<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 1998.
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: 0-24636
THE SIRENA APPAREL GROUP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-2998726
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10333 VACCO STREET
SOUTH EL MONTE, CALIFORNIA 91733
(Address of principal executive offices)(Zip code)
(626)442-6680
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] Yes [ ] No
Number of shares of Common Stock, $0.01 par value, of the registrant outstanding
as of April 30, 1998: 4,792,491
This Form 10-Q contains 14 pages
Exhibit index appears on page 13.
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FORM 10-Q
<TABLE>
<CAPTION>
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheets 3
March 31, 1998 and June 30, 1997
Statements of Operations 5
Three and nine months ended March 31, 1998
and 1997
Statements of Cash Flows 6
Nine months ended March 31, 1998 and 1997
Notes to Financial Statements 7
March 31, 1998
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4 Submission of Matters to a Vote of Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE SIRENA APPAREL GROUP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets
Cash $ 134,000 $ 202,000
Accounts receivable, net of
allowance of $ 1,860,000
(March 31, 1998) and
$1,773,000 (June 30, 1997)
(Note 2) 5,792,000 6,942,000
Inventories (Note 3) 12,562,000 4,251,000
Prepaids and other current assets 286,000 385,000
------------ ------------
Total current assets 18,774,000 11,780,000
Equipment and leasehold improvements:
Furniture, fixtures and equipment 3,800,000 3,415,000
Leasehold improvements 843,000 836,000
------------ ------------
4,643,000 4,251,000
Less accumulated depreciation
and amortization (3,423,000) (3,134,000)
------------ ------------
1,220,000 1,117,000
Equipment under capital lease,
less accumulated amortization
of $69,000 (March 31, 1998)
and $36,000 (June 30, 1997) 145,000 177,000
Intangible assets, less accumu-
lated amortization of $1,086,000
(March 31, 1998) and $974,000
(June 30, 1997) 4,816,000 3,487,000
Deposits 141,000 127,000
------------ ------------
Total assets $ 25,096,000 $ 16,688,000
============ ============
</TABLE>
See accompanying notes.
3
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<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
------------ ------------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities
Bank overdraft $ 2,026,000 $ 372,000
Accounts payable 5,267,000 1,810,000
Accrued liabilities 1,885,000 1,545,000
Notes payables (Notes 5,6) 471,000 --
Current portion of
capital lease obligations 42,000 40,000
------------ ------------
Total current liabilities 9,691,000 3,767,000
Capital lease obligations,
less current portion 126,000 137,000
Notes payable (Notes 5,6) 335,000 --
Stockholders' equity
Common Stock,$.01 par value
Authorized, 20,000,000 shares
Issued and outstanding,
4,651,730 shares 47,000 46,000
Additional paid-in capital 32,433,000 32,425,000
Accumulated deficit (17,536,000) (19,687,000)
------------ ------------
Total stockholders' equity 14,944,000 12,784,000
------------ ------------
Total liabilities and stock-
holders' equity $ 25,096,000 $ 16,688,000
============ ============
</TABLE>
See accompanying notes
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THE SIRENA APPAREL GROUP, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $23,520,000 $18,207,000 $34,680,000 $27,435,000
Cost of goods sold 14,158,000 11,528,000 21,213,000 17,928,000
----------- ----------- ----------- -----------
Gross profit 9,362,000 6,679,000 13,467,000 9,507,000
Selling, general, & administrative expenses 5,170,000 4,159,000 10,725,000 8,623,000
----------- ----------- ----------- -----------
Total operating income 4,192,000 2,520,000 2,742,000 884,000
Interest expense 333,000 266,000 501,000 650,000
----------- ----------- ----------- -----------
Income before provision for income taxes 3,859,000 2,254,000 2,241,000 234,000
Provision for income taxes(Note 4) 65,000 -- 90,000 9,000
----------- ----------- ----------- -----------
Net income $ 3,794,000 $ 2,254,000 $ 2,151,000 $ 225,000
=========== =========== =========== ===========
Net income per share-basic $ 0.82 $ 0.48 $ 0.46 $ 0.05
=========== =========== =========== ===========
Net income per share-diluted $ 0.80 $ 0.48 $ 0.46 $ 0.05
=========== =========== =========== ===========
Weighted average number of
common shares outstanding:
Basic 4,649,340 4,649,230 4,649,340 4,649,230
Diluted 4,736,060 4,649,230 4,696,553 4,649,230
</TABLE>
See accompanying notes.
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THE SIRENA APPAREL GROUP, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,151,000 $ 225,000
Adjustments to reconcile
net income to net
cash used in
operating activities:
Depreciation and amortization 433,000 347,000
Changes in operating
assets and liabilities:
Accounts receivable 921,000 (555,000)
Inventories (7,501,000) (4,925,000)
Prepaid and other assets 105,000 335,000
Accounts payable 2,395,000 2,989,000
Accrued liabilities (19,000) 178,000
----------- -----------
Net cash used in operating activities (1,515,000) (1,406,000)
INVESTING ACTIVITIES
Purchase of Jezebel (307,000) --
Increase in other assets (4,000) --
Purchases of property,
plant and equipment (342,000) (224,000)
----------- -----------
Net cash used in investing
activities (653,000) (224,000)
FINANCING ACTIVITIES
Borrowing on line of credit -- 370,000
Proceeds from the exercise
of options 9,000 --
Payment on capital lease
obligations (30,000) --
Bank borrowings 467,000 --
Increase in bank
overdraft 1,654,000 1,299,000
----------- -----------
Net cash provided by
financing activities 2,100,000 1,669,000
----------- -----------
Increase (Decrease) in cash (68,000) 39,000
Cash at beginning of period 202,000 18,000
----------- -----------
Cash at end of period $ 134,000 $ 57,000
=========== ===========
</TABLE>
See accompanying notes.
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THE SIRENA APPAREL GROUP, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
accruals)considered necessary for a fair presentation of the results of
operations for the periods presented have been included. Operating
results for the nine months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending June
30, 1998. For further information, refer to the financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K
for the year ended June 30, 1997. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
amounts reported in the financial statements, and accompanying notes.
Actual results could differ from those estimates.
2. ACCOUNTS RECEIVABLE
On June 23, 1997, the Company amended its advance factoring agreement.
Under the terms of the amended agreement, the Company will receive
factor advances up to 80% of uncollected receivables, less reserves
determined by the factor. In addition, the Company may draw short-term
advances up to 50% of eligible inventory, as defined to a maximum of
$5.0 million (in January, February and March) and ranging to a maximum
of $1.0 million (in June and July). The Company may also borrow seasonal
over-advances from September 1 to March 31 each year up to a maximum of
$2.0 million (in December and January). Interest at the prime rate plus
0.375%, 2.0% and 2.0% is to be charged on factor advances, short-term
advances and seasonal over-advances, respectively. Aggregate obligations
under the agreement cannot exceed $20.0 million. The agreement expires
on August 18, 2000 and includes certain financial covenants, including
minimum tangible net worth, working capital, and debt to tangible net
worth. The Company was in compliance with all covenants at March 31,
1998.
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3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1998 1997
----------- -----------
<S> <C> <C>
Raw materials $ 3,707,000 $ 2,401,000
Work-in-process 3,818,000 134,000
Finished goods 5,037,000 1,716,000
----------- -----------
Total $12,562,000 $ 4,251,000
=========== ===========
</TABLE>
4. INCOME TAXES
The provision for income taxes for the nine months ended March 31, 1998
is at a nominal tax rate based on the anticipated effective tax rate.
5. ACQUISITION
On February 4, 1998 the Company acquired substantially all of the assets
and liabilities of Renee of Hollywood (dba: "Jezebel"). Jezebel is a
designer and manufacturer of a broad line of intimate apparel for women.
The acquisition was accounted for using the purchase method of
accounting, and accordingly, the purchase price was allocated to the
assets purchased and liabilities assumed based upon estimates of the
fair values at the date of acquisition. The excess of the purchase price
over the fair value of net assets acquired was $921,000 and was recorded
as goodwill and is being amortized on a straight-line basis over 15
years. The purchase price of the acquisition consisted of $175,000 in
cash, and the assumption of certain debt which consisted of two notes
payable and a guaranteed earn-out payable to the former owners of
Jezebel for an aggregate of $367,000 ($339,000 at March 31, 1998). The
two notes are payable, interest only at a rate of 10% per annum, with
the principal due and payable thirteen months after the acquisition of
Jezebel on March 4, 1999. The guaranteed earn-out to the former owner,
specifies payments equal to diminishing percentages of the pre-tax
profits of the Jezebel Division, but no less than $130,000, payable from
time to time over a period of three years. The Company has also entered
into an employment agreement with the prior owner of Jezebel which
provides for salary and benefits commensurate with the employment
benefits accorded to other Divisional Vice Presidents.
6. NOTES PAYABLES
The Company has entered into a $500,000 term loan with Heller Financial
("Heller") to finance the acquisition of Jezebel. The loan is at the
rate established from time to time by Bank of America (8.50% at March
31, 1998) plus
8
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1.50%, commencing on January 29, 1998 and payable in 29 equal monthly
installments of $16,667, with the remainder paid in full on June 30,
2000.
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 which are subject to a variety
of risks and uncertainties. The Company's actual results, performance, or
achievements may differ significantly from the results, performance, or
achievements expressed or implied in such forward-looking statements.
Net Sales. Net sales increased to $23,520,000 in the third quarter ended March
31, 1998 from $18,207,000 in the comparable period last year, an increase of
29%. Net sales for the nine months ended March 31, 1998 increased to $34,680,000
from $27,435,000 in the comparable period of last year, an increase of 26%. The
increase in sales for the third quarter consisted of the following: (i)a 36%
increase in the Branded swimwear division, nearly all of which resulted from the
addition of the Liz Claiborne swimwear line ($3.4 million) for which there were
no comparable revenues last year, higher per unit revenues for Branded swimwear
due to adjustments to pricing effected at the start of the fiscal year, and the
impact of lower merchandise returns as compared to last year; (ii) a 13%
increase in the Resortwear division that resulted from earlier price increases,
continued lower levels of returns and a consumer demand that has continued and
strengthened in comparison to last year, particularly in beach coverups;(iii)an
8% increase in the Private Label division which was due to quick retail turns at
Mass Merchandisers and a better fill rate on orders, resulting in fewer
cancellations of orders; and (iv) revenues from the newly acquired Jezebel
division ($1.1 million) for which there were no comparable revenues last year.
The increase in net sales for the nine months ended March 31, 1998 over the
comparable period last year resulted from: (i) revenues of the new Liz Claiborne
swimwear line and the newly acquired Jezebel line for which there were no
comparable revenues last year(Liz Claiborne: $4.7 million; Jezebel:$1.1
million); (ii)price increases that improved margins; (iii) lower returned
merchandise resulting from satisfactory market performance; and (iv) greater
acceptance of our product which has resulted in a broad based strength in all
lines but particularly in Resortwear, and Private Label.
Gross Profit. For the third quarter ended March 31,1998 gross profit increased
to $9,362,000(39.8% of net sales)from $6,679,000 (36.7% of net sales) for the
comparable period last year, an overall increase of 40%. Gross profit in the
nine months ended
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March 31, 1998 increased to $13,467,000 (38.8% of net sales) from $9,507,000
(34.7% of net sales) for the comparable period last year, an overall increase of
42%. The increase in gross profit for the third quarter ending March 31, 1998
resulted from a combination of the increased sales volume, and an increase in
the gross margins as a percentage of net sales. The third quarter 1998 gross
profits increased on the improved margin performance in nearly all of the
divisions but particularly in Branded swimwear, and reflected the impact of
pricing geared to maintenance of margins, as well as continued lower levels of
returned merchandise. Partially offsetting margins was a $250,000 increase in
additional inventory obsolescence reserves which amounted to a 1.0% decrease in
gross margins as compared to last year's third quarter in which there was no
such increase in reserves.
