.3 No Hiring............................................ 26
Section 13.4 Other Remedies....................................... 26
ARTICLE 14: SPECIFIC PERFORMANCE............................................ 27
ARTICLE 15: BOOKS AND RECORDS; FISCAL YEAR; ACCOUNTING;
BANKING; REPORTS................................................... 28
Section 15.1 Books, Records and Financial Statements.............. 28
Section 15.2 Fiscal Year.......................................... 28
Section 15.3 Accounting; Accounting Method........................ 28
Section 15.4 Management Reports................................... 28
Section 15.5 Financial Statements and Tax Information............. 28
Section 15.6 Banking.............................................. 29
ARTICLE 16: TAX MATTERS..................................................... 29
ARTICLE 17: LIABILITY, EXCULPATION AND INDEMNIFICATION...................... 29
Section 17.1 Liability of Members................................. 29
Section 17.2 Liability of Managers................................ 30
Section 17.3 Exculpation.......................................... 30
Section 17.4 Fiduciary Duty....................................... 31
Section 17.5 Indemnification by the LLC........................... 31
Section 17.6 Indemnification Procedure............................ 32
Section 17.7 Expenses............................................. 32
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Page
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ARTICLE 18: DISSOLUTION, LIQUIDATION AND TERMINATION......................... 32
Section 18.1 No Dissolution on Admission of Substitute
Members............................................... 32
Section 18.2 Events Causing Dissolution............................ 32
Section 18.3 Notice of Dissolution................................. 33
Section 18.4 Liquidation........................................... 33
Section 18.5 Claims of the Members................................. 34
Section 18.6 Partition............................................. 34
ARTICLE 19: POWER OF ATTORNEY................................................ 34
ARTICLE 20: GOVERNING LAW; ARBITRATION....................................... 35
Section 20.1 Governing Law......................................... 35
Section 20.2 Arbitration............................................ 35
ARTICLE 21: MISCELLANEOUS.................................................... 35
Section 21.1 Notices............................................... 35
Section 21.2 Failure to Pursue Remedies............................ 36
Section 21.3 Cumulative Remedies................................... 36
Section 21.4 Binding Effect........................................ 36
Section 21.5 Interpretation........................................ 36
Section 21.6 Headings.............................................. 36
Section 21.7 Severability.......................................... 36
Section 21.8 Counterparts.......................................... 37
Section 21.9 Integration........................................... 37
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<PAGE>
LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF
UNZIPPED APPAREL LLC
This Limited Liability Company Operating Agreement of Unzipped Apparel LLC
(the "Agreement") is made as of October 7 , 1998, by and among Michael Caruso &
Co., Inc., a California corporation ("Caruso"), Sweet Sportswear, LLC, a
California limited liability company ("Sweet"), and Unzipped Apparel LLC (the
"LLC"). Sweet and Caruso are collectively referred to as the "Members" and
severally as a "Member."
WHEREAS, the Members have formed a limited liability company pursuant to
the Delaware Limited Liability Company Act; and
WHEREAS, the parties hereto desire to establish their respective rights and
obligations as Members of such limited liability company.
NOW, THEREFORE, in consideration of the agreements and obligations set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Members and the LLC hereby
agree as follows:
ARTICLE 1.
DEFINED TERMS
Section 1.1 Definitions. Unless the context otherwise requires, the terms
defined in this Article 1, for the purposes of this Agreement, have the meanings
herein specified.
"ADS" means Apparel Distribution Services, LLC, a California limited
liability company.
"Accountant" means the certified public accountant or firm of certified
public accountants for the LLC as selected from time to time by the Management
Committee, initially designated to be Ernst & Young LLP.
"Act" means the Delaware Limited Liability Company Act.
"Agreement" means this Limited Liability Company Operating Agreement, as
amended, modified, supplemented or restated from time to time.
<PAGE>
"Apparel" means all apparel categories exploiting the various "Candie's"
and "Bongo" trademarks, with the exception of (i) shoes, (ii) swimwear, (iii)
intimate apparel, (iv) accessories, and (v) "Bongo" apparel under existing
licenses with Jenna Lane, Inc. and M.Fine and Sons Manufacturing Company.
"Azteca" means Azteca Production International, Inc., a California
corporation.
"Bankruptcy" means the occurrence of any of the events specified below with
respect to a Member: (i) an assignment for the benefit of creditors; (ii) the
application for or consent to the appointment of a receiver, trustee, liquidator
or custodian or the like of its property; (iii) the commencement of a voluntary
case under federal bankruptcy laws, any state insolvency law or similar laws of
any country; (iv) the adjudication as a bankrupt or insolvent; (v) the filing of
an answer admitting the material allegations of a petition filed against it in
any bankruptcy, reorganization or insolvency proceeding, or the taking of any
action for the purpose of effecting any of the foregoing or its insolvency; or
(vi) the petition of bankruptcy filed against it which is not dismissed within
90 days of filing.
"Base Year" means the fiscal year commencing February 1, 2002 and ending
January 31, 2003.
"Call Notice" has the meaning set forth in Section 4.5 hereof.
"Call Period" has the meaning set forth in Section 4.5 hereof.
"Candie's" means Candie's, Inc, a Delaware corporation and the sole
stockholder of Caruso.
"Capital Account" means, with respect to any Member, the account maintained
for such Member in accordance with the provisions of Section 4.6 hereof.
"Capital Call" has the meaning set forth in Section 4.5 hereof.
"Capital Contribution" means, with respect to any Member, the aggregate
amount of money and the fair market value of any property, tangible or
intangible (other than money), contributed to the LLC pursuant to Article 4
hereof with respect to the Interest of such Member.
"Cash Flow" means, for any period, such portion of the cash on hand or in
bank accounts of the LLC, as the Management Committee determines is available
for distribution to the Members, after reasonable provision has been made by
such
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Management Committee for the current liabilities, obligations, and operating
expenses of the LLC, and reasonable reserves have been established by the
Management Committee for obligations, liabilities, improvements, operating
expenses and contingencies of the LLC.
"Cause" means (i) a Member's conviction for committing a felony under
federal law or the law of the state in which such action occurred; (ii) the
Bankruptcy of a Member; (iii) acts of theft, embezzlement or fraud committed by
a Member in the course of fulfilling the Member's duties hereunder; or (iv)
material breach by a Member of its obligations which is specified in reasonable
detail in a written notice from the LLC to the Member and which the Member has
not either remedied within 30 days after the receipt of such notice or, in the
event the breach is not reasonably remediable within such 30 day period,
commenced to remedy within 30 days after the receipt of such notice and
continued to pursue such remedy diligently in good faith.
"Certificate" means the Certificate of Formation and any and all amendments
thereto and restatements thereof filed on behalf of the LLC with the office of
the Secretary of State of the State of Delaware.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, the Treasury Regulations promulgated thereunder, or any corresponding
provisions of any succeeding federal statute.
"Covered Person" means any Member, Manager, any partners, employees,
representatives or agents of any Member, Manager, and any employee, partner,
representative or agent of the LLC.
"EBITDA" shall have the meaning set forth in Section 12.2 hereof.
"Failing Member" has the meaning set forth in Section 4.5 hereof.
"Interest" means an interest in the LLC representing a Member's percentage
share in the Profits, Losses, and distributions of Cash Flow of the LLC (as the
same may be amended from time to time).
"LLC" means Unzipped Apparel LLC, the limited liability company to be
operated under and pursuant to the Act and this Agreement.
"LLC Property" means property of the LLC, including without limitation, all
real, personal, tangible or intangible property or any interests in such
property.
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<PAGE>
"Manager" means any one of the five (5) individuals serving on the
Management Committee, initially as designated in Section 7.5 hereof or, as
selected from time to time by the Members.
"Management Committee" means the governing body of the LLC engaged in the
general supervision and operation of the business and affairs of the LLC,
consisting of five (5) Managers, as follows: two Managers as designated by
Caruso, two Managers as designated by Sweet, and a fifth Manager as selected by
the four Managers having been designated by Caruso and Sweet.
"Member" means Sweet or Caruso and includes any Person admitted as a Member
pursuant to the provisions of this Agreement, and "Members" means two (2) or
more of such Persons when acting in their capacities as members of the LLC.
"Member Loan" has the meaning set forth in Section 4.5 hereof.
"Net Sales" means the gross sales of the LLC, minus returns, chargebacks
and allowances as more particularly set forth in the financial statements
prepared by the LLC in accordance with this Agreement.
"Person" means any individual, corporation, association, partnership
(general or limited), joint venture, trust, estate, limited liability company,
or other legal entity or organization.
