<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the fiscal year ended December 31, 1997
OR
[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from ______________ to
____________
Commission File Number 0-24176
MARISA CHRISTINA, INCORPORATED
(Exact name of Registrant as specified in its charter)
Delaware 11-3216809
- ------------------------ -------------------
(State of Incorporation) (I.R.S.Employer
Identification No.)
8101 Tonnelle Avenue, North Bergen, New Jersey 07047-4601
- ---------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 758-9800
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par
Value $0.01 Per
Share (the "Common
Stock")
Indicate by check mark X whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes |X|
As of March 6, 1998, the aggregate market value of the outstanding shares of the
Registrant's Common Stock, par value $0.01 per share, held by non-affiliates was
approximately $25 million based on the average closing price of the Common Stock
as reported by Nasdaq National Market on March 6, 1998. Determination of
affiliate status for this purpose is not a determination of affiliate status for
any other purpose.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the most recent practicable date.
<TABLE>
<CAPTION>
Class Outstanding at March 6, 1998
----- ----------------------------
<S> <C>
Common stock, par value $0.01 per share 8,159,769 shares
</TABLE>
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for its 1998 Annual
Meeting of Stockholders are incorporated by reference into Part III hereof.
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
Part I
Item 1. Business.........................................................1
Item 2. Properties.......................................................7
Item 3. Legal Proceedings................................................8
Item 4. Submission of Matters to a Vote of Security Holders..............8
-- Executive Officers of Registrant.................................8
Part II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters.....................................10
Item 6. Selected Financial Data.........................................11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................12
Item 8. Consolidated Financial Statements and Supplementary Data........17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure..........................37
Part III
Item 10. Directors and Executive Officers of Registrant..................38
Item 11. Executive Compensation..........................................38
Item 12. Security Ownership of Certain Beneficial Owners and Management..38
Item 13. Certain Relationships and Related Transactions..................38
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K ....................................................39
<PAGE> 3
PART I
Item 1. Business
Overview
Marisa Christina, Incorporated (the "Company") designs, manufactures, sources
and markets a broad line of high quality clothing for women under the Marisa
Christina (TM) and Adrienne Vittadini(TM) labels and for children under the
Flapdoodles (TM) label.
Founded in 1971, the Company had several ownership changes prior to its public
offering in 1994. The Company acquired Flapdoodles in 1993 and Adrienne
Vittadini in 1996.
The Company's business strategy is to: (i) offer distinctive products that
reflect consumer preferences, (ii) introduce new products, (iii) expand
distribution through new and existing channels, (iv) minimize inventory risk,
(v) emphasize customer service, and (vi) add product lines through selective
acquisitions.
Principal Product Lines
Marisa Christina
Marisa Christina is best known for its high quality sweaters characterized by
classic, timeless styling, unique details, exciting yarns and textures, and
special occasion designs. Marisa Christina's product line also includes a
selection of other "classic look" garments encompassing knitted and casual
sportswear and complementary pieces such as skirts, slacks and jackets, many of
which are also produced in petite and large sizes. Suggested retail prices for
Marisa Christina products range from $100.00 to $150.00 for a sweater, $60.00 to
$90.00 for a specialty T-shirt and $78.00 to $110.00 for a woven skirt or pants.
Marisa Christina offers five "lines" per year. Each offering covers various
seasons, i.e., fall, holiday, resort, spring and transitional or early fall.
Fabrications vary from cotton and linen blends to synthetic and wool blends
depending upon the season. Each line consists of approximately 150 different
styles organized into twelve to eighteen groupings. These are marketed under
four primary labels: Marisa Christina (Classics), Marisa Canvas, Marisa Studio
and Christina Rotelli. In addition the Company offers special sizes, which
embrace both petite and large sizes, as well as private label and exclusive
merchandise.
In each selling season, Marisa Christina also offers a selection of
complementary blouses, skirts, pants and jackets, which when combined with
sweaters, creates complete outfits. The Company estimates that approximately 90%
of Marisa Christina customers order complementary pieces, and it is Marisa
Christina's policy to ship these orders as a group so that it can create a
single, unified display of merchandise. In addition certain designs and colors
are designated as exclusive merchandise for customers seeking to differentiate
themselves from other retailers by creating broad identity and signature looks.
Adrienne Vittadini
Adrienne Vittadini sportswear appeals to a wide range of women who look to the
designer for more of a casual expression that goes beyond basics to encompass
stylish and flattering designs. The Adrienne Vittadini customer base encompasses
young women in their middle thirties to more mature women in their sixties.
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The Company positions its product lines into two divisions: the Adrienne
Vittadini bridge collection and the Vittadini better-priced line. The bridge
collection reflects casual career dressing, athletic-inspired knits as well as
sweaters in novelty yarn, stitches and textures. Vittadini is a knitwear-driven,
better priced line that includes weekend and weekday dressing alternatives. It
includes many of the fashion looks that consumers have come to expect from
designer Adrienne Vittadini, combined with high quality and competitive pricing.
Adrienne Vittadini has established herself as a "lifestyle designer" and has
built a label that is not just about product but about taste level. This has led
to various licensing agreements that include swimwear, eyewear, footwear,
scarves and home furnishings, among others.
Flapdoodles
Flapdoodles offers casual yet fashionable clothing for children featuring
vibrant colors, all-natural fabrics, unique prints and textile designs.
Flapdoodles products consist of infants' and children's sportswear in sizes six
months through size 14, swimwear, outerwear and accessories. Five seasons per
year are offered and there are deliveries of new style groupings every 30-45
days to ensure a fresh flow of merchandise to Flapdoodles' accounts. Retail
prices range from $10-$50 for sportswear, $15-35 for swimwear, $50-$100 for
outerwear and $4-$20 for accessories.
Within each seasonal offering, the Flapdoodles line consists of between
approximately six and fifteen fashion groups. Fashion groups, usually consisting
of four to eight styles per group, may be based on special seasonal fabrics,
such as novelty knits, yarn-dyed knits and wovens, or jacquards, or based around
a specific print theme. These fresh, original print and textile designs are
custom developed by Flapdoodles' design staff and then produced according to its
specifications.
Basics are core styles, such as leggings, turtlenecks, T-shirts, sweatshirts and
sweat pants, that are made primarily from Flapdoodles key fabrics, including
jersey, rib, fleece and French terry. Because these styles are considered less
seasonal, customers tend to maintain inventories of these garments throughout
the year. Accordingly, Flapdoodles maintains an inventory of Basics in order to
fill customer orders and reorders quickly.
Design, Production and Raw Materials
Each of the Company's product lines has its own design team, which is
responsible for the creation of new and original designs for that product line.
The Company believes that its ability to create fresh and original designs while
maintaining the "look" of each of its product lines is one of the most important
factors to its success.
Marisa Christina has a staff of eight designers and merchandisers located in New
York City and five merchandisers located in Hong Kong. The staff is divided into
independent teams, each of which is responsible for certain labels and for
creating several groupings each season, which include knitwear and complementary
pieces. As the Company expands its product line to incorporate new design and
merchandising concepts, it hires designers with expertise in the new product
area. Designers are selected on their experience, their ability to create
interesting and original designs, and their expertise in knitting techniques and
technology.
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The design staff constantly monitors emerging trends in fashions and popular
culture and travels to Europe during the year in order to stay abreast of new
designs and trends. The Company also subscribes to design services that
summarize fashion trends worldwide. The design process generally requires ten to
twelve weeks from the initial concept stage to completion of sample garments for
a seasonal offering. The process begins with concept boards, developed by Marisa
Christina's design staff, showing style and color ideas. After review by senior
executives and sales staff, certain concept boards are selected for further
development. From these selections, new boards are created showing detailed
designs for garments and, after further review, drawings are selected to be
produced as proto-samples. Marisa Christina's merchandisers in Hong Kong work
together with manufacturers in executing and correcting all proto-samples.
Proto-samples are reviewed by the design staff, as well as senior executives and
sales staff, before final showroom samples are created, which generally requires
six to eight weeks.
Adrienne Vittadini supervises a design and merchandising team of eleven people.
Located in New York City, these artists and designers create the styles and
inspiration that culminate in a wide variety of clothing and licensed products.
A significant amount of research and worldwide travel insure that the latest
fashion concepts are reflected in Adrienne's products. The staff is informally
divided into three teams. One is responsible for the Adrienne Vittadini bridge
collection, another for the Vittadini better line and the third for licensed
products. The bridge collection has three offerings per year and the better line
opens four times a year.
Design concepts are integrated with yarn, fabric color and print ideas and sent
to a variety of overseas agents and factories where they are produced as
prototype samples. These are reviewed in New York, after which corrections are
sent abroad and finished sales samples are executed and returned to the New York
sales office. This entire process can take up to four months. In addition, the
design staff works closely with all licensees to insure that all products
bearing the Vittadini name maintain the high quality and fashion sensibility
associated with Adrienne Vittadini.
Flapdoodles' merchandising and design staff of eleven people creates all
Flapdoodles products. The design team is responsible for all aspects of product
development, including fabric research and sourcing, textile and print design,
color selection and body and silhouette styling. Flapdoodles selects designers
who have the ability to understand and interpret the Flapdoodles concept and a
strong appreciation for consumer preferences and market factors. In addition to
regularly soliciting feedback from the sales and customer service departments
regarding customer and consumer preferences, Flapdoodles designers also stay
abreast of fashion and market trends by attending trade shows and subscribing to
periodicals and fashion and color forecasting services. This information is then
synthesized and incorporated into designs that maintain the unique style of
Flapdoodles products.
To minimize inventory risk, the Company normally places orders for the
production of substantially all Marisa Christina merchandise only upon receipt
of customer orders. Flapdoodles' inventory risk is minimized by utilizing the
garment-dye process whereby garments are sewn in basic white fabrics and then
dyed, allowing Flapdoodles to make commitments to colors later in the selling
season after a portion of customer orders have been received. In 1998, AVE
intends to adopt similar buying philosophies as those used by Marisa Christina
to stabilize margins. This philosophy may adversely affect sales volume.
Marisa Christina separately negotiates with suppliers for the purchase of all
raw materials required for use by its United States contractors, in accordance
with its specifications and based on orders taken for the upcoming season. Raw
materials required for use by Marisa Christina's foreign-based contractors are
procured by the contractors in accordance with Marisa Christina's
specifications. Approximately one-quarter of the garments in the Marisa
Christina product line consist of hand-knit sweaters that have been knit in The
People's Republic of China and assembled in Hong Kong.
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Adrienne Vittadini sources yarn and fabrics from many different countries
including Italy, Japan, Portugal, Turkey, Hong Kong, Korea and China. While most
raw materials are purchased directly by Vittadini's overseas manufacturers there
are instances when the yarn or fabric is purchased directly by Vittadini. In an
effort to minimize inventory risk most orders are placed after market weeks
(initial sales presentations to customers) when the Adrienne Vittadini sales
staff is able to form judgments concerning the strength of various styles and
groupings. The majority of Vittadini products are produced in Hong Kong and
China.
The Company's operations with respect to Marisa Christina and Adrienne Vittadini
products may be significantly affected by economic, political, governmental and
labor conditions in Hong Kong and The People's Republic of China until alternate
sources of production could be found.
Flapdoodles separately negotiates with suppliers for the purchase of required
raw materials, in accordance with its specifications. The majority of its
products are manufactured in the United States.
Management of the Company believes raw materials to be readily available and can
be provided from a number of alternative suppliers.
Sales and Marketing
Marisa Christina has a direct sales force of ten full-time salespersons located
in the New York showroom who are compensated on a salaried basis. The direct
sales force is responsible for Marisa Christina's large department store and
specialty store chain accounts. Marisa Christina also utilizes independent sales
representatives who market Marisa Christina products to independent specialty
stores and boutiques and are compensated on a commission basis. In some cases,
these representatives also market products of other non-competing apparel
companies that have been approved by the Company. In addition, Marisa Christina
has arrangements with independent distributors in Mexico and Canada that sell to
various accounts outside the United States on a royalty basis as well as a
licensing arrangement in Japan.
Adrienne Vittadini's sales offices are headquartered in New York City. A
vice-president of sales and four account executives work with the division's
major department and specialty store accounts. Independent sales representatives
service regional specialty stores by traveling to the customer and exhibiting at
the major markets in Dallas, Los Angeles, Atlanta and Chicago. In addition, five
retail specialists work with retailers on product knowledge, implementing
in-store shops and special events. A recent special focus on the international
market has enlarged Vittadini's presence abroad. Canada, Mexico, Europe and the
Pacific Rim are areas presently retailing Adrienne Vittadini products in a
meaningful way. Through increased focus and the introduction of licensed
products the Company hopes to continue to grow in these markets. National and
regional advertising, public relations, in-store shops and personal appearances
are some of the methods used to promote the Adrienne Vittadini image.
Flapdoodles maintains seven corporate sales offices and showrooms in the
following markets: New York, Boston, Atlanta, Charlotte, Dallas, Los Angeles and
San Francisco. In addition to the eleven salespeople who staff the showrooms,
eight account representatives located at corporate headquarters in Newark,
Delaware provide sales and customer service support. Sales to customers are
accomplished at either showrooms, national or regional trade shows and market
weeks. All sales persons are compensated on a salaried basis with additional
bonus compensation based on performance. Flapdoodles also sells to accounts in
Canada and Japan through distributors. In order to promote its products,
Flapdoodles uses national trade and consumer magazine advertising, in-store
posters, gifts-with-purchases and marketing events such as "Flapdoodles Days"
and fashion shows.
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Trademarks
The Company owns all rights, title and interest in all of its trademarks. Marisa
Christina's trademarks are registered in the U.S. Patent and Trademark Office
and in the following other countries: Australia, Canada, Dominican Republic,
Great Britain, Hong Kong, Israel, Italy, Japan, the Philippines, Switzerland,
Venezuela and Mexico. Flapdoodles' trademarks are registered in the U.S., Canada
and Japan.
Adrienne Vittadini's trademarks are protected in the U.S., Canada and in the
following countries: Algeria, Argentina, Australia, Austria, Bahamas, Bahrain,
Benelux, Bermuda, Bolivia, Brazil, British Virgin Islands, Chile, China,
Colombia, Costa Rica, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador,
Finland, France, Germany, Greece, Haiti, Honduras, Hong Kong, Hungary, Iceland,
India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Lebanon,
Malaysia, Mauritius, Mexico, Morocco, New Zealand, Nicaragua, Norway, Pakistan,
Panama, Paraguay, Peru, Philippines, Portugal, Qatar, Russia, Saint Lucia, Saudi
Arabia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland,
Taiwan, Tangiers, Thailand, Trinidad & Tobago, Turkey, United Kingdom, Uruguay,
and Venezuela.
The Company diligently and vigorously protects its original designs against
infringement.
Seasonality
The Company's business is seasonal, with a substantial portion of its revenues
and earnings accruing during the second half of the year as a result of the
Back-to-School, Fall and Holiday selling seasons. This is due to both a larger
volume of unit sales in these seasons and traditionally higher prices for Fall
and Holiday season garments, which generally require more costly materials than
the Spring/Summer and Resort seasons. Merchandise from the Back-to-School and
Fall collections, the Company's largest selling seasons and Holiday, the
Company's next largest season, is shipped in the last two fiscal quarters.
Merchandise for Resort, Spring/Summer and Early Fall, the Company's lower volume
selling seasons, is shipped primarily in the first two quarters. In addition,
prices of products in the Resort, Spring/Summer and Early Fall collections
average 5% to 10% lower than in the other selling seasons. In 1997, net sales of
the Company's products in the first quarter were $25.6 million, $19.6 million in
the second quarter, $28.4 million in the third quarter and $17.8 million in the
fourth quarter.
Customers
The Company's products are sold in approximately 3,500 individual stores by over
3,000 retailers. Approximately 47% of the Company's 1997 net sales consisted of
sales to specialty stores and special store chains, including Talbots and Mark
Fore & Strike and 47% consisted of sales to department stores, including
Dillards, Federated Department Stores, Saks Fifth Avenue, Profitts and Neiman
Marcus. The balance was sold internationally to catalog merchandisers and
domestically through ten outlet store locations. In 1997, Saks Fifth Avenue,
Dillards, Federated Department Stores and Proffits accounted for approximately
9.4%, 5.9%, 5.2% and 5.1%, respectively, of the Company's net sales and were the
only customers that accounted for more than 5% of the Company's net sales.
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Backlog Orders
At January 31, 1998, the Company had unfilled customer orders of approximately
$21.4 million compared to $33.7 million at the same date in 1997. Because the
amount of backlog at a particular time is a function of a number of factors,
including scheduling of independent contractors and the shipping orders of the
Company's customers, a comparison of backlog from period to period is not
necessarily meaningful or indicative of actual sales. In addition, actual sales
resulting from backlog may be reduced by trade discounts and allowances. The
Company's experience has been that cancellations, rejections and returns of
orders do not materially reduce the amount of sales realized from its backlog.
Competition
The sectors of the apparel industry in which the Company competes are intensely
competitive. The Company competes with numerous manufacturers, some of which are
larger, more diversified and have greater financial and marketing resources than
the Company. The Company competes on the basis of quality, design, price and
customer service. Management believes that the Company's competitive advantages
are its well-established brand names, reputation for customer service and
ability to provide consumers with fresh and original designs.
Government Regulation
The Company does not expect existing Federal, state and local regulations
relating to the workplace and the discharge of materials into the environment to
have a material effect on the Company's financial or operating results, and
cannot predict the impact of any future changes in such regulations.
Employees
As of December 31, 1997, the Company employed approximately 383 people,
including 11 executives, 120 persons in sales, retail, marketing and
advertising, 35 persons in design and merchandising, 55 persons in
administration, 81 persons in quality control and finishing and 81 persons in
production. The Company hires temporary workers during peak production and
distribution periods. All other employees are nonunion and management believes
its relations with all employees are good.
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Item 2. Properties
The Company's principal executive offices, and the offices of Marisa Christina,
are located at 8101 Tonnelle Avenue, North Bergen, New Jersey 07047-4601.
Flapdoodles' principal executive offices are located at 725 Dawson Drive,
Newark, Delaware 19713. As of December 31, 1997, the general location, use and
approximate size of the Company's principal properties, all of which are leased,
are set forth below:
<TABLE>
<CAPTION>
Approximate
Location Function Square Footage
-------- -------- --------------
<S> <C> <C>
North Bergen, New Jersey Marisa Christina and AVE
executive offices 8,000
New York, New York Marisa Christina showroom and 15,100
design offices
Hong Kong Marisa Christina Production and 2,300
Quality Control offices
Newark, Delaware Flapdoodles corporate headquarters, 67,000
distribution center and dyehouse
Newark, Delaware Flapdoodles cutting and storage 27,000
New York, New York AVE showroom and design offices 17,000
</TABLE>
In addition, Flapdoodles leases seven showrooms of approximately 250 to 2,700
square feet each in the following locations: New York, New York; Los Angeles,
California; Boston, Massachusetts; Dallas, Texas; San Francisco, California;
Atlanta, Georgia; and Charlotte, North Carolina. Flapdoodles at year end
operated ten outlet stores totaling approximately 20,000 square feet located in
Woodbury, New York; Lancaster, Pennsylvania; Destin, Florida; Gilroy,
California; Orlando, Florida; Dillon, Colorado; Clinton, Connecticut;
Dawsonville, Georgia; Riverhead, New York; and Wrentham, Connecticut. Each store
is approximately 2,000 square feet.
Marisa Christina and AVE have outsourced their receiving, warehousing and
shipping functions to a third-party adjacent to their North Bergen facility.
Under the outsourcing agreement the Company pays a fixed handling charge per
unit with no minimum. Flapdoodles leases its corporate headquarters,
distribution center and dyehouse located in Newark, Delaware, from Mr. Marc Ham
and Ms. Carole Bieber, officers of the Company. The Company believes that the
terms contained in the lease are at least as favorable as could be obtained in
an arm's-length transaction from an independent third party.
The Company believes that its existing facilities are well maintained, in good
operating condition and that its existing facilities will be adequate for the
foreseeable future.
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Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is a party.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
Executive Officers of Registrant
The following table sets forth the names of the principal executive officers of
Marisa Christina, Incorporated, their positions with Marisa Christina,
Incorporated, and their principal business experience for the last five years.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Michael H. Lerner 53 Chairman of the Board of
Directors, Chief Executive
Officer and President
Marc Ham 35 President of Flapdoodles and Vice
Chairman of the Board of
Directors
Adrienne Vittadini 54 Chairman of Adrienne Vittadini
Enterprises, Inc. and Director
Gianluigi Vittadini 59 Vice Chairman of Adrienne
Vittadini Enterprises, Inc. and
Director
G. Michael Dees 44 Executive Vice-President of
Design and Merchandising of
Marisa Christina and Director
Carole Bieber 43 Executive Vice-President and
Design Director of Flapdoodles
Christine M. Carlucci 40 Vice-President of Administration
and Operations, Secretary and
Director
S. E. Melvin Hecht 63 Chief Financial Officer,
Treasurer and Director
</TABLE>
Michael H. Lerner joined Marisa Christina in August 1986, and has served as
Chief Executive Officer, President and Chairman since that time. Prior to
joining Marisa Christina, Mr. Lerner was President of TFM Industries, Inc.
("TFM"), a maker of moderate priced sportswear. He is also a director of Apparel
Ventures, Inc. an affiliate of The Jordan Company.
Marc Ham joined Marisa Christina as a Director in July 1993 and as Vice Chairman
in 1997 in connection with the Flapdoodles acquisition and serves as President
of Flapdoodles. Mr. Ham, together with Ms. Bieber, co-founded Flapdoodles in
1985 and has served as its president since that time.
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Adrienne Vittadini joined the Company in January 1996 and serves as Chairman of
Adrienne Vittadini Enterprises, Inc. Mrs. Vittadini co-founded Adrienne
Vittadini, Inc. with her husband, Gianluigi, in 1979 and has acted as Chairman
since that time. Prior to this, Mrs. Vittadini was employed in the design field
by Kimberly Knitwear and Warnaco.
Gianluigi Vittadini joined the Company in January 1996 and serves as Vice
Chairman of Adrienne Vittadini Enterprises, Inc. Mr. Vittadini co-founded
Adrienne Vittadini, Inc. with his wife, Adrienne, in 1979 and has acted as Vice
Chairman and Treasurer since 1983. Prior to that time, Mr. Vittadini served as
President of Institute Chemioterapico Italiano in Milan, Italy.
G. Michael Dees joined Marisa Christina in September 1986 and has served as a
Director of the Company and Executive Vice-President of Design and Merchandising
of Marisa Christina, since that time. Prior to joining Marisa Christina, Mr.
Dees was Divisional Merchandise Manager of ladies' sportswear for Belk Stores,
Inc.
Carole Bieber joined Marisa Christina in July 1993 in connection with the
Flapdoodles Acquisition and serves as Executive Vice-President and Design
Director of Flapdoodles. Ms. Bieber co-founded Flapdoodles in 1985 and has
served as its Executive Vice-President and Design Director since that time.
Christine M. Carlucci joined Marisa Christina in September 1986 and served as a
Vice-President and Chief Financial Officer until December 1993, and has served
as the Vice-President of Administration and Operations since that time and is
the Secretary and a Director of the Company. Prior to joining Marisa Christina,
Ms. Carlucci was an associate of Mr. Lerner at TFM.
S.E. Melvin Hecht, C.P.A., joined Marisa Christina in December 1993, and has
served as Chief Financial Officer and Treasurer since that time. From 1978 until
1991, Mr. Hecht was a partner at Hertz, Herson & Company, certified public
accountants and, since 1991, has served as a financial consultant to various
companies. Prior to 1978, Mr. Hecht was a partner at Touche Ross & Co.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is traded over-the-counter and is quoted on the
Nasdaq National Market under the symbol ("MRSA"). The table below presents the
high and low bid prices for the Common Stock for each quarter during the two
years ended December 31, 1997. The quotations in the table represent
inter-dealer prices without retail mark-up, mark-down or commission and may not
necessarily represent actual transactions.
<TABLE>
<CAPTION>
1996
------------------
Quarter High Low
------- ---- ---
<S> <C> <C>
First 22-1/8 14-7/8
Second 29-1/4 19-1/2
Third 20-1/8 8-3/4
Fourth 9-7/8 6-1/2
<CAPTION>
1997
------------------
Quarter High Low
------- ---- ---
<S> <C> <C>
First 10 7-3/4
Second 11-3/8 9-1/4
Third 8-1/2 5
Fourth 7 4-1/8
</TABLE>
The Company has not paid and does not anticipate paying any cash dividends on
the Common Stock for the foreseeable future. From time to time, the Board of
Directors intends to review the Company's dividend policy. Any payment of
dividends will be at the direction of the Board of Directors and will be
dependent on the earnings and financial requirements of the Company and other
factors, including the restrictions imposed by the General Corporation Law of
the State of Delaware and such other factors as the Board of Directors deems
relevant.
The number of shareholders of record of the Company's Common Stock as of March
6, 1998, was 57. The Company believes there are in excess of 1,000 beneficial
holders of the Company's Common Stock.
On December 14, 1994, the Company announced an open market purchase program for
its Common Stock. The Company has purchased 402,000 shares of Common Stock
pursuant to this program.
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Item 6. Selected Financial Data (in thousands, except per share amounts)
<TABLE>
<CAPTION>
Years ended December 31,
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $ 56,932 $ 76,213 $ 86,763 $115,537 $ 91,400
Gross profit 21,932 31,612 34,694 39,952 20,164
Selling, general and administrative
expenses 13,412 17,909 19,474 29,468 30,002
Restructuring costs -- -- -- -- 1,263
Operating earnings (loss) 8,520 13,703 15,220 10,484 (11,101)
Earnings (loss) before income tax
expense (benefit) 8,152 13,924 16,634 11,920 (8,980)
Income tax expense (benefit) -- -- 6,486 4,543 (2,988)
Net earnings (loss) -- -- 10,148 7,377 (5,992)
Pro forma income tax expense (1) 3,342 5,470 -- -- --
Pro forma earnings before
extraordinary item (1) 4,810 8,454 -- -- --
Pro forma net earnings (1) 4,810 8,161 -- -- --
Per share amounts:
Basic earnings (loss) per share -- -- 1.20 .87 (.72)
Diluted earnings (loss) per share -- -- 1.20 .86 (.72)
Pro forma basic and diluted earnings before
extraordinary item per share (1) .86 1.20 -- -- --
Pro forma basic and diluted earnings per share (1) .86 1.16 -- -- --
Supplemental pro forma basic and diluted
earnings per share (1)(2) -- 1.12 -- -- --
Weighted average shares outstanding
Basic 5,563 7,062 8,434 8,494 8,369
Diluted 5,563 7,089 8,461 8,552 8,369
<CAPTION>
December 31,
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Working capital $ 7,478 $ 25,147 $ 35,788 $ 17,626 $ 11,941
Total assets 21,403 40,709 54,009 66,200 65,197
Long-term debt 8,500 -- -- -- --
Stockholders' equity 7,204 36,072 46,223 54,215 47,195
</TABLE>
- ----------
(1) In connection with the Company's reorganization on June 22, 1994 Marisa
Christina ceased to be an "S" Corporation and Flapdoodles ceased to be
taxed as a "Limited Liability Company." The pro forma amounts present the
Company's results of operations as if Marisa Christina and Flapdoodles had
been taxed as "C" Corporations for all periods presented.