Higher gross profit for the nine months ended March 31, 1998 was also caused by
many of the same factors influencing the third quarter. These were, increased
volumes, increased prices, and lower returns as compared to last year, in
addition to lower sales of prior season units at low margins, which primarily
helped margins in the first six months of fiscal 1998.
Selling, General and Administrative Expenses. Selling, general & administrative
expenses increased to $5,170,000(22% of net sales) for the third quarter ended
March 31, 1998 from $4,159,000 (23% of net sales) in the comparable period last
year, an increase of 24%. Selling, general and administrative expenses increased
to $10,725,000(31% of net sales) for the nine months ended March 31, 1998 from
$8,623,000 (31% of net sales) in the comparable period last year, an increase of
24%. The increase in selling, general & administrative for the three months
ended March 31, 1998 was primarily due to:(i)certain variable expenses such as
factor fees($66,000)and executive bonuses($118,000);(ii) the appointment of a
new President of the Rose Marie Reid Division; and (iii)a severance payment of
$180,000. Increases to selling, general and administrative expenses that
affected both the three months and the nine months ended March 31, 1998 were as
follows: (i) the appointment of a Chief Operating Officer;(ii) higher selling
expenses associated with the new Liz Claiborne swimwear division(approximately
$600,000), for which there were no such comparable expenses in the same period
of the prior year. In addition, the nine months ended March 31, 1997 was
favorably reduced by a reduction in litigation expenses with the net proceeds
from a settlement that took place in the second quarter of last year(a $347,000
credit in last year's second quarter), and the current nine months ended March
31, 1998 had no similar reduction.
Interest Expense. Interest expense increased to $333,000 (1% of net sales) for
the third quarter ended March 31, 1998 from $266,000 (2% of net sales) in the
comparable period last year, an increase of 25%. Interest expense for the nine
months ended March 31,1998 decreased to $501,000 (1% of net sales) from $650,000
(2%
10
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of net sales) in the comparable period last year, a decrease of 23%. The
increase in interest expense for the third quarter is attributable to the new
$500,000 loan from Heller used to finance the acquisition of Jezebel and the
higher costs associated with higher inventory levels generated by increased
volumes. The decrease in the interest expense for the nine month period ended
March 31, 1998 resulted from both the lower utilization and lower costs of the
seasonal line of credit from Heller, over the first six months of the year.
Net Income. Net Income increased to $3,794,000, or $.82 per common share-"Basic"
and $.80 per common share-"Diluted", for the third quarter ended March 31, 1998,
from $2,254,000, or $.48 per common share(both Basic and Diluted) in the
comparable period last year. Net income for the nine months ended March 31, 1998
increased to $2,151,000, or $.46 per common share(both Basic and Diluted), from
net income of $225,000, or $.05 per common share(both Basic and Diluted), in the
comparable nine month period last year. The increase in net income for the three
and nine months ended March 31,1998 was primarily due to the following: (i)
higher net sales; (ii)higher gross profit due to the higher margins derived from
price increases instituted at the beginning of the year; and (iii)the
contribution margin of the new Liz Claiborne line. These positive impacts were
partially offset by higher selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities for the nine months ended March 31, 1998
was $1,515,000 compared to $1,406,000 of cash used in the comparable period last
year. This years cash usage was higher due to the relative increase in
inventories in the comparable period of last year(June 30, 1997 inventories were
lower than June 30, 1996), offset by $1,926,000 in cash generated from increased
net income as compared to last year, and lower Accounts Receivable balances in
comparison to June 30, 1997 and 1996, respectively.
At March 31, 1998, working capital was approximately $9,083,000 compared to
$10,248,000 at March 31, 1997. The decrease in working capital was primarily due
to increased accounts payable(related to Jezebel acquisition) and increases in
short term notes used to finance the Jezebel acquisition, partially offset by a
decrease in the inventory line of credit with Heller. Inventory decreased to
$12,562,000 at March 31,1998 from $12,638,000 at March 31, 1997, a nominal
decrease which included $1.2 million of inventory from the newly acquired
Jezebel line that had no comparable balance in last year's inventory. The
decrease in comparable inventory balances(without Jezebel) is a result of the
management strategy of manufacturing and shipping goods as early as possible
during the season, thereby avoiding the low margin sales and excess inventory
that results from shipping late in the season. Due to the seasonal nature of the
Company's business, inventory levels at December 31, 1997 and
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June 30, 1997 are not comparable.
The Company has entered into an accounts receivable, inventory, seasonal
overadvance and factoring services arrangement, which was amended as of June 23,
1997, with Heller Financial("Heller") pursuant to which the Company sells to
Heller all of the Company's accounts receivable at their net invoice price less
a commission of 0.60% with no minimum or ancillary fees. Advances are made
without recourse for the financial inability of the customer to pay with respect
to all accounts receivable approved by Heller. The Company bears the entire risk
of non-approved receivables and accounts receivable returned by the factor to
the Company. Prior to Heller's payment, the Company may draw short-term advances
from Heller up to 80% of the uncollected receivables less reserves as determined
by Heller, which advances bear interest at an annual rate of .375% over the
prime rate established from time to time by Bank of America (8.50% at December
31, 1997). Additional interest of 1% is due on excess inventory levels, as
defined, over short-term advances. Heller collects such advances and interest by
offsetting against amounts due to the Company upon the collection of factored
receivables. In addition, the Company may draw short-term advances from Heller
of (i) up to 50% of eligible inventory which is current season inventory and
(ii) up to 40% prior to October 31 and up to 25% during the period between
November 1 and June 30, in each case of eligible inventory which is not current
season inventory, less (iii) such reserves as Heller elects to establish.
The Company's short-term advances are limited to a maximum of $5,000,000 (in
January and February) and ranging downward to a maximum of $1,000,000 (in June
and July) or $1,000,000 in excess of the Company's projected short-term advance
requirements, whichever is less. The Company may also borrow seasonal
overadvances of up to $500,000 from September 1 to September 30, $1,000,000 from
October 1 to October 30, $1,500,000 from November 1 to November 30, $2,000,000
from December 1 to January 31, $1,000,000 from February 1 to March 31, and $0
from April 1 through August 30 of each year. The inventory advances and the
overadvances bear interest at an annual rate of 2% over the prime rate
established from time to time by Bank of America. Finally, the Company may
request Heller to issue guarantees for the Company's purchase of raw materials
for up to $575,000 at any one time. Under the Company's agreement with Heller,
the maximum credit available to the Company at any time is limited to $20
million. The Company's agreement with Heller has a term expiring on August 18,
2000, after which time either party may terminate upon 60 days written notice.
The Company's obligations to Heller are secured by the Company's accounts
receivable, inventory, general intangibles, other than trademarks or trade
names, and cash deposit accounts. In addition, the agreement provides for
various financial covenants to be maintained.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings. None
Item 2. Changes in Securities. None
Item 3. Defaults Upon Senior Securities. None
Item 4. Submission of Matters to a Vote of Security Holders. None
Item 5. Other information. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
10.1 Agreement for Purchase of Assets by and among the Sirena
Apparel Group, Inc., Renee of Hollywood, Inc., and Susan
Colman dated January 12, 1998. Schedules to this
agreement have been omitted pursuant to rules of the
Commission and will be furnished supplementally to the
Commission upon request.
10.2 Term Loan Agreement by and between The Sirena Apparel
Group, Inc. and Heller Financial, Inc.
(b) Reports on Form 8-K. None
13
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SIRENA APPAREL GROUP, INC.
Date: May 14, 1998 By /S/ WILLIAM B. SHAW
------------ -------------------
William B. Shaw
Chief Financial Officer
(Duly Authorized Officer and Principal
Financial and Chief Accounting Officer)
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EXHIBIT 10.1
AGREEMENT FOR PURCHASE OF ASSETS
THIS AGREEMENT FOR PURCHASE OF ASSETS (the "Agreement") is made
and effective as of the 12th day of January 1998, by and among THE SIRENA
APPAREL GROUP, INC., a Delaware corporation (the "Buyer"), RENEE OF HOLLYWOOD,
INC., a California corporation (the "Company"), and SUSAN COLMAN (the
"Shareholder"), with reference to the following facts:
A. The Company is engaged in the business of designing,
manufacturing and marketing women's intimate apparel in the
United States and throughout the world (the "Intimate Apparel
Business").
B. The Shareholder owns all of the issued and outstanding capital
stock of the Company.
C. The Buyer desires to purchase from the Company, and the Company
desires to sell to the Buyer, substantially all of the property
and assets of the Company upon the terms and conditions contained
herein.
ACCORDINGLY, subject to the terms and conditions of this
Agreement, and on the basis of the premises, representations, warranties and
agreements contained herein, the parties hereto agree as follows:
1. PURCHASE AND SALE OF ASSETS
1.1 Purchase and Sale.
(a) Assets to be Purchased. The Company shall sell, assign,
transfer, convey and deliver to the Buyer, and the Buyer shall purchase and take
from the Company, on the Closing Date (as hereinafter defined), those properties
and assets of the Company used in connection with the Intimate Apparel Business
which are described on Schedule 1.1(a) hereto, as the same shall exist on the
Closing Date (the "Assets").
(b) Assets to be Retained by the Company. Notwithstanding
anything to the contrary contained herein, the Company shall not sell, assign,
transfer, convey or deliver to the Buyer hereunder and shall retain, and the
Buyer shall not purchase, any properties or assets of the Company which are not
described on Schedule 1.1(a) hereto.
(c) Consideration. As the total consideration for the purchase of
the Assets by the Buyer, the Company shall be entitled to the following:
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(i) on the Closing Date, the sum of one hundred
seventy-five thousand dollars ($175,000), plus interest accrued from October 4,
1997 to the Closing Date and not yet paid on the promissory note attached as
Exhibit A hereto, payable by certified or bank cashier's check; and
(ii) an amount equal to the following percentages of
Pre-Tax Profits, as such term is defined below, for the periods indicated and
payable as set forth in Section 1.1(e) below:
A. For the period commencing on the Closing Date and
ending twelve (12) months following the Closing Date, twenty-five percent (25%)
of Pre-Tax Profits;
B. For the period commencing on the first anniversary of
the Closing Date and ending twenty-four (24) months following the Closing Date,
fifteen percent (15%) of Pre-Tax Profits; and
C. For the period commencing on the second anniversary of
the Closing Date and ending thirty-six months following the Closing Date, ten
percent (10%) of Pre-Tax Profits.
(d) Definitions. For purposes of this Agreement, the term
"Pre-Tax Profits" shall mean the amount of Net Revenue, as defined below,
generated by the Jezebel(R) and Body Jewels by Jezebel(R) brands (the "Brands"),
less Cost of Sales, Direct Overhead and bank interest. For purposes of
calculating Pre-Tax Profits according to the formula set forth above, the term
"Net Revenue" shall mean invoiced sales of the Brands, less returns, cash
discounts, markdowns and sales allowances deducted by customers and not
recovered by the Company after commercially reasonable efforts. "Cost of Sales"
shall mean costs of labor incurred by the Company for goods manufactured by
outside contractors, the Company's costs of production related to labor and
overhead, of a type consistent with the Company's current labor and production
practices, for goods manufactured in the Company's facility, and any reserves,
such reserves to be determined by the Buyer after consultation with the
Shareholder and to be mutually agreed upon, unless determined by the Buyer's
Chief Financial Officer or the Buyer's independent accountants to be required in
accordance with generally accepted accounting principles ("GAAP"). Finished
goods purchased from the Buyer's facility shall be at market prices consistent
with prices paid to similar contractors for similar goods. In each case, Cost of
Sales will only relate to those goods sold by the Company. "Direct Overhead"
shall mean operating and selling expenses incurred by the Company of a type
consistent with the Company's current operating and sales practices. The Buyer
will not allocate its general corporate overhead to the Company except and only
to the extent that such overhead specifically relates to the manufacture and
sale of the Brands is moved from the Company's operation to the Buyer's or an
employee is transferred. Pre-Tax Profits shall be determined on the basis of an
income statement prepared in accordance with GAAP. The consideration payable to
the Company described in Section 1.1(c)(ii) above shall by referred to herein as
the "Earn-Out."
