<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED NOVEMBER 3, 1996
OR
[_] 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 1-11752
ST. JOHN KNITS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CALIFORNIA 95-2245070
(I.R.S. EMPLOYER IDENTIFICATION
(STATE OR OTHER JURISDICTION OF NUMBER)
INCORPORATION OR ORGANIZATION)
17422 DERIAN AVENUE
IRVINE, CALIFORNIA 92614
(ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 863-1171
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
COMMON STOCK NEW YORK STOCK EXCHANGE
</TABLE>
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. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of 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 Registrant's Common Stock held by
nonaffiliates as of January 28, 1997 was $699,458,039 based on 15,001,781
shares outstanding on such date and the closing sales price for the Common
Stock on such date of $46.625 as reported on the New York Stock Exchange.
As of January 28, 1997, the Registrant had 16,600,564 shares of Common Stock
outstanding.
PART III incorporates information by reference from the Registrant's
definitive Proxy Statement for its 1997 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 3, 1996.
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<PAGE>
PART I
ITEM 1. BUSINESS
St. John Knits, Inc. (the "Company") is a leading designer, manufacturer and
marketer of women's clothing and accessories, principally under the St. John
trade name. For over thirty years, the St. John name has been associated with
high quality and a specific look in knitwear characterized by vibrant colors
and classic, timeless styling. The St. John "look," combined with limited
production runs and selective distribution, has created an exclusive image,
engendering consumer loyalty. An expanding consumer base and repeat purchasers
have resulted in the Company's knitwear production being oversold to its
retail customers since 1986.
PRODUCTS
The Company's products are organized primarily into six separate product
lines: Knitwear, Accessories, Sport, Griffith & Gray, Fragrance and Coat
Collection.
KNITWEAR The Company organizes its St. John knitwear collection into four
groups. The breadth of each group enables the Company to compete in most
segments of women's designer clothing. The Company's knitwear products are
sold as a collection of lifestyle clothing suitable for women's business,
evening and casual needs. St. John knitwear is a year-round product, not
confined to a single season or climate, due to its all-purpose weight. The
Company designs knitwear collections to encourage consumers to coordinate
outfits, resulting in multiple product purchases within a collection. Each
group is sufficiently comprehensive to stand alone, which allows for
flexibility in marketing and presentation.
Collection:
The Collection line consists of elegant ready-to-wear styles for which
the Company is best known. This line of daytime knit fashions includes
sophisticated dresses and suits that focus on a tailored look and are aimed
at active women engaged in all kinds of lifestyles. Two-piece suit styles
within this line have historically been sold as a single unit; however, the
Company offers many of these items as separates.
Sportswear:
The Sportswear line is comprised of separates including jackets, pants,
skirts, coats, novelty sweaters and jeans. This product line is more casual
and modern, and represents a departure from the Company's emphasis on
classic styles. It is designed for and marketed to the younger woman, but
is not designed with "trendiness" as a goal.
Dressy:
The Dressy line consists of dresses, theater suits and dressy separates.
The basic look of the Dressy line is one of understated elegance enhanced
by innovative, often luxurious touches such as layers of transparent
paillettes and sequins, embroidered sleeves or glittery collars and cuffs.
Basics:
The Basics line is comprised of the Company's seasonless products, such
as classic jackets, skirts and pants that are an integral part of women's
wardrobes, all in solid black, white or navy. The designs are so basic that
they can be combined with any number of styles from any of the Company's
product lines worn for daytime or dressed up for evening. Basics items are
made available for sale by the Company throughout the year. Since Basics
items are seasonless, they do not have fixed selling periods and retailers'
inventories of Basics products tend to be maintained throughout the year
and reordered as necessary.
ACCESSORIES The Accessories line is comprised of fine fashion jewelry, silk
scarves, suede belts, shoes and handbags. All accessories are color
coordinated with the various fashion collections, yet are designed to work
equally well on their own. Four collections of upscale jewelry are produced
each year, from gold earrings and chunky chokers to bracelets, chain necklaces
and chain belts.
1
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SPORT St. John Sport consists of a line of activewear which includes
jackets, pants and tops. The line is primarily manufactured by outside
contractors located in Europe using woven fabrics purchased in Italy.
GRIFFITH & GRAY The Griffith & Gray line includes suits, coats, dresses,
separates and eveningwear. These garments are made primarily of high quality
European woven fabrics by outside contractors located in Italy.
FRAGRANCE The Fragrance line includes perfume, eau de parfum, perfumed body
mist, body cream, lotion, body powder and bath products. The signature
fragrance is marketed as an accessory to the St. John apparel line through
most of the Company's major customers and the Company's own retail stores.
COAT COLLECTION The St. John Coat Collection consists primarily of faux fur
coats in various styles and colors. St. John manufactures select styles in
their factories, with the remainder being manufactured to the Company's
specifications by outside contractors located in Europe.
The following table details the approximate range of suggested retail prices
by product line. The suggested retail prices are indicative of individual item
prices.
<TABLE>
<CAPTION>
RANGE OF SUGGESTED
PRODUCT LINE SELECTED PRODUCTS RETAIL PRICES
--------------- ---------------------------------------------- ------------------
<C> <S> <C>
Knitwear
Collection Dresses, 2-Piece Suits, 3-Piece Suits, Separates $350-$1,300
Sportswear Jackets, Pants, Skirts, Coats, Sweaters, Jeans $150-$ 800
Dressy Dresses, Theater Suits, Dressy Separates $650-$2,000
Basics Skirts, Jackets, Pants $160-$ 690
Accessories Jewelry, Scarves, Belts, Shoes, Handbags $ 65-$ 450
Sport Jackets, Pants, Tops $ 70-$ 450
Griffith & Gray Suits, Coats, Dresses, Separates, Eveningwear $140-$ 770
Fragrance Perfume, Bath Products $ 25-$ 250
Coat Collection Faux Fur Coats $750-$1,250
</TABLE>
SALES BY DIVISION
The following is a comparison of the net sales by division for the past two
fiscal years:
<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Knitwear............................................... $149,297 $124,722
Company Owned Retail Stores............................ 51,334 38,830
Accessories............................................ 10,105 9,262
Sport.................................................. 9,457 --
Griffith & Gray........................................ 3,585 6,066
Fragrance.............................................. 2,762 1,730
Coat Collection........................................ 1,982 1,095
Interdivisional Sales Elimination...................... (25,571) (19,910)
-------- --------
Total Net Sales........................................ $202,951 $161,795
======== ========
</TABLE>
DESIGN
Marie St. John Gray is the Company's Chief Designer and provides leadership
and direction for all aspects of the design process. In 1991, Kelly Gray
assumed the responsibilities of Creative Director, and she was appointed
President of the Company in April 1996. She currently shares with Marie Gray
the responsibility of providing leadership and direction for the design staff.
They are assisted in overseeing the design process by Diane Griffiths, Senior
Vice President-Design, who has been with the Company since 1972. Each product
line of the Company has its own design team which reports to Marie Gray.
2
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MARKETING
The Company's products are distributed primarily through a selected group of
specialty retailers and the Company's own retail boutiques. The Company
distributes its products to approximately 490 locations in the United States
and abroad. Three national specialty retailers, Saks Fifth Avenue, Neiman
Marcus and Nordstrom, each accounted for more than 10.0% of the Company's net
sales in fiscal 1996 (approximately 47.6% collectively), and have been
customers of the Company for approximately 25, 20 and 15 years, respectively.
These retailers generally purchase knitwear styles in each collection and
carry a representative display of every product line. Since the mid 1980s, the
Company has worked with these and certain other retailers to create in-store
boutiques, which are designated areas devoted exclusively to the Company's
products. Other significant customers of the Company include Jacobson's,
Macy's West, Lord & Taylor, Marshall Field's and Dayton Hudson.
During fiscal years 1996 and 1995, foreign sales accounted for approximately
6.6% and 5.4% of the Company's net sales, respectively. The Company
distributes its products directly in Canada, Europe and parts of Asia.
Independent sales representatives are used in certain countries. The Company
continues to use a distributor for its sales in Japan.
The Company believes that during the past several years retailers have
consolidated their women's apparel buying among a narrowing group of
established brand name vendors such as the Company. Further, the Company is
viewed by most of its major accounts as a core resource. This means that the
Company's collection is one of the top products in the store in terms of sales
volume and is the focus of management's attention and an important component
to their profit structure. A core resource is valued by its growth potential
and ability to make money for the store. As a core resource, the Company also
receives priority in display, advertising, promotion and high traffic
locations for its products.
The Company markets its Collection, Dressy and Sportswear lines twice a
year, during the fall and cruise/spring seasons. The Sport and Griffith & Gray
product lines are marketed three times a year, while the Coat Collection is
marketed only once a year. The Company markets its Basics, Accessories and
Fragrance lines throughout the year. The Company's product lines are sold in
its Irvine, Dallas, New York and Dusseldorf showrooms. Major accounts make
their purchases in the Irvine showroom so that members of the Company's senior
management team can work closely with these retailers to achieve the
appropriate mix of merchandise. Members of the senior management team are also
present in Dallas, New York and Dusseldorf to oversee sales during peak sales
periods. Showings for the Knitwear product line for the fall season generally
occur in January with delivery between May and October, and showings for the
cruise/spring season generally occur in August with delivery between November
and April. Orders for each of these six-month delivery periods normally are
received within five weeks of showings and the goods are then made to order,
thereby minimizing inventory risk.
Detailed marketing plans are prepared on a yearly basis and are coordinated
with senior management of major retail customers. Plans are based on
purchases, expected sales growth and profitability, and consist of a blend of
advertising, promotion, in-store presentation and training of sales personnel.
The strategy of the Company is to not only sell its products at wholesale, but
to follow the sale through to the ultimate consumer. The Company believes that
this approach ensures steady, consistent growth by building its consumer base.
The retail account sales force consists of an outside sales team, showroom
personnel and customer service representatives. The outside sales team is
comprised of 31 field representatives employed by the Company who live and
work in key retail cities. They are experienced individuals with strong retail
or wholesale backgrounds and they are directly accountable for the performance
of their assigned retail stores. The function of the outside sales team is to
establish and maintain in-store boutique presentations, to develop close
working relationships with store management, to develop key sales people into
St. John specialists, and to be skilled and knowledgeable trainers in fashion,
style and fit. The Company also has showroom personnel positioned at its
showrooms in Irvine, Dallas and New York who present the collection to retail
accounts. The Company's customer service representatives who are also located
at the showrooms maintain computerized shipping and order records and keep
daily or weekly information on each store's retail sales and styles sold.
3
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The Company also believes it is necessary to have top sales people employed
by its retail customers' stores as designated St. John specialists. The
Company has developed programs through which the stores and the Company
sponsor the training of sales people at the Company's headquarters and
establish incentive goals for each sales person. Information from the
Company's sales force and communication with these specialists give the
Company firsthand knowledge of consumer reaction to style, fit and fashion.
The specialist programs vary and are tailored to the individual retail store.
The Company is involved in the hiring and the supervision of the specialists.
The St. John specialist position is viewed as highly desirable for its
management attention and rewards.
In keeping with its exclusive upscale image, the Company advertises in both
national and international fashion magazines. Management believes that this
advertising approach enhances the Company's image. For approximately fifteen
years, the Company's advertising has featured Kelly Gray as its Signature
Model. The Company designs and produces seasonal exclusive St. John catalogs,
which are distributed at the discretion of individual specialty retailers.
Distribution is usually limited to target repeat purchasers or those who meet
the Company's consumer profile.
COMPANY OWNED STORES
In order to diversify its product distribution and enhance name recognition,
the Company began opening its own retail boutiques in 1989 and currently
operates seventeen such boutiques; the most recent boutique opening was in
Beverly Hills, California in March 1996. During fiscal 1996, the Company
completed the construction work on the expansion of its retail boutique
located in New York City. The additional space more than doubled the square
footage of the boutique to 13,700. The Company held a grand opening of the
newly remodeled boutique during November 1996. The Company also operates five
outlet stores for off-price inventory, which includes unsold items from its
boutiques, seconds and design samples. In fiscal years 1996 and 1995, Company
owned retail boutiques and outlet stores represented 25.3% and 24.0% of net
sales, respectively. The Company believes its retail boutiques have not
adversely affected sales of its products by specialty retailers.
MANUFACTURING
The Company has developed a vertically integrated manufacturing process
which it believes is critical to its success. This process assures greater
quality control, enhances manufacturing flexibility and reduces the lead time
of the manufacturing cycle. The Company twists, dyes and knits its yarn, as
well as constructs, presses and finishes its knit products, in its five
facilities located in southern California. The Company manufactures its
knitwear using the computer aided manufacturing capabilities of its electronic
knitting machines and a skilled labor force. The Company also manufactures its
own jewelry and hardware for its products. Since the Company manufactures
products primarily based on orders received from retailers, the Company
maintains limited inventories of finished goods. During fiscal 1996,
approximately 91% of the Company's products were manufactured at the Company's
own facilities, while the remaining 9% of the Company's products, consisting
principally of the Griffith & Gray, St. John Sport and the Coat Collection
product lines, as well as shoes, handbags, scarves, belts and fragrance, were
manufactured by outside contractors primarily in Europe.
The basic raw materials for the Company's knitted apparel products consist
of wool originating from Australia and viscose rayon from Germany and Japan.
The manufacturing process begins when the wool and rayon are twisted together
on the Company's precision twisting machines. The twisted yarn is transferred
to the Company's dye house for dyeing. Yarn is dyed, based on garment orders
received. The dyed yarn is knitted to create apparel products on the Company's
computerized electronic knitting machines. The knitted pieces, or blankets,
are assembled and finished in the Company's linking, seaming and hand
finishing facilities. The Company's jewelry and hardware manufacturing plant
produces the buttons and buckles for garments, as well as bracelets, earrings,
necklaces, chokers, pins and other accessories. Blouses, jeans, certain
scarves and other woven products are also manufactured in the Company's
factories.
4
<PAGE>
The Company's production staff coordinates all apparel manufacturing. The
vertical integration and constant monitoring of the manufacturing process
allows for timely reaction to styles or groups of styles that are in high
demand. This response time would be more difficult if the Company had to rely
on outside contractors.
The Company's vertically integrated jewelry and hardware manufacturing
facility was completed in December 1991. This facility allows for extensive
product development by the Company's creative design team, quality control
over all phases of jewelry manufacturing and quick response to production
requirements.
QUALITY CONTROL
The Company has achieved its quality reputation by vertically integrating
manufacturing processes and maintaining strict control over its operations.
The Company's expansion into dyeing, yarn twisting and jewelry and hardware
manufacturing was due primarily to the inability of outside suppliers to
provide products meeting the Company's standards on a consistent and timely
basis. The Company's comprehensive quality control program is designed to
ensure that all finished goods meet the Company's standards. During the
manufacturing processes, every garment is individually inspected.
As noted above, the Company does use outside contractors primarily for the
manufacturing of its shoes, handbags and woven products. The Company has
instituted procedures to maintain the quality of products manufactured by
outside contractors.
SUPPLIERS
In the production of its knitwear, the Company uses the highest quality
wool, primarily from Australia. Generally, a wool commitment is taken with the
Company's primary U.S. spinner for a set quantity of wool based on the
Company's forecasted wool requirements for approximately one year. Other
spinners are available, both domestically and internationally, with comparable
pricing for spun Australian wool yarn. The Company also has yarn suppliers in
Europe and Asia. The Company generally maintains an inventory of twisted yarn
sufficient for approximately six weeks of production to protect it from
potential interruptions in the flow of raw materials. Rayon is available in
raw or dyed form from various U.S., European and Japanese suppliers. The
Company purchases fabric from various suppliers and has little difficulty in
satisfying its fabric requirements from Europe and Asia. A company located in
Europe is the primary manufacturer of the faceted crystals which are used as
trim on selected styles within the Dressy line. Worldwide demand can put great
pressure on this manufacturer, and the Company could experience delays in
receiving materials from time to time.
TRADEMARKS
The Company owns and utilizes several trademarks, principal among which are
St. John,(R) Marie St. John(R), SJ(R) and Griffith Gray(R). The Company owns
federal registrations for its St. John(R) trademark and other important
trademarks in the United States and in a number of major jurisdictions
worldwide. The Company owns a number of pending applications for registration
of its trademarks in various jurisdictions. The Company does not own the
rights to sell its knitwear products under the St. John(R) trademark in Japan.
Sales of the Company's knitwear products in Japan are made through Best
International under the trademark Marie Gray for Best International(R) which
is owned by Best International. 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.
REGULATION
Federal, state and local regulations relating to the workplace and the
discharge of materials into the environment are continually changing;
therefore, it is difficult to gauge the total future impact of such
regulations on the Company. However, the Company does not expect existing
government regulations to have a material effect on the Company's competitive
position, operating results or planned capital expenditures.
5
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SUBSIDIARIES
St. John Knits International, Inc.
St. John Knits International, Inc. ("International") is a foreign sales
corporation for the Company. International was incorporated in the U.S. Virgin
Islands as a "small FSC" under Section 922 of the Internal Revenue Code of
1986, as amended. International participates in certain of the Company's
foreign operations.
St. John Trademarks, Inc.
St. John Trademarks, Inc. is a wholly-owned subsidiary of the Company. St.
John Trademarks, Inc. and the Company have entered into a partnership
organized under the laws of Luxembourg to hold certain of the Company's
proprietary rights.
St. John--Varian Development Company
Effective April 3, 1995, the Company formed a joint venture with an
unrelated third party to acquire a 175,000 square foot building located in
Irvine, California. The Company and the third party each hold a 50% interest
in the partnership. The partnership leases the building to the Company under a
lease agreement expiring in 2010.
St. John--Italy, Inc.
St. John--Italy, Inc., a California corporation, is a wholly-owned
subsidiary of the Company. St. John--Italy, Inc. was incorporated during
fiscal 1996 to operate as a branch in Italy. The Company has not yet begun the
operations of the branch.
St. John Knits AG
St. John Knits AG is a wholly-owned subsidiary of the Company which was
incorporated during fiscal 1996 under the laws of Switzerland. St. John Knits
AG operates a research and development facility and buying office located in
Switzerland.
COMPETITION
The apparel industry is highly competitive. The Company's competitors
include apparel manufacturers of all sizes, some of which have greater
financial resources than the Company. The Company competes primarily on the
basis of fashion, price and quality. The Company believes its competitive
advantages include its reputation for producing high quality, fashionable
products while maintaining a consistency of design and style. This high
quality and consistent design has resulted in the St. John name becoming
highly recognized and firmly established.
The Company believes that its primary competition is not just other knitwear
manufacturers, but successful design houses such as Armani, Anne Klein,
Chanel, Donna Karan and Escada. The Company considers the risk of strong new
competitors to be limited due to barriers to entry such as significant start-
up costs and the long-term nature of supplier and customer relations. It has
been the Company's experience that during the past few years major retailers
have been increasingly unwilling to source products 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 assurances that
significant new competitors will not emerge in the future.
6
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EMPLOYEES
At November 3, 1996, the Company had approximately 2,860 full-time
employees, including 7 in executive positions, approximately 165 in design and
sample production, 2,125 in production, 60 in quality control, 215 in retail
stores, 70 in sales and advertising, and the balance in clerical and office
positions. The Company is not party to any labor agreements, and none of its
employees is represented by a union. The Company believes a significant number
of its employees are highly skilled and that turnover among these employees
has been minimal. The Company considers its relationship with its employees to
be good and has not experienced any interruption of its operations due to
labor disputes.
BACKLOG
At November 3, 1996, the Company had unfilled customer orders for the
cruise/spring season of approximately $79 million compared with approximately
$75 million as of October 29, 1995. Orders for the cruise/spring season are
generally shipped during November through April. The Company's experience has
been that the cancellations, rejections or returns of orders do not materially
reduce the amount of sales realized from its backlog.
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 17422 Derian
Avenue, Irvine, California 92614.
COMPANY-OWNED PROPERTIES
Prior to fiscal 1996, the Company leased all of its principal properties.
During fiscal 1996, the Company completed the purchase of several properties
located in Southern California. The following is a list of these properties,
including their general location, use, approximate size and projected date for
completion:
<TABLE>
<CAPTION>
APPROXIMATE ESTIMATED
AREA IN COMPLETION
LOCATION USE SQUARE FEET DATE
- ------------------------ ------------------------------------ ----------- ----------
<S> <C> <C> <C>
Irvine, California...... Design Facility, Administrative 110,500 1/97
Offices, Showroom, Sewing,
Warehousing, Shipping
Van Nuys, California.... Assembling, Sewing 27,900 1/97
San Ysidro, California.. Assembling 27,300 5/97
Irvine, California...... Knitting 20,500 In use
</TABLE>
7
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LEASED PROPERTIES
The general location, use, approximate size, and lease expiration date of
the Company's leased properties are set forth below:
<TABLE>
<CAPTION>
APPROXIMATE LEASE
AREA IN EXPIRATION
LOCATION USE SQUARE FEET DATE
- ------------------------ ------------------------------------ ----------- ----------
<S> <C> <C> <C>
Irvine, Knitting, Assembling, Sewing, 175,000 7/10
California(/1/)........ Finishing, Shipping, Administrative
Offices
Irvine, California...... Corporate Headquarters, Showroom, 71,100 5/01
Twisting, Dyeing, Warehousing
Alhambra, California.... Assembling, Sewing 41,000 8/01
Irvine,
California(/2/)........ Administrative Offices, Design 36,600 1/97
Santa Ana, California... Jewelry and Hardware Manufacturing 23,000 5/99
San Fernando,
California(/2/)........ Assembling, Sewing 17,000 1/97
New York, New York...... Showroom 12,300 11/04
San Ysidro,
California(/2/)........ Assembling 11,500 9/97
New York, New
York(/3/).............. Retail Boutique 7,500 6/11
Beverly Hills,
California............. Retail Boutique 7,000 3/06
New York, New
York(/3/).............. Retail Boutique 6,200 6/01
Chicago, Illinois....... Retail Boutique 6,000 9/04
Munich, Germany......... Retail Boutique 4,400 4/02
</TABLE>
- --------
(1) The Company leases this property from a general partnership in which
the Company holds a 50% interest.
(2) These properties will be replaced by the recently purchased Company-
owned properties at the expiration date of their leases.
(3) The square footage of the retail boutique located on 5th Avenue in New
York City is covered by these two leases.
The Company believes that there are facilities available for lease in the
event that either the productive capacities of the Company's manufacturing
facilities need to be expanded or a current lease of a manufacturing facility
expires. The Company also leases space for thirteen additional retail
boutiques, two additional showrooms, five outlet stores and a storage facility
(aggregating approximately 50,500 square feet).
The Company leases certain of its facilities from affiliates of the Company.
See "Certain Relationships and Related Transactions." The Company believes
that its existing facilities are well maintained and in good operating
condition.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation which is individually or in the
aggregate material to the business of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
8
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Company's Common Stock is traded on the New York Stock Exchange under
the symbol "SJK." The high and low trading prices of the Company's Common
Stock during each quarter of fiscal years 1996 and 1995, and the dividends
paid per share were as follows:
<TABLE>
<CAPTION>
FISCAL 1996 FISCAL 1995
---------------------- ----------------------
QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND
- ------- ------ ------ -------- ------ ------ --------
<S> <C> <C> <C> <C> <C> <C>
Fourth............................ $51.75 $39.38 $0.025 $24.38 $21.69 $0.025
Third............................. $48.50 $29.50 $0.025 $25.00 $16.50 $0.025
Second............................ $34.38 $22.88 $0.025 $18.63 $15.75 $0.025
First............................. $27.13 $23.19 $0.025 $16.13 $14.25 $0.025
</TABLE>
All amounts have been adjusted for the 2-for-1 stock split which occurred
during the third quarter of fiscal 1996.
As of January 28, 1997, the closing sales price for the Company's Common
Stock, as reported on the New York Stock Exchange, was $46.625.
During fiscal years 1996 and 1995, the Company paid in the aggregate $.10
per share in cash dividends to its shareholders. In addition, the Company
declared another quarterly dividend of $.025 per share on December 18, 1996 to
be paid in cash on February 14, 1997 to the shareholders of record on January
14, 1997. The Company's ability to pay other dividends will depend upon
limitations under applicable law and other factors the Board of Directors
deems relevant, including results of operations, financial condition and
capital and surplus requirements.
As of January 28, 1997, the number of holders of record of the Company's
Common Stock was approximately 335, and there were approximately 16,000
beneficial owners of the Company's Common Stock.
9
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from the consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their report included
elsewhere herein. This information should be read in conjunction with the
Company's audited consolidated financial statements and notes thereto and Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
NOVEMBER 3, OCTOBER 29, OCTOBER 30, OCTOBER 31, NOVEMBER 1,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............... $202,951 $161,795 $127,953 $100,328 $80,161
Cost of sales........... 88,871 74,252 59,179 48,590 40,510
-------- -------- -------- -------- -------
Gross profit............ 114,080 87,543 68,774 51,738 39,651
Selling, general and
administrative
expenses............... 68,385 54,550 43,288 32,959 26,059
-------- -------- -------- -------- -------
Operating income........ 45,695 32,993 25,486 18,779 13,592
Other income............ 1,355 803 340 272 337
-------- -------- -------- -------- -------
Income before income
taxes.................. 47,050 33,796 25,826 19,051 13,929
Income taxes............ 19,929 14,243 10,880 7,992 5,591
-------- -------- -------- -------- -------
Net income.............. $ 27,121 $ 19,553 $ 14,946 $ 11,059 $ 8,338
======== ======== ======== ======== =======
Net income per share.... $ 1.59 $ 1.19 $ 0.91 $ 0.67 $ 0.51
======== ======== ======== ======== =======
Dividends per share(1).. $ 0.10 $ 0.10 $ 0.075 -- --
======== ======== ======== ======== =======
Weighted average shares
outstanding............ 17,016 16,433 16,396 16,392 16,392
======== ======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER 3, OCTOBER 29, OCTOBER 30, OCTOBER 31, NOVEMBER 1,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $ 49,628 $38,130 $31,442 $22,280 $19,400
Total assets............ 116,494 85,973 62,634 46,262 38,241
Total debt.............. -- -- -- -- --
Shareholders' equity.... 97,093 69,227 50,530 36,580 30,522
</TABLE>
- --------
(1) During fiscal 1993, the Company paid a special cash dividend of $5,000,000
to all shareholders of record on February 8, 1993 (i.e., the shareholders
of the Company prior to its initial public offering). Due to the one-time
nature of this special cash dividend, it is not reflected as dividends per
share in this table.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis should be read in conjunction with the
Company's consolidated financial statements and the notes related thereto.
RESULTS OF OPERATIONS
The following table is derived from the Company's Consolidated Statements of
Income and sets forth, for the periods indicated, the results of operations as
a percentage of net sales:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
FISCAL YEAR ENDED
-----------------------------------
NOVEMBER 3, OCTOBER 29, OCTOBER 30,
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Net sales................................. 100.0% 100.0% 100.0%
Cost of sales............................. 43.8 45.9 46.3
----- ----- -----
Gross profit.............................. 56.2 54.1 53.7
Selling, general and administrative
expenses................................. 33.7 33.7 33.8
----- ----- -----
Operating income.......................... 22.5 20.4 19.9
Other income.............................. 0.7 0.5 0.3
----- ----- -----
Income before income taxes................ 23.2 20.9 20.2
Income taxes.............................. 9.8 8.8 8.5
----- ----- -----
Net income................................ 13.4% 12.1% 11.7%
===== ===== =====
</TABLE>
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales for fiscal 1996 increased by $41,156,000, or 25.4% over fiscal
1995. This increase was principally attributable to (i) an increase in sales
to existing domestic retail customers of approximately $23,992,000, (ii) an
increase in sales by Company owned retail stores of approximately $12,503,000,
due in part to the addition of three retail boutiques and two retail outlet
stores since the beginning of fiscal 1995 and (iii) an increase in sales to
international retail customers of $4,661,000. Net sales increased primarily as
a result of increased unit sales of various product lines.
Gross profit for fiscal 1996 increased by $26,537,000, or 30.3% as compared
with fiscal 1995, and increased as a percentage of net sales to 56.2% from
54.1%. This increase in the gross profit margin was due to (i) an increase in
the number of garments being produced and sold without a corresponding
increase in the production costs, due in part to the fixed nature of some
costs, and (ii) an increase in the gross profit margin recorded for the
Company owned retail stores ("Retail Division").
Selling, general and administrative expenses for fiscal 1996 increased by
$13,835,000, or 25.4% over fiscal 1995, however, stayed constant as a
percentage of net sales at 33.7%. The Company experienced a decrease in the
selling, general and administrative expenses as a percentage of net sales due
to an increase in the net sales during fiscal 1996 without a corresponding
increase in selling, general and administrative expenses, which was offset by
(i) an increase in advertising expense due to the expansion of the company's
advertising program, (ii) an increase in expenses related to an expansion of
the Company's sales to foreign customers which expenses include, among other
things, import duty, sales commissions and additional freight charges; and
(iii) the higher selling, general and administrative expenses as a percentage
of net sales reported by the Retail Division.
Operating income for fiscal 1996 increased by $12,702,000, or 38.5% over
fiscal 1995. Operating income as percentage of net sales increased to 22.5%
from 20.4% during the same period. This increase in the operating income as a
percentage of net sales was due to the increase in the gross profit margin.
11
<PAGE>
Other income for fiscal 1996 increased by $552,000 as compared with fiscal
1995. This increase was primarily due to the receipt of a workers'
compensation insurance dividend of $316,000 which related to the policy period
ended December 31, 1994. In addition, the Company reported higher interest
income due to the increase in its invested cash balances.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 increased by $33,842,000, or 26.5%, over fiscal
1994. This increase was principally attributable to (i) an increase in sales
to existing domestic retail customers of approximately $19,210,000, primarily
attributable to increased sales to its three largest customers, (ii) an
increase in sales by Company owned retail stores of approximately $12,298,000,
due in large part to the addition of three retail boutiques and two retail
outlet stores since the beginning of fiscal 1994 and (iii) an increase in
sales to international retail customers of $2,334,000. Net sales increased
primarily as a result of increased unit sales of various product lines, while
prices remained relatively unchanged.
Gross profit for fiscal 1995 increased by $18,770,000, or 27.3%, as compared
with fiscal 1994, and increased as a percentage of net sales to 54.1% from
53.7%. The increase in the gross profit margin was primarily due to an
increase in sales at the Company owned retail boutiques.
