UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1996
or
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission File No. 0-22102
CYGNE DESIGNS, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 04-2843286
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1372 Broadway, New York, New York 10018
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Address of principal executive offices) (Zip Code)
(212) 354-6474
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(Registrant's telephone number, including area code)
Not applicable
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(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $.01 par value, 12,438,038 shares as of September 12, 1996.
<PAGE>
Cygne Designs, Inc. and Subsidiaries
Index to Form 10-Q
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited) Page
----
Condensed Consolidated Balance Sheets at August 3, 1996
and February 3, 1996 3
Condensed Consolidated Statements of Operations for the
three and six months ended August 3, 1996 and July 29, 1995 4
Condensed Consolidated Statement of Stockholders' Equity
for the six months ended August 3, 1996 5
Condensed Consolidated Statements of Cash Flows for the three
and six months ended August 3, 1996 and July 29, 1995 6
Notes to Condensed Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 23
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<PAGE>
Part I. Financial Information
Cygne Designs, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
($ in thousands, except share amounts)
(Unaudited)
August 3, February 3,
1996 1996
--------- -----------
ASSETS
Current assets:
Cash $ 2,815 $ 5,487
Trade accounts receivable, net 32,602 35,117
Inventory 21,937 29,999
Other receivables and prepaid expenses 4,773 8,150
Assets held for sale -- 15,200
Deferred income taxes 4,081 4,066
--------- ---------
Total current assets 66,208 98,019
Fixed assets, net 13,151 13,533
Other assets 848 803
Deferred income taxes 2,000 2,000
Goodwill, net 2,608 2,790
--------- ---------
Total assets $ 84,815 $ 117,145
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 19,586 $ 37,453
Accounts payable 21,874 32,928
Trade credit facilities outstanding 9,364 8,945
Accrued expenses 9,322 14,083
Income taxes payable 6,259 5,677
Current portion of long-term debt 1,930 2,047
--------- ---------
Total current liabilities 68,335 101,133
Long-term debt 1,192 1,562
Deferred rent credits 1,513 1,386
--------- ---------
Total liabilities 71,040 104,081
Minority interests in subsidiaries 4,749 4,018
Stockholders' equity:
Preferred stock, $0.01 par value;
4,000,000 shares authorized, none
issued and outstanding
Common stock, $0.01 par value;
75,000,000 shares authorized;
12,438,038 shares issued and outstanding 124 124
Paid-in capital 120,918 120,918
Accumulated deficit (112,056) (111,999)
Foreign currency translation adjustment 40 3
--------- ---------
Total stockholders' equity 9,026 9,046
--------- ---------
Total liabilities and stockholders' equity $ 84,815 $ 117,145
========= =========
See accompanying notes.
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<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
---------- ---------- ---------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales $ 75,886 $ 132,067 $ 159,642 $ 260,434
Cost of goods sold 66,212 119,391 139,256 236,630
--------- --------- --------- ---------
Gross profit 9,674 12,676 20,386 23,804
Selling, general and administrative expenses 8,178 16,155 17,337 34,333
Gain from sale of subsidiary, net -- -- -- (4,742)
Bad debt expense -- -- -- 1,030
Amortization of intangibles 91 965 182 1,921
--------- --------- --------- ---------
Income (loss) from operations 1,405 (4,444) 2,867 (8,738)
Other income 166 -- 554 --
Interest expense 995 2,479 1,930 4,590
--------- --------- --------- ---------
Income (loss) before provision for income
taxes and minority interests 576 (6,923) 1,491 (13,328)
Provision (benefit) for income taxes 381 (2,292) 817 (4,414)
--------- --------- --------- ---------
Income (loss) before minority interests 195 (4,631) 674 (8,914)
Income attributable to minority interests 283 424 731 821
--------- --------- --------- ---------
Net loss $ (88) $ (5,055) $ (57) $ (9,735)
========= ========= ========= =========
Net loss per share $ (0.01) $ (0.41) $ 0.00 $ (0.77)
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding 12,438 12,438 12,438 12,662
========= ========= ========= =========
See accompanying notes.
</TABLE>
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<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
(In thousands)
<CAPTION>
Common Stock Foreign
------------------------ Currency
Number Paid-in Translation Accumulated
of Shares Amount Capital Adjustment Deficit Total
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at February 3, 1996 12,438 $124 $120,918 $ 3 $(111,999) $9,046
Foreign currency translation
adjustment -- -- -- 37 -- 37
Net (loss) for the six
months ended August 3, 1996 -- -- -- -- (57) (57)
------ ---- -------- ---- --------- ------
Balance at August 3, 1996 12,438 $124 $120,918 $ 40 $(112,056) $9,026
====== ==== ======== ==== ========= ======
</TABLE>
See accompanying notes.
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<PAGE>
<TABLE>
Cygne Designs, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<CAPTION>
Six months ended
------------------------------
August 3, July 29,
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) $ (57) $ (9,735)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,004 2,116
Gain from sale of subsidiary, net -- (4,742)
Bad debt expense -- 1,030
Rent expense not currently payable 127 552
Amortization of intangibles 182 1,786
Income attributable to minority interests 731 821
Deferred income taxes (3) 34
Interest on Credit facility outstanding 419 --
Changes in operating assets and liabilities:
Trade accounts receivable 2,528 (1,789)
Inventory 8,080 4,818
Other receivables and prepaid expenses 3,372 2,870
Accounts payable (11,033) 7,793
Accrued expenses (2,047) (1,646)
Income taxes payable 582 (4,547)
-------- --------
Net cash provided by (used in) operating activities 3,885 (639)
-------- --------
INVESTING ACTIVITIES
Purchase of fixed assets (610) (5,465)
Other assets (57) (98)
Sale of business 12,500 --
Sale of subsidiary -- (464)
Purchase of businesses, net of cash acquired -- (3,207)
-------- --------
Net cash provided by (used in) investing activities 11,833 (9,234)
-------- --------
FINANCING ACTIVITIES
Short-term borrowing, net (17,909) 2,787
Credit facility outstanding, net -- 4,034
Repayments of long-term debt, net (518) 576
Net proceeds from issuance of common stock -- 24
Investment in subsidiary by minority shareholder -- 32
-------- --------
Net cash (used in) provided by financing activities (18,427) 7,453
-------- --------
Effect of exchange rate changes on cash 37 67
-------- --------
Net decrease in cash (2,672) (2,353)
Cash at beginning of period 5,487 14,202
-------- --------
Cash at end of period $ 2,815 $ 11,849
======== ========
SUPPLEMENTAL DISCLOSURES
Income taxes paid $ 596 $ 21
Interest paid 2,123 4,328
Exchange of Company common stock for acquisitions -- 675
Retirement of Company common stock from sale of subsidiary -- 7,500
</TABLE>
See accompanying notes.
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<PAGE>
CYGNE DESIGNS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
August 3, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis Of Presentation
The accompanying unaudited condensed consolidated financial statements of
Cygne Designs, Inc. ("Cygne") and its subsidiaries (collectively the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six months
ended August 3, 1996 are not necessarily indicative of the results that may be
expected for the fiscal year ended February 1, 1997. For further information,
refer to the financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K for the year ended February 3, 1996. The
balance sheet at February 3, 1996 has been derived from the audited financial
statements at that date.
The Company's fiscal year ends on the Saturday nearest to January 31.
Earnings per share are based on the weighted average number of shares of
common stock outstanding. For the three and six months ended August 3, 1996 and
July 29, 1995, common stock equivalents are excluded as the effect of their
inclusion would be antidilutive.
2. PURCHASES AND SALES OF COMPANIES
CAT US, Inc. and C.A.T. (Far East) Limited, collectively "CAT," which began
operations in June 1992, were originally owned by the stockholders of Cygne
(80%) and AnnTaylor, Inc. (20%). Effective April 30, 1993, CAT became a 60%
owned subsidiary of Cygne with AnnTaylor, Inc. owning the remaining 40%
interest.
On May 2, 1993, the Company purchased 66% of the capital stock of JMB
Internacionale S.A. ("JMB"), a company formed to supervise manufacturing of
products in Guatemala, from an affiliate of a director of the Company. At May 2,
1993, JMB owned 50% of Modas Cisne, S.A., a manufacturing company located in
Guatemala. On October 29, 1993, JMB purchased the remaining 50% of the
outstanding stock of Modas Cisne, S.A. for future contingent payments based on
future earnings of this subsidiary.
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<PAGE>
CYGNE DESIGNS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On October 18, 1995, the Company purchased the remaining 34% of the capital
stock of JMB.
During 1993, in two transactions, the Company acquired T. Wear Company
S.r.l. and M.T.G.I. Textile Manufacturers Group (Israel) Limited in exchange for
an aggregate of $500,000 and 150,000 shares of the Company's common stock. These
companies design, merchandise, manufacture and sell women's apparel to customers
principally in the United States. The fair market value of the assets acquired
approximated their book value and the excess of the purchase price over the fair
value of the net assets acquired was recorded as goodwill and is being amortized
over a ten year period.
In April 1994, the Company acquired Fenn, Wright and Manson, Incorporated
("FWM"), a designer, merchandiser and manufacturer principally of private label
women's and men's apparel (the "FWM Acquisition"). The purchase price for FWM
was $44,000,000, consisting of 2,000,000 unregistered shares of the Company's
common stock and $10,000 in cash. Additional costs related to this acquisition
approximated $1,400,000. The excess of the purchase price over the fair value of
the net assets acquired of approximately $47,848,000 was recorded as goodwill,
and was being amortized over a twenty-five year period.
On April 7, 1995, the Company sold the United Kingdom subsidiary of FWM and
certain brand name rights to Fenn Wright and Manson (Antilles) N.V. (a group led
by Colin Fenn) in exchange for 600,000 shares of Cygne common stock previously
issued. In the quarter ended April 29, 1995, Cygne recorded a gain of $4,742,000
on the sale, which is net of certain restructuring expenses of $2,800,000
(consisting primarily of severance to former FWM employees and costs associated
with closing certain of FWM's facilities) pertaining to the related integration
of FWM's operations with the Company's operations. During 1995, management also
took various actions to reverse a decline in FWM's remaining business. However,
management determined that such actions were not having the desired results and
eliminated all of the operations of FWM. The unamortized goodwill recorded in
connection with the acquisition of FWM ($44,530,000) exceeded the undiscounted
anticipated future operating cash flows over the remaining goodwill amortization
period. Therefore, the FWM goodwill was written off.
In October 1994, Cygne acquired the business operations of G.J.M.
International Limited ("GJM"), a Hong Kong-based designer, merchandiser and
manufacturer of women's intimate apparel (the "GJM Acquisition"). The purchase
price for GJM was $15,200,000, consisting of 650,000 unregistered shares of the
Company's common stock, $10,000 in cash and the assumption of approximately
$1,900,000 of indebtedness owed to The Limited, Inc. The excess of the purchase
price over the fair value of the net assets acquired of approximately
$27,659,000 was recorded as goodwill and was being amortized over a twenty-five
year period.
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<PAGE>
CYGNE DESIGNS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In February 1996, the Company sold substantially all of the assets of its
GJM intimate apparel and sleepwear business (the "GJM Business") to Warnaco Inc.
(the "GJM Disposition"). In the transaction, Warnaco paid Cygne $12,500,000 in
cash and assumed certain liabilities of the GJM Business. The Company is
obligated to indemnify Warnaco for any claims for taxes arising out of the
operation of the GJM Business prior to the sale of the GJM business to Warnaco.
The Company used all the proceeds from the sale to repay outstanding senior bank
indebtedness. GJM accounted for approximately 15.6% and 13.8% of the Company's
net sales for the quarter and six months ended July 29, 1995, respectively.
In February 1995, Cygne acquired Tralee S.A. ("TSA"), a Uruguayan
corporation that sources products in Brazil for export, primarily to the U.S.
The purchase price for TSA was approximately $3,800,000, consisting of 53,038
unregistered shares of the Company's common stock and $3,100,000 in cash (the
"TSA Acquisition"). Additional costs related to this acquisition approximated
$730,000. The excess of the purchase price over the fair value of the net assets
acquired of approximately $4,500,000 was recorded as goodwill and was amortized
over a twenty-five year period. Cygne also issued options to purchase an
aggregate of 55,000 shares of the Company's common stock to the two former
shareholders of TSA in connection with their entering into consulting agreements
with TSA. In January 1996, the Company decided to cease operations of TSA by the
end of the third quarter of 1996 and wrote-off the remaining goodwill.
The FWM Acquisition, the GJM Acquisition and the TSA Acquisition were
accounted for under the purchase method and, accordingly, the operating results
of FWM, GJM and TSA were included in the consolidated operating results since
their respective dates of acquisition.
On June 7, 1996 Cygne signed a definitive agreement with AnnTaylor Stores
Corporation regarding the sale to AnnTaylor of Cygne's 60% interest in CAT, and
the assets of Cygne's AnnTaylor Woven Division that are used in sourcing
merchandise for AnnTaylor (the "AnnTaylor Disposition").
The aggregate consideration to be paid to Cygne in the transaction consists
of unregistered shares of Ann Taylor common stock having a market value of $36
million (based upon the market price of the common stock for the ten trading
days prior to closing, but in no event greater than 2.5 million shares), unless
the 2.5 million shares would have a value of less than $32.5 million, in which
event Cygne will receive Ann Taylor common stock having a market value of $32.5
million (based upon the market price of the common stock for the ten trading
days prior to closing, but in no event greater than 3 million shares and except
that Ann Taylor can pay that portion of the stock consideration in excess of 2.5
million shares in cash), and a cash payment in an amount equal to the tangible
net book value of the fixed assets of Cygne's
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<PAGE>
CYGNE DESIGNS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
AnnTaylor Woven Division (but not to exceed $2,646,000) plus the tangible net
book value of the inventory of Cygne's AnnTaylor Woven Division, less the amount
of certain liabilities of the Division to be assumed by Ann Taylor.
The closing of the transaction is subject to various conditions, including
approval by the Company's stockholders, the consent and release of liens by
certain of the Company lenders, and the continuation of CAT's $40 million credit
facility. It is currently anticipated that the transaction will close in
September 1996, following approval by Cygne's stockholders. There can be no
assurance, however, that the conditions to the closing will be satisfied, that
the transaction will be consummated or, if consummated, that it will be
consummated within the currently anticipated time frame. In order to facilitate
the integration of CAT and Cygne's AnnTaylor Woven Division into AnnTaylor's
operations, Cygne has agreed to make available for a three year period the
services of Mr. Bernard Manuel, the Company's Chief Executive Officer, and Mr.
Irving Benson, the Company's President. Cygne will make available up to 30% of
Messrs. Benson's and Manuel's time and will receive an aggregate fee of $450,000
per year. AnnTaylor has agreed to register the shares issued to Cygne for
resale, although Cygne will be subject to certain restrictions on the timing of
sales and the amount of shares which can be sold at any one time. The Company is
obligated to pledge the shares of Ann Taylor common stock to its lenders. (See
note 4).
CAT and the AnnTaylor Woven Division accounted for approximately 74.5% and
73.3% of the Company's net sales for the second quarter and six months ended
August 3, 1996, respectively. If the proposed sale of CAT and the AnnTaylor
Woven Division had been consummated on February 4, 1996 and after giving effect
to the GJM Disposition, the Company would have had pro forma net sales of $19.3
million and $42.6 million for the second quarter and first six months of 1996,
respectively. Pro forma gross profit for the second quarter and first six months
of 1996 would have been $2.0 million and $4.7 million, respectively. Pro forma
loss from operations for the second quarter and first six months of 1996 would
have been $1.7 million and $3.9 million, respectively. Pro forma net loss for
the second quarter and first six months of 1996 would have been $1.8 million and
$3.7 million, respectively. The pro forma net loss per share for the second
quarter and first six months would have been $0.15 and $0.29, respectively.
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<PAGE>
CYGNE DESIGNS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. INVENTORY
Inventory is stated at the lower of cost (determined on a first-in,
first-out basis) or market.
Inventory consists of the following:
August 3, February 3,
1996 1996
-------- ----------
(In thousands)
Raw materials $15,328 $21,748
Finished goods 427 2,972
Finished goods-in-transit 6,182 5,279
------- --------
$21,937 $29,999
======= -------
4. CREDIT FACILITIES
The Company's finances its operations primarily through financing from
lending institutions, financing from customers and third party trade credit
facilities, cash from operations and the issuance of debt and equity securities.
During the quarter ended October 28, 1995, Cygne and CAT each entered into
a Credit Agreement with the HS Bank which modified the previous credit
arrangements with the HS Bank. The modifications included (i) the consolidation
of the facilities, previously aggregating up to $76,400,000, into one facility
of up to $70,000,000, (ii) an increase in the CAT facility from up to
$28,000,000 to up to $40,000,000, (iii) a requirement under each agreement to
comply with certain financial covenants as well as various other restrictions,
and (iv) an increase in the Cygne facility interest rate. Borrowings under these
facilities, which may be terminated by the HS Bank or the Company at any time as
to future borrowings upon proper notice, are subject to certain borrowing base
limitations and the HS Bank's agreement as to amount, purpose, interest rate,
maturity and collateral. Borrowings under these facilities are due on the
earlier of demand or the maturity date specified by the HS Bank for each
borrowing. Amounts outstanding under the Cygne agreement bear interest between
1% and 1.75% above the prime rate depending upon the working capital, as
defined, of the Company, exclusive of CAT. Amounts outstanding under the CAT
agreement bear interest at 0.5% above the prime rate. Each agreement provides
for additional interest at 2% per annum on amounts not paid when due. The HS
Bank facilities are cross guaranteed by Cygne and certain of its subsidiaries
and are secured by a first lien on substantially all the assets of the Company
including a pledge of 65% of the capital stock of certain of Cygne's foreign
subsidiaries, except for CAT (Far East) Limited as to which 60% of the capital
stock is pledged.
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<PAGE>
CYGNE DESIGNS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On May 15, 1996, the Company received a commitment letter from HS Bank to
provide the Company with a new credit facility to replace the existing facility.
The commitment letter provides a committed facility of up to $30 million until
the earlier of August 31, 1996 or the closing of the Ann Taylor Disposition;
thereafter the facility reduces to $22.5 million and further reduces to $15
million at October 31, 1996; $10 million at November 30, 1996; $5 million at
December 31, 1996; and matures on January 31, 1997. Borrowings under this
facility are subject to borrowing base limitations and a requirement to comply
with certain financial covenants as well as various other restrictions. The
Company is obligated to pledge substantially all of its assets, including the
AnnTaylor stock to be received at the closing of the AnnTaylor Disposition, as
security for its obligations under the credit facility. The Company intends to
use a portion of the purchase price to be received in the Ann Taylor
Disposition, including proceeds from the disposition of the Ann Taylor stock, to
repay amounts outstanding under this facility. The Company has requested the HS
Bank to postpone the August 31, 1996 initial reduction date to September 30,
1996. Although the HS Bank has indicated that it is inclined to grant the
Company's request, the HS Bank has indicated that it is also inclined to reduce
the facility to $17.5 million at the earlier of the closing of the AnnTaylor
Disposition on September 30, 1996, to $12.5 million at October 31, 1996 and to
$7.5 million at November 30, 1996. There can be no assurance the HS Bank will
agree to the Company's request. If the HS Bank does not postpone the August 31,
1996 date and requires repayment of amounts outstanding under the facility in
excess of $22.5 million, the Company may have difficulty in making, and may be
unable to make, such payment, in which event the HS Bank may declare all amounts
outstanding under the facility to be immediately due and payable. In addition,
the reduction in the amount available for borrowing under the facility prior to
consummation of the Ann Taylor Disposition could have a material adverse effect
on the Company's ability to conduct its business.
The following table sets forth information with respect to the HS Bank
facilities as of August 3, 1996:
<TABLE>
<CAPTION>
Direct Direct
Total Borrowing Open Letters Borrowing
Facility (1) Limit (2) of Credit Outstanding
------------ --------- ------------ -----------
(In thousands)
<S> <C> <C> <C> <C>
Cygne $30,000 $30,000 $ 3,861 $15,975
CAT(3) 40,000 8,000 38,630 356
------- ------- ------- -------
Total $70,000 $38,000 $42,491 $16,331
======= ======= ======= =======
- ----------
(1) The total facility, less any direct borrowings outstanding, is available for
letters of credit.
</TABLE>
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<PAGE>
CYGNE DESIGNS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) Consists principally of revolving loans and borrowings against
imports/exports.
(3) Cygne has guaranteed 60% of the indebtedness outstanding under this facility
and AnnTaylor, Inc., which owns 40% of CAT, has provided the HS Bank with a
$4,000,000 standby letter of credit.
Certain foreign subsidiaries have credit facilities aggregating $3,255,000
at August 3, 1996. Borrowings under these facilities, which are payable on
demand, are secured by a lien on certain assets of these subsidiaries.
Cygne has agreements with two-third parties not affiliated with the
Company, but affiliated with each other, whereby these parties made available to
the Company a trade credit facility. The trade credit facility has been
suspended. At August 3, 1996, $9,364,000 of this facility was outstanding. The
Company has reached an agreement in principle to restructure the amounts
outstanding under this trade credit facility.
In addition, from time to time customers finance the purchase of raw
materials on behalf of the Company, and the Company anticipates that they will
continue to do so, although there can be no assurance of this.
5. DEBT
The Company has existing mortgages of $947,000 at August 3, 1996 relating
to a foreign office and manufacturing facility with bears interest at LIBOR plus
2% and is payable quarterly in equal payments of $52,600.
At August 3, 1996, the Company also has a $1,258,000 unsecured note payable
to The Limited, Inc., a major customer of the Company. The principal amount
outstanding, which is currently payable, bears interest at prime plus 2% and was
originally due on December 31, 1995.
At August 3, 1996, the balance outstanding on other debt was $917,000 of
which $455,000 is long-term.
6. LITIGATION
On December 11, 1995, a class action complaint was filed against the
Company, certain of the Company's officers and directors, Ernst & Young LLP, the
underwriters of the Company's June 1994 secondary public offering of stock and
certain financial analysts who followed the Company, in the United States
District Court, Southern District of New York. The action was purportedly filed
on behalf of a class
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<PAGE>
CYGNE DESIGNS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
of purchasers of the Company's stock during the period September 28, 1993
through April 28, 1995. The complaint seeks unspecified money damages and
alleges that the Company and the other defendants violated federal securities
laws in connection with various public statements made by the Company and
certain of its officers and directors during the putative class period. On April
9, 1996, all of the defendants filed motions to dismiss the complaint. Pursuant
to a scheduling order entered by the court, the plaintiff filed oppositions to
the motions to dismiss in May 1996 and defendants filed their reply memoranda in
June 1996. The motions are currently under consideration by the court. The
Company believes that all of the allegations contained in the complaint are
without merit and intends to continue to defend the action vigorously. An
adverse decision in this action could have a material adverse effect on the
Company's financial condition and results of operations.
The Company is involved in various other legal proceedings that are
incidental to the conduct of its business, none of which the Company believes
could reasonable be expected to have a material adverse effect on the Company's
financial condition or results of operations.
-14-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Unless otherwise noted, all references to a year are to the fiscal year of
the Company commencing in that calendar year and ending on the Saturday nearest
January 31 of the following year.
On April 7, 1995, Cygne sold the United Kingdom subsidiary of FWM and
certain brand name rights which were acquired in the FWM Acquisition. On
February 9, 1996, the Company sold substantially all of the assets relating to
its GJM Business. In June 1996, the Company entered into a definitive agreement
to sell its 60% interest in its joint venture arrangement with AnnTaylor and the
assets of Cygne's AnnTaylor Woven Division (the "AnnTaylor Disposition").
Upon consummation of the AnnTaylor Disposition, the Company will continue
in three principal segments of the women's apparel market: career sportswear,
casual sportswear and dresses. In addition, upon the consummation of the
AnnTaylor Disposition, the Company anticipates that it will no longer have sales
to AnnTaylor. The Company has been dependent on its key customers (The Limited,
Inc. and AnnTaylor) and, with the loss of AnnTaylor as a customer, its business
is dependent upon maintaining its relationship with The Limited, Inc. and its
ability to attract new customers. However, there can be no assurance that the
Company will be able to do so. This Report contains forward-looking statements
which involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in this report and the Company's other filings with the
Securities and Exchange Commission.
General
In June 1992, the Company and certain of its stockholders formed CAT, a
joint venture arrangement with AnnTaylor to source products exclusively for
AnnTaylor. During 1992 and the first quarter of 1993, AnnTaylor owned a 20%
interest in CAT. Effective May 1, 1993, AnnTaylor's interest in CAT increased to
40%. As a result of such change in ownership, AnnTaylor has a 40% interest in
the net income of CAT, which interest is reflected in Cygne's consolidated
statements of income as "income attributable to minority interests."
On April 6, 1994, Cygne acquired FWM for a purchase price of $44.0 million,
consisting of 2,000,000 unregistered shares of the Company's common stock and
$10,000 in cash. Additional costs related to this acquisition approximated $1.4
million. The excess of the purchase price over the fair value of the net assets
acquired of $47.8 million was recorded as goodwill and was being amortized over
a twenty-five year period. In April 1995, the Company sold FWM's U.K. subsidiary
to FWM N.V. for 600,000 shares of the Company's common stock. During 1995,
management took various actions to reverse a decline in FWM's business. However,
management determined that such actions were not having the desired results and
eliminated all of
-15-
<PAGE>
the operations of FWM. In connection with the elimination of the FWM operations,
the Company wrote-off the remaining $44,530,000 of goodwill in fiscal 1995.
On October 7, 1994, Cygne acquired GJM for a purchase price of $15.2
million, consisting of 650,000 unregistered shares of common stock, $10,000 in
cash and the assumption of approximately $1.9 million of debt owed by GJM
International to The Limited, Inc., as well as non-compete payments aggregating
$3.2 million. Additional costs related to this acquisition approximated $1.7
million. The excess of the purchase price over the fair value of the net assets
acquired of approximately $27.7 million was recorded as goodwill and was being
amortized over a twenty-five year period.
In February 1996, the Company sold the GJM Business to Warnaco. In the
transaction, Warnaco paid Cygne $12.5 million in cash and assumed certain
liabilities of the GJM Business. The Company is obligated to indemnify Warnaco
for any claims for taxes arising out of the operation of the GJM Business prior
to the sale of the GJM Business to Warnaco. The Company used all the proceeds of
the sale to repay outstanding senior bank indebtedness.
In February 1995, Cygne acquired Tralee S.A. ("TSA"), a Uruguayan
corporation that sources products in Brazil for export, primarily to the United
States. The purchase price for TSA was approximately $3.8 million, consisting of
53,038 unregistered shares of common stock and $3.1 million in cash. Additional
costs related to this acquisition approximated $730,000. The excess of the
purchase price over the fair value of the net assets acquired of approximately
$4.5 million was recorded as goodwill and was being amortized over a twenty-five
year period. In January 1996, the Company determined to close TSA and the
Company anticipates that operations will terminate by the end of the third
quarter of 1996. As a result, the Company recorded a loss of approximately $6.4
million in fiscal 1995, primarily resulting from the write-off of goodwill
associated with the acquisition.
In June 1996, the Company entered into the Purchase Agreement pursuant to
which Ann Taylor will, subject to, among other things, approval by the
stockholders of the Company at its Annual Meeting scheduled to be held on
September 19, 1996, acquire Cygne's 60% interest in CAT and the assets of the
Company's Ann Taylor Woven Division (the "Division") that are used in sourcing
merchandise for Ann Taylor. The purchase price to be paid by Ann Taylor to Cygne
in the transaction consists of unregistered shares of Ann Taylor Common Stock
having a market value of $36 million (based on the average of the high and low
sale price of the Ann Taylor Common Stock in the ten trading days prior to
closing), but in no event is ATSC obligated to issue more than 2.5 million
shares unless the 2.5 million shares would have a value of less than $32.5
million, in which event Cygne will receive AnnTaylor Common Stock having a
market value of $32.5 million (based on the average of the high and low sale
price of the AnnTaylor Common Stock in the ten trading days prior to closing),
but in no event more than 3 million shares (and AnnTaylor may elect to pay in
cash the portion of the stock consideration in excess of 2.5 million shares) and
a cash payment in an amount equal to the tangible net book value of the fixed
assets (but not to exceed $2,646,000) and inventory
-16-
<PAGE>
of Cygne's Ann Taylor Woven Division, less certain assumed liabilities of the
Division.
The closing of the transaction is subject to various conditions, including
approval by the Company's stockholders, the consent and release of liens by
certain of the Company's lenders, and the continuation of CAT's $40 million
credit facility. It is currently anticipated that the transaction will close in
September 1996, following approval by Cygne's stockholders. There can be no
assurance, however, that the conditions to the closing will be satisfied, that
the transaction will be consummated or, if consummated, that it will be
consummated within the currently anticipated time frame. In order to facilitate
the integration of CAT and the Division into Ann Taylor's operations, Cygne has
agreed to make available up to 30% of Messrs. Benson's and Manuel's time and
will receive an aggregate fee of $450,000 per year. ATSC has agreed to register
the shares issued to Cygne for resale, although Cygne will be subject to certain
restrictions on the timing of sales and the amount of shares which can be sold
at any one time. The Company is obligated to pledge the shares of AnnTaylor
Common Stock to its lenders. See "-- Liquidity and Capital Resources".
During 1993, 1994, 1995 and the first half of 1996, Ann Taylor accounted
for 55.3%, 37.5%, 42.9% and 73.3% of Cygne's net sales, respectively, and The
Limited, Inc. (consisting primarily of The Limited Stores, Lerner and, in 1993,
Express) accounted for 38.6%, 36.8% and 34.1% and 17.9% of Cygne's net sales,
respectively (38.6%, 36.0% and 26.2% during 1993, 1994 and 1995, respectively,
excluding sales made by the GJM Business). Net sales in 1995 include sales to
The Limited, Inc. by the Company's FWM division which operations were
discontinued in 1995, and by the GJM Business which was sold in February 1996.
The Limited, Inc. beneficially owns through an affiliated partnership 6.9% of
the outstanding Cygne Common Stock. In addition, the Company is currently
overdue on payment of an approximately $1,258,000 unsecured note payable to The
Limited, Inc.
If the AnnTaylor Disposition had been consummated on February 4, 1996 and
after giving effect to the GJM Disposition, the Company would have had pro forma
net sales of $19.3 million and $42.6 million for the second quarter and first
six months of 1996, respectively. Pro forma gross profit for the second quarter
and first six months of 1996 would have been $2.0 million and $4.7 million,
respectively. Pro forma loss from operations for the second quarter and first
six months of 1996 would have been $1.7 million and $3.9 million, respectively.
Pro forma net loss for the second quarter and first six months of 1996 would
have been $1.8 million and $3.7 million, respectively. The pro forma net loss
per share for the second quarter and first six months would have been $0.15 and
$0.29, respectively.
Although Cygne has long established relationships with its key customers,
Cygne does not have long-term contracts with any of its customers, including The
Limited, Inc. Upon the consummation of the AnnTaylor Disposition, the Company
anticipates that it will no longer have sales to Ann Taylor. The Company has
been dependent on its key customers and with the loss of Ann Taylor as a
customer, its future success will be dependent upon its ability to attract new
customers. There can be no assurance that The Limited, Inc. will continue to
purchase merchandise from the
-17-
<PAGE>
Company at the same rate in the future, or that the Company will be able to
attract new customers. In addition, as a result of the Company's dependence on
The Limited, Inc., particularly after the AnnTaylor Disposition, The Limited,
Inc. has the ability to exert significant control over the Company's business
decisions, including prices. Furthermore, The Limited, Inc. procures directly a
substantial portion, but not a majority, of its product requirements through its
sourcing subsidiary, and such subsidiary will continue to be a major competitor
of the Company with respect to the Company's business with The Limited, Inc. In
addition, The Limited Stores, which is the Company's largest customer among the
divisions of The Limited, Inc. has formed an internal design and product
development group as well as added a direct sourcing department. During 1995,
sales to certain divisions of The Limited, Inc. decreased significantly and the
Company anticipates that sales to The Limited, Inc. will continue to decrease in
1996.
The apparel industry historically has been subject to substantial cyclical
variation, with purchases of apparel and related goods tending to decline during
recessionary periods when disposable income is low. This could have a material
adverse effect on the Company's business. The Company believes that the weakness
of retail sales of women's apparel in 1994 and 1995 adversely affected its
operating results, and believes that its operating results will continue to be
adversely affected as long as this weakness continues. In addition, various
retailers, including some of Cygne's customers, have experienced financial
difficulties during recent years which have increased the risk of extending
credit to such retailers.
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<PAGE>
RESULTS OF OPERATIONS
Financial Summary
Certain captions of the Condensed Consolidated Statements of Operations for
the three months ended May 4, 1996 and April 29, 1995 expressed as a percentage
of net sales are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- --------------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
-------- -------- -------- ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Gross profit 12.7 9.6 12.8 9.1
Selling, general and administrative
expenses 10.7 12.2 10.9 13.2
Amortization of intangibles 0.1 0.7 0.1 0.7
Income (loss) from operations 1.9 (3.4) 1.8 (3.4)
Interest expense 1.3 1.9 1.2 1.8
Net income (loss) (0.1) (3.8) 0.0 (3.7)
</TABLE>
Net Sales
Net sales for the second quarter of 1996 were $75.9 million, a decrease of
$56.2 million or 42.5% from the comparable period in 1995. Net sales for the
first six months of 1996 were $159.6 million, a decrease of $100.8 million or
38.7% from the comparable period in 1995. The decreases in net sales for the
second quarter and six months were primarily attributable to the sale of the GJM
Business on February 9, 1996, which generated sales of $20.6 million and $36.0
million, respectively, in the comparable 1995 periods, discontinued customers
and product lines, which generated sales of $28.5 million and $66.5 million,
respectively, in the comparable 1995 periods and decreases in sales to The
Limited, Inc. of $10.5 million and $4.8 million, respectively.
For the second quarter and first six months of 1996 CAT and the Division
had combined net sales to Ann Taylor of $56.6 million and $117.1 million, or
74.5% and 73.3% of the Company' net sales, respectively, and Cygne's share of
the combined net income of CAT and the Division for these periods was $1.5
million and $3.2 million, respectively. Upon consummation of the AnnTaylor
Disposition, the Company anticipates that it will no longer have sales to Ann
Taylor.
Gross Profit
Gross profit for the second quarter of 1996 was $9.7 million, a decrease of
$3.0 million or 23.7% from the comparable period in 1995. Gross profit for the
first six months of 1996 was $20.4 million, a decrease of $3.4 million or 14.4%
from the comparable period in 1995. Gross margins as a percentage of net sales
for the second quarter and six months of
-19-
<PAGE>
1996 increased over the comparable prior periods due to lower margins on sales
to discontinued and GJM customers in 1995. Certain of the Company's products
inherently carry lower gross margins than the woven products. The Company
expects that gross profit as a percentage of net sales will vary from quarter to
quarter depending on the mix of products sold.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the second quarter of 1996
were $8.1 million, representing a decrease of 49.4% over the second quarter of
1995. Selling, general and administrative expenses for the first six months of
1996 were $17.3 million, representing a decrease of 49.5% over the comparable
prior year period. The decrease in these expenses was primarily attributable to
reductions in the Company's overhead as well as the elimination of the FWM
operations and the disposition of the GJM Business.
Bad Debt Expenses
Bad debt expense of $1.1 million in the first quarter of 1995 resulted from
the bankruptcy filing of a customer.
Amortization of Intangibles
The amortization of intangibles for the second quarter of 1996 was $91,000,
a decrease of $874,000 over the second quarter of 1995. The amortization for the
first six months of 1996 was $182,000, a decrease of $1.7 million over the first
six months of 1995. The decrease was primarily attributable to the write offs
subsequent to the first quarter of 1995 of intangibles recorded in connection
with the FWM Acquisition and the GJM Acquisition.
Interest Expense
Interest expense for the second quarter of 1996 was $1.0 million, a
decrease of $1.5 million or 59.8% over the comparable prior year period.
Interest expense for the first six months of 1996 was $1.9 million, a decrease
of $2.7 million or 58.0% over the comparable prior year period. The decrease in
the interest expense is primarily attributable to the reduction in anticipation
taken by customers and the sale of the GJM Business.
Provision for Income Taxes
The provision for income taxes in the second quarter and six months of 1996
primarily represents tax on CAT's income. At February 3, 1996, the Company had
net operating loss carryforwards of approximately $84 million, which may be used
to offset future taxable income.
-20-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's finances its operations primarily through financing from
lending institutions, financing from customers and third party trade credit
facilities, cash from operations and the issuance of debt and equity securities.
During the quarter ended October 28, 1995, Cygne and CAT each entered into
a Credit Agreement with the HS Bank which modified the previous credit
arrangement with the HS Bank. The modifications included (i) the consolidation
of the Cygne, FWM and GJM facilities, previously aggregating up to $76.4
million, into one facility of up to $70.0 million, (ii) an increase in the CAT
facility from up to $28.0 million to up to $40.0 million, (iii) a requirement
under each agreement to comply with certain financial covenants as well as
various other restrictions, (iv) an increase in the Cygne facility interest rate
and (v) the elimination of the requirement to maintain a certain certificate of
deposit as additional security for the prior separate GJM credit facility.
Borrowings under these facilities, which may be terminated by the HS Bank or the
Company at any time as to future borrowings upon proper notice, are subject to
certain borrowing base limitations and the HS Bank's agreement as to amount,
purpose, interest rate, maturity and collateral. Borrowings under these
facilities are due on the earlier of demand or the maturity date specified by
the HS Bank for each borrowing. Amounts outstanding under the Cygne agreement
bear interest between 1% and 1.75% above the prime rate depending upon the
working capital, as defined, of the Company, exclusive of CAT. Amounts
outstanding under the CAT agreement bear interest at 0.5% above the prime rate.
Each agreement provides for additional interest at 2% per annum on amounts not
paid when due. The HS Bank facilities are cross guaranteed by Cygne and certain
of its subsidiaries and are secured by a first lien on substantially all the
assets of the Company including a pledge of 65% of the capital stock of certain
of Cygne's foreign subsidiaries, except for CAT (Far East) Limited as to which
60% of the capital stock is pledged.
On May 15, 1996, the Company received a commitment letter from HS Bank to
provide the Company with a new credit facility to replace the existing facility.
The commitment letter provides a committed facility of up to $30 million until
the earlier of August 31, 1996 or the closing of the AnnTaylor Disposition;
thereafter the facility reduces to $22.5 million and further reduces to $15
million at October 31, 1996; $10 million at November 30, 1996; $5 million at
December 31, 1996; and matures on January 31, 1997. Borrowings under this
facility are subject to borrowing base limitations. The Company is obligated to
pledge substantially all of its assets, including the AnnTaylor stock to be
received at the closing of the AnnTaylor Disposition as security for its
obligations under the credit facility. The Company intends to use a portion of
the purchase price to be received in the Ann Taylor Disposition, including
proceeds from the disposition of the AnnTaylor stock, to repay amounts
outstanding under this facility. The Company has requested the HS Bank to
postpone the August 31, 1996 initial reduction date to September 30, 1996.
Although the HS Bank has indicated that it is inclined to grant the Company's
request, the HS Bank has indicated that it is also inclined to reduce the
facility to $17.5 million at the earlier of the closing of the AnnTaylor
Disposition on September 30, 1996, to $12.5 million at October 31, 1996 and to
$7.5 million at November 30, 1996. There can be no assurance the HS Bank will
agree to the Company's request. If the HS Bank does not postpone the August 31,
1996 date and requires repayment of amounts outstanding under the facility in
excess of $22.5 million, the Company may have difficulty in making, and may be
unable to make, such payment, in which
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<PAGE>
event the HS Bank may declare all amounts outstanding under the facility to be
immediately due and payable. In addition, the reduction in the amount available
for borrowing under the facility prior to consummation of the Ann Taylor
Disposition could have a material adverse effect on the Company's ability to
conduct its business.
The following table sets forth information with respect to the HS Bank
facilities as of August 3, 1996:
<TABLE>
<CAPTION>
Direct Direct
Total Borrowing Open Letters Borrowing
Facility (1) Limit (2) of Credit Outstanding
------------ --------- ----------- -----------
(In thousands)
<S> <C> <C> <C> <C>
Cygne $30,000 $30,000 $ 3,861 $15,975
CAT(3) 40,000 8,000 38,630 356
------- ------- ------- -------
Total $70,000 $38,000 $42,491 $16,331
======= ======= ------- -------
</TABLE>
- ----------
(1) The total facility, less any direct borrowings outstanding, is available for
letters of credit.
(2) Consists principally of revolving loans and borrowings against
imports/exports.
(3) Cygne has guaranteed 60% of the indebtedness outstanding under this facility
and AnnTaylor, Inc., which owns 40% of CAT, has provided the HS Bank with a
$4,000,000 standby letter of credit.
Certain foreign subsidiaries have credit facilities aggregating $3,255,000
at August 3, 1996. Borrowings under these facilities, which are payable on
demand, are secured by a lien on certain assets of these subsidiaries.
Cygne has agreements with two-third parties not affiliated with the
Company, but affiliated with each other, whereby these parties made available to
the Company a trade credit facility. The trade credit facility has been
suspended. At August 3, 1996, $9,364,000 of this facility was outstanding. The
Company has reached an agreement in principle to restructure the amounts
outstanding under this trade credit facility.
In addition, from time to time customers finance the purchase of raw
materials on behalf of the Company, and the Company anticipates that they will
continue to do so, although there can be no assurance of this.
Net cash provided by operating activities for the six months ended August
3, 1996 was $3.9 million. The net cash provided resulted primarily from
decreases in accounts receivable and inventory offset by a decrease in accounts
payable. Net additions to fixed
-22-
<PAGE>
assets aggregated approximately $600,000 for the six months of 1996.
As discussed above, the financing of the Company's operations currently
depends primarily upon financing provided by the HS Bank, the Company's
customers and to a lesser extent, third party vendors. As a result of the
Company not being in compliance with financial covenants in its HS Bank credit
facility and the liquidity pressures faced by the Company, third party vendors
have been less willing to extend credit to the Company than in prior years.
Although the HS Bank has waived the defaults, there can be no assurance that
such third party vendors will continue to extend credit to the Company.
During 1995 and the first half of 1996, the Company experienced liquidity
pressures primarily as a result of the negative cash flow caused by the
Company's operating losses. The Company believes that its current financing
arrangement with the HS Bank and the proceeds from the AnnTaylor Disposition
will alleviate the liquidity pressures faced by the Company during 1995 and the
first half of 1996. However, there can be no assurance that the AnnTaylor
Disposition will occur or that the new credit facility will not be terminated.
If the AnnTaylor Disposition does not occur or the new credit facility is
terminated the Company will face the liquidity pressures previously experienced
which would adversely affect the Company's financial condition and results of
operations. The Company expects to seek a new bank facility to replace the HS
Bank Facility. There can be no assurance that the Company will be able to
replace the HS Bank Facility. If the Company is unable to replace the HS Bank
Facility, its financial condition and results of operations could be adversely
affected.
Tax Audits
The Company is subject to ongoing tax audits in several jurisdictions.
Although there can be no assurances, the Company believes any adjustments that
may arise as a result of these audits will not have a material adverse effect on
the Company's financial position.
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Stock and Asset Purchase Agreement, dated as of June 7, 1996,
as amended as of August 27, 1996, by and between Cygne Designs,
Inc., Cygne Group (F.E.) Limited, AnnTaylor Stores Corporation
and Ann Taylor, Inc.
10.2 License Agreement, dated as of July 26, 1996, by and between
Cygne Designs, Inc. and Kenzo S.A. pertaining to the KENZO
STUDIO license.
10.3 License Agreement, dated as of July 26, 1996, by and between
Cygne Designs, Inc. and Kenzo S.A. pertaining to the KENZO
JEANS license.
27 Financial Data Schedule (for SEC use only)
-23-
<PAGE>
b. Reports on Form 8-K
None.
-24-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CYGNE DESIGNS, INC.
(Registrant)
September 16, 1996 By: /s/ Bernard M. Manuel
---------------------------------------
Bernard M. Manuel, Chairman of the
Board and Chief Executive Officer
September 16, 1996 By: /s/ Roy E. Green
---------------------------------------
Roy E. Green, Senior Vice President,
Chief Financial Officer and Treasurer
-25-
APPENDIX I
STOCK AND ASSET PURCHASE AGREEMENT
BY AND BETWEEN
CYGNE DESIGNS, INC.,
CYGNE GROUP (F.E.) LIMITED,
ANNTAYLOR STORES CORPORATION
AND
ANNTAYLOR, INC.
DATED AS OF JUNE 7, 1996
AS AMENDED
BY
AMENDMENT
BY AND BETWEEN
CYGNE DESIGNS, INC.,
CYGNE GROUP (F.E.) LIMITED,
ANNTAYLOR STORES CORPORATION
AND
ANNTAYLOR, INC.