(2) Supplemental pro forma earnings per share is based upon the weighted
average number of common shares used in the calculation of pro forma
earnings per share (7,062,000) plus the weighted average number of shares
(252,000) sold by the Company in the initial public offering, at $13 per
share, necessary to fund the Company's $6.9 million cash distribution of
previously taxed "S" Corporation earnings.
11
<PAGE> 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Overview
Results for 1997 were below historical levels. While Flapdoodles continued its
growth and strong profitability, 1997 results were adversely impacted by weaker
sales and customer demand at the Marisa Christina (MC) and Adrienne Vittadini
(AVE) divisions. Sales for 1997, as well as bookings for the Cruise and Spring
1998 seasons at both its MC and AVE divisions are disappointing, which
negatively impacted results for 1997 and will adversely impact results for at
least the first two quarters of 1998. In addition, because the Company's
customers experienced weaker demand at the retail level, the Company had to
provide additional markdown allowances, as well as provisions for losses on
excess purchase commitments for Cruise and Spring 1998 merchandise. The
combination of these factors resulted in the Company recording a fourth quarter
charge of approximately $8 million for inventory and markdown reserves.
In addition, the decline in operating results of the AVE division required
management to evaluate the future prospects of the division to determine if
there has been any impairment in the goodwill recorded in the acquisition of the
AVE division in January 1996. Based on management's current plans for the AVE
division, it expects to be able to fully recover its investment in goodwill from
undiscounted cash flows over the estimated remaining life of the goodwill.
However, management will continue to evaluate impairment throughout 1998 on a
routine basis.
Management attributes the decline in operating results primarily to the changes
in consumer habits and a shift in the buying patterns of major department stores
to favor a smaller number of suppliers with very large name brands. In response
to these challenges, the Company instituted a set of initiatives to strengthen
its management team as well as cut costs and streamline operations. These
initiatives, some of which resulted in non-recurring charges during the fourth
quarter of 1997, included (i) the hiring of a president and a new vice president
of sales for the Adrienne Vittadini division (ii) the hiring of a new vice
president of sales for the Marisa Christina division and (iii) the consolidating
of the administrative and warehousing facilities of Adrienne Vittadini and
Marisa Christina. Results for 1997 include the expenses with respect to these
initiatives of approximately $1.5 million including costs associated with
executive search firms, the consolidation of warehouses, severance costs,
including settlement of union related issues, and other related matters. Annual
cost savings resulting from the consolidation of the two administrative and
warehousing facilities could reach approximately $800,000.
Management expects that the combination of the new management team members, the
consolidation of the Adrienne Vittadini and Marisa Christina administrative and
warehousing facilities and the efforts to limit inventory and markdown exposure
will enable the Company to improve its operating results in 1998.
12
<PAGE> 15
The following table sets forth information with respect to the percentage
relationship to net sales of certain items in the consolidated statements of
operations of the Company for the years ended December 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
----- ----- -----
Gross profit 40.0 34.6 22.1
Selling, general and administrative expenses 22.5 25.5 32.8
Restructuring costs -- -- 1.4
----- ----- -----
Operating earnings (loss) 17.5 9.1 (12.1)
Other income, net 0.8 2.0 2.8
Interest (expense) income, net 0.8 (0.8) (0.5)
Income tax expense (benefit) 7.4 3.9 (3.2)
----- ----- -----
Net earnings (loss) 11.7% 6.4% (6.6)%
===== ===== =====
</TABLE>
Year ended December 31, 1997 compared to year ended December 31, 1996
Net sales. Net sales decreased by 20.9% from $115.5 million in 1996 to $91.4
million in 1997. This decrease was primarily attributable to a significant
decline in the sales at the MC and AVE divisions principally due to the poor
retail environment for women's apparel as well as extremely poor acceptance of
the fall and holiday lines at the retail level. This decline was partially
offset by increased sales at the Flapdoodles division.
Gross profit. Gross profit decreased 49.5%, from $40.0 million in 1996 to $20.2
million in 1997. As a percentage of net sales, gross profit decreased from 34.6%
in 1996 to 22.1% in 1997. The decline in gross profit was attributable to lower
margins due to markdowns at the MC and AVE divisions as a result of the poor
demand for the divisions' products at the retail level as well as write-downs of
approximately $2.6 million for inventory on hand and committed to for the Fall
97, Holiday 97 and Spring 98 seasons.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 1.7%, from $29.5 million in 1996 to $30.0
million in 1997. During 1997 the Company increased advertising expenses at the
AVE and MC divisions by approximately $1.3 million. The Company anticipates
returning to 1996 advertising levels in 1998. As a percentage of net sales of
the Company, selling, general and administrative expenses increased from 25.5%
in 1996 to 32.8% in 1997. This increase in percentage is primarily attributable
to the decreased volume of sales without a proportionate corresponding decrease
in expenses.
Restructuring costs. Restructuring costs represents certain charges related to
the Company's administrative and warehouse consolidation of the AVE and MC
divisions.
Other income, net. Other income, net consists of royalty, licensing and
copyright infringement income. Other income increased 10.4% from $2.3 million in
1996 to $2.5 million in 1997. This increase is attributed to increased licensing
revenue earned by the AVE division.
Interest (expense) income, net. Interest (expense) income, net decreased 49.6%,
from $857,000 in 1996 to $410,000 in 1997 primarily due to a decrease in average
outstanding debt and slightly lower interest rates.
13
<PAGE> 16
Income tax expense (benefit). Income tax expense (benefit) decreased from $4.5
million expense in 1996 to $3.0 million benefit in 1997 as the result of the
significant loss incurred in 1997. The Company's effective income tax (benefit)
rates for 1996 and 1997 were 38.1% and (33.3%), respectively. In computing
income taxes for 1997, management provided a valuation allowance of
approximately $700,000 with respect to certain state net operating loss
carryfowards.
Net earnings (loss). Net earnings (loss) declined from net earnings of $7.4
million in 1996 to net loss of $6.0 million in 1997 as a result of the lower net
sales and gross margins achieved by the MC and AVE divisions, as well as the
restructuring costs incurred in 1997.
Year ended December 31, 1996 compared to year ended December 31, 1995
Net sales. Net sales increased 33.1% from $86.8 million in 1995 to $115.5
million in 1996. This increase was primarily attributable to $39.2 million of
sales by the AVE division, which was acquired in January 1996, and increased
sales by Flapdoodles primarily as the result of new private label accounts.
Sales by the MC division declined significantly in the year principally due to
the poor retail environment and lower demand for the Company's fall and holiday
classic times in 1996.
Gross profit. Gross profit increased 15.3% from $34.7 million in 1995 to $40.0
million in 1996. Gross profit as a percentage of net sales decreased from 40.0%
in 1995 to 34.6% in 1996. The decline in the gross profit percentage for the
year was attributable to lower margins due to markdowns at the MC division as a
result of the poor retail environment for this division's products.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased 51.3% from $19.5 million in 1995 to $29.5
million in 1996. Selling, general and administrative expenses related to the AVE
division represent $10.7 million of the increase. These expenses increased as a
percentage of net sales from 22.5% in 1995 to 25.5% in 1996. This increase is
primarily attributable to the amortization of $1.3 million of goodwill recorded
in the AVI acquisition and the decreased volume of sales without a corresponding
decrease in expenses.
Other income, net. Other income consists of royalty, licensing and copyright
infringement income. Other income increased by $1,593,000 in 1996 compared to
1995 as the result of the AVE division, which had net royalty in come of
$1,959,000. Income from copyright infringement cases declined by approximately
$411,000 to $37,000. The timing and amounts of settlements of such cases are
not predictable and, accordingly, the Company is unable to predict the amount
of future income from this source, if any.
Interest (expense) income, net. Interest (expense) income, net changed from an
income of $714,000 in 1995 to expense of $857,000 in 1996 as a result of less
cash available to invest due to the AVE acquisition as well as interest expense
related to bank loans.
Income tax expense (benefit). Income tax expense (benefit) decreased from $6.5
million in 1995 to $4.5 million in 1996 as the result of lower earnings. The
Company's effective income tax rate for 1995 and 1996 was 39.0% and 38.1%,
respectively.
Net earnings (loss). Net earnings (loss) declined by 27.3% as a result of the
lower net sales and gross margins achieved by the MC and AVE divisions together
with higher financing costs resulting from the acquisition of AVE. The MC
decline was partially offset by higher income at the Flapdoodles division and
the income from the AVE division.
14
<PAGE> 17
Seasonality
The Company's business is seasonal, with a substantial portion of its revenues
and earnings accruing during the second half of the year as a result of the
Back-to-School, Fall and Holiday selling seasons. This is due to both a larger
volume of unit sales in these seasons and traditionally higher prices for Fall
and Holiday season garments, which generally require more costly materials than
the Spring/Summer and Resort seasons. Merchandise from the Back-to-School and
Fall collections, the Company's largest selling seasons and Holiday, the
Company's next largest season, is shipped in the last two fiscal quarters.
Merchandise for Resort, Spring/Summer and Early Fall, the Company's lower volume
selling seasons, is shipped primarily in the first two quarters. In addition,
prices of products in the Resort, Spring/Summer and Early Fall collections
average 5 to 10% lower than in the other selling seasons.
Liquidity and Capital Resources
The Company has line of credit facilities with two banks, aggregating
$35,000,000, which may be utilized for commercial letters of credit, banker's
acceptances, commercial loans and letters of indemnity. Borrowings under the
credit facilities are secured by the Company's accounts receivable and imported
inventory and bear interest at the prime rate or LIBOR plus 1% at the Company's
option. As of December 31, 1997, $6,500,000 of borrowings and $3,350,000 of
commercial letters of credit were outstanding under the credit facilities. At
December 31, 1997, available borrowings under the facilities were $25,147,000.
The agreement expires on June 30, 1998 at which time management expects it to be
renewed.
During 1997, the Company had capital expenditures of approximately $1.3 million,
primarily to upgrade warehouse and computer systems. During 1998, the Company
has planned capital expenditures of approximately $500,000 primarily to upgrade
computer systems and open new outlet stores. These capital expenditures will be
funded by internally generated funds and, if necessary, bank borrowings under
the Company's line of credit facilities.
The Company believes that funds generated by operations, if any, and the line of
credit facilities will provide financial resources sufficient to meet all of its
working capital and letter of credit requirements for at least the next twelve
months.
Exchange Rates
Although it is the Company's policy to contract for the purchase of imported
merchandise in United States dollars, reductions in the value of the dollar
could result in the Company paying higher prices for its products. During the
last three fiscal years, however, currency fluctuations have not had a
significant impact on the Company's cost of merchandise. The Company does not
engage in hedging activities with respect to such exchange rate risk.
Impact of Inflation
The Company has historically been able to adjust prices, and, therefore,
inflation has not had, nor is it expected to have, a significant effect on the
operations of the Company.
15
<PAGE> 18
Accounting Matters
During 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No.
130); and No. 131, Disclosures About Segments of an Enterprise and Related
Information (SFAS No. 131). These pronouncements generally require additional
disclosure and are not expected to have any effect on the Company's financial
position or results of operations. The Company will adopt SFAS No. 130 and No.
131 during 1998.
Year 2000
In 1997, the Company developed a plan to deal with the Year 2000 problem and
began converting its computer systems to be Year 2000 compliant. The plan
provides for the conversion efforts to be completed by the end of 1999. The Year
2000 problem is the result of computer programs being written using two digits
rather than four to define the applicable year. The total cost of the project is
estimated to be $100,000 and is being funded through operating cash flows. The
Company will be expensing all costs associated with these systems changes as the
costs are incurred. During 1998, the Company expects to initiate communications
with suppliers and customers to determine the content to which the Company may
be vulnerable to such parties' failure to remediate their own Year 2000 issue.
Forward Looking Information
Except for historical information contained herein, the statements in this
Form are forward-looking statements that are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve known and unknown risks and uncertainties
which may cause the Company's actual results in future periods to differ
materially from forecasted results. Those risks include, among others, risks
associated with the success of future advertising and marketing programs, the
receipt and timing of future customer orders, price pressures and other
competitive factors and a softening of retailer or consumer acceptance of the
Company's products leading to a decrease in anticipated revenues and gross
profit margins. Those and other risks are described in the Company's filings
with the Securities and Exchange Commission (SEC), copies of which are available
from the SEC or may be obtained upon request from the Company.
16
<PAGE> 19
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report 18
Financial Statements:
Consolidated Balance Sheets-- December 31, 1996 and 1997 19
Consolidated Statements of Operations -- Years ended
December 31, 1995, 1996 and 1997 20
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1995, 1996 and 1997 21
Consolidated Statements of Cash Flows -- Years ended
December 31, 1995, 1996 and 1997 22
Notes to Consolidated Financial Statements 24
17
<PAGE> 20
Independent Auditors' Report
The Board of Directors
Marisa Christina, Incorporated:
We have audited the accompanying consolidated financial statements of Marisa
Christina, Incorporated and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we have
also audited the consolidated financial statement schedule listed under Item
14(a)(2). These consolidated financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these consolidated financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Marisa Christina,
Incorporated and subsidiaries as of December 31, 1996 and 1997, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
New York, New York
March 8, 1998
18
<PAGE> 21
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1996 and 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 1,044,094 $ 1,007,153
Accounts receivable, less allowance for doubtful accounts
of $73,344 in 1996 and $200,104 in 1997 9,080,251 9,174,602
Due from factor, net of allowances 5,967,379 --
Inventories 10,097,123 12,006,285
Income taxes recoverable -- 3,653,933
Prepaid expenses and other current assets 3,144,683 3,597,237
------------ ------------
Total current assets 29,333,530 29,439,210
Property and equipment, net 2,672,823 3,186,404
Goodwill, less accumulated amortization of $2,784,616
in 1996 and $4,615,719 in 1997 32,940,650 31,294,348
Other assets 1,252,930 1,276,819
------------ ------------
Total assets $ 66,199,933 $ 65,196,781
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Loans payable to banks $ 3,500,000 $ 6,500,000
Accounts payable 5,601,769 7,578,832
Income taxes payable 662,652 --
Accrued expenses and other current liabilities 1,942,725 3,419,528
------------ ------------
Total current liabilities 11,707,146 17,498,360
Other liabilities 278,000 503,274
------------ ------------
Total liabilities 11,985,146 18,001,634
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, none issued -- --
Common stock, $.01 par value; 15,000,000 shares
authorized, 8,586,769 shares issued
in 1996 and 1997 85,868 85,868
Additional paid-in capital 31,653,186 31,653,186
Retained earnings 24,413,471 18,421,447
Cumulative translation adjustment 16,612 (57,924)
Treasury stock, 202,000 and 402,000 common shares
in 1996 and 1997, at cost (1,954,350) (2,907,430)
------------ ------------
Total stockholders' equity 54,214,787 47,195,147
Commitments (note 8)
------------ ------------
Total liabilities and stockholders' equity $ 66,199,933 $ 65,196,781
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE> 22
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net sales $ 86,762,617 $ 115,536,726 $ 91,400,058
Cost of good sold 52,068,782 75,584,880 71,235,897
------------- ------------- -------------
Gross profit 34,693,835 39,951,846 20,164,161
Selling, general and administrative expenses 19,474,289 29,467,665 30,002,464
Restructuring costs -- -- 1,263,056
------------- ------------- -------------
Operating earnings (loss) 15,219,546 10,484,181 (11,101,359)
Other income, net 700,413 2,293,205 2,532,033
Interest (expense) income, net 713,971 (857,019) (410,226)
------------- ------------- -------------
Earnings (loss) before income tax
expense (benefit) 16,633,930 11,920,367 (8,979,552)
Income tax expense (benefit) 6,485,978 4,543,826 (2,987,528)
------------- ------------- -------------
Net earnings (loss) $ 10,147,952 $ 7,376,541 $ (5,992,024)
============= ============= =============
Basic earnings (loss) per share $ 1.20 $ .87 $ (.72)
============= ============= =============
Diluted earnings (loss) per share $ 1.20 $ .86 $ (.72)
============= ============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
20
<PAGE> 23
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Common stock Additional
------------------- Paid-in Retained Translation Treasury
Shares Amount Capital Earnings Adjustment Stock Total
--------- ------- ----------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 8,434,000 84,340 29,081,731 6,888,978 16,612 -- 36,071,661
Net earnings for the year ended
December 31, 1995 -- -- -- 10,147,952 -- -- 10,147,952
Proceeds from exercise of stock option 250 3 3,247 -- -- -- 3,250
--------- ------- ----------- ----------- -------- ----------- -----------
Balance at December 31, 1995 8,434,250 84,343 29,084,978 17,036,930 16,612 -- 46,222,863
Net earnings for the year ended
December 31, 1996 -- -- -- 7,376,541 -- -- 7,376,541
Issuance of common stock in acquisition
of Adrienne Vittadini, Inc. 147,679 1,477 2,498,523 -- -- -- 2,500,000
Proceeds from exercise of stock options 4,840 48 62,872 -- -- -- 62,920
Other -- -- 6,813 -- -- -- 6,813
Purchase of treasury stock, at cost -- -- -- -- -- (1,954,350) (1,954,350)
--------- ------- ----------- ----------- -------- ----------- -----------
Balance at December 31, 1996 8,586,769 85,868 31,653,186 24,413,471 16,612 (1,954,350) 54,214,787
Net loss for the year ended
December 31, 1997 -- -- -- (5,992,024) -- -- (5,992,024)
Purchase of treasury stock, at cost -- -- -- -- -- (953,080) (953,080)
Foreign currency translation -- -- -- -- (74,536) -- (74,536)
--------- ------- ----------- ----------- -------- ----------- -----------
Balance at December 31, 1997 8,586,769 $85,868 $31,653,186 $18,421,447 $(57,924) $(2,907,430) $47,195,147
========= ======= =========== =========== ======== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE> 24
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) $10,147,952 $ 7,376,541 $ (5,992,024)
Adjustments to reconcile net earnings (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization 828,608 2,633,015 2,613,355
Provision (benefit) for deferred
income taxes 53,373 224,000 (389,581)
Changes in asset and liabilties,
net of effects from purchase
Adrienne Vittadini, Inc. in 1996:
Accounts receivable, net (3,255,634) 4,225,189 (131,619)
Due from factor -- (5,967,379) 5,967,379
Inventories (307,244) 1,723,482 (1,909,162)
Prepaid expenses and other
current assets (293,160) (802,511) 162,301
Other non-current assets 24,352 (23,589) (23,889)
Accounts payable 2,061,127 (6,889,297) 1,939,795
Income taxes 311,227 (94,449) (4,316,585)
Accrued expenses and other
current liabilities 658,998 (1,266) 1,476,803
------------ ------------ ------------
Net cash provided by (used in)
operating activities 10,229,599 2,403,736 (603,227)
------------ ------------ ------------
Cash flows from investing activities:
Acquisitions of property and equipment (541,666) (680,912) (1,295,833)
Acquisition of net assets of Adrienne
Vittadini, Inc., net of cash acquired -- (18,575,994) --
Other -- -- (184,801)
------------ ------------ ------------
Net cash used in investing
activities (541,666) (19,256,906) (1,480,634)
------------ ------------ ------------
</TABLE>
(Continued)
22
<PAGE> 25
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities:
Issuance of common stock and capital
contributions $ 3,250 $ 69,920 $ --
Borrowings (repayments) under line of
credit facilities, net -- (731,037) 3,000,000
Acquisition of treasury stock -- (1,954,350) (953,080)
Other (10,737) 6,813 --
------------ ------------ ------------
Net cash provided by (used in)
financing activities (7,487) (2,608,654) 2,046,920
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents 9,680,446 (19,468,824) (36,941)
Cash and cash equivalents at beginning of year 10,832,472 20,512,918 1,044,094
------------ ------------ ------------
Cash and cash equivalents at end of year $20,512,918 $ 1,044,094 $ 1,007,153
============ ============ ============
Cash paid during the year for:
Income taxes $ 6,121,378 $ 4,334,938 $ 1,718,638
============ ============ ============
Interest $ 6,921 $ 927,658 $ 451,650
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 26
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1996 and 1997
(1) Summary of Significant Accounting Policies, Practices and Other Matters
(a) Description of Business
Marisa Christina, Incorporated (the Company) designs,
manufactures, sources and markets a broad line of high quality
"better" clothing for women under the Marisa ChristinaTM and
Adrienne VittadiniTM labels and for children under the FlapdoodlesTM
label.
(b) Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries, each of which is
wholly owned. Significant intercompany accounts and transactions are
eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost, by the first-in,
first-out method, or market.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization are computed on the straight-line and accelerated
methods at rates based upon the estimated useful lives of the
respective assets (which range from five years to seven years) or,
where applicable, the term of the lease, if shorter. Additions to
property and equipment, as well as major renewals and betterments,
are capitalized. The costs of maintenance, repairs, minor renewals
and betterments are charged to operations as incurred. When
properties are sold or otherwise disposed of, the cost and related
accumulated depreciation are removed from the accounts and the
resulting gain or loss is recorded in operations.
24
<PAGE> 27
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Practices and Other Matters,
Continued
(f) Long-Lived Assets
The recoverability of long-lived assets is assessed whenever events
or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable through future undiscounted net cash
flows. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to
be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(g) Goodwill
Goodwill is amortized on a straight-line basis over the expected
periods to be benefited, generally 20 years. The Company assesses
the recoverability of goodwill by determining whether the
amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the
acquired entities. The amount of goodwill impairment, if any, is
measured based on projected discounted future operating cash flows
using a discount rate reflecting the Company's average cost of
funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
(h) Foreign Currency Translation
The functional currency for certain of the Company's foreign
operations is the local currency. The translation of the foreign
currencies into U.S. dollars is performed for balance sheet accounts
using current exchange rates in effect at the balance sheet date and
for revenue and expense accounts using average rates of exchange
prevailing during the year. Adjustments resulting from such
translation are included as a separate component of stockholders'
equity.
(i) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
25
<PAGE> 28
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Practices and Other Matters,
Continued
(j) Earnings Per Share
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 128 Earnings per Share, as of December 31,
1997, and accordingly, has restated all prior periods in accordance
with the pronouncements. The impact on adoption was not material.
Basic net earnings (loss) per common share is based on the weighted
average number of common shares outstanding, which were 8,434,088,
8,493,749 and 8,368,621 for the years ended December 31, 1995, 1996
and 1997, respectively. Diluted earnings (loss) per common share is
based on the weighted average number of common shares outstanding
and dilutive securities outstanding, which were 8,460,764, 8,551,980
and 8,368,621 for the years ended December 31, 1995, 1996 and 1997,
respectively. The difference between basic and diluted weighted
average shares relates to the dilutive effect of stock options.
(k) Accounting for Stock-Based Compensation
The Company has elected to apply the intrinsic value method
prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees (APB No. 25), with pro forma
disclosure of net earnings (loss) and net earnings (loss) per share
as if the fair value based method prescribed by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation (SFAS No. 123), had been applied.
(l) Uses of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
(m) Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments,
consisting of cash and cash equivalents, accounts receivable, due
from factors, accounts payable and loans payable to banks,
approximate their carrying values due to the short-term maturities
of such instruments.
26
<PAGE> 29
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies, Practices and Other Matters,
Continued
(n) New Accounting Pronouncements
During 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 130, Reporting
Comprehensive Income (SFAS No. 130) and No. 131, Disclosures About
Segments of an Enterprise and Related Information (SFAS No. 131).
These pronouncements generally require additional disclosure and are
not expected to have any effect on the Company's financial position
or results of operations. The Company will adopt SFAS No. 130 and
No. 131 during 1998.
(2) Restructuring
The Company implemented restructuring initiatives during 1997 that
included: the consolidation of warehouse and administrative functions of
the Adrienne Vittadini and Marisa Christina divisions the restructuring of
the Company's management and sales functions and the integration of
information systems and operations. These initiatives, which resulted in a
non-recurring restructuring charge of approximately $1.3 million in 1997
are summarized as follows:
<TABLE>
<CAPTION>
Write-off or Accrued at
cash paid December 31,
Expense in 1997 1997
---------- ---------- ----------
<S> <C> <C> <C>
Facility consolidation and write-
off of idle assets $ 819,564 $ 609,064 $ 210,500
Severance and benefits 443,492 336,262 107,230
---------- ---------- ----------
$1,263,056 $ 945,326 $ 317,730
========== ========== ==========
</TABLE>
Amounts accrued at December 31, 1997 are included in accrued expenses and other
current liabilities and are expected to be paid in 1998.
27
<PAGE> 30
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Acquisition of Adrienne Vittadini, Inc.
On January 18, 1996, the Company acquired, through a newly formed
subsidiary, Adrienne Vittadini Enterprises, Inc. ("AVE"), substantially
all of the assets and assumed certain liabilities of Adrienne Vittadini,
Inc. ("AVI") and acquired the trademarks of Vittadini, Ltd., which relate
to the business and operations of AVI for cash in the aggregate of
$18,830,000 and 147,679 shares of the Company's common stock valued at
$2,500,000. Additional consideration may be paid to AVI by the Company
based upon profitability achieved by AVE in 1998 and 2000, up to a maximum
additional purchase price of $39 million. For the six-year period
beginning January 1, 1996, the Company will pay AVI 10% of net royalty and
commission income received by AVE plus 10% of net earnings before
interest, income taxes and amortization of goodwill of AVE over $3,000,000
per year. Subsequently, upon retirement of the two majority shareholders
of AVI from the Company, AVI will receive, in the aggregate, an amount
equal to .825% of net sales of AVE and its trademark licensees for a
period ending on the later of December 31, 2005 or five years after the
death of the last such shareholder.
The acquisition occurred on January 18, 1996, but was based on asset
values at December 31, 1995. Accordingly, operating results related to the
AVI assets acquired commenced on January 1, 1996 and are consolidated with
those of the Company from that date forward. Results of operations of the
Company for the year ended December 31, 1996 and 1997, which include the
results for AVE for a full year, are not directly comparable to the
Company's results of operations for the year ended December 31, 1995.
The acquisition has been accounted for using the purchase method of
accounting. Amounts payable to AVI based on net sales, royalty or
commission income will be charged to earnings annually. Such amounts were
$218,000 and $225,000 in 1996 and 1997, respectively. Contingent
consideration payable, if any, based on 1998 and 2000 results of AVE will
be considered as part of the purchase price and allocated to goodwill.
The Company funded the cash portion of the initial purchase price with
accumulated cash reserves.
