SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-K/A
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to ________
Commission file number 1-10746
JONES APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 06-0935166
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 Rittenhouse Circle,
Bristol, Pennsylvania 19007
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 785-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of Each Class on which registered
- ----------------------------- -----------------------------
Common Stock, $0.01 par value New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 24, 1997 was approximately $1,598,323,842.
As of March 24, 1997, there were 52,165,060 shares of the registrant's
Common Stock outstanding.
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DOCUMENTS INCORPORATED BY REFERENCE
The documents incorporated by reference into this Form 10-K and the Parts
hereof into which such documents are incorporated are listed below:
Document Part
Those portions of the registrant's III
proxy statement for the registrant's
1997 Annual Meeting (the "Proxy
Statement") that are specifically
identified herein as incorporated by
reference into this Form 10-K.
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PART I
ITEM 1. BUSINESS
This amendment to the Company's 1996 Annual Report on Form 10-K is being
filed to revise the disclosure set forth under the heading "Trademarks"
as set forth on Page 10.
General
Jones Apparel Group, Inc. (the "Company") is a leading designer and marketer
of better priced women's sportswear, suits and dresses. The Company has
pursued a multi-brand strategy by marketing its products under severally
nationally known brands, including its Jones New York, Evan-Picone and Rena
Rowan for Saville labels and the recently licensed Lauren Ralph Lauren label.
Each label is differentiated by its own distinctive styling and pricing
strategy. The Company primarily contracts for the manufacture of its
products through a worldwide network of quality manufacturers. The Company
has capitalized on its nationally known brand names by entering into 35
licenses for the Jones New York brand name and 14 licenses for the Evan-Picone
brand name with select manufacturers of women's and men's apparel and
accessories. In 1996, the Company had net sales of $1.0 billion, which was a
31.5% increase in net sales over 1995.
Products
The Company participates in four principal segments of the women's apparel
market: career sportswear, casual sportswear, suits and dresses. Career and
casual sportswear are marketed as groups of skirts, pants, jackets, blouses,
sweaters and related accessories which, while sold as separates, are
coordinated as to styles, color schemes and fabrics and are designed to be
worn together. For its sportswear and dress collections, the Company will
develop several groups in a selling season. New sportswear and dress
collections are introduced in four or five of the principal selling seasons -
Spring, Summer, Fall I, Fall II and Holiday/Resort, while suit collections
have traditionally been developed for the Fall and Spring seasons. The
introduction of different groups in each season is spaced to ensure that
retail customers frequently are introduced to new merchandise.
The Company's major product categories are summarized in the
following table:
Career Casual Suits &
Sportswear Sportswear Coats Dresses
------------- -------------- ------------ ------------
Industry Better Better Better Better
Categories
Brand Jones New Jones New Jones New Jones New
Labels York, York Sport, York, York,
Lauren Ralph Lauren Ralph Lauren Ralph Lauren Ralph
Lauren, Lauren, Lauren,
Lauren,
Jones*Wear, Jones*Wear, Jones*Wear, Evan-Picone,
Rena Rowan Jones Jeans, Saville Picone Evening
for Saville, Jones & Co,
Evan-Picone Jones New
York Country,
Jones Studio
Product Skirts, Skirts, Suits Dresses
Offerings blouses, blouses,
pants, pants,
jackets, jackets,
sweaters sweaters
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The Company's success is enhanced by its ability to maintain a name brand or
designer image while its products are generally sold in the women's better
market at the following retail price points:
Skirts Blouses Casual Tops Suits &
Jackets and Pants and Sweaters and Bottoms Coats Dresses
- --------- --------- ------------ ----------- --------- ---------
$130-$250 $60-$150 $50-$150 $25-$100 $170-$500 $100-$275
The following chart sets forth a breakdown of the Company's apparel sales by
dollar amount (in thousands and as a percentage of the Company's total sales)
during the past three fiscal years.
1994 1995 1996
------------- ------------- -------------
Career Sportswear $410,000 65% $439,000 57% $577,000 56%
Casual Sportswear $107,000 17% $211,000 27% $302,000 30%
Suits, Dresses and Other $116,000 18% $126,000 16% $142,000 14%
Career Sportswear. The Company's flagship label, Jones New York, offers
consumers an extensive range of better sportswear geared primarily for the
career woman's working needs. The Jones New York products are sold in misses,
petites and women's sizes and are marketed under the Jones New York, Jones New
York Petite and Jones New York Woman labels.
In 1991, the Company first shipped a line of career sportswear under the Rena
Rowan for Saville label and subsequently introduced women's sizes for this label
in the Spring 1992 season and petite sizes in the Spring 1993 season.
In 1992, the Company commenced shipment of a new career sportswear line using
the Jones*Wear label. This line is sold to selected retail accounts that do not
carry the Company's other lines of career sportswear.
In November 1993, the Company acquired the Evan-Picone and other related
trademarks. The Company introduced a line of career sportswear under this label
for the Spring 1994 season. In 1996, the Company made a $1.5 million payment to
satisfy all future royalty obligations to the former owner of the Evan-Picone
trademark.
In October 1995, the Company acquired an exclusive license to manufacture and
market women's shirts, blouses, skirts, jackets, suits, sweaters, pants, vests,
coats, outerwear and hats under the Lauren Ralph Lauren trademark in the United
States pursuant to license and design service agreements with the licensor,
which expire on December 31, 2001. Upon expiration of the initial term, the
Company has the right to renew the license for an additional three-year period,
provided that it meets certain minimum sales level requirements. The license
agreements provide for the payment by the Company of a percentage of net sales
against guaranteed minimum royalty and design service payments as set forth in
the agreements. In July 1996, the Company began shipping a collection of better
career and casual sportswear under this label for the Fall 1996 season. In
March 1997, the Company introduced a collection of Petite sportswear to begin
shipping for the Fall 1997 season. Coats and suits were also introduced in
March 1997 for the Fall 1997 season.
Casual Sportswear. Jones New York Sport offers a collection of casual
sportswear which complements the Jones New York career line. These products are
designed to be worn in a less formal working environment as well as for weekend
and casual wear. Jones New York Sport is offered in misses, petite and women's
sizes.
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The Company also offers a line of casual products under the Jones & Co label
designed primarily to be worn in a less formal working environment.
In 1995, the Company introduced two new casual sportswear lines. Jones
Studio, introduced for the Spring 1996 season, provides casual separates based
on emerging trends in the retail marketplace. Jones New York Country,
introduced for the Fall 1995 season, is a collection of classic country-styled
casualwear that is sold exclusively through the Company's two full price retail
stores and twenty-two factory outlet stores bearing the Jones New York Country
name. In 1996, the Company introduced Jones Jeans, a denim and cotton-based
collection for the women's market.
Suits. The Company produces suits under the brand names Jones New York and
Saville. Jones New York is a better priced brand, which was introduced by the
Company in 1989. Saville, the Company's original line of suits, is targeted to
sell in the opening price points of the better price category. Jones New York
currently offers products in misses and petite sizes and Saville offers petite,
misses and women's sizes. During 1997, the Company is phasing out its licensed
Christian Dior suit business.
Dresses. In June 1992, the Company commenced shipping collections of career
dresses under the Jones New York brand name, targeted to sell at better prices.
In 1994, the Company also introduced a line of better priced career dresses
under the Evan-Picone Dress label. A line of evening dresses under the Picone
Evening label was launched in 1996 for the Holiday 1996 season.
Other. The Company also produces sportswear for the private label market.
While there is significant additional demand in this market, the Company has
not actively pursued more private label business in order to concentrate on the
expansion of its name brand business.
Design
Each product line of the Company has its own design team which is responsible
for the creation, development and coordination of the product group offerings
within each line. The Company believes its design staff of 210 people is widely
recognized for its distinctive styling of garments and its ability to update
fashion classics with contemporary trends. The Company's designers travel
throughout the world for fabrics and colors, and attempt to stay continuously
abreast of the latest fashion trends. In addition, the Company actively
monitors the retail sales of its products to determine changes in consumer
trends.
The design process generally begins with the development of a color scheme and
fabric selection for all groups within a product line and takes 14-16 weeks
before final samples are produced. Jones' designers and product managers
generally meet twice weekly at its production facilities in Bristol,
Pennsylvania to review design concepts, styles and sample garments. Once a
concept for a line is developed, it takes a design team approximately four
weeks to prepare sketches and pick colors and fabrics. The line is developed
completely and silhouettes are prepared during the next eight to twelve weeks.
Final designs and fabric swatches are formalized on concept boards which are
reviewed internally to determine their appeal and ensure consistency with the
Company's offerings. In some cases, concept boards are also previewed with
major customers before being finalized. As a line is being finalized,
samples of the garments are produced and designs are modified accordingly.
For most sportswear lines, the Company will develop several groups in a
season. A group typically consists of an assortment of skirts, pants, jackets,
blouses, sweaters and various accessories. The Company believes that it is able
to minimize design risks because the Company often will not have started cutting
fabrics until the first few weeks of a major selling season. Since different
styles within a group often use the same fabric, the Company can redistribute
styles and, in some cases, colors, to fit current market demand.
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Once prototypes are approved for production, the Company's pattern makers
create the patterns that will be used to cut the material. Cutting patterns
are designed using a computer-aided design ("CAD") system which minimizes the
amount of fabric needed to manufacture each garment, thereby maximizing fabric
yield. Once a design is completed on the system, the cutting pattern may be
automatically traced on paper patterns or copied on computer tapes for
automatic cutting machines.
In accordance with standard industry practices for licensed products, Polo
Ralph Lauren Enterprises, L.P. has the right to approve the Company's designs
for the Lauren Ralph Lauren product line.
Manufacturing
Apparel sold by the Company is produced in accordance with its design,
specification and production schedules. The Company contracts for the cutting
and sewing of the majority of its garments with approximately 118 contractors
located in the United States and 208 in overseas locations. The Company also
operates two manufacturing facilities of its own. During 1996, approximately
35% of the Company's products were manufactured in the United States and Mexico
and 65% in other parts of the world, primarily Asia.
The Company believes that outsourcing allows it to maximize production
flexibility while avoiding significant capital expenditures, work-in-process
inventory build-ups and costs of managing a larger production work force.
The Company's fashion designers, production staff and quality control personnel
closely supervise garments manufactured by contractors to ensure that they meet
the Company's high standards. See "Quality Control" below.
The Company's products are manufactured according to plans prepared each year
which reflect prior years' experience, current fashion trends, economic
conditions and management estimates of a line's performance. The average
lead time from the commitment for the purchase of piece goods in the greighe
phase (no specific color assortment) through the production and shipment of
finished goods ranges from six to eight months. However, the average lead
time from assortment of greighe piece goods by specific colors to subsequent
shipment of finished goods ranges from four to six months. The Company orders
piece goods concurrently with concept board development. The purchase of piece
goods is controlled and coordinated on a divisional basis. The Company limits
its exposure to specific colors and fabrics by committing to purchase a portion
of total projected demand with options to purchase additional volume if demand
meets the plan. The Company believes that its policy of limiting its
commitments for purchases early in the season minimizes its exposure to
excess inventory and obsolescence.
The Company's production administration staff oversees all apparel
manufacturing. This staff coordinates product engineering (including
pattern and sample making), allocation of production among contractors and
quality control. The Company allocates product among contractors based on a
manufacturer's capabilities, the availability of production capacity and quota,
quality, pricing and flexibility in meeting changing production requirements on
relatively short notice. The staff also attempts to ensure that all garments
in a particular group arrive at the Company's distribution centers at the
same time for consolidation and delivery to customers.
The Company believes its extensive experience in logistics and production
management underlies its success in coordinating with contractors who
manufacture different garments included within the same product group. The
Company has had long-term mutually satisfactory business relationships with
many of its contractors, but does not have long-term written agreements with
any of them.
The Company has had an active program in place to monitor compliance by its
contract manufacturers with applicable laws relating to the payment of wages and
working conditions. In 1996, the Company became a participant in the United
States Department of Labor's Apparel Manufacturers Compliance Program for that
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purpose. Under that program, and through the Company's independent agreements
with each of its domestic and foreign manufacturers, the Company regularly
audits such compliance and requires corrective action when appropriate.
Quality Control
The Company's comprehensive quality control program is designed to ensure
that purchased raw materials and finished goods meet the Company's exacting
standards. Substantially all of the fabric purchases for domestically
manufactured garments are inspected upon receipt in either the Company's
Pennsylvania and North Carolina warehouse facilities (where they are stored
prior to shipment for cutting) or at the contractor's warehouse. Fabrics for
foreign manufactured garments are inspected by the Company's contractors upon
receipt in their warehouses. The Company's quality control program includes
inspection of prototypes of each garment prior to cutting by the contractors
to ensure compliance with the Company's specifications.
Domestic contractors are supervised by the Company's quality control staff
based primarily in Bristol, while foreign manufacturers' operations are
monitored by both Company personnel and buying agents located in other
countries. All finished goods are shipped to the Company's warehouses for
final inspection and distribution.
Supplies
The Company generally supplies the raw material to its domestic manufacturers
and occasionally to foreign manufacturers. Otherwise, the raw materials are
purchased directly by the manufacturer in accordance with the Company's
specifications. Raw materials, which are in most instances made and/or
colored especially for the Company, consist principally of piece goods and
yarn and are purchased by the Company from a number of domestic and foreign
textile mills and converters. The Company's foreign finished goods purchases
are generally purchased on a letter of credit basis, while its domestic
purchases are generally purchased on an open order basis. The Company
does not have long-term formal arrangements with any of its suppliers.
However, the Company has experienced little difficulty in satisfying its raw
material requirements and considers its sources of supply adequate.
Marketing
The Company distributes its products through approximately 1,550 customers,
including department stores, specialty retailer accounts and direct mail catalog
companies throughout the United States and Canada representing approximately
7,700 locations. Department stores account for approximately two-thirds of
the Company's sales. The Company's ten largest customers accounted for
approximately 64% of sales in 1996. No single customer accounted for more
than 10% of net sales; however, certain of the Company's customers are under
common ownership. When considered together as a group under common ownership,
sales to nine department store customers currently owned by the Federated
Department Stores, Inc. ("Federated") accounted for approximately 20% of 1996
sales and sales to eight department store customers currently owned by the
May Department Stores Company ("May") accounted for approximately 20% of 1996
sales. While the Company believes that purchasing decisions are generally
made independently by each department store customer (including the stores
in the Federated and May groups), in some cases the trend may be toward more
centralized purchasing decisions. The Company attempts to minimize its credit
risk from its concentration of customers by closely monitoring accounts
receivable balances and shipping levels and the ongoing financial performance
and credit status of its customers. Among the Company's leading customers
are Lord & Taylor, Hecht's and Foley's stores, which are a part of the May
group, Macy's Department Stores, Lazarus and Bloomingdale's, which are part
of the Federated group, Dillard's, Dayton Hudson and Nordstrom.
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The Company has a direct sales force of 144 sales people (excluding employees
in the Company's factory outlet stores) which includes individuals located in
the Company's New York and Toronto showrooms as well as in regional sales
offices and showrooms that the Company leases in Atlanta, Dallas, Los Angeles
and Seattle. The Company also has five domestic and ten Canadian independent
sales representatives who work on a commission basis and who, in some cases,
also market products of other non-competing apparel companies. In addition,
senior management is actively involved in selling to major accounts. Products
are marketed to department stores and specialty retailing customers during
"market weeks," which are generally four to six months in advance of the five
corresponding industry selling seasons.
While the Company typically will allocate a six week period to market a line,
most major orders are written within the first three weeks of any market period.
Since piece goods for a line usually are not cut until the first few weeks of a
marketing period, the Company is able to tailor production schedules and styles
to current market demands and minimize excess inventory.
As one of the primary apparel resources for many of its customers, the Company
is able to influence the mix, quantity and timing of orders placed by its retail
accounts enabling the Company to market complete lines of sportswear and
minimize excess inventory. The Company's close relationships with its retail
accounts allow it to efficiently monitor production schedules and inventories.
The Company believes retail demand for its products is enhanced by the
Company's ability to provide its retail accounts and consumers with
knowledgeable sales support. In this regard, the Company has an established
program to place retail sales specialists in many major department stores.
These individuals have been trained by the Company to support the sale of its
products by educating other store personnel and consumers about the Company's
products and by coordinating the Company's marketing activities with those of
the stores. In addition, the retail sales specialists provide the Company with
firsthand information concerning consumer reactions to the Company's products.
Certain of the retail sales specialists rotate among several different stores
rather than working at just one store. The salary expenses for the retail sales
specialists are frequently shared by the stores. The Company currently has 75
retail sales specialists in department stores such as Macy's, Dillard's,
Bloomingdale's, Lord & Taylor, Hecht's and Foley's. In addition, the Company
has a program of designated sales personnel in which a store agrees to designate
certain sales personnel who will devote a substantial portion of their time to
selling Jones products in return for certain benefits. The Company currently
has approximately 750 designated sales personnel.
The Company employs a cooperative advertising program with its major retail
accounts, whereby it shares the cost of its retail accounts' advertising and
promotional expenses, up to a preset maximum percentage of the retail accounts'
purchases. An important part of the marketing program includes prominent
displays of the Company's products in retail accounts' sales catalogs.
Factory Outlet Stores
At December 31, 1996, the Company operated a total of 196 factory outlet
stores and four full price stores. The Company operates four coffee bars in
close proximity to four of its factory outlet stores as a convenience to its
customers. Manufacturer's outlet malls are generally located either in high
traffic tourist areas or on major highways to vacation destinations and major
cities. The 196 factory outlet stores operated by the Company are located in
107 outlet malls throughout the United States. These locations are generally
situated in select geographic markets which are not in direct competition with
the Company's primary customers. The Company's outlet stores focus on breadth
of product line and customer service as well as value pricing. In addition to
its brand name merchandise, these stores also sell merchandise produced by
licensees of the Company. The Company's outlet store expansion strategy is to
continue to open multiple stores in select outlet malls for specific product
lines which target different customer segments.
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The Company opened 54, closed 10 and combined two stores in 1995 and opened
47 and closed 22 stores in 1996. The following table sets forth certain
information regarding the number and type of stores open and aggregate store
sales for each of the years in the three year period ended December 31, 1996.
<TABLE>
<CAPTION>
1994 1995 1996
Retail stores open at end of period: ---- ---- ----
Store Type Description
- ---------------------- -----------------------------
<S> <C> <C> <C>
Jones New York Jones New York sportswear 70 78 82
Jones New York Full price retail showcase 2 2 2
for products
Executive Suite Jones New York and Executive 26 33 28
Suite men's and women's
suits and furnishings
Jones New York Woman Large sizes 7 5 2
Jones New York Dress Jones New York dresses 3 2 3
Saville Rena Rowan for Saville 3 1 1
merchandise
Jones New York Sport Jones New York Sport and 3 2 22
Jones & Co casual sportswear
Strictly Business Women's and men's suits 5 5 4
Evan-Picone Evan-Picone sportswear 1 23 17
Jones New York Country Jones New York Country 0 9 22
casual sportswear
Jones New York Country Full price retail showcase 0 0 2
for products
Factory Finale Close out merchandise 13 15 15
--- --- ---
Total retail stores open at end of period 133 175 200
Aggregate net store sales (in thousands) $77,393 $102,307 $129,767
Square footage of gross store space at end of period 358,884 478,975 557,100
</TABLE>
Nearly all stores are leased under long-term leases (typically five years).
The average store size is 2,785 square feet, ranging from a minimum of 1,386
square feet to a maximum of 6,600 square feet.
Licensing of Company Brands
As of December 31, 1996, the Company had 35 license agreements pursuant to
which independent licensees sell products under the Company's Jones New York
(and related) trademarks in accordance with designs furnished or approved by
the Company in various territories in the United States and Canada. Current
licenses cover men's tailored clothing and overcoats, women's intimate apparel,
women's rainwear, outerwear, leather outerwear and woolen coats, footwear,
belts, scarves, umbrellas, eyewear, fragrances, costume jewelry, hair
accessories, cosmetic travel accessories and home sewing patterns, mens' knit
and woven shirts and sweaters, mens' and boys' neckwear and men's and women's
hosiery and slippers. Each of the licenses provides for the payment to
the Company of a percentage of the licensee's net sales of the licensed
products against guaranteed minimum royalty payments which generally increase
over the term of the agreement. During 1996, the Company received $7,651,000
of Jones New York (and related names) licensing income.
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As of December 31, 1996, the Company had 14 license agreements pursuant to
which independent licensees sell products under the Company's Evan-Picone
trademarks in accordance with designs furnished or approved by the Company in
various territories in the United States and Canada. These licenses cover
women's coats, footwear, eyewear and accessories, men's tailored clothing,
men's topcoats, mens' knit and woven shirts and sweaters, men's and boy's
neckwear, men's and women's hosiery and home sewing patterns. Each of the
licenses provides for the payment to the Company of a percentage of the
licensee's net sales of the licensed products against guaranteed minimum
royalty payments which generally increase over the term of the agreement.
During 1996, the Company received $5,855,000 of Evan-Picone licensing income.
Trademarks
The Company utilizes a variety of owned trademarks, including Jones New York,
Jones New York Sport, Jones & Co, Jones*Wear, JNY, Jones New York Country,
Jones Jeans, Saville, Rena Rowan for Saville, Ellen Kaye, Evan-Picone, Picone
Sport, Elements by Evan-Picone, Studio Picone, Evan-Picone Sport, Tailored by
Evan-Picone New York, Executive Suite, Strictly Business and Factory Finale.
The Company has registered or applied for registration for these and other
trademarks for use on a variety of items of apparel and apparel-related
products in the United States and Canada. In addition, the Company has
registered certain of its trademarks in other countries. The Company's material
registered trademarks Jones New York, Jones New York Sport, Rena Rowan for
Saville and Evan-Picone have their Federal trademark registrations expire in
2006, 2004, 2002, and 2003, respectively, with its other registered trademarks
expiring at various dates through 2011, all of which are subject to renewal.
The Company carefully monitors trademark expiration dates to ensure
uninterrupted registration of its trademarks. The Company also licenses
the Lauren Ralph Lauren label (see "Products" above). The Company regards its
trademarks and other proprietary rights as valuable assets and believes that
they have significant value in the marketing of its products. The Company
vigorously protects its trademarks against infringement.
Imports and Import Restrictions
The Company's transactions with its foreign manufacturers and suppliers are
subject to the risks of doing business abroad.
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries, including Hong Kong, Taiwan and Korea. These agreements impose
quotas on the amount and type of goods which can be imported into the United
States from these countries. Such agreements also allow the United States to
impose at any time restraints on the importation of categories of merchandise
that, under the terms of the agreements, are not subject to specified limits.
The bilateral agreements through which quotas are imposed have been negotiated
under the framework established by the Arrangement Regarding International
Trade in Textiles, known as the Multifiber Arrangement ("MFA"). Under the
Uruguay Round Agreement on Textiles and Clothing, dated December 15, 1993,
quotas established pursuant to the MFA will be gradually phased out over a
ten-year transition period, after which textile and clothing trade will be fully
integrated into the General Agreement on Trade and Tariffs ("GATT") and will be
subject to the same disciplines as other sectors. The GATT agreement provides
for expanded trade, improved market access, lower tariffs, and improved
safeguard mechanisms.
The Company monitors duty, tariff and quota-related developments and
continually seeks to minimize its potential exposure to quota-related risks
through, among other measures, geographical diversification of its manufacturing
sources, the maintenance of overseas offices, allocation of overseas production
to merchandise categories where more quota is available and shifts of production
among countries and manufacturers.
The Company's imported products are also subject to United States customs
duties and, in the ordinary course of business, the Company is from time to
time subject to claims by the United States Customs Service for duties and
other charges. The passage by Congress of the North America Free Trade Act
("NAFTA") at the end of 1993 has enabled the Company to take advantage of
lower manufacturing costs in Mexico.
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The United States and the other countries in which the Company's products are
manufactured may, from time to time, impose new quotas, duties, tariffs or other
restrictions, or adversely adjust presently prevailing quotas, duty or tariff
levels, which could adversely affect the Company's operations and its ability to
continue to import products at current or increased levels. The Company cannot
predict the likelihood or frequency of any such events occurring.
Because the Company's foreign manufacturers are located at greater geographic
distances from the Company than its domestic manufacturers, the Company is
generally required to allow greater lead time for foreign orders, which reduces
the Company's manufacturing flexibility. Foreign imports are also affected by
the high cost of transportation into the United States.
In addition to the factors outlined above, the Company's future import
operations may be adversely affected by political instability resulting in the
disruption of trade from exporting countries, any significant fluctuation in
the value of the dollar against foreign currencies and restrictions on the
transfer of funds.
Backlog
At December 31, 1996, the Company had unfilled customer orders of
approximately $419 million, compared to approximately $301 million of such
orders at December 31, 1995 (excluding approximately $27 million and $25
million, respectively, with respect to merchandise on order for the Company's
factory outlet and full-price retail stores). These amounts include both
confirmed orders and unconfirmed orders which the Company believes, based on
industry practice and past experience, will be confirmed. The amount of
unfilled orders at a particular time is affected by a number of factors,
including the timing of the receipt and processing of customer orders and
scheduling of the manufacture and shipping of the product, which in some
instances is dependent on the desires of the customer. Accordingly, a
comparison of unfilled orders from period to period is not necessarily
meaningful and may not be indicative of eventual actual shipments.
Competition
There is intense competition in the sectors of the apparel industry in which
the Company participates. The Company competes with many other manufacturers,
some of which are larger and have greater resources than the Company.
The Company competes primarily on the basis of fashion, price and quality.
The Company believes its competitive advantages include its ability to
effectively anticipate and respond to changing consumer demands, its premier
brand names and range of products and its ability to operate within the
industry's production and delivery constraints. Furthermore, the Company's
established brand names and relationships with retailers have resulted in a
highly loyal following of customers.
The Company considers the risk of formidable new competitors to be minimal
due to barriers to entry such as significant startup costs and the long-term
nature of supplier and customer relations. It has been the Company's belief
that during the past few years, major department stores and specialty retailers
have been increasingly unwilling to source garments from suppliers who are not
well capitalized or do not have established reputations for delivering quality
merchandise in a timely manner. However, there can be no assurance that
significant new competitors will not develop in the future.
Employees
At December 31, 1996, the Company had approximately 2,945 full-time
employees. This total includes approximately 20 in executive or
senior managerial positions, approximately 1,800 in quality control,
production, design and distribution positions, approximately 345 in
sales, clerical and office positions and
- 11 -
<PAGE> 12
approximately 780 in the Company factory outlet and full-price retail stores.
The Company also employs approximately 686 part-time employees, of which
approximately 656 work in the Company factory outlet and full-price retail
stores.
Approximately 335 of the Company's employees are members of the Teamsters
Union, which has a four year labor agreement with the Company expiring in
March 1998. The Company considers its relations with its employees to be
satisfactory.
ITEM 2. PROPERTIES
The Company's principal executive office, warehousing and distribution
facilities are located in Bristol, Pennsylvania. The Company leases its
headquarters facility from a partnership which is equally owned by its
Chairman and Chief Executive Officer and a former shareholder of the Company.
See "Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." The lease
for this facility terminates in 1998.
The general location, use and approximate size of the Company's principal
properties, all of which are leased, are set forth below:
Approximate Area
Location Use in Square Feet
- --------------------- ----------------------------- ----------------
Bristol, Pennsylvania Headquarters, warehouse 403,000
and distribution
Bristol, Pennsylvania Materials warehouse 102,400
Bristol, Pennsylvania Distribution warehouse 208,000
Bristol, Pennsylvania Computer and accounting 16,425
services
Bristol, Pennsylvania Administrative services 22,500
Ciudad Juarez, Mexico Production 66,850
Downsview, Canada Canadian headquarters, 114,300
warehouse and distribution
El Paso, Texas Administrative services 33,250
Lawrenceburg, Tennessee Distribution warehouses 870,000
New York, New York Executive and sales offices 145,700
Rural Hall, North Carolina Materials warehouse 232,200
The Company leases space for 196 outlet stores, four full-price retail stores
and four coffee bars (aggregating approximately 560,866 square feet) at
locations across the United States. The Company also leases regional sales
offices and showrooms in Atlanta, Dallas, Los Angeles and Seattle. The Company
believes that its existing facilities are well maintained, in good operating
condition and that its existing and planned facilities will be adequate for its
operations for the foreseeable future.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
- 12 -
<PAGE> 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
Price range of common stock:
<S> <C> <C> <C> <C>
1996
High $24-1/4 $27-3/4 $37-3/8 $37-3/8
Low $17-13/16 $23-1/4 $22-9/16 $29-5/8
1995
High $13-15/16 $15-7/16 $18-3/8 $19-3/4
Low $11-5/16 $12-15/16 $14-7/8 $15-3/16
</TABLE>
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "JNY". The above figures set forth, for the periods indicated, the
high and low sale prices per share of the Company's Common Stock as reported on
the New York Stock Exchange Composite Tape. The last reported sale price per
share of the Company's Common Stock on February 26, 1997 was $37-3/8 and on that
date there were 146 holders of record of the Company's Common Stock. To date,
the Company has not paid any cash dividends on shares of its Common Stock.
The Company anticipates that all of its future earnings will be retained for
its financial requirements and does not anticipate paying cash dividends on its
Common Stock in the foreseeable future. All stock prices have been adjusted to
reflect the 2-for-1 stock split effective October 2, 1996.
- 13 -
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
The following financial information is qualified by reference to, and should
be read in conjunction with, the Company's Consolidated Financial Statements
and Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this report. The
selected consolidated financial information presented below is derived from the
Company's audited Consolidated Financial Statements for each of the five years
in the period ended December 31, 1996.
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994 1993 1992
---------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Net sales $1,021,042 $776,365 $633,257 $541,152 $436,572
Gross profit 303,792 229,952 194,682 177,410 150,728
Operating income 130,256 101,131 87,862 78,925 67,552
Income before
provision for
income taxes 127,763 99,668 87,345 79,019 66,617
Provision for
income taxes 46,889 36,183 32,425 30,660 25,314
Net income 80,874 63,485 54,920 48,359<F1> 41,303
Per Share Data
Net income per
share<F2><F3> $1.50 $1.19 $1.04 $0.92<F1> $0.79
Dividends paid
per share - - - - -
Weighted average
number of common
shares and share
equivalents
outstanding<F3> 54,077 53,458 52,925 52,413 52,379
<CAPTION>
December 31, 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data
Working capital $293,970 $260,853 $204,221 $159,175 $122,376
Total assets 488,109 400,959 318,286 266,594 184,639
Short-term debt,
including current
portion of capital
lease obligations 3,067 2,327 1,859 1,722 1,131
Long-term debt,
including capital
lease obligations 12,141 10,151 8,029 9,545 4,783
Stockholders' equity 376,729 314,975 248,678 189,120 134,791
</TABLE>
<F1> Represents income before cumulative effect of change in accounting
principle for the year ended December 31, 1993. In 1993, the Company
recorded a cumulative effect of a change in accounting principle for
income taxes as a result of the adoption of SFAS 109 which increased
net income by $1,376,000. Net income per share for the year ended
December 31, 1993, including this change in accounting principle,
was $0.95.
<F2> All net income per share numbers are presented on a fully diluted basis.
Net income per share for the years ended December 31, 1996 and 1995 on a
primary basis was $1.51 and $1.20, respectively. No dilution existed for
all other periods presented.
<F3> On July 30, 1996, the Company's Board of Directors approved a two-for-one
stock split of the Company's Common Stock in the form of a 100% stock
dividend for shareholders of record as of September 12, 1996.
Concurrently, the number of authorized shares of Common Stock was
increased to 100,000,000. On October 2, 1996, a total of 26,744,580
shares of Common Stock were issued in connection with the split. The
stated par value of each share remained at $0.01. All share and per
share amounts have been restated to retroactively reflect the stock split.
- 14 -
<PAGE> 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
GENERAL
The following discussion provides information and analysis of the Company's
results of operations from 1994 through 1996 and its liquidity and capital
resources. The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements included elsewhere herein.
The Company has achieved compound annual growth rates of 27% for net sales and
22% for income from operations from 1994 to 1996. Net sales and income from
operations in 1996 increased 32% and 29%, respectively, over 1995.
The Company believes that it has achieved this growth by enhancing the brand
equity of each of its labels through its focus on exceptional design, quality
and value. The Company has also leveraged the strength of its brands to
increase both the number of locations and amount of selling space in which its
products are offered, as well as to introduce new product extensions. The
Company has also benefitted from a trend among its major retail accounts to
concentrate their women's apparel buying among a narrowing group of apparel
vendors. As an example of the success of its product extensions, the Company's
casual sportswear division, designed to address the trend toward more casual
dressing, increased to 30% of the Company's net sales in 1996 as compared to
17% in 1994.
The Company believes that it has continued opportunities to increase both
its career and casual sportswear businesses by further developing its brands,
increasing the number of locations that sell its product, expanding the amount
of floor space within existing locations, and introducing new products. Career
sportswear sales, which increased to $577.2 million in 1996 from $409.9 million
in 1994, will be aided by the full rollout of the new Lauren Ralph Lauren label,
which was first shipped to customers in the third quarter of 1996. Casual
sportswear sales, which grew from $107.5 million in 1994 to $302.4 million in
1996, also present growth opportunities, although not necessarily at the rates
historically achieved. Increases in the Company's suit and dress businesses
(principally the Jones New York, Evan-Picone and Saville labels) will be offset
by the phaseout of the Christian Dior label.
RESULTS OF OPERATIONS
1996 Compared to 1995
Net Sales
Net sales in 1996 increased by 31.5%, or $244.6 million, to $1,021.0 million
as compared to $776.4 million in 1995, due primarily to an increase in the
number of units shipped. Career sportswear sales increased by 31.5%, or $138.1
million, to $577.2 million in 1996 as compared to $439.1 million in 1995.
Casual sportswear sales in 1996 increased by 43.3%, or $91.4 million, to $302.4
million as compared to $211.0 million in 1995. Net sales for the Company's
suit, dress and other category increased by 12.0%, or $15.1 million, to $141.4
million in 1996 as compared to $126.3 million in 1995.
- 15 -
<PAGE> 16
Gross Profit
The gross profit margin was 29.8% in 1996 as compared to 29.6% in 1995. The
increase was primarily attributable to the impact of higher gross profit margins
from the Company's major product lines as well as the introduction of the new
Lauren Ralph Lauren label, which carries higher margins than the corporate
average.
SG&A Expenses
Selling, general and administrative expenses ("SG&A" expenses) of $186.6
million in 1996 represented an increase of $47.5 million over $139.1 million
in 1995. As a percentage of sales, SG&A expenses increased to 18.3% in 1996
from 17.9% in 1995. Expenses associated with the Lauren Ralph Lauren product
advertising and royalties and associated operating costs, as well as the
Company's overall sales growth, added significant expenses during 1996. Retail
store operating expenses increased by $10.2 million, reflecting the added cost
of 25 new stores in operation at the end of 1996.
Licensing Income
Licensing income increased by $2.7 million to $13.0 million in 1996 as
compared to $10.3 million in 1995. Income from licenses under the Jones New
York label increased $2.1 million while income from licenses under the
Evan-Picone label rose by $0.6 million.
Operating Income
The resulting 1996 operating profit of $130.3 million increased by $29.2
million, as compared to $101.1 million during 1995. The operating profit
margin decreased to 12.8% in 1996 from 13.0% in 1995, largely as a result of
the higher percentage of SG&A expenses to sales during 1996.
Net Interest Expense
Net interest expense was $2.5 million in 1996 compared to $1.5 million in
1995. The primary reasons for the change were higher average overall borrowings
and interest on capital leases for additional warehouse facilities during 1996.
Provision for Income Taxes
The effective income tax rate for 1996 was 36.7% as compared to 36.3% in 1995.
The increase was primarily due to higher state income tax provisions for 1996.
Net Income
Net income increased by 27.4% to $80.9 million in 1996, an increase of $17.4
million over the net income of $63.5 million earned in 1995. Net income as a
percentage of sales was 7.9% in 1996, compared to 8.2% in 1995.
1995 Compared to 1994
Net Sales
Net sales in 1995 increased by 22.6%, or $143.1 million, to $776.4 million as
compared to $633.3 million in 1994, due primarily to an increase in the number
of units shipped. Career sportswear sales increased by 7.1%, or $29.2 million,
to $439.1 million in 1995 as compared to $409.9 million in 1994. Casual
sportswear sales in 1995 increased by 96.3%, or $103.5 million, to $211.0
million as compared to $107.5 million in 1994. Net sales for the Company's
suit, dress and other category increased by 9.0%, or $10.4 million, to $126.3
million in 1995 as compared to $115.9 million in 1994.
Gross Profit
The gross profit margin was 29.6% in 1995 as compared to 30.7% in 1994.
The gross margin impact of the large increase in casual sportswear sales,
which carry lower margins than the Company's other product
- 16 -
<PAGE> 17
categories, was the major factor, although the impact was somewhat offset by
improved margins in the Company's career sportswear divisions.
SG&A Expenses
Selling, general and administrative expenses ("SG&A" expenses) of $139.1
million in 1995 represented an increase of $23.8 million over 1994. As a
percentage of sales, SG&A expenses decreased to 17.9% in 1995 from 18.2% in
1994. Retail store operating expenses increased by $10.7 million, reflecting
the added cost of 42 new stores in operation at the end of 1995. Amortization
of the Evan-Picone trademark amounted to $1.3 million for each year, offset by
amortization of the excess of net assets acquired over cost of $1.8 million and
$3.0 million in 1995 and 1994, respectively. Capitalized startup costs for new
labels, net of amortization, were $1.6 million in 1995.
Licensing Income
Licensing income increased by $1.8 million to $10.3 million in 1995 as
compared to $8.5 million in 1994. Licenses under the Jones New York and
Evan-Picone labels contributed equally to the growth.
Operating Income
The resulting 1995 operating profit of $101.1 million increased by $13.2
million, as compared to $87.9 million during 1994. The operating profit margin
decreased to 13.0% in 1995 from 13.9% in 1994, largely as a result of the lower
gross profit margins offset by the lower percentage of SG&A expenses to sales
achieved during 1995.
Net Interest Expense
Net interest expense was $1.5 million in 1995 compared to $0.5 million in
1994. The increase was the result of higher average overall borrowings and
borrowing rates during 1995.
Provision for Income Taxes
The effective income tax rate for 1995 was 36.3% as compared to 37.1% in
1994. The decrease was primarily due to reduced state income tax provisions
for 1995.
Net Income
Net income increased by 15.6% to $63.5 million in 1995, an increase of $8.6
million over the net income of $54.9 million earned in 1994. Net income as a
percentage of sales was 8.2% in 1995, compared to 8.7% in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements have been to fund working capital
needs, capital expenditures and, beginning in 1995, to repurchase the Company's
Common Stock on the open market. The Company has historically relied
primarily on internally generated funds, trade credit and bank borrowings to
finance its operations and expansion.
Net cash provided by operations was $70.7 million, $8.9 million and $8.8
million in 1996, 1995 and 1994, respectively. The $61.8 million improvement
for 1996 was primarily due to higher net income, a $37.8 million increase in
inventories in 1996 as compared to a $53.1 million increase in 1995, a $10.6
million reduction in prepaid expenses and other current assets and a larger
increase in accrued expenses in 1996 over 1995 ($4.5 million and $0.8 million,
respectively). The inventory increase for 1995 and 1996 was the result of
the inventory levels required to meet anticipated wholesale shipments for
the first quarter of the following year and the net addition of 42 retail
stores in 1995 and 25 retail stores during 1996. The increase in accounts
receivable for both 1995 and 1996 resulted from the increase in net sales
during the fourth quarter. The increase in cash provided by operations
from 1994 to 1995 was primarily due to higher adjusted net income
- 17 -
<PAGE> 18
and an increase in accounts payable of $13.4 million, offset by net increases
in accounts receivable of $17.9 million and inventories of $53.1 million.
Net cash used in investing activities increased by $19.9 million in 1996 to
$35.3 million and increased by $1.1 million in 1995 to $15.4 million. Cash
used in investing activities has been primarily for the opening of additional
warehouse facilities, the acquisition of the minority interest of Fashion
Enterprises, Inc. in 1994 (see Note 3 to Notes to Consolidated Financial
Statements) and a $1.5 million payment made in 1996 to satisfy all future
royalty obligations to the former owner of the Evan-Picone trademark. In
addition, to support anticipated growth in the number of units shipped, the
Company has committed to the construction of an additional warehouse facility
in 1997. This facility, including related equipment, is estimated to cost
$10.0 million and the Company plans to finance all or a portion of the
construction through capital lease financing.
Net cash provided by (used in) financing activities was $(22.2) million in
1996, $2.4 million in 1995 and $(0.1) million in 1994. The principal reasons
for the changes were $5.0 million in proceeds from capital leases in each of
the years 1996 and 1995 for construction of additional warehouse facilities and
transactions involving the Company's Common Stock. In 1996 and 1995, the
Company repurchased $33.6 million and $4.6 million, respectively, of its
Common Stock on the open market under an announced program under which the
Company is authorized to acquire up to $100.0 million of such shares through
the end of 1997. As of December 31, 1996, an aggregate of $38.2 million had
been expended pursuant to the stock repurchase program. Proceeds from the
issuance of common stock to employees exercising stock options amounted to $9.1
million, $4.7 million and $1.6 million in 1996, 1995 and 1994, respectively.
As of December 31, 1996, the Company had credit arrangements with six United
States financial institutions which totalled $330.0 million (see Note 6 of
Notes to Consolidated Financial Statements). These lines, which may be used
for unsecured borrowings and letters of credit (issued primarily to finance
foreign inventory purchases), contain an aggregate sub-limit of $190.0 million
for unsecured borrowings with rates depending on the borrowing vehicle utilized.
At December 31, 1996, $100.1 million was utilized for letters of credit and
there were no short-term borrowings outstanding, leaving $229.9 million
available for additional borrowings or letters of credit at that date. The
Company also has a line of credit with a Canadian institution for C$4.0 million
to be used for unsecured borrowings under which no amounts were outstanding at
December 31, 1996.
The Company believes that funds generated by operations and the bank credit
arrangements will provide the financial resources sufficient to meet its
foreseeable working capital, letter of credit, capital expenditure and stock
repurchase requirements.
INFLATION
The Company does not believe that the relatively moderate rates of inflation
which have been experienced in the United States and Canada, where it competes,
have had a significant effect on its net sales or profitability.
SEASONALITY OF BUSINESS
Historically, the Company's sales and profit levels fluctuate by quarter.
As a result, the Company experiences seasonal increases and decreases in
its working capital requirements. These patterns result primarily from the
timing of shipments for each season; however, the timing of seasonal shipments
can vary from quarter to quarter. Fall merchandise is shipped principally in
the third quarter while Spring merchandise is shipped primarily in the first
quarter. Summer and Holiday/Resort goods, the smaller of the seasons, are
shipped primarily in the second and fourth quarters, respectively. For an
analysis of quarterly historical operating trends, see Note 16 of Notes to
Consolidated Financial Statements.
- 18 -
<PAGE> 19
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share," which provides
for the calculation of "basic" and "diluted" earnings per share as opposed to
the current "primary" and "fully diluted" earnings per share. Basic earnings
per share includes no dilution and is computed by dividing income available to
common shareholders by the weighted average number of common shares outstanding
for the period. Diluted earnings per share reflects the potential dilution
from the assumed exercise of stock options in a manner similar to fully diluted
earnings per share, except that the use of the market price at the end of the
period when that price is higher than the average market price for the period
has been eliminated. This standard is effective for periods ending after
December 15, 1997. The adoption of this standard is not expected to have a
significant effect on the Company's earnings per share calculation.
STATEMENT REGARDING FORWARD-LOOKING DISCLOSURE
This Report includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended and Section 21E of the
Securities Exchange Act of 1934, as amended which represent the Company's
expectations of beliefs concerning future events that involve risks and
uncertainties, including those associated with the effect of national and
regional economic conditions, the overall level of consumer spending, the
performance of the Company's products within the prevailing retail environment,
customer acceptance of both new designs and newly-introduced product lines, and
financial difficulties encountered by customers. All statements other than
statements of historical facts included in this Annual Report, including,
without limitation, the statements under "Management's Discussion and Analysis
of Financial Condition," are forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to
have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations ("Cautionary Statements") are
disclosed in this Report. All subsequent written and oral forward-looking
statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by the Cautionary Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of Jones Apparel Group, Inc. is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
and other financial information presented in this report. The accompanying
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and properly reflect the effects of
certain estimates and judgements made by management.
The Company's management maintains an effective system of internal control
that is designed to provide reasonable assurance that assets are safeguarded
and transactions are properly recorded and executed in accordance with
management's authorization. The system is continuously monitored by direct
management review, the independent accountants and by internal auditors who
conduct an extensive program of audits throughout the Company.
The Company's consolidated financial statements have been audited by BDO
Seidman, LLP, independent accountants. Their audits were conducted in
accordance with generally accepted auditing standards, and included a review
of financial controls and tests of accounting records and procedures as they
considered necessary in the circumstances.
- 19 -
<PAGE> 20
The Audit Committee of the Board of Directors, which consists of outside
directors, meets regularly with management, the internal auditors and the
independent accountants to review accounting, reporting, auditing and internal
control matters. The committee has direct and private access to both internal
and external auditors.
/s/ Sidney Kimmel /s/ Wesley R. Card
Sidney Kimmel Wesley R. Card
Chairman Chief Financial Officer
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Jones Apparel Group, Inc.
We have audited the accompanying consolidated balance sheets of Jones Apparel
Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Jones
Apparel Group, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 7, 1997
- 20 -
<PAGE> 21
Jones Apparel Group, Inc.
Consolidated Balance Sheets
(All amounts in thousands except per share data)
<TABLE>
<CAPTION>
December 31, 1996 1995
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 30,085 $ 16,864
Accounts receivable, net of allowance
of $2,263 and $2,257 for doubtful accounts 112,678 92,147
Inventories 214,437 176,626
Receivable from and advances to contractors 11,490 21,083
Deferred taxes 9,708 12,265
Prepaid expenses and other current assets 11,432 12,480
-------- --------
TOTAL CURRENT ASSETS 389,830 331,465
PROPERTY, PLANT AND EQUIPMENT, at cost, less
accumulated depreciation and amortization 61,696 36,657
INTANGIBLES, at cost less accumulated amortization 26,288 26,585
DEFERRED TAXES 461 120
OTHER ASSETS 9,834 6,132
-------- --------
$488,109 $400,959
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 41 $ 71
Current portion of capital lease obligations 3,026 2,256
Accounts payable 72,569 59,077
Income taxes payable 8,959 2,427
Accrued expenses and other current liabilities 11,265 6,781
-------- --------
TOTAL CURRENT LIABILITIES 95,860 70,612
-------- --------
NONCURRENT LIABILITIES:
Obligations under capital leases 12,134 10,102
Long-term debt 7 49
-------- --------
TOTAL NONCURRENT LIABILITIES 12,141 10,151
-------- --------
TOTAL LIABILITIES 108,001 80,763
-------- --------
COMMITMENTS AND CONTINGENCIES - -
EXCESS OF NET ASSETS ACQUIRED OVER COST 3,379 5,221
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value - shares
authorized 1,000; none issued - -
Common stock, $.01 par value - shares
authorized 100,000; issued 53,595 and 52,563 536 263
Additional paid-in capital 99,140 84,172
Retained earnings 317,192 236,318
Cumulative foreign currency translation adjustment (1,154) (1,140)
-------- --------
415,714 319,613
Less treasury stock, 1,600 and 261 shares, at cost (38,985) (4,638)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 376,729 314,975
-------- --------
$488,109 $400,959
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
- 21 -
<PAGE> 22
Jones Apparel Group, Inc.
Consolidated Statements of Income
(All amounts in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
---------- -------- --------
<S> <C> <C> <C>
NET SALES $1,021,042 $776,365 $633,257
COST OF GOODS SOLD 717,250 546,413 438,575
---------- -------- --------
Gross profit 303,792 229,952 194,682
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 186,572 139,135 115,307
LICENSING INCOME (13,036) (10,314) (8,487)
---------- -------- --------
Income from operations 130,256 101,131 87,862
INTEREST EXPENSE 3,040 1,908 1,212
INTEREST INCOME (547) (445) (695)
---------- -------- --------
Income before provision for
income taxes 127,763 99,668 87,345
PROVISION FOR INCOME TAXES 46,889 36,183 32,425
---------- -------- --------
NET INCOME $ 80,874 $ 63,485 $ 54,920
========== ======== ========
EARNINGS PER SHARE
Primary $1.51 $1.20 $1.04
Fully diluted $1.50 $1.19 $1.04
WEIGHTED AVERAGE COMMON SHARES AND SHARE
EQUIVALENTS OUTSTANDING
Primary 53,665 53,046 52,924
Fully diluted 54,077 53,458 52,925
</TABLE>
See accompanying notes to consolidated financial statements
- 22 -
<PAGE> 23
Jones Apparel Group, Inc.