DATED AS OF AUGUST 27, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
I. Transfer of Assets and Liabilities ...................................................... I-1
1.1 Assets to be Sold .......................................................... I-1
1.2 Consideration .............................................................. I-3
1.3 Closing .................................................................... I-3
1.4 Deliveries by Seller ....................................................... I-3
1.5 Deliveries by Buyer ........................................................ I-4
1.6 Post-Closing Adjustments ................................................... I-4
1.7 Allocation of Purchase Price ............................................... I-6
1.8 Assumed Liabilities ........................................................ I-6
II. Related Matters ......................................................................... I-6
2.1 Ancillary Agreements ....................................................... I-7
2.2 Receivables Settlement ..................................................... I-7
2.3 Finished Goods ............................................................. I-7
2.4 Joint Venture Agreement .................................................... I-7
2.5 Leases ..................................................................... I-7
2.6 Meyer Employment Agreement ................................................. I-7
2.7 Mail Received After Closing ................................................ I-7
2.8 Employees, Benefit Plans ................................................... I-7
III. Representations and Warranties of Seller ................................................ I-9
3.1 Organization of Seller and CAT; Authority .................................. I-9
3.2 No Violation; Consents and Approvals ....................................... I-9
3.3 Seller Financial Statements ................................................ I-10
3.4 CAT Financial Statements ................................................... I-11
3.5 Combined Entity Financial Statements ....................................... I-11
3.6 Absence of Seller Undisclosed Liabilities .................................. I-12
3.7 Absence of CAT Undisclosed Liabilities ..................................... I-12
3.8 Absence of Division Undisclosed Liabilities ................................ I-12
3.9 Absence of Certain Changes or Events ....................................... I-12
3.10 Title to CAT Shares ........................................................ I-12
3.11 Title to Assets; Leased Property ........................................... I-13
3.12 Litigation/Claims .......................................................... I-14
3.13 Employee Benefit Plans ..................................................... I-14
3.14 Certain Contracts and Arrangements ......................................... I-15
3.15 Compliance with Laws; Licenses ............................................. I-15
3.16 Insurance .................................................................. I-16
3.17 Labor Matters .............................................................. I-16
3.18 Assets of the Division Business ............................................ I-16
3.19 Disclosure ................................................................. I-16
3.20 Environmental Matters ...................................................... I-17
3.21 Opinion of Financial Advisor ............................................... I-17
3.22 Brokers .................................................................... I-17
3.23 Intellectual Property ...................................................... I-17
3.24 Absence of Violations of Quotas and Visas .................................. I-17
3.25 No Tariffs or Duties ....................................................... I-18
3.26 Compliance with U.S. Customs and Trade Laws ................................ I-18
3.27 SEC Documents .............................................................. I-18
3.28 Compliance with Laws by CAT; Licenses ...................................... I-18
3.29 CAT Taxes .................................................................. I-18
3.30 Acquisition of the ATSC Common Stock for Investment; Securities Act ........ I-19
3.31 Suppliers .................................................................. I-19
3.32 Disclaimer of Other Representations and Warranties ......................... I-19
</TABLE>
I-i
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
IV. Representations and Warranties of ATSC and Buyer ........................................ I-19
4.1 Organization of ATSC and Buyer; Authority .................................. I-19
4.2 No Violation; Consents and Approvals ....................................... I-20
4.3 Litigation/Claims .......................................................... I-21
4.4 SEC Documents and Other Reports ............................................ I-21
4.5 Capital Stock .............................................................. I-21
4.6 Absence of Certain Changes or Events ....................................... I-21
4.7 Information Supplied ....................................................... I-21
4.8 Brokers .................................................................... I-21
4.9 Disclaimer of Other Representations and Warranties ......................... I-21
V. Covenants of the Parties ................................................................ I-22
5.1 Conduct of the Division Business ........................................... I-22
5.2 Access to Information; Confidentiality ..................................... I-23
5.3 Financial Statements ....................................................... I-23
5.4 Reasonable Best Efforts .................................................... I-24
5.5 Consents ................................................................... I-24
5.6 Antitrust Notification ..................................................... I-24
5.7 Public Announcements ....................................................... I-24
5.8 Access to Books and Records Following the Closing .......................... I-24
5.9 Other Transactions ......................................................... I-24
5.10 Discharge of Liens ......................................................... I-24
5.11 Resignations ............................................................... I-24
5.12 Insurance .................................................................. I-25
5.13 Supplementary Disclosure ................................................... I-25
5.14 Brazil Sourcing ............................................................ I-25
5.15 Letters of Credit .......................................................... I-25
5.16 Amendment .................................................................. I-25
5.17 Proxy Statement; Stockholder Approval ...................................... I-25
5.18 Occupancy .................................................................. I-26
5.19 Transfer Taxes ............................................................. I-26
5.20 Conduct of ATSC Business ................................................... I-26
VI. Conditions to Obligations of Both Parties ............................................... I-26
6.1 Conditions ................................................................. I-26
VII. Conditions to Obligations of Seller ..................................................... I-27
7.1 Conditions ................................................................. I-27
VIII. Conditions to Obligations of Buyer ...................................................... I-27
8.1 Conditions ................................................................. I-27
IX. Termination, Amendment and Waiver ....................................................... I-28
9.1 Termination ................................................................ I-28
9.2 Procedure and Effect of Termination ........................................ I-28
9.3 Other Remedies ............................................................. I-28
X. Survival of Representations; Indemnification ............................................ I-28
10.1 Survival of Representations ................................................ I-28
10.2 Seller's Agreement to Indemnify ............................................ I-29
10.3 Seller's Limitation of Liability ........................................... I-29
10.4 Buyer's Agreement to Indemnify ............................................. I-30
10.5 Buyer's Limitation of Liability ............................................ I-30
10.6 Conditions of Indemnification .............................................. I-30
10.7 Exclusive Remedies ......................................................... I-31
10.8 Transfer Pricing ........................................................... I-31
10.9 Claims Against CAT Directors and Officers .................................. I-31
</TABLE>
I-ii
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
XI. Miscellaneous ........................................................................... I-31
11.1 Fees and Expenses .......................................................... I-31
11.2 Further Assurances ......................................................... I-31
11.3 Notices .................................................................... I-31
11.4 Entire Agreement ........................................................... I-32
11.5 Severability ............................................................... I-32
11.6 Binding Effect; Assignment ................................................. I-32
11.7 Amendment, Modification and Waiver ......................................... I-32
11.8 Third-Party Beneficiaries .................................................. I-32
11.9 Counterparts ............................................................... I-32
11.10 Bulk Sales ................................................................. I-32
11.11 Interpretation ............................................................. I-32
11.12 Governing Law .............................................................. I-33
ANNEXES AND EXHIBITS
ANNEX I ............................................................................. Division Fabric and Trim
ANNEX II ................................................................................... Assumed Contracts
ANNEX III ................................................................................... Net Fixed Assets
ANNEX IV ...................................................................................... Lease Deposits
EXHIBIT A ....................................................................................... Bill of Sale
EXHIBIT B ................................................................ Assignment and Assumption Agreement
EXHIBIT C ........................................................................................ Undertaking
EXHIBIT D ................................................................................. Advance Instrument
EXHIBIT E ................................................................................... Pledge Agreement
EXHIBIT F ................................................................... NY Transition Services Agreement
EXHIBIT G ................................................................ Miami Transition Services Agreement
EXHIBIT H ........................................................................ Manuel Consulting Agreement
EXHIBIT I ........................................................................ Benson Consulting Agreement
EXHIBIT J ............................................................................. Stockholders Agreement
EXHIBIT K ..................................................................................... Florence Lease
EXHIBIT L ................................................................... Legal Opinion of Buyer's Counsel
EXHIBIT M .................................................................. Legal Opinion of Seller's Counsel
</TABLE>
I-iii
<PAGE>
GLOSSARY
Page
----
Agreement ........................................................... I-1
Seller .............................................................. I-1
CGFE ................................................................ I-1
ATSC ................................................................ I-1
Buyer ............................................................... I-1
Joint Venture Agreement ............................................. I-1
CAT-US .............................................................. I-1
CAT-Far East ........................................................ I-1
CAT ................................................................. I-1
Division ............................................................ I-1
Division Business ................................................... I-1
CAT US Shares ....................................................... I-1
CAT Far East Shares ................................................. I-1
CAT Shares .......................................................... I-1
Closing ............................................................. I-1
Liens ............................................................... I-1
Inventory ........................................................... I-1
Division Fabric and Trim ............................................ I-1
Capital Leases ...................................................... I-1
Contracts ........................................................... I-1
NY Facility ......................................................... I-2
NY Lease ............................................................ I-2
FWM Lease ........................................................... I-2
CAT Sublease ........................................................ I-2
Net Fixed Assets .................................................... I-2
Intellectual Property ............................................... I-2
Books and Records ................................................... I-2
Assets .............................................................. I-2
Bill of Sale ........................................................ I-2
Subleases ........................................................... I-2
Assignment and Assumption Agreements ................................ I-2
Other Instruments ................................................... I-2
ATSC Common Stock ................................................... I-3
Stock Consideration ................................................. I-3
Average Trading Price ............................................... I-3
Inventory Consideration ............................................. I-3
Fixed Asset Consideration ........................................... I-3
Purchase Price ...................................................... I-3
Undertaking ......................................................... I-3
Accounts Payable .................................................... I-3
Advance Instrument .................................................. I-3
Advances ............................................................ I-3
Liabilities ......................................................... I-3
Closing Date ........................................................ I-4
Bank Account ........................................................ I-4
GAAP ................................................................ I-4
Estimated Amount .................................................... I-4
Net Fixed Asset Value ............................................... I-5
Initial Payment Amount .............................................. I-5
Pledged Amount ...................................................... I-5
Seller Statement .................................................... I-5
I-iv
<PAGE>
Statement of Objection .............................................. I-5
Closing Date Statement .............................................. I-5
Reviewing Accountants ............................................... I-5
Accountant Statement ................................................ I-5
Adjusted Net Book Value ............................................. I-5
Pledge Agreement .................................................... I-5
Code ................................................................ I-6
IRS ................................................................. I-6
Stockholders Agreement .............................................. I-6
Florence Facility ................................................... I-6
Florence Lease ...................................................... I-6
Ancillary Agreements ................................................ I-6
Accounts Receivable Estimate ........................................ I-7
Receivables Payment Amount .......................................... I-7
Employment Agreements ............................................... I-7
Affected Employees .................................................. I-7
CAT Employees ....................................................... I-7
Hired Employees ..................................................... I-7
Continued Employees ................................................. I-8
Prior Welfare Plans ................................................. I-8
Replacement Welfare Plans ........................................... I-8
COBRA ............................................................... I-8
Material Adverse Effect ............................................. I-9
Seller Disclosure Schedule .......................................... I-9
Seller Related Instruments .......................................... I-9
Governmental Entities ............................................... I-10
HSR Act ............................................................. I-10
Exchange Act ........................................................ I-10
1996 Balance Sheet .................................................. I-10
Audited Financial Statements ........................................ I-10
Financial Statements ................................................ I-10
CAT 1996 Balance Sheet .............................................. I-11
CAT Audited Financial Statements .................................... I-11
CAT Financial Statements ............................................ I-11
Combined Entity ..................................................... I-11
Combined Entity 1996 Balance Sheet .................................. I-11
Combined Entity Audited Financial Statements ........................ I-11
Combined Entity Unaudited Financial Statements ...................... I-11
Combined Entity Financial Statements ................................ I-11
Permitted Liens ..................................................... I-13
Miami Lease ......................................................... I-13
Leases .............................................................. I-13
Miami Facility ...................................................... I-13
Leased Properties ................................................... I-13
Plans ............................................................... I-14
ERISA Affiliate ..................................................... I-14
ERISA ............................................................... I-14
Division Contracts .................................................. I-15
Permits ............................................................. I-16
Environmental Laws .................................................. I-17
Environmental Claim ................................................. I-17
Hazardous Materials ................................................. I-17
PCBs ................................................................ I-17
SEC ................................................................. I-18
I-v
<PAGE>
Seller SEC Documents ................................................ I-18
Securities Act ...................................................... I-18
Tax ................................................................. I-19
Taxes ............................................................... I-19
Tax Return .......................................................... I-19
Buyer Related Instruments ........................................... I-19
Buyer Disclosure Schedule ........................................... I-21
ATSC SEC Documents .................................................. I-21
Confidentiality Agreements .......................................... I-23
Combined Entity 1994 Audited Financial Statements ................... I-23
Subsequent Monthly Financial Statements ............................. I-23
CAT Subsequent Monthly Financial Statements ......................... I-23
Combined Entity Subsequent Monthly Financial Statements ............. I-23
Subsequent Quarterly Financial Statements ........................... I-23
CAT Subsequent Quarterly Financial Statements ....................... I-23
Combined Entity Subsequent Quarterly Financial Statements ........... I-23
Subsequent Financial Statements ..................................... I-24
CAT Subsequent Financial Statements ................................. I-24
Combined Entity Subsequent Financial Statements ..................... I-24
Exclusivity Period .................................................. I-24
Existing Gordon Agreement ........................................... I-25
Commission .......................................................... I-25
Preliminary Proxy Materials ......................................... I-25
Annual Meeting ...................................................... I-25
Proposal ............................................................ I-25
Proxy Statement ..................................................... I-25
Transfer Taxes ...................................................... I-26
Buyer Group ......................................................... I-29
Damages ............................................................. I-29
Seller Claims ....................................................... I-29
Buyer's Deductible .................................................. I-29
Seller Group ........................................................ I-30
Buyer Claims ........................................................ I-30
Claims .............................................................. I-30
Seller's Deductible ................................................. I-30
Failure of Condition ................................................ I-30
Waiving Party ....................................................... I-31
person .............................................................. I-32
affiliate ........................................................... I-32
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<PAGE>
STOCK AND ASSET PURCHASE AGREEMENT,
AS AMENDED
STOCK AND ASSET PURCHASE AGREEMENT, dated as of June 7, 1996, as amended as
of August 27, 1996 (the "Agreement"), by and between CYGNE DESIGNS, INC., a
Delaware corporation ("Seller"), CYGNE GROUP (F.E.) LIMITED, a Hong Kong
corporation and a wholly owned subsidiary of Seller ("CGFE"), ANNTAYLOR STORES
CORPORATION, a Delaware corporation ("ATSC"), and ANNTAYLOR, INC., a Delaware
corporation and a wholly owned subsidiary of ATSC ("Buyer").
W I T N E S S E T H
WHEREAS, pursuant to that certain Agreement, dated July 13, 1993 (the
"Joint Venture Agreement"), by and among Seller, CGFE, CAT US, Inc., a Delaware
corporation ("CAT US"), C.A.T. (Far East) Limited, a Hong Kong corporation
("CAT-Far East" and, together with CAT US, "CAT"), and Buyer, Seller and Buyer
own 60% and 40%, respectively, of the outstanding capital stock of CAT, which
serves as a fully dedicated direct sourcing capability for Buyer;
WHEREAS, Seller, through its AnnTaylor Woven Division (the "Division"),
serves as a private label designer, merchandiser and manufacturer of women's
apparel for AnnTaylor (the "Division Business");
WHEREAS, Seller desires to sell to Buyer and Buyer desires to acquire from
Seller (i) all of the shares of common stock, par value $.01 per share, of CAT
US owned by Seller (the "CAT US Shares"); and (ii) certain of the assets of the
Division as more fully described herein; and
WHEREAS, CGFE desires to sell to Buyer and Buyer desires to acquire from
CGFE all the shares of common stock, par value $1 HK per share, of CAT-Far East
owned by CGFE (the "CAT-Far East Shares" and, together with the CAT US Shares,
the "CAT Shares").
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants, agreements and conditions contained
herein, and intending to be legally bound hereby, the parties agree as follows:
I. TRANSFER OF ASSETS AND LIABILITIES.
1.1 Assets to be Sold.
(a) Upon the terms and subject to the conditions of this Agreement, at the
closing provided for in Section 1.3 hereof (the "Closing"), Seller shall sell,
convey, assign, transfer and deliver to Buyer, and Buyer shall purchase, acquire
and accept from Seller, the following:
(i) all right, title and interest in and to the CAT US Shares, free
and clear of all liens, encumbrances, security interests, mortgages,
pledges, claims, options or restrictions of any kind, other than
restrictions on transfer imposed under federal and state securities laws
(collectively, "Liens");
(ii) the following items of inventory (the "Inventory"): (x) fabric
and trim owned by Seller for use by the Division in the production of
merchandise for Buyer ("Division Fabric and Trim") as of February 3, 1996
and identified on ANNEX I hereto to the extent not used as of the Closing
Date in the production of merchandise for Buyer; (y) Division Fabric and
Trim purchased since February 3, 1996 pursuant to written commitments or
purchase orders issued by Buyer to the extent not used as of the Closing
Date in the production of merchandise for Buyer and (z) work-in-progress
owned by Seller for use by the Division in the production of merchandise
for Buyer pursuant to purchase orders issued by Buyer;
(iii) the capital leases and other agreements relating to equipment
located on the fifth, sixth and nineteenth floors of Seller's facility
located at 1372 Broadway, New York City, New York (the "NY Facility") and
at the Florence Facility (as hereinafter defined), to the extent they
relate to the Division Business and are listed on and marked with an
asterisk on Annex II hereto (collectively, the "Capital Leases") and other
contracts, personal property leases and other commitments to which Seller
is a party to the extent they relate to the Division Business and are
listed on ANNEX II hereto (collectively with the Capital Leases, the
"Contracts");
(iv) Seller's or its affiliate's rights as tenant in accordance with
Section 1.1(b) hereof (A) with respect to the sixth floor of the NY
Facility under the Agreement of Lease, dated August 7, 1991, between
Seller, as tenant, and Nineteen New York Properties Limited Partnership, as
landlord, as amended (as it relates to the sixth floor only,
I-1
<PAGE>
the "NY Lease"), and (B) with respect to the fifth and nineteenth floors of
the NY Facility under the Agreement of Lease, dated June 24, 1994, between
Fenn, Wright and Manson, Incorporated, as tenant, and Nineteen New York
Properties Limited Partnership, as landlord (as it relates to the fifth and
nineteenth floors only, the "FWM Lease"), as amended by that certain
sublease, dated February 28, 1995, between Fenn, Wright and Manson
Incorporated, as sublessor, and CAT US, Inc., as sublessee (the "CAT
Sublease");
(v) all leasehold improvements, furniture, fixtures and equipment that
meet all of the following conditions: (x) are owned by Seller or subject to
a Capital Lease, (y) relate to and are used exclusively or primarily in the
Division Business and (z) are located on the fifth, sixth or nineteenth
floor of the NY Facility or at the Florence Facility on the Closing Date
(the "Net Fixed Assets"), including those listed on ANNEX III hereto;
(vi) all licenses, permits, registrations, renewals thereof and
applications therefor, variances, exemptions, orders, approvals and
authorizations issued by any governmental, regulatory or administrative
agency or authority (domestic or foreign), held by Seller or any affiliate
of Seller of or relating to the Division Business, including all quota
allocations for the export of goods to the United States and elsewhere,
necessary or desirable for the lawful conduct of the Division Business, to
the extent transferable under applicable law;
(vii) all purchase orders, bills of lading, trust receipts, warehouse
receipts and other documents of title of whatever kind and description
relating to the Inventory;
(viii) all rights under insurance policies covering Inventory in
transit and all rights and claims under insurance policies for damage to
any Assets to the extent not repaired or replaced prior to the Closing;
(ix) all goodwill, intellectual property rights, patents, trademarks,
service marks, copyrights (including all copyrights in computer software
and databases), licenses and applications therefor (if any), know-how,
processes, methods, techniques, formulae, designs, drawings, patterns,
trade secrets, proprietary information, sketches, technical information,
computer software, databases and other proprietary or confidential
information of or relating to the Division Business and all rights in any
licenses to or from any third party of or for the foregoing (collectively,
the "Intellectual Property"), it being understood, however, that the rights
to the Intellectual Property shall be non-exclusive unless such
Intellectual Property relates solely to the Division Business and Seller's
rights therein are exclusive;
(x) all intangible assets of or relating to the Division Business,
including claims against third parties; and
(xi) all books and records (including all computerized records and
storage media and associated software) of CAT, and those relating solely to
the Division Business and, to the extent practicable, those portions of
Seller's other books and records that relate to the Division Business
(collectively, "Books and Records"), including, without limitation, (a) all
Books and Records relating to the employees of, and the purchase of
materials, supplies and services for, the Division Business or CAT, but not
including the tax returns, general ledger or corporate minute books and
capital stock books of Seller, and (b) the tax returns, general ledger and
corporate minute books and capital stock books of CAT US and CAT-Far East
(together with the items listed in clauses (ii)-(x) above, the "Assets").
(b) Such sale, conveyance, assignment, transfer and delivery shall be
effected by delivery by Seller to Buyer or its designees of (i) stock
certificates representing the CAT US Shares, duly endorsed or accompanied by
stock powers duly executed in blank with appropriate transfer stamps, if any,
affixed, and any other documents that are necessary to transfer title to the CAT
US Shares to Buyer, (ii) a duly executed bill of sale in substantially the form
of EXHIBIT A hereto (the "Bill of Sale"), (iii) a mutually satisfactory sublease
agreement with respect to each of the NY Lease and the FWM Lease (the
"Subleases") or, alternatively, newly negotiated leases between Buyer and the
landlord of the NY Facility relating to the premises subject to the NY Lease and
the FWM Lease, respectively, (iv) duly executed assignment and assumption
agreements in substantially the form of EXHIBIT B hereto (the "Assignment and
Assumption Agreements") with respect to each of the Contracts, and (v) such
other good and sufficient instruments of conveyance and transfer (collectively,
the "Other Instruments") as shall be reasonably necessary to vest in Buyer good
and valid title to the CAT US Shares and the Assets, free and clear of all
Liens, other than the Permitted Liens (as hereinafter defined).
(c) Upon the terms and subject to the conditions of this Agreement, at the
Closing, CGFE shall sell, convey, assign, transfer and deliver to Buyer, and
Buyer shall purchase, acquire and accept from CGFE, all right, title and
interest in and to the CAT Far East Shares, free and clear of all Liens. Such
sale, conveyance, assignment, transfer and delivery shall be effected by
delivery by CGFE to Buyer or its designees of stock certificates representing
the CAT Far
I-2
<PAGE>
East Shares, duly endorsed or accompanied by stock powers duly executed in blank
with appropriate transfer stamps, if any, affixed, and any other documents that
are necessary to transfer title to the CAT Far East Shares to Buyer.
1.2 Consideration.
(a) Upon the terms and subject to the conditions of this Agreement, in
consideration of the aforesaid sale, conveyance, assignment, transfer and
delivery of the CAT Shares and the Assets, Buyer shall, in accordance with the
terms of this Agreement, deliver or cause to be delivered to Seller, on its own
behalf and on behalf of CGFE, as their respective interests may appear, in full
payment for the aforesaid sale, conveyance, assignment, transfer and delivery of
the CAT Shares and the Assets:
(i) the number of validly issued, fully paid and nonassessable shares
of common stock, par value $.0068 per share, of ATSC ("ATSC Common Stock"),
rounded to the nearest whole share, equal to the quotient obtained by
dividing (a) $36.0 million by (b) the Average Trading Price of the ATSC
Common Stock (the "Stock Consideration"); provided, however, that, except
as provided in the next sentence of this Section 1.2(a)(i), the number of
shares of ATSC Common Stock to be issued shall in no event exceed 2.5
million shares (the "2.5 Million Cap"). In the event that on the Closing
Date (x) the 2.5 Million Cap is triggered and (y) the aggregate value,
based on the Average Trading Price, of 2.5 million shares of ATSC Common
Stock is less than $32.5 million, then ATSC shall issue as the Stock
Consideration the number of shares of ATSC Common Stock, rounded to the
nearest whole share, equal to the quotient obtained by dividing (A) $32.5
million by (B) the Average Trading Price of the ATSC Common Stock provided,
however, that the number of shares of ATSC Common Stock to be issued shall
in no event exceed 3 million shares. The number of shares of ATSC Common
Stock, if any, issued in excess of the 2.5 Million Cap shall be hereinafter
referred to as the "Additional Shares". Notwithstanding the foregoing, in
lieu of the issuance by ATSC of all or a portion of the Additional Shares,
if applicable, Buyer may, in its sole discretion, deliver the dollar amount
in cash (the "Additional Cash") equal to the product obtained by
multiplying (aa) the number of Additional Shares not to be issued by ATSC
by (bb) the Average Trading Price. As used in this Agreement, the term
"Stock Consideration" shall include the amount of the Additional Cash, if
any, delivered in lieu of Additional Shares. As used in this Agreement, the
"Average Trading Price" shall mean the average of the high and low sale
prices of the ATSC Common Stock on the New York Stock Exchange Composite
Tape (or as reported on any other exchange on which the ATSC Common Stock
is then listed) on each of the 10 consecutive trading days ending on the
trading day immediately prior to the Closing Date;
(ii) a dollar amount in cash equal to the Adjusted Net Book Value (as
hereinafter defined) of the Inventory determined in accordance with Section
1.6 hereof (the "Inventory Consideration");
(iii) a dollar amount in cash equal to the lesser of (x) the Net Fixed
Asset Value (as hereinafter defined) and (y) $2,646,000 (the "Fixed Asset
Consideration" and, together with the Inventory Consideration and the Stock
Consideration, the "Purchase Price");
(iv) the Subleases, if applicable;
(v) the Assignment and Assumption Agreements;
(vi) an undertaking substantially in the form of EXHIBIT C hereto (the
"Undertaking") evidencing the assumption by Buyer of accounts payable
associated with the Inventory (the "Accounts Payable"); and
(vii) an instrument, substantially in the form of EXHIBIT D hereto
(the "Advance Instrument"), evidencing the forgiveness by Buyer of
$7,985,000 of outstanding advances (the "Advances" and, collectively with
the Capital Leases and the Accounts Payable, the "Liabilities") made to
Seller by Buyer.
1.3 Closing. The Closing of the transactions contemplated by this Agreement
shall take place at the offices of Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York, at 10:00 a.m., Eastern time, on the first
business day following the Annual Meeting (as hereinafter defined) or, if the
conditions to Closing set forth in Articles VI, VII and VIII hereof shall not
have been satisfied or waived by such date, as soon as practicable after such
conditions shall have been satisfied or waived, or such other place, date and
time as shall be agreed upon in writing by the parties hereto. The date on which
the Closing actually occurs is referred to herein as the "Closing Date".
1.4 Deliveries by Seller. At the Closing, Seller and CGFE, as applicable,
shall deliver or cause to be delivered to Buyer (unless delivered previously)
the following:
(a) the stock certificates representing the CAT Shares, duly endorsed
or accompanied by stock powers duly executed in blank with appropriate
transfer stamps, if any, affixed, and any other documents that are
reasonably necessary to transfer title to the CAT Shares to Buyer;
I-3
<PAGE>
(b) the Bill of Sale;
(c) the Subleases, if applicable;
(d) the Assignment and Assumption Agreements;
(e) the Pledge Agreement (as hereinafter defined);
(f) the resignations of certain officers and directors of CAT referred
to in Section 5.11 hereof;
(g) the compliance certificate referred to in Subsection 8.1(c)
hereof;
(h) the opinion of counsel to Seller referred to in Subsection 8.1(d)
hereof;
(i) duly executed counterparts of any consent or approval referred to
in Subsection 8.1(g) hereof;
(j) the Ancillary Agreements (as hereinafter defined); and
(k) all other documents, certificates, instruments or writings
required to be delivered by Seller at or prior to the Closing pursuant to
this Agreement or otherwise reasonably required in connection herewith.
1.5 Deliveries by Buyer. At the Closing, Buyer shall deliver or cause to be
delivered to Seller (unless delivered previously) the following:
(a) a stock certificate or stock certificates representing the shares
of ATSC Common Stock to be delivered to Seller in payment of the Stock
Consideration, free and clear of all Liens other than as set forth in, and
bearing the legend set forth in, the Stockholder's Agreement (as
hereinafter defined);
(b) a wire transfer of Federal or other immediately available funds in
an amount equal to the Initial Payment Amount (as hereinafter defined);
(c) a wire transfer of Federal or other immediately available funds in
amount equal to the Fixed Asset Consideration;
(d) a wire transfer of Federal or other immediately available funds in
an amount equal to the Receivables Payment Amount (as hereinafter defined);
(e) a wire transfer of Federal or other immediately available funds in
an amount equal to the deposits under the Leases (as hereinafter defined)
listed on ANNEX IV hereto;
(f) a wire transfer of Federal or other immediately available funds in
an amount equal to the Pledged Amount (as hereinafter defined) to a bank
account in the name of Buyer (the "Bank Account");
(g) the Pledge Agreement;
(h) the Subleases, if applicable;
(i) the Assignment and Assumption Agreements;
(j) the Undertaking;
(k) the Advance Instrument;
(l) the officer's certificate referred to in Subsection 7.1(c) hereof;
(m) the opinion of counsel to Buyer referred to in Subsection 7.1(d)
hereof;
(n) the Ancillary Agreements;
(o) evidence that Buyer has substituted letters of credit or provided
an alternative form of financial support for the letters of credit listed
on the schedule delivered pursuant to Section 5.15 hereof;
(p) all other documents, certificates, instruments or writings
reasonably required to be delivered by Buyer at or prior to the Closing
pursuant to this Agreement or otherwise required in connection herewith;
and
(q) a wire transfer of Federal or other immediately available funds in
an amount equal to the Additional Cash, if applicable.
The wire transfers pursuant to subparagraphs (b) (c) (d) (e) and (q)
above shall be made by a single wire transfer to an account designated in
writing at least two (2) business days prior to the Closing Date by Seller.
1.6 Post-Closing Adjustments.
(a) At least five (5) business days prior to the Closing Date, Seller shall
prepare and deliver to Buyer (i) a good faith estimate, prepared in accordance
with United States generally accepted accounting principles ("GAAP"),
I-4
<PAGE>
applied in a manner consistent with the preparation of the financial statements
referred to in Section 3.5 hereof, except as otherwise expressly provided below,
and accompanied by a certificate of the chief financial officer of Seller to
that effect, of the aggregate amount of the Adjusted Net Book Value of the
Inventory determined in accordance with clause (f) below (the "Estimated
Amount") as of the Closing Date, (ii) a statement, prepared in good faith in a
manner consistent with the preparation of the Company's books and records during
the periods reflected in the financial statements referred to in Section 3.5
hereof and accompanied by a certificate of the chief financial officer of Seller
to that effect, of the aggregate amount of the net book value of the Net Fixed
Assets as of the Closing Date (the "Net Fixed Asset Value"), and (iii) a
schedule of all open purchase orders of Seller relating to the Division.
(b) At Closing, Buyer shall (i) deliver to Seller an amount equal to 80% of
the Estimated Amount (the "Initial Payment Amount") and (ii) cause the Bank
Account to be credited with an amount equal to 20% of the Estimated Amount (the
"Pledged Amount").
(c) Beginning two (2) days prior to the Closing Date, Seller and Buyer
shall jointly conduct, or shall cause to be jointly conducted by their
respective independent public accountants, a physical count of all Inventory as
of the Closing Date. The physical count of the Inventory shall be conducted in
accordance with procedures to be mutually agreed upon by the parties' respective
independent public accountants. As promptly as practicable thereafter, but in no
event more than thirty (30) days following the Closing Date, Seller shall
prepare or cause to be prepared and shall deliver to Buyer a reasonably detailed
statement setting forth the Adjusted Net Book Value of the Inventory, determined
in accordance with clause (f) below (the "Seller Statement"). Unless within
thirty (30) days after its receipt of the Seller Statement Buyer shall deliver
to Seller a reasonably detailed statement describing its objections to the
Seller Statement (a "Statement of Objection"), the amount of the Adjusted Net
Book Value of the Inventory determined in accordance with this clause (c) shall
be final and binding on the parties hereto and the Seller Statement shall be the
final statement hereunder (the "Closing Date Statement"). Buyer may include in
its Statement of Objection one or more objections to items included by Seller in
the Inventory that, in Buyer's good faith determination, were not properly
included as Inventory pursuant to Section 1.1(a)(ii) hereof;
(d) If Buyer shall deliver to Seller a timely Statement of Objection, Buyer
and Seller and their respective independent accountants shall negotiate in good
faith and use reasonable best efforts to resolve any disputes. If a resolution
is reached, such resolution shall be final and binding on the parties and Buyer
and Seller shall set forth the Adjusted Net Book Value of the Inventory on a
mutually acceptable statement and such statement shall be the Closing Date
Statement. If a final resolution is not reached within fifteen (15) days after
Buyer has submitted its Statement of Objection, any remaining disputes shall be
resolved by a third firm of independent accountants (the "Reviewing
Accountants") selected jointly by the parties' independent accounting firms. The
Reviewing Accountants shall be instructed to resolve any matters in dispute as
promptly as practicable, but in no event more than thirty (30) days, and set
forth their resolution in a statement setting forth the Net Book Value of the
Inventory (the "Accountant Statement"). In such event, the determination of the
Reviewing Accountants shall be final and binding on the parties hereto and the
Accountant Statement shall be the Closing Date Statement.
(e) Seller and Buyer each shall pay one-half of the fees and expenses of
the Reviewing Accountants. Seller and the Buyer shall cooperate with each other
and the Reviewing Accountants in connection with the matters contemplated by
this Section 1.6, including Seller's preparation of and Buyer's review of the
Closing Date Statement, including by furnishing such information and access to
books, records (including accountants' work papers), personnel and properties as
may be reasonably requested.
(f) The "Adjusted Net Book Value" shall be equal to the tangible net book
value of the Inventory, less the amount of the Liabilities, as set forth on the
Closing Date Statement. The Closing Date Statement shall be prepared in
accordance with GAAP applied in a manner consistent with the financial
statements referred to in Section 3.5 hereof, except as otherwise expressly set
forth in this Section 1.6, and except that Inventory shall be valued at cost,
not the lower of cost or market. For purposes of this Section 1.6, the
Inventory, regardless of condition, shall be valued as follows: (i) raw
materials shall be valued at cost, including, without limitation, to the extent
actually incurred: FOB or CF purchase price, as the case may be; inspection
costs; re-dyeing and/or refinishing charges; duty; freight and brokerage
charges; fabric commission; insurance; and storage charges; provided, however,
that such valuation applies only to raw materials available to Buyer (i.e.,
excludes shrinkage); and (ii) work-in-progress shall include (A) raw material
costs as determined above; and (B) making charges to the extent such charges
have been paid by Seller. Notwithstanding the foregoing, finished goods rejected
or canceled by Buyer prior to the Closing Date shall not be included in the
Assets and such finished goods shall remain in Seller's possession.
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(g) At the Closing, Buyer shall pledge the Bank Account to Seller as
security for its interest under this Section 1.6 pursuant to a Pledge Agreement
in substantially the form of EXHIBIT E hereto (the "Pledge Agreement"). Upon
delivery of the Closing Date Statement, Seller hereby releases its right and
security interest in the Bank Account (but not in the proceeds thereof, to the
extent such proceeds are due to Seller pursuant to this Section 1.6)
automatically and without any further action required on the part of Seller.
(h) If the Adjusted Net Book Value set forth in the Closing Date Statement
exceeds the Initial Payment Amount, Buyer shall distribute to Seller in cash out
of the Pledged Amount the amount of such excess. Buyer shall retain the
remainder, if any, of the Pledged Amount. Buyer shall distribute interest earned
on the Pledged Amount in the Bank Account to Seller, or shall retain such
interest, in proportion to the amount of the Pledged Amount distributed or
retained, as the case may be, by each.
(i) If the Adjusted Net Book Value set forth in the Closing Date Statement
is less than the Initial Payment Amount, Seller shall pay the difference to
Buyer in immediately available funds, plus interest on such amount from the
Closing Date to the date of payment at the rate of 8% per annum. In such event,
Buyer shall retain the Pledged Amount and all interest earned thereon.
(j) If the Adjusted Net Book Value set forth in the Closing Date Statement
exceeds the Estimated Amount, then, in addition to distribution of the Pledged
Amount pursuant to clause (h) above, Buyer shall pay the difference to Seller in
immediately available funds, plus interest on such amount from the Closing Date
to the date of payment at the rate of 8% per annum.
1.7 Allocation of Purchase Price. Prior to the Closing, the parties shall
agree to the appropriate allocation of the Purchase Price and the Liabilities
among the CAT Shares and Assets, which allocation shall comply with Section 1060
of the Internal Revenue Code of 1986, as amended (the "Code"). The parties
hereby agree that such allocation shall be conclusive and binding on each of
them for purposes of federal and, where applicable, state and local tax returns
and that they will not voluntarily take any position inconsistent therewith. The
parties hereby agree to prepare and timely file all applicable Internal Revenue
Service ("IRS") and other governmental authority forms, to cooperate with each
other in the preparation of such forms, and to furnish each other with a copy of
such forms prepared in draft, within a reasonable period prior to the filing due
date thereof.
1.8 Assumed Liabilities. Except for liabilities and obligations expressly
assumed in this Agreement, Buyer has not agreed to pay, shall not be required to
assume and shall have no liability or obligation with respect to, and Seller
shall indemnify and hold Buyer harmless from and against, any liability or
obligation, direct or indirect, absolute or contingent, of Seller, the Division
or any of their affiliates.
II. RELATED MATTERS.
2.1 Ancillary Agreements.
(a) At the Closing, Seller and Buyer shall enter into (i) a mutually
satisfactory transition services agreement relating to the CAD-CAM work stations
located at the NY Facility with substantially the terms set forth on EXHIBIT F
hereto and (ii) a mutually acceptable transition services agreement relating to
the Miami Facility (as hereinafter defined) with substantially the terms set
forth on EXHIBIT G hereto.
(b) At the Closing, Seller and Buyer shall enter into a consulting
agreement in substantially the form of EXHIBIT H hereto, relating to the
services of Mr. Bernard M. Manuel.
(c) At the Closing, Seller and Buyer shall enter into a consulting
agreement in substantially the form of EXHIBIT I hereto, relating to the
services of Mr. Irving Benson.
(d) At the Closing, Seller and Buyer shall enter into a stockholders
agreement (the "Stockholders Agreement") relating to the shares of ATSC Common
Stock issued to Seller pursuant to Subsection 1.2(a)(i) hereof in substantially
the form of EXHIBIT J hereto.
(e) At the Closing, Seller or an affiliate of Seller and Buyer shall enter
into a mutually satisfactory lease whereby Buyer shall lease certain real
property in Florence, Italy (the "Florence Facility") from Seller or such
affiliate with substantially the terms set forth on EXHIBIT K hereto (the
"Florence Lease" and, collectively with the agreements listed in paragraphs
(a)-(d) above, the "Ancillary Agreements").
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2.2 Receivables Settlement. At least five (5) business days prior to the
Closing Date, Seller shall deliver to Buyer a detailed schedule setting forth
Seller's good faith estimate (the "Accounts Receivable Estimate"), accompanied
by a certificate of the chief financial officer of Seller to that effect, of the
dollar amount of the accounts receivable of Seller from Buyer and CAT for
finished goods that have been received, quality checked and accepted. At the
Closing, Buyer shall deliver to Seller (a) a detailed statement describing its
disputes, if any, to the Accounts Receivable Estimate, and (b) a wire transfer
of immediately available funds in an amount equal to the Accounts Receivable
Estimate not so disputed (the "Receivables Payment Amount"). Buyer and Seller
agree to negotiate in good faith to resolve any dispute of the Accounts
Receivable Estimate. If any such dispute is not resolved by the parties and
their respective independent accountants within ten (10) business days after the
Closing, such dispute shall be resolved by the Reviewing Accountants as promptly
as practicable, and such resolution shall be final and binding on the parties.
The expenses of the Reviewing Accountants shall be paid one half by each of
Seller and Buyer.
2.3 Finished Goods. All finished goods other than those referred to in
Section 2.2 hereof shall be shipped and paid for in the ordinary course of
business in accordance with the relevant purchase orders; provided, however,
that Seller shall pay all costs incurred or to be incurred in delivering
finished goods to Buyer.
2.4 Joint Venture Agreement. The execution and delivery of this Agreement
by each of Seller, CGFE, ATSC and Buyer shall not be construed to defeat, impair
or limit in any way the rights, obligations, claims or remedies of Seller, CGFE
or Buyer under the Joint Venture Agreement, including, without limitation, under
Section 5 thereof. Upon consummation of the Closing, the Joint Venture Agreement
shall terminate automatically and be of no further force or effect.
2.5 Leases. In the event Buyer enters into the Subleases at the time of
Closing, (i) at Seller's election at any time within two (2) years after the
Closing Date, Buyer shall assume those obligations of Seller under the NY Lease
or the FWM Lease, as the case may be, that relate to the subleased premises, and
(ii) the Subleases shall contain the consents of the respective landlords to the
assignment described in clause (i) above.
2.6 Meyer Employment Agreement. Buyer shall (i) pay to Mr. Dwight Meyer any
amount payable to him as a result of the consummation of transactions
contemplated by this Agreement under his existing employment agreement with
CAT-US and (ii) use reasonable best efforts to cause Mr. Meyer to execute and
deliver a full release of all of Seller's, Buyer's and CAT's obligations to Mr.
Meyer in respect of his employment by CAT prior to the Closing Date.
2.7 Mail Received after Closing. On and after the Closing, Buyer may
receive and open all mail addressed to former employees of Seller who are
Continuing Employees and deal with the contents thereof in its discretion to the
extent that such mail and the contents thereof relate to the Division, the
Division Business, CAT, the Assets or any of the Liabilities. Buyer agrees to
deliver, or to cause to be delivered, promptly to Seller all other mail
received.
2.8 Employees, Benefit Plans.
(a) Hiring of Employees. Buyer shall not have any obligation to assume or
honor any employment agreement ("Employment Agreements") between Seller and any
current or former employee of Seller. As of the Closing Date, Seller shall
terminate the employment of, and Buyer shall offer employment to, employees of
Seller or its affiliates who are actively employed immediately prior to the
Closing Date, whose primary employment is with the Division and who have been
identified to Seller in writing by Buyer as employees to whom Buyer shall offer
employment ("Affected Employees"). CAT employees who are employed by CAT
immediately prior to the Closing Date shall remain employees of CAT following
the Closing Date ("CAT Employees"). All Affected Employees who accept employment
with Buyer ("Hired Employees") and CAT Employees who continue employment by CAT
immediately following the Closing Date, shall be referred to, collectively, as
"Continued Employees".
(b) Wages. Buyer shall pay or cause to be paid when due to the Hired
Employees the amount of all wages, salary, bonuses, commissions, incentive
payments and other compensation (including, without limitation, any vacation and
sick pay) or any other benefit, perquisite, cost, expense, liability or
obligation attributable to services provided on and after the Closing Date.
Seller shall pay or cause to be paid all amounts due to employees of Seller
engaged in the Division Business, including Hired Employees, for wages, salary,
bonuses, commissions, incentive payments and other compensation (including,
without limitation, any vacation and sick pay) or any other benefit, perquisite,
cost, expense, liability or obligation attributable to services provided prior
to the Closing Date. Prior to the
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Closing Date, Seller shall allow (and Seller represents and warrants to Buyer
that it has allowed) the Hired Employees the opportunity to use all accrued or
earned vacation; provided, however, that if any vacation time remains owed to
the Hired Employees as of the Closing Date, Seller shall pay any and all such
amounts to the Hired Employees.
(c) Welfare Plans. As of the Closing Date, Continued Employees shall cease
to participate in the employee welfare benefit plans (as such term is defined in
ERISA) maintained or sponsored by Seller or its affiliates (the "Prior Welfare
Plans") and shall commence to participate in welfare benefit plans of Buyer or
its affiliates (the "Replacement Welfare Plans"), in accordance with the terms
of such plans. Seller shall be responsible for any claims by Continued Employees
for benefits relating to claims incurred prior to the Closing Date (regardless
of when reported) and Buyer or CAT shall be responsible for any claims incurred
by Continued Employees on or after the Closing Date.
(d) Workmen's Compensation Liability. Any payments to be made on or after
the Closing Date relating to workmen's compensation claims of Continued
Employees pending at the time of Closing or arising from services provided prior
to Closing shall be made by Seller or its insurance carrier.
(e) COBRA Coverage. To the extent required by law, Seller shall give the
Affected Employees and their spouses notice of their rights to continuation
coverage under Section 4980B of the Code ("COBRA") in accordance with applicable
law. Seller shall continue to be responsible at all times after the Closing Date
for continuation coverage under COBRA with respect to all Affected Employees,
former CAT Employees and their present or former dependents. Seller hereby
agrees to indemnify and hold harmless Buyer against any and all losses which the
Buyer may incur in respect of any of the foregoing.
(f) Employment Law Liabilities.
(i) Seller hereby agrees to indemnify Buyer and its affiliates
against, and agrees to hold them harmless from, any and all claims, losses,
damages and expenses (including, without limitation, reasonable attorneys'
fees) and other liabilities and obligations incurred or suffered as a
result of any claim by any employee of Seller, including any Hired
Employee, that arises under federal, state or local statute (including,
without limitation, Title VII of the Civil Rights Act of 1964, the Civil
Rights Act of 1991, the Age Discrimination in Employment Act of 1990, the
Equal Pay Act, the Americans with Disabilities Act of 1990, the Employee
Retirement Income Security Act of 1974 and all other statutes regulating
the terms and conditions of employment), regulation or ordinance, under the
common law or in equity (including any claims for wrongful discharge or
otherwise), or under any policy, agreement, understanding or promise,
written or oral, formal or informal, between Seller and the employee,
arising out of actions, events or omissions that occurred (or, in the case
of omissions, failed to occur) on or prior to the Closing Date; and
(ii) Buyer hereby agrees to indemnify Seller and its affiliates
against, and agrees to hold them harmless from, any and all claims, losses,
damages and expenses (including, without limitation, reasonable attorneys'
fees) and other liabilities and obligations incurred or suffered as a
result of any claim by any Hired Employee that arises under federal, state
or local statute (including, without limitation, Title VII of the Civil
Rights Act of 1964, the Civil Rights Act of 1991, the Age Discrimination in
Employment Act of 1990, the Equal Pay Act, the Americans with Disabilities
Act of 1990, the Employee Retirement Income Security Act of 1974 and all
other statutes regulating the terms and conditions of employment),
regulation or ordinance, under the common law or in equity (including any
claims for wrongful discharge or otherwise), or under any policy,
agreement, understanding or promise, written or oral, formal or informal,
between Buyer and such Hired Employee, arising out of actions, events or
omissions that occurred (or, in the case of omissions, failed to occur)
subsequent to the Closing Date.
(g) WARN Act Liabilities. Seller shall bear, and indemnifies and holds
harmless Buyer and its affiliates from and against, all direct and indirect
costs, claims, losses, damages, expenses and other liabilities and obligations
arising from or relating to claims made by or on behalf of the Affected
Employees relating to the termination of any such person's employment by Seller
or its affiliates prior to or on the Closing Date, including, but not limited
to, claims in respect of the Worker Adjustment and Retraining Notification Act
of 1988, severance pay, salary continuation and similar obligations. Buyer
agrees to bear, and indemnify and hold harmless Seller from and against, all
direct and indirect costs, claims, losses, damages, expenses and other
liabilities and obligations arising from or relating to claims made by or on
behalf of the Continued Employees relating to the termination of any such
person's employment by
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Buyer or CAT after the Closing Date, except for claims in respect of the Worker
Adjustment and Retraining Notification Act of 1988 which would not have arisen
but for aggregation with terminations by Seller prior to the Closing Date.
(h) No Third-Party Beneficiaries. Nothing in this Section 2.8 is intended,
or shall be construed, to confer upon any person, other than the parties hereto
and their successors and permitted assigns, any rights or remedies by reason of
this Section 2.8.
III. REPRESENTATIONS AND WARRANTIES OF SELLER.
Seller represents and warrants to Buyer as follows:
3.1 Organization of Seller and CAT; Authority.
(a) Each of Seller, CAT-US and CAT-Far East is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of organization and has all requisite corporate power and
authority to own, lease and operate its properties and assets and to
conduct its business as it is now being conducted, including, without
limitation, in the case of Seller, the Division. Each of Seller, CAT-US and
CAT-Far East is duly qualified or licensed to do business as a foreign
corporation and is in good standing in each jurisdiction in which the
property or assets owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except in
those jurisdictions where the failure to have such power and authority or
to be so duly qualified or licensed and in good standing would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on the business, properties, assets, results of operations
or financial condition (a "Material Adverse Effect") of the Division,
CAT-US or CAT-Far East. Except as set forth in Section 3.1 of the
Disclosure Schedule being delivered by Seller to Buyer concurrently
herewith (the "SELLER DISCLOSURE SCHEDULE"), Seller does not have any
subsidiaries or equity interests in any business entity engaged in the
Division Business.
(b) Each of Seller and CGFE has all requisite corporate power and
authority to enter into this Agreement and any instruments and agreements
contemplated herein required to be executed and delivered by it pursuant to
this Agreement (including, without limitation, as applicable, the Ancillary
Agreements, the Bill of Sale, the Assignment and Assumption Agreements, and
any Other Instruments, which are referred to collectively herein as the
"Seller Related Instruments") and to consummate the transactions
contemplated hereby and thereby. The execution, delivery and performance of
this Agreement and the Seller Related Instruments and the consummation of
the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of each of Seller and CGFE,
other than approval of Seller's stockholders. This Agreement has been, and
each of the Seller Related Instruments when executed and delivered will be,
duly executed and delivered by Seller and CGFE, as applicable, and this
Agreement constitutes, and each of the Seller Related Instruments to which
it is a party will, when executed and delivered, constitute a valid and
binding obligation of Seller or CGFE, as applicable, enforceable against
Seller or CGFE, as applicable, in accordance with its terms, except that
(i) such enforcement may be subject to any bankruptcy, insolvency,
reorganization, moratorium, or other laws, now or hereafter in effect,
relating to or limiting creditors' rights generally and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may
be subject to equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. Each of Seller and CGFE shall
deliver to Buyer true, correct and complete copies of resolutions duly and
validly adopted by its board of directors, evidencing the authorization of
the execution and delivery of this Agreement and the Seller Related
Instruments, as applicable, and the consummation of the transactions
contemplated hereby and thereby.
3.2 No Violation; Consents and Approvals.
(a) Except as set forth in Section 3.2(a) of the SELLER DISCLOSURE
SCHEDULE, the execution and delivery of this Agreement and the Seller
Related Instruments do not, and the consummation of the transactions
contemplated hereby or thereby and compliance with the terms hereof or
thereof will not, (i) conflict with, or result in any violation of or
default under, (A) any provision of the charter or by-laws of Seller or
CGFE, or (B) any judgment, order or decree, or statute, law, ordinance,
rule or regulation of any Governmental Entity (as hereinafter defined)
applicable to Seller, CGFE, CAT, the Division or the Assets; or (ii)
conflict with, or result in
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any breach or violation of or constitute a default (or an event or
condition which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the
performance required by, or cause the acceleration of any maturity of any
liability or obligation pursuant to, or result in the creation or
imposition of any Lien under, any note, bond, mortgage, indenture, license,
contract, agreement, lease or other instrument or obligation to which
Seller, CGFE or CAT is a party or by which Seller, CGFE or CAT may be bound
or affected or to which any of the Assets may be subject, except where the
conflict, violation, default, breach, termination, acceleration, creation
or imposition would not reasonably be expected to have a Material Adverse
Effect on the Division or CAT, would not prevent or delay Seller's ability,
or, to the best knowledge of Seller, Buyer's ability, to consummate the
transactions contemplated hereby, would not impair in any material respect
Buyer's ability to operate CAT or the Division Business as currently
operated or would not result in any liability, cost or expense of Seller
(other than the Liabilities or other liabilities and obligations not in
excess of $50,000 in the aggregate) being incurred by Buyer.
(b) Except as set forth in Section 3.2(b) of the SELLER DISCLOSURE
SCHEDULE, no consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission
or other governmental entity, authority or instrumentality, domestic or
foreign (collectively, "Governmental Entities"), is required to be obtained
or made by or with respect to Seller, CGFE or CAT in connection with the
execution and delivery by Seller or CGFE of this Agreement or any Seller
Related Instrument or the consummation by Seller or CGFE of the
transactions contemplated hereby or thereby, or compliance by Seller or
CGFE with the terms hereof or thereof, other than (i) compliance with and
filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), (ii) compliance with and filings under Sections
13(a) and (d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and (iii) those the failure of which to obtain would not
reasonably be expected to have a Material Adverse Effect on the Division or
CAT, would not prevent or delay Seller's ability, or, to the best knowledge
of Seller, Buyer's ability, to consummate the transactions contemplated
hereby, would not impair in any material respect Buyer's ability to operate
CAT or the Division Business as currently operated or would not result in
any liability, cost or expense of Seller (other than the Liabilities or
other liabilities and obligations not in excess of $50,000 in the
aggregate) being incurred by Buyer.