"Prime Rate" means the rate of interest then most recently announced by the
Nationsbanc Commercial Corp. (or any successor thereto) as its prime or similar
rate.
"Profits" and "Losses" mean the profits and losses of the LLC as determined
by the certified public accountants then engaged by the LLC, in accordance with
the accounting method followed by the LLC for federal income tax purposes,
including without limitation, each item of LLC income, gain, loss, deduction,
tax preference and credit, all as such terms or words are used in the Code.
"Purchase Price" has the meaning set forth in Section 12.2 hereof.
"Term" shall have the meaning set forth in Section 2.4 hereof.
"Transition Period" shall have the meaning set forth in Section 12.4
hereof.
"Treasury Regulations" means the income tax regulations, including
temporary regulations, promulgated under
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<PAGE>
the Code, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
ARTICLE 2.
OPERATION; NAME; ADDRESS; QUALIFICATIONS TO DO BUSINESS
Section 2.1 Operation.
2.1.1. The Members and the Management Committee shall operate the LLC
as a limited liability company under the provisions of the Act and the
rights, duties and liabilities of the Members shall be as provided under
the Act, except as otherwise provided herein.
2.1.2. The name and mailing address of each Member shall be listed on
Schedule 2.1 attached hereto. Each Member shall be required to update
Schedule 2.1, as it pertains to such Member, from time to time, as
necessary to reflect accurately the information therein. Any amendment or
revision to Schedule 2.1 made in accordance with this Agreement to reflect
an address change shall not be deemed an amendment to this Agreement.
2.1.3. Upon the execution of this Agreement, those persons listed in
the first paragraph of this Agreement as Members shall be admitted to the
LLC as Members.
Section 2.2 Name. The name of the LLC heretofore formed is "Unzipped
Apparel LLC".
Section 2.3 Principal Place of Business. The principal places of business
of the LLC shall be at 2975 Westchester Avenue, Purchase, New York 10577 and
5804 Slauson Avenue, Commerce California 90040, or at such other place as the
Management Committee shall from time to time determine.
Section 2.4 Term. The term of the LLC commenced as of September 17, 1998
(the date on which the Certificate was filed with the Secretary of State of the
State of Delaware), and shall continue until December 31, 2020, unless
terminated sooner pursuant to the provisions hereof ("Term").
Section 2.5 Qualification in Other Jurisdictions. The Members shall cause
the LLC to be qualified or registered under assumed or fictitious name statutes
or similar laws in California and New York, and in any other jurisdiction in
which such qualification or registration is necessary or required to conduct the
LLC's business. Any Manager or other authorized representative of the Management
Committee shall execute, deliver
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<PAGE>
and file any certificates (and any amendments and/or restatements thereof)
necessary for the LLC to qualify to do business in a jurisdiction in which the
LLC may wish to conduct business.
Section 2.6 Partnership Status. Anything in this Agreement to the contrary
notwithstanding, it is expressly intended that the entity formed hereby be
treated as a partnership solely for Federal, state and local income tax
purposes, as determined by the applicable provisions of the Code, the rules and
regulations promulgated thereunder, and other laws pertaining thereto, and that
in every respect all of the terms and provisions hereof shall at all times be so
construed and interpreted as to give effect to this intent. In the event that
the Internal Revenue Service of the United States (the "IRS") or any
governmental authority having jurisdiction shall in any way or at any time
determine that any provision of this Agreement adversely affects the
qualification of this entity to be treated as a partnership for tax purposes,
the Members shall use their best efforts to amend or supplement the terms and
provisions of this Agreement to the extent necessary to comply with the rules,
regulations and requirements of the IRS or any other governmental authority
having jurisdiction, in order that the entity formed hereby be treated as a
partnership for federal, state and local income tax purposes, be taxable as
such, and the Members hereof be taxable as partners of a partnership; which
modification or amendment shall be retroactively applied to the date of this
Agreement. For no other purpose is the LLC to be treated as a partnership.
Section 2.7 Service of Process.
2.7.1. The Secretary of State of the State of Delaware is hereby designated
as the LLC's agent for service of process.
2.7.2. Corporation Service Company, 1013 Centre Road, Wilmington, Delaware
19805, or such other entity or person as designated by the Management Committee,
is hereby designated as registered agent for service of process in Delaware upon
whom the Secretary of State of the State of Delaware may deliver any service of
process received by it.
ARTICLE 3.
PURPOSE AND POWERS OF THE LLC
Section 3.1 Purpose. The purposes for which the LLC was formed are to
manufacture, distribute and market the Apparel and to engage in any other lawful
act or activity.
Section 3.2 Powers of the LLC. The LLC shall have the power and authority
to take any and all actions necessary, appropriate, proper, advisable,
incidental or convenient to or
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<PAGE>
for the furtherance of the purposes set forth in Section 3.1 hereof.
ARTICLE 4.
CAPITAL CONTRIBUTIONS, INTERESTS,
AND CAPITAL ACCOUNTS
Section 4.1 Initial Capital Contributions to the LLC.
4.1.1. Each of Caruso and Sweet shall make a Capital Contribution to the
LLC of $500,000, in cash or immediately available funds, in exchange for which
each shall receive a 50% equity interest in the LLC. The LLC shall reimburse
Caruso, Candie's, Sweet, Aztec and/or ADS for any disbursements made by them in
connection with the formation of the LLC or this Agreement prior to the
commencement of the Term, upon presentation of appropriate documentation.
4.1.2. Simultaneously with the execution of this Agreement, each of Caruso
and Sweet, as the case may be, shall make, or cause to be made on its behalf,
the following additional contributions to the capital of the LLC:
(a) Caruso shall grant, and/or cause Candie's to grant, to the LLC
royalty-free licenses, in substantially the forms of Exhibits A and B
attached hereto and made a part hereof (collectively, the "License
Agreements") to use and exploit the various "Candie's" and "Bongo"
trademarks listed therein with respect to the Apparel.
(b) The LLC shall enter into: (A) an exclusive agreement with Azteca,
in substantially the form of Exhibit C attached hereto and made a part
hereof, for the production by Azteca of the Apparel (the "Supply
Agreement") and (B) an exclusive agreement with ADS, in substantially the
form of Exhibit D attached hereto and made a part hereof (the "Distribution
Agreement")
Section 4.2 Use of Proceeds. The proceeds of the Capital Contributions
shall be used for working capital and otherwise for the operation of the LLC's
business.
Section 4.3 Interests. Except for the interests of Caruso granted pursuant
to the License Agreement, which interests shall be returned to Caruso (without
cost or credit) in the event of a dissolution of the LLC, no Member shall have
an interest in specific LLC Property. Except as set forth in this Agreement, no
additional Interest or other ownership interest of any kind or nature in the LLC
(including any interest convertible into an
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<PAGE>
Interest) may be issued or transferred without the consent of the Management
Committee.
Section 4.4 Status of Capital Contributions.
4.4.1. Except as otherwise provided in this Agreement, a Member's
Capital Contributions may be returned, in whole or in part, at any time,
only with the approval of the Management Committee.
4.4.2. Notwithstanding the foregoing, no return of a Member's Capital
Contribution shall be made hereunder if such distribution would violate
applicable law.
4.4.3. No Member shall receive any interest, salary or drawing with
respect to its Capital Contribution or its Capital Account or for services
rendered to or on behalf of the LLC or otherwise in its capacity as a
Member or otherwise, except as otherwise specifically provided in this
Agreement.
4.4.4. Except as otherwise provided by applicable law and subject to
Section 4.5 hereof, the Members shall be liable only to make those Capital
Contributions as set forth in Section 4.1 hereof. After such Capital
Contributions have been fully made pursuant to Sections 4.1 and 4.5 (only
to the extent determined necessary to secure financing) hereof, no Member
shall be required to make any additional capital contributions at any time
to the LLC.
Section 4.5 Financing and Additional Capital.
4.5.1. During the Term, each of Caruso and Sweet shall contribute up to an
additional $500,000 in cash to the LLC (the "Additional Contribution"), at such
time as the Management Committee deems necessary and advisable, in connection
with securing an asset based line of credit for the LLC with a financial
institution mutually satisfactory to the Members.
4.5.2. In the event that the Management Committee determines that the
Additional Contribution is required for a reason other than as a result of an
event described in Section 4.5.1 hereof, it shall give notice (the "Call
Notice") to each Member stating the aggregate amount of the additional capital
required and each Member's share of the Additional Contribution based on its
respective Interest (the "Capital Call"). Each Member shall within fifteen (15)
days from the date of the Call Notice (the "Call Period") contribute to the LLC,
in cash, its ratable share of the Capital Call.
