CHIC BY H I S INC
10-Q, EX-10.2, 2000-06-27
WOMEN'S, MISSES', AND JUNIORS OUTERWEAR
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                        CONTRACT FOR OUTSIDE PURCHASE OF
                           GARMENTS OR C.M.T. SERVICES

                                   DATED AS OF


                                  APRIL 4, 2000


                                     BETWEEN


                               CHIC BY H.I.S, INC.


                                       AND


                               VF JEANSWEAR, INC.







<PAGE>



                        CONTRACT FOR OUTSIDE PURCHASE OF
                           GARMENTS OR C.M.T. SERVICES


     AGREEMENT dated as of April 4, 2000 between VF Jeanswear,  Inc., an Alabama
corporation  ("BUYER")  and Chic by H.I.S,  Inc.,  a Delaware  corporation  (the
"CONTRACTOR"),

     WITNESSETH:

          WHEREAS,   Contractor   conducts  a  business  in  which  it  designs,
manufactures and distributes  moderately priced jeans,  casual pants, shorts and
other items of apparel (the "BUSINESS");

          WHEREAS, Buyer desires to purchase certain assets from Contractor, and
Contractor  desires to sell certain assets to Buyer,  upon the terms and subject
to the conditions set forth in that certain Asset Purchase  Agreement between VF
Corporation,   a  Pennsylvania   corporation  and  parent  of  Buyer  "PARENT"),
Contractor and certain  affiliates of Contractor dated as of the date hereof and
executed simultaneously herewith (the "ASSET PURCHASE AGREEMENT");

          WHEREAS,  Buyer desires to procure from Contractor  certain  services,
including  the  manufacture  and  shipping of certain  products  by  Contractor,
including certain CHIC branded products,  and Contractor desires to provide such
services; and

          WHEREAS,  simultaneously  with the execution of this Agreement and the
Asset Purchase Agreement, Contractor and Wrangler Clothing Corp. ("WRANGLER"), a
subsidiary  of Parent,  are  executing  a License  Agreement  pursuant  to which
Wrangler grants Contractor a license to produce and sell certain "core products"
through April 30, 2000 and certain "non-core products" through June 30, 2000 and
Parent and CHIC are executing a Letter Agreement  relating to the acquisition by
Parent   of   H.I.S.    Sportswear    AG   ("HIS"),    a   German    corporation
(AKTIENGESELLSCHAFT), including the shares of HIS owned by Contractor;

          The parties hereto agree as follows:

     1.   Contractor  hereby agrees to manufacture  for Buyer by December
31, 2000, and Buyer hereby agrees to accept from  Contractor,  one million units
of product,  as such  product  shall be ordered  from time to time by Buyer,  in
reasonable  quantities consistent with standard industry practice, by delivering
a  standard  form  contract  substantially  similar to  Schedule  I hereto  (the
"STANDARD  CONTRACT")  to  Contractor,  which  Standard  Contract  shall include
quality,  delivery and pricing  standards  that shall not be more stringent than
the  standards   demanded  of  Buyer's  other   contractors  and  shall  include
specifications for body material,  trim items, thread,  stitching,  construction
details,  packaging and otherwise.  Contractor shall not substitute any material
not  specified  by Buyer in a Standard  Contract  for use in such  manufacturing
unless  specially  agreed  to by Buyer.  All of the  terms of any such  Standard
Contract, upon delivery to Contractor,  shall be considered a part hereof. Buyer
shall be under no obligation to purchase the one million  units,  or any portion
thereof, unless Contractor agrees to meet the quality, delivery


                                        2

<PAGE>



and  pricing  standards   included  in  each  Standard  Contract   delivered  to
Contractor.  Each of Buyer and Contractor  acknowledges  that for those Core and
Non-Core  Products  that have been ordered  and/or  identified as of the date of
this  Agreement,  quality,  delivery and pricing  standards have been agreed and
such  standards  shall be deemed  adequate  for all  purposes  for such Core and
Non-Core Products for future orders.

     2.  Subject to  consummation  of the  acquisition of HIS by Parent,
Buyer  hereby  agrees to purchase  from  Contractor  by December  31,  2000,  in
addition to the one million  units  specified in Section 1 above,  a further two
million  units of  product,  as such  additional  two  million  units  (less any
previously ordered units in excess of the one million units specified in Section
1 above) shall be ordered from time to time in reasonable  quantities consistent
with standard industry practice pursuant to a Standard Contract.  Buyer shall be
under no obligation to purchase the two million units,  or any portion  thereof,
unless (i) the  acquisition of HIS by Parent is consummated  and (ii) Contractor
agrees to meet the  quality,  delivery  and pricing  standards  included in each
Standard Contract delivered to Contractor.