(c) Except for the approval of Seller's stockholders, and as set forth
in Section 3.2(c) of the SELLER DISCLOSURE SCHEDULE, no consent, approval,
order or authorization of, notice to, or registration, declaration or
filing with, any third party is required to be obtained or made by Seller,
CGFE or CAT in connection with the execution and delivery by Seller or CGFE
of this Agreement or any Seller Related Instrument, or the consummation by
Seller or CGFE of the transactions contemplated hereby or thereby or
compliance by Seller or CGFE with the terms hereof or thereof, except where
the failure to obtain any consent, approval, order or authorization, or to
give notice, or to make any registration, declaration or filing would not
reasonably be expected to have a Material Adverse Effect on the Division or
CAT, would not prevent or delay Seller's ability, or, to the best knowledge
of Seller, Buyer's ability, to consummate the transactions contemplated
hereby, would not impair in any material respect Buyer's ability to operate
CAT or the Division Business as currently operated or would not result in
any liability, cost or expense of Seller (other than the Liabilities or
other liabilities and obligations not in excess of $50,000 in the
aggregate) being incurred by Buyer.
3.3 Seller Financial Statements.
(a) Seller has delivered to Buyer true, correct and complete copies of
the audited, consolidated balance sheets of Seller as of January 29, 1994,
January 28, 1995, and February 3, 1996 (the "1996 Balance Sheet") and the
audited, consolidated income statements and statements of cash flows of
Seller for the fiscal years ended January 29, 1994, January 28, 1995 and
February 3, 1996, accompanied, in each case, by an unqualified report of
Seller's independent public accountants, Ernst & Young, LLP (collectively,
the "Audited Financial Statements").
(b) As used in this Agreement, the term "Financial Statements" means,
collectively, the Audited Financial Statements and the Subsequent Financial
Statements (as hereinafter defined).
(c) The balance sheets included in the Audited Financial Statements
present, and the balance sheets included in the Subsequent Financial
Statements will present, fairly the financial position of Seller as of the
respective dates thereof; provided, however, that the Subsequent Financial
Statements will be subject to normal
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year-end adjustments and will lack footnotes. The statements of income and
statements of cash flows included in the Audited Financial Statements
present, and the statements of income and statements of cash flows included
in the Subsequent Financial Statements will present, fairly the results of
operations and cash flows of Seller for the respective periods indicated;
provided, however, that the Subsequent Financial Statements will be subject
to normal year-end adjustments and will lack footnotes.
(d) The Audited Financial Statements were and the Subsequent Financial
Statements will have been, based on the accounting books and records of
Seller and have been prepared or will be prepared in accordance with GAAP
applied on a consistent basis throughout the periods presented in the
Financial Statements; provided, however, that the Subsequent Financial
Statements will be subject to normal year-end adjustments and will lack
footnotes.
3.4 CAT Financial Statements.
(a) Seller has delivered to Buyer true, correct and complete copies of
the audited, combined balance sheets of CAT as of January 29, 1994, January
28, 1995 and February 3, 1996 (the "CAT 1996 Balance Sheet") and the
audited, combined income statements and statements of cash flows of CAT for
the fiscal years ended January 29, 1994, January 28, 1995 and February 3,
1996, accompanied, in each case, by an unqualified report of CAT's
independent public accountants, Ernst & Young, LLP (collectively, the "CAT
Audited Financial Statements").
(b) As used in this Agreement, the term "CAT Financial Statements"
means, collectively, the CAT Audited Financial Statements and the CAT
Subsequent Financial Statements (as hereinafter defined).
(c) The balance sheets included in the CAT Audited Financial
Statements present, and the balance sheets included in the CAT Subsequent
Financial Statements will present, fairly the financial position of CAT as
of the respective dates thereof; provided, however, that the CAT Subsequent
Financial Statements will be subject to normal year-end adjustments and
will lack footnotes. The statements of income and statements of cash flows
included in the CAT Audited Financial Statements present, and the
statements of income and statements of cash flows included in the CAT
Subsequent Financial Statements will present, fairly the results of
operations and cash flows of CAT for the respective periods indicated;
provided, however, that the CAT Subsequent Financial Statements will be
subject to normal year-end adjustments and will lack footnotes.
(d) The CAT Audited Financial Statements were, and the CAT Subsequent
Financial Statements will have been, based on the accounting books and
records of CAT and have been prepared or will have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
presented in the CAT Financial Statements; provided, however, that the CAT
Subsequent Financial Statements will be subject to normal year-end
adjustments and will lack footnotes.
3.5 Combined Entity Financial Statements.
(a) Seller has delivered to Buyer true, correct and complete copies of the
following:
(i) the audited combined balance sheets of CAT and the Division (the
"Combined Entity") as of February 3, 1996 (the "Combined Entity 1996
Balance Sheet") and the audited combined income statements and statements
of cash flows of the Combined Entity for the fiscal year ended February 3,
1996, accompanied, in each case, by an unqualified report of Seller's
independent public accountants, Ernst & Young, LLP (collectively, the
"Combined Entity Audited Financial Statements"); and
(ii) the unaudited combined balance sheets of the Combined Entity as
of January 28, 1995 and the unaudited combined income statements and
statements of cash flows of the Combined Entity for the fiscal year ended
January 28, 1995 (collectively, the "Combined Entity Unaudited Financial
Statements").
(b) As used in this Agreement, the term "Combined Entity Financial
Statements" means, collectively, the Combined Entity Audited Financial
Statements, the Combined Entity Unaudited Financial Statements and the Combined
Entity Subsequent Financial Statements (as hereinafter defined).
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(c) The balance sheets included in the Combined Entity Audited
Financial Statements and the Combined Entity Unaudited Financial Statements
present, and the balance sheets included in the Combined Entity Subsequent
Financial Statements will present, fairly the pro forma financial position
of the Combined Entity as of the respective dates thereof, based upon the
assumption set forth therein and the notes thereto; provided, however, that
the Combined Entity Unaudited Financial Statements are, and the Combined
Entity Subsequent Financial Statements (other than the Combined Entity 1994
Audited Financial Statements) will be, subject to normal year-end
adjustments and will lack footnotes. The statements of income and
statements of cash flows included in the Combined Entity Audited Financial
Statements and the Combined Entity Unaudited Financial Statements present,
and the statements of income and statements of cash flows included in the
Combined Entity Subsequent Financial Statements will present, fairly the
pro forma results of operations and cash flows of the Combined Entity for
the respective periods indicated, based on the assumptions set forth
therein and the notes thereto; provided, however, that the Combined Entity
Unaudited Financial Statements are, and the Combined Entity Subsequent
Financial Statements (other than the Combined Entity 1994 Audited Financial
Statements) will be, subject to normal year-end adjustments and will lack
footnotes.
(d) The Combined Entity Audited Financial Statements and the Combined
Entity Unaudited Financial Statements were, and the Combined Entity
Subsequent Financial Statements will have been, based on the accounting
books and records of the Combined Entity, subject to the assumptions set
forth in such financial statements and the notes thereto, and have been
prepared or will be prepared in accordance with GAAP applied on a
consistent basis throughout the periods presented in the Combined Entity
Financial Statements, subject to the assumptions set forth in such
financial statements and the notes thereto; provided, however, that the
Combined Entity Unaudited Financial Statements are, and the Combined Entity
Subsequent Financial Statements (other than the Combined Entity 1994
Audited Financial Statements) will be, subject to normal year-end
adjustments and will lack footnotes.
3.6 Absence of Seller Undisclosed Liabilities. Except for (a) liabilities
and obligations set forth in Section 3.6 of the SELLER DISCLOSURE SCHEDULE or
reflected on the 1996 Balance Sheet or (b) liabilities and obligations incurred
in the ordinary course of business consistent with past practice since the date
of the 1996 Balance Sheet, Seller has incurred no liabilities or obligations
relating to the Division in excess of $50,000 in the aggregate (whether
absolute, accrued, contingent or otherwise, and whether due or to become due).
3.7 Absence of CAT Undisclosed Liabilities. To the best knowledge of
Seller, except for (a) liabilities and obligations set forth in Section 3.7 of
the SELLER DISCLOSURE SCHEDULE or reflected on the CAT 1996 Balance Sheet or (b)
liabilities and obligations incurred in the ordinary course of business
consistent with past practice since the date of the CAT 1996 Balance Sheet, CAT
has incurred no liabilities or obligations in excess of $50,000 in the aggregate
(whether absolute, accrued, contingent or otherwise, and whether due or to
become due).
3.8 Absence of Division Undisclosed Liabilities. Except for (a) liabilities
and obligations set forth in Section 3.8 of the SELLER DISCLOSURE SCHEDULE or
reflected on the Division 1996 Balance Sheet or (b) liabilities and obligations
incurred in the ordinary course of business consistent with past practice since
the date of the Division 1996 Balance Sheet, the Division has incurred no
liabilities or obligations in excess of $50,000 in the aggregate (whether
absolute, accrued, contingent or otherwise, and whether due or to become due).
3.9 Absence Of Certain Changes Or Events. Except as set forth in Section
3.9 of the SELLER DISCLOSURE SCHEDULE, since February 3, 1996, (a) there has not
been any Material Adverse Effect on the Division Business; and (b) neither
Seller nor CAT has taken any action, no event has occurred and no condition
exists that is identified in Section 5.1 hereof.
3.10 Title to CAT Shares.
(a) Seller has good and valid title to the CAT US Shares, free and clear of
all Liens, other than (i) Liens arising under the Joint Venture Agreement and
(ii) Liens in favor of The HongKong and Shanghai Banking Corporation. Upon
delivery to Buyer at the Closing of certificates representing the CAT US Shares,
duly endorsed by Seller for transfer to Buyer or accompanied by stock powers
duly executed in blank, and upon delivery by Buyer in accordance with the terms
hereof of the consideration provided for in Section 1.2 hereof, assuming Buyer
has purchased the CAT US Shares in good faith without notice of an adverse claim
(as such term is defined in Section 8-302 of the Uniform Commercial Code as
currently in effect in the State of New York) and has not been a party to any
fraud or illegality affecting such shares, good and valid title to the CAT US
Shares will pass to Buyer, free and clear of any Liens. Other
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than under this Agreement, the Joint Venture Agreement and Seller's agreements
with The HongKong and Shanghai Banking Corporation, the CAT US Shares are not
subject to any voting trust agreement or other contract, agreement, arrangement,
commitment or understanding, including any such agreement, arrangement,
commitment or understanding restricting or otherwise relating to the voting,
dividend rights or disposition of the CAT US Shares.
(b) CGFE has good and valid title to the CAT Far East Shares, free and
clear of all Liens, other than (i) Liens arising under the Joint Venture
Agreement and (ii) Liens in favor of The HongKong and Shanghai Banking
Corporation. Upon delivery to Buyer at the Closing of certificates representing
the CAT Far East Shares, duly endorsed by CGFE for transfer to Buyer or
accompanied by stock powers duly executed in blank, and upon delivery by Buyer
in accordance with the terms hereof of the consideration provided for in Section
1.2 hereof, assuming Buyer has purchased the CAT Far East Shares in good faith
without notice of an adverse claim (as such term is defined in Section 8-302 of
the Uniform Commercial Code as currently in effect in the state of New York) and
has not been a party to any fraud or illegality affecting such shares, good and
valid title to the CAT Far East Shares will pass to Buyer, free and clear of any
Liens. Other than under this Agreement, the Joint Venture Agreement and Seller's
agreements with The HongKong and Shanghai Banking Corporation, the CAT Far East
Shares are not subject to any voting trust agreement or other contract,
agreement, arrangement, commitment or understanding, including any such
agreement, arrangement, commitment or understanding restricting or otherwise
relating to the voting, dividend rights or disposition of the CAT Far East
Shares.
3.11 Title to Assets; Leased Property.
(a) Except as set forth in Section 3.11(a) of the SELLER DISCLOSURE
SCHEDULE, Seller has (i) good and valid title to all of the Assets which are
owned by Seller as of the date hereof and valid leasehold interests in, or other
rights to use, all of the Assets which are not owned by Seller, free and clear
of all Liens other than Permitted Liens and (ii) Seller will have good and valid
title to all of the Assets which will be owned by Seller as of the Closing Date
and will have valid leasehold interests in, or other rights to use, all of the
Assets which will not be owned by Seller as of the Closing Date, excluding
Assets sold or otherwise disposed of in the ordinary course of business and
including Assets purchased, leased or licensed, as the case may be, between the
date hereof and the Closing Date. As used in this Agreement, the term "Permitted
Liens" means (i) mechanics', carriers', workmen's, repairmen's or other like
liens arising or incurred in the ordinary course of business, (ii) liens for
taxes, assessments and other governmental charges which are not due and payable
or which may hereafter be paid without penalty or which are being contested in
good faith by appropriate proceedings (for which adequate reserves have been
made in the Combined Entity Financial Statements in accordance with GAAP) and
(iii) other imperfections of title or encumbrances, if any, which imperfections
of title or other encumbrances, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect on the Division
Business, would not prevent or delay Seller's ability, or, to the best knowledge
of Seller, Buyer's ability, to consummate the transactions contemplated hereby,
would not impair in any material respect Buyer's ability to operate the Division
Business as currently operated or would not result in any liability, cost or
expense (other than liabilities and obligations not in excess of $50,000 in the
aggregate) to Buyer or any of its affiliates, CAT or the Division.
(b) Set forth on ANNEX IV hereto is a true and correct listing of the
portions of the deposits under the NY Lease and the FWM Lease relating to
premises to be occupied by Buyer after the Closing Date. Seller has delivered to
Buyer true, correct and complete copies of the NY Lease and all amendments
thereto, the FWM Lease and all amendments thereto, including the CAT Sublease,
and the Business Lease, dated January 21, 1992, among Seller, as tenant, and
David Schaecter and Marvis Schaecter, as landlord (the "Miami Lease" and,
collectively with the NY Lease and the FWM Lease, the "Leases"), relating to
Seller's facility located at 4915 NW 159th Street, Miami Lakes, Florida (the
"Miami Facility") and all amendments thereto. For purposes of this Section 3.11,
the term Seller shall include Seller's wholly owned subsidiary Fenn, Wright and
Manson, Incorporated, as applicable. Seller or CAT, as the case may be, has a
valid and subsisting leasehold estate with respect to each of the properties
subject to a Lease (the "Leased Properties"). Except as set forth in Section
3.11(b) of the SELLER DISCLOSURE SCHEDULE, to the best knowledge of Seller, (i)
each of the Leases is in full force and effect and (ii) none of the Leases has
been modified or amended. Neither Seller nor CAT, as the case may be, has given
or received a written notice of default under any of the Leases which remains
uncured, and, to the best knowledge of Seller, there exists no event of default,
event, occurrence or act which, with the giving of notice, the lapse of time, or
both, or the happening of a further event or condition, would result in a
default under any of the Leases by Seller or CAT, as the case may be, or, to the
best knowledge of Seller, the applicable landlord under any such Leases. There
are no pending unresolved material disputes with any
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landlord under any of the Leases. All security deposits required under the
Leases have been paid to the applicable landlord under the Leases in compliance
with the applicable Lease. Except as set forth in Section 3.11(b) of the SELLER
DISCLOSURE SCHEDULE, there are no subtenants occupying any portion of the Leased
Properties other than CAT and, except for Seller, to the best knowledge of
Seller, no other person or entity has any right to occupy or possess any portion
of the Leased Properties other than affiliates of Seller claiming by, through or
under Seller who shall (except for CAT) vacate their respective premises on or
prior to the Closing Date. Except as set forth in Section 3.11(b) of the SELLER
DISCLOSURE SCHEDULE, as to the Leases, (i) none of Seller's or CAT's interests
in any of the Leases has been assigned, pledged, hypothecated or otherwise
encumbered in any manner; (ii) no written waiver, indulgence or postponement of
the applicable landlord's obligations under any of the Leases has been granted
by Seller or CAT; (iii) neither Seller nor CAT has any right or option to
purchase or otherwise acquire any of the Leased Properties or any portion
thereof; and (iv) neither Seller nor CAT has given any notices to any landlord
indicating that Seller or CAT either will or will not (A) be exercising any
extension or renewal options, or any right or option to purchase any of the
Leased Properties or any portion thereof, (B) abandon any of the Leased
Properties or any portion thereof, or (C) terminate any of the Leases.
(c) Except as set forth in Section 3.11(c) of the SELLER DISCLOSURE
SCHEDULE, (i) to the best knowledge of Seller, the building and structure at the
Florence Facility are structurally sound and are free from defects (ordinary
wear and tear excepted) and are adequate for the uses to which they are being
put, and (ii) all machinery and equipment owned, leased or used by Seller in the
conduct of the Division Business are free from defects (ordinary wear and tear
excepted) and are in good and normal operating condition and repair (ordinary
wear and tear excepted), and are adequate for the uses to which they are being
put, in each case, except for defects which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on the
Division Business, would not impair in any material respect Buyer's ability to
operate the Division Business as currently operated or would not result in any
liability, cost or expense to Buyer or any of its affiliates (other than the
Liabilities or other liabilities and obligations not in excess of $50,000 in the
aggregate).
(d) Except as set forth in Section 3.11(d) of the SELLER DISCLOSURE
SCHEDULE, upon Closing in accordance with the terms of this Agreement, Buyer
shall receive from Seller good and valid title to all of the Assets, free and
clear of all Liens, other than Permitted Liens.
3.12 Litigation/Claims.
(a) Section 3.12(a) of the SELLER DISCLOSURE SCHEDULE sets forth a true,
complete and correct list of any and all claims, actions, suits and proceedings
pending or, to the best knowledge of Seller, threatened, and, to the best
knowledge of Seller, any investigations or inquiries pending or threatened,
against Seller which relate to the Division or CAT.
(b) Except as set forth in Section 3.12(b) of the SELLER DISCLOSURE
SCHEDULE, there is (i) no claim, action, suit or proceeding pending or, to the
best knowledge of Seller, threatened, and (ii) to the best knowledge of Seller,
no investigation or inquiry pending or threatened, by or before any Governmental
Entity, or by or on behalf of any third party, which challenges the validity of
this Agreement or any Seller Related Instrument or which, if adversely
determined, would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on the Division Business, prevent or delay
Seller's ability, or, to the best knowledge of Seller, Buyer's ability, to
consummate the transactions contemplated hereby, impair in any material respect
Buyer's ability to operate the Division Business as currently operated, or
result in any liability, cost or expense to Buyer or any of its affiliates
(other than the Liabilities or other liabilities and obligations not in excess
of $50,000 in the aggregate).
3.13 Employee Benefit Plans. (a) With respect to each employee benefit
plan, arrangement or agreement that is maintained, or was maintained at any time
during the five (5) calendar years preceding the date of this Agreement (the
"Plans"), by either Seller or CAT or by any trade or business, whether or not
incorporated (an "ERISA Affiliate"), which together with either Seller or CAT
would be deemed a "single employer" within the meaning of Section 4001 of the
Employment Retirement Income Security Act of 1974, as amended ("ERISA"):
(i) each of the Plans that is subject to ERISA has been maintained and
administered in all material respects in compliance with ERISA and each of
the Plans intended to be "qualified" within the meaning of Section 401(a)
of the Code is so qualified;
(ii) no Plan has an accumulated or waived funding deficiency within
the meaning of Section 412 of the Code;
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(iii) no Plan is a multiemployer plan (within the meaning of Section
4001(a)(3) of ERISA) and no Plan is a multiple employer plan as defined in
Section 413 of the Code; and
(iv) no Plan that is or was maintained by CAT is subject to Article IV
of ERISA.
(b) Neither Seller nor CAT has any obligations with respect to medical
benefits for retired employees of the Division or CAT.
(c) Neither Seller nor CAT has any obligations to the Affected Employees
with respect to any 401(k) plan or pension plan.
3.14 Certain Contracts and Arrangements.
(a) Except as set forth in Section 3.14(a) of the SELLER DISCLOSURE
SCHEDULE, there are no binding oral agreements to which Seller is a party
relating to the Division or the Assets or to which the Division or any of the
Assets is subject. Section 3.14(b) of the SELLER DISCLOSURE SCHEDULE sets forth
a true, correct and complete list of all written agreements, contracts and
commitments to which Seller is a party and to which the Division or any of the
Assets is subject (the "Division Contracts"), including, without limitation:
(i) employment agreements or severance agreements;
(ii) covenants not to compete;
(iii) agreements or contracts with any affiliate of Seller;
(iv) agreements or contracts under which Seller has borrowed or loaned
money, or any note, bond, indenture or other evidence of indebtedness or
any guarantee of indebtedness, agreements with factors or trade credit
agreements;
(v) "open purchase orders", "take-or-pay" agreements or any other
agreements with suppliers, but excluding purchase orders which relate to
specific goods made for Buyer in the ordinary course of business;
(vi) agreements or contracts with any cutting room operator;
(vii) agreements or contracts with contract manufacturers or factory
operators; (viii) all real property leases to which Seller is a party and
which relate to the Division Business; or
(ix) other agreements, contracts, leases, licenses, commitments or
instruments to which the Seller is a party, which relate, directly or
indirectly, to the Division or any Asset; provided, however, that (x)
purchase orders and written fabric commitments accepted from Buyer and the
fabric commitments related to the fabric listed on ANNEX I hereto and (y)
such agreements, contracts or commitments as may be terminated by Buyer at
any time after the Closing without liability, penalty or premium upon
notice of three months or less or which will not result in future annual
expenditures or receipts by the Division at any time of $50,000 or more
need not be and are not listed in Section 3.14 of the SELLER DISCLOSURE
SCHEDULE. Seller and, to the best knowledge of Seller, no other party to
any Division Contract is in breach thereof or in default thereunder, which
breach or default would, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect on the Division Business,
prevent or delay Seller's ability, or, to the best knowledge of Seller,
Buyer's ability, to consummate the transactions contemplated hereby, impair
in any material respect Buyer's ability to operate the Division Business as
currently operated or result in any liability, cost or expense to Buyer or
any of its affiliates (other than the Liabilities or other liabilities and
obligations not in excess of $50,000 in the aggregate). Subject to
obtaining any requisite consents of third parties, the enforceability of
the Division Contracts will not be affected in any material respect by the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. To the best knowledge of Seller, there
have been no threatened cancellations of, or any dispute under, any
Division Contract.
(b) All amounts due and payable by Seller or an affiliate of Seller under
the Contracts as of the date hereof have been paid in full by Seller or such
affiliate, and all amounts due and payable by Seller or an affiliate of Seller
under the Contracts as of the Closing Date shall have been paid in full by
Seller or such affiliate.
3.15 Compliance with Laws; Licenses. Except as set forth in Section 3.15(a)
of the SELLER DISCLOSURE SCHEDULE, the Division has been, and is being, operated
in compliance with all applicable laws, statutes, ordinances, rules, regulations
and orders of all Governmental Entities, except for laws the violation of which,
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individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on the Division Business, would not prevent or delay
Seller's ability, or, to the best knowledge of Seller, Buyer's ability, to
consummate the transactions contemplated hereby, would not impair in any
material respect Buyer's ability to operate the Division Business as currently
operated or would not result in any liability, cost or expense to Buyer or any
of its affiliates (other than the Liabilities or other liabilities and
obligations not in excess of $50,000 in the aggregate). Section 3.15(b) of the
SELLER DISCLOSURE SCHEDULE sets forth a true, correct and complete list of all
permits, certificates, licenses, approvals and other authorizations of
Governmental Entities ("Permits") possessed by Seller or any affiliate of Seller
in connection with the operation of the Division as currently operated and
ownership of the Assets, which are all the Permits required in connection with
the operation of the Division as currently operated and ownership of the Assets
under applicable laws, statutes, ordinances, rules, regulations and orders,
except where the failure to possess such Permits, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
the Division Business, would not prevent or delay Seller's ability, or, to the
best knowledge of Seller, Buyer's ability, to consummate the transactions
contemplated hereby, would not impair in any material respect Buyer's ability to
operate the Division Business as currently operated or would not result in any
liability, cost or expense to Buyer or any of its affiliates (other than the
Liabilities or other liabilities and obligations not in excess of $50,000 in the
aggregate).
3.16 Insurance. Section 3.16 of the SELLER DISCLOSURE SCHEDULE sets forth a
true, correct and complete list of all policies of fire, medical, life,
liability, product liability, workmen's compensation, libel, health and other
forms of insurance presently in effect with respect to the Division or CAT. All
such policies are in full force and effect, all premiums due and payable with
respect thereto have been paid, and no notice of cancellation or termination has
been received with respect to any such policy. All such policies are sufficient
for compliance in all material respects with all requirements of law and the
terms of the Leases and are valid, outstanding and enforceable and will remain
in full force and effect through the Closing Date. Except as set forth in
Section 3.16 of the SELLER DISCLOSURE SCHEDULE, no risks with respect to the
Division or CAT have been designated by Seller as being self-insured. Except as
set forth in Section 3.16 of the SELLER DISCLOSURE SCHEDULE, Seller has not been
refused any insurance in connection with the Division or CAT, nor has any
coverage been limited by any insurance carrier to which Seller has applied for
such insurance or with which Seller has carried such insurance in the last three
years.
3.17 Labor Matters. Except as set forth in Section 3.17 of the SELLER
DISCLOSURE SCHEDULE, with respect to the Division, (a) Seller is in compliance
in all material respects with all applicable laws regarding employment and
employment practices, terms and conditions of employment, wages, hours of work
and occupational safety and health, (b) Seller is not a party to or bound by any
collective bargaining agreement or similar agreement with any labor
organization, and, to the best knowledge of Seller, no union claims to represent
Division employees, (c) there is no unfair labor practice charge or complaint
against Seller pending or, to the best knowledge of Seller, threatened before
the National Labor Relations Board or any similar state or foreign agency, nor
is there any grievance or any arbitration proceeding arising out of or under any
collective bargaining agreement pending or, to the best knowledge of Seller,
threatened against Seller, (d) there is no labor strike, slowdown, work stoppage
or lockout pending or, to the best knowledge of Seller, threatened against
Seller and (e) there is no charge or complaint pending or, to the best knowledge
of Seller, threatened against Seller before the Equal Employment Opportunity
Commission or any state, local or foreign agency responsible for the prevention
of unlawful employment practices. Except as set forth in Section 3.17 of the
SELLER DISCLOSURE SCHEDULE, Seller has not received written notice of the intent
of any federal, state, local or foreign agency responsible for the enforcement
of labor or employment laws to conduct an investigation of or relating to Seller
with respect to the Division, and, to the best knowledge of Seller, no such
investigation is in progress or threatened.
3.18 Assets of the Division Business. All of the Assets are used
exclusively or primarily in the conduct of the Division Business other than the
CAT Shares and certain Intellectual Property.
3.19 Disclosure. No representation or warranty by Seller contained in this
Agreement, and no statement contained in any document (including, without
limitation, the Seller Related Instruments, the Financial Statements, the CAT
Financial Statements, the Division Financial Statements and the SELLER
DISCLOSURE SCHEDULE), list, certificate or other writing furnished or to be
furnished by or on behalf of Seller to Buyer or any of its representatives
pursuant to this Agreement, contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact necessary, in
the light of the circumstances under which it was or will be made, in
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order to make the statements herein or therein not misleading, or necessary in
order to fully and fairly provide the information required to be provided in
any such document, list, certificate or other writing.
3.20 Environmental Matters.
(a) Except as set forth in Section 3.20(a) of the SELLER DISCLOSURE
SCHEDULE, Seller is in compliance in all material respects with all applicable
federal, state, local and foreign laws and regulations relating to pollution or
protection of human health or the environment ("Environmental Laws") with
respect to the Division (which compliance includes, but is not limited to, the
possession by Seller of all permits and other governmental authorizations
required under applicable Environmental Laws with respect to the Division, and
compliance with the terms and conditions thereof).
(b) Except as set forth in Section 3.20(b) of the SELLER DISCLOSURE
SCHEDULE, there is no Environmental Claim pending or, to the best knowledge of
Seller, threatened against Seller relating to the Division or, to the best
knowledge of Seller, against any person or entity whose liability for any
Environmental Claim the Division has or may have retained or assumed either
contractually or by operation of law which would reasonably be expected to
result in a Material Adverse Effect on the Division Business or would result in
any liability, cost or expense to Buyer or any of its affiliates (other than the
Liabilities or other liabilities and obligations not in excess of $50,000 in the
aggregate). As used herein, "Environmental Claim" means any claim, action, cause
of action, investigation or notice (written or oral) by any person or entity
alleging potential liability arising out of, based on or resulting from (i) the
presence, or release, spill, discharge, emission, leaching or migration into the
indoor or outdoor environment, of any Hazardous Materials at any location,
whether or not owned or operated by Seller, or (ii) circumstances forming the
basis of any violation, or alleged violation, of any Environmental Law.
(c) Except as set forth in Section 3.20(c) of the SELLER DISCLOSURE
SCHEDULE, the Seller has not and, to the best knowledge of Seller, no other
person has placed, stored, deposited, discharged, buried, dumped or disposed of
substances defined as Hazardous Substances, Oils, Pollutants or Contaminants in
the National Oil and Hazardous Substances Pollution Contingency Plan, 40 C.F.R.
ss. 300.5, or defined as such by, or regulated as such under, any Environmental
Law ("Hazardous Materials") or any other wastes produced by, or resulting from,
any business, commercial or industrial activities, operations or processes, on,
beneath or adjacent to any property currently or formerly owned, operated or
leased by the Seller for use in the Division, except for inventories of such
substances to be used, and wastes generated therefrom, in the ordinary course of
business of Seller (which inventories and wastes, if any, were and are stored or
disposed of in accordance in all material respects with applicable Environmental
Laws and in a manner such that there has been no Release of any such substances
into the indoor or outdoor environment in violation of Environmental Laws).
(d) Without limiting the generality of the foregoing, except as set forth
in Section 3.20(d) of the SELLER DISCLOSURE SCHEDULE, to the best knowledge of
Seller, none of the properties owned, operated or leased by Seller and used by
the Division contain any: underground storage tanks; asbestos; polychlorinated
biphenyls ("PCBs"); or septic tanks or waste disposal pits in which process
wastewater or any Hazardous Materials have been discharged or disposed.
3.21 Opinion of Financial Advisor. Seller has received an opinion from
Ladenburg, Thalmann & Co., Inc. to the effect that the consideration to be
received by Seller represents reasonable equivalent value and fair consideration
for the CAT Shares and the Assets and a copy of such opinion has been provided
to ATSC.
3.22 Brokers. No broker, finder or financial advisor or other person is
entitled to any brokerage fees, commissions, finders' fees or financial advisory
fees in connection with the transactions contemplated hereby by reason of any
action taken by Seller or any of its affiliates, employees, representatives or
agents.
3.23 Intellectual Property. Seller has no registered patents, trademarks,
copyrights, service marks, or applications therefor relating to the Division
Business. Except as set forth in Section 3.23 of the SELLER DISCLOSURE SCHEDULE,
Seller (a) owns or licenses the Intellectual Property related to or used in the
conduct of the Division Business free and clear of all Liens, (b) Seller has the
right to transfer its interest in the Intellectual Property to Buyer, (c) no
claims have been asserted or, to the best knowledge of Seller, threatened
against Seller with respect to the ownership, use or transfer by Seller of the
Intellectual Property, and (d) to the best knowledge of Seller, no third party
is in violation of any of Seller's rights in the Intellectual Property.
3.24 Absence of Violations of Quotas and Visas. Except as set forth in
Section 3.24 of the SELLER DISCLOSURE SCHEDULE, Seller, with respect to the
Division Business, is not in violation in any material respect
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of any visa or quota restrictions under any trade agreements, including, without
limitation, the Multifiber Arrangement or other arrangements under the General
Agreement on Tariffs and Trade.
3.25 No Tariffs or Duties. With respect to the Division Business, Seller's
payment of all tariffs and duties are current in all jurisdictions, and Seller
does not owe any tariffs or duties other than those incurred in the ordinary
course of business (a) under any trade agreements, including, without
limitation, The North American Free Trade Agreement, Caribbean Basin Economic
Recovery or the Jackson Vanik Amendment to the Trade Act of 1974; and (b) to the
U.S. Customs Service.
3.26 Compliance with U.S. Customs and Trade Laws. Seller, with respect to
the Division Business, is not in violation in any material respect of any U.S.
Customs or trade laws, including, without limitation, laws pertaining to
country-of-origin, marking or labeling.
3.27 SEC Documents. Seller has filed all documents required to be filed by
it with the Securities and Exchange Commission (the "SEC") since January 1995
(the "Seller SEC Documents"). As of their respective dates, the Seller SEC
Documents complied in all material respects with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), or the Exchange Act,
as the case may be, and none of Seller's SEC Documents contained any untrue
statement of a material fact or omitted to state any material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of Seller included in the Seller SEC Documents complied as
to form in all material respects with the applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto. Since
January 28, 1995, Seller has not made any change in the accounting practices or
policies applied in the preparation of its financial statements.
3.28 Compliance with Laws by CAT; Licenses. Except as set forth in Section
3.28(a) of the SELLER DISCLOSURE SCHEDULE, CAT has been, and is being, operated
in compliance with all applicable laws, statutes, ordinances, rules, regulations
and orders of all Governmental Entities, except for laws the violation of which,
individually or in the aggregate, would not reasonably be expected to have a
Material Adverse Effect on CAT, would not prevent or delay Seller's ability, or,
to the best knowledge of Seller, Buyer's ability, to consummate the transactions
contemplated hereby, would not impair in any material respect Buyer's ability to
operate CAT as currently operated, or would not result in any liability, cost or
expense of CAT being incurred by Buyer or any of its affiliates, or the
Division. Section 3.28(b) of the SELLER DISCLOSURE SCHEDULE sets forth a true,
correct and complete list of all Permits possessed by Seller or CAT in
connection with the operation of CAT as currently operated, which are all the
Permits required in connection with the operation of CAT as currently operated
under applicable laws, statutes, ordinances, rules, regulations and orders,
except where the failure to possess such Permits, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect on
CAT, would not prevent or delay Seller's ability, or, to the best knowledge of
Seller, Buyer's ability, to consummate the transactions contemplated hereby,
would not impair in any material respect Buyer's ability to operate CAT as
currently operated or would not result in any liability, cost or expense (other
than liabilities and obligations not in excess of $50,000 in the aggregate) of
CAT being incurred by Buyer.
3.29 CAT Taxes.
(a) CAT and any affiliated group, within the meaning of Section 1504 of the
Code (or similar provision of state law), of which CAT is or has been a member,
have, except as set forth in Section 3.29 of the SELLER DISCLOSURE SCHEDULE, (i)
duly filed with the appropriate federal, state, local and foreign taxing
authorities all Tax Returns (as hereinafter defined) required to be filed by or
with respect to CAT and such Tax Returns are true, correct and complete in all
material respects; (ii) paid in full or have made adequate provision on their
balance sheets (in accordance with GAAP) for all Taxes (as hereinafter defined)
shown to be due on such tax returns; and (iii) satisfied in full all withholding
tax requirements. There are no Liens for Taxes upon the assets of CAT except for
statutory liens for current taxes not yet due and payable or which may hereafter
be paid without penalty or which are being contested in good faith by
appropriate proceedings. Except as set forth in Section 3.29 of the SELLER
DISCLOSURE SCHEDULE, there is not in force any extension of time with respect to
the due date for the filing of any Tax Return of, or with respect to, CAT or any
waiver or agreement for any extension of time for the assessment or payment of
any Tax of, or with respect to, CAT, and CAT has not received any notice of
deficiency or assessment from any federal, state, local or foreign taxing
authority with respect to liabilities for Taxes of CAT which has not been fully
paid or finally settled.
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(b) For purposes of this Agreement, "Tax" or "Taxes" shall mean (i) any tax
of any kind, including, without limitation, all income, property, sales, use,
occupation, franchise, excise, value added, employees' income withholding and
social security taxes, and related to such taxes, charges, fees, levies,
penalties or other assessments, imposed by the United States or by any foreign
country or by any state, municipality, subdivision or instrumentality of the
United States or of any foreign country, or by any other taxing authority and
(ii) any interest thereon.
(c) For purposes of this Agreement, "Tax Return" shall mean any return,
report, information return or other document (including any related or
supporting information) with respect to Taxes.
3.30 Acquisition of the ATSC Common Stock for Investment; Securities Act.
Seller is acquiring the shares of ATSC Common Stock to be issued pursuant to
Section 1.2(a) hereof for investment purposes only and not with a view toward,
or for sale in connection with, any distribution thereof, nor with any present
intention of distributing or selling such shares in violation of federal, state
or other securities laws. Seller agrees that it will not sell, transfer, offer
for sale, pledge, hypothecate or otherwise dispose of such shares of ATSC Common
Stock in violation of any federal, state or other securities laws. Seller
acknowledges that the ATSC Common Stock is subject to market and other
conditions beyond the control of ATSC and agrees that neither ATSC nor any of
its agents, representatives, employees or affiliates has or shall have any
liability or responsibility whatsoever to Seller on any basis (including,
without limitation, in contract or tort, under federal or state securities laws,
or otherwise), except as and to the extent expressly set forth herein and
subject to the limitations and restrictions contained herein. The foregoing
shall not be deemed a waiver of or a limitation on Seller's rights as a
stockholder of ATSC with regard to circumstances or events occurring after the
Closing Date and bearing no relation to the acquisition by Seller of shares of
ATSC Common Stock pursuant to this Agreement.
3.31 Suppliers. Section 3.31 of the SELLER DISCLOSURE SCHEDULE sets forth
(i) a list of all suppliers of each of CAT and the Division to whom CAT or
Seller made payments in excess of $250,000 during the fiscal year ended February
3, 1996 and (ii) the dollar amount of payments made to each such supplier in
such fiscal year. No supplier required to be listed in Section 3.31 of the
SELLER DISCLOSURE SCHEDULE has (i) given notice to either CAT or Seller that it
intends to terminate its relationship with CAT or Seller, as the case may be, or
(ii) threatened in writing to terminate its relationship with CAT or Seller, as
the case may be. To the best knowledge of Seller, no supplier required to be
listed in Section 3.31 of the SELLER DISCLOSURE SCHEDULE is likely to pursue a
course of action having either the purpose or effect of terminating its
relationship with either CAT or the Division if the transactions contemplated by
this Agreement are consummated.
3.32 Disclaimer of Other Representations and Warranties. Except as
expressly set forth in this Article III, Seller makes no representation or
warranty, express or implied, at law or in equity, in respect of CAT, the
Assets, the Division or the Division Business, including, without limitation,
with respect to merchantability or fitness for any particular purpose or the
future performance of CAT or the Division Business, and any such other
representations or warranties are hereby expressly disclaimed.
IV. REPRESENTATIONS AND WARRANTIES OF ATSC AND BUYER.
ATSC and Buyer hereby represent and warrant to Seller as follows:
4.1 Organization of ATSC and Buyer; Authority.
(a) Each of ATSC and Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware. Each of
ATSC and Buyer has all requisite corporate power and authority to own, lease and
operate its properties and assets and to conduct its business as it is now being
conducted. Each of ATSC and Buyer is duly qualified or licensed to do business
as a foreign corporation and is in good standing in each jurisdiction in which
the property or assets owned, leased or operated by it or the nature of the
business conducted by it makes such qualifications necessary, except in those
jurisdictions where the failure to have such power and authority or to be so
duly qualified or licensed and in good standing would not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on ATSC
or Buyer, respectively.
(b) Each of ATSC and Buyer has all requisite corporate power and authority
to enter into this Agreement and any instruments and agreements contemplated
herein required to be executed and delivered by it pursuant to this Agreement
(including, without limitation, as applicable, the Ancillary Agreements, the
Assignment and Assumption Agreements, the Undertaking and the Advance
Instrument) (collectively, the "Buyer Related Instruments") and to
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consummate the transactions contemplated hereby and thereby. The execution,
delivery and performance of this Agreement and the Buyer Related Instruments to
which it is a party and the consummation of the transactions contemplated hereby
and thereby, have been duly authorized by all necessary corporate action on the
part of each of ATSC and Buyer. This Agreement has been, and each of the Buyer
Related Instruments to which it is a party, when executed and delivered will be,
duly executed and delivered by each of ATSC and Buyer and this Agreement
constitutes, and each of the Buyer Related Instruments to which it is a party
will, when executed and delivered, constitute, a valid and binding obligation of
each of ATSC and Buyer, enforceable against each of ATSC and Buyer in accordance
with its terms, except that (a) such enforcement may be subject to any
bankruptcy, insolvency, reorganization, moratorium, or other laws, now or
hereafter in effect, relating to or limiting creditors' rights generally and (b)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought. Each of ATSC and Buyer
shall deliver to Seller true, correct and complete copies of resolutions duly
and validly adopted by their respective board of directors, evidencing the
authorization of the execution and delivery of this Agreement and the Buyer
Related Instruments, as applicable, to which it is a party and the consummation
of the transactions contemplated hereby and thereby.
4.2 No Violation; Consents and Approvals.
(a) Subject to the consents, approvals or filings referred to in Section
4.2(b) and Section 4.2(c) hereof, the execution and delivery of this Agreement
by each of ATSC and Buyer and the Buyer Related Instruments to which it is a
party do not, and the consummation of the transactions contemplated hereby or
thereby and compliance with the terms hereof or thereof will not, (i) conflict
with, or result in any violation of or default under, (A) any provision of the
charter or by-laws of either ATSC or Buyer or (B) any judgment, order or decree,
or statute, law, ordinance, rule or regulation of any Governmental Entity
applicable to either ATSC or Buyer, or the assets of either ATSC or Buyer; or
(ii) conflict with, or result in any breach or violation of or constitute a
default (or an event or condition which, with notice or lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or cause the acceleration of any
maturity of any liability or obligation pursuant to, or result in the creation
or imposition of any Lien under, any note, bond, mortgage, indenture, license,
contract, agreement, lease or other instrument or obligation to which either
ATSC or Buyer is a party or by which either may be bound or affected, except
where the conflict, violation, default, breach, termination, acceleration,
creation or imposition would not reasonably be expected to have a Material
Adverse Effect on ATSC or Buyer, would not prevent or delay ATSC's or Buyer's
ability, or, to the best knowledge of ATSC and Buyer, Seller's ability, to
consummate the transactions contemplated hereby or would not result in any
liability, cost or expense to Seller or any of its affiliates (other than
liabilities and obligations not in excess of $50,000 in the aggregate).
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required to be obtained
or made in connection with the execution and delivery by ATSC or Buyer of this
Agreement or the Buyer Related Instruments to which each is a party, or the
consummation by ATSC or Buyer of the transactions contemplated hereby or thereby
or compliance by ATSC and Buyer with the terms hereof or thereof, other than (i)
compliance with and filings under the HSR Act, (ii) compliance with and filings
under Section 13(a) of the Exchange Act and (iii) those the failure of which to
obtain would not reasonably be expected to have a Material Adverse Effect on
ATSC or Buyer, would not prevent or delay ATSC's or Buyer's ability, or, to the
best knowledge of ATSC and Buyer, Seller's ability, to consummate the
transactions contemplated hereby or would not result in any liability, cost or
expense to Seller or any of its affiliates (other than liabilities and
obligations not in excess of $50,000 in the aggregate).
(c) Except for the consent of the lenders under Buyer's existing credit
facility, no consent, approval, order or authorization of, notice to or
registration, declaration or filing with, any third party is required to be
obtained or made by or with respect to Buyer or ATSC in connection with the
execution and delivery by either ATSC or Buyer of this Agreement or any Buyer
Related Instrument, or the consummation of the transactions contemplated hereby
or thereby or compliance by ATSC or Buyer of the terms hereof or thereof, except
where the failure to obtain any consent, approval, order or authorization, or to
give notice, or to make any registration, declaration or filing would not
reasonably be expected to have a Material Adverse Effect on ATSC or Buyer, would
not prevent or delay ATSC's or Buyer's ability, or, to the best knowledge of
ATSC and Buyer, Seller's ability, to consummate the transactions contemplated
hereby or would not result in any liability, cost or expense to Seller (other
than liabilities and obligations not in excess of $50,000 in the aggregate).
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4.3 Litigation/Claims. Except as set forth in Section 4.3 of the Disclosure
Schedule being delivered by Buyer to Seller concurrently herewith (the "BUYER
DISCLOSURE SCHEDULE"), there is (i) no claim, action, suit or proceeding pending
or, to the best knowledge of ATSC or Buyer, threatened and (ii) to the best
knowledge of ATSC and Buyer, no investigations or inquiries pending or
threatened by or before any Governmental Entity, or by or on behalf of any third
party, in either case, which challenges the validity of this Agreement or any
Buyer Related Instrument or which, if adversely determined, would, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
ATSC or Buyer, or would adversely affect the ability of ATSC or Buyer to
consummate the transactions contemplated by this Agreement and the Buyer Related
Instruments or comply with the terms hereof or thereof.
4.4 SEC Documents and Other Reports. ATSC has filed all documents required
to be filed by it with the SEC since January 1995 (the "ATSC SEC Documents"). As
of their respective dates, the ATSC SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and none of the ATSC SEC Documents contained any untrue statement
of a material fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The consolidated
financial statements of ATSC included in the ATSC SEC Documents complied as to
form in all material respects with the applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with GAAP (except, in the case of the unaudited
statements, as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated therein or in the notes
thereto) and fairly present the consolidated financial position of ATSC and its
consolidated subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the respective periods then ended (subject, in the case of the unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein and the absence of footnotes). Since January 28, 1995, ATSC
has not made any change in the accounting practices or policies applied in the
preparation of its financial statements.
4.5 Capital Stock.
(a) ATSC's authorized capitalization is as set forth in the ATSC SEC
Documents. All of ATSC's issued and outstanding capital stock has been duly
authorized, validly issued and is fully paid and nonassessable.
(b) The ATSC Common Stock to be issued to Seller has been duly and validly
authorized for issuance by ATSC and ATSC has the corporate power and authority
to issue, sell and deliver the ATSC Common Stock to be sold by it hereunder;
and, when the ATSC Common Stock is issued and delivered to Seller against
payment therefor as provided by this Agreement, the shares of ATSC Common Stock
issued to Seller hereunder will have been validly issued, fully paid and
nonassessable, and the issuance of such shares will not be subject to any
preemptive or similar rights.
(c) The shares of ATSC Common Stock to be issued to Seller at the Closing
will be duly approved for listing on the New York Stock Exchange or such other
securities exchange on which the ATSC Common Stock is then listed, subject to
official notice of issuance.
4.6 Absence of Certain Changes or Events. Since February 3, 1996, (a) there
has not been any Material Adverse Effect on ATSC or Buyer and (b) neither ATSC
nor Buyer has taken any action, no event has occurred and no condition exists
that would violate Section 5.20 hereof.
4.7 Information Supplied. None of the information supplied or to be
supplied by ATSC or Buyer in writing for inclusion in the Proxy Statement (as
hereinafter defined) relating to the Annual Meeting will, at the time of mailing
of the Proxy Statement to stockholders of Seller and at the time of the Annual
Meeting to be held in accordance with Section 5.17, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
4.8 Brokers. No broker, finder or financial advisor or other person is
entitled to any brokerage fees, commissions, finders' fees or financial advisory
fees in connection with the transactions contemplated hereby by reason of any
action taken by Buyer or any of its directors, officers, employees,
representatives or agents.
4.9 Disclaimer of Other Representations and Warranties. Except as expressly
set forth in this Article IV, neither ATSC nor Buyer makes any representation or
warranty, express or implied, at law or in equity, in respect of ATSC or Buyer,
including, without limitation, with respect to the future market value of the
ATSC Common Stock issued to Seller pursuant to Section 1.2(a)(i) hereof.