The aggregate initial purchase price for the assets of AVI was as follows:
<TABLE>
<S> <C>
Cash paid to AVI $10,080,000
Cash used to retire supplier note payable 8,750,000
Fair value, based on quoted market price
of 147,679 shares of the Company's
common stock issued to AVI 2,500,000
Liabilities assumed 11,764,619
Transaction costs 771,000
-----------
Initial purchase price $33,865,619
===========
</TABLE>
28
<PAGE> 31
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) Acquisition of Adrienne Vittadini, Inc., Continued
The initial purchase price was allocated to the assets acquired based on
their estimated fair value as follows:
<TABLE>
<S> <C>
Cash $ 1,025,006
Accounts receivable 1,250,361
Inventory 2,495,382
Prepaid expenses and other current assets 862,947
Property and equipment 649,016
Goodwill 26,695,995
Other assets 886,912
-----------
Initial purchase price $33,865,619
===========
</TABLE>
(4) Inventories
Inventories at December 31, 1996 and 1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Piece goods $ 3,028,686 $ 2,959,703
Work-in-process 1,612,459 2,863,727
Finished goods 5,455,978 6,182,855
----------- -----------
$10,097,123 $12,006,285
=========== ===========
</TABLE>
Based on management's assumptions and estimates relating to future
operations, the Company has provided for slow moving inventory at December
31, 1996 and 1997. In addition, at December 31, 1997, the Company provided
$600,000 for losses on excess purchase commitments. Actual results could
differ from those estimates.
29
<PAGE> 32
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(5) Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets at December 31, 1996 and 1997
consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Prepaid expenses $ 814,225 $ 717,400
Other receivables (primarily royalties) 1,451,156 1,551,978
Deferred tax assets 198,000 812,855
Other 681,302 515,004
---------- ----------
$3,144,683 $3,597,237
========== ==========
</TABLE>
(6) Property and Equipment
Property and equipment at December 31, 1996 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Machinery and equipment $1,792,744 $2,248,831
Furniture and fixtures 1,438,274 1,697,596
Leasehold improvements 1,478,318 1,727,376
Transportation equipoment 107,716 107,716
---------- ----------
Total 4,817,052 5,781,519
Less accumulated depreciation and amortization 2,144,229 2,595,115
---------- ----------
$2,672,823 $3,186,404
========== ==========
</TABLE>
(7) Credit Facilities
The Company has line of credit facilities with two banks, aggregating
$35,000,000, which may be utilized for commercial letters of credit,
banker's acceptances, commercial loans and letters of indemnity. The
credit facilities expire on June 30, 1998 when the Company expects the
facilities to be renewed. Borrowings under the credit facilities are
secured by the Company's accounts receivable and imported inventory and
bear interest at the prime rate or LIBOR plus 1% at the Company's option.
As of December 31, 1997, $6,500,000 of borrowings, bearing interest at an
average rate of 7.0%, and of commercial letters of credit of approximately
$3,353,000 were outstanding under the credit facilities. At December 31,
1997, available borrowings under the facilities were $25,147,000.
30
<PAGE> 33
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(7) Credit Facilities, Continued
In connection with the acquisition of the assets described in note 3, AVE
assumed and retained a factoring arrangement whereby AVE assigned and sold
substantially all of its trade accounts receivable to a factor, without
recourse as to credit risk but with recourse for any claims by the
customer for adjustments in the normal course of business. In September
1997, the Company terminated this arrangement.
Interest expense was $390,018, $918,189 and $451,650 for the years ended
December 31, 1995, 1996 and 1997, respectively.
(8) Retirement Plan
The Company sponsors a 401(k) profit sharing plan for the benefit of all
nonunion employees. Profit sharing expense charged to operations for the
years ended December 31, 1995, 1996 and 1997 was $114,913, $173,257 and
$284,354, respectively.
(9) Leases
The Company is committed under various noncancelable operating leases for
factory, showroom, warehouse, office, production, design and retail store
space. The leases expire on various dates through 2006. Future minimum
lease payments under noncancelable operating leases as of December 31,
1997 are as follows:
<TABLE>
<CAPTION>
Year
----
<S> <C>
1998 $ 2,526,447
1999 2,325,930
2000 1,805,201
2001 1,417,778
2002 1,296,874
Thereafter 1,406,732
-----------
$10,778,962
===========
</TABLE>
Total rent expense charged to operations was $1,598,525, $3,672,415 and
$3,413,866 for the years ended December 31, 1995, 1996 and 1997,
respectively.
31
<PAGE> 34
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(10) Accrued Expenses and Other Current Liabilities
Accrued expenses and other current liabilities at December 31, 1996 and
1997 consist of the following:
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Accrued compensation $ 662,872 $1,368,566
Restructuring costs -- 317,730
Other accrued expenses 1,279,853 1,733,232
---------- ----------
$1,942,725 $3,419,528
========== ==========
</TABLE>
(11) Other Income, Net
Other income, net for the years ended December 31, 1995, 1996 and 1997
includes primarily royalty, commission and licensing income of $252,096,
$2,256,269 and $2,568,506, respectively, and copyright infringement income
of $448,317, $36,936 and $36,473, respectively.
(12) Income Taxes
The components of income tax expense (benefit) for the years ended
December 31, 1995, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $ 5,227,000 $ 3,484,124 $(2,804,577)
State and local 1,205,605 835,702 206,630
----------- ----------- -----------
6,432,605 4,319,826 (2,597,947)
----------- ----------- -----------
Deferred:
Federal 39,373 180,500 (321,450)
State and local 14,000 43,500 (68,131)
----------- ----------- -----------
53,373 224,000 (389,581)
----------- ----------- -----------
$ 6,485,978 $ 4,543,826 $(2,987,528)
=========== =========== ===========
</TABLE>
At December 31, 1997, the Company had state net operating loss
carryforwards of approximately $14,500,000, which expire in various
amounts through 2002.
32
<PAGE> 35
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Income Taxes, Continued
The tax effects of temporary differences between the financial reporting
and income tax basis of assets and liabilities that are included in the
net deferred tax assets (liabilities) at December 31, 1996 and 1997 are as
follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax assets:
Uniform inventory capitalization $ 181,000 $ 252,069
Depreciation on property and equipment -- 95,268
Accrued expenses and other
assets and liabilities 17,000 639,316
Net operating losses, principally state 120,000 862,349
----------- -----------
318,000 1,849,002
Valuation allowance -- (727,114)
----------- -----------
Net deferred tax assets 318,000 1,121,888
=========== ===========
Deferred tax liabilities:
Depreciaion on property and equipment (47,000) --
Amortization of goodwill (351,000) (812,307)
----------- -----------
(398,000) (812,307)
----------- -----------
Net deferred tax assets (liabilities) $ (80,000) $ 309,581
=========== ===========
</TABLE>
In assessing the realizability of deferred tax assets, management
considered whether it was more likely than not that some portion or all of
the deferred tax assets will be realized. The ultimate realization of the
deferred tax assets is dependent upon the generation of future taxable
income during periods in which temporary differences become deductible.
Based upon the level of historical taxable income, projections for future
taxable income over the periods in which the temporary differences are
deductible and tax planning strategies that can be implemented by the
Company, management has established a valuation allowance at December 31,
1997, of $727,114. Management believes that future taxable income of the
Company will more likely than not be sufficient to recover the remaining
net deferred tax assets.
33
<PAGE> 36
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) Income Taxes, Continued
A reconciliation of the provision for income taxes and the amounts
computed by applying the Federal income tax rate of 34% to earnings (loss)
before income tax expense (benefit) is as follows for the years ended
December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
1995 % 1996 % 1997 %
----------- ---- ----------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C>
Income tax on earnings
(loss) before income
tax expense (benefit)
computed at
statutory rate $ 5,655,336 34.0% $ 4,052,925 34.0% $(3,053,048) (34.0%)
State and local income
tax, net of Federal
income tax benefit 804,939 4.8 580,273 4.9 (635,705) (7.1)
Valuation alowance -- -- 727,114 8.1
Other 25,503 0.2 (89,372) (0.8) (25,889) (0.3)
----------- ---- ----------- ---- ----------- ----
$ 6,485,778 39.0% $ 4,543,826 38.1% $(2,987,528) (33.3%)
=========== ==== =========== ==== =========== ====
</TABLE>
(13) Stock Option Plan
The Company sponsors an incentive stock ownership plan ("Plan") that
provides for the grant of up to 650,000 options to purchase shares of the
Company's common stock at fair market value on the dates of grant. Options
generally vest over a five-year period and are exercisable over a ten-year
period from the dates of grant. In addition, in connection with the
acquisition of Flapdoodles in 1994 the Company granted the former minority
shareholders of Flapdoodles an evergreen option to purchase 250,000 shares
of common stock at $13.00 per share.
At December 31, 1997, there were 192,780 additional shares available for
grant under the Plan. The per share weighted-average fair values of stock
options granted during 1996 and 1997 were $10.54 and $3.42, respectively,
on the dates of grant using the Black Scholes option-pricing model with
the following weighted-average assumptions: expected dividend yield 0%,
risk-free interest rate of 6.6%, expected volatility of 64% and an
expected life of 7 years. No options were granted in 1995.
34
<PAGE> 37
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Stock Option Plan, Continued
The Company applies APB No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in these financial statements. Had the Company determined
compensation cost based on the fair value at the grant date for its stock
options under SFAS No. 123, the Company's 1996 and 1997 net earnings
(loss) would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
----------- -------------
<S> <C> <C>
Net earnings (loss) - as reported $ 7,376,541 $ (5,992,024)
- pro forma $ 6,977,000 $ (6,403,000)
Basic earnings (loss) per share - as reported $ .87 $ (.72)
- pro forma $ .82 $ (.77)
Diluted earnings (loss) per share - as reported $ .86 $ (.72)
- pro forma $ .82 $ (.77)
</TABLE>
Pro forma net earnings reflects only options granted in 1996 and 1997.
Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the
options' vesting period of five years and compensation cost for options
granted prior to January 1, 1995 is not considered.
35
<PAGE> 38
MARISA CHRISTINA, INCORPORATED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) Stock Option Plan, Continued
Changes in options outstanding, options exercisable and shares reserved
for issuance pursuant to stock options are as follows:
<TABLE>
<CAPTION>
Weighted average Number of
per share price shares
---------------- ---------
<S> <C> <C>
December 31, 1994 $13.00 376,950
Exercised $13.00 (250)
Forfeited $13.00 (4,100)
--------
December 31, 1995 $13.00 372,600
Granted $15.30 336,790
Exercised $13.00 (4,840)
Forfeited $11.59 (4,900)
--------
December 31, 1996 $14.12 699,650
Granted $ 5.00 66,350
Forfeited $13.07 (63,870)
--------
December 31, 1997 $13.35 702,130
========
Options exercisable:
December 31, 1995 $13.00 276,060
December 31, 1996 $13.59 347,144
December 31, 1997 $13.83 412,638
</TABLE>
At December 31, 1997, the number of outstanding options, exercise prices
and weighted-average remaining contractual life of outstanding options
were 65,600 options at $5 and 9.75 years; 55,700 options at $10 and 8.5
years; 95,830 options at $13.00 and 6.5 years; and 235,000 options at $17
and 8.0 years.
(14) Business Risks and Credit Concentrations
A significant amount of the MC and AVE product lines are produced in Hong
Kong and The People's Republic of China. The Company's operations with
respect to these product lines may be significantly affected by economic,
political, governmental and labor conditions in Hong Kong and The People's
Republic of China until alternative sources of production could be found.
The Company's products are sold principally in the United States to
apparel retailers operating in the department and specialty store
segments. No single customer accounted for more than 10% of the Company's
sales in 1995, 1996 or 1997 and no account receivable from any customer
exceeded $1,200,000 at December 31, 1997. The Company estimates an
allowance for doubtful accounts based on the creditworthiness of its
customers as well as general economic conditions. Consequently an adverse
change in those factors could affect the Company's estimate of its bad
debts.
36
<PAGE> 39
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There has been no change in accountants and or disagreements on any matter
of accounting principle or financial statement disclosure.
37
<PAGE> 40
PART III
Items 10, 11, 12 and 13
The information required by these Items, other than the information set
forth in Part I under the Section entitled "Executive Officers of the
Registrant," is hereby incorporated by reference from the Company's
definitive proxy statement for the Company's Annual Meeting of
Stockholders to be held on May 20, 1998, which will be filed with the
Securities and Exchange Commission within 120 days after the close of the
Company's fiscal year.
38
<PAGE> 41
PART IV
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) The following are included in Item 8 of Part II:
PAGE
----
Independent Auditors' Report............................................. 18
Consolidated Financial Statements:
Consolidated Balance Sheets -- December 31, 1996 and 1997.............. 19
Consolidated Statements of Operations -- Years ended
December 31, 1995, 1996 and 1997.................................... 20
Consolidated Statements of Stockholders' Equity --
Years ended December 31, 1995, 1996 and 1997........................ 21
Consolidated Statements of Cash Flows -- Years ended
December 31, 1995, 1996 and 1997.................................... 22
Notes to Consolidated Financial Statements............................ 24
(a)(2) The following is a list of all financial statement schedules for the
years ended December 31, 1995, 1996 and 1997 filed as part of this
Report:
Schedule II -- Valuation and Qualifying Accounts....................... 40
Schedules other than those listed above have been omitted because they are not
required or are not applicable, or the required information has been included in
the Consolidated Financial Statements or the Notes thereto.
(a)(3) See accompanying Index to Exhibits ............................... 41
(b) No reports on Form 8-K were filed during the fourth quarter of 1997
(c) See accompanying Index to Exhibits................................ 42
(d) None
39
<PAGE> 42
MARISA CHRISTINA, INCORPORATED
AND SUBSIDIARIES
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to
Beginning Costs and Balance at
Description of Period Expenses Deductions(a) End of Period
- ----------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Trade
Year ended
December 31, 1995 $129,305 169,703 162,809 136,199
Year ended
December 31, 1996 $136,199 309,774 372,629 73,344
Year ended
December 31, 1997 $ 73,344 353,660 226,900 200,104
</TABLE>
(a) Deductions represent write-offs of specifically identified accounts.
40
<PAGE> 43
INDEX TO EXHIBITS
The following is a list of all exhibits filed as part of this report.
Sequentially
Numbered
Exhibit No. Document Page
- ----------- -------- ----
2.1++ Asset Purchase Agreement dated June 30, 1993, between MCFD
Acquisition L.L.C. and Flapdoodles, Inc .................... *
2.2++ Agreement and Plan of Reorganization, dated June 22, 1994,
among Marisa Christina, Incorporated (the "Company"),
Marisa Christina Holding, Inc., Marisa Christina Outlet
Holdings, Inc., C.M. Marisa Christina (H.K.) Limited, MF
Showroom Holdings, Inc., Flapdoodles, L.L.C. and the
Investors in such companies named on the signature pages
thereto .................................................... ***
2.3++ Asset Purchase Agreement, dated as of January 1, 1996, by
and among Adrienne Vittadini, Inc. ("AVI"), the Company,
and Adrienne Vittadini Enterprises, Inc. ("AVE") ........... **
3.1 Amended and Restated Certificate of Incorporation of the
Company .................................................... ***
3.2 By-Laws of the Company ..................................... ***
4.1 Option Agreement between the Company and Marc Ham, dated
June 30, 1994 .............................................. ***
4.2 Option Agreement between the Company and Carole Bieber,
dated June 30, 1994 ........................................ ***
4.3 1994 Stock Option Plan ..................................... ***
4.4 Registration Rights Agreement, dated as of January 1,
1996, by and among the Company, AVI, and the other parties
listed on the signature pages thereto ...................... **
10.1+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and Michael H. Lerner ... ***
10.2+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and Marc Ham ............ ***
10.3+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and G. Michael Dees ..... ***
10.4+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and Carole Bieber ....... ***
10.5+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and Christine M.
Carlucci ................................................... ***
10.6+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and S.E. Melvin Hecht ... ***
10.7+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and Elliot R. Epstein ... ***
10.8+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and Robert Davidoff ..... ***
10.9+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and Lawrence D.
Glaubinger ................................................. ***
10.10+ Directors and Officers Indemnification Agreement, dated
June 22, 1994, between the Company and David W. Zalaznick .. ***
41
<PAGE> 44
Sequentially
Numbered
Exhibit No. Document Page
- ----------- -------- ----
10.11+ Employment Agreement between the Company and Michael H.
Lerner, dated January 1, 1998 .............................. (1)
10.12+ Amended and Restated Employment Agreement between the
Company and Marc Ham, dated January 1, 1998 ................ (1)
10.13+ Amended and Restated Employment Agreement between the
Company and Carole Bieber, dated January 1, 1998 ........... (1)
10.13A Employment Agreement between the Company and G. Michael
Dees, dated January 1, 1998 ................................ (1)
10.13B Employment Agreement between the Company and Zachary
Solomon, dated February 18, 1998 ........................... (1)
10.14+ Amended and Restated Employment Agreement, dated June 30,
1993, between the Company and TJC Management Corporation ... *
10.15 Lease Agreement, dated July 1, 1993, by and among Marc Ham
and Carole Bieber, as trustees, and MCFD Acquisitions
L.L.C. together with Subordination, Non-Disturbance and
Attornment Agreement dated July 1, 1993 between MCFD
Acquisitions L.L.C. and Wilmington Trust Company ........... *
10.16 Trademark Assignment Agreement, dated as of January 1,
1996, by and among Vittadini Ltd., the Company and AVE ..... **
10.17 Trademark Collateral Assignment, dated as of January 1,1
996, by and among AVI, the Company, and AVE ................ **
10.18 Employment Agreement, dated as of January 1, 1996, among
the Company, AVE, and Adrienne Vittadini ................... **
10.19 Employment Agreement, dated as of January 1, 1996, among
the Company, AVE, and Gianluigi Vittadini .................. **
10.20 Credit agreement dated August 21, 1996 by and among the
Company, Marisa Christina Apparel, Inc., Flapdoodles,
Inc., Adrienne Vittadini Enterprises, Inc. and the Chase
Manhattan Bank, N.A ........................................ ****
10.21 Credit agreement dated August 29, 1996 by and among the
Company, Marisa Christina Apparel, Inc., Flapdoodles,
Inc., Adrienne Vittadini Enterprises, Inc. and The Bank of
New York ................................................... ****
21 Subsidiaries of the Registrant ............................. ***
23 Consent of Independent Auditors ............................ (1)
27 Financial Data Schedule .................................... N/A
- --------
* Incorporated by reference to the exhibits filed with the Company's Form
S-1 Registration Statement (File No. 33-78958).
** Incorporated by reference to the exhibits filed with the Company's Report
on Form 8-K, filed on February 1, 1996.
*** Incorporated by reference to the Exhibits filed with the company's Annual
Report on Forms 10-K, filed on March 22, 1996.
**** Incorporated by reference to the Exhibits filed with the Company's Report
on Forms 10-Q, filed on November 12, 1996.
+ This exhibit is a management contract or compensatory plan or arrangement
required to be identified in this Form 10-K pursuant to Item 14(a)3 of this
report.
++ The schedules (or similar attachments) to these agreements have not been
filed pursuant to Item 601(b)(2) of Regulation S-K. Such schedules or
attachments will be filed supplementally upon the request of the Securities
and Exchange Commission.
(1) Filed herewith
42
<PAGE> 45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MARISA CHRISTINA, INCORPORATED
BY: /s/ Michael H. Lerner
-----------------------------------------
Michael H. Lerner
Chairman, Chief Executive Officer and President
Dated: March 25, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the date
indicated.
Signature Title Date
--------- ----- ----
/s/ Michael H. Lerner Chairman, Chief Executive March 25, 1998
- --------------------------- Officer and President
Michael H. Lerner
/s/ S. E. Melvin Hecht Chief Financial Officer, March 25, 1998
- --------------------------- Treasurer and Director
S. E. Melvin Hecht
/s/ Marc Ham Vice Chairman March 25, 1998
- ---------------------------
Marc Ham
/s/ Gianluigi Vittadini Director March 25, 1998
- ---------------------------
Gianluigi Vittadini
/s/ G. Michael Dees Director March 25, 1998
- ---------------------------
G. Michael Dees
/s/ Christine M. Carlucci Director March 25, 1998
- ---------------------------
Christine M. Carlucci
/s/ Robert Davidoff Director March 25, 1998
- ---------------------------
Robert Davidoff
/s/ Lawrence D. Glaubinger Director March 25, 1998
- ---------------------------
Lawrence D. Glaubinger
/s/ Brett J. Meyer Director March 25, 1998
- ---------------------------
Brett J. Meyer
Dated: March 25, 1998
43
<PAGE> 1
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement"), dated as of January 1, 1998, is made by
and between Marisa Christina, Incorporated, a Delaware corporation (the
"Corporation") and Michael H. Lerner (the "Executive").
Recitals
1. The Executive is Chairman of the Board of Directors of the Corporation
and of Marisa Christina Apparel, Inc., a Delaware corporation and a wholly-owned
subsidiary of the Corporation (the "Subsidiary"), and is currently employed as
the Chief Executive Officer and the President of the Corporation and the
Subsidiary.
2. The Corporation desires to continue the services of the Executive as
Chairman of the Board of Directors, Chief Executive Officer and President of the
Corporation and the Subsidiary and the employment of the Executive with the
Corporation and the Subsidiary and to enter into an agreement embodying the
terms of those continued relationships.
3. The Executive is willing to continue to serve as Chairman of the Board
of Directors of the Corporation and the Subsidiary and is willing to accept
continued employment by each of the Corporation and the Subsidiary on the terms
set forth herein.
Agreement
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Corporation and
the Executive hereby agree as follows.
1. Definitions.
1.1. "Adjusted Operating Earnings" means (a) the Corporation's net
earnings, plus (b) any extraordinary or non-recurring items of expense
(including, without limitation, any items of expense associated with the
Corporation's Offering (as hereinafter defined) and related Reorganization (as
hereinafter defined) and related transactions, charged against such earnings,
plus (c) interest expense (including deferred financing costs) in respect of
indebtedness and capitalized leases charged against such net earnings, other
than such interest expense in respect of indebtedness under revolving credit or
similar arrangements to finance inventories and receivables, plus (d) tax
expense in respect of all taxes measured or levied on the basis of the
Corporation's earnings or profits charged against such net earnings, all as
determined by
<PAGE> 2
reference to the Corporation's audited financial statements for such year, plus
(e) bonus expense in respect of this Agreement, employment agreements of even
date herewith between the Corporation and Marc Ham and Carole Bieber,
respectively, and other bonuses paid or payable to senior executives of the
Corporation and/or all subsidiaries, including Marisa Christina Apparel, Inc.,
Flapdoodles, Inc. and Adrienne Vittadini Enterprises, Inc. With regard to the
Corporation's Adjusted Operating Earnings for 1994, such Earnings will be
determined on a pro forma basis, as if the Corporation's reorganization and
Offering (as those terms are defined in, and pursuant to, the Corporation's
Agreement and Plan of Reorganization, dated June 22, 1994), and the application
of the net proceeds from the Offering, were consummated on January 1, 1994.
1.2. "Affiliate" means any person or entity controlling, controlled by or
under common control with the Corporation.
1.3. "Board" means the Board of Directors of the Corporation.
1.4. "Cause" means (a) the Executive is convicted of a felony, or (b) the
Executive, in carrying out his duties and responsibilities under this Agreement,
is guilty of gross neglect or gross misconduct resulting, in either case, in
material economic harm to the Corporation and/or the Subsidiary.
1.5. "Commencement Date" has the meaning assigned to it in Section 3.
1.6. "Date of Termination" means (a) in the case of a termination for
which a Notice of Termination is required, the date of actual receipt of such
Notice of Termination or, if later, the date specified therein, as the case may
be, and (b) in all other cases, the actual date on which the Executive's
employment terminates during the Term of Employment.
1.7. "Disability" means the Executive's inability to render, for a period
of six consecutive months, services hereunder by reason of permanent disability,
as determined by the written medical opinion of an independent medical physician
mutually acceptable to the Executive and the Corporation. If the Executive and
the Corporation cannot agree as to such an independent medical physician each
shall appoint one medical physician and those two physicians shall appoint a
third physician who shall make such determination.
1.8. "Good Reason" means and shall be deemed to exist if, without the
prior express written consent of the Executive, (a) the Executive is assigned
any duties or responsibilities inconsistent in any material respect with the
scope of the duties or responsibilities associated with the Executive's titles
or positions, as set forth and described in Section 4 of this Agreement; (b) the
Executive suffers a reduction in the duties, responsibilities or effective
authority associated with his titles and positions as set forth and described in
Section 4 of this Agreement; (c) the Executive is not appointed to, or is
removed from, the offices or positions
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<PAGE> 3
provided for in Section 4 of this Agreement, other than under circumstances
involving Cause; (d) the Corporation fails to substantially perform any material
term or provision of this Agreement; (e) the Executive's compensation (including
base compensation and/or method of calculation of bonus) provided for hereunder
is decreased; (f) the Executive's office location is changed to a location more
than 50 miles from its location on the date hereof in New York, New York; (g)
the Corporation fails to obtain the full assumption of this Agreement by a
successor entity in accordance with Section 11.2 of this Agreement; (h) the
Corporation continually fails to reimburse the Executive for business expenses
in accordance with Section 5.3 of this Agreement; (i) the Corporation purports
to terminate the Executive's employment for Cause and such purported termination
of employment is not effected in accordance with the requirements of this
Agreement; (j) the Executive shall not be nominated or elected, or shall be
removed, as a director and Chairman of the Board of Directors of each of the
Corporation and the Subsidiary; (k) the Board or the shareholders of the
Corporation or the Subsidiary, either or both, as may be required to authorize
the same, shall approve (i) any liquidation of the Corporation, or the sale of
substantially all of the assets of the Corporation taken as a whole, or (ii) any
merger, consolidation and/or other business combination involving the
Corporation or any combination of any such transactions (a "Transaction"), other
than a Transaction (A) involving only the Corporation and the Subsidiary, or (B)
immediately after which the shareholders of the Corporation who were
shareholders immediately prior to the transaction continue to own beneficially,
directly or indirectly, in substantially similar proportions to those in effect
immediately prior to such transaction more than 50% of the then outstanding
voting securities of the Corporation and the Subsidiary; (l) any Person or group
(as such term is defined in Rule 13d-5 of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) of related Persons which is not an Affiliate of
the Corporation or the Subsidiary as of the Commencement Date shall beneficially
own, directly or indirectly, more than 50% of the then outstanding voting stock
of the Corporation or the Subsidiary. For purposes of this Agreement,
"Person(s)" means any individual, entity, or other person, as defined in Section
3(a)(9) of the Exchange Act, and as used in Sections 13(d) and 14(d) thereof; or
(n) the Corporation shall engage in any Business Combination with an Interested
Person, each as defined in Article Fifth of the Corporation's Restated
Certificate of Incorporation.
1.9. "Retirement" means the termination of the Executive's employment with
the Corporation for any reason at any time after (a) the Executive attains age
65 or (b) the Executive meets the requirements for early or regular retirement
under the Corporation's retirement policy, assuming for this purpose that she
were a participant in such plan.
1.10. "Term of Employment" has the meaning assigned to it in Section 3.
2. Employment. Subject to the terms and provisions set forth in this
Agreement, the Corporation hereby employs the Executive during the Term of
Employment as the Chief
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<PAGE> 4
Executive Officer and President of the Corporation, agrees to cause the
Executive to be a director of the Subsidiary during the Term of Employment and
agrees to cause the Subsidiary at all times during the Term of Employment to
employ the Executive as Chief Executive Officer and President of the Subsidiary,
and the Executive hereby accepts such employment.
3. Effective Date and Term of Employment. (a) The term of employment under
this Agreement shall commence as of January 1, 1998, (the "Commencement Date")
and shall, unless extended as hereinafter provided, terminate on December 31,
2000 (the "Term of Employment").