Consolidated Statements of Stockholders' Equity
(All amounts in thousands)
<TABLE>
<CAPTION>
Cumulative
foreign
currency
trans- Total
Additional lation stock-
Common paid-in Retained adjust- Treasury holders'
stock capital earnings ments stock equity
---- ------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994 $256 $71,688 $117,996 $ (820) $ - $189,120
YEAR ENDED DECEMBER 31, 1994:
Executive stock
options issued - 428 - - - 428
Recognition of deferred
compensation in
connection with
executive stock options - (428) - - - (428)
Amortization of deferred
compensation of
executive stock options
outstanding - 274 - - - 274
Net income - - 54,920 - - 54,920
Exercise of stock options 3 1,620 - - - 1,623
Tax benefit derived from
exercise of stock options - 3,129 - - - 3,129
Foreign currency
translation adjustments - - - (388) - (388)
---- ------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1994 259 76,711 172,916 (1,208) - 248,678
YEAR ENDED DECEMBER 31, 1995:
Amortization of deferred
compensation in
connection with
executive stock options - 232 - - - 232
Net income - - 63,485 - - 63,485
Exercise of stock options 4 4,730 (83) - 168 4,819
Tax benefit derived from
exercise of stock options - 2,499 - - - 2,499
Stock tendered as payment
for options exercised - - - - (168) (168)
Treasury stock acquired - - - - (4,638) (4,638)
Foreign currency
translation adjustments - - - 68 - 68
---- ------- -------- ------- ------- --------
BALANCE, DECEMBER 31, 1995 263 84,172 236,318 (1,140) (4,638) 314,975
YEAR ENDED DECEMBER 31, 1996:
Executive stock
options issued - 274 - - - 274
Recognition of deferred
compensation in
connection with
executive stock options - (274) - - - (274)
Amortization of deferred
compensation in
connection with
executive stock options - 290 - - - 290
Net income - - 80,874 - - 80,874
Exercise of stock options 6 9,825 - - - 9,831
Tax benefit derived from
exercise of stock options - 5,157 - - - 5,157
Stock tendered as payment
for options exercised - - - - (763) (763)
Treasury stock acquired - - - - (33,584) (33,584)
Effect of 2-for-1
stock split 267 (267) - - - -
Registration of 1996
Stock Option Plan - (37) - - - (37)
Foreign currency
translation adjustments - - - (14) - (14)
---- ------- -------- ------- -------- --------
BALANCE, DECEMBER 31, 1996 $536 $99,140 $317,192 $(1,154) $(38,985) $376,729
==== ======= ======== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
- 23 -
<PAGE> 24
Jones Apparel Group, Inc.
Consolidated Statements of Cash Flows
(All amounts in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $80,874 $63,485 $54,920
------- ------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 8,948 6,724 4,192
Provision for losses on trade receivables 800 (464) (355)
Deferred taxes 7,233 7,622 3,038
Other 416 40 390
Decrease (increase) in:
Trade receivables (21,349) (17,873) (27,200)
Inventories (37,814) (53,077) (23,326)
Prepaid expenses and other current assets 10,624 (10,746) (4,656)
Other assets (3,703) (5,027) (2,416)
Increase (decrease) in:
Accounts payable 13,498 13,371 3,668
Taxes payable 6,673 4,116 1,775
Accrued expenses and other
current liabilities 4,492 768 (1,187)
------- ------- -------
Total adjustments (10,182) (54,546) (46,077)
------- ------- -------
Net cash provided by operating activities 70,692 8,939 8,843
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (34,066) (16,013) (9,490)
Proceeds from disposition of assets 261 635 3
Acquisition of trademarks and licenses (1,492) (28) (78)
Acquisition of minority interest in
Fashion Enterprises, Inc. - - (4,694)
------- ------- -------
Net cash used in investing activities (35,297) (15,406) (14,259)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt and
capital leases (2,623) (2,606) (1,760)
Purchases of treasury stock (33,584) (4,638) -
Proceeds from capital leases 5,000 5,000 -
Proceeds from exercise of stock options 9,068 4,651 1,623
Other (37) - -
------- ------- -------
Net cash provided by (used in)
financing activities (22,176) 2,407 (137)
------- ------- -------
EFFECT OF EXCHANGE RATES ON CASH 2 (202) (331)
------- ------- -------
NET INCREASE (DECREASE) IN CASH 13,221 (4,262) (5,884)
CASH AND CASH EQUIVALENTS, BEGINNING 16,864 21,126 27,010
------- ------- -------
CASH AND CASH EQUIVALENTS, ENDING $30,085 $16,864 $21,126
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements
- 24 -
<PAGE> 25
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of Jones Apparel
Group, Inc. and its wholly-owned subsidiaries (collectively, the "Company").
All significant intercompany balances and transactions have been eliminated.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist principally of temporary cash, cash equivalents and
accounts receivable. The Company places its cash and cash equivalents in
investment-grade, short-term debt instruments with quality financial
institutions and the U.S. Government and, by policy, limits the amount of
credit exposure in any one financial vehicle. The Company performs ongoing
credit evaluations of its customers' financial condition and, generally,
requires no collateral from its customers. The allowance for non-collection
of accounts receivable is based upon the expected collectibility of
all accounts receivable.
Financial Instruments
The fair value of cash and cash equivalents and receivables approximate their
carrying value due to their short-term maturities.
Inventories
Inventories are stated at the lower of cost or market. Wholesale inventories
are determined using the first-in, first-out method while retail inventories
are determined using the retail method.
Property, Plant, Equipment and Depreciation
Depreciation and amortization are computed by the straight-line method over
the estimated useful lives of the assets ranging from five to eight years.
Leased Property Under Capital Leases
Property under capital leases is amortized over the lives of the respective
leases or the estimated useful lives of the assets.
Intangibles
Intangibles, which include trademarks and license agreements, are amortized
on a straight-line basis over the estimated useful lives of the assets.
Startup Costs
Costs incurred in the startup phase of new labels are capitalized and
amortized over a period of 18 months beginning in the period with initial
shipments of products bearing the label.
Excess of Net Assets Acquired Over Cost
The excess of net assets acquired over cost of acquired businesses is
amortized using the straight-line method over a five year period.
- 25 -
<PAGE> 26
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Foreign Currency Translation
The financial statements of the foreign subsidiaries are translated into U.S.
dollars in accordance with Statement of Financial Accounting Standards No. 52,
"Foreign Currency Translations." Balance sheet accounts are translated at the
current exchange rate and income statement items are translated at the average
exchange rate for the period. Gains and losses resulting from the translation
are accumulated in a separate component of stockholders' equity. Segment data
is not provided as foreign operations are not material.
Treasury Stock
Treasury stock is recorded at net acquisition cost. Gains and losses on
disposition are recorded as increases or decreases to capital with losses in
excess of previously recorded gains charged directly to retained earnings.
Revenue Recognition
Sales are recognized upon shipment of products or, in the case of retail
sales, at the time of register receipt. Allowances for estimated returns are
provided when sales are recorded.
Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Current tax assets and liabilities are recognized for the estimated
Federal, foreign, state and local income taxes payable or refundable on the tax
returns for the current year. Deferred tax assets and liabilities are
recognized for the expected future tax consequences of temporary timing
differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Deferred income tax provisions are based
on the changes to the respective assets and liabilities from period to period.
Stock Options
The Company uses the intrinsic value method of accounting for employee stock
options as permitted by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation." Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount the employee must
pay to acquire the stock. The compensation cost is recognized over the vesting
period of the options.
Earnings per Share
The computation of earnings per share is based on the weighted average number
of common shares outstanding during the period plus, in periods in which they
have a dilutive effect, the effect of common shares issuable upon exercise of
stock options. Fully diluted earnings per share also reflect additional
dilution related to stock options due to the use of the market price at the
end of the period when this price is higher than the average market price for
the period.
Cash Equivalents
The Company considers all highly liquid debt instruments to be cash
equivalents.
Long-Lived Assets
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of" in 1996. The Company reviews certain long-lived assets and
identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable.
In that regard, the Company assesses the recoverability of such assets based
upon estimated non-discounted cash flow forecasts.
- 26 -
<PAGE> 27
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 2. COMMON STOCK
On July 30, 1996, the Company's Board of Directors approved a two-for-one
stock split of the Company's Common Stock in the form of a 100% stock
dividend for shareholders of record as of September 12, 1996. Concurrently,
the number of authorized shares of Common Stock was increased to 100,000,000.
On October 2, 1996, a total of 26,744,580 shares of Common Stock were issued in
connection with the split. The stated par value of each share remained at
$0.01. The issuance of authorized but unissued shares resulted in the transfer
of $267,000 from additional paid-in capital to common stock, representing the
par value of the shares issued. All share and per share amounts have been
restated to retroactively reflect the stock split.
NOTE 3. ACQUISITIONS
On November 8, 1993, the Company acquired 80% ownership of Fashion
Enterprises, Inc. ("FEI") as a result of a reorganization plan confirmed by
the U.S. Bankruptcy Court for the Western District of Texas. FEI operates as
an exclusive manufacturing contractor for the Company. FEI was located in El
Paso, Texas with two manufacturing facilities in Ciudad de Juarez, Mexico.
The Company acquired its 80% ownership in satisfaction of a $410,000 advance
that had been made to FEI prior to bankruptcy and its agreement to finance FEI's
reorganization plan with up to $650,000 in loans. The acquisition was accounted
for as a purchase with the results of FEI included from the acquisition date.
In connection with the FEI acquisition, the Company recorded a deferred tax
asset for the tax effect of FEI's net operating loss carryforward, which was
completely utilized by December 31, 1996. The acquisition of FEI and its net
operating losses resulted in an excess of net assets acquired over cost of
$15,336,000 after application to all noncurrent assets acquired. This amount
is being amortized on a straight-line basis over five years from the date of
acquisition.
On December 15, 1994, the Company acquired the remaining 20% of FEI for
$4,694,000 in cash. The acquisition of this minority interest reduced the
recorded excess of net assets acquired over cost by $4,755,000. On December
31, 1994, FEI was merged with and into the Company.
NOTE 4. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
(In thousands) -------- --------
<S> <C> <C>
Raw materials $ 38,571 $ 36,908
Work in process 37,682 30,872
Finished goods 138,184 108,846
-------- --------
$214,437 $176,626
======== ========
</TABLE>
- 27 -
<PAGE> 28
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 5. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31, 1996 1995
(In thousands) -------- --------
<S> <C> <C>
Land and buildings $ 36,763 $ 13,839
Leasehold improvements 24,712 19,424
Machinery and equipment 25,340 16,203
Furniture and fixtures 6,932 5,197
Construction in progress 1,076 7,379
-------- --------
94,823 62,042
Less: accumulated depreciation and amortization 33,127 25,385
-------- --------
$ 61,696 $ 36,657
======== ========
</TABLE>
Included in property, plant and equipment are the following capitalized
leases:
<TABLE>
<CAPTION>
December 31, 1996 1995
(In thousands) -------- --------
<S> <C> <C>
Buildings $ 31,006 $ 13,839
Machinery and equipment 3,538 3,186
Construction in progress - 6,733
-------- --------
34,544 23,758
Less: accumulated amortization 10,243 8,394
-------- --------
$ 24,301 $ 15,364
======== ========
</TABLE>
NOTE 6. SHORT-TERM BORROWINGS
At December 31, 1996, the Company had credit arrangements with six United
States financial institutions which totalled $330,000,000. These lines,
which may be used for unsecured borrowings and letters of credit (issued
primarily to finance foreign inventory purchases), contain an aggregate
sub-limit of $190,000,000 for unsecured borrowings with rates depending on
the borrowing vehicle utilized. At December 31, 1996, the estimated
aggregate interest rate on the lines was 7.25%. The Company was committed
for unexpired bank letters of credit at December 31, 1996 in the amount of
$100,124,000 and there were no short-term borrowings outstanding, leaving
$229,876,000 available for additional borrowings or letters of credit at
that date. The Company also has a line of credit with a Canadian institution
for C$4,000,000 to be used for unsecured borrowings under which no amounts
were outstanding at December 31, 1996.
- 28 -
<PAGE> 29
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 7. OBLIGATIONS UNDER CAPITAL LEASES
Obligations under capital leases consist of the following:
<TABLE>
<CAPTION>
December 31, 1996 1995
(In thousands) -------- --------
<S> <C> <C>
Warehouses, office facility and equipment $ 15,160 $ 12,358
Less: current portion 3,026 2,256
-------- --------
Obligations under capital leases - noncurrent $ 12,134 $ 10,102
======== ========
</TABLE>
The Company occupies a warehouse and office facility leased from an
affiliated real estate partnership which is 50% owned by the Company's Chairman.
The fifteen year net lease runs until March 15, 1998 and requires minimum annual
rent payments of $1,000,000. The lease was capitalized at the fair market value
of the facility which approximated the present value of the minimum lease
payments.
The Company occupies warehouse and office facilities leased from the City of
Lawrenceburg, Tennessee. Three ten-year net leases run until February 2004,
July 2005 and May 2006, respectively, and require minimum annual rent payments
of $500,000 each plus accrued interest. In connection with these leases, the
Company guaranteed $15,000,000 of Industrial Development Bonds issued in order
to construct the facilities, $12,583,000 of which remained unpaid as of
December 31, 1996. The financing agreement with the issuing authority (i)
requires the Company to maintain stipulated levels of insurance and tangible
net worth, (ii) requires the Company to maintain minimum ratios of cash flow
to debt service and liabilities to tangible net worth and (iii) contains
certain other restrictions.
The Company also leases various equipment under three to five year leases
at an aggregate annual rental of $671,000. The equipment has been capitalized
at its fair market value of $2,429,000, which approximates the present value of
the minimum lease payments.
The following is a schedule by year of future minimum lease payments under
capital leases, together with the present value of the net minimum lease
payments as of December 31, 1996:
<TABLE>
<CAPTION>
Year Ending December 31,
(In thousands)
<S> <C>
1997 $ 3,996
1998 2,885
1999 2,601
2000 2,012
2001 1,910
Later years 5,853
------
Total minimum lease payments 19,257
Less: amount representing interest 4,097
-------
Present value of net minimum lease payments $15,160
=======
</TABLE>
- 29 -
<PAGE> 30
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 8. COMMITMENTS
(a) LEASES. Total rent expense charged to operations for the years ended
December 31, 1996, 1995 and 1994 was $18,888,000, $15,359,000 and $11,155,000,
respectively.
The following is a schedule by year of future minimum rental payments required
under operating leases for the next five years:
<TABLE>
<CAPTION>
Year Ending December 31,
(In thousands)
<S> <C>
1997 $ 15,580
1998 14,365
1999 13,210
2000 11,012
2001 9,347
Later years 5,859
--------
$ 69,373
========
</TABLE>
Certain of the leases provide for renewal options and the payment of real
estate taxes and other occupancy costs.
(b) CONTINGENT LIABILITIES. Various lawsuits and claims arising during the
normal course of business are pending against the Company and its consolidated
subsidiaries. In the opinion of management, the ultimate liability, if any,
resulting from these matters will have no significant effect on the Company's
consolidated financial position, results of operations or liquidity.
(c) ROYALTIES. Under an exclusive license to manufacture certain items
under the Lauren Ralph Lauren trademark pursuant to license and design service
agreements with Polo Ralph Lauren, L.P., the Company is obligated to pay Polo
Ralph Lauren, L.P. a percentage of net sales of Lauren Ralph Lauren products.
Under these agreements, minimum payments of $7,000,000 are due for each of the
years 2000 and 2001. The license and design service agreements expire on
December 31, 2001 and provide for certain renewal options at that time.
- 30 -
<PAGE> 31
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 9. INCOME TAXES
The following summarizes the provision for income taxes:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Current:
Federal $ 34,522 $ 23,236 $ 25,528
State and local 3,733 3,030 2,545
Foreign 1,401 2,295 1,314
-------- -------- --------
39,656 28,561 29,387
-------- -------- --------
Deferred:
Federal 7,722 7,653 2,774
State and local (489) (31) 264
-------- -------- --------
7,233 7,622 3,038
-------- -------- --------
Provision for income taxes $ 46,889 $ 36,183 $ 32,425
======== ======== ========
</TABLE>
The foreign and domestic components of income before provision for income
taxes were as follows:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
(In thousands) -------- -------- --------
<S> <C> <C> <C>
United States $125,650 $ 94,224 $ 84,164
Canada 2,378 2,666 1,516
Other (265) 2,778 1,665
-------- -------- --------
Income before provision for
income taxes $127,763 $ 99,668 $ 87,345
======== ======== ========
</TABLE>
The provision for income taxes on adjusted historical income differs from the
amounts computed by applying the applicable Federal statutory rates due to the
following:
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
(In thousands) -------- -------- --------
<S> <C> <C> <C>
Provision for Federal income taxes
at the statutory rate $ 44,717 $ 34,884 $ 30,571
State and local income taxes, net
of federal benefit 2,108 1,949 2,449
Amortization of excess of net
assets acquired over cost (645) (645) (1,056)
Other items, net 709 (5) 461
-------- -------- --------
Provision for income taxes $ 46,889 $ 36,183 $ 32,425
======== ======== ========
</TABLE>
- 31 -
<PAGE> 32
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
The Company has not provided for U.S. Federal and foreign withholding taxes on
$1,545,000 of foreign subsidiaries' undistributed earnings as of December 31,
1996. Such earnings are intended to be reinvested indefinitely. It is not
practical to determine the amount of income tax liability that would have
resulted had such earnings been actually repatriated. On repatriation certain
foreign countries impose withholding taxes. The amount of withholding tax that
would be payable on remittance of the entire amount of undistributed earnings
would approximate $85,000.
The following is a summary of the significant components of the Company's
deferred tax assets and liabilities:
<TABLE>
<CAPTION>
December 31, 1996 1995
(In thousands) -------- --------
<S> <C> <C>
Deferred tax assets:
Nondeductible accruals and allowances $ 8,009 $ 1,860
Operating loss carryforwards - 10,670
Depreciation and amortization 1,118 (25)
Other (net) 1,042 (120)
-------- --------
Net deferred tax asset $ 10,169 $ 12,385
======== ========
</TABLE>
NOTE 10. INTANGIBLE ASSETS
Intangible assets consist of trademarks and license agreements. Intangibles
are amortized on a straight-line basis over their estimated lives, which
vary from 1-1/2 to 20 years. Trademarks and license agreements as of December
31, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
Useful
lives
December 31, 1996 1995 (years)
(In thousands) -------- -------- -----------
<S> <C> <C> <C>
Trademarks $ 26,865 $ 25,373 20
License agreements 5,319 5,319 1-1/2 to 19
-------- --------
32,184 30,692
Less: accumulated amortization 5,896 4,107
-------- --------
$ 26,288 $ 26,585
======== ========
</TABLE>
- 32 -
<PAGE> 33
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 11. SIGNIFICANT CUSTOMERS
The significant portion of the Company's sales are to retailers throughout the
United States and Canada. Sales to nine department store customers currently
owned by the Federated Department Stores, Inc. ("Federated") accounted for
20%, 21% and 20% for the years ended December 31, 1996, 1995 and 1994,
respectively. Sales to eight department store customers currently owned by
the May Department Stores Company ("May") accounted for 20%, 19% and 19% for
the years ended December 31, 1996, 1995 and 1994, respectively. Federated and
May accounted for 42% of accounts receivable at December 31, 1996.
NOTE 12. COMMON STOCK REPURCHASE PROGRAM
In 1995, the Board of Directors authorized the repurchase of up to
$100,000,000 of the Company's Common Stock in open market transactions over
a two-year period ending in December, 1997. As of December 31, 1996,
1,572,200 shares had been acquired at a total cost of $38,222,000, leaving
$61,778,000 available for future repurchases.
NOTE 13. STOCK OPTIONS
At December 31, 1996, the Company has two stock option plans, which are
described below. The Company applies APB Opinion 25, "Accounting for Stock
Issued to Employees," and related Interpretations in accounting for the plans.
Under APB Opinion 25, when the exercise price of the Company's employee stock
options equals the market price of the underlying stock on the date of grant, no
compensation cost is recognized.
Under the Company's 1991 and 1996 Stock Option Plans, options to purchase an
aggregate of not more than 5,000,000 shares and 4,000,000 shares, respectively,
of common stock may be granted from time to time to key employees, officers,
directors, advisors and independent consultants to the Company or to any of its
subsidiaries. The Plans are administered by the Board of Directors, which has
empowered a committee of directors to administer the Plans.
Under both plans, the per share exercise price for incentive stock options
("ISOs") will not be less than 100% of the fair market value of a share of the
common stock on the date the option is granted (110% of fair market value on
the date of grant of an ISO if the optionee owns more than 10% of the Company).
Under the 1991 Plan, the per share exercise price for non-qualified stock
options ("NQSOs") will not be less than 75% of the fair market value on the
date the option is granted. The 1996 Plan has no restrictions on NQSO
pricing. Under the 1991 Plan, options may be granted for a term to be
determined by the committee of not less than one or more than ten years from
the date of grant; under the 1996 Plan, options may be granted for a term
of not less than six months or more than ten years from the date of grant.
FASB Statement 123, "Accounting for Stock-Based Compensation," requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value-based method prescribed in FASB
Statement 123. The Company estimates the fair value of each stock option at
the grant date by using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in 1995 and 1996,
respectively: no dividends paid for all years; expected volatility of 40.7%
and 38.9%; risk-free interest rates of 6.16% and 6.20%; and expected lives of
3.0 and 3.0 years.
- 33 -
<PAGE> 34
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
Under the accounting provisions of FASB Statement 123, the Company's net
income and earnings per share would have been reduced to the pro forma amounts
indicated in the following table.
<TABLE>
<CAPTION>
December 31, 1996 1995
------- -------
<S> <C> <C>
Net income (in thousands)
As reported $80,874 $63,485
Pro forma 79,074 63,387
Primary earnings per share
As reported $1.51 $1.20
Pro forma $1.47 $1.19
Fully diluted earnings per share
As reported $1.50 $1.19
Pro forma $1.46 $1.19
</TABLE>
The following table contains information on stock options for the three year
period ended December 31, 1996:
<TABLE>
<CAPTION>
Exercise Weighted
Option price range average
shares per share price
--------- ------------------ --------
<S> <C> <C> <C>
Outstanding, January 1, 1994 5,038,200 $0.40 to $16.125 $7.59
Granted 1,274,000 $12.00 to $17.125 $12.76
Exercised 660,500 $0.40 to $11.25 $2.46
Forfeited 1,925,334 $0.40 to $17.125 $8.79
--------- ------------------ --------
Outstanding, December 31, 1994 3,726,366 $0.40 to $16.125 $9.65
Granted 180,000 $12.00 to $17.75 $14.28
Exercised 777,766 $0.40 to $14.25 $6.20
Forfeited 78,000 $7.00 to $16.125 $13.63
--------- ------------------ --------
Outstanding, December 31, 1995 3,050,600 $0.40 to $17.75 $10.71
Granted 2,166,000 $14.715 to $34.375 $24.53
Exercised 1,031,230 $0.40 to $14.5625 $9.53
Forfeited 76,200 $7.00 to $24.00 $16.80
--------- ------------------ --------
Outstanding, December 31, 1996 4,109,170 $0.40 to $34.375 $18.17
========= ================== ========
Exercisable at year-end
1994 941,966 $0.40 to $16.125 $6.20
1995 980,400 $0.40 to $15.0625 $8.93
1996 733,770 $0.40 to $17.50 $9.56
</TABLE>
<TABLE>
<CAPTION>
1991 Plan 1996 Plan
--------- ---------
<S> <C> <C>
Available for future grants
1994 1,040,334 -
1995 938,334 -
1996 49,534 2,799,000
</TABLE>
- 34 -
<PAGE> 35
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
<TABLE>
<CAPTION>
Exercise price Exercise price Total
less than market equal to market options
---------------- --------------- -------
<S> <C> <C> <C>
Weighted-average fair value of:
Options granted in 1995 - $4.74 $4.74
Options granted in 1996 $8.46 $8.00 $8.01
</TABLE>
The following table summarizes information about stock options outstanding at
December 31, 1996.
<TABLE>
<CAPTION>
Range of exercise prices: $0.40 $11.25 $21.125 $32.625 $0.40
to to to to to
$9.50 $19.625 $24.75 $34.375 $34.375
-------- --------- --------- ------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding Options
Number outstanding
at December 31, 1996 450,600 1,663,570 1,755,000 240,000 4,109,170
Weighted-average remaining
contractual life (years) 5.5 8.5 10.6 10.4 9.2
Weighted-average
exercise price $6.30 $13.13 $23.98 $23.80 $18.17
Exercisable options
Number outstanding
at December 31, 1996 280,600 453,170 - - 733,770
Weighted-average
exercise price $4.59 $12.63 - - $9.56
</TABLE>
NOTE 14. EMPLOYEE BENEFIT PLAN
The Company maintains the Jones Apparel Group, Inc. Retirement Plan (the
"Plan") under Section 401(k) of the Internal Revenue Code. Full-time employees
not covered by a collective bargaining agreement and meeting certain other
requirements are eligible to participate in the Plan. Under the Plan,
employees may elect to have up to 15% of their salary deferred and deposited
with a qualified trustee, who in turn invests the money in a variety of
investment vehicles as selected by each employee. From July 1, 1991 through
March 31, 1994, the Company matched 25% of each participant's contributions
with the Company's contribution limited to a maximum of 1% of the employee's
total compensation subject to limitations imposed by the Internal Revenue
Code. On April 1, 1994, these amounts were increased to 30% and 1.8%,
respectively, for employees earning less than $150,000 per year. On April 1,
1996, the contribution rates were increased to 50% and 3.0%, respectively, for
employees earning less than $150,000 per year and 35% and 2.1%, respectively,
for employees earning over $150,000 per year. The Company may, at its sole
discretion, contribute additional amounts to all employees on a pro rata basis.
All employee contributions into the Plan are 100% vested, while the Company's
matching contributions vest over a five year period. The Company contributed
approximately $801,000, $369,000 and $292,000 to the Plan during the years
ended December 31, 1996, 1995 and 1994, respectively.
- 35 -
<PAGE> 36
Jones Apparel Group, Inc.
Notes to Consolidated Financial Statements (Continued)
NOTE 15. STATEMENT OF CASH FLOWS
Cash interest payments during the years ended December 31, 1996, 1995 and
1994 were $3,207,000, $2,118,000 and $1,279,000, respectively.
Cash income tax payments during the years ended December 31, 1996, 1995 and
1994 were $32,110,000, $23,068,000 and $26,459,000, respectively.
Equipment acquired through capital lease financing during the years ended
December 31, 1996, 1995 and 1994 amounted to $353,000, $216,000 and $381,000,
respectively.
Reductions in income tax payments resulting from the exercise of employee
stock options during the years ended December 31, 1996, 1995 and 1994 were
$5,157,000, $2,499,000 and $3,129,000, respectively.
Under the provisions of the Company's 1991 Stock Option Plan, employees
exercising stock options during the year ended December 31, 1996 exchanged
28,000 shares of the Company's Common Stock (valued at $763,000) for 67,430
newly issued shares and during the year ended December 31, 1995 exchanged
11,536 shares of the Company's Common Stock (valued at $168,000) for 24,000
newly issued shares.
NOTE 16. UNAUDITED CONSOLIDATED FINANCIAL INFORMATION
Unaudited interim consolidated financial information for the two years
ended December 31, 1996 is summarized as follows (earnings per share are
fully diluted where applicable):
<TABLE>
<CAPTION>
First Second Third Fourth
(In thousands except per share data) Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
1996
Net sales $260,350 $193,275 $309,019 $258,398
Gross profit 72,793 61,032 95,497 74,470
Income from operations 32,652 21,534 49,788 26,282
Net income 20,339 13,338 30,878 16,319
Earnings per share $0.38 $0.25 $0.58 $0.30
1995
Net sales $191,987 $156,303 $243,505 $184,570
Gross profit 59,037 48,994 69,376 52,545
Income from operations 27,092 17,365 38,159 18,515
Net income 16,728 10,720 23,978 12,059
Earnings per share $0.32 $0.20 $0.45 $0.22
</TABLE>
- 36 -
<PAGE> 37
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors and Executive Officers
The directors and executive officers of the Company are as follows:
Name Age Office
- -------------- --- -------------------------------------
Sidney Kimmel 69 Chairman and Director
Herbert J. Goodfriend 70 Vice Chairman and Director
Jackwyn Nemerov 45 President
Irwin Samelman 66 Executive Vice President, Marketing
and Director
Wesley R. Card 49 Chief Financial Officer
Gary R. Klocek 46 Controller
Geraldine Stutz 68 Director
Howard Gittis 63 Director
Prior to February 11, 1997, each director who was not a full-time employee
of the Company received an annual retainer of $20,000 for services as a
director plus $1,500 for each board and separate committee meeting attended
during the year. Effective February 11, 1997, each director who is not a
full-time employee of the Company will receive an annual grant of options to
purchase 1,000 shares of the Company's common stock at an exercise price of
$1.00 per share. Each option will expire on the tenth anniversary of its date
of grant, and will be exercisable, in whole or in part, during the exercise
period. Officers are appointed by the Board of Directors.
The Board of Directors has appointed an Audit Committee consisting of Ms.
Stutz and Mr. Gittis. The Audit Committee meets periodically to review and
make recommendations with respect to the Company's internal controls and
financial reports, and in connection with such reviews, has met with
appropriate Company financial personnel and the Company's independent
certified public accountants. The Board of Directors has also appointed a
Stock Option Committee consisting of Ms. Stutz and Mr. Gittis to administer
the 1991 and 1996 Stock Option Plans and a Compensation Committee consisting
of Ms. Stutz and Mr. Gittis to determine cash and other incentive compensation
to be paid to the Company's executive officers.
- 37 -
<PAGE> 38
Mr. Kimmel founded the Jones Apparel Division of W.R. Grace & Co. in 1970.
Mr. Kimmel has served as Chairman since 1975. Prior to 1975, Mr. Kimmel
occupied various executive offices including President of Jones New York and
Vice President of John Meyer of Norwich. Prior to founding Jones, Mr. Kimmel
was employed by W.R. Grace & Co. and was President of Villager, Inc., a
sportswear company.
Mr. Goodfriend joined the Company in 1990 after serving as the Company's legal
counsel for the previous three years and has served as a director since July
1991. Before joining Jones, Mr. Goodfriend served as a director of Villager,
Inc. and Venice Industries, Inc. In addition, Mr. Goodfriend is engaged in the
practice of law and is of counsel to the firm of Phillips Nizer Benjamin Krim &
Ballon LLP, which performs legal services for the Company.
Ms. Nemerov was appointed President in January 1997. She joined the Company
in 1985 and served as President of the Company's casual sportswear divisions
and the Lauren Ralph Lauren division. Prior to joining Jones, Ms. Nemerov was
President of the Gloria Vanderbilt division of Murjani, Inc. from 1980 through
1985.
Mr. Samelman has been Executive Vice President, Marketing of the Company
since 1991 and has served as a director since July 1991. In addition, from 1987
to 1991, Mr. Samelman provided marketing consulting services to the Company
through Samelman Associates, Inc., a private consulting company controlled by
him. Prior thereto, Mr. Samelman was Regional Marketing Manager of Russ Togs,
Inc. and Vice President of Villager, Inc.
Mr. Card joined the Company in 1990. Prior to joining Jones, Mr. Card held
the positions of Executive Vice President and Chief Financial Officer of
Carolyne Roehm, Inc., and Corporate Vice President, Controller and Assistant
Secretary of Warnaco, Inc.
Mr. Klocek has been Controller of the Company since August 1987. Prior to
joining Jones, Mr. Klocek held various positions with Atlantic Richfield
Company ("ARCO") from 1979 through 1987, his last position being Manager of
Cost and Inventory Control for one of ARCO's subsidiaries.
Ms. Stutz has been a director of the Company since July 1991. Since 1993,
Ms. Stutz has been a principal partner of Panache Productions, a fashion and
marketing service. During the previous five years, she was Publisher of Panache
Press at Random House, a book publisher. From 1960 until 1986, Ms. Stutz was
President of Henri Bendel. Ms. Stutz serves on the Board of Directors of
Tiffany & Co., The Theatre Development Fund and The Actors' Fund.
Mr. Gittis has been a director of the Company since April 1992. During the
past five years, Mr. Gittis' principal occupation has been Director and Vice
Chairman of MacAndrews & Forbes Holdings Inc., a diversified holding company.
In addition, Mr. Gittis is a director of Andrews Group Incorporated, California
Federal Bank, a Federal Savings Bank, Consolidated Cigar Corporation,
Consolidated Cigar Holdings Inc., First Nationwide Holdings Inc., First
Nationwide (Parent) Holdings Inc., Loral Space and Communications Ltd.,
Mafco Consolidated Group Inc., Pneumo Abex Corporation, Power Control
Technologies, Inc., Revlon, Inc., Revlon Consumer Products Corporation,
Revlon Worldwide Corporation and Rutherford-Moran Oil Corporation.
Key Employees
The following persons, although not executive officers of the Company, make
significant business contributions to the Company:
- 38 -
<PAGE> 39
Rena Rowan was the original creator of the Jones New York line and served as
the division's Chief Designer from 1970 to 1982. She is currently Vice
President, Design of the Company. From 1991 to 1993 Ms. Rowan was an executive
vice president of the Company. Prior to the inception of Jones New York, Ms.
Rowan was employed by Villager, Inc. and Rosenau, Inc.
Howard Buerkle has been President of Retail Operations for the Company since
1989. From 1986 through 1989, Mr. Buerkle was President of the retail division
of Inwear/Martinique.
Ellen Daniel joined Jones in 1994 in the dual capacity of Senior Vice
President - Corporate Merchandising Manager and President of Evan-Picone
division. From 1982 through 1994, Ms. Daniel was employed by Liz Claiborne,
most recently as Senior Vice President - Corporate Design Director.
Ira Dansky joined the Company in 1996 as General Counsel. Prior to joining
the Company, Mr. Dansky was engaged in private law practice from 1987 through
1996, prior to which he served as Associate General Counsel of Xerox
Corporation.
Ronald Harrison, Vice President of Manufacturing, joined the Company in 1981.
Mr. Harrison had been Plant Manager for Chief Apparel, Inc. from 1965 through
1981.
Barbara Kennedy has been President of the Jones New York Dress Division since
August 1991. From 1983 through August 1991, Ms. Kennedy was employed by
Bloomingdale's in various capacities, most recently as Vice President,
Merchandise Manager.
Robert Kutner, President of Jones Apparel Group Canada, Inc., joined the
Company in 1983. Prior to 1983, Mr. Kutner was employed by Highland Queen Corp.
Jeffrey Levy, President of Rena Rowan for Saville, joined the Company in 1990.
Prior to joining Jones, Mr. Levy was Vice President of Sales and National Sales
Manager, of Russ Togs, Inc. from 1984 through 1990.
Benny Lin joined Jones Apparel Group in December 1995 as Creative Director of
the Lauren Ralph Lauren division. Mr. Lin had been Fashion Director at Macy's
East prior to joining the Company.
Martin Marlowe joined Jones Apparel Group in 1992 as Vice President of Foreign
Manufacturing. Prior to joining Jones, Mr. Marlowe was President of Jodi
International, an apparel importer, from 1988 to 1992.
Helen Merril, President of the Evan-Picone Dress Divisions, joined Jones
Apparel Group in October 1993. Prior to joining the Company, Ms. Merril held
the positions of President of Scassi Dress of De Peche Corporation and President
of Nippon Boutique of Albert Nippon Inc.
Susan Metzger, Vice President of Sales for the Lauren Ralph Lauren division,
joined the Company in May 1996. Prior to joining Jones Apparel Group, Ms.
Metzger held the positions of Vice President of Sales of Chaus, Inc. and Sales
Manager of JH Collectibles.
Deanna Randall, who joined the Company in 1981, has held various sales and
marketing positions with the Company, and is currently President of the Jones
New York career division.
John Sammaritano, Vice President of Distribution, joined Jones in 1975. Mr.
Sammaritano had been Vice President of Distribution for Villager, Inc. from 1964
through 1975.
- 39 -
<PAGE> 40
ITEM 11. EXECUTIVE COMPENSATION
The information appearing in the Proxy Statement under the captions "EXECUTIVE
COMPENSATION" and "EMPLOYMENT AND COMPENSATION ARRANGEMENTS" is incorporated
herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information appearing in the Proxy Statement under the caption
"SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS" is incorporated herein
by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information appearing in the Proxy Statement under the captions "CERTAIN
TRANSACTIONS" and "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION"
are incorporated herein by this reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this report:
1. The schedule and report of independent certified public
accountants thereon, listed on the Index to Financial Statement
Schedules attached hereto.
2. The Exhibits, which are listed on the Exhibit Index
attached hereto.
(b) No reports on Form 8-K were filed by the registrant during the
last quarter of the period covered by this report.
- 40 -
<PAGE> 41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this Amendment to the
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated: October 13, 1997
JONES APPAREL GROUP, INC.
(Registrant)
By: /s/ Sidney Kimmel
-------------------------
Sidney Kimmel, Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
- ----------------------- --------------------------- --------------
/s/ Sidney Kimmel Chairman and Director October 13, 1997
- ----------------- (Chief Executive Officer)
(Sidney Kimmel)
/s/ Wesley R. Card Financial Officer October 13, 1997
- ------------------ (Principal Financial Officer)
(Wesley R. Card)
/s/ Gary R. Klocek Controller October 13, 1997
- ------------------ (Principal Accounting Officer)
(Gary R. Klocek)
/s/ Herbert J. Goodfriend Vice Chairman and Director October 13, 1997
- -------------------------
(Herbert J. Goodfriend)
/s/ Irwin Samelman Executive Vice President, October 13, 1997
- ------------------ Marketing and Director
(Irwin Samelman)
/s/ Geraldine Stutz Director October 13, 1997
- -------------------
(Geraldine Stutz)
/s/ Howard Gittis Director October 13, 1997
- -----------------
(Howard Gittis)
- 41 -
<PAGE> 42
JONES APPAREL GROUP, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES
Report of Independent Certified Public Accountants on Schedule
Schedule II. Valuation and qualifying accounts
Schedules other than those listed above have been omitted since the
information is not applicable, not required or is included in the
respective financial statements or notes thereto.
EXHIBIT INDEX
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
* 3.1 Articles of Incorporation, as amended
(1) 3.1 3.3 By-Laws
(3) 3.3 3.4 Amendment to By-Laws
(1) 10.2 10.2 Lease Agreement between the Registrant and
Bristol Associates, L.P., re: 250 Rittenhouse
Circle
(1) 10.5 10.5 Form of 1991 Stock Option Plan +
(1) 10.7 10.7 Employment and Stock Option Agreements between
the Registrant and Herbert J. Goodfriend +
(2) 10.17 10.17 Note Agreement with The Industrial Development
Board of the City of Lawrenceburg, Tennessee
(2) 10.18 10.18 Industrial Development Board of the City of
Lawrenceburg Taxable Revenue Note, Series 1995
(2) 10.19 10.19 Lease agreement between the Registrant and the
Industrial Development Board of the City of
Lawrenceburg
(3) 10.20 10.20 Letter Agreement between the Registrant and
Philadelphia National Bank
(3) 10.21 10.21 Letter Agreement between the Registrant and
First Fidelity Bank
(3) 10.22 10.22 Letter Agreement between the Registrant and the
Bank of New York
- 42 -
<PAGE> 43
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
(3) 10.23 10.23 Letter Agreement between the Registrant and
Chase Manhattan Bank
(4) 10.24 10.24 Letter Agreement between the Registrant and
Chase Manhattan Bank
(4) 10.25 10.25 Letter Agreement between the Registrant and
Bank of Boston
(4) 10.26 10.26 Series 1996 Note Agreement with The Industrial
Development Board of the City of Lawrenceburg,
Tennessee
(4) 10.27 10.27 Industrial Development Board of the City of
Lawrenceburg Taxable Revenue Note, Series 1996
(4) 10.28 10.28 First Amendment to Lease Agreement between the
Registrant and the Industrial Development Board
of the City of Lawrenceburg
(4) 10.29 10.29 Agreement between the Registrant and Herbert J.
Goodfriend with respect to consulting services
following termination of employment +
* 10.30 Series 1996 Note Agreement with The Industrial
Development Board of the City of Lawrenceburg,
Tennessee
* 10.31 Industrial Development Board of the City of
Lawrenceburg Taxable Revenue Note, Series 1996
* 10.32 Lease Agreement between the Registrant and the
Industrial Development Board of the City of
Lawrenceburg
* 10.33 Form of 1996 Stock Option Plan +
* 10.34 Letter Agreement between the Registrant and
CoreStates Bank
* 10.35 Master Short Term Borrowing Agreement between
the Registrant and CoreStates Bank
* 10.36 Letter Agreement between the Registrant and
First Union Bank
* 10.37 Letter Agreement between the Registrant and the
Bank of New York
* 10.38 Letter Agreement between the Registrant and
Bank of Boston
* 10.39 Money Market Line Commercial Promissory Note
between the Registrant and Bank of Boston
* 10.40 License Agreement between the Registrant and
Polo Ralph Lauren, L.P., dated October 18,
1995#
- 42 -
<PAGE> 43
Incorporated
by Reference Exhibit
to Exhibit Nos. Description of Exhibit
- ------------ ------- ----------------------
* 10.41 Design Services Agreement between the Registrant
and Polo Ralph Lauren, L.P., dated October
18, 1995#
* 10.42 Lease Agreement between the Registrant and The
Shelton Companies
* 10.43 Letter Agreement between the Registrant and
Israel Discount Bank of New York
* 11 Computation of Earnings per Share
* 21 List of Subsidiaries
* 23 Consent of BDO Seidman, LLP
* 27 Financial Data Schedule. (Exhibit 27 is
submitted as an exhibit only in the electronic
format of this Annual Report on Form 10-K
submitted to the Securities and Exchange
Commission.)
____________________
* Filed herewith.
# Portions deleted pursuant to application for confidential treatment under
Rule 24B-2 of the Securities Exchange Act of 1934.
+ Management contract or compensatory plan or arrangement.
(1) Incorporated by Reference to the Company's Registration Statement on Form
S-1 (file No. 33-39742).
(2) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993.
(3) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1994.
(4) Incorporated by Reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995.
- 44 -
<PAGE> 45
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jones Apparel Group, Inc.
New York, New York
The audits referred to in our report dated February 7, 1997 relating to the
consolidated financial statements of Jones Apparel Group, Inc. and subsidiaries,
which is contained in Item 8 of Form 10-K, included the audit of the financial
statement schedule listed in the accompanying index for each of the three years
ended December 31, 1996. The financial statement schedule is the responsibility
of management. Our responsibility is to express an opinion on the financial
statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
February 7, 1997
- 45 -
<PAGE> 46
SCHEDULE II
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
(In Thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D
Column E
- ------------------------------- ---------- ------------------------- ----------
- ---------
Additions
-------------------------
Balance at Charged to Charged to
Balance
beginning costs and other Deductions at
end of
Description of period expenses accounts <F1>
period
- ------------ ---------- ---------- ----------- ----------
- ---------
<S> <C> <C> <C> <C> <C>
For the year ended
December 31, 1994:
Allowance for doubtful accounts $3,720 $(355) $ - $805
$2,560
For the year ended
December 31, 1995:
Allowance for doubtful accounts $2,560 $(464) $ - $(161)
$2,257
For the year ended
December 31, 1996:
Allowance for doubtful accounts $2,257 $(800) $ - $(806)
$2,263
</TABLE>
<F1> Doubtful accounts written off (recovered) against accounts receivable.
- 46 -
EXHIBIT 3.1
Amended and Restated Articles of incorporation of the Corporation.
1. The name of the corporation is Jones Apparel Group, Inc.
2. The location and post office address of the initial registered office of
the corporation in this Commonwealth is 220 Rittenhouse Circle, Keystone
Industrial Park, Bristol, Pennsylvania, 19007.
3. The corporation is incorporated under the Business Corporation Law of the
Commonwealth of Pennsylvania for the following purpose or purposes: the
corporation shall have unlimited power to engage in and do any lawful act
concerning any or all lawful business for which corporations may be incorporated
under the Pennsylvania Business Corporation Law, including to power to engage in
manufacturing, this corporation being incorporated under the said Business
Corporation Law.
4. The term for which the corporation is to exist is perpetual.
5. The aggregate number of shares which the corporation shall have authority
to issue is: ONE HUNDRED ONE MILLION (101,000,000) consisting of (i) One Hundred
Million (100,000,000) shares of Common Stock of the par value of $.01 per share
and (ii) One Million (1,000,000) shares of Preferred Stock of the par value of
$.01 per share.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof of the Preferred Stock,
and of the Common Stock are as follows:
A. Preferred Stock. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article 5, to file an
amendment to the corporation's Articles of Incorporation pursuant to 15 Pa.C.S.
Section 1914(c) to provide for the issuance of the Preferred Stock in series
and to establish the number of shares to be included in each such series. The
Preferred Stock may be issued either as a class without series, or as so
determined from time to time by the Board of Directors, either in whole or
in part in one or more series, each series to be appropriately designated by a
distinguishing number, letter or title prior to the issue of any shares thereof.
Whenever the term "Preferred Stock" is used in this Article 5, it shall be
deemed to mean and include Preferred Stock issued as a class without series, or
one or more series thereof, or both, unless the context shall otherwise require.
There is hereby expressly granted to the Board of Directors of the corporation
authority, subject to the limitations provided by law, to fix the voting power,
the designations, and the relative preferences, powers, participating, optional
or other special rights, and the qualifications, limitations or restrictions
thereof, of the shares of each series of said Preferred Stock and the variations
in the relative powers, rights, preferences and limitations as between series,
and to increase the number of shares constituting each series, and to decrease
such number of shares (but not less than the number of outstanding shares of the
series), in the resolution or resolutions adopted by the Board of Directors
providing for the issue of said Preferred Stock.
The authority of the Board of Directors of the corporation with respect to
each series shall include, but shall not be limited to, the authority to
determine the following:
1. The designation of the series;
2. The number of shares initially constituting such series;
3. The increase, and the decrease to a number not less than the number of
the outstanding shares of such series, of the number of shares
constituting such series theretofore fixed;
4. The rate or rates and the times and conditions under which dividends
on the shares of such series shall be paid, and, (i) if such dividends
are payable in preference to, or in relation to, the dividends
payable on any other class or classes of stock, the terms and
conditions of such payment, and (ii) if such dividends shall be
cumulative, the date or dates from and after which they shall
accumulate;
- 1 -
<PAGE> 2
5. Whether or not the shares of such series shall be redeemable, and,
if such shares shall be redeemable, the terms and conditions of
such redemption, including, but not limited to, the date or dates upon
or after which such shares shall be redeemable and the amount per
share which shall be payable upon such redemption, which amount may
vary under conditions and at different redemption dates;
6. The amount payable on the shares of such series in the event of a
dissolution of, or upon any distribution of the assets of, the
corporation;
7. Whether or not the shares of such series may be convertible into,
or exchangeable for, shares of any other class or series and the price
or prices and the rates of exchange and the terms of any adjustments
to be made in connection with such conversion or exchange;
8. Whether or not the shares of such series shall have voting rights
in addition to the voting rights provided by law, and, if such shares
shall have such voting rights, the terms and conditions thereof,
including but not limited to, the right of the holders of such shares
to vote as a separate class either alone or with the holders of
shares of one or more other series of Preferred Stock and the right
to have more or less than one vote per share;
9. Whether or not a purchase fund shall be provided for the shares of
such series, and, if such a purchase fund shall be provided, the
terms and conditions thereof;
10. Whether or not a sinking fund shall be provided for the redemption of
the shares of such series and if such a sinking fund shall be
provided, the terms and conditions thereof; and
11. Any other powers, preferences and relative, participating, optional,
or other special rights, and qualifications, limitations or
restrictions thereof, as shall not be inconsistent with the provisions
of this Article 5 or the limitations provided by law.