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V. COVENANTS OF THE PARTIES
5.1 Conduct of the Division Business. Except as expressly permitted by this
Agreement, during the period from the date of this Agreement to the Closing
Date, Seller shall conduct the Division Business, and shall cause CAT to conduct
the business of CAT, in the ordinary course consistent with past practice and
use its reasonable best efforts to preserve their respective current
relationships with suppliers, contract manufacturers, factors and others having
business dealings with them. Without limiting the generality of the foregoing,
except as set forth in Section 5.1 of the SELLER DISCLOSURE SCHEDULE, during the
period from the date of this Agreement to the Closing Date, without the prior
written consent of Buyer, Seller, with respect to the Division, shall not, and
shall cause CAT not to:
(a) cause CAT or the Division, as the case may be, to incur any
liabilities, obligations or indebtedness of any nature (whether absolute,
accrued, contingent or otherwise and whether due or to become due), except
items incurred in the ordinary course of business and consistent with past
practice, none of which shall exceed, except in connection with the
manufacture of women's apparel for Buyer pursuant to purchase orders and/or
written fabric commitments provided by Buyer (as to which there shall not
be any such dollar limitation), $50,000 (counting liabilities or
obligations arising from one transaction or a series of related
transactions, and all periodic installments or payments under any lease or
other agreement providing for periodic installments or payments, as a
single obligation or liability);
(b) permit, allow or suffer any of the Assets or any assets of CAT, as
the case may be, to be subjected to any Lien, restriction or charge of any
kind, other than Permitted Liens and Liens in favor of The HongKong and
Shanghai Banking Corporation, Mitsubishi Corporation and Mitsubishi
International Corporation existing on the date hereof;
(c) fail to maintain the properties, machinery and equipment of CAT or
the Division, as the case may be, in good operating condition and repair
(ordinary wear and tear excepted);
(d) fail to maintain all policies of insurance listed in Section 3.16
of the SELLER DISCLOSURE SCHEDULE and all policies of insurance relating to
CAT, as the case may be, in full force and effect, at least at such levels
as are in effect on the date hereof, through and including the Closing
Date; or take, or fail to take, any action that would enable the insurers
under such policies to avoid liability for claims arising out of
occurrences prior to the Closing;
(e) revise, amend or enter into any employment agreement or
arrangement or pay any bonus or increase the rate of compensation of, or
pay or agree to pay any benefit to, including, without limitation,
severance benefits, any CAT Employee or any Affected Employee, as the case
may be, except as may be required by any Plan or by applicable law;
provided, however, that Seller may implement planned annual increases in
the rates of compensation in the ordinary course of business consistent
with past practice, provided that such increases are disclosed to Buyer
prior to becoming effective;
(f) enter into, adopt or amend any Plan, except as may be required by
applicable law;
(g) sell any inventory other than to Buyer in the ordinary course of
business or inventory rejected by Buyer in the ordinary course of business,
or sell, lease, transfer or otherwise dispose of any other Asset or any
asset of CAT, as the case may be, other than in the ordinary course of
business;
(h) acquire or agree to acquire on behalf of CAT or the Division, as
the case may be, any assets which are material, individually or in the
aggregate, to CAT or the Division, as the case may be, other than fabric
and other apparel components necessary to manufacture women's apparel
pursuant to purchase orders issued by Buyer;
(i) modify, amend or terminate any Lease or any Contract required to
be listed in Section 3.14 of the SELLER DISCLOSURE SCHEDULE or to which CAT
is a party, as the case may be, or enter into any other contract, agreement
or commitment by which CAT or the Division, as the case may be, or any
Asset or any asset of CAT, as the case may be, may be bound, and, in the
case of the Division, which would have been required to be listed in
Section 3.14 of the SELLER DISCLOSURE SCHEDULE had such agreement been
entered into prior to the date of this Agreement, other than purchase and
sale orders entered into in connection with the manufacture of women's
apparel for Buyer pursuant to purchase orders issued by Buyer;
(j) fail to maintain (i) the accounts and Books and Records of the
Division and (ii) the accounts and books and records of CAT, as the case
may be, in the usual, regular and ordinary manner on a basis consistently
applied;
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(k) terminate, discontinue, close or dispose of any facility or business
operation of CAT or the Division, as the case may be;
(l) make any capital expenditure or any commitment for capital expenditures
with respect to CAT or the Division, as the case may be, for additions to
property, plant, equipment or intangible capital assets, which individually
exceeds $50,000 or, in the aggregate, exceeds $250,000;
(m) cancel any debt or waive any claim or right of substantial value with
respect to CAT or the Division, as the case may be;
(n) pay, loan or advance any amount to, or sell, transfer or lease any
property or asset (real, personal or mixed, tangible or intangible) to, any
affiliate of Seller; or enter into any contract, agreement or commitment with
any affiliate of Seller; or
(o) agree, whether in writing or otherwise, to do any of the foregoing.
5.2 Access to Information; Confidentiality.
(a) During the period from the date of this Agreement through the Closing
Date, the parties hereto shall afford each other and their respective authorized
representatives such access during regular business hours to all plants,
offices, warehouses, facilities and books and records as each party and their
respective representatives may reasonably request; provided, however, each party
shall schedule their access and visits through a designated representative of
the other party and in such a way as to avoid disrupting the normal business of
the other party.
(b) Each of ATSC, Buyer, Seller and CGFE shall hold, and shall cause its
controlled affiliates, consultants and advisors to hold, any information which
it receives in connection with the transactions contemplated by this Agreement
in confidence in accordance with and subject to the terms of (i) the letter of
confidentiality between Seller and ATSC, dated March 15, 1996, and (ii) the
letter of confidentiality between Seller and ATSC, dated April 18, 1996
(collectively, the "Confidentiality Agreements").
5.3 Financial Statements.
(a) On or before June 10, 1996, Seller shall deliver to Buyer, the audited
combined balance sheets of the Combined Entity as of January 28, 1995 and the
audited combined income statements and statements of cash flows of the Combined
Entity for the fiscal year ended January 28, 1995 accompanied, in each case, by
an unqualified report of Seller's independent public accountants, Ernst & Young,
LLP (collectively, the "Combined Entity 1994 Audited Financial Statements"); and
(b) Until the Closing, on or before the 30th day of each month beginning
with the month following the execution of this Agreement, Seller shall deliver
to Buyer unaudited balance sheets and income statements of Seller (the
"Subsequent Monthly Financial Statements"), CAT (the "CAT Subsequent Monthly
Financial Statements") and the Combined Entity (the "Combined Entity Subsequent
Monthly Financial Statements"), as at and for the monthly period ending the last
day of the preceding month, and as soon as available, but not later than 45 days
after the end of each fiscal quarter, Seller shall deliver to Buyer unaudited
balance sheets as of the end of such fiscal quarter and unaudited income
statements and statements of cash flows for the three-month and year-to-date
periods then ended, of Seller (the "Subsequent Quarterly Financial Statements"),
CAT (the "CAT Subsequent Quarterly Financial Statements") and the Combined
Entity (the "Combined Entity Subsequent Quarterly Financial Statements"). The
Subsequent Monthly Financial Statements and the Subsequent Quarterly Financial
Statements are referred to, collectively herein, as the "Subsequent Financial
Statements". The CAT Subsequent Monthly Financial Statements and the CAT
Subsequent Quarterly Financial Statements are referred to, collectively, herein
as the "CAT Subsequent Financial Statements". The Combined Entity 1995 Audited
Financial Statements, Combined Entity Subsequent Monthly Financial Statements
and the Combined Entity Subsequent Quarterly Financial Statements are referred
to, collectively, herein as the "Combined Entity Subsequent Financial
Statements". The Subsequent Financial Statements, the CAT Subsequent Financial
Statements and the Combined Entity Subsequent Financial Statements shall be
prepared in a format consistent with the Audited Financial Statements, the CAT
Financial Statements and the Combined Entity Financial Statements, respectively.
(c) Until the Closing, on or before the 30th day of each month beginning
with the month following the execution of this Agreement, ATSC shall deliver to
Seller unaudited consolidated balance sheets and income statements of ATSC, as
at and for the monthly period ending the last day of the preceding month, and as
soon as available, but not
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later than 45 days after the end of each fiscal quarter, ATSC shall deliver to
Seller unaudited consolidated balance sheets as of the end of such fiscal
quarter and unaudited income statements and statements of cash flows for the
three-month and year-to-date periods then ended of ATSC. Such financial
statements shall be prepared in a manner consistent with ATSC's financial
statements included in the ATSC SEC Documents.
5.4 Reasonable Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use its reasonable best efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate the transactions contemplated by this Agreement no later than August
15, 1996. Each of the parties will use its reasonable best efforts to take all
action and to do all things necessary, proper, or advisable in order to
consummate and make effective the transactions contemplated by this Agreement
(including satisfaction, but not waiver, of the Closing conditions set forth in
Articles VI, VII and VIII hereof).
5.5 Consents. Without limiting the generality of Section 5.4 hereof, each
of the parties hereto shall use its reasonable best efforts to obtain all
licenses, permits, authorizations, consents and approvals of all third parties
and Governmental Entities necessary in connection with the consummation of the
transactions contemplated by this Agreement prior to the Closing, and shall use
reasonable best efforts to obtain estoppel certificates from the landlords under
the NY Lease and the FWM Lease. Notwithstanding the foregoing, neither Buyer nor
Seller shall have any obligation to pay any fee to any third party for the
purpose of obtaining any consent or approval or any costs and expenses of any
third party resulting from the process of obtaining such consent or approval.
Each of the parties hereto shall make or cause to be made all filings and
submissions under laws and regulations applicable to it as may be required for
the consummation of the transactions contemplated by this Agreement. Buyer and
Seller shall coordinate and cooperate with each other in exchanging such
information and assistance as any of the parties hereto may reasonably request
in connection with the foregoing.
5.6 Antitrust Notification. Buyer and Seller shall use their respective
reasonable best efforts to obtain all authorizations or waivers required under
the HSR Act to consummate the transactions contemplated hereby, including,
without limitation, making all filings required in connection therewith.
5.7 Public Announcements. Neither Seller nor Buyer shall issue any report,
statement or press release, or otherwise make any public statement, with respect
to this Agreement or the Ancillary Agreements and the transactions contemplated
hereby or thereby, without prior consultation with and approval of the other
parties, except as may be required by federal, state, local or foreign
securities laws or stock exchange rules, or as may be necessary in order to
discharge its reporting or disclosure obligations under such laws or rules;
provided, however, that Buyer may communicate with the Employees regarding its
offer of employment pursuant to Section 2.8 hereof.
5.8 Access to Books and Records Following the Closing. Following the
Closing, Buyer shall permit Seller and its authorized representatives, during
normal business hours and upon reasonable notice, to have reasonable access to,
and examine and make copies of, all books and records which relate to
transactions or events occurring prior to the Closing or transactions or events
occurring subsequent to the Closing which are related to or arise out of
transactions or events occurring prior to the Closing. Buyer shall retain all
books and records for a period of three years following the Closing.
5.9 Other Transactions. Neither Seller nor any of its affiliates, whether
acting directly or through any authorized agent, attorney or representative,
shall, from the date hereof through the Closing Date (the "Exclusivity Period"),
solicit, encourage or entertain any offers from any party other than Buyer, nor
shall they, during the Exclusivity Period, initiate or enter into any form of
preliminary discussion, negotiation for a purchase (or other acquisition),
merger, share exchange or other consolidation, sale of stock or other equity
securities or any other form or manner of transaction, howsoever described or
denominated, involving any material interest in CAT or the Division or any
option or other contractual right with respect to any of the foregoing. In the
event Seller or any of its affiliates receives any offer or proposal to enter
into any such negotiations or other communication with a party other than Buyer
during the Exclusivity Period, Seller will provide prompt notice of the same to
Buyer.
5.10 Discharge of Liens. Seller shall cause all Liens (other than Permitted
Liens) on any real or personal property owned or leased by Seller which is
included in the Assets to be terminated or otherwise discharged at or prior to
the Closing.
5.11 Resignations. At or prior to the Closing Date, each officer and
director of CAT designated by Seller shall execute and deliver to Buyer a letter
of resignation, effective at the Closing Date, as an officer or director of CAT.
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5.12 Insurance. From the date hereof through and including the Closing
Date, Seller shall, at its sole expense, maintain in full force and effect the
insurance policies listed in Section 3.16 of the SELLER DISCLOSURE SCHEDULE and
such additional insurance policies as may be necessary to comply in all material
respects with all requirements of law and the Leases. As of the Closing, Seller
hereby assigns to Buyer any and all assignable rights which Seller may have
under such insurance policies covering claims related to the Assets or the
Assumed Liabilities for the period on or prior to the Closing Date.
5.13 Supplementary Disclosure. Seller shall promptly supplement or amend
the SELLER DISCLOSURE SCHEDULE and Buyer shall promptly supplement or amend the
BUYER DISCLOSURE SCHEDULE with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would have
been required to be set forth or listed in the SELLER DISCLOSURE SCHEDULE or
BUYER DISCLOSURE SCHEDULE, respectively; provided, however, that for the purpose
of the rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not affect the other party's ability to rely on the
condition set forth in Section 7.1(a) or 8.1(a), as the case may be, unless so
agreed to in writing by Buyer, as to the SELLER DISCLOSURE SCHEDULE, or Seller,
as to the BUYER DISCLOSURE SCHEDULE.
5.14 Brazil Sourcing. Buyer shall use (i) reasonable best efforts to enter
into a new consulting agreement with John Peter M. Gordon, the head of Seller's
Brazilian sourcing operations, pursuant to which Buyer shall compensate Mr.
Gordon in the amount of $240,000 per year through July 31, 1998, and (ii)
reasonable best efforts to cause Seller and its affiliates to be released from
their obligations under the Consulting Agreement, dated February 1, 1995,
between Tralee, S.A., an affiliate of Seller, and Mr. Gordon (the "Existing
Gordon Agreement"). Buyer shall not assume the Existing Gordon Agreement or any
of Seller or its affiliate's obligations thereunder.
5.15 Letters of Credit.
(a) At least ten (10) business days prior to Closing, Seller shall provide
a schedule of all letters of credit as of the Closing Date (i) for raw materials
and making charges relating to fabric and work-in-progress included in the
Assets and (ii) securing Seller's or its affiliate's obligations under the NY
Lease. At the Closing, Buyer shall substitute letters of credit or provide an
alternative form of financial support; PROVIDED, that Buyer shall replace only
that portion of the letters of credit for the NY Lease that relate to the sixth
floor of the leased premises.
(b) Seller shall reimburse Buyer for all finance charges incurred by CAT as
the result of the opening of letters of credit by CAT for the benefit of Seller
in connection with piece goods purchases, FOB garment purchases and CMT
purchases relating to certain products of the Division pursuant to Buyer
purchase orders.
5.16 Amendment. At the election of Buyer, this Agreement shall be amended
in a manner reasonably acceptable to Seller to provide for (i) the transfer and
sale of the Assets to CAT and assumption of the Liabilities by CAT prior to
Closing, and (ii) the subsequent purchase of the CAT Shares by Buyer for the
Purchase Price, provided that Seller determines in good faith that such
amendment will not have a material adverse tax or other material economic
consequences to it.
5.17 Proxy Statement; Stockholder Approval.
(a) Seller, acting through its Board of Directors, shall, subject to and in
accordance with applicable law and its Certificate of Incorporation, as amended,
and its By-Laws, (i) file with the Securities and Exchange Commission (the
"Commission") its preliminary proxy materials (the "Preliminary Proxy
Materials") relating to the Annual Meeting as soon as possible; (ii) promptly
and duly call, give notice of, convene and hold an annual meeting of
stockholders of Seller ("Annual Meeting") and shall hold such meeting as soon as
practicable after the date on which the Proxy Statement (as hereinafter defined)
is cleared with the Commission; (iii) at such Annual Meeting, introduce a
proposal (the "Proposal") to approve and adopt this Agreement and the
transactions contemplated hereby, and recommend approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders of Seller
and include in the definitive proxy statement relating to the Annual Meeting
(the "Proxy Statement") such recommendation; and (iv) take all reasonable action
to solicit and obtain such approval.
(b) Seller, as promptly as practicable, shall cause the Proxy Statement to
be mailed to its stockholders. Seller shall not take any action that would
require the Proxy Statement to be delayed or recirculated under circumstances
which would, in the reasonable judgment of Buyer, delay the occurrence of the
Closing beyond September 26, 1996.
(c) Seller shall supply ATSC with copies of (i) the Preliminary Proxy
Materials at least ten (10) business days in advance of filing with the
Commission, (ii) copies of all correspondence with the Commission relating to
the
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Preliminary Proxy Materials promptly upon receipt or delivery, as the case may
be, by Seller, and (iii) copies of the Proxy Statement at least one (1) business
day in advance of mailing to Seller's stockholders; provided, that in the cases
of each clause (i)-(iii) above, Seller shall provide ATSC and its counsel with a
reasonable opportunity for review thereof and comment thereon, such review to be
conducted and such comments to be delivered with reasonable promptness.
(d) On the date hereof, Mr. Bernard M. Manuel, Mrs. Isabelle Manuel, Mr.
Irving Benson, Mrs. Dianne Benson and Mr. Roy E. Green, as trustee of the
Bernard Manuel 1992 Irrevocable Trust for Children, are each executing and
delivering to Buyer a Proxy entitling Paul E. Francis, Walter J. Parks and
Jocelyn F.L. Barandiaran, each an officer of ATSC and Buyer to vote all shares
of capital stock of Seller over which such person or entity has voting authority
(i) for the approval and adoption of this Agreement and the transactions
contemplated hereby and any and all related agreements and (ii) against any
other transaction or proposal that could (x) prevent or delay the consummation
of the transactions contemplated by this Agreement or (y) frustrate the purposes
of this Agreement (each, a "Proxy"). On or before June 30, 1996, Seller shall
deliver to Buyer executed Proxies from each of GJM International Limited, Fenn,
Wright and Manson (Antilles) N.V., and Cleveland Investment Limited, with
respect to the shares of capital stock of Seller owned by such entities. Seller
shall use its reasonable best efforts to obtain a Proxy from Limited Direct
Associates L.P. with respect to the shares of capital stock of Seller owned by
it.
5.18 Occupancy. Certain employees of Buyer and CAT are occupying the fifth
and sixth floors of Seller's leased facility in New York City, New York.
Commencing the earlier of April 15, 1996 or the date on which such employees
began to occupy such floors, Seller shall charge Buyer and CAT, determined based
upon head-count, a pro rata portion of the cash rental, rental tax and cleaning
service costs.
5.19 Transfer Taxes. Buyer shall be responsible for the timely payment of
all transfer taxes and stamp duty taxes attributable to the transactions
effected pursuant to this Agreement which are not measured by gain or income
realized by Seller ("Transfer Taxes"). Upon Buyer's request on or after the
Closing Date, Seller shall pay to Buyer an amount equal to 50% of all Transfer
Taxes paid or to be paid by Buyer. Buyer shall prepare or cause to be prepared
and timely file or cause to be timely filed all tax returns required to be filed
in respect of Transfer Taxes (other than any notices required to be given under
any applicable bulk sales laws) and, to the extent that Buyer so requests,
Seller shall sign such tax returns and notices and fully cooperate with Buyer in
connection with such filings.
5.20 Conduct of ATSC Business. Except as expressly permitted by this
Agreement, during the period from the date of this Agreement to the Closing
Date, ATSC (a) shall conduct its business in the ordinary course consistent with
past practice and use its reasonable best efforts to preserve its current
relationships with suppliers, contract manufacturers, factors and others having
business dealings with it, (b) shall not effect a stock split or combination
with respect to, declare a stock dividend on or engage in a recapitalization of,
the ATSC Common Stock or (c) shall not, and shall not permit any of its
affiliates to, take any action which would reasonably be expected to have a
Material Adverse Effect on CAT or the Division Business.
VI. CONDITIONS TO OBLIGATIONS OF BOTH PARTIES.
6.1 Conditions. The respective obligations of each party to effect the
transactions contemplated by this Agreement shall be subject to the satisfaction
or waiver of the following conditions:
(a) the stockholders of Seller shall have approved the transactions
contemplated by this Agreement.
(b) No statute, rule, regulation, order, decree or injunction shall have
been enacted, entered, promulgated or enforced by a Governmental Entity which
prohibits the consummation of the transactions contemplated by this Agreement
and shall be in effect; provided, that the parties shall use their reasonable
best efforts to have any such injunction lifted.
(c) The waiting period under the HSR Act with respect to the transactions
contemplated by this Agreement shall have expired or been terminated.
(d) Each of Mitsubishi International Corporation, Mitsubishi Corporation
and HongKong and Shanghai Banking Corporation shall have consented to the
transactions contemplated by this Agreement and released any Liens held by them
on the Assets and the CAT Shares not later than the Closing Date. Seller and
Buyer shall use reasonable best efforts to cause the consents required by this
Subsection 6.1(d) to include an acknowledgment of
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fair value, a waiver of any fraudulent transfer claims and a waiver of any right
to participate in any recovery of fraudulent transfer claims brought by the
debtor in possession or trustee.
(e) Landlords' Consents. In the event Buyer enters into the Subleases at
the time of Closing, then Seller shall have obtained from the landlords under
the NY Lease and the FWM Lease its consent to such Subleases.
VII. CONDITIONS TO OBLIGATIONS OF SELLER.
7.1 Conditions. The obligations of Seller to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Closing of each of the following conditions (any or all of which, to the extent
permitted by law, may be waived in whole or in part by Seller):
(a) Representations and Warranties. The representations and warranties
of Buyer in this Agreement qualified as to materiality shall be true,
complete and correct in all respects, and those not so qualified shall be
true, complete and correct in all material respects, as of the date when
made and at and as of the Closing Date, as though such representations and
warranties were made at and as of the Closing Date.
(b) Performance. Buyer shall have performed and complied with, in all
material respects, all agreements, obligations, covenants and conditions
required by this Agreement to be so performed or complied with by Buyer at
or prior to the Closing.
(c) Officer's Certificate. Buyer shall have delivered to Seller a duly
executed certificate, dated as of the Closing Date, certifying the
fulfillment of the conditions specified in Subsections 7.1(a) and 7.1(b)
hereof.
(d) Opinion of Counsel. Buyer shall have delivered to Seller an
opinion of legal counsel of Buyer, dated the Closing Date, in substantially
the form of EXHIBIT L hereto.
(e) Documents. Seller shall have received the Instruments of
Assignment, the Pledge Agreement, the Undertaking and the Ancillary
Agreements, in each case, duly executed by each party thereto (other than
Seller).
(f) Release. Seller shall have been released from its obligations in
respect of CAT's credit facility with HongKong and Shanghai Banking
Corporation.
(g) Material Change. No event, occurrence, fact, condition, change or
development shall have occurred or come to exist which, individually or in
the aggregate, has had or resulted in, or would reasonably be expected to
have or result in, a Material Adverse Effect on ATSC.
VIII. CONDITIONS TO OBLIGATIONS OF BUYER.
8.1 Conditions. The obligations of Buyer to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Closing of each of the following conditions (any or all of which, to the extent
permitted by law, may be waived in whole or in part by Buyer):
(a) Representations and Warranties. The representations and warranties
of Seller in this Agreement qualified as to materiality shall be true,
complete and correct in all respects, and those not so qualified shall be
true, complete and correct in all material respects, as of the date when
made and at and as of the Closing Date, as though such representations and
warranties were made at and as of the Closing Date.
(b) Performance. Seller shall have performed and complied with, in all
material respects, all agreements, obligations, covenants and conditions
required by this Agreement to be so performed or complied with by Seller at
or prior to the Closing.
(c) Officer's Certificate. Seller shall have delivered to Buyer a duly
executed certificate, dated as of the Closing Date, certifying the
fulfillment of the conditions specified in Subsections 8.1(a) and 8.1(b)
hereof.
(d) Opinion of Counsel. Seller shall have delivered to Buyer an
opinion of legal counsel to Seller, dated as of the Closing Date, in
substantially the form of EXHIBIT M hereto.
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(e) Documents. Buyer shall have received the Instruments of
Assignment, the Pledge Agreement and the Ancillary Agreements, in each
case, duly executed by each party thereto (other than Buyer);
(f) CAT Credit Agreement. HongKong and Shanghai Banking Corporation
shall have entered into an amended and restated credit agreement with CAT
on substantially the terms set forth in (or terms no less favorable to CAT
than those set forth in) the Commitment Letter, dated April 22, 1996, the
terms of which are satisfactory to ATSC and Buyer.
(g) Lenders' Consent. Buyer shall have obtained the consent of the
lenders under Buyer's Second Amended and Restated Credit Agreement, dated
as of September 29, 1995, among Buyer and the Lenders named therein to the
transactions contemplated by this Agreement.
(h) Material Change. No event, occurrence, fact, condition, change or
development shall have occurred or come to exist which, individually or in
the aggregate, has had or resulted in, or would reasonably be expected to
have or result in, a Material Adverse Effect on the Division Business or on
CAT.
(i) Employment Agreements. CAT shall have entered into a new
employment agreement reasonably satisfactory to Buyer with Mr. Dwight
Meyer.
IX. TERMINATION, AMENDMENT AND WAIVER.
9.1 Termination. This Agreement may be terminated and the transactions
contemplated hereby may be abandoned at any time prior to the Closing:
(a) by mutual written agreement of Buyer and Seller;
(b) at any time after September 30, 1996 by either Buyer or Seller, if
the Closing shall not have occurred, unless the Closing has not occurred
due to the failure of such party to perform or comply with any of the
agreements or covenants hereof to be performed or complied with by such
party prior to the Closing;
(c) by either Buyer or Seller, if (i) the stockholders of Seller fail
to approve the transactions contemplated by this Agreement at the Annual
Meeting, or (ii) any event, fact or condition shall occur or exist that
makes it impossible to satisfy a condition to such party's obligations to
consummate the transactions contemplated by this Agreement, unless the
occurrence or existence of such event, fact or condition shall be due to
the failure of such party to perform or comply with any of the agreements
or covenants hereof to be performed or complied with by such party prior to
the Closing; or
(d) by Seller, if, on the Closing Date, the value of the Stock
Consideration, including the value of any Additional Shares and Additional
Cash issuable or payable pursuant to Section 1.2(a)(i) hereof, does not
equal at least $32.5 million.
9.2 Procedure and Effect of Termination. In the event of the termination of
this Agreement and the abandonment of the transactions contemplated hereby
pursuant to Section 9.1(b), 9.1(c) or 9.1(d) hereof, written notice thereof
shall forthwith be given by the party so terminating to the other party, and
this Agreement shall terminate, and the transactions contemplated hereby shall
be abandoned, without further action by Seller or Buyer. If this Agreement is
terminated pursuant to Section 9.1 hereof:
(a) All confidential information received by the parties shall be
treated in accordance with Section 5.2 hereof and the Confidentiality
Agreements referred to in such Section;
(b) all filings, applications and other submissions made pursuant to
Sections 5.4, 5.5 and 5.6 hereof shall, to the extent practicable, be
withdrawn from the agency or other person to which made; and
(c) the obligations provided for in this Section 9.2, Article X,
Sections 11.1 and 11.12 hereof, the confidentiality provision contained in
Section 5.2 hereof and the Confidentiality Agreements referred to in such
Section shall survive any termination of this Agreement.
9.3 Other Remedies. In no event shall termination of this Agreement limit
or restrict the rights and remedies of any party hereto against any other party
which has willfully breached the terms of this Agreement prior to termination
hereof.
X. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION.
10.1 Survival of Representations. The representations and warranties in
this Agreement and in any other document delivered in connection herewith shall
survive the Closing hereunder regardless of any investigation made by or on
behalf of any party hereto; provided, however, that all representations and
warranties in this Agreement and in
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any other document delivered herewith relating to CAT (other than Section 3.10
relating to title to the CAT Shares) shall not survive the Closing.
10.2 Seller's Agreement to Indemnify. Upon the terms and subject to the
conditions of this Article X, Seller shall indemnify, defend and hold harmless
Buyer and its affiliates, and its and their directors, officers, employees and
agents (collectively, the "Buyer Group"), at any time after the Closing, from
and against all demands, claims, actions or causes of action, assessments,
losses, damages, liabilities, costs and expenses, including, without limitation,
interest, penalties and reasonable fees and expenses of attorneys and other
professionals (collectively, "Damages"), asserted against, resulting to, imposed
upon or incurred by the Buyer Group or any member thereof, directly or
indirectly, by reason of or resulting from: (a) liabilities, obligations or
claims of or against Seller or any affiliate of Seller other than CAT (whether
absolute, accrued, contingent or otherwise) existing as of the Closing Date or
arising out of facts, conditions or circumstances occurring at or prior thereto
(excluding the Liabilities), whether or not such liabilities, obligations or
claims were known at the time of Closing; (b) a breach of any representation,
warranty, covenant or agreement of Seller contained in or made pursuant to this
Agreement or any Seller Related Instrument or any facts or circumstances
constituting such a breach; (c) each item listed in Section 3.20 of the SELLER
DISCLOSURE SCHEDULE; (d) the violation of any Environmental Law prior to the
Closing Date (or allegation of same), by Seller or the Division, or any other
Damages arising under Environmental Laws; (e) any tax or related claim asserted
against the Buyer Group or any member thereof relating to the operations or
properties of the Division with respect to any period ending on or prior to or
including the Closing Date; (f) any failure to comply with any "bulk sales" laws
applicable to the transactions contemplated hereby; and (g) all Damages arising
out of or relating to any Plans or CAT Plans, including, without limitation, all
benefits accrued by any employees under the Plans and CAT Plans and any
liability arising under Section 4980B of the Code (collectively, "Seller
Claims").
10.3 Seller's Limitation of Liability.
(a) Anything in this Agreement to the contrary notwithstanding, the
liability of Seller to indemnify the Buyer Group pursuant to Section 10.2(b)
hereof against any Damages sustained by reason of any Seller Claim thereunder
for a breach of any representation and warranty of Seller shall be limited to
Seller Claims as to which any member of the Buyer Group has given Seller written
notice on or prior to April 30, 1997, whether or not any Damages have then
actually been sustained; provided, however, that, notwithstanding the foregoing,
the liability of Seller to indemnify the Buyer Group against any Damages
sustained by reason of any Seller Claim for a breach of any of the
representations and warranties set forth in Section 3.10 and the first sentence
of Section 3.11 hereof shall not be so limited.
(b) Other than with respect to the representations and warranties set forth
in Section 3.10 and the first sentence of Section 3.11 hereof, the provisions in
Section 10.2(b) hereof for indemnity by Seller of the Buyer Group against
Damages sustained by reason of any Seller Claim thereunder for a breach of any
representation or warranty of Seller shall be effective only after the aggregate
amount of all such Seller Claims for which Seller is liable exceeds $500,000,
and then only to the extent of such excess (the "Buyer's Deductible"). With
respect to any breach by Seller of the representation and warranty set forth in
the first sentence of Section 3.11 hereof, if such breach relates to Seller's
title to any of the Inventory or the Net Fixed Assets, Seller's indemnity
obligations hereunder shall be limited to the amount of the Inventory
Consideration or the Fixed Asset Consideration, respectively. Notwithstanding
the foregoing, in no event shall Seller's indemnity obligations under this
Agreement exceed $3.6 million.
(c) The liability of Seller to indemnify the Buyer Group against any
Damages sustained by reason of any Seller Claim for a breach of any covenant or
agreement shall not be limited in any manner and shall not be subject to the
Buyer's Deductible, provided, however, that Seller shall not be liable for
breach of any covenant or agreement contained in Section 5.1 hereof if the
transactions contemplated hereby are consummated unless such breach also
constitutes a breach of a representation or warranty for which Buyer would
otherwise be entitled to indemnification hereunder.
(d) Seller may satisfy its indemnification obligations hereunder either by
the payment of cash or by delivering shares of ATSC Common Stock having a fair
market value equal to the amount of the claim. For purposes of this Section
10.3(d), fair market value shall mean the average high and low sale price of the
ATSC Common Stock on the New York Stock Exchange Composite Tape (or as reported
on any other exchange on which the ATSC Common Stock is then listed) on each of
the ten (10) consecutive trading days ending on the trading day immediately
preceding the payment date.
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10.4 Buyer's Agreement to Indemnify. Upon the terms and subject to the
conditions of this Article X, Buyer shall indemnify, defend and hold harmless
the Seller and its affiliates, and its and their directors, officers, employees
and agents (collectively, the "Seller Group"), at any time after the Closing,
from and against all Damages asserted against, resulting to, imposed upon or
incurred by the Seller Group or any member thereof, directly or indirectly, by
reason of or resulting from: (a) a breach of any representation, warranty,
covenant or agreement of Buyer contained in or made pursuant to this Agreement
or any Buyer Related Instrument or any facts or circumstances constituting such
a breach; or (b) the Liabilities ("Buyer Claims" and, collectively with Seller
Claims, "Claims").
10.5 Buyer's Limitation of Liability.
(a) Anything in this Agreement to the contrary notwithstanding, the
liability of Buyer to indemnify the Seller Group pursuant to Section 10.4(a)
hereof against any Damages sustained by reason of any Buyer Claim thereunder for
a breach of any representation and warranty of Buyer shall be limited to Buyer
Claims as to which any member of the Seller Group has given Buyer written notice
on or prior to April 30, 1997, whether or not any Damages have then actually
been sustained; provided, however, that notwithstanding the foregoing, the
liability of Buyer to indemnify the Seller Group against any Damages sustained
by reason of any Buyer Claim for a breach of any of the representations and
warranties set forth in Section 4.5(b) hereof shall not be so limited.
(b) Other than with respect to the representations and warranties set forth
in Section 4.5(b), the provisions in Section 10.4(a) for indemnity by Buyer of
the Seller Group against Damages sustained by reason of any Buyer Claim
thereunder for a breach of any representation and warranty of Buyer shall be
effective only after the aggregate amount of all such Buyer Claims for which
Seller is liable exceeds $500,000, and then only to the extent of such excess
(the "Seller's Deductible"). Notwithstanding the foregoing, in no event shall
Buyer's indemnity obligations under this Agreement exceed $3.6 million.
(c) The liability of Buyer to indemnify the Seller Group against any
Damages sustained by reason of any Buyer Claim for a breach of any covenant or
agreement shall not be limited in any manner and shall not be subject to
Seller's Deductible, provided, however, that Buyer shall not be liable for
breach of any covenant or agreement contained in Section 5.20 hereof if the
transactions contemplated hereby are consummated unless such breach also
constitutes a breach of a representation or warranty for which Seller would
otherwise be entitled to indemnification hereunder.
10.6 Conditions of Indemnification. The obligations and liabilities of the
Seller Group and Buyer Group with respect to Claims made by third parties shall
be subject to the following terms and conditions:
(a) The indemnified party will give the indemnifying party prompt
notice of any such Claim, and the indemnifying party shall have the right
to undertake the defense thereof by representatives chosen by it;
(b) If the indemnifying party undertakes the defense of any such
Claim, the indemnified party shall, to the best of its ability, assist the
indemnifying party, at the expense of the indemnifying party, in the
defense of such Claim, and shall promptly send to the indemnifying party,
at the expense of the indemnifying party, copies of any documents received
by the indemnified party which relate to such Claim; provided, however,
that the indemnified party shall have no such obligation if and to the
extent that such third-party Claim arises out of or relates to facts,
events or circumstances which may also give rise to a separate Claim by the
indemnified party against the indemnifying party;
(c) If the indemnifying party, within a reasonable time after notice
of any such Claim, fails to defend the indemnified party against which such
Claim has been asserted, the indemnified party shall (upon further notice
to the indemnifying party) have the right to undertake the defense,
compromise or settlement of such Claim on behalf of and for the account and
risk of the indemnifying party, subject to the right of the indemnifying
party to assume the defense of such Claim at any time prior to settlement,
compromise or final determination thereof; and
(d) Anything in this Article X to the contrary notwithstanding, (i) if
there is a reasonable probability that a Claim may materially and adversely
affect the indemnified party other than as a result of money damages or
other money payments, the indemnified party shall have the right, at its
own cost and expense, to defend, compromise or settle such Claim; and (ii)
the indemnifying party shall not, without the written consent of the
indemnified party, settle or compromise any Claim or consent to the entry
of any judgment which does not include as an unconditional term thereof the
giving by the claimant or the plaintiff to the indemnified party a release
from all liability with respect to such Claim.
(e) Notwithstanding anything to the contrary contained herein, if the
conditions of Subsection 7.1(a) or (b) or Subsection 8.1(a) or (b) are not
satisfied as of the Closing Date (a "Failure of Condition"), and the party
for
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whose benefit such condition exists (the "Waiving Party") elects to proceed
with the Closing notwithstanding such Failure of Condition, then such
condition shall be deemed to be satisfied and the Waiving Party shall not
bring any Claim for indemnity hereunder or any other Claim arising out of
the facts or circumstances causing such Failure of Condition.
10.7 Exclusive Remedies. The remedies provided herein shall be the
exclusive remedies of each of the parties hereto with respect to any Claims or
Damages arising out of the transactions contemplated by this Agreement,
including, without limitation, any Claim in tort or under any federal or state
securities laws; provided, however, that the parties hereto shall be entitled to
an injunction or other equitable relief to prevent breaches of this Agreement,
to enforce specifically the terms and provisions of this Agreement or seek any
other remedy to which they are entitled in equity in any court of the United
States located in the State of New York or in New York State court.
10.8 Transfer Pricing. Seller and Buyer acknowledge and agree that the
buying agent fees and other pricing arrangements between CAT-US and CAT-Far East
were established in good faith and in accordance with industry standards.
10.9 Claims Against Cat Directors and Officers. Buyer hereby agrees that it
will not, and will not permit any of its affiliates, including CAT, to, bring
any claim against any of Messrs. Bernard Manuel, Irving Benson or Roy Green for
any action taken or failed to be taken by such person in his capacity as an
officer or director of CAT, other than any such claim for fraud or intentional
misconduct.
XI. MISCELLANEOUS.
11.1 Fees and Expenses. Whether or not the transactions contemplated hereby
or by the Ancillary Agreements are consummated pursuant hereto or thereto, each
of Seller and Buyer shall pay all fees and expenses incurred by it or on its
behalf in connection with or in anticipation of this Agreement and such related
instruments and the consummation of the transactions contemplated hereby and
thereby.
11.2 Further Assurances. From time to time after the Closing Date, at the
request of any party hereto and at the expense of the party so requesting, Buyer
and Seller shall execute and deliver to such requesting party such documents and
take such other action as such requesting party may reasonably request in order
to consummate more effectively the transactions contemplated hereby, including,
without limitation, such documents or actions as Buyer may require for the
purpose of enabling the recordation of any Instrument of Assignment.
11.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered by hand, by
mail (certified or registered mail, return receipt requested), by reputable
overnight courier or by facsimile transmission (receipt of which is confirmed):
(a) If to Buyer or ATSC, to:
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
(b) If to Seller, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
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<PAGE>
with a copy to:
Fulbright and Jaworski, L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
or to such other person or address as any party shall specify by notice in
writing, given in accordance with this Section 11.3, to the other parties
hereto. All such notices, requests, demands, waivers and communications shall be
deemed to have been given on the date on which so hand-delivered, on the third
business day following the date on which so mailed, on the next business day
following the date on which delivered to such overnight courier and on the date
of such facsimile transmission and confirmation, except for a notice of change
of person or address, which shall be effective only upon receipt thereof.
11.4 Entire Agreement. This Agreement, the SELLER DISCLOSURE SCHEDULE, the
BUYER DISCLOSURE SCHEDULE, and the ANNEXES, EXHIBITS and other documents
referred to herein which form a part hereof (including, without limitation, the
Confidentiality Agreements referred to in Section 5.2 hereof) contain the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement supersedes all prior agreements and understandings, oral and
written, with respect to its subject matter.
11.5 Severability. Should any provision of this Agreement, or any part
thereof, for any reason be declared invalid or unenforceable, such declaration
shall not affect the validity or enforceability of any other provision of this
Agreement, or any other part thereof, all of which other provisions, and parts,
shall remain in full force and effect, and the application of such invalid or
unenforceable provision, or such part thereof, to persons or circumstances other
than those as to which it is held invalid or unenforceable shall be valid and be
enforced to the fullest extent permitted by law.
11.6 Binding Effect; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, executors, successors and permitted assigns, but except
as contemplated herein, neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned, directly or indirectly, by Buyer or
Seller without the prior written consent of the other parties hereto; provided,
however, that ATSC or Buyer may assign any or all of its rights, interests or
obligations hereunder to any one or more direct or indirect wholly owned
subsidiaries of ATSC or Buyer, provided, however, that no such assignment by
ATSC or Buyer shall limit or affect ATSC or Buyer's obligations hereunder.
11.7 Amendment, Modification and Waiver. This Agreement may be amended,
modified or supplemented at any time by written agreement of the parties hereto.
Any failure by Seller, on the one hand, or ATSC or Buyer, on the other hand, to
comply with any term or provision of this Agreement may be waived by ATSC or
Buyer or Seller, respectively, at any time by an instrument in writing signed by
or on behalf of ATSC, Buyer or Seller, but such waiver or failure to insist upon
strict compliance with such term or provision shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure to comply.
11.8 Third-party Beneficiaries. Except as otherwise expressly provided
herein, this Agreement is not intended, and shall not be deemed, to confer upon
or give any person except the parties hereto and their respective successors and
permitted assigns, any remedy, claim, liability, reimbursement, cause of action
or other right under or by reason of this Agreement.
11.9 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11.10 Bulk Sales. Without limiting Seller's obligations under Section
10.2(f) hereof, each of Buyer and Seller hereby waive compliance by the other
with the "bulk sales" provisions of Article 6 of the Uniform Commercial Code as
may be in effect in the jurisdictions where the Assets are located and any other
similar provision of applicable law as may be in effect in any such
jurisdiction.
11.11 Interpretation. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement. As used in this Agreement, the term "person" shall mean and
include an individual, a partnership, a
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<PAGE>
joint venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof. As used in this Agreement, the
term "affiliate" shall have the meaning set forth in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended.
11.12 Governing Law. This Agreement shall be governed by the laws of the
State of New York, without regard to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Stock and Asset
Purchase Agreement as of the day and year first above written.
CYGNE DESIGNS, INC.
By
-------------------------------------
Bernard M. Manuel
Chairman
CYGNE GROUP (F.E.) LIMITED.
By
-------------------------------------
Bernard M. Manuel
Director
ANNTAYLOR STORES CORPORATION
By
--------------------------------------
J. Patrick Spainhour
President
ANNTAYLOR, INC.
By
---------------------------------------
J. Patrick Spainhour
President
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<PAGE>
EXHIBIT A
BILL OF SALE
THIS BILL OF SALE (the "Bill of Sale") is executed as of ____________, 1996
by CYGNE DESIGNS, INC., a Delaware corporation ("Seller"), in favor of
ANNTAYLOR, INC., a Delaware corporation ("Buyer"), in connection with the
transactions contemplated by the Stock and Asset Purchase Agreement dated as of
____________, 1996 (the "Purchase Agreement") by and between Seller, Buyer,
ANNTAYLOR STORES CORPORATION, a Delaware corporation and holder of all of the
outstanding capital stock of Buyer ("ATSC"), and CYGNE GROUP (F.E.) LIMITED, a
Hong Kong corporation and a wholly owned subsidiary of Seller. Capitalized terms
used and not otherwise defined herein shall have the respective meanings
ascribed to them in the Purchase Agreement.
INTENDING TO BE LEGALLY BOUND, and for good and valuable consideration,
sufficiency and receipt of which are hereby acknowledged, Seller hereby sells,
transfers, conveys, assigns and delivers unto Buyer, its successors and assigns,
forever, all of Seller's right, title and interest in and to the assets of the
Division listed and described on ANNEX I hereto (collectively, the "Assets").
Notwithstanding the foregoing, nothing herein is intended to, nor shall
this Bill of Sale, constitute or evidence the sale, transfer, conveyance,
assignment or delivery to Buyer of any assets not listed or described on ANNEX I
hereto.
Seller hereby authorizes Buyer to take any appropriate action to protect
the right, title and interest in the Assets hereby sold, conveyed, assigned,
transferred and delivered to Buyer, in the name of Seller or Buyer or any other
name (for the benefit of Buyer and its successors and assigns) against each and
every person or persons whomsoever claiming or asserting any claim against any
or all of the same.
Seller hereby covenants and agrees, pursuant to Section 1.1(b) of the
Purchase Agreement, to execute and deliver all such Other Instruments and all
such other notices, releases, acquittances, consents and powers of attorney as
may be necessary more fully to sell, transfer, convey and assign to Buyer, or
its successors or permitted assigns, all of Seller's right, title and interest
in and to the Assets therein and hereby sold, transferred, conveyed and assigned
to Buyer; and in case of conflict, such specific instrument shall control with
respect to the Assets sold, transferred, conveyed or assigned thereby.
Seller hereby further covenants and agrees that in the event Buyer shall
acquire title to any of the Assets subject to any Lien, other than those
expressly permitted by the Purchase Agreement, Seller shall promptly cause such
Lien to be terminated, released or otherwise discharged.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed as
of the date first above written.
CYGNE DESIGNS, INC.
By: _______________________________
Name:
Title:
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<PAGE>
ANNEX I TO
BILL OF SALE
THE ASSETS
The following property and assets of Seller comprise the Assets to be
purchased by Buyer:
(a) the following items of inventory (the "Inventory"): (x) fabric and
trim owned by Seller for use by the Division in the production of
merchandise for Buyer (the "Division Fabric and Trim") as of February 3,
1996 and identified on Attachment A hereto to the extent not used as of the
Closing Date in the production of merchandise for Buyer; (y) Division
Fabric and Trim purchased since February 3, 1996 pursuant to written
commitments or purchase orders issued by Buyer to the extent not used as of
the Closing Date in the production of merchandise for Buyer and (z)
work-in-progress owned by Seller for use by the Division in the production
of merchandise for Buyer pursuant to purchase orders issued by Buyer;
(b) all leasehold improvements, furniture, fixtures and equipment that
(x) are owned by Seller or subject to a Capital Lease (y) relate to and are
used exclusively or primarily in the Division Business and (z) are located
on the fifth, sixth or nineteenth floor of the NY Facility or at the
Florence Facility on the Closing Date, including those listed on ATTACHMENT
B to this ANNEX I;
(c) all licenses, permits, registrations, renewals thereof and
applications therefor, variances, exemptions, orders, approvals and
authorizations issued by any governmental, regulatory or administrative
agency or authority (domestic or foreign), held by Seller or any affiliate
of Seller of or relating to the Division Business, including all quota
allocations for the export of goods to the United States and elsewhere,
necessary or desirable for the lawful conduct of the Division Business to
the extent transferrable under applicable law;
(d) all purchase orders, bills of lading, trust receipts, warehouse
receipts and other documents of title of whatever kind and description
relating to the Inventory;
(e) all rights under insurance policies covering Inventory in transit
and all rights and claims under insurance policies for damage to any Assets
to the extent not repaired or replaced prior to the Closing;
(f) all goodwill, intellectual property rights, patents, trademarks,
service marks, copyrights (including all copyrights in computer software
and databases), licenses and applications therefor (if any), know-how,
processes, methods, techniques, formulae, designs, drawings, patterns,
trade secrets, proprietary information, sketches, technical information,
computer software, databases and other proprietary or confidential
information of or relating to the Division Business and all rights in any
licenses to or from any third party of or for the foregoing, it being
understood, however, that the rights to the Intellectual Property shall be
non-exclusive unless such Intellectual Property relates solely to the
Division Business and Seller's rights therein are exclusive;
(g) all intangible assets of or relating to the Division Business,
including claims against third parties; and
(h) all books and records (including all computerized records and
storage media and associated software) of CAT, and those relating solely to
the Division Business and, to the extent practicable, those portions of
Seller's other books and records that relate to the Division Business,
including, without limitation, (a) all Books and Records relating to the
employees of and the purchase of materials, supplies and services for the
Division Business or CAT, but not including the tax returns, general ledger
or corporate minute books and capital stock books of Seller, and (b) the
tax returns, general ledger and corporate minute books and capital stock
books of CAT-US and CAT-Far East.
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<PAGE>
EXHIBIT B
ASSIGNMENT AND ASSUMPTION AGREEMENT
(Contracts)
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (the "Assignment Agreement"),
dated as of ____________, 1996, is made by and between Cygne Designs, Inc., a
Delaware corporation ("Assignor"), and AnnTaylor, Inc., a Delaware corporation
("Assignee").
W I T N E S S E T H
WHEREAS, Assignor is a party to certain contracts and obligations and all
amendments and supplements thereto identified on SCHEDULE I attached hereto and
incorporated by reference herein (the "Contracts").
WHEREAS, Assignor and Assignee are parties to the Stock and Asset Purchase
Agreement, dated as of June 7, 1996 (the "Purchase Agreement") by and between
Assignor, Assignee, AnnTaylor Stores Corporation, a Delaware corporation and
holder of all of the outstanding capital stock of Assignee, and Cygne Group
(F.E.) Limited, a Hong Kong Corporation and a wholly owned subsidiary of
Assignor, pursuant to which Assignor agreed to sell and Assignee agreed to
purchase, among other things, certain assets of Assignor, all in accordance with
the terms and conditions set forth in the Purchase Agreement. Capitalized terms
used and not otherwise defined herein shall have the respective meanings
ascribed to such terms in the Purchase Agreement.
WHEREAS, in connection with the transactions contemplated by the Purchase
Agreement, and pursuant thereto, among other things, Assignor has agreed to
enter into this Assignment Agreement to assign all of Assignor's right, title,
interest, duties and obligations in and to the Contracts to Assignee and, in
partial consideration therefor, among other things, Assignee has agreed to
accept such assignment of the Contracts and assume the duties and obligations of
Assignor under the Contracts arising from and after the date hereof. Seller
shall be responsible for and retains all liabilities for duties and obligations
incurred under the Contracts prior to the date hereof.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Purchase Agreement, the
parties hereto agree as follows:
1. Assignment. Assignor does hereby sell, transfer, convey, assign and
deliver to Assignee all of Assignor's right, title, interest, duties and
obligation in and to the Contracts.