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<PAGE>
4.5.3. If a Member fails to contribute an amount equal to its ratable share
of the Capital Call within the Call Period (the "Failing Member"), and if any
other Member (the "Non-Failing Member") has made its entire required
contribution, then each of the Non-Failing Members may, but need not, (a)
withdraw from the LLC its most recent ratable contribution made pursuant to this
Section 4.5, in which case the LLC shall promptly repay the amount of such
withdrawn contribution to the Non-Failing Member, and/or (b) make a loan to the
LLC (a "Member Loan") in an amount equal to (A) some or all of the contribution
which the Failing Member failed to make pursuant to this Section 4.5 and/or (B)
the contribution made by the Non-Failing Member, in which case the contribution
theretofore made by the Non- Failing Member shall be deemed instead to be part
of the funds advanced in connection with making such Member Loan. If made, a
Member Loan shall bear interest at the rate of five (5) percentage points above
the Prime Rate compounded annually with interest payable on the first day of
each and every month following the making of the Member Loan.
4.5.4. Until such time as the Member Loan is repaid in full, the Members
shall not receive any distributions and the Non-Failing Member which made such
member Loan shall have a lien on the Failing Member's Interest as collateral for
such repayment.
Section 4.6 Capital Accounts.
4.6.1. An individual Capital Account shall be established and
maintained for each Member. The original Capital Account established for
any Member who acquires an Interest by virtue of an assignment in
accordance with the terms of this Agreement shall be a pro rata part of the
Capital Account of the assignor represented by such percentage of the
Interest as is assigned to such assignee, and, for purposes of this
Agreement, such Member shall be deemed to have made a proportionate amount
of the Capital Contributions made by the assignor of such Interest (or made
by any of such assignor's predecessors in interest).
4.6.2. The Capital Account of each Member shall be maintained in
accordance with the following provisions:
(a) to such Member's Capital Account, there shall be credited the
amount of any cash, and the fair market value of any other property
contributed by such Member to the capital of the LLC, such Member's
distributive share of Profits and the amount of any LLC liabilities
that are expressly assumed by such Member or that are
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<PAGE>
secured by any LLC Property distributed to such Member;
(b) to such Member's Capital Account, there shall be debited, the
amount of cash and the fair market value of any LLC Property
distributed to such Member pursuant to any provision of this
Agreement, such Member's distributive share of Losses and the amount
of any liabilities of such Member that are assumed by the LLC or that
are secured by any property contributed by such Member to the LLC;
(c) from time to time as they deem appropriate, the Management
Committee may make such modifications to the manner in which the
Capital Accounts are computed to comply with Treasury Regulation
Section 1.704-1(b) provided that such modification is not likely to
have a material effect on the amounts distributable to any Member
pursuant to this Agreement; and
(d) the foregoing provisions and the other provisions of this
Agreement relating to the maintenance of Capital Accounts are intended
to comply with Treasury Regulation Section 1.704- 1(b), and shall be
interpreted and applied in a manner consistent with such Regulations.
Section 4.7 Return of Capital Contributions. The Managers and Members shall
not be personally liable for the return of the Capital Contributions of any
Member, or any portion thereof, it being expressly understood that any such
return shall be made solely from LLC Property, nor shall the Managers and
Members be required to pay to the LLC or any Member any deficit in any Member's
Capital Account upon dissolution or otherwise; provided, however, that any
Member Loans made pursuant to Section 4.5 hereof shall be recourse obligations
of the Failing Member upon dissolution of the LLC or otherwise.
Section 4.8 Guarantees of Member Interests.
4.8.1. In consideration of Caruso's entering into this Agreement and
Candie's' executing the Candie's Guaranty (as defined in Section 4.8.2 below)
and the fulfillment of their respective obligations hereunder and thereunder,
Azteca hereby guarantees unconditionally, absolutely and irrevocably all of
Sweet's obligations hereunder ("Azteca Guaranty"). The Azteca Guaranty shall be
in the form of Exhibit E attached hereto and made a part hereof.
4.8.2. In consideration of Sweet's entering into this Agreement and
Azteca's executing the Azteca Guaranty,
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and the fulfillment by such parties of their respective obligations hereunder
and thereunder, Candie's hereby guarantees unconditionally, absolutely and
irrevocably all of Caruso's obligations hereunder ("Candie's Guaranty"). The
Candie's Guaranty shall be in the form of Exhibit F attached hereto and made a
part hereof.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES
Section 5.1 Representations and Warranties of Caruso. Caruso hereby
represents and warrants to Sweet and to the LLC the following:
(a) Corporate Organization and Good Standing. Caruso is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California. Caruso has the corporate power to own its properties and to conduct
its business as now conducted and has all requisite corporate power and
authority to enter into this Agreement and the License Agreement and to perform
its respective obligations hereunder and thereunder.
(b) Authority. The execution and delivery by Caruso of this Agreement and
the License Agreement and the performance of the transactions contemplated
hereby and thereby have been duly authorized by the Board of Directors of
Caruso, and no further corporate action is necessary to authorize the execution
and delivery of this Agreement and the License Agreement and the performance of
such transactions. This Agreement and the License Agreement have been duly
executed and delivered by Caruso and they constitute the valid and binding
agreements of Caruso enforceable in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other laws relating to or limiting creditors' rights generally or
by equitable principles relating to enforceability.
(c) No Conflict. Neither the execution and delivery of this Agreement or
the License Agreement nor the performance by Caruso of the transactions
contemplated hereby or thereby will (i) violate or conflict with any of the
provisions of the Articles of Incorporation or By-Laws of Caruso, (ii) with or
without the giving of notice or the lapse of time or both, violate or constitute
a default under any mortgage, indenture, deed of trust, lease, contract,
agreement, license or other instrument or any provision of law, order, judgment
or ruling of any governmental authority to which it is a party or by which its
property is bound or (iii) result in the creation of any mortgage, pledge, lien,
charge or encumbrance upon any of its assets or the loss of any license or other
contractual right with respect thereto.
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(d) No Defaults. Caruso is not in violation of or in default under any law
or regulation, or any order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality or
arbitrative tribunal, wherever located, and there are no judgments or decrees or
orders entered in any suit or proceeding brought by any governmental agency or
any other party enjoining it and there are no claims, actions, suits or
proceedings pending or threatened against or affecting it, at law or in equity
or otherwise or before or by any federal, state, foreign, municipal or other
governmental department, commission, board, bureau, agency, instrumentality or
arbitrative tribunal wherever located.
(e) Approvals. Other than in connection with Caruso's credit facility, the
consummation of the transactions contemplated by this Agreement and the License
Agreement do not require the consent, approval or authorization of any
governmental or regulatory authority or any other person under any permit,
license, agreement, indenture or other instrument to which Caruso is a party or
which any of its properties is subject, and no declaration, filing or
registration with any governmental or regulatory authority is required in
connection with such transactions.
(f) Litigation. Except as set forth on Schedule 5.1(f), there is no action,
suit, proceeding or investigation pending or threatened against Caruso, at law
or in equity or otherwise or by or before any federal, state, foreign, municipal
or other governmental department, commission, board, bureau, agency,
instrumentality or arbitrative tribunal wherever located.
(g) Permits and Licenses. Caruso has not engaged in any activity which
would cause revocation or suspension of any permit or license which could have a
material adverse effect on its business;
(h) Contracts and Agreements. Caruso has complied with all material
commitments and obligations that it has under any contracts and agreements and
is not in default thereunder; and
(i) Intellectual Property. Except as set forth on Schedule 5.1(i), Caruso
owns or has the worldwide right to use all of the intellectual property which is
subject to the License Agreement, free and clear of any liens or encumbrances.
Section 5.2 Representations and Warranties of Sweet. Sweet hereby
represents and warrants to Caruso and to the LLC the following:
(a) Corporate Organization and Good Standing. Sweet is a limited liability
company duly organized, validly existing and in good standing under the laws of
the State of
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California. Sweet has the corporate power to own its properties and to conduct
its business as now conducted and has all requisite corporate power and
authority to enter into this Agreement and to perform its obligations hereunder.
(b) Authority. The execution and delivery by Sweet of this Agreement and
the performance of the transactions contemplated hereby have been duly
authorized by its Board of Directors and no further corporate action is
necessary to authorize the execution and delivery of this Agreement and the
performance of such transactions. This Agreement has been duly executed and
delivered by Sweet and it constitutes the valid and binding agreement of Sweet
enforceable in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or other laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.