Selling, general and administrative expenses for fiscal 1995 increased by
$11,262,000, or 26.0%, over fiscal 1994, and decreased as a percentage of net
sales to 33.7% from 33.8%. The decrease in the selling, general and
administrative expenses as a percentage of net sales was due to an increase in
net sales during fiscal 1995 without a corresponding increase in selling,
general and administrative expenses. This decrease was partially offset by
costs incurred in connection with the continued promotion and distribution of
the fragrance line, the consolidation of several of the Company's facilities
and the design and marketing of a new line of faux fur coats.
Operating income for fiscal 1995 increased by $7,508,000, or 29.5%, over
fiscal 1994. Operating income as a percentage of net sales rose to 20.4%
during fiscal 1995 from 19.9% for fiscal 1994. This increase in the operating
income as a percentage of net sales was primarily due to the increase in the
gross profit margin.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements are to fund the Company's working
capital needs, primarily inventory and accounts receivable, and for the
purchase of property and equipment. During fiscal 1996, cash provided by
operating activities was $16,841,000. Cash provided by operating activities
was primarily generated from net income, depreciation and amortization and an
increase in accrued expenses, while cash used in operating activities was
primarily used to fund the increases in accounts receivable and inventories.
Cash used in investing activities was $20,114,000 for fiscal 1996. The
principal use of cash in investing activities was for (i) the purchase of 5.6
acres of land in Irvine, containing two buildings, and the construction of
improvements related to the new production and administrative facilities to be
located on such property; (ii) the purchase of 32 computerized knitting
machines; (iii) the purchase of land, together with a 27,900 sq. ft. building,
and the construction of improvements to such property to be used as a new
production facility in Van Nuys; (iv) the construction of leasehold
improvements to increase the size of the retail boutique located in New York
City; and (v) the construction of leasehold improvements for the Beverly Hills
boutique.
During fiscal 1996, the Company completed the purchase of various assets
from a Swiss corporation. The purchase price of the assets totaled $2.6
million, of which $1,850,000 was paid at the close of the purchase. The
remaining $750,000 will be paid in two installments during fiscal 1997. The
assets purchased include intangibles, inventory and machinery which are
included on the Company's consolidated balance sheet at November 3, 1996.
The Company anticipates purchasing property and equipment of approximately
$17,000,000 during fiscal 1997. The estimated $17 million will be used
principally for the construction of improvements for a new design center,
upgrades to the Company's computer systems, construction of a building and
related
12
<PAGE>
improvements for a new 27,300 sq. ft. manufacturing facility and the
construction of leasehold improvements for a new boutique location in Dallas.
As of November 3, 1996, the Company had approximately $49,628,000 in working
capital and $10,409,000 in cash and short-term investments. The Company's
principal source of liquidity is internally generated funds. The Company also
has a $25,000,000 bank line of credit ("Line of Credit") which matures on
March 1, 1999. The Line of Credit is unsecured and borrowings thereunder bear
interest at the Company's choice of the bank's reference rate (8.25 percent at
November 3, 1996) or an offshore rate plus 1.5 percent. As of November 3,
1996, no amounts were outstanding under the Line of Credit. The Company
invests its excess funds primarily in a money market fund, investment grade
commercial paper, adjustable rate tax deferred municipal obligations
collateralized by letters of credit issued by financial institutions and tax
exempt municipal bonds.
The Company believes it will be able to finance its working capital and
capital expenditure requirements on both a short-term and long-term basis with
internally generated funds.
The Company paid approximately $1,650,000 in dividends to its shareholders
during fiscal 1996. The Company also declared a quarterly dividend of $0.025
per outstanding share on December 18, 1996 to be paid in cash on February 14,
1997 to shareholders of record on January 14, 1997. Future dividends by the
Company remain subject to limitations under applicable law and other factors
the Board of Directors deems relevant, including results of operations,
financial condition and capital requirements.
NEW ACCOUNTING STANDARD
The Company will be required to adopt a new accounting standard in fiscal
1997, Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation." The primary impact of this standard
will relate to certain disclosures about the Company's stock option plan.
ITEM 8. FINANCIAL STATEMENT AND SUPPLEMENTARY DATA
See "Index to Consolidated Financial Statements" for a listing of the
consolidated financial statements and supplementary data filed with this
report.
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
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1997 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 3, 1996, under the
captions "Election of Directors" and "Executive Officers," and is incorporated
herein by this reference as if set forth in full herein.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1997 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 3, 1996 under the
captions "Executive Compensation and Other Information," "Election of
Directors," "Compensation Report," and "Company Stock Price Performance," and
is incorporated herein by this reference as if set forth in full herein.
13
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1997 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 3, 1996 under the
caption "Security Ownership of Certain Beneficial Owners and Management," and
is incorporated herein by this reference as if set forth in full herein.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be included in the Company's
Proxy Statement with respect to its 1997 Annual Meeting of Shareholders to be
filed with the Commission within 120 days of November 3, 1996 under the
caption "Certain Transactions," and is incorporated herein by this reference
as if set forth in full herein.
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. Consolidated Financial Statements--See "Index to Consolidated
Financial Statements"
2. Consolidated Financial Statement Schedule--See "Index to Consolidated
Financial Statements"
3. Exhibits--See "Exhibit Index"
(b) Reports on Form 8-K. No reports on Form 8-K were filed during the last
quarter of the fiscal year ended November 3, 1996.
14
<PAGE>
ST. JOHN KNITS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS.................................. 16
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets at November 3, 1996 and October 29, 1995.... 17
Consolidated Statements of Income for the years ended November 3, 1996,
October 29, 1995 and October 30, 1994.................................. 18
Consolidated Statements of Shareholders' Equity for the years ended
November 3, 1996, October 29, 1995 and October 30, 1994................ 19
Consolidated Statements of Cash Flows for the years ended November 3,
1996, October 29, 1995 and October 30, 1994............................ 20
Notes to Consolidated Financial Statements.............................. 21
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Schedule II--Valuation and Qualifying Account........................... 29
</TABLE>
15
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To St. John Knits, Inc.:
We have audited the accompanying consolidated balance sheets of ST. JOHN
KNITS, INC. (a California corporation) and subsidiaries as of November 3, 1996
and October 29, 1995, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended November 3, 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 consolidated financial position
of St. John Knits, Inc. and subsidiaries as of November 3, 1996 and October
29, 1995, and the results of their operations and their cash flows for each of
the three years in the period ended November 3, 1996 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for purposes of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
Arthur Andersen LLP
Orange County, California
December 18, 1996
16
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 3, OCTOBER 29,
ASSETS 1996 1995
------ ------------ -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents........................... $ 6,186,057 $ 8,711,613
Investments......................................... 4,222,516 6,399,692
Accounts receivable, net............................ 28,093,606 21,124,306
Inventories......................................... 23,619,054 14,909,042
Deferred income tax benefit......................... 5,493,961 3,454,291
Other............................................... 1,269,382 247,236
------------ -----------
Total current assets.............................. 68,884,576 54,846,180
------------ -----------
Property and equipment:
Machinery and equipment............................. 29,930,228 23,614,437
Leasehold improvements.............................. 22,636,537 19,132,496
Furniture and fixtures.............................. 4,427,249 3,756,202
Land................................................ 3,461,103 --
Construction in progress............................ 6,797,018 350,950
------------ -----------
67,252,135 46,854,085
Less--Accumulated depreciation and amortization..... 23,351,904 17,245,028
------------ -----------
43,900,231 29,609,057
------------ -----------
Other assets.......................................... 3,709,316 1,517,483
------------ -----------
$116,494,123 $85,972,720
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Accounts payable.................................... $ 5,404,401 $ 4,480,794
Accrued expenses.................................... 11,508,469 9,162,096
Income taxes payable................................ 2,344,000 3,073,125
------------ -----------
Total current liabilities......................... 19,256,870 16,716,015
------------ -----------
Deferred income tax liability....................... 143,941 29,465
------------ -----------
Commitments (Note 7)
Shareholders' equity:
Preferred Stock, no par value: Authorized--2,000,000
shares, issued and outstanding--none............... -- --
Common Stock, no par value: Authorized--40,000,000
shares, issued and outstanding--16,599,064 and
16,468,734 shares, respectively.................... 502,799 502,799
Additional paid-in capital.......................... 18,085,151 15,687,393
Retained earnings................................... 78,505,362 53,037,048
------------ -----------
97,093,312 69,227,240
------------ -----------
$116,494,123 $85,972,720
============ ===========
</TABLE>
See accompanying notes.
17
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------
NOVEMBER 3, OCTOBER 29, OCTOBER 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............................. $202,951,000 $161,794,890 $127,952,583
Cost of sales.......................... 88,870,838 74,252,002 59,179,211
------------ ------------ ------------
Gross profit........................... 114,080,162 87,542,888 68,773,372
Selling, general and administrative
expenses.............................. 68,385,089 54,550,191 43,288,426
------------ ------------ ------------
Operating income....................... 45,695,073 32,992,697 25,484,946
Other income........................... 1,355,234 803,455 340,462
------------ ------------ ------------
Income before income taxes............. 47,050,307 33,796,152 25,825,408
Income taxes........................... 19,928,645 14,242,838 10,879,917
------------ ------------ ------------
Net income............................. $ 27,121,662 $ 19,553,314 $ 14,945,491
============ ============ ============
Net income per share................... $ 1.59 $ 1.19 $ 0.91
============ ============ ============
Dividends per share.................... $ 0.10 $ 0.10 $ 0.075
============ ============ ============
Weighted average common shares and
equivalents outstanding............... 17,015,991 16,432,884 16,395,764
============ ============ ============
</TABLE>
See accompanying notes.
18
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------- -------------------
NUMBER NUMBER ADDITIONAL
OF OF PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS TOTAL
------- ------- ---------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, October 31,
1993................... -- -- 16,392,204 $502,799 $14,665,278 $21,412,040 $36,580,117
Dividends declared
($.075 per share).... -- -- -- -- -- (1,229,981) (1,229,981)
Shares issued upon
exercise of options
including tax
benefit.............. -- -- 21,332 -- 234,062 -- 234,062
Net income............ -- -- -- -- -- 14,945,491 14,945,491
------- ------- ---------- -------- ----------- ----------- -----------
Balance, October 30,
1994................... -- -- 16,413,536 502,799 14,899,340 35,127,550 50,529,689
Dividends declared
($.10 per share)..... -- -- -- -- -- (1,643,816) (1,643,816)
Shares issued upon
exercise of options
including tax
benefit.............. -- -- 55,198 -- 788,053 -- 788,053
Net income............ -- -- -- -- -- 19,553,314 19,553,314
------- ------- ---------- -------- ----------- ----------- -----------
Balance, October 29,
1995................... -- -- 16,468,734 502,799 15,687,393 53,037,048 69,227,240
Dividends declared
($.10 per share)..... -- -- -- -- -- (1,653,348) (1,653,348)
Shares issued upon
exercise of options
including tax
benefit.............. -- -- 130,330 -- 2,397,758 -- 2,397,758
Net income............ -- -- -- -- -- 27,121,662 27,121,662
------- ------- ---------- -------- ----------- ----------- -----------
Balance, November 3,
1996................... -- -- 16,599,064 $502,799 $18,085,151 $78,505,362 $97,093,312
======= ======= ========== ======== =========== =========== ===========
</TABLE>
See accompanying notes.
19
<PAGE>
ST. JOHN KNITS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------
NOVEMBER 3, OCTOBER 29, OCTOBER 30,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ 27,121,662 $ 19,553,314 $ 14,945,491
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization.... 7,042,376 5,312,723 3,673,113
Net increase in deferred income
taxes........................... (1,925,194) (2,726,482) (105,227)
Loss on disposal of property and
equipment....................... 42,792 237,401 76,643
Partnership losses............... 224,368 145,714 119,176
Increase in accounts receivable.. (6,969,300) (4,760,170) (6,602,899)
Increase in inventories.......... (8,710,012) (4,176,690) (2,402,307)
(Increase) decrease in other
current assets.................. (1,022,146) 46,471 369,895
Increase in other assets......... (1,501,100) (41,860) (188,998)
Increase in accounts payable..... 923,607 357,644 2,195,841
Increase in accrued expenses..... 2,343,116 1,325,607 1,155,729
Increase (decrease) in income
taxes payable................... (729,125) 2,740,807 (599,261)
------------ ------------ ------------
Net cash provided by operating
activities.................... 16,841,044 18,014,479 12,637,196
------------ ------------ ------------
Cash flows from investing activities:
Proceeds from sale of property and
equipment......................... 60,294 60,351 170,375
Purchase of property and
equipment......................... (21,400,369) (17,571,067) (7,795,581)
Net liquidation (purchase) of
short-term investments............ 2,177,176 (244,551) (6,155,141)
Net capital (contributions to)
distributions from partnership.... (951,369) 41,000 (511,644)
------------ ------------ ------------
Net cash used in investing
activities.................... (20,114,268) (17,714,267) (14,291,991)
------------ ------------ ------------
Cash flows from financing activities:
Dividends paid..................... (1,650,090) (1,232,097) (1,229,981)
Issuance of common stock........... 2,397,758 788,053 234,062
Write-off of minority interest..... -- -- (2,000)
------------ ------------ ------------
Net cash provided by (used in)
financing activities.......... 747,668 (444,044) (997,919)
------------ ------------ ------------
NET DECREASE IN CASH AND CASH
EQUIVALENTS......................... (2,525,556) (143,832) (2,652,714)
BEGINNING BALANCE, CASH AND CASH
EQUIVALENTS......................... 8,711,613 8,855,445 11,508,159
------------ ------------ ------------
ENDING BALANCE, CASH AND CASH
EQUIVALENTS......................... $ 6,186,057 $ 8,711,613 $ 8,855,445
============ ============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash received during the year for
interest income................... $ 717,099 $ 559,548 $ 312,754
============ ============ ============
Cash paid during the year for:
Interest expense................. $ -- $ 1,438 $ 5,256
============ ============ ============
Income taxes..................... $ 20,565,267 $ 13,991,651 $ 11,532,715
============ ============ ============
</TABLE>
See accompanying notes.
20
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
1. COMPANY BACKGROUND AND BASIS OF PRESENTATION
The consolidated financial statements include the accounts of St. John
Knits, Inc. (St. John) and its subsidiaries. St. John and its subsidiaries are
collectively referred to herein as "the Company." All interdivisional and
intercompany transactions and accounts have been eliminated. The Company is a
leading designer, manufacturer and marketer of women's clothing and
accessories. The Company's products are distributed primarily through
specialty retailers and the Company's own retail boutiques located in both the
United States and Europe. The domestic market is the primary source of its
sales.
2. SUMMARY OF ACCOUNTING POLICIES
a. Definition of Fiscal Year
The Company utilizes a 52-53 week fiscal year whereby the fiscal year ends
on the Sunday nearest to October 31. Accordingly, fiscal years 1996, 1995 and
1994 ended on November 3, October 29 and October 30, respectively. Fiscal year
1996 was comprised of 53 weeks, and fiscal years 1995 and 1994 were comprised
of 52 weeks.
b. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may differ from those
estimates.
c. Revenue Recognition
Revenue on sales to specialty retailers is recognized when goods are
shipped. Allowances for estimated discounts are provided when sales are
recorded. Retail sales are recognized at the point of sale. Accounts
receivable are shown net of an allowance for uncollectible accounts of
$750,000 in both fiscal years 1996 and 1995.
d. Inventories
Inventories are valued at the lower of cost or market. Approximately 61 and
58 percent, respectively, of inventory balances at November 3, 1996 and
October 29, 1995 are accounted for under the last-in, first-out (LIFO) method.
Such inventory consists of yarn, labor and overhead related to knitted
products. If the first-in, first-out (FIFO) method had been used, the
valuation of inventories would have been $23,981,701 at November 3, 1996 and
$15,098,723 at October 29, 1995. Net income would have increased by
approximately $102,000 and $347,000 in fiscal years 1996 and 1994,
respectively, and would have decreased by approximately $385,000 in fiscal
1995.
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Raw materials.................................... $ 7,510,657 $ 4,081,563
Work in process and finished products............ 16,471,044 11,017,160
----------- -----------
Inventories at FIFO.............................. 23,981,701 15,098,723
LIFO reserve..................................... (362,647) (189,681)
----------- -----------
$23,619,054 $14,909,042
=========== ===========
</TABLE>
21
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
e. Property and Equipment
Property and equipment are stated at cost. The Company provides for
depreciation using the straight-line method to provide for the retirement of
property and equipment at the end of their estimated useful lives, which range
from three to fourteen years.
f. Cash and Cash Equivalents
For purposes of the statements of cash flows, cash and cash equivalents
include all liquid debt instruments purchased with a maturity of three months
or less.
g. Foreign Exchange Transactions and Contracts
The Company's primary functional currency is the U.S. dollar. The Company
enters into foreign exchange contracts as a hedge against exchange rate risk
on the collection of certain accounts receivable denominated in a foreign
currency. Market value gains and losses are recognized as the contracts
mature, and exchange adjustments resulting from foreign currency transactions
are offset by exchange gains or losses recognized from such contracts. All
amounts are translated into U.S. dollars at current exchange rates when
recorded.
h. Income Taxes
The Company utilizes the liability method of accounting for income taxes
required by Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes."
i. Net Income Per Common Share
Net income per common share is computed based on the weighted average number
of common and common equivalent shares outstanding during the period. The
weighted average number of shares increased during fiscal 1996 to reflect the
outstanding stock options.
j. Post-employment and Post-retirement Benefits
The Company does not provide post-employment or post-retirement benefits to
employees. Accordingly, SFAS No. 112, "Employers' Accounting for Post-
employment Benefits" and SFAS No. 106, "Employers' Accounting for Post-
retirement Benefits" have no impact on the Company's financial statements.
k. Two-for-one Stock Split
On March 12, 1996, the Board of Directors declared a two-for-one common
stock split which was distributed on May 6, 1996 to shareholders of record at
the close of business on April 8, 1996. All share and per share data included
in the financial statements and accompanying notes have been adjusted to
reflect the stock split.
l. Long-lived Assets
Effective October 30, 1995, the Company adopted SFAS No. 121, "Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to be
Disposed of." There was no impact on the Company's financial statements.
22
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
3. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate:
a. Cash and Cash Equivalents
The carrying amount is a reasonable estimate of fair value.
b. Investments
The investments primarily consist of municipal bonds with maturities of less
than one year. The investments are presented on the accompanying consolidated
balance sheets at amortized cost.
c. Foreign Exchange Contracts
At November 3, 1996, the Company had contracts maturing through April 30,
1997 to sell 2.4 million deutsche marks at rates ranging from 1.47 to 1.48
deutsche marks to the U.S. dollar. At October 29, 1995, the Company had
contracts maturing through May 31, 1996 to sell 2.9 million deutsche marks at
rates ranging from 1.36 to 1.47 deutsche marks to the U.S. dollar.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
AT NOVEMBER 3, 1996 AT OCTOBER 29, 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Cash and equivalents............. $6,186,057 $6,186,057 $8,711,613 $8,711,613
Investments...................... 4,222,516 4,229,097 6,399,692 6,259,363
Foreign exchange contracts....... -- (44,927) -- (17,932)
</TABLE>
Effective for the year ended October 30, 1994, the Company adopted SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities." SFAS
No. 115 requires that all debt and equity securities be classified as Trading
Securities, Held to Maturity or Available for Sale. The Company holds all
securities to maturity, as the Company has both the positive intent and
ability to hold to maturity. In accordance with SFAS No. 115, the Company
carries the investments at amortized cost on the accompanying balance sheets.
In addition, the Company has adopted SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments." It
is the Company's policy to reduce substantially the effects of fluctuations in
foreign currency exchange rates associated with its foreign investments by
managing its currency exposure which includes foreign currency hedging
activities. The Company enters into forward contracts to hedge the effect of
foreign currency fluctuations on the financial statements. The Company enters
into contracts to sell foreign currencies in the future only to protect the
U.S. dollar value of certain investments and future foreign currency
transactions. The Company does not engage in speculation. The gains and losses
on these contracts are included in income when the operating revenue and
expenses are recognized.
23
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
4. ACCRUED EXPENSES
Accrued expenses are comprised of the following:
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
Wages and benefits................................. $ 2,978,650 $2,615,952
Workers' compensation.............................. 455,539 562,482
Insurance.......................................... 716,028 790,353
Profit-sharing plan contribution................... 500,000 500,000
Promotional and advertising allowance.............. 1,952,423 1,878,578
Other.............................................. 4,905,829 2,814,731
----------- ----------
$11,508,469 $9,162,096
=========== ==========
</TABLE>
5. INCOME TAXES
The provision for income taxes for fiscal years 1996, 1995 and 1994, consists
of the following:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal........................... $16,434,369 $13,250,535 $ 8,537,739
State............................. 4,277,275 3,718,785 2,447,405
----------- ----------- -----------
20,711,644 16,969,320 10,985,144
Deferred benefit.................... (782,999) (2,726,482) (105,227)
----------- ----------- -----------
$19,928,645 $14,242,838 $10,879,917
=========== =========== ===========
</TABLE>
The components of the deferred income tax benefit for fiscal years 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Allowance for uncollectible accounts............... $ -- $ 82,000
Inventory adjustments to market.................... 1,286,168 1,025,603
Accrued expenses................................... (374,841) 1,424,736
Depreciation....................................... (128,328) 148,204
Other.............................................. -- 45,939
---------- ----------
$ 782,999 $2,726,482
========== ==========
</TABLE>
24
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
The components of the Company's deferred income tax benefit (liability) as
of November 3, 1996 and October 29, 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Deferred tax assets:
Tax basis adjustments to inventory................ $1,542,210 $1,122,128
Allowance for uncollectible accounts.............. 307,500 307,500
Inventory adjustments to market................... 2,753,206 1,392,645
Accrued expenses.................................. 891,045 632,018
---------- ----------
$5,493,961 $3,454,291
========== ==========
Deferred tax liabilities:
Depreciation...................................... $ (182,780) $ (47,243)
Other............................................. 38,839 17,778
---------- ----------
$ (143,941) $ (29,465)
========== ==========
</TABLE>
The reported provision for income taxes differs from the amount computed by
applying the statutory federal income tax rate to the income before provision
for income taxes as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income tax provision computed at
statutory rate..................... $16,467,607 $11,828,653 $ 9,038,892
State taxes, net of federal
benefit............................ 2,844,192 2,262,653 1,561,146
Other............................... 616,846 151,532 279,879
----------- ----------- -----------
Tax provision....................... $19,928,645 $14,242,838 $10,879,917
=========== =========== ===========
</TABLE>
6. BENEFIT PLANS
The Company is self-insured for a majority of its medical benefits programs.
Amounts charged to expense for health benefits were $3,137,000, $3,114,000 and
$2,665,000 for fiscal years 1996, 1995 and 1994, respectively, and were based
on actual and estimated claims incurred. The current liability for health
benefits is included in current liabilities on the accompanying balance
sheets. The Company maintains excess insurance coverage on an individual and
an aggregate basis.
The Company maintains a qualified profit-sharing plan for the benefit of all
eligible employees. This plan contemplates the sharing of profits annually at
the discretion of the board of directors and is funded by cash contributions.
The contributions to this plan were $500,000, in each of the fiscal years
1996, 1995 and 1994.
25
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
At November 3, 1996, the Company had reserved 1,600,000 shares for issuance
to directors, officers and employees under the 1993 St. John Knits, Inc. Stock
Option Plan. Options granted under this plan may be either incentive or
nonstatutory stock options. The following is a summary of stock option
activity for fiscal years 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------- ---------------------- ----------------------
SHARES RANGE SHARES RANGE SHARES RANGE
-------- ------------- ------- ------------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 784,470 $ 8.50-$22.50 812,668 $8.50-$15.063 800,000 $8.50
Granted................. 28,000 $23.00-$23.25 39,000 $ 8.50-$22.50 34,000 $8.50-$15.063
Exercised............... (130,330) $8.50 (55,198) $8.50 (21,332) $8.50
Cancelled............... (668) $8.50 (12,000) $ 8.50-$22.50 --
-------- ------- -------
Outstanding, end of
year................... 681,472 $ 8.50-$23.25 784,470 $ 8.50-$22.50 812,668 $8.50-$15.063
======== ======= =======
</TABLE>
Options become exercisable over periods of up to ten years. As of November
3, 1996, 625,458 of the above outstanding options were exercisable, and the
plan had 711,668 options available for future grant.
7. COMMITMENTS
The Company has entered into various leases for manufacturing, showroom,
warehouse, retail and office locations, including leases with related parties
(Note 9). The leases expire at various dates through the year 2011 and certain
leases contain renewal options. The Company also subleased a portion of the
leased premises to an unrelated company. Rental expense under these leases was
approximately $8,094,000, $6,554,000 and $5,304,000 in fiscal years 1996, 1995
and 1994, respectively (net of approximately $34,000, $39,000, and $23,000,
respectively, collected under subleases).
The following is a schedule of future minimum rental payments required under
noncancellable operating leases as of November 3, 1996:
<TABLE>
<S> <C>
1997........................................................... $ 8,285,507
1998........................................................... 7,816,456
1999........................................................... 7,827,937
2000........................................................... 7,794,914
2001........................................................... 6,629,180
Thereafter..................................................... 32,873,705
-----------
$71,227,699
===========
</TABLE>
The Company has various employment contracts with certain key employees,
which expire at various times through June 1, 1998. These agreements provide
for total annual compensation aggregating $3,735,000 and the payment of
severance benefits upon the termination of employment.
As of November 3, 1996 and October 29, 1995, the Company's commitments to
purchase wool yarn were approximately $11,047,000 and $6,967,000,
respectively. In addition, the Company currently has a commitment to purchase
six computerized knitting machines at a total net cost of approximately
$911,000.
26
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
8. LINE OF CREDIT
The Company has a line of credit agreement with a bank. The agreement
provides for a $25,000,000 line of credit that matures March 1, 1999.
Borrowings under the line bear interest at the bank's reference rate (8.25
percent at November 3, 1996) or an offshore rate plus 1.5 percent. The
agreement contains covenants, which, among other matters, restrict capital
expenditures, dividends, investments, loans and advances and require the
maintenance of certain financial ratios. No amounts were due under this line
of credit at either November 3, 1996 or October 29, 1995. Letters of credit
outstanding under the line of credit totaled $506,000 and $203,000 at November
3, 1996 and October 29, 1995, respectively.
9. RELATED-PARTY TRANSACTIONS
The Company leases its corporate headquarters/manufacturing facility and one
other manufacturing facility from partnerships in which a shareholder of the
Company is a significant partner. The annual payments on these leases were
approximately $966,000, $902,000 and $869,000 in fiscal years 1996, 1995 and
1994, respectively. The leases expire at various dates during fiscal year 2001
and are included in the future minimum rental payments disclosure (Note 7).
The Company periodically rents personal property provided by a company that
is owned by a shareholder. Rental payments for the use of such equipment were
approximately $37,000, $3,000 and $62,000 in fiscal years 1996, 1995 and 1994,
respectively.
At November 3, 1996 and October 29, 1995, the Company held a 50 percent
ownership interest in a partnership which leases transportation equipment to
the Company. The holder of the other 50 percent ownership interest is a
corporation which is wholly-owned by one of the Company's shareholders. During
fiscal 1996, the Company made net capital contributions to the partnership of
approximately $951,000 and received net capital distributions of approximately
$41,000 during fiscal 1995. At November 3, 1996 and October 29, 1995, the
Company's investment in this partnership was approximately $2,246,000 and
1,250,000, respectively, and is included on the accompanying balance sheets
within the caption "Other Assets." During fiscal years 1996, 1995 and 1994,
the Company made lease payments to the partnership of $572,000, $240,000 and
$240,000, respectively. During the same years, the Company reported net losses
from the activities of the partnership of $224,000, $146,000 and $119,000,
respectively.
10. CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
A substantial portion of the Company's sales are made to three major
customers who each account for 10.0 percent or more of the Company's total net
sales. Sales to these three customers combined accounted for 47.6, 52.0 and
54.6 percent of the Company's total net sales during fiscal years 1996, 1995
and 1994, respectively. The loss of any one of these customers could have an
adverse affect on the Company's business.
The Company sells primarily to specialty apparel retailers; thus, the risk
of collection losses is concentrated in this industry. Management believes
that the Company's credit and collection policies are adequate to prevent
significant collection losses and that the allowance for uncollectible
accounts is adequate at November 3, 1996 and October 29, 1995.
27
<PAGE>
ST. JOHN KNITS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOVEMBER 3, 1996, OCTOBER 29, 1995 AND OCTOBER 30, 1994
11. RESULTS BY QUARTER (UNAUDITED)
The unaudited results by quarter for the fiscal years ended November 3, 1996
and October 29, 1995 are shown below:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
November 3, 1996
Net sales......................... $ 45,259 $ 50,028 $ 46,525 $ 61,139
Gross profit...................... 24,577 27,640 26,485 35,378
Net income........................ 5,687 6,784 6,015 8,636
Net income per share.............. 0.35 0.40 0.35 0.50
October 29, 1995
Net sales......................... $ 36,303 $ 40,620 $ 36,953 $ 47,918
Gross profit...................... 19,218 21,820 19,796 26,708
Net income........................ 3,975 5,103 4,301 6,174
Net income per share.............. 0.24 0.31 0.26 0.38
</TABLE>
28
<PAGE>
SCHEDULE II
ST. JOHN KNITS, INC.