(b) On the initial termination date of the Term of Employment, and each
succeeding anniversary, the Term of Employment shall automatically be extended
for an additional one year period unless, not later than six months prior to any
such anniversary, either party to this Agreement shall have given written notice
to the other that the Term of Employment shall not be extended or further
extended beyond its then already automatically extended term, if any.
4. Positions, Responsibilities and Duties.
4.1. Positions. During the Term of Employment, the Executive shall be
employed as, and the Corporation shall at all times cause the Executive to be,
the Chief Executive Officer and President of the Corporation and the Subsidiary.
In addition to such positions, the Corporation shall use its best efforts to
ensure that the Executive is elected by the shareholders of the Corporation to
serve as a director of the Corporation during the Term of Employment, and shall
use its best efforts to ensure that Executive is the Chairman of the Board of
Directors. In such positions, the Executive shall have the duties,
responsibilities and authority normally associated with the office and position
of chairman, director, chief executive officer and president of a corporation,
but in no event shall the Executive's duties, responsibilities and/or effective
authority with respect to the Corporation and/or the Subsidiary be less than the
duties, responsibilities and effective authority the Executive possessed
immediately prior to the date of this Agreement. No other employee of the
Corporation or the Subsidiary shall have authority and responsibilities that are
equal to or greater than those of the Executive. The Executive shall report
solely and directly to the Board and all other officers and other employees of
the Subsidiary shall report directly to the Executive or the Executive's
designees. No provision of this Section 4.1, however, shall preclude the Board
from soliciting information from any officer or employee of the Corporation.
4.2. Duties. During the Term of Employment, the Executive shall devote all
or substantially all of Executive's business time and effort to perform the
duties associated with his offices and positions as set forth in Section 4.1 and
shall use his best efforts to perform faithfully and efficiently the duties and
responsibilities contemplated by this Agreement; provided, however, that the
Executive shall not be limited from serving as a director of other companies and
shall not be required to perform any duties and responsibilities which would be
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<PAGE> 5
likely to result in a non-compliance with or violation or breach of any
applicable law or regulation.
5. Compensation and Other Benefits.
5.1. Base Salary. During the Term of Employment, the Executive shall
receive a base salary ("Base Salary"), payable in equal monthly installments, of
$500,000 per annum. After the initial termination date of the Term of
Employment, such Base Salary shall be reviewed annually for increase (but not
decrease) in the sole discretion of the Compensation Committee of the Board;
provided, however, that such Base Salary shall in any event be increased as of
January 1 of each calendar year after such third anniversary at a rate equal to
the percentage increase in the consumer price index for the New York-Northern
New Jersey- Long Island, NY-NJ-CT metropolitan local area as reported by the
United States Department of Labor (the "CPI") for the immediately preceding
calendar year. In conducting any such annual review, the Compensation Committee
of the Board shall take into account any change in the Executive's
responsibilities, increases in the compensation of other executives of the
Corporation or the Subsidiary or of its competitors, the performance of the
Executive and other pertinent factors. Such increased Base Salary shall then
constitute the "Base Salary" for purposes of this Agreement.
5.2. Bonuses. During the Term of Employment, the Executive shall be
eligible to participate, as determined by the Compensation Committee of the
Board, in all incentive compensation plans and programs maintained by the
Corporation and/or the Subsidiary for the benefit of senior executives,
including without limitation bonus and stock option or other stock-based
compensation plans. In particular, and without limiting the foregoing, during
the Term of Employment, the Executive will be paid bonuses ("Bonuses"), on April
30 next following a year that included a portion of the Term of Employment,
equal to four percent (4%) of (a) the difference of the Corporation's Adjusted
Operating Earnings for such year over $3.0 million, multiplied by (b) a
fraction, the numerator of which is the number of days during such year which
include the Term of Employment, and the denominator of which is the number of
days (365 or 366) in such year, provided, that in calculating the bonus, if any,
payable in respect of 1994, the fraction in clause (b) will be deemed to be 1,
as if the Term of Employment covered the entire year of 1994.
5.3. Expense Reimbursement. During the Term of Employment, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in performing his duties and responsibilities
hereunder in accordance with the policies and procedures of the Corporation as
in effect and actually applied immediately prior to the Commencement Date,
including without limitation an automobile allowance and/or reimbursement, which
will cover, among other things, expenses for automobile garage parking,
automobile insurance and other automobile expenses, or, if more favorable to the
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<PAGE> 6
Executive, as in effect at any time thereafter with respect to the Executive or
other executives of the Corporation or the Subsidiary.
5.4. Vacation and Fringe Benefits. (a) The Corporation shall maintain
disability insurance for the benefit of the Executive, and shall maintain such
insurance so long as the Executive remains a senior executive officer of the
Corporation, provided that (i) the aggregate amount of such insurance coverage
shall be reduced if and to the extent necessary to reduce the aggregate annual
premium payable by the Corporation to $10,000. The Corporation may, at its
election and for its benefit, insure the Executive against death and/or
disability and the Executive agrees to cooperate with the Corporation in
obtaining such policies and in maintaining the same in full force and effect
throughout the Term of Employment.
(b) During the Term of Employment, the Executive shall also be entitled to such
paid vacation, fringe benefits and perquisites as provided to the Executive by
the Corporation and/or the Subsidiary immediately prior to the Commencement Date
or, if more favorable to the Executive, as provided by the Corporation or the
Subsidiary at any time thereafter.
5.5. Office and Support Staff. Unless the Executive otherwise agrees in
writing, during the Term of Employment the Executive shall be entitled to
executive secretarial and other administrative assistance of a type and extent,
and to an office or offices (with furnishings and other appointments) of a type
and size, at least equal to that provided to the Executive immediately prior to
the date of this Agreement.
6. Termination.
6.1. Termination Due to Death or Disability. The Corporation may terminate
the Executive's employment hereunder due to Disability. In the event of the
Executive's death or a termination of the Executive's employment by the
Corporation due to Disability, the Executive, his estate or his legal
representative, as the case may be, shall be entitled to receive:
(a) Base Salary continuation at the rate in effect (as provided for
by Section 5.1 of this Agreement) on the Date of Termination through the
later to occur of (i) the first anniversary of such termination, or (ii)
the end of the Term of Employment;
(b) the product of any annual bonus paid or payable (and annualized
for any fiscal year consisting of less than 12 months) to Executive for
the most recently completed fiscal year during the Term of Employment and
a fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of which
is 365.
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<PAGE> 7
(c) any deferred compensation not yet paid to the Executive
(including, without limitation, interest or other credits on such deferred
amounts) and any accrued vacation pay; and
(d) reimbursement for expenses incurred but not yet paid prior to
such death or Disability; and
(e) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Corporation to surviving families of
employees of the Corporation under such plans, programs, practices and policies
relating to family death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Corporation in effect on the date
of the Executive's death with respect to other key employees of the Corporation
and their families. Anything in this Agreement to the contrary notwithstanding,
the Executive shall be entitled after the Disability Date of Termination to
receive disability and other benefits at least equal to the most favorable of
those provided by the Corporation to disabled employees and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, in effect at any time during the 90-day period immediately
preceding the Disability Date of Termination with respect to other key employees
of the Corporation and their families.
6.2. Termination by the Corporation for Cause. The Corporation may
terminate the Executive's employment hereunder for Cause as provided in this
Section 6.2. If the Corporation terminates the Executive's employment hereunder
for Cause, the Executive shall be entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section
5.1 of this Agreement) at the time of such termination through the Date of
Termination;
(b) any deferred compensation (including, without limitation,
interest or other credits on such deferred amounts) and any accrued
vacation pay; and
(c) reimbursement for expenses incurred, but not yet paid prior to
such termination of employment; and
(d) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
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<PAGE> 8
In any case described in this Section 6.2, the Executive shall be given
written notice authorized by a vote of at least a majority of the members of the
Board that the Corporation intends to terminate the Executive's employment for
Cause. Such written notice, given in accordance with Section 6.7 of this
Agreement, shall specify the particular act or acts, or failure to act, which is
or are the basis for the decision to so terminate the Executive's employment for
Cause. The Executive shall be given the opportunity within 30 calendar days of
the receipt of such notice to meet with the Board to defend such act or acts, or
failure to act, and, if such act or failure to act is correctable, the Executive
shall be given 30 business days after such meeting to correct such act or
failure to act. If such act or failure to act is not correctable or upon failure
of the Executive, within such latter 30 day period, to correct such act or
failure to act, the Executive's employment by the Corporation shall
automatically be terminated under this Section 6.2 for Cause as of the date
determined in Section 1.5 of this Agreement. Anything herein to the contrary
notwithstanding, if, following a termination of the Executive's employment by
the Corporation for Cause based upon the conviction of the Executive for a
felony involving actual dishonesty as against the Corporation or the Subsidiary,
such conviction is overturned on appeal, the Executive shall be entitled to the
payments and benefits that the Executive would have received as a result of a
termination of the Executive's employment by the Corporation without Cause.
6.3. Termination Without Cause or Termination For Good Reason. The
Corporation shall be permitted to terminate the Executive's employment hereunder
without Cause and the Executive shall be permitted to terminate his employment
hereunder for Good Reason. For purposes of this Agreement, such a termination of
employment by the Executive shall constitute a "Termination for Good Reason"
only if effected in accordance with the notice provisions of Section 6.7(b). If
the Corporation terminates the Executive's employment hereunder without Cause,
other than due to death or Disability, or if the Executive effects a Termination
for Good Reason, the Executive shall be entitled to receive:
(a) the product of any annual bonus paid or payable (and annualized
for any fiscal year consisting of less than 12 months) to Executive for
the most recently completed fiscal year during the Term of Employment
(unless in the case of termination by the Corporation without Cause, in
which case, such product will be determined by reference to the highest
annual bonus paid or payable under this Agreement during the Term of
Employment) and a fraction, the numerator of which is the number of days
in the current fiscal year through the Date of Termination, and the
denominator of which is 365.
(b) a lump sum payment in an amount equal to the present value of
Base Salary owed through the later to occur of (i) the second anniversary
of such termination, or (ii) the end of the Term of Employment;
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<PAGE> 9
(c) any deferred compensation (including, without limitation,
interest or other credits on the deferred amounts) and any accrued
vacation pay;
(d) reimbursement for expenses incurred, but not paid prior to such
termination of employment; and
(e) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
6.4. Voluntary Termination. The Executive may effect a Voluntary
Termination of his employment hereunder. A "Voluntary Termination" shall mean a
termination of employment upon 180 days prior written notice to the Corporation
by the Executive on his own initiative other than (a) a termination due to death
or Disability, (b) a Termination for Good Reason, or (c) a termination due to
Retirement. A Voluntary Termination shall not be, nor shall it be deemed to be,
a breach of this Agreement and shall entitle the Executive to all of the rights
and benefits which the Executive would be entitled in the event of a termination
of his employment by the Corporation for Cause.
6.5. Termination Due to Retirement. The Executive may terminate his
employment hereunder as a result of Retirement. If the Executive employment
hereunder is terminated due to Retirement, the Executive shall be entitled to
receive:
(a) Base Salary at the rate in effect (as provided for by Section
5.1 of this Agreement) at the time of such termination through the date of
Retirement;
(b) any deferred compensation not yet paid to the Executive
(including, without limitation, any interest on credits on such deferred
amounts) and any accrued vacation pay;
(c) reimbursement for expenses incurred but not yet paid prior to
the date of Retirement; and
(d) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
6.6. No Mitigation; No Offset. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment and there shall be no offset against any amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that the Executive may obtain.
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<PAGE> 10
Any amounts due under this Section 6 are in the nature of severance payments, or
liquidated damages, or both, and are not in the nature of a penalty.
6.7. Notice of Termination. Any termination of the Executive's employment
by the Corporation for Cause, any Termination for Good Reason, and any
termination of employment by the Executive in connection with a Voluntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 13.3 of this Agreement (the "Notice of
Termination"). The Notice of Termination shall be given (a) in the case of a
termination for Cause, within 90 business days after a director of the
Corporation (excluding the Executive) has actual knowledge of the events giving
rise to such purported termination, (b) in the case of a Termination for Good
Reason, within 180 days of the Executive's having actual knowledge of the event
or events constituting Good Reason; and (c) in the case of Voluntary
Termination, not later than 150 days prior to the date of termination specified
in such notice. Such notice shall (x) indicate the specific termination
provision in this Agreement relied upon, (y) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, as applicable, and (z)
if the termination date is other than the date of receipt of such notice,
specify the date on which the Executive's employment is to be terminated (which
date shall not be earlier than the date on which such notice is actually given).
6.8. Certain Further Payments by the Corporation.
6.8.1. Tax Reimbursement Payment. Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to the Executive by the Corporation, the Subsidiary or any other
Affiliate (collectively, the "Covered Payments"), is or becomes, at any time, as
a result of (a) any Internal Revenue Service claims or assertions, or (b)
Section 6.8.2 below or otherwise, subject to the excise tax imposed by or under
Section 4999 of the Code (or any similar tax that may hereafter be imposed),
and/or any interest or penalties with respect to such excise tax (such excise
tax, together with such interest and penalties, are hereinafter collectively,
referred to as the "Excise Tax"), the Corporation shall pay to the Executive at
the time specified in Section 6.9 below an additional amount (the "Tax
Reimbursement Payment") such that after payment by the Executive of all taxes
(including, without limitation, any interest or penalties imposed with respect
to such taxes), including, without limitation, any Excise Tax, imposed on or
attributable to the Tax Reimbursement Payment provided by this Agreement, the
Executive retains an amount of the Tax Reimbursement Payment equal to the sum of
(a) the amount of the Excise Tax imposed upon the Covered Payments, and (b) an
amount equal to the product of (i) any deductions disallowed for federal, state
or local income tax purposes because of the inclusion of the Tax Reimbursement
Payment in the Executive's adjusted gross income, and (ii) the highest
applicable marginal rate of federal, state or local income taxation,
respectively, for the calendar year in which the Tax Reimbursement Payment is
made or is to be made.
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6.8.2. Determining Excise Tax. Except as otherwise provided in Section
6.8.1(a), for purposes of determining whether any of the Covered Payments will
be subject to the Excise Tax and the amount of such Excise Tax,
(a) such Covered Payments will be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Code) and such payments
in excess of the Code Section 280G(b)(3) "base amount" shall be treated as
subject to the Excise Tax, unless, and except to the extent that, the
Corporation's independent certified public accountants (the "Accountants")
or legal counsel reasonably acceptable to the Executive, deliver timely,
upon the Executive's request, a written opinion, reasonably satisfactory
to the Executive's legal counsel, to the Executive that the Executive has
a reasonable basis to claim that the Covered Payments (in whole or in
part) (i) do not constitute "parachute payments", (ii) represent
reasonable compensation for services actually rendered (within the meaning
of Section 28OG(b)(4) of the Code) in excess of the "base amount"
allocable to such reasonable compensation, or (iii) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
(b) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountants in
accordance with the principles of Section 28OG of the Code.
6.8.3. Applicable Tax Rates and Deductions. For purposes of determining
the amount of the Tax Reimbursement Payment, the Executive shall be deemed:
(a) to pay federal, state and/or local income taxes at the highest
applicable marginal rate of income taxation for the calendar year in which
the Tax Reimbursement Payment is made or is to be made, and
(b) to have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those disallowed due to the
inclusion of the Tax Reimbursement Payment in the Executive's adjusted
gross income.
6.8.4. Subsequent Events. If, pursuant to a written opinion, reasonably
satisfactory to the Executive, of the Accountants (or legal counsel reasonably
acceptable to the Executive) delivered to the Executive, the Excise Tax is
subsequently determined on a reasonable basis and in good faith (other than as a
result of a tax contest) to be less than the amount taken into account hereunder
in calculating any Tax Reimbursement Payment made, the Executive shall repay to
the Corporation the portion of any prior Tax Reimbursement Payment that would
not have been paid if such redetermined Excise Tax had been applied in
calculating such Tax Reimbursement Payment, plus interest on the amount of such
repayment at the mid-term discount rate provided in Section 1274(b)(2)(B) of the
Code. Notwithstanding the immediately
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foregoing sentence, if any portion of the Tax Reimbursement Payment to be
refunded to the Corporation has been paid to any federal, state or local tax
authority, repayment thereof shall not be required until an actual refund or
credit of such portion has been made to or obtained by the Executive from such
tax authority, and any interest payable to the Corporation shall not exceed the
interest received or credited to the Executive by any such tax authority. The
Executive shall be fully indemnified by the Corporation for any out-of-pocket
costs, expenses or fees attributable to the filing of any refund or other claim.
The Executive and the Corporation shall mutually agree upon the course of action
to be pursued (and the method of allocating the expenses thereof) if any good
faith claim for refund or credit from such tax authority made by the Executive
is denied.
Notwithstanding the immediately preceding paragraph, if, in the written
opinion of the Executive's tax advisors delivered to the Accountants and the
Corporation, the Excise Tax is later determined to exceed the amount taken into
account by the Accountants or legal counsel, as the case may be, hereunder at
the time any Tax Reimbursement Payment is made by reason of (i) manifest error,
(ii) any payment the existence or amount of which could not be or was not
determined or known about at the time of any Tax Reimbursement Payment, or (iii)
any determination, claim or assertion made by any tax authority that the Excise
Tax is or should be greater than the amount of such Excise Tax taken into
account previously by the Accountants or legal counsel, as the case may be, or
as otherwise previously determined, the Corporation shall make an additional Tax
Reimbursement Payment in respect of such excess Excise Tax (which Tax
Reimbursement Payment shall include, without limitation, any interest or
penalties payable with respect to such excess Excise Tax) at the time specified
in Section 6.9 below. With respect to this Section 6.8.4, if any such tax
authority makes such a determination, the Executive shall notify the Corporation
of such occurrence. If the Corporation obtains (at the Corporation's sole
expense) an opinion of legal counsel reasonably satisfactory to the Executive
that it is more likely than not that the Executive would succeed in disputing
such claim, assertion or determination of such tax authority, the Executive
shall, at the sole expense of the Corporation, make a good faith effort to
contest such claim, assertion or determination of such tax authority in all
relevant administrative proceedings with such tax authority and in any related
judicial proceeding (excluding any appeals thereof); provided, however, that if
the Executive determines in good faith that the continued contest of any such
claim, assertion or determination with such tax authority would have an adverse
impact on his overall tax position (which good faith determination shall take
into account the magnitude of the amounts involved), then, upon receipt of
notice by the Corporation from the Executive to that effect, the Executive
shall, without foregoing any right to receive any Tax Reimbursement Payment
described in this Section 6.8, have no further obligation to pursue any such
contest with any such tax authority. The Executive may, as a condition to
pursuing or commencing any contest described in this Section 6.8.4 in any
judicial proceedings (which proceedings shall be in a forum chosen at the sole
discretion of the Executive), require the Corporation to advance any amount of
tax required to be paid in order to pursue such contest. In conducting any
contest described in this Section 6.8.4, the Executive shall use his best
efforts to keep the Corporation
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advised and will permit the Corporation to prepare and suggest appropriate
responses and actions that may be reasonably made or taken by the Executive.
Notwithstanding the above, the decisions as to such response or actions shall be
solely that of the Executive and the Executive shall have the sole right to
control the proceeding. The Corporation shall bear all expenses of any
proceeding relating to any contest described in this Section 6.8.4, whether
incurred by the Corporation or the Executive, including, without limitation, all
fees and disbursements of attorneys, accountants and expert witnesses and any
additional interest or penalties applicable. Nothing contained in this Agreement
shall under any circumstances give the Corporation any right to examine the tax
returns or any other records of the Executive.
6.9. Payment. Except as otherwise provided in this Agreement, and except
with respect to continued payment of Base Salary in accordance with any
provisions of this Agreement, any payments to which the Executive shall be
entitled under this Section 6 shall be made as promptly as possible following
(a) the Date of Termination, (b) the payment of any Covered Payments, or (c) the
delivery of the opinion of the Executive's tax advisors, in accordance with
Section 6.8.4. If the amount of any payment due to the Executive cannot be
finally determined with 90 days after the Date of Termination, such amount shall
be estimated on a good faith basis by the Corporation and the estimated amount
shall be paid no later than 90 days after such Date of Termination. As soon as
practicable thereafter, the final determination of the amount due shall be made
and any adjustment requiring a payment to or from the Executive shall be made as
promptly as practicable.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any bonus or
incentive plan or program provided or maintained by the Corporation, the
Subsidiary or any other Affiliate and for which the Executive may qualify or be
selected, nor shall anything herein limit or otherwise prejudice such rights as
the Executive may have under any other existing or future agreements with the
Corporation, the Subsidiary or any Affiliate, including, without limitation, any
change of control agreements or any stock option or restricted stock agreements.
Except as otherwise expressly provided for in this Agreement, amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plans or programs of the Corporation, the Subsidiary or any other Affiliate
at or subsequent to the Date of Termination shall be payable in accordance with
such plans or programs.
8. Full Settlement. The Corporation's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others.
9. Legal Fees and Expenses. In the event that a claim for payment or
benefits under this Agreement is disputed, each of the parties hereto shall pay
its own attorney fees and expenses incurred in connection with such dispute. In
addition, each party shall pay its own
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legal fees and expenses incurred in connection with the preparation and
negotiation of this Agreement.
10. Confidential Information and Noncompetition.
10.1. Confidential Information. The Executive shall not, during the Term
of Employment and thereafter, without the prior express written consent of the
Corporation or the Subsidiary, disclose any confidential information, knowledge
or data relating to the Corporation, the Subsidiary or any other Affiliate and
their respective businesses, which (a) was obtained by the Executive in the
course of the Executive's employment with the Corporation, and (b) which is not
information, knowledge or data otherwise in the public domain (other than by
reason of a breach of this provision by the Executive), unless required to do so
by a court of law or equity or by any governmental agency or other authority. In
no event shall an asserted violation of this Section 10.1 constitute a basis for
delaying or withholding the payment of any amounts otherwise payable to the
Executive under this Agreement.
10.2. Noncompetition. If the Executive terminates his employment hereunder
pursuant to Section 6.4 of this Agreement, or if the Corporation terminates
Executive's employment hereunder pursuant to Section 6.1 or 6.2, then the
Corporation, by written notice given to the Executive within 30 days after the
Executive delivers a Notice of Termination in connection with a Voluntary
Termination, may require that this Section 10.2 apply, subject to the
Corporation complying with its obligations under this Agreement. If the
Corporation gives notice to the Executive as provided in the preceding sentence,
then the Executive, without the express written consent of the Corporation,
shall not, for the twelve month period following the Date of Termination, engage
in any business, whether as an employee, consultant, partner, principal, agent,
representative or stockholder (other than as a stockholder of less than a 5%
equity interest) or in any other corporate or representative capacity, if it
involves engaging in, or rendering services or advice pertaining to, any lines
of business the Corporation or the Subsidiary was actively conducting on the
Date of Termination. If the Corporation shall institute any action or proceeding
to enforce the provisions of this Section 10.2, or shall file any claim in any
proceeding to enforce such provisions, the Executive hereby waives the claim or
defense that the Corporation has an adequate remedy at law and waives the
requirement that
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the Corporation post a bond in securing equitable relief, and the Executive
shall not contend in any such action or proceeding the claim or defense that an
adequate remedy at law exists.
11. Successors.
11.1. The Executive. This Agreement is personal to the Executive and,
without the prior express written consent of the Corporation, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition; intestate succession or pursuant to a
domestic relations order of a court of competent jurisdiction. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs,
beneficiaries and/or legal representatives.
11.2. The Corporation. This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns. The Corporation
shall require any successor to all or substantially all of the business and/or
assets of the Corporation or the Subsidiary, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Corporation would be required to perform if no such succession had
taken place.
12. Miscellaneous.
12.1. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, applied without reference to
principles of conflict of laws.
12.2. Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
12.3. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: 828 Fifth Avenue
New York, New York 10021
If to the Corporation: Marisa Christina, Incorporated
8101 Tonnelle Avenue
North Bergen, New Jersey
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copy to: Brett Meyer, Esq.
Kreindler & Relkin P.C.
350 Park Avenue
New York, NY 10118
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4. Withholding. The Corporation may withhold from any amounts payable
under this Agreement such federal, state or local income taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
12.5. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
12.6. Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7. Beneficiaries/References. The Executive shall be entitled to select
(and change) a beneficiary or beneficiaries to receive any compensation or
benefit payable hereunder following the Executive's death, and may change such
election, in either case by giving the Corporation written notice thereof. In
the event of the Executive's death or a judicial determination of his
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to other beneficiary(ies), estate or his legal
representative(s).
12.8. Entire Agreement. Upon the commencement of the Term of Employment,
this Agreement will contain the entire agreement between the parties concerning
the subject matter hereof and will supersede all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the parties with respect to the subject matter hereof, including
the Old Employment Agreement, which is hereby terminated, discharged and
released, but excluding the Director Indemnification Agreement dated as of June
30, 1994, by and between the Corporation and the Executive.
12.9. Representation. The Corporation represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between the Corporation and any other person, firm or organization or
any applicable laws or regulations.
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<PAGE> 17
12.10. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement or the Executive's
employment hereunder to the extent necessary to the intended preservation of
such rights and obligations.
13. Arbitration.
(a) Any controversy arising out of or relating to this Agreement shall be
settled by arbitration in New York pursuant to the rules of the American
Arbitration Association, and judgment may be entered in any Court having
jurisdiction.
(b) The parties consent to the jurisdiction of the Supreme Court of the
State of New York, and of the United States District Court for the Southern
District of New York, for all purposes in connection with arbitration, including
the entry of judgment on any award; and consent that any process, notice, motion
or other application to either of said courts, and any papers in connection with
arbitration, may be served by registered or certified mail, return receipt
requested, by personal service, or in such other manner as may be permissible
under the rules of the applicable court or arbitration tribunal, provided a
reasonable time for appearance is allowed.
(c) The arbitrators shall have no power to alter or modify any express
provision of this Agreement, or to render an award which has the effect of
altering or modifying any express provision hereof, provided, however, that any
application for reformation of this Agreement shall be made to the arbitrators
and not to any Court, and the arbitrators shall be empowered to determine
whether valid grounds for reformation exist.
(d) Any arbitration proceeding must be instituted within one year after
the claimed breach occurred, and a party's failure to institute arbitration
proceedings within such period shall constitute an absolute bar to the
institution of any proceedings by said party and a waiver of such claimed
breach. Notwithstanding any law or rule to the contrary, the determination of
whether said one-year period has expired shall be made by the Court and shall
not be within the jurisdiction of the arbitrators.
(e) The Executive or the Corporation, as the case may be, may be awarded
all reasonable attorneys' fees and expenses incurred by the Executive or the
Corporation, as the case may be, in connection with any arbitration or court
proceeding arising out of this Agreement, in the arbitrators' discretion.