(c) No Conflict. Neither the execution and delivery of this Agreement nor
the performance by Sweet of the transactions contemplated hereby will (i)
violate or conflict with any of the provisions of Sweet's Articles of
Organization or Operating Agreement, (ii) with or without the giving of notice
or the lapse of time or both, violate or constitute a default under any
mortgage, indenture, deed of trust, lease, contract, agreement, license or other
instrument or any provision of law, order, judgment or ruling of any
governmental authority to which Sweet is a party or by which its property is
bound or (iii) result in the creation of any mortgage, pledge, lien, charge or
encumbrance upon any of Sweet's assets or the loss of any license or other
contractual right with respect thereto.
(d) No Defaults. Sweet is not in violation of or in default under any law
or regulation, or any order of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality or
arbitrative tribunal, wherever located, and there are no judgments or decrees or
orders entered in any suit or proceeding brought by any governmental agency or
any other party enjoining Sweet and there are no claims, actions, suits or
proceedings pending or threatened against or affecting Sweet, at law or in
equity or otherwise or before or by any federal, state, foreign, municipal or
other governmental department, commission, board, bureau, agency,
instrumentality or arbitrative tribunal wherever located.
(e) Approvals. The consummation of the transactions contemplated by this
Agreement shall not require the consent, approval or authorization of any
governmental or regulatory authority or any other person under any permit,
license, agreement, indenture or other instrument to which Sweet is a party or
which any of Sweet's properties is subject, and no declaration, filing or
registration with any governmental or
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regulatory authority is required in connection with such transactions.
(f) Litigation. There is no action, suit, proceeding or investigation
pending or threatened against Sweet, at law or in equity or otherwise or by or
before any federal, state, foreign, municipal or other governmental department,
commission, board, bureau, agency, instrumentality or arbitrative tribunal
wherever located.
(g) Permits and Licenses. Sweet has not engaged in any activity which would
cause revocation or suspension of any permit or license which could have a
material adverse effect on Sweet's business.
(h) Contracts and Agreements. Sweet has complied with all material
commitments and obligations that Sweet has under any contracts and agreements
and is not in default thereunder.
ARTICLE 6.
ALLOCATIONS AND DISTRIBUTIONS
Section 6.1 Allocations of Profits, Losses and Cash Flow. The Profits and
Losses shall be allocated for each fiscal year to the Members in accordance with
their Interests as set forth on Schedule 6.1.
Section 6.2 Time of Allocation. All allocations of Profits and Losses made
pursuant to Section 6.1 shall be made as of the last day of each fiscal year of
the LLC; provided, however, that if during any fiscal year of the LLC or any
portion thereof there is for any reason a change in any Member's Interest in the
LLC, the Profits and Losses for such year shall be allocated among the Members
based upon the number of days during such period that such Member was registered
as the owner of such interest or in such other manner as the Management
Committee deems appropriate in accordance with the requirements of the Code and
of Treasury Regulations issued pursuant thereto.
Section 6.3 Distributions of Cash Flow (if there is then no balance
outstanding on a Member Loan) shall be made in the following order:
6.3.1. First, to the extent of Cash Flow, distributions shall be made to
enable the Members to make timely quarterly payments of estimated tax and
payments of the balance of federal, state and local income taxes, as the case
may be, on or before the original due date of the individual income tax returns,
on the passed-through income of each fiscal year, based on the aggregate of the
highest marginal individual federal, state and local income tax rates, as the
case may be, applicable
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to such fiscal year, provided that all such distributions shall be in accordance
with their respective allocations made theretofore pursuant to Section 6.1
hereof.
6.3.2. Second, to the extent of Cash Flow after distributions are made
pursuant to paragraph 6.3.1 hereof to the Members, in accordance with their
respective allocations made theretofore pursuant to Section 6.1 hereof.
Section 6.4 Limitations on Distributions. Anything contained herein to the
contrary notwithstanding, the LLC shall not make a distribution to any Member on
account of its Interest if such distribution would violate the Act or other
applicable law or any restrictions in any of the LLC's loan agreements.
Section 6.5 Amounts Withheld. All amounts of federal, state and local
income taxes, personal property taxes, unincorporated business taxes or other
taxes withheld from, or required to be paid with respect to, any distribution or
amount distributable to a Member, because of that Member's status or otherwise,
shall be treated as amounts distributed to such Member for all purposes under
this Agreement.
Section 6.6 Tax Allocations: Section 704(c) of the
Code.
6.6.1. The income, gains, losses, deductions and expenses of the
LLC shall be allocated, for federal, state and local income tax
purposes, among the Members in accordance with the allocation of such
income, gains, losses, deductions and expenses among the Members for
computing their Capital Accounts, except that if any such allocation
is not permitted by the Code or other applicable law, the LLC's
subsequent income, gains, losses, deductions and expenses shall be
allocated among the Members so as to reflect as nearly as possible the
allocation set forth herein in computing their Capital Accounts.
6.6.2. In accordance with Section 704(c) of the Code and the
Treasury Regulations thereunder, income, gain, loss, deduction and
expense with respect to any property contributed to the capital of the
LLC shall, solely for income tax purposes, be allocated among the
Members so as to take account of any variation between the adjusted
basis of such property to the LLC for federal income tax purposes and
its fair market value at the time of contribution.
6.6.3. Any elections or other decisions relating to such
allocations shall be made by the Management Committee in any manner
that reasonably reflects the purpose and intent of this Agreement.
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6.6.4. The Management Committee may elect to adjust the basis of
LLC Property for federal income tax purposes in accordance with
Section 754 of the Code, in the event of a distribution of LLC
Property as described in Section 734 of the Code or a transfer of an
Interest described in Section 743 of the Code. In the event that any
Member requests to make any such election, the Management Committee
may require the Member so benefitted thereby to pay the additional
annual accounting costs incurred as a result of making such election.
ARTICLE 7.
MANAGEMENT
Section 7.1 Designation of Management Committee. The management of the LLC
shall be vested in the Management Committee. Except as otherwise expressly set
forth in this Agreement, the presence of a majority of the Managers shall be
necessary and sufficient to constitute a quorum for the transaction of business
by the Management Committee, and, except as otherwise provided by this
Agreement, if a quorum shall exist, the act of a majority of the Managers
present shall constitute the authorized action of the Management Committee. Each
Manager shall hold office until his resignation or removal as set forth in
Section 7.6 hereof.
Section 7.2 Authority of the Management Committee. The general supervision
and operation of the business and affairs of the LLC shall be directed by the
Management Committee. The Management Committee shall delegate such
responsibilities to Caruso or Sweet with respect to the operation of the
business affairs of the LLC as set forth on Exhibit G attached hereto and made a
part hereof. Subject to the duties and responsibilities set forth on Exhibit G
and subject to the provisions of each of the License Agreement, the Supply
Agreement and the Distribution Agreement, respectively. The Management Committee
may authorize one or more of the Managers and/or officers to execute documents
on behalf of the LLC.
Sweet shall manage the financial recordkeeping and accounting affairs of
the LLC and submit monthly reports to the Management Committee and the other
Member which reports shall be subject to audit and verification.
Anything contained herein to the contrary notwithstanding, consent of all
of the Managers of the Management Committee shall be required to implement or
consummate the following actions:
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(i) preparation and adoption of the budget of the LLC, which shall be
evidenced by a three year business plan to be mutually agreed to by the
Members within thirty (30) days of the date of execution of this Agreement
(the "Plan"), which Plan shall be annexed hereto as Exhibit H and made a
part hereof. Such Plan shall be used as a blueprint for the LLC's business
goals, but it shall not be used to measure the performance by either
Member.
(ii) except as otherwise provided for in the Plan, the entering into
any agreement, contract, or commitment involving a commitment on the part
of the LLC in excess of $100,000, or the purchase and/or leasing of capital
equipment by the LLC with a purchase price or discounted value of lease
payments in excess of $100,000;
(iii) any LLC loans in excess of $100,000;
(iv) the grant of bonuses and changes in compensation of individuals
earning $100,000 or more per year;
(v) the hiring and firing of individuals with annual compensation of
$100,000 or more per year (including the negotiation and execution of
employment agreements);
(vi) the funding of any profit-sharing plan contributions and
selection of investment advisors for any such plan;
(vii) the selection, adoption, modification or termination of employee
benefit plans, including medical, dental, disability, life and plan
administrators for any such plan;
(viii) the admission of new Members;
(ix) the guaranty by the LLC of any obligations of a third party;
(x) except as set forth herein, the retention of any professionals;
(xi) the opening of any LLC bank accounts;
(xii) transactions with affiliates of the LLC;
(xiii) the merger and/or other business combinations of the LLC; and
(xiv) the dissolution of the LLC.