2. Acceptance and Assumption. (a) Assignee does hereby irrevocably
accept such sale, transfer, conveyance, assignment and delivery of all of
Assignor's right, title, interest, duties and obligations in and to the
Contracts, and does hereby assume all duties and obligations of Assignor
under the Contracts arising from and after the date hereof. Seller shall be
responsible for and retains all liabilities for all duties and obligations
incurred prior to the date hereof.
(b) Assignee covenants and agrees to pay, perform, discharge and
satisfy when due all of Assignor's covenants, agreements and obligations
under the Contracts arising from and after the date hereof pursuant to, and
in accordance with, the terms and conditions of the respective Contracts.
3. Effective Time. The assignment of the Contracts by Assignor, and
the acceptance of such assignment and the assumption of the duties and
obligations of Assignor under the Contracts by Assignee, all pursuant to
this Assignment Agreement, shall be effective as of the date hereof.
4. Amendment, Modification and Waiver. This Assignment Agreement may
be amended, modified or supplemented at any time by written agreement of
the parties hereto. Any failure by Assignor, on the one hand, or Assignee,
on the other hand, to comply with any term or provision of this Assignment
Agreement may be waived by Assignee or Assignor, respectively, at any time
by an instrument in writing signed by or on behalf of Assignee or Assignor,
but such waiver or failure to insist upon strict compliance with such term
or provision shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure to comply.
5. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Assignment
Agreement shall be in writing and shall be deemed to have been duly given
if
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<PAGE>
delivered personally, by mail (certified or registered mail, return receipt
requested), by reputable overnight courier or by facsimile transmission
(receipt of which is confirmed):
(a) If to Assignee, to:
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
(b) If to Assignor, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
with a copy to:
Fulbright and Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
or to such other person or address as any party shall specify by notice in
writing, given in accordance with this Section 5, to the other parties
hereto. All such notices, requests, demands, waivers and communications
shall be deemed to have been given on the date on which so hand-delivered,
on the third business day following the date on which so mailed, on the
next business day following the date on which delivered to such overnight
courier and on the date of such facsimile transmission and confirmation,
except for a notice of change of person or address, which shall be
effective only upon receipt thereof.
6. Third-Party Beneficiaries. Except as otherwise expressly provided
herein, this Assignment Agreement is not intended, and shall not be deemed,
to confer upon or give any person except the parties hereto and their
respective successors and permitted assigns, any remedy, claim, liability,
reimbursement, cause of action or other right under or by reason of this
Assignment Agreement.
7. Governing Law. This Assignment Agreement shall be governed by the
laws of the State of New York, without regard to the principles of
conflicts of law thereof.
8. Counterparts. This Assignment Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9. Interpretation. The section headings contained in this Assignment
Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Assignment Agreement. As used in this Assignment
Agreement, the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
10. Binding Effect; Assignment. This Assignment Agreement and all of
the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, successors and
permitted assigns, but except as contemplated herein, neither this
Assignment Agreement nor any of the rights,
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<PAGE>
interests or obligations hereunder shall be assigned, directly or
indirectly, by Assignee or Assignor without the prior written consent of
the other party hereto; provided, however, that Assignee may assign any or
all of its rights, interests or obligations hereunder to any one or more
wholly owned subsidiary of AnnTaylor Stores Corporation, provided, however,
that no such assignment by Assignee shall limit or affect Assignee's
obligations hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Assignment
Agreement to be duly executed as of the day and year first set forth above.
ASSIGNOR:
CYGNE DESIGNS, INC.
By: _____________________________
Name:
Title:
ASSIGNEE:
ANNTAYLOR, INC.
By: _____________________________
Name:
Title:
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<PAGE>
EXHIBIT C
UNDERTAKING
THIS UNDERTAKING ("Undertaking"), is executed and delivered on this ______
day of ____________, 1996, by AnnTaylor, Inc., a Delaware corporation ("Buyer"),
in favor of Cygne Designs, Inc., a Delaware corporation ("Seller").
W I T N E S S E T H:
WHEREAS, pursuant to the Stock and Asset Purchase Agreement dated as of
June 7, 1996 (the "Purchase Agreement") by and between Buyer, Seller, AnnTaylor
Stores Corporation, a Delaware corporation and holder of all of the outstanding
capital stock of Buyer, and Cygne Group (F.E.) Limited, a Hong Kong corporation
and wholly owned subsidiary of Seller, Seller has, among other things,
concurrently herewith sold, conveyed, assigned, transferred and delivered to
Buyer all of Seller's rights, title and interest in and to certain of the assets
of Seller.
WHEREAS, in partial consideration therefor, the Purchase Agreement requires
that Buyer undertake to assume and to agree to perform, pay or discharge or
cause to be performed, paid or discharged certain liabilities and obligations of
Seller.
NOW, THEREFORE, in consideration of these premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Buyer agrees as follows (capitalized terms used but not otherwise
defined herein having the respective meanings ascribed to them in the Purchase
Agreement):
1. Buyer hereby undertakes, assumes and agrees to pay or discharge in
accordance with their terms, to the extent not heretofore paid or
discharged and subject to the limitations contained in this Undertaking and
to the terms of the Purchase Agreement, the Accounts Payable of Seller
which are listed or described in ANNEX I hereto.
2. The assumption by Buyer of the liabilities and obligations set
forth in this Undertaking shall not be construed to defeat, impair or limit
in any way the rights, claims or remedies of Buyer under the Purchase
Agreement.
3. Other than as expressly set forth in this Undertaking, the Purchase
Agreement or any Instruments of Assignment, Buyer assumes no liability or
obligation of any kind, character or description of Seller or any other
person.
4. This Undertaking shall be enforceable against the successors and
assigns of Buyer and shall inure to the benefit of the successors and
assigns of Seller.
IN WITNESS WHEREOF, this Undertaking has been duly executed and delivered
by the duly authorized officers of AnnTaylor, Inc. on the date first above
written.
ANNTAYLOR, INC.
By: ____________________________
Name:
Title:
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<PAGE>
EXHIBIT D
ADVANCE INSTRUMENT
THIS ADVANCE INSTRUMENT (the "Advance Instrument"), dated as of
____________, 1996, is executed and delivered by AnnTaylor, Inc. ("Ann Taylor")
in favor of Cygne Designs, Inc., a Delaware corporation ("Cygne").
W I T N E S S E T H
WHEREAS, Ann Taylor and Cygne are parties to a Letter Agreement, dated as
of February 10, 1995, pursuant to which Ann Taylor made cash advances to Cygne
in the amount of $5,000,000 (the "Advance").
WHEREAS, Ann Taylor made certain additional cash advances to Cygne in the
amount of $2,985,000 (the "Additional Advances").
WHEREAS, Cygne is party to a Stock and Asset Purchase Agreement, dated as
of June 7, 1996 (the "Purchase Agreement") by and among Cygne, Cygne Group
(F.E.) Limited, a Hong Kong corporation and wholly owned subsidiary of Cygne,
AnnTaylor Stores Corporation, a Delaware corporation and holder of all of the
outstanding capital stock of Ann Taylor ("ATSC"), and Ann Taylor, pursuant to
which Buyer is purchasing from Seller and Seller is selling to Buyer certain
assets of Seller.
WHEREAS, in connection with the transactions contemplated by the Purchase
Agreement, and pursuant thereto, among other things, ATSC has agreed to cause
Ann Taylor to enter into this Advance Instrument to forgive, release and
discharge the Advance and the Additional Advances.
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. Release and Discharge. Ann Taylor, for itself and its successors
and assigns, does hereby forgive, release and discharge Cygne from any and
all of Cygne's obligations for the repayment of the Advance and the
Additional Advances and from any and all manner of actions and causes of
action, claims and demands, suits, damages, costs, legal fees, expenses,
debts, dues, accounts, bonds, covenants, contracts, agreements and
compensation whatsoever, in law or in equity, whether the same are known or
unknown, accrued or unaccrued, fixed or contingent ("Claims") which Ann
Taylor now has or may hereafter have against Cygne in as much as such
Claims relate to repayment of the Advance or the Additional Advances.
2. Amendment, Modification and Waiver. This Advance Instrument may be
amended, modified or supplemented at any time by written agreement of the
parties hereto. Any failure by Cygne, on the one hand, or AnnTaylor, on the
other hand, to comply with any term or provision of this Advance Instrument
may be waived by AnnTaylor or Cygne, respectively, at any time by an
instrument in writing signed by or on behalf of AnnTaylor or Cygne, but
such waiver or failure to insist upon strict compliance with such term or
provision shall not operate as a waiver of, or estoppel with respect to,
any subsequent or other failure to comply.
3. Notices. All notices, requests, demands, waivers and other
communications given under this Advance Instrument shall be in writing and
shall be deemed to have been duly given if delivered personally, by mail
(certified or registered mail, return receipt requested), by reputable
overnight courier or by facsimile transmission (receipt of which is
confirmed):
(a) If to Ann Taylor, to
AnnTaylor, Inc.
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
I-40
<PAGE>
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
(b) If to Cygne, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
with a copy to:
Fulbright and Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
or to such other person or address as any party shall specify by notice in
writing, given in accordance with this Section 3, to the other parties
hereto. All such notices, requests, demands, waivers and communications
shall be deemed to have been given on the date on which so hand-delivered,
on the third business day following the date on which so mailed, on the
next business day following the date on which delivered to such overnight
courier and on the date of such facsimile transmission and confirmation,
except for a notice of change of person or address, which shall be
effective only upon receipt thereof.
4. Third-Party Beneficiaries. Except as otherwise expressly provided
herein, this Advance Instrument is not intended, and shall not be deemed,
to confer upon or give any person except the parties hereto and their
respective successors and permitted assigns, any remedy, claim, liability,
reimbursement, cause of action or other right under or by reason of this
Advance Instrument.
5. Governing Law. This Advance Instrument shall be governed by the
laws of the State of New York, without regard to the principles of
conflicts of law thereof.
6. Counterparts. This Advance Instrument may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7. Interpretation. The section headings contained in this Advance
Instrument are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Advance Instrument. As used in this Advance
Instrument, the term "person" shall mean and include an individual, a
partnership, a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
8. Binding Effect; Assignment. This Advance Instrument and all of the
provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, successors and
permitted assigns, but except as contemplated herein, neither this Advance
Instrument nor any of the rights, interests or obligations hereunder shall
be assigned, directly or indirectly, by Ann Taylor or Cygne without the
prior written consent of the other party hereto; provided, however, that
Ann Taylor may assign any or all of its rights, interests or obligations
hereunder to any one or more wholly owned subsidiary of ATSC, provided,
however, that no such assignment by Ann Taylor shall limit or affect Ann
Taylor's obligations hereunder.
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Advance Instrument to be
duly executed as of the day and year first above written.
ANNTAYLOR, INC.
By: _____________________________
Name:
Title:
CYGNE DESIGNS, INC.
By: _____________________________
Name:
Title:
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<PAGE>
EXHIBIT E
Pledge Agreement
This PLEDGE AGREEMENT (the "Pledge Agreement"), dated ____________, 1996,
is made by and between Cygne Designs, Inc. ("Seller") and AnnTaylor, Inc., a
Delaware corporation ("Buyer") (the "Pledge Agreement"). Capitalized terms used
and not otherwise defined herein shall have the respective meanings set forth in
the Stock and Asset Purchase Agreement, dated ____________, 1996, by and among
the parties hereto and AnnTaylor Stores Corporation, a Delaware corporation and
holder of all of the outstanding capital stock of Buyer, and Cygne Group (F.E.)
Limited ("CGFE"), a Hong Kong corporation and a wholly owned subsidiary of
Seller (the "Purchase Agreement").
W I T N E S S E T H
WHEREAS, the parties hereto have entered into the Purchase Agreement
providing for, among other things, the sale by Seller to Buyer of the Assets and
the sale by Seller and CGFE to Buyer of the CAT Shares owned by it, for the
Purchase Price specified in the Purchase Agreement;
WHEREAS, under the terms of the Purchase Agreement, a portion of the
estimated Cash Consideration is to be deposited by Buyer in an account in the
name of Buyer, subject to the security interest of Seller, at [Bank] pending
final resolution of the amount of the Cash Consideration, which account and
security shall be pledged upon consummation of the Closing by Buyer to Seller,
pursuant to this Pledge Agreement;
WHEREAS, Buyer has caused to be opened Account No. __________ (the "Bank
Account") with [Bank] at its office at [Address], in the name of Buyer, as
pledgor, subject to the security interest of Seller, as pledgee, and has caused
such account to be credited with [$__________ amount equal to 20% of the
Estimated Amount] in immediately available funds (the "Pledged Amount"); and
WHEREAS, Buyer wishes to pledge and to grant a security interest in the
Bank Account and the Pledged Amount to Seller as herein provided;
NOW, THEREFORE, in consideration of the premises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
Section 1. Pledge. Buyer hereby pledges and grants to Seller a security
interest in the following collateral (the "Collateral"):
(a) the Bank Account and all certificates and instruments, if any,
from time to time representing or evidencing the Bank Account;
(b) the Pledged Amount and all certificates and instruments, if any,
from time to time representing or evidencing the Pledged Amount;
(c) all interest, cash, instruments and other property from time to
time received, receivable or otherwise distributed in respect of or in
exchange for any or all of the then existing Collateral or otherwise
credited to the Bank Account; and
(d) all proceeds of any and all of the foregoing Collateral.
Section 2. Security for Obligations. This Pledge Agreement and the security
interest in and pledge of the Collateral hereunder secures the payment to Seller
of all obligations of Buyer owed to Seller now or hereafter existing under the
Purchase Agreement and any fees and expenses (including attorney's fees)
incurred in connection with the successful exercise by the secured party of any
of its remedies hereunder (all such obligations of Buyer being referred to
hereinafter as the "Obligations").
Section 3. Maintaining the Account. Title to the Bank Account and the
Pledged Amount shall remain and reside in Buyer but subject to the rights of
Seller hereunder, until the proceeds of the Pledged Amount are distributed to
the parties, as their interests may appear, pursuant to the terms of the
Purchase Agreement. So long as any Obligations of Buyer are outstanding, it
shall be a term and condition of the Bank Account, except as otherwise provided
by the provisions of Section 8 of this Pledge Agreement, that no amount
(including interest on the Bank
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Account) shall be paid or released to or for the account of or withdrawn by or
for the account of Buyer or any other person or entity from the Bank Account.
Section 4. Investing of Amounts in the Account. Buyer may from time to time
(i) invest amounts on deposit in the Bank Account in such notes, certificates of
deposit and other debt instruments as Buyer may select and Seller may approve
("Permitted Investments") and (ii) invest interest paid on the Permitted
Investments referred to in clause (i) above, and reinvest other proceeds of any
such Permitted Investments which may mature or be sold, in each case in such
Permitted Investments as Buyer may select and Seller may approve. Seller hereby
approves any U.S. Treasury security having a remaining maturity of 30 days or
less. Interest and proceeds that are not invested or reinvested in Permitted
Investments as provided above shall be deposited and held in the Bank Account.
Section 5. Representations and Warranties.
(a) Buyer represents that it is the legal and beneficial owner of the
Collateral free and clear of any lien, security interest, option or other charge
or encumbrance except for the security interest created by this Pledge
Agreement.
(b) Buyer represents that the pledge of the Collateral pursuant to this
Pledge Agreement creates a valid and perfected first priority security interest
in the Collateral, securing the payment of the Obligations.
(c) Buyer represents that no consent of any other person or entity and no
authorization, approval, or other action by, and no notice to or filing with,
any governmental authority or regulatory body is required (i) for the pledge by
Buyer of the Collateral pursuant to this Pledge Agreement or for the execution,
delivery or performance of this Pledge Agreement by Buyer, (ii) for the
perfection or maintenance of the security interest created hereby (including the
first priority nature of such security interest) or (iii) for the exercise by
Seller of its rights and remedies hereunder.
(d) Buyer and Seller represent that there are no conditions precedent to
the effectiveness of this Pledge Agreement that have not been satisfied or
waived.
Section 6. Further Assurances. Seller and Buyer agree that at any time and
from time to time, at the expense of Seller and Buyer, Seller and Buyer will
promptly execute and deliver all further instruments and documents, and take all
further action, that may be necessary or desirable, or that Seller may
reasonably request, in order to perfect and protect any security interest
granted or purported to be granted hereby or to enable Seller to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Section 7. Transfers and Other Liens. Buyer agrees that it will not (i)
sell, assign (by operation of law or otherwise) or otherwise dispose of, or
grant any option with respect to, any of the Collateral or (ii) create or permit
to exist any lien, security interest option or other charge or encumbrance upon
or with respect to any of the Collateral except for the security interest under
this Pledge Agreement.
Section 8. Withdrawals Upon Final Determination of the Purchase Price
Adjustment. Upon the final determination of the Purchase Price pursuant to
Section 1.6 of the Purchase Agreement, (i) Seller hereby releases its right and
security interest in the Pledged Amount (but not in the proceeds thereof, to the
extent such proceeds are due to Seller pursuant to said Section 1.6) without any
further action required on the part of Seller, (ii) Buyer shall retain any
amounts to which it is entitled under Section 1.6 of the Purchase Agreement and
(iii) Buyer shall deliver to Seller the remaining amount in the Pledged Amount,
if any.
Section 9. Remedies. Seller shall have all rights and remedies available to
a secured creditor under the New York Uniform Commercial Code (the "Code").
Section 10. Expenses. Notwithstanding anything in this Pledge Agreement to
the contrary, whether or not the transactions contemplated by this Pledge
Agreement shall be consummated, each party hereto shall pay its own expenses
incident to preparing for, entering into and carrying out this Pledge Agreement,
except to the extent provided in Section 2 hereof.
Section 11. Amendments, Etc. No amendment or waiver of any provision of
this Pledge Agreement, and no consent to any departure by Buyer herefrom shall
in any event be effective unless the same shall be in writing and signed by
Seller, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
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Section 12. Addresses For Notices. All notices and other communications
provided for hereunder shall be in writing and shall be deemed given upon
receipt by the parties at the following addresses (or at such other address for
a party as shall be specified by like notice):
(a) if to Buyer, to:
AnnTaylor, Inc.
142 West 57th Street
New York, New York 10016
Attention: Paul E. Francis
Telecopy: (212) 541-3299
with a copy to:
AnnTaylor, Inc.
142 West 57th Street
New York, New York 10016
Attention: Jocelyn F.L. Barandiaran
Telecopy: (212) 541-3299
and a further copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
7th Floor
Wilmington, DE 19801
Attention: Patricia Moran Chuff
Telecopy: 302-651-3001
and
(b) if to Seller, to
Cygne Designs, Inc.
1372 Broadway
New York, New York
Attention: Bernard M. Manuel
Telecopy: (212) 921-8318
with a copy to:
Cygne Designs, Inc.
1372 Broadway
New York, New York
Attention: Paul D. Baiocchi
Telecopy: (212) 921-8318
and a further copy to:
Fulbright & Jaworski L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman
Telecopy: (212) 752-5958
Section 13. Continual Security Interest; Termination. This Pledge Agreement
shall create a continuing security interest in the Collateral and shall (i)
remain in full force and effect until the payment in full of the Obligations and
all other amounts payable under this Pledge Agreement, (ii) be binding upon
Buyer, its successors and assigns, and (iii) inure to the benefit of, and be
enforceable by, Seller and its respective successors, transferees and assigns.
Section 14. Governing Law; Terms. This Pledge Agreement shall be governed
by and construed in accordance with the laws of the State of New York without
regard to any applicable principles of conflicts of law.
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<PAGE>
Unless otherwise defined herein or in the Purchase Agreement, terms defined in
Article 9 of the Code are used herein as therein defined.
IN WITNESS WHEREOF, Buyer and Seller have caused this Pledge Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first above written.
ANNTAYLOR, INC.
By: _____________________________
Name:
Title:
CYGNE DESIGNS, INC.
By: _____________________________
Name:
Title:
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EXHIBIT F
TERM SHEET
NY Transition Services Agreement
ACCESS TO CAM-CAD EQUIPMENT Buyer shall allow up to two (2) of Seller's
employees access to the CAM-CAD marking and
grading work stations free of charge from
the date of the Closing through the end of
fiscal 1996.
OPTION TO PURCHASE Seller shall have the option to purchase the
CAM-CAD equipment at the end of fiscal 1996
at its net book value.
ACCESS TO SAMPLE ROOM AND Buyer shall allow up to three (3)
EQUIPMENT patternmakers and up to six (6) sewersto use
the sample room and related equipment free
of charge from the date of the Closing
through the sixty (60)-day period following
the date of the Closing.
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<PAGE>
EXHIBIT G
TERM SHEET
Miami Transition Services Agreement
WAREHOUSE RENTAL PAYMENT Buyer shall pay to Seller $40,000 per year
(representing 50% of the amount of the rent
paid by Seller under the Miami Lease
applicable to the portion of the Miami
Facility relating to the trim and
consolidation warehouse) for a period of two
(2) years from the Closing Date.
WAREHOUSE LABOR PAYMENTS Seller shall provide to Buyer trim and
consolidation services of five (5) employees
of Seller at the Miami Facility and Buyer
shall pay to Seller an amount equal to 50%
of the labor costs associated with such
employees for a period of two (2) years from
the Closing Date, subject to earlier
termination by Buyer upon ninety (90) days'
notice to Seller.
EXPIRATION OF MIAMI LEASE Upon expiration of the current rent term of
the Miami Lease on January 20, 1997: (i) in
the event that Seller does not renew the
Miami Lease and ceases its Miami trim and
consolidation operations, then the Miami
Transition Services Agreement shall
terminate; and (ii) in the event that Seller
does not renew the Miami Lease but relocates
and continues the Miami trim and
consolidation operations in another
facility, then the Miami Transition Services
Agreement shall apply to the new facility.
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<PAGE>
EXHIBIT H
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made and entered into as of the _____ day of
August, 1996, by and between AnnTaylor Stores Corporation, a Delaware
corporation ("ATSC"), AnnTaylor, Inc., a Delaware corporation and wholly owned
subsidiary of ATSC ("ATI" and, together with ATSC, "Ann Taylor"), Cygne Designs,
Inc., a Delaware corporation ("Cygne"), and Mr. Bernard M. Manuel
("Consultant").
W I T N E S S E T H :
WHEREAS, pursuant to that certain Stock and Asset Purchase Agreement, dated
as of June 7, 1996, among ATSC, ATSI, Cygne and Cygne Group (F.E.) Limited, a
Hong Kong corporation and wholly owned subsidiary of Cygne ("CGFE"), ATI
acquired from Cygne (i) all of the shares of common stock, par value $.01 per
share, of CAT US, Inc., a Delaware corporation ("CAT-US"), owned by Cygne; and
(ii) certain of the assets of Cygne's AnnTaylor Woven Division (the "Division");
WHEREAS, pursuant to the Purchase Agreement, ATI acquired from CGFE all of
the shares of common stock, par value $1 HK per share, of C.A.T. (Far East)
Limited, a Hong Kong corporation ("CAT-Far East" and, together with CAT-US,
"CAT"), owned by CGFE;
WHEREAS, CAT serves as a fully dedicated sourcing capability for ATI;
WHEREAS, prior to the date hereof, Cygne, through the Division, served as a
private label designer, merchandiser and manufacturer of women's apparel for
ATI;
WHEREAS, Consultant is the Chairman and Chief Executive Officer of Cygne
with particular expertise regarding sourcing of fabric and materials,
particularly with respect to suppliers and factories in Hong Kong and Asia; and
WHEREAS, Ann Taylor, as partial consideration for the transactions
contemplated by the Purchase Agreement, desires to obtain, and Cygne and
Consultant desire that Consultant provide, information, consultation, advice and
other services in aid of Ann Taylor's business, all subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants, agreements and conditions contained
herein, Ann Taylor, Cygne and Consultant, intending to be legally bound, agree
as follows:
1. Engagement of Consultant.
(a) Cygne hereby covenants and agrees to make make Consultant available to
provide services to Ann Taylor upon the terms and conditions set forth herein.
Consultant hereby agrees to act as a consultant to and on behalf of Ann Taylor
in accordance with the terms and conditions set forth herein. Cygne, Consultant
and Ann Taylor agree that Consultant will provide services to Ann Taylor not in
excess of thirty percent (30%) of his business time and that Consultant will
continue his duties as Chairman and Chief Executive Officer of Cygne. Cygne
agrees to allow Consultant reasonable time to perform his duties as a consultant
to Ann Taylor on a timely basis, provided, however, that the performance of such
duties shall be at mutually agreeable times that do not unreasonably interfere
with Consultant's continuing obligations to Cygne.
(b) Cygne shall cause Consultant to, at the request of the President of Ann
Taylor, provide Ann Taylor information, consultation and advice on fabric and
material sourcing, particularly with respect to suppliers and factories in Hong
Kong and Asia.
(c) Cygne shall cause Consultant, and Consultant hereby agrees, to
diligently and faithfully serve Ann Taylor and to devote his reasonable best
efforts, his highest talents and skills, and all necessary time and attention in
providing the information, consultation and advice requested pursuant to
paragraph (b) of this Section 1; provided that Consultant shall not, without the
consent of Cygne and Consultant, be required to travel outside HongKong. Cygne
hereby consents to the allocation of up to thirty percent (30%) of Consultant's
business time to perform services under this Agreement.
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<PAGE>
2. Term of Agreement. Unless terminated at an earlier date in accordance
with Section 4 of this Agreement, the term of this Agreement shall commence on
the date of this Agreement and shall end on the third anniversary thereof (the
"Expiration Date").
3. Payment for Services.
(a) Consultant's Fee. In consideration of Cygne causing Consultant to
perform the services provided for in this Agreement, Ann Taylor shall pay to
Cygne, at such time and in the manner as set forth in Section 3(b) hereof, a fee
of $225,000 per year (the "Consultant's Fee"). Ann Taylor shall not provide
Consultant with any compensation or benefits, including, but not limited to,
medical or pension benefits, bonuses or vacation, holiday or sick pay.
(b) Time Of Payment. The Consultant's Fee shall be due and payable to Cygne
by Ann Taylor in quarterly installments commencing on the date hereof; provided,
however, that the first installment shall be prorated to reflect the remaining
days of the current fiscal quarter.
(c) Reimbursement Of Expenses. Ann Taylor shall reimburse Cygne or
Consultant, as the case may be, for all reasonable out-of-pocket expenses
incurred by Cygne or Consultant in connection with the performance of
Consultant's services hereunder in accordance with AnnTaylor's travel policies.
4. Termination.
(a) Death. This Agreement shall terminate upon the Consultant's death.
(b) Termination by Default. Each of the following shall constitute, without
limitation or restriction, an event of default under this Agreement, in which
case, the non-defaulting party may give the other notice that this Agreement
shall terminate on the date selected by the non-defaulting party and set forth
in such notice (the "Termination Date"), unless cured as specified below:
(i) If either Ann Taylor or Cygne shall, whether by action or
inaction, breach in any material respect any obligation under this
Agreement, including a material failure by Consultant to perform his duties
and responsibilities hereunder, and such breach is not remedied within
thirty (30) days after written notice thereof from the non-defaulting
party;
(ii) If, for any reason, Consultant shall be convicted of a felony; or
if Consultant shall be convicted of any other crime as a result of which
his ability to perform the services described in Section 1 hereof is
materially impaired;
(iii) If there has been fraud, bad faith or willful misconduct on the
part of Cygne or Consultant in connection with the performance of
Consultant's duties and responsibilities hereunder;
(iv) If Ann Taylor institutes proceedings relief under the United
States Bankruptcy Code or any similar law, or consents to entry of an order
for relief against it in any bankruptcy or insolvency proceeding or similar
proceeding, or files a petition or answer or consent for reorganization or
other relief under any bankruptcy act or similar law, or consents to the
filing against it, of any petition for the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official) of
it, or of any substantial part of its property, or makes an assignment for
the benefit of creditors, or admits in writing its inability to pay its
debts as they become due, or fails to pay its debts as they become due or
takes any action in furtherance of the foregoing; or
(v) If Cygne or Consultant breaches in any manner Section 5 hereof.
(c) Effect of Termination. Upon termination of this Agreement, Cygne's
obligation to cause Consultant to provide services to Ann Taylor hereunder, and
Ann Taylor's obligation to make payment to Cygne under Section 3 hereof, shall
terminate, except that AnnTaylor shall be obligated to reimburse all expenses
incurred through the termination date in accordance with Section 3(b) hereof.
5. Confidentiality.
(a) Proprietary Information. Each of Cygne and Consultant acknowledges and
agrees that during the course of the provision of Consultant's services to Ann
Taylor, Consultant may be exposed to sensitive data and information concerning
the business and affairs of Ann Taylor, including, without limitation, fabric,
product and merchandise designs, and that all of such data and information,
financial plans, financial results, quantity or assortment of merchandise orders
or plans and inventory levels (collectively, the "Proprietary Information") are
vital, sensitive, confidential and proprietary to Ann Taylor.
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<PAGE>
(b) Consultant's Agreement. In consideration of the Purchase Price (as
defined in the Purchase Agreement) to be paid by Ann Taylor to Cygne in
connection with the transactions contemplated by the Purchase Agreement,
Consultant agrees to the covenants and restrictions set forth in this Section 5.
(c) Cygne's Agreement. In consideration of the Purchase Price to be paid by
Ann Taylor to Cygne in connection with the transactions contemplated by the
Purchase Agreement, Cygne agrees to the covenants and restrictions set forth in
this Section 5.
(d) Trade Secret Status. Each of Cygne and Consultant expressly
acknowledges the trade secret status of the Proprietary Information and
acknowledges that the Proprietary Information constitutes a protectable business
interest of Ann Taylor, and covenants and agrees that during the term of the
engagement hereunder and at all times after the expiration or termination of
such engagement, neither Cygne nor Consultant shall, directly or indirectly,
whether, in the case of Consultant, individually, as a director, stockholder,
owner, partner, employee, principal or agent of or consultant to any business,
or in any other capacity, make known, disclose, furnish, make available or
utilize any of the Proprietary Information, other than in the proper performance
of the duties contemplated herein during the term of the engagement hereunder.
Cygne's and Consultant's obligations under this Section 5(d) with respect to
particular Proprietary Information shall terminate only at such time (if any) as
the Proprietary Information in question becomes generally known to the public
other than through a breach of either Cygne's or Consultant's obligations
hereunder.
(e) Return of Proprietary Information. Each of Cygne and Consultant
acknowledges and agrees that all records or documents containing Proprietary
Information prepared by Consultant or coming into his possession by virtue of
the engagement are and shall remain the property of Ann Taylor and that, upon
termination or expiration of this engagement, Consultant shall return
immediately to Ann Taylor all such items in his possession, together with all
copies and extracts, and will destroy all summaries thereof and any such
information stored electronically on tapes, computer disks or in any other
manner.
(f) Consultant Non-solicitation. Consultant agrees that during the term of
this Agreement and for a period of one (1) year thereafter he shall not,
directly or indirectly, induce or solicit (or authorize or assist in the taking
of any such actions by any third party) any employee or consultant of Ann Taylor
to leave his or her business association with Ann Taylor.
(g) Cygne Non-Solicitation. Cygne agrees that during the term of this
Agreement and for a period of one (1) year thereafter it shall not, directly or
indirectly, induce or solicit (or authorize or assist in the taking of any such
actions by any third party) any employee or consultant of Ann Taylor to leave
his or her business association with Ann Taylor.
(h) Ann Taylor Non-Solicitation. Ann Taylor agrees that during the term of
this Agreement and for a period of one (1) year thereafter it shall not,
directly or indirectly, induce or solicit (or authorize or assist in the taking
of any such actions by any third party) any employee or consultant of Cygne to
leave his or her business association with Cygne.
(i) Acknowledgment. Consultant and Cygne acknowledge and agree that the
covenants set forth in this Section 5 and each subsection hereof are reasonable
and necessary for the protection of Ann Taylor's business interests, that
irreparable injury will result to Ann Taylor if Consultant or Cygne breaches any
of the terms of said covenants, and that in the event of Consultant's or Cygne's
actual or threatened breach of any such covenants, Ann Taylor will have no
adequate remedy at law. Cygne and Consultant accordingly agree that in the event
of any actual or threatened breach by Consultant of any of said covenants, Ann
Taylor shall be entitled to immediate injunctive and other equitable relief
without bond and without the necessity of showing actual monetary damages. Cygne
accordingly agrees that in the event of any actual or threatened breach by Cygne
of any of said covenants, Ann Taylor shall be entitled to immediate injunctive
and other equitable relief without bond and without the necessity of showing
actual monetary damages. Notwithstanding the provisions of Section 9 hereof,
such equitable relief may be sought in any court of competent jurisdiction.
Nothing contained herein shall be construed as prohibiting Ann Taylor from
pursuing any other remedies available to it for such breach or threatened
breach, including the recovery of any damages which it is able to prove.
(j) The provisions of this Section 5 shall survive the expiration or
termination of this Agreement, and any of the arrangements contained herein, and
shall be binding upon Consultant's, Cygne's and Ann Taylor's corporate or
personal successors and assigns.
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<PAGE>
6. Representations and Warranties of Consultant. Consultant represents and
warrants to Cygne and Ann Taylor that he has full legal power and authority to
enter into this Agreement, perform all of his obligations hereunder and to
consummate the transactions contemplated hereby.
7. Consultant's Independence and Discretion.
(a) Nothing herein contained shall be construed to constitute the parties
hereto as partners or as joint venturers, or as agent of the others, or, as
between Ann Taylor and Consultant, as employer and employee. By virtue of the
relationship described herein, Consultant's relationship to Ann Taylor during
the term of this Agreement shall only be that of an independent contractor and
the Consultant shall perform all services pursuant to this Agreement as an
independent contractor. The Consultant shall not provide any services under Ann
Taylor's business name and shall not present himself as an agent or employee of
Ann Taylor and shall have no authority to enter into any binding obligation on
behalf of Ann Taylor.
(b) Subject to the terms of this Agreement, the manner, means, details or
methods by which the Consultant performs his obligations under this Agreement
shall be determined by Cygne, subject to the reasonable satisfaction of Ann
Taylor.
(c) Each of Cygne and Consultant acknowledges and agrees that Ann Taylor
shall not provide to Consultant any unemployment, disability, workers'
compensation or medical insurance or any other employee benefits. Payments to
Cygne under Section 3 hereof shall not be subject to withholding taxes or other
employment taxes.
8. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration before three
(3) arbitrators selected in accordance with the Commercial Arbitration Rules of
the American Arbitration Association in the City of New York. Arbitration as
provided herein shall be the exclusive means for determination of all matters as
above provided, and any decision and award of the arbitrators shall be final,
binding and conclusive upon the parties and such decision and award may be
entered as a final judgment in any court of competent jurisdiction. Except as
provided in Section 5(j) hereof, none of the parties shall institute any action
or proceeding in any court of law or equity, state or federal, other than as may
be necessary for purposes of enforcement of the arbitrators' decision and award
hereunder.
9. Consultant's Employment. Cygne and Consultant hereby acknowledge that
Consultant's execution of this Agreement is a condition to Consultant's
continued employment with Cygne.
10. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally,
by mail (certified or registered mail, return receipt requested), by reputable
overnight courier or by facsimile transmission (receipt of which is confirmed):
(a) If to ATSC or ATI, to:
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
(b) If to Cygne, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
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with a copy to:
Fulbright and Jaworski, L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
(c) If to Consultant, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: Bernard M. Manuel
Facsimile: (212) 536-4174
or to such other person or address as any party shall specify by notice in
writing, given in accordance with this Section 10 to the other parties hereto.
All such notices, requests, demands, waivers and communications shall be deemed
to have been given on the date on which so hand-delivered, on the third business
day following the date on which so mailed, on the next business day following
the date on which delivered to such overnight courier and on the date of such
facsimile transmission and confirmation, except for a notice of change of person
or address, which shall be effective only upon receipt thereof.
11. Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter hereof. This Agreement
supersedes all prior agreements and understandings, oral and written, with
respect to its subject matter.
12. Severability. Should any provision of this Agreement, or any part
thereof, for any reason be declared invalid or unenforceable, such declaration
shall not affect the validity or enforceability of any other provision of this
Agreement, or any other part thereof, all of which other provisions, and parts,
shall remain in full force and effect, and the application of such invalid or
unenforceable provision, or such part thereof, to persons or circumstances other
than those as to which it is held invalid or unenforceable shall be valid and be
enforced to the fullest extent permitted by law.
13. Binding Effect; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, executors, successors and permitted assigns, but, except
as contemplated herein, neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned, directly or indirectly, by ATSC,
ATI, Cygne or Consultant without the prior written consent of the other parties
hereto; provided, however, that ATSC or ATI may assign any or all of its rights,
interests or obligations hereunder to any one or more, direct or indirect,
wholly owned subsidiaries of ATSC or ATI, provided, however, that no such
assignment by ATSC or ATI shall limit or affect ATSC's or ATI's obligations
hereunder; provided, further, however, that this Agreement shall automatically
be assigned to and assumed by Consultant in the event that (i) Consultant's
employment with Cygne is terminated; or (ii) Cygne is liquidated or dissolved,
whether through Chapter 7 of the U.S. Bankruptcy Laws or otherwise; provided,
however, that Consultant hereby agrees, in the event of any such assignment by
Cygne and assumption by Consultant, to assume and perform all of Cygne's
obligations hereunder, to the extent applicable.
14. Amendment, Modification And Waiver. This Agreement may be amended,
modified or supplemented at any time by written agreement of the parties hereto.
Any failure by Cygne or Consultant, on the one hand, or ATSC or ATI, on the
other hand, to comply with any term or provision of this Agreement may be waived
by ATSC, ATI, Cygne or Consultant, respectively, at any time by an instrument in
writing signed by or on behalf of ATSC, ATI, Cygne or Consultant, but such
waiver or failure to insist upon strict compliance with such term or provision
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure to comply.
15. Third-Party Beneficiaries. Except as otherwise expressly provided
herein, this Agreement is not intended, and shall not be deemed, to confer upon
or give any person except the parties hereto and their respective successors and
permitted assigns, any remedy, claim, liability, reimbursement, cause of action
or other right under or by reason of this Agreement.
16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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17. Interpretation. The section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. As used in this Agreement, the term "person" shall mean and include
an individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
18. Governing Law. This Agreement shall be governed by the laws of the
State of New York, without regard to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date and year first above written.
ANNTAYLOR STORES CORPORATION
By ___________________________________
Name:
Title:
ANNTAYLOR, INC.
By ___________________________________
Name:
Title:
CYGNE DESIGNS, INC.
By ___________________________________
Name:
Title:
CONSULTANT
By ___________________________________
Bernard M. Manuel
Consultant
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EXHIBIT I
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT is made and entered into as of the ___ day of
August, 1996, by and between AnnTaylor Stores Corporation, a Delaware
corporation ("ATSC"), AnnTaylor, Inc., a Delaware corporation and wholly owned
subsidiary of ATSC ("ATI" and, together with ATSC, "Ann Taylor"), Cygne Designs,
Inc., a Delaware corporation ("Cygne"), and Mr. Irving Benson ("Consultant").
W I T N E S S E T H :
WHEREAS, pursuant to that certain Stock and Asset Purchase Agreement, dated
as of June 7, 1996, among ATSC, ATSI, Cygne and Cygne Group (F.E.) Limited, a
Hong Kong corporation and wholly owned subsidiary of Cygne ("CGFE"), ATI
acquired from Cygne (i) all of the shares of common stock, par value $.01 per
share, of CAT US, Inc., a Delaware corporation ("CAT-US"), owned by Cygne; and
(ii) certain of the assets of Cygne's AnnTaylor Woven Division (the "Division");
WHEREAS, pursuant to the Purchase Agreement, ATI acquired from CGFE all of
the shares of common stock, par value $1 HK per share, of C.A.T. (Far East)
Limited, a Hong Kong corporation ("CAT-Far East" and, together with CAT-US,
"CAT"), owned by CGFE;
WHEREAS, CAT serves as a fully dedicated sourcing capability for ATI;
WHEREAS, prior to the date hereof, Cygne, through the Division, served as a
private label designer, merchandiser and manufacturer of women's apparel for
ATI;
WHEREAS, Consultant is the President and Vice Chairman of Cygne with
particular expertise regarding design, merchandising and product development;
and
WHEREAS, Ann Taylor, as partial consideration for the transactions
contemplated by the Purchase Agreement, desires to obtain, and Cygne and
Consultant desire that Consultant provide, information, consultation, advice and
other services in aid of Ann Taylor's business, all subject to the terms and
conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the
representations, warranties, covenants, agreements and conditions contained
herein, Ann Taylor, Cygne and Consultant, intending to be legally bound, agree
as follows:
1. Engagement of Consultant.
(a) Cygne hereby covenants and agrees to make Consultant available to
provide services to Ann Taylor upon the terms and conditions set forth
herein. Consultant hereby agrees to act as a consultant to and on behalf of
Ann Taylor in accordance with the terms and conditions set forth herein.
Cygne, Consultant and Ann Taylor agree that Consultant will provide
services to Ann Taylor not in excess of thirty percent (30%) of his
business time and that Consultant will continue his duties as President and
Vice Chairman of Cygne. Cygne agrees to allow Consultant reasonable time to
perform his duties as a consultant to Ann Taylor on a timely basis,
PROVIDED, HOWEVER, that the performance of such duties shall be at mutually
agreeable times that do not unreasonably interfere with Consultant's
continuing obligations to Cygne.
(b) Cygne shall cause Consultant to, at the request of the President
of Ann Taylor, provide Ann Taylor information, consultation and advice on
design, merchandising and product development.
(c) Cygne shall cause Consultant, and Consultant hereby agrees, to
diligently and faithfully serve Ann Taylor and to devote his reasonable
best efforts, his highest talents and skills, and all necessary time and
attention in providing the information, consultation and advice requested
pursuant to paragraph (b) of this Section 1; provided that Consultant shall
not, without the consent of Cygne and Consultant, be required to travel
outside New York. Cygne hereby consents to the allocation of up to thirty
percent (30%) of Consultant's business time to perform services under this
Agreement.
2. Term of Agreement. Unless terminated at an earlier date in accordance
with Section 4 of this Agreement, the term of this Agreement shall commence on
the date of this Agreement and shall end on the third anniversary thereof (the
"Expiration Date").
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3. Payment for Services.
(a) Consultant's Fee. In consideration of Cygne causing Consultant to
perform the services provided for in this Agreement, Ann Taylor shall pay
to Cygne, at such time and in the manner as set forth in Section 3(b)
hereof, a fee of $225,000 per year (the "Consultant's Fee"). Ann Taylor
shall not provide Consultant with any compensation or benefits, including,
but not limited to, medical or pension benefits, bonuses or vacation,
holiday or sick pay.
(b) Time of Payment. The Consultant's Fee shall be due and payable to
Cygne by Ann Taylor in quarterly installments commencing on the date
hereof; provided, however, that the first installment shall be prorated to
reflect the remaining days of the current fiscal quarter.
(c) Reimbursement of Expenses. Ann Taylor shall reimburse Cygne or
Consultant, as the case may be, for all reasonable out-of-pocket expenses
incurred by Cygne or Consultant in connection with the performance of
Consultant's services hereunder in accordance with AnnTaylor's travel
policies.
4. Termination.
(a) Death. This Agreement shall terminate upon the Consultant's death.
(b) Termination by Default. Each of the following shall constitute,
without limitation or restriction, an event of default under this
Agreement, in which case, the non-defaulting party may give the other
notice that this Agreement shall terminate on the date selected by the
non-defaulting party and set forth in such notice (the "Termination Date"),
unless cured as specified below:
(i) If either Ann Taylor or Cygne shall, whether by action or
inaction, breach in any material respect any obligation under this
Agreement, including a material failure by Consultant to perform his
duties and responsibilities hereunder, and such breach is not remedied
within thirty (30) days after written notice thereof from the
non-defaulting party;
(ii) If, for any reason, Consultant shall be convicted of a
felony; or if Consultant shall be convicted of any other crime as a
result of which his ability to perform the services described in
Section 1 hereof is materially impaired;
(iii) If there has been fraud, bad faith or willful misconduct on
the part of Cygne or Consultant in connection with the performance of
Consultant's duties and responsibilities hereunder;
(iv) If Ann Taylor institutes proceedings relief under the United
States Bankruptcy Code or any similar law, or consents to entry of an
order for relief against it in any bankruptcy or insolvency proceeding
or similar proceeding, or files a petition or answer or consent for
reorganization or other relief under any bankruptcy act or similar
law, or consents to the filing against it, of any petition for the
appointment of a receiver, liquidator, assignee, trustee, sequestrator
(or other similar official) of it, or of any substantial part of its
property, or makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts as they become due,
or fails to pay its debts as they become due or takes any action in
furtherance of the foregoing; or
(v) If Cygne or Consultant breaches in any manner Section 5
hereof.
(c) Effect of Termination. Upon termination of this Agreement, Cygne's
obligation to cause Consultant to provide services to Ann Taylor hereunder,
and Ann Taylor's obligation to make payment to Cygne under Section 3
hereof, shall terminate, except that AnnTaylor shall be obligated to
reimburse all expenses incurred through the termination date in accordance
with Section 3(b) hereof.
5. Confidentiality.
(a) Proprietary Information. Each of Cygne and Consultant acknowledges
and agrees that during the course of the provision of Consultant's services
to Ann Taylor, Consultant may be exposed to sensitive data and information
concerning the business and affairs of Ann Taylor, including, without
limitation, fabric, product and merchandise designs, and that all of such
data and information, financial plans, financial results, quantity or
assortment of merchandise orders or plans and inventory levels
(collectively, the "Proprietary Information") are vital, sensitive,
confidential and proprietary to Ann Taylor.
(b) Consultant's Agreement. In consideration of the Purchase Price (as
defined in the Purchase Agreement) to be paid by Ann Taylor to Cygne in
connection with the transactions contemplated by the Purchase Agreement,
Consultant agrees to the covenants and restrictions set forth in this
Section 5.
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(c) Cygne's Agreement. In consideration of the Purchase Price to be
paid by Ann Taylor to Cygne in connection with the transactions
contemplated by the Purchase Agreement, Cygne agrees to the covenants and
restrictions set forth in this Section 5.
(d) Trade Secret Status. Each of Cygne and Consultant expressly
acknowledges the trade secret status of the Proprietary Information and
acknowledges that the Proprietary Information constitutes a protectable
business interest of Ann Taylor, and covenants and agrees that during the
term of the engagement hereunder and at all times after the expiration or
termination of such engagement, neither Cygne nor Consultant shall,
directly or indirectly, whether, in the case of Consultant, individually,
as a director, stockholder, owner, partner, employee, principal or agent of
or consultant to any business, or in any other capacity, make known,
disclose, furnish, make available or utilize any of the Proprietary
Information, other than in the proper performance of the duties
contemplated herein during the term of the engagement hereunder. Cygne's
and Consultant's obligations under this Section 5(d) with respect to
particular Proprietary Information shall terminate only at such time (if
any) as the Proprietary Information in question becomes generally known to
the public other than through a breach of either Cygne's or Consultant's
obligations hereunder.
(e) Return of Proprietary Information. Each of Cygne and Consultant
acknowledges and agrees that all records or documents containing
Proprietary Information prepared by Consultant or coming into his
possession by virtue of the engagement are and shall remain the property of
Ann Taylor and that, upon termination or expiration of this engagement,
Consultant shall return immediately to Ann Taylor all such items in his
possession, together with all copies and extracts, and will destroy all
summaries thereof and any such information stored electronically on tapes,
computer disks or in any other manner.
(f) Consultant Non-Solicitation. Consultant agrees that during the
term of this Agreement and for a period of one (1) year thereafter he shall
not, directly or indirectly, induce or solicit (or authorize or assist in
the taking of any such actions by any third party) any employee or
consultant of Ann Taylor to leave his or her business association with Ann
Taylor.
(g) Cygne Non-Solicitation. Cygne agrees that during the term of this
Agreement and for a period of one (1) year thereafter it shall not,
directly or indirectly, induce or solicit (or authorize or assist in the
taking of any such actions by any third party) any employee or consultant
of Ann Taylor to leave his or her business association with Ann Taylor.
(h) Ann Taylor Non-Solicitation. Ann Taylor agrees that during the
term of this Agreement and for a period of one (1) year thereafter it shall
not, directly or indirectly, induce or solicit (or authorize or assist in
the taking of any such actions by any third party) any employee or
consultant of Cygne to leave his or her business association with Cygne.