B. Common Stock.
1. Subject to the rights of the Preferred shareholders, the holders of
the Common Stock shall be entitled to receive such dividends as may
be declared thereon by the Board of Directors of the Corporation in
its discretion, from time to time, out of any funds or assets of the
corporation lawfully available for the payment of such dividends.
2. In the event of any liquidation, dissolution or winding up of the
corporation, or any reduction of its capital, resulting in a
distribution of its assets to its shareholders, whether voluntary
or involuntary, then, after there shall have been paid or set apart
for the holders of the Preferred Stock the full preferential amounts
to which they are entitled, the holders of the Common Stock shall be
entitled to receive, as a class, pro rata, the remaining assets of the
corporation available for distribution to its shareholders.
3. For any and all purposes of these Articles of Incorporation, neither
the merger or consolidation of the Corporation into or with any other
corporation, nor the merger or consolidation of any other corporation
into or with the corporation, nor a sale, transfer or lease of all
or substantially all of the assets of the corporation, or any other
transaction or series of transactions having the effect of a
reorganization shall be deemed to be a liquidation, dissolution or
winding-up of the corporation.
4. Except as otherwise expressly provided by law or in a resolution of
the Board of Directors providing voting rights to the holders of the
Preferred Stock, the holders of the Common Stock shall possess
exclusive voting power for the election of directors and for all
other purposes and each holder thereof shall be entitled to one
vote for each share thereof.
- 2 -
<PAGE> 3
6. The name(s) and post office address(es) of each incorporator(s) and the
number and class of shares subscribed by such incorporator(s) is (are):
Name Address Number and class of shares
Frances Kuzinar 1510 The Fidelity Building One (1) Common
Philadelphia, PA 19109
7. In all elections for Directors, each shareholder entitled to vote shall
be entitled to only one vote for each share held, it being intended hereby to
deny shareholders the right of cumulative voting in the election of Directors.
8. Except as otherwise provided by law, and subject to the provisions of,
applicable law, any action which may be taken at a meeting of the shareholders
or of a class of shareholders of the corporation may be taken without a meeting,
provided a consent or consents in writing to such action, setting forth the
action so taken, shall be (1) signed by the shareholders entitled to cast a
majority (or such larger percentage as may be required by law) of the number
of votes which all such shareholders are entitled to cast thereon, and
(2) filed with the Secretary of the corporation.
- 3 -
EXHIBIT 10.30
NOTE AGREEMENT
NOTE AGREEMENT (this "Agreement"), dated as of May 1, 1996, among
THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF LAWRENCEBURG,
a Tennessee public nonprofit corporation (the "Board"), NATIONSBANK OF
TENNESSEE, NATIONAL ASSOCIATION, a national banking association with its
principal office in Nashville, Tennessee (the "Purchaser"), and JONES APPAREL
GROUP, INC., a Pennsylvania corporation (the "Lessee").
PRELIMINARY STATEMENTS:
WHEREAS, the Board is a public nonprofit corporation and a public
instrumentality of the City of Lawrenceburg, Tennessee, and is authorized under
Sections 7-53-101 to 7-53-311, inclusive, Tennessee Code Annotated, as amended
(hereinafter called the "Act"), to acquire, whether by purchase, exchange, gift,
lease, or otherwise, and to own, lease and dispose of properties for the public
purpose of promoting industry and developing trade by inducing manufacturing,
industrial, governmental educational and commercial enterprises to locate in or
remain in the State of Tennessee; and
WHEREAS, the Lessee heretofore proposed to lease from the Board pursuant
to the Lease (as defined herein) certain distribution facilities located on land
owned by the Board and located in the City of Lawrenceburg, Tennessee, and
requested the Board to reimburse it for expenses incurred by Lessee in
connection with the Board's acquisition of such facilities by issuing its note
to the Purchaser and by using the proceeds from the issuance of such note for
the purpose of reimbursing the Lessee for the cost of acquiring such facilities;
and
WHEREAS, the Board proposes to issue and sell its note to the Purchaser
pursuant to this Agreement and further proposes to use the proceeds from the
sale thereof to perform its obligations under such Lease; and
WHEREAS, the note proposed to be issued under this Agreement will be
secured by an assignment of the rental payments under the Lease and a deed of
trust from the Board with respect to the property acquired with the proceeds of
the Note;
NOW, THEREFORE, in consideration of the premises, the Board, the
Purchaser and the Lessee hereby agree as follows:
ARTICLE I
DEFINITIONS
In addition to the terms defined in the preamble hereto, and elsewhere
herein, the following terms have the following respective meanings as used in
this Agreement unless the context otherwise requires:
"Act" means Sections 7-53-101 to 7-53-311, inclusive, of Tennessee Code
Annotated, as amended.
"Agreement" means this Note Agreement as it now exists and as it may
hereafter be amended.
"All Unpaid Installments" shall have the same meaning as in the Lease.
"Assignment" means the Assignment Agreement of even date herewith from
the Board to the Purchaser.
"Authorized Lessee Representative" means the President or any Vice
President of the Lessee, except that the Lessee may, by written notice to the
Noteholder, designate additional Authorized Lessee Representatives or delete
Authorized Lessee Representatives.
"Basic Rent" means the Basic Rent payable pursuant to Section 4.01 of
the Lease.
"Building" shall have the same meaning as in the Lease.
"Business Day" means any day other than a Saturday, Sunday, or a public
holiday or the equivalent for banks generally under the laws of State of
Tennessee.
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"Closing Date' means May 1, 1996 or such later date as shall be agreed to
by the Board, the Lessee and the Purchaser.
"Deed of Trust" means the Deed of Trust and Security Agreement with respect
to the Project dated as of May 1, 1996 from the Board for the benefit of the
Purchaser.
"Default Rate" shall have the same meaning as in the Note.
"Documents" means the Lessee Documents and the Note Documents.
"Environmental Indemnity" means the Environmental Law Compliance and
Indemnity Agreement dated as of May 1, 1996 among the Lessee and the Purchaser.
"Escrow and Security Agreement" means the Escrow and Security Agreement
dated as of May 1, 1996 by and among the Board, Lessee and NationsBank of
Tennessee, National Association, as Escrow Agent and Trustee.
"Event of Default" means an Event of Default as defined in Article VI
hereof.
"Guaranty" means that certain Guaranty Agreement dated as of May
1, 1996 from Lessee.
"Holder," whether or not capitalized, means the registered owner
from time to time of the Note.
"Land" means the real property described in Schedule A to the Lease.
"Lease" means the Lease dated as of May 1, 1996 between the
Board, as lessor, and the Lessee, as lessee.
"Leased Property" means the Land, the Building and all other
improvements now or hereafter located on the Land.
"Lessee" means Jones Apparel Group, Inc., a Pennsylvania corporation.
"Lessee Documents" means this Agreement, the Lease, the Guaranty,
the Escrow and Security Agreement and the Environmental Indemnity.
"Note" means the Taxable Revenue Note, Series 1996 (Jones Apparel
Group, Inc. Project) dated the Closing Date in the principal amount of
$5,000,000 issued by the Board.
"Note Documents" means this Agreement, the Lease, the Note, the
Deed of Trust, the Guaranty, the Escrow and Security Agreement and the
Assignment.
"Noteholder" or 'Purchaser" means NationsBank of Tennessee,
National Association, a national banking association with its principal
office in Nashville, Tennessee, as the original purchaser and registered
owner of the Note, and any subsequent registered owner of the Note.
"Prior Note Agreements" means collectively the Note Agreement, dated
November 23, 1993 and the Series 1995 Note Agreement dated as of June
30, 1995, both by and among the Board, the Lessee and the Purchaser.
"Project" means the Land, the Building and any personal property
located therein including any and all equipment used at or in connection with
the Project, but excluding any inventory owned by Lessee.
"Tangible Net Worth" means the excess of Lessee's Total Assets (excluding
receivables from Lessee's officers and intangible assets determined in
accordance with generally accepted accounting principles) over Total Liabilities
(exclusive of capital stock and surplus), all determined in accordance with
generally accepted accounting principles consistently applied.
"Total Assets" shall mean total assets determined in according
with generally accepted accounting principles consistently applied.
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"Total Liabilities" shall mean total liabilities determined in
accordance with generally accepted accounting principles consistently applied.
ARTICLE II
AMOUNT AND TERMS OF THE NOTE
SECTION 2.01. The Note. The Purchaser agrees to purchase and the
Board agrees to sell, at par, on the terms and conditions hereinafter set forth,
the Taxable Revenue Note, Series 1996 (Jones Apparel Group, Inc. Project) of the
Board in the principal amount of Five Million Dollars ($5,000,000) (the "Note").
The Note shall contain the terms and conditions and shall be substantially in
the form of Exhibit A hereto.
SECTION 2.02. Purchasing the Note. The Note shall be purchased on
the date hereof. Not later than 4:00 P.M. (Nashville time) on the Closing Date,
and upon fulfillment of the applicable conditions set forth in Article K the
Purchaser will purchase the Note by application of immediately available funds
on behalf of the Board in the manner set forth in Section 2.03 of the Lease.
SECTION 2.03. Application of Payments. Any payment or prepayment
of Basic Rent under the Lease shall be applied as a payment or prepayment on
the Note, and any payment or prepayment on the Note shall be applied as a
payment or prepayment of Basic Rent under the Lease.
SECTION 2.04. Payments. Each payment on the Note shall be made not
later than 12:00 Noon (Nashville time) on the day when due at the place
designated in the Note in immediately available funds. Whenever any payment to
be made hereunder or under the Note shall be stated to be due on a day other
than a Business Day, such payment shall be extended to the next succeeding
Business Day and such extension of time shall in such case be included in
computing such interest.
SECTION 2.05. Use of Proceeds. All of the proceeds from the sale of the
Note will be used as provided in Section 2.03 of the Lease.
ARTICLE III
CONDITIONS OF PURCHASE
SECTION 3.01. Conditions Precedent to the Purchase of the Note. The
obligation of the Purchaser to purchase the Note is subject to the conditions
precedent that the Purchaser shall have received on or before the Closing Date
the following, each in form and substance satisfactory to the Purchaser:
(a) The Note duly executed by the Board.
(b) The Assignment duly executed by the Board.
(c) The Lease and the Escrow and Security Agreement duly
executed by the Board and the Lessee.
(d) The Deed of Trust duly executed by the Board.
(e) The Guaranty duly executed by the Lessee.
(f) The Environmental Indemnity duly executed by the Lessee.
(g) Evidence of the completion of all recordings and filings as may
be necessary or, in the opinion of the Purchaser, desirable to
perfect the liens, assignments and security interests created by
the Documents, and evidence that all other actions necessary or,
in the opinion of the Purchaser, desirable to perfect and protect
the liens, assignments and security interests created by
the Documents have been taken.
(h) Certified copies of the resolutions of the Board of Directors of
the Board approving each Note Document and of all documents
evidencing other necessary corporate action and governmental
approvals, if any, with respect to each Note Document.
(i) A Certificate of the Secretary, or similar officer, of the Board
certifying the names and true signatures of the officers of the
Board authorized to sign each Note Document and the other
documents to be delivered by it hereunder.
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(j) Certified copies of the Resolutions of the Board of Directors of
the Lessee approving each Lessee Document and of all documents
evidencing other necessary corporate action and governmental
approval, if any, with respect to each Lessee Document.
(k) A Certificate of the Secretary, or similar officer, of the Lessee
certifying the names and true signatures of the officers of the
Lessee authorized to sign each Lessee Document and the other
documents to be delivered by it hereunder.
(l) The opinion of Boston, Bates & Holt, counsel for the Lessee,
dated the date hereof, and in form acceptable to Purchaser.
(m) The opinion of White and Betz, counsel for the Board, dated
the date hereof, and in form acceptable to Purchaser.
(n) A paid title insurance policy, prepared upon an opinion of
counsel approved by the Purchaser, in form and content, and with a
company, acceptable to the Purchaser, in the amount of $5,000,000
insuring that the Deed of Trust creates a valid first lien in and
upon the Project, free and clear of all defects and encumbrances
except as set forth on Schedule B to the Lease and containing full
coverage against liens of mechanics, materialmen, laborers and any
other party who might claim statutory or common law liens.
(o) Evidence satisfactory to the Purchaser as to:
(i) Methods of access to and egress from the Project, and
nearby or adjoining public ways, meeting the reasonable requirements
of similar projects;
(ii) The availability of storm and sanitary sewer facilities
meeting the reasonable requirements of the Project;
(iii) The availability of other required utilities, such as
electricity, water, etc., reasonably required to serve the Project;
and
(iv) The securing of all requisite governmental approvals of
sanitary facilities, and other matters that are subject to the
jurisdiction of any governmental authority.
(p) Suitable policies or evidence of insurance in accordance with the
terms of the Lease and this Agreement.
(q) A survey, certified by a surveyor registered as such in Tennessee,
to which is attached a certificate satisfactory to the Purchaser,
which survey shall disclose all improvements, easements and
rights-of-way, and the Building.
(r) An environmental report, prepared by an environmental engineering
firm acceptable to the Purchaser, if requested by Purchaser, with
respect to the premises, in form substance and detail satisfactory
to the Purchaser.
(s) Such other items as the Purchaser may reasonably request.
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ARTICLE IV
REPRESENTATIONS, COVENANTS AND WARRANTIES
OF THE BOARD
SECTION 4.01. Representations and Warranties of the Board. The Board
represents and warrants as follows:
(a) The Board is a duly established, organized and existing public
corporation under the laws of the State of Tennessee. Each of the directors
of the Board is a duly qualified elector of and taxpayer in the City of
Lawrenceburg, Tennessee, and no director is an officer or employee of the
City of Lawrenceburg, Tennessee. The composition of the Board of Directors
of the Board is in conformity with the requirements of Section 7-53-301 of the
Act.
(b) The Board has all requisite power, authority and legal right to
execute and deliver the Note Documents and all other instruments and
documents to be executed and delivered by the Board pursuant hereto, to
perform and observe the provisions thereof and to carry out the transactions
contemplated thereby. All corporate action on the part of the Board which
is required for the execution, delivery, performance and observance by the
Board of the Note Documents has been duly authorized and effectively taken,
and such execution, delivery, performance and observation by the Board do
not contravene applicable law or any contractual restriction binding on or
affecting the Board.
(c) No authorization or approval or other action by, and no notice
to or filing with, any governmental authority or regulatory body is required for
the due execution and delivery by the Board of, and performance by the
Board of its obligations under, any Note Document except for the filing of a
Report on Debt Obligation with the Division of Local Finance, Comptroller's
Office, as required by Chapter 402, Public Acts of 1989.
(d) This Agreement is, and each other Note Document when
delivered hereunder will be, legal valid and binding special
obligations of the
(e) There is no default of the Board in the payment of the principal
of or interest on any of its indebtedness for borrowed money or under any
instrument or instruments or agreements under and subject to which any
indebtedness for borrowed money has been incurred which does or could
affect the validity and enforceability of the Note Documents or the ability of
the Board to perform its obligations thereunder, and no event has occurred
and is continuing under the provisions of any such instrument or agreement
which constitutes or, with the lapse of time or the giving of notice, or both,
would constitute such a default.
(f) There is not pending or, to the knowledge of the undersigned
officers of the Board, threatened any action or proceeding before any court,
governmental agency or arbitrator (i) to restrain or enjoin the issuance or
delivery of the Note or the collection of any revenues pledged under the
Assignment, (ii) in any way contesting or affecting the authority for the
issuance of the Note or the validity of any of the Note Documents, or (iii) in
any way contesting the existence or powers of the Board.
(g) In connection with the authorization, issuance and sale of the
Note, the Board has complied with all provisions of the Constitution and laws
of the State of Tennessee, including the Act and Sections 8-44-104, et seq., of
Tennessee Code Annotated (the "Public Meetings Act").
(h) The Board has not assigned or pledged and will not assign or
pledge its interest in the Lease for any purpose other than to secure the Note
under the Assignment. The Note constitutes the only note or other obligation
of the Board in any manner payable from the revenues to be derived from the
Lease, and except for the Note no bonds or other obligations have been or
will be issued on the basis of the Lease.
(i) The Board is not in default under any provision of its Certificate
of Incorporation or By-Laws, and is not in default under any of the provisions
of the laws of the State of Tennessee which default would affect its existence
or its powers referred to in subsection (b) of this Section.
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(j) No member, officer or other official of the Board has any interest
whatsoever in the Lessee or in the transactions contemplated by the Lease.
(k) The Board will not enter into any agreement or instrument
which might in any way prevent or materially impair its ability to perform its
obligations under the Note Documents.
(l) The Board will not consent or agree to any modification of the
Lease or waive compliance with any of the terms thereof, unless any such
modification or waiver shall have been agreed to in writing by the Noteholder.
(m) The Board will execute, acknowledge where appropriate, and
deliver from time to time promptly at the request of the Noteholder all such
instruments and documents as in the opinion of the Noteholder are necessary
or desirable to carry out the intent and purpose of any of the Documents.
SECTION 4.02. Affirmative Covenants. So long as the Note shall remain
unpaid, the Board will, upon request of the Noteholder and provided it shall be
furnished with sufficient funds to pay all costs and expenses (including
attorney's fees) reasonably incurred by it as such costs and expenses accrue:
(a) Take all action and do all things which it is authorized by law
to take and do in order to perform and observe all covenants and agreements
on its part to be performed and observed under the Note Documents.
(b) Execute, acknowledge where appropriate, and deliver from time
to time promptly at the request of the Noteholder all such instruments and
documents as in the opinion of the Noteholder are necessary or desirable to
carry out the intent and purpose of the Note Documents or Lessee
Documents (or any of them).
ARTICLE V
OTHER REPRESENTATIONS, COVENANTS AND WARRANTIES OF LESSEE
SECTION 5.01. Representations and Warranties. In order to induce the
Board to enter into the Lease and the Purchaser to purchase the Note, Lessee
hereby represents and warrants to, and agrees with, the Board, the Purchaser
and any subsequent Noteholder as follows:
(a) Organization. The Lessee is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Pennsylvania and has all requisite power and authority to own and operate its
properties and to carry on its business as now being conducted. Lessee shall
remain a corporation duly organized and existing and in good standing under
the laws of the State of Pennsylvania, and is and shall remain duly qualified
to do business in Tennessee and each state other than Tennessee in which
qualification is necessary. Neither the execution, the delivery, nor the
performance of this Agreement and all related documents by Lessee will
constitute a default under or conflict with Lessee's charter or bylaws or any
agreement, contract, document, or instrument to which Lessee now is a party.
The execution of all necessary resolutions and other prerequisites of corporate
actions have been duly performed so that the individual executing this
Agreement and related documents on behalf of Lessee is duly authorized to
bind Lessee by his signature.
(b) Requisite Power and Authorization. This Agreement
constitutes, and upon execution and delivery thereof, the other Lessee
Documents will constitute, legal, valid and binding obligations of the Lessee
enforceable against the Lessee in accordance with their respective terms,
except as enforcement thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting creditors' rights
generally. The Lessee has full power and authority, corporate and otherwise,
to execute and deliver, and to perform all of its obligations under, each of the
Lessee Documents. All corporate action which is required for such execution,
delivery and performance has been validly taken.
(c) Approvals. No approval, consent or other authorization
(corporate, governmental or otherwise) of, or filing with, any court, agency,
commission or other authority or entity is required for the due execution,
delivery, performance or observance by the Lessee of this Agreement or for
the payment of any sums thereunder.
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(d) Litigation. There is no litigation or proceeding pending against
Lessee or, to the knowledge of Lessee, threatened that, if decided adversely
to Lessee, would have a material effect upon its financial condition. Lessee
is not subject to any outstanding court or administrative order.
(e) Financial Statements. The financial statements of Lessee
heretofore delivered to the Purchaser fairly and accurately reflect the
financial condition and capital structure of Lessee as of the dates thereof.
Since said date, no material adverse change in either has occurred or, to the
knowledge of Lessee, is threatened. All financial statements delivered to
Purchaser have been prepared in accordance with generally accepted accounting
principles, consistently applied, and are true, accurate and complete in every
material respect. Without limiting the foregoing, Lessee warrants that such
financial statements disclose all known contingent liabilities as well as direct
liabilities. Lessee acknowledges that Purchaser agreed to purchase the Note in
reliance upon such financial statements, and Lessee warrants that no material
adverse change has occurred in the financial condition of any person or entity
as set forth in such financial statements. Lessee warrants that Lessee has
good and marketable title to the assets disclosed on Lessee's balance sheet
disclosed to Purchaser, subject only to liens, security interests and other
encumbrances noted thereon.
(f) Taxes. Lessee is not presently delinquent in the payment of any
taxes imposed by any governmental authority or in the filing of any tax return
and Lessee is not involved in a dispute with any taxing authority over tax
amounts due. Lessee covenants that all future taxes assessed against Lessee
shall be timely paid and that all tax returns required of Lessee shall be timely
filed.
SECTION 5.02. Lease. The Lessee shall punctually pay all Basic Rent and
other amounts due under the Lease and shall promptly perform all of its other
obligations under the Lease.
SECTION 5.03. Inspection. The Lessee and the Board shall permit the
Noteholder and any representative of the Noteholder to visit and inspect the
Leased Property at such time as either the Board or the Lessee has title to any
part thereof, to examine the books of account of the Lessee and to discuss
Lessee's affairs, finances and accounts with Lessee and independent certified
public accountants, all during business hours and as often as the Noteholder
or any such representatives may reasonably request. Any inspection or
examination pursuant to this paragraph shall be for the sole purpose of
protecting the security of the Noteholder and shall not be construed as a
representation by the Noteholder that there has been compliance with the plans
and specifications for the Project or that the Project will be or is free of
faulty materials or workmanship, or a waiver of any right the Noteholder may
have against Lessee or any other party.
SECTION 5.04. Expenses Paid by Lessee: Indemnification.
(a) The Lessee will pay in full all reasonable out-of-pocket expenses
of the Board and the Purchaser incurred in connection with the preparation,
execution and delivery of this Agreement and the Lease and the consummation of
the transactions contemplated by such documents, including but not limited to
(i) the fees and disbursements of the Board's counsel and Purchaser's counsel
(ii) all taxes (other than income taxes) applicable to such transactions, (iii)
all present and future recording and filing fees and recording and filing taxes,
(iv) all expenses incident to the preparation of the Documents and any other
documents relating to the Lease or the Note, and (v) all survey and title
insurance premiums, fees and expenses.
(b) The Lessee shall pay to or reimburse in full the Board and
Noteholder for all costs and expenses incurred in the collection or enforcement
of (or in respect of any action taken to collector enforce) the Documents
upon any default thereunder, or in any investigation of any such default,
including reasonable attorneys' fees.
(c) The Lessee shall indemnify and hold harmless both the Board,
the Purchaser and any subsequent Noteholder (and all officers and directors of
both the Board, the Purchaser and any subsequent Noteholder) against all
liabilities, claims, costs and expenses imposed or asserted against either
the Board or the Purchaser for (i) any loss or damage to property or injury
or death of any person that may be occasioned by any cause whatsoever pertaining
to the renovation, maintenance, operation or use of the Leased Property, (ii)
any breach or default on the part of the Lessee in the performance of any
covenant or agreement under the Lessee Documents or arising from any act or
failure to act by the Lessee or any of his agents, contractors, servants,
employees or licensees or arising from any accident, injury or damage whatsoever
caused to any person, firm or corporation occurring in or about the Leased
Property, or (iii) any such claim or action or proceeding brought thereon.
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(d) The obligations of the Lessee under this Section 5.04 shall
survive the payment in full of all amounts payable under the Note to the extent
set forth above.
SECTION 5.05. Performance of Lessee or Board Obligations by Noteholder.
Without having any obligation to do so and only if an Event of Default has
occurred and is continuing, the Noteholder may perform or pay any obligation
which the Lessee is obligated to pay or perform under any of the Lessee
Documents or which the Board is obligated to pay or perform under any of the
Note Documents. All of the following shall bear interest at the Default Rate
and, together with such interest, be repaid by the Lessee to the Noteholder on
demand: (1) all sums advanced or paid by the Noteholder under this Section, and
(2) all costs reasonably incurred or paid by the Noteholder in the exercise of
its rights under this Section.
SECTION 5.06. Further Assurances. Lessee will execute such other
assignments, security agreements, financing statements, and other documents that
Purchaser may deem necessary to further evidence the obligations provided for in
the Lease or to perfect extend, or clarify Purchaser's rights in any property
securing or intended to secure the Note. Any Vice President of Purchaser is
hereby appointed as Lessee's attorney-in-fact with full power of substitution
for the signing of financing statements and other similar filings with
government offices for perfecting security interests granted hereby.
Purchaser acknowledges that this power of attorney is coupled with an interest
and is irrevocable.
SECTION 5.07. Financial Statements. The Lessee will provide to the
Purchaser (i) within forty-five days in the case of the Lessee, after the end
of the Lessee's fiscal quarter, financial statements of the Lessee, in form and
content satisfactory to Purchaser, but including a complete balance sheet and
profit and loss statement for each quarter; (ii) within one hundred fifty days
after the close of Lessee's fiscal year, complete certified audited financial
statements of Lessee, prepared in accordance with generally accepted accounting
principles, consistently applied, prepared by a certified public accountant
acceptable to Purchaser; and (iii) a quarterly compliance certificate from an
officer of the Lessee acknowledging that the Lessee is not in default in the
performance of any provisions of the Lessee Documents and that the Lessee is in
compliance with all fiscal covenants contained in the Lessee Documents.
SECTION 5.08. Cash Flow to Debt Service Ratio. Lessee shall at all times
maintain a ratio of Cash Flow to Debt Service of not less than 7.0 to 1.0. For
the purposes of this covenant, "cash flow' shall mean earnings of Lessee before
interest, taxes, depreciation and amortization and "debt service" shall mean
the sum of the current portion of long term debt and capitalized leases, It
dividends, and treasury stock repurchases.
SECTION 5.09. --RESERVED--
SECTION 5.10. Dividends and Loans or Advances. The Lessee will not pay
or make, directly or indirectly, to any related company, (i) dividends; (ii)
royalty fees or related company management or consulting fees; and (iii) any
loans or advances for the duration of this Agreement unless immediately before
and immediately after paying or making such dividend, royalty fee or related
company management or consulting fee or any loan or advance, the Lessee was
and remains in compliance with the other covenants contained herein.
SECTION 5.11. Liabilities to Tangible Net Worth. Lessee will not permit
its Total liabilities divided by its Tangible Net Worth to be greater than .75
at any time during the term of the Lease.
SECTION 5.12. Insurance. The Lessee will maintain public liability
insurance insuring against bodily injury and property damage with liability
limits of $500,000 for each occurrence and $5,000,000 aggregate liability and
fire and extended coverage insurance on the Project in such form and in such
amounts as are consistent with industry practices and with insurers satisfactory
to the Purchaser. The Lessee shall provide evidence of insurance (together
with written agreement by the insurer or insurers to give Purchaser 30 days'
prior written notice of cancellation) to the Purchaser and the Lessee shall
name the Purchaser as the loss payee on any and all such insurance policies
relating to the Leased Property.
SECTION 5.13. Use of Project. Lessee will keep the Project free from any
lien, security interest, or encumbrance other than that granted to Purchaser by
the Board pursuant to the Deed of Trust and in good order and repair and will
not waste or destroy the Project or any part thereof Lessee will not use the
Project in violation of any statute or ordinance. Lessee's business activities
are conducted in accordance with all applicable laws and regulations, and Lessee
covenants that such activities shall continue to be so conducted. Purchaser may
examine and inspect the Project at any time.
SECTION 5.14. No Conflicting Agreements. Lessee is not a party to any
contract or agreement and is not subject to any contingent liability that does
or may impair Lessee's ability to perform under the terms of this Agreement. The
execution and performance of this Agreement will not cause a default under any
other contract or agreement to which Lessee or any property of Lessee is
subject, and will not result in the imposition of any charge, penalty, lien or
other encumbrance against any of Lessee's property except in favor of Purchaser.
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SECTION 5.15. Notice to Purchaser of Certain Events. Lessee covenants to
give Purchaser prompt written notice of any litigation, arbitration,
administrative proceeding or investigation that may hereafter be instituted or
threatened against Lessee in which the potential liability of Lessee exceeds
$100,000. Lessee covenants to give Purchaser written notice within ten days
of (i) the creation or discovery of any material additional contingent
liability or the occurrence of any other material adverse change in the
financial condition of Lessee, (ii) the occurrence of any event, or presence
of any condition, which constitutes an Event of Default or which with the giving
of notice, the passage of time, or both, would constitute a default, and (iii)
the change of the name of Lessee.
SECTION 5.16. Further Assurances. Lessee covenants that it will execute,
acknowledge where appropriate, and deliver from time to time promptly at the
request of the Purchaser all such instruments and documents as in the opinion of
the Purchaser are necessary or desirable to carry out the intent and purpose of
the Note Documents or Lessee Documents (or any of them).
SECTION 5.17. Merger, Sale of Assets, Certificates and Loans. Lessee will
not, without the prior written consent of the Purchaser:
(a) enter into any merger or consolidation; provided, however, that
Lessee may, without the consent of Purchaser, merge or consolidate
with any other company as long as the Lessee shall be the continuing
or surviving corporation;
(b) sell, lease, convey or otherwise dispose of any of its property or
assets, except that Lessee may (i) grant liens or encumber any of
its property (other than its interest in the Lease) (ii) dispose
of property in the ordinary course of business and (iii) otherwise
dispose of its properties as long as the aggregate fair market value
of the property so disposed of in any fiscal year of the Lessee also
does not exceed $1,000,000; and
(c) submit to the Purchaser any certificate or other document that
contains any untrue statement of a material fact or omits to
state a material fact necessary to make it not misleading.
ARTICLE VI
EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall constitute
an Event of Default hereunder:
(a) non-payment when due of any installment of interest on the Note; or
(b) non-payment when due of any installment of principal on the Note
whether at maturity, by acceleration or mandatory prepayment; or
(c) non-payment when due of any other amount required to be paid
by the Lessee or the Board hereunder or under any other Document
(other than a default under subsections (a) or (b) above) continued
for ten (10) days after written notice thereof to the Lessee; or
(d) the occurrence of an "Event of Default" as defined in Article
14.01 of the Lease which continues beyond the applicable cure
period provided therein, if any; or
(e) indebtedness of the Lessee in excess of $50,000 shall be declared
to be due and payable, or required to be prepaid other than by
regularly scheduled or other mandatory required prepayment,
prior to the stated maturity thereof; or
(f) any representation or warranty made by Lessee herein or in the
Lease is untrue in any material respect when made; or
(g) default by the Lessee in the due observance or performance of
any term, covenant, condition or agreement on its part to be
performed under any of the Documents (other than a default under
subsections (a), (b), (c), (d), (e) or (f) above) continued for
thirty (30) days after written notice specifying such default has
been given to the Lessee; or
(h) default by the Lessee in the due observance or performance of
any term covenant, condition or agreement on its part to be
performed under the Prior Note Agreements, or either of them,
except that no default shall be deemed to exist under the Prior
Note Agreements by reason of a breach of the financial covenants
contained in Sections 5.07, 5.08 and 5.11 of the Prior Note
Agreements unless there is a breach of the financial covenants
contained in Section 5.07, 5.08 and 5.11 hereof, which the
parties agree shall supersede and replace Sections 5.07, 5.08 and
5.11 of the Prior Note Agreements. The parties further agree that
the provisions of Section 5.09 contained in the Prior Note
Agreements are deleted and are of no further force and effect.
Except as modified hereby, the terms of the Prior Note
Agreements remain in full force and effect.
- 9 -
<PAGE> 10
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing (including telegraphic, telecopy, or telex
communication) and mailed. telecopied, telexed, telegraphed or delivered, if to
the Board, at its address, c/o White & Betz, 22 Public Square, Lawrenceburg,
Tennessee 38464-0488, Attention: Alan C. Betz, Esq.; if to the Purchaser, at
its address at NationsBank of Tennessee, National Association, 255 N. Military
Avenue, Lawrenceburg, Tennessee 38464, Attention: Mr. Timothy E. Pettus; if to
any Noteholder other than the Purchaser, at the address indicated on the note
register maintained pursuant to Section 7.02 hereof; if to the Lessee, at its
address at Jones Apparel Group, Inc., 250 Rittenhouse Circle, Bristol,
Pennsylvania 19007, Attention: Chief Financial Officer; or, as to each party,
at such other address as shall be designated by such party in a written notice
to the other party. All such notices and communications shall when mailed or
telegraphed, be effective three days after deposit in the mails or delivery to
the telegraph company, respectively, addressed as aforesaid. All such notices
and communications otherwise transmitted shall be effective upon receipt by
the addressee.
SECTION 7.02. Note Registration. The Note shall be registered (as
hereinafter provided) in the name of the owner on a note register to be provided
for that purpose by the Board in the office of the Lessee, as note registrar.
The note registrar and the note register shall be subject to change upon written
notice thereof from the Noteholder. No transfer thereof shall be valid unless
made at the written request of the registered owner or his legal representative,
on said note register and evidence of transfer of the Note furnished to the note
registrar. Principal of, premium, if any, and interest on the Note will be paid
by check to the registered owner by mail at the address shown on the note
register or at such other place as may be directed by the Noteholder, which
directions shall be noted in the note register.
The person in whose name the Note shall be registered shall be deemed and
regarded as the absolute owner thereof for all purposes, and payment of or on
account of the interest on or the principal of the Note shall be made only to
or upon the order of the registered owner thereof or his legal representative,
but such registration may be changed as hereinabove provided. All such payments
shall be valid and effectual to satisfy and discharge the liability upon the
Note to the extent of the sum or sums paid.
SECTION 7.03. No Waiver: Remedies. No failure on the part of the
Noteholder to exercise, and no delay in exercising, any right under any
Document shall operate as a waiver thereof; nor shall any single or partial
exercise of any right under any Document preclude any other or further exercise
thereof or the exercise of any other right. The remedies provided in the
Documents are cumulative and not exclusive of any remedies provided by law.
SECTION 7.04. Binding Effect; Governing Law. This Agreement shall be
binding upon and inure to the benefit of the Board, the Purchaser and the
Lessee and their respective successors and assigns, except that the Board shall
not have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Purchaser. This Agreement and the Note shall
be governed by, and construed in accordance with, the laws of the State of
Tennessee except to the extent that applicable federal law may
permit any higher rate of interest.
SECTION 7.05. Acquisition of Note For Account of the Purchaser. The
Purchaser represents and warrants that it will acquire the Note and the other
Note Documents to be acquired by it for its own account and, except that
the Purchaser may grant participation interests therein to other financial
institutions, not with a view to the distribution or any disposition thereof,
and that it has no present intention of making any such distribution or
disposition provided that the disposition of the Purchaser's property shall at
all times be and remain within its control. In the event that the Purchaser
or any subsequent Noteholder should transfer the Note, the Purchaser or any
subsequent Noteholder shall give prompt written notice to the Board and the
Lessee of the name and address of the transferee. Until such time as the
Board and the Lessee receive such notice from the Purchaser and the name and
address of the transferee have been entered on the note register and noted on
the Note, the Board and the Lessee shall be entitled to assume that the
Purchaser is the Noteholder and that the Noteholder is as reflected in the
most recent entry on the note register and the most recent notation on the
Note.
SECTION 7.06. Severability. In the event that any clause or provision of
any Note Document shall be held to be invalid by any court of competent
jurisdiction, the invalidity of such clause or provision shall not affect any
of the remaining provisions of such Note Document.
SECTION 7.07. Payment on Non-Business Days. Whenever any payment to
be made hereunder or under the Note shall be stated to be due on a day which
is not a Business Day, such payment may be made on the next succeeding
Business Day.
SECTION 7.08. No Liability of Board's Officers, Etc. No recourse under or
upon any obligation, covenant or agreement contained in this Agreement or the
Assignment, or in the Note, or under any judgment obtained against the Board, or
by the enforcement of any assessment or by any legal or equitable proceeding by
virtue of any constitution or statute or otherwise or under any circumstances,
under or independent of this Agreement or the Assignment, shall be had against
any incorporator, member, director or officer, as such, past present or future,
- 10 -
<PAGE> 11
of the Board, either directly or through the Board, or otherwise, for the
payment for or to the Board or any receiver thereof, or for or to the holder
of the Note or otherwise, of any sum that may be due and unpaid by the Board
upon the Note. Any and all personal liability of every nature, whether at
common law or in equity, or by statute or by constitution or otherwise, of any
such incorporator, member, director or officer, as such, to respond by reason of
any act or omission on his part or otherwise, for the payment for or to the
Board or any receiver thereof, or for or to the holder of the Note or otherwise,
of any sum that may remain due and unpaid upon the Note, is hereby expressly
waived and released as a condition of and consideration for the execution of
this Agreement and the issue of the Note.
SECTION 7.09. No Liability of the City of Lawrenceburg, Tennessee. The
City of Lawrenceburg, Tennessee shall not in any event be liable for the
payment of the principal of, premium, if any, or interest on the Note, or for
the performance of any pledge, mortgage, obligation or agreement of any kind
whatsoever herein or indebtedness by the Board, and neither the Note nor any
of the agreements or obligations of the Board contained in this Agreement or
the Assignment or otherwise shall be construed to constitute an indebtedness
of the City of Lawrenceburg, Tennessee, within the meaning of any
constitutional or statutory provision whatsoever.
SECTION 7.10. Term of Agreement. This Agreement and all terms and
provisions hereof shall survive the closing of the purchase and delivery of
the Note and shall not be merged into the Note or any other documents
evidencing the Note or the purchase thereof. The term of this Agreement
shall be from the date hereof until the date of payment in full of the Note
and all other obligations of the Board or the Lessee hereunder and under the
other Documents.
SECTION 7.11. Arbitration. Any controversy or claim between or among
the parties hereto including but not limited to those arising out of or
relating to this Agreement or any related instruments, agreements or documents
including any claim based on or arising from an alleged tort shall be determined
by binding arbitration in accordance with the Federal Arbitration Act (or if not
applicable, the applicable state law), and the rules of practice and procedure
for the arbitration of commercial disputes of J.A.M.S./Endispute, or any
successor thereto, as supplemented by any special rules set forth in any of
the Loan Documents. Judgment upon any arbitration award may be entered in any
court having jurisdiction. Any party to this Agreement may bring an action,
including a summary of expedited proceeding, to compel arbitration of any
controversy or claim to which this Agreement applies in any court having
jurisdiction over such action.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF
LAWRENCEBURG
By: /s/ Jerry Putman
Chairman
ATTEST:
/s/ Carolyn Thompson
Secretary
NATIONSBANK OF TENNESSEE,
NATIONAL ASSOCIATION
By: /s/ Tim Pettus
Title: V. P.
JONES APPAREL GROUP, INC.
By /s/ Gary R. Klocek
Title: Corp. Controller
- 11 -
<PAGE> 12
FIRST AMENDMENT TO NOTE AGREEMENT
THIS FIRST AMENDMENT TO NOTE AGREEMENT ("First Amendment") dated as of
October 1, 1996, among THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
LAWRENCEBURG ("Board"), NATIONSBANK OF TENNESSEE, NATIONAL ASSOCIATION
("Purchaser") and JONES APPAREL GROUP, INC. ("Lessee").
WHEREAS, the parties hereto entered into a certain Note Agreement (the
"Note Agreement") dated as of May 1, 1996; and
WHEREAS, the parties wish to amend Section 5.08 of said Note Agreement;
NOW, THEREFORE, in consideration of One Dollar ($1.00) and other good and
valuable consideration, the parties agree that the second sentence to Section
5.08 is deleted and the following is substituted in its stead:
"For the purposes of this covenant, "cash flow" shall mean earnings of
Lessee before interest, taxes, depreciation and amortization and "debt
service" shall mean the sum of the current portion of long term debt,
interest and capitalized leases, dividends, and treasury stock repurchases."
EXCEPT AS PROVIDED ABOVE, the Note Agreement remains in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto dully authorized as of the day
first above written.
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF
LAWRENCEBURG
By: /s/ Jerry Putman
Chairman
ATTEST:
/s/ Carolyn Thompson
Secretary
NATIONSBANK OF TENNESSEE,
NATIONAL ASSOCIATION
By: /s/ Tim Pettus
Title: V. P.
- 12 -
EXHIBIT 10.31
THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF LAWRENCEBURG
TAXABLE REVENUE NOTE, SERIES 1996
(JONES APPAREL GROUP, INC. PROJECT)
$5,000,000 May 1, 1996
FOR VALUE RECEIVED, the undersigned. THE INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF LAWRENCEBURG. a Tennessee public nonprofit corporation (the
"Maker"), promises to pay to the registered owner hereof (the "holder"), at
the main office of NationsBank of Tennessee, National Association, Lawrenceburg,
Tennessee, or at such other place as the holder may from time to time designate
in writing, the principal sum of FIVE MILLION DOLLARS ($5,000,000), plus
interest at the rate of seven and thirty five one hundredth percent (7.35%)
on the outstanding principal balance hereof from the date hereof,
Principal and interest hereunder shall be payable monthly on the fifth
day of each month, commencing on June 5, 1996. Unless the principal shall be
declared due earlier and except as hereinafter provided, the principal hereof
shall be payable in one hundred and twenty (120) equal monthly installments
commencing on June 5, 1996. Notwithstanding the above, the entire outstanding
principal balance, if any, together with all accrued and unpaid interest shall
be immediately due and payable in full on May 1, 2001.
Overdue installments of principal and, to the extent legally enforceable,
interest and other amounts payable under this Note shall bear interest from
their due date at the Default Rate (as hereinafter defined).
All calculations of interest hereunder shall be on the basis of actual days
elapsed in a 360-day year.
Anything herein to the contrary notwithstanding, at no time shall the
interest rate hereunder exceed the highest rate permitted from time to time by
applicable law.
As used herein, (a) "Prime Rate" means the rate of interest set by
NationsBank of Tennessee, National Association, as such bank's Prime Rate
from time to time, and (b) "Default Rate" means the lesser of the Prime Rate
plus 4%, or the maximum rate from time to time permitted under applicable law.
This Note is the Note referred to in, and is entitled to the benefits of,
the Note Agreement (the "Note Purchase Agreement") dated as of the date hereof
among the Maker, NationsBank of Tennessee, National Association and Jones
Apparel Group, Inc., a Pennsylvania corporation (the "Lessee"), and is secured
by (i) an Assignment Agreement of even date from the Maker to NationsBank of
Tennessee, National Association assigning to NationsBank of Tennessee, National
Association Maker's interest in that certain Lease from Maker to Lessee dated as
of May 1, 1996 herewith and of record in the Register's Office for Lawrence
County, Tennessee (the "Lease"), (ii) a Deed of Trust from Maker for the
benefit of NationsBank of Tennessee, National Association, of even date
herewith and of record in the Register's Office for Lawrence County,
Tennessee and (iii) an Escrow and Security Agreement dated as of May 1, 1996
by and among Maker, Lessee and NationsBank of Tennessee, N.A. as escrow agent
and trustee.
This Note shall be prepayable at the option of the Maker at any time with
the prepayment penalties set forth in the following schedule if this Note is
prepaid through refinancing of the indebtedness by any outside lender, other
than NationsBank of Tennessee, National Association or its affiliates, including
any financial institution, credit union, trust fund or like source of funds.
Prepayment Date Prepayment Penalty
--------------- ------------------
Before May 1, 1999 2%
and thereafter 0%
Notwithstanding the foregoing paragraph, this Note shall be prepayable by
the Maker without penalty in the event the Note is prepaid through funds
of the Lessee generated solely from its operations.
- 1 -
<PAGE> 2
All payments hereunder shall be payable in lawful money of the United
States of America representing legal tender in payment of all debts and dues,
public and private, at the time of payment.
Payment of each monthly installment as herein above provided, when received
by the holder shall be first applied to accrued interest at the rate aforesaid
on the then outstanding balance of principal and the remainder of said
installment shall be applied to reduction of principal.
Demand, notice, presentment and protest are waived.
This Note is issued in accordance with Sections 7-53-101 to 7-53-311 of
Tennessee Code Annotated and constitutes a special obligation of the Maker, the
principal of, premium, if any, and interest on this Note, and all other amounts
payable by the Maker pursuant to the Note Purchase Agreement and this Note, are
payable solely (i) pursuant to the Assignment referred to in the Note Purchase
Agreement, and (ii) from revenues of the Maker derived and to be derived
pursuant to the Lease of even date herewith (the "Lease") between the Maker and
the Lessee. All payments made as provided above shall, to the extent of the sum
or sums so paid, satisfy and discharge the liability of the Maker under the
Note or the Note Purchase Agreement, as the case may be. Neither the faith
and credit nor any taxing power of the Maker, the State of Tennessee nor the
City of Lawrenceburg, Tennessee, is pledged to the payment of the principal or
premium, if any, or interest on this Note.
No recourse under or upon any obligation, covenant or agreement contained
in this Note, or under any judgment obtained against the Maker, or by the
enforcement of any assessment or by any legal or equitable proceeding by
virtue of any constitution or statute or otherwise or under any circumstances,
under or independent of this Note, shall be had against any incorporator,
member, director or officer, as such, past, present or future, of the Maker,
either directly or through the Maker, or otherwise, for the payment for or to
the Maker or any receiver thereof, or for or to the holder of the Note or
otherwise, of any sum that may be due and unpaid by the Maker upon the Note.
Any and all personal liability of every nature, whether at common law or in
equity, or by statute or by constitution or otherwise, of any such incorporator,
member, director or officer, as such, to respond by reason of an act or omission
on his part or otherwise, for the payment for or to the Maker or any receiver
thereof, or for or to the holder of the Note or otherwise, of any sum that
may remain due and unpaid upon the Note, is hereby expressly waived and released
as a condition of and consideration for the issue of the Note.
Upon the occurrence of an Event of Default under the Note Purchase
Agreement, the Lease or the Deed of Trust, the balance of the principal sum of
the indebtedness evidenced hereby, with all arrearages of interest thereon,
and any other sums advanced hereunder or under any other document evidencing or
securing the indebtedness evidenced hereby, shall, at the option of the holder,
become and be due and payable immediately, without notice, anything contained
herein to the contrary notwithstanding, time being of the essence of this
contract. From and after the date of acceleration in accordance with this
paragraph, interest will accrue at the Default Rate.
In the event this Note is placed in the hands of an attorney for collection
or for enforcement or protection of the security, the Maker shall pay reasonable
attorney's fees and all court and other costs upon demand.
The failure of the holder to exercise any option to accelerate the
indebtedness hereunder in the event of any default as above provided, or any
forbearance, indulgence, or other delay by such holder in the exercise of any
such option, shall not constitute a waiver of the right to exercise such option
prior to the curing of any such default or in the event of any subsequent
default, whether similar or dissimilar to any prior default.
The Maker consents to any extension of time of payment hereof release of
all or any part of the security for the payment hereof, or release of any party
liable for this obligation. Any such extension or release may be made without
notice to said Maker and without discharging any of its liability hereunder.
- 2 -
<PAGE> 3
No provision in this Note shall require the payment or permit the
collection of interest in excess of the maximum permitted by law. If any excess
of interest in such respect is herein provided for, or shall be adjudicated to
be so provided for herein, the provisions of this paragraph shall govern, and
the Maker shall not be obligated to pay the amount of such interest to the
extent that it is in excess of the amount permitted by law. In the event the
holder shall collect monies which are deemed to constitute interest which
would otherwise increase the effective interest rate on this Note to a rate
in excess of that permitted to be charged by applicable law, all such sums
deemed to constitute interest in excess of the legal rate shall be immediately
returned to the payor thereof upon such determination.
This Note shall be construed according to the laws of the State of
Tennessee except to the extent that applicable federal law may permit any higher
rate of interest.
Any notice to the Maker of this Note shall be effective when delivered by
personal service or when placed in the first-class United States mails, postage
prepaid, addressed to Maker, c/o Alan C. Betz, Esq., White & Betz, 22 Public
Square, Lawrenceburg, Tennessee 38464-0488, or at such other address as may be
designated in writing to holder by Maker.
This Note may be transferred or assigned by the holder by giving notice to
the Lessee as note registrar at its main office, currently at 250 Rittenhouse
Circle, Bristol, Pennsylvania 19007. The principal hereof, premium, if any, and
interest hereon will be paid by check of the note registrar at the times
provided herein to the holder by mail to the address shown on the registration
books or at such other place as may be directed by the holder.
The law pursuant to which this Note is issued requires that the following
statement appear on the face hereof:
Neither the principal of or interest on this Note is taxable by
the State of Tennessee or by any county or municipality thereof.
However, such interest is subject to the Tennessee corporate
excise tax and the Tennessee privilege tax imposed on savings
and loan associations and the principal hereof may be subject
to Tennessee inheritance tax.
