FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended: June 30, 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: 333-11979
JENNA LANE, INC.
(Exact name of registrant as specified in its charter)
Delaware 22-3351399
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1407 Broadway, Suite 2004
New York, New York 10018
(Address of principal executive offices) (Zip Code)
(212) 704-0002
(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. Yes X No
As of August 10, 1998, there were 4,414,707 shares of registrant's Common Stock,
par value $.01 per share, outstanding.
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
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Index to Financial Statements
Page
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Consolidated Balance Sheets as of June 30, 1998 (unaudited) and March 31, 1998. 3
Consolidated Statements of Operations for the three months ended June 30, 1998 and
1997(unaudited). 4
Consolidated Statements of Cash Flows for the three months ended
June 30, 1998 and 1997(unaudited). 5
Notes to Consolidated Financial Statements for the three months ended
June 30, 1998 and 1997(unaudited). 6-7
Item 2. Management's Discussion and Analysis of Financial Condition
and Result of Operations. 8-9
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JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, March 31,
ASSETS 1998 1998
----------- -----------
(Unaudited)
Current Assets:
Cash $ 63,516 $ 6,595
Due from factors 5,280,427 4,440,310
Inventories 6,638,340 5,888,085
Prepaid expenses and other 545,959 379,270
Deferred income taxes 50,000 43,000
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Total Current Assets 12,578,242 10,757,260
Property and Equipment, net 529,980 501,617
Other Assets 906,339 278,292
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$14,014,561 $11,537,169
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,004,722 $ 2,925,661
Accrued liabilities 275,135 187,208
Income taxes payable 252,371 305,645
Current maturities of long-term debt 10,127 12,449
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Total Current Liabilities 5,542,355 3,430,963
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Long-Term Debt 1,987 3,653
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Deferred Income Taxes 32,000 30,000
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Shareholders' Equity:
Common stock, $.01 par value; 18,000,000 shares
authorized; issued and outstanding, 4,414,707 and
4,728,993 shares, respectively 44,147 47,290
Capital in excess of par value 7,980,635 7,980,635
Retained earnings 413,437 44,628
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Total Shareholders' Equity 8,438,219 8,072,553
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$14,014,561 $11,537,169
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See notes to unaudited consolidated financial statements.
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JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
June 30,
-------------------------
1998 1997
----------- -----------
Net Sales $13,826,800 $11,734,842
Cost of Sales 11,098,673 9,431,783
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Gross Profit 2,728,127 2,303,059
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Operating Expenses:
Selling,general and administrative 1,888,976 1,759,335
Factoring charges and interest 208,342 177,159
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Total Operating Expenses 2,097,318 1,936,494
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Income Before Income Taxes 630,809 366,565
Provision for Income Taxes 262,000 153,072
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Net Income $ 368,809 $ 213,493
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----------- -----------
Net Income Per Share:
Basic $ 0.08 $ 0.05
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Diluted $ 0.08 $ 0.04
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See notes to unaudited consolidated financial statements.
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JENNA LANE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
June 30,
-------------------------
1998 1997
----------- -----------
Operating Activities:
Net income $ 368,809 $ 213,493
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 26,000 38,827
Deferred income taxes (5,000) (19,000)
Write-off of note receivable 36,350 --
Changes in assets and liabilities:
Due from factors (840,117) (112,637)
Inventories (750,255) (1,544,671)
Prepaid expenses and other (191,380) 200,784
Accounts payable and accrued liabilities 2,113,714 1,139,101
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Net Cash Provided By (Used In) Operating
Activities 758,121 (84,103)
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Investing Activities:
Acquisition of business (630,209) --
Capital expenditures (54,363) (233,994)
Security deposits (804) 1,168
Issuance of notes receivable (23,336) (224,030)
Repayment of notes receivable 14,643 3,338
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Net Cash Used In Investing Activities (694,069) (453,518)
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Financing Activities:
Principal payments on equipment notes payable (3,988) (3,303)
Repurchase of performance shares (3,143) --
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Net Cash Used In Financing Activities (7,131) (3,303)
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Net Increase (Decrease) In Cash 56,921 (540,924)
Cash at beginning 6,595 548,319
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Cash at end $ 63,516 $ 7,395
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Supplemental Disclosures of Cash Flow Information:
Interest paid $ 82,695 $ 46,890
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Income taxes paid $ 317,974 $ --
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See notes to unaudited consolidated financial statements.
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JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Jenna
Lane, Inc. and its wholly-owned subsidiaries (collectively, the "Company"). The
financial statements have been prepared in accordance with generally accepted
accounting principles for interim financial information and the instructions for
Form 10-Q. Accordingly, certain information and footnote disclosures normally
included in consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K filed with the Securities and Exchange Commission for the year
ended March 31, 1998. In the opinion of management, all adjustments (which
include only normal recurring adjustments) considered necessary for a fair
presentation of interim results have been included. The results of operations
for the three months ended June 30, 1998 are not necessarily indicative of the
operating results for the full year.
2. INVENTORIES
June 30, March 31,
1998 1998
----------- -----------
(Unaudited)
Raw materials $ 2,754,739 $ 2,308,517
Work-in-process 1,304,332 368,954
Finished goods 2,579,269 3,210,614
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$ 6,638,340 $ 5,888,085
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3. EARNINGS PER SHARE
The Company adopted Statement of Financial Accounting Standards No. 128
"Earnings per Share" which modifies the calculation of earnings per share
("EPS"). The Standard replaces the previous presentation of primary and fully
diluted EPS. Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted average number of common shares
outstanding during the period. Diluted EPS includes the dilution of common stock
equivalents, and is computed similarly to fully diluted EPS pursuant to APB
Opinion 15. All prior periods presented have been restated to reflect this
adoption.
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JENNA LANE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. EARNINGS PER SHARE (Continued)
The following table reconciles the number of common shares outstanding
with the number of common and common equivalent shares used in computing
earnings per share:
Three Months Ended
June 30,
-------------------------
1998 1997
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Basic:
Common shares outstanding 4,414,707 4,718,993
Effect of using weighted average 209,087 --
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Weighted average number of shares outstanding 4,623,794 4,718,993
Diluted:
Effect of assuming exercise of outstanding stock
options and warrants based on the treasury
stock method 76,047 694,548
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Shares used in computing diluted earnings per share 4,699,841 5,413,541
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Additional shares issuable assuming conversion of warrants is antidilutive for
the three months ended June 30, 1998.
4. SHAREHOLDERS' EQUITY
During the three months ended June 30, 1998, the Company repurchased
314,286 performance shares for $3,143 ($.01 per share).
5. ACQUISITION
On June 19, 1998, the Company acquired substantially all the assets of
T.L.C. for Girls, Inc. (TLC), a manufacturer of children's wear for
approximately $630,000 in cash, including related acquisition costs. The
acquisition has been accounted for as a purchase and accordingly, TLC's results
are included in the consolidated financial statements since the date of
acquisition. The excess of the purchase price over assets acquired (goodwill)
represents substantially the entire acquisition cost.
6. LICENSE AGREEMENT
In July 1998, the Company entered into a license agreement to
manufacture large size women's sportswear under the "BONGO" trademark. The
agreement requires royalty payments based on net sales with annual minimums of
$250,000, $425,000 and $650,000 during the initial three year term. An advance
royalty of $88,000 was paid in June 1998.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three months ended June 30, 1998 and 1997.
Results of Operations
The following table sets forth, for the periods indicated, the Company's
statements of operation data as a percentage of net sales.
Three Months Ended
June 30,
-----------------------
1998 1997
------ ------
Net sales 100.0% 100.0%
Cost of sales 80.3 80.4
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Gross profit 19.7 19.6
Operating expenses 15.2 16.5
----- -----
Income before income taxes 4.5 3.1
Provision for income taxes 1.9 1.3
----- -----
Net Income 2.6% 1.8%
----- -----
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Three Months Ended June 30, 1998 Compared with Three Months Ended June 30, 1997
Net sales of $13.8 million in the three months ended June 30, 1998 represented
an increase of $2.1 million, or 17.8% over net sales of $11.7 million in the
three months ended June 30, 1998. The increase in net sales was primarily
attributable to the addition of the Company's sweater division (Smart Objects)
with sales of $526,000 and its children's sales group (T.L.C. for Kidz) with
sales of $1,326,000.
The Company's gross profit increased $425,000, or 18.5% to $2.7 million for the
three months ended June 30, 1998 from $2.3 million for the three months ended
June 30, 1997. Gross profit margin increased slightly to 19.7% in the three
months ended June 30, 1998 from 19.6% in the three months ended June 30, 1997.
Operating expenses, including all transactions with the factor, increased $
161,000, or 8.3%, to $2.1 million in the three months ended June 30, 1998 from
$1.9 million in the three months ended June 30, 1997. The increase was primarily
due to an increase of $155,000 in payroll and related costs, including $74,000
in increased selling salaries, as well as $60,000 in selling related expenses
which resulted from the expanded sales force for its new divisions. Factoring
costs increased $31,000 as a result of higher sales volume. These expense
increases are partially offset by a $243,500 credit loss provision which was
reflected in the three months ended June 30, 1997 relating to Montgomery Ward's
bankruptcy filing.
As a result of the above factors, pre-tax income increased from $367,000 in the
three months ended June 30, 1997 to $631,000 in the three months ended June 30,
1998.
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Liquidity and Capital Resources
Since its formation, the Company has financed its operations and met its capital
requirements primarily through funds raised from its founders, three private
placement offerings, as well as borrowings under its factoring arrangements,
vendor financing and, to a lesser extent, equipment financing. In March 1997,
the Company completed an initial public offering of investment units resulting
in proceeds, net of underwriting discounts and offering costs of $5,352,000.
Operating activities provided net cash of $758,000 for the three months ended
June 30, 1998. The principal use of operating cash during the quarter was to
finance the acquisition of substantially all the assets of T.L.C. for Girls,
Inc. for $630,000. Inventory levels increased as a result of the corresponding
increased production to support the growth in sales from its new divisions
(sweaters and children's), and continued expansion of import product categories.
The Company's capital expenditures totalled $54,000 for the three months ended
June 30, 1998. These capital expenditures were for computer and office
equipment. The Company does not have any material commitments for capital
expenditures at this time; however, plans to upgrade information technology and
its core business systems over the next twelve months may require up to
$500,000, but no assurance thereof, can be given.
In July 1998, the Company signed a license agreement to manufacture large size
women's sportswear under the "BONGO" trademark. The agreement requires annual
minimum royalties of $250,000, $425,000 and $650,000 during the initial three
year term.
The Company believes that existing cash, anticipated cash flows from operations
and availability of advances under its factoring arrangement will be sufficient
to support the Company's operations for at least the next 12 months.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting the components of
comprehensive income and SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which replaces existing segment disclosure
requirements and requires reporting certain financial information regarding
operating segments. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS No. 130 and
131 are effective for financial statements for fiscal years beginning after
December 15, 1997. The Company is not currently affected by SFAS No. 130 and is
in the process of evaluating the specific requirements of SFAS No. 131. These
statements will affect disclosure and presentation in the financial statements,
but will have no impact on the Company's consolidated financial position,
results of operations or cash flows.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings: There are no material pending legal
proceedings to which the Company is a party or to which any
of its property is subject. The Company is subject to normal
litigations in the ordinary course of business.
Item 2. Changes in Securities: None.
Item 3. Defaults Upon Senior Securities: None.
Item 4. Submissions of Matters to a Vote of Security Holders: None.
Item 5. Other Information:
BONGO License Agreement
In July 1998, a wholly-owned subsidiary of the Company (referred to in
this paragraph as the "Company"), entered into a license agreement with Michael
Caruso & Co., the owner of the federally registered "BONGO" trademarks. The
license grants the Company the exclusive right to manufacture large size women's
sportswear of various types. The license includes the use of the name BONGO and
its logos. The license agreement continues until March 31, 2002, and the Company
has an option to extend the license for an additional three years thereafter.
Under the license agreement, the Company pays a royalty of 5% of net sales
generated, with a guaranteed minimum royalty of $250,000 in the first year,
$425,000 in the second year, and $650,000 in the third year, and sums ranging
from $900,000.00 to $1,400,000.00 during the three years of the extended term of
the agreement. The Company also is obligated to achieve minimum annual net sales
of $5,000,000.00 in the first year, $8,500,000.00 in the second year, and
$13,000,000.00 in the third year, and sums ranging from $18,000,000.00 to
$28,000,000.00 during the three years of the extended term of the agreement. The
Company's efforts with respect to this license are coordinated from its
headquarters at 1407 Broadway in Manhattan.
Employment Agreement with Andrew Miller
Andrew Miller, who became the Company's President and Chief Operating
Officer on July 6, 1998, executed an employment agreement with the Company
effective on such date (the "Miller Agreement"). The Miller Agreement provides
for (i) a term of two years, provided, that the Company may terminate the Miller
Agreement with certain consequences prior to the expiration of the term, (ii) a
base salary equal to $4,000 per week, (iii) a $4,000 per month expense
allowance, plus reimbursement of business expenses incurred on behalf of the
Company, (iv) a cash bonus equal to two and one-half percent (2-1/2%) of the
excess above $1,000,000 of the net income before taxes of the Company for each
full fiscal year of the Company during the term of the Miller Agreement, with a
minimum bonus of $15,000 and (iv) perquisites comparable to Messrs. Dobies and
Sobel, including health insurance for him and his family.
The Miller Agreement also includes non-competition, confidentiality and
non-solicitation provisions and provides for certain severance payments upon
termination of his employment
10
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without Cause (as defined in the Miller Agreement).
The Miller Agreement also includes a grant of 100,000 non-qualified
stock options, outside the Option Plan, of which 25,000 shares will vest on July
6, 1999 and have an exercise price of $4.00 per share, 50,000 shares will vest
on July 6, 2000 and have an exercise price of $6.00 per share and 25,000 shares
will vest on July 6, 2001 and have an exercise price of $8.00 per share. The
Company further agreed to issue to Mr. Miller 10,000 shares of Common Stock upon
the earlier to occur of (i) the execution and delivery of a letter of intent
regarding a public offering of the Company's securities involving gross proceeds
to the Company of at least $15,000,000 and a public offering price of at least
$20.00 per share and (ii) seven days prior to the filing by the Company of a
registration statement with the Securities and Exchange Commission concerning
such a public offering. These shares will be placed in escrow and returned to
the Company if the public offering is not completed within six months
thereafter.
Amendment to Employment Agreement with Eric Holtz
Eric Holtz, Director of the Company's Import Sales Group, who had
executed an employment agreement with the Company on May 21, 1997, executed an
amendment to that agreement as of July 5, 1998 (the "Holtz Agreement"). The
Holtz Agreement, as amended to date, provides for (i) a term extended to the
year ended May 21, 1999, provided, that either party may terminate the Holtz
Agreement upon 90 days' written notice (or no notice in the event of Cause (as
defined below); (ii) a base salary equal to $3,846.16 per week or, if greater,
an amount equal to seventy-two and one-half percent (721/2%) of the applicable
base salary of each of the Company's Co-Chief Executive Officers of the Company;
(iii) a $2,500 per month expense allowance, plus reimbursement of business
expenses incurred on behalf of the Company; (iv) participation in the Management
Profit Participation; (v) a minimum bonus equal to $7,500 or an amount not less
than one-half of the bonus paid to either of the Company's Co-Chief Executive
Officers; and (vi) perquisites comparable to Messrs. Dobies and Sobel, including
health insurance for him and his family.
The Holtz Agreement also includes non-competition, confidentiality and
non-solicitation provisions. Cause is defined in a substantively similar manner
to those contained in the Dobies/Sobel Agreements.
In addition to 110,000 previously granted incentive stock options, the
Holtz Agreement acknowledges the granting of 8,000 additional incentive stock
options to Mr. Holtz, vesting as follows: 2,666 shares on April 28, 1999, 2,667
shares on April 28, 2000, and 2,667 shares on April 28, 2001. The Holtz
Agreement also provides for the granting of additional options equal to one-half
of the number of options issued to each of the Company's Co-Chief Executive
Officers as they are granted. The Holtz Agreement further includes the Company's
agreement to grant 25,000 additional incentive stock options on each of July 15,
1998, July 15, 1999 and July 15, 2000 (or an aggregate of 75,000 options), with
each such 25,000 additional options vesting over the three-year period following
grant.
The Holtz Agreement provides for certain severance and other payments
upon termination of his employment, death or disability.
11
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Factoring Agreements with Republic Factors
In July 1998, T.L.C. for Kidz, Inc. ("T.L.C.") and Jenna Lane Polo
Association Ltd. ("JLPA"), each wholly owned subsidiaries of the Company,
entered into factoring agreements and related documents with Republic Business
Credit Corporation ("Republic"), which also serves as the principal factor for
the Company's receivables. The terms of these factoring agreements are
substantially identical to agreements between Republic and the Company. The
Company also guaranteed the obligations of the subsidiaries in these factoring
agreements.
Item 6. Exhibits and Reports on Form 8-K:
(A) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
10.15 Employment Agreement, dated as of July 6, 1998, between the
Registrant and Andrew Miller.
10.16 Amendment to Employment Agreement, dated as of July 5, 1998,
between the Registrant and Eric Holtz.
10.17 License Agreement, dated as of July 1, 1998, between Jenna Lane
Licensing I, Inc. and Michael Caruso & Co.
10.18 Factoring Agreement, dated July 14, 1998, between T.L.C. for
Kidz, Inc. and Republic Business Credit Corporation.
10.19 Factoring Agreement, dated July 14, 1998, between Jenna Lane Polo
Association, Ltd. and Republic Business Credit Corporation.
27.1 Financial Data Schedule (submitted electronically only)
(B) Reports on Form 8-K: None.
12
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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.
Dated: August 12, 1998
JENNA LANE, INC.
By: /s/ Mitchell Dobies
Mitchell Dobies
Vice-Chairman & Co-Chief Executive Officer
By: /s/ Charles Sobel
Charles Sobel,
Vice-Chairman & Co-Chief Executive Officer
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Exhibit Index
10.15 Employment Agreement, dated as of July 6, 1998, between the
Registrant and Andrew Miller.
10.16 Amendment to Employment Agreement, dated as of July 5, 1998,
between the Registrant and Eric Holtz.
10.17 License Agreement, dated as of July 1, 1998, between Jenna Lane
Licensing I, Inc. and Michael Caruso & Co.
10.18 Factoring Agreement, dated July 14, 1998, between T.L.C. for
Kidz, Inc. and Republic Business Credit Corporation.
10.19 Factoring Agreement, dated July 14, 1998, between Jenna Lane Polo
Association, Ltd. and Republic Business Credit Corporation.
27.1 Financial Data Schedule (submitted electronically only)
14
EMPLOYMENT AGREEMENT
Employment Agreement dated as of July 7 , 1998, by and between JENNA
LANE, INC., a Delaware corporation with offices at 1407 Broadway, New York, New
York 10018 (the "Company") and ANDREW MILLER, residing at 27 Reynolds Lane,
Katonah, New York 10536 (the "Executive").
WHEREAS, the Company and the Executive desire to set forth the terms of
Executive's employment with the Company, pursuant to the terms and conditions
hereof.
NOW, THEREFORE, the parties hereby agree as follows, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged:
1. Employment and Duties.
(a) The Company hereby employs the Executive, and the
Executive hereby accepts employment by the Company, as President and Chief
Operating Officer of the Company, and shall report directly to the Co-Chief
Executive Officers and the Board of Directors of the Company. As such, Executive
shall perform duties and functions and assume and discharge those
responsibilities which are otherwise usually performed by persons holding
similar titles with the Company and shall perform such other duties as may be
assigned to him from time to time by the Co-Chief Executive Officers and Board
of Directors of the Company.