(f) In the event that any dispute arising under this Agreement shall be
submitted to arbitration pursuant to this Section 13, the Executive shall be
entitled to receive all compensation, bonuses, benefits and perquisites
contemplated by this Agreement during the pendency of any such proceedings
unless the Corporation shall place the disputed amount into an interest-bearing
escrow account with the Corporation's attorneys, the terms of which
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escrow shall provide that all escrowed funds shall be immediately distributed to
the party or parties entitled thereto immediately upon a determination of the
arbitrators which is final, confirmed, and not subject to appeal.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and the Corporation has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
EXECUTIVE
-------------------------------
Michael Lerner
MARISA CHRISTINA, INCORPORATED
MARISA CHRISTINA APPAREL, INC.
By
----------------------------
Its
----------------------------
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<PAGE> 1
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement"), dated as of January 1, 1998 is made by
and between Marisa Christina, Incorporated, a Delaware corporation (the
"Corporation") and Marc Ham (the "Executive").
Recitals
1. The Corporation desires to continue the services of the Executive as
President of Flapdoodles, Inc., a Delaware corporation and a wholly owned
subsidiary of the Corporation ("Subsidiary") and the Vice Chairman of Marisa
Christina, Inc. ("Company"), and to enter into an agreement embodying the terms
of those continued relationships.
2. The Executive is willing to serve as President of the Subsidiary and
Vice Chairman of the Company and is willing to accept continued employment on
the terms set forth herein.
Agreement
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Corporation and
the Executive hereby agree as follows.
1. Definitions.
1.1. "Affiliate" means any person or entity controlling, controlled by or
under common control with the Corporation.
1.2. "Board" means the Board of Directors of the Corporation.
1.3. "Cause" means (a) the Executive is convicted of a felony, or (b) the
Executive, in carrying out Executive's duties and responsibilities under this
Agreement, is guilty of gross neglect or gross misconduct resulting, in either
case, in material economic harm to the Corporation and/or the Subsidiary.
1.4. "Commencement Date" has the meaning assigned to it in Section 3.
1.5. "Date of Termination" means (a) in the case of a termination for
which a Notice of Termination is required, the date of actual receipt of such
Notice of Termination or, if later,
<PAGE> 2
the date specified therein, as the case may be, and (b) in all other cases, the
actual date on which the Executive's employment terminates during the Term of
Employment.
1.6. "Disability" means the Executive's inability to render, for a period
of six consecutive months, services hereunder by reason of permanent disability,
as determined by the written medical opinion of an independent medical physician
mutually acceptable to the Executive and the Corporation. If the Executive and
the Corporation cannot agree as to such an independent medical physician each
shall appoint one medical physician and those two physicians shall appoint a
third physician who shall make such determination.
1.7. "Good Reason" means and shall be deemed to exist if, without the
prior express written consent of the Executive, (a) the Executive is assigned
any duties or responsibilities inconsistent in any material respect with the
scope of the duties or responsibilities associated with the Executive's titles
or positions, as set forth and described in Section 4 of this Agreement; (b) the
Executive suffers a reduction in the duties, responsibilities or effective
authority associated with Executive's titles and positions as set forth and
described in Section 4 of this Agreement; (c) the Executive is not appointed to,
or is removed from, the offices or positions provided for in Section 4 of this
Agreement, other than under circumstances involving Cause; (d) the Corporation
fails to substantially perform any material term or provision of this Agreement;
(e) the Executive's compensation (including base compensation and/or method of
calculation of bonus) provided for hereunder is decreased; (f) the Executive's
office location is changed to a location other than Newark, Delaware; (g) the
Corporation fails to obtain the full assumption of this Agreement by a successor
entity in accordance with Section 11.2 of this Agreement; (h) the Corporation
continually fails to reimburse the Executive for business expenses in accordance
with Section 5.3 of this Agreement; (i) the Corporation purports to terminate
the Executive's employment for Cause and such purported termination of
employment is not effected in accordance with the requirements of this
Agreement; (j) the Executive shall not be nominated or elected, or shall be
removed, as a director of the Board of Directors of each of the Corporation and
the Subsidiary; (k) the Board or the shareholders of the Corporation or the
Subsidiary, either or both, as may be required to authorize the same, shall
approve (i) any liquidation of the Corporation, or the sale of substantially all
of the assets of the Corporation taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Corporation or any
combination of any such transactions (a "Transaction"), other than a Transaction
(A) involving only the Corporation and the Subsidiary, or (B) immediately after
which the shareholders of the Corporation who were shareholders immediately
prior to the transaction continue to own beneficially, directly or indirectly,
in substantially similar proportions to those in effect immediately prior to
such transaction more than 50% of the then outstanding voting securities of the
Corporation and the Subsidiary; (l) any Person or group (as such term is defined
in Rule 13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons which is not an Affiliate of the Corporation or the
Subsidiary as of the Commencement Date shall beneficially own, directly or
indirectly, more than 50% of the
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then outstanding voting stock of the Corporation or the Subsidiary. For purposes
of this Agreement, "Person(s)" means any individual, entity, or other person, as
defined in Section 3(a)(9) of the Exchange Act, and as used in Sections 13(d)
and 14(d) thereof; or (n) the Corporation shall engage in any Business
Combination with an Interested Person, each as defined in Article Fifth of the
Corporation's Restated Certificate of Incorporation.
1.8. "Retirement" means the termination of the Executive's employment with
the Corporation for any reason at any time after (a) the Executive attains age
65 or (b) the Executive meets the requirements for early or regular retirement
under the Corporation's retirement policy, assuming for this purpose that the
Executive was a participant in such plan.
1.9. "Term of Employment" has the meaning assigned to it in Section 3.
2. Employment. Subject to the terms and provisions set forth in this
Agreement, the Corporation hereby agrees to cause the Executive to be a director
and Vice Chairman of the Company during the Term of Employment and also agrees
to cause the Subsidiary at all times during the Term of Employment to employ the
Executive as President of the Subsidiary, and the Executive hereby accepts such
employment.
3. Effective Date and Term of Employment. (a) The term of employment under
this Agreement shall commence as of January 1, 1998, (the "Commencement Date")
and shall, unless extended as hereinafter provided, terminate on December 31,
2000 (the "Term of Employment").
(b) On the initial termination date of the Term of Employment, and each
succeeding anniversary, the Term of Employment shall automatically be extended
for an additional one year period unless, not later than six months prior to any
such anniversary, either party to this Agreement shall have given written notice
to the other that the Term of Employment shall not be extended or further
extended beyond its then already automatically extended term, if any.
4. Positions, Responsibilities and Duties.
4.1. Positions. During the Term of Employment, the Executive shall be
employed as, and the Corporation shall at all times cause the Executive to be
Vice Chairman of the Company and the President of the Subsidiary. In addition to
such positions, the Corporation shall use its best efforts to ensure that the
Executive is elected by the shareholders of the Corporation to serve as a
director of the Corporation during the Term of Employment. In such positions,
the Executive shall have the duties, responsibilities and authority normally
associated with the office and position of director, Vice Chairman and President
of a corporation, but in no event shall the Executive's duties, responsibilities
and/or effective authority with respect to the Corporation and/or the Subsidiary
be less than the duties,
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responsibilities and effective authority the Executive possessed immediately
prior to the date of this Agreement.
4.2. Duties. During the Term of Employment, the Executive shall devote all
or substantially all of Executive's business time and effort to perform the
duties associated with Executive's offices and positions as set forth in Section
4.1 and shall use Executive's best efforts to perform faithfully and efficiently
the duties and responsibilities contemplated by this Agreement; provided,
however, that the Executive shall not be limited from serving as a director of
other companies and shall not be required to perform any duties and
responsibilities which would be likely to result in a non-compliance with or
violation or breach of any applicable law or regulation.
5. Compensation and Other Benefits.
5.1. Base Salary. During the Term of Employment, the Executive shall
receive a base salary ("Base Salary"), payable in equal monthly installments, of
$300,000 per annum. After the initial termination date of the Term of
Employment, such Base Salary shall be reviewed annually for increase (but not
decrease) beginning January 1, 1999 in the sole discretion of the Compensation
Committee of the Board; provided, however, that such Base Salary shall in any
event be increased as of January 1 of each calendar year after such third
anniversary at a rate equal to the percentage increase in the consumer price
index for the New York-Northern New Jersey-Long Island, NY-NJ-CT metropolitan
local area as reported by the United States Department of Labor (the "CPI") for
the immediately preceding calendar year. In conducting any such annual review,
the Compensation Committee of the Board shall take into account any change in
the Executive's responsibilities, increases in the compensation of other
executives of the Corporation or the Subsidiary or of its competitors, the
performance of the Executive and other pertinent factors. Such increased Base
Salary shall then constitute the "Base Salary" for purposes of this Agreement.
5.2. Bonuses. During the Term of Employment, the Executive shall be
eligible to participate, as determined by the Compensation Committee of the
Board, in all incentive compensation plans and programs maintained by the
Corporation and/or the Subsidiary for the benefit of senior executives,
including without limitation bonus and stock option or other stock-based
compensation plans. By each April 30 next following a year that included a
portion of the Term of Employment, the Compensation Committee will, in its
discretion, consider paying bonuses to Executive based on the Executive's
performance during that year and the Subsidiaries' results and financial
performance during that year and such other considerations as they consider
relevant. Such bonuses, if awarded, will be paid by such April 30. However,
Executive acknowledges that such bonuses are discretionary, and have not been
promised.
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5.3. Expense Reimbursement. During the Term of Employment, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in performing Executive's duties and responsibilities
hereunder in accordance with the policies and procedures of the Corporation as
in effect and actually applied immediately prior to the Commencement Date,
including without limitation an automobile allowance and/or reimbursement, which
will cover, among other things, expenses for automobile garage parking,
automobile insurance and other automobile expenses, or, if more favorable to the
Executive, as in effect at any time thereafter with respect to the Executive or
other executives of the Corporation or the Subsidiary.
5.4. Vacation and Fringe Benefits. (a) The Corporation shall maintain
disability insurance for the benefit of the Executive, and shall maintain such
insurance so long as the Executive remains a senior executive officer of the
Corporation, provided that (i) the aggregate amount of such insurance coverage
shall be reduced if and to the extent necessary to reduce the aggregate annual
premium payable by the Corporation to $10,000. The Corporation may, at its
election and for its benefit, insure the Executive against death and/or
disability and the Executive agrees to cooperate with the Corporation in
obtaining such policies and in maintaining the same in full force and effect
throughout the Term of Employment.
(b) During the Term of Employment, the Executive shall also be entitled to such
paid vacation, fringe benefits and perquisites as provided to the Executive by
the Corporation and/or the Subsidiary immediately prior to the Commencement Date
or, if more favorable to the Executive, as provided by the Corporation or the
Subsidiary at any time thereafter.
5.5. Office and Support Staff. Unless the Executive otherwise agrees in
writing, during the Term of Employment the Executive shall be entitled to
executive secretarial and other administrative assistance of a type and extent,
and to an office or offices (with furnishings and other appointments) of a type
and size, at least equal to that provided to the Executive immediately prior to
the date of this Agreement.
6. Termination.
6.1. Termination Due to Death or Disability. The Corporation may terminate
the Executive's employment hereunder due to Disability. In the event of the
Executive's death or a termination of the Executive's employment by the
Corporation due to Disability, the Executive, Executive's estate or Executive's
legal representative, as the case may be, shall be entitled to receive:
(a) Base Salary continuation at the rate in effect (as provided for
by Section 5.1 of this Agreement) on the Date of Termination through the
later to occur of (i) the first anniversary of such termination, or (ii)
the end of the Term of Employment;
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(b) the product of any annual bonus paid or payable (and annualized
for any fiscal year consisting of less than 12 months) to Executive for
the most recently completed fiscal year during the Term of Employment and
a fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of which
is 365.
(c) any deferred compensation not yet paid to the Executive
(including, without limitation, interest or other credits on such deferred
amounts) and any accrued vacation pay; and
(d) reimbursement for expenses incurred but not yet paid prior to
such death or Disability; and
(e) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Corporation to surviving families of
employees of the Corporation under such plans, programs, practices and policies
relating to family death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Corporation in effect on the date
of the Executive's death with respect to other key employees of the Corporation
and their families. Anything in this Agreement to the contrary notwithstanding,
the Executive shall be entitled after the Disability Date of Termination to
receive disability and other benefits at least equal to the most favorable of
those provided by the Corporation to disabled employees and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, in effect at any time during the 90-day period immediately
preceding the Disability Date of Termination with respect to other key employees
of the Corporation and their families.
6.2. Termination by the Corporation for Cause. The Corporation may
terminate the Executive's employment hereunder for Cause as provided in this
Section 6.2. If the Corporation terminates the Executive's employment hereunder
for Cause, the Executive shall be entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section
5.1 of this Agreement) at the time of such termination through the Date of
Termination;
(b) any deferred compensation (including, without limitation,
interest or other credits on such deferred amounts) and any accrued
vacation pay; and
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(c) reimbursement for expenses incurred, but not yet paid prior to
such termination of employment; and
(d) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
In any case described in this Section 6.2, the Executive shall be given
written notice authorized by a vote of at least a majority of the members of the
Board that the Corporation intends to terminate the Executive's employment for
Cause. Such written notice, given in accordance with Section 6.7 of this
Agreement, shall specify the particular act or acts, or failure to act, which is
or are the basis for the decision to so terminate the Executive's employment for
Cause. The Executive shall be given the opportunity within 30 calendar days of
the receipt of such notice to meet with the Board to defend such act or acts, or
failure to act, and, if such act or failure to act is correctable, the Executive
shall be given 30 business days after such meeting to correct such act or
failure to act. If such act or failure to act is not correctable or upon failure
of the Executive, within such latter 30 day period, to correct such act or
failure to act, the Executive's employment by the Corporation shall
automatically be terminated under this Section 6.2 for Cause as of the date
determined in Section 1.5 of this Agreement. Anything herein to the contrary
notwithstanding, if, following a termination of the Executive's employment by
the Corporation for Cause based upon the conviction of the Executive for a
felony involving actual dishonesty as against the Corporation or the Subsidiary,
such conviction is overturned on appeal, the Executive shall be entitled to the
payments and benefits that the Executive would have received as a result of a
termination of the Executive's employment by the Corporation without Cause.
6.3. Termination Without Cause or Termination For Good Reason. The
Corporation shall be permitted to terminate the Executive's employment hereunder
without Cause and the Executive shall be permitted to terminate Executive's
employment hereunder for Good Reason. For purposes of this Agreement, such a
termination of employment by the Executive shall constitute a "Termination for
Good Reason" only if effected in accordance with the notice provisions of
Section 6.7(b). If the Corporation terminates the Executive's employment
hereunder without Cause, other than due to death or Disability, or if the
Executive effects a Termination for Good Reason, the Executive shall be entitled
to receive:
(a) the product of any annual bonus paid or payable (and annualized
for any fiscal year consisting of less than 12 months) to Executive for
the most recently completed fiscal year during the Term of Employment
(unless in the case of termination by the Corporation without Cause, in
which case, such product will be determined by reference to the highest
annual bonus paid or payable under this Agreement during the Term of
Employment)and a fraction, the numerator of which is
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the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365.
(b) a lump sum payment in an amount equal to the present value of
Base Salary owed through the later to occur of (i) the second anniversary
of such termination, or (ii) the end of the Term of Employment;
(c) any deferred compensation (including, without limitation,
interest or other credits on the deferred amounts) and any accrued
vacation pay;
(d) reimbursement for expenses incurred, but not paid prior to such
termination of employment; and
(e) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
6.4. Voluntary Termination. The Executive may effect a Voluntary
Termination of Executive's employment hereunder. A "Voluntary Termination" shall
mean a termination of employment upon 180 days prior written notice to the
Corporation by the Executive on Executive's own initiative other than (a) a
termination due to death or Disability, (b) a Termination for Good Reason, or
(c) a termination due to Retirement. A Voluntary Termination shall not be, nor
shall it be deemed to be, a breach of this Agreement and shall entitle the
Executive to all of the rights and benefits which the Executive would be
entitled in the event of a termination of Executive's employment by the
Corporation for Cause.
6.5. Termination Due to Retirement. The Executive may terminate
Executive's employment hereunder as a result of Retirement. If the Executive
employment hereunder is terminated due to Retirement, the Executive shall be
entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section
5.1 of this Agreement) at the time of such termination through the date of
Retirement;
(b) any deferred compensation not yet paid to the Executive
(including, without limitation, any interest on credits on such deferred
amounts) and any accrued vacation pay;
(c) reimbursement for expenses incurred but not yet paid prior to
the date of Retirement; and
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(d) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
6.6. No Mitigation; No Offset. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment and there shall be no offset against any amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 6 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
6.7. Notice of Termination. Any termination of the Executive's employment
by the Corporation for Cause, any Termination for Good Reason, and any
termination of employment by the Executive in connection with a Voluntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 13.3 of this Agreement (the "Notice of
Termination"). The Notice of Termination shall be given (a) in the case of a
termination for Cause, within 90 business days after a director of the
Corporation (excluding the Executive) has actual knowledge of the events giving
rise to such purported termination, (b) in the case of a Termination for Good
Reason, within 180 days of the Executive's having actual knowledge of the event
or events constituting Good Reason; and (c) in the case of Voluntary
Termination, not later than 150 days prior to the date of termination specified
in such notice. Such notice shall (x) indicate the specific termination
provision in this Agreement relied upon, (y) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, as applicable, and (z)
if the termination date is other than the date of receipt of such notice,
specify the date on which the Executive's employment is to be terminated (which
date shall not be earlier than the date on which such notice is actually given).
6.8. Certain Further Payments by the Corporation.
6.8.1. Tax Reimbursement Payment. Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to the Executive by the Corporation, the Subsidiary or any other
Affiliate (collectively, the "Covered Payments"), is or becomes, at any time, as
a result of (a) any Internal Revenue Service claims or assertions, or (b)
Section 6.8.2 below or otherwise, subject to the excise tax imposed by or under
Section 4999 of the Code (or any similar tax that may hereafter be imposed),
and/or any interest or penalties with respect to such excise tax (such excise
tax, together with such interest and penalties, are hereinafter collectively,
referred to as the "Excise Tax"), the Corporation shall pay to the Executive at
the time specified in Section 6.9 below an additional amount (the "Tax
Reimbursement Payment") such that after payment by the Executive of all taxes
(including, without limitation, any interest or penalties imposed with respect
to such taxes), including,
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without limitation, any Excise Tax, imposed on or attributable to the Tax
Reimbursement Payment provided by this Agreement, the Executive retains an
amount of the Tax Reimbursement Payment equal to the sum of (a) the amount of
the Excise Tax imposed upon the Covered Payments, and (b) an amount equal to the
product of (i) any deductions disallowed for federal, state or local income tax
purposes because of the inclusion of the Tax Reimbursement Payment in the
Executive's adjusted gross income, and (ii) the highest applicable marginal rate
of federal, state or local income taxation, respectively, for the calendar year
in which the Tax Reimbursement Payment is made or is to be made.
6.8.2. Determining Excise Tax. Except as otherwise provided in Section
6.8.1(a), for purposes of determining whether any of the Covered Payments will
be subject to the Excise Tax and the amount of such Excise Tax,
(a) such Covered Payments will be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Code) and such payments
in excess of the Code Section 280G(b)(3) "base amount" shall be treated as
subject to the Excise Tax, unless, and except to the extent that, the
Corporation's independent certified public accountants (the "Accountants")
or legal counsel reasonably acceptable to the Executive, deliver timely,
upon the Executive's request, a written opinion, reasonably satisfactory
to the Executive's legal counsel, to the Executive that the Executive has
a reasonable basis to claim that the Covered Payments (in whole or in
part) (i) do not constitute "parachute payments", (ii) represent
reasonable compensation for services actually rendered (within the meaning
of Section 280G(b)(4) of the Code) in excess of the "base amount"
allocable to such reasonable compensation, or (iii) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
(b) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
6.8.3. Applicable Tax Rates and Deductions. For purposes of determining
the amount of the Tax Reimbursement Payment, the Executive shall be deemed:
(a) to pay federal, state and/or local income taxes at the highest
applicable marginal rate of income taxation for the calendar year in which
the Tax Reimbursement Payment is made or is to be made, and
(b) to have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those disallowed due to the
inclusion of the Tax Reimbursement Payment in the Executive's adjusted
gross income.
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6.8.4. Subsequent Events. If, pursuant to a written opinion, reasonably
satisfactory to the Executive, of the Accountants (or legal counsel reasonably
acceptable to the Executive) delivered to the Executive, the Excise Tax is
subsequently determined on a reasonable basis and in good faith (other than as a
result of a tax contest) to be less than the amount taken into account hereunder
in calculating any Tax Reimbursement Payment made, the Executive shall repay to
the Corporation the portion of any prior Tax Reimbursement Payment that would
not have been paid if such redetermined Excise Tax had been applied in
calculating such Tax Reimbursement Payment, plus interest on the amount of such
repayment at the mid-term discount rate provided in Section 1274(b)(2)(B) of the
Code. Notwithstanding the immediately foregoing sentence, if any portion of the
Tax Reimbursement Payment to be refunded to the Corporation has been paid to any
federal, state or local tax authority, repayment thereof shall not be required
until an actual refund or credit of such portion has been made to or obtained by
the Executive from such tax authority, and any interest payable to the
Corporation shall not exceed the interest received or credited to the Executive
by any such tax authority. The Executive shall be fully indemnified by the
Corporation for any out- of-pocket costs, expenses or fees attributable to the
filing of any refund or other claim. The Executive and the Corporation shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if any good faith claim for refund or credit
from such tax authority made by the Executive is denied.
Notwithstanding the immediately preceding paragraph, if, in the written
opinion of the Executive's tax advisors delivered to the Accountants and the
Corporation, the Excise Tax is later determined to exceed the amount taken into
account by the Accountants or legal counsel, as the case may be, hereunder at
the time any Tax Reimbursement Payment is made by reason of (i) manifest error,
(ii) any payment the existence or amount of which could not be or was not
determined or known about at the time of any Tax Reimbursement Payment, or (iii)
any determination, claim or assertion made by any tax authority that the Excise
Tax is or should be greater than the amount of such Excise Tax taken into
account previously by the Accountants or legal counsel, as the case may be, or
as otherwise previously determined, the Corporation shall make an additional Tax
Reimbursement Payment in respect of such excess Excise Tax (which Tax
Reimbursement Payment shall include, without limitation, any interest or
penalties payable with respect to such excess Excise Tax) at the time specified
in Section 6.9 below. With respect to this Section 6.8.4, if any such tax
authority makes such a determination, the Executive shall notify the Corporation
of such occurrence. If the Corporation obtains (at the Corporation's sole
expense) an opinion of legal counsel reasonably satisfactory to the Executive
that it is more likely than not that the Executive would succeed in disputing
such claim, assertion or determination of such tax authority, the Executive
shall, at the sole expense of the Corporation, make a good faith effort to
contest such claim, assertion or determination of such tax authority in all
relevant administrative proceedings with such tax authority and in any related
judicial proceeding (excluding any appeals thereof); provided, however, that if
the Executive determines in good faith that the continued contest of any such
claim, assertion or determination with such tax authority would have an adverse
impact on Executive's overall tax
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position (which good faith determination shall take into account the magnitude
of the amounts involved), then, upon receipt of notice by the Corporation from
the Executive to that effect, the Executive shall, without foregoing any right
to receive any Tax Reimbursement Payment described in this Section 6.8, have no
further obligation to pursue any such contest with any such tax authority. The
Executive may, as a condition to pursuing or commencing any contest described in
this Section 6.8.4 in any judicial proceedings (which proceedings shall be in a
forum chosen at the sole discretion of the Executive), require the Corporation
to advance any amount of tax required to be paid in order to pursue such
contest. In conducting any contest described in this Section 6.8.4, the
Executive shall use Executive's best efforts to keep the Corporation advised and
will permit the Corporation to prepare and suggest appropriate responses and
actions that may be reasonably made or taken by the Executive. Notwithstanding
the above, the decisions as to such response or actions shall be solely that of
the Executive and the Executive shall have the sole right to control the
proceeding. The Corporation shall bear all expenses of any proceeding relating
to any contest described in this Section 6.8.4, whether incurred by the
Corporation or the Executive, including, without limitation, all fees and
disbursements of attorneys, accountants and expert witnesses and any additional
interest or penalties applicable. Nothing contained in this Agreement shall
under any circumstances give the Corporation any right to examine the tax
returns or any other records of the Executive.
6.9. Payment. Except as otherwise provided in this Agreement, and except
with respect to continued payment of Base Salary in accordance with any
provisions of this Agreement, any payments to which the Executive shall be
entitled under this Section 6 shall be made as promptly as possible following
(a) the Date of Termination, (b) the payment of any Covered Payments, or (c) the
delivery of the opinion of the Executive's tax advisors, in accordance with
Section 6.8.4. If the amount of any payment due to the Executive cannot be
finally determined with 90 days after the Date of Termination, such amount shall
be estimated on a good faith basis by the Corporation and the estimated amount
shall be paid no later than 90 days after such Date of Termination. As soon as
practicable thereafter, the final determination of the amount due shall be made
and any adjustment requiring a payment to or from the Executive shall be made as
promptly as practicable.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any bonus or
incentive plan or program provided or maintained by the Corporation, the
Subsidiary or any other Affiliate and for which the Executive may qualify or be
selected, nor shall anything herein limit or otherwise prejudice such rights as
the Executive may have under any other existing or future agreements with the
Corporation, the Subsidiary or any Affiliate, including, without limitation, any
change of control agreements or any stock option or restricted stock agreements.
Except as otherwise expressly provided for in this Agreement, amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plans or programs of the
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Corporation, the Subsidiary or any other Affiliate at or subsequent to the Date
of Termination shall be payable in accordance with such plans or programs.
8. Full Settlement. The Corporation's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others.
9. Legal Fees and Expenses. In the event that a claim for payment or
benefits under this Agreement is disputed, each of the parties hereto shall pay
its own attorney fees and expenses incurred in connection with such dispute. In
addition, each party shall pay its own legal fees and expenses incurred in
connection with the preparation and negotiation of this Agreement.
10. Confidential Information and Noncompetition.
10.1. Confidential Information. The Executive shall not, during the Term
of Employment and thereafter, without the prior express written consent of the
Corporation or the Subsidiary, disclose any confidential information, knowledge
or data relating to the Corporation, the Subsidiary or any other Affiliate and
their respective businesses, which (a) was obtained by the Executive in the
course of the Executive's employment with the Corporation, and (b) which is not
information, knowledge or data otherwise in the public domain (other than by
reason of a breach of this provision by the Executive), unless required to do so
by a court of law or equity or by any governmental agency or other authority. In
no event shall an asserted violation of this Section 10.1 constitute a basis for
delaying or withholding the payment of any amounts otherwise payable to the
Executive under this Agreement.