IN WITNESS WHEREOF, THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
LAWRENCEBURG, has caused this Note to be duly executed by its Chairman and
its seal to be impressed hereon and attested by its Secretary as of the
date first above written.
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF
LAWRENCEBURG
By /s/ Jerry Putman
Chairman
(SEAL)
ATTEST:
/s/ Carolyn Thompson
Secretary
Date of Name and Address
Registration Registered Owner
- ------------------ --------------------------
May 1, 1996 NationsBank of Tennessee,
National Association
255 N. Military Avenue
Lawrenceburg, TN 38464
- 3 -
EXHIBIT 10.32
This Instrument Prepared By:
Alexander B. Buchanan, Esq.
Waller Lansden Dortch & Davis
511 Union Street, Suite 2100
Nashville, Tennessee 37219-1760
THIS LEASE (the "Lease"), made and entered into as of May 1, 1996, by
and between THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF LAWRENCEBURG, a
public non-profit corporation organized and existing under the laws of the
State of Tennessee (hereinafter called "Lessor"), and JONES APPAREL GROUP,
INC., a Pennsylvania corporation (hereinafter called "Lessee");
WITNESSETH:
WHEREAS, lessor is a public nonprofit corporation and a public
instrumentality of the City of Lawrenceburg, Tennessee, and is authorized under
Sections 7-53-101 to 7-53-311, inclusive, Tennessee Code Annotated, as amended
(hereinafter called the "Act"), to acquire, whether by purchase, exchange, gift,
lease, or otherwise, and to own, lease and dispose of properties for the public
purpose of prompting industry and developing trade by inducing manufacturing,
industrial governmental educational and commercial enterprises to locate in or
remain in the State of Tennessee and further the use of its agricultural
products and natural resources; and
WHEREAS, to induce Lessee to operate a clothing distribution center on
certain real property located in Lawrenceburg, Lawrence County, Tennessee,
Lessor has acquired such real property, and Lessor will lease said real property
and the building and improvements to be constructed thereon to Lessee on the
terms and conditions hereof; and
WHEREAS, to obtain funds for such purposes, Lessor will issue and sell its
Taxable Revenue Note, Series 1996 (Jones Apparel Group, Inc. Project) (herein
sometimes referred to as the "Note") in the principal amount of $5,000,000,
under and pursuant to the Act and the Note Agreement dated the date hereof (the
"Note Purchase Agreement") among Lessor, NationsBank of Tennessee, National
Association (the "Purchaser"), a national banking association with its principal
office in Nashville, Tennessee, and Lessee, and the proceeds from the sale of
the Note shall be disbursed in the manner and for the purposes hereinafter set
forth;
NOW, THEREFORE, Lessor, for and in consideration of the payments
hereinafter stipulated to be made by Lessee, and the covenants and agreements
hereinafter contained to be kept and performed by Lessee, does by these presents
demise, lease and let unto Lessee, and Lessee does by these presents hire,
lease and rent from Lessor, for the Term and upon the conditions hereinafter
stated, the premises described in Schedule A attached hereto and incorporated
herein (hereinafter called the "Land") together with the Building (as defined
herein), all other improvements now or hereafter located on the Land and any
and all other personal property now or hereafter located on the Land (excluding
Lessee's inventory);
UNDER AND SUBJECT, however, to the encumbrances, if any, shown on
Schedule B attached hereto and incorporated herein (the "Permitted
Encumbrances"); and
UNDER AND SUBJECT to the following terms and conditions:
- 1 -
<PAGE> 2
ARTICLE I
Definitions
Section 1.01. In addition to the words, terms and phrases elsewhere
defined in this Lease, the following words, terms and phrases as used in this
Lease shall have the following respective meanings:
"Act" means Sections 7-53-101 to 7-53-311, inclusive, of Tennessee Code
Annotated, as amended.
"All Unpaid Installments" means an amount equal to (i) the then unpaid
principal amount of the Note, premium, if any, and all interest accrued or to
accrue on and prior to the next succeeding date or dates on which the Lessor
may prepay the Note or on which the Note becomes due, whether by acceleration or
otherwise, and (ii) any additional rental due or to become due hereunder prior
to the time that the Note is paid in full, including without limitation any
unpaid fees and expenses of Lessor which are then due or will become due
prior to the time that the Note is paid in full.
"Assignment' means the Assignment Agreement of even date herewith
from the Lessor to the Purchaser.
"Authorized Lessee Representative" means the President, any Vice
President or the Treasurer of Lessee, except that Lessee may, by written notice
to the Purchaser, designate additional Authorized Lessee Representatives or
delete Authorized Lessee Representatives.
"Basic Rent" means the amounts described in Section 4.01 hereof.
"Building" means the improvements constructed on the Land in accordance
with the terms of the Construction Contract.
"Business Day" means any day other than a Saturday, a Sunday, or a public
holiday or the equivalent for banks generally under the laws of State of
Tennessee.
"Construction Contract" means the standard form of agreement dated
December 15, 1995 between Lessee and Contractor, as design/builder.
"Contractor" means Evers Construction Company, Inc.
"Deed of Trust" means the Deed of Trust dated as of the date hereof from
the Lessor for the benefit of the Purchaser with respect to the Project, of
record in Book 23, Page 175 Register's Office for Lawrence County, Tennessee.
"Environmental Indemnity" means the Environmental Law Compliance
Certificate and Indemnity Agreement dated as of the Closing Date between the
Lessee and the Purchaser.
"Guaranty" means that certain Guaranty Agreement dated as of the date
hereof from Lessee.
"Land" means the real property described in Schedule A attached hereto
and incorporated herein.
"Lease" means this instrument as originally executed or as it may from
time to time be supplemented or amended by one or more instruments supplemental
hereto.
"Leased Property" means the Land, the Building and all other improvements
now or hereafter located on the land and any and all personal property
now or hereafter located on the Land (excluding Lessee's inventory).
"Lessee Documents" means this Lease, the Note Purchase Agreement, the
Guaranty and the Environmental Indemnity.
"Note" means the Taxable Revenue Note, Series 1996 (Jones Apparel Group,
Inc. Project) in the principal amount of $5,000,000 issued by the Lessor.
"Noteholder" or "Purchaser" means NationsBank of Tennessee, National
Association, a national banking association with its principal office in
Nashville, Tennessee, as the original purchaser and registered owner of the
Note, and any subsequent registered owner of the Note.
- 2 -
<PAGE> 3
"Note Documents" means this Lease, the Note Purchase Agreement, the
Note, the Assignment and the Deed of Trust.
"Note Purchase Agreement" means the Note Agreement of even date
herewith among the Lessor, the Lessee and the Purchaser,
"Project" means Land, the Building and any personal property located
therein including any and all equipment used at or in connection with
the Project but excluding any inventory owned by Lessee.
"Term" means the term described in Section 3.01.
ARTICLE II
Acquisition and Completion of Project; Issuance of the
Note; Compliance with Laws; Lessee's Acceptance;
Permitted Contests; Assignment of Lessor's Rights
Section 2.01. Acquisition and Completion of the Project. Lessor has
acquired or will acquire title to the Project on the Closing Date with funds
provided by Lessee. Lessee agrees to complete the Project in accordance with
the plans and specifications as provided in Article X-V hereof and to lease the
Project from Lessor in accordance with the terms hereof.
Section 2.02. Agreement to Issue Note. In order to provide funds for
reimbursement of the Lessee for the costs of the acquisition and completion of
the Project as set forth in Section 2.01 hereof and certain costs incurred
in connection with the issuance of the Note, Lessor agrees that it will sell
the Note as provided in the Note Purchase Agreement.
Section 2.03. Use of Proceeds. The proceeds of the sale of the Note shall
be disbursed by the Purchaser as follows:
(a) $119,000 shall be paid to the Lawrenceburg Power System to pay for
the balance of the purchase price needed to acquire the Land.
(b) $41,646.70 shall be paid to or at the direction of the Lessee
to pay for certain costs in connection with the issuance of the Note.
(c) $4,839,353.30 shall be paid to NationsBank of Tennessee, N.A. as
Escrow Agent and Trustee (the "Escrow Agent") and disbursed as
provided in that certain Escrow and Security Agreement dated as
of May 1, 1996 by and among Lessor, Lessee and Escrow Agent.
Section 2.04. Lessor to Pursue Remedies Against Contract Subcontractors
and Suppliers and Their Sureties. In the event of default of the Contractor
or any other contractor, subcontractor or supplier under any contract made by
it in connection with the Project or in the event of breach of warranty with
respect to any material, workmanship or performance guarantee, Lessor will at
the request of Lessee promptly proceed (subject to Lessee's advice to the
contrary), either separately or in conjunction with others, to exhaust the
remedies of Lessor against the contractor, subcontractor or supplier so in
default and against each surety for the performance of such contract.
Lessee agrees to advise Lessor of the steps it intends to take in connection
with any such default. If Lessee shall so notify Lessor, Lessee may, m its
own name or in the name of Lessor, prosecute or defend any action or
proceeding or take any other action involving any such contractor,
subcontractor or surety which the Lessee deems reasonably necessary,
and in such event Lessor hereby agrees to cooperate fully with Lessee and to
take all action necessary to effect the substitution of Lessee for Lessor in
any such action or proceeding. Any amounts recovered by way of damages,
refunds, adjustments or otherwise in connection with the foregoing shall be
paid to Lessee.
Section 2.05. Use of Leased Property. Lessee is hereby granted and shall
have the right during the Term to occupy and use the Leased Property as a
facility for use as a clothing distribution center. Lessor agrees that at
Lessee's request and expense it will use all reasonable efforts to ensure that
such uses are and will continue to be lawful uses under all applicable zoning
laws and regulations.
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Section 2.06. Lessee's Acceptance of Leased Property. With regard to
Lessor but subject to Section 2.04, Lessee agrees to accept the Leased Property
in its condition on the date that title thereto was transferred to the Lessor
and assumes all risks, if any, resulting from any present or future, latent or
patent defects therein or from the failure of the Project to comply with all
legal requirements applicable thereto, reserving, however, any and all rights
of Lessee with respect to parties other than Lessor.
Section 2.07. Assignment of Lessor's Rights. Concurrently with the
execution of this Lease, Lessor will enter into the Assignment pursuant to
which the Lessor will assign to the Purchaser Lessor's rights under this Lease
as security for, among other things, the payment of the Note and other amounts
payable by Lessor or Lessee under the Note Purchase Agreement. Lessee hereby
consents to such assignment and agrees to make all payments to Lessor required
hereunder directly to the Purchaser without defense or set-off by reason of any
dispute between Lessee and Lessor. Lessee further agrees that upon such
assignment the Purchaser shall be entitled to enforce the provisions of this
Lease without regard to whether the Lessor is then in default with respect to
the Note or the Note Purchase Agreement. Concurrently with the execution
of this Lease, Lessor will also execute and deliver to the Purchaser the Deed
of Trust pursuant to which the Lessor grants to the Purchaser a lien on the
Project as security for the payment of the Note and as security for the
obligations of Lessor and Lessee under the Note Purchase Agreement and this
Lease.
Section 2.08. Authorized Lessee Representative. Anything herein
contained to the contrary notwithstanding, any notice, request, direction or
similar communication of Lessee required or permitted under this Article II
shall be executed by the Authorized Lessee Representative on behalf of the
Lessee, and the Purchaser shall not be obligated to accept or act upon any
such notice, request, direction or other communication unless it is made by
an Authorized Lessee Representative on behalf of the Lessee.
ARTICLE III
Lease Term
Section 3.01. Term. Subject to the provisions contained in this Lease,
this Lease shall be in full force and effect for a Term commencing on the
date hereof and ending at midnight, April 30, 2006; and provided further that
Lessee's obligations hereunder shall survive until principal of and interest
on the Note and all obligations of Lessor under the Note Purchase Agreement
are paid in full.
ARTICLE IV
Rent
Section 4.01. Basic Rent. Lessee will pay to Lessor without notice or
demand, as Basic Rent on June 5, 1996, and on each day thereafter on which any
interest or principal is due on the Note (whether by maturity, acceleration or
mandatory prepayment) an amount equal to the principal of and interest on the
Note, if any, due on such date; provided, that all such payments and all advance
payments of rent shall be made to the Purchaser, as assignee of the Lessor's
rights hereunder. Any payment of rent hereunder made, or deemed made, by
Lessee to Purchaser for the benefit of Lessor shall be deemed paid to Lessor
as if delivered to Lessor. All Basic Rent paid hereunder shall be absolutely
net to Lessor, free of any taxes, costs, expenses, liabilities, charges or
other deduction whatsoever with respect to the Leased Property and the
possession, operation, maintenance, repair, rebuilding or use thereof or of any
portion thereof, so that this Lease shall yield such rent net to or for the
account of Lessor throughout the Term.
Section 4.02. Advance Payment of Rent. The Lessee may at any time that
prepayment of the Note is permitted, at its option, pay in advance all or any
portion of any installment or installments of Basic Rent to become due hereunder
(which shall include any prepayment penalty payable under the Note). Any such
prepayment shall be applied first to accrued interest on the Note, and the
remainder, if any, to prepayment penalty, if any, and then to principal
installments on the Note in the inverse order of maturity. Upon full prepayment
of All Unpaid Installments, the Lessee shall have no further obligation to pay
Basic Rent during the remaining portion of the Term hereof.
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Section 4.03. Additional Rent. Lessee agrees to pay, as additional rent,
all other amounts, liabilities and obligations which Lessee herein assumes or
agrees to pay. In the event of any failure on the part of Lessee to pay any
such amounts, liabilities or obligations, Lessor shall have all rights, powers
and remedies provided for herein or by law or equity or otherwise in the case
of nonpayment of the Basic Rent. Lessee also agrees to pay Lessor, on demand,
as additional rent, to the extent legally enforceable, interest at the Default
Rate (as defined in the Note) on all overdue installments of Basic Rent.
Section 4.04. Payments Under Guaranty. All payments made by Lessee under
the Guaranty shall be credited as payments made by Lessee pursuant to Article IV
of this Lease.
ARTICLE V
Rent Absolute: State of Title; Restrictive Covenants
Section 5.01. No Termination or Abatement for Damage or Destruction, Etc.
except as otherwise expressly provided herein, and until the Note has been paid
in full, this Lease shall not terminate, nor shall Lessee have any right
to terminate this Lease or be entitled to the abatement of any rent or any
reduction thereof nor shall the obligations hereunder of Lessee be otherwise
affected, by reason of any damage to or the destruction of all or any part of
the Leased Property from whatever cause, the loss or theft of the Leased
Property or any part thereof the taking of the Leased Property or any portion
thereof by condemnation or otherwise, the prohibition, limitation or restriction
of Lessee's use of the Leased Property, or the interference with such use by
any private person or corporation, or by reason of any eviction by paramount
title or otherwise, or for any other cause whether similar or dissimilar to the
foregoing, any present or future law to the contrary notwithstanding, it being
the intention of the parties hereto that the Basic Rent and additional rent
reserved hereunder shall continue to be payable in all events and the
obligations of Lessee hereunder shall continue unaffected, unless the
requirement to pay or perform the same shall be terminated pursuant to an
express provision of this Lease.
Lessee acknowledges that Lessor has made no representations as to the
condition of the Leased Property. This Lease shall not terminate, nor shall
Lessee have any right to terminate this Lease, or be entitled to the abatement
of any rent or any reduction thereof, nor shall the obligations hereunder of
Lessee be otherwise affected, by reason of or due to the condition of the Leased
Property.
The obligations of Lessee to make the payments required in Article IV and
to perform and observe the other agreements on its part contained herein shall
be absolute and unconditional. Until such time as the principal of and
interest on the Note shall have been fully paid, Lessee (i) will not suspend
or discontinue any payments provided for in Article IV, (ii) will perform and
observe all of its other agreements contained in this Lease and (iii) except
as otherwise herein expressly provided will not terminate this Lease for any
cause including, without limiting the generality of the foregoing, failure of
Lessee to complete the Project, any acts or circumstances that may constitute
failure of consideration, destruction of or damage to the Leased Property,
commercial frustration of purpose, or any change in the tax or other laws of the
United States of America or any political subdivision thereof.
Section 5.02. No Termination for Insolvency. etc, of Lessor. Lessee
covenants and agrees that it will remain obligated under this Lease in
accordance with its terms, and that Lessee will not take any action to
terminate, rescind or avoid this Lease, notwithstanding the bankruptcy,
insolvency, reorganization, composition, readjustment, liquidation,
dissolution, winding-up or other proceedings affecting Lessor or Lessee or
any assignee thereof in any such proceeding and notwithstanding any action
with respect to this Lease which may be taken by any trustee or receiver of
Lessor or Lessee or any assignee thereof in any such proceeding, or by any
court in any such proceeding. Lessor covenants and agrees that it will not
voluntarily submit to any bankruptcy, insolvency, reorganization, composition,
readjustment, action for appointment of a receiver, liquidation, dissolution,
winding-up or other proceeding affecting it or any assignee under this Lease
without the prior written consent of Lessee, so long as Lessee is not in
default hereunder.
Section 5.03. Waiver of Rights by Lessee. Until such time as the principal
of, premium, if any, and interest on the Note shall have been paid in full
Lessee waives, to the extent legally permissible, all rights now or hereafter
conferred, by law (i) to quit, terminate or surrender this Lease or the Leased
Property or any part thereof or (ii) to any abatement, suspension, deferment or
reduction of the Basic Rent or additional rent or any other sums payable under
this Lease, except as otherwise expressly provided herein, regardless of whether
such rights shall arise from any present or future constitution, statute or rule
of law.
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Section 5.04. Condition and Title of Leased Property. Lessee acknowledges
that Lessor has acquired title to the Land from the Lawrenceburg Power System.
Lessee further acknowledges that it has examined the Land and the state of
title thereto prior to the making of this Lease and Lessee represents that
Lessor has fee simple title to the Land, subject only to Permitted Encumbrances.
Notwithstanding the foregoing, no failure of or defect in Lessor's title or
delay shall terminate this Lease or entitle Lessee to any abatement, in whole
or in part, of any of the rentals or any other sums provided to be paid by
Lessee pursuant to any of the terms of this Lease.
Lessor makes no warranty, either express or implied, that the Leased
Property will be suitable for Lessee's purposes or needs.
Section 5.05. No Conveyance of Title by Lessor. Lessor covenants and
agrees that, during the Term of this Lease and if Lessee shall then not be in
default under this Lease, it will not convey, or suffer or permit the
conveyance of, by any voluntary act on its part, its title to the Project to
any person, firm or corporation whatsoever, irrespective of whether any such
conveyance or attempted conveyance shall recite that it is expressly subject
to the terms of this Lease; provided, however, that nothing herein shall
restrict the conveyance or transfer of the Project in accordance with
any terms or requirements of this Lease.
ARTICLE VI
Taxes and Other Charges
Section 6.01. Payment by Lessee - General. Lessee agrees, subject to the
provisions of Section 13.02 to pay and discharge, as additional rent, punctually
as and when the same shall become due and payable, each and every cost, expense
and obligation of every kind and nature, foreseen or unforeseen, for the
payment of which Lessor or Lessee is or shall become liable by reason of its
estate or interest in the Leased Property or any portion thereof by reason of
any right or interest of Lessor or Lessee in or under this Lease, or by reason
of or in any manner connected with or arising out of the possession, operation,
maintenance, alteration, repair, rebuilding or use of the Leased Property.
Section 6.02. Taxes and Other Governmental Charges. Lessee agrees,
subject to the provisions of Sections 6.08 and 13.02, to pay and discharge, as
additional rent, punctually as and when the same shall become due and payable
without penalty, all real estate taxes, personal property taxes, business and
occupation taxes, occupational license taxes, water charges, sewage charges,
assessments (including, but not limited to, assessments for public improvements
or benefits) and all other governmental taxes, impositions and charges of every
kind and nature, extraordinary or ordinary, general or special unforeseen or
foreseen, whether similar or dissimilar to any of the foregoing, which at any
time during the Term shall be or become due and payable by Lessor or
Lessee and which shall be levied, assessed or imposed:
(i) upon, or which shall be or become liens upon, the Leased Property
or any portion thereof or any interest of Lessor or Lessee therein
or under this Lease;
(ii) upon or with respect to the possession, operation, maintenance,
alteration, repair, rebuilding, use or occupancy of the Leased
Property or any portion thereof; or
(iii) upon this transaction or any document to which Lessee is a party
creating or transferring an interest or an estate in the Leased
Property;
under and by virtue of any present or future law, statute, regulation or other
requirement of any governmental authority, whether federal, state, county, city,
municipal or otherwise; provided, however, Lessee shall have no liability (a)
for any tax, charge, assessment or imposition attributable to properties or
operations of Lessor not involving the Leased Property, or (b) with respect
to payment of any income taxes or similar taxes imposed upon Lessor. It is
the intention of the parties hereto that, insofar as the same may be lawfully
done, Lessor shall be free from all costs, expenses and obligations and
all such taxes, water charges, sewer charge, assessments and all such other
governmental impositions and charges, and that this Lease shall yield net to
Lessor not less than the Basic Rent reserved hereunder throughout the Term.
Section 6.03. Lessee Subrogated to Lessor's Rights. To the extent of any
payments of additional rent by Lessee under this Article VI, Lessee shall be
subrogated to Lessor's rights in respect to the proceedings or matter which
cause the Basic Rent to be insufficient and any recovery by Lessor or release
by Lessor of moneys in such proceedings or matter shall be used to reimburse
Lessee for the amount of such additional rent so paid by Lessee, provided always
that the Basic Rent is paid in the manner and at the time herein set forth.
Section 6.04. Utility Services. Lessee agrees to pay or cause to be paid
all charges for gas, water, sewer, electricity, light, heat, power, telephone
and other utility services used, rendered or supplied to, upon or in connection
with the Leased Property. Lessee agrees that Lessor is not, nor shall it be,
required to furnish to Lessee or any other user of the Leased Property any gas,
water, sewer, electricity, light, heat, power or any other facilities,
equipment, labor, materials or services of any kind.
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<PAGE> 7
Section 6.05. Fees and Expenses of Lessor. Lessee agrees to pay as
additional rent, or cause to be paid, the expenses of Lessor and Purchaser
relating to the Leased Property or to Lessor's or Purchasee's rights or
obligations hereunder or under the Note Purchase Agreement, whether or not
such fees or expenses are payable before the commencement of, during, or after
the expiration of the Term.
Section 6.06. Proof of Payment. Lessee covenants to furnish to Lessor,
promptly upon request, proof of the payment of any tax, assessment, and other
governmental or similar charge, and any utility charges, which is payable by
Lessee as provided in this Article.
Section 6.07. Proration. Upon expiration or earlier termination of this
Lease taxes, assessments and other charges which shall be levied, assessed or
become due upon the Leased Property or any part thereof shall be prorated to
the date of such expiration or earlier termination with the Lessee being
responsible for the payment of any such taxes, assessments and other changes
to the date of termination or expiration.
Section 6.08. Payments in Lieu of Taxes. Lessor and Lessee recognize
that under present law, including specifically Section 7-53-305 of the Act, the
properties owned by Lessor are exempt from all taxation in the State of
Tennessee. However, Lessee agrees to make payments in lieu of taxes to
Lawrence County and the City of Lawrenceburg in accordance with the provisions
of this Section 6.08. For the years 1996 through and including 2002, no such
payments in lieu of taxes shall be payable to either Lawrence County or the City
of Lawrenceburg. For the years 2002 through and including 2006, such payments
in lieu of taxes shall equal the percentage specified below (the "Applicable
Percentage") multiplied by such amounts as would result from taxes levied upon
the Project by Lawrence County and the City of Lawrenceburg if the Project
were owned by Lessee. To this end, it is agreed by and between the parties
hereto that Lessor in cooperation with Lessee shall cause the Project to be
valued and assessed by the assessor or cause the Project to be valued and
assessed by the assessor or other official or officials charged with the
responsibility of assessing privately owned property in the area where the
Project is located at the time such privately owned property is valued or
assessed, shall cause to be applied to the appropriate taxable value of the
Project the tax rate or rates which would be applicable for state and local tax
purposes if the property were then privately owned, and shall cause the county
trustee or other official or officials charged with the responsibility of
collecting taxes to submit annually to Lessee a statement of the taxes which
would otherwise then be chargeable to the Project, and the Applicable Percentage
of the amount thereof shall be paid by Lessee to Lawrence County and the City of
Lawrenceburg, as the case may be; provided, however, that the right is reserved
to Lessee to the same extent as if Lessee were the owner of the Project to
contest the validity or amount of any such payment in lieu of taxes.
It is the intent of this Section 6.08 that Lawrence County and the City of
Lawrenceburg shall receive the Applicable Percentage of the amounts which would
be payable if the Project were privately owned and fully subject to property
taxation, notwithstanding Lessor's ownership of all or any part thereof.
However, nothing contained in this Section 6.08 is intended or shall be
construed to require the payment by Lessee of any greater amounts in lieu of
taxes than would be payable as taxes if the Project were privately owned as
aforesaid. It is accordingly understood and agreed that the amount payable
by Lessee in any year under the provisions of this Section 6.08 shall be
reduced by the amount of any taxes lawfully levied upon the Project or any part
thereof, or upon Lessee's leasehold estate therein, and actually paid by Lessee
pursuant to the requirements of Section 6.08 hereof.
The percentages shall be as follows:
Year Percentage
---- ----------
2002 20%
2003 40%
2004 60%
2005 80%
2006 and thereafter 100%
The payments in lieu of taxes provided in this Section 6.08 shall be due on or
before the last day of February for the payments with respect to the immediately
preceding year. Lessee shall receive a credit against the payments in lieu of
taxes described above for (i) all payments of ad valorem taxes, ff any, with
respect to the Project and (ii) all ad valorem taxes paid by the Lessee with
respect to its leasehold interest in the Project. Any such payments of taxes
shall be deducted from the payments in lieu of taxes in the order in which
such payments in lieu of taxes are due.
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ARTICLE VII
Insurance
Section 7.01. The Lessee agrees to obtain and maintain, or cause to be
maintained, insurance with respect to the Leased Property, in accordance with
its customary insurance practices, but not less than $500,000 for each
occurrence in liability limits with respect to public liability insurance and
at least $5,000,000 aggregate liability with Purchaser named as additional
insured.
ARTICLE VIII
Maintenance and Repair
Section 8.01. Maintenance of Building and Equipment, Lessee, at its
expense, will keep and maintain the Building and equipment in good repair and
appearance. So long as Lessor has title to the Building and equipment, Lessee
shall promptly make, or cause to be made, all repairs, interior and exterior,
structural and nonstructural, ordinary and extraordinary, foreseen and
unforeseen, necessary to keep the Building and equipment in good and lawful
order and condition, wear and tear from reasonable use excepted, whether or
not such repairs are due to any law, rules, regulations or ordinances hereafter
enacted which involve a change of policy on the part of the governmental body
enacting the same, provided, however, that if the Note has been paid in full,
Lessee, in lieu of malting any structural or extraordinary repairs required
during the Term, may elect to terminate this Lease, and in such event Lessee
shall have no further rights or obligations hereunder except its rights under
Article XVIII.
Section 8.02. Lessor Not Required to Repair. Lessor shall not be required
to make any repairs, replacements or renewals of any nature or description to
the Leased Property or to make any expenditures whatsoever in connection with
this Lease or to maintain the Leased Property in any way. Lessee expressly
waives the right contained in any law now or hereafter in effect to make any
repairs at the expense of Lessor.
ARTICLE IX
Condemnation
Section 9.01. Awards Assigned to Lessor. If, during the Term, all or any
part of the Leased Property be taken by the exercise of the power of eminent
domain or condemnation, or sold under the threat of condemnation, Lessor shall,
subject to the terms of the Deed of Trust, be entitled to, and shall receive,
the entire award for the taking.
Section 9.02. Condemnation of all or Material Part of Leased Property.
(a) If title to, or the temporary use or control of, all or
substantially all of the Leased Property, shall be taken by the exercise of the
power of eminent domain or condemnation, or sold under the threat of
condemnation, or if such use or control of a substantial part of the Leased
Property shall be so taken or so sold as results in rendering the Leased
Property unsatisfactory to Lessee for the purposes for which the same was used
immediately prior to such taking or condemnation (to be determined in the sole
judgment of Lessee), Lessee shall purchase for cash Lessor's interest in the
remaining portion of the Leased Property not taken or sold, and such purchase
shall be made as of the first day of the first month occurring subsequent to
sixty (60) days after the effective date of such taking or sale. The purchase
price for Lessor's interest in the remaining portion of the Leased Property not
taken or sold, shall be equal to All Unpaid Installments plus $100. Lessee
shall deliver to Lessor and the Purchaser at least thirty (30) days before
the date of purchase a certificate, signed by an Authorized Lessee
Representative, to the effect that title to, or the temporary use or control
of, all or substantially all of the Leased Property has been taken by the
exercise of the power of eminent domain or condemnation or sold under the
threat of the exercise of such power.
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<PAGE> 9
(b) On the date of purchase the purchase price shall be paid as follows:
(i) an amount equal to the unpaid principal amount of the Note,
plus any prepayment penalty, and interest accrued thereon to
the purchase date shall be paid to the Purchaser as the
assignee of the Lessor to be applied to the payment of
corresponding amounts of principal of, premium, if any, and
interest on the Note; and
(ii) the balance of the purchase price shall be paid to the
Lessor.
Upon payment of the purchase price in cash, Lessor shall convey Lessor's
interest in the remaining portion, if any, of the Leased Property to Lessee,
subject to and pursuant to Article XVIII.
Section 9.03. Condemnation of Less than Material Part of Leased Property.
(a) If a lesser portion of the Leased Property be taken by exercise of
the power of eminent domain or condemnation or sold under the threat of
condemnation, this Lease shall nevertheless continue in full force and effect
without abatement of rent (except such rental reduction as results from a
partial prepayment of the Note) and if such taking or sale shall have caused
damage to, or necessitated restoration or rebuilding of, any of the improvements
on the Land, Lessee, at its sole cost and expense, may at its option restore
such improvement to such condition as shall be reasonable in view of the
nature of the taking or the sale and the then intended use of the Leased
Property by Lessee, whether or not the award for the taking or the proceeds
from a sale under threat of condemnation are sufficient for the purpose.
Except as provided in Section 9.03(b) hereof if the Lessee shall not elect to so
restore the Leased Property, the Lessee shall purchase for cash the remaining
portion of the Leased Property, and such purchase shall be made as of the first
day of the first month occurring subsequent to sixty (60) days after the
effective date of such taking or sale. The Lessee shall deliver to the Lessor
and the Purchaser at least thirty (30) days before such date a certificate
signed by an Authorized Lessee Representative to the effect that such lesser
portion of the Leased Property has been taken or sold and stating whether or
not the Lessee is exercising its option to restore the Leased Property. If
the Lessee shall not elect to so restore the Leased Property, the Lessee, the
Lessor and the Purchaser shall proceed as provided in Section 9.02. If the
Lessee shall elect to restore the Leased Property, the Lessee shall promptly
begin and diligently proceed with such restoration.
(b) So long as the Note has not been paid in full the Lessee shall file
with the Lessor and the Purchaser a certificate stating that the restoration and
rebuilding required by this Section 9.03 have been completed and certifying the
cost thereof or stating that such restoration and rebuilding are not required,
as the case may be. If there shall remain any balance of the proceeds of such
taking or sale under threat of condemnation, the Lessee shall apply the balance
to the payment of interest and the remainder to the prepayment of principal
installments of the Note in the inverse order of maturity. In lieu of such
rebuilding or restoring as herein provided, Lessee may apply the entire amount
of the proceeds of such taking or sale under threat of condemnation to the
payment of interest and the remainder to the prepayment of principal
installments of the Note in the inverse order of maturity.
Section 9.04. Notice of Condemnation. In the case of any taking or
proposed taking of all or any part of the Leased Premises, the Lessee shall give
prompt notice to the Lessor and the Purchaser. Each such notice shall describe
generally the nature and extent of such taking, loss, proceeding or
negotiations.
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ARTICLE X
Casualty
Section 10.01. Lessee to Rebuild or Repair. Subject to the provisions of
Section 10.02 hereof, if during the Term all or any material part of the Leased
Property shall be destroyed or materially damaged, Lessee shall promptly notify
Lessor, and at Lessee's expense Lessee shall promptly and diligently rebuild,
restore, replace and repair the same in such manner as to restore the Leased
Property, to at least the market value thereof immediately prior to such damage
or destruction.
Section 10.02. Major Casualty Lessee May Terminate. If during the Term,
the Leased Property or any material part thereof shall be materially damaged
or destroyed to such an extent as to render the Leased Property unsatisfactory
to Lessee for the purposes for which the same were used immediately prior to
such damage or destruction, or if Lessee deems it unwise to rebuild, repair
and restore the Leased Property, Lessee, in lieu of rebuilding, restoring,
replacing and repairing the Leased Property, shall purchase Lessor's interest
in the remainder of the Leased Property, and such purchase shall be made as
of the first day of the first month occurring subsequent to Sixty (60) days
after the effective date of such damage or destruction. The purchase price
for Lessor's interest in the remaining portion of the Leased Property shall be
equal to All Unpaid Installments plus $100. The Lessee shall deliver to the
Lessor and the Purchaser at least thirty (30) days before such date a
certificate signed by an Authorized Lessee Representative to the effect that
such damage or destruction has occurred and stating whether or not the Lessee
is exercising its option to restore the Leased Property. If the Lessee shall
not elect to so restore the Leased Property, the Lessee, the Lessor
and the Purchaser shall proceed as provided in Section 9.02(b).
Notwithstanding any other provision hereof if all or any part of the
Project shall be destroyed or damaged after the Note has been paid in full,
(i) Lessee shall have no obligation to effect the repair or restoration of the
Leased Property and (ii) Lessee may elect by written notice to Lessor to
terminate this Lease, in which event Lessee shall have no further liability
hereunder.
Section 10.03. Application of Insurance Proceeds. So long as Lessee is
not default, any insurance proceeds received as a result of a casualty to which
this Article X applies shall be applied
(a) to the extent that Section 10.01 is applicable, to the extent
necessary to the rebuilding, restoration, replacement and repair
of the Leased Property, provided that in the event of a major
casualty the consent of the Purchaser shall be required, or
(b) to the extent that Section 10.02 is applicable, to the extent
necessary to purchase Lessor's interest in the remainder of the
Leased Property as provided in Section 9.02(b),
and in either event any excess proceeds shall be paid to Lessee.
Section 10.04. Notice of Casualty. In the case of any material damage to
or destruction of all or any part of the Leased Property, the Lessee shall give
prompt notice thereof to the Lessor and the Purchaser. Each such notice shall
describe generally the nature and extent of such damage, destruction, loss,
proceeding or negotiations.
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ARTICLE XI
Additions, Alterations, Improvements,
Replacements and New Construction
Section 11.01. Additions, Alterations and Improvements by Lessee. Lessee
shall have the right to make additions to, alterations of, and improvements on
the Building, structural or otherwise, and to construct additional facilities,
at its expense; provided, however, that the Lessee shall not make any
alterations to the Building or construct any additions thereto the cost of
which alteration or construction exceeds $50,000 without the prior written
consent of the Purchaser.
With the prior written consent of Purchaser, Lessee shall have the
privilege of erecting any additional buildings and of remodeling the Building
from time to time as it in its discretion may determine to be desirable for its
uses and purposes, with no obligation to restore or return the Building to its
original condition, but the cost of such new building or buildings and
improvements and remodeling shall be paid for by it and upon the expiration
or termination of this Lease shall belong to and be the property of
Lessor absent the exercise of Lessee's option to purchase the Project
as hereinafter provided.
Section 11.02. Installation and Removal of Equipment by Lessee. Lessee
may at any time or times during the Term install or commence the installation
of any equipment, machinery, furniture or fixtures as Lessee may deem desirable
but any such property shall become the property of the Lessor subject to
Lessee's purchase option provided by Article XVIII hereof; Lessee may also
remove any obsolete equipment, machinery, furniture or fixtures; provided,
however, that Lessee shall use due care in connection with such removal to
avoid damage to the Building and any proceeds received from the disposal of
such obsolete property shall be used to prepay rents.
Section 11.03. Additions and Alterations Not to Diminish Value of Leased
Property. The Leased Property as improved or altered upon completion of
additions, alterations, improvements or construction made pursuant to the
provisions of this Article XI shall be of a value of not less than the value
of the Leased Property immediately prior to the making of such additions,
alterations, improvements or the construction of additional facilities.
Section 11.04. Quality of Work; Compliance With Laws; Insurance. All
work done in connection with such additions, alterations, improvements or
construction, or repair or restoration in the event of condemnation, damage or
destruction shall be done promptly, and in good and workmanlike manner, and in
material compliance with all laws, ordinances, orders, rules, regulations and
requirements of all federal, state and municipal governments and the appropriate
departments, commissions, boards and offices thereof. Lessee shall maintain or
cause to be maintained, at all times when any work is in process in connection
with such additions, alterations, improvements or construction, workmen's
compensation insurance covering all persons employed in connection with such
work and with respect to whom death or bodily injury claims could be asserted
against Lessor, Lessee or the Leased Property.
ARTICLE XII
Subletting, Assignments and Mortgaging
Section 12.01. Continuing Obligations of Lessee. Without the prior written
consent of Purchaser, Lessee may not sublet the Leased Property or any part
thereof and may not assign, mortgage, encumber or otherwise transfer any of
its rights and interest hereunder.
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<PAGE> 12
ARTICLE XIII
Performance of Lessee's Obligations
by Lessor: Permitted Contests
Section 13.01. Performance of Lessee's Obligations by Lessor. If Lessee at
any time shall fail to make any payment or perform any act on its part to be
made or performed under this Lease, then, subject to the provisions of Section
13.02, Lessor may (but shall not be obligated to), upon ten days' prior written
notice to Lessee and without waiving or releasing Lessee from any obligations or
default of Lessee hereunder, make any such payment or perform any such act for
the account and at the expense of Lessee, and may enter upon the Leased Property
for the purpose and take all such action thereon as may be reasonably necessary
therefor. No such entry shall be deemed an eviction of Lessee. All sums so
paid by Lessor and all necessary and incidental costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) incurred in
connection with the performance of any such act by Lessor, together with
interest, to the extent legally enforceable, at the Default Rate (as defined in
the Note) from the date of the making of such payment or the incurring of such
costs and expenses by Lessor, shall be deemed additional rent hereunder and
shall be payable by Lessee to Lessor on demand, and Lessee covenants to pay any
such sum or sums with interest as aforesaid.
Section 13.02. Permitted Contests. Lessee shall not be required to pay,
discharge or remove any tax, lien or assessment, or any mechanics, laborer's or
materialman's lien, or any other lien or encumbrance, or any other imposition or
charge against the Leased Property or any part thereof, so long as Lessee shall,
at Lessee's expense, contest the same or the validity thereof in good faith, by
appropriate proceedings which shall operate to prevent the collection of the
tax, lien, assessment, encumbrance, imposition, charge, fine or penalty so
contested or resulting from such contest and the sale of the Leased Property
or any part thereof to satisfy the same. Such contest may be made by Lessee
in the name of Lessor or of Lessee, or both, as Lessee shall determine, and
Lessor agrees that it will, at Lessee's expense, cooperate with Lessee in any
such contest to such extent as Lessee may reasonably request. It is
understood, however, that Lessor shall not be subject to any liability for the
payment of any costs or expenses in connection with any such proceeding brought
by Lessee, and Lessee covenants to pay, and to indemnify and save harmless
Lessor from, any such costs or expenses and shall provide Purchaser with such
security as Purchaser shall request. Pending any such proceeding Lessor shall
not have the right to pay, remove or cause to be discharged the tax, lien,
assessment, encumbrance, imposition or charge thereby being contested, provided,
that Lessee shall have given such security as may be required in the
proceeding and such reasonable security as may be demanded by Lessor or the
Purchaser to insure such payment and prevent any sale or forfeiture of the
Leased Property or any part thereof by reason of such nonpayment, and provided
further that Lessor would not be in substantial danger of civil or any danger of
criminal liability by reason of such nonpayment.
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<PAGE> 13
ARTICLE XIV
Events of Default; Termination
Section 14.01. If any one or more of the following events (herein
individually alleged an "Event of Default") shall happen:
(a) non-payment when due of any payment of Basic Rent, or
(b) default by the Lessee in the due observance or performance
of any term, covenant, condition or agreement on its part to be
performed under this Lease (other than a default under subsection
(a) above) continued for thirty (30) days after written notice
specifying such default has been given to the Lessee;
then in any such event (regardless of the pendency of any proceeding which has
or might have the effect of preventing Lessee from complying with the terms of
this Lease) Lessor at any time thereafter may give a written termination notice
to Lessee, and, subject to the provisions of Section 17.01 relating to the
survival of Lessee's obligations, the Term shall expire and terminate by
limitation and all rights of Lessee under this Lease shall cease.
ARTICLE XV
Title of Property and Completion of Project. Lessee represents that all
property located at the Project is or shall be titled in the name of the Board
(excluding Lessee's inventory) and any property to be acquired after the date
hereof for use at the Project will be acquired in the name of the Board. Lessee
will furnish the Board upon request evidence of compliance with this covenant.
Lessee has heretofore furnished Lessor with plans and specifications for the
Project. Lessee agrees to complete the Project in accordance with the plans
and specifications by no later than December 1, 1996. Lessee agrees not to
make any changes to the plans and specifications without the prior written
consent of Lessor.
ARTICLE XVI
Additional Expenses. Lessee agrees to pay any and all costs, including
attorney's fees, incurred by Lessor and/or Purchaser in enforcing or monitoring
the Lease or any of the Note Documents. Any such costs shall be due and payable
on demand.
ARTICLE XVII
Survival of Lessee's Obligations; Subordination
Section 17.01. Lessee's Obligations to Survive Expiration. No expiration
of the Term pursuant to Section 14.01 shall relieve Lessee of its liability and
obligations hereunder, all of which shall survive any such expiration.
Section 17.02. Subordination. Lessee acknowledges and agrees that the
terms of this Lease are and at all times shall be subordinate to the Deed of
Trust.
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<PAGE> 14
ARTICLE XVIII
Purchase and Purchase Prices
Section 18.01. Option to Purchase. At any time during the Term,
and provided that amounts owing under the Note are paid at such time and
all defaults hereunder are cured, Lessee shall have an option to Purchase the
Leased Property for an amount equal to All Unpaid Installments plus the sum of
$100. Lessee shall deliver to Lessor and the Purchaser at least thirty (30)
days before the proposed date of purchase a notice signed by an Authorized
Lessee Representative stating that Lessee desires to exercise its option to
purchase under the provisions of this Section on the date specified in such
notice. On the proposed date of purchase the purchase price shall become due
and payable and upon payment of the purchase price, in cash, Lessor shall
convey the Leased Property to Lessee subject and pursuant to this Article.
The purchase price shall be paid as follows:
(i) an amount equal to the unpaid principal amount of the Note, premium,
if any, and interest accrued thereon to the purchase date shall be
paid to the Purchaser as the assignee of the Lessor to be applied
to the payment of corresponding amounts of principal of, premium, if
any, and interest on the Note; and
(ii) the balance of the purchase price shall be paid to the Lessor.
Section 18.02. Conveyance on Purchase. In the event of any Purchase of
the Leased Property by Lessee pursuant to any provision of this Lease, Lessor
shall (i) convey merchantable title to the Leased Property, but Lessor shall not
be obligated to give or assign any better title to Lessee than existed on the
first day of the Term. In the event of any purchase of the Leased Property by
Lessee pursuant to any provision of this Lease, Lessor shall convey title free
of any liens, encumbrances, charges, exceptions and restrictions created or
caused by Lessor. Although Lessor shall exercise its option to convey title
to the Leased Property as aforesaid on the date of purchase upon receipt of
the purchase price therefor, Lessor shall nevertheless have such additional
time as is reasonably required by Lessor to deliver or cause to be delivered
to Lessee all instruments and documents reasonably required by Lessee and
necessary to remove from record or otherwise discharge any liens, encumbrances,
charges or restrictions in order that Lessor may convey title as aforesaid.
Section 18.03. Charges Incident to Conveyance. Lessee shall pay all
charges incident to any conveyance, including any escrow fees, recording fees,
title insurance premiums and any applicable federal, state or local taxes
and the like, including any federal or local documentary or transfer taxes.
Section 18.04. Payment of Purchase Price. Notwithstanding any other
provisions hereof, this Lease shall not terminate on the date on which
Lessee shall be obligated to purchase the Leased Property (whether or not any
delay in the completion of such purchase shall be the fault of Lessor), nor
shall Lessee's obligations hereunder cease until Lessee shall have paid the
purchase price then payable for the Leased Property, without set-off,
counterclaim, abatement, suspension, deduction, diminution, or defense for any
reason whatsoever, so long as the Note has not been paid in full and until
Lessee shall have discharged or made provision satisfactory to Lessor for the
discharge of, all of its obligations under this Lease, which obligations have
arisen on or before the date for the purchase of the Leased Property, including
the obligation to pay the Basic Rent due and payable on the date for the
purchase of Lessor's interest in the Leased Property.
ARTICLE XIX
Miscellaneous
Section 19.01. Waiver of Rights. This Lease shall not be affected by any
laws, ordinances, or regulations, whether federal, state, county, city,
municipal or otherwise, which may be enacted or become effective from and after
the date of this Lease affecting or regulating or attempting to affect or
regulate (i) the Basic Rent and other amounts herein reserved or (ii) the
continuing in occupancy of Lessee or any sublessees, transferees or assignees
of Lessee's interest in the Leased Property beyond the dates of termination of
their respective leases, or otherwise.
Lessee also waives its statutory rights of redemption, if any, including
those set forth in Tennessee Code Annotated 66-8-101 et seq., its equitable
right of redemption and agrees that it will not set up, claim or seek to take
advantage of any appraisement, valuation, stay, extension, or other exemption
to hinder or prevent the enforcement of the Deed of Trust. Lessee further
waives the benefit of all laws and an right to have assets securing the Note
marshalled upon any foreclosure or sale.
Section 19.02. Non-Waiver by Lessor. No failure by Lessor or by any
assignee to insist upon the strict performance of any term hereof or to exercise
any right, power or remedy consequent upon a breach thereof, and no acceptance
of the Basic Rent, in full or in part, during the continuance of such breach,
shall constitute a waiver of such breach or of such term. No waiver of any
breach shall affect or alter this Lease or constitute a waiver of a then
existing or subsequent breach.
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<PAGE> 15
Section 19.03. Remedies Cumulative. Each right, power and remedy of
Lessor provided for in this Lease shall be cumulative and concurrent and shall
be in addition to every other right, power or remedy provided for in this
Lease or now or hereafter existing at law or in equity or by statute or
otherwise, in any jurisdiction where such rights, powers and remedies are
sought to be enforced, and the exercise or beginning of the exercise by Lessor
of any one or more of the rights, powers or remedies provided for in this Lease
or now or hereafter existing at law or in equity or by statute or otherwise
shall not preclude the simultaneous or later exercise by Lessor of any or all
such other rights, powers or remedies.
Section 19.04. Surrender of the Leased Property. Except as otherwise
provided in this Lease, Lessee shall, upon the expiration or termination of
this Lease for any reason whatsoever, surrender the Leased Property to Lessor
in good order, condition and repair, except for uninsured war damage and
reasonable wear and tear.
Section 19.05. Acceptance of Surrender. No surrender to Lessor of this
Lease or of the Leased Property or any part thereof or of any interest therein
shall be valid or effective unless agreed to and accepted in writing by Lessor,
and no act by any representative or agent of Lessor, and no act by Lessor, other
than such a written agreement and acceptance by Lessor, together with the
concurring written consent of the Purchaser if the Note has not been paid in
full shall constitute an acceptance of any such surrender.
Section 19.06. No Claims Against Lessor. Nothing contained in this Lease
shall constitute any consent or request by Lessor, expressed or implied, for the
performance of any labor or services or the furnishing of any materials or other
property in respect of the Leased Property or any part thereof nor give Lessee
any right, power or authority to contract for or permit the performance of any
labor or services or the furnishings of any materials or other property in such
fashion as would permit the making of any claim against Lessor.
Section 19.07. Amendments, Changes and Modification. Subsequent to the
sale of the Note, this Lease may not be effectively amended, changed, modified,
altered or terminated without the concurring written consent of the Purchaser.
Section 19.08. Applicable Law. This Lease shall be governed exclusively
by the provisions hereof and by the applicable laws of the State of Tennessee,
except to the extent that Federal law may govern any rate of interest.