(i) Acknowledgment. Consultant and Cygne acknowledge and agree that
the covenants set forth in this Section 5 and each subsection hereof are
reasonable and necessary for the protection of Ann Taylor's business
interests, that irreparable injury will result to Ann Taylor if Consultant
or Cygne breaches any of the terms of said covenants, and that in the event
of Consultant's or Cygne's actual or threatened breach of any such
covenants, Ann Taylor will have no adequate remedy at law. Cygne and
Consultant accordingly agree that in the event of any actual or threatened
breach by Consultant of any of said covenants, Ann Taylor shall be entitled
to immediate injunctive and other equitable relief without bond and without
the necessity of showing actual monetary damages. Cygne accordingly agrees
that in the event of any actual or threatened breach by Cygne of any of
said covenants, Ann Taylor shall be entitled to immediate injunctive and
other equitable relief without bond and without the necessity of showing
actual monetary damages. Notwithstanding the provisions of Section 9
hereof, such equitable relief may be sought in any court of competent
jurisdiction. Nothing contained herein shall be construed as prohibiting
Ann Taylor from pursuing any other remedies available to it for such breach
or threatened breach, including the recovery of any damages which it is
able to prove.
(j) The provisions of this Section 5 shall survive the expiration or
termination of this Agreement, and any of the arrangements contained
herein, and shall be binding upon Consultant's, Cygne's and Ann Taylor's
corporate or personal successors and assigns.
6. Representations and Warranties of Consultant. Consultant represents and
warrants to Cygne and Ann Taylor that he has full legal power and authority to
enter into this Agreement, perform all of his obligations hereunder and to
consummate the transactions contemplated hereby.
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7. Consultant's Independence and Discretion.
(a) Nothing herein contained shall be construed to constitute the
parties hereto as partners or as joint venturers, or as agent of the
others, or, as between Ann Taylor and Consultant, as employer and employee.
By virtue of the relationship described herein, Consultant's relationship
to Ann Taylor during the term of this Agreement shall only be that of an
independent contractor and the Consultant shall perform all services
pursuant to this Agreement as an independent contractor. The Consultant
shall not provide any services under Ann Taylor's business name and shall
not present himself as an agent or employee of Ann Taylor and shall have no
authority to enter into any binding obligation on behalf of Ann Taylor.
(b) Subject to the terms of this Agreement, the manner, means, details
or methods by which the Consultant performs his obligations under this
Agreement shall be determined by Cygne, subject to the reasonable
satisfaction of Ann Taylor.
(c) Each of Cygne and Consultant acknowledges and agrees that Ann
Taylor shall not provide to Consultant any unemployment, disability,
workers' compensation or medical insurance or any other employee benefits.
Payments to Cygne under Section 3 hereof shall not be subject to
withholding taxes or other employment taxes.
8. Arbitration. Any controversy or claim arising out of or relating to this
Agreement, or the breach thereof, shall be settled by arbitration before three
(3) arbitrators selected in accordance with the Commercial Arbitration Rules of
the American Arbitration Association in the City of New York. Arbitration as
provided herein shall be the exclusive means for determination of all matters as
above provided, and any decision and award of the arbitrators shall be final,
binding and conclusive upon the parties and such decision and award may be
entered as a final judgment in any court of competent jurisdiction. Except as
provided in Section 5(j) hereof, none of the parties shall institute any action
or proceeding in any court of law or equity, state or federal, other than as may
be necessary for purposes of enforcement of the arbitrators' decision and award
hereunder.
9. Consultant's Employment. Cygne and Consultant hereby acknowledge that
Consultant's execution of this Agreement is a condition to Consultant's
continued employment with Cygne.
10. Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if delivered personally,
by mail (certified or registered mail, return receipt requested), by reputable
overnight courier or by facsimile transmission (receipt of which is confirmed):
(a) If to ATSC or ATI, to:
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq.
Facsimile: (302) 651-3001
(b) If to Cygne, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
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with a copy to:
Fulbright and Jaworski, L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
(c) If to Consultant, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: Irving Benson
Facsimile: (212) 536-4174
or to such other person or address as any party shall specify by notice in
writing, given in accordance with this Section 10 to the other parties hereto.
All such notices, requests, demands, waivers and communications shall be
deemed to have been given on the date on which so hand-delivered, on the third
business day following the date on which so mailed, on the next business day
following the date on which delivered to such overnight courier and on the
date of such facsimile transmission and confirmation, except for a notice of
change of person or address, which shall be effective only upon receipt
thereof.
11. Entire Agreement. This Agreement contains the entire understanding of
the parties hereto with respect to the subject matter hereof. This Agreement
supersedes all prior agreements and understandings, oral and written, with
respect to its subject matter.
12. Severability. Should any provision of this Agreement, or any part
thereof, for any reason be declared invalid or unenforceable, such declaration
shall not affect the validity or enforceability of any other provision of this
Agreement, or any other part thereof, all of which other provisions, and parts,
shall remain in full force and effect, and the application of such invalid or
unenforceable provision, or such part thereof, to persons or circumstances other
than those as to which it is held invalid or unenforceable shall be valid and be
enforced to the fullest extent permittedby law.
13. Binding Effect; Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, executors, successors and permitted assigns, but, except
as contemplated herein, neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned, directly or indirectly, by ATSC,
ATI, Cygne or Consultant without the prior written consent of the other parties
hereto; provided, however, that ATSC or ATI may assign any or all of its rights,
interests or obligations hereunder to any one or more, direct or indirect,
wholly owned subsidiaries of ATSC or ATI, provided, however, that no such
assignment by ATSC or ATI shall limit or affect ATSC's or ATI's obligations
hereunder; provided, further, however, that this Agreement shall automatically
be assigned to and assumed by Consultant in the event that (i) Consultant's
employment with Cygne is terminated; or (ii) Cygne is liquidated or dissolved,
whether through Chapter 7 of the U.S. Bankruptcy Laws or otherwise; provided,
however, that Consultant hereby agrees, in the event of any such assignment by
Cygne and assumption by Consultant, to assume and perform all of Cygne's
obligations hereunder, to the extent applicable.
14. Amendment, Modification and Waiver. This Agreement may be amended,
modified or supplemented at any time by written agreement of the parties hereto.
Any failure by Cygne or Consultant, on the one hand, or ATSC or ATI, on the
other hand, to comply with any term or provision of this Agreement may be waived
by ATSC, ATI, Cygne or Consultant, respectively, at any time by an instrument in
writing signed by or on behalf of ATSC, ATI, Cygne or Consultant, but such
waiver or failure to insist upon strict compliance with such term or provision
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure to comply.
15. Third-Party Beneficiaries. Except as otherwise expressly provided
herein, this Agreement is not intended, and shall not be deemed, to confer upon
or give any person except the parties hereto and their respective successors and
permitted assigns, any remedy, claim, liability, reimbursement, cause of action
or other right under or by reason of this Agreement.
16. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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17. Interpretation. The section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of this
Agreement. As used in this Agreement, the term "person" shall mean and include
an individual, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
18. Governing Law. This Agreement shall be governed by the laws of the
State of New York, without regard to the principles of conflicts of law thereof.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date and year first above written.
ANNTAYLOR STORES CORPORATION
By __________________________________
Name:
Title:
ANNTAYLOR, INC.
By __________________________________
Name:
Title:
CYGNE DESIGNS, INC.
By __________________________________
Name:
Title:
CONSULTANT
By __________________________________
Irving Benson
Consultant
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EXHIBIT J
STOCKHOLDERS AGREEMENT
STOCKHOLDERS AGREEMENT, dated as of August __, 1996 (the "Agreement"),
among AnnTaylor Stores Corporation, a Delaware corporation (the "Company"),
Cygne Designs, Inc., a Delaware corporation ("Cygne"), and Cygne Group (F.E.)
Limited, a Hong Kong corporation and wholly owned subsidiary of Cygne ("CGFE"
and, together with Cygne, "Holder").
WHEREAS, pursuant to that certain Stock and Asset Purchase Agreement, dated
as of June ___, 1996 (the "Purchase Agreement"), the Company has acquired (the
"Acquisition") from Holder (i) all of the shares of common stock, par value $.01
per share, of CAT US, Inc., a Delaware corporation, and all of the HK $1
ordinary shares of C.A.T. (Far East) Limited, a Hong Kong corporation, owned by
Holder and (ii) certain of the assets of Cygne's AnnTaylor Woven Division;
WHEREAS, in consideration for the Acquisition, the Company has, among other
things, issued to Holder ______ shares of common stock, par value $.0068 per
share (the "Common Stock"), of the Company (the shares of Common Stock issued to
Holder in consideration for the Acquisition are hereinafter referred to as the
"Acquisition Shares"); and
WHEREAS, the Company and Holder have determined that it is in their best
interests that certain aspects of their relationship be regulated according to
the terms and provisions of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.01 Definitions.
As used in this Agreement, the following terms shall have the following
meanings:
The term "ACQUISITION" shall have the meaning ascribed to it in the
second paragraph of the preamble.
The term "ACQUISITION SHARES" shall have the meaning ascribed to it in
the third paragraph of the preamble.
The term "AFFILIATE" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Exchange Act.
The term "AGREEMENT" shall have the meaning ascribed to it in the
first paragraph of the preamble.
The term "COMMON STOCK" shall have the meaning ascribed to it in the
third paragraph of the preamble.
The term "COMPANY" shall have the meaning ascribed to it in the first
paragraph of the preamble.
The term "COMPANY OFFERING" shall mean the sale of equity securities
of the Company, or securities convertible into or exchangeable or
exercisable for equity securities of the Company, pursuant to a
registration statement filed by the Company under the Securities Act (other
than (i) a registration statement filed on Form S-4 or any successor form
or (ii) a registration statement filed on Form S-8 or any successor form)
respecting an underwritten offering, whether primary or secondary, that is
declared effective by the SEC.
The term "COMPANY SUBSIDIARY" shall mean any Person the majority of
the outstanding voting securities or interests of which are owned by the
Company, and shall include AnnTaylor Stores Corporation Finance Trust.
The term "EFFECTIVE DATE" shall have the meaning ascribed to it in
Section 2.02.
The term "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations of the SEC promulgated
thereunder.
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The term "HOLDER" shall have the meaning ascribed to it in the first
paragraph of the preamble.
The term "LOSSES" shall have the meaning ascribed to it in Section
2.06(a).
The term "PERSON" shall mean an individual, trustee, corporation,
partnership, business trust, limited liability company, limited liability
partnership, joint stock company, trust, unincorporated association, union,
business association, firm or other entity.
The term "PURCHASE AGREEMENT" shall have the meaning ascribed to it in
the second paragraph of the preamble.
The term "REGISTRATION EXPENSES" shall have the meaning ascribed to it
in Section 2.05.
The term "RULE 144" shall mean Rule 144 promulgated under the
Securities Act (or any successor rule).
The term "RULE 415 OFFERING" shall have the meaning ascribed to it in
Section 2.01(a).
The term "SEC" shall mean the Securities and Exchange Commission.
The term "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the SEC promulgated thereunder.
The term "SHELF REGISTRATION STATEMENT" shall have the meaning
ascribed to it in Section 2.01(a).
The term "TRANSFER" shall mean any attempt to, directly or indirectly,
offer, sell, assign, transfer, grant a participation in, pledge or
otherwise dispose of any of the Acquisition Shares, or the consummation of
any such transactions, or the soliciting of any offers to purchase or
otherwise acquire, or take a pledge of any of the Acquisition Shares.
ARTICLE II
REQUIRED REGISTRATION
Section 2.01 Required Registration.
(a) Form S-3. As promptly as practicable, but in no event later than
fifteen (15) business days after the date on which the Acquisition closes, the
Company shall use reasonable best efforts to prepare and file with the SEC a
registration statement (the "Shelf Registration Statement") on Form S-3 or
another appropriate form permitting registration of the Acquisition Shares so as
to permit promptly the resale of the Acquisition Shares by Holder pursuant to an
offering on a delayed or continuous basis pursuant to Rule 415 (or any successor
rule) under the Securities Act (a "Rule 415 Offering") and shall use reasonable
best efforts to cause the Shelf Registration Statement to be declared effective
by the SEC as promptly as practicable.
(b) Effectiveness. The Company shall use reasonable best efforts to keep
the Shelf Registration Statement continuously effective under the Securities Act
until the date that is the earliest to occur of (i) the date that all
Acquisition Shares covered by the Shelf Registration Statement have been sold,
(ii) the third anniversary of the date hereof and (iii) when, in the written
opinion of counsel to the Company, all outstanding Acquisition Shares held by
persons which are not Affiliates of the Company may be resold without
registration under the Securities Act pursuant to Rule 144(k) under the Act or
any successor provision thereto.
(c) Amendments/Supplements. The Company shall amend and supplement the
Shelf Registration Statement and the prospectus contained therein if required by
the rules, regulations or instructions applicable to the registration form used
by the Company for such Shelf Registration Statement or if required by the
Securities Act; provided, however, that the Company may delay the filing of any
such amendment or supplement for up to 90 days if the Company in good faith has
a valid business reason for such delay.
(d) Offerings. At any time after the effective date of the Shelf
Registration Statement, Holder, subject to the restrictions and conditions
contained herein, and to compliance which all applicable state and federal
securities laws, shall have the right to dispose of all or any portion of the
Acquisition Shares from time to time in negotiated or market transactions (which
may include delivery to class action plaintiffs or a distribution to Holder's
stockholders).
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Section 2.02 Holdback Agreement.
From and after the first anniversary of the date on which the Shelf
Registration Statement is declared effective by the SEC (the "Effective Date"),
upon the request of the Company, Holder shall not effect any public sale or
distribution (including sales pursuant to Rule 144) of Acquisition Shares,
during the ten (10)-day period prior to the date on which the Company has
notified Holder that the Company intends to commence a Company Offering through
the filing of a registration statement with the Securities and Exchange
Commission, through the one hundred twenty (120)-day period immediately
following the closing date of such Company Offering; provided, however, that
Holder shall not be obligated to comply with this Section 2.02 on more than one
(1) occasion in any twelve (12)-month period.
Section 2.03 Blackout Provisions.
The Company shall be deemed not to have used its reasonable best efforts to
keep the Shelf Registration Statement effective during the requisite period if
the Company voluntarily takes any action that would result in Holder not being
able to offer and sell any Acquisition Shares during that period, unless (i)
such action is required by applicable law, (ii) upon the occurrence of any event
contemplated by Section 2.04(a)(8) below, such action is taken by the Company in
good faith and for valid business reasons or (iii) the continued effectiveness
of the Shelf Registration Statement would require the Company to disclose a
material financing, acquisition or other corporate development, and the proper
officers of the Company shall have determined in good faith that such disclosure
is not in the best interests of the Company and its stockholders, and, in the
case of clause (ii) above, the Company thereafter promptly comply with the
requirements of Section 2.04(a)(8) below; provided that the Company takes the
same action in respect of the Shelf Registration Statement filed pursuant to
that certain Registration Rights Agreement, dated as of April 25, 1996, between
the Company and the Initial Purchasers named therein.
Section 2.04 Registration Procedures.
(a) Procedures. In connection with the registration of the Acquisition
Shares pursuant to this Agreement, the Company shall use reasonable best efforts
to effect the registration and sale of the Acquisition Shares in accordance with
Holder's intended method of disposition thereof and, in connection therewith,
the Company shall as expeditiously as practicable:
(1) prepare and file with the SEC the Shelf Registration Statement and
use reasonable best efforts to cause the Shelf Registration Statement to
become and remain effective in accordance with Section 2.01(a) and (b)
above;
(2) prepare and file with the SEC amendments and supplements to the
Shelf Registration Statement and the prospectuses used in connection
therewith in accordance with Section 2.01(c) above;
(3) before filing with the SEC the Shelf Registration Statement or
prospectus or any amendments or supplements thereto, the Company shall
furnish to one counsel selected by Holder and one counsel for the
underwriter or sales or placement agent, if any, in connection therewith,
drafts of all such documents proposed to be filed and provide such counsel
with a reasonable opportunity for review thereof and comment thereon, such
review to be conducted and such comments to be delivered with reasonable
promptness;
(4) promptly (i) notify Holder of each of (x) the filing and
effectiveness of the Shelf Registration Statement and each prospectus and
any amendments or supplements thereto, (y) the receipt of any comments from
the SEC or any state securities law authorities or any other governmental
authorities with respect to any such Shelf Registration Statement or
prospectus or any amendments or supplements thereto, and (z) any oral or
written stop order with respect to such registration, any suspension of the
registration or qualification of the sale of the Acquisition Shares in any
jurisdiction or any initiation or threatening of any proceedings with
respect to any of the foregoing and (ii) use reasonable best efforts to
obtain the withdrawal of any order suspending the registration or
qualification (or the effectiveness thereof) or suspending or preventing
the use of any related prospectus in any jurisdiction with respect thereto;
(5) furnish to Holder, the underwriters or the sales or placement
agent, if any, and one counsel for each of the foregoing, a conformed copy
of the Shelf Registration Statement and each amendment and supplement
thereto (in each case, including all exhibits thereto) and such additional
number of copies of such Shelf
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Registration Statement, each amendment and supplement thereto (in such
case, without such exhibits), the prospectus (including each preliminary
prospectus) included in such Shelf Registration Statement and prospectus
supplements and all exhibits thereto and such other documents as Holder,
underwriter, agent or such counsel may reasonably request in order to
facilitate the disposition of the Acquisition Shares by Holder;
(6) if requested by Holder or the managing underwriter or underwriters
of a Rule 415 Offering, subject to approval of counsel to the Company in
its reasonable judgment, promptly incorporate in a prospectus, supplement
or post-effective amendment to the Shelf Registration Statement such
information concerning underwriters and the plan of distribution of the
Acquisition Shares as such managing underwriter or underwriters or Holder
reasonably shall furnish to the Company in writing and request be included
therein, including, without limitation, information with respect to the
number of Acquisition Shares being sold by Holder to such underwriter or
underwriters, the purchase price being paid therefor by such underwriter or
underwriters and with respect to any other terms of the underwritten
offering of the Acquisition Shares to be sold in such offering; and make
all required filings of such prospectus, supplement or post-effective
amendment as soon as reasonably practicable after being notified of the
matters to be incorporated in such prospectus, supplement or post-effective
amendment;
(7) use reasonable best efforts to register or qualify the Acquisition
Shares under such securities or "blue sky" laws of such jurisdictions as
Holder reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable Holder to consummate the
disposition in such jurisdictions in which the Acquisition Shares are to be
sold and keep such registration or qualification in effect for so long as
the Shelf Registration Statement remains effective under the Securities Act
(provided that the Company shall not be required to (i) qualify generally
to do business in any jurisdiction where it would not otherwise be required
to qualify but for this paragraph, (ii) subject itself to taxation in any
such jurisdiction where it would not otherwise be subject to taxation but
for this paragraph or (iii) consent to the general service of process in
any jurisdiction where it would not otherwise be subject to general service
of process but for this paragraph);
(8) notify Holder, at any time when a prospectus relating to the Shelf
Registration Statement is required to be delivered under the Securities
Act, upon the discovery that, or of the happening of any event as a result
of which, the Shelf Registration Statement, as then in effect, contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or any fact necessary to make the statements
therein not misleading, and, subject to Section 2.03 above, promptly
prepare and furnish to the Holder a supplement or amendment to the
prospectus contained in the Shelf Registration Statement so that the Shelf
Registration Statement shall not, and such prospectus as thereafter
delivered to the purchasers of such Acquisition Shares shall not, contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or any fact necessary to make the statements
therein not misleading;
(9) cause all of the Acquisition Shares to be listed on each national
securities exchange and included in each established over-the-counter
market on which or through which the Common Stock is then listed or traded;
(10) make available for inspection by Holder, any underwriter
participating in any disposition pursuant to the Shelf Registration
Statement, and any attorney, accountant or other agent retained by Holder
or underwriter, all reasonably requested financial and other records,
pertinent corporate documents and properties of the Company, and cause the
Company's officers, directors, employees, attorneys and independent
accountants to supply all information reasonably requested by Holder,
underwriters, attorneys, accountants or agents in connection with the Shelf
Registration Statement; information which the Company determines, in good
faith, to be confidential shall not be disclosed by such persons unless,
subject to Section 2.03 above, (i) the disclosure of such information is
required by applicable federal securities laws or is necessary to avoid or
correct a misstatement or omission in such Shelf Registration Statement or
(ii) the release of such information is ordered pursuant to a subpoena or
other order from a court of competent jurisdiction; Holder agrees, on its
own behalf and on behalf of all of its underwriters, accountants, attorneys
and agents, that the information obtained by any of them as a result of
such inspections shall be deemed confidential unless and until such is made
generally available to the public; Holder further agrees, on its own behalf
and on behalf of all of its underwriters, accountants, attorneys and
agents, that it will, upon learning that disclosure of such information is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at its expense, to undertake appropriate action to
prevent disclosure of the information deemed confidential; nothing
contained herein shall require the Company to waive any attorney-client
privilege or disclose attorney work product;
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(11) use reasonable best efforts to comply with all applicable laws
related to the Shelf Registration Statement and offering and sale of
securities and all applicable rules and regulations of governmental
authorities in connection therewith (including, without limitation, the
Securities Act and the Exchange Act, and the rules and regulations
promulgated by the Commission) and make generally available to its security
holders as soon as practicable (but in any event not later than fifteen
(15) months after the effectiveness of the Shelf Registration Statement) an
earnings statement of the Company and the Company Subsidiaries complying
with Section 11(a) of the Securities Act;
(12) use reasonable best efforts to furnish to Holder a signed
counterpart of (x) an opinion of counsel for the Company and (y) a
"comfort" letter signed by the independent public accountants who have
certified the Company's financial statements included or incorporated by
reference in such registration statement, covering such matters with
respect to such registration statement and, in the case of the accountants'
comfort letter, with respect to events subsequent to the date of such
financial statements as are customarily covered in opinions of issuer's
counsel and in accountants' comfort letters delivered to the underwriters
in underwritten public offerings of securities for the account of, or on
behalf of, a holder of common stock, such opinion and comfort letters to be
dated the date that such opinion and comfort letters are customarily dated
in such transactions; and
(13) take other actions as Holder or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of
the Acquisition Shares.
(b) Further Agreements. Without limiting any of the foregoing, in the event
that the sale of Acquisition Shares is to be made by or through an underwriter,
the Company shall enter into an underwriting agreement with a managing
underwriter or underwriters selected by Holder containing representations,
warranties, indemnities and agreements customarily included (but not
inconsistent with the agreements contained herein) by an issuer of common stock
in underwriting agreements with respect to offerings of common stock for the
account of, or on behalf of, holders of common stock; provided, however, that
the Holder shall not utilize the Shelf Registration Statement for more than one
underwritten offering during the term of this Agreement. In connection with the
sale of Acquisition Shares hereunder, Holder may, at its option, require that
any and all representations and warranties by, and the other agreements of, the
Company to or for the benefit of such underwriter or underwriters (or which
would be made to or for the benefit of such an underwriter or underwriter if
such sale of Acquisition Shares were pursuant to a customary underwritten
offering) be made to and for the benefit of Holder and that any or all of the
conditions precedent to the obligations of such underwriter or underwriters (or
which would be so for the benefit of such underwriter or underwriters under a
customary underwriting agreement) be conditions precedent to the obligations of
Holder in connection with the disposition of its securities pursuant to the
terms hereof. In connection with any offering of Acquisition Shares registered
pursuant to this Agreement, the Company shall, upon receipt of duly endorsed
certificates representing the Acquisition Shares, (x) furnish to the
underwriter, if any (or, if no underwriter, Holder), unlegended certificates
representing ownership of Acquisition Shares being sold, in such denominations
as requested, and (y) instruct any transfer agent and registrar of the
Acquisition Shares to release any stop transfer order with respect thereto.
Holder agrees that upon receipt of any notice from the Company of the
happening of any event of the kind described in paragraph (8) of Section
2.04(a), Holder shall forthwith discontinue its disposition of Acquisition
Shares pursuant to the Shelf Registration Statement and prospectus relating
thereto until its receipt of the copies of the supplemented or amended
prospectus contemplated by paragraph (8) of Section 2.04(a) and, if so directed
by the Company, deliver to the Company all copies, other than permanent file
copies, then in Holder's possession of the prospectus current at the time of
receipt of such notice relating to the Acquisition Shares.
Section 2.05 Registration Expenses.
All expenses incidental to the Company's performance of, or compliance
with, its obligations under this Agreement including, without limitation, all
registration and filing fees, all fees and expenses of compliance with
securities and "blue sky" laws (including, without limitation, the fees and
expenses of counsel for underwriters or placement or sales agents in connection
with "blue sky" law compliance), all printing and copying expenses, all
messenger and delivery expenses, all reasonable out-of-pocket expenses of
underwriters and sales and placement agents in connection therewith (excluding
discounts and commissions and the fees and expenses of counsel therefor), all
fees and expenses of the Company's independent certified public accountants and
counsel (including, without limitation, with respect to "comfort" letters and
opinions) and other Persons retained by the Company in connection therewith
(collectively, the "Registration Expenses"), shall be borne by the Company. The
Company shall not be
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responsible for and shall not pay the fees and expenses of legal counsel,
accountants, agents or experts retained by Holder in connection with the sale of
the Acquisition Shares. The Company will pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties, the expense of any annual audit and the
expense of any liability insurance) and the expenses and fees for listing the
Acquisition Shares on the New York Stock Exchange.
Section 2.06 Indemnification.
(a) By the Company. The Company agrees to indemnify Holder, its officers,
directors, employees and agents and each Person who controls (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) Holder or
such other indemnified Person against all losses, claims, damages, liabilities
and expenses (collectively, the "Losses") caused by, resulting from or relating
to any untrue or alleged untrue statement of material fact contained in the
Shelf Registration Statement, any prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are caused by or contained
in, or alleged to be omitted from, any information furnished in writing to the
Company by Holder or its underwriter or other agent expressly for use therein or
by Holder's failure to deliver, or its underwriter's or other agent's failure to
deliver, a copy of the Shelf Registration Statement or prospectus or any
amendments or supplements thereto after the Company has furnished Holder with
the requested number of copies of the same. In connection with an underwritten
offering and without limiting any of the Company's other obligations under this
Agreement, the Company shall indemnify such underwriters, their officers,
directors, employees and agents and each Person who controls (within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act) such
underwriters or such other indemnified Person to the same extent as provided
above with respect to the indemnification of Holder.
(b) By Holder. In connection with the Shelf Registration Statement, Holder
shall furnish to the Company in writing information regarding Holder's ownership
of Acquisition Shares and its intended method of distribution thereof and shall
indemnify the Company, its directors, officers, employees and agents and each
Person who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) the Company or such other indemnified Person
against all Losses caused by, resulting from or relating to any untrue or
alleged untrue statement of material fact contained in the Shelf Registration
Statement, any prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, but only to the extent that such untrue statement or omission or
alleged untrue statement or omission (i) is caused by, results from or relates
to, or is alleged to be omitted from, such information so furnished in writing
by Holder or (ii) arises out of or results from Holder's failure to deliver, or
its underwriter's or other agent's failure to deliver, a copy of the Shelf
Registration Statement or prospectus or any amendments or supplements thereto
after the Company has furnished Holder with the requested number of copies of
the same; provided, however, that Holder shall not be liable for any claims
hereunder in excess of the amount of net proceeds received by Holder from the
sale of Acquisition Shares pursuant to the Shelf Registration Statement. In
connection with an underwritten offering and without limiting any of Holder's
other obligations under this Agreement, (i) Holder shall indemnify such
underwriters, their officers, directors, employees and agents and each Person
who controls (within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act) such underwriters or such other indemnified Person to
the same extent as provided above with respect to the indemnification of the
Company and (ii) Holder shall cause each underwriter of an underwritten offering
to indemnify the Company, its directors, officers, employees and agents and each
Person who controls (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) the Company or such indemnified Person against
all Losses caused by, resulting from or relating to any untrue or alleged untrue
statement of material fact contained in the Shelf Registration Statement, any
prospectus or preliminary prospectus or any amendment thereof or supplement
thereto or any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or omission or alleged untrue
statement or omission (x) is caused by, results from or relates to, or is
alleged to be omitted from, such information furnished in writing by such
underwriter or (y) arises out of or results from such underwriter's failure to
delivery a copy of the Shelf Registration Statement or prospectus or any
amendments or supplements thereto after the Company has furnished such
underwriter with the requested number of copies of the same.
(c) Notice. Any Person entitled to indemnification hereunder shall give
prompt written notice to the indemnifying party of any claim with respect to
which it seeks indemnification; provided, however, the failure to give
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such notice shall not release the indemnifying party from its obligation,
except to the extent that the indemnifying party has been prejudiced by such
failure to provide such notice.
(d) Defense of Actions. In any case in which any such action is brought
against any indemnified party, and it notifies an indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party shall not (so long as it shall
continue to have the right to defend, contest, litigate and settle the matter in
question in accordance with this paragraph) be liable to such indemnified party
hereunder for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, supervision and monitoring (unless such indemnified
party reasonably objects to such assumption on the grounds that there may be
defenses available to it which are different from or in addition to the defenses
available to such indemnifying party, in which event the indemnified party shall
be reimbursed by the indemnifying party for the reasonable expenses incurred in
connection with retaining one separate legal counsel). An indemnifying party
shall not be liable for any settlement of an action or claim effected without
its consent. The indemnifying party shall lose its right to defend, contest,
litigate and settle a matter if it shall fail to diligently contest such matter
(except to the extent settled in accordance with the next following sentence).
No matter shall be settled by an indemnifying party without the consent of the
indemnified party unless such settlement contains a full and unconditional
release of the indemnified party.
(e) Survival. The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified Person and will survive the transfer of the
Registrable Securities.
(f) Contribution. If recovery is not available under the foregoing
indemnification provisions for any reason or reasons other than as specified
therein, any Person who otherwise would be entitled to indemnification by the
terms thereof shall nevertheless be entitled to contribution with respect to any
Losses with respect to which such Person would be entitled to such
indemnification but for such reason or reasons. In determining the amount of
contribution to which the respective Persons are entitled, there shall be
considered the Persons' relative knowledge and access to information concerning
the matter with respect to which the claim was asserted, the opportunity to
correct and prevent any statement or omission, and other equitable
considerations appropriate under the circumstances. It is hereby agreed that it
would not necessarily be equitable if the amount of such contribution were
determined by pro rata or per capita allocation. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not found guilty of
such fraudulent misrepresentation.
Section 2.07 Transferability of Registration Rights.
The rights and obligations of Holder under this ARTICLE II may not be
transferred or assigned without the prior written consent of the Company;
provided, however, that such rights and obligations may be assigned by Holder in
connection with a pledge of the Acquisition Shares in a bona fide transaction to
secure indebtedness of Cygne for borrowed money to a lender that agrees in a
writing reasonably satisfactory to the Company to be subject to the terms of
this Agreement.
ARTICLE III
STANDSTILL PROVISIONS
Section 3.01 Certain Prohibited Actions.
During the term of this Agreement, without the prior written consent of the
Company, neither Cygne nor CGFE shall, and each shall cause each of its
Affiliates not to, singly or as part of a "group", directly or indirectly,
through one or more intermediaries or otherwise (i) make, or in any way
participate, directly or indirectly, in, any "solicitation" of "proxies" (as
such terms are defined or used in Regulation 14A under the Exchange Act) with
respect to the Common Stock or any securities of the Company Subsidiaries
(including by the execution of actions by written consent),
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become a "participant" in any "election contest" (as such terms are defined
or used in Rule 14a-11 under the Exchange Act) with respect to the Company or
seek to advise or influence any person or entity with respect to the voting of
any shares of Common Stock or any securities of the Company Subsidiaries; (ii)
initiate, propose, or participate in the solicitation of stockholders for the
approval of one or more stockholder proposals with respect to the Company, as
described in Rule 14a-8 under the Exchange Act, or induce or encourage any other
individual or entity to initiate any stockholder proposal relating to the
Company; (iii) form, join, influence or participate in a "group", or act in
concert with any other person or entity, for the purpose of acquiring, holding,
voting or disposing of any securities of the Company or the Company Subsidiaries
or taking any other actions prohibited under this Section 3.01; (iv) hold any
discussions with another Person regarding, make any proposal to or any public
announcement relating to a tender or exchange offer for any securities of the
Company or the Company Subsidiaries, or a merger, business combination, sale of
assets, liquidation, restructuring, recapitalization or other extraordinary
corporate transaction relating to the Company or any of the Company Subsidiaries
or its or their material assets or take any action which might require the
Company to make a public announcement regarding any of the foregoing; (v) cause
the merger of Cygne or CGFE with or into, the consolidation of the Cygne or CGFE
with, or the sale of the business or assets of Cygne or CGFE substantially as an
entirety to, any other Person unless (A) Cygne or CGFE, as the case may be, is
the surviving Person or the surviving Person agrees in writing to be bound by
this Agreement and (B) within 120 days after consummation of the transaction,
the surviving Person disposes of all shares of Common Stock owned by it (in
excess of those owned by Cygne or CGFE, as the case may be, prior to
consummation of the transaction); (vi) act, alone or in concert with others
(including by providing financing for another party), to seek or offer to
control the Company; (vii) deposit any Acquisition Shares in a voting trust or
subject any Acquisition Shares to any arrangement or agreement with respect to
the voting thereof (except pursuant to Section 3.03 below); (viii) execute any
written consents; (ix) enter into any discussions, negotiations, arrangements or
understandings with or provide any information to any third party with respect
to any of the foregoing; (x) disclose any intention, plan or arrangement
inconsistent with the foregoing prohibitions or advise or assist any other
Person in connection with any activity included in the foregoing prohibitions;
or (xi) seek, request, or propose any waiver, modification, amendment or
termination of any provision of this Section 3.01 (other than any request or
proposal made or solicited by the Company).
Section 3.02 Transferability of Acquisition Shares.
(a) Lock-up Period. Except pursuant to a pledge in a bona fide transaction
to secure indebtedness of Cygne for borrowed money to a lender that agrees in a
writing reasonably acceptable to the Company to be subject to the terms of this
Agreement, Holder may not Transfer any of the Acquisition Shares prior to the
Effective Date.
(b) Permitted Transfers. From and after the Effective Date, Holder may not
Transfer the Acquisition Shares except in the following circumstances:
(i) to the Company or with the Company's prior written consent;
(ii) pursuant to a pledge in a bona fide transaction to secure
indebtedness of Cygne for borrowed money to a lender that agrees in a
writing reasonably acceptable to the Company to be subject to the terms of
this Agreement;
(iii) to an Affiliate that agrees in a writing reasonably acceptable
to the Company to be bound by the terms of this Agreement;
(iv) pursuant to a tender offer made by a person with respect to which
the Company does not recommend rejection;
(v) pursuant to a settlement with the plaintiffs in the class action
VERONICA ZUCKER V. SASAKI, ET AL.;
(vi) pursuant to a pro rata dividend or other pro rata distribution to
all of Cygne's stockholders, upon liquidation of Cygne or otherwise; or
(vii) pursuant to Rule 144 or otherwise pursuant to the Shelf
Registration Statement;
provided, however, that, other than pursuant to clauses (iv)-(vi) above or
pursuant to an underwritten public offering, no Transfers of more than two
percent (2%) of the Company's then outstanding shares of Common Stock may be
made in any two (2)-week period; and provided, further, that any underwriter of
a public offering or any placement
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agent, broker or other agent shall be instructed that (x) no Transfers of
any Acquisition Shares may knowingly be made to any person who beneficially owns
in excess of five percent (5%) of the then outstanding shares of Common Stock,
and (y) no Transfer of more than two percent (2%) of the Company's then
outstanding Common Stock may knowingly be made to a single purchaser (or group
of related purchasers).
Section 3.03 Voting.
During the term of this Agreement, the Holder (i) shall be present in
person or represented by proxy at all stockholder meetings of the Company so
that all Acquisition Shares then beneficially owned by Holder shall be counted
for the purpose of determining the presence of a quorum at such meetings, and
(ii) shall vote, or act by consent with respect to, all Acquisition Shares then
beneficially owned by Holder pro rata in the same proportion as the votes cast
by all other stockholders of the Company.
ARTICLE IV
MISCELLANEOUS
Section 4.01 Effectiveness of Agreement.
The provisions of this Agreement shall be effective as of the date hereof.
Section 4.02 Restrictive Legends.
Holder hereby acknowledges and agrees that, during the term of this
Agreement, each of the certificates representing Acquisition Shares shall be
subject to stop transfer instructions and shall include the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED
WHETHER BY SALE, ASSIGNMENT, PLEDGE, ENCUMBRANCE, GIFT, BEQUEST,
APPOINTMENT OR OTHERWISE, AND ANNTAYLOR STORES CORPORATION (THE "COMPANY")
WILL NOT REGISTER THE TRANSFER OF SUCH SHARES, EXCEPT PURSUANT AND SUBJECT
TO THAT CERTAIN STOCKHOLDERS AGREEMENT DATED AUGUST __, 1996, AS MAY BE
AMENDED FROM TIME TO TIME, BETWEEN ATSC AND CYGNE DESIGNS, INC. A COPY OF
SUCH AGREEMENT IS ON FILE WITH THE SECRETARY OF THE COMPANY."
Section 4.03 Recapitalization.
In the event that any capital stock or other securities are issued as a
dividend or distribution on, in respect of, in exchange for, or in substitution
of, any Acquisition Shares, such securities shall be deemed to be Acquisition
Shares for all purposes under this Agreement.
Section 4.04 Notices.
All notices, requests, demands, waivers and other communications required
or permitted to be given under this Agreement shall be in writing and shall be
deemed to have been duly given if delivered personally, by mail (certified or
registered mail, return receipt requested), by reputable overnight courier or by
facsimile transmission (receipt of which is confirmed):
(a) If to the Company, to:
AnnTaylor Stores Corporation
142 West 57th Street
New York, New York 10019
Attention: General Counsel
Facsimile: (212) 541-3299
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with a copy to:
Skadden, Arps, Slate, Meagher & Flom
One Rodney Square
Wilmington, Delaware 19801
Attention: Patricia Moran Chuff, Esq,
Facsimile: (302) 651-3001
(b) If to Holder, to:
Cygne Designs, Inc.
1372 Broadway
New York, New York 10018
Attention: General Counsel
Facsimile: (212) 536-4174
with a copy to:
Fulbright and Jaworski, L.L.P.
666 Fifth Avenue
New York, New York 10103
Attention: Roy L. Goldman, Esq.
Facsimile: (212) 752-5958
or to such other person or address as any party shall specify by notice in
writing, given in accordance with this Section 4.04, to the other parties
hereto. All such notices, requests, demands, waivers and communications shall
be deemed to have been given on the date on which so hand-delivered, on the
third business day following the date on which so mailed, on the next business
day following the date on which delivered to such overnight courier and on the
date of such facsimile transmission and confirmation, except for a notice of
change of person or address, which shall be effective only upon receipt
thereof.
Section 4.05 Entire Agreement.
This Agreement contains the entire understanding of the parties hereto with
respect to the subject matter hereof. This Agreement supersedes all prior
agreements and understandings, oral and written, with respect to its subject
matter.
Section 4.06 Severability.
Should any provision of this Agreement, or any part thereof, for any reason
be declared invalid or unenforceable, such declaration shall not affect the
validity or enforceability of any other provision of this Agreement, or any
other part thereof, all of which other provisions, and parts, shall remain in
full force and effect, and the application of such invalid or unenforceable
provision, or such part thereof, to persons or circumstances other than those as
to which it is held invalid or unenforceable shall be valid and be enforced to
the fullest extent permitted by law.
Section 4.07 Binding Effect; Assignment.
This Agreement and all of the provisions hereof shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, successors and permitted assigns, but, except as expressly
contemplated herein, neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned, directly or indirectly, by the Company
or Holder without the prior written consent of the other. Upon any such
assignment, this Agreement shall be amended to substitute the assignee as a
party hereto in a writing reasonably acceptable to the other party.
Section 4.08 Amendment, Modification and Waiver.
This Agreement may be amended, modified or supplemented at any time by
written agreement of the parties hereto. Any failure by Holder, on the one hand,
or the Company, on the other hand, to comply with any term or provision of this
Agreement may be waived by the Company or Holder, respectively, at any time by
an instrument in
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writing signed by or on behalf of the Company and Holder, but such waiver
or failure to insist upon strict compliance with such term or provision shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure to comply.
Section 4.09 Third-Party Beneficiaries.
This Agreement is not intended, and shall not be deemed, to confer upon or
give any person except the parties hereto and their respective successors and
permitted assigns, any remedy, claim, liability, reimbursement, cause of action
or other right under or by reason of this Agreement.
Section 4.10 Counterparts.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
Section 4.11 Interpretation.
The article and section headings contained in this Agreement are solely for
the purpose of reference, are not part of the agreement of the parties and shall
not in any way affect the meaning or interpretation of this Agreement.
Section 4.12 Governing Law.
This Agreement shall be governed by the laws of the State of New York,
without regard to the principles of conflicts of law thereof.
Section 4.13 Termination; Restrictive Legend.
This Agreement shall terminate on the third anniversary of the date hereof;
provided, however, that the provisions of Section 2.06 hereof shall survive
termination of this Agreement. It is understood and agreed that any restrictive
legends set forth on any Acquisition Shares shall be removed by delivery of
substitute certificates without such legends and such Acquisition Shares shall
no longer be subject to the terms of this Agreement, upon the resale of such
Acquisition Shares in accordance with the terms of this Agreement (other than
pursuant to Section 3.02(b) (i), (ii) or (iii)) or, if not theretofore removed,
on the third anniversary of the date hereof.
IN WITNESS WHEREOF, the undersigned hereby agree to be bound by the terms
and provisions of this Stockholders Agreement as of the date first above
written.
ANNTAYLOR STORES CORPORATION
By: _________________________
Name:
Title:
CYGNE DESIGNS, INC.
By: _________________________
Name:
Title:
CYGNE GROUP (F.E.) LIMITED
By: _________________________
Name:
Title:
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EXHIBIT K
TERM SHEET
Florence Lease
LEASE Seller shall lease to Buyer the second floor of the Florence Facility.
TERM Five (5) years, subject to cancellation at any time by either
party upon six (6) months' notice of termination. In the event of
termination by Seller, Seller shall purchase the leasehold
improvements from Buyer at their then net book value.
RENT $6,666.67 per month (which Seller represents is equivalent to the
current intercompany charge for rent of the Florence Facility from
an affiliate of Seller).
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EXHIBIT L
Skadden, Arps, Slate, Meagher & Flom, special counsel to Buyer and ATSC,
shall render its opinion to the following effect in a form reasonably acceptable
to Buyer (capitalized terms used herein and not otherwise defined shall have the
meanings set forth in the Stock and Asset Purchase Agreement):
1. Each of Buyer and ATSC are corporations validly existing and in good
standing under the laws of the State of Delaware. Each of Buyer and ATSC is
qualified to do business and is in good standing as a foreign corporation under
the laws of the State of New York.
2. Buyer has all requisite corporate power and authority to execute,
deliver and perform all of its obligations under (i) the Agreement, (ii) the
Assignment and Assumption Agreement, (iii) the Undertaking, (iv) the Manuel
Consulting Agreement, (v) the Benson Consulting Agreement, (vi) [the Subleases],
(vii) the Pledge Agreement and (viii) the Florence Lease. (The agreements listed
in clauses (ii)-(viii) are hereinafter collectively referred to as the "Buyer
Transaction Documents.") The execution and delivery of each of the Agreement and
the Buyer Transaction Documents, and the consummation by Buyer of the
transactions contemplated thereby, have been duly authorized by all requisite
corporate action on the part of Buyer.
3. ATSC has all requisite corporate power and authority to execute, deliver
and perform all of its obligations under (i) the Agreement and (ii) the
Stockholders Agreement. The execution and delivery of the Agreement and the
Stockholders Agreement, and the consummation of the transactions contemplated
thereby, have been duly authorized by all requisite corporate action on the part
of ATSC.
4. Each of the Agreement and the Buyer Transaction Documents have been duly
and validly executed and delivered by Buyer and (assuming each of the Agreement
and the Buyer Transaction Documents is a valid and binding obligation of each of
the other parties thereto) each constitutes the valid and binding obligation of
Buyer enforceable against Buyer in accordance with its terms, except that the
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, equity of redemption, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally,
and (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
5. Each of the Agreement and the Stockholders Agreement has been duly and
validly executed and delivered by ATSC and (assuming each of the Agreement and
the Stockholders Agreement is a valid and binding obligation of each of the
other parties thereto) each constitutes the valid and binding obligation of ATSC
enforceable against ATSC in accordance with its terms, except that the
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, equity of redemption, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally,
and (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
6. The execution and delivery by Buyer of each of the Agreement and the
Buyer Transaction Documents and the performance of its obligations under each of
the Agreement and the Buyer Transaction Documents, each in accordance with its
terms, do not (i) conflict with the Certificate of Incorporation or By-laws of
Buyer, (ii) constitute a violation of, or a default under, any Applicable
Contract (as hereinafter defined) or (iii) cause the creation of any security
interest or lien upon any property of Buyer pursuant to any Applicable Contract.
As used in such counsel's opinion, "Applicable Contracts" shall mean those
agreements or instruments set forth on a Schedule to such opinion and which have
been identified to such counsel as all the agreements and instruments which are
material to the business or financial condition of ATSC and its subsidiaries,
taken as a whole.
7. The execution and delivery by ATSC of each of the Agreement and the
Stockholders Agreement and the performance of its obligations under each of the
Agreement and the Stockholders Agreement, each in accordance with its terms, do
not (i) conflict with the Certificate of Incorporation or By-laws of ATSC, (ii)
constitute a violation of, or a default under, any Applicable Contract or (iii)
cause the creation of any security interest or lien upon any property of ATSC
pursuant to any Applicable Contract.
8. The shares of ATSC Common Stock to be delivered to Seller in payment of
the Stock Consideration have been duly authorized and, upon issuance of
certificates therefor conforming to the specimen examined by such counsel,
against delivery of the CAT shares and the Assets for such ATSC Common Stock in
accordance with the terms of the Agreement, will be validly issued, fully paid
and non-assessable shares of common stock of ATSC.
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9. No Governmental Approval (as hereinafter defined), which has not been
obtained or taken and is not in full force and effect, is required to authorize
or is required in connection with the execution, delivery or performance of the
Agreement or the Buyer Transaction Documents by Buyer.
10. No Governmental Approval, which has not been obtained or taken and is
not in full force and affect, is required to authorize or is required in
connection with the execution, delivery or performance of the Agreement or the
Stockholders Agreement by ATSC.
11. Neither the execution, delivery or performance by Buyer of the
Agreement and the Buyer Transaction Documents nor the compliance by Buyer with
the terms and provisions thereof will contravene any provision of any Applicable
Law.
12. Neither the execution, delivery or performance by ATSC of the Agreement
and the Stockholders Agreement nor the compliance by ATSC with the terms and
provisions thereof will contravene any provision of any Applicable Law.
As used in such counsel's opinion, (i) "Governmental Approval" shall mean
any consent, approval, license, authorization or validation of, or filing,
recording or registration with, any Governmental Authority pursuant to any
Applicable Law, (ii) "Governmental Authority" shall mean any Delaware, New York
or federal executive, legislative, judicial, administrative or regulatory body
under any Applicable Law, and (iii) "Applicable Law" shall mean any law of the
State of New York, the General Corporation Law of the State of Delaware or any
law of the United States, which, in such counsel's experience, are normally
applicable to transactions of the type contemplated by the Agreement, the Buyer
Transaction Documents and the Stockholders Agreement.
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EXHIBIT M
Fulbright & Jaworski, special counsel to Seller and CGFE, shall render its
opinion to the following effect in a form reasonably acceptable to Buyer
(capitalized terms used herein and not otherwise defined shall have the meanings
set forth in the Stock and Asset Purchase Agreement):
1. Each of Seller, CGFE, CAT-US and CAT-Far East is a corporation validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of Seller and CAT-US is qualified to do business and is in
good standing as a foreign corporation under the laws of the State of New York,
and, in the case of Seller, the laws of the State of Florida.
2. Seller has all requisite corporate power and authority to execute,
deliver and perform all of its obligations under (i) the Agreement, (ii) the
Assignment and Assumption Agreement, (iii) the Bill of Sale, (iv) the Manuel
Consulting Agreement, (v) the Benson Consulting Agreement, (vi) the [Subleases],
(vii) the Pledge Agreement, (viii) the Florence Lease and (ix) the Stockholders
Agreement. (The agreements listed in clauses (ii)-(ix) are hereinafter
collectively referred to as the "Seller Transaction Documents".) The execution
and delivery of each of the Agreement and the Seller Transaction Documents, and
the consummation by Seller of the transactions contemplated thereby, have been
duly authorized by all requisite corporate action on the part of Seller.
3. CGFE has all requisite corporate power and authority to execute, deliver
and consummate the transactions contemplated by the Agreement and the
Stockholders Agreement. The execution and delivery of the Agreement and the
Stockholders Agreement, and the consummation of the transactions contemplated
thereby, have been duly authorized by all requisite corporate action on the part
of CGFE.