(b) The Executive shall devote his full time to the business
and affairs of the Company, shall use his best efforts to promote the interests
of the Company and its affiliates, and shall discharge his responsibilities in a
diligent and faithful manner, consistent with sound business practices. The
Executive shall not engage in any other employment or business activity, except
the supervision of his private investments.
(c) The Company agrees that during the term hereof the
Executive's duties shall be such as to allow him to live and work in the New
York City metropolitan area (including all of New York, New Jersey and
Connecticut), and, except for short-term travel obligations in the ordinary
course of business, the Company shall not assign Executive to a principal place
of work outside the New York City metropolitan area.
2. Compensation. As payment for services to be rendered by
Executive, during the term hereof, the Company shall pay the Executive, and
the Executive shall accept the following as income:
(a) Base Salary. A base salary equal to $4,000 per week
("Base Salary");
(b) Stock Options. As of the commencement of the term of
Executive's employment hereunder, the Board of Directors of the Company shall
grant 100,000 non-qualified, non-incentive stock options (the "Options"),
outside of the Company's 1996 Incentive Stock Option Plan ("Plan"), which shall
vest, subject to Executive's continuing employment hereunder, and have such
exercise prices as set forth below:
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Date First Exercisable Number of Shares Exercise Price Per Share
- ---------------------- ---------------- ------------------------
July 6, 1999 25,000 $4.00
July 6, 2000 50,000 $6.00
July 6, 2001 25,000 $8.00
The Options shall be further subject to the terms and conditions of a
Stock Option Agreement to be executed and delivered by the Company and the
Executive, in such form as the parties shall agree, but such agreement shall be
in substance as similar as practicable to the terms of Stock Option Agreements
under the Plan.
(c) Cash Bonus. Executive shall receive an amount (the
"Bonus") equal to two and one-half percent (2-1/2%) of the excess above
$1,000,000 of the net income before taxes of the Company for each full fiscal
year of the Company during the term hereof (or prorated for partial years during
the term hereof), payable once annually on or before June 30 of each year during
the term hereof, provided that Executive shall still be employed by the Company
on the date of such payment ("Payment Date"). Notwithstanding the foregoing, on
each Payment Date, Executive shall receive a minimum annual bonus equal to
$15,000. Nothing herein shall be interpreted as entitling Executive to receive
any part of a contemplated Bonus if Executive's employment hereunder terminates
for any reason prior to a Payment Date, provided, that if Executive's employment
hereunder shall be terminated by the Company without Cause, or if Executive
shall die during the term hereof, Executive (or his personal representatives)
shall be entitled to receive a prorated Bonus on the next succeeding Payment
Date with respect to the period of employment during the applicable year.
(d) Expense Allowance. The Company also shall provide
Executive with a monthly expense allowance (the "Expense Allowance") which
Executive shall utilize for business expenses related to the business of the
Company, equal to $4,000 for each complete month during the term hereof.
(e) Incentive Shares. Upon the earlier to occur of (i) the
execution and delivery by all parties thereto of a letter of intent with a
proposed underwriter of an underwritten public offering of the Company's
securities involving gross proceeds to the Company of at least $15,000,000 and a
public offering price of at least $20.00 per share (a "Secondary Offering") and
(ii) seven (7) days prior to the filing by the Company of a registration
statement with the Securities and Exchange Commission with respect to a
Secondary Offering, the Company shall issue to Executive, if he shall be
employed hereunder on such date, an aggregate of ten thousand (10,000) shares of
Common Stock, par value $.01 per share, of the Company (the "Incentive Shares"),
as part of his compensation hereunder. The Incentive Shares shall be issued in
the name of Executive and placed in escrow with the Company's counsel ("Escrow
Agent"), during which time Executive shall be the record and beneficial owner
thereof and shall be entitled to any voting rights attaching thereto. The Escrow
Agent shall release the Incentive Shares to Executive upon the consummation of a
Secondary Offering, but shall return the Incentive Shares to the Company for
cancellation and return to treasury if the Secondary Offering is not
consummated, for any reason, within six (6) months after the issuance of the
Incentive Shares, unless extended by the Company in its sole discretion.
(f) Certain Perquisites. The Company shall provide the
Executive with one hundred percent (100%) of the cost of health insurance for
him and his dependents or shall reimburse Executive for the reasonable cost of
continuing his current health insurance coverage. Executive also shall be
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entitled to participate in the Company's 401(k) profit sharing plan. Executive
shall be entitled to and shall receive during the term hereof such vacation,
holiday and similar rights and privileges as shall be reasonably determined by
the Co-Chief Executive Officers. Executive agrees that unused vacation time may
not be carried over or credited to subsequent years. Executive shall also be
reimbursed for all reasonable business expenses incurred on behalf of the
Company in the course of performance of his duties hereunder, subject to
provision of receipts or vouchers therefor and satisfactory explanations
thereof. During the term of this Agreement, Executive shall be reimbursed on a
monthly basis for the cost of a two-year lease, with no capitalized cost
reduction, of a 1998 Jeep Cherokee or similarly priced automobile, as well as
the reasonable costs of operating that vehicle, including without limitation,
gasoline, insurance, tolls and repairs. In the event that Executive is
terminated by the Company without cause, or if Executive dies during the term
hereof, the Company agrees to continue the monthly lease payments through the
remainder of the two-year term of the lease, but shall not continue any
operating expenses relating to such lease after such termination or death.
3. Definition of Cause. "Cause," as used herein, means the occurrence
of any one of the following events: (a) the failure of Executive to perform
duties or comply with reasonable directions of the Company; (b) the good faith
determination by the Co-Chief Executive Officers or the Board of Directors of
the Company in the exercise of its reasonable judgement that Executive has
committed an act or acts constituting (i) a felony or other crime involving
moral turpitude, dishonesty or theft, (ii) dishonesty or disloyalty with respect
to the Company, or (iii) fraud; (c) a material breach by Employee of any of the
terms and conditions of this Agreement; or (d) Executive's gross negligence in
the performance of his duties hereunder. Any dispute, claim or controversy
arising out of or relating to the definition of Cause herein or an attempt by
the Company to terminate Executive for Cause shall be settled by arbitration in
New York City, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. The parties hereto agree that they will abide
by and perform any award rendered by the arbitrator(s) and that judgment upon
any such award may be entered in any court, state or federal, having
jurisdiction over the party against whom the judgment is being entered. Any
arbitration demand, summons, complaint, other process, notice of motion or other
application to an arbitration panel or court of law, and any arbitration award
or judgment may be served upon any party hereto by registered or certified mail,
or by personal service, provided a reasonable time for appearance or answer is
allowed.
4. Termination and Term of Employment. The term of employment of the
Executive hereunder shall commence on July 6, 1998 and shall terminate two years
thereafter. Notwithstanding anything to the contrary herein, the Company at any
time may terminate this Agreement and the employment of Executive without notice
for Cause. In the event that the Company terminates this Agreement without
Cause, the Company shall pay as severance to the Executive his Base Salary and
Expense Allowance for the remainder of the term of this Agreement, as set forth
herein and assuming Executive's compliance with the terms of Section 5 hereof as
applicable.
5. Non-Competition; Confidentiality; Inventions.
(a) The Executive shall not (i) within six months after
termination of his employment, if termination is a result of termination by the
Company not for Cause, which termination is effected during the first year of
his term hereof, or (ii) within 90 days after termination by the Company not for
Cause of his employment, or such lesser period as shall be remaining in the term
hereof, which termination is effected during the second year of the term of his
employment (such periods, as
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applicable pursuant to clause (i) or (ii) above, the "Restriction Period"), in
either case directly or indirectly, solicit or permit any business of which he
is an owner, partner, shareholder, member, manager or executive to solicit any
employee of the Company or any of its affiliates to leave its employ or join the
employ of another, then or at a later time.
(b) The Executive shall not, at any time during the period of
his employment by the Company or during the Restriction Period, in either case
directly or indirectly, engage in or be interested (as owner, member, partner,
shareholder, employee, director, officer, manager, agent, consultant or
otherwise) in any firm, business or company which engages in any business which
competes, directly or indirectly, with the business of the Company; provided
that the ownership of two percent or less of a publicly-traded class of
securities shall not be deemed a violation of the foregoing covenant.
(c) The Executive shall not, directly or indirectly, either
during the term of this Agreement or thereafter, disclose to any person, firm or
Company or use (except in the regular course of the Company's business) any
confidential information of any type that he shall have acquired as a result of
his employment with the Company, unless such information (i) has been first
published voluntarily and intentionally by the Company, (ii) such disclosure is
required by law, or (iii) such information (A) is or becomes generally available
to the public other than as a result of disclosure by the Executive in violation
of this Agreement or (B) was lawfully within the Executive's possession or
independently developed or documented by the Executive prior to its being
furnished to him by the Company. Promptly after termination of his employment
hereunder, the Executive will surrender to the Company any and all lists,
manuals, books and records of or relating to the business of the Company, all
copies of the former, whether in use or not, and all other property belonging to
the Company.
(d) The Executive agrees to make prompt and complete
disclosure of every invention (whether or not patentable), process, product,
apparatus, plan, system or improvement which he conceives or makes, and any
patent application which he files, during the period of his employment by the
Company or during the Restriction Period, which pertain to the Company's present
or then contemplated field of business. The Executive further agrees that every
said invention, process, product, apparatus, plan, system, improvement and
filing which relates to the Company's present or then contemplated field of
business shall be the sole and exclusive property of the Company but without
expense to himself, he will execute any and all proper applications for patents,
copyrights and trademarks, assignments and other instruments which the Company
shall deem necessary or convenient to perfect its title in said property or to
otherwise protect its interest therein in the United States or foreign
countries, and render aid and assistance to the Company in any litigation or
other proceeding pertaining to said property.
(e) The provisions contained in this Section 5 as to the time
periods, scope of activities, persons or entities affected, and territories
restricted shall be deemed divisible so that, if any provision contained in this
Section is determined to be invalid or unenforceable, such provisions shall be
deemed modified so as to be valid and enforceable to the full extent lawfully
permitted.
(f) The Executive acknowledges that the provisions of this
Section 5 are reasonable and necessary for the protection of the Company and
that the Company will be irrevocably damaged if such covenants are not
specifically enforced. Accordingly, the Executive agrees that the Company
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will be entitled to injunctive relief for the purpose of restraining the
Executive from violating such covenants in addition to any other relief to which
the Company may be entitled under this Agreement.
6. Representations and Warranties of Executive. Executive represents
and warrants to the Company that:
(a) Executive is under no contractual or other restriction or
obligation which is inconsistent with the execution, delivery and performance
under this Agreement or the other rights of the Company hereunder.
(b) Executive is under no physical or mental disability that
would hinder his performance of duties under this Agreement.
(c) Executive represents and warrants that he acknowledges
that the forms of compensation included herein (including, without limitation,
the issuance of the Incentive Shares) could result in substantial federal, state
and other tax liability on the part of Executive, and Executive has sought and
received legal, tax, financial and such other advice as he shall deem
appropriate in connection therewith and otherwise in connection with the
negotiation and preparation of this Agreement.
7. Miscellaneous.
(a) This Agreement shall be governed by and be construed in
accordance with the law of the State of Delaware applicable to contracts made
and to be performed in that state.
(b) The Executive may not assign his rights or obligations
under this Agreement, or a participation in such rights and obligations, to any
person by operation or law or otherwise without the prior written consent of the
Company.
(c) All notices and other communications under this Agreement
shall be in writing and shall be considered given only when delivered personally
against written receipt therefor, mailed by registered mail (return receipt
requested), or sent by expedited or overnight delivery service with return
receipt, or sent by telecopier with confirmed receipt, to the party to receive
notice at the addresses first set forth above, or such other address as either
party may, upon ten (10) days' written notice, direct.
(d) Each of the parties hereto shall hereafter, at the request
of either party hereto, execute and deliver such further documents and
agreements, and do such further acts and things as may be necessary or expedient
to carry out the provisions of this Agreement.
(e) The failure of a party to insist upon strict adherence to
any term of this Agreement on any occasion shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.
(f) This Agreement constitutes a complete statement of all of
the arrangements between the parties as of the date hereof with respect to the
matters contemplated hereby, supersedes all prior agreements and understandings
between them, and cannot be changed or terminated orally.
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(g) The headings in this Agreement are intended solely for
convenience of reference and shall not be given any effect in the construction
or interpretation of this Agreement.
(h) This Agreement shall inure to the benefit of, and be
binding upon, the heirs and personal representatives of the Executive and any
successor to the Company including, but not limited to, any successor by merger
or consolidation to the Company's business and assets, to the extent assigned in
accordance with the terms hereof.
(i) The parties agree that, irrespective of the execution and
delivery hereof, the terms of this Agreement shall not become effective until
formal approval thereof has been obtained by the Board of Directors of the
Company.
(j) The parties agree that the financial and other information
contained in examples provided herein shall not be interpreted as representative
of actual, historical, projected or other results relating to the Company.
IN WITNESS WHEREOF, the undersigned have set their hands
hereto as of the date first above written.
JENNA LANE, INC.
By: /s/
Mitchell Dobies, President
/s/
ANDREW MILLER
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Exhibit 10.16
AMENDMENT TO EMPLOYMENT AGREEMENT
Amendment to Employment Agreement dated as of July 23 , 1998, by and
between JENNA LANE, INC., a Delaware corporation with offices at 1407 Broadway,
Suite 1801, New York, New York 10018 (the "Company") and ERIC HOLTZ, residing at
1121 Knollwood Road, White Plains, New York (the "Executive").
WHEREAS, the Company and the Executive are parties to that certain
Employment Agreement, dated as of May 21, 1997 (the "Agreement"); and
WHEREAS, the Company and the Executive desire to amend the terms of the
Agreement as hereinafter set forth.
NOW, THEREFORE, the parties hereby agree as follows, for good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged:
1. Section 2(a) of the Agreement is hereby amended in its entirety to
read as follows: "Executive shall receive a base salary ("Base Salary") equal to
$3,846.16 per week or, if greater, an amount equal to seventy-two and one-half
percent (72-1/2%) of the applicable base salary of each of the Company's
Co-Chief Executive Officers of the Company."
2. Section 2(c) and 2(d) are hereby deleted in their entirety, except
for the last two sentences of Section 2(d).
3. The second sentence of Section 2(e) is hereby amended to read as
follows in its entirety: "The Company also shall (i) provide Executive with a
monthly expense allowance of $2,500 (the "Expense Allowance") and (ii) in
addition to such amount, reimburse Executive for actual business expenses, to
the extent incurred on behalf of the Company, upon presentation of receipts or
vouchers therefor."
4. Section 2(f) of the Agreement is hereby amended to read as follows
in its entirety:
"The Board of Directors shall include Executive in the distribution (a
"Bonus") of an aggregate, to all executives of the Company who may
participate, of twelve and one-half percent (12- 1/2%) of the excess
above $1,000,000 of the net income before taxes of the Company ("Excess
Income") for each fiscal year of the Company during the term hereof
(the "Bonus Pool"), payable once annually at such time as the Board of
Directors shall determine (each a "Payment Date"), provided, that in no
event shall the amount in the Bonus Pool be less than $100,000 if the
net income before taxes of the Company for such fiscal year has equaled
or exceeded $1,000,000. That portion of the Bonus Pool which shall be
payable to Executive shall be as set forth below, provided, that
Executive shall not receive less than
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one-half of the amount payable to either of the Company's Co-Chief
Executive Officers. Notwithstanding anything contained herein, on each
Payment Date, Executive shall receive a minimum annual bonus equal to
$7,500 (the "Minimum Bonus"). If the ratio of Gross Profit of the
Import Sales Group of the Company (the "Group") for the fiscal year
immediately preceding the Payment Date (the "Applicable Year") to the
aggregate Sales Prices of the Group for the Applicable Year (the "Gross
Profit Ratio") is greater than 24%, then Executive shall receive a
Bonus equal to 3.75% of the Excess Income. If the Gross Profit Ratio is
at least 21% but less than 24%, then Executive shall receive a Bonus
equal to 2.5% of the Excess Income. If the Gross Profit Ratio is less
than 21%, then Executive shall receive a Bonus equal to 1.25% of the
Excess Income."
5. Section 2(g) of the Agreement, other than the last two sentences
thereof, which shall remain unchanged and in full force, is hereby amended to
read as follows in its entirety:
"The parties acknowledge that the Company awarded to Executive the
following Options prior to the date hereof, as adjusted for the
Company's 10% stock dividend effective March 13, 1998:
Date # Shares Exercise Price Vesting
---- -------- -------------- -------
8/16/96 55,000 $2.73 fully vested
2/1/97 55,000 $4.54 1/3 on each of 3/19/98,3/19/99,3/19/00
4/28/98 8,000 $7.60 1/3 on each of 4/28/99,4/28/00,4/28/01
At all times during the term of this Agreement after the date hereof,
the Company shall use its best efforts to ensure that at the time that
either of the Co-Chief Executive Officers of the Company shall be
granted Options, Executive shall be granted Options equal to one-half
of the number of Options issued to each of the Co-Chief Executive
Officers. In addition, the Company agrees to grant to Executive, on the
date hereof, 25,000 incentive stock options under the Option Plan
("Options") vesting one-third each on the one year, two year and three
year anniversary hereof (the "1998 Options") and agrees to use its best
efforts to grant to Executive the following additional options: (i)
25,000 Options to be granted on the one year anniversary hereof and
vesting one-third each on the two year, three year and four year
anniversary hereof (the "1999 Options") and (ii) 25,000 Options to be
granted on the two year anniversary hereof and vesting one-third each
on the three year, four year and five year anniversary hereof (the
"2000 Options"). The Company also will use its best efforts, subject to
applicable tax and other legal requirements, to cause the vesting of
the 1998 Options, 1999 Options and 2000 Options and all other
unexercised stock options owned by Executive on such date to be
accelerated and be exercisable in full for the 90-day period following
any termination of Executive without Cause. The Company also agrees
that, in the event that any of the 1999 Options or 2000 Options are not
granted for any reason other than the
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termination of Executive's employment hereunder prior to the
anticipated grant date thereof, the Company will, to the extent
permitted by applicable law, issue to Executive nonqualified stock
options to purchase such non-granted shares of Common Stock at 100% of
the then market value of the Common Stock, which options shall be
granted outside the Option Plan."
6. Section 5(b) of the Agreement is hereby amended as follows: (i) the
phrase "minimum draw payments" in Section 5(b)(i) shall be amended to read "Base
Salary," and (ii) the phrase "minimum monthly draw payment" in Section 5(b)(ii)
shall be amended to read "Base Salary."
7. Section 5(c) is hereby amended to read in its entirety as follows:
"Consequences of Termination by Executive or by the Company for Cause.
In the event of a termination of the Executive's employment by the
Company for Cause, or in the event of termination by the Executive, he
shall receive (i) in one lump sum, the balance of all accrued but
unpaid Base Salary and Expense Allowance Accruals, (ii) his Base Salary
and Expense Allowance for an additional three months after such
termination, so long as Executive otherwise shall be in material
compliance with the terms hereof, including without limitation Section
4 hereof, (iii) Approved Bonuses and (iv) any reimbursement of business
expenses in excess of the Expense Allowance."
8. The parties acknowledge that the term of the Agreement has been
extended for the year ended May 21, 1999.
9. The parties agree that the provisions hereof shall be effective
regardless of anything to the contrary contained within the Agreement.