Section 19.09. Severability. In the event that any clause or provision of
this Lease shall be held to be invalid by any court of competent jurisdiction,
the invalidity of such clause or provision shall not affect any of the remaining
provisions hereof.
Section 19.10. Notices and Demands. All notices, certificates, demands,
requests, consents, approvals and other similar instruments under this Lease
shall be in writing (including telegraphic, telecopy or telex communication) and
mailed by first-class United States mail, postage prepaid, telecopied, telexed
or telegraphed or delivered at the following address: (a) if to Lessee addressed
to Jones Apparel Group, Inc., 250 Rittenhouse Circle, Bristol, Pennsylvania
19007, Attention: Chief Financial Officer; (b) if to Lessor addressed to The
Industrial Development Board of the City of Lawrenceburg, c/o Alan C. Betz,
Esq., White & Betz, 22 Public Square, Lawrenceburg, Tennessee 38464-0488; and
(c) if to the Purchaser addressed to NationsBank of Tennessee, National
Association, 255 N. Military Avenue, Lawrenceburg, Tennessee 38464, Attention:
Timothy E. Pettus; or, with respect to any of the foregoing, at such address
as it may have designated, from time to time, by written notice to the rest of
the foregoing. Lessor shall promptly forward to Lessee copies of any notice
received by it from the Purchaser under the Note Purchase Agreement. All such
notices and communications shall, when mailed or telegraphed, be effective three
days after deposit in the mails or delivery to the telegraph company, addressed
as aforesaid. All such notices and communications otherwise transmitted shall
be effective upon receipt by the addressee.
Section 19.11. Headings and References. The headings in this Lease are
for convenience of reference only and sell not define or limit the provisions
thereof. All references in this Lease to particular Articles or Sections are
references to Articles or Sections of this Lease, unless otherwise indicated.
Section 19.12. Successors and Assigns. The terms and provisions of this
Lease shall be binding upon and inure to the benefit of the parties hereto and
their respective successors end assigns.
Section 19.13. Multiple Counterparts. This Lease may be executed in
multiple counterparts, each of which shall be an original but all of which
together shall constitute but one and the same instrument.
Section 19.14. Quiet Possession Lessee, by keeping and performing the
covenants and agreements on its part herein contained, shall at all times during
the Term peaceably and quietly have, hold and enjoy the Leased Property
without suit, trouble or hindrance from Lessor or its successors or assigns.
Section 19.15. Amendments, Changes and Modifications of the Note. Lessor
and Lessee covenant and agree during the Term that they will not, without the
prior written consent of Purchaser, enter into or consent to any amendment,
change or modification of the Note Documents.
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<PAGE> 16
Section 19.16. No Liability of Officers, Etc. No recourse under or upon
any obligation, covenant or agreement contained in this Lease shall be had
against any incorporator, member, director or officer, as such, past, present or
future, of the Lessor, either directly or through the Lessor. Any and all
personal liability of every nature, whether at common law or in equity, or by
statute or by constitution or otherwise, of any such incorporator, member,
director or officer is hereby expressly waived and released by Lessee as a
condition of and consideration for the execution of this Lease.
Section 19.17. No Usury. No provision in this Lease shall require the
payment or permit the collection of interest in excess of the maximum permitted
by law. If any excessive interest in such respect is hereby provided for, or
shall be adjudicated to be so provided for herein, the provisions of this
paragraph shall govern, and the undersigned shall not be obligated to pay the
amount of such interest to the extent that it is in excess of the amount
permitted by law. In the event Lessor or the Purchaser shall collect monies
hereunder or otherwise which are deemed to constitute interest which would
increase any effective interest rate to a rate in excess of that permitted to
be charged by applicable law, all such sums deemed to constitute interest in
excess of the legal rate shall be immediately returned to the payor thereof upon
such determination.
Section 19.18. Recording. This Lease and every supplement and modification
hereof (or a memorandum thereof) shall be recorded in the Register's Office of
Lawrence County, Tennessee, or in such other office as may be at the time
provided by law as the proper place for the recordation of a deed conveying
the Land.
Section 19.19. Indemnification and Non-Liability of Lessor. Lessee
covenants and agrees, at its expense, to pay, and to indemnify and save Lessor
and the Purchaser harmless against and from any and all claims by or on behalf
of any person, firm, corporation, or governmental authority, arising from the
occupation, use, possession, conduct or management of or from any work done in
or about the Project, including any liability for violation of conditions,
agreements, restrictions, laws, ordinances, or regulations affecting the
Project or the occupancy or use thereof. Lessee also covenants and agrees,
at its expense, to pay, and to indemnify and save Lessor harmless against and
from, any and all claims arising from (i) any condition of the Project, (ii)
any breach or default on the part of Lessee in the performance of any
covenant or agreement to be performed by Lessee pursuant to this Lease, (iii)
any act or negligence of Lessee, or any of its agents, contractors, servants,
employees or licensees, or (iv) any accident, injury or damage whatever caused
to any person, firm or corporation in or about the Project and from and against
all costs, reasonable counsel fees, expenses and liabilities incurred in any
action or proceeding brought by reason of any claim referred to in this Section.
In the event that any action or proceeding is brought against lessor or
Purchaser by reason of any such claims, Lessee, upon notice from Lessor or
Purchaser, covenants to resist or defend such action or proceeding. Lessee
covenants and agrees to pay, and to indemnify Lessor and the Purchaser against
all costs and charges, including reasonable counsel fees, lawfully and
reasonably incurred in obtaining possession of the Project after default of
Lessee or upon expiration or earlier termination of any term hereof, or in
enforcing any covenant or agreement of Lessee contained in this Lease.
IN WITNESS WHEREOF, THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
LAWRENCEBURG and JONES APPAREL GROUP, INC. have each executed this Lease by
causing its name to be hereunto subscribed and attested by its duly authorized
officers, all being done as of the day and year first above written, but
actually on the dates hereinafter indicated in the acknowledgments.
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE CITY OF
LAWRENCEBURG
By: /s/ Jerry Putman
Chairman
ATTEST:
By: /s/ Carolyn Thompson
Secretary
JONES APPAREL GROUP, INC.
By: /s/ Gary R. Klocek
Title: Controller
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<PAGE> 17
STATE OF TENNESSEE
COUNTY OF LAWRENCE
Before me, the undersigned, a Notary Public in and for the State and
County aforesaid, personally appeared JERRY PUTMAN and CAROLYN THOMPSON, with
whom I am personally acquainted (or proved to me on the basis of satisfactory
evidence), and who, upon oath, acknowledged themselves to be the Chairman and
Secretary, respectively, of THE INDUSTRIAL DEVELOPMENT BOARD OF THE CITY OF
LAWRENCEBURG, the within named bargainer, a corporation, and that they as such
officers executed the foregoing instrument for the purposes therein contained,
by signing the name of the corporation by the said JERRY PUTMAN and attesting
the same by CAROLYN THOMPSON as Secretary.
WITNESS my hand, at office, in Lawrenceburg, Lawrence County, Tennessee,
this 1st day of May, 1996.
/s/ Alan C. Betz
Notary Public
My Commission Expires:
11-22-99
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<PAGE> 18
STATE OF TENNESSEE
COUNTY OF DAVIDSON
Before me, the undersigned, a Notary Public in and for the county and
state aforesaid, personally appeared GARY KLOCEK with whom I am personally
acquainted (or proved to me on the basis of satisfactory evidence), and who,
upon oath, acknowledged himself to be the Controller of JONES APPAREL GROUP,
INC., the within named bargainer, a corporation, and that he as such officer
executed the foregoing instrument for the purposes therein contained, by signing
the name of the corporation.
WITNESS my hand, at office in Nashville, Tennessee, this 1st day of
May, 1996.
/s/ Bonnie L. Erickson
Notary Public
My Commission Expires:
3/22/97
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<PAGE> 19
Schedule "A"
Legal Description
A tract of land in the Eighth Civil District of Lawrence County, in the City of
Lawrenceburg, Tennessee, lying on the south side of Motivation Drive, a 60-foot
road and on the East side of W.O. Smith Road, a 60-foot road, and being further
described as follows:
Being all of Tract 9 as shown on plat of Simonton Fork Industrial Park, a plat
of which is recorded in Plat Cabinet A, Slide 82, Register's Office of Lawrence
County, Tennessee and is subject to minimum setback lines, public utilities and
drainage easements, 20-foot powerline easement and other matters as shown on
said plat.
Being a portion of the property conveyed to Lawrenceburg Power System, Inc.
by deed dated November 3, 1988, of record in Deed Book 240, pages 267/69,
Register's Office of Lawrence County, Tennessee.
SCHEDULE B
1. Rights or claims of parties in possession not shown by the public records.
2. Easements, or claims of easements, not shown by the public records.
3. The lien of the following general and special taxes for the year or years
specified and subsequent years: 1996 and subsequent years.
4. Subject to minimum setback lines, public utilities, drainage easements, a
20-foot powerline easement and other matters as shown on plat of Simonton
Fork Industrial Park a plat of which is recorded in Plat Cabinet A, Slide
82, Register's Office of Lawrence County, Tennessee.
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EXHIBIT 10.33
JONES APPAREL GROUP, INC.
1996 STOCK OPTION PLAN
1. Purpose of the 1996 Stock Option Plan.
Jones Apparel Group, Inc. (the "Corporation") desires to
attract and retain the best available talent and to encourage the
highest level of performance. The 1996 Stock Option Plan (the
"Stock Option Plan") is intended to contribute significantly to the
attainment of these objectives, by (i) providing long-term
incentives and rewards to all key employees of the Corporation
(including officers and directors who are key employees of the
Corporation and also including key employees of any subsidiary of
the Corporation which may include officers or directors of any
subsidiary of the Corporation who are also key employees of said
subsidiary), and those directors and officers, consultants,
advisers, agents or independent representatives of the Corporation
or of any subsidiary (together, "Eligible Individuals"), who are
contributing or in a position to contribute to the long-term
success and growth of the Corporation or of any subsidiary, (ii)
assisting the Corporation and any subsidiary in attracting and
retaining Eligible Individuals with experience and ability, and
(iii) associating more closely the interests of such Eligible
Individuals with those of the Corporation's stockholders.
2. Scope and Duration of the Stock Option Plan.
Under the Stock Option Plan, options ("Options") to purchase
Shares of common stock, par value $.01 per share ("Common Stock"),
may be granted to Eligible Individuals. Options granted to
employees (including officers and directors who are employees) of
the Corporation or a subsidiary corporation thereof, may, at the
time of grant, be designated by the Corporation's Board of
Directors either as incentive stock options ("ISOs"), with the
attendant tax benefits as provided for under Sections 421 and 422
of the Internal Revenue Code of 1986, as amended (the "Code") or as
nonqualified stock options. Stock appreciation rights (the
"Rights") may be granted in association with Options. The
aggregate number of shares of Common Stock reserved for grant from
time to time under the Stock Option Plan is 2,000,000 shares of
Common Stock which shares of Common Stock may be authorized but
unissued shares of Common Stock or shares of Common Stock, which
shall have been or which may be reacquired by the Corporation, as
the Board of Directors of the Corporation shall from time to time
determine. Such aggregate numbers shall be subject to adjustment
as provided in Paragraph 12. If an Option shall expire or
terminate for any reason without having been exercised in full or
surrendered in full in connection with the exercise of a Right, the
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<PAGE> 2
shares of Common Stock represented by the portion thereof not so
exercised or surrendered shall (unless the Stock Option Plan shall
have been terminated) become available for other options under the
Stock Option Plan. Subject to Paragraph 14, no Option or Right
shall be granted under the Stock Option Plan after April 22, 2006.
The grant of an Option and/or a Right is sometimes referred to
herein as an Award thereof.
3. Administration of the Stock Option Plan.
This Stock Option Plan will be administered by the Board of
Directors of the Corporation (the "Board of Directors"). The Board
of Directors, in its discretion, may designate an option committee
(the "Option Committee" or "Committee") composed of at least two
members of the Board of Directors to administer this Stock Option
Plan. Members of the Stock Option Committee shall meet such
qualifications as the Board of Directors may determine. Subject to
the express provisions of this Plan, the Board of Directors or the
Committee (hereinafter, the terms "Option Committee" or "Committee"
shall mean the Board of Directors whenever no such Option Committee
has been designated) shall have authority in its discretion,
subject to and not inconsistent with the express provisions of this
Stock Option Plan, to direct the grant of Options, to determine the
purchase price of the Common Stock covered by each Option, the
Eligible Individuals to whom, and the time or times at which,
Options shall be granted and subject to the maximum set forth in
Paragraph 4 hereof, the number of shares of Common Stock to be
covered by each Option; to designate Options as ISOs; to direct the
grant of Rights in connection with any Option; to interpret the
Stock Option Plan; to determine the time or times at which Options
may be exercised; to prescribe, amend and rescind rules and
regulations relating to the Stock Option Plan, including, without
limitation, such rules and regulations as it shall deem advisable,
so that transactions involving Options may qualify for exemption
under such rules and regulations as the Securities and Exchange
Commission may promulgate from time to time exempting transactions
from Section 16(b) of the Securities and Exchange Act of 1934; to
determine the terms and provisions of and to cause the Corporation
to enter into agreements with Eligible Individuals in connection
with Options (Awards) granted under the Stock Option Plan (the
"Agreements"), which Agreements may vary from one another as the
Committee shall deem appropriate; and to make all other
determinations it may deem necessary or advisable for the
administration of the Stock Option Plan.
Members of the Committee shall serve at the pleasure of
the Board of Directors. The Committee shall have and may exercise
all of the powers of the Board of Directors under the Stock Option
Plan, other than the power to appoint a director to committee
membership. A majority of the Committee shall constitute a quorum,
and acts of a majority of the members present at any meeting at
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<PAGE> 3
which a quorum is present shall be deemed the acts of the
Committee. The Committee may also act by instrument signed by a
majority of the members of the Committee.
Every action, decision, interpretation or determination
by the Committee with respect to the application or administration
of this Stock Option Plan shall be final and binding upon the
Corporation and each person holding any Option granted under this
Stock Option Plan.
4. Eligibility: Factors to be Considered in Granting Options
and Designating ISOs (Awards).
(a) Options may be granted only to (i) key employees
(including officers and directors who are employees) of the
Corporation or any subsidiary corporation thereof on the date of
grant (Options so granted may be designated as ISOs), and (ii)
directors or officers of the Corporation or a subsidiary
corporation thereof on the date of grant, without regard to whether
they are employees, and (iii) consultants or advisers to or agents
or independent representatives of the Corporation or a subsidiary
thereof. In determining the persons to whom Options (Awards) shall
be granted and the number of shares of Common Stock to be covered
by each Award, the Committee shall take into account the nature of
the duties of the respective persons, their present and potential
contributions to the Corporation's (including subsidiaries)
successful operation and such other factors as the Board of
Directors in its discretion shall deem relevant. Subject to the
provisions of Paragraph 2, an Eligible Individual may receive
Options (Awards) on more than one occasion under the Stock Option
Plan. No person shall be eligible for an Option grant if he shall
have filed with the Secretary of the Corporation an instrument
waiving such eligibility; provided that any such waiver may be
revoked by filing with the Secretary of the Corporation an
instrument of evocation, which revocation will be effective upon
such filing.
(b) In the case of each ISO granted to an employee, the
aggregate fair market value (determined at the time the ISO is
granted) of the Common Stock with respect to which the ISO is
exercisable for the first time by such employee during any calendar
year (under all plans of the Corporation and any subsidiary
corporation thereof) may not exceed $100,000.
(c) In no event shall any Eligible Individual be granted
options to purchase more than 400,000 shares of Common Stock
pursuant to this Stock Option Plan.
5. Option Price.
(a) The purchase price per share of the Common Stock covered
by each Option shall be established by the Committee, but in no
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<PAGE> 4
event shall it be less than the fair market value of a share of the
Common Stock on the date the Option is granted with respect to an
ISO. Options which are not designated as ISOs may be issued with
such purchase price per share as the Committee shall determine,
which purchase price may be less than the fair market value of a
share of the common stock on the date the Option is granted. If,
at the time an Option is granted, the Common Stock is publicly
traded, such fair market value shall be the closing price (or the
mean of the latest bid and asked prices) of a share of Common Stock
on such date as reported in The Wall Street Journal (or a
publication or reporting service deemed equivalent to The Wall
Street Journal for such purpose by the Board of Directors) for any
national securities exchange or other securities market which at
the time is included in the stock price quotations of such
publication. In the event that the Committee shall determine such
stock price quotation is not representative of fair market value by
reason of the lack of a significant number of recent transactions
or otherwise, the Committee may determine fair market value in such
a manner as it shall deem appropriate under the circumstances. If,
at the time an Option is granted, the Common Stock is not publicly
traded, the Committee shall make a good faith attempt to determine
such fair market value.
(b) In the case of an employee who at the time an ISO is
granted owns stock possessing more than 10% of the total combined
voting power of all classes of the stock of the employer
corporation or of its parent or a subsidiary corporation thereof (a
"10% Holder"), the purchase price of the Common Stock covered by
any ISO shall in no event be less than 110% of the fair market
value of the Common Stock at the time the ISO is granted.
6. Term of Options.
The term of each Option shall be fixed by the Committee, but
in no event shall it be exercisable more than 10 years from the
date of grant, subject to earlier termination as provided in
Paragraphs 10 and 11. An ISO granted to a 10% Holder shall not be
exercisable more than 5 years from the date of grant.
7. Exercise of Options.
(a) Subject to the provisions of the Stock Option Plan, an
Option granted to an employee under the Stock Option Plan shall
become fully exercisable at such time or times as the Committee in
its sole discretion shall determine at the time of the granting of
the Option, except that in no event shall any such Option be
exercisable earlier than six months or later than 10 years after
its grant.
(b) An Option may be exercised as to any or all full shares
of Common Stock as to which the Option is then exercisable.
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<PAGE> 5
(c) The purchase price of the shares of Common Stock as to
which an Option is exercised shall be paid in full in cash at the
time of exercise; provided that, the purchase price may be paid (i)
in whole or in part, by surrender or delivery to the Corporation of
securities of the Corporation having a fair market value on the
date of the exercise equal to the portion of the purchase price
being so paid, or (ii) in cash by a broker-dealer acceptable to the
Company to whom the optionee has submitted an irrevocable notice of
exercise. Fair market value shall be determined as provided in
Paragraph 5 for the determination of such value on the date of the
grant. In addition, the holder shall, upon notification of the
amount due and prior to or concurrently with delivery to the holder
of a certificate representing such shares of Common Stock, pay
promptly any amount necessary to satisfy applicable federal, state
or local tax requirements.
(d) Except as provided in Paragraphs 10 and 11, no Option may
be exercised unless the original grantee thereof is then an
Eligible Individual.
(e) The Option holder shall have the rights of a stockholder
with respect to shares of Common Stock covered by an Option only
upon becoming the holder of record of such shares of Common Stock.
(f) Notwithstanding any other provision of this Stock Option
Plan, the Corporation shall not be required to issue or deliver any
share of stock upon the exercise of an Option prior to the
admission of such share to listing on any stock exchange or
automated quotation system on which the Corporation's Common Stock
may then be listed.
8. Award and Exercise of Rights.
(a) A Right may be awarded by the Committee in association
with any Option either at the time such Option is granted or at any
time prior to the exercise, termination or expiration of such
Option. Each such Right shall be subject to the same terms and
conditions as the related Option and shall be exercisable only to
the extent such Option is exercisable, and the Right Value, as
hereinafter defined, is a positive amount.
(b) A Right shall entitle the holder to surrender to the Cor-
poration unexercised the related Option (or any portion or portions
thereof which the holder from time to time shall determine to
surrender for this purpose) and to receive in exchange therefor,
subject to the provisions of the Stock Option Plan and such rules
and regulations as from time to time may be established by the
Committee, a payment having an aggregate value equal to the product
of (A) the Right Value of one share of Common Stock, as hereinafter
defined, and (B) the number of shares of Common Stock called for by
the Option, or portion thereof, which is surrendered. For purposes
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<PAGE> 6
of the Stock Option Plan: the Right Value of one share of Common
Stock shall be the excess of (i) the fair market value of one share
of Common Stock on the date on which the Right is exercised, over
(ii) the purchase price per share of the Common Stock covered by
the surrendered Option. The date on which the Committee shall
receive notice from the holder of the exercise of a Right shall be
considered the date on which the Right is exercised.
Upon exercise of a Right, a holder shall indicate to the
Committee what portion of the payment he desires to receive in cash
and what portion in shares of Common Stock of the Corporation;
provided, that the Board of Directors shall have sole discretion to
determine in any case or cases that payment will be made in the
form of all cash, all shares of Common Stock, or any combination
thereof. If the holder is to receive a portion of such payment in
shares of Common Stock, the number of shares of Common Stock shall
be determined by dividing the amount of such portion by the fair
market value of one share of Common Stock on the date on which the
Right is exercised. The number of shares of Common Stock which may
be received pursuant to the exercise of a Right may not exceed the
number of shares of Common Stock covered by the related Option, or
portion thereof, which is surrendered. No fractional shares of
Common Stock will be issued, but instead cash will be paid for any
such fractional share of Common Stock.
No payment will be required from the holder upon exercise of
a Right, except that the holder shall, upon notification of the
amount due and prior to or concurrently with delivery to the holder
of cash or a certificate representing shares of Common Stock, pay
promptly any amount necessary to satisfy applicable federal, state
or local tax requirements, and the Corporation shall have the right
to deduct from any payment any taxes required by law to be withheld
by the Corporation with respect to such payment.
(c) The fair market value of one share of Common Stock for
the date on which a Right is exercised shall be determined as
provided in Paragraph 5 for the determination of such value on the
date of grant.
(d) Upon exercise of a Right, the number of shares of Common
Stock subject to exercise under the related Option shall automa-
tically be reduced by the number of shares of Common Stock repre-
sented by the Option, or portion thereof, which is surrendered.
Shares of Common Stock subject to Options, or portions thereof,
which are surrendered in connection with the exercise of Rights
shall not be available for subsequent Option grants under the Stock
Option Plan.
(e) Whether payments upon exercise of Rights are made in
cash, shares of Common Stock or a combination thereof, the
Committee shall have the sole discretion as to the timing of the
payments, including whether payment shall be made in a lump sum or
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<PAGE> 7
installments, but payments may not be deferred beyond the first
business day of the twenty-fifth calendar month next following the
month of exercise of a Right. Deferred payments may bear interest
at a rate determined by the Committee, provided that such rate of
interest shall not be less than the lowest rate which avoids
imputation of interest at a higher rate under the Code. The Board
of Directors may make such further provisions and adopt such rules
and regulations as it shall deem appropriate, not inconsistent with
the Stock Option Plan, related to the timing of the exercise of a
Right and the determination of the form and timing of payment to
the holder upon such exercise.
9. Non-transferability of Options.
No Options or Rights granted under the Stock Option Plan shall
be transferable other than by will or by the laws of descent and
distribution ("Permitted Transferee"). With respect to ISOs,
Options may be exercised, during the lifetime of the holder, only
by the holder, or by his guardian or legal representative.
10. Termination of Relationship to the Corporation.
(a) In the event that any original grantee shall cease to be
an Eligible Individual of the Corporation (or any subsidiary
thereof), except as set forth in Paragraph 11, such Option may
(subject to the provisions of the Stock Option Plan) be exercised
(to the extent that the original grantee was entitled to exercise
such Option at the termination of his employment or service as a
director, officer, consultant, adviser, agent or independent
representative, as the case may be) at any time within three months
after such termination, but not more than 10 years (five years in
the case of a 10% Holder) after the date on which such Option was
granted or the expiration of the Option, if earlier.
Notwithstanding the foregoing, if the position of an original
grantee shall be terminated by the Corporation or any subsidiary
thereof for cause or if the original grantee terminates his
employment or position voluntarily and without the written consent
of the Corporation or any subsidiary corporation thereof, as the
case may be (which consent shall be presumed in the case of normal
retirement), the Options granted to such person, whether held by
such person or by a Permitted Transferee shall, to the extent not
theretofore exercised, forthwith terminate immediately upon such
termination. The holder of any ISO may not exercise such Option
unless at all times during the period beginning with the date of
grant of the ISO and ending on the three months before the date of
exercise he is an employee of the Corporation granting such Option,
a subsidiary thereof, or a corporation or a subsidiary corporation
issuing or assuming a stock option in a transaction to which
Section 424(a) of the Code applies.
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<PAGE> 8
(b) Other than as provided in Paragraph 10(a), Options
granted under the Stock Option Plan shall not be affected by any
change of duties or position so long as the holder remains an
Eligible Individual.
(c) Any Option Agreement may contain such provisions as the
Committee shall approve with reference to the determination of the
date employment terminates or the date other positions or
relationships terminate for purposes of the Stock Option Plan and
the effect of leaves of absence, which provisions may vary from one
another.
(d) Nothing in the Stock Option Plan or in any Option granted
pursuant to the Stock Option Plan shall confer upon any Eligible
Individual or other person any right to continue in the employ of
the Corporation or any subsidiary corporation (or the right to be
retained by, or have any continued relationship with the
Corporation or any subsidiary corporation thereof), or affect the
right of the Corporation or any such subsidiary corporation, as the
case may be, to terminate his employment, retention or relationship
at any time. The grant of any option pursuant to the Stock Option
Plan shall be entirely in the discretion of the Committee and
nothing in the Stock Option Plan shall be construed to confer on
any Eligible Individual any right to receive any Option under the
Stock Option Plan.
11. Death or Disability of Holder.
(a) If a person to whom an Option has been granted under the
Stock Option Plan shall die (and the conditions in sub-paragraph
(b) below are met) or become permanently and totally disabled (as
such term is defined below) while serving as an Eligible Individual
and if the Option was otherwise exercisable immediately prior to
the happening of such event, then the period for exercise provided
in Paragraph 10 shall be extended to one year after the date of
death of the original grantee, or in the case of the permanent and
total disability of the original grantee, to one year after the
date of permanent and total disability of the original grantee,
but, in either case, not more than 10 years (five years in the case
of a 10% Holder) after the date such Option was granted, or the
expiration of the Option, if earlier, as shall be prescribed in the
original grantee's Option Agreement. An Option may be exercised as
set forth herein in the event of the original grantee's death, by
a Permitted Transferee or the person or persons to whom the
holder's rights under the Option pass by will or applicable law, or
if no such person has the right, by his executors or
administrators; or in the event of the original grantee's permanent
and total disability, by the holder or his guardian.
(b) In the case of death of a person to whom an Option was
originally granted, the provisions of subparagraph (a) apply if
such person dies (i) while in the employ of the Corporation or a
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<PAGE> 9
subsidiary corporation thereof or while serving as an Eligible
Individual of the Corporation or a subsidiary corporation thereof
or (ii) within three months after the termination of such position
other than termination for cause, or voluntarily on the original
grantee's part and without the consent of the Corporation or a
subsidiary corporation thereof, which consent shall be presumed in
the case of normal retirement.
(c) The term "permanent and total disability" as used above
shall have the meaning set forth in Section 22(e)(3) of the Code.
12. Adjustments upon Changes in Capitalization.
Notwithstanding any other provision of the Stock Option Plan,
each Agreement may contain such provisions as the Committee shall
determine to be appropriate for the adjustment of the number and
class of shares of Common Stock covered by such Option, the Option
prices and the number of shares of Common Stock as to which Options
shall be exercisable at any time, in the event of changes in the
outstanding Common Stock of the Corporation by reason of stock
dividends, split-ups, split-downs, reverse splits,
recapitalizations, mergers, consolidations, combinations or
exchanges of shares, spin-offs, reorganizations, liquidations and
the like. In the event of any such change in the outstanding
Common Stock of the Corporation, the aggregate number of shares of
Common Stock as to which Options may be granted under the Stock
Option Plan to any Eligible Individual shall be appropriately
adjusted by the Committee whose determination shall be conclusive.
In the event of (i) the dissolution, liquidation, merger or
consolidation of the Corporation or a sale of all or substantially
all of the assets of the Corporation, or (ii) the disposition by
the Corporation of substantially all of the assets or stock of a
subsidiary of which the original grantee is then an employee,
officer or director, consultant, adviser, agent or independent
representative or (iii) a change in control (as hereinafter
defined) of the Corporation has occurred or is about to occur,
then, if the Committee shall so determine, each Option under the
Stock Option Plan, if such event shall occur with respect to the
Corporation, or each Option granted to an employee, officer,
director, consultant, adviser, agent or independent representative
of a subsidiary respecting which such event shall occur, shall (x)
become immediately and fully exercisable or (y) terminate
simultaneously with the happening of such event, and the
Corporation shall pay the optionee in lieu thereof an amount equal
to (a) the excess of the fair market value over the exercise price
of one share on the date on which such event occurs, multiplied by
(b) the number of shares subject to the Option, without regard to
whether the Option is then otherwise exercisable.
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<PAGE> 10
13. Effectiveness of the Stock Option Plan.
Options may be granted under the Stock Option Plan, subject to
its authorization and adoption by stockholders of the Corporation,
at any time or from time to time after its adoption by the
Committee, but no Option shall be exercised under the Stock Option
Plan until the Stock Option Plan shall have been authorized and
adopted by a majority of the votes properly cast thereon at a
meeting of stockholders of the Corporation duly called and held
within 12 months from the date of adoption of the Stock Option Plan
by the Board of Directors. If so adopted, the Stock Option Plan
shall become effective as of the date of its adoption by the Board
of Directors. The exercise of the Options shall also be expressly
subject to the condition that at the time of exercise a
registration statement under the Securities Act of 1933, as amended
(the "Act") shall be effective, or other provisions satisfactory to
the Committee shall have been made to ensure that such exercise
will not result in a violation of such Act, and such other
qualification under any state or federal law, rule or regulation as
the Corporation shall determine to be necessary or advisable shall
have been effected. If the shares of Common Stock issuable upon
exercise of an Option are not registered under such Act, and if the
Committee shall deem it advisable, the Optionee may be required to
represent and agree in writing (i) that any shares of Common Stock
acquired pursuant to the Stock Option Plan will not be sold except
pursuant to an effective registration statement under such Act or
an exemption from the registration provisions of the Act and (ii)
that such Optionee will be acquiring such shares of Common Stock
for his own account and not with a view to the distribution thereof
and (iii) that the holder accepts such restrictions on transfer of
such shares, including, without limitation, the affixing to any
certificate representing such shares of an appropriate legend
restricting transfer as the Corporation may reasonably impose.
14. Termination and Amendment of the Stock Option Plan.
The Board of Directors of the Corporation may, at any time
prior to the termination of the Stock Option Plan, suspend,
terminate, modify or amend the Stock Option Plan; provided that any
increase in the aggregate number of shares of Common Stock reserved
for issue upon the exercise of Options, any amendment which would
materially increase the benefits accruing to participants under the
Stock Option Plan, or any material modification in the requirements
as to eligibility for participation in the Stock Option Plan, shall
be subject to the approval of stockholders in the manner provided
in Paragraph 13, except that any such increase, amendment or change
that may result from adjustments authorized by Paragraph 12 or
adjustments based on revisions to the Code or regulations
promulgated thereunder (to the extent permitted by such
authorities) shall not require such approval. No suspension,
termination, modification or amendment of the Stock Option Plan
may, without the express written consent of the Eligible Individual
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<PAGE> 11
(or his Permitted Transferee) to whom an Option shall theretofore
have been granted, adversely affect the rights of such Eligible
Individual (or his Permitted Transferee) under such Option.
15. Financing for Investment in Stock of the Corporation.
The Board of Directors may cause the Corporation or any
subsidiary to give or arrange for financing, including direct
loans, secured or unsecured, or guaranties of loans by banks which
loans may be secured in whole or in part by assets of the
Corporation or any subsidiary, to any Eligible Individual under the
Stock Option Plan who shall have been so employed or so served for
a period of at least six months at the end of the fiscal year ended
immediately prior to arranging such financing; but the Board of
Directors may, in any specific case, authorize financing for an
Eligible Individual who shall not have served for such a period.
Such financing shall be for the purpose of providing funds for the
purchase by the Eligible Individual of shares of Common Stock
pursuant to the exercise of an Option and/or for payment of taxes
incurred in connection with such exercise, and/or for the purpose
of otherwise purchasing or carrying a stock investment in the
Corporation. The maximum amount of liability incurred by the
Corporation and its subsidiaries in connection with all such
financing outstanding shall be determined from time to time in the
discretion of the Board of Directors. Each loan shall bear
interest at a rate not less than that provided by the Code and
other applicable law, rules, and regulations in order to avoid the
imputation of interest at a higher rate. Each recipient of such
financing shall be personally liable for the full amount of all
financing extended to him. Such financing shall be based upon the
judgment of the Board of Directors that such financing may be
reasonably be expected to benefit the Corporation, and that such
financing as may be granted shall be consistent with the
Certificate of Incorporation and By-Laws of the Corporation or such
subsidiary, and applicable laws.
If any such financing is authorized by the Board of Directors,
such financing shall be administered by the Board of Directors.
16. Severability.
In the event that any one or more provisions of the Stock
Option Plan or any Agreement, or any action taken pursuant to the
Stock Option Plan or such Agreement, should, for any reason, be
unenforceable or invalid in any respect under the laws of the
United States, any state or the United States or any other
government, such unenforceability or invalidity shall not affect
any other provision of the Stock Option Plan or of such or any
other Agreement, but in such particular jurisdiction and instance
the Stock Option Plan and the affected Agreement shall be construed
as if such unenforceable or invalid provision had not been
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<PAGE> 12
contained therein or if the action in question had not been taken
thereunder.
17. Applicable Law.
The Stock Option Plan shall be governed and interpreted,
construed and applied in accordance with the laws of the State of
Pennsylvania.
18. Withholding.
A holder shall, upon notification of the amount due and prior
to or concurrently with delivery to such holder of a certificate
representing such shares of Common Stock, pay promptly any amount
necessary to satisfy applicable federal, state, local or other tax
requirements.
19. Miscellaneous.
1. The terms "parent," "subsidiary" and "subsidiary
corporation" shall have the meanings set forth in Sections 424(e)
and (f) of the Code, respectively.
2. The term "terminated for cause" shall mean termination by
the Corporation (or a subsidiary thereof) of the employment of or
other relationship with, the original grantee by reason of the
grantee's (i) willful refusal to perform his obligations to the
Corporation (or a subsidiary thereof), (ii) willful misconduct,
contrary to the interests of the Corporation (or a subsidiary
thereof), or (iii) commission of a serious criminal act, whether
denominated a felony, misdemeanor or otherwise. In the event of
any dispute regarding whether a termination for cause has occurred,
the Board of Directors may by resolution resolve such dispute and
such resolution shall be final and conclusive on all parties.
3. The term "change in control" shall mean an event or
series of events that would be required to be described as a change
in control of the Corporation in a proxy or information statement
distributed by the Corporation pursuant to Section 14 of the
Securities Exchange Act of 1934 in response to Item 6(e) of
Schedule 14A promulgated thereunder, or any substitute provision
which may hereafter be promulgated thereunder or otherwise adopted.
The determination of whether and when a change in control has
occurred or is about to occur shall be made by the Board of
Directors in office immediately prior to the occurrence of the
event or series of events constituting such change in control.
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<PAGE> 13
JONES APPAREL GROUP, INC.
STOCK OPTION AGREEMENT
(NON-QUALIFIED STOCK OPTION)
THIS AGREEMENT, made as of this ___ day of _______ 1996
by JONES APPAREL GROUP, INC., a Pennsylvania Corporation (herein-
after called the "Company"), with ____________________________
_________ (hereinafter call the "Holder"):
The Company has adopted a 1996 Stock Option Plan (the
"Plan"). Said Plan, as it may hereafter be amended and continued,
is incorporated herein by reference and made part of this
Agreement.
The Committee, which is charged with the administration
of the Plan pursuant to Section 3 thereof, has determined that it
would be to the advantage and interest of the Company to grant the
option provided for herein to the Holder as an inducement to remain
in the service of the Company or one of its subsidiaries, and as an
incentive for increased efforts during such service.
NOW, THEREFORE, pursuant to the Plan, the Company with
the approval of the Committee hereby grants to the Holder as of the
date hereof an option to purchase all or any part of _______ shares
of Common Stock of the Company, par value $[ ] per share, at a
price per share of $_________, which price is not less than the
fair market value of a share of Common Stock on the date hereof
(the "Option"), and upon the following terms and conditions:
1. The Option shall continue in force through _______ ___, ____
(the "Expiration Date"), unless sooner terminated as provided herein and
in the Plan. Subject to the provisions of the Plan, the Option shall
become exercisable as to [20%] of the number of shares originally covered
thereby upon the first anniversary of the date of grant of the Option, and
as to [20%] of the number of shares originally covered thereby upon the
second, [third and fourth] anniversaries of the date of grant of the Option,
and on the [fifth] anniversary, the Option shall become fully exercisable.
Such installments shall be cumulative, subject to the following:
a. Except as provided hereinbelow, the Option may not be
exercised unless the Holder is then an employee (including directors and
officers who are employees), director, consultant, advisor, agent or
independent representative of the Company or any subsidiary of the Company
or any combination thereof and unless the Holder has remained in the
continuous employ or service thereof from the date of grant.
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<PAGE> 14
2. In the event that the employment or service of the Holder shall
be terminated prior to the Expiration Date (otherwise than by reason of
death or disability), the Option may, subject to the provisions of the
Plan, be exercised (to the extent that the Holder was entitled to do so
at the termination of this employment or service) at any time within three
months after such termination, but not after the Expiration Date, provided,
however, that if such termination shall have been for cause or voluntarily
by the Holder and without the consent of the Company or any subsidiary
corporation thereof, as the case may be (which consent shall be presumed
in the case of normal retirement), the Option and all rights of the
Holder hereunder, to the extent not theretofore exercised, shall forthwith
terminate immediately upon such termination. Nothing in this Agreement
shall confer upon the Holder any right to continue in the employ or service
of the Company or any subsidiary of the Company or affect the right of the
Company or any subsidiary to terminate his employment or service at any time.
3. If the Holder shall (a) die while he is employed by or serving the
Company or a corporation which is a subsidiary thereof or within three
months after the termination of such position (other than termination for
cause, or voluntarily on his part and without the consent of the Company
or subsidiary corporation thereof, as the case may be, which consent shall
be presumed in the case of normal retirement), or (b) become permanently and
totally disabled within the meaning of Section 22 (e) (3) of Code while
employed by or serving any such company, and if the Option was otherwise
exercisable, immediately prior to the occurrence of such event, then such
Option may be exercised as set forth herein by the Holder or by the person
or persons to whom the Holder's rights under the Option pass by will or
applicable law, or if no such person has such right, by his executors or
administrators, at any time within one year after the date of death of the
original Holder, or one year after the date of permanent or total disability,
but in either case, not later than the Expiration Date.
4. a. The Holder may exercise the Option with respect to all or any
part of the shares then purchasable hereunder by giving the Company written
notice in the form annexed, as provided in paragraph 8 hereof, of such
exercise. Such notice shall specify the number of shares as to which the
Option is being exercised and shall be accompanied by payment in full in
cash of an amount equal to the exercise price of such shares multiplied by
the number of shares as to which the Option is being exercised; provided
that, if permitted by the Board, the purchase price may be paid, in whole or
in part, by surrender or delivery to the Company of securities of the Company
having a fair market value on the date of the exercise equal to the portion
of the purchase price being so paid. In such event fair market value should
be determined pursuant to paragraph 5 of the Plan.
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<PAGE> 15
b. Prior to or concurrently with delivery by the Company to the
Holder of a certificate(s) representing such shares, the Holder shall, upon
notification of the amount due, pay promptly any amount necessary to satisfy
applicable federal, state or local tax requirements. In the event such amount
is not paid promptly, the Company shall have the right to apply from the
purchase price paid any taxes required by law to be withheld by the Company
with respect to such payment and the number of shares to be issued by the
Company will be reduced accordingly.
5. Notwithstanding any other provision of the Plan, in the event of a
change in the outstanding Common Stock of the Company by reason of a stock
dividend, split-up, split-down, reverse split, recapitalization, merger,
consolidation, combination or exchange of shares, spin-off, reorganization,
liquidation or the like, then the aggregate number of shares and price per
share subject to the Option shall be appropriately adjusted by the Board,
whose determination shall be conclusive.
6. No options granted hereunder shall be transferable other than by
will or by the laws of descent and distribution. Options may be exercised,
during the lifetime of the Holder, only by the Holder, or by his guardian or
legal representative. In the event of any attempt by the Holder to transfer,
assign, pledge, hypothecate or otherwise dispose of this Option or of any
right hereunder, except as provided for herein, or in the event of the levy
or any attachment, execution or similar process upon the rights or interest
hereby conferred, the Company may terminate this Option by notice to the
Holder and it shall thereupon become null and void.
7. Neither the Holder nor in the event of his death, any person entitled
to exercise his rights, shall have any of the rights of a stockholder with
respect to the shares subject to the Option until share certificates have been
issued and registered in the name of the Holder or his estate, as the case
may be.
8. Any notice to the Company provided for in this Agreement shall be
addressed to the Company in care of its Chief Financial Officer, 250
Rittenhouse Circle, Bristol, Pennsylvania 19007 and any notice to the
Holder shall be addressed to him at his address now on file with the Company,
or to such other address as either may last have designated to the other by
notice as provided herein. Any notice so addressed shall be deemed to be
given on the second business day after mailing, by registered or certified
mail, at a post office or branch post office within the United States.
9. In the event that any question or controversy shall arise
with respect to the nature, scope or extent of any one or more
rights conferred by this Option, the determination by the
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<PAGE> 16
Committee (as constituted at the time of such determination) of the rights
of the Holder shall be conclusive, final and binding upon the Holder and
upon any other person who shall assert any right pursuant to this Option.
JONES APPAREL GROUP, INC.
By:______________________________
Name:_________________________
Title:________________________
ACCEPTED AND AGREED
________________________
Holder
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<PAGE> 17
FORM OF NOTICE OF EXERCISE
TO: JONES APPAREL GROUP, INC.
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
The undersigned hereby exercises his/her option to
purchase _____ shares of Common Stock of Jones Apparel Group, Inc.
(the "Company"), as provided in the Stock Option Agreement dated as
of _______, 199_ at $ _______ per share, a total of $
_____________, and makes payment therefor as follows:
(a) To the extent of $_______ of the purchase price, the
undersigned hereby surrenders to the Company certificates for
shares of its Common Stock, which, valued at $__________________
per share, the fair market value thereof, equals such portion of
the purchase price.
(b) To the extent of the balance of the purchase price,
the undersigned has enclosed a certificate or bank check payable to
the order of the Company for $________________.
A stock certificate or certificate for the shares should
be delivered in person or mailed to the undersigned at the address
shown below.
The undersigned hereby represents and warrants that it is
his (her) present intention to acquire and hold the aforesaid
shares of Common Stock of the Company for his (her) own account for
investment, and not with a view to the distribution of any thereof,
and agrees that he (she) will make no sale, thereof, except in
compliance with the applicable provisions of the Securities Act of
1933, as amended.
Signature: ________________________
Address: ________________________
________________________
Dated:________
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<PAGE> 18
JONES APPAREL GROUP, INC.
STOCK OPTION AGREEMENT
(INCENTIVE STOCK OPTION)
THIS AGREEMENT, made as of this ___ day of _______ 1996
by JONES APPAREL GROUP, INC., a Pennsylvania corporation (herein-
after called the "Company"), with _____________________________
________ (hereinafter call the "Holder"):
The Company has adopted a 1996 Stock Option Plan (the
"Plan"). Said Plan, as it may hereafter be amended and continued,
is incorporated herein by reference and made part of this
Agreement.
The Committee, which is charged, with the administra-
tion of the Plan pursuant to Section 3 thereof, has determined
that it would be to the advantage and interest of the Company to
grant the option provided for herein to the Holder as an
inducement to remain in the service of the Company or one of its
subsidiaries, and as an incentive for increased efforts during
such service.
NOW, THEREFORE, pursuant to the Plan, the Company with
the approval of the Committee hereby grants to the Holder as of
the date hereof an option (the "Option") to purchase all or any
part of _________ shares of Common Stock of the Company, par
value $[ ] per share, at a price per share of $_________, which
price is not less than the fair market value of a share of Common
Stock on the date hereof (or 110% of the fair market value of a
share of Common Stock if the Holder is a 10% Holder (as defined
in the Plan)), and upon the following terms and conditions:
1. The Option shall continue in force through _______
___, ____ (the "Expiration Date"), unless sooner terminated as
provided herein and in the Plan. Subject to the provisions of
the Plan, the Option shall become exercisable as to [20%] of the
number of shares originally covered thereby upon the first
anniversary of the date of grant of the Option, and as to [20%]
of the number of shares originally covered thereby upon the
second, [third and fourth] anniversaries of the date of grant of
the Option, and on the [fifth] anniversary, the Option shall
become fully exercisable. Such installments shall be cumulative,
subject to the following:
a. Except as provided hereinbelow, the Option may
not be exercised unless the Holder is then an employee (including
directors and officers who are employees), director, consultant,
advisor, agent or independent representative of the Company or
any subsidiary of the Company or any combination
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<PAGE> 19
thereof and unless the Holder has remained in the continuous employ
or service thereof from the date of grant.
b. This Option is designated as an incentive stock option
("ISO") pursuant to the Internal Revenue Code of 1986, as amended (the
"Code") and the regulations promulgated thereunder.
2. In the event that the employment or service of the
Holder shall be terminated prior to the Expiration Date
(otherwise than by reason of death or disability), the Option
may, subject to the provisions of the Plan, be exercised (to the
extent that the Holder was entitled to do so at the termination
of this employment or service) at any time within three months
after such termination, but not after the Expiration Date,
provided, however, that if such termination shall have been for
cause or voluntarily by the Holder and without the consent of the
Company or any subsidiary corporation thereof, as the case may be
(which consent shall be presumed in the case of normal retire-
ment), the Option and all rights of the Holder hereunder, to the
extent not theretofore exercised, shall forthwith terminate
immediately upon such termination. Nothing in this Agreement
shall confer upon the Holder any right to continue in the employ
or service of the Company or any subsidiary of the Company or
affect the right of the Company or any subsidiary to terminate
his employment or service at any time.
3. If the Holder shall (a) die while he is employed
by or serving the Company or a corporation which is a subsidiary
thereof or within three months after the termination of such
position (other than termination for cause, or voluntarily on his
part and without the consent of the Company or subsidiary
corporation thereof, as the case may be, which consent shall be
presumed in the case of normal retirement), or (b) become
permanently and totally disabled within the meaning of Section 22
(e) (3) of the Code, while employed by or serving any such
company, and if the Option was otherwise exercisable, immediately
prior to the occurrence of such event, then such Option may be
exercised as set forth herein by the Holder or by the person or
persons to whom the Holder's rights under the Option pass by will
or applicable law, or if no such person has such right, by his
executors or administrators, at any time within one year after
the date of death of the original Holder, or one year after the
date of permanent or total disability, but in either case, not
later than the Expiration Date.
4. a. The Holder may exercise the Option with
respect to all or any part of the shares then purchasable
hereunder by giving the Company written notice in the form
annexed, as provided in paragraph 8 hereof, of such exercise.
Such notice shall specify the number of shares as to which the
Option is being exercised and shall be accompanied by payment in
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<PAGE> 20
full in cash of an amount equal to the exercise price of such
shares multiplied by the number of shares as to which the Option
is being exercised; provided that, if permitted by the Board, the
purchase price may be paid, in whole or in part, by surrender or
delivery to the Company of securities of the Company having a
fair market value on the date of the exercise equal to the
portion of the purchase price being so paid. In such event fair
market value should be determined pursuant to paragraph 5 of the
Plan.
b. Prior to or concurrently with delivery by the Company to
the Holder of a certificate(s) representing such shares, the Holder shall,
upon notification of the amount due, pay promptly any amount necessary to
satisfy applicable federal, state or local tax requirements. In the event
such amount is not paid promptly, the Company shall have the right to apply
from the purchase price paid any taxes required by law to be withheld
by the Company with respect to such payment and the number of shares to be
issued by the Company will be reduced accordingly.
5. Notwithstanding any other provision of the Plan,
in the event of a change in the outstanding Common Stock of the
Company by reason of a stock dividend, split-up, split-down,
reverse split, recapitalization, merger, consolidation,
combination or exchange of shares, spin-off, reorganization,
liquidation or the like, then the aggregate number of shares and
price per share subject to the Option shall be appropriately
adjusted by the Board, whose determination shall be conclusive.