(e) Payment of the Earn-Out. The Earn Out shall be payable, to
the extent any such amounts are owed after the payment of Advances described
below, in cash no later than sixty (60) days following the end of each of the
earn-out periods defined in Sections 1.1(c)(ii)(A), (B) and(C) above. The Buyer
shall advance to the Company the following amounts (the "Advances," or
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as the context may require, an "Advance"), which Advances shall be fully
recoupable against the Earn-Out, on the following dates (the "Advance Dates," or
as the context may require, an "Advance Date"):
(i) On the Closing Date, twenty-five thousand dollars
($25,000);
(ii) On the first anniversary of the Closing Date,
thirty-five thousand dollars ($35,000);
(iii) On the second anniversary of the Closing Date,
thirty-five thousand dollars ($35,000); and
(iv) On the third anniversary of the Closing Date,
thirty-five thousand dollars ($35,000).
Each of the Advances provided for above shall be paid in full by
the Buyer to the Company notwithstanding the fact that no amount of the Earn-Out
is due on the Advance Date pursuant to the formulas set forth in Sections
1.1(c)(ii)(A), (B) and (C) above and notwithstanding the fact that the amount of
the Earn-Out due on the Advance Date is less than the amount of the Advance.
(f) Payment of Earn-Out in the Event of Termination Without
Cause. Notwithstanding anything to the contrary contained herein, in the event
that the employment of the Shareholder by the Company shall be terminated
without cause in accordance with Section 3.2(f) of the Employment Agreement (as
defined hereinafter):
(i) The Advance provided for in Section 1.1(e)(ii) above
shall be paid on the date of termination of the Shareholder's employment;
(ii) The Advance provided for in Section 1.1(e)(iii)
above shall be paid on the first anniversary of the Closing Date; and
(iii) The Advance provided for in Section 1.1(e)(iv) above
shall be paid on the second anniversary of the Closing Date.
(g) Payment of Earn-Out in the Event of Death of the Shareholder.
The death of the Shareholder prior to the last date on which a payment is due
pursuant to Section 1.1(e) above shall not affect the obligation of the Buyer to
make payments of the Earn-Out to the Company hereunder.
(h) Allocation of Purchase Price. The Buyer and the Company agree
that the consideration payable pursuant to this Agreement for the purchase of
the Assets shall be allocated for all purposes (including, without limitation,
financial accounting and tax purposes) as set forth in Schedule 1.1(f) hereto.
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(i) Audit. During the period commencing on the Closing Date and
ending forty (40) months following the Closing Date, the Company and the
Shareholder shall have the right, not more frequently than once every twelve
(12) months, to an audit of the financial records of the Buyer for the purpose
of verifying the amounts due and payable pursuant to the Earn-Out. Prior to the
commencement of such audit, the Company and the Shareholder shall be required to
obtain the reasonable approval of the Buyer as to the choice of auditor and the
estimated cost of such audit. In the event that the Company and the Buyer shall
agree that any such audit has disclosed an underpayment to the Company for any
of the earn-out periods defined in Sections 1.1(c)(ii)(A), (B) or (C) above in
the amount of $10,000 or more, all reasonable costs, including, but not limited
to, accountants' fees, shall be paid by the Buyer. In the event that the Company
and the Buyer shall agree that any such audit has disclosed no underpayment to
the Company or an underpayment for any earn-out period in an amount less than
$10,000, all reasonable costs, including, but not limited to, accountants' fees,
shall be paid by the Company or the Shareholder. The amount of any underpayment
or overpayment disclosed by any such audit shall be paid by the Buyer to the
Company or reimbursed by the Company or the Shareholder to the Buyer, as the
case may be, no later than thirty (30) days following notification to the Buyer
of the results of such audit.
1.2 Assumption of Liabilities.
(a) The Buyer shall acquire the Assets free and clear of all
liens (with the exception of UCC liens relating to the Company's Factoring
Agreement (the "Finova Agreement") with Finova Capital Corporation ("Finova")
and the Company's lease agreement with IBM Credit Corporation listed on Schedule
2.16 hereto), claims, charges, encumbrances, liabilities, obligations and debts,
known and unknown, whether absolute, contingent, accrued or otherwise,
including, but not limited to:
(i) any and all obligations, commitments or liabilities
of the Company or the Shareholder under the promissory note attached as Exhibit
A hereto;
(ii) any and all obligations, commitments or liabilities
of the Company or the Shareholder pursuant to that certain Purchase and Sale
Agreement (the "Stock Purchase Agreement") entered into as of July 1, 1995 by
and among Jack Duchowny and Beatrice Duchowny, as trustees of the Duchowny
Family Trust of 1982 (the "Duchownys"), the Company and the Shareholder,
including, but not limited to, the promise of the Shareholder thereunder to pay
to the Duchownys the sum of $200,000 plus interest;
(iii) any and all obligations, commitments or liabilities
of or claims against the Company or the Shareholder to or for any claims made by
Pretty, Schroeder & Poplawski, for non-payment of professional fees or for costs
and expenses, including attorneys fees, of defending any litigation brought for
such non-payment of legal fees;
(iv) any and all obligations, commitments or liabilities
of or claims against the Company or the Shareholder to or for any claims made by
Grobstein & Company or their
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successors in interest for non-payment of professional fees or for costs and
expenses, including attorneys fees, of defending any litigation brought for such
non-payment of legal fees;
(v) any and all obligations, commitments or liabilities
of or claims against the Company or the Shareholder arising out of or in
connection with, the transfer and sale of the Assets hereunder, including, but
not limited to, the payment of any and all broker's fees;
(vi) any and all liabilities for employment, transfer,
sales or federal, state or local income taxes arising from the business or
operations of the Company prior to the Closing Date or resulting from the sale
and transfer of the Assets hereunder;
(vii) any and all liabilities for any default in the
performance of or breach of any contract, agreement, lease, commitment or
obligation by the Company or the Shareholder prior to the Closing Date;
(viii) any liability or obligation (whether absolute,
contingent or otherwise) of the Company or the Shareholder arising out of any
litigation that is pending or threatened as of the Closing Date, whether or not
listed on Schedule 2.8;
(ix) any liability or obligation arising out of defects
in, or damages to persons or property arising out of defects in, products
manufactured or sold by the Company on or prior to the Closing Date to the
extent such liabilities or obligations exceed any reserves set forth on the
books and records of the Company as of the Closing Date;
(x) any other liabilities or obligations of the Company
existing on the Closing Date which should have been accrued on the books and
records of the Company in accordance with the accounting principles utilized in
preparing such books and records but which were not so accrued;
(xi) any liabilities or obligations (whether absolute,
contingent or otherwise) relating to workers' compensation or severance claims
made by any employee or former employee of the Company (whether filed or
presented before or after the Closing Date) in connection with claims arising on
or before the Closing Date to the extent such liabilities or obligations exceed
the reserve for workers' compensation set forth on the books and records of the
Company as of the Closing Date;
(xii) any liabilities or obligations (whether absolute,
contingent or otherwise) arising out of any violation of any Environmental Law
(as hereinafter defined) by the Company (including fees and penalties for
continuing violations) or arising out of the presence of Hazardous Materials (as
hereinafter defined) at any of the Company's properties or facilities to the
extent existing on or prior to the Closing Date, whether or not listed on any
schedules hereto; and
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(xiii) any other liability or obligation of the Company or
the Shareholder whatsoever not expressly assumed by the Buyer pursuant to
Section 1.3(b) below.
(b) Notwithstanding anything to the contrary contained herein,
the Buyer shall assume the Company's and the Shareholder's obligations: (i)
under the promissory notes attached as Exhibits B and C hereto; (ii) for the
accounts payable of the Company existing on the Closing Date and which are
listed on Schedule 1.2(b) hereto, which Schedule 1.2(b) shall be provided by the
Company to the Buyer at the close of business on the business day immediately
preceding the Closing Date; and (iii) arising after the Closing Date under the
contracts and agreements listed on Schedule 2.16 hereto. The Buyer agrees that,
upon its assumption of the Company's obligations under the promissory notes
attached as Exhibits B and C hereto, Buyer shall make monthly interest payments
on such notes at the rate of interest stated therein, including any accrued and
unpaid interest thereon. The obligations of the Company and the Shareholder
which are being assumed by the Buyer pursuant to this Section 1.2(b) shall be
referred to herein as the "Assumed Liabilities" or as an "Assumed Liability," as
the context may require.
1.3 Delivery of Assets.
(a) On the Closing Date, the Company shall deliver to the Buyer
physical possession of the Assets. With respect to any Assets which cannot be
physically delivered because they are in the possession of third parties or are
otherwise not located at the Company's place of business, the Company shall give
irrevocable instructions to the party in possession thereof that all right,
title and interest in and to the same shall have been vested in the Buyer.
(b) On the Closing Date, and from time to time thereafter, at the
request of the Buyer, the Company shall execute and deliver to the Buyer all
such deeds, bills of sale, leases, endorsements, assignments, consents and other
documents and instruments of conveyance, transfer, assignment or further
assurances as shall be necessary or desirable, in the sole opinion of counsel
for the Buyer, to vest in or to confirm in the Buyer good title in and to the
Assets.
(c) On the Closing Date, and from time to time thereafter, at the
request of the Company, the Buyer shall execute and deliver to the Company such
instruments of assumption as shall be necessary or desirable, in the sole
opinion of counsel for the Company, to reflect the assumption by the Buyer of
the Company's obligations pursuant to Section 1.2(b) hereof.
1.4 Employment and Noncompetition Agreements. On the Closing Date,
the Buyer and the Shareholder shall enter into an Employment Agreement (the
"Employment Agreement") and a Noncompetition Agreement (the "Noncompetition
Agreement"), substantially in the forms attached hereto as Exhibits D and E,
respectively.
1.5 The Closing. The purchase and sale of the Assets contemplated by
this Agreement shall take place at 10:00 a.m. (local time) on February 3, 1998
(the "Closing Date"), at the offices of Manatt, Phelps & Phillips, LLP, 11355 W.
Olympic Boulevard, Los Angeles, California, 90064, or at such other time and
place as may be mutually agreed upon by the parties in writing. On the Closing
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Date, the Company and the Shareholder shall deliver to the Buyer the instruments
of transfer referred to in Section 1.3(b), against receipt of the consideration
specified in Section 1.1 and the Buyer shall deliver to the Company the
instruments of assumption referred to in Section 1.3(c), and the parties shall
deliver all other items contemplated by Sections 6 and 7 hereof to be delivered
on or before the Closing Date. All deliveries shall be considered to have taken
place simultaneously as a single transaction, and no delivery shall be
considered to have been made until all deliveries are completed.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDER
The Company and the Shareholder each represent and warrant, jointly and
severally, to the Buyer as follows:
2.1 Authority to Enter Agreement and Enforceability. The Company and the
Shareholder have, and at the Closing Date will have, all requisite right, power
and authority to execute, deliver and perform the terms and conditions of this
Agreement without obtaining the approval or consent of any other party or
authority, other than those approvals or consents that shall have been obtained
prior to the Closing Date; all corporate proceedings have been taken and all
corporate authorizations have been secured by the Company which are necessary to
authorize the execution, delivery and performance of the terms and conditions of
this Agreement; and this Agreement is a legal, valid and binding obligation of
each of the Company and the Shareholder and is enforceable against them in
accordance with its terms.