10.2. Noncompetition. If the Executive terminates Executive's employment
hereunder pursuant to Section 6.4 of this Agreement, or if the Corporation
terminates Executive's employment hereunder pursuant to Section 6.1 or 6.2, then
the Corporation, by written notice given to the Executive within 30 days after
the Executive delivers a Notice of Termination in connection with a Voluntary
Termination, may require that this Section 10.2 apply, subject to the
Corporation complying with its obligations under this Agreement.. If the
Corporation gives notice to the Executive as provided in the preceding sentence,
then the Executive, without the express written consent of the Corporation,
shall not, for the twelve month period following the Date of Termination, engage
in any business, whether as an employee, consultant, partner, principal, agent,
representative or stockholder (other than as a stockholder of less than a 5%
equity interest) or in any other corporate or representative capacity, if it
involves engaging in, or rendering services or advice pertaining to, any lines
of business the Corporation or the Subsidiary was actively conducting on the
Date of Termination. If the Corporation shall institute any action or proceeding
to enforce the provisions of this Section
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10.2, or shall file any claim in any proceeding to enforce such provisions, the
Executive hereby waives the claim or defense that the Corporation has an
adequate remedy at law and waives the requirement that the Corporation post a
bond in securing equitable relief, and the Executive shall not contend in any
such action or proceeding the claim or defense that an adequate remedy at law
exists.
11. Successors.
11.1. The Executive. This Agreement is personal to the Executive and,
without the prior express written consent of the Corporation, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition; intestate succession or pursuant to a
domestic relations order of a court of competent jurisdiction. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs,
beneficiaries and/or legal representatives.
11.2. The Corporation. This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns. The Corporation
shall require any successor to all or substantially all of the business and/or
assets of the Corporation or the Subsidiary, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Corporation would be required to perform if no such succession had
taken place.
12. Miscellaneous.
12.1. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, applied without reference to
principles of conflict of laws.
12.2. Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
12.3. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Marc Ham
Flapdoodles, Inc.
725 Dawson Avenue
Newark, Delaware 19713
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If to the Corporation: Marisa Christina, Incorporated
8101 Tonnelle Avenue
North Bergen, New Jersey
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4. Withholding. The Corporation may withhold from any amounts payable
under this Agreement such federal, state or local income taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
12.5. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
12.6. Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7. Beneficiaries/References. The Executive shall be entitled to select
(and change) a beneficiary or beneficiaries to receive any compensation or
benefit payable hereunder following the Executive's death, and may change such
election, in either case by giving the Corporation written notice thereof. In
the event of the Executive's death or a judicial determination of Executive's
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to other beneficiary(ies), estate or Executive's
legal representative(s).
12.8. Entire Agreement. Upon the commencement of the Term of Employment,
this Agreement will contain the entire agreement between the parties concerning
the subject matter hereof and will supersede all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the parties with respect to the subject matter hereof, including
the Old Employment Agreement, which is hereby terminated, discharged and
released, but excluding (a) the Director Indemnification Agreement dated as of
June 30, 1994, by and between the Corporation and the Executive, and (b) the
non-competition agreement, dated July 1, 1993, between Subsidiary and Executive.
12.9. Representation. The Corporation represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between the Corporation and any other person, firm or organization or
any applicable laws or regulations.
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12.10. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement or the Executive's
employment hereunder to the extent necessary to the intended preservation of
such rights and obligations.
13. Arbitration.
(a) Any controversy arising out of or relating to this Agreement shall be
settled by arbitration in New York pursuant to the rules of the American
Arbitration Association, and judgment may be entered in any Court having
jurisdiction.
(b) The parties consent to the jurisdiction of the Supreme Court of the
State of New York, and of the United States District Court for the Southern
District of New York, for all purposes in connection with arbitration, including
the entry of judgment on any award; and consent that any process, notice, motion
or other application to either of said courts, and any papers in connection with
arbitration, may be served by registered or certified mail, return receipt
requested, by personal service, or in such other manner as may be permissible
under the rules of the applicable court or arbitration tribunal, provided a
reasonable time for appearance is allowed.
(c) The arbitrators shall have no power to alter or modify any express
provision of this Agreement, or to render an award which has the effect of
altering or modifying any express provision hereof, provided, however, that any
application for reformation of this Agreement shall be made to the arbitrators
and not to any Court, and the arbitrators shall be empowered to determine
whether valid grounds for reformation exist.
(d) Any arbitration proceeding must be instituted within one year after
the claimed breach occurred, and a party's failure to institute arbitration
proceedings within such period shall constitute an absolute bar to the
institution of any proceedings by said party and a waiver of such claimed
breach. Notwithstanding any law or rule to the contrary, the determination of
whether said one-year period has expired shall be made by the Court and shall
not be within the jurisdiction of the arbitrators.
(e) The Executive or the Corporation, as the case may be, may be awarded
all reasonable attorneys' fees and expenses incurred by the Executive or the
Corporation, as the case may be, in connection with any arbitration or court
proceeding arising out of this Agreement, in the arbitrators' discretion.
(f) In the event that any dispute arising under this Agreement shall be
submitted to arbitration pursuant to this Section 13, the Executive shall be
entitled to receive all compensation, bonuses, benefits and perquisites
contemplated by this Agreement during the pendency of any such proceedings
unless the Corporation shall place the disputed amount into an interest-bearing
escrow account with the Corporation's attorneys, the terms of which
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escrow shall provide that all escrowed funds shall be immediately distributed to
the party or parties entitled thereto immediately upon a determination of the
arbitrators which is final, confirmed, and not subject to appeal.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and the Corporation has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
EXECUTIVE
-------------------------------
Marc Ham
MARISA CHRISTINA, INCORPORATED
FLAPDOODLES, INC.
By
----------------------------
Its
----------------------------
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<PAGE> 1
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement"), dated as of January 1, 1998 is made by
and between Marisa Christina, Incorporated, a Delaware corporation (the
"Corporation") and Carole Bieber (the "Executive").
Recitals
1. The Corporation desires to continue the services of the Executive as
Vice President and Design Director of Flapdoodles, Inc., a Delaware corporation
and a wholly owned subsidiary of the Corporation ("Subsidiary") and to enter
into an agreement embodying the terms of those continued relationships.
2. The Executive is willing to serve as Vice President and Design Director
of the Subsidiary and Vice Chairman of the Company and is willing to accept
continued employment on the terms set forth herein.
Agreement
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Corporation and
the Executive hereby agree as follows.
1. Definitions.
1.1. "Affiliate" means any person or entity controlling, controlled by or
under common control with the Corporation.
1.2. "Board" means the Board of Directors of the Corporation.
1.3. "Cause" means (a) the Executive is convicted of a felony, or (b) the
Executive, in carrying out Executive's duties and responsibilities under this
Agreement, is guilty of gross neglect or gross misconduct resulting, in either
case, in material economic harm to the Corporation and/or the Subsidiary.
1.4. "Commencement Date" has the meaning assigned to it in Section 3.
1.5. "Date of Termination" means (a) in the case of a termination for
which a Notice of Termination is required, the date of actual receipt of such
Notice of Termination or, if later,
<PAGE> 2
the date specified therein, as the case may be, and (b) in all other cases, the
actual date on which the Executive's employment terminates during the Term of
Employment.
1.6. "Disability" means the Executive's inability to render, for a period
of six consecutive months, services hereunder by reason of permanent disability,
as determined by the written medical opinion of an independent medical physician
mutually acceptable to the Executive and the Corporation. If the Executive and
the Corporation cannot agree as to such an independent medical physician each
shall appoint one medical physician and those two physicians shall appoint a
third physician who shall make such determination.
1.7. "Good Reason" means and shall be deemed to exist if, without the
prior express written consent of the Executive, (a) the Executive is assigned
any duties or responsibilities inconsistent in any material respect with the
scope of the duties or responsibilities associated with the Executive's titles
or positions, as set forth and described in Section 4 of this Agreement; (b) the
Executive suffers a reduction in the duties, responsibilities or effective
authority associated with Executive's titles and positions as set forth and
described in Section 4 of this Agreement; (c) the Executive is not appointed to,
or is removed from, the offices or positions provided for in Section 4 of this
Agreement, other than under circumstances involving Cause; (d) the Corporation
fails to substantially perform any material term or provision of this Agreement;
(e) the Executive's compensation (including base compensation and/or method of
calculation of bonus) provided for hereunder is decreased; (f) the Executive's
office location is changed to a location other than Newark, Delaware; (g) the
Corporation fails to obtain the full assumption of this Agreement by a successor
entity in accordance with Section 11.2 of this Agreement; (h) the Corporation
continually fails to reimburse the Executive for business expenses in accordance
with Section 5.3 of this Agreement; (i) the Corporation purports to terminate
the Executive's employment for Cause and such purported termination of
employment is not effected in accordance with the requirements of this
Agreement; (j) the Executive shall not be nominated or elected, or shall be
removed, as a director of the Board of Directors of each of the Corporation and
the Subsidiary; (k) the Board or the shareholders of the Corporation or the
Subsidiary, either or both, as may be required to authorize the same, shall
approve (i) any liquidation of the Corporation, or the sale of substantially all
of the assets of the Corporation taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Corporation or any
combination of any such transactions (a "Transaction"), other than a Transaction
(A) involving only the Corporation and the Subsidiary, or (B) immediately after
which the shareholders of the Corporation who were shareholders immediately
prior to the transaction continue to own beneficially, directly or indirectly,
in substantially similar proportions to those in effect immediately prior to
such transaction more than 50% of the then outstanding voting securities of the
Corporation and the Subsidiary; (l) any Person or group (as such term is defined
in Rule 13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons which is not an Affiliate of the Corporation or the
Subsidiary as of the Commencement Date shall beneficially own, directly or
indirectly, more than 50% of the
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then outstanding voting stock of the Corporation or the Subsidiary. For purposes
of this Agreement, "Person(s)" means any individual, entity, or other person, as
defined in Section 3(a)(9) of the Exchange Act, and as used in Sections 13(d)
and 14(d) thereof; or (n) the Corporation shall engage in any Business
Combination with an Interested Person, each as defined in Article Fifth of the
Corporation's Restated Certificate of Incorporation.
1.8. "Retirement" means the termination of the Executive's employment with
the Corporation for any reason at any time after (a) the Executive attains age
65 or (b) the Executive meets the requirements for early or regular retirement
under the Corporation's retirement policy, assuming for this purpose that the
Executive was a participant in such plan.
1.9."Term of Employment" has the meaning assigned to it in Section 3.
2. Employment. Subject to the terms and provisions set forth in this
Agreement, the Corporation hereby agrees to cause the Executive to be a director
of the Subsidiary during the Term of Employment and agrees to cause the
Subsidiary at all times during the Term of Employment to employ the Executive as
Vice President and Design Director of the Subsidiary, and the Executive hereby
accepts such employment.
3. Effective Date and Term of Employment. (a) The term of employment under
this Agreement shall commence as of January 1, 1998, (the "Commencement Date")
and shall, unless extended as hereinafter provided, terminate on December 31,
2000 (the "Term of Employment").
(b) On the initial termination date of the Term of Employment, and each
succeeding anniversary, the Term of Employment shall automatically be extended
for an additional one year period unless, not later than six months prior to any
such anniversary, either party to this Agreement shall have given written notice
to the other that the Term of Employment shall not be extended or further
extended beyond its then already automatically extended term, if any.
4. Positions, Responsibilities and Duties.
4.1. Positions. During the Term of Employment, the Executive shall be
employed as, and the Corporation shall at all times cause the Executive to be,
the Vice President and Design Director of the Subsidiary. In such positions, the
Executive shall have the duties, responsibilities and authority normally
associated with the office and position of Vice President and Design Director of
a corporation, but in no event shall the Executive's duties, responsibilities
and/or effective authority with respect to the Corporation and/or the Subsidiary
be less than the duties, responsibilities and effective authority the Executive
possessed immediately prior to the date of this Agreement.
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4.2. Duties. During the Term of Employment, the Executive shall devote all
or substantially all of Executive's business time and effort to perform the
duties associated with Executive's offices and positions as set forth in Section
4.1 and shall use Executive's best efforts to perform faithfully and efficiently
the duties and responsibilities contemplated by this Agreement; provided,
however, that the Executive shall not be limited from serving as a director of
other companies and shall not be required to perform any duties and
responsibilities which would be likely to result in a non-compliance with or
violation or breach of any applicable law or regulation.
5. Compensation and Other Benefits.
5.1. Base Salary. During the Term of Employment, the Executive shall
receive a base salary ("Base Salary"), payable in equal monthly installments, of
$300,000 per annum. After the initial termination date of the Term of
Employment, such Base Salary shall be reviewed annually for increase (but not
decrease) beginning January 1, 1999 in the sole discretion of the Compensation
Committee of the Board; provided, however, that such Base Salary shall in any
event be increased as of January 1 of each calendar year after such third
anniversary at a rate equal to the percentage increase in the consumer price
index for the New York-Northern New Jersey-Long Island, NY-NJ-CT metropolitan
local area as reported by the United States Department of Labor (the "CPI") for
the immediately preceding calendar year. In conducting any such annual review,
the Compensation Committee of the Board shall take into account any change in
the Executive's responsibilities, increases in the compensation of other
executives of the Corporation or the Subsidiary or of its competitors, the
performance of the Executive and other pertinent factors. Such increased Base
Salary shall then constitute the "Base Salary" for purposes of this Agreement.
5.2. Bonuses. During the Term of Employment, the Executive shall be
eligible to participate, as determined by the Compensation Committee of the
Board, in all incentive compensation plans and programs maintained by the
Corporation and/or the Subsidiary for the benefit of senior executives,
including without limitation bonus and stock option or other stock-based
compensation plans. By each April 30 next following a year that included a
portion of the Term of Employment, the Compensation Committee will, in its
discretion, consider paying bonuses to Executive based on the Executive's
performance during that year and the Subsidiaries' results and financial
performance during that year and such other considerations as they consider
relevant. Such bonuses, if awarded, will be paid by such April 30. However,
Executive acknowledges that such bonuses are discretionary, and have not been
promised.
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5.3. Expense Reimbursement. During the Term of Employment, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in performing Executive's duties and responsibilities
hereunder in accordance with the policies and procedures of the Corporation as
in effect and actually applied immediately prior to the Commencement Date,
including without limitation an automobile allowance and/or reimbursement, which
will cover, among other things, expenses for automobile garage parking,
automobile insurance and other automobile expenses, or, if more favorable to the
Executive, as in effect at any time thereafter with respect to the Executive or
other executives of the Corporation or the Subsidiary.
5.4. Vacation and Fringe Benefits. (a) The Corporation shall maintain
disability insurance for the benefit of the Executive, and shall maintain such
insurance so long as the Executive remains a senior executive officer of the
Corporation, provided that (i) the aggregate amount of such insurance coverage
shall be reduced if and to the extent necessary to reduce the aggregate annual
premium payable by the Corporation to $10,000. The Corporation may, at its
election and for its benefit, insure the Executive against death and/or
disability and the Executive agrees to cooperate with the Corporation in
obtaining such policies and in maintaining the same in full force and effect
throughout the Term of Employment.
(b) During the Term of Employment, the Executive shall also be entitled to such
paid vacation, fringe benefits and perquisites as provided to the Executive by
the Corporation and/or the Subsidiary immediately prior to the Commencement Date
or, if more favorable to the Executive, as provided by the Corporation or the
Subsidiary at any time thereafter.
5.5. Office and Support Staff. Unless the Executive otherwise agrees in
writing, during the Term of Employment the Executive shall be entitled to
executive secretarial and other administrative assistance of a type and extent,
and to an office or offices (with furnishings and other appointments) of a type
and size, at least equal to that provided to the Executive immediately prior to
the date of this Agreement.
6. Termination.
6.1. Termination Due to Death or Disability. The Corporation may terminate
the Executive's employment hereunder due to Disability. In the event of the
Executive's death or a termination of the Executive's employment by the
Corporation due to Disability, the Executive, Executive's estate or Executive's
legal representative, as the case may be, shall be entitled to receive:
(a) Base Salary continuation at the rate in effect (as provided for
by Section 5.1 of this Agreement) on the Date of Termination through the
later to occur of (i) the first anniversary of such termination, or (ii)
the end of the Term of Employment;
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(b) the product of any annual bonus paid or payable (and annualized
for any fiscal year consisting of less than 12 months) to Executive for
the most recently completed fiscal year during the Term of Employment and
a fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of which
is 365.
(c) any deferred compensation not yet paid to the Executive
(including, without limitation, interest or other credits on such deferred
amounts) and any accrued vacation pay; and
(d) reimbursement for expenses incurred but not yet paid prior to
such death or Disability; and
(e) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Corporation to surviving families of
employees of the Corporation under such plans, programs, practices and policies
relating to family death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Corporation in effect on the date
of the Executive's death with respect to other key employees of the Corporation
and their families. Anything in this Agreement to the contrary notwithstanding,
the Executive shall be entitled after the Disability Date of Termination to
receive disability and other benefits at least equal to the most favorable of
those provided by the Corporation to disabled employees and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, in effect at any time during the 90-day period immediately
preceding the Disability Date of Termination with respect to other key employees
of the Corporation and their families.
6.2. Termination by the Corporation for Cause. The Corporation may
terminate the Executive's employment hereunder for Cause as provided in this
Section 6.2. If the Corporation terminates the Executive's employment hereunder
for Cause, the Executive shall be entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section
5.1 of this Agreement) at the time of such termination through the Date of
Termination;
(b) any deferred compensation (including, without limitation,
interest or other credits on such deferred amounts) and any accrued
vacation pay; and
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(c) reimbursement for expenses incurred, but not yet paid prior to
such termination of employment; and
(d) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
In any case described in this Section 6.2, the Executive shall be given
written notice authorized by a vote of at least a majority of the members of the
Board that the Corporation intends to terminate the Executive's employment for
Cause. Such written notice, given in accordance with Section 6.7 of this
Agreement, shall specify the particular act or acts, or failure to act, which is
or are the basis for the decision to so terminate the Executive's employment for
Cause. The Executive shall be given the opportunity within 30 calendar days of
the receipt of such notice to meet with the Board to defend such act or acts, or
failure to act, and, if such act or failure to act is correctable, the Executive
shall be given 30 business days after such meeting to correct such act or
failure to act. If such act or failure to act is not correctable or upon failure
of the Executive, within such latter 30 day period, to correct such act or
failure to act, the Executive's employment by the Corporation shall
automatically be terminated under this Section 6.2 for Cause as of the date
determined in Section 1.5 of this Agreement. Anything herein to the contrary
notwithstanding, if, following a termination of the Executive's employment by
the Corporation for Cause based upon the conviction of the Executive for a
felony involving actual dishonesty as against the Corporation or the Subsidiary,
such conviction is overturned on appeal, the Executive shall be entitled to the
payments and benefits that the Executive would have received as a result of a
termination of the Executive's employment by the Corporation without Cause.
6.3. Termination Without Cause or Termination For Good Reason. The
Corporation shall be permitted to terminate the Executive's employment hereunder
without Cause and the Executive shall be permitted to terminate Executive's
employment hereunder for Good Reason. For purposes of this Agreement, such a
termination of employment by the Executive shall constitute a "Termination for
Good Reason" only if effected in accordance with the notice provisions of
Section 6.7(b). If the Corporation terminates the Executive's employment
hereunder without Cause, other than due to death or Disability, or if the
Executive effects a Termination for Good Reason, the Executive shall be entitled
to receive:
(a) the product of any annual bonus paid or payable (and annualized
for any fiscal year consisting of less than 12 months) to Executive for
the most recently completed fiscal year during the Term of Employment
(unless in the case of termination by the Corporation without Cause, in
which case, such product will be determined by reference to the highest
annual bonus paid or payable under this Agreement during the Term of
Employment)and a fraction, the numerator of which is
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the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365.
(b) a lump sum payment in an amount equal to the present value of
Base Salary owed through the later to occur of (i) the second anniversary
of such termination, or (ii) the end of the Term of Employment;
(c) any deferred compensation (including, without limitation,
interest or other credits on the deferred amounts) and any accrued
vacation pay;
(d) reimbursement for expenses incurred, but not paid prior to such
termination of employment; and
(e) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
6.4. Voluntary Termination. The Executive may effect a Voluntary
Termination of Executive's employment hereunder. A "Voluntary Termination" shall
mean a termination of employment upon 180 days prior written notice to the
Corporation by the Executive on Executive's own initiative other than (a) a
termination due to death or Disability, (b) a Termination for Good Reason, or
(c) a termination due to Retirement. A Voluntary Termination shall not be, nor
shall it be deemed to be, a breach of this Agreement and shall entitle the
Executive to all of the rights and benefits which the Executive would be
entitled in the event of a termination of Executive's employment by the
Corporation for Cause.
6.5. Termination Due to Retirement. The Executive may terminate
Executive's employment hereunder as a result of Retirement. If the Executive
employment hereunder is terminated due to Retirement, the Executive shall be
entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section
5.1 of this Agreement) at the time of such termination through the date of
Retirement;
(b) any deferred compensation not yet paid to the Executive
(including, without limitation, any interest on credits on such deferred
amounts) and any accrued vacation pay;
(c) reimbursement for expenses incurred but not yet paid prior to
the date of Retirement; and
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(d) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
6.6. No Mitigation; No Offset. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment and there shall be no offset against any amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 6 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
6.7. Notice of Termination. Any termination of the Executive's employment
by the Corporation for Cause, any Termination for Good Reason, and any
termination of employment by the Executive in connection with a Voluntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 13.3 of this Agreement (the "Notice of
Termination"). The Notice of Termination shall be given (a) in the case of a
termination for Cause, within 90 business days after a director of the
Corporation (excluding the Executive) has actual knowledge of the events giving
rise to such purported termination, (b) in the case of a Termination for Good
Reason, within 180 days of the Executive's having actual knowledge of the event
or events constituting Good Reason; and (c) in the case of Voluntary
Termination, not later than 150 days prior to the date of termination specified
in such notice. Such notice shall (x) indicate the specific termination
provision in this Agreement relied upon, (y) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, as applicable, and (z)
if the termination date is other than the date of receipt of such notice,
specify the date on which the Executive's employment is to be terminated (which
date shall not be earlier than the date on which such notice is actually given).
6.8. Certain Further Payments by the Corporation.
6.8.1. Tax Reimbursement Payment. Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to the Executive by the Corporation, the Subsidiary or any other
Affiliate (collectively, the "Covered Payments"), is or becomes, at any time, as
a result of (a) any Internal Revenue Service claims or assertions, or (b)
Section 6.8.2 below or otherwise, subject to the excise tax imposed by or under
Section 4999 of the Code (or any similar tax that may hereafter be imposed),
and/or any interest or penalties with respect to such excise tax (such excise
tax, together with such interest and penalties, are hereinafter collectively,
referred to as the "Excise Tax"), the Corporation shall pay to the Executive at
the time specified in Section 6.9 below an additional amount (the "Tax
Reimbursement Payment") such that after payment by the Executive of all taxes
(including, without limitation, any interest or penalties imposed with respect
to such taxes), including,
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without limitation, any Excise Tax, imposed on or attributable to the Tax
Reimbursement Payment provided by this Agreement, the Executive retains an
amount of the Tax Reimbursement Payment equal to the sum of (a) the amount of
the Excise Tax imposed upon the Covered Payments, and (b) an amount equal to the
product of (i) any deductions disallowed for federal, state or local income tax
purposes because of the inclusion of the Tax Reimbursement Payment in the
Executive's adjusted gross income, and (ii) the highest applicable marginal rate
of federal, state or local income taxation, respectively, for the calendar year
in which the Tax Reimbursement Payment is made or is to be made.
6.8.2. Determining Excise Tax. Except as otherwise provided in Section
6.8.1(a), for purposes of determining whether any of the Covered Payments will
be subject to the Excise Tax and the amount of such Excise Tax,
(a) such Covered Payments will be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Code) and such payments
in excess of the Code Section 280G(b)(3) "base amount" shall be treated as
subject to the Excise Tax, unless, and except to the extent that, the
Corporation's independent certified public accountants (the "Accountants")
or legal counsel reasonably acceptable to the Executive, deliver timely,
upon the Executive's request, a written opinion, reasonably satisfactory
to the Executive's legal counsel, to the Executive that the Executive has
a reasonable basis to claim that the Covered Payments (in whole or in
part) (i) do not constitute "parachute payments", (ii) represent
reasonable compensation for services actually rendered (within the meaning
of Section 280G(b)(4) of the Code) in excess of the "base amount"
allocable to such reasonable compensation, or (iii) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
(b) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
6.8.3. Applicable Tax Rates and Deductions. For purposes of determining
the amount of the Tax Reimbursement Payment, the Executive shall be deemed:
(a) to pay federal, state and/or local income taxes at the highest
applicable marginal rate of income taxation for the calendar year in which
the Tax Reimbursement Payment is made or is to be made, and
(b) to have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those disallowed due to the
inclusion of the Tax Reimbursement Payment in the Executive's adjusted
gross income.
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6.8.4. Subsequent Events. If, pursuant to a written opinion, reasonably
satisfactory to the Executive, of the Accountants (or legal counsel reasonably
acceptable to the Executive) delivered to the Executive, the Excise Tax is
subsequently determined on a reasonable basis and in good faith (other than as a
result of a tax contest) to be less than the amount taken into account hereunder
in calculating any Tax Reimbursement Payment made, the Executive shall repay to
the Corporation the portion of any prior Tax Reimbursement Payment that would
not have been paid if such redetermined Excise Tax had been applied in
calculating such Tax Reimbursement Payment, plus interest on the amount of such
repayment at the mid-term discount rate provided in Section 1274(b)(2)(B) of the
Code. Notwithstanding the immediately foregoing sentence, if any portion of the
Tax Reimbursement Payment to be refunded to the Corporation has been paid to any
federal, state or local tax authority, repayment thereof shall not be required
until an actual refund or credit of such portion has been made to or obtained by
the Executive from such tax authority, and any interest payable to the
Corporation shall not exceed the interest received or credited to the Executive
by any such tax authority. The Executive shall be fully indemnified by the
Corporation for any out-of-pocket costs, expenses or fees attributable to the
filing of any refund or other claim. The Executive and the Corporation shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if any good faith claim for refund or credit
from such tax authority made by the Executive is denied.
Notwithstanding the immediately preceding paragraph, if, in the written
opinion of the Executive's tax advisors delivered to the Accountants and the
Corporation, the Excise Tax is later determined to exceed the amount taken into
account by the Accountants or legal counsel, as the case may be, hereunder at
the time any Tax Reimbursement Payment is made by reason of (i) manifest error,
(ii) any payment the existence or amount of which could not be or was not
determined or known about at the time of any Tax Reimbursement Payment, or (iii)
any determination, claim or assertion made by any tax authority that the Excise
Tax is or should be greater than the amount of such Excise Tax taken into
account previously by the Accountants or legal counsel, as the case may be, or
as otherwise previously determined, the Corporation shall make an additional Tax
Reimbursement Payment in respect of such excess Excise Tax (which Tax
Reimbursement Payment shall include, without limitation, any interest or
penalties payable with respect to such excess Excise Tax) at the time specified
in Section 6.9 below. With respect to this Section 6.8.4, if any such tax
authority makes such a determination, the Executive shall notify the Corporation
of such occurrence. If the Corporation obtains (at the Corporation's sole
expense) an opinion of legal counsel reasonably satisfactory to the Executive
that it is more likely than not that the Executive would succeed in disputing
such claim, assertion or determination of such tax authority, the Executive
shall, at the sole expense of the Corporation, make a good faith effort to
contest such claim, assertion or determination of such tax authority in all
relevant administrative proceedings with such tax authority and in any related
judicial proceeding (excluding any appeals thereof); provided, however, that if
the Executive determines in good faith that the continued contest of any such
claim, assertion or determination with such tax authority would have an adverse
impact on Executive's overall tax
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position (which good faith determination shall take into account the magnitude
of the amounts involved), then, upon receipt of notice by the Corporation from
the Executive to that effect, the Executive shall, without foregoing any right
to receive any Tax Reimbursement Payment described in this Section 6.8, have no
further obligation to pursue any such contest with any such tax authority. The
Executive may, as a condition to pursuing or commencing any contest described in
this Section 6.8.4 in any judicial proceedings (which proceedings shall be in a
forum chosen at the sole discretion of the Executive), require the Corporation
to advance any amount of tax required to be paid in order to pursue such
contest. In conducting any contest described in this Section 6.8.4, the
Executive shall use Executive's best efforts to keep the Corporation advised and
will permit the Corporation to prepare and suggest appropriate responses and
actions that may be reasonably made or taken by the Executive. Notwithstanding
the above, the decisions as to such response or actions shall be solely that of
the Executive and the Executive shall have the sole right to control the
proceeding. The Corporation shall bear all expenses of any proceeding relating
to any contest described in this Section 6.8.4, whether incurred by the
Corporation or the Executive, including, without limitation, all fees and
disbursements of attorneys, accountants and expert witnesses and any additional
interest or penalties applicable. Nothing contained in this Agreement shall
under any circumstances give the Corporation any right to examine the tax
returns or any other records of the Executive.