VALUATION AND QUALIFYING ACCOUNT
FOR THE FISCAL YEARS ENDED NOVEMBER 3, 1996,
OCTOBER 29, 1995 AND OCTOBER 30, 1994
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OF COSTS AND END OF
FISCAL YEAR EXPENSES DEDUCTIONS FISCAL YEAR
------------ ---------- ---------- -----------
<S> <C> <C> <C> <C>
Allowance for Uncollectible Ac-
counts:
Fiscal year ended November 3,
1996......................... $750,000 $ 88,547 $88,547 $750,000
Fiscal year ended October 29,
1995......................... $550,000 $216,821 $16,821 $750,000
Fiscal year ended October 30,
1994......................... $350,000 $205,720 $ 5,720 $550,000
</TABLE>
29
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
Date: January 28, 1997
ST. JOHN KNITS, INC. (Registrant)
/s/ ROBERT E. GRAY
By:__________________________________
Robert E. Gray
Chairman of the Board and
Chief Executive Officer
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/ ROBERT E. GRAY Chairman of the Board January 28,
- ------------------------------- and Chief Executive 1997
Robert E. Gray Officer (Principal
Executive Officer)
/s/ MARIE ST. JOHN GRAY Vice Chairman of the January 28,
- ------------------------------- Board, Chief Designer 1997
Marie St. John Gray and Secretary
/s/ KELLY A. GRAY Director and President January 28,
- ------------------------------- 1997
Kelly A. Gray
/s/ ROGER G. RUPPERT Director, Senior Vice January 28,
- ------------------------------- President- Finance and 1997
Roger G. Ruppert Chief Financial Officer
(Principal Financial
Officer and Principal
Accounting Officer)
/s/ DAVID A. KRINSKY Director January 28,
- ------------------------------- 1997
David A. Krinsky
/s/ RICHARD A. GADBOIS, III Director January 28,
- ------------------------------- 1997
Richard A. Gadbois, III
30
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
3.1 Articles of Incorporation of the Company(1)
3.2 Bylaws of the Company(1)
10.1 Standard Industrial/Commercial Single Tenant Lease dated
July 20, 1992 by and between Irvine Plaza Associates, a
California Limited Partnership and the Company
(Administrative Offices, Design)(1)
10.2 Retail Lease dated August 8, 1995 by and between the
Company and Wilshire Roxbury Enterprises, a California
Limited Partnership (Beverly Hills Boutique)(4)
10.3 Agreement of Lease dated as of December 31, 1995 by and
between the Company and Rolex Realty Company, Inc. (New
York Boutique)(4)
10.4 Lease dated June 1, 1986 between G.M. Properties and the
Company (Corporate Headquarters)(1)
10.5 Industrial Real Estate Lease dated November 13, 1985
between the Alhambra Partners, a California Limited
Partnership, and the Company, together with Amendment No.
1 to Industrial Real Estate Lease dated November 13, 1985
and Option to Extend Term dated November 13, 1985
(Assembling, Sewing)(1)
10.6 Agreement of Lease dated March 1, 1991 by and between the
Company and Broadway and 41st Associates Limited
Partnership, as amended by letter agreements dated March
4, 1991, November 6, 1991, and November 7, 1991, and as
further amended by Lease Extension and Modification
Agreement dated October 22, 1993 (New York Showroom)(1)
10.7 Agreement of Lease dated October 22, 1993 by and between
the Company and Broadway and 41st Associates Limited
Partnership (New York Showroom)(2)
*10.8 Description of Directors Compensation Plan(5)
10.9 Agreement of Lease dated January 11, 1991 by and between
Rolex Realty Company, Inc. and the Company together with
Lease Modification Agreement dated January 11, 1991 and
Second Lease Modification Agreement dated April 12, 1991
(New York Boutique)(1)
10.10 Amended and Restated Agreement of Limited Partnership of
SJA 1&2, Ltd. dated October 31, 1993 by and between the
Company and Ocean Air Charters, Inc.(2)
*10.11 Employment Agreement dated as of June 1, 1995 between the
Company and
Robert E. Gray(4)
*10.12 Employment Agreement dated as of January 1, 1997 between
the Company and
Marie St. John Gray(5)
*10.13 Employment Agreement dated as of January 1, 1996 between
the Company and
Robert C. Davis (incorporated by reference to Exhibit
10.2 of the Company's Quarterly Report on Form 10-Q for
the quarter ended January 28, 1996 (File No. 1-11752))
*10.14 Employment Agreement dated as of January 1, 1997 between
the Company and
Kelly A. Gray(5)
*10.15 Employment Agreement dated as of January 1, 1997 between
the Company and
Diane M. Griffiths(5)
*10.16 Employment Agreement dated as of January 1, 1997 between
the Company and
Roger G. Ruppert(5)
*10.17 Employment Agreement dated as of January 1, 1997 between
the Company and
Karla R. Guyer(5)
10.18 St. John Knits, Inc. Employees' Profit Sharing Plan dated
as of August 21, 1995(4)
10.19 Aircraft Lease dated March 7, 1996 by and between the
Company and Ocean Air Charters, Inc. as Trustee of the
SJA 1&2, Ltd. Trust (Lease for Company airplane)
(incorporated by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 28, 1996 (File No. 1-11752))
*10.20 1993 Stock Option Plan(1)
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
*10.21 Form of Indemnity Agreement by and between the Company
and each of its directors and officers(1)
10.22 Agreement to Form Partnership and Escrow Instructions
dated November 7, 1994 by and between the Company and
Varian Associates, a California General Partnership(3)
10.23 Wool Yarn Purchase Agreement dated September 19, 1996, by
and between the Company and the Kent Manufacturing
Company(5)
10.24 Agreement effective as of September 1, 1993 by and among
the Company, Escada A.G. and Amira Verwaltungs A.G.
(assumption of lease by the Company)(2)
10.25 Lease dated September 26, 1994 by and between the Company
and La Salle National Bank, as Trustee under Trust
Agreement dated October 8, 1974, known as Trust Number
48163 (Chicago Boutique)(3)
10.26 Sales Commitments to Purchase Knitting Machines dated
November 14, 1995, November 14, 1995, November 28, 1995
and December 28, 1995 by and between the Company and
Shima Seiki U.S.A. Inc.(4)
10.27 Business Loan Agreement dated December 15, 1995 by and
between the Company and Bank of America National Trust
and Savings Association(4)
10.28 General Partnership Agreement of St. John-Varian
Development Company dated April 3, 1995 by and between
the Company and Varian Associates, a California General
Partnership(4)
10.29 Lease Agreement dated April 3, 1995 by and between the
Company and St. John-Varian Development Company
(Knitting, Sewing, Finishing, Shipping, Administrative
Offices)(4)
10.30 Wool Yarn Purchase Agreement dated September 19, 1995 by
and between the Company and Kent Manufacturing Company(4)
10.31 Agreement for Purchase and Sale of Real Property and
Joint Escrow Instruction dated as of January 15, 1996
between the Company and Baxter Healthcare Corporation
(Storage) (incorporated by reference to Exhibit 10.7 of
the Company's Quarterly Report on Form 10-Q for the
quarter ended January 28, 1996 (File No. 1-11752))
10.32 Lease Extension Agreement dated February 6, 1996 between
the Company and G.M. Properties (extending the lease for
the Company's current Corporate Headquarters)
(incorporated by reference to Exhibit 10.8 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended January 28, 1996 (File No. 1-11752))
*10.33 Employment Agreement dated July 22, 1996 between the
Company and David Frankel (incorporated by reference to
Exhibit 10.1 of the Company's Quarterly Report on Form
10-Q for the quarter ended July 28, 1996 (File No. 1-
11752))
10.34 Lease Extension Agreement dated as of September 1, 1996
between the Company and Alhambra Partners (extending the
lease for one of the Company's Assembling and Sewing
facilities)(5)
*10.35 Consulting Agreement dated as of April 24, 1996 between
the Company and Robert C. Davis (incorporated by
reference to Exhibit 10.3 of the Company's Quarterly
Report on Form 10-Q for the quarter ended July 28, 1996
(File No. 1-11752))
10.36 Agreement for Purchase and Sale of Real Property and
Joint Escrow Instruction dated as of March 12, 1996 by
and between the Company and Baxter Healthcare Corporation
(Design/Manufacturing) (incorporated by reference to
Exhibit 10.2 of the Company's Quarterly Report on Form
10-Q for the quarter ended April 28, 1996 (File No. 1-
11752))
10.37 Amendment No. 1 to Business Loan Agreement dated as of
April 26, 1996 by and between the Company and Bank of
America National Trust and Savings Association
(incorporated by reference to Exhibit 10.3 of the
Company's Quarterly Report on Form 10-Q for the quarter
ended April 28, 1996 (File No. 1-11752))
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
------- ----------- ----------
<C> <S> <C>
*10.38 Amendment No. I to the St. John Knits, Inc. 1993 Stock
Option Plan(5)
10.39 Asset Purchase Agreement dated as of August 29, 1996
among the Company, Jakob Schlaepfer & Co. AG and Jakob
Schlaepfer, Inc.(5)
10.40 Amendment No. 2 to Business Loan Agreement between the
Company and Bank of America National Trust and Savings
Association(5)
10.41 Manufacturing and Supply Agreement dated as of November
9, 1996 between the Company and Calzaturificio M.A.B.
S.p.A.(5)
*10.42 First Amendment to Consulting Agreement dated November
19, 1996 between the Company and Robert C. Davis(5)
10.43 Sales Representative Agreement dated November 13, 1996
by and between the Company and Hilda Chang(5)
23.1 Consent of Arthur Andersen LLP, Independent Public
Accountants(5)
27.1 Financial Data Schedule
</TABLE>
- --------
(1) Incorporated by reference to Exhibit of same number to the Company's
Registration Statement on Form S-1, as amended (file no. 33-57128) on file
with the Securities and Exchange Commission.
(2) Incorporated by reference to Exhibit of same number to the Company's Report
on Form 10-K for the Fiscal Year ended October 31, 1993 on file with the
Securities and Exchange Commission.
(3) Incorporated by reference to Exhibit of same number to the Company's Report
on Form 10-K for the Fiscal Year ended October 30, 1994 on file with the
Securities and Exchange Commission.
(4) Incorporated by Reference to Exhibit of same number to the Company's Report
on Form 10-K for the Fiscal Year ended October 29, 1995 on file with the
Securities and Exchange Commission.
(5) Filed herewith.
* A management contract or compensatory plan or arrangement.
33
<PAGE>
EXHIBIT 10.8
EXHIBIT 10.8
DESCRIPTION OF DIRECTORS COMPENSATION PLAN
Directors holding salaried positions with the Company, or any affiliates
thereof, do not receive compensation for their services as a director. Other
directors receive an annual retainer of $25,000 for their services as directors
of the Company.
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1997, between St. John Knits, Inc., a California corporation ("Company"), and
Marie St. John Gray ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's Vice Chairman, Chief Designer and Secretary
during the term of this Agreement, and shall serve at the discretion of the
Company's Board of Directors. Executive agrees to devote substantially her full
business time and attention and best efforts to the affairs of the Company
during the term of this Agreement.
1.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1997 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
1.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1996, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
2.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $400,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal monthly
installments.
2.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company.
1
<PAGE>
2.3 Automobile Allowance. The Company shall pay directly, or
--------------------
reimburse Executive for, all reasonable costs and expenses incurred by Executive
in connection with the operation and maintenance of an automobile.
2.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
2.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of five (5)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
3.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a
2
<PAGE>
period of one (1) year thereafter Executive shall not, directly or indirectly,
either for Executive or for any other person or entity, solicit any person or
entity to terminate such person's or entity's contractual and/or business
relationship with the Company, nor shall Executive interfere with or disrupt or
attempt to interfere with or disrupt any such relationship. None of the
foregoing shall be deemed a waiver of any and all rights and remedies the
Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
-----------------------
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
-----------
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
-----
3
<PAGE>
(i) personal dishonesty or willful misconduct by
Executive;
(ii) a breach of Executive's fiduciary duties to the
Company which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent
with the position and status of Executive as set forth in this
Agreement without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary;
or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of her duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however,
that any new period of incapacity or absence shall be deemed to be part of
a prior period of incapacity or absence if the prior period terminated
within ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the
certification of a
4
<PAGE>
qualified medical doctor agreed to by the Company and Executive or in the
event of Executive's incapacity to designate a doctor, Executive's legal
representative. In the absence of agreement between the Company and
Executive, each party shall nominate a qualified medical doctor and the two
(2) doctors so nominated shall select a third doctor, who shall make the
determination as to Disability.
4.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate her employment
------------------------
hereunder upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive her Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to the longer of the remainder of
the term of this Agreement or six (6) months, said sum to be paid
semi-monthly in equal installments at the times salary payments are
usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period equal to the
longer of the remainder of
5
<PAGE>
the term of this Agreement or six (6) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans.
Subsequent health insurance benefits will be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, her
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
6
<PAGE>
With a copy to: David A. Krinsky
O'Melveny & Myers
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660
If to Executive: Marie St. John Gray
120 Monte Carlo
Newport Beach, CA 92651
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to her
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a
7
<PAGE>
declaration of rights hereunder, the prevailing party in any such action or
proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 5.7 hereof, the costs
and fees of the arbitration shall be allocated by the arbitrators.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ ROBERT E. GRAY
-----------------------------------
Robert E. Gray,
Chief Executive Officer
"Executive"
/s/ MARIE ST. JOHN GRAY
----------------------------------------
Marie St. John Gray
9
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1997, between St. John Knits, Inc., a California corporation ("Company"), and
Kelly A. Gray ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's President during the term of this Agreement,
and shall serve at the discretion of the Company's Board of Directors.
Executive agrees to devote substantially her full business time and attention
and best efforts to the affairs of the Company during the term of this
Agreement.
1.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1997 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
1.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1996, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
2.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $350,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal monthly
installments.
2.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company.
1
<PAGE>
2.3 Automobile Allowance. The Company shall pay directly, or
--------------------
reimburse Executive for, all reasonable costs and expenses incurred by Executive
in connection with the operation and maintenance of an automobile.
2.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
2.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
2.6 Modeling Fee. The Company shall pay to Executive an amount at
------------
the annual rate of Two Hundred Fifty Thousand Dollars ($250,000) for her
position as Signature Model of the Company; such amount shall be payable in
twelve substantially equal monthly installments.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
3.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have
2
<PAGE>
under Executive's control. Upon termination of Executive's employment by the
Company, Executive shall not take any document, data, or other material of any
nature containing or pertaining to the proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
-----------------------
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
3
<PAGE>
ARTICLE IV
TERMINATION
-----------
4.1 For purposes of this Article IV, the following definitions
shall apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
-----
(i) personal dishonesty or willful misconduct by Executive;
(ii) a breach of Executive's fiduciary duties to the Company
which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent with
the position and status of Executive as set forth in this Agreement
without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary;
or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of her duties hereunder (reasonable absences because of
sickness
4
<PAGE>
for up to two (2) consecutive months excepted; provided, however, that any
new period of incapacity or absence shall be deemed to be part of a prior
period of incapacity or absence if the prior period terminated within
ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the
certification of a qualified medical doctor agreed to by the Company and
Executive or in the event of Executive's incapacity to designate a doctor,
Executive's legal representative. In the absence of agreement between the
Company and Executive, each party shall nominate a qualified medical doctor
and the two (2) doctors so nominated shall select a third doctor, who shall
make the determination as to Disability.
4.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate her employment
------------------------
hereunder upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive her Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
5
<PAGE>
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to the longer of the remainder of
the term of this Agreement or six (6) months, said sum to be paid
semi-monthly in equal installments at the times salary payments are
usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period equal to the
longer of the remainder of the term of this Agreement or six (6)
months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance benefits will
be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, her
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
6
<PAGE>
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
With a copy to: David A. Krinsky
O'Melveny & Myers
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660
If to Executive: Kelly A. Gray
22 Morning View Drive
Newport Beach, CA 92657
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to her
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
7
<PAGE>
5.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
8
<PAGE>
(c) Except as otherwise provided in Section 5.7 hereof, the costs and
fees of the arbitration shall be allocated by the arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ ROBERT E. GRAY
-----------------------------------
Robert E. Gray,
Chief Executive Officer
"Executive"
/s/ KELLY A. GRAY
----------------------------------------
Kelly A. Gray
9
<PAGE>
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1997, between St. John Knits, Inc., a California corporation ("Company"), and
Diane M. Griffiths ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's Senior Vice President-Design during the term of
this Agreement, and shall serve at the discretion of the Company's Board of
Directors. Executive agrees to devote substantially her full business time and
attention and best efforts to the affairs of the Company during the term of this
Agreement.
1.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1997 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
1.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1996, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
2.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $250,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal monthly
installments.
2.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company.
1
<PAGE>
2.3 Automobile Allowance. The Company shall pay directly, or
--------------------
reimburse Executive for, all reasonable costs and expenses incurred by Executive
in connection with the operation and maintenance of an automobile.
2.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
2.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
3.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a
2
<PAGE>
period of one (1) year thereafter Executive shall not, directly or indirectly,
either for Executive or for any other person or entity, solicit any person or
entity to terminate such person's or entity's contractual and/or business
relationship with the Company, nor shall Executive interfere with or disrupt or
attempt to interfere with or disrupt any such relationship. None of the
foregoing shall be deemed a waiver of any and all rights and remedies the
Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
-----------------------
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
-----------
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
-----
3
<PAGE>
(i) personal dishonesty or willful misconduct by
Executive;
(ii) a breach of Executive's fiduciary duties to the
Company which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent
with the position and status of Executive as set forth in this
Agreement without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary;
or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of her duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however,
that any new period of incapacity or absence shall be deemed to be part of
a prior period of incapacity or absence if the prior period terminated
within ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the
certification of a
4
<PAGE>
qualified medical doctor agreed to by the Company and Executive or in the
event of Executive's incapacity to designate a doctor, Executive's legal
representative. In the absence of agreement between the Company and
Executive, each party shall nominate a qualified medical doctor and the two
(2) doctors so nominated shall select a third doctor, who shall make the
determination as to Disability.
4.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate her employment
------------------------
hereunder upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive her Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to the longer of the remainder of
the term of this Agreement or six (6) months, said sum to be paid
semi-monthly in equal installments at the times salary payments are
usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period equal to the
longer of the remainder of
5
<PAGE>
the term of this Agreement or six (6) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans.
Subsequent health insurance benefits will be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, her
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
6
<PAGE>
With a copy to: David A. Krinsky
O'Melveny & Myers
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660
If to Executive: Diane M. Griffiths
5 Telescope
Newport Beach, CA 92657
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to her
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other
7
<PAGE>
party all costs and expenses, including reasonable attorneys' fees, incurred by
the prevailing party in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 5.7 hereof, the costs
and fees of the arbitration shall be allocated by the arbitrators.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ ROBERT E. GRAY
-----------------------------------
Robert E. Gray,
Chief Executive Officer
"Executive"
/s/ DIANE M. GRIFFITHS
----------------------------------------
Diane M. Griffiths
9
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1997, between St. John Knits, Inc., a California corporation ("Company"), and
Roger G. Ruppert ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's Senior Vice President-Finance and Chief
Financial Officer during the term of this Agreement, and shall serve at the
discretion of the Company's Board of Directors. Executive agrees to devote
substantially his full business time and attention and best efforts to the
affairs of the Company during the term of this Agreement.
1.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1997 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
1.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1996, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
2.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $210,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal monthly
installments.
2.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company.
1
<PAGE>
2.3 Automobile Allowance. The Company shall pay directly, or
--------------------
reimburse Executive for, all reasonable costs and expenses incurred by Executive
in connection with the operation and maintenance of an automobile.
2.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
2.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
3.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a
2
<PAGE>
period of one (1) year thereafter Executive shall not, directly or indirectly,
either for Executive or for any other person or entity, solicit any person or
entity to terminate such person's or entity's contractual and/or business
relationship with the Company, nor shall Executive interfere with or disrupt or
attempt to interfere with or disrupt any such relationship. None of the
foregoing shall be deemed a waiver of any and all rights and remedies the
Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
-----------------------
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
-----------
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
(a) Cause. "Cause" shall include the following:
-----
3
<PAGE>
(i) personal dishonesty or willful misconduct by
Executive;
(ii) a breach of Executive's fiduciary duties to the
Company which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent
with the position and status of Executive as set forth in this
Agreement without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary;
or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however,
that any new period of incapacity or absence shall be deemed to be part of
a prior period of incapacity or absence if the prior period terminated
within ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related to the prior incapacity or
absence). A determination of Disability shall be subject to the
certification of a
4
<PAGE>
qualified medical doctor agreed to by the Company and Executive or in the
event of Executive's incapacity to designate a doctor, Executive's legal
representative. In the absence of agreement between the Company and
Executive, each party shall nominate a qualified medical doctor and the two
(2) doctors so nominated shall select a third doctor, who shall make the
determination as to Disability.
4.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate his employment
------------------------
hereunder upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive his Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to the longer of the remainder of
the term of this Agreement or six (6) months, said sum to be paid
semi-monthly in equal installments at the times salary payments are
usually made; and
(ii) health insurance coverage as then in effect for
Executive, his spouse and dependent children for a period equal to the
longer of the remainder of
5
<PAGE>
the term of this Agreement or six (6) months, subject to any employee
contribution provisions as defined in the Company Benefit Plans.
Subsequent health insurance benefits will be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, his spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, his
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
6
<PAGE>
With a copy to: David A. Krinsky
O'Melveny & Myers
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660
If to Executive: Roger G. Ruppert
19882 High Crest Circle
Santa Ana, CA 92705
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other
7
<PAGE>
party all costs and expenses, including reasonable attorneys' fees, incurred by
the prevailing party in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 5.7 hereof, the costs
and fees of the arbitration shall be allocated by the arbitrators.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ ROBERT E. GRAY
-----------------------------------
Robert E. Gray,
Chief Executive Officer
"Executive"
/s/ ROGER G. RUPPERT
----------------------------------------
Roger G. Ruppert
9
<PAGE>
EXHIBIT 10.17
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement ("Agreement") is dated as of January 1,
1997, between St. John Knits, Inc., a California corporation ("Company"), and
Karla R. Guyer ("Executive"). In consideration of the mutual covenants and
agreements set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth.
1.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's Senior Vice President-Marketing during the term
of this Agreement, and shall serve at the discretion of the Company's Board of
Directors. Executive agrees to devote substantially her full business time and
attention and best efforts to the affairs of the Company during the term of this
Agreement.
1.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of January 1, 1997 and will
continue for a period of one (1) year unless renewed or terminated sooner in
accordance with the provisions hereof.
1.3 Termination of Prior Agreement. Immediately upon the
------------------------------
commencement of Executive's employment pursuant to the terms of this Agreement,
that certain Employment Agreement by and between Executive and the Company dated
as of January 1, 1996, shall terminate and shall be of no further force or
effect.
ARTICLE II
COMPENSATION
------------
2.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the annual rate of $205,000 (the "Base
Salary"). The Base Salary shall be payable in substantially equal monthly
installments.
2.2 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company.
1
<PAGE>
2.3 Automobile Allowance. The Company shall provide Executive with
--------------------
an automobile for use by Executive in the performance of Executive's duties
hereunder. The Company shall also pay directly, or reimburse Executive for, all
reasonable costs and expenses incurred by Executive in connection with the
operation and maintenance of the automobile.
2.4 Benefits. Executive shall be entitled to participate in and be
--------
covered by all health, insurance, pension and other employee plans and benefits
currently established for the employees of the Company (collectively referred to
as the "Company Benefit Plans") on at least the same terms as other employees of
the Company, subject to meeting applicable eligibility requirements.
2.5 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of three (3)
weeks at full pay, or such greater vacation benefits as may be provided for by
the Company's vacation policies applicable to senior executives. Executive
shall be entitled to such holidays as are established by the Company for all
employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
3.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
2
<PAGE>
3.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of one (1) year
thereafter Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver
of any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of one (l) year following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days has elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations not to disclose or use Confidential Information and to refrain from
the solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably
or adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
-----------------------
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
-----------
4.1 For purposes of this Article IV, the following definitions shall
apply to the terms set forth below:
3
<PAGE>
(a) Cause. "Cause" shall include the following:
-----
(i) personal dishonesty or willful misconduct by
Executive;
(ii) a breach of Executive's fiduciary duties to the
Company which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
(b) Good Reason. "Good Reason" shall mean voluntary termination
-----------
as a result of:
(i) the assignment to Executive of duties inconsistent
with the position and status of Executive as set forth in this
Agreement without Executive's prior written consent;
(ii) a substantial alteration in the nature, status or
prestige of Executive's responsibilities or a change in Executive's
title or reporting level from that set forth in this Agreement;
(iii) the relocation of the Company's executive offices or
principal business location to a point more than fifty (50) miles from
the location of such offices or businesses as of the date of this
Agreement;
(iv) a reduction by the Company of Executive's Base Salary;
or
(v) a failure by the Company to obtain from any successor,
before the succession takes place, an agreement to assume and perform
this Agreement.
(c) Disability. "Disability" shall mean a physical or mental
----------
incapacity as a result of which Executive becomes unable to continue the
proper performance of her duties hereunder (reasonable absences because of
sickness for up to two (2) consecutive months excepted; provided, however,
that any new period of incapacity or absence shall be deemed to be part of
a prior period of incapacity or absence if the prior period terminated
within ninety (90) days of the beginning of the new period of incapacity or
absence and the incapacity or absence is determined by the Company's Board
of Directors, in good faith, to be related
4
<PAGE>
to the prior incapacity or absence). A determination of Disability shall
be subject to the certification of a qualified medical doctor agreed to by
the Company and Executive or in the event of Executive's incapacity to
designate a doctor, Executive's legal representative. In the absence of
agreement between the Company and Executive, each party shall nominate a
qualified medical doctor and the two (2) doctors so nominated shall select
a third doctor, who shall make the determination as to Disability.
4.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Termination by Executive. Executive may terminate her employment
------------------------
hereunder upon thirty (30) days' written notice to the Company. The effective
date of termination ("Effective Date") shall be considered to be thirty (30)
days subsequent to written notice of termination; however, the Company may elect
to have Executive leave the Company immediately.
4.4 Death or Disability of Executive. Executive's employment
--------------------------------
hereunder shall terminate immediately upon the death or Disability of Executive.
4.5 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or Executive terminates this Agreement pursuant to Section 4.3 other
than for Good Reason, then the Company shall pay Executive her Base Salary
through the Effective Date of such termination plus credit for any vacation
earned but not taken, and the Company shall thereafter have no further
obligations to Executive under this Agreement.
(b) If Executive's employment is terminated by the Company
without Cause, or Executive terminates this Agreement for Good Reason, then
the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to the longer of the remainder of
the term of this Agreement or six (6) months, said sum to be paid
semi-monthly in equal installments at the times salary payments are
usually made; and
5
<PAGE>
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period equal to the
longer of the remainder of the term of this Agreement or six (6)
months, subject to any employee contribution provisions as defined in
the Company Benefit Plans. Subsequent health insurance benefits will
be in accordance with COBRA.
(c) If Executive's employment is terminated by the Company as a
result of Disability, then the Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary for a period equal to one month for each full year
Executive has been employed by the Company, up to a maximum of
eighteen (18) months, said sum to be paid monthly in equal
installments at the times salary payments are usually made; and
(ii) health insurance coverage as then in effect for
Executive, her spouse and dependent children for a period of one month
for each full year Executive has been employed by the Company, up to a
maximum of eighteen (18) months, subject to any employee contribution
provisions as defined in the Company Benefit Plans. Subsequent health
insurance benefits will be in accordance with COBRA.
(d) If Executive's employment is terminated by the Company as a
result of death, then the Company shall provide Executive's spouse or
estate health insurance coverage as then in effect for Executive, her
spouse and dependent children for a period of six (6) months, subject to
any employee contribution provisions as defined in the Company Benefit
Plans. Health insurance benefits subsequent to the salary continuation
period will be in accordance with COBRA.
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Chief Executive Officer
6
<PAGE>
With a copy to: David A. Krinsky
O'Melveny & Myers
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660
If to Executive: Karla R. Guyer
228 Iris
Corona Del Mar, CA 92625
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to her
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's devisee, legatee, or
other designee or, if there be no such designee, to Executive's estate.
5.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
5.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other
7
<PAGE>
party all costs and expenses, including reasonable attorneys' fees, incurred by
the prevailing party in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or delegated by any party without the
prior written consent of the other party and any attempted assignment or
delegation without such prior written consent shall be void and be of no effect.
Notwithstanding the foregoing provisions of this Section 5.9, the Company may
assign or delegate its rights, duties, and obligations hereunder to any
Affiliate or to any person or entity which succeeds to all or substantially all
of the business of the Company through merger, consolidation, reorganization, or
other business combination or by acquisition of all or substantially all of the
assets of the Company.
5.10 Arbitration. Any controversy, dispute, claim or other matter in
-----------
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in
writing with the other party and with the AAA. There shall be a panel of three
(3) arbitrators whose selection shall be made in accordance with the procedures
then existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) Except as otherwise provided in Section 5.7 hereof, the costs
and fees of the arbitration shall be allocated by the arbitrators.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"Company"
St. John Knits, Inc.,
a California corporation
By: /s/ ROBERT E. GRAY
-----------------------------------
Robert E. Gray,
Chief Executive Officer
"Executive"
/s/ KARLA R. GUYER
----------------------------------------
Karla R. Guyer
9
<PAGE>
EXHIBIT 10.23
THE KENT MANUFACTURING COMPANY
ORDER NO. 2603 P.O. BOX 67 -- PHONE 803-878-6367 SALESMAN 60-5895
----- FAX 803-878-2723 --------
PICKENS, S.C. 29671
SOLD TO DATE September 19, 1996
-----------
Novita Yarns Ltd. TERMS Net 60 days
Div. of St. John Knit CUSTOMER P.O.
17422 Derian Avenue CONTRACT NO. 2603
Irvine, CA 92713
- --------------------------------------------------------------------------------
____________________
QUANTITY COUNT GRADE DESCRIPTION PRICE ____________________
____________________
800,000 lbs. 1/21 - 100% 64 Australian Wool ____________________
Natural yarn on cones $7.43/lb.____________________
____________________
____________________
____________________
____________________
FOB Pickens,SC ____________________
____________________
____________________
Ship to: above ____________________
____________________
____________________
____________________
____________________
SHIPPING INSTRUCTIONS Delivery: Follow Contract #2442 ____________________
The terms of this contract shall be at terms noted above ____________________
from date of invoice. No redating. ____________________
On specifications for slub or package dyed yarns of less ____________________
than 1,000 lbs. to a color the seller shall charge small ____________________
lot premium. ____________________
This order will become a contract only when confirmed in ____________________
writing by the seller and buyer or, in any event, when ____________________
buyer accepts whole or partial delivery. The contract shall ____________________
be deemed dated as of the date of such confirmation or ____________________
acceptance. ____________________
The undersigned buyer hereby orders the above goods upon ____________________
the terms as stated, including the term and conditions ____________________
printed on the back of this contract and forming a part ____________________
hereof. ____________________
Please sign in duplicate and return both copies to The ____________________
Kent Manufacturing Company. ____________________
____________________
Accepted by purchaser: Acknowledged by seller: ____________________
____________________
- -------------------------------- The Kent Manufacturing ____________________
Company ____________________
/s/ St. John Knits ____________________
- -------------------------------- ____________________
____________________
PER /s/ [SIGNATURE APPEARS HERE] PER ____________________
---------------------------- -------------------
<PAGE>
I. Not Subject to Cancellation
This contract is not subject to cancellation except for failure to
deliver in accordance with the conditions of sale.