2.2 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
California, with all requisite corporate power and authority to own, lease and
operate its property and assets as now owned, leased or operated and to carry on
its business as now conducted, and is duly qualified to do business and is in
good standing in each of the jurisdictions listed on Schedule 2.2 hereof, which
jurisdictions are, to the best knowledge of the Company, all of the
jurisdictions in which the conduct of the Company's business or the ownership,
lease or use of its property and assets makes such qualification necessary and
where the failure to so qualify could materially and adversely affect the
business, property or prospects of the Company.
2.3 Books and Records. The Company has previously made available to the
Buyer the books and records of the Company as of November 4, 1997 (the
"Financials Date"). Such books and records present fairly, in all respects, the
financial condition and results of operations of the Company at the date thereof
and for the periods therein referred to. Except as shown on Schedule
2.3 hereto, on the date hereof, the Company has no material liabilities or
obligations, whether contingent or absolute, direct or indirect, or matured or
unmatured, which are not shown on the books and records of the Company as of the
Financials Date.
2.4 Absence of Certain Changes. Since the Financials Date, there has not
been:
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(a) except as shown on Schedule 2.4(a) hereto, any change in the
condition (financial or other), net worth, earnings, results of operations,
assets, property, liabilities (whether absolute, accrued or contingent or
otherwise), capitalization, business, prospects or results of operations of the
Company which, in the aggregate, materially and adversely affect the business,
property or prospects of the Company;
(b) except as shown on Schedule 2.4(b) hereto, any contract or
commitment entered into by the Company or the Shareholder relating to the Assets
or the business of the Company, other than contracts or commitments made in the
ordinary course of business consistent with prior practice or pursuant to this
Agreement;
(c) any sale, assignment, transfer or other disposition of any
properties or assets used in connection with the business of the Company, other
than inventory or supplies consumed or disposed of in the ordinary course of
business;
(d) any damage, destruction or loss (whether or not covered by
insurance) adversely affecting the Assets or the business or properties of the
Company;
(e) any labor disturbance adversely affecting or threatening the
business or properties of the Company;
(f) any change or anticipated change in the relationship between
the Company and any of its major customers or suppliers which, taken in the
aggregate, could adversely affect the business, property or prospects of the
Company;
(g) any mortgage, pledge or subjection to lien, charge or
encumbrance of any kind, of any of the Assets, except for encumbrances that in
the aggregate do not detract from the value, interfere with the use or restrict
the sale, transfer or disposition of the Assets;
(h) any other event or condition which has or may adversely
affect the business, property or prospects of the Company; or
(i) any agreement or commitment obligating the Company to do any
of the things set forth in the preceding clauses (a), (b), (c), (f) or (g).
2.5 Intellectual Property. Except as disclosed on Schedule 2.5 hereto,
the Company uses and owns no other trade names, trademarks, service marks,
patents, copyrights, logos or registrations or applications therefor
("Intellectual Property") in connection with, and none is required for, the
business of the Company as presently conducted. To the best knowledge of the
Company and the Shareholder, after reasonable inquiry, except as disclosed on
Schedule 2.5 hereto: (i) there are not and have not been any Proceedings (as
defined in Section 2.8 below) involving the Company concerning any of the
Intellectual Property nor is any such Proceeding threatened; (ii) the Company
owns, and has the right and authority to use, all of its Intellectual Property
in connection with the conduct of its business as presently conducted and to
convey such rights and authority to the Buyer;
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(iii) such use does not conflict with, infringe upon or violate any intellectual
property rights or entitlements of any other person, firm or corporation; and
(iv) the Company is not aware of any trademarks, service marks, trade names,
domain names, or any other names or designations used, registered, or owned by
third parties that infringe upon, conflict with, dilute or violate the
Intellectual Property, or the use of the same by third parties which would
constitute unfair competition against the Company, in any country of the world.
2.6 Tax Matters. The Company has properly prepared and timely filed true
and complete returns (including information returns) for, and has paid in full,
all federal, state, municipal, local or foreign taxes, assessments, additions to
taxes, interest, penalties, deficiencies, duties, fees and other government
charges or impositions of each and every kind, whether measured by properties,
assets, wages, payroll, purchases, value added, payments, sales, use, business,
capital stock, surplus or income (collectively, "Taxes") shown due on the
applicable tax returns. There is no outstanding or proposed deficiency, claim or
assessment by any taxing authority or lien for any Taxes with respect to any tax
period of the Company. There is no pending or, to the best knowledge of the
Company and the Shareholder, after reasonable inquiry, threatened action, audit,
proceeding or investigation pertaining to any Taxes with respect to any tax
period of the Company, and the Shareholder and the Company have no knowledge of
any basis upon which a deficiency or claim for Taxes might be asserted. As of
the date hereof, the Company has no liability with respect to any Taxes whether
or not assessed, which is not adequately provided for in tax accrual reserves on
the books and records of the Company as of the Financials Date.
2.7 Insurance. Schedule 2.7 contains a true and complete list of all
insurance policies of the Company in effect as of the date hereof. No insurance
coverage provided by such policies will terminate or lapse by reason of the
transactions contemplated by this Agreement. Each such policy is valid and
binding and in full force and effect, no premiums due thereunder have not been
paid and the Company has not received any notice of cancellation or termination
in respect of any such policy or is in material default thereunder. The Company
has not received notice that any insurer under any such policy is denying
liability with respect to a material claim thereunder or defending against a
material claim under a reservation of rights clause.
2.8 Litigation. Except as set forth on Schedule 2.8 hereto, there are no
suits, actions or legal, administrative, arbitration or other proceedings or
governmental investigations pending or, to the best knowledge of the Company and
the Shareholder, after reasonable inquiry, threatened by, against or affecting
the Company or the Assets or, to the extent the business or operations of the
Company or the Assets may be adversely affected thereby, any of the Company's
officers, directors, employees or agents ("Proceedings").
2.9 Compliance with Law and Other Instruments. Except as described on
Schedule 2.9 hereto, the business and operations of the Company have been and
are being conducted in accordance with all applicable laws, ordinances, rules
and regulations of all authorities, violation of which, individually or in the
aggregate, could materially and adversely affect the business, properties or
prospects of the Company. Except as described on Schedule 2.9 hereto, the
Company is not in violation of, or in default under, any term or provision of
its Articles of Incorporation or of any lien,
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indenture, mortgage, lease, agreement, instrument, commitment or other
arrangement, or subject to any restriction of any kind or character, which
materially and adversely affects the Assets or the business, properties or
prospects of the Company. The consummation of the transactions contemplated by
this Agreement will not conflict with or result in the breach of any term or
provision of, or constitute a default under, the Articles of Incorporation or
Bylaws of the Company, or any statute, order, judgment, writ, injunction,
decree, license, permit, approval, authorization, rule or regulation of any
court or any governmental or regulatory body, or any agreement, lease, contract,
document or obligation of any kind or nature to which the Company is a party or
by which it is bound.
2.10 Brokerage and Finder's Fees. Except as described on Schedule 2.10
hereto, the Company has not incurred any liability to any broker, finder or
agent for any brokerage fees, finder's fees or commissions with respect to the
transaction contemplated by this Agreement.
2.11 Employment and Labor Matters. The Company has delivered to the
Buyer an accurate and complete schedule of all employees (including current base
salary and annual bonus information) who have provided services to the Company
during the last year. Schedule 2.11 hereto lists the parties to all employment,
severance and consulting agreements to which the Company is a party. Except as
specifically set forth in Schedule 2.11, none of the agreements listed thereon
provides for additional or accelerated payments or other consideration to be
made on account of the transactions contemplated by this Agreement. True and
correct copies if in writing, and if oral, accurate written summaries, of each
of the foregoing have been delivered to or made available for review by the
Buyer. There are no oral modifications to any of such agreements. Schedule
2.11(a) hereto contains a true and complete list of: (i) all unpaid wages due
and payable as of the date hereof, whether to payroll employees, part-time or
full-time employees or to independent contractors; (ii) all commissions owed to
sales representatives as of the date hereof; and (iii) all vacation time accrued
and unused by employees of the Company as of the date hereof. Except as
disclosed in Schedule 2.11(a), there are no amounts owed to employees or
independent contractors of the Company for wages, over-time, commissions or
vacation time, and no controversies are pending or, to the best knowledge of the
Company and the Shareholder, are threatened between the Company and any of its
employees or representatives of its employees, except as could not, individually
or in the aggregate, have a material adverse effect on the Company. Except as
disclosed in Schedule 2.11(a), there are no claims, actions or proceedings
pending before the Equal Employment Opportunity Commission or the National Labor
Relations Board nor, to the best knowledge of the Company and the Shareholder,
is there a reasonable basis for any such claim, action or proceeding. The
Company is in compliance with all applicable labor and employment laws, except
where the failure so to comply could not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on the Company.
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2.12 Environmental Matters.
(a) To the best knowledge of the Company and the Shareholder, the
Company and the operations of the Company are in compliance with all
Environmental Laws (as hereinafter defined) except where non-compliance would
not reasonably be expected to have a material adverse effect on the Company or
on the Company's business.
(b) To the best knowledge of the Company and the Shareholder,
except as disclosed on Schedule 2.12 hereto, no Environmental Claim (as
hereinafter defined) has been asserted or threatened to be asserted against the
Company or any predecessor in interest which could reasonably be expected to
have a material adverse effect on the Company or on the Company's business.
(c) To the best knowledge of the Company and the Shareholder,
except as disclosed on Schedule 2.12 hereto, no Hazardous Material (as
hereinafter defined) is present in any of the properties owned or occupied by
the Company, the presence of which could reasonably be expected to have a
material adverse effect on the Company or on the Company's business.
(d) As used herein:
(i) "Environmental Claim" means any complaint, summons,
citation, notice, directive, order, claim, litigation, investigation, judicial
or administrative proceeding, judgment, letter or other communication from any
Governmental or Regulatory Authority, or any third party, involving (A)
violations of Environmental Laws, or (B) any Releases (as hereinafter defined)
or discovery of Hazardous Materials (x) from or on any assets, properties or
businesses of the Company or any predecessor in interest, (y) from or on
adjoining properties or businesses, or (z) from or on any facility which
received Hazardous Materials generated by the Company or any predecessor in
interest;
(ii) "Environmental Laws" include, but are not limited to,
the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA"), 42 U.S.C. 9601 et seq., as amended; the Resource Conservation and
Recovery Act ("RCRA"), 42 U.S.C. 6901 et seq., as amended; the Clean Air Act
("CAA"), 42 U.S.C. 7401 et seq., as amended, the Clean Water Act ("CWA"), 33
U.S.C. 1251 et seq., as amended; the Occupational Safety and Health Act
("OSHA"), 29 U.S.C. 655 et seq., and any other federal, state, local or
municipal laws, statutes, regulations, rules or ordinances imposing liability or
establishing standards of conduct for protection of human health or the
environment;
(iii) "Hazardous Material" means (A) any petroleum or
petroleum products, flammable explosives, radioactive materials, friable
asbestos-containing materials and transformers or other electrical equipment
that contain dielectric fluid containing polychlorinated biphenyls (PCBs); or
(B) any elements, compounds, chemicals or other materials or substances which
are now or hereafter become defined, listed or otherwise classified as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "contaminants," "pollutants," "solid waste,"
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"extremely hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," or words of similar import under any Environmental Law;
(iv) "Release" means any spilling, leaking, pumping,
emitting, emptying, discharging, injecting, escaping, leaching, migrating,
dumping, or disposing of Hazardous Materials (including the abandonment or
discarding of barrels, containers or other closed receptacles containing
Hazardous Materials) into the environment.
2.13 Inventory. On the Closing Date, the inventory and supplies used in
connection with the business or operations of the Company will consist of items
of a quality and quantity normally used by the Company in the ordinary course of
business. The quantities of inventory maintained by the Company are reasonable
in the present circumstances of its business. The values reflected on the books
and records of the Company as of the Financials Date of obsolete or substandard
items of inventory have been written down to realizable market values or written
off, or adequate reserves therefor have been established. To the best knowledge
of the Company and the Shareholder, after reasonable inquiry, there are no
defects (by reason of design, manufacturing, labeling or otherwise) in any
products manufactured or sold by the Company on or prior to the Closing Date.