6. This Option shall, during the Holder's lifetime,
be exercisable only by him, and neither this Option nor any right
hereunder shall be transferable by him, by operation of law or
otherwise, except by will or by the laws of descent and
distribution. In the event of any attempt by the Holder to
transfer, assign, pledge, hypothecate or otherwise dispose of
this Option or of any right hereunder, except as provided for
herein, or in the event of the levy or any attachment, execution
or similar process upon the rights or interest hereby conferred,
the Company may terminate this Option by notice to the Holder and
it shall thereupon become null and void.
7. Neither the Holder nor in the event of his death,
any person entitled to exercise his rights, shall have any of the
rights of a stockholder with respect to the shares subject to the
Option until share certificates have been issued and registered
in the name of the Holder or his estate, as the case may be.
8. Any notice to the Company provided for in this
Agreement shall be addressed to the Company in care of its Chief
Financial Officer, 250 Rittenhouse Circle, Bristol, Pennsylvania
19007 and any notice to the Holder shall be addressed to him at
his address now on file with the Company, or to such other
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<PAGE> 21
address as either may last have designated to the other by notice
as provided herein. Any notice so addressed shall be deemed to be
given on the second business day after mailing, by registered or
certified mail, at a post office or branch post office within the
United States.
9. In the event that any question or controversy
shall arise with respect to the nature, scope or extent of any
one or more rights conferred by this Option, the determination by
the Committee (as constituted at the time of such determination)
of the rights of the Holder shall be conclusive, final and bind-
ing upon the Holder and upon any other person who shall assert
any right pursuant to this Option.
JONES APPAREL GROUP, INC.
By:___________________________
Name:______________________
Title:_____________________
ACCEPTED AND AGREED
________________________
Holder
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<PAGE> 22
FORM OF NOTICE OF EXERCISE
TO: JONES APPAREL GROUP, INC.
250 Rittenhouse Circle
Bristol, PA 19007
The undersigned hereby exercises his/her option to
purchase _____ shares of Common Stock of Jones Apparel Group,
Inc. (the "Company"), as provided in the Stock Option Agreement
dated as of _______, 199_ at $ _______ per share, a total of
$_____________, and makes payment therefor as follows:
(a) To the extent of $_______ of the purchase price,
the undersigned hereby surrenders to the Company certificates for
shares of its Common Stock, which, valued at $__________________
per share, the fair market value thereof, equals such portion of
the purchase price.
(b) To the extent of the balance of the purchase
price, the undersigned has enclosed a certificate or bank check
payable to the order of the Company for $________________.
A stock certificate or certificate for the shares
should be delivered in person or mailed to the undersigned at the
address shown below.
The undersigned hereby represents and warrants that it
is his (her) present intention to acquire and hold the aforesaid
shares of Common Stock of the Company for his (her) own account
for investment, and not with a view to the distribution of any
thereof, and agrees that he (she) will make no sale, thereof,
except in compliance with the applicable provisions of the
Securities Act of 1933, as amended.
Signature: ________________________
Address: ________________________
________________________
Dated:________
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EXHIBIT 10.34
CoreStates Bank, NA
FC 1-8-3 12
1345 Chestnut Street
PO Box 7618
Philadelphia PA 19101-7618
215 973 7397
Fax 215 973 6745
James P Richards
Vice President
Southeast Corporate
August 15, 1996
Wesley R. Card
Chief Financial Officer
JONES APPAREL GROUP
250 Rittenhouse Circle
Bristol, PA 19007
Dear Wes:
I take great pleasure in advising you that we have approved in favor of Jones
Apparel Group the following credit facilities:
I) A $75,000,000 discretionary line of credit for the issuance of
documentary import letters of credit having a tenor of up to
180 days.
II) A $25,000,000 discretionary line of credit available for working
capital loans and/or documentary import letters of credit.
Included in the facilities outlined above, there are sublimits available for
standby letters of credit and bankers' acceptances.
I'm assembling any new documentation we may require and shall forward it to you
under separate cover.
We're extremely pleased with the volume of new business we have seen and trust
that these credit facilities will serve to clearly demonstrate our confidence
in the Jones Apparel Group and its management.
Sincerely,
/s/ James P. Richards
JPR/chc
cc: Gary R. Klocek
EXHIBIT 10.35
CoreStates Bank
PO Box 7618
Philadelphia PA 19101-7618
September 5, 1996
MASTER SHORT TERM BORROWING AGREEMENT
Jones Apparel Group
250 Rittenhouse Circle
Bristol, PA 19007
Attention: Gary R. Klocek
Controller
Gentlemen:
You have indicated that you may wish to borrow from us from
time to time on a short term basis for working capital or other
short term purposes. We are interested in considering such loan
requests and may from time to time like to bid on your short term
borrowing needs. Short term borrowings or loans mean borrowings
or loans which are payable on demand or have a maturity of 180
days or less and are referred to in this letter Agreement
individually as a "Loan" and collectively as "Loans."
The purpose of this letter is to outline and specify, among
other things, how Loans may be requested and, if agreed to by us,
the terms under which they will be made. As used in this
Agreement, the terms we, us, our and the Bank mean CoreStates
Bank, N.A. and the terms you and your mean the addressee of this
Agreement. This letter does not constitute a commitment to lend
or to make advances. It shall be solely within our discretion to
make or refuse to make any Loan requested by you, and the making
of one or more Loans hereunder shall not be considered a
commitment by us to make any additional Loans. It is understood
and agreed that any and all Loans will be governed by the
following:
1. Requests for Loans. A duly authorized officer or other
duly authorized person under Paragraph 2 may request Loans by
telephone confirmed in writing or by letter. If we elect to make
a Loan, then we will credit the proceeds to your designated
account. Upon your request we will forward to you at your
address set forth in Paragraph 16 written advices or statements
of Loans, which will specify the rate or rates of interest
payable on the Loan, and such other terms as may have been agreed
to.
2. Resolutions Authorizing Loans. Any and all documents
required to be executed in connection with Loans may be signed by
any of the officers or other person duly authorized by your
borrowing resolutions as in effect from time to time, provided
that a copy of such resolutions is certified by the Secretary or
an Assistant Secretary of your corporation and delivered to us.
We shall incur no liability to you or any other person in acting
on any request for a Loan which we believe in good faith to have
been made by a person duly authorized to borrow on your behalf as
set forth in your borrowing resolutions.
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<PAGE> 2
3. Bank Records Conclusive. The amount and terms of each
Loan including the rate of interest thereon and your payments of
principal and interest, as well as any special terms and details
of each such Loan, shall be established and evidenced by this
letter Agreement and by our records, which shall be conclusively
deemed to be correct in the absence of manifest error.
4. Payment of Loans. All Loans shall be payable on a
demand, time or other basis mutually agreed upon at the time the
Loan is made. Loans which are payable on a basis other than
demand may not be prepaid prior to their maturity date or dates.
If one or more Loans which are payable on a basis other than
demand are repaid prior to their maturity date or dates (whether
voluntarily by reason of acceleration or otherwise), you shall
pay to the Bank an amount equal to all loss, cost and expense of
the Bank resulting from such prepayment. Upon the payment in
whole or in part of any Loan as provided above, accrued and
unpaid interest on the amount repaid shall be simultaneously
paid.
5. Interest. (a) Interest on each Loan shall be computed
at the rate mutually agreed upon at the time the Loan is made and
shall be paid monthly, if the Loan is payable on demand, or on
the date or dates agreed to, if the Loan is payable on a time or
other basis. If the rate of interest agreed to is based upon our
"prime rate," such terms shall mean and refer to the rate of
interest for commercial loans established and publicly announced
by us from time to time as our prime rate and such rate of
interest shall change each time our prime rate changes, effective
on the date of change.
(b) Unless other agreed, interest on all Loans shall be
computed on the basis of a year of 360 days for each day of the
year actually elapsed.
6. Payments. You irrevocably authorize us to effect
payment of principal of and interest on and any fees in
connection with all Loans whenever such payment is due and to
debit your designated account for the amount of such payment.
Alternatively, you may effect all payments to us via wire
transfer on the date such payments are due. We shall furnish to
you a written confirmation of the amount of each principal and
interest payment charged against your designated account. You
will pay to us promptly such amounts as may be due if your
designated account balance is insufficient. All payments of
principal and interest on Loans shall be made in lawful money of
the United States in immediately available funds free and clear
of and without deduction for any taxes, fees or other charges of
any nature imposed by any governmental authority, or, if such
withholding is required, you shall pay to us the same net amount
as if no withholding was made.
7. Payment of Costs. In addition to the principal and
interest payments specified in paragraphs 4 and 5, you agree to
pay upon demand all costs and expenses (including reasonable
attorneys' fees and legal expenses) we incur in enforcing the
Loans and this Agreement.
8. Further Evidence of Loans. Upon our request, you
hereby agree to execute and deliver to us a promissory note or
notes payable to our order to evidence all or any part of any
Loans. If any Loan is or shall be evidenced by one or more
promissory notes, such note or notes shall be deemed to
incorporate by reference, and to be supplemented and modified by,
the terms of this Agreement.
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<PAGE> 3
9. Your Representations. You represent and warrant that
you are validly existing and in good standing in the jurisdiction
under whose laws you were organized, that the execution, delivery
and performance of this Agreement are within your powers, have
been duly authorized by all necessary action and are not in
contravention of the terms of your charter documents. You
further represent and warrant that this Agreement has been
validly executed and is enforceable in accordance with its terms,
that the execution, delivery and performance by you of this
Agreement are not in contravention of law and do not conflict
with any indenture, agreement or undertaking to which you are a
party or are otherwise bound, and that no consent or approval of
any governmental authority or any third party is required in
connection with the execution, delivery and performance of this
Agreement.
10. Security. Loans may be secured by security interests,
mortgages and other liens given especially for such purposes or
given to secure other indebtedness. Whether such security
interests and other liens were given to secure other indebtedness
that you have to us or are given to secure Loans, you agree that
such security interests and liens shall secure all of your
existing and future indebtedness. As security for the payment of
all sums owed by you to us, we shall have a lien upon, and
security interest in, any balance belonging to you in any of your
deposit or other accounts with us and any other amounts or
property which from time to time may be owing by us to you or
held by us for you.
11. Defaults. The occurrence of any of the following
events shall cause you to be in default on any and all
outstanding Loans that are payable on a basis other than demand:
(a) the nonpayment when due of any amount payable on any of
the Liabilities (the term "Liabilities" shall mean all loans and
advances made under this Agreement and any renewals, extensions
and modifications thereof and all of your other existing and
future liabilities, whether absolute or contingent, to the Bank
regardless of their source or nature and out of whatever
transactions arising);
(b) the failure of any Obligor to pay, observe or perform
any indebtedness, obligation or agreement of any nature with the
Bank (the term "Obligor" includes you and all persons otherwise
liable for the payment of all Loans, and all renewals, extensions
or modifications thereof, such as endorsers or guarantors);
(c) if any representation, warranty, certificate, financial
statement or other information made or given by any Obligor to
the Bank is materially incorrect or misleading;
(d) if any Obligor shall become insolvent or make an
assignment for the benefit of creditors or if any petition shall
be filed by or against any Obligor under any bankruptcy or
insolvency law;
(e) the entry of judgment against any Obligor which remains
unsatisfied and unstayed for 15 days or the issuance of any
attachment, tax lien, levy or garnishment against any property of
material value in which any Obligor has an interest;
(f) if any attachment, levy, garnishment or similar legal
process is served upon the Bank as a result of any claim against
any Obligor or against any property of any Obligor;
(g) the dissolution, merger, consolidation, or the sale or
change in control (as control is defined in Rule 12b-2 under the
Securities Exchange Act of 1934) of any Obligor which is a
corporation or partnership, or transfer of any substantial
portion of any Obligor's assets, or if any agreement for such
dissolution, merger, consolidation, change in control, sale or
transfer is entered into by any Obligor, without the written
consent of the Bank;
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<PAGE> 4
(h) if the Bank determines reasonably and in good faith
that an event has occurred or a condition exists which has had,
or is likely to have, a material adverse effect on the financial
condition or creditworthiness of any Obligor, or on the ability
of any Obligor to perform the Liabilities;
(i) if any Obligor shall fail to remit promptly when due to
the appropriate government agency or authority depository, any
amount collected or withheld from any employee of said Obligor
for payroll taxes, Social Security payments or similar payroll
deductions;
(j) if any Obligor shall attempt to terminate or disclaim
such Obligor's liability for the Liabilities;
(k) if the Bank shall reasonably and in good faith
determine and notify you that any collateral for the Liabilities
is insufficient as to quality or quantity;
(1) if any Obligor shall fail to pay when due any material
indebtedness for borrowed money other than to the Bank;
(m) if you shall be notified of the failure of any Obligor
to provide such financial and other information promptly when
reasonably requested by the Bank; or
(n) the death of any Obligor who is a natural person.
12. Acceleration, Demand, Interest After Default. (a) If
you are in default as described in Paragraph 11(a) through (n),
including a default for failure to pay any Loans payable on
demand upon demand for payment by us, at our election evidenced
by notice in writing to you, all Loans, whether or not evidenced
by a note, shall thereupon become due and payable without
presentment, demand or protest, all of which are hereby waived.
If you are in default as described in Paragraph 11(d), then
forthwith and without any election or notice, all Loans, whether
or not evidenced by a note, shall thereupon become due and
payable without presentment, demand, protest or other notice of
any kind, all of which are hereby waived. You waive all right to
stay of execution and exemption of property in any action to
enforce your obligations to us hereunder. With respect to all
Loans payable on demand, the Bank's right to demand payment shall
not be restricted or impaired by the absence, non-occurrence or
waiver of a default, and it is understood that for all Loans
payable on demand, the Bank may demand payment at any time.
(b) Upon the occurrence of any such default or at any time
thereafter, the Bank may, at its option, and upon five days'
written notice to you, begin accruing interest on the outstanding
Loans, at a rate not to exceed five percent (5%) per annum in
excess of the greater of: (i) the Prime Rate in effect from time
to time and (ii) the rate of interest applicable to such Loan;
provided, however, that no interest shall accrue in excess of the
maximum rate permitted by law. All such additional interest
shall be payable on demand.
13. Continuing Effect. This Agreement shall remain in full
force and effect until all Loans outstanding, together will
interest thereon, and all other sums required to be paid under
the terms of this Agreement have been paid in full.
14. Governing Law. This Agreement and any note or notes
evidencing Loans made shall be construed in accordance with and
governed by the laws of the Pennsylvania.
15. Bank's Assignees. The Bank may at any time or from
time to time grant to others assignments of or participations in
the Loans.
16. Notices. Any notice given under this Agreement shall
be effective on the date when it is delivered to a party at its
address set forth as follows (or at such other address as the
party to which notice may be given may specify to the other in
writing):
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<PAGE> 5
if to you at Jones Apparel Group
250 Rittenhouse Circle
Bristol, PA 19007
Attention: Gary R. Klocek
Controller
and if to us at
CORESTATES BANK, N.A.
Broad and Chestnut Streets
Philadelphia, PA 19107
Attention: James P. Richards
F.C. 1-8-8-14
17. Miscellaneous. Any failure by us to exercise any right
under this Agreement shall not be construed as a waiver of the
right to exercise the same or any other right at any other time.
If more than one person, including any form of legal entity,
shall sign this Agreement as borrower, such persons shall be
jointly and severally liable hereunder and the terms "you" and
"your" shall be deemed to mean any and all such persons. The
parties hereto intend this Agreement to be a sealed instrument
and to be legally bound hereby.
18. JURISDICTION AND VENUE. IN ANY JUDICIAL PROCEEDING
INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE RELATIONSHIP ESTABLISHED
HEREUNDER, YOU HEREBY IRREVOCABLY SUBMIT TO THE NON-EXCLUSIVE
JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED IN ANY COUNTY
IN THE COMMONWEALTH OF PENNSYLVANIA WHERE THE BANK MAINTAINS AN
OFFICE AND AGREE NOT TO RAISE ANY OBJECTION TO SUCH JURISDICTION
OR TO THE LAYING OR MAINTAINING OF THE VENUE OF ANY SUCH
PROCEEDING IN SUCH COUNTY. YOU AGREE THAT SERVICE OF PROCESS IN
ANY SUCH PROCEEDING MAY BE DULY EFFECTED UPON YOU BY MAILING A
COPY THEREOF, BY REGISTERED MAIL, POSTAGE PREPAID, TO YOU.
19. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES
TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR
OTHERWISE) IN ANY WAY ARISING OUT OF OR RELATED TO THIS AGREEMENT
OR THE RELATIONSHIP ESTABLISHED HEREUNDER. THIS PROVISION IS A
MATERIAL INDUCEMENT FOR THE BANK TO ENTER INTO THIS AGREEMENT.
20. Termination. This Agreement shall remain in full force
and effect until either of us gives notice of termination to the
other, which must be given or confirmed in writing, but no such
termination shall affect your obligation to repay with interest
to the date of repayment all sums due and owing with respect to
Loans outstanding under the terms of this Agreement at the time
of such termination.
Please indicate your acceptance of this Agreement by signing
and dating the enclosed copy in the place provided and returning
such copy to us.
Very truly yours,
CORESTATES BANK, N.A.
/s/ James P. Richards
James P. Richards
Vice President
Acceptance Of And Agreement To
Master Short Term Borrowing Agreement
We, the addressee of the above Master Short Term Borrowing
Agreement, intending to be legally bound, accept and agree to the
terms and conditions of said Agreement and promise to pay the
principal of and interest on all Loans made to us by CoreStates
Bank, N.A., and all other sums required to be paid by us to said
Bank, under and in accordance with the terms of said Master Short
Term Borrowing Agreement. Signed this 12th day of September 1996.
By /s/ Gary R. Klocek (SEAL)
---------------------------
Corporate Controller
Name and Title
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EXHIBIT 10.36
First Union National Bank Patrick A. McGovern
123 South Broad Street Senior Vice President
Philadelphia, Pennsylvania 19109-1199 Large Corporate Credit
215 985-3031
Fax 215 985-7576
October 21, 1996
Mr. Gary Klocek
Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
Dear Gary:
I am delighted to advise Jones Apparel Group, Inc. (the "Company") that First
Union National Bank (the "Bank") has approved a Discretionary Line of Credit to
a maximum aggregate amount outstanding at any one time of U.S.$75,000,000 (the
"Line"). Under the Line at their discretion, the Bank's designated officers are
authorized to approve short-term credit undertakings such as loans or letters of
credit on terms in effect from time-to-time. The Line is intended to facilitate
our consideration of your requests for extensions of credit, and, although it
may be terminated by the Company or the Bank at any time, lines are formally
reviewed and reset by the Bank on an annual basis.
Availability under the Line is subject to the execution and delivery of such
documents as the Bank from time-to-time considers necessary or desirable and
the receipt of, and the Bank's continued satisfaction with, current financial
and other information, which the Company will promptly furnish the Bank as
it may from time-to-time request.
We look forward to our continuing relationship and the opportunity to assist in
fulfilling your financial needs.
Sincerely,
FIRST UNION NATIONAL BANK
/s/ Patrick A. McGovern
Patrick A. McGovern
Senior Vice President
PAMcG/bjc
EXHIBIT 10.37
THE BANK OF NEW YORK
NEW YORK'S FIRST BANK - FOUNDED 1784 BY ALEXANDER HAMILTON
530 FIFTH AVENUE, NEW YORK, N.Y. 10036
February 23, 1996
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
Attn: Wesley R. Card
Chief Financial Officer
Dear Mr. Card:
I am pleased to advise you that The Bark of New York (the "Bank") has
increased the line of credit that we hold available for you and your
subsidiaries from $25,000,000 to $40,000,000. This line is fully
available for import letters of credit and loans.
As you know, lines of credit are cancellable by either party at any time
and the making of advances and issuing letters of credit are subject to
the discretion of the Bank. Without limiting the foregoing, the extension
of such credit facilities is subject to the Bank's satisfaction with the
business, operations, prospects and financial condition of the applicants
at the time of each drawdown or request for issuance of a letter of credit.
I look forward to further expanding our relationship with Jones Apparel
Group, Inc.
Sincerely,
/s/ Russel A. Burr
Russel A. Burr
Senior Vice President
cc: Herbert J. Goodfriend
Vice Chairman and Secretary
Gary Klocek
Controller
EXHIBIT 10.38
BANK OF BOSTON
June 27, 1996
Mr. Gary Klocek
Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 10997
Dear Gary:
The First National Bank of Boston is pleased to confirm that we hold available
for Jones Apparel Group, Inc. a $35,000,000 364-day uncommitted letter of credit
facility to extend through July 7, 1997.
The availability of borrowings under this facility is subject to (i) our usual
reservation that we continue to be satisfied with the affairs of Jones Apparel
Group, Inc.; (ii) the execution of documentation for this facility that is
satisfactory to the Bank and (iii) any changes in government regulations or
monetary policy.
If the foregoing is satisfactory, please execute and return the enclosed copy
of this letter.
Very truly yours,
THE FIRST NATIONAL BANK OF BOSTON
By /s/ Nancy E. Fuller
Nancy E. Fuller, Director
Accepted:
Jones Apparel Group, Inc.
By /s/ Gary R. Klocek, Controller
Date: Aug. 5, 1996
THE FIRST NATIONAL BANK OF BOSTON, Boston, Massachusetts 02106
EXHIBIT 10.39
BANK OF BOSTON
THE FIRST NATIONAL BANK OF BOSTON. Boston, Massachusetts 02106
July 18, 1996
Mr. Gary R. Klocek
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
Dear Gary,
For your review and execution, attached is the required documentation for
our new $20,000,000 Money Market lending arrangement. The Money Market line
letter describes the borrowing procedures, and the Money Market note will
evidence the actual draw-downs against this uncommitted facility. The standard
Borrowing Resolutions and Certification of Title forms need to be completed as
well.
If either you or your counsel has any questions concerning these forms,
or any of the assumptions contained therein, please do not hesitate to call me
at 617-434-5310. Upon receipt of the executed documents, Bank of Boston is
prepared to quote rates and fund on a same day basis.
We look forward to expanding our good business relationship with Jones
Apparel Group, Inc. with this new $20,000,000 lending facility.
Regards,
/s/ Nancy Fuller
Nancy E. Fuller, Director
cc: T. A. McLaughlin, Large Corporate
G. R. Long, Department Executive
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<PAGE> 2
MONEY MARKET LINE
COMMERCIAL PROMISSORY NOTE
Boston, Massachusetts
July 19, 1996
FOR VALUE RECEIVED, the undersigned (jointly and severally if more than
one) promise(s) to pay to the order of THE FIRST NATIONAL BANK OF BOSTON
(together with any successors or assigns, the "Bank"), a national banking
association with its Head Office at 100 Federal Street, Boston, Massachusetts
02110, the aggregate principal amount of all loans made by the Bank to the
undersigned pursuant to the letter agreement between the Bank and the
undersigned dated July 19, 1996 as shown in the schedule attached hereto (the
"Note Schedule"), together with interest on each loan from the date such loan
is made until the maturity thereof at the applicable rate set forth in the Note
Schedule. The principal amount of each loan shall be payable on the maturity
date of such loan as indicated in the Note Schedule. Interest on the principal
amount of each loan shall be payable in arrears on the same day as the principal
amount is due. Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed including holidays and days on which
the Bank is not open for the conduct of banking business.
SECTION 1. PAYMENT TERMS.
1.1 PAYMENTS; PREPAYMENTS. All payments hereunder shall be made by the
undersigned to the Bank in United States currency at the Bank's address
specified above (or at such other address as the Bank may specify), in
immediately available funds, on or before 2:00 p.m. (Boston, Massachusetts
time) on the due date thereof Payments received by the Bank prior to the
occurrence of an Event of Default (as defined in Section 2) will be applied
first to fees, expenses and other amounts due hereunder (excluding principal
and interest); second, to accrued interest; and third to outstanding principal;
after the occurrence of an Event of Default, payments will be applied to the
Obligations under this Note as the Bank determines in its sole discretion.
No prepayment of any loan shall be permitted.
1.2 PREPAYMENT CHARGE. If any payment of principal is made for any reason
on any day other than the date scheduled therefor, whether as a result of
acceleration or otherwise, the undersigned shall reimburse the Bank for the
loss, if any, including any lost profits, resulting from such prepayment, as
reasonably determined by the Bank. The undersigned shall pay such loss
upon presentation by the Bank of a statement of the amount of such loss,
setting forth the Bank's calculation thereof, which notice and calculation
(including the method of calculation) shall be deemed true and correct absent
manifest error.
1.3 DEFAULT RATE. To the extent permitted by applicable law, upon and
after the occurrence of an Event of Default (whether or not the Bank has
accelerated payment of this Note), interest on principal and overdue interest
shall, at the option of the Bank, be payable on demand at a rate per annum equal
to 2% above the greater of the rate of interest otherwise payable hereunder
or the rate announced by the Bank from time to time as its Base Rate.
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<PAGE> 3
SECTION 2. DEFAULTS AND REMEDIES.
2.1 DEFAULT. The occurrence of any of the following events or conditions
shall constitute an "Event of Default" hereunder-
(a) (i) default in the payment when due of the principal of or
interest on this Note or
(ii) any other default in the payment or performance of this
Note or of any other Obligation or
(iii) default in the payment or performance of any obligation of
any Obligor to others for borrowed money or in respect of
any extension of credit or accommodation or under any
lease;
(b) failure of any representation or warranty herein or in any
agreement, instrument, document or financial statement
delivered to the Bank in connection herewith to be true and
correct in any material respect;
(c) failure to furnish the Bank promptly on request with financial
information about, or to permit inspection by the Bank of any
books, records and properties of, any Obligor;
(d) merger, consolidation, sale of all or substantially all of
the assets or change in control of any Obligor; or
(e) any Obligor generally not paying its debts as they become due;
the death, dissolution, termination of existence or insolvency
of any Obligor; the appointment of a trustee, receiver,
custodian, liquidator or other similar official for such
Obligor or any substantial part of its property or the
assignment for the benefit of creditors by any Obligor; or
the commencement of any proceedings under any bankruptcy or
insolvency laws by or against any Obligor.
As used herein, "Obligation" means any obligation hereunder or otherwise
of any Obligor to the Bank or to any of its affiliates, whether direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising; and "Obligor" means the undersigned, any guarantor or any
other person primarily or secondarily liable hereunder or in respect hereof,
2.2 REMEDIES. Upon an Event of Default described in Section 2.1(e)
immediately and automatically, and upon or after the occurrence of any other
Event of Default at the option of the Bank, all Obligations of the undersigned
shall become immediately due and payable without notice or demand. All rights
and remedies of the Bank are cumulative and are exclusive of any rights or
remedies provided by law or in equity or any other agreement, and may be
exercised separately or concurrently.
SECTION 3. MISCELLANEOUS.
3.1 WAIVER; AMENDMENT. No delay or omission on the part of the Bank in
exercising any right hereunder shall operate as a waiver of such right or of any
other right under this Note. No waiver of any right or any amendment hereto
shall be effective unless in writing and signed by the Bank, nor shall a waiver
on one occasion bar or waive the exercise of any such right on any future
occasion. Without limiting the generality of the foregoing, the acceptance by
the Bank of any late payment shall not be deemed to be a waiver of the Event of
Default arising as a consequence thereof. Each Obligor waives presentment,
demand, notice, protest, and all other demands and notices in connection with
the delivery, acceptance, performance, default or enforcement of this Note and
assents to any extensions or postponements of the time of payment and to any
other indulgences under this Note, and to any additions or releases of any
other parties or persons primarily or secondarily liable hereunder, that from
time to time may be granted by the Bank in connection herewith.
- 3 -
<PAGE> 4
3.2 SET-OFF. Regardless of the adequacy of any collateral or other means of
obtaining repayment of the Obligations, the Bank is hereby authorized at any
time and from time to time, without notice to the undersigned (any such notice
being expressly waived by the undersigned) and to the fullest extent permitted
by law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) and other sums credited by or due from the Bank
to the undersigned or subject to withdrawal by the undersigned against the
Obligations of the undersigned, although such Obligations may be contingent
or unmatured.
3.3 TAXES. The undersigned agrees to indemnify the Bank and hold it
harmless from and against any transfer taxes, documentary taxes, assessments
or charges made by any governmental authority by reason of the execution,
delivery, and performance of this Note.
3.4 EXPENSES. The undersigned will pay on demand all expenses of the Bank
in connection with the preparation, administration, default, collection, waiver
or amendment of the Obligations or in connection with the Bank's exercise,
preservation or enforcement of any of its rights, remedies or options
thereunder, including, without limitation, fees of outside legal counsel or
the allocation costs of in-house legal counsel, accounting, consulting,
brokerage or other similar professional fees or expenses, and any fees or
expenses associated with any travel or other costs relating to any appraisals
or examinations conducted in connection with the Obligations or any
collateral therefor, and the amount of all such expenses shall, until paid, bear
interest at the rate applicable to principal hereunder (including any default
rate) and be an Obligation secured by any such collateral.
3.5 BANK RECORDS. The entries on the records of the Bank (including any
appearing on this Note) shall be prima facie evidence of the aggregate principal
amount outstanding under this Note and interest accrued thereon.
3.6 INFORMATION. The undersigned shall furnish the Bank from time to time
with such financial statements and other information relating to any Obligor or
any collateral securing this Note as the Bank may require. All such information
shall be true and correct and fairly represent the financial condition and the
operating results of such Obligor as of the date and for the periods for which
the same are furnished. The undersigned shall permit representatives of the
Bank to inspect its properties and its books and records, and to make copies
or abstracts thereof. Each Obligor authorizes the Bank to release and
disclose to its affiliates, agents and contractors any financial statements
and other information relating to said Obligor provided to or prepared by or for
the Bank in connection with any Obligation. The undersigned will notify the
Bank promptly of the existence or upon the occurrence of any Event of Default or
event which, with the giving of notice or the passage of time or both, would
become an Event of Default.
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<PAGE> 5
3.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Note is intended to take
effect as a sealed instrument and shall be governed by, and construed in
accordance with, the laws of The Commonwealth of Massachusetts, without regard
to its conflicts of law rules. The undersigned agrees that any suit for the
enforcement of this Note may be brought in the courts of such state or any
Federal Court sitting in such state and consents to the non-exclusive
jurisdiction of each such court and to service of process in any such suit being
made upon the undersigned by mail at the address specified below. The
undersigned hereby waives any objection that it may now or hereafter have to
the venue of any such suit or any such court or that such suit was brought in
an inconvenient court.
3.8 SEVERABILITY, AUTHORIZATION TO COMPLETE, PARAGRAPH HEADINGS. If any
provision of this Note shall be invalid, illegal or unenforceable, such
provisions shall be severable from the remainder of this Note and the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby. The Bank is hereby authorized, without further
notice, to fill in any blank spaces on this Note, and to date this Note as
of the date funds are first advanced hereunder. Paragraph headings are for the
convenience of reference only and are not a part of this Note and shall not
affect its interpretation.
3.9 JURY WAIVER. THE BANK (BY ITS ACCEPTANCE OF THIS NOTE) AND THE
UNDERSIGNED AGREE THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL
(A) SEEK A JURY TRIAL IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER
ACTION BASED UPON, OR ARISING OUT OF, THIS NOTE, ANY RELATED INSTRUMENTS, ANY
COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM
OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH SHALL
BE SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE UNDERSIGNED HAS AGREED
WITH OR REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT
BE FULLY ENFORCED IN ALL INSTANCES.
By: /s/ Gary R. Klocek
Gary R. Klocek, Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
- 5 -
EXHIBIT 10.40
(Jones - License)
LICENSE AGREEMENT, dated as of October 18, 1995 by and between
Polo Ralph Lauren, L.P. ("Licensor"), with a place of business at
650 Madison Avenue, New York, New York 10022, and Jones Apparel
Group, Inc. ("Licensee"), a Pennsylvania corporation with a place
of business at 250 Rittenhouse Circle, Bristol, Pennsylvania 19007.
WHEREAS, Licensor is engaged in the business of manufacturing,
selling and promoting, and licensing others the right to
manufacture, sell and promote, high quality apparel and related
merchandise under certain Polo/Ralph Lauren trademarks and trade
names; and
WHEREAS, Licensee desires to obtain, and Licensor is willing
to grant, a license pursuant to which Licensee shall have the right
to use the Trademark (as hereinafter defined) on the terms set
forth herein;
1. Definitions. As used herein, the term:
1.1. "License" shall mean the exclusive, non-assignable right
to use the Trademark in connection with the manufacture and/or
importation and sale of Licensed Products in the Territory.
1.2. "Licensed Products" shall mean those items set forth on
Schedule A attached hereto and made a part hereof, and all bearing
the Trademark. From time to time Licensor may authorize Licensee
to manufacture and distribute products bearing the Trademark not
expressly listed in Schedule A hereto. Absent an agreement with
respect to such products signed by Licensor and Licensee, all such
products shall be deemed Licensed Products for all purposes
hereunder; provided, however, that Licensee's rights with respect
to such products (i) shall be non-exclusive and (ii) may be
terminated by Licensor upon 90 days written notice.
1.3. "Licensor" shall mean Polo Ralph Lauren, L.P., a limited
partnership organized under the laws of the State of Delaware.
1.4. "Licensee" shall mean Jones Apparel Group, Inc., a
corporation organized under the laws of Pennsylvania.
1.5. "Territory" the United States of America, its
territories and possessions. From time to time Licensor may
authorize Licensee to sell certain Licensed Products to specific
purchasers outside the Territory. Absent an agreement with respect
to such sales signed by Licensor and Licensee, all such sales shall
be made on all of the terms and conditions set forth in this
Agreement; provided, however, that Licensee's right to make such
sales shall be non-exclusive and may be terminated by Licensor
immediately upon written notice to Licensee. Any such termination
shall not apply to orders already taken by Licensee in accordance
with Licensor's prior authorization. In the event that Licensor
wishes to use or license a third party to use the Trademark on
Licensed Products sold in Canada during the term hereof, Licensor
shall grant to Licensee a right of first refusal to act as the
Licensee therefor. In the implementation of said first refusal
- 1 -
<PAGE> 2
rights, Licensor shall give Licensee notice of the Offer Terms upon
which it proposes to grant a license ("Licensor's Offer") for such
products. Licensee shall have a period of forty-five (45) days
after the date of Licensor's notice of the Offer Terms to accept or
reject Licensor's Offer in writing. If Licensee rejects Licensor's
Offer or if Licensee initially accepts Licensor's Offer but
thereafter is unable to satisfy the Offer Terms, then Licensor
shall be free to make a substantially similar Licensor's Offer to
any third party. If Licensor shall substantially (as determined in
Licensor's reasonable discretion) change the Offer Terms then,
during the term hereof, Licensee's right of first refusal as
provided hereinabove shall apply to such changed Offer Terms.
1.6. "Trademark" shall mean the trademark set forth on
Schedule B hereto, and no other trademark, regardless of whether
such trademark is or includes any reference to "Ralph Lauren" or
any other trademark owned by Licensor or its affiliates. Licensor
shall have the sole right to determine the manner and use each of
the Trademark in connection with each particular Licensed Product.
2. Grant of License.
2.1. Subject to the terms and provisions hereof, Licensor
hereby grants Licensee and Licensee hereby accepts the License.
Licensor shall neither use nor authorize third parties to use the
Trademark in connection with the manufacture, sale and/or
importation of Licensed Products in the Territory during the term
of this Agreement without Licensee's prior approval. To the extent
it is legally permissible to do so, no license is granted hereunder
for the manufacture, sale or distribution of Licensed Products to
be used for publicity purposes, other than publicity of Licensed
Products, in combination sales, as premiums or giveaways, or to be
disposed of under or in connection with similar methods of
merchandising, such license being specifically reserved for
Licensor.
2.2. It is understood and agreed that the License applies
solely to the use of the Trademark on the Licensed Products, and
that (i) no use of any other trademark of Licensor or of any of
Licensor's affiliates (including any trademark that uses the name
"Ralph Lauren"), and (ii) no use of the Trademark on any other
products, is authorized or permitted. Licensor reserves the right
to use, and to grant to any other licensee the right to use, the
Trademark, whether within or outside the Territory, in connection
with any and all products and services, other than Licensed
Products within the Territory. Licensee understands and agrees that
Licensor may itself manufacture or authorize third parties to
manufacture in the Territory, Licensed Products for ultimate sale
outside of the Territory. Subject to the terms of paragraph 17.4
hereof, Licensee may manufacture or cause to be manufactured the
Licensed Products outside of the Territory, but solely for purposes
of sale within the Territory pursuant to the terms of this
Agreement.
2.3. Licensee shall not have the right to use Licensee's name
on or in connection with the Licensed Products, except with the
prior approval by Licensor of the use and placement of Licensee's
name. Licensee shall, at the option of Licensor, include on its
business materials and/or the Licensed Products an indication of
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<PAGE> 3
the relationship of the parties hereto in a form approved by
Licensor.
2.4. Licensee shall not use or permit or authorize another
person or entity in its control to use the words "Polo" or "Ralph
Lauren" as part of a corporate name or tradename without the
express written consent of Licensor and Licensee shall not permit
or authorize use of the Trademark in such a way so as to give the
impression that the name "Ralph Lauren," or the Trademark, or any
modifications thereof, are the property of Licensee.
2.5. In the event that (i) Sidney Kimmel is no longer the
Chairman of Licensee and the owner of a controlling interest in
Licensee, and (ii) Licensee, directly or indirectly, agrees to
manufacture, distribute, sell or advertise during the term of this
Agreement any items which bear the name or are associated with the
name of any person or entity listed on Schedule C hereto, Licensor
shall have the right to terminate the term of this Agreement upon
sixty (60) days written notice.
2.6. Licensor represents and warrants that it has full
right, power and authority to enter into this Agreement, to perform
all of its obligations hereunder, and to consummate all of the
transactions contemplated herein. In the event that Licensee or
Licensor is charged with infringement on account of Licensee's use
of any of the Trademark or, if in connection with the development
of Licensor's program in the Territory, Licensor determines that
the use by Licensee of the trademark should be discontinued upon
reasonable written notice to Licensee, this license under the
Trademark shall be converted to a license under other mutually
agreeable "Ralph Lauren" trademarks) or label(s); in such event
Licensee hereby accepts the exclusive license to use such "Ralph
Lauren" trademarks) in connection with the manufacture and sale of
Licensed Products in the Territory subject to all other terms of
this License Agreement. In such event, Licensee shall immediately
advise Licensor of its inventory of Licensed Products labelled with
the Trademark(s) and of its stock of business materials bearing the
Trademark(s) and Licensor shall, in its reasonable discretion and
judgment, determine whether and to what extent such inventory and
materials of Licensee may continue to be used by Licensee.
2.7. Licensee shall not purport to grant any right,
permission or license hereunder to any third party, whether at
common law or otherwise. Licensee shall not without Licensor's
prior written approval sell any Licensed Products bearing the Mark
to any third party which, directly or indirectly, sells or proposes
to sell such Licensed Products outside the Territory. Licensee
shall use its best efforts to prevent any such resale outside the
Territory and shall, immediately upon learning or receiving notice
from Licensor that a customer is selling Licensed Products outside
the Territory, cease all sales and deliveries to such customer.
2.8. Licensee recognizes that there are many uncertainties in
the business contemplated by this Agreement. Licensee agrees and
acknowledges that other than those representations explicitly
contained in this Agreement, if any, no representations, warranties
or guarantees of any kind have been made to Licensee, either by
Licensor or its affiliates, or by anyone acting on their behalf.
Without limitation, no representations concerning the value of the
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<PAGE> 4
Licensed Products or the prospects for the level of their sales or
profits have been made and Licensee has made its own independent
business evaluation in deciding to manufacture and distribute the
Licensed Products on the terms set forth herein.
3. Design Standards and Prestige of Licensed Products.
3.1. Licensee acknowledges that it has entered into a design
services agreement ("Design Agreement"), of even date herewith,
with Polo Ralph Lauren Enterprises, L.P. (the "Design
Partnership"), which provides for the furnishing to Licensee by the
Design Partnership of design concepts and other professional
services so as to enable Licensee to manufacture or cause to be
manufactured the Licensed Products in conformity with the
established prestige and goodwill of the Trademark. Licensee shall
manufacture, or cause to be manufactured, and sell only such
Licensed Products as are made in accordance with the design and
other information approved under, and in all other respects in
strict conformity with the terms of, the Design Agreement.
3.2. Licensee acknowledges that the Trademark has established
prestige and goodwill and are well recognized in the minds of the
public, and that it is of great importance to each party that in
the manufacture and sale of various lines of Licensor's products,
including the Licensed Products, the high standards and reputation
that Licensor and Ralph Lauren have established be maintained.
Accordingly, all items of Licensed Products manufactured or caused
to be manufactured by Licensee hereunder shall be of high quality
workmanship with strict adherence to all details and
characteristics embodied in the designs furnished pursuant to the
Design Agreement. Licensee shall supply Licensor with samples of
the Licensed Products (including, if Licensor so requests, samples
of labeling and packaging used in connection therewith) prior to
production and from time to time during production, and shall, at
all times during the term hereof, upon Licensor's request, make its
manufacturing facilities available to Licensor, and shall use its
best efforts to make available each subcontractor's manufacturing
facilities for inspection by Licensor's representatives during
usual working hours. No sales of miscuts or damaged merchandise
shall contain any labels or other identification bearing the
Trademark without Licensor's prior written approval, but sales of
all products of Licensor or the Design Partnership's design shall
nonetheless be subject to royalty payments pursuant to paragraph 6
hereof.
3.3. In the event that any Licensed Product is, in the
judgment of Licensor, not being manufactured, distributed or sold
with first quality workmanship or in strict adherence to all
details and characteristics furnished pursuant to the Design
Agreement, Licensor shall notify Licensee thereof in writing and
Licensee shall promptly repair or change such Licensed Product to
conform thereto. If a Licensed Product as repaired or changed does
not strictly conform after Licensor's request and such strict
conformity cannot be obtained after at least one (1) resubmission,
the Trademark shall be promptly removed from the item, at the
option of Licensor, in which event the item may be sold by Licensee
without payment of any royalty hereunder, provided such miscut or
damaged item does not contain any labels or other identification
bearing the Trademark. Notwithstanding anything in this paragraph
3.3 to the contrary, sales of all products of Licensor's or the
Design Partnership's design, whether or not bearing the Trademark,
shall nonetheless be subject to royalty payments pursuant to
paragraph 6 hereof. Licensor hereby approves Licensee's sale of
excess inventory, cutups and clearly marked seconds or irregular
merchandise, on all the terms set forth herein: (i) first, upon
request to Licensor's factory outlet stores to the extent of their
requirements (subject to a reasonable assortment being purchased),
at a price equal to [Omitted; Material Filed Separately With The
Securities And Exchange Commission] off the regular
wholesale price of such products (but Licensee shall not be
responsible for any royalty payments hereunder or for any
compensation payments under the Design Agreement with respect to
such sales) and (ii) second, at factory outlet stores owned by
Licensee or its affiliates ("Licensee Outlet Stores") and (iii) at
such other locations as Licensor may hereafter approve. Licensor
and Licensee shall separately agree to the terms of license
agreements for Licensee Outlet Stores, which shall bear the
Trademark as a service mark, ("Store License Agreements") , it being
understood that such Store License Agreements shall (i) not require
Licensee to pay Licensor any separate royalty or other compensation
for the right to use such service mark herein and in the Design
Agreement; (ii) Licensor shall have a right to approve each
location for each Licensee Outlet Store in its reasonable business
judgment, it being understood that Licensor does not presently
intend to approve more than one Licensee Outlet Store in each
center and (iii) such Store License Agreements shall be consistent
with other similar agreements Licensor has entered into with third
parties and shall provide for Licensor's right to approve various
aspects of the design, decoration, accessorization and operation of
all Licensee outlet Stores.
3.4. At the request of Licensor, Licensee shall cause to be
placed on all Licensed Products appropriate notice designating
Licensor or the Design Partnership as the copyright or design
patent owner thereof, as the case may be. The manner of
presentation of said notices shall be determined by Licensor.
4. Marketing.
4.1. The distribution of the Licensed Products in the
Territory shall be performed by Licensee exclusively. The Licensed
Products shall be sold by Licensee only to those specialty shops,
department stores and other retail outlets which deal in products
similar in quality and prestige to Licensed Products, and whose
operations will enhance the quality and prestige of the Trademark,
and only to those customers listed on Schedule D hereto and other
customers of similar quality and prestige. Licensor shall have the
right to object by notice to Licensee to any customer not listed on
Schedule D hereto, and Licensee shall not thereafter accept orders
from such customer, (but Licensee may fulfill orders accepted prior
to Licensee's receipt of such notice). In the event Licensor
reasonably determines that the unauthorized resale of Licensed
Products through unauthorized distribution channels is causing a
negative impact on the reputation and desirability of Licensor's
products, Licensee shall consult with Licensor in good faith
regarding what steps, including the possibility of implementing an
inventory marking system, may be taken to remedy such negative
impact. Licensee shall not market or promote or seek customers for
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<PAGE> 5
the Licensed Products outside of the Territory and Licensee shall
not establish a branch, wholly owned subsidiary, distribution or
warehouse with inventories of Licensed Products outside of the
Territory.
4.2. Licensee acknowledges that in order to preserve the good
will attached to the Ralph Lauren trademarks, the Licensed Products
are to be sold at prices and terms reflecting the prestigious
nature of such trademarks, it being understood, however, that
Licensor is not empowered to fix or regulate the prices at which
the Licensed Products are to be sold, either at the wholesale or
retail level.
4.3. Licensee shall maintain the high standards of the
Trademark and the Licensed Products, in all advertising, packaging
and promotion of the Licensed Products. Licensee shall not employ
or otherwise release any of such advertising or packaging or other
business materials relating to any Licensed Products or bearing the
Trademark, unless and until Licensee shall have made a request, in
writing, for approval by Licensor. Licensor may, with respect to
any advertising, packaging or business materials submitted by
Licensee, make such suggestions as Licensor deems necessary or
appropriate, or disapprove, in either event by notice to Licensee.
Any approval granted hereunder shall be limited to use during the
seasonal collection of Licensed Products to which such advertising
relates and shall be further limited to the use (e.g. TV or print)
for which approval by Licensor was granted. Licensee shall, at the
option of Licensor, include on its business materials an indication
of the relationship of the parties hereto in a form approved by
Licensor.
4.4. Licensee shall use its best efforts to assure that all
cooperative advertising, whereby Licensee provides a customer with
a contribution toward the cost of an advertisement for Licensed
Products, whether Licensee's contribution be in the form of an
actual monetary contribution, a credit or otherwise, shall be
subject to prior approval of Licensor under the same terms and
conditions as apply to advertising and promotional materials
prepared by or to be used by Licensee pursuant to paragraph 4.5
hereof; provided, however, that in the event that Licensee is not
as a matter of practice given an opportunity to review the
cooperative advertising due to time constraints, then Licensee
shall notify Licensor, in advance, of those customers with whom it
does cooperative Licensed Product advertising and/or promotion, and
Licensee at Licensor's request shall notify the named customer of
the terms of this Agreement which pertain to the said advertising
or promotional materials.
4.5. Licensee shall exercise its best efforts to safeguard
the established prestige and goodwill of the name "Ralph Lauren"
and the trademarks associated therewith at the same level of
prestige and goodwill as heretofore maintained. "Image" as used
herein refers primarily to quality and style of packaging,
advertising and promotion, creation and introduction of new
products, type of outlets with reference to quality of service
provided by retail outlets and quality of presentation of Licensed
Products in retail outlets. Licensee shall take all necessary
steps, and all steps reasonably requested by Licensor, to prevent
or avoid any misuse of the Trademark by any of its customers,
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<PAGE> 6
contractors or other resources.
4.6. During each year of this Agreement, Licensee shall
expend for the advertising of Licensed Products, which advertising
may consist of cooperative advertising, an amount that is not less
than the "Annual Advertising Obligation", as hereinafter defined,
for such year. Licensor and Licensee shall consult with each other
regarding the creation, production and placement of all advertising
of Licensed Products, but all final decisions with respect thereto
shall be made by Licensor in its sole discretion. The "Annual
Advertising obligation" for each year during the term hereof shall
be [Omitted; Material Filed Separately With The Securities And
Exchange Commission] percent of the aggregate net sales price (as
defined in paragraph 6.2 hereof) of Licensed Products sold during
such year. Licensee shall deliver to Licensor within sixty (60)
days after the end of each year hereof an accounting statement in
respect of amounts expended by Licensee on advertising for the prior
year. Each such accounting statement shall be signed, and certified
as correct, by a duly authorized officer of Licensee. Prior to each
year hereof, Licensee shall submit Licensee's advertising budget
for the upcoming year, based on the aggregate net sales price of
Licensed Products during the year then ending and on sales
projected for the upcoming year. The Annual Advertising Obligation
for such upcoming year will initially be calculated and expended
based upon such budget. If in any year during the term hereof an
amount less than the Annual Advertising obligation is expended on
advertising for any reason whatsoever (including an underestimate
of the actual net sales for such year or because the actual cost of
Institutional Advertising, if any, produced and placed during such
year is less than the Annual Advertising Obligation) , the entire
amount not expended shall be added to the Annual Advertising
Obligation for the following year.