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The Chairman and Vice-Chairman of the LLC (as designated in Section 7.5 hereof
or their successors) shall preside at all meetings of the Members and the
Management Committee. Any Manager may execute, on behalf of the LLC, such
contracts, filings or other instruments which have been appropriately authorized
herein to be executed by such Manager unless the Management Committee
specifically authorizes another Manager, officer or other representative of the
Management Committee to sign. Any checks (other than for payroll) or other
evidences of indebtedness of the LLC (a) in the amount of $10,000 or more or (b)
which are made to affiliates of the LLC, shall require the signature of a
representative of each of the Members. The Management Committee shall have the
power to retain consultants, managing agents, attorneys, accountants or other
persons on behalf of the LLC as it shall deem necessary or desirable, including
Members and persons who may be affiliated or associated with, or otherwise
related to, a Member or the Managers.
Section 7.3 Time Commitment of Managers. Subject to Section 13.1 hereof,
each of the Managers may engage in other business activities, but shall be
obliged to devote such time to the LLC's business as is appropriate and
customary.
Section 7.4 Resignation in Certain Events. Each Member shall cause its
designee(s) to terminate any employment as Manager or otherwise with the LLC (or
subsidiary thereof, if any) in the event and at the time that such Member
transfers title to all the Interest owned by such Member, except as otherwise
agreed to by the Management Committee at the time of such transfer, without the
participation by such transferor Member's designees in such vote.
Section 7.5 Initial Managers and Officers of the LLC. Each of the following
named individuals shall initially be a Manager and hold the office set forth
opposite his respective name until his resignation or removal by the Member
which designated such Manager:
Name Title Designated by:
- ---- ----- --------------
Neil Cole Chairman and Manager Caruso
Hubert Guez Vice-Chairman and Manager Sweet
Dov Haddad President and Manager Sweet
Lawrence O'Shaughnessy Chief Financial Officer Caruso
and Manager
[To be Named] Manager [4 Managers]
The four (4) Managers named above shall use their best efforts to designate and
elect a fifth (5th) Manager within thirty (30) days from the date of execution
of this Agreement. Each of the officers shall have the duties, responsibilities,
and authority as determined by the Management Committee. Any vacancy in any of
the foregoing positions shall be filled by designation of the Member which
appointed the initial Manager or officer, as the case may be.
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ARTICLE 8.
MEMBERS' VOTING REQUIREMENTS AND RIGHTS
Except as otherwise expressly set forth herein or in the Act, when the
Members' consent to an action is required to authorize an action, the consent of
the holders of at least a majority of the Interests shall be required to
constitute the authorized action of the LLC.
ARTICLE 9.
DISPOSITION OR TRANSFER OF INTERESTS
Section 9.1 Except as otherwise provided herein, no Member, either directly
or indirectly, shall sell, assign, mortgage, hypothecate, transfer, pledge,
create a security interest in or lien upon, encumber, give, place in trust, or
otherwise voluntarily or involuntarily dispose of any Interests (or interest
therein) now owned or hereafter acquired by said Member, without the prior
written consent of the other Member, which consent may be withheld for any
reason or for no reason. Any such attempted assignment without such consent
shall be null and void.
Section 9.2 No transferee of an Interest shall be admitted as a substitute
Member without the written consent of the other Member(s).
Section 9.3 No assignee of a Member's Interest shall be admitted as a
substituted Member and no additional person shall be admitted as a Member unless
and until such substituted or additional Member signs this Agreement.
ARTICLE 10.
LEGAL AND ACCOUNTING FEES
Each of the Members shall bear its own legal fees and accounting fees in
connection with the preparation and execution of the License Agreement, the
Supply Agreement and the Distribution Agreement, as the case may be.
ARTICLE 11.
AFTER-ACQUIRED INTERESTS AND
ISSUANCE OF ADDITIONAL INTERESTS
Section 11.1 After-Acquired Interests. All of the provisions of this
Agreement shall apply also to any and all Interests which may be issued or
transferred to or acquired hereafter by a Member and/or to its transferees in
consequence of any additional issuance, purchase or other disposition of
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Interests, or any form of recapitalization, or consolidation, or merger, or
otherwise.
Section 11.2 Issuance of Additional Interests. If any Person receives an
additional equity interest in the LLC, the Members shall share, pro rata, in any
dilution resulting from the issuance of such Interest.
ARTICLE 12.
PURCHASE AND SALE OF SWEET INTEREST
Section 12.1 Mandatory Purchase and Sale of Sweet Interest. On January 31,
2003, Candie's Inc. shall become obligated to purchase Sweet's Interest and
Sweet shall become obligated to sell its Interest to Candie's pursuant to the
terms and conditions set forth in Sections 12.2 and 12.3 hereof. Candie's, in
its sole discretion, shall have the right to pay the Purchase Price (as defined
in Section 12.2 hereof) for Sweet's Interest in cash or shares of its common
stock. In the event that Candie's elects to pay the Purchase Price in Candie's
common stock, the following conditions shall apply; (a) the per-share value (the
"Stock Price") shall be the average closing sales price of Candie's common
stock, as reported by the Nasdaq Stock Market (or the principal market on which
its shares are then traded), during the period commencing December 15, 2002, and
ending March 15, 2003 (the "Valuation Period"); (b) the shares shall be
registered and free of any restrictions except as to voting rights; and (c)
Sweet shall have the right to designate one member of the Candie's Board of
Directors for a twenty-four (24) month term following the closing of the
purchase, but for only so long as Sweet owns all of such shares.
Section 12.2 Purchase Price of Sweet Interest. The Purchase Price of
Sweet's Interest will be 50% of 7.5 times EBITDA. "EBITDA" shall mean the
profits (earnings) of the LLC before interest, taxes, depreciation and
amortization (excluding amortization for leasehold improvements, store fixtures
and purchases under paragraph 7.2(ii) hereof) for the Base Year (the "Purchase
Price").
Section 12.3 Closing and Payment. The closing of the purchase and sale of
Sweet's Interest and the payment by Candie's for Sweet's Interest pursuant to
the provisions of this Article 12 shall be as follows:
12.3.1. In the event that Candie's elects to purchase Sweet's Interest
for cash, the closing shall take place no later than February 15, 2003, at
which time Candie's shall deliver to Sweet the Purchase Price in
immediately available funds (the "Cash Closing");
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12.3.2. In the event Candie's elects to purchase Sweet's Interest in
exchange for shares of its common stock, the closing shall take place no
later than April 5, 2003, at which time, Candie's shall deliver that number
of shares of its common stock, registered in the name of Sweet, which is
equal to the quotient of the Purchase Price divided by the Stock Price (the
"Stock Closing").
12.3.3. The Cash Closing or the Stock Closing shall take place at
10:00 A.M. local time at the offices of Tenzer Greenblatt LLP, or at such
other time and place as the parties hereto agree.
Section 12.4 Transition Period. For the six (6) month period immediately
following the closing of Candie's purchase of Sweet's Interest in the LLC (the
"Transition Period"), all of the terms contained in the Supply Agreement and the
Distribution Agreement shall remain in full force and effect.
ARTICLE 13.
CERTAIN COVENANTS
Section 13.1 Confidentiality. Each of the Members, and Azteca and Candie's
acknowledges that it will acquire confidential information with respect to the
LLC and the other parties hereto and any successors or affiliates thereof and
the businesses they each conduct. In connection therewith, each of the parties
hereto covenants that it and its officers, directors and agents shall refrain
from disclosing at any time any such confidential information, other than in
connection with the performance of its duties or pursuant to this Agreement, the
Azteca Guaranty, the Candie's Guaranty, the License Agreement, the Supply
Agreement and the Distribution Agreement. Each of the parties hereto recognizes
that its relationship with the other parties hereto and the LLC and any
successors or affiliates thereof is one of high trust and confidence by reason
of its access to and contact with the trade secrets and other confidential
information of the other parties hereto and the LLC and any successors or
affiliates thereof, including, without limitation, technical, financial and
commercial matters, and also with respect to such secrets and information of the
other parties' or the LLC's and its successors' and affiliates' clients,
suppliers and other parties to whom the other parties hereto or the LLC and any
successors or affiliates thereof may owe an obligation of confidence.