6.9. Payment. Except as otherwise provided in this Agreement, and except
with respect to continued payment of Base Salary in accordance with any
provisions of this Agreement, any payments to which the Executive shall be
entitled under this Section 6 shall be made as promptly as possible following
(a) the Date of Termination, (b) the payment of any Covered Payments, or (c) the
delivery of the opinion of the Executive's tax advisors, in accordance with
Section 6.8.4. If the amount of any payment due to the Executive cannot be
finally determined with 90 days after the Date of Termination, such amount shall
be estimated on a good faith basis by the Corporation and the estimated amount
shall be paid no later than 90 days after such Date of Termination. As soon as
practicable thereafter, the final determination of the amount due shall be made
and any adjustment requiring a payment to or from the Executive shall be made as
promptly as practicable.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any bonus or
incentive plan or program provided or maintained by the Corporation, the
Subsidiary or any other Affiliate and for which the Executive may qualify or be
selected, nor shall anything herein limit or otherwise prejudice such rights as
the Executive may have under any other existing or future agreements with the
Corporation, the Subsidiary or any Affiliate, including, without limitation, any
change of control agreements or any stock option or restricted stock agreements.
Except as otherwise expressly provided for in this Agreement, amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plans or programs of the
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Corporation, the Subsidiary or any other Affiliate at or subsequent to the Date
of Termination shall be payable in accordance with such plans or programs.
8. Full Settlement. The Corporation's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others.
9. Legal Fees and Expenses. In the event that a claim for payment or
benefits under this Agreement is disputed, each of the parties hereto shall pay
its own attorney fees and expenses incurred in connection with such dispute. In
addition, each party shall pay its own legal fees and expenses incurred in
connection with the preparation and negotiation of this Agreement.
10. Confidential Information and Noncompetition.
10.1. Confidential Information. The Executive shall not, during the Term
of Employment and thereafter, without the prior express written consent of the
Corporation or the Subsidiary, disclose any confidential information, knowledge
or data relating to the Corporation, the Subsidiary or any other Affiliate and
their respective businesses, which (a) was obtained by the Executive in the
course of the Executive's employment with the Corporation, and (b) which is not
information, knowledge or data otherwise in the public domain (other than by
reason of a breach of this provision by the Executive), unless required to do so
by a court of law or equity or by any governmental agency or other authority. In
no event shall an asserted violation of this Section 10.1 constitute a basis for
delaying or withholding the payment of any amounts otherwise payable to the
Executive under this Agreement.
10.2. Noncompetition. If the Executive terminates Executive's employment
hereunder pursuant to Section 6.4 of this Agreement, or if the Corporation
terminates Executive's employment hereunder pursuant to Section 6.1 or 6.2, then
the Corporation, by written notice given to the Executive within 30 days after
the Executive delivers a Notice of Termination in connection with a Voluntary
Termination, may require that this Section 10.2 apply, subject to the
Corporation complying with its obligations under this Agreement.. If the
Corporation gives notice to the Executive as provided in the preceding sentence,
then the Executive, without the express written consent of the Corporation,
shall not, for the twelve month period following the Date of Termination, engage
in any business, whether as an employee, consultant, partner, principal, agent,
representative or stockholder (other than as a stockholder of less than a 5%
equity interest) or in any other corporate or representative capacity, if it
involves engaging in, or rendering services or advice pertaining to, any lines
of business the Corporation or the Subsidiary was actively conducting on the
Date of Termination. If the Corporation shall institute any action or proceeding
to enforce the provisions of this Section
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10.2, or shall file any claim in any proceeding to enforce such provisions, the
Executive hereby waives the claim or defense that the Corporation has an
adequate remedy at law and waives the requirement that the Corporation post a
bond in securing equitable relief, and the Executive shall not contend in any
such action or proceeding the claim or defense that an adequate remedy at law
exists.
11. Successors.
11.1. The Executive. This Agreement is personal to the Executive and,
without the prior express written consent of the Corporation, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition; intestate succession or pursuant to a
domestic relations order of a court of competent jurisdiction. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs,
beneficiaries and/or legal representatives.
11.2. The Corporation. This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns. The Corporation
shall require any successor to all or substantially all of the business and/or
assets of the Corporation or the Subsidiary, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Corporation would be required to perform if no such succession had
taken place.
12. Miscellaneous.
12.1. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, applied without reference to
principles of conflict of laws.
12.2. Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
12.3. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: Carole Bieber
Flapdoodles, Inc.
725 Dawson Avenue
Newark, Delaware 19713
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If to the Corporation: Marisa Christina, Incorporated
8101 Tonnelle Avenue
North Bergen, New Jersey
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4. Withholding. The Corporation may withhold from any amounts payable
under this Agreement such federal, state or local income taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
12.5. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
12.6. Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7. Beneficiaries/References. The Executive shall be entitled to select
(and change) a beneficiary or beneficiaries to receive any compensation or
benefit payable hereunder following the Executive's death, and may change such
election, in either case by giving the Corporation written notice thereof. In
the event of the Executive's death or a judicial determination of Executive's
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to other beneficiary(ies), estate or Executive's
legal representative(s).
12.8. Entire Agreement. Upon the commencement of the Term of Employment,
this Agreement will contain the entire agreement between the parties concerning
the subject matter hereof and will supersede all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the parties with respect to the subject matter hereof, including
the Old Employment Agreement, which is hereby terminated, discharged and
released, but excluding (a) the Director Indemnification Agreement dated as of
June 30, 1994, by and between the Corporation and the Executive, and (b) the
non-competition agreement, dated July 1, 1993, between Subsidiary and Executive.
12.9. Representation. The Corporation represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between the Corporation and any other person, firm or organization or
any applicable laws or regulations.
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12.10. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement or the Executive's
employment hereunder to the extent necessary to the intended preservation of
such rights and obligations.
13. Arbitration.
(a) Any controversy arising out of or relating to this Agreement shall be
settled by arbitration in New York pursuant to the rules of the American
Arbitration Association, and judgment may be entered in any Court having
jurisdiction.
(b) The parties consent to the jurisdiction of the Supreme Court of the
State of New York, and of the United States District Court for the Southern
District of New York, for all purposes in connection with arbitration, including
the entry of judgment on any award; and consent that any process, notice, motion
or other application to either of said courts, and any papers in connection with
arbitration, may be served by registered or certified mail, return receipt
requested, by personal service, or in such other manner as may be permissible
under the rules of the applicable court or arbitration tribunal, provided a
reasonable time for appearance is allowed.
(c) The arbitrators shall have no power to alter or modify any express
provision of this Agreement, or to render an award which has the effect of
altering or modifying any express provision hereof, provided, however, that any
application for reformation of this Agreement shall be made to the arbitrators
and not to any Court, and the arbitrators shall be empowered to determine
whether valid grounds for reformation exist.
(d) Any arbitration proceeding must be instituted within one year after
the claimed breach occurred, and a party's failure to institute arbitration
proceedings within such period shall constitute an absolute bar to the
institution of any proceedings by said party and a waiver of such claimed
breach. Notwithstanding any law or rule to the contrary, the determination of
whether said one-year period has expired shall be made by the Court and shall
not be within the jurisdiction of the arbitrators.
(e) The Executive or the Corporation, as the case may be, may be awarded
all reasonable attorneys' fees and expenses incurred by the Executive or the
Corporation, as the case may be, in connection with any arbitration or court
proceeding arising out of this Agreement, in the arbitrators' discretion.
(f) In the event that any dispute arising under this Agreement shall be
submitted to arbitration pursuant to this Section 13, the Executive shall be
entitled to receive all compensation, bonuses, benefits and perquisites
contemplated by this Agreement during the pendency of any such proceedings
unless the Corporation shall place the disputed amount into an interest-bearing
escrow account with the Corporation's attorneys, the terms of which
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escrow shall provide that all escrowed funds shall be immediately distributed to
the party or parties entitled thereto immediately upon a determination of the
arbitrators which is final, confirmed, and not subject to appeal.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and the Corporation has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
EXECUTIVE
--------------------------
Carole Bieber
MARISA CHRISTINA, INCORPORATED
FLAPDOODLES, INC.
By
----------------------
Its
----------------------
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<PAGE> 1
EMPLOYMENT AGREEMENT
This Agreement (this "Agreement"), dated as of January 1, 1998 is made by
and between Marisa Christina, Incorporated, a Delaware corporation (the
"Corporation") and G. Michael Dees (the "Executive").
Recitals
1. The Corporation desires to continue the services of the Executive as
Executive Vice President of Marisa Christina Apparel, Inc., a Delaware
corporation and a wholly owned subsidiary of the Corporation ("Subsidiary") and
to enter into an agreement embodying the terms of those continued relationships.
2. The Executive is willing to continue to serve as Executive Vice
President of the Subsidiary and is willing to accept continued employment by the
Subsidiary on the terms set forth herein.
Agreement
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, and other good and valuable consideration, the Corporation and
the Executive hereby agree as follows.
1. Definitions.
1.1. "Affiliate" means any person or entity controlling, controlled by or
under common control with the Corporation.
1.2. "Board" means the Board of Directors of the Corporation.
1.3. "Cause" means (a) the Executive is convicted of a felony, or (b) the
Executive, in carrying out Executive's duties and responsibilities under this
Agreement, is guilty of gross neglect or gross misconduct resulting, in either
case, in material economic harm to the Corporation and/or the Subsidiary.
1.4. "Commencement Date" has the meaning assigned to it in Section 3.
1.5. "Date of Termination" means (a) in the case of a termination for
which a Notice of Termination is required, the date of actual receipt of such
Notice of Termination or, if later,
<PAGE> 2
the date specified therein, as the case may be, and (b) in all other cases, the
actual date on which the Executive's employment terminates during the Term of
Employment.
1.6. "Disability" means the Executive's inability to render, for a period
of six consecutive months, services hereunder by reason of permanent disability,
as determined by the written medical opinion of an independent medical physician
mutually acceptable to the Executive and the Corporation. If the Executive and
the Corporation cannot agree as to such an independent medical physician each
shall appoint one medical physician and those two physicians shall appoint a
third physician who shall make such determination.
1.7. "Good Reason" means and shall be deemed to exist if, without the
prior express written consent of the Executive, (a) the Executive is assigned
any duties or responsibilities inconsistent in any material respect with the
scope of the duties or responsibilities associated with the Executive's titles
or positions, as set forth and described in Section 4 of this Agreement; (b) the
Executive suffers a reduction in the duties, responsibilities or effective
authority associated with Executive's titles and positions as set forth and
described in Section 4 of this Agreement; (c) the Executive is not appointed to,
or is removed from, the offices or positions provided for in Section 4 of this
Agreement, other than under circumstances involving Cause; (d) the Corporation
fails to substantially perform any material term or provision of this Agreement;
(e) the Executive's compensation (including base compensation and/or method of
calculation of bonus) provided for hereunder is decreased; (f) the Executive's
office location is changed to a location other than Newark, Delaware; (g) the
Corporation fails to obtain the full assumption of this Agreement by a successor
entity in accordance with Section 11.2 of this Agreement; (h) the Corporation
continually fails to reimburse the Executive for business expenses in accordance
with Section 5.3 of this Agreement; (i) the Corporation purports to terminate
the Executive's employment for Cause and such purported termination of
employment is not effected in accordance with the requirements of this
Agreement; (j) the Executive shall not be nominated or elected, or shall be
removed, as a director of the Board of Directors of each of the Corporation and
the Subsidiary; (k) the Board or the shareholders of the Corporation or the
Subsidiary, either or both, as may be required to authorize the same, shall
approve (i) any liquidation of the Corporation, or the sale of substantially all
of the assets of the Corporation taken as a whole, or (ii) any merger,
consolidation and/or other business combination involving the Corporation or any
combination of any such transactions (a "Transaction"), other than a Transaction
(A) involving only the Corporation and the Subsidiary, or (B) immediately after
which the shareholders of the Corporation who were shareholders immediately
prior to the transaction continue to own beneficially, directly or indirectly,
in substantially similar proportions to those in effect immediately prior to
such transaction more than 50% of the then outstanding voting securities of the
Corporation and the Subsidiary; (l) any Person or group (as such term is defined
in Rule 13d-5 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of related Persons which is not an Affiliate of the Corporation or the
Subsidiary as of the Commencement Date shall beneficially own, directly or
indirectly, more than 50% of the
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then outstanding voting stock of the Corporation or the Subsidiary. For purposes
of this Agreement, "Person(s)" means any individual, entity, or other person, as
defined in Section 3(a)(9) of the Exchange Act, and as used in Sections 13(d)
and 14(d) thereof; or (n) the Corporation shall engage in any Business
Combination with an Interested Person, each as defined in Article Fifth of the
Corporation's Restated Certificate of Incorporation.
1.8. "Retirement" means the termination of the Executive's employment with
the Corporation for any reason at any time after (a) the Executive attains age
65 or (b) the Executive meets the requirements for early or regular retirement
under the Corporation's retirement policy, assuming for this purpose that the
Executive was a participant in such plan.
1.9. "Term of Employment" has the meaning assigned to it in Section 3.
2. Employment. Subject to the terms and provisions set forth in this
Agreement, the Corporation hereby agrees to cause the Executive to be a director
of the Subsidiary during the Term of Employment and also agrees to cause the
Subsidiary at all times during the Term of Employment to employ the Executive as
Executive Vice President of the Subsidiary, and the Executive hereby accepts
such employment.
3. Effective Date and Term of Employment. (a) The term of employment under
this Agreement shall commence as of January 1, 1998, (the "Commencement Date")
and shall, unless extended as hereinafter provided, terminate on December 31,
2000 (the "Term of Employment").
(b) On the initial termination date of the Term of Employment, and each
succeeding anniversary, the Term of Employment shall automatically be extended
for an additional one year period unless, not later than six months prior to any
such anniversary, either party to this Agreement shall have given written notice
to the other that the Term of Employment shall not be extended or further
extended beyond its then already automatically extended term, if any.
4. Positions, Responsibilities and Duties.
4.1. Positions. During the Term of Employment, the Executive shall be
employed as, and the Corporation shall at all times cause the Executive to be,
the Executive Vice President of the Subsidiary. In addition to such positions,
the Corporation shall use its best efforts to ensure that the Executive is
elected by the shareholders of the Corporation to serve as a director of the
Corporation during the Term of Employment. In such position, the Executive shall
have the duties, responsibilities and authority normally associated with the
office and position of director and Executive Vice President of a corporation,
but in no event shall the Executive's duties, responsibilities and/or effective
authority with respect to the Corporation and/or the Subsidiary be less than the
duties, responsibilities and effective authority the Executive possessed
immediately prior to the date of this Agreement.
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<PAGE> 4
4.2. Duties. During the Term of Employment, the Executive shall devote all
or substantially all of Executive's business time and effort to perform the
duties associated with Executive's offices and positions as set forth in Section
4.1 and shall use Executive's best efforts to perform faithfully and efficiently
the duties and responsibilities contemplated by this Agreement; provided,
however, that the Executive shall not be limited from serving as a director of
other companies and shall not be required to perform any duties and
responsibilities which would be likely to result in a non-compliance with or
violation or breach of any applicable law or regulation.
5. Compensation and Other Benefits.
5.1. Base Salary. During the Term of Employment, the Executive shall
receive a base salary ("Base Salary"), payable in equal monthly installments, of
$250,000 per annum. After the initial termination date of the Term of
Employment, such Base Salary shall be reviewed annually for increase (but not
decrease) beginning January 1, 1999 in the sole discretion of the Compensation
Committee of the Board; provided, however, that such Base Salary shall in any
event be increased as of January 1 of each calendar year after such third
anniversary at a rate equal to the percentage increase in the consumer price
index for the New York-Northern New Jersey-Long Island, NY-NJ-CT metropolitan
local area as reported by the United States Department of Labor (the "CPI") for
the immediately preceding calendar year. In conducting any such annual review,
the Compensation Committee of the Board shall take into account any change in
the Executive's responsibilities, increases in the compensation of other
executives of the Corporation or the Subsidiary or of its competitors, the
performance of the Executive and other pertinent factors. Such increased Base
Salary shall then constitute the "Base Salary" for purposes of this Agreement.
5.2. Bonuses. During the Term of Employment, the Executive shall be
eligible to participate, as determined by the Compensation Committee of the
Board, in all incentive compensation plans and programs maintained by the
Corporation and/or the Subsidiary for the benefit of senior executives,
including without limitation bonus and stock option or other stock-based
compensation plans. By each April 30 next following a year that included a
portion of the Term of Employment, the Compensation Committee will, in its
discretion, consider paying bonuses to Executive based on the Executive's
performance during that year and the Subsidiaries' results and financial
performance during that year and such other considerations as they consider
relevant. Such bonuses, if awarded, will be paid by such April 30. However,
Executive acknowledges that such bonuses are discretionary, and have not been
promised.
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5.3. Expense Reimbursement. During the Term of Employment, the Executive
shall be entitled to receive prompt reimbursement for all reasonable expenses
incurred by the Executive in performing Executive's duties and responsibilities
hereunder in accordance with the policies and procedures of the Corporation as
in effect and actually applied immediately prior to the Commencement Date,
including without limitation an automobile allowance and/or reimbursement, which
will cover, among other things, expenses for automobile garage parking,
automobile insurance and other automobile expenses, or, if more favorable to the
Executive, as in effect at any time thereafter with respect to the Executive or
other executives of the Corporation or the Subsidiary.
5.4. Vacation and Fringe Benefits. (a) The Corporation shall maintain
disability insurance for the benefit of the Executive, and shall maintain such
insurance so long as the Executive remains a senior executive officer of the
Corporation, provided that (i) the aggregate amount of such insurance coverage
shall be reduced if and to the extent necessary to reduce the aggregate annual
premium payable by the Corporation to $10,000. The Corporation may, at its
election and for its benefit, insure the Executive against death and/or
disability and the Executive agrees to cooperate with the Corporation in
obtaining such policies and in maintaining the same in full force and effect
throughout the Term of Employment.
(b) During the Term of Employment, the Executive shall also be entitled to such
paid vacation, fringe benefits and perquisites as provided to the Executive by
the Corporation and/or the Subsidiary immediately prior to the Commencement Date
or, if more favorable to the Executive, as provided by the Corporation or the
Subsidiary at any time thereafter.
5.5. Office and Support Staff. Unless the Executive otherwise agrees in
writing, during the Term of Employment the Executive shall be entitled to
executive secretarial and other administrative assistance of a type and extent,
and to an office or offices (with furnishings and other appointments) of a type
and size, at least equal to that provided to the Executive immediately prior to
the date of this Agreement.
6. Termination.
6.1. Termination Due to Death or Disability. The Corporation may terminate
the Executive's employment hereunder due to Disability. In the event of the
Executive's death or a termination of the Executive's employment by the
Corporation due to Disability, the Executive, Executive's estate or Executive's
legal representative, as the case may be, shall be entitled to receive:
(a) Base Salary continuation at the rate in effect (as provided for
by Section 5.1 of this Agreement) on the Date of Termination through the
later to occur of (i) the first anniversary of such termination, or (ii)
the end of the Term of Employment;
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(b) the product of any annual bonus paid or payable (and annualized
for any fiscal year consisting of less than 12 months) to Executive for
the most recently completed fiscal year during the Term of Employment and
a fraction, the numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the denominator of which
is 365.
(c) any deferred compensation not yet paid to the Executive
(including, without limitation, interest or other credits on such deferred
amounts) and any accrued vacation pay; and
(d) reimbursement for expenses incurred but not yet paid prior to
such death or Disability; and
(e) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least equal to the
most favorable benefits provided by the Corporation to surviving families of
employees of the Corporation under such plans, programs, practices and policies
relating to family death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Corporation in effect on the date
of the Executive's death with respect to other key employees of the Corporation
and their families. Anything in this Agreement to the contrary notwithstanding,
the Executive shall be entitled after the Disability Date of Termination to
receive disability and other benefits at least equal to the most favorable of
those provided by the Corporation to disabled employees and/or their families in
accordance with such plans, programs, practices and policies relating to
disability, if any, in effect at any time during the 90-day period immediately
preceding the Disability Date of Termination with respect to other key employees
of the Corporation and their families.
6.2. Termination by the Corporation for Cause. The Corporation may
terminate the Executive's employment hereunder for Cause as provided in this
Section 6.2. If the Corporation terminates the Executive's employment hereunder
for Cause, the Executive shall be entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section
5.1 of this Agreement) at the time of such termination through the Date of
Termination;
(b) any deferred compensation (including, without limitation,
interest or other credits on such deferred amounts) and any accrued
vacation pay; and
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(c) reimbursement for expenses incurred, but not yet paid prior to
such termination of employment; and
(d) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
In any case described in this Section 6.2, the Executive shall be given
written notice authorized by a vote of at least a majority of the members of the
Board that the Corporation intends to terminate the Executive's employment for
Cause. Such written notice, given in accordance with Section 6.7 of this
Agreement, shall specify the particular act or acts, or failure to act, which is
or are the basis for the decision to so terminate the Executive's employment for
Cause. The Executive shall be given the opportunity within 30 calendar days of
the receipt of such notice to meet with the Board to defend such act or acts, or
failure to act, and, if such act or failure to act is correctable, the Executive
shall be given 30 business days after such meeting to correct such act or
failure to act. If such act or failure to act is not correctable or upon failure
of the Executive, within such latter 30 day period, to correct such act or
failure to act, the Executive's employment by the Corporation shall
automatically be terminated under this Section 6.2 for Cause as of the date
determined in Section 1.5 of this Agreement. Anything herein to the contrary
notwithstanding, if, following a termination of the Executive's employment by
the Corporation for Cause based upon the conviction of the Executive for a
felony involving actual dishonesty as against the Corporation or the Subsidiary,
such conviction is overturned on appeal, the Executive shall be entitled to the
payments and benefits that the Executive would have received as a result of a
termination of the Executive's employment by the Corporation without Cause.
6.3. Termination Without Cause or Termination For Good Reason. The
Corporation shall be permitted to terminate the Executive's employment hereunder
without Cause and the Executive shall be permitted to terminate Executive's
employment hereunder for Good Reason. For purposes of this Agreement, such a
termination of employment by the Executive shall constitute a "Termination for
Good Reason" only if effected in accordance with the notice provisions of
Section 6.7(b). If the Corporation terminates the Executive's employment
hereunder without Cause, other than due to death or Disability, or if the
Executive effects a Termination for Good Reason, the Executive shall be entitled
to receive:
(a) the product of any annual bonus paid or payable (and annualized
for any fiscal year consisting of less than 12 months) to Executive for
the most recently completed fiscal year during the Term of Employment
(unless in the case of termination by the Corporation without Cause, in
which case, such product will be determined by reference to the highest
annual bonus paid or payable under this Agreement during the Term of
Employment)and a fraction, the numerator of which is
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the number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365.
(b) a lump sum payment in an amount equal to the present value of
Base Salary owed through the later to occur of (i) the second anniversary
of such termination, or (ii) the end of the Term of Employment;
(c) any deferred compensation (including, without limitation,
interest or other credits on the deferred amounts) and any accrued
vacation pay;
(d) reimbursement for expenses incurred, but not paid prior to such
termination of employment; and
(e) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
6.4. Voluntary Termination. The Executive may effect a Voluntary
Termination of Executive's employment hereunder. A "Voluntary Termination" shall
mean a termination of employment upon 180 days prior written notice to the
Corporation by the Executive on Executive's own initiative other than (a) a
termination due to death or Disability, (b) a Termination for Good Reason, or
(c) a termination due to Retirement. A Voluntary Termination shall not be, nor
shall it be deemed to be, a breach of this Agreement and shall entitle the
Executive to all of the rights and benefits which the Executive would be
entitled in the event of a termination of Executive's employment by the
Corporation for Cause.
6.5. Termination Due to Retirement. The Executive may terminate
Executive's employment hereunder as a result of Retirement. If the Executive
employment hereunder is terminated due to Retirement, the Executive shall be
entitled to receive:
(a) Base Salary at the rate in effect (as provided for by Section
5.1 of this Agreement) at the time of such termination through the date of
Retirement;
(b) any deferred compensation not yet paid to the Executive
(including, without limitation, any interest on credits on such deferred
amounts) and any accrued vacation pay;
(c) reimbursement for expenses incurred but not yet paid prior to
the date of Retirement; and
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(d) any other compensation or benefits which may be owed or provided
to the Executive in accordance with the terms and provisions of any
applicable agreements, plans and programs of or made by the Corporation
and/or the Subsidiary.
6.6. No Mitigation; No Offset. In the event of any termination of
employment under this Section 6, the Executive shall be under no obligation to
seek other employment and there shall be no offset against any amounts due the
Executive under this Agreement on account of any remuneration attributable to
any subsequent employment that the Executive may obtain. Any amounts due under
this Section 6 are in the nature of severance payments, or liquidated damages,
or both, and are not in the nature of a penalty.
6.7. Notice of Termination. Any termination of the Executive's employment
by the Corporation for Cause, any Termination for Good Reason, and any
termination of employment by the Executive in connection with a Voluntary
Termination shall be communicated by a notice of termination to the other party
hereto given in accordance with Section 13.3 of this Agreement (the "Notice of
Termination"). The Notice of Termination shall be given (a) in the case of a
termination for Cause, within 90 business days after a director of the
Corporation (excluding the Executive) has actual knowledge of the events giving
rise to such purported termination, (b) in the case of a Termination for Good
Reason, within 180 days of the Executive's having actual knowledge of the event
or events constituting Good Reason; and (c) in the case of Voluntary
Termination, not later than 150 days prior to the date of termination specified
in such notice. Such notice shall (x) indicate the specific termination
provision in this Agreement relied upon, (y) set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated, as applicable, and (z)
if the termination date is other than the date of receipt of such notice,
specify the date on which the Executive's employment is to be terminated (which
date shall not be earlier than the date on which such notice is actually given).