4. Each of the Agreement and the Seller Transaction Documents has been duly
and validly executed and delivered by Seller, and (assuming each of the
Agreement and the Seller Transaction Documents is a valid and binding obligation
of each of the other parties thereto) each constitutes the valid and binding
obligation of Seller enforceable against Seller in accordance with its terms,
except that the enforceability thereof may be limited by (i) bankruptcy,
insolvency, reorganization, fraudulent transfer, equity of redemption,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, and (ii) general principles of equity (regardless
of whether enforceability is considered in a proceeding in equity or at law).
5. Each of the Agreement and the Stockholders Agreement has been duly and
validly executed and delivered by CGFE and (assuming each of the Agreement and
the Stockholders Agreement is a valid and binding obligation of each of the
other parties thereto) each constitutes the valid and binding obligation of CGFE
enforceable against CGFE in accordance with its terms, except that the
enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, fraudulent transfer, equity of redemption, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights generally,
and (ii) general principles of equity (regardless of whether enforceability is
considered in a proceeding in equity or at law).
6. The certificates representing the CAT US Shares are listed on Schedule I
hereto. Assuming that Buyer acquired its interest in the CAT US Shares in good
faith and without notice of any adverse claims (within the meaning of Section
8-302 of the New York Uniform Commercial Code) and has not been a party to any
fraud or illegality affecting such shares, upon delivery to Buyer at the Closing
in the State of New York of the CAT US Shares, duly endorsed to Buyer or
accompanied by stock powers duly executed in blank, Buyer will acquire all of
Seller's rights in the CAT US Shares free of any adverse claims (within the
meaning of Section 8-302 of the New York Uniform Commercial Code).
7. The certificates representing the CAT-Far East Shares are listed on
Schedule II hereto. Assuming that Buyer acquired its interest in the CAT-Far
East Shares in good faith and without notice of any adverse claims (within the
meaning of Section 8-302 of the New York Uniform Commercial Code) and has not
been a party to any fraud or illegality affecting such shares, upon delivery to
Buyer at the Closing in the State of New York of the CAT-Far East Shares, duly
endorsed to Buyer or accompanied by stock powers duly executed in blank, Buyer
will acquire all of CGFE's rights in the CAT-Far East Shares free of any adverse
claims (within the meaning of Section 8-302 of the New York Uniform Commercial
Code).
8. No Governmental Approval (as hereinafter defined), which has not been
obtained or taken and is not in full force and effect, is required to authorize
or is required in connection with the execution, delivery or performance of the
Agreement or the Seller Transaction Documents by Seller.
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9. No Foreign Governmental Approval (as hereinafter defined), which has not
been obtained or taken and is not in full force and effect, is required to
authorize or is required in connection with the execution, delivery or
performance of the Agreement or the Stockholders Agreement by CGFE. As used in
such counsel's opinion, "Foreign Governmental Approval" shall mean any consent,
approval, license, authorization or validation of, or filing, recording or
registration with, any governmental authority pursuant to the laws of Hong Kong
to the extent specifically referred to herein.
10. The execution and delivery by Seller of each of the Agreement and the
Seller Transaction Documents and the performance by Seller of its obligations
under each of the Agreement and the Seller Transaction Documents, each in
accordance with its terms, do not (i) violate the Certificate of Incorporation
or By-laws of Seller, (ii) constitute a violation of or a default under any
Applicable Contract or (iii) cause the creation of any security interest or lien
upon any of the property of Seller pursuant to any Applicable Contract. As used
in such counsel's opinion, "Applicable Contracts" shall mean those agreements or
instruments set forth on a Schedule to such opinion and which have been
identified to such counsel as all the agreements and instruments which are
material to the business or financial condition of Seller and its subsidiaries
taken as a whole.
11. The execution and delivery by CGFE of each of the Agreement and the
Stockholders Agreement and the performance by CGFE of its obligations under each
of the Agreement and the Stockholders Agreement, each in accordance with its
terms, do not (i) violate the organizational documents of CGFE, (ii) constitute
a violation of or a default under any Applicable Contract or (iii) cause the
creation of any security interest or lien upon any of the property of CGFE
pursuant to any Applicable Contract.
12. Neither the execution, delivery or performance by Seller of the
Agreement and the Seller Transaction Documents nor the compliance by Seller with
the terms and provisions thereof will contravene any Applicable Law.
13. Neither the execution, delivery or performance by CGFE of the Agreement
and the Stockholders Agreement nor the compliance by CGFE with the terms and
provisions thereof will contravene any provision of any Applicable Law.
As used in such counsel's opinion, (i) "Governmental Approval" shall mean
any consent, approval, license, authorization or validation of, or filing,
recording or registration with, any Governmental Authority pursuant to any
Applicable Law, (ii) "Governmental Authority" shall mean any Delaware, New York
or federal executive, legislative, judicial, administrative or regulatory body
under any Applicable Law, and (iii) "Applicable Law" shall mean any law of the
State of New York, the General Corporation Law of the State of Delaware or any
law of the United States, which, in such counsel's experience, are normally
applicable to transactions of the type contemplated by the Agreement and the
Seller Transaction Documents.
Grunfeld, Desiderio, Lebowitz & Silverman LLP, customs counsel to Seller
and CGFE, shall render its opinion to the following effect in a form reasonably
acceptable to Buyer (capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Stock and Asset Purchase Agreement):
1. Seller has all licenses, permits, consents, orders, approvals and other
authorizations necessary under the customs and trade laws of the United States
of America, including, without limitation, bilateral trade agreements
(collectively, "Customs Laws"), to carry on the Division Business as currently
being conducted, except where the failure to have such licenses, permits,
consents, orders, approvals or other authorizations would not have a Material
Adverse Effect on Seller, CAT or the Division.
2. The execution and delivery by Seller of the Agreement and the Seller
Transaction Documents do not, and the consummation by Seller of the transactions
contemplated thereby will not, (a) result in any violation of or default under,
or to our knowledge the creation of any Lien, charge or encumbrance upon any of
the Assets of Seller related to the Division Business under, any law or any rule
or regulation known to us, or any judgment, decree or order of any Governmental
Authority known to us, in each case under the Customs Laws, to which Seller is a
party or to which any property or asset related to the Division Business is
subject; or (b) result in any suspension, revocation, impairment, forfeiture or
nonrenewal of any license under the Customs Laws.
I-76
EXHIBIT 10.2
LICENSING AGREEMENT
BETWEEN THE UNDERSIGNED:
KENZO,
A French company, the registered office of which is located at 3 Place des
Victoires, 75001 PARIS, FRANCE, represented by MR. RICHARD SIMONIN and MR. YVES
ALEMANY,
Hereinafter referred to as "KENZO",
ON THE ONE HAND
AND:
CYGNE DESIGNS INC.
A US company, the registered office of which is located at 1372 Broadway, NEW
YORK, NY 10018, USA, represented by MR. BERNARD MANUEL, and MR. IRVING BENSON
Hereinafter referred to as the "LICENSEE"
ON THE OTHER HAND
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<PAGE>
TABLE OF CONTENTS
PAGES
-----
ARTICLE 1: PURPOSE 4
ARTICLE 2: TERRITORY 4
ARTICLE 3: TERM 5
ARTICLE 4: CREATION 5
ARTICLE 5: MANUFACTURE 7
ARTICLE 6: KENZO VISUAL IDENTITY STANDARDS 8
ARTICLE 7: COLLECTIONS TIMETABLE 9
ARTICLE 8: DISTRIBUTION 10
ARTICLE 9: INFORMATION TO BE PROVIDED TO KENZO 12
ARTICLE 10: KENZO INSPECTIONS 13
ARTICLE 11: ROYALTIES 14
ARTICLE 12: ADVERTISING INVESTMENT 15
ARTICLE 13: MINIMUM ROYALTIES 15
ARTICLE 14: FINANCIAL PAYMENTS 16
ARTICLE 15: SUB-LICENSES - NON-ASSIGNABILITY 17
ARTICLE 16: PROTECTION OF KENZO TRADEMARKS 17
ARTICLE 17: PROTECTION OF MODELS 19
ARTICLE 18: TERMINATION 19
ARTICLE 19: END OF THE AGREEMENT 20
ARTICLE 20: MISCELLANEOUS 22
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<PAGE>
PREAMBLE
1) KENZO has exclusive rights to the title to the KENZO trademark and the
derivatives thereof. The status of the registrations and filings of said
trademark in the Territory for the products which are governed by the
present agreement are set forth in Annex.
The international reputation of the KENZO trademark, the quality of the
products and techniques developed by KENZO, the qualities of the articles
sold, the careful selection of points of sale and the timely delivery of
orders have, in particular, led to KENZO's commercial success.
2) In light of:
- the general obligation of the LICENSEE:
o to maintain the reputation of the KENZO trademark and to act
consistently therewith;
o to ensure particularly careful manufacture and distribution
consistent with the renown and reputation of the KENZO trademark;
o to adopt the same standard and level of quality as the other
women ready to wear KENZO lines;
o to only use articles bearing the KENZO STUDIO label for sales
purposes;
o to adopt a selective sales point marketing policy;
- and the sales objectives and business plan to be provided to KENZO by
the LICENSEE by the end of September 1996,
KENZO hereby concludes the present agreement with the LICENSEE. It is
hereby specified that the general obligation set forth above, the
objectives and the LICENSEE's business plan constitute for KENZO the
rationale and the determinative basis for its consent to conclude the
present agreement and shall determine the spirit in which the present
agreement shall be interpreted in the event of any difficulty in the
performance hereof.
-3-
<PAGE>
IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1: PURPOSE
1-1) KENZO hereby grants to the LICENSEE, which accepts, an exclusive license
for the manufacture and distribution of THE WOMEN'S READY TO WEAR GARMENTS
LINE BEARING THE KENZO STUDIO LABEL. The products will have to be completed
and manufactured based on KENZO's designs and/or those approved in advance
by KENZO.
1-2) This KENZO STUDIO line will have to be an interpretation of the KENZO
JUNGLE line for the US bridge market and shall be developed with
appropriate specifications for this market.
The Products price policy will have to be competitive but to remain in
harmony with other KENZO lines however.
1-3) The Products will have to be identified very clearly in order to avoid any
confusion with other women ready to wear KENZO lines: in particular all the
"jacquard" or print designs if they use a KENZO logo, it will be strictly
compulsory to use KENZO STUDIO logo and not KENZO alone.
1-4) The LICENSEE may manufacture and/or distribute, directly or otherwise,
other women's ready to wear lines only after having so informed KENZO prior
to making any such commitment, and consulted with KENZO to discuss any
issue of compatibility of such lines with KENZO STUDIO.
In the event KENZO grants its consent, the LICENSEE hereby warrants that
the manufacture and/or distribution of said new trademarks shall not change
the attention which it devotes to the Products and that it shall continue
to devote the same care thereto.
ARTICLE 2: TERRITORY
2-1) The present agreement grants to the LICENSEE the exclusive right to
manufacture and sell the Products in THE AREA GOVERNED BY THE NORTH
AMERICAN FREE TRADE AGREEMENT (I.E. USA, CANADA AND MEXICO) hereinafter
referred to as the "Territory".
It is hereby specified that this exclusive manufacturing and marketing
right is granted to the LICENSEE only for local markets in the
above-indicated countries and not for the duty free places within the
Territory.
2-2) KENZO agrees the LICENSEE manufacture some Products in Asia. The LICENSEE
shall notify KENZO at the beginning of each season of any other manufacture
outside the Territory.
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<PAGE>
2-3) The LICENSEE may sell the Products in countries which are not part of the
Territory with the prior written consent of KENZO. Said consent shall be
provided season-by-season and country-by-country pursuant to a business
plan. However, said consent shall not constitute a grant of any rights to
an indemnity for the LICENSEE if KENZO does not extend its consent for the
following season or grants a license to a third party for one or more of
said countries.
KENZO may subject its consent for sales outside of the Territory to the
establishment thereby of specific financial conditions.
In all cases, the LICENSEE must pay to KENZO the royalties for said sales
outside the Territory over and above the royalties based on the sales
within the Territory (therefore, over and above the minimum requirements,
as applicable).
Accordingly, in no event shall the royalties outside of the Territory be
added to those used for the Territory with respect to said minimum
requirements.
ARTICLE 3: TERM
THE PRESENT AGREEMENT SHALL GOVERN 5 YEARS BEGINNING WITH THE SPRING/SUMMER 1997
SEASON AND, CONSEQUENTLY, SHALL TERMINATE UPON COMPLETION OF THE AUTUMN/WINTER
2001 SEASON.
It shall be automatically renewed for the same term if the parties have met
during the month of June 2000 to assess the operation of the license during its
initial period and to define new minimum royalties. In no event shall said
minimum royalties during any license renewal period be less than the higher of
the following amounts:
o the royalty levels reached during the last year of the present
license; or
o the minimum royalties set for the last year of the present license
(i.e. US $450,000.00)
ARTICLE 4: CREATION
4-1) In order to develop the KENZO STUDIO line in accordance with the
specifications of the US bridge market, a specific "designer/merchandiser"
shall be responsible for providing the following services:
- interpret the KENZO JUNGLE line for the US market,
- choose appropriate fabrics, styles, color palettes and themes,
- establish appropriate fit specifications,
- insure that the KENZO STUDIO line will stay modern, updated and focused,
so that it appeals to the sensibilities of the American consumer, while
keeping the integrity and spirit of the KENZO image,
- merchandise the KENZO STUDIO line,
- work on public relations efforts.
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<PAGE>
This "designer/merchandiser" shall be selected or approved by KENZO.
The parties agree that all expenses relating to this "designer/merchandiser"
(fees, all monthly financial compensations, travel costs specially between Paris
and the USA, daily expenses, hotels, restaurants, phone and fax costs, shopping,
equipments, administrative assistance services, French language instruction,
discount on KENZO merchandise, etc.... this list being not limitative) shall be
shared equally between KENZO and the LICENSEE. Therefore, the LICENSEE shall
reimburse the half amount of these KENZO's expenses.
4-2) KENZO shall supply to the LICENSEE:
- sketches,
- patterns,
- assortment of color ideas, suggest combinations of colors,
- swatches of fabrics and materials.
In the event the LICENSEE requires an original KENZO JUNGLE collection (or
any other original KENZO collection), this collection will be sold to the
LICENSEE at the KENZO's export price.
4-3) From the original KENZO JUNGLE collection, the LICENSEE will have the
possibility to propose to KENZO any modification of design or style or
material in order to meet the request and specifications of the US bridge
market. However, these LICENSEE's proposals shall fully conform with the
plan of collection and with the KENZO trademark fame.
Any LICENSEE's proposals shall be discussed with KENZO and will have to
receive the KENZO's approval prior inclusion within the collection.
IN THE EVENT OF APPROVAL BY KENZO AND THE INCLUSION THEREOF IN THE
COLLECTION, SAID LICENSEE'S PROPOSALS SHALL BECOME THE EXCLUSIVE PROPERTY
OF KENZO AND THE LICENSEE HEREBY WARRANTS KENZO AGAINST ANY CLAIMS BY THIRD
PARTIES REGARDING TITLE TO SAID ITEMS. IN ADDITION, THE LICENSEE HEREBY
WARRANTS WITH RESPECT TO KENZO THAT ITS EMPLOYEES SHALL WAIVE ANY PROPERTY
RIGHTS IN SAID ITEMS.
4-4) IN ANY EVENT, KENZO SHALL BE DEEMED TO BE THE SOLE CREATOR AND TITLE HOLDER
TO THE ORIGINAL DESIGNS AND MODELS CREATED OR APPROVED THEREBY. THEREFORE,
KENZO MAY FREELY USE SAID DESIGNS AND MODELS OUTSIDE OF THE TERRITORY.
The LICENSEE shall only be authorized to use said designs and models
pursuant to the present agreement for the manufacture and distribution of
the Products within the Territory. As a result, the LICENSEE shall be
prohibited from using said items, which are the property of KENZO, for its
personal requirements and/or for labels other than KENZO STUDIO.
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<PAGE>
ARTICLE 5: MANUFACTURE
5-1) All models or items manufactured by the LICENSEE based on designs developed
or approved by KENZO must be so manufactured using very high quality and
durable materials and colors approved in advance by KENZO.
All said models or items must be marketed exclusively under the KENZO
STUDIO label (and not KENZO alone).
5-2) The LICENSEE shall submit to KENZO for approval the final prototype of all
items. It is hereby specified that any modifications to the model must also
be approved in advance by KENZO and that said submission to KENZO must take
place in accordance with a timetable which allows KENZO to request and
obtain any modifications necessary prior to production and/or marketing.
Except in the event it is submitted to and approved by KENZO during a
collection meeting, any item (prototype, model, etc.) submitted to KENZO
for approval shall be deemed approved thereby if is it not refused in
writing ten (10) days following effective receipt thereof by KENZO.
The LICENSEE shall not manufacture, distribute, advertise or sell any item
before the sample (or the prototype) has been approved by KENZO. All goods
manufactured, distributed or sold by the LICENSEE shall fully conform with
the approved samples (or prototypes) and no modification thereof shall be
permitted without the prior written approval by KENZO.
5-3) The designs and models selected shall in all events be kept confidential
until the first presentation to customers and/or the press, which events
shall be determined with KENZO's consent. In addition, the LICENSEE shall
be obligated to preserve the confidentiality of any of KENZO's designs and
models which are not manufactured and/or marketed.
5-4) The KENZO STUDIO label may only be affixed on Products which conform fully
with the quality and manufacture of the models, designs and prototypes
created or accepted by KENZO.
KENZO shall have the right, which the LICENSEE hereby acknowledges, to
inspect the quality, conformity and finish of the articles which are to
bear the KENZO STUDIO label and to prohibit the sale of those articles
which do not meet the quality requirements and/or those articles which have
not been submitted to KENZO, after having forwarded notice to this effect
to the LICENSEE by registered letter, return receipt requested, or by
telex.
Each season, it will be therefore the responsibility of the LICENSEE, prior
to his sale start, to inform KENZO of the time when collection will be
fully ready for an eventual final inspection.
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5-5) Each season, for the requirements of the KENZO Press and Licenses
Departments, the LICENSEE shall provide at no cost to KENZO and outside of
the advertising investment one complete collection of Products.
Over and above this collection, the cost of any additional pieces shall be
invoiced to KENZO at the cost thereof to the LICENSEE.
5-6) The LICENSEE agrees to refrain directly or indirectly manufacturing
Products in quantities which are not consistent with the orders received.
With respect thereto the percentage of manufacture shall not exceed 110% of
the anticipated orders.
5-7) The LICENSEE may subcontract the manufacture of some Products, provided
that KENZO shall have been notified in writing as to the subcontractors
being used prior to beginning of production for each season.
IN ALL CASES, THE LICENSEE SHALL REMAIN LIABLE TO KENZO FOR THE SERVICES
PROVIDED BY SAID SUBCONTRACTORS.
The LICENSEE hereby agrees also to regularly inform KENZO of any difficulty
arising between it and its subcontractors.
In addition, KENZO's right to inspect (see Article 10) shall also apply to
any subcontractors. Accordingly, the LICENSEE hereby agrees to so provide
in its agreements with its subcontractors.
ARTICLE 6: KENZO VISUAL IDENTITY STANDARDS
6-1) A Visual Identity Standards Booklet containing the shapes, colors,
trademark, labeling and/or brand indicators and any logo to be placed on
the Products, their packaging, sales material and/or the LICENSEE's
administrative documents (letterhead, orders, invoices, etc.) shall be
provided to the LICENSEE by KENZO.
AS A GENERAL MATTER, THE LICENSEE HEREBY AGREES TO COMPLY STRICTLY WITH THE
CONTENTS OF THE BOOKLET AND TO ENSURE THAT ITS OWN CUSTOMERS COMPLY
THEREWITH.
Except if KENZO has otherwise agreed in writing, the LICENSEE shall be
prohibited from affixing any logos, trademarks or indications whatsoever
other than those listed above and provided by KENZO on the Products and/or
their packaging, those which indicate the composition of the fabric or the
type of fibers used, those indicate how to care for the product and those
which are mandatory pursuant to imperative local law and regulations.
In addition, the LICENSEE must submit all packaging, wrapping, documents
and materials such as boxes, bags, catalogues, posters, etc... which are
used for
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the sale and promotion of the Products for KENZO's prior approval. Said
submission must take place in accordance with a timetable which allows
KENZO to request and obtain any modifications necessary prior to production
and/or marketing.
If the LICENSEE so desires, KENZO may undertake a graphic and advertising
study at the LICENSEE's expense.
Any proposal from the LICENSEE submitted to KENZO for approval shall be
deemed approved if it has not been refused in writing by KENZO within
twenty (20) days of the actual receipt thereof by KENZO.
In accordance with the hereabove paragraphs, upon reasonable request made
by KENZO, the LICENSEE shall furnish samples of the advertising material,
labeling, packaging and boxing thereof, to allow KENZO to verify that the
specifications regarding the quality of marketing and advertising are fully
complied with by the LICENSEE.
6-2) IN ADDITION, THE LICENSEE SHALL ENSURE THAT ALL DISTINCTIVE KENZO LABELS
(STICKERS, LOGOS, TRADEMARK INDICATORS, WRAPPING, ETC.) USED BY ITS
CUSTOMERS AT THEIR POINTS OF SALE OR USED THEREBY TO INDICATE THE SALE OF
KENZO STUDIO LINE FULLY COMPLY WITH THE STANDARDS SET BY KENZO (SEE THE
VISUAL IDENTITY STANDARDS BOOKLET).
SIMILARLY, THE LICENSEE MUST PROHIBIT ITS CUSTOMERS FROM USING A STORE SIGN
OR OTHER INDICATION WHICH MIGHT LEAD THE PUBLIC TO BELIEVE THAT THE STORE
ONLY SELLS KENZO TRADEMARK GOODS OR IS A KENZO SINGLE-BRAND BOUTIQUE WHEN
THIS IS NOT THE CASE.
ARTICLE 7: COLLECTIONS TIMETABLE
The collections timetable shall be as follows:
===============================================================================
SPRING/SUMMER AUTUMN/WINTER
COLLECTIONS COLLECTIONS
- -------------------------------------------------------------------------------
Supply of informations by KENZO February September
- -------------------------------------------------------------------------------
Cooperation in PARIS between
KENZO and the LICENSEE for the
selection of prints fabrics,
materials... March/April October/November
- -------------------------------------------------------------------------------
Prototypes ready for approval by
KENZO May December
- -------------------------------------------------------------------------------
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- -------------------------------------------------------------------------------
Show to the LICENSEE's
distributors and customers September March
- -------------------------------------------------------------------------------
Distribution starts February August
===============================================================================
The LICENSEE's product manager in charge of the Products shall come to Paris
once or twice every season to discuss plan of collection, selection of suitable
fabrics as well as any other technical matters related to the preparation of the
Products collection.
ARTICLE 8: DISTRIBUTION
8-1) The LICENSEE shall distribute the Products throughout all the Territory.
If during 2 successive seasons, the LICENSEE does not market the Products
in a significant manner within certain countries within the Territory,
KENZO shall have the right to immediately exclude said countries from the
Territory, provided, however, that Canada and Mexico shall not be excluded
even if sales in these countries do not begin before 1998.
8-2) The LICENSEE shall provide KENZO with the name of its representative who is
authorized to handle all problems with KENZO which may arise in connection
with the daily management of the present license.
8-3) The general policy and coordination of the distribution of the Products
shall be determined by mutual agreement between KENZO and the LICENSEE.
In particular, in order to protect the KENZO trademark and to ensure that
the distribution of the Products within the Territory is consistent, the
LICENSEE hereby agrees to take into consideration KENZO's recommendations
and general policy, subject to local regulations regarding marketing and
prices.
8-4) The Products distribution shall always be organized by the LICENSEE clearly
in accordance with the US bridge concept.
The LICENSEE agrees that Product sales display sites shall be located on
commercial premises which correspond to the quality and high reputation of
the KENZO trademark.
If there is any problem concerning the quality and the choice of the points
of sales, a discussion should be held immediately between KENZO and the
LICENSEE to settle the matter according to the best interest of KENZO brand
image policy.
The LICENSEE shall be prohibited from using display or sales sites which
operate under a name of a direct competitor of KENZO or the name of a large
distributor which is affiliated with the discount sector.
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8-5) The LICENSEE shall inform KENZO in advance of its future distributors
and/or agents in each part of the Territory in order to maximize the
synergies between the KENZO distributors. KENZO reserves the right to
refuse any such entities on an exceptional basis, in good faith and with
justification therefor.
8-6) The LICENSEE hereby acknowledges the importance of KENZO-single brand
stores for the development of the image and reputation of the KENZO
trademark.
As a result, the LICENSEE hereby agrees to directly fill itself the orders
from said KENZO-single brand stores in the event that its local distributor
defaults or in the event that there are difficulties between said
distributor and the KENZO-single brand store(s) in question.
In addition, KENZO-single brand stores shall receive an ____% discount on
the local wholesale price regardless of whether they are supplied with
Products directly from the LICENSEE or through distributor thereof.
8-7) The location, space and design of any specific KENZO STUDIO boutiques or
other specific retail outlet to be established by the LICENSEE for the sale
of the Products in the Territory shall be previously approved in writing by
KENZO. Plans, designs and concept of such boutique or retail outlet shall
be submitted for approval prior to execution in order to maintain KENZO
identity. Such materials once approved by KENZO can be used thereafter
unless they are changed in full or on a large scale. Any material
alteration to the approved design shall also be approved in writing by
KENZO.
The outfitting of stands and/or corners at which the Products will be sold
or displayed (department stores, salons, etc.), as well as "point of sale
materials" must also conform with the quality image of the KENZO trademark.
They must be approved in advance by KENZO.
The expenses for creating these specific KENZO STUDIO boutiques, stands,
corners and sales material shall be borne by the LICENSEE.
8-8) The LICENSEE shall reserve a specific place within its show room in NEW
YORK for the display of only the Products. The design and outfittings of
this place shall be approved by KENZO to reflect the KENZO identity.
8-9) If a distributor does not possess or no longer possesses all of the
characteristics which are reasonably required thereof with respect to
display window presentation, the general maintenance and appearance of the
KENZO stand or sales point, the LICENSEE hereby agrees to refuse any orders
for the following seasons.
8-10) The LICENSEE shall be solely liable for the successful filing of orders
received thereby from its customers.
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The LICENSEE shall be obligated to comply with the local usual delivery
deadlines in the profession.
The LICENSEE hereby also agrees to ensure that the Products shall be
shipped in appropriate packaging and via appropriate means.
8-11) Without KENZO's prior written consent, the LICENSEE shall be prohibited
from:
- directly or indirectly discounting the Products outside of its usual and
regular customer network; and
- using the KENZO trademark and/or the KENZO STUDIO label in any manner
whatsoever (other than those set forth below) in any advertising or
promotional discount or inventory liquidation activity.
If a residual inventory of Products exists at the end of any season, said
residual inventory must only represent a very small percentage of the total
production for said season.
The LICENSEE shall attempt to liquidate said residual inventory by
successively taking the usual steps in this area: sales to its employees at
sacrifice prices, sales of the Products with label clearly defaced and cut
in those stores or countries agreed upon with KENZO. The opening of outlet
stores in the Territory will be permissible, provided that no in - season
merchandise be sold in these stores.
Any other activity to liquidate inventory must be approved in advance by
KENZO. KENZO may not unreasonably withhold its approval provided that the
LICENSEE suggests its own steps to reduce and/or eliminate residual
inventory which do not harm the image of the KENZO trademark.
ARTICLE 9: INFORMATION TO BE PROVIDED TO KENZO
9-1) The LICENSEE shall provide the following information to KENZO:
a) Regarding the Spring/Summer season in year "x":
o in July of year x-1: the provisional sales and turnover
objectives for that season;
b) Regarding the Fall/Winter season in year "x":
o in January of year x: the provisional sales and turnover
objectives for that season;
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c) Regarding each season:
o prior to the 15th and 30th of each month, the orders received
during the preceding fifteen days;
o prior to the 15th of each month, the sales invoiced by season
(see the definition in paragraph 11-2) during the preceding
month; and
o at the beginning of each season, the full "sales book" including,
inter alia, references and wholesale prices for all Products in
the collection.
It is hereby specified that, first, the sales, order and effective sales
objectives shall be expressed by country, number of customers and total
number of pieces and, second, THAT THE FINAL ANNUAL SALES INVOICED MUST BE
CERTIFIED BY THE LICENSEE'S STATUTORY AUDITOR(S).
9-2) In addition, at the end of the sales for each season, the LICENSEE shall
inform KENZO of:
- the sales for said season by product reference;
- a list of Products sales points by country;
- the deliveries compared to pre-season orders; and
- the residual inventory in number of pieces and value (using the
LICENSEE's production value).
9-3) Generally, the LICENSEE shall regularly inform KENZO of the market, its
distribution policy and the activities of competitors.
ARTICLE 10: KENZO INSPECTIONS
10-1) The LICENSEE hereby acknowledges that KENZO has the right to monitor
compliance with the present agreement with respect to the Products
manufactured, subcontracting, the quality of materials used, advertising
and the use of the KENZO trademark by the LICENSEE and its customers,
deliveries and distribution of the Products, financial obligations, etc.
10-2) During the term of the present agreement and until completion of the last
sales, the LICENSEE must maintain complete, detailed and accurate
accounting records which show the quantity of Products manufactured and/or
sold. In addition, it must preserve all supporting documentation used in
the calculation of the royalties owed to KENZO, as well as all supporting
documents regarding sales of Products without labels and inventory
liquidation.
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During the term of the present agreement and for a period of 12 months
following the expiration hereof, KENZO and/or its authorized
representatives shall have access to said accounting records and/or
supporting documentation, provided that the LICENSEE is notified thereof
at least one month in advance. KENZO and/or its representatives must keep
any information which is not related to the Products of which they may
become aware during said visits confidential.
In addition, in light of the management requirements of LVMH, a company
listed on the Paris Stock Exchange which consolidates KENZO's activities,
every two years an audit of the LICENSEE's accounting records with respect
to this licensing agreement and, generally, of the KENZO-related
activities of the LICENSEE, shall be conducted by KENZO (or by auditors
designed by KENZO).
If an inspection of the LICENSEE's books by KENZO and/or the audit
described above shows errors or differences to KENZO's detriment during
any whatsoever of the years inspected, the LICENSEE must immediately
correct said error and pay KENZO the balance which is due thereto.
In addition, if for a given year, said errors or differences equal more
than 5% of the total of the royalties paid by the LICENSEE during said
year, the total cost of said accounting inspection or audit shall be borne
by the LICENSEE and reimbursed to KENZO.
Such inspections and audits at KENZO's initiative may begin with the
effective date of the present license.
10-3) KENZO shall also have access to the LICENSEE's facilities (commercial and
administrative offices, show rooms, manufacturing sites, warehouses, etc.)
and to those of its sub-contractors and/or sub-LICENSEEs upon providing 10
days notice.
ARTICLE 11: ROYALTIES
11-1) IN RETURN FOR THE KNOW-HOW AND THE CREATION AND IN RETURN FOR THE RIGHT TO
USE THE KENZO TRADEMARK AND THE KENZO STUDIO LABEL, THE LICENSEE SHALL PAY
A ROYALTY TO KENZO FIXED AT 8% OF THE INVOICED SALES AS DEFINED IN
PARAGRAPH 11-2.
11-2) The sales used as the basis for calculating the royalties owed by the
LICENSEE shall cover THE NET CONSOLIDATED WHOLESALE TURNOVER INVOICED BY
THE LICENSEE, ITS SUBSIDIARIES AND ITS SUB-LICENSEES TO THIRD PARTIES
(EXCLUDING ANY AFFILIATES OF THE LICENSEE).
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ARTICLE 12: ADVERTISING INVESTMENT
The LICENSEE hereby acknowledges that the reputation and distribution of the
KENZO trademark depends, inter alia, on direct and indirect media advertising,
contacts maintained with the media, fashion shows and presentations, organizing
exceptional events, etc.
AS A RESULT, THE LICENSEE HEREBY AGREES TO INVEST EACH YEAR A MINIMUM BUDGET FOR
LOCAL PUBLICITY AND PROMOTION FOR THE PRODUCTS AND TO PROVE IT TO KENZO BY
SENDING DOCUMENTARY REPORTS AND RELATIVE JUSTIFICATIONS.
THIS MINIMUM BUDGET WILL BE:
- - DURING THE TWO FIRST YEARS (I.E. 1997 AND 1998): 6% OF THE ANNUAL TURNOVER
DEFINED IN PARAGRAPH 11-2,
- - AS FROM THE THIRD YEAR: 3% OF THIS ANNUAL TURNOVER.
ANY ADVERTISING, ANY PUBLICITY, ANY PUBLICITY OR PROMOTIONAL CAMPAIGN, WHICH IS
PLANNED BY THE LICENSEE MUST BE SUBMITTED TO KENZO FOR APPROVAL BEFORE THE
REALIZATION THEREOF. IN THIS RESPECT, THE LICENSEE SHALL INITIATE ONLY PUBLICITY
OR ADVERTISING WHICH HAS BEEN APPROVED BY KENZO.
In the event that, at the end of the year, and after the application of the last
amounts which are coming to be posted to its credit, the budget would show any
available balance, such available amount will be carried forward to the
following year in order to increase the budget thereof.
AT THE TIME OF EXPIRY OF THIS AGREEMENT, THE LICENSEE SHALL PAY KENZO THE
BALANCE OF THE ADVERTISING BUDGET NOT SPENT DURING THE LAST YEAR OF THIS
AGREEMENT.
ARTICLE 13: MINIMUM ROYALTIES
13-1) DURING THE ENTIRE TERM OF THE PRESENT AGREEMENT, THE LICENSEE HEREBY
WARRANTS TO KENZO THAT DURING A GIVEN YEAR (S/S + A/W SEASONS), THE
ROYALTIES PAID BY THE LICENSEE TO KENZO FOR SAID YEAR SHALL NOT BE LESS
THAN THE FOLLOWING MINIMUM AMOUNTS:
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=============================================
Minimum Guaranteed
Year Royalties
---------------------------------------------
1997 US $ 200,000.00
1998 US $ 300,000.00
1999 US $ 350,000.00
2000 US $ 400,000.00
2001 US $ 450,000.00
=============================================
13-2) Including in the event of destructive accident (fire, flood, explosion,
etc.) which makes sales impossible or prevents the timely delivery of the
Products which have been ordered but not yet delivered, the LICENSEE shall
pay KENZO the minimum royalties for the year in question.
13-3) At the end of each year covered by the present agreement and in light of
the guarantee provided above by the LICENSEE, KENZO shall have the
absolute right, which is hereby expressly acknowledged by the LICENSEE, to
terminate the present agreement by registered letter, return receipt
requested, if, during said year, the effective net wholesale turnover
reached by the LICENSEE is below to the equivalent minimum turnover
related to the minimum royalties of said year, provided, that for the
first two seasons, the LICENSEE shall have the right to preserve its
rights under this licensing agreement by paying the minimum royalties
required, regardless of underlying sales. The present article is a
termination clause.
The mechanism and the time period for said termination to take effect are
set forth in Article 19 below.
ARTICLE 14: FINANCIAL PAYMENTS
14-1) Regardless of the sales actually generated by the LICENSEE (See the
definition set forth in paragraph 11-2), the minimum royalties specified
in section 13-1 hereabove shall be paid to KENZO in accordance with the
following timetable:
- within two weeks following the execution of
this licensing agreement:.............................$200,000.00,
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- on the first anniversary of the execution of
this licensing agreement:.............................$300,000.00,
- on the second anniversary of the execution of
this licensing agreement:.............................$350,000.00,
- on the third anniversary of the execution of
this licensing agreement:.............................$400,000.00,
- on the fourth anniversary of the execution of
this licensing agreement:............................$450,000.000,
14-2) The payment of the running over royalties in excess of the minimum
royalties related to each year shall be made within the first 10 days of
April of the following year.
In the event the present agreement is renewed, said system shall be
continued based on the same principle.
14-3) In the event of late payment, the amounts owed to KENZO by the LICENSEE
shall bear interest as a matter of law at one and one-half times the
French legal interest rate per month or fraction thereof while said
payment is late effective from the due date thereof, without any formal
notice requirement.
ARTICLE 15: SUB-LICENSES - NON-ASSIGNABILITY
15-1) THE LICENSEE SHALL BE PROHIBITED FROM GRANTING ANY SUB-LICENSES WITHOUT
THE PRIOR WRITTEN CONSENT OF KENZO. In the event of acceptance by KENZO,
the LICENSEE shall remain the joint guarantee with any such sub-licensees
with respect to the services performed thereby.
In addition, KENZO's inspection right as set forth in Article 10 shall
also apply to said sub-licensees and, therefore, the LICENSEE hereby
agrees to so provide in its agreements with such sub-licensees.
15-2) The present agreement may not be assigned by the LICENSEE, in whole or in
part, in any form whatsoever, directly or indirectly, for consideration or
otherwise, without KENZO's prior written consent.
ARTICLE 16: PROTECTION OF KENZO TRADEMARKS
16-1) The LICENSEE hereby acknowledges KENZO's exclusive title to the "KENZO"
trademark and the derivatives thereof such as KENZO STUDIO.
Consequently,
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- all registrations of the KENZO trademark (and/or the derivatives
thereof) in any country whatsoever, regardless of the user thereof, may
only be completed for the exclusive benefit of KENZO and shall be
KENZO's property;
- KENZO shall have exclusive title to any rights to the KENZO and KENZO
STUDIO trademark or label which may be acquired as a result of the use
of said trademark or label by the LICENSEE or its sub-licensees; and
- the rights granted to the LICENSEE shall be limited to those expressly
set forth in the present agreement.
16-2) The LICENSEE hereby agrees to not use the KENZO trademark (and/or the
derivatives thereof) in any manner whatsoever other than as a LICENSEE
pursuant to the present agreement.
In no event may the LICENSEE use the KENZO trademark or KENZO STUDIO in
its name, as a trade name or on its store signs.
In addition, during the entire term of the present agreement and/or after
the termination hereof for any reason whatsoever, the LICENSEE hereby
agrees to not use any trademarks or labels which may be confused with
KENZO or with KENZO STUDIO in any of its activities.
16-3) KENZO hereby warrants the existence of the filings and registrations of
the KENZO trademark set forth in Annex to the LICENSEE.
KENZO hereby also warrants to the LICENSEE that it has not granted any
other license for the Products within the Territory.
In no event shall KENZO be held liable by the LICENSEE if the LICENSEE
determines that counterfeiting has been committed.
16-4) ANY PROCEDURE CONCERNING THE PROTECTION OF THE KENZO TRADEMARK (AND THE
DERIVATIVES THEREOF) AGAINST THIRD PARTIES SHALL BE UNDERTAKEN BY KENZO AT
KENZO'S EXPENSE, RISK AND ADVANTAGE. THEREFORE, THE LICENSEE MAY IN NO WAY
UNDERTAKE ANY ACTION WITH RESPECT TO COUNTERFEITING, OBJECT TO THE FILING
OF A TRADEMARK, HAVE COUNTERFEIT PRODUCTS SEIZED AND/OR REQUEST THAT SUCH
PRODUCTS BE HELD BY CUSTOMS AUTHORITIES.
However, in the event that KENZO does not take action, the LICENSEE may
only take action, if it deems fit, if it has obtained KENZO's prior
written consent. In such event, the LICENSEE shall act at its own risk and
peril.
If it has suffered or may suffer damages in its own right, the LICENSEE
may also participate in any proceedings undertaken by KENZO.
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16-5) The LICENSEE hereby agrees to assist KENZO in the protection and/or
defense of the KENZO trademark (and the derivatives thereof), in
particular by providing KENZO with any information necessary therefor and
by informing KENZO of any counterfeiting, unfair competition, etc. of
which it becomes aware.
ARTICLE 17: PROTECTION OF MODELS
KENZO hereby grants to the LICENSEE the right to reproduce the models which
KENZO has created or approved.
SAID REPRODUCTION RIGHT ONLY GOVERNS THOSE MODELS MUTUALLY AGREED UPON FOR
COMMERCIALIZATION.
SAID MODELS MAY BE PROTECTED BY REGISTRATIONS IF KENZO DEEMS APPROPRIATE. SAID
REGISTRATIONS MAY ALSO BE UNDERTAKEN ON BEHALF OF KENZO AND AT KENZO' EXPENSE IF
THE TWO PARTIES AGREE THIS IS NECESSARY.
The existence or absence of registered models shall not have any impact on the
present agreement.
In the event that the models are copied by third parties or in the event of
legal action undertaken by third parties, the provisions of Article 16-4 and
16-5 above shall apply.
ARTICLE 18: TERMINATION
18-1) In the event any whatsoever of the clauses of the present agreement are
not performed, said agreement shall be terminated, if the non-defaulting
party so elects, one month after notice to perform provided by registered
letter, return receipt requested, which expressly lists said clause and
which does not result in a cure. The present article is a termination
clause.
However, in the event of a serious default by either of the parties (in
particular if the LICENSEE compromises the image of the KENZO trademark or
uses of any deceptive, misleading or unethical practices, or does not pay
any whatsoever of the royalties hereabove mentioned) and in the event that
a party goes bankrupt or into liquidation or has a receiver appointed to
any of its assets, the other party may immediately terminate the present
agreement by registered letter, return receipt requested. The present
article is also a termination clause.
In either case, said termination shall take effect as set forth in Article
20 below.
18-2) KENZO may also terminate the present agreement effective immediately by
registered letter, return receipt requested:
- if Mr. Bernard MANUEL ceases to actually manage the LICENSEE, except
in the event of agreement between the new LICENSEE's Chief Executive
Officer (and/or Chairman of the Board) and KENZO;
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- and/or in the event of a change in the majority or the actual control
of the LICENSEE, except in the event of agreement subsequent to said
transfer between the LICENSEE and KENZO.
The present article is a termination clause.
As a result, the LICENSEE hereby agrees to immediately inform KENZO in the
event any of the conditions above are met.
ARTICLE 19: END OF THE AGREEMENT
19-1) In the event of the termination of the present agreement during any
whatsoever retail season "S", immediately upon receipt of the termination
notice from KENZO, the LICENSEE must:
- immediately return to KENZO all original documents thereof (designs,
sketches, patterns, etc...), relating to the last Products
collection prepared (i.e., collection S + 2); and
- only manufacture and deliver those Products for season S + 1 to its
usual and regular customers in quantities consistent with those of
previous seasons.
The LICENSEE hereby agrees that said manufacture and said delivery for the
season S + 1 shall be completed in good faith and under conditions which
do not compromise the image of the KENZO trademark. Royalties set forth
above will be due to KENZO on said sales.
THE TERMINATION OF THE PRESENT AGREEMENT SHALL TAKE EFFECT AT THE END OF
THE S + 1 SEASON (I.E., JANUARY 31 FOLLOWING TERMINATION NOTICE IF SAID
S + 1 SEASON IS A FALL/WINTER SEASON AND JULY 31 FOLLOWING SAID NOTICE IF
SAID S + 1 SEASON IS A SPRING/SUMMER SEASON). BEGINNING WITH SAID
EFFECTIVE DATE, THEREFORE, THE LICENSEE MUST CEASE ALL USE WHATSOEVER OF
THE KENZO TRADEMARK AND/OR THE KENZO STUDIO LABEL (MANUFACTURE, SALES,
ADVERTISING, LETTERHEAD, ORDERS, INVOICES, ETC.), AS WELL AS THE USE OF
ANY KENZO CREATIONS OR ITEMS PREVIOUSLY APPROVED BY KENZO AND MUST RETURN
ALL DOCUMENTS TO KENZO RELATING TO THE PRODUCTS.
19-2) IN THE EVENT THE EXPIRATION OF THE PRESENT AGREEMENT IS NOT FOLLOWED BY
RENEWAL, AT THE END OF THE AUTUMN/WINTER 2001 SEASON, I.E., NO LATER THAN
JANUARY 31, 2002, THE LICENSEE MUST CEASE ALL USE WHATSOEVER (MANUFACTURE,
SALES, ADVERTISING, LETTERHEAD, ORDERS, INVOICES, ETC.) OF THE KENZO
TRADEMARK AND/OR THE KENZO STUDIO LABEL, AS WELL AS THE USE OF ANY KENZO
CREATIONS OR ITEMS APPROVED BY KENZO AND ALSO RETURN ALL DOCUMENTS TO
KENZO RELATING TO THE PRODUCTS.
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19-3) If KENZO so requests, within 10 days following the effective date of the
termination of the present agreement or no later than February 10, 2002 in
the event of non-renewal, the LICENSEE shall destroy all of its inventory
of finished and semi-finished Products, whether labeled or not, which are
more than two seasons old, before outside witness approved by KENZO.
As an example of the above, if the termination takes effect at the end of
retail season S + 1, all inventory (whether labeled or not) from season
S - 1 and previous seasons must be so destroyed if KENZO so requests.
Within the above 10-days period, the LICENSEE must also return at no cost
to KENZO all original documents (designs, models, sketches, etc.) relating
to the Products, as well as all labels, sew-on labels, KENZO promotional
materials, Products wrapping and packaging and administrative documents
marked "KENZO" (letterhead, orders, invoices, etc.) which remain in its
possession. Beyond said period, therefore, the LICENSEE must not directly
or indirectly retain any of said items.
19-4) An inventory in the presence of both parties shall be prepared within 10
days of the above destruction if it takes place. If no such destruction
takes place, said inventory must be prepared within 20 days following the
effective date of the termination of the present agreement or the
expiration hereof which is not followed by renewal, in order to assess the
LICENSEE's inventory (regardless of the age thereof) of both:
- finished or semi-finished Products; and
- raw materials exclusive to KENZO.
KENZO shall have the right, if it so elects, to purchase all or part of
said inventory, provided that it is in good condition. Any such purchase
shall be made at the LICENSEE's cost price based on documentation
presented thereof.
KENZO shall inform the LICENSEE of whether or not it intends to exercise
its purchase right by registered letter, return receipt requested, within
10 days of the above inventory.
If KENZO does not exercise said right or only exercises it partially, the
LICENSEE shall have 5 months from the date of receipt of KENZO's response
to market its residual inventory of finished Products AFTER HAVING REMOVED
THE LABELS in packaging which does not bear any reference to KENZO.
-21-
<PAGE>
KENZO hereby agrees that an exception to the label removal requirement
(and, therefore, also to the provisions of Articles 19-1 and 19-2) shall
be made for any of the Products which cannot have the labels removed
without damaging them. Said labeled Products may be sold only to customers
accepted by KENZO and shall, therefore, constitute the last authorized use
of the KENZO trademark by the LICENSEE.
IN THE EVENT OF THE TERMINATION OF THE PRESENT AGREEMENT FOR SERIOUS
DEFAULT BY THE LICENSEE, SAID 5-MONTH PERIOD SHALL BE REDUCED TO 1 MONTH.
Upon conclusion of said 5-month (or 1-month) period, the LICENSEE must
destroy all of its remaining Product inventory, whether labeled or not,
before outside witness approved by KENZO.
19-5) At the end of the present agreement (i.e., upon its termination or
expiration without renewal), the LICENSEE may not claim any right with
respect to the KENZO trademark and the derivatives thereof such as KENZO
STUDIO and/or the use thereof, or any indemnity with respect thereto.
ARTICLE 20: MISCELLANEOUS
20-1) The fact that at any time one party does not request the other party to
comply with the totality of the present agreement and/or does not exercise
any right whatsoever arising hereunder shall not constitute a waiver
thereof.
20-2) The parties hereby agree to cooperate to modify any clauses which may be
declared null and void so that similar economic results are obtained. If
this is not possible, said clauses shall be reduced to their maximum
authorized scope.
20-3) The LICENSEE shall indemnify and save and hold KENZO harmless for and
against any and all liabilities, claims, causes or actions, suits, damages
and expenses (including attorney's fees and expenses) which either becomes
liable for, or may incur or to be compelled to pay by reason of any acts,
whether of omission or commission, that may be committed or suffered by
the LICENSEE or any of its servants, agents, contractors or employees in
connection with the LICENSEE's performance of this agreement or in
connection with the goods manufactured by the LICENSEE or as a result of
any liabilities with which KENZO's designee may be charged because of
damages or injuries suffered by any servants, agents, contractors,
employees or customers of the LICENSEE or by the general public, resulting
from the use or sale of the goods sold or presented by the LICENSEE.
-22-
<PAGE>
20-4) FRENCH LAW SHALL EXCLUSIVELY GOVERN THE INTERPRETATION AND PERFORMANCE OF
THE PRESENT AGREEMENT.
IN ADDITION, THE PARTIES HEREBY EXPRESSLY AGREE THAT ALL DISPUTES ARISING
FROM THE INTERPRETATION OR PERFORMANCE OF THE PRESENT AGREEMENT SHALL BE
RESOLVED BY THE COURTS WITHIN THE JURISDICTION OF THE PARIS COURT OF
APPEALS.
20-5) All notices to be provided pursuant hereto must be delivered to the
registered offices of the parties indicated above where they hereby elect
their domicile.
Done in Paris on July 26, 1996, in two originals.