2.14 Personal Property. Schedule 2.14 hereto contains a complete and
accurate list briefly describing and specifying all machinery, instruments,
equipment and furniture which are used in connection with the business or
operations of the Company as of the date hereof, whether amortized or not, the
cost of which on the accounting records of the Company exceeds $5,000. Such
property and assets are owned or leased by the Company free and clear of all
liens, claims, charges, pledges, security interests and encumbrances of any kind
or nature, except for encumbrances that in the aggregate do not detract from the
value, interfere with the use or restrict the sale, transfer or disposition of
such personal property. All machinery and equipment purchased by the Buyer
hereunder shall be purchased "as is"; provided, however, that no changes,
modifications or alterations to such machinery and equipment shall have been
made from the date hereof to the Closing Date. Except as provided on Schedule
2.14(a) hereto, the leases pursuant to which the Company holds any property or
assets listed in Schedule 2.14 are in full force and effect on the date hereof,
and are enforceable in accordance with their terms; the Company is in compliance
thereunder and no event has occurred which through the giving of notice or the
lapse of time would cause or constitute a default or the acceleration of any
obligation of the Company thereunder or the creation of a lien or encumbrance
upon any of the property listed in Schedule 2.14; and all such leases are valid
and enforceable by the Company. The Company shall provide the Buyer at Closing
with a list of personal property of the Shareholder which shall not be
considered part of the Assets and which the Company shall not sell to the Buyer
and which the Buyer shall not purchase.
2.15 Real Property. Schedule 2.15 lists all real property owned, leased
or otherwise used in connection with the business and operations of the Company.
The leases set forth on Schedule 2.15 constitute valid and enforceable leasehold
interests of the Company free and clear of all liens, charges or encumbrances
and such leases are in full force and effect on the date hereof; all parties
thereto are in compliance thereunder and no event has occurred which through the
giving of notice or lapse of time would constitute a default by the Company
thereunder; and no claim has been
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asserted adverse to the rights of the Company affecting or questioning the
Company's right to the continued possession or use of the leased premises. Each
lease is freely assignable, or, if the consent of the landlord or of a mortgagee
to the assignment thereof is required in connection with the transactions
contemplated by this Agreement, such consents will have been obtained prior to
the Closing Date. To the best knowledge of the Company and the Shareholder,
there are no structural defects or deferred maintenance in any facility used by
the Company in connection with the operation of its business which might
materially and adversely affect the business or operations of the Company.
2.16 Contracts and Agreements. Except as described in Schedule 2.16(a),
and with the exception of any obligations owed to trade vendors in the amount of
$5,000 or less, the Company has performed all material obligations required to
be performed as of the date hereof under the contracts and agreements listed on
Schedule 2.16 hereto (the "Assumed Contracts") and is not in default under any
such contracts. To the best knowledge of the Company and the Shareholder, all
parties to such contracts are in compliance thereunder, and no event has
occurred which through the giving of notice or the lapse of time or both could
cause or constitute a default under any such contract or could cause the
acceleration of any obligation of any party thereto or the creation of a lien or
encumbrance upon any of the Assets, other than a default which shall have been
waived by each party thereto and the Buyer before the Closing Date. All such
contracts are legal, valid and binding obligations of the parties thereto,
enforceable in accordance with their respective terms.
2.17 Licenses. Schedule 2.17 hereto contains a list and brief
description of all licenses, permits, orders, approvals, authorizations and
accreditations issued to the Company in connection with the business or
operations of the Company. To the best knowledge of the Company and the
Shareholder, there are no deficiencies presently in existence in the Company's
operations which would preclude the reissuance of such licenses.
2.18 Suppliers. Schedule 2.18 hereto sets forth a true and complete list
of all suppliers of the Company who supplied goods or services in excess of
$10,000 during the ten months ended on November 4, 1997. The relationship of the
Company with each such supplier is a reasonably good commercial working
relationship. Except as described on Schedule 2.18, no such supplier of the
Company has canceled or otherwise terminated, or to the best knowledge of the
Company and the Shareholder, has threatened to cancel or otherwise terminate,
its relationship with the Company or has decreased materially or, to the best
knowledge of the Company and the Shareholder, threatened to decrease materially,
its services, supplies or material to the Company. Except as described on
Schedule 2.18, the Company has not received any written notice that any such
supplier intends to cancel or otherwise modify its relationship with the Company
or materially to decrease its services, supplies or materials to the Company.
2.19 Accounts Receivable. All accounts receivable of the Company
reflected in the books and records of the Company as of the Financials Date or
acquired by the Company after the date thereof: (i) have arisen in the ordinary
course of business, (ii) represent valid obligations to the Company, (iii) are
current and collectible in amounts not less than the aggregate amount thereof
(net of reserves established in accordance with prior practice) carried on the
books of the Company, and (iv) to the best knowledge of the Company and the
Shareholder, are not subject to any counterclaims
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or set-offs. Except as shown on Schedule 2.19 hereto, all items which are
required to be reflected as accounts receivable on the books and records of the
Company as of the Financials Date consistent with the accounting practices of
the Company for prior periods are so reflected.
2.20 No Misrepresentations. To the best knowledge of the Company and the
Shareholder, no representation, warranty or statement made, or information
provided, by the Company or the Shareholder in this Agreement or in any other
document or instrument furnished or to be furnished by or on behalf of the
Company or the Shareholder pursuant hereto or as contemplated hereby contains or
will contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements or facts contained herein
or therein not misleading.
2.21 Interpretation and Survival of Representations and Warranties.
Notwithstanding any right of the Buyer to fully investigate the affairs of the
Company and notwithstanding any knowledge of facts determined or determinable by
the Buyer pursuant to such investigation or right of investigation, the Buyer
has the right to rely fully upon the representations, warranties, covenants and
agreements contained in this Agreement or in any exhibits and schedules annexed
hereto. Each warranty, representation, and covenant contained herein is
independent of all other warranties, representations and covenants contained
herein (whether or not covering identical or related subject matter) and must be
independently and separately complied with and satisfied. Prior to the Closing
Date, the Buyer shall have informed the Company of any facts or information that
the Buyer shall have discovered that would cause any of the Company's or the
Shareholder's representations and warranties contained in this Agreement to be
incorrect or untrue.
3. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Company as follows:
3.1 Authority to Enter Agreement and Enforceability. The Buyer has, and
at the Closing Date will have, all requisite right, power and authority to
execute, deliver and perform this Agreement without obtaining the approval or
consent of any other party or authority; all corporate proceedings have been
taken and all corporate authorizations have been secured by the Buyer which are
necessary to authorize the execution, delivery and performance of this
Agreement; and this Agreement is a legal, valid and binding agreement of the
Buyer and is enforceable in accordance with its terms.
3.2 Organization and Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite power and authority (corporate and other) to own,
lease and operate its properties and assets as now owned, used or operated and
to carry on its business as now conducted, and is duly qualified to do business
and is in good standing in each jurisdiction in which the conduct of its
business or the ownership, lease or use of its properties and assets makes such
qualification necessary and where the failure to so qualify would materially and
adversely affect the business, properties or prospects of the Buyer taken as a
whole.
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3.3 Compliance with the Law and Other Instruments. The consummation of
the transactions contemplated by this Agreement will not conflict with or result
in the breach of any term or provision of, or constitute a default under, the
Buyer's Certificate of Incorporation or Bylaws, or any statute, order, judgment,
writ, injunction, decree, license, permit, approval, authorization, rule or
regulation of any court or any governmental or regulatory body, or any
agreement, lease, contract, document or obligation of any kind or nature to
which it is a party or by which it is bound.
3.4 Brokerage and Finder's Fees. The Buyer has not incurred any
liability to any broker, finder or agent for any brokerage fees, finder's fees
or commissions with respect to the transactions contemplated by this Agreement.
3.5 Seller's Permit. The Buyer has, and at the Closing Date will have, a
valid seller's permit.
4. COVENANTS OF THE COMPANY AND THE SHAREHOLDER
4.1 Operation of the Business of the Company. During the period from and
after the date of this Agreement and until the Closing Date, the Company and the
Shareholder hereby agree that, unless they obtain the prior written consent of
the Buyer to the contrary, they shall operate the business of the Company as now
operated and only in the ordinary course.
4.2 Access to Information and Records.
(a) Prior to the Closing Date, the Company and the Shareholder will
(i) give the Buyer and its authorized representatives full access to the
facilities and to the books and records of the Company, (ii) permit the Buyer
and all such persons to make such inspections as they may reasonably request and
(iii) cause the officers of the Company to furnish the Buyer and its
representatives with such financial and operating data and other information
with respect to the business of the Company as they may from time to time
reasonably request and (iv) permit the Buyer and its representatives to discuss
the business of the Company with the respective officers, employees, customers,
suppliers and distributors of the Company. The Buyer's and its representatives'
actions under this Section 4.2 shall be conducted with the prior approval of the
Company and in such a manner as not to interfere unreasonably with the
operations or commercial relationships of the Company.
(b) No investigation or inquiry made by the Buyer hereunder shall in
any way affect or lessen the representations and warranties made by the Company
or the Shareholder under this Agreement. Prior to the Closing Date, the Buyer
shall have informed the Company of any facts or information that the Buyer shall
have discovered that would cause any of the Company's or the Shareholder's
representations and warranties contained in this Agreement to be incorrect or
untrue.
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4.3 Licenses and Consents. The Company and the Shareholder shall use
their best efforts and cooperate fully with the Buyer prior and subsequent to
the Closing Date in connection with the Buyer's efforts to obtain all licenses,
permits, and other authorizations necessary for the continued operation of the
business of the Company as now operated and to obtain any and all third party
consents necessary to transfer the Assumed Contracts pursuant to this Agreement.
4.4 Confidential Treatment. Except as contemplated by this Agreement or
necessary to carry out the transactions contemplated hereby, all information or
documents furnished hereunder by the Buyer to the Company or the Shareholder
shall be kept confidential by the party to whom furnished at all times both
before and after the Closing Date whether or not such transactions are
consummated. In the event such transactions are not consummated, the Company and
the Shareholder shall return to the Buyer all documents furnished hereunder.
4.5 Performance of Assumed Contracts. The Company shall perform in all
material respects all obligations required to be performed under the Assumed
Contracts on or before the Closing Date, with the exception of any obligations
owed to trade vendors in the amount of $5,000 or less, and with such exceptions
as are disclosed on Schedule 2.16 hereto. The Company and the Shareholder
covenant and agree to use their best efforts to perform their respective
obligations under such contracts and agreements under which the failure to
perform could reasonably be expected to have a material adverse effect on the
business, property or prospects of the Company. On or before the Closing Date,
the Company shall furnish the Buyer with the original or true and correct copies
of each of the Assumed Contracts.
4.6 No Solicitation. Between the date hereof and the earlier to occur of
the Closing Date or the termination of this Agreement, neither the Shareholder
nor the Company, nor any of their respective affiliates, directors, officers,
employees, representatives or agents shall solicit, encourage (including by way
of furnishing any non-public information concerning all or a portion of the
Company) or, subject to their fiduciary obligations, consider any other
Acquisition Proposal. As used in this Section 4.6, the phrase "Acquisition
Proposal" shall mean a proposal for the acquisition of all or a portion of the
assets or capital stock of the Company.
4.7 Payment of Obligations. On or prior to the Closing Date, the Company
and the Shareholder shall have satisfied all of their respective obligations
under the promissory note attached as Exhibit A hereto and shall have provided
evidence thereof in a form satisfactory to the Buyer in its sole judgment, or in
the sole judgment of its counsel. On or prior to the Closing Date, the Company
and the Shareholder shall have paid all fees or commissions owed to brokers,
finders or agents in connection with the transaction contemplated by this
Agreement.