Accordingly, each of the parties hereto and its employees, officers,
directors, representatives and agents shall not, without the prior written
consent of the other parties hereto and the LLC (which consent may be withheld
for any or no reason), divulge or make accessible to any third person, or use
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for its or his own benefit or for any purpose, other than the exclusive benefit
of the LLC or any successor or affiliate thereof, any confidential information
concerning its business and affairs obtained by it and its officers, directors
and agents, including, but not limited to, information relating to the other
parties' or the LLC's and its successors' and affiliates' inventions,
improvements, products, trade secrets, services, finances, business or other
operations or activities, and to its relationships with actual or potential
clients and suppliers and the needs and requirements of any such actual or
potential clients and suppliers; it being the intent of this Section 13.1 that
its employees, and its officers, directors, representatives and agents shall not
so divulge or use any such information which is unpublished or not readily
available to the general public. However, nothing contained in this Section 13.1
shall restrict it and its employees', officers', directors', representatives'
and agents' ability to make such disclosures as may be necessary or appropriate
to the effective and efficient discharge of its duties to, or for the benefit
of, the LLC or any successor or affiliate thereof.
For the purpose of this Section 13.1, the provisions of this Agreement (as
the same may be amended or supplemented from time to time) are hereby deemed to
be confidential information concerning the LLC's and its successors' and
affiliates' business and affairs, the disclosure of which by any of the parties
hereto to any person (other than its legal counsel) would do irreparable harm to
the LLC and its successors and affiliates. If the Management Committee
determines that any party hereto has disclosed information concerning this
Agreement in violation of the provisions of this Agreement, the Management
Committee, by notice to such party, may terminate forthwith any right of such
party, as the case may be, to receive any compensation or other amounts
otherwise due hereunder.
Section 13.2 Delivery of Confidential Information. At any time upon request
of the Management Committee, any party shall promptly deliver to the LLC all
tangible evidence of such confidential information, including, without
limitation, all notes, memoranda, records, files and other documents which
relate to the business of the LLC.
Section 13.3 No Hiring. Whether pursuant to an agreement or otherwise, and
for a period of three (3) years thereafter, no party hereto shall:
(i) directly or indirectly, solicit, entice or induce any employee of the
LLC or of the other parties hereto or any successors or affiliates thereof or
any independent contractor regularly doing business with the LLC or the other
parties hereto or any successors or affiliates thereof, to be employed by it, or
to enter into an independent contractor relationship with any such person; or
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(ii) actually hire any such employee or engage any such independent
contractor; or
(iii) authorize or approve the taking of such actions by other persons on
behalf of any person, or assist any such person, in taking such action;
(iv) engage in any gossip, defamation, or deviation from professional
standards or government regulations in connection with their respective work for
the LLC or the other parties hereto or any successors or affiliates thereof.
Section 13.4 Other Remedies. The services rendered and to be rendered to
the LLC or any successor or affiliate thereof by each party hereto during the
Term by the LLC and any successor or affiliate thereof are of a special, unique
and extraordinary character and are of such nature that it would be very
difficult or impossible to replace such services; irreparable injury would be
sustained by the LLC or any successor or affiliate thereof in the event of a
violation by any Member of any of the provisions of this Article 13; and
monetary damages would not be an adequate remedy for any such violation.
Accordingly, each party hereto consents and agrees that if it violates any of
the provisions of this Article 13, in addition to any other right or remedy
available to it, the LLC and any successor or affiliate thereof shall be
entitled to an injunction to be issued by any court of competent jurisdiction,
without bond, restraining such party, as the case may be, from committing or
continuing any violation of this Article 13.
The existence of any claims which any party hereto, may have against the
LLC or any other party hereto or any successors or affiliates thereof, whether
under this Agreement or otherwise, shall not be a defense to the enforcement by
the LLC or such party hereto and any successors or affiliates thereof of any of
its rights under this Article 13.
It is the intent of the parties hereto that the covenants contained in this
Article 13 shall be enforced to the fullest extent permissible under the laws
and public policies of each jurisdiction in which enforcement is sought (each
party hereby acknowledging that such restrictions are reasonably necessary for
the protection of the LLC and any successor or affiliate thereof). Accordingly,
it is hereby agreed that if any of the provisions of this Article 13 shall be
adjudicated to be invalid or unenforceable for any reason whatsoever, such
provision shall be (only with respect to the operation thereof in the particular
jurisdiction in which such adjudication is made) construed by such court by
limiting or reducing such provision so as to be enforceable to the extent
permissible (and any such court is hereby expressly authorized to fix and
determine such limits or reduction), without invalidating the remaining
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provisions of this Agreement or affecting the validity or enforceability of such
provision in any other jurisdiction.
The covenants of any party hereto contained in this Article 13 shall be in
addition to, and not in lieu of, any obligations which any party may have with
respect to the subject matter hereof, whether by contract, as a matter of law or
otherwise, and in the event of any conflict between the provisions of this
Article 13 and any such other obligations, those that provide the parties
hereto, the LLC and its successors and affiliates thereof with the broadest and
most effective protection shall apply.
ARTICLE 14.
SPECIFIC PERFORMANCE
Inasmuch as the Interests are closely held and the market therefor is
limited, irreparable damage would result if this Agreement is not specifically
enforced. Therefore, the rights and obligations to offer for sale and to
purchase any of the Interests shall be enforceable in a court of equity by a
decree of specific performance, and appropriate injunctive relief may be applied
for and granted in connection therewith. Such remedies shall, however, be
cumulative and not exclusive and shall be in addition to any other remedies
which any party may have under this Agreement or otherwise.
ARTICLE 15.
BOOKS AND RECORDS; FISCAL YEAR; ACCOUNTING; BANKING; REPORTS
Section 15.1 Books, Records and Financial Statements. At all times during
the continuance of the LLC, the LLC shall maintain, at its offices in Commerce,
California, separate books of account for the LLC that shall show a true and
accurate record of all costs and expenses incurred, all charges made, all
credits made and received and all income derived in connection with the
operation of the LLC's business. Such books of account shall be open to
inspection and examination during regular business hours by each Member and its
duly authorized representative for any purpose. Any such inspection and
examination shall be conducted in a manner that does not unreasonably interfere
with the other business activities being conducted at the offices of the LLC.
Section 15.2 Fiscal Year. The fiscal year of the LLC shall commence
February 1 and terminate on January 31 of the following calendar year.
Section 15.3 Accounting; Accounting Method. For tax reporting purposes and
for purposes of determining Profits and Losses, the books and records of the LLC
shall be kept on the accrual method of accounting in accordance with generally
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accepted accounting principles consistently applied. The books of account and
records of the LLC shall be prepared by the LLC and audited by Accountant.
Section 15.4 Management Reports. As soon as practicable, after the end of
each fiscal quarter (except for the fourth quarter), but not later than thirty
(30) days after the end of each such fiscal quarter, the LLC shall cause to be
prepared and shall provide to the Management Committee and each of the Members
quarterly statements, including statements of Profits and Losses, Cash Flow and
balance sheets.
Section 15.5 Financial Statements and Tax Information. As soon as
practicable after the end of each fiscal year, but not later than sixty (60)
days after such end:
(a) The financial statements of the LLC shall be prepared by the LLC and
audited by the Accountant, and such financial statements shall be accompanied by
a report of the Accountant, containing its opinion that such financial
statements have been prepared in accordance with generally accepted accounting
principles consistently applied. The cost of preparation of such statements
shall be an expense of the LLC. A copy of the financial statements and the
report of the Accountant shall be furnished to each Member within ten (10)
business days after their receipt by the Management Committee.
(b) The information necessary for the preparation by each Member of its
federal, state and other income tax returns shall be prepared by the Accountant
and delivered by the Management Committee to each Member.
Section 15.6 Banking. The Management Committee, at any time and from time
to time on behalf of the LLC, may open such bank accounts, make such deposits
therein and acquire for investment such certificates of deposit, United States
Treasury Bills, commercial paper and other short-term debt obligations as they
shall jointly determine. All uninvested funds of the LLC shall be deposited in a
bank account of the LLC. All funds so credited to the LLC in any such account
shall be subject to withdrawal by checks made in the name of the LLC and signed
as provided in this Agreement.
ARTICLE 16.
TAX MATTERS
Sweet is hereby designated as the "Tax Matters Partner" (as such term is
defined in the Code and the Treasury Regulations promulgated thereunder) for
purposes of federal and state income tax matters. In the event of Sweet's
failure to act as Tax Matters Partner, Caruso without any further action, shall
become the Tax Matters Partner. The Tax Matters Partner shall cause the
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preparation and timely filing of all tax returns required to be filed by the LLC
pursuant to the Code and all other tax returns deemed by it to be necessary and
required in each jurisdiction in which the LLC does business.