II. Prices and Terms
Except as provided in paragraphs 3, 6, 12 and 13, the prices and terms
of sale and delivery quoted in this contract are not subject to change. Title
passes upon delivery to buyer or public carrier.
III. Credit
This contract is given and accepted subject to the limit or withdrawal
of credit determinable at any time by the seller.
IV. Checks Without Accord and Satisfaction
Checks received from or for the account of buyer, regardless of
writings, legends or notations on such checks or of other writings, statements
or documents, may be applied against amounts owing by buyer, without accord and
satisfaction of buyer's liability.
V. Partial Deliveries and Risk of Loss
Partial deliveries are to be paid for at contract prices upon maturity
of the invoices therefor. Yarn invoiced and held by seller for whatever reason
shall be at buyer's risk.
VI. Seller's Liability
Seller shall not be held liable for consequential damages. Seller shall
not be held liable for late or non-delivery due to strikes, fire, delayed or
non-delivery of man-made fibers or other causes beyond its control. Seller
shall use its best efforts to make delivery proportionate to production wherever
practicable in such cases.
VII. Buyer's Liability
Failure of the buyer to specify, to accept delivery, or to make payment
as provided in this contract, shall constitute a breach of contract, and the
seller may sell in the open market, at auction or otherwise, any material
provided for the contract, either as raw stock, top, sliver, or yarn, and the
buyer shall be liable for any loss. Seller may bill and hold any yarn on last
day of shipping period upon buyer's failure to furnish shipping instructions.
VIII. Warranty
Unless expressly provided on the face of this contract, seller makes no
warranty, expressed or implied, as to the fitness of the yarn purchased
hereunder for any specific purpose.
IX. Weight Determination
The weight of yarn as billed is to include tie bands but to exclude
paper, wrappings and twine. All shipments of yarn of one hundred (100) pounds or
more shall be billed on a standard moisture regain basis as follows:
Dry Spun Worsted, 15% Moisture Regain;
Yarns containing fibers other than wool by mix, blend or twist shall
have the standard moisture regain computed on the basis of per cent fiber
content by weight. The normal moisture regain for fibers other than wool shall
be that obtaining on date of contract in standard methods of test and tolerances
for yarns containing wool prescribed by ASTM Designation D-1285. The maximum
extractable matter shall not exceed 4% by weight for oil spun yarn, and 1 3/4%
by weight for dry spun yarn.
X. Tolerances
Unless otherwise specified on the face of the contract, count and twist
variation on all yarns covered by this contract shall be within those limits
prescribed by ASTM Designation D-1285, in effect on date of contract. It is
agreed that over or under delivery to the extent of not over 5% of the quantity
of each item specified, whether on a specified order or specification against an
unspecified contract, shall be deemed compliance with the contract.
XI. Claims
No claims relating to excessive moisture or oil content or weight shall
be allowed if made after ten (10) days from receipt of shipment and no claims
relating to count, twist, shade variation or other elements of quality shall be
allowed if made after forty-five (45) days from receipt of shipment or after the
yarn has been woven, knitted or processed in any manner other than dyeing. Any
question that may arise relating to weight or moisture content or extractable
matter shall be referred to the United States Testing Company, Inc., whose test
report thereon shall be conclusive.
XII. Arbitration
Except as provided in paragraph XI hereof, any controversy or claim
arising out of or relating to this contract or the breach thereof, shall be
settled by arbitration in accordance with the rules, then obtaining, of the
American Arbitration Association and judgment upon the award rendered may be
entered in the highest court of the forum, state, or federal, having
jurisdiction.
The arbitrators sitting in any such controversy shall have no power to
alter or modify any express provisions of this contract or render any award
which by its terms effects any such alteration or modification.
XIII. Government Action
Prices on any undelivered portion of this contract are subject to any
increase due to Government action and to the extent that any present or future
Federal or State legislation or administrative order affects the seller's costs.
Deliveries also may be modified to the extent necessitated by any such
Government action, legislation, or order affecting production or supply.
XIV. Applicable Law
This contract shall be interpreted under and governed by the laws of the
State of Pennsylvania.
XV. Additional Conditions
This contract supersedes buyer's purchase order and contains the entire
agreement between the parties.
Any additional conditions or stipulations applying to this contract must
be stated on the face hereof, or be in writing and signed by the Seller.
<PAGE>
EXHIBIT 10.34
LEASE EXTENSION AGREEMENT
This Lease Extension Agreement {"Agreement") is entered into by and between
St. John Knits, Inc., a California corporation as Tenant and The Alhambra
Partners, a California limited partnership as Landlord under that certain
Industrial Real Estate Lease dated November 13, 1985 ("Lease") between Landlord
and Tenant.
RECITALS
A. Pursuant to the terms of the Lease Tenant's initial lease term expires on
August 31, 1996.
B. Tenant has the right to extend the Term of the Lease for two extended terms
of five years each.
C. Tenant has exercised its initial option to extend the Lease Term to August
31, 2001 and Landlord and Tenant now desire to extend the term of and modify
the provisions of the Lease to provide Tenant the right to occupy the Property
for an additional five (5) year term on the terms and conditions of the Lease
as modified in the manner set forth below.
In consideration of the foregoing recitals and the covenants and
conditions hereinafter contained, the parties agree as follows:
1. LEASE TERM. The term of this Agreement shall be a period of five (5) years,
-----------
commencing September 1, 1996 and ending August 31, 2001. Tenant shall have
the right to extend the Term for one additional five (5) year period in
accordance with the provisions of the Lease.
2. BASE RENT. Base Rent during the extension Term shall be $260,760.00 per year
---------
for the first extension term ($0.53 per square foot per month). Base Rent
shall be increased annually on the 1st day of September of each year
thereafter by an amount equal to 4% of the Base Rent due in August of each
year.
3. OPTION TO RENEW. Pursuant to the terms of the Lease Tenant has one
---------------
additional option to extend the Lease Term for an additional five year term.
4. FULL FORCE AND EFFECT. Except as modified in the manner set forth in this
---------------------
Agreement, the Lease shall remain in full force and effect during the
extension Term provided herein.
-1-
<PAGE>
5. FURTHER ASSURANCES. Each party agrees to perform any further acts and to
execute and deliver any further documents which may be reasonably necessary
to carry out the provisions of this Agreement.
Executed this 30th day of July, 1996 to be effective September 1, 1996.
TENANT:
St. John Knits, Inc., a California corporation
By: /s/ ROGER G. RUPPERT
------------------------------------------------------------
Roger G. Ruppert, Sr. Vice President/Chief Financial Officer
LANDLORD:
The Alhambra Partners, a California limited partnership
By: /s/ ROBERT E. GRAY, Trustee of Gray Family Trust
-----------------------------------------------------------------
Robert E. Gray, Trustee of The Gray Family Trust, General Partner
<PAGE>
Exhibit 10.38
-------------
Amendment No. I to the
St. John Knits, Inc.
1993 Stock Option Plan
The St. John Knits, Inc. 1993 Stock Option Plan (the "Plan") shall be
and hereby is amended by St. John Knits, Inc. a California corporation (the
"Company"), pursuant to this Amendment No. I ("Amendment") as follows:
1. Paragraph (b) of Section 10 of the Plan is hereby deleted and
replaced by the following:
"(b) Corporate Reorganizations. Upon the occurrence of a
-------------------------
Terminating Transaction, the vesting of all unvested installments of the
Options shall be automatically accelerated and thereby all outstanding
Options shall be fully vested, and all Optionees shall have the right, at
such time immediately prior to the consummation of the Terminating
Transaction (as the Board shall designate), to exercise all of their
Options to the full extent not previously exercised. Upon consummation of
the Terminating Transaction, the Plan shall terminate and any Options which
have not been exercised as permitted in the immediately preceding sentence
shall terminate."
2. Except as expressly provided hereinabove, the provisions of the
Plan shall remain in full force and effect as set forth therein.
IN WITNESS WHEREOF, the Company has caused its duly authorized officer
to execute this Amendment No. I as of the date hereof.
Dated: January 7, 1997
ST. JOHN KNITS, INC.,
a California corporation
By: /s/ Robert E. Gray
--------------------
Robert E. Gray, Chairman of the Board
and Chief Executive Officer
1
<PAGE>
EXHIBIT 10.39
ASSET PURCHASE AGREEMENT
dated as of
August 29, 1996,
among
Jakob Schlaepfer & Co. AG,
Jakob Schlaepfer, Inc.
and
St. John Knits, Inc.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<C> <S> <C>
Recitals
ARTICLE 1
PURCHASE AND SALE OF ASSETS.............. 1
1.1 Transfer of Assets.......................... 1
1.1.1 Devices............................. 1
1.1.2 Other Personal Property............. 1
1.1.3 Patents............................. 2
1.1.4 TFA Technology...................... 2
1.1.5 Books and Records................... 2
ARTICLE 2
CLOSING/PURCHASE PRICE/
ASSUMPTION OF LIABILITIES......... 2
2.1 The Closing................................. 2
2.2 Purchase Price.............................. 2
2.3 Payment to Sellers on Closing Date.......... 2
2.4 Instruments of Conveyance and Transfer...... 3
2.5 Non-Assumption of Liabilities............... 3
2.6 Allocation.................................. 3
2.7 Sales and Use Tax........................... 3
2.8 Offset...................................... 3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS. 5
3.1 Organization, Corporate Power and Authority. 5
3.2 Authorization of Agreements................. 5
3.3 Effect of Agreement......................... 5
3.4 Governmental Approvals...................... 6
3.5 Permits..................................... 6
3.6 Assigned Contracts.......................... 6
3.7 Title/Condition of Property................. 6
3.8 Inventory................................... 6
3.9 Tax Matters................................. 7
3.10 Legal Proceedings........................... 7
3.11 Insurance................................... 7
3.12 Compliance with Law......................... 7
3.13 Employee Benefits........................... 7
3.14 Environmental Matters....................... 8
3.15 Intellectual Property....................... 8
3.16 Accuracy of Information..................... 9
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER. 9
4.1 Organization, Corporate Power and Authority. 9
4.2 Authorization of Agreement.................. 10
4.3 Effect of Agreement......................... 10
4.4 Governmental Approvals...................... 10
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
ARTICLE 5
COVENANTS WITH RESPECT TO
CONDUCT OF SELLER PRIOR TO CLOSING.... 10
5.1 Access........................................ 10
5.2 Material Adverse Changes...................... 11
5.3 Conduct of Business........................... 11
5.4 Confidentiality............................... 11
5.5 Customer List................................. 12
ARTICLE 6
ADDITIONAL CONTINUING COVENANTS..... 12
6.1 Nondisclosure of Proprietary Data............. 12
6.2 Transition.................................... 12
6.3 Covenant Not to Sue........................... 13
6.4 Confidentiality Obligations Relating to
Intellectual Property......................... 13
6.5 Right of First Refusal........................ 13
ARTICLE 7
CONDITIONS OF PURCHASE.......... 15
7.1 General Conditions............................ 15
7.2 Conditions to Obligations of Buyer............ 15
7.3 Conditions to Obligations of Seller........... 17
ARTICLE 8
TERMINATION OF OBLIGATIONS; SURVIVAL... 17
8.1 Termination of Agreement...................... 17
8.2 Effect of Termination......................... 18
ARTICLE 9
INDEMNIFICATION............. 18
9.1 Obligations of Sellers........................ 18
9.2 Obligations of Buyer.......................... 19
9.3 Procedure..................................... 19
9.4 Notice by Sellers............................. 20
9.5 Limitation on Indemnity....................... 20
ARTICLE 10
GENERAL................. 20
10.1 Amendments; Waivers........................... 20
10.2 Schedules; Exhibits; Integration.............. 20
10.3 Best Efforts; Further Assurances.............. 20
10.4 Governing Law................................. 21
10.5 No Assignment................................. 21
10.6 Headings...................................... 21
10.7 Counterparts.................................. 21
10.8 Publicity and Reports......................... 21
10.9 Remedies Cumulative........................... 22
10.10 Parties in Interest........................... 22
10.11 Notices....................................... 22
10.12 Expenses and Attorneys Fees................... 23
10.13 Survival...................................... 24
10.14 Bulk Transfers................................ 24
</TABLE>
ii
<PAGE>
ARTICLE 11
DEFINITIONS.............. 24
iii
<PAGE>
<TABLE>
<CAPTION>
Exhibits
<C> <S>
EXHIBIT A-1 Bill of Sale
EXHIBIT A-2 Bill of Sale and Assumption Agreement
EXHIBIT B-1 Opinion of Counsel to Schlaepfer U.S.
EXHIBIT B-2 Opinion of Counsel to Schlaepfer
EXHIBIT C TFA License Agreement
EXHIBIT D General Technology License Agreement
EXHIBIT E Employment Agreement
EXHIBIT F Form of Opinion of Counsel to Buyer
</TABLE>
<TABLE>
<CAPTION>
Schedules
<C> <S>
1.1.1 Devices
1.1.2 Personal Property, Including Inventory
1.1.3 Patents
2.6 Allocation of Purchase Price
3.3 Violation of Material Agreements
3.4 Governmental Approvals
3.5 Permits
3.6 Assigned Contracts
3.7 Encumbrances
3.11 Insurance
3.13 Certain Employee Arrangements
</TABLE>
iv
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement is entered into as of August 29, 1996,
among St. John Knits, Inc., a California corporation ("Buyer"), Jakob Schlaepfer
& Co. AG, a Swiss corporation ("Schlaepfer"), and Jakob Schlaepfer, Inc., a
Delaware corporation ("Schlaepfer U.S." and, together with Schlaepfer,
"Sellers"). Capitalized terms used herein without definition are defined in
Article 11.
R E C I T A L S
WHEREAS, Sellers own certain assets more particularly described in
this Agreement used by them in their business; and
WHEREAS, Sellers desire to sell, and Buyer desires to buy, those
assets for the consideration and on the terms and conditions described herein.
A G R E E M E N T
In consideration of the mutual promises contained herein and intending
to be legally bound, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 TRANSFER OF ASSETS. Subject to the terms and conditions of this
------------------
Agreement, on the Closing Date, each Seller will sell, transfer, assign and
deliver to Buyer or its affiliate, and Buyer or its affiliate will purchase from
each Seller, all of such Seller's worldwide right, title and interest in and to
the following assets (collectively, the "Assets"):
1.1.1 DEVICES. The machines, devices, tools, apparatus and equipment
-------
identified on Schedule 1.1.1 hereto (collectively, the "Devices");
1.1.2 OTHER PERSONAL PROPERTY. Tangible personal property other than
-----------------------
the Devices, including, but not limited to, supplies and inventory
(including, but not limited to, finished goods, work-in-process and raw
materials; collectively, the "INVENTORY"), a list of which as of August 15,
1996 is set forth in Schedule 1.1.2 hereto;
1.1.3 PATENTS. United States Patent No. 4,753,702, issued June 28,
-------
1988, entitled "Method and Apparatus for Sticking a Multiplicity of
Ornamental Pieces onto a Base Sheet Material," and such other United
<PAGE>
States and foreign patents and patent applications as are identified on
Schedule 1.1.3 hereto, and all continuations, continuations-in-part,
extensions, divisions, substitutions, additions, reexaminations and
reissues thereof (collectively, the "Patents");
1.1.4 TFA TECHNOLOGY. All trade secrets, information, know-how,
--------------
show-how, processes, process parameters, methods, practices, designs,
fabrication techniques, technical plans, compilations, creations, data,
algorithms, programs, documentation, and the like, known by Sellers as of
the Closing Date and related to the Patents and methods and apparatus for
applying articles to a web (collectively, the "TFA Technology"); and
1.1.5 BOOKS AND RECORDS. All books and records and all files,
-----------------
documents, papers and agreements (including, but not limited to, those
contained in computerized storage media), pertaining directly to the
Assets, but excluding the corporate records of Sellers.
ARTICLE 2
CLOSING/PURCHASE PRICE/
ASSUMPTION OF LIABILITIES
2.1 THE CLOSING.
-----------
The Closing will take place at the offices of O'Melveny & Myers LLP,
610 Newport Center Drive, Suite 1700, Newport Beach, California, at 10:00 a.m.
on September 30, 1996, or on such other date as may be mutually agreed to by the
parties.
2.2 PURCHASE PRICE.
--------------
Subject to the terms and conditions of this Agreement, Buyer agrees to
acquire the Assets from Sellers and to pay $2,600,000 (the "PURCHASE PRICE"),
which Purchase Price shall be payable in the amount of $1,850,000 in cash at the
Closing and, subject to the provisions of Section 2.8 below, the amount of
$250,000 and $500,000 in cash six months and one year, respectively, after the
Closing Date.
2.3 PAYMENT TO SELLERS ON CLOSING DATE. Sellers shall provide wire
----------------------------------
transfer instructions to Buyer not less than two (2) business days prior to the
Closing Date. On the Closing Date, Buyer shall pay $1,850,000 of the Purchase
Price to Sellers by wire transfer in immediately available funds.
2.4 INSTRUMENTS OF CONVEYANCE AND TRANSFER. On the Closing Date, Sellers
--------------------------------------
shall execute and deliver or cause to be
2
<PAGE>
delivered to Buyer (a) the Bills of Sale in the form attached hereto as Exhibits
A-1 and A-2, (b) patent assignments in such forms as are reasonably acceptable
to Sellers and Buyer, (c) the documents and other agreements set forth in
Section 7.2, and (d) such other documents as may be reasonably requested by
Buyer in order to carry out the Transactions.
2.5 NON-ASSUMPTION OF LIABILITIES. Buyer is not assuming, and shall not
-----------------------------
be deemed to have assumed, any liability or obligation of either Seller or any
Affiliate of either Seller, of any kind or nature, whether absolute, contingent,
accrued or otherwise, known or unknown, and whether arising before or after the
Closing Date, including, but not limited to: (i) liabilities for Taxes with
respect to any period or portion thereof ending on or prior to the Closing Date;
(ii) liabilities for any pension, profit-sharing or welfare benefit plans or
arrangement, oral or written, maintained by either Seller or its Affiliates; or
(iii) any liabilities relating to employees of either Seller or its Affiliates,
whether for severance pay or otherwise.
2.6 ALLOCATION OF PURCHASE PRICE. Buyer and Sellers shall allocate the
----------------------------
Purchase Price to broad categories constituting components of the Assets in
accordance with the basis of allocation set forth in Schedule 2.6. Each party
will report the Transactions in accordance with the agreed upon allocation.
2.7 SALES AND USE TAX. Sellers and Buyer shall each pay one-half of any
-----------------
and all sales, transfer or use tax due with regard to, the Transactions.
2.8 OFFSET.
------
(A) RIGHT OF OFFSET. If any matter as to which Buyer may be able to
---------------
assert a claim against Sellers under this Agreement is pending or
unresolved at the time the post-Closing payments are due from Buyer to
Sellers under Section 2.2 above, Buyer shall have the right, in addition to
other rights and remedies (whether under this Agreement or applicable Law),
to withhold from such payment an amount equal to the amount of the claim
until such matters are resolved. If it is finally agreed or determined
that Buyer is entitled to recover on such claims, the amount of such claims
may be offset against the retained payments and the remainder, if any,
shall promptly be delivered to Sellers pursuant to this Agreement, together
with interest on such remainder payable from the Closing Date until paid at
the rate of 7.5% per annum.
(B) Negotiation Between Executives. The parties shall attempt in good
------------------------------
faith to resolve any dispute
3
<PAGE>
arising out of or relating to Section 2.8(a) of this Agreement promptly by
negotiation between executives who have authority to settle the controversy
and who are at a higher level of management (if any) than the persons with
direct responsibility for administration of this Agreement. Any party may
give the other party written notice of any dispute not resolved in the
normal course of business. Within 15 days after delivery of the notice the
receiving party shall submit to the other a written response. The notice
and the response shall include (i) a statement of each party's position and
a summary of arguments supporting that position, and (ii) the name and
title of the executive who represents that party and of any other person
who will accompany the executive. Within 10 days after delivery of the
disputing party's notice, the executives of both parties shall meet at a
mutually acceptable time and place, and thereafter as often as they
reasonably deem necessary, to attempt to resolve the dispute. All
reasonable requests for information made by one party to the other will be
honored. If the matter has not been resolved within 45 days of the
disputing party's notice, or if the parties fail to meet within 10 days of
such notice, either party may initiate arbitration of the controversy or
claim as provided hereinafter. All negotiations pursuant to this clause
are confidential and shall be treated as compromise and settlement
negotiations for purposes of the Federal Rules of Evidence of California
and any other applicable rules of evidence.
(C) Arbitration. Any dispute arising out of or relating to Section
-----------
2.8(a) of this Agreement, which has not been resolved by the nonbinding
meet and confer provisions provided in subsection (b) within 90 days of the
initiation of such procedure, shall be settled by arbitration in accordance
with the then-current End Dispute-Judicial Arbitration and Mediation
Services (JAMS) rules for arbitration of business disputes. The parties
shall use their best efforts to select a single arbitrator. In the event
that the parties cannot agree on a single arbitrator within 10 days of
initiation of the arbitration procedure, the selection of the arbitrator
shall be referred to JAMS, which shall appoint a single arbitrator having
substantial experience in sophisticated business matters. The arbitration
shall be governed by the California Code of Civil Procedure Section 1280 et
--
seq. and the parties intend this procedure to be specifically enforceable
---
in accordance with such provisions. Judgment upon the award rendered by
the arbitrator may be entered by any court having jurisdiction thereof.
The place of arbitration shall be Orange County, California. The
arbitrator may award equitable relief in those circumstances where monetary
4
<PAGE>
damages would be inadequate. The arbitrator shall be required to follow
the applicable law as set forth in the governing law section of this
Agreement.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELLERS
Except as otherwise indicated on schedules attached hereto, each
Seller represents, warrants and agrees:
3.1 ORGANIZATION, CORPORATE POWER AND AUTHORITY.
-------------------------------------------
Each Seller is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and is
duly qualified to do business as a foreign corporation in the jurisdictions in
which it conducts its business, except where the failure so to qualify will not
have a material adverse effect on the Assets. Each Seller has all requisite
corporate power and authority to own, operate and lease the Assets, to execute
and deliver the Transaction Documents and to perform its obligations thereunder.
3.2 AUTHORIZATION OF AGREEMENTS. The execution, delivery and performance
---------------------------
by each Seller of the Transaction Documents, and the consummation by it of the
Transactions, have been duly authorized by all necessary corporate action by
such Seller. This Agreement has been, and each other Transaction Document will
be at the Closing, duly executed and delivered by each Seller and constitutes,
or will, when delivered, constitute, the legal, valid and binding obligations of
Seller, enforceable against such Seller in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium, and other similar laws and equitable principles relating to or
limiting creditors' rights generally.
3.3 EFFECT OF AGREEMENT. The execution, delivery and performance by each
-------------------
Seller of the Transaction Documents, and the consummation by it of the
Transactions, will not violate the charter documents or bylaws of such Seller or
any Law to which such Seller is subject, or any judgment, award or decree or,
except as set forth on Schedule 3.3, any material indenture, material agreement
or other material instrument to which such Seller is a party, or by which such
Seller or the Assets are bound, or conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under, any such
indenture, agreement or other instrument, or result in the creation or
imposition of any Encumbrance of any nature whatsoever upon any of the Assets.
3.4 GOVERNMENTAL APPROVALS. Except as set forth on Schedule 3.4, no
----------------------
Approval or Order or action of or filing with
5
<PAGE>
any Governmental Entity or other third party is required to be obtained by
either Seller for the execution and delivery by such Seller of the Transaction
Documents or the consummation by it of the Transactions.
3.5 PERMITS. Schedule 3.5 sets forth each Permit (and applications
-------
therefore) obtained by each Seller in connection with the conduct of its
business together with the name of the Governmental Entity issuing such Permit.
Such Permits are valid and in full force and effect. Except as set forth in
Schedule 3.5, all such Permits are freely transferable by such Seller, and upon
Closing Buyer will have all right, title and interest of the holder thereof. To
the best knowledge of Sellers, all Permits necessary in connection with the
operation of their business as presently conducted have been obtained.
3.6 ASSIGNED CONTRACTS.
------------------
Schedule 3.6 lists each Contract (i) to which either Seller is a party
that is related primarily to the Assets or (ii) by which any of the Assets are
bound (the "Assigned Contracts"). Each Assigned Contract is valid and
subsisting; each Seller has duly performed all its obligations thereunder to the
extent that such obligations to perform have accrued; and no breach or default,
alleged breach or default, or event which would (with the passage of time,
notice or both) constitute a breach or default thereunder by either Seller, or,
to the best knowledge of Sellers, any other party or obligor with respect
thereto, has occurred or as a result of the Transactions will occur. True
copies of the Assigned Contracts listed on Schedule 3.6, including all
amendments and supplements thereto, have been delivered to Buyer.
3.7 TITLE/CONDITION OF PROPERTY.
---------------------------
Sellers have good and marketable title to all of the Assets, free of
Encumbrances, except the Encumbrances in favor of Sellers' lenders listed on
Schedule 3.7 attached hereto. All of the Assets are in good operating condition
and repair.
3.8 INVENTORY.
---------
Schedule 1.1.2 is a true and correct list of the Inventory as of
August 15, 1996.
3.9 TAX MATTERS.
-----------
Each Seller has timely filed or will file (or, where permitted or
required, its direct or indirect parents have timely filed or will file) all Tax
Returns required of it and has paid all Taxes due for all periods or portions of
periods ending on or before the Closing Date (except as provided in
6
<PAGE>
the following sentence). Adequate provision has been made in the books and
records of Sellers, and for all Taxes whether or not due and payable and whether
or not disputed to the extent not paid.
3.10 LEGAL PROCEEDINGS.
-----------------
There is no Order or Action pending, or, to the best knowledge of
either Seller, threatened, against or affecting either Seller or the Assets that
individually or when aggregated with one or more other Orders or Actions has or
would reasonably be expected to have a material adverse effect on the Assets or
on either Seller's ability to perform its obligations under the Transaction
Documents.
3.11 INSURANCE.
---------
Each Seller is, and at all times during the past two years has been,
insured with reputable insurers against all risks normally insured against by
companies engaged in similar businesses. Schedule 3.11 is a true and correct
list of the insurance policies and bonds of Sellers. All such insurance
policies and bonds are in full force and effect. Neither Seller is in default
under any such policy or bond and has received no notice of cancellation of any
such policy or bond.
3.12 COMPLIANCE WITH LAW.
-------------------
To the best knowledge of Sellers, each Seller has conducted its
business in accordance with applicable Laws.
3.13 EMPLOYEE BENEFITS.
-----------------
(A) Employee Benefit Plans, Collective Bargaining and Employee
----------------------------------------------------------
Agreements, and Similar Arrangements.
- ------------------------------------
(1) Schlaepfer U.S. is in full compliance with the applicable
provisions of ERISA and all other Laws applicable with respect to all employee
benefit plans, agreements and arrangements and to all group health plans.
Schlaepfer U.S. had performed all of its obligations under all such plans,
agreements and arrangements. There are no Actions (other than routine claims
for benefits) pending or threatened against such plans or their assets, or
arising out of such plans, agreements or arrangements, and no facts exist which
could give rise to any such Actions.
(2) Except as set forth on Schedule 3.13, each of the plans,
agreements or arrangements can be terminated by Schlaepfer U.S. within a period
of 30 days following the Closing Date, without payment of any additional
compensation or amount or the additional vesting or acceleration of any
benefits.
7
<PAGE>
(B) Qualified Stock, Pension and Profit-sharing Plans.
-------------------------------------------------
Schlaepfer U.S. has no plan that is a stock bonus, pension or
profit-sharing plan within the meaning of Section 401(a) of the Code.
(C) Pension Plans (Defined Contribution and Benefit).
------------------------------------------------
Schlaepfer U.S. has no plan that is a plan subject to Title IV of
ERISA.
(D) Multiemployer Plans.
-------------------
Schlaepfer U.S. has no plan that is a "multiemployer plan" (within
the meaning of Section 3(37) of ERISA). Schlaepfer U.S. has never contributed to
or had an obligation to contribute to any multiemployer plan.
(E) Schlaepfer/ERISA Affiliates.
---------------------------
Schlaepfer has no U.S. employees and is not subject to ERISA.
Schlaepfer U.S. has no Affiliates that are, or have at any time been, subject to
ERISA.
3.14 ENVIRONMENTAL MATTERS.
---------------------
Each Seller has maintained all documents and records and made all
filings required by, and has complied with all applicable Laws relating to air
or water quality, waste management, Hazardous Substances, or the protection of
health or the environment. The air and water emission, discharge and waste
disposal practices used by Seller fully comply with, and have at all times fully
complied with, all applicable Laws in all material respects. None of the Assets
is contaminated with any Hazardous Substance.
3.15 INTELLECTUAL PROPERTY.
---------------------
(A) Schlaepfer is the owner of all right, title and interest in and to
the Patents and the TFA Technology;
(B) To the best of Sellers' knowledge, the Patents are valid, and
Sellers are aware of no facts that would invalidate or render unenforceable any
of the Patents;
(C) To the best of Sellers' knowledge, the TFA Technology is an
exclusive secret of Sellers, and all information, know-how, show-how, processes,
process parameters, methods, practices, designs, fabrication techniques,
technical plans, compilations, creations, data, algorithms, programs,
documentation, and the like, known by
8
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Sellers as of the Closing Date and related to the TFA Technology is exclusively
known by Sellers and preserved as secret and confidential, except as disclosed
in the Patents.
(C) Neither Seller is aware of any claims (either threatened or
actual) that the TFA Technology or the General Technology or the Devices
infringe any rights of any third parties;
(D) Neither Seller is aware of any patents or other third party rights
that would interfere with Buyer's right to practice the TFA Technology or the
General Technology or to use the Devices;
(E) To the best of Sellers' knowledge, Buyer's practice of the TFA
Technology and the General Technology and use of the Devices will not infringe
any rights of any third parties; and
(F) Mr. Norbert Desmet is thoroughly familiar with the TFA Technology,
the Devices and the General Technology and for 5 years has been responsible for
Sellers' use of the TFA Technology, the Devices and the General Technology,
including the training of Sellers' employees and/or agents in such use.