4.8 Factor Advances. Without the prior written consent of the Buyer,
during the period from and after the date of this Agreement and until the
Closing Date, the Company shall not draw any over-advances pursuant to the
Finova Agreement. For purposes of this Section 4.8, an "over-advance" shall be
defined to mean an advance outside of the formula set forth in the Finova
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Agreement pursuant to which Finova may make advances to the Company secured by
accounts receivable.
5. COVENANTS OF THE BUYER
5.1 Confidential Treatment. Except as contemplated by this Agreement or
necessary to carry out the transactions contemplated hereby, all information or
documents furnished hereunder by the Company or the Shareholder to the Buyer
shall be kept confidential by the Buyer at all times before the Closing Date,
and afterwards if the transactions contemplated hereby are not consummated. In
the event such transactions are not consummated, the Buyer shall return to the
Company and the Shareholder all documents furnished hereunder.
5.2 Licenses and Consents. The Buyer shall use its best efforts to
obtain all licenses, permits, accreditations, certifications and other
authorizations necessary for the continued operation of the business of the
Company as now operated and the consummation of the transactions contemplated by
this Agreement.
6. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE BUYER
The obligation of the Buyer to consummate the transactions contemplated
by this Agreement is expressly subject to the satisfaction, on or prior to the
Closing Date, of all of the following conditions (compliance with which or the
occurrence of which may be waived in whole or in part by the Buyer in writing):
6.1 Representations and Warranties. All representations and warranties
of the Company and the Shareholder contained in this Agreement shall be true and
correct in all material respects as of the Closing Date as if made at and as of
such date.
6.2 Covenants. The Company and the Shareholder shall have performed and
satisfied in all material respects all covenants and conditions required by this
Agreement to be performed or satisfied by them on or prior to the Closing Date.
6.3 Certificates. On the Closing Date, the Company and the Shareholder
each shall furnish the Buyer with a certificate dated as of the Closing Date,
signed by a duly authorized officer in the case of the Company, to the effect
that all of the representations and warranties of the Company and the
Shareholder, respectively, contained in this Agreement remain true and correct
as of the Closing Date as if made at and as of that date and to the effect that
they have performed and satisfied in all material respects all covenants and
conditions required by this Agreement to be performed or satisfied by them on or
prior to the Closing Date.
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6.4 Absence of Litigation. No action or proceeding shall have been
instituted or threatened and, in the reasonable opinion of counsel to the Buyer,
no action or proceeding is likely to be instituted before any court or
governmental body or authority the result of which could prevent or make illegal
the consummation of the transactions contemplated by this Agreement or which
could materially and adversely affect the Assets or the business, properties or
prospects of the Company.
6.5 G22 Settlement. The Company shall have entered into a settlement
agreement with G22-Altesse Co., Ltd. ("G22"), in form and substance reasonably
satisfactory to the Buyer and its counsel or the parties hereto shall have
entered into an agreement, in form and substance reasonably satisfactory to the
Buyer and its counsel, pursuant to which the Company and the Shareholder shall
indemnify the Buyer against certain liabilities arising out of the Company's
current contract dispute with G22.
6.6 Consents and Releases from Former Shareholders. On the Closing Date,
the Company and the Shareholder shall provide the Buyer with written evidence,
in form and substance reasonably satisfactory to the Buyer and its counsel,
that: (i) the holder of the promissory note attached as Exhibit A hereto has
released the Company and the Shareholder from all further obligation or
liability pursuant thereto; (ii) the Duchownys have released the Company and the
Shareholder from all further obligations, commitments or liabilities pursuant to
the Stock Purchase Agreement, including, but not limited to, the promise of the
Shareholder thereunder to pay the Duchownys' the sum of $200,000 plus interest,
and have released all security interests held by them in the common stock of the
Company pursuant to that certain Stock Pledge Agreement entered into as of July
1, 1995 among the Duchownys, the Shareholder and the Company; and (iii) the
obligations assumed by the Buyer pursuant to the promissory notes attached as
Exhibits B and C hereto mature thirteen (13) months following the Closing Date.
6.7 Approval of Documentation. The form and substance of all opinions,
certificates, instruments of transfer and other documents to be furnished by the
Company, the Shareholder or their counsel hereunder shall be satisfactory in all
reasonable respects to the Buyer and its counsel.
6.8 Instruments of Transfer. The Company shall have delivered to the
Buyer all such deeds, bills of sale and other documents and instruments of
conveyance, transfer, assignment and further assurances as shall have been
requested by the Buyer pursuant to Section 1.3(b) hereof.
6.9 Employment and Noncompetition Agreements. The Shareholder shall have
executed and delivered to the Buyer the Employment Agreement and the
Noncompetition Agreement substantially in the forms attached hereto as Exhibits
D and E, respectively.
6.10 Absence of Material Adverse Changes. There shall not have occurred
between the date hereof and the Closing Date any material adverse change in the
operations, condition (financial or otherwise), prospects or affairs of the
business of the Company or any portion thereof.
6.11 Bulk Sales. If in the sole judgment of the Buyer and its counsel,
compliance with Sections 6101-6107 of the California Uniform Commercial Code
(the "UCC") would require the Buyer to
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satisfy the claim of any creditor of the Company or the Shareholder which is not
an Assumed Liability pursuant to Section 1.2(b) hereof, or if the effect of
Sections 6101-6107 of the UCC would be to make the Buyer liable for the claim of
any creditor of the Company or the Shareholder which is not an Assumed
Liability, the obligation of the Buyer to consummate the transactions
contemplated by this Agreement shall terminate at the discretion of the Buyer.
6.12 Licenses. The Buyer shall have obtained reasonable assurances of
the issuance or continuation of all licenses, permits and other authorizations
necessary for the continued operation of the business of the Company as now
conducted.
6.13 Certified Resolutions and Charter Documents. The Company shall have
furnished the Buyer with copies of (i) all requisite corporate proceedings
authorizing the execution and delivery of this Agreement, certified by a duly
authorized officer of the Company and (ii) its Articles of Incorporation,
certified as of a recent date by the Secretary of State of the State of
California.
6.14 Incumbency Certificates. The Company shall have furnished the Buyer
with a specimen of the signature of each of its officers who has executed this
Agreement or any document delivered in connection with the transactions
contemplated hereby, certified by a duly authorized officer.
6.15 Agreement between Factors. On or before the Closing Date, the
Company, the Buyer, Finova and Heller Financial, Inc. ("Heller") shall have
entered into the Indemnity, Release and Remittance Agreement substantially in
the form attached hereto as Exhibit F.
7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDER
The obligation of the Company and the Shareholder to consummate the
transactions contemplated by this Agreement is expressly subject to the
satisfaction, on or prior to the Closing Date, of all of the following
conditions (compliance with which or the occurrence of which may be waived in
whole or in part by the Company in writing):
7.1 Representations and Warranties. All representations and warranties
of the Buyer contained in this Agreement shall be true and correct in all
material respects as of the Closing Date as if made at and as of such date.
7.2 Covenants. The Buyer shall have performed and satisfied in all
material respects all covenants and conditions required by this Agreement to be
performed or satisfied by it on or prior to the Closing Date.
7.3 Certificates. On the Closing Date, the Buyer shall furnish the
Company with a certificate dated the Closing Date signed by a duly authorized
officer to the effect that all of its representations and warranties contained
in this Agreement remain true and correct as of the Closing Date as if made at
and as of that date and to the effect that it has performed and satisfied in all
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material respects all covenants and conditions required by this Agreement to be
performed or satisfied by it on or prior to the Closing Date.
7.4 Absence of Litigation. No action or proceeding shall have been
instituted or threatened and, in the reasonable opinion of counsel to the
Company, no action or proceeding is likely to be instituted before any court or
governmental body or authority the result of which could prevent or make illegal
the consummation of the transactions contemplated by this Agreement.
7.5 Approval of Documentation. The form and substance of all
certificates, instruments of transfer and other documents to be furnished by the
Buyer hereunder shall be satisfactory in all reasonable respects to the Company
and its counsel.
7.6 Instruments of Assumption. The Buyer shall have executed and
delivered to the Company all such instruments of assumption as shall have been
requested by the Company pursuant to Section 1.3(c) hereof.
7.7 Employment and Noncompetition Agreements. The Buyer shall have
executed and delivered to the Shareholder the Employment Agreement and the
Noncompetition Agreement substantially in the forms attached hereto as Exhibits
D and E, respectively.
7.8 Certified Resolutions and Charter Documents. The Buyer shall have
furnished the Company with copies of (i) all requisite corporate proceedings
authorizing the execution and delivery of this Agreement, certified by a duly
authorized officer of the Buyer, (ii) its Certificate of Incorporation,
certified as of a recent date by the Secretary of State of the State of Delaware
and (iii) its Bylaws, certified by a duly authorized officer.
7.9 Incumbency Certificates. The Buyer shall have furnished the Company
with a specimen of the signature of each of its officers who has executed this
Agreement or any document delivered in connection with the transactions
contemplated hereby, certified by a duly authorized officer.
7.10 Agreement between Factors. On or before the Closing Date, the
Company, the Buyer, Finova and Heller shall have entered into the Indemnity,
Release and Remittance Agreement substantially in the form attached hereto as
Exhibit F.
8. TERMINATION.
8.1 Termination of Agreement. Notwithstanding anything to the contrary
contained herein, this Agreement may be terminated at any time before the
Closing Date, as follows:
(a) By mutual consent of the parties hereto.
(b) By any of the parties hereto if the transactions contemplated
hereby have not been consummated by February 15, 1998.
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8.2 Effect of Termination. Except for Sections 4.4, 5.1, 10.16 and 10.19
of this agreement, in the event that this Agreement shall be terminated pursuant
to Section 8.1 hereof, all further obligations of the parties hereto under this
Agreement shall terminate without further liability of any party to another.
9. INDEMNIFICATION
9.1 Indemnification. The Company and the Shareholder jointly and
severally shall indemnify the Buyer and hold it harmless against and in respect
of any and all payments, damages, demands, claims, losses, expenses, costs,
obligations and liabilities, contingent or otherwise, matured or unmatured, of
any nature whatsoever (including, but not limited to, reasonable attorneys' fees
and costs) which arise or result from or are related to in whole or in part any
liability or obligation relating to the Company not assumed by the Buyer
pursuant to Section 1.2(b) hereof (irrespective of whether such liability arises
out of a breach of any representation or warranty contained herein). Each party
hereto shall indemnify each other party hereto and hold it harmless against and
in respect of any and all payments, damages, demands, claims, losses, expenses,
costs, obligations and liabilities, contingent or otherwise, matured or
unmatured, of any nature whatsoever (including, but not limited to, reasonable
attorneys' fees and costs) which arise or result from or are related in whole or
in part to any breach by such indemnifying party or failure by such indemnifying
party to perform any of its representations, warranties, commitments,
obligations, covenants or conditions hereunder. Each party hereto shall
reimburse each other party hereto on demand for any payment made or loss
suffered by it any time after the date hereof, based upon the judgement of any
court of competent jurisdiction or pursuant to a bona fide compromise or
settlement (which shall be approved by the indemnifying party, which approval
shall not be unreasonably withheld) of claims, demands or actions in respect of
any damages to which the foregoing indemnity relates. Consummation of the
transactions contemplated by this Agreement shall not be deemed or construed to
be a waiver of any right or remedy of the indemnified party nor shall this
section or any other provision of this Agreement be deemed or construed to be a
waiver of any ground of defense by the indemnified party.