6.8. Certain Further Payments by the Corporation.
6.8.1. Tax Reimbursement Payment. Anything in this Agreement to the
contrary notwithstanding, in the event that any amount or benefit paid, payable,
or to be paid, or distributed, distributable, or to be distributed to or with
respect to the Executive by the Corporation, the Subsidiary or any other
Affiliate (collectively, the "Covered Payments"), is or becomes, at any time, as
a result of (a) any Internal Revenue Service claims or assertions, or (b)
Section 6.8.2 below or otherwise, subject to the excise tax imposed by or under
Section 4999 of the Code (or any similar tax that may hereafter be imposed),
and/or any interest or penalties with respect to such excise tax (such excise
tax, together with such interest and penalties, are hereinafter collectively,
referred to as the "Excise Tax"), the Corporation shall pay to the Executive at
the time specified in Section 6.9 below an additional amount (the "Tax
Reimbursement Payment") such that after payment by the Executive of all taxes
(including, without limitation, any interest or penalties imposed with respect
to such taxes), including,
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without limitation, any Excise Tax, imposed on or attributable to the Tax
Reimbursement Payment provided by this Agreement, the Executive retains an
amount of the Tax Reimbursement Payment equal to the sum of (a) the amount of
the Excise Tax imposed upon the Covered Payments, and (b) an amount equal to the
product of (i) any deductions disallowed for federal, state or local income tax
purposes because of the inclusion of the Tax Reimbursement Payment in the
Executive's adjusted gross income, and (ii) the highest applicable marginal rate
of federal, state or local income taxation, respectively, for the calendar year
in which the Tax Reimbursement Payment is made or is to be made.
6.8.2. Determining Excise Tax. Except as otherwise provided in Section
6.8.1(a), for purposes of determining whether any of the Covered Payments will
be subject to the Excise Tax and the amount of such Excise Tax,
(a) such Covered Payments will be treated as "parachute payments"
(within the meaning of Section 280G(b)(2) of the Code) and such payments
in excess of the Code Section 280G(b)(3) "base amount" shall be treated as
subject to the Excise Tax, unless, and except to the extent that, the
Corporation's independent certified public accountants (the "Accountants")
or legal counsel reasonably acceptable to the Executive, deliver timely,
upon the Executive's request, a written opinion, reasonably satisfactory
to the Executive's legal counsel, to the Executive that the Executive has
a reasonable basis to claim that the Covered Payments (in whole or in
part) (i) do not constitute "parachute payments", (ii) represent
reasonable compensation for services actually rendered (within the meaning
of Section 280G(b)(4) of the Code) in excess of the "base amount"
allocable to such reasonable compensation, or (iii) such "parachute
payments" are otherwise not subject to such Excise Tax (with appropriate
legal authority, detailed analysis and explanation provided therein by the
Accountants); and
(b) the value of any Covered Payments which are non-cash benefits or
deferred payments or benefits shall be determined by the Accountants in
accordance with the principles of Section 280G of the Code.
6.8.3. Applicable Tax Rates and Deductions. For purposes of determining
the amount of the Tax Reimbursement Payment, the Executive shall be deemed:
(a) to pay federal, state and/or local income taxes at the highest
applicable marginal rate of income taxation for the calendar year in which
the Tax Reimbursement Payment is made or is to be made, and
(b) to have otherwise allowable deductions for federal, state and
local income tax purposes at least equal to those disallowed due to the
inclusion of the Tax Reimbursement Payment in the Executive's adjusted
gross income.
-10-
<PAGE> 11
6.8.4. Subsequent Events. If, pursuant to a written opinion, reasonably
satisfactory to the Executive, of the Accountants (or legal counsel reasonably
acceptable to the Executive) delivered to the Executive, the Excise Tax is
subsequently determined on a reasonable basis and in good faith (other than as a
result of a tax contest) to be less than the amount taken into account hereunder
in calculating any Tax Reimbursement Payment made, the Executive shall repay to
the Corporation the portion of any prior Tax Reimbursement Payment that would
not have been paid if such redetermined Excise Tax had been applied in
calculating such Tax Reimbursement Payment, plus interest on the amount of such
repayment at the mid-term discount rate provided in Section 1274(b)(2)(B) of the
Code. Notwithstanding the immediately foregoing sentence, if any portion of the
Tax Reimbursement Payment to be refunded to the Corporation has been paid to any
federal, state or local tax authority, repayment thereof shall not be required
until an actual refund or credit of such portion has been made to or obtained by
the Executive from such tax authority, and any interest payable to the
Corporation shall not exceed the interest received or credited to the Executive
by any such tax authority. The Executive shall be fully indemnified by the
Corporation for any out- of-pocket costs, expenses or fees attributable to the
filing of any refund or other claim. The Executive and the Corporation shall
mutually agree upon the course of action to be pursued (and the method of
allocating the expenses thereof) if any good faith claim for refund or credit
from such tax authority made by the Executive is denied.
Notwithstanding the immediately preceding paragraph, if, in the written
opinion of the Executive's tax advisors delivered to the Accountants and the
Corporation, the Excise Tax is later determined to exceed the amount taken into
account by the Accountants or legal counsel, as the case may be, hereunder at
the time any Tax Reimbursement Payment is made by reason of (i) manifest error,
(ii) any payment the existence or amount of which could not be or was not
determined or known about at the time of any Tax Reimbursement Payment, or (iii)
any determination, claim or assertion made by any tax authority that the Excise
Tax is or should be greater than the amount of such Excise Tax taken into
account previously by the Accountants or legal counsel, as the case may be, or
as otherwise previously determined, the Corporation shall make an additional Tax
Reimbursement Payment in respect of such excess Excise Tax (which Tax
Reimbursement Payment shall include, without limitation, any interest or
penalties payable with respect to such excess Excise Tax) at the time specified
in Section 6.9 below. With respect to this Section 6.8.4, if any such tax
authority makes such a determination, the Executive shall notify the Corporation
of such occurrence. If the Corporation obtains (at the Corporation's sole
expense) an opinion of legal counsel reasonably satisfactory to the Executive
that it is more likely than not that the Executive would succeed in disputing
such claim, assertion or determination of such tax authority, the Executive
shall, at the sole expense of the Corporation, make a good faith effort to
contest such claim, assertion or determination of such tax authority in all
relevant administrative proceedings with such tax authority and in any related
judicial proceeding (excluding any appeals thereof); provided, however, that if
the Executive determines in good faith that the continued contest of any such
claim, assertion or determination with such tax authority would have an adverse
impact on Executive's overall tax
-11-
<PAGE> 12
position (which good faith determination shall take into account the magnitude
of the amounts involved), then, upon receipt of notice by the Corporation from
the Executive to that effect, the Executive shall, without foregoing any right
to receive any Tax Reimbursement Payment described in this Section 6.8, have no
further obligation to pursue any such contest with any such tax authority. The
Executive may, as a condition to pursuing or commencing any contest described in
this Section 6.8.4 in any judicial proceedings (which proceedings shall be in a
forum chosen at the sole discretion of the Executive), require the Corporation
to advance any amount of tax required to be paid in order to pursue such
contest. In conducting any contest described in this Section 6.8.4, the
Executive shall use Executive's best efforts to keep the Corporation advised and
will permit the Corporation to prepare and suggest appropriate responses and
actions that may be reasonably made or taken by the Executive. Notwithstanding
the above, the decisions as to such response or actions shall be solely that of
the Executive and the Executive shall have the sole right to control the
proceeding. The Corporation shall bear all expenses of any proceeding relating
to any contest described in this Section 6.8.4, whether incurred by the
Corporation or the Executive, including, without limitation, all fees and
disbursements of attorneys, accountants and expert witnesses and any additional
interest or penalties applicable. Nothing contained in this Agreement shall
under any circumstances give the Corporation any right to examine the tax
returns or any other records of the Executive.
6.9. Payment. Except as otherwise provided in this Agreement, and except
with respect to continued payment of Base Salary in accordance with any
provisions of this Agreement, any payments to which the Executive shall be
entitled under this Section 6 shall be made as promptly as possible following
(a) the Date of Termination, (b) the payment of any Covered Payments, or (c) the
delivery of the opinion of the Executive's tax advisors, in accordance with
Section 6.8.4. If the amount of any payment due to the Executive cannot be
finally determined with 90 days after the Date of Termination, such amount shall
be estimated on a good faith basis by the Corporation and the estimated amount
shall be paid no later than 90 days after such Date of Termination. As soon as
practicable thereafter, the final determination of the amount due shall be made
and any adjustment requiring a payment to or from the Executive shall be made as
promptly as practicable.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any bonus or
incentive plan or program provided or maintained by the Corporation, the
Subsidiary or any other Affiliate and for which the Executive may qualify or be
selected, nor shall anything herein limit or otherwise prejudice such rights as
the Executive may have under any other existing or future agreements with the
Corporation, the Subsidiary or any Affiliate, including, without limitation, any
change of control agreements or any stock option or restricted stock agreements.
Except as otherwise expressly provided for in this Agreement, amounts which are
vested benefits or which the Executive is otherwise entitled to receive under
any plans or programs of the
-12-
<PAGE> 13
Corporation, the Subsidiary or any other Affiliate at or subsequent to the Date
of Termination shall be payable in accordance with such plans or programs.
8. Full Settlement. The Corporation's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any circumstances, including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Corporation may have against the Executive or others.
9. Legal Fees and Expenses. In the event that a claim for payment or
benefits under this Agreement is disputed, each of the parties hereto shall pay
its own attorney fees and expenses incurred in connection with such dispute. In
addition, each party shall pay its own legal fees and expenses incurred in
connection with the preparation and negotiation of this Agreement.
10. Confidential Information and Noncompetition.
10.1. Confidential Information. The Executive shall not, during the Term
of Employment and thereafter, without the prior express written consent of the
Corporation or the Subsidiary, disclose any confidential information, knowledge
or data relating to the Corporation, the Subsidiary or any other Affiliate and
their respective businesses, which (a) was obtained by the Executive in the
course of the Executive's employment with the Corporation, and (b) which is not
information, knowledge or data otherwise in the public domain (other than by
reason of a breach of this provision by the Executive), unless required to do so
by a court of law or equity or by any governmental agency or other authority. In
no event shall an asserted violation of this Section 10.1 constitute a basis for
delaying or withholding the payment of any amounts otherwise payable to the
Executive under this Agreement.
10.2. Noncompetition. If the Executive terminates Executive's employment
hereunder pursuant to Section 6.4 of this Agreement, or if the Corporation
terminates Executive's employment hereunder pursuant to Section 6.1 or 6.2, then
the Corporation, by written notice given to the Executive within 30 days after
the Executive delivers a Notice of Termination in connection with a Voluntary
Termination, may require that this Section 10.2 apply, subject to the
Corporation complying with its obligations under this Agreement.. If the
Corporation gives notice to the Executive as provided in the preceding sentence,
then the Executive, without the express written consent of the Corporation,
shall not, for the twelve month period following the Date of Termination, engage
in any business, whether as an employee, consultant, partner, principal, agent,
representative or stockholder (other than as a stockholder of less than a 5%
equity interest) or in any other corporate or representative capacity, if it
involves engaging in, or rendering services or advice pertaining to, any lines
of business the Corporation or the Subsidiary was actively conducting on the
Date of Termination. If the Corporation shall institute any action or proceeding
to enforce the provisions of this Section
-13-
<PAGE> 14
10.2, or shall file any claim in any proceeding to enforce such provisions, the
Executive hereby waives the claim or defense that the Corporation has an
adequate remedy at law and waives the requirement that the Corporation post a
bond in securing equitable relief, and the Executive shall not contend in any
such action or proceeding the claim or defense that an adequate remedy at law
exists.
11. Successors.
11.1. The Executive. This Agreement is personal to the Executive and,
without the prior express written consent of the Corporation, shall not be
assignable by the Executive, except that the Executive's rights to receive any
compensation or benefits under this Agreement may be transferred or disposed of
pursuant to testamentary disposition; intestate succession or pursuant to a
domestic relations order of a court of competent jurisdiction. This Agreement
shall inure to the benefit of and be enforceable by the Executive's heirs,
beneficiaries and/or legal representatives.
11.2. The Corporation. This Agreement shall inure to the benefit of and be
binding upon the Corporation and its successors and assigns. The Corporation
shall require any successor to all or substantially all of the business and/or
assets of the Corporation or the Subsidiary, whether direct or indirect, by
purchase, merger, consolidation, acquisition of stock, or otherwise, by an
agreement in form and substance satisfactory to the Executive, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent as the Corporation would be required to perform if no such succession had
taken place.
12. Miscellaneous.
12.1. Applicable Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, applied without reference to
principles of conflict of laws.
12.2. Amendments. This Agreement may not be amended or modified otherwise
than by a written agreement executed by the parties hereto or their respective
successors and legal representatives.
12.3. Notices. All notices and other communications hereunder shall be in
writing and shall be given by hand-delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive: G. Michael Dees
Marisa Christina, Inc.
1410 Broadway
New York, New York 10018
-14-
<PAGE> 15
If to the Corporation: Marisa Christina, Incorporated
8101 Tonnelle Avenue
North Bergen, New Jersey
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notices and communications shall be effective
when actually received by the addressee.
12.4. Withholding. The Corporation may withhold from any amounts payable
under this Agreement such federal, state or local income taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
12.5. Severability. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
12.6. Captions. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect.
12.7. Beneficiaries/References. The Executive shall be entitled to select
(and change) a beneficiary or beneficiaries to receive any compensation or
benefit payable hereunder following the Executive's death, and may change such
election, in either case by giving the Corporation written notice thereof. In
the event of the Executive's death or a judicial determination of Executive's
incompetence, reference in this Agreement to the Executive shall be deemed,
where appropriate, to refer to other beneficiary(ies), estate or Executive's
legal representative(s).
12.8. Entire Agreement. Upon the commencement of the Term of Employment,
this Agreement will contain the entire agreement between the parties concerning
the subject matter hereof and will supersede all prior agreements,
understandings, discussions, negotiations and undertakings, whether written or
oral, between the parties with respect to the subject matter hereof, including
the Old Employment Agreement, which is hereby terminated, discharged and
released, but excluding (a) the Director Indemnification Agreement dated as of
June 30, 1994, by and between the Corporation and the Executive, and (b) the
non-competition agreement, dated July 1, 1993, between Subsidiary and Executive.
12.9. Representation. The Corporation represents and warrants that it is
fully authorized and empowered to enter into this Agreement and that the
performance of its obligations under this Agreement will not violate any
agreement between the Corporation and any other person, firm or organization or
any applicable laws or regulations.
-15-
<PAGE> 16
12.10. Survivorship. The respective rights and obligations of the parties
hereunder shall survive any termination of this Agreement or the Executive's
employment hereunder to the extent necessary to the intended preservation of
such rights and obligations.
13. Arbitration.
(a) Any controversy arising out of or relating to this Agreement shall be
settled by arbitration in New York pursuant to the rules of the American
Arbitration Association, and judgment may be entered in any Court having
jurisdiction.
(b) The parties consent to the jurisdiction of the Supreme Court of the
State of New York, and of the United States District Court for the Southern
District of New York, for all purposes in connection with arbitration, including
the entry of judgment on any award; and consent that any process, notice, motion
or other application to either of said courts, and any papers in connection with
arbitration, may be served by registered or certified mail, return receipt
requested, by personal service, or in such other manner as may be permissible
under the rules of the applicable court or arbitration tribunal, provided a
reasonable time for appearance is allowed.
(c) The arbitrators shall have no power to alter or modify any express
provision of this Agreement, or to render an award which has the effect of
altering or modifying any express provision hereof, provided, however, that any
application for reformation of this Agreement shall be made to the arbitrators
and not to any Court, and the arbitrators shall be empowered to determine
whether valid grounds for reformation exist.
(d) Any arbitration proceeding must be instituted within one year after
the claimed breach occurred, and a party's failure to institute arbitration
proceedings within such period shall constitute an absolute bar to the
institution of any proceedings by said party and a waiver of such claimed
breach. Notwithstanding any law or rule to the contrary, the determination of
whether said one-year period has expired shall be made by the Court and shall
not be within the jurisdiction of the arbitrators.
(e) The Executive or the Corporation, as the case may be, may be awarded
all reasonable attorneys' fees and expenses incurred by the Executive or the
Corporation, as the case may be, in connection with any arbitration or court
proceeding arising out of this Agreement, in the arbitrators' discretion.
(f) In the event that any dispute arising under this Agreement shall be
submitted to arbitration pursuant to this Section 13, the Executive shall be
entitled to receive all compensation, bonuses, benefits and perquisites
contemplated by this Agreement during the pendency of any such proceedings
unless the Corporation shall place the disputed amount into an interest-bearing
escrow account with the Corporation's attorneys, the terms of which
-16-
<PAGE> 17
escrow shall provide that all escrowed funds shall be immediately distributed to
the party or parties entitled thereto immediately upon a determination of the
arbitrators which is final, confirmed, and not subject to appeal.
-17-
<PAGE> 18
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and the Corporation has caused this Agreement to be executed in its name on its
behalf, and its corporate seal to be hereunto affixed and attested by its
Secretary, all as of the day and year first above written.
EXECUTIVE
-----------------------------------
G. Michael Dees
MARISA CHRISTINA, INCORPORATED
MARISA CHRISTINA APPAREL, INC.
By
-------------------------------
Its
-------------------------------
-18-
<PAGE> 1
ADRIENNE VITTADINI ENTERPRISES, INC.
575 Seventh Avenue
New York, New York 10018
March 28, 1998
Mr. Zachary Solomon
375 West End Avenue
Apartment 2A
New York, NY 10024
Dear Mr. Solomon:
This letter confirms our mutual agreement as to your employment by
Adrienne Vittadini Enterprises, Inc. (the "Company") in the position of
President and Chief Executive Officer commencing as of your acceptance of this
letter and terminating on December 31, 1999.
As President and Chief Executive Officer, you shall have the duties,
responsibilities and authorities normally associated with that office and agree
that you will devote all of your business time and efforts in the performance of
the duties associated with this position. Your services shall be rendered
primarily at the Company's principal Manhattan premises, and your office shall
be located there. You shall not be required to perform duties other than of a
senior executive nature, commensurate with your title. Your duties will not
require that your principal residence be outside of the New York City
metropolitan area.
During the term of your employment as hereinafter set forth, you shall
receive a salary in the amount of Five Hundred Thousand ($500,000) Dollars per
annum. You shall also be entitled to receive a bonus for services performed by
you during the term of your employment. The terms and conditions of such bonus
are as follows:
for the year 1998, a bonus, if any, shall be at the sole discretion
of the Company;
for the year 1999, a bonus, if any, shall be at the sole discretion
of the Company; however, in the event that the earnings before
interest and taxes ("EBITDA") of the Company is equal to or greater
than a "break even" then you will be entitled to a bonus equal to
twenty-five (25%) percent of your annual salary, or One Hundred
Twenty-Five Thousand ($125,000) Dollars.
<PAGE> 2
EBITDA of the Company shall be determined by the independent accounting
firm regularly engaged by Marisa Christina, Inc. ("MRSA") to audit MRSA, in
accordance with generally accepted accounting principles, except that in making
such determination the following shall be excluded:
(i) any bonus paid or payable to you;
(ii) any gain or loss on the sale of assets (other than
inventory in the ordinary course of business);
(iii) any inter-company payments made by the Company in the
nature of management or royalty fees, or in the nature of
overhead allocation;
(iv) any charges to earnings resulting from the purchase of
another business by the Company subsequent to the date hereof;
(v) any payments to the prior owners of the Company in the
nature of contingent purchase price payments; and
(vi) depreciation and amortization of good will relating to
the acquisition of certain assets from Adrienne Vittadini,
Inc. (any other depreciation and/or amortization shall be
included).
Bonus payments shall be made as promptly as practical, but in any event by the
date on which bonus payments are made to other executives of the Company.
During your term of employment, MRSA shall nominate, or cause its Board of
Directors to nominate, you for election to the Board of Directors of MRSA, and,
if elected, you agree to serve as a director of MRSA without additional
consideration. You shall be entitled to the benefits of any and all
indemnification provisions afforded to other members of the Board of Directors
of MRSA, whether by insurance, contract or otherwise.
As additional consideration, you shall be entitled to receive stock
options to purchase One Hundred Thousand Shares (100,000) of MRSA at Five
Dollars ($5.00) per share (the "Options"). The Options shall begin to vest on
the day of commencement of your employment with the Company, and for purposes of
the vesting of the Options, you shall be deemed to have completed a year's
service on every December 31st of each year thereafter
-2-
<PAGE> 3
during which you are employed by the Company. The Options shall be subject to
MRSA's Incentive Stock Option Agreement, a copy of which is annexed hereto.
During the term of your employment, you shall be entitled to receive all
benefits offered by the Company in the nature of health, disability and travel
insurance. Such benefits offered to you shall be commensurate with such benefits
traditionally offered to an executive in your position. You shall be entitled to
reimbursement of all reasonable business travel, entertainment and similar
expenses incurred during your employment.
This agreement can be terminated by the Company at any time for Cause and
in such event you shall not be entitled to any further benefits under this
agreement other than what has already been paid and granted you as provided
herein. "Cause" shall be defined as:
(a) an action or failure to act by you constituting willful
malfeasance or nonfeasance which has a material adverse effect
on the Company; or
(b) your being convicted of, or pleading nolo contendere to, a
felony.
Prior to the Company's termination of your employment for Cause, it shall:
(a) provide you with written notice, specifying in reasonable
detail the act(s) or failure(s) to act complained of; and
(b) afford you the opportunity (together with counsel, if you so
desire) to meet personally with the Board of Directors of MRSA
to discuss same.
In the event that this agreement is terminated by the Company other than
for Cause hereunder (as opposed to the agreement expiring on its own terms on
December 31, 1999, in which event there shall be no severance), you shall be
entitled to the following severance:
(a) if terminated before December 31, 1998, you shall be entitled
to the remainder of your full salary through December 31,
1999; and
(b) if terminated subsequent to December 31, 1998, you shall be
entitled to Five Hundred Thousand ($500,000) Dollars (one
year's salary).
-3-
<PAGE> 4
In the event that the Company notifies you, in writing, on or before
October 1, 1999 that it does not intend to renew this agreement, your employment
with the Company shall cease on December 31, 1999, and you shall not be entitled
to any further salary as of December 31, 1999.
In the event of your termination other than for Cause, the Company will,
at your option upon written notice, pay you the aggregate of all such amounts in
a lump sum. In addition, in such event, the Company shall immediately pay to you
any previously unpaid salary, bonus or other compensation, and shall reimburse
you for any un-reimbursed expenses. You shall not be required to seek or accept
other employment or otherwise mitigate the Company's damages in order to be
entitled the severance specified herein.
Any dispute arising out of or relating to this agreement shall be resolved
by arbitration before the American Arbitration Association in the City of New
York before a panel of three arbitrators. The arbitrators shall award reasonable
attorneys' fees to the prevailing party.
This contract calls for the provision of personal services by you and the
Company may not assign this contract or any of its obligations hereunder, in
whole or in any part, by operation of law or otherwise, to any person or entity
without your prior express written consent; and any change in control of the
Company shall constitute such an assignment.
Any amendments or changes to this contract must be in writing, signed by
all parties, to be effective.
This contract shall be governed by, and interpreted in accordance within
the internal laws of the State of New York applicable to contracts to be wholly
performed within such State, without reference to conflict of laws provisions.
By its signature below, MRSA is guaranteeing all obligations of the
Company under this Agreement; such guaranty is a guaranty of performance and not
of payment, and you may proceed directly against MRSA without having to make any
claim against the Company; the parties confirm that such guaranty is a material
inducement to you to enter into this contract, and may not be revoked or
modified by MRSA.
If this letter correctly reflects our agreement, please sign this letter
and return it to me.
Very truly yours,
ADRIENNE VITTADINI ENTERPRISES, INC.
By:_________________________________
Adrienne Vittadini
Chairman of the Board
-4-
<PAGE> 5
ACCEPTED AND AGREED TO:
___________________________
Zachary Solomon
AGREEMENT GUARANTEED BY
MARISA CHRISTINA, INC.
By:________________________
-5-
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Marisa Christina Incorporated:
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (No. 33-91078) and Form S-8 (No. 33-91080) of Marisa Christina,
Incorporated of our report dated March 8, 1998, relating to the consolidated
balance sheets of Marisa Christina, Incorporated and subsidiaries as of December
31, 1996 and 1997 and the related consolidated statements of operations,
stockholders' equity, and cash flows and related schedule for each of the years
in the three-year period ended December 31, 1997, which report appears in the
December 31, 1997 annual report on Form 10-K of Marisa Christina, Incorporated.
KPMG PEAT MARWICK LLP
New York, New York
March 27, 1998
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary information financial information for Marisa
Christina, Incorporated's Consolidated Balance Sheets as of December 31, 1997
and the Consolidated Statement of Operations for the year then ended and is
qualified in its entirety by reference to the Company's Form 10-K for the year
ended December 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,007,153
<SECURITIES> 0
<RECEIVABLES> 9,374,706
<ALLOWANCES> (200,104)
<INVENTORY> 12,006,285
<CURRENT-ASSETS> 29,439,210
<PP&E> 5,781,519
<DEPRECIATION> (2,595,115)
<TOTAL-ASSETS> 65,196,781
<CURRENT-LIABILITIES> 17,498,360
<BONDS> 0
0
0
<COMMON> 85,868
<OTHER-SE> 47,109,279
<TOTAL-LIABILITY-AND-EQUITY> 65,196,781
<SALES> 91,400,058
<TOTAL-REVENUES> 91,400,058
<CGS> (71,235,897)
<TOTAL-COSTS> (30,911,860)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (353,660)
<INTEREST-EXPENSE> (451,650)
<INCOME-PRETAX> (8,979,552)
<INCOME-TAX> 2,987,528
<INCOME-CONTINUING> (5,992,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,992,024)
<EPS-PRIMARY> (0.72)
<EPS-DILUTED> (0.72)
</TABLE>
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
This schedule contains summary information financial information for Marisa
Christina, Inc.'s Consolidated Balance Sheets as of December 31, 1996 and the
Consolidated Statement of Earnings for the year then ended and is qualified in
its entirety by reference to the Company's Form 10-K for the year ended December
31, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,004,094
<SECURITIES> 0
<RECEIVABLES> 15,120,974
<ALLOWANCES> (73,344)
<INVENTORY> 10,097,123
<CURRENT-ASSETS> 29,333,530
<PP&E> 4,817,052
<DEPRECIATION> (2,144,229)
<TOTAL-ASSETS> 66,199,933
<CURRENT-LIABILITIES> 11,707,146
<BONDS> 0
0
0
<COMMON> 85,868
<OTHER-SE> 54,128,919
<TOTAL-LIABILITY-AND-EQUITY> 66,199,933
<SALES> 115,536,726
<TOTAL-REVENUES> 115,536,726
<CGS> (75,584,880)
<TOTAL-COSTS> (29,777,439)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (309,774)
<INTEREST-EXPENSE> (918,189)
<INCOME-PRETAX> 11,920,367
<INCOME-TAX> (4,543,826)
<INCOME-CONTINUING> 7,376,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
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