3.16 ACCURACY OF INFORMATION.
-----------------------
To the best knowledge of Sellers, all information furnished by or on
behalf of Sellers to Buyer in connection with the transactions contemplated by
this Agreement is true and complete in all material respects and does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make any statement therein not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents, warrants and agrees as follows:
4.1 ORGANIZATION, CORPORATE POWER AND AUTHORITY. Buyer is a corporation
-------------------------------------------
duly organized, validly existing and in good standing under the laws of the
state in which it is incorporated and is duly qualified to do business as a
foreign corporation in the jurisdictions in which Buyer conducts its business,
except where the failure so to qualify will not have a material adverse effect
on Buyer's ability to perform its obligations under the Transaction Documents.
Buyer has all requisite corporate power and authority to acquire, own, lease and
operate the Assets, to conduct its business after the Closing, to execute and
deliver the Transaction Documents to which it is a party and to perform its
obligations thereunder.
9
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4.2 AUTHORIZATION OF AGREEMENT. The execution, delivery and performance
--------------------------
by Buyer of the Transaction Documents to which it is a party, and the
consummation by it of the Transactions, have been duly authorized by all
necessary corporate action by Buyer. This Agreement has been, and each other
Transaction Document to which Buyer is a party will be at the Closing, duly
executed and delivered by Buyer and constitute, or will, when delivered,
constitute, the legal, valid and binding obligations of Buyer, enforceable
against Buyer in accordance with their respective terms, except as may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws and equitable principles relating to or limiting creditors' rights
generally.
4.3 EFFECT OF AGREEMENT. The execution, delivery and performance by Buyer
-------------------
of the Transaction Documents to which it is a party, and the consummation by it
of the Transactions, will not violate the charter documents or bylaws of Buyer
or any Law to which Buyer is subject, or any judgment, award or decree or any
material indenture, material agreement or other material instrument to which
Buyer is a party, or by which Buyer or its properties or assets are bound, or
conflict with, result in a breach of or constitute (with due notice or lapse of
time or both) a default under, any such indenture, agreement or other
instrument, or result in the creation or imposition of any Encumbrance of any
nature whatsoever upon any of the properties or assets of Buyer.
4.4 GOVERNMENTAL APPROVALS. No Approval or Order or action of or filing
----------------------
with any Governmental Entity is required to be obtained by Buyer for the
execution and delivery by Buyer of the Transaction Documents to which it is a
party or the consummation by it of the Transactions.
ARTICLE 5
COVENANTS WITH RESPECT TO
CONDUCT OF SELLER PRIOR TO CLOSING
5.1 ACCESS.
------
Subject to applicable Laws and fiduciary and privacy obligations of
which Sellers will advise Buyer, Sellers shall authorize and permit Buyer and
its representatives (which term shall be deemed to include its independent
accountants and counsel) to have reasonable access during normal business hours,
upon reasonable notice and in such manner as will not unreasonably interfere
with the conduct of Sellers' business, to Sellers' properties, books, records,
operating instructions and procedures relating to the Assets and all other
information with respect to the Assets as Buyer may from time to time reasonably
request.
10
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5.2 MATERIAL ADVERSE CHANGES.
------------------------
Each Seller will promptly notify Buyer of any event of which such
Seller obtains knowledge which has had or might reasonably be expected to have a
material adverse effect on the Assets or which if known as of the date hereof
would have been required to be disclosed to Buyer.
5.3 CONDUCT OF BUSINESS.
-------------------
Between the date of this Agreement and the Closing Date, each Seller
covenants and agrees that it shall not without the prior consent in writing of
Buyer:
(A) conduct its business in any manner except in the ordinary course
consistent with past practices; or
(B) accept any purchase order for products to be manufactured in Los
Angeles, California that will not be either (i) completed and shipped on or
prior to September 30, 1996 or (ii) transferred to St. Gallen, Switzerland on or
prior to September 30, 1996 for completion and shipping in compliance with the
terms and conditions of the TFA License Agreement attached hereto as Exhibit C;
(C) sell, transfer, mortgage, encumber or otherwise dispose of any
Assets, except for dispositions of Inventory in the ordinary course of business.
5.4 CONFIDENTIALITY.
---------------
All non-public information disclosed by any party (or its
representatives) whether before or after the date hereof, in connection with the
transactions contemplated by, or the discussions and negotiations preceding,
this Agreement to any other party (or its representatives) shall be kept
confidential by such other party and its representatives and shall not be used
by any such Persons other than as contemplated by this Agreement, except to the
extent that such information may otherwise be required by Law to be used or
disclosed, such information is included in any filing with the Securities and
Exchange Commission, or such duty as to confidentiality is waived in writing by
the other party. If this Agreement is terminated, each party shall use all
reason able efforts to return upon written request from the other party all
documents (and reproductions thereof) received by it or its representatives from
such other party (and, in the case of reproductions, all such reproductions made
by the receiving party) that include information not within the exceptions
contained in the first sentence of this Section 5.4, unless the recipients
provide assurances reasonably satisfactory to the requesting party that such
documents have been destroyed.
11
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5.5 CUSTOMER LIST.
-------------
Sellers shall deliver to Buyer on or before September 16, 1996 a list
of customers to be attached as Schedule 1 to the TFA License Agreement. Buyer
shall in its absolute discretion have the right to approve or disapprove the
customer list.
ARTICLE 6
ADDITIONAL CONTINUING COVENANTS
6.1 NONDISCLOSURE OF PROPRIETARY DATA.
---------------------------------
After the Closing, neither Sellers nor any of their representatives or
Affiliates shall, at any time, make use of, divulge or otherwise disclose,
directly or indirectly, any trade secret or other proprietary data concerning
the Assets. In addition, neither Sellers nor any of their representatives or
Affiliates shall make use of, divulge or otherwise disclose, directly or
indirectly, to Persons other than Buyer, any confidential information concerning
the Assets.
6.2 TRANSITION.
----------
The parties will cooperate in the transfer of the Assets from the
premises of Sellers to the premises of Buyer, and the parties will use their
best efforts to accomplish the transfer as soon as practicable, but in any event
no later than October 31, 1996 with respect to the Assets located in Los
Angeles, California and January 31, 1997 with respect to the Assets located in
St. Gallen, Switzerland. During the transition period, Sellers agree (i) that
Buyer shall have reasonable access to the Assets during regular business hours,
(ii) that the Assets will be covered by Sellers' existing insurance policies for
the benefit of Buyer, (iii) to comply with the covenants set forth in the Bills
of Sale attached hereto as Exhibits A-1 and A-2 and (iv) to exercise the same
reasonable degree of care with respect to the Assets as Sellers do with respect
to their own property. Notwithstanding the Employment Agreement attached hereto
as Exhibit E, Buyer agrees that Mr. Norbert Desmet may render services to
Sellers as reasonably requested by them until January 1, 1997, to the extent
that Mr. Desmet and Buyer determine in their sole discretion that such services
do not interfere with Mr. Desmet's obligations to Buyer.
6.3 COVENANT NOT TO SUE.
-------------------
Each Seller covenants that it will not sue Buyer due to Buyer's use
of the General Technology, provided that such use does not breach the terms of
the General Technology License Agreement attached hereto as Exhibit D.
12
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6.4 CONFIDENTIALITY OBLIGATIONS RELATING TO INTELLECTUAL PROPERTY.
-------------------------------------------------------------
Each Seller acknowledges that the TFA Technology obtains independent
economic value from being not generally known; accordingly, each Seller shall
take reasonable steps to preserve the TFA Technology as secret and confidential.
Neither Seller shall publish or disclose the TFA Technology in any manner. Each
Seller shall use at least the same level of care to prevent the disclosure of
the TFA Technology that it exercises in protecting its own confidential
information and shall in any event take all reasonable precautions to prevent
the disclosure of TFA Technology to any third party. Each Seller acknowledges
and agrees that Buyer, in addition to any other available rights or remedies,
shall, without the necessity of posting any bond or similar security, be
entitled to specific performance, injunctive relief and any other equitable
remedy for the breach or default or threatened breach or default of this Section
6.4, and each Seller waives any defense that a remedy at law or damages is
adequate.
6.5 RIGHT OF FIRST REFUSAL.
----------------------
For a period of five years after the date of this Agreement, neither
Seller shall sell the General Technology (or any portion thereof) without first
offering to Buyer the right to purchase the General Technology (or such portion
thereof) on terms at least as favorable to Buyer as the terms contained in any
bona fide offer negotiated by such Seller with a non-affiliated third party
purchaser; provided, however, that the provisions of this Section 6.5 shall not
-------- -------
be applicable in the event of a sale of Schlaepfer or substantially all of its
assets. Such Seller shall give to Buyer written notice of such Seller's offer
to sell the General Technology, and the terms of such offer. If Buyer decides
to purchase the General Technology, Buyer shall give written notice accepting
such offer to such Seller within thirty (30) days of receipt of such Seller's
offer (the "Offer Period"). Failure by Buyer to accept such Seller's offer
within the Offer Period shall constitute rejection of the offer, and such Seller
shall be free to consummate the sale of the General Technology to the third
party purchaser on substantially the same terms contained in such Seller's offer
to Buyer within ninety (90) days of the expiration of the Offer Period. Any
change in the substantial terms of the transaction with the third party
purchaser, or such Seller's failure to consummate the transaction within the
period contained in the preceding sentence, shall require such Seller to repeat
the procedure contained in this Section 6.5.
6.6 SELLERS' COVENANT NOT TO COMPETE.
--------------------------------
13
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(A) RESTRICTIONS. Each Seller agrees that it shall not for a period
------------
of eight years after the Closing Date, directly or indirectly, in (i) any
county or city in the State of California in which Seller's business is
carried on and in which Buyer conducts a similar business after the Closing
Date, or (ii) in any other state in the United States, or (iii) in any
other country, compete with, assist any Person in competing with or acquire
an interest in any Person competing with, Buyer's manufacture, use or sale
of TFA, including, without limitation, the sale of TFA in bulk, whether as
an owner, shareholder, joint venturer, partner, officer, employee,
consultant, agent or otherwise. Nothing contained in this Section 6.6
shall prohibit either Seller from holding and making investments in
securities of any corporation or limited partnership whose securities are
traded in a generally recognized market, provided, such Seller's equity
interest therein does not exceed five percent (5%) of the outstanding
shares or interests in such corporation or partnership. Notwithstanding
the foregoing, the parties agree that (i) each Seller shall be permitted to
practice the TFA Technology in accordance with the terms and conditions of
the TFA License Agreement and (ii) each Seller shall be prohibited from any
activity that violates or is inconsistent with the terms and conditions of
the TFA License Agreement.
(B) SPECIAL REMEDIES AND ENFORCEMENT. Sellers and Buyer agree that a
--------------------------------
breach of any of the covenants set forth in this Section 6.6 could cause
irreparable harm to Buyer, that Buyer's remedies at law in the event of
such breach would be inadequate, and that, accordingly, in the event of
such breach, a restraining order or injunction or both may be issued
against Sellers, in addition to any other rights and remedies that are
available to Buyer. In connection with any such action or proceeding for
injunctive relief, Sellers hereby waive the claim or defense that a remedy
at law alone is adequate and agree, to the maximum extent permitted by Law,
to have each provision of this Section 6.6 specifically enforced against
them and consent to the entry of injunctive relief against them enforcing
or restraining any breach or threatened breach of this Section 6.6.
(C) SEVERABILITY. If this Section 6.6 is more restrictive than
------------
permitted by the Laws of any jurisdiction in which Buyer seeks enforcement
hereof, this Section 6.6 shall be limited to the extent required to permit
enforcement under such Laws. In particular, the parties intend that the
covenants contained in Section 6.6 shall be construed as a series of
separate covenants, one for each city, county, state and country in which
Sellers' business has been carried on and in
14
<PAGE>
which Buyer conducts a similar business after the Closing Date. Except for
geographic coverage, each such separate covenant shall be deemed identical
in terms. If, in any proceeding, a court or arbitrator shall refuse to
enforce any of the separate covenants, then such unenforceable covenant
shall be deemed eliminated from this Section 6.6 for the purpose of those
proceedings to the extent necessary to permit the remaining separate
covenants to be enforced. If the provisions of this Section 6.6 shall ever
be deemed to exceed the duration or geographic limitations or scope
permitted by applicable Law, then such provisions shall be reformed to the
maximum time or geographic limitations in scope, as the case may be,
permitted by applicable Law.
ARTICLE 7
CONDITIONS OF PURCHASE
7.1 GENERAL CONDITIONS.
------------------
The obligations of the parties to effect the Closing shall be subject
to the following conditions:
(A) No Orders; Legal Proceedings. No Law or Order shall have been
----------------------------
enacted, entered, issued, promulgated or enforced by any Governmental Entity,
nor shall any Action have been instituted and remain pending or have been
threatened and remain so at what would otherwise be the Closing Date, which
prohibits or restricts or would (if successful) prohibit or restrict the
Transactions.
(B) Approvals. All Permits and Approvals required to be obtained from
---------
any Governmental Entity shall have been received or obtained on or prior to the
Closing Date.
7.2 CONDITIONS TO OBLIGATIONS OF BUYER.
----------------------------------
The obligations of Buyer to effect the Closing are subject, at the
option of Buyer, to the satisfaction or written waiver of each of the following
conditions:
(A) Representations and Warranties and Covenants of Sellers. The
-------------------------------------------------------
representations and warranties of Sellers herein contained shall be true in all
material respects at the Closing Date with the same effect as though made at
such time (except where such representation and warranty is made as of a date
specifically set forth therein); Sellers shall have in all material respects
performed all obligations and complied with all covenants and conditions
required by this Agreement to be performed or complied with by them at or prior
to the Closing Date, and Sellers shall have delivered to Buyer certificates of
Sellers in form and substance satisfactory to
15
<PAGE>
Buyer, dated the Closing Date and signed by their Chief Executive Officers to
such effect.
(B) No Material Adverse Change. There shall not have been any
--------------------------
material adverse change in or affecting the Assets subsequent to the date
hereof.
(C) Opinions of Counsel. Buyer shall receive at the Closing from
-------------------
Ropers, Majeski, Kohn & Bentley, counsel to Schlaepfer U.S., and from Dr. Thomas
Guggenheim, counsel to Schlaepfer, opinions dated the Closing Date,
substantially in the form of Exhibits B-1 and B-2.
(D) Approvals/Lien Releases. All required Approvals from third
-----------------------
parties shall have been received or obtained on or prior to the Closing Date,
including releases of the Encumbrances listed on Schedule 3.7 attached hereto.
(E) Termination of Desmet Employment Agreement. The Contract of
------------------------------------------
Employment, executed in 1995, between Schlaepfer and Norbert Desmet, shall have
been terminated effective as of the Closing and shall be of no further force and
effect.
(F) Due Diligence. Buyer shall not have notified Sellers within five
-------------
business days of the date hereof that the results of Buyer's due diligence with
respect to the Assets are not satisfactory to Buyer.
(G) License Agreements. The License Agreements in the forms attached
------------------
hereto as Exhibits D and E shall have been executed and delivered by Schlaepfer,
and Sellers and Buyer shall have agreed on the names of the customers to be
attached as Schedule 1 to the TFA License Agreement.
(H) Employment Agreement. The Employment Agreement in the form
--------------------
attached hereto as Exhibit E shall have been executed and delivered by Norbert
Desmet.
(I) Inventory List. Sellers shall have delivered to Buyer a true and
--------------
correct list of the Inventory as of five (5) business days before the Closing.
7.3 CONDITIONS TO OBLIGATIONS OF SELLERS.
------------------------------------
The obligations of Sellers to effect the Closing are subject, at the
option of Sellers, to the satisfaction or written waiver of each of the
following conditions:
16
<PAGE>
(A) Representations and Warranties and Covenants of Buyer. The
-----------------------------------------------------
representations and warranties of Buyer herein contained shall be true in all
material respects at the Closing Date with the same effect as though made at
such time (except where such representation and warranty is made as of a date
specifically set forth therein); Buyer shall have in all material respects
performed all obligations and complied with all covenants and conditions
required by this Agreement to be performed or complied with by it at or prior to
the Closing Date, and Buyer shall have delivered to Sellers certificates of
Buyer in form and substance satisfactory to Seller, dated the Closing Date and
signed by its President, to such effect.
(B) Opinion of Counsel. Sellers shall receive at the Closing from
------------------
O'Melveny & Myers LLP, counsel to Buyer, an opinion dated the Closing Date,
substantially in the form of Exhibit F.
(C) License Agreements. The License Agreements in the forms attached
------------------
hereto as Exhibits D and E shall have been executed and delivered by Buyer, and
Sellers and Buyer shall have agreed on the names of the customers to be attached
as Schedule 1 to the TFA License Agreement.
ARTICLE 8
TERMINATION OF OBLIGATIONS; SURVIVAL
8.1 TERMINATION OF AGREEMENT.
------------------------
This Agreement and the transactions contemplated by this Agreement
shall terminate if the Closing does not occur on or before the close of business
on December 31, 1996, unless extended by mutual consent in writing of Buyer and
Sellers and otherwise may be terminated at any time before the Closing as
follows:
(A) Mutual Consent. By mutual consent in writing of Buyer and
--------------
Sellers.
(B) Conditions to Buyer's Performance Not Met. By Buyer by written
-----------------------------------------
notice to Sellers if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligations of
Buyer to consummate the transactions contemplated by this Agreement as set forth
in Section 7.1 or 7.2.
(C) Conditions to Sellers' Performance Not Met. By Sellers by written
------------------------------------------
notice to Buyer if any event occurs or condition exists which would render
impossible the satisfaction of one or more conditions to the obligation of
Seller to consummate the transactions contemplated by this Agreement as set
forth in Section 7.1 or 7.3.
17
<PAGE>
(D) Material Breach. By Buyer or Sellers if there has been a material
---------------
misrepresentation or other material breach by the other party in its
representations, warranties and covenants set forth herein; provided, however,
that if such breach is susceptible to cure, the breaching party shall have five
business days after receipt of notice from the other party of its intention to
terminate this Agreement if such breach continues in which to cure such breach.
8.2 EFFECT OF TERMINATION.
---------------------
Subject to the immediately following sentence, if this Agreement shall
be terminated pursuant to Section 8.1, all further obligations of the parties
under this Agreement shall terminate without further liability of any party to
another; provided that the obligations of the parties contained in Section 5.4
[Confidentiality] and Section 10.12 [Expenses] shall survive any such
termination. A termination under Section 8.1 shall not relieve any party of any
liability for a breach of, or for any misrepresentation under this Agreement, or
be deemed to constitute a waiver of any available remedy (including specific
performance if available) for any such breach or misrepresentation.
ARTICLE 9
INDEMNIFICATION
9.1 OBLIGATIONS OF SELLERS.
----------------------
Sellers agree to indemnify and hold harmless Buyer and its directors,
officers, employees, affiliates, agents and assigns from and against any and all
Losses, directly or indirectly, as a result of, or based upon or arising from:
(A) any breach of any representation, warranty or covenant of Sellers
made in this Agreement;
(B) any liability or obligation of, or claims against, Sellers or
their business; and
(C) any liability or obligation relating to the Assets arising prior
to the Closing.
9.2 OBLIGATIONS OF BUYER.
--------------------
Buyer agrees to indemnify and hold harmless Sellers and their
directors, officers, employees, affiliates, agents and assigns from and against
any and all Losses, directly or indirectly, as a result of, or based upon or
arising from:
18
<PAGE>
(A) any breach of any representation, warranty or covenant of Buyer
made in this Agreement;
(B) any liability or obligation of, or claims against, Buyer or its
business; and
(C) any liability or obligation relating to the Assets arising after
the Closing.
9.3 PROCEDURE.
---------
(A) Notice. Any party seeking indemnification with respect to any
------
Loss shall give notice to the party required to provide indemnity hereunder (the
"Indemnifying Party").
(B) Defense. If any claim, demand or liability is asserted by any
-------
third party against any Indemnified Party, the Indemnifying Party shall, upon
the written request of the Indemnified Party, defend any actions or proceedings
brought against the Indemnified Party in respect of matters embraced by the
indemnity with counsel satisfactory to the Indemnified Party, but the
Indemnified Party shall have the right to conduct and control the defense,
compromise or settlement of any Indemnifiable Claim if the Indemnified Party
chooses to do so, on behalf of and for the account and risk of the Indemnifying
Party who shall be bound by the result so obtained to the extent provided
herein. If, after a request to defend any action or proceeding, the
Indemnifying Party neglects to defend the Indemnified Party, a recovery against
the latter suffered by it in good faith, is conclusive in its favor against the
Indemnifying Party, provided however that, if the Indemnifying Party has not
received reasonable notice of the action or proceeding against the Indemnified
Party, or is not allowed to control its defense, judgment against the
Indemnified Party is only presumptive evidence against the Indemnifying Party.
Each party hereto, to the extent that it is or becomes an Indemnifying Party,
hereby stipulates that a judgment against the Indemnified Party shall be
conclusive upon the Indemnifying Party. In connection with the defense of any
claim, each party shall make available to the party controlling such defense,
any books, records or other documents within its control that are reasonably
requested in the course of such defense.
9.4 NOTICE BY SELLERS.
-----------------
Each Seller agrees to notify Buyer of any liabilities, claims or
misrepresentations, breaches or other matters covered by this Article 9 upon
discovery or receipt of notice thereof (other than from Buyer), whether before
or after Closing.
9.5 LIMITATION ON INDEMNITY.
-----------------------
19
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No party shall assert any claim against the other party or parties for
indemnification hereunder unless and until the amount of all Losses determined
to have been incurred or suffered at the time by the party seeking
indemnification exceeds, in the aggregate, Twenty Five Thousand Dollars
($25,000) (the "Basket Amount"). At such time, if any, as the aggregate amount
of such Losses exceeds the Basket Amount, the Indemnifying Party shall be liable
for all of such Losses, including the first $25,000.
ARTICLE 10
GENERAL
10.1 AMENDMENTS; WAIVERS.
-------------------
This Agreement and any schedule or exhibit attached hereto may be
amended only by agreement in writing of all parties. No waiver of any provision
nor consent to any exception to the terms of this Agreement shall be effective
unless in writing and signed by the party to be bound and then only to the
specific purpose, extent and instance so provided.
10.2 SCHEDULES; EXHIBITS; INTEGRATION.
--------------------------------
Each schedule and exhibit delivered pursuant to the terms of this
Agreement shall be in writing and shall constitute a part of this Agreement,
although schedules need not be attached to each copy of this Agreement. This
Agreement, together with such schedules and exhibits, constitutes the entire
agreement among the parties pertaining to the subject matter hereof and
supersedes all prior agreements and understandings of the parties in connection
therewith.
10.3 BEST EFFORTS; FURTHER ASSURANCES.
--------------------------------
(A) Standard. Each party will use its best efforts to cause all
--------
conditions to its obligations to be timely satisfied and to perform and fulfill
all obligations on its part to be performed and fulfilled under this Agreement,
to the end that the transactions contemplated by this Agreement shall be
effected substantially in accordance with its terms as soon as reasonably
practicable. Each party shall execute and deliver such further certificates,
agreements and other documents and take such other actions as the other party
may reasonably request to consummate or implement the transactions contemplated
hereby or to evidence such events or matters.
(B) Transfer of Assets. If, after the Closing Date and the
------------------
transition period described in Section 6.2, any Assets shall remain on Sellers'
premises, then Sellers shall take
20
<PAGE>
reasonable efforts to deliver such Assets to Buyer at the expense of Buyer and,
so long as such Assets shall remain on said premises, each Seller shall exercise
the same reasonable degree of care with respect thereto as it does with respect
to its own property.
10.4 GOVERNING LAW.
-------------
This Agreement and the legal relations between the parties shall be
governed by and construed in accordance with the laws of the State of California
applicable to contracts made and performed in such State and without regard to
conflicts of law doctrines except to the extent that certain matters are
preempted by federal law or are governed by the law of the jurisdiction of
incorporation of the respective parties. Notwithstanding the foregoing, Section
6.6 and any issues relating to the transfer of title of the Assets located in
Switzerland shall be governed by and construed in accordance with the laws of
Switzerland.
10.5 NO ASSIGNMENT.
-------------
Neither this Agreement nor any rights or obligations under it are
assignable, except that Buyer may assign its rights hereunder to any Affiliate
of Buyer or to any post-Closing purchaser of a substantial part of the Assets.
10.6 HEADINGS.
--------
The descriptive headings of the Articles, Sections and subsections of
this Agreement are for convenience only and do not constitute a part of this
Agreement.
10.7 COUNTERPARTS.
------------
This Agreement and any amendment hereto or any other agreement (or
document) delivered pursuant hereto may be executed in one or more counterparts
and by different parties in separate counterparts. All of such counterparts
shall constitute one and the same agreement (or other document) and shall become
effective (unless otherwise provided therein) when one or more counterparts have
been signed by each party and delivered to the other party.
10.8 PUBLICITY AND REPORTS.
---------------------
Sellers and Buyer shall coordinate all publicity relating to the
transactions contemplated by this Agreement and no party shall issue any press
release, publicity statement or other public notice relating to this Agreement,
or the transactions contemplated by this Agreement, without obtaining the prior
consent of the other party (which consent shall not be unreasonably withheld),
except with respect to
21
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filings by Buyer with the Securities and Exchange Commission or to the extent
that a particular action is required by applicable Law.
10.9 REMEDIES CUMULATIVE.
-------------------
All rights and remedies existing under this Agreement are cumulative
to, and not exclusive of, any rights or remedies otherwise available. In
addition, Article 9 shall not be deemed to preclude or otherwise limit in any
way the exercise of any other rights or pursuit of other remedies for the breach
of this Agreement or with respect to any misrepresentation.
10.10 PARTIES IN INTEREST.
-------------------
This Agreement shall be binding upon and inure to the benefit of each
party, and nothing in this Agreement, express or implied, is intended to confer
upon any other Person any rights or remedies of any nature whatsoever under or
by reason of this Agreement. Nothing in this Agreement is intended to relieve
or discharge the obligation of any third Person to (or to confer any right of
subrogation or action over against) any party to this Agreement.
10.11 NOTICES.
-------
Any notice or other communication hereunder must be given in writing
and (a) delivered in person, (b) transmitted by telex, telefax or
telecommunications mechanism or (c) mailed by certified or registered mail,
postage prepaid, receipt requested as follows:
IF TO BUYER, ADDRESSED TO:
St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Bob Gray
Facsimile: (714) 261-9585
WITH A COPY TO:
O'Melveny & Myers LLP
610 Newport Center Drive, Suite 1700
Newport Beach, CA 92660
Attn: David A. Krinsky, Esq.
Facsimile: (714) 669-6994
22
<PAGE>
IF TO SELLERS, ADDRESSED TO:
Jakob Schlaepfer & Co. Ltd.
Teufenerstrasse 11
CH-9001 St. Gallen, Switzerland
Attn: Hans Von Meiss
Facsimile:
WITH A COPY TO:
Ropers, Majeski, Kohn & Bentley
550 South Hope Street, Suite 1900
Los Angeles, CA 90071
Attn: Carol Lucas, Esq.
Facsimile: (213) 312-2001
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 10.11 and an appropriate answerback is received, (ii) if given by mail,
five days after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (iii) if given by any other means,
when actually delivered at such address.
10.12 EXPENSES AND ATTORNEYS FEES.
---------------------------
Sellers and Buyer shall each pay their own expenses incident to the
negotiation, preparation and performance of this Agreement and the transactions
contemplated hereby, including but not limited to the fees, expenses and
disbursements of their respective counsel ("Transaction Expenses"); provided,
--------
however, that if this Agreement is terminated pursuant to Section 8.1(d), the
- -------
terminating party shall be entitled to recover its Transaction Expenses in
addition to any other rights and remedies it may have against the breaching
party. In the event of any Action for the breach of this Agreement or
misrepresentation by any party, the prevailing party also shall be entitled to
reasonable attorney's fees, costs and expenses incurred in such Action.
10.13 SURVIVAL.
--------
The representations and warranties and agreements contained in or made
pursuant to this Agreement shall survive the Closing.
23
<PAGE>
10.14 BULK TRANSFERS.
--------------
Buyer hereby waives compliance by Sellers with any applicable bulk
transfer laws in connection with the sale of the Assets hereunder and Sellers
hereby agree to indemnify Buyer against and hold Buyer harmless from any and all
Losses relating to or resulting from such non-compliance pursuant to the
indemnification provisions of Article 9; provided, however, that any such Losses
-------- -------
shall be paid in full and shall not be subject to the Basket Amount provided for
in Section 9.5.
ARTICLE 11
DEFINITIONS
For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires,
(A) the terms defined in this Article 11 have the meanings assigned to
them in this Article 11 and include the plural as well as the singular,
(B) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions are to the designated Articles, Sections and
other subdivisions of the body of this Agreement,
(C) pronouns of either gender or neuter shall include, as appropriate,
the other pronoun forms, and
(D) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision.
As used in this Agreement and the Exhibits and Schedules delivered
pursuant to this Agreement, the following definitions shall apply.
"Action" means any action, complaint, petition, investigation, suit or
other proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
"Affiliate" means a Person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, a specified Person.
"Approval" means any approval, authorization, consent, qualification
or registration, or any waiver of any of the foregoing, required to be obtained
from, or any notice,
24
<PAGE>
statement or other communication required to be filed with or delivered to, any
Governmental Entity or any other Person.
"Bills of Sale" means the Bills of Sale substantially in the forms of
Exhibits A-1 and A-2 hereto.
"Closing" means the consummation of the Transactions.
"Closing Date" means the date of the Closing.
"Code" means the Internal Revenue Code of 1986, as amended, or as
hereafter amended.
"Contract" means any contract, agreement, lease, license, sales order,
purchase order, or other legally binding commitment or instrument, whether or
not in writing.
"Encumbrance" means any claim, charge, easement, encumbrance, lease,
covenant, security interest, lien, option, pledge, rights of others, or
restriction (whether on voting, sale, transfer, disposition or otherwise),
whether imposed by agreement, understanding, law, equity or otherwise.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the related regulations and published interpretations.