Except as expressly set forth herein, the Agreement shall remain in
full force and effect and unmodified.
IN WITNESS WHEREOF, the undersigned have set their hands
hereto as of the date first above written.
JENNA LANE, INC.
By: /s/
Mitchell Dobies, President
/s/
ERIC HOLTZ
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Exhibit 10.17
LICENSE AGREEMENT
THIS LICENSE AGREEMENT is entered into this 18th day of June, 1998, by
Michael Caruso & Co., Inc., a California corporation, ("Licensor"), whose
address is 4560 Loma Vista Avenue, Vernon, California 90058, and Jenna Lane
Licensing I, Inc., a wholly-owned subsidiary of Jenna Lane, Inc., a Delaware
corporation, whose address is 1407 Broadway, Suite 2004, New York, New York
10018, ("Licensee") with reference to the following:
A. Licensor is the owner of the federally registered "BONGO" trademarks
identified on Schedule A attached hereto and made a part hereof by this
reference for use on and in connection with clothing (the "Trademark");
B. Licensee wishes to manufacture and market junior plus-size denim and
sportswear in sizes 14-24 under and in connection with the Trademark (the
"Licensed Items"); and
C. The parties desire that Licensor grant to Licensee a license to use the
Trademark in the manufacture and marketing of the Licensed Items upon the terms
and conditions hereinafter stated.
THE AGREEMENT
1. LICENSE.
1.1 Grant of License and Designation of Licensed Items. Effective upon
the signing of this Agreement by all parties, Licensor grants to Licensee the
exclusive license to use the Trademark within the geographic area described in
Paragraph 4 hereof, in the manufacture, distribution, marketing advertising and
sale of
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the Licensed Items. Licensee shall not solicit orders for Licensed Items in
sizes 26 and/or 28; provided, however, that Licensee may sell Licensed Items in
sizes 26 and/or 28 on a case-by-case basis, subject to the prior approval of
Licensor which shall not be unreasonably withheld or delayed. The rights granted
to Licensee are limited to use in connection with the Licensed Items. Licensee
agrees not to use the Trademark or give consent to their use except as allowed
in this Agreement, without the prior written consent of Licensor.
1.2 Grant of Right of First Negotiation/Refusal to Expand Licensed
Items. If during the Initial Term of this Agreement Licensor desires to license
the rights to use the Trademark in connection with plus size ranges of denim and
sportswear larger than size 24, Licensee shall be given the first opportunity to
expand the line of Licensed Items to include such additional plus size ranges
and to manufacture, distribute, market, advertise and sell the same under the
terms of this Agreement. Thereafter, while this Agreement is in effect, Licensor
shall not grant to any third party the right to manufacture, distribute, market,
advertise and/or sell such additional plus size ranges of denim and sportswear
without first giving Licensee the right of first refusal to match the terms of
any bona fide third party offer received by Licensor which is otherwise
acceptable to Licensor.
1.3 Public Disclosures and Announcements. The parties recognize and
acknowledge that Licensee's parent company is publicly-held and subject to
reporting requirements under federal and state securities laws and regulations
and, as such, the terms of this agreement and Licensee's performance hereunder
from time to time may have to be disclosed in such reports. In this regard, a
press release in form and content mutually agreeable to Licensor and Licensee
may be issued upon the execution of this Agreement.
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2. TERM.
2.1 Initial Term. The initial term of this Agreement (the "Initial
Term") shall commence upon the signing of this Agreement by all parties, and
shall end on March 31, 2002, unless sooner terminated in accordance with the
terms of this Agreement. The period beginning upon the signing of this
Agreement by all parties and ending March 31, 2000, and each subsequent twelve
(12) month period beginning April 1 and ending March 31 during the Initial Term
and the Extended Term (as hereafter defined) is herein referred to as a
"Contract Year."
2.2 Extended Term. Provided that the Minimum Guaranteed Royalty (as
hereinafter defined), the Minimum Guaranteed Advertising Royalty (as
hereinafter defined), and the Minimum Guaranteed Net Sales (as hereinafter
defined) required to be achieved for each Contract Year of the Initial Term are
met, and as of the last day of the Initial Term, Licensee is not in default
under this Agreement nor has there occurred any event that, with the passage of
time or the giving of notice, or both, would constitute a default under this
Agreement by Licensee, the term of this Agreement may be extended by Licensee
for the period (the "Extended Term") beginning on April 1, 2002 and ending on
March 31, 2005, unless sooner terminated in accordance with this Agreement,
provided notice of such extension is given in writing to Licensor by no later
than September 30, 2001.
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3. PAYMENTS.
3.1 Initial License Fee. Immediately upon the execution of this
Agreement, Licensee shall pay to Licensor the sum of Eighty Seven Thousand Five
Hundred Dollars ($87,500.00) as and for an advance royalty (the "Initial
License Fee"). Licensor and Licensee agree that the Initial License Fee is
fully earned by Licensor upon and for the grant set forth in Paragraph 1 hereof
and that the Initial License Fee is neither refundable nor contingent on
Licensee actually designing, manufacturing or selling any of the Licensed
Items. However, the Initial License Fee may be used by Licensee as an offset
against payment of future royalties under Paragraph 3.4.1 of this Agreement.
3.2 Net Sales. For purposes of this Agreement the term "Net Sales"
shall mean and refer to the aggregate gross invoice price for all Licensed Items
sold by Licensee in any Contract Year, less any refunds, allowances, deductions
and credits for returns directly applicable to the Licensed Items which are
actually taken by or given to Licensee's retail customers. For purposes of this
Agreement, Licensed Items shall be considered sold upon the date of invoicing,
shipment to the customer or payment, whichever event first occurs.
3.3 Minimum Guaranteed Net Sales. During each Contract Year Licensee
shall achieve minimum Net Sales of the Licensed Items within the Territory
("Minimum Guaranteed Net Sales"), as follows:
First Contract Year: $5,000,000.00
Second Contract Year: $8,500,000.00
Third Contract Year: $13,000,000.00
First Contract Year of Extended Term: $18,000,000.00
Second Contract Year of Extended Term: $23,000,000.00
Third Contract Year of Extended Term: $28,000,000.00
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In the event the annual statement for any Contract Year delivered by
Licensee pursuant to Paragraph 6 hereof discloses that Licensee has failed to
achieve the Minimum Guaranteed Net Sales for such Contract Year, Licensor shall
have the right exercisable in its sole discretion to terminate this Agreement
by giving written notice to Licensee of Licensor's intention to do so within
thirty (30) days of Licensor's receipt of Licensee's annual statement
disclosing such failure.
3.4 Royalty. During each Contract Year, and in accordance with
Paragraph 6, Licensee shall pay to Licensor a royalty as follows:
3.4.1 First Contract Year: The sum of $250,000.00 (the "Minimum
Guaranteed Royalty"), or an amount equal to 5% of the Net Sales of Licensed
Items achieved during the First Contract Year (the "Earned Royalty"), whichever
is greater.
3.4.2 Second Contract Year: The sum of $425,000.00 (the "Minimum
Guaranteed Royalty"), or an amount equal to 5% of the Net Sales of Licensed
Items achieved during the Second Contract Year (the "Earned Royalty"),
whichever is greater.
3.4.3 Third Contract Year: The sum of $650,000.00 (the "Minimum
Guaranteed Royalty"), or an amount equal to 5% of the Net Sales of Licensed
Items achieved during the Third Contract Year (the "Earned Royalty"), whichever
is greater.
3.4.4 First Contract Year of Extended Term: The sum of $900,000.00
(the "Minimum Guaranteed Royalty"), or an amount equal to 5% of the Net Sales
of Licensed Items achieved during such Contract Year (the "Earned Royalty"),
whichever is greater.
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3.4.5 Second Contract Year of Extended Term: The sum of
$1,150,000.00 (the "Minimum Guaranteed Royalty"), or an amount equal to 5% of
the Net Sales of Licensed Items achieved during such Contract Year (the "Earned
Royalty"), whichever is greater.
3.4.6 Third Contract Year of Extended Term: The sum of
$1,400,000.00 (the "Minimum Guaranteed Royalty"), or an amount equal to 5% of
the Net Sales of Licensed Items achieved during such Contract Year (the "Earned
Royalty"), whichever is greater.
3.5 Advertising Royalty. In addition to the royalty to be paid under
Paragraph 3.4 hereof, for purposes of Licensor advertising the Licensed Items
and the Trademark in the Territory, Licensee shall pay to Licensor a royalty
(the "Advertising Royalty") for each Contract Year during the term of such
Contract Year as provided in Paragraph 6.2, as follows:
3.5.1 First Contract Year: The sum of $100,000.00 (the "Minimum
Guaranteed Advertising Royalty"), or an amount equal to 2% of the Net Sales of
Licensed Items achieved during the First Contract Year (the "Earned Advertising
Royalty"), whichever is greater; provided, however, that Licensee may elect to
satisfy its Advertising Royalty obligation during the First Contract Year, only,
by applying all or any portion of same to co-op advertising and/or store support
with Licensee's retailers; provided, further, however, such expenditures are
approved by Licensor in advance, such approval not to be unreasonably withheld
or delayed. In the event Licensee so
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elects to apply the Advertising Royalty to co-op advertising and/or retailer
store support, Licensee shall render an accounting of same with its Annual
Report for the First Contract Year, as required in Section 7, and shall pay to
Licensor with the delivery of such Annual report the deficiency, if any, of the
Advertising Royalty due for the First Contract Year remaining after crediting
the amount spent by Licensee on co-op advertising and/or retailer store support
during the First Contract Year.
3.5.2 Second Contract Year: The sum of $170,000.00 (the "Minimum
Guaranteed Advertising Royalty"), or an amount equal to 2% of the Net Sales of
the Licensed Items achieved during such Contract Year (the "Earned Advertising
Royalty"), whichever is greater.
3.5.3 Third Contract Year: The sum of $260,000.00 (the "Minimum
Guaranteed Advertising Royalty"), or an amount equal to 2% of the Net Sales of
the Licensed Items achieved during such Contract Year (the "Earned Advertising
Royalty"), whichever is greater.
3.5.4 First Contract Year of Extended Term: The sum of $360,000.00
(the "Minimum Guaranteed Advertising Royalty"), or an amount equal to 2% of the
Net Sales of the Licensed Items achieved during such Contract Year (the "Earned
Advertising Royalty"), whichever is greater.
3.5.5 Second Contract Year of Extended Term: The sum of $460,000.00
(the "Minimum Guaranteed Advertising Royalty"), or an amount equal to 2% of the
Net Sales of the Licensed Items achieved during such Contract Year (the "Earned
Advertising Royalty"), whichever is greater.
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3.5.6 Third Contract Year of Extended Term: The sum of $560,000.00
(the "Minimum Guaranteed Advertising Royalty"), or an amount equal to 2% of the
Net Sales of the Licensed Items achieved during such Contract Year (the "Earned
Advertising Royalty"), whichever is greater.
The Advertising Royalty shall be applied by Licensor exclusively to the
production and placement of outdoor, print, radio and television, and other
advertising and/or promotion of the Licensed Items, utilizing creative, graphics
and other material of Licensor.
4. GEOGRAPHIC AREA. The rights granted to Licensee hereunder shall be
exclusively exercised by Licensee within the United States and its territories
and possessions, including U.S. Military Post Exchanges (the "Territory").
Licensor may extend, upon Licensee's request, the areas in which Licensee may
exercise said rights; provided, however, that Licensor is not required to do so.
Each such extension shall be in a written amendment to this Agreement.
5. LICENSEE'S RECORDS. Licensee shall maintain at its regular place of
business complete records of all business transacted by Licensee in connection
with the Licensed Items. Such records shall be maintained in accordance with
generally accepted accounting procedures. Licensor or its duly authorized
agent(s) or representative(s) shall have the right to inspect said records at
Licensee's premises during Licensee's regular business hours, not more
frequently than on a quarter annual basis. Licensor shall give Licensee at
least ten (10) days' advance written notice of Licensor's intention to do so.
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6. LICENSEE'S REPORTS OF SALES AND PAYMENT OF ROYALTIES.
6.1 Quarterly Reports. On or before the 15th day following the end of
each calendar quarter during the term of this Agreement, Licensee shall deliver
to Licensor a written statement, certified to be true by the Chief Financial
Officer of Licensee, setting forth the gross and Net Sales of Licensed Items by
Licensee for the immediately preceding calendar quarter and year-to-date,
stating the volume, description and gross selling price of units sold, any
refunds, allowances, deductions or credits given or allowed, the name of the
account to which the Licensed Items were shipped, and such other matters as
Licensor may from time to time reasonably request. Such reports shall be
furnished to Licensor whether or not any Licensed Items have been shipped
during the quarter for which the report is given.
6.2 Quarterly Royalty Payments and Reconciliation. For the first
Contract Year, only, Licensee shall advance to Licensor with each Quarterly
Report rendered in the months of January 1999, April 1999 and October 1999, the
sum of $87,500.00. In subsequent Contract Years, Licensee shall advance to
Licensor with each Quarterly Report rendered in the months of April, July,
October and January, for the immediately following calendar quarter, an amount
equal to the sum of one-fourth (1/4) of the Minimum Guaranteed Royalty, plus
one-fourth (1/4) of the Minimum Guaranteed Advertising Royalty applicable to
the Contract Year during which such calendar quarter occurs. If thereafter the
Quarterly Report rendered for the immediately following three (3) months
discloses that Licensor is entitled to receive the Earned Royalty and/or the
Earned Advertising Royalty for such calendar quarter pursuant to Paragraph 3
above, Licensee shall pay to Licensor the deficiency between the Minimum
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<PAGE>
Guaranteed Royalty plus the Minimum Guaranteed Advertising Royalty previously
advanced for such calendar quarter, and the Earned Royalty plus the Earned
Advertising Royalty for such calendar quarter, concurrently with the delivery of
the Quarterly Report for that calendar quarter.
7. LICENSEE'S ANNUAL REPORTS. On or before the ninetieth (90th) day
following the end of each Contract Year, Licensee shall deliver to Licensor an
annual statement, audited and certified by the certified public accountant
employed by Licensee, recapitulating the gross and Net Sales of Licensed Items
during the just ended Contract Year in the same detail as set forth in the
quarterly reports, and royalties (including the Advertising Royalty) due and
royalties paid by Licensee during the just ended Contract Year. If said annual
statement discloses that the amount of royalties paid to Licensor during the
Contract Year to which said statement relates is less than the amounts required
to be paid to Licensor pursuant to Paragraph 3 above, Licensee shall pay said
deficiency to Licensor concurrently with the delivery of such annual statement.
If said annual statement discloses that Licensee has paid to Licensor royalties
in excess of the amounts required to be paid by Licensee pursuant to Paragraph
3 above, Licensee shall be entitled to a credit equal to such royalties against
the royalties next accruing under this Agreement. In the event the foregoing
occurs during the final Contract Year of this Agreement, adjustments shall be
made in cash rather than in the form of a credit within thirty (30) days after
the delivery of such statement. Licensee shall also provide with each annual
statement an estimated projection of shipments of the Licensed Items for the
succeeding Contract Year, which shall be for informational purposes, only, and
shall not be binding on Licensee. All such
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forward-looking information shall be kept confidential by Licensor and shall
not be disclosed to any third party unless required by legal process.
8. AUDIT BY LICENSOR. Licensor shall have the right to audit Licensee's
records during normal business hours on ten (10) days' advance written notice.
Should an accurate audit by Licensor disclose that Licensee has understated
sales or underpaid royalties to Licensor, Licensee shall upon written demand
pay to Licensor the amount by which the actual royalties owing exceed royalties
paid. If Licensee has understated either gross or net sales or royalties by an
amount in excess of five percent (5%) of actual sales or the amount due for any
Contract Year, Licensee shall forthwith and upon written demand also pay to
Licensor all expenses incurred by Licensor in conducting such audit. Should
such audit disclose that the royalties paid exceed the actual royalties due,
Licensee shall be entitled to a credit equal to such excess royalties against
the royalties next accruing under this Agreement, except that when such audit
is conducted at the expiration of the Agreement, any excess royalties paid will
be remitted by check to the Licensee within thirty (30) days of the date of
such audit.
9. BEST EFFORTS OF LICENSEE. Licensee shall use its commercially reasonable
best efforts to manufacture and market the Licensed Items. A cessation of
Licensee's commercially reasonable best efforts for a continuous period of one
hundred eighty (180) days shall be grounds for termination of this Agreement.
Licensor shall have the right to inspect Licensee's facilities during regular
business hours, on ten (10) days' prior written notice. Licensor shall use its
best efforts to make such inspection in the presence of an officer of Licensee.
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10. LICENSED ITEMS TO BE KEPT DISTINCTIVE. With the exception of generic and
Licensee's pre-existing designs and styles used on non-Licensed Items, Licensee
shall endeavor to consistently distinguish the Licensed Items from other
products manufactured and sold by Licensee and to maintain distinct lines in all
merchandising efforts relating to the Licensed Items. Licensor agrees to render
reasonable assistance and advice to Licensee concerning styles and trends.
Designs and/or styles originated by Licensor specifically for the Licensed Items
and actually used by Licensee on the Licensed Items will not be added to
Licensee's product line or otherwise used on non-Licensed Items. In the event
Licensor creates a design or style and submits the same for use by Licensee,
Licensee shall not be required to use the same, but if Licensee elects not to do
so, Licensee shall have no right thereto except to the extent such design or
style is the same as or substantially similar to a design or style previously
developed by Licensee or its affiliates and, subject to the foregoing
limitation, shall not use the same in connection with any product or service of
Licensee.
11. ADDITIONAL OBLIGATIONS OF LICENSEE AS TO QUALITY, MERCHANDISING AND
OTHER ASPECTS OF LICENSED ITEMS.
11.1 Quality of the Licensed Items. Licensee acknowledges that Licensor
has a good and valuable reputation for a distinguished level of junior design,
style and quality and that Licensee therefore must maintain such level in all
Licensed Items. Accordingly, it is the essence of this Agreement that the
overall conceptualization and direction of Licensed Items shall proceed subject
to the approval of Licensor, such approval not to be unreasonably withheld or
delayed. To this end, Licensee shall furnish to Licensor without request and at
Licensee's expense,
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photographs and pre-production models or prototype samples of all Licensed
Items for Licensor's approval which shall not be unreasonably withheld or
delayed. Licensee shall also furnish to Licensor without request and at
Licensee's expense, prototype samples of each proposed new model and material of
a Licensed Item. In addition, Licensee shall provide Licensor with the marketing
strategy and pricing proposed as to each sample Licensed Item furnished to
Licensor. Prior to submission of models and samples to Licensor, Licensee shall
conduct its usual tests on each such model or sample to assure that quality of
the Licensed Item is at least equal to the quality of similar non-licensed items
manufactured by Licensee, sold at retail, at comparable prices. Licensor shall
make Licensor's designers available to Licensee to consult with Licensee with
regard to the development, design and marketing of the Licensed Items. Licensor
shall have the right to approve of the styling, design (including colors),
materials, manufacturing quality, marketing strategies and pricing of any of the
Licensed Items, such approval not to be unreasonably withheld or delayed.
Failure of Licensor to notify Licensee of disapproval within fourteen (14) days
after receipt of the model, sample, marketing or pricing information as the case
may be, shall constitute Licensor's approval. Licensee shall not put into
production any Licensed Item as to which the preproduction model or prototype
sample has not been approved by Licensor to the extent such approval is
hereunder required.