4.7. During the term of this Agreement, Licensee shall, in
consultation with Licensor, provide a budget for the design,
construction, re-fits and seasonal changeovers of in-store shops
and fixtures to be used exclusively for the presentation of
Licensed Products, the design of which shall be subject to
Licensor's prior approval. Licensee's budget for such purposes
shall be adequate to present Licensed Products in a manner
consistent with the high quality and prestige associated with
Licensor's trademarks and the price structure of the Licensed
Products.
4.8. To the extent permitted by applicable law Licensor may
from time to time, and in writing, promulgate reasonable rules and
regulations to Licensee relating to the manner of use of the
Trademark. Licensee shall comply with such rules and regulations.
Any such rules or regulations shall not be inconsistent with or
derogate from the terms of this Agreement.
4.9. Licensee agrees to make available for purchase and to
sell on its customary price, credit and payment terms all lines and
styles of Licensed Products to retail stores in the Territory
bearing a trademark of Licensor or its affiliates and to any stores
or facilities operated or owned by Licensor and its affiliates,,
which are authorized to sell the Licensed Products within such
retail stores.
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<PAGE> 7
4.10. In consideration of the License granted herein, in the
event Licensor elects to offer Licensed Products for sale in mail-
order catalogs, Licensee shall sell and timely ship Licensed
Products to Licensor or its affiliate for such purposes at a price
equal to [Omitted; Material Filed Separately With The Securities
And Exchange Commission] less than the regular wholesale price
therefor. All such sales shall be separately reported by Licensee
in its accounting statements pursuant to paragraph 6.2 hereof, and
such sales shall not be subject to the royalty or advertising
obligations set forth herein, or to the compensation obligations
set forth in the Design Agreement.
4.11. Licensor shall respond to any requests for approvals or
consents from Licensee hereunder as promptly as reasonably
practicable consistent with the level of review required.
5. Trademark Protection.
5.1. All uses of the Trademark by Licensee, including,
without limitation, use in any business documents, invoices,
stationery, advertising, promotions, labels, packaging and
otherwise shall require Licensor's prior written consent in
accordance with paragraph 4 hereof.
5.2. All uses of the Trademark by Licensee in advertising,
promotions, labels and packaging shall bear the notation "Ralph
(Polo Player Design) Lauren" or the representation of the Polo
Player, as the case may be, and shall include at Licensor's option,
a notice to the effect that each Trademark is used by Licensee for
the account and benefit of Licensor or that Licensee is a
registered user thereof or both such statements. The use of the
Trademark pursuant to this Agreement shall be for the benefit of
Polo and shall not vest in Licensee any title to or right or
presumptive right to continue such use. For the purposes of
trademark registration, sales by Licensee shall be deemed to have
been made by Licensor.
5.3. Licensee shall cooperate fully and in good faith with
Licensor for the purpose of securing and preserving Licensor's
rights in and to the Trademark. Nothing contained in this Agreement
shall be construed as an assignment or grant to Licensee of any
right, title or interest in or to the Trademark, or any of
Licensor's other trademarks, it being understood that all rights
relating thereto are reserved by Licensor, except for the License
hereunder to Licensee of - the right to use the Trademark only as
specifically and expressly provided herein. Licensee shall not file
or prosecute a trademark or service mark application or
applications to register the Trademark, for Licensed Products or
otherwise.
5.4. Licensee shall not, during the term of this Agreement or
thereafter, (a) attack Licensor's title or rights in and to
Licensor's trademarks in any jurisdiction or attack the validity of
this License or Licensor's trademarks or (b) contest the fact that
Licensee's rights under this Agreement (i) are solely those of a
licensee, manufacturer and distributor and (ii) subject to the
provisions of paragraph 10 hereof, cease upon termination of this
Agreement. The provisions of this paragraph 5.4 shall survive the
termination of this Agreement.
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<PAGE> 8
5.5. All right, title and interest in and to all samples,
patterns, sketches, designs, artwork, logos and other materials
furnished by Licensor or the Design Partnership, whether created by
Licensor or the Design Partnership, and any logo or crest
associated with the Trademark, even if such logo or crest was
designed or furnished by Licensee, shall be the sole property of
Licensor and/or the Design Partnership, as the case may be.
Licensee shall assist Licensor to the extent necessary in the
protection of or the procurement of any protection of Licensor's
rights to the Trademark, designs, design patents and copyrights
hereunder and Licensor, if Licensor so desires, may commence or
prosecute any claims or suits in Licensor's own name or in the name
of Licensee or join Licensee as a party thereto. Licensee shall
promptly notify Licensor in writing of any uses which may be
infringements or imitations by others of the Trademark on articles
similar to those covered by this Agreement which may come to
Licensee's attention. Licensor shall have the sole right to
determine whether or not any action shall be taken on account of
any such infringements or imitations. Licensor shall bear one
hundred percent (100%) of the costs of all actions or proceedings
it undertakes, and shall be entitled to all recoveries in such
actions. If Licensor declines to take action with respect to a
particular infringer Licensee is not obligated to but may, with
Licensor's prior written consent, undertake such action at
Licensee's expense, in which case Licensee shall be entitled to all
recoveries in such action.
6. Royalties.
6.1 Licensee shall pay to Licensor minimum royalties for
each year during the term of this Agreement as compensation for the
License granted hereunder for the use of the Trademark in the
manufacture and sale, and/or importation and sale, of Licensed
Products in the Territory. The minimum royalty for each year during
the term hereof shall be as follows:
Year 1 (1997) $0
Year 2 $0
Year 3 $0
Year 4 $1,400,000
Year 5 $1,400,000
Minimum royalties for each year shall be paid on a quarterly basis,
beginning with the minimum royalty payment to be made for the first
calendar quarter of 2000, in the manner set forth in paragraph 6.2
below. No credit shall be permitted against minimum royalties payable
in any year on account of actual or minimum royalties paid
in any other year, and minimum royalties shall not be returnable.
Minimum royalties for each year of the "Renewal Term" (as defined
in paragraph 8 hereof) shall be an amount equal to ninety percent
(90%) of the actual earned royalty due to Licensor for sales of
Licensed Products in 2001. For the purposes of this Agreement, the
term "year" shall mean a period of twelve (12) months commencing on
each January 1 during the term of this Agreement; provided,
however, that the "first year", or "Year 1" shall mean the period
commencing on the date hereof and expiring on December 31, 1997
(although minimum royalties shall not be due until calendar year
2000).
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<PAGE> 9
6.2. Licensee shall pay to Licensor earned royalties based on
the net sales price of all Licensed Products manufactured or
imported and sold by Licensee hereunder. Earned royalties shall
equal [Omitted; Material Filed Separately With The Securities And
Exchange Commission] of the net sales price of all Licensed Products
sold under this Agreement, including, without limitation, any sales
made pursuant to the terms of paragraph 10.2 hereof; provided,
however,[Omitted; Material Filed Separately With The Securities
And Exchange Commission]. Licensee shall prepare or cause to be
prepared statements of operations for the first month in which
Licensed Products are offered for sale to the trade, and for each
month thereafter for so long as Licensee is offering Licensed Products
for sale hereunder, which statements shall be furnished to Licensor
together with the earned royalties due for each such month on the last
day of the following month. The statement and royalty payment
provided on the last day of each April (for the month of March),
July (for the month of June), October (for the month of September) and
January (for the month of December) during the term shall also include
Licensee's minimum royalty obligation for the preceding calendar
quarter, less the aggregate earned royalties paid for such calendar
quarter. The term "net sales price" shall mean the gross sales
price to retailers of all Licensed Products sold under this
Agreement or, with respect to Licensed Products that are not sold
directly or indirectly to retailers, other ultimate consumers (as
in the case of accommodation sales by Licensee to its employees or
sales by Licensee in its own shops), less trade discounts,
merchandise returns, sales tax (if separately identified and
charged) and markdowns and/or chargebacks which, in accordance with
generally accepted accounting principles, would normally be treated
as deductions from gross sales, and which, in any event, do not
include any chargebacks or the like for advertising, fixture or
retail shop costs or contributions, or contributions for in-store
personnel. No other deductions shall be taken. Any merchandise
returns shall be credited in the month in which the returns are
actually made. For purposes of this Agreement, affiliates of
Licensee shall mean all persons and business entities, whether
corporations, partnerships, joint ventures or otherwise, which now
or hereafter control, or are owned or controlled, directly or
indirectly by Licensee, or are under common control with Licensee.
It is the intention of the parties that royalties will be based on
the bona fide wholesale prices at which Licensee sells Licensed
Products to independent retailers in arms' length transactions. In
the event Licensee shall sell Licensed Products to its affiliates,
royalties shall be calculated on the basis of such a bona fide
wholesale price irrespective of Licensee's internal accounting
treatment of such sale; provided, however, that royalties on sales
to Licensee Outlet Stores (as defined in paragraph 3.3 hereof)
shall be calculated on the basis of the actual invoice price to
such Licensee Outlet Stores, but in no event less than an amount
equal to [Omitted; Material Filed Separately With The Securities
And Exchange Commission] less than the regular wholesale
price of such Licensed Products. Licensee shall identify
separately in the statements of operations provided to Licensor
pursuant to paragraph 7 hereof, all sales to affiliates and through
Licensee Outlet Stores. Notwithstanding anything to the contrary
contained herein or in the Design Agreement, Licensee may sell to
its own employees involved in the business contemplated hereunder,
for their personal use, Licensed Products at a discount of thirty-
five (35%) percent or more off the regular wholesale price thereof,
without payment of royalties or compensation to Licensor; provided
that such sales do not exceed $1,000,000 in any year.
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<PAGE> 10
6.3. If the payment of any installment of royalties is
delayed for any reason, interest shall accrue on the unpaid
principal amount of such installment from and after the date which
is 10 days after the date the same became due pursuant to
paragraphs 6.1 or 6.2 hereof at the lower of the highest rate
permitted by law in New York and 2% per annum above the prime rate
of interest in effect from time to time at Chemical Bank, New York,
New York or any successor bank.
6.4. The obligation of Licensee to pay royalties hereunder
shall be absolute notwithstanding any claim which Licensee may
assert against Licensor or the Design Partnership. Licensee shall
not have the right to set-off, compensate or make any deduction
from such royalty payments for any reason whatsoever.
7. Accounting.
7.1. Licensee shall at all times keep an accurate account of
all operations within the scope of this Agreement and shall render
a full statement of such operations in writing to Licensor in
accordance with paragraph 6.2 hereof. Such statements shall account
separately for each different product category and shall include
all aggregate gross sales, trade discounts, merchandise returns,
sales of miscuts and damaged merchandise and net sales price of all
sales for the previous month. Such statements shall be in
sufficient detail to be audited from the books of Licensee. Once
annually, which may be in connection with the regular annual audit
of Licensee's books, Licensee shall furnish an annual statement of
the aggregate gross sales, trade discounts, merchandise returns and
net sales price of all Licensed Products made or sold by Licensee
certified by Licensee's independent accountant. Each monthly
financial statement furnished by Licensee shall be certified by the
chief financial officer or controller of Licensee.
7.2 Licensor and its duly authorized representatives, on
reasonable notice, shall have the right, no more than once in each
year during regular business hours, for the duration of the term of
this Agreement and for three (3) years thereafter, to examine the
books of account and records and all other documents, materials and
inventory in the possession or under the control of Licensee and
its successors with respect to the subject matter of this
Agreement. All such books of account, records and documents shall
be maintained and kept available by Licensee for at least the
duration of this Agreement and for three (3) years thereafter.
Licensor shall have free and full access thereto in the manner set
forth above and shall have the right to make copies and/or extracts
therefrom. If as a result of any examination of Licensee's books
and records it is shown that Licensee's payments to Licensor
hereunder with respect to any twelve (12) month period were less
than or greater than the amount which should have been paid to
Licensor by an amount equal to three and one-half percent (3-1/2%) of
the amount which should have been paid during such twelve (12)
month period, Licensee will, in addition to reimbursement of any
underpayment, with interest from the date on which each payment was
due at the rate set forth in paragraph 6.3 hereof, promptly
reimburse Licensor for the cost of such examination. Licensee
shall provide Licensor each year with a copy of its annual report,
as soon as it is made available to Licensee's Shareholders.
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<PAGE> 11
8. Term.
8.1 The term of this Agreement shall commence as of the date
hereof and shall terminate on December 31, 2001; provided,, however,
that if no Event of Default shall have occurred and not been cured
or waived, and Licensee has achieved the Minimum Renewal Volume (as
such term is hereinafter defined) for the period January 1, 2000
through December 31, 2000, Licensee shall have the option, upon
providing notice to Licensor on or before April 1, 2001, to renew
this Agreement for an additional three (3) year period (the
"Renewal Term") so as to expire on December 31, 2004, on the terms
and conditions herein except that there will be no further right to
renewal. The minimum aggregate net sales price which Licensee must
achieve in connection with sales of Licensed Products during the
period from January 1, 2000 to December 31, 2000 to (the "Minimum
Renewal Volume") in order to be entitled to renew this Agreement
for a second term as hereinabove provided shall be [Omitted; Material
Filed Separately With The Securities And Exchange Commission](the
"Renewal Volume") . In the event Licensee exercises its option
for a Renewal Term, each of Licensor and Licensee shall give the
other notice, on or before January 1, 2004, of its desire to extend
the term hereof beyond December 31, 2004. In the event Licensee
does not achieve the Renewal Volume as hereinabove provided,
Licensee may nevertheless request an extension of the term beyond
December 31, 2001, and Licensor shall respond to such request
(which response shall be in Licensor's sole discretion) within
thirty (30) days after its receipt thereof. It is expressly
understood that only the company (which may be Licensee) whose
licensed term covers the period subsequent to the expiration of
this Agreement shall be entitled to receive designs for Licensed
Products intended to be sold after the expiration of this
Agreement, and to make presentations of such Licensed Products
during the market presentation weeks that relate to such subsequent
period, even if such market presentation occurs prior to the
termination of this Agreement. Without limiting the generality of
the foregoing, in the event the term hereof is not renewed or
extended at the end of the initial or any renewal term, the last
season for which Licensee shall be entitled to receive designs and,
during the term hereof, to manufacture and sell Licensed Products
shall be the Cruise/Holiday season for the last year of the
relevant period, and Licensor shall be entitled to undertake,
directly or through a successor licensee, all activities associated
with the design, manufacture and sale Licensed Products commencing
with the immediately following Spring season.
8.2 Notwithstanding the terms of paragraph 8.1 hereof or
anything to the contrary contained herein or in the Design
Agreement, in the event that the aggregate net sales price of
Licensed Products sold during the period January 1, 1999 through
December 31, 1999 is less than [Omitted; Material Filed Separately
With The Securities And Exchange Commission], Licensee shall so
notify Licensor immediately upon becoming aware of such event and
in no event later than February 1, 2000 and, in such event, each of
Licensor and Licensee shall have the right, in its sole discretion,
by notice to the other on or before March 1, 2000, to terminate the
term of this Agreement and the Design Services Agreement effective
as of December 31, 2000. In the event either party gives notice of
such termination, the effect for all purposes shall be the same as
if the term of this Agreement and the Design Services Agreement
expired on December 31, 2000; provided, however, that Licensee
shall not be responsible for the minimum royalties which would
otherwise be due pursuant to paragraph 6.1 hereof or for the
minimum compensation payments which would otherwise be due pursuant
to paragraph 4.1 of the Design Agreement, but shall be responsible
for all earned royalty and other payments due hereunder and for all
earned compensation and other payments due under the Design
Agreement.
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<PAGE> 12
9. Default; Change of Control.
9.1. Each of the following shall constitute an event of
default ("Event of Default") hereunder:
(i) Any installment of royalty payments is not paid when
due and such default continues for more than fifteen (15) days
after written notice thereof to Licensee;
(ii) Licensee shall fail to timely present for sale to
the trade a broadly representative and fair collection of each
seasonal collection of Licensed Products designed by the
Design Partnership under the Design Agreement or Licensee
shall fail to timely ship to its customers a material portion
of the orders of Licensed Products it has accepted;
(iii) Licensee defaults in performing any of the other
terms of this Agreement and continues in such default for a
period of thirty (30) days after notice thereof (unless the
default cannot be cured within such thirty (30) day period and
Licensee shall have commenced to cure the default and proceeds
diligently thereafter to cure within an additional fifteen
(15) day period);
(iv) Licensee fails within fifteen (15) days after
written notice that payment is overdue to pay for any Licensed
Products or materials, trim, fabrics, packaging or services
relating to Licensed Products purchased by Licensee from
Licensor or, unless Licensee is contesting in good faith the
amount due, any agent or licensee of Licensor or any other
supplier of such items;
(v) If Licensee shall use the Trademark in an
unauthorized or improper manner and/or if Licensee shall make
an unauthorized disclosure of confidential information or
materials given or loaned to Licensee by Licensor and/or the
Design Partnership;
(vi) Licensee institutes proceedings seeking relief under
a bankruptcy act or any similar law, or consents to entry of
any order for relief against it in any bankruptcy or
insolvency proceeding or similar proceeding, or files a
petition for or consent or answer consenting to reorganization
or other relief under any bankruptcy act or other similar law,
or consents to the filing against it of any petition for the
appointment of a receiver, liquidator, assignee, trustee,
custodian, sequestrator (or other similar official) of it or
of any substantial part of its property, or a proceeding
seeking such an appointment shall have been commenced without
Licensee's consent and shall continue undismissed for sixty
(60) days or an order providing for such an appointment shall
have been entered, or makes an assignment for the benefit of
creditors, or admits in writing its inability to pay its debts
as they become due or fails to pay its debts as they become
due, or takes any action in furtherance of the foregoing;
(vii) Licensee transfers or agrees to transfer
substantially all of its property in a transaction which
results in ownership inconsistent with the terms of paragraph
9.3 hereof;
(viii) The calling of a meeting of creditors, appointment
of a committee of creditors or liquidating agents, or offering
a composition or extension to creditors by, for or of
Licensee;
(ix) There shall be a direct or indirect change in
control of the company which results in ownership inconsistent
with the terms of paragraph 9.3 hereof;
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<PAGE> 13
(x) An event of default occurs under the Design, or any
other license agreement entered into between Licensor (or its
predecessor-in-interest) and Licensee or design agreement
between Licensee and the Design Partnership (or its
predecessor-in-interest);
(xi) Licensee shall have failed to perform any
material term, covenant or agreement on its part to be
performed under any agreement or instrument (other than
this Agreement) evidencing or securing or relating to any
indebtedness owing by Licensee, if the effect of such
failure is to accelerate the maturity of such
indebtedness, or to permit the holder or holders of such
indebtedness to cause such indebtedness to become due
prior to the stated maturity thereof.
9.2. If any Event of Default described in paragraphs 9.1 (i),
(ii), (iii), (iv), (v), (ix), (x) or (xi) shall occur, Licensor
shall have the right, exercisable in its sole discretion, to
terminate this Agreement and the License upon ten (10) days'
written notice to Licensee of its intention to do so, and upon the
expiration of such ten (10) day period, this Agreement and the
License shall terminate and come to an end. If the Event of Default
described in paragraphs 9.1 (vi), (vii) or (viii) shall occur, this
Agreement and the License shall thereupon forthwith terminate and
come to an end without any need for notice to Licensee. This
Agreement will terminate automatically upon the expiration or
termination for any reason whatsoever of the Design Agreement. Any
termination of this Agreement shall be without prejudice to any
remedy of Licensor for the recovery of any monies then due it under
this Agreement or in respect to any antecedent breach of this
Agreement, and without prejudice to any other right of Licensor
including, without limitation, damages for breach to the extent
that the same may be recoverable and Licensee agrees to reimburse
Licensor for any costs and expenses (including attorneys' fees)
incurred by Licensor in enforcing its rights hereunder. No assignee
for the benefit of creditors, receiver, liquidator, sequestrator,
trustee in bankruptcy, sheriff or any other officer of the court or
official charged with taking over custody of Licensee's assets or
business shall have any right to continue the performance of this
Agreement.
9.3. During the term of this Agreement, Licensee shall not
dissolve, liquidate or wind-up its business. In addition, in the
event Licensee sells or transfers, or suffers a sale or a transfer
of, by operation of law or otherwise, directly or indirectly, a
controlling interest in Licensee (including, without limitation, in
any direct or indirect parent of Licensee), Licensee shall promptly
advise Licensor thereof in writing. If such sale or transfer
results in such controlling interest being owned by an entity
which, directly or indirectly, owns any trademark or tradename
listed on Schedule C hereto, or the exclusive right to use any of
such trademarks or tradenames, in connection with products similar
to or competitive with Licensed Products, Licensee shall so notify
Licensor, and within sixty (60) days of its receipt of notice,
Licensor shall have the right to terminate this Agreement, such
termination to become effective thirty (30) days after the date
notice of termination is received by the Licensee.
10. Disposal of Stock Upon Termination or Expiration.
10.1. Within ten (10) days following the termination of this
Agreement for any reason whatsoever including the expiration of the
term hereof, and on the last day of each month during the disposal
period set forth in paragraph 10.2 hereof, Licensee shall furnish
to Licensor a certificate of Licensee listing its inventories of
Licensed Products (which defined term for purposes of this
paragraph 10.1 shall include, but shall not be limited to, all
fabrics, trim and packaging which are used in the manufacture and
marketing of Licensed Products) on hand or in process wherever
situated. Licensor shall have the right to conduct a physical
inventory of Licensed Products in Licensee's possession or under
Licensee's control. Licensor or Licensor's designee shall have the
option (but not the obligation) to purchase from Licensee all or
any part of Licensee's then existing inventory of Licensed Products
upon the following terms and conditions:
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<PAGE> 14
(i) Licensor shall notify Licensee of its or its
designees intention to exercise the foregoing option within
fifteen (15) days of delivery of the certificate referred to
above and shall specify the items of Licensed Products to be
purchased.
(ii) The price for Licensed Products manufactured by or
on behalf of Licensee on hand or in process shall be
Licensee's standard cost (the actual manufacturing cost) for
each such Licensed Product. The price for all other Licensed
Products which are not manufactured by Licensee shall be
Licensee's landed costs therefor. Landed costs for the
purposes hereof means the F.O.B. price of the Licensed
Products together with customs, duties, and brokerage, freight
and insurance.
(iii) Licensee shall deliver the Licensed Products
purchased within fifteen (15) days of receipt of the notice
referred to in clause (i) above. Payment of the purchase price
for the Licensed Products so purchased by Licensor or its
designee shall be payable upon delivery thereof, provided that
Licensor shall be entitled to deduct from such purchase price
any amounts owed it by Licensee (and/or to direct payment of
any part of such merchandise to any supplier of Licensed
Products in order to reduce an outstanding balance due to such
supplier from Licensee).
10.2. In the event Licensee that, pursuant to paragraph 10.1
hereof, Licensee timely provides the certificate of inventory and
Licensor chooses not to exercise its option with respect to all or
any portion of Licensed Products, for a period of ninety (90) days
after termination of this Agreement for any reason whatsoever,
except on account of breach of the provisions of paragraph 3, 4 or
6 hereof, Licensee may dispose of Licensed Products which are on
hand or in the process of being manufactured at the time of
termination of this Agreement, provided that (i) Licensee fully
complies with the provisions of this Agreement, including
specifically those contained in paragraphs 3, 4 and 6 hereof in
connection with such disposal, and (ii) said disposal takes place
within ninety (90) days after notice of termination is given or the
expiration of the term of this Agreement, as the case may be.
10.3. Notwithstanding anything to the contrary contained
herein, in the event that upon the expiration or termination of the
term hereof for any reason Licensee has not rendered to Licensor
all accounting statements then due, and paid (i) all royalties and
other amounts then due to Licensor, (ii) all compensation then due
to Lauren under the Design Agreement and (iii) all amounts then due
to any affiliate of or supplier to Licensor or its affiliates
(collectively, "Payments"), Licensee shall have no right whatsoever
to dispose of any inventory of Licensed Products in any manner. In
addition, if during any disposal period Licensee fails timely to
render any accounting statements, or certificates of inventory
required pursuant to paragraph 10.1 hereof, or to make all Payments
when due, Licensee's disposal rights hereunder shall immediately
terminate without notice.
11. Effect of Termination.
11. 1. It is understood and agreed that except for the License
to use the Trademark only as specifically provided for in this
Agreement, Licensee shall have no right, title or interest in or to
the Trademark. Upon and after the termination of this License, all
rights granted to Licensee hereunder, together with any interest in
and to the Trademark which Licensee may acquire, shall forthwith
and without further act or instrument be assigned to and revert to
Licensor. In addition, Licensee will execute any instruments
requested by Licensor which are necessary to accomplish or confirm
the foregoing. Any such assignment, transfer or conveyance shall be
without consideration other than the mutual agreements contained
herein. Licensor shall thereafter be free to license to others the
right to use the Trademark in connection with the manufacture and
sale of the Licensed Products covered hereby, and Licensee will
refrain from further use of the Trademark or any further reference
to them, direct or indirect, or any other trademark, trade name or
logo that is confusingly similar to the Trademark, or associated
with the Trademark in any way, in connection with the manufacture,
sale or distribution of Licensee's products, except as specifically
provided in paragraph 10 hereof. It is expressly understood that
under no circumstances shall Licensee be entitled, directly or
indirectly, to any form of compensation or indemnity from Licensor,
the Design Partnership or their affiliates, as a consequence to the
termination of this Agreement, whether as a result of the passage
of time, or as the result of any other cause of termination
referred to in this Agreement. Without limiting the generality of
the foregoing, by its execution of the present Agreement, Licensee
hereby waives any claim which it has or which it may have in the
future against Licensor, the Design Partnership or their
affiliates, arising from any alleged goodwill created by Licensee
for the benefit of any or all of the said parties or from the
alleged creation or increase of a market for Licensed Products.
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<PAGE> 15
11.2. Licensee acknowledges and admits that there would be no
adequate remedy at law for its failure (except as otherwise
provided in paragraph 10 hereof) to cease the manufacture or sale
of the Licensed Products covered by this Agreement at the
termination of the License, and Licensee agrees that in the event
of such failure Licensor shall be entitled to equitable relief by
the way of temporary and permanent injunction and such other and
further relief as any court with jurisdiction may deem just and
proper.
12. Showroom.
Licensee represents that a separate showroom for the
presentation and sale of the Licensed Products will be established
and staffed and Licensee agrees to maintain, operate, decorate and
staff the showroom in a manner consistent with that of the
showrooms established for the presentation and sale of Licensor's
other products. Licensor shall have a right of approval with
respect to the design, layout, decoration and staffing of the
showroom and all expenses incurred with respect to the design,
construction, operation and maintenance of such showroom shall be
borne by Licensee. Licensee shall admit Licensor's employees to
its showroom and shall sell to such employees for their personal
use (and not for resale) such Licensed Products as any such
employee may reasonably request, at prices equal to the regular
wholesale price less a discount equal to not less than thirty
percent (30%) of such regular wholesale price. Licensee and
Licensor shall mutually agree upon a policy in respect of such
sales that will address reciprocity and avoid interference with
Licensee's normal operations.
13. Indemnity.
13.1. Licensor shall indemnify and hold harmless Licensee
from and against any and all liability, claims, causes of action,
suits, damages and expenses (including reasonable attorneys' fees
and expenses in actions involving third parties or between the
parties hereto) which Licensee is or becomes liable for, or may
incur solely by reason of its use within the Territory, in strict
accordance with the terms and conditions of this Agreement and the
Design Agreement, of the Licensed Mark or the designs furnished to
Licensee by Licensor or Lauren, to the extent that such liability
arises through infringement of another's design patent, trademark,
copyright or other proprietary rights; provided, however, that
Licensee gives Licensor prompt notice of, and full cooperation in
the defense against, such claim. If any action or proceeding shall
be brought or asserted against Licensee in respect of which
indemnity may be sought from Licensor under this paragraph 13.1,
Licensee shall promptly notify Licensor thereof in writing, and
Licensor shall assume and direct the defense thereof. Licensee may
thereafter, at its own expense, be represented by its own counsel
in such action or proceeding.
13.2. To the extent not inconsistent with paragraph 13.1
hereof, Licensee shall indemnify and save and hold Licensor, the
Design Partnership, Polo Ralph Lauren corporation and Ralph Lauren,
individually, and their assignees, directors, officers, servants,
agents and employees, harmless from and against any and all
liability, claims, causes of action, suits, damages and expenses
(including reasonable attorneys' fees and expenses in actions
involving third parties or between the parties hereto) , which they,
or any of them, are or become liable for, or may incur, or be
compelled to pay by reason of any acts, whether of omission or
commission, that may be committed or suffered by Licensee or any of
its servants, agents or employees in connection with Licensee's
performance of this Agreement, including Licensee's use of
Licensee's own designs, in connection with Licensed Products
manufactured by or on behalf of Licensee or otherwise in connection
with Licensee's business.
14. Insurance.
Licensee shall carry product liability insurance with limits
of liability in the minimum amount, in addition to defense costs,
of $3,000,000 per occurrence and $3,000,000 per person and
Licensor, the Design Partnership, Polo Ralph Lauren Corporation and
Ralph Lauren, individually, shall be named therein as insureds, as
their interests may appear. The maximum deductible with respect to
such insurance shall be $100,000. Licensee shall, promptly after
the signing of this Agreement, deliver to Licensor a certificate of
such insurance from the insurance carrier, setting forth the scope
of coverage and the limits of liability and providing that the
policy may not be canceled or amended without at least thirty (30)
days prior written notice to Licensor, the Design Partnership, Polo
Ralph Lauren Corporation and Ralph Lauren, individually.
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<PAGE> 16
15. Disclosure.
15.1. Licensor and Licensee, and their affiliates, employees,
attorneys, accountants and bankers shall hold in confidence and not
use or disclose, except as permitted by this Agreement, (i)
confidential information of the other or (ii) the terms of this
Agreement, except upon consent of the other or pursuant to, or as
may be required by law, or in connection with regulatory or
administrative proceedings and only then with reasonable advance
notice of such disclosure to the other. Licensee shall take all
reasonable precautions to protect the secrecy of the material used
pursuant to this Agreement prior to the commercial distribution or
the showing of samples for sale, and shall not sell any merchandise
employing or adapted from any of said designs sketches, artwork,
logos, and other materials or their use except under the Trademark.
15.2. Licensee agrees that all press releases and other
public announcements related to Licensor's operations hereunder,
shall be subject to approval by Licensor, and that each request for
a statement, release or other inquiry shall be sent in writing to
the advertising/publicity director of Licensor for response.
16. Key Personnel.
16.1. At all times during the term hereof, Licensee shall
employ a senior executive, approved in advance by Licensor (such
approval not to be unreasonably withheld), whose primary
responsibility shall be to manage all of Licensee's operations
pursuant to this Agreement.
16.2. At all times during the term hereof, Licensee shall
employ a Design Director, approved in advance by Licensor (such
approval not to be unreasonably withheld), whose primary
responsibility shall be to work with Licensor and the Design
Partnership on the creation and implementation of designs for the
Licensed Products and related activities under this Agreement.
17. Miscellaneous.
17.1. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to
have been properly given or sent (i) on the date when such notice,,
request, consent or communication is personally delivered or (ii)
five (5) days after the same was sent, if sent by certified or
registered mail or (iii) two (2) days after the same was sent, if
sent by overnight courier delivery or confirmed telecopier, as
follows:
(a) if to Licensee, addressed as follows:
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
Attention: Mr. Sidney Kimmel
Telecopier: (215) 785-1795
with a copy to:
Jones Apparel Group, Inc.
1411 Broadway
New York, New York 10018
Attention: Mr. Herbert Goodfriend
Telecopier: (212) 921-5370
(b) if to Licensor, addressed as follows:
Polo Ralph Lauren, L.P.
650 Madison Avenue
New York, New York 10022
Attention: President
Telecopier: 212.318.7186
with a copy to:
Victor Cohen, Esq.
Eighth Floor
650 Madison Avenue
New York, New York 10022
Telecopier: 212.318.7183
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<PAGE> 17
Anyone entitled to notice hereunder may change the address to which
notices or other communications are to be sent to it by notice
given in the manner contemplated hereby.
17.2. Nothing herein contained shall be construed to place
the parties in the relationship of partners or joint venturers, and
no party hereto shall have any power to obligate or bind any other
party hereto in any manner whatsoever, except as otherwise provided
for herein.
17.3. None of the terms hereof can be waived or modified
except by an express agreement in writing signed by the party to be
charged. The failure of any party hereto to enforce, or the delay
by any party in enforcing, any of its rights hereunder shall not be
deemed a continuing waiver or a modification thereof and any party
may, within the time provided by applicable law, commence
appropriate legal proceedings to enforce any and all of such
rights. All rights and remedies provided for herein shall be
cumulative and in addition to any other rights or remedies such
parties may have at law or in equity. Any party hereto may employ
any of the remedies available to it with respect to any of its
rights hereunder without prejudice to the use by it in the future
of any other remedy with respect to any of such rights. No person,
firm or corporation, other than the parties hereto and the Design
Partnership (and, to the extent set forth in paragraphs 13.1 and
13.2 hereof, Polo Ralph Lauren Corporation and Ralph Lauren,
individually), shall be deemed to have acquired any rights by
reason of anything contained in this Agreement.
17.4. This Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the parties
hereto. Licensor may assign all or any portion of the royalties
payable to Licensor hereunder, as designated by Licensor, and in
addition, Licensor may assign all of its rights, duties and
obligations hereunder to any entity to which the Trademark, or the
right to use the Trademark, has been transferred, or to an
affiliate of any such entity. The rights granted to Licensee
hereunder are unique and personal in nature, and neither this
Agreement nor the License may be assigned by Licensee without
Licensor's prior written consent, which may be withheld in
Licensor's sole discretion. Any attempt by Licensee to transfer
any of its rights or obligations under this Agreement, whether by
assignment, sublicense or otherwise, without having received the
prior written consent of Licensor shall constitute an Event of
Default, but shall otherwise be null and void. Licensee may employ
subcontractors subject to the prior written approval of Licensor
for the manufacture of the Licensed Products; provided, however,
that in any event, (i) the supervision of production of Licensed
Products shall remain under the control of Licensee, (ii) Licensee
shall maintain appropriate quality controls, (iii) such
subcontractors shall comply with the quality and (iv) such
subcontractors shall comply with other requirements of Licensor
consistent with the terms of this Agreement, including, but not
limited to, the execution by subcontractor of the Trademark and
Design Protection Agreement attached hereto and made a part hereof.
17.5. Licensee shall comply with all laws, rules, regulations
and requirements of any governmental body which may be applicable
to the operations of Licensee contemplated hereby, including,
without limitation, as they relate to the manufacture,
distribution, sale or promotion of Licensed Products,
notwithstanding the fact that Licensor may have approved such item
or conduct. Licensee shall advise Licensor in the event any Final
Prototype does not comply with any such law, rule, regulation or
requirement.
17.6. This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, applicable to
contracts made and to be wholly performed therein without regard to
its conflicts of law rules.
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<PAGE> 18
17.7. The parties hereby consent to the jurisdiction of the
United States District Court for the Southern District of New York
and of any of the courts of the Southern District of New York and
of any of the courts of the State of New York located within the
Southern District in any dispute arising under this Agreement and
agree further that service of process or notice in any such action,
suit or proceeding shall be effective if in writing and delivered
as provided in paragraph 17.1 hereof. Notwithstanding anything to
the contrary set forth herein, neither Polo Ralph Lauren
Corporation nor any other general or limited partner of Licensor
shall be liable for any claim based on, arising out of, or
otherwise in respect of, this Agreement, and Licensee shall not
have nor claim to have any recourse for any such claim against any
general or limited partner of Licensor.
17.8. The provisions hereof are severable, and if any
provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or unenforceability
shall affect only such provision, or part thereof in such
jurisdiction and shall not in any manner affect such provision in
any other jurisdiction, or any other provision in this Agreement in
any jurisdiction. To the extent legally permissible, an
arrangement which reflects the original intent of the parties shall
be substituted for such invalid or unenforceable provision.
17.9. The paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
17.10. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused the same to be executed by a duly authorized
officer as of the day and year first above written.
POLO RALPH LAUREN, L.P.
By: Polo Ralph Lauren Corporation,
General Partner
By:
JONES APPAREL GROUP, INC.
By: /s/ Sidney Kimmel
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<PAGE> 19
Schedule A
LICENSED PRODUCTS
Licensed Products shall mean the following women's "better" apparel
products bearing the Trademark: shirts, blouses, skirts, jackets,
suits, sweaters, pants, vests, coats, outerwear, hats. Licensed
Products shall also include such other articles of women's apparel
as Licensor shall, from time to time, designate in its sole
discretion.
Licensed products shall not include denim pants or shorts, and
Licensee's rights hereunder shall not be violated by virtue of the
manufacture or sale by Licensor or any of its affiliates or
licensees of any jeanswear apparel sold as part of a jeanswear
line, notwithstanding the similarity of any such products to
Licensed Products.
Except as provided below, this Agreement does not cover any other
trademark of Licensor or in any way limit Licensor's right to
engage in business with such trademarks as it deems appropriate in
its sole discretion. However, Licensor agrees not to sell or
license another complete line of women's apparel with a "Ralph
Lauren" trademark intended to be sold in the "better" area of
women's departments in direct competition with Licensed Products (a
"Competing Line") . The foregoing restriction is intended to limit
Licensor's ability to market an equivalent line of "better" womens
apparel under another name, and the parties agree that any
womenswear sold as part of any other line (and not individually to
be sold with "better" products) bearing any other trademark owned
by Licensor or its affiliates, so long as such line is not a
Competing Line, shall not violate the foregoing restriction,
notwithstanding the similarity of particular products and/or their
price points to Licensed Products.
Licensee shall not sell or market Licensed Products in "bridge" or
"collection" areas.
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<PAGE> 20
Schedule B
TRADEMARK
LAUREN/RALPH LAUREN
and/or
LAUREN BY RALPH LAUREN
Schedule C
Restricted Individuals and Entities
[Omitted; Material Filed Separately With The Securities And Exchange
Commission]
Schedule D
Approved Customers
[To be provided and approved]
- 20 -
EXHIBIT 10.41
(Jones - Design)
DESIGN SERVICES AGREEMENT dated as of October 18, 1995, by
and between Polo Ralph Lauren Enterprises, L.P. (the "Design
Partnership"), with a place of business at 650 Madison Avenue,
New York, New York 10022 and Jones Apparel Group, Inc. (the
"Company") with a place of business at 250 Rittenhouse Circle,
Bristol, Pennsylvania 19007.
Ralph Lauren ("Lauren") is an internationally famous
designer who has been twice inducted into the Coty Hall of Fame
for his design of men's and women's fashions, is the recipient of
the CFDA Lifetime Achievement Award, and is a creator of original
designs for cosmetics, jewelry, home furnishings and other
products.
Polo Ralph Lauren, L.P., a Delaware limited partnership
("Polo"), holds the right and interest in and to certain
trademarks and trade names, as same may be used in connection
with the manufacture and sale of Licensed Products, as
hereinafter defined, and on even date herewith, the Company has
obtained the right to use a specified trademark (the "Trademark")
in connection with the Licensed Products, pursuant to a license
agreement ("License Agreement") of even date herewith by and
between the Company and Polo.
The value of the Trademark is largely derived from the
reputation, skill and design talents of Lauren, and Lauren,
directly and through his designees, provides design services
through the Design Partnership.
The Company desires to obtain the services of the Design
Partnership in connection with the creation and design of the
Licensed Products.
The Company desires, in order to exploit the rights granted
to it under the License Agreement, to engage and retain the
Design Partnership to create and provide to the Company the
designs for its line of Licensed Products. The Design
Partnership is willing to furnish such designs and render such
services on the basis hereinafter set forth. As used herein, the
term "Licensed Products" shall have the meaning set forth in the
License Agreement.
In consideration of the foregoing premises and of the mutual
promises and covenants herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Designs; Assistance.
1.1 The parties understand and agree that the Company will
be principally responsible for the development and presentation
to the Design Partnership of designs for Licensed Products, which
designs will be reviewed by the Design Partnership and which the
Design Partnership may approve, disapprove or modify in its sole
discretion, in accordance with the terms and conditions set forth
herein.
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<PAGE> 2
1.2 The Design Partnership and the Company shall create
each season, from the Design Partnership's ideas, a program of
design themes and concepts with respect to the design of the
Licensed Products ("Design Concepts"), which shall be embodied in
written descriptions of design themes and concepts, designs and
sketches of all looks for the season, and samples of trim and
fabrics in the desired qualities and colors. The Company and the
Design Partnership shall confer on Design Concepts and shall make
such modifications as are required to meet the Design
Partnership's final approval, which final approval may be granted
or withheld in the Design Partnership's sole discretion.
1.3 The Design Partnership may engage such employees,
agents, and consultants operating under the Design Partnership's
creative supervision and control as it may deem necessary and
appropriate.
1.4 From time to time while this Agreement is in effect,
the Design Partnership may (a) develop or modify and implement
designs from the Design concepts or other designs furnished by
the Design Partnership or (b) develop and implement new designs.
1.5 The Company shall be principally responsible for
creating designs for each season consistent in all respects with
the approved Design Concepts for that season, and shall consult
with the Design Partnership in good faith with respect to all
such designs.
1.6 The Company understands that all or portions of the
Design Concepts may be furnished to the Company through or in
cooperation with other entities to which the Design Partnership
has provided design services. The Company upon its prior written
authorization shall pay all costs, including shipping and
handling charges, for fabric swatches or mill chips, sketches,
specifications, paper sample patterns and product samples
furnished to the Company by the Design Partnership or such other
entities.
1.7 All patents and copyrights on designs of the Licensed
Products created or supplied-by the Design Partnership shall be
owned exclusively, and applied for, by the Design Partnership or
its designee, at the Design Partnership's discretion and expense,
and shall designate the Design Partnership or its designee as the
patent or copyright owner, as the case may be, therefor. All
patents and copyrights on designs of the Licensed Products
created or supplied by the Company shall be owned exclusively,
and applied for, by the Company or its designee, at the Company's
discretion and expense, and shall designate the Company or its
designee as the patent or copyright owner, as the case may be,
therefor.
1.8 Company acknowledges that the Licensed Products contain
elements which in concept, execution and/or presentation are
unique. Company agrees that it will not, during the term of the
Agreement, use any designs submitted or modified by the Design
Partnership or any designs which are comparable and/or
competitive with Licensed Products and which may be identified as
Design Partnership designs.
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<PAGE> 3
2. Design Legends; Copyright Notice and License.
2.1 All designs, patterns, sketches, artwork, logos and
other materials of Licensed Products and the use of such designs,
artwork, sketches, logos and other materials created by the
Design Partnership or the Design Studio, or, subject to paragraph
2.7 hereof, created by or for the Company and reviewed and
approved by the Design Partnership, or developed by or for the
Company from Design Concepts or subsequent design concepts
furnished or approved by the Design Partnership (all of which
shall hereinafter constitute Design Concepts), shall be the
property of the Design Partnership and shall be subject to the
provisions of this paragraph 2.
2.2 All right, title and interest in and to the samples,
sketches, design, artwork, logos and other materials furnished to
Company by the Design Partnership, and in all logos or crests
which become associated with the Trademark, regardless of whether
such logos or crests are created or furnished by the Company or
the Design Partnership, are hereby assigned to and shall be the
sole property of the Design Partnership. The Company shall cause
to be placed on all Licensed Products appropriate notice
designating the Design Partnership as the copyright or design
patent owner thereof, as the case may be. The manner of
presentation of said notices shall be reviewed and approved by
the Design Partnership prior to use thereof by the Company.
2.3. The Design Partnership hereby grants to the Company
the exclusive right, license and privilege ("License") to use the
designs furnished hereunder and all copyrights, if any, and
patents, if any therein; provided, however, that the License is
limited to use in connection with Licensed Products manufactured
and sold, or imported and sold, pursuant to the License Agreement
and only for the seasonal collection for which such Design
Concepts are approved. All other rights in and to the designs
furnished hereunder, including without limitation all rights to
use such designs in connection with products other than Licensed
Products (as defined in the License Agreement) and in territories
other than the Territory (as defined in the License Agreement)
are expressly reserved by the Design Partnership. The License
shall continue only for such period as this Agreement shall be
effective. The Design Partnership shall execute and deliver to
the Company all documents and instruments necessary to perfect or
evidence the License. Upon termination of this Agreement, for
any reason whatsoever, any and all of the Company's right, title
and interest in and to the License shall forthwith and without
further act or instrument be assigned to, revert to and be the
sole and exclusive property of the Design Partnership, and the
Company shall have no further or continuing right or interest
therein, except the limited right to complete the manufacture of
and sell Licensed Products during any Disposal Period, as set
forth in paragraph 6.3 hereof. In addition, the Company shall
thereupon (i) execute and deliver to the Design Partnership all
documents and instruments necessary to perfect or evidence such
reversion, (ii) refrain from further use of any of the Design
Concepts and (iii) refrain from manufacturing, selling or
distributing any products (whether or not they bear the
Trademark) which are confusingly similar to or derived from the
Licensed Products or Design Concepts.
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<PAGE> 4
2.4 Company shall not sublicense any of the rights granted
hereunder without first obtaining the Design Partnership's prior
written consent in connection therewith, which consent may be
withheld by the Design Partnership in its sole discretion.
2.5 The Design Partnership represents and warrants to the
Company that it has full right, power and authority to enter into
this Agreement, to perform all of its obligations hereunder and
to consummate all of the transactions contemplated herein.
2.6 The Company represents and warrants to the Design
Partnership that the Company has full right, power and authority
to enter into this Agreement, to perform all of its obligations
hereunder and to consummate all the transactions contemplated
herein.
3. Licensed Products.
3.1 All aspects of the design of Licensed Products for each
season, including, but not limited to, the type and quality of
materials, colors, workmanship, styling, detail, dimensions and
construction to be used in connection therewith, shall strictly
adhere to the Design Concepts approved by the Design Partnership
for such season. In addition, all Licensed Products shall be at
least of the same quality as comparable products in the Jones New
York line as of the date of this Agreement.
3.2 In the event that any Licensed Product is, in the
judgment of the Design Partnership, not designed, manufactured or
sold in strict adherence to the approved Design Concepts, or if
the quality is below the standards required hereunder, the Design
Partnership shall notify the Company thereof in writing and the
Company shall promptly repair or change such Licensed Product to
conform strictly thereto. If an item of Licensed Product as
repaired or changed does not strictly conform to the Final
Prototypes and such strict conformity or improvement in quality
cannot be obtained after at least one (1) resubmission, the
Trademark shall be promptly removed from the item, at the option
of the Design Partnership, in which event the item may be sold by
the Company without payment or compensation hereunder.
3.3 The Design Partnership and its duly authorized
representative shall have the right, upon reasonable notice
during normal business hours, to inspect all facilities utilized
by the Company (and its contractors and suppliers) in connection
with the preparation of Prototypes and the manufacture, sale,
storage or distribution of Licensed Products pursuant hereto and
to examine Licensed Products in process of manufacture and when
offered for sale within the Company's operations. The Company
hereby consents to the Design Partnership's examination of
Licensed Products held by its customers for resale provided the
Company has such right of examination. The Company shall take
all necessary steps, and all steps reasonably requested by the
Design Partnership, to prevent or avoid any misuse of the
licensed designs by any of its customers, contractors or other
resources.
3.4 The Company shall comply with all laws, rules
regulations and requirements of any governmental body which may
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<PAGE> 5
be applicable to the manufacture, distribution, sale or promotion
of Licensed Products. The Company shall advise the Design
Partnership to the extent any Final Prototype does not comply
with any such law, rule, regulation or requirement.
3.5 The Company shall upon request make its personnel, and
shall use its best efforts to make the personnel of any of its
contractors, suppliers and other resources, available by
appointment during normal business hours for consultation with
the Design Partnership. The Company shall make available to the
Design Partnership, upon reasonable notice, marketing plans,
reports and information which the Company may have with respect
to Licensed Products.