9.2 Third Party and Certain Environmental Claims.
(a) The party indemnified hereunder (the "Indemnitee") shall
promptly notify the indemnifying party (the "Indemnitor") of the existence of
any claim, demand or other matter involving liabilities to third parties to
which the Indemnitor's indemnification obligations would apply and shall give
the Indemnitor a reasonable opportunity to defend the same at its own expense
and with counsel of its own selection (who shall be approved by the Indemnitee,
which approval shall not be unreasonably withheld); provided, however, that the
Indemnitee at all times also shall have the right to fully participate in the
defense at its own expense. If the Indemnitor within a reasonable time after
such notice fails to defend such claim, or fails to pursue such defense
vigorously once commenced, the Indemnitee shall have the right, but not the
obligation, to undertake the defense of, and to compromise or settle (exercising
reasonable business judgment), the claim or other matter on behalf, for the
account and at the risk and expense of the Indemnitor. Except as provided in the
preceding sentence, the Indemnitee shall not compromise or settle the claims or
other matter without the prior written consent of the Indemnitor in each
instance. If the claim is one that cannot by its nature be
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defended solely by the Indemnitor, the Indemnitee shall make available all
information and assistance that the Indemnitor reasonably may request; provided,
however, that any associated expenses shall be paid by the Indemnitor.
Notwithstanding the foregoing, there is no third party beneficiary of this
Agreement.
(b) Notwithstanding any other provision of this Section 9, in the
event that the Shareholder fails to take appropriate action to remediate any
violation of, or noncompliance with, any Environmental Law existing as of the
Closing Date (including, without limitation, environmental conditions listed on
Schedule 2.12, as determined by any governmental authority in a final,
non-appealable order, within such time period as may be required by such
governmental authority, and such time period has elapsed, the Buyer may make
appropriate arrangements, at the Company's or the Shareholder's expense, to
remediate any such violation of, or noncompliance with, Environmental Laws in
accordance with the order of the governmental agency. The Company or the
Shareholder shall reimburse the Buyer, within ninety (90) days of submission by
the Buyer of an invoice, for any and all such expenses incurred by the Buyer in
connection with actions taken pursuant to this Section 9.2(b).
9.3 Limitations on Liability.
(a) Notwithstanding anything to the contrary contained herein, in
no event shall the aggregate obligation of the Company and the Shareholder under
Sections 9.1 and 9.2 above exceed the aggregate amount of $396,000.
(b) Neither the Company and the Shareholder nor the Buyer shall
be required to indemnify the other hereunder unless the aggregate of all amounts
due by the indemnifying party under this Agreement exceeds $20,000.
10. MISCELLANEOUS
10.1 Survival of Representations, Warranties and Covenants. All
representations, warranties, covenants and agreements made by the Buyer, the
Company or the Shareholder in this Agreement (including statements contained in
any Schedule or certificate or other instrument delivered by or on behalf of any
party hereto or in connection with the transactions contemplated hereby) shall
survive for a period of one (1) year following the Closing Date.
10.2 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (i) if
personally delivered, when so delivered, (ii) if mailed, three (3) days after
having been placed in the United States mail, registered or certified, postage
prepaid, addressed to the party to whom it is directed at the address set forth
below or (iii) if given by telex or telecopier, when such notice or other
communication is transmitted to the telex or telecopier number specified below
and the appropriate answer back or telephonic confirmation is received:
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If to the Buyer:
The Sirena Apparel Group, Inc.
10333 Vacco Street
South El Monte, California 91733
Attention: Douglas Arbetman, President
Telecopier Number: (818) 442-2280
With a copy to:
Manatt, Phelps & Phillips, LLP
11355 West Olympic Blvd.
Los Angeles, California 90064
Attention: Paul H. Irving, Esq.
Telecopier Number: (310) 312-4224
If to the Company or the Shareholder:
Renee of Hollywood
3631 Union Pacific Avenue
Los Angeles, California 90023
Attention: Susan Colman, President
Telecopier Number: (213) 264-6705
With a copy to:
Baker & Hostetler, LLP
600 Wilshire Boulevard
Los Angeles, California 90017-3212
Attention: Jonathan R. Hodes, Esq.
Telecopier Number: (213) 975-1740
Any party may change the address to which such notices are to be addressed by
giving the other parties notice in the manner herein set forth.
10.3 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supersedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be valid
unless executed by the party to be bound thereby. No waiver of any of the
provisions of this
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Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar), nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
10.4 Headings. Section and subsection headings are not to be considered
part of this Agreement and are included solely for convenience and reference and
in no way define, limit or describe the scope of this Agreement or the intent of
any provisions hereof.
10.5 Successors and Assigns. All of the terms, provisions and
obligations of this Agreement shall inure to the benefit of and shall be binding
upon the parties hereto and their respective heirs, representatives, executors,
administrators and permitted successors and assigns.
10.6 Governing Law. The validity, construction and interpretation of
this Agreement shall be governed in all respects by the laws of the State of
California applicable to contracts made and to be performed wholly within that
State.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each one of which shall be deemed to be an original, but all of
which shall constitute one and the same instrument.
10.8 Assignments; Third Parties. The rights and obligations under this
Agreement shall not be assignable by any party hereto; provided, however, that
should the Buyer sell, transfer, convey, pledge or encumber all or any portion
of the Assets, the Buyer may assign rights under this Agreement (including all
or part of its rights to indemnification pursuant to Section 9 hereof)
appurtenant to such Assets without the prior consent of the Shareholder. This
agreement shall be binding upon, and inure to the benefit of, the parties and
their respective successors and assigns. This Agreement shall not benefit or
create any right or cause of action in or on behalf of any person other than the
parties hereto.
10.9 Consent to Jurisdiction. Each party hereto, to the fullest extent
it may effectively do so under applicable law, irrevocably (i) submits to the
exclusive jurisdiction of any court of the State of California or the United
States of America sitting in the State of California over any suit, action or
proceeding arising out of or relating to this Agreement, (ii) waives and agrees
not to assert, by way of motion, as a defense or otherwise, any claim that it is
not subject to the jurisdiction of any such court, any objection that it may now
or hereafter have to the establishment of the venue of any such suit, action or
proceeding brought in any such court and any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum
and (iii) consents to process being served in any such suit, action or
proceeding by mailing a copy thereof by registered or certified air mail,
postage prepaid, return receipt requested, to the address of such party
specified in or designated pursuant to Section 10.2. Each party agrees that such
service (i) shall be deemed in every respect effective service of process upon
such party in any such suit, action or proceeding and (ii) shall, to the fullest
extent permitted by law, be taken and held to be valid personal service upon and
personal delivery to such party.
24
<PAGE> 25
10.10 Injunctive Relief. Each party hereto shall be entitled to
temporary and injunctive relief, including temporary restraining orders,
preliminary injunctions and permanent injunctions, to enforce the provisions
without the necessity of proving actual damages and without the necessity of
posting any bond or other undertaking in connection therewith. This provision
with respect to injunctive relief shall not, however, diminish any party's right
to any other remedies at law or in equity.
10.11 Arbitration. Any dispute (except a claim seeking injunctive
relief) arising under, out of or in relation to this Agreement or any breach or
asserted breach hereof shall be determined and settled by arbitration in Los
Angeles, California pursuant to the rules then obtaining of the American
Arbitration Association pertaining to a single party arbitrator. Pursuant to the
provisions of Section 1283 of the California Code of Civil Procedure, the
parties hereby incorporate into this Agreement the terms and provisions of
Section 1283 and Section 1283.05 of the California Code of Civil Procedure as of
the date hereof. The prevailing party in such arbitration shall be entitled to
reasonable attorneys' fees and costs in such arbitration as part of the award.
Any award rendered shall be final and conclusive upon the parties and judgment
thereon may be entered in the highest court of the forum, state or federal,
having jurisdiction.
10.12 Attorneys' Fees. In the event any party takes legal action to
enforce any of the terms of this Agreement, the unsuccessful party to such
action shall pay the successful party's expenses, including attorneys' fees and
costs, incurred in such action.
10.13 Right to Cure Defaults. No party hereto shall be deemed to be in
default of any of its obligations hereunder unless and until the party asserting
a default shall have given the defaulting party specific written notice by
certified or registered mail, return receipt requested, of the nature of such
default and such defaulting party shall have failed to cure such default within
thirty (30) days after its receipt of such written notice. Such thirty (30) day
cure period may be extended in the sole discretion of the Buyer.
10.14 Remedies Cumulative. Except as otherwise expressly provided
herein, all rights and remedies shall be cumulative, and no right or remedy
shall be in limitation of any other right or remedy.
10.15 Severable Provisions. The provisions of this Agreement are
severable, and if any one or more provisions may be determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions, and any
partially unenforceable provisions to the extent enforceable, shall nevertheless
be binding and enforceable.
10.16 Further Assurances. Each party hereto shall, from time to time at
and after the Closing Date, execute and deliver such instruments, documents and
assurances and take such further actions as the other party may reasonably
request to carry out the purpose and intent of this Agreement.
10.17 Expenses. Each party shall bear the expenses incurred by it in
connection with the negotiation, execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
25
<PAGE> 26
10.18 Diligence in Pursuit of Conditions Precedent. The parties shall
each exercise all reasonable diligence to fulfill their respective obligations
hereunder and shall cooperate fully with the other parties in regard to same to
accomplish the Closing. The Shareholder shall use all reasonable efforts to
obtain all necessary third-party consents to the assignment to, and assumption
by the Buyer of, the Assumed Contracts. In the event that the Shareholder is
unable to obtain any such consent, the Shareholder shall attempt on or prior to
Closing to make alternative arrangements acceptable to the Buyer to afford the
Buyer the benefit of any such Assumed Contract or the equivalent thereof;
provided, however, that the Buyer shall not be obligated to assume the Company's
obligations under any Assumed Contract unless and until the consent to its
assignment has been obtained.
10.19 Press Releases. Except as may be required by law, prior to the
Closing, the parties hereto shall consult with each other before issuing any
press releases or otherwise making any public statements with respect to this
Agreement and the transactions contemplated hereby, and neither party shall
issue any such press release nor make any such public statement without the
prior written consent of the other party.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the date first set forth above.
THE SIRENA APPAREL GROUP, INC.
By: /s/ MAURICE B. NEWMAN
---------------------------------
Maurice B. Newman, Chairman
RENEE OF HOLLYWOOD, INC.
By: /s/ SUSAN COLMAN
---------------------------------
Susan Colman, President
/s/ SUSAN COLMAN
------------------------------------
SUSAN COLMAN
26
<PAGE> 1
EXHIBIT 10.2
January __, 1998
The Sirena Apparel Group, Inc.
10333 Vacco Street
South El Monte, CA 91733
RE: Term Loan Agreement
Gentlemen:
We refer to that certain Factoring, Credit and Security Agreement dated August
19, 1994 between The Sirena Apparel Group, Inc. ("Client") and Heller Financial,
Inc. ("Heller"), as amended from time to time (the "Credit Agreement").
Capitalized terms used herein and not otherwise defined shall have the meanings
ascribed to such terms in the Credit Agreement.
Client desires that Heller make a term loan to Client in the amount of $500,000.
This letter shall confirm the agreement between Heller and Client that, in
addition to loans and advances made by Heller to Client pursuant to the Credit
Agreement, Heller shall make a term loan to Client in the amount of $500,000
(the "Term Loan"). The proceeds of the Term Loan shall be applied in payment of
$500,000 of outstanding Special Advances under the Credit Agreement.
Client shall repay the Term Loan in thirty (30) successive monthly installments
of principal (each such installment shall be a "Scheduled Installment") due on
the last day of February, 1998 and on the last day of each month thereafter
until paid, the first twenty-nine Scheduled Installments in the amount of
$16,666 each and the final Scheduled Installment in the amount necessary to pay
the remaining balance of the Term Loan in full.
Client shall execute and deliver to Heller a Term Note in the principal amount
of $500,000 to evidence the Term Loan under this Agreement.
In order to induce Heller to make the Term Loan, Client represents and warrants
to Heller that the following statements are and will be true, correct, and
complete:
(a) There are no judgments outstanding or affecting any of Client's
property nor is there any action, charge, claim, demand, suit,
proceeding, petition, governmental investigation or arbitration now
pending or, to the best of Client's knowledge after due inquiry,
threatened against or affecting Client or any of its property which
could reasonably be expected to result in any material adverse effect.