FOR KENZO FOR THE LICENSEE
- --------- ----------------
Richard SIMONIN Bernard MANUEL
Yves ALEMANY Irving BENSON
-23-
<PAGE>
EXTRAIT DE MARQUES APPARTENANT A LA SOCIETE KENZO
AU 23 JUILLET 1996 ANNEXE
MARQUES KENZO POUR DESIGNER LES VETEMENTS
(Classe internationale 25)
PAYS MARQUE Date de DEPOT No d'ENREGISTREMENT
CANADA KENZO PARIS 20 MAR 86 328 495
KENZO 27 SEP 72 255 373
KENZO 29 NOV 72 200 177
ETATS UNIS KENZO JEANS
(FIG) 31 DEC 86 1 544 447
KENZO 3 AVR 79 1 214 902
MEXIQUE KENZO 5 DEC 90 338 251
KENZO 5 DEC 90 337 916
-24-
<PAGE>
KENZO
Paris, July, 26 1996
MR BERNARD MANUEL
CYGNE DESIGNS INC.
1372 Broadway
NEW YORK, NY
10018 USA
Re: The KENZO STUDIO Licensing Agreement
Dear Mr MANUEL,
In conjunction with our execution of the KENZO STUDIO Licensing Agreement, we
hereby confirm the following:
1. The first season to which this Agreement shall apply shall be the
Autumn/Winter 1997.
Consequently:
- this Agreement will cover 5 years as from the Autumn/Winter 1997
season to the Spring/Summer 2002 season,
- the meeting to examine this 5 years initial period (see article 3)
shall be held during December 2000.
However:
- The first payment of the minimum royalties shall be made by your
company within the two following weeks (i.e. before August 9, 1996),
- CYGNE DESIGNS Inc. shall manufacture and deliver the KENZO STUDIO
Spring/Summer 1997 orders from SAKS. In addition, the total cost of
all prototypes, samples for this specific season, and the half amount
of all Spring/Summer 1997 expenses concerning Daniel FIERRO (the
specific designer in charge of KENZO STUDIO line) shall be reimbursed
by CYGNE DESIGNS Inc. to KENZO.
2. Further to your today's request, KENZO accepts this Licensing Agreement
shall only become effective upon its approval by the Board of Directors of
CYGNE DESIGNS Inc.
If such approval is not obtained on or before August 9, 1996, this
Licensing Agreement shall be terminated with no obligation on the part of
either party.
-25-
<PAGE>
KENZO
Please confirm your agreement with these terms and conditions by signing this
letter in the space provided below.
KENZO CYGNE DESIGNS Inc.
by by
--------------------------- ----------------------------
-26-
EXHIBIT 10.3
LICENSING AGREEMENT
BETWEEN THE UNDERSIGNED:
KENZO,
A French company, the registered office of which is located at 3 Place des
Victoires, 75001 PARIS, FRANCE, represented by MR. RICHARD SIMONIN and MR. YVES
ALEMANY,
Hereinafter referred to as "KENZO",
ON THE ONE HAND
AND:
CYGNE DESIGNS INC.,
A US company, the registered office of which is located at 1372 Broadway, NEW
YORK, NY 10018, USA, represented by MR. BERNARD MANUEL, and MR. IRVING BENSON
Hereinafter referred to as the "LICENSEE"
ON THE OTHER HAND
-1-
<PAGE>
TABLE OF CONTENTS
Pages
-----
ARTICLE 1: PURPOSE 4
ARTICLE 2: TERRITORY 4
ARTICLE 3: TERM 5
ARTICLE 4: CREATION 6
ARTICLE 5: MANUFACTURE 7
ARTICLE 6: KENZO VISUAL IDENTITY STANDARDS 8
ARTICLE 7: COLLECTIONS TIMETABLE 10
ARTICLE 8: DISTRIBUTION 10
ARTICLE 9: INFORMATION TO BE PROVIDED TO KENZO 13
ARTICLE 10: KENZO INSPECTIONS 14
ARTICLE 11: ROYALTIES 15
ARTICLE 12: ADVERTISING INVESTMENT 15
ARTICLE 13: MINIMUM ROYALTIES 16
ARTICLE 14: FINANCIAL PAYMENTS 17
ARTICLE 15: SUB-LICENSES - NON-ASSIGNABILITY 17
ARTICLE 16: PROTECTION OF KENZO TRADEMARKS 18
ARTICLE 17: PROTECTION OF MODELS 19
ARTICLE 18: TERMINATION 19
ARTICLE 19: END OF THE AGREEMENT 20
ARTICLE 20: MISCELLANEOUS 22
-2-
<PAGE>
PREAMBLE
1) KENZO has exclusive rights to the title to the KENZO trademark and the
derivatives thereof. The status of the registrations and filings of said
trademark in the Territory for the products which are governed by the
present agreement are set forth in Annex.
The international reputation of the KENZO trademark, the quality of the
products and techniques developed by KENZO, the qualities of the articles
sold, the careful selection of points of sale and the timely delivery of
orders have, in particular, led to KENZO's commercial success.
2) In light of:
- the general obligation of the LICENSEE:
o to maintain the reputation of the KENZO trademark and to act
consistently therewith;
o to ensure particularly careful manufacture and distribution
consistent with the renown and reputation of the KENZO trademark;
o to adopt the same standard and level of quality as the other
ready to wear KENZO lines;
o to only use articles bearing the KENZO JEANS label for sale
purposes;
o to adopt a selective sales point marketing policy;
o to accept that the KENZO Homme line will be distributed in the
Territory (see article 2);
o not to interfere with the KENZO's partner who will eventually
distribute this KENZO Homme line in the Territory;
- and the sales objectives and business plan to be provided to KENZO by
the LICENSEE by the end of September 1996,
KENZO hereby concludes the present agreement with the LICENSEE. It is
hereby specified that the general obligation set forth above, the
objectives and the LICENSEE's business plan constitute for KENZO the
rationale and the determinative basis for its consent to conclude the
present agreement and shall determine the spirit in which the present
agreement shall be interpreted in the event of any difficulty in the
performance hereof.
-3-
<PAGE>
IT HAS BEEN AGREED AS FOLLOWS:
ARTICLE 1: PURPOSE
1-1) KENZO hereby grants to the LICENSEE, which accepts, an exclusive license
for the manufacture and distribution of THE MEN'S AND WOMEN'S READY TO WEAR
GARMENTS LINE BEARING THE KENZO JEANS LABEL. The products will have to be
completed and manufactured based on KENZO's designs and/or those approved
in advance by KENZO.
1-2) This KENZO JEANS line will have to be an interpretation of the original
KENZO JEANS line for the US market and shall be developed with appropriate
specifications for this market, without interfering with the original KENZO
Homme line.
The concept of this US KENZO JEANS line, the number of models to be
included in the collection, the variety of fabrics, the number of models
per references of items (slacks, trousers, blousons, jackets etc....) shall
be mutually agreed by the parties.
In case of an eventual misunderstanding of the interpretation of the
concept of the KENZO JEANS line, both parties agreed to discuss amicably
with a view to find a mutual arrangement.
The Products price policy will have to be competitive but to remain in
harmony with other KENZO lines however.
1-3) The Products will have to be identified very clearly in order to avoid any
confusion with other men's or women's ready to wear KENZO lines: in
particular all the "jacquard" or print designs if they use a KENZO logo, it
will be strictly compulsory to use KENZO JEANS logo and not KENZO alone.
1-4) The LICENSEE may manufacture and/or distribute, directly or otherwise,
other men's or women's ready to wear lines only after having so informed
KENZO prior to making any such commitment, and consulted with KENZO to
discuss any issue of compatibility of such lines with KENZO JEANS.
In the event KENZO grants its consent, the LICENSEE hereby warrants that
the manufacture and/or distribution of said new trademarks shall not change
the attention which it devotes to the Products and that it shall continue
to devote the same care thereto.
ARTICLE 2: TERRITORY
2-1) The present agreement grants to the LICENSEE the exclusive right to
manufacture and sell the Products in THE AREA GOVERNED BY THE NORTH
-4-
<PAGE>
AMERICAN FREE TRADE AGREEMENT (I.E. USA, CANADA AND MEXICO)
hereinafter referred to as the "Territory".
It is hereby specified that this exclusive manufacturing and marketing
right is granted to the LICENSEE only for local markets in the
above-indicated countries and not for the duty free places within the
Territory.
2-2) KENZO agrees the LICENSEE manufacture some Products in Asia. The LICENSEE
shall notify KENZO at the beginning of each season of any other manufacture
outside the Territory.
2-3) The LICENSEE may sell the Products in countries which are not part of the
Territory with the prior written consent of KENZO. Said consent shall be
provided season-by-season and country-by-country pursuant to a business
plan. However, said consent shall not constitute a grant of any rights to
an indemnity for the LICENSEE if KENZO does not extend its consent for the
following season or grants a license to a third party for one or more of
said countries.
KENZO may subject its consent for sales outside of the Territory to the
establishment thereby of specific financial conditions.
In all cases, the LICENSEE must pay to KENZO the royalties for said sales
outside the Territory over and above the royalties based on the sales
within the Territory (therefore, over and above the minimum requirements,
as applicable).
Accordingly, in no event shall the royalties outside of the Territory be
added to those used for the Territory with respect to said minimum
requirements.
ARTICLE 3: TERM
THE PRESENT AGREEMENT SHALL GOVERN FIVE YEARS BEGINNING WITH THE SPRING/SUMMER
1997 SEASON AND, CONSEQUENTLY, SHALL TERMINATE UPON COMPLETION OF THE
AUTUMN/WINTER 2001 SEASON.
It shall be automatically renewed for the same term if the parties have met
during the month of June 2000 to assess the operation of the license during its
initial period and to define new minimum royalties. In no event shall said
minimum royalties during any license renewal period be less than the higher of
the following amounts:
o the royalty levels reached during the last year of the present
license, or
o the minimum royalties set for the last year of the present license
(i.e. US $450,000.00).
-5-
<PAGE>
ARTICLE 4: CREATION
4-1) In order to develop the US KENZO JEANS line in accordance with the
specifications of the US market, the specific "designer/merchandiser" in
charge of the KENZO STUDIO line shall be also responsible for the
interpretation of the original KENZO JEANS line for the US market.
The parties agree that all expenses relating to this
"designer/merchandiser" in charge of the KENZO STUDIO line as well as the
US KENZO JEANS line (fees, all monthly financial compensations, travel
costs specially between Paris and the USA, daily expenses, hotels,
restaurants, phone and fax costs, shopping, equipments, administrative
assistance services, French language instruction, discount on KENZO
merchandise, etc.... this list being not limitative) shall be shared
equally between KENZO and the LICENSEE. Therefore, the LICENSEE shall
reimburse the half amount of these KENZO's expenses.
4-2) KENZO shall supply to the LICENSEE:
- sketches,
- patterns,
- assortment of color ideas, suggested combinations of colors,
- swatches of fabrics and materials.
In the event the LICENSEE requires an original KENZO JEANS collection (or
any other original KENZO collection), this collection will be sold to the
LICENSEE at the KENZO's export price.
4-3) From the original KENZO JEANS collection, the LICENSEE will have the
possibility to propose to KENZO any modification of design or style or
material in order to meet the request and specifications of the US market.
However, these LICENSEE's proposals shall fully conform with the plan of
collection and with the KENZO trademark fame.
Any LICENSEE's proposals shall be discussed with KENZO and will have to
receive the KENZO's approval prior inclusion within the collection.
IN THE EVENT OF APPROVAL BY KENZO AND THE INCLUSION THEREOF IN THE
COLLECTION, SAID LICENSEE'S PROPOSALS SHALL BECOME THE EXCLUSIVE PROPERTY
OF KENZO AND THE LICENSEE HEREBY WARRANTS KENZO AGAINST ANY CLAIMS BY THIRD
PARTIES REGARDING TITLE TO SAID ITEMS. IN ADDITION, THE LICENSEE HEREBY
WARRANTS WITH RESPECT TO KENZO THAT ITS EMPLOYEES SHALL WAIVE ANY PROPERTY
RIGHTS IN SAID ITEMS.
4-4) IN ANY EVENT, KENZO SHALL BE DEEMED TO BE THE SOLE CREATOR AND TITLE HOLDER
TO THE ORIGINAL DESIGNS AND MODELS CREATED OR APPROVED THEREBY. THEREFORE,
KENZO MAY FREELY USE SAID DESIGNS AND MODELS OUTSIDE OF THE TERRITORY.
-6-
<PAGE>
The LICENSEE shall only be authorized to use said designs and models
pursuant to the present agreement for the manufacture and distributions of
the Products within the Territory. As a result, the LICENSEE shall be
prohibited from using said items, which are the property of KENZO, for its
personal requirements and/or for labels other than KENZO JEANS.
ARTICLE 5: MANUFACTURE
5-1) All models or items manufactured by the LICENSEE based on designs developed
or approved by KENZO must be so manufactured using very high quality and
durable materials and colors approved in advance by KENZO.
All said models or items must be marketed exclusively under the KENZO JEANS
label (and not KENZO alone).
5-2) The LICENSEE shall submit to KENZO for approval the final prototype of all
items. It is hereby specified that any modifications to the model must also
be approved in advance by KENZO and that said submission to KENZO must take
place in accordance with a timetable which allows KENZO to request and
obtain any modifications necessary prior to production and/or marketing.
Except in the event it is submitted to and approved by KENZO during a
collection meeting, any item (prototype, model, etc.) submitted to KENZO
for approval shall be deemed approved thereby if it is not refused in
writing ten (10) days following effective receipt thereof by KENZO.
The LICENSEE shall not manufacture, distribute, advertise or sell any item
before the sample (or the prototype) has been approved by KENZO. All goods
manufactured, distributed or sold by the LICENSEE shall fully conform with
the approved samples (or prototypes) and no modification thereof shall be
permitted without the prior written approval by KENZO.
5-3) The designs and models selected shall in all events be kept confidential
until the first presentation to customers and/or the press, which events
shall be determined with KENZO's consent. In addition, the LICENSEE shall
be obligated to preserve the confidentiality of any of KENZO's designs and
models which are not manufactured and/or marketed.
5-4) The KENZO JEANS label may only be affixed on Products which conform fully
with the quality and manufacture of the models, designs and prototypes
created or accepted by KENZO.
KENZO shall have the right, which the LICENSEE hereby acknowledges, to
inspect the quality, conformity and finish of the articles which are to
bear the KENZO JEANS label and to prohibit the sale of those articles which
do not meet the quality requirements and/or those articles which have not
been submitted to
-7-
<PAGE>
KENZO, after having forwarded notice to this effect to the LICENSEE by
registered letter, return receipt requested, or by telex.
Each season, it will be therefore the responsibility of the LICENSEE, prior
to his sale start, to inform KENZO of the time when collection will be
fully ready for an eventual final inspection.
5-5) Each season, for the requirements of the KENZO Press and Licenses
Departments, the LICENSEE shall provide at no cost to KENZO and outside of
the advertising investment one complete collection of Products.
Over and above this collection, the cost of any additional pieces shall be
invoiced to KENZO at the cost thereof to the LICENSEE.
5-6) The LICENSEE agrees to refrain directly or indirectly manufacturing
Products in quantities which are not consistent with the orders received.
With respect thereto the percentage of manufacture shall not exceed 110% of
the anticipated orders.
5-7) The LICENSEE may subcontract the manufacture of some Products, provided
that KENZO shall have been notified in writing as to the subcontractors
being used prior to beginning of production for each season.
IN ALL CASES, THE LICENSEE SHALL REMAIN LIABLE TO KENZO FOR THE SERVICES
PROVIDED BY SAID SUBCONTRACTORS.
The LICENSEE hereby agrees also to regularly inform KENZO of any difficulty
arising between it and its subcontractors.
In addition, KENZO's right to inspect (see Article 10) shall also apply to
any subcontractors. Accordingly, the LICENSEE hereby agrees to so provide
in its agreements with its subcontractors.
ARTICLE 6: KENZO VISUAL IDENTITY STANDARDS
6-1) A Visual Identity Standards Booklet containing the shapes, colors,
trademark, labeling and/or brand indicators and any logo to be placed on
the Products, their packaging, sales material and/or the LICENSEE's
administrative documents (letterhead, orders, invoices, etc.) shall be
provided to the LICENSEE by KENZO.
AS A GENERAL MATTER, THE LICENSEE HEREBY AGREES TO COMPLY STRICTLY WITH THE
CONTENTS OF THE BOOKLET AND TO ENSURE THAT ITS OWN CUSTOMERS COMPLY
THEREWITH.
Except if KENZO has otherwise agreed in writing, the LICENSEE shall be
prohibited from affixing any logos, trademarks or indications whatsoever
other
-8-
<PAGE>
than those listed above and provided by KENZO on the Products and/or their
packaging, those which indicate the composition of the fabric or the type
of fibers used, those which indicate how to care for the product and those
which are mandatory pursuant to imperative local law and regulations.
In addition, the LICENSEE must submit all packaging, wrapping, documents
and materials such as boxes, bags, catalogues, posters, etc....which are
used for the sale and promotion of the Products for KENZO's prior approval.
Said submission must take place in accordance with a timetable which allows
KENZO to request and obtain any modifications necessary prior to production
and/or marketing.
If the LICENSEE so desires, KENZO may undertake a graphic and advertising
study at the LICENSEE's expense.
Any proposal from the LICENSEE submitted to KENZO for approval shall be
deemed approved if it has not been refused in writing by KENZO within
twenty (20) days of the actual receipt thereof by KENZO.
In accordance with the hereabove paragraphs, upon reasonable request made
by KENZO, the LICENSEE shall furnish samples of the advertising material,
labeling, packaging and boxing thereof, to allow KENZO to verify that the
specifications regarding the quality of marketing and advertising are fully
complied with by the LICENSEE.
6-2) IN ADDITION, THE LICENSEE SHALL ENSURE THAT ALL DISTINCTIVE KENZO LABELS
(STICKERS, LOGOS, TRADEMARK INDICATORS, WRAPPING, ETC.) USED BY ITS
CUSTOMERS AT THEIR POINTS OF SALE OR USED THEREBY TO INDICATE THE SALE OF
KENZO JEANS LINE FULLY COMPLY WITH THE STANDARDS SET BY KENZO (SEE THE
VISUAL IDENTITY STANDARDS BOOKLET).
SIMILARLY, THE LICENSEE MUST PROHIBIT ITS CUSTOMERS FROM USING A STORE SIGN
OR OTHER INDICATION WHICH MIGHT LEAD THE PUBLIC TO BELIEVE THAT THE STORE
ONLY SELLS KENZO TRADEMARK GOODS OR IS A KENZO SINGLE-BRAND BOUTIQUE WHEN
THIS IS NOT THE CASE.
-9-
<PAGE>
ARTICLE 7: COLLECTIONS TIMETABLE
The collections timetable shall be as follows:
===============================================================================
SPRING/SUMMER AUTUMN/WINTER
COLLECTIONS COLLECTIONS
- -------------------------------------------------------------------------------
Supply of informations by KENZO February September
- -------------------------------------------------------------------------------
Cooperation in PARIS between
KENZO and the LICENSEE for the
selection of prints fabrics,
materials . . . March/April October/November
- -------------------------------------------------------------------------------
Prototypes ready for approval by
KENZO May December
- -------------------------------------------------------------------------------
Show to the LICENSEE's
distributors and customers September March
- -------------------------------------------------------------------------------
Distribution starts February August
===============================================================================
The LICENSEE's product manager in charge of the Products shall come to Paris
once or twice every season to discuss plan of collection, selection of suitable
fabrics as well as any other technical matters related to the preparation of the
Products collection.
ARTICLE 8: DISTRIBUTION
8-1) The LICENSEE shall distribute the Products throughout all the Territory.
If during 2 successive seasons, the LICENSEE does not market the Products
in a significant manner within certain countries within the Territory,
KENZO shall have the right to immediately exclude said countries from the
Territory, provided, however, that Canada and Mexico shall not be excluded
even if sales in these countries do not begin before 1998.
8-2) The LICENSEE shall provide KENZO with the name of its representative who is
authorized to handle all problems with KENZO which may arise in connection
with the daily management of the present license.
8-3) The general policy and coordination of the distribution of the Products
shall be determined by mutual agreement between KENZO and the LICENSEE.
In particular, in order to protect the KENZO trademark and to ensure that
the distribution of the Products within the Territory is consistent, the
LICENSEE hereby agrees to take into consideration KENZO's recommendations
and general policy, subject to local regulations regarding marketing and
prices.
-10-
<PAGE>
8-4) The Products distribution shall always be organized by the LICENSEE clearly
in accordance with the US concept.
The LICENSEE agrees that Product sales display sites shall be located on
commercial premises which correspond to the quality and high reputation of
the KENZO trademark.
If there is any problem concerning the quality and the choice of the points
of sales, a discussion should be held immediately between KENZO and the
LICENSEE to settle the matter according to the best interest of KENZO brand
image policy.
The LICENSEE shall be prohibited from using display or sales sites which
operate under a name of a direct competitor of KENZO or the name of a large
distributor which is affiliated with the discount sector.
8-5) The LICENSEE shall inform KENZO in advance of its future distributors
and/or agents in each part of the Territory in order to maximize the
synergies between the KENZO distributors. KENZO reserves the right to
refuse any such entities on an exceptional basis, in good faith and with
justification therefor.
8-6) The LICENSEE hereby acknowledges the importance of KENZO-single brand
stores for the development of the image and reputation of the KENZO
trademark.
As a result, the LICENSEE hereby agrees to directly fill itself the orders
from said KENZO-single brand stores in the event that its local distributor
defaults or in the event that there are difficulties between said
distributor and the KENZO-single brand store(s) in question.
In addition, KENZO-single brand stores shall receive an 8% discount on the
local wholesale price regardless of whether they are supplied with Products
directly from the LICENSEE or through distributor thereof.
8-7) The location, space and design of any specific KENZO JEANS boutiques or
other specific retail outlet to be established by the LICENSEE for the sale
of the Products in the Territory shall be previously approved in writing by
KENZO. Plans, designs and concept of such boutique or retail outlet shall
be submitted for approval prior to execution in order to maintain KENZO
identity. Such materials once approved by KENZO can be used thereafter
unless they are changed in full or on a large scale. Any material
alteration to the approved design shall also be approved in writing by
KENZO.
The outfitting of stands and/or corners at which the Products will be sold
or displayed (department stores, salons, etc.), as well as "point of sale
materials" must also conform with the quality image of the KENZO trademark.
They must be approved in advance by KENZO.
-11-
<PAGE>
The expenses for creating these specific KENZO JEANS boutiques, stands,
corners and sales material shall be borne by the LICENSEE.
8-8) The LICENSEE shall reserve a specific place within its show room in NEW
YORK for the display of only the Products. The design and outfittings of
this place shall be approved by KENZO to reflect the KENZO identity.
8-9) If a distributor does not possess or no longer possesses all of the
characteristics which are reasonably required thereof with respect to
display window presentation, the general maintenance and appearance of the
KENZO stand or sales point, the LICENSEE hereby agrees to refuse any orders
for the following seasons.
8-10) The LICENSEE shall be solely liable for the successful filling of
orders received thereby from its customers.
The LICENSEE shall be obligated to comply with the local usual delivery
deadlines in the profession.
The LICENSEE hereby also agrees to ensure that the Products shall be
shipped in appropriate packaging and via appropriate means.
8-11) Without KENZO's prior written consent, the LICENSEE shall be prohibited
from:
- directly or indirectly discounting the Products outside of its usual and
regular customer network; and
- using the KENZO trademark and/or the KENZO JEANS label in any manner
whatsoever (other than those set forth below) in any advertising or
promotional discount or inventory liquidation activity.
If a residual inventory of Products exists at the end of any season, said
residual inventory must only represent a very small percentage of the total
production for said season.
The LICENSEE shall attempt to liquidate said residual inventory by
successively taking the usual steps in this area: sales to its employees at
sacrifice prices, sales of the Products with labels clearly defaced and cut
in those stores or countries agreed upon with KENZO. The opening of outlet
stores in the Territory will be permissible, provided that no in - season
merchandise be sold in these stores.
Any other activity to liquidate inventory must be approved in advance by
KENZO. KENZO may not unreasonably withhold its approval provided that the
LICENSEE suggests its own steps to reduce and/or eliminate residual
inventory which do not harm the image of the KENZO trademark.
-12-
<PAGE>
ARTICLE 9: INFORMATION TO BE PROVIDED TO KENZO
9-1) The LICENSEE shall provide the following information to KENZO:
a) Regarding the Spring/Summer season in year "x":
o in July of year x-1: the provisional sales and turnover objectives
for that season;
b) Regarding the Fall/Winter season in year "x":
o in January of year x: the provisional sales and turnover objectives
for that season;
c) Regarding each season:
o prior to the 15th and 30th of each month, the orders received
during the preceding fifteen days;
o prior to the 15th of each month, the sales invoiced by season (see
the definition in paragraph 11-2) during the preceding month; and
o at the beginning of each season, the full "sales book" including,
inter alia, references and wholesale prices for all Products in
the collection.
It is hereby specified that, first, the sales, order and effective sales
objectives shall be expressed by country, number of customers and total
number of pieces and, second, THAT THE FINAL ANNUAL SALES INVOICED MUST BE
CERTIFIED BY THE LICENSEE'S STATUTORY AUDITOR(S).
9-2) In addition, at the end of the sales for each season, the LICENSEE shall
inform KENZO of:
- the sales for said season by product reference;
- a list of Products sales points by country;
- the deliveries compared to pre-season orders; and
- the residual inventory in number of pieces and value (using the
LICENSEE's production value).
9-3) Generally, the LICENSEE shall regularly inform KENZO of the market, its
distribution policy and the activities of competitors.
-13-
<PAGE>
ARTICLE 10: KENZO INSPECTIONS
10-1) The LICENSEE hereby acknowledges that KENZO has the right to monitor
compliance with the present agreement with respect to the Products
manufactured, subcontracting, the quality of materials used,
advertising and the use of the KENZO trademark by the LICENSEE and its
customers, deliveries and distribution of the Products, financial
obligations, etc.
10-2) During the term of the present agreement and until completion of the
last sales, the LICENSEE must maintain complete, detailed and accurate
accounting records which show the quantity of Products manufactured
and/or sold. In addition, it must preserve all supporting documentation
used in the calculation of the royalties owed to KENZO, as well as all
supporting documents regarding sales of Products without labels and
inventory liquidation.
During the term of the present agreement and for a period of 12 months
following the expiration hereof, KENZO and/or its authorized
representatives shall have access to said accounting records and/or
supporting documentation, provided that the LICENSEE is notified thereof
at least one month in advance. KENZO and/or its representatives must keep
any information which is not related to the Products of which they may
become aware during said visits confidential.
In addition, in light of the management requirements of LVMH, a company
listed on the Paris Stock Exchange which consolidates KENZO's activities,
every two years an audit of the LICENSEE's accounting records with respect
to this licensing agreement and, generally, of the KENZO-related
activities of the LICENSEE, shall be conducted by KENZO (or by auditors
designed by KENZO).
If an inspection of the LICENSEE's books by KENZO and/or the audit
described above shows errors or differences to KENZO's detriment during
any whatsoever of the years inspected, the LICENSEE must immediately
correct said error and pay KENZO the balance which is due thereto.
In addition, if for a given year, said errors or differences equal more
than 5% of the total of the royalties paid by the LICENSEE during said
year, the total cost of said accounting inspection or audit shall be borne
by the LICENSEE and reimbursed to KENZO.
Such inspections and audits at KENZO's initiative may begin with the
effective date of the present license.
10-3) KENZO shall also have access to the LICENSEE's facilities (commercial and
administrative offices, show rooms, manufacturing sites, warehouses, etc.)
and to those of its sub-contractors and/or sub-LICENSEEs upon providing 10
days notice.
-14-
<PAGE>
ARTICLE 11: ROYALTIES
11-1) IN RETURN FOR THE KNOW-HOW AND THE CREATION AND IN RETURN FOR THE RIGHT
TO USE THE KENZO TRADEMARK AND THE KENZO JEANS LABEL, THE LICENSEE
SHALL PAY A ROYALTY TO KENZO FIXED AT 8% OF THE INVOICED SALES AS
DEFINED IN PARAGRAPH 11-2.
11-2) The sales used as the basis for calculating the royalties owed by the
LICENSEE shall cover THE NET CONSOLIDATED WHOLESALE TURNOVER INVOICED
BY THE LICENSEE, ITS SUBSIDIARIES AND ITS SUB-LICENSEES TO THIRD
PARTIES (EXCLUDING ANY AFFILIATES OF THE LICENSEE).
ARTICLE 12: ADVERTISING INVESTMENT
The LICENSEE hereby acknowledges that the reputation and distribution of the
KENZO trademark depends, inter alia, on direct and indirect media advertising,
contacts maintained with the media, fashion shows and presentations, organizing
exceptional events, etc.
AS A RESULT, THE LICENSEE HEREBY AGREES TO INVEST EACH YEAR A MINIMUM BUDGET FOR
LOCAL PUBLICITY AND PROMOTION FOR THE PRODUCTS AND TO PROVE IT TO KENZO BY
SENDING DOCUMENTARY REPORTS AND RELATIVE JUSTIFICATIONS.
THIS MINIMUM BUDGET WILL BE:
- - DURING THE TWO FIRST YEARS (I.E. 1997 AND 1998): 6% OF THE ANNUAL TURNOVER
DEFINED IN PARAGRAPH 11-2,
- - AS FROM THE THIRD YEAR: 3% OF THIS ANNUAL TURNOVER.
ANY ADVERTISING, ANY PUBLICITY, ANY PUBLICITY OR PROMOTIONAL CAMPAIGN, WHICH IS
PLANNED BY THE LICENSEE MUST BE SUBMITTED TO KENZO FOR APPROVAL BEFORE THE
REALIZATION THEREOF. IN THIS RESPECT, THE LICENSEE SHALL INITIATE ONLY PUBLICITY
OR ADVERTISING WHICH HAS BEEN APPROVED BY KENZO.
In the event that, at the end of the year, and after the application of the last
amounts which are coming to be posted to its credit, the budget would show any
available balance, such available amount will be carried forward to the
following year in order to increase the budget thereof.
AT THE TIME OF EXPIRY OF THIS AGREEMENT, THE LICENSEE SHALL PAY KENZO THE
BALANCE OF THE ADVERTISING BUDGET NOT SPENT DURING THE LAST YEAR OF THIS
AGREEMENT.
-15-
<PAGE>
ARTICLE 13: MINIMUM ROYALTIES
13-1) DURING THE ENTIRE TERM OF THE PRESENT AGREEMENT, THE LICENSEE HEREBY
WARRANTS TO KENZO THAT DURING A GIVEN YEAR (S/S + A/W SEASONS), THE
ROYALTIES PAID BY THE LICENSEE TO KENZO FOR SAID YEAR SHALL NOT BE LESS
THAN THE FOLLOWING MINIMUM AMOUNTS:
=============================================
Minimum Guaranteed
Year Royalties
---------------------------------------------
1997 US $ 200,000.00
1998 US $ 300,000.00
1999 US $ 350,000.00
2000 US $ 400,000.00
2001 US $ 450,000.00
=============================================
13-2) Including in the event of destructive accident (fire, flood, explosion,
etc.) which makes sales impossible or prevents the timely delivery of
the Products which have been ordered but not yet delivered, the
LICENSEE shall pay KENZO the minimum royalties for the year in
question.
13-3) At the end of each year covered by the present agreement and in light of
the guarantee provided above by the LICENSEE, KENZO shall have the
absolute right, which is hereby expressly acknowledged by the LICENSEE, to
terminate the present agreement by registered letter, return receipt
requested, if, during said year, the effective net wholesale turnover
reached by the LICENSEE is below to the equivalent minimum turnover
related to the minimum royalties of said year, provided, that for the
first two seasons, the LICENSEE shall have the right to preserve its
rights under this licensing agreement by paying the minimum royalties
required, regardless of underlying sales. The present article is a
termination clause.
The mechanism and the time period for said termination to take effect are
set forth in Article 19 below.
-16-
<PAGE>
ARTICLE 14: FINANCIAL PAYMENTS
14-1) Regardless of the sales actually generated by the LICENSEE (See the
definition set forth in paragraph 11-2), the minimum royalties specified
in section 13-1 hereabove shall be paid to KENZO in accordance with the
following timetable:
- within two weeks following the execution of
this licensing agreement:.............$200,000.00,
- on the first anniversary of the execution of
this licensing agreement:.............$300,000.00,
- on the second anniversary of the execution of
this licensing agreement:.............$350,000.00,
- on the third anniversary of the execution of
this licensing agreement:.............$400,000.00,
- on the fourth anniversary of the execution of
this licensing agreement:............$450,000.000,
14-2) The payment of the running over royalties in excess of the minimum
royalties related to each year shall be made within the first 10 days of
April of the following year.
In the event the present agreement is renewed, said system shall be
continued based on the same principle.
14-3) In the event of late payment, the amounts owed to KENZO by the LICENSEE
shall bear interest as a matter of law at one and one-half times the
French legal interest rate per month or fraction thereof while said
payment is late effective from the due date thereof, without any formal
notice requirement.
ARTICLE 15: SUB-LICENSES - NON-ASSIGNABILITY
15-1) THE LICENSEE SHALL BE PROHIBITED FROM GRANTING ANY SUB-LICENSES WITHOUT
THE PRIOR WRITTEN CONSENT OF KENZO. In the event of acceptance by KENZO,
the LICENSEE shall remain the joint guarantee with any such sub-licensees
with respect to the services performed thereby.
In addition, KENZO's inspection right as set forth in Article 10 shall also
apply to said sub-licensees and, therefore, the LICENSEE hereby agrees to
so provide in its agreements with such sub-licensees.
15-2) The present agreement may not be assigned by the LICENSEE, in whole or in
part, in any form whatsoever, directly or indirectly, for consideration or
otherwise, without KENZO's prior written consent.
-17-
<PAGE>
ARTICLE 16: PROTECTION OF KENZO TRADEMARKS
16-1) The LICENSEE hereby acknowledges KENZO's exclusive title to the "KENZO"
trademark and the derivatives thereof such as KENZO JEANS.
Consequently,
- all registrations of the KENZO trademark (and/or the derivatives
thereof) in any country whatsoever, regardless of the user thereof, may
only be completed for the exclusive benefit of KENZO and shall be
KENZO's property.
- KENZO shall have exclusive title to any rights to the KENZO and KENZO
JEANS trademark or label which may be acquired as a result of the use
of said trademark or label by the LICENSEE or its sub-licensees; and
- the rights granted to the LICENSEE shall be limited to those expressly
set forth in the present agreement.
16-2) The LICENSEE hereby agrees to not use the KENZO trademark (and/or the
derivatives thereof) in any manner whatsoever other than as a LICENSEE
pursuant to the present agreement.
In no event may the LICENSEE use the KENZO trademark or KENZO JEANS in its
name, as a trade name or on its store signs.
In addition, during the entire term of the present agreement and/or after
the termination hereof for any reason whatsoever, the LICENSEE hereby
agrees to not use any trademarks or labels which may be confused with
KENZO or with KENZO JEANS in any of its activities.
16-3) KENZO hereby warrants the existence of the filings and registrations of
the KENZO trademark set forth in Annex to the LICENSEE.
KENZO hereby also warrants to the LICENSEE that it has not granted any
other license for the Products within the Territory.
In no event shall KENZO be held liable by the LICENSEE if the LICENSEE
determines that counterfeiting has been committed.
16-4) ANY PROCEDURE CONCERNING THE PROTECTION OF THE KENZO TRADEMARK (AND THE
DERIVATIVES THEREOF) AGAINST THIRD PARTIES SHALL BE UNDERTAKEN BY KENZO AT
KENZO'S EXPENSE, RISK AND ADVANTAGE. THEREFORE, THE LICENSEE MAY IN NO WAY
UNDERTAKE ANY ACTION WITH RESPECT TO COUNTERFEITING, OBJECT TO THE FILING
OF A TRADEMARK, HAVE COUNTERFEIT PRODUCTS SEIZED AND/OR REQUEST THAT SUCH
PRODUCTS BE HELD BY CUSTOMS AUTHORITIES.
-18-
<PAGE>
However, in the event that KENZO does not take action, the LICENSEE may
only take action, if it deems fit, if it has obtained KENZO's prior written
consent. In such event, the LICENSEE shall act at its own risk and peril.
If it has suffered or may suffer damages in its own right, the LICENSEE may
also participate in any proceedings undertaken by KENZO.
16-5) The LICENSEE hereby agrees to assist KENZO in the protection and/or
defense of the KENZO trademark (and the derivatives thereof), in
particular by providing KENZO with any information necessary therefor and
by informing KENZO of any counterfeiting, unfair competition, etc. of
which it becomes aware.
ARTICLE 17: PROTECTION OF MODELS
KENZO hereby grants to the LICENSEE the right to reproduce the models which
KENZO has created or approved.
SAID REPRODUCTION RIGHT ONLY GOVERNS THOSE MODELS MUTUALLY AGREED UPON FOR
COMMERCIALIZATION.
SAID MODELS MAY BE PROTECTED BY REGISTRATIONS IF KENZO DEEMS APPROPRIATE. SAID
REGISTRATIONS MAY ALSO BE UNDERTAKEN ON BEHALF OF KENZO AND AT KENZO' EXPENSE IF
THE TWO PARTIES AGREE THIS IS NECESSARY.
The existence or absence of registered models shall not have any impact on the
present agreement.
In the event that the models are copied by third parties or in the event of
legal action undertaken by third parties, the provisions of Article 16-4 and
16-5 above shall apply.
ARTICLE 18: TERMINATION
18-1) In the event any whatsoever of the clauses of the present agreement are
not performed, said agreement shall be terminated, if the non-defaulting
party so elects, one month after notice to perform provided by registered
letter, return receipt requested, which expressly lists said clause and
which does not result in a cure. The present article is a termination
clause.
However, in the event of a serious default by either of the parties (in
particular if the LICENSEE compromises the image of the KENZO trademark or
uses of any deceptive, misleading or unethical practices, or does not pay
any whatsoever of the royalties hereabove mentioned) and in the event that
a party goes bankrupt or into liquidation or has a receiver appointed to
any of its assets, the other party may immediately terminate the present
agreement by registered letter, return receipt requested. The present
article is also a termination clause.
In either case, said termination shall take effect as set forth in Article
20 below.
-19-
<PAGE>
18-2) KENZO may also terminate the present agreement effective immediately by
registered letter, return receipt requested:
- if Mr. Bernard MANUEL ceases to actually manage the LICENSEE,
except in the event of agreement between the new LICENSEE's Chief
Executive Officer (and/or Chairman of the Board) and KENZO;
- and/or in the event of a change in the majority or the actual control
of the LICENSEE, except in the event of agreement subsequent to said
transfer between the LICENSEE and KENZO.
The present article is a termination clause.
As a result, the LICENSEE hereby agrees to immediately inform KENZO in the
event any of the conditions above are met.
ARTICLE 19: END OF THE AGREEMENT
19-1) In the event of the termination of the present agreement during any
whatsoever retail season "S", immediately upon receipt of the termination
notice from KENZO, the LICENSEE must:
- immediately return to KENZO all original documents thereof (designs,
sketches, patterns, etc...), relating to the last Products collection
prepared (i.e., collection S + 2); and
- only manufacture and deliver those Products for season S + 1 to its
usual and regular customers in quantities consistent with those of
previous seasons.
The LICENSEE hereby agrees that said manufacture and said delivery for the
season S + 1 shall be completed in good faith and under conditions which
do not compromise the image of the KENZO trademark. Royalties set forth
above will be due to KENZO on said sales.
THE TERMINATION OF THE PRESENT AGREEMENT SHALL TAKE EFFECT AT THE END OF
THE S + 1 SEASON (I.E., JANUARY 31 FOLLOWING TERMINATION NOTICE IF SAID
S + 1 SEASON IS A FALL/WINTER SEASON AND JULY 31 FOLLOWING SAID NOTICE IF
SAID S + 1 SEASON IS A SPRING/SUMMER SEASON). BEGINNING WITH SAID
EFFECTIVE DATE, THEREFORE, THE LICENSEE MUST CEASE ALL USE WHATSOEVER OF
THE KENZO TRADEMARK AND/OR THE KENZO JEANS LABEL (MANUFACTURE, SALES,
ADVERTISING, LETTERHEAD, ORDERS, INVOICES, ETC.), AS WELL AS THE USE OF
ANY KENZO CREATIONS OR ITEMS PREVIOUSLY APPROVED BY KENZO AND MUST RETURN
ALL DOCUMENTS TO KENZO RELATING TO THE PRODUCTS.
19-2) IN THE EVENT THE EXPIRATION OF THE PRESENT AGREEMENT IS NOT FOLLOWED BY
RENEWAL, AT THE END OF THE AUTUMN/WINTER 2001 SEASON, I.E., NO LATER THAN
JANUARY 31,
-20-
<PAGE>
2002, THE LICENSEE MUST CEASE ALL USE WHATSOEVER (MANUFACTURE, SALES,
ADVERTISING, LETTERHEAD, ORDERS, INVOICES, ETC.) OF THE KENZO TRADEMARK
AND/OR THE KENZO JEANS LABEL, AS WELL AS THE USE OF ANY KENZO CREATIONS
OR ITEMS APPROVED BY KENZO AND ALSO RETURN ALL DOCUMENTS TO KENZO
RELATING TO THE PRODUCTS.
19-3) If KENZO so requests, within 10 days following the effective date of the
termination of the present agreement or no later than February 10, 2002 in
the event of non-renewal, the LICENSEE shall destroy all of its inventory
of finished and semi-finished Products, whether labeled or not, which are
more than two seasons old, before outside witness approved by KENZO.
As an example of the above, if the termination takes effect at the end of
retail season S + 1, all inventory (whether labeled or not) from season
S - 1 and previous seasons must be so destroyed if KENZO so requests.
Within the above 10-days period, the LICENSEE must also return at no cost
to KENZO all original documents (designs, models, sketches, etc.) relating
to the Products, as well as all labels, sew-on labels, KENZO promotional
materials, Products wrapping and packaging and administrative documents
marked "KENZO" (letterhead, orders, invoices, etc.) which remain in its
possession. Beyond said period, therefore, the LICENSEE must not directly
or indirectly retain any of said items.
19-4) An inventory in the presence of both parties shall be prepared within 10
days of the above destruction if it takes place. If no such destruction
takes place, said inventory must be prepared within 20 days following the
effective date of the termination of the present agreement or the
expiration hereof which is not followed by renewal, in order to assess the
LICENSEE's inventory (regardless of the age thereof) of both:
- finished or semi-finished Products; and
- raw materials exclusive to KENZO.
KENZO shall have the right, if it so elects, to purchase all or part of
said inventory, provided that it is in good condition. Any such purchase
shall be made at the LICENSEE's cost price based on documentation presented
thereof.
KENZO shall inform the LICENSEE of whether or not it intends to exercise
its purchase right by registered letter, return receipt requested, within
10 days of the above inventory.
If KENZO does not exercise said right or only exercises it partially, the
LICENSEE shall have 5 months from the date of receipt of KENZO's response
to market its residual inventory of finished Products AFTER HAVING REMOVED
THE LABELS in packaging which does not bear any reference to KENZO.
-21-
<PAGE>
KENZO hereby agrees that an exception to the label removal requirement
(and, therefore, also to the provisions of Articles 19-1 and 19-2) shall
be made for any of the Products which cannot have the labels removed
without damaging them. Said labeled Products may be sold only to customers
accepted by KENZO and shall, therefore, constitute the last authorized use
of the KENZO trademark by the LICENSEE.
IN THE EVENT OF THE TERMINATION OF THE PRESENT AGREEMENT FOR SERIOUS
DEFAULT BY THE LICENSEE, SAID 5 MONTH PERIOD SHALL BE REDUCED TO 1 MONTH.
Upon conclusion of said 5-month (or 1-month) period, the LICENSEE must
destroy all of its remaining Product inventory, whether labeled or not,
before outside witness approved by KENZO.
19-5) At the end of the present agreement (i.e., upon its termination or
expiration without renewal), the LICENSEE may not claim any right with
respect to the KENZO trademark and the derivatives thereof such as KENZO
JEANS and/or the use thereof, or any indemnity with respect thereto.
ARTICLE 20: MISCELLANEOUS
20-1) The fact that at any time one party does not request the other party to
comply with the totality of the present agreement and/or does not exercise
any right whatsoever arising hereunder shall not constitute a waiver
thereof.
20-2) The parties hereby agree to cooperate to modify any clauses which may be
declared null and void so that similar economic results are obtained. If
this is not possible, said clauses shall be reduced to their maximum
authorized scope.
20-3) The LICENSEE shall indemnify and save and hold KENZO harmless for and
against any and all liabilities, claims, causes or actions, suits, damages
and expenses (including attorney's fees and expenses) which either becomes
liable for, or may incur or to be compelled to pay by reason of any acts,
whether of omission or commission, that may be committed or suffered by
the LICENSEE or any of its servants, agents, contractors or employees in
connection with the LICENSEE's performance of this agreement or in
connection with the goods manufactured by the LICENSEE or as a result of
any liabilities with which KENZO's designee may be charged because of
damages or injuries suffered by any servants, agents, contractors,
employees or customers of the LICENSEE or by the general public, resulting
from the use or sale of the goods sold or presented by the LICENSEE.
20-4) FRENCH LAW SHALL EXCLUSIVELY GOVERN THE INTERPRETATION AND PERFORMANCE OF
THE PRESENT AGREEMENT.
-22-
<PAGE>
IN ADDITION, THE PARTIES HEREBY EXPRESSLY AGREE THAT ALL DISPUTES ARISING
FROM THE INTERPRETATION OR PERFORMANCE OF THE PRESENT AGREEMENT SHALL BE
RESOLVED BY THE COURTS WITHIN THE JURISDICTION OF THE PARIS COURT OF
APPEALS.
20-5) All notices to be provided pursuant hereto must be delivered to the
registered offices of the parties indicated above where they hereby elect
their domicile.
Done in Paris on July 26, 1996, in two originals.
FOR KENZO FOR THE LICENSEE
- --------- ----------------
Richard SIMONIN Bernard MANUEL
Yves ALEMANY Irving BENSON
-23-
<PAGE>
EXTRAIT DE MARQUES APPARTENANT A LA SOCIETE KENZO
AU 23 JUILLET 1996 ANNEXE
MARQUES KENZO POUR DESIGNER LES VETEMENTS
(Classe internationale 25)
PAYS MARQUE Date de DEPOT No d'ENREGISTREMENT
CANADA KENZO PARIS 20 MAR 86 328 495
KENZO 27 SEP 72 255 373
KENZO 29 NOV 72 200 177
ETATS UNIS KENZO JEANS (FIG) 31 DEC 86 1 544 447
KENZO 3 AVR 79 1 214 902
MEXIQUE KENZO 5 DEC 90 338 251
KENZO 5 DEC 90 337 916
-24-
<PAGE>
KENZO
Paris, July, 26 1996
O/REF.: YA/JG/DB/496/96
MR BERNARD MANUEL
CYGNE DESIGNS INC.
1372 Broadway
NEW YORK, NY
10018 USA
Re: The KENZO JEANS Licensing Agreement
Dear Mr MANUEL,
In conjunction with our execution of the KENZO JEANS Licensing Agreement, we
hereby confirm the following:
1. The first season to which this Agreement shall apply shall be the
Autumn/Winter 1997.
Consequently:
- - this Agreement will cover 5 years as from the Autumn/Winter 1997 season to
the Spring/Summer 2002 season,
- - the meeting to examine this 5 years initial period (see article 3) shall be
held during December 2000.
However the first payment of the minimum royalties shall be made by your company
within the two following weeks (i.e. before August 9, 1996).
2. Further to your today's request, KENZO accepts this Licensing Agreement
shall only become effective upon its approval by the Board of Directors of
CYGNE DESIGNS Inc.
If such approval is not obtained on or before August 9, 1996, this Licensing
Agreement shall be terminated with no obligation on the part of either party.
Please confirm your agreement with these terms and conditions by signing this
letter in the space provided below.
KENZO CYGNE DESIGNS Inc.
by by
------------------------ ------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's Condensed Consolidated Balance Sheets and Condensed Consolidated
Statements of Operations and is qualified in its entirety by reference to such
financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 2,815
<SECURITIES> 0
<RECEIVABLES> 32,602
<ALLOWANCES> 0
<INVENTORY> 21,937
<CURRENT-ASSETS> 66,208
<PP&E> 13,151
<DEPRECIATION> 0
<TOTAL-ASSETS> 84,815
<CURRENT-LIABILITIES> 68,335
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 84,815
<SALES> 159,642
<TOTAL-REVENUES> 159,642
<CGS> 139,256
<TOTAL-COSTS> 139,256
<OTHER-EXPENSES> 17,337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,930
<INCOME-PRETAX> 1,491
<INCOME-TAX> 817
<INCOME-CONTINUING> 674
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