3.6 The Company may employ subcontractors for the
manufacture of Licensed Products solely on the terms set forth in
paragraph 16.4 of the License Agreement.
4. Compensation; Accounting.
4.1 As compensation for the designs and services rendered
hereunder, the Company shall pay minimum compensation to the
Design Partnership each year during the term of this Agreement.
The minimum compensation to the Design Partnership in connection
with the manufacture and sale and importation and sale of
Licensed Products for each year shall be as follows:
Year 1 (1997) $0
Year 2 $0
Year 3 $0
Year 4 $5,600,000
Year 5 $5,600,000
Minimum compensation for each year shall be paid on a quarterly
basis, beginning with the minimum compensation payment to be made
for the first calendar quarter of 2000, in the manner set forth in
paragraph 6.2 below. No credit shall be permitted against minimum
compensation payable in any year on account of actual or minimum
compensation paid in any other year, and minimum compensation shall
not be returnable. Minimum Compensation for each year of the "Renewal
Term" (as defined in paragraph 8 of the Licensee Agreement) shall be
an amount equal to ninety percent (90%) of the actual earned
compensation due to the Design Partnership for sales of Licensed
Products in 2001. For the purposes of this Agreement, the term "year"
shall mean a period of twelve (12) months commencing on each January 1
during the term of this Agreement; provided, however, that the "first
year", or "Year 1" shall mean the period commencing on the date hereof
and expiring on December 31, 1997 (although minimum compensation shall
not be due until calendar year 2000).
4.2 The Company shall pay to the Design Partnership earned
compensation based on the net sales price of Licensed Products
manufactured or imported and sold by the Company hereunder.
Earned compensation shall equal [Omitted; Material Filed Separately
With The Securities And Exchange Commission] of the net sales price
of all Licensed Products sold under this Agreement, including, without
limitation, sales made pursuant to paragraph 6.3 hereof; provided,
however,[Omitted; Material Filed Separately With The Securities And
Exchange Commission]. The Company shall prepare or cause to be
prepared statements of operations for the first month in which
Licensed Products are offered for sale to the trade, and for each
month thereafter for so long as the Company is offering Licensed
Products for sale hereunder, which statements shall be furnished to
the Design Partnership together with the earned compensation due for
each such month on the last day of the following month. The statement
and compensation payment provided on the last day of each April (for
the month of March), July (for the month of June), October (for the
month of September) and January (for the month of December) during the
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<PAGE> 6
term shall also include the Company's minimum compensation obligation
for, the preceding calendar quarter, less the aggregate earned
compensation paid for such calendar quarter. The term "net sales
price" shall mean the gross sales price of all Licensed Products
sold under this Agreement to retailers or, with respect to
Licensed Products that are not sold directly or indirectly to
retailers, other ultimate consumers (as in the case of
accommodation sales by Company to its employees or sales by
Company in its own stores), less trade discounts, merchandise
returns, sales tax.(if separately identified and charged) and
markdowns and/or chargebacks which, in accordance with generally
accepted accounting principles, would normally be treated as
deductions from gross sales, and which, in any event, do not
include any chargebacks or the like for advertising, fixture or
retail shop costs or contributions, or contributions for in-store
personnel. No other deductions shall be taken. Any merchandise
returns shall be credited in the month in which the returns are
actually made. For purposes of this Agreement, affiliates of the
Company shall mean all persons and business entities, whether
corporations, partnerships, joint ventures or otherwise, which
now or hereafter control, or are owned or controlled, directly or
indirectly by the Company, or are under common control with the
Company. It is the intention of the parties that compensation
will be based on the bona fide wholesale prices at which the
Company sells Licensed Products to independent retailers in arms,
length transactions. In the event the Company shall sell Licensed
Products to its affiliates, compensation shall be calculated on
the basis of such a bona fide wholesale price-irrespective of the
Company's internal accounting treatment of such sale unless such
products are sold by its affiliates directly to the end-user
consumer, in which case compensation shall be calculated on the
basis of the price paid by the end-user consumer, less applicable
taxes; provided, however, that compensation on sales to Licensee
Outlet Stores (as defined in paragraph 3.3 of the License
Agreement) shall be calculated on the basis of the actual invoice
price to such Licensee Outlet Stores, but in no event less than
an amount equal to [Omitted; Material Filed Separately With The
Securities And Exchange Commission] less than the regular wholesale
price of such Licensed Products. The Company shall identify
separately in the statements of operations provided to the Design
Partnership pursuant to paragraph 7 hereof, all sales to affiliates.
4.3 The Company shall reimburse the Design Partnership for
all its travel and promotion expenses incurred by the Design
Partnership or Polo in the performance of the Design
Partnership's duties under this Agreement with the prior written
approval of the Company. Amounts payable to the Design
Partnership pursuant to this paragraph shall become due and
payable monthly within thirty (30) days of the date of mailing of
the invoices, accompanied by corresponding receipts, for such
costs incurred during the preceding month.
4.4 If the payment of any installment of compensation is
delayed for any reason, interest shall accrue on the unpaid
principal amount of such installment from and after the date on
which the same became due pursuant to paragraphs 4.1 or 4.2
hereof at the lower of the highest rate permitted by law in New
York and two percent (2%) per annum above the prime rate of
interest in effect from time to time at Chemical Bank, New York,
New York or its successor.
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<PAGE> 7
4.5 The Company shall at all times keep an accurate account
of all operations within the scope of this Agreement and shall
render a full statement of such operations in writing to the
Design Partnership in accordance with paragraph 4.1 hereof. Such
statements shall account separately for each different product
category and shall include all aggregate gross sales, trade
discounts, merchandise returns, sales of miscuts and damaged
merchandise and net sales price of all sales for the preceding
three (3) month period. Such statements shall be in sufficient
detail to be audited from the books of the Company. Once
annually, which may be in connection with the regular annual
audit of the Company's books, the Company shall furnish an annual
statement of the aggregate gross sales, trade and prompt payment
discounts, merchandise returns and net sales price of all
Licensed Products made or sold by the Company, certified by
Company's independent accountant or chief financial officer.
Each quarterly financial statement furnished by Company shall be
certified by the chief financial officer of the Company or a
certified public accountant who may be in the employ of the
Company. The Design Partnership and its duly authorized
representatives, on reasonable notice, shall have the right, no
more than once in each year during regular business hours, for
the duration of the term of this Agreement and for three (3)
years thereafter, to examine the books of account and records and
all other documents, materials and inventory in the possession or
under the control of the Company and its successors with respect
to the subject matter of this Agreement. All such books of
account, records and documents shall be maintained and kept
available by the Company for at least the duration of this
Agreement, and for three (3) years thereafter. The Design
Partnership shall have free and full access thereto in the manner
set forth above and shall have the right to make copies and/or
extracts therefrom. If as a result of any examination of the
Company's books and records it is shown that the Company's
payments to the Design Partnership hereunder with respect to any
twelve (12) month period were less than or greater than the
amount which should have been paid to the Design Partnership by
an amount equal to three and one-half percent (3-1/2%) of the amount
which should have been paid during such twelve (12) month period,
the Company will, in addition to reimbursement of any
underpayment, with interest from the date on which each payment
was due at the rate set forth in paragraph 4.4 hereof, promptly
reimburse the Design Partnership for the cost of such
examination.
4.6 The obligation of the Company to pay compensation
hereunder shall be absolute notwithstanding any claim which the
Company may assert against Polo or the Design Partnership. The
Company shall not have the right to set-off, compensate or make
any deduction from such compensation payments for any reason
whatsoever.
5. Death or Incapacity of Lauren.
The Design Partnership shall perform its obligations
hereunder notwithstanding any death or incapacity of Lauren and
the Company shall accept the services of the Design Partnership.
6. Term and Termination.
6.1 Unless sooner terminated in accordance with the terms
and provisions hereof, this Agreement shall continue in effect
for so long as the License Agreement is in effect and shall
terminate upon the termination of the License Agreement.
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<PAGE> 8
6.2 Each of the following shall constitute an event of
default ("Event of Default") hereunder: (i) any compensation is
not paid when due and such default continues for more than ten
(10) days after notice thereof; (ii) the Company shall fail to
timely present for sale to the trade a broadly representative and
fair collection of each seasonal collection of Licensed Products
designed by the Design Partnership or the Company shall fail to
timely ship a material portion of the orders of Licensed Products
it has accepted; (iii) the Company shall use the designs in an
unauthorized or improper manner and/or Company shall make an
unauthorized disclosure of confidential information or materials
given or loaned to Company by the Design Partnership or Polo; or
(iv) the Company defaults in performing any of the other terms of
this Agreement and continues in such default for a period of
thirty (30) days after notice thereof (unless the default cannot
be cured within such thirty (30) day period and the Company shall
have commenced to cure the default and proceeds diligently
thereafter to cure within an additional fifteen (15) day period);
(v) an event of default shall occur under the License Agreement
or any other design agreement entered into between the Company
and the Design Partnership or license agreement between the
Company and Polo; or (vi) the License Agreement shall be
terminated for any reason whatsoever. If any Event of Default
other than that described in paragraph 6.2(vi) shall occur, the
Design Partnership shall have the right, exercisable in its sole
discretion, to terminate this Agreement upon ten (10) days'
written notice to the Company of its intention to do so. Upon
the expiration of such ten (10) day period, this Agreement shall
terminate and come to an end and, subject to paragraph 6.3
hereof, all rights of the Company in and to the designs furnished
or used hereunder and all copyrights and designs patents therein
and their contemplated use shall terminate. If the Event of
Default described in paragraph 6.2(vi) shall occur, this
Agreement and the License shall thereupon forthwith terminate and
come to an end without any need for notice to the Company.
Termination of this Agreement shall be without prejudice to any
remedy of the Design Partnership for the recovery of any monies
then due to it under this Agreement or in respect of any
antecedent breach of this Agreement, and without prejudice to any
other right of the Design Partnership, including without
limitation, damages for breach to the extent that the same may be
recoverable.
6.3 In the event Polo chooses not to exercise the option
referred to in paragraph 10.1 of the License Agreement with
respect to all or any portion of the Licensed Products (as
therein defined), the company may dispose of Licensed Products,
to the extent permitted by and in the manner set forth in
paragraph 10.2 of the License Agreement. Such sales shall be
subject to the payment of earned compensation pursuant to
paragraph 4.2 hereof. Upon the conclusion of the disposal period
all rights and interests in and to the designs furnished or used
hereunder and design patents therein and all copyrights licensed
hereby shall belong to and be the property of the Design
Partnership and the Company shall have no further or continuing
right or interest therein.
6.4 The Company acknowledges and admits that there would be
no adequate remedy at law for its failure to cease the
manufacture or sale of Licensed Products at the termination of
this Agreement, by expiration or otherwise, and the Company
agrees that in the event of such failure, the Design Partnership
shall be entitled to relief by way of temporary or permanent
injunction and such other and further relief as any court with
jurisdiction may deem proper.
6.5 It is expressly understood that under no circumstances
shall the Company be entitled, directly or indirectly, to any
form of compensation or indemnity from the Design Partnership,
Lauren, Polo or their affiliates as a consequence to the
termination of this Agreement, whether as a result of the passage
of time, or as the result of any other cause of termination
referred to in this Agreement. Without limiting the generality
of the foregoing, by its execution of the present Agreement, the
Company hereby waives any claim which it has or which it may have
in the future against the Design Partnership, Lauren, Polo, Polo
Ralph Lauren Corporation or their affiliates, arising from any
alleged goodwill created by the Company for the benefit of any or
all of the said parties or from the alleged creation or increase
of a market for Licensed Products.
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<PAGE> 9
7. Indemnity.
7.1 The Company shall indemnify and save and hold the
Design Partnership, Lauren, Polo and Polo Ralph Lauren
Corporation, and their directors, officers, servants, agents and
employees, harmless from and against any and all liability,
claims, causes of action, suits, damages and expenses (including
reasonable attorney's fees and expenses in actions involving
third parties or between the parties hereto), which they, or any
of them, are or become liable for, or may incur, or be compelled
to pay by reason of any acts, whether of omission or commission,
that may be committed or suffered by the Company or any of its
directors, officers, servants, agents or employees in connection
with the Company's performance of this Agreement, in connection
with Licensed Products manufactured by or on behalf of the
Company or otherwise in connection with the Company's business;
provided, however, that the Company shall not be responsible for
any liability, claims, causes of action, suits, damages or
expenses incurred or suffered-by the Design Partnership, Lauren,
Polo or Polo Ralph Lauren Corporation, or their directors,
officers, servants, agents and employees in connection with any
suit or proceeding for infringement of another's design patent,
trademark, copyright or other proprietary rights brought against
them as a result of the Company's use of the Trademark, or the
Design Concepts furnished by the Design Partnership hereunder, in
strict accordance with the terms and conditions of this Agreement
and the License Agreement.
8. Disclosure.
The Design Partnership and the Company, and their
affiliates, employees, attorneys, bankers and accountants, shall
hold in confidence and not use or disclose, except as permitted
by this Agreement, (i) confidential information of the other or
(ii) the terms of this Agreement, except upon consent of the
other or pursuant to, or as may be required by law, or in
connection with regulatory or administrative proceedings and only
then with reasonable advance notice of such disclosure to the
other. The Company shall take all reasonable precautions to
protect the secrecy of the materials, samples, sketches, designs,
artwork, logos and other materials used pursuant to this
Agreement prior to the commercial distribution or the showing of
samples for sale and shall not sell any merchandise employing or
adapted from any of said designs, sketches, artwork, logos, and
other materials or their use except under the Trademark.
9. Miscellaneous.
9.1 All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed
to have been properly given or sent (i) on the date when such
notice, request, consent or communication is personally
delivered, or (ii) five (5) days after the same was sent, if sent
by certified or registered mail or (iii) two (2) days after the
same was sent, if sent by overnight courier delivery or confirmed
telecopier, as follows:
(a) if to the Company, addressed as follows:
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
Attention: Mr. Sidney Kimmel
Telecopier: (215) 785-1795
with a copy to:
Jones Apparel Group, Inc.
1411 Broadway
New York, New York 10018
Attention: Mr. Herbert Goodfriend
Telecopier: (212) 921-5370
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<PAGE> 10
(b) if to the Design Partnership addressed as follows:
Polo Ralph Lauren Enterprises, L.P.
650 Madison Avenue
New York, New York 10022
Attention: President
Telecopier: 212.318.7186
with a copy to:
Victor Cohen, Esq.
Eighth Floor
650 Madison Avenue
New York, New York 10022
Telecopier: 212.318.7183
Anyone entitled to notice hereunder may change the address to
which notices or other communications are to be sent to it by
notice given in the manner contemplated hereby.
9.2 Nothing herein contained shall be construed to place
the parties in the relationship of partners or joint venturers,
and neither the Design Partnership nor the Company shall have any
power to obligate or bind the other in any manner whatsoever,
except as otherwise provided for herein.
9.3 None of the terms hereof can be waived or modified
except by an express agreement in writing signed by the party to
be charged. The failure of any party hereto to enforce, or the
delay by any party in enforcing, any of its rights hereunder
shall not be deemed a continuing waiver or a modification thereof
and any party may, within the time provided by applicable law,
commence appropriate legal proceedings to enforce any and all of
such rights. All rights and remedies provided for herein shall
be cumulative and in addition to any other rights or remedies
such parties may have at law or in equity. Any party hereto may
employ any of the remedies available to it with respect to any of
its rights hereunder without prejudice to the use by it in the
future of any other remedy with respect to any of such rights.
No person, firm or corporation, other than the parties hereto and
Polo, shall be deemed to have acquired any rights by reason of
anything contained in this Agreement.
9.4 The Design Partnership may assign its right to receive
all or any portion of its compensation under this Agreement and,
in addition, this Agreement and all of the Design Partnership's
rights, duties and obligations hereunder may be assigned by the
Design Partnership to any entity to which the right to own or use
the Trademark has been assigned, or to an affiliate of any such
entity. The Company may not assign its rights and obligations
under this Agreement without the prior written consent of the
Design Partnership, which may be withheld in the Design
Partnership's sole discretion.
9.5 The Company will comply with all laws, rules,
regulations and requirements of any governmental body which may
be applicable to the operations of the Company contemplated
hereby, including, without limitation, as they relate to the
manufacture, distribution, sale or promotion of Licensed
Products, notwithstanding the fact that the Design Partnership
may have approved such item or conduct.
9.6 This Agreement shall be binding upon and inure to the
benefit of the successors, heirs and permitted assigns of the
parties hereto.
9.7 This Agreement shall be construed in accordance with
and governed by the laws of the State of New York, applicable to
contracts made and to be wholly performed therein without regard
to its conflicts of law rules.
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<PAGE> 11
9.8 If any dispute between the parties leads to litigation,
the parties agree that the courts of the State of New York in the
City of New York, or the federal courts in that City, shall have
the exclusive jurisdiction and venue over such litigation. All
parties consent to personal jurisdiction in the State of New
York, and agree to accept service of process outside of the State
of New York as if service had been made in that state.
Notwithstanding anything to the contrary set forth herein,
neither Polo Ralph Lauren Corporation nor any other general or
limited partner of the Design Partnership shall be liable for any
claim based on, arising out of, or otherwise in respect of, this
Agreement, and the Company shall not have nor claim to have any
recourse for any such claim against any general or limited
partner of the Design Partnership.
9.9 In the event of a breach or threatened breach of this
Agreement by the Company, the Design Partnership shall have the
right, without the necessity of proving any actual damages, to
obtain temporary or permanent injunctive or mandatory relief in a
court of competent jurisdiction, it being the intention of the
parties that this Agreement be specifically enforced to the
maximum extent permitted by law.
9.10 Provisions of this Agreement are severable, and if any
provision shall be held invalid or unenforceable in whole or in
part in any jurisdiction, then such invalidity or
unenforceability shall affect only such provision, or part
thereof, in such jurisdiction and shall not in any manner affect
such provision in any other jurisdiction, or any other provision
in this Agreement in any jurisdiction. To the extent legally
permissible, an arrangement which reflects the original intent of
the parties shall be substituted for such invalid or
unenforceable provision.
9.11 The paragraph headings contained in this Agreement are
for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Any ambiguity in
this Agreement shall not be construed against the party who
prepared this Agreement.
9.12 This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or caused the same to be executed by a duly authorized
officer as of the day and year first above written.
POLO RALPH LAUREN ENTERPRISES, L.P.
By: Polo Ralph Lauren Corporation,
General Partner
By:
JONES APPAREL GROUP, INC.
By: /s/ Sidney Kimmel
- 11 -
EXHIBIT 10.42
NORTH CAROLINA
WAREHOUSE LEASE
MECKLENBURG COUNTY
THIS WAREHOUSE LEASE (the "Lease") is made and entered into
effective as of July 12, 1996, by and between THE SHELTON
COMPANIES, a North Carolina General Partnership, (referred to as
"LANDLORD"), and JONES APPAREL GROUP, INC., a Pennsylvania
Corporation, (referred to as "TENANT").
In consideration of the mutual and reciprocal covenants,
terms, provisions, conditions and agreements hereinafter set forth,
LANDLORD and TENANT agree as follows:
1. PREMISES. LANDLORD hereby leases to TENANT and TENANT
hereby hires from LANDLORD, on the terms and conditions hereinafter
provided, that real property outlined in bold on the plot plan
attached hereto as Exhibit "A" (the "Premises"), said real property
being more particularly described as Forsyth County, North Carolina
Tax Block 4967E, Lot 005 (the "Property"), together with the
improvements located thereon (the "Building").
2. TERM. The initial term of this Lease shall begin on
September 15, 1996, and shall end at midnight on September 14,
2001, unless terminated sooner in accordance with the provisions
hereof. As used in this Lease, the word "Term" shall mean the
initial term of this Lease as specified in this paragraph and any
extension or renewal thereof as provided under this Lease.
3. BASE RENTAL. TENANT shall pay to LANDLORD during the
Term a monthly base rental of Fifty-Six Thousand One Hundred
Fifteen Dollars & No/00 ($56,115.00), which shall be due and
payable in advance on the first day of each month during the Term.
Rental for any partial month shall be payable in advance and shall
be prorated on a daily basis.
4. TAXES. As additional rental, TENANT shall pay all ad
valorem taxes and assessments which shall be due by reason of the
Premises (Property and Building) . TENANT shall pay said ad valorem
taxes for each calendar year of the Term; however, said ad valorem
taxes shall be prorated for the first partial calendar year of the
Term and upon vacancy by TENANT at the expiration of the Term.
Said ad valorem taxes shall be due and payable by TENANT to
LANDLORD on or before December 15th of each year. TENANT shall pay
ad valorem taxes and assessments on TENANT'S personal property,
fixtures, equipment and inventory located at the Premises.
5. REPAIRS AND ALTERATIONS. With the exception of the roof,
steel structure and panels, masonry walls, and foundation, and
floor subject to the definition of floor repairs as hereinafter
defined, for which LANDLORD (except for damages caused by TENANT or
its employees, agents, or invitees, which shall be TENANT'S
responsibility) accepts responsibility, any and all improvements,
interior and exterior, including grounds, landscaping, sidewalks
and paved parking area, shall be kept in good and substantial order
and repair by TENANT at its sole cost and expense, and TENANT shall
comply with all laws, ordinances, orders and regulations of every
kind and nature. TENANT shall have the right and privilege to
make, at its own expense, reasonable alterations to the Premises
provided that no alterations or changes of a structural nature
shall be made without the prior written consent of LANDLORD, which
consent shall not be unreasonably withheld. Upon termination of
this Lease, TENANT shall remove, at its own cost and expense, all
alterations made by it and restore the Building and Premises to its
condition as of the commencement of the term of this Lease,
ordinary wear and tear excepted, unless LANDLORD shall agree in
writing to allow such alterations, or a designated portion thereof,
to remain.
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<PAGE> 2
Definition of Floor Repairs: The LANDLORD represents that the
6" reinforced concrete floor is built on soil with a compaction of
3,000 lbs psf. In the event of a floor failure, the LANDLORD will
have a qualified engineer conduct tests to determine if there is a
sub-grade failure and a concrete thickness of at least 5 inches.
The floor repairs shall be the responsibility of the LANDLORD if
either of these two conditions do not exist. All other floor
damages and repairs shall be the responsibility of the TENANT.
6. LANDLORD'S RIGHT TO ENTER TO MAKE REPAIRS. Upon not less
than five (5) days written notice (except for emergency repairs)
LANDLORD and its agents or other representatives shall have the
right to enter into and upon the Premises and Property or any part
thereof at all reasonable hours, for the purpose of examining the
same, and in case of the neglect or default of TENANT in making
repairs or alterations to the same for which the TENANT is
responsible by the terms hereof, LANDLORD may make such after
reasonable notice to TENANT, except that no notice shall be
required in case of emergencies (defined herein as any item that
would cause additional damage to the Premises or injury to people
or property) during the Term, and all the costs and expenses
consequent thereof with interest thereon shall be repaid by TENANT
to LANDLORD.
7. NO DEDUCTIONS AGAINST RENT. It is the intention of the
parties that subject to conditions and exceptions stated in this
Lease, LANDLORD shall receive rents and additional rents and all
sum or sums which shall or may become payable hereunder by TENANT
under any contingency, free from all taxes, fees, charges,
expenses, damages and deductions of every kind or sort whatsoever,
except as otherwise specifically provided herein, and that TENANT
shall and hereby expressly agrees to pay as additional rent all
such taxes, fees, charges and expenses and such other sums which
would have been payable by LANDLORD and chargeable against the
Premises or the rental paid hereunder. TENANT, however, shall not
be under any obligation to pay any principal or interest in any
mortgage or deed of trust which may be a lien against the Property
or to pay any income or similar tax of LANDLORD.
8. UTILITIES. LANDLORD covenants and agrees that the
Premises shall be adequately serviced with electric, telephone,
water, and sewer sufficient to meet TENANT'S requirements as of the
commencement of the Term. TENANT shall pay all charges for utility
services furnished to the Premises during the Term and such utility
services shall be provided in the name of TENANT and billed
directly to TENANT by the utility company providing such services.
9. USE OF PREMISES. TENANT shall use the Premises solely as
a warehouse distribution and storage facility, and TENANT covenants
that neither the Premises nor any part thereof shall be used for
any unlawful purpose or for any purpose which shall be deemed
extra-hazardous by fire insurance companies or used or occupied in
any manner which shall result in the cancellation of any policy of
insurance on the Building or the Premises, unless TENANT shall
replace at no additional expense to LANDLORD the policies so to be
canceled by another policy in the same amount and in a company or
companies of equally good standing. TENANT shall not use the
Premises for the manufacture, storage, disposal or handling of any
hazardous substances, as the same may be defined by any statute,
rule or regulation adopted by any governmental authority having
jurisdiction over such matters, and TENANT shall indemnify and hold
harmless LANDLORD from and against any and all claims, damages and
liabilities, including remediation costs and expenses associated
therewith, incurred by LANDLORD arising from or relating to
TENANT'S violation of the terms hereof.
10. INDEMNIFICATION OF LANDLORD. TENANT shall hold LANDLORD
harmless against any and all claims, damages arising after the
commencement of the Term, or any renewal thereof and any orders,
decrees or judgements which may be entered therein, brought for
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<PAGE> 3
damages or alleged damages resulting from any injury to person(s)
or property or from loss of life sustained in or about the said
Premises and the improvements thereon by any person or persons
whatsoever, except for damages which are not covered by liability
insurance policies required to be carried by TENANT hereunder and
which also result from the negligence of LANDLORD, its agents or
employees.
11. CONDEMNATION. (a) If at any time during the Term
hereof, the whole of the Premises shall be taken for any public or
quasi-public use, under any statute, or by right of eminent domain,
then, in such event, when possession of the Premises shall have
been taken thereunder by the condemning authority, the Term and all
rights of TENANT hereunder shall immediately cease and terminate,
and the rent shall be apportioned and paid to the time of such
termination.
(b) If only part of the Premises shall be so taken or
condemned, the entire award shall belong to LANDLORD without any
deduction therefrom for any estate or interest of TENANT, and
TENANT hereby assigns to LANDLORD any and all such award with any
and all rights, estate and interest of TENANT now existing or
hereafter arising in and to the same or any part thereof; provided,
however, if the part of the Premises so taken or condemned shall,
in the sole and absolute judgement of TENANT, reduce the Premises
to such extent as to prevent TENANT from continuing the substantial
operation and conduct of its business on the Premises, then TENANT
shall have the right, at its election, to cancel and terminate this
Lease. If the Lease is not so terminated, rent shall be abated in
proportion to the portion of the Premises so taken.
12. PROPERTY INSURANCE. (a) During the Term hereof and for
the benefit of LANDLORD, the Building and all improvements and
equipment on, in or appurtenant to the Premises shall be insured
against loss or damage by fire and all standard extended coverage
for the full, fair and insurable replacement value thereof.
LANDLORD shall purchase and keep in force such insurance policy or
policies. LANDLORD retains the sole right to adjust and settle all
claims in regards to this property insurance coverage.
(b) TENANT shall bear all risk of loss or damage to its
property, equipment, and supplies located at or in the Premises and
shall be responsible to insure the same at its own cost and
expense.
13. PUBLIC LIABILITY INSURANCE. (a) During the Term hereof
TENANT shall provide and keep in force in such form as LANDLORD
shall direct, public liability insurance protecting LANDLORD
against any and all liability in the amounts of not less than
$1,000,000.00 in respect to any one accident or disaster and in the
amount of not less than $500,000.00 in respect to injuries to any
one person. LANDLORD (and its mortgagee) shall be named as an
insured in such policy or policies and TENANT shall provide
LANDLORD an original certificate of insurance confirming such
coverage. Any such policy shall require advance notice to LANDLORD
(and its mortgagee) of at least thirty (30) days prior to
cancellation.
(b) All premiums and charges for all of said insurance
policies shall be paid by TENANT as additional rent and if TENANT
shall fail to make any such payment when due or fail to provide or
keep in force any such policy that TENANT is required or has agreed
to provide, LANDLORD may make, but shall not be obligated to make,
such payment or carry such policy, and the amount paid by LANDLORD,
with interest thereon, shall be repaid to the LANDLORD by TENANT on
demand, and all such amounts so repayable together with such
interest, shall be considered as additional rent payable hereunder.
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<PAGE> 4
14. REPAIR OR RECONSTRUCTION DUE TO FIRE. LANDLORD agrees
that if the Premises are damaged or destroyed by fire or the
elements at any time during the Term and if, and to the extent
that, insurance proceeds payable with respect to such damage are
paid to LANDLORD, LANDLORD will at its own expense commence to
repair or reconstruct the same within thirty (30) days and complete
same within ninety (90) days after commencement; provided, rental
shall be abated as to any part of the Premises which in the sole
and absolute judgement of TENANT, is rendered unfit for occupancy
for the period such unfitness continues. If, however, within the
last year of the original Term or any renewal term of this Lease
said damage or destruction shall be in excess of twenty-five
percent (25%) of the total replacement value of the Premises, then
at the option of LANDLORD, on not less than ninety (90) days notice
to TENANT this Lease may be terminated and the obligation of TENANT
under this Lease shall thereupon cease and terminate as of the date
of such termination. LANDLORD shall be entitled to the proceeds of
all insurance policies providing coverage with respect to the
Premises for fire or other extended coverage perils.
15. RELEASE. LANDLORD hereby releases TENANT to the extent
of LANDLORD'S insurance coverage, from any liability for loss or
damage caused by fire or any of the extended coverage casualties
included in LANDLORD'S insurance policies, even if such fire or
other casualty should be brought about by the negligence of TENANT,
its agents or employees. TENANT hereby releases LANDLORD to the
extent of TENANT'S insurance coverage, from any liability for loss
or damage caused by fire or any of the extended coverage casualties
included in TENANT's insurance policies, even if such fire or other
casualty should be brought about by the negligence of LANDLORD, its
agents or employees.
16. SURRENDER OF PREMISES. TENANT shall, on or before the
last day of the Term, peaceably and quietly leave, surrender and
yield up unto LANDLORD all and singular the improvements and
appurtenances on the Premises in good order, condition and state of
repair, reasonable wear and tear excepted, together with all
alterations, additions, improvements, and fixtures put in at the
expense of TENANT, which LANDLORD has agreed in writing to allow to
remain. The LANDLORD will make a video tape of the Premises prior
the commencement date of this Lease and this video tape shall be
used to show the condition of the Premises at the commencement of
the Lease.
17. DEFAULT DEFINED. Each of the following shall be deemed
a default by TENANT and a breach of this Lease: (a) failure to pay
the rental herein reserved, or any part thereof (including
additional rental), for a period of fifteen (15) days after the
date payment thereof is due; (b) failure to do, observe, keep and
perform any of the terms, covenants, conditions and provisions of
this Lease contained on the part of TENANT to be done, observed,
kept and performed, including to pay additional rent or any other
charge or expense required to be paid by TENANT hereunder, for a
period of fifteen (15) days after written notice; provided, if the
failure complained of is a failure other -than one which may be
cured by the payment of money, no default on the part of TENANT in
the performance of work required to be performed or acts to be done
or conditions to be met shall be deemed to exist if, within the
aforesaid fifteen (15) day period, steps shall have been in good
faith commenced by TENANT to rectify the same and shall be
prosecuted to completion with diligence and continuity; and (c) the
abandonment of the Premises by TENANT, the adjudication of TENANT
as bankrupt, the making by TENANT of a general assignment for the
benefit of creditors, the taking by TENANT of the benefit of any
insolvency act or law, or the appointment of a permanent receiver
or trustee in bankruptcy for TENANT'S property.
- 4 -
<PAGE> 5
18. LANDLORD'S REMEDIES. Should TENANT be in payment or
other material default hereunder, LANDLORD, if it shall so elect
may, upon not less than ten (10) days prior written notice (1)
terminate the Term of this Lease, or (2) re-enter the Premises with
or without process of law and expel or remove TENANT or any other
occupying the Premises, thereby terminating TENANT'S right to
possession without terminating the Term of this Lease. Upon such
termination of the Term hereof, TENANT shall promptly surrender
possession of the Premises. If LANDLORD shall elect to terminate
TENANT'S right to possession only, without terminating the Term of
this Lease, LANDLORD may (i) re-enter the Premises and remove
TENANT, without releasing TENANT from its obligations hereunder,
(ii) refurbish, redecorate, alter, repair or otherwise prepare the
Premises for lease to others, and (iii) attempt to relet the
Premises, and if the amount of rental collected by LANDLORD upon
such reletting is not sufficient to pay monthly the full amount of
the rental herein reserved (plus charges and expenses payable by
TENANT) over the remainder of the Term, together with all costs of
repossession and reletting (including leasing commissions) , TENANT
shall pay to LANDLORD the amount of each monthly deficiency upon
demand; and if the rent so collected from such reletting is more
than sufficient to pay the full amount of rent and other TENANT
obligations reserved hereunder, together with the aforementioned
costs, LANDLORD shall be entitled to the surplus.
19. SUBORDINATION. TENANT agrees that LANDLORD may, from
time to time, encumber LANDLORD'S interest in the Property with a
mortgage or deed of trust, and, in connection with the execution of
such mortgage or deed of trust, LANDLORD may, at its option, make
this Lease subordinate in lien, priority and claim to the lien or
liens or such mortgage or deed of trust. This provision is
intended to be self-operative and no further act or agreement by
TENANT shall be necessary to establish the subordination of this
Lease to any such mortgage or deed of trust; however, TENANT
covenants and agrees that TENANT will, from time to time, at the
request of LANDLORD, execute an agreement in such form as may be
required by LANDLORD or by the mortgagee under any such mortgage or
deed of trust to effect such subordination. If TENANT fails or
refuses to execute such agreement on demand, LANDLORD may, as the
attorney-in-fact and agent of TENANT, execute such agreement and in
such event, TENANT hereby confirms and ratifies any such agreement
executed by LANDLORD on behalf of TENANT. LANDLORD, however, will
arrange with the holder of any such present or future mortgage or
deed of trust for an agreement that if by foreclosure such holder,
or any successor in interest, shall become the owner of the
Property, it will not disturb the possession, use or enjoyment of
the Premises by TENANT, provided TENANT is not in payment or other
material default hereunder.
20. SUBLEASE AND ASSIGNMENT RESTRICTED. Except in the normal
course of its business, TENANT shall not have the right to assign
this Lease, nor sublet the Premises, in whole or in part, without
first obtaining the written consent of LANDLORD. LANDLORD
covenants and agrees that it will not unreasonably or arbitrarily
withhold said consent. TENANT shall always remain primarily
responsible for the performance of this Lease.
21. LIMITED LIABILITY. The liability of LANDLORD hereunder
shall be limited solely to the interest of LANDLORD in the
Property; and neither LANDLORD nor any general Partner of LANDLORD
shall be personally liable with respect to any claim arising out of
or related to this Lease, and a deficit capital account of a
partner of LANDLORD shall not be deemed an asset or property of
LANDLORD.
22. NON-WAIVER PROVISION. No waiver of any condition or
covenant contained in this Lease, or of any rule or regulation
which is a part hereof, shall be implied as a result of LANDLORD'S
or TENANT'S failure to enforce such condition, covenant, rule or
regulation or failure to take advantage of any of its rights on
- 5 -
<PAGE> 6
account of the same; and no express waiver shall effect any
condition, covenant, rule or regulation other than the one
specified in such waiver and that one only for the time and in the
manner specifically stated. No reference in this Lease to any
specific right or remedy shall preclude LANDLORD or TENANT from
exercising any other right or having any other remedy or from
maintaining any other action to which it may otherwise be entitled
at law or in equity.
23. INTEREST AND EXPENSE OF ENFORCEMENT. After a default by
TENANT under this Lease, any amounts due or becoming due LANDLORD
shall accrue interest at the rate of ten (10%) percent per annum
until paid. TENANT agrees to pay to LANDLORD reasonable attorney's
fees if the obligations of TENANT evidenced by this Lease need to
be referred to an attorney for enforcement after a breach of this
Lease. Should LANDLORD incur any expenses in successfully
enforcing any provision of this Lease, TENANT shall pay to LANDLORD
all expenses so incurred, including reasonable attorney's fees.
24. NOTICES. Wherever in this Lease it shall be required or
permitted that notice or demand be given or served by either party
to this Lease to or on the other, such notices or demand shall be
given or served and shall not be deemed to have been duly given or
served unless in writing and forwarded by registered mail and
addressed as follows:
TO LANDLORD: THE SHELTON COMPANIES
3600 One First Union Center
301 South College Street
Charlotte, NC 28202
Attn: Ballard G. Norwood
TO TENANT: Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, PA 19007
Attn: Controller
Such addresses may be changed from time to time by either
party serving notices as above provided.
25. SHORT FORM. At the request of either party, the parties
hereto agree to execute a short form of Lease for purposes of
recording and of setting in writing the date of delivery and the
commencement of the Lease Term. The cost of preparing and
recording such short form of Lease shall be borne by the party
requesting the same.
26. GOVERNING LAW. This Lease shall be governed by and
construed in accordance with the laws of the State of North
Carolina. If any provision of this Lease shall be held as invalid
or unenforceable, the remainder of this Lease shall not be affected
thereby, and there shall be deemed substituted for the affected
provisions a valid and enforceable provision as similar as possible
to the affected provision. Time is of the essence under this
Lease, and all provisions herein relating thereto shall be strictly
construed. Notwithstanding any termination of this Lease, any
provisions hereof which would require observance and performance by
LANDLORD or TENANT subsequent to the termination hereof shall
continue in force and effect.
27. ENTIRE AGREEMENT. This document constitutes the entire
agreement between LANDLORD and TENANT relating to the Premises, and
may be altered or revoked only by a document in writing signed by
both parties. The terms, covenants and conditions in this Lease
shall extend to and be binding upon the heirs, representatives,
executors, administrators, successors and assigns of the respective
parties hereto; however, the foregoing shall not be construed as
granting TENANT the right to assign this Lease or sublet the
Premises, except as provided under the terms of this Lease.
- 6 -
<PAGE> 7
28. RULES AND REGULATIONS. Rules and regulations for use of
the Premises, Building and Property and for parking are stated in
the Declaration of The Northridge Business Park Association and,
compliance with such rules and regulations including the payment of
Common Area Expenses to the Association shall be required as a
condition of this Lease. LANDLORD shall not establish any
unreasonable rules or regulations which alter the terms and
conditions of this Lease or impose any additional costs or expenses
upon TENANT.
29. ADJACENT EXPANSION LAND. The LANDLORD will withhold the
land attached hereto as Exhibit "B" from the market for one (1)
year from the commencement of the Term. Beginning September 15,
1997 and continuing during the term of the Lease, TENANT shall have
the first right of refusal for this proposed expansion. If the
LANDLORD has reason to proceed with the expansion it will notify
TENANT of its plans in writing and TENANT shall have thirty (30)
days from date of notice to advise LANDLORD in writing if or if not
it has an interest in exercising its first right of refusal to
lease and occupy the expansion space. If TENANT does not exercise
its right of refusal, and LANDLORD proceeds with expansion which
adjoins the existing building LANDLORD will not allow a use with an
odor or chemicals that could effect TENANTS product, and TENANT may
not unreasonably withhold its approval of LANDLORD'S construction
of a building that adjoins the existing building. LANDLORD will
provide a four (4) hour fire wall between the existing building and
the expansion building. LANDLORD shall not perform any work for
the expansion which will diminish the adequacy of access to the
Lease Premises or permit any work, which will impair TENANTS use of
the Premises.
30. RENEWAL. (a) LANDLORD agrees that if TENANT shall not be
in default in performing any of its obligations under this Lease,
TENANT shall have and is hereby granted the option to extend the
Term of this Lease for three (3) separate and successive three (3)
year Terms. This option shall be automatically extended unless
TENANT notifies LANDLORD in writing no later than ninety (90) days
prior to the end of the then current term that it does not intend
to exercise it's option. If TENANT exercises an option as
hereinabove set forth, the base rent which TENANT shall pay during
the extended Term shall be determined as follows: The annual
rental for the 232,200 square foot building shall be $719,820.00
for the first renewal term, $766,260.00 for the second renewal term
and $812,700.00 for the third renewal term, each payable in equal
monthly installments.
(b) All of the terms of this Lease shall apply to an
extended Term, except that rental as provided above, and TENANT
shall have no rights to extend the Term of the Lease except as
provided in subparagraph (a) above.
31. POSSESSION. LANDLORD will take possession from its
existing tenant on August 1, 1996, at which time removal of racks
by LANDLORD will begin. It is estimated that removal of the racks
will take four (4) weeks. LANDLORD agrees to coordinate its work
with TENANT'S work, so that TENANT may have partial occupancy for
the purpose of beginning building renovations in areas of the
Premises where the existing racks have been removed.
32. CONDITION OF BUILDING AT LEASE COMMENCEMENT. Subject to
TENANT'S occupancy for rack installation and improvements, LANDLORD
will deliver the Premises in a broom-clean condition, with the
existing plumbing, electrical and HVAC systems in good working
order. TENANT may have its engineers inspect the Premises,
provided that LANDLORD shall not be obligated to make any changes
if the equipment is in good working order.
- 7 -
<PAGE> 8
33. LANDLORD OBLIGATIONS FOR TENANT IMPROVEMENTS. At the
time of execution of this Lease by the parties, LANDLORD will pay
to TENANT the sum of $110,000, which amount (or any part thereof)
may be used by TENANT for such renovations to the Premises as
TENANT, in its absolute discretion, shall determine to make.
TENANT shall be responsible for any such renovations, including
satisfying such requirements as may be imposed with respect thereto
by TENANT'S insurance carrier for the Premises.
IN WITNESS WHEREOF, this Lease has been duly executed by and
duly authorized representative of LANDLORD and TENANT effective the
day and year first above written.
LANDLORD
Witness: THE SHELTON COMPANIES, a North
Carolina General Partnership
/s/ Ballard Norwood BY: /s/ R. E. Shelton (SEAL)
General Partner
TENANT
JONES APPAREL GROUP, INC., a
Pennsylvania Corporation
Attest: BY: /s/ Wesley R. Card (SEAL)
(CORPORATE SEAL) Chief Financial Officer
/s/ Gary R. Klocek
Corp. Controller
- 8 -
EXHIBIT 10.43
Israel Discount Bank of New York
511 FIFTH AVENUE, NEW YORK, NY 10017-4997
(212) 551-8500
October 30, 1996
Mr. Gary R. Klocek, Controller
Jones Apparel Group, Inc.
250 Rittenhouse Circle
Bristol, Pennsylvania 19007
Dear Mr. Kimmel:
We are pleased to advise you that Israel Discount Bank of New York (the
"Bank") has approved Jones Apparel Group, Inc.'s (the "Company") request for
the following line of credit:
1. LINE OF CREDIT
$20,000,000.00 for working capital purposes.
2. INTEREST RATES
Own Paper: As determined by the Bank, in its sole discretion, at the
time of the request.
3. CONDITIONS
Utilization of this line of credit is subject to the following
additional terms and conditions: Satisfactory mutual revisions with
other banks.
4. FINANCIAL INFORMATION AND EXAMINATIONS
The Company shall furnish the Bank:
(a) within 90 days after the end of each of its fiscal years, the
audited balance sheet and income statements as of the end of
each fiscal year. Said balance sheet and income statements shall
be audited by a certified public accountant, acceptable to the
Bank, without material exception or qualification.
(b) within 45 days after each quarterly financial period, financial
statements for the period then ended. Said statements may be
prepared internally by management.
- 1 -
<PAGE> 2
(c) any other such information, reports, and statements as the Bank
may reasonably request.
5. DOCUMENTATION
Utilization of this line of credit is subject to the Company's
execution of such documentation and instruments, all in form and substance
satisfactory to the Bank and its counsel, all of which shall contain such
provisions, representations, covenants and events of default as are satisfactory
to the Bank and its counsel.
6. EXPIRY
Availability of this line of credit is dependent upon satisfactory
review, from time to time, of Company's condition, financial or otherwise and
may be amended, reduced, withdrawn and canceled, in whole or in part, at
anytime in the Bank's sole discretion without prior notice to the Company.
Notwithstanding the above, the line of credit will expire on April 30, 1997,
unless extended by the Bank, in its sole discretion.
This letter is furnished to the Company solely for informational purposes.
The line of credit described herein is not a commitment and compliance by the
Company with the terms of this letter does not in any way bind the Bank to make
loans, advances, or grant extensions of credit.
Please indicate Company's agreement and acceptance of the foregoing by
signing and returning the enclosed copy of this letter by November 7, 1996.
If there are any questions or comments, please feel free to call me at
551-8827. We look forward to beginning an excellent relationship with Jones
Apparel Group, Inc.
Very truly yours,
By: /s/ Lissa Baum
-----------------------
Lissa Baum, Senior Vice President
By: /s/ Antonia Brocato
-----------------------
Antonia Brocato, Assistant Vice
President
Agreed to and Accepted:
JONES APPAREL GROUP, INC.
By: /s/ Gary R. Klocek
-----------------------
Name: Gary R. Klocek
Title: Corporate Controller
cc: Herbert J. Goodfriend - Vice Chairman, Secretary and Director
Wesley R. Card - Chief Financial Officer
- 2 -
EXHIBIT 11
JONES APPAREL GROUP, INC. AND SUBSIDIARIES
Computation of Primary and Fully Diluted Earnings per Share
(In thousands except per share amounts)
For the Year Ended December 31,
-------------------------------
1996 1995(1) 1994(1)
------- ------- -------
Primary Earnings per Share:
- ---------------------------
Net income........................... $80,874 $63,485 $54,920
======= ======= =======
Weighted average number of shares
outstanding.......................... 52,333 52,130 51,656
Assumed issuances under exercise
of stock options..................... 1,332 916 1,268
------- ------- -------
53,665 53,046 52,924
======= ======= =======
Primary earnings per share........... $1.51 $1.20 $1.04
======= ======= =======
Fully Diluted Earnings per Share:
- ---------------------------------
Net income........................... $80,874 $63,485 $54,920
======= ======= =======
Weighted average number of shares
outstanding.......................... 52,333 52,130 51,656
Assumed issuances under exercise
of stock options..................... 1,744 1,328 1,269
------- ------- -------
54,077 53,458 52,925
======= ======= =======
Fully diluted earnings per
share................................ $1.50 $1.19 $1.04
======= ======= =======
(1) Adjusted for 2-for-1 stock split effective October 2, 1996.
EXHIBIT 21
SUBSIDIARIES OF JONES APPAREL GROUP, INC.
State or County Percentage of Voting
Name of Incorporation Securities Owned *
- --------------- ---------------- --------------------
Melru Corporation New Jersey 100%
Jones Apparel Group Canada Inc. Canada 100%
Jones Investment Co., Inc. Delaware 100%
Jones Holding Corporation Delaware 100%
Jones International Limited Hong Kong 100%
Bongal Company Limited Hong Kong 100%
Jones Apparel Group (HK) Ltd. Hong Kong 100%
Jones Far East Ltd. Hong Kong 100%
Vestamex S.A. De C.V. Mexico 100%
Camisas de Juarez S.A. De C.V. Mexico 100%
* Directly or Indirectly
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Jones Apparel Group, Inc.
New York, New York
We hereby consent to the incorporation by reference in the Prospectus
constituting a part of the Registration Statement on Form S-8 filed May 15,
1996 of our reports dated February 7, 1997, relating to the consolidated
financial statements and schedule of Jones Apparel Group, Inc. and
subsidiaries appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
New York, New York
March 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 30,085
<SECURITIES> 0
<RECEIVABLES> 114,941
<ALLOWANCES> 2,263
<INVENTORY> 214,437
<CURRENT-ASSETS> 389,830
<PP&E> 94,823
<DEPRECIATION> 33,127
<TOTAL-ASSETS> 488,109
<CURRENT-LIABILITIES> 95,860
<BONDS> 0
0
0
<COMMON> 536
<OTHER-SE> 376,193
<TOTAL-LIABILITY-AND-EQUITY> 488,109
<SALES> 1,021,042
<TOTAL-REVENUES> 1,021,042
<CGS> 717,250
<TOTAL-COSTS> 717,250
<OTHER-EXPENSES> 186,572
<LOSS-PROVISION> 800
<INTEREST-EXPENSE> 3,040
<INCOME-PRETAX> 127,763
<INCOME-TAX> 46,889
<INCOME-CONTINUING> 80,874
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 80,874
<EPS-PRIMARY> 1.51
<EPS-DILUTED> 1.50
</TABLE>