"General Technology" means all trade secrets, information, know-how,
show-how, processes, process parameters, methods, practices, designs,
fabrication techniques, technical plans, compilations, creations, data,
algorithms, programs, documentation, and the like, related to the Devices, known
by Sellers as of the Closing Date, except the TFA Technology.
"Governmental Entity" means any government or any agency, district,
bureau, board, commission, court, department, official, political subdivision,
tribunal or other instrumentality of any government, whether federal, state or
local, domestic or foreign.
"Hazardous Substance" means (but shall not be limited to) substances
that are defined or listed in, or otherwise classified pursuant to, any
applicable Laws as "hazardous substances," "hazardous materials," "hazardous
wastes" or "toxic substances," or any other formulation intended to define, list
or classify substances by reason of deleterious properties such as ignitibility,
corrosivity, reactivity, radioactivity, carcinogenicity, reproductive toxicity
or "EP toxicity," and petroleum and drilling fluids, produced waters and other
wastes associated with the
25
<PAGE>
exploration, development, or production of crude oil, natural gas or geothermal
energy.
"Indemnifiable Claim" means any Loss for or against which any party is
entitled to indemnification under this Agreement; "Indemnified Party" means the
-----------------
party entitled to indemnity hereunder; and "Indemnifying Party" means the party
------------------
obligated to provide indemnification hereunder.
"Law" means any constitutional provision, statute or other law, rule,
regulation, or interpretation of any Governmental Entity and any Order.
"License Agreements" means the TFA License Agreement and the General
Technology License Agreement.
"Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified person.
"Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
"Permit" means any license, permit, franchise, certificate of
authority, or order, or any waiver of the foregoing, required to be issued by
any Governmental Entity.
"Person" means an association, a corporation, an individual, a
partnership, a trust or any other entity or organization, including a
Governmental Entity.
"Tax" means any foreign, federal, state, county or local income,
sales, use, excise, franchise, ad valorem, real and personal property, transfer,
gross receipt, stamp, premium, profits, customs, duties, windfall profits,
capital stock, production, business and occupation, disability, employment,
payroll, severance or withholding taxes, fees, assessments or charges of any
kind whatever imposed by any Governmental Entity, any interest and penalties
(civil or criminal), additions to tax, payments in lieu of taxes or additional
amounts related thereto or to the nonpayment thereof, and any Loss in connection
with the determination, settlement or litigation of any Tax liability.
26
<PAGE>
"Tax Return" means a declaration, statement, report, return or other
document or information required to be filed or supplied with respect to Taxes.
"TFA" means Thermo-Film Application, method and apparatus for sticking
a multiplicity of ornamental pieces on to a base sheet material.
"Transaction Documents" means this Agreement, the Bills of Sale, the
License Agreements and the patent assignments to be executed and delivered
pursuant to Section 2.4.
"Transactions" means the transactions contemplated by the Transaction
Documents.
27
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed by its duly authorized officers as of the day and year
first above written.
BUYER
ST. JOHN KNITS, INC.
By: /s/ BOB GRAY
_________________________________
Name: Bob Gray
Title: Chairman of the Board
and Chief Executive Officer
SELLERS
JAKOB SCHLAEPFER & CO. AG
By: /s/ G. BOLTE /s/ H. V. MEISS
_______________ _______________
Name: G. Bolte H. v. Meiss
Title: Chairman CEO
JAKOB SCHLAEPFER, INC.
By: /s/ H. V. MEISS
___________________________
Name: H. v. Meiss
Title: Chairman
28
<PAGE>
EXHIBIT A-1
-----------
BILL OF SALE
For good and valuable consideration, receipt of which is hereby
acknowledged, in connection with the Asset Purchase Agreement, dated August 29,
1996 (as amended, the "AGREEMENT"), by and among St. John Knits, Inc., a
California corporation, Jakob Schlaepfer, Inc., a Delaware corporation
("SCHLAEPFER U.S.") and Jakob Schlaepfer & Co. AG, a Swiss corporation and
intending to be legally bound hereby, Schlaepfer U.S. does hereby sell, convey,
grant, assign and transfer to Schlaepfer U.S. all of its right, title and
interest in and to the Assets (as defined in the Agreement) owned by it as set
forth in Schedule 1.1 to the Agreement.
Schlaepfer U.S. hereby agrees and will be obliged to inform all
interested third parties that the Assets are owned by and are the exclusive
property of Schlaepfer U.S., and to refrain from representing and/or declaring
to any third parties that the Assets are a part of the building or premises or
real estate where such Assets are located, or otherwise constitute fixtures of
such building or premises or real estate in any manner.
IN WITNESS WHEREOF, the undersigned parties have caused this Bill of
Sale to be executed this ____ day of September, 1996.
JAKOB SCHLAEPFER, INC.,
a Delaware corporation
By:
-------------------------------
Name:
--------------------------
Title:
-------------------------
A-1
<PAGE>
EXHIBIT A-2
-----------
BILL OF SALE
AND
ASSIGNMENT AGREEMENT
For good and valuable consideration, receipt of which is hereby
acknowledged, in connection with the Asset Purchase Agreement, dated August 29,
1996 (as amended, the "AGREEMENT"), by and among St. John Knits, Inc., a
California corporation, Jakob Schlaepfer, Inc., a Delaware corporation and Jakob
Schlaepfer & Co. AG, a Swiss corporation ("SCHLAEPFER"), and intending to be
legally bound hereby:
(i) Schlaepfer does hereby sell, convey, grant, assign and transfer
to St. John Knits AG, a Swiss corporation ("St. John Knits AG") all of
its right, title and interest in and to (A) the Assets (as defined in
the Agreement) owned by it, including the Assigned Contracts (as defined
in the Agreement) and (B) agrees to prominently label the Assets
remaining in the possession of Schlaepfer as the property of St. John
Knits AG;
(ii) Schlaepfer acknowledges and agrees and the Parties to the
Agreement herewith agree that the ownership of and title to the Assets
will be transferred to St. John Knits AG as a result of the execution of
the Agreement and this Bill of Sale and Assignment Agreement, but that
possession of certain of the Assets, as set forth in Section 6.2 of the
Agreement will remain with Schlaepfer in accordance with Article 924
paragraph 1 of the Swiss Civil Code for a period of time after the
execution of the Agreement and this Bill of Sale and Assignment
Agreement ("BESITZESKONSTITUT" under applicable Swiss law); and
(iii) Schlaepfer hereby agrees and will be obliged to inform all
interested third parties to which this could be relevant that the Assets
are owned by and are the exclusive property of St. John Knits AG, and to
refrain from representing and/or declaring to any third parties that the
Assets are a part of the building or premises or real estate where such
Assets are located, or otherwise constitute fixtures of such building or
premises or real estate in any manner ("ZUGEHOR" under applicable Swiss
law).
A-2-1
<PAGE>
IN WITNESS WHEREOF, the undersigned parties have caused this Bill of
Sale and Assignment Agreement to be executed this _____ day of September, 1996.
ST. JOHN KNITS, INC.,
a California corporation
By:
------------------------------------
Robert E. Gray
Chairman of the Board and
Chief Executive Officer
JAKOB SCHLAEPFER & CO. AG,
a Swiss corporation
By: ------------------------------------
Name:
-------------------------------
Title:
------------------------------
ST. JOHN KNITS AG, in
foundation,
a Swiss corporation
By: ST. JOHN KNITS, INC.,
a California corporation
By: ------------------------------------
Roger G. Ruppert
Chief Financial Officer
By: DR. THOMAS MULLER
By: St. John Knits, Inc.,
as Attorney-in-Fact for
Dr. Thomas Muller
By:
---------------------------------
Roger G. Ruppert
Chief Financial Officer
By: MARKUS KRONAUER
By: St. John Knits, Inc.,
as Attorney-in-Fact for
Markus Kronauer
By:
------------------------------
Roger G. Ruppert,
Chief Financial Officer
A-2-2
<PAGE>
EXHIBIT B-1
-----------
FORM OF OPINION OF COUNSEL TO
JAKOB SCHLAEPFER, INC.
September ___, 1996
St. John Knits, Inc.
17422 Derian Avenue
Irvine, California 92714
Attn: Bob Gray
Re: Jakob Schlaepfer, Inc.
----------------------
Gentlemen:
We have acted as special counsel to Jakob Schlaepfer. Inc., a Delaware
corporation ("Seller"), in connection with the sale by it of certain Assets to
you pursuant to an Asset Purchase Agreement dated as of August ___, 1996 (the
"Asset Purchase Agreement"). This opinion is delivered to you pursuant to
Section 7.2(c) of the Assert Purchase Agreement. Terms used herein that are
defined in the Asset Purchase Agreement are used herein with the meanings set
forth in the Asset Purchase Agreement, unless otherwise defined herein.
We have examined such corporate documents and records of Seller, and
made such other inquiries or examinations, as we deem necessary or appropriate
in connection with this opinion. In rendering this opinion. we have relied, as
to matters of fact, upon representations and certificates of officers and
employees of Seller, certificates of third parties and certificates of
government authorities; and we have assumed the genuineness of signatures of all
persons signing any documents, the authority of all governmental authorities,
the truth and accuracy of all matters of fact set forth in all certificates
furnished to us, the authenticity of all documents submitted to us as originals
and the conformity to original documents of all documents submitted to us as
certified, conformed or photostatic copies.
Based upon the foregoing, we are of the opinion that:
(i) Seller has been duly incorporated and is validly existing in good
standing under the laws of the State of Delaware and has the corporate power to
own its properties and assets and to carry on its business.
B-1-1
<PAGE>
Re: Jakob Schlaepfer, Inc.
August 27, 1996 Page Two
- --------------------------------------------------------------------------------
(ii) The execution, delivery and performance of the Asset Purchase
Agreement, the License Agreements and the Bills of Sale (the "Principal
Agreements") have been duly authorized by all necessary action on the part of
Seller, and the Principal Agreements have been duly executed and delivered by
Seller.
(iii) The Principal Agreements constitute the legally valid and
binding obligations of Seller, enforceable against Seller in accordance with
their respective terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting creditors'
rights generally (including, without limitation, fraudulent conveyance
limitation, concepts of materiality, reasonableness, good faith and fair dealing
and the possible unavailability of specific performance or injunctive relief,
regardless of whether considered in a proceeding in equity or at law.
(iv) Seller's execution and delivery of, and performance of its
obligations under, the Principal Agreements do not (a) violate Seller's
Certificate of Incorporation or By-Laws, (b) to the best of our knowledge,
violate, breach or result in a default under any material agreement of Seller or
(c) to the best of our knowledge, breach or otherwise violate any existing
obligation of Seller under any order, judgment or decree of any court or
governmental authority binding on Seller.
(v) The execution and delivery by Seller of, and performance of its
obligations under, the Principal Agreements do not violate any state or federal
statute or regulation that we have, in the exercise of customary professional
diligence, recognized as directly applicable to the Seller or to the
transactions of the type contemplated by the Principal Agreements.
(vi) No order, consent, permit or approval of any state or federal
governmental authority that we have, in the exercise of customary professional
diligence, recognized as directly applicable to the Seller or to transactions of
the type contemplated by the Principal Agreements is required on the part of the
Seller for the execution and delivery of, and performance under, the Principal
Agreements, except for such as have been obtained.
(vii) We have not given substantive attention on behalf of Seller
to, or represented Seller in connection with, any actions, suits or proceedings
pending or threatened against Seller before any count, arbitrator or
governmental agency.
B-1-2
<PAGE>
Re: Jakob Schlaepfer, Inc.
August 27, 1996 Page Three
- -------------------------------------------------------------------------------
We are not admitted to practice in any jurisdiction other than the
State of California. We do not purport to be expert on, and we are not
expressing an opinion with respect to the laws of any jurisdictions other then
the laws of the United States and the State of California and the General
Corporation Law of Delaware.
Very truly yours,
Ropers, Majeski, Kohn & Bentley
B-1-3
<PAGE>
EXHIBIT B-2
-----------
FORM OF OPINION OF SWISS COUNSEL TO
JAKOB SCHLAEPFER & AG and JACOB SCHLAEPFER, INC.
------------------------------------------------
September ___, 1996
St. John Knits, Inc.
17422 Demean Avenue
Irvine, California 92714
Attn: Bob Gray
Re: Jakob Schlaepfer & Co. AG and Jakob Schlaepfer, Inc.
----------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Jakob Schlaepfer & Co. AG, a Swiss corporation
("Schlaepfer") and Jakob Schlaepfer, Inc., a Delaware corporation (`'Schlaepfer
U.S.") (and together with Schlaepfer the "Sellers") in connection with the sale
of certain Assets to you pursuant to an Asset Purchase Agreement dated as of
August ___, 1996 (the "Asset Purchase Agreement").
This opinion is delivered to you pursuant to Section 7.2(c) of the Assert
Purchase Agreement. Terms used herein that are defined in the Asset Purchase
Agreement are used herein with the meanings set forth in the Asset Purchase
Agreement unless otherwise defined herein.
We have examined such corporate documents and records of Sellers, and made such
other inquiries or examinations, as we deem necessary or appropriate in
connection with this opinion. In rendering this opinion, we have relied, as to
matters of fact, upon representations and certificates of officers and employees
of the Sellers, certificates of third parties and certificate of government
authorities; and we have assumed the genuineness of signatures of all persons
signing any documents, else authority of all governmental authorities, the truth
and accuracy of all matters of fact set forth in all certificates Furnished to
us, the authenticity of all documents submitted to us as originals and the
conformity to original documents of all documents submitted to us as certified,
conformed or photostatic copies.
B-2-1
<PAGE>
Re: Jakob Schlaepfer, Inc.
August 27, 1996 Page Two
- ------------------------------------------------------------------------------
Based upon the foregoing, we are of the opinion that:
(i) Schlaepfer has been duly incorporated and is validly existing in good
standing under Swiss laws and has the corporate power to own its
properties and assets and to carry on its business.
(ii) The execution, delivery and performance of the Asset Purchase Agreement,
the License Agreements and the Bills of Sale (the "Principal
Agreements") have been duly authorized by all necessary actions on the
part of the Sellers, and the Principal Agreements have been duly
executed and delivered by Sellers.
(iii) The Principal Agreements constitute the legally valid and binding
obligations of Sellers, enforceable against Sellers in accordance with
their respective terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to or
affecting creditors' rights generally (including, without limitation,
fraudulent conveyance limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible
unavailability of specific performance or injunctive relief, regardless
of whether considered in a proceeding in equity or at law).
(iv) Sellers' execution and delivery of, and performance of their obligations
under, the Principal Agreements do riot (a) violate Sellers' Certificate
of Incorporation or By-Laws, (b) to the best of our knowledge violate,
breach or result in a default under any material agreement of Sellers or
(c) to the best of our knowledge breach or otherwise violate any
existing obligation of Sellers under any order, judgment or decree of
arty Swiss court or Swiss governmental authority binding on Sellers.
(v) The execution and delivery by Sellers of, and performance of their
obligations under, the Principal Agreements do not violate any Swiss
statute or regulation that we have, in the exercise of customary
professional diligence, recognized as directly applicable to the Sellers
or to the transactions of the type contemplated by the Principal
Agreements.
(vi) No order, consent, permit or approval of any Swiss governmental
authority that we have, in the exercise of customary professional
diligence, recognized as directly applicable to the SeDers or to
transactions of the type contemplated by the Principal Agreements is
required on the part of the Sellers for the execution and delivery of,
and performance under, the Principal Agreements, except for such as have
been obtained.
B-2-2
<PAGE>
Re: Jakob Schlaepfer, Inc.
August 27, 1996 Page Three
- -----------------------------------------------------------------------------
This opinion is furnished by us as Swiss counsel for the Sellers and may be
relied upon by you only in connection with the sale of the Assets by the
Sellers. It may not be used or relied upon by you for any other purpose or by
any other person, nor may copies be delivered to any other person, without in
each instance our prior written consent.
Very truly yours,
Dres. Guggenheim and Schnellmann
B-2-3
<PAGE>
EXHIBIT C
---------
LICENSE AGREEMENT
This License Agreement ("Agreement") is made and entered into as of
September 30, 1996, by and between ST. JOHN KNITS AG, a corporation organized
under the laws of Switzerland ("St. John"), and JAKOB SCHLAEPFER & CO., AG, a
corporation organized under the laws of Switzerland ("Schlaepfer").
RECITALS
--------
11.1 Pursuant to that certain Asset Purchase Agreement, dated August 29,
1996, by and between St. John Knits, Inc., a California corporation ("St. John
U.S.") and Schlaepfer (as amended, the "Asset Agreement"), Schlaepfer has sold
and transferred to St. John all of Schlaepfer's right, title and interest in and
to the Patents and the TFA Technology (as such terms are defined in the Asset
Agreement).
11.2 Schlaepfer desires to obtain from St. John, and St. John is willing to
grant to Schlaepfer, a license in and to the Patents and the TFA Technology,
pursuant to the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties hereto hereby agree as follows:
1. DEFINITIONS. The following terms shall have the following meanings for
-----------
purposes of this Agreement:
1.1 Licensed Products. "Licensed Products" shall mean apparel products in
-----------------
the "Couture" and "pret a porter" lines or markets; provided, however, that
-------- -------
Licensed Products shall not include knit garments, knit fabrics, or woven
garments or fabrics having the appearance of knit garments or fabrics.
1.2 Patents. "Patents" shall have the meaning contained in the Asset
-------
Agreement.
1.3 TFA Technology. "TFA Technology" shall have the meaning contained in
--------------
the Asset Agreement.
1.4 TFA Paper. "TFA Paper" shall mean a web of material bearing an
---------
adhesive layer, on which ornamental pieces are stuck, as these terms are used in
the Patents, which web is useful in the TFA Technology.
2. GRANT OF LICENSE
----------------
2.1 Grant of License. St. John hereby grants to Schlaepfer, and
----------------
Schlaepfer accepts, a non-exclusive, worldwide,
C-1
<PAGE>
royalty-free license (with no right to grant sublicenses) in the TFA Technology
and the Patents, subject to the terms and conditions of this Agreement, for the
sole purposes of making, having made, using, offering for sale and selling the
Licensed Products.
2.2 Conditions and Limitations to Grant. The license granted in Section
-----------------------------------
2.1 hereof shall be subject to the following conditions and limitations:
(a) Schlaepfer shall not practice the TFA Technology or make, use,
sell, offer for sale, export or import any goods using the methodology described
in the Patents or the TFA Technology, except in accordance with the terms and
conditions contained in this Agreement.
(b) Schlaepfer shall only use the methodology described in the Patents
and the TFA Technology in connection with Licensed Products, and Schlaepfer
shall only sell Licensed Products in or to the "Couture" and "pret a porter"
lines or markets.
(c) Schlaepfer shall not transfer by sale or otherwise TFA Paper to
any third party.
(d) Schlaepfer shall not use the TFA Technology or the methodology
described in the Patents in connection with knit garments, knit fabrics, or
woven garments or fabrics having the appearance of knit garments or fabrics.
(e) Nothing contained or construed to be contained in this Agreement
shall constitute the grant by St. John of any right by way of license or
otherwise to Schlaepfer to use any trademark of St. John or of St. John U.S.
(f) Except as expressly granted herein, all rights to the TFA
Technology and the Patents are reserved by St. John.
(g) On or before the 15th day of each month, Schlaepfer shall deliver
to St. John and St. John U.S. a written list of the customers who have ordered
Licensed Products during the prior calendar month. St. John and St. John U.S.
shall in their sole and absolute discretion have the right to disapprove sales
to any customer by delivering written notice of such disapproval to Schlaepfer;
provided, however, that Schlaepfer shall have the right to complete any purchase
- -------- -------
orders outstanding as of the date Schlaepfer receives written notice of
disapproval. Schlaepfer agrees to accept orders on a month-to-month basis and
shall not enter into any contractual agreements obligating it to deliver
Licensed Products over a period exceeding one month without St. John's prior
written approval.
3. INJUNCTIVE RELIEF.
-----------------
C-2
<PAGE>
Schlaepfer acknowledges that in the event of any breach or default or
threatened breach or default by Schlaepfer of Section 2 hereof, St. John and St.
John U.S. may be irreparably damaged and that it would be extremely difficult
and impractical to measure such damage, so that the remedy of damages at law
would be adequate. Consequently, Schlaepfer acknowledges and agrees that St.
John and St. John U.S., in addition to any other available rights or remedies,
shall, without the necessity of posting any bond or similar security, be
entitled to specific performance, injunctive relief and any other equitable
remedy for the breach or default or threatened breach or default of said Section
2, and Schlaepfer waives any defense that a remedy at law or damages is
adequate.
4. REPRESENTATIONS AND WARRANTIES
------------------------------
4.1 Authority. Each party represents and warrants to the other party that
---------
this Agreement has been duly authorized, executed and delivered by it and that
this Agreement is a binding obligation of it, enforceable in accordance with its
terms.
4.2 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN SECTION 4, ST. JOHN
----------
MAKES NO REPRESENTATIONS OR WARRANTIES, EITHER EXPRESS OR IMPLIED (INCLUDING
WITHOUT LIMITATION ANY IMPLIED WARRANTY OR MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR ANY EXPRESS OR IMPLIED WARRANTY THAT THE USE OF THE TFA
TECHNOLOGY OR THE MANUFACTURE, USE OR SALE OF ANY OF THE LICENSED PRODUCTS WILL
NOT INFRINGE ANY PATENTS, COPYRIGHT OR OTHER RIGHT OF ANY THIRD PARTY), OF ANY
KIND OR NATURE WHATSOEVER.
5. INDEMNIFICATION
---------------
Schlaepfer shall indemnify, hold harmless and defend St. John and St. John
U.S. and their respective officers, directors, employees, representatives and
agents from and against any and all claims, demands, lawsuits, actions,
proceedings, liabilities, losses, damages, fees, costs and expenses (including
without limitation attorneys' fees and costs of investigation and experts)
resulting from or arising out of the manufacture, use or sale of any of the
Licensed Products or the exercise by Schlaepfer of any right granted hereunder,
including without limitation any liabilities, losses or damages whatsoever with
respect to death or injury to any individual or damage to any property arising
from the possession, use or operation of any of the Licensed Products by
Schlaepfer or any third party in any manner whatsoever.
6. TERM
----
This Agreement shall become effective on the date first above written and
shall remain in effect until the latter of (i) the expiration of the last to
expire of any patent included in
C-3
<PAGE>
the Patents, or (ii) so long as any portion of the TFA Technology remains a
trade secret (i.e., the owner of the TFA Technology continues to obtain
independent economic value, actual or potential, from a portion of the TFA
Technology not being generally known to, and not being readily ascertainable by
proper means by, other persons who could obtain economic value from disclosure
of the TFA Technology) (unless the reason why the owner of the TFA Technology
ceases to obtain such value is due to a wrongful act or disclosure by
Schlaepfer, its agents or employees, or another third party, in which case the
term of this Agreement shall not expire), unless the term of this Agreement is
sooner terminated pursuant to Section 7.1 hereof.
7. TERMINATION
-----------
7.1 Termination. This Agreement may be terminated by either party if the
-----------
other party breaches any material provision hereof.
7.2 Effect of Termination or Expiration. Upon the termination or
-----------------------------------
expiration of the term of this Agreement, the license granted by St. John to
Schlaepfer pursuant to Section 2.1 hereof shall terminate. Notwithstanding any
termination or expiration of the term of this Agreement, Schlaepfer shall be
permitted for a period of not more than six (6) months from and after such
termination or expiration to sell or otherwise dispose of all Licensed Products
then in inventory in accordance with the terms and conditions of this Agreement.
8. ASSIGNMENT
----------
The rights and obligations of Schlaepfer shall not be assignable without
the prior written consent of St. John which consent may be granted or withheld
by St. John in its sole and absolute discretion. The rights and obligations of
St. John shall be assignable without the prior written consent of Schlaepfer.
9. GOVERNING LAW
-------------
This Agreement and the legal relations between the parties shall be
governed by and construed in accordance with the laws of the State of
California, except where such are governed exclusively by federal law.
10. RELATIONSHIP OF PARTIES.
-----------------------
Each party shall conduct all business in its own name as an independent
contractor. No joint venture, partnership, employment, agency or similar
arrangement is created between the parties. Neither party has the right or
power to act for or on behalf of the other or to bind the other in any respect,
to pledge its credit, to accept any service of process upon it, or to receive
any notices of any nature whatsoever on its behalf.
C-4
<PAGE>
11. SEVERABILITY
------------
If any provision of this Agreement is determined to be illegal, invalid or
otherwise unenforceable by a court of competent jurisdiction then, to that
extent and within the jurisdiction in which it is illegal, invalid or
unenforceable, it shall be limited, construed or severed and deleted from this
Agreement, and the remaining extent and/or remaining portions hereof shall
survive, remain in full force and effect and continue to be binding and shall
not be affected except insofar as may be necessary to make sense hereof, and
shall be interpreted to give effect to the intention of the parties insofar as
that is possible.
12. ENTIRE AGREEMENT
----------------
This Agreement contains the entire agreement between the parties with
respect to the subject matter hereof and supersedes all previous negotiations,
agreements, arrangements and understandings with respect to the subject matter
hereof.
13. INTERPRETATION
--------------
The normal rule of construction that an agreement shall be interpreted
against the drafting party shall not apply. In this Agreement, whenever the
context so requires, the masculine, feminine or neuter gender, and the singular
or plural number or tense, shall include the others.
14. AMENDMENT AND WAIVER
--------------------
Neither this Agreement nor any of its provisions may be amended, changed,
modified or waived except in writing duly executed by an authorized officer of
the party to be bound thereby.
15. SUCCESSORS AND ASSIGNS
----------------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties and their respective legal representatives, successors and assigns.
16. COUNTERPARTS
------------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed to be an original, and such counterparts together shall
constitute one agreement.
17. NOTICE
------
Any notice or other communication hereunder must be given in writing and
(a) delivered in person or by courier service, or (b) transmitted by telex,
telefax or telecommunications mechanism:
C-5
<PAGE>
IF TO ST. JOHN U.S., ADDRESSED TO:
St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Bob Gray and Roger Ruppert
Facsimile: (714) 261-9585
IF TO ST. JOHN, ADDRESSED TO:
St. John Knits AG
c/o Homburger Rechtsanwalte
Weinbergstrasse 56/58
CH-8006 Zurich, Switzerland
Attn: Dr. Thomas Muller
WITH A COPY TO:
St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92714
Attn: Bob Gray and Roger Ruppert
Facsimile: (714) 261-9585
IF TO SCHLAEPFER, ADDRESSED TO:
Jakob Schlaepfer & Co. Ltd.
Teufenerstrasse 11
CH-9001 St. Gallen, Switzerland
Attn: Hans Von Meiss
Facsimile: 011-41-71-228-2118
or to such other address or to such other person as either party shall have last
designated by such notice to the other party. Each such notice or other
communication shall be effective (i) if given by telecommunication, when
transmitted to the applicable number so specified in (or pursuant to) this
Section 17 and an appropriate answerback is received or (ii) if given by any
other means, when actually delivered at such address.
C-6
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
day and year first above written.
JACOB SCHLAEPFER & CO. AG
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
By:
----------------------------------------
Name:
--------------------------------------
Title:
-------------------------------------
ST. JOHN KNITS AG, in foundation,
a Swiss corporation
By: ST. JOHN KNITS, INC.,
a California corporation
By:
-------------------------------------
Roger G. Ruppert,
Chief Financial Officer
By: DR. THOMAS MULLER
By: St. John Knits, Inc.,
as Attorney-in-Fact for
Dr. Thomas Muller
By:
-----------------------------------
Roger G. Ruppert,
Chief Financial Officer
By: MARKUS KRONAUER
By: St. John Knits, Inc.,
as Attorney-in-Fact for
Markus Kronauer
By:
-----------------------------------
Roger G. Ruppert,
Chief Financial Officer
C-7
<PAGE>
EXHIBIT E
---------
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is dated as of September 30,
1996, between St. John Knits AG, a Swiss corporation ("Company"), and Norbert
Desmet ("Executive"). In consideration of the mutual covenants and agreements
set forth herein, the parties hereto agree as follows.
ARTICLE I
EMPLOYMENT
----------
The Company hereby employs Executive and Executive accepts employment
with the Company upon the terms and conditions herein set forth, subject to the
condition that Executive will obtain from the Swiss authorities a work permit
for the Company.
1.1 Employment. The Company hereby employs Executive, and Executive
----------
agrees to serve as the Company's Geschaftsfuhrer during the term of this
Agreement, and shall serve at the discretion of the Company's Board of
Directors. Executive agrees to devote substantially his full business time and
attention and best efforts to the affairs of the Company during the term of this
Agreement. Notwithstanding the foregoing, Executive shall be entitled to devote
such time as may be approved by the Company to providing services to Jakob
Schlaepfer Co. Ltd. ("Schlaepfer") in accordance with the terms of the Asset
Purchase Agreement, dated as of August 29, 1996, by and between the Company and
Schlaepfer (as amended, the "Purchase Agreement").
1.2 Term. The employment of Executive by the Company under the terms
----
and conditions of this Agreement will commence as of the date hereof and will
continue until terminated in accordance with the provisions hereof.
1.3 Place of Employment. Executive agrees to provide services to the
-------------------
Company primarily in Switzerland and in the United States. The parties agree to
be flexible with respect to the frequency, length and timing of Executive's
trips to the United States. The parties anticipate that the number of days to
be spent by Executive during the first year in the United States will range from
60 to 120 days, not exceeding a period of 20 days each time, and agree to use
their good faith efforts to keep the number of days within that range. The
parties agree that Executive will spend a reasonable amount of time in the
United States after the first year, as required by the Company in good faith,
taking into account that the Executive's place of main residence will remain
Austria.
E-1
<PAGE>
1.4 Reporting. The Executive will report to Robert Gray, or such
---------
other person designated by the Company from time to time. During the initial
transition period, Executive will work with Robert Davis while Mr. Davis remains
a consultant to St. John Knits, Inc. ("St. John").
ARTICLE II
COMPENSATION
------------
2.1 Annual Salary. During the employment of Executive, the Company
-------------
shall pay to Executive a base salary at the gross annual rate of CHF 243,000.00
(the "Base Salary"). The Base Salary shall be payable, subject to any
deductions required by law or by the Company Benefit Plans referred to in
Section 2.6 below, including social security and pension deductions, as follows:
Monthly installment of salary - CHF 17,350.00
Annual Christmas payment in December - CHF 17,400.00
Annual vacation payment in July - CHF 17,400.00
2.2 Bonus. Executive shall be eligible for an annual bonus from time
-----
to time, the amount and timing of which shall be in the sole discretion of the
Board of Directors of the Company.