     3.  This Agreement shall be terminable by either Buyer or Contractor
upon the occurrence of any of the following:  (i) mutual  agreement of Buyer and
Seller to  terminate  evidenced  in writing;  (ii) breach of this  Agreement  by
Contractor;  or (iii)  material  breach of any individual  Standard  Contract by
Contractor.  Termination of a Standard  Contract  pursuant to Article 16 of such
Standard  Contract  shall  not  constitute   grounds  for  termination  of  this
Agreement.

     4.  Failure  to  deliver  the  total  quantity  specified  in  any
individual  Standard  Contract  upon the delivery  terms agreed in such Standard
Contract  shall reduce the overall  commitments in Section 1 or Section 2 above,
as relevant,  by the quantity  that has not been so delivered  upon the terms of
such Standard Contract.

     5.  Buyer  shall  not be  responsible  for  any  consequential  or
incidental  damages arising from breach of this Agreement by Buyer or otherwise,
and  Contractor  shall not have the right to and shall not seek to  recover  any
such  consequential or incidental  damages from Buyer and shall have no recourse
against Buyer for such damages.




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<PAGE>




                                   SCHEDULE I

                                  VF JEANSWEAR

                                                         CONTRACT NUMBER:
                              VF JEANSWEAR, INC.         [           ]
                             OUTSIDE PURCHASE OF
                                 GARMENTS
CONTRACTOR:                    OR C.M.T. SERVICES
CHIC BY H.I.S., INC.         WITH VF JEANSWEAR, INC.
1372 BROADWAY                   P.O. BOX 21488           SHIP TO:
NEW YORK, NY  10018          GREENSBORO, NC. 27420-1488  VF JEANSWEAR

  VF JEANSWEAR    SIZE                                                 DELIVERY
  LOT NUMBER     RANGE         GARMENT DESCRIPTION    PRICE   DOZENS   DATE
                                                      $
                                                      $
                                                      $
                                                      $
Price includes cutting and assembly  (including thread,  zippers,  linings,  and
pre-cut hip pockets),  washing, pressing, put up and pack (including swiftachs).
All customs,  brokerage fees,  transportation and insurance are also included in
price.

PRODUCTION LOCATION: [Mexico]          F.O.B. [          ]
TERMS:  [Net 20 days]

1.   Contractor hereby agrees to manufacture for Buyer the goods described above
     in accordance with the Buyer specifications for body material,  trim items,
     thread, stitching,  construction details,  packaging and otherwise that are
     attached  hereto,  made a part hereof and hereby  incorporated by reference
     herein.  The other terms of this contract shall be as stated above,  on the
     face hereof or in an attachment hereto. Contractor shall not substitute any
     material  not  specified  by  Buyer  for use in such  manufacturing  unless
     specially agreed to by Buyer.

2.   Contractor will agree to a Buyer compliance inspection/ audit at all of the
     facilities  that will be used in the producing of programs for Buyer.  This
     audit is to ensure that Contractor is providing a safe work environment for
     employees  and  is  also  complying  with  local,   state,  and  government
     regulations  pertaining to age, wages,  etc. Failure to pass audit (or meet
     compliance requirements) will terminate contract.

3.   Buyer will supply piece goods to  Contractor  in  sufficient  quantities to
     manufacture  the garments  required under this contract in accordance  with
     the quantity  allowed.  Contractor  covenants that any and all purchases of
     fabric or other items by  Contractor  required in his  performance  of this
     contract  will be made in  compliance  with the  Flammable  Fabrics Act, as
     amended,  and regulations  issued thereunder by the Consumer Product Safety
     Commission.  Furthermore,  Contractor  agrees to  indemnify  and hold Buyer
     harmless  from any loss or  expense  Buyer  may  suffer  as a result of any
     claim, of whatever nature, or any




<PAGE>



     administrative  proceeding,  in which a Buyer  violation  of the  Flammable
     Fabrics Act is alleged in connection with  Contractors  performance of this
     contract.

4.   Contractor warrants that it will manufacture the goods that are the subject
     of this contract in accordance  with all  specifications  supplied by Buyer
     and that the goods (excluding marked  irregulars) will be free from defects
     in material and workmanship.