ARTICLE 17.
LIABILITY, EXCULPATION AND INDEMNIFICATION
Section 17.1 Liability of Members.
17.1.1. Except as otherwise provided by the Act, the debts,
obligations and liabilities of the LLC, whether arising in contract, tort
or otherwise, shall be the debts, obligations and liabilities solely of the
LLC, and no Covered Person shall be obligated personally for any such debt,
obligation, or liability of the LLC solely by reason of being a Covered
Person.
17.1.2. Except as otherwise expressly required by law, a Member, in
its capacity as such, shall have no liability in excess of (a) the amount
of its Capital Contribution, (b) its share of any assets and undistributed
Profits of the LLC, (c) its obligation to make other payments expressly
provided for in this Agreement, if any, and (d) the amount of any
distributions wrongfully made to it.
Section 17.2 Liability of Managers. The Managers shall not be liable, in
damages or otherwise, to the LLC or any Member for any act or failure to act by
the Managers which act was within the scope of the authority conferred on the
Managers by this Agreement, unless such act or omission constituted fraud or
willful misconduct. The Managers shall be indemnified by the LLC against
liability for any claim, demand, tax penalty, loss, damage, liability or expense
(including, without limitation, amounts paid in settlement, reasonable costs of
investigation and reasonable legal fees and expenses) resulting from any
threatened, pending or completed action, suit or proceeding naming as a
defendant any Manager by reason of acts or omissions by him within the scope of
his authority as set forth in this Agreement, provided his actions did not
constitute fraud or willful misconduct.
Section 17.3 Exculpation.
17.3.1. No Covered Person shall be liable to the LLC or any other
Covered Person for any loss, damage or claim incurred by reason of any act
or omission performed or omitted by such Covered Person on behalf of the
LLC and in a manner reasonably within the scope of authority conferred on
such Covered Person by this Agreement or otherwise, except that a Covered
Person
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shall be liable for any such loss, damage or claim incurred by reason of
such Covered Person's fraud or willful misconduct.
17.3.2. A Covered Person shall be fully protected in relying in good
faith upon the records maintained by the LLC and upon such information,
opinions, reports or statements presented to the LLC by any Person as to
matters reasonably within such other Person's professional or expert
competence, including information, opinions, reports or statements as to
the value and amount of the assets, liabilities, Profits, Losses or
distributions or any other facts pertinent to the existence and amount of
assets from which distributions to Members might properly be paid.
Section 17.4 Fiduciary Duty.
17.4.1. To the extent that, at law or in equity, a Covered Person has
duties (including fiduciary duties) and liabilities relating thereto to the
LLC or to any other Covered Person, a Covered Person acting under this
Agreement shall not be liable to the LLC or to any other Covered Person for
its good faith reliance on the provisions of this Agreement.
17.4.2. Unless otherwise expressly provided herein, whenever a
conflict of interest exists or arises between Covered Persons, the Covered
Person shall resolve such conflict of interest in good faith, considering
in each case (a) the relative interests of each party (including its own
interests) in such conflict, agreement, transaction or situation, (b) the
benefits and burdens relating to such interests, (c) any customary or
accepted industry practices, (d) any applicable generally accepted
accounting practices or principles, and (e) in the case of any transaction,
the terms of similar transactions among unrelated third parties. In the
absence of bad faith by the Covered Person, the resolution, action or terms
so made, taken or provided by the Covered Person shall not constitute a
breach of this Agreement or any other agreement contemplated herein or of
any duty or obligation of the Covered Person at law or in equity or
otherwise.
Section 17.5 Indemnification by the LLC. To the fullest extent permitted by
applicable law, a Covered Person shall be entitled to indemnification from the
LLC for any loss, damage or claim (including reasonable legal fees) incurred by
such Covered Person by reason of any act or omission performed or omitted by
such Covered Person in good faith on behalf of the LLC and in a manner
reasonably within the scope of authority conferred on such Covered Person by
this Agreement and otherwise,
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except that no Covered Person shall be entitled to be indemnified in respect of
any loss, damage or claim incurred by such Covered Person (a) by reason of gross
negligence or willful misconduct with respect to such acts or omissions or (b)
in breach of this Agreement; provided, however, that any indemnity under this
Section 17.5 hereof shall be provided out of and to the extent of LLC assets
only, and no Covered Person shall have any personal liability on account
thereof.
Section 17.6 Indemnification Procedure. Any person asserting a right to
indemnification under Section 17.5 hereof shall so notify the Management
Committee, in writing pursuant to the notice requirements of Section 21.1
hereof. With respect to those claims governed by Section 17.5 hereof, the
Management Committee shall be entitled to control the defense or prosecution of
such claim or demand in the name of the indemnified person. The parties hereto
shall cooperate in the prosecution or defense against any claims and shall
furnish such records, information and testimony and attend such conferences,
discovery proceedings, hearings, trials and appeals as may reasonably be
requested in connection therewith.
Section 17.7 Expenses. To the fullest extent permitted by applicable law,
expenses (including legal fees) incurred by a Covered Person in defending any
claim, demand, action, suit or proceeding shall, from time to time, be advanced
by the LLC prior to the final disposition of such claim, demand, action, suit or
proceeding upon receipt by the LLC of an undertaking by or on behalf of the
Covered Person to repay such amount if it shall be determined that the Covered
Person is not entitled to be indemnified as authorized in Section 17.5 hereof.
ARTICLE 18.
DISSOLUTION, LIQUIDATION AND TERMINATION
Section 18.1 No Dissolution on Admission of Substitute Members. The LLC
shall not be dissolved by the admission of substituted or additional Members in
accordance with the terms of this Agreement.
Section 18.2 Events Causing Dissolution. The LLC shall be dissolved and its
affairs shall be wound up upon the occurrence of any of the following events:
18.2.1. The unanimous consent of the Members;
18.2.2. In the event of the resignation, expulsion, Bankruptcy or
dissolution of the last remaining Manager, unless, within ninety (90) days
after the occurrence of such an event, the remaining Members holding at
least 50% of their Interests agree
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in writing to continue the business of the LLC and appoint one or more
Managers;
18.2.3. The entry of a decree of judicial dissolution under the Act;
or
18.2.4. The expiration of the Term.
Section 18.3 Notice of Dissolution. Upon the dissolution of the LLC, the
Management Committee shall promptly notify the Members of such dissolution.
Section 18.4 Liquidation. Upon dissolution of the LLC, the Management
Committee shall immediately commence to wind up the LLC's affairs; provided,
however, that a reasonable time shall be allowed for the orderly liquidation of
the assets of the LLC and the satisfaction of liabilities to creditors so as to
enable the Members to minimize the normal losses attendant upon a liquidation.
The Members shall continue to share Profits and Losses during liquidation in the
same proportions, as specified in Article 6 hereof. Each Member shall be
furnished with a statement prepared by the Accountant that shall set forth the
assets and liabilities of the LLC as of the date of dissolution. The proceeds of
liquidation shall be distributed, as realized, in the following order and
priority:
(a) To the creditors of the LLC, including Members who are creditors to the
extent permitted by law, in satisfaction of the liabilities of the LLC (whether
by payment or the making of reasonable provision for payment thereof).
(b) All remaining proceeds in liquidation of the LLC shall be allocated and
distributed to the Members pursuant to the provisions of Article 6 hereof and,
if any assets are distributed in kind the difference between the LLC's cost
basis for the distributed LLC Property and the fair market value of such LLC
Property on the date distributed (to the extent such difference had not
previously been reflected in Profits or Losses) shall be allocated among the
Members and shall adjust their Capital Accounts pursuant to Article 4 hereof
immediately before such distribution.
(c) To the Members the remaining proceeds of liquidation in accordance with
their respective Interests.
Section 18.5 Claims of the Members. The Members and assignees shall look
solely to LLC Property for the return of their Capital Contributions and if the
assets of the LLC remaining after payment of or due provision for all
liabilities of the LLC are insufficient to return such Capital Contributions the
Members and assignees shall have no recourse against the LLC, the Managers or
any other Member.
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Section 18.6 Partition. Each Member waives, until termination of the LLC,
any and all rights that he may have to maintain an action for partition of the
LLC Property.
ARTICLE 19.