2.3 Review. Executive's performance will be reviewed annually in
------
accordance with the Company's policies and procedures, which currently provide
for a regular annual review in October or November, with any increase in annual
salary to be effective the first Monday in December.
2.4 Reimbursement of Expenses. Executive shall be entitled to
-------------------------
receive prompt reimbursement of all reasonable expenses incurred by Executive in
performing services hereunder, including all expenses of travel, entertainment
and living expenses while away from home on business at the request of, or in
the service of, the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company. Executive shall be entitled to travel business class.
2.5 Housing/Automobile Allowance. The Company shall reimburse
----------------------------
Executive for suitable housing and automobile expenses during the period that
Executive is required under this Agreement to travel to the United States to
perform his duties hereunder.
2.6 Benefits. Executive shall be entitled to all employee benefits
--------
required under Swiss law and to participate in and be covered by all health,
insurance, pension and other employee plans and benefits currently established
for the employees of the Company (collectively referred to as the
E-2
<PAGE>
"Company Benefit Plans") on at least the same terms as other employees of the
Company, subject to meeting applicable eligibility requirements.
2.7 Vacations and Holidays. During Executive's employment with the
----------------------
Company, Executive shall be entitled to an annual vacation leave of four (4)
weeks at full pay. Executive shall be entitled to such holidays as are
established by the Company for all employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
---------------------------------
3.1 Confidentiality. Executive will not during Executive's
---------------
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the business operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, of the Company or St. John, or any other subject
matter pertaining to the business of the Company or St. John or any of their
respective clients, customers, consultants, or licensees, known, learned, or
acquired by Executive during the period of Executive's employment by the Company
or by Schlaepfer (collectively "Confidential Information"), except as may be
necessary in the ordinary course of performing Executive's particular duties as
an employee of the Company. Any material or repeated violation of this
confidentiality agreement will be punished by a fine for breach of contract
amounting to one year of Executive's Base Salary. Payment of such fine will not
release the Executive from his obligation to keep his pledge of confidentiality.
The Company reserves the right to demand payment of compensation for further
damages or to pursue injunctive or equitable relief in accordance with Section
3.6 below.
3.2 Return of Confidential Material. Executive shall promptly
-------------------------------
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request, all memoranda, notes, records, reports, manuals,
drawings, blueprints, Confidential Information and any other documents of a
confidential nature belonging to the Company, including all copies of such
materials which Executive may then possess or have under Executive's control.
Upon termination of Executive's employment by the Company, Executive shall not
take any document, data, or other material of any nature containing or
pertaining to the proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
----------------------------------------
Executive's employment with the Company and for a period of three years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or
E-3
<PAGE>
entity, solicit any person or entity to terminate such person's or entity's
contractual and/or business relationship with the Company or St. John, nor shall
Executive interfere with or disrupt or attempt to interfere with or disrupt any
such relationship. None of the foregoing shall be deemed a waiver of any and
all rights and remedies the Company or St. John may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
---------------------------------------------------------------
Contractors After Termination. During the term of Executive's employment with
- -----------------------------
the Company and for a period of three years following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company or St. John to
leave the employ of the Company or St. John for a competitive company or
business. However, Executive may solicit any employee, agent or independent
contractor who voluntarily terminates his or her employment with the Company or
St. John after a period of 120 days has elapsed since the termination date of
such employee, agent or independent contractor. None of the foregoing shall be
deemed a waiver of any and all rights and remedies the Company or St. John may
have under applicable law.
3.5 Prohibition on Competition. Executive agrees for the period of
--------------------------
time described in the next sentence (the "Noncompetition Period"), Executive
shall not, directly or indirectly, in Southeast Asia, Japan, Korea, Europe, the
United States, Canada or Mexico, compete with, assist any person or entity in
competing with or acquire an interest in any person or entity competing with,
the Company's or St. John's manufacture, use or sale of TFA (as defined in the
Purchase Agreement), including, without limitation, the sale of TFA in bulk,
other than in the "couture" or "pret a porter" lines or markets, whether as an
owner, shareholder, joint venturer, partner, officer, employee, consultant,
agent or otherwise. Executive agrees that the foregoing noncompetition
agreement shall prohibit any activity that would violate or be inconsistent with
the terms and conditions of the TFA License Agreement (as defined in the
Purchase Agreement). The Noncompetition Period shall begin on the Effective
Date (as defined in Sections 4.2 and 4.3 below) and shall be equal to (a) one
year, if Executive has been or will be paid by the Company, including pursuant
to any termination payments under Section 4.4, for a period greater than one
year and less than three years, or if Executive terminates his employment
pursuant to Section 4.3 below and the Effective Date is prior to the first
anniversary of this Agreement, (b) two years, if Executive has been or will be
paid by the Company, including pursuant to any termination payments under
Section 4.4, for a period greater than three years and less than five years, and
(c) three years, if Executive has been or will be paid by the Company, including
pursuant to any termination payments under Section 4.4, for a period greater
than five years, or if the Company terminates Executive's employment for Cause
(as defined in Section 4.1). Nothing contained in this Section 3.5 shall
E-4
<PAGE>
prohibit Executive from holding and making investments in securities of any
corporation or limited partnership whose securities are traded in a generally
recognized market, provided, Executive's equity interest therein does not exceed
five percent (5%) of the outstanding shares or interests in such corporation or
partnership.
3.6 Right to Injunctive and Equitable Relief. Executive's
----------------------------------------
obligations in this Article III are of a special and unique character which
gives them a peculiar value. The Company cannot be reasonably or adequately
compensated for damages in an action at law in the event Executive breaches such
obligations. Therefore, Executive expressly agrees that the Company shall be
entitled to injunctive and other equitable relief without bond or other security
in the event of such breach in addition to any other rights or remedies which
the Company may possess or be entitled to pursue. Furthermore, the obligations
of Executive and the rights and remedies of the Company under this Article III
are cumulative and in addition to, and not in lieu of, any obligations, rights,
or remedies created by applicable law relating to misappropriation or theft of
trade secrets or Confidential Information.
3.7 Survival of Obligations. Executive agrees that the terms of this
-----------------------
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
-----------
4.1 For purposes of this Article IV, "Cause" shall include, but not
be limited to, the following:
(i) personal dishonesty or willful misconduct by Executive;
(ii) a breach of Executive's fiduciary duties to the Company
which involves personal profit or benefit to Executive;
(iii) willful violation and conviction of any law, rule or
regulation (other than traffic violations or similar offenses) or of
any final cease and desist order issued by any financial institution
or regulatory authority against the Company; or
(iv) a material breach of this Agreement by Executive.
4.2 Termination by Company. The Company may terminate Executive's
----------------------
employment hereunder immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company
E-5
<PAGE>
may terminate this Agreement on the last day of any calendar month for any
reason other than Cause upon one year's written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be the
date of termination for Cause or the last day of the calendar month one year
subsequent to written notice of termination in the case of termination for any
reason other than Cause; however, the Company may elect to have Executive leave
the Company immediately or at any time thereafter.
4.3 Termination by Executive. Executive may terminate his employment
------------------------
hereunder immediately for cause (as defined under Swiss law). Subject to the
other provisions contained in this Agreement, Executive may terminate his
employment hereunder on the last day of any calendar month upon one year's
written notice to the Company; however, the Company may elect to have Executive
leave the Company immediately or at any time thereafter. The effective date of
termination ("Effective Date") shall be considered to be (i) the date of
termination for cause or (ii) the last day of the calendar month one year
subsequent to written notice of termination in the case of termination for any
reason other than cause, provided that the Company and the Executive may
mutually agree upon an earlier Effective Date.
4.4 Severance Benefits Received Upon Termination.
--------------------------------------------
(a) If Executive's employment is terminated by the Company for
Cause, or if Executive terminates his employment for cause, then the
Company shall pay Executive his Base Salary through the Effective Date of
such termination plus credit for any vacation earned but not taken, and the
Company shall thereafter have no further obligations to Executive under
this Agreement. Notwithstanding the foregoing, all rights under Article
337b of the Swiss Code of Obligations are reserved.
(b) If Executive's employment is terminated by the Company
without Cause, or by the Executive in accordance with Section 4.3, then the
Company shall provide Executive:
(i) salary continuation in an amount equal to Executive's
then Base Salary, to be paid monthly in installments in accordance
with Section 2.1 at the times salary payments are usually made, for
the period through the Effective Date; and
(ii) health insurance coverage as then in effect for
Executive, his spouse and dependent children for the period through
the Effective Date, subject to any employee contribution provisions as
defined in the Company Benefit Plans.
E-6
<PAGE>
ARTICLE V
GENERAL PROVISIONS
------------------
5.1 Notice. For purposes of this Agreement, notices and all other
------
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by registered mail,
return receipt requested, postage prepaid, as follows:
If to the Company: St. John Knits AG
c/o Homburger Rechtsanwalte
Weinbergstrasse 56/58
CH-8006 Zurich, Switzerland
Attn: Dr. Thomas Muller
With copies to: St. John Knits, Inc.
17422 Derian Avenue
Irvine, CA 92713
Attn: Chief Executive Officer
David A. Krinsky
O'Melveny & Myers LLP
610 Newport Center Drive
17th Floor
Newport Beach, CA 92660
If to Executive: Norbert Desmet
Im Tannenfeld 9
A-6812 Meiningen
Austria
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
5.2 No Waivers. No provision of this Agreement may be modified,
----------
waived or discharged unless such waiver, modification or discharge is agreed to
in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
5.3 Beneficial Interests. This Agreement shall inure to the benefit
--------------------
of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts are still payable to him
hereunder, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to Executive's
E-7
<PAGE>
devisee, legatee, or other designee or, if there be no such designee, to
Executive's estate.
5.4 Governing Law/Swiss Code of Obligations.
---------------------------------------
(a) This Agreement shall be governed by and construed in
accordance with the laws of Switzerland.
(b) In its present form and in any future revised form, the Swiss
Code of Obligations constitutes an integrated part of this Agreement. Any
deviations from the Swiss Code of Obligations must be agreed to in writing
by the Company and Executive.
(c) In the absence of other agreements in this Agreement, the
requirements of Article 319 (and following) of the Swiss Code of
Obligations will come into force.
5.5 Severability or Partial Invalidity. The invalidity or
----------------------------------
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
5.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
5.7 Legal Fees and Expenses. Should any party institute any action
-----------------------
or proceeding to enforce this Agreement or any provision hereof, or for damages
by reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
5.8 Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings, and negotiations between the
parties with respect to the subject matter hereof. This Agreement is intended
by the parties as the final expression of their agreement with respect to such
terms as are included in this Agreement and may not be contradicted by evidence
of any prior or contemporaneous agreement. The parties further intend that this
Agreement constitutes the complete and exclusive statement of its terms and that
no extrinsic evidence may be introduced in any judicial proceeding involving
this Agreement.
5.9 Assignment. This Agreement and the rights, duties, and
----------
obligations hereunder may not be assigned or
E-8
<PAGE>
delegated by any party without the prior written consent of the other party and
any attempted assignment or delegation without such prior written consent shall
be void and be of no effect. Notwithstanding the foregoing provisions of this
Section 5.9, the Company may assign or delegate its rights, duties, and
obligations hereunder to any Affiliate or to any person or entity which succeeds
to all or substantially all of the business of the Company through merger,
consolidation, reorganization, or other business combination or by acquisition
of all or substantially all of the assets of the Company.
E-9
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"Company"
ST. JOHN KNITS AG, in foundation,
a Swiss corporation
By: ST. JOHN KNITS, INC.,
a California corporation
By:
---------------------------------------------
Roger G. Ruppert,
Chief Financial Officer
By: DR. THOMAS MULLER
By: St. John Knits, Inc.,
as Attorney-in-Fact for
Dr. Thomas Muller
By:
------------------------------------------
Roger G. Ruppert,
Chief Financial Officer
By: MARKUS KRONAUER
By: St. John Knits, Inc.,
as Attorney-in-Fact for
Markus Kronauer
By:
------------------------------------------
Roger G. Ruppert,
Chief Financial Officer
"Executive"
--------------------------------------------------
Norbert Desmet
E-10
<PAGE>
EXHIBIT F
---------
FORM OF OPINION OF COUNSEL OF BUYER
September
30th
1 9 9 6
744,574-041
NB1-275847.V3
Jakob Schlaepfer & Co. Ltd.
Jakob Schlaepfer, Inc.
Teufenerstrasse 11
CH-9001 St. Gallen, Switzerland
Attn: Hans Von Meiss
Re: St. John Knits, Inc.
--------------------
Ladies and Gentlemen:
We have acted as counsel to St. John Knits, Inc., a California
corporation ("St. John"), in connection with the Asset Purchase Agreement, dated
as of August 29, 1996 (the "Agreement"), by and among St. John and each of you
(the "Sellers"). We are providing this opinion to you at the request of St.
John pursuant to Section 7.3(b) of the Agreement. Except as otherwise
indicated, capitalized terms used in this opinion and defined in the Agreement
will have the meanings given in the Agreement.
In our capacity as such counsel, we have examined originals or copies
of those corporate and other records and documents we considered appropriate.
As to relevant factual matters, we have relied upon, among other things, St.
John's factual representations in the Company Certificate. In addition, we have
obtained and relied upon those certificates of public officials we considered
appropriate.
We have assumed the genuineness of all signatures (other than the
signatures of officers of St. John on the Agreement), the authenticity of all
documents submitted to us as originals and the conformity with originals of all
documents submitted to us as copies. To the extent St. John's obligations
depend on the due authorization, execution and delivery of the Agreement by the
other parties to the Agreement, we have assumed that the Agreement has been so
authorized, executed and delivered
F-1
<PAGE>
and that the Agreement constitutes the legally valid and binding obligation of
each such party enforceable in accordance with its terms.
On the basis of such examination, our reliance upon the assumptions
contained herein and our consideration of those questions we considered
relevant, and subject to the limitations and qualifications in this opinion, we
are of the opinion that:
(i) St. John has been duly incorporated and is validly existing
in good standing under the laws of its jurisdiction of organization, with
the corporate power to own its properties and assets and to carry on its
business.
(ii) The execution, delivery and performance of the Agreement
have been duly authorized by all necessary action on the part of St. John,
and the Agreement has been duly executed and delivered by St. John.
(iii) The Agreement constitutes the legally valid and binding
obligations of St. John, enforceable against St. John in accordance with
its terms, except as may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally (including, without limitation, fraudulent
conveyance laws) and by general principles of equity, including, without
limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance or
injunctive relief, regardless of whether considered in a proceeding in
equity or at law.
(iv) The execution and delivery by St. John of, and performance
of its obligations under, the Agreement do not violate any state or federal
statute or regulation that we have, in the exercise of customary
professional diligence, recognized as directly applicable to St. John or to
the transactions of the type contemplated by the Agreement.
The law covered by this opinion is limited to the present law of the
State of California. We express no opinion as to the laws of any other
jurisdiction and no opinion regarding the statutes, administrative decisions,
rules or regulations of any county, municipality or special political
subdivision or other local authority.
This opinion is furnished by us as counsel for St. John and may be
relied upon by you only in connection with the purchase by St. John of the
Assets. It may not be used or relied upon by you for any other purpose or by
any other person, other than the Sellers, nor may copies be delivered to any
other person, other than the Sellers, without in each instance our prior written
consent.
Respectfully submitted,
F-2
<PAGE>
EXHIBIT 10.40
================================================================================
[LOGO OF BANK OF AMERICA] AMENDMENT TO DOCUMENTS
- --------------------------------------------------------------------------------
AMENDMENT NO.2 TO BUSINESS LOAN AGREEMENT
This Amendment No. 2 (the "Amendment") dated as of December 18, 1996, is
between BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (the "Bank") and
ST. JOHN KNITS, INC. (the "Borrower").
RECITALS
--------
A. The Bank and the Borrower entered into a certain Business Loan
Agreement dated as of December 15, 1995, as previously amended (the
"Agreement").
B. The Bank and the Borrower desire to further amend the Agreement.
AGREEMENT
---------
1. DEFINITIONS. Capitalized terms used but not defined in this
-----------
Amendment shall have the meaning given to them in the Agreement.
2. AMENDMENTS. The Agreement is hereby amended as follows:
----------
2.1 In subparagraph 1.1(a) of the Agreement, the amount "TWENTY-FIVE
MILLION DOLLARS ($25,000,000)" is substituted for the amount
"FIFTEEN MILLION DOLLARS ($15,000,000)."
2.2 In Paragraph 1.2 of the Agreement, the date "MARCH 1, 1999" is
substituted for the date "MARCH 1, 1998."
2.3 Paragraph 2A of the Agreement is deleted in its entirety.
2.4 In subparagraph 1.7(iii) and Paragraph 1.8 of the Agreement, the
amount "EIGHT MILLION DOLLARS ($8,000,000)" is substituted for
the amount "FIVE MILLION DOLLARS ($5,000,000)."
2.5 The second sentence in paragraph (a), Article 2 of the Agreement
is amended to read in full as follows:
"The foreign exchange contract limit will be Seven Million U.S.
Dollars (U.S. $7,000,000), and the settlement limit will be One
Million Five Hundred Thousand U.S. Dollars (U.S. $1,500,000)".
2.6 In Article 2, paragraph (k) of the Agreement, the amount "SEVEN
HUNDRED THOUSAND U.S. DOLLARS (U.S. $700,000)" is substituted
for the amount "FIVE HUNDRED FIFTY THOUSAND DOLLARS ($550,000)."
2.7 In Paragraph 7.1 of the Agreement, the sentence "THE BORROWER
WILL USE THE PROCEEDS OF FACILITY NO. 3 TO ACQUIRE AND DEVELOP
(i) CERTAIN PROPERTIES LOCATED AT 17502, 17542 AND 17572
ARMSTRONG, IRVINE, CALIFORNIA, AND (ii) A RETAIL LOCATION LOCATED
AT 51 EAST OAK ST., CHICAGO, ILLINOIS" is deleted in its
entirety.
2.8 In Paragraph 7.4 of the Agreement, the amount "EIGHTY MILLION
DOLLARS ($80,000,000)" is substituted for the amount "FIFTY
MILLION DOLLARS ($50,000,000)" and the date "NOVEMBER 3, 1996"
is substituted for the date "DECEMBER 31, 1995."
2.9 In subparagraphs 7.7(e) and 7.8(d) of the Agreement, the amount
"SEVEN HUNDRED FIFTY THOUSAND DOLLARS ($750,000)" is substituted
for the amount "FIVE HUNDRED THOUSAND DOLLARS ($500,000)."
2.10 Paragraph 7.21 of the Agreement is deleted in its entirety.
2.11 A new Paragraph 7.22 is added to the Agreement, which reads in
its entirety as follows:
"7.22 AUDITS. To allow the Bank and its agents to inspect the
Borrower's properties and examine, audit and make copies of books
and records at any reasonable time. If any of the Borrower's
properties, books or records are in the possession of a third
party, the Borrower authorizes that third party to permit the
Bank or its
- --------------------------------------------------------------------------------
- 1 -
<PAGE>
agents to have access to perform inspections or audits and to
respond to the Bank's requests for information concerning such
properties, books and records."
2.12 A new Paragraph 9.13 is added to the Agreement, which reads in
its entirety as follows:
"9.13 DEFAULT UNDER RELATED DOCUMENTS. Any other document
required by this Agreement is violated or no longer in effect."
3. EFFECT OF AMENDMENT. Except as provided in this Amendment, all of the
-------------------
terms and conditions of the Agreement shall remain in full force and effect.
This Amendment is executed as of the date stated at the beginning of
this Amendment.
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION ST. JOHN KNITS, INC.
/s/ ARTHUR P. CARTER /s/ ROGER G. RUPPERT
- -------------------------------------- --------------------------
BY: ARTHUR P. CARTER, VICE PRESIDENT BY: ROGER G. RUPPERT,
SENIOR VICE PRESIDENT-
FINANCE AND CHIEF FINANCIAL
OFFICER
- -------------------------------------------------------------------------------
- 2 -
<PAGE>
Exhibit 10.41
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MANUFACTURING AGREEMENT
This MANUFACTURING AND SUPPLY AGREEMENT (this "Agreement") is dated as of
November 9, 1996 and entered into by and between CALZATURIFICIO M.A.B. S.p.A.,
an Italian corporation, ("MAB") and ST. JOHN KNITS, INC., a California
corporation ("St. John").
PRELIMINARY STATEMENTS
A. MAB is in the business of manufacturing footwear.
B. St. John designs and distributes women's clothing, including both a
high fashion consisting of its collection, couture and evening lines (the "Main
Fashion Line") and a sport line, as well as jewelry, accessories and fragrances.
C. St. John desires to distribute footwear that coordinates with the Main
Fashion Line; and
D. MAB and St. John desire to enter into an agreement whereby MAB will,
subject to the conditions hereof, exclusively manufacture women's footwear
associated with the Main Fashion Line (the "Products") and MAB will, subject to
the conditions hereof, be St. John's exclusive manufacturer of the Products.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties agree as follows:
1. Term. The term of this Agreement shall be three years, unless
----
terminated prior to that time in accordance with the terms hereof; the parties
agree that 30 days prior to the expiration of the term they will meet to discuss
an extension of this Agreement for an additional two year term.
2. Manufacture and Supply of Products. During the term of this
----------------------------------
Agreement, St. John hereby agrees to purchase the Products from MAB pursuant to
purchase orders issued by St. John, and MAB agrees to manufacture and supply to
St. John the Products in the quantities and in accordance with the design and
production schedules set forth herein and under the terms and conditions set
forth below.
3. Terms of Sale. MAB will deliver the Products F.O.B. (as defined in
-------------
the California Commercial Code) the shipper designated by St. John. Payment on
invoices will be made within 30 days of receipt of goods.
<PAGE>
4. Pricing. MAB agrees that the price of each Product shall be MAB's
-------
Cost (as defined below) plus 10%. MAB's Cost includes, for each style of
Product, costs of labor related to production, raw materials (excluding
ornamentation provided by St. John), factory and equipment overhead (including
utilities, maintenance and repair and the amount of depreciation allocable to
the production of the Products) and development costs (including lasts, heal
forms, models, molds and quality testing) and excludes administrative and
corporate salaries, finance costs, design costs and other corporate overhead.
MAB shall use its best efforts to improve its production efficiencies in the
manufacture of the Products and each of the first three years of this Agreement
to reduce MAB's Costs by 10% from the previous year. St. John shall use its
best efforts to assist MAB to improve its production efficiencies in the
manufacture of the Products. MAB and St. John agree that they will meet during
the design process for each season to discuss prices for each style of Products
for such season.
5. Exclusivity. St. John agrees that MAB shall be the exclusive
-----------
manufacturer of the Products during the term of this Agreement; provided that
St. John may obtain the Products from other suppliers if it purchases a minimum
of 60,000 pairs of Products from MAB during any year of this Agreement. MAB
agrees that shall manufacture exclusively for St. John and shall not manufacture
goods for any other third party; provided that MAB may manufacture shoes for its
-------- ----
own "M.A.B. Studio" line provided that the manufacture of such products does not
interfere with the design and production timetable for the Products set forth in
Section 8, and, provided further that MAB may manufacture products for third
--- -------- ------- ----
parties during the term of this Agreement if (i) St. John requires the
production of less than 60,000 pairs during any year of the Agreement and (ii)
the production of products for third parties does not interfere with the design
and production timetable for the Products set forth in Section 8. MAB further
agrees that if it is unable to supply each year a minimum of 60,000 pairs of the
Products of the quality required by Section 10 hereof within the time requested
by St. John, such failure shall constitute a material breach of this Agreement
and St. John may, at its option, terminate this Agreement or obtain the Products
from an alternative source.
6. Purchase Orders. Orders placed by St. John will be deemed accepted as
---------------
written unless expressly questioned or rejected in writing by MAB within
fourteen (14) days of St. John transmitting the order to MAB. All orders will
be sent by facsimile and by Federal Express or like service shall be deemed
received by MAB on the third business day following the date St. John delivers
the orders to such service properly addressed.
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<PAGE>
7. Shipment and Delivery. MAB guarantees that all accepted orders will
---------------------
be produced as written and delivered timely. All orders shall be placed a
minimum of 8 weeks prior to the delivery date unless otherwise agreed by MAB and
St. John. Ship/cancel dates will be stated on the orders, and any extensions to
such dates or permission to ship any order less than ninety-five percent (95%)
complete must be in writing by St. John.
8. Design and Production Timetable and Responsibilities.
----------------------------------------------------
A. MAB will produce two (2) collections per year, Spring and Fall.
Products must be supplied to St. John for sale for the Spring season commencing
November 1 and the Fall season commencing May 1. St. John will use its best
efforts to forecast its anticipated orders for the Products for each season and
will provide MAB with such forecast on June 1 for the following Spring Season
and December 1 for the following Fall season. MAB acknowledges that St. John is
providing the forecast for MAB's convenience and St. John shall not be bound or
obligated by the forecast in any manner or for any purpose.
B. St. John has a design cycle of April/May/June for the following
Spring season and October/November/December for the following Fall season. MAB
has a duty to make presentations (in terms of lasts, heels, patterns, etc.) to
St. John for the Spring and Fall collections and to present modifications
thereof as needed. These presentations will be made by MAB to St. John in New
York and/or California at St. John's sole discretion. MAB shall make initial
proposals no later than March 1 for the Spring season and September 1 for the
Fall season. St. John will reasonably make time available to review such
proposals, make and review modifications and grant approvals. St. John will
provide to MAB, throughout St. John's design cycle, colors, ornaments,
accessories and general fashion trends for St. John collections. St. John has
the right, but not the duty, to go to MAB's offices or factory, and/or propose
exact designs for Products and MAB shall make all reasonable efforts to
cooperate with such input from St. John. MAB acknowledges that St. John will be
making proprietary information available to MAB in advance of its appearance in
the market (including, but not limited to, colors, styles, fabrics,
ornamentations or other constructions and general trends of St. John's
collections) and MAB agrees to maintain strict confidentiality of all such
information.
C. MAB shall provide final samples to St. John no later than May 1
for the following Spring season and November 1 for the following Fall season.
St. John shall make an authorized representative available in New York (or other
location reasonably designated by MAB) to review and approve or disapprove final
samples.
3
<PAGE>
D. Both St. John and MAB have the right to propose additional
Products outside of the normal cycle for commercial consideration. MAB
understands and accepts St. John's sales cycles and lead times. MAB understands
that, outside of St. John's normal design cycle, there may be times when St.
John's designers are not available for review, consultation and approvals.
E. MAB acknowledges the need to provide to St. John, on a timely
basis, shoes for St. John promotional videos and other promotional uses in
advance of the selling season. MAB agrees that it shall provide St. John 600
pairs of 9B shoes in mixed styles by August 1 for the following Spring season
and January 1 for the following Fall season.
F. MAB must send at least one design representative to the United
States for design and/or modification meetings as needed and/or requested by St.
John.
G. MAB and St. John will bear their own costs and expenses in
connection with any travel associated with this Agreement and/or modification
meetings as needed and/or reasonably requested by St. John.
9. St. John Approval. After any samples have been approved by St. John,
-----------------
MAB shall not depart therefrom in any material respect without the express prior
written approval of St. John. St. John acknowledges that MAB's accepted
industry practices and stages of production (including, but not limited to,
materials production, component assembly and product assembly) will naturally
result in minor variations from one copy of any Product to another, and St. John
accepts such natural minor variations as not constituting either material
departures from approved samples or defective products, provided that failure by
MAB to substantially adhere to the quality, style and nature of any Products, as
approved by St. John shall constitute a material breach of this Agreement.
10. Quality. MAB agrees that the Products shall be of a high standard and
-------
of style, appearance and quality consistent with St. John's reputation for
distinguished quality at the highest fashion level, St. John acknowledging that
MAB's products previously provided to St. John comply with such standard. MAB
agrees to produce, package and ship all items specified hereunder according to
all applicable laws, regulations and agreements. MAB warrants and represents
that the Products and their supply hereunder complies with all laws and
regulations applicable thereto.
11. Subcontracting. MAB may manufacture the Products internally or
--------------
externally, at MAB's discretion, provided that MAB remains liable for the
Products in all respects, as St.
4
<PAGE>
John is relying on MAB's prior quality and standards in entering into this
Agreement. MAB agrees that it will only use subcontractors that, to the best of
MAB's knowledge, operate in compliance with all applicable laws. If MAB uses
any new or additional subcontractors (the "Identified Subcontractors"), it will
notify St. John, and St. John agrees that it will not contract with any
Identified Subcontractor for the production of the Products within two years of
the expiration of the Agreement or the termination of this Agreement by MAB for
cause.
12. Damaged Goods. St. John may deduct from the amount owing on any
-------------
invoice the amount charged for any Products that are discovered to be damaged,
defective, irregular or seconds. St. John may retain or dispose of such damaged
goods, and will retain any amount received through disposition of such goods
without any compensation to MAB; provided that St. John will notify MAB 30 days
prior to any proposed disposition of any such goods and will afford MAB the
ability to inspect any such goods during the period prior to their proposed
disposition.
13. Indemnification. MAB will defend, indemnify and hold St. John
---------------
harmless from and against all losses, damages, liabilities, expenses and costs,
including reasonable attorney's fees, rising out of any claim for personal
injury, property damage or contractual claims relating to the Products or any
material used in connection therewith or any use thereof or the negligent acts
or omissions of MAB's employees, agents or independent contractors. This
indemnification shall survive the expiration or termination of the Agreement.
14. Insurance. MAB shall obtain and maintain at its sole cost and expense
---------
throughout the term of this Agreement product liability insurance, mutually
acceptable to MAB and St. John, from a qualified insurance company licensed to
do business in the United States, which covers in perpetuity any and all
Products or manufactured during the term hereof naming St. John as additional
named insured, which policy shall provide protection against any and all claims
and causes of action related to the Products or any material used in connection
therewith or any use thereof. The amount of such coverage shall be a minimum of
four million dollars ($4,000,000.00) combined single limit for each single
occurrence for bodily injury and one hundred thousand dollars ($100,000.00) for
property damage. MAB agrees to furnish St. John, within a reasonable period
following St. John's request, a certificate of insurance with respect to such
coverage which coverage shall be effective not less than thirty (30) days prior
to the commencement of distribution of the Products hereunder and shall provide
St. John a new certificate each anniversary date of such policy.