5.   Buyer will ship (or have outside  suppliers  ship) to Contractor  all items
     Buyer has agreed to supply  Contractor  for the  manufacture  of the goods.
     Buyer will pay the freight costs for such shipments to Contractor; however,
     Contractor will pay freight costs relating to shipment of items  Contractor
     has agreed to supply.

6.   Buyer  will  furnish  country of origin  affidavits  for all trim and piece
     goods supplied.  Buyer will supply logo trim items and other specified trim
     items  agreed to in  sufficient  quantifies  to  manufacture  the  garments
     required  under  this  contract  with an  additional  4%  waste  allowance.
     Contractor  will be held  responsible for control and maintenance of a book
     inventory of items provided by Buyer. Contractor will be billed at purchase
     price  for  any   shortages.   Contractor   agrees   to  assume   financial
     responsibility  for usage in excess of these  amounts.  Contractor  will be
     held responsible for excessive usage of fabric.  Planned yardage vs. actual
     yardage must not exceed 2% without prior written consent on specific items.

7.   Parties agree that inspections by Buyer auditors will be made at Contractor
     facility  on a  sampling  basis in  accordance  with Buyer  procedures  and
     acceptance  standards.   Further  sampling  inspections  will  be  done  at
     receiving  location for acceptance/  rejection.  Rejected shipments will be
     returned to a specified  Contractor  location for repair and  inspection at
     the expense of  Contractor.  Buyer will pay for  irregular  garments at the
     price as stated below. Contractor agrees to remove all labels from garments
     rejected  by Buyer and  returned to  Contractor.  The  garments  become the
     property of Contractor,  who may dispose of them only after all labels have
     been removed.

8.   As used in this  contract  the term  "irregulars"  shall be defined to mean
     garments  that fail to meet Buyer quality  standards  because of defects in
     workmanship,  materials,  measurement, laundry finishes or otherwise. Buyer
     will accept and pay the regular contract price for irregulars  representing
     no more than 3% of any shipment.  For additional irregulars above 3% of any
     shipment up to 4% of the shipment Buyer will pay 75% of the contract price.
     Buyer will pay 50% of the contract price for any irregulars in excess of 4%
     of any shipment.

9.   Contractor  agrees to maintain  insurance  and assumes the risk of loss for
     all Buyer fabric and trim supplied to Contractor under this contract. Buyer
     will charge back to Contractor  the purchase  price cost of Buyer  supplied
     fabric and trim on any units reported cut but not shipped.

10.  Contractor  agrees to assume risk of loss for all  finished  goods prior to
     delivery to Buyer.  Delivery shall be deemed to take place when  Contractor
     places  the  goods on a Buyer  truck  or the  goods  have  been  loaded  on
     commercial carrier consigned to a Buyer location.

11.  In accordance with Buyers instructions,  Contractor will ship all completed
     goods  to  designated  Buyer  receiving   locations.   Contractor  will  be
     responsible  for freight,  insurance,  etc. of finished  goods to specified
     destination. Buyer will pay all freight charges for


                                        2

<PAGE>



     shipments of finished goods from F.O.B.  designated above,  however,  Buyer
     will charge back against  amounts owed to Contractor any freight charges or
     other expenses Buyer incurs as a result of a shipment by Contractor that is
     rejected by Buyer for substantial nonconformity with the specifications.

12.  Contractor  will  ship  finished  goods  within  30  working  days from cut
     issuance (this will be referred to as cycle time or work in process). Buyer
     will deduct 5% of agreed upon price for  finishes  shipped 10 working  days
     after  scheduled  finished date. An additional 5% of agreed upon price will
     be deducted for every 5 working days thereafter.

13.  Sales samples shall be paid for at twice the contract purchase price of the
     production  service (two times CMT price) per unit, unless such samples are
     furnished from regular production or scheduled delivery date is not met.

14.  Within thirty (30) days of the  completion or termination of this contract,
     Contractor  will submit to Buyer a complete  inventory  of finished  goods,
     work in process,  piece goods and findings in Contractor's  possession that
     are owned by Buyer or are, upon Buyer's  request,  to be invoiced to Buyer.
     Any such items not  returned to Buyer as excess  materials,  based upon the
     allowed yards,  pounds or quantities  specified in this  contract,  will be
     charged at purchase price against Contractor by Buyer and deducted by Buyer
     from any amounts due to Contractor.