POWER OF ATTORNEY
Section 19.1 Each Member hereby irrevocably makes, constitutes and appoints
each of the Managers as its true and lawful attorney-in-fact, with power and
authority in its name, place and stead, to make, execute, sign, acknowledge and
file on behalf of each of them and on behalf of the LLC: (a) such Certificate as
may be required or permitted pursuant to the provisions of this Agreement or by
the Act or any other applicable law; (b) such amendments to the Certificate as
the Management Committee shall deem necessary or desirable or as may be required
by the Act or any other applicable law and which are not inconsistent with the
terms of this Agreement; (c) all papers which may be deemed necessary or
desirable by the Management Committee to reflect a reduction of Capital
Contributions or to effect the termination of the LLC after its dissolution as
provided in this Agreement; and (d) all such other instruments, documents and
certificates which the Management Committee shall deem necessary or desirable to
effectuate, implement and continue the valid and subsisting existence of the LLC
and its power to carry out its purposes as set forth in this Agreement and which
are not inconsistent with the terms of this Agreement.
Section 19.2 The foregoing appointment (a) is irrevocable and shall be
deemed to be a power coupled with an interest; (b) shall survive the death,
incompetency, dissolution, liquidation and winding up, or Bankruptcy of any
Member granting the same and the transfer, by operation of law or otherwise, by
any such granting Member; and (c) may be exercised by the Management Committee
on behalf of each Member by listing all of the Members executing any instrument
with a single signature of any Manager, as attorney-in-fact for all of them.
ARTICLE 20.
GOVERNING LAW; ARBITRATION
Section 20.1 Governing Law. This Agreement is intended to be governed by,
interpreted and enforced in accordance with the laws of Delaware, including the
Act, without giving effect to conflicts of law principles of the State of
Delaware.
Section 20.2 Arbitration. Any controversy or claim arising out or relating
to this Agreement or the validity, interpretation, enforceability or breach
thereof, which is not resolved by agreement between the parties, shall be
resolved by
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binding arbitration in accordance with the Rules of the American Arbitration
Association at the time in effect, and judgment upon the award rendered in such
arbitration may be entered in any court having jurisdiction thereof. The
arbitration proceedings shall take place in (i) Los Angeles County, California
if the party bringing such arbitration is Caruso or (ii) in New York County, New
York if the party bringing such arbitration is Sweet. All expenses (including,
without limitation, legal fees and expenses) incurred by the prevailing party in
such arbitration in connection with, or in prosecuting or defending, any such
claim or controversy shall be paid by the other party.
ARTICLE 21.
MISCELLANEOUS
Section 21.1 Notices. All notices, requests, demands and other
communications given hereunder shall be in writing and shall be deemed to have
been duly given: (a) on the date of delivery, if delivered personally or by
messenger, (b) on the first business day following the date of timely deposit
with Federal Express or other nationally recognized overnight courier service,
if sent by such courier specifying next day delivery, (c) upon receipt of
confirmation of transmission, if transmitted by facsimile; and (d) on the third
business day after mailing, if mailed by registered or certified mail (postage
prepaid, return receipt requested); provided, however, that a notice of change
of address or facsimile number shall not be deemed to have been given until
actually received by the addressee. All such notices, requests, demands and
other communications shall be addressed as set forth on Schedule 2.1 or to such
other address or facsimile number as either party hereto may designate to the
other party hereto by like notice and a copy of all such notices, requests,
demands, and other communications, shall be sent to Tenzer Greenblatt, LLP, 405
Lexington Avenue, New York, New York 10174, Attn: Michael S. Mullman, Esq.
Section 21.2 Failure to Pursue Remedies. The failure of any party to seek
redress for violation of, or to insist upon the strict performance of, any
provision of this Agreement shall not prevent a subsequent act, which would have
originally constituted a violation, from having the effect of an original
violation.
Section 21.3 Cumulative Remedies. The rights and remedies provided by this
Agreement are cumulative and the use of any one right or remedy by any party
shall not preclude or waive the right to use any or all other remedies. Said
rights and remedies are given in addition to any other rights the parties may
have by law, statute, ordinance or otherwise.
Section 21.4 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of all of the parties and,
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to the extent permitted by this Agreement, their successors, legal
representatives and assigns.
Section 21.5 Interpretation. As used in this Agreement, unless the context
otherwise requires: words describing the singular number shall include the
plural and vice versa; words denoting any gender shall include all genders;
words denoting natural persons shall include corporations, partnerships and
other entities, and vice versa; and the words "hereof", "herein" and
"hereunder", and words of similar import, shall refer to this Agreement as a
whole, and not to any particular provision of this Agreement.
Section 21.6 Headings. The headings and subheadings in this Agreement are
included for convenience and identification only and are in no way intended to
describe, interpret, define or limit the scope, extent or intent of this
Agreement or any provisions hereof.
Section 21.7 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such invalid
or unenforceable provision were omitted.
Section 21.8 Counterparts. This Agreement may be executed in any number of
counterparts with the same effect as if all parties hereto had signed the same
document. All counterparts shall be construed together and shall constitute one
instrument.
Section 21.9 Integration. This Agreement constitutes the entire agreement
among the parties hereto pertaining to the subject matter hereof and supersedes
all prior agreements and understandings pertaining thereto.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first above written.
MICHAEL CARUSO & CO., INC.
By: /s/ Neil Cole
---------------------------
, President
SWEET SPORTSWEAR, LLC
By: /s/ Hubert Guez
---------------------------
, President
UNZIPPED APPAREL LLC
By: /s/ Neil Cole
---------------------------
, Manager
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For purposes of guaranteeing the obligations of the Members as set forth in
Section 4.8 of this Agreement as well as the provisions contained in Section
13.1 and Article 12 hereof, as applicable, the undersigned hereby consent and
agree as of the date hereof.
AZTECA PRODUCTION INTERNATIONAL,
INC., as Guarantor
By: /s/ Hubert Guez
------------------------
, President
CANDIE'S INC., as Guarantor
By: /s/ Neil Cole
------------------------
Neil Cole, President
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<PAGE>
ACKNOWLEDGMENTS
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Neil Cole who, I am satisfied, is the person who
signed the within instrument as president of Michael Caruso & Co., Inc., the
corporation named therein, and this person thereupon acknowledged that the said
instrument made by the corporation, was signed and delivered by this person as
president and is the voluntary act and deed of the corporation.
/s/ M. Lamorie
-----------------------
Notary Public
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Hubert Guez who, I am satisfied, is the person
who signed the within instrument as Manager of Sweet Sportswear, LLC, the
limited liability company named therein, and this person thereupon acknowledged
that the said instrument made by the limited liability company, was signed and
delivered by this person as such Manager and is the voluntary act and deed of
the limited liability company.
/s/ M. Lamorie
-----------------------
Notary Public
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Neil Cole who, I am satisfied, is the person who
signed the within instrument as Manager of Unzipped Apparel LLC, the limited
liability company named therein, and this person thereupon acknowledged that the
said instrument made by the limited liability company, was signed and delivered
by this person as such Manager and is the voluntary act and deed of the limited
liability company.
/s/ M. Lamorie
Notary Public
-----------------------
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<PAGE>
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Hubert Guez who, I am satisfied, is the person
who signed the within instrument as President of Azteca Production
International, Inc., the corporation named therein, and this person thereupon
acknowledged that the said instrument made by the corporation, was signed and
delivered by this person as such President and is the voluntary act and deed of
the corporation.
/s/ M. Lamorie
Notary Public
-----------------------
STATE OF CALIFORNIA )
ss.:
COUNTY OF LOS ANGELES )
BE IT REMEMBERED, that on this 7th day of October, 1998 before me, the
subscriber, personally appeared Neil Cole who, I am satisfied, is the person who
signed the within instrument as president of Candie's, Inc. the corporation
named therein, and this person thereupon acknowledged that the said instrument
made by the corporation, was signed and delivered by this person as president
and is the voluntary act and deed of the corporation.
/s/ M. Lamorie
Notary Public
-----------------------
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AT
OCTOBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> OCT-31-1998
<CASH> 107
<SECURITIES> 0
<RECEIVABLES> 7,156
<ALLOWANCES> 0
<INVENTORY> 14,801
<CURRENT-ASSETS> 45,478
<PP&E> 2,331
<DEPRECIATION> 1,281
<TOTAL-ASSETS> 73,027
<CURRENT-LIABILITIES> 17,394
<BONDS> 0
0
0
<COMMON> 18
<OTHER-SE> 53,777
<TOTAL-LIABILITY-AND-EQUITY> 73,027
<SALES> 97,535
<TOTAL-REVENUES> 97,535
<CGS> 69,626
<TOTAL-COSTS> 69,626
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 786
<INCOME-PRETAX> 8,589
<INCOME-TAX> 3,350
<INCOME-CONTINUING> 5,239
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,239
<EPS-PRIMARY> .36
<EPS-DILUTED> .31
</TABLE>