11.2 Use of the Trademark. Each Licensed Item shall contain at least
one prominent representation of the Trademark which shall be permanently
affixed to the Licensed Item. Samples of all proposed uses of the Trademark on
a Licensed Item, or on the labeling, promotional, advertising and packaging
material proposed by
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Licensee to be used in connection with a Licensed Item shall be submitted by
Licensee at its own cost to Licensor for approval, such approval not to be
unreasonably withheld or delayed. Licensor shall have the right to approve or
disapprove the colors, materials, design or workmanship of any layouts, samples
or other depictions of the Trademark in Licensor's reasonable discretion, such
approval not to be unreasonably withheld or delayed. Licensor shall make
reasonable efforts to notify Licensee of its decision with regard to samples as
soon as possible. Failure of Licensor to notify Licensee of disapproval within
fourteen (14) days after receipt of a sample shall constitute Licensor's
approval. Licensee shall not produce or cause any third party to produce any
material bearing the Trademark that has not been approved by Licensor as
required by the terms hereof.
11.3 Revisions and Deviations After Approval by Licensor. After the
required approval of pre-production models or prototype samples of the Licensed
Items and promotional materials bearing the Trademark has been secured from
Licensor, Licensee shall not depart therefrom in any material manner without
first obtaining the express written approval of Licensor, except for such minor
changes in production which will not affect the appearance or quality of the
Licensed Items. If Licensor reasonably determines that Licensee has materially
deviated from the approved pre-production model, prototype sample or production
sample, Licensor shall notify Licensee of the nonconformity. Upon receipt of
such notice Licensee shall, to the extent commercially feasible, discontinue
any and all manufacture, offering for sale, sale, advertising, promotion,
shipment and distribution of the Licensed Items or promotional and/or packaging
material which does not materially conform to the approved model.
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11.4 Merchandising. In order to preserve the integrity, value and good
will associated with the Trademark, Licensee agrees that all Licensed Items
sold by Licensee will be of high standard as to product design and quality and
shall be merchantable by boutiques, specialty stores, chain stores, department
stores and direct mail catalogues. In addition, Licensee shall maintain the
collection concept for its line of Licensed Items. Licensee shall not sell the
Licensed Items to mass merchandisers, club stores or discounters; provided,
however, that Licensee may sell end of season Licensed Items to "off price"
retailers such as Ross, T.J. Maxx and Marshall's; provided further, however,
that such sales do not exceed ten percent (10%) of Net Sales in any contract
year. Licensor shall have the right exercisable in its sole discretion to
disapprove of and require Licensee not to sell the Licensed Items to any
retailer to whom Licensee has sold or intends to sell the Licensed Items.
11.5 Damaged and Defective Goods. Licensor shall not require Licensee
to pay royalties on off-quality Licensed Items, commonly referred to as
"seconds" or "irregulars" (hereinafter "Off-Quality Licensed Items"), provided
that the Trademark is completely removed therefrom. If Licensee is unable to
completely remove the Trademark from Off-Quality Licensed Items, Licensee shall
dispose of such branded, Off-Quality Licensed Items through retailers approved
by Licensor, such approval not to be unreasonably withheld, and only after
clearly marking and packaging the branded, Off-Quality Licensed Items as
"irregular." The royalty rate for such branded, Off-Quality Licensed Items
shall be reduced to one-half of the royalty rate then in effect for the
Licensed Items, up to a maximum of two percent (2%) of Net Sales for any one
Contract Year. Sales of branded, Off-Quality Licensed Items greater than the
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said two percent (2%) amount of Net Sales for any one Contract Year shall be
subject to the full royalty rate then in effect for the Licensed Items.
12. RESTRICTIONS UPON SUBCONTRACTS. Licensee shall have the right to enter
into subcontracts for the manufacture of the Licensed Items, either or both
through agents or directly with subcontractors. Licensee shall provide to
Licensor a schedule of all of Licensee's foreign subcontractors, shall instruct
each said subcontractor, in writing, that the Trademark is not to be used on
any goods but for the Licensed Items, and shall use its commercially reasonable
and practicable efforts to police the subcontractor's compliance with such
instruction. Licensee shall not permit any subcontractor to further subcontract
the work subcontracted for, or to distribute any of the Licensed Items anywhere
in the world.
13. PROHIBITION OF ASSIGNMENTS AND TRANSFERS. Without written consent of
Licensor which shall not be unreasonably withheld or delayed, Licensee shall
not voluntarily, involuntarily or by operation of law assign or transfer this
Agreement or any of Licensee's rights, interests, or duties hereunder (except
as specifically provided herein); provided, however, that Licensee need not
secure Licensor's prior written consent to assign or transfer Licensee's rights
under this Agreement to an affiliated entity. The consent of Licensor to one
assignment, transfer or sublicense shall not be deemed to be consent to any
subsequent assignment, transfer or sublicense. Any assignment, transfer or
sublicense without Licensor's written consent shall be void and at the option
of the Licensor shall constitute a default hereunder.
14. NO DILUTION OF TRADEMARK; NO ATTACK UPON TRADEMARK. Licensee shall not
use the Trademark or any material utilizing the Trademark in such
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manner as will adversely affect any rights of ownership of Licensor in and to
the Trademark. Licensee shall cause to appear on all Licensed Items and on all
materials on which the Trademark is used, such indications as may be required by
any applicable law so as to give appropriate notice of any trademark, trade
names or other rights therein. Licensee shall not contest the validity of the
Trademark or the rights of Licensor under which this license is granted, nor
will Licensee willingly become an adverse party to litigation in which others
contest the Trademark or Licensor's said rights. Licensee shall not seek to
avoid its obligations hereunder because of the assertion or allegation by any
person(s) that the Trademark is invalid; provided, however, that Licensee shall
not be deemed to be in default of its obligations hereunder in the event a court
of competent jurisdiction or an administrative agency (such as the United States
Patent and Trademark Office) issues an order binding on Licensee prohibiting
Licensee's continued performance hereunder.
15. TRADEMARK INFRINGEMENT AND OTHER LITIGATION. Licensee shall notify
Licensor as soon as practicable of any infringement of the Trademark which
comes to Licensee's attention. Licensor at its sole expense, and in its own
name, shall prosecute and defend any action or proceeding which Licensor deems
necessary or desirable to protect the Trademark. Licensee may, and upon written
request by Licensor shall, join Licensor at Licensor's sole cost in any such
action or proceeding. Licensee shall not commence any action or proceeding to
protect the Trademark without the written consent of Licensor and shall not
defend any such action without Licensor's written consent. Any damages
recovered in any action or proceeding commenced by Licensor shall belong solely
and exclusively to Licensor. Licensor shall
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have no liability to Licensee for any damages awarded or recovered against
Licensee, nor shall Licensor have any liability to any other person for any
damages awarded to or recovered by such other person, in any action or
proceeding alleging any violation of any antitrust, trade regulation, labor
practice, or similar statute, or any claim of product liability or unfair
competition relating to Licensee's alleged misuse of the Trademark or the
rights herein granted to Licensee. If Licensor is made a party to any such
action or proceeding, Licensee shall indemnify and hold Licensor harmless from
any and all attorneys' fees, costs, damages, liabilities and awards as may be
incurred, assessed, imposed or adjudicated by reason thereof; provided,
however, that such action or proceeding results from the manufacture or
marketing by Licensee of the Licensed Items or otherwise as a result of this
Agreement. Licensor shall indemnify and hold Licensee harmless from any
liability to the extent arising from Licensee's use of the Trademark licensed
hereunder. Licensee may, at its option, choose to be represented in any
threatened or actual action or proceeding to which this Paragraph pertains by
Licensor's counsel at no cost to Licensee, in which event Licensor shall
control such representation. If Licensor's counsel cannot thereafter represent
both Licensor and Licensee as a result of an actual or potential conflict of
interest, Licensor's counsel shall continue to represent Licensor only.
16. ADDITIONAL RESTRICTIONS UPON USE OF TRADEMARK. Licensee shall not use
or permit the use on any of the Licensed Items, or on any packaging which is
received by the general public (as opposed to retailers), any identification
which includes with the name "BONGO," the name of Licensee or of any other
person or entity (e.g. "BONGO by Licensee") nor shall Licensee include or
permit the inclusion, with the
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name BONGO or the Trademark, in any advertising or promotional material
featuring any of the Licensed Items which is disseminated to the general public
(as opposed to trade advertising) the name of Licensee or of any other person or
entity. In addition to the foregoing, Licensee shall not use or permit the use
of the Trademark, including the name BONGO on or in connection with any product
or service, other than the Licensed Items, which is manufactured or sold by
Licensee, or which is licensed by Licensee to others for manufacture or sale
(e.g. "Licensee, by the makers of BONGO").
17. DEFAULTS BY LICENSEE. Except as provided, in the event Licensee
materially defaults in the performance of any of the terms and conditions
hereunder, and if such default involves the payment of money not cured within
ten (10) business days after receipt of written notice or if such default
involves performance other than the payment of money, and Licensee shall not
have commenced curing the same within thirty (30) days after receipt of written
notice, or if a Receiver is appointed to, or one or more creditors take
possession of all or substantially all of Licensee's assets, or if Licensee
shall make a general assignment for the benefit of creditors, of if any action
is taken or suffered by Licensee under any insolvency or bankruptcy act, then
in such event Licensor may cancel and terminate this Agreement upon written
notice to Licensee. Such cancellation and termination will not relieve Licensee
of any of its obligations as may by then have accrued hereunder. If Licensee
commits three or more defaults and corrections thereof during the term or
extension of this Agreement, Licensor may terminate this Agreement with written
notice to Licensee. If at the time of termination Licensee shall have paid to
Licensor royalties in excess of the amounts required to be paid by the Licensee
pursuant to Paragraph 3, Licensor shall retain such
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excess pending a final accounting from Licensee of Sell-Off Inventory (as
hereafter defined), and shall within thirty (30) days of receipt of such
accounting remit the excess, if any, to Licensee. The time for performance of
any act required of either party shall be extended by a period equal to the
period during which a party was reasonably prevented from performance, by fire,
flood, storm, or like casualty.
18. LICENSOR'S RIGHTS TO DESIGNS, ETC., UPON TERMINATION. In the event this
Agreement is cancelled or terminated for any reason, Licensee shall assign and
transfer to Licensor any and all rights in the Trademark, and in the designs
originated by Licensor for the Licensed Items, and the goodwill associated
therewith, and shall not thereafter manufacture or market any of said designs.
Licensee may, however, dispose of its finished and unfinished but in-process
inventory of (collectively, the "Sell-Off Inventory") Licensed Items for a
period not to exceed six (6) months after the effective date of cancellation or
termination of this Agreement (the "Sell-Off Period"), provided that all
Royalties then due Licensor have been paid and provided further that Licensee
provides to Licensor a schedule of all Sell-Off Inventory within fifteen (15)
days of the effective date of cancellation or termination. Neither Licensee nor
any other person or entity may, other than in the regular course of Licensee's
business, sell or transfer any Licensed Item unless all sums due Licensor from
Licensee have been paid. All Royalties due Licensor by reason of the sale of
the Sell-Off Inventory shall be paid to Licensor within fifteen (15) days of
the end of the month during which Licensee sells its last remaining Sell-Off
Inventory, but in no event later than fifteen (15) days after the close of the
Sell-Off Period. Upon termination or cancellation of this Agreement, all
packaging, advertising, and other items bearing a representation of the
Trademark not
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being utilized in the sell-off shall, without cost to Licensor, become the
property of Licensor and be delivered to Licensor's place of business. The
reasonable cost of such delivery shall be paid by the Licensor.
19. ADDITIONAL RIGHTS UPON TERMINATION. During the last six (6) months of
the final Contract Year of this Agreement, Licensor shall have the right to
design and manufacture merchandise of the types covered by this Agreement and
to negotiate agreements which grant a license to a party of any of the rights
herein mentioned. No merchandise identified as Licensed Items shall be shipped
by Licensor or any third party other than Licensee prior to the expiration or
termination of this Agreement (exclusive of the additional six (6) month period
for the disposition of the Licensed Items). However, any successor Licensee may
solicit orders to be shipped no earlier than the day after the effectiveness of
the termination or expiration of this Agreement during the last six (6) months
of the final Contract Year.
20. GOOD WILL. Licensee acknowledges that the Trademark has acquired a
valuable secondary meaning and good will. Accordingly, Licensee agrees not to
use the Trademark so as to detract from its repute.
21. INSURANCE. Licensee and its sublicensees, if any, agree to carry
product liability insurance on the Licensed Items, with a limit of liability of
$5,000,000. Licensor shall be named as an additional insured on each such
insurance policy. Such insurance may be obtained in conjunction with a policy of
product liability insurance which covers products other than the Licensed Items.
The policy shall provide for at least ten (10) days prior written notice to
Licensor of the cancellation or substantial
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modification of the policy. The Licensee shall deliver to Licensor a
certificate evidencing the existence of such insurance policies after their
issuance.
22. RESERVED RIGHTS. Rights not specifically granted to Licensee are
reserved by Licensor and may be used by Licensor without limitation. Any use by
Licensor of such reserved rights, including but not limited to the use or
authorization of the use of the Trademark shall not be deemed unfair
competition, interference with or infringement of any of Licensee's rights
under.
23. ATTORNEY'S FEES; CHOICE OF FORUM; APPLICABLE LAW. In the event either
party shall commence any action or proceeding against the other by reason of
any breach or claimed breach in the performance of this Agreement, or seeks a
judicial declaration of rights hereunder, the prevailing party in such action
or proceeding shall be entitled to reasonable attorney's fees fixed by the
trial court. Any legal action or proceeding against Licensor by or on behalf of
Licensee shall be brought in the County of Los Angeles. The law applicable
thereto shall be the law of the State of California.
24. NON-AGENCY OF PARTIES. This Agreement does not make Licensee an agent of
Licensor, or Licensor an agent of Licensee. Licensee is not granted any
authority to create any obligation on behalf of Licensor and Licensor is not
granted any right to create any obligation on behalf of Licensee. No joint
venture or partnership between the parties is intended or shall be inferred.
25. ADDRESSES FOR NOTICE. All notices required under this Agreement shall
be in writing, by certified mail, return receipt requested, addressed to
Licensee at 1407 Broadway, Suite 2004, New York, New York 10018, and to
Licensor at 4560 Loma
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Vista Avenue, Vernon, California 90058, with courtesy copies sent to counsel,
as follows:
If notice is to Licensor:
Gary S. Phillips, Esq,.
Law Offices of Gary S. Phillips
9777 Wilshire Boulevard
Suite 805
Beverly Hills, CA 90212
Phone: (310) 278-9787
Fax: (310) 2784805
If notice is to Licensee:
David N. Feldman, Esq.
Law Offices of David N. Feldman
36 West 44th Street
New York, New York 10036-8102
Phone: (212) 869-7000
Fax: (212) 997-4242
26. WAIVER BY LICENSOR. In the event Licensor shall waive any of its rights
under this Agreement, or the performance by Licensee of any of its obligations,
such waiver shall not be a continuing waiver or a waiver of any other rights or
obligations.
27. INTEGRATED AGREEMENT. This Agreement constitutes the entire agreement
between the parties as to the Licensed Items. No modifications of this
Agreement shall be of any force unless it is in writing and executed by the
parties hereto.
28. SEPARABILITY OF PROVISIONS. Any provision of this Agreement found
invalid shall not invalidate the remaining provisions. Titles to the paragraphs
shall have no substantive effect.
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29. BINDING UPON SUCCESSORS. This Agreement shall be binding upon the
parties hereto, and their successors and assigns; provided, however, this
Paragraph shall not modify the Agreement's prohibition against assignment or
transfer.
30. INTERPRETATION. No provision in the Agreement is to be interpreted for
or against either party because that party or that party's legal representative
drafted such provision.
31. GUARANTY. To induce Licensor to make this Agreement, and in
consideration of Licensor's grant of rights to Licensee hereinabove stated, the
obligations of Licensee hereunder shall be guaranteed by Jenna Lane, Inc.
("Guarantor"), who shall execute the Guaranty Agreement attached hereto and
made a part hereof.
Dated: ,1998 MICHAEL CARUSO & CO., INC.
By: ________________________
Michael Caruso
Chairman of the Board
"Licensor"
Dated: ,1998 JENNA LANE LICENSING I, INC.
By: /s/ Mitchell Dobies
President
(name and title)
"Licensee"
[Signatures continued on page 25]
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Dated: , 1998 JENNA LANE, INC.
By: /s/ Mitchell Dobies, President
Mitchell Dobies, President
"Guarantor"
25
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SCHEDULE A
Registration Number
& Registration Date Trademark Class of Goods
- ------------------- --------- --------------
1,331,004 BONGO Clothing -- namely, pants,
April 16,1985 jeans, skirts, shirts, blazers,
jackets, vests, jumpsuits and
blouses.
1,500,609 B BONGO Clothing - - namely, pants
August 16, 1988 skirts, blouses and jackets.
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GUARANTY AGREEMENT
To induce Michael Caruso & Company, Inc. ("Licensor") to enter into that
certain LICENSE AGREEMENT ("Agreement") dated _____________, 1998, between
Licensor and _____________________ ("Licensee"), the undersigned, JENNA LANE,
INC., a Delaware corporation, ("Guarantor"), does hereby absolutely and
unconditionally guarantee to Licensor, its successors and assigns, the
truthfulness and full, prompt, faithful and complete performance, payment and
discharge by Licensee of each and every one of the terms, provisions and
conditions set forth in the Agreement, and any amendment or changes thereto.
Without limiting the generality of the foregoing:
1. The insolvency, bankruptcy, or lack of corporate power of either
Licensee or Guarantor, or any party at any time liable for the discharge of any
obligation guaranteed hereby, whether now existing or hereafter occurring,
shall not affect Guarantor's liability hereunder in any manner whatsoever;
2. Any neglect, delay, omission, failure or refusal of Licensor to take or
prosecute any action against Licensee or to enforce any of Licensor's rights
under the Agreement shall not affect Guarantor's liability hereunder in any
manner whatsoever;
3. Any failure of Licensor to notify Guarantor of any amendment or change
to the Agreement, or of any action taken or refrained from being taken by
Licensor against Licensee, shall not affect Guarantor's liability hereunder in
any manner whatsoever, it being understood and agreed that Licensor shall not
be required to give Guarantor any notice of any kind under any circumstances
whatsoever with respect to or in connection with the Agreement; and
4. No acceptance of this Guaranty is necessary.
Guarantor hereby waives:
1. Demand and protest;
2. Any right to require Licensor, its successors or assigns, to proceed
against any other person, firm, or entity or to pursue any other remedy; and
3. All notices of acceptance of this Guaranty and all other notices which
Guarantor may otherwise be entitled to receive.
Guarantor shall be directly and primarily liable for the discharge of the
obligations guaranteed hereby regardless of any act or omission of Licensee with
reference to any of said obligations and there shall be no obligation to bring
or prosecute any action against Licensee for any breach of the Agreement or to
give any notice of any kind to any party, other than as required by the terms of
the Agreement
Guarantor acknowledges that Licensor would not have entered into the
Agreement but for this Guaranty by Guarantor.
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This Guaranty shall be binding upon Guarantor, its successors and assigns,
and shall inure to the benefit of Licensor, its successors and assigns. This
Guaranty shall be construed in accordance with the laws of the State of
California.
In the event of an action to redress any breach of any provision hereof,
Guarantor agrees to reimburse Licensor if it is successful in such action for
costs and/or expenses incurred thereby, including but not limited to reasonable
attorneys' fees and costs.
Guarantor warrants and represents that it has the authority and legal right
to enter into this Guaranty.
Dated: , 1998 JENNA LANE, INC.
By: /s/ Mitchell Dobies, President
Mitchell Dobies, President
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Exhibit 10.18
REPUBLIC BUSINESS CREDIT
Republic Business Credit Corporation
452 Fifth Avenue
New York, New York 10018
Telephone 212-525-5200
Fax 212-525-5022
[Daily Balance]
FACTORING AGREEMENT
Republic Business Credit Corporation
452 Fifth Avenue
New York, New York 10018
Re: T.L.C. FOR KIDZ, INC.
2559 B Route 130 South, Cranbury, New Jersey 08512
Ladies and Gentlemen:
We hereby request that you act as our sole factor effective as of the date
of your acceptance hereof, upon the terms and conditions set forth below. All
capitalized terms shall have the meaning given such terms in Section 15 of this
Agreement ("Definitions") unless defined elsewhere in this Agreement.
1. PURCHASE OF RECEIVABLES:
A. We agree that we will do all of our business through you as our sole
factor and hereby assign and sell to you as absolute owner all Receivables. We
represent and warrant that each and every Receivable now or hereafter assigned
to you will be a bona fide and existing obligation of a customer of ours, owned
by and owing to us, arising out of the sale and delivery of goods by us or the
rendition of services by us, free and clear of any and all deductions,
Disputes, liens, security interests and encumbrances.
B. You agree to and do hereby purchase without recourse to us, except as
set forth hereinafter, all Receivables approved by you in accordance with
Section 1E below. You agree to and do hereby assume the risk of non-payment on
such Receivables, if nonpayment is due solely to the financial inability of our
customer to make payment at the due date of the Receivable, provided the
customer has, at such due date, and thereafter, received and finally accepted
the merchandise or services giving rise to such Receivables without any
Dispute.
C. Receivables not approved by you in accordance with Section 1E below are
assigned to and purchased by you with full recourse to us in the event of
nonpayment thereof for any reason.
D. In addition, we hereby sell, assign and transfer to you all of our right,
title and interest in and
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to the merchandise, the sale of which resulted in creation of Receivables, and
in all such merchandise that may be returned by customers and all causes of
action and rights in connection therewith, which we now have or may hereafter
acquire, including our rights of reclamation, replevin and stoppage in transit
and as an unpaid vendor of merchandise or services as a lienor. We hereby agree
upon your instruction to promptly take any and all action necessary for you to
enforce your rights of reclamation, replevin and stoppage in transit and in the
event of our failure to do so, you shall be authorized to exercise any such
right in our name or in any manner you deem appropriate. Any merchandise so
recovered shall be treated as returned merchandise, and shall be set aside,
marked with your name and held for your account as owner. We shall notify you
promptly of all such returned merchandise.
E. No purchase of any Receivable by you shall be deemed to be made pursuant
to Section 1B above unless the sale of merchandise or rendition of services by
us resulting in such Receivable shall have been made with your prior written
approval of the amount and terms of such sale or rendition of services and the
credit standing of our customer, and you shall have the right to withdraw such
approval at any time before actual delivery of such merchandise or rendition of
such services. Each credit approval shall be automatically withdrawn in the
event the terms of sale are changed without your written approval or in the
event the shipment of goods or rendition of services shall not be made or
performed within thirty (30) days from the completion date specified in the
credit approval or within thirty (30) days from the date of the credit
approval, if no completion date is specified. When a credit approval specifies
special terms and conditions, the credit approval shall be deemed automatically
withdrawn when such special terms and conditions are not complied with. You
shall not be liable in any manner or respect for refusing to accept or approve
any Receivable or the credit standing of any customer of ours or for
withdrawing any approval as provided in this Section 1E.
F. On billing terms of "10 E.O.M." such terms shall mean with respect to
invoices dated from the 1st day through the 19th day of a month that the due
date of such invoice is "10 days after the end of such month"; and, with
respect to invoices dated on or after the 20th day of the month, the due date
shall be "10 days after the end of the next following month."
G. Net Sales relating to each Receivable shall be recorded on our monthly
statement, net of any deductions, on the Settlement Date of such Receivable and
such credit shall constitute payment in full of such Receivable.
H. On the face of all bills and invoices for all Receivables assigned to and
purchased by you hereunder shall be placed the following legend: "This
Receivable is assigned to, owned by and payable only to: REPUBLIC BUSINESS
CREDIT CORPORATION AT P.O. BOX 7777, W8720, PHILADELPHIA, PA 19175- 8720 OR
DEPT. 49941, LOS ANGELES, CA 90088, whichever is nearer. Any objection to this
invoice must be reported to Republic Business Credit Corporation at 452 Fifth
Avenue, New York, N.Y. 10018-2706."
2. ADVANCES; LOANS: You may, in your sole discretion, make advances and
loans to us from time to time at our request. In your sole discretion you may
hold a reserve against Receivables in such amount as you determine to hold, and
you may revise such reserve from time to time.
3. SECURITY INTEREST: As security for any and all Obligations, you shall be
entitled to hold and we hereby grant to you a continuing general lien upon,
security interest in and to, and right of set off on or against any or all of
the following, whether now or hereafter existing or acquired, and wherever
located (collectively, the "Collateral"): our reserves, instruments, documents,
notes, bills and chattel paper, proceeds of insurance, other forms of
obligations owing to us, bank and other deposit accounts, general intangibles
(including without limitation all tax refunds, contract rights, trade names,
trademarks, trade secrets, customer lists, and all other licenses, rights,
privileges and franchises), all balances, sums and other property at any time
to our credit or in your possession or in the possession of any of your
Affiliates, together with all merchandise the sale of which resulted in the
creation of Receivables and in all such merchandise that may be returned by
customers and Receivables, if and to the extent we are deemed to have any
rights therein, whether or not specifically assigned to you, and all books and
records relating to any of the foregoing, including the cash and non-cash
proceeds of all of the foregoing. We represent, warrant and covenant to you
that we
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now have, and shall at all times continue to have, good and marketable
title to all of the Collateral, free and clear of any and all liens, security
interests and encumbrances. You shall have the right and are hereby irrevocably
authorized at any time to charge to us the amounts of any and all Obligations,
whether or not then due, and, upon the demand of any of your Affiliates, to pay
over to such Affiliate any amounts owing to them by us. We shall execute and
deliver to you all financing statements and other documents and instruments
that you may request to perfect, protect or establish your security interest
hereunder and we authorize you to execute and file any financing statements
covering such security interest without our signature or, if you so elect,
signed in our name by you, and you are hereby irrevocably appointed our
attorney-in-fact to do so. We shall reimburse you for, and you shall be
entitled to charge us with, all costs and expenses incurred by you in
connection with the preparation, execution, administration and enforcement of
this Agreement, or to enforce any of the Obligations, or in the prosecution or
defense of any action, involving you or us, concerning any matter growing out
of or in any manner relating to this Agreement, the Receivables or other
Collateral or any Obligation whatsoever including, without limitation, all
reasonable fees and expenses of your attorneys (including inhouse counsel),
incurred in connection with the foregoing, including, without limitation, those
incurred in connection with any state court insolvency case or proceeding or
federal bankruptcy case or proceeding, and all fees and costs in connection
with public record searches and filings, investigation, accounting and periodic
field examination fees and expenses (whether from your own or outside
investigators, auditors or examiners) and all other costs and expenses with
respect thereto, whether or not a legal action is commenced by or against us,
and if such action is commenced, whether or not judgment is obtained. Recourse
to security or any Collateral shall not at any time be required and we shall at
all times remain liable for the repayment on demand to you of all Obligations.
4. DISBURSEMENT OF FUNDS: We may from time to time give you oral,
telephonic, telefax and/or written instructions to disburse monies to us. Such
disbursement requests may be made by any of our officers, employees or agents
and you shall have no obligation to verify that any request is authorized or
proper.
5. INTEREST:
A. Interest charges to us hereunder shall be at one percent (1%) below
the Republic Reference Rate, computed on the basis of a 360-day year for the
actual number of days in the interest period. The interest rate in effect
during each calendar month shall be determined using the Republic Reference
Rate in effect on the last Business Day of the preceding calendar month. We
recognize that the actual yield to you under this Agreement may exceed the rate
of interest specified in this Section 5A.
B. Interest, at the respective rates set forth in this Section 5, shall be
computed (i) daily based on the Contract Balance for Interest each day; and (ii)
upon our late payment of any Receivable purchased by you from others, from the
due date of the Receivable to the date of such late payment, but such interest
shall only be charged or credited to us in accordance with Section 5E below.
C. In the event any sums are paid to us or credited to us in error, or you
are required to turn over or return to the customer an amount which was paid to
us and whose risk of non-payment you did not assume in accordance with Section
1B above, you may in your discretion charge said sum to us. Any such sums shall
bear interest, payable by us at the rate set forth in Section 5A above, from
the Settlement Date of such sum, if a Receivable, or otherwise from the date
such sum was paid to us or credited to us (which date shall constitute the
"Settlement Date" for such sum), up to the date a correction is made on your
records, less in each case Add on Days.
D. In the event you do not credit us with a payment on a Receivable which
you receive, whether by error, or because the customer remittance was an
on-account or installment payment (which payments are not credited until the
full invoice amount is paid), or because the Receivable to which the customer
remittance applied could not be identified, then the payment received by you
shall bear interest, payable by you as a credit to us at the rate set forth in
Section 5A above, from the Settlement Date of such payment, which, if such
payment is a partial payment of a full invoice, shall be calculated based upon
the Deposit Date of such partial payment, up to the date an adjustment is made.
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E. Interest shall be charged or credited to us, as the case may be, as of
the last day of the month in which the interest is accrued.
F. If for any reason there remains with you at any time a credit Daily
Ending Balance ("Matured Funds"), you shall pay us interest on such Matured
Funds, at a rate per annum equal to 3% below the Republic Reference Rate in
effect during each day in which such Matured Funds are retained by you. The
applicable Republic Reference Rate is to be determined in accordance with
Section 5A above. You reserve the right to remit such Matured Funds to us at
any time.
6. MONTHLY STATEMENTS: You will send us a monthly statement after the end of
each month. UNLESS YOU RECEIVE OUR WRITTEN EXCEPTIONS TO ANY STATEMENT RENDERED
BY YOU WITHIN THIRTY (30) DAYS AFTER SUCH STATEMENT IS RENDERED, SUCH STATEMENT
SHALL CONSTITUTE AN ACCOUNT STATED AND BE DEEMED ACCEPTED BY US AND SHALL BE
CONCLUSIVE AND BINDING UPON US.
7. COMMISSIONS:
A. We agree to pay to you a factoring commission equal to .65% of the gross
face amount of each Receivable whether or not specifically assigned to you.
Your factoring commission as so calculated shall be charged to our account
effective as of the fifteenth (15th) day of the month in which the Receivable
was assigned.
B. Commissions payable to you hereunder are based upon our usual and
regular terms which do not exceed ninety (90) days. On any other Receivable on
which the due date has been extended beyond ninety (90) days, your commissions
thereon shall be increased at the rate of one-quarter of one percent (.25%) of
the gross face amount of such Receivable for each additional thirty (30) days
or fraction thereof by which our terms are extended. The increased commission
for sales in excess of your regular terms of sale shall only apply to Rainbow
Shops, Petrie Retail, Inc., Montgomery Ward and Casual Corner when such terms
of sale exceed 120 days. No such increase in the due date, however, shall be
granted without your prior written approval.
C. We may from time to time request that you credit approve sales made by
us to Debtors-in- Possession operating under Chapter 11 of the Bankruptcy Code
("DIP Sales"). We agree that any such credit approval by you of DIP Sales shall
be subject to a supplemental factoring commission of 1% in addition to the
regular factoring commission charged by you, provided, however all Receivables
arising from or created by our sales to Petrie Retail, Inc. that you credit
approve shall be subject to a supplemental factoring commission of 1.35% in
addition to the regular factoring commission charged by you.
8. ASSIGNMENT SCHEDULES, INVOICING AND CREDITS: We will provide you
with an assignment and schedule of Receivables sold and assigned to you in form
satisfactory to you. All bills or invoices shall be mailed by us to our
customers at our sole expense. We will give you copies of all bills or
invoices, together with such proof of shipment or delivery as you may from time
to time require. The issuance of or any billing by us of such bills or invoices
shall constitute an assignment thereof to you for the Receivables represented
thereby, whether or not we execute any other specific instrument of assignment.
Notwithstanding the foregoing, you shall be deemed not to have assumed the
credit risk as provided in Section 1B above if we do not supply you with a
schedule and assignment of Receivables within ten (10) days of the creation of
the Receivables involved and the risk of loss with respect to such Receivables
shall be deemed to have reverted to and been assumed by us without any act upon
your part to effect the same. We will issue credits only with your prior
written approval and credits may be claimed only by the customer. All credits
for full invoice amounts shall be assigned by us to you.
9. DISPUTES AND CHARGEBACKS: We hereby further warrant to you that
the customer in each instance has received and will accept the merchandise sold
or the services rendered and the bill or invoice therefor, and
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will pay the same as and when due without any Dispute. We will notify you
promptly of, and, at our own cost and expense, including attorneys' fees and
expenses, shall settle all Disputes and will pay you promptly the amount of the
Receivables affected thereby. Any Dispute not settled by us by the sixtieth
(60th) day next following the due date of the bill or invoice affected thereby
may, if you so elect, be settled, compromised, adjusted or litigated by you
directly with the customer or other complainant for us and at our risk and upon
such terms and conditions as you in your sole discretion deem advisable. You
may also in your discretion take possession of and sell or cause the sale of
any returned or recovered merchandise, at such prices, upon such terms and to
such purchasers as you deem proper (including, in the event of any public sale,
yourself) and in any event to charge the deficiency costs and expenses thereof,
including attorneys' fees and expenses, to us. In addition to all other rights
to which you are entitled hereunder, whenever there is any Dispute, or if any
Receivable not approved in accordance with Section 1B is unpaid on its due
date, you may charge the amount of the Receivable so affected or unpaid (as
well as all other Receivables due and owing from that customer) to us at any
time. In addition, you shall also be entitled to charge to us the amounts you
receive in payment of any Receivable not approved in accordance with Section 1B
and which thereafter you are required to turn over or return to the customer or
any legal representative thereof. The provisions of the foregoing sentence
shall survive the termination of this Agreement, and we hereby indemnify you
and hold you harmless from any loss or expense arising out of the assertion of
such a claim with respect to any Receivable not approved in accordance with
Section 1B, including attorneys' fees and expenses, and the amount of such loss
or expense may be charged to us. You will automatically charge back to our
account deductions taken by customers. In addition, as further consideration
for your entering into this Agreement we waive any right to any payments
received by you from or on behalf of our customers which neither you nor we can
identify to any Receivable. Any chargeback of a Receivable shall not be deemed
nor shall it constitute a reassignment to us of the Receivable affected
thereby, and title thereto and to the merchandise represented thereby shall
remain in you until you are fully reimbursed. Regardless of the date or dates
upon which you charge back the amount of any Receivable with respect to which
there is any Dispute, or the amount owing from a customer which has raised any
Dispute, we agree that immediately upon the occurrence of any such Dispute, any
obligation you may otherwise have had hereunder to bear the risk of loss with
respect to such Receivable shall cease and such obligation shall be deemed to
have reverted to, and to have been assumed by, us without any act upon your
part to effect the same.
10. REMITTANCES OF FUNDS: If any remittances are made directly to us, we
shall hold the same in trust for you as your property and immediately deliver
to you the identical checks, monies or other forms of payment received, and you
shall have the right to endorse our name on any and all checks or other forms
of remittances received if such endorsement is necessary to effect collection.
11. MAINTENANCE OF RECORDS:
A. We agree that we will hold at our offices and be fully responsible to
you for any and all shipping receipts evidencing delivery of goods or rendition
of services regarding Receivables purchased by you. Such shipping evidences
held by us shall be available for your inspection and for delivery to you at
your request at any time.
B. We further agree to make our records, files and books of account,
including, but not limited to, any and all bills, invoices, shipping or
transport documents, ledgers, journals, checkbooks, correspondence, memoranda,
microfilm, microfiche, computer programs and records, source materials, tapes
and discs (collectively "Documents"), available to you on request and that you
may visit our premises during normal business hours to examine such Documents
and to make copies or extracts thereof and to conduct such examinations as you
deem necessary. You shall be entitled to charge us a fee of five hundred
dollars ($500.00) for each day or part thereof in which the examination
("Examination Fees") is conducted plus out-of-pocket expenses you incur as a
result of conducting such examinations. Notwithstanding the foregoing, the
maximum amount of Examination Fees that you shall be entitled to charge to us
each Contract Year under this Agreement and the separate Factoring Agreement
between you and our affiliate, Jenna Lane Polo Association, Ltd., is $3,000.00.
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12. CERTAIN COSTS AND EXPENSES:
A. If you, at our request and on our behalf, in your sole discretion, file a
claim (a "DR Claim"), with respect to a Receivable which is not at your credit
risk or forward such a DR Claim to a collection agency or attorney for
collection, you shall charge us with an amount equal to ten (10%) percent of the
DR Claim at the time such DR Claim is filed or forwarded and in addition one
hundred (100%) percent of the actual expenses or charges incurred by you shall
be charged to us when incurred.
B. We shall be entitled to receive at no cost to us one (1) Client Detail
Aged Trial Balance for each month. For each additional Client Detail Aged Trial
Balance requested by us in that month, you shall charge us $100.00.
C. You may modify the charges set forth in Sections 7C, 11B, 12A and 12B
above, from time to time, on not less than thirty (30) days prior written
notice.
13. TAXES: Any state, city, local or federal sales or excise taxes on sales
of Receivables hereunder and any payroll taxes, state disability premiums,
premiums for workman's compensation insurance and unemployment taxes, shall be
timely paid by us, but if you should make any payment of any thereof, we will
repay the same to you upon demand, and all such payments shall constitute
Obligations.
14. WARRANTIES AND AGREEMENTS:
A. We hereby warrant our solvency (which warranty shall be continuing
throughout the term of this Agreement) and hereby agree that we are not
entitled to and shall not pledge your credit for any purpose whatsoever. We
further agree that we shall not encumber or grant a lien on or security
interest in our present and future Receivables, or our other Collateral, or our
merchandise inventory, or with respect to our existing assets to anyone other
than you without your prior written consent.
B. We agree to furnish you with balance sheets, statements of profit and
loss, financial statements and such other information regarding our business
affairs and financial condition as you may from time to time require, and in
any event, a statement of our financial position for each fiscal year prepared
and certified by our regularly engaged Certified Public Accountant. All such
statements shall fairly present our financial condition as of the dates, and
the results of our operations for the periods, for which the same are furnished.
C. This Agreement is the complete agreement between the parties hereto as
to the subject matter hereof, all prior commitments, proposals, negotiations
concerning the subject matter hereof being merged herein. This Agreement is
entered into for the benefit of said parties, their successors and assigns,
except that we shall not assign or hypothecate our rights under this Agreement
to any other person, firm, corporation or entity without your prior written
consent. This Agreement cannot be amended, changed, modified or terminated
orally. We hereby consent to the assignment by you of this Agreement and your
rights hereunder, including the Collateral, to any Affiliate or any other
third-party. No delay or failure on your part in exercising any right,
privilege or option hereunder shall operate as a waiver of such or of any other
right, privilege or option, and no waiver whatever shall be valid unless in
writing signed by you and then only to the extent a waiver is therein set
forth.
15. DEFINITIONS: For purposes of this Agreement the following terms
shall have the respective meanings given to them below:
(a) "Add On Days" shall mean the number of calendar days in the period
of 5 Business Days immediately following the Deposit Date.
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(b) "Affiliates" shall mean any person, firm or corporation directly or
indirectly controlling, controlled by or in common control with you and any
corporation the stock of which is owned or controlled directly or indirectly
by, or is under common control with, Republic New York Corporation.
(c) "Agreement" shall mean this Factoring Agreement, as amended,
modified or supplemented.
(d) "Business Day" shall mean any week day on which banking
institutions in New York, New York are open for the transaction of ordinary
banking business. If any payment or credit by you to us under this Agreement is
due on a day other than a Business Day, then such payment or credit shall be
made on the next Business Day.
(e) "Contract Balance for Interest" for any date shall mean the sum of (i)
the Net Daily Collections for such date multiplied by the Add On Days and (ii)
the Daily Ending Balance for such date.
(f) "Daily Ending Balance" for any date shall mean (i) all monies
remitted, paid or otherwise advanced to us by you for our account at any time
prior to and including such date less (ii) all amounts credited to our account
at any time prior to and including such date.
(g) "Deposit Date" shall mean with respect to a payment on a Receivable
from or on behalf of our customer made to the banking institution receiving on
your behalf such payment, the date such banking institution notes on the item
evidencing such payment or otherwise on its records as the date it deems such
payment as having been received by it.
(h) "Dispute" shall mean any dispute, claim, offset, defense,
counterclaim or any other reason for nonpayment other than a customer's
financial inability to pay, regardless of whether the same is in an amount
greater than, equal to or less than the Receivable concerned, whether bona fide
or not, and regardless of whether the same, in part or in whole, relates to an
unpaid Receivable or any other Receivable and whether or not such Dispute
arises by reason of an Act of God, civil strife, war, currency restrictions or
fluctuations, foreign political restrictions or regulations or the like.
(i) "Net Daily Collections" shall mean for any date the amount of Net
Sales having a Settlement Date on such date, less any deductions plus any other
amounts which may become owing by you to us on such date under this Agreement.
(j) "Net Sales" shall mean the gross face amount of Receivables less
discounts offered to, and any credits received by or allowed to, our customers.
In computing "Net Sales" you may in your discretion treat (1) discounts offered
to our customers as having been taken by such customers on the largest discount
offered to them, and (2) all discounts used in such computation also as being
applicable to postage, freight, and incidental charges.
(k) "Obligations" shall mean all loans, advances, indebtedness,
liabilities, debit balances, covenants and duties and all other obligations of
whatever kind or nature at any time or from time to time owed by us to you or
any of your Affiliates, whether fixed or contingent, due or to become due, no
matter how or when arising and whether under this or any other Agreement or
otherwise and including all obligations of ours as obligors on Receivables you
purchase from others.
(l) "Receivables" (or "Receivable" in the singular) shall mean and
include all accounts, and all other obligations of customers of ours arising
out of the sale and delivery of goods by us or the rendition of services by us,
whether now existing or hereafter created.
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(m) "Republic Reference Rate" shall mean the lending rate established
by Republic National Bank of New York from time to time at its principal
domestic office as its reference lending rate for domestic commercial loans.
(n) "Settlement Date" shall mean with respect to each Receivable the
first to occur of (1) the Deposit Date of payment on such Receivable or (2) if
you have assumed the risk of nonpayment under Section 1B above, 150 days after
the due date of such Receivable, provided such Receivable has not at any time
been subject to any Dispute.
16. TERM AND EVENTS OF DEFAULT:
A. This Agreement shall continue in full force and effect until two years
from the effective date hereof and from year to year thereafter unless
terminated by you or unless we notify you of our desire to terminate this
Agreement effective on its anniversary date in any year by giving you at least
sixty (60) days' prior written notice. You shall have the right to terminate
this Agreement at any time upon sixty (60) days' prior written notice.
Termination shall be effective by the mailing by certified mail, return receipt
requested of a letter of notice addressed by either of us to the other
specifying the date of termination. Notwithstanding the foregoing, you may
terminate this Agreement without notice upon the occurrence of any Event of
Default. On termination for any reason, all Obligations shall, unless and to
the extent that you otherwise elect, become immediately due and payable without
notice or demand. Any of the following events with respect to us or any
guarantor of any Obligations shall constitute an "Event of Default" hereunder:
default in the payment or performance of any Obligation owing to you or any of
your Affiliates when due, including without limitation the failure to pay to
you the amount of any net debit balance due from us and any unpaid interest
thereon after demand therefor has been made; we or any of them commit any
breach of or default in the performance of any other covenant or agreement
contained in this Agreement or in any other instrument or agreement with or in
favor of you or your Affiliates; any representation or warranty made by us or
any of them in this Agreement or in any other instrument or agreement with or
in favor of you or your Affiliates shall prove to be inaccurate or untrue; any
partner (if we or any of them is a partnership) shall die or otherwise withdraw
from the partnership; death (if we or any of them is a natural person) or
dissolution (if we or any of them is a corporation); we or any of them shall
commence any case, proceeding or other action under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to us or any of them, or seeking to
adjudicate us or any of them a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to us or any of them or any of their
debts, or seeking appointment of a receiver, trustee, custodian or other
similar official for us or any of them or for all or any substantial part of
the assets of us or any of them, or we or any of them shall make a general
assignment for the benefit of its creditors, or there shall be commenced
against us or any of them any case, proceeding or other action of a nature
referred to in this clause; there shall be commenced against us or any of them
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of the assets of us or any of them which results in the entry
of an order for any such relief, or we or any of them shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the acts set forth in this clause; we or any of them shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; entry of a judgment against us or any of them;
failure to pay or remit any tax when assessed or due; making a bulk transfer or
sending notice of intent to do so; granting any security interest (other than
to you); suspension or liquidation of the usual business of us or any of them;
failing to furnish you with any requested financial information or failing to
permit inspection of books or records by you or any of your agents, attorneys
or accountants; the occurrence of a default or event of default under any
guarantee or security agreement guaranteeing or securing any Obligations, or
the termination or purported termination of any thereof; we or any of them (if
a corporation) shall become a party to any merger or consolidation without your
prior written consent; or control of us or any of them (if a corporation or
partnership) shall change, which shall mean that in one or a series of related
transactions, (i) a sale of all or substantially all of our assets, (ii) merger
or consolidation (other than between or among us and our affiliates) pursuant
to which we are not the surviving entity and the holders of our capital stock
prior to such transaction hold less than 50% of the capital stock of the
resulting entity, or (iii) a transfer or disposition of a majority of our
capital stock other than between or among us and our affiliates.
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B. Notwithstanding any termination hereof, this Agreement shall
nevertheless continue in full force and effect as to, and be binding upon us,
after any termination, until we have fully paid, performed and satisfied all of
the Obligations, no matter how or when arising and whether under this or any
other agreement.
17. REMEDIES: Upon the occurrence of any Event of Default, you shall have
all of the rights and remedies of a secured party under the Uniform Commercial
Code and other applicable laws with respect to all Collateral, such rights and
remedies being in addition to all of your other rights and remedies provided
for herein or in any other agreement between us, and further, you may, at any
time or times, after the occurrence of any such Event of Default, sell and
deliver any and all other Collateral held by you or for you at public or
private sale, in one or more sales or parcels, at such prices and upon such
terms as you may deem best, and for cash or on credit or for future delivery,
without your assumption of any credit risk, and at public or private sales, as
you may deem appropriate. If reasonable notice of the time and place of such
sale is required under applicable law, such requirement shall be met if any
such notice is mailed, postage prepaid, to our address shown on the cover page
hereof, or the last shown address in your records, at least five (5) days
before the time of the sale or disposition thereof. You may be the purchaser at
any sale, if it is public, free from any right of redemption, which, to the
extent permitted by law, we also hereby expressly waive. The proceeds of sale
shall be applied first to all costs and expenses of sale, including attorneys'
fees and disbursements, and then to the payment (in such order as you may
elect) of all Obligations. You will return any excess to us and we shall remain
liable to you for any deficiency. Your rights and remedies under this Agreement
will be cumulative and not exclusive of any other rights or remedies which you
may otherwise have. The provisions of this Section 17 shall survive any
termination of this Agreement.
18. APPLICABLE LAW, ARBITRATION, JURISDICTION, STATUTE OF LIMITATIONS,
WAIVER OF JURY TRIAL:
A. This Agreement is made in the State of New York and shall be
governed by and construed in accordance with the laws of said State, without
regard to conflict of laws principles.
B. WE AGREE THAT ANY, DISPUTE, CLAIM OR CONTROVERSY BETWEEN YOU AND
US, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ("CLAIM" OR "CLAIMS")
SHALL, AT YOUR ELECTION, BE RESOLVED BY ARBITRATION IN ACCORDANCE WITH THE
PROVISIONS OF THIS SECTION 18B. Such election may be made at any time prior to
the commencement of a judicial proceeding by you, or in the event of a judicial
proceeding instituted by us at any time prior to the last day to answer and/or
respond to a summons and/or complaint made by us (or within thirty (30) days
after the rendition of an order on any motion by you based upon the statute of
limitations). The provisions of this Section 18B apply to and include all
claims arising out of or in connection with i) this Agreement or any related
agreements or instruments, ii) all past, present and future agreements
involving you or us, iii) any transaction related to this Agreement and all
past, present and future transactions involving you and us, and iv) any aspect
of the past, present or future relationship between you or us. You may elect to
require arbitration of any Claim with us without thereby being required to
arbitrate all Claims between you and us. Any such Claim shall be resolved by
binding arbitration in accordance with the Arbitration Law of the State of New
York and the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). In the event of any inconsistency between such Rules and
these arbitration provisions, these provisions shall supersede such Rules. All
statutes of limitations which would otherwise be applicable shall apply to any
arbitration proceeding under this Section 18B. In any arbitration proceeding
subject to this Section 18B, the arbitrator is specifically empowered to decide
(by documents only, or with a hearing, at the arbitrator's sole discretion)
pre-hearing motions which are substantially similar to pre-hearing motions for
summary adjudication. In any such arbitration proceeding, the arbitrator shall
not have the power or
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authority to award punitive damages to any party nor shall the arbitrator have
the power or authority to alter or modify any express provision of this
Agreement or any other agreement heretofore or hereafter entered into between
us, all of which agreements are hereby incorporated in this arbitration
provision. Judgment upon the arbitration award rendered may be entered in any
court having jurisdiction. Whenever an arbitration is required, the
arbitrator(s) shall be selected in the manner provided in this Section 18B. No
provision of, nor the exercise of any rights under this Section 18B shall limit
your rights i) to foreclose against collateral pursuant to applicable
provisions of the Uniform Commercial Code or otherwise herein pursuant to
applicable law, ii) to exercise self-help remedies including, but not limited
to, set off and repossession, or iii) to request and obtain from a court having
jurisdiction before, during or after the pendency of any arbitration,
provisional or ancillary remedies and relief including, but not limited to,
injunctive or mandatory relief. The institution and maintenance of an action or
judicial proceeding for, or pursuit of, provisional or ancillary remedies or
exercise of self-help remedies shall not constitute a waiver by you, even if
you are a plaintiff, of your right to submit the Claim to arbitration if you
would otherwise have such right. Whenever an arbitration is required under this
Section 18B, the arbitrator(s) shall be selected, except as otherwise herein
provided, in accordance with the Commercial Arbitration Rules of the AAA. A
single arbitrator shall decide any Claim of $100,000.00 or less and he or she
shall be a Certified Public Accountant with at least five years experience in
such profession. Where a Claim of any party exceeds $100,000.00, the Claim
shall be decided by a majority of three arbitrators, at least two of whom shall
be Certified Public Accountants (at least one of whom shall have not less than
five years experience in such profession). The arbitrator(s) shall have the
power to award recovery of all costs and fees (including attorney's fees,
administrative fees, arbitrator(s)'s fees and, if applicable, court costs) to
the prevailing party. In the event of any Claim governed by this Section 18B,
each of the parties shall, subject to the award of the arbitrator(s), pay an
equal share of the arbitrator(s)'s fees.
C. We agree that any Claim or cause of action by us against you, or
any of your directors, officers, employees, agents, accountants or attorneys,
based on, arising from or relating in any way to this Agreement, or any
supplement or amendment hereto, or any other present or future agreement
between us, or any other transaction contemplated hereby or thereby or relating
hereto or thereto, or any other matter whatsoever shall be barred unless
asserted by us by the commencement of an action or proceeding in a court of
competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such Claim or cause of action, or
any part thereof, is based, and the service of a summons and complaint upon one
of your officers, within thirty (30) days thereafter. We agree that said one
year period is a reasonable and sufficient time for us to investigate and act
upon such Claim or cause of action. Said one year period shall not be waived,
tolled or extended except by specific written consent by you.
D. In performing your obligations under this Agreement, you shall be
liable to us for only your gross negligence or willful misconduct. No person or
entity shall be a third party beneficiary of any of our rights or claims under
this Agreement and in particular, but not by way of limitation, you shall not be
liable to any third party or for any act or omission by you or any third party
including, without limitation, the inability or failure of any third party to
effect a transfer in accordance with our instructions due to mechanical,
computer or electrical failures or for any other reason beyond your control.
You shall have no obligation to pursue, or assist us in pursuing, any claim we
may have against any third party. In no event, shall you be liable for special,
punitive, indirect or consequential damages, nor shall any action or inaction
on your part, constitute a waiver by you of any cause of action or defense.
E. As a material part of the consideration to you to enter into this
Agreement, we (1) agree that, at your option, all actions and proceedings based
upon, arising out of or relating in any way directly or indirectly to this
Agreement shall be litigated exclusively in the Supreme Court of the State of
New York, County of New York, (2) consent to the jurisdiction of such court and
consent to the service of process in any such action or proceeding by personal
delivery, first-class mail, or any other method permitted by law, and (3) waive
any and all rights to transfer or change the venue of any such action or
proceeding to any other court.
F. The headings of various Sections of this Agreement are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions of this Agreement.
G. This Agreement and the other written documents previously or now
executed in connection
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herewith are the entire and only agreements between us with respect to the
subject matter hereof, and all oral representations, agreements and
undertakings, previously or contemporaneously made, which are not set forth
herein or therein, are superseded hereby and thereby. The provisions of this
Section 18 shall survive any termination of this Agreement.
H. YOU AND WE EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION
BASED UPON, ARISING FROM, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT, OR ANY
SUPPLEMENT OR AMENDMENT HERETO; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN YOU AND US; OR (III) ANY CONDUCT, ACTS OR OMISSIONS BY YOU
OR US OR ANY OF YOUR OR OUR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH YOU OR US; IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Very truly yours,
T.L.C. FOR KIDZ, INC.
By: /S/ Mitchell Dobies
Title: Co-Chairman
ATTEST:
[SEAL]
ACCEPTED AT NEW YORK, NEW YORK
ON JULY 14, 1998
REPUBLIC BUSINESS CREDIT CORPORATION
By: /S/ Jeffrey Kremberg
Title: Vice President
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SECRETARY'S CERTIFICATE
RESOLVED, that the President, Vice President, Treasurer or other officer or
any agent of this Corporation, or any one or more of them, be and they hereby
are authorized and empowered, acting singly, to enter into and execute on
behalf of this Corporation an agreement with Republic Business Credit
Corporation (hereinafter called "Factor") relating to the sale, granting of a
security interest, pledge, assignment, negotiation and guarantee to said Factor
of accounts, instruments, documents, contract rights, notes, bills, general
intangibles, chattel paper, acceptances and all other forms of obligations,
collectively referred to as "Receivables", and/or relating to the consignment,
pledge, mortgage or other hypothecation of any merchandise or other property,
now or hereafter belonging to or acquired by this Corporation, to or with said
Factor and the borrowing of moneys and obtaining of credit from time to time
from said Factor, and from time to time to modify or supplement said agreement
and to make and modify, or supplement arrangements with said Factor, as to the
terms or conditions on which such Receivables are to be pledged, assigned,
negotiated or guaranteed to said Factor, and as to the terms or conditions on
which merchandise or other property, now or hereafter belonging to or acquired
by this Corporation, may be consigned, pledged, mortgaged or otherwise
hypothecated to or with said Factor, and as to the terms and conditions on
which such sums may be borrowed and credit obtained, and they and each of them
and any person or persons hereafter and from time to time designated by any of
them to act for this Corporation are hereby further authorized and empowered
from time to time to assign, transfer, deliver, endorse, negotiate or otherwise
transfer and/or guarantee to said Factor and its assigns any and all
Receivables now or hereafter belonging to or acquired by this Corporation and
for said purposes to execute and deliver any and all assignments, schedules,
transfers, endorsements, contracts, guarantees, agreements or other instruments
in respect thereof and to make remittances and payments in respect thereof by
checks, drafts or otherwise, and they are further authorized and empowered from
time to time to consign, designate, pledge, mortgage or otherwise hypothecate
to or with said Factor merchandise or other property now or hereafter belonging
to or acquired by this Corporation and to borrow money or obtain credit from
said Factor and for said purposes to execute and deliver any and all
consignments, security agreements, financing statements, designations,
schedules, mortgages, agreements, instruments of pledge, notes and/or other
instruments in respect thereof, and to do and perform all such other acts and
things deemed by such officer or agent necessary, convenient or proper to carry
out, modify or supplement any such agreement and arrangements made with said
Factor, hereby ratifying, approving and confirming all that any of said
officers or agents have done or may do in the premises.
I, Kathleen Dresssel, do hereby certify that I am the Secretary of T.L.C. FOR
KIDZ, INC., a corporation organized and existing under and by virtue of the laws
of the State of Delaware, having its principal place of business at 2559 B Route
130 South, Cranbury, New Jersey 08512, that I am the keeper of the corporate
records and the seal of said Corporation; that the foregoing is a true and
correct copy of a resolution duly adopted and ratified at a special meeting of
the Board of Directors of said Corporation duly convened and held in accordance
with its by-laws and the laws of said State at the principal place of business
of said Corporation set forth above, on the 14 day of July, 1998, as taken and
transcribed by me from the minutes of said meeting and compared by me with the
original of said resolutions recorded in said minutes, and that the same has not
in any way been modified, repealed or rescinded but is in full force and effect;
and that the within and foregoing agreement referred to in said resolution was
duly executed pursuant thereto.
I do further certify that the following are the names and specimen
signatures of the officers and agents of said Corporation, so empowered and
authorized, namely:
Chairman: Mitchell Dobies /s/ Mitchell Dobies
(Signature)
Chairman: Charles Sobel /s/ Charles Sobel
(Signature)
Secretary: Kathleen Dressel /s/ Kathleen Dressel
(Signature)
Witness my hand and seal of said Corporation this 14 day of July, 19
(Affix corporate seal here)
(Secretary of said Corporation)
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Exhibit 10.19
REPUBLIC BUSINESS CREDIT
Republic Business Credit Corporation
452 Fifth Avenue
New York, New York 10018
Telephone 212-525-5200
Fax 212-525-5022
[Daily Balance]
FACTORING AGREEMENT
Republic Business Credit Corporation
452 Fifth Avenue
New York, New York 10018
Re: JENNA LANE POLO ASSOCIATION, LTD.
2559 B Route 130 South, Cranbury, New Jersey 08512
Ladies and Gentlemen:
We hereby request that you act as our sole factor effective as of the date
of your acceptance hereof, upon the terms and conditions set forth below. All
capitalized terms shall have the meaning given such terms in Section 15 of this
Agreement ("Definitions") unless defined elsewhere in this Agreement.
1. PURCHASE OF RECEIVABLES:
A. We agree that we will do all of our business through you as our sole
factor and hereby assign and sell to you as absolute owner all Receivables. We
represent and warrant that each and every Receivable now or hereafter assigned
to you will be a bona fide and existing obligation of a customer of ours, owned
by and owing to us, arising out of the sale and delivery of goods by us or the
rendition of services by us, free and clear of any and all deductions,
Disputes, liens, security interests and encumbrances.
B. You agree to and do hereby purchase without recourse to us, except
as set forth hereinafter, all Receivables approved by you in accordance with
Section 1E below. You agree to and do hereby assume the risk of non-payment on
such Receivables, if nonpayment is due solely to the financial inability of our
customer to make payment at the due date of the Receivable, provided the
customer has, at such due date, and thereafter, received and finally accepted
the merchandise or services giving rise to such Receivables without any
Dispute.
C. Receivables not approved by you in accordance with Section 1E below
are assigned to and purchased by you with full recourse to us in the event of
nonpayment thereof for any reason.
D. In addition, we hereby sell, assign and transfer to you all of our
right, title and interest in and
<PAGE>
to the merchandise, the sale of which resulted in creation of Receivables, and
in all such merchandise that may be returned by customers and all causes of
action and rights in connection therewith, which we now have or may hereafter
acquire, including our rights of reclamation, replevin and stoppage in transit
and as an unpaid vendor of merchandise or services as a lienor. We hereby agree
upon your instruction to promptly take any and all action necessary for you to
enforce your rights of reclamation, replevin and stoppage in transit and in the
event of our failure to do so, you shall be authorized to exercise any such
right in our name or in any manner you deem appropriate. Any merchandise so
recovered shall be treated as returned merchandise, and shall be set aside,
marked with your name and held for your account as owner. We shall notify you
promptly of all such returned merchandise.
E. No purchase of any Receivable by you shall be deemed to be made
pursuant to Section 1B above unless the sale of merchandise or rendition of
services by us resulting in such Receivable shall have been made with your
prior written approval of the amount and terms of such sale or rendition of
services and the credit standing of our customer, and you shall have the right
to withdraw such approval at any time before actual delivery of such
merchandise or rendition of such services. Each credit approval shall be
automatically withdrawn in the event the terms of sale are changed without your
written approval or in the event the shipment of goods or rendition of services
shall not be made or performed within thirty (30) days from the completion date
specified in the credit approval or within thirty (30) days from the date of
the credit approval, if no completion date is specified. When a credit approval
specifies special terms and conditions, the credit approval shall be deemed
automatically withdrawn when such special terms and conditions are not complied
with. You shall not be liable in any manner or respect for refusing to accept
or approve any Receivable or the credit standing of any customer of ours or for
withdrawing any approval as provided in this Section 1E.
F. On billing terms of "10 E.O.M." such terms shall mean with respect
to invoices dated from the 1st day through the 19th day of a month that the due
date of such invoice is "10 days after the end of such month"; and, with
respect to invoices dated on or after the 20th day of the month, the due date
shall be "10 days after the end of the next following month."
G. Net Sales relating to each Receivable shall be recorded on our
monthly statement, net of any deductions, on the Settlement Date of such
Receivable and such credit shall constitute payment in full of such Receivable.
H. On the face of all bills and invoices for all Receivables assigned
to and purchased by you hereunder shall be placed the following legend: "This
Receivable is assigned to, owned by and payable only to: REPUBLIC BUSINESS
CREDIT CORPORATION AT P.O. BOX 7777, W8720, PHILADELPHIA, PA 19175- 8720 OR
DEPT. 49941, LOS ANGELES, CA 90088, whichever is nearer. Any objection to this
invoice must be reported to Republic Business Credit Corporation at 452 Fifth
Avenue, New York, N.Y. 10018-2706."
2. ADVANCES; LOANS: You may, in your sole discretion, make advances
and loans to us from time to time at our request. In your sole discretion you
may hold a reserve against Receivables in such amount as you determine to hold,
and you may revise such reserve from time to time.
3. SECURITY INTEREST: As security for any and all Obligations, you
shall be entitled to hold and we hereby grant to you a continuing general lien
upon, security interest in and to, and right of set off on or against any or
all of the following, whether now or hereafter existing or acquired, and
wherever located (collectively, the "Collateral"): our reserves, instruments,
documents, notes, bills and chattel paper, proceeds of insurance, other forms
of obligations owing to us, bank and other deposit accounts, general
intangibles (including without limitation all tax refunds, contract rights,
trade names, trademarks, trade secrets, customer lists, and all other licenses,
rights, privileges and franchises), all balances, sums and other property at
any time to our credit or in your possession or in the possession of any of
your Affiliates, together with all merchandise the sale of which resulted in
the creation of Receivables and in all such merchandise that may be returned by
customers and Receivables, if and to the extent we are deemed to have any
rights therein, whether or not specifically assigned to you, and all books and
records relating to any of the foregoing, including the cash and non-cash
proceeds of all of the foregoing. We represent, warrant and covenant to you
that we
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now have, and shall at all times continue to have, good and marketable title
to all of the Collateral, free and clear of any and all liens, security
interests and encumbrances. You shall have the right and are hereby irrevocably
authorized at any time to charge to us the amounts of any and all Obligations,
whether or not then due, and, upon the demand of any of your Affiliates, to pay
over to such Affiliate any amounts owing to them by us. We shall execute and
deliver to you all financing statements and other documents and instruments that
you may request to perfect, protect or establish your security interest
hereunder and we authorize you to execute and file any financing statements
covering such security interest without our signature or, if you so elect,
signed in our name by you, and you are hereby irrevocably appointed our
attorney-in-fact to do so. We shall reimburse you for, and you shall be entitled
to charge us with, all costs and expenses incurred by you in connection with the
execution, administration and enforcement of this Agreement, or to enforce any
of the Obligations, or in the prosecution or defense of any action, involving
you or us, concerning any matter growing out of or in any manner relating to
this Agreement, the Receivables or other Collateral or any Obligation whatsoever
including, without limitation, all reasonable fees and expenses of your
attorneys (including inhouse counsel), incurred in connection with the
foregoing, including, without limitation, those incurred in connection with any
state court insolvency case or proceeding or federal bankruptcy case or
proceeding, and all fees and costs in connection with public record searches and
filings, investigation, accounting and periodic field examination fees and
expenses (whether from your own or outside investigators, auditors or examiners)
and all other costs and expenses with respect thereto, whether or not a legal
action is commenced by or against us, and if such action is commenced, whether
or not judgment is obtained. Recourse to security or any Collateral shall not at
any time be required and we shall at all times remain liable for the repayment
on demand to you of all Obligations.
4. DISBURSEMENT OF FUNDS: We may from time to time give you oral,
telephonic, telefax and/or written instructions to disburse monies to us. Such
disbursement requests may be made by any of our officers, employees or agents
and you shall have no obligation to verify that any request is authorized or
proper.
5. INTEREST:
A. Interest charges to us hereunder shall be at one percent (1%) below
the Republic Reference Rate, computed on the basis of a 360-day year for the
actual number of days in the interest period. The interest rate in effect
during each calendar month shall be determined using the Republic Reference
Rate in effect on the last Business Day of the preceding calendar month. We
recognize that the actual yield to you under this Agreement may exceed the rate
of interest specified in this Section 5A.
B. Interest, at the respective rates set forth in this Section 5, shall be
computed (i) daily based on the Contract Balance for Interest each day; and (ii)
upon our late payment of any Receivable purchased by you from others, from the
due date of the Receivable to the date of such late payment, but such interest
shall only be charged or credited to us in accordance with Section 5E below.
C. In the event any sums are paid to us or credited to us in error, or you
are required to turn over or return to the customer an amount which was paid to
us and whose risk of non-payment you did not assume in accordance with Section
1B above, you may in your discretion charge said sum to us. Any such sums shall
bear interest, payable by us at the rate set forth in Section 5A above, from
the Settlement Date of such sum, if a Receivable, or otherwise from the date
such sum was paid to us or credited to us (which date shall constitute the
"Settlement Date" for such sum), up to the date a correction is made on your
records, less in each case Add on Days.
D. In the event you do not credit us with a payment on a Receivable which
you receive, whether by error, or because the customer remittance was an
on-account or installment payment (which payments are not credited until the
full invoice amount is paid), or because the Receivable to which the customer
remittance applied could not be identified, then the payment received by you
shall bear interest, payable by you as a credit to us at the rate set forth in
Section 5A above, from the Settlement Date of such payment, which, if such
payment is a partial payment of a full invoice, shall be calculated based upon
the Deposit Date of such partial payment, up to the date an adjustment is made.
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E. Interest shall be charged or credited to us, as the case may be, as of
the last day of the month in which the interest is accrued.
F. If for any reason there remains with you at any time a credit Daily
Ending Balance ("Matured Funds"), you shall pay us interest on such Matured
Funds, at a rate per annum equal to 3% below the Republic Reference Rate in
effect during each day in which such Matured Funds are retained by you. The
applicable Republic Reference Rate is to be determined in accordance with
Section 5A above. You reserve the right to remit such Matured Funds to us at
any time.
6. MONTHLY STATEMENTS: You will send us a monthly statement after the end
of each month. UNLESS YOU RECEIVE OUR WRITTEN EXCEPTIONS TO ANY STATEMENT
RENDERED BY YOU WITHIN THIRTY (30) DAYS AFTER SUCH STATEMENT IS RENDERED, SUCH
STATEMENT SHALL CONSTITUTE AN ACCOUNT STATED AND BE DEEMED ACCEPTED BY US AND
SHALL BE CONCLUSIVE AND BINDING UPON US.
7. COMMISSIONS:
A. We agree to pay to you a factoring commission equal to .65% of the gross
face amount of each Receivable whether or not specifically assigned to you.
Your factoring commission as so calculated shall be charged to our account
effective as of the fifteenth (15th) day of the month in which the Receivable
was assigned.
B. Commissions payable to you hereunder are based upon our usual and
regular terms which do not exceed ninety (90) days. On any other Receivable on
which the due date has been extended beyond ninety (90) days, your commissions
thereon shall be increased at the rate of one-quarter of one percent (.25%) of
the gross face amount of such Receivable for each additional thirty (30) days
or fraction thereof by which our terms are extended. The increased commission
for sales in excess of your regular terms of sale shall only apply to Rainbow
Shops, Petrie Retail, Inc., Montgomery Ward and Casual Corner when such terms
of sale exceed 120 days. No such increase in the due date, however, shall be
granted without your prior written approval.
C. We may from time to time request that you credit approve sales made by
us to Debtors-in- Possession operating under Chapter 11 of the Bankruptcy Code
("DIP Sales"). We agree that any such credit approval by you of DIP Sales shall
be subject to a supplemental factoring commission of 1% in addition to the
regular factoring commission charged by you, provided, however all Receivables
arising from or created by our sales to Petrie Retail, Inc. that you credit
approve shall be subject to a supplemental factoring commission of 1.35% in
addition to the regular factoring commission charged by you.
8. ASSIGNMENT SCHEDULES, INVOICING AND CREDITS: We will provide you with
an assignment and schedule of Receivables sold and assigned to you in form
satisfactory to you. All bills or invoices shall be mailed by us to our
customers at our sole expense. We will give you copies of all bills or
invoices, together with such proof of shipment or delivery as you may from time
to time require. The issuance of or any billing by us of such bills or invoices
shall constitute an assignment thereof to you for the Receivables represented
thereby, whether or not we execute any other specific instrument of assignment.
Notwithstanding the foregoing, you shall be deemed not to have assumed the
credit risk as provided in Section 1B above if we do not supply you with a
schedule and assignment of Receivables within ten (10) days of the creation of
the Receivables involved and the risk of loss with respect to such Receivables
shall be deemed to have reverted to and been assumed by us without any act upon
your part to effect the same. If an Event of Default has occurred and is
continuing, we will issue credits only with your prior written approval.
Credits may be claimed only by the customer. All credits for full invoice
amounts shall be assigned by us to you.
9. DISPUTES AND CHARGEBACKS: We hereby further warrant to you that the
customer in each instance has received and will accept the merchandise sold or
the services rendered and the bill or invoice therefor,
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and will pay the same as and when due without any Dispute. We will notify you
promptly of, and, at our own cost and expense, including attorneys' fees and
expenses, shall settle all Disputes and will pay you promptly the amount of the
Receivables affected thereby. Any Dispute not settled by us by the sixtieth
(60th) day next following the due date of the bill or invoice affected thereby
may, if you so elect, be settled, compromised, adjusted or litigated by you
directly with the customer or other complainant for us and at our risk and upon
such terms and conditions as you in your sole discretion deem advisable. You
may also in your discretion take possession of and sell or cause the sale of
any returned or recovered merchandise, at such prices, upon such terms and to
such purchasers as you deem proper (including, in the event of any public sale,
yourself) and in any event to charge the deficiency costs and expenses thereof,
including attorneys' fees and expenses, to us. In addition to all other rights
to which you are entitled hereunder, whenever there is any Dispute, or if any
Receivable not approved in accordance with Section 1B is unpaid on its due
date, you may charge the amount of the Receivable so affected or unpaid (as
well as all other Receivables due and owing from that customer) to us at any
time. In addition, you shall also be entitled to charge to us the amounts you
receive in payment of any Receivable not approved in accordance with Section 1B
and which thereafter you are required to turn over or return to the customer or
any legal representative thereof. The provisions of the foregoing sentence
shall survive the termination of this Agreement, and we hereby indemnify you
and hold you harmless from any loss or expense arising out of the assertion of
such a claim with respect to any Receivable not approved in accordance with
Section 1B, including attorneys' fees and expenses, and the amount of such loss
or expense may be charged to us. You will automatically charge back to our
account deductions taken by customers. In addition, as further consideration
for your entering into this Agreement we waive any right to any payments
received by you from or on behalf of our customers which neither you nor we can
identify to any Receivable. Any chargeback of a Receivable shall not be deemed
nor shall it constitute a reassignment to us of the Receivable affected
thereby, and title thereto and to the merchandise represented thereby shall
remain in you until you are fully reimbursed. Regardless of the date or dates
upon which you charge back the amount of any Receivable with respect to which
there is any Dispute, or the amount owing from a customer which has raised any
Dispute, we agree that immediately upon the occurrence of any such Dispute, any
obligation you may otherwise have had hereunder to bear the risk of loss with
respect to such Receivable shall cease and such obligation shall be deemed to
have reverted to, and to have been assumed by, us without any act upon your
part to effect the same.
10. REMITTANCES OF FUNDS: If any remittances are made directly to us, we
shall hold the same in trust for you as your property and immediately deliver
to you the identical checks, monies or other forms of payment received, and you
shall have the right to endorse our name on any and all checks or other forms
of remittances received if such endorsement is necessary to effect collection.
11. MAINTENANCE OF RECORDS:
A. We agree that we will hold at our offices and be fully responsible to
you for any and all shipping receipts evidencing delivery of goods or rendition
of services regarding Receivables purchased by you. Such shipping evidences
held by us shall be available for your inspection and for delivery to you at
your request at any time.
B. We further agree to make our records, files and books of account,
including, but not limited to, any and all bills, invoices, shipping or
transport documents, ledgers, journals, checkbooks, correspondence, memoranda,
microfilm, microfiche, computer programs and records, source materials, tapes
and discs (collectively "Documents"), available to you on request and that you
may visit our premises during normal business hours to examine such Documents
and to make copies or extracts thereof and to conduct such examinations as you
deem necessary. You shall be entitled to charge us a fee of five hundred
dollars ($500.00) for each day or part thereof in which the examination
("Examination Fees") is conducted plus out-of-pocket expenses you incur as a
result of conducting such examinations. Notwithstanding the foregoing, the
maximum amount of Examination Fees that you shall be entitled to charge to us
each Contract Year under this Agreement and the separate Factoring Agreement
between you and our affiliate, T.L.C.FOR KIDZ, INC., is $3,000.00.
5
<PAGE>
12. CERTAIN COSTS AND EXPENSES:
A. If you, at our request and on our behalf, in your sole discretion, file a
claim (a "DR Claim"), with respect to a Receivable which is not at your credit
risk or forward such a DR Claim to a collection agency or attorney for
collection, you shall charge us with an amount equal to ten (10%) percent of the
DR Claim at the time such DR Claim is filed or forwarded and in addition one
hundred (100%) percent of the actual expenses or charges incurred by you shall
be charged to us when incurred.
B. We shall be entitled to receive at no cost to us one (1) Client Detail
Aged Trial Balance for each month. For each additional Client Detail Aged Trial
Balance requested by us in that month, you shall charge us $100.00.
C. You may modify the charges set forth in Sections 7C, 11B, 12A and 12B
above, from time to time, on not less than thirty (30) days prior written
notice.
13. TAXES: Any state, city, local or federal sales or excise taxes on sales
of Receivables hereunder and any payroll taxes, state disability premiums,
premiums for workman's compensation insurance and unemployment taxes, shall be
timely paid by us, but if you should make any payment of any thereof, we will
repay the same to you upon demand, and all such payments shall constitute
Obligations.
14. WARRANTIES AND AGREEMENTS:
A. We hereby warrant our solvency (which warranty shall be continuing
throughout the term of this Agreement) and hereby agree that we are not
entitled to and shall not pledge your credit for any purpose whatsoever. We
further agree that we shall not encumber or grant a lien on or security
interest in our present and future Receivables, or our other Collateral, or our
merchandise inventory, or with respect to our existing assets to anyone other
than you without your prior written consent.
B. We agree to furnish you with balance sheets, statements of profit
and loss, financial statements and such other information regarding our
business affairs and financial condition as you may from time to time require,
and in any event, a statement of our financial position for each fiscal year
prepared and certified by our regularly engaged Certified Public Accountant.
All such statements shall fairly present our financial condition as of the
dates, and the results of our operations for the periods, for which the same
are furnished.
C. This Agreement is the complete agreement between the parties hereto as
to the subject matter hereof, all prior commitments, proposals, negotiations
concerning the subject matter hereof being merged herein. This Agreement is
entered into for the benefit of said parties, their successors and assigns,
except that we shall not assign or hypothecate our rights under this Agreement
to any other person, firm, corporation or entity without your prior written
consent. This Agreement cannot be amended, changed, modified or terminated
orally. We hereby consent to the assignment by you of this Agreement and your
rights hereunder, including the Collateral, to any Affiliate or any other
third-party. No delay or failure on your part in exercising any right,
privilege or option hereunder shall operate as a waiver of such or of any other
right, privilege or option, and no waiver whatever shall be valid unless in
writing signed by you and then only to the extent a waiver is therein set
forth.
15. DEFINITIONS: For purposes of this Agreement the following terms
shall have the respective meanings given to them below:
(a) "Add On Days" shall mean the number of calendar days in the period of 5
Business Days immediately following the Deposit Date.
6
<PAGE>
(b) "Affiliates" shall mean any person, firm or corporation directly or
indirectly controlling, controlled by or in common control with you and any
corporation the stock of which is owned or controlled directly or indirectly
by, or is under common control with, Republic New York Corporation.
(c) "Agreement" shall mean this Factoring Agreement, as amended,
modified or supplemented.
(d) "Business Day" shall mean any week day on which banking
institutions in New York, New York are open for the transaction of ordinary
banking business. If any payment or credit by you to us under this Agreement is
due on a day other than a Business Day, then such payment or credit shall be
made on the next Business Day.
(e) "Contract Balance for Interest" for any date shall mean the sum of
(i) the Net Daily Collections for such date multiplied by the Add On Days and
(ii) the Daily Ending Balance for such date.
(f) "Daily Ending Balance" for any date shall mean (i) all monies
remitted, paid or otherwise advanced to us by you for our account at any time
prior to and including such date less (ii) all amounts credited to our account
at any time prior to and including such date.
(g) "Deposit Date" shall mean with respect to a payment on a Receivable
from or on behalf of our customer made to the banking institution receiving on
your behalf such payment, the date such banking institution notes on the item
evidencing such payment or otherwise on its records as the date it deems such
payment as having been received by it.
(h) "Dispute" shall mean any dispute, claim, offset, defense,
counterclaim or any other reason for nonpayment other than a customer's
financial inability to pay, regardless of whether the same is in an amount
greater than, equal to or less than the Receivable concerned, whether bona fide
or not, and regardless of whether the same, in part or in whole, relates to an
unpaid Receivable or any other Receivable and whether or not such Dispute
arises by reason of an Act of God, civil strife, war, currency restrictions or
fluctuations, foreign political restrictions or regulations or the like.
(i) "Net Daily Collections" shall mean for any date the amount of Net
Sales having a Settlement Date on such date, less any deductions plus any other
amounts which may become owing by you to us on such date under this Agreement.
(j) "Net Sales" shall mean the gross face amount of Receivables less
discounts offered to, and any credits received by or allowed to, our customers.
In computing "Net Sales" you may in your discretion treat (1) discounts offered
to our customers as having been taken by such customers on the largest discount
offered to them, and (2) all discounts used in such computation also as being
applicable to postage, freight, and incidental charges.
(k) "Obligations" shall mean all loans, advances, indebtedness,
liabilities, debit balances, covenants and duties and all other obligations of
whatever kind or nature at any time or from time to time owed by us to you or
any of your Affiliates, whether fixed or contingent, due or to become due, no
matter how or when arising and whether under this or any other Agreement or
otherwise and including all obligations of ours as obligors on Receivables you
purchase from others.
(l) "Receivables" (or "Receivable" in the singular) shall mean and
include all accounts, and all other obligations of customers of ours arising
out of the sale and delivery of goods by us or the rendition of services by us,
whether now existing or hereafter created.
7
<PAGE>
(m) "Republic Reference Rate" shall mean the lending rate established
by Republic National Bank of New York from time to time at its principal
domestic office as its reference lending rate for domestic commercial loans.
(n) "Settlement Date" shall mean with respect to each Receivable the
first to occur of (1) the Deposit Date of payment on such Receivable or (2) if
you have assumed the risk of nonpayment under Section 1B above, 150 days after
the due date of such Receivable, provided such Receivable has not at any time
been subject to any Dispute.
16. TERM AND EVENTS OF DEFAULT:
A. This Agreement shall continue in full force and effect until two years
from the effective date hereof and from year to year thereafter unless
terminated by you or unless we notify you of our desire to terminate this
Agreement effective on its anniversary date in any year by giving you at least
sixty (60) days' prior written notice. You shall have the right to terminate
this Agreement at any time upon sixty (60) days' prior written notice.
Termination shall be effective by the mailing by certified mail, return receipt
requested of a letter of notice addressed by either of us to the other
specifying the date of termination. Notwithstanding the foregoing, you may
terminate this Agreement without notice upon the occurrence of any Event of
Default. On termination for any reason, all Obligations shall, unless and to
the extent that you otherwise elect, become immediately due and payable without
notice or demand. Any of the following events with respect to us or any
guarantor of any Obligations shall constitute an "Event of Default" hereunder:
default in the payment or performance of any Obligation owing to you or any of
your Affiliates when due, including without limitation the failure to pay to
you the amount of any net debit balance due from us and any unpaid interest
thereon after demand therefor has been made; we or any of them commit any
breach of or default in the performance of any other covenant or agreement
contained in this Agreement or in any other instrument or agreement with or in
favor of you or your Affiliates; any representation or warranty made by us or
any of them in this Agreement or in any other instrument or agreement with or
in favor of you or your Affiliates shall prove to be inaccurate or untrue; any
partner (if we or any of them is a partnership) shall die or otherwise withdraw
from the partnership; death (if we or any of them is a natural person) or
dissolution (if we or any of them is a corporation); we or any of them shall
commence any case, proceeding or other action under any law relating to
bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to us or any of them, or seeking to
adjudicate us or any of them a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to us or any of them or any of their
debts, or seeking appointment of a receiver, trustee, custodian or other
similar official for us or any of them or for all or any substantial part of
the assets of us or any of them, or we or any of them shall make a general
assignment for the benefit of its creditors, or there shall be commenced
against us or any of them any case, proceeding or other action of a nature
referred to in this clause; there shall be commenced against us or any of them
any case, proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or any
substantial part of the assets of us or any of them which results in the entry
of an order for any such relief, or we or any of them shall take any action in
furtherance of, or indicating its consent to, approval of, or acquiescence in,
any of the acts set forth in this clause; we or any of them shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due; entry of a judgment against us or any of them in
excess of $100,000.00; failure to pay or remit any tax when assessed or due;
making a bulk transfer or sending notice of intent to do so; granting any
security interest (other than to you) but excluding the granting any security
interest in our equipment; suspension or liquidation of the usual business of
us or any of them; failing to furnish you with any requested financial
information or failing to permit inspection of books or records by you or any
of your agents, attorneys or accountants; the occurrence of a default or event
of default under any guarantee or security agreement guaranteeing or securing
any Obligations, or the termination or purported termination of any thereof; we
or any of them (if a corporation) shall become a party to any merger or
consolidation without your prior written consent other, excluding any merger or
consolidation by and between us and our affiliates; or control of us or any of
them (if a corporation or partnership) shall change, which shall mean that in
one or a series of related transactions, (i) a sale of all or substantially all
of our assets, (ii) merger or consolidation (other than between or among
8
<PAGE>
us and our affiliates) pursuant to which we are not the surviving entity and
the holders of our capital stock prior to such transaction hold less than 50%
of the capital stock of the resulting entity, or (iii) a transfer or
disposition of a majority of our capital stock other than between or among us
and our affiliates.
B. Notwithstanding any termination hereof, this Agreement shall
nevertheless continue in full force and effect as to, and be binding upon us,
after any termination, until we have fully paid, performed and satisfied all of
the Obligations, no matter how or when arising and whether under this or any
other agreement.
17. REMEDIES: Upon the occurrence of any Event of Default, you shall have
all of the rights and remedies of a secured party under the Uniform Commercial
Code and other applicable laws with respect to all Collateral, such rights and
remedies being in addition to all of your other rights and remedies provided
for herein or in any other agreement between us, and further, you may, at any
time or times, after the occurrence of any such Event of Default, sell and
deliver any and all other Collateral held by you or for you at public or
private sale, in one or more sales or parcels, at such prices and upon such
terms as you may deem best, and for cash or on credit or for future delivery,
without your assumption of any credit risk, and at public or private sales, as
you may deem appropriate. If reasonable notice of the time and place of such
sale is required under applicable law, such requirement shall be met if any
such notice is mailed, postage prepaid, to our address shown on the cover page
hereof, or the last shown address in your records, at least five (5) days
before the time of the sale or disposition thereof. You may be the purchaser at
any sale, if it is public, free from any right of redemption, which, to the
extent permitted by law, we also hereby expressly waive. The proceeds of sale
shall be applied first to all costs and expenses of sale, including attorneys'
fees and disbursements, and then to the payment (in such order as you may
elect) of all Obligations. You will return any excess to us and we shall remain
liable to you for any deficiency. Your rights and remedies under this Agreement
will be cumulative and not exclusive of any other rights or remedies which you
may otherwise have. The provisions of this Section 17 shall survive any
termination of this Agreement.
18. APPLICABLE LAW, ARBITRATION, JURISDICTION, STATUTE OF LIMITATIONS,
WAIVER OF JURY TRIAL:
A. This Agreement is made in the State of New York and shall be
governed by and construed in accordance with the laws of said State, without
regard to conflict of laws principles.
B. WE AGREE THAT ANY, DISPUTE, CLAIM OR CONTROVERSY BETWEEN YOU AND
US, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE ("CLAIM" OR "CLAIMS")
SHALL, AT YOUR ELECTION, BE RESOLVED BY ARBITRATION IN ACCORDANCE WITH THE
PROVISIONS OF THIS SECTION 18B. Such election may be made at any time prior to
the commencement of a judicial proceeding by you, or in the event of a judicial
proceeding instituted by us at any time prior to the last day to answer and/or
respond to a summons and/or complaint made by us (or within thirty (30) days
after the rendition of an order on any motion by you based upon the statute of
limitations). The provisions of this Section 18B apply to and include all
claims arising out of or in connection with i) this Agreement or any related
agreements or instruments, ii) all past, present and future agreements
involving you or us, iii) any transaction related to this Agreement and all
past, present and future transactions involving you and us, and iv) any aspect
of the past, present or future relationship between you or us. You may elect to
require arbitration of any Claim with us without thereby being required to
arbitrate all Claims between you and us. Any such Claim shall be resolved by
binding arbitration in accordance with the Arbitration Law of the State of New
York and the Commercial Arbitration Rules of the American Arbitration
Association ("AAA"). In the event of any inconsistency between such Rules and
these arbitration provisions, these provisions shall supersede such Rules. All
statutes of limitations which would otherwise be applicable shall apply to any
arbitration proceeding under this Section 18B. In any arbitration proceeding
subject to this Section 18B, the arbitrator is specifically empowered to decide
(by documents only, or with a hearing, at the arbitrator's sole discretion)
pre-hearing motions which are substantially similar to pre-hearing motions for
summary adjudication. In any such arbitration proceeding, the arbitrator shall
not have the power or authority to award punitive damages to any party nor
shall the arbitrator have the power or
9
<PAGE>
authority to alter or modify any express provision of this Agreement or any
other agreement heretofore or hereafter entered into between us, all of which
agreements are hereby incorporated in this arbitration provision. Judgment upon
the arbitration award rendered may be entered in any court having jurisdiction.
Whenever an arbitration is required, the arbitrator(s) shall be selected in the
manner provided in this Section 18B. No provision of, nor the exercise of any
rights under this Section 18B shall limit your rights i) to foreclose against
collateral pursuant to applicable provisions of the Uniform Commercial Code or
otherwise herein pursuant to applicable law, ii) to exercise self-help remedies
including, but not limited to, set off and repossession, or iii) to request and
obtain from a court having jurisdiction before, during or after the pendency of
any arbitration, provisional or ancillary remedies and relief including, but
not limited to, injunctive or mandatory relief. The institution and maintenance
of an action or judicial proceeding for, or pursuit of, provisional or
ancillary remedies or exercise of self-help remedies shall not constitute a
waiver by you, even if you are a plaintiff, of your right to submit the Claim
to arbitration if you would otherwise have such right. Whenever an arbitration
is required under this Section 18B, the arbitrator(s) shall be selected, except
as otherwise herein provided, in accordance with the Commercial Arbitration
Rules of the AAA. A single arbitrator shall decide any Claim of $100,000.00 or
less and he or she shall be a Certified Public Accountant with at least five
years experience in such profession. Where a Claim of any party exceeds
$100,000.00, the Claim shall be decided by a majority of three arbitrators, at
least two of whom shall be Certified Public Accountants (at least one of whom
shall have not less than five years experience in such profession). The
arbitrator(s) shall have the power to award recovery of all costs and fees
(including attorney's fees, administrative fees, arbitrator(s)'s fees and, if
applicable, court costs) to the prevailing party. In the event of any Claim
governed by this Section 18B, each of the parties shall, subject to the award
of the arbitrator(s), pay an equal share of the arbitrator(s)'s fees.
C. We agree that any Claim or cause of action by us against you, or
any of your directors, officers, employees, agents, accountants or attorneys,
based on, arising from or relating in any way to this Agreement, or any
supplement or amendment hereto, or any other present or future agreement
between us, or any other transaction contemplated hereby or thereby or relating
hereto or thereto, or any other matter whatsoever shall be barred unless
asserted by us by the commencement of an action or proceeding in a court of
competent jurisdiction by the filing of a complaint within one year after the
first act, occurrence or omission upon which such Claim or cause of action, or
any part thereof, is based, and the service of a summons and complaint upon one
of your officers, within thirty (30) days thereafter. We agree that said one
year period is a reasonable and sufficient time for us to investigate and act
upon such Claim or cause of action. Said one year period shall not be waived,
tolled or extended except by specific written consent by you.
D. In performing your obligations under this Agreement, you shall be
liable to us for only your gross negligence or willful misconduct. No person or
entity shall be a third party beneficiary of any of our rights or claims under
this Agreement and in particular, but not by way of limitation, you shall not be
liable to any third party or for any act or omission by you or any third party
including, without limitation, the inability or failure of any third party to
effect a transfer in accordance with our instructions due to mechanical,
computer or electrical failures or for any other reason beyond your control.
You shall have no obligation to pursue, or assist us in pursuing, any claim we
may have against any third party. In no event, shall you be liable for special,
punitive, indirect or consequential damages, nor shall any action or inaction
on your part, constitute a waiver by you of any cause of action or defense.
E. As a material part of the consideration to you to enter into this
Agreement, we (1) agree that, at your option, all actions and proceedings based
upon, arising out of or relating in any way directly or indirectly to this
Agreement shall be litigated exclusively in the Supreme Court of the State of
New York, County of New York, (2) consent to the jurisdiction of such court and
consent to the service of process in any such action or proceeding by personal
delivery, first-class mail, or any other method permitted by law, and (3) waive
any and all rights to transfer or change the venue of any such action or
proceeding to any other court.
F. The headings of various Sections of this Agreement are for
convenience of reference only and shall not modify, define, expand or limit any
of the terms or provisions of this Agreement.
G. This Agreement and the other written documents previously or now
executed in connection
10
<PAGE>
herewith are the entire and only agreements between us with respect to the
subject matter hereof, and all oral representations, agreements and
undertakings, previously or contemporaneously made, which are not set forth
herein or therein, are superseded hereby and thereby. The provisions of this
Section 18 shall survive any termination of this Agreement.
H. YOU AND WE EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION
BASED UPON, ARISING FROM, OR IN ANY WAY RELATING TO: (I) THIS AGREEMENT, OR ANY
SUPPLEMENT OR AMENDMENT HERETO; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT
OR AGREEMENT BETWEEN YOU AND US; OR (III) ANY CONDUCT, ACTS OR OMISSIONS BY YOU
OR US OR ANY OF YOUR OR OUR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH YOU OR US; IN EACH OF THE
FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Very truly yours,
JENNA LANE POLO ASSOCIATION, LTD.
By: /S/ Mitchell Dobies
Title: Co-Chairman
ATTEST:
[SEAL]
ACCEPTED AT NEW YORK, NEW YORK
ON JULY 14, 1998
REPUBLIC BUSINESS CREDIT CORPORATION
By: /S/ Jeffrey Kremberg
Title: Vice President
11
<PAGE>
SECRETARY'S CERTIFICATE
RESOLVED, that the President, Vice President, Treasurer or other officer or
any agent of this Corporation, or any one or more of them, be and they hereby
are authorized and empowered, acting singly, to enter into and execute on
behalf of this Corporation an agreement with Republic Business Credit
Corporation (hereinafter called "Factor") relating to the sale, granting of a
security interest, pledge, assignment, negotiation and guarantee to said Factor
of accounts, instruments, documents, contract rights, notes, bills, general
intangibles, chattel paper, acceptances and all other forms of obligations,
collectively referred to as "Receivables", and/or relating to the consignment,
pledge, mortgage or other hypothecation of any merchandise or other property,
now or hereafter belonging to or acquired by this Corporation, to or with said
Factor and the borrowing of moneys and obtaining of credit from time to time
from said Factor, and from time to time to modify or supplement said agreement
and to make and modify, or supplement arrangements with said Factor, as to the
terms or conditions on which such Receivables are to be pledged, assigned,
negotiated or guaranteed to said Factor, and as to the terms or conditions on
which merchandise or other property, now or hereafter belonging to or acquired
by this Corporation, may be consigned, pledged, mortgaged or otherwise
hypothecated to or with said Factor, and as to the terms and conditions on
which such sums may be borrowed and credit obtained, and they and each of them
and any person or persons hereafter and from time to time designated by any of
them to act for this Corporation are hereby further authorized and empowered
from time to time to assign, transfer, deliver, endorse, negotiate or otherwise
transfer and/or guarantee to said Factor and its assigns any and all
Receivables now or hereafter belonging to or acquired by this Corporation and
for said purposes to execute and deliver any and all assignments, schedules,
transfers, endorsements, contracts, guarantees, agreements or other instruments
in respect thereof and to make remittances and payments in respect thereof by
checks, drafts or otherwise, and they are further authorized and empowered from
time to time to consign, designate, pledge, mortgage or otherwise hypothecate
to or with said Factor merchandise or other property now or hereafter belonging
to or acquired by this Corporation and to borrow money or obtain credit from
said Factor and for said purposes to execute and deliver any and all
consignments, security agreements, financing statements, designations,
schedules, mortgages, agreements, instruments of pledge, notes and/or other
instruments in respect thereof, and to do and perform all such other acts and
things deemed by such officer or agent necessary, convenient or proper to carry
out, modify or supplement any such agreement and arrangements made with said
Factor, hereby ratifying, approving and confirming all that any of said
officers or agents have done or may do in the premises.
I, Kathleen Dresssel, do hereby certify that I am the Secretary of JENNA LANE
POLO ASSOCIATION, LTD., a corporation organized and existing under and by virtue
of the laws of the State of Delaware, having its principal place of business at
2559 B Route 130 South, Cranbury, New Jersey 08512, that I am the keeper of the
corporate records and the seal of said Corporation; that the foregoing is a true
and correct copy of a resolution duly adopted and ratified at a special meeting
of the Board of Directors of said Corporation duly convened and held in
accordance with its by-laws and the laws of said State at the principal place of
business of said Corporation set forth above, on the 14 day of July, 1998, as
taken and transcribed by me from the minutes of said meeting and compared by me
with the original of said resolutions recorded in said minutes, and that the
same has not in any way been modified, repealed or rescinded but is in full
force and effect; and that the within and foregoing agreement referred to in
said resolution was duly executed pursuant thereto.
I do further certify that the following are the names and specimen
signatures of the officers and agents of said Corporation, so empowered and
authorized, namely:
Chairman Mitchell Dobies /S/ Mitchell Dobies
(Signature)
Chairman Charles Sobel /S/ Charles Sobel
(Signature)
Secretary: Kathleen Dressel /S/ Kathleen Dressel
(Signature)
Witness my hand and seal of said Corporation this 14 day of July, 1998
(Affix corporate seal here)
/s/ Kathleen Dressel
(Secretary of said Corporation)
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements of Jenna Lane, Inc. and subsidiaries included in the
Company's Form 10-Q for the period ended June 30, 1998, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-END> JUN-30-1998
<CASH> 63516
<SECURITIES> 0
<RECEIVABLES> 5280427
<ALLOWANCES> 0
<INVENTORY> 6638340
<CURRENT-ASSETS> 12578242
<PP&E> 718612
<DEPRECIATION> 188632
<TOTAL-ASSETS> 14014561
<CURRENT-LIABILITIES> 5542355
<BONDS> 0
0
0
<COMMON> 44147
<OTHER-SE> 8394072
<TOTAL-LIABILITY-AND-EQUITY> 14014561
<SALES> 13826800
<TOTAL-REVENUES> 13826800
<CGS> 11098673
<TOTAL-COSTS> 13195991
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 630809
<INCOME-TAX> 262000
<INCOME-CONTINUING> 368809
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 368809
<EPS-PRIMARY> .08
<EPS-DILUTED> .08
</TABLE>