15.  Contractor will comply with Buyer  instructions  and procedures as attached
     or otherwise  made known to Contractor  to assure that adequate  records of
     production and material are maintained at all times. Contractor agrees that
     title  to  all  materials  supplied  or  paid  for  by  Buyer  for  use  in
     Contractor's  performance  of this  contract  shall  remain at all times in
     Buyer  and  that  the  materials  furnished  to  Contractor  by  Buyer  for
     Contractor's  performance  of this contract will not be  intermingled  with
     Contractor's  goods and will be used by Contractor solely in performance of
     this  contract.  Contractor  agrees to execute and  deliver to Buyer,  upon
     request,  any documents  that may be reasonably  necessary to give adequate
     notice to others of Buyer's  ownership  of  materials  used to  manufacture
     goods under this contract.

16.  This  contract  shall end no later than  December 31, 2000.  Buyer,  at its
     option,  will have the right to terminate  this  contract  upon thirty (30)
     days notice to  Contractor  or  otherwise  upon the  happening  of specific
     events as stated herein.

17.  Contractor agrees that it will not assign this contract, and any assignment
     without  Buyer's  advance  agreement in writing  shall render this contract
     immediately  voidable at Buyer's  option.  The term  "assignment'  shall be
     defined  to  include,  but not  necessarily  be  limited  to, any rights or
     delegation of duties under this contract by Contractor.  In addition, Buyer
     may  immediately  terminate  this contract upon the happening of any of the
     following events: The filing of a petition under the Bankruptcy Laws of the
     United  States,   whether   voluntarily  or  involuntary,   by  or  against
     Contractor;  the  initiation  by or against  Contractor  of any  insolvency
     action, no matter how denominated, in any state court or any composition of
     creditors;  the  acquisition of control of Contractor by other legal person
     or any change of ownership of Contractor.

18.  This  contract  will be  interpreted  under  the laws of the state of North
     Carolina  including  the Uniform  Commercial  Code and venue for any action
     arising out of  performance  or enforcement of this contract will be in the
     Guilford County Superior Court and the United


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<PAGE>



     States  Federal Court for the Middle  District of North  Carolina,  both of
     which are located in Greensboro, North Carolina.

19.  Contractor  acknowledges that during performance of this contract Buyer may
     disclose to Contractor  certain trade secrets,  proprietary  information or
     other confidential data, systems or methods of Buyer. Contractor agrees not
     to disclose to anyone or use for its own benefit  without  Buyer's  written
     authorization  any  trade  secrets  or  other   information   disclosed  to
     Contractor by Buyer and considered by Buyer to be secret,  confidential  or
     proprietary.

20.  If any term of this contract is found invalid, void or unenforceable,  then
     that term will be severed from the contract and all  remaining  terms shall
     continue to be in full force and effect.

21.  This  contract is intended  by the parties as a final  expression  of their
     agreement and as a complete and exclusive  statement of the terms  thereof.
     This  agreement can be amended only in writing signed by the parties hereto
     or their duly authorized agents.

22.  The documents below are hereto and hereby  incorporated by reference within
     this contract and supplied to Contractor by Buyer:

     Garment Specification Sheet               Contractor Reporting Requirements
     Appropriate Defect Classification List    Master Production Schedule
     Body Measurement Specifications           Packing/Shipping Instructions

IN CONSIDERATION  OF THESE MUTUAL  COVENANTS AND PROMISES,  Buyer and Contractor
executed  this  contract by their duty  authorized  representatives  on the date
stated herein.



                                        4

<PAGE>



               IN CONSIDERATION  OF THESE MUTUAL  COVENANTS AND PROMISES,  Buyer
          and  Contractor  executed  this  contract  by  their  duly  authorized
          representatives as of the date first above written.


                      VF JEANSWEAR, INC.


                      BY:    /S/ CANDACE S. CUMMINGS

                             NAME: CANDACE S. CUMMINGS

                             TITLE:     VICE PRESIDENT



                      CHIC BY H.I.S, INC.

                      BY:    --------------------------

                             NAME:

                             TITLE:





                                        5

<PAGE>


               IN CONSIDERATION  OF THESE MUTUAL  COVENANTS AND PROMISES,  Buyer
          and  Contractor  executed  this  contract  by  their  duly  authorized
          representatives as of the date first above written.


                      VF JEANSWEAR, INC.

                      BY:    -------------------------

                             NAME:

                             TITLE:



                      CHIC BY H.I.S, INC.

                      BY:       /S/
                             --------------------------

                             NAME:

                             TITLE:





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<PAGE>





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