5
<PAGE>
15. Packaging. MAB shall create and supply packaging for the Products,
---------
which St. John may approve in its sole discretion. St. John agrees that the
existing packaging used by MAB is acceptable to St. John.
16. Trademark. MAB agrees that the Products will display only the
---------
trademark(s) provided by St. John and that all Products and packaging material
will contain appropriate legends, markings and notices as directed by St. John
to give notice of St. John's trademarks. MAB further agrees that such
trademarks are the sole property of St. John, and may not be used or displayed
in any other manner whatsoever unless authorized by St. John in writing, and
that the Products may not be sold or disposed of by MAB other than in accordance
with this Agreement. St. John may seek injunctive relief in a court of law to
prevent, and to seek any damages that result from, any infringement or misuse by
MAB of any St. John trademark and shall not be required to resolve any such
dispute through arbitration. MAB shall notify St. John in writing of any
infringement or imitation by others of such trademarks that may come to MAB's
attention and St. John shall have the sole right to determine whether or not any
action shall be taken on account of any such infringement or imitation. MAB
agrees that it will assist and cooperate in the protection of St. John's
trademarks as requested by St. John, and St. John agrees to reimburse MAB for
any out-of-pocket costs incurred in connection with such assistance, but only to
the extent such assistance has been specifically requested by St. John. MAB
understands and agrees that nothing contained in this Agreement shall be
construed as an assignment or grant to MAB of any right, title or interest in or
to St. John's designs or trademarks, except for their use in the Products and
related packaging for St. John at St. John's direction.
17. Design Property. Unless otherwise agreed to in writing, the
---------------
combinations of designs, colors and ornamentations that make up the Products are
and shall be the property of St. John and MAB shall not use such designs for any
MAB Studio products or products for any third parties. Any use of designs
following the termination of this Agreement shall be controlled by St. John in
its sole discretion. Notwithstanding the foregoing, if St. John requests that
MAB use ornamentations or other elements that make up MAB Studio designs in the
Products, such ornaments or other elements shall remain the property of MAB.
18. Organizational Chart. Upon execution of this Agreement, MAB shall
--------------------
provide to St. John an organizational chart clearly showing the names and
functions of all key personnel. MAB shall employ, at its sole expense, at least
one full-time employee or consultant fluent in English to handle St. John's
telephone and written communications.
6
<PAGE>
19. Financial Statements. MAB agrees to deliver to St. John (a) as soon
--------------------
as practicable and in any event within 14 days after the end of each of the
third and sixth fiscal months of this Agreement and thereafter the end of each
fiscal month, an income statement (including, without limitation, a statement of
revenues and expenses) and a list of balance sheet items including cash and
securities positition, inventory, accounts receivable, accounts payable and debt
and, commencing in the second year of this Agreement and to the extent
practicable during the first year of this Agreement, setting forth in
comparative form figures or corresponding information for the corresponding
period of the previous year and (b) as soon as practicable and in any event
within 6 months after the end of each fiscal year and accompanied by the report
from MAB's Board of Auditors ("Relazione del Collegio Sindacale") referred to in
Article 2429 of the Italian Civil Code, a detailed balance sheet through the end
of such period and an income statement (including, without limitation, a
statement of revenues and expenses) setting forth in comparative form figures or
corresponding information for the corresponding period of the previous year, (b)
promptly upon any officer of MAB obtaining knowledge that a condition or event
has occurred that constitutes an Event of Default or a breach of this Agreement,
a notice from MAB specifying the nature of such condition or event and what
action MAB has taken or proposes to take with respect thereto and (c) such other
information and data with respect to MAB related to this Agreement as may from
time to time be reasonably requested by St. John.
20. Books and Records. MAB agrees to keep accurate books of account and
-----------------
records, at its principal place of business, covering all transactions relating
to this Agreement, and St. John and its duly authorized representatives shall
have the right not more than twice each year, upon thirty (30) days prior
written notice and during regular business hours; to examine the manufacturing
activities, books of account and records and all other documents and material in
the possession or under the control of MAB that relate to information contained
in any statement furnished pursuant to Section 19 hereof and to make copies and
extracts thereof. Books of account and records for each reporting period
relating to this Agreement shall be retained by MAB for two (2) years for
possible examination by St. John and/or its representatives.
21. Confidentiality. Each party agrees to hold in strictest confidence,
---------------
and not disclose to any person or organization, any nonpublic information
relating to the other party or its designs or marketing, including, without
limitation, any information relating to work-in-progress, business, financial
condition, trade secrets, designs, or any other confidential matter relating to
the artistic creations or business of St. John and/or any of its affiliates.
The parties acknowledge that such information constitutes trade secrets,
7
<PAGE>
disclosure of which would cause irreparable harm to the other party. Each party
may seek injunctive relief in a court of law to prevent the disclosure of any
confidential information or trade secrets, or to seek damages resulting
therefrom, and shall not be required to resolve any such dispute through
arbitration.
22. Production Personnel. MAB agrees that within the first six months of
--------------------
this Agreement it shall hire the personnel necessary to ensure the maintenance
of the production levels contemplated by this Agreement at the prices agreed to
herein. This provision shall require MAB to hire, at minimum, a production line
manager responsible for the flow of goods manufactured under this Agreement. If
the production line manager ceases to be employed by MAB for any reason, MAB
shall use its best efforts to replace him or her as soon as practicable after
such termination. MAB shall notify St. John when it hires such a production
line manager and upon the termination and replacement of such production line
manager. MAB's failure to comply with this section shall constitute a material
breach of this Agreement.
23. Representations. Each party hereby represents and warrants to the
---------------
other party that:
(a) it is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its incorporation and has the
corporate power and authority to own and operate its properties, to transact the
business in which it is now engaged and to execute and deliver this Agreement;
(b) this Agreement constitutes the duly authorized, legally valid and
binding obligation, enforceable in accordance with its terms;
(c) all consents and grants of approval required to have been granted
by any person or entity in connection with the execution, delivery and
performance of this Agreement have been granted;
(d) the execution, delivery and performance of this Agreement does
not and will not violate any law, governmental rule or regulation, court order
or agreement to which it is subject or by which its properties are bound or the
charter documents or bylaws; and
(e) there is no strike to threatened work stoppage, action, suit,
proceeding or governmental investigation pending or, to its knowledge,
threatened against it or any of its assets which, if adversely determined, would
have a material adverse effect on the business, operations, properties, assets,
8
<PAGE>
condition (financial or otherwise) or its prospects or the ability to comply
with its obligations hereunder.
24. Covenants. MAB covenants and agrees that during the term of this
---------
Agreement it will:
(a) at all times preserve and keep in full force and effect its
corporate existence and all rights and franchises material to its business;
(b) pay all taxes, assessments and other governmental charges imposed
upon it or any of its properties or assets or in respect of any of its
income, businesses or franchises before any penalty accrues thereon, and
all claims (including, without limitation, claims for labor, services,
materials and supplies) for sums that have become due and payable and that
by law have or may become a lien upon any of its properties or assets or be
entitled to priority or privilege under law, prior to the time when any
penalty or fine shall be incurred with respect thereto;
(c) maintain or cause to be maintained in good repair, working order
and condition, ordinary wear and tear excepted, all material properties
used or useful in the business of MAB and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements
thereof;
(d) comply with the requirements of all applicable laws, rules,
regulations and orders of any governmental authority (including all
environmental laws);
(e) not directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any holder
of equity securities of MAB or with any affiliate of MAB, on terms that are
less favorable to MAB, than those that might be obtained at the time from a
third party;
(h) not create, assume, guaranty, incur or otherwise become or remain
directly or indirectly liable with respect to any indebtedness for borrowed
money except that MAB may become remain liable with respect to its bank
lines of credit financed by current receivables and any supplier debt
incurred in the ordinary course of business;
(i) not directly or indirectly, create, incur, assume or permit to
exist any lien on or with respect to any of its property or assets of any
kind (including any document or instrument in respect of goods or accounts
receivable), whether now owned or hereafter acquired, or
9
<PAGE>
any income or profits therefrom, or file or permit the filing of, or permit
to remain in effect, any financing statement or other similar notice of any
lien with respect to any such property, asset, income or profits, except to
the extent there are currently liens on such property, assets, income or
profits;
(j) not merge or consolidate with any other person or entity, or
sell, lease or otherwise dispose of all or any substantial part of its
property or assets to any other person or entity outside the ordinary
course of business; and
(k) not terminate its contract with Jayne Koehler without cause (as
determined in good faith by MAB) and shall use its best efforts to continue
to retain Jayne Koehler as a consultant to MAB during the term of this
Agreement.
25. Events of Default. The occurrence of any of the following events
-----------------
shall constitute an "Event of Default":
(a) failure of MAB to pay any principal, interest or other amount due
St. John, beyond any grace period provided, whether at stated maturity, by
required prepayment, declaration, acceleration or otherwise; or
(b) failure of MAB to pay, or the default in the payment of, any
amount due under or in respect of any promissory note or other agreement or
instrument relating to any indebtedness owing by MAB, to which MAB is a
party or by which MAB or any of its property is bound under which amounts
outstanding exceed $100,000 beyond any grace period provided; or the
occurrence of any other event or circumstance that, with notice or lapse of
time or both, would permit acceleration of such indebtedness; or
(c) failure of MAB to perform or observe any other term, covenant or
agreement to be performed or observed by it pursuant to this Agreement; or
(d) any representation or warranty made by MAB to St. John in
connection with this Agreement shall prove to have been false in any
material respect when made; or
(e) any order, judgment or decree shall be entered against MAB
decreeing the dissolution or split-up of MAB; or
(f) suspension of the usual business activities of MAB other than in
the ordinary course of business or the complete or partial liquidation of
MAB's business; or
(g) (i) a court having jurisdiction in the premises shall enter a
decree or order for relief in respect of MAB
10
<PAGE>
in an involuntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, which decree or order is not
stayed; or any other similar relief shall be granted under any applicable
law; or (ii) an involuntary case shall be commenced against MAB under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect; or a decree or order of a court having jurisdiction in the premises
for the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over MAB or over all or a
substantial part of its property shall have been entered; or the
involuntary appointment of an interim receiver, trustee or other custodian
of MAB for all or a substantial part of its property shall have occurred;
or a warrant of attachment, execution or similar process shall have been
issued against any substantial part of the property of MAB; or
(h) an order for relief shall be entered with respect to MAB or MAB
shall commence a voluntary case under any applicable bankruptcy, insolvency
or other similar law now or hereafter in effect, or shall consent to the
entry of an order for relief in an involuntary case, or to the conversion
of an involuntary case to a voluntary case, under any such law, or shall
consent to the appointment of or taking possession by a receiver, trustee
or other custodian for all or a substantial part of its property; or MAB
shall make an assignment for the benefit of creditors; or MAB shall be
unable or fail, or shall admit in writing its inability, to pay its debts
as such debts become due; or the Board of Directors, or equivalent thereof,
of MAB (or any committee thereof) shall adopt any resolution or otherwise
authorize action to approve any of the foregoing; or
(i) MAB shall challenge, or institute any proceedings to challenge,
the validity, binding effect or enforceability of this Agreement, the
Italian Mortgage Document or the Sale and Assignment Agreement executed by
the parties of even date, other than as a defense to a breach of this
Agreement by St. John; or
(j) this Agreement or any provision hereof shall cease to be in full
force or effect or shall be declared to be null or void or otherwise
unenforceable in whole or in part; or
(k) the failure of MAB's shareholders to make capital contributions
in the amount of (a) $75,000 by the end of the first six months of this
Agreement, (b) an additional $75,000 by the end of the first year of the
Agreement and (c) an additional $100,000 by the end of the second year of
this Agreement; or
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<PAGE>
(l) either Lino Angelini or Domenico Bartolomei shall cease to be
employed or retained as a full time consultant by MAB for any reason, and
MAB, within 15 days of the cessation of employment or retention, has failed
to employ or retain a replacement acceptable to St. John in its sole
discretion; or
(m) the capital stock of MAB shall cease to be owned at least 60% by
Stefano Biolcati, Ultimo Berselli, Lino Angelini, Luigi Angelini and/or
Vittorio Angelini.
26. Force Majeure. Neither party shall be liable to the other for any
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delay due to acts of God, fires, floods, earthquakes, civil unrest or strikes.
If such a delay occurs, the date of the party's performance hereunder shall be
deferred for the time the other party is unable to perform; provided that (x) if
the event (other than a strike) causes a delay in the delivery of Products for
more than 14 days or (y) if the strike causes a delay in the delivery of
Products for more than 7 days, (i) St. John may obtain Products from an
alternative source during the delay and/or (ii) St. John may terminate this
Agreement.
27. Termination. This agreement may be terminated by St. John for cause
-----------
upon the occurrence of an Event of Default or the material breach by MAB of any
of the terms of this Agreement and by MAB for cause upon the material breach by
St. John any of the terms of this Agreement 30 days' after written notice to the
other party of such breach or Event of Default, provided such breach or Event of
Default has not been cured within such 30 day period; provided that this
Agreement may be terminated immediately upon the occurrence of the Events of
Default set forth in Section 25 (a), (e), (f), (g), (h), (i), (j), (k) or (l).
Upon the termination or expiration of this Agreement, MAB agrees that upon St.
John's written request, it shall complete all previously accepted orders.
28. Damages. MAB acknowledges that the Products are may not be sold or
-------
otherwise disposed of after the termination of this Agreement except as directed
by St. John. MAB acknowledges and agrees that its remedy for a breach of the
Agreement by St. John is limited to an action for the unpaid purchase price of
the Products shipped and received under this Agreement and to require St. John
to grant the Releases (defined below). MAB further acknowledges and agrees that
its damages for breach by St. John are limited to such purchase price, and MAB
waives any other remedies afforded a seller under the California Commercial Code
or any other law and any other damages, including lost profits, consequential
and incidental damages; provided that if St. John breaches this Agreement and
-------- ----
MAB terminates this Agreement for cause in accordance with Section 28, St. John
shall be required to (i) release MAB from its obligations under that certain
loan to
12
<PAGE>
MAB by St. John secured by real property owned by MAB pursuant or document
recorded in the public records in Italy (the "Italian Mortgage Document") and
(ii) release its lien on MAB's property securing MAB's obligations under the
Italian Mortgage Document (the "Releases"); provided MAB prepares all
documentation necessary to effect such Releases, at its expense. Upon the
expiration of the Agreement or the termination of this Agreement for cause by
St. John, the Italian Mortgage Document shall remain in full force and effect
and MAB shall be liable for and shall pay in full all amounts owing under such
document, to the extent that such amounts were not previously reduced.
29. No Waiver. No failure or delay on the part of St. John to exercise
---------
any right, power or privilege under this Agreement and no course of dealing
between MAB and St. John shall impair such right, power or privilege or operate
as a waiver of any default or an acquiescence therein, nor shall any single or
partial exercise of any such right, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies expressly provided in this Agreement are cumulative to,
and not exclusive of, any rights or remedies that St. John would otherwise have.
No notice to or demand on MAB in any case shall entitle MAB to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of St. John to any other or further action in any
circumstances without notice or demand.
30. No Agency. This Agreement does not constitute either party the agent
---------
of the other, or create a partnership or joint venture between the parties, and
neither party shall have any power to obligate or bind the other in any manner
whatsoever.
31. Notices. Except as otherwise specified in this Agreement, notices
-------
(including change of address) shall be sent by (a) first class certified mail,
return receipt requested, (b) commercial courier service or (c) facsimile
transmission to the following addresses:
address of MAB: with a copy to:
Calzaturificio M.A.B. S.p.A. Avv. Giorgio Bernini
Via Guelfa Via Mascarella 94
76 40138 Bologna 400126 Bologna
Italy Italy
attn: Stefano Biolcati
fax: 51-530172 fax: 51-240131
address of St. John: with a copy to:
St. John Knits, Inc. O'Melveny & Myers LLP
17422 Derian Avenue 610 Newport Center Drive, #1700
13
<PAGE>
Irvine, CA 92713 Newport Beach, CA 92660-6429
U.S.A. U.S.A.
attn: David Frankel attn: David A. Krinsky
fax: 714-223-3272 fax: 714-669-6994
32. Headings. Section and paragraph headings contained in this Agreement
--------
are for convenience and shall not be considered for any purpose in construing
this Agreement.
33. Assignment; Successors and Assigns. This Agreement shall bind and
----------------------------------
inure to the benefit of the parties hereto and their respective successors,
assigns, administrators, executors, and conservators; provided that this
Agreement may not be assigned by MAB.
34. Amendments. This Agreement may be amended, modified, canceled, or
----------
waived only by written instrument executed by each of the parties.
35. Neutral Construction. Each party has cooperated in the drafting and
--------------------
preparation of this Agreement. Hence, this Agreement will be construed
neutrally, and will not be applied more strictly against one party than another.
36. Integration. This Agreement constitutes the complete agreement of the
-----------
parties hereto with respect to the subject matter hereof and supersedes all
prior or contemporaneous negotiations, promises, covenants, agreements, or
representations.
37. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be an original, but all of which shall constitute one and the same
agreement.
38. Effectiveness. This Agreement shall be effective upon the execution
-------------
thereof by the parties.
39. Choice of Law. This Agreement shall be construed and interpreted
-------------
according to the laws of the State of California, specifically including the
California Commercial Code, and any controversy, dispute or claim between the
parties hereto arising out of or in relation to this Agreement shall be governed
by California law without regard to its choice of law principles. The rights
and obligations of the parties under this Agreement shall not be governed by the
provisions of the 1980 United Nations Convention on Contracts for the
International Sale of Goods or the United Nations Convention on the Limitation
Period in the International Sale of Goods, as amended.
14
<PAGE>
40. Agreement to Arbitrate.
----------------------
a. Except as provided in Sections 16 and 21 hereof, any controversy,
dispute or claim under, arising out of, in connection with or in relation to
this Agreement shall be finally resolved by arbitration conducted in accordance
with the Rules of Conciliation and Arbitration of the International Chamber of
Commerce by a tribunal of three arbitrators, with the two party-appointed
arbitrators selecting the Chairman in accordance with those rules. The
arbitration of such issues, including the determination of any amount of damages
suffered by any party hereto by reason of the acts or omissions of any party,
shall be final and binding upon the parties to the maximum extent permitted by
law, except that the arbitrator shall not be authorized to award punitive
damages with respect to any such claim, dispute or controversy. No party shall
seek punitive damages relating to any matter under, arising out of, in
connection with or relating to this Agreement in any other forum. The parties
intend that this Section shall be valid, binding, enforceable and irrevocable
and shall survive the termination of this Agreement.
b. Any arbitration proceedings hereunder shall be held in Orange
County, California.
c. Any arbitration proceedings hereunder shall be conducted in
English.
d. Judgment upon any award rendered by the arbitrator may be entered
by any court having jurisdiction thereof.
41. Consent to Jurisdiction and Service of Process. ALL JUDICIAL
----------------------------------------------
PROCEEDINGS BROUGHT AGAINST MAB ARISING OUT OF OR RELATING TO SECTIONS 16 AND 21
OF THIS AGREEMENT MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT MAB ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO
BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH SECTIONS 16 AND 21
OF THIS AGREEMENT. MAB hereby agrees that service of all process in any such
proceeding in any such court may be made by registered or certified mail, return
receipt requested, to MAB at its address provided in Section 31, such service
being hereby acknowledged by MAB to be sufficient for personal jurisdiction in
any action against MAB in any such court and to be otherwise effective and
binding service in every respect. Nothing herein shall affect the right to
serve process in any other manner permitted by law or shall limit the right of
St.
15
<PAGE>
John to bring proceedings against MAB in the courts of any other jurisdiction.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by its authorized officer as of the day and year and at
the place first written above.
CALZATURIFICIO M.A.B. S.p.A.,
an Italian corporation
By: [SIGNATURE APPEARS HERE]
----------------------------------
Title:
-------------------------------
ST. JOHN KNITS, INC.,
a California corporation
By: /s/ DAVID FRANKEL
----------------------------------
Title: Executive Vice President
------------------------------
16
<PAGE>
EXHIBIT 10.42
FIRST AMENDMENT TO CONSULTING AGREEMENT
This Agreement shall constitute the First Amendment to Consulting Agreement
originally dated as of April 24, 1996 by and between St. John Knits, Inc., a
California corporation (the "Company") and Robert C. Davis (the "Consultant").
AMENDMENT
The Company and Consultant hereby agree to extend the Term of the original
Consulting Agreement for an additional period of six months, from November 19,
1996 through May 19, 1997. The Company and Consultant hereby agree that all
other terms of the Consulting Agreement shall remain in full force and effect,
including, but not limited to, the Consultant's rate of compensation of $100,000
in the aggregate, payable in six substantially equal amounts at the end of each
month during the Term; the first payment payable on December 30, 1996 and the
last payment payable on May 30, 1997.
EXECUTED as of November 19, 1996 at Orange County, California.
ST. JOHN KNITS, INC.,
a California corporation
By: /s/ ROBERT E. GRAY
--------------------
Name: Robert E. Gray
Title: Chief Executive Officer
ROBERT C. DAVIS
/s/ ROBERT C. DAVIS
------------------------
<PAGE>
EXHIBIT 10.43
[LETTERHEAD OF ST. JOHN]
November 13, 1996
Hilda Chang
Third Floor, Bisney Cove
33 Bisney Road
Pokfulam
Hong Kong
VIA FEDERAL EXPRESS (Personal and Confidential)
Dear Hilda:
Thank you for your letter which you sent to Mr. Gray several weeks ago outlining
your sales representation plans for St. John in the Asian/Pacific Rim Region. In
your letter, you stated that you would like to form your own Asian Sales Agency
and represent St. John Knits, Inc. You inquired as to whether it would be
possible for you to represent St. John Knits and under what specific terms and
conditions. As promised, we are responding to your request.
St. John would be willing to enter into the following agreement with the Hilda
Chang Sales Agency (or any other firm created by you under which you choose to
do business as an independent St. John sales representative) under the following
terms and conditions:
1. Scope of the Agreement: Hilda Chang is to provide Sales Representation
services to St. John including but not limited to the following services:
A. Selling all St. John divisions outlined below to all existing St. John Asian
Customers.
B. Showing the line to existing and new customers.
C. Compiling and forwarding purchase orders to St. John.
D. Periodically visiting each account and providing in store product knowledge
seminars and Alterations seminars.
E. Submitting reports to St. John Management upon request.
F. Constantly striving to open new accounts.
G. Handling the customer service function for each Asian account.
H. Assisting in any necessary credit functions such as following up to ensure
that letters of credit are in place or assisting the St. John credit department
in obtaining any important credit information or assisting with St. John credit
department communications.
2. St. John Divisions: This agreement covers only the following St. John
Divisions. (Additional divisions may be added from time to time in writing only
by mutual consent of both parties):
A. Knitwear: St. John Basics, Collection, Dressy/Evening, Couture
B. St. John Sport
C. Griffith & Gray
D. St. John Accessories including jewelry, scarves, belts, handbags
E. St. John Shoes either manufactured by St. John or any officially
authorized licensee
<PAGE>
Hilda Chang
Page 2
November 13, 1996
3. Term of Agreement: This Agreement will last three years beginning with the
St. John Fall 1997 Season and will last up to and including the St. John
Cruise/Spring 2000 season (covering shipments through May 15, 2000) provided
that Hilda Chang meets the minimum order booked requirements mentioned in
section 13.
4. Commission Rate: 11% on all net shipments of St. John merchandise which means
total shipments less normal cash or trade discounts less all returns.
5. Cooperative Advertising: Cooperative Advertising support will be determined
by and funded by St. John in consultation with Hilda Chang. The amount of
cooperative advertising contribution will generally range from 1% to as much as
3% depending on the account.
6. Build out Requests. Responsibility and approval to fund Asian Accounts Build
out requests will rest with St. John Knits, Inc.
7. Asian Countries covered by this agreement are:
Korea (North and South), China, Hong Kong, Singapore, Thailand, Vietnam,
Malaysia, Indonesia, Myanmar, Philippines, Taiwan, Vietnam, Cambodia, Guam,
Saipan, Macau (Additional countries may be added from time to time by the
written mutual consent of both parties.) We have chosen not to include India as
part of this agreement; however, we are willing to consider adding this country
later to the agreement as per the terms of the preceding sentence.
8. Showroom Requirement. Hilda Chang will maintain a showroom in an office
building in Hong Kong. Decoration and Design of showroom must be approved by St.
John as St. John is willing to contribute toward the cost of decoration of the
showroom. The amount of contribution will depend on the size of the showroom
leased. St. John's name will be the primary masthead on the front of the
showroom. Any other vendor's names or the designated name of the Hilda Chang
Sales Agency will be smaller than the St. John name on any listing, posting,
directory or sign. If St. John does not contribute toward the cost of showroom
decoration, then no design approval from St. John is required.
9. Approval of any Additional Line. St. John retains the right to approve or
disapprove of any additional apparel and accessory lines which Hilda Chang may
also choose to take on and represent as an Asian Sales Agent. Hilda Chang must
obtain St. John's written approval in order to be able to represent another
apparel or accessory line. St. John will not unreasonably withhold its approval.
10. Commission payments. All commissions to be calculated and paid monthly not
later than thirty days after the end of each respective shipping month.
<PAGE>
Hilda Chang
Page 3
November 13, 1996
11. Expenses. Hilda Chang to personally fund all of her own travel, lodging and
other miscellaneous expenses while representing St. John in Asia. St. John to
fund all expenses relating to the carnet and the transport of the sample lines.
12. Korean Assistant Requirement. Hilda Chang is required to pay for one part
time or full time or freelance assistant for Korea (must be a native Korean
speaker) to assist in the maintenance and development of the St. John Korean
business and with communication with St. John Korean accounts. This assistant is
not required to be based in Korea but must be a native Korean speaker.
13. Asian Sales Goals and Minimum Order Booked Requirement.
The term of this agreement is from the St. John Fall 1997 season through the
Cruise/Spring 2000 season. Your sales goals for your Asian Territory are listed
below:
<TABLE>
<CAPTION>
ASIAN SALES GOALS (all figures in U.S. $)
- -----------------
<S> <C>
Fall 1997 $3,200,000
Cruise/Spring 1998 $3,400,000
Fall 1998 $3,800,000
Cruise/Spring 1999 $4,000,000
Fall 1999 $4,600,000
Cruise/Spring 2000 $4,900,000
</TABLE>
However, St. John reserves the right (although it may choose not to exercise its
right) to terminate this agreement in the event, orders booked by Asian accounts
(and approved by the St. John credit department) fall below the following
minimum acceptable levels for all St. John Divisions in total as prescribed
below:
<TABLE>
<CAPTION>
MINIMUM ORDERS BOOKED REQUIREMENTS (all figures in U.S. $)
- ----------------------------------
<S> <C>
Fall 1997 $2,176,000
Cruise/Spring 1998 $2,295,000
Fall 1998 $2,550,000
Cruise/Spring 1999 $2,720,000
Fall 1999 $3,145,000
Cruise/Spring 2000 $3,315,000
</TABLE>
St. John will pay Hilda Chang sales commissions for all shipments made up
through the final season when the agreement is terminated. (For example, in the
event St. John chooses to terminate the agreement because the total orders
booked fall below the Minimum Order Booked Requirement for the Fall 1998 season,
St. John will notify Hilda Chang in writing between July 1st and July 30, 1998
that the agreement is terminated and Hilda Chang will continue to receive sales
commissions for all shipments for this season up through the final shipping
month of the Fall 1998 season.)
<PAGE>
Hilda Chang
Page 4
November 13, 1996
In the event, the orders booked (and approved by the St. John credit department)
fall below the minimum acceptable level for any season stated above, St. John
reserves the right to terminate the agreement in accordance with the following
dates (although it may choose not to exercise its right):
<TABLE>
<CAPTION>
Season Earliest termination date option Latest termination date option
- --------------------------------------------------------------------------------
<S> <C> <C>
Fall Season July 1st July 30th
Spring Season January 1st January 30th
</TABLE>
For example, if you fall below the minimum order booked level for Fall 1997, St.
John may at its option terminate the agreement (although it may choose not to),
only between July 1, 1997 and July 30, 1997.
14. All official notices covered by sections 2, 7, 8, 9, 10 and 13 of this
agreement must be in writing and sent via Federal Express, UPS, DHL or any other
international courier service.
15. This agreement will be covered by the laws of the United States, the State
of California and the County of Orange.
Hilda, we appreciate the good work which you have done for St. John in the past.
Therefore, we look forward to your concentrating your efforts on selling St.
John merchandise throughout the Asian/Pacific rim and we are looking forward to
establishing a long and successful relationship with your sales organization.
Your signature below will mean your full acceptance to the terms and conditions
outlined above. You have until November 22, 1996 to accept our offer under the
terms and conditions outlined above.
Sincerely,
ST. JOHN KNITS, INC. Agreed and Accepted:
/s/ CHRISTOPHER SCHARFF /s/ HILDA CHANG
- ------------------------------- --------------------
Director of International Sales Hilda Chang
Approval:
ST. JOHN KNITS, INC.
/s/ BOB GRAY
- -------------------------------
Mr. Bob Gray
Chairman and C.E.O.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-76376.
ARTHUR ANDERSEN LLP
Orange County, California
December 18, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-3-1996
<PERIOD-START> OCT-30-1995
<PERIOD-END> NOV-03-1996
<CASH> 6,186
<SECURITIES> 4,223
<RECEIVABLES> 28,094
<ALLOWANCES> 0
<INVENTORY> 23,619
<CURRENT-ASSETS> 68,885
<PP&E> 67,252
<DEPRECIATION> 23,352
<TOTAL-ASSETS> 116,494
<CURRENT-LIABILITIES> 19,257
<BONDS> 0
0
0
<COMMON> 503
<OTHER-SE> 96,591
<TOTAL-LIABILITY-AND-EQUITY> 116,494
<SALES> 202,951
<TOTAL-REVENUES> 202,951
<CGS> 88,871
<TOTAL-COSTS> 88,871
<OTHER-EXPENSES> 68,385
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 47,050
<INCOME-TAX> 19,929
<INCOME-CONTINUING> 27,122
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,122
<EPS-PRIMARY> 1.59
<EPS-DILUTED> 1.59
</TABLE>