Client has not received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed to any liability or
disadvantage which could reasonably be expected to result in any
material adverse effect.
(b) All of Client's material tax returns and reports required to be
filed have been timely filed, and all taxes, assessments, fees and other
governmental charges upon Client and upon its properties, assets, income
and franchises which are shown on such returns as due and payable have
been paid when due and payable. None of Client's United States income
tax returns are under audit and no tax liens have been filed and no
claims are being asserted with respect to any such taxes. The charges,
accruals and reserves on Client's books in respect of any taxes or other
governmental charges are in accordance with GAAP.
(c) Client is not in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained
in any contractual obligation between Client and any person or entity,
and no condition exists that, with the giving of notice or the lapse of
time or both, would constitute such a default.
(d) Client has been and is currently in compliance with all applicable
environmental laws, including obtaining and maintaining in effect all
permits, licenses or other authorizations required by applicable
environmental laws. There are no claims,
<PAGE> 2
liabilities, investigations, litigation, administrative proceedings,
whether pending or threatened, or judgments or orders relating to any
hazardous materials asserted or threatened against Client or relating to
any real property currently or formerly owned, leased or operated by
Client.
This Term Loan Agreement (this "Agreement") will remain in force and effect
until the earlier of (a) June 30, 2000 or (b) termination of the Credit
Agreement (the date which is the earlier to occur of (a) and (b) shall
hereinafter be referred to as the "Termination Date"). On the Termination Date,
all amounts outstanding under this Agreement shall be due and payable in full.
The Term Loan shall be secured by a lien on all collateral security now or
hereafter granted by Client to Heller under the Credit Agreement, that certain
Equipment Security Agreement of even date herewith (the "Equipment Agreement ")
or any other agreement between Client and Heller ( the " Collateral ").
Client agrees to pay interest on the Term Loan calculated daily at a rate per
annum equal to one and one half percent (1.5%) plus the prime or base rate of
interest publicly announced from time to time by Bank of America National Trust
and Savings Association (the "Base Rate"). Interest will be payable by Client to
Heller or charged by Heller to Client's account at the end of each month. Any
publicly announced decrease or increase in the Base Rate will result in an
adjustment to the interest rate on the next business day.
Failure to repay the Term Loan pursuant to the terms of this Agreement shall
constitute an event of default under the Credit Agreement and the Equipment
Agreement. An event of default under the Credit Agreement or the Credit
Agreement shall constitute a default under this Agreement. Upon the occurrence
of a default or an event of default, Heller shall have all the rights ascribed
to it under this Agreement, the Equipment Agreement and the Credit Agreement,
including, but not limited to, the right to terminate this Agreement, the Credit
Agreement and any other agreements between Client and Heller and to demand
payment in full of all of Client's liabilities, indebtedness and obligations
owing to Heller.
If at any time or times on or after a default hereunder Heller employs counsel
(a) to advise or represent Heller with respect to any of the Collateral, this
Agreement, or any other agreement between Heller and Client, (b) to represent
Heller in any litigation, contest, dispute, suit or proceeding, including any
proceeding under federal bankruptcy laws or any other insolvency or receivership
laws, or to commence, defend or intervene or to take any other action in or with
respect to any litigation, contest, dispute, suit or proceeding (whether
instituted by Heller, Client or any other person) in any way or respect relating
to the Collateral, this Agreement, or any other agreement between Heller and
Client, (c) to enforce any rights of Heller against Client or any other person
which may be obligated to Heller by virtue of this Agreement or any other
agreement between Heller and Client, (d) to protect, collect, sell, liquidate or
otherwise dispose of the Collateral and/or (e) to attempt to or to enforce
Heller's security interest in the Collateral, then Client shall pay to Heller on
demand the reasonable attorneys' fees and other professional fees arising from
such services and all expenses, costs, charges and other fees of such counsel or
of Heller in any way or respect arising in connection with or relating to any of
the events described in this paragraph.
APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
CONSENT TO JURISDICTION. CLIENT HEREBY CONSENTS TO THE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF LOS ANGELES STATE OF CALIFORNIA
AND IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S ELECTION, ALL ACTIONS OR
PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT SHALL BE LITIGATED IN
SUCH COURTS. CLIENT EXPRESSLY SUBMITS AND CONSENTS TO THE JURISDICTION OF THE
AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON CONVENIENS. CLIENT HEREBY
WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS AND AGREES THAT ALL SUCH SERVICE
OF PROCESS MAY BE MADE UPON CLIENT BY CERTIFIED OR REGISTERED MAIL, RETURN
RECEIPT REQUESTED, ADDRESSED TO CLIENT, AT THE ADDRESS SET FORTH IN THIS
AGREEMENT AND SERVICE SO MADE SHALL BE COMPLETE TEN (10) DAYS AFTER THE SAME HAS
BEEN POSTED.
<PAGE> 3
WAIVER OF JURY TRIAL. CLIENT AND HELLER HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT. CLIENT AND HELLER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL
INDUCEMENT TO ENTER INTO A BUSINESS RELATIONSHIP, THAT EACH HAS RELIED ON THE
WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL CONTINUE TO RELY ON
THE WAIVER IN THEIR RELATED FUTURE DEALINGS. CLIENT AND HELLER WARRANT AND
REPRESENT THAT EACH HAS HAD THE OPPORTUNITY OF REVIEWING THIS JURY WAIVER WITH
LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL
RIGHTS.
Sincerely, Accepted and Agreed:
HELLER FINANCIAL, INC. THE SIRENA APPAREL GROUP, INC.
By: _________________________ By: __________________________
Title: _______________________ Title: _______________________
<PAGE> 4
TERM NOTE
$500,000 January _____, 1998
FOR VALUE RECEIVED, the undersigned, THE SIRENA APPAREL GROUP, INC., a Delaware
corporation ("Company"), hereby unconditionally promises to pay to the order of
HELLER FINANCIAL, INC., a Delaware corporation ("Heller"), at Heller's office
located at 505 North Brand Boulevard, Glendale, California 91203, or at such
other place as the holder of this Note may from time to time designate in
writing, in lawful money of the United States of America and in immediately
available funds, the principal sum of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($500,000.00), payable in accordance with the terms of that certain Term Loan
Agreement of even date herewith between Company and Heller (the "Term Loan
Agreement").
Capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Term Loan Agreement.
This Note is the Term Note referred to in the Term Loan Agreement and is issued
to evidence the Term Loan made to Company under the Term Loan Agreement. This
Note is entitled to the benefits of the Term Loan Agreement to which reference
is hereby made for a more complete statement of the terms, conditions and
covenants under which this Note is made and is to be repaid, including, but not
limited to, those related to acceleration of the indebtedness represented hereby
upon the occurrence of a default or event of default or upon the termination of
the Term Loan Agreement.
Company promises to pay interest on the outstanding unpaid principal amount
hereof from the date hereof until payment in full hereof at a rate per annum
equal to the Base Rate plus one and one half percent (1.5%). Interest shall be
computed on the daily principal balance on the basis of a 360-day year for the
actual number of days elapsed in the period during which it accrues and shall be
payable by Company or charged to Company's account at the end of each month. Any
publicly announced decrease or increase in the Base Rate shall result in an
adjustment to the interest rate on the next business day.
In no event shall the total interest received by Heller on the principal amount
of Company's obligations under this Note pursuant to the terms hereof exceed the
maximum rate permitted by applicable law (the "Maximum Rate") and in the event
excess interest ("Excess Interest") is determined by a court of competent
jurisdiction to have been paid, (a) at Heller's option, such Excess Interest
shall be applied as a credit against the outstanding principal balance of such
obligations or accrued but unpaid interest (not to exceed the maximum amount
permitted by law), refunded to Company or any combination thereof, (b) the
interest rate shall be automatically reduced to the Maximum Rate, and Company
shall not have any action against Heller for any damages arising out of the
payment or collection of Excess Interest.
Notwithstanding the foregoing, if for any period of time interest on any of
Company's obligations under this Note is calculated at the Maximum Rate rather
than the applicable rate under this Note, and thereafter such applicable rate
becomes less than the Maximum Rate, the rate of interest payable on such
obligations shall remain at the Maximum Rate until Heller shall have received
the amount of interest which Heller would have received during such period on
such obligations had the rate of interest not been limited to the Maximum Rate
during such period.
To secure the payment of the principal and interest of this Note and all
renewals and extensions of the same or any part thereof and any and all other
obligations now or hereafter owing or to become owing from Company to Heller,
howsoever created, arising, evidenced or acquired by Heller, whether direct or
contingent, Company has granted and given to Heller a general and continuing
lien and security interest in certain of Company's assets as listed and
described in the various agreements by and between Company and Heller, all as
amended from time to time, including, without limitation, that certain Loan and
Security Agreement dated June 21, 1993 (collectively called the "Agreements") to
which reference is made for a statement of the nature and extent of the security
and protection afforded, the rights of Heller and the rights and obligations of
Company, together with all other and sundry grants and pledges of security
heretofore and hereafter given (collectively called the "Collateral"), with full
power and authority to Heller to transfer, assign, pledge or replace the same in
whole or in part. In case of exchange of, or substitution for, or addition to
the Collateral, the provisions hereof shall extend to such exchanged,
substituted, or additional Collateral. Upon
<PAGE> 5
payment of this Note, Heller may nevertheless retain the Collateral hereby
pledged to secure the payment of other obligations of Company to Heller, if any,
for which the same is pledged. Heller is expressly released from all obligation
or liability: (a) to protect, collect, demand payment of, protest or enforce the
Collateral; (b) to take any action whatsoever in regard to the Collateral or any
part thereof; or (c) for any loss of or depreciation in the value of the
Collateral.
Company hereby waives demand, presentment, protest, notice of demand, dishonor,
presentment, protest, nonpayment and all other notices in connection with this
Note. Subject to the Term Loan Agreement, Company also waives all rights to
notice and hearing of any kind upon the occurrence of a default or an event of
default prior to the exercise by Heller of its rights to repossess the
Collateral without judicial process or to replevy, attach or levy upon the
Collateral without notice or hearing.
If this Note is collected by or through an attorney-at-law, all costs of
collection, including reasonable attorneys' fees, shall be payable by the
undersigned.
THIS NOTE SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES
HERETO DETERMINED IN ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS
OF LAW PROVISIONS) AND DECISIONS OF THE STATE OF CALIFORNIA.
Whenever possible each provision of this Note shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of this Note shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining provisions
of this Note. Whenever in this Note reference is made to Heller or Company, such
reference shall be deemed to include, as applicable, a reference to their
respective successors and assigns. The provisions of this Note shall be binding
upon and shall inure to the benefit of such successors and assigns. Company's
successors and assigns shall include, without limitation, a receiver, trustee or
debtor in possession of or for Company.
WITNESS the signature of the undersigned, as of the date first above written.
THE SIRENA APPAREL GROUP, INC.
By: _______________________
Title: _______________________
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 134,000
<SECURITIES> 0
<RECEIVABLES> 7,652,000
<ALLOWANCES> (1,860,000)
<INVENTORY> 12,562,000
<CURRENT-ASSETS> 18,774,000
<PP&E> 4,643,000
<DEPRECIATION> (3,423,000)
<TOTAL-ASSETS> 25,096,000
<CURRENT-LIABILITIES> 9,691,000
<BONDS> 0
0
0
<COMMON> 47,000
<OTHER-SE> 14,944,000
<TOTAL-LIABILITY-AND-EQUITY> 25,096,000
<SALES> 23,520,000
<TOTAL-REVENUES> 23,520,000
<CGS> 14,158,000
<TOTAL-COSTS> 5,170,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 333,000
<INCOME-PRETAX> 3,859,000
<INCOME-TAX> 65,000
<INCOME-CONTINUING> 0
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<NET-INCOME> 3,794,000
<EPS-PRIMARY> .82